TAX INDEMNIFICATION AGREEMENT
TAX INDEMNIFICATION AGREEMENT, dated as of ______, 2004 (the
"Agreement"), among Xxxxx & Steers Capital Management, Inc., a New York
corporation (the "Company"), Xxxxx & Steers, Inc., a Delaware corporation (the
"Parent") and the persons listed on the signature page hereto (individually, a
"Stockholder" and, collectively, the "Stockholders").
WHEREAS, the Company has been an "S corporation" (as defined in
section 1361(a)(1) of the Code (as hereinafter defined)) for federal tax
purposes since July 1, 1986.
WHEREAS, the Company and the Stockholders plan to terminate the S
corporation status of the Company prior to the closing of the Public Offering by
way of a merger of a wholly-owned subsidiary of Parent with and into the Company
with the Company becoming a wholly-owned subsidiary of Parent, and, as a result,
the Company will be a "C corporation" (as defined in section 1361(a)(2) of the
Code) beginning on the Termination Date (as hereinafter defined); and
WHEREAS, Parent, the Company and the Stockholders desire to address
certain matters among themselves in respect of the allocation of taxable income
and liability for taxes; and
WHEREAS, Parent, the Company and the Stockholders wish to provide for
the termination of this Agreement such that it has no effect should the Public
Offering (as hereinafter defined) not close.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS.
The following terms as used herein have the following meanings:
"Adjustment Amount" means the net increase in taxable income of one or
more of the Stockholders, the Company or Parent based on a Final Determination
and that gives rise to a payment pursuant to Section 3.3 or 3.4 hereof.
"Affected Stockholder" means a Stockholder whose tax returns are
adjusted in a manner which gives rise to an obligation of the Company pursuant
to Section 3.3 hereof.
"Closing Date" means the date on which the Public Offering closes.
"Code" means the Internal Revenue Code of 1986, as amended.
"C Short Year" means that portion of the Company's year beginning on
the Termination Date until and including the last day of the S Termination Year.
"C Taxable Year" means any taxable year (or portion thereof) of the
Company during which the Company is a C corporation for federal income tax
purposes, including the C Short Year.
"Final Determination" means the final resolution of any income or
franchise tax liability (including all related interest and penalties) for a
taxable period. A Final Determination shall result from the first to occur of:
(i) the expiration of 30 days after acceptance by the Internal
Revenue Service of a Waiver of Restrictions on Assessment and
Collection of Deficiency in Tax and Acceptance of Overassessment (the
"Waiver") on Federal Revenue Form 870 or 870-AD (or any successor
comparable form or the expiration of a comparable period with respect
to any comparable agreement or form under the laws of any other
jurisdiction), unless, within such period, the applicable taxpayer
gives notice of that taxpayer's intention to attempt to recover all or
part of any amount paid pursuant to the Waiver by filing a timely
claim for refund;
(ii) a decision, judgment, decree or other order by a court of
competent jurisdiction that is not subject to further judicial review
(by appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under section 7121 of
the Code or the acceptance by the Internal Revenue Service or its
counsel of an offer in compromise under section 7122 of the Code or
the execution of a comparable agreement under the laws of any other
jurisdiction;
(iv) the expiration of the time for filing a claim for refund or
for instituting suit in respect of a claim for refund disallowed in
whole or part by the Internal Revenue Service or any other relevant
taxing authority;
(v) any other final disposition of the tax liability for such
period by reason of the expiration of the applicable statute of
limitations; or
(vi) any other event that the parties hereto agree is a final and
irrevocable determination of the liability at issue.
"Public Offering" means the initial offering of shares of Common
Stock, $0.01 par value per share, of Xxxxx & Steers, Inc. pursuant to the
Registration Statement on Form S-1 originally filed by the Xxxxx & Steers, Inc.
with the Securities and Exchange Commission on March 30, 2004.
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"S Short Year" means that portion of the S Termination Year beginning
on the first day of such taxable year and ending on the day immediately
preceding the Termination Date.
"S Taxable Year" means any taxable year (or portion thereof) of the
Company during which the Company was an S corporation, including the S Short
Year.
"S Termination Year" means the taxable year of the Company that
includes the Termination Date.
"Taxing Authority" means the Internal Revenue Service or any
comparable state or foreign taxing authority.
"Tax Benefit" means any amount by which the tax liability of a
Stockholder, Parent or the Company, as applicable, in any taxable year is
actually reduced by reason of claiming, on a tax return for such year, a loss,
deduction or credit for tax purposes arising from an Adjustment Amount in
respect of which a payment was made pursuant to Section 3.3 or 3.4 after taking
into account all other losses, deductions, credits or other tax attributes
available to such Stockholder, Parent or the Company, as applicable.
"Tax Detriment" means any amount by which the tax liability of a
Stockholder, Parent or the Company, as applicable, in any taxable year is
actually increased by reason of an Adjustment Amount, on a tax return for such
year, in respect of which a payment was made pursuant to Section 3.3 or 3.4
after taking into account all other items of income, gain, loss, deductions or
other tax attributes of such Stockholder, Parent or the Company, as applicable.
"Termination Date" means the date on which the S corporation status of
the Company will terminate as a result of the Company becoming a member of
Parent's consolidated group in accordance with Treas. Reg. Section
1.1502-76(b)(1)(ii)(A).
ARTICLE II
TERMINATION OF S CORPORATION STATUS AND ALLOCATION OF INCOME
2.1. TERMINATION OF S CORPORATION STATUS.
The Company and the Stockholders shall cause the Company to terminate
its S corporation status at least one day prior to the Closing Date.
2.2. ALLOCATION ELECTION.
Parent will elect to file a consolidated federal income tax return
with the Company for the taxable year beginning on the Termination Date in
accordance with Treas. Reg. Section 1.1502-75(a) and the Company shall consent
to such election as required by Treas. Reg. Section 1.1502-75(b).
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ARTICLE III
OBLIGATIONS
3.1. LIABILITY FOR TAXES INCURRED BY STOCKHOLDERS DURING THE S SHORT
YEAR.
Each Stockholder shall (a) duly include, in his or its own federal and
state income tax returns, all items of income, gain, loss, deduction or credit
attributable to the S Short Year in a manner consistent with the Form 1120S and
the schedules thereto (and the corresponding state income or franchise tax forms
and schedules) to be filed by the Company with respect to such period, (b) file
such returns no later than the due date (including extensions, if any) for
filing such returns, and (c) pay any and all taxes required to be paid for such
Stockholder's taxable year that includes the S Short Year.
3.2. LIABILITY FOR TAXES INCURRED BY THE COMPANY DURING THE S SHORT
YEAR AND THE C SHORT YEAR.
Parent and the Company, as applicable, shall (a) be responsible for
and effect the filing of all federal and state income or franchise tax returns
for the Company (including any consolidated or combined tax returns filed by
Parent) with respect to the S Short Year and the C Short Year, (b) accurately
prepare and timely file such Company returns, and (c) pay any and all taxes
required to be paid by the Company for the C Short Year and S Short Year.
3.3. COMPANY'S INDEMNIFICATION OF STOCKHOLDERS FOR TAX LIABILITIES.
In the event of an adjustment to one or more tax returns of the
Company for an S Taxable Year based on a Final Determination that results in a
net increase in taxable income of a Stockholder and a corresponding adjustment
to one or more tax returns of Parent or the Company, as applicable, for a C
Taxable Year that results in a Tax Benefit to Parent or the Company, as the case
may be, Parent or the Company shall pay to any Affected Stockholder an amount
equal to the Affected Stockholder's Tax Detriment; provided, however, the total
amount due under this Section 3.3 shall not exceed the Tax Benefit received by
Parent or the Company, as the case may be, that is attributable to the relevant
adjustment. The Tax Benefit shall be paid to the Affected Stockholders in the
year in which the Tax Benefit is realized. Upon notification from the Affected
Stockholder that a payment is due by such party to the appropriate Taxing
Authority, Parent or the Company, as applicable, shall determine its Tax Benefit
and pay such amount to the Affected Stockholder within thirty (30) business days
of such determination; provided, however, that if the Tax Benefit results from
the creation of a net operating loss, the Company shall pay the associated Tax
Benefit to the Affected Stockholder thirty (30) business days after the
utilization by Parent or the Company, as the case may be, in whole or in part,
of such net operating loss.
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3.4. STOCKHOLDERS' INDEMNIFICATION OF THE COMPANY FOR TAX LIABILITIES.
(a) ADJUSTMENTS TO THE COMPANY'S TAXABLE INCOME. In the event of an
adjustment of one or more tax returns of Parent or the Company, as the case may
be, for a C Taxable Year based on a Final Determination which results in a net
increase in taxable income of Parent or the Company, as applicable, for a C
Taxable Year and a corresponding adjustment to one or more tax returns of the
Company for an S Taxable Year which results in a Tax Benefit of the Company for
the S Taxable Year, each Stockholder, severally but not jointly, agrees to
contribute to the capital of Parent his pro rata share (based upon the relative
amount of Company stock held by such Stockholder during the relevant time
period) of an amount equal to the Tax Detriment; provided, however, the total
amount due under this Section 3.4(a) shall not exceed such Stockholder's Tax
Benefit that is attributable to the relevant adjustment. The Tax Benefit shall
be paid to Parent in the year in which the Tax Benefit is realized.
(b) ADJUSTMENTS ATTRIBUTABLE TO THE COMPANY'S S STATUS. Unless the
Internal Revenue Service has determined that the termination of S corporation
status was inadvertent pursuant to Section 1362(f), if, based on a Final
Determination, the Company is deemed to have been a C corporation for federal,
state or local income or franchise tax purposes during any period in which it
reported (or intends to report) its taxable income as an S corporation, each
Stockholder, severally but not jointly and subject to the limitations contained
in Section 3.4(c), shall contribute to the capital of Parent his or its pro rata
share (based upon the relative amount of Company stock held by such Stockholder
during the relevant time period) of an amount equal to the taxes, penalties and
interest incurred by the Company as a result of the Company being deemed to have
been a C corporation.
(c) LIMIT ON INDEMNIFICATION AMOUNT. Notwithstanding the provisions of
this Section 3.4, all payments required to be made by any Stockholder to the
Company pursuant to Section 3.4(b) shall not exceed the total distributions made
to such Stockholder by the Company to pay such Stockholder's income tax
liabilities related to the taxable years for which the Company has suffered a
Tax Detriment as a result of it being deemed to have been a C corporation on or
prior to the Termination Date.
(d) TIME OF INDEMNIFICATION PAYMENT. The Stockholders shall contribute
to the capital of Parent any amounts calculated in accordance with this Section
3.4 within 30 business days after the first to occur of (i) the receipt of the
refund from the appropriate Taxing Authority attributable to such adjustment, or
(ii) delivery of a notice from the Company that a payment is due by the Company
to the appropriate Taxing Authority.
3.5 GROSS UP FOR ADDITIONAL TAX.
In all events and to the extent not otherwise reimbursed, the Company
hereby agrees that if any payment pursuant to this Article III is deemed to be
taxable income to a Stockholder, the amount of such payment to the Stockholders
shall be increased by an amount necessary to equal the Stockholder's additional
Tax Detriment resulting from the receipt of a payment pursuant to this Article
III related to such amount (including, without limitation, any taxes on such
additional amounts) so that the net payment, after reduction for any Tax
Detriment associated with its receipt, is equal to the amount of the Tax
Detriment in respect of which such payment pursuant to this Article III is made;
provided, however, that such additional amount shall not exceed the sum of (i)
the Tax Benefit to the Company from such payment under this
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Article III and (ii) the excess of any Tax Benefit of the Company from the
Adjustment Amount over the amount of the payment under this Article III.
ARTICLE IV
CONTESTS/COOPERATION
4.1. CONTESTS.
Whenever the Stockholders, the Company or Parent becomes aware of an
issue that they or it believe could result in a Final Determination which could
give rise to a payment or indemnification obligation under Article III, the
Stockholders, the Company or Parent (as the case may be) shall promptly give
notice of the issue to the other parties hereto. The Stockholders and their
representatives, at their expense, shall be entitled to participate in all
conferences and meetings with or proceedings before the Internal Revenue Service
or any other Taxing Authority with respect to the issue. The parties shall
consult and cooperate with each other in the negotiation and settlement or
litigation of any adjustment that may give rise to any payment or
indemnification obligation under Article III. All decisions with respect to such
negotiation and settlement or litigation shall be made by the parties after
full, good faith consultation or pursuant to the dispute resolution provisions
of Section 4.2.
4.2. DISPUTE RESOLUTION.
(a) If the parties hereto are, after negotiation in good faith, unable
to agree upon the appropriate application of the provisions of this Agreement,
the controversy shall be settled by a "Big 4" (or equivalent) accounting firm,
other than the Company's independent public accountants, chosen by the Company
and a majority of the Stockholders (the "Accounting Firm"). The decision of the
Accounting Firm with respect thereto shall be final, and Parent, the Company or
the Stockholders, as applicable, shall immediately pay any amounts due under
this Agreement pursuant to such decision. The applicable expenses of the
Accounting Firm shall be borne one-half by the Company and one-half by the
Stockholders unless the Accounting Firm specifies otherwise.
(b) In the event that any of the Stockholders, the Company or Parent
receives notice, whether orally or in writing, of any federal, state, local or
foreign tax examination, claim, settlement, proposed adjustment or related
matter that may affect in any way the liability of a Stockholder under this
Agreement, such Stockholder, the Company or Parent, as applicable, shall within
ten days notify the other parties hereto in writing thereof; provided, however,
that any failure to give such notice shall not reduce a party's right to
indemnification under this Agreement except to the extent of actual damage
incurred by the other parties as a result of such failure. The party or parties
who would be required to indemnify ( the "Indemnifying Party") the other party
or parties (the "Indemnified Party") shall be entitled in their reasonable
discretion and at their sole expense to handle, control and compromise or settle
the defense of any matter that may give rise to a liability under this
Agreement; provided, however, that such Indemnifying Party from time to time
provides assurances reasonably satisfactory to the Indemnified Party that
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(i) the Indemnifying Party is financially capable of pursuing such defense to
its conclusion, and (ii) such defense is actually being pursued in a reasonable
manner.
4.3. COOPERATION.
The parties shall make available to each other, as reasonably
requested, and to any Taxing Authority all information, records or documents
relating to any liability for taxes covered by this Agreement and shall preserve
such information, records and documents until the expiration of any applicable
statute of limitations or extensions thereof. The party requesting such
information shall reimburse the other party for all reasonable out-of-pocket
costs incurred in producing such information.
4.4. COSTS.
Except to the extent otherwise provided herein, each party shall bear
his own costs in connection with this Agreement.
ARTICLE V
MISCELLANEOUS
5.1. COUNTERPARTS AND FACSIMILE.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which counterparts collectively
shall constitute a single instrument representing the agreement among the
parties hereto. Transmission of facsimile copies of an executed counterpart of a
signature page of this Agreement will have the same effect as delivery of the
manually executed counterpart of this Agreement.
5.2. 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 and their respective successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.
5.3. GOVERNING LAW.
This Agreement and the rights and duties of the parties hereunder
shall be governed by, and construed in accordance with, the law of the State of
New York.
5.4. AMENDMENT AND MODIFICATION.
This Agreement may be amended, modified or supplemented only by a
writing executed by all the parties hereto.
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5.5. ASSIGNMENT.
Except by operation of law or in connection with the sale of all or
substantially all the assets of a party, this Agreement shall not be assignable,
in whole or in part, directly or indirectly, by the Stockholders without the
written consent of the Company and Parent or by the Company or Parent without
the written consent of the Stockholders. Any attempt to assign any rights or
obligations arising under this Agreement without such consent shall be void. The
provisions of this Agreement shall be binding upon and inure to the benefit of,
and be enforceable by, the parties hereto and their respective successors and
permitted assigns.
5.6. 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.
5.7. 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 provision with an enforceable
provision approximating, to the extent possible, the original intent of the
parties.
5.8. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and understanding of the
parties hereto in respect to the subject matter contained herein. There are no
representations, promises, warranties, covenants or undertakings other than
those expressly set forth herein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
5.9. FURTHER ASSURANCES.
Subject to the provisions of this Agreement, the parties shall
acknowledge such other instruments and documents and take all other actions that
may be reasonably required in order to effectuate the purposes of this
Agreement.
5.10. WAIVERS, ETC.
No failure or delay on the part of any party in exercising any power
or right under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power or any abandonment or
discontinuance of steps to enforce such right or power preclude any other or
further exercise thereof or the exercise of any other right or power. No waiver
of any provision of this Agreement nor consent to any departure by the parties
therefrom shall in any event be effective unless it shall be in writing, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which it was given.
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5.11. SET-OFF.
All payments to be made by any Stockholder under this Agreement shall
be made without set-off, counterclaim or withholding, all of which are expressly
waived.
5.12. CHANGE OF LAW.
If, due to any change in applicable law or regulations or the
interpretation thereof by any court or other governing body having jurisdiction
subsequent to the date of this Agreement, performance of any provision of this
Agreement shall be impracticable or impossible, the parties shall use their best
efforts to find an alternative means to achieve the same or substantially the
same results as are contemplated by such provision.
5.13. NOTICES.
All notices under this Agreement shall be validly given if in writing
and delivered personally or sent by registered mail, postage prepaid at the
respective addresses set forth below
If to the Company or Parent, at:
Xxxxx & Steers Capital Management, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
If to a Stockholder, at:
c/o Cohen & Steers Capital Management, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
or at such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by mail shall be deemed
delivered five calendar days after the date mailed.
5.14. TERMINATION OF AGREEMENT.
This Agreement shall terminate and be void, as if it never had been
executed, if the Closing Date does not occur on or before December 31, 2004.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
XXXXX & STEERS CAPITAL MANAGEMENT, INC.
By
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Name:
Title:
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Xxxxxx Xxxxx
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Xxxxxx X. Xxxxxx
Xxxxxxx Xxxxx, as Trustee for
THE XXXXXX XXXXX 1998 FAMILY TRUST
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Xxxxxx X. Xxxxxx, as Trustee for
XXXXXX X. XXXXXX FAMILY TRUST
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