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EXHIBIT 10.4
TAX ALLOCATION AGREEMENT
BY AND BETWEEN
ODETICS, INC.
AND
ATL PRODUCTS, INC.
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TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (the "Agreement"), dated as of
March 1, 1997, by and between ODETICS, INC., a Delaware corporation
("Odetics"), and ATL PRODUCTS, INC., a Delaware corporation ("ATL"), is entered
into in connection with the initial public offering ("IPO") of ATL. For
purposes of this Agreement, ATL shall also be deemed to refer ATL Products,
Inc., a California corporation, as predecessor of ATL.
WHEREAS, Odetics on behalf of itself and its present and
future subsidiaries other than ATL and its subsidiaries (the "Odetics Group"),
and ATL on behalf of itself and its subsidiaries (the "ATL Group") have
determined that it is necessary and desirable to provide for allocation between
the Odetics Group and the ATL 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, 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 Code: The Internal Revenue Code of 1986, as amended.
1.2 Effective Date: April 1, 1996.
1.3 Post-Spinoff Period: Any taxable period of ATL ending after
the distribution by Odetics of all of its ATL stock.
1.4 Pre-Spinoff Period: Any taxable period of ATL ending on or
before the distribution by Odetics of all of its ATL stock.
1.5 Spinoff: The distribution by Odetics of all of its ATL stock.
1.6 Tax or Taxes: All taxes of the Odetics Group and the ATL
Group, including any additions to tax, interest and penalties relating to such
taxes.
1.7 Tax Benefit: The tax effect of any loss, deduction, credit or
other item that decreases taxes paid or payable.
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1.8 Tax Detriment: The tax effect of any income, gain, recapture
of credit or other item that increases taxes paid or payable.
ARTICLE II
FILING OF TAX RETURNS
2.1 Pre-Spinoff Period Income Tax Returns
(a) Federal Income Tax Returns. The income and other tax
items of ATL for any Pre-Spinoff Period shall be included in the Odetics
consolidated federal income tax return; provided that ATL is a member of the
Odetics "affiliated group" within the meaning of Section 1504 of the Code.
Odetics shall prepare and timely file all consolidated federal income tax
returns for all such periods.
(b) State Income Tax Returns. Odetics shall prepare and
timely file any consolidated or combined state income tax return that includes
an Odetics Group member and an ATL Group member for all Pre-Spinoff Periods.
2.2 Other Tax Returns. All tax reports or returns for Pre-Spinoff
Periods not covered by Section 2.1 and all tax reports or returns for
Post-Spinoff Periods shall be prepared and filed by ATL for the ATL Group and
by Odetics for the Odetics Group unless otherwise mutually agreed to by them.
ARTICLE III
PAYMENT OF TAXES
3.1 Payment of Taxes in General
(a) Except as otherwise provided in this Article III,
Odetics shall pay, and shall indemnify and hold harmless ATL and each other
member of the ATL Group from and against, all Taxes attributable to the Odetics
Group and the ATL Group (including any Taxes arising to any member of the ATL
Group by virtue of Section 1.1502-6 of the Treasury Regulations), whether
heretofore or hereafter arising or incurred. Odetics 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 ATL as described in Section 3.4).
(b) ATL shall pay, and shall indemnify and hold harmless
each Odetics Group member from and against, (i) all Taxes attributable to the
ATL Group (in the case of income or franchise Taxes, as determined under
Section 3.2) for any Pre-Spinoff Period commencing on or after the Effective
Date and (ii) all Taxes for any Post-Spinoff
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Period that are attributable to the ATL Group. ATL shall be entitled to any
reduction in or refund of Taxes for which it is responsible pursuant to the
preceding sentence.
(c) Notwithstanding anything to the contrary herein,
Odetics shall be responsible for, and shall indemnify the ATL Group against any
Taxes resulting from the reorganization of the international operations of
Odetics and ATL prior to the IPO.
(d) If a member of the Odetics Group or the ATL Group, as
the case may be, receives a refund of Taxes to which the other group is
entitled under this Article III, then such member shall remit such refund to
the other group by promptly sending such refund to Odetics or ATL, as the case
may be.
3.2 Allocation and Payment of Income and Franchise Taxes
(a) The consolidated Tax liability of the Odetics
consolidated group for each year commencing on or after the Effective Date
shall be apportioned among the Odetics Group and ATL Group members in
accordance with this paragraph. For purposes of this Agreement, the
consolidated Tax liability shall include any liability for alternative minimum
Tax. The Tax liability for a taxable year shall be apportioned only among the
members of the Odetics consolidated group with separate company taxable income
for that year (the "Profit Members"). The Tax liability will be allocated to
the Profit Members in the same ratio as each Profit Member's separate company
taxable income bears to the total of the separate company taxable incomes of
all Profit Members. No Tax liability will be allocated to members of the
affiliated group with a taxable loss computed on a separate return basis ("Loss
Members"). The Profit Members will make payments to Loss Members for Tax
Benefits to the Profit Members as a result of losses or credits generated by
the Loss Members. For purposes of allocating alternative minimum Tax,
alternative minimum taxable income amounts shall be substituted for taxable
income amounts in the foregoing calculation.
(b) The principles set forth in Section 3.2(a) shall be
applied for the allocation of state income Taxes in states where the Odetics
affiliated group files consolidated or combined returns, with appropriate
modifications, to account for differences in the tax laws of the United States
and individual states. As a general rule, the amount of the consolidated or
combined Tax liability to a particular state shall be allocated among the
profitable members of a combined or consolidated group filing in such state
based on the relative amounts of their deemed taxable income in that state.
For this purpose, each member of the consolidated or combined group of
corporations filing in a particular state shall generally be treated as having
an amount of deemed taxable income in that state which that member would be
required to report to the state if the member were filing a separate franchise
or income tax return for the state, but applying the combined apportionment
factors which are in effect for the subject consolidated or combined group of
corporations (rather than the member's individual factors).
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(c) Payment of the consolidated or combined income or
franchise Tax liability for a taxable period shall be made according to the
schedule of estimated tax installments and final payments prescribed in the
Code or applicable state law. ATL shall pay to Odetics the ATL Group members'
share of each Tax payment within five (5) days of receiving notice from
Odetics, but in no event more than ten (10) days prior to the due date for each
such payment and no later than such due date. Any overpayment of estimated Tax
shall be promptly refunded to the member which made such overpayment.
3.3 Adjustments to Tax Liability and Tax Attributes
(a) Odetics shall be responsible for, and shall indemnify
and hold harmless each member of the ATL Group from and against, all
adjustments to Taxes attributable to the Odetics Group, whether heretofore or
hereafter arising or incurred, except Taxes for which the members of the ATL
Group are liable pursuant to Section 3.1(b).
(b) Except as provided in Section 3.3(c), Odetics shall
be entitled to any Tax Benefit and shall bear any Tax Detriment resulting from
adjustments to Taxes attributable to the Odetics Group or the ATL Group (except
adjustments resulting from carrybacks of ATL from a Post-Spinoff Period). If
an adjustment to a tax item attributable to the Odetics Group increases the Tax
liability of the Odetics Group and correspondingly reduces a Tax liability for
which the ATL Group is responsible under this Agreement, ATL shall pay promptly
to Odetics the amount of the Tax Benefit realized by the ATL Group. If an
adjustment to a tax item attributable to the Odetics Group reduces the Tax
liability of the Odetics Group and correspondingly increases a Tax liability
for which the ATL Group is responsible under this Agreement, Odetics shall pay
promptly to ATL the amount of the Tax Detriment realized by the ATL Group.
(c) ATL shall be responsible for, and shall indemnify and
hold harmless each Odetics Group member from and against, all adjustments to
Taxes (i) for any Pre-Spinoff Period commencing on or after the Effective Date
with respect to the ATL Group and (ii) for any Post-Spinoff Period with respect
to the ATL Group. If an adjustment to a tax item for which ATL is responsible
under this Section 3.3 increases the Tax liability of the ATL Group and
correspondingly reduces the Tax liability of the Odetics Group, Odetics shall
pay promptly to ATL the amount of the Tax Benefit realized by the Odetics
Group. If an adjustment to a tax item for which ATL is responsible under this
Section 3.3 reduces the Tax liability of the ATL Group and correspondingly
increases the Tax liability of the Odetics Group, ATL shall pay promptly to
Odetics the amount of the Tax Detriment incurred by the Odetics Group.
3.4 Carrybacks from Post-Spinoff Periods to Pre-Spinoff Periods.
Any loss, credit or other item attributable to the ATL Group and arising in a
Post-Spinoff Period may be carried back to a consolidated or combined return of
the Odetics affiliated group for a
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Pre-Spinoff Period as permitted under applicable law. Odetics shall cooperate
with any ATL Group member to the extent reasonably necessary (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-Spinoff Period. Odetics shall remit promptly to ATL 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 Tax incurred by any Odetics Group member as a result of the
accrual or receipt of the refund.
ARTICLE IV
COOPERATION
4.1 Cooperation in General
(a) Each of Odetics and ATL agrees to make available to
the other party documents and 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 and the handling
of audits of such other party.
(b) So long as the ATL Group is included in the
consolidated financial statements of Odetics, ATL shall timely provide the
necessary financial information of the ATL Group to Odetics so that Odetics may
prepare a consolidated tax provision to meet its deadlines.
4.2 Notice, Defense and Settlement of Tax Claims
(a) If a member of the Odetics Group or ATL 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 or may be 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 Odetics or ATL, as the case may be. Odetics and ATL shall cooperate
to contest and defend any such proposed Tax liability, with each party bearing
its own expenses relating to such proceeding. 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 party that is liable for such Tax under
this Agreement. Such consent shall not be unreasonably withheld.
(b) Odetics 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 Odetics Group or the ATL Group for a Pre- Spinoff Period. ATL
shall be responsible for responding to any notice
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of deficiency, contest, audit or other proceedings with respect to a proposed
Tax liability of a stand-alone tax return of ATL or any member of the ATL Group
for a Pre-Spinoff Period. In addition, ATL shall be responsible for responding
to any proposed claims for Taxes other than income or franchise taxes,
including but not limited to sales, property and payroll Taxes, attributable to
the ATL Group for a Pre-Spinoff Period. Odetics shall bear the expense of and
have control of such proceedings relating to the ATL Group except in cases
involving Taxes for which the ATL Group is responsible under this Agreement.
4.3 Confidentiality. The members of both the Odetics Group and
the ATL Group understand the confidential nature of financial information
disclosed in tax returns and the related supporting documentation. Each of
Odetics and ATL (on behalf of themselves and the members of their respective
groups) hereby agrees not to 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 other party, which consent shall
not be unreasonably withheld.
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 (a so-called "Big- Six" accounting firm) jointly
selected by Odetics and ATL. 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 Odetics and ATL.
ARTICLE VI
GENERAL
6.1 Waiver. Any waiver by any party of any default by the other
party 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, 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 Orange County (or, if there is exclusive federal
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jurisdiction, the United States District Court 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, including any prior tax sharing or tax
allocation agreements.
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 Odetics Group and the ATL 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 the chief financial officer of the other party. 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 other party.
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 this Agreement.
6.10 Additional Members. If during a Pre-Spinoff Period any other
corporation becomes a member of the Odetics Group or the ATL Group, then such
corporation shall join in and be bound by this Agreement.
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6.11 Effect of Prior Tax Allocation Agreement. The parties are
parties to an existing tax allocation agreement. Such prior allocation
agreement is superseded by this Agreement retroactive to the Effective Date.
IN WITNESS WHEREOF, Odetics and ATL 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.
ODETICS, INC.
By
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Title
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ATL PRODUCTS, INC.
By
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Title
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