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EXHIBIT 10.9
INVENTIONS, INC.
TAX INDEMNIFICATION AGREEMENT
This TAX INDEMNIFICATION AGREEMENT, dated as of the 5th day of March,
1997, is entered into by INVENTIONS, INC., a Georgia corporation (the
"Company") and ___________________________________ (the "Stockholder").
RECITALS
WHEREAS, the Stockholder holds all of the outstanding shares of
the Company's no par value Non-Voting Common Stock (the
"Non-Voting Common Stock"); and
WHEREAS, the Company has elected to be taxed as S corporation
under the Code and that election has not been lost or revoked; and
WHEREAS, pursuant to a planned public offering of the shares of a
sister corporation, the Company plans to terminate its S
corporation status just prior to the commencement of that public
offering; and
WHEREAS, during the period of the Company's S corporation status,
the Company has paid no federal taxes and the Stockholder has
assumed the responsibility for paying certain taxes and should
those taxes be decreased or increased, the Company and Stockholder
should share the benefit or burden of those taxes, as the case may
be, for periods prior to the termination of the Company's S
corporation status;
WHEREAS, the parties wish to provide for the equitable adjustment
among themselves for tax benefits or burdens occasioned by the
operation of the Company prior to the termination of the Company's
S corporation status;
NOW, THEREFORE, FOR VALUE RECEIVED, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following definitions shall apply:
(a) "Adjustment" shall mean any proposed or final change in any S
Corporation Tax Liability initiated by the IRS or Georgia taxing authority.
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(b) "Code" shall mean the Internal Revenue Code of 1986, as amended and in
effect for the taxable period in question.
(c) "Final Determination" shall mean the final resolution of any Income
Tax liability (including all related interest and penalties) for a taxable
period. A Final Determination shall result from the first to occur of:
the expiration of 30 days after IRS acceptance of a Waiver of Restrictions on
Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment
on Federal Revenue Form 870 or 870-AD (or any successor comparable form or the
expiration of a comparable period with respect to any comparable agreement or
form under the laws of Georgia), unless, within such period, the taxpayer gives
notice to the other party of the taxpayer's intention to attempt to recover all
or part of any amount paid pursuant to the Waiver by the filing of a timely
claim for refund;
a decision, judgment, decree, or other order by a court of competent
jurisdiction that is not subject to further judicial review (by appeal or
otherwise) and has become final;
the execution of a closing agreement under section 7121 of the Code or the
acceptance by the IRS or its counsel of an offer in compromise under section
7122 of the Code, or comparable agreements under the laws of Georgia;
the expiration of the time for filing a claim for refund or for instituting
suit in respect of a claim for refund disallowed in whole or part by the IRS or
the Georgia Department of Revenue;
any other final disposition of the tax liability for such period by reason of
the expiration of the applicable statute of limitations; or
any other event that the parties agree is a final and irrevocable determination
of the liability at issue.
(d) "Income Tax" shall mean federal income taxes and Georgia income taxes.
Income Tax includes interest, penalties, and other additions to tax.
(e) "IRS" shall mean the United States Internal Revenue Service or any
successor, including, but not limited to, its agents, representatives, and
attorneys.
(f) "S Corporation" shall mean an S Corporation within the meaning of
section 1361 of the Code.
(g) "S Corporation Tax Liability" shall mean the personal Income Tax
liability of the Stockholder for Income Taxes attributable to (a) the Company's
Tax Items that pass through to the Stockholder under the provisions of
Subchapter S of the Code and any similar provisions of state and local law or
(b) the Stockholder's receipt of indemnity payments hereunder.
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(h) "Tax Benefit" shall mean a reduction in the personal Income Tax
liability of the Stockholder (as a result of Tax Items of the Company and all
other Tax Items reflected on the Stockholder's tax return) for any taxable
period.
The Stockholder shall be deemed to have realized or received a Tax Benefit
from a Tax Item in a taxable period only if and to the extent that the
Stockholder's personal Income Tax liability for such period is less than it
would have been if such liability were determined without regard to such Tax
Item.
The Stockholder shall be deemed to have realized or received a Tax Benefit
with respect to a carryover only if, when, and to the extent the carryover is
used to produce a Tax Benefit.
(i) "Tax Item" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which increases or decreases
Income Taxes paid or payable by the Company or by the Stockholder when the
Company is an S Corporation.
ARTICLE II
INDEMNIFICATION FOR CERTAIN TAXES
(a) The Stockholder shall pay to the Company an amount equal to any Tax
Benefit actually realized or received arising from an Adjustment with respect
to a Tax Item of the Company for any taxable period in which the Company was
taxable as an S Corporation.
(b) If based on a Final Determination the Company is deemed to have been a
C corporation for federal or state income tax purposes during any period in
which it reported (or intends to report) its taxable income as an S
corporation, the Stockholder agrees to contribute to the capital of the Company
an amount necessary to hold the Company harmless from any taxes (net of any
refunds) and interest imposed on the Company and arising from such Final
Determination.
The obligations of the Stockholder under this subsection (b) shall include
all taxes (net of any refunds) and interest incurred by the Company as a C
Corporation for periods ending before the date of termination of the Company S
election during 1997 (the "Termination Date"), other than:
(i) any obligation arising from an adjustment to the
Company's tax return for a period ending before the
Termination Date which, if the Company had been an S
corporation for such period, would have given rise to an
obligation of the Company to the Stockholder under subsection
(c) of this Article II; and
(ii) any taxes, interest, and penalties incurred by
the Company for all taxable years ending before January, 1997.
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The Stockholder's obligation under this subsection (b) shall be limited
to the total distributions to the Stockholder made by the Company through and
including the Termination Date, reduced by any taxes (net of any refunds) and
interest of the Stockholder attributable to such distributions.
(c) The Company shall pay and indemnify the Stockholder for any S
Corporation Tax Liability arising from an Adjustment with respect to a Tax Item
of the Company.
(d) Any payment required under this Article shall be made by the earliest
of (1) 20 days after the Stockholder receives a refund or credit, (2) 20 days
after a Final Determination with respect to such tax, (3) with respect to a
carryover, 20 days after the Stockholder files a tax return on which the
carryover produces a Tax Benefit, or (4) 20 days after the determination by the
parties or pursuant to Article IV that such payment is due.
ARTICLE III
COOPERATION AND EXCHANGE OF INFORMATION
Whenever the Stockholder or the Company becomes aware of an issue which
either party believes could give rise to payment or indemnification from the
other party under Article II, the Stockholder or the Company (as the case may
be) shall promptly give notice of the issue to the other party. The indemnitor
and its representatives, at the indemnitor's expense, shall be entitled to
participate in all conferences, meetings, or proceedings with the IRS or other
taxing authority with respect to the issue.
The parties agree to consult and cooperate with each other in the
negotiation and settlement or litigation of any Adjustment that may give rise
to any payment or an indemnification payment under this Agreement. All
decisions with respect to such negotiation and settlement or litigation shall
be made by the parties after full and good faith consultation.
If a party who will be required to make an indemnification payment (the
"Indemnifying Party") proposes to accept a settlement offered by the relevant
taxing authority with respect to an issue for one or more taxable years, but
the party who will be entitled to receive the payment (the "Indemnified Party")
disagrees with the proposed settlement, then the Indemnifying Party may pay to
the Indemnified Party the amount that would be due under this Agreement
pursuant to such settlement and, in that event, the Indemnifying Party shall
have no further responsibility for amounts attributable to that issue for the
taxable years involved.
ARTICLE IV
DISPUTES
If the parties are, after negotiation in good faith, unable to agree upon
the appropriate calculation of amounts due under this Agreement, the
controversy shall be settled by Arthur Andersen, L.L.P. (the "Accounting
Firm"). The decision of the Accounting Firm shall be final,
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and each of the Company and the Stockholder agree immediately to pay to the
other any amount due under this Agreement pursuant to such decision.
The expenses of the Accounting Firm shall be borne one-half by the Company
and one-half by the Stockholder unless the Accounting Firm specifies otherwise.
Any dispute arising between the parties with reference to the legal
interpretation of this Agreement or their rights hereunder shall, upon written
request of either party, be submitted to three arbitrators, one to be chosen by
each party, and the third by the two so chosen. Each party shall submit its
case to its arbitrator within thirty days of the appointment of the third
arbitrator. The decision in writing of any two arbitrators, when filed with
the parties hereto, shall be final and binding on both parties. Judgment may
be entered upon the final decision of the arbitrators in any court having
jurisdiction. Each party shall bear the expense of its own arbitrator and
shall jointly and equally bear with the other party the expense of the third
arbitrator and of the arbitration.
ARTICLE V
MISCELLANEOUS
Section 5.1 Term of Agreement. This Agreement shall become effective as
of the date of its execution and shall continue in full force and effect
indefinitely, except that this Agreement shall be void and of no effect if the
Company's S corporation status is not terminated before January 1998.
Section 5.2 Severability. If any term of this Agreement is held by a
court of competent jurisdiction to be unenforceable, the remainder of the terms
set forth herein shall remain in full force and effect and shall in no way be
impaired. In the event that any term is held to be unenforceable, the parties
shall use their best efforts to find an alternative means to achieve the same
or substantially the same result as that contemplated by such term.
Section 5.3 Assignment. Except by operation of law or in connection with
the sale of all or substantially all the assets of a party, this Agreement
shall not be assignable, in whole or in part, directly or indirectly, by the
Stockholder without the written consent of the Company or by the Company
without the written consent of the Stockholder. Any attempt to assign any
right or obligations arising under this Agreement without such consent shall be
void. However, the provisions of this Agreement shall be binding upon inure to
the benefit of, and be enforceable by the parties and their respective
successors and permitted assigns.
Section 5.4 Further Assurances. Subject to the provisions of this
Agreement, the parties shall acknowledge such other instruments and documents,
and take all other actions, as may be reasonably required in order to
effectuate the purposes of this Agreement.
Section 5.5 Parties in Interest. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended to confer
any right or benefit upon
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any person, firm, or corporation other than the parties and their respective
successors and permitted assigns.
Section 5.6 Waivers, Etc. No failure or delay on the part of the
parties in exercising any power or right under this Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. No modification or waiver of any provision of this
Agreement nor consent to any departure by the parties therefrom shall in any
event be effective unless it shall be in writing, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
which given.
Section 5.7 Set-off. All payments to be made by any party under this
Agreement shall be made without set-off, counterclaim, or withholding, all of
which are expressly waived.
Section 5.8 Notices. All notices provided for in this Agreement shall be
validly given if in writing and delivered personally or sent by registered
mail, postage prepaid
if to the Company, at
c/o Melita International
5051 Peachtree Corners Circle
Norcross, Georgia 30092-2500
Attn: President
copy to:
Robert A. Enholm
General Counsel
Melita International
5051 Peachtree Corners Circle
Norcross, Georgia 30092-2500
if to the Stockholder, to:
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or to such other addresses as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by mail shall be deemed
delivered five calendar days after the date mailed.
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Section 5.9 Governing Law. This Agreement shall be governed by the
domestic substantive laws of Georgia without regard to any choice or conflict
of laws rule or provision that would cause the application of the domestic
substantive laws of any other jurisdiction.
Section 5.10 No Double Recovery. The total recovery received by the
Company pursuant to Article II(b) of this Agreement and the Inventions,
Inc./Aleksander Szlam Tax Indemnification Agreement shall not exceed the total
taxes (net of refund) and interest arising from the Final Determination
referred to therein.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed as of the day and year first written above.
COMPANY: STOCKHOLDER:
INVENTIONS, INC.,
a Georgia corporation -------------------------------
By:
---------------------------------- -------------------------------(SEAL)
Its duly authorized representative
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