OPERATIONS ON
THE BASE DATE IN 2006 AND AS IF
THE COMPANY AND ITS SUBSIDIARIES HAD CONTINUED TO HAVE C CORPORATION STATUS
UNDER THE FEDERAL INTERNAL REVENUE CODE AND UNDER STATE AND LOCAL TAX LAWS, IN
ACCORDANCE WITH THE PROVISIONS OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
THE INTERNAL REVENUE CODE AND REGULATIONS THEREUNDER AND UNDER STATE AND LOCAL
TAX LAWS APPLICABLE TO C CORPORATIONS AS FROM TIME TO TIME IN EFFECT
("C STATUS").
SUCH TAX CALCULATIONS WILL INCLUDE CALCULATIONS OF CURRENT AND
DEFERRED TAX EXPENSE OR BENEFIT AND CURRENT AND NON-CURRENT TAX ASSETS AND
LIABILITIES ("C TAXES") AND THE DIFFERENCES ("TAX DIFFERENCES") BETWEEN THE
C TAXES AND THE TAXES AS RECORDED BY THE COMPANY AND ITS SUBSIDIARIES WHILE
BEING DESIGNATED A QUALIFIED SUBCHAPTER S SUBSIDIARY ("S TAXES").
FOR CLARITY,
THE TAX BASIS OF THE COMPANY'S ASSETS AND LIABILITIES WILL BE DEEMED TO BE THE
TAX BASIS AS OF THE BASE DATE IN 2006, EXCEPT THAT NO NET OPERATING LOSS
CARRYFORWARD WILL BE DEEMED TO EXIST AS OF SUCH DATE.
(B)
CUMULATIVE INCOME STATEMENT TAX DIFFERENCE SHALL BE THE CUMULATIVE
DIFFERENCE IN INCOME TAX EXPENSES OR BENEFIT BETWEEN THE CALCULATION OF THE
C TAXES AND S TAXES, IN EACH CASE CALCULATED FOR THE TAX PERIODS OR PORTIONS
THEREOF BEGINNING ON OR AFTER THE BASE DATE IN 2006, AND THROUGH THE END OF THE
CALCULATION PERIOD.
CUMULATIVE CASH FLOW TAX DIFFERENCE SHALL BE THE CUMULATIVE
DIFFERENCE IN INCOME TAX PAYMENTS, NET OF REFUNDS, BETWEEN THE CALCULATION OF
THE C TAXES AND S TAXES IN EACH CASE MADE AFTER THE BASE DATE IN 2006 AND
APPLICABLE TO EARNINGS OF THE COMPANY ON AND AFTER THE BASE DATE IN 2006, OR
WHICH WOULD BE IN THE CASE OF C TAXES, OR ARE IN THE CASE OF S TAXES,
IMMEDIATELY DUE AND PAYABLE, CONTEMPORANEOUSLY WITH THE PAYMENT OF ANY
DISTRIBUTIONS, AS DEFINED BELOW. A "DISTRIBUTION" FOR PURPOSES OF THIS AGREEMENT
SHALL MEAN A DIVIDEND, MANAGEMENT FEE, OR ANY OTHER FORM OF DISTRIBUTION TO THE
RENCO GROUP, INC. ("RENCO") OR AN AFFILIATE OF RENCO OTHER THAN A SUBSIDIARY OF
THE COMPANY
(INCLUDING A TRANSFER TO RENCO OF ASSETS IN ANY FORM WHETHER AS
CASH OR OTHER FORM OF VALUE WHICH SHALL HAVE THE EFFECT OF REDUCING THE NET
WORTH OF THE COMPANY), IN EXCESS OF THE RENCO AMOUNT (AS DEFINED HEREIN),
PROVIDED THAT PAYMENTS MADE IN RESPECT OF ANY DEBT TO RENCO, INCLUDING, BUT NOT
LIMITED TO, PRINCIPAL INTEREST AND FEES THEREON, OR THE PREFERRED STOCK OF THE
COMPANY, INCLUDING, BUT NOT LIMITED TO, DIVIDENDS THEREON AND REDEMPTIONS
THEREOF, SHALL NOT BE A DISTRIBUTION.
THE "RENCO AMOUNT" SHALL BE EQUAL TO
$2,400,000 PER ANNUM, CALCULATED CUMULATIVELY FROM THE BASE DATE IN 2006 PLUS
THE AMOUNT OF ACCRUED MANAGEMENT FEES AT 10/31/06.
(C)
IN CONNECTION WITH THE ANNUAL AUDIT OF THE FINANCIAL STATEMENTS OF THE
COMPANY, THE COMPANY'S BOARD OF DIRECTORS WILL REQUIRE THAT THE INDEPENDENT
PUBLIC ACCOUNTANTS ISSUE A SPECIAL REPORT INDICATING THEIR AGREEMENT WITH THE
TAX DIFFERENCES.
3.
NET WORTH APPRECIATION BENEFIT.
UPON THE