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EXHIBIT 10.17
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT (this "Agreement") dated as of July 1,
1999 by and between XXXXXXXXXXXXX.XXX, INC., a Delaware corporation
("XxxxxxxXxxxxx.xxx"), VITAMIN SHOPPE INDUSTRIES INC., a New York corporation
("VSI"), and any other corporation that shall become a party to this Agreement
in accordance with its terms, for taxable years commencing on and after January
1, 1999,
W I T N E S S E T H:
WHEREAS, VSI and its subsidiaries, including XxxxxxxXxxxxx.xxx,
constitute an affiliated group (the "VSI Group") within the meaning of section
1504(a) of the Internal Revenue Code of 1986 (the "Code") and any successor
provision thereto; and
WHEREAS, it is contemplated that concurrently with or shortly after the
execution of this Agreement, XxxxxxxXxxxxx.xxx will complete a private placement
of preferred stock, representing less than 20% of the value of its outstanding
capital stock; and
WHEREAS, the parties desire to establish the terms and conditions under
which they would, at the election of VSI as provided herein, continue to file a
consolidated federal income tax return and consolidated or combined state income
or franchise tax returns that would include VSI and its subsidiaries and
XxxxxxxXxxxxx.xxx in accordance with, and to the extent allowable under,
applicable law and regulations (such federal, state and other returns together
referred to as "Consolidated Returns");
NOW, THEREFORE, the parties agree as follows:
1. CONSOLIDATED RETURN. (a) At the election of VSI in its sole
discretion, VSI and XxxxxxxXxxxxx.xxx shall, and VSI shall cause any other
subsidiaries to, take such action, including without limitation the filing of
consents and any other documents, as may be necessary for the VSI Group to
continue to file such Consolidated Returns as are allowed. VSI shall oversee the
preparation of any Consolidated Returns filed by the VSI Group.
(b) VSI and XxxxxxxXxxxxx.xxx shall cause any corporation that is
currently or that becomes after the date of this Agreement an affiliate of
either of them and a member of the VSI Group, including without limitation
XxxxxxxXxxxxx.xxx but other than VSI ( a "Member"), to join in this Agreement.
(c) VSI and XxxxxxxXxxxxx.xxx shall maintain, and shall cause any
subsidiaries now owned or subsequently formed or acquired by either of them to
maintain, concurrent fiscal years, which fiscal year shall end on December 31
unless the parties agree otherwise.
(d) Any dispute between the parties with respect to the operation or
interpretation of this Agreement shall be referred to and decided by the
independent public accountants for the VSI Group, which shall be chosen by VSI.
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(e) All tax related documents and other materials, including without
limitation returns, supporting schedules, work papers, correspondence and other
documents relating to any consolidated return shall be made available to either
party during regular business hours.
2. CALCULATION OF SEPARATE INCOME TAX LIABILITY. (a) For each tax year
(beginning with the tax year commencing January 1, 1999 and for each tax year
thereafter) in which the VSI Group files Consolidated Returns (a "Consolidated
Return Year"), each Member shall pay to VSI an amount equal to such Member's
separate federal income tax liability computed as if such Member filed a
separate federal income tax return for such period, with the adjustments
specified in section 1.1552-1(a)(2)(ii)(a) through (i) of the regulations
promulgated under the Code (the "Treasury Regulations").
(b) In the event that, for any Consolidated Return Year,
XxxxxxxXxxxxx.xxx shall incur a net operating loss or unutilized tax credit
computed on a separate basis in accordance with paragraph 2(a) (such loss or
credit hereinafter, a "Tax Attribute") and such Tax Attribute is absorbed within
the meaning of section 1.1502-32 of the Treasury Regulations by VSI or a Member
other than XxxxxxxXxxxxx.xxx in the same or another preceding or succeeding
taxable year, then, at the close of the Consolidated Return Year in which the
Tax Attribute is incurred or absorbed (whichever is later), an intercompany note
receivable (a "Tax Receivable") payable by VSI to XxxxxxxXxxxxx.xxx shall be
established on the books of XxxxxxxXxxxxx.xxx in an amount equal to the product
of (i) the portion of Tax Attribute absorbed and (ii) the highest marginal
federal corporate income tax rate provided for in section 11 of the Code
applicable at such time (the "Maximum Rate") (or in the case of the absorption
of a credit, the amount of such credit).
(c) Principles similar to the principles set forth in this paragraph 2
shall be applied (i) in determining the amounts of any consolidated or combined
state, local or foreign corporate income (or franchise) tax liability in respect
of which a payment is required to be made by the Members to VSI and (ii) to
calculate and establish Tax Receivables payable by VSI to XxxxxxxXxxxxx.xxx to
reflect the absorption by VSI or any other Member of any Tax Attribute for
state, local or foreign income tax purposes.
3. LIABILITY FOR TAX PAYMENTS. (a) VSI shall pay the federal corporate
tax liabilities of the VSI Group for any period in which the VSI Group files a
consolidated federal income tax return. If the VSI Group files a consolidated or
combined return for any state, local or foreign jurisdiction for any period, VSI
will pay the liability for taxes relating to that return. If any such tax shall
be paid directly by, or shall be collected by any taxing authority from, a
Member, such tax shall be promptly reimbursed by VSI to such Member.
(b) Each Member shall pay to VSI an amount equal to its federal, state,
local or foreign tax liability relating to a Consolidated Return calculated for
federal taxes as the product of (i) the taxable income of such Member, as
computed pursuant to paragraph 2(a), and (ii) the Maximum Rate and on a
comparable basis for state, local and foreign taxes.
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(c) If the consolidated or combined federal, state, local or foreign
income tax liability of the VSI Group or any Member is adjusted for any taxable
period, whether by means of an amended return, claim for refund or audit by the
Internal Revenue Service or any other taxing authority, the obligation of each
Member for taxes shall be recomputed under paragraph 2(a) taking into account
such adjustments. If any interest (or penalty) is to be paid or received as a
result of a consolidated federal, state, local or foreign income tax deficiency
or refund, such interest shall be allocated in the ratio that each Member's
change in federal, state, local or foreign income tax liability bears to the
total change in such tax liability for the VSI Group.
(d) Any payments that XxxxxxxXxxxxx.xxx is required to make pursuant to
this Agreement may be satisfied by a corresponding offset to, and reduction of,
the amount of any Tax Receivables owed to such Member in the order in which such
Tax Receivables were established. In the event that XxxxxxxXxxxxx.xxx is no
longer a Member, then for each tax year following the year in which
XxxxxxxXxxxxx.xxx ceases to be a Member, XxxxxxxXxxxxx.xxx shall become entitled
to the payment of all of the Tax Receivables owed to it to the extent, in the
amount and at the same time as its payment, of XxxxxxxXxxxxx.xxx's aggregate
federal, state, local and foreign income tax liability for such year computed
pursuant to the principles of paragraph 2. The amount of any Tax Receivable that
remains unpaid or not otherwise offset or reduced in accordance with the
preceding sentences of this paragraph 3(d) shall immediately become due and
payable at the close of the fifth full calendar year following the establishment
of the Tax Receivable.
4. METHOD AND TIME OF PAYMENT. (a) Payments of consolidated estimated
tax for the VSI Group at the normal quarterly due dates shall be made by VSI.
Prior to each normal quarterly due date, VSI shall prepare and transmit to each
Member an estimate of the payment obligation of such Member pursuant to this
Agreement computed on a separate return basis pursuant to paragraph 2(a) as of
the close of the appropriate quarter. Within three business days after the
receipt by a Member of such estimate, such Member shall pay to VSI an amount
equal to the estimated tax amount for such quarter. Upon the determination of
the VSI Group's consolidated tax liability for the year, VSI shall notify each
Member of any excess of such Member's separate tax liability for the entire year
determined pursuant to paragraph 2(a) over amounts already paid by such Member
for estimated tax, and each Member shall pay to VSI within three business days
an amount equal to any such excess. Conversely, VSI shall pay to each Member
within three business days after the determination of the VSI Group's
consolidated tax liability for the year, an amount equal to the excess of
amounts already paid by such Member for estimated tax over such Member's
separate tax liability for the entire year determined pursuant to paragraph
2(a). If any corporation ceases to be a Member, the payment obligation of or to
such Member pursuant to this paragraph 4 shall be computed as of the day
immediately preceding the first day such corporation is no longer a Member.
Payment of the obligation of such corporation shall be made no later than the
quarterly due date as described above, and payments by VSI to such corporation
shall be made no later than 30 days after the close of the last quarter of the
taxable year.
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(b) In the case of a refund as provided in paragraph 3(c), VSI shall
pay to each Member such Member's share of the refund, determined by allocating
such refund so that each Member receives a payment in an amount equal to the
reduction of such Member's tax liability as a result of the recomputation
described herein, within 30 days after the refund is received by VSI. In the
case of an increase in tax liability as provided in paragraph 3(c), each Member
shall pay to VSI an amount equal to its allocable share of such increased tax
liability, determined based on each Member's increase in liability as a result
of the recomputation described herein, within 20 days after receiving notice of
such liability from VSI.
5. MEMBERS JOINING AND LEAVING VSI GROUP. If, at any time any other
corporation becomes a Member, such new Member shall become a party to this
Agreement by executing a duplicate copy of this Agreement. Unless otherwise
specified, such new Member shall have all the rights and obligations of a Member
under this Agreement. Any corporation that ceases to be a Member shall continue
to be bound by this Agreement with respect to periods during which it was a
Member.
6. VSI AS AGENT; VSI DESIGNATE. Each Member hereby (i) designates VSI
as its agent to take any and all actions and to make any and all elections with
respect to any Consolidated Returns or any tax position reflected on such
returns and (ii) agrees to be bound by any such action or election taken by VSI.
VSI may designate a subsidiary (other than XxxxxxxXxxxxx.xxx) to act on behalf
of the VSI Group in performing the duties identified in this Agreement (other
than VSI's obligation with respect to the Tax Receivable).
7. TERM. This Agreement shall commence on the date hereof and continue
for an indefinite period in full force and effect until the statute of
limitations shall have run on each Consolidated Return.
8. MISCELLANEOUS. (a) Neither party may assign this Agreement or its
rights and obligations hereunder in whole or in part without the other party's
prior written consent. Any attempt to assign this Agreement without such consent
shall be void and of no effect. Notwithstanding the foregoing, either party may
assign this Agreement or its rights and obligations hereunder to any entity
controlled by it or to any entity by which it is acquired by merger, purchase of
capital stock, transfer of substantially all assets or otherwise; provided that
such entity shall thereafter succeed to all obligations of such party under this
Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York applicable to agreements made
and to be performed entirely within such state, without regard to the principles
of conflicts of law of such state.
(c) Each party hereto irrevocably and unconditionally consents to the
exclusive jurisdiction of the Supreme Court of the State of New York, New York
County, or the United States District Court for the Southern District of New
York for the purposes of any suit, action or proceeding arising out of this
Agreement or any transaction contemplated hereby. Each party agrees to commence
any such action, suit or proceeding either in the United States District Court
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for the Southern District of New York, or if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the
Supreme Court of the State of New York, New York County. Each party further
agrees that service of any process, summons, notice or documents by United
States registered mail to such party's address set forth pursuant to paragraph
8(e) shall be effective service of process for any action, suit or proceeding in
respect to any matters to which such party has submitted to jurisdiction in this
paragraph 8(c). Each party irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement or any transaction contemplated hereby in the Supreme Court of the
State of New York, New York County, or the United States District Court for the
Southern District of New York. Each party irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in either such court has been brought in an inconvenient
forum.
(d) If any provision of this Agreement or any portion thereof, or the
application of any such provision or portion thereof, to any person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof or the remaining portion thereof or
the application of such provision to any other persons or circumstances.
(e) All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (or one business day in the case of express
mail or overnight courier service), as follows:
If to XxxxxxxXxxxxx.xxx, to:
XxxxxxxXxxxxx.xxx, Inc.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: President and Chief Executive Officer
If to VSI, to:
Vitamin Shoppe Industries Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: President and Chief Executive Officer
(f) No failure of either party to exercise or enforce any of its rights
under this Agreement shall act as a waiver of such right.
(g) This Agreement constitutes the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. Neither party shall be liable or bound to any other party in any manner
by any representations, warranties or covenants relating to the subject
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matter except as specifically set forth herein. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more such counterparts have
been executed and delivered by both parties.
(h) This Agreement may be amended only by an instrument in writing
signed on behalf of each party. As long as VSI owns at least 30% of the voting
power of the capital stock of XxxxxxxXxxxxx.xxx, no material term of this
Agreement may be amended or waived without the approval of a majority of the
directors of XxxxxxxXxxxxx.xxx who are not directors, officers or more than 5%
stockholders of VSI (or the designee of a more than 5% stockholder).
(i) This Agreement is for the sole benefit of the parties hereto.
Nothing herein expressed or implied shall give or be construed to give to any
other person or entity any legal or equitable rights hereunder.
(j) The headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement. When
reference is made in this Agreement to a paragraph, such reference shall refer
be to a paragraph of this Agreement unless otherwise indicated.
(k) The provisions of this paragraph 8 shall survive any termination of
this Agreement.
[Remainder of Page Intentionally Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
XXXXXXXXXXXXX.XXX, INC.
By: /s/ Xxxxxxx X. Xxxxxx
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Name: Xxxxxxx X. Xxxxxx
Title: President and Chief
Executive Officer
VITAMIN SHOPPE INDUSTRIES INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
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Name: Xxxxxxx X. Xxxxxxxx
Title: President and Chief
Executive Officer
