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EXHIBIT 10.34
TAX SHARING AGREEMENT
This Tax Sharing Agreement (the "Agreement"), effective as of September
1, 1999, by and between Jaymark, Inc., a Delaware corporation ("Jaymark"), and
JNI Corp., a Delaware corporation ("JNI"), is made and entered into in
connection with the initial public offering ("IPO") of JNI.
WHEREAS, Jaymark on behalf of itself and its present and future
subsidiaries other than JNI (the "Jaymark Group"), and JNI on behalf of itself
and any future subsidiaries (the "JNI Group") have determined that it is
necessary and desirable to provide for allocation between the Jaymark Group and
the JNI Group of all responsibilities, liabilities, and benefits relating to
taxes paid or payable by either group for all taxable periods, whether beginning
before, on, or after the IPO of JNI, and to provide for certain other matters.
NOW, THEREFORE, in consideration of the mutual agreements, provisions,
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions Specific to this Contract.
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
(a) Code: the Internal Revenue Code of 1986, as amended.
(b) Post-IPO Period: any taxable period after the IPO date of JNI.
(c) Pre-IPO Period: any taxable period ending on or before the IPO
date of JNI.
(d) Tax: all income and franchise taxes of the Jaymark Group and
the JNI Group.
(e) Tax Attribute: any net operating loss or credit carryforward.
(f) Tax Benefit: the tax effect of any loss, deduction, credit, or
other item that decreases taxes paid or payable.
(g) Tax Detriment: the tax effect of any income, gain, recapture of
credit, or other item that increases taxes paid or payable.
(h) Tax Representative: for the Jaymark Group, their chief
financial officer whose address is 0000 Xxxxx Xxxxxx Xxxxx, Xxx Xxxxx,
Xxxxxxxxxx, 00000. For the JNI Group, their chief financial officer whose
address 0000 Xxxxx Xxxxxx Xxxxx, Xxx Xxxxx, Xxxxxxxxxx, 00000.
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ARTICLE II
FILING OF TAX RETURNS
2.1 Pre-IPO Period Income Tax Returns.
(a) Federal Income Tax Returns. The income and other tax items of
JNI for any Pre-IPO Period shall be included in Jaymark's consolidated federal
income tax return. Items of income, gain, loss, deduction and credit shall be
taken into account in accordance with the Treasury Regulations promulgated under
Code Section 1502. Jaymark shall prepare and timely file all consolidated
federal income tax returns for any Pre-IPO Period.
(b) State Income Tax Returns. The income and other tax items of JNI
for any Pre-IPO Period shall be included in Jaymark's consolidated or combined
state income tax return as permitted or required under applicable state law.
Jaymark shall prepare and timely file all consolidated or combined state income
tax returns that included a Jaymark Group member and JNI and any JNI stand alone
state income tax return for any Pre-IPO Period. Any JNI stand alone state tax
returns shall be the responsibility of JNI.
2.2 Post-IPO Period Income Tax Returns. JNI shall be responsible for
preparing and timely filing all federal, state, and foreign income tax returns
for each JNI Group member for Post-IPO Periods. If the Tax Representatives of
the Jaymark Group and the JNI Group or the California Franchise Tax Board
determine that the Jaymark Group and JNI Group should jointly file a unitary
California combined return of franchise or income tax for a Post-IPO Period,
then Jaymark shall be responsible for having such tax return prepared, with each
of JNI and Jaymark to be responsible for payment of one-half of the fees paid to
any outside accountant for preparing such return.
2.3 Other Tax Returns. All tax reports or returns not covered by
Section 2.1 or 2.2 shall be prepared and filed by JNI for the JNI Group and by
Jaymark for the Jaymark Group.
ARTICLE III
PAYMENT OF TAXES
3.1 Payment of Taxes In General.
(a) Except as otherwise provided in this Article 3, Jaymark shall
pay, and shall indemnify and hold harmless JNI from and against, all taxes
attributable to Jaymark Group, whether heretofore or hereafter arising or
incurred. Jaymark shall be entitled to any reduction in or refund of taxes for
which it is responsible pursuant to the preceding sentence (except any reduction
in or refund of taxes resulting from carrybacks of JNI as described in Section
3.4).
(b) Except as otherwise provided in this Article 3, JNI shall pay,
and shall indemnify and hold harmless each Jaymark Group member from and
against, (i) all taxes of JNI for any Pre-IPO Period and (ii) all taxes for any
Post-IPO Period that are attributable to JNI Group. JNI shall be entitled to any
reduction in or refund of taxes for which it is responsible pursuant to the
preceding sentence.
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(c) If a member of the Jaymark Group or JNI receives a refund of
taxes to which the other group is entitled under this Article 3, then such
member shall remit such refund to the other group by promptly sending such
refund to Jaymark or JNI, as the case may be. However, any amount payable by any
Jaymark Group member or JNI in respect of any such refund shall be reduced by
the Tax Detriment incurred or to be incurred by the other party as a result of
the refund claim.
3.2 Payment of Certain Income Taxes.
(a) Jaymark shall charge JNI for its share of Jaymark's
consolidated federal income tax liability and Tax Attributes not heretofore paid
for any Pre-IPO Period. JNI's share shall be determined as the amount of
separate company taxable income, before utilization of any net operating loss or
tax credits, computed under the Code, less the actual amount of JNI net
operating loss and credits permitted to be utilized in the consolidated tax
return. JNI shall pay or cause to be paid promptly its share of such tax
liability upon the later of (i) receiving written notification from Jaymark of
the amount of such liability or (ii) the IPO. Such payment shall be made
directly to Jaymark.
(b) Jaymark shall also charge JNI for its share of any state income
tax due under a consolidated, combined, or stand alone state income tax returns
and not heretofore paid for a Pre-IPO Period. JNI's share shall be determined as
the amount of separate company taxable income, before utilization of any net
operating loss or tax credits, computed under applicable state law, less the
amount of JNI net operating loss and credits permitted to be utilized on such
tax return. JNI shall pay its share of such tax liability upon the later of (i)
receiving written notification from Jaymark of the amount of such liability or
(ii) the IPO. Such payment shall be made directly to Jaymark.
3.3 Adjustments to Tax Liability and Tax Attributes.
(a) Jaymark shall be responsible for, and shall indemnify and hold
harmless JNI from and against, all adjustments to taxes (including, without
limitation, additions to tax, interest, and penalties) attributable to the
Jaymark Group, whether heretofore or hereafter arising or incurred. Jaymark
shall not be responsible for, nor shall it indemnify or hold harmless JNI from
and against, any adjustments to taxes (including, without limitation, additions
to tax, interest, and penalties) of JNI for any Post-IPO Period.
(b) Jaymark shall be entitled to any net Tax Benefit and shall bear
any net Tax Detriment resulting from adjustments to taxes attributable to the
Jaymark Group (except adjustments resulting from carrybacks of JNI from a
Post-IPO Period). If an adjustment to a tax item attributable to the Jaymark
Group reduces the tax liability of JNI, JNI shall pay promptly to Jaymark the
amount of the Tax Benefit realized by JNI. If an adjustment to a tax item
attributable to the Jaymark Group increases the tax liability of JNI, Jaymark
shall pay promptly to JNI the amount of the Tax Detriment realized by JNI upon
receiving written notification from JNI of such amount.
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(c) JNI shall be responsible for, and shall indemnify and hold
harmless each Jaymark Group member from and against, all adjustments to taxes
(including, without limitation, additions to tax, interest, and penalties) (i)
for any Pre-IPO Period with respect to JNI and (ii) for any Post-IPO Period with
respect to JNI's Group. JNI shall be entitled to any Tax Benefit and shall bear
any Tax Detriment resulting from such adjustments. If an adjustment to a tax
item for which JNI is responsible under this Section 3.3 reduces the tax
liability of a Jaymark Group member, Jaymark shall pay promptly to JNI the
amount of the Tax Benefit realized by the Jaymark Group. If an adjustment to a
tax item for which JNI is responsible under this Section 3.3 increases the tax
liability of a Jaymark Group member, JNI shall pay promptly (in the manner
provided in Section 3.2 above) the amount of the Tax Detriment incurred by the
Jaymark Group upon receiving written notification from Jaymark of such amount.
3.4 Carrybacks from Post-IPO Periods to Pre-IPO Periods. Any loss,
credit, or other item attributable to JNI's Group and arising in a Post-IPO
Period may be utilized by the JNI Group and/or carried back to a consolidated or
combined return of the Jaymark Group for a Pre-IPO Period as may be permitted
under applicable law. Jaymark shall cooperate with any JNI group member to the
extent reasonably necessary and to the extent not deemed detrimental to Jaymark
(including, without limitation, amending any return and filing any claim for
refund) for such member to realize the Tax Benefit of carrying such loss,
credit, or other item back to such Pre-IPO Period. Jaymark shall remit promptly
to JNI any refund or reduction in tax resulting from such carryback; provided,
however, that the amount payable in respect of any such refund shall be reduced
by the amount of any taxes incurred by any Jaymark Group member as a result of
the accrual or receipt of the refund.
ARTICLE IV
COOPERATION
4.1 Cooperation in General.
(a) Each of Jaymark and JNI agrees to make available to the other
party records in its custody and in the custody of any member of its group, to
furnish other information, and otherwise to cooperate to the extent reasonably
required for the filing of tax returns or audits and documents relating to the
assets or Group of such other party. Any information requested to be provided
under this Section 4.1 shall be provided within forty-five (45) days of a
written request for such information.
(b) So long as the JNI Group is included in the consolidated
financial statements of Jaymark, JNI shall timely provide the necessary
financial information of the JNI Group to Jaymark so that Jaymark may prepare
its financial statements to meet its deadlines.
4.2 Notice, Defense, and Settlement of Tax Claims.
(a) If a member of the Jaymark Group or JNI Group receives written
notice of a deficiency contest, audit, or other proceeding with respect to a
proposed tax liability for which a member of the other group is liable under
this Agreement (including liability hereunder to indemnify or reimburse a member
of the other group), then the recipient shall notify the other group of such
matter by promptly sending written notice thereof to Jaymark or JNI, as the case
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may be. Jaymark and JNI shall cooperate to contest and defend any such proposed
tax liability. The corporation that is liable under applicable law for such
proposed tax liability (without regard to this Agreement) shall not settle,
compromise, or otherwise agree to pay such liability without the consent of the
corporation that is liable for such tax under this Agreement. Such consent shall
not be unreasonably withheld.
(b) Jaymark shall be responsible for responding to any notice of
deficiency, contest, audit, or other proceedings with respect to a proposed tax
liability of a consolidated or combined federal or state tax return of the
Jaymark Group and JNI for a Pre-IPO Period. JNI shall be responsible for
responding to any notice of deficiency, contest, audit, or other proceedings
with respect to a proposed tax liability of a stand alone tax return of JNI for
a Pre-IPO Period. In addition, JNI shall be responsible for responding to any
proposed tax claim for non-corporation income or franchise taxes, including but
not limited to sales, property, and payroll taxes, attributable to JNI for a
Pre-IPO Period.
4.3 Confidentiality. Members of both the Jaymark Group and the JNI
Group understand the confidential nature of financial information disclosed in
tax returns and the related supporting documentation. Each of Jaymark and JNI
hereby agree to not release any tax and supporting documentation or information
with respect to the other party to any outside party (including taxing
authorities) without the consent of the Tax Representative of the other party.
ARTICLE V
RESOLUTION OF DISPUTES
Any dispute or ambiguity concerning the amount of any payment provided
for under this Agreement shall be resolved, in a manner consistent with the
principles and procedures set forth in this Agreement, by an internationally
recognized accounting firm (so-called "Big-Five" accounting firm) jointly
selected by the parties hereto. The judgment of such accounting firm shall be
conclusive and binding upon each of the parties to this Agreement. The
accounting firm's fee shall be borne equally by each of the parties to this
Agreement.
ARTICLE VI
GENERAL
6.1 Waiver. Any waiver by any party of any default by the other
hereunder shall not be deemed to be a continuing waiver of such default or a
waiver of any other default or of any of the terms and conditions of this
Agreement.
6.2 Amendments. The terms and conditions of this Agreement may not be
superseded, modified, or amended except in writing stating that it is such a
modification and signed by an authorized representative of each party hereto.
6.3 Governing Law; Forum Selection. This Agreement shall be governed by
the laws of the State of California, U.S.A., without reference to conflict of
laws principles. All disputes arising out of this Agreement shall be subject to
the exclusive jurisdiction and venue of the California state courts of San Diego
County (or, if there is exclusive federal jurisdiction, the
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Xxxxxx Xxxxxx Xxxxxxxx Xxxxx for the Southern District of California), and the
parties consent to the personal and exclusive jurisdiction and venue of these
courts.
6.4 Attorneys' Fees. The prevailing party in any legal action brought
by one party against the other shall be entitled, in addition to any other
rights and remedies it may have, to reimbursement for its expenses incurred
thereby, including court costs and reasonable attorneys' fees.
6.5 Complete Agreement. This Agreement constitutes the entire agreement
between the parties as to the subject matter hereof, and supersedes and replaces
all prior or contemporaneous agreements, written or oral, regarding such subject
matter.
6.6 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of each party hereto, its respective successors and assigns, and
each member of the Jaymark Group and the JNI Group not a party hereto.
6.7 Notices. Any notice which any party desires or is obligated to give
to the other shall be given in writing or by facsimile or telex and sent to Tax
Representative at the appropriate address set forth above, or to such other
address as the party to receive the notice may have last designated in writing
in the manner herein provided. Except as otherwise expressly provided herein,
notice shall be deemed to have been received on the earlier of the date when
actually received or ten (10) days after being deposited in the mail, postage
prepaid, registered or certified mail, or within one (1) day if by facsimile or
telex, promptly confirmed in writing, properly addressed to the parties.
6.8 Headings; Counterparts. Headings to Sections of this Agreement are
to facilitate reference only, do not form a part of this Agreement, and shall
not in any way affect the interpretation hereof. This Agreement may be executed
in two (2) or more counterparts or duplicate originals, all of which shall be
regarded as one and the same instrument, and which shall be the official and
governing version in the interpretation of this Agreement.
6.9 Partial Invalidity. If any provision in this Agreement shall be
found or be held to be invalid or unenforceable in any jurisdiction in which
this Agreement is being performed, then the meaning of said provision shall be
construed, to the extent feasible, so as to render the provision enforceable,
and if no feasible interpretation would save such provision, it shall be severed
from the remainder of this Agreement which shall remain in full force and
effect. In such event, the parties shall negotiate, in good faith, a substitute,
valid and enforceable provision which most nearly effects the parties' intent in
entering into this Agreement.
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IN WITNESS WHEREOF, Jaymark and JNI have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, as
of the date first above written.
JAYMARK, INC. JNI CORP.
By: /s/ XXXXX XXXXXXX By: /s/ XXXXX XXXXXXXX
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Title: Chief Financial Officer Title: President
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