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EXHIBIT 10.3
TAX SHARING AGREEMENT
Agreement entered into as of the 30th day of September, 1999 by and between
The Xxxxxxxx Companies, Inc., a Delaware corporation ("Xxxxxxxx"), and Xxxxxxxx
Communications Group, Inc., a Delaware corporation ("Communications").
RECITALS
Xxxxxxxx and Communications are includible corporations in an affiliated
group of corporations of which Xxxxxxxx is the common parent, all within the
meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the
"Code").
Xxxxxxxx intends to file consolidated Federal income tax returns on behalf
of itself, Communications and the other members of the "Group" (as hereinafter
defined).
Xxxxxxxx and Communications wish to allocate and settle among themselves the
consolidated Federal income tax liabilities of the Group, the unitary, combined,
consolidated or similar state income tax liabilities of the parties and, if and
as determined by Xxxxxxxx, certain other tax liabilities.
AGREEMENTS
Accordingly, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
The defined terms used in this Agreement shall, except as otherwise
expressly provided or unless the context otherwise requires, have the meanings
specified in this Article I. The singular shall include the plural and the
masculine gender shall include the feminine, the neuter and vice versa, as the
context requires.
"Estimated Tax Payments" means, for any Taxable Period, the aggregate
payments for such Taxable Period provided in Section 2.04.
"Final Determination" means a closing agreement or an accepted offer in
compromise with the Internal Revenue Service, a claim for refund that has been
allowed, a deficiency notice with respect to which the period for filing a
petition with the Tax Court has expired, or a decision of any court of competent
jurisdiction that is not subject to appeal or the time for appeal of which has
expired.
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"Group" means Xxxxxxxx and all other corporations (whether now existing or
hereafter formed or acquired) that at the time would be entitled or required to
join with Xxxxxxxx in filing a consolidated Federal income tax return.
"IPO Date" means the date of the initial public offering of stock of
Communications.
"Subsidiary Separate Tax" means, with respect to any Taxable Period and
subject to the rules set forth below in this definition and Section 2.05, a
hypothetical Federal income tax liability that WCG would have for such Taxable
Period determined as if WCG had filed its own separate Federal income tax return
for such Taxable Period (or for any Taxable Period prior thereto) and calculated
by (x) imposing a tax on the taxable income or alternative minimum taxable
income, as the case may be, of WCG at a rate equal to the highest marginal rate
of corporate tax specified under the Code and applicable to that Taxable Period
and (y) employing the methods and principles of accounting, elections and
conventions that are used by the Group. For purposes of determining Subsidiary
Separate Tax with respect to any Taxable Period, the following special rules
shall apply:
(i) Subsidiary Separate Tax shall include the combined results of WCG.
(ii) Any loss or credit carryover or other similar attribute of WCG existing
on the date preceding the IPO Date shall be deemed to be an attribute of
Xxxxxxxx for all purposes of this Agreement. For this purpose, Xxxxxxxx shall
allocate any loss, credit or other similar attribute realized by WCG in the
taxable year that includes the IPO Date between the period beginning on January
1, 1999 and ending on the date preceding the IPO Date, on the one hand, and the
period beginning on the IPO Date and ending on December 31, 1999, on the other
hand, on a pro rata basis or any other reasonable method as determined by
Xxxxxxxx in its sole and absolute discretion with due regard to clauses (iv) and
(v) of this definition of Subsidiary Separate Tax.
(iii) Any loss or credit carryover or other similar attribute of WCG not in
existence on the IPO Date (as determined by Xxxxxxxx pursuant to clause (ii)
above) and arising thereafter shall, unless otherwise provided by this
Agreement, be deemed to be an attribute of WCG solely for purposes of future
determinations of Subsidiary Separate Tax.
(iv) Any limitations or special rules relating to the recognition, allowance
or other treatment of any item of income, gain, loss, deduction, expense or
basis (including, for example, foreign tax credits, research credits, capital
losses, Section 1231 gains or losses and charitable contribution deductions) may
be determined based on a hypothetical separate Federal income tax return of WCG
or, notwithstanding such hypothetical separate Federal income tax principles,
with due regard to consolidated Federal income tax principles or based on any
hybrid approach, all as determined by Xxxxxxxx in its sole and absolute
discretion.
(v) Xxxxxxxx may from time to time establish any other special rules that
Xxxxxxxx reasonably determines to be necessary or appropriate to carry out the
principles reflected above in the definition of Subsidiary Separate Tax.
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"Taxable Period" means, with respect to any period for which a consolidated
Federal income tax return is filed on behalf of the Group that includes
Communications, (i) the period beginning on the IPO Date and ending on December
31, 1999 and (ii) thereafter, each annual period ending on December 31 of each
year.
"WCG" means the group of corporations consisting of Communications and all
members of the Group owned, directly or indirectly and in whole or in part, by
Communications.
ARTICLE II
PAYMENTS
Section 2.01 Payments by Communications to Xxxxxxxx. For every Taxable
Period in which the Subsidiary Separate Tax exceeds the Estimated Tax Payments,
or the Subsidiary Separate Tax as recomputed according to Section 2.05 exceeds
the Subsidiary Separate Tax, Communications shall pay to Xxxxxxxx an amount
equal to such excess.
Section 2.02 Payments by Xxxxxxxx to Communications. For every Taxable
Period in which the Estimated Tax Payments exceed the Subsidiary Separate Tax,
or the Subsidiary Separate Tax exceeds the Subsidiary Separate Tax as recomputed
according to Section 2.05, Xxxxxxxx shall pay to Communications an amount equal
to such excess.
Section 2.03 Time of Payment. Payment pursuant to Sections 2.01 and 2.02
(other than resulting from a recomputation of Subsidiary Separate Tax under
Section 2.05) shall be made no later than seven (7) days prior to the due date
of the Group's consolidated Federal income tax return for the Taxable Period in
question, not including extensions. If the due date for such return is extended,
such payment shall be made on an estimated basis and shall be recalculated no
later than seven (7) days prior to the extended due date for such return, and
any difference between such recalculated payments and such estimated payments
shall be paid to the party entitled thereto at the time of such recalculation.
The time that any payment is required to be made pursuant to Sections 2.01 and
2.02 by reason of a recomputation of Subsidiary Separate Tax under Section 2.05
is set forth in Section 2.05.
Section 2.04 Estimated Tax Payments. For every Taxable Period,
Communications shall pay to Xxxxxxxx no later than seven (7) days prior to the
fifteenth day of the fourth, sixth, ninth and twelfth months of such Taxable
Period 25%, 50%, 75% and 100%, respectively, of the current annual estimated
Federal income taxes that WCG would be required to pay for such Taxable Period,
less any prior payments for such Taxable Period. Such estimated Federal income
tax liability shall be determined in a manner consistent with the definition of
Subsidiary Separate Tax and subject to approval by Xxxxxxxx.
Section 2.05 Adjustments.
(a) Carryovers of Post-IPO Date Losses or Credits. In the event that WCG
realizes a loss,
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credit or other similar attribute in any Taxable Period that would be permitted
under applicable Federal income tax law to be carried over to one or more
Taxable Periods that precede or follow such Taxable Period if WCG had filed a
separate Federal income tax return for all such Taxable Periods, the Subsidiary
Separate Tax shall be recomputed for such preceding or subsequent Taxable
Periods to take into account such carryover and the payments pursuant to
Sections 2.01 and 2.02 shall be appropriately adjusted. Any payment from
Xxxxxxxx to Communications required by reason of such adjustment shall be made
within 30 days following the earlier of (i) Xxxxxxxx'x receipt of the related
actual refund, if any, from the Internal Revenue Service, (ii) in the case of a
carryback, the date of the filing by Xxxxxxxx of the tax return for the Taxable
Period in which such loss, credit or attribute arises or (iii) in the case of a
carryforward, the date of the filing by Xxxxxxxx of the tax return for the
Taxable Period to which such loss, credit or attribute is carried.
(b) Redeterminations of Post-IPO Date Tax Liability. In the event of any
redetermination of the consolidated Federal income tax liability of the Group
for any Taxable Period as a result of an audit by the Internal Revenue Service,
the allowance of a claim for refund, court determination or otherwise, the
Subsidiary Separate Tax shall be recomputed for such Taxable Period to take into
account such redetermination in a manner consistent with such revised treatment
and the payments pursuant to Sections 2.01 and 2.02 shall be appropriately
adjusted, which payments shall also include, if and to the extent applicable,
any interest received from the Internal Revenue Service and any interest,
penalties and additions to tax paid to the Internal Revenue Service. Any payment
required to be made by a party hereto by reason of such adjustment shall be made
within 30 days of the date of a Final Determination with respect to such
redetermination or as soon as such adjustment can practicably be calculated (if
later).
(c) Inadvertent Deconsolidation. In the event that Communications is
determined not to have been properly treated as an includible corporation in the
Group with respect to any Taxable Period, the amount of any payments made under
Sections 2.01, 2.02 and 2.04 with respect to such Taxable Period (taking into
account any adjustments pursuant to Section 2.05(a) and (b)) shall be refunded
to the party entitled to such net amount within 30 days of the date of a Final
Determination of such deconsolidation or as soon as the amount to be refunded
can practicably be determined (if later).
(d) Ceasing to Be a Member of the Group. In the event Communications or any
other member of WCG ceases to be a member of the Group, (x) Xxxxxxxx shall
allocate the income, gain, loss, deduction and expense of WCG for the Taxable
Period in which such deconsolidation occurs between the pre-deconsolidation
period of such Taxable Period and the post-deconsolidation period of such
Taxable Period in accordance with any permitted method under the consolidation
return provisions of the Code and Treasury Regulations thereunder and (y) the
Group consolidated loss or credit carryovers or other similar attributes
attributable to Communications or such other member of WCG, if any (as
determined by Xxxxxxxx in accordance with any permitted method under the
consolidated return provisions of the Code and Treasury Regulations thereunder),
shall constitute attributes of Communications or such other member of WCG. With
respect to any such attribute so attributable to Communications or any other
member of WCG,
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Communications shall pay to Xxxxxxxx, within 30 days of the date of filing by
Xxxxxxxx of the first tax return thereafter, an amount equal to the sum of the
following: (1) the amount of any Group consolidated tax credit carryover so
attributable to WCG to the extent that such credit is treated as an attribute of
Xxxxxxxx under clause (ii) of the definition of Subsidiary Separate Tax; (2) the
product of (A) the highest marginal Federal corporate income tax rate and (B)
the amount of the Group consolidated loss carryover or other similar attribute
(other than credit carryovers) so attributable to WCG to the extent that such
attribute is treated as an attribute of Xxxxxxxx under clause (ii) of the
definition of Subsidiary Separate Tax; (3) the amount of any Group consolidated
tax credit carryover so attributable to WCG to the extent that such attribute
(i) relates to periods beginning on or after the IPO Date and (ii) reduced the
amount of Subsidiary Separate Tax; and (4) the product of (A) the highest
marginal Federal corporate income tax rate and (B) the amount of the Group
consolidated loss carryover or other similar attribute (other than credit
carryovers) so attributable to WCG to the extent that such attribute (i) relates
to periods beginning on or after the IPO Date and (ii) reduced the amount of
Subsidiary Separate Tax. No adjustment to Sections 2.01 and 2.02 shall be made
in the event that Communications ceases to be a member of the Group and
thereafter realizes in any taxable year a loss, credit or other attribute that
would be permitted under applicable Federal income tax law to be carried back to
one or more Taxable Periods that precede such taxable year.
Section 2.06 Payments in Respect of Redeterminations of Pre-IPO Date Tax
Liability. In the event of any Final Determination for a period prior to the IPO
Date and pursuant to which there is a reduction of any loss or credit carryover
or other similar attribute of WCG existing on the date preceding the IPO Date as
determined under clause (ii) of the definition of Subsidiary Separate Tax,
Communications shall pay to Xxxxxxxx, within 30 days of the date of the Final
Determination, an amount equal to the sum of (A) the amount of any consolidated
Federal income taxes, interest, penalties and additions to such taxes payable to
the Internal Revenue Service resulting from such reduction of any such loss or
credit carryover or other similar attribute of WCG, (B) the amount of the
reduction of any such credit carryover of WCG to the extent not covered by the
preceding clause (A), and (C) the product of (i) the highest marginal Federal
corporate income tax rate and (ii) the amount of the reduction of any such loss
carryover or other similar attribute (other than credit carryovers) of WCG to
the extent not covered by the preceding clause (A). In the event of any Final
Determination for a period prior to the IPO Date and pursuant to which there is
an increase to any loss or credit carryover or other similar attribute of WCG
existing on the date preceding the IPO Date as determined under clause (ii) of
the definition of Subsidiary Separate Tax, Xxxxxxxx shall pay to Communications
an amount equal to the sum of (1) any refund of consolidated Federal income
taxes, including interest, received from the Internal Revenue Service within 30
days following Xxxxxxxx' receipt of the related actual refund from the Internal
Revenue Service resulting from such increase to any loss or credit carryover or
other similar attribute of WCG, (2) the amount of the increase to any such
credit carryover of WCG to the extent not covered by the preceding clause (1)
within 30 days of the date of the Final Determination, and (3) the product of
(i) the highest marginal Federal corporate income tax rate and (ii) the amount
of the increase to any such loss carryover or other similar attribute (other
than credit carryovers) of WCG to the extent not covered by the preceding clause
(1) within 30 days of the date of the Final Determination.
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Section 2.07 Form of Payment. Any payment required to be made by a party
pursuant to this Article II shall be made by wire transfer of immediately
available funds or by appropriate adjustment to intercompany indebtedness (as
determined by Xxxxxxxx).
Section 2.08 General. Unless applicable law changes, the parties agree to
treat any payment provided for under this Agreement as a distribution by
Communications to Xxxxxxxx or a capital contribution by Xxxxxxxx to
Communications, as the case may be.
ARTICLE III
TAX MATTERS; COOPERATION; INDEMNIFICATION
Section 3.01 Xxxxxxxx As Agent. Communications hereby irrevocably appoints
Xxxxxxxx as its agent, and Communications hereby agrees that Xxxxxxxx shall have
sole and absolute authority, for the purposes of (i) preparing and filing
consolidated Federal income tax returns for the Group (including, without
limitation, preparing and filing estimated tax returns, amended tax returns and
claims for refund, determining tax return positions, selecting methods of
accounting and making elections), (ii) representing any member of WCG that is a
member of the Group with respect to any consolidated Federal income tax audit or
consolidated Federal income tax controversy (including, without limitation, any
proceeding with the Internal Revenue Service and any judicial proceedings,
whether any such proceedings relate to a claim for additional taxes or a claim
for refund of taxes) and settling or compromising any claim for additional, or
any claim for refund of, Federal income taxes of any member of WCG that is a
member of the Group, (iii) engaging outside counsel, accountants and other
experts with respect to Federal income tax matters relating to any member of WCG
that is a member of the Group and (iv) taking any other action in connection
with Federal income tax matters relating to any member of WCG that is a member
of the Group (or relating to any other member of the Group) as Xxxxxxxx, in its
sole and absolute discretion, determines to be necessary or appropriate.
Section 3.02 Cooperation. Communications shall cooperate (and shall cause
all members of WCG to cooperate) with Xxxxxxxx regarding the application of all
aspects of this Agreement (including, without limitation, the proper and timely
preparation and filing of any tax return to which this Agreement applies, the
calculation or basis of determination of any payment provided for under this
Agreement and the conduct of any tax audit or tax controversy to which this
Agreement applies) (i) by maintaining (or causing all members of WCG to
maintain) such books and records, (ii) by providing (or causing all members of
WCG to provide) such information, (iii) by executing (or causing all members of
WCG to execute) such documents and (iv) by taking (or causing all members of WCG
to take) any such other action (including, without limitation, making any
officers, directors, employees and agents available to Xxxxxxxx), in each such
case as Xxxxxxxx may request from time to time. Communications shall secure (or
shall cause any relevant member of WCG to secure) the covenant of any acquirer
of any member of WCG to comply with this Section 3.02 for the benefit of
Xxxxxxxx and Xxxxxxxx' successors and assigns.
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Section 3.03 Indemnification. Communications hereby indemnifies and holds
harmless Xxxxxxxx and the other non-WCG members of the Group against any
interest, penalties, additions to tax, expenses, losses, claims, damages or
liabilities for any failure to file, properly or timely, any tax return to which
this Agreement applies to the extent that such failure is attributable to the
failure of Communications to make the payments required under this Agreement or
the failure of any member of WCG to comply with Section 3.02 (which shall
include, without limitation, the failure of any member of WCG to provide
accurate or complete information or to take proper tax reporting positions).
Upon the proper and timely payment by Communications to Xxxxxxxx of an amount
pursuant to Section 2.01 for any Taxable Period, Xxxxxxxx will indemnify
Communications and the other members of WCG for the Federal income tax
liabilities of the Group for such Taxable Period with the exception of any
adjustment to tax liabilities that are attributable to WCG, as determined by
Sections 2.05(b) and 2.06.
ARTICLE IV
STATE, LOCAL, FOREIGN AND OTHER FEDERAL TAXES
The underlying concepts of this Agreement (including, without limitation,
Article II (e.g., treating any loss or credit carryover or other similar
attribute for state income tax purposes existing on the date preceding the IPO
Date as an attribute of Xxxxxxxx for all purposes) and Article III) shall apply
in the same general manner with respect to state income taxes (and, in the sole
and absolute discretion of Xxxxxxxx, with respect to any foreign, local, other
state and other Federal taxes) where unitary, combined, consolidated or similar
returns that include one or more members of WCG and one or more non-WCG members
of the Group are filed. The parties recognize that, among other things, the
utilization of the definition of Subsidiary Separate Tax may not be appropriate
for unitary, combined, consolidated or similar state income and other tax
purposes, and Xxxxxxxx is thus authorized to apply, in good faith, such
principles as would be reasonably expected to result in an allocation of
liabilities for such tax purposes in a manner designed to reflect such taxes
payable on income of members of the Group arising in whole or in part by reason
of other Group member nexus with, or other Group member activity in, a
particular state or other relevant tax jurisdiction. All matters relating to any
Federal, state, local and foreign taxes to which this Agreement does not apply
(including, without limitation, preparing and filing such tax returns, paying
such taxes and handling such tax audits or tax controversies) shall be the
responsibility of the party that is the relevant taxpayer.
ARTICLE V
TERMINATION
This Agreement shall cease to be effective with respect to consolidated
Federal income tax or any unitary, combined, consolidated or similar state
income tax at such time as Communications ceases to be a member of,
respectively, the Group or the relevant unitary, combined, consolidated or
similar state income tax group. This Agreement shall cease to be effective with
respect to any foreign, local, other state and other Federal tax to which this
Agreement applies (as determined
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by Xxxxxxxx pursuant to Article IV) under analogous concepts or any other
concept as Xxxxxxxx, in its sole and absolute discretion, determines to be
necessary or appropriate for such tax purposes. Notwithstanding all of the
foregoing of this Article V, all provisions of this Agreement (including,
without limitation, payment obligations, adjustments to payment obligations,
cooperation and indemnification) with respect to any Taxable Period, taxable
year or other period (as the case may be) commencing on or before the
termination of this Agreement shall survive such termination.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Interpretations and Determinations. The application of this
Agreement and any dispute or ambiguity concerning the subject matter of this
Agreement shall be determined by Xxxxxxxx in its sole and absolute discretion.
Such determination by Xxxxxxxx shall be final and binding upon Communications.
Section 6.02 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
without the prior written consent of the other party.
Section 6.03 Expenses. Any direct and indirect cost and expense (such as
fees or expenses for legal, accounting or other services and overhead items)
incurred by Xxxxxxxx in connection with the application of this Agreement
(including, without limitation, the preparation and filing of any tax return to
which this Agreement applies and the conduct of any tax audit or tax controversy
to which this Agreement applies) shall be allocated in accordance with the
Administrative Services Agreement by and between the parties dated
____________________, 1999.
Section 6.04 Effect of Agreement. This Agreement shall determine the rights
and liabilities of the parties as to the matters provided for in this Agreement,
whether or not such determination is effective for financial reporting or other
purposes.
Section 6.05 Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties in respect of the subject matter
contained in this Agreement and supersedes all prior or contemporaneous
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any party or by any officer, employee
or representative of any party.
Section 6.06 Amendments and Waivers. This Agreement shall not be modified,
supplemented or terminated except by a writing duly signed by each of the
parties hereto, and no waiver of any provision of this Agreement shall be
effective unless in a writing duly signed by the party sought to be bound.
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Section 6.07 Code References. Any references to Sections of the Code shall
be deemed to refer to any corresponding provisions of succeeding law as in
effect from time to time.
Section 6.08 Notices. Any payment, notice, communication or approval
required or permitted to be given under this Agreement shall be deemed to have
been duly given if delivered by hand or deposited in the United States mail,
postage prepaid and sent by certified or registered mail, if addressed to
Xxxxxxxx, at:
THE XXXXXXXX COMPANIES, INC.
XXX XXXXXXXX XXXXXX
XXXXX, XXXXXXXX 00000
ATTENTION: XXXX XXXXXXXX
if addressed to Communications, at:
XXXXXXXX COMMUNICATIONS GROUP, INC.
XXX XXXXXXXX XXXXXX
XXXXX, XXXXXXXX 00000
ATTENTION: XXXXXX XXXXXX
Section 6.09 Third Parties. Nothing expressed or implied in this Agreement
is intended or shall be construed to confer upon or give to any person other
than the parties hereto any rights or remedies under or by reason of this
Agreement.
Section 6.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of law.
Section 6.11 Severability. If any provision of this Agreement or the
application of this Agreement in any circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of this
Agreement in any other circumstance shall not be affected thereby, the
provisions of this Agreement being severable in any such instance.
Section 6.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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The parties hereto have caused this Tax Sharing Agreement to be duly
executed as of the date first written above.
THE XXXXXXXX COMPANIES, INC.
BY: /s/ XXXX X. XXXXXXXX
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ITS: Xxxx X. XxXxxxxx
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Sr. V. P. - Finance and CFO
XXXXXXXX COMMUNICATIONS GROUP, INC.
BY: /s/ G. L. BEST
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ITS: Vice President
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