EXHIBIT 10.11
EXHIBIT A
TAX AGREEMENT
Tax Agreement, dated as of June __, 1997, among 800-JR CIGAR, Inc., a
Delaware corporation (the "Company"), and each of the undersigned persons or
entities named on attached Schedule A (each a "Subscriber" and collectively the
"Subscribers").
WHEREAS, concurrently herewith the Company and the Subscribers are
entering into a Contribution Agreement (the "Contribution Agreement") pursuant
to which, among other things, each of the Subscribers will subscribe for shares
of Common Stock, par value $.01 per share, of the Company ("Common Stock"), and,
in exchange therefor, contribute to the Company the number of shares of capital
stock of each of the corporations (each a "Constituent Entity" and collectively
the "Constituent Entities") set forth opposite such Subscriber's names on
attached Schedule A ("Constituent Entities Shares"), all upon the terms and
subject to the conditions set forth in the Contribution Agreement; and
WHEREAS, in connection with the transactions contemplated by the
Contribution Agreement, the Company and the Subscribers desire to enter into
this Agreement setting forth certain agreements of the Company and the
Subscribers with respect to certain tax matters relating to the transactions
contemplated by the Contribution Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties hereby agree as follows:
1. Certain Covenants. The Subscribers and the Company shall, and the
Company shall cause each of the Constituent Entities to, comply with the tax
reporting requirements of Section 1.351-3 of the Treasury Regulations and not
take any action inconsistent with the contributions to the Company of the
Constituent Entities Shares being tax-free capital contributions under Section
351 of the Internal Revenue Code of 1986, as amended (the "Code"). The Company
shall cause each Constituent Entity to prepare and timely file all income tax
returns of such Constituent Entity for all periods when such Constituent Entity
was an "S Corporation" within the meaning of Section 1361 of the Code, and the
corresponding provisions of any state or local law (beginning on the effective
date of its election to be treated as such, as set forth on attached Schedule
B), that are required to be filed on or after the Closing Date (as defined in
the Contribution Agreement) ("Post-Closing S Corporation Tax Returns"), and the
Subscribers shall pay any and all taxes with respect to such returns. At least
fifteen (15) days prior to the filing of any such Post-Closing S Corporation Tax
Return, the Company shall furnish to each Subscriber copies of such tax return
for such Subscriber's review, comment and consent, which consent shall not be
unreasonably delayed or withheld. With respect to any such return of any such
Constituent Entity for any taxable year beginning on or after January 1, 1997
and
ending on the date preceding the date the Constituent Entities Shares of such
Constituent Entity are contributed to the Company (the "S Corporation
Termination Date"), the portion of such Constituent Entity's taxable income
allocated to such period shall be determined by using the "closing of the books"
method. Each party hereto shall, and shall cause its subsidiaries and affiliates
to, provide to each of the other parties hereto such cooperation and information
as any of them shall reasonably request in the filing of any tax return, amended
tax return or claim for refund or in connection with an audit of any such
return. Such cooperation shall include providing copies of all relevant portions
of the return, together with all work papers and other relevant documents and
records. Each Subscriber shall make himself or herself, and the Company shall
make its and the Constituent Entities' employees, reasonably available on a
mutually convenient basis at the Company's cost to provide explanation or
assistance in connection with any such documents. The Company shall cause each
Constituent Entity to retain all tax returns, schedules, work papers and all
material records and other documents relating to taxes for all periods of such
Constituent Entity ending on or before the S Corporation Termination Date until
the later of (i) the expiration of seven years after the later of the filing or
due date for each such tax return or (ii) the expiration of any relevant statute
of limitations. The Company shall, and shall cause the Constituent Entities to,
not destroy any such returns, schedules, work papers, records or other documents
relating to any period of any of the Constituent Entities ending on or before
the S Corporation Termination Date, without first offering them to the
Subscribers. The Company shall file, or shall cause the appropriate Constituent
Entity to file, all tax returns required to be filed for all taxable periods
ending after the S Corporation Termination Date, and shall pay all taxes
required to be paid with respect thereto.
2. Tax Indemnity. The Subscribers, severally (according to the relative
percentage of the outstanding shares of capital stock of the Constituent Entity
owned by each Subscriber on the last day of the applicable period to which a
liability described below relates) and not jointly, agree to indemnify and hold
harmless the Company against any and all federal, state or local income tax
liabilities of the Constituent Entities (including interest and penalties
imposed thereon) which are attributable to a taxable year beginning on or after
the effective date of an election to be treated as an S Corporation for federal,
state or local income tax purposes, as the case may be, as set forth on attached
Schedule B and ending on the S Corporation Termination Date. Each of the Company
and the Subscribers agree that (i) within 10 days of receiving written notice of
any income tax examinations, claims, settlements, proposed adjustments or
related matters that may affect in any way the income tax liability of a party
under this Agreement, such person shall provide written notice thereof to each
other party hereto, and (ii) the party or parties who would be responsible for
the payment of the applicable taxes if the matter in question were to be
resolved adversely shall be entitled, in his, her or its reasonable discretion
and at his, her or its sole expense, to handle, control and compromise or settle
the defense thereof, so long as such party or parties are acting diligently and
in good faith. Such party or parties shall keep the other party(ies) apprised of
the status thereof and shall consult with such other party(ies) concerning the
conduct of the defense thereof. Notwithstanding the foregoing, however, the
party handling such matters shall not compromise or settle any matter
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which could adversely affect the tax liability of another party without such
other party's written consent, which shall not be unreasonably withheld.
3. Governing Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of New
Jersey, without reference to its choice of law provisions.
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered, or has caused this Agreement to be duly executed and delivered on its
behalf, as of the date first above written.
800-JR CIGAR, Inc.
By:
-----------------------------
Name:
Title:
---------------------------------
Xxxxx X. Xxxxxxx
---------------------------------
XxXxxxx X. Xxxxxxx
Trust f/b/o Xxxxx Xxxxxxx,
pursuant to trust agreement dated
November 1, 1994,
Xxx Xxxxxxx, Grantor
By:
-----------------------------
Xxxxxx Xxxxxxxxx
Special Trustee
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Trust f/b/o Xxxx Xxxxxxx,
pursuant to trust agreement dated
November 1, 1994,
Xxx Xxxxxxx, Grantor
By:
-----------------------------
Xxxxxx Xxxxxxxxx
Special Trustee
Trust f/b/o Xxxxx Xxxxxxx,
pursuant to trust agreement dated
November 1, 1994,
Xxx Xxxxxxx, Grantor
By:
-----------------------------
Xxxxxx Xxxxxxxxx
Special Trustee
Trust f/b/o Xxxxxxxx Xxxxxxx,
pursuant to trust agreement dated
November 1, 1994,
Xxx Xxxxxxx, Grantor
By:
-----------------------------
Xxxxxx Xxxxxxxxx
Special Trustee
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SCHEDULE A
SHARES OF CAPITAL STOCK
OF CONSTITUENT ENTITIES
TO BE CONTRIBUTED
Number of
Class and Par Value of Shares to be
Stockholder Constituent Entity Capital Stock Contributed
--------------------- ------------------------------------- ----------------------------- ------------
Xxx Xxxxxxx X.X Tobacco of America, Inc. Common Stock, $1.00 par value 100
Cigars by Santa Clara, N.A., Inc. Common Stock, $1.00 par value 100
J.N.R. Grocery Corp. Common Stock, no par value 30
J.R Tobacco NC, Inc. Common Stock, $1.00 par value 100
J&R Tobacco (New Jersey) Corp. Common Stock, no par value 20
J.R Tobacco Company of Michigan, Inc. Common Stock, $1.00 par value 000
X.X-00xx Xxxxxx, Inc. Common Stock, no par value 100
J.R Tobacco Outlet, Inc. Common Stock, no par value 50
J.R Statesville, Inc. Common Stock, $1.00 par value 52
J R Cigar (DC), Inc. Common Stock, no par value 25
XxXxxxx Xxxxxxx X.X Tobacco of America, Inc. Common Stock, $1.00 par value 100
Cigars by Santa Clara, N.A., Inc. Common Stock, $1.00 par value 100
J.N.R. Grocery Corp. Common Stock, no par value 30
J.R Tobacco NC, Inc. Common Stock, $1.00 par value 100
J&R Tobacco (New Jersey) Corp. Common Stock, no par value 20
J.R Tobacco Company of Michigan, Inc. Common Stock, $1.00 par value 000
X.X-00xx Xxxxxx, Inc. Common Stock, no par value 100
J.R Tobacco Outlet, Inc. Common Stock, no par value 50
J.R Statesville, Inc. Common Stock, $1.00 par value 52
J R Cigar (DC), Inc. Common Stock, no par value 25
Xxxxx Xxxxxxx Trust J.R Statesville, Inc. Common Stock, $1.00 par value 24
Xxxxxxxx Xxxxxxx Trust J.R Statesville, Inc. Common Stock, $1.00 par value 24
Xxxxx Xxxxxxx Trust J.R Statesville, Inc. Common Stock, $1.00 par value 24
Xxxx Xxxxxxx Trust J.R Statesville, Inc. Common Stock, $1.00 par value 24
SCHEDULE B
EFFECTIVE DATES OR
S CORPORATION ELECTIONS
Constituent Entity Federal State
------------------ ------- -----
Cigars by Santa Clara, N.A., Inc. 7/2/90 7/2/90 (NC)
J.N.R. Grocery Corp. 5/1/87 ---
J&R Tobacco (New Jersey) Corp. 7/28/82 1/1/97 (NJ)
J.R-46th Street, Inc. 1/1/91 1/1/97 (NY)
J.R Statesville, Inc. 7/2/93 7/2/93 (NC)
J.R Tobacco Company of Michigan, Inc. 7/1/88 ---
J.R Tobacco NC, Inc. 7/2/90 7/2/90 (NC)
J.R Tobacco of America, Inc. 7/2/90 7/2/90 (NC)
J.R Tobacco Outlet, Inc. 1/1/90 1/1/97 (NJ)
