1
EXHIBIT 10.3
TAX DISAFFILIATION AGREEMENT
between
CVS CORPORATION,
on behalf of itself and its
Post-Deconsolidation Affiliates
and
LINENS 'N THINGS, INC.,
on behalf of itself and its
Post-Deconsolidation Affiliates
2
1. Definitions
-----------
2. Federal and State Taxes--Administrative and Compliance Matters.
---------------------------------------------------------------
(a) Sole Tax Sharing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------------------
(b) Designation of Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------
(c) Pre-Deconsolidation Period Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------------------------------
3. Consolidated Federal, Consolidated State and Unitary State Taxes -- Allocation of Taxes.
---------------------------------------------------------------------------------------
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------
(b) Estimated Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------------
(c) Payment of Taxes at Year-End. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------------------------
(d) Carrybacks and Certain Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------------
4. Other Taxes
-----------
5. Certain Covenants.
-----------------
(a) Linens Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----------------
(b) CVS Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------
(c) Linens and CVS Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------------
6. Indemnities.
-----------
(a)(I) Linens Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----------------
(a)(II) Linens Additional Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------------------------
(b) CVS Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------
(c) Discharge of Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------
(d) Tax Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
------------
(e) Refunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------
(f) Clerical Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------
(g) Method of Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------------
7. Communication and Cooperation.
-----------------------------
(a) Consult and Cooperate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------------
(b) Provide Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------------
i
3
(c) Tax Attribute Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------------------
8. Audits and Contest.
------------------
9.Payments.
--------
10. Notices.
-------
11.Costs and Expenses.
------------------
12.Effectiveness; Termination and Survival.
---------------------------------------
13.Section Headings.
----------------
14.Entire Agreement; Amendments and Waivers.
----------------------------------------
(a) Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
----------------
(b) Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------
15.Governing Law and Interpretation.
--------------------------------
16.Dispute Resolution.
------------------
17.Counterparts.
------------
18. Assignments; Third Party Beneficiaries.
--------------------------------------
Exhibit A
---------
Exhibit B
---------
ii
4
TAX DISAFFILIATION AGREEMENT
This Agreement is entered into as of the second day of December, 1996
between CVS Corporation ("CVS"), a Delaware corporation, on behalf of itself and
its Post-Deconsolidation Affiliates, and Linens 'n Things, Inc. ("Linens"), a
Delaware corporation, on behalf of itself and its Post-Deconsolidation
Affiliates.
W I T N E S S E T H:
WHEREAS CVS and Linens intend to offer shares of Linens Common Stock
to the public pursuant to which Linens will cease to be a member of the CVS
Consolidated Group, as defined below.
WHEREAS, CVS and Linens desire to set forth their agreement on the
rights and obligations of CVS, Linens and their respective Affiliates with
respect to the handling and allocation of federal, state, local and foreign
Taxes incurred in Taxable periods beginning prior to the Deconsolidation Date
and various other Tax matters;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1.Definitions
(a) As used in this Agreement:
"Affiliate" of any person shall mean any individual, corporation,
partnership or other entity directly or indirectly owning more than 50 percent
1
5
of, owned more than 50 percent by, or under more than 50 percent common
ownership with, such person.
"After-Tax Amount" shall mean an additional amount necessary
to reflect the hypothetical Tax consequences of the receipt or accrual of any
payment, using the maximum statutory rate (or rates, in the case of an item
that affects more than one Tax) applicable to the recipient of such payment for
the relevant year, reflecting for example, the effect of the deductions
available for interest paid or accrued and for Taxes such as state and local
income Taxes.
"CVS Consolidated Group" shall mean, with respect to any
Taxable period, (i) with respect to Consolidated Federal Taxes, the affiliated
group of corporations of which CVS or Melville Corporation ("Melville") (or a
successor of either) was or is the common parent (within the meaning of Section
1504 of the Code), (ii) with respect to Consolidated State Taxes and Unitary
State Taxes, the consolidated, combined or unitary group of which CVS or
Melville (or a successor of either) or any of their Affiliates was or is a
member, and (iii) with respect to any Other Tax payable with respect to a group
which includes or included at least one member of the CVS Group and at least
one member of the Linens Group, such group.
"CVS Group" shall mean, with respect to any Taxable period,
CVS, Melville and their Affiliates (including their predecessors and
successors)
2
6
at any time prior to the Deconsolidation (including, without limitation, the
Non-Chain Corporations) other than those Affiliates comprising the Linens
Group.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor thereto.
"Consolidated Federal Tax" shall mean the consolidated Federal
Tax liability of the CVS Consolidated Group for any period as to which a
consolidated Federal Tax Return was or is filed by CVS or Melville, or any
successor to either, for such group.
"Consolidated State Tax" shall mean with respect to each
State, any income or franchise Tax payable with respect to a group of at least
two corporations, other than a Unitary State Tax.
"Deconsolidation" shall mean any event pursuant to which
Linens ceases to be a subsidiary corporation includible in a consolidated tax
return of CVS for Federal Tax purposes, or in a consolidated, combined or
unitary return with a member of the CVS Group.
"Deconsolidation Date" shall mean the date on which the
Deconsolidation shall be effected.
"Federal Tax" shall mean any Tax imposed under Subtitle A of
the Code and any related penalty imposed under Subtitle F of the Code.
"Final Determination" shall mean (i) with respect to Federal
Taxes, (A) a "determination" as defined in Section 1313(a) of the Code, or (B)
3
7
the date of acceptance by or on behalf of the Internal Revenue Service of Form
870-AD (or any successor form thereto), as a final resolution of Tax liability
for any Taxable period, except that a Form 870-AD (or successor form thereto)
that reserves the right of the taxpayer to file a claim for refund and/or the
right of the Internal Revenue Service to assert a further deficiency shall not
constitute a Final Determination with respect to the item or items so reserved;
(ii) with respect to Taxes other than Federal Taxes, any final determination of
liability in respect of a Tax provided for under applicable law; (iii) any
final disposition by reason of the expiration of the applicable statute of
limitations; and (iv) the payment of Tax by CVS, Linens, or any Affiliate of
CVS or Linens, whichever is responsible for payment of such Tax under
applicable law, with respect to any item disallowed or adjusted by a Taxing
Authority, provided that the provisions of Section 8 hereof have been complied
with, or, if such section is inapplicable, that the party responsible under the
terms of this Agreement for such Tax is notified by the party paying such Tax
that it has determined that no action should be taken to recoup such disallowed
item, and the other party agrees with such determination.
"Linens Group" shall mean Linens and its Affiliates
immediately after the Deconsolidation Date, including any predecessors thereto,
and any corporation that would have been an Affiliate of Linens immediately
after the
4
8
Deconsolidation Date if it had not been previously sold, liquidated or
otherwise disposed of.
"Non-Chain Corporations" shall mean Computer Development,
Inc., Melville Equipment Leasing Corporation, MC Retail, Inc., Melville Realty
Company and their direct and indirect subsidiaries.
"Other Taxes" is defined in Section 4.
"Post-Deconsolidation Affiliate" shall mean with regard to
CVS, any person that is or that will be an Affiliate of CVS or a successor to
CVS after the Deconsolidation and, with regard to Linens, any person that is or
that will be an Affiliate of Linens or a successor to Linens after the
Deconsolidation.
"Post-Deconsolidation Period" shall mean any taxable period
(or portion thereof) beginning after the close of business on the
Deconsolidation Date.
"Pre-Deconsolidation Period" shall mean any Taxable period
ending on or before the close of business on the Deconsolidation Date; provided
that if a Taxable period ending after the Deconsolidation Date contains any
days which fall prior to or on the Deconsolidation Date, any portion of such
Taxable period up to or including the Deconsolidation Date shall also be
included in the Pre-Deconsolidation Period.
"Pre-Deconsolidation Tax Liability" shall mean (i) the
Consolidated Federal Tax, and (ii) the Consolidated State Tax liability of any
5
9
group that includes at least one member of the CVS Group and at least one
member of the Linens Group, (iii) the Unitary State Tax liability of any group
which includes at least one member of the CVS Group and at least one member of
the Linens Group, and (iv) any Other Taxes, in each case for any
Pre-Deconsolidation Period.
"Prime" shall mean the rate announced from time to time as
"prime" by Xxxxxx Guaranty Trust Company as its prime rate.
"Referee" is defined in Section 16.
"Return" shall mean any Tax return, statement, report or form
(including estimated Tax returns and reports, extension requests and forms, and
information returns and reports) required to be filed with any Taxing
Authority.
"Tax" (and the correlative meaning, "Taxes," "Taxing" and
"Taxable") shall mean (A) any tax imposed under Subtitle A of the Code, any net
income, gross income, gross receipts, alternative or add-on minimum, sales,
use, value-added, goods and services, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, transfer, recording, severance,
stamp, occupation, premium, property, environmental, custom duty, or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest and any penalty, addition to tax or additional
amount imposed by a Taxing Authority; (B) any liability of a member of the CVS
Group or the Linens Group, as the case may be, for the payment of
6
10
any amounts of the type described in clause (A) for any Taxable period
resulting from the application of Treasury Regulation Section 1.1502-6 or any
similar provision applicable under state, local or foreign law; and (C) any
liability of a member of the CVS Group or the Linens Group for the payment of
any amounts described in clause (A) as a result of any express or implied
obligation to indemnify any other party.
"Tax Asset" shall mean any net operating loss, net capital
loss, investment Tax credit, foreign Tax credit, target jobs Tax credit, low
income housing credit, research and experimentation credit, charitable
deduction or any other credit or Tax attribute, including additions to basis of
property, which could reduce any Tax, including, without limitation,
deductions, credits, or alternative minimum net operating loss carryforwards
related to alternative minimum Taxes.
"Tax Packages" shall mean one or more packages of information,
including but not limited to the Corptax file and the divisional
reconciliation, that are (i) reasonably necessary for the purpose of preparing
Federal Tax, Consolidated State Tax, Unitary State Tax Returns or Other Tax
returns of the CVS Consolidated Group with respect to a Pre-Deconsolidation
Period and (ii) completed in all material respects in accordance with the
standards that CVS has established for its subsidiaries with respect to the
relevant Pre-Deconsolidation Period.
7
11
"Tax Proceeding" shall mean any Tax audit, dispute or
proceeding (whether administrative or judicial).
"Taxing Authority" shall mean any governmental authority
(domestic or foreign) responsible for the imposition of any Tax.
"Unitary State Tax" shall mean, with respect to each State,
any income or franchise Tax payable with respect to a group of at least two
corporations and based upon a group apportionment percentage.
(b) Any term used in this Agreement which is not defined
in this Agreement shall, to the extent the context requires, have the meaning
assigned to it in the Code or the applicable Treasury regulations thereunder
and, in the case of Consolidated State Taxes, Unitary State Taxes, and Other
Taxes, in comparable provisions of applicable law.
2. Federal and State Taxes--Administrative and
Compliance Matters.
(a) Sole Tax Sharing Agreement. The parties acknowledge
that there has not been a Final Determination of the Pre-Deconsolidation Tax
Liability, and that members of the Linens Group are includible in the CVS
Consolidated Group for the Pre-Deconsolidation Period. This Agreement shall
constitute the sole Tax sharing agreement between CVS and its
Post-Deconsolidation Affiliates, on one hand, and Linens and its
Post-Deconsolidation Affiliates, on the other hand, and, to the extent there is
any inconsistency between this Agreement and any existing Tax sharing
agreements
8
12
or arrangements, written or unwritten, between CVS and its Post-Deconsolidation
Affiliates, on one hand, and Linens and its Post-Deconsolidation Affiliates, on
the other hand, this Agreement shall govern.
(b) Designation of Agent. Linens and each member of the
Linens Group, with respect to Consolidated Federal Taxes, each hereby
irrevocably designate CVS or Melville (to the extent required by applicable
law) or a successor of either as its agent, coordinator, and administrator,
and, with respect to Consolidated State Taxes, Unitary State Taxes and any
Other Taxes payable with respect to a group which includes at least one member
of the CVS Group and at least one member of the Linens Group, each hereby
irrevocably authorize CVS to designate a member of the CVS Group, or a
successor of such member, as its agent, coordinator, and administrator, for the
purpose of taking any and all actions (including the execution of waivers of
applicable statutes of limitation) necessary or incidental to the filing of any
Return, any amended Return, or any claim for refund (even where an item or Tax
Asset giving rise to an amended Return or refund claim arises in a
Post-Deconsolidation Period), credit or offset of Tax or any other proceedings,
and for the purpose of making payments to, or collecting refunds from, any
Taxing Authority, in each case relating to any Pre-Deconsolidation Period. CVS
or the member of the CVS Group, as the case may be, as agent, covenants to
Linens that it shall be responsible to see that all such administrative matters
relating thereto shall be
9
13
handled promptly and appropriately. CVS shall inform and consult with Linens
prior to taking any action on behalf of, or which will have any material impact
on the Tax liability of the Linens Group.
(c) Pre-Deconsolidation Period Returns. CVS and its
Post-Deconsolidation Affiliates will prepare, with the assistance of Linens and
its Post-Deconsolidation Affiliates, and file the Consolidated Federal Tax
Returns and the Consolidated State and Unitary State Tax Returns for all
Pre-Deconsolidation Periods. With respect to the 1996 year, Linens and its
Post-Deconsolidation Affiliates shall prepare and deliver to CVS all Tax
Packages within 120 days after the Deconsolidation Date.(1)
3. Consolidated Federal, Consolidated State and Unitary
State Taxes -- Allocation of Taxes.
(a) General. For the 1995 and 1996 Taxable years of the
CVS Consolidated Group,(2) Linens shall pay, or cause to be paid, to CVS or
Melville, with respect to 1995) an amount equal to (i) the Linens Group's share
of the CVS Consolidated Group's Consolidated Federal Tax and Consolidated State
Tax liability, determined in accordance with Exhibit A to this Agreement, and
(ii) the Linens Group's share of the CVS Consolidated Group's Unitary State Tax
liability, determined in accordance with Exhibit B to this Agreement.
--------------------
(1) Provide for 1997 if offering occurs in 1997 or if CVS continues to hold at
least 50% of Linens at any time in 1997.
(2) Provide for 1997 if offering occurs in 1997 or if CVS continues to hold at
least 50% of Linens at any time in 1997.
10
14
(b) Estimated Payments. Promptly after CVS, Melville or
any of their Affiliates makes an estimated Tax payment with respect to the 1996
Taxable year (other than a payment which relates solely to minimum Taxes due),
whether or not such payment is made prior to the Deconsolidation, CVS shall (i)
in good faith determine the amount of the Linens Group's share of such
estimated Tax payment (X) in accordance with the principles of Exhibit A to
this Agreement, in the case of an estimated Tax payment in respect of the
Consolidated Federal Tax or any Consolidated State Tax liability of the CVS
Consolidated Group, and (Y) in accordance with the principles of Exhibit B to
this Agreement using 1995 apportionment factors, adjusted for significant
dispositions or transfers of assets, in the case of an estimated Tax payment in
respect of any Unitary State Tax liability of the CVS Consolidated Group and
(ii) deliver a written statement to Linens reflecting the determination
described above. Linens shall pay to CVS or CVS shall pay to Linens, as
appropriate, the amount so determined in accordance with Section 9 hereof.
(c) Payment of Taxes at Year-End.
(i) Promptly after CVS, Melville or any of their Affiliates
files an application to extend the due date of a Return for the 1995
or 1996 Taxable year, whether or not such application is filed prior
to the Deconsolidation, CVS shall (a) in good faith determine the
estimated amount of the Linens Group's share of the CVS Consolidated
Group's
11
15
Consolidated Federal Tax or Consolidated State Tax liability for such
Return in accordance with the principles of Exhibit A to this
Agreement or, in the case of a Unitary State Tax Return, in accordance
with the principles of Exhibit B to this Agreement using 1994 and 1995
apportionment factors for 1995 and 1996, respectively, adjusted for
significant dispositions or transfers of assets, and (b) deliver a
written statement to Linens reflecting the determination described
above. Linens shall pay to CVS, or CVS shall pay to Linens, as
appropriate, in accordance with Section 9 hereof, an amount equal to
the difference, if any, between (x) the amounts so determined and (y)
the aggregate amount of estimated installments paid with respect to
the Linens Group's share of such Tax liability for such year made
pursuant to Section 3(b), adjusted to take into account amounts
previously paid or received by Linens or any Affiliate in connection
with any previous extension payments made either before or after the
Deconsolidation.
(ii) Promptly after CVS or a member of the CVS Consolidated
Group files a Consolidated Federal Tax Return, Consolidated State Tax
Return or Unitary State Tax Return, as the case may be, for which
payments are to be made under this Agreement, whether or not such
Return is filed prior to the Deconsolidation, CVS shall deliver to
Linens a written statement setting forth the difference between (x)
the Linens
12
16
Group's share of the CVS Consolidated Group's Consolidated Federal
Tax, Consolidated State Tax or Unitary State Tax liability for such
Return, determined in accordance with the principles of Exhibit A or B
to this Agreement, as the case may be, and (y) the aggregate amount of
payments with respect to the Linens Group's share of such Tax
liability for such year made pursuant to Section 3(b) or Section
3(c)(i). Linens shall pay to CVS, or CVS shall pay to Linens, as
appropriate, in accordance with Section 9 hereof, an amount equal to
such difference, if any.
(iii) If the determination of the Linens Group's share of the
CVS Consolidated Group's Consolidated Federal Tax, Consolidated State
Tax or Unitary State Tax reflects a Tax Asset that may under
applicable law be used to reduce a Federal Tax, Consolidated State Tax
or Unitary State Tax liability, as the case may be, of any member of
the CVS Group for any Tax period, CVS shall pay to Linens, in
accordance with Section 9 hereof, the actual Tax saving produced by
such Tax Asset; provided, however, that such payment shall be made
within 30 days of the receipt by CVS or any CVS Affiliate of any
refund, credit or other offset attributable thereto from the relevant
Taxing Authority. The amount of any such tax saving for any tax
period shall be the amount of the reduction in Taxes payable to a
Taxing Authority (or the increase in
13
17
any Tax refund) with respect to such period as compared to the Taxes
that would have been payable to a Taxing Authority (or the Tax refund
that would have been received) with respect to such period in the
absence of such Tax Asset; provided, however, that in the event that
the use in a Pre-Deconsolidation Period of a Tax Asset attributable to
any member of the Linens Group, gives rise to, or increases, any
alternative minimum Tax liability, CVS shall pay to Linens, or Linens
shall pay to CVS, as the case may be, an amount equal to the
difference between (i) the maximum hypothetical Tax savings that could
result from the use of such Tax Asset determined using the maximum
applicable regular tax rate in effect for such Taxable year (or, in
the case of a credit, 100 percent) and (ii) the Linens Group's share
of the alternative minimum Tax liability or increase in alternative
minimum Tax liability, as the case may be, determined in accordance
with Exhibit A to this Agreement.
(d) Carrybacks and Certain Other Matters.
(i) Subject to the provisions of Exhibit A hereto, CVS
agrees to pay Linens the actual benefit received by the CVS
Consolidated Group in any Tax period from the use in any
Pre-Deconsolidation Period of any Tax Asset arising in a
Post-Deconsolidation Period. Such benefit shall be considered equal to
the excess of the amount of Tax that would have been payable (or of
the Tax refund that would have been
14
18
receivable) by the CVS Consolidated Group in such Tax period in the
absence of such carryback over the amount of Tax actually payable (or
of the Tax refund actually receivable) by the CVS Consolidated Group
in such period; provided, however, that in the event that the use in a
Pre-Deconsolidation Period of a Tax Asset, attributable to any member
of the Linens Group, gives rise to, or increases, any alternative
minimum Tax liability, CVS shall pay to Linens, or Linens shall pay to
CVS, as the case may be, an amount equal to the difference between (i)
the maximum hypothetical Tax savings that could result from the use of
such Tax Asset determined using the maximum applicable regular tax
rate in effect for such Taxable year and (ii) the Linens Group's share
of the alternative minimum Tax liability or increase in alternative
minimum Tax liability, as the case may be, determined in accordance
with Exhibit A to this Agreement. Payment of the amount of such
benefit shall be made in accordance with Section 9 hereof; provided,
however, that any such payment shall be made within 30 days of the
receipt by any member of the CVS Consolidated Group of any refund,
credit or other offset attributable thereto from the relevant Taxing
Authority.
(ii) If, subsequent to the payment by CVS to Linens of any
amount referred to in Section 3(d)(i) above, there shall be (A) a
Final Determination which results in a disallowance or a reduction of
the Tax
15
19
Asset so carried back or (B) a reduction in the amount of the benefit
realized by the CVS Consolidated Group from such carryback as a result
of a Final Determination or the use by the CVS Consolidated Group of a
Tax Asset of the CVS Group, Linens shall repay to CVS the amount which
would not have been payable to Linens pursuant to Section 3(d)(i) had
the amount of the benefit been determined in light of such event. In
addition, Linens shall hold CVS and each of its Post-Deconsolidation
Affiliates harmless for any penalty or interest payable by any member
of the CVS Consolidated Group as a result of any such event referred
to in the preceding sentence. Any amounts payable under this Section
3(d)(ii) shall be paid by Linens to CVS in accordance with Section 9
hereof. To the extent Linens' repayment obligation arises due to the
use by the CVS Consolidated Group of a Tax asset of a member of the
CVS Group, Linens shall pay CVS interest on the amount repaid to CVS
from the date such amount was paid by CVS to Linens until such
repayment at Prime.
(iii) The parties hereto acknowledge that, in connection with
the disposition or deconsolidation of certain members of the CVS
Group, CVS or Melville has entered into, and intends to enter into,
agreements similar to this Agreement (the "CVS Group Agreements")
relating to
16
20
Tax matters involving such members. Notwithstanding anything to the
contrary in this Agreement, to the extent that (i) CVS would be
required under Section 3 of this Agreement to make a payment to Linens
in respect of a Tax saving or Tax benefit attributable to a Tax Asset
of the Linens Group and (ii) CVS would be required under a CVS Group
Agreement or Agreements to make a similar payment to a member or
members of the CVS Group in respect of the same Tax saving or Tax
benefit, then the portion of such Tax saving or benefit attributable
to a Tax Asset of the Linens Group shall be calculated in accordance
with Treasury Regulation Section 1502-21A and any successor thereto.
4. Other Taxes
(a) Liability for all Taxes other than Consolidated
Federal Taxes or Consolidated State or Unitary Taxes ("Other Taxes")
attributable to the Linens Group shall be the sole responsibility of Linens and
its Post-Deconsolidation Affiliates. Liability for all Other Taxes
attributable to the CVS Group shall be the sole responsibility of CVS and its
Post-Deconsolidation Affiliates. The responsibility for preparing and filing
all Returns, and for making all payments to any Taxing Authority, relating
solely to Other Taxes attributable to the Linens Group shall be the sole
responsibility of Linens and its Post-Deconsolidation Affiliates. The
responsibility for preparing and filing all other Returns, and for making all
payments to any Taxing Authority, relating to
17
21
Other Taxes for any Pre-Deconsolidation Period shall be the sole responsibility
of CVS and its Post-Deconsolidation Affiliates. Promptly after a payment of
Other Taxes by CVS, or any of its Post-Deconsolidation Affiliates on one hand,
or Linens or any of its Post-Deconsolidation Affiliates, on the other hand, the
paying party shall notify the non-paying party of the amount of such Other
Taxes, if any, which is attributable to the non-paying party, in accordance
with Section 4(c). The non-paying party shall pay to the paying party, in
accordance with Section 9 hereof, such amount.
(b) Linens shall be entitled to all refunds and credits
of Other Taxes attributable to the Linens Group, and CVS shall be entitled to
all refunds and credits of Other Taxes attributable to the CVS Group.
(c) The determination of whether Other Taxes are attributable
to the CVS Group, on one hand, or the Linens Group, on the other hand, shall be
made in accordance with past practices.
5. Certain Covenants.
(a) Linens Covenants. Linens covenants to CVS that
during the period beginning on the Deconsolidation Date and ending upon the
expiration of the statute of limitations period applicable to the Taxable year
in which the Deconsolidation occurs (after giving effect to any extension,
mitigation or waiver thereof), Linens will not, nor will it permit any of its
Post-Deconsolidation Affiliates to make or change any accounting method, amend
18
22
any Tax Return or take any Tax position on any Tax Return, change the manner in
which it conducts its business, take any other action, omit to take any action
or enter into any transaction that results in any increased Tax liability with
respect to a Pre-Deconsolidation Period, or reduction of any Tax Asset which
was created in a Pre-Deconsolidation Period, of the CVS Group or any member
thereof without first obtaining the written consent of an authorized
representative of CVS; provided, however, that if a change in law (including
the enactment of any statute or the issuance of any proposed, temporary or
final regulations, or administrative pronouncement or judicial decision) would
have a material adverse effect on the aggregate Tax liability of Linens and its
Post-Deconsolidation Affiliates, then, notwithstanding anything to the contrary
in this Section 5(a), Linens shall be entitled to take, or to permit its
Post-Deconsolidation Affiliates to take, such minimum action as is necessary to
eliminate or mitigate the effect of the change in law. Linens agrees to notify
CVS of any action taken under the proviso contained in the preceding sentence.
(b) CVS Covenants. CVS covenants to Linens that (i) it
will not change its year-end for any Tax year beginning prior to January 1,
1997 and (ii) during the period beginning on the Deconsolidation Date and
ending upon the expiration of the statute of limitations period applicable to
the Taxable year in which the Deconsolidation occurs (after giving effect to
any extension, mitigation or waiver thereof), CVS will not, nor will it permit
any of its Post-
19
23
Deconsolidation Affiliates to make or change any accounting method, amend any
Tax Return or take any Tax position on any Tax Return, change the manner in
which it conducts its business, take any other action, omit to take any action
or enter into any transaction that results in any increased Tax liability with
respect to a Pre-Deconsolidation Period, or reduction of any Tax Asset which
was created in a Pre-Deconsolidation Period, of the Linens Group or any member
thereof without first obtaining the written consent of an authorized
representative of Linens; provided, however, that if a change in law (including
the enactment of any statute or the issuance of any proposed, temporary or
final regulations, or administrative pronouncement or judicial decision) would
have a material adverse effect on the aggregate Tax liability of CVS and its
Post-Deconsolidation Affiliates, then, notwithstanding anything to the contrary
in this clause (ii), CVS shall be entitled to take, or to permit its
Post-Deconsolidation Affiliates to take, such minimum action as is necessary to
eliminate or mitigate the effect of the change in law. CVS agrees to notify
Linens of any action taken under the proviso contained in the preceding
sentence.
(c) Linens and CVS Covenant. The parties hereto agree to
act in good faith in complying with the terms of this Agreement.
6. Indemnities.
(a)(I) Linens Indemnity. Linens and each corporation that
is a Post-Deconsolidation Affiliate of Linens will jointly and severally
indemnify
20
24
CVS and its Post-Deconsolidation Affiliates against and hold them harmless from
(i) any Pre-Deconsolidation Tax Liability assessed pursuant
to a Final Determination, to the extent attributable to an adjustment
of any item of income, gain, gross receipts, loss, credit, deduction
or other Tax attribute of any member of the Linens Group; and
(ii) any liability or damage resulting from a breach by
Linens or any of its Post-Deconsolidation Affiliates of any covenant
made by Linens herein.
(iii) any liability or damage under the securities laws or
otherwise resulting from information furnished by Linens in connection
with the Deconsolidation.
If a Post-Deconsolidation Affiliate of Linens ceases to be an Affiliate of
Linens as a result of a sale of its stock to a third party (whether or not
treated as a sale of stock for Tax purposes), such Post-Deconsolidation
Affiliate shall be released from its obligations under this Agreement upon such
sale and neither Linens nor any of its other Post-Deconsolidation Affiliates
shall have any obligation to indemnify CVS or any of its Post-Deconsolidation
Affiliates under Section 6(a)(I)(ii) for any liability or damage attributable
to actions taken after such sale by such Post-Deconsolidation Affiliates.
Notwithstanding anything in this Agreement to the contrary, the preceding
sentence shall have no effect on Linens' obligation to indemnify CVS and its
Post-Deconsolidation Affiliates pursuant to Section 6(a)(II) of this Agreement.
(a)(II) Linens Additional Indemnity. Linens and each of its
Post-Deconsolidation Affiliates agree to continue to be bound by the terms of
the Tax Disaffiliation Agreement between Melville and Footstar, Inc. dated as of
September 24, 1996 (the "Footstar Tax Disaffiliation Agreement") after the
Deconsolidation. Linens will indemnify CVS and its Post-Deconsolidation
Affiliates for any liability incurred by CVS or any of its Post-Deconsolidation
Affiliates pursuant to Section 6(b)(iii) of the Footstar Tax Disaffiliation
Agreement resulting from any action taken after the Deconsolidation by Linens or
any of its Post-Deconsolidation Affiliates.
21
25
(b) CVS Indemnity. CVS and each corporation that is a
Post-Deconsolidation Affiliate of CVS will jointly and severally indemnify
Linens and its Post-Deconsolidation Affiliates against and hold them harmless
from
(i) any Pre-Deconsolidation Tax Liability, or Tax liability
resulting from the Deconsolidation, other than any such liabilities
described in Section 6(a);
(ii) any Tax liability allocable to a member of the CVS Group
which is a liability of the Linens Group under clause (B) of the
definition of Tax with respect to any pre-Deconsolidation Period or
any Tax year of the CVS Consolidated Group which includes (but does
not end on) the Deconsolidation Date; and
(iii) any liability or damage resulting from a breach by CVS
or any of its Post-Deconsolidation Affiliates of any covenant made by
CVS herein.
(iv) any liability of damage under the securities laws or
otherwise resulting from information furnished by CVS in connection
with the Deconsolidation.
For the purpose of avoiding ambiguity, the parties agree that CVS and its
Post-Deconsolidation Affiliates shall be responsible under this Agreement for
any Tax for a Pre-Deconsolidation Period attributable to (x) the corporations
(domestic or foreign) comprising the CVS, Bob's, Footstar (including
22
26
Footaction, Meldisco, Melville (Europe) Purchasing Ltd. and Xxxx XxXx),
Wilsons, Xxx-Bee, Marshalls, This End Up, Prints Plus, Chess King, Foxmoor and
Accessory Lady retail chains, (y) the Non-Chain Corporations and (z) to any
business activity conducted by CVS or any of its Affiliates (domestic or
foreign) which is or was directly related to the businesses conducted by the
corporations specified in clauses (x) and (y). If a Post-Deconsolidation
Affiliate of CVS ceases to be an Affiliate of CVS as a result of a sale of its
stock to a third party (whether or not treated as a sale of stock for Tax
purposes), such Post-Deconsolidation Affiliate shall be released from its
obligations under this Agreement upon such sale and neither CVS nor any of its
other Post-Deconsolidation Affiliates shall have any obligation to indemnify
Linens or any of its Post-Deconsolidation Affiliates under Section 6(b)(iii)
for any liability or damage attributable to actions taken after such sale by
such Post-Deconsolidation Affiliates.
(c) Discharge of Indemnity. Linens, CVS and their
respective Post-Deconsolidation Affiliates shall discharge their obligations
under Section 6(a) and 6(b) hereof, respectively, by paying the relevant amount
within 30 days of demand therefor. After a Final Determination of an
obligation of Linens or any of its Post-Deconsolidation Affiliates under
Section 6(a), CVS shall send a statement to Linens showing the amount due
thereunder. After a Final Determination of an obligation of CVS or any of its
Post-Deconsolidation
23
27
Affiliates under Section 6(b), Linens shall send a statement to CVS showing the
amount due thereunder. Calculation mechanics relating to items described in
Section 6(a)(i) are set forth in Section 3(c). Notwithstanding the foregoing,
if either Linens, CVS or any of their respective Post-Deconsolidation
Affiliates disputes in good faith the fact or the amount of its obligation
under Section 6(a) or Section 6(b), then no payment of the amount in dispute
shall be required until any such good faith dispute is resolved in accordance
with Section 16 hereof; provided, however, that any amount not paid within 30
days of demand therefor shall bear interest as provided in Section 9.
(d) Tax Benefits. If an indemnification obligation of
CVS, Linens or any of their respective Post-Deconsolidation Affiliates under
this Section 6 arises in respect of an adjustment that makes allowable to CVS
or its Affiliates, or Linens or its Affiliates, respectively, any deduction,
amortization, exclusion from income or other allowance (a "Tax Benefit") which
would not, but for such adjustment, be allowable, then any payment by CVS,
Linens or any of their respective Post-Deconsolidation Affiliates, as the case
may be, pursuant to this Section 6 shall be an amount equal to (X) the amount
otherwise due but for this subsection (d), minus (Y) the present value of the
product of the Tax Benefit multiplied (i) by the maximum federal or state, as
the case may be, corporate tax rate in effect at the time such Tax Benefit
becomes allowable to CVS or its Affiliates, or Linens or its Affiliates (as the
case may be) or (ii) in
24
28
the case of a credit, by 100 percent. The present value of such product shall
be determined by discounting such product from the time the Tax Benefit becomes
allowable at a rate equal to Prime.
(e) Refunds. Any refunds of Tax received by CVS or any
of its Post-Deconsolidation Affiliates relating to a Post-Deconsolidation
Period, to the extent attributable to any item of income, loss, credit,
deduction or other tax attribute of any member of the Linens Group shall be
paid by CVS to Linens within 30 days of receipt. Any amount not paid when due
shall bear interest as provided in Section 9.
(f) Clerical Errors If, as a result of a correction of
a clerical error made by booking any item at one member of the CVS Consolidated
Group instead of another, (i) the Pre-Deconsolidation Tax Liability allocable
to the Linens Group or the CVS Group, as the case may be, is increased, (ii)
the Pre-Deconsolidation Tax Liability allocable to the other group is decreased
by an offsetting amount, and (iii) no Tax payment is required to be made to a
Taxing Authority in respect of the correction of the clerical error, then the
group referred to in clause (ii) of this Section 6(f) shall be treated as
having made a Tax payment in an amount equal to the increased
Pre-Deconsolidation Tax Liability described in clause (i) of this Section 6(f)
and shall be entitled to indemnification therefor under this Section 6 without
regard to Section 6(d).
25
29
(g) Method of Calculation. (i) Except as otherwise
provided, the amount of any liability of Linens and its Post-Deconsolidation
Affiliates or of CVS and its Post-Deconsolidation Affiliates under this Section
6 shall be calculated pursuant to the method described in Exhibit A hereto;
provided, however, that the calculation of any party's share of Unitary State
Tax shall be calculated pursuant to the method described in Exhibit B hereto.
(ii) For purposes of this Section 6, in the case of Taxes
that are imposed on a periodic basis and are payable for a Tax period that
includes (but does not end on) the Deconsolidation Date, the portion of such
Tax related to the portion of such Tax period ending on the Deconsolidation
Date shall (x) in the case of any Taxes other than Taxes based upon or related
to income, sales, gross receipts, wages, capital expenditures or expenses, be
deemed to be the amount of such Tax for the entire Tax period multiplied by a
fraction the numerator of which is the number of days in the Tax period ending
on the Deconsolidation Date and the denominator of which is the number of days
in the entire Tax period, and (y) in the case of any Tax based upon or related
to income, sales, gross receipts, wages, capital expenditures or expenses, be
deemed equal to the amount which would be payable if the relevant Tax period
ended on the Deconsolidation Date and applying the weighted average 1996 Tax
rate for the relevant Tax applicable to the corporation subject to such Tax.
7. Communication and Cooperation.
26
30
(a) Consult and Cooperate. Linens and CVS shall consult
and cooperate (and shall cause each of their Post-Deconsolidation Affiliates to
cooperate) fully at such time and to the extent reasonably requested by the
other party in connection with all matters subject to this Agreement. Such
cooperation shall include, without limitation,
(i) the retention and provision on reasonable request of
any and all information including all books, records, documentation or
other information pertaining to Tax matters relating to the CVS Group
and the Linens Group, any necessary explanations of information, and
access to personnel, until the expiration of the applicable statute of
limitation (giving effect to any extension, waiver, or mitigation
thereof);
(ii) the execution of any document that may be necessary
or helpful in connection of any required Return or in connection with
any audit, proceeding, suit or action;
(iii) reporting to the other party, on a quarterly basis,
on the status of any Tax audit relating to a Pre-Deconsolidation
Period; and
(iv) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that may
be necessary or helpful in connection with the foregoing.
(b) Provide Information. CVS and Linens shall keep each
other fully informed with respect to any material development relating to the
27
31
matters subject to this Agreement. CVS shall provide to Linens copies of all
Information Document Requests relating to a Pre-Deconsolidation Period issued
by the Internal Revenue Services on Form 4564 or any successor thereto and any
analogous requests issued by any other Tax Authority (collectively,
"Requests"), and (to the extent practicable in light of the relevant Taxing
Authority's requirements) shall use reasonable efforts to provide copies of the
response to each Request more than two business days prior to filing such
response; provided, however, that CVS's failure to deliver a copy of a response
to a Request before such two-day period shall not relieve Linens of its
obligations under this Agreement. CVS shall not be required to provide Linens
with copies of any Requests or the responses thereto unless specifically
related to the Linens group; provided, however, Linens shall not be entitled to
review or receive the portion of any response which does not specifically
relate to the Linens Group.
(c) Tax Attribute Matters. CVS and Linens shall advise
and consult with each other with respect to any proposed Tax adjustments
relating to the CVS Consolidated Group or, with respect to Other Taxes, any
group which includes at least one member of the CVS Group and at least one
member of the Linens Group, which are the subject of an audit or investigation,
or are the subject of any proceeding or litigation, and which may affect any
Tax attribute of CVS, Linens, the CVS Group, the Linens Group or any Post-
28
32
Deconsolidation Affiliate of CVS or Linens (including, but not limited to,
basis in an asset or the amount of earnings and profits).
8. Audits and Contest.
(a) Notwithstanding anything in this Agreement to the
contrary, CVS shall have full control over all matters relating to any Federal
Tax return filed by the CVS Consolidated Group, any Consolidated State or
Unitary State Tax Return, any Other Tax Return (other than one relating solely
to the Linens Group), or any Tax Proceeding relating to any Tax matters of at
least one member of the CVS Group. Except as provided in Section 8(b), CVS
shall have absolute discretion with respect to any decisions to be made, or the
nature of any action to be taken, with respect to any matter described in the
preceding sentence.
(b) No settlement of any Tax Proceeding relating to any
matter which would cause a payment obligation under Sections 6(a) or 6(b) shall
be accepted or entered into by or on behalf of the party entitled to receive a
payment under either Section 6(a) or Section 6(b), whichever is applicable,
unless the party ultimately responsible for such payment under either Section
6(a) or Section 6(b), whichever is applicable (the "Indemnitor"), consents
thereto in writing (which consent shall not be unreasonably withheld). If such
consent is unreasonably withheld, all expenses relating to the contest of such
matter shall be borne by the Indemnitor, and otherwise they shall be borne
29
33
equally by the Indemnitor and the indemnified party. If the Indemnitor does
not respond to the indemnified party's request for consent within 30 days, the
Indemnitor will be deemed to have consented to the settlement. Notwithstanding
anything to the contrary herein, the indemnified party shall have the right,
without the consent of the Indemnitor, to settle any Tax Proceeding relating to
any matter which would cause a payment obligation under Sections 6(a) or 6(b),
provided, however, that in such event the Indemnitor shall have no liability
under Section 6(a) or (b), as the case may be, with respect to such matter.
(c) The indemnified party agrees to give prompt notice to
the Indemnitor of the assertion of any claim, or the commencement of any suit,
action or proceeding in respect of which indemnity may be sought hereunder.
The failure of the indemnified party to give notice as provided in this Section
8(c) shall not relieve the Indemnitor of its obligations under this Agreement,
except to the extent that the Indemnitor is materially prejudiced by such
failure to give notice.
(d) With respect to Returns relating to Other Taxes solely
attributable to the Linens Group, Linens and its Post-Deconsolidation
Affiliates shall have full control over all matters relating to any Tax
Proceeding in connection therewith. Linens and its Post-Deconsolidation
Affiliates shall have absolute discretion with respect to any decisions to be
made, or the nature of
30
34
any action to be taken, with respect to any matter described in the preceding
sentence.
9. Payments.
All payments to be made hereunder shall be made in immediately
available funds. Except as otherwise provided, all payments required to be
made pursuant to this Agreement will be due 30 days after the receipt of notice
of such payment or, where no notice is required, 30 days after the fixing of
liability or the resolution of a dispute. Payments shall be deemed made when
received. Any payment that is not made when due shall bear interest at the
rate per annum determined, from time to time, under the provision of Section
6621(a)(2) of the Code for each day until paid; provided, however, that, if an
obligation or the amount thereof is being disputed in good faith, any payment
required after resolution of such dispute shall bear interest at Prime until
and including the thirtieth day after such resolution. If, pursuant to a Final
Determination, any amount paid by CVS, Linens or their respective
Post-Deconsolidation Affiliates pursuant to this Agreement results in any
increased Tax liability or reduction of any Tax Asset of any member of the
Linens Group, Linens or its Post-Deconsolidation Affiliates, or the CVS Group,
CVS or its Post-Deconsolidation Affiliates, respectively, then CVS or Linens,
as the case may be, shall indemnify the other party and hold it harmless from
any interest or penalty attributable to such increased Tax liability or the
reduction of such
31
35
Tax asset and shall pay to the other party, in addition to amounts otherwise
owed, 50 percent of the After-Tax Amount; provided, however, that with respect
to any amount paid pursuant to Section 3(d)(ii) (other than as a result of the
use by the CVS Consolidated Group of a Tax Asset of the CVS Group), Section
6(a)(ii) or (iii) or Section 6(b)(iii) or (iv), CVS or Linens, as the case may
be, shall pay to the other party 100 percent of the After-Tax Amount.
10. Notices.
Any notice, demand, claim, or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
delivery or mailing thereof, as the case may be, if delivered personally or
sent by certified mail, return receipt requested, postage prepaid, to the
parties at the following addresses (or at such other address as a party may
specify by notice to the other):
If to CVS, to:
Xxxxxxx Xxxxxxx
0 XXX Xxxxx
Xxxxxxxxxx, XX 00000
Xxxxx X. Xxxxxx
Xxxxxxx Xxxxx
00 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
If to Linens, to:
Xxxxx Xxxxxxxxxxx
Xxxxxxx Xxxxx
32
36
Xxxxx Xxxx
0 Xxxxxxxx Xxxx
Xxxxxxx, XX 00000
11. Costs and Expenses.
Except as expressly set forth in this Agreement, each party
shall bear its own costs and expenses incurred pursuant to this Agreement. For
purposes of this Agreement, "out-of-pocket" expenses shall include reasonable
attorney fees, accountant fees and other related professional fees and
disbursements.
12. Effectiveness; Termination and Survival.
This Agreement shall become effective upon the consummation of
the Deconsolidation. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall remain in effect and its provisions shall
survive for the full period of all applicable statutes of limitation (giving
effect to any extension, waiver or mitigation thereof).
13. Section Headings.
The headings contained in this Agreement are inserted for
convenience only and shall not constitute a part hereof or in any way affect
the meaning or interpretation of this Agreement.
14. Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter
contained
33
37
herein. No alteration, amendment, modification, or waiver of any of the terms
of this Agreement shall be valid unless made by an instrument signed by an
authorized officer of CVS and Linens, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) Waiver. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
hereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege.
15. Governing Law and Interpretation. This Agreement has
been made in and shall be construed and enforced in accordance with the laws of
the Commonwealth of Massachusetts.
16. Dispute Resolution. If the parties hereto are unable
to resolve any disagreement or dispute relating to this Agreement within 20
days, such disagreement or dispute shall be resolved by a nationally recognized
law firm or accounting firm expert in Tax matters that is mutually acceptable
to the parties hereto (a "Referee"). A Referee so chosen shall resolve any
such disagreement pursuant to such procedures as it may deem advisable. Any
such resolution shall be binding on the parties hereto without further
recourse. Except as otherwise provided herein, the costs of any Referee shall
be apportioned between CVS and Linens as determined by such Referee in such
34
38
manner as the Referee deems reasonable, taking into account the circumstances
of the dispute, the conduct of the parties and the result of the dispute.
17. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
18. Assignments; Third Party Beneficiaries.
Except as provided below, this Agreement shall be binding upon and shall inure
only to the benefit of the parties hereto and their respective successors and
assigns. This Agreement is not intended to benefit any person other than the
parties hereto and such successors and assigns, and no such other person shall
be a third party beneficiary hereof. If, during the period beginning on the
Deconsolidation Date and ending upon the expiration of all statute of
limitations periods applicable to Pre-Deconsolidation Periods, any corporation
becomes an Affiliate of either CVS or Linens, as the case may be, then upon the
request of either Linens or CVS, as the case may be, the other party shall
provide evidence of such Affiliate's agreement to be bound by the terms of this
Agreement. During the period beginning on the Deconsolidation Date and ending
upon the expiration of all statute of limitations periods applicable to
Pre-Deconsolidation Periods, no entity shall be entitled to acquire a
controlling
35
39
interest in CVS or Linens unless such entity agrees to be bound by the terms of
this Agreement.
36
40
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year first written above.
CVS on its own behalf and on
behalf of its Post-Deconsolidation
Affiliates
By: XXXXX X. XXXXXXXXX
-------------------------
Title: Secretary
-----------------------
Linens on its own behalf and
on behalf of its Post-Deconsolidation
Affiliates
By: XXXXX X. XXXXXXXXXXX
---------------------------
Xxxxx X. Xxxxxxxxxxx
Title: Senior Vice President/CFO
-------------------------
LNT, Inc.,
Divisional Agent for the Linens Group
By: XXXXXX XXXXXXX
-----------------------------
Xxxxxx Xxxxxxx
Title: Chief Executive Officer and
President
---------------------------
37
41
Exhibit A
1. The Linens Group's share of any Pre-Deconsolidation Consolidated
Federal or Consolidated State Tax liability shall be, with respect to
such Federal or Consolidated State Taxes, as applicable, calculated as
if Linens were the parent of a group filing its own consolidated
return for all Pre-Deconsolidation Periods; provided, however, that
(i) income, deductions, credits and losses shall be computed in a
manner consistent with past practices, (ii) the applicable Tax rate
shall be the appropriate maximum statutory rate in effect during the
relevant year, (iii) in no event shall the Linens Group's share of any
Consolidated Federal or Consolidated State Tax liability exceed the
amount that would have constituted the Linens Group's share of such
liability if such share had been calculated in accordance with the
allocation principles set forth in Treas. Reg. Section 1.1552-1(a)(2)
and Treas. Reg. Section 1.1502-33(d)(2)(ii) as in effect prior to
Treasury Decision 8597, except to the extent consistent with past
practice, and (iv) notwithstanding anything to the contrary in this
Agreement, any deduction attributable to the exercise of an option to
acquire CVS stock by a person who is an employee of a member of the
Linens Group at the time of such exercise shall be treated as a
deduction allocable to the member of the Linens Group employing such
person.
2. For purposes of paragraph 1 above, "Tax liability" (1) shall exclude
any liability for the payment of alternative minimum tax; and (2)
shall refer to an actual out-of-pocket payment to any Taxing
Authority, after taking into account the utilization of net operating
losses and any other Tax Assets.
3. Any alternative minimum Tax liability (and any Tax Assets attributable
to such liability) and any environmental Tax imposed under Section 59A
of the Code shall be allocated among the members of the CVS
Consolidated Group in accordance with the formulas referenced in
Proposed Treasury Regulation Section 1.1502-5(b)(6).
4. For all Pre-Deconsolidation Periods, CVS or Melville (as appropriate)
shall have the right, in its sole discretion, to elect (in an original
or an amended return) to deduct currently any Taxes of foreign
countries and of possessions of the United States. In the event that
CVS or Melville, as the case may be, elects not to deduct currently
such Taxes but instead to elect to take a foreign tax credit under the
provisions of Part III of
38
42
Subchapter N of the Code, any consolidated unused foreign tax credit
of the CVS Consolidated Group shall be apportioned to the members of
such group pursuant to Treas. Reg. Section 1.1502-79(d).
5. Any interest imposed in connection with any Tax liability shall be
allocated in the same manner as the underlying Tax liability, as
provided above.
6. Any penalty imposed in connection with any Tax liability shall be the
responsibility of the party whose action or inaction resulted in the
imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the
same manner as the underlying Tax liability, as provided above.
39
43
Exhibit B
1. The Linens Group's share of any Pre-Deconsolidation Unitary State Tax
Liability shall be, with respect to each State, the aggregate amount
of Unitary State Tax Liability of all members of the Linens Group that
are members of the relevant CVS Consolidated Group. A member's
liability for its share of Pre-Deconsolidation Unitary State Tax shall
be determined in accordance with paragraph 3 of this Exhibit B;
provided, however, that (i) income, deductions, credits and losses
shall be computed in a manner consistent with past practices, (ii)
credits and any minimum taxes shall be allocated to the member
responsible for the generation of such credit or taxes, and (iii)
notwithstanding anything to the contrary in this Agreement, any
deduction attributable to the exercise of an option to acquire CVS
stock by a person who is an employee of a member of the Linens Group
at the time of such exercise shall be treated as a deduction allocable
to the member of the Linens Group employing such person.
2. The Linens Group's share of any Pre-Deconsolidation Unitary State Tax
Assets shall be, with respect to each State, the aggregate amount of
Unitary State Tax Assets of all members of the Linens Group. A
member's share of such Unitary State Tax Assets shall be determined in
accordance with paragraph 3 of this Exhibit B.
3. A member of the Linens Group's share of any Pre-Deconsolidation
Unitary State Tax Liability or Pre-Deconsolidation Unitary State Tax
Asset shall be the product of (i) such Unitary State Tax Liability or
Unitary State Tax Asset, as the case may be, and (ii) the percentage
of the numerator used in determining the apportionment percentage of
the CVS Consolidated Group for such Unitary State which is
attributable to such member of the Linens Group.
4. Any interest imposed in connection with any Tax liability shall be
allocated in the same manner as the underlying Tax liability, as
provided above.
5. Any penalty imposed in connection with any Tax liability shall be the
responsibility of the party whose action or inaction resulted in the
imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the
same manner as the underlying Tax liability, as provided above.
40
