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EXHIBIT 10.7
TAX MATTERS AGREEMENT
This Agreement is entered in to as of the ________ day of _________,
_____, between Xxxxxxxx Laboratories, Inc., an Illinois corporation
(hereinafter, "GLI"), Xxxxxxxx Micro Science International, Inc., a Delaware
corporation ("GMSI") and each of GMSI's direct or indirect subsidiaries.
RECITALS:
WHEREAS, for federal income tax and certain state franchise or income
tax purposes, GMSI and its domestic subsidiaries will cease to be members of the
Xxxxxxxx Group (as hereinafter defined), as a result of the public offering of
shares of GMSI common stock; and
WHEREAS, the parties wish to address certain tax matters which may
arise as a result of the GMSI Group (as hereinafter defined) ceasing to be part
of the Xxxxxxxx Group;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and for other good and valuable consideration, the parties hereto
agree as follows:
1. The following terms shall have the following meanings as used in
this Agreement:
a) "CONSOLIDATION PERIOD(S)" shall mean, with respect to each
member of the GMSI Group, the taxable periods or portions thereof in which
such member was part of the Xxxxxxxx Group.
b) "DECONSOLIDATION DATE" shall mean the date on which all members
of the GMSI Group cease to join in the filing of the Xxxxxxxx Group's
consolidated federal income tax return.
c) "GMSI GROUP" shall mean the affiliated group for federal income
tax purposes of which GMSI is the common parent after GMSI ceases to be a member
of the Xxxxxxxx Group as a result of the public offering of shares of GMSI's
common stock.
d) "XXXXXXXX GROUP" shall mean the affiliated group for federal
income tax purposes of which GLI is the common parent.
e) "INCOME TAX" shall mean any tax levied or assessed upon income
or gross receipts, including without limitation any alternative minimum tax.
f) "INCOME TAX BENEFIT" and "INCOME TAX COST" shall mean the
decrease or the increase, respectively, in the amount of any income tax
liability (or the increase or decrease, respectively, in the amount of any
income tax refund) which the party in question would incur as a result of (i)
including or excluding, as the case may be, the item of income, gain, loss, or
deduction subject to adjustment pursuant to this Agreement in the computation of
taxable income
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or loss and (ii) including or excluding, as the case may be, the
credits subject to adjustment pursuant to this Agreement in the computation of
income tax liability or refund.
2. With respect to each of the Consolidation Period(s):
a) GMSI shall pay to GLI to the extent (if any) not already paid to
GLI an amount equal to the aggregate federal income taxes, if any, the GMSI
Group (or any of its members) would have been required to pay for such taxable
period if the GMSI Group (or any such members) had filed a separate return for
such period.
b) GMSI shall pay to GLI to the extent (if any) not already paid to
GLI an amount equal to the aggregate state income taxes, if any, the GMSI Group
or any of its members who are members of a unitary, combined or consolidated
group which includes GLI or any of its subsidiaries (other than members of the
GMSI Group) would have been required to pay for such taxable period if any such
member had filed a separate state income tax return for such period. Members of
the GMSI Group which file separate state income tax returns shall be responsible
for their own state income tax liabilities.
c) Except as set forth below, payments required pursuant to
subparagraphs 2(a) and 2(b) of this Agreement shall be made at such time as
payments are due, or would have been due, to the respective taxing authorities.
Notwithstanding the above, prior to the Deconsolidation Date, GLI shall estimate
(based on projections calculated using assumptions consistent with past
practices) the amounts due under subparagraphs 2(a) and 2(b) of this Agreement
for all Consolidation Periods ending on or before the anticipated
Deconsolidation Date and cause any net payments due thereunder to be made prior
to the Deconsolidation Date. GMSI and/or its representatives shall be given
thirty (30) days to review such estimate. If GMSI and GLI cannot agree upon the
estimate, then the Arbitration provisions of the Administrative Services
Agreement dated ___________, ______ between GMSI and Xxxxxxxx Laboratories
International, Inc. ("Administrative Services Agreement") will be followed. If
the estimate is agreed upon, such payments may, in GLI's discretion, be
evidenced by a demand promissory note bearing interest at the interest rate or
rates then being charged by the Internal Revenue Service on federal income tax
deficiencies over the same period of time such overdue payment or advance
remains unpaid. The principal of such notes shall be appropriately adjusted as
soon as practicable to take into account any difference between the estimated
amount due and the actual amount due. The amounts due under subparagraphs 2(a)
and 2(b) of this Agreement for the period beginning October 1, 1997 and ending
on the Deconsolidation Date shall be recalculated by GLI upon filing of GLI's
tax return for its fiscal year ending September 30, 1998 in accordance with the
terms of such subparagraphs and appropriate adjustment to payments due under
those subparagraphs shall be made. If income tax deficiencies or tax refunds
relating to the GMSI Group result from a tax examination, amended return, claim,
final determination by any court or otherwise related to the income tax returns
for the Consolidation Period, the amounts due under subparagraphs 2(a) or 2(b)
of this Agreement shall be recalculated by GLI in accordance with the terms of
such subparagraphs and an appropriate adjustment to payments due under those
subparagraphs shall be made.
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d) Notwithstanding anything to the contrary contained herein, in
making any computations pursuant to this Agreement, the taxable income or loss
of the GMSI Group calculated on a stand alone basis shall be deemed to include
any increase or decrease in the taxable income or loss of the GMSI Group in the
year in question resulting from any or all members of the GMSI Group ceasing to
be members of the Xxxxxxxx Group consolidated federal income tax return.
e) Notwithstanding anything to the contrary contained herein, GLI
shall maintain the express and exclusive right to file tax refund claims for any
reason whatsoever and review with GMSI the portion of any such claim relating to
GMS.
f) Items of income, gain, loss, deduction, credit or credit
carryforward of any member of the GMSI Group for the period beginning October 1,
1997 and ending September 30, 1998 will be allocated between the portion of the
period occurring through the Deconsolidation Date in accordance with the
principles set forth in Treasury Regulation Section 1.1502-76, as determined by
GLI in its reasonable discretion.
g) Until the applicable statute of limitations for such taxable
periods have expired, the Xxxxxxxx Group, in accordance with the provisions of
the Administrative Services Agreement, shall have full authority for (i)
preparing any federal income tax returns (including without limitation, any
amended returns or claims for refund) of the GMSI Group, (ii) representing the
GMSI Group with respect to any federal or state tax examination or tax contest
(including, without limitation, any litigation regarding federal income taxes or
refunds), (iii) engaging outside counsel and accountants with respect to federal
or state tax matters regarding the GMSI Group, and (iv) performing such other
acts and duties with respect to the GMSI Group's federal or state tax matters as
it determines is appropriate.
3. With respect to each taxable period ending after the
Deconsolidation Date:
a) GLI will continue to prepare all applicable federal, state and
local income, franchise, ad valorem, capital stock (annual reports,) sales, use,
payroll and real and personal property tax returns for the GMSI Group and any
other tax returns filed on a consolidated, combined or unitary basis involving a
member of the GMSI Group and a member of the Xxxxxxxx Group, as well as
preparing or reviewing the annual federal, state and foreign income tax
provisions in accordance with the provisions and for the term outlined in the
Administrative Services Agreement.
b) The GMSI Group shall be responsible for preparation and filing
of any required returns and reports for any other tax or governmental charge to
which it or any of its members is subject and which is not encompassed by
subparagraph (a) hereof, provided however, that GLI shall have the right to
review any and all such returns.
c) With GMSI's consent, which shall not be unreasonably withheld,
GLI shall have full authority and responsibility for (i) representing the GMSI
Group with respect to any federal or state tax examination or tax contest
(including, without limitation, any litigation
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regarding federal income taxes or refunds), (ii) engaging outside counsel and
accountants with respect to federal or state tax matters regarding the GMSI
Group, and (iii) performing such other acts and duties with respect to the GMSI
Group's federal or state tax matters as GLI determines is appropriate.
4. For purposes of this Agreement, the terms "income taxes," "income
tax refunds," "income tax liabilities", "income tax deficiencies", "income tax
costs" and "income tax benefits" shall be deemed to include applicable
penalties, interest and additions to tax, including any penalties paid pursuant
to Section 6662 of the Internal Revenue Code which are properly attributable to
a party. For purposes of this Agreement, the determination as to the
applicability of a particular penalty shall be made on a consolidated basis. If
a particular penalty, determined on a consolidated basis, is not clearly
attributable to any party, such penalty shall be allocated among the GMSI Group
and the Xxxxxxxx Group (other than the members of the GMSI Group) in proportion
to the adjustments subject to such penalty attributable to each such Group.
5. Notwithstanding anything to the contrary herein, no party shall be
entitled to duplicate payments from the other party hereunder. GLI may, in its
discretion, net any payments due to GLI from GMSI pursuant to this Agreement
against any amount due from GLI to GMSI pursuant to this Agreement or otherwise.
GMSI may, in its discretion, net any amount due to GMSI from GLI pursuant to
this Agreement against any amount due from GMSI to GLI pursuant to this
Agreement or otherwise.
6. Interest shall accrue on payments due under this Agreement at the
interest rate or rates then being charged by the Internal Revenue Service on
federal income tax deficiencies over the same period of time such overdue
payment remains unpaid. Interest shall begin to accrue on the date payment is
due provided, however, that interest shall not accrue for any period during
which interest is being charged by or paid by the Internal Revenue Service and
such interest is included as part of the payment due under this Agreement.
Payments under this Agreement, may, in GLI's and GMSI's discretion, be evidenced
by a demand promissory note bearing interest as provided in this paragraph.
7. (a) GLI agrees that it will indemnify and hold all members of the
GMSI Group harmless from and against any federal or state unitary, combined or
consolidated income tax liabilities (including, without limitation interest,
penalties, additions to tax, legal fees, court costs, and any other reasonable
costs of defense) with respect to the portion of the Xxxxxxxx Group consolidated
federal income tax liability or state unitary, combined or consolidated income
tax liability which is allocable to members of the Xxxxxxxx Group, other than
members of the GMSI Group.
(b) Except as otherwise provided in this Agreement, GMSI agrees
that it will indemnify and hold all members of the Xxxxxxxx Group, other than
the members of GMSI Group, harmless from and against any federal or state
unitary, combined or consolidated income tax liability (including, without
limitation interest, penalties, additions to tax, legal fees, court costs, and
any other reasonable costs of defense) with respect to the portion of the
Xxxxxxxx Group
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consolidated federal income tax liability or state unitary, combined or
consolidated income tax liability which is allocable to the members of the GMSI
Group.
8. GMSI covenants and agrees to, or to cause the members of the GMSI
Group to: (i) provide GLI access to the GMSI Group's books and records, (ii)
provide the Xxxxxxxx Group with papers, schedules, and any other information or
assistance necessary to prepare tax returns or make computations pursuant to
this Agreement, (iii) maintain, preserve and furnish on a timely basis, when
requested, books, records and other information as may be needed by the Xxxxxxxx
Group pursuant to this Agreement or pursuant to the preparation of any required
tax return or the conduct of any tax examination by any governmental authority
for at least such time as has been customary while the members of the GMSI Group
have been part of the Xxxxxxxx Group, (iv) cooperate in any examination or
investigation of tax returns and execute appropriate powers of attorney in
connection therewith in favor of the appropriate member of the Xxxxxxxx Group,
and (v) following GLI's review with GMSI the portion of any such claim relating
to GMSI, sign all documents, including settlement agreements, relating to the
tax returns for Consolidation Periods.
9. GMSI covenants and agrees to file the GMSI Group's consolidated
federal income tax returns for taxable periods made after the Deconsolidation
Date in a manner consistent with any elections made on the Xxxxxxxx Group
consolidated federal income tax returns filed for the Consolidation Periods.
GMSI also covenants and agrees that the GMSI Group will not file any claim for
refunds with respect to federal or state income tax returns for Consolidation
Periods.
10. GMSI agrees that it will indemnify and hold the Xxxxxxxx Group
(other than the members of the GMSI Group) harmless from and against any and all
costs, expenses, losses, damages and liabilities incurred or suffered directly
or indirectly (including reasonable attorneys' fees) attributable to the breach
of any of its covenants herein.
11. Any terms used in this Agreement in the singular shall be deemed to
be in the plural where appropriate and any terms used in the plural shall be
deemed to be in the singular where appropriate.
12. This Agreement is entered into by the parties hereto on their own
behalf as well as on behalf of any subsidiaries such parties may respectively
have after the Deconsolidation Date. This Agreement shall be deemed to have been
joined in and consented to by all such subsidiaries, without further action of
them or the parties hereto. The parties hereto hereby guarantee the performance
by such subsidiaries of the terms of this Agreement. This Agreement shall also
be binding upon, and inure to the benefit of, the successors and assigns of the
parties hereto.
13. This Agreement supersedes and terminates all prior tax matters
agreements that may exist among the parties on the Deconsolidation Date.
14. This Agreement shall have an initial term of five (5) years and
shall renew automatically for additional terms of one (1) year each unless
either party gives the other party not less than ninety (90) days written notice
of its intention to terminate.
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