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EXHIBIT 10.24
TAX INDEMNIFICATION AND S CORPORATION DISTRIBUTION AGREEMENT
This TAX INDEMNIFICATION AND S CORPORATION DISTRIBUTION AGREEMENT (the
"Agreement") is entered into as of March ___, 1999 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 as
soon as possible on or after the Closing Date;
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
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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.
"AAA Dividend" means the dividend to be declared by the Company of all
of the undistributed AA Account.
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"AAA Settlement Date" means the last day of the "post-termination
transition period," as defined in Section 1377(b) of the Code, of the Company,
except shall not include any extension of the post-termination transition period
pursuant to Section 1377(b)(l)(C) as the result of a determination that the
Company's election under Section 1362(a) had terminated earlier than the Closing
Date.
"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 (or any successor
comparable form or the expiration of a comparable period with respect to
any comparable agreement or form under the laws of other jurisdictions);
(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.
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"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 January 28, 1999.
"Record Date" means the day prior to the date upon which the Company's
Registration Statement on Form S-1, as amended, which was initially filed with
the Securities and Exchange Commission on January 28, 1999, is declared
effective by the Securities and Exchange Commission.
"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.
ARTICLE II
TERMINATION OF S CORPORATION STATUS, ALLOCATION OF INCOME,
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DECLARATION OF AAA DIVIDEND AND ADJUSTMENT OF AAA DIVIDEND
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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
shall declare the AAA Dividend, subject to the closing of the Public Offering,
to the
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stockholders of record on the Record Date payable as soon as possible on or
after the Closing 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 Termination 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 thereafter remit to the Company their pro-rata
share of such excess no later than thirty (30) days after receiving
notice from the Company that such amount is payable; and
(ii) if the amount of the AA Account as of Termination Date
exceeds the amount of the AAA Dividend, the Company shall thereafter
distribute to the Stockholders their pro-rata shares of such excess
within thirty (30) days following the date the Company determines an
amount is payable pursuant to this Section 2.4(b)(ii).
(c) 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 (or its successors) as adjusted from time
to time.
ARTICLE III
TAX PAYMENTS AND INDEMNIFICATION OBLIGATIONS
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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)
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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 STOCKHOLDERS INDEMNIFICATION OF COMPANY FOR TAX LIABILITIES.
(a) 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, each
Stockholder agrees to contribute to the capital of the Company, subject to the
limitations contained in the last sentence of this Section 3.3(a) and in Section
3.3(b), an amount necessary to hold the Company harmless from any taxes (net of
any refunds), penalties and interest arising from such Final Determination. Each
Stockholder's obligation under this Section 3.3(a) shall be several and not
joint and shall be limited to that percentage of the tax (net of any refunds),
penalties 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.
(b) LIMIT ON INDEMNIFICATION AMOUNT. Any payment by a Stockholder to
the Company pursuant to this Section 3.3 shall not exceed the amount of the
total distributions made to such Stockholder 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, reduced by any taxes paid or
payable by the Stockholders on the distributions and increased by any refund of
taxes and interest received by the Stockholders with respect to the Company's S
corporation earnings.
(c) TIME OF INDEMNIFICATION PAYMENT. The Stockholders shall
contribute to the capital of the Company amounts set forth in this Section 3.3
within thirty (30) days after notice from the Company that a payment is due by
the Company to the appropriate Taxing Authority.
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3.4 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 any of such persons whether under this Agreement or otherwise, 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 Company shall be entitled at
its reasonable discretion and sole expense to handle, control and compromise or
settle the defense of any matter of the Company or any Stockholder which may
give rise to a liability under this Agreement or a limitation of liability under
this Agreement, provided that the Stockholders may participate in all
conferences, meetings or proceedings with respect to the issue.
(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.
(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 Section 3.4 of this Agreement.
3.5 COSTS. Except to the extent otherwise provided herein, each party
shall bear its own costs in administering this Agreement.
3.6 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.
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ARTICLE IV
MISCELLANEOUS
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4.1 DISPUTES. If the parties are, after negotiation in good faith, unable
to agree upon the appropriate application of this Agreement, the controversy
shall be settled by the accounting firm remaining on the list of firms set forth
on Schedule B hereto after the Company and the representative of the
Stockholders, commencing with the Company, shall have objected seriatim to the
other firms of the list (the "Accounting Firm"). The decision of the Accounting
Firm shall be final, and each of the Company and the Stockholders agree
immediately to pay to the other any amount due under this Agreement pursuant to
such decision. The expenses of the Accounting firm shall be borne one-half by
the Company and one-half by the Stockholders, in the same proportion that the
Stockholders share liability under Section 3.3 hereof, unless the Accounting
Firm specifies otherwise.
4.2 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.
4.3 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.
4.4 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.
4.5 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented only by a written agreement executed by the parties.
4.6 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.
4.7 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
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the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
4.8 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.
4.9 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.
4.10 INTEREST ON OVERDUE PAYMENTS. Any payment pursuant to this Agreement
not made when due under this Agreement shall bear interest at the rate of the
Prime Rate of BankBoston (or its successors), as published from time to time.
4.11 SETOFF. All payments to be made by any party under this Agreement
shall be made without setoff, counterclaim or withholding, all of which are
expressly waived.
4.12 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:
Chief Financial Officer
MKS Instruments, Inc.
0 Xxxxxxxx Xxxx
Xxxxxxx, XX 00000
copy to:
Xxxxxxx X. Xxxxx
Hill & Xxxxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
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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
4.13 TERMINATION OF AGREEMENT. This Agreement shall terminate and be void,
as if it never had been executed, if the Closing Date shall occur after April
30, 1999.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MKS INSTRUMENTS, INC.
By:
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Chief Financial Officer
STOCKHOLDERS
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Xxxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx JCB Retained
Annuity Trust 1998
By:
-----------------------------------
Trustee
Xxxxxx X. Xxxxxxxx CBS Retained
Annuity Trust 1998
By:
-----------------------------------
Trustee
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Xxxx X. Xxxxxxxx JCB Retained Annuity
Trust 1998
By:
-----------------------------------
Trustee
Xxxx X. Xxxxxxxx CBS Retained
Annuity Trust 1998
By:
-----------------------------------
Trustee
Xxxx X. Xxxxxxxx Family Retained
Annuity Trust 1998
By:
-----------------------------------
Trustee
----------------------------------------
Xxxx X. Xxxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxxx
----------------------------------------
Xxxx X. Xxxxxxxx
----------------------------------------
Xxxxxxxx X. Xxxxx
Xxxx X. Xxxxxxxx Retained Annuity
Trust of 1997
By:
-----------------------------------
Trustee
----------------------------------------
Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx JCB Retained
Annuity Irrevocable Trust of 1997
By:
-----------------------------------
Trustee
Xxxxxx X. Xxxxxxxx CBS Retained
Annuity Irrevocable Trust of 1997
By:
-----------------------------------
Trustee
----------------------------------------
Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx JCB Retained Annuity
Irrevocable Trust of 1997
By:
-----------------------------------
Trustee
Xxxx X. Xxxxxxxx CBS Retained
Annuity Irrevocable Trust of 1997
By:
-----------------------------------
Trustee
Xxxx X. Xxxxxxxx Family Retained
Annuity Irrevocable Trust of 1997
By:
-----------------------------------
Trustee
Xxxxxx X. Xxxxxxxx 2nd Family Trust of
December 15, 1986 f/b/o Xxxxx X.
Xxxxxxxx
By:
-----------------------------------
Trustee
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Xxxxxx X. Xxxxxxxx 2nd Family Trust of
December 15, 1986 f/b/o Xxxxx X.
Xxxxxxxx
By: -----------------------------------
Trustee
Xxxx X. Xxxxxxxx 2nd Family Trust of
December 15, 1986 f/b/o Xxxxx X.
Xxxxxxxx
By: -----------------------------------
Trustee
Xxxx X. Xxxxxxxx 2nd Family Trust of
December 15, 1986 f/b/o Xxxxx X.
Xxxxxxxx
By: -----------------------------------
Trustee
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Xxxx X. Xxxxxx
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SCHEDULE A
LIST OF STOCKHOLDERS
Xxxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx JCB Retained Annuity Trust 1998
Xxxxxx X. Xxxxxxxx CBS Retained Annuity Trust 1998
Xxxx X. Xxxxxxxx JCB Retained Annuity Trust 1998
Xxxx X. Xxxxxxxx CBS Retained Annuity Trust 1998
Xxxx X. Xxxxxxxx Family Retained Annuity Trust 1998
Xxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx
Xxxxxxxx X. Xxxxx
Xxxx X. Xxxxxxxx Retained Annuity Trust of 1997
Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx JCB Retained Annuity Irrevocable Trust of 1997
Xxxxxx X. Xxxxxxxx CBS Retained Annuity Irrevocable Trust of 1997
Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx JCB Retained Annuity Irrevocable Trust of 1997
Xxxx X. Xxxxxxxx CBS Retained Annuity Irrevocable Trust of 1997
Xxxx X. Xxxxxxxx Family Retained Annuity Irrevocable Trust of 1997
Xxxxxx X. Xxxxxxxx 2nd Family Trust of December 15, 1986 f/b/o Xxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx 2nd Family Trust of December 15, 1986 f/b/o Xxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx 2nd Family Trust of December 15, 1986 f/b/o Xxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx 2nd Family Trust of December 15, 1986 f/b/o Xxxxx X. Xxxxxxxx
Xxxx X. Xxxxxx
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SCHEDULE B
Xxxxxx Xxxxxxxx LLP
KPMG Peat Marwick LLP
Deloitte & Touche LLP
Ernst & Young LLP
PricewaterhouseCoopers LLP
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