EXHIBIT 99.3
================================================================================
TAX ALLOCATION AGREEMENT
dated as of May 8, 1997
among
AMERICAN BRANDS, INC.,
and
XXXXXXXX GROUP LIMITED,
and
XXXXXXXX LIMITED
================================================================================
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I DEFINITIONS...................................................... 2
----------------------
ARTICLE II FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS; TAX DISPUTES.. 6
--------------------------------------------------------------------------
2.01 Obligations of American Brands........................................ 6
2.02 Obligations of New Xxxxxxxx........................................... 7
2.03 J.R.F. Realty, Inc.................................................... 7
2.04 Bonny Products, Inc. and Xxxxxx Instruments, Inc...................... 9
2.05 JBB (Greater Europe) plc.............................................. 9
ARTICLE III TAX INDEMNIFICATION............................................ 11
--------------------------------
3.01 Indemnification....................................................... 11
3.02 New Xxxxxxxx Tax Group Tax Acts....................................... 13
3.03 Notice of Indemnity................................................... 14
3.04 Indemnification Payments.............................................. 14
ARTICLE IV COOPERATION AND EXCHANGE OF INFORMATION......................... 15
---------------------------------------------------
4.01 Inconsistent Actions.................................................. 15
4.02 Ruling Request........................................................ 15
4.03 IRS Gain Recognition Agreement; Notification of Certain Dispositions.. 15
4.04 Cooperation and Exchange of Information............................... 16
4.05 Tax Records........................................................... 16
ARTICLE V MISCELLANEOUS.................................................... 17
------------------------
5.01 Complete Agreement; Construction...................................... 17
5.02 Effectiveness......................................................... 17
5.03 Survival of Agreements................................................ 17
5.04 Governing Law......................................................... 17
5.05 Notices............................................................... 18
5.06 Consent to Jurisdiction............................................... 19
5.07 Modifications or Amendments........................................... 19
5.08 Successors and Assigns................................................ 20
5.09 Termination........................................................... 20
5.10 No Third Party Beneficiaries.......................................... 20
5.11 Titles and Headings................................................... 20
5.12 Severability.......................................................... 20
5.13 No Waivers............................................................ 21
5.14 Counterparts.......................................................... 21
5.15 Performance........................................................... 21
5.16 Rights 21
i
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (this "Agreement") is made and entered
into as of May 8, 1997, by and between American Brands, Inc., a Delaware
corporation ("American Brands"), Xxxxxxxx Group Limited, an English private
limited company ("New Xxxxxxxx"), and Xxxxxxxx Limited, an English private
limited company ("Xxxxxxxx").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the American Brands Board (as hereinafter defined) has
determined that it is appropriate and desirable to transfer all of the
outstanding ordinary shares of Xxxxxxxx to New Xxxxxxxx in a transaction that
will be treated for U.S. federal income tax purposes as a reincorporation of
ATIC Group, Inc., a Delaware corporation and wholly-owned subsidiary of American
Brands ("ATIC"), as New Xxxxxxxx, qualifying as a tax-free reorganization under
Section 368(a)(1)(F) of the Code (as hereinafter defined) (the
"Reorganization");
WHEREAS, the American Brands Board has determined that it is
appropriate and desirable to effectuate the Distribution (as hereinafter
defined) in a transaction that will qualify under Section 355 of the Code as a
tax-free distribution to its shareholders; and
WHEREAS, American Brands, New Xxxxxxxx and Xxxxxxxx wish to provide
for and agree upon the allocation between the American Brands Tax Group (as
hereinafter defined) and the New Xxxxxxxx Tax Group (as hereinafter defined) of
all responsibilities, liabilities and benefits relating to or affecting Taxes
(as hereinafter defined) paid or payable by either of them for all taxable
periods, whether beginning before, on or after the Distribution Date (as
hereinafter defined).
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants contained in this Agreement, the parties
hereto hereby agree as follows:
1
ARTICLE I
---------
DEFINITIONS
-----------
Section 1.01 General. As used in this Agreement, the following terms
-------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"ACT" has the meaning set forth in Section 2.05(a).
"ADRs" shall mean American Depositary Receipts evidencing ADSs.
"ADSs" shall mean American Depositary Shares representing New Xxxxxxxx
Ordinary Shares, where each ADS represents four New Xxxxxxxx Ordinary Shares as
of the Distribution Date.
"American Brands" has the meaning set forth in the Recitals above.
"American Brands Common Stock" shall mean the Common Stock, par value
$3.125 per share, of American Brands.
"American Brands Tax Group" shall mean (i) American Brands, (ii) any
corporation or other legal entity which American Brands directly or indirectly
owns immediately following the Distribution, (iii) any other corporation or
other legal entity (other than ATIC) which American Brands directly or
indirectly owned at any time prior to the Distribution (but only with respect to
the period such corporation or other entity was so owned by American Brands)
other than New Xxxxxxxx or a member of the New Xxxxxxxx Tax Group, and (iv)
ATIC, but only in respect of the period ending on the transfer of ATIC to New
Xxxxxxxx.
"ATIC" has the meaning set forth in the Recitals above.
"Board" shall mean the Board of Directors of American Brands or the
Executive Committee thereof.
"Buyer Tax Act" has the meaning set forth in Section 3.01(a).
2
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor legislation.
"Distribution" shall mean the distribution of the Distribution Shares
(as hereinafter defined) on a pro rata basis to holders of American Brands
Common Stock on the Distribution Date pursuant to the Distribution Agreement (as
hereinafter defined).
"Distribution Agreement" shall mean the Distribution Agreement dated
as of May 8, 1997 by and between American Brands, ATIC, New Xxxxxxxx and
Xxxxxxxx.
"Distribution Date" shall mean the date on which the Distribution
occurs or is deemed to occur for U.S. federal income tax purposes. Solely for
purposes of this Agreement, the Distribution shall be deemed effective as of the
close of business on the Distribution Date.
"Distribution Payment" shall mean the payment in connection with the
Distribution of approximately 945 million pounds sterling by New Xxxxxxxx to
American Brands.
"Distribution Shares" shall mean, collectively, (i) the New Xxxxxxxx
Ordinary Shares to be delivered to the holders of record of American Brands
Common Stock on the Record Date (as hereinafter defined) with addresses outside
of the United States and Canada and (ii) the ADSs evidenced by the ADRs to be
delivered to the holders of record of American Brands Common Stock on the Record
Date with addresses within the United States and Canada pursuant to the
Distribution Agreement.
"Xxxxxxxx" has the meaning set forth in the Recitals above.
"Xxxxxxxx VAT Group" has the meaning set forth in Section 2.05(b).
"IRS" shall mean the Internal Revenue Service.
"IRS Gain Recognition Agreement" shall mean the gain recognition
agreement entered into between the IRS and American Brands pursuant to Section
367 of the Code and the regulations thereunder and the Ruling (as
3
hereinafter defined), and any revised or successor agreement thereto.
"New Xxxxxxxx" has the meaning set forth in the Recitals above.
"New Xxxxxxxx Facility" shall mean the credit agreement entered into
by New Xxxxxxxx with certain banks for a 1.2 billion pounds sterling five-year
multicurrency revolving credit facility.
"New Xxxxxxxx Ordinary Shares" shall mean, the ordinary shares of 10
xxxxx each of New Xxxxxxxx.
"New Xxxxxxxx Tax Group" shall mean (i) New Xxxxxxxx, (ii) any
corporation or other legal entity which New Xxxxxxxx directly or indirectly owns
immediately following the Distribution, (iii) any other corporation or legal
entity which Xxxxxxxx directly or indirectly owned at any time prior to the
Distribution (but only with respect to the period such corporation or other
entity was so owned by Xxxxxxxx), (iv) J.R.F. Realty, Inc., (v) Bonny Products,
Inc., a New York corporation, and subsidiaries, and (vi) Xxxxxx Instruments,
Inc., a Pennsylvania corporation, and subsidiaries, but excluding (vii) JBB
(Greater Europe) plc (formerly The Xxxxx & Mackay Group, PLC) and subsidiaries,
(viii) Ofrex Group Holdings plc and subsidiaries and (ix) ATIC, but only in
respect of the period ending on the transfer of ATIC to New Xxxxxxxx.
"New Xxxxxxxx Tax Group Tax Act" has the meaning set forth in Section
3.02(a).
"New Xxxxxxxx Tax Representation Letter" means the letter delivered by
New Xxxxxxxx to American Brands on the Distribution Date, substantially in the
form set forth in Schedule 3.02(b) attached hereto.
"Plan of Reorganization" shall mean the Plan of Reorganization for
ATIC Group, Inc. to be adopted by American Brands and ATIC, substantially in the
form set forth in Schedule 3.02(c) hereto.
"Record Date" shall mean the close of business on the date to be
determined by the Board as the record date for the Distribution.
4
"Reorganization" has the meaning set forth in the Recitals above.
"Ruling" means the private letter ruling issued by the IRS in reply to
the Ruling Request (as hereinafter defined) including any amendment thereto or
any supplement thereto.
"Ruling Request" means the private letter ruling request filed by
American Brands with the IRS on October 8, 1996 (as modified or supplemented by
any materials submitted to the IRS), seeking rulings that, inter alia, the
----- ----
Distribution will qualify for U.S. federal income tax purposes as a tax-free
distribution to the shareholders under Section 355 of the Code.
"Sale Date" means the date on which the shares of J.R.F. Realty, Inc.
are sold by American Brands to a member of the New Xxxxxxxx Tax Group. Solely
for purposes of this Agreement, the sale of J.R.F. Realty, Inc. shares shall be
deemed effective as of the close of business on the Sale Date.
"Tax" and "Taxes" means all forms of taxation, whenever created or
imposed, and whether of the United States, the United Kingdom or elsewhere, and
whether imposed by a federal, state, municipal, governmental, territorial,
local, foreign or other body, and without limiting the generality of the
foregoing, shall include net income, gross income, gross receipts, sales, use,
value added, ad valorem, transfer, recording, franchise, profits, license,
lease, service, service use, payroll, wage, withholding, employment,
unemployment insurance, workers compensation, social security, excise,
severance, stamp, business license, business organization, occupation, premium,
property, environmental, windfall profits, customs, duties, alternative minimum,
estimated or other taxes, fees, premiums, assessments or charges of any kind
whatever imposed or collected by any governmental entity or political
subdivision thereof, which any member of the American Brands Tax Group or the
New Xxxxxxxx Tax Group is required to pay, collect or withhold, together with
any related interest and any penalties, additions to such tax or additional
amounts imposed with respect thereto by any Tax Authority.
"Tax Authority" means, with respect to any Tax, any governmental
entity, quasi-governmental body or
5
political subdivision thereof that imposes such Tax and the agency (if any)
charged with the determination or collection of such Tax for such entity, body
or subdivision.
"Tax Group" means the American Brands Tax Group or the New Xxxxxxxx
Tax Group, as the case may be.
"Tax Return" means any return, filing, questionnaire, information
return or other document required to be filed, including requests for extensions
of time, filings made with respect to estimated tax payments, claims for refund
and amended returns that may be filed, for any period with any Tax Authority
(whether domestic or foreign) in connection with any Tax (whether or not a
payment is required to be made with respect to such filing).
Any capitalized term not otherwise defined in this Agreement shall
have the meaning ascribed to it in the Distribution Agreement.
Section 1.02 Schedules, etc. References to a "Schedule" is, unless
--------------
otherwise specified, to the Schedule attached to this Agreement; references to
"Section" or "Article" are, unless otherwise specified, to one of the Sections
or Articles of this Agreement; references to "sub-section" are, unless the
context otherwise requires, references to the section in which the reference
appears; and references to this Agreement include the Schedules.
ARTICLE II
----------
FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS; TAX DISPUTES
--------------------------------------------------------------
2.01 Obligations of American Brands. American Brands shall with
------------------------------
respect to members of the American Brands Tax Group (i) file or cause to be
filed all Tax Returns (including amendments thereto); (ii) pay or cause to be
paid all Taxes due on all Tax Returns filed pursuant to this Section 2.01 or
otherwise; (iii) be entitled to any refund or credit in respect of such Taxes;
and (iv) control all audits and disputes with Tax Authorities relating to such
Taxes.
6
2.02 Obligations of New Xxxxxxxx. Except as provided in Section 2.03
---------------------------
and Section 2.04 below, New Xxxxxxxx shall with respect to members of the New
Xxxxxxxx Tax Group (i) file or cause to be filed all Tax Returns (including
amendments thereto); (ii) pay or cause to be paid all Taxes due on all Tax
Returns filed pursuant to this Section 2.02 or otherwise (including transfer
Taxes and stamp Taxes relating to the transfer of trademarks by ATIC to
Xxxxxxxx, the transfer of shares in ATIC to New Xxxxxxxx and the issue of shares
in New Xxxxxxxx to the Depositary, the transfer of shares in Xxxxxxxx to New
Xxxxxxxx, the purchase by New Xxxxxxxx of its own shares, the effecting of the
Distribution and the transfer of the shares in J.R.F. Realty, Inc., all pursuant
to the Distribution Agreement); (iii) be entitled to any refund or credit in
respect of such Taxes; and (iv) control all audits and disputes with Tax
Authorities relating to such Taxes, including a Tax audit or Tax dispute with
Tax Authorities which might give rise to a payment by American Brands pursuant
to Section 3.01(a)(vii) of this Agreement, provided that in the event of a Tax
audit or Tax dispute with Tax Authorities which might give rise to a payment by
American Brands pursuant to section 3.01(a)(vii) of this Agreement, (x) New
Xxxxxxxx shall promptly advise American Brands of the existence of such Tax
audit or Tax dispute, (y) American Brands (and its representatives) shall have
the right to participate fully, at its own expense, in all aspects of such Tax
audit or Tax dispute and Xxxxxxxx shall in good faith seek the consensus of
American Brands in taking any actions in connection with such Tax audit or Tax
dispute and (z) New Xxxxxxxx shall not settle any such Tax audit or Tax dispute
without the prior written consent of American Brands, which consent shall not be
unreasonably withheld.
2.03 J.R.F. Realty, Inc.
------------------
(a) For all periods ending on or before the Sale Date, American
Brands shall file or cause to be filed on behalf of J.R.F. Realty, Inc. (i) all
U.S. federal income Tax Returns (including amendments thereto) for all periods
ending on or before the Sale Date and (ii) all state income Tax Returns which
include on a consolidated or combined basis J.R.F. Realty, Inc. and any other
member of the American Brands Tax Group. All such Tax Returns shall be prepared
on a basis consistent with the elections, accounting methods, conventions and
7
principles of taxation used for the most recent tax periods for which such Tax
Returns have been filed unless American Brands determines there is no
substantial authority to support such position or there has been a change in or
amendment to any law or regulation, or any change in the official interpretation
thereof. At least five days prior to the due date (with extensions) of any such
Tax Returns not yet filed on the Sale Date, New Xxxxxxxx shall pay or cause to
be paid to or at the direction of American Brands all Taxes (including estimated
payments) of J.R.F. Realty, Inc. shown as due on any such Tax Returns.
(b) J.R.F. Realty, Inc. will be included in the U.S. federal
consolidated income Tax Returns and the Connecticut combined Tax Returns of
American Brands for the calendar year 1996 and the portion of the calendar year
1997 ending on the Sale Date. To the extent all necessary information was not
previously provided to American Brands, New Xxxxxxxx shall, or shall cause
J.R.F. Realty, Inc. to, provide complete information packages prepared in
accordance with instructions and procedures furnished by American Brands, and
such other information as American Brands may reasonably request, to enable
American Brands to include J.R.F. Realty, Inc. in such Tax Returns. In the case
of the portion of the calendar year 1997 ending on the Sale Date, such
instructions and procedures shall be furnished by American Brands not later than
one month after the Sale Date and the information package shall be delivered by
New Xxxxxxxx to American Brands not later than three months after receipt of
such instructions and procedures. Promptly after completion thereof, American
Brands shall furnish to J.R.F. Realty, Inc. a copy of the pro forma separate
U.S. federal income Tax Returns of J.R.F. Realty, Inc., or similar data, used in
the preparation and filing of the U.S. consolidated federal income Tax Returns
of American Brands for 1996 or 1997, as the case may be. Comparable procedures
shall apply for the preparation and filing of the Connecticut combined Tax
Return for the years 1996 and 1997.
(c) American Brands shall control all Tax audits and Tax disputes
with Tax Authorities relating to Tax Returns filed or required to be filed by
American Brands pursuant to Section 2.03(a); provided, however, that American
Brands shall reasonably consult with New Xxxxxxxx and in good faith take its
interests into
8
account in handling and settling disputes relating to such Tax Returns. New
Xxxxxxxx shall pay or cause to be paid to or at the direction of American Brands
within thirty days after written demand therefor is made by American Brands any
additional Taxes due relating to such Tax Returns as a result of such Tax audit
or Tax dispute or otherwise.
2.04 Bonny Products, Inc. and Xxxxxx Instruments, Inc.
------------------------------------------------
American Brands shall control all Tax audits and Tax disputes with Tax
Authorities relating to Tax Returns filed or required to be filed on behalf of
Bonny Products, Inc. and Xxxxxx Instruments, Inc. (and its subsidiaries);
provided, however, that American Brands shall reasonably consult with New
Xxxxxxxx and in good faith take its interests into account in handling and
settling disputes relating to such Tax Returns. New Xxxxxxxx shall pay or cause
to be paid to or at the direction of American Brands within thirty days after
written demand therefor is made by American Brands any additional Taxes due
relating to such Tax Returns as a result of such Tax audit or Tax dispute or
otherwise.
2.05 JBB (Greater Europe) plc.
------------------------
(a) Group Relief and Advance Corporation Tax Surrenders. New Xxxxxxxx
---------------------------------------------------
and American Brands agree that claims for and surrenders of group relief and
advance corporation tax ("ACT") will be made between companies in their
respective Tax Groups in the amounts set forth on Schedule 2.05(a). The payment
to be made by each claimant company to the relevant surrendering company in
respect of each surrender shall equal the amount of Tax which is saved by the
claimant company as a consequence of that surrender. Estimates of such amounts
payable are set forth on Schedule 2.05(a). To the extent that payments under
this Section 2.05(a) have not already been made (as set forth on Schedule
2.05(a)), payments shall be due on the later of (a) the date on which the
relevant claimant company would have been liable to account for Tax to the
Inland Revenue had the surrender not been made and (b) five days after the
relevant claimant company receives notice that a surrender has been accepted by
the Inland Revenue as valid.
9
(b) Value Added Tax. New Xxxxxxxx has submitted an application to HM
---------------
Customs & Excise pursuant to Section 43(5) of the Value Added Tax Xxx 0000 for
the exclusion from the Xxxxxxxx group VAT registration (the "Xxxxxxxx VAT
Group") of the New Xxxxxxxx Subsidiaries, and the replacement of Xxxxxxxx as
representative member by JBB (Greater Europe) plc and for such exclusion and
replacement to take effect on May 1, 1997. The parties shall furnish or procure
to be furnished such information as may be required to enable Xxxxxxxx (as the
current representative member) to make the returns required in respect of the
Xxxxxxxx VAT Group for periods ending on or before May 1, 1997.
(c) Advance Corporation Tax. In the event the value of the specie
-----------------------
distribution by Xxxxxxxx of the shares of JBB (Greater Europe) plc is ultimately
determined by the Inland Revenue to be (i) an amount higher than (Pounds)323
million, Xxxxxxxx agrees to pay or cause to be paid to or at the direction of
American Brands within 30 days thereof the additional half ACT tax credit
thereon less income tax withholding at a rate of 5 percent on the aggregate of
the amount by which such value exceeds (Pounds)323 million and the half ACT tax
credit thereon; and (ii) an amount lower than (Pounds)323 million, American
Brands agrees to pay or cause to be paid within 30 days thereof to or at the
direction of Xxxxxxxx the half ACT tax credit attributable to the amount by
which the value of the distribution is less than (Pounds)323 million less income
tax withholding at the rate of 5% on the aggregate of the amount by which such
value is less than (Pounds)323 million and the half ACT tax credit thereon.
ARTICLE III
-----------
TAX INDEMNIFICATION
-------------------
3.01 Indemnification.
---------------
(a) American Brands Indemnification. Subject to Section 3.01(b) and
-------------------------------
Section 3.02, American Brands shall indemnify, defend and hold harmless New
Xxxxxxxx, each member of the New Xxxxxxxx Tax Group and each of their respective
stockholders, directors, officers, employees and agents and each of the heirs,
executors, successors, and assigns of any of the foregoing from and against:
(i) all Taxes of the American Brands Tax Group;
10
(ii) all liability as a result of Treas. Reg. (S) 1.1502-6(a) (which imposes
several liability on members of an affiliated group that file a U.S. federal
consolidated income Tax return) or comparable state provision for Taxes of any
person (other than J.R.F. Realty, Inc., Bonny Products, Inc., and Xxxxxx
Instruments, Inc. (and their subsidiaries)) which is or has ever been affiliated
with any member of the American Brands Tax Group or with which any member of the
American Brands Tax Group joins or has ever joined (or is or has ever been
required to join) in filing any state consolidated, combined or unitary Tax
Return for any Tax period ending on or before or including the Sale Date; (iii)
all Taxes for any Tax period (whether beginning before, on or after the
Distribution Date) that would not have been payable but for the breach by any
member of the American Brands Tax Group of any representation, warranty,
covenant or obligation under this Agreement; (iv) all liability for a breach by
any member of the American Brands Tax Group of any representation, warranty,
covenant or obligation under this Agreement; (v) all Taxes for which American
Brands is liable pursuant to Section 3.02; (vi) all liability for any reasonable
legal, accounting, appraisal, consulting or similar fees and expenses relating
to the foregoing; and (vii) 50% of the Taxes that would not have been payable
but for the Inland Revenue's denial of relief under para 13, sch. 9 Finance Xxx
0000 (or successor provision) for corporation tax purposes in respect of its
borrowings of approximately (Pounds)945 million incurred to fund the
Distribution Payment under the New Xxxxxxxx Facility; provided, however, that
with respect to subsection (a)(vii) of this Section 3.01, American Brands'
liability for Taxes shall not exceed (Pounds)65 million plus 50% of the Taxes,
if any, incurred by New Xxxxxxxx on any payment by American Brands pursuant to
such Section 3.01(a)(vii). Notwithstanding the foregoing and subject to Section
3.01(b) and Section 3.02, American Brands shall not indemnify, defend or hold
harmless any member of the New Xxxxxxxx Tax Group from any liability for Taxes
(other than Taxes resulting from the failure of the Reorganization to qualify as
a "reorganization" within the meaning of Section 368(a)(1)(F) of the Code or the
failure of the Distribution to qualify as a transaction described in Section 355
of the Code) attributable to any action taken by any member of the New Xxxxxxxx
Tax Group after the Distribution (other than any such action expressly required
or otherwise expressly contemplated by this Agreement, the Distribution
11
Agreement, the Interim Services Agreement, the Indemnification Agreement or any
other agreement entered into for the purpose of implementing the Distribution or
taken in the ordinary course of business) (a "Buyer Tax Act").
(b) New Xxxxxxxx and Xxxxxxxx Indemnification. New Xxxxxxxx and
-----------------------------------------
Xxxxxxxx shall be liable for, and shall indemnify, defend and hold harmless
American Brands, each member of the American Brands Tax Group and each of the
respective stockholders, directors, officers, employees and agents and each of
the heirs, executors, successors, and assigns of any of the foregoing from and
against: (i) all Taxes of any member of the New Xxxxxxxx Tax Group (other than
Taxes for which American Brands provides indemnification pursuant to Section
3.01(a)); (ii) all Taxes for any Tax period (whether beginning before, on or
after the Distribution Date) and any other Tax that would not have been payable
but for the breach by any member of the New Xxxxxxxx Tax Group of any
representation, warranty, covenant or obligation under this Agreement; (iii) all
liability for a breach by any member of the New Xxxxxxxx Tax Group of any
representation, warranty, covenant or obligation under this Agreement; (iv) all
transfer Taxes and stamp Taxes imposed in connection with the transactions
contemplated by the Distribution Agreement, the Interim Services Agreement, the
Indemnification Agreement or any other agreement entered into for the purpose of
implementing the Distribution, other than those transfer Taxes and stamp Taxes
for which New Xxxxxxxx and Xxxxxxxx assume responsibility pursuant to Section
2.02; (v) all Taxes for which New Xxxxxxxx is liable pursuant to Section 3.02;
(vi) all Taxes arising under the IRS Gain Recognition Agreement; (vii) all Taxes
attributable to a Buyer Tax Act; and (viii) all liability for any reasonable
legal, accounting, appraisal, consulting or similar fees and expenses relating
to the foregoing.
3.02 New Xxxxxxxx Tax Group Tax Acts.
-------------------------------
(a) Notwithstanding Section 3.01, New Xxxxxxxx and Xxxxxxxx agree to
indemnify, defend and hold harmless American Brands, each member of the American
Brands Tax Group and each of the respective stockholders, directors, officers,
employees and agents and each of the heirs, executors, successors, and assigns
of any of the foregoing from and against any Taxes resulting from any
12
New Xxxxxxxx Tax Group Tax Act which causes the Reorganization to fail to
qualify as a "reorganization" within the meaning of Section 368(a)(1)(F) of the
Code or the Distribution to fail to qualify as a transaction described in
Section 355 of the Code. A New Xxxxxxxx Tax Group Tax Act shall mean any action
set forth on Schedule 3.02(a) hereof.
(b) New Xxxxxxxx shall, and shall cause each member of the New
Xxxxxxxx Tax Group to, comply with and take no action inconsistent with the New
Xxxxxxxx Tax Representation Letter, unless, pursuant to a favorable ruling
letter obtained from the IRS which is satisfactory to American Brands or in the
opinion of Xxxxxxxxxx & Xxxxx LLP or other nationally recognized counsel to
American Brands, which opinion shall be satisfactory to American Brands, such
act or omission would not adversely affect the U.S. federal income tax
consequences of the Distribution or Reorganization to American Brands or the
stockholders of American Brands. Notwithstanding Sections 3.01(b)(ii),
3.01(b)(iii) and 3.01(b)(vii), the parties intend that the sole remedy for
breach of the covenants contained in this Section 3.02(b) shall be as set forth
in Section 3.02(a).
(c) Notwithstanding the foregoing, a New Xxxxxxxx Tax Group Tax Act
shall not include any transaction or action specifically disclosed or
specifically described in the New Xxxxxxxx Tax Representation Letter, the
Distribution Agreement or the Plan of Reorganization (or any agreement or
document included as an exhibit thereto). A New Xxxxxxxx Tax Group Tax Act
shall not include any action on the part of American Brands or any member of the
American Brands Tax Group (other than ATIC for the period ATIC is a member of
the New Xxxxxxxx Tax Group). American Brands agrees to indemnify and hold New
Xxxxxxxx and each member of the New Xxxxxxxx Tax Group harmless from and against
any Taxes resulting from the failure of the Distribution to qualify under
Section 355 of the Code or the failure of the Reorganization to qualify as a
"reorganization" within the meaning of Section 368(a)(1)(F) of the Code, except
where such failure is attributable to a New Xxxxxxxx Tax Group Tax Act.
3.03 Notice of Indemnity. Whenever a party hereto becomes aware of
-------------------
the existence of an issue raised by any Tax Authority which could reasonably be
expected
13
to result in a determination that would increase the liability for any Tax of
the other party hereto or any member of its Tax Group for any Tax period or
require a payment hereunder by the other party, such first party shall in good
faith promptly give notice to such other party of such issue. The failure of the
first party to give such notice shall not relieve such other party of its
obligations under this Agreement, except to the extent such other party or a
member of its Tax Group is actually materially prejudiced by such failure to
give notice.
3.04 Indemnification Payments.
------------------------
(a) Time for Payment. Unless otherwise provided in this Agreement,
----------------
any indemnity payment required to be made pursuant to this Agreement shall be
paid within thirty days after the indemnified party makes written demand upon
the indemnifying party, but in no case earlier than five business days prior to
the date on which the relevant Taxes are required to be paid (or would be
required to be paid if no such Taxes are due) to the relevant Tax Authority
(including estimated Tax payments).
(b) Payments Net of Taxes and Tax Benefits. Any payments made by the
--------------------------------------
parties to each other pursuant to this Agreement shall be (i) reduced to take
into account any net Tax benefit realized by the recipient arising from the
incurrence or payment by such recipient of the items giving rise to such
payments hereunder and (ii) increased to take into account any net Tax cost (or,
in the case of a payment under Section 3.01(a)(vii), 50% of such net Tax cost)
incurred by the recipient as a result of the receipt or accrual of payments
hereunder grossed-up for such increase, in each case determined by treating the
recipient as recognizing all other items of income, gain, loss, deduction or
credit before recognizing any item in respect of this Agreement.
(c) Right to Offset. Any party making a payment under this Agreement
---------------
shall have the right to reduce any such payment by any amounts owed to it by the
other party to this Agreement.
14
ARTICLE IV
----------
COOPERATION AND EXCHANGE OF INFORMATION.
---------------------------------------
4.01 Inconsistent Actions. Each of the parties to this Agreement
--------------------
agrees (i) to, and to cause each of the relevant members of its Tax Group to,
report the Distribution as a transaction described in Section 355 of the Code
and the Reorganization as a reorganization described in Section 368(a)(1)(F) of
the Code on all Tax Returns and other filings, (ii) to use their respective best
efforts to ensure that the Distribution and the Reorganization receive such
treatment for United States federal Tax purposes and (iii) that, unless it has
obtained the prior written consent of the other parties, it (and the members of
its Tax Group) shall not take any action inconsistent with, or fail to take any
action required by, either this Agreement, the Distribution Agreement or the
Plan of Reorganization.
4.02 Ruling Request. Each of the parties hereto represents that
--------------
neither it (nor any of the members of its Tax Group) will take or has any plan
or intention to take any action which is inconsistent with any factual
statements, representations or other similar conditions contained in the Ruling
Request or in the Ruling.
4.03 IRS Gain Recognition Agreement; Notification of Certain
-------------------------------------------------------
Dispositions. New Xxxxxxxx shall give American Brands at least sixty days
------------
prior written notice in the event that at any time prior to the date which is 10
years after the Distribution Date, New Xxxxxxxx directly or indirectly disposes
of all or any portion of the ownership interest in, or all or a substantial
portion of the assets of, Xxxxxxxx. Such notice shall describe any such
disposition in sufficient detail to enable American Brands (i) to comply with
the requirements of Section 367 of the Code, applicable regulations thereunder
and the IRS Gain Recognition Agreement and (ii), if applicable, to enter into a
revised IRS Gain Recognition Agreement under Section 367 of the Code and the
applicable regulations thereunder. At the time of the delivery of such notice,
New Xxxxxxxx shall provide to American Brands security reasonably satisfactory
to American Brands for the performance of all obligations of New Xxxxxxxx and
Xxxxxxxx under Section 3.01(b)(vi) and this Section 4.03 of the Tax Allocation
Agreement in respect of the disposition referred to in such notice.
4.04 Cooperation and Exchange of Information. Each party hereto
---------------------------------------
agrees to provide, and to cause each member of its Tax Group to provide such
cooperation and information as such other party shall reasonably request,
15
on a timely basis, in connection with the preparation or filing of any Tax
Return or claim for Tax refund not inconsistent with this Agreement or in
conducting any Tax audit, Tax dispute, or otherwise in respect to Taxes or to
carry out the provisions of this Agreement.
4.05 Tax Records.
-----------
(a) American Brands, New Xxxxxxxx and Xxxxxxxx agree to (and to cause
each member of their respective Tax Group to) (i) retain all Tax Returns,
related schedules and workpapers, and all material records and other documents
as required under Section 6001 of the Code and the regulations promulgated
thereunder relating thereto existing on the date hereof or created through the
Distribution Date, for a period of at least 10 years following the Distribution
Date and (ii) allow the parties to this Agreement, at times and dates reasonably
acceptable to the retaining party, to inspect, review and make copies of such
records, as American Brands, New Xxxxxxxx and Xxxxxxxx may reasonably deem
necessary or appropriate from time to time. In addition, after the expiration
of such ten-year period, such Tax Returns, related schedules and workpapers, and
material records shall not be destroyed or otherwise disposed of at any time,
unless, prior to such destruction or disposal, (a) the party proposing to
destroy or otherwise dispose of such records shall provide no less than 30 days'
prior written notice to the other, specifying in reasonable detail the records
proposed to be destroyed or disposed of and (b) if a recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the records proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such requested records at
the expense of the party requesting such records.
(b) Notwithstanding anything in this Agreement to the contrary, if any
party fails to comply with the requirements of Section 4.05(a), the party
failing so to comply shall be liable for, and shall hold the other party or
parties, as the case may be, harmless from, any Taxes (including without
limitation, penalties for failure to comply with the record retention
requirements of the Code) and other costs resulting from such party's failure to
comply.
16
ARTICLE V
---------
MISCELLANEOUS
-------------
5.01 Complete Agreement; Construction. This Agreement, the
--------------------------------
Distribution Agreement, the Interim Services Agreement, the Indemnification
Agreement, including any schedules and exhibits hereto or thereto, and other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments, drafts, agreements,
undertakings, arrangements of any nature, whether oral or written with respect
to such subject matter. Notwithstanding any other provisions in this Agreement
to the contrary, in the event and to the extent that there shall be a conflict
relating to Taxes between the provisions of this Agreement and the provisions of
the Distribution Agreement, the Interim Services Agreement, the Indemnification
Agreement or any other agreement entered into for the purpose of implementing
the Distribution, the provisions of this Agreement shall control.
5.02 Effectiveness. All covenants and agreements of the parties
contained in this Agreement shall be subject to and conditioned upon the
Distribution becoming effective.
5.03 Survival of Agreements. Except as otherwise contemplated by
----------------------
this Agreement, all covenants, conditions and agreements of the parties
contained in this Agreement shall remain in full force and effect and shall
survive the Distribution Date.
5.04 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to the principles of conflicts of laws thereof.
5.05 Notices. All notices, requests, claims, demands and other
-------
communications hereunder required or permitted to be given shall be in writing
and shall be delivered by hand or sent by prepaid cable or telecopy or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service, and
17
shall be deemed given when so delivered by hand, cable or telecopied, or if
mailed, ten days after mailing (two business days in the case of express mail or
overnight courier service) as follows:
If to American Brands:
American Brands, Inc.
0000 Xxxx Xxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxxx 00000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
American Brands, Inc.
0000 Xxxx Xxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Secretary
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to New Xxxxxxxx or Xxxxxxxx:
Xxxxxxxx Group PLC
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Attention: Group Legal Adviser
Telephone: 000-00-0000-000-000
Facsimile: 011-44-1932-832-536
With a copy to:
Xxxxxxxx Group PLC
Members Hill
Brooklands Road
Weybridge
Surrey, KT 13 0QU
England
Attention: Company Secretary
Telephone: 000-00-0000-000-000
Facsimile: 011-44-1932-832-536
18
or to such other person or address as the addressee may have specified in a
notice duly given to the sender as provided herein.
5.06 Consent to Jurisdiction. Each of the parties hereto irrevocably
-----------------------
submits to the exclusive jurisdiction of (a) the Supreme Court of the State of
New York, New York County, and (b) the United States District Court for the
Southern District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each of the parties hereto agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Southern
District of New York or if such suit, action or other proceeding may not be
brought in such court for jurisdictional reasons, in the Supreme Court of the
State of New York, New York County. Each of the parties further agrees that
service of any process, summons, notice or document by hand delivery or U.S.
registered mail to such party's respective address set forth in Section 5.04
shall be effective service of process for any action, suit or proceeding brought
against any such party in such court. Each of the parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
5.07 Modifications or Amendments. This Agreement may not be modified
---------------------------
or amended except by an agreement in writing signed by the parties.
5.08 Successors and Assigns. The rights and benefits under this
----------------------
Agreement may not be assigned and duties and obligations may not be delegated by
any party in whole or in part without the prior written consent of the other
parties, which consent shall not be unreasonably withheld or delayed. This
Agreement and all of the provisions hereof shall be binding upon and inure
19
to the benefit of the parties and their respective successors and permitted
assigns.
5.09 Termination. This Agreement may be terminated and the
-----------
Distribution abandoned at any time on or prior to the Distribution Date by and
in the sole discretion of the Board without the approval of New Xxxxxxxx,
Xxxxxxxx or of American Brands' stockholders. In the event of such termination,
no party shall have any liability of any kind to any other party on account of
such termination.
5.10 No Third Party Beneficiaries. Except for the provisions of
----------------------------
Article III relating to Tax Indemnification, this Agreement is solely for the
benefit of the parties hereto and the respective members of their Tax Group and
should not be deemed to confer upon third parties (including any employee of
American Brands or New Xxxxxxxx or of any American Brands or New Xxxxxxxx
subsidiary) any remedy, claim, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
5.11 Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
5.12 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
5.13 No Waivers. No failure or delay by any party hereto to take any
----------
action or assert any right hereunder shall be deemed to be a waiver of such
right in the event of the continuation or repetition of the circumstances giving
rise to such right, unless expressly
20
waived in writing by the party against whom the existence of such waiver is
asserted.
5.14 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.15 Performance. Each party hereto shall cause to be performed, and
-----------
hereby guarantees the performance of, all actions, agreements and obligations
set forth herein to be performed by any subsidiary or any member of such party's
Tax Group.
5.16 Rights. The rights, powers, privileges and remedies provided in
------
this Agreement are cumulative and are not exclusive of any rights, powers,
privileges or remedies provided by law or otherwise. No single or partial
exercise of any right, power, privilege or remedy under this Agreement shall
prevent any further or other exercise thereof or the exercise of any other
right, power, privilege or remedy.
21
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
AMERICAN BRANDS, INC.
By: /s/ Xxxxxxx X. Xxxxxxx, XX
--------------------------
Name: Xxxxxxx X. Xxxxxxx, XX
Title: Senior Vice Pesident
and General Counsel
XXXXXXXX GROUP PLC
By: /s/ C.T. Xxxxxxx
--------------------------
Name: C.T. Xxxxxxx
Title: Director
XXXXXXXX LIMITED
By: /s/ X.X. Xxxxxxx
--------------------------
Name: X.X. Xxxxxxx
Title: Director and Secretary
22
