TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT (the "Agreement") is made and
entered into as of this __ day of June, 1994, by and between Empire Gas
Corporation, a Missouri corporation ("the Company"), and Empire Energy
Corporation, a Tennessee corporation ("Energy").
WHEREAS, the Company is undertaking a series of transactions (the
"Transaction") to complete a restructuring, and in connection therewith, certain
shareholders of the Company have agreed to sell their shares of common stock of
the Company to the Company in exchange for the common stock of Energy, a
subsidiary of the Company, pursuant to a Stock Redemption Agreement dated May 7,
1994 among the Company, Energy and certain other parties (the "Stock Redemption
Agreement");
WHEREAS, immediately after consummation of the Transaction, Energy
will own the stock of certain subsidiaries, which subsidiaries (the "Energy
Subsidiaries") will own the operating assets of certain liquified petroleum
("LP") gas and appliance companies formerly owned by the Company and certain
other assets formerly owned by the Company;
WHEREAS, immediately after consummation of the Transaction the
Company will hold stock in certain subsidiaries, which subsidiaries (the
"Remaining Subsidiaries"), own the operating assets of certain liquified
petroleum ("LP") gas and appliance companies of the Company and certain other
assets of the Company;
WHEREAS, Company is the parent company of a consolidated group of
corporations, including Energy and the Energy Subsidiaries (the "Empire Group"),
that file consolidated federal income tax returns;
WHEREAS, immediately after consummation of the Transaction the
Company and the Remaining Subsidiaries (the "Company Group") and Energy and the
Energy Subsidiaries (the "Energy Group") will no longer be members of the same
consolidated group for federal income tax purposes; and
WHEREAS, pursuant to Section 9 of the Stock Redemption Agreement the
obligations of the Company and Energy and other parties under the Stock
Redemption Agreement are subject to the Company and Energy entering into this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants of the parties hereinafter expressed, it is hereby agreed as follows:
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1. DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the following meanings:
"Closing Date" shall mean the date of the closing of the
Transaction, as defined in Section 3 of the Stock Redemption Agreement.
"Closing Taxable Year" means the Taxable year of any member of the
Empire Group which includes or ends on the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Final Determination" shall mean (i) with respect to federal taxes,
a "determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
federal taxes, any final determination of liability in respect of a Tax which,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, including but not limited to the expiration of
a statute of limitations or a period for the filing of claims for refunds,
amended returns or appeals from adverse determinations; and (ii) shall include
the payment of Tax by the Company or Energy, whichever is responsible for
payment of such Tax under applicable law, with respect to any item disallowed or
adjusted by a Taxing Authority, provided that the other party is notified that
the Company or Energy, whichever is responsible, determines that no action
should be taken to recoup such payment, and such other party agrees with such
determination.
"Pre-Closing Tax Period" means any Tax period ending on or before
the close of business on the Closing Date.
"Indemnitee" means a party making a claim for indemnification under
this Agreement.
"Indemnitor" means a party that is required to make a payment under
this Agreement.
"Liability" means the sum of any (x) Tax of the Company, any
Remaining Subsidiary, Energy or any Energy Subsidiary and (y) liabilities,
costs, expenses (including, without limitation, reasonable expenses of
investigation and attorneys' fees and expenses), losses, damages, assessments,
settlements or judgments arising out of or incident to the imposition,
assessment or assertion of any Tax, including those incurred in the contest in
good faith of appropriate proceedings for the imposition, assessment or
assertion of any Tax, in each case attributable to any items arising during the
Tax Indemnification Period.
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"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means
(A) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding on amounts paid to or by the Company, any Remaining Subsidiary,
Energy or any Energy Subsidiary, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental authority (a "Taxing Authority")
responsible for the imposition of any such tax (state, local or federal) and (B)
liability of the Company, a Remaining Subsidiary, Energy, or an Energy
Subsidiary for the payment of any amounts of the type described in (A) as a
result of being a member (or of having a predecessor corporation that was a
member) of the Empire Group for any period during the Tax Indemnification
Period.
"Tax Indemnification Period", means (i) any Pre-Closing Tax Period
of the Company, any Remaining Subsidiary, Energy and any Energy Subsidiary, and
(ii) that portion of the Closing Taxable Year up to and including the Closing
Date.
2. TAX INDEMNIFICATION.
2.1 INDEMNIFICATION BY ENERGY FOR PRE-CLOSING TAX PERIODS. Except
as otherwise provided in Section 2.3 hereof, Energy hereby
indemnifies the Company in an amount equal to 47.7% of any Liability
imposed on any member of the Company Group.
2.2 INDEMNIFICATION BY THE COMPANY FOR PRE-CLOSING TAX
PERIODS. Except as otherwise provided in Section 2.4 hereof, the
Company hereby indemnifies Energy in an amount equal to 52.3% of any
Liability imposed on any member of the Energy Group.
2.3 INDEMNIFICATION BY ENERGY FOR CLOSING TAXABLE YEAR. With
respect to the Closing Taxable Year, Energy hereby indemnifies the
Company in an amount equal to 47.7% of any Liability imposed on any
member of the Company Group attributable to any items arising during
the portion of the Closing Taxable Year up to and including the
Closing Date (a "Closing Taxable Year Liability"), PROVIDED THAT
the indemnity obligation under this Section 2.3 shall arise only if
a Closing Taxable Year Liability imposed on members of the Company
Group exceeds the amount of the unfunded tax accruals identified in
Section 2.3(a)(ii) of the Stock Redemption Agreement.
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2.4 INDEMNIFICATION BY THE COMPANY FOR CLOSING TAXABLE YEAR.
With respect to the Closing Taxable Year, the Company hereby
indemnifies Energy in an amount equal to 52.3% of any Liability
imposed on any member of the Energy Group attributable to any items
arising during the portion of the Closing Taxable Year up to and
including the Closing Date (a "Closing Taxable Year Liability"),
PROVIDED THAT the indemnity obligation under this Section 2.4
shall arise only if a Closing Taxable Year Liability imposed on
members of the Energy Group exceeds the amount of the unfunded tax
accruals identified in Section 2.3(a)(ii) of the Stock Redemption
Agreement.
3. TIME OF MAKING PAYMENTS. Each payment by an Indemnitor pursuant
to Section 2 shall be made within 30 days after receipt of a written demand
therefor accompanied by a written statement describing in reasonable detail the
Liability in question and the amount due in respect thereof; PROVIDED THAT, if
a contest of the Liability is being conducted pursuant to Section 4 hereof,
payment shall be made at the time specified in Section 4.5 hereof.
4. CONTEST PROVISIONS.
4.1 NOTICE OF CLAIM. Indemnitee shall notify an Indemnitor
promptly of the assertion of any claim, or the commencement of any
suit, action or proceeding in respect of which indemnity may be
sought hereunder and of any Indemnitee Liability which Indemnitee
deems to be within the ambit of this Agreement and shall provide to
Indemnitor such information with respect thereto as Indemnitor may
reasonably request. Indemnitee's failure to notify Indemnitor
timely of any such event shall not affect Indemnitor's obligations
hereunder except to the extent that Indemnitor is materially
prejudiced thereby in connection with exercising any contest rights
set forth in this Section 4.
4.2 CONDUCT OF CONTEST. If Indemnitor promptly so requests in
writing, Indemnitee shall contest the proposed adjustment, shall
advise Indemnitor of actions to be taken in implementing such
contests and shall consider in good faith any suggestion made by
Indemnitor as to the method of pursuing such contest. Indemnitee
shall not discriminate against any such proposed adjustment (because
of the indemnified nature of such proposed adjustment) as compared
with other proposed adjustments involving potential tax liability of
Indemnitee and shall not, without the consent of Indemnitor, except
as provided in the last sentence of this Section 4.2 settle such
proposed adjustment on a
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basis which precludes a trial of the issue on the merits;
PROVIDED, HOWEVER, that Indemnitee shall not be obligated to
contest such adjustment unless independent tax counsel ("Tax
Counsel") mutually satisfactory to Indemnitor and Indemnitee is of
the opinion that there is a reasonable basis for contesting the
matter in question. Notwithstanding Indemnitor's compliance with
the foregoing, Indemnitee may forego any and all administrative
appeals, proceedings, hearings and conferences with the relevant
Taxing Authority in respect of such claim and may, at its sole
option, contest in any permissible forum selected by Indemnitee,
PROVIDED, HOWEVER that Indemnitee shall not be entitled to
forego any administrative appeals, proceedings, hearings or
conferences as long as Indemnitee is contesting other items for the
same taxable year in such administrative proceeding, hearing or
conference. Subject to the obligations of Indemnitee pursuant to
the first sentence of this Section 4.2, Indemnitee shall have full
control over any contest pursuant to this Section 4 and shall, if
requested by Indemnitor in a timely written request, and if Tax
Counsel is of the opinion that there is a reasonable basis for
appealing the matter in question, be obligated to appeal an adverse
determination by any court; PROVIDED, HOWEVER, that Indemnitee
shall not be required to appeal an adverse determination to the
United States Supreme Court. At any time, whether before or after
commencing to take the action set forth in this Section 4.2,
Indemnitee may decline to take any such action with respect to all
or any portion of a proposed adjustment by notifying Indemnitor in
writing that Indemnitor is relieved of its obligation to indemnify
Indemnitee with respect to the adjustment or such portion, as the
case may be.
4.3 CONTEST AFTER PAYMENT OF TAX. If Indemnitee determines to
contest any adjustment by paying the additional tax and suing for a
refund, Indemnitor shall timely lend to Indemnitee on an interest
free basis an amount equal to 47.7% (if Energy is the Indemnitor) or
52.3% (if the Company is the Indemnitor) of any Tax required to be
paid and shall indemnify Indemnitee in an amount equal to 47.7% (if
Energy is the Indemnitor) or 52.3% (if the Company is the
Indemnitor) against any adverse tax consequences resulting from the
imputation of interest with respect to such advance or the inclusion
of such advance in income.
4.4 RECEIPT OF REFUNDS. Upon receipt by Indemnitee of a refund
of any amounts paid by it based on any adjustment with respect to
which Indemnitor shall have
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advanced an amount, Indemnitee shall pay to Indemnitor the
appropriate percentage of such refund (47.7% in the event Energy is
the Indemnitor and 52.3% in the event the Company is the
indemnitor), which shall be deemed to be in repayment of the loan
advanced by Indemnitor to the extent fairly attributable thereto,
together with the appropriate percentage of any interest received by
it on such refund plus the appropriate percentage of any net
additional Federal, state or local tax benefits realized by
Indemnitee as the result of such payment, PROVIDED, HOWEVER, that
Indemnitee shall not be required to make any payment under this
Section 4.4 with respect to such refund or other benefit in excess
of the advance by Indemnitor less any amounts previously paid by
Indemnitee to Indemnitor pursuant to this Section 4.4 plus the net
amount of any interest received by Indemnitee in connection with
such refund. Upon disallowance of any such refund, Indemnitor shall
forgive the amount of the loan fairly attributable thereto and shall
pay to Indemnitee the amount of any indemnity obligation hereunder
(including such amount as, after deduction of all taxes required to
be paid by Indemnitee in respect of the receipt of such amount under
the laws of any Federal, state or local government or taxing
authority of the United States, shall be equal to the sum on an
after-tax basis, of any tax, interest, penalties or additions to tax
payable with respect to the forgiveness of such loan), after taking
into account the forgiveness of such loan.
4.5 TIME OF MAKING PAYMENTS IN CASE OF CONTEST. If any
adjustment referred to in this Section 4 shall be proposed and
Indemnitor shall have requested an Indemnitee to contest such
adjustment as above provided and shall have duly complied with the
terms of this Section 4, then notwithstanding any provision to the
contrary in Section 4 hereof, Indemnitor's liability with respect to
such adjustment shall become fixed upon a Final Determination of
such adjustment and Indemnitor shall make payment within 30 days
after receipt of a written demand therefor setting forth the amount
due under this Agreement; PROVIDED, HOWEVER, that if the opinion
of Tax Counsel provided pursuant to Section 4.2 is to the effect
that there is not a reasonable basis for a contest or appeal, then
Indemnitor's obligation to pay such indemnity shall become fixed 30
days after receipt of such opinion by Indemnitor.
4.6 TIME OF MAKING PAYMENTS FOR COSTS. Each payment by
Indemnitor of its share of any costs and expenses of a contest
conducted pursuant to the provisions of this
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Section 4 (including any requests for advances under Section 4.3)
shall be made within 30 days after a submission of a request from an
Indemnitee for payment for such costs and expenses. If Indemnitor
shall fail to pay for more than 60 days after the submission of such
request (unless such costs and expenses are being disputed in good
faith) Indemnitee may discontinue such contest without diminution of
Indemnitor's obligations hereunder.
5. COOPERATION ON TAX MATTERS. The Company and Energy shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with any audit, litigation or other proceeding with respect to
Taxes. Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Company and Energy agree (i) to retain
all books and records with respect to Tax matters pertinent to the Company, the
Remaining Subsidiaries, Energy and the Energy Subsidiaries (and predecessor
entities) relating to any Pre-Closing Taxable Period and the Closing Taxable
Year, and to abide by all record retention agreements entered into with any
Taxing Authority, and (ii) to give the other party reasonable written notice
prior to destroying or discarding any such books and records and, if the other
party so requests, the Company or Energy, as the case may be, shall allow the
other party to take possession of such books and records.
6. GROSS-UP OF INDEMNITY PAYMENTS. In determining the amount of any
indemnity payment from Indemnitor to an Indemnitee pursuant to Section 2 hereof,
Indemnitee shall request an opinion of Tax Counsel as to its tax liability with
respect to such payment. If Tax Counsel opines that it is more likely than not
that all or any portion of the payment is not subject to tax, Indemnitee will
treat the payment accordingly and will initially compute the payment required
under Section 2 hereof in accordance with such treatment, provided that
Indemnitee shall have been indemnified in a manner satisfactory to it against
the risk that such treatment is not ultimately sustained.
7. SURVIVAL OF AGREEMENT. The obligations and liabilities of
Indemnitor arising under this Agreement shall survive for the full period of all
applicable statutes of limitations (giving effect to any waiver, mitigation or
extension thereof). The obligations and liabilities of Indemnitor arising under
this Agreement are expressly made for the benefit of, and shall be enforceable
by any Indemnitee and their respective successors, assigns and agents.
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8. TERMINATION OF EXISTING TAX SHARING AGREEMENTS. Any and all
existing Tax sharing agreements or arrangements, written or unwritten, binding
the Company, Energy or any of the Remaining Subsidiaries or any of the Energy
Subsidiaries (or predecessor entities) that require or permit the transfer or
assignment of any income, revenues, receipts or gains, shall be terminated as
of the Closing Date. After the Closing Date hereof, none of the Company,
Energy, the Remaining Subsidiaries or the Energy Subsidiaries shall have any
further rights or liabilities thereunder with respect to the Tax Indemnification
Period. This Agreement shall be the sole Tax sharing agreement relating to the
Company, Energy or any of the Remaining Subsidiaries or the Energy Subsidiaries
(or predecessor entities) for all Pre-Closing Tax Periods, and for the Closing
Taxable Year, except that nothing in this Section 8 or this Agreement shall
affect any provision of the Stock Redemption Agreement relating to Taxes.
9. MANNER OF MAKING PAYMENTS. Any payments required to be made by
Indemnitor pursuant to this Agreement shall be made directly by Indemnitor to an
Indemnitee by wire transfer of immediately available funds to such bank and/or
account as specified by Indemnitee.
10. NO SETOFF. No payment required to be made by Indemnitor pursuant
to this Agreement shall be subject to any right of setoff, counterclaim,
defense, abatement, suspension, deferment or reduction, and, except in
accordance with the express terms hereof, neither the Company nor Energy shall
have a right to terminate this Agreement or to be released, relieved or
discharged from any obligation or liability under this Agreement for any reason
whatsoever, unless mutually agreed by the Company and Energy.
11. LATE PAYMENTS, INTEREST. Any late payment by Indemnitor of any of
its obligations under this Agreement shall bear interest to the extent permitted
by applicable law, at a fluctuating rate per annum equal to the rate of interest
announced publicly by Citibank, N.A., in New York, New York from time to time as
the bank's base rate (calculated on the basis of a year of 365 or 366 days, as
the case may be, and the actual number of days elapsed) (the "Prime Rate") plus
one percentage point, from the date due through and including the date of
payment.
12. FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents, and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby, and to carry into effect the intents and purposes of this
Agreement.
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13. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (i) upon personal delivery, (ii) two days after being sent, when sent
by professional overnight courier service, (iii) five days after posting when
sent by registered or certified mail, or (iv) on the date of transmission when
sent by telegram, telegraph, telex or facsimile transmission, addressed to
either the Company or Energy, as the case may be, at 1700 South Jefferson
Street, Lebanon, Missouri 65536. Any party hereto may from time to time by
notice in writing served upon the others as provided herein, designate a
different mailing address or a different person to which such notices or demands
are thereafter to be addressed or delivered.
14. CAPTIONS. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
15. ATTORNEY'S FEES. In any action at law or in equity to enforce any
of the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the court in a final judgment or decree, shall pay
the successful party all costs, expenses and reasonable attorneys' fees, as set
by the court and not by a jury, incurred by the successful party (including,
without limitation, costs, expenses and fees on any appeal).
16. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state of Missouri, without reference to
conflicts of laws, and the parties agree that any action, suit, or proceeding
relating to this Agreement shall be instituted and prosecuted in the courts of
the County of Clay, State of Missouri, and each party waives the right to change
of venue.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written.
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EMPIRE GAS CORPORATION
a Missouri corporation
By:___________________________
Name:______________________
Title:_____________________
EMPIRE ENERGY CORPORATION
a Tennessee corporation
By:______________________________
Name:_________________________
Title:________________________