1
EXHIBIT 10.8
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT ("Agreement") is made and entered into as of the
6th day of November, 1998 by and between XXXXXXX RESEARCH CORPORATION, a
Delaware corporation ("Xxxxxxx Research"), and XXXXXXX TXEN CORPORATION, a
Delaware corporation ("TXEN").
RECITALS:
The parties desire to set forth certain agreements they have reached with
respect to certain federal, state and local tax liabilities. Xxxxxxx Research is
the parent of an affiliated group of corporations, including TXEN, within the
meaning of Section 1504(a) of the Internal Revenue Code (the "Code") (the
"Xxxxxxx Research Group"). TXEN became a member of such affiliated group for the
year beginning September 1, 1997. Prior to such date, TXEN was not a member of
any affiliated group within the meaning of Code Section 1504(a). TXEN will cease
to be a member of the Xxxxxxx Research Group as the result of an initial public
offering of common stock of TXEN. On the date that TXEN consummates the sale of
its common stock in the initial public offering ("Closing Date"), TXEN and its
subsidiaries (hereinafter referred to as the "TXEN Group") will not continue to
be included in the consolidated income tax returns of Xxxxxxx Research.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
provided for herein, the parties hereto hereby agree as follows:
1. MANNER OF PREPARING RETURNS.
All tax returns to be filed after the Closing Date shall, in the
absence of a change in law or other authority, be prepared on a basis consistent
with the elections, accounting methods, conventions and principals of taxation
used for the most recent taxable periods for which tax returns involving that
precise item have been filed; provided, however, that (i) either party may take
an inconsistent position with that previously taken to the extent that such
position does not create an increase in tax to the other party and (ii) either
party may take an inconsistent position which increases the tax of the other
party if at the time of taking such inconsistent position it pays to the other
party the increase in tax (without interest) which will result to the other
party as a result of the inconsistent position.
2. UNFILED TAX RETURNS.
(a) In filing all income tax returns for the taxable year beginning
September 1, 1998, each party will file all such returns in a manner which is
consistent with the position that the last day on which any member of the TXEN
Group is included in the Xxxxxxx Research Group was the day immediately
preceding the Closing Date.
(b) All consolidated federal income tax returns which are required to
be filed for periods beginning before the Closing Date shall be prepared and
filed by Xxxxxxx Research.
(c) TXEN shall supply Xxxxxxx Research on or before February 15, 1999,
with true and correct
-1-
2
federal income tax returns of each member of the TXEN Group for the taxable year
ended August 31, 1998, computed as though a consolidated income tax return was
not filed for such period. Such federal income tax returns shall be made solely
by reference to TXEN and each of its subsidiary's items of income, deduction and
credit for the taxable year then ended, notwithstanding that any such item may
require a different treatment or limitation on a consolidated federal income tax
return. Within 60 days of receipt of the federal income tax returns for such
taxable year referred to above, Xxxxxxx Research shall advise TXEN, in writing,
of any changes, modifications, additions or deletions which Xxxxxxx Research
believes appropriate in order to properly reflect the separate income tax
liability of any member of the TXEN Group in accordance with the provisions of
this Section 2(c). In the event that TXEN does not agree with any of the
changes, modifications, additions or deletions made by Xxxxxxx Research, and
Xxxxxxx Research and TXEN are unable to resolve their differences, then the
issue shall be submitted to the firm of certified public accountants then
regularly serving Xxxxxxx Research whose decision shall be final, binding and
conclusive upon the parties.
(d) TXEN shall supply Xxxxxxx Research on or before August 15, 1999
with true and correct federal income tax returns of each member of the TXEN
Group for the period beginning on September 1, 1998 and ending on the day
immediately preceding the Closing Date ("Stub Period"), computed in the same
manner as provided in Section 2(c) with respect to the income tax returns for
the taxable year ended August 31, 1999. The balance of the provisions of Section
2(c) shall apply equally to the tax returns TXEN is required to deliver to
Xxxxxxx Research with respect to the Stub Period.
(e) At the time that TXEN delivers to Xxxxxxx Research the federal
income tax returns referred to in Sections 2(c) and 2(d), TXEN shall pay to
Xxxxxxx Research an amount equal to the excess, if any, (i) the net federal
income tax which the TXEN Group would have had to pay to the Internal Revenue
Service based upon such federal income tax returns, over (ii) the amount of all
payments or intercompany charges previously made by, or charged to, the TXEN
Group with respect to federal
income tax for the applicable period. If Xxxxxxx Research disagrees with the
federal income tax returns provided to it by TXEN in accordance with the
provisions of Sections 2(c) and 2(d) and (i) the adjustment made by Xxxxxxx
Research increases the federal income tax liability which should have been
reflected on such federal income tax returns, then within ten days after any
such adjustment (or portion thereof) is agreed to by the parties or determined
by Xxxxxxx Research's firm of certified public accountants, as applicable, TXEN
shall pay such additional tax to Xxxxxxx Research, or (ii) the adjustment made
by Xxxxxxx Research decreases the federal income tax liability which should have
been reflected on such federal income tax returns, then within ten days after
any such adjustment (or portion thereof) is agreed to by the parties or
determined by Xxxxxxx Research's firm of certified public accountants, as
applicable, Xxxxxxx Research shall pay to TXEN an amount equal to the reduced
tax liability. If the amount referred to in (ii) above exceeds the amount
referred to in (i) above, then within ten days following the date on which the
federal income tax liability of the TXEN Group for the applicable period is
agreed to by Xxxxxxx Research and TXEN (or determined by Xxxxxxx Research's
certified public accountants, if applicable), Xxxxxxx Research shall pay to TXEN
such excess.
(f) If the federal income tax returns delivered by TXEN to Xxxxxxx
Research pursuant to the provisions of Sections 2(c) or 2(d) indicate a net
loss, Xxxxxxx Research shall pay to TXEN, within 60 days of the receipt of such
tax returns, an amount equal to the excess, if any, of (i) the refund which
Xxxxxxx Research and its affiliated group will be entitled to receive based upon
such federal income tax returns over (ii) the amount of all payments or
intercompany credits previously made to, or credited to, the TXEN Group with
respect to federal income tax for the applicable period; plus the amount, if
any, of all payments or intercompany charges previously made by, or charged to,
the TXEN Group with respect to federal
-2-
3
income tax for the applicable period. If Xxxxxxx Research disagrees with the
federal income tax returns provided to it by TXEN in accordance with the
provisions of Sections 2(c) or 2(d) and the adjustment made by Xxxxxxx Research
reduces the refund or creates a federal income tax liability which should have
been reflected on such federal income tax returns, then within ten days after
such adjustment (or portion thereof) is agreed to by the parties or determined
by Xxxxxxx Research's firm of certified public accountants, as applicable, the
appropriate party shall make payment to the other. If the amount referred to in
(ii) above exceeds the amount referred to in (i) above, then within ten days
following the date on which the federal income tax liability of the TXEN Group
for the applicable period is agreed to by Xxxxxxx Research and TXEN (or
determined by Xxxxxxx Research's certified public accountants, if applicable),
TXEN shall pay to Xxxxxxx Research such excess.
(g) All state and local income tax returns which include both a member
of the Xxxxxxx Research Group and a member of the TXEN Group that are required
to be filed for any period beginning before the Closing Date shall be prepared
and filed by Xxxxxxx Research. The provisions of Sections 2(c) through 2(f),
inclusive, shall apply with respect to all such state and local income tax
returns.
(h) All federal, state and local tax returns with respect to taxes
which are not measured by income which are due after the Closing Date shall be
prepared, filed and paid by the member of the Xxxxxxx Research Group or TXEN
Group which would be responsible for the payment of the taxes if such companies
were at all times unrelated to each other.
(i) All federal income tax returns for periods beginning subsequent to
the Closing Date shall be prepared by Xxxxxxx Research with respect to the
Xxxxxxx Research Group and by TXEN with respect to the TXEN Group.
3. AUDIT ADJUSTMENTS.
(a) If as a result of an audit of an income tax return of the Xxxxxxx
Research Group or any member thereof an adjustment is made by a tax regulatory
authority which results in additional tax payable by the Xxxxxxx Research Group
and results in a Temporary Difference (as hereinafter defined) in Xxxxxxx
Research's opinion, Xxxxxxx Research shall give prompt notice thereof to TXEN
setting forth in detail the adjustment and whether Xxxxxxx Research intends to
challenge the adjustment. Upon the adjustment becoming final (within the meaning
of Section 5(d)), if the adjustment results in a Temporary Difference, TXEN
shall be required to pay to Xxxxxxx Research the additional tax (without
interest) which Xxxxxxx Research is required to pay as a result of the
adjustment. Such payment shall be made within ten days of the later of (i) the
date the adjustment becomes final or (ii) a determination that the adjustment
results in a Temporary Difference.
(b) If as a result of an audit of an income tax return of the Xxxxxxx
Research Group or any member thereof an adjustment is made by a tax regulatory
authority or pursuant to an amended return or refund claim which results in a
decrease in the tax payable by the Xxxxxxx Research Group and might conceivably
result in a Temporary Difference, Xxxxxxx Research shall give prompt notice
thereof to TXEN setting forth in detail the adjustment and its opinion as to
whether the adjustment results in a Permanent Difference (as hereinafter
defined) or a Temporary Difference. Upon the adjustment becoming final, or the
amended return or refund claim being accepted, as applicable, (i) if the
adjustment results in a Permanent Difference, no payment shall be made to TXEN
and (ii) if the adjustment results in a Temporary Difference, Xxxxxxx Research
shall be required to pay to TXEN an amount equal to the decrease in tax (without
interest) resulting from the adjustment. Such payment shall be made within ten
-3-
4
days of the later of (i) the date the adjustment becomes final or the amended
return or refund claim is accepted, as applicable, or (ii) a determination that
the adjustment results in a Temporary Difference.
(c) If as a result of an audit of an income tax return of the TXEN
Group or any member thereof an adjustment is made by a tax regulatory authority
which results in additional tax payable by the TXEN Group and which results in a
Temporary Difference in TXEN's opinion, TXEN shall give prompt notice thereof to
Xxxxxxx Research setting forth in detail the adjustment and whether TXEN intends
to challenge the adjustment. Upon the adjustment becoming final, Xxxxxxx
Research shall be required to pay to TXEN the additional tax (without interest)
which TXEN is required to pay as a result of the adjustment. Such payment shall
be made within ten days of the later of (i) the date the adjustment becomes
final or (ii) a determination that the adjustment results in a Temporary
Difference.
(d) If as a result of an audit of an income tax return of the TXEN
Group or any member thereof an adjustment is made by a tax regulatory authority
or pursuant to an amended return or refund claim which results in a decrease in
the tax payable by the TXEN Group and which might conceivably result in a
Temporary Difference, TXEN shall give prompt notice thereof to Xxxxxxx Research
setting forth in detail the adjustment and its opinion as to whether the
adjustment results in a Permanent Difference or a Temporary Difference. Upon the
adjustment becoming final, or the amended return or refund claim being accepted,
as applicable, (i) if the adjustment results in a Permanent Difference, no
payment shall be made to Xxxxxxx Research and (ii) if the adjustment results in
a Temporary Difference, TXEN shall be required to pay to Xxxxxxx Research an
amount equal to the decrease in tax (without interest) resulting from the
adjustment. Such payment shall be made within ten days of the later of (i) the
date the adjustment becomes final or the amended return or refund claim is
accepted, as applicable, or (ii) a determination that the adjustment results in
a Temporary Difference.
(e) In the case of an adjustment to a tax return or liability not
measured by income, TXEN shall have the sole right to contest such adjustment
(at its own cost and expense) and shall be responsible for, or receive the
benefit of, any change in tax, interest or penalty that may result therefrom.
(f) For purposes of this Agreement, the following shall apply:
(i) The term Temporary Difference" shall mean a tax detriment
or tax benefit to the TXEN Group or Xxxxxxx Research Group relating to a tax
item in one taxable period which creates or results in a corresponding tax
benefit or tax detriment to the Xxxxxxx Research Group or TXEN Group,
respectively, in a different tax period for which the statute of limitations has
not expired (or for which mitigation provisions are applicable), and for which
no valuation allowance is required to be established, interpreted in accordance
with generally accepted accounting principles.
(ii) The term "Permanent Difference" means a tax detriment or
tax benefit to the TXEN Group or Xxxxxxx Research Group which does not create or
result in a corresponding tax benefit or tax detriment to the Xxxxxxx Research
Group or TXEN Group, respectively, in a different tax period for which the
statute of limitations has not expired (or for which mitigation provisions are
applicable), and for which a valuation allowance is required to be established,
interpreted in accordance with generally accepted accounting principles.
If Xxxxxxx Research and TXEN disagree as to whether there is a Temporary
Difference or Permanent Difference, then the party which would be required to
make a payment to the other if there were a Temporary Difference shall refer the
issue to the firm of certified public accountants then regularly serving
-4-
5
that party. Each party shall be entitled to submit oral and written comments to
such firm of certified public accountants setting forth its position. The
determination by such firm of certified public accountants shall be final,
binding and conclusive upon the parties.
4. CARRYBACKS.
If the consolidated income taxes of the Xxxxxxx Research Group are
reduced for a taxable period beginning prior to the Closing Date by reason of a
loss or other tax attribute of the TXEN Group arising on or after the Closing
Date ("TXEN Carryback"), Xxxxxxx Research shall pay to TXEN an amount equal to
such reduction in taxes (without interest). The Xxxxxxx Research Group shall
take all steps reasonably necessary to receive the maximum reduction in taxes
attributable to an TXEN Carryback and TXEN shall have the right to review and
comment on any tax return in which any such TXEN Carryback may be claimed.
Nothing herein shall require, however, that the TXEN Group Carryback any loss or
other tax attribute which it generates. The payment required to be made by
Xxxxxxx Research to TXEN pursuant to the provisions of this Section 4 shall be
made no later than ten days after the tax benefit is actually received, credited
or otherwise utilized by Xxxxxxx Research.
5. CONTESTING TAX ADJUSTMENTS.
(a) If an adjustment (i) results in an increase in the Xxxxxxx
Research Group's or any member thereof's tax liability, (ii) affects a taxable
year of Xxxxxxx Research beginning prior to the Closing Date, and (iii) results
in a Temporary Difference, TXEN shall have the right, in its sole discretion,
and at its cost, to contest such adjustment.
(b) If an adjustment (i) results in an increase in the Xxxxxxx
Research Group's or any member thereof's liability for a taxable year beginning
prior to the Closing Date and (ii) involves a Temporary Difference, Xxxxxxx
Research shall only be required to contest such adjustment if Xxxxxxx Research's
tax counsel determines that it is more likely than not that Xxxxxxx Research
will prevail with respect to the issue, and then only at the first
administrative level provided for by the applicable tax regulatory authority.
(c) If an adjustment results in an increase in the TXEN Group's or
member thereof's tax liability and results in a Temporary Difference, TXEN shall
only be required to contest such adjustment if TXEN's tax counsel determines
that it is more likely than not that TXEN will prevail with respect to the
issue, and then only at the first administrative level provided for by the
applicable tax regulatory authority.
(d) If Xxxxxxx Research or TXEN contests an adjustment pursuant to the
provisions of Sections 5(b) or 5(c), respectively, the cost of contesting such
adjustment through the first administrative level shall be borne by the
contesting party. If the party which would be obligated to make a payment
hereunder as a result of such adjustment is not satisfied with the result
obtained at the first administrative level, and desires that the adjustment be
contested beyond the first administrative level, such party may do so at its own
cost and expense. Such party shall notify the other party of its decision to
further contest the adjustment and the other party shall have the right to
consult with the contesting party if it so desires. No payment shall be required
pursuant to Section 3 until an adjustment has been finally determined. For
purposes of this Agreement, an adjustment is finally determined on the date on
which it may no longer be further contested by administrative or judicial
procedure.
(e) If an adjustment results in a Permanent Difference, only the party
whose income was adjusted shall have the right to contest such adjustment and
shall do so at its own cost and expense.
-5-
6
6. COOPERATION.
Each of the parties hereto agrees to cooperate with the other in
connection with the preparation and filing of, and any inquiry, audit,
examination, investigation, dispute or litigation involving, any tax return
filed or required to be filed by or for any member of the Xxxxxxx Research Group
or the TXEN Group for any taxable period beginning before the Closing Date or
for which any party may have a liability to the other hereunder. Such
cooperation shall include the execution and delivery of any power of attorney or
other necessary document to allow a party and its counsel to participate on
behalf of any member of the other group and making available, during normal
business hours, all books, records and information and the assistance of all
employees reasonably necessary or useful in connection with contesting any
adjustment made by any tax regulatory authority. If a party desires to copy any
books, records and information in the possession of the other party, the party
desiring such copies shall bear the expense of making such copies. The
assistance of employees shall be without charge.
7. RETENTION OF BOOKS AND RECORDS.
Xxxxxxx Research and TXEN each agree to retain all tax returns, related
schedules, work papers and all material records and other documents with respect
to all taxable periods ending on or before the Closing Date until the expiration
of the statute of limitations (including extensions thereof) of the taxable
period to which such tax returns and other documents relate.
8. RESOLUTION OF DISPUTES.
If any dispute arises between the parties for which no specific
resolution is provided for herein, then such dispute shall be settled pursuant
to arbitration in accordance with the rules of the American Arbitration
Association.
9. INDEMNIFICATION BY XXXXXXX RESEARCH.
Xxxxxxx Research hereby agrees to indemnify each member of the TXEN
Group for, and hold each member of the TXEN Group harmless from, any taxes,
interest or penalties which such member of the TXEN Group incurs by reason of
having been included in Xxxxxxx Research's Group for any period beginning before
the Closing Date, other than any liability which such member of the TXEN Group
has to Xxxxxxx Research under the terms of this Agreement.
10. EXPENSES.
Unless otherwise expressly provided in this Agreement, each party shall
bear its own expenses which arise as a result of its rights and obligations
under this Agreement.
11. ENTIRE AGREEMENT; TERMINATION OF PRIOR AGREEMENTS.
This Agreement contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all other agreements,
whether or not written, in respect of any tax between or among any member of the
Xxxxxxx Research Group and the TXEN Group.
-6-
7
12. AMENDMENT.
This Agreement may be amended from time to time only by a written
agreement executed by each of the parties hereto.
13. NOTICES.
All notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and be personally delivered
against a written receipt, delivered to a reputable messenger service (such as
Federal Express, DHL Courier, United Parcel Service, etc.) for overnight
delivery, transmitted by confirmed telephonic facsimile (fax) or transmitted by
mail, registered, express or certified, return receipt requested, postage
prepaid, addressed as follows:
If to Xxxxxxx Research:
Xxxxxxx Research Corporation
Attention: Chief Financial Officer
0000 Xxxxx Xxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
If to TXEN:
Xxxxxxx TXEN Corporation
Attention: Chief Financial Officer
00 Xxxxxxxxx Xxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
All notices, demands and requests shall be effective upon being properly
personally delivered, upon being delivered to a reputable messenger service,
upon transmission of a confirmed fax, or upon being deposited in the United
States mail in the manner provided in this Section 13. However, the time period
in which a response to any such notice, demand or request must be given shall
commence to run from the date of personal delivery, the date of delivery by a
reputable messenger service, the date on the confirmation of a fax, or the date
on the return receipt, as applicable. If any party refuses delivery, the notice,
demand or request shall be deemed received two days after the notice, demand or
request was delivered to a reputable messenger service or deposited in the
United States mail.
14. CAPTIONS; SECTION REFERENCES.
Section titles or captions contained in this Agreement are inserted
only as a matter of convenience and reference, and in no way define, limit,
extend or describe the scope of this Agreement, or the intent of any provision
hereof. All references herein to Sections shall refer to Sections of this
Agreement unless the context clearly requires otherwise.
-7-
8
15. BINDING AGREEMENT.
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns.
16. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Alabama without regard to its conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
XXXXXXX RESEARCH CORPORATION
By: Xxxxxxx X. Xxxx
--------------------------------
Its: Chief Executive Officer
-------------------------------
XXXXXXX TXEN CORPORATION
By: Xxxx X. Xxxxxx
--------------------------------
Its: Chief Executive Officer
-------------------------------
-8-
