Exhibit 10.51
2006 TAX ALLOCATION
AGREEMENT
THIS 2006 TAX ALLOCATION AGREEMENT
(“Agreement”) is entered into effective as of the
Deconsolidation Date among Applied Digital Solutions Inc., a
Missouri corporation with its principal place of business at Delray
Beach, Florida (“Applied Digital”), VeriChip
Corporation, a Delaware corporation also with its principal place
of business at Delray Beach, Florida (“VeriChip”) and
each other corporation that is a member of the Consolidated Group
as defined below. Applied Digital and VeriChip are hereinafter
collectively referred to as the “Parties” and
singularly as a “Party”.
RECITALS
WHEREAS, VeriChip is considering
selling a certain number of its newly-issued shares of common stock
so that Applied Digital’s ownership interest in VeriChip
would be less than 80 percent thereby precluding VeriChip from
being included in the consolidated federal income tax returns
prepared by Applied Digital as common parent for the taxable
periods following the Deconsolidation Date;
WHEREAS, VeriChip has, with the
consent of Applied Digital, represented in various public
statements that the Deconsolidation will not have a material
adverse effect on its financial condition or results of operations;
and
NOW, THEREFORE, the Parties to this
Agreement agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS: As used in this
Agreement, the following terms have the following
meanings:
“Code” means the
Internal Revenue Code of 1986, as amended, or corresponding
provisions of any subsequent federal tax laws.
“Consolidated Group”
means the “affiliated group” of corporations of which
Applied Digital is the “common parent corporation”, as
such terms are defined in Code §1504(a)(1).
“Consolidated Minimum Tax
Credit(s)” means the consolidated minimum tax credit(s)
computed in accordance with Code §§53, 1502, and 1503,
and shown in a Consolidated Return with respect to those tax
periods up to and including the Deconsolidation Date.
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“Consolidated Return”
means the consolidated federal income tax return of the
Consolidated Group for each taxable year as filed or to be filed by
Applied Digital on behalf of the Consolidated Group.
“Consolidated Tax
Liability” means, generally, the consolidated federal income
tax liability computed in accordance with Treasury Regulation
§1.1502-2 and shown on a Consolidated Return, taking into
account all credits to which the Consolidated Group is entitled
under the Code, but not taking into account any “consolidated
alternative minimum tax liability” (as provided under Code
§§55, 1502, and 1503) or any Consolidated Minimum Tax
Credit.
“Deconsolidation” means
that event which causes Applied Digital to no longer have the
requisite ownership interest in VeriChip so as to allow VeriChip to
file as part of a Consolidated Group with Applied
Digital.
“Deconsolidation Date”
means February 14, 2007, the date when Applied Digital and
VeriChip no longer are members of the same Consolidated
Group.
“Other Tax” or
“Other Taxes” means any and all taxes of any kind
(together with any and all interest, penalties, additions to tax
and additional amounts imposed with respect thereto) imposed by any
governmental authority or taxing authority, including, but not
limited to, federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code §59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not
and including any obligations to indemnify or otherwise assume or
succeed to the tax liability of any other Person, other than any
such item included in the definition of Tax.
“Party” and
“Parties” have that meaning ascribed to them in the
Recitals.
“Pre-Deconsolidation Date
Period” means, chronologically, those tax years that end
prior to the tax year in which the Deconsolidation Date occurs plus
that period in time beginning on the first day of such year and
ending on and including the Deconsolidation Date.
“Post-Deconsolidation Date
Period” means, chronologically, that period following the
Deconsolidation Date.
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“Subsidiary” means any
corporation or other entity with respect to which Applied Digital,
on the one hand, or VeriChip, on the other, owns, directly or
indirectly, at least 50% of the common stock or other equity or
profits interests or has the power, directly or indirectly, to
elect a majority of the members of the board of directors or
comparable governing body.
“Taxes” or
“Tax” means federal income taxes as provided in Code
§11, alternative minimum tax as provided in Code §55, and
any state taxes measured by net income (including state taxes
measured by net income reflected in any Unitary Tax Returns filed
by Applied Digital) and any interest or penalties thereon or
additions to tax. The term Taxes or Tax, however, specifically
excludes any tax imposed by any foreign government.
“Unitary Tax Return”
means a state income tax return which reflects the combined and/or
consolidated reporting (either on a domestic or worldwide basis) of
Applied Digital and its affiliates for a state which either
(i) imposes an income tax on the apportioned and/or allocable
share of the net income of Applied Digital and its United States
affiliates that are engaged in a “unitary business”,
part of which is conducted in the state or (ii) imposes an
income tax on the apportioned and/or allocable share of the net
income of a taxpayer and its affiliates—both domestic and
foreign—that are engaged in a unitary business.
Other terms defined herein have the
meanings given them.
ARTICLE II
TAX INDEMNIFICATION
2.1 VERICHIP’S TAX
INDEMNIFICATION FOR THE PRE-DECONSOLIDATION DATE PERIOD: VeriChip
shall be liable for, indemnify, and hold Applied Digital harmless
for all Taxes (i) imposed on or incurred by VeriChip for the
Pre-Deconsolidation Date Period and (ii) equitably apportioned
to VeriChip by Applied Digital for all tax periods beginning before
and ending after the Deconsolidation Date. Except as provided in
Section 2.2(c), VeriChip, in turn, shall be entitled to
receive all refunds of Taxes attributable to the
Pre-Deconsolidation Date Period, if any, that are imposed or
incurred by VeriChip or equitably apportioned to VeriChip from
either the applicable tax authorities or Applied Digital (in the
event such refund(s) have been made directly to Applied
Digital).
2.2 VERICHIP’S 2006 TAX
LIABILITY AND PAYMENT
(a) VeriChip’s liability for
Taxes for the portion of the Pre-Deconsolidation Date Period
attributable to the tax year in which the Deconsolidation Date
occurs shall be based on Applied Digital’s preparation of the
Consolidated Return for such taxable year and
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VeriChip’s review thereof. Any
discrepancies between Applied Digital’s return position and
VeriChip’s subsequent review shall be resolved by
consultation by each Party’s respective tax officers and
Applied Digital’s ultimate determination shall be controlling
as long as such determination does not have a material adverse
effect on VeriChip’s financial condition or results of
operations.
(b) The Parties agree that, in
determining VeriChip’s allocable share of the
(i) Unitary and (ii) Consolidated Tax Liabilities for the
tax year in which the Deconsolidation Date occurs, they shall
follow a reasonable method agreed to by both Parties.
(c) VeriChip shall pay Applied
Digital its allocable share of the estimated Unitary and
Consolidated Tax Liabilities for that portion of the tax year in
which the Deconsolidation Date occurs that precedes the
Deconsolidation Date within 45 days from the Deconsolidation Date.
A “true-up” payment, should one be necessary, shall be
made by VeriChip to Applied Digital or Applied Digital to VeriChip
within 15 days after Applied Digital’s subsequent
determination of VeriChip’s liab
