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Exhibit 10.9
TAX AGREEMENT
THIS TAX AGREEMENT entered into on ______________ __, 1996, is made
effective as of the effective date of the initial public offering of Common
Stock on Registration Statement Form S-1 (the "Effective Date") of Kani, Inc.,
a California corporation (the "Company"), by and among the Company, and
Skechers USA, Inc., a California corporation ("Skechers").
BACKGROUND
A. Upon the Effective Date, Skechers will contribute to the Company
the License Agreement, dated March 30, 1994, between Skechers and Xxxx Xxxx
(the "Master License"), covering all products marketed and sold under the Xxxx
Xxxx name and the ongoing footwear business conducted under the Xxxx Xxxx name,
in exchange for shares representing 100% of the Common Stock of the Company.
Furthermore, on the Effective Date, the Company will also issue shares of its
Common Stock pursuant to an initial public offering so that Skechers will than
own 65% of the outstanding of its Common Stock of the Company. The Company, as
a division, is currently included in Skechers' Federal income tax return. The
Company files tax returns directly with, and pays Taxes to, states, including
California, and local taxing authorities.
B. Upon the Effective Date, Skechers will not hold the requisite
stock interest in the Company for the Company to be a member of Skechers'
"affiliated group," as such term is defined in Section 1504(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code").
C. The parties hereto desire to apportion liability for taxes among
themselves.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS.
The following terms, when used in this Agreement with an initial
capital letter, have the following meanings:
"After-Tax Basis" means on a basis such that any payment to be
received or deemed to be received by the payee shall be supplemented by a
further payment to the payee so that the sum of the two payments, after
deduction of all Taxes resulting from the receipt or accrual of such payments,
shall be equal to the payments to be received or deemed to have been received.
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"Taxes" means any and all taxes (including, without limitation, gross
receipts, sales, use, property, income, franchise, capital, occupational,
license, value added, excise and stamp taxes and customs duties), assessments,
fees (including, without limitation, documentation, license, filing and
registration fees) and charges, of any nature or kind whatsoever, together with
any penalties, fines, additions to tax or interest thereon, however imposed,
withheld, levied, or assessed by any taxing authority.
SECTION 2. LIABILITY FOR TAXES.
(a) Tax Liability for Periods Ending on or Before the Effective
Date. Skechers shall, on an After-Tax Basis, indemnify and hold harmless the
Company from and against any and all liability (including, without limitation,
interest, additions to tax and penalties) imposed by any taxing authority for
or with respect to Taxes of any entity (including, without limitation, the
Company) assessed, for any reason, against the Company for or fairly
attributable to any taxable period ending on or before the Effective Date;
provided, however, that Skechers shall have no obligation to indemnify the
Company to the extent such Taxes have actually been paid or have been disclosed
in the statement attached hereto as Exhibit A.
(b) Periods Ending After the Effective Date.
(1) The Company shall be solely responsible for payment of
Taxes imposed by any taxing authority with respect to any period ending after
the Effective Date, and the Company shall indemnify and hold harmless Skechers
for and against any and all liability for such Taxes.
(2) If (x) any adjustment shall be made by any taxing
authority for any taxable period, as a result of or in settlement of any audit,
other administrative proceeding or judicial proceeding or as the result of the
filing of an amended return to reflect the consequences of any determination
made in connection with any such audit or proceeding, and if such adjustment
results in any tax detriment to the Company with respect to any period ending
after the Effective Date or (y) the Company incurs losses which are carried
back to prior years and, as a result of any adjustment described in (x) or loss
described in (y), Skechers or any affiliate of Skechers for any taxable period
realizes a tax benefit, then Skechers shall pay to the Company the amount of
such tax benefit at such time or times as Skechers or any affiliate of Skechers
realizes such benefit through a refund of Tax or a reduction in the amount of
Tax which Skechers or any such affiliate would otherwise have had to pay if
such adjustment had not been made or such loss had not been incurred. If any
adjustment shall be made by any taxing authority for any taxable period, other
than for Taxes described in subsection (b), as a result of or in settlement of
any audit, other administrative proceeding or judicial proceeding or as the
result of the filing of an amended return to reflect the consequences of any
determination made in connection with any such audit or proceeding, and if such
adjustment results in any tax determination to Skechers or
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any of its affiliates with respect to any period ending on or before the
Effective Date, and, as a result thereof, the Company or any affiliate of the
Company for any taxable period after the Effective Date realizes a tax benefit,
then the Company shall pay to Skechers the amount of such benefit at such time
or times as the Company or any affiliate of the Company actually realizes such
benefit through a refund of Tax or reduction in the amount of Tax which the
Company or any such affiliate would otherwise have had to pay if such
adjustment had not been made.
(c) Indemnity with Respect to Specified Events. Notwithstanding
anything herein to the contrary, Skechers shall indemnify and hold the Company
harmless, on an After-Tax Basis, from any and all liability (including, without
limitation, interest, additional to tax and penalties) for Taxes imposed by any
taxing authority with respect to any period (i) in connection with the
contribution by Skechers of the Master License and the Xxxx Xxxx footwear
business and the deconsolidation of the Company on the Effective Date,
including, without limitation, any restoration of deferred intercompany gain
associated with such events, or (ii) by reason the Company being severally
liable for the entire tax of any affiliated group of which Skechers is a member
pursuant to Treasury Regulations section 1.1502-6(a) or any analogous state or
local provision.
SECTION 3. TAX RETURNS.
(a) All Returns For Periods Ending on or Before the Effective
Date. The Company shall join for all taxable periods of the Company ending on
or before the Effective Date for which the Company is eligible to do so, in any
consolidated or combined federal, state and local income and franchise tax
returns which Skechers shall request it to join. Skechers shall cause to be
prepared and filed all required tax returns of the Company for all periods
ending on or before the Effective Date. All such returns of the Company for
all periods ending on or before the Effective Date shall be prepared and all
elections with respect to such return shall be made, to the extent permitted by
law, in a manner consistent with prior practice with respect to the Company.
The Company shall cooperate with Skechers in preparation of the portions of
such return pertaining it, and shall take no position inconsistent with the
Company being a member of the consolidated or combined groups of which Skechers
is a member for all such periods. Skechers shall submit copies of such returns
to the Company for the Company's approval, which approval shall not be
unreasonably withheld.
(b) All Returns For Periods Ending After the Effective Date. The
Company shall be solely responsible for preparation and filing of all returns
for periods ending after the Effective Date.
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SECTION 4. AUDITS AND CONTEST.
(a) In General. Skechers shall promptly notify the Company in
writing upon receipt by Skechers of any notice of (i) any pending or threatened
federal, state or local income or franchise tax audits or assessments of the
Company, and (ii) any pending or threatened federal, state or local income or
franchise tax audits or assessments of Skechers which may affect the
liabilities of the Company for Taxes.
(b) Periods on or Before the Effective Date. For tax periods
ending on or before the Effective Date, Skechers shall have the right to
represent the Company's interests in any tax audit, or administrative or
judicial proceeding and to employ counsel of its choice at its expense.
Skechers agrees to consult with the Company and to keep the Company informed on
a regular basis regarding the status of any such audit or proceeding.
(c) Periods After the Effective Date. For tax periods ending
after the Effective Date, the Company shall have the right to represent the
Company's interest in any tax audit or administrative or judicial proceeding,
and to employ counsel of its choice at its expense. The Company agrees to keep
Skechers informed on a regular basis regarding any such audit or proceeding and
to consult with Skechers with a view to maintaining positions reasonably
consistent with those that may be urged by Skechers; provided, however, that
the Company shall have ultimate control of any such audit or proceeding.
SECTION 5. MISCELLANEOUS.
(a) Supersedes Prior Agreements. This Agreement supersedes any
existing agreement presently in effect between the Company and Skechers or any
affiliate of Skechers, including, without limitation, with respect to the
subject matter hereof.
(b) Cooperation. After the Effective Date, the Company and
Skechers shall make available to the other, as reasonably requested, and to any
taxing authority, all information, records or documents relating to tax
liabilities or potential tax liabilities of the Company for all periods prior
to or including the Effective Date and shall preserve all such information,
records and documents until the expiration of any applicable statute of
limitations or extensions thereof.
(c) Consistency. Unless otherwise required to settle any
adjustments proposed or asserted by a taxing authority, the Company shall not
take any material position with respect to federal, state or local income or
franchise taxes or foreign income taxes for periods ending after the Effective
Date that is inconsistent with positions taken by the Company with respect to
taxes for periods ending on or before the Effective Date; provided, however,,
that, within 30 days of notification by the Company of a proposed assertion of
an inconsistent tax position, Skechers shall have furnished to the Company an
opinion of counsel, which counsel shall be reasonable satisfactory to the
Company, to the effect that
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there is "substantial authority" (or such higher standard as may be required by
Code Section 6662(d)(2)(C)) within the meaning of section 6662(d)(2)(B)(i) of
the Code for not asserting such inconsistent tax position.
(d) Elections. Skechers acknowledges that, for any period on or
after the Effective Date, the Company may make any election, and any affiliated
group of which the Company after the Effective Date was or is a member may
cause the Company to make any election, respectively permitted to them under
the Code, including, without limitation, the election set forth in section
172(b)(3) of the Code.
(e) Payments. Amounts payable pursuant to this Agreement shall be
paid within 30 days after notice and demand therefor by the person entitled
thereto.
(f) Reference Provision.
(i) Each controversy, dispute or claim between the
parties arising out of or relating to this Agreement, which controversy,
dispute or claim is not settled in writing within thirty (30) days after the
"Claim Date" (defined as the date on which a party subject to the Agreement
gives written notice to all other parties that a controversy, dispute or claim
exists), will be settled by a reference proceeding in Los Angeles County,
California, in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and the parties waive
their rights to initiate any legal proceedings against each other in any court
or jurisdiction other than the Superior court of Los Angeles County (the
"Court"). The referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within forty-five (45)
days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Los Angeles County Superior Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
Each party shall have one preemptory challenge pursuant to CCP 170.6. The
referee shall (a) be requested to set the matter for hearing within sixty (60)
days after the Claim Date and (b) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90) days
of the Claim Date. Any decision rendered by the referee will be final, binding
and conclusive and judgment shall entered pursuant to CCP 644 in any court in
the State of California having jurisdiction. Any party may apply for a
reference at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement shall be
completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of
a party's refusal to provide
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requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days
written notice, and, request for production or inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
(ii) Except as expressly set forth in this Agreement, the
referee shall determine the manner in which the reference proceeding is
conducted including the time and place of all hearings, the order of
presentation of evidence, and all other questions that arise with respect to
the course of the reference proceeding. All proceedings and hearings conducted
before the referee, except for trial, shall be conducted without a court
reporter, except that when any party so requests, a court reporter will be used
at any hearing conducted before the referee. The party making such a request
shall have the obligation to arrange for and pay for the court reporter. The
costs of the court reporter at the trial shall be borne equally by the parties.
(iii) The referee shall be required to determine all issues
in accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the
State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable orders
that will be binding upon the parties. The referee shall issue a single
judgment at the close of the reference proceeding which shall dispose of all of
the claims of the parties that are the subject of the reference. The parties
hereto expressly reserve the right to contest or appeal from the final judgment
or any appealable order or appealable judgment entered by the referee. The
parties hereto expressly reserve the right to findings of fact, conclusions of
law, a written statement of decision, and the right to move for a new trial or
a different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
(iv) In the event that the enabling legislation which
provides for appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be determined by
the reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the Los
Angeles County Superior Court, in accordance with the California Arbitration
Act, Sections 1280 through 1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery as set forth hereinabove shall apply to
any such arbitration proceeding.
(g) Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including
telegraphic or facsimile communications) and
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shall be mailed (return receipt requested), telegraphed , sent by facsimile or
delivered to each party at the address set forth as follows, or at such other
addresses either party may designate by notice to the other, and any such
notice, request, demand or other communication shall be effective upon receipt.
If to Skechers: Skechers USA, Inc.
000 Xxxxxxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxxxx
Chief Executive Officer
If to the Company: Kani, Inc.
000 Xxxxxxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxxxxxx Xxxxx, XX 00000
Telephone: (310)
Facsimile: (310)
Attention:
(g) Governing Law. This Agreement shall be deemed a contract
made under the laws of the State of California, and the rights and obligations
of the parties hereto shall be governed and construed in accordance with the
laws of such State.
(h) Sections and Headings. All "Section" references herein are to
a section of this Agreement, unless otherwise stated. Titles or captions of
Sections or subsections contained in this Agreement are inserted only as a
matter of convenience and for reference, and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any provision hereof.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all of which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Skechers and the Company have caused this
Agreement to be duly executed as of the date first herein above set forth.
SKECHERS USA, INC.
A CALIFORNIA CORPORATION
By: _______________________________
Name:
Title:
KANI, INC.
A CALIFORNIA CORPORATION
By: _______________________________
Name:
Title:
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