EXHIBIT 10.11
TAX AGREEMENT
This TAX AGREEMENT is made and entered into on October __, 1997, and is to
be effective as of the closing date of the initial public offering of Common
Stock on Registration Statement Form S-1 (the "Effective Date") of Franchise
Mortgage Acceptance Company, a Delaware corporation (the "Company"), by and
among the Company, on the one hand, and FLRT, Inc., a California corporation
("FLRT"), Franchise Mortgage Acceptance Company LLC, a California limited
liability company ("FMLLC"), Imperial Credit Industries, Inc., a California
corporation ("ICII")(FLRT, FMLLC, and ICII are collectively referred to herein
as the "Indemnified Parties"), on the other hand, and is made with respect to
the following facts.
A. Upon the Effective Date, Company will merge with and succeed to all of
the assets of FMLLC. Company also will assume all of the liabilities
of FMLCC.
B. FMLLC files Federal and state income tax returns, but because it is
treated as a partnership for tax purposes, it does not pay income
taxes. Instead, its members, ICII and FLRT are responsible for any
income taxes owed upon FMLLC's income.
C. The parties hereto desire to apportion liability for taxes among
themselves.
NOW, THEREFORE, upon the above premises, an in consideration of the mutual
covenants, promises, and agreements hereinafter contained, the parties hereto
agree as follows.
SECTION I. DEFINITIONS.
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The following terms, when used in this Agreement with an initial capital
letter, have the following meanings:
"After-Tax Basis" means on a basis such that any payment to be received or
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deemed to be received by the payee shall be supplemented by a further payment to
the payee so that the sum of the two payments, after deduction of all Taxes
resulting from the receipt or accrual of such payments, shall be equal to the
payments to be received or deemed to have been received.
"Tax" or "Taxes" means any and all taxes (including, without limitation,
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gross receipts, sales, use, property, income, franchise, capital, occupational,
license, value added, excise and stamp taxes and customs duties), assessments,
fees (including, without limitation, documentation, license, filing and
registration fees) and charges, of any nature or kind whatsoever, together with
any penalties, fines, additions to tax or interest thereon, however imposed,
withheld, levied, or assessed by any taxing authority.
"Tax Assessment" means any and all liability (including, without
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limitation, interest, additions to tax and penalties) imposed by any taxing
authority for or with respect to Taxes assessed, for any reason with respect to,
for, or fairly attributable to the operations of FMLCC.
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SECTION II. LIABILITY FOR TAXES.
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2.1 Indemnities. If any Tax Assessment shall be made by any taxing
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authority for any taxable period against any Indemnified Party, whether (i) as a
result of or in settlement of any audit, administrative proceeding or judicial
proceeding, or (ii) as the result of the filing of an amended return to reflect
the consequences of any determination made in connection with an audit or
proceeding, then Company shall indemnify and hold harmless Indemnified Parties
from and against all such sums on an After-Tax Basis. If an adjustment is made
to Taxes paid with respect to the net income (or other Tax computation base) of
FMLLC by any taxing authority for any taxable period before the Effective Date,
whether (i) as a result of or in settlement of any audit, administrative
proceeding or judicial proceeding, or (ii) as the result of the filing of an
amended return to reflect the consequences of any determination made in
connection with an audit or proceeding, and such adjustment results in a tax
benefit to any Indemnified Party, then all such Indemnified Parties receiving
such tax benefit shall pay to Company the amount of such tax benefit. If an
adjustment is made to Taxes paid with respect to the net income (or other Tax
computation base) of FMLLC by any taxing authority for any taxable period before
the Effective Date, whether (i) as a result of or in settlement of any audit,
administrative proceeding or judicial proceeding, or (ii) as the result of the
filing of an amended return to reflect the consequences of any determination
made in connection with an audit or proceeding, and such adjustment results in a
tax benefit to Company in a tax period after the Effective Date, then Company
shall be entitled to retain such tax benefit.
2.2 Exception to Indemnities. Notwithstanding anything to the contrary
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set forth in this Agreement, no indemnity shall be provided by Company to any
Indemnified Party to the extent that any Tax Assessment or Tax which would
otherwise be the subject of such indemnity comes about (i) as the result of or
in settlement of any audit, administrative proceeding or judicial proceeding, or
(ii) as the result of the filing of an amended return to reflect the
consequences of any determination made in connection with an audit or
proceeding, in which FMLLC is determined for tax purposes to be an association
taxable as a corporation. Instead, the Indemnified Parties shall indemnify
Company for all Taxes on an After-Tax Basis that Company is required to pay as a
result of such a determination. (The forgoing exception shall only apply to
such Tax Assessment or Tax to the extent that the Tax Assessment or Tax pertains
to the income of FMLLC as originally reported on its income tax return for the
period in question. By way of example only and without limitation:
If FMLLC (i) reported net income of $2,000,000 on its 1996 income tax
return (the "1996 Return"), (ii) Company amended the 1996 Return to report
additional net income of $1,000,000 for the reporting period, and (iii) the
Internal Revenue Service successfully asserted that FMLLC should be taxed
as a corporation for the 1996 taxable year, then (a) Company would owe no
indemnity to any Indemnified Party for Taxes on the $2,000,000 reported on
the 1996 Return, (b) Indemnified Parties would owe Company indemnity on an
After-Tax Basis for all Taxes assessed against Company on the $2,000,000
initially reported on the 1996 Return on account of the reclassification of
FMLLC's tax status, (c) Indemnified Parties would be entitled to retain all
Taxes for which they receive a refund, if any, on account of the
reclassification, and (d) Company would owe full indemnity on an After-Tax
Basis to
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Indemnified Parties on the additional $1,000,000 net income reported on the
amended 1996 return to the extent it is assessed and collected against the
Indemnified Parties.
SECTION III. TAX RETURNS AND REPORTING POSITIONS.
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3.1 All Returns For Periods Ending on or Before the Effective Date. The
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Indemnified Parties shall cause to be prepared and filed all required Tax
returns of FMLLC for all periods ending on or before the Effective Date. All
such returns of FMLLC shall be prepared and all elections with respect to such
returns shall be made, to the extent permitted by law, in a manner consistent
with prior practice with respect to FMLLC.
3.2 Consistency. Unless otherwise required to settle any adjustments
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proposed or asserted by a taxing authority, Company shall not take any material
position with respect to Taxes or foreign income taxes for periods ending after
the Effective Date that is inconsistent with positions taken by FMLLC with
respect to Taxes for periods ending on or before the Effective Date; provided
however, if within thirty days of notification of Indemnified Parties by Company
of its proposed assertion of an inconsistent tax position, Indemnified Parties
have furnished to the Company an opinion of counsel, which counsel shall be
reasonable satisfactory to Company, to the effect that there is "substantial
authority" (or such higher standard as may be required by Code Section
6662(d)(2)(C)) within the meaning of section 6662(d)(2)(B)(i) of the Internal
Revenue Code of 1986, as amended( the "Code"), for not asserting such
inconsistent tax position, then Company shall not assert an inconsistent
position except as may be required by a final determination by a court of law.
3.3 Elections. Indemnified Parties acknowledge that, for any period on or
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after the Effective Date, Company may make any election, and any affiliated
group of which Company after the Effective Date was or is a member may cause
Company to make any election, respectively, permitted to them under the Code.
SECTION IV. AUDITS AND CONTESTS.
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4.1 In General. The Indemnified Parties shall promptly notify Company in
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writing upon receipt by any of them of any notice of any pending or threatened
Federal, state or local Tax audit or assessment of FMLLC. Company shall have
the right to represent the Indemnified Parties' interests in any Tax audit, or
administrative or judicial proceeding and to employ counsel of its choice at its
expense. The Indemnified Parties agree to consult with Company and cooperate
with it at all reasonable times upon Company's request in defense of any audit
or other proceeding.
SECTION V. MISCELLANEOUS.
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5.1 Supersedes Prior Agreements. This Agreement supersedes any existing
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agreement presently in effect among the parties with respect to the subject
matter hereof.
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5.2 Cooperation. After the Effective Date, Company and the Indemnified
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Parties shall make available to the other, as reasonably requested, and to any
taxing authority, all information, records or documents relating to Tax
liabilities or potential Tax liabilities of Company for all periods prior to or
including the Effective Date and shall preserve all such information, records
and documents until the expiration of any applicable statute of limitations or
extensions thereof.
5.3 Payments. Amounts payable pursuant to this Agreement shall be paid
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within thirty days after notice and demand therefor by the person entitled
thereto.
5.4 Reference Provision.
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(i) Each controversy, dispute or claim between the parties arising
out of or relating to this Agreement, which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date" (defined as
the date on which a party subject to the Agreement gives written notice to all
other parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in Los Angeles County, California, in accordance with the
provisions of Section 638, et sequoir, of the California Code of Civil
Procedure, or successor provisions("CCP"), which shall constitute the exclusive
remedy for the settlement of any controversy, dispute or claim concerning this
Agreement, including whether such controversy, dispute or claim is subject to
the reference proceeding. The parties waive their rights to initiate any legal
proceedings against each other in any court or jurisdiction other than the
Superior Court of Los Angeles County (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Los Angeles
County Superior Court (or his representative). The referee shall be appointed to
sit as a temporary judge, with all of the powers for a temporary judge, as
authorized by law, and upon selection should take and subscribe to the oath of
office as provided for in Rule 244 of the California Rules of Court (or any
subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP 170.6. The referee shall (a) be requested to set the matter for
hearing within sixty (60) days after the Claim Date and (b) try any and all
issues of law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date. Any decision rendered by the referee
will be final, binding and conclusive and judgment shall entered pursuant to CCP
644 in any court in the State of California having jurisdiction thereof. Any
party may apply for a reference at any time after thirty (30) days following
notice to any other party of the nature of the controversy, dispute or claim, by
filing a petition for a reference pursuant to the previously cited section 638
of the CCP. All discovery permitted by this Agreement shall be completed no
later than fifteen (15) days before the first hearing date established by the
referee. The referee may extend such period in the event of a party's refusal to
provide requested discovery for any reason whatsoever, including, without
limitation, legal objections raised to such discovery or unavailability of a
witness due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon seven (7)
days written notice, and, requests for production or inspection of documents
shall be responded to within ten (10) days after service. All disputes relating
to discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
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(ii) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the
referee, except for trial, shall be conducted without a court reporter, except
that when any party so requests, a court reporter will be used at any hearing
conducted before the referee. The party making such a request shall have the
obligation to arrange for and pay for the court reporter. The costs of the
court reporter at the trial shall be borne equally by the parties.
(iii) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a statement of decision which
shall dispose of all of the claims of the parties that are the subject of the
reference. The parties hereto expressly reserve the right to contest or appeal
from the final judgment or any appealable order or appealable judgment entered
by the referee in the same manner as if it had been entered by a court without a
jury. A new trial, if granted for any reason, is also to be a reference
proceeding under this provision.
(iv) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Los Angeles County
Superior Court, in accordance with the California Arbitration Act, Sections 1280
through 1294.2 of the CCP as amended from time to time. The limitations with
respect to discovery as set forth hereinabove shall apply to any such
arbitration proceeding.
5.5 Notices. All notices, requests, demands and other communications
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provided for hereunder shall be in writing (including telegraphic or facsimile
communications) and shall be mailed (return receipt requested), telegraphed ,
sent by facsimile or delivered to each party at the address set forth as
follows, or at such other addresses either party may designate by notice to the
other, and any such notice, request, demand or other communication shall be
effective upon receipt.
If to Company: Franchise Mortgage Acceptance Company
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx,
President and Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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If to ICII: Imperial Credit Industries, Inc.
00000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx,
General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to FMLLC: Franchise Mortgage Acceptance Company LLC
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx,
Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to FLRT: FLRT, Inc.
00000 Xxxxxxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
5.6 Governing Law. This Agreement shall be deemed a contract made under
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the laws of the State of California, and the rights and obligations of the
parties hereto shall be governed and construed in accordance with the laws of
such State.
5.7 Sections and Headings. Titles or captions of sections or subsections
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contained in this Agreement are inserted only as a matter of convenience and for
reference, and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.
5.8 Counterparts. This Agreement may be executed in any number of
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counterparts, each of which when so executed shall be deemed to be an original,
but all of which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first herein above set forth.
IMPERIAL CREDIT INDUSTRIES, INC.
By: _____________________________________
Name: H. Xxxxx Xxxxxxx
Title: Chairman
FRANCHISE MORTGAGE ACCEPTANCE COMPANY
By: _____________________________________
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive Officer
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
By: _____________________________________
Name: Xxxxx X. Xxxxx
Title: Manager
FLRT, INC.
By: _____________________________________
Name: Xxxxx X. Xxxxx
Title: Chief Executive Officer
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