1
Exhibit 10.10
TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT (this "Agreement"), made
and entered into between STONERIDGE, INC., an Ohio corporation (the "Company"),
and each of the other signatories hereto (collectively, the "Shareholders") (the
Company and the Shareholders are hereinafter referred to individually as a
"party" and collectively as the "parties"),
W I T N E S S E T H :
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WHEREAS, the Company intends to sell its Common Shares,
without par value, ("Common Shares") in an initial public offering (the
"Offering") pursuant to the Company's Registration Statement on Form S-1
(Registration No. 333-33285) first filed with the Securities and Exchange
Commission on August 8, 1997;
WHEREAS, the Company's election to be taxed as an S
Corporation pursuant to Section 1362 of the Internal Revenue Code of 1986, as
amended (the "Code") will be terminated effective prior to the closing of the
Offering (the "Termination Date"), and the Company thereafter will be taxed as a
C corporation for the tax period ending thereafter as defined in Section
1361(a)(2) of the Code; and
WHEREAS, in connection with the Offering, the Company and the
Shareholders wish to provide for indemnification with respect to income taxes
attributable to the Company which may be payable for periods both prior to and
after the Termination Date;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
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1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings.
"C Corporation Year" means any taxable period beginning on or after the
Termination Date during which the Company is, was or will be taxed as a C
corporation.
"Final S Year" means the Company's tax year ending on the Termination
Date.
"S Corporation Period" means the period commencing with the effective
date of the Company's election to be treated as an S corporation and ending on
the Termination Date.
"Subchapter S Item" means all items of income, loss, deduction, tax
preference, foreign taxes, or other items of the Company from all sources during
its S Corporation Period, within the meaning of Section 6245 of the Code,
specifically excluding the following: (i) items necessary to determine the
eligibility of the S corporation shareholders; (ii) items arising out of
invalidity of the S Corporation election; and (iii) items arising out of the
existence of any revocation or termination of the S corporation election.
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ARTICLE II
ELECTION TO TERMINATE; S TERMINATION YEAR
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2.1 TERMINATION OF S STATUS. The parties intend that the status of the
Company as an S corporation shall be terminated as of the Termination Date.
ARTICLE III
TAXES
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3.1 LIABILITY FOR TAXES INCURRED DURING S CORPORATION YEARS INCLUDING
FINAL S YEAR. Each Shareholder, severally and not jointly, covenants and agrees
to pay any and all taxes attributable to his allocable share of Subchapter S
Items.
3.2 LIABILITY FOR TAXES INCURRED DURING C CORPORATION YEARS OR WHICH
THE COMPANY WAS SUBJECTED TO. The Company covenants and agrees that the Company
shall pay any and all taxes attributable to or measured by taxable income of the
Company for all taxable periods (i) prior to the effective date of its election
of S corporation status of the Company and (ii) after the Termination Date. In
addition, the Company covenants and agrees to pay all taxes which the Company
was subjected to during the S Corporation Period.
3.3 COMPANY'S INDEMNIFICATION FOR TAX LIABILITIES. The Company hereby
agrees to indemnify, defend and hold harmless each Shareholder from and against
any and all taxes, losses, liabilities, obligations, damages, impositions,
assessments, fines, deficiencies, costs and expenses, including without
limitation reasonable attorneys' and accountants' fees and expenses, with
respect to all federal and state income taxes, including interest, penalties and
additions to taxes imposed upon such Shareholder, net of any tax benefits
realized, as a result of any final determination of Subchapter S Items (by
reason of an amended return, claim for refund, audit, litigation or otherwise)
resulting in (i) any increase in items of income or gain of any Shareholder or
(ii) any decrease in items of loss, deduction or credit of any Shareholder.
3.4 SHAREHOLDERS' INDEMNIFICATION FOR TAX LIABILITIES. Each Shareholder
(the "Indemnifying Shareholder"), severally (and jointly, but only to the extent
of the group of Shareholders consisting of the Indemnifying Shareholder and any
other Shareholder which is a trust that owns outstanding common shares of the
Company for the benefit of the Indemnifying Shareholder) (according to the
percentage of the outstanding Common Shares of the Company owned directly or
beneficially by such Shareholder on the date to which the calculation in
question applies), hereby agrees to indemnify, defend and hold harmless the
Company from and against all liability with respect to all federal and state
income taxes of any kind whatsoever, including interest and additions to taxes
net of any tax benefits realized (but exclusive of attorneys' and accountants'
fees and penalties) resulting from any final determination of Subchapter S Items
(by reason of an amended return, claim for refund, audit, litigation or
otherwise) resulting in (i) a decrease in items of income or gain of any
Shareholder or (ii) any increase in items of loss, deduction or credit or any
Shareholder, but only to the extent that the
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amount of the tax liability associated with such adjustment for each such
Shareholder does not exceed the cash distribution made by the Company to each of
the Shareholders with respect to and for payment of the tax liability of each
such Shareholder for Subchapter S Items for the S Corporation Period for which
such adjustment is made.
3.5 PAYMENTS. The Shareholders or the Company, as the case may be,
shall make any payment required under this Article III within fifteen (15) days
after receipt of notice from the other party that a payment is due by such party
to the appropriate taxing authority.
3.6 SUBROGATION. The party (or parties) providing the indemnity under
either Section 3.3 or Section 3.4 (defined solely for purposes of this Section
3.6 as the "Indemnifying Party") shall be subrogated to all rights of recovery
(the "Subrogation Claims") that the party (or parties) being indemnified under
Section 3.3 or Section 3.4, respectively (defined solely for purposes of this
Section 3.6 as the "Indemnified Party"), may have against any person or
organization in respect of the tax liabilities for which the Indemnifying Party
is providing indemnity. Such right of subrogation shall not exceed the amount
paid by the Indemnifying Party to the Indemnified Party. The Indemnified Party
shall execute and deliver instruments and papers and do whatever else is
reasonably necessary to secure such rights of subrogation for the Indemnifying
Party. The Indemnified Party shall provide all reasonable assistance as is
required by the Indemnifying Party to pursue the Subrogation Claims. The
Indemnified Party shall do nothing after any Subrogation Claim arises to
prejudice the rights of the Indemnifying Party.
3.7 NOTICES OF AUDITS AND ADJUSTMENTS.
(a) If any Shareholder receives notice from a taxing authority
of an intention to audit any return of the Shareholder that includes any
Subchapter S Item, such Shareholder shall inform the Company, in writing, of the
audit promptly after receipt of such notice. If any Shareholder receives notice
from a taxing authority of any proposed adjustment for which the Company may be
required to indemnify the Shareholder hereunder (a "Proposed Adjustment"), the
Shareholder shall give notice to the Company of the Proposed Adjustment promptly
after receipt of such notice from a taxing authority. Upon receipt of such
notice from a Shareholder, the Company may, by in turn giving prompt written
notice to each of the Shareholders, request that the Shareholders contest such
Proposed Adjustment. If the Company shall request that any Proposed Adjustment
be contested, then the Shareholders shall, at the Company's expense, contest the
Proposed Adjustment (including pursuing all administrative and judicial appeals
and processes). The Company shall pay to the Shareholders on demand, all costs
and expenses (including attorneys' and accountants' fees) that the Shareholders
may incur in contesting such Proposed Adjustments. No Shareholders shall make,
accept or enter into a settlement or other compromise with respect to any taxes
indemnified hereunder, or forgo or terminate any proceeding undertaken hereunder
without the consent of the Company, which consent shall not be unreasonably
withheld.
(b) If the Company or any Subsidiary receives notice from a
taxing authority of an intention to audit any return of the Company or any
Subsidiary that includes Subchapter S Items, the Company shall inform the
Shareholders, in writing, of the audit promptly after
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receipt of such notice. If the Company receives notice from a taxing authority
of any proposed adjustment for which any of the Shareholders may be required to
indemnify the Company hereunder (a "Company Proposed Adjustment"), the Company
shall give notice to each of the Shareholders of the Company Proposed Adjustment
promptly after receipt of such notice from a taxing authority. The Company shall
not make, accept or enter into a settlement or other compromise with respect to
any taxes indemnified hereunder, or forgo or terminate any proceeding undertaken
hereunder without the consent of the Shareholders, which consent shall not be
unreasonably withheld.
ARTICLE IV
MISCELLANEOUS
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4.1 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
shall together constitute one and the same instrument.
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 to their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
4.3 COST OF ENFORCEMENT; INTEREST. If, within ten (10) days after
demand to comply with the obligations of one of the parties to this Agreement
served in writing on the other, compliance or reasonable assurance of compliance
is not forthcoming, and the other party engages the services of an attorney to
enforce rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses (including reasonable fees
of attorneys and legal assistants, whenever incurred, whether before trial or
appellate proceeding, at trial, on appeal or otherwise).
4.4 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Ohio, other than those
provisions relating to the conflict of laws of different jurisdictions if the
effect of the application of such provisions would be to cause the laws of a
jurisdiction other than Ohio to apply hereto.
4.5 JURISDICTION; VENUE. The parties agree that jurisdiction and venue
for any litigation arising out of this Agreement or any document delivered in
connection herewith shall be in a court with subject matter jurisdiction located
in Trumbull County, Ohio, and all parties hereby irrevocably consent and submit
to the personal jurisdiction of all such courts.
4.6 NOTICES. All notices and other communications required or permitted
to be given hereunder shall be in writing and shall be deemed to have been duly
given when received, if personally delivered; when transmitted, if transmitted
by electronic fax, telecopy or similar electronic transmission method; the day
after it is sent, if mailed, first-class mail, postage prepaid. In each case,
notice shall be sent to the Shareholders at the address last listed in the
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Company's stockholder records and to the Company at its principal executive
office, or to such other address as any party shall have specified by notice in
writing to the other parties.
4.7 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified
or supplemented only by a written agreement executed by all of the parties
hereto.
4.8 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 heirs, 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.
4.9 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.
4.10 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.
4.11 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
undertakings 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, this Agreement has been duly executed as of
____________ __, 1997.
STONERIDGE, INC.
By:
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Xxxxx X. Abbrzzo
President
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SHAREHOLDERS:
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Xxxxx X. Xxxxxx, Trustee X.X. Xxxxxx, Executor of the
U/A/D 12/13/78 Estate of Xxxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx, Trustee Xxxxxxx X. Xxxxxx, Trustee
U/A/D 11/27/89 U/A/D 12/23/96 f/b/o Xxxxxxxxx Xxxxxx
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Xxxxxxx X. Xxxxxx, Trustee Xxxxxxx X. Xxxxxx, Trustee
U/A/D 12/23/96 f/b/o Xxxxxxxx U/A/D 12/23/96 f/b/o Xxxxxxxxx Xxxxxx
Xxxxxx
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Xxxxxxx X. Xxxxxx, Trustee Xxxxxxx X. Xxxxxx, Trustee
U/A/D 12/23/96 f/b/o Alexandra U/A/D 12/28/90
Xxxxxx
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Xxxxx X. Xxxxxx, Trustee Xxxxx X. Xxxxxx, Trustee
U/A/D 12/23/96 f/b/o Xxxxx U/A/D 12/23/96 f/b/o Xxxxxx
Xxxxxxxxx Xxxxxx Xxxxxxxxx Xxxxxx
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Xxxxx X. Xxxxxx, Trustee Xxxxxxx X. Xxxxxx
U/A/D 12/23/96 f/b/o Xxxx
Xxxxxx Xxxxxx
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Xxxxx X. Xxxxxx, Trustee Xxxxx X. Xxxxx, Custodian
U/A/D 3/28/97 f/b/x Xxxxx under the Ohio Transfers to
Xxxxx Gang Minors Act f/b/o Xxxxxxx X. Xxxxxx
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Xxxxx X. Xxxxx, Custodian
under the Ohio Transfers to ------------------------------
Minors Act f/b/o Xxxx Xxxx Xxxxx X. Xxxxx and Xxxxxxx X.
Xxxxxx Xxxxxxx, Trustees U/A/D 7/5/89
f/b/o Xxxxx X. Xxxxxx
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------------------------------ ------------------------------
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Xxxxx X. Xxxxx and Xxxxxxx X. Xxxxx X. Xxxxx and Xxxxxxx X.
Xxxxxxx, Trustees U/A/D 7/5/89 Xxxxxxx, Trustees U/A/D 7/5/89
f/b/o Xxxxxxx X. Xxxxxx f/b/o Xxxxxxx X. Xxxxxx
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Xxxxx Xxxxxxx, Trustee U/A/D Xxxxx Xxxxxxx, Trustee U/A/D
4/10/95 f/b/o William Max 4/10/95 f/b/o Xxxx Xxxx Xxxxxx
Xxxxxx
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Xxxxx Xxxxxxx, Trustee U/A/D Xxxxx Xxxxxxx, Trustee U/A/D
4/10/95 f/b/o Xxxxx X. Xxxxxx 4/10/95 f/b/o Xxxxxxx X. Xxxxxx
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Xxxxx Xxxxxxx, Trustee U/A/D
4/10/95 f/b/o Xxxxxxx X. Xxxxxx ------------------------------
Xxxxx X. and Xxxxx X. Xxxxxxx,
Trustees U/A/D 6/12/95
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Xxxxxx Xxxxxxx, Trustee U/A/D Xxxxxx Xxxxxxx, Trustee U/A/D
12/26/96 f/b/o Xxxxxxxx Xxxxxxx 12/26/96 f/b/o Xxxxx Xxxxxxx
------------------------------ ------------------------------
Xxxxxx Xxxxxxx, Trustee U/A/D X. Xxxxxx
12/26/96 f/b/o Xxxx Xxxxxxx
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Xxxxx X. Xxxxxx, Trustee U/A/D Xxxxx X. Xxxxxx, Trustee U/A/D
12/31/96 f/b/o Xxxxx Xxx 12/31/96 f/b/o Xxxxx X. Xxxxxx
Xxxxxxxxx
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Xxxxxx X. Xxxxx Xxxxx X. Xxxx
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Xxxxxxx X. Xxxxx Xxxxx Xxxxxx
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Xxxxx Xxxxx Xxxxxxx Xxxxx
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Xxxxxx Xxxxxx Xxxxxxx Xxxxxx
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Xxxxx Xxxxx Chi Day
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Xxxxxxx Xxxxxxx Xxxxxxx Xxxxxxx
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Xxxxx Xxxxxx Xxxxxx Xxxxxxxx
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Xxxxxxx Xxxxxxxxxx Xxxxxxx Xxxx
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Xxxx Xxxxxxx Xxxx Xxxxx
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