EXHIBIT 10.15
S CORPORATION TAX ALLOCATION AND
INDEMNIFICATION AGREEMENT
This S Corporation Tax Allocation and Indemnification Agreement (this
"Agreement") is made by and between ACSYS, Inc., a Georgia corporation (the
"Company"), the shareholders of the Company listed on the signature page hereto
(each individually, a "Shareholder" and collectively, the "Shareholders"), and
the following wholly-owned subsidiaries of the Company: Xxxxx X. Xxxxxx &
Associates, Inc., DCCA Professional Temporaries, Inc., Infinity Enterprises,
Inc., Cama of Tampa, Inc., Xxxxx Xxxxxx Consulting Group, Inc., and AcSys
Resources, Inc. (each a "Subsidiary" and collectively, the "Subsidiaries"). The
term "ACSYS" shall mean the Company and the Subsidiaries.
WHEREAS, the Company is an S corporation, within the meaning of section
1361 of the Internal Revenue Code of 1986, as amended ("Code");
WHEREAS, each Subsidiary is a qualified subchapter S subsidiary, within
the meaning of section 1361(b)(3) of the Code;
WHEREAS, the Company and certain of the Shareholders intend to enter
into an underwriting agreement to sell common stock of the Company in an initial
public offering (the "Public Offering");
WHEREAS, the Shareholders are currently the only shareholders of the
Company and will continue to be so until the Closing; and
WHEREAS, in connection with the Public Offering, and in order to induce
the investment by the public in the Company, the Company and the Shareholders
desire to provide for an S corporation termination, tax allocation, distribution
and indemnification agreement in connection with tax periods prior to and
following the Termination Date (as defined below), as well as the termination of
ACSYS as an S corporation;
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of
which are hereby acknowledged, ACSYS and the Shareholders do hereby covenant and
agree as follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Closing" shall mean the closing and completion of the offering by the
Company of shares of its stock, as described in the Registration Statement on
Form S-1 (the "Registration Statement"), initially filed by the Company with the
Securities and Exchange Commission on October 22, 1997, as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"C Short Year" shall have the meaning set forth in section 1362(e)(1)(B)
of the Code.
"S corporation" shall have the meaning set forth in section 1361 of the
Code.
"S corporation Taxable Income" shall mean, for periods beginning on or
after the date ACSYS became an S corporation and ending with the S Short Year,
the sum of (i) ACSYS' items of separately stated income and gain (within the
meaning of section 1366(a)(1)(A) of the Code) reduced, to the extent applicable,
by ACSYS' separately stated items of deduction and loss (within the meaning of
section 1366(a)(1)(A) of the Code) and (ii) ACSYS' nonseparately computed net
income (within the meaning of section 1366(a)(1)(B) of the Code).
"S Short Year" shall have the meaning set forth in section 1362(e)(1)(A)
of the Code.
"Termination Date" shall mean the date on which ACSYS' status as an S
corporation is terminated by reason of revocation of the election for ACSYS to
be an S corporation pursuant to section 1362(d)(1) of the Code, which date shall
be not less than two days prior to the date of the Closing.
ARTICLE II
THE TERMINATION; TERMINATION DATE
2.1 Termination of S Corporation Status. The Company represents that it
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terminated its status as an S corporation pursuant to an election, as permitted
pursuant to section 1362(d)(1) of the Code, on the date of pricing of the shares
of common stock to be offered and sold in the Public Offering (the "Termination
Date").
2.2 Short Taxable Years. The parties acknowledge that the taxable year
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in which the S corporation status of ACSYS is terminated will be an S
Termination Year for tax purposes, as defined in section 1362(e)(4) of the Code.
Pursuant to section 1362(e)(1) of the Code, the S Termination Year of ACSYS
shall be divided into two short taxable years: an "S Short Year" and a "C Short
Year." As defined in section 1362(e)(1)(A) of the Code, the S Short Year shall
be that portion of ACSYS' S Termination Year ending on the day immediately
preceding the Termination Date. Pursuant to section 1362(e)(1)(B) of the Code,
that portion of the S Termination Year beginning on the Termination Date and
ending on the last day of the taxable year shall be the C Short Year of ACSYS.
ARTICLE III
ALLOCATION OF INCOME
ACSYS and the Shareholders agree that for federal tax purposes
(including for purposes of determining ACSYS' S corporation Taxable Income for
its fiscal year ending December 31, 1998) ACSYS shall allocate its items of
income, gain, loss, deduction and credit for its fiscal year ending December 31,
1998 between the S Short Year and the C Short Year in accordance with normal tax
accounting rules (the "closing of the books method"), as permitted by section
1362(e)(3) of the Code. ACSYS will make the election permitted by section
1362(e)(3) in a timely manner. The Shareholders agree to consent to such
election and to provide ACSYS with the statement of consent of all Shareholders
described in section 1.1362-6(a)(5) and section 1.1362-6(b) of the Treasury
Regulations. ACSYS and the Shareholders agree to make, and to provide such
information and obtain such
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consents as are necessary to make, any comparable election required under
applicable state and local income tax laws.
ARTICLE IV
TAXES
4.1 Liability for Taxes Incurred During the S Short Year and for Tax
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Periods Ending Prior to the Termination Date. The Shareholders, severally,
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represent, covenant and agree that: (i) the Shareholders have duly included, or
will duly include, in their own federal income tax returns (and in their state
and local income tax returns, as permitted by applicable law) all items of
income, gain, loss, deduction, or credit attributable to the S Short Year of
ACSYS or to any prior period (or that portion of any period) during which ACSYS
was an S corporation as required by applicable law; (ii) such returns have
included and shall include their allocable share of S corporation Taxable Income
of ACSYS from all sources through and including the close of business on the
last day of the S Short Year of ACSYS; and (iii) the Shareholders have timely
paid and shall timely pay any and all taxes they are required to pay, as a
result of being a shareholder of ACSYS, for all taxable periods (or that portion
of any period) during which ACSYS was an S corporation.
4.2 Shareholder Indemnification for Tax Liabilities. The Shareholders,
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severally (according to the percentage of the outstanding shares of the
Company's common stock owned by each Shareholder on the last day of any
applicable period to which a liability described below relates) hereby indemnify
and hold ACSYS harmless from, against and in respect of any federal, state and
local income tax liabilities of ACSYS, including interest and penalties imposed
thereon (i) which are attributable to any taxable period (or portion thereof)
ending on or prior to the Termination Date, or (ii) which are incurred by ACSYS
as a result of a final determination of an adjustment (by reason of an amended
return, claim for refund, audit, judicial decision or otherwise) to the taxable
income of the Shareholders for any period (including, without limitation, the S
Short Year) which (in the case of this clause (ii)) results in a decrease for
any period in the Shareholders' taxable income and a corresponding increase for
any period in the taxable income of ACSYS.
4.3 ACSYS' Indemnification for Tax Liabilities. ACSYS hereby
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indemnifies and agrees to hold the Shareholders harmless from, against and in
respect of federal, state and local income tax liabilities, including interest
and penalties imposed thereon, if any, incurred by the Shareholders as a result
of a final determination of an adjustment (by reasons of an amended return,
claim for refund, audit, judicial decision or otherwise) to the taxable income
of ACSYS for any period which results in a decrease for any period beginning
after the Termination Date in ACSYS' taxable income and a corresponding increase
for any period ending on or prior to the Termination Date in the taxable income
of the Shareholders.
4.4 Payments. The Shareholders or ACSYS, as the case may be, shall make
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any payment required under Section 4.2 or Section 4.3 of this Agreement within
14 days after receipt of notice from the other party that a final determination
has occurred and a payment is due by such party to the appropriate taxing
authority.
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4.5 Refunds. If ACSYS receives a refund of any income tax (including
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penalties and interest) as to which it has previously been indemnified by the
Shareholders, it shall pay an amount equal to such refund, within 14 days after
receipt thereof, to the Shareholders in accordance with the percentage of the
outstanding shares of ACSYS common stock owned by each such Shareholder on the
last day of any applicable period to which the refund relates. If the
Shareholders receive a refund of any income tax (including penalties and
interest) as to which they have previously been indemnified by ACSYS, they
shall, within 14 days after receipt thereof, remit an amount equal to such
refund to ACSYS.
4.6 Notice and Control of Proceedings. Each of ACSYS and the
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Shareholders agrees that (i) within 10 days of receiving written notice of any
income tax examinations, claims, settlements, proposed adjustments or related
matters that may affect in any way the income tax liability of a party under
this Agreement, such person shall provide written notice thereof to such other
party, and (ii) the party or parties who would be responsible for the payment of
the applicable taxes if the matter in question were to be resolved adversely
shall be entitled, in his or its reasonable discretion and at his or its sole
expense, to handle, control and compromise or settle the defense thereof, so
long as such party or parties are acting diligently and in good faith. Such
party or parties shall keep the other party(ies) apprised of the status thereof
and shall consult with such other party(ies) concerning the conduct of the
defense thereof. Notwithstanding the foregoing, however, the party handling such
matters shall not compromise or settle any matter which could adversely affect
the tax liability of another party without such other party's prior written
consent, which shall not be unreasonably withheld. The parties hereto shall
execute all instruments required to effectuate the provisions of this Section
4.6.
4.7 Cooperation. The parties will make available to one another, as
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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 any such information, records or documents until the expiration of the
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.
4.8 Costs. Except as otherwise provided herein, each party shall bear
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his or its own costs in administering this Agreement.
ARTICLE V
TAX DISTRIBUTIONS
5.1 Disproportionate Tax Liability. ACSYS and the Shareholders
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acknowledge that Shareholders became Shareholders at different times during 1997
due to the timing of the Company's various 1997 acquisitions, and that the
Shareholders' individual tax liabilities for 1997 are accordingly not
proportionate to the percentage of the outstanding shares of ACSYS common stock
owned by each such Shareholder on the last day of 1997 and on the Termination
Date.
5.2 Calculation and Payment of Tax Distributions. ACSYS and the
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Shareholders acknowledge and agree that each of them understood, as a condition
of the Public Offering and as described in the Registration Statement, that
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ACSYS would distribute to each Shareholder an amount which approximates such
Shareholder's unpaid federal, state and local taxes such Shareholder will be
required to pay, as a result of being a shareholder of ACSYS, for all taxable
periods (or that portion of any period) during which ACSYS was an S corporation
(the "Distributions"). ACSYS and the Shareholders further acknowledge and agree
that ACSYS shall calculate and pay the Distributions in the following manner:
ACSYS shall first allocate ACSYS' S corporation Taxable Income to each
Shareholder for the S Short Year and all applicable prior periods as prescribed
by section 1377(a)(1) of the Code. Pursuant to section 1377(a)(1) of the Code,
each Shareholder will take into account that Shareholder's "pro rata share" of
corporate items. Section 1377(a)(1) of the Code defines a "pro rata share" as
determined (i) by dividing an item into equal portions for each day in the
taxable year and (ii) by dividing each day's portion among the shares
outstanding on that day. ACSYS shall then determine the amount of the
Distribution for each Shareholder by multiplying (x) the amount of ACSYS' S
corporation Taxable Income allocated to each Shareholder for the S Short Year
and all applicable prior periods, by (y) forty-four percent (44%), which the
Shareholders agree fairly approximates the marginal federal, state and local
income tax rate that will apply to the portion of ACSYS' S corporation Taxable
Income that will be allocated to each Shareholder. ACSYS shall pay the
Distributions to the Shareholders not later than April 1, 1998. The parties
hereto intend that this provision comply with the requirements of section
1.1361-1(1)(2)(iv) of the Treasury Regulations, and this provision shall be
interpreted consistently therewith.
ARTICLE IV
MISCELLANEOUS
6.1 Counterparts. This Agreement may be executed in counterparts, each
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of which shall be deemed an original, but all of which counterparts collectively
shall constitute an instrument representing the Agreement between the parties
hereto.
6.2 Construction of Terms. Nothing herein expressed or implied is
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intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors, any
rights or remedies under or by reason of this Agreement.
6.3 Intent of Parties. It is the parties' intent that the liability for
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income taxes arising from the operations of ACSYS will be borne by the
Shareholders for the period through and including the S Short Year and by ACSYS
for periods beginning with the C Short Year, and this Agreement shall be
construed so as most equitably to achieve such intent.
6.4 Governing Law. This Agreement between the parties hereto shall be
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governed by and construed in accordance with the substantive laws of the State
of Georgia without regard to its choice of law rules.
6.5 Severability. In the event that any one or more of the provisions
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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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Termination Date.
ACSYS, Inc.
By:_____________________________________
Name:
Title:
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SIGNATURE PAGE TO
S CORPORATION TAX ALLOCATION AND
INDEMNIFICATION AGREEMENT
Xxxxx X. Xxxxxx & Associates, Inc. Cama of Tampa, Inc.
By:_________________________________ By:_________________________________
Name: Name:
Title: Title:
DCCA Professional Temporaries, Inc. Xxxxx Xxxxxx Consulting Group, Inc.
By:_________________________________ By:_________________________________
Name: Name:
Title: Title:
Infinity Enterprises, Inc. Acsys Resources, Inc.
By:_________________________________ By:_________________________________
Name: Name:
Title: Title:
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SIGNATURE PAGE TO
S CORPORATION TAX ALLOCATION AND
INDEMNIFICATION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Termination Date.
Shareholder:
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Signature
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Printed Name
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