Document:

exv10w18

 

Exhibit 10.18

[IFC Letterhead]

December 22, 2004

Elena Delgado

26 Maplewood Drive

Danville, CA 94506

Dear Elena:

     This letter sets forth the agreement (“Agreement”) between Irwin Financial Corporation (“Irwin
Financial”) and you (the “Shareholder”) with respect to certain federal and state income tax issues
related to certain of the Shareholder’s rights under that certain Shareholder Agreement dated July
31, 1999, as amended (the “Shareholder Agreement”), by and among Irwin Home Equity Corporation
(“IHE”), Irwin Financial and the Shareholder. Capitalized terms used but not otherwise defined
herein shall have the meanings set forth in the Shareholder Agreement.

     The Shareholder Agreement sets forth certain terms and conditions relating to the
Shareholder’s ownership of five (5) shares of common stock of IHE (the “Shares”). Should a
purchase and sale transaction be entered into between the parties hereto pursuant to the
Shareholder Agreement (a “Purchase Transaction”), the purchase price to be paid for the Shares (the
“Purchase Price”) would be their Fair Market Value, which is to be determined by reference to the
value of Irwin Financial’s “Home Equity Business Segment,” as defined in and described more fully
in the Shareholder Agreement.

     In consideration of the mutual promises contained in the Shareholder Agreement and other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:

     1. No Guarantee of Tax Treatment. Irwin Financial and IHE have made no guarantees to
the Shareholder regarding the ultimate treatment of the receipt by the Shareholder of the Fair
Market Value of the Shares for federal and state income tax purposes.

     2. Gross-Up Payments. Notwithstanding the foregoing, in the event that, in connection
with a particular Purchase Transaction, the amount of the Purchase Price that is attributable to
the value of the non-IHE Legal Portion (as defined below) is treated as ordinary income rather than
proceeds of the disposition of a capital asset under applicable federal and state tax laws, then
Irwin Financial will pay to the Shareholder a cash payment (the “Aggregate Cash Payment”) equal to
the sum of (1) the Gross-up Cash Payment (as defined below), plus (2) the Supplemental Cash Payment
(as defined below), in each case subject to the limitations and qualifications set forth below.
For purposes of this Agreement, (i) the “Wholesale Bank Portion”

 

 

means the portion of the “wholesale bank” division of Irwin Union Bank and Trust Company
(“IUBT”) within which IUBT’s national home equity lending operations are funded and certain related
assets are held, and (ii) the “non-IHE Legal Portion” means the portion of the Purchase Price
attributable to the value of Shareholder’s interest in: (x) the Wholesale Bank Portion, (y) Irwin
Residual Holdings Corporation, and (z) Irwin Residual Holdings Corporation II.

     3. Definitions. For purposes hereof, the following terms have the meanings specified:

          a. “Gross-up Cash Payment” shall be the amount, computed on the basis of the principles
described in paragraph 7, by which (i) the Shareholder’s actual combined federal and state
income tax liability in respect of the Indemnified Portion (as defined below)
exceeds (ii) the amount that the Shareholder’s combined federal and state income tax
liability in respect of such Indemnified Portion would have been had such Indemnified
Portion been treated as proceeds from the disposition of a capital asset.

          b. “Indemnified Portion” shall mean the amount of income, up to but not exceeding the
Value Cap (as defined below), that is attributable to the non-IHE Legal Portion allocable to
the Shares being sold by the Shareholder in a particular Purchase Transaction. In no event
shall the Indemnified Portion in respect of a particular Purchase Transaction, when added
together with the Indemnified Portions from all other Purchase Transactions entered into by
the Shareholder, exceed the Value Cap.

          c. “Value Cap” shall be $5,210,000.00.

          d. “Supplemental Cash Payment” shall be the amount of the combined federal and state
income tax liability imposed on the Shareholder with respect to the Gross-Up Cash Payment,
computed on the basis of the principles described in paragraph 7.

     4. Limitations on Payments. Subject to the second paragraph of this Section 4, Irwin
Financial shall be obligated to pay to the Shareholder, in the Irwin Financial taxable year in
which the Purchase Transaction takes place, only that portion of the Aggregate Cash Payment for
which Irwin Financial is able to derive an actual tax benefit as a deduction from income on its
federal income tax return for that taxable year or any prior taxable year. In the event that any
portion of the Aggregate Cash Payment gives rise to a deferred deduction or a net operating loss
carryforward (or increases the amount of a deferred deduction or net operating loss carryforward)
that is carried forward to a future taxable year, Irwin Financial agrees to pay such portion of the
Aggregate Cash Payment, without interest: (i) in Irwin Financial’s first succeeding taxable year in
which Irwin Financial is able to derive an actual tax benefit from such deferred deduction or net
operating loss carryforward, and (ii) only to the extent of such actual tax benefit for such
taxable year.

     Notwithstanding the foregoing, nothing in this Agreement shall be construed as authorizing or
permitting Irwin Financial to withhold payment from Delgado of any portion of the Aggregate Cash
Payment solely because of limitations imposed by section 162(m) of the

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Internal Revenue Code of 1986, as amended (“Section 162(m)”), in the event that the Aggregate
Cash Payment, when added together with all compensation received by Delgado in a given taxable year
(including base salary, payment for the Shares, and all other amounts that legally are required to
be included in Delgado’s compensation for purposes of Section 162(m), would cause Delgado’s
compensation to exceed the limitations of Section 162(m).

     5. Treatment of Deferred Deductions and Carryforwards. For purposes of determining
when Irwin Financial is able to derive an actual tax benefit from a deferred deduction or net
operating loss carryforward in accordance with paragraph 4, Irwin Financial will be treated as
utilizing deferred deductions and/or net operating loss carryforwards attributable to an Aggregate
Cash Payment prior to all other deferred deductions and/or net operating loss carryforwards, other
than those attributable to payments required under substantially similar provisions in agreements
with other shareholders of IHE (the “Other Gross-Up Agreements”). In the event there are deferred
deductions and/or net operating loss carryforwards attributable to payments required under
substantially similar provisions in the Other Gross-Up Agreements, then the use of any such
deferred deductions and/or net operating loss carryforwards shall be allocated among those
obligations pro rata.

     6. Timing of Payment. The portion of the Aggregate Cash Payment to be paid in any
taxable year shall be paid by Irwin Financial to the Shareholder before the end of the financial
quarter in which it is first determined that the taxable benefit is expected to be realized in that
taxable year.

     7. Certain Calculation Principles. Solely for purposes of computing the Gross-up Cash
Payment, the Supplemental Cash Payment and the Aggregated Cash Payment, (i) all actual and
hypothetical combined federal and state tax liabilities shall be determined using the maximum
federal and state income tax rates applicable to income earned and gains realized during 2001 by
individuals whose taxable year is the calendar year, and taking into account the deductibility of
state income taxes for federal income tax purposes; (ii) the Shareholder’s holding period for the
Shares involved in the Purchase Transaction shall be the Shareholder’s actual holding period for
those Shares as of the date of the Purchase Transaction, and (iii) the aggregate Value Cap to be
applied under this Agreement and all the Other Gross-Up Agreements shall be an amount equal to the
value of the Home Equity Business Segment, calculated as of June 30, 2001, that is allocable to the
shares of common stock held by all IHE minority shareholders, which allocated amount is hereby
agreed to be $10,420,000.00. In no event shall the aggregate Indemnified Portion under this
Agreement and the Other Gross-Up Agreements exceed such aggregate Value Cap.

     8. No Liability Attributable to Value or Rate Increases. For the avoidance of doubt,
neither Irwin Financial nor IHE shall have any obligation to the Shareholder in respect of any tax
liability of the Shareholder (i) attributable to increases in the value of the Home Equity Business
Segment above the Value Cap or in applicable income tax rates, or (ii) in respect of any interest
or penalties that may be incurred by or imposed upon Shareholder, including without limitation
interest or penalties related to the Shareholder’s reporting or characterization of income or gain
from the proceeds of any Purchase Transaction.

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     9. Tax Reporting. The Shareholder is not required under this Agreement to report the
proceeds from a Purchase Transaction on her federal or state income tax returns as gain from the
disposition of a capital asset, and the Shareholder is solely responsible for determining the
appropriate manner of reporting all income or gain derived from a Purchase Transaction under
applicable federal and state income tax laws. To the extent permitted by applicable law, the
Shareholder agrees to report the entire non-IHE Legal Portion in a consistent manner for all
federal and state income tax purposes.

     10. Illustrative Calculation. The following calculation reflects the application of
the provisions of this Agreement to the payments to be made to the Shareholder hereunder and to the
other IHE minority shareholders under the Other Gross-Up Agreements, assuming in each case that a
Purchase Transaction is entered into with each such shareholder with respect to all of the Shares
held by them, and that the aggregate Indemnified Portion is equal to the aggregate Value Cap:

	 	 	 	 	 
	Minority Home Equity Business Segment Value at 6/30/01

	 	$10.42 million

	Combined Federal and State Ordinary Income Tax Rate

	 	 	49.85	%
	Combined Federal and State Capital Gains Tax Rate

	 	 	29.3	%
	Tax Rate Differential (Ordinary Income vs. Capital Gains)

	 	 	20.55	%
	Maximum Gross-up Cash Payment ($10.42 million*20.55%)

	 	$2.14 million

	Maximum Supplemental Cash Payment:
	 	 	 	 
	($2.14 million/50.15% minus $2.14 million)

	 	$2.13 million

	Maximum Aggregate Cash Payment (all Gross-Up Agreements)

	 	$4.27 million

     11. No Other Reimbursement Liability. Irwin Financial will not be responsible for
reimbursement of taxes on any possible Purchase Transactions beyond the reimbursement obligations
expressly set forth in this Agreement.

     12. Entire Agreement. This Agreement, together with the Shareholder Agreement
referred to herein, embodies the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof and thereof, and supersedes and preempts any and all prior and
contemporaneous understandings, agreements, arrangements or representations by or among the
parties, written or oral, which may relate to the subject matter hereof or thereof in any way.

     13. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Indiana, without regard to conflicts of laws provisions thereof.

     14. Headings. The headings of the paragraphs of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this Agreement.

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     By signing below, the Shareholder accepts and agrees to the terms of this Agreement as of the
date of this letter.

	 	 	 	 	 
	 	Sincerely,

Irwin Financial Corporation

 	 
	 	By :    /s/ Matthew F. Souza
 	 

	 	 	 	 	 
	 

	Title: Senior Vice President/Secretary
	 
	

	 	 

Accepted and agreed to:

	 	 	 
	/s/ Elena Delgado

Elena Delgado

	 	 

5<PAGE>
                                                                   Exhibit 10.1

                                     FORM OF
                            WHITEHALL JEWELLERS, INC.
                        RESTRICTED STOCK AWARD AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

         Whitehall Jewellers, Inc, a Delaware corporation (the "Company"),
hereby grants to ___________ (the "Holder") as of _______ (the "Grant Date"),
pursuant to the provisions of the Company's 1997 Long-Term Incentive Plan (the
"Plan"), a restricted stock award (the "Award") of _______ shares of the
Company's Common Stock, $.001 par value ("Stock"), at the price of _______ per
share upon and subject to the restrictions, terms and conditions set forth
below. Capitalized terms not defined herein shall have the meanings specified in
the Plan.

         1.   Award Subject to Acceptance of Agreement. The Award shall be null
and void unless the Holder shall (a) accept this Agreement by executing it in
the space provided below and returning it to the Company and (b) execute and
return one or more irrevocable stock powers to facilitate the transfer to the
Company (or its assignee or nominee) of all or a portion of the shares subject
to the Award, if shares are forfeited pursuant to Paragraph 4 hereof or if
required under applicable laws or regulations. As soon as practicable after the
Holder has executed this Agreement and such stock power or powers and returned
the same to the Company, the Company shall cause to be issued in the Holder's
name a stock certificate or certificates representing the total number of shares
of Stock subject to the Award.

         2.   Rights as a Stockholder. The Holder shall have the right to vote
the shares of Stock subject to the Award and to receive dividends and other
distributions thereon unless and until, and only to the extent, such shares are
forfeited pursuant to Paragraph 4 hereof; provided, however, that a dividend or
other distribution with respect shares of Stock (including, without limitation,
a stock dividend or stock split), other than a regular cash dividend, shall be
delivered to the Company (and the Holder shall, if requested by the Company,
execute and return one or more irrevocable stock powers related thereto) and
shall be subject to the same restrictions as the shares of Stock with respect to
which such dividend or other distribution was made.

         3.   Custody and Delivery of Certificates Representing Shares. The
Company shall hold the certificate or certificates representing the shares of
Stock subject to the Award until such Award shall have vested pursuant to
Paragraph 4 hereof, and the Company shall as soon thereafter as practicable,
subject to Section 6.3, deliver the certificate for the vested shares to the
Holder and destroy the stock power relating to the vested shares.

         4.   Restriction Period and Vesting. (a) The Award shall vest with
respect to one-third of the aggregate number of shares of Stock subject to the
Award on each of the first, second and third anniversaries of the Grant Date, or
earlier pursuant to Section 6.8 of the Plan (the "Restriction Period").

         (b) If the Holder ceases to be a director of the Company for any reason
and the Award has not vested as of the effective date of the Holder's
termination of service, such Award shall be forfeited by the Holder and shall be
canceled by the Company.

         5. Termination of Award. In the event that the Holder shall forfeit the
shares of Stock subject to the Award, the Holder shall, upon the Company's
request, promptly return this

<PAGE>

Agreement to the Company for full cancellation. Such cancellation shall be
effective regardless of whether the Holder returns this Agreement.

         6.   Additional Terms and Conditions of Award.

         6.1. Nontransferability of Award. During the Restriction Period, the
shares of Stock subject to the Award may not be transferred by the Holder other
than by will, the laws of descent and distribution or pursuant to beneficiary
designation procedures approved by the Company. Except to the extent permitted
by the foregoing, during the Restriction Period, the shares of Stock subject to
the Award may not be sold, transferred, assigned, pledged, hypothecated,
encumbered or otherwise disposed of (whether by operation of law or otherwise)
or be subject to execution, attachment or similar process. Upon any attempt to
so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose
of such shares, the Award shall immediately become null and void.

         6.2. Investment Representation. The Holder hereby represents and
covenants that (a) any shares of Stock acquired upon the vesting of the Award
will be acquired for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), unless such acquisition has been registered under the Securities Act and
any applicable state securities law; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Holder shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of acquisition of any
shares hereunder or (y) is true and correct as of the date of any sale of any
such shares, as applicable. As a further condition precedent to the delivery to
the Holder of any shares subject to the Award, the Holder shall comply with all
regulations and requirements of any regulatory authority having control of or
supervision over the issuance or delivery of the shares and, in connection
therewith, shall execute any documents which the Board or the Committee shall in
its sole discretion deem necessary or advisable to comply with the Securities
Act, applicable state securities laws or the regulations or requirements of any
such regulatory authority.

         6.3. Withholding Taxes. (a) As a condition precedent to the delivery to
the Holder of any shares of Stock subject to the Award, the Holder shall, upon
request by the Company, pay to the Company such amount of cash as the Company
may be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other withholding taxes (the
"Required Tax Payments") with respect to the Award. If the Holder shall fail to
advance the Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.

         (b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 6.3(a), (2) delivery (either actual delivery or
by attestation procedures established by the Company) to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant

                                       2
<PAGE>

to the Award, a number of whole shares of Stock having a Fair Market Value,
determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash
payment by a broker-dealer acceptable to the Company through whom the Holder has
sold the shares with respect to which the Required Tax Payments have arisen or
(5) any combination of (1), (2) and (3). The Committee shall have sole
discretion to disapprove of an election pursuant to any of clauses (2)-(5) and
if the Holder is subject to Section 16 of the Securities Exchange Act of 1934,
as amended, the Company may require that the method of making such payment be in
compliance with Section 16 and the rules and regulations thereunder. Shares of
Stock to be delivered or withheld may have a Fair Market Value in excess of the
minimum amount of the Required Tax Payments, but not in excess of the amount
determined by applying the Holder's maximum marginal tax rate. Any fraction of a
share of Stock which would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by the Holder. No
certificate representing a share of Stock shall be delivered until the Required
Tax Payments have been satisfied in full.

         6.4. Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee (such adjustment to be made reasonably
and in good faith by the Committee). If any adjustment would result in a
fractional security being subject to the Award, the Company shall pay the Holder
in connection with the vesting, if any, of such fractional security, an amount
in cash determined by multiplying (is) such fraction (rounded to the nearest
hundredth) by (ii) the Fair Market Value on the vesting date. The decision of
the Committee regarding any such adjustment shall be final, binding and
conclusive.

         6.5. Compliance with Applicable Law. The Award is subject to the
condition that if the listing, registration or qualification of the shares
subject to the Award upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the vesting
or delivery of shares hereunder, the shares of Stock subject to the Award shall
not vest or be delivered unless such listing, registration, qualification,
consent or approval shall have been effected or obtained, free of any conditions
not approved by the Company (which approval will not be unreasonably withheld).
The Company agrees to use reasonable efforts to effect or obtain any such
listing, registration, qualification, consent or approval.

         6.6. Delivery of Certificates. Subject to Section 6.3, upon the vesting
of the Award, the Company shall deliver or cause to be delivered one or more
certificates representing the number of vested shares. The Company shall pay all
original issue or transfer taxes and all fees and expenses incident to such
delivery, except as otherwise provided in Section 6.3.

         6.7. Decisions of Board or Committee. The Board or the Committee shall
have the right to resolve all questions and make any determinations which may
arise in connection with the Award (which rights shall be exercised reasonably
and in good faith). Any interpretation, determination or other action made or
taken by the Board or the Committee regarding the Plan or this Agreement shall
be final, binding and conclusive.

         6.8. Agreement Subject to the Plan. This Agreement is subject to the
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.

                                       3
<PAGE>

         7.   Miscellaneous Provisions.

         7.1. Meaning of Certain Terms. As used herein, the term "vest" shall
mean no longer subject to forfeiture. References in this Agreement to sections
of the Code shall be deemed to refer to any successor section of the Code or any
successor internal revenue law.

         7.2. Successors. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Holder, acquire any rights hereunder in
accordance with this Agreement or the Plan.

         7.3. Notices. All notices, requests or other communications provided
for in this Agreement shall be made, if to the Company, to Whitehall Jewellers,
Inc., 155 North Wacker Drive, Chicago, IL 60606, Attention: Secretary, and if to
the Holder, to _______. All notices, requests or other communications provided
for in this Agreement shall be made in writing either (a) by personal delivery
to the party entitled thereto, (b) by facsimile with confirmation of receipt,
(c) by mailing in the United States mails to the last known address of the party
entitled thereto or (d) by express courier service. The notice, request or other
communication shall be deemed to be received upon personal delivery, upon
confirmation of receipt of facsimile transmission, or upon receipt by the party
entitled thereto if by United States mail or express courier service; provided,
however, that if a notice, request or other communication is not received during
regular business hours, it shall be deemed to be received on the next succeeding
business day of the Company.

         7.4. Governing Law. This Agreement, the Award and all determinations
made and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Delaware and construed in accordance therewith without giving effect to
principles of conflicts of laws.

         7.5. Counterparts. This Agreement may be executed in two counterparts
each of which shall be deemed an original and both of which together shall
constitute one and the same instrument.

                                        WHITEHALL JEWELLERS, INC.

                                        By:
                                             -----------------------------------
                                             Name:
                                             Title:

Accepted this _____ day of

-----------------, -------.

--------------------------
[HOLDER]

                                        4

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