Exhibit 10.8
AGREEMENT FOR DISTRIBUTION
OF ACCUMULATED ADJUSTMENTS ACCOUNT
AND TAX INDEMNIFICATION
This AGREEMENT FOR DISTRIBUTION OF ACCUMULATED ADJUSTMENTS ACCOUNT AND
TAX INDEMNIFICATION ("Agreement") is entered into and effective the 6th day
of October, 1997, between TRACK 'N TRAIL, a California corporation (the
"Company"), XXXXX X. XXXXXXXXX, XX. and XXXXXX XXXXXXXXX, as trustees of the
Xxxxxxxxx Family Trust, XXXXXXX XXXXXXXXX and XXXXXXX X. XXXXXXXXX (the
"Stockholders") and XXXXX X. XXXXXXXXX, XX. and XXXXXXX X. XXXXXXXXX, as
administrators of the Estate of Xxxxx X. Xxxxxxxxx, aka Xxxxx X. Xxxxxxxxx,
Xx. (the "Estate").
WHEREAS, the Company and the Stockholders expect to implement on a tax-free
basis a Delaware holding company structure by contribution, reorganization,
reincorporation or otherwise (the "Reorganization");
WHEREAS, it is contemplated that the Delaware holding company will
undertake a public offering of its stock following the Reorganization in order
to raise additional equity capital (the "Public Offering");
WHEREAS, the Company, the Stockholders and the Estate have entered into
this Agreement in connection with the Reorganization and the Public Offering;
WHEREAS, the Company will be classified as an S corporation for United
States federal income tax purposes until immediately prior to the
Reorganization, after which (in the absence of certain elections) it will be
classified as a C corporation;
WHEREAS, the Stockholders are stockholders of the Company and the Estate
was previously a stockholder of the Company;
WHEREAS, the Company wishes to declare a distribution to the Stockholders
of an amount approximately equal to it its accumulated adjustments account,
within the meaning of section 1368(e) of the Internal Revenue Code of 1986 (the
"Code"), prior to the termination of its status as an S corporation; and
WHEREAS, the Company, the Stockholders and the Estate wish to provide for
tax indemnification arrangements in connection with the Company's termination as
an S corporation.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DISTRIBUTION OF ACCUMULATED ADJUSTMENTS ACCOUNT
SECTION 1.1. Subject to compliance with applicable law, the Company
hereby agrees to distribute to the Stockholders $6,400,000, representing the
amount of the Company's accumulated adjustments account, within the meaning
of section 1368(e) of the Code, as of October 6, 1997. The distribution
shall be made in cash to the Company's shareholders of record immediately
prior to the Reorganization and shall be payable immediately upon receipt by
the Company of a cash contribution equal to the foregoing amount following
consummation of the Public Offering.
ARTICLE II
TERMINATION OF S CORPORATION STATUS
SECTION 2.1. The Company's status as an S corporation under section 1362
of the Code will be terminated as of the earlier of (i)the date of consummation
of the Reorganization (in the absence of certain elections the effect of which
will be to preserve such status) or (ii) the date of the closing of the Public
Offering (such date being referred to hereinafter as the "Federal Termination
Date"). The Company's status as an S corporation under pertinent state tax laws
will also be terminated no later than the Federal Termination Date. For
purposes of this Agreement, the term "Termination Date" when used with respect
to the federal income tax laws of the United States shall mean the Federal
Termination Date, and when used with respect to the tax laws of a particular
state shall mean the date the Company's status as an S corporation terminates
under the tax laws of such state. The Company shall use the
"closing-of-the-books" allocation method prescribed in section 1362(e)(3) of the
Code in order to allocate its taxable income between the short S corporation
taxable year ending the day prior to the Termination Date and the C corporation
short taxable year commencing on the Termination Date; PROVIDED that if the
Company's S corporation status has not terminated prior to the date of the
Public Offering, it shall use the PRO RATA allocation method prescribed in
section 1362(e)(2) of the Code.
ARTICLE III
TAXES
SECTION 3.1. FILING OF TAX RETURNS. The Company covenants and agrees that
(a) the Company shall be responsible for and shall effect the filing of all
federal, state, foreign and local tax returns for the Company with respect to
any and all taxable periods; and (b) the Company shall pay any and all taxes
required to be paid by the Company for all periods covered by the returns as
required by applicable law, subject to reimbursement by the Stockholders and the
Estate to the extent prescribed herein.
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SECTION 3.2. COMPANY'S INDEMNIFICATION OF THE STOCKHOLDERS AND THE ESTATE
FOR ADDITIONAL PRE-TERMINATION TAXES. The Company hereby indemnifies and agrees
to hold the Stockholders and the Estate harmless from, against and in respect of
any federal and state income tax liability (including penalties, interest and
any taxes resulting from the payments under this section) incurred by the
Stockholders or the Estate as a result of a final determination of an adjustment
(by reason of an amended return, claim for refund, audit or otherwise) to the
Company's tax returns which increases the tax liability of the Stockholders or
the Estate for taxable periods ending prior to the Termination Date (including
the short taxable period ending the day before the Termination Date).
SECTION 3.3. STOCKHOLDERS' AND ESTATE'S INDEMNIFICATION OF THE COMPANY.
The Stockholders and the Estate hereby indemnify and agree to hold the Company
harmless from, against and in respect of any federal and state income tax
liability (including penalties, interest and any taxes resulting from the
payments under this sentence) incurred by the Company as a result of a final
determination that the Company was not an S corporation for federal or state
income tax purposes for any taxable period ending prior to the Termination Date
(including the short taxable period ending the day before the Termination Date);
PROVIDED that in no event shall the aggregate liability of any Stockholder or
the Estate under this sentence exceed any refund of taxes and interest received
by such party as a result of such final determination, any ensuing claim for
refund or both. The Stockholders and the Estate further hereby indemnify and
agree to hold the Company harmless from, against and in respect of any federal
and state income tax liability (including penalties, interest and any taxes
resulting from the payments under this sentence) incurred by the Company as a
result of a final determination of an adjustment (by reason of an amended
return, claim for refund, audit or otherwise) to the Company's, the
Stockholders' or the Estate's tax returns which decreases the Stockholders' or
the Estate's tax liability for a taxable period ending prior to the Termination
Date (including the short taxable period ending the day before the Termination
Date) and correspondingly increases the tax liability of the Company (or its
consolidated subsidiaries) for a taxable period ending after the Termination
Date; PROVIDED that in no event shall the aggregate liability of any Stockholder
or the Estate under this sentence exceed any refund of taxes and interest
received by such party as a result of such final determination, ensuing claim
for refund or both.
SECTION 3.4. PAYMENTS. The Stockholders, the Estate or the Company, as
the case may be, shall make any payment required under this Agreement within
seven days after receipt of notice from the other party that a payment is due by
such party to the appropriate taxing authority, which notice shall be
accompanied by appropriate documentation demonstrating that such payment is due
or, if earlier in the case of any Stockholder or the Estate, upon receipt by a
Stockholder or the Estate of a refund of taxes any portion of which is payable
to the Company under Section 3.3.
SECTION 3.5. COOPERATION. The parties shall cooperate with each other in
connection with the contest of any additional tax liability asserted by any
taxing
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authority. The parties shall also cooperate with each other in securing a
refund of federal and state income tax for the Stockholders and the Estate as a
result of any final determinations described in Section 3.3.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute a single instrument representing the
Agreement between the parties hereto.
SECTION 4.2. CONSTRUCTION OF TERMS. Nothing herein expressed or implied
is intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
SECTION 4.3. GOVERNING LAW. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the substantive laws of the State of California without regard to the choice of
law rules of such State.
SECTION 4.4. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement executed by the parties.
SECTION 4.5. ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
SECTION 4.6. INTERPRETATION. The title, article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
SECTION 4.7. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall be held to be illegal, invalid or
unenforceable in any respect, the same shall not in any respect affect the
validity, legality or enforceability of the remainder of this Agreement, and the
parties shall use their best efforts to replace such illegal, invalid or
unenforceable provisions with an enforceable provision approximating, to the
extent possible, the original intent of the parties.
SECTION 4.8. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no representations, promises, warranties,
covenants or
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undertakings with respect to the subject matter of this Agreement, other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TRACK 'N TRAIL, A CALIFORNIA
CORPORATION
By /s/ Xxxxxxx X. Xxxxxxx
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XXXXXXX X. XXXXXXX
PRESIDENT AND CHIEF
OPERATING OFFICER
XXXXX X. XXXXXXXXX, XX. and XXXXXX
XXXXXXXXX, as trustees of the
Xxxxxxxxx Family Trust
/s/ Xxxxx X. Xxxxxxxxx. Jr.
-----------------------------------
XXXXX X. XXXXXXXXX, XX.
TRUSTEE
/s/ Xxxxxx Xxxxxxxxx
-----------------------------------
XXXXXX XXXXXXXXX
TRUSTEE
/s/ Xxxxxxx Xxxxxxxxx
----------------------------------------
XXXXXXX XXXXXXXXX
/s/ Xxxxxxx X. Xxxxxxxxx
----------------------------------------
XXXXXXX X. XXXXXXXXX
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XXXXX X. XXXXXXXXX, XX. and
XXXXXXX X. XXXXXXXXX, as
administrators of the Estate of
Xxxxx X. Xxxxxxxxx, aka Xxxxx X.
Xxxxxxxxx, Xx.
/s/ Xxxxx X. Xxxxxxxxx, Xx.
-----------------------------------
XXXXX X. XXXXXXXXX, XX.
ADMINISTRATOR
/s/ Xxxxxxx X. Xxxxxxxxx
-----------------------------------
XXXXXXX X. XXXXXXXXX
ADMINISTRATRIX
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