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Exhibit 10.1
FORM OF TAX SHARING AND INDEMNIFICATION AGREEMENT
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THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"), dated
as of ___________1999, is made by and between Allegheny Teledyne Incorporated, a
Delaware corporation ("ATI") on behalf of itself and each member of the ATI
Consolidated Group, and Water Pik Technologies, Inc., a Delaware corporation
("SPINCO"), on behalf of itself and each member of the SPINCO Group and their
respective successors.
Witnesseth
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WHEREAS, ATI has determined to effect the Distribution pursuant to the
Distribution Agreement;
WHEREAS, the IRS has issued the IRS Ruling which states the tax treatment of the
Distribution and the Other Transactions;
WHEREAS, the parties are entering into this Agreement to ensure the continuing
effectiveness of the IRS Ruling, to provide for certain indemnities, and to
provide for various administrative matters relating to Taxes, including:
1. the preparation and filing of Tax Returns along with the
payment of Taxes shown due and payable thereon;
2. the retention and maintenance of relevant records necessary
to prepare and file appropriate Tax Returns, as well as
providing for appropriate access to those records by the
parties to this Agreement;
3. the conduct of audits, examinations, and proceedings by
appropriate government entities which could result in a
redetermination of Taxes; and
4. the cooperation of all parties with one another in order to
fulfill their duties and responsibilities under this
Agreement and under the Code and other applicable law; and
WHEREAS, it is the intent of the parties that SPINCO or the appropriate member
of the SPINCO Group shall economically bear the burden of all Taxes otherwise
imposed upon or attributable to the Operations of members of the SPINCO Group
occurring after the Effective Date, and that SPINCO will be responsible for and
reimburse ATI for any Incremental Tax Assessment.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
conditions contained in this Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
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SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural of the terms involved):
ADJUSTMENT means any final change in the Tax Liability of a taxpayer.
AFFILIATE means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with such Person.
AFFILIATED PERSON has the meaning ascribed to such term in the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder.
AGREEMENT means this Tax Sharing and Indemnification Agreement.
ASSOCIATES has the meaning ascribed to such term in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
ATI CONSOLIDATED RETURN means any Tax Return that includes any member
of the ATI Consolidated Group.
ATI CONSOLIDATED GROUP means, as of any relevant date, ATI and its
Subsidiaries, determined as of such date.
BENEFICIAL OWNERSHIP has the meaning ascribed to such term in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
BUSINESS TAXES means any Tax (except for federal income, state income
or franchise, and local and foreign gross or net income) including interest,
penalties, and other assessments thereon that is attributable to Operations of
SPINCO or members of the SPINCO Group for a tax period ending prior to or
including the Effective Date.
BUSINESS TAX RETURNS means all reports, estimates, declarations of
estimated tax, information statements and returns relating to or required to be
filed in connection with any Business Taxes, including information returns or
reports with respect to backup withholding and other payments to third parties.
CODE means the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder.
COMBINED RETURN shall mean all state income tax returns which ATI files
on a combined or unitary basis with respect to some or all of its Subsidiaries.
DISQUALIFIED SPINCO STOCK is defined at Section 5.2.
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DISTRIBUTION means the distribution of SPINCO common stock to the
stockholders of ATI pursuant to the Distribution Agreement.
DISTRIBUTION AGREEMENT means the Separation and Distribution Agreement
among ATI, SPINCO and certain other parties dated as of __________________1999.
EFFECTIVE DATE means the date on which the Distribution occurs.
EFFECTIVE TIME means 5 p.m., Eastern Standard Time or Eastern Daylight
Time (whichever shall then be in effect), on the Effective Date.
FINAL DETERMINATION means the final resolution of any Tax matter. A
Final Determination shall result from the first to occur of:
1. the expiration of 30 days after the IRS's acceptance of a Waiver
of Restrictions on Assessment and Collection of Deficiency in Tax
and Acceptance of Overassessment on Form 870 or 870-AD (or any
successor comparable form) (the "Waiver"), except as to reserved
matters specified therein, or the expiration of 30 days after
acceptance by any other taxing authority of a comparable agreement
or form under the laws of any other jurisdiction, including state,
local, and foreign jurisdictions; unless, within such period, the
taxpayer gives notice to the other party to this Agreement of the
taxpayer's intention to attempt to recover all or part of any
amount paid pursuant to the Waiver by the filing of a timely claim
for refund;
2. a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial
review (by appeal or otherwise) and has become final;
3. the execution of a closing agreement under Code Section 7121, or
the acceptance by the IRS of an offer in compromise under Code
Section 7122, or comparable agreements under the laws of any other
jurisdiction, including state, local, and foreign jurisdictions,
except as to reserved matters specified therein;
4. the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund that was
disallowed in whole or in part by the IRS or any other taxing
authority;
5. the expiration of the applicable statute of limitations; or
6. an agreement by the parties hereto that a Final Determination has
been made.
GROSS ASSET VALUE means, when used with respect to a specified Person,
the fair market value of such Person's assets unencumbered by any liabilities.
GROUP has the meaning ascribed to such term in the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
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INCREMENTAL TAX ASSESSMENT means any increase in Business Taxes imposed
upon ATI after the date hereof.
INDEMNIFIED LIABILITY is defined at Section 7.1.
INDEMNIFIED PARTY is defined at Section 6.1.
INDEMNIFYING PARTIES is defined at Section 6.1.
INTERNAL DISTRIBUTIONS means the distributions of SPINCO common stock
by Teledyne Industries, Inc. to TII Holdings, LLC, a Delaware limited liability
company and a subsidiary of ATI, and by TII Holdings, LLC to ATI.
IRS means the U.S. Internal Revenue Service.
IRS INTEREST RATE means the rate of interest imposed from time to time
on underpayments of income tax pursuant to Code Section 6621(a)(2).
IRS RULING means the private letter ruling (together with any
supplements) issued by the IRS in respect of the Ruling Request.
OPERATIONS means any business activity of any SPINCO business unit, as
described in the Ruling Request.
OTHER TRANSACTIONS means the Internal Distributions and all other
transactions related to the Distribution and described in the Ruling Request,
including all modifications to such transactions reflected in supplements to the
Ruling Request.
PERSON means any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.
POST-DISTRIBUTION PERIOD means any taxable period that begins after the
Effective Date.
PRE-DISTRIBUTION PERIOD means any taxable period that ends on or before
the Effective Date.
PROCEEDING is defined at Section 8.2(a).
PUBLIC OFFERING means the first public offering of SPINCO common stock
following the Distribution. The gross proceeds of such Public Offering shall be
approximately $50 million or such other amount as ATI, in its sole discretion,
may approve.
RESTRICTED PERIOD means the two year period following the Effective
Date.
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RESTRICTED REDEMPTION PERIOD means the two year period beginning on the
Effective Date and ending two years following the Public Offering.
RULING REQUEST means the request for ruling (including all exhibits),
under Section 355, and other provisions of the Code, as originally filed on
behalf of ATI on April 6, 1999, as amended and supplemented, in respect of the
Distribution.
SPINCO GROUP means: (i) as of any relevant date after the Effective
Date, SPINCO and its Subsidiaries determined as of such date; and (ii) as of any
relevant date on or before the Effective Date, SPINCO and those businesses which
become part of SPINCO or its Subsidiaries as contemplated by the Distribution
Agreement, whether or not such Persons or businesses were Subsidiaries of SPINCO
before the Distribution.
STRADDLE PERIOD means any taxable period with respect to a Tax Return,
that begins on or before the Effective Date and ends after the Effective Date.
SUBSIDIARY means with respect to ATI or SPINCO, any Person of which ATI
or SPINCO, respectively, controls or owns, directly or indirectly, more than 50%
of the stock or other equity interest entitled to vote on the election of
members to the board of directors or similar governing body.
TAXES means all federal, state, local and foreign gross or net income,
gross receipts, withholding, payroll, franchise, transfer, sales, use, value
added, estimated or other taxes of any kind whatsoever or similar charges and
assessments, such as customs, duties and the like, or other amounts paid in
respect thereof, including all interest, penalties and additions imposed with
respect to such amounts.
TAX LIABILITY means the net amount of Taxes due and paid or payable for
any taxable period, determined after applying all tax credits and all applicable
carrybacks or carryovers for net operating losses, net capital losses, unused
general business tax credits, or any other Tax items arising from a prior or
subsequent taxable period, and all other relevant adjustments.
TAX RETURNS means all reports, estimates, declarations of estimated
tax, information statements and returns relating to or required to be filed in
connection with any Taxes, other than Business Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
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ARTICLE II
FILING OF TAX RETURNS AND PAYMENT OF TAXES
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SECTION 2.1. TAX RETURNS REQUIRED TO BE FILED PRIOR TO DISTRIBUTION
DATE. ATI shall file or cause to be filed all Tax Returns of ATI and any member
of the ATI Consolidated Group required to be filed (after giving effect to any
valid extension of time in which to make such filings) prior to the Effective
Date and shall pay or cause to be paid any Tax Liability due with respect to
such Tax Returns.
SECTION 2.2. TAX RETURNS FOR PRE-DISTRIBUTION PERIODS.
(a) SPINCO shall prepare or cause to be prepared, consistent with past
practice, Business Tax Returns for the Pre-Distribution Period and
shall pay or cause to be paid any Tax Liability due with respect to
such Business Tax Returns. ATI will promptly notify SPINCO of any
audit, assessment, notice, levy, or questionnaire with respect to
Business Taxes. SPINCO shall control all matters relating to such
Business Taxes and shall pay or cause to be paid and/or indemnify ATI
or cause ATI to be indemnified, whatever the case may be, for and
defend and hold ATI harmless against any Incremental Tax Assessment
set forth in a Final Determination of Business Taxes. Payment to ATI
with respect to such Incremental Tax Assessment shall be made in the
same manner as if SPINCO were an Indemnifying Party as set forth in
Section 8.3.
(b) Except as provided in Section 2.2(a), ATI shall prepare or cause to be
prepared, for Pre-Distribution Periods, all (1) Combined Returns and
(2) Tax Returns required to be filed on a separate return basis by any
member of the ATI Consolidated Group, in each case, which Tax Returns
are not required to be (after giving effect to any valid extensions),
and are not, filed on or prior to the Effective Date and shall pay or
cause to be paid any Tax Liability due with respect to such Tax
Returns. With respect to Tax Returns described in this Section 2.2(b),
ATI shall prepare the returns in a manner, absent any intervening law
change, consistent with ATI's preparation of Tax Returns covered by
Section 2.1. With respect to any Tax Returns described in part (2) of
the first sentence of this Section 2.2(b) relating to a member of the
SPINCO Group, ATI shall file such Tax Returns with the appropriate tax
authority, pursuant to a power of attorney executed and delivered to
ATI by SPINCO pursuant to Section 10.15 hereof and shall pay or cause
to be paid any Tax Liability due with respect to such Tax Returns.
SECTION 2.3. TAX RETURNS FOR POST-DISTRIBUTION PERIODS. SPINCO shall
(a) prepare and file or cause to be prepared and filed all Tax Returns required
to be filed by any member of the SPINCO Group for any Post-Distribution Period
and (b) pay or cause to be paid any Tax Liability due with respect to such Tax
Returns.
SECTION 2.4. TAX RETURNS FOR STRADDLE PERIOD. ATI shall prepare all Tax
Returns of or which include any member of the SPINCO Group for a Straddle
Period. ATI shall pay or cause to be paid and shall defend, indemnify and hold
SPINCO and members of the SPINCO Group harmless against the Tax Liabilities
attributable to the affected member or members of the SPINCO Group for the
portion of the Straddle Period ending on the Effective Date and SPINCO shall pay
or cause to be paid and shall defend, indemnify, and hold ATI and members of the
ATI Consolidated Group harmless against the Tax Liabilities attributable to the
affected member or
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members of the SPINCO Group for the remainder of the Straddle Period beginning
with the day after the Effective Date. ATI's determination of Tax Liabilities up
to and following the Effective Date shall be based on ATI's interim closing of
the books, determined as of the Effective Time, of the affected member or
members of the SPINCO Group.
SECTION 2.5. TAX-BASIS BALANCE SHEETS. In the case of any business that
was conducted prior to the Effective Date as a division of ATI, its Subsidiaries
or a member of the ATI Consolidated Group and which will be conducted after the
Effective Date by a member of the SPINCO Group, ATI shall prepare and furnish to
SPINCO, within 120 days after the Effective Date, a tax-basis balance sheet,
prepared consistent with past practices, relating to such business as of the
Effective Date.
ARTICLE III
COOPERATION AND EXCHANGE OF INFORMATION; AUDITS AND ADJUSTMENTS;
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SECTION 3.1. TAX RETURN INFORMATION
(a) SPINCO shall, and shall cause each appropriate member of the
SPINCO Group to, provide ATI with all information and other
assistance reasonably requested by ATI to enable the members of
the ATI Consolidated Group to prepare and file ATI Consolidated
Returns required to be filed by the ATI Consolidated Group
pursuant to this Agreement.
(b) ATI shall, and shall cause each appropriate member of the ATI
Consolidated Group to, provide SPINCO with all information and
other assistance reasonably requested by SPINCO to enable the
members of the SPINCO Group to prepare and file SPINCO Returns
required to be filed by the SPINCO Group pursuant to this
Agreement.
(c) Within 60 days of the Effective Date, SPINCO shall provide and
cause each appropriate member of the SPINCO Group to provide to
ATI customary tax packages prepared consistent with past practice
for any Pre-Distribution Period or Straddle Period.
SECTION 3.2. AUDITS AND ADJUSTMENTS
(a) Except as provided for in Section 3.3, ATI shall have full control
over and absolute discretion with respect to all matters relating
to any Tax Return covered by Section 2.1, Section 2.2 or Section
2.4.
(b) SPINCO shall have full control over and absolute discretion with
respect to all Tax Returns covered by Section 2.3.
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(c) SPINCO agrees to cooperate with ATI in the negotiation,
settlement, and litigation of or other proceeding regarding any
liability for or refund of Taxes of any member paid or payable by
the ATI Consolidated Group.
(d) ATI agrees to cooperate with SPINCO in the negotiation,
settlement, and litigation of or other proceeding regarding any
liability for Taxes paid or payable by any member of the SPINCO
Group.
(e) ATI will promptly notify SPINCO in writing of any Adjustment
involving a change in the tax basis of any asset of SPINCO,
specifying the nature of the change so that the SPINCO Group will
be able to reflect the revised basis in its tax books and records
for periods beginning on or after the Effective Date.
(f) In the event of a conflict between the operation of this Section
3.2 and Articles VI, VII, or VIII, those Articles will take
precedence over this Section 3.2.
SECTION 3.3. CARRYBACKS. SPINCO shall make an election under Section
172(b)(3) of the Code to relinquish the entire carryback period with respect to
any net operating loss attributable to SPINCO or any of its Subsidiaries in any
taxable period beginning after or including the Effective Date that could be
carried back to a taxable year of SPINCO or any Subsidiaries ending on or before
the Effective Date. Neither ATI nor any member of the ATI Consolidated Group
shall be required to pay to SPINCO or its Subsidiaries any refund or credit of
Taxes that results from the carryback to any taxable period ending on or before
the Effective Date of any net operating loss, capital loss, or tax credit
attributable to SPINCO or any of its Subsidiaries in any taxable period
beginning after or including the Effective Date.
ARTICLE IV
RETENTION OF RECORDS; STATUTES OF LIMITATIONS
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SECTION 4.1. RETENTION OF RECORDS. ATI and SPINCO agree to retain the
appropriate records which may affect the determination of the liability for
Taxes of any member of the ATI Consolidated Group or the SPINCO Group,
respectively, until such time as there has been a Final Determination with
respect to such liability for Taxes. A party may satisfy its obligations under
the preceding sentence by allowing the other party to duplicate records at such
second party's expense.
SECTION 4.2. DESTRUCTION OF RECORDS. Any member of the SPINCO Group
intending to destroy any materials, records, or documents relating to Taxes
shall
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provide ATI 90 days advance notice and the reasonable opportunity to copy
or take possession of such materials, records, or documents.
SECTION 4.3. STATUTE OF LIMITATIONS. ATI and SPINCO will notify each
other in writing of any waivers or extensions of the applicable statute of
limitations that may affect the period for which any materials, records, or
documents must be retained.
ARTICLE V
REPRESENTATIONS AND COVENANTS
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SECTION 5.1. COMPLIANCE WITH IRS RULING.
SPINCO shall, and shall cause each member of the SPINCO Group to,
comply with each representation and statement concerning SPINCO and the SPINCO
Group made in the Ruling Request and in the materials submitted to the IRS in
connection with the Ruling Request, including, without limitation, statements
relating to actions regarding the Public Offering and the use of Public Offering
proceeds by the SPINCO Group. SPINCO has reviewed the materials submitted to the
IRS in connection with the Ruling Request and represents to ATI that these
materials, including without limitation, any statements and representations
concerning SPINCO, its business operations, capital structure and/or
organization, are complete and accurate. During the Restricted Period, neither
SPINCO nor any member of the SPINCO Group shall take any action, refrain from
taking any action or enter into any transaction or series of transactions or
agree to take any action, refrain from taking any action or enter into any
transaction or series of transactions that could jeopardize the tax-free status
of the Distribution, including any action, inaction or transaction that would be
inconsistent with any representation or statement made to the IRS in connection
with the Ruling Request, unless prior thereto SPINCO obtains the express written
consent of ATI which consent will be granted, if at all, in the sole discretion
of ATI. SPINCO hereby represents and warrants to ATI that SPINCO has no
intention to undertake or allow to be undertaken any of the transactions set
forth in Section 5.2(a)(iii), nor does SPINCO or any member of the SPINCO Group
have any intention to cease to engage in the active conduct of its trade or
business (within the meaning of Section 355(b)(2) of the Code).
SECTION 5.2. COVENANTS.
(a) Without limiting the generality of Section 5.1, SPINCO and each
member of the SPINCO Group jointly and severally covenant and
agree with ATI that during the Restricted Period or, in the case
of a transaction described in Section 5.2(a)(iii)(4), the
Restricted Redemption Period:
(i) SPINCO and the members of the SPINCO Group will continue to
engage in its business, and will continue to maintain a
substantial portion of their respective assets and business
operations, as they existed immediately prior to the
Distribution; provided that the
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foregoing shall not be deemed to prohibit SPINCO and the
members of the SPINCO Group from entering into or acquiring
other businesses or operations or from disposing of or
shutting down segments of such Businesses so long as SPINCO
and the members of the SPINCO Group continue to engage in
such businesses and continue to so maintain such substantial
portion of their assets and business operations;
(ii) SPINCO will continue to manage and to own (A) directly,
assets which represent at least 50% of the Gross Asset Value
which SPINCO managed and owned directly immediately after
the Distribution, and (B) directly or indirectly, through
one or more entities, assets which represent at least 50% of
the Gross Asset Value which SPINCO owned indirectly through
one or more entities immediately after the Distribution;
(iii)Except as provided in Section 5.2(c), neither SPINCO nor any
of its Affiliates nor any of its or their respective
directors, officers or other representatives (acting in
their capacity as directors, officers, or representatives)
will undertake, authorize, approve, recommend, permit,
facilitate, or enter into any contract, or consummate any
transaction with respect to:
(1) the issuance of SPINCO common stock (including options,
warrants, rights or securities exercisable for, or
convertible into, SPINCO common stock) in a single
transaction or in a series of related or unrelated
transactions (including the Public Offering) which
represents (treating any such options, warrants,
rights, or securities as exercised or converted) 40% or
more of the outstanding shares of SPINCO common stock;
(2) the issuance of any class or series of capital stock or
any other instrument (other than SPINCO common stock
and options, warrants, rights or securities exercisable
for, or convertible into, SPINCO common stock) that
would constitute equity for federal tax purposes (such
classes or series of capital stock and other
instruments being referred to herein as "Disqualified
SPINCO Stock");
(3) the issuance of any options, rights, warrants,
securities or similar arrangements exercisable for, or
convertible into, Disqualified SPINCO Stock;
(4) any redemptions, repurchases or other acquisitions of
capital stock or other equity interests in SPINCO by
SPINCO; and/or
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(5) the dissolution, merger, or complete or partial
liquidation of SPINCO or any announcement of such
action.
(b) In addition to the other representations, warranties, covenants and
agreements set forth in this Agreement, SPINCO and each member of the
SPINCO Group will take, or refrain from taking, as the case may be,
such actions as ATI may request to ensure that the Distributions and
the Other Transactions qualify for the tax-free treatment stated in
the IRS Ruling, including, without limitation, such actions as ATI
determines may be necessary to preserve the validity of the IRS
Ruling. Without limiting the generality of the foregoing, SPINCO and
the SPINCO Group shall cooperate with ATI if ATI, in its sole
discretion, determines to obtain additional or supplemental IRS
rulings pertaining to whether any actual or proposed change in facts
and circumstances affects the tax-free status of the Distribution or
the Other Transactions. Regardless of the fact that ATI shall control
matters set forth in the preceding sentence of this Section 5.2(b),
the ATI Consolidated Group, on one hand, and SPINCO and the SPINCO
Group, on the other hand, shall equally bear responsibility for all
expenses associated with any such additional or supplemental IRS
rulings; provided, however, that any expenses associated with any
additional or supplemental IRS Rulings based on a proposed action or
omission by SPINCO or a member of the SPINCO Group will be borne
solely by SPINCO.
(c) Following the Effective Date, SPINCO and its Affiliates shall not take
any action or engage in conduct otherwise prohibited by Section 5.2
unless prior to such action or conduct, as the case may be, SPINCO
receives express written consent from ATI which consent will be
granted, if at all, in the sole discretion of ATI.
(d) SPINCO will consummate the Public Offering within one year after the
Effective Date and will use the Public Offering proceeds in the manner
and during time periods set forth in the Ruling Request.
(e) If, within two years after the Public Offering, SPINCO disposes of any
assets, other than inventory, SPINCO will use the proceeds (net of tax
and transaction costs) from such disposition in a manner that is, in
ATI's sole discretion, consistent with the business purpose of
expanding SPINCO's business as set forth in the Ruling Request.
ARTICLE VI
SPINCO INDEMNITY OBLIGATIONS
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SECTION 6.1. SPINCO INDEMNITY. If SPINCO, or another member (or former
member) of the SPINCO Group (collectively, the "Indemnifying Parties") takes or
fails to take any action whether or not prohibited or required by Article V or
violates a representation or covenant in Article V or in the Ruling Request, and
the Distribution or
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any of the Other Transactions fail to or otherwise do not qualify for the tax
treatment stated in the IRS Ruling as a result of such action, failure to take
action, or violation, then the Indemnifying Parties shall jointly and severally
defend, indemnify and hold harmless ATI and each member of the ATI Consolidated
Group and each of their respective directors, officers, employees, agents or
other representatives (collectively, and/or individually, as the case may be,
the "Indemnified Party") against any liability for such Taxes which the
Indemnified Party may assume or otherwise incur and any and all Taxes or other
liabilities directly or indirectly imposed upon or incurred by the Indemnified
Party as a result of such failure or lack of qualification, including, without
limitation, any liability of the Indemnified Party arising from Taxes imposed on
stockholders of ATI whether or not any stockholder or stockholders of ATI, or
the IRS or other taxing authority, successfully seeks recourse against the
Indemnified Party on account of any such failure.
SECTION 6.2. TENDER OFFER OR PURCHASE OFFER. Notwithstanding anything
to the contrary set forth in this Agreement, if, during the Restricted Period,
any Person or Group of Affiliated Persons or Associates acquires Beneficial
Ownership of SPINCO common stock (or any other class of outstanding SPINCO
stock) or commences a tender or other purchase offer for the capital stock of
SPINCO or initiates any other form of transaction to acquire directly or
indirectly SPINCO capital stock, upon consummation of which such Person or Group
of Affiliated Persons or Associates would acquire Beneficial Ownership of SPINCO
common stock (or any other class of outstanding SPINCO stock or equity) and as a
result thereof the Distribution or any of the Other Transactions shall fail to
or otherwise do not qualify for the tax treatment stated in the IRS Ruling then
the Indemnifying Parties shall defend, indemnify and hold harmless the
Indemnified Party against any liability for Taxes which the Indemnified Party
may assume or otherwise incur and any and all Taxes or other liabilities
directly or indirectly imposed upon or incurred by any Indemnified Party and/or
its stockholders as a result of such failure.
SECTION 6.3. EFFECT OF EXPRESS WRITTEN CONSENT OF ATI. The Indemnified
Party shall be defended, indemnified and held harmless under Section 6.1 without
regard to the fact that the Indemnifying Party may have received the express
written consent of ATI as contemplated by Article V. The Indemnified Party shall
be defended, indemnified and held harmless under Section 6.2 whether or not the
acquisition of Beneficial Ownership results from a transaction which is not
prohibited under Article V.
ARTICLE VII
CALCULATION OF SPINCO INDEMNITY AMOUNTS
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SECTION 7.1. AMOUNT OF INDEMNITY. The amount indemnified against under
Article VI ("Indemnified Liability") for a Tax based on or determined with
reference to income shall be deemed to be, for each applicable taxing
jurisdiction, an amount determined by multiplying (i) the taxing jurisdiction's
highest marginal corporate income or tax rate for the taxable period in which
the Distribution or Other Transaction occurs, times (ii) the gain or income of
the Indemnified Party which is subject to such Tax. In the case of other
Indemnified Liabilities, the amount of the Indemnified Liability shall be
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equal to the amount so owed. In addition, the amount of any Indemnified
Liability shall be increased by any interest, costs, legal and professional
fees, additions, expenses and penalties incurred by the Indemnified Party. All
amounts payable under this Article VII shall, to the extent that such amounts
constitute taxable income, be grossed-up, based on the tax rate referred to in
clause (i) of the first sentence of this Section 7.1.
ARTICLE VIII
PROCEDURAL ASPECTS OF SPINCO INDEMNITY
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SECTION 8.1. GENERAL.
(a) If either the Indemnified Party or any of the Indemnifying Parties
receives any written notice of deficiency, claim or adjustment or any
other written communication from a taxing authority or any other
Person that may result in an Indemnified Liability, the party
receiving such notice or communication shall promptly give written
notice thereof to the other parties, provided that any delay by the
Indemnified Party in so notifying an Indemnifying Party shall not
relieve the Indemnifying Party of any liability hereunder, except to
the extent the Indemnifying Party is materially and adversely
prejudiced by such delay.
(b) Each party hereto undertakes and agrees that from and after such time
as it obtains knowledge that any representative of a taxing authority
has begun to investigate or inquire into the Distribution or any of
the Other Transactions (whether or not such investigation or inquiry
is a formal or informal investigation or inquiry), such party shall
(i) notify the other parties thereof, provided that any delay by the
Indemnified Party in so notifying the Indemnifying Party shall not
relieve the Indemnifying Party of any liability hereunder (except to
the extent the Indemnifying Party is materially and adversely
prejudiced by such delay), (ii) consult with the other parties from
time to time as to the conduct of such investigation or inquiry, (iii)
provide the other parties with copies of all correspondence with such
taxing authority or any representative thereof or other Person
pertaining to such investigation or inquiry, and (iv) arrange for a
representative of the other parties to be present at all meetings with
such taxing authority or any representative thereof pertaining to such
investigation or inquiry.
(c) SPINCO undertakes and agrees to give full cooperation and support to
ATI, including without limitation, attestations and/or access to
Information, as requested by ATI, to document and verify the use of
the Public Offering proceeds in the manner and during the time period
set forth in the Ruling Request. SPINCO will submit a monthly
accounting to ATI which sets forth in detail the use of Public
Offering proceeds. This information will be submitted to ATI in a
format substantially similar to the chart attached hereto as
Appendix I.
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SECTION 8.2. CONTESTS.
(a) If (i) the Indemnifying Party furnishes the Indemnified Party with
evidence satisfactory to the Indemnified Party of its ability to pay
the full amount of the Indemnified Liability and (ii) such
Indemnifying Party acknowledges in writing that the asserted liability
is an Indemnified Liability, such Indemnifying Party may assume and
direct the tax examination, administrative appeal, hearing,
arbitration, suit or other proceeding (each a "Proceeding") commenced,
filed or otherwise initiated or convened to investigate or resolve the
existence and extent of such Indemnified Liability.
(b) Notwithstanding the foregoing, if at any time during a Proceeding
controlled by the Indemnifying Party pursuant to Section 8.2(a), such
Indemnifying Party fails to provide evidence satisfactory to the
Indemnified Party of its continuing ability to pay the full amount of
the Indemnified Liability or the Indemnified Party determines that
such Indemnifying Party may be unable to pay the full amount of the
Indemnified Liability, then the Indemnified Party may immediately
assume control of and direct the Proceedings.
(c) During the period in which the Indemnifying Party assumes and directs
the Proceeding, if the Indemnified Liability is grouped with other
unrelated asserted liabilities or issues in the Proceeding, the
parties shall use their respective best efforts to cause the
Indemnified Liability to be the subject of a separate proceeding. If
such severance is not possible, the Indemnifying Party shall assume
and direct and be responsible only for the matters relating to the
Indemnified Liability.
(d) In addition to the amounts referred to in Section 6.1, an Indemnifying
Party shall pay all out-of-pocket expenses and other costs related to
the Indemnified Liability, including but not limited to fees for
attorneys, accountants, expert witnesses or other consultants retained
by such Indemnifying Party and/or the Indemnified Party with respect
to a claim pursuant to this Agreement. To the extent that any such
expenses and other costs have been or are paid by an Indemnified
Party, the Indemnifying Party shall promptly upon written request
reimburse the Indemnified Party therefor.
(e) An Indemnifying Party shall not pay (unless otherwise required by a
proper notice of levy and after prompt written notification to the
Indemnified Party of receipt of notice and demand for payment),
settle, compromise or concede any portion of the Indemnified Liability
without the express written consent of the Indemnified Party. An
Indemnifying Party shall, on a timely basis, keep the Indemnified
Party informed of all developments in the Proceeding and provide the
Indemnified Party with copies of all pleadings, briefs, orders, and
other written papers.
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(f) Any Proceeding which is not controlled or which is no longer
controlled by an Indemnifying Party pursuant to Section 8.2 shall be
controlled and directed exclusively by the Indemnified Party, and any
related out-of-pocket expenses and other costs incurred by the
Indemnified Party, including but not limited to, fees for attorneys,
accountants, expert witnesses or other consultants, with respect to a
claim pursuant to this Agreement, shall be reimbursed by such
Indemnifying Party. An Indemnified Party will not be required to
pursue the claim in federal district court, the Court of Federal
Claims or any state or foreign court if as a prerequisite to such
court's jurisdiction, the Indemnified Party is required to pay the
asserted liability unless the funds necessary to invoke such
jurisdiction are provided by such Indemnifying Party.
SECTION 8.3. TIME AND MANNER OF PAYMENT. Upon receipt of notice of a
Final Determination, an Indemnifying Party shall pay, within seven (7) business
days of such receipt, to the Indemnified Party the amount of the Indemnified
Liability and any expenses or other costs indemnified against (less, in the case
of an Indemnified Liability for Taxes, any amount of such Taxes paid directly by
an Indemnifying Party to the taxing authority). With respect to payments of an
Indemnified Liability for amounts other than Taxes including any and all
Liabilities with respect to ATI stockholders, the Indemnifying Party shall pay
to the Indemnified Party the amount of this Indemnified Liability within seven
(7) days of a final determination of the amount of such Liability and, in the
case of Liabilities with respect to ATI stockholders, no less than seven (7)
days prior to the date that payment is required to be made to such stockholders.
Such payment shall be paid by wire transfer of immediately available funds to an
account designated by the Indemnified Party by written notice to an Indemnifying
Party at the address specified in Section 10.11 prior to the due date of such
payment. If an Indemnifying Party delays making payment beyond the due date
hereunder, such party shall pay interest on the amount unpaid at the IRS
Interest Rate for each day and the actual number of days for which any amount
due hereunder is unpaid.
SECTION 8.4. COOPERATION. The parties shall cooperate with one another
in a timely manner in any administrative or judicial Proceeding involving any
matter that may result in an Indemnified Liability.
SECTION 8.5. ADMINISTRATION. ATI's and SPINCO's Chief Tax Officer or
other designated tax representative shall have primary responsibility for the
day-to-day administration of the provisions of this Agreement.
ARTICLE IX
DISPUTES
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SECTION 9.1. DISPUTES.
(a) Resolution of any and all disputes arising from or in connection
with this Agreement, whether based on contract, tort, statute or
otherwise, including, but not limited to, unreasonable withholding
of consent and disputes in connection with claims by third parties
(collectively, "Disputes"), shall be subject to the provisions of
this Section 9.1; provided, however, that nothing contained herein
shall preclude either party from seeking or obtaining (i) injunctive
relief or (ii) equitable or other
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judicial relief to enforce the provisions hereof or to preserve the
status quo pending the final resolution of Disputes hereunder.
(b) Either party may give the other party written notice of any Dispute
not resolved in the normal course of business. The parties shall
attempt in good faith to resolve any Dispute promptly by negotiation
between executives of the parties who have authority to settle the
controversy. Within 15 days after delivery of the notice, the
foregoing executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they
reasonably deem necessary for a period not to exceed 5 days, to
attempt to resolve the Dispute. All reasonable requests for
information made by one party to the other will be honored. If the
parties do not resolve the Dispute within such 20 day period (the
"Initial Mediation Period"), the parties shall attempt in good faith
to resolve the Dispute by negotiation between (a) in the case of
ATI, the Chief Financial Officer and General Counsel, and (b) in the
case of SPINCO, the Chief Financial Officer and General Counsel
(collectively, the "Designated Officers"). Such officers shall meet
at a mutually acceptable time and place (but in any event no later
than 20 days following the expiration of the Initial Mediation
Period) and thereafter as often as they reasonably deem necessary
for a period not to exceed 20 days, to attempt to resolve the
Dispute.
(c) If the Dispute has not been resolved by negotiation within 50 days
of the first party's notice, or if the parties failed to meet within
15 days of the first party's notice, or if the Designated Officers
failed to meet within 35 days of the first party's notice, either
party may commence any litigation or other procedure allowed by law.
ARTICLE X
GENERAL
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SECTION 10.1. ELECTIONS UNDER CODE SECTION 1552. Nothing in this
Agreement is intended to change or otherwise affect any election made by or on
behalf of the ATI Consolidated Group with respect to the calculation of earnings
and profits under Code Section 1552.
SECTION 10.2. PRE-DISTRIBUTION EARNINGS AND PROFITS. ATI and SPINCO
agree to allocate pre-Distribution earnings and profits in accordance with
Treasury Regulation Sections 1.312-10 and 1.1502-33.
SECTION 10.3. REMEDIES. SPINCO acknowledges that its obligations under
Article V of this Agreement are of a special, unique, unusual and extraordinary
character. Because the failure of SPINCO to perform its obligations set forth in
Article V of this Agreement could cause unique and extraordinary injury to ATI,
ATI shall, notwithstanding anything to the contrary herein, have the right in
addition to any other remedies available, at law or in equity, to seek an
injunction in a court of equity to compel SPINCO to perform such
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obligations. SPINCO hereby waives any and all defenses it may have on the ground
of lack of jurisdiction or competence of the court to grant an injunction or
other equitable relief, or otherwise, and agrees that it will not assert any
such defense or any defense to a request by ATI for injunctive relief based on
the alleged existence of an adequate remedy at law or for money damages. Without
limiting the foregoing, SPINCO hereby waives the right to require ATI to post
any bond or other security with respect to any proceeding to enforce any
provisions of this Agreement. The existence of the rights of ATI set forth in
this Section 10.3 shall not preclude any other rights and remedies at law or in
equity which ATI may have.
SECTION 10.4. ASSIGNMENT. Neither of the parties may assign or delegate
any of its rights or duties under this Agreement without the prior written
consent of the other party. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns, by merger, acquisition of assets or otherwise.
SECTION 10.5. FURTHER ASSURANCES. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge, and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, performing
its obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders, and decrees, and promptly provide
the other parties with all such information as they may reasonably request in
order to be able to comply with the provisions of this Agreement.
SECTION 10.6. WAIVERS. No failure or delay on the part of the parties
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
SECTION 10.7. CHANGE OF LAW. If, due to any change in applicable law or
regulations or their interpretation by any court of law or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.
SECTION 10.8. CONFIDENTIALITY. Subject to any contrary requirement of
law and the right of each party to enforce its rights hereunder in any legal
action, each party agrees that it shall keep strictly confidential, and shall
cause its employees and agents to keep strictly confidential, any information
which it or any of its employees or
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agents may acquire pursuant to, or in the course of performing its obligations
under, any provision of this Agreement.
SECTION 10.9. HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
SECTION 10.10. COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
SECTION 10.11. NOTICES. All notices, requests, claims and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery by
hand, by reputable overnight courier service, by facsimile transmission, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.11)
listed below:
Allegheny Teledyne Incorporated
0000 Xxx XXX Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attn: Xxx X. Xxxxxx
Senior Vice President, General Counsel
and Secretary
Fax No.:000-000-0000
SPINCO
[address]
Attn:
Fax No.:
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by hand shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five (5) calendar days after the date the same is
mailed. Notice given by reputable overnight courier shall be deemed delivered on
the next following business day after the same is sent. Notice given by
facsimile transmission shall be deemed delivered on the day of transmission
provided telephone confirmation of receipt is obtained promptly after completion
of transmission.
SECTION 10.12. COSTS AND EXPENSES. Unless otherwise specifically
provided herein, each party agrees to pay its own costs and expenses resulting
from the fulfillment of its respective obligations hereunder.
SECTION 10.13. CANCELLATION OF PRIOR TAX ALLOCATION OR TAX-SHARING
AGREEMENTS. On or prior to the Effective Date, ATI shall cancel or cause to be
canceled all agreements (other than this Agreement) providing for the allocation
or sharing of
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Taxes to which any member of the SPINCO Group would otherwise be bound following
the Distribution.
SECTION 10.14. INTEREST ON LATE PAYMENTS. If a party makes any payment
beyond the due date hereunder, such party shall pay interest on the amount
unpaid at the IRS Interest Rate for each day and the actual number of days for
which any amount due hereunder is unpaid.
SECTION 10.15. POWER OF ATTORNEY. Each member of the SPINCO Group shall
execute and deliver to ATI any power of attorney or other document reasonably
requested by ATI in connection with the filing of the Tax Returns and payment of
Taxes described in Article II hereof, or any Proceeding described in Article
VIII hereof. Each member of the ATI Consolidated Group shall execute and deliver
to SPINCO a power of attorney in connection with any matters controlled by
SPINCO under Section 2.2.
SECTION 10.16. GENERAL. This Agreement, including the attachments,
shall constitute the entire agreement between the parties hereto with respect to
the subject matter hereof and shall supersede all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the parties
or (b) by a waiver in accordance with Section 10.6. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
respective present and future Subsidiaries, and nothing herein, express or
implied, is intended to or shall confer upon any third parties any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 10.17. GOVERNING LAW: CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania as to
all matters, including matters of validity, construction, effect,
enforceability, performance and remedies, irrespective of the choice
of laws and principles of the laws of the Commonwealth of
Pennsylvania.
(b) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of (i) the Court of Common Pleas of Allegheny County,
Pennsylvania and (ii) the United States District Court for the
Western District of Pennsylvania, for the purposes of any suit,
action or other proceeding arising out of this Agreement or any
transaction contemplated hereby or thereby (and agrees not to
commence any action, suit or proceeding relating thereto except in
such courts). Each of the parties hereto further agrees that service
of any process, summons, notice or document hand delivered or sent
by U.S. registered mail to such parties respective address set forth
in Section 10.11 will be effective service of process for any
action, suit or proceeding in Pennsylvania with respect to any
matters to which it has submitted to jurisdiction as set forth in
the immediately preceding sentence. Each of the parties hereto
irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby or thereby (i) the
Court of Common Pleas of Allegheny County, Pennsylvania or (ii) the
United States District Court for the
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Xxxxxxx Xxxxxxxx of Pennsylvania, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such
court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 10.18. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, all
as of the Effective Date.
ALLEGHENY TELEDYNE INCORPORATED
By: _________________________________________________
(Name)
(Title)
SPINCO
By: _________________________________________________
(Name)
(Title)
[OTHER COMPANIES]
By: ___________________________________________________
(Name)
(Title)
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