TAX SHARING AND MANAGEMENT CONSULTING AGREEMENT
THIS TAX SHARING AND MANAGEMENT CONSULTING AGREEMENT is made and entered as
of July 2, 1997 (this "Agreement") by and between Xxxxxx May Holdings, Inc., a
Delaware corporation ("Holdings"), and Xxxxxxxxx Xxxxx Corporation, an Illinois
corporation (the "Company").
WITNESSETH
WHEREAS, Holdings owns all of the issued and outstanding capital stock of
the Company and may, therefore, include the income and expense of the Company
and each of its subsidiaries, if any, in Holdings' consolidated federal income
tax returns; and
WHEREAS, the parties hereto desire to consolidate such returns upon the
terms and conditions herein set forth; and
WHEREAS, the Company desires to have Holdings and its affiliates provide
management consulting and financial advisory services on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto hereby agree as follows:
1. TAX SHARING AGREEMENT.
(a) FILING AND PREPARATION OF FUTURE RETURNS. Company, on behalf of
itself and each existing and future subsidiary thereof (the Company and each
existing and future subsidiary thereof are sometimes collectively referred to as
the "Subsidiaries" or individually as a "Subsidiary"), consents to joining with
Holdings (Holdings and each of its consolidated subsidiaries being herein
referred to as the "Group") in the filing of the consolidated federal income tax
returns for any taxable year for which a consolidated return can be filed and
each taxable year thereafter, in accordance with
applicable income tax laws and regulations. Holdings agrees that it will
prepare and file in a timely manner all federal income tax returns required
to be filed on behalf of the Group.
(b) ESTIMATED TAX PAYMENTS; TAX BENEFIT REIMBURSEMENTS.
(i) Promptly following a request by Holdings, each Subsidiary
shall pay to Holdings an amount equal to such Subsidiary's separate return
tax liability as defined in Treasury Regulations Section 1.1552-1(a)(2)(ii)
(the "Separate Return Tax Liability") multiplied by a fraction the numerator
of which equals one and the denominator of which equals the total number of
estimated tax payments that would be made by such Subsidiary for such taxable
year if it were filing a separate tax return for such year. If the estimated
tax payment of the Group is based upon the prior taxable year's consolidated
tax liability, such Subsidiary's payment under this Section 1(b)(i) shall be
determined by using its Separate Return Tax Liability for such prior year,
and if such estimated tax payment is based upon the current year's tax
liability, such Subsidiary's payment under this Section 1(b)(i) shall be
determined by using its estimated Separate Return Tax Liability for such
current year.
(ii) In the event that the sum of any estimated payments made by
any Subsidiary in a taxable year under Section 1(b)(i) exceeds such Subsidiary's
final Separate Return Tax Liability for such taxable year, Holdings shall
promptly pay to such Subsidiary the amount of such excess. In the event that
the final Separate Return Tax Liability of such Subsidiary for a taxable year
exceeds the sum of any payments based on estimated amounts made by such
Subsidiary under Section 1(b)(i) for such taxable year, such Subsidiary shall
pay such excess to Holdings promptly following Holdings' request therefor.
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(iii) The aggregate of any loss carryovers or credit
carryovers of the Group as of August 30, 1997, shall not be available in any
carryover year for purposes of calculating the Separate Return Tax Liability of
a member.
(iv) The losses of each of the Subsidiaries generated after
August 30, 1997 that do not reduce the taxable income of the Group shall be
carried forward for utilization by the Group and shall be available for
calculating the Separate Return Tax Liability of any Subsidiary. Holdings shall
determine the order in which losses incurred by each of the Subsidiaries shall
be utilized by the Group, in a manner not inconsistent with calculating Separate
Return Tax Liability.
(v) Any payments or reimbursements hereunder shall be computed
by Holdings.
(c) ADJUSTMENTS TO LIABILITY. Holdings and each Subsidiary agree
that in the event there should be any factual circumstance, or any application,
either retroactively or prospectively, of any federal income tax laws or
revision of the federal income tax laws, which results in a redetermination of
the Separate Return Tax Liability of any Subsidiary, the payment under Section
1(b) shall be adjusted to account for such redeterminations. It is intended
that the adjustment referred to in this Section shall relate to those items
which are given recognition in the Group's consolidated tax returns or are
approved or adjusted by the Internal Revenue Service in its audit of said
returns, and which therefore have been recognized or given effect by the
computation of the consolidated income tax of the Group and the income tax
computed on the separate return basis of each Subsidiary.
(d) OTHER TAXES. Each Subsidiary shall pay to Holdings any foreign,
federal, state or local taxes or governmental charges incurred by Holdings or
(to the extent required by law to be
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paid by Holdings) by such Subsidiary relating to the business, operations or
finances of such Subsidiary (except for any taxes or charges otherwise
addressed in this Section 1). For purposes of this Agreement, the term
"taxes" shall include, but is not limited to, all net income, capital gains,
gross income, gross receipts, sales, use, transfer, franchise, profits,
license, capital, payroll, excise, value added or other taxes and any related
interest or governmental charge.
(e) ADDITIONAL SUBSIDIARIES. If at any time after the date upon
which this Agreement is executed, any party to this Agreement acquires or
creates one or more subsidiary corporations that are includible corporations of
the Group, either Holdings or a Subsidiary shall cause such subsidiary
corporation to be subject to this Agreement and all references to either Group
or a Subsidiary herein shall thereafter be interpreted to refer to Holdings, the
Subsidiaries and such subsidiary or subsidiaries, or to a Subsidiary and such
subsidiary or subsidiaries, respectfully. The parties hereto agree that this
Agreement shall govern only the allocation of income taxes among Holdings and
each Subsidiary for each taxable year, or portions thereof, in which each
respective Subsidiary is included in a consolidated income tax return filed by
Holdings and that no party to this Agreement shall have any rights or
obligations under this Agreement to any other party to this Agreement subsequent
to such party's disaffiliation from the Group, as defined in the Code.
2. MANAGEMENT CONSULTING AND INVESTMENT BANKING SERVICES.
(a) AFFILIATES OF HOLDINGS. Any services to be performed by Holdings
pursuant to this Section 2 may be performed by affiliates of Holdings and
appropriate personnel of such affiliates or by independent third party
contractors, in each case as may be designated from time to time by Holdings.
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(b) MANAGEMENT CONSULTING SERVICES. The Company hereby retains
Holdings to render management consulting services from time to time for the
Company regarding the Company and its subsidiaries, their financial and business
affairs and their relationships with their lenders and shareholders, and the
operation and expansion of their businesses. Holdings' personnel shall attend
Board of Directors' meetings and shall be available to the Company's managers,
auditors and other personnel for consultation and advice, subject to Holdings'
reasonable convenience and scheduling. Services may be rendered from such
locations as may be selected by Holdings and agreed to by the Company.
(c) INVESTMENT BANKING SERVICES. In addition to the management
consulting services set forth in Section 2(b) above, Holdings also shall from
time to time provide financial advisory services to the Company, and in its
capacity as financial advisor to the Company, Holdings will maintain its
familiarity with the Company's operations, prospects, assets, capitalization and
financial position, the trading markets for its securities, and such other
related factors as Holdings deems relevant. Holdings will advise the Company as
to opportunities in the financial markets for the Company, assist the Company in
all of its financing transactions and advise the Company in any future
recapitalization transactions, acquisitions or dispositions of assets or any
similar transactions.
(d) OPTIONAL SERVICES. If after the date hereof the Company requests
Holdings to render any services which are outside of the scope of services
contemplated by Sections 2(b) and (c) above, the Company and Holdings may
negotiate the terms of such engagement, including the fees to be payable by the
Company to Holdings; PROVIDED, that such services must be reasonably necessary
and the amounts charged for such services must be comparable to the charge for
such services in a commercial, unrelated third party transaction.
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3. TERM.
(a) The tax sharing agreement set forth in Section 1 hereof shall
continue in effect until terminated by written agreement between all the parties
hereto.
(b) The term of services to be provided in Section 2 hereof shall
commence on the date hereof and continue in effect until the fifth (5th)
anniversary of the date hereof ("Base Term"), and shall be automatically renewed
for successive one-year terms (each, a "Renewal Term") unless either party, not
earlier than 60 days or later than 30 days prior to the last day of the Base
Term or any Renewal Term, notifies the other party as to its termination of this
Agreement.
4. PAYMENTS, FEES AND EXPENSES.
(a) MANAGEMENT CONSULTING FEE AND OTHER PAYMENTS. In consideration
of the services to be provided by Holdings pursuant to Section 2(b) above, the
Company shall make the following payments to Holdings:
(i) $412,000 per annum, payable in four equal quarterly installments
in arrears, on the last day of each fiscal quarter, the first payment
of which shall be made (prorated for the number of days, commencing
with the date hereof, during which the Agreement was in effect) on the
last day of the fiscal quarter ending in August 1997; and
(ii) such amounts, payable to Holdings within five (5) days of its
demand therefor, sufficient for Holdings to pay (A) the fees and
expenses of Holdings' directors; and (B) its indemnification
obligations to Holdings' directors arising from the Indemnification
Agreements between Holdings and its directors, Holdings' By-laws and
its Certificate of Incorporation, in each case, as amended or
restated, and the General Corporation Law of the State of Delaware.
(b) INVESTMENT BANKING FEE. In consideration of the services to be
provided by Holdings pursuant to Section 2(c) above, the Company shall make the
following payments to Holdings:
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(i) for any future recapitalizations, acquisitions or dispositions of
the Company's assets, sale of the Company stock, merger, consolidation
or similar transaction, a fee of two percent (2%) of the transaction
value payable upon consummation of such transaction; and
(ii) for any financing transaction, a fee of one percent (1%) of the
aggregate amount financed in such transaction.
(c) EXPENSES. In addition to the amounts payable pursuant to
Sections 4(a) and (b) above, the Company shall reimburse Holdings for actual and
direct out-of-pocket expenses incurred by Holdings and its personnel in
performing the services hereunder, including, but not limited to, any travel
expenses and legal and accounting fees incurred. The Company shall make such
reimbursement payments to Holdings within 30 days of the date it receives a
statement therefor together with such supporting data as the Company may
reasonably require.
(d) DEFERRAL. Notwithstanding the foregoing, the Company shall not
be required to pay, and Holdings shall have no right to receive and keep, the
fees set forth in Sections 4(a)(i) and 4(b) above, if and to the extent
expressly prohibited by the provisions of any credit, stock, financing or other
agreements or instruments (including, without limitation, (i) the Securities
Purchase Agreement dated as of October 30, 1991, (ii) the Indenture dated as of
July 2, 1997, pursuant to which the 10 1/4% Senior Secured Notes due 2004 were
issued, and (iii) the Amended and Restated Credit Agreement dated as of July 2,
1997, each as amended); PROVIDED, HOWEVER, that if, as a result of the operation
of such prohibitions on postponements, payments otherwise owed hereunder are not
made, such payments shall not be cancelled but rather shall accrue, and shall be
payable without interest, by the Company promptly when, and to the extent, that
the Company is no longer prohibited from making such payments.
5. LIMITATION OF LIABILITY; INDEMNIFICATION. The Company will indemnify
and hold
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harmless the officers, agents and employees of Holdings and its affiliates
and each other person, if any, controlling Holdings or any of its affiliates,
and any and all independent contractors hired by Holdings specifically for
the services contemplated by this Agreement, from and against any losses,
claims, damages or liabilities (or actions in respect thereof) related to or
arising out of its engagement under this Agreement or its role in connection
therewith, and will reimburse Holdings and any other party entitled to be
indemnified hereunder for all expenses (including reasonable counsel fees) as
they are incurred by it or any such other indemnified party in connection
with investigating, preparing or defending any such action or claim, whether
or not in connection with pending or threatened litigation in which it is a
party. Neither Holdings nor any of Holdings' affiliates, nor any officer,
director, employee or agent of Holdings or its affiliates nor any person
controlling Holdings or any of its affiliates shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with such engagement except for any such liability for
losses, claims, damages, liabilities or expenses incurred by the Company that
result from Holdings' or any indemnified party's criminal acts or intentional
wrongdoing. Nothing in this Section shall limit or otherwise affect the
rights or obligations, if any, of any of the parties hereto pursuant to
officer/director indemnification agreements, by-laws or certificates of
incorporation, in each case as amended or restated, or applicable law. The
provisions of this Section 5 shall survive the termination of this Agreement.
6. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to the tax sharing arrangement between
Holdings and the Company and Holdings' rendering of management consulting and
investment banking services to the Company. Neither this
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Agreement nor any provision hereof may be modified, waived, terminated or
amended except expressly by an instrument in writing signed by Holdings and
the Company.
(b) SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
either party without the consent of the other party but shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns upon such permitted assignment.
(c) ENFORCEABILITY. In the event that any provision of this
Agreement shall be held to be void or unenforceable, in whole or in part, the
remaining provisions of this Agreement and the remaining portion of any
provision not held void or unenforceable in part shall continue in full force
and effect.
(d) NOTICES. Except as otherwise specifically provided herein,
notice given hereunder shall be deemed sufficient if delivered personally or
sent by registered or certified mail or receipted document delivery service to
the address of the party for whom intended at the principal executive offices of
such party, or at such other address as such party may hereafter specify by
written notice to the other party.
(e) WAIVERS. No waiver by either party of any breach of any
provision of this Agreement shall be deemed a continuing waiver or a waiver of
any preceding or succeeding breach of such provision or of any other provision
herein contained.
(f) INDEPENDENT CONTRACTORS. Holdings and its personnel shall, for
purposes of this Agreement, be independent contractors with respect to the
Company.
(g) GOVERNING LAW. This Agreement shall be governed by the internal
laws (and not the law of conflicts) of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Tax Sharing
and Management Consulting Agreement as of the date first above written.
XXXXXX MAY HOLDINGS, INC.
By: /s/ Xxx X. Xxxxxxxx
-----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
XXXXXXXXX XXXXX CORPORATION
By: /s/ Xxx X. Xxxxxxxx
-----------------------------------
Title: President and Chief Operating
Officer
--------------------------------
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