TAX SHARING AGREEMENT
Tax Sharing Agreement (the "Agreement"), dated as of June 3, 1999, by
and among RIVIERA HOLDINGS CORPORATION, a Nevada corporation ("RHC"), and
RIVIERA BLACK HAWK, INC., a Colorado corporation ("RBH").
WHEREAS, RHC is the common parent of an affiliated group of
corporations within the meaning of Section 1504(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and RBH, a wholly-owned subsidiary of RHC, is
a member of said affiliated group (the "RHC Group");
WHEREAS, the RHC Group, to the extent permitted by applicable law, will
file consolidated federal income tax returns under the Code;
WHEREAS, RHC and RBH wish to provide for the allocation of the
consolidated deferral income tax liability for the RHC Group;
NOW, THEREFORE, in consideration of the foregoing premises, the parties
hereto agree as follows:
1. DEFINITIONS.
(a) Terms used in this Agreement shall have the meanings ascribed to
them in, and shall be interpreted in accordance with, the relevant provisions of
the Code and the regulations and rulings issued thereunder, as from time to time
in effect.
(b) Tax - Regular federal/corporate income tax or federal/corporate
alternative minimum tax, together with any and all interest, additions to tax,
fines and penalties payable with respect thereto.
2. FILING OF CONSOLIDATED RETURNS AND PAYMENT OF TAX.
RHC shall, on a timely basis, file or cause to be filed consolidated
federal income tax returns and estimated tax returns for the RHC Group for each
taxable year and shall pay in full any Tax shown due on such returns. RHC, in
its sole discretion, shall make all elections relating to the filing of such
returns, and shall compute the consolidated federal income tax liability of the
RHC Group. RBH shall execute such consents and other documents as are necessary
in connection therewith.
3. ALLOCATION OF CONSOLIDATED FEDERAL INCOME TAX LIABILITY
(a) Except as otherwise provided in paragraphs 3(c) and 3(d), RHC and
RBH agree that RBH shall pay to RHC shall pay to RHC an amount (not less than
zero) equal to the Separate Tax Liability of RBH. The "Separate Tax Liability"
of RBH shall be the federal tax liability of RBH for the taxable period,
determined as if RBH were at all times subject to federal income taxation as a
separate taxpayer, not included or includable in the RHC Group (or in any other
consolidated group); provided, however, that such determination shall be made
without regard to any carrybacks or carryforwards of any tax attributes of RBH
(including, without limitation, net operating losses) that would be available to
it if it, at all times, had filed a separate federal income tax return, but
which in fact are not available under applicable federal income tax law as a
result of its inclusion in the RHC Group; provided, further, that: (i) such
determination shall be made giving effect to the modifications listed in
Treasury Regulation Section 1.1552-1(a) (2)(ii);(ii) such determination shall be
computed using the highest marginal corporate Tax rate in effect for such
taxable period; (iii) if, for any taxable period, a Tax would be imposed on RBH
pursuant to Section 55 of the Code, the Separate Tax Liability of RBH shall be
increased by the
2
amount of Tax that would be imposed on RBH under such Code section, computed
using the alternative minimum tax rate set forth in Section 55(b) (1) of the
code and taking into account items specified in Section 55(b) (2) of the Code
attributable to RBH; (iv) such determination shall be made using the same
elections and methods of accounting as are used in determining the consolidated
deferral income tax liability of the RHC Group for such taxable period; and (v)
notwithstanding any provision herein to the contrary, in no event shall RBH be
required to make any payment hereunder to the extent that such payment would
cause (or increase) a violation of any "minimum bankroll requirement," or other
applicable gaming obligation, except to the extent such payment constitutes
RBH's share of the RHC Group's federal income tax liability based on its
contribution to the RHC Group's consolidated taxable income (as such
contribution would be determined under Treasury Regulation Section
1.1552-1(a)(1), regardless of whether such regulation is actually applicable to
the RHC Group for any purpose) or is otherwise required of RBH under applicable
federal income tax law.
(b) Not less than fifteen (15) days prior to the day the RHC Group's
consolidated federal income tax return is required to be filed in respect of any
taxable year (taking account of any extensions thereof), RHC shall provide RBH a
schedule that sets forth in reasonable detail the calculation of the Separate
Tax Liability for such taxable year. The amount required to be paid by RBH to
RHC pursuant to paragraph 3(a) of this Agreement for such taxable year shall be
paid not later than five (5) days prior to the date on which the RHC Group's
consolidated federal income tax return is required to be filed for such taxable
year (taking account of any extension thereof).
3
(c) If the RHC Group is required to make payments of estimated federal
income tax, then, no later than five (5) days from the date the RHC Group would
be required to make such payments, RBH shall make payments to RHC in an amount
equal to the Estimated Tax Liability of RBH. The "Estimated Tax Liability" of
RBH shall be the federal estimated Tax liability of RBH for the taxable period,
determined as if the RBH were at all times subject to federal income taxation as
a separate taxpayer, not included or includable in the RHC Group (or in any
other consolidated group); provided, however, that such determination shall be
made without regard to any carrybacks or carryforwards of any tax attributes of
RBH (including, without limitation, net operating losses) that would be
available under applicable federal income tax law as a result of its inclusion
in the RHC Group; provided, further, that: (i) such determination shall be made
by giving effect to the modifications listed in Treasury Regulation Section
1.1552-1(a)(2)(ii); (ii) such determination shall be computed using the highest
marginal corporate Tax rate in effect for such taxable period; (iii) if, for any
taxable period, a Tax would be imposed on RBH pursuant to Section 55 of the
Code, the Estimated tax Liability of RBH shall be increased by the amount of Tax
that would be imposed on RBH under such Code section, computed using the
alternative minimum tax rate set forth in Section 55(b)(1) of the Code and
taking into account items specified in Section 55(b) (2) of the Code
attributable to RBH (iv) such determination shall be made using the same
elections and methods of accounting as are used in determining the consolidated
federal income tax liability for the RHC Group for such taxable period; and (v)
notwithstanding any provision herein to the contrary, in no event shall RBH be
required to make any payment hereunder to the extent that, prior to giving
effect to the Operating Agreement, such payment would cause (or increase) a
violation of any "minimum bankroll
4
requirement" or other applicable gaming obligation, except to the extent such
payment constitutes RBH's share of the RHC Group's consolidated taxable income
(as such contribution would be determined under Treasury Regulation Section
1.1552-1(a)(1), regardless of whether such regulation is actually applicable to
the RHC Group for any purpose) or is required of RBH under applicable federal
income tax law.
Any payment made by RBH to RHC pursuant to this paragraph 3(c) shall be
applied to reduce the amount, if any, owing by RBH to RHC for the corresponding
taxable year pursuant to paragraphs 3(a) and 3(b). Any excess of the aggregate
of payments made by RBH pursuant to this paragraph 3(c) during a taxable year
over the payment, if any, owing by RBH to RHC for such taxable year pursuant to
paragraphs 3(a) and 3(b), shall be repaid to RBH by RHC: (i) to the extent such
excess (or part thereof) represents all or a part of a tax refund to be received
by the RHC Group, such repayment to be made not later than five (5) days after
the receipt of such refund; (ii) to the extent such excess (or part thereof)
represents all or part of a credit against the RHC Group's estimated Tax for a
succeeding taxable year, not later than five (5) days after an estimated Tax
payment against which such excess is credited otherwise is to be paid by RHC; or
(iii) to the extent clauses (i) of this paragraph 3(c) and (ii) of this
paragraph 3(c) do not apply to such excess (or a portion thereof), not later
than the date on which the RHC Group's consolidated federal income tax return is
required to be filed (taking into account any extension thereof).
(d) If the calculation of the Separate Tax Liability of RBH for any tax
year results in a net operating loss ("XX XXX"), RHC shall credit the RBH NOL
against the amount which RBH would otherwise have to pay to RHC in the next
succeeding tax year or years until
5
the RBH NOL is used up but only so long as RBH remains part of the RHC Group for
federal income tax purposes. When RBH ceases to be part of the RHC Group for
federal income tax purposes it shall have no further right of any kind against
RHC as to any unused portion of the RBH NOL.
4. CHANGES IN TAX LIABILITY FOR A TAXABLE YEAR.
(a) If any RHC Group consolidated federal income tax for a taxable year
is changed or otherwise adjusted (including, without limitation, by reason of
(i) a "determination" within the meaning of Section 1313(a) of the Code, (ii)
the RHC Group's filing an amended federal income tax return, or (iii) any of the
events specified in Section 6213(b) or (d) of the Code), then the amount of the
payments required from RBH to RHC under paragraphs 3(a) and (c), or RHC to RBH
under paragraph 3(c), as the case may be, shall be recomputed by substituting
the Separate Tax Liability of RBH, or the loss, deduction or credit of RBH as
computed after giving effect to the changes or adjustments described above in
place of the Separate Tax Liability of RBH, or the loss, deduction or credit of
RBH as previously computed hereunder. No later than (i) five (5) days before the
due date for any additional payment of Tax by the RHC Group, (ii) five (5) days
after the receipt of a refund by the RHC Group or (iii) five (5) days after the
determination becomes final, the amended return is filed or other event giving
rise to the recomputation (if such determination, amended return or other event
does not result in any additional tax due or the receipt of a refund), RBH shall
pay to RHC or RHC shall pay to RBH, as the case may be, without interest, the
difference between (x) the amounts as recomputed by substituting the Separate
Tax Liability of RBH, or the loss, deduction or credit or RBH as determined
after giving effect to the change or adjustment, and (y) the amounts previously
paid
6
hereunder. The parties recognize that such recomputation for a taxable year does
not necessarily reflect the final Tax liability for such year, and, hence, the
amount of payments due hereunder may be recomputed under this paragraph more
than once.
(b) Payments made pursuant to subparagaph (a) shall include an
allocable portion of any interest paid or credited by the Internal Revenue
Service (net of tax; provided, such interest shall not be treated as an item of
income of RBH). RHC, in its sole discretion, shall determine the amount of any
allocable portion of interest under this subparagraph 4(b).
5. ALLOCATION OF STATE AND LOCAL INCOME TAX LIABILITY
For purposes of state and local consolidated, combined and unitary
income Taxes (if any), principles analogous to those in Sections 3, 4, 5, 6, 7
and 8 shall be used to determine the liability therefor and the payments to be
made. All Nevada or Colorado gaming, business, employee, license and other taxes
incurred by RHC or RBH, respectively, that are not described in the preceding
sentence shall be solely the responsibility of RHC or RBH, respectively.
6. EARNINGS AND PROFITS.
Any election under Section 1552 of the Code of a method of allocating
the tax liability of the RHC Group for purposes of determining the earnings and
profits of the members of the RHC Group, including, but not limited to, an
election of a method prescribed in Treasury Regulation Section 1.1502-33 (or any
successor provision, including Proposed Regulation Section 1.1502-33(d)), and
including, but not limited to, a decision not to elect any such method, shall be
made by RHC in its sole discretion, and RBH agrees to take whatever action may
be necessary to effect any such election.
7. TERMINATION OF AFFILIATION
7
(a) The parties recognize that at some future date RBH may cease to be
included in the RHC Group ("Deconsolidation") but continue to be a corporation
subject to federal income tax ("Former Member"). In such event, RHC and RBH
shall consult and shall furnish each other with information required to prepare
accurately (i) the consolidated federal income tax return of the RHC Group for
the last taxable year in which RBH was included in the RHC Group, and (ii) the
federal income tax returns for all taxable years thereafter of RBH and RHC,
respectively, in which the tax liability of either may be affected by their
former affiliation (including, for example, the apportionment of any
consolidated net operating loss or capital loss or investment or foreign tax
credit to RBH), and (iii) any other consolidated federal income tax return of
the RHC Group for a taxable year in which RBH was included in the RHC Group,
including information necessary to make the final determination of any tax
liability payable with respect to such return to the extent such determination
is based on the operations of RBH.
(b) In connection with any audit by any taxing authority for any period
ending on or prior to the date on which RBH is no longer included with RHC in
filing a consolidated federal income tax return (the "Deconsolidation Date"),
RBH will make available to RHC and its representatives such records and
documents in their possession as may be requested by such taxing authority or
reasonably requested by RHC to defend against such audit. RBH will cause its
employees to (i) cooperate with and assist such taxing authority as requested by
such taxing authority in the completion of such audit (except as otherwise
instructed by RHC within the bounds of applicable law), and (ii) cooperate with
an assist ax personnel and tax counsel of RHC, as may be reasonably requested by
RHC in the conduct of all tax audits of tax returns, and also
8
with respect to a claim for refund or amended return for any period ending on or
prior to the Deconsolidation Date to the extent that such audit, claim for
refund or amended return, may involve the operations of the RBH. RHC shall have
the sole right to represent the interests of RBH in any tax audit or
administrative or court proceeding relating to taxable periods of which end on
or before the Deconsolidation Date, including the sole right to enter into a
settlement of such audit or proceeding on behalf of RBH. RBH shall forward to
RHC any notice it receives of any tax audit for any taxable period ending on or
prior to the Deconsolidation Date.
(c) RHC, upon request, will furnish RBH a complete and accurate
statement of the information which pertains to RBH and which relates to any
consolidated federal income tax return filed by the RHC Group for a period, or
portion of any period, in which RBH was included in the RHC Group presented in a
pro forma separate return format.
(d) RBH agrees that it will elect or exercise any option then available
to it under the Code (or any analogous or similar, state, local or foreign law)
to forego the carryback of any net operating loss, net capital loss, or other
tax benefit arising in a taxable year beginning on or after the Deconsolidation
Date to a taxable year of the RHC Group ending on or prior to the
Deconsolidation Date. If the Code requires such item first to be carried back
(and such item cannot, by the making of an election or otherwise, be carried
forward without first being carried back), then RBH may file an application with
the appropriate taxing authority for a carryback adjustment or the tax for a
taxable year in which RBH was included in the RHC Group and a consolidated
federal income tax return was filed and shall be entitled to that portion of the
actual refund that is attributable to the RBH under the consolidated return
regulations; provided, that RBH shall not be entitled to all or a portion of
such refund to the extent the items giving rise to
9
such carryback have been previously utilized to reduce Separate Tax Liability or
RBH or previously give rise to a payment to RBH under this Agreement.
(e) Payments that would have been required under this Agreement to or
by RBH were RBH still a member of the RHC Group, and with respect to taxable
years for which RBH was a member of the RHC Group, shall be made in accordance
with principles analogous to those set forth in the above paragraph(s) of this
Agreement and at the time(s) set forth therein.
(f) Whether in contemplation of or pending a deconsolidation or
otherwise, RHC shall have the following unilateral rights:
(i) to determine whether and when to report a worthless stock
deduction under Section 165(g) of the Code;
(ii) to determine the allocation of any consolidated Code Section
382 limitation of the RHC Group;
(iii) to file all consolidated federal income tax returns (and to
amend such returns) and to compute the tax due with respect thereto
(including, without limitation, determining the deductibility of
interest during any taxable period for purpose of this Agreement), and
to control, in its sole discretion, all tax audits and controversies
affecting the RHC Group;
(iv) to determine whether to elect under Treasury Regulation
Section 1.1502-20(g) to reattribute the losses of RBH to RHC; and
(v) to determine whether a bad debt deduction may be claimed with
respect to any liability of RBH to RHC.
10
8. RESOLUTION OF DISPUTES.
Any disputes between or among the parties with respect to this
Agreement shall be resolved by a nationally recognized public accounting firm or
a nationally recognized law firm, which accounting firm or law firm shall be
reasonably satisfactory to the disputing parties, and whose fees and expenses
shall be shared equally by the disputing parties. Such determination shall be
binding and conclusive on the disputing parties for the purposes hereof.
9. TERM.
This Agreement shall be deemed to be in effect from the date of
incorporation of RBH, and shall remain in effect indefinitely.
10. MISCELLANEOUS.
(a) The Agreement constitutes the entire agreement of the parties
concerning the subject matter hereof and supersedes all other agreements,
whether or not written, in respect of any tax between or among RHC and RBH. This
Agreement may not be amended except by an agreement n writing, signed by the
parties thereto.
(b) This Agreement has been made in and shall be construed in
accordance with the laws of the State of Nevada.
(c) This Agreement shall be binding upon and inure to the benefit of
each party thereto and its respective successors and assigns.
(d) All notices and other communications hereunder shall be in writing
and shall be delivered by hand or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses and shall be deemed
given on the date on which such notice is received:
11
If to RHC:
Riviera Hotel & Casino
0000 Xxxxx Xxx Xxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxx 00000
If to RBH:
Riviera Black Hawk, Inc.
000 Xxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxx 00000
(e) This Agreement may be executed simultaneously 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.
(f) The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
(g) If any term or provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable, to any
extent, the remainder of this Agreement, or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be effected thereby, and each term and
provision of this Agreement shall be valid and be enforced to the fullest extent
permitted by law.
(h) RBH will continue to make the payments to RHC under the Agreement,
despite the occurrence and continuation of any Default or Event of Default under
the Indenture, dated as of June 3, 1999, between RBH as Issuer, and IBJ
Whitehall Bank & Trust Company, as Trustee, pursuant to which $45 million Senior
Notes due 2006 were issued. The payments due
12
from RBH to RHC are not subordinate to the amounts payable on the Notes or under
the Indenture.
13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
RIVIERA HOLDINGS CORPORATION
By:
----------------------------------------
Its:
----------------------------------------
RIVIERA BLACK HAWK, INC.
By:
----------------------------------------
Its:
----------------------------------------
