EXHIBIT 10.2
TAX SHARING AND INDEMNIFICATION AGREEMENT
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THIS IS A TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"),
dated as of the Effective Date, made by and among Irex Corporation, a
Pennsylvania corporation ("IREX") on behalf of itself and each member of the
IREX Post-Distribution Group, Specialty Products & Insulation Co., a
Pennsylvania corporation ("SPI"), on behalf of itself and each member of the SPI
Group, and their respective successors.
Background
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A. IREX has determined to effect the Distribution;
B. IREX and SPI have received the Tax Opinion regarding the tax
treatment of the Distribution;
C. The parties are entering into this Agreement: to insure the
continuing effectiveness of the Tax Opinion; to provide for the parties'
respective liabilities for Taxes; to provide certain indemnities; and to provide
for various administrative matters relating to Taxes including: (1) the
preparation and filing of Tax Returns along with the payment of Taxes shown due
and payable thereon, (2) the retention and maintenance of relevant records
necessary to prepare and file appropriate Tax Returns, as well as the provision
for appropriate access to those records by the parties to this Agreement, (3)
the conduct of audits, examinations, and proceedings by appropriate governmental
entities which could result in a redetermination of Taxes, and (4) the
cooperation of all parties with one another in order to fulfill their duties and
responsibilities under this Agreement and under the Code and other applicable
law; and
D. It is the intent of the parties that, subject to certain
limitations specified herein in more detail, (i) IREX shall generally bear the
economic burden of Taxes imposed upon or attributable to the activities and
operations of IREX and its affiliates other than the members of the SPI Group,
including any Taxes attributable to the operations of IREX and its affiliates
that are due under any consolidated, combined or unitary Tax Return (or group
relief or similar arrangement) that includes one or more members of the SPI
Group and at least one member of the IREX Pre-Distribution Group (an "IREX
Consolidated Return") and (ii) the SPI Group shall generally bear the economic
burden of substantially all Taxes otherwise imposed upon or attributable to the
members of the SPI Group, including substantially all Taxes payable with respect
to an IREX Consolidated Return that are attributable to the income or operations
of a member of the SPI Group.
Terms
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THEREFORE, in consideration of the mutual promises, covenants, and
conditions contained in this Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement (including the
introduction and Background section hereof), the following definitions apply
(such meanings to be equally applicable to both the singular and plural focus of
the terms involved):
ADJUSTMENT means any proposed or final change in the Tax Liability of
a taxpayer.
AFFILIATE means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with such Person.
AFFILIATED PERSON has the meaning ascribed to such term in the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder.
ASSOCIATES has the meaning ascribed to such term in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
BENEFICIAL OWNERSHIP has the meaning ascribed to such term in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
CODE means the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder, including any comparable successor
legislation.
CORPORATE SEPARATION AGREEMENT means the Corporate Separation
Agreement among IREX, SPI and their affiliates entered into as of _________,
1998 in connection with the Distribution.
DISTRIBUTION means the distribution of SPI common stock to the holders
of IREX common stock.
EFFECTIVE DATE means the date on which the Distribution occurs.
EVERCORE PURCHASE means the purchase by Evercore Capital Partners
L.P., Evercore Capital Partners (NQ) L.P. and Evercore Capital Offshore Partners
L.P. of the stock of SPI immediately following the Distribution
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FINAL DETERMINATION means the final resolution of any Tax matter. A
Final Determination shall result from the first to occur of:
1. the expiration of 30 days after the IRS' acceptance of a Waiver
of Restrictions on Assessment and Collection of Deficiency in Tax
and Acceptance of Overassessment on Form 870 or 870-AD (or any
successor comparable form) (the "Waiver"), except as to reserved
matters specified therein, or the expiration of 30 days after
acceptance by any other taxing authority of a comparable
agreement or form under the laws of any other jurisdiction,
including state, local, and foreign jurisdictions; unless, within
such period, the taxpayer gives notice to the other party to this
Agreement of the taxpayer's intention to attempt to recover all
or part of any amount paid pursuant to the Waiver by the filing
of a timely claim for refund;
2. 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);
3. the execution of a closing agreement under Code section 7121, or
the acceptance by the IRS of an offer in compromise under Code
section 7122, or comparable agreements under the laws of any
other jurisdiction, including state, local, and foreign
jurisdictions; except as to reserved matters specified therein;
4. the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund that was
disallowed in whole or part by the IRS or any other taxing
authority;
5. the expiration of the applicable statute of limitations; or
6. an agreement by the parties hereto that a Final Determination has
been made.
GROUP has the meaning ascribed to such term in the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
INDEMNIFIED LIABILITY is defined at Section 8.1.
INDEMNIFIED PARTY is any person that is entitled to a payment under
Article III or Article VII of this Agreement.
INDEMNIFYING PARTY is any party to the Agreement that owes a payment
to an Indemnified Party pursuant to Article III or Article VII of this
Agreement.
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IREX CONSOLIDATED RETURN has the meaning set forth in paragraph D of
the Background section hereof.
IREX GROUP means, as of any relevant date, IREX and its Subsidiaries,
determined as of such date.
IREX POST-DISTRIBUTION GROUP means the members of the IREX Group at an
applicable point in time following the Effective Date.
IREX PRE-DISTRIBUTION GROUP means the members of the IREX Group at any
applicable point in time prior to and including the Effective Date.
IRS means the U. S. Internal Revenue Service.
IRS INTEREST RATE means the rate of interest imposed from time to time
on underpayments of income tax pursuant to Code section 6621(a)(2).
MANAGEMENT PURCHASE means the issuance of SPI common stock to certain
management employees of SPI that will not, in the aggregate, exceed 140 shares
(determined on a post-Reverse Stock Split basis).
NON-PRIMARY PARTY is defined at Section 4.2(a).
OPINION OF COUNSEL means an opinion of independent tax counsel of
recognized national standing and experienced in the issues to be addressed and
otherwise reasonably acceptable to IREX, which sets forth an Unqualified Tax
Opinion in form and substance satisfactory to IREX.
PERSON means any natural person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
PRE-CLOSING ACCRUAL has the meaning set forth in Section 2.4.
PRE-DISTRIBUTION DIVIDEND means the $10,490,000 dividend paid by SPI
to IREX prior to the Distribution.
PRIMARY PARTY is defined at Section 4.2(a).
PROCEEDING is defined at Section 9.2(a).
RECOVERABLE TAX ITEM means a Tax Item that is (i) reflected or
required on a Tax Return that is required to be filed on or prior to the
Effective Date and that, as filed, does not reflect a reasonable tax filing
position with respect to such Tax Item or (ii) a deduction for parent overhead
expense allocations.
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RESTRICTED PERIOD means the two year period following the Effective
Date.
REVERSE STOCK SPLIT means the reverse stock split of SPI entered into
in connection with the Distribution
SPI BUSINESS means the business of distributing and fabricating
mechanical insulation, architectural/acoustical products and specialty products.
SPI GROUP means SPI and its wholly-owned subsidiary, Richlar
Industries, Inc.
SPI RETURNS has the meaning set forth in Section 2.2 hereof.
STOCK PURCHASE AGREEMENT means the Stock Subscription Agreement by and
among IREX, SPI, Evercore Capital Partners L.P., Evercore Capital Partners (NQ)
L.P. and Evercore Capital Offshore Partners L.P. dated as of October __, 1998.
SUBSIDIARY means with respect to IREX or SPI, any Person of which IREX
or SPI, respectively, controls or owns, directly or indirectly, more than 50% of
the stock or other equity interest entitled to vote on the election of members
to the board of directors or similar governing body.
TAXES means all taxes assessments, charges, duties, fees, levies or
other governmental charges, including without limitation, all Federal, state,
local, foreign and other income, franchise, profits, capital gains, capital
stock , transfer, sales, use, occupation, property, excise, severance, windfall
profits, stamp, license, payroll, withholding and other taxes, assessments,
charges, duties, fees, levies or other governmental charges of any kind
whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a Tax Return), all estimated taxes, deficiency
assessments, additions to tax, penalties and interest and shall include any
liability for any such amounts as a result either of being a member or a
combined, consolidated, unitary or affiliated group or of a contractual
obligation to indemnify any person or other entity.
TAX BENEFIT means a reduction in the Tax Liability of a taxpayer for
any taxable period. Except as otherwise provided in this Agreement, a Tax
Benefit shall be deemed to have been realized or received from a Tax Item in a
taxable period only if and to the extent that the Tax Liability of the taxpayer
for such period, after taking into account the effect of the Tax Item on the Tax
Liability of such taxpayer in all other periods, is less than it would have been
if such Tax Liability were determined without regard to such Tax Item.
TAX ITEM means any item of income, gain, loss, deduction, credit,
recapture of credit, or any other item which may have the effect of increasing
or decreasing Taxes paid or payable. Without limiting the foregoing, Tax Items
of IREX shall include any income or gain that may be recognized by the IREX
Group in connection with the payment of the Pre-Distribution
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Dividend and any triggering of any excess loss account with respect to the stock
of SPI in connection with the Distribution.
TAX LIABILITY means the net amount of Taxes due and paid or payable
for any taxable period, determined after applying all tax credits and all
applicable carrybacks or carryovers for net operating losses, net capital
losses, unused general business tax credits (of the applicable corporation and,
in the case of an IREX Consolidated Return, the other members of the IREX Group
included in such Tax Return), or any other Tax Items arising from a prior or
subsequent taxable period, and all other relevant adjustments.
TAX OPINION means the opinion delivered by Dechert Price & ▇▇▇▇▇▇
regarding the federal income tax consequences of the Distribution to IREX and
the shareholders of IREX.
TAX RETURNS means all reports, estimates, declarations of estimated
tax, information statements and returns relating to, or required to be filed in
connection with any Taxes, including information returns or reports with respect
to backup withholding and other payments to third parties.
UNQUALIFIED TAX OPINION means an unqualified "will" opinion of tax
counsel to the effect that a transaction does not disqualify the Distribution
from qualifying for tax-free treatment for the shareholders of IREX and any
member of the IREX Group under Code Section 355, assuming that the Distribution
would have qualified for tax free treatment if such transaction did not occur.
An Unqualified Tax Opinion may rely upon, and assume the accuracy of, any
representations contained in the Tax Opinion, and any representations contained
in an officer's certificate delivered by an officer of IREX or SPI to such tax
counsel in connection with the delivery of such Unqualified Tax Opinion.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
SECTION 2.1. IREX CONSOLIDATED RETURNS. IREX shall prepare and file,
or cause to be prepared and filed, all IREX Consolidated Returns. At least 45
days prior to the applicable filing deadline for any IREX Consolidated Return
that includes the income or operations of one or more members of the SPI Group,
IREX shall cause a draft of such return to be delivered to SPI together with a
reasonably detailed calculation of the portion of the Tax Liability for such
return that IREX has determined is attributable to the income or operations of
the members of the SPI Group.
SECTION 2.2. SPI RETURNS. SPI shall prepare and file, or cause to be
prepared and filed, all Tax Returns of or with respect to the members of the SPI
Group other than the IREX Consolidated Returns (the "SPI Returns").
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SECTION 2.3. TAXABLE PERIOD ENDS ON EFFECTIVE DATE. The members of the
SPI Group shall be included in the federal consolidated income tax return of the
IREX Group for the taxable year that included the Effective Date. In accordance
with Treasury Regulations (S)1.1502-76(b)(ii), the taxable year of the members
of the SPI Group shall end for all federal income tax purposes on the close of
the Effective Date. The allocation of Tax Items of the members of the SPI Group
between the consolidated federal income tax return of the IREX Group that
includes the Effective Date and the separate federal income tax return of the
SPI Group for the taxable period beginning on the date immediately following the
Effective Date shall be determined in accordance with Treasury Regulations
(S)1.1502-76(b)(2)(i), without an election to allocate Tax Items ratably
pursuant to Treasury Regulations (S)1.1502-76(b)(2)(ii). Unless prohibited under
applicable law, a taxable period of a member of the SPI Group that is included
in any other IREX Consolidated Return that includes the Effective Date shall end
on the Effective Date and Tax Items shall be allocated in a manner consistent
with the allocation of Tax Items for federal income tax purposes.
SECTION 2.4. SETTLEMENT OF PRE-CLOSING ACCRUAL FOR TAXES. The
intercompany accounts among the IREX Post-Distribution Group and the SPI Group
shall include an accrual for the parties' good faith estimate of the portion of
each Tax Liability for any IREX Consolidated Return that is attributable to the
members of the SPI Group for the period up to and including the Effective Date
(the "Pre-Closing Accrual"), and SPI shall pay to IREX the applicable portion of
the Pre-Closing Accrual at such time as the related Tax Liability is due and
payable.
ARTICLE III
PAYMENT OF TAXES UPON FILING AND UPON SUBSEQUENT ADJUSTMENT
SECTION 3.1. TAXES GENERALLY. Except as provided in Section 3.2 and
Section 3.3 of this Agreement:
(a) IREX and its Subsidiaries shall pay or cause to be paid and shall
indemnify and hold the members of the SPI Group harmless against all
Tax Liabilities that arise (I) under each IREX Consolidated Return (A)
to the extent attributable to the Tax Items of the members of the IREX
Group other than the members of the SPI Group, (B) to the extent
attributable to the Tax Items of the members of the SPI Group provided
that the Tax Liability attributable to such Tax Items does not exceed
the Pre-Closing Accrual for such Tax Liability, and (C) to the extent
that (i) the Tax Liability relates to a Recoverable Tax Item for
Federal income tax purposes or (ii) all Taxes shown to be due on IREX
Consolidated Returns filed on or prior to the Effective Date were not
paid; (II) under each SPI Return, to the extent that (A) the Tax Item
relates to a Recoverable Tax Item for state tax purposes, or (B) all
Taxes shown to be due on SPI Returns filed on or before the Effective
Date were not paid; or (III) because all Taxes (that relate to a
taxable period prior to and including the Effective Date) for which no
Tax Return was
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filed, or was required to be filed, were not paid. To the extent the
Pre-Closing Accrual for a Tax Liability specified in clause (I)(B) of
the preceding sentence exceeds the Tax Liability attributable to the
Tax Items of the members of the SPI Group, IREX shall promptly
reimburse SPI for such excess.
(b) Except to the extent that (I) there is a Tax Liability that relates to
a Recoverable Tax Item for (A) Federal income tax purposes (with
respect to IREX Consolidated Returns ) or (B) state tax purposes (with
respect to SPI Returns); (II) all Taxes shown to be due on IREX
Consolidated Returns filed on or before the Effective Date or SPI
Returns filed on or before the Effective Date were not paid; or (III)
all Taxes (that relate to a taxable period prior to and including the
Effective Date) for which no such Tax Return was filed, or was
required to be filed, were not paid, SPI shall pay or cause to be paid
and shall indemnify and hold IREX and the members of the IREX Post-
Distribution Group harmless against all Tax Liabilities that arise (i)
under each IREX Consolidated Return to the extent attributable to the
Tax Items of the members of the SPI Group and to the extent the Tax
Liability attributable to such Tax Items exceeds the Pre-Closing
Accrual for such Tax Liability and (ii) under each SPI Return.
Notwithstanding the foregoing provisions of this Section 3.1, the IREX
Post-Distribution Group shall be solely responsible for and shall indemnify and
hold the members of the SPI Group harmless against all Tax Liabilities of the
members of the SPI Group (or the portion of any Tax Liability of any IREX
Consolidated Return attributable to the members of the SPI Group) that arise as
a result of (i) an IREX Post-Distribution Group Member's failure to file or
failure to timely file a Tax Return that includes a taxable period of a member
of the SPI Group on or before the Effective Date or (ii) the Distribution
(except for Taxes resulting from actions taken by SPI that are prohibited by
Sections 6.1 and 6.2 or from actions taken by other Persons specified in Section
7.2).
SECTION 3.2. STRADDLE PERIODS. If a taxable period of a member of the
SPI Group includes the Effective Date but does not end on the Effective Date (as
otherwise generally provided under Section 2.3 of this Agreement), the
determination of Tax Liabilities up to and following the Effective Date
including the Pre-Closing Accrual amounts shall be determined as follows: (A) in
the case of personal property, real property and other ad valorem Taxes, on a
per diem basis, and (B) in the case of all other Taxes on an interim closing of
the books of the members of the SPI Group and an allocation of Tax Items as of
the close of the Effective Date in manner consistent with the allocation of Tax
Items for federal income tax purposes under Section 2.3.
SECTION 3.3. ADJUSTMENTS. If any Tax Return is examined by a taxing
authority and an Adjustment results from such examination, the party bearing
responsibility for such Taxes determined under Section 3.1 shall pay its share
of any additional Tax Liability resulting from the Adjustment, provided,
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however, that if the Adjustment that results in additional
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Tax Liability to one party also results in a Tax Benefit to the other party, the
party receiving such Tax Benefit, to the extent it is equal to or less than the
other party's additional Tax Liability, shall pay such Tax Benefit to such other
party within 30 days after such Tax Benefit is realized. Promptly after
receiving notice from the party having the Adjustment which results in
additional Tax Liability, the other party shall, to the extent permissible, make
a claim for any Tax Benefit resulting from such Adjustment, on an amended Tax
Return or in a formal or informal claim filed with the IRS, unless the amount of
such Tax Benefit is immaterial or unless otherwise agreed by the parties. If an
Adjustment could be governed by both this Section 3.3 and Articles VII, VIII, or
IX, those Articles will take precedence over this Section 3.3.
ARTICLE IV
COOPERATION AND EXCHANGE OF INFORMATION; AUDITS AND ADJUSTMENTS
SECTION 4.1. TAX RETURN INFORMATION.
(a) SPI shall, and shall cause each member of the SPI Group to,
provide IREX with all information and other assistance reasonably requested by
IREX to enable the members of the IREX Post-Distribution Group to prepare and
file IREX Consolidated Returns required to be filed by them pursuant to this
Agreement.
(b) IREX shall, and shall cause each appropriate member of the IREX
Post-Distribution Group to, provide SPI with all information and other
assistance reasonably requested by SPI to enable SPI to prepare and file SPI
Returns required to be filed by them pursuant to this Agreement.
SECTION 4.2. AUDITS AND ADJUSTMENTS.
(a) Whenever IREX or SPI receives in writing from the IRS or any
other taxing authority notice of an Adjustment that may give rise to a payment
from the other party under this Agreement or otherwise affect the other party's
Taxes, IREX or SPI, as the case may be, shall give written notice of the
Adjustment to the other party within thirty (30) days of becoming aware of the
Adjustment but in no case later than ten (10) days before IREX or SPI, as the
case may be, is required to respond to the IRS or other taxing authority. The
party primarily liable for any Tax Liability with respect to the Adjustment
under Section 3.1 or Section 3.3 (the "Primary Party") at its own expense shall
have primary control over all matters relating to the Adjustment that may give
rise to a payment obligation by the Primary Party, provided, however, that the
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other party (the "Non-Primary Party") may settle, partially settle, or otherwise
resolve any controversy involving the Non-Primary Party's return to which the
particular Adjustment relates, so long as the Non-Primary Party does not settle,
partially settle, or otherwise resolve the controversy in a manner inconsistent
with the Primary Party's position, without prior written consent, which may not
be unreasonably withheld or delayed, from the Primary Party.
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(b) SPI agrees to reasonably cooperate with IREX, in the negotiation,
settlement, or litigation of any liability for Taxes of any member of the
IREX Post-Distribution Group.
(c) IREX agrees to reasonably cooperate with SPI in the negotiation,
settlement, or litigation of any liability for Taxes of any member of the
SPI Group.
(d) In the event of a conflict between the operation of this Section
4.2 and Articles VII, VIII, or IX, those Articles will take precedence over this
Section 4.2.
For purposes of this Article IV, the term "party" shall refer to any member of
the IREX Post-Distribution Group and any member of the SPI Group, as the case
may be.
ARTICLE V
RETENTION OF RECORDS; STATUTES OF LIMITATIONS
SECTION 5.1. RETENTION OF RECORDS. IREX and SPI agree to retain the
appropriate records that may affect the determination of the liability for Taxes
of any member of the IREX Group or the SPI Group, respectively, until such time
as there has been a Final Determination with respect to such liability for
Taxes. A party may satisfy its obligations under the preceding sentence by
allowing the other party to duplicate records at such second party's request and
expense.
SECTION 5.2. STATUTE OF LIMITATIONS. IREX and SPI will notify each
other in writing of any waivers or extensions of the applicable statute of
limitations that may affect the period for which any materials, records, or
documents must be retained.
ARTICLE VI
REPRESENTATIONS AND COVENANTS
SECTION 6.1. REPRESENTATIONS.
(a) SPI has reviewed the representations listed on Exhibit 6.1
attached hereto and, to the best of SPI's knowledge, those representations are
complete and accurate in all material respects. SPI shall comply in all material
respects with each such representation. Except as provided in Section 6.2(b), to
the extent such representation relates to future actions or events under its
control, SPI will not take any action during the Restricted Period that would
have caused such representation to be untrue if SPI had planned or intended to
take such action at the time such representation was made by or on behalf of
SPI.
(b) SPI hereby represents and warrants to IREX that SPI has no
intention to undertake any of the transactions set forth in Section 6.2(a)(ii)
nor does SPI have any intention to
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cease to engage in the active conduct of the trade or business (within the
meaning of Section 355(b)(2) of the Code) of the SPI Business.
(c) IREX hereby represents and warrants that it has timely filed all
Tax Returns required to be filed with respect to the members of the SPI Group.
SECTION 6.2. COVENANTS.
(a) SPI covenants and agree with IREX that after the Distribution and
during the Restricted Period:
(i) SPI will continue to engage in the SPI Business and will
continue to maintain a substantial portion of its assets and
business operations as they existed prior to the
Distribution; provided that the foregoing shall not be
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deemed to prohibit SPI from entering into or acquiring other
businesses or operations or from disposing of or shutting
down segments of the SPI Business so long as SPI continues
to engage in the SPI Business and continues to so maintain
such substantial portion of their assets and business
operations;
(ii) Except as provided in Section 6.2(b) and other than the
Evercore Purchase, neither SPI, nor any of its Affiliates
nor any of its or their respective directors, officers or
other representatives will undertake, authorize, approve,
recommend, permit, facilitate, or enter into any contract,
or consummate any transaction with respect to:
(1) the issuance of SPI common stock (including any
issuance pursuant to the exercise of options, warrants,
rights or securities exercisable for, or convertible
into, SPI common stock) in a single transaction or in a
series of related or unrelated transactions or
otherwise or in the aggregate which would exceed
(taking into account the issuance of SPI common stock
in the Evercore Purchase and other issuances of stock
following the Distribution) 46% of the aggregate voting
power or value of the outstanding SPI common stock
immediately following the Distribution and prior to the
Evercore Purchase;
(2) except with respect to the Reverse Stock Split, any
redemptions, repurchases or other acquisitions of
capital stock or other equity interest in SPI in a
single transaction or a series of related or unrelated
transactions, unless such
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redemptions, repurchases or other acquisition satisfy
the following requirements under Section 4.05(1)(b) of
Revenue Procedure 96-30:
(A) there is a "sufficient business purpose" for the
transaction,
(B) the stock to be purchased, redeemed or otherwise
acquired is widely held,
(C) the stock purchases or other acquisitions will be
made on the open market, and
(D) the amount of stock purchases, redemptions, or
other acquisitions in a single transaction or in a
series of related or unrelated transactions will
not equal or exceed an amount of stock
representing 20% of the outstanding stock of SPI
immediately following the Distributions.
(3) the dissolution, merger, or complete or partial
liquidation of SPI or any announcement of such action.
(b) Following the Distribution Date, SPI and its Affiliates may take
any action or engage in conduct otherwise prohibited by Sections 6.1(a) or
6.2(a) so long as prior to such action or conduct, as the case may be, IREX or
SPI receives (A) a ruling from the IRS in form and substance reasonably
satisfactory to IREX and upon which IREX can rely to the effect that the
proposed action or conduct, as the case may be, will not cause the Distributions
to fail to qualify for the tax treatment stated in the Tax Opinion, or (B) an
Opinion of Counsel in form and substance reasonably satisfactory to IREX and
upon which IREX can rely to the effect that the proposed action or conduct, as
the case may be, will not cause the Distribution to fail to qualify for the tax
treatment stated in the Tax Opinion. Notwithstanding the foregoing, nothing in
this Section 6.2(b) shall impose any restrictions on the activities of the SPI
Group after the Restricted Period.
ARTICLE VII
SPI INDEMNITY OBLIGATIONS
SECTION 7.1. SPI INDEMNITY. If SPI takes any action prohibited by
Article VI or violates a representation or covenant contained in Article VI, and
the Distribution fails to qualify for the tax treatment stated in the Tax
Opinion as a result of such action or violation, then the SPI shall indemnify
and hold harmless the IREX Post-Distribution Group against any and all Taxes
imposed upon or incurred by the IREX Post-Distribution Group as a result of the
failure.
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SECTION 7.2. TENDER OFFER OR PURCHASE OFFER. Notwithstanding anything
to the contrary set forth in this Agreement (but subject to the proviso at the
end of this Section 7.2), if, during the Restricted Period, any Person or Group
of Affiliated Persons or Associates acquires Beneficial Ownership of SPI common
stock (or any other class of outstanding SPI stock) or commences a tender or
other purchase offer for the capital stock of SPI or initiates any other form of
transaction to acquire directly or indirectly SPI capital stock, upon
consummation of which such Person or Group of Affiliated Persons or Associates
would acquire Beneficial Ownership of SPI common stock (or any other class of
outstanding SPI stock) such that the Distribution shall fail to qualify for the
tax treatment stated in the Tax Opinion primarily as a result of such
acquisition, tender or other purchase offer, or other form of transaction, then
SPI shall indemnify and hold harmless the IREX Post-Distribution Group against
any and all Taxes imposed upon or incurred by the IREX Post-Distribution Group
as a result of the failure of the Distribution to so qualify; provided, however,
any acquisition of SPI common stock pursuant to the Evercore Purchase or the
Management Purchase shall not be a violation of this Section 7.2 (and thus shall
not trigger the indemnity pursuant to this Section 7.2).
ARTICLE VIII
CALCULATION OF INDEMNITY AMOUNTS
SECTION 8.1. AMOUNT OF INDEMNITY. The amount indemnified against
under Article III and Article VII ("Indemnified Liability") for a tax based on
or determined with reference to income shall be deemed to be the amount of the
tax computed by multiplying (i) the taxing jurisdiction's highest marginal tax
rate applicable to taxable income of corporations such as the Indemnified Party
on income of the character subject to tax and indemnified against under Article
III and Article VII for the taxable period in which the Distribution occurs,
times (ii) the gain or income of the Indemnified Party which is subject to tax
in the taxing jurisdiction and indemnified against under Article III and Article
VII. All amounts payable under this Agreement shall be grossed-up, based on the
tax rate referred to in clause (i) of the preceding sentence, so that the
Indemnified Party is made whole on an after-tax basis.
ARTICLE IX
PROCEDURAL ASPECTS OF INDEMNITY
SECTION 9.1. GENERAL.
(a) If either the Indemnified Party or the Indemnifying Party receives
any written notice of deficiency, claim or adjustment or any other written
communication from a taxing authority that may result in an Indemnified
Liability, the party receiving such notice or communication shall promptly give
written notice thereof to the other party, provided that any delay by the
Indemnified Party in so notifying an Indemnifying Party shall not relieve the
Indemnifying Party of any liability hereunder, except to the extent (i) such
delay restricts the ability of the Indemnifying Party to contest the resulting
Indemnified Liability administratively or
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in the courts in accordance with Section 9.2 and (ii) the Indemnifying Party is
materially and adversely prejudiced by such delay.
(b) The parties hereto undertake and agree that from and after such
time as they obtain knowledge that any representative of a taxing authority has
begun to investigate or inquire into the Distribution (whether or not such
investigation or inquiry is a formal or informal investigation or inquiry), the
party obtaining such knowledge shall (i) notify the other party thereof,
provided that any delay by the Indemnified Party in so notifying the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
hereunder (except to the extent (A) such delay restricts the ability of the
Indemnifying Party to contest the resulting Indemnified Liability
administratively or in the courts in accordance with Section 9.2 and (B) the
Indemnifying Party is materially and adversely prejudiced by such delay), (ii)
consult with the other party from time to time as to the conduct of such
investigation or inquiry, (iii) provide the other party with copies of all
correspondence with such taxing authority or any representative thereof
pertaining to such investigation or inquiry, and (iv) arrange for a
representative of the other party to be present at all meetings with such taxing
authority or any representative thereof pertaining to such investigation or
inquiry.
SECTION 9.2. CONTESTS.
(a) Provided that (i) an Indemnifying Party shall furnish the
Indemnified Party with evidence reasonably satisfactory to the Indemnified Party
of its ability to pay the full amount of the Indemnified Liability and (ii) such
Indemnifying Party acknowledges in writing that the asserted liability is an
Indemnified Liability, such Indemnifying Party shall assume and direct the
defense or settlement of any tax examination, administrative appeal, hearing,
arbitration, suit or other proceeding (each a "Proceeding") commenced, filed or
otherwise initiated or convened to investigate or resolve the existence and
extent of such liability.
(b) If the Indemnified Liability is grouped with other unrelated
asserted liabilities or issues in the Proceeding, the parties shall use their
respective best efforts to cause the Indemnified Liability to be the subject of
a separate proceeding. If such severance is not possible, the Indemnifying Party
shall assume and direct and be responsible only for the matters relating to the
Indemnified Liability.
(c) Notwithstanding the foregoing, if at any time during a Proceeding
controlled by an Indemnifying Party pursuant to Section 9.2(a) such Indemnifying
Party fails to provide evidence reasonably satisfactory to the Indemnified Party
of its ability to pay the full amount of the Indemnified Liability or the
Indemnified Party reasonably determines, after due investigation, that such
Indemnifying Party could not pay the full amount of the Indemnified Liability,
then the Indemnified Party may assume control of the Proceedings upon 7 days
written notice.
(d) In addition to the amounts referred to in Section 7.1, an
Indemnifying Party shall pay all out-of-pocket expenses and other costs related
to the Indemnified Liability, including
14
but not limited to fees for attorneys, accountants, expert witnesses or other
consultants retained by such Indemnifying Party and/or the Indemnified Party. To
the extent that any such expenses and other costs have been or are paid by an
Indemnified Party, the Indemnifying Party shall promptly reimburse the
Indemnified Party therefor.
(e) An Indemnifying Party shall not pay (unless otherwise required by
a proper notice of levy and after prompt notification to the Indemnified Party
of receipt of notice and demand for payment), settle, compromise or concede any
portion of the Indemnified Liability without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld. An
Indemnifying Party shall, on a timely basis, keep the Indemnified Party informed
of all developments in the Proceeding and provide the Indemnified Party with
copies of all pleadings, briefs, orders, and other written papers.
(f) Any Proceeding which is not controlled or which is no longer
controlled by an Indemnifying Party pursuant to Section 9.2 shall be controlled
and directed exclusively by the Indemnified Party, and any related out-of-pocket
expenses and other costs incurred by the Indemnified Party, including but not
limited to, fees for attorneys, accountants, expert witnesses or other
consultants, shall be reimbursed by such Indemnifying Party. An Indemnified
Party will not be required to pursue the claim in federal district court, the
Court of Federal Claims or any state or foreign court if as a prerequisite to
such court's jurisdiction, the Indemnified Party is required to pay the asserted
liability unless the funds necessary to invoke such jurisdiction are provided by
such Indemnifying Party.
SECTION 9.3. TIME AND MANNER OF PAYMENT. An Indemnifying Party shall
pay to the Indemnified Party the amount of the Indemnified Liability and any
expenses or other costs indemnified against (less any amount paid directly by an
Indemnifying Party to the taxing authority) no less than seven (7) business days
prior to the date payment of the Indemnified Liability is to be made by any
party to the taxing authority (or, if applicable, to one or more IREX
shareholders). Such payment shall be paid by wire transfer of immediately
available funds to an account designated by the Indemnified Party by written
notice to an Indemnifying Party prior to the due date of such payment. If an
Indemnifying Party delays making payment beyond the due date hereunder, such
party shall pay interest on the amount unpaid at the IRS Interest Rate for each
day and the actual number of days for which any amount due hereunder is unpaid.
SECTION 9.4. REFUNDS. In connection with this Agreement, if an
Indemnified Party receives a refund in respect of amounts paid by an
Indemnifying Party to any taxing authority on its behalf, or should any such
amounts that would otherwise be refundable to the Indemnifying Party be applied
by the taxing authority to obligations of the Indemnified Party unrelated to an
Indemnified Liability, then such Indemnified Party shall, promptly following
receipt (or notification of credit), remit such refund and any related interest
to such Indemnifying Party.
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SECTION 9.5. COOPERATION. The parties shall cooperate with one
another in a timely manner in any administrative or judicial proceeding
involving any matter that may result in an Indemnified Liability.
ARTICLE X
RESOLUTION OF DISPUTES
SECTION 10.1 DISPUTES.
(a) Resolution of any and all disputes arising from or in connection
with this Agreement, whether based on contract, tort, statute or otherwise,
including, but not limited to, disputes in connection with claims by third
parties (collectively, "Disputes"), shall be subject to the provisions of this
Section 10.1; provided, however, that nothing contained herein shall preclude
either party from seeking or obtaining (i) injunctive relief or (ii) equitable
or other judicial relief to enforce the provisions hereof or to preserve the
status quo pending resolution of Disputes hereunder.
(b) Either party may give the other party written notice of any
Dispute not resolved in the normal course of business. The parties shall attempt
in good faith to resolve any Dispute promptly by negotiation of executive who
have authority to settle the controversy. Within 30 days after delivery of the
notice, the foregoing executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary for a period not to exceed 15 days, to attempt to resolve the Dispute.
All reasonable requests for information made by one party to the other will be
honored. If the parties do not resolve the Dispute within such 45 day period
(the "Initial Mediation Period"), the parties shall attempt in good faith to
resolve the Dispute by negotiation between (a) in the case of IREX, the Chief
Executive Officer, and (b) in the case of SPI, the Chief Executive Officer
(collectively, the "Designated Officers"). Such officers shall meet at a
mutually acceptable time and place (but in any event no later than 15 days
following the expiration of the Initial Mediation Period) and thereafter as
often as they reasonably deem necessary for a period not to exceed 15 days, to
attempt to resolve the Dispute.
(c) If the Dispute has not been resolved by negotiation within 75
days of the first party's notice, or if the parties failed to meet within 30
days of the first party's notice, or if the Designated Officers failed to meet
within 60 days of the first party's notice, either party may commence any
litigation or other procedure allowed by law.
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ARTICLE XI
GENERAL
SECTION 11.1. TERM OF THE AGREEMENT. This Agreement shall become
effective as of the Effective Date and, except as otherwise expressly provided
herein, shall continue in full force and effect indefinitely.
SECTION 11.2. INJUNCTIONS. The parties acknowledge that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. The parties hereto shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
such remedy being in addition to any other remedy to which they may be entitled
at law or in equity.
SECTION 11.3. ASSIGNMENT. Neither of the parties may assign or
delegate any of its rights or duties under this Agreement without the prior
written consent of the other party, which consent will not be unreasonably
withheld. This Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective successors and permitted assigns.
SECTION 11.4. FURTHER ASSURANCES. Subject to the provisions hereof,
the parties hereto shall make, execute, acknowledge, and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, performing
its obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders, and decrees, and promptly provide
the other parties with all such information as they may reasonably request in
order to be able to comply with the provisions of this sentence.
SECTION 11.5. WAIVERS. No failure or delay on the part of the parties
in exercising any power or right hereunder 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 modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
SECTION 11.6. CHANGE OF LAW. If, due to any change in applicable law
or regulations or their interpretation by any court of law or other governing
body having jurisdiction subsequent to the date of this Agreement, performance
of any provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
17
SECTION 11.7. CONFIDENTIALITY. Subject to any contrary requirement of
law and the right of each party to enforce its rights hereunder in any legal
action, each party agrees that it shall keep strictly confidential, and shall
cause its employees and agents to keep strictly confidential, any information
which it or any of its employees or agents may require pursuant to, or in the
course of performing its obligations under, any provision of this Agreement.
SECTION 11.8. HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
SECTION 11.9. COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
SECTION 11.10. NOTICES. All notices, requests, claims and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery by
hand, by reputable overnight courier service, by facsimile transmission, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the addresses listed below:
IREX at: Irex Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: General Counsel
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
SPI at: Specialty Products & Insulation Co.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn.: Chief Financial Officer
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by hand shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five (5) calendar days after the date the same is
mailed. Notice given by reputable overnight courier shall be deemed delivered
on the next following business day after the same is sent. Notice given by
facsimile transmission shall be deemed delivered on the day of transmission
provided telephone confirmation of receipt is obtained promptly after completion
of transmission.
SECTION 11.11. PRE-DISTRIBUTION EARNINGS AND PROFITS. IREX and SPI
agree to allocate pre-Distribution earnings and profits in accordance with
Treasury Regulation Section 1.312-10.
18
SECTION 11.12. COSTS AND EXPENSES. Unless otherwise specifically
provided herein, each party agrees to pay its own costs and expenses resulting
from the fulfillment of its respective obligations hereunder.
SECTION 11.13. CANCELLATION OF PRIOR TAX ALLOCATION OR TAX-SHARING
AGREEMENTS. Except as otherwise expressly provided herein, on or prior to the
Effective Date, IREX shall cancel or cause to be canceled all agreements (other
than this Agreement) providing for the allocation or sharing of Taxes to which
any member of the SPI Group would otherwise be bound following the Distribution.
SECTION 11.14. INTEREST ON LATE PAYMENTS. If a party delays making
any payment beyond the due date hereunder, such party shall pay interest on the
amount unpaid at the IRS Interest Rate for each day and the actual number of
days for which any amount due hereunder is unpaid.
SECTION 11.15. GENERAL. This Agreement, including the attachments,
shall constitute the entire agreement between the parties hereto with respect to
the subject matter hereof and shall supersede all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
or (b) by a waiver in accordance with Section 11.5. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
respective present and future subsidiaries, and nothing herein, express or
implied, is intended to or shall confer upon any third parties any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 11.16. GOVERNING LAW AND SEVERABILITY. This Agreement shall
be governed by, and construed in accordance with, the laws of the Commonwealth
of Pennsylvania, applicable to contracts executed in and to be performed
entirely within that state. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, all
as of the Effective Date.
IREX CORPORATION
19
By: _____________________________
Name:
Title:
SPECIALTY PRODUCTS & INSULATION CO.
By: _____________________________
Name:
Title:
20
TAX SHARING AND INDEMNIFICATION AGREEMENT
EXHIBIT 6.1
1. The Distribution is being carried out for the following corporate
business purposes:
a. ▇▇▇▇▇▇ ▇. ▇▇▇▇, President and Chief Executive Officer of SPI, and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice President and Chief Financial Officer of SPI ("Management")
and the Board of Directors of SPI (the "Board") have determined it is in the
best interests of SPI and its subsidiaries to raise equity capital through an
issuance of common stock, the proceeds of which would be used to reduce the
level of outstanding indebtedness of SPI and its subsidiaries and for other good
and valid corporate business purposes. The purchasers of SPI stock in the
Evercore Purchase (the "Evercore Purchasers") have indicated that the
Distribution is an essential pre-condition to the Evercore Purchase as the
Evercore Purchasers are unwilling to invest either directly in SPI while it is a
subsidiary of IREX or directly in IREX;
b. Management and the Board believe that the Distribution will give
SPI greater managerial, operational and financial flexibility to deal with their
independent operations;
c. Management and the Board believe that the Distribution will
improve SPI's ability to pursue and finance acquisitions and other business
opportunities;
d. Management and the Board believe that potential customers of SPI
will be more likely to purchase products from SPI if it operates independently
from IREX, whose business competes to some extent with the business of SPI's
customers; and
e. The Distribution will enable SPI to provide its management and
employees with incentive compensation that more directly reflects the success of
SPI.
The Distribution is motivated in whole or substantial part by one or
more of these business purposes.
2. Management has no current plan or intention to sell, exchange,
transfer by gift, or otherwise dispose of any stock of SPI after the
Distribution.
3. There is no current plan or intention to liquidate SPI, to merge SPI
with any other corporation, or to sell or otherwise dispose of the assets of SPI
after the transaction, except in the ordinary course of business.
4. The Evercore Purchase will be completed as soon as practical following
the Distribution and will, in all events, occur within one year after the date
of the Distribution.
5. SPI has been directly engaged in the business of the distribution of
mechanical insulation and architectural products (the "Business") for over 5
years, and SPI employees have performed active and substantial operational and
management functions with respect to the Business continuously during that 5-
year period.
6. Other than (i) certain advances and intercompany accounts from members
of the IREX Group to the SPI Group that will be satisfied in full promptly
following the Distribution and the Evercore Purchase, (ii) amounts that may be
owing from time to time under the Corporate Separation Agreement, the Benefits
Sharing Agreement and the Tax Sharing Agreement (as those agreements are defined
in the Stock Purchase Agreement) and other obligations incurred in the ordinary
course of business on an arms' length basis and (iii) the Irex Notes (as defined
in the Stock Purchase Agreement), no intercorporate debt will exist between IREX
and SPI at the time of the Distribution, nor is there a current plan for such
intercompany debt to exist following the Distribution.
7. Payments made in connection with all continuing transactions between
any member of the SPI Group and any member of the Irex Post-Distribution Group
will be on terms that approximate fair market value based on terms and
conditions that are generally comparable to terms arrived at by the parties
bargaining at arms length.
8. SPI has no current plan or intention to issue, redeem or otherwise
engage in transactions with respect to its stock (other than pursuant to (i) the
Evercore Purchase, (ii) the Reverse Stock Split, (iii) options that may be
exercised under the Stock Option Plan (as defined in the Stock Purchase
Agreement), or (iv) the Management Purchase; provided, however, that this
representation shall not apply to transactions with respect to SPI stock that do
not cause subsection 355(e) of the Code to apply to the Distribution (whereby
the SPI common stock is not treated as qualified property for purposes of
subsection 355(c) of the Code).
9. The Reverse Stock Split is being undertaken by SPI to reduce the
number of SPI shareholders after the Distribution and to thereby reduce certain
securities regulation compliance costs. None of the cash being paid in lieu of
fractional shares represents separately bargained for consideration on behalf of
the IREX shareholders, and it is estimated that the total number of fractional
shares (in lieu of which, cash will be paid) will be less than 1.5% of the
number of SPI shares that would be outstanding after the Distribution if
fractional shares were issued in the Distribution.