AMENDED AND RESTATED TAX ALLOCATION AGREEMENT
Exhibit 99.2
AMENDED AND RESTATED
This AMENDED AND RESTATED TAX ALLOCATION AGREEMENT is dated as of October 1, 2002, by and among Circuit City Stores, Inc. (“Circuit
City”), a Virginia corporation, and those corporations listed on Exhibit A hereto (together with Circuit City, the “Parties”).
WHEREAS, Circuit City and members of its Affiliated Group previously executed that certain Tax Allocation Agreement dated as of May 1, 1994 (the “Original Tax Allocation Agreement”);
WHEREAS, Circuit City intends to separate the business of the CarMax Group from the rest of Circuit City Stores (the
“Separation”) such that following the Separation CarMax, Inc., a Virginia corporation and currently a wholly-owned subsidiary of Circuit City, will become an independent separately traded public company;
WHEREAS, as a result of the Separation,
the Parties desire to amend and restate the Original Tax Allocation Agreement to provide for certain Tax matters, including the assignment of responsibility for the preparation and filing of Tax Returns, the payment of Taxes (including Taxes with
respect to the Separation), and the prosecution and defense of any Tax controversies;
“Agreement” shall mean this Tax Allocation
Agreement.
“Benefit Amount” shall mean the amount derived by
adding (i) a Loss Company’s net operating loss multiplied by the highest marginal corporate income tax rate applicable for the taxable period to (ii) total credits generated by the Loss Company.
“Business Day” or “Business Days” shall mean a day which is not a Saturday, Sunday or a day on which
the Federal Reserve banks are authorized or required by law to close.
“CarMax” shall
have the meaning set forth in the recitals hereof.
“CarMax Group” shall mean CarMax,
and each Subsidiary of CarMax, immediately after the Separation.
“Circuit City” shall
have the meaning set forth in the recitals hereof.
“Circuit City Group” shall mean
Circuit City, and each Subsidiary of Circuit City, immediately after the Separation.
“Circuit City Return” shall mean the federal income tax return of Circuit City prepared on a stand-alone basis for all taxable periods.
“Code” shall mean the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder, including any successor
legislation.
“Consolidated Return” shall mean any federal income tax return where
Circuit City and at least one Subsidiary jointly file.
“Control” shall have the meaning
set forth in Section 355(a) of the Code.
“Final Determination” shall mean the final
resolution of liability for any Tax for any taxable period, including any related interest or penalties, by or as a result of: (1) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (2) a
closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreement under the laws of other jurisdictions which resolves the entire Tax liability for any taxable period; or (3) any allowance of a refund
or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax.
“Indemnified Liability” shall mean any liability imposed upon or incurred by any Member of the Circuit City Group for which it is indemnified and
held harmless under Section 4.3(a).
“IRS” shall mean the Internal Revenue Service.
“Loss Company” shall mean any Member whose Separate Return shows a net operating loss.
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“Member” shall mean each corporation that is a member
of the Affiliated Group.
“Member Return” shall mean the federal income tax return of a
Member prepared on a stand-alone basis for all taxable periods.
“Party” shall mean any
of Circuit City or the corporations listed on Exhibit A hereto.
“Person” shall mean any
natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof.
“Proceeding” shall mean any audit, examination or other proceeding brought by a Taxing Authority with respect to Taxes.
“Prohibited Acts” shall have the meaning specified in Section 4.2.
“Ruling” shall mean the private letter ruling issued by the IRS to Circuit City dated April 10, 2002.
“Restricted Period” shall mean the two-year period commencing with the Separation.
“Separate Return” shall mean (i) for a Member other than Circuit City, the Member
Return, after consideration of intercompany adjustments and eliminating entries, that is involved in the Consolidated Return and (ii) for Circuit City, the Circuit City Return, after consideration of intercompany adjustments and eliminating entries,
that is involved in the Consolidated Return.
“Separation” shall have the meaning set
forth in the recitals hereof.
“Separation Agreement” shall mean the agreement between
Circuit City and CarMax dated as of May 21, 2002.
“Separation Date” shall mean the
Business Day on which the Separation is effected.
“Subsidiary” shall mean an entity
more than 50% of the equity interest in which is owned directly or indirectly by Members.
“Tax” or “Taxes” shall mean any taxes, charges, fees, levies, imposts, duties, or other assessments of a similar nature, including without limitation, income, alternative or add-on minimum, gross receipts, excise,
employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation, windfall profits, withholding, Social Security, unemployment, disability, ad valorem, estimated, highway use, commercial rent, capital stock, paid up
capital, recording, registration, property, real property gains, value added, business license, custom duties, or other tax or governmental fee of any kind
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whatsoever, imposed or required to be withheld by any Taxing Authority including any interest, additions to tax, or penalties applicable thereto.
“Taxing Authority” shall mean any governmental authority (whether United States or non-United States, and
including, without limitation, any state, municipality, political subdivision or governmental agency) responsible for the imposition of any Tax.
“Tax Due” shall mean all federal income taxes, alternative minimum taxes, environmental taxes, penalties, interest, and any other amount properly included as being due for the return in
question net of all available credits and deductions. Tax Due may not be less than zero.
“Tax Returns” shall mean all reports or returns (including information returns) required to be filed or that may be filed for any period with any Taxing Authority in connection with any Tax or Taxes (whether domestic or
foreign).
(a) The Affiliated Group shall apportion its consolidated federal income tax liability among the
Members on a separate company basis. Each Member shall be allocated liability for the Tax Due shown on its Separate Return.
For each taxable period, Circuit City will compute each Member’s Tax Due on a Separate Return basis. Circuit City will then allocate the tax liability to each Member based on the following method:
(i) |
Step 1: The Tax Due shown on the Consolidated Return is allocated to each Member in the ratio that each Member’s Separate Return Tax Due bears to the sum
of the Members’ Tax Due on their Separate Returns. |
(ii) |
Step 2: An additional amount is allocated to each Member equal to 100% of the excess of (1) the Member’s Separate Return Tax Due, over (2) the Consolidated
Return Tax Due allocated to the Member in Step 1. |
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(iii) |
Step 3: The total of the amounts allocated under Step 2 is credited to all Loss Companies in the ratio that each Loss Company’s Benefit Amount bears to the
total Benefit Amounts of all Loss Companies. |
(b) If Tax Due on a
Separate Return changes as the result of the filing of amended tax returns, carrybacks, carryovers, tax audits or for any other reasons, Circuit City shall recalculate the allocation of tax liability and pay to the applicable Member or the
applicable Member shall pay to Circuit City, as the case may be, such amount within 90 days of the date such change is finally determined.
SECTION 2.3. Procedures.
(a) The Affiliated Group shall file a Consolidated Return for each taxable year with respect to which this Agreement is in effect and for which the Affiliated Group is required
or permitted to file a Consolidated Return, unless the Parties elect not to file a Consolidated Return by mutual consent. Circuit City shall execute and file any consents, elections, and other documents required or appropriate for the proper filing
of such Returns.
(b) Unless otherwise agreed by the Parties in writing, Circuit City will
deliver to each Member for its review and consent (which will not be unreasonably withheld) a draft of its Member Return as prepared on a separate basis, together with an explanation of applicable intercompany adjustments and eliminating entries,
upon the request of each Member, not later than 30 days prior to the due date, including extensions, for the applicable Consolidated Return. If the Parties cannot agree with respect to such Member Return, the Parties will negotiate in good faith to
resolve any such disagreement, and if it cannot be resolved will be subject to the provisions of Section 2.5, provided that notwithstanding this Section 2.3 Circuit City shall be entitled to file any Tax Return before its due date (including
extensions). Each Member will allow Circuit City access to all work papers and other materials needed in the preparation of the Member Return and warrants that it will respond to any information requested concerning these items on a timely basis. In
connection with the foregoing and other matters covered by this Agreement, Circuit City agrees to furnish accounting, administrative, technical and any other similar tax and accounting assistance requested by any Member for an agreed-on fee that
shall be not less than the cost of such services to Circuit City.
(c) Circuit City will
prepare the Circuit City Return and the Affiliated Group’s Consolidated Return. Circuit City will be responsible for and bear all additional costs and efforts associated with the preparation of the Consolidated Return.
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(d) Circuit City will provide each Member with a complete
copy of the Consolidated Return, upon the request of each Member, within a reasonable time after filing such return, and will grant each Member access to the work papers used to prepare the Member Return.
SECTION 2.4. Audit.
(a) Circuit City will defend on audit the Consolidated Returns. Each Party agrees (1) to notify the other of any contact that may be construed as
indicating that a Tax Authority may or will question, or is questioning the treatment of any items covered by this Agreement, and (2) keep the other party appropriately informed of all matters relating to audits, submissions to tax authorities,
protests, conferences, litigation, and similar items.
(b) Within 90 days after any amended
return is filed, any audit is settled, or any other event that causes a change in a Consolidated Return is finally resolved, the Tax Due for the applicable return will be recomputed and payment made on the basis set forth in Section 2.1 hereof.
SECTION 2.6. Application. This Article will apply to all taxable years for which the Affiliated Group files a
Consolidated Return, and shall terminate except as otherwise specifically provided herein with respect to any party when such party ceases to be a Member of the Affiliated Group. Notwithstanding termination of this Agreement or the filing of
Consolidated Returns, this Agreement shall continue in effect with respect to any payment or refunds due or other matters relating to all taxable periods (or portions thereof) for which this Agreement was in effect.
CARMAX GROUP
For the taxable period that includes the Separation Date, Circuit City shall include the Members of the CarMax Group in the Consolidated
Return of the Affiliated Group for the portion of the taxable year ending on the Separation Date (the “Short Period”) on the basis of the closing of the books method. Any tax liability of the Members of the CarMax Group for the Short
Period shall be determined under Article II hereof. To the extent permitted by law or administrative practice with respect to other Tax Returns, the taxable period of the Members of the CarMax Group shall be treated as ending on the Separation Date,
and if the taxable period
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does not end on the Separation Date, the Parties shall apportion all tax items between the portions of the taxable period before and after the Separations Date on the closing of the books method.
SECTION 3.2. Post-Separation CarMax Group Taxes. Unless otherwise
provided in this Agreement, CarMax shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect to taxable periods beginning on or after the Separation Date that are attributable to any Member of the CarMax
Group.
(a) The filing of all Tax Returns relating to Members of the CarMax Group for periods beginning on or after the
Separation Date shall be the responsibility of CarMax.
(b) In the case of any partnership
in which a Member of the CarMax Group is the designated Tax matters partner, CarMax shall cause such Member to continue to prepare and file such partnership’s Tax Returns.
(a) Unless otherwise agreed by the Parties in writing, with regard to Tax Returns to be prepared and filed by Circuit City or any other Member of the Circuit City Group with respect to which CarMax has
liability under this Agreement, Circuit City shall submit such Tax Return to CarMax at least 30 days prior to the date on which such Tax Return is due (including extensions). CarMax shall submit its comments to Circuit City within 10 days of receipt
of such Tax Return.
(b) All Tax Returns filed on or after the Separation Date shall be
prepared in a manner that is consistent with the rulings obtained from the IRS or any other Taxing Authority in connection with the Separation (in the absence of a Final Determination to the contrary) and shall be filed on a timely basis (including
pursuant to extensions) by the Party responsible for such filing under this Agreement. In the absence of a Final Determination to the contrary and unless deviation from past practice would have no material adverse effect on either Circuit City or
CarMax, all Tax Returns filed after the date of this Agreement shall be prepared on a basis consistent with the elections, accounting methods, conventions, assumptions and principles of taxation used for the most recent taxable periods for which Tax
Returns of the Affiliated Group have been filed.
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(a) Circuit City and CarMax shall, and shall cause each of their Subsidiaries to, retain adequate
records, documents, accounting data and other information (including computer data) necessary for the preparation and filing of all Tax Returns required to be filed by any Member of the Circuit City Group or the CarMax Group and for any Proceeding
relating to such Tax Returns or to any Taxes payable by any Member of the Circuit City Group or the CarMax Group.
(b) Circuit City and CarMax shall, and shall cause each of their Subsidiaries to, provide reasonable access to (i) all records, documents, accounting data and other information (including computer data)
necessary for the preparation and filing of all Tax Returns required to be filed by any Member of the Circuit City Group or the CarMax Group and for any Proceeding relating to such Tax Returns or to any Taxes payable by any Member of the Circuit
City Group or the CarMax Group and (ii) its personnel and premises, for the purpose of the review or audit of such reports or returns to the extent relevant to an obligation or liability of a Party under this Agreement and in accordance with the
procedures provided in Section 7.4 of the Separation Agreement.
(c) The obligations set
forth above in Sections 3.6(a) and 3.6(b) shall continue until the longer of (i) the time of a Final Determination or (ii) expiration of all applicable statutes of limitations, to which the records and information relate. For purposes of the
preceding sentence, each Party shall assume that no applicable statute of limitations has expired unless such Party has received notification or otherwise has actual knowledge that such statute of limitations has expired.
Notwithstanding anything herein to the contrary, the
provisions of this Article IV shall govern all matters among the Parties related to an Indemnified Liability.
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37, 1977-2 C.B. 568) in a single transaction or series of related transactions, (iv) redeem or otherwise repurchase any of CarMax’s capital stock other than pursuant to open market stock
repurchase programs meeting the requirements of section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696, or (v) enter into any negotiations, agreements or arrangements with respect to transactions or events (including, without limitation, stock
issuances, pursuant to the exercise of options or otherwise, option grants, capital contributions or acquisitions, or a series of such transactions or events, but excluding the Separation) that may cause the Separation to be treated as part of a
plan pursuant to which one or more persons acquire directly or indirectly stock of CarMax representing a “50-percent or greater interest” therein within the meaning of Section 355(d)(4) of the Code (collectively the “Prohibited
Acts”), unless CarMax first obtains an opinion of a nationally recognized law firm reasonably satisfactory to Circuit City, or a supplemental ruling from the Internal Revenue Service, that such transaction, and any transaction related thereto,
will not affect the qualification of the Separation under Section 355 of the Code or cause the stock of CarMax distributed in the Separation to fail to be treated as qualified property pursuant to Section 355(e) of the Code.
SECTION 4.3. Indemnification. If CarMax takes any action or enters into any agreement to
take any action at any time on or following the Separation Date, including, without limitation, any Prohibited Act, or if there is a breach of Section 4.1 hereof, and the Separation shall fail to qualify under Section 355 of the Code or the stock of
CarMax distributed in the Separation shall fail to be treated as qualified property pursuant to Section 355(e) of the Code as a result of such action, actions or breach, then CarMax shall indemnify and hold harmless Circuit City and each Member of
the Circuit City Group against any and all Taxes imposed upon or incurred by any Member of the Circuit City Group and against any liability imposed on Circuit City or any Member of the Circuit City Group for Taxes of any stockholder of Circuit City
as a result. Circuit City and each other Member of the Circuit City Group shall be indemnified and held harmless under this Section 4.3 without regard to the fact that CarMax may have obtained an opinion or supplemental ruling pertaining to the
action pursuant to Section 4.2 hereof.
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otherwise provided in Section 4.4(c) below) all meetings with such Taxing Authority or any representative thereof pertaining to such
investigation or inquiry.
(i) Promptly upon CarMax’s written acknowledgment that the asserted
liability is an Indemnified Liability pursuant to Section 4.4(b) hereof, CarMax shall assume and direct the defense or settlement of the Proceeding, subject to the participation and consultation of Circuit City. If the Indemnified Liability is
grouped with other unrelated asserted liabilities or issues in the Proceeding, Circuit City and CarMax shall use their respective commercially reasonable efforts to cause the Indemnified Liability to be the subject of a separate Proceeding. If such
severance is not possible, CarMax shall assume and direct and be responsible only for the matters relating to the Indemnified Liability.
(ii) Upon request, during the course of the Proceeding, CarMax shall from time to time furnish Circuit City with evidence reasonably satisfactory to Circuit City of its ability
to pay the full amount of the Indemnified Liability. If at any time during such Proceeding, Circuit City reasonably determines, after due investigation, that CarMax may not be able to pay the full amount of the Indemnified Liability, if required,
then CarMax shall be required to furnish a guarantee or performance bond satisfactory to Circuit City in an amount equal to the amount of the Indemnified Liability asserted by the Taxing Authority. If CarMax fails to furnish such guarantee or bond,
Circuit City may assume control of the Proceedings in accordance with Section 4.4(d) hereof, provided, however, that Circuit City will not settle any Proceeding of which it assumes control pursuant to this Section 4.4(c)(ii) without
the consent of CarMax, which consent will not be unreasonably withheld.
(iii) CarMax shall pay all expenses related to the Indemnified Liability, including but not limited to fees for attorneys, accountants, expert witnesses or other consultants retained by it and, to the extent
that any such expenses have been or are paid by Circuit City or any Member of the Circuit City Group, CarMax shall promptly reimburse Circuit City or such Member therefor.
(iv) Circuit City shall not pay (unless otherwise required by a proper notice of assessment and after prompt notification to CarMax
of Circuit City’s receipt of notice and demand for payment), settle, compromise or concede any portion of the Indemnified Liability without the written consent of CarMax. Circuit City shall, at CarMax’s sole cost (including but not limited
to any reasonable out-of-pocket costs incurred by Circuit
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City), take such action as CarMax may reasonably request (including but not limited to the execution of powers of
attorney for one or more persons designated by CarMax and the filing of a petition, complaint, amended Tax Return or claim for refund) in contesting the Indemnified Liability. CarMax shall, on a timely basis, keep Circuit City informed of all
developments in the Proceeding and provide Circuit City with copies of all pleadings, briefs, orders, and other written papers pertaining thereto.
(v) Subject to satisfaction of the conditions herein set forth, CarMax may direct Circuit City to settle the Indemnified Liability on
such terms and for such amount as CarMax may direct. Circuit City may condition such settlement on receipt, prior to the settlement, from CarMax of the indemnity payment with respect to the Indemnified Liability less any amounts to be paid directly
by CarMax to the Taxing Authority. CarMax may direct Circuit City, at CarMax’s expense, to pay an asserted deficiency for the Indemnified Liability out of funds provided by CarMax, and to file a claim for refund.
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To any Member of the Circuit City
Group:
Circuit City Stores, Inc.
0000 Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000-0000
Attn: General Counsel
To any Member of the CarMax Group:
CarMax, Inc.
0000 Xxx Xxxx
Xxxx Xxxxx, XX 00000-0000
Attn: General Counsel
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SECTION 5.14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA, WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES.
SECTION 5.15. Consent to Jurisdiction. The Parties hereto hereby
agree that the appropriate forum and venue for any disputes between any of the Parties hereto arising out of this Agreement shall be any state or federal court sitting in Richmond, Virginia and each of the Parties hereto hereby submits to the
personal jurisdiction of any such court. The foregoing shall not limit the rights of any party to obtain execution of judgment in any other jurisdiction.
[remainder of page intentionally left blank]
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CIRCUIT CITY STORES, INC., for itself and on behalf of the Members of the Circuit
City Group | ||
By: |
/s/ XXXXXX X. XXXX | |
Xxxxxx X. Xxxx | ||
Senior Vice President, Treasurer and Controller | ||
CARMAX, INC., for itself and on behalf of the
Members of the CarMax Group | ||
By: |
/s/ W. XXXXXX XXXXX | |
W. Xxxxxx Xxxxx | ||
President |
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EXHIBIT A
Circuit City Stores West Coast, Inc., a California corporation
Xxxxxx Advertising
Agency, Inc., a Virginia corporation
Circuit City Properties, Inc., a Virginia corporation
Patapsco Designs, Inc., a Maryland corporation
First North American National Bank, a Georgia corporation
Northern National Insurance Ltd., a Bermuda limited company
Carmax, Inc., a Virginia corporation
Carmax Auto Superstores, Inc., a Virginia
corporation (formerly Acme Commercial Corporation)
Carmax Auto Superstores West Coast, Inc., a California corporation (formerly C-Max
Auto Superstores, Inc.)
CFC II, Inc., a Virginia corporation
CPD, Inc., a Virginia corporation
DC Funding International, Inc., a Delaware corporation
Tyler International Funding, Inc., a Delaware corporation
Sky Venture Corporation, a Virginia corporation
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