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EXHIBIT 10(q)
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TAX INDEMNIFICATION AGREEMENT
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[THIS AGREEMENT ESTABLISHES THE RIGHTS AND OBLIGATIONS OF THE
XXXXX-XXXXXXX STORES CORP. AND XXXXXXX-XXXX HOLDINGS, INC.
WITH RESPECT TO TAX MATTERS ARISING FROM THEIR MEMBERSHIP IN
THE SAME AFFILIATED GROUP OF COMPANIES PRIOR TO THE EFFECTIVE
DATE OF THE PLAN. THE RIGHTS AND OBLIGATIONS OF XXXXX- XXXXXXX
AND ITS SUBSIDIARIES GOING FORWARD ARE SET OUT IN A SEPARATE
AGREEMENT, THE TAX SHARING AGREEMENT.]
This Tax Indemnification Agreement dated as of October __,
1997 (this "Agreement") is made and entered into by and among The Xxxxx-Xxxxxxx
Stores Corp., an Ohio corporation (initially "Xxxxx-Xxxxxxx" and on and after
the Effective Date, as defined in Section 1.5 of this Agreement, "New
Xxxxx-Xxxxxxx"); the direct and indirect subsidiaries of Xxxxx-Xxxxxxx whose
names are set forth on the signature pages to this Agreement (collectively with
Xxxxx-Xxxxxxx or New Xxxxx-Xxxxxxx, as the case may be, the "Xxxxx-Xxxxxxx
Subgroup"); Xxxxxxx-Xxxx Holdings, Inc., an Ohio corporation ("Holdings"); The
Xxxxxxx-Xxxx Corporation, an Ohio corporation and wholly-owned subsidiary of
Holdings ("BPC"); Xxxxxxx Investments, Inc. ("BII"), an Ohio corporation and
wholly-owned subsidiary of Holdings; The Xxxxxxx Corporation, an Ohio
corporation and shareholder of Holdings ("BC"); and the individuals,
partnerships, and trusts whose names are set forth on the signature pages to
this Agreement (collectively with BC, the "Holdings Shareholders").
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RECITALS
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WHEREAS, on October __, 1997 the United States Bankruptcy
Court for the Southern District of Ohio (the "Bankruptcy Court") entered an
order confirming the Joint Plan of Reorganization of The Xxxxx-Xxxxxxx Stores
Corp. and Its Subsidiaries (the "Plan");
WHEREAS, Holdings, BPC, BII, and the members of the
Xxxxx-Xxxxxxx Subgroup are members of an Affiliated Group (the "Holdings
Affiliated Group") for federal income tax purposes that files consolidated
federal income tax returns;
WHEREAS, the members of the Xxxxx-Xxxxxxx Subgroup will cease
to be members of the Holdings Affiliated Group on and after the effective date
of the Plan (the "Effective Date"); and
WHEREAS, the Xxxxx-Xxxxxxx Subgroup; each of Holdings, BPC,
and BII (collectively the "Holdings Subgroup"); and the Holdings Shareholders
wish to establish their respective rights and responsibilities with respect to
tax matters;
NOW, THEREFORE, in consideration of the mutual agreements set
forth in this Agreement, and, in the case of the Holdings Shareholders, the
provisions of the Plan with respect to the Xxxxx-Xxxxxxx common stock, the
parties hereto agree as follows:
1. Definitions.
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The following terms as used in this Agreement shall have the
meaning set forth below:
1.1. "AFFILIATED GROUP" has the meaning given that term in
section 1504(a) of the Code.
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1.2. "BANKRUPTCY COURT" has the meaning given that term in the
first Recital paragraph of this Agreement.
1.3. "CODE" means the Internal Revenue Code of 1986, as
amended.
1.4. "CONSOLIDATED RETURN" has the meaning given that term in
Section 2.2(a) of this Agreement.
1.5. "EFFECTIVE DATE" has the meaning given that term in the
third Recital paragraph of this Agreement.
1.6. "XXXXX-XXXXXXX SUBGROUP" has the meaning given that term
in the introductory paragraph of this Agreement and shall include, where the
context requires, corporations that become members of the Subgroup after the
Effective Date.
1.7. "EXCESS LOSS ACCOUNT" has the meaning given that term in
Reg. Section 1.1502-19.
1.8. "GAINS" means taxable gains recognized by the Holdings
Affiliated Group or any member thereof as a result of transactions contemplated
by the Plan, including, without limitation, deferred gains recognized pursuant
to Reg. Section 1.1502-13 and Reg. Section 1.1502-14.
1.9. "HOLDINGS AFFILIATED GROUP" has the meaning given that
term in the second Recital paragraph of this Agreement.
1.10. "HOLDINGS SUBGROUP" has the meaning given that term in
the fourth Recital paragraph of this Agreement and shall include, where the
context requires, corporations that become members of the Subgroup after the
Effective Date.
1.11. "NOTICE" has the meaning given that term in Section 3.3
of this Agreement.
1.12. "OPEN RETURN" has the meaning given that term in Section
2.4(a) of this Agreement.
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1.13. "PLAN" has the meaning given that term in the first
Recital paragraph of this Agreement.
1.14. "REG." refers to the Treasury regulations promulgated
under the Code.
1.15. "SUBGROUP" means, as the context requires, either the
Xxxxx-Xxxxxxx Subgroup or the Holdings Subgroup.
1.16. "TAXES" means taxes imposed on or measured by net
income, including, without limitation, income, franchise, alternative minimum,
and federal environmental taxes, determined after taking into account all
available carryovers and carrybacks, regardless of their source, together with
interest, penalties, and additions to tax with respect thereto.
1.17. "TOLEDO STORES" means the three Xxxxx-Xxxxxxx Stores
Corp. department stores, ownership of which was previously transferred from
Xxxxx-Xxxxxxx to Holdings and by Holdings to BPC.
2. Tax Matters.
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2.1. PAYMENT OF ALLOWED CLAIMS. A claim for Taxes against any
member of the Xxxxx-Xxxxxxx Subgroup that is treated as an allowed claim for
bankruptcy purposes shall be the responsibility of the Xxxxx-Xxxxxxx Subgroup.
2.2. PREPARATION AND FILING OF INCOME TAX RETURNS.
(a) New Xxxxx-Xxxxxxx shall prepare the consolidated
federal income tax returns on behalf of the Holdings Affiliated Group for the
Holdings Affiliated Group's consolidated federal income tax years ended on or
about each of January 31, 1997 and January 31, 1998 (each a "Consolidated
Return" and together the "Consolidated Returns"). The Consolidated Returns shall
include the income and losses of the Xxxxx-Xxxxxxx Subgroup and
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the Holdings Subgroup, including, without limitation, any gains or income
attributable to an Excess Loss Account and any Gains.
(b) The Holdings Subgroup shall timely provide New
Xxxxx-Xxxxxxx with all Holdings Subgroup information necessary for New
Xxxxx-Xxxxxxx to complete the Consolidated Returns in accordance with the
Holdings Affiliated Group's past custom and practice. Holdings shall have the
opportunity to review and comment upon each Consolidated Return prior to its
filing to the extent that the return affects the Holdings Subgroup. Following
that review, and satisfaction of the condition set forth in Section 2.2(c)
hereof, Holdings shall sign the Consolidated Return and deliver it to New
Xxxxx-Xxxxxxx for timely filing with the Internal Revenue Service. New
Xxxxx-Xxxxxxx shall provide Holdings with a copy of each filed Consolidated
Return.
(c) As a condition to Holdings' obligation to sign
each Consolidated Return in the manner set forth in Section 2.2(b) hereof, New
Xxxxx-Xxxxxxx shall certify in writing that sufficient authority exists for each
item or position reflected on such Consolidated Return, or sufficient disclosure
has been made with respect to such item or position, so as to protect Holdings
and the Holdings officer who signs the Consolidated Return from any and all
liability for penalties that the Internal Revenue Service may assert under the
Code with respect to the Consolidated Return. In the event that the Internal
Revenue Service asserts such a penalty and that penalty is sustained, New
Xxxxx-Xxxxxxx shall indemnify, defend, and hold harmless each of Holdings and
the signing officer from any and all costs and expenses associated with the
penalty, PROVIDED, HOWEVER, that (x) New Xxxxx-Xxxxxxx shall have the option, at
its sole cost and expense, to contest the penalty through any administrative or
judicial means provided by law, (y) New Xxxxx-Xxxxxxx'x obligation under this
Section 2.2(c) shall not extend to items or
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positions reflected on the Consolidated Return that are based wholly or in part
on information provided to New Xxxxx-Xxxxxxx by Holdings or a member of the
Holdings Subgroup, and (z) New Xxxxx-Xxxxxxx shall not be liable for any penalty
incurred by Holdings for failure to timely file a Consolidated Return if New
Xxxxx-Xxxxxxx has provided Holdings with a completed Consolidated Return and at
least twenty business days in which to review, comment upon, and sign and file
or return to New Xxxxx-Xxxxxxx for filing such Consolidated Return pursuant to
Section 2.2(b) hereof.
(d) In preparing the Consolidated Return for the
consolidated federal income tax year ending on or about January 31, 1998, New
Xxxxx-Xxxxxxx shall have the option to apportion the Xxxxx-Xxxxxxx Subgroup's
income between the period up to and including the Effective Date and the period
after the Effective Date by ratably allocating such income or loss for the full
consolidated year based on the number of days in each of the two periods in the
manner described in Reg. Section 1.1502-76(b)(2)(ii).
(e) For all tax periods, each of Holdings and New
Xxxxx-Xxxxxxx shall be solely responsible for the preparation and filing of all
state and local tax returns of the members of its Subgroup.
2.3. PAYMENT OF TAXES SHOWN ON RETURNS.
(a) Each member of the Holdings Affiliated Group
shall be solely responsible, on a "separate entity" basis, for payment of any
Taxes shown to be due on a Consolidated Return. Each member of the Holdings
Affiliated Group whose income is included in a Consolidated Return shall pay
that portion of such Taxes which the taxable income of such member (computed on
a separate return basis without deduction of any net operating loss or capital
loss carryforward) for the period to which the Consolidated Return relates bears
to the
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aggregate taxable income of the members having taxable income included in such
return (as so computed) for such period. If the computation of taxable income of
a member under this Section 2.3(a) results in an excess of deductions over gross
income for the period, then such member's taxable income shall be deemed to be
zero for purposes of this Section 2.3(a).
(b) Holdings shall pay to New Xxxxx-Xxxxxxx the
Taxes of any member of the Holdings Subgroup determined under Section 2.3(a).
Holdings shall make such payments on or before the date that the liability for
Taxes shown to be due on the Consolidated Return for the then-current
consolidated taxable year is payable to the Internal Revenue Service or, if
earlier, on the date on which an estimated tax payment is due with respect to
such liability. In the event that Holdings' payments to New Xxxxx-Xxxxxxx under
this Section 2.3(b) exceed the liability for Taxes shown on the Consolidated
Return, New Xxxxx-Xxxxxxx shall be entitled to retain the excess, but only to
the extent that the excess results from a net operating loss or net operating
loss carryover attributable to a member of the Xxxxx-Xxxxxxx Subgroup.
(c) Each member of the Holdings Subgroup and the
Xxxxx-Xxxxxxx Subgroup (except to the extent that two or more members of the
Xxxxx-Xxxxxxx Subgroup are determined to be members of a unitary or consolidated
group for Illinois state tax purposes) shall be responsible for the payment of
its own state and local taxes.
2.4. RESPONSIBILITY FOR AUDITS AND AUDIT ADJUSTMENTS.
(a) Holdings shall allow New Xxxxx-Xxxxxxx and its
professional advisors to participate, at New Xxxxx-Xxxxxxx'x expense, in any
audit of either a Consolidated Return or the Holdings Affiliated Group
consolidated federal income tax return for the consolidated tax year ended on or
about January 31, 1996 (each such return an "Open Return") and in any
administrative proceeding or litigation arising out of the audit of an Open
Return. Holdings shall
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not settle any issues raised on audit of an Open Return in a manner that would
adversely affect a member of the Xxxxx-Xxxxxxx Subgroup unless New Xxxxx-Xxxxxxx
consents in writing to such settlement, PROVIDED, HOWEVER, that if New
Xxxxx-Xxxxxxx determines, in its sole discretion, that it will not consent to a
settlement, New Xxxxx-Xxxxxxx shall be solely responsible for the cost of any
administrative proceeding or litigation undertaken to resolve the issue in
dispute.
(b) If a final determination of liability for Taxes relating
to an Open Return changes the treatment of any item of income, gain, loss,
deduction, or credit, then the payments due under Section 2.3 of this Agreement
shall be recomputed to reflect the revised treatment of the item. If the revised
treatment of the item results in an overpayment by any member of the Holdings
Subgroup under Section 2.3, New Xxxxx-Xxxxxxx shall refund the amount of the
overpayment to Holdings. If the revised treatment of the item results in an
underpayment by any member of the Holdings Subgroup under Section 2.3, Holdings
shall pay the amount of the underpayment to New Xxxxx-Xxxxxxx for payment on
Holdings' behalf to the Internal Revenue Service. Any payment by New
Xxxxx-Xxxxxxx or Holdings pursuant to this Section 2.4(b) shall be accompanied
by interest equal to the amount of interest that would be payable if such
overpayment or underpayment, as the case may be, was an overpayment or
underpayment of federal Taxes for the taxable year or years to which the final
determination relates.
(c) If the Internal Revenue Service asserts that a member of
one Subgroup is liable under Reg. Section 1.1502-6 for Taxes for which a member
of the other Subgroup is responsible under this Agreement, the member that is
responsible for such Taxes under this Agreement shall indemnify, defend, and
hold harmless the member against which the Internal Revenue Service has
asserted liability to the extent that the indemnified member pays such Taxes.
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2.5. ELECTIONS.
(a) Holdings shall not elect to reattribute to
itself any net operating loss carryovers of the Xxxxx-Xxxxxxx Subgroup under
Reg. Section 1.1502-20(g).
(b) Holdings shall make or join in the making of the
following tax elections if requested by New Xxxxx-Xxxxxxx: (i) any election that
is required to effect the provisions of this Agreement, including, without
limitation, the election that Holdings as the common parent of the Holdings
Affiliated Group is required to make under Reg. Section 1.1502-76(b)(2)(ii)(D)
to effect the ratable allocation described in Section 2.2(c) of this Agreement,
and (ii) any other election if the making of the election does not have an
adverse effect on any member of the Holdings Subgroup.
2.6. TAX SHARING AGREEMENTS. Any tax sharing agreement between
any member of the Holdings Subgroup and any member of the Xxxxx-Xxxxxxx
Subgroup, whether express or implied by a course of conduct, is terminated as of
the Effective Date and shall have no effect for any past, current, or future
taxable year. The tax sharing agreement between the members of the Xxxxx-Xxxxxxx
Subgroup dated as of the date of this Agreement shall not be affected by this
Section 2.6.
2.7. TOLEDO STORES.
(a) In the event that (i) BPC or another member of
the Holdings Subgroup disposes of one or more of the Toledo Stores at any time
after the Effective Date in a transaction subject to section 1001 of the Code,
(ii) the net effect of such disposition is to generate a recognized loss for the
disposing member, and (iii) the Holdings Subgroup derives a federal income tax
benefit from that loss (whether from the application of the loss to the taxable
income of the disposing member or the taxable income of another member of the
Holdings Subgroup, or
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as a carryforward or carryback), Holdings shall give New Xxxxx-Xxxxxxx prompt
notice of the disposition and pay New Xxxxx-Xxxxxxx the amount of the tax
benefit so derived (subject to the limitation contained in Section 2.7(b) of
this Agreement) no later than the date on which the Holdings Subgroup's federal
income tax return for the year of the disposition is due.
(b) In the event that the tax benefit to Holdings
described in Section 2.7(a)(iii) exceeds the tax cost to the Xxxxx-Xxxxxxx
Subgroup of the Gains associated with the Toledo Stores, Holdings shall be
entitled to retain such excess.
2.8. WORTHLESS STOCK DEDUCTIONS AND OTHER DISPOSITIONS.
(a) Holdings represents and warrants that prior to
the date of this Agreement it has not taken a worthless stock deduction under
section 165(g) of the Code with respect to its Xxxxx-Xxxxxxx shares or otherwise
disposed of any or all of those shares in a transaction that, in and of itself
or in combination with other transactions, would cause Xxxxx- Xxxxxxx to have
had an ownership change for purposes of Section 382 of the Code. Holdings
further covenants that it will not take any of the actions described in the
previous sentence during the period from and including the date of this
Agreement to and including the Effective Date.
(b) Each Holdings Shareholder represents and warrants
that prior to the date of this Agreement he, she, or it has not taken a
worthless stock deduction under section 165(g) of the Code with respect to his,
her, or its Holdings shares or otherwise disposed of any or all of those shares
in a transaction that, in and of itself or in combination with other
transactions, would cause Holdings to have had an ownership change for purposes
of Section 382 of the Code. Each Holdings Shareholder further covenants that he,
she, or it will not take any of the actions described in the previous sentence
during the period from and including the date of this Agreement to and including
the Effective Date.
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(c) Each Holdings Shareholder holding shares in BC
represents and warrants that prior to the date of this Agreement he, she, or it
has not taken a worthless stock deduction under section 165(g) of the Code with
respect to his, her, or its BC shares or otherwise disposed of any or all of
those shares in a transaction that, in and of itself or in combination with
other transactions, would cause BC to have had an ownership change for purposes
of Section 382 of the Code. Each Holdings Shareholder holding shares in BC
further covenants that he, she, or it will not take any of the actions described
in the previous sentence during the period from and including the date of this
Agreement to and including the Effective Date.
2.9. COOPERATION. Each party to this Agreement will (i) make
personnel and records available as necessary for the filing of original or
amended tax returns and the conduct of any tax proceedings, (ii) retain all
appropriate books and records as long as they may be relevant, (iii) have the
right to inspect the books and records of each other party for any purpose under
this Agreement, and (iv) otherwise cooperate with the other parties to this
Agreement with respect to Taxes.
2.10. LIABILITY FOR TAXES; INDEMNIFICATION. It is the intent
of this Agreement that no member of the Holdings Subgroup shall be liable for
Taxes on income or gain arising out of the operations, transactions, or
activities of any member or former member of the Xxxxx-Xxxxxxx Subgroup
occurring before, on, or after the Effective Date, and that no member of the
Xxxxx-Xxxxxxx Subgroup shall be liable for Taxes on income or gain arising out
of the operations, transactions, or activities of any member or former member of
the Holdings Subgroup occurring before, on, or after the Effective Date. For
purposes of this Section 2.10, income or gains shall be treated as arising out
of the operations, transactions, or activities of a member or former member of a
Subgroup if such income or gains would properly be reported by such member on
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its own federal income tax return if such member were filing such return on a
separate entity basis. Each Subgroup shall indemnify, defend, and hold harmless
each member and former member of the other Subgroup against any and all
liability for Taxes of the members and former members of the indemnifying
Subgroup. Any payments pursuant to this Section 2.10 shall be made by the parent
of the indemnifying Subgroup to the parent of the indemnified Subgroup on or
before the date on which the parent of the indemnified Subgroup is obligated to
pay such Taxes to the Internal Revenue Service.
3. Miscellaneous.
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3.1. AMENDMENT AND WAIVER. This Agreement may be amended,
modified, waived, discharged, or terminated only by an instrument in writing
signed by Holdings, Xxxxx- Xxxxxxx or New Xxxxx-Xxxxxxx, as the case may be, and
any other person against whom the amendment, modification, waiver, discharge, or
termination would operate. Each party to this Agreement will be bound by the
terms of any such amendment, modification, waiver, discharge, or termination.
3.2. SUCCESSORS AND ASSIGNS. This Agreement will be binding on
and inure to the benefit of the parties to this Agreement and to their
respective successors and permitted assigns, but will not be assignable or
delegable by any party without the prior written consent of each other party. In
the absence of prior written consent, any purported assignment or delegation of
any right or obligation under this Agreement will be null and void.
3.3. NOTICE. All notices, requests, waivers, releases,
consents, and other communications required or permitted by this Agreement
(collectively, a "Notice") must be in writing. A Notice will be deemed
sufficiently given for all purposes when delivered in person or when dispatched
by electronic facsimile transmission or on confirmation of receipt when
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dispatched by a nationally recognized overnight courier service to the
appropriate party as follows: (a) if to any member of the Holdings Subgroup, at
00 Xxxx Xxxxxxxx Xxxxxx, Xxxxxx, Xxxx 00000; (b) if to any member of the
Xxxxx-Xxxxxxx Subgroup, at 0000 Xx-Xxx Xxxx, Xxxxxx, Xxxx 00000; and (c) if to a
Holdings Shareholder, in care of Holdings at the address set forth in clause (a)
above, or at such other address as a party to this Agreement may designate in
writing to the other parties. Any Notice given to Holdings or to Xxxxx-Xxxxxxx
or, after the Effective Date, New Xxxxx-Xxxxxxx will constitute notice to all
members of their respective subgroups.
3.4. TITLES AND HEADINGS. Titles and headings to sections in
this Agreement are inserted for convenience of reference only, and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
3.5. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter of this
Agreement. There are no agreements among the parties with respect to that
subject matter except as expressly set forth in this Agreement.
3.6. SEVERABILITY. In case any provision contained in this
Agreement is invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby.
3.7. GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of Ohio, without giving
effect to the principles of conflict of laws thereof.
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3.8. 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 together shall constitute one and the same agreement.
4. Assumption and Condition.
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This Agreement has been prepared and entered into by the
parties on the assumption that the Plan and the related disclosure statement on
file with the Bankruptcy Court will be approved by the Bankruptcy Court without
significant modification and that the Effective Date will be December 19, 1997.
Each party reserves the right to withdraw from this Agreement if the party is
materially and adversely affected by an amendment to the Plan or a change in the
Effective Date. For such withdrawal to be effective, the withdrawing party shall
give Notice to the other parties no later than 30 days after the date of the
amendment or the date on which the Effective Date is changed. Each party shall
use all reasonable efforts to make any changes in the form or substance of this
Agreement that may be required to take into account any amendment to the Plan or
the related disclosure statement or to accommodate any change in the Effective
Date.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
HOLDINGS SUBGROUP
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XXXXXXX-XXXX HOLDINGS, INC.
By:
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Name:
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Title:
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THE XXXXXXX XXXX CORPORATION
By:
------------------------------------
Name:
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Title:
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XXXXXXX INVESTMENTS, INC.
By:
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Name:
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Title:
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XXXXX-XXXXXXX SUBGROUP
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THE XXXXX-XXXXXXX STORES CORP.
By:
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Name:
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Title:
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THE EL-BEE CHARGIT CORP.
By:
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Name:
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Title:
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MARGO'S LAMODE, INC.
By:
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Name:
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Title:
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THE BEE-GEE SHOES CORP.
By:
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Name:
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Title:
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EBA, INC.
By:
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Name:
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Title:
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XxXXXX WHOLESALE, CORP.
By:
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Name:
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Title:
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THE EL-BEE RECEIVABLES CORP.
By:
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Name:
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Title:
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HOLDINGS SHAREHOLDERS
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THE XXXXXXX CORPORATION
By:
------------------------------------
Name:
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Title:
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XXXXXXX XXXXXX
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XXXXXXX XXXXXX
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XXXXXXX XXXX
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[Trusts, etc.]
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