EXHIBIT 2.3
TAX SHARING AGREEMENT
dated as of _________ , 2000
by and between
SEA CONTAINERS LTD.
and
ORIENT EXPRESS HOTELS LTD.
TABLE OF CONTENTS
PAGE
Section 1. Definitions........................................................2
"Audit".................................................................2
"Code"..................................................................2
"Combined Group"........................................................2
"Combined Return".......................................................2
"Combined Tax"..........................................................2
"Consolidated Group"....................................................2
"Consolidated Return"...................................................2
"Deconsolidation".......................................................2
"Deconsolidation Date"..................................................2
"Deconsolidation Tax"...................................................3
"Effective Date"........................................................3
"Estimated Tax Installment Date"........................................3
"Federal Income Tax"....................................................3
"Federal Tax"...........................................................3
"Final Determination"...................................................3
"Income Tax"............................................................3
"Indemnifiable Loss Deduction"..........................................3
"Indemnified Loss"......................................................3
"Indemnitee"............................................................4
"Indemnitor"............................................................4
"Independent Firm" .....................................................4
"Interest Accrual Period" ..............................................4
"IPO"...................................................................4
"Losses"................................................................4
"XXXX Affiliate"........................................................4
"XXXX Deconsolidation Tax Return".......................................4
"XXXX Group"............................................................4
"XXXX Restructuring Tax Return" ........................................4
"Opinion Documents".....................................................4
"Other Separate Tax"....................................................4
"Payment Period"........................................................4
"Post-Deconsolidation Period"...........................................4
"Pre-Deconsolidation Period"............................................4
"Privilege".............................................................5
"Restated Tax Saving Amount"............................................5
"Restructuring".........................................................5
"Restructuring Agreement"...............................................5
"Restructuring Taxes"...................................................5
"SCL Affiliate".........................................................5
"SCL Group".............................................................5
"Separate Return".......................................................5
"Service"...............................................................5
"Spinoff"...............................................................5
"Spinoff Date"..........................................................5
"Straddle Period".......................................................5
"Tax"...................................................................6
"Tax Asset".............................................................6
"Tax Authority".........................................................6
"Tax Item"..............................................................6
"Tax Return"............................................................6
"Tax Saving Amount".....................................................6
"Treasury Regulations"..................................................6
Section 2. Preparation and Filing of Tax Returns...............................6
2.1 Responsibility for Returns..........................................6
2.2 Manner of Preparing and Filing Tax Returns..........................8
2.3 Agent...............................................................8
Section 3. Payment of Taxes to Tax Authorities.................................9
3.1 Federal Income Taxes................................................9
3.2 Combined Taxes......................................................9
3.3 Other Federal Taxes.................................................9
3.4 Other Separate Taxes................................................9
Section 4. Allocation of Taxes; Payment for Losses.............................9
4.1 SCL Group Federal Income Tax Liability..............................9
4.2 XXXX Group Combined Tax Liability..................................10
4.3 Cooperation........................................................12
4.4 Tax Sharing Installment Payments...................................12
4.5 Tax Sharing True-Up Payments.......................................13
4.6 Redetermination Amounts............................................13
4.7 Payment of Taxes for Post-Deconsolidation Periods..................13
Section 5. Tax Attributes.....................................................14
5.1 Allocation of Tax Items............................................14
5.2 Post Deconsolidation...............................................14
Section 6. Additional Obligations.............................................14
6.1 Provision of Information and Mutual Cooperation....................14
6.2 Indemnification....................................................15
6.3 Tax Consequences of Payments.......................................15
6.4 Interest...........................................................17
Section 7. Audits.............................................................17
7.1 In General.........................................................17
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7.2 Notice.............................................................18
7.3 Failure to Notify..................................................18
Section 8. Dispute Resolution.................................................18
Section 9. Restructuring......................................................19
9.1 Restructuring Taxes................................................19
9.2 Tax Reporting of Restructuring Items...............................19
9.3 Audits Relating to Restructuring or Deconsolidation................20
9.4 Provision of Information and Mutual Cooperation....................20
9.5 Allocation of Tax Assets...........................................20
Section 10. Spinoff...........................................................21
10.1 Spinoff Related Items.............................................21
10.2 Information for Shareholders......................................22
Section 11. Miscellaneous.....................................................22
11.1 Effectiveness.....................................................22
11.2 Notices...........................................................22
11.3 Changes in Law....................................................23
11.4 Successors and Assigns............................................23
11.5 Authorization, Etc................................................23
11.6 Complete Agreement................................................23
11.7 Interpretation....................................................23
11.8 Counterparts......................................................24
11.9 Legal Enforceability..............................................24
11.10 No Third Party Beneficiaries.....................................24
11.11 Choice of Law; Jurisdiction and Forum............................24
11.12 Amendment and Modification.......................................24
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TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (this "Agreement"), dated as of __________________,
2000, by and among Sea Containers Ltd. ("SCL"), a Bermuda corporation, and
Orient Express Hotels Ltd. ("XXXX"), a Bermuda corporation and wholly-owned
subsidiary of SCL.
RECITALS
WHEREAS, in addition to its marine cargo container leasing, ferry and other
material businesses, SCL has been engaged through XXXX and its various
predecessor companies and their various subsidiaries and divisions in owning
and/or operating luxury hotels, passenger trains and restaurants in connection
with the leisure business;
WHEREAS, the Boards of Directors of SCL and XXXX have determined that it is
in the best interests of XXXX and SCL and its stockholders for XXXX to offer
shares of Class A Common Shares, par value $.01 per share (the "Class A Common
Stock") of XXXX for sale to the public pursuant to an initial public offering
("IPO") and in connection therewith to separate its businesses so that from and
after the Effective Date (as defined herein) the leisure business will be owned
by XXXX and its subsidiaries and divisions;
WHEREAS, Orient Express Hotels, Inc. ("OEHI"), a Delaware corporation
wholly-owned subsidiary of XXXX, is the common parent corporation of an
affiliated group of corporations within the meaning of Section 1504(a) of the
Code (as defined herein) and of consolidated, combined, unitary and other
similar groups as defined under similar laws of other jurisdictions;
WHEREAS, in connection with the IPO, SCL, XXXX and their respective
affiliates have engaged in the Restructuring (as defined herein); and
WHEREAS, it is appropriate and desirable to set forth the principles and
responsibilities of the parties to this Agreement regarding the allocation of
Taxes (as defined herein) and other related liabilities and adjustments with
respect to Taxes, Audits (as defined herein) and other related Tax matters.
NOW THEREFORE, in consideration of the premises or promises and the mutual
covenants contained herein and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
SECTION 1. DEFINITIONS - Capitalized terms not otherwise defined herein shall
have the meanings ascribed to such terms in the Restructuring Agreement (as
defined herein). As used in this Agreement, capitalized terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined).
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"AUDIT" includes any audit, assessment of Taxes, other examination by any
Tax Authority, proceeding, or appeal of such a proceeding relating to Taxes,
whether administrative or judicial.
"CODE" means the United States Internal Revenue Code of 1986, as amended,
or any successor statute.
"COMBINED GROUP" means a group of corporations or other entities that files
a Combined Return or a corporation or other entity that files a Combined Return
described in clause (ii) of the definition of "Combined Return."
"COMBINED RETURN" means any Tax Return with respect to Taxes, other than
Federal Taxes,(i) filed on a consolidated, combined (including nexus
combination, worldwide combination, domestic combination, line of business
combination or any other form of combination) or unitary basis wherein XXXX or
one or more XXXX Affiliates join in the filing of such Tax Return (for any
taxable period or portion thereof) with SCL or one or more SCL Affiliates, or
(ii) pursuant to which Tax Items or Tax Assets of (A) SCL (or any SCL Affiliate)
are included on a separate Tax Return of XXXX (or any XXXX Affiliate) or (B)
XXXX (or any XXXX Affiliate) are included on a separate Tax Return of SCL (or
any SCL Affiliate) (including, without limitation, certain Tax Returns filed
under the laws of the United Kingdom).
"COMBINED TAX" means any Tax with respect to which a Combined Return is
filed.
"CONSOLIDATED GROUP" means an affiliated group of corporations within the
meaning of Section 1504(a) of the Code that files a Consolidated Return.
"CONSOLIDATED RETURN" means any Tax Return with respect to Federal Income
Taxes filed on a consolidated basis wherein one or more XXXX Affiliates join in
the filing of such Tax Return (for any taxable period or portion thereof) with
one or more SCL Affiliates.
"DECONSOLIDATION" means with respect to each Tax Return (i) any event
pursuant to which one or more SCL Affiliates cease to be includable in the
Consolidated Return, (ii) any event pursuant to which neither XXXX nor any XXXX
Affiliate continues to be included in a Combined Return which includes SCL
and/or a SCL Affiliate, or (iii) any event pursuant to which a Tax Return
described in clause (ii) of the definition of Combined Return no longer includes
Tax Items or Tax Assets of both SCL (or any SCL Affiliate) and XXXX (or any XXXX
Affiliate).
"DECONSOLIDATION DATE" means the day on which a Deconsolidation occurs.
"DECONSOLIDATION TAX" means any Tax, resulting from a Deconsolidation,
taken into account under Section 1.1502-13 or Section 1.1502-19 or any
predecessor provision of the Treasury Regulations (or any similar provision
under Non-Federal Tax law).
"EFFECTIVE DATE" has the meaning set forth in the Restructuring Agreement.
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"ESTIMATED TAX INSTALLMENT DATE" means the due date for any estimated tax
payment, including (in the case of Federal Income Tax), the installments due
dates prescribed in Section 6655(c) of the Code (presently April 15, June 15,
September 15 and December 15), and the tax payment due March 15 (where an
extension is requested for the filing of the Tax Return).
"FEDERAL INCOME TAX" means any Tax imposed under Subtitle A of the Code or
any other provision of United States federal Income Tax law (including the Taxes
imposed by Sections 11, 55, 59A, and 1201(a) of the Code), and any interest,
additions to Tax or penalties applicable or related thereto.
"FEDERAL TAX" means any Tax imposed under the Code or otherwise under
United States federal Tax law.
"FINAL DETERMINATION" means the final resolution of any Tax (or other
matter) for a taxable period, including related interest or penalties, that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, including (1) by the expiration of a statute
of limitations or a period for the filing of claims for refunds, amending Tax
Returns, appealing from adverse determinations, or recovering any refund
(including by offset), (2) by a decision, judgment, decree, or other order by a
court of competent jurisdiction, which has become final and unappealable, (3) by
a closing agreement or an accepted offer in compromise under Section 7121 or
7122 of the Code, or comparable agreements under laws of other jurisdictions,
(4) by execution of an Internal Revenue Service Form 870 or 870AD, or by a
comparable form under the laws of other jurisdictions (excluding, however, with
respect to a particular Tax Item for a particular taxable period any such form
that reserves (whether by its terms or by operation of law) the right of the
taxpayer to file a claim for refund and/or the right of the Tax Authority to
assert a further deficiency with respect to such Tax Item for such period), or
(5) by any allowance of a refund or credit, but only after the expiration of all
periods during which such refund or credit may be recovered (including by way of
offset).
"INCOME TAX" means (a) any Tax based upon, measured by, or calculated with
respect to (1) net income or profits (including, without limitation, any capital
gains Tax, minimum Tax and any Tax on items of Tax preference, but not including
sales, use, real or personal property, gross or net receipts, transfer or
similar Taxes) or (2) multiple bases if one or more of the bases upon which such
Tax may be based, measured by, or calculated with respect to, is described in
clause (1) above, or (b) any United States state or local franchise Tax.
"INDEMNIFIABLE LOSS DEDUCTION" has the meaning set forth in Section 6.3(b)
of this Agreement.
"INDEMNIFIED LOSS" has the meaning set forth in Section 6.3(b) of this
Agreement.
"INDEMNITEE" has the meaning set forth in Section 6.3(b) of this Agreement.
"INDEMNITOR" has the meaning set forth in Section 6.3(b) of this Agreement.
"INDEPENDENT FIRM" has the meaning set forth in Section 8 of this
Agreement.
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"INTEREST ACCRUAL PERIOD" has the meaning set forth in Section 6.4 of this
Agreement.
"IPO" has the meaning set forth in the Recitals.
"LOSSES" means any and all damages, losses, deficiencies, liabilities,
obligations, penalties, judgments, settlements, claims, payments, fines,
interest, costs and expenses, including direct and consequential damages, but
excluding punitive damages (other than punitive damages awarded to any third
party against a party hereunder).
"XXXX AFFILIATE" means any corporation or other entity in which XXXX owns
(directly or indirectly through other XXXX Affiliates) more than fifty percent
(50%) of the total combined voting power (at any time after the completion of
the IPO Restructuring).
"XXXX DECONSOLIDATION TAX RETURN" has the meaning set forth in Section
9.2(b) of this Agreement.
"XXXX GROUP" means XXXX and all XXXX Affiliates, or any subgroup thereof,
excluding any member of the SCL Group.
"XXXX RESTRUCTURING TAX RETURN" has the meaning set forth in Section 9.2(a)
of this Agreement.
"OPINION" means the opinion that SCL may request from Deloitte & Touche to
the effect that the Spinoff should qualify under Section 355 of the Code.
"OPINION DOCUMENTS" means any and all documents relied upon by Deloitte &
Touche in rendering the Opinion.
"OTHER SEPARATE TAX" means any Tax, other than Federal Tax, with respect to
which a Combined Return is not filed.
"PAYMENT PERIOD" has the meaning set forth in Section 6.4 of this
Agreement.
"POST-DECONSOLIDATION PERIOD" means any taxable period with respect to a
Consolidated Return or Combined Return, as the case may be, beginning after a
Deconsolidation Date.
"PRE-DECONSOLIDATION PERIOD" means any taxable period with respect to a
Consolidated Return or Combined Return, as the case may be, beginning on or
before a Deconsolidation Date.
"PRIVILEGE" means any privilege that may be asserted under applicable law
including, any privilege arising under or relating to the attorney-client
relationship (including the attorney-
4
client and work product privileges), the accountant-client privilege, and any
privilege relating to internal evaluation processes.
"RESTATED TAX SAVING AMOUNT" has the meaning set forth in Section 6.3(c) of
this Agreement.
"RESTRUCTURING" means the series of transactions contemplated by the
Restructuring Agreement.
"RESTRUCTURING AGREEMENT" means the Restructuring Agreement, dated as of
May , 2000 by and between SCL, XXXX, OEHI, and other affiliates of SCL and XXXX.
"RESTRUCTURING TAXES" means any Tax (net of any current benefit arising
from any Tax Asset) resulting from the Restructuring imposed upon SCL or any SCL
Affiliate or XXXX or any XXXX Affiliate; provided that such term shall not refer
to such collateral Tax effects as the tax basis of assets, the amount of Tax
Assets or earnings and profits of XXXX or any XXXX Affiliate.
"SCL AFFILIATE" means any corporation or other entity in which SCL owns
(directly or indirectly through other SCL Affiliates) more than fifty percent
(50%) of the total combined voting power (at any time after the completion of
the IPO Restructuring), other than XXXX or any XXXX Affiliate.
"SCL GROUP" means SCL and all SCL Affiliates, or any sub-group thereof,
excluding any member of the XXXX Group.
"SEPARATE RETURN" means any Tax Return with respect to Other Separate Taxes
filed by SCL, XXXX, or any of their respective affiliates.
"SERVICE" means the Internal Revenue Service or any successor agency or
authority.
"SPINOFF" means any distribution (or exchange) by SCL or any SCL Affiliate,
with respect to its stock, of the stock of XXXX (or any successor corporation or
corporation which owns stock of XXXX) in a transaction intended to qualify under
Section 355 of the Code.
"SPINOFF DATE" means the close of business on the date on which the Spinoff
is effected.
"STRADDLE PERIOD" means any taxable period with respect to a Consolidated
Return or Combined Return, as the case may be, beginning on or before the
Deconsolidation Date and ending after the Deconsolidation Date.
"TAX" means any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
5
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, highway use,
commercial rent, capital stock, paid up capital, recording, registration,
property, real property gains, value added, business license, custom duties, or
other tax or governmental fee of any kind whatsoever, imposed or required to be
withheld by any Tax Authority including any interest, additions to tax, or
penalties applicable or related thereto.
"TAX ASSET" means any Tax Item that could reduce a Tax, including a net
operating loss, net capital loss, investment tax credit, foreign tax credit,
charitable deduction or credit related to alternative minimum tax or any other
Tax credit.
"TAX AUTHORITY" means a governmental authority or any subdivision, agency,
commission or authority thereof or any quasi-governmental or private body having
jurisdiction over the assessment, determination, collection or imposition of any
Tax (including, without limitation, the Service).
"TAX ITEM" means any item of income, gain, loss, deduction or credit, or
other attribute that may have the effect of increasing or decreasing any Tax.
"TAX RETURN" means any return, report, certificate, form or similar
statement or document (including any related or supporting information or
schedule attached thereto and any information return, amended tax return, claim
for refund or declaration of estimated tax) required to be supplied to, or filed
with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.
"TAX SAVING AMOUNT" has the meaning set forth in Section 6.3(b) of this
Agreement.
"TREASURY REGULATIONS" means the final, temporary and proposed income tax
regulations promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
SECTION 2. PREPARATION AND FILING OF TAX RETURNS
2.1 RESPONSIBILITY FOR RETURNS. (a) U.S. CONSOLIDATED TAX RETURNS. (i) XXXX
shall have the sole and exclusive responsibility for the preparation and filing
of the Consolidated Tax Returns of the affiliated group of which OEHI is the
common parent; provided that, if SCL owns directly or indirectly fifty percent
(50%) or more of the outstanding stock (by vote or value) of XXXX, XXXX shall,
at the request of SCL, submit such Tax Returns to SCL (no later than fifteen
(15) business days prior to the due date for the filing of such Tax Returns
(taking into account applicable extensions)) for SCL's review and approval,
which approval shall not be unreasonably withheld.
(ii) Notwithstanding paragraph (i), SCL shall be responsible for
preparing the portions of the Consolidated Tax Returns (including making any
related elections) that relate exclusively
6
to SCL or any SCL Affiliate. SCL shall submit any portions of the Tax Returns
referred to in the immediately preceding sentence to XXXX at least forty-five
(45) business days (or such shorter period as agreed to by XXXX) prior to the
due date for the filing of such Tax Returns (taking into account applicable
extensions) for XXXX'x review and approval, which approval shall not be
unreasonably withheld. SCL shall advise XXXX, each time that it delivers the
portion of a Consolidated Return for which it is responsible pursuant to this
Section 2.1(a)(ii), that there is substantial authority (within the meaning
of Section 1.6662-4(d) of the Treasury Regulations) with respect to United
States federal, state and local Tax Returns for each of the positions set
forth on such portion of the Tax Return.
(iii) SCL shall have the right to request that XXXX timely file an
amended Tax Return or claim for refund relating to the portion of any
Consolidated Return which SCL is responsible for preparing under this Section
2.1(a). SCL shall be responsible for preparing the portion of such amended Tax
Return or claim for refund relating to the portion of the Consolidated Return
which SCL is responsible for preparing under Section 2.1(a)(ii) of this
Agreement. SCL shall submit such portion of the amended Tax Return or claim for
refund to XXXX no later than forty-five (45) business days prior to the
requested date for filing for XXXX'x review and approval, which approval shall
not be unreasonably withheld.
(b) COMBINED RETURNS. (i) Except to the extent provided in Section
2.1(b)(ii) and (iii), SCL shall have the sole and exclusive responsibility for
the preparation and filing of all Combined Returns.
(ii) XXXX shall be responsible for:
(A) preparing and filing any Combined Return of XXXX or any
XXXX Affiliate described in clause (ii) of the definition of "Combined
Return;" and
(B) preparing the portions of the Combined Returns (including
making any related elections) that relate exclusively to XXXX or any
XXXX Affiliate.
XXXX shall submit (1) any such Combined Return and (2) any such
portions of Combined Returns, to SCL at least forty-five (45) business
days (or such shorter period as agreed to by SCL) prior to the due date
for the filing of such Tax Returns (taking into account applicable
extensions) for SCL's review and approval, which approval shall not be
unreasonably withheld. XXXX shall advise SCL, each time that it
delivers any such Combined Return or any such portions, that there is
the equivalent of substantial authority (within the meaning of Section
1.6662-4(d) of the Treasury Regulations) for each of the positions set
forth on such Combined Return or such portions.
(iii) XXXX shall have the right to request that SCL file an amended Tax
Return or claim for refund relating to the portion of any Combined Return which
XXXX is responsible for preparing under Section 2.1(b)(ii). XXXX shall be
responsible for preparing the portion of such amended Tax Return or claim for
refund relating to the portion of the Combined Return which XXXX is responsible
for preparing under Section 2.1(b)(ii). XXXX shall submit such portion of the
amended Tax Return or claim for refund to SCL no later than forty-five (45)
business days
7
prior to its filing for SCL's review and approval, which approval shall not
be unreasonably withheld.
(c) OTHER TAX RETURNS. Except as otherwise provided in this Section
2.1, XXXX shall have the sole and exclusive responsibility for the preparation
and filing of all Tax Returns of XXXX and any XXXX Affiliate; provided that, if
SCL owns directly or indirectly fifty percent (50%) or more of the outstanding
stock (by vote or value) of XXXX, XXXX shall, at the request of SCL, submit such
Tax Returns to SCL (no later than fifteen (15) business days prior to the due
date for the filing of such Tax Returns (taking into account applicable
extensions)) for SCL's review and approval, which approval shall not be
unreasonably withheld.
2.2 MANNER OF PREPARING AND FILING TAX RETURNS. (a) All Tax Returns filed
after the date of this Agreement by SCL, any SCL Affiliate, XXXX or any XXXX
Affiliate shall be (1) prepared in a manner that is consistent with (i) Sections
5.1 and 9.5 of this Agreement and (ii) the Opinion Documents, and (2) filed on a
timely basis (taking into account applicable extensions) by the party
responsible for such filing under Section 2.1 of this Agreement.
(b) Subject to Sections 2.1(a)(ii) and (iii), XXXX, and, subject to
Section 2.1(b)(ii)(B) and (iii), SCL, as the case may be, shall have the
exclusive right, in its sole discretion, with respect to any Tax Return for
which it is responsible under Section 2.1 hereof, to determine (1) the manner in
which such Tax Return shall be prepared and filed, including the elections,
methods of accounting, positions, conventions and principles of taxation to be
used and the manner in which any Tax Item shall be reported, (2) whether any
extensions may be requested, (3) the elections that will be made by SCL, any SCL
Affiliate, XXXX, and any XXXX Affiliate on such Tax Return, (4) whether any
amended Tax Returns shall be filed, (5) whether any claims for refund shall be
made, (6) whether any refunds shall be paid by way of refund or credited against
any liability for the related Tax, and (7) whether to retain outside firms to
prepare or review such Tax Return.
2.3 AGENT. (a) Subject to the other applicable provisions of this
Agreement, XXXX hereby irrevocably designates, and agrees to cause each XXXX
Affiliate to so designate, SCL as its sole and exclusive agent and
attorney-in-fact to take such action (including execution of documents) as SCL,
in its sole discretion, may deem appropriate in any and all matters (including
Audits) relating to any Tax Return for which SCL is responsible pursuant to
Section 2.1(b) of this Agreement.
(b) Subject to the other applicable provisions of this Agreement, SCL
hereby irrevocably designates, and agrees to cause each SCL Affiliate to so
designate, XXXX as its sole and exclusive agent and attorney-in-fact to take
such action (including execution of documents) as XXXX, in its sole discretion,
may deem appropriate in any and all matters (including Audits) relating to any
Tax Return for which XXXX is responsible pursuant to Section 2.1(a) or (b) of
this Agreement.
SECTION 3. PAYMENT OF TAXES TO TAX AUTHORITIES
8
3.1 FEDERAL INCOME TAXES. XXXX shall pay (or cause to be paid) to the
Service all Federal Income Taxes with respect to any Consolidated Return due and
payable for all Pre-Deconsolidation Periods. As provided in Section 4, SCL shall
pay to XXXX the amount of the SCL Group's liability for Federal Income Taxes
under Section 4.1 hereof.
3.2 COMBINED TAXES. SCL shall pay (or cause to be paid) to the appropriate
Tax Authorities all Combined Taxes with respect to any Combined Return due and
payable for all Pre-Deconsolidation Periods; provided that, with respect to
those Tax Returns described in clauses (ii) and (iii) of the definition of
"Combined Return," SCL shall pay (or cause to be paid) to the appropriate Tax
Authorities all Taxes due with respect to any Tax Return of SCL (or any SCL
Affiliate) and XXXX shall pay (or cause to be paid) to the appropriate Tax
Authorities all Taxes due with respect to any Tax Return of XXXX (or any XXXX
Affiliate).
3.3 OTHER FEDERAL TAXES. The parties shall each pay (or cause to be paid)
to the appropriate Tax Authorities all of their respective Federal Taxes
(excluding Federal Income Taxes for Pre-Deconsolidation Periods which are
governed by Section 3.1 of this Agreement).
3.4 OTHER SEPARATE TAXES. XXXX shall pay (or cause to be paid) to the
appropriate Tax Authorities all Other Separate Taxes of XXXX or any XXXX
Affiliate.
SECTION 4. ALLOCATION OF TAXES; PAYMENT FOR LOSSES
4.1 SCL GROUP FEDERAL INCOME TAX LIABILITY. (a) General. With respect to
each Pre-Deconsolidation Period [beginning after December 31, 1998] (including
the Straddle Period) of the affiliated group of which OEHI is the common parent,
the SCL Group's liability for Federal Income Tax for such taxable period shall
be determined on a pro forma SCL Group Consolidated Return prepared:
(i) on a basis consistent with the preparation of the Consolidated
Return for such period (including whether regular Tax or federal alternative
minimum Tax applies with respect to the Consolidated Return), including only Tax
Items of members of the SCL Group which are included in the Consolidated Return
and by allocating Tax Assets to the SCL Group to the extent that the Tax Asset
was created by a member of the SCL Group and such Tax Asset was actually
utilized on the relevant Consolidated Return; and
(ii) applying the highest statutory marginal corporate income Tax rate
in effect for such taxable period (or portion thereof); provided that, in the
event that the federal alternative minimum Tax applies to the Consolidated
Return, the SCL Group's liability shall equal the lesser of (i) the alternative
minimum Tax liability with respect to the Consolidated Return that would result
by including only Tax Items and Tax Assets of members of the SCL Group included
in the Consolidated Return or (ii) the aggregate Tax liability payable with
respect to such Consolidated Return.
9
(b) USE OF NET LOSSES. (i) If the SCL Group's liability for Federal
Income Taxes under Section 4.1(a) is zero, then XXXX shall pay to SCL the tax
benefit, if any, to the XXXX Group resulting from the inclusion of the SCL Group
in the Consolidated Return, calculated as the excess of (A) the amount of
Federal Income Tax that would have been payable, on a pro-forma basis, excluding
the Tax Items and Tax Assets of members of the SCL Group included pursuant to
Section 4.1(a), over (B) the actual Federal Income Tax shown on such Return.
(ii) If one or more members of the SCL Group generates a Tax Asset in a
Post-Deconsolidation Period, which Tax Asset may be carried back to a
Consolidated Return, then SCL may request that XXXX file an amended return on
which such Tax Asset is carried back, in which case XXXX shall pay to SCL the
tax benefit, if any, to the XXXX Group resulting from such carryback, similarly
calculated (and reflecting the absorption of such Tax Asset under applicable
Treasury Regulations).
4.2 XXXX GROUP COMBINED TAX LIABILITY. (a) GENERAL. With respect to any
Pre-Deconsolidation Period [beginning after December 31, 1998], the XXXX Group's
liability for Combined Tax shall be the sum for such taxable period of the XXXX
Group's liability for each Combined Tax, as determined on pro forma XXXX Group
Combined Returns, prepared consistently with the principles and procedures of
Section 4.1(a).
(b) USE OF NET LOSSES. If the SCL Group's liability for Federal Income
Taxes under Section 4.1(a) is zero, then XXXX shall pay to SCL the tax benefit,
if any, to the XXXX Group resulting from the inclusion of the SCL Group in the
Combined Return, calculated consistently with the principles and procedures of
Section 4.1(b).
(c) GROUP RELIEF. (i) In the case of Tax Returns described in clause
(ii) of the definition of "Combined Return," where current period or brought
forward losses or excess charges of one entity can be surrendered to or utilised
by another entity, representatives of SCL and XXXX shall agree before any tax
filings are made, what losses or charges are to be surrendered between entities
and shall prepare the necessary elections or filings for this surrender,
utilisation or loss claim. To facilitate this agreement, the representatives of
each group shall advise the other group representative the extent of the losses
or charges that are potentially available for surrender to the other group or
the extent of the losses or charges that the group wishes to claim from the
other group. In all cases, howsoever the parties subsequently may amend their
tax returns or computations, when the parties initially advise each other of the
quantity of losses or excess charges that could be surrendered or the losses or
charges which could be claimed, each entity within each group will include in
its computation of taxable income or loss all available allowances, deductions
or charges that it is legally allowed to make. If the representatives of SCL and
XXXX are unable to agree what losses or charges shall be surrendered between
entities, either party wishing to claim the losses or charges from another
entity must put the request in writing. The group receiving this request must
respond to it within 5 days of the request being made, unless this deadline is
extended by the agreement of both of the groups.
(ii) Where either SCL or XXXX claims losses or excess charges from the
other group, it shall pay the other group compensation for the use of the losses
or charges equal to the amount of the additional tax liability that would have
arisen had the losses not been surrendered. This
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payment shall be made within [5] days of the claimant entity submitting the
tax return or other filing that includes the claim for losses from the other
entity.
(iii) In computing these amounts, each entity within each group will
include in its computation of taxable income or loss all available allowances,
deductions or charges that it is legally allowed to make. In addition, each
group must use any brought forward or current period losses or excess charges
available in any of its companies against the taxable income of the other
companies in the same group before any of these losses or charges can be offered
to the other group or before losses or charges are claimed from the other group.
Notwithstanding the foregoing, it may be possible that one group wishes to claim
losses or excess charges from the other group even though the claim would not be
required if the claimant group included in its computation of taxable income or
loss all available allowances, deductions or charges that it is legally allowed
to make. In this case, the claimant group shall pay the other group compensation
for the use of the losses or charges equal to the amount of the additional tax
liability that would have arisen had the losses not been surrendered. This
payment shall be made within [5] days of the claimant entity submitting the tax
return or other filing that includes the claim for losses from the other entity.
(iv) A group may refuse to surrender brought forward or current year
losses or excess charges in any given period; provided, however if it does so,
the refusing group shall pay to the other group compensation equal to the amount
of additional tax that results from the refusal to surrender the losses or
charges. The amount of additional tax is calculated as the tax liability of the
claimant company less the payment that would have occurred had the losses or
charges claimed by the claimant been surrendered.
(v) Notwithstanding the foregoing, a group with brought forward or
current year losses or excess charges may not force the other group to claim
these losses or charges if the other group does not wish to do so.
(vi) SCL and XXXX recognise that either group may submit amended tax
returns for periods covered by this agreement, which could affect the losses
claimed by or surrendered to the other group, including (without limitation) the
carryback of losses from a Post-Deconsolidation Period to a Pre-Deconsolidation
Period of a company that initially claimed losses of another company for such
Pre-Deconsolidation Period. If an amended tax return is submitted, the filing
group must advise the other group in writing of this, and must state, to the
best of its knowledge, the impact it expects the amended filing will have either
on the losses claimed by or surrendered to the other group, or any other
anticipated impact on the other group's tax filings for the period covered by
the amended return or for subsequent periods. Once the amended return is
determined, the refiling group shall advise the other group of the determination
and the revised final tax position of the entity that has submitted the amended
return. To the extent that any refiling increases the tax liability of the other
group, the refiling group shall pay any interest levied by the tax authorities
in the country concerned in respect of this additional liability. The principal
liability is for the sole account of the other group (ie is not for the account
of the refiling group), as if the amended return had been filed originally. To
the extent that any refiling reduces the losses claimed by the refiling group
from the other group, or that can be claimed by the other group from the
refiling group, the surrendering group shall repay, without interest, any
compensation it has previously received for the initial surrender of losses or
excess charges that
11
are not now available as a result of the refiling. To the extent that any
refiling increases the losses claimed by the refiling group from the other
group, or increases the losses that are claimed from the refiling group, the
claimant group shall pay the other group compensation for the use of the
losses or charges equal to the amount of the additional tax liability that it
has saved by the use of the losses or excess charges. To the extent that
claiming the additional losses or charges increases the surrendering
company's liability in any subsequent period for which tax filings or
payments on account have already been made, the claimant company shall pay
any interest levied by the Tax Authorities concerned in respect of this
additional liability.
4.3 COOPERATION. (a) SCL and XXXX shall prepare jointly any pro forma Tax
Returns and calculations required under Section 4.1 or 4.2. SCL and XXXX agree
to cooperate in good faith in connection with the preparation of such pro forma
tax returns and calculations and agree to make reasonably available any
documents, information or employees in connection therewith.
(b) The pro forma Tax Returns and calculations shall be completed no
later than ten business days before the date on which the related Consolidated
Return or Combined Return, as the case may be, is required to be filed with the
appropriate Tax Authority. Any disputes relating to the reporting of any Tax
Item on the pro forma Tax Returns that have not been resolved within sixty (60)
business days after such Tax Return is filed shall be referred to the
Independent Firm, in accordance with the principles and procedures set forth in
Section 8 of this Agreement.
4.4 TAX SHARING INSTALLMENT PAYMENTS. (a) CONSOLIDATED FEDERAL INCOME
TAXES. Not later than two (2) business days prior to each Estimated Tax
Installment Date with respect to any Pre-Deconsolidation Period, the parties
shall determine, under the principles of Section 6655 of the Code the estimated
amount of the related installment of the SCL Group Federal Income Tax liability
under Section 4.1. SCL shall pay to XXXX no later than five (5) business days
after such Estimated Tax Installment Date the amount thus determined. The
parties acknowledge and agree that, for purposes of this Section 4.4(a), SCL has
not paid anything to XXXX as of the date hereof, with respect to the taxable
period beginning January 1, 1999, or the taxable period beginning January 1,
2000.
(b) COMBINED TAXES. SCL shall, in connection with any Estimated Tax
Installment payment (payable with respect to any Combined Return filed by SCL)
with respect to Combined Taxes for any Pre-Deconsolidation Period, determine the
estimated amount of the related installment of the XXXX Group Combined Tax
liability under Section 4.3. Within the first ten (10) business days of any
month, SCL may provide XXXX with a written statement setting forth amounts owed
by XXXX in connection with any installment payments with respect to other
Combined Taxes made by SCL for the immediately preceding month and any other
month for which a statement has not previously been provided by SCL. XXXX shall
pay the amounts set forth on any statement within seven (7) business days
following the receipt of such statement. The parties acknowledge and agree that,
for purposes of this Section 4.4(b), XXXX has not paid anything to SCL as of the
date hereof, with respect to the taxable period beginning January 1, 1999, or
the taxable period beginning January 1, 2000.
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4.5 TAX SHARING TRUE-UP PAYMENTS. (a) FEDERAL INCOME TAXES. Not later than
fifteen (15) business days following the completion of any pro forma SCL Group
Consolidated Return pursuant to Section 4.1, SCL shall pay to XXXX, or XXXX
shall pay to SCL, as appropriate, an amount equal to the difference, if any,
between the SCL Group Federal Income Tax liability for the Pre-Deconsolidation
Period and the aggregate amount paid by SCL with respect to such period under
Section 4.4(a) of this Agreement.
(b) COMBINED TAXES. Not later than fifteen (15) business days following
the completion of any pro forma XXXX Group Combined Return pursuant to Section
4.2, XXXX shall pay to SCL, or SCL shall pay to XXXX, as appropriate, an amount
equal to the difference, if any, between the XXXX Group Combined Tax liability
for the Pre-Deconsolidation Period and the amounts paid by XXXX with respect to
such period under Section 4.4(b) of this Agreement.
4.6 REDETERMINATION AMOUNTS. (a) PRE-DECONSOLIDATION PERIODS BEGINNING
AFTER DECEMBER 31, 1998. For any Pre-Deconsolidation Period beginning after
December 31, 1998, in the event of a redetermination of any Tax Item of any
member of a Consolidated Group or Combined Group as a result of a Final
Determination, the filing of a Tax refund claim or the filing of an amended Tax
Return pursuant to which Taxes are paid to a Tax Authority or a refund of Taxes
is received from a Tax Authority, XXXX and SCL shall prepare jointly, in
accordance with the principles and procedures set forth in this Section 4,
revised pro forma SCL Group Consolidated Returns and/or revised pro forma XXXX
Group Combined Returns, or other calculations, as appropriate, to reflect the
redetermination of such Tax Item as a result of such Final Determination, filing
of a Tax refund claim or filing of an amended Tax Return. Following the
preparation of such revised pro forma tax returns, SCL's and XXXX'x payment
obligations under this Section 4 shall be redetermined.
(b) PRE-DECONSOLIDATION PERIODS BEGINNING ON OR BEFORE DECEMBER 31,
1998. For any Pre-Deconsolidation Period beginning on or before December 31,
1998, in the event of a redetermination of any Tax Item of any member of a
Consolidated Group or Combined Group as a result of a Final Determination, the
filing of a Tax refund claim or the filing of an amended Tax Return pursuant to
which Taxes are paid to a Tax Authority or a refund of Taxes is received from a
Tax Authority, XXXX and SCL shall prepare jointly, in accordance with the
principles and procedures set forth in this Section 4, pro forma SCL Group
Consolidated Returns and pro forma XXXX Group Combined Returns, or other
calculations, as appropriate, both without regard to the redetermined Tax Item
and with regard to the redetermined Tax Item. SCL shall pay to XXXX, or XXXX
shall pay to SCL, as appropriate, the amount of the difference in such pro forma
Tax liabilities.
4.7 PAYMENT OF TAXES FOR POST-DECONSOLIDATION PERIODS. Except as otherwise
provided in this Agreement, XXXX shall pay or cause to be paid all Taxes and
shall be entitled to receive and retain all refunds of Taxes with respect to Tax
Returns relating to Post-Deconsolidation Periods for which XXXX has filing
responsibility, including under this Agreement. Except as otherwise provided in
this Agreement, SCL shall pay or cause to be paid all Taxes and shall be
entitled to receive and retain all refunds of Taxes with respect to Tax Returns
relating to Post- Deconsolidation Periods for which SCL has filing
responsibility, including under this Agreement.
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SECTION 5. TAX ATTRIBUTES
5.1 ALLOCATION OF TAX ITEMS. All Tax computations for (i) any
Pre-Deconsolidation Period ending on a Deconsolidation Date, (ii) the
immediately following taxable period of SCL or any SCL Affiliate and (iii) any
Straddle Period, shall be made pursuant to the principles of Section
1.1502-76(b) of the Treasury Regulations or of a corresponding provision under
the laws of other jurisdictions and, to the extent possible, in a manner
consistent with the principles set forth in Section 4.1(a) of this Agreement.
5.2 POST DECONSOLIDATION. To the extent permitted by applicable law,
following any Deconsolidation, the relevant Tax Assets with respect to the
Consolidated Group or Combined Group, as the case may be, shall be allocated to
the corporation or entity that created or generated the Tax Asset.
SECTION 6. ADDITIONAL OBLIGATIONS
6.1 PROVISION OF INFORMATION AND MUTUAL COOPERATION. (a) SCL and XXXX
shall, and shall cause their respective affiliates to, (1) furnish to the other
in a timely manner such information, documents and other materials as the other
may reasonably request for purposes of (i) preparing any Tax Return (or pro
forma Tax return prepared in accordance with Section 4 hereof) or portion
thereof for which the other has responsibility for preparing under this
Agreement, (ii) contesting or defending any Audit, and (iii) making any
determination or computation necessary or appropriate under this Agreement, (2)
make its employees available to the other to provide explanations of documents
and materials and such other information as the other may reasonably request in
connection with any of the matters described in subclauses (i), (ii) and (iii)
of clause (1) above, and (3) reasonably cooperate in connection with any Audit.
(b) SCL and XXXX shall, and shall cause their respective affiliates to,
retain and provide on reasonable demand books, records, documentation or other
information relating to any Tax Return or Audit, with respect to any taxable
period in which SCL owns, directly or indirectly, 50% or more (by vote or value)
of the outstanding stock of XXXX, until the later of (i) the expiration of the
applicable statute of limitations (after giving effect to any extension, waiver,
or mitigation thereof) and (ii) in the event any claim is made under this
Agreement or by any Tax Authority for which such information is relevant, until
a Final Determination is reached with respect to such claim. Notwithstanding
anything to the contrary included in this Agreement, the parties will comply in
all respects with the requirements of any applicable record retention agreement
with the Service or other Tax Authority.
(c) No member of the SCL Group shall be required to provide XXXX or any
XXXX Affiliate access to or copies of (1) any Tax information that relates
exclusively to any member of the SCL Group, (2) any Tax information as to which
any member of the SCL Group is entitled to assert the protection of any
Privilege, or (3) any Tax information as to which any member of the SCL Group is
subject to an obligation to maintain the confidentiality of such information.
SCL
14
shall use reasonable efforts to separate any such information from any other
information to which XXXX is entitled to access or to which XXXX is entitled to
copy under this Agreement, to the extent consistent with preserving its rights
under this Section 6.1(c).
(d) No member of the XXXX Group shall be required to provide SCL or any
SCL Affiliate access to or copies of any Tax information that reflects
exclusively any member of the XXXX Group, (2) any Tax information as to which
any member of the XXXX Group is entitled to assert the protection of any
Privilege or (3) any Tax information as to which any member of the XXXX Group is
subject to an obligation to maintain the confidentiality of such information.
XXXX shall use reasonable efforts to separate any such information from any
other information to which SCL is entitled to access or to which SCL is entitled
to copy under this Agreement, to the extent consistent with preserving its
rights under this Section 6.1(d).
6.2 INDEMNIFICATION. (a) FAILURE TO PAY. SCL and each SCL Affiliate shall
jointly and severally indemnify XXXX, each XXXX Affiliate and their respective
directors, officers and employees, and hold them harmless from and against any
Tax or Loss that is attributable to, or results from the failure of SCL or any
SCL Affiliate to make any payment required to be made under this Agreement. XXXX
and each XXXX Affiliate shall jointly and severally indemnify SCL, each SCL
Affiliate and their respective directors, officers and employees, and hold them
harmless from and against any Tax or Loss that is attributable to, or results
from, the failure of XXXX or any XXXX Affiliate to make any payment required to
be made under this Agreement.
(b) INACCURATE OR INCOMPLETE INFORMATION. SCL and each SCL Affiliate
shall jointly and severally indemnify XXXX, each XXXX Affiliate and their
respective directors, officers and employees, and hold them harmless from and
against any Tax or Loss attributable to the negligence of SCL or any SCL
Affiliate in supplying XXXX or any XXXX Affiliate with inaccurate or incomplete
information, in connection with the preparation of any Tax Return or any Audit.
XXXX and each XXXX Affiliate shall jointly and severally indemnify SCL, each SCL
Affiliate and their respective directors, officers and employees, and hold them
harmless from and against any Tax or Loss attributable to the negligence of XXXX
or any XXXX Affiliate in supplying SCL or any SCL Affiliate with inaccurate or
incomplete information, in connection with the preparation of any Tax Return or
any Audit.
6.3 TAX CONSEQUENCES OF PAYMENTS (a) TAX CHARACTERIZATION OF PAYMENTS. For
all Tax purposes and notwithstanding any other provision of this Agreement, to
the extent permitted by applicable law, the parties hereto shall treat the
principal amount of any payment made pursuant to this Agreement [as a capital
contribution or dividend distribution, as the case may be, immediately prior to
the Effective Date and, accordingly, as] not includible in the taxable income of
the recipient and not deductible as an expense of the payor. If, as a result of
a Final Determination, it is determined that the receipt or accrual of any
payment made under this Agreement is taxable to the Indemnitee (as defined in
Section 6.3(b) of this Agreement), the Indemnitor (as defined in Section 6.3(b)
of this Agreement) shall pay to the Indemnitee an amount equal to any increase
in the Income Taxes of the Indemnitee as a result of receiving the payment from
the Indemnitor (grossed up to take into account such payment, if applicable).
15
(b) ADJUSTMENTS TO PAYMENTS. Any party that has received a payment
("Indemnitee") under this Agreement from another party ("Indemnitor") with
respect to any Losses or Taxes suffered or incurred by the Indemnitee
("Indemnified Loss") shall pay to such Indemnitor an amount equal to any "Tax
Saving Amount" realized by the Indemnitee promptly upon its receipt. For
purposes of this Section 6.3(b), the Tax Saving Amount shall equal the amount by
which the Income Taxes of the Indemnitee or any of its affiliates are reduced
(including, without limitation, through the receipt of a refund, credit or
otherwise), plus any related interest received from a Tax Authority, as a result
of claiming as a deduction or offset on any relevant Tax Return amounts
attributable to an Indemnified Loss (the "Indemnifiable Loss Deduction").
(c) REPORTING OF INDEMNIFIABLE LOSS. In the event that an Indemnitee
incurs an Indemnified Loss, such Indemnitee shall claim as a deduction or offset
on any relevant Tax Return (including, without limitation, any claim for refund)
such Indemnified Loss to the extent such position is supported by "substantial
authority" (within the meaning of Section 1.6662-4(d) of the Treasury
Regulations) with respect to United States federal, state and local Tax Returns
or has similar appropriate authoritative support with respect to any Tax Return
other than United States federal, state and local Tax Returns. The Indemnitee
shall have primary responsibility for the preparation of its Tax Returns and
reporting thereon such Indemnifiable Loss Deduction; provided, that the
Indemnitee shall consult with, and provide the Indemnitor with a reasonable
opportunity to review and comment on the portion of the Indemnitee's Tax Return
relating to the Indemnified Loss. If a dispute arises between the Indemnitee and
the Indemnitor as to whether there is "substantial authority" (with respect to
United States federal, state and local Tax Returns) or similar appropriate
authoritative support (with respect to any Tax Return other than United States
federal, state and local Tax Returns) for the claiming of an Indemnifiable Loss
Deduction, such dispute shall be resolved in accordance with the principles and
procedures set forth in Section 8 of this Agreement. Both XXXX and SCL shall act
in good faith to coordinate their Tax Return filing positions with respect to
the taxable periods that include an Indemnifiable Loss Deduction. There shall be
an adjustment to any Tax Saving Amount calculated under Section 6.3(b) hereof in
the event of an Audit which results in a Final Determination that increases or
decreases the amount of the Indemnifiable Loss Deduction reported on any
relevant Tax Return of the Indemnitee. The Indemnitee shall promptly inform the
Indemnifying Party of any such Audit and shall attempt in good faith to sustain
the Indemnifiable Loss Deduction at issue in the Audit. Upon receiving a written
notice of a Final Determination in respect of an Indemnifiable Loss Deduction,
the Indemnitee shall redetermine the Tax Saving Amount attributable to the
Indemnifiable Loss Deduction under Section 6.3(b) hereof, taking into account
the Final Determination (the "Restated Tax Saving Amount"). If the Restated Tax
Saving Amount is greater than the Tax Saving Amount, the Indemnitee shall
promptly pay the Indemnitor an amount equal to the difference between such
amounts. If the Restated Tax Saving Amount is less than the Tax Saving Amount,
then the Indemnitor shall promptly pay the Indemnitee an amount equal to the
difference between such amounts.
6.4 INTEREST. Payments pursuant to this Agreement that are not made
within the period prescribed in this Agreement or, if no period is prescribed,
within fifteen (15) business days after demand for payment is made (the "Payment
Period") shall bear interest for the period
16
from and including the date immediately following the last date of the
Payment Period through and including the date of payment (the "Interest
Accrual Period") at a per annum rate equivalent to the rate charged by the
relevant Tax Authority. Such interest will be payable at the same time as the
payment to which it relates and shall be calculated on the basis of a year of
365 days and the actual number of days for which due.
SECTION 7. AUDITS
7.1 IN GENERAL. (a) CONSOLIDATED TAX RETURNS. (i) Subject to Section
7.1(a)(ii) of this Agreement, XXXX shall have the exclusive right, in its
sole discretion, to control, contest, and represent the interests of SCL, any
SCL Affiliate, XXXX or any XXXX Affiliate in any Audit relating to any Tax
Return described in Section 2.1(a) of this Agreement and to resolve, settle
or agree to any deficiency, claim or adjustment proposed, asserted or
assessed in connection with or as a result of any such Audit. XXXX'x rights
shall extend to any matter pertaining to the management and control of an
Audit, including, without limitation, execution of waivers, choice of forum,
scheduling of conferences and the resolution of any Tax Item.
(ii) SCL shall have the right to control, contest and represent the
interests of SCL or any SCL Affiliate in any Audit relating directly to any
Tax Item included on the portion of any Consolidated Return which SCL is
responsible for preparing pursuant to Section 2.1(a)(ii) of this Agreement
and to resolve, settle or agree to any deficiency, claim or adjustment
proposed, asserted or assessed in connection with or as a result of such
Audit; provided that, the entering into of any such resolution, settlement or
agreement or any decision in connection with (including the entering into of)
any judicial or administrative proceeding relating to Taxes shall be subject
to the review and approval of XXXX, which approval shall not be unreasonably
withheld.
(b) COMBINED RETURNS. (i) Subject to Section 7.1(b)(ii) of this
Agreement, SCL shall have the exclusive right, in its sole discretion, to
control, contest, and represent the interests of SCL, any SCL Affiliate, XXXX
or any XXXX Affiliate in any Audit relating to any Tax Return which it has
the responsibility for filing under Section 2.1(b)(i) of this Agreement and
to resolve, settle or agree to any deficiency, claim or adjustment proposed,
asserted or assessed in connection with or as a result of any such Audit.
SCL's rights shall extend to any matter pertaining to the management and
control of an Audit, including, without limitation, execution of waivers,
choice of forum, scheduling of conferences and the resolution of any Tax Item.
(ii) XXXX shall have the right to control, contest and represent the
interests of XXXX or any XXXX Affiliate in any Audit relating directly to any
Tax Item included on the portion of any Combined Return which XXXX is
responsible for preparing pursuant to Section 2.1(b)(ii)(B) of this Agreement
and to resolve, settle or agree to any deficiency, claim or adjustment
proposed, asserted or assessed in connection with or as a result of such
Audit; provided that, the entering into of any such resolution, settlement or
agreement or any decision in connection with (including the entering into of)
any judicial or administrative proceeding relating to Taxes shall
17
be subject to the review and approval of XXXX, which approval shall not be
unreasonably withheld.
(c) OTHER TAX RETURNS. XXXX shall have the exclusive right, in its
sole discretion, to control, contest, and represent the interests of XXXX or
any XXXX Affiliate in any Audit relating to any Tax Return described in
Section 2.1(c) of this Agreement and to resolve, settle, or agree to any
deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of any such Audit; provided that, so long as SCL owns
fifty percent (50%) or more of the outstanding stock (by vote or value) of
XXXX, the entering into of any such resolution, settlement or agreement or
any decision in connection with (including the entering into of) any judicial
or administrative proceeding relating to Taxes shall be subject to SCL's
review and approval, which approval shall not be unreasonably withheld.
7.2 NOTICE. If SCL or any member of the SCL Group receives written
notice of, or relating to, an Audit from a Tax Authority that asserts,
proposes or recommends a deficiency, claim or adjustment that, if sustained,
would result in the redetermination of a Tax Item of a member of the XXXX
Group, SCL shall promptly provide a copy of such notice to XXXX (but in no
event later than ten (10) business days following the receipt of such
notice). If XXXX or any member of the XXXX Group receives written notice of,
or relating to, an Audit from a Tax Authority that assets, proposes or
recommends a deficiency, claim or adjustment that if sustained, would result
in the redetermination of a Tax Item of a member of the SCL Group, XXXX shall
promptly provide a copy of such notice to SCL (but in no event later than ten
(10) business days following the receipt of such notice).
7.3 FAILURE TO NOTIFY. The failure of SCL or XXXX to notify the other of
any matter relating to a particular Tax for a taxable period or to take any
action specified in this Agreement shall not relieve such other party of any
liability and/or obligation which it may have under this Agreement with
respect to such Tax for such taxable period except to the extent that such
other party's rights hereunder are materially prejudiced by such failure.
SECTION 8. DISPUTE RESOLUTION. In the event that SCL, on the one hand, and
XXXX, on the other hand, disagree as to the amount or calculation of any
payment to be made under this Agreement, or the interpretation or application
of any provision under this Agreement, the parties shall attempt in good
faith to resolve such dispute. If such dispute is not resolved within sixty
(60) business days following the commencement of the dispute, SCL and XXXX
shall jointly retain a tax attorney that is a member of a nationally
recognized law firm or "big five" accounting firm, which firm is independent
of both parties (the "Independent Firm"), to resolve the dispute. The
Independent Firm shall act as an arbitrator to resolve all points of
disagreement and its decision shall be final and binding upon all parties
involved. Following the decision of the Independent Firm, SCL and XXXX shall
each take or cause to be taken any action necessary to implement the decision
of the Independent Firm. The fees and expenses relating to the Independent
Firm shall be borne equally by SCL and XXXX.
SECTION 9. RESTRUCTURING
18
9.1 RESTRUCTURING TAXES. (a) LIABILITY FOR RESTRUCTURING TAXES AND
DECONSOLIDATION TAXES. Notwithstanding any other provision of this Agreement
(other than Section 9.1(b) hereof), SCL shall be responsible for the payment
of, and shall indemnify and hold XXXX harmless from and against, any
Restructuring Taxes and any Deconsolidation Taxes.
(b) LIABILITY FOR UNDERTAKING CERTAIN ACTIONS. Notwithstanding
Section 9.1(a) of this Agreement, XXXX and each XXXX Affiliate shall be
jointly and severally responsible for, and shall indemnify and hold SCL
harmless from and against, any Restructuring Taxes that are attributable to,
or result from, (i) any action taken by XXXX or any XXXX Affiliate that was
not contemplated by the parties in connection with the IPO and the
Restructuring Agreement or (ii) the failure by XXXX or any XXXX Affiliate to
take any action that XXXX is responsible for taking under this Agreement, the
Restructuring Agreement or any other agreement related to the IPO. Each of
the parties hereto agrees to act in good faith and without negligence in
connection with the Tax reporting of and all other aspects related to the Tax
consequences of the Restructuring and any Deconsolidation and shall be
responsible for any Taxes or Losses arising from any failure to act in good
faith or any negligent act or omission with respect thereto.
9.2 TAX REPORTING OF RESTRUCTURING ITEMS. (a) RESTRUCTURING TAXES. Any
Tax Return (or portion thereof) that includes any Tax Item resulting from the
Restructuring shall be prepared and filed by the party responsible for
preparing and filing such Tax Return (under Section 2 of this Agreement);
provided that, notwithstanding any other provision of this Agreement, if XXXX
is the party responsible for preparing any such Tax Return (or portion
thereof) (each an "XXXX Restructuring Tax Return"), XXXX shall provide to
SCL, no later than twenty (20) business days following the Effective Date, a
written list of those XXXX IPO Tax Returns that XXXX reasonably believes
could result in the imposition of a Tax liability of more than $10,000 for
which SCL will be responsible pursuant to this Section 9. Within twenty (20)
business days following the receipt of such list, SCL shall provide a written
list to XXXX of those XXXX Restructuring Tax Returns that SCL wishes to
review. XXXX shall provide any such XXXX Restructuring Tax Returns (or
portions thereof) to SCL (no later than forty-five (45) business days (or
such shorter period as agreed to by SCL) prior to the due date for the filing
of such Tax Return (taking into account applicable extensions)), for SCL's
review and approval, which approval, to the extent it relates to any Tax Item
resulting from, or arising out of, the Restructuring may be withheld by SCL
in its sole discretion and any such Tax Item shall be reported as determined
by SCL in its sole discretion (so long as such reporting position is
supported by "substantial authority" (within the meaning of Section
1.6662-4(d) of the Treasury Regulations) with respect to United States
federal, state and local Tax Returns or has similar appropriate authoritative
support with respect to any Tax Return other than United States federal,
state and local Tax Returns). In the event that the time periods provided in
this Section 9.2(a) would not provide SCL with a reasonable period of time
within which to review any such XXXX Restructuring Tax Return prior to the
filing of such Tax Return, then the parties shall cooperate in order that SCL
may participate in the preparation of such Tax Return and have the rights
otherwise provided in this Section 9.2(a).
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(b) DECONSOLIDATION TAXES. Any Tax Return (or portion thereof) that
includes any Tax Item relating to any Deconsolidation (to the extent
resulting in Deconsolidation Taxes) shall be prepared and filed by the party
responsible for preparing and filing such Tax Return (under Sections 2 of
this Agreement); provided that, notwithstanding any other provision of this
Agreement, if XXXX is the party responsible for preparing any such Tax Return
(or portion thereof) (each an "XXXX Deconsolidation Tax Return"), XXXX shall
provide any such XXXX Deconsolidation Tax Return (or portion thereof) to SCL
(no later than forty-five (45) business days (or such shorter period as
agreed to by SCL) prior to the due date for the filing of such Tax Return
(taking into account applicable extensions)), for SCL's review and approval,
which approval, to the extent it relates to any Tax Item relating to any
Deconsolidation (to the extent resulting in Deconsolidation Taxes), may be
withheld by SCL in its sole discretion and any such Tax Item shall be
reported as determined by SCL in its sole discretion (so long as such
reporting position is supported by "substantial authority" (within the
meaning of Section 1.6662-4(d) of the Treasury Regulations) with respect to
United States federal, state and local Tax Returns or has similar appropriate
authoritative support with respect to any Tax Return other than United States
federal, state and local Tax Returns).
9.3 AUDITS RELATING TO RESTRUCTURING OR DECONSOLIDATION. Notwithstanding
any other provision of this Agreement, SCL shall have the exclusive right, in
its sole discretion, to control, contest, and represent the interests of SCL,
any SCL Affiliate, XXXX or any XXXX Affiliate in any Audit with respect to
Tax Items related to the Restructuring or Deconsolidation (to the extent
resulting in Deconsolidation Taxes), and to resolve, settle or agree to any
deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of any such Tax Items. XXXX'x rights shall extend to any
matter pertaining to the management and control of an Audit, including
execution of waivers, choice of forum, scheduling of conferences and the
resolution of any Tax Item.
9.4 PROVISION OF INFORMATION AND MUTUAL COOPERATION. In addition to the
parties' respective obligations under Section 6.1 of this Agreement, SCL and
XXXX shall, and shall cause their respective Affiliates to, cooperate with
respect to all aspects of the Restructuring including, without limitation, by
(1) furnishing to the other in a timely manner such information, documents
and other materials as the other may reasonably request for purposes of (i)
preparing any Tax Return that includes Tax Items relating to or arising from
the Restructuring and (ii) contesting or defending any Audit with respect to
Tax Items relating to or arising from the Restructuring and (2) making its
employees available to the other to provide explanations of documents and
materials and such other information as the other may reasonably request in
connection with any of the matters described in subclauses (i) and (ii) of
clause (1) above.
9.5 ALLOCATION OF TAX ASSETS. In connection with the Restructuring and
Deconsolidation, Tax Assets shall be allocated among SCL, each SCL Affiliate,
XXXX and each XXXX Affiliate, in accordance with applicable law. The parties
hereby agree that in the absence of controlling legal authority, Tax Assets
shall be allocated to the entity that created or generated the Tax Asset
(regardless of whether such Tax Asset was created or generated in the
business in which such entity is currently engaged).
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SECTION 10. SPINOFF
10.1 SPINOFF RELATED ITEMS. (a) RESTRICTIONS ON CERTAIN
POST-DISTRIBUTION ACTIONS. (i) XXXX RESTRICTIONS. XXXX agrees that it will
not take or fail to take, or permit any XXXX Affiliate to take or fail to
take, any action where such action or failure to act would be inconsistent
with any material, information, covenant or representation in the Opinion
Documents.
(ii) SCL RESTRICTIONS. SCL agrees that it will not take or fail to
take, or permit any SCL Affiliate to take or fail to take, any action where
such action or failure to act would be inconsistent with any material,
information, covenant or representation in the Opinion Documents.
(b) PARTICIPATION RIGHTS. SCL shall have the right to obtain an
Opinion in its sole and exclusive discretion. If SCL determines to obtain an
Opinion, XXXX shall cooperate with SCL and take any and all actions
reasonably requested by SCL in connection with obtaining an Opinion
(including, without limitation, by making any representation or covenant or
providing any materials or information requested by Deloitte & Touche;
provided that, XXXX shall not be required to make any representation or
covenant that is inconsistent with historical facts or as to future matters
or events over which it has no control). In connection with obtaining an
Opinion, (i) SCL shall cooperate with and keep XXXX informed in a timely
manner of all material actions taken or proposed to be taken by SCL in
connection therewith; (ii) SCL shall (A) reasonably in advance of the
submission of any Opinion Documents, provide XXXX with a draft copy thereof,
(B) reasonably consider XXXX'x comments on such draft copy, and (C) provide
XXXX with a final copy; and (iii) SCL shall provide SCL with notice
reasonably in advance of, and XXXX shall have the right to attend, any
formally scheduled meetings with Deloitte & Touche (subject to the approval
of Deloitte & Touche) that relate to such Opinion.
(c) CERTAIN XXXX ACTIONS FOLLOWING SPINOFF. XXXX agrees that, during
the three (3) year period following a Spinoff, prior to amending its
certificate of incorporation (or other organizational documents), whether
through a stockholder vote or otherwise, in a manner that affects the
relative voting rights of the separate classes of XXXX stock (including,
without limitation, through the conversion of one class of XXXX stock into
another class of XXXX stock), unless SCL and XXXX agree otherwise, XXXX shall
obtain an opinion (acceptable to SCL) of nationally recognized tax counsel
that such amendment will not affect the treatment of the Spinoff under
Section 355 of the Code. XXXX agrees that, during the three (3) year period
following a Spinoff, prior to entering into any agreement to (i) sell all or
substantially all of the assets of XXXX or any XXXX Affiliate, (ii) merge
XXXX or any XXXX Affiliate with another entity, without regard to which party
is the surviving entity, or (iii) issue stock of XXXX or any XXXX Affiliate
in an acquisition or public or private offering (excluding any issuance
pursuant to the exercise of employee stock options or other employment
related arrangements), unless SCL and XXXX agree otherwise, XXXX shall obtain
an opinion (reasonably acceptable to SCL) of nationally recognized tax
counsel that such transaction will not affect the treatment of the Spinoff
under Section 355 of the Code.
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(d) LIABILITY FOR BREACH OF REPRESENTATION. Each of SCL and XXXX
hereby represents that (1) it will read the Opinion Documents prior to the
date submitted, (2) all information contained in such Opinion Documents that
concerns or relates to such party or any affiliate of such party will be
true, correct and complete in all material respects, and (3) except to the
extent that such party shall have notified the other party in writing to the
contrary and with reasonable specificity prior to the Spinoff Date, all such
information that concerns or relates to such party or any affiliate of such
party will be true, correct and complete in all material respects as of the
Spinoff Date..
10.2 INFORMATION FOR SHAREHOLDERS. SCL shall provide each shareholder
that receives stock of XXXX pursuant to the Spinoff with the information
necessary for such shareholder to comply with the requirements of Section 355
of the Code and the Treasury regulations thereunder with respect to
statements that such shareholders must file with their United States federal
income Tax Returns demonstrating the applicability of Section 355 of the Code
to the Spinoff.
SECTION 11. MISCELLANEOUS
11.1 EFFECTIVENESS. This Agreement shall become effective upon execution
by both parties hereto.
11.2 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and, unless otherwise provided
herein, shall be deemed to have been duly given (i) on the date of service if
served personally on the party to whom notice is given, (ii) on the day of
transmission if sent via facsimile transmission to the facsimile number given
below; provided, telephonic confirmation of receipt is obtained promptly
after completion of transmission, (iii) on the business day after delivery to
an overnight courier service or the Express mail service maintained by the
United States Postal Service; provided, receipt of delivery has been
confirmed, or (iv) on the fifth day after mailing; provided, receipt of
delivery is confirmed, if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepaid, properly
addressed and return-receipt requested, to the party as follows:
If to SCL or any SCL Affiliate, to:
[to come]
Facsimile:
Attention:
If to XXXX or any XXXX Affiliate to:
[to come]
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Facsimile:
Attention:
Any party may change its address or fax number by giving the other party written
notice of its new address or fax number in the manner set forth above.
11.3 CHANGES IN LAW. Any reference to a provision of the Code or a law
of another jurisdiction shall include a reference to any applicable successor
provision or law.
11.4 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned
by either party without the prior written consent of the other party.
11.5 AUTHORIZATION, ETC. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and
perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement
constitutes a legal, valid and binding obligation of each such party and that
the execution, delivery and performance of this Agreement by such party does
not contravene or conflict with any provision of law or of its charter or
bylaws or any agreement, instrument or order binding on such party.
11.6 COMPLETE AGREEMENT. This Agreement shall constitute the entire
agreement between SCL or any SCL Affiliate and XXXX or any XXXX Affiliate
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Unless the context indicates otherwise, any reference to XXXX in this
Agreement shall refer to XXXX and the XXXX Affiliates and any reference to
SCL in this Agreement shall refer to SCL and the SCL Affiliates.
Notwithstanding anything to the contrary herein, nothing in this Agreement
shall modify the rights and obligations of the parties as set forth in
Section 5.6(b) of the Restructuring Agreement.
11.7 INTERPRETATION. The Section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. Whenever any words are used herein in the masculine gender, they
shall be construed as though they were also used in the feminine gender in
all cases where they would so apply.
11.8 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.
11.9 LEGAL ENFORCEABILITY. 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
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hereof. Any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
11.10 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of SCL, the SCL Affiliates, XXXX and the XXXX Affiliates, and is not
intended to confer upon any other person any rights or remedies hereunder.
11.11 CHOICE OF LAW; JURISDICTION AND FORUM. (a) This Agreement shall be
governed by and construed in accordance with the internal substantive laws of
the Island of Bermuda.
(b) If any party shall have the right to seek recourse to a court
with respect to any dispute arising out of or related to this Agreement or
the transactions contained in or contemplated by this Agreement, whether in
tort or contract or at law or in equity, then any action or proceeding in
respect of any such dispute shall be brought exclusively in the Courts of the
Islands of Bermuda.
11.12 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer as of the date first above
written.
SEA CONTAINERS LTD.
on behalf of itself and its affiliates
By
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Name:
Title:
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ORIENT EXPRESS HOTELS LTD.
on behalf of itself and its affiliates
By
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Name:
Title:
25
