SALES TAX INDEMNIFICATION AGREEMENT
THIS SALES TAX INDEMNIFICATION AGREEMENT (this "Agreement") is made
and entered into as of December 20, 1995, among the persons set forth in
Exhibit I attached hereto (collectively, the "Key EDAC Stockholders") and
Xxxxxx Electronics, Inc., a Delaware corporation ("Xxxxxx"), with reference
to the following facts:
A. The Key EDAC Stockholders, Xxxxxx, Electrical Distribution
Acquisition Company, a Delaware corporation ("EDAC"), Deanco, Inc., a New York
corporation ("Deanco") and all of the other stockholders of EDAC are parties to
that certain Stock Purchase Agreement dated as of November 15, 1995 (as amended
by that certain First Amendment of even date herewith, the "1995 Stock Purchase
Agreement"). Capitalized terms used but not defined herein shall have the
respective meanings assigned in the 1995 Stock Purchase Agreement.
B. Since the 1995 Stock Purchase Agreement was signed, Xxxxxx has
discovered that Deanco and its predecessors have failed to pay sales or use
taxes and to file required sales or use tax returns in the states of Missouri,
Kansas and Illinois.
X. Xxxxxx is willing to proceed with the closing of the transactions
contemplated by the 1995 Stock Purchase Agreement, notwithstanding such failure
to pay sales taxes, provided that the Key EDAC Stockholders agree to hold Xxxxxx
harmless as provided in this Agreement.
NOW, THEREFORE, it is agreed as follows:
1. DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"1994 STOCK PURCHASE AGREEMENT" means that certain Stock Purchase
Agreement dated as of September 30, 1994 among EDAC, EDAC Acquisition Corp., a
Delaware corporation ("Acquisition"), Deanco, the Former Deanco Stockholders and
the other stockholders of Deanco identified therein.
"FORMER DEANCO STOCKHOLDERS" means Xxxxxx X. Xxxx, Xxxxxxx X. Xxxxxxxx
and Xxxxx X. Xxxxxx.
"FORMER DEANCO STOCKHOLDERS' NOTES" means those certain promissory
notes, each dated October 7, 1994, issued by Acquisition to the Former Deanco
Stockholders pursuant to the 1994 Stock Purchase Agreement in the aggregate
principal amount of $3 million and for which Deanco became liable upon the
merger of Acquisition into Deanco on October 11, 1994.
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"SALES TAX CLAIMS" means (a) all sales or use taxes paid by Xxxxxx or
Deanco to the states of Missouri, Kansas and Illinois with respect to or as a
result of the operations of Deanco or any of its predecessors in such states for
taxable periods or portions thereof ending on or before September 30, 1994,
(b) all additions to tax, additional amounts, interest and penalties paid by
Xxxxxx or Deanco to such states with respect to such taxes and (c) all costs
and expenses (including, without limitation, legal, expert, consultant and
accounting fees and expenses) incurred by Xxxxxx or Deanco for services provided
after the date hereof in connection with any audit, contest or proceeding
initiated by, or settlement with, such states pertaining to such taxes.
"COSTS OF COLLECTION" means all costs and expenses (including, without
limitation, legal, expert and consultant fees and expenses) incurred by Xxxxxx
or Deanco in connection with the collection or attempted collection of Sales Tax
Claims and Sales Tax Claim Interest from the Former Deanco Stockholders.
"SALES TAX CLAIM INTEREST" means interest on Sales Tax Claims and
Costs of Collection for the period beginning on the date the applicable Claim or
Cost of Collection is paid or incurred by Xxxxxx or Deanco and ending on the
date it is paid to Xxxxxx or Deanco by the Former Deanco Stockholders or the Key
EDAC Stockholders, at the interest rate in effect during such period on Xxxxxx'x
borrowings under alternate base rate loans under the FICAL Loan Agreement.
Notwithstanding anything to the contrary contained in this Agreement, as to any
Sales Tax Claims for which the Former Deanco Stockholders are liable pursuant to
the provisions of the 1994 Stock Purchase Agreement, the Sales Tax Losses shall
include Sales Tax Claim Interest with respect to such Sales Tax Claims for the
period prior to the date on which the Key EDAC Stockholders become liable to
indemnify Xxxxxx, Deanco or their successors with respect to such Sales Tax
Claims as provided herein, only to the extent that the Former Deanco
Stockholders are liable for such Sales Tax Claim Interest pursuant to the
provisions of the 1994 Stock Purchase Agreement.
"SALES TAX LOSSES" means all Sales Tax Claims, Costs of Collection and
Sales Tax Claim Interest, which Xxxxxx is unable to collect from the Former
Deanco Stockholders after exhausting all reasonable effort to collect such Sales
Tax Claims, Costs of Collection and Sales Tax Claim Interest from the Former
Deanco Stockholders in accordance with the terms of this Agreement. To the
extent that Xxxxxx or Deanco collects any Sales Tax Claims by offset against the
Former Deanco Stockholders' Notes but is subsequently required by a final
judgment to repay, or agrees (subject to Section 3(d) below) in a settlement to
repay, all or a portion of such offset to the Former Deanco Stockholders and is
unable to collect the amount so repaid from the Former Deanco Stockholders after
pursuing them in accordance with the terms of
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this Agreement, the amount so repaid to and not collected from the Former Deanco
Stockholders and all related Costs of Collection and Sales Tax Claim Interest
with respect to such Sales Tax Claims shall also be Sales Tax Losses. The Sales
Tax Losses shall include any Sales Tax Claims, Costs of Collection and Sales Tax
Interest for which the Former Deanco Stockholders are not liable under the terms
of the 1994 Stock Purchase Agreement for any reason whatsoever, including
without limitation by reason of the provisions of Sections 9(c)(i)(B)(y),
9(c)(i)(D) and 9(d) thereof pertaining to the $50,000 deductible, balance sheet
accruals and their right to consent to settlements.
"FICAL LOAN AGREEMENT" means that certain Loan Agreement of even date
herewith, as the same may from time to time be supplemented, modified, amended,
restated or extended, among Xxxxxx, the banks named therein and First Interstate
Bank of California, as Agent.
2. INDEMNIFICATION FOR SALES TAX LOSSES. The Key EDAC Stockholders
severally agree to indemnify and hold Xxxxxx and Deanco and any successors
thereto harmless from the Sales Tax Losses; provided, that Xxxxxx has first
complied with its obligations hereunder to pursue the Former Deanco Stockholders
for the Sales Tax Claims, Costs of Collection and Sales Tax Claim Interest
giving rise to such Sales Tax Losses; and provided further, that the liability
of each Key EDAC Stockholder hereunder shall be limited to the aggregate amount
of such indemnification obligations multiplied by the number of EDAC Shares (as
defined in the 1995 Stock Purchase Agreement) owned by such Key EDAC Stockholder
as indicated on Exhibit I attached hereto divided by the total number of EDAC
shares owned by all of the Key EDAC Stockholders as indicated on said Exhibit.
For purposes of this Section 2, each element of Sales Tax Losses and each
payment in reimbursement or indemnification thereof from any source shall be
determined on an after-tax basis.
3. OBLIGATIONS TO PURSUE FORMER DEANCO STOCKHOLDERS.
x. Xxxxxx shall offset all Sales Tax Claims, as of the date paid or
incurred by Xxxxxx or Deanco, against the Former Deanco Stockholders' Notes up
to the aggregate principal amount of such notes and all interest accrued and
unpaid thereunder.
b. To the extent that the Sales Tax Claims exceed the aggregate
principal amount of and accrued and unpaid interest on the Former Deanco
Stockholders' Notes, Xxxxxx shall demand payment for such Sales Tax Claims and
related Sales Tax Claim Interest from the Former Deanco Stockholders. In the
event that any Former Deanco Stockholder fails to pay his prorata share of such
Sales Tax Claims and related Sales Tax Claim Interest, as such share is
determined pursuant to the 1994 Stock Purchase Agreement, Xxxxxx shall file a
lawsuit to collect the amount of
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such Sales Tax Claims against such Former Deanco Stockholder, prosecute such
lawsuit to a final judgment and enforce such final judgment. The EDAC
Stockholders' Representative shall have the right to participate with its own
counsel (whose fees and expenses will be borne by the Key EDAC Stockholders) in
the prosecution of any such demand for payment or lawsuit against any Former
Deanco Stockholder. To the extent that Xxxxxx is unable to collect such Sales
Tax Claims and related Costs of Collection and Sales Tax Claim Interest after so
pursuing any such Former Deanco Stockholder, the Key EDAC Stockholders shall be
obligated to indemnify and hold Xxxxxx, Deanco and their successors harmless for
the Sales Tax Losses resulting therefrom as provided herein.
c. In the event that any Former Deanco Stockholder files for relief
under the bankruptcy laws, Xxxxxx shall file a proof of claim in the bankruptcy
case and attempt to collect from the bankruptcy estate. Upon a final
distribution to Xxxxxx as a creditor in the bankruptcy proceeding, to the extent
such distribution is insufficient to collect such Former Deanco Stockholder's
pro rata share of the Sales Tax Claims, Costs of Collection and Sales Tax Claim
Interest, the Key EDAC Stockholders shall be obligated to indemnify Xxxxxx,
Deanco and their successors for the Sales Tax Losses resulting therefrom as
provided herein.
d. Notwithstanding the foregoing, to the extent that Xxxxxx
determines that any such demand for payment, lawsuit or bankruptcy claim against
any such Former Deanco Stockholder should be settled, compromised or withdrawn,
Xxxxxx shall be entitled to do so, with the prior written consent of the EDAC
Stockholders' Representative, whose consent shall not be unreasonably withheld.
4. CONFIRMATION OF OBLIGATIONS UNDER 1995 STOCK PURCHASE AGREEMENT.
The Key EDAC Stockholders hereby confirm their indemnification obligations under
the 1995 Stock Purchase Agreement arising from the failure of Deanco to pay
sales or use taxes in Missouri, Kansas and Illinois for taxable periods or
portions thereof beginning after September 30, 1994. The Key EDAC Stockholders
further agree that notwithstanding anything to the contrary contained in the
1995 Stock Purchase Agreement, (a) the last sentence of Section 10.3(c) shall
not apply to their indemnification obligations under the 1995 Stock Purchase
Agreement arising from Deanco's failure to pay sales or use taxes in Missouri,
Kansas and Illinois and (b) the liability of the Key EDAC Stockholders for
indemnification of Xxxxxx, Deanco and their successors pursuant to this
Agreement and the liability of the Key EDAC Stockholders for indemnification
pursuant to the 1995 Stock Purchase Agreement for such taxes for such periods or
portions thereof shall not count against the $10 million limitation on liability
provided in Section 11.2(b)(ii) of the
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1995 Stock Purchase Agreement. The Key EDAC Stockholders further agree that
nothing contained in the 1995 Stock Purchase Agreement shall limit in any way
their obligations to indemnify Xxxxxx, Deanco and their successors for Sales Tax
Losses as provided herein. Except as otherwise provided in this Agreement, the
Key EDAC Stockholders' indemnification obligations with respect to Taxes shall
continue to be governed by Article X of the 1995 Stock Purchase Agreement and
the provisions of Article XI of the 1995 Stock Purchase Agreement that expressly
apply to the Key EDAC Stockholders' indemnification obligations with respect
to Taxes.
5. COOPERATION. Xxxxxx agrees to cooperate with the EDAC
Stockholders' Representative as follows: at the reasonable request of the EDAC
Stockholders' Representative, during normal business hours and without unduly
disrupting the business of Xxxxxx or Deanco (a) to afford to the EDAC
Stockholders' Representative and its attorneys, accountants and employees or
representatives reasonable access to the books and records of Deanco and its
predecessors and successors relating to Sales Tax Claims, (b) to make Deanco or
Xxxxxx employees available for work relating to Sale Tax Claims and (c) to
contact customers of Deanco or its predecessors in order to obtain resale
certificates or similar documents pertaining to sales by Deanco or its
predecessors to them in Kansas, Missouri and Illinois prior to the date hereof.
Xxxxxx agrees to so cooperate without any reimbursement of its costs incurred in
doing so, except for its reasonable out-of-pocket costs which shall be
reimbursed by the EDAC Stockholders' Representative, on behalf of the Key EDAC
Stockholders.
6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to agreements
made and to be performed in California without reference to the choice of law
principles of such laws.
7. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Signatures may be exchanged by telecopy, and each party agrees to be bound by
its own telecopied signature and to accept the telecopied signatures of the
other parties.
8. JURISDICTION. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto shall be brought in the courts of the State of California,
or in the United States District Court for the Central District of California,
and, by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the exclusive jurisdiction of such courts, and irrevocably
agrees to be bound
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by any judgment rendered thereby in connection with this Agreement. The
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the respective parties to this Agreement.
9. ATTORNEYS' FEES. In the event any party brings any suit or other
proceeding with respect to the subject matter or enforcement of this Agreement,
the prevailing party (as determined by the court, agency or other authority
before which such suit or proceeding is commenced) shall, in addition to such
other relief as may be awarded, be entitled to recover attorneys' fees, expenses
and costs of investigation as actually incurred (including, without limitation,
attorneys' fees, expenses and costs of investigation incurred in appellate
proceedings, costs incurred in establishing the right to indemnification, or in
any action or participation in, or in connection with, any case or proceeding
under Chapter 7, 11 or 13 of the Bankruptcy Xxxx, 00 Xxxxxx Xxxxxx Code
Sections 101 ET SEQ., or any successor statutes).
10. CONSTRUCTION. Each party has reviewed and revised this Agreement
and, therefore, the rule of construction requiring that any ambiguity be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
[Signature Page Follow]
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first above written.
XXXXXX ELECTRONICS, INC.
By /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxx
Chief Financial Officer
/s/ Xxxxxx X. Xxxxxx
-------------------------------------
XXXXXX X. XXXXXX
CAXTON XXXXXX (DEANCO), L.P.
XXXXXXX X. XXXXX
XXXXX FAMILY 1989 TRUST
XXXXX XXX XXXXXXX
XXXXXX XXXXXX
THE XXXXX FAMILY 1980 TRUST
XXXXXX X. XXXXXXXX
XXXX XXXX
All of the above by
/s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxx
their Attorney-in-fact
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EXHIBIT I
Key EDAC
STOCKHOLDERS
Number of EDAC Number of EDAC
Common Shares Preferred Shares
Name Owned Owned
---- -------------- -----------------
Caxton Xxxxxx 0 2,640,000
(Deanco), L.P.
Xxxxxxx Xxxxx & 845,672 1,258,000
Xxxxx Family 1989
Trust
Xxxxxx Xxxxxx 634,328 898,000
Xxxxx X. Xxxxxxx 716,500 300,000
Xxxxxx Xxxxxx 716,500 300,000
The Xxxxx Family 0 240,000
1980 Trust
Xxxxxx X. Xxxxxxxx 265,800 0
U/D dated 5/25/89
Xxxx Xxxx 150,000 0
--------- ---------
Total 3,328,800 5,636,000
