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TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT (the "Agreement") dated as of the Effective
Date (as hereinafter defined), is entered into by and among
Tele-Communications, Inc., a Delaware corporation ("TCI" or the "Company"), TCI
Communications, Inc., a Delaware corporation ("TCIC"), on behalf of itself and
each member of the Cable Subgroup (as hereinafter defined), Liberty Media
Corporation, a Delaware corporation ("Liberty"), on behalf of itself and each
member of the Programming Subgroup (as hereinafter defined), and TCI Ventures
Group L.L.C., a Delaware limited liability company ("Ventures"), on behalf of
itself and each member of the Ventures Subgroup (as hereinafter defined).
RECITALS:
As of July 1, 1995, each of Liberty, Tele-Communications International,
Inc. ("International"), TCI Technology Ventures, Inc. ("Technology"), TCIC, and
TCI Cable Investments, Inc. ("TCICI") and their Subsidiaries (as hereinafter
defined) were members of an affiliated group of corporations of which TCI was
the parent and which filed consolidated federal income tax returns pursuant to
Section 1501 of the Code (as hereinafter defined). In order to set forth their
agreement regarding allocation and sharing of federal, state, local and foreign
taxes of such affiliated group, each of Liberty, International, Technology,
TCIC and TCICI (collectively, the "Original Subgroup Parents") entered into a
Tax Sharing Agreement with TCI, effective as of July 1, 1995 (the "Original
Agreement"), which was intended to bind TCI, each of the Original Subgroup
Parents, each of the respective Subsidiaries of the Original Subgroup Parents,
and any other members of such affiliated group. The Original Agreement was
amended by a First Amendment to Tax Sharing Agreement dated as of October 1,
1995 among TCI, each of the Original Subgroup Parents, TCI Starz, Inc.
("Starz") and TCI CT Holdings, Inc. ("CT") (the "First Amendment"), a Second
Amendment to Tax Sharing Agreement dated as of December 3, 1996 among TCI, each
of the Original Subgroup Parents, Starz, and CT (the "Second Amendment"), and a
Third Amendment to Tax Sharing Agreement dated as of December 1, 1996 among
TCI, each of the Original Subgroup Parents, Starz, CT, TCI Telephony Holdings,
Inc. ("Telephony") and TCI Wireline Holdings, Inc. ("Wireline") (the "Third
Amendment"; the Original Agreement, as amended by the First Amendment, the
Second Amendment and the Third Amendment, is hereinafter referred to as the
"Amended Agreement").
Each of TCIC, Liberty and Ventures and each other member of their
respective Subgroups are members of an affiliated group of corporations of
which TCI is the parent and which files consolidated federal income tax returns
pursuant to Section 1501 of the Code (the "TCI Affiliated Group"). The parties
to this Agreement desire to enter into arrangements regarding tax allocation
and sharing by TCIC, Liberty, Ventures, and each other member of their
respective Subgroups and TCI which would be effective from and after the
Effective Date and which differ in certain respects from the arrangements set
forth in the Amended Agreement. At the same time, the
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parties intend that the Amended Agreement shall continue in full force and
effect and shall continue to govern the allocation and sharing arrangement with
respect to federal, state, local and foreign taxes for taxable periods prior to
the Effective Date and all claims and liabilities of the parties to this
Agreement with respect to such taxable periods and shall also continue to
govern with respect to the rights, powers, obligations, claims and liabilities
of each party to this Agreement relative to those of parties to or entities
bound by the Amended Agreement which are not also parties to or bound by this
Agreement.
Therefore, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
A. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
"Affiliated Group" has the meaning ascribed thereto in Section
1504(a) of the Code.
"Alternative Minimum Tax" means the Tax imposed by Section 55 of the
Code.
"Alternative Minimum Tax Benefit," as to any Subgroup, shall mean
the amount determined with respect to such Subgroup under Section C.2.b.
hereof.
"Alternative Minimum Tax Liability," as to any Subgroup, shall mean
the amount determined with respect to such Subgroup under Section C.1.b.
hereof.
"AMT Benefit Adjustment," as to any AMT Loss Subgroup, shall mean
the amount determined with respect to such AMT Loss Subgroup under Section
C.2.b.ii. hereof.
"AMT Benefit Payment," as to any Subgroup, shall mean the amount
determined with respect to such Subgroup under Section C.5.a.iv. hereof.
"AMT Carried Losses" mean the total amount of taxable losses of each
AMT Gain Subgroup that can be carried to the current taxable year or part
thereof to offset such AMT Gain Subgroup's Pre-Adjustment Alternative Minimum
Tax Liability (when multiplied by the AMT Tax Rate), which are not utilized by
the TCI Affiliated Group to offset its consolidated federal tax liability for
such taxable year or portion thereof.
"AMT Credit" means a credit against regular federal income tax under
Section 53 of the Code.
"AMT Credit Ratio" means the ratio that the amount of AMT Credit
attributable to a prior taxable period which is utilized by TCI to reduce its
consolidated federal
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income tax liability for the current taxable year or part thereof bears to the
total amount of AMT Credit available for such prior taxable period.
"AMT Current Losses" mean the total amount of taxable losses of each
AMT Loss Subgroup that are attributable to the current taxable year or part
thereof, which are utilized by the TCI Affiliated Group to offset its
consolidated federal tax liability for such taxable year or portion thereof.
"AMT Gain Subgroup" means any Subgroup that has a Pre-Adjustment
Alternative Minimum Tax Liability for the taxable year or part thereof.
"AMT Gain Subgroup Sharing Ratio" means the ratio that the amount of
AMT Carried Losses that are attributable to such Subgroup bears to the total
amount of AMT Carried Losses that are attributable to each Subgroup of the TCI
Affiliated Group.
"AMT Liability Adjustment," as to any AMT Gain Subgroup, shall mean
the amount determined with respect to such AMT Gain Subgroup under Section
C.1.b.ii. hereof.
"AMT Loss Subgroup" means any Subgroup that has a Pre-Adjustment
Alternative Minimum Tax Benefit for the taxable year or part thereof.
"AMT Loss Subgroup Sharing Ratio" means the ratio that the amount of
AMT Current Losses that are attributable to such Subgroup bears to the total
amount of AMT Current Losses that are attributable to each Subgroup of the TCI
Affiliated Group.
"AMT Tax Rate" means the statutory rate set forth in Section
55(b)(1)(B)(i) of the Code.
"Applicable Federal Tax Rate" means (i) the Regular Federal Tax
Rate, if the TCI Affiliated Group is not liable for Alternative Minimum Tax
during such taxable year or portion thereof, and (ii) the AMT Tax Rate, if the
TCI Affiliated Group is liable for the Alternative Minimum Tax during such
taxable year or portion thereof.
"Cable Subgroup" means TCI and each First Tier LLC and Subsidiary of
TCI that is part of the TCI Group.
"Carried Losses" mean (i) Regular Tax Carried Losses and (ii) if the
TCI Affiliated Group is liable for the Alternative Minimum Tax for such taxable
period, AMT Carried Losses.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Corresponding Paid Loss" shall mean (i) each item of Regular Tax
Carried Loss for which a Regular Tax Gain Subgroup receives a Regular Tax
Liability Adjustment and (ii) if the TCI Affiliated Group is liable for the
Alternative Minimum Tax during such taxable year or part thereof, each item of
AMT Carried Loss for which an AMT Gain Subgroup receives an AMT Liability
Adjustment.
"Current Losses" mean (i) Regular Tax Current Losses and (ii) AMT
Current Losses.
"Deconsolidation Date" means, as to any Subgroup or Subgroup Member,
the date that such Subgroup or Subgroup Member ceases to be part of the TCI
Affiliated Group.
"Effective Date" means October 1, 1997.
"Federal Tax Benefit," as to any Subgroup, shall mean the amount
determined with respect to such Subgroup under Section C.2. hereof.
"Federal Tax Liability," as to any Subgroup, shall mean the amount
determined with respect to such Subgroup under Section C.1. hereof.
"Final Determination" means the final resolution of liability for
any Tax for a taxable period, including any related interest and penalties, (i)
pursuant to IRS Form 870-AD (or any successor form thereto), on the date of
acceptance by or on behalf of the IRS, or by a comparable agreement form under
the laws of any state, local or foreign government or the rules or regulations
of any state, local or foreign taxing authority, except that a Form 870-AD or
comparable form that reserves the right of the taxpayer to file a claim for
refund and/or the right of the taxing authority to assert a further deficiency
shall not constitute a Final Determination with respect to the items so
reserved; (ii) by a decision, judgment, decree or other order by a court of
competent jurisdiction, which has become final and nonappealable; (iii) by a
closing agreement or offer in compromise under Section 7121 or 7122 of the
Code, or comparable agreements under the laws of any state, local or foreign
government or the rules or regulations of any state, local or foreign taxing
authority; (iv) by any allowance of a refund or credit in respect of an
overpayment of Tax, including any related interest or penalties, but only after
the expiration of all periods during which such refund may be recovered
(including by way of offset) by the jurisdiction imposing the Tax (including a
refund or credit allowed as a result of the filing of an amended return); (v)
by any other final disposition by reason of the expiration of the applicable
statute of limitations; or (vi) by the occurrence of any event which the
parties agree in writing is a Final Determination.
"First Tier LLC" means any limited liability company that is wholly
owned directly by TCI.
"include" and derivatives thereof are used in an illustrative and
not a limitative sense.
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"IRS" means the Internal Revenue Service.
"Liberty Media Group" means the Company's assets that are tracked by
the Tele-Communications, Inc. Series A Liberty Media Group Common Stock and the
Tele-Communications, Inc. Series B Liberty Media Group Common Stock.
"Post-Deconsolidation Correlative Amounts" mean all payments made
pursuant to this Agreement which are not in settlement of a tax liability but
are correlative thereto (e.g., interest, penalties, additions to tax, or costs
of contesting a proposed adjustment under Section F.3. hereof) and which are
neither paid nor accrued on or before the Deconsolidation Date (as defined
below).
"Pre-Adjustment Alternative Minimum Tax Benefit," as to any
Subgroup, means the amount determined with respect to such Subgroup under
Section C.2.b.i. hereof.
"Pre-Adjustment Alternative Minimum Tax Liability," as to any
Subgroup, means the amount determined with respect to such Subgroup under
Section C.1.b.i. hereof.
"Pre-Adjustment Regular Tax Benefit," as to any Subgroup, means the
amount determined with respect to such Subgroup under Section C.2.a.i. hereof.
"Pre-Adjustment Regular Tax Liability," as to any Subgroup, means
the amount determined with respect to such Subgroup under Section C.1.a.i.
hereof.
"Programming Subgroup" means each First Tier LLC and Subsidiary of
TCI that is part of the Liberty Media Group.
"Regular Federal Tax Rate" means the maximum corporate federal
income tax rate in effect for such taxable year or part thereof.
"Regular Tax Benefit," as to any Subgroup, shall mean the amount
determined with respect to such Subgroup under Section C.2.a. hereof.
"Regular Tax Benefit Adjustment," as to any Regular Tax Loss
Subgroup, shall mean the amount determined with respect to such Regular Tax
Loss Subgroup under Section C.2.a.ii. hereof.
"Regular Tax Carried Losses" mean the total amount of taxable losses
of each Regular Tax Gain Subgroup that can be carried to the current taxable
year or part thereof to offset such Regular Tax Gain Subgroup's Pre-Adjustment
Regular Tax Liability (when multiplied by the Regular Federal Tax Rate), which
are not utilized by the TCI Affiliated Group to offset its consolidated federal
tax liability for such taxable year or portion thereof.
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"Regular Tax Current Losses" mean the total amount of taxable losses
of each Regular Tax Loss Subgroup that are attributable to the current taxable
year or part thereof, which are utilized by the TCI Affiliated Group to offset
its consolidated federal tax liability for such taxable year or portion
thereof.
"Regular Tax Gain Subgroup" means any Subgroup that has a
Pre-Adjustment Regular Tax Liability for the taxable year or part thereof.
"Regular Tax Gain Subgroup Sharing Ratio" means the ratio that the
amount of Regular Tax Carried Losses that are attributable to such Subgroup
bears to the total amount of Regular Tax Carried Losses that are attributable
to each Subgroup of the TCI Affiliated Group.
"Regular Tax Liability," as to any Subgroup, shall mean the amount
determined with respect to such Subgroup under Section C.1.a. hereof.
"Regular Tax Liability Adjustment," as to any Regular Tax Gain
Subgroup, shall mean the amount determined with respect to such Regular Tax
Gain Subgroup under Section C.1.a.ii. hereof.
"Regular Tax Loss Subgroup" means any Subgroup that has a
Pre-Adjustment Regular Tax Benefit for the taxable year or part thereof.
"Regular Tax Loss Subgroup Sharing Ratio" means the ratio that the
amount of Regular Tax Current Losses that are attributable to such Subgroup
bears to the total amount of Regular Tax Current Losses that are attributable
to each Subgroup of the TCI Affiliated Group.
"Sharing Ratios" mean the Regular Tax Gain Subgroup Sharing Ratio,
the AMT Gain Subgroup Sharing Ratio, the Regular Tax Loss Subgroup Sharing
Ratio, and the AMT Loss Subgroup Sharing Ratio.
"State or Local Tax Liability," as to any Subgroup, shall mean the
amount determined with respect to such Subgroup under Section D.1. hereof, as
adjusted pursuant to any other provision hereof.
"Subgroup" means each of the Cable Subgroup, the Programming
Subgroup, and the Ventures Subgroup.
"Subgroup Member" means each First Tier LLC or Subsidiary of TCI
that is a member of a Subgroup.
"Subsidiary" means, as to any corporation, a corporate subsidiary
that would be included in the Affiliated Group of which such corporation would
be the common parent if such corporation were not a member of any other
Affiliated Group.
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"Tax Benefit" means, as to any Subgroup, a Federal Tax Benefit of
such Subgroup.
"Tax Item" means any item of income, gain, loss, deduction or tax
credit.
"Tax Liability" means as to any Subgroup, a Federal Tax Liability or
State or Local Tax Liability of such Subgroup.
"Tax Return" means any return, filing, questionnaire or other
document required to be filed for a period with any taxing authority (whether
domestic or foreign) in connection with any Taxes (whether or not a payment is
required with respect to such filing).
"Taxes" mean all forms of taxation, whenever created or imposed, and
whether by the United States or a foreign governmental entity, or by a local,
municipal, governmental, tribal, state, federation or other body, and shall
include income, sales, use, ad valorem, gross receipts, value added, franchise,
transfer, recording, withholding, payroll, employment, excise, occupation,
premium or property taxes, together with related interest, penalties and
additions to tax, or additional amounts imposed by any taxing authority
(domestic or foreign) upon the TCI Affiliated Group or any Subgroup or any of
their respective members or branches. Notwithstanding the foregoing, however,
the term "Taxes" shall not include unclaimed property or escheat taxes.
"TCI Affiliated Group" means the Affiliated Group of which TCI or
any successor of TCI is the common parent.
"TCI Group" means the Company's assets that are tracked by the
Tele-Communications, Inc. Series A TCI Group Common Stock and the
Tele-Communications, Inc. Series B TCI Group Common Stock.
"TCI Unitary Group," means, as to any state or local taxing
jurisdiction, the unitary or consolidated group of which TCI or any successor
of TCI is the common parent and which is subject to state or local income Taxes
in such jurisdiction.
"TCI Ventures Group" means the Company's assets that are tracked by
the Tele-Communications, Inc. Series A TCI Ventures Group Common Stock and the
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock.
"TCI Ventures Group Preferred Interest" shall have the meaning
ascribed to such term in the TCI Charter, as amended.
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"Unpaid Loss" shall mean (i) each item of Regular Tax Current Loss
for which a Regular Tax Loss Subgroup receives a Regular Tax Benefit Adjustment
and (ii) each item of AMT Current Loss for which a AMT Loss Subgroup receives
an AMT Benefit Adjustment.
"Ventures Subgroup" means each First Tier LLC and Subsidiary of TCI
that is part of the TCI Ventures Group.
B. Intercompany Accounts.
1. Maintenance. Beginning on the Effective Date, TCI shall establish
and maintain separate accounts (the "Intercompany Accounts") between it and
each Subgroup. The Intercompany Accounts for the Cable Subgroup and the
Programming Subgroup, the balance of which shall initially be zero, shall be
adjusted on the Effective Date on a retroactive basis from July 1, 1995 to
reflect all amounts credited or debited to intercompany accounts existing under
the Amended Agreement (the "Old Intercompany Accounts") that are attributable
to each Subgroup Member of such Subgroup. The Intercompany Account for the
Ventures Subgroup, the balance of which shall initially be zero, shall be
adjusted on the Effective Date on a retroactive basis from the date of the
consummation of the Exchange Offers (as defined in TCI's Proxy Statement, dated
July 25, 1997, with respect to its 1997 Annual Stockholders Meeting) to reflect
all amounts credited or debited to the Old Intercompany Accounts that are
attributable to each Subgroup Member of such Subgroup. Amounts credited or
debited to the Old Intercompany Accounts that are attributable to each Subgroup
Member of the Ventures Subgroup for the period beginning July 1, 1995 and
ending prior to the date of the consummation of the Exchange Offers will be
reflected as a component of the TCI Ventures Group's combined equity, and the
Ventures Subgroup shall assume all of TCI's rights and obligations under the
Amended Agreement with respect to the settlement of such amounts with each
Subgroup Member of the Ventures Subgroup. The Old Intercompany Accounts shall
be canceled on the Effective Date; however, in the event that any amounts
credited or debited to the Old Intercompany Accounts (but, with respect to the
Ventures Subgroup, only those amounts credited or debited to the Old
Intercompany Accounts from and after the date of the consummation of the
Exchange Offers) must be redetermined as the result of any Final Determination
or other settlement of any claim or liability under the Amended Agreement, the
Intercompany Accounts shall be adjusted on a retroactive basis to reflect such
recomputation. As provided herein, the Intercompany Account for each Subgroup
shall be credited with any Tax Benefit attributable to such Subgroup or any
Subgroup Member thereof and shall be charged with any Tax Liability
attributable to such Subgroup or any Subgroup Member thereof.
2. Payments. The following payments shall be made hereunder by TCI
and each Subgroup:
a. Within 90 days after the close of each taxable year and
after TCI has calculated the estimated Tax Benefit and Tax Liability of each
Subgroup for the taxable year or part thereof and credited or charged the
Intercompany Accounts for such estimated Tax Benefit and Tax Liability as
described in Section C.3. and D.3. hereof,
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i. TCI shall pay to each Subgroup, in immediately
available funds, the amount credited to such Subgroup's Intercompany Account
for the estimated Tax Benefit of the Subgroup, and the credit balance in such
Intercompany Account shall be reduced by the amount paid by TCI, and
ii. each Subgroup shall pay to TCI, in immediately
available funds, the amount charged to such Subgroup's Intercompany Account for
the estimated Tax Liability of the Subgroup, and the debit balance in such
Intercompany Account shall be reduced by the amount paid by the Subgroup.
b. Within 45 days after the date that the Tax Return with respect
to any estimated Tax Benefit or Tax Liability has been filed,
i. TCI shall pay to each Subgroup, in immediately available
funds, the amount credited to such Subgroup's Intercompany Account pursuant to
Sections C.3.a. and D.3.a. hereof for the final Tax Benefit or Tax Liability of
the Subgroup, and the credit balance in such Intercompany Account shall be
reduced by the amount paid by TCI, and
ii. each Subgroup shall pay to TCI, in immediately
available funds, the amount charged to such Subgroup's Intercompany Account
pursuant to Sections C.3.b. and D.3.b. hereof for the final Tax Benefit or Tax
Liability of the Subgroup, and the debit balance in such Intercompany Account
shall be reduced by the amount paid by the Subgroup.
c. Any amount required to be paid by either TCI or a Subgroup
pursuant to this Section B.2. which is not timely paid shall thereafter bear
interest (compounded daily) at the Federal short-term rate established pursuant
to Section 6621 of the Code and shall increase the credit balance or debit
balance, as applicable, in the Intercompany Account of such Subgroup.
3. Treatment at Deconsolidation.
a. On the Deconsolidation Date of any Subgroup, TCI shall pay to
such Subgroup an amount equal to any credit balance in the Intercompany Account
attributable to such Subgroup, and such Subgroup shall pay to TCI an amount
equal to any debit balance in such Intercompany Account, after which payment
such Intercompany Account shall be closed. Upon the Deconsolidation Date of a
Subgroup Member, (i) TCI shall pay to the Subgroup Member's Subgroup an amount
equal to any credit balance in the Intercompany Account attributable to such
Subgroup Member, and such Subgroup shall pay such amount to the deconsolidated
Subgroup Member, and (ii) the Subgroup Member's Subgroup shall pay to TCI an
amount equal to any debit balance in such Intercompany Account attributable to
such Subgroup Member, and the deconsolidated Subgroup Member shall pay such
amount to its former Subgroup.
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b. Within 45 days after the date that TCI has prepared all the
Tax Returns for all taxable periods and portions thereof ending on or before
the Deconsolidation Date as to any Subgroup or Subgroup Member, (i) TCI shall
pay such Subgroup or Subgroup Member, as applicable, any net amount that would
have been credited hereunder to the Intercompany Account of such Subgroup after
the Deconsolidation Date had such Subgroup or Subgroup Member continued to be
part of the TCI Affiliated Group and (ii) such Subgroup or Subgroup Member
shall pay TCI any net amount that would have been debited hereunder to the
Intercompany Account of such Subgroup after the Deconsolidation Date had such
Subgroup or Subgroup Member continued to be part of the TCI Affiliated Group.
Any such amounts becoming due or owing hereunder after the Deconsolidation Date
of a Subgroup or Subgroup Member shall be settled in immediately available
funds as between such Subgroup or Subgroup Member and TCI.
C. Federal Income Taxes.
1. Federal Tax Liability. For each taxable year or part thereof
ending after the Effective Date that a Subgroup is included in the TCI
Affiliated Group, TCI shall compute (i) the Regular Tax Liability of the
Subgroup for such taxable year or part thereof and (ii) if the TCI Affiliated
Group is liable for Alternative Minimum Tax, the Alternative Minimum Tax
Liability of the Subgroup for such taxable year or part thereof. The Federal
Tax Liability of such Subgroup for each taxable year or part thereof shall be
equal to (i) the Regular Tax Liability of the Subgroup, if the TCI Affiliated
Group is not liable for Alternative Minimum Tax during such taxable year or
portion thereof and (ii) the Alternative Minimum Tax Liability of the Subgroup,
if the TCI Affiliated Group is liable for Alternative Minimum Tax during such
taxable year or portion thereof.
a. Regular Tax Liability. The Regular Tax Liability of
such Subgroup (for purposes of this calculation, each First Tier LLC shall be
treated as if it were a corporation) for the taxable year or portion thereof
shall be equal to:
i. such Subgroup's Pre-Adjustment Regular Tax Liability,
which shall be equal to the amount by which (x) the product of (a) the amount
of taxable income attributable to such Subgroup for such period calculated, in
accordance with Treasury Regulations Section 1.1552-1(a)(1)(ii), as though such
Subgroup were required to file a consolidated corporate federal income tax
return pursuant to the Code (with the timing of the recognition of income,
gain, deduction and loss and other items determined by reference to the timing
of such items for purposes of the preparation of the consolidated return of the
TCI Affiliated Group except that (1) current year items of loss and deduction
shall be considered regardless of whether or not such items are utilized by the
TCI Affiliated Group and (2) no item of loss or deduction shall be considered
if such item of loss or deduction has been used to reduce such Subgroup's
Federal Tax Liability or Regular Tax Liability or to increase such Subgroup's
Federal Tax Benefit or Regular Tax Benefit for any other taxable period
pursuant to this Agreement or the Amended Agreement) for such period and (b)
the Regular Federal Tax Rate exceeds (y) the amount of tax credits attributable
to such Subgroup (whether attributable to such taxable year or part thereof or
carried to such taxable year or part
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thereof from another taxable year) that are actually utilized by the TCI
Affiliated Group to reduce its consolidated federal income tax liability for
such period; reduced by
ii. the Regular Tax Liability Adjustment, if such
Subgroup is a Regular Tax Gain Subgroup, which shall be equal to the lesser of:
(1) the product of (x) the amount of Regular Tax Carried
Losses that are attributable to such Regular Tax Gain
Subgroup, and (y) the Regular Federal Tax Rate; and
(2) the product of (x) Regular Tax Current Losses
multiplied by the Regular Tax Gain Subgroup Sharing
Ratio, and (y) the Regular Federal Tax Rate.
b. Alternative Minimum Tax Liability. The Alternative Minimum
Tax Liability of such Subgroup (for purposes of this calculation, each First
Tier LLC shall be treated as if it were a corporation) for the taxable year or
portion thereof shall be equal to:
i. such Subgroup's Pre-Adjustment Alternative Minimum Tax
Liability, which shall be equal to the amount by which (x) the product of (a)
the amount of alternative minimum taxable income attributable to such Subgroup
for such period calculated, in accordance with Proposed Treasury Regulations
Section 1.1502-55(b), as though such Subgroup were required to file a
consolidated corporate federal income tax return pursuant to the Code (with the
timing of the recognition of income, gain, deduction and loss and other items
determined by reference to the timing of such items for purposes of the
preparation of the consolidated return of the TCI Affiliated Group, except that
no item of loss or deduction shall be considered if such item of loss or
deduction has been used to reduce such Subgroup's Federal Tax Liability or
Regular Tax Liability or to increase such Subgroup's Federal Tax Benefit or
Regular Tax Benefit for any other taxable period pursuant to this Agreement or
the Amended Agreement) for such period and (b) the AMT Tax Rate exceeds (y) the
amount of tax credits attributable to such Subgroup (whether attributable to
such taxable year or part thereof or carried to such taxable year or part
thereof from another taxable year) that are actually utilized by the TCI
Affiliated Group to reduce its consolidated federal income tax liability for
such period; reduced by
ii. the AMT Liability Adjustment, if such Subgroup is an
AMT Gain Subgroup, which shall be equal to the lesser of:
(1) the product of (x) the amount of AMT Carried Losses
that are attributable to such AMT Gain Subgroup, and
(y) the AMT Tax Rate; and
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(2) the product of (x) AMT Current Losses multiplied by
the AMT Gain Subgroup Sharing Ratio, and (y) the AMT
Tax Rate.
2. Federal Tax Benefit. For each taxable year or part thereof ending
after the Effective Date that a Subgroup is included in the TCI Affiliated
Group, TCI shall compute (i) the Regular Tax Benefit of the Subgroup for such
taxable year or part thereof and (ii) if the TCI Affiliated Group is liable for
Alternative Minimum Tax, the Alternative Minimum Tax Benefit of the Subgroup
for such taxable year or part thereof. The Federal Tax Benefit of such Subgroup
for each taxable year or part thereof shall be equal to (i) the Regular Tax
Benefit of the Subgroup, if the TCI Affiliated Group is not liable for
Alternative Minimum Tax during such taxable year or portion thereof and (ii)
the Alternative Minimum Tax Benefit of the Subgroup, if the TCI Affiliated
Group is liable for Alternative Minimum Tax during such taxable year or portion
thereof.
a. Regular Tax Benefit. The Regular Tax Benefit of such
Subgroup (for purposes of this calculation, each First Tier LLC shall be
treated as if it were a corporation) for the taxable year or portion thereof
shall be equal to:
i. such Subgroup's Pre-Adjustment Regular Tax Benefit,
which shall be equal to the sum of (x) the product of (a) the amount of taxable
loss attributable to such Subgroup (whether attributable to such taxable year
or part thereof or carried to such taxable year or part thereof from another
taxable year, but excluding any part thereof which has been used to reduce such
Subgroup's Federal Tax Liability or Regular Tax Liability for such taxable
period or any other taxable period or to increase such Subgroup's Federal Tax
Benefit or Regular Tax Benefit for any other taxable period pursuant to this
Agreement or the Amended Agreement), and actually used by the TCI Affiliated
Group during such taxable year or part thereof to reduce its consolidated
federal income tax liability, calculated in accordance with Treasury
Regulations Section 1.1552-1(a)(1)(ii) (without regard to the last sentence
thereof), as though such Subgroup were required to file a consolidated
corporate federal income tax return pursuant to the Code (with the timing of
the recognition of income, gain, deduction and loss and other items determined
by reference to the timing of such items for purposes of the preparation of the
consolidated return of the TCI Affiliated Group) for such period, and (b) the
Regular Federal Tax Rate; and (y) the amount of tax credits attributable to
such Subgroup (whether attributable to such taxable year or part thereof or
carried to such taxable year or part thereof from another taxable year, but
excluding any part thereof which has been used to reduce such Subgroup's
Federal Tax Liability or Regular Tax Liability for such taxable period or any
other taxable period or to increase such Subgroup's Federal Tax Benefit or
Regular Tax Benefit for any other taxable period pursuant to this Agreement or
the Amended Agreement) that are actually utilized by the TCI Affiliated Group
to reduce its consolidated federal income tax liability for such tax period;
reduced by
ii. the Regular Tax Benefit Adjustment, if such Subgroup
is a Regular Tax Loss Subgroup, which shall be equal to the lesser of:
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(1) the product of (x) the amount of Regular Tax Current
Losses that are attributable to such Regular Tax Loss
Subgroup, and (y) the Regular Federal Tax Rate; and
(2) the product of (x) Regular Tax Carried Losses
multiplied by the Regular Tax Loss Subgroup Sharing
Ratio, and (y) the Regular Federal Tax Rate.
b. Alternative Minimum Tax Benefit. The Alternative Minimum Tax
Benefit of such Subgroup (for purposes of this calculation, each First Tier LLC
shall be treated as if it were a corporation) for the taxable year or portion
thereof shall be equal to:
i. such Subgroup's Pre-Adjustment Alternative Minimum Tax
Benefit, which shall be equal to the sum of (x) the product of (a) the amount
of the alternative tax net operating loss deduction, calculated in accordance
with Proposed Treasury Regulations Section 1.1502-55(b)(4) (but determined
without regard to the 90% limitation), attributable to such Subgroup (whether
attributable to such taxable year or part thereof or carried to such taxable
year or part thereof from another taxable year, but excluding any part thereof
which has been used to reduce such Subgroup's Federal Tax Liability or Regular
Tax Liability for such taxable period or any other taxable period or to
increase such Subgroup's Federal Tax Benefit or Regular Tax Benefit for any
other taxable period pursuant to this Agreement or the Amended Agreement) and
actually used by the TCI Affiliated Group during such taxable year or part
thereof to reduce its consolidated federal income tax liability, calculated as
though such Subgroup were required to file a consolidated corporate federal
income tax return pursuant to the Code (with the timing of the recognition of
income, gain, deduction and loss and other items determined by reference to the
timing of such items for purposes of the preparation of the consolidated return
of the TCI Affiliated Group) for such period, and (b) the AMT Tax Rate; and (y)
the amount of tax credits attributable to such Subgroup (whether attributable
to such taxable year or part thereof or carried to such taxable year or part
thereof from another taxable year, but excluding any part thereof which has
been used to reduce such Subgroup's Federal Tax Liability or Regular Tax
Liability for such taxable period or any other taxable period or to increase
such Subgroup's Federal Tax Benefit or Regular Tax Benefit for any other
taxable period pursuant to this Agreement or the Amended Agreement) that are
actually utilized by the TCI Affiliated Group to reduce its consolidated
federal income tax liability for such tax period; reduced by
ii. the AMT Benefit Adjustment, if such Subgroup is an AMT
Loss Subgroup, which shall be equal to the lesser of:
(1) the product of (x) the amount of AMT Current Losses
that are attributable to such AMT Loss Subgroup, and
(y) the AMT Tax Rate; and
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(2) the product of (x) AMT Carried Losses multiplied by
the AMT Loss Subgroup Sharing Ratio, and (y) the AMT
Tax Rate.
3. Time of Determination; Credits and Charges to the Intercompany
Accounts. The estimated Federal Tax Benefit and Federal Tax Liability of each
Subgroup shall be calculated by TCI as promptly as practicable after the close
of each calendar quarter in each taxable year, and the appropriate credits or
charges made to the Intercompany Accounts. As soon as practicable after the
close of each taxable year, TCI shall determine the final Federal Tax Benefit
or final Federal Tax Liability of such Subgroup for such taxable year and
shall:
a. credit the Intercompany Account of the Subgroup with the
amount by which:
i. such final Federal Tax Benefit for such taxable year
exceeds the aggregate credits for estimated Federal Tax Benefits made to such
Intercompany Account with respect to such Subgroup for such taxable year, or
ii. the aggregate charges for estimated Federal Tax
Liability made to such Intercompany Account with respect to such Subgroup for
such taxable year exceed such final Federal Tax Liability for such taxable
year; and
b. charge the Intercompany Account of the Subgroup with the
amount by which:
i. the aggregate credits for estimated Federal Tax
Benefits made to such Intercompany Account with respect to such Subgroup for
such taxable
ii. such final Federal Tax Liability for such taxable year
exceeds the aggregate charges for estimated Federal Tax Liability made to such
Intercompany Account with respect to such Subgroup for such taxable year.
For purposes of this Section C.3., the final Federal Tax Liability for the 1997
taxable year shall equal only that portion of the final Federal Tax Liability
which is attributable to the fourth quarter of the 1997 taxable year.
4. AMT Credit.
a. Procedural Matters. For each taxable year or portion thereof
that a Subgroup is included in the TCI Affiliated Group, the Federal Tax
Liability and Federal Tax Benefit of such Subgroup shall be computed without
regard to the AMT Credit attributable to any taxable period.
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b. AMT Adjustment Payments. If the TCI Affiliated Group
actually utilizes any AMT Credit that is attributable in whole or in part to
any taxable period beginning on or after the Effective Date in computing its
consolidated federal income tax liability,
i. within 45 days after the date that the Tax Return
utilizing such AMT Credit has been filed, TCI shall pay to such Subgroup, in
immediately available funds, the amount equal to the product of (x) the AMT
Credit Ratio and (y) the sum of (a) the amount by which the Alternative Minimum
Tax Liability of the Subgroup for such prior taxable period exceeds the Regular
Tax Liability of such Subgroup for such prior taxable period and (b) the amount
by which the Regular Tax Benefit of such Subgroup for such prior taxable period
exceeds the Alternative Minimum Tax Benefit of such Subgroup for such prior
taxable period; and
ii. within 45 days after the date that the Tax Return
utilizing such AMT Credit has been filed, such Subgroup shall pay to TCI, in
immediately available funds, the amount equal to the product of (x) the AMT
Credit Ratio and (y) the sum of (a) the amount by which the Regular Tax
Liability of such Subgroup for such prior taxable period exceeds the
Alternative Minimum Tax Liability of such Subgroup for such prior taxable
period and (b) the amount by which the Alternative Minimum Tax Benefit of such
Subgroup for such prior taxable period exceeds the Regular Tax Benefit of such
Subgroup for such prior taxable period.
c. Treatment at Deconsolidation.
i. In the event that after the Deconsolidation Date as to
any Subgroup, the TCI Affiliated Group actually utilizes an AMT Credit
attributable to any taxable period beginning on or after the Effective Date and
ending on or before such Deconsolidation Date in computing its consolidated
federal income tax liability, the payment obligations of TCI and such
deconsolidated Subgroup set forth in Section C.4.b. hereof shall continue to
apply in full force and effect until such time that no additional AMT Credits
may be utilized by the TCI Affiliated Group for any taxable period beginning on
or after the Effective Date and ending on or before the Deconsolidation Date.
ii. In the event that after the Deconsolidation Date as
to any Subgroup Member, the TCI Affiliated Group actually utilizes an AMT
Credit attributable to any taxable period beginning on or after the Effective
Date and ending on or before such Deconsolidation Date of such Subgroup Member
in computing its consolidated federal income tax liability, which triggers the
payment obligations of TCI and such deconsolidated Subgroup Member's former
Subgroup set forth in Section C.4.b. hereof:
(1) within 45 days after the date that the Tax Return
utilizing such AMT Credit has been filed, TCI shall
pay, in immediately available funds, the allocable
portion of the amount owed to such deconsolidated
Subgroup Member's former Subgroup that is attributable
to such deconsolidated
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Subgroup Member, and the payment obligations of TCI
pursuant to Section C.4.b.i. to such deconsolidated
Subgroup Member's former Subgroup shall be reduced
accordingly; and
(2) within 45 days after the date that the Tax Return
utilizing such AMT Credit has been filed, such
deconsolidated Subgroup Member shall pay, in
immediately available funds, the allocable portion of
the amount owed by its former Subgroup that is
attributable to such deconsolidated Subgroup Member to
TCI, and the payment obligations of such
deconsolidated Subgroup Member's former Subgroup
pursuant to Section C.4.b.ii. to TCI shall be reduced
accordingly.
The payment obligations of TCI and the deconsolidated Subgroup Member shall
continue to apply in full force and effect until such time that no additional
AMT Credits may be utilized by the TCI Affiliated Group for any taxable period
beginning on or after the Effective Date and ending on or before the
Deconsolidation Date of such Subgroup Member.
iii. In the event that, after the Deconsolidation Date as
to any Subgroup Member, such Subgroup Member receives any benefit from an AMT
Credit attributable to any taxable period ending on or before such
Deconsolidation Date (by way of reduction in federal income tax liability or
otherwise), such Subgroup Member shall promptly pay to TCI the amount of such
benefit plus any associated interest thereon. For purposes of applying Section
C.4. of this Agreement, the TCI Affiliated Group shall be treated as if it had
utilized such AMT Credit.
d. Notwithstanding anything to the contrary herein, the
provisions of paragraphs b. and c. of this Section C.4. shall survive the
termination of this Agreement.
5. Benefit Tracking Accounts. Beginning on the Effective Date, TCI
shall establish and maintain separate tracking accounts ("Benefit Tracking
Accounts") for each Subgroup, the balance of which shall initially be zero. For
each taxable year or part thereof ending after the Effective Date that a
Subgroup is included in the TCI Affiliated Group, each Unpaid Loss that is a
Regular Tax Current Loss shall be paired, in accordance with the applicable
regular tax Sharing Ratios, with a Corresponding Paid Loss that is a Regular
Tax Carried Loss, and each Unpaid Loss that is an AMT Current Loss shall be
paired, in accordance with the applicable alternative minimum tax Sharing
Ratios, with a Corresponding Paid Loss that is an AMT Carried Loss. The Benefit
Tracking Account of each Subgroup shall track each Unpaid Loss, as matched with
its Corresponding Paid Loss, that is attributable to such Subgroup.
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a. Maintenance and Payment of Benefit Tracking Accounts. The
Benefit Tracking Accounts shall be adjusted, and paid, as follows:
i. Expiration of Corresponding Paid Loss. At such time
that a Corresponding Paid Loss expires and cannot be used by the TCI Affiliated
Group in any taxable year or part thereof to reduce its consolidated federal
income tax liability, the Subgroup that has an Unpaid Loss in its Benefit
Tracking Account that is paired with such Corresponding Paid Loss shall remove
such Unpaid Loss from its Benefit Tracking Account.
ii. Payment of Dividends on the TCI Ventures Group
Preferred Interest. In the event that the TCI Ventures Group pays dividends on
the TCI Ventures Group Preferred Interest through the cancellation of Unpaid
Losses of the Ventures Subgroup pursuant to Section C.6. hereof, the Ventures
Subgroup shall remove such Unpaid Losses from its Benefit Tracking Account.
iii. Payment of Unpaid Losses. If a Corresponding Paid
Loss is actually utilized by the TCI Affiliated Group in any taxable year or
part thereof to reduce its consolidated federal income tax liability, TCI shall
pay, in immediately available funds, to the Subgroup with the Unpaid Loss
paired with such Corresponding Paid Loss, within 45 days after the date that
the Tax Return utilizing such Corresponding Paid Loss has been filed, an amount
equal to the product of (x) the Unpaid Loss and (y) the Applicable Federal Tax
Rate for the taxable year or part thereof in which such Subgroup received a
Regular Tax Benefit Adjustment or an AMT Benefit Adjustment for such Unpaid
Loss. Thereafter, the Subgroup shall remove such Unpaid Loss from its Benefit
Tracking Account.
iv. AMT Benefit Payment. If any Subgroup is paid, or has
previously been paid, for an Unpaid Loss pursuant to the provisions of
paragraphs a.iii. of this Section C.5. at a tax rate that is less than the
Regular Federal Tax Rate that was in effect for the taxable period or part
thereof in which such Subgroup received a Regular Tax Benefit Adjustment or an
AMT Benefit Adjustment for such Unpaid Loss, and if the TCI Affiliated Group
utilizes, or has previously utilized, any AMT Credit that is attributable to
that same taxable period, then TCI shall pay to such Subgroup in the current
taxable year or part thereof, and in each future taxable year or part thereof,
an additional amount, which amount shall be proportional to the amount that
such AMT Credit that has previously been utilized or is utilized in such
taxable period (as applicable) bears to the total AMT Credit available for such
prior taxable period, until such Subgroup has been paid for an Unpaid Loss at
the Regular Federal Tax Rate that was in effect for the taxable period or part
thereof in which such Subgroup received a Regular Tax Benefit Adjustment or an
AMT Benefit Adjustment for such Unpaid Loss.
b. Treatment at Deconsolidation.
i. Upon deconsolidation of a Subgroup, the maintenance
and payment obligations set forth in Section C.5.a. hereof with respect to such
Subgroup's Benefit
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Tracking Account shall continue to apply in full force and effect until such
time that no Unpaid Losses continue to be reflected in such deconsolidated
Subgroup's Benefit Tracking Account and no AMT Benefit Payments continue to be
owed to such deconsolidated Subgroup pursuant to Section C.5.a.iv. hereof.
ii. Upon the deconsolidation of any Subgroup Member of a
Subgroup, a new Benefit Tracking Account shall be created for such Subgroup
Member, and all Unpaid Losses that are reflected in the Subgroup's Benefit
Tracking Account that are attributable to such deconsolidated Subgroup Member
shall be removed from the Benefit Tracking Account of the Subgroup and added to
the new Benefit Tracking Account of the Subgroup Member. The maintenance and
payment obligations set forth in Section C.5.a. hereof shall apply in full
force and effect (as if such deconsolidated Subgroup Member were a Subgroup
under Section C.5.a.) until such time that no Unpaid Losses continue to be
reflected in such deconsolidated Subgroup Member's Benefit Tracking Account and
no AMT Benefit Payments continue to be owed to such deconsolidated Subgroup
Member pursuant to Section C.5.a.iv. hereof.
iii. In the event that any deconsolidated Subgroup Member
is entitled to claim in any taxable period any Corresponding Paid Loss, then
such deconsolidated Subgroup Member shall (x) take such steps as may reasonably
be necessary to claim such Corresponding Paid Loss and (y) promptly upon
receipt by such Subgroup Member (or another member of the Affiliated Group of
which Subgroup Member is a member) of a refund of or reduction in tax
liability, such Subgroup Member shall remit such amount to TCI. For purposes of
applying this Section C.5.a.iii. of this Agreement, the TCI Affiliated Group
shall be treated as if it had utilized such Corresponding Paid Loss.
c. Termination. Notwithstanding anything to the contrary
herein, the provisions of this Section C.5. shall survive the termination of
this Agreement.
6. Payment of Dividends on the TCI Ventures Group Preferred
Interest. As permitted by the terms of the TCI Charter, as amended, the TCI
Ventures Group may pay dividends on the TCI Ventures Group Preferred Interest
through (i) the deemed transfer of taxable losses or deductions of the Ventures
Subgroup to the Cable Subgroup, (ii) the cancellation of any item of Unpaid
Loss of the Ventures Subgroup, or (iii) the deemed transfer of any contingent
AMT Benefit Payments that are required to be paid to the Ventures Subgroup
pursuant to Section C.5.a.iv. hereof to the Cable Subgroup. For purposes of
determining the dividend amount, such taxable losses or Unpaid Losses shall be
deemed to be transferred or canceled (as applicable) in an amount equal to the
product of (i) the amount of such taxable losses or Unpaid Losses and (ii) the
Regular Federal Tax Rate in effect at the time of the dividend. From and after
the dividend date, (i) except for purposes of calculating the State and Local
Tax Liability of each Subgroup, taxable losses or deductions transferred from
the Ventures Subgroup to the Cable Subgroup and (ii) any AMT Benefit Payments
transferred from the Ventures Subgroup to the Cable Subgroup, shall be deemed
to be attributable to the Cable Subgroup for purposes of this Agreement.
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7. Filings and Procedural Matters.
a. TCI shall continue to prepare and file all federal income
Tax Returns (the "TCI Consolidated Returns") which are required to be filed by
the TCI Affiliated Group for all periods and will pay all Taxes shown as due
thereon. The costs of such preparation and filing shall be allocated among and
paid by each Subgroup in accordance with TCI's policy of allocating corporate
general and administrative costs among the Subgroups. Such returns shall
include all Tax Items of the Subgroup Members for all tax periods or portions
thereof ending on or before the Deconsolidation Date with respect to such
Subgroup Members. TCI will make all decisions relating to the preparation and
filing of such returns. Each Subgroup Member whose Tax Items are includable in
any such return shall, upon the request of TCI, consent to be included in the
TCI Consolidated Return on any form as may be prescribed for such consent.
b. So as to enable TCI to prepare accurately and completely
the TCI Consolidated Returns and in order to provide for accurate financial
reporting, for tax periods or portions thereof ending on or before the
Deconsolidation Date as to any Subgroup or Subgroup Member, such Subgroup shall
provide such information with respect to Taxes (including forecasts,
projections and tax accruals) as TCI may reasonably request. Each Subgroup
shall bear all costs and expenses of preparation and submission of such
information, including accountants' and attorneys' fees.
c. TCI may claim the benefit for federal income tax purposes
of any net operating loss or other tax benefit carryback resulting from a loss
or tax benefit incurred by any Subgroup or Subgroup Member for any taxable
period after the Deconsolidation Date of such Subgroup or Subgroup Member,
provided that TCI pays, in immediately available funds, to such Subgroup or
Subgroup Member the amount of any refund of Taxes resulting from such net
operating loss or other tax benefit carryback, together with the interest
received in respect of such refund, promptly after receipt thereof from the
IRS, unless either such Tax Item (i) is a Corresponding Paid Loss, (ii) is
deemed to be attributable to another Subgroup pursuant to Section C.6. hereof,
or (iii) has otherwise been used by such Subgroup or such Subgroup Member's
former Subgroup to increase its Federal Tax Benefit or to decrease its Federal
Tax Liability for any taxable period pursuant to the terms of this Agreement or
the Amended Agreement. However, with respect to any such net operating loss or
other tax benefit that is attributable to a taxable period of a Subgroup or
Subgroup Member after the Deconsolidation Date with respect to such Subgroup or
Subgroup Member and as to which such Subgroup or Subgroup Member has the option
to waive its right to carry such net operating loss or other tax benefit back,
such Subgroup or Subgroup Member shall exercise such option and elect to carry
such net operating loss or other tax benefit forward unless either (i) TCI
requests such Subgroup or Subgroup Member not to exercise such option and
instead to carry such net operating loss back to a period prior to the
Deconsolidation Date with respect to such Subgroup or Subgroup Member or (ii)
TCI consents in writing to the failure of such Subgroup or Subgroup Member to
exercise any such option to waive such carryback period. If such Subgroup or
Subgroup Member fails to exercise any such option to waive the right to carry
back any such net operating loss or other tax benefit without such a request or
consent from TCI, TCI shall not be
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obligated to compensate such Subgroup or Subgroup Member for any benefit that
TCI may receive from such net operating loss or other tax benefit.
D. State or Local Taxes.
1. State or Local Tax Liability. For each taxable year or
portion thereof ending after the Effective Date that a Subgroup is part of the
TCI Affiliated Group, the State or Local Tax Liability of the Subgroup shall be
equal to the product of:
a. the sum of the state and local income and franchise
taxes attributable to those jurisdictions in which the TCI Unitary Group is
liable for state or local income or franchise taxes with respect to the
operations of any Member of such Subgroup on a unitary, consolidated or nexus
combination basis, multiplied by
b. a fraction, (i) the numerator of which is the
aggregate amount of such tax that is attributable to such Subgroup in such
jurisdictions, determined without regard to any other Subgroup, as though such
Subgroup were required to file either a unitary, consolidated or nexus
combination corporate income or franchise tax return (for this purpose, each
First Tier LLC shall be treated as if it was a corporation) in such
jurisdictions for such taxable year or portion thereof, and (ii) the
denominator of which is the sum of all such amounts determined with respect to
all the Subgroups.
2. State or Local Tax Attributes. In calculating the amounts
referred to in Section D.1. above, each Subgroup will calculate state and local
net operating losses and other state and local tax attributes to which its
Subgroup Members are entitled as of the Effective Date. For each taxable year
or portion thereof ending after the Effective Date that a Subgroup is part of
the TCI Affiliated Group, the amounts referred to in Section D.1. shall be
calculated by taking into account the utilization of such tax attributes as
though the Subgroup actually filed returns as described in such Section without
regard to the actual filings of the TCI Affiliated Group. If any Subgroup or
Subgroup Member ceases to be a member of the TCI Affiliated Group, no
adjustments shall be made to account for differences between the tax attributes
utilized in the calculations made pursuant to Section D.1. and the Tax Returns
actually filed by the TCI Affiliated Group.
3. Time of Determination; Credits and Charges to the Intercompany
Accounts. To the extent required for financial statement purposes, the
estimated State or Local Tax Liability of each Subgroup shall be calculated by
TCI after the close of each calendar quarter in each taxable year, and the
appropriate credits or charges made to the Intercompany Accounts. As soon as
practicable after the close of each taxable year, TCI and each Subgroup shall
cooperate together to determine the final State or Local Tax Liability of such
Subgroup and shall:
a. credit the Intercompany Account of such Subgroup with the
amount by which the aggregate charges for estimated State or Local Tax
Liability made to such
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Intercompany Account with respect to such Subgroup for such taxable year exceed
such final State or Local Tax Liability for such taxable year; and
b. charge the Intercompany Account of such Subgroup with the
amount by which such final State or Local Tax Liability for such taxable year
exceeds the aggregate charges for estimated State or Local Tax Liability made
to such Intercompany Account with respect to such Subgroup for such taxable
year.
For purposes of this Section D.3., the final State or Local Tax Liability for
the 1997 taxable year shall equal only that portion of the final State or Local
Tax Liability which is attributable to the fourth quarter of the 1997 taxable
year.
4. Filings and Procedural Matters.
a. For all tax periods or portions thereof ending on or before
the Deconsolidation Date as to any Subgroup Member, TCI shall prepare and file
all unitary, consolidated, nexus combination or separate state or local income
or franchise Tax Returns which are required by law to be filed which include
both any Tax Item of such Subgroup Member and any Tax Item of any member of a
different Subgroup. TCI shall pay all Taxes shown as due on such returns
(including those for which any Subgroup Member may be liable). Each Subgroup
Member whose Tax Items are included in any such unitary, consolidated, nexus
combination or separate state or local income Tax Return shall agree to be
included on such return on any form as may be prescribed for such consent if
such consent is requested, and the costs of preparing and filing such Tax
Returns shall be allocated among the Subgroup Members whose Tax Items are
included therein in accordance with TCI's policy for allocating corporate
general and administrative costs. TCI shall prepare and file on behalf of and
at the cost and expense of each Subgroup Member all other state and local
income and franchise Tax Returns required to be filed with respect to such
Subgroup Member. Such Subgroup Member shall pay all taxes reportable on such
returns.
b. So as to enable TCI accurately and completely to prepare all
state and local income and franchise Tax Returns which it will file and in
order to provide for accurate financial reporting, each Subgroup Member shall
prepare and submit to TCI such information with respect to Taxes (including
forecasts, projections and tax accruals) as TCI may reasonably request.
E. Foreign Income Taxes. TCI shall prepare and file or shall cause
to be filed all foreign income or franchise Tax Returns which are required to
be filed for all members of the TCI Affiliated Group and each member of the TCI
Affiliated Group will pay all Taxes shown as due on any such Tax Return that is
thus prepared and filed on its behalf. Each Subgroup Member shall bear the
costs of preparing and filing such Tax Returns on its behalf in accordance with
TCI's policy for allocating corporate general and administrative costs.
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F. Subsequent Adjustment of Tax Liability.
1. Federal, State, Local and Foreign Taxes - In General. As
provided in this Section F, each Subgroup or Subgroup Member, as the case may
be, shall indemnify the TCI Affiliated Group from any and all federal, state,
local or foreign tax liability resulting from any Final Determination which
adjusts any Tax Item of such Subgroup or Subgroup Member for any tax period or
portion thereof that ends after the Effective Date and on or before the
Deconsolidation Date as to such Subgroup or Subgroup Member, including any
interest, penalties or additions to tax attributable thereto (and all
reasonable out-of-pocket costs incurred by the TCI Affiliated Group in
connection with the assessment or collection thereof). As provided herein, for
any tax period or portion thereof ending after the Effective Date and on or
before the Deconsolidation Date as to any Subgroup or Subgroup Member, such
Subgroup or Subgroup Member shall be entitled to the benefit of all refunds of
federal, state, local or foreign taxes, and all interest attributable thereto,
resulting from any Final Determination which (i) adjusts any Tax Item of such
Subgroup or Subgroup Member, or (ii) causes a tax benefit that is attributable
to such Subgroup or Subgroup Member to be utilized by another Subgroup or
Subgroup Member. TCI shall indemnify each Subgroup Member from any increase in
federal, state, local or foreign tax liability, including interest, penalties
or additions to tax attributable thereto (and all reasonable out-of-pocket
costs incurred by such Subgroup Member in connection with the assessment or
collection thereof), other than any such amount for which such Subgroup Member
is responsible as provided above in this Section F.1., and TCI shall be
entitled to all refunds and interest attributable thereto other than any such
refunds or interest to which such Subgroup Member is entitled as provided in
this Section F.1.
2. Determination of Indemnification Amounts. If any Final
Determination results in an adjustment to any Tax Item of any Subgroup or
Subgroup Member, as the case may be, for any tax period or portion thereof
ending on or before the Deconsolidation Date and after the Effective Date as to
such Subgroup or Subgroup Member, and such adjustment would affect the tax
benefit or tax liability of such Subgroup or Subgroup Member, such tax benefit
or tax liability shall be redetermined, in accordance with any applicable
provision hereof, to give effect to such adjustment, as if it had been made as
part of or reflected in the Tax Return (or other tax calculation) to which such
tax benefit or tax liability relates. Such Subgroup or Subgroup Member shall
pay to TCI within 45 days of such Final Determination, in immediately available
funds, (a) any excess of such tax benefit as originally computed over such tax
benefit as determined pursuant to such recomputation, (b) any excess of such
tax liability as determined pursuant to such recomputation over such tax
liability as originally computed, and (c) the amount of any interest,
penalties, additions to tax or expenses (as described in Section F.1.) which
are paid by any member of the TCI Affiliated Group other than such Subgroup
Member (or a member of the same Subgroup as such Subgroup Member) with respect
to such adjustment. Any amount payable by a Subgroup or a Subgroup Member to
TCI pursuant to this Section F.2. shall be reduced to reflect any amount paid
directly by such Subgroup or Subgroup Member to any government or taxing
authority to satisfy the increased tax liability taken into account in
computing such payment. TCI shall pay to each Subgroup or Subgroup Member, as
the case may be within 45 days of such Final Determination, in immediately
available funds, (a) any excess of such tax benefit as determined pursuant to
such recomputation over
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such tax benefit as originally determined, (b) any excess of such tax liability
as originally computed over such tax liability as determined pursuant to such
recomputation, and (c) the amount of any interest received by any member of the
TCI Affiliated Group (other than such Subgroup Member or a member of the same
Subgroup as such Subgroup Member) from any government or taxing authority with
respect to such amount, provided that such payment shall be reduced by the
amount of any refund of tax received directly from any government or taxing
authority by such Subgroup or Subgroup Member with respect to such adjustment.
3. Contests. The defense of proceedings for the assessment as to any
taxable period or portion thereof ending on or before the Deconsolidation Date
as to any Subgroup or Subgroup Member of any Tax deficiencies and the
prosecution of any proceedings for the assertion of any refund claims which
arise with respect to or which relate to any member of the TCI Affiliated
Group, whether or not attributable to such Subgroup or Subgroup Member, and
regardless of whether such tax period or portion thereof occurs before or after
the Effective Date, shall be conducted by TCI in such manner, including through
deferral, compromise or settlement, as TCI in its sole discretion shall
determine, provided that TCI will consult with and keep any affected Subgroup
or Subgroup Member informed of the status of such matters and TCI will not
compromise or settle any assessment for which such Subgroup or Subgroup Member
would have an indemnification obligation hereunder or any tax refund claim
attributable to such Subgroup or Subgroup Member without the consent of such
Subgroup or Subgroup Member, as the case may be, which shall not be
unreasonably withheld. If any Subgroup or Subgroup Member shall consent to any
proposed compromise or settlement, then such Subgroup or Subgroup Member as a
consequence waives any and all present and future claims against TCI relating
to such compromise or settlement between TCI and the IRS or other taxing
authority, regardless of whether such compromise or settlement allegedly
improperly causes an overstatement of the liability of such Subgroup or
Subgroup Member to TCI or another member of the TCI Affiliated Group, or
whether such Subgroup or Subgroup Member could have reached a more favorable
agreement with the IRS or other taxing authority on a separate company basis.
If any affected Subgroup or Subgroup Member shall not consent to such
compromise or settlement, TCI shall renegotiate such agreement, in cooperation
with such Subgroup or Subgroup Member, and at the expense of such Subgroup or
Subgroup Member. Any compromise or settlement which results from such
renegotiation will not be entered into without the consent of both TCI and such
Subgroup or Subgroup Member. TCI will bear all costs and expenses associated
with the defense of such deficiency proceedings or the prosecution of such
refund claims, except that the affected Subgroup or Subgroup Member shall bear
the portion, if any, of such costs and expenses provided for in Section F.1.
hereof. TCI and such Subgroup or Subgroup Member will execute and deliver such
waivers, consents, petitions, refund claims, complaints, powers of attorney and
other documents which may be necessary or appropriate in connection with the
defense, prosecution or resolution of any such proceedings for assessment of
income tax deficiencies or refund claims.
G. Taxes Other Than Income Taxes. Except as provided in Section E
above or the next succeeding sentence, each Subgroup Member shall file all tax
returns and reports related to, shall defend all audits and investigations
related to, shall pay, and shall indemnify the other members of
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the TCI Affiliated Group from, all Taxes, other than income taxes, attributable
to such Subgroup Member for all periods before the Deconsolidation Date as to
such Subgroup Member, regardless of whether such period occurs before or after
the Effective Date, including any expenses incurred by any member of the TCI
Affiliated Group (including reasonable accountants' and attorneys' fees) in
connection therewith. Notwithstanding the foregoing, so long as any Subgroup
Member is a member of the TCI Affiliated Group, TCI shall (i) prepare and file
all real property, ad valorem and similar Tax Returns for such Subgroup Member
and (ii) provide such assistance as such Subgroup Member may reasonably request
with respect to audits of sales and use taxes. TCI shall pay or cause to be
paid, and shall indemnify each Subgroup Member from, all Taxes, other than
income taxes, attributable to the members of the TCI Affiliated Group (other
than any member of the same Subgroup as such Subgroup Member) for all periods
before the Deconsolidation Date as to such Subgroup Member, regardless of
whether such periods occur before or after the Effective Date, including any
expenses incurred by such Subgroup Member (including reasonable accountants'
and attorneys' fees) in connection therewith. Unclaimed property and escheat
taxes shall be borne by the Subgroup Member whose operations give rise to the
liability therefor.
H. Administrative Provisions.
1. Cooperation and Exchange of Information. TCI and each
Subgroup Member will provide each other with such cooperation and information
as either of them may reasonably request of the other in filing any Tax Return,
amended return or claim for refund, determining a liability for Taxes or a
right to refund of Taxes, in conducting any audit or other proceeding in
respect of Taxes or in preparing any financial statement information concerning
or relating to Taxes, including any accrual of Taxes required for financial
statement purposes. Such cooperation shall include providing copies of all
relevant Tax Returns, together with all accompanying schedules and related
workpapers, computerized tax database, documents relating to rulings or other
determinations by taxing authorities, and records concerning the ownership and
tax basis of property, which any party hereto may possess. Each party shall
make its employees available to any other party hereto on a mutually convenient
basis to provide explanations of any documents or information requested
hereunder. Except as otherwise provided in the Agreement, any party requesting
assistance hereunder shall reimburse any party providing such assistance for
any reasonable out-of-pocket costs incurred in providing any Tax Return,
document or other written information, upon receipt of reasonable documentation
of such costs. Each party hereto will retain all returns, schedules and
workpapers, and all material records or other documents relating thereto, until
the expiration of the statute of limitations (including extensions) for the
taxable years to which such returns and other documents relate and, unless such
Tax Returns and other documents are offered to the other parties hereto, until
the final determination of any payments which may be required in respect of
such years under this Agreement. Any information obtained under this Section
shall be kept confidential, except as may be otherwise necessary in connection
with the filing of returns or claims for refund or in conducting any audit or
other proceeding.
2. Meaning of Receipt or Reduction. Any reference in this Agreement
to the receipt by a party of an amount, or a reduction in a tax liability of a
party or interest with respect
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thereto shall (except where the context indicates to the contrary) include any
offset or credit against any other tax liability of such party, and shall be
deemed to have been received or refunded at the time such other tax liability
(or interest thereon) would otherwise have been due.
3. Character and Effect of Payments. All amounts paid pursuant to
this Agreement by one party to another, including all payments in discharge of
an outstanding balance in an Intercompany Account, shall be treated by the
parties for all Tax purposes as non-taxable recoveries of capital in the nature
of intercompany settlements of liabilities existing on or before the
Deconsolidation Date, other than Post-Deconsolidation Correlative Amounts. With
respect to Post-Deconsolidation Correlative Amounts or if, notwithstanding such
treatment by the parties, as a result of a Final Determination the federal,
state, local or foreign income tax liability of any party hereto shall be
increased as a result of its receipt of a payment pursuant to this Agreement,
such payment shall be appropriately adjusted so that the amount of such
payment, as adjusted, reduced by the amount of all income taxes payable with
respect to the receipt thereof (but taking into account all correlative tax
benefits resulting from the payment of such income taxes), shall equal the
amount of the payment which the party receiving such payment would otherwise be
entitled to received pursuant to this Agreement.
4. Entire Agreement; Termination of Prior Agreements.
a. Subject to paragraph b. of this Section, this Agreement
constitutes the entire agreement among the parties concerning the subject
matter hereof and supersedes all other agreements, if any, whether or not
written, in respect of any Tax between or among any of the Subgroup Members and
TCI, and all such agreements are hereby canceled and any rights or obligations
existing thereunder are hereby fully and finally settled without any payment by
any party thereto. This Agreement may not be amended except by an agreement in
writing, signed by the parties hereto.
b. The Amended Agreement shall continue in full force and
effect, and shall continue to govern the allocation to and sharing by the
parties thereto, their former or current Subsidiaries, and any other former or
current member of the TCI Affiliated Group intended to be bound thereby of
federal, state, local and foreign taxes for taxable periods prior to the
Effective Date and any contest, claim, controversy or dispute which may arise
(whether before, on or after the Effective Date) with respect to the subject
matter of the Amended Agreement relating to any such period. The execution and
delivery of this Agreement is not intended to constitute a waiver, release,
discharge or modification of or to otherwise affect any of the respective
rights, powers, obligations and liabilities (whether accrued, contingent,
known, unknown, now existing or hereafter arising) of any of the parties to the
Amended Agreement, any of their former or current Subsidiaries, or any other
former or current member of the TCI Affiliated Group intended to be bound
thereby with respect to any such period.
5. Effective Date. This Agreement is effective as of the Effective
Date. This Agreement shall continue in effect until otherwise agreed in writing
by TCI and each Subgroup.
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6. Notices. All notices, requests, demands and other communications
to any party hereunder shall be in writing and shall be duly given if delivered
and mailed (registered or certified mail, postage prepaid, return receipt
requested) to the address set forth below or such other address as any party
shall give written notice to the other:
If to TCI, to:
Tele-Communications, Inc.
Attn: Xxxxx Xxxxxx
Terrace Tower II
0000 XXX Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000-0000
If to a member of the Cable Subgroup, to:
TCI Communications, Inc.
Attn: Xxxxxxx Xxxxxxxxx
Terrace Tower II
0000 XXX Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000-0000
or to such other member of the Cable Subgroup, that the Cable Subgroup may
designate as its representative hereunder, at its address as shown in the books
and records of TCI.
If to a member of the Programming Subgroup, to:
Liberty Media Corporation
Attn: Xxxxxx Xxxxxxx
0000 X. Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
or to such other member of the Programming Subgroup, that the Programming
Subgroup may designate as its representative hereunder, at its address as shown
in the books and records of TCI.
If to a member of the Ventures Subgroup, to:
TCI Ventures Group L.L.C.
Attn: Xxxxxxx Xxxxxxxx
Terrace Tower II
0000 XXX Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000-0000
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or to such other member of the Ventures Subgroup, that the Ventures Subgroup
may designate as its representative hereunder, at its address as shown in the
books and records of TCI.
7. Resolution of Disputes. Any disputes between any parties hereto
concerning the calculation of amounts, allocation or attribution of costs or of
any Tax or Tax Item or similar accounting matters shall be resolved by a
nationally recognized public accounting firm selected by the parties involved
in such dispute, whose fees and expenses shall be shared by such parties.
8. Application to Present and Future Subsidiaries and First Tier
LLCs. This Agreement is being entered into by TCI, and each of TCIC, Liberty
and Ventures, on behalf of themselves and their respective Subgroups. This
Agreement shall constitute a direct obligation of each First Tier LLC and each
corporation that is a member of the TCI Affiliated Group, and shall be deemed
to have been adopted and affirmed on behalf of any limited liability company or
corporation that becomes a First Tier LLC or a member of the TCI Affiliated
Group. This Agreement shall be binding upon, and shall inure to the benefit of,
the successors, assigns and persons controlling any of the limited liability
companies or corporations bound hereby.
9. Comprehensive Settlement. Following the expiration of the statute
of limitations for all taxable years ending before the Deconsolidation Date,
and for the taxable year which includes the Deconsolidation Date, of a Subgroup
or Subgroup Member that ceases to be part of the TCI Affiliated Group, under
every federal, state, local, or foreign Tax law under which such First Tier LLC
or corporation may have a material liability for such years, the parties hereto
shall each, if requested by one of the others, agree to negotiate in good faith
in an effort to reach an appropriate settlement of all of the then remaining
obligations of such Subgroup and its Subgroup Members under this Agreement.
10. Governing Law. This Agreement shall be governed by the laws of
the State of Delaware without regard to the principles of conflicts of laws
thereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the Effective Date.
TELE-COMMUNICATIONS, INC.
By /s/ Xxx X. Xxxxxxx, Xx.
------------------------------------
TCI COMMUNICATIONS, INC.
By /s/ Xxx X. Xxxxxxx, Xx.
------------------------------------
LIBERTY MEDIA CORPORATION
By /s/ Xxxxxx X. Xxxxxxx
------------------------------------
TCI VENTURES GROUP L.L.C.
By /s/ Xxxxxxx X. Xxxxxxxxx
------------------------------------
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