Form Of Tax Indemnification Agreement

Exhibit 10.24


FORM OF
TAX INDEMNIFICATION AGREEMENT


TAX INDEMNIFICATION AGREEMENT, dated as of ________________, 1999 (the "Agreement"), among Embedded Support Tools Corporation, a Massachusetts corporation ("EST"), (the "Company"), and the persons listed on the signature page hereto (individually, a "Stockholder" and, collectively, the "Stockholders").


WHEREAS, the execution and delivery by the Company and the Stockholders of this Agreement is a condition to the closing of the Public Offering (as hereinafter defined);


WHEREAS, EST has been an "S corporation" (as defined in section 1361(a)(1) of the Code (as hereinafter defined)) for federal tax purposes since January 6, 1989.


WHEREAS, EST and the Stockholders plan to terminate the S corporation status of EST prior to the closing of the Public Offering and, as a result, EST will be a "C corporation" (as defined in section 1361(a)(2) of the Code) beginning on the Termination Date (as hereinafter defined); and


WHEREAS, the Company and the Stockholders wish to provide for the termination of this Agreement such that it has no effect should the Public Offering not close.


NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:


ARTICLE I.
DEFINITIONS


1.1 Definitions. The following terms as used herein have the following
----------- meanings:


"Adjustment Amount" means the net increase in taxable income of one or more of the Stockholders or the Company based on a Final Determination and which gives rise to a payment pursuant to Section 3.3 or 3.4 hereof.


"Affected Stockholder" means a Stockholder whose tax returns are adjusted in a manner which gives rise to an obligation of the Company pursuant to Section 3.3 hereof.


"Blended Rate" means a percentage which equals the sum of the maximum marginal federal and state individual income tax rates for an individual residing in Massachusetts (after giving effect to the full deductibility of state income taxes for federal income tax purposes) in effect for the year of the adjustment to a tax return of the Company or such Stockholder that gives rise to a correlative adjustment to a tax return of such Stockholder or the Company, respectively. For example, if an adjustment results in an amount due from the Stockholders hereunder, the year of the Company's return that was adjusted shall determine the Blended Rate to be used in computing the amount due.


"Closing Date" means the date on which the Public Offering closes.


"Code" means the Internal Revenue Code of 1986, as amended.


"C Short Year" means that portion of the S Company beginning on the Termination Date and ending Termination Year.


"C Taxable Year" means any taxable year (or portion thereof) of the Company during which the Company is a C corporation, including the C Short Year.


"Final Termination" means 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:


(i) the expiration of 30 days after acceptance by the Internal Revenue Service (the "IRS") of a Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment (the "Waiver") 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 any other jurisdiction), unless, within such period, the applicable taxpayer gives notice of that taxpayer's intention to attempt to recover all or part of any amount paid pursuant to the Waiver by filing a timely claim for refund;


(ii) 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;


(iii) 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 the execution of a comparable agreement under the laws of any other jurisdiction;


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(iv) 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 any other relevant taxing authority;


(v) any other final disposition of the tax liability for such period by reason of the expiration of the applicable statute of limitations; or


(vi) any other event that the parties hereto agree is a final and irrevocable determination of the liability at issue.


"Public Offering" means the initial offering of shares of the Company's Common Stock, $.10 par value, pursuant to the Registration Statement on Form S-1 originally filed by the Company with the Securities and Exchange Commission on December 21, 1999.


"S Short Year" means that portion of the S Termination Year beginning on the first day of such taxable year and ending on the day immediately preceding the Termination Date.


"S Taxable Year" means any taxable year (or portion thereof) of the Company during which the Company was an S corporation, including the S Short Year.


"S Termination Year" means the fiscal year of the Company that includes the Termination Date.


"Taxing Authority" means the IRS or any comparable state or foreign taxing authority.


"Termination Date" means the date on which the S corporation status of EST will terminate pursuant to section 1362(d) of the Code.


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ARTICLE II.
TERMINATION OF S CORPORATION STATUS AND ALLOCATION OF INCOME


2.1 Termination of S Corporation Status. The Company and the Stockholders
----------------------------------- shall cause the Company to terminate their S corporation status at least two days prior to the Closing Date.


2.2 Allocation Election. The Company shall elect to allocate the items
------------------- described in section 1362(e)(2)(A) of the Code pursuant to section 1362(e)(3) of the Code under "normal tax accounting rules," and the Stockholders shall consent to such election and shall provide the Company with the statement of consent described in section 1.1362-6(b) of the Treasury Regulations.


ARTICLE III.
OBLIGATIONS


3.1 Liability for Taxes Incurred by Stockholders During the S Short Year.
-------------------------------------------------------------------- Each Stockholder shall (i) duly include, in his or its own federal and state income tax returns, all items of income, gain, loss, deduction or credit attributable to the S Short Year in a manner consistent with the Form 1120S and the schedules thereto (and the corresponding state income tax forms and schedules) to be filed by the Company with respect to such period, (ii) file such returns no later than the due date (including extensions, if any) for filing such returns, and (iii) pay any and all taxes required to be paid for his taxable year that includes the S Short Year.


3.2 Liability for Taxes Incurred by the Company During the S Short Year
------------------------------------------------------------------- and the C Short Year. The Company shall (i) be responsible for and ...