EXHIBIT 10.5
TAX DISTRIBUTION AGREEMENT
This Tax Distribution Agreement (the "Agreement"), dated as of February 4,
1999, is by and among Luigino's, Inc., a Minnesota corporation (the "Company"),
and all of the stockholders of the Company as listed on the signature pages
hereto (collectively, the "Stockholders"). Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Indenture (as
defined below).
RECITALS
A. The Company is a "S corporation" for federal and certain state income
tax purposes and, accordingly, the Stockholders are directly subject to tax on
their respective proportionate shares of the taxable income of the Company for
federal and certain state income tax purposes.
B. Pursuant to that certain Indenture between the Company and U.S. Bank
Trust National Association, as Trustee thereunder, dated as of February 4, 1999,
relating to the Notes, the Company is prohibited from making distributions to
its Stockholders except in certain circumstances as provided in the Indenture.
C. The Indenture provides, among other things, that the Company may make
certain distributions to its Stockholders in accordance with the provisions of
this Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. As used herein, the terms below shall have the
following meanings. Any of these terms, unless the context otherwise requires,
may be used in the singular or plural depending upon the reference.
"Estimation Period" means the period for which an Owner is required to
estimate for federal income tax purposes its allocation of taxable income from a
calendar year in connection with determining its estimated federal income tax
liability for such period.
"Owner" shall mean a stockholder of the Company if the Company is a S
corporation, or a partner, member or other such owner of the Company if the
Company is another substantially similar type of pass-through entity for income
tax purposes.
"Permitted Quarterly Tax Distributions" means quarterly distributions of
Tax Amounts determined on the basis of the estimated taxable income of the
Company, for the related Estimation Period, provided, however, that (A) prior to
any distributions of Tax Amounts, the Company shall deliver to the Trustee an
officer's certificate certifying that the Tax Amounts to be distributed were
determined in accordance with the terms hereof and stating to the effect that
the Company qualifies as an S corporation or substantially similar pass-through
entity for federal income tax purposes and (B) at the time of such
distributions, the most recent audited financial statements of the Company
reflect that the Company was treated as an S corporation or substantially
similar pass-through entity for federal income tax purposes for the period
covered by such financial statements.
"Quarterly Payment Period" means the period commencing on the fifth (5th)
day and ending on and including the fifteenth (15th) day of each month in which
federal individual estimated tax payments are due provided that payments in
respect of estimated state income taxes due in January may instead, at the
option of the Company, be paid during the last ten (10) days of the immediately
preceding December.
"Tax Amounts" with respect to any taxable period shall be equal to (A) the
product of (x) the taxable income of the Company for such period as determined
by the Tax Amounts CPA and (y) the Tax Percentage.
"Tax Amounts CPA" means any nationally recognized certified public
accounting firm.
"Tax Percentage" means, for a particular taxable year, the highest
effective marginal combined rate of federal and state income tax applicable to
any Owner. The rate of "state income tax" to be taken into account for purposes
of determining the Tax Percentage for a particular taxable year shall be deemed
to be the highest state marginal tax rate applicable to any Owner.
"True-up Amount" means, in respect of a particular taxable year, an amount
determined by the Tax Amounts CPA equal to the difference between (i) the
aggregate Permitted Quarterly Tax Distributions actually distributed in respect
of such taxable year and (ii) the Tax Amounts for such year. For purposes of
this Agreement, the amount equal to the excess, if any, of the amount described
in clause (i) over the amount described in clause (ii) above shall be referred
to as the "True-up Amount due to the Company" and the excess, if any, of the
amount described in clause (ii) over the amount described in clause (i) above
shall be referred to as the "True-up Amount due to the Owners."
ARTICLE II
PERMITTED TAX DISTRIBUTIONS
2.1. Permitted Quarterly Tax Distribution. For so long as the Company is an
S corporation or a substantially similar pass-through entity for federal income
tax purposes, the Company may make cash distributions to its Owners, during each
Quarterly Payment Period, in an aggregate amount not to exceed the Permitted
Quarterly Tax Distribution in respect of the
2
related Estimation Period. If any portion of a Permitted Quarterly Tax
Distribution is not distributed during such Quarterly Payment Period, the
Permitted Quarterly Tax Distribution payable during the immediately following
Quarterly Payment Period shall be increased by such undistributed portion.
2.2. True-up Amount. Within thirty (30) days following the Company's filing
of an Internal Revenue Service Form 1120S (or other similar Company tax return)
for the immediately preceding taxable year, the Tax Amounts CPA shall file with
the Trustee a written statement indicating in reasonable detail the calculation
of the True-up Amount. In the case of a True-up Amount due to the Owners, the
Permitted Quarterly Tax Distribution payable during the immediately following
Quarterly Payment Period shall be increased by such True-up Amount. In the case
of a True-up Amount due to the Company, the Permitted Quarterly Tax Distribution
payable during the immediately following Quarterly Payment Period shall be
reduced by such True-up Amount and the excess, if any, of the True-up Amount
over such Permitted Quarterly Tax Distribution shall be applied to reduce the
immediately following Permitted Quarterly Tax Distributions until such True-up
Amount is entirely offset. If the amount of the Company's taxable income used to
calculate a True-Up Amount for a tax year is subsequently modified (pursuant to
an adjustment by a taxing authority or otherwise), the Tax Amounts CPA shall
promptly file with the Trustee a written statement indicating in reasonable
detail the calculation of the adjustment to the True Amount (the "Adjustment"),
and such Adjustment shall be given effect when calculating subsequent Permitted
Quarterly Tax Distributions in accordance with the terms of the preceding
sentence.
ARTICLE III
MISCELLANEOUS
3.1. 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 one instrument representing the Agreement among
the parties hereto.
3.2. 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.
3.3. 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 Florida.
3.4. 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, nor is
this Agreement intended to confer upon any other person except the parties any
rights or remedies hereunder.
3
3.5. 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.
3.6. 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.
3.7. 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 undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and the
understandings between the parties with respect to such subject matter.
3.8. Notice. Any communication to be delivered hereunder shall be delivered
to the Company at its principal office, with a copy to each Stockholder at its
address set forth beneath its signature hereinbelow; provided, that a
Stockholder may change its address by written notice to the Company.
3.9. Gender. Whenever any pronoun is used in this Agreement, it shall be
construed to include the masculine pronoun, the feminine pronoun or the neuter
pronoun as shall be appropriate.
[Signature pages follow]
4
THE COMPANY: LUIGINO'S, INC.
By: /s/ Xxxx X. Xxxxxxxx
---------------------------------
Xxxx X. Xxxxxxxx
---------------------------------
Its: Chief Executive Officer
---------------------------------
STOCKHOLDERS: /s/ Xxxx X. Xxxxxxxx
------------------------------------
Xxxx X. Xxxxxxxx, individually
/s/ Xxxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxxx X. Xxxxxxxx, individually
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx, Xx.
------------------------------------
Xxxxxxx X. Xxxxxx, Xx.
As trustees of the Xxxxxxx X. Xxxxxxxx
Trust under Paragraph 4.01 of the
Irrevocable Trust Agreement of Xxxx X.
Xxxxxxxx dated August 31, 1996 (Xxxx X.
Xxxxxxxx 1996 Two-Year Annuity Trust),
and not personally
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx, Xx.
------------------------------------
Xxxxxxx X. Xxxxxx, Xx.
X-0
As trustees of the Xxxxxxx X. Xxxxxx
Trust under Paragraph 4.01 of the
Irrevocable Trust Agreement of Xxxx X.
Xxxxxxxx dated August 31, 1996 (Xxxx X.
Xxxxxxxx 1996 Two-Year Annuity Trust),
and not personally
/s/ Xxxxx X. Xxxxxxx
------------------------------------
Xxxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxxxx, Xx.
------------------------------------
Xxxxxxx X. Xxxxxx, Xx.
As trustees of the Xxxxxxx X. Xxxxxxxx
1996 Twelve-Year Annuity Trust under
Irrevocable Trust Agreement dated
August 31, 1996
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx, Xx.
------------------------------------
Xxxxxxx X. Xxxxxx, Xx.
As trustees of the Xxxxxxx X. Xxxxxx
1996 Ten-Year Annuity Trust under
Irrevocable Trust Agreement dated
August 30,
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx, Xx.
------------------------------------
Xxxxxxx X. Xxxxxx, Xx.
As trustees of the Xxxxxxx X. Xxxxxx
1996 Twelve-Year Annuity Trust under
Irrevocable Trust Agreement dated
August 30, 1996
S-2
