Exhibit 10.19
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT is entered into as of March 29, 2000
(the "EFFECTIVE DATE") between THE TITAN CORPORATION, a Delaware corporation
("TITAN"), its Affiliates, and CAYENTA, INC., a Delaware corporation
("CAYENTA").
WITNESSETH:
WHEREAS, Titan is the common parent of an affiliated group of
corporations which includes Cayenta and its subsidiaries (the "TITAN GROUP");
WHEREAS, the Titan Group currently files a consolidated federal income
tax return and desires to continue to file a consolidated federal income tax
return and consolidated or combined income tax returns where allowed by law; and
WHEREAS, the Titan Group desires to preserve the economic rights and
privileges which would accrue to each from the filing of separate federal and
state income tax returns and, further, desire to set forth their agreement
regarding those rights and privileges in writing.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, Titan, its Affiliates, and Cayenta hereby agree as follows:
1. DEFINITIONS
1.1 AFFILIATE OR AFFILIATES. "Affiliate" or "Affiliates" shall mean any
other corporation, whether presently existing or hereafter acquired, which is a
member of the Titan Consolidated Group within the meaning of Section 1504(a) of
the Internal Revenue Code. The term "Affiliate" or "Affiliates" shall not
include Cayenta or any of its subsidiaries, whether presently existing or
hereafter acquired.
1.2 CARRYFORWARDS. The term "Carryforwards" shall mean any net
operating loss, capital loss, tax credit or similar item carried forward from
prior consolidated return tax years.
1.3 CODE OR INTERNAL REVENUE CODE. "Internal Revenue Code" or "Code"
shall mean the Internal Revenue Code of 1986, as amended.
1.4 DEFICIT COMPANY. The term "Deficit Company" shall mean any of the
corporations within the Titan Consolidated Group that has an ordinary loss,
capital loss, special deduction or tax credit arising in a consolidated return
tax year, or in a prior separate return year, that is utilized to a greater
extent in the then current consolidated federal income tax return than would
have been the case if such corporation had filed a separate federal income tax
return for the year.
1.5 EFFECTIVE DATE. "Effective Date" is as defined immediately prior to
the Recitals at the beginning of this Agreement.
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1.6 FINAL DETERMINATION. "Final Determination" shall mean the later to
occur of: (i) a decision of the United States Tax Court, or a judgment, decree,
or other order by another court of competent jurisdiction, which has become
final and unappealable; (ii) a closing agreement under Section 7121 of the Code;
or (iii) any other final disposition by reason of an agreement between the
affected party or parties and the appropriate tax authority, the expiration of
the applicable statute of limitations, or otherwise.
1.7 INTEREST RATE. "Interest Rate" shall mean the interest rate charged
by the Internal Revenue Service or other tax authority on underpayments of
federal or other tax.
1.8 TAX OR TAXES. "Tax" or "Taxes" shall mean all federal or state net
income and alternative or add on minimum taxes together with any interest,
penalties, additions to tax or additional amounts imposed thereon or imposed
with respect to any such interest, penalties, additions to tax or other
additional amounts.
1.9 TAX AUTHORITIES. "Tax Authorities" shall mean the Internal Revenue
Service and the tax authority in each jurisdiction where Cayenta would be
required to pay Taxes if it were a separate company and were not a member of the
Titan Group.
1.10 TAX BENEFIT ITEM. The term "Tax Benefit Item" shall mean any net
operating loss, capital loss, tax credit, carryforward or similar item generated
in a consolidated return tax year, or in a prior separate return tax year, that
is utilized in the current consolidated income tax return.
1.11 TAX YEAR. "Tax Year" shall mean any 12 month period ending on
December 31 or any portion of such period for which a return for Taxes is
required to be filed.
1.12 TITAN CONSOLIDATED GROUP OR TITAN GROUP. The term "Titan
Consolidated Group" or "Titan Group" shall mean the group of corporations,
including Cayenta and its subsidiaries, whether currently existing or hereafter
acquired, of which Titan is common parent and with which Titan files a
consolidated federal income tax return.
2. TAX RETURNS
2.1 FEDERAL TAX RETURNS. Titan as the common parent shall prepare and
file, or cause to be prepared and filed, federal income tax returns on a
consolidated basis for the Titan Consolidated Group for all tax years in which
this Agreement is in effect.
2.2 STATE TAX RETURNS. Titan as the common parent shall prepare and
file, or cause to be prepared and filed, state income tax returns on a combined,
consolidated, unitary, or other method that Titan believes will result in a
lower overall tax liability to the Parties.
2.3 ELECTIONS. Titan shall make all elections under the consolidated
return regulations or required to be made for the Titan Consolidated Group and
shall approve all elections made with respect to each member of the Titan Group.
2.
2.4 TAX ALLOCATIONS. Cayenta shall pay to the applicable Tax
Authorities directly all amounts sufficient to pay for their respective
allocable share of federal and state tax income liabilities as calculated in
accordance with the provisions of Sections 3 and 4 of this Agreement, including
without limitation amounts satisfying quarterly estimated tax liabilities, as
well as annual liabilities.
3. CALCULATION OF INDIVIDUAL CORPORATE INCOME TAX LIABILITY
3.1 CALCULATION OF SEPARATE TAX LIABILITY. Except as otherwise provided
herein, beginning with the tax year ended December 31, 2000, and for each
subsequent tax year in which this Agreement is in effect, Cayenta shall
calculate its federal corporate income tax liability as if it were to file a
separate federal income tax return for such period. Any liability for
alternative minimum tax shall be treated as part of Cayenta's separate tax
liability.
3.2 METHOD OF CALCULATION. In so computing the separate federal income
tax liability of Cayenta:
(a) Except as otherwise provided herein, "separate company taxable
income" shall be determined as if Titan and each member of the Titan Group were
filing a separate tax return. Furthermore, the term shall not have the same
meaning as set forth in Regulation Section 1.1502-12;
(b) Any dividends received by Titan from Titan Group members, or by
one member from another, will be assumed to qualify for the 100% dividend
received deduction of Code Section 243, or shall be eliminated from such
calculation in accordance with Regulation Section 1.1502-14(a)(1);
(c) Gain or loss on intercompany transactions shall be calculated
without regard to Regulation Section 1.1502-13;
(d) Limitation on the calculation of a deduction, the utilization
of credits, or the calculation of the liability shall be made on a consolidated
basis as determined by Titan. Accordingly, the limitations provided in Code
Sections 170(b)(2), 172(b)(2), 38(c), and 53(a) and similar limitations shall be
applied on the consolidated basis;
(e) The amounts in each taxable income bracket in Code Section
11(b) shall be allocated in any given year to members of the Titan Group as
Titan shall elect. Such election shall be made on an annual basis and shall be
binding upon all parties to this Agreement;
(f) The amount of any excess tax credits utilized by the Titan
Group on a consolidated basis shall be allocated in any given year to the
members of the Titan Group as determined by Titan. (Excess tax credits are the
total tax credits utilized on a consolidated basis that would not have been
utilized on a separate company basis.); and
(g) In calculating any carryback or carryover of net operating
losses, adjustments shall be made to such prior or subsequent tax year's
separate company tax liability
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as determined under Code Section 172(b)(2). For purposes of this calculation the
election under Code Section 172(b)(3) (relating to the waiver of carrybacks)
shall be made on a separate company basis.
3.3 SEPARATE COMPANY TAXABLE INCOME. For purposes of Section 3.2(a)
above, separate company taxable income of each member of the Titan Group shall
take into account only those items of income, deduction, gain, loss and
Carryforwards recorded on the books and records of such member.
4. LIABILITY FOR TAX PAYMENTS.
4.1 FEDERAL TAX LIABILITIES. Titan shall file the federal corporate
income tax returns of the Titan Group for any tax year in which the Titan Group
files consolidated federal and state income tax returns.
4.2 PAYMENTS TO DEFICIT COMPANY. If in any tax year a member of the
Titan Group incurs a loss or generates tax credits or similar tax benefits (a
"tax benefit item"), Titan shall pay to the member ("Deficit Company") a sum
equal to the amount of benefit realized by Titan that is attributable to the tax
benefit item; payments due from Titan under this Section shall be made upon the
earlier of (1) the tax year in which the Deficit Company would have obtained a
tax benefit from the tax benefit item if it had in all tax years filed a
separate federal income tax return or (2) the year in which any applicable
carryforward period with respect to the tax benefit item expires.
4.3 INABILITY OF TITAN GROUP TO USE TAX BENEFIT ITEM. In the event that
the Titan Consolidated Group is unable to utilize the tax benefit item to reduce
its current tax liability, the Deficit Company shall first offset this loss
against its prior two tax years' taxable income. If the loss is greater than the
prior two tax years' taxable income, then the excess will be carried forward
against future tax years' taxable income. The tax repayment from Titan to the
Deficit Company under this paragraph will be calculated on the amount of the
loss carried back to prior years, and no further tax will be payable by the
Deficit Company until the losses carried forward are fully utilized against
future tax years' income.
4.4 STATE TAX LIABILITIES. If Cayenta is found liable to pay any state
corporate tax with respect to income earned by Cayenta, Cayenta shall pay to the
applicable Tax Authorities the amount of its respective state corporate tax
liability but only if Cayenta would be required to file a return in the state on
a separate return basis.
5. TIME AND METHOD OF PAYMENT.
Except as otherwise provided herein, the obligations of each member of the Titan
Group for federal income tax payments will be determined and paid as follows:
5.1 Not later than the 15th day after the end of the fourth, sixth,
ninth and twelfth months of each consolidated tax year of Titan, Titan will make
a reasonable determination (consistent with the provisions of Section 6655 of
the Code) of the separate federal income tax
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liability that each member of the Titan Group would be required to pay as
estimated payments on a separate return basis for that period. Each member of
the applicable Titan Group shall pay to Titan the applicable Tax Authorities and
any interest and penalties associated with a late payment of any such taxes.
5.2 After the end of Titan's fourth accounting quarter and before the
15th day of the third month thereafter, each member of the Titan Group will
promptly pay to the applicable Tax Authorities the entire amounts estimated to
be due and payable under such member's federal income tax return as if filed on
a separate return basis, less all amounts previously paid with respect to that
tax year pursuant to Section 5.1 of this Section 5.
5.3 If upon the filing of the consolidated income tax return, a revised
calculation is made in the manner set forth in Section 5.1 of this Section 5,
and it is determined that any member has paid to the Tax Authorities with
respect to the consolidated taxable year an amount greater than that required by
Section 5.1, then that excess will be promptly paid by Titan to that member.
6. ADJUSTMENTS & FINANCIAL REPORTING
6.1 ADJUSTMENTS OF TAX LIABILITY. In the event of any adjustment of the
tax liability shown on the federal or state income tax returns of the Titan
Group, by reason of the filing of an amended return or claim for refund, or
relating to the Final Determination of a tax controversy involving a taxing
authority, the liability of Titan and any member of the Titan Group hereunder
shall be redetermined after fully giving effect to such adjustment as if such
adjustment had been made as part of the original computation. Titan and members
of the Titan Group shall be severally liable for the total amount of any and all
penalties and/or interest assessed to Titan by reason of the filing of the
consolidated return based on the pro rata share of each members' positive
separate return tax liability of the total tax liability of the Titan
Consolidated Group.
6.2 EARNINGS AND PROFITS ADJUSTMENTS. This agreement is not intended to
establish the method by which the earnings and profits of each member of the
Titan Group will be determined. Titan reserves the right to elect the method for
allocating tax liability for the purposes of determining earnings and profits as
set forth in Regulation Sections 1.1552-1 (a) and 1.1502-33(d).
7. NEW MEMBERS
7.1 ADDITION OF MEMBER. If, at any time, any other corporation becomes
a member of the Titan Group, the parties hereto agree that such member may
become a party to this Agreement by executing a duplicate copy of this
Agreement. Unless otherwise specified, such named member shall have all the
rights and obligations of a subsidiary under this Agreement.
7.2 FISCAL YEARS. Titan, as the common parent, shall cause any
corporation which hereinafter becomes a member of the Titan Consolidated Group
to maintain concurrent fiscal tax years.
5.
8. DETERMINATION OF SUMS DUE FROM AND PAYABLE TO MEMBERS.
8.1 DETERMINATION. Titan will determine the sums due from and payable
to each member of the Titan Group under the provisions of this Agreement. Each
member of the Titan Group shall provide Titan with such information as may
reasonably be necessary to make these determinations. Issues arising in the
course of the determinations that are not expressly provided for in this
Agreement will be resolved in a manner provided for in Section 8.2 of this
Article 8.
8.2 ARBITRATION OF CONTESTED ISSUES. In the event that either Titan or
another member of the Titan Group disputes the calculation of any obligation
under this Agreement or the treatment for tax purposes of any item of income,
loss, deduction, credit or other tax attribute and cannot agree upon the proper
calculation or treatment, then such item of disagreement shall be referred
promptly to Xxxxxx Xxxxxxxx LLP or, in the event such firm is unacceptable to
either party, to some other public accounting firm reasonably acceptable to both
the disputing member and Titan. In the event the parties are unable to select an
accounting firm to act as arbitrator, the American Arbitration Association shall
select a national public accounting firm to act as arbitrator pursuant to this
Agreement. The arbitration shall proceed in accordance with the Rules of the
American Arbitration Association in effect on the date the demand for
arbitration is served except to the extent such rules relate to the selection of
arbitrators. The foregoing agreement to arbitrate shall be specifically
enforceable under applicable arbitration law. During the arbitration each party
shall bear its own attorneys' fees and pay one half of any fees due the
arbitrator except that as part of a final award the arbitrator may award
reasonable fees and costs. The award rendered by the arbitrator shall be final,
and judgment may be entered upon it in accordance with the applicable law in any
court having jurisdiction thereof. The parties may agree to defer unresolved
claims, disputes and other issues to arbitration at a later time to be mutually
agreed upon.
9. DEPARTING MEMBERS
9.1 DEFINITION. The term "Departing Members", as used herein, will mean
a member of the Titan Group that is no longer permitted under the Code to be
included in the consolidated federal income tax return.
9.2 TAX ALLOCATIONS. In applying this Agreement to a Departing Member
for the final taxable year in which its income, deductions, and tax credits are
required to be included in the consolidated federal income tax return: (i) the
amount required to be paid by a Departing Member under the provisions of Section
3 hereof and(ii) the amount that the Departing Member is entitled to receive
under the provisions of Section 5 hereof, will be determined by taking into
account the income, deductions and tax credits of the Departing Member only for
the fractional part of such tax year as the Departing Member was a member of the
Titan Group and included in the consolidated federal income tax return.
9.3 EXCHANGE OF INFORMATION. After the filing of the consolidated
federal income tax return for the last tax year that the Departing Member was
included therein, the Departing Member will be informed of the amount of
consolidated carryovers as of the end of the tax year
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or period which are attributable to the Departing Member, as provided by
Treasury Regulations Section 1.1502-79 or otherwise, including the agreement of
the parties.
10. TAX CONTROVERSIES
10.1 RESPONSIBILITY. If a consolidated federal income tax return for
any taxable year during which this Agreement is in effect is examined by the
Internal Revenue Service, the examination, as well as any other matters relating
to that tax return, including any tax litigation, will be handled solely by
Titan. Members of the Titan Group shall cooperate with Titan and to this end
will execute protests, petitions, and any other documents as Titan determines to
be necessary or appropriate.
10.2 ALLOCATION OF LIABILITY AND EXPENSE. The cost and expense of
Titan's handling of a tax controversy, including legal and accounting fees, will
be allocated to and paid by the member to whom the tax controversy relates. If
the tax controversy relates to more than one member in the Titan Group, the cost
and expense will be allocated between the Companies in the proportion that each
Company's potential additional tax liability bears to the total potential
additional tax liability of the Titan Group (assuming that the final
determination of the tax controversy is in favor of the Internal Revenue
Service) for the tax year on issue. If the tax controversy encompasses more than
one tax year, Titan will first allocate the cost and expense to each tax year in
the proportion that the potential additional tax liability for each tax year
bears to the total potential additional tax liability for the tax years in
issue.
11. DURATION
11.1 AGREEMENT IN EFFECT. Unless earlier terminated by mutual agreement
of the parties, this Agreement shall remain in effect for federal income tax
purposes with respect to any tax year for which consolidated federal income tax
returns are filed by the Titan Group and for state income tax purposes with
respect to any tax year for which combined, consolidated or unitary income tax
returns are filed by the Titan Group.
11.2 TERMINATION OF AGREEMENT. Notwithstanding the termination of this
Agreement, its provisions will remain in effect with respect to any period of
time during the tax year in which termination occurs, for which the income of
the terminating party must be included in the consolidated return. The preceding
sentence shall not be construed, however, to require a party to contribute to
consolidated tax liability for any period for which it files a separate return.
Allocations of consolidated tax liability shall be made hereunder only for
periods covered by a consolidated federal income tax return.
12. MISCELLANEOUS
12.1 PARENT DESIGNATE. At the election of the Titan, Titan can
designate a member of the Titan Group to act on behalf of Titan in performing
the duties identified in this Agreement.
12.2 BINDING EFFECT, ASSIGNMENT, ETC. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their permitted
assigns and successors in
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interest. No party may assign any right, or delegate any obligation hereunder
without the express prior written consent of Titan.
12.3 REMEDIES CUMULATIVE. The remedies of the parties under this
Agreement are cumulative and shall not exclude any other remedies to which the
party may be lawfully entitled.
12.4 AMENDMENT. No change, modification, or amendment of this Agreement
shall be valid or binding on the parties unless such change or modification
shall be in writing signed by the party or parties against whom the same is
sought to be enforced.
12.5 COOPERATION. Each party hereby covenants and agrees that it shall
execute and deliver all materials including, but not limited to, returns,
supporting schedules, workpapers, correspondence and other documents relating to
the consolidated return to any party to this Agreement during regular business
hours.
12.6 NO WAIVER. The failure of any party to insist on strict
performance of a covenant hereunder or of any obligation hereunder shall not be
a waiver of such party's right to demand strict compliance therewith in the
future, nor shall the same be construed as a novation of this Agreement.
12.7 CAPTIONS. Titles or captions of Sections and paragraphs contained
in this Agreement are inserted only as a matter of convenience and for
reference, and in no way define, limit, extend, or describe the scope of this
Agreement or the intent of any provision hereto.
12.8 NUMBER AND GENDER. Whenever required by the context, the singular
number shall include the plural, the plural number shall include the singular,
and the gender of any pronoun shall include all genders.
12.9 INTEGRATION. This Agreement comprises the entire agreement among
the parties hereto as to the subject matter hereof and supersedes in all
respects all prior agreements and understandings between them related thereto.
12.10 COUNTERPARTS. This Agreement may be executed in multiple copies,
each of which shall for all purposes constitute an Agreement, binding on the
parties, and each partner hereby covenants and agrees to execute all duplicates
or replacement counterparts of this Agreement as may be required.
12.11 COMPUTATION OF TIME. Whenever the last day for the exercise of
any privilege or the discharge of any duty hereunder shall fall on a Saturday,
Sunday or any public or legal holiday, whether local or national, the person
having such privilege or duty shall have until 5:00 p.m. Pacific Standard Time
on the next succeeding business day to exercise such privilege, or to discharge
such duty.
12.12 COSTS AND EXPENSES. Unless otherwise provided in this Agreement,
each party shall bear all fees and expenses incurred in performing its
obligations under this Agreement.
8.
12.13 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California.
12.14 INDEMNIFICATION. Titan shall indemnify and hold harmless the
other parties against any and all Taxes for which Titan is liable pursuant to
the terms of this Agreement and any interest and penalties and reasonable
attorney's fees and expenses arising out of or incident to the failure of Titan
to pay its share of Taxes under this Agreement or otherwise carry out its
obligations in accordance with this Agreement.
9.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THE TITAN CORPORATION
a Delaware corporation
By: /s/ Xxxxxx X. Xxxxxxxx
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Print Name: Xxxxxx X. Xxxxxxxx
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Title: Vice President,
Corporate Controller
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CAYENTA, INC.
a Delaware corporation
By: /s/ Xxxxxx X. Lake
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Print Name: Xxxxxx X. Lake
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Title: Chief Financial Officer
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