INDEMNITY AGREEMENT
This Indemnity Agreement dated April 13, 2007 among SCIENTIFIC
INDUSTRIES, INC., a Delaware corporation (the "Company"), ALTAMIRA
INSTRUMENTS, INC., a Delaware corporation ("Altamira") and XXXXX X.
XXXXX ("Xxxxx"), XXXXXXX X. XXXXXX ("Xxxxxx") and XXXXXXX X. XXXXXXXX
(along with Xxxxx and Xxxxxx, the "Sellers").
WHEREAS, the Company and the Sellers having recently completed
the purchase by the Company from the Sellers and the sale by the Sellers
to the Company (the "Transaction") of the outstanding shares of capital
stock of Altamira (the "Shares") pursuant to a Stock Purchase Agreement,
dated as of November 30, 2006, for a consideration which included shares of
Common Stock of the Company, and;
WHEREAS, at the date of the Transaction Altamira was an "S
Corporation" as defined in section 1361(a)(1) of the Internal Revenue Code
of 1986 (the "Code"); and
WHEREAS, the Company intends and requests that the Transaction be
governed by section 338(h)(10) of the Internal Revenue Code (the "Code"), and;
WHEREAS, in consideration of the Sellers' cooperation and consent
to the filing of an election pursuant to section 338(h)(10) of the Code,
the Company and Altamira jointly and severally agree and undertake to
provide the indemnities to Sellers as provided in this Indemnity
Agreement;
WHEREAS, as a result of the Transaction, in the absence of the
Election the Sellers would each realize a long term capital gain on
the sale of the Shares in the amount of the difference between the sales
price for the Shares and the adjusted tax basis of the Shares in the
hands of each Seller.
WHEREAS, as a result of the Election, Altamira shall be deemed
to have sold its assets in a taxable transaction immediately prior to
the Transaction and shall realize a gain or loss in an amount equal to
the difference between the Asset Deemed Sales Price ("ADSP") as defined in
Treas. Reg Sec. 1.338-4 and the adjusted tax basis of Altamira's assets.
Such gain or loss will be reported to and realized by the Sellers in
respect of Altamira's final S Corporation US Return of Income, Form 1120S,
and any comparable state or local income tax return,
NOW THEREFORE, it is hereby agreed that:
1. Sellers will execute Form 8023, "Elections under Section 338
for Corporations Making Qualified Stock Purchases", attached hereto as
Exhibit A, and such other documents and papers as may be required by
the Code or the Internal Revenue Service (the "Service") providing for an
election (the "Election") pursuant to Section 338(h)(10) of the Code on
behalf of Sellers with respect to the Transaction. In furtherance of the
Election, the Sellers will deliver within five business days of the
delivery by the Company to the Sellers of the Forms K-1 the signed Form
8023 to the Company to be filed with the Internal Revenue Service ("IRS")
Form 8023.
2. (a) Parties to this Indemnity Agreement contemplate that the Sellers
will incur certain additional taxes and professional fees (hereinafter
"Adverse Consequences") as a result of the filing of Form 8023 with respect
to the Transaction. In consideration of the Sellers' undertaking
to execute Form 8023 with respect to the Transaction, the Company and
Altamira will indemnify, defend and hold harmless each of the Sellers,
their successors, heirs or assigns (the "Indemnified Parties"), for any
Adverse Consequences. For purposes of this Indemnity Agreement
"Adverse Consequences" shall include but shall not be limited to any and all
additional federal, state and local tax liabilities, penalties, interest and
tax administrative expenses in the form of tax return preparation and audit
fees related to audit and adjustment by federal, state or local tax
authorities including but not limited to any Adverse Consequences
incurred by the Indemnified Parties that would otherwise not have been
incurred by the Indemnified Parties had the Buyer purchased the stock of
Altamira pursuant to the Stock Purchase Agreement without the filing of a
Section 338(h)(10) Election. It is the intention of the parties to this
Agreement to broadly construe the scope of any Adverse Consequences which
may arise on account of the filing of the Election to include, by way of
example but not of limitation, any tax which the Indemnified Parties may
incur on account of having received a reimbursement from the Company of
an incremental tax liability as a result of the Election.
(b) The amount of tax which is included in the Adverse Consequences
to be indemnified pursuant to this Indemnity Agreement shall be calculated
and presented to the Company by accountants for the Sellers. Independent
Certified Public Accountants for the Company ("Company's Accountants") may
make inquiry of independent accountants for the Sellers and be provided by
the independent accountants for the Sellers the basis by which such Adverse
Consequences are calculated. However, the underlying tax data shall remain
the confidential information of each Seller and shall not be subject to
disclosure by Company, its officers, employees and agents. In the event of
any dispute as to the accuracy of the calculation of the Adverse
Consequences such dispute will be resolved, at the Company's expense, by a
national firm of Certified Public Accountants mutually agreeable to the
Company and Sellers, the determination by which will be conclusive and
not subject to further review.
c) The undertaking of indemnification is intended by the Parties,
and shall be interpreted, to cause Buyer to indemnify and hold harmless
the Sellers for any Adverse Consequences arising out of the applicability
of section 338(h)(10) or any comparable state taxing statute to be applicable
to the Transaction compared to a sale of the Shares as contemplated by the
Stock Purchase Agreement had no Election been filed.
(d) Altamira shall deliver on or prior to June 15, 2007 to each Seller
a Form K-1 (and any comparable state or local information report) setting
forth the amount and form of Seller's income and gain after giving effect
to the Election.
(e) Regardless of whether the Form 8023 is executed by Sellers, the
Company shall cause Altamira to pay directly all fees of legal and accounting
professionals incurred by the Sellers to assist in preparation or review of
this Indemnity Agreement. Upon the execution of the Form 8023 by Sellers,
the Company shall pay directly the additional fees for the preparation and
filing of all personal income tax returns and documents related to the
Election under the applicable tax laws and regulations, such payment to be
made within five (5) business days of delivery to the Company of the
related invoice(s) setting forth in reasonable detail such fees and costs.
In recognition that the calculation of the amount of Adverse Consequences
and the preparation of this Agreement is for the sole benefit of the
Company, such payment of the professional legal or accounting services
incurred in the implementation of this Agreement on behalf of the Sellers
will be treated as costs of the Transaction incurred on behalf of
and for the benefit of the Purchaser and will not be reported as income
to Sellers.
(f) If any payment made pursuant to this Agreement is ever deemed
additional proceeds from the sale of any Seller's shares or income to any
Seller under any other Internal Revenue Service determination ("Additional
Proceeds/Income") under applicable income tax laws and is required to be
recognized as income in any Seller's income tax return for the year ended
December 31, 2007 or any other year, the Company shall pay to such Seller or
Sellers an amount, to be mutually determined by the Seller and the Company,
but not less than the amount of taxes applicable to the gross amount of the
Seller's Additional Proceeds/Income. Such payment shall be made within 30
days following delivery to the Company by or on behalf of the Sellers of the
calculation of the tax applicable to the Additional
Proceeds/Income.
(g) Indemnification payments for Adverse Consequences pursuant to this
Agreement shall be reimbursed to each Seller within five business days from
receipt of the calculations of such amounts from accountants for the Sellers.
In the event of any dispute regarding the calculation of Adverse Consequences,
any positive or negative adjustment to the amounts previously reimbursed
pursuant to this paragraph shall be paid by the party charged with the
adjustment within five business days of receipt of the report of the
determination made by the national firm of Certified Public Accountants
selected pursuant to Section 2(b) to resolve such dispute.
3. This Agreement shall be governed and controlled by the internal laws
of the state of New York without reference to the conflicts of law provisions.
4. This Agreement may be executed in any number of counterparts and may be
executed by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute one agreement.
SCIENTIFIC INDUSTRIES INC.
By:/s/Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: President
________________________________
ALTAMIRA INSTRUMENTS, INC.
By:/s/Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: President
________________________________
SELLERS:
/s/Xxxxx X. Xxxxx
_________________
Xxxxx X. Xxxxx
/s/Xxxxxxx X. Xxxxxx
____________________
Xxxxxxx X. Xxxxxx
/s/Xxxxxxx X. Xxxxxxxx
______________________
Xxxxxxx X. Xxxxxxxx
_____________________________________________________________________________
June 14, 2007
Xxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxxxx
Subject: Extension of Agreement Date from June 15, 2007 to July 31, 2007
Dear Xxxxx, Xxxxxxx and Xxxxxxx:
This will confirm an amendment tot he Indemnity Agreement dated
April 13, 2007 between you, Scientific Industries, Inc., and Altamira
Instruments Inc. (the "Agreement"), solely to change the date of
June 15, 2007 set forth in Section 2(d) to July 31, 2007.
Please confirm your agreement with this amendment by signing at the
place indicated below and returning to the Company (i.e. Scientific
Industries, Inc.)
a copy of this letter.
SCIENTIFIC INDUSTRIES INC.
By:/s/Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: President
________________________________
ALTAMIRA INSTRUMENTS, INC.
By:/s/Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: President
________________________________
AGREED:
/s/Xxxxx X. Xxxxx
_________________
Xxxxx X. Xxxxx
/s/Xxxxxxx X. Xxxxxx
____________________
Xxxxxxx X. Xxxxxx
/s/Xxxxxxx X. Xxxxxxxx
______________________
Xxxxxxx X. Xxxxxxxx
