Exhibit 10.2
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TAX DISAFFILIATION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of March 3rd, 1998 by and between
Torchmark corporation, a Delaware corporation ("Torchmark") and Xxxxxxx & Xxxx
Financial, Inc., a Delaware corporation ("WRFI").
RECITALS
A. Torchmark is the common parent of an affiliated group of corporations
(the "Torchmark Group") within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Torchmark Group includes
WRFI and its direct and indirect subsidiaries. The members of the Torchmark
Group have heretofore joined in filing consolidated Federal income tax returns.
B. WRFI expects, pursuant to the Public Offering and Separation Agreement
dated as of March 3rd, 1998 (the "Separation Agreement") by and between
Torchmark and WRFI, to (i) make and receive payments to and from Torchmark and
its Subsidiaries with respect to, and to transfer, intercompany debt (the
"Intercompany Debt Settlement"), (ii) contribute preferred stock of Torchmark to
United Investors Life Insurance Company, a Missouri corporation ("UILIC") as a
contribution to capital (the "UILIC Capital Contribution") and distribute all of
the stock of UILIC to WRFI's shareholders pro rata (the "UILIC Spinoff"); (iii)
distribute all of the stock of Torch Royalty Company, a Delaware corporation and
wholly owned subsidiary of WRFI ("Torch Royalty") to Liberty National Life
Insurance Company, an Alabama corporation and a wholly owned subsidiary of
Torchmark ("Liberty") as a non-pro rata dividend (the "Torch Royalty
Distribution"), (iv) distribute its interest in Century Capital Partners, L.P.,
a Delaware limited partnership ("Century Capital") to Liberty as a non-pro rata
dividend (the "Century Capital Distribution"); (v) sell its interest in Xxxxxxx
Gas Company Ltd., a Texas limited partnership ("Xxxxxxx"), to Torchmark
Development Corporation, a wholly-owned subsidiary of Torchmark, in a taxable
sale (the "Xxxxxxx Sale"); (vi) distribute its interest in Associates Oil & Gas
Company, L.P., a Texas limited partnership ("Associates"), to Liberty as a non-
pro rata dividend (the "Associates Distribution"); (vii) distribute all of its
interest in that certain prepaid expense in the amount of $122,538 that was
created in connection with the sale of stock of Nuevo Energy Company, a Delaware
corporation ("Nuevo Expense"), to Torchmark as a non-pro rata dividend (the
"Nuevo Expense Distribution"); and (viii) distribute that certain account
receivable, payable by Torch Energy Advisors Incorporated in the amount of
approximately $1,938,000 and received in connection with the disposition of
Torch Energy Advisors Incorporated, plus the Balancing Cash (as defined in the
Separation Agreement) (together, the "Waddell Ranch Receivable") to Torchmark as
a non-pro rata dividend (the "Waddell Ranch Receivable Distribution") and (ix)
make an initial public offering of certain newly issued shares of common stock
of WRFI (the "Offering").
C. Torchmark expects, after the Offering, to (i) cause Liberty to
distribute all of the WRFI stock it owns to Torchmark as a dividend (the
Liberty/WRFI Spinoff"), (ii) contribute the
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stock of American Income Life Insurance Company, an Indiana corporation and a
wholly owned subsidiary of Torchmark, to Globe Life and Accident Insurance
Company, a Delaware corporation and a wholly owned subsidiary of Torchmark
("Globe") as a capital contribution (the "Globe Capital Contribution"), and
(iii) distribute all of the stock of WRFI it owns to the Torchmark shareholders
as a pro rata dividend (the "Torchmark/WRFI Spinoff").
D. Torchmark and WRFI expect, as a result of the Offering, that (i) WRFI
and its direct and indirect subsidiaries will no longer be eligible members of
the Torchmark Group, and (ii) after the Offering WRFI will be the common parent
of an affiliated group of corporations within the meaning of Section 1504(a) of
the Code which will file consolidated Federal income tax returns.
E. Torchmark and WRFI intend (the "Intended Tax Results") (i) the
Intercompany Debt Settlement to be tax free (other than with respect to any
taxable interest designated as interest under the terms of the relevant debt
instrument) to all parties, (ii) the UILIC Capital Contribution and the Globe
Capital Contribution to be tax free to each transferor and transferee pursuant
to Sections 351 and 1032 of the Code, (iii) the UILIC Spinoff and the
Torchmark/WRFI Spinoff to be tax-free to each distributing corporation and to
each transferee shareholder pursuant to Section 355 of the Code, (iv) the
Liberty/WRFI Spinoff to cause Liberty to recognize taxable income pursuant to
Section 815 of the Code and otherwise to be tax-free to Liberty and Torchmark
pursuant to section 355 of the Code, (v) each of the Torch Royalty Distribution,
the Century Capital Distribution, the Associates Distribution, the Nuevo Expense
Distribution, and the Xxxxxxx Ranch Receivable Distribution to be taxable
distributions pursuant to Sections 301 and 311 of the Code, subject to the
deferred intercompany transaction provisions of Section 1.1502-13 of the
Treasury Regulations until the closing of the Torchmark/WRFI Spinoff, (vi) the
receipt of the proceeds of the Xxxxxxx Sale by WRFI to be taxable, and (vii) the
receipt of the Offering proceeds by WRFI to be tax free pursuant to Section 1032
of the Code. The "Intended Tax Results" include all tax consequences that are
consistent with and follow from the tax treatment described in the immediately
preceding sentence (e.g., it is an Intended Tax Result for a transferee
shareholder's adjusted tax basis in a transaction under Section 355 of the Code
to be allocated pursuant to Section 358 of the Code). Notwithstanding anything
to the contrary in this paragraph, (i) if any of the Intended Transactions is
addressed in a private letter ruling issued by the Internal Revenue Service in a
manner requested by Torchmark, the "Intended Tax Results" of that Intended
Transaction shall be the tax results requested by Torchmark and set forth in
such private letter ruling, and (ii) the "Intended Tax Results" include the
recognition of income from previously deferred intercompany transactions caused
by any Intended Transaction.
F. Torchmark and WRFI desire on behalf of themselves, their direct and
indirect subsidiaries, and their successors to set forth their rights and
obligations with respect to Taxes (as hereinafter defined) due for periods
before and after the Offering.
NOW, THEREFORE, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 "Associates" shall have the meaning set forth on page 1 of this
Agreement.
1.2 "Associates Distribution" shall have the meaning set forth on page 1
of this Agreement.
1.3 "Century Capital" shall have the meaning set forth on page 1 of this
Agreement.
1.4 "Century Capital Distribution" shall have the meaning set forth on
page 1 of this Agreement.
1.5 "Code" shall have the meaning set forth on page 1 of this Agreement.
1.6 "Existing Tax Allocation Agreement" means that certain Consolidated
Tax Allocation Agreement dated August 29, 1990, effective as of January 1, 1989,
by and among Torchmark and each of the corporations listed on Exhibit A thereto
(which includes WRFI and its Subsidiaries).
1.7 "Final Determination" shall mean with respect to any issue (1) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (2) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (3) the completion
of the highest level of administrative proceedings if a judicial contest is not
or is no longer available.
1.8 "Former WRFI Subsidiaries" means Century Capital and any entity that
is, or ever has been, a Subsidiary of WRFI, but which is not currently, or will
not continue to be as a result of the Intended Transactions, a Subsidiary of
WRFI, including but not limited to WRAMCO, UILIC, Torch Royalty, Torch Energy,
Associates, and Xxxxxxx.
1.9 "Globe" shall have the meaning set forth on page 2 of this Agreement.
1.10 "Globe Capital Contribution" shall have the meaning set forth on page
2 of this Agreement.
1.11 "Intended Tax Results" shall have the meaning set forth on page 2 of
this Agreement.
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1.12 "Intended Transactions" shall mean the UILIC Capital Contribution,
the UILIC Spinoff, the Intercompany Debt Settlement, the Torch Royalty
Distribution, the Century Capital Distribution, the Associates Distribution, the
Xxxxxxx Sale, the Nuevo Expense Distribution, the Waddell Ranch Receivable
Distribution, the Offering, the Globe Capital Contribution, the Liberty/WRFI
Spinoff, and the Torchmark/WRFI Spinoff.
1.13 "Intercompany Debt Settlement" shall have the meaning set forth on
page 1 of this Agreement.
1.14 "Liability Issue" shall have the meaning set forth in Section 4.2.
1.15 "Liberty" shall have the meaning set forth on page 1 of this
Agreement.
1.16 "Liberty/WRFI Spinoff" shall have the meaning set forth on page 1 of
this Agreement.
1.17 "Nuevo Expense" shall have the meaning set forth on page 1 of this
Agreement.
1.18 "Nuevo Expense Distribution" shall have the meaning set forth on page
1 of this Agreement.
1.19 "Offering" shall have the meaning set forth on page 1 of this
Agreement.
1.20 "Offering Date" shall mean the last day on which, due to the issuance
of shares of WRFI stock in the Offering, WRFI could be considered a member of
the Torchmark Group.
1.21 "Payor" shall have the meaning set forth in Section 2.5.
1.22 "Payee" shall have the meaning set forth in Section 2.5.
1.23 "Period After Offering" shall mean any taxable year or other taxable
period beginning after the Offering Date and, in the case of any taxable year or
other taxable period that begins before and ends after the Offering Date, that
part of the taxable year or other taxable period that begins after the close of
the Offering Date.
1.24 "Period Before Offering" shall mean any taxable year or other taxable
period that ends on or before the Offering Date and, in the case of any taxable
year or other taxable period that begins before and ends after the Offering
Date, that part of the taxable year or other taxable period through the close of
the Offering Date.
1.25 "Retained Group" shall mean, for any period, Torchmark and its
Subsidiaries (which, as defined in "Subsidiary" below, includes the Former WRFI
Subsidiaries and excludes WRFI and its Subsidiaries).
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1.26 "Separation Agreement" shall have the meaning set forth on page 1 of
this Agreement.
1.27 "Subsidiary" of an entity (the "first entity") shall mean a current
or former corporation, partnership, joint venture or other business entity (the
"second entity") where 50% or more of the outstanding equity or voting power of
such second entity is owned directly or indirectly by the first entity. In
determining whether a Subsidiary is a Subsidiary of WRFI or Torchmark for any
period, WRFI shall not be considered a Subsidiary of Torchmark, and any
Subsidiary of WRFI shall be considered a Subsidiary of WRFI, not Torchmark, for
such period except the Former WRFI Subsidiaries, each of which shall be
considered a subsidiary of Torchmark for all periods.
1.28 "Tax or Taxes" means all taxes, charges, fees, levies, imposts,
duties or other assessments, including, without limitation, income, gross
receipts, estimated taxes, excise, personal property, real property, sales, ad
valorem, value-added, leasing, withholding, social security, workers'
compensation, unemployment insurance, occupation, use, service, service use,
license, stamp, payroll, employment, windfall profit, environmental, alternative
or add-on minimum tax, franchise, transfer and recording taxes, fees and
charges, imposed by the United States or any state, local, or foreign
governmental authority whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest, fines,
penalties or additional amounts attributable or imposed on or with respect to
any such taxes, charges, fees, levies, imposts, duties or other assessments.
1.29 "Tax Controversy" shall have the meaning set forth in Section 4.3.
1.30 "Tax Refund" shall mean a refund of Taxes (including a reduction in
Taxes as a result of any credit or any offset against Taxes) reduced (but not
below zero) by any net increase in Taxes by the recipient (or its affiliate)
thereof as a result of the receipt thereof.
1.31 "Tax Returns" shall mean all returns, reports or other documents or
information to be filed or that may be filed for any period with any Taxing
authority (whether domestic or foreign) in connection with any Tax or Taxes
(whether domestic or foreign).
1.32 "Torch Energy" shall mean Torch Energy Advisors, Incorporated, a
Delaware corporation, and formerly a wholly owned subsidiary of WRFI, and the
former subsidiaries of Torch Energy.
1.33 "Torch Royalty" shall have the meaning set forth on page 1 of this
Agreement.
1.34 "Torch Royalty Distribution" shall have the meaning set forth on page
1 of this Agreement.
1.35 "Torchmark" shall have the meaning set forth on page 1 of this
Agreement.
1.36 "Torchmark Group" shall have the meaning set forth on page 1 of this
Agreement.
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1.37 "Torchmark Item" shall have the meaning set forth in Section 4.3.
1.38 "Torchmark/WRFI Spinoff" shall have the meaning set forth on page 2
of this Agreement.
1.39 "UILIC" shall have the meaning set forth on page 1 of this Agreement.
1.40 "UILIC Capital Contribution" shall have the meaning set forth on page
1 of this Agreement.
1.41 "UILIC Spinoff" shall have the meaning set forth on page 1 of this
Agreement.
1.42 "Underpayment Rate" shall mean the rate specified under Section
6621(a)(2) of
the Code.
1.43 "Xxxxxxx" shall have the meaning set forth on page 1 of this
Agreement.
1.44 "Xxxxxxx Sale" shall have the meaning set forth on page 1 of this
Agreement.
1.45 "Waddell Ranch Receivable" shall have the meaning set forth on page 1
of this Agreement.
1.46 "Waddell Ranch Receivable Distribution" shall have the meaning set
forth on page 1 of this Agreement.
1.47 "WRAMCO" shall mean Xxxxxxx & Xxxx Asset Management Company, a
Missouri corporation.
1.48 "WRAMCO Ruling" shall mean the private letter ruling dated July 8,
1997 issued by the Internal Revenue Service with respect to the WRAMCO Spinoff.
1.49 "WRAMCO Spinoff" shall mean the 1997 distributions of the stock of
WRAMCO from Xxxxxxx & Xxxx, Inc. to Xxxxxxx & Xxxx Financial Services, Inc.,
from Xxxxxxx & Xxxx Financial Services, Inc., to United Investors Management
Company, from United Investors Management Company to Liberty and Torchmark, and
from Liberty to Torchmark, and related transactions, as more fully described in
the WRAMCO Ruling.
1.50 "WRFI" shall have the meaning set forth on page 1 of this Agreement.
1.51 "WRFI Group" shall mean, for any period, WRFI and its Subsidiaries
(which, as defined in "Subsidiary" above, excludes the Former WRFI
Subsidiaries).
1.52 "WRFI Item" shall have the meaning set forth in Section 4.3.
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ARTICLE II
TAX RETURNS, TAX PAYMENTS AND EVENT OF LOSS
2.1 Obligation to File Tax Returns.
(a) Torchmark shall timely prepare and file (or cause to be prepared and
filed) all Tax Returns that (i) are filed on a consolidated, combined or unitary
basis, (ii) include Torchmark or any of its Subsidiaries, and (iii) are required
to be filed (A) for any Period Before Offering or (B) for any taxable year or
period of Torchmark or any such Subsidiary that begins before and ends after the
Offering Date, provided, however, that if WRFI, any of its Subsidiaries, or any
of the WRFI Former Subsidiaries are included in any such Tax Return, WRFI shall
prepare or cause to be prepared in accordance with the Existing Tax Allocation
Agreement and past practice of WRFI and its predecessors and deliver to
Torchmark (or cause to be prepared and delivered to Torchmark) 30 days prior to
the due date for filing of such Tax Return by Torchmark (7 days in the case of
estimated Tax Returns), all information Torchmark needs regarding WRFI, its
Subsidiaries and any of the WRFI Former Subsidiaries in order to prepare and
file such Tax Return, in the form required by section 2 of the Existing Tax
Allocation Agreement.
(b) Torchmark shall timely file (or cause to be filed) any other Tax Return
with respect to the Retained Group and its members, and WRFI shall timely file
(or cause to be filed) any other Tax Return with respect to the WRFI Group and
its members.
(c) Torchmark shall have sole discretion to take or not take a position in
and with respect to any Tax Return which Torchmark is required to file or cause
to be filed hereunder, and WRFI shall have sole discretion to take or not take a
position in and with respect to any Tax Return which WRFI is required to file or
cause to be filed hereunder, provided, however, that all such Tax Returns shall
be consistent with the Intended Tax Results and the WRAMCO Ruling, and each
party agrees not to, and not to allow any of its respective Subsidiaries to,
take or fail to take any action which is inconsistent with the Intended Tax
Results or the WRAMCO Ruling.
2.2 Obligation to Remit Taxes. Torchmark and WRFI shall each remit or
cause to be remitted any Taxes due in respect of any Tax for which it is
required to file a Tax Return and shall be entitled to reimbursement for such
payments only to the extent provided in Article II hereof.
2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) Except as provided in Section 2.3(b)(ii) hereof, Torchmark shall be
liable for and shall hold each member of the WRFI Group harmless on an after tax
basis against (i) any liability attributable to any member of the Retained Group
for Taxes, regardless of whether attributable to a Period Before Offering or a
Period After Offering, including any such Tax liability asserted against any
member of the WRFI Group under the provisions of Treas. Reg. 1.1502-6(a) that
impose several liability on members of an affiliated group of corporations that
files consolidated
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returns, or similar provisions of any foreign, state or local law, and (ii) any
liability attributable to any member of the Retained Group or the WRFI Group for
Taxes with respect to the WRAMCO Spinoff or with respect to any of the Intended
Transactions (including all Intended Tax Results). Torchmark shall be entitled
to any Tax Refund which is attributable to both an entity and a taxable year or
taxable period for which Torchmark has liability hereunder.
(b) WRFI shall be liable for and shall hold each member of the Retained
Group harmless on an after tax basis against (i) except as provided in Sections
2.3(a)(ii) and 2.8 hereof, any liability attributable to any member of the WRFI
Group for Taxes, regardless of whether attributable to a Period Before Offering
or a Period After Offering, and (ii) any liability attributable to any member of
the Retained Group or the WRFI Group for Taxes with respect to any of the
Intended Transactions or the WRAMCO Spinoff caused by or resulting directly or
indirectly from the breach (including inconsistent actions or positions, other
than actions or positions referred to by the registration statement prepared in
connection with the Offering), subsequent to the date of this Agreement, by any
member of the WRFI Group of any of the agreements set forth in section 2.3(c)
hereof, or of any of the representations, warranties or agreements of any member
of the Torchmark Group set forth in the private letter ruling requests and
supplemental submissions filed or to be filed with the Internal Revenue Service
with respect to any of the Intended Transactions, but only to the extent the
Retained Group in the aggregate is liable for more Taxes with respect to the
Intended Transactions and the WRAMCO Spinoff than they would have been had such
breach not occurred. WRFI shall be entitled to any Tax Refund which is
attributable to both an entity and a taxable year or taxable period for which
WRFI has liability hereunder.
(c) Each party agrees to report and treat, and to cause its Subsidiaries to
report and treat, (i) the Intended Transactions in accordance with the Intended
Tax Results, and take no position inconsistent therewith in any document, filing
or forum whether Tax related or not, and (ii) the WRAMCO Spinoff in accordance
with the WRAMCO Ruling, and take no position inconsistent therewith in any
document, filing or forum whether Tax related or not. Torchmark and WRFI shall
not, and shall not permit any of their respective Subsidiaries to, take or cause
or permit to be taken, any action that would cause (y) any Tax results to occur
with respect to the Intended Transactions other than the Intended Tax Results,
or (z) any Tax results to occur with respect to the WRAMCO Spinoff other than
the Tax results contemplated by the WRAMCO Ruling.
(d) (i) Torchmark and WRFI and its Subsidiaries are parties to the
Existing Tax Allocation Agreement. The parties acknowledge that the obligations
of WRFI and its Subsidiaries under the Existing Tax Allocation Agreement will
terminate as of the Offering Date, but that pursuant to section 10 of the
Existing Tax Allocation Agreement it will remain in effect for each of WRFI and
its Subsidiaries with respect to any period during which WRFI or such Subsidiary
must be included in the Torchmark Group. Notwithstanding such continuing effect
of the Existing Tax Allocation Agreement, the parties agree that to the extent
the provisions of this Tax Disaffiliation Agreement and the provisions of the
Existing Tax Allocation Agreement differ or conflict, the provisions of this Tax
Disaffiliation Agreement shall be controlling, and the Existing Tax Allocation
Agreement is hereby amended to such extent.
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(ii) In consideration of the mutual indemnities and other obligations of
this Agreement, any and all existing tax sharing agreements and prior practices
regarding Taxes and their payment, allocation, or sharing between any member of
the Retained Group and any member of the WRFI Group (other than the Existing Tax
Allocation Agreement) shall be terminated with respect to each member of the
WRFI Group as of the Offering Date, provided, however, that such agreements and
practices shall remain in effect for each of WRFI and its Subsidiaries with
respect to any period during which WRFI or such Subsidiary must be included in
the Torchmark Group. Notwithstanding such continuing effect of such agreements
and practices, the parties agree that to the extent the provisions of this Tax
Disaffiliation Agreement and the provisions of such agreements or practices
differ or conflict, the provisions of this Tax Disaffiliation Agreement shall be
controlling, and such agreements and practices are hereby amended to such
extent.
2.4 Period that includes the Offering Date. If it is necessary for
purposes of this Agreement to determine the income tax liability of any member
of the WRFI Group or of the Retained Group for a taxable year that begins on or
before and ends after the Offering Date and is not treated under Section 2.3(a)
as closing at the close of the Offering Date, the determination shall be made by
assuming that such member of the WRFI Group or of the Retained Group had a
taxable year that ended at the close of the Offering Date, except that
exemptions, allowances or deductions that are calculated on an annual basis
shall be apportioned on a per diem basis.
2.5 Payments. To the extent that a party owes money (the "Payor") to
another party (the "Payee") pursuant to this Article II, the Payor shall pay the
Payee the amount for which the Payor is required to pay or indemnify the Payee
under this Article II on the dates and in the manner specified in the Existing
Tax Allocation Agreement. The payee shall submit the Payee's calculations of
the amount required to be paid pursuant to this Article II, showing such
calculations in sufficient detail so as to permit the Payor to understand the
calculations. The Payor shall have the right to disagree with such
calculations. Any dispute regarding such calculations shall be resolved in
accordance with Article VII of this Agreement.
2.6 Interest. Any payment required by this Agreement which is not made on
or before the date provided hereunder shall bear interest after such date at the
Underpayment Rate.
2.7 Tax Refund Claims. WRFI shall be permitted to file at WRFI's sole
expense, and Torchmark and its Subsidiaries shall reasonably cooperate
(including signing any Torchmark Tax Return that WRFI prepares and executing and
delivering powers of attorney in favor of persons designated by WRFI) with WRFI
in connection with, any claims for a Tax Refund to which WRFI is entitled
pursuant to this Article II or any other provision of this Agreement. WRFI
shall reimburse Torchmark for any reasonable out-of-pocket costs and expenses
incurred by any member of the Torchmark Group in connection with such
cooperation. Torchmark shall be permitted to file at Torchmark's sole expense,
and WRFI and its Subsidiaries shall reasonably cooperate (including signing any
WRFI Tax Return that Torchmark prepares and executing and delivering powers of
attorney in favor of persons designated by Torchmark) with Torchmark in
connection with, any claims for a Tax Refund to which Torchmark is entitled
pursuant to this Article II or any other provision of this Agreement. Torchmark
shall reimburse WRFI for any
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reasonable out-of-pocket costs and expenses incurred by any member of the WRFI
Group in connection with such cooperation.
2.8 Kansas (and Other) State Income Tax.
(a) The parties acknowledge that state income tax returns have been filed
in Kansas on a unitary basis with respect to the WRFI Group for years through
1996, that amended returns claiming refunds have been or will be filed for 1993,
1994, and 1995 on a unitary basis with respect to the combined WRFI Group and
Torchmark, that the return for 1996 has been filed on a unitary basis with
respect to the combined WRFI Group and Torchmark, and that the returns for 1997
and the relevant portion of 1998 shall be filed on a unitary basis with respect
to the combined WRFI Group and Torchmark. Notwithstanding anything to the
contrary herein, in determining Torchmark's and WRFI's respective shares of the
Kansas state income tax liability and refunds (and related interest, if any),
the amount of the aggregate Kansas state income tax liability allocable to WRFI
shall be the amount the WRFI Group would have paid had the taxes been determined
on a unitary basis with respect to the WRFI Group only, and any remaining
liability shall be allocable to Torchmark. Accordingly, Torchmark shall be
entitled to all refunds and amounts attributable to reductions in taxes for a
particular year until the aggregate liability for that year is less than the
amount allocated to WRFI.
(b) The parties acknowledge that state income tax returns have been or will
be filed in other states (in addition to Kansas) on a unitary basis with respect
to the WRFI Group in periods prior to the Offering Date which may be amended or
filed on a unitary basis with respect to the combined WRFI Group and Torchmark.
Notwithstanding anything to the contrary herein, in determining Torchmark's and
WRFI's respective shares of the state income tax liability and refunds (and
related interest, if any) in each of such states, the parties shall employ the
method outlined in Section 2.8(a).
(c) The federal tax consequences resulting from the allocation of state
taxes set forth herein shall be allocated among the parties in accordance with
this Agreement (and the Existing Tax Allocation Agreement to the extent
applicable under this Agreement).
ARTICLE III
CARRYBACKS
3.1 Retained Group Carrybacks. In its sole discretion Torchmark may file
any Tax Return which carries back any net operating loss, credit, or other Tax
attribute attributable to a member of the Retained Group from a Period After
Offering to a Period Before Offering, provided, however, that without the
written consent of WRFI, Torchmark may not carryback any item to the extent it
would result in a material detriment to any member of the WRFI Group.
3.2 WRFI Group Carrybacks. No member of the WRFI Group shall file any Tax
Return which carries back any net operating loss from a Period After Offering to
a Period Before Offering without the written consent of Torchmark. Members of
the WRFI Group may file, and
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at WRFI's request Torchmark shall file or cause to be filed at WRFI's expense, a
Tax Return which carries back any credit or other Tax attribute (other than net
operating losses) attributable to a member of the WRFI Group from a Period After
Offering to a Period Before Offering, and receive a payment related to the
associated tax benefit in accordance with the Existing Tax Allocation Agreement,
unless such carryback would result in a material detriment to any member of the
Torchmark Group (excluding any member of the WRFI Group).
ARTICLE IV
TAX CONTROVERSIES
4.1 General. Except as provided in Section 4.2, each of WRFI and
Torchmark shall have sole responsibility for all audits or other proceedings
with respect to Tax Returns that it is required to file under Section 2.1.
4.2 Notice. Torchmark and WRFI shall use reasonable efforts to keep each
other advised as to the status of Tax audits and other proceedings involving any
issue which relates to any Tax of the other or its Subsidiaries or could give
rise to a Tax liability or a Tax Refund of the other or its Subsidiaries under
this Agreement (a "Liability Issue"). Torchmark and WRFI shall promptly furnish
each other copies of any inquiries, audits or other proceedings, requests for
information, notices, proposed adjustments, proposed deficiencies and reports
from any Taxing Authority or any other administrative, judicial or other
governmental authority concerning or that could concern a Liability Issue of the
other.
4.3 Contest Provisions. Subject to the cooperation provisions in Section
4.2 and Article V hereof and to this Section 4.3, Torchmark shall have full
responsibility and discretion in the handling of any Tax controversy with
respect to any Tax Return which Torchmark is required to file or cause to be
filed hereunder, including, without limitation, an audit, a protest to the
Appeals Division of the IRS, other administrative appeals, and litigation in Tax
Court or any other court of competent jurisdiction (a "Tax Controversy"). In
the event a Tax Controversy involves items that could give rise to a payment of
Tax for which WRFI would be liable hereunder or otherwise or a refund of Tax for
which WRFI would be entitled hereunder or otherwise (a "WRFI Item") and also
involves items that could give rise to a payment of Tax for which Torchmark
would be liable or a refund of Tax for which Torchmark would be entitled
hereunder or otherwise (a "Torchmark Item"), then Torchmark shall advise and
consult with WRFI with respect to such Tax Controversy and any proposed
settlement thereof which affects the WRFI Items, and shall not settle any WRFI
Item without WRFI's consent (which consent may not be unreasonably withheld).
WRFI and its representatives, at WRFI's expense, shall be entitled to
participate in all conferences, meetings, or proceedings with any Tax Authority,
the subject matter of which includes or affects any WRFI Item, and shall be
entitled to participate in all appearances before any court, the subject matter
of which includes or affects any WRFI Item. The right of WRFI to participate
shall include, without limitation, discretion to control the content of
documentation, protests, memoranda of fact and law and briefs, the conduct of
oral arguments or presentations, the selection of witnesses, and the negotiation
of stipulations of fact with respect to the WRFI Items. In the event a Tax
Controversy involves only WRFI Items, and has no affect on
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Torchmark Items, then upon request by WRFI, WRFI shall have full responsibility
and discretion in the handling, at WRFI's expense, of such Tax Controversy with
Torchmark's cooperation as set forth in Section 4.2 and Article V hereof.
4.4 Payment of Audit Assessments. The obligation for payment or
entitlement to refund resulting from a Tax Controversy shall be limited to the
net increase or net decrease in Tax liability resulting (for all past and future
periods) from a change in Tax treatment required by a Final Determination. The
obligation or entitlement shall be determined for each taxable year or period
affected by the Final Determination and paid by or to a party at the same time
the additional Tax or Tax refund with respect to that year is due or received.
If Torchmark and WRFI agree, instead of making or receiving annual payments to
settle the payments due from a Final Determination, a one-time settlement
payment could be made at the time of the Final Determination, adjusted to
reflect the present value of the increase and/or decrease in future tax
liabilities resulting from the change in Tax treatment using, with respect to
tax periods prior to the date of such Final Determination, the highest marginal
tax rate of the applicable taxing jurisdiction known to be applicable to the
entities, tax periods and items involved, and with respect to tax periods
thereafter, using the highest marginal tax rate of the applicable taxing
jurisdiction in effect as of the date of such Final Determination with respect
to the entities and items involved, and using a discount rate equal to the
Underpayment Rate in effect as of the date of such Final Determination.
ARTICLE V
COOPERATION
Torchmark and WRFI shall (and shall cause the members of the Retained Group
and the WRFI Group, as the case may be to) cooperate with each other in the
filing of any Tax Returns and the conduct of any audit or other proceeding and
each shall execute and deliver such powers of attorney and make available such
other documents and employees as are necessary to carry out the intent of this
Agreement. Each party agrees to notify the other party of any audit adjustments
which do not result in Tax liability but can be reasonably expected to affect
Tax Returns of the other party, or any of its Subsidiaries, for a Period After
Offering.
ARTICLE VI
RETENTION OF RECORDS; ACCESS
The Retained Group and the WRFI Group shall (a) until the expiration of the
relevant statute of limitations, retain records, documents, accounting data and
other information (including computer data) necessary for the preparation and
filing of all Tax Returns in respect of Taxes of the Retained Group or the WRFI
Group or for the audit of such Tax Returns; and (b) give to the other party
reasonable access to such records, documents, accounting data and other
information (including computer data) and to its personnel (insuring their
cooperation) and premises, for the purpose of the review or audit of such
returns to the extent relevant to an obligation or liability of a party under
this Agreement. Within thirty days following the filing of each of Torchmark's
final
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consolidated, combined or unitary Tax Returns for Periods Before Distribution,
Torchmark shall furnish WRFI with (i) copies of the relevant portion of such Tax
Returns that relate to the WRFI Group and (ii) to the extent in Torchmark's
possession, information concerning (a) the tax basis of the assets of the WRFI
Group as of the Offering Date, (b) the earnings and profits of each member of
the WRFI Group as of the Offering Date, (c) WRFI's and its Subsidiaries' tax
basis in their respective Subsidiaries as of the Offering Date, (d) the net
operating loss carryover, investment tax credit carryover, alternative minimum
tax carryover and capital loss carryover, if any, available to the WRFI Group as
of the Offering Date and (e) all elections with respect to Taxes in effect for
the WRFI Group. Prior to destroying any records, documents, data or other
information in accordance with this Article, the party wishing to destroy such
items will give the other party a reasonable opportunity to obtain such items
(at such other party's expense).
ARTICLE VII
DISPUTES
7.1 Calculation Disputes. If the parties disagree as to the calculation
of any Tax or the amount of (but not liability for) any payment to be made under
this Agreement, the parties shall cooperate in good faith to resolve any such
dispute, and any agreed-upon amount shall be paid to the appropriate party. If
the parties are unable to resolve any such dispute within 15 days thereafter,
such dispute shall be resolved by a nationally recognized accounting firm
acceptable to both Torchmark and WRFI. The decision of such firm shall be final
and binding. The fees and expenses incurred in connection with such decision
shall be borne equally by Torchmark and WRFI. Following the decision of such
accounting firm, the parties shall each take (or cause to be taken) any action
that is necessary or appropriate to implement such decision, including, without
limitation, the prompt payment of underpayments or overpayments, with interest
calculated on such overpayments and underpayments at the Underpayment Rate from
the date such payment was due (the due date of payments governed by Section 2.5
of this Agreement shall be the date a payment is due thereunder assuming the
party does not dispute the amount owed) through the date such underpayment or
overpayment is paid or refunded.
7.2 Other Disputes. All disputes not covered by the provisions of Section
7.1 hereof will be resolved through the provisions of Article IX of the
Separation Agreement.
ARTICLE VIII
TERMINATION OF LIABILITIES
Notwithstanding any other provision in this Agreement, any liabilities
determined under this Agreement shall not terminate any earlier than the
expiration of the applicable statute of limitation for such liability. All
other representations, warranties and covenants under this Agreement shall
survive indefinitely.
ARTICLE IX
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MISCELLANEOUS PROVISIONS
9.1 Notices and Governing Law. All notices required or permitted to be
given pursuant to this Agreement shall be given, and the applicable law
governing the interpretation of this Agreement shall be determined, by the
applicable provisions of the Separation Agreement.
9.2 Treatment of Payments. The parties hereto shall treat any payments
made pursuant to the terms of this Agreement as a capital transaction for all
tax purposes, except to the extent such payments represent interest paid
pursuant to Section 2.6.
9.3 Binding Effect; No Assignment; Third Party Beneficiaries. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
and their respective successors and assigns. Torchmark and WRFI hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of each member of the Retained Group and the WRFI
Group, respectively. Torchmark and WRFI shall, upon the written request of the
other, cause any of their respective Subsidiaries to execute this Agreement.
Torchmark or WRFI shall not assign any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the other
party. No person (including, without limitation, any employee of a party or any
stockholder of a party) shall be, or shall be deemed to be, a third party
beneficiary of this Agreement.
9.4 Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and supersedes all
prior agreements, whether or not written, concerning such subject matter. This
Agreement may not be amended except by an agreement in writing, signed by the
parties.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
9.6 Specific Performance. The parties hereby acknowledge and agree that
the failure of any party to perform its agreements and covenants hereunder will
cause irreparable injury to the other parties for which damages, even if
available, will not be an adequate remedy. Accordingly, to compel performance
of each party's obligations hereunder, the parties shall be entitled to the
issuance of injunctive relief and the granting of specific performance, in
addition to any other remedy at law or equity.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
TORCHMARK CORPORATION
By: /s/ Xxxxxxx X. Xxxxx
--------------------
Xxxxxxx X. Xxxxx
Vice President
XXXXXXX & XXXX FINANCIAL, INC.
By: /s/ Xxxxx X. Xxxxxx
-------------------
Xxxxx X. Xxxxxx
Chief Executive Officer
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