TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT (the "Tax Indemnification
Agreement"), dated as of February 17, 1999, is made by and among Gabelli
Asset Management Inc. (formerly known as Alpha G, Inc.), a New York
corporation (the "Company"), and Gabelli Funds, Inc. (to be renamed
Gabelli Group Capital Partners, Inc.), a New York corporation ("GFI").
WHEREAS, the Company intends to offer to the public in an underwritten
offering up to 6,900,000 shares of its Class A Common Stock, par value
$.001 per share (the "Class A Common Stock") (the "Offering");
WHEREAS, prior to the closing of the Offering, the Company issued
approximately 24 million shares of its Class B Common Stock, par value
$.001 per share (the "Class B Common Stock") to GFI and to Rye Holdings,
Inc. ("Rye Holdings") and Rye Capital Partners, Inc. ("Rye Capital"), each
a wholly owned subsidiary of GFI, in exchange for substantially all of the
operating assets and liabilities of GFI, Rye Holdings and Rye Capital;
WHEREAS, the Company and GFI intend that this Tax Indemnification
Agreement shall govern the proper allocation among the Company and GFI of
Taxes incurred in or attributable to taxable periods prior to the Closing
Date and shall govern certain other Tax matters.
NOW, THEREFORE, in consideration of the premises and of the agreements
herein set forth, the Company and GFI hereby agree as follows:
1. Certain Defined Terms
For purposes of the provisions set forth below:
(a) "IRS" shall mean the Internal Revenue Service.
(b) "Closing" shall mean the consummation of the Offering.
(c) "Closing Date" shall mean the date on which the Closing
occurs.
(d) "Entities" shall mean GAMCO Investors, Inc., Gabelli Funds,
LLC (formerly known as the Gabelli Funds Division), Gabelli Fixed Income,
Inc., Darien Associates, LLC, Gabelli Fixed Income Distributors, Inc., and
Gabelli Securities, Inc. and each of their direct and indirect
subsidiaries.
(e) "Excluded Assets" shall mean assets of the Entities which
are not part of the contribution to the Company.
(f) "Pre-Offering Structuring Transactions" shall mean the
formation of the Company and the contribution of operating assets (other
than the Excluded Assets) and liabilities of GFI to the Company in exchange
for approximately 24 million shares of Class B Common Stock.
(g) "Tax" or "Taxes" shall mean any and all taxes, charges,
fees, levies, or other assessments, including, without limitation, income,
gross receipts, excise, real or personal property, sales, franchise,
withholding, social security, occupation, use, service, license, payroll,
transfer and recording taxes, imposed by the IRS or any Taxing Authority;
and such term shall include interest whether paid or received, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments.
(h) "Taxing Authority" shall mean any entity that imposes Taxes,
whether domestic or foreign, and whether imposed by a nation, locality,
municipality, government, state, federation or other body.
(i) "Tax Controversy" shall have the meaning as defined in
Section 5 of the Tax Indemnification Agreement.
(j) "Tax Indemnified Party or Parties" shall mean GFI and its
shareholders.
(k) "Tax Indemnifying Party" shall mean the Company.
(l) "Tax Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements, returns or other
documents required to be filed in connection with any Taxes, including but
not limited to original (or amended) returns and filings, requests for
extensions of time, requests for a change in method of accounting,
information statements and reports, claims for refund, amended returns and
all documents required to be filed in connection with any Tax Controversy.
2. Tax Indemnification
(a) The Company shall indemnify the Tax Indemnified Parties and
hold them harmless from, against and in respect of any and all Taxes that
arise from the inclusion in a Tax Return of any items of income, gain,
loss, deduction or credit:
(i) resulting from the operating activities of the Entities
(other than those activities attributable to the Excluded Assets) for all
taxable periods ending on or before the Closing, the Taxes on which have
not been otherwise paid by the Tax Indemnified Parties as of the Closing
Date;
(ii) relating to the Pre-Offering Structuring Transactions;
(iii) relating to the Entities for all taxable periods
ending after the Closing Date, except to the extent such items relate to
the [non-operating activities] of the Entities or to the Excluded Assets
for taxable periods which began before the Closing Date; and
(b) The amount of indemnification pursuant to this Section 2
shall equal the sum of:
(i) the amount of the excess of:
(X) the Tax liability of the Tax Indemnified Party
calculated by including any items of income gain, loss deduction or credit
of the Tax Indemnified Party described in Section 2(a)(i), (ii) or (iii),
over,
(Y) the Tax liability of the Tax Indemnified Party
calculated without the inclusion of such items; plus
(ii) an amount sufficient such that the amount payable
pursuant to this Section 2 net of any Taxes (calculated in accordance with
the Section 2(b)(i)) payable on the receipt by the Indemnified Parties of
such indemnification payment shall equal the amount calculated pursuant to
Section 2(b)(i).
(c) Upon obtaining knowledge that a Tax Indemnified Party is
entitled to indemnification under this Tax Indemnification Agreement, the
party having knowledge shall deliver written notice to the other party.
Such notice shall specify in reasonable detail the basis for and the amount
of indemnification pursuant to Section 2. The Tax Indemnifying Party shall
pay the amount of indemnification pursuant to Section 2 within sixty (60)
days after receipt of the notice or upon obtaining knowledge of such
indemnification obligation. If either the Tax Indemnified Party or the Tax
Indemnifying Party disputes the liability within thirty (30) days of the
receipt of the notice or obtaining knowledge of such indemnification
obligation, the dispute shall be handled as set forth in Section 3(d)
below.
3. Tax Returns
(a) The Company shall prepare and timely file (in each case, at
its own cost and expense and consistent with past practice), taking into
account any and all extensions, all Tax Returns (other than those relating
specifically to Excluded Assets) required to be filed in respect of any
Taxes of the Entities for taxable periods ending on or prior to the Closing
Date not otherwise filed prior thereto.
(b) The Company shall prepare and timely file, taking into
account any and all extensions, all Tax Returns with respect to the
Entities required to be filed other than those described in Section 3(a)
hereof.
(c) If GFI prepares and timely files any Tax Return for which it
would be entitled to indemnification under Section 2(a), then GFI or its
shareholders, whichever is applicable, shall pay such Taxes due on such Tax
Returns. GFI shall provide the Company with copies of any such Tax Returns
covering the Taxes described in Section 2(a) at least twenty (20) days
prior to the due date thereof (giving effect to any extension thereto),
accompanied by a statement calculating the Tax Indemnifying Party's
indemnification obligation pursuant to Section 2. The Tax Indemnifying
Party shall pay to the Tax Indemnified Parties the amount of the Tax
Indemnifying Party's indemnification obligation within ten (10) days of
receiving copies of such Tax Returns unless the parties are unable to agree
on the amount of the Tax Indemnifying Party's indemnification obligation.
(d) In the event that the Tax Indemnifying Party and Tax
Indemnified Parties cannot agree on the amount or the method of calculation
of any amount relating to Taxes covered directly or indirectly by this Tax
Indemnification Agreement, then such dispute shall be resolved by an
independent accounting firm acceptable to both parties whose fees and
expenses shall be paid by the Tax Indemnifying Party and the Tax
Indemnified Parties in proportion to each party's respective liability for
Taxes as determined by such accounting firm, and the Tax Indemnifying Party
shall pay the amount determined by such accountants within ten (10) days of
such determination.
4. Refunds
(a) The Tax Indemnified Parties shall be entitled to any refunds
or credits of Tax of the Entities or Tax attributable to operating
activities of the Entities to the extent such Taxes were not paid by the
Company. The Company shall remit such refunds to the Tax Indemnified
Parties within ten (10) days of receiving any such refund.
(b) The Company shall be entitled to any refunds or credits of
Tax of the Entities or Tax attributable to the operating activities of the
Entities for any taxable period ending on or before the Closing Date to the
extent such Taxes were paid by the Company. GFI and/or its shareholders
shall remit such refunds to the Company within ten (10) days of receiving
any such refund.
(c) The Company shall be entitled to any refunds or credits of
Tax of the Entities for any taxable period beginning after the Closing
Date. To the extent received by GFI and/or its shareholders, GFI shall
remit the amount of such refunds to the Company within ten (10) days of
receiving any such refund.
(d) If any refund or credit of Tax of the Entities or Tax
attributable to the operating activities of the Entities cannot be
reasonably determined as a refund or credit of Tax paid by the Company or
not paid by the Company, then such refund or credit of tax shall be
equitably apportioned between the Tax Indemnifying Party and the Tax
Indemnified Parties.
(e) If the Company in good faith determines that it will not
have any material adverse affect on its tax liability, the Company shall
request and at Gabelli Partner's sole expense file for and obtain any
refunds or credits to which the Tax Indemnified Parties would be entitled
under Section 4 hereof. If the Company makes such a good faith
determination, (i) the Company shall permit GFI to control the prosecution
of any such refund claim and, where deemed appropriate by GFI, shall
authorize by appropriate powers of attorney such persons as GFI shall
designate to represent the GFI with respect to such refund claim and (ii)
the Company shall forward to GFI any such refund within ten (10) days after
the refund is received (or reimburse GFI for any such credit within ten
(10) days after the relevant Tax Return is filed in which the credit is
actually applied against its liability for Taxes).
5. Notification and Control of Tax Controversy
(a) Notification of Tax Controversy. If a claim for Taxes shall
be made by any Taxing Authority in writing, which, if successful, could
reasonably result in an indemnity payment pursuant to Section 2 hereof, the
Tax Indemnified Party shall promptly notify the Tax Indemnifying Party in
writing of such claim (a "Tax Controversy"). If notice of the Tax
Controversy is delivered to the party that would be the Tax Indemnifying
Party for such Tax Controversy, the Tax Indemnifying Party shall notify the
Tax Indemnified Party, in writing, of the existence of such claim. In
either case, the party receiving notice of the Tax Controversy shall
forward to the other all information received in respect of such Tax
Controversy from the applicable Taxing Authority. If a notice of a Tax
Controversy is not given to the Tax Indemnifying Party by the Tax
Indemnified Party within a reasonably sufficient period of time to allow
the Tax Indemnifying Party effectively to contest the Tax Controversy,
taking into account the facts and circumstances with respect to such Tax
Controversy, the Tax Indemnifying Party shall not be liable to the Tax
Indemnified Party or any of its affiliates to the extent that the Tax
Indemnifying Party's position is actually and materially prejudiced as a
result thereof.
(b) Control of Tax Controversy. With respect to any Tax
Controversy which might result in an indemnification payment by the Company
pursuant to Section 2, the Company shall control all proceedings in
connection with such Tax Controversy (including, without limitation,
selection of counsel) and without limiting the foregoing, may in its sole
discretion and at its sole expense pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with any
Taxing Authority with respect thereto, and may, in its sole discretion,
either pay the Tax Controversy and sue for a refund where applicable law
permits such refund suits or contest such Tax Controversy in any
permissible manner. In no case shall GFI settle or otherwise compromise
any Tax Controversy referred to in the preceding sentence without the
Company's prior written consent.
(c) Mutual Cooperation. GFI and/or its shareholders shall
cooperate with the Company in connection with any Tax Controversy which
might result in an indemnification payment by the Company pursuant to
Section 2, which cooperation shall include, without limitation, the
reasonable retention and (upon the Company's request) the provision to the
Company of records and information which would be reasonably relevant to
such Tax Controversy, and making employees available to provide additional
information or explanation of any material provided hereunder or to testify
at proceedings relating to such Tax Controversy. Any out-of-pocket
expenses of GFI and/or its shareholders shall be reimbursed by the Company.
6. Maintenance of Books and Records. Until the applicable statute
of limitations (including periods of waiver) expired for any Tax Returns
filed or required to be filed covering the periods up to and including the
Closing, GFI or its affiliates shall retain all workpapers and related
materials in its possession and under its control that were used in the
preparation of any Tax Returns of GFI or the Entities. GFI will notify the
Company sixty (60) days prior to disposing of any records relating to pre-
Closing periods and will deliver to the Company, at the Company's expense,
any such records requested by the Company.
7. Terms of Agreement. This Tax Indemnification Agreement shall be
effective as of the Closing Date and shall not terminate until the later of
(i) the expiration (with valid extensions) of any applicable statute of
limitations relating to the Taxes covered thereby and (ii) the payment of
any indemnification payment pursuant to Section 2.
8. Entire Agreement; Alteration, Amendment, etc. This Tax
Indemnification Agreement contains the entire understanding of the parties
hereto with respect to the subject matter contained herein. No alteration,
amendment or modification of any of the terms of this Tax Indemnification
Agreement shall be valid unless made by a written instrument, signed by an
authorized officer of the Company and GFI.
9. Governing Law. This Tax Indemnification Agreement has been made
in and shall be construed and enforced in accordance with the law of the
State of New York (regardless of the laws that might be applicable under
principles of conflicts of laws) from time to time obtaining.
10. Assignments and Third Party Beneficiaries. This Tax
Indemnification Agreement shall be binding upon and shall inure only to the
benefit of the parties hereto, the shareholders of GFI and their respective
successors and assigns.
11. Severability. The invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceablility of the remainder hereof in that jurisdiction or the
validity or enforceablility of this Tax Indemnification Agreement,
including that provision, in any other jurisdiction. To the extent
permitted by applicable law, each party waives any provision of applicable
law that renders any provision hereof prohibited or unenforceable in any
respect. If any provision of this Tax Indemnification Agreement is held to
be unenforceable for any reason, it shall be adjusted rather than voided,
if possible, or order to achieve the intent of the parties to the extent
possible.
IN WITNESS WHEREOF, the parties hereto have duly executed this Tax
Indemnification Agreement as of the date first above written.
GABELLI ASSET MANAGEMENT INC.
By: /s/ James E. McKee
--------------------------
Name: James E. McKee
Title: Vice President, General Counsel and Secretary
GABELLI FUNDS, INC.
By: /s/ Stephen G. Bondi
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Name: Stephen G. Bondi
Title: Executive Vice President - Finance and Administration