EXHIBIT 10.14
EXECUTION COPY
TAX INDEMNIFICATION AND ALLOCATION AGREEMENT
This Agreement, dated as of October 8, 1999, is entered into by and among
Omni Nutraceuticals, Inc., a Utah corporation ("Omni"), XxxxxxXxxx.xxx, a
California corporation ("Healthzone") and Xxxx Xxxxx, an individual residing at
0000 Xxxxxxx Xxxxx, Xxxxx xxx Xxx, XX 00000 ("Xxxxx").
RECITALS
1. Omni and HealthZone will elect to join in filing consolidated
federal income tax returns under the Internal Revenue Code of
1986, as amended (the "Code"), and the applicable Treasury
Regulations promulgated thereunder by the Treasury Department (the
"Regulations") and will elect to join in filing certain
consolidated state income tax returns.
2. As a result of the transactions contemplated by the Settlement
Agreement dated as of October __, 1999 between Omni and Xxxxx,
Omni intends to distribute all of its stock in HealthZone to the
shareholders of Omni in a transaction intended to qualify for
tax-free treatment under Section 355 of the Code (hereinafter
referred to as the "Spin-Off"), and HealthZone will therefore
leave the affiliated group (within the meaning of Section 1504(a)
of the Code) of corporations (the "Omni Group") of which Omni is
the common parent. The date of such separation is hereinafter
referred to as the "Closing Date".
3. The parties hereto desire to allocate their consolidated federal
and state income tax liability between themselves for the fiscal
year ending December 31, 1999 and, if different, the taxable year
in which the Closing Date occurs (the "Spin-Off Tax Year").
4. HealthZone agrees to compensate Omni for certain federal and state
income tax deficiencies (plus interest and penalties) paid by Omni
as a result of audits of the Internal Revenue Service (the
"Service") and other taxing authorities and judicial
determinations, if any, in respect of which the parties filed
consolidated federal and state income tax returns (consolidated
return deficiencies and refunds) and to compensate Omni for any
taxes (plus interest and penalties) or other damages resulting
from any failure of the Spin-Off to qualify as a tax-free
distribution under Section 355 of the Code.
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AGREEMENT
Now, therefore, the parties hereto agree as follows:
1. (a) In determining the allocation between and Omni and
HealthZone of the consolidated Federal and state income tax
liability of the Omni Group for the fiscal year ending
December 31, 1999 (the "1999 Tax Year") and for the
Spin-Off Tax Year, if different, the computations of the
tax liability of Omni Group shall be made in accordance
with the method used in the consolidated return that
includes Omni and HealthZone for the 1999 Tax Year, except
as to the method used to compute any pension plan
deduction and except where a change in method is required
under applicable tax law (the "Tax Sharing Agreement").
The method of allocation under the Tax Sharing Agreement
is the method described in Section 1552(a)(2) of the Code
and Section related Sections of the Regulations; provided,
however, in the event that HealthZone incurs tax attributes
during the consolidated period and such tax attributes were
funded by Omni, then Omni is entitled to the utilization of
such tax attributes as provided by the Code and related
Regulations and is not required to reimburse HealthZone for
the use of such tax attributes. This method will be elected
and requested by the Omni Group in when it files its
consolidated income tax return for the 1999 Tax Year. The
tax liability of HealthZone so determined is hereinafter
referred to as the HealthZone Tax Liability.
(b) Not later than March 15, 2000 with respect to the 1999 Tax
Year or March 15 of the calendar year immediately
succeeding the Spin-Off Tax Year, HealthZone shall pay in
federal or immediately available funds to such bank account
as shall be designated by Omni an amount equal to the
HealthZone Tax Liability less the amount actually paid (or
considered to have been paid through intercompany account
entries) by HealthZone to Omni on account of estimated tax
installment payments for the applicable period. To the
extent the actual tax liability allocable to HealthZone
ultimately differs from the amounts paid by the HealthZone,
any excess shall be refunded to HealthZone within thirty
days of the determination of such excess or as refunded by
the applicable governmental taxing authorities.
2. In the event of an audit by the Service or other taxing authority
of a consolidated federal or state income tax return that included
HealthZone, HealthZone shall be notified by Omni of such audit and
shall be entitled to participate, at its own expense, in
contesting all relevant items that affect the tax liability or tax
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attributes of HealthZone with respect to such audit in
administrative and judicial proceedings. HealthZone pledges its
full cooperation in connection with any such audit. HealthZone and
Omni shall share jointly in any decisions involved in connection
with settlements of tax disputes to the extent that items are
involved that affect the tax penalty, or interest liability or tax
attributes of HealthZone. Omni may not agree to settle such a
dispute without the consent of HealthZone unless Omni releases
HealthZone from its liability to pay its share of the disputed
amount hereunder. If HealthZone and Omni agree to pay the
assessment, each party shall pay its allocable share as recomputed
in accordance with Paragraph 1(a) and payment shall be in
accordance with Paragraphs 1(b) and 5 hereof. If both parties
agree to contest a tax matter, then the costs of contesting the
matter shall be borne 50 percent by each party. If only one party
requests the contest of a tax matter, the party requesting the
contest shall bear all expenses associated with such contest.
3. In determining the allocation of consolidated federal and state
income tax return deficiencies and refunds as a result of audits
of the Service or other taxing authority and judicial
determinations, if any, among Omni and HealthZone, the following
principles shall govern:
(a) The HealthZone Tax Liability for deficiencies for any year
for which consolidated federal and state income tax returns
including HealthZone and Omni were filed shall be the
excess, if any, of (i) the total amount that HealthZone
would have paid (after taking into account such
deficiencies) if HealthZone filed its own separate
consolidated federal and state income tax returns (the
"HealthZone Liability") over (ii) the amount actually paid
(or considered to have been paid through intercompany
account entries) by HealthZone to Omni on account of tax
liabilities. In the determination of the HealthZone
Liability, appropriate credits and charges shall be made
for payments made at any time by or to HealthZone pursuant
to this Agreement and consistent prior practices of the
consolidated group. Any refunds of tax, penalty, or
interest relating to adjustments other than the carryback
of net operating losses, capital losses, or tax credits
shall be allocated in accordance with the Tax Sharing
Agreement.
(b) Payments to reflect the provisions of Subparagraph (a) of
this Paragraph 3 shall be made in accordance with the
provisions of Paragraph 5 hereof.
4. (a) Omni will permit HealthZone, or the designated
representative of HealthZone, upon at least three (3)
business days prior written notice, to have full access
during normal business hours from time to time, after the
Closing Date, to all relevant tax returns and supporting
papers therefor of
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Omni, in respect of periods ending on or before the
Closing Date, wherever located, and furnish, and request
that the independent accountants of Omni furnish to
HealthZone such additional tax and other information and
documents with respect to consolidated federal and state
income tax returns filed in respect of periods ending on or
before the Closing Date, as HealthZone or any of its
subsidiaries may from time to time reasonably request.
(b) Omni shall prepare the consolidated returns for the 1999
Tax Year and the Spin-Off Tax Year. HealthZone will, on or
prior to February 15, 2000, with respect to the 1999 Tax
Year and February 15 of the calendar year immediately
succeeding the Spin-Off Tax Year, furnish to Omni all
information and documentation necessary or useful in the
preparation of the consolidated federal and state income
tax returns for the Omni Group for the 1999 Tax Year and
the Spin-Off Tax Year, permit Omni, upon at least three (3)
business days prior written notice, to have full access
during normal business hours and from time to time, after
the Closing Date, to all tax returns and supporting papers
therefor of HealthZone, wherever located, and furnish, and
request the independent accountants of HealthZone to
furnish, to Omni such additional tax and other information
and documents in HealthZone's possession with respect to
consolidated federal and state income tax returns filed in
respect of periods including or ending before the Closing
Date as Omni may from time to time reasonably request.
HealthZone pledges its full cooperation in connection with
the preparation of the consolidated federal and state
income tax returns of the Omni Group for the 1999 Tax Year
and the Spin-Off Tax Year.
5. With respect to all consolidated federal and state income tax
returns filed by the Group:
(a) Omni will assist in filing for and obtaining federal and
state income tax refunds on behalf of HealthZone for any
tax year during which it was a member of the Omni Group as
a result of the carryback of losses or credits of
HealthZone from any tax years thereof commencing after the
Closing Date.
(b) HealthZone shall indemnify and hold harmless Omni on an
after-tax cost basis, from and against any liability, cost,
or expense, including, without limitation, any fine,
penalty, interest charge (restricted to interest in excess
of the rate established under Section 6621 of the Code and
interest that is in respect of the penalty portion of an
assessment), or accountants' or attorneys' fee, arising out
of fraudulent or negligently prepared in-
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formation, workpapers, documents, and other items used in
the preparation of, or presented in, any return, amended
return, or claim of refund filed for the Omni Group for the
1999 Tax Year and the Spin-Off Tax Year, and which
information, workpapers, documents, or other items
originated with and/or were prepared by HealthZone.
(c) HealthZone shall indemnify and hold harmless Omni on an
after-tax basis, from and against any liability, cost, or
expense incurred or paid by Omni in excess of its share
thereof, including any amount paid by Omni in connection
with an assessment by the Service or other taxing authority
under Paragraph 2.
6. HealthZone shall pay the amounts of tax deficiencies (and
penalties and interest, if any) allocated to it under Paragraph 2
(and for which it is obligated to make payment under Paragraph 2)
in federal or immediately available funds to such bank account as
shall be designated by Omni no later than the due date for the
payment of the tax being paid to or collected by the Service or
other taxing authority.
7. This Agreement shall be implemented pursuant to the following
rules:
(a) In calculating the HealthZoneTax Liability and the
HealthZone Liability for the 1999 Tax Year and the Spin-Off
Tax Year, all items shall be treated in a manner consistent
with the manner in which such items were reported in the
consolidated federal and state income tax returns filed or
to be filed by Omni and in accordance with the Tax Sharing
Agreement unless, as a result of a final determination by
the Service or other taxing authority or the courts
relating to such return, a different treatment is mandated.
(b) Any dispute hereunder shall be resolved by Xxxxxx Xxxxxxxx
or such other nationally recognized firm of independent
certified public accountants as shall be selected by Omni.
The decision of the accountants shall be final and binding
on Omni and HealthZone. Each party shall bear one half of
the costs of the accountants.
8. Notwithstanding any provision in this Agreement to the contrary,
in the event that the Service determines that the Spin-Off fails
to qualify as a tax-free distribution under Section 355 of the
Code, HealthZone shall pay to Omni the full amount of any taxes
(including penalties and interest) assessed against Omni as a
result of the failure of the Spin-Off to qualify for tax-free
treatment, and shall indemnify and reimburse Omni for any damages
required to be paid by Omni to any Omni
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shareholder or other third party as a result of the failure of
the Spin-Off to qualify as a tax-free distribution under Section
355 of the Code and for any expenses or fees (including legal
fees) paid in connection with any action commenced by a
shareholder or other third party with respect to the taxable
status of the Spin-Off. Omni shall not be required to institute
any administrative or judicial proceedings with respect to any
assessment of tax relating to the Spin-Off, but, at the written
request of HealthZone, and at HealthZone's expense, shall
undertake any administrative or judicial proceedings relating to
any such assessment as HealthZone shall request.
9. This Agreement and each of its provisions shall be binding upon
and inure to the benefit of the parties and their respective heirs
and successors. Nothing in this Agreement is intended or shall be
construed to give any person or entity other than the parties and
their respective heirs or successors any rights or remedies under
or by reason of this Agreement.
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10. All notices and other communications required or permitted under
this Agreement shall be in writing, shall be deemed delivered upon
receipt, and shall be delivered in person or by courier or sent by
certified or registered mail, return receipt requested, first
class, postage prepaid, to the parties at their respective
addresses set forth below, or as to any party at such other
address as shall be designated by such party in a written notice
to the other party complying as to delivery with the terms of this
Paragraph:
To HealthZone: 0000 Xxxxxxxx Xxx
Xxxxxx Xxxx, XX 00000
With a copy to: Xxxxx X. Xxxxxx, Esq.
Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP
Forty Eighth Floor
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
To Omni: 0000 Xxxxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Chairman of the Board
With a copy to: Xxxxx X. Xxxxxxxxxx, Esq.
Xxxxxxxxx Xxxxxxxx Xxxxx & Xxxxx LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
11. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Utah.
12. In any action brought to enforce or interpret this Agreement, the
prevailing party shall be entitled to recover from the
nonprevailing party all costs and expenses of maintaining such
action, including, without limitation, reasonable attorney fees
and expenses incurred before such action is commenced, before
trial, at trial, after trial, and on appeal, whether the action is
at law, in equity, or in a bankruptcy case or proceeding.
13. The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law.
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14. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which taken
together shall constitute but one and the same Agreement.
15. Xxxx Xxxxx hereby unconditionally guarantees payment of
HealthZone's obligations hereunder without set-off or counterclaim
in the event:
(a) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i)
liquidation, reorganization or other relief in respect of
HealthZone or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official
for HealthZone or for a substantial part of its assets,
and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be
entered; or
(b) HealthZone shall (i) voluntarily commence any proceeding or
file any petition seeking liquidation, reorganization or
other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (a) of this
Section 15, (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator,
conservator or similar official for itself or for a
substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any
action for the purpose of effecting any of the foregoing.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
XXXXXXXXXX.XXX
By: /s/ Xxxx Xxxxx
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Xxxx Xxxxx
Chief Executive Officer
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OMNI NUTRACEUTICALS, INC.
By: /s/ R. Xxxxxxx Xxxxxx
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Name: R. Xxxxxxx Xxxxxx
Title: Chairman
/s/ Xxxx Xxxxx
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Xxxx Xxxxx
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