Contract
Exhibit
10.106
THIS
2006
TAX ALLOCATION AGREEMENT ("Agreement") is entered into effective as of the
Deconsolidation Date among Applied Digital Solutions Inc., a Missouri
corporation with its principal place of business at Delray Beach, Florida
("Applied Digital"), VeriChip Corporation, a Delaware corporation also with
its
principal place of business at Delray Beach, Florida ("VeriChip") and each
other
corporation that is a member of the Consolidated Group as defined below.
Applied
Digital and VeriChip are hereinafter collectively referred to as the "Parties"
and singularly as a "Party".
RECITALS
WHEREAS,
VeriChip is considering selling a certain number of its newly- issued shares
of
common stock so that Applied Digital’s ownership interest in VeriChip would be
less than 80 percent thereby precluding VeriChip from being included in the
consolidated federal income tax returns prepared by Applied Digital as common
parent for the taxable periods following the Deconsolidation Date;
WHEREAS,
VeriChip has, with the consent of Applied Digital, represented in various
public
statements that the Deconsolidation will not have a material adverse effect
on
its financial condition or results of operations; and
NOW,
THEREFORE, the Parties to this Agreement agree as follows:
ARTICLE
I
DEFINITIONS
1.1
DEFINITIONS: As used in this Agreement, the following terms have the following
meanings:
"Code"
means the Internal Revenue Code of 1986, as amended, or corresponding provisions
of any subsequent federal tax laws.
"Consolidated
Group" means the "affiliated group" of corporations of which Applied Digital
is
the "common parent corporation", as such terms are defined in
Code
§1504(a)(1).
"Consolidated
Minimum Tax Credit(s)" means the consolidated minimum tax credit(s) computed
in
accordance with Code §§53, 1502, and 1503, and shown in a Consolidated Return
with respect to those tax periods up to and including the
1
Deconsolidation
Date.
"Consolidated
Return" means the consolidated federal income tax return of the Consolidated
Group for each taxable year as filed or to be filed by Applied Digital on
behalf
of the Consolidated Group.
"Consolidated
Tax Liability" means, generally, the consolidated federal income tax liability
computed in accordance with Treasury Regulation §1.1502-2 and shown on a
Consolidated Return, taking into account all credits to which the Consolidated
Group is entitled under the Code, but not taking into account any "consolidated
alternative minimum tax liability" (as provided under Code §§55, 1502, and 1503)
or any Consolidated Minimum Tax Credit.
"Deconsolidation"
means that event which causes Applied Digital to no longer have the requisite
ownership interest in VeriChip so as to allow VeriChip to file as part of
a
Consolidated Group with Applied Digital.
"Deconsolidation
Date" means February 14, 2007, the date when Applied Digital and VeriChip
no
longer are members of the same Consolidated Group.
“Other
Tax” or “Other Taxes” means any and all taxes of any kind (together with any and
all interest, penalties, additions to tax and additional amounts imposed
with
respect thereto) imposed by any governmental authority or taxing authority,
including, but not limited to, federal, state, local, or foreign income,
gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code §59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property,
sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not and including any obligations
to
indemnify or otherwise assume or succeed to the tax liability of any other
Person, other than any such item included in the definition of Tax.
"Party"
and "Parties" have that meaning ascribed to them in the Recitals.
"Pre-Deconsolidation
Date Period" means, chronologically, those tax years that end prior to the
tax
year in which the Deconsolidation Date occurs plus that period in time beginning
on the first day of such year and ending on and including the Deconsolidation
Date.
"Post-Deconsolidation
Date Period" means, chronologically, that period following the Deconsolidation
Date.
2
“Subsidiary”
means any corporation or other entity with respect to which Applied Digital,
on
the one hand, or VeriChip, on the other, owns, directly or indirectly, at
least
50% of the common stock or other equity or profits interests or has the power,
directly or indirectly, to elect a majority of the members of the board of
directors or comparable governing body.
"Taxes"
or "Tax" means federal income taxes as provided in Code §11, alternative minimum
tax as provided in Code §55, and any state taxes measured by net income
(including state taxes measured by net income reflected in any Unitary Tax
Returns filed by Applied Digital) and any interest or penalties thereon or
additions to tax. The term Taxes or Tax, however, specifically excludes any
tax
imposed by any foreign government.
"Unitary
Tax Return" means a state income tax return which reflects the combined and/or
consolidated reporting (either on a domestic or worldwide basis) of Applied
Digital and its affiliates for a state which either (i) imposes an income
tax on
the apportioned and/or allocable share of the net income of Applied Digital
and
its United States affiliates that are engaged in a "unitary business", part
of
which is conducted in the state or (ii) imposes an income tax on the apportioned
and/or allocable share of the net income of a taxpayer and its affiliates—both
domestic and foreign--that are engaged in a unitary business.
Other
terms defined herein have the meanings given them.
ARTICLE
II
TAX
INDEMNIFICATION
2.1
VERICHIP'S TAX INDEMNIFICATION FOR THE PRE-DECONSOLIDATION DATE PERIOD: VeriChip
shall be liable for, indemnify, and hold Applied Digital harmless for all
Taxes
(i) imposed on or incurred by VeriChip for the Pre-Deconsolidation Date Period
and (ii) equitably apportioned to VeriChip by Applied Digital for all tax
periods beginning before and ending after the Deconsolidation Date. Except
as
provided in Section 2.2(c), VeriChip, in turn, shall be entitled to receive
all
refunds of Taxes attributable to the Pre-Deconsolidation Date Period, if
any,
that are imposed or incurred by VeriChip or equitably apportioned to VeriChip
from either the applicable tax authorities or Applied Digital (in the event
such
refund(s) have been made directly to Applied Digital).
2.2
VERICHIP'S 2006 TAX LIABILITY AND PAYMENT
(a)
VeriChip's liability for Taxes for the portion of the Pre-Deconsolidation
Date
Period attributable to the tax year in which the
3
Deconsolidation
Date occurs shall be based on Applied Digital's preparation of the Consolidated
Return for such taxable year and VeriChip's review thereof. Any discrepancies
between Applied Digital's return position and VeriChip's subsequent review
shall
be resolved by consultation by each Party's respective tax officers and Applied
Digital's ultimate determination shall be controlling as long as such
determination does not have a material adverse effect on VeriChip's financial
condition or results of operations.
(b)
The
Parties agree that, in determining VeriChip's allocable share of the (i)
Unitary
and (ii) Consolidated Tax Liabilities for the tax year in which the
Deconsolidation Date occurs, they shall follow a reasonable method agreed
to by
both Parties.
(c)
VeriChip shall pay Applied Digital its allocable share of the estimated Unitary
and Consolidated Tax Liabilities for that portion of the tax year in which
the
Deconsolidation Date occurs that precedes the Deconsolidation Date within
45
days from the Deconsolidation Date. A "true-up" payment, should one be
necessary, shall be made by VeriChip to Applied Digital or Applied Digital
to
VeriChip within 15 days after Applied Digital's subsequent determination
of
VeriChip's liability based on taxable income and tax credits reported as
part of
Applied Digital's Unitary and Consolidated Returns and VeriChip's separate
state
Tax returns for the taxable year in which the Deconsolidation Date occurs.
If
there is a refund of Taxes attributable to VeriChip for that portion of the
tax
year in which the Deconsolidation Date occurs that precedes the Deconsolidation
Date, VeriChip shall retain such refund, or, if such refund is received by
Applied Digital, Applied Digital shall pay the amount of such refund to VeriChip
within 45 days of its receipt of such refund.
(d)
Applied Digital shall be liable for, indemnify, and hold VeriChip harmless
for
all Taxes attributable to the event of Deconsolidation, including all taxes
with
respect to any deferred intercompany transactions within the meaning of Treasury
Regulation § 1.1502-13.
(e)
In
connection with any Pre-Deconsolidation Date Period, neither Party to the
Agreement will be required to compensate the other Party for any net operating
losses incurred by that other Party that reduce the consolidated tax liability
of the Consolidated Group or the taxable income of other members of the
Consolidated Group. The same results shall apply for any Pre-Deconsolidation
Date Period net operating losses that reduce the consolidated tax liability
of
the Consolidated Group or the taxable income of the other members of the
Consolidated Group in connection with the use of such net operating loss
as a
result of an audit by the Internal Revenue Service, or by any state or local
tax
authority.
2.3
OTHER
TAXES. VeriChip shall be liable for, indemnify, and hold Applied
4
Digital
harmless for all Other Taxes imposed on or incurred by VeriChip or any of
its
Subsidiaries and Applied Digital shall be liable for, indemnify, and hold
Veri
Chip harmless for all Other Taxes imposed on or incurred by Applied Digital
or
any of its Subsidiaries (other than VeriChip, itself, or its Subsidiaries),
whether arising before or after the Deconsolidation Date.
ARTICLE
III
MINIMUM
TAX CREDIT
AND
RELATED MATTERS ASSOCIATED WITH DECONSOLIDATION
3.1
CONSOLIDATED MINIMUM TAX CREDIT
(a)
As
currently calculated by Applied Digital, no Consolidated Minimum Tax Credits
have been allocated to VeriChip by Applied Digital based on Consolidated
Returns
filed through tax year ended December 31, 2005 under the methodology followed
for the Pre-Deconsolidation Date Period and Applied Digital has not made
any
determination of VeriChip's allocable share of Consolidated Minimum Tax Credits
for the 2006 tax year. In the event Consolidated Minimum Tax Credits are
allocated to VeriChip, VeriChip shall be obligated to reimburse Applied Digital
for the amount of such credits allocated to VeriChip upon the occurrence
of the
earlier of the following two events:
(i)
The
date of VeriChip's filing of its federal income tax return for the tax year
in
the Post-Deconsolidation Date Period when VeriChip utilizes any reallocated
Consolidated Minimum Tax Credits; or
(ii)
The
date of Applied Digital's filing of its federal income tax return for the
tax
year in the Post-Deconsolidation Date Period when Applied Digital could have
utilized such Consolidated Minimum Tax Credits but is precluded from doing
so
because of the reallocation to VeriChip.
(b)
For
purposes of Section 3.1(a)(ii), no Consolidated Minimum Tax Credits will
be
considered usable by Applied Digital until Applied Digital could have first
utilized all Consolidated Minimum Tax Credits remaining with Applied Digital
after the reallocation. Any minimum tax credits generated by Applied Digital
in
the Post-Deconsolidation Date Period shall be disregarded in making this
determination. For purposes of Section 3.1(a)(i), Consolidated Minimum Tax
Credits will be considered as utilized by VeriChip before VeriChip first
utilizes any minimum tax credits it has generated in the Post-Deconsolidation
Date Period.
(c)
For
purposes of Section 3.1(a), any payments to be made between VeriChip and
Applied
Digital may be made for more than one tax year of the Post-Deconsolidation
Date
Period until the reallocated Consolidated Minimum Tax Credit is used (or
could
have been used) in its entirety.
5
3.2
CONSOLIDATED MINIMUM TAX CREDIT ALLOCATION ADJUSTMENTS: In the event the
amount
of the Consolidated Minimum Tax Credits allocated to VeriChip are adjusted
resulting in a reduction of Consolidated Minimum Tax Credits previously utilized
by VeriChip and a payment has been made by VeriChip to Applied Digital pursuant
to the terms of Section 3.1, Applied Digital shall be obligated to pay VeriChip
for any assessment made against it by the Internal Revenue Service attributable
to such adjustment. Payment shall be made by Applied Digital to VeriChip
on the
day VeriChip pays the Internal Revenue Service for such assessment.
ARTICLE
IV
AUDITS
AND OTHER TAX PROCEEDINGS
4.1
GENERAL COOPERATION AND EXCHANGE OF INFORMATION
(a)
VeriChip shall provide, or cause to be provided, to Applied Digital copies
of
all correspondence received from any taxing authority by VeriChip in connection
with the liability of the Parties for Taxes for the Pre-Deconsolidation Date
Period. VeriChip shall also provide Applied Digital with access to or copies
of
any materials requested by Applied Digital which would assist Applied Digital
in
resolving any tax matters for the Consolidated Group for the Pre-Deconsolidation
Date Period. Further, the Parties will provide each other with such cooperation
and information as may reasonably be requested of each other in preparing
or
filing any return, amended return, or claim for refund, in determining liability
or right of refund, or in conducting any audit or other proceeding, in respect
of Taxes or Other Taxes imposed on the Parties or their respective affiliates
including, by way of example, information relating to net operating losses,
foreign tax credits, overall foreign losses, and excess loss
accounts.
(b)
VeriChip on one hand, and Applied Digital and each other member of the
Consolidated Group on the other hand, and their respective affiliates, will
preserve and retain all returns, schedules, workpapers, and all material
records
or other documents relating to any such returns, claims, audits, or other
proceedings until the expiration of the statutory period of limitations
(including extensions) of the taxable periods to which such documents relate
and
until the final determination of any payments which may be required with
respect
to such periods under this Agreement and shall make such documents available
at
the then-current corporate headquarters of such Party to the other Party
or any
affiliate thereof, and their respective officers, employees, and agents,
upon
reasonable notice and at reasonable times, it being understood that such
representative shall be entitled to make copies of any such books and records
relating to Applied Digital or VeriChip as they shall deem
necessary.
6
(c)
Applied Digital on one hand and VeriChip on the other hand further agree
to
permit representatives of the other Party or any affiliate thereof to meet
with
employees of such Party on a mutually convenient basis in order to enable
such
representatives to obtain additional information and explanations of any
documents provided pursuant to this Section 4.1. Applied Digital on one hand
and
VeriChip on the other hand shall make available to the representatives of
the
other Party or any affiliate thereof sufficient workspace and facilities
to
perform the activities described in this Section. Any information obtained
pursuant to this Section 4.1 shall be kept confidential, except as may be
otherwise necessary in connection with the filing of returns or claims for
refund or in conducting any audit or other proceeding. Each Party shall provide
the cooperation and information required by this Section 4.1 at its own
expense.
4.2
AUDITS: In the event of an audit by the Internal Revenue Service, or by any
state or local tax authority, of a return filed by Applied Digital for the
Pre-Deconsolidation Date Period, Applied Digital shall give VeriChip timely
and
reasonable notice of audit proceedings and VeriChip will provide all necessary
information and other assistance reasonably requested by Applied Digital
with
respect to issues concerning the activities of VeriChip. All communications
with
the Internal Revenue Service concerning such audit will be made by Applied
Digital unless otherwise agreed between the Parties hereto.
4.3
MATERIAL ADVERSE IMPACT TO VERICHIP: Notwithstanding the provisions of Section
4.2, the Parties agree that in no event shall Applied Digital file any amended
tax return, claim for refund, or make any tax election affecting the
Pre-Deconsolidation Date Period that would have any material adverse impact
on
VeriChip's financial condition or results of operations without first obtaining
the written permission of VeriChip.
ARTICLE
V
UNITARY
TAX RETURNS
FOR
POST-DECONSOLIDATION DATE PERIOD FILINGS
Applied
Digital agrees to continue to file any Unitary Tax Returns and allocate Unitary
tax liability for the Post-Deconsolidation Date Period in which the operations
of VeriChip are reflected in a manner consistent with the methodology followed
for the Pre-Deconsolidation Date Period.
ARTICLE
VI
OTHER
PROVISIONS
6.1
EFFECT OF THE AGREEMENT: The obligations of the Parties set forth under this
Agreement shall be unconditional and absolute, and shall remain in effect
without limitation as to time. Further, all prior tax sharing and allocation
7
agreements
between Applied Digital and VeriChip, if any, shall terminate effective as
of
the Deconsolidation Date.
6.2
ASSIGNABILITY: The rights and obligations of the Parties under this Agreement
may not be assigned by a Party without the prior written consent of the other
Party to this Agreement.
6.3
GOVERNING LAW: This Agreement shall be governed by the laws of the state
of
Florida.
8
IN
WITNESS WHEREOF, the Parties hereto have caused their names to be subscribed
and
executed by the respective authorized officers on the dates indicated, effective
as of the date first written above.
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APPLIED
DIGITAL SOLUTIONS, INC.
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By:
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/s/
Xxxxxxx X. Xxxxxxx
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Name:
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Xxxxxxx
X. Xxxxxxx
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Title:
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Chief
Executive Officer and
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President
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VERICHIP
CORPORATION
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By:
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/s/
Xxxxxxx X. Xxxxxxx
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Name:
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Xxxxxxx
X. Xxxxxxx
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Title:
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Chief
Financial Officer, Vice
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President
and Treasurer
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ACT
Communications Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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ADS
Bay Area, Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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ADSI
Telecomm Services, Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Advanced
Telecomm of Maryland, Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Advanced
Telecomm of Pittsburgh
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Applied
Digital Solutions Financial Corp.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Arjang,
Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Blue
Star Electronics, Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Bostek,
Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Computer
Equity Corporation
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name: | Xxx X. Xxxxxxxxx | |
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Title: | Vice Pres., Sec'y | |
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CyberTech
Station, Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Elite
Computer Services, Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Government
Telecommunications, Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Intellesale,
Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Micro
Components International Incorporated
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Neirbod
Corp.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Pacific
Decision Sciences Corporation
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Perimeter
Acquisition Corp.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Precision
Point Corporation
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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Thermo
Life Energy Corp.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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U.S.
Kite & Key Corp.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
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WYR,
Inc.
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By:
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/s/
Xxx X. Xxxxxxxxx
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Name:
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Xxx X. Xxxxxxxxx | ||
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Title:
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Vice Pres., Sec'y | ||
14
