EXHIBIT 2.05
TAX SHARING AGREEMENT
BETWEEN
KINETIC SYSTEMS, INC.,
KINETICS BIOPHARM, INC.,
AND
CELERITY GROUP, INC.
(FORMERLY KNOWN AS KINETICS HOLDINGS CORPORATION)
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TAX SHARING AGREEMENT
This Tax Sharing Agreement (the "AGREEMENT"), effective as of
___________, 2002 (the "EFFECTIVE DATE"), is made and entered into by and among
Celerity Group, Inc., a Delaware corporation ("CELERITY," formerly known as
Kinetics Holdings Corporation), Kinetic Systems, Inc., a California corporation
("KSI"), and Kinetics Biopharm, Inc., a Delaware corporation ("KBI"). Celerity,
KSI and KBI are sometimes referred to herein individually as a "PARTY" or
collectively as the "PARTIES." Such references to a "party" shall include a
reference to the present and future subsidiaries of the parties, as the context
of the reference may require. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in that certain
Separation Agreement (the "SEPARATION AGREEMENT") between the parties hereto,
dated effective as of _________, 2002.
RECITALS
A. WHEREAS, Pursuant to the Separation Agreement and related Ancillary
Agreements, the parties desire that the following events occur:
1. Prior to or simultaneous with the Distribution as defined
below, the current shareholders of Celerity (the "EXISTING SHAREHOLDERS") may
form HLLC, a Limited Liability Company in the State of Delaware ("HLLC"), as an
entity that would be treated as a partnership for US Federal income tax
purposes.
2. Prior to or simultaneous with the Distribution, HLLC may form
Kinetics Biopharm, Inc. Holding Corporation, a Delaware corporation ("KBIHC"),
and Kinetic Systems, Inc. Holding Corporation, a Delaware corporation ("KSIHC"),
both with minimum capitalization.
3. Prior to or simultaneous with the Distribution, KGI will
contribute the stock of Kinetics Modular Systems, Inc. ("KMS") to KBI as a
capital contribution.
4. Prior to or simultaneous with the Distribution, KGI will
contribute the stock of Kinetics Thermal Systems, Inc ("KTS") to KSI as a
capital contribution.
5. Prior to or simultaneous with the Distribution, KGI will
contribute to KSI an intercompany receivable owing from KSI to KGI as a capital
contribution.
6. As part of the "DISTRIBUTION" KGI will distribute 100% of the
stock of KBI and 100% of the stock of KSI to Celerity, and Celerity will
immediately thereafter distribute the stock of KBI and KSI to the Existing
Shareholders on a pro rata basis all on the "DISTRIBUTION DATE" as defined in
the Separation Agreement.
7. After or simultaneous with the Distribution, the Existing
Shareholders may contribute the stock of KBI and KSI to HLLC.
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TAX SHARING AGREEMENT
8. After or simultaneous with the Distribution, HLLC may
contribute the stock of KBI to KBIHC in exchange for stock in KBIHC or as a
capital contribution.
9. After or simultaneous with the Distribution, HLLC may
contribute the stock of KSI to KSIHC in exchange for stock in KSIHC or as a
capital contribution.
10. After or simultaneous with the Distribution, Celerity may
cause KGI to be liquidated into Celerity.
11. At the time of registration or simultaneous with the
transactions described above, Celerity will issue stock for cash in an initial
public offering.
B. WHEREAS, the parties intend that the Distribution will result in the
separation of KSI and KBI from the Affiliated Group or Combined Group of which
Celerity is the common or group parent.
C. WHEREAS, KBI, KSI and Celerity have determined that it is necessary
and desirable to provide for allocations between and among KBI, KSI and Celerity
of the responsibilities, liabilities and benefits relating to Taxes paid or
payable by the parties determined on a consolidated, combined, unitary or other
group basis, with respect to any period beginning before the Distribution Date.
D. WHEREAS, KBI, KSI and Celerity would like to officially designate and
authorize the Representative of the Affiliated Group and Combined Group to
handle the responsibilities for certain administrative matters, such as:
1. the preparation and filing of Tax Returns for
Pre-Distribution Periods, Straddle Periods, and Post-Distribution Periods.
2. the allocation and payment of Taxes shown to be due and
payable on any Pre-Distribution Period Tax Return or Straddle Period Tax Return
(as well as any estimated or advance payments required to be paid before the
filing of those Tax Returns);
3. the allocation and payment of any additional Taxes determined
to be due and payable with respect to any Pre-Distribution Period or Straddle
Period;
4. the allocation and disbursement of any Tax refunds received
with respect to any Pre-Distribution Period or Straddle Period;
5. the retention, maintenance and provision of access to all
records necessary to prepare and file appropriate Pre-Distribution Period Tax
Returns or Straddle Period Tax Returns;
6. the conduct of audits, examinations, and proceedings that
could result in a redetermination of Tax liabilities for any Pre-Distribution
Period or Straddle Period;
7. the exclusion of Celerity (or its predecessor and/or
successors in interest) from any excess section 338(h)(10) tax liability as
defined in section 6.2(j) of that certain Stock
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TAX SHARING AGREEMENT
Purchase Agreement between KGI (as successor in interest to Kinetics Acquisition
Corporation) and United States Filter Corporation ("USF") dated as of July 18,
2000 (the "USF AGREEMENT"); and
8. the exclusion of Celerity (or its predecessor and/or
successors in interest) from any Tax liability associated with the restructuring
transactions described above.
NOW, THEREFORE, in consideration of the mutual agreements, provisions,
and covenants contained in this Agreement (the adequacy of which is hereby
acknowledged by the parties), the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS.
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).
1.1. "ADJUSTMENT" means an adjustment determined on an issue-by-issue or
transaction-by-transaction basis, as appropriate, made or proposed by a Taxing
Authority with respect to any amount reflected or required to be reflected on
any Return relating to such Tax.
1.2. "AFFILIATED GROUP" means Celerity and all other corporations which
prior to the Distribution were required to be included in a US consolidated
Federal income Tax return with Celerity as the common parent corporation.
1.3. "AFTER TAX BASIS" means a basis such that any payment received or
deemed to have been received by a party (the "ORIGINAL PAYMENT") shall be
supplemented by a further payment to such party so that the sum of the two
payments shall equal the Original Payment, after taking into account all Taxes
that would result from the receipt or accrual of such payments, if legally
required. All payments hereunder shall be calculated on the assumptions that the
payee is subject to tax at the highest marginal rates of Tax applicable to such
class of taxpayer.
1.4. "CODE" shall mean the United Stated Internal Revenue Code of 1986,
as amended, and the Treasury Regulations promulgated thereunder. All section
references are to the Code unless otherwise indicated.
1.5. "COMBINED GROUP" means Celerity and all other corporations which
prior to the Distribution were required to be included in a Return of state
income or franchise Tax filed on a combined, group or unitary basis (a "COMBINED
RETURN"), as opposed to a separate company basis.
1.6. "ESTIMATED PAYMENT DATE" means each date occurring during any
period upon which the Affiliated Group or Combined Group is required to make a
payment of estimated Tax whether or not such a payment is due.
1.7. "EXTENSION PAYMENT DATE" means, with respect to any period any date
upon which the Affiliated Group or the Combined Group shall be required to make
a payment of
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TAX SHARING AGREEMENT
Taxes in connection with any request by Celerity on behalf of the Affiliated
Group or Combined Group for an extension of the date upon which it would have
been required, absent such extension, to file its Tax Return.
1.8. "FINAL DETERMINATION" means (a) a decision, judgment, decree or
other order by any court of competent jurisdiction, which has become final and
is either no longer subject to appeal or for which a determination not to appeal
has been made; (b) a closing agreement made under Section 7121 of the Code or
any comparable foreign, state, local, municipal or other Taxing statute; (c) a
final disposition by any Taxing Authority of a claim for refund; or (d) any
other written agreement relating to an Adjustment to which any Taxing Authority
is a party to the execution of which is final and prohibits such Taxing
Authority from seeking any further legal or administrative remedies with respect
to such Adjustment.
1.9. "IRS" means the United States Internal Revenue Service.
1.10. "POST-DISTRIBUTION PERIOD" means any period of time beginning
after the Distribution Date.
1.11. "PRE-DISTRIBUTION PERIOD" means any period of time beginning
before and ending on or before the Distribution Date.
1.12. "REGULATIONS" means the Regulations issued by the Secretary of the
Treasury interpreting the Code.
1.13. "REPRESENTATIVE OF THE AFFILIATED GROUP AND COMBINED GROUP" means
KSI or any successor in interest, and the person(s) within KSI responsible for
performing the functions to be performed by the Representative of the Affiliated
Group and Combined Group shall be the highest ranking tax officer of KSI (most
likely the VP of Taxes, or Director of Tax).
1.14. "RETURN" means any return, report, form or similar statement or
document (including, without limitation, any related or supporting information
or schedule attached thereto and any information return, claim for, amended
return and declaration of estimated Tax) that has been or is required to be
filed with any Taxing Authority or that has been or is required to be furnished
to any Taxing Authority in connection with the determination, assessment or
collection of any Taxes or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
1.15. "STRADDLE PERIOD" means any period of time beginning before but
ending after the Distribution Date. Straddle periods may exist in any situations
involving any Tax computed on a basis which does not and cannot be closed on the
Distribution Date including, but not limited to, payroll taxes, property taxes,
sales taxes, and the like.
1.16. "TAX" (and, with correlative meanings, "TAXES" and "TAXABLE")
means, without limitation, and as determined on a jurisdiction-by-jurisdiction
basis, each foreign or US Federal, state, local or municipal income, alternative
or add-on minimum, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or any other tax, custom, tariff, impost, levy,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with
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any interest or penalty, addition to tax or additional amount related thereto,
imposed by any Taxing Authority.
1.17. "TAX BENEFIT" means with respect to any Taxable period or portion
of a Taxable period, and as computed separately with respect to each Tax, the
net decrease in each such Tax resulting from all Adjustments made pursuant to a
Final Determination with respect to each such Tax.
1.18. "TAX CONTEST" means, without limitation, any audit, examination,
claim, suit, action or other proceeding relating to Taxes in which an Adjustment
to Taxes may be proposed, collected or assessed and in respect of which an
indemnity payment, reimbursement or other payment may be sought under this
Agreement.
1.19. "TAX DETRIMENT" means with respect to any Taxable period or
portion of a Taxable period, as computed separately with respect to each Tax,
the net increase in each such Tax resulting from all Adjustments made pursuant
to a Final Determination with respect to each such Tax.
1.20. "TAXING AUTHORITY" means any governmental authority or any
subdivision, agency, commission or authority thereof, or any quasi-governmental
or private body having jurisdiction over the assessment, determination,
collection or other imposition of Taxes.
2. ALLOCATION OF TAX LIABILITY.
2.1. REGULAR US FEDERAL INCOME TAX. If the US Federal income Tax
liability of the Affiliated Group for any Pre-Distribution Period or Straddle
Period during which a party or any subsidiary thereof is a member of the
Affiliated Group (an "AFFILIATED GROUP MEMBER"), is determined on a regular US
Federal income Tax basis, then the amount of US Federal income Tax liability
allocable to each Affiliated Group Member and for which each Affiliated Group
Member shall be responsible for such periods, shall be determined using the
basic Tax allocation method described in Section 1552(a)(1) of the Code (the
separate taxable income method), without taking into account the complementary
methods of allocating Tax liabilities described in Treas. Reg. Section
1.1502-33(d) or Treas. Reg. Section 1.1502-32(b)(3)(iv)(D). The Representative
of the Affiliated Group and Combined Group shall be responsible for preparing
such Tax allocations and computations, including, but not limited to, the
determination of how any Affiliated Group US Federal regular income Tax
attributes are to be apportioned among the members of the Affiliated Group.
2.2. US FEDERAL ALTERNATIVE MINIMUM TAX. If the Affiliated Group pays US
Federal consolidated alternative minimum Tax ("AMT") for any Pre-Distribution
Period or Straddle Period during which a party or any subsidiary thereof is an
Affiliated Group Member, then the amount of the Affiliated Group's AMT allocable
to each Affiliated Group Member and for which each Affiliated Group Member shall
be responsible for such periods shall equal the excess, if any, of (A) the total
AMT of the Affiliated Group for the period, over (B) the AMT of the Affiliated
Group for the period computed by excluding that Affiliated Group Member's items
of income, gain, deduction and loss, and that party's credits. The
Representative of the Affiliated Group and Combined Group shall be responsible
for preparing such Tax allocations and
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computations, including, but not limited to, the determination of how any
Affiliated Group AMT Tax attributes are to be apportioned among the members of
the Affiliated Group.
2.3. OTHER CONSOLIDATED, COMBINED, UNITARY OR GROUP TAXES. With respect
to all Taxes other than the US consolidated Federal income Taxes and AMT
addressed in Sections 2.1 and 2.2 of this Agreement, that are determined on a
consolidated, combined, unitary or group basis for any Pre-Distribution Period
or Straddle Period during which a party or any subsidiary thereof is a member of
such a consolidated, combined, unitary or group (a "COMBINED GROUP MEMBER"), the
amount of such other Taxes allocable to each Combined Group Member and for which
each Combined Group Member shall be responsible for such periods shall be
determined by applying the principles underlying the allocation method described
in Section 1552(a)(1) of the Code, without taking into account the complementary
methods of allocating Tax liabilities described in Treas. Reg. Section
1.1502-33(d) or Treas. Reg. Section 1.1502-32(b)(3)(iv)(D). The Representative
of the Affiliated Group and Combined Group shall be responsible for preparing
such Tax allocations and computations, including, but not limited to, the
determination of how any Affiliated Group non-US Federal regular income and
non-AMT Tax attributes are to be apportioned among the members of the Affiliated
Group.
2.4. SEPARATE COMPANY TAXES. With respect to all Taxes computed on a
separate company basis for any Pre-Distribution Period, Straddle Period or
Post-Distribution Period, each party or subsidiary thereof shall be separately
responsible for their respective separate company Taxes for such periods
(including, without limitation, the payment of such separate company Taxes and
the preparation and filing of any Tax Return related to such Taxes).
2.5. POST-DISTRIBUTION PERIOD CONSOLIDATED, COMBINED, UNITARY OR GROUP
TAXES. Any Taxes attributable to any Post-Distribution Period (including,
without limitation, the payment of such Taxes and the preparation and filing of
any Tax Return related to such Taxes) of any party(ies) or subsidiary(ies)
thereof, determined on a consolidated, combined, unitary or group basis, shall
be the sole responsibility of each party or subsidiary thereof as members of
such consolidated, combined, unitary or group for such periods and shall be
allocated and apportioned among such group members in accordance with applicable
Tax law. In addition, any Tax attributes attributable to any Post-Distribution
Period determined on a consolidated, combined, unitary or group basis, shall be
allocated and apportioned among such group members in accordance with applicable
Tax law, or some other reasonable basis if applicable Tax law does not provide
any allocation or apportionment rules. The Representative of the Affiliated
Group and Combined Group shall be responsible for preparing such Tax allocations
and computations. This section 2.5 shall not create any obligations or
liabilities on the part of any party to this Agreement which is not a member of
such consolidated, combined, unitary or group, except to the extent otherwise
provided in this Agreement.
2.6. ALLOCATION OF TAXES WITHIN A STRADDLE PERIOD. Taxes attributable to
any Straddle Periods as determined in this Agreement shall be allocable to each
party or a subsidiary thereof within such Straddle Periods to the portions of
such Straddle Periods before and after the Distribution Date by applying the
provisions of and / or principles underlying the allocation method described in
Treas. Reg. Section 1.1502-76(b)(2) as if each of the parties or subsidiaries
thereof had closed their books as of the end of the Distribution Date. The
Representative of the
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Affiliated Group and Combined Group shall be responsible for preparing such Tax
allocations and computations.
2.7. DISPUTE RESOLUTION. The Representative of the Affiliated Group and
Combined Group shall use commercially reasonable efforts in preparing all
required Tax allocations and computations. Should a dispute arise concerning any
Tax allocations or computations, the dispute shall be resolved by hiring a third
party independent accounting firm to perform the disputed Tax allocations or
computations. The cost of hiring such third party independent accounting firm
shall be born by the party disputing the Tax allocations or computations
prepared by the Representative of the Affiliated Group and Combined Group.
Should the results of the third party independent accounting firm be
inconclusive, the disputed tax allocations shall be resolved pursuant to section
9 of this Agreement.
2.8. ALLOCATION OF TAXES ARISING OUT OF USF AGREEMENT. Notwithstanding
the other provisions of this Section 2 and consistent with Section 7.2 of this
Agreement, Celerity and its predecessor and/or successors in interest shall not
be responsible for any excess section 338(h)(10) tax liability as defined in
section 6.2(j) of the USF Agreement. Thus, no such excess section 338(h)(10) tax
liability can be allocated under Section 2 of this Agreement to Celerity or its
predecessor and/or successors in interest. All such excess section 338(h)(10)
tax liability, if any, arising out of section 6.2(j) of the USF Agreement shall
be allocable only to KSI and/or KBI in accordance with the other rules of
Section 2 of this Agreement as if Celerity or its predecessor and/or successors
in interest did not exist, and KSI and KBI shall be jointly and severally liable
for such amounts.
2.9. ALLOCATION OF TAXES ATTRIBUTABLE TO THE RESTRUCTURING TRANSACTIONS.
Notwithstanding the other provisions of this Section 2 and consistent with
Section 7.3 of this Agreement, Celerity and its predecessor and/or successors in
interest shall not be responsible for any Tax liabilities stemming from any
taxable gain or any taxable income recognized by Celerity or its predecessor
and/or successors in interest as a result of the restructuring transactions
described in Recital A of this Agreement. Thus, no such Tax liabilities can be
allocated under Section 2 of this Agreement to Celerity and its predecessor
and/or successors in interest. All such Tax liabilities, if any, shall be
allocable only to KSI and/or KBI in accordance with the other rules of Section 2
of this Agreement as if Celerity or its predecessor and/or successors in
interest did not exist, and KSI and KBI shall be jointly and severally liable
for such amounts.
3. PAYMENTS OF TAX; DISTRIBUTION OF TAX REFUNDS ON ORIGINAL OR AMENDED TAX
RETURNS.
3.1. PAYMENT OF ALLOCATED TAX AMOUNTS. Each party on behalf of and for
itself and each of its subsidiaries shall pay their combined allocable share of
any Taxes as determined in this Agreement and as reflected on any original or
amended Tax Return for any Pre-Distribution or Straddle Period filed after the
Distribution Date to the Representative of the Affiliated Group and Combined
Group filing such Tax Returns on or before the date such Tax Returns are filed
with the appropriate Taxing Authority. The Representative of the Affiliated
Group and Combined Group shall forward any such payments to the appropriate
Taxing Authority in conjunction with the filing of any such Tax Returns.
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3.1.1. NOTICE; AVAILABILITY OF FUNDS. The Representative of the
Affiliated Group and Combined Group filing such original or amended Tax Returns
shall provide the other parties with as much notice as is practicable concerning
the date on which the Tax payment required under Section 3.1 hereof shall be
paid. Each paying party shall ensure that each such Tax payment required under
Section 3.1 hereof is made to the Representative of the Affiliated Group and
Combined Group in readily available same day funds such that such funds may be
combined with all other Taxes allocated by the Representative of the Affiliated
Group and Combined Group filing such Tax Returns and paid to the appropriate
Taxing Authorities on the date such Tax Returns are filed.
3.1.2. ESTIMATED TAX CONSIDERATIONS. For these purposes,
estimated Tax payments made by a party or its subsidiaries directly to any
relevant Taxing Authority shall be taken into account in determining the
payments required to be made under Section 3.1 hereof.
3.2. CONSOLIDATED, COMBINED, UNITARY, OR GROUP REFUNDS. If the
Affiliated Group or Combined Group receives a Tax refund as a result of an
overpayment of Taxes shown on any original or amended Tax Return filed by or for
the Affiliated Group or Combined Group with respect to any Pre-Distribution
Period or Straddle Period, then the Representative of the Affiliated Group and
Combined Group receiving any such Tax refund shall pay to the other parties that
portion of the Tax refund, if any, allocable to them or their subsidiaries. The
portion of the Tax refund allocable to the other parties or their subsidiaries
shall be equal to the excess, if any, of (i) the estimated Tax payments made by
that party or its subsidiaries to the Representative of the Affiliated Group and
Combined Group filing the relevant Tax Return, over (ii) that party's or its
subsidiaries' share of the Tax liability reported on the original or amended Tax
Return, allocated as provided in Section 2 of this Agreement.
4. MINIMUM TAX CREDITS, CARRYBACK OF TAX ATTRIBUTES.
4.1. ALLOCATION OF MINIMUM TAX CREDITS. Any US consolidated Federal
minimum tax credit of the Affiliated Group for any Pre-Distribution Period or
Straddle Period shall be allocated to the extent possible to each Affiliated
Group Member in proportion to its allocable share of any AMT determined under
Section 2.2 of this Agreement. If it is determined that such an allocation is
not possible, or if the Treasury Department issues Regulations that prohibit or
require a different allocation, then the parties shall use commercially
reasonable efforts to comply with such other required allocation methodology and
take into account any differences in determining the amount one party may need
to pay to another party for the loss of any US consolidated Federal minimum tax
credit. The Representative of the Affiliated Group and Combined Group shall be
responsible for preparing such credit allocations and computations.
4.2 ALLOCATION OF OTHER TAX ATTRIBUTES. All other Tax attributes of the
Affiliated Group or Combined Group for any Pre-Distribution Period or Straddle
Period shall be allocated or apportioned to the members of such groups in
accordance with the rules prescribed by the Code or other applicable Tax law for
the allocation or apportionment of such Tax attributes. If the Code or other
applicable Tax law provides no rules for allocating or apportioning any such Tax
attribute, then such Tax attribute shall be allocated and/or apportioned on a
reasonable basis determined by and in the sole discretion of the Representative
of the Affiliated Group and Combined Group.
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4.3. ELECTIVE CARRYBACK OF POST-DISTRIBUTION TAX ATTRIBUTES. If, for any
Post-Distribution Period, a party recognizes a loss, credit, or similar Tax
attribute that, under applicable Tax law, may be carried back at the party's
election to a Pre-Distribution Period or a Straddle Period of the Affiliated
Group or Combined Group during which the party was a member of the Affiliated
Group or Combined Group filing consolidated, combined, unitary or group Tax
Returns, then the party shall forego the ability to carry back such loss,
credit, or similar tax attribute to such period.
4.4. MANDATORY CARRYBACK OF POST-DISTRIBUTION TAX ATTRIBUTES. If, for
any Post-Distribution Period, a party recognizes a loss, credit, or similar Tax
attribute that, under applicable law, must be carried back to a Pre-Distribution
Period or a Straddle Period of the Affiliated Group or Combined Group during
which the party was a member of the Affiliated Group or Combined Group filing
consolidated, combined, unitary or group Tax Returns, then the Representative of
the Affiliated Group and Combined Group for such periods shall, at the party's
expense, file appropriate Tax refund claims within a reasonable period of time
after receiving notice from the party that such Tax attribute must be carried
back to such periods. The Representative of the Affiliated Group and Combined
Group for such periods shall remit to the party any Tax refunds received, less
any applicable costs, with respect to any Tax attribute so carried back upon
receipt of such Tax refund. The Representative of the Affiliated Group and
Combined Group shall be responsible for preparing such Tax allocations and
computations.
5. CONDUCT OF TAX CONTESTS; REDETERMINATION OF TAX LIABILITIES; COOPERATION.
5.1. SEPARATE PARTY CLAIMS. Each party or its subsidiaries shall have
sole and complete authority to contest any claim by a Taxing Authority arising
from an examination of a Tax Return for any Taxable period with respect to any
Tax Return which includes only that party or its subsidiaries (a "SEPARATE PARTY
CLAIM"). The Representative of the Affiliated Group and Combined Group shall use
its commercially reasonable efforts (at the cost of the requesting party) to
assist the party in assisting with the resolution of the Separate Party Claim as
set forth in that certain Management Services Agreement ("MANAGEMENT SERVICES
AGREEMENT") between and among the parties, dated effective as of ________, 2002.
5.2. GROUP CLAIMS. Except as otherwise provided in Section 5.1 hereof,
the Representative of the Affiliated Group and Combined Group shall have sole
and complete authority to control and resolve the contest of any claim by any
Taxing Authority arising from an examination of any Tax Return for any
Pre-Distribution or Straddle Period relating to the Affiliated Group or Combined
Group (a "GROUP CLAIM"), provided that other parties ultimately affected by the
resolution of the Group Claim shall be allowed the opportunity to provide
constructive and useful input to the Representative of the Affiliated Group and
Combined Group within the time and procedural constraints established by the
Representative of the Affiliated Group and Combined Group in the handling of any
Group Claim at the sole discretion of the Representative of the Affiliated Group
and Combined Group. No other party shall have any other right to participate in
the contest of a Group Claim. The Representative of the Affiliated Group and
Combined Group shall be entitled to incur reasonable costs in handling any Group
Claim. The other parties affected by a Group Claim shall be responsible for and
shall pay to the
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Representative of the Affiliated Group and Combined Group their reasonable share
of such costs as determined by the Representative of the Affiliated Group and
Combined Group.
5.3. REDETERMINED TAX LIABILITIES
5.3.1. SEPARATE PARTY CLAIMS. If a Final Determination of Taxes
results from a Separate Party Claim, the relevant party shall pay any resulting
increase in Tax liability and shall be entitled to receive any refunds related
to a decrease in Tax liability attributable to the Separate Party Claim.
5.3.2 GROUP CLAIMS: TAX INCREASE. If a Final Determination of a
Group Claim results in an increase in Tax liability for the Affiliated Group or
Combined Group with respect to the Group Claim, then such Tax increase shall be
allocated to the parties in accordance with the allocation methodology provided
in Section 2 of this Agreement. The Representative of the Affiliated Group and
Combined Group shall notify each party of their share of any such Tax increase
and each party shall pay to the Representative of the Affiliated Group and
Combined Group such share on or before such Tax amount is paid to the relevant
Taxing Authority. The Representative of the Affiliated Group and Combined Group
shall be responsible for preparing such Tax allocations and computations.
5.3.3 GROUP CLAIMS: TAX REFUND. If a Final Determination of a
Group Claim results in a decrease in Tax liability for the Affiliated Group or
Combined Group with respect to the Group Claim, then such Tax decrease shall be
allocated to the parties in accordance with the allocation methodology provided
in Section 2 of this Agreement. The Representative or the Affiliated Group and
Combined Group shall notify each party of their share of any such Tax decrease
and shall make arrangements to disburse any Tax Refunds resulting from such Tax
decrease (net of any costs) to the other parties when such Tax Refunds are
received from the relevant Taxing Authority. The Representative of the
Affiliated Group and Combined Group shall be responsible for preparing such Tax
allocations and computations.
5.4. RETENTION OF AND ACCESS TO RECORDS; COOPERATION AND ASSISTANCE
5.4.1. RETENTION OF AND ACCESS TO RECORDS. The Representative of
the Affiliated Group and Combined Group shall retain all Tax Returns for
Pre-Distribution and Straddle Periods, together with all related reports, work
papers, schedules or other documents or files (whether in paper or electronic
form), in accordance with the record retention policies established by the
Representative of the Affiliated Group and Combined Group for the Affiliated
Group and Combined Group, and with the requirements of any relevant Taxing
Authority. Subject to the confidentiality provisions of Section 8 hereof, the
Representative of the Affiliated Group and Combined Group shall make these
documents or files available to each party on a reasonable basis and each party
may make copies of such documents or files at their own expense. A party shall
not dispose of any of these documents or files without the written permission of
the Representative of the Affiliated Group and Combined Group.
5.4.2. COOPERATION. Each party and their subsidiaries shall
provide any assistance reasonably requested by the Representative of the
Affiliated Group and Combined Group in conducting any Tax Contest of a Group
Claim, subject to the confidentiality provisions
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of Section 8 hereof. Such assistance shall include (without limitation) the
execution of any powers of attorney, the execution of any statute of limitation
extensions, the execution of other appropriate documentation, the attendance at
any administrative or judicial proceedings as requested, the performance of
necessary computations, and, subject to the confidentiality provisions of
Section 8 hereof, provision of access to or furnishing books, records, tax
returns, and supporting work papers relevant to any Group Claim.
5.4.3. ADDITIONAL COOPERATION AND ASSISTANCE. Subject to the
confidentiality provisions of Section 8 hereof, each party shall provide each
other with such cooperation, assistance, and information as the other parties
may reasonably request with respect to the filing with any Taxing Authority of
any Tax Return, amended Tax Return, claim for Tax Refund, or other document
relating to any Pre-Distribution Period or Straddle Period. With respect to any
Tax Return for any Pre-Distribution Period or Straddle Period that includes more
than one party, such assistance shall include the timely submission by the party
to the Representative of the Affiliated Group and Combined Group of pro forma
Tax Returns for the party. A party's obligations under this Section 5.4.3 shall
include, but is not limited to, the submission of a pro forma Tax Return for the
Pre-Distribution Period that will end on the Distribution Date, and the
provision of information and assistance in dealing with any administrative
matter pertaining to the USF Agreement, if any.
6. PREPARATION OF TAX RETURNS; ESTIMATED PAYMENTS.
6.1. FILING OF AFFILIATED GROUP AND COMBINED GROUP TAX RETURNS FOR
PRE-DISTRIBUTION PERIODS AND STRADDLE PERIODS. The Representative of the
Affiliated Group and Combined Group shall have the sole and complete authority
and responsibility to prepare and timely file (for a fee) all Tax Returns of the
Affiliated Group and Combined Group on behalf of the members of those groups for
any Pre-Distribution Periods and Straddle Periods. Any fees or costs incurred by
the Representative of the Affiliated Group and Combined Group in preparing such
Tax Returns shall be shared by the parties on a reasonable basis determined by
the Representative of the Affiliated Group and Combined Group. Such reasonable
basis may include, but is not limited to, the proportion of Taxes allocated to
each party under Section 2 hereof.
6.2. FILING OF TAX RETURNS FOR POST-DISTRIBUTION PERIODS. The parties
shall be separately responsible for the preparation and timely filing of all Tax
Returns of their own Post-Distribution Periods. The parties may request the
assistance of the Representative of the Affiliated Group and Combined Group (for
an appropriate fee) in the preparation of such Tax Returns as established and
described in the Management Services Agreement. The Representative of the
Affiliated Group will use its commercially reasonable efforts to provide such
requested assistance.
6.3. ESTIMATED PAYMENTS: EXTENSION PAYMENTS. Except for estimated Tax
payments which have already been made by any party for or on behalf of the
Affiliated Group or Combined Group with respect to any Pre-Distribution Period
or Straddle Period, the Representative of the Affiliated Group and Combined
Group shall be responsible for making all estimated Tax payments to any relevant
Taxing Authorities required to be paid on or before the Estimated Payment Date
in connection with any Tax Return of the Affiliated Group or
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TAX SHARING AGREEMENT
Combined Group for any Pre-Distribution Period and Straddle Period. The
Representative of the Affiliated Group and Combined Group shall be responsible
for making all payments required in connection with requests for extensions of
time to file such Tax Returns to any relevant Taxing Authorities required to be
paid on or before the Extension Payment Date. The Representative of the
Affiliated Group and Combined Group shall determine each party's share of such
estimated Tax payments and Tax Return extension payments in accordance with the
provisions of and principles described in Section 2 of this Agreement, and shall
notify each party in writing of their allocable share of such estimated Tax
payments and Tax Return extension payments and when such amounts must be paid to
the Representative of the Affiliated Group and Combined Group. Each party shall
be required to pay to the Representative of the Affiliated Group and Combined
Group their share of such amounts on or before the date such payments are paid
to the relevant Taxing Authority as specified in the notice to the parties.
7. INDEMNIFICATION.
7.1. INDEMNITY OBLIGATIONS. Each party shall indemnify each other and
hold each other harmless from and against:
7.1.1. any Tax liability, penalty, interest, cost, or expense
arising out of the fraudulent or negligent preparation by such party of any
information, workpapers, documents, or other items used in the preparation of,
or presented in, any Tax Return, amended Tax Return, or claims for Tax Refund;
and
7.1.2. any Tax liability, and related cost, penalties, interest,
or related expense allocated to the party under this Agreement.
7.2. OBLIGATIONS AND RESPONSIBILITIES ASSOCIATED WITH USF AGREEMENT.
Notwithstanding any other provision in this Agreement (including without
limitation the Tax allocation provisions of Section 2 of this Agreement and the
other indemnification provisions of Section 7 of this Agreement), Celerity and
its predecessor and/or successors in interest shall have no responsibility for
and no obligations to pay and shall be jointly and severally indemnified by KSI
and KBI against any excess section 338(h)(10) tax liability (and related costs,
fees, damages or expenses) as defined in section 6.2(j) of the USF Agreement.
Accordingly, Celerity and its predecessor and/or successors in interest do not
provide any indemnity for any excess section 338(h)(10) tax liability as defined
in section 6.2(j) of the USF Agreement.
7.3. INDEMNIFICATION FOR RESTRUCTURING TRANSACTIONS. Notwithstanding any
other provision of this Agreement (including without limitation the Tax
allocation provisions of Section 2 of this Agreement and the other
indemnification provisions of Section 7 of this Agreement), Celerity and its
predecessor and/or successors in interest shall have no responsibility for and
shall be jointly and severally indemnified by KSI and KBI against any Tax
liabilities (and related costs, fees, damages or expenses) stemming from any
taxable gain or any taxable income recognized by Celerity or its predecessor
and/or successors in interest as a result of the restructuring transactions
described in Recital A of this Agreement, pursuant to which KSI and KBI stock
will be distributed to Celerity, and thereafter distributed to the Existing
Shareholders. Accordingly, Celerity and its predecessor and/or successors in
interest do not
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TAX SHARING AGREEMENT
provide any indemnity for any amounts arising out of the restructuring
transactions described in Recital A of this Agreement.
7.4. PERFORMANCE OF INDEMNITY OBLIGATIONS. Each party's indemnity
obligations under Section 7.1 hereof shall continue for the entire applicable
statute of limitations period applicable to the Tax involved until such
obligation is satisfied by the party. Each party shall satisfy its indemnity
obligations under Section 7.1 hereof in a manner consistent with the provisions
of Article IV of the Separation Agreement.
7.5. AFTER TAX BASIS. All such indemnification payments required under
this Agreement shall be paid on an After Tax Basis.
7.6. RIGHT OF SET OFF. Each party (a "PAYOR") may reduce the amount of
its indemnification obligation owing to another party (a "PAYEE") to the extent
that the payor has a legitimate indemnification claim against the payee.
7.7. INDEMNIFICATION OF REPRESENTATIVE OF THE AFFILIATED GROUP AND
COMBINED GROUP. The parties hereby indemnify and hold harmless the
Representative of the Affiliated Group and Combined Group for any amounts
determined to be solely related to the performance of its functions under and
within the scope of this Agreement.
8. CONFIDENTIALITY OF DOCUMENTS AND INFORMATION.
8.1. GENERAL RULE. Any documents or information provided pursuant to
this Agreement in connection with a Tax Contest or filing with a Taxing
Authority shall be disclosed by the recipient solely to its employees
responsible for any Tax Contest or Tax filing or to attorneys or accountants
advising the recipient on these matters. Any wider dissemination of these
documents or this information shall be allowed only if required by law or
authorized by the party providing the documents or information.
8.2. CONFIDENTIAL DISCLOSURE AGREEMENT. The parties acknowledge that
communications between and among them may also be governed by that certain
Confidential Disclosure Agreement entered between the parties, dated effective
as of ___________, 2002.
9. DISPUTE RESOLUTION.
9.1. OBLIGATION TO NEGOTIATE TO RESOLVE ANY DISPUTE. Except as provided
in Section 2.7 of this Agreement, if any dispute between the parties relating to
the validity, performance, interpretation or construction of this Agreement,
then the parties shall use commercially reasonable efforts to resolve any such
Tax related dispute through informal negotiation between the parties or their
authorized representatives. If at any time a party feels that such negotiations
are not leading to a resolution of the Tax related dispute, such party may send
a notice to the other parties describing the Tax related dispute and requesting
a meeting of the senior executives from each party. Within ten (10) business
days after such notice is given, each party shall select appropriate senior
executives (e.g., director or V.P. level) of each party who shall have the
authority to resolve the matter and shall meet to attempt in good faith to
negotiate a resolution of the Tax related dispute prior to pursuing the
arbitration remedy described below. During the course of negotiations under this
Section 9.1, all reasonable requests made by one party to the
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TAX SHARING AGREEMENT
others for information, including requests for copies of relevant documents,
will be honored. The specific format for such negotiations will be left to the
discretion of the designated negotiating senior executives, but may include the
preparation of agreed upon statements of fact or written statements of position
furnished to the other parties.
9.2 BINDING ARBITRATION. In the event that any Tax related dispute
arising out of or related to this Agreement is not settled by the parties within
thirty (30) days after the first meeting of the negotiating senior executives as
described in Section 9.1 of this Agreement, the dispute shall be submitted to
binding arbitration, to be held in Santa Xxxxx County, California, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
before a single arbitrator selected in accordance with such Commercial
Arbitration Rules. After affording the parties a reasonable opportunity to
present written and testimonial evidence in support of their respective
positions, the arbitrator shall issue his/her decision and award, which shall be
(i) in writing, stating the reasons therefor; (ii) based solely on the terms and
conditions of this Agreement, as interpreted under the laws of the State of
California; and (iii) final and binding upon the parties. The decision and award
of the arbitrator in any arbitration proceeding under this Section 9.2 may be
enforced in any court of competent jurisdiction.
9.3. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and any related agreements during the course of
dispute resolution pursuant to the provisions of Section 9 of this Agreement
with respect to all matters not subject to such dispute, controversy or claim.
10. MISCELLANEOUS.
10.1. LIMITATION OF LIABILITY. IN NO EVENT SHALL A PARTY OR ITS
SUBSIDIARIES BE LIABLE TO THE OTHER PARTIES OR THEIR SUBSIDIARIES FOR ANY
SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST
PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE)
ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10.2. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and shall
supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof.
10.3. GOVERNING LAW. This Agreement shall be construed in accordance
with and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Xxxxx County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Section 9 of this Agreement.
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TAX SHARING AGREEMENT
10.4. NOTICES. Any notice, demand, offer, request or other communication
required or permitted to be given by a party pursuant to the terms of this
Agreement shall be in writing and shall be deemed effectively given the earlier
of (i) when received, (ii) when delivered personally, (iii) one (1) Business Day
after being delivered by facsimile (with receipt of appropriate confirmation),
(iv) one (1) Business Day after being deposited with a nationally recognized
overnight courier service or (v) four (4) days after being deposited in the US
mail, First Class with postage prepaid, and addressed to the attention of:
IF TO KINETIC SYSTEMS, INC.:
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with a copy to:
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IF TO KINETICS BIOPHARM, INC.:
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with a copy to:
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TAX SHARING AGREEMENT
IF TO CELERITY GROUP, INC. (FORMERLY KNOWN AS KINETICS HOLDINGS
CORPORATION):
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with a copy to:
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A party may substitute a different address or facsimile number, from time to
time, if such substitute is provided to the intended notice recipient in writing
by notice given in the manner provided in this Section 10.4.
10.5. COUNTERPARTS. This Agreement may be executed in counterparts via
facsimile or otherwise, each of which shall be deemed to be an original but all
of which shall constitute one and the same agreement.
10.6. BINDING EFFECT; ASSIGNMENT. A party may not assign or transfer
this Agreement or any of its rights or obligations hereunder (including, without
limitation, in connection with a sale of all or substantially all of such
party's assets), without the prior written consent of each of the other parties.
This Agreement shall be binding upon, and shall inure to the benefit of, the
parties hereto and their respective legal representatives, successors and
permitted assigns.
10.7. SEVERABILITY. The parties hereto have negotiated and prepared the
terms of this Agreement in good faith with the intent that each and every one of
the terms, covenants and conditions herein be binding upon and inure to the
benefit of the respective parties. Accordingly, if any one or more of the terms,
provisions, promises, covenants or conditions of this Agreement or the
application thereof to any person or circumstance shall be adjudged to any
extent invalid, unenforceable, void or voidable for any reason whatsoever by a
court of competent jurisdiction, such provision shall be as narrowly construed
as possible, and each and all of the remaining terms, provisions, promises,
covenants and conditions of this Agreement or their application to other persons
or circumstances shall not be affected thereby and shall be valid and
enforceable to
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TAX SHARING AGREEMENT
the fullest extent permitted by law. To the extent this Agreement is in
violation of applicable law, then the parties agree to negotiate in good faith
to amend the Agreement, to the extent possible consistent with its purposes, to
conform to law.
10.8. WAIVER OF BREACH. The waiver by a party hereto of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to constitute, a waiver of any subsequent breach of the same or
another provision hereof.
10.9. AMENDMENT AND EXECUTION. This Agreement may not be amended except
with the express written consent of each party to this Agreement. This Agreement
and amendments hereto shall be in writing and executed in multiple copies via
facsimile or otherwise on behalf of KSI, KBI, and Celerity, and by their
respective duly authorized officers and representatives. Each multiple copy
shall be deemed an original, but all multiple copies together shall constitute
one and the same instrument.
10.10. AUTHORITY. Each of the parties hereto represents to the other
parties that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (b) the execution, delivery and
performance of this Agreement by it have been duly authorized by all necessary
corporate or other actions, (c) it has duly and validly executed and delivered
this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
10.11. DESCRIPTIVE HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When a reference is made in this Agreement to
a section hereof, such reference shall be to a section of this Agreement unless
otherwise indicated.
10.12. GENDER AND NUMBER. Whenever the context of this Agreement
requires, the gender of all words herein shall include the masculine, feminine
and neuter, and the number of all words herein shall include the singular and
plural.
10.13. ADDITIONAL ASSURANCES. Except as may be specifically provided
herein to the contrary, the provisions of this Agreement shall be self-operative
and shall not require further agreement by the parties; provided, however, at
the request of any party, the other parties shall execute such additional
instruments and take such additional acts as are reasonable, and as the
requesting party may reasonably deem necessary, to effectuate this Agreement.
10.14. FORCE MAJEURE. A party shall not be liable or deemed to be in
default for any delay or failure in performance under this Agreement or other
interruption of service deemed to result, directly or indirectly, from acts of
God, civil or military authority, acts of public enemy, war, accidents,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by a party's employees, or any other similar cause beyond the
reasonable control of a party unless such delay or failure in performance is
expressly addressed elsewhere in this Agreement.
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TAX SHARING AGREEMENT
WHEREFORE, the parties have signed this Tax Sharing Agreement effective
as of the date first set forth above.
KINETIC SYSTEMS, INC. KINETICS BIOPHARM, INC.
By: /s By: /s
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Name: Name:
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Title: Title:
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Date: Date:
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CELERITY GROUP, INC. (formerly known as Kinetics Holdings
Corporation)
By: /s
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Name:
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Title:
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Date:
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