TAX DISAFFILIATION AGREEMENT

 

 

 

 

 

 

                          TAX DISAFFILIATION AGREEMENT

 

 

 

         THIS AGREEMENT dated as of January 31, 2005, by and among REPUBLIC

FIRST BANCORP, INC. ("Parent"), a Pennsylvania two-bank holding company, and

FIRST BANK OF DELAWARE ("Sub"), a Delaware state chartered bank.

 

                                    RECITALS

 

         WHEREAS, Parent is the common parent of an affiliated group of

corporations within the meaning of Internal Revenue Code ("IRC") ss.1504(a)

("Parent Group"), and currently files consolidated Federal income tax returns

with all other members of Parent Group;

 

         WHEREAS, Parent is about to distribute to its shareholders all of the

outstanding shares of stock of Sub to Parent's shareholders on a pro-rata basis

(the "Distribution");

 

         WHEREAS, Parent and Sub intend that the Distribution will qualify as a

reorganization described in IRC ss.ss.355 and 368 and will not result in the

recognition of any taxable gain or income to Parent, Sub, or their respective

shareholders;

 

         WHEREAS, from the day after the date of the Distribution forward, Sub

shall cease to be a member of the Parent Group for all applicable tax purposes

and will file its own tax returns;

 

         WHEREAS, Parent and Sub desire on behalf of themselves, their

affiliates and their successors to set forth their rights and obligations with

respect to obligations for periods before and after the Distribution.

 

         NOW, THEREFORE, in consideration of the transactions recited above and

for good and valuable consideration, the receipt and sufficiency of which are

hereby acknowledged, the parties hereto do hereby agree as follows:

 

                                    ARTICLE 1

                                   DEFINITIONS

 

         "After-Tax Amount" means an amount that shall be equal to the

hypothetical after-tax amount of the indemnity payment due hereunder (Section

2.07), taking into account the hypothetical tax consequences of the payments or

accruals of the amounts which give rise to the indemnity obligation. References

to "After-Tax basis", "hypothetical tax consequences" and "hypothetical

After-Tax amount" refer to calculations of tax at the maximum statutory rate (or

rates, in the case of an item that affects more than one tax) applicable to

Parent Indemnitee or Sub Indemnitee, as the case may be, for the relevant year.

Such After-Tax Amount shall take into account the benefit or detriment in a

subsequent period (using a discount rate equal to the Applicable Federal

Rate-Long Term provided under IRC ss.7872 as in effect at the end of the tax

year for which the calculation is made) of each item of adjustment which gives

rise to an Indemnitee payment.

 

 

 

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         "Distribution" shall mean any event pursuant to which Sub ceases to be

a member of the Parent Group.

 

         "Distribution Date" means the date that Sub ceases to be a member of

the Parent Group.

 

         "Final Determination" means: (i) with respect to Federal taxes, (A) a

"determination" as defined in IRC ss.1313(a), or (B) the date of acceptance by

or on behalf of the Internal Revenue Service of Form 870-AD (or any successor

form thereto) as a final resolution of tax liability for any taxable period,

except that a Form 870-AD (or successor form thereto) that reserves the right of

the taxpayer to file a claim for refund and/or the right of the Internal Revenue

Service to assert a further deficiency shall not constitute a Final

Determination with respect to the item or items so reserved; (ii) with respect

to taxes other than Federal taxes, any final determination of liability in

respect of a tax provided for under applicable law; (iii) any final resolution

by reason of the expiration of the applicable statute of limitations; and (iv)

the payment of tax by Parent Affiliates or Sub, whichever is responsible for

payment of such tax under applicable law, with respect to any item disallowed by

a taxing authority, provided that the provisions of Section 6.02 hereof have

been complied with, or, if such section 6.02 is inapplicable, that the party

responsible under the terms of this Agreement for such tax is notified by the

party paying such tax that it has determined that no action should be taken to

recoup the tax due on such disallowed item, and the other party agrees with such

determination.

 

         "Parent Affiliates" means, with respect to any taxable period, all

corporations (not including Sub) which are members of the affiliated group of

corporations of which Parent is the common parent.

 

          "Parent Group" means, with respect to any taxable period, all

corporations (including Sub) which are members of the affiliated group of

corporations of which Parent is the common parent.

 

         "Parent Income Tax Liability" means (i) Parent Affiliates' allocable

share of the liability for Federal taxes of the Parent Group for all periods

that Parent Affiliates were members of such group determined as if Parent

Affiliates were the only members of the Parent Group; and (ii) any liability

resulting from any income tax obligations of Parent Affiliates with respect to

any post-Distribution tax period or any income tax liabilities of Parent

Affiliates allocated to such group pursuant to Section 2.03 hereof. The parties

intend that Parent Affiliate's allocable share of the liability for Federal

taxes as determined in clause (i) above, when added to Sub's allocable share of

the liability for Federal taxes for the same period (determined as if Sub was

the only member of the Parent Group) will equal 100% of the liability for

Federal taxes of the Parent Group for such period, and that to the extent that

such amount is less (more) than 100%, the difference shall be allocated between

Parent Affiliates on the one hand and Sub on the other hand in the proportion

that the amounts allocated between the two groups (pursuant to the preceding

sentence in this section) bear to each other.

 

 

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         "Sub Income Tax Liability" means (i) Sub's allocable share of the

liability for Federal taxes of the Parent Group for all periods that Sub was a

member of such group determined as if Sub was the only member of the Parent

Group; and (ii) any liability resulting from any income tax obligations of Sub

with respect to any post-Distribution tax period or any income taxes of Sub

allocated to Sub for any taxable period which includes the Distribution Date

pursuant to Section 2.03 hereof; and (iii) any Federal tax liability or any

other income tax liability of Sub attributable to any period prior to the date

Sub became a member of the Parent Group. The parties intend that the Sub's

allocable share of the liability for Federal taxes as determined in clause (i)

above when added to Parent Affiliates' allocable share of the liability for

Federal taxes for the same period (determined as if Parent Affiliates were the

only members of the Parent Group) will equal 100% of the liability for Federal

taxes of the Parent Group for such period. To the extent that such amount is

less (more) than 100%, the difference shall be allocated between Sub on the one

hand and Parent Affiliates on the other hand in the proportion that the amounts

allocated between the two groups (pursuant to the preceding sentence in this

section) bear to each other.

 

         "Tax Attribute" means any Tax Item that could reduce the amount of tax

liability, including a net operating loss, net capital loss, investment tax

credit, foreign tax credit, charitable deduction or credit relative to

alternative minimum tax or any other tax credit or similar item.

 

         "Tax Item" means any item of income, gain, loss, deduction or credit or

other attribute that may increase or decrease a tax.

 

                                   ARTICLE II

                                  INCOME TAXES

 

          2.01. Applicable Agreements. On and after the Distribution Date, this

Agreement shall constitute the sole Tax Disaffiliation Agreement ("Agreement")

between Parent and Sub, and except as otherwise provided in this Agreement, all

agreements other than this Agreement, if any, shall be terminated effective as

of the Distribution Date. Such termination shall not be effective as to any

right or obligation of Parent Affiliates or Sub with respect to any third party.

 

         2.02. Filing Returns.

 

           (a) Parent shall prepare (or cause to be prepared) and file (or cause

     to be filed) for all taxable periods ending with or prior to the

     Distribution Date all consolidated Federal income tax returns for Parent,

     Parent Affiliates, Parent Group, and Sub and all other consolidated,

     combined or unitary tax returns required for such entities.

 

          (b) Sub shall be responsible for preparing and filing all income tax

     returns for itself for all taxable periods beginning after the Distribution

     Date.

 

          (c) Those income tax returns of Sub which include any taxable period

     beginning before and ending after the Distribution Date shall be prepared

     by Sub and filed by Sub on a basis which is consistent with the manner in

     which Parent Affiliates filed such tax returns in the past, unless a

     contrary treatment is required by law.

 

 

 

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          (d) Sub hereby irrevocably designates Parent as its agent for the

     purpose of taking any and all actions necessary or incidental to the filing

     of any tax return required by law to be filed by Parent pursuant to this

     Agreement or filing any amended consolidated Federal income tax return in

     respect of any adjustment of tax attributable to any period during which

     Sub was a member of the Parent Group. Parent shall fully inform Sub in

     writing, prior to taking such actions, of all actions to be taken on behalf

     of Sub. Sub shall provide Parent with a Power of Attorney in respect of the

     filing of such returns. Notwithstanding any indication to the contrary in

     this Section 2.01(d) or elsewhere in this Agreement, Parent shall not have

     the authority as agent for Sub or pursuant to the Power of Attorney to take

     a position with respect to a Tax Item, that is inconsistent with the

     position taken in the past with respect to such Tax Item or that could

     reasonably be expected to adversely affect Sub with respect to tax returns

     filed after the Distribution Date or with respect to Sub's liability

     hereunder.

 

         2.03. Allocation of Tax Liability. For purposes of allocation of income

tax liability between Parent Affiliates and Sub, under this Agreement, the

Distribution of Sub shall be deemed effective for income tax purposes in all

taxing jurisdictions as of the date of Distribution. For purposes of this

Section 2.03, the income taxes and Tax Items for the portion of the taxable

period up to and including the Distribution Date shall be determined on the

basis of an interim closing of the books as of the close of business on the

Distribution Date.

 

         2.04. Tax Refunds. Sub shall be entitled to, and Parent agrees to

promptly pay to Sub, an amount equal to all foreign, Federal, state and local

tax refunds and interest thereon, if any are paid or credited (including,

without limitation, as a credit or offset against any other taxes) (collectively

"Refunds"), received by Parent Affiliates to the extent attributable to any

taxes for which Sub has indemnified Parent Affi