EXHIBIT 10.15
FORM OF TAX AGREEMENT
RELATING TO S CORPORATION DISTRIBUTIONS
This Tax Agreement Relating to S Corporation Distributions (the
"AGREEMENT") is made effective as of June __, 1998 by and among Xxxx Group,
Inc., a Delaware corporation, formerly known as Xxxx Group Newco, Inc.
("XXXX"), Xxxx Systems International, Inc., a Delaware corporation and
wholly-owned subsidiary of Xxxx (the "SUBSIDIARY") and Xxxxxxx X. Xxxxxxxx
("XXXXXXXX"), Xxxxx X. Xxxx ("B. XXXX"), Xxxxxxxx X. Xxxxxxxx ("XXXXXXXX"),
Xxxxxx X. Xxxxx ("XXXXX"), Xxxxxxx X. Xxxxxxx, as trustee under The Dirk 1997
Education Trust (the "EDUCATION TRUST"), Xxxxxxx X. and Xxxx X. Xxxx, as
trustees under the Dirk Family Trust UDT May 6, 1990 (the "FAMILY TRUST") and
Xxxxxxxx, B. Xxxx, Xxxxxxxx and Xxxxx as trustees under the Dirk 1998 Alaska
Trust (the "ALASKA TRUST") (Xxxxxxxx, B. Xxxx, Gigerich, Brown, the Education
Trust, the Family Trust and the Alaska Trust are collectively referred to as
the "XXXX SHAREHOLDERS").
A. In 1989, the Subsidiary, and in 1996, Xxxx Systems, Inc., a
California corporation ("XXXX SYSTEMS") each elected to be taxed as S
Corporations under the Internal Revenue Code of 1986, as amended (the
"CODE"). In May 1998, Xxxx elected to be taxed as an S Corporation under the
Code.
B. In May 1998, as part of a tax-free reorganization, Xxxx Systems was
reincorporated in the State of Delaware, through the merger of Xxxx Group
Newco, Inc., a Delaware corporation and newly formed, wholly-owned subsidiary
of Xxxx Systems, with and into Xxxx Systems with Xxxx Group Newco, Inc.
surviving (the "REINCORPORATION"). Xxxx Group Newco, Inc. subsequently
changed its name to Xxxx Group, Inc.
C. Subsequent to the Reincorporation, in May 1998, each of Xxxxxxxx,
B. Xxxx, Gigerich, Brown, the Education Trust and the Family Trust, who were
also shareholders of the Subsidiary, contributed all of their respective
capital stock in the Subsidiary to Xxxx in exchange for shares of capital
stock of Xxxx. Simultaneously with such contribution, in May 1998, the
Subsidiary elected to be taxed as a "Qualified Subchapter S Subsidiary"
within the meaning of Code Section 1361(b)(3)(B).
D. In June 1998, the Family Trust contributed shares of capital stock
of Xxxx to the 1998 Alaska Trust.
E. Troy's S Corporation election will terminate upon the consummation
of its proposed initial public offering of Common Stock due to an increase in
the number of shareholders at the time of the public offering beyond that
permitted by the Code.
F. Pursuant to the elections of Xxxx and the Subsidiary to be taxed as
S Corporations, the Xxxx Shareholders have been paying federal and certain
state and local income taxes as a result of the "pass-through" to them of
Troy's and the Subsidiary's taxable income, and the Xxxx Shareholders will
continue paying or accruing such tax liability for such time period as Xxxx
remains an S Corporation and the Subsidiary remains a Qualified Subchapter S
Subsidiary.
G. Troy's, the Subsidiary's and the Xxxx Shareholders' intentions are
to distribute a portion of the earnings of Xxxx and the Subsidiary to the
Xxxx Shareholders approximately equal to the Xxxx Shareholders' unpaid
federal, state and local income taxes arising from the pass-through to them
of taxable income.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Xxxx and the Subsidiary each hereby agree, jointly and severally,
that to the extent (a) an assumed federal, state and local income tax
liability computed using the highest combined federal, state and local income
tax rates applicable to any Xxxx Shareholder (which shall be determined using
the same estimated percentage tax rate for each Xxxx Shareholder,
irrespective of actual tax rates) as subsequently established in connection
with the filing of Troy's tax return for Troy's anticipated short S
Corporation tax year ended in 1998, exceeds (b) the amount of such Xxxx
Shareholder's previous distributions, if any, made with respect to taxable
income for the period from January 1, 1998 through the closing of the initial
public offering of the Company's capital stock, Xxxx will make a distribution
equal to such difference to each Xxxx Shareholder; PROVIDED, HOWEVER, that
(x) no distributions made hereunder will exceed Troy's (and the Subsidiary's)
combined "accumulated adjustments account" as defined in Code Section
1368(e)(1), and (y) each Xxxx Shareholder will be entitled to equal
distributions per share of capital stock owned by them, irrespective of their
actual tax rates. Any payment required pursuant to this Section 1 shall be
made promptly by Xxxx, in cash, during a "post-termination transaction
period" of Xxxx, as defined in Code Section 1377(b).
2. Xxxx and the Subsidiary hereby agree to indemnify, defend and hold
harmless each Xxxx Shareholder on an after-tax basis against additional
federal, state or local income taxes, interest or penalties resulting from
adjustments made (as a result of a final determination made by a competent
tax authority) to the taxable income reported by Xxxx and the Subsidiary as S
Corporations or a Qualified Subchapter S Subsidiary, as the case may be, for
taxable periods or portions thereof on or prior to the termination of Troy's
S Corporation status. Such indemnification will also include any losses,
costs or expenses (including reasonable attorneys' fees) arising out of a
claim for such tax liability.
3. Each Xxxx Shareholder will promptly notify Xxxx of any audit for
any period for which any Xxxx Shareholder believes that such Xxxx Shareholder
may be entitled to indemnity hereunder. Xxxx, at its option, will have the
obligation to defend such audit, at its own expense, for such periods,
utilizing advisors of Troy's choice, to the extent said audit involves issues
arising from a matter subject to indemnification hereunder. Each of the Xxxx
Shareholders will cooperate fully with Xxxx in the defense of such audits and
each Xxxx Shareholder will have the right, but not the obligation, to
participate in the same at such Xxxx Shareholder's own expense. Failure by
any Xxxx Shareholder to allow Xxxx to defend such audit in a timely manner,
with respect to issues subject to indemnity hereunder, will terminate Troy's
obligation hereunder to indemnify such Xxxx Shareholder, to the extent any
such failure or delay prejudices Troy's ability to defend any such claim.
Nothing hereunder will be construed to require Xxxx to defend or indemnify
any Xxxx Shareholder with respect to issues raised by any governmental
authority that are not related to the indemnification hereunder.
4. If Troy's S Corporation election is terminated, and, solely as a
result of such termination, any Xxxx Shareholders obtain a refund of federal,
state or local income taxes, such Xxxx Shareholders shall repay to Xxxx the
net amount of such refunds received by such Xxxx Shareholders, net of any
federal, state or local income tax liability imposed thereon on such Xxxx
Shareholders.
5. In the event all or part of any section or provision of this
Agreement is for any reason held to be illegal or invalid, or is at any time
inoperable by reason of any law, such illegality, invalidity, or
inoperability will not affect the remainder hereof or any other section or
provision of this Agreement.
6. This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors and assigns.
7. This Agreement is made under the laws of the State of Delaware and
will be governed by and construed in accordance with the laws of such state.
8. This Agreement may be amended or modified only by a written
instrument executed by the party or parties to be bound by such change or
modification. This Agreement contains the entire agreement of the parties
hereto with respect to the subject matter hereof.
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9. This Agreement may be executed in one or more counterparts, each of
which will be deemed an original, but all of which together will constitute
one and the same agreement.
IN WITNESS WHEREOF, Xxxx, the Subsidiary and each Xxxx Shareholder have
executed this agreement effective as of the date first above written.
XXXX XXXX SHAREHOLDERS
Xxxx Group, Inc.,
a Delaware corporation ------------------------------
Xxxxxxx X. Xxxxxxxx
By:
---------------------------------
Xxxxxxx X. Xxxx ------------------------------
Its: President and Chief Executive Xxxxx X. Dirk
Officer
SUBSIDIARY ------------------------------
Xxxxxxxx X. Xxxxxxxx
Xxxx Systems International, Inc.,
a Delaware corporation
------------------------------
Xxxxxx X. Xxxxx
By:
----------------------------------
Xxxxxxx X. Xxxx
Its: President and Chief Executive The Dirk 1997 Education Trust
Officer
By:
---------------------------
Xxxxxxx X. Xxxxxxx
Its: Trustee
Dirk Family Trust UDT May 6, 1990
By:
---------------------------
Xxxxxxx X. Xxxx
Its: Trustee
By:
---------------------------
Xxxx X. Dirk
Its: Trustee
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Dirk 1998 Alaska Trust
By:
---------------------------
Xxxxxxx X. Xxxxxxxx
Its: Trustee
By:
---------------------------
Xxxxx X. Dirk
Its: Trustee
By:
---------------------------
Xxxxxxxx X. Xxxxxxxx
Its: Trustee
By:
---------------------------
Xxxxxx X. Xxxxx
Its: Trustee
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