EXHIBIT 10.3
AGREEMENT
This AGREEMENT (the "Agreement") is made as of February 10, 1999, between
Argosy Education Group, Inc., an Illinois corporation (the "Company") and
Michael C. Markovitz (the "Shareholder").
WHEREAS, the Company has previously elected to be treated as an S
Corporation (as defined in Section 1361 of the Internal Revenue Code of 1986, as
amended (the "Code"));
WHEREAS, the Shareholder and the Company acknowledge that such S
Corporation Election will terminate (the "Termination") prior to completion of a
public offering at the Company's stock (the "Initial Public Offering") by reason
of the company ceasing to be a Small Business Corporation (as defined in Section
1361 of the Code);
NOW THEREFORE, the parties hereto agree as follows:
1. Payment of Taxes.
(a) The Shareholder agrees to pay all federal, state and local income
taxes payable with respect to the income of the Company (other than
those taxes described in subparagraph 1(b) below) for all taxable
years ending with or prior to the Termination; provided, however, that
if and to the extent that an adjustment is made (as a result of a
final determination made by a competent tax authority) to the
Company's taxable income for any taxable period ending with or prior
to the Termination which results in (i) an increase in income taxes
payable by the Shareholder for any period for which the Shareholder is
required to report income of the Company for a period of the Company
ending with or prior to the Termination and (ii) a tax credit or a
decrease in taxable income of the Company or any other item which
would reduce the income taxes otherwise payable by the Company for any
period following the Termination, then the Company shall promptly make
a payment (the "Company Payment") to the Shareholder in an amount
equal to the present value of the sum (the "Tax Benefits") of (x) such
decrease in taxable income multiplied by the then applicable corporate
tax rate, plus (y) the amount of such tax credits, plus (z) the amount
of any tax savings which would be caused by any such other item which
will be realized by the Company, calculated by discounting the Tax
Benefits utilizing a discount rate equal to the Applicable Federal
Rate ("AFR") (as defined in Section 1274(d) of the Code) which
corresponds to the period over which the Tax Benefits will be
realized; provided, however, that if and to the extent that such Tax
Benefit is not actually realized by the Company during the period in
which such Tax Benefit (or portion thereof) was assumed to be realized
for purposes of calculating the Company Payment, then the Shareholder
shall promptly make a payment (the "Shareholder Payment") to the
Company equal to the portion of the Tax Benefit which is not actually
realized by the Company, together with interest thereon, at the
AFR in effect as of the Assumed Tax Benefit Date (as defined below),
for the period from the date as of which such Tax Benefit (or portion
thereof) was assumed to be realized for purposes of calculating the
Company Payment (the "Assumed Tax Benefit Date") to the date of such
Shareholder Payment. The Shareholder agrees to indemnify the Company
for any federal and state taxes (including penalties and interest, if
any) payable by the Company as a result of the Company not qualifying
as a Small Business Corporation (as defined in Section 1361 of the
Code) for any period ending with or prior to the Termination.
(b) Pro Rata Allocation of S Corporation Items. The Shareholder and the
Company acknowledge that the Company's items of income, loss,
deduction, or credit described in Section 1366(a)(1)(A) of the Code,
and the amount of the Company's nonseparately computed income or loss
for the taxable year in which the S Corporation election is
terminated, shall be allocated between the "short S year" and the
"short C year" (as those terms are defined in Section 1362(e)(2) of
the Code) (in which items of taxable income and loss are allocated on
a pro rata basis between the pre- and post-termination short tax
years) or Section 1362(e)(3) of the Code (upon consent of all of the
Company's shareholders during the S short tax year and all the
shareholders on the first day of the C short tax year, the books are
cutoff at the date of termination, i.e., items of taxable income and
loss are not allocated pro rata between the short tax years).
2. Special Dividend. The Shareholder and the Company agree that the dividend
to be paid to the Shareholder prior to the Initial Public Offering (the
"Special Dividend") is intended to be equal to the Company's retained
earnings. The retained earnings shall be determined by the Company's
accountants according to the financial statements as of the end of the
final S corporation tax year.
3. Termination. This Agreement shall terminate and no longer be of any force
or effect upon the agreement of the parties or if the Company shall not
have consummated an initial public offering by April 1, 1999, unless
extended.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ARGOSY EDUCATION GROUP, INC.
By: /s/ Harold O'Donnell
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Its: President
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/s/ Michael C. Markovitz
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Michael C. Markovitz