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EXHIBIT 10.24
DRAFT
TAX INDEMNIFICATION AND S CORPORATION DISTRIBUTION
AGREEMENT
This TAX INDEMNIFICATION AND S CORPORATION DISTRIBUTION AGREEMENT (the
"Agreement") is entered into as of February ___, 1998 between MKS INSTRUMENTS,
INC., a Massachusetts corporation (the "Company"), and the persons listed on
Schedule A attached hereto (individually a "Stockholder" and collectively the
"Stockholders"). Capitalized terms not otherwise defined have the meanings
ascribed to them in Section 1.1.
WHEREAS, the Company and the Stockholders have entered into this
Agreement as a condition to the Public Offering;
WHEREAS, the Company has been an "S corporation" (as defined in Section
1361(a)(1) of the Code) for federal tax purposes since July 1, 1987;
WHEREAS, the Company and the Stockholders understand that the Company's
S corporation status will terminate upon the date of the Public Offering (the
"Termination Date"), and, as a result, the Company will be a "C corporation" (as
defined in Section 1361(a)(2) of the Code) beginning on the Termination Date;
WHEREAS, the Company will declare the AAA Dividend which will be
payable on the Closing Date;
WHEREAS, the Company and the Stockholders wish to provide for certain
tax related payments in connection with the Company's status as an S corporation
and for the adjustment of the amount of the AAA Dividend in certain events;
WHEREAS, the Company and the Stockholders wish to terminate this
Agreement such that it has no effect should the Public Offering not occur;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"AA Account" means the Company's "accumulated adjustments
account," as defined in Section 1368(e)(1) of the Code, as of the close of
business on the day before the Termination Date.
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"AAA Dividend" means the dividend to be declared by the Company
prior to the Closing Date which shall be payable to the stockholders of record
on the day immediately prior to the Closing Date in an amount equal to [$ ].
"AAA Settlement Date" means the later of (i) March 15, 1999 or
(ii) the last day of the "post-termination transition period," as defined in
Section 1377(b) of the Code, of the Company.
"Adjustment Amount" means the net increase in taxable income of
one or more of the Stockholders or the Company based on a Final Determination
and which gives rise to a payment pursuant to Section 3.3 or Section 3.4 hereof.
"Affected Stockholder" means a Stockholder whose tax returns are
adjusted in a manner which gives rise to an obligation of the Company pursuant
to Section 3.3 hereof.
"Blended Rate" means a percentage which equals the sum of the
maximum marginal federal and state individual income tax rates for an individual
residing in Massachusetts (after giving effect to the full deductibility of
state income taxes for federal income tax purposes) in effect for the year of
the adjustment to a tax return of the Company or such Stockholder that gives
rise to a correlative adjustment to a tax return of such Stockholder or the
Company, respectively. For example, if an adjustment that results in an amount
due from the Stockholders hereunder, the year of the Company's return that was
adjusted shall determine the Blended Rate to be used in computing the amount
due.
"Closing Date" means the date on which the Public Offering
closes.
"Code" means the Internal Revenue Code of 1986, as amended.
"C Short Year" means that portion of the S Termination Year of
the Company beginning on the Termination Date and ending on the last day of the
S Termination Year.
"C Taxable Year" means any taxable year (or portion thereof) of
the Company, including the C Short Year, during which it is subject to taxation
as a C corporation as defined in Section 1361(a)(2) of the Code.
"Final Determination" means the first to occur of
(i) the expiration of 30 days after IRS acceptance of a Waiver
of Restrictions on Assessment and Collection of Deficiency of Tax and
Acceptance of Overassessment on IRS Form 870 or 870-AD;
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(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review
and has become final;
(iii) the execution of a closing agreement under Section 7121 of
the Code or the acceptance by the IRS of an offer in compromise under
Section 7122 of the Code, or comparable agreements under the laws of
other jurisdictions;
(iv) the expiration of the time for filing a claim for refund
or for instituting suit in respect for a claim for refund disallowed in
whole or in part by the IRS or other relevant tax authority;
(v) any other final disposition of the tax liability for such
period by reason of the expiration of the applicable statute of
limitations; or
(vi) any other event that the parties agree is final and
irrevocable determination of the liability at issue.
"Public Offering" means the public offering of the
Company's Common Stock pursuant to the Registration Statement on Form S-1
originally filed by the Company with the Securities and Exchange Commission on
November 14, 1997.
"Record Date" means the day immediately preceding the
Closing Date.
"S Short Year" means that portion of the S Termination
Year beginning on the first day of such taxable year and ending on the day
immediately preceding the Termination Date.
"S Taxable Year" means any taxable year (or portion
thereof) of the Company, including the S Short Year, during which it is subject
to taxation as an S corporation as defined in Section 1361(a)(1) of the Code.
"S Termination Year" shall mean the fiscal year of the
Company that includes the Termination Date.
"Taxing Authority" means the United States Internal
Revenue Service and any comparable state or foreign taxing authority.
"Termination Date" means the date on which the S
corporation status of the Company will terminate pursuant to Section 1362(d) of
the Code, which is expected to be the Closing Date.
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ARTICLE II
TERMINATION OF S CORPORATION STATUS, ALLOCATION OF INCOME,
DECLARATION OF AAA DIVIDEND AND ADJUSTMENT OF AAA DIVIDEND
2.1 TERMINATION OF S CORPORATION STATUS. The Company and the
Stockholders understand that the Company's S corporation status will terminate
upon the consummation of the Public Offering.
2.2 PRO RATA ALLOCATION OF TAX ITEMS. The Company shall be required
to allocate the tax items described in Section 1362(e)(2)(A) of the Code between
the S Short Year and the C Short Year pursuant to the pro rata allocation rules
set forth in Section 1362(e)(2)(B) of the Code.
2.3 DECLARATION OF AAA DIVIDEND. Prior to the Closing Date, the
Company declared that the AAA Dividend would be payable on the Closing Date,
subject to the closing of the Public Offering, to the stockholders of record on
the Record Date.
2.4 ADJUSTMENT TO AAA DIVIDEND.
(a) The parties acknowledge that the amount of the AAA Dividend
will be based on good faith determinations by the Company of the amount of AA
Account as of the Closing Date.
(b) The parties agree that if the Company determines after the
Termination Date and on or before the AAA Settlement Date that the amount of the
AA Account as of the Termination Date does not equal the amount of the AAA
Dividend, then:
(i) if the amount of the AAA Dividend exceeds the amount
of AA Account as of the Termination Date, the Stockholders who
received the AAA Dividend shall immediately thereafter remit to
the Company their pro-rata share of such excess; and
(ii) if the amount of the AA Account as of Termination
Date exceeds the amount of the AAA Dividend, the Company shall
immediately thereafter distribute to the Stockholders their
pro-rata shares of such excess.
(c) The Company shall notify the Stockholders no later than
five (5) days prior to the AAA Settlement Date in the event the Stockholders are
required to remit any amount to the Company pursuant to this Section 2.4.
Payments pursuant to this Section 2.4 shall be made no later than thirty (30)
days following the AAA Settlement Date.
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(d) No payment shall be due, and no party shall have a claim
against the other party, under this Agreement if the relevant determination of
the amount of the AA Account occurs after the applicable AAA Settlement Date.
(e) Any payment due under this section shall be increased by
interest on the amount of such payment computed from the date of the payment of
the AAA Dividend until the date of payment pursuant to this section. The
interest rate shall be the Prime Rate of BankBoston as of the AAA Settlement
Date.
ARTICLE III
TAX PAYMENTS AND INDEMNIFICATION OBLIGATIONS
3.1 LIABILITY FOR TAXES INCURRED DURING S SHORT YEAR. Each
Stockholder covenants and agrees that: (i) the Stockholder will duly include, in
his own federal and state income tax returns, all items of income, gain, loss,
deduction, or credit attributable to the S Short Year in a manner consistent
with the Form 1120S and the schedules thereto (and the corresponding state
income tax forms and schedules) to be filed by the Company with respect to such
period; (ii) such returns shall be filed no later than the due date (including
extensions, if any) for filing such returns; and (iii) each Stockholder shall
pay any and all taxes required to be paid for its taxable year that includes the
S Short Year.
3.2 LIABILITY FOR TAXES INCURRED DURING S SHORT YEAR AND C SHORT
YEAR. The Company covenants and agrees that: (i) the Company shall be
responsible for and shall effect the filing of all federal and state income tax
returns for the Company with respect to the S Short year and the C Short Year;
(ii) such Company returns shall be accurately prepared and timely filed; and
(iii) the Company shall pay any and all taxes required to be paid by the Company
for the periods covered by such returns as required by applicable law.
3.3 COMPANY'S INDEMNIFICATION OF STOCKHOLDERS FOR TAX LIABILITIES. In
the event of an adjustment to one or more tax returns of the Company for an S
Taxable Year based on a Final Determination which results in a net increase in
taxable income of a Stockholder and a corresponding adjustment to one or more
tax returns of the Company for a C Taxable year based on a Final Determination
which results in a net decrease in taxable income of the Company, the Company
shall pay to any Affected Stockholder an amount equal to the Adjustment Amount
multiplied by the Blended Rate. In addition, provided the Affected Stockholder
originally reported its distributive share of income and other items of the
Company from an S Taxable Year consistently with the Schedule K-1 provided to
him by the Company, the Company shall pay to the Affected Stockholder any
penalties or interest actually paid by the
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Affected Stockholder as a result of the adjustment to such items giving rise to
the Company's liability hereunder. The Company shall pay the amount due to the
Affected Stockholder within thirty (30) business days after the receipt of
notice from the Affected Stockholder that a payment is due by such party to the
appropriate Taxing Authority.
The Company acknowledges that it shall be solely responsible for any
federal, state, and local taxes (including interest and penalties) relating to
built in gains tax imposed by Section 1374 of the Code and any tax on excess
passive income imposed by Section 1375 of the Code.
3.4 STOCKHOLDERS INDEMNIFICATION OF COMPANY FOR TAX LIABILITIES.
(a) ADJUSTMENTS TO COMPANY'S TAXABLE INCOME. In the event of an
adjustment of one or more tax returns of the Company for a C Taxable Year based
on a Final Determination which results in a net increase in taxable income of
the Company for a C Taxable Year and a corresponding adjustment to one or more
tax returns of the Company for an S Taxable Year based on a Final Determination
which results in a net decrease in taxable income of the Company for the S
Taxable Year, the Stockholders, severally (according to the percentage of the
outstanding shares of the Company's stock owned by each Stockholder for the
years of adjustment) and not jointly, agree to contribute to the capital of the
Company an amount equal to the Adjustment Amount multiplied by the Blended Rate.
In addition, the Stockholders shall contribute to the capital of the Company an
amount equal to any penalties and interest to be paid by the Company to any
Taxing Authority as a result of such determination.
(b) ADJUSTMENTS ATTRIBUTABLE TO COMPANY'S S STATUS. If, based
on a Final Determination, the Company is deemed to have been a C corporation for
federal, state or local income tax purposes during any period in which it
reported (or intends to report) its taxable income as an S corporation, the
Stockholders agree to contribute to the capital of the Company, subject to the
limitations contained in the last sentence of this Section 3.4(b) and in Section
3.4(c), an amount equal to the Adjustment Amount with respect to such year
multiplied by the Blended Rate. Each Stockholder's obligation under this Section
3.4(b) shall be several and not joint and shall be limited to that percentage of
the tax and interest due and payable by the Company equal to the fraction,
expressed as a percentage, the numerator of which is the total distributions to
such Stockholder made by the Company from July 1, 1987 through and including the
Termination Date, plus the AAA Dividend and any adjustment thereto pursuant to
this Agreement, and the denominator of which is the total distributions made by
the Company to all Stockholders from July 1, 1987 through and including the
Termination Date, plus the AAA Dividend and any adjustment thereto pursuant to
this Agreement.
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(c) LIMIT ON INDEMNIFICATION AMOUNT. Any payment by any
Affected Stockholder to the Company pursuant to this Section 3.4 shall not
exceed the lesser of (A) the amount of the refund from any Taxing Authority
attributable to the reduction in such Affected Stockholder's tax liability
attributable to adjustments established pursuant to the Final Determination and
(B) the amount of the total distributions to such Stockholder as determined
under Section 3.4(b). For purposes of this Section 3.4(c), the amount of the
refund shall include refunds or abatements of taxes, interest on such refunds or
abatements, and any other amount actually received by the Affected Stockholder
from the Taxing Authority with respect to such determination.
(d) TIME OF INDEMNIFICATION PAYMENT. The Stockholders shall
contribute to the capital of the Company amounts set forth in this Section 3.4
within thirty (30) business days after the later of (a) the receipt of the
refund from the Taxing Authority attributable to such adjustment or (b) notice
from the Company that a payment is due by the Company to the appropriate Taxing
Authority.
3.5 CONTESTS/COOPERATION.
(a) CONTESTS. Each of the Company and the Stockholders agree
that (i) in the event that any of them receives notice, whether orally or in
writing, of any federal, state, local or foreign tax examinations, claims,
settlements, proposed adjustments or related matters that may affect in any way
the liability of a party under this Agreement, it shall within ten days notify
the other parties in writing thereof (provided that any failure to give such
notice shall not reduce a party's right to indemnification under this Agreement
except to the extent of actual damage incurred by the other parties as a result
of such failure), and (ii) the party or parties (the "Indemnifying Party") who
would be required to indemnify the other party or parties (the "Indemnified
Party") shall be entitled at its reasonable discretion and sole expense to
handle, control and compromise or settle the defense of any matter which may
give rise to a liability under this Agreement, provided that the Indemnifying
Party from time to time provides assurances reasonably satisfactory to the
Indemnified Party that (1) the Indemnifying Party is financially capable of
pursuing such defense to its conclusion, and (2) such defense is actually being
pursued in a reasonable manner.
(b) COOPERATION. The parties will make available to one
another, as reasonably requested, and to any Taxing Authority, all information,
records or documents relating to the liability for taxes covered by this
Agreement and will preserve such information, records or documents until the
expiration of any applicable statute of limitations or extensions thereof. The
party requesting such information shall reimburse the other party for all
reasonable out-of-pocket costs incurred in producing such information.
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(c) CLAIMS FOR REFUND. Each party hereto agrees to file a
properly completed claim with the appropriate Taxing Authority for a refund or
an abatement of taxes paid with respect to any matter which may give rise to a
liability under Sections 3.3 or 3.4 of this Agreement.
3.6 COSTS. Except to the extent otherwise provided herein, each party
shall bear its own costs in administering this Agreement.
3.7 CORRECTION OF A FINAL DETERMINATION. In the event a party makes a
payment pursuant to this Agreement based on the expected outcome of a Final
Determination which subsequently is determined to have been incorrect, the
parties shall adjust the payments hereunder in order to reflect the subsequent
determination as if it was the Final Determination upon which the original
payment was based.
ARTICLE IV
MISCELLANEOUS
4.1 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute an instrument representing the
Agreement between the parties hereto.
4.2 CONSTRUCTION OF TERMS. Nothing herein expressed or implied is
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
4.3 GOVERNING LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the
substantive laws of the Commonwealth of Massachusetts without regard to
Massachusetts choice of law rules.
4.4 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement executed by the parties.
4.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties, nor
is this Agreement intended to confer upon any other person except the parties
any rights or remedies hereunder.
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4.6 INTERPRETATION. The title, article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
4.7 SEVERABILITY. In the event that any one or more of the provisions
of this Agreement shall be held to be illegal, invalid or unenforceable in any
respect, the same shall not in any respect affect the validity, legality or
enforceability of the remainder of this Agreement, and the parties shall use
their best efforts to replace such illegal, invalid or unenforceable provisions
with an enforceable provision approximating, to the extent possible, the
original intent of the parties.
4.8 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding of the parties hereto in respect to the subject matter
contained herein. There are no representations, promises, warranties, covenants,
or undertakings, other than those expressly set forth or referred to herein.
This Agreement supersedes all prior agreements and the understandings between
the parties with respect to such subject matter.
4.9 FEES. In any action or proceeding brought to enforce or interpret
any provision of this Agreement, the successful party shall be entitled to
reasonable fees of attorneys, accountants and other professionals as well as
other costs incurred in connection with such action or proceeding.
4.10 INTEREST ON OVERDUE PAYMENTS. Any payment pursuant to this
Agreement not made when due under this Agreement shall bear interest at the rate
of 10% per annum until paid.
4.11 NOTICES. All notices provided for in this Agreement shall be
validly given if in writing and delivered personally or sent by registered mail,
postage prepaid
if to the Company, to:
General Counsel
MKS Instruments, Inc.
0 Xxxxxxxx Xxxx
Xxxxxxx, XX 00000
copy to:
[Company Counsel]
[Address]
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if to any Stockholder, to:
Name of Stockholder
c/o Xxxx X. Xxxxxxxx
President
MKS Instruments, Inc.
0 Xxxxxxxx Xxxx
Xxxxxxx, XX 00000
4.12 TERMINATION OF AGREEMENT. This Agreement shall terminate and be
void, as if it never had been executed, if the Closing Date shall occur after
December 31, 1998.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MKS INSTRUMENTS, INC.
By: __________________________________
Chief Financial Officer
STOCKHOLDERS
______________________________________
Xxxx X. Xxxxxxxx
______________________________________
Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx Second Family Trust
of December 15, 1986 FBO Xxxxx X. Xxxxxxxx
By: __________________________________
Trustee
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Xxxxxx X. Xxxxxxxx Second Family Trust
of December 15, 1986 FBO Xxxxx X. Xxxxxxxx
By: __________________________________
Trustee
Xxxx X. Xxxxxxxx Second Family Trust
of December 15, 1986 FBO Xxxxx X. Xxxxxxxx
By: __________________________________
Trustee
Xxxx X. Xxxxxxxx Second Family Trust
of December 15, 1986 FBO Xxxxx X. Xxxxxxxx
By: __________________________________
Trustee
Xxxxxx X.. Xxxxxxxx CBS Retained
Annuity Trust of 1997
By: __________________________________
Trustee
Xxxxxx X. Xxxxxxxx JCB Retained
Annuity Trust of 1997
By: __________________________________
Trustee
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Xxxx X. Xxxxxxxx CBS Retained Annuity
Trust of 1997
By: __________________________________
Trustee
Xxxx X. Xxxxxxxx Family Retained
Annuity Trust of 1997
By: __________________________________
Trustee
Xxxx X. Xxxxxxxx JCB Retained Annuity
Trust of 1997
By: __________________________________
Trustee
______________________________________
Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx Retained Annuity Trust
of 1997
By: __________________________________
Trustee
______________________________________
Xxxxxx X. Xxxxxxxx
______________________________________
Xxxx X. Xxxxxxxx
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______________________________________
Xxxxxxxx X. Xxxxx
______________________________________
Xxxxxx X. Xxxxxxxx
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SCHEDULE A
List of Stockholders
Xxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx Second Family Trust of December 15, 1986 FBO Xxxxx X.
Xxxxxxxx
Xxxxxx X. Xxxxxxxx Second Family Trust of December 15, 1986 FBO Xxxxx X.
Xxxxxxxx
Xxxx X. Xxxxxxxx Second Family Trust of December 15, 1986 FBO Xxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx Second Family Trust of December 15, 1986 FBO Xxxxx X. Xxxxxxxx
Xxxxxx X.. Xxxxxxxx CBS Retained Annuity Trust of 1997
Xxxxxx X. Xxxxxxxx JCB Retained Annuity Trust of 1997
Xxxx X. Xxxxxxxx CBS Retained Annuity Trust of 1997
Xxxx X. Xxxxxxxx Family Retained Annuity Trust of 1997
Xxxx X. Xxxxxxxx JCB Retained Annuity Trust of 1997
Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx Retained Annuity Trust of 1997
Xxxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx
Xxxxxxxx X. Xxxxx
Xxxxxx X. Xxxxxxxx
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