Exhibit 10.39
FIVE STAR PRODUCTS, INC
000 Xxxxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
January 22, 2004
GP Strategies Corporation
000 Xxxxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Gentlemen:
In connection with the offer by Five Star Products, Inc. ("Five Star")
to purchase up to 5,000,000 shares of its common stock pursuant to a tender
offer (the "Tender Offer") which it intends to commence on or about February 6,
2004, Five Star and GP Strategies Corporation ("GP Strategies") hereby agree as
follows:
1. If Five Star acquires at least 3,750,000 shares of its common stock pursuant
to the Tender Offer, GP Strategies shall exchange for Five Star common stock a
sufficient principal amount of the Five Star 8% Senior Unsecured Note due
September 30, 2004 (the "Five Star Note") to allow GP Strategies to increase its
ownership to at least 80% of our common stock. The exchange price for the Five
Star Note shall equal the same price that Five Star is paying to its
stockholders in the Tender Offer. Such exchange shall occur as soon as legally
permissible following termination of the Tender Offer.
2. If, pursuant to Clause 1 above, GP Strategies shall increase its ownership to
at least 80% of the Five Star common stock and Five Star would become, for
federal tax purposes, part of the affiliated group of which GP Strategies is the
common parent, Five Star and GP Strategies shall inter into the Tax Sharing
Agreement substantially in the form attached hereto as Exhibit A, promptly
following the date upon which Five Star becomes part of the affiliated group.
Very truly yours,
FIVE STAR PRODUCTS, INC.
BY:
---------------------------------
Xxxxxxx Xxxxxx
President
Agreed to and Acknowledged:
GP STRATEGIES CORPORATION
BY:
----------------------------------------------
Xxxxx X. Xxxxxxxxx
President and Chief Financial Officer
Exhibit "A"
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (this "Agreement") dated as of February 1, 2004
between GP Strategies Corporation, a Delaware corporation ("GP Strategies"), and
Five Star Products, Inc., a Delaware corporation, ("Five Star").
WHEREAS, GP Strategies anticipates that it may increase its ownership
to at least 80% of Five Star's outstanding stock and, in such case, Five Star
would become, for federal income tax purposes, part of the affiliated group of
which GP Strategies is the common parent and GP Strategies and Five Star and
their respective subsidiaries would join in the filing of a consolidated federal
income tax return for a group of affiliated companies of which GP Strategies is
the common parent and Five Star is a member (the "GP Strategies Consolidated
Group"); and
WHEREAS, GP Strategies and Five Star wish to provide for the payment of
tax liabilities and entitlement to refunds, allocate responsibility and provide
for cooperation in the filing of tax returns, provide for the realization and
payment of tax benefits arising out of adjustments to the tax returns of the
parties, and to provide for certain other matters;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound, GP Strategies and Five Star agree as
follows:
1. Definitions.
For purposes of this Agreement:
(a) "Taxes" means all federal, state, local, foreign and other
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property (including,
without limitation, real property Taxes and any assessments, special or
otherwise), windfall profits, customs, duties or other Taxes, fees, assessments
or charges of any kind whatever, together with any interest and penalties,
additions to tax or additional amounts with respect thereto (and "Tax" means any
one of the foregoing Taxes).
(b) "Returns" means all returns, declarations, reports,
statements and other documents required under a Tax Law (as hereinafter defined)
either (i) to be filed with a Governmental Authority (as hereinafter defined) in
respect of Taxes; or (ii) to be provided to a person other than a Governmental
Authority (and "Return" means any one of the foregoing Returns).
(c) "Code" means the Internal Revenue Code of 1986, as
amended. All citations to the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments or any substitute or successor
provisions thereto.
(d) "Section" means a section of this Agreement, unless
indicated otherwise.
(e) "Governmental Authority" means the government of the
United States or any foreign country or any state, province, municipality or
other political subdivision of the United States or any foreign country, or any
agency, department, board, instrumentality, authority or commission (including
regulatory and administrative bodies) of any of the foregoing.
(f) "Tax Law" means a statute, regulation or administrative
rule enacted or promulgated for the determination, imposition, assessment or
collection of any Tax.
(g) "Common Consolidated Tax Return" shall mean any
consolidated, combined or unitary Return that includes at least one member of
the GP Strategies Consolidated Group (other than Five Star or any of its
subsidiaries) and Five Star or any of its subsidiaries.
(h) "Tax Attribute" shall mean any net operating loss, capital
loss, credit or other tax attribute (other than the basis of property) relevant
to the calculation of a tax liability.
(i) "Applicable Federal Rate" shall have the meaning set forth
in Section 1274(d) of the Code for a short term rate, compounded quarterly.
(j) "Accounting Firm" means (i) the nationally recognized
accounting firm that is the principal independent auditor of both GP Strategies
and Five Star at the time of a dispute governed by Section 7 hereof; or (ii) if
the firm described in clause (i) is unwilling or unable to serve under Section
7, the nationally recognized accounting firm appointed by the firm described in
clause (i); or (iii) if GP Strategies and Five Star do not use the same
accounting firm as their principal independent auditor, then the nationally
recognized accounting firm jointly selected by the principal independent
auditors of GP Strategies and Five Star at the time of a dispute governed by
Section 7 hereof.
(k) "Disaffiliation" means any event that results in Five Star
no longer being a member of the GP Strategies Consolidated Group.
(l) "Disaffiliation Date" means the date on which
Disaffiliation occurs.
(m) "Affiliation" means that GP Strategies has become the
owner of at least 80% of the outstanding Five Star stock and Five Star has
become a member of the GP Strategies Consolidated Group.
(n) "Affiliation Date" means the first day on which Five Star
is a member of the GP Strategies Consolidated Group for federal income tax
purposes.
2. Returns and Payments.
(a) Filing of Returns.
(i) GP Strategies shall prepare and shall timely file or
cause to be timely filed (1) all Returns filed on a separate company basis for
any member of the GP Strategies Consolidated Group other than Five Star or any
of its subsidiaries, (2) all Returns filed on a consolidated, combined or
unitary basis that include members of the GP Strategies Consolidated Group
(other than Five Star or any of its subsidiaries) that is not a Common
Consolidated Tax Return, and (3) all Common Consolidated Tax Returns. Subject to
Section 2(c), GP Strategies shall make full and timely payment of all Taxes
shown due on all Returns described in this Section 2(a)(i).
(ii) Five Star shall prepare, at its own expense, and shall
timely file or cause to be timely filed (1) all Returns filed on a separate
company basis for Five Star or any of its subsidiaries, (2) all Returns filed on
a consolidated, combined or unitary basis that include Five Star or any of its
subsidiaries other than any Common Consolidated Tax Return, and (3) all Returns
with respect to Five Star or any of its subsidiaries for any taxable year or
other taxable period beginning after the Disaffiliation Date. Five Star shall
make full and timely payment of all Taxes shown due on all Returns described in
this Section 2(a)(ii).
(iii) To the extent required or permitted by law or
administrative practice, in the case of any Common Consolidated Tax Return that
includes the Disaffiliation Date, the taxable year of Five Star and its
subsidiaries shall be treated as closing at the close of the Disaffiliation
Date.
(b) Obligation to Remit Taxes. Five Star and GP Strategies
shall each timely remit or cause to be remitted any Taxes due in respect of any
Tax for which it is required to file a Return hereunder and shall be entitled to
reimbursement for such payments only to the extent provided in Section 2(c).
(c) Tax Sharing Obligations.
(i) Five Star's Obligations. Other than liabilities dealt
with elsewhere in this Agreement, Five Star shall be liable for and shall
indemnify and hold GP Strategies and its subsidiaries (other than Five Star and
its subsidiaries) harmless against any Tax liability of Five Star or any of its
subsidiaries, including the portion of any Tax liability resulting from the
inclusion of Five Star or any of its subsidiaries in a Common Consolidated Tax
Return as determined under Section 2(c)(iii).
(ii) GP Strategies' Obligations. Other than liabilities
dealt with elsewhere in this Agreement, GP Strategies shall be liable for, and
shall hold Five Star and its subsidiaries harmless against any Tax liability of
any member of the GP Strategies Consolidated Group other than Five Star and its
subsidiaries.
(iii) Five Star's Share of the Common Consolidated Tax
Return Liability. Five Star's proportionate share of the Tax liability with
respect to a Common Consolidated Tax Return, or with respect to any estimated
Tax payment relating to any such Return, shall be determined by multiplying the
separate return Tax liability, if any, of Five Star and its subsidiaries (the
"Five Star Subgroup") by 80%. For purposes of this determination, the separate
return Tax liabilities of the Five Star Subgroup shall be determined as if (1)
the Common Consolidated Tax Return included only the Tax items of the Five Star
Subgroup, applying the principles of Section 1552(a)(2) of the Code and Treas.
Reg. ss. 1.1552-1(a)(2) and (2) any Tax Attribute attributable to the Five Star
Subgroup were available solely to the Five Star Subgroup.
(iv) Notification and Contest Procedures.
(1) GP Strategies shall, in good faith, calculate Five
Star's Tax liability, if any, under Section 2(c)(iii) and notify Five Star of
the amount of such liability, if any (the "GP Strategies Notification Letter").
Notification of a Five Star Tax liability and payment obligation under this
clause (1) of this Section 2(c)(iv) shall constitute a request for payment, and,
subject to clause (2) of this Section 2(c)(iv), Five Star shall pay such amount,
in immediately available funds, to GP Strategies within 30 days after receipt of
the GP Strategies Notification Letter, provided that Five Star shall not be
obligated to make such payment to GP Strategies earlier than 10 days prior to
the due date for the filing or making of the relevant Return or estimated Tax
payment.
(2) If Five Star determines in good faith that the amount of
its Tax liability under Section 2(c)(iii) differs from the corresponding amount
in the GP Strategies Notification Letter, Five Star shall notify GP Strategies
of such difference (the "Five Star Tax Adjustment Amount") (such determination,
with calculations in reasonable detail, being referred to as the "Five Star
Notification Letter," which Five Star shall deliver to GP Strategies no later
than 30 days after the date of receipt of the GP Strategies Notification
Letter). If GP Strategies determines in good faith that Five Star's
determination of the Five Star Tax Adjustment Amount is incorrect, GP Strategies
shall notify Five Star of such determination (the "Second GP Strategies
Notification Letter") within 30 days of receipt of the Five Star Notification
Letter. If the dispute is not resolved by mutual accord within 30 days of Five
Star's receipt of the Second GP Strategies Notification Letter, the dispute
shall be resolved under the provisions of Section 7. Until GP Strategies and
Five Star reach agreement, or any dispute between them is resolved pursuant to
Section 7, as to the Five Star Tax Adjustment Amount, the provisions of this
Section 2(c) shall continue to apply and payments shall be made by the parties
in the amounts set forth in the GP Strategies Notification Letter in accordance
with clause (1) of this Section 2(c)(iv). Within 30 days of reaching an
agreement or resolution, GP Strategies shall pay to Five Star, or Five Star
shall pay to GP Strategies, the agreed amount after taking into account any
payments made under clause (1) of this Section 2(c)(iv), together with interest
at a rate equal to the Applicable Federal Rate from the date of Five Star's
payment pursuant to this Section 2(c)(iv).
(v) Subsequent Adjustments. If the items used to determine
the Tax liabilities in Section 2(c)(iii) are adjusted by reason of an amended
return, claim for refund, examination by a Governmental Authority, or the final
decision of any court, the amount due from or to Five Star under Section
2(c)(iii) shall be recomputed using the adjusted items. Five Star agrees to pay
to GP Strategies any additional amount owed including interest at the rate
applicable to underpayments of the GP Strategies Consolidated Group pursuant to
Section 6621 of the Code (with full credit given for any prior payments for the
year), and GP Strategies agrees to pay to Five Star any overpayment made by Five
Star including interest at the rate applicable to underpayments of the GP
Strategies Consolidated Group pursuant to Section 6621 of the Code.
Payments to be made by GP Strategies to Five Star pursuant
to this Section 2(c)(v) shall be made, in the case of a refund, within 30 days
after GP Strategies has received such refund. In the case of a credit, such
payments by GP Strategies to Five Star shall be made within 30 days after GP
Strategies has received written notification from a Governmental Authority
reflecting adjustments for such credit to a Return of the GP Strategies
Consolidated Group. Payments to be made by Five Star to GP Strategies shall be
made, in the case of any additional Tax, no later than 5 days before the due
date of any required Tax payment by GP Strategies. In the case of a reduction in
credit of Tax, such payment by Five Star to GP Strategies shall be made within
30 days after GP Strategies has received written notification from a
Governmental Authority reflecting an adjustment for such reduction to a Return
of the GP Strategies Consolidated Group.
All payments required under this Section 2(c)(v) shall be
paid by Five Star to GP Strategies or by GP Strategies to Five Star, as the case
may be, regardless of whether Five Star is a member of the GP Strategies
Consolidated Group.
3. Affiliation and Disaffiliation of Five Star.
(a) Unless the Affiliation shall occur on or before December
1, 2004, this Agreement shall have no application and GP Strategies, the GP
Strategies Consolidated Group or Five Star shall have no obligation to each
other under this Agreement.
(b) This Agreement shall have no application and GP
Strategies, the GP Strategies Consolidated Group or Five Star shall have no
obligation to each other under this Agreement with respect to any taxable period
that begins before the Affiliation Date or after the Disaffiliation Date,
provided however, that this Agreement shall apply to any taxable period that
includes the Affiliation Date and any final short taxable period of Five Star
that includes the Disaffiliation Date. After the filing of all Returns related
to periods beginning before the Disaffiliation Date, Five Star will be informed
of the amount of consolidated carryovers as of the end of such taxable year or
period that are attributable to Five Star, as provided by applicable Tax Law.
4. Record Retention.
After the Disaffiliation Date, GP Strategies and Five Star shall each
make available to the other, as reasonably requested, and to any Governmental
Authority that is duly authorized to request information, records or documents,
all information, records or documents of GP Strategies and Five Star and its
subsidiaries for all periods prior to or including the Disaffiliation Date and
shall preserve all such information, records and documents until the expiration
of any applicable statute of limitations including extensions thereof, provided
that notice of any such extension is given to the party which did not grant the
extension.
5. Audits and Contests.
GP Strategies shall, at its expense, have the right to control on the
taxpayer's behalf any Tax audit and any administrative or court proceeding
concerning Taxes for which GP Strategies is responsible for filing a Return
under Section 2(a)(i) and to concede, compromise or contest any assessment or
assertion of liability with respect to any such Taxes, provided however, that
Five Star will be entitled to participate in any such audit or proceeding
concerning Taxes for which Five Star is liable under Section 2 and GP Strategies
shall not concede, compromise or contest any assessment or assertion of
liability with respect to any such Taxes for which Five Star is liable under
Section 2 without the consent of Five Star (which consent shall not be
unreasonably withheld).
Five Star shall, at its expense, have the right to control on the
taxpayer's behalf any Tax audit and any administrative or court proceeding
concerning Taxes for which Five Star is responsible for filing a Return under
Section 2(a)(ii) and to concede, compromise or contest any assessment or
assertion of liability with respect to any such Taxes.
6. Duty to Cooperate.
GP Strategies and Five Star shall provide reasonable cooperation to
each other in connection with (i) the preparation or filing of any Return, Tax
election, Tax consent or certification, or any claim for refund, (ii) any
determination of liability for Taxes, and (iii) any audit, examination or other
proceeding in respect of Taxes of GP Strategies. Such cooperation shall include
making available, on a reasonable basis, employees of GP Strategies or Five
Star, as the case may be, whose out-of-pocket costs, if any, such as travel and
lodging, shall be reimbursed by the party to which such employees are made
available.
7. Dispute Resolution.
In the event of a dispute concerning this Agreement, the parties shall,
in good faith, attempt to resolve such dispute. If the dispute is not resolved
then the parties shall submit such dispute to the Accounting Firm whose decision
shall be binding on the parties. The Accounting Firm's fee shall be borne
equally by GP Strategies and Five Star.
8. Notices.
All notices and other communications required or permitted hereunder
shall be in writing and shall be given by hand delivery, telecopier, commercial
courier service with guaranteed one-day delivery, or prepaid first class mail to
the following addresses:
If to GP Strategies:
GP Strategies Corporation
000 Xxxxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx, Esq.
If to Five Star:
Five Star Products, Inc.
000 Xxxxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx
9. Successors.
This Agreement shall be binding on and inure to the benefit of any
successor, by merger, acquisition of assets or otherwise, to any of the parties
hereto (including but not limited to any successor of GP Strategies or Five Star
succeeding to the Tax Attributes of either under Section 381 of the Code), to
the same extent as if the successor had been an original party to this
Agreement. In the event that National Patent Development Corporation ("NPDC")
were to acquire all of the stock of Five Star held by GP Strategies in
connection with the anticipated spin off of NPDC, NPDC shall be considered the
successor of GP Strategies for purposes of the preceding sentence.
10. Amendments.
This Agreement shall not be modified, amended, supplemented or
terminated except in writing executed by both parties hereto.
11. Governing Law.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above.
GP STRATEGIES CORPORATION
By:______________________________
Name:
Title:
FIVE STAR PRODUCTS, INC.
By:_______________________________
Name:
Title:
