EXHIBIT 10.1
TAX SHARING AGREEMENT
BY AND AMONG
C-TEC CORPORATION
RCN CORPORATION
AND
CABLE MICHIGAN INC.
DATED AS OF
[October 1,] 1997
THIS TAX SHARING AGREEMENT, dated as of [October 1], 1997,
is by and among C-TEC Corporation, a Pennsylvania corporation
("C-TEC"), RCN Corporation, a Delaware corporation ("RCN"), and Cable
Michigan, Inc., a Pennsylvania corporation ("Cable Michigan"). Capitalized
terms used herein shall have the respective meanings assigned to them in the
Distribution Agreement unless otherwise defined herein.
WHEREAS, C-TEC, RCN and Cable Michigan have executed the
Distribution Agreement pursuant to which C-TEC's existing businesses will be
separated into three independent public companies; and
WHEREAS, it is appropriate and desirable to set forth the
principles and responsibilities of the parties to this Agreement regarding
future Adjustments with respect to Taxes, Tax Contests and other related Tax
matters.
NOW, THEREFORE, the parties, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall
have the following meanings:
1.1. "Adjustment" means the deemed increase or decrease in
a Tax, determined on an issue-by-issue or transaction-by-transaction basis, as
appropriate, and using the assumptions set forth in the next sentence,
resulting from an adjustment made or proposed by a Taxing Authority with
respect to any amount reflected or required to be reflected on any Return
relating to such Tax. For purposes of determining such deemed increase or
decrease in a Tax, the following assumptions will be used: (a) in the case of
any income Tax, the highest marginal Tax rate or, in the case of any other
Tax, the highest applicable Tax rate, in each case in effect with respect to
that Tax for the Taxable period or any portion of the Taxable period to which
the adjustment relates; and (b) such determination shall be made without
regard to whether any actual increase or decrease in such Tax will in fact be
realized with respect to the Return to which such adjustment relates.
1.2. "Agreement" means this Tax Sharing Agreement,
including any schedules, exhibits and appendices attached hereto.
1.3. "Cable Michigan Tax Benefit" means, with respect to any
Taxable period or portion of a Taxable period, and as computed separately with
respect to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the Cable Michigan Group.
1.4. "Cable Michigan Tax Detriment" means, with respect to
any Taxable period or portion of a Taxable period, and as computed separately
with respect to each Tax, the net increase in each such Tax equal to the sum
of all Adjustments made pursuant to a Final Determination with respect to each
such Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the Cable Michigan Group.
1.5. "Consolidation" means, as appropriate, any Taxable
period or any portion of a Taxable period during which one or more members of
the RCN Group and/or the Cable Michigan Group are members of a C-TEC
Consolidated Return.
1.6. "Consolidated Return" means, as appropriate, for any
Taxable period or any portion of a Taxable period ending or deemed to end on
or prior to the Distribution Date, any consolidated or combined Return that
includes one or more members of the C-TEC Group and/or one or more members of
the RCN Group and/or one or more members of the Cable Michigan Group.
1.7. "Controlling Party" means C-TEC or any other member of
the C-TEC Group, RCN or any other member of the RCN Group or Cable Michigan
or any other member of the Cable Michigan Group, as the case may be, that filed
or, if no such Return has been filed, was required to file, a Return that is
the subject of any Tax Contest, or any successor and/or assign of any of the
foregoing; provided, however, that in the case of any Consolidated Return, the
Person that actually filed such Consolidated Return (or any successor and/or
assign of such Person) will be the Controlling Party, unless such Tax Contest
arises from the business activities of only (a) RCN or any other member of the
RCN Group, in which case RCN will be the Controlling Party, or (b) Cable
Michigan or any other member of the Cable Michigan Group, in which case Cable
Michigan will be the Controlling Party.
1.8. "Correlative Adjustment" means, in the case of an
Adjustment comprising a Non-Line of Business Adjustment, the net present value
of any future increases or decreases in a Tax that would be realized, using
the assumptions set forth in the next sentence, by either C-TEC or any other
member of the C-TEC Group, RCN or any other member of the RCN Group or Cable
Michigan or any other member of the Cable Michigan Group, as the case may be,
in one or more Taxable periods (or any portion of a Taxable period) but only
if such increases or decreases (a) are a direct result of the Non-Line of
Business Adjustment and (b) will take effect or begin to take effect in the
Taxable period or portion of a Taxable period of or immediately following the
Taxable period or portion of a Taxable period in which the Non-Line of
Business Adjustment to such Tax is made. For purposes of determining the net
present value of any such future increases or decreases in a tax, the
following assumptions will be used: (i) a discount rate equal to the sum of
the Federal Short-Term Rate as of the date of the Final Determination relating
to such Non-Line of Business Adjustment plus 3.5%; (ii) in the case of any
income Tax, the highest marginal Tax rate or, in the case of any other Tax, the
highest applicable Tax rate, in each case in effect with respect to that Tax
for the Taxable period, or portion of the Taxable period, in which the
Non-Line of Business Adjustment was made; (iii) the depreciation, amortization
or credit rate or lives, if applicable, in effect for the Taxable period, or
portion of the Taxable period, in which the Non-Line of Business Adjustment
was made; and (iv) such determination shall be made without regard to whether
any actual increases or decreases in such Tax will in fact be realized with
respect to the future Returns to which such Correlative Adjustment relates.
1.9. "C-TEC Tax Detriment" means, with respect to any
Taxable period or portion of a Taxable period, and as computed separately with
respect to each Tax, the net increase in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the C-TEC Group, including, but not limited to, any
Adjustments attributable to or resulting from any of the following: the sale
of (x) stock of Iowa City Cellular Telephone Company, Inc. or Commonwealth
Cellular Telephone Services, Inc.; and (y) the sale of the assets of Mobile
Plus, Inc. (formerly Cellular Plus, Inc.), C-TEX Cellular Centre County, Inc.,
Mobile Plus of Iowa, Inc. (formerly cellular Plus of Iowa, Inc.), or Mobile
Plus Service of Pennsylvania, Inc. (formerly Paging Plus, Inc.).
1.10. "C-TEC Tax Benefit" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the C-TEC Group, including, but not limited to, any
Adjustments attributable to or resulting from any of the following: the sale
of (x) stock of Iowa City Cellular Telephone Company, Inc. or Commonwealth
Cellular Telephone Services, Inc.; and (y) the sale of the assets of Mobile
Plus, Inc. (formerly Cellular Plus, Inc.), C-TEX Cellular Centre County, Inc.,
Mobile Plus of Iowa, Inc. (formerly cellular Plus of Iowa, Inc.), or Mobile
Plus Service of Pennsylvania, Inc. (formerly Paging Plus, Inc.)
1.11. "Disputed Adjustment" has the meaning set forth in
Section 3.4(b) hereof.
1.12. "Federal Short-Term Rate" means the applicable federal
short-term rate as determined under Section 1274(d) of the Code.
1.13. "Final Determination" means (a) a decision, judgment,
decree or other order by any court of competent jurisdiction, which has become
final and is either no longer subject to appeal or for which a determination
not to appeal has been made; (b) a closing agreement made under Section 7121
of the Code or any comparable foreign, state, local, municipal or other Taxing
statute; (c) a final disposition by any Taxing Authority of a claim for
refund; or (d) any other written agreement relating to an Adjustment between
any Taxing Authority and any Controlling Party the execution of which is
formal and prohibits such Taxing Authority or the Controlling Party from
seeking any further legal or administrative remedies with respect to such
Adjustment.
1.14. "Independent Third Party" means a nationally
recognized law firm or any of the following accounting firms or their
successors: Xxxxxx Xxxxxxxx & Co.; Ernst & Young; KPMG Peat Marwick; Deloitte
& Touche; Coopers & Xxxxxxx; and Price Waterhouse & Co.
1.15. "Indemnified Party" has the meaning set forth in
Section 4.1 hereof.
1.16. "Indemnifying Party" has the meaning set forth in
Section 4.1 hereof.
1.17. "Interested Party" means C-TEC or any other member of
the C-TEC Group, RCN or any other member of the RCN Group or Cable Michigan
or any other member of the Cable Michigan Group (including any successor and/or
assign of any of each of the foregoing), as the case may be, to the extent (a)
such Person is not the Controlling Party with respect to a Tax Contest; and
(b) such Person (i) may be liable for, or required to make, any indemnity
payment, reimbursement or other payment pursuant to the provisions of this
Agreement with respect to such Tax Contest; or (ii) may be entitled to receive
any indemnity payment, reimbursement or other payment pursuant to the
provisions of this Agreement with respect to such Tax Contest.
1.18. "Interested Party Notice" has the meaning set forth in
Section 3.4(b) hereof.
1.19. "Non-Line of Business Adjustment" means, with respect
to any Taxable period or portion of a Taxable period, and as computed
separately with respect to each Tax, the net increase or decrease in each such
Tax, as the case may be, equal to the sum of all Adjustments made pursuant to
a Final Determination with respect to each such Tax for each such Taxable
period or portion of a Taxable period other than (a) any Tax Detriments or (b)
any Tax Benefits. Notwithstanding any other provisions of this Agreement
(except Section 2.3(d)(iii)) or the Distribution Agreement to the contrary,
Non-Line Business Adjustments shall include, but not be limited to,
Restructuring Adjustments.
1.20. "RCN ESOP" means the employee stock ownership plan to
be established by RCN after the Distribution.
1.21. "RCN Tax Detriment" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the RCN Group.
1.22. "RCN Tax Benefit" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such
Tax for each such Taxable period or portion of a Taxable period that are
clearly attributable to the RCN Group.
1.23. "Restructuring Adjustment" means, with respect to any
Taxable period or portion of a Taxable period, and as computed separately with
respect to each Tax, the net increase or decrease in each such Tax, as the
case may be, equal to the sum of all Adjustments made pursuant to a Final
Determination with respect to each such Tax for each Taxable period or portion
of a Taxable period that are attributable to, or as a result of, any
transactions undertaken to effectuate the separation of C-TEC's existing
businesses into three independent businesses as contemplated under the
Distribution Agreement including, but not limited to, any transactions
undertaken pursuant to or relating to the Distribution, the formation of the
RCN ESOP, and [any] offering of equity or equity-linked instruments by C-TEC
within one year of the Distribution.
1.24. "Return" means any return, report, form or similar
statement or document (including, without limitation, any related or
supporting information or schedule attached thereto and any information
return, claim for refund, amended return and declaration of estimated tax)
that has been or is required to be filed with any Taxing Authority or that has
been or is required to be furnished to any Taxing Authority in connection with
the determination, assessment or collection of any Taxes or the administration
of any laws, regulations or administrative requirements relating to any Taxes.
1.25. "Separate Return" means any Return other than a
Consolidated Return.
1.26. the "Shared Cable Michigan Percentage" shall be 20%.
1.27. the "Shared C-TEC Percentage" shall be 50%.
1.28. the "Shared RCN Percentage" shall be 30%.
1.29. "Significant Obligation" means, in the case of an
Interested Party, and with respect to any Adjustment, an obligation to make or
right to receive any indemnity payment, reimbursement or other payment with
respect to any such Adjustment (including the effect of any Correlative
Adjustment relating thereto) pursuant to the terms of this Agreement that is
greater than $10,000.
1.30. "Tax" (and, with correlative meanings, "Taxes" and
"Taxable") means, without limitation, and as determined on a
jurisdiction-by-jurisdiction basis, each foreign or U.S. federal, state, local
or municipal income, alternative or add-on minimum, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or any
other tax, custom, tariff, inpost, levy, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, addition to tax or additional amount related thereto, imposed by any
Taxing Authority.
1.31. "Tax Detriments" means any C-TEC Tax Detriment, any
Cable Michigan Tax Detriment or any RCN Tax Detriment, as the case may be.
1.32. "Tax Benefits" means any C-TEC Tax Benefit, any Cable
Michigan Tax Benefit or any RCN Tax Benefit, as the case may be.
1.33. "Tax Contest" means, without limitation, any audit,
examination, claim, suit, action or other proceeding relating to Taxes in
which an Adjustment may be proposed, collected or assessed and in respect of
which an indemnity payment, reimbursement or other payment may be sought under
this Agreement.
1.34. "Taxing Authority" means any governmental authority or
any subdivision, agency, commission or authority thereof, or any
quasi-governmental or private body having jurisdiction over the assessment,
determination, collection or other imposition of Taxes.
1.35. "Ultimate Determination" has the meaning set forth in
Section 3.5(b)(i) hereof.
ARTICLE II
ADJUSTMENTS
2.1. IN GENERAL. In determining any liability and/or
obligation to make, or right to receive, any indemnity payment, reimbursement
or other payment to or from any party to this Agreement pursuant to this
Agreement, any Taxable period or portion of a Taxable period that includes the
Distribution Date shall be deemed to include and end on such Distribution Date
and no party to this Agreement shall have any liability and/or obligation to
make, or right to receive, any such indemnity payment, reimbursement or other
payment with respect to any Taxable period or portion of a Taxable period that
begins or is deemed to begin after the Distribution Date.
2.2. TAX DETRIMENTS AND BENEFITS. (a) RCN shall be liable
for, and shall indemnify and hold harmless, subject to Section 3.4 and Section
3.5 hereof, any member of the C-TEC Group or Cable Michigan Group against any
and all RCN Tax Detriments for any Taxable period or portion of a Taxable
period ending or deemed to end on or before the Distribution Date with respect
to any Return of any member of the RCN Group, the C-TEC Group or the Cable
Michigan Group. RCN shall be entitled to receive, and shall be paid, subject
to Section 3.4 and Section 3.5 hereof, (i) by C-TEC, the amount of any RCN Tax
Benefits for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date with respect to any Return of
any member of the C-TEC Group; and/or (ii) by Cable Michigan, the amount of
any RCN Tax Benefits for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the Cable Michigan Group.
(b) C-TEC shall be liable for, and shall indemnify
and hold harmless, as appropriate, and subject to Section 3.4 and Section 3.5
hereof, any member of the RCN Group or Cable Michigan Group against any and
all C-TEC Tax Detriments for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the RCN Group, the C-TEC Group or the Cable Michigan
Group. C-TEC shall be entitled to receive, and shall be paid, subject to
Section 3.4 and Section 3.5 hereof, (i) by RCN, the amount of any C-TEC Tax
Benefits for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date with respect to any Return of
any member of the RCN Group; and/or (ii) by Cable Michigan, the amount of any
C-TEC Tax Benefits for any Taxable period or any portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the Cable Michigan Group.
(c) Cable Michigan shall be liable for, and shall
indemnify and hold harmless, as appropriate, and subject to Section 3.4 and
Section 3.5 hereof, any member of the C-TEC Group or the RCN Group against any
and all Cable Michigan Tax Detriments for any Taxable period or portion of a
Taxable period ending or deemed to end on or before the Distribution Date with
respect to any Return of any member of the RCN Group, the C-TEC Group or the
Cable Michigan Group. Cable Michigan shall be entitled to receive, and shall
be paid, subject to Section 3.4 and Section 3.5 hereof, (i) by C-TEC, the
amount of any Cable Michigan Tax Benefits for any Taxable period or portion of
a Taxable period ending or deemed to end on the Distribution Date with respect
to any Return of any member of the C-TEC Group; and/or (ii) by RCN, the amount
of any Cable Michigan Tax Benefits for any Taxable period or portion of a
Taxable period ending or deemed to end on the Distribution Date with respect
to any Return of any member of the RCN Group.
2.3. NON-LINE OF BUSINESS ADJUSTMENTS. (a) RCN shall be
liable for, and shall indemnify and hold harmless, as appropriate, any member
of the C-TEC Group or Cable Michigan Group against RCN's share, as determined
in Section 2.3(d) below, of any Non-Line of Business Adjustment the amount of
which increases a Tax for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date; with respect to
any Return of any member of the RCN Group, the C-TEC Group or the Cable
Michigan Group. RCN shall be entitled to receive, and shall be paid (i) by
C-TEC, RCN's share, as determined in Section 2.3(d) below, of any Non-Line of
Business Adjustment the amount of which decreases a Tax for any Taxable period
or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the C-TEC Group;
and/or (ii) by Cable Michigan, RCN's share, as determined in Section 2.3(d)
below, of any Non-Line of Business Adjustment the amount of which decreases a
Tax for any Taxable period or portion of a Taxable period ending or deemed to
end on or before the Distribution Date with respect to any Return of any
member of the Cable Michigan Group.
(b) C-TEC shall be liable for, and shall indemnify
and hold harmless, as appropriate, any member of the RCN Group or the Cable
Michigan Group against C-TEC's share, as determined in Section 2.3(d) below,
of any Non-Line of Business Adjustment the amount of which increases a Tax for
any Taxable period or portion of a Taxable period ending or deemed to end on
or before the Distribution Date with respect to any Return of any member of
the RCN Group, the C-TEC Group or the Cable Michigan Group. C-TEC shall be
entitled to receive, and shall be paid (i) by RCN, C-TEC's share, as
determined in Section 2.3(d) below, of any Non-Line of Business Adjustment the
amount of which decreases a Tax for any Taxable period or portion of a Taxable
period ending or deemed to end on or before the Distribution Date with respect
to any Return of any member of the RCN Group; and/or (ii) by Cable Michigan,
C-TEC's share, as determined in Section 2.3(d) below, of any Non-Line of
Business Adjustment the amount of which decreases a Tax for any Taxable period
or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the Cable
Michigan Group.
(c) Cable Michigan shall be liable for, and shall
indemnify and hold harmless, as appropriate, any member of the RCN Group or
the C-Tec Group against Cable Michigan's share, as determined in Section
2.3(d) below, of any Non-Line of Business Adjustment the amount of which
increases a Tax for any Taxable period or portion of a Taxable period ending
or deemed to end on or before the Distribution Date with respect to any
Return of any member of the RCN Group, the C-TEC Group or the Cable Michigan
Group. Cable Michigan shall be entitled to receive, and shall be paid (i) by
RCN, Cable Michigan's share, as determined in Section 2.3(d) below, of any
Non-Line of Business Adjustment the amount of which decreases a Tax for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return of any member of the
RCN Group; and/or (ii) by C-TEC, Cable Michigan's share, as determined in
Section 2.3(d) below, of any Non-Line of Business Adjustment the amount of
which decreases a Tax for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the date of the Cable Michigan
Distribution Date with respect to any Return of any member of the C-TEC Group.
(d) C-TEC, RCN and Cable Michigan shall share the
amount of any Non-Line of Business Adjustment to the extent each such party is
liable for and/or has an obligation to make, or has the right to receive, as
the case may be, any indemnity payment, reimbursement or other payment with
respect to such Non-Line of Business Adjustment under this Agreement, in
proportion to the Shared C-TEC Percentage, the Shared RCN Percentage and the
Shared Cable Michigan Percentage, respectively; provided, however, that in the
event that there is any Correlative Adjustment with respect to any such
Non-Line of Business Adjustment, then C-TEC, RCN and Cable Michigan shall
share such Non-Line of Business Adjustment in the following manner in order to
ensure that the party or parties that will bear the burden or inure to the
benefit of the Correlative Adjustment in the future will share the Non-Line of
Business Adjustment in proportion to each of their respective Shared
Percentages after giving effect to such Correlative Adjustment:
(i) first, the amount of any such Non-Line of
Business Adjustment shall be increased or decreased, as appropriate, by the
amount of the Correlative Adjustment, the net amount resulting from such
increase or decrease being hereinafter referred to as the "Net Non-Line of
Business Adjustment" for purposes of this Section 2.3(d);
(ii) second, the Net Non-Line of Business
Adjustment shall be allocated among C-TEC, RCN and Cable Michigan in
proportion to the Shared C-TEC Percentage, the Shared RCN Percentage and the
Shared Cable Michigan Percentage, respectively, to the extent each such party
is liable for and/or has an obligation to make, or has the right to receive,
as the case may be, any indemnity payment, reimbursement or other payment with
respect to such Non-Line of Business Adjustment under this Agreement; and
(iii) finally, with respect to a party to which a
Correlative Adjustment is attributable, that party's share of the Net Non-Line
of Business Adjustment as allocated pursuant to paragraph (ii) of this Section
2.3(d) will be increased or decreased, as appropriate, by the amount, if any,
of the Correlative Adjustment that is attributable to such party in order to
arrive at such party's share of the Non-Line of Business Adjustment.
Notwithstanding any other provision of this Agreement or the Distribution
Agreement to the contrary, any Adjustment that arises solely as a result of
the acquisition after the Distribution Date of all or a portion of the stock
and/or assets of one party this agreement by any means whatsoever by any
Person other than an Affiliate of such party shall not be a Non-Line of
Business Adjustment and shall be a Tax Benefit or Tax Detriment, as the case
may be, of such party.
(e) Following the determination of a party's share
of a Non-Line of Business Adjustment pursuant to Section 2.3(d) above, and
subject to Section 3.4 and 3.5 hereof, the Controlling Party that controls the
Tax Contest to which such Non-Line of Business Adjustment relates shall (i) be
entitled to reimbursement from C-TEC, RCN and/or Cable Michigan, as the case
may be, for each of their respective shares, if any, of any Non-Line of
Business Adjustment the amount of which increases a Tax; and (ii) reimburse
C-TEC, RCN or Cable Michigan, as the case may be, for each of their respective
shares, if any, of any Non-Line of Business Adjustment the amount of which
decreases a Tax.
ARTICLE III
TAX CONTESTS
3.1. NOTIFICATION OF TAX CONTESTS. The Controlling Party
shall promptly notify all Interested Parties of (a) the commencement of any
Tax Contest pursuant to which such Interested Parties may be required to make
or entitled to receive an indemnity payment, reimbursement or other payment
under this Agreement; and (b) as required and specified in Section 3.4 hereof,
any Final Determination made with respect to any Tax Contest pursuant to which
such Interested Parties may be required to make or entitled to receive any
indemnity payment, reimbursement or other payment under this Agreement. The
failure of a Controlling Party to promptly notify any Interested Party as
specified in the preceding sentence shall not relieve any such Interested
Party of any liability and/or obligation which it may have to the Controlling
Party under this Agreement except to the extent that the Interested Party was
prejudiced by such failure, and in no event shall such failure relieve the
Interested Party from any other liability or obligation which it may have to
such Controlling Party.
3.2. TAX CONTEST SETTLEMENT RIGHTS. The Controlling Party
shall have the sole right to contest, litigate, compromise and settle any
Adjustment that is made or proposed in a Tax Contest without obtaining the
prior consent of any Interested Party; provided, however, that, unless the
parties provide notice of the waiver of such right, the Controlling Party
shall, in connection with any proposed or assessed Adjustment in a Tax Contest
for which an Interested Party may be required to make or entitled to receive
an indemnity payment, reimbursement or other payment under this Agreement (a)
keep all such Interested Parties informed in a timely manner of all actions
taken or proposed to be taken by the Controlling Party; and (b) provide all
such Interested Parties with copies of any correspondence or filings submitted
to any Taxing Authority or judicial authority, in each case in connection with
any contest, litigation, compromise or settlement relating to any such
Adjustment in a Tax Contest. The failure of a Controlling Party to take any
action as specified in the preceding sentence with respect to an Interested
Party shall not relieve any such Interested Party of any liability and/or
obligation which it may have to the Controlling Party under this Agreement
except to the extent that the Interested Party was prejudiced by such failure,
and in no event shall such failure relieve the Interested Party from any other
liability or obligation which it may have to such Controlling Party. The
Controlling Party may, in its sole discretion, take into account any
suggestions made by an Interested Party with respect to any such contest,
litigation, compromise or settlement of any Adjustment in a Tax Contest. All
costs of any Tax Contest are to be borne by the Controlling Party and all
Interested Parties in proportion to their respective liability to make
indemnity payments, reimbursements or other payments under this Agreement with
respect to an Adjustment made in such Tax Contest; provided, however, that
(x) any costs related to an Interested Party's attendance at any meeting with
a Taxing Authority or hearing or proceeding before any judicial authority
pursuant to Section 3.3 hereof, and (y) the costs of any legal or other
representatives retained by an Interested Party in connection with any Tax
Contest that is subject to the provisions of this Agreement, shall be borne by
such Interested Party.
3.3. TAX CONTEST PARTICIPATION. Unless waived by the
parties in writing, the Controlling Party shall provide an Interested Party
with notice reasonably in advance of, and such Interested Party shall have the
right to attend, any formally scheduled meetings with Taxing Authorities or
hearings or proceedings before any judicial authorities in connection with any
contest, litigation, compromise or settlement of any proposed or assessed
Adjustment that is the subject of any Tax Contest pursuant to which such
Interested Party may be required to make or entitled to receive an indemnity
payment, reimbursement or other payment under this Agreement, but only if the
Interested Party bears, or in the good faith judgment of the Controlling
Party, may bear, a Significant Obligation with respect to such Adjustment;
provided, however, that the Controlling Party may, in its sole discretion,
permit an Interested Party that does not bear, or potentially bear, such a
Significant Obligation with respect to such an Adjustment, to attend any such
meetings, hearings or proceedings that relate to such Adjustment. In
addition, unless waived by the parties in writing, the Controlling Party shall
provide each Interested Party with draft copies of any correspondence or
filings to be submitted to any Taxing Authority or judicial authority with
respect to such Adjustments for such Interested Party's review and comment.
The Controlling Party shall provide such draft copies reasonably in advance of
the date that they are to be submitted to the Taxing Authority or judicial
authority and the Interested Party shall provide its comments, if any, with
respect thereto within a reasonable time before such submission. The failure
of a Controlling Party to provide any notice, correspondence or filing as
specified in this Section 3.3 to an Interested Party shall not relieve any
such Interested Party of any liability and/or obligation which it may have to
the Controlling Party under this Agreement except to the extent that the
Interested Party was prejudiced by such failure, and in no event shall such
failure relieve the Interested Party from any other liability or obligation
which it may have to such Controlling Party.
3.4. TAX CONTEST WAIVER. (a) The Controlling Party shall
promptly provide notice to all Interested Parties in a Tax Contest (i) that a
Final Determination has been made with respect to such Tax Contest; and (ii)
enumerating the amount of the Interested Party's share of each Adjustment
reflected in such Final Determination of the Tax Contest for which such
Interested Party may be required to make or entitled to receive an indemnity
payment, reimbursement or other payment under this Agreement.
(b) Within thirty (30) days after an Interested
Party receives the notice described in Section 3.4(a) hereof from the
Controlling Party, such Interested Party shall give notice to the Controlling
Party (i) that the Interested Party agrees with each Adjustment (and its share
thereof) enumerated in the notice described in Section 3.4(a) hereof except
with respect to those Adjustments (and/or its shares thereof) that, in the
good faith judgment of the Interested Party, it disagrees with and has
specifically enumerated its disagreement with, including the amount of such
disagreement, in the statement (each such disagreed Adjustment (and/or share
thereof) hereinafter referred to as a "Disputed Adjustment"); and (ii) that
the Interested Party thereby waives its right to a determination by an
Independent Third Party pursuant to the provisions of Section 3.5 hereof with
respect to all Adjustments to which it agrees with its share (this statement
hereinafter referred to as the "Interested Party Notice"). The failure of an
Interested Party to provide the Interested Party Notice to the Controlling
Party within the thirty (30) day period specified in the preceding sentence
shall be deemed to indicate that such Interested Party agrees with its share
of all Adjustments enumerated in the notice described in Section 3.4(a) hereof
and that such Interested Party waives it right to a determination by an
Independent Third Party with respect to all such Adjustments (and its shares
thereof) pursuant to Section 3.5 hereof.
(c) During the thirty (30) day period immediately
following the Controlling Party's receipt of the Interested Party Notice
described in Section 3.4(b) above, the Controlling Party and the Interested
Party shall in good xxxxx xxxxxx with each other to resolve any disagreement
over each Disputed Adjustment that was specifically enumerated in such
Interested Party Notice. At the end of the thirty (30) day period specified
in the preceding sentence, unless notice is provided of the mutual consent of
the parties to the extension of such time period, the Interested Party shall
be deemed to agree with all Disputed Adjustments that were specifically
enumerated in the Interested Party Notice and waive its right to a
determination by an Independent Third Party pursuant to Section 3.5 hereof with
respect to all such Disputed Adjustments unless, and to the extent, that at
any time during such thirty (30) day (or extended) period, the Interested
Party has given the Controlling Party notice that it is seeking a
determination by an Independent Third Party pursuant to Section 3.5 hereof
regarding the propriety of any such Disputed Adjustment.
(d) Notwithstanding anything in this Agreement to the
contrary, an Interested Party that does not have a Significant Obligation with
respect to an Adjustment has no right to a determination by an Independent
Third Party under section 3.5 hereof with respect to any such Adjustment.
3.5. TAX CONTEST DISPUTE RESOLUTION. (a) In the event that
an Interested Party has given the Controlling Party notice as required in
Section 3.4(c) hereof that it is seeking a determination by an Independent
Third Party pursuant to this Section 3.5 with respect to any Disputed
Adjustment that was enumerated in an Interested Party Notice, then the parties
shall, within ten (10) days after the Controlling Party has received such
notice, jointly select an Independent Third Party to make such determination.
In the event that the parties cannot jointly agree on an Independent Third
Party to make such determination within such ten (10) day period, then the
Controlling Party and the Interested Party shall each immediately select an
Independent Third Party and the Independent Third Parties so selected by the
parties shall jointly select, within ten (10) days of their selection, another
Independent Third Party to make such determination.
(b) In making its determination as to the propriety
of any Disputed Adjustment, the Independent Third Party selected pursuant to
Section 3.5(a) above shall assume that the Interested Party is not required or
entitled under applicable law to be a member of any Consolidated Return. In
addition, the Independent Third Party shall make its determination according
to the following procedure:
(i) The Independent Third Party shall analyze
each Disputed Adjustment for which a determination is sought pursuant to this
Section 3.5 to determine what is a fair and appropriate outcome (hereinafter
referred to as the "Ultimate Determination") with respect to any such Disputed
Amount, taking into account the following exclusive criteria: (A) the facts
relating to such Adjustment; (B) the applicable law, if any, with respect to
such Adjustment; (C) the position of the applicable Taxing Authority with
respect to compromise, settlement or litigation of such Adjustment; (D) the
strength of the factual and legal arguments made by the Controlling Party in
reaching the outcome with respect to such Adjustment as reflected in the Final
Determination of the Tax Contest; (E) the strength of the factual and legal
arguments being made by the Interested Party for the alternative outcome being
asserted by such Interested Party (including the availability of facts,
information and documentation to support such alternative outcome); (F) the
strength of the legal and factual support for other potential, non-frivolous
Adjustments with respect to matters that were actually raised and contested by
the applicable Taxing Authority in the Tax Contest for which the Interested
Party could have been liable under this Agreement but which were eliminated or
reduced as a result of the Controlling Party agreeing to the Disputed
Adjustment as reflected in the Final Determination of the Tax Contest; (G) the
effect of the actual outcome reached with respect to the Disputed Adjustment
on other Taxable periods and on other positions taken or proposed to be taken
in Returns filed or proposed to be filed by the Interested Party; (H) the
realistic possibility of avoiding examination of potential, non-frivolous
issues for which the Interested Party could be liable under this Agreement and
that were contemporaneously identified in writings by the party or parties
during the course of the Tax Contest but which had not been raised and
contested by the applicable Taxing Authority in the Tax Contest; and (I) the
benefits to the Interested Party in reaching a Final Determination, and the
strategy and rationale with respect to the Interested Party's Disputed
Adjustment that the Controlling Party had for agreeing to such Disputed
Adjustment in reaching the Final Determination, in each case that were
contemporaneously identified in writings by the party or parties during the
course of the Tax Contest.
(ii) The Interested Party shall only be
entitled to modification of its share of a Disputed Adjustment under this
Section 3.5 if, as the case may be, either (A) the amount that would be paid
by the Interested Party under the Ultimate Determination with respect to such
Disputed Adjustment is less than 80% of the amount that would be paid by the
Interested Party with respect to such Disputed Adjustment under the actual
outcome reached with respect to such Disputed Adjustment; or (B) the amount
that would be received by the Interested Party under the Ultimate
Determination with respect to such Disputed Adjustment is more than 120% of
the amount that the Interested Party would receive with respect to such
Disputed Adjustment under the actual outcome reached with respected to such
Disputed Adjustment. If an Interested Party is entitled to modification of
its share of any Disputed Adjustment under the preceding sentence, the amount
the Interested Party is entitled to receive, or is required to pay, as the
case may be, with respect to such Disputed Adjustment shall be equal to the
amount of the Ultimate Determination of such Disputed Adjustment. The
Independent Third Party will provide notice to the Controlling Party and the
Interested Party stating whether the Interested Party is entitled to
modification of its share of the Disputed Adjustment pursuant to this
paragraph (ii) and, if the Interested Party is entitled to such modification,
the amount as determined in the preceding sentence that the Interested Party
is entitled to receive from, or required to pay to, the Controlling Party with
respect to such Disputed Adjustment.
(c) Any determination made or notice given by an
Independent Third Party pursuant to this Section 3.5 shall be (i) in writing;
(ii) made within thirty (30) days following the selection of the Independent
Third Party as set forth in Section 3.5(a) of this Agreement unless such
period is otherwise extended by the mutual consent of the parties; and (iii)
final and binding upon the parties. The costs of any Independent Third Party
retained pursuant to this Section 3.5 shall be shared equally by the parties.
The Controlling Party and the Interested Party shall provide the Independent
Third Party jointly selected pursuant to Section 3.5(a) hereof with such
information or documentation as may be appropriate or necessary in order for
such Independent Third Party to make the determination requested of it. Upon
issuance of an Independent Third Party's notice under Section 3.5(b)(ii)
hereof, the Controlling Party or the Interested Party, as the case may be,
shall pay as specified in Article IV of this Agreement, the amount, if any, of
the Disputed Adjustment to the appropriate party.
ARTICLE IV
PROCEDURE AND PAYMENT
4.1. PROCEDURE. (a) If an Interested Party has any
liability and/or obligation to make, or the right to receive, any indemnity
payment, reimbursement or other payment with respect to an Adjustment under
this Agreement for which it does not have a right to a determination by an
Independent Third Party under Section 3.5 hereof, then the amount of such
Adjustment shall be immediately due and payable upon receipt by the Interested
Party of a notice of Final Determination of a Tax Contest as required and
specified in Section 3.4(a) hereof.
(b) If after (i) notice of a Final Determination of
a Tax Contest as required and specified in Section 3.4(a) hereof has been
given by a Controlling Party to an Interested Party; and (ii) the Interested
Party receiving such notice has either:
(A) failed to provide the Interested
Party Notice specified in Section 3.4(b) hereof within the thirty (30) day
period set forth in Section 3.4(b);
(B) provided the Interested Party Notice
specified in Section 3.4(b) hereof within the thirty (30) day period specified
in Section 3.4(b) agreeing to all Adjustments (and the Interested Party's
share of all such Adjustments) and waiving the right to an Independent Third
Party determination pursuant to Section 3.5 hereof with respect to all such
Adjustments (and the Interested Party's share of such Adjustments);
(C) provided the Interested Party Notice
specified in Section 3.4(b) hereof within the thirty (30) day period specified
in Section 3.4(b) agreeing with some, but not all, Adjustments (and the
Interested Party's share of such agreed Adjustments) and waiving the right to
an Independent Third Party Determination pursuant to Section 3.5 hereof with
respect to all such agreed Adjustments (and the Interested Party's share of
such Adjustments); or
(D) provided the Interested Party Notice
specified in Section 3.4(b) hereof within the thirty (30) day period specified
in Section 3.4(b) specifically enumerating the Disputed Adjustments to which
it does not agree and for which the notice specified in either Section
3.5(b)(ii) hereof relating to any such Disputed Adjustment has been given by
an Independent Third Party, then the amount of any Adjustment agreed to or
deemed to be agreed to by the Interested Party, or for which an Independent
Third Party notice has been given pursuant to either Section 3.5(b)(ii)
hereof, as set forth in each of clauses (A), (B, (C) or (D) above, shall be
immediately due and payable.
(c) Any Person entitled to any indemnification,
reimbursement or other payment under this Agreement with respect to the amount
of any Adjustment that has become immediately due and payable under Section
4.1(b) (the "Indemnified Party") shall notify the Person against whom such
indemnification, reimbursement or other payment is sought (the "Indemnifying
Party") of its right to and the amount of such indemnification, reimbursement
or other payment; provided, however, that the failure to notify the
Indemnifying Party shall not relieve the Indemnifying Party from any liability
and/or obligation which it may have to an Indemnified Party on account of the
provisions contained in this Agreement except to the extent that the
Indemnifying Party was prejudiced by such failure, and in no event shall such
failure relieve the Indemnifying Party from any other liability or obligation
which it may have to such Indemnified Party. The Indemnifying Party shall
make such indemnity payment, reimbursement or other payment to the Indemnified
Party within thirty (30) days of the receipt of the notice specified in the
preceding sentence; provided, however, that, in the case of any Final
Determination of a Tax Contest involving a state, local or municipal Tax in
which the Indemnifying Party is also the Controlling Party with respect to
such Tax Contest and, as Controlling Party, is entitled to receive an overall
net refund from the applicable state, local or municipal Taxing Authority with
respect to such state, local or municipal Tax, then the Indemnifying Party
shall make such indemnity payment, reimbursement or other payment to the
Indemnified Party within thirty (30) days from the date the Indemnifying Party
actually receives payment of or obtains the benefit of the net refund due from
the applicable state, local or municipal Taxing Authority.
4.2. PAYMENT. Any indemnity payment, reimbursement or other
payment required to be made pursuant to this Agreement by an Indemnifying Party
to an Indemnified Party shall be made, at the option of the Indemnifying
Party, by (a) certified check payable to the order of the Indemnified Party;
or (b) wire transfer of immediately available funds to such bank and/or other
account of the Indemnified Party as from time to time the Indemnified Party
shall have directed the Indemnifying Party, in writing. Any indemnity
payment, reimbursement or other payment required to be made by an Interested
Party pursuant to this Agreement shall bear interest at the Federal Short-Term
Rate plus 2 %, per annum, from the date such Interested Party receives the
notice of Final Determination made with respect to a Tax Contest as provided
in Section 3.4(a) hereof. Any indemnity payment, reimbursement or other
payment required to be made by a Controlling Party to an Interested Party
pursuant to this Agreement shall bear interest at the Federal Short-Term Rate
plus 2%, per annum, from a date thirty (30) days after the date of a Final
Determination made with respect to a Tax Contest; provided, however, that, in
the case of any Final Determination of a Tax Contest involving a state, local
or municipal Tax in which the Controlling Party is entitled to receive an
overall net refund from the applicable state, local or municipal Taxing
Authority with respect to such state, local or municipal Tax, such indemnity
payment, reimbursement or other payment to be made by the Controlling Party
shall bear interest at the Federal Short-Term Rate plus 2%, per annum, from
the date the Controlling Party actually receives payment of or obtains the
benefit of the net refund due from the applicable state, local or municipal
Taxing Authority.
ARTICLE V
OTHER TAX MATTERS
5.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION. It
is understood and agreed that during Consolidation:
(a) Members of the RCN Group and members of the Cable
Michigan Group, respectively, shall each adopt and follow the Tax policies and
procedures that have been established by C-TEC, unless C-TEC shall otherwise
consent as provided herein.
(b) C-TEC shall establish all Return positions and
make all Tax elections relating to a Consolidated Return. Members of the RCN
Group and members of the Cable Michigan Group shall take such Consolidated
Return positions and make such Tax elections relating to a Consolidated Return
as may be taken or made by C-TEC, or as reasonably requested by C-TEC to be
taken or made by any member of the RCN Group and/or any member of the Cable
Michigan Group, as the case may be, unless C-TEC shall otherwise consent, as
provided herein.
5.2. COOPERATION. Except as otherwise provided in this
Agreement, each member of the C-TEC Group, the RCN Group and/or the Cable
Michigan Group, as the case may be, shall, at their own expense, cooperate with
each other in the filing of, or any Tax Contest relating to, any Return and
any other matters relating to Taxes and, in connection therewith, shall (i)
maintain appropriate books and records for any and all Taxable periods or any
portion of a Taxable period that may be required by C-TEC's record retention
policies; (ii) provide to each other such information as may be necessary or
useful in the filing of, or any Tax Contest relating to, any such Return;
(iii) execute and deliver such consents, elections, powers of attorney and
other documents as may be required or appropriate for the proper filing of any
such Return or in conjunction with any Tax Contest relating to any such
Return; and (iv) make available for responding to inquiries of any other party
or any Taxing Authority, appropriate employees and officers of and advisors
retained by any member of the C-TEC Group, the RCN Group, or the Cable
Michigan Group, as the case may be.
5.3. FILING OF RETURNS. The Person that would be the
Controlling Party with respect to any Tax Contest relating to a Return for
which any indemnity payment, reimbursement or other payment may be sought
under this Agreement shall (a) prepare and file, or cause to be prepared and
filed, any such Return within the time prescribed for filing such Return
(including all extensions of time for filing); and (b) shall timely pay, or
cause to be timely paid, the amount of any Tax shown to be due and owing on
any such Return. Such Person shall bear all costs associated with preparing
and filing, or causing to be prepared and filed, any such Return. Except as
provided in Section 5.l(b) hereof (relating to Consolidated Returns), such
Person shall establish all Return positions and make all Tax elections
relating to such Returns.
ARTICLE VI
MISCELLANEOUS
6.1. GOVERNING LAW. To the extent not preempted by any
applicable foreign or U.S. federal, state, or local Tax law, this Agreement
shall be governed by and construed and interpreted in accordance with the laws
of the State of New York, irrespective of the choice of laws principles of the
State of New York, as to all matters, including matters of validity,
construction, effect, performance and remedies.
6.2. AFFILIATES. Each of the parties hereto shall cause to
be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Affiliate
of such party; provided, however, that for purposes of the foregoing, no
Person shall be considered an Affiliate of a party if such Person is a member
of another party's Group.
6.3. INCORPORATION OF DISTRIBUTION AGREEMENT PROVISIONS.
Article 9 of the Distribution Agreement (Miscellaneous) is hereby incorporated
herein by reference, and unless otherwise expressly specified herein, shall
apply as if fully set forth herein
6.4. NOTICES. On behalf of C-TEC, RCN, and Cable Michigan,
the individuals set forth below (or any other individuals delegated in writing
by each of the foregoing) shall serve as the single point of contact to
receive or give any notice or other communication required or permitted to be
given to any member of each of their respective Groups under this Agreement.
Unless the individual designated to receive any notice or other communication
is the same individual designated to give such notice or other communication,
all notices or other communications under this Agreement shall be in writing
and shall deemed to be duly given when (a) delivered in person; or (b) sent by
facsimile; or (c) deposited in the United States mail, postage prepaid and
sent certified mail, return receipt requested; or (d) deposited in private
express mail, postage prepaid, addressed as follows:
If to any member of the C-TEC Group, to:
C-TEC Corporation
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxx, Vice President of Taxation
Facsimile: 000-000-0000
If to any member of the RCN Group, to:
RCN Corporation
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxx, Vice President of Taxation
Facsimile: 000-000-0000
If to any member of the Cable Michigan Group, to:
Cable Michigan, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxx, Vice President of Taxation
Facsimile: 000-000-0000
Copies of any and all notices shall be (a) delivered in person; or (b) sent by
facsimile; or (c) deposited in the United States mail, postage prepaid and sent
certified mail, return receipt requested; or (d) deposited in private express
mail, postage prepaid, addressed as follows::
Xxxxxxx X. Xxxxx
Skadden, Arps, Slate, Xxxxxxx & Xxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Any party may, by written notice to the other parties, change the address to
which such notices (or copies of notices) are to be given.
6.5. CONFLICTING OR INCONSISTENT PROVISIONS. In the event
that any provision or term of this Agreement conflicts or is inconsistent with
any provision or term of any other agreement between or among C-TEC or any
other member of the C-TEC Group, RCN or any other member of the RCN Group
and/or Cable Michigan or any other member of the Cable Michigan Group, as the
case may be, which is in effect on or prior to the date hereof, the provision
or term of this Agreement shall control and apply and the provision or term of
any other agreement shall, to the extent of such conflict or inconsistency, be
inoperative and inapplicable.
6.6. DURATION. Notwithstanding anything in this Agreement or
the Distribution Agreement to the contrary, the provisions of this Agreement
shall survive for the full period of all applicable statutes of limitations
(giving effect to any waiver, mitigation or extension thereof).
6.7. AMENDMENT. Without limiting the provisions contained in
Article 9 of the Distribution Agreement which are incorporated herein by
reference pursuant to Section 6.3 hereof, the parties hereto agree that any
waiver, amendment, supplement or modification of this Agreement that solely
relates to and affects only two of the three parties hereto shall not require
the consent of the third party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Tax
Sharing Agreement to be executed by their duly authorized representatives.
C-TEC Corporation
By: /s/
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Name:
Title:
RCN Corporation
By: /s/
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Name:
Title:
Cable Michigan Inc..
By: /s/
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Name:
Title:
