AGREEMENT
This Agreement made on April 13, 1996, by and among Union Camp
Corporation, a Virginia corporation ("Union Camp"), and the Alling & Cory
Company, a New York corporation ("Alling & Cory").
Recitals
WHEREAS, Union Camp, North Merger Corp., a wholly owned subsidiary of
Union Camp, and Alling & Cory have executed an agreement providing for the
acquisition of Alling & Cory by Union Camp by means of a reverse triangular
merger (the "Merger") whereby Alling & Cory will become a subsidiary of Union
Camp; and
WHEREAS, approximately fifty percent (50%) of Alling & Cory's outstanding
shares are subject to various restrictions (the "Restricted Shares") which
had been imposed for the following reasons:
1. Restrictions on resale were inserted to enable Alling & Cory to
comply with federal and state securities laws; and transfer
restrictions were needed to avoid becoming a reporting company under
the Securities Exchange Act of 1934 and to keep shares out of
unfriendly hands.
2. Certain repurchase options on Restricted Shares at book value would
enable Alling & Cory to protect itself in the event an unfriendly
third party attempted to acquire shares in order to gain control of
Alling & Cory.
3. Certain repurchase options on Restricted Shares would enable Alling
& Cory to protect itself if, in the context of a friendly
acquisition, too many shareholders either voted against the
transaction or exercised dissenter's rights and thereby caused
Alling & Cory to fail to meet a closing condition that would be
typical of such transactions.
4. To protect Alling & Cory in the event that minority shareholders
created difficulties for Alling & Cory in pursuing its corporate
strategies and objectives; and
WHEREAS, upon the Merger becoming effective, Alling & Cory will cancel the
restrictions on the Restricted Shares since the original purposes of such
restrictions will then no longer exist, and since the parties, for various
other reasons such as bank debt restrictions, believe that it will not be
feasible for Alling & Cory to exercise any of its rights set forth with
respect to such restrictions; and
WHEREAS, the shareholders will avoid compensation income arising from such
cancellation provided Alling & Cory does not treat the increase in value of
the Restricted Shares caused by the cancellation as compensatory, and it is an
important condition and inducement to Alling & Cory's agreeing to the Merger
that Union Camp execute this Agreement.
NOW THEREFORE, in consideration of the promises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
1. Union Camp will take no actions, and subsequent to the consummation of
the Merger, will not permit Alling & Cory to take any actions, which could
reasonably be expected to be inconsistent with the treatment of the
cancellation of restrictions as noncompensatory.
2. Union Camp agrees that Alling & Cory will not take any income tax
deduction for the cancellation of the restrictions and recognizes that Alling
& Cory will supply each shareholder with a written statement which indicates
that Alling & Cory is not going to treat the cancellation as compensatory and
is not claiming any federal or state income tax deduction for such
cancellation.
3. Notwithstanding the above, in the event that the Internal Revenue
Service ("IRS") asserts that the cancellation of the restrictions on the
Restricted Shares is taxable compensation to any former Alling & Cory
shareholder who receives cash or Union Camp stock in the Merger, and such
shareholder so informs either Union Camp or Alling & Cory, Union Camp or
Alling & Cory shall be permitted to so inform any duly appointed
representative of the Alling & Cory shareholders and to negotiate with such
representative or, if there is none, such shareholder, with regard to
participating in negotiations between the IRS and such shareholder regarding
the treatment of such cancellation as non-compensatory or, if the IRS should
prevail in a contrary position, establishing a compensation deduction as a
result of such contrary position. Upon the mutual agreement of Alling & Cory
with each respective affected former Alling & Cory shareholder, Alling & Cory
shall be permitted to amend any tax return necessary to claim any tax
deduction properly allowable in respect of such compensation, if such contrary
position is either conceded by the affected shareholder or is determined in a
final and non-appealable decision in the favor of the IRS.
4. Upon allowance by the IRS of the tax deduction, Union Camp agrees that
it will distribute, or cause to be distributed, one-half the value of any
deduction described in paragraph three to the affected former Alling & Cory
shareholder. For purposes of this computation, the value of the deduction
shall be equal to the highest corporate marginal tax rate in effect for the
tax year of the deduction times the amount of deduction. The affected former
Alling & Cory shareholder shall receive the distribution within 30 days of the
date of the allowance of the tax deduction determined to the reasonable
satisfaction of Union Camp increased by the statutory rate of interest for
refunds from the date of the filing of the corporate income tax return or
amended return claiming the deduction to the date of the distribution. The
distribution to the affected former Alling & Cory shareholder shall not be
dependent upon the generation of an actual cash refund or the timing of the
benefit of such deduction.
5. This Agreement is intended to benefit the holders of the Restricted
Shares, and it may be enforced by any such holder as a third party beneficiary
of this Agreement.
IN WITNESS WHEREOF, Union Camp and Alling & Cory have caused this
Agreement to be signed and delivered by the respective duly authorized
officers as of the date first above written.
UNION CAMP CORPORATION
By /s/ James M. Reed
Name: James M. Reed
Title: Vice Chairman of the
Board of Directors and
Chief Financial Officer
THE ALLING & CORY COMPANY
By /s/ Samuel T. Hubbard, Jr.
Name: Samuel T. Hubbard, Jr.
Title: President and Chief
Executive Officer