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EXHIBIT 10.5
FORM OF TAX INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of _______,
1996, by and among SKYMALL, INC., a Nevada corporation (the "Company"), and
Xxxxxx X. and Xxxxxxx X. Xxxxxxx, Xxxx X. and Xxxxx Xxxxxx, Xxxx X. Xxxx,
Xxxxxxx and Xxxx X'Xxxxx, Fairfax Cone X'Xxxxx, Xxxxx X. X'Xxxxx, Xxxxx X.
X'Xxxxx, Xxxxx X. X'Xxxxx and Xxxxxxxx X. X'Xxxxx (the "Stockholders") to become
effective as of the Termination Date (as defined below).
RECITALS
For the period commencing on November 16, 1989 through the Termination
Date (the "S Corporation Period"), the Company was subject to an election to be
taxed as an "S" corporation under Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), and under similar provisions of state income tax
laws. During the S Corporation Period, the Company did not incur any material
income tax liability for federal and state income taxes and the Company's items
of income, loss and deductions were passed through to the Stockholders in
varying percentages, depending upon the respective periods that they owned the
shares of the Common Stock of the Company during the S Corporation Period. The
Stockholders included such items on their respective income tax returns. The
Company's election to be taxed as an S Corporation for federal and state income
tax purposes will terminate in connection with a private placement and sale of
shares of the Common Stock of the Company (the "Termination Date"). Accordingly,
the parties desire to set forth their agreement with respect to certain income
taxes which may be imposed upon one or more of the Stockholders or the Company
after the Termination Date as a result of the conduct of the Company's business
during the S Corporation Period.
IT IS, THEREFORE, AGREED:
1. Indemnification. In the event any governmental taxing authority,
including, without limitation, the Internal Revenue Service, the Arizona
Department of Revenue or any other state taxing authority (a "Taxing
Authority"), adjusts, for any reason whatsoever, a Stockholder's taxable income
or loss, tax credits or recapture of tax credits on account of any of the
activities of the Company during the S Corporation Period (an "Adjustment"), the
Company shall pay, on demand, to such Stockholder from time to time an amount
which equals the sum of (a) the additional federal and state income taxes
actually paid by the Stockholder as a result of the Adjustment, as certified by
the Stockholder in writing, including the aggregate amount of any interest,
penalties or additions to tax paid by the Stockholder as a result of such
Adjustment, plus (b) the aggregate amount of all expenses, including reasonable
attorneys' fees and accountants' fees, incurred by the Stockholder in connection
with or as a result of the Adjustment, including the total amount of any such
expenses or fees incurred in connection with the enforcement of this Agreement,
plus (c) an amount, computed using the highest generally applicable marginal
federal and state income tax rates applicable to individuals, which will provide
the Stockholder, as reasonably determined by the Company, with an after tax
payment equal to the sum of the amounts described in Sections l(a) and (b)
above. For purposes of this Agreement, an "Adjustment" does not include any
increase or decrease in a Stockholder's taxable income or loss as a result of
the purchase or sale by the Stockholder of any shares of the Common Stock of the
Corporation.
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2. Tax Contest; No Settlement. The Company may, at its own expense,
upon written notice to a Stockholder, require such Stockholder to contest any
Adjustment proposed by a Taxing Authority, and the Stockholders shall, at the
Company's expense, contest the proposed Adjustment or permit the Company and its
representatives, at the Company's request and expense, to contest the proposed
Adjustment (including pursuing all remaining administrative and judicial
appeals). The Stockholders shall fully cooperate with the Company in any such
contest. The Company shall pay to the Stockholders on demand all costs, damages
and expenses (including, without limitation, reasonable attorneys' and
accountants' fees) arising or resulting from or in connection with contesting
the proposed Adjustment. A Stockholder shall not make, accept or enter into a
settlement or other compromise with respect to any Adjustment, or forego or
terminate any proceeding otherwise required hereunder, without the consent of
the Company, which shall not be unreasonably withheld.
3. Repayment to Company. Notwithstanding anything to the contrary
contained herein, in the event a Stockholder receives a refund resulting from an
Adjustment from any Taxing Authority with respect to any of the activities of
the Company during the S Corporation Period, the Stockholder shall promptly
deliver such refund to the Company, including any portion of such refund
representing interest.
4. Miscellaneous.
(a) Survival. The covenants and agreements of the parties set
forth in this Agreement shall survive indefinitely.
(b) Notices. All notices, requests, demands and other
communications which are required or which may be given under this Agreement
shall be in writing.
(c) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, oral and written, between
the parties hereto with respect to the subject matter hereof.
(d) Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns.
(e) Amendments. No provision of this Agreement may be amended,
waived or otherwise modified without the prior written consent of each of the
parties hereto.
(f) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Arizona, without
reference to the principles of conflicts of law.
(g) Counterparts. This Agreement may be executed by any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
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IN WITNESS WHEREOF, this Tax Indemnification Agreement has been duly
executed as of the day and year first above written.
SKYMALL, INC.,
a Nevada corporation
By:____________________________
Its:________________________
_______________________________
Xxxxxx X. Xxxxxxx
_______________________________
Xxxxxxx X. Xxxxxxx
_______________________________
Xxxx X. Xxxxxx
_______________________________
Xxxxx Xxxxxx
_______________________________
Xxxx X. Xxxx
_______________________________
Xxxxxxx X'Xxxxx
_______________________________
Xxxx X'Xxxxx
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_______________________________
Fairfax Cone X'Xxxxx
_______________________________
Xxxxx X. X'Xxxxx
_______________________________
Xxxxx X. X'Xxxxx
_______________________________
Xxxxx X. X'Xxxxx
_______________________________
Xxxxxxxx X. X'Xxxxx
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