IF THE COMPANY HAD COMMENCED
OPERATIONS ON THE BASE DATE IN 2004 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
2004, 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 2004, 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 2004 AND
APPLICABLE TO EARNINGS OF THE COMPANY ON AND AFTER THE BASE DATE IN 2004, 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 2002 SO THAT UNUSED
PORTIONS SHALL CARRY OVER TO SUCCEEDING YEARS.
(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.
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