EXHIBIT 2.3
TAX DISAFFILIATION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of , 1996 by and among First
Mississippi Corporation, a Mississippi corporation ("Company"), and [Newco] ,
a Mississippi corporation and a direct, wholly-owned subsidiary of the Company
("Newco").
RECITALS
WHEREAS:
A. Company is the common parent of an affiliated group of corporations (the
"Company Group") within the meaning of Section 1504 (a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the members of the
affiliated group have heretofore joined in filing consolidated Federal income
tax returns.
B. Company expects, pursuant to the Agreement and Plan of Distribution dated
as of , 1996 (the "Distribution Agreement") by and between Company and
Newco, to spin-off its interest in assets other than certain assets related to
the production and sale of ammonia and urea and purchase and resale of ammonia
and urea to its shareholders. In furtherance of this decision, among other
things (and as more fully set forth in the Distribution Agreement) (i) Company
intends to transfer the stock of certain subsidiaries and certain of its
assets to Newco as set forth in Article IV of the Distribution Agreement
(together with all mergers, other intercompany transfers of assets, and other
actions described in such Article IV, the "Transfer") and (ii) Company intends
to distribute on the Distribution Date (as hereinafter defined) pro rata to
the holders of its Common Stock all of the outstanding shares of the Common
Stock of Newco (the "Distribution").
C. Immediately after the distribution of the Common Stock of Newco to the
holders of the Common Stock of Company, Miss Sub, Inc., a Mississippi
corporation and wholly-owned subsidiary ("Sub") of Mississippi Chemical
Corporation, a Mississippi corporation ("Parent") will merge with and into
Company with Company surviving (the "Merger"), as contemplated by the
Agreement and Plan of Merger and Reorganization dated as of August 27, 1996,
(the "Merger Agreement") by and among Company, Sub and Parent, in connection
with which the holders of the Common Stock of Company will receive Common
Stock of Parent.
D. Company, Sub and Parent intend the Merger to be a reorganization under
Section 368 (a)(1)(B) of the Code.
E. Company and Newco intend the Distribution to be a tax-free transaction
under Section 355 of the Code, after which neither Newco nor any of its
Subsidiaries (as hereinafter defined) will be a member of the Company
affiliated group for Federal income tax purposes.
F. Company and Newco desire on behalf of themselves, their subsidiaries and
their successors to set forth their rights and obligations with respect to
Taxes (as hereinafter defined) due for periods before and after the
Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
For the purposes of this Agreement,
1.1 "Code" shall have the meaning set forth on page 1 of this Agreement.
1.2 "Company" shall have the meaning set forth on page 1 of this Agreement.
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1.3 "Company Group" shall have the meaning set forth on page 1 of this
Agreement.
1.4 "Distribution" shall have the meaning set forth on page 1 of this
Agreement.
1.5 "Distribution Agreement" shall have the meaning set forth on page 1 of
this Agreement.
1.6 "Distribution Date" shall mean the last day on which, due to the
distribution of the shares" of Newco Common Stock to the holders of the Common
Stock of Company, Newco could be considered a member of the affiliated group
of which Company is the common parent.
1.7 "Final Determination" shall mean with respect to any issue (1) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (2) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (3) the
completion of the highest level of administrative proceedings if a judicial
contest is not or is no longer available.
1.8 "Indemnitee" shall have the meaning set forth in Section 4.2.
1.9 "Indemnitor" shall have the meaning set forth in Section 4.2.
1.10 "Merger" shall have the meaning set forth on page 1 of this Agreement.
1.11 "Merger Agreement" shall have the meaning set forth on page 1 of this
Agreement.
1.12 "Newco" shall have the meaning set forth on page 1 of this Agreement.
1.13 "Newco Group" shall mean, for any period, Newco and its Subsidiaries.
1.14 "Parent" shall have the meaning set forth on page 1 of this Agreement.
1.15 "Payor" shall have the meaning set forth in Section 2.5.
1.16 "Payee" shall have the meaning set forth in Section 2.5.
1.17 "Period After Distribution" shall mean any taxable year or other
taxable period beginning after the Distribution Date and, in the case of any
taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period that
begins after the close of the Distribution Date.
1.18 "Period Before Distribution" shall mean any taxable year or other
taxable period that ends on or before the Distribution Date and, in the case
of any taxable year or other taxable period that begins before and ends after
the Distribution Date, that part of the taxable year or other taxable period
through the close of the Distribution Date.
1.19 "Retained Group" shall mean, for any period, Company and its
Subsidiaries.
1.20 "Sub" shall have the meaning set forth on page 1 of this Agreement.
1.21 "Subsidiary" shall mean a current or former corporation, partnership,
joint venture or other business entity where 50% or more of the outstanding
equity or voting power of such entity is owned directly or indirectly by
another corporation. In determining whether a Subsidiary is a Subsidiary of
Newco or Company for any period, Newco shall not be considered a Subsidiary of
Company, and any Subsidiary of Newco shall be considered a Subsidiary of
Newco, not Company, for such period. Notwithstanding the foregoing, any
corporation whose shares are transferred pursuant to Article IV of the
Distribution Agreement, or that is a Subsidiary of such corporation, shall be
a Subsidiary of the corporation to which its shares are so transferred.
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1.22 "Tax" or "Taxes" means all taxes, charges, fees, levies, imposts,
duties and other assessments, including, without limitations, income, gross
receipts, excise, personal property, real property, sales, ad valorem, value-
added, withholding, social security, occupation, use, service, service use,
leasing, leasing use, license, payroll, franchise, transfer and recording
taxes, fees and charges, imposed by the United States or any state, local, or
foreign governmental authority whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include (including
without limitation regarding any duty to reimburse another party for
indemnified Taxes or refunds or credit of Taxes) any interest, fines,
penalties and additional amounts attributable to, imposed on, or with respect
to, any such taxes, charges, fees, levies, imposts, duties or other
assessments, and interest thereon.
1.23 "Tax Returns" shall mean all returns or reports to be filed or that may
be filed for any period with any Taxing authority (whether domestic or
foreign) in connection with any Tax or Taxes (whether domestic or foreign).
1.24 "Transfer" shall have the meaning set forth on page 1 of this
Agreement.
1.25 "Underpayment Rate" shall mean the rate specified under Section
6621(a)(2) of the Code.
ARTICLE II
Tax Returns, Tax Payments and Event of Loss
2.1 Obligation to File Tax Returns. Newco shall timely file (or cause to be
filed) all Tax Returns that (a) are filed on a consolidated, combined or
unitary basis, (b) include Newco or any of its Subsidiaries and Company or any
of its Subsidiaries, and (c) are required to be filed (i) for any Period
Before Distribution or (ii) for any taxable year or period of the Company that
begins before and ends after the Distribution Date, provided, however, that
the Company shall prepare in accordance with past practice of the Company and
deliver to Newco (or cause to be prepared and delivered to Newco) 45 days
prior to the due dates of such Tax Returns pro forma Tax Returns with respect
to members of the Retained Group. Newco shall have sole discretion to take or
not take a position in and with respect to any filed Tax Return which Newco is
required to file or cause to be filed hereunder; provided, however, that (i)
all such Tax Returns shall be consistent with the position that the
Distribution is a tax-free transaction under Section 355 of the Code and the
Merger is a tax-free reorganization under Section 368(a)(1)(B) of the Code,
and (ii) such Tax Returns shall be prepared on a basis that is consistent with
the elections, accounting methods, conventions, practices and principles of
taxation used for the most recent taxable periods for which Tax Returns for
the Company have been filed unless otherwise agreed to in writing by Parent or
unless no material detriment or damage will occur to Parent or the Retained
Group. Company shall timely file (or cause to be filed) any other Tax Return
with respect to the Retained Group, and Newco shall timely file (or cause to
be filed) any other Tax Return with respect to the Newco Group. Each such Tax
Return shall be consistent with the position that the Distribution is a tax-
free transaction under Section 355 of the Code and the Merger is a tax-free
reorganization under Section 368(a)(1)(B) of the Code.
2.2 Obligation to Remit Taxes. Company and Newco shall each remit or cause
to be remitted any Taxes due in respect of any Tax for which it is required to
file a Tax Return and shall be entitled to reimbursement for such payments
only to the extent provided in Article II.
2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) Except as provided in Section 2.3(b) hereof, Newco shall be liable
for and shall hold the Retained Group harmless against (i) any liability
attributable to any member of the Retained Group for Taxes attributable to
a Period Before Distribution, including any such Tax liability asserted
against any member of the Retained Group under the provisions of Treas.
Reg. 1.1502-6(a) that impose several liability on members of an affiliated
group of corporations that files consolidated returns, or similar
provisions of any foreign, state or local law (or of any member of the
Retained Group that is a successor to an entity that was
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a member of the Retained Group during any Period Before Distribution), (ii)
any liability attributable to any member of the Retained Group for Taxes
resulting from the Transfer, the Distribution or the Merger, and (iii) any
liability attributable to any member of the Newco Group for Taxes,
regardless of whether attributable to a Period Before Distribution or a
Period After Distribution, including any liability asserted against any
member of the Newco Group under the provisions of Treas. Reg. 1.1502-6(a)
that impose several liability on members of an affiliated group of
corporations that files consolidated returns, or similar provisions of any
foreign, state or local law (or of any member of the Newco Group that is a
successor to an entity that was a member of the Newco Group). Newco shall
be entitled to any refund or credit of Taxes which is attributable to both
an entity and a taxable year or taxable period for which Newco has
liability hereunder.
(b) Company shall be liable for and Company shall hold the Newco Group
harmless against (i) any liability attributable to any member of the
Retained Group for Taxes attributable to a Period After Distribution and
(ii) notwithstanding anything to the contrary herein, any Tax liability
attributable to any member of the Newco Group or the Company Group
(including, without limitation, any such liability resulting from the
Transfer, the Distribution or the Merger) arising out of or resulting
directly or indirectly from the breach of any of the representations,
warranties and covenants of Parent set forth in the Merger Agreement, the
Distribution Agreement or this Agreement or the breach of any
representations, warranties or covenants of the Company set forth in this
Agreement, the Merger Agreement or the Distribution Agreement, to the
extent the breach occurs after the Distribution Date. Company shall be
entitled to any refund or credit of Taxes which is attributable to both an
entity and a taxable year or taxable period for which Company has liability
hereunder.
(c) Each party agrees to report the Transfer as a tax-free transaction
under Section 332, 351 or 368(a) of the Code, the Distribution as a tax-
free distribution under Section 355 of the Code and the Merger as a tax-
free reorganization within the meaning of Section 368(a)(1)(B) of the Code
on all tax returns and other filings, and take no position inconsistent
therewith. The parties shall not, and shall not permit any of their
respective Subsidiaries to, take or cause or permit to be taken, any action
that would disqualify the Distribution as a tax-free distribution under
Section 355 of the Code, disqualify the Transfer as a tax-free transaction
under Section 332, 351 or 368(a) of the Code, or disqualify the Merger as a
reorganization within the meaning of Section 368(a)(1)(B) of the Code,
excluding any action to be taken pursuant to the Merger Agreement to effect
the Merger.
(d) Except as set forth in this Section 2.3 and in consideration of the
mutual indemnities and other obligations of this Agreement, any and all
existing tax sharing agreements and prior practices regarding Taxes and
their payment, allocation, or sharing between any member of the Retained
Group and any member of the Newco Group shall be terminated with respect to
the Newco Group as of the Distribution Date.
2.4 Period that includes the Distribution Date.
(a) To the extent permitted by law or administrative practice, the
taxable year of the Company Group shall be treated as closing at the close
of business on the Distribution Date. The parties agree that the taxable
year of the Company Group will close for federal income tax purposes at
that time, and further agree that one of the Tax Returns to be filed by
Newco pursuant to Section 2.1 of this Agreement is the consolidated federal
income Tax Return of the Company Group for the tax year beginning July 1,
1996 and ending at the close of business on the Distribution Date, that
such tax year is a Period Before Distribution under this Agreement and that
such Tax Return properly does, and will, include all transactions occurring
through and including the Distribution date, including the Transfer, the
Distribution and the Merger.
(b) If it is necessary for purposes of this Agreement to determine the
income tax liability of any member of the Newco Group or of the Retained
Group for a taxable year that begins on or before and ends after the
Distribution Date and is not treated under Section 2.4(a) as closing at the
close of the Distribution
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Date, the determination shall be made by assuming that such member of the
Newco Group or of the Retained Group had a taxable year that ended at the
close of the Distribution Date, except that exemptions, allowances or
deductions that are calculated on an annual basis shall be apportioned on a
per diem basis.
2.5 Payments. To the extent that a party owes money (the "Payor") to another
party (the "Payee") pursuant to this Article II, the Payor shall pay the
Payee, no later than 15 days prior to the due date of the relevant Tax Return
or estimated Tax Return or 15 days after the Payor receives the Payee's
calculations, whichever occurs last, the amount for which the Payor is
required to indemnify the Payee under this Article II. The Payee shall submit
the Payee's calculations of the amount required to be paid pursuant to this
Article II, showing such calculations in sufficient detail so as to permit the
Payor to understand the calculations. The Payor shall have the right to
disagree with such calculations. Any dispute regarding such calculations shall
be resolved in accordance with Article VII of this Agreement.
2.6 Interest. Any payment required by this Agreement which is not made on or
before the date provided hereunder shall bear interest after such date at the
Underpayment Rate.
ARTICLE III
Carrybacks
Without the prior consent of Newco, no member of the Retained Group shall
carry back any net operating loss from a Period After Distribution to a Period
Before Distribution. In addition, no member of the Retained Group shall carry
back any other Tax attribute from a Period After Distribution to a Period
Before Distribution without the consent of Newco, which consent shall not be
withheld unless such carryback shall cause material detriment or damage to
Newco.
ARTICLE IV
Tax Audits
4.1 General. Except as provided in Section 4.2, each of Newco and Company
shall have sole responsibility for all audits or other proceedings with
respect to Tax Returns that it is required to file under Section 2.1.
4.2 Indemnified Claims. Company or Newco shall promptly notify the other in
writing of any proposed adjustment to a Tax Return that may result in
liability, or entitlement to refund, of the other party (the "Indemnitor")
under this Agreement. The Indemnitor shall have the sole right to contest or
settle the proposed adjustment and to employ counsel of its choice at its
expense. The Indemnitor shall provide the other party (the "Indemnitee") with
information concerning the proposed adjustments and shall permit the
Indemnitee to attend the proceeding at its expense.
4.3 Payment of Audit Assessments. The obligation for payment or entitlement
to refund of the Indemnitor shall be limited to the net increase or net
decrease in tax liability resulting (for all past and future periods) from a
change in tax treatment required by a Final Determination. The obligation or
entitlement of the Indemnitor shall be adjusted to reflect the present value
of the increase and/or decrease in future tax liabilities of the Indemnitee
resulting from the change in tax treatment using, with respect to tax periods
prior to the date of such Final Determination, the highest marginal tax rate
of the applicable taxing jurisdiction known to be applicable to the entities,
tax periods and items involved, and with respect to tax periods thereafter,
using the highest marginal tax rate of the applicable taxing jurisdiction in
effect as of the date of such Final Determination with respect to the entities
and items involved, and using a discount rate equal to the Underpayment Rate
in effect as of the date of such Final Determination.
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ARTICLE V
Cooperation
Company and Newco shall (and shall cause the members of the Company Group
and the Newco Group, as the case may be, to) cooperate with each other in the
filing of any Tax Returns and the conduct of any audit or other proceeding and
each shall execute and deliver such powers of attorney and make available such
other documents and employees as are necessary to carry out the intent of this
Agreement. Each party agrees to notify the other party of any audit
adjustments which do not result in Tax liability but can be reasonably
expected to affect Tax Returns of the other party, or any of its Subsidiaries,
for a Period After Distribution. Each party agrees to treat the Distribution
for all income tax purposes as a tax-free spinoff pursuant to Section 355(a)
of the Code unless and until there has been a Final Determination that the
Distribution is not a tax-free spinoff under Section 355(a) of the Code.
ARTICLE VI
Retention of Records; Access
The Retained Group and the Newco Group shall (a) until the expiration of the
relevant statute of limitations, retain records, documents, accounting data
and other information (including computer data) necessary for the preparation
and filing of all Tax Returns in respect of Taxes of the Retained Group or the
Newco Group or for the audit of such Tax Returns; and (b) give to the other
party reasonable access to such records, documents, accounting data and other
information (including computer data) and to its personnel (insuring their
cooperation) and premises, for the purpose of the review or audit of such
returns to the extent relevant to an obligation or liability of a party under
this Agreement. Prior to destroying any records, documents, data or other
information in accordance with this Article, the party wishing to destroy such
items will give the other party a reasonable opportunity to obtain such items
(at such other party's expense).
ARTICLE VII
Disputes
If the parties disagree as to the calculation of any Tax or the amount of
(but not liability for) any payment to be made under this Agreement, the
parties shall cooperate in good faith to resolve any such dispute, and any
agreed-upon amount shall be paid to the appropriate party. If the parties are
unable to resolve any such dispute within 15 days thereafter, such dispute
shall be resolved by a nationally recognized accounting firm acceptable to
both Company and Newco. The decision of such firm shall be final and binding.
The fees and expenses incurred in connection with such decision shall be borne
equally by Company and Newco. Following the decision of such accounting firm,
the parties shall each take (or cause to be taken) any action that is
necessary or appropriate to implement such decision, including, without
limitation, the prompt payment of underpayments or overpayments, with interest
calculated on such overpayments and underpayments at the Underpayment Rate
from the date such payment was due (the due date of payments governed by
Section 2.5 of this Agreement shall be the date a payment is due thereunder
assuming the party does not dispute the amount owed) through the date such
underpayment or overpayment is paid or refunded.
ARTICLE VIII
Termination of Liabilities
Notwithstanding any other provision in this Agreement, any liabilities
determined under this Agreement shall not terminate any earlier than the
expiration of the applicable statute of limitation for such liability. All
other representations, warranties and covenants under this Agreement shall
survive indefinitely.
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ARTICLE IX
Miscellaneous Provisions
9.1 Notices and Governing Law. All notices required or permitted to be given
pursuant to this Agreement shall be given, and the applicable law governing
the interpretation of this Agreement shall be determined, by the applicable
provisions of the Distribution Agreement.
9.2 Treatment of Payments. The parties hereto shall treat any payments made
pursuant to the terms of this Agreement as a capital transaction for all tax
purposes, except to the extent such payments represent interest paid pursuant
to Section 2.6.
9.3 Binding Effect; No Assignment; Third Party Beneficiaries. This Agreement
shall be binding on, and shall inure to the benefit of, the parties and their
respective successors and assigns, including Parent. Company and Newco hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of each member of the Retained Group and the Newco
Group, respectively. Company and Newco shall, upon the written request of the
other, cause any of their respective Subsidiaries to execute this Agreement.
Company or Newco shall not assign any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the other
party. No person (including, without limitation, any employee of a party or
any stockholder of a party) shall be, or shall be deemed to be, a third party
beneficiary of this Agreement.
9.4 Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and supersedes
all prior agreements, whether or not written, concerning such subject matter.
This Agreement may not be amended except by an agreement in writing, signed by
the parties.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
First Mississippi Corporaiton
By __________________________________
Name:
Title:
[Newco]
By __________________________________
Name:
Title:
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