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Exhibit 10.3
TAX MATTERS AGREEMENT
THIS TAX MATTERS AGREEMENT is made as of March 22, 1995, by
and among Dominick's Supermarkets, Inc., a Delaware corporation formerly known
as DFF Holdings, Inc. ("HOLDINGS"), DFF Acquisition Sub, Inc., a Delaware
corporation and a wholly-owned subsidiary of Holdings ("PURCHASER"), DFF
Acquisition Sub Two, Inc., a Delaware corporation and a wholly-owned subsidiary
of Purchaser ("PURCHASER SUB" and, together with Holdings, and Purchaser, the
"PURCHASER PARTIES"), Xxxx L.L.C., a limited liability company organized under
the laws of the State of Illinois ("XXXX"), Xxxx Family L.L.C., a limited
liability company organized under the laws of the State of Illinois ("DFLLC"),
Xxxx Developments L.L.C., a limited liability company organized under the laws
of the State of Illinois ("DDLLC"), Xxxx, Inc., a Delaware corporation (the
"COMPANY"), Xxxx Developments, Inc., a Delaware corporation ("DDI"), Xxxx
Properties, Inc., a Delaware corporation ("DPI"), Dominick's Finer Foods, Inc.,
a Delaware corporation ("DOMINICK'S"), Dominick's Finer Foods, Inc. of
Illinois, an Illinois corporation ("DOMINICK'S-ILLINOIS"), Xxxx Hazelcrest,
Inc., a Delaware corporation ("XXXX HAZELCREST"), Xxxx'x of Bloomingdale, Inc.,
an Illinois corporation ("KOHL'S"), Jerry's Deep Discount Centers, Inc., an
Illinois corporation ("JERRY'S"), and Save-It Discount Foods Corporation, an
Illinois corporation ("SAVE-IT").
INTRODUCTION
Prior to the date hereof, the Company was owned by Xxxx, DFLLC
and DDLLC (the "SHAREHOLDERS"). Pursuant to the Stock Purchase Agreement dated
as of January 17, 1995 (as amended and supplemented by the Closing Agreement
dated as of March 21, 1995, the "PURCHASE AGREEMENT"), the Purchaser Parties
are, on the date hereof, acquiring, directly and indirectly, all of the
outstanding shares of capital stock of the Company (the "STOCK PURCHASE
TRANSACTION"). Immediately following the consummation of the Stock Purchase
Transaction (a) Purchaser will merge with and into the Company, with the
Company being the surviving corporation, and (b) Purchaser Sub will merge with
and into Dominick's with Dominick's being the surviving corporation (the
"MERGERS"). The parties to this Agreement desire to set forth their agreements
in relation to responsibility for the preparation and filing of tax returns,
responsibility for taxes, interest, and penalties that are or may be owed by or
with respect to, or asserted against, the parties and their rights and
obligations with respect to audits and proceedings that may affect the taxes,
interest, and penalties that may be asserted against the parties.
AGREEMENT
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINED TERMS. Capitalized terms not defined elsewhere in
this Agreement shall have the following meanings:
1.1 "ASSET TRANSFER AGREEMENT" shall mean that certain
Asset Transfer Agreement entered into by and among DDLLC, the Company,
Dominick's, DDI, DPI, Xxxx,
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DFLLC, Xxxx Xxxxxxxx L.L.C., and Xxxx Northfield L.L.C. pursuant to which the
Restructuring Transactions were consummated on the business day immediately
preceding the date hereof.
1.2 "CLOSING DATE TAXES" shall mean all Taxes assessed
against, incurred by or attributable to the Consolidated Group with respect to
any transactions or events caused by any of the Purchaser Parties or the
Consolidated Group which occur on the Closing Date, including, without
limitation, all Stock Purchase Taxes.
1.3 "CODE" shall mean the Internal Revenue Code of 1986,
as amended, or any successor revenue law of the United States of America.
1.4 "CONSOLIDATED GROUP" shall mean the affiliate group
(as defined in Section 1504 of the Code) including the Company and the
Subsidiaries, DDI and DPI.
1.5 "DISAFFILIATION DATE" shall mean the date of this
Agreement.
1.6 "FEDERAL INCOME TAX" shall mean any tax imposed by
Subtitle A of the Code and any interest and penalties related thereto.
1.7 "FINAL FULL PERIOD" shall mean the Period commencing
October 30, 1993 and ending October 29, 1994.
1.8 "INCOME TAX" shall mean any Federal Income Tax and
any State Income Tax.
1.9 "INCOME TAX BENEFIT" shall have the meaning set
forth in Section 11 hereof.
1.10 "IRS" shall mean the United States Internal Revenue
Service.
1.11 "NEW PERIODS" shall mean Periods beginning after the
Disaffiliation Date.
1.12 "OLD PERIODS" shall mean Periods ending on or before
the Disaffiliation Date.
1.13 "OTHER TAX" shall mean all taxes, charges, tees,
levies, interest, penalties, or other assessments imposed by any federal,
state, or local taxing authority in the United States or any foreign taxing
authority (including, but not limited to income, property, gross receipts,
sales, use, service, ad valorem, transfer, franchise, profits, license, lease,
withholding, payroll, employment, excise, severance, stamp, occupation,
windfall, social security, or other taxes or charges of any kind whatsoever,
and any interest or any penalties, additions to tax or additional amounts
related thereto) other than any Federal Income Tax or any State Income Tax.
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1.14 "PERIOD" means the period of time under applicable
law for which a Tax is imposed.
1.15 "RESTRUCTURING TRANSACTIONS" shall mean the
transactions defined as the restructuring Transactions in the Purchase
Agreement.
1.16 "RETURN" shall mean any return, report, declaration,
statement, or other document required to be filed with any applicable taxing
authority for any Tax with respect to a Period or portion thereof.
1.17 "RESTRICTED STOCK" shall mean the 8,600 shares of
Dominick's common stock not owned by the Company immediately prior to the
consummation of the Stock Redemption.
1.18 "SAR" shall mean the stock appreciation rights
relating to the common stock of Dominick's.
1.19 "SHORT PERIOD" shall mean the Period commencing
October 30, 1994 and ending in the Disaffiliation Date.
1.20 "STATE INCOME TAX" shall mean any tax imposed by the
Illinois Income Tax Act or the corresponding provisions of the laws of the
State of Indiana and any interest and penalties related thereto.
1.21 "STOCK PURCHASE TAXES" shall mean any Taxes that are
assessed against, incurred by or attributable to the Consolidated Group by
reason of, or resulting from, the Stock Purchase Transaction, the Mergers, or
any elections made by any of the Purchaser Parties or the Consolidated Group
with respect therefor.
1.22 "STOCK REDEMPTION" shall mean the transactions
defined as the Stock Redemption in the Purchase Agreement.
1.23 "STOCK REDEMPTION TAX BENEFIT" shall mean any Income
Tax Benefit realized by the Company and/or the Subsidiaries as a result of the
Stock Redemption, determined, however, as if each and every SAR and share of
Restricted Stock is actually purchased, redeemed, or otherwise discharged and
satisfied for a secured promissory note given by Dominick's on the business day
immediately preceding the consummation of the Stock Purchase Transaction, and
not exchanged by the holder thereof for any new stock appreciation right, share
of restricted stock, option or other similar instrument or security of the
Company, any Subsidiary or any of the Purchaser Parties or their affiliates.
1.24 "SUBSIDIARIES" shall mean Dominick's,
Dominick's-Illinois, Xxxx Hazelcrest, Kohl's, Jerry's, and Save-It.
1.25 "TAX" shall mean any Federal Income Tax, State
Income Tax, or Other Tax.
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1.26 "TRANSFER TRANSACTIONS TAXES" shall mean an amount
equal to (a) the additional Income Taxes that are assessed against, incurred by
or attributable to the Company and Dominick's by reason of the inclusion in the
Company's consolidated Federal Income Tax Return and combined State Income Tax
Return for the Period including the Short Period of the taxable gain, if any,
recognized as a result of the Restructuring Transactions, as determined under
the provisions of Section 311 of the Code only and no other provisions of the
Code, and as determined under the analogous provisions of the Illinois Income
Tax Act only and no other provisions of the Illinois Income Tax Act, net of any
Stock Redemption Tax Benefit, and (b) all Other Taxes assessed against or
attributable to the Consolidated Group which are incurred by the Consolidated
Group as a result of the Restructuring Transactions.
2. TERMINATION OF PRIOR TAX SHARING ARRANGEMENTS.
As of the Disaffiliation Date, all tax sharing agreements
previously in effect among any two or more members of the Consolidated Group
shall be terminated.
3. LIABILITY FOR TAXES.
3.1 DDI AND DPI. Except as otherwise provided herein,
the Shareholders, jointly and severally, shall be liable for, and shall
indemnify and hold the Consolidated Group harmless from and against any Tax
assessed against or attributable to DDI and/or DPI or other loss or expense
(including reasonable attorneys' and accountants' fees) incurred by the
Consolidated Group resulting from or relating to any Tax attributable to DDI
and/or DPI with respect to any Old Period (including, without limitation, any
Tax resulting from any deferred intercompany transaction that has occurred in
any such Old Period).
3.2 TRANSFER TRANSACTIONS TAXES. The shareholders,
jointly and severally, shall be responsible for and shall indemnify and hold
the Consolidated Group harmless from and against all Transfer Transactions
Taxes.
3.3 PURCHASER PARTIES AND CONSOLIDATED GROUP. The
Purchaser Parties and the Consolidated Group, jointly and severally, shall be
responsible and liable for all Closing Date Taxes. The Purchaser Parties and
the Consolidated Group, jointly and severally, shall indemnify and hold each of
the Shareholders (and their successors and assigns) harmless from and against
all Closing Date Taxes assessed against, incurred by or attributable to the
Shareholders (or their successors and assigns).
3.4 INCOME TAX ALLOCATION. The allocable liability for
Income Taxes for the Short Period shall be based upon the items of income,
deduction, loss, and credit of DDI and DPI for the Short Period based upon a
closing of the books on the Disaffiliation Date, with the benefit of any exempt
amount, standard deduction, progressive rate, or other calculation for a full
taxable year prorated based upon the number of days during the Short Period
over 365. Income, deductions, and credits of DDI and DPI shall be allocated
between the Short Period and any New Period in a manner consistent with the
methods used by the Consolidated Group in prior Periods. If the portion of any
item of income, deduction, or credit attributable to DDI or DPI and to be
reported on an Income Tax Return as attributable to the Short Period, and the
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portion to be included in Income Tax Returns as attributable to New Periods
cannot be clearly determined from the accounting records, the item of income,
deduction, or credit shall be allocated pursuant to United States Treasury
Regulations Section 1.1502-76(b) relating to consolidated returns.
3.5 OTHER ALLOCATION. For purposes of computing the
actual liability for Other Taxes imposed with respect to transactions other
than the Restructuring Transactions, such Other Taxes shall be deemed to relate
to the day on which the transaction resulting in such Other Taxes takes place.
Except as otherwise provided herein with respect to the Restructuring
Transactions, the actual liability for all Other Taxes for the Short Period
shall be prorated based upon the number of days in the Short Period over 365;
provided, however, that to the extent that the proration or allocation of any
such Other Taxes is expressly provided for under the terms of the Asset
Transfer Agreement, such Other Taxes shall be prorated or allocated in
accordance with the terms of the Asset Transfer Agreement, anything herein to
the contrary notwithstanding.
3.6 NATURE OF INDEMNIFICATION PAYMENTS. Amounts paid
for indemnification under this Agreement shall be adjustments to the purchase
price for the shares of stock purchased by the Purchaser Parties pursuant to
the Purchase Agreement.
3.7 EFFECT OF INDEMNIFICATION PAYMENTS UNDER PURCHASE
AGREEMENT. Anything herein to the contrary notwithstanding, no party hereto
shall be obligated to make any indemnification payment hereunder to the extent
that the party claiming such indemnification (or its affiliates) has received
an indemnification payment under the Purchase Agreement in respect of the Taxes
for which indemnification hereunder is being sought.
4. FEDERAL AND STATE INCOME TAX RETURNS AND PAYMENTS.
4.1 Preparation of Returns. Subject to the terms and
conditions set forth below, the income, deductions and credits attributable to
DDI and DPI for the Final Full Period shall be included in the consolidated
Federal Income Tax Return and the combined State Income Tax Return of the
Consolidated Group for the fiscal year ended October 29, 1994, and the income,
deductions, and credits attributable to DDI and DPI for the Short Period
(including any deferred income taken into income by the Company under United
States Treasury Regulations Section 1.1502-13 and Section 1.1502-14 and any
excess loss accounts taken into income under former United States Treasury
Regulation Section 1.1502-19) shall be included in the consolidated Federal
Income Tax Return and combined State Income Tax Return of the Consolidated
Group for the fiscal year which includes the Short Period. Such income,
deductions and credits attributable to DDI and DPI shall be determined from
hypothetical Income Tax Returns prepared by the Shareholders and delivered to
the Company on or before May 15, 1995, in the case of income, deductions and
credits attributable to DDI and DPI for the Final Full Period, and on or before
January 15, 1996, in the case of income, deductions and credits attributable to
DDI and DPI for the Short Period; provided, however, that the Company shall
have the right to review such hypothetical Income Tax Returns (and all related
workpapers) prior to their incorporation into the relevant consolidated Federal
Income Tax Returns and combined State Income Tax Returns, and shall notify the
Shareholders of any disagreement with the information reported in any such
hypothetical Income Tax Returns, whereupon the Company and the Shareholders
shall use their
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best efforts promptly to resolve any such disagreement; and further provided,
however, that in the event the Shareholders provide the Company with a legal
opinion from a nationally recognized law firm stating that there is substantial
authority in support of the information and return positions reflected in such
hypothetical Income Tax Returns, such information and return positions shall be
incorporated in the Company's consolidated Federal Income Tax Returns and
Combined State Income Tax Returns. The hypothetical Income Tax Returns
including the income, deductions and credits attributable to DDI and DPI shall
be prepared (a) in the same manner and using the same principles and procedures
as have been used by DDI and DPI in prior years during which they were members
of the Consolidated Group, and (b) utilizing proper accounting rules for the
preparation of Income Tax Returns, as though DDI and DPI were filing such
Returns separate and apart from the Consolidated Group.
4.2 FINAL FULL PERIOD TAXES. On or before
July 15, 1995:
(a) DDLLC shall pay to the Company the amount, if
any, by which (i) the total amount of Income Taxes that would be due
if the hypothetical Income Tax Returns prepared by the Shareholders
for the Final Full Period in accordance with Section 4.1 hereof were
filed separately on or before July 15, 1995, exceeds (ii) the total
amount of all previous payments made by or on behalf of or
attributable to DDI and/or DPI, as the case may be, with respect to
Income Taxes for the Final Full period.
(b) The Company shall pay DDLLC the amount, if
any, by which (i) the total amount of all previous payments made by or
on behalf of or attributable to DDI and/or DPI, as the case may be,
with respect to Income Taxes for the Final Full Period, exceeds (ii)
the total amount of Income Taxes that would be due if the hypothetical
Income Tax Returns prepared by the Shareholders for the Final Full
Period in accordance with Section 4.1 hereof were filed separately on
or before July 15, 1995.
(c) In the case where the hypothetical Income Tax
Returns prepared by the Shareholders for the Final Full Period in
accordance with Section 4.1 hereof show a net loss, the Company shall
pay to DDLLC an amount equal to the sum of (i) the Income Tax Benefit
realized by the Consolidated Group attributable to such net loss, plus
(ii) the total amount of all previous payments made by or on behalf of
or attributable to DDI and/or DPI, as the case may be, with respect to
Income Taxes for the Final Full Period.
(d) The Company shall have the responsibility for
timely filing of the Consolidated Federal Income Tax Return and
combined State Income Tax Return for the Consolidated Group for the
Final Full Period and the timely remittance of all Income Taxes due
with respect to the income, deductions and credits of the Consolidated
Group during the Final Full Period.
4.3 SHORT PERIOD TAXES. On or before the date on which
such Tax is due to be paid by the Consolidated Group:
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(a) DDLLC shall pay the Company the amount, if
any, by which (i) the total amount of Income Taxes (other than any
Closing Date Taxes) that would be due if the hypothetical Income Tax
Returns prepared by the Shareholders for the Short Period in
accordance with Section 4.1 hereof were filed separately on or before
the date when it is due, exceed (ii) the total amount of all previous
payments made by or on behalf of or attributable to DDI and/or DPI, as
the case may be, with respect to Income Taxes for the Short Period.
(b) The Company shall pay DDLLC the amount, if
any, by which (i) the total amount of all previous payments made by or
on behalf of or attributable to DDI and/or DPI, as the case may be,
with respect to Income Taxes for the Short Period, exceeds (ii) the
total amount of Income Taxes (other than any Closing Date Taxes) hat
would be due if the hypothetical Income Tax Returns prepared by it for
the Short Period in accordance with Section 4.1 hereof were filed
separately on or before the late when it is due.
(c) In the case where the hypothetical Income Tax
Returns prepared by the Shareholders for the Short Period in
accordance with Section 4.1 hereof show a net loss, the Company shall
pay to DDLLC an amount equal to the sum of (i) the Income Tax Benefit
realized by the Consolidated Group attributable to such net loss, plus
(ii) the total amount of all previous payments made by or on behalf of
or attributable to DDI and/or DPI, as the case may be, with respect to
Income Taxes for the Short Period.
(d) The Company shall have the responsibility for
timely filing of the consolidated Federal Income Tax Return and
combined State Income Tax Return for the Consolidated Group for the
Short Period and the timely remittance of all Income Taxes due with
respect to the income, deductions and credits of the Consolidated
Group during the Short Period.
4.4 RESTRUCTURING TRANSACTIONS; STOCK REDEMPTION AND
TRANSFER TRANSACTION TAXES. Subject to the terms and conditions set forth
below, the income, deductions, and credits of the Consolidated Group
attributable to the Restructuring Transactions and the income, deductions and
credits of the Consolidated Group attributable to the Stock Redemption shall be
included in the consolidated Federal Income Tax Return and the combined State
Income Tax Return of the Consolidated Group for the Period including the Short
Period. On or before the date on which such Tax is due to be paid by the
Company, the Shareholders shall pay to the Company an amount equal to the
Transfer Transactions Taxes less the total amount of any previous payments made
by or attributable to the Shareholders with respect to the Transfer
Transactions Taxes. The amount of the Transfer Transactions Taxes shall be
determined from hypothetical Income Tax Returns of the Company, DDI, DPI and
Dominick's, prepared by the Shareholders and delivered to the Company on or
before January 15, 1996 and the information and return positions reflected in
such hypothetical Income Tax Returns shall be incorporated by the Company in
its consolidated Federal Income Tax Return and combined State Income Tax
Return, subject to the penultimate sentence of this Section 4.4. Such
hypothetical Income Tax Returns shall be prepared (a) as if the only
transactions and the only income, deductions and credits of the Company, DDL,
DPI and Dominick's for the Period were
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attributable to the Restructuring Transactions and the Stock Redemption
(without giving effect to any other transaction), and (b) otherwise utilizing
proper accounting rules for the preparation of Income Tax Returns; provided,
however, that such hypothetical Income Tax Returns shall not include any
Closing Date Taxes. The Company shall have the right to review such
hypothetical Income Tax Returns (and all related workpapers) prior to their
incorporation into the relevant consolidated Federal Income Tax Returns and
combined State Income Tax Returns, and shall notify the Shareholders of any
disagreement with the information reported in any such hypothetical Income Tax
Returns, whereupon the Company and the Shareholders shall use their best
efforts promptly to resolve any such disagreement; provided, however, that in
the event the Shareholders provide the Company with a legal opinion from a
nationally recognized law firm stating that there is substantial authority in
support of the information and return positions reflected in such hypothetical
Income Tax Returns, such information and return positions shall be incorporated
into the Company's consolidated Federal Income Tax Returns and combined State
Income Tax Returns. The Company shall have the responsibility for timely
remittance of all Income Taxes (including any Transfer Transactions Taxes and
Closing Date Taxes) due with respect to the income, deductions and credits of
the Consolidated Group attributable to the Restructuring Transactions, the
Stock Redemption and the Stock Purchase Transaction.
5. OTHER TAX RETURNS.
5.1 DDI AND DPI RETURNS. With respect to Other Taxes
attributable to DDI and DPI, the Shareholders shall prepare and deliver to DDI
and DPI for filing the Returns required to be filed for the Final Full Period
and the Period including the Short Period. The Company shall have the right to
review any such returns (and all related workpapers) prepared by the
Shareholders prior to filing such returns, and shall notify the Shareholders of
any disagreement with the information reported in any such returns, whereupon
the Company and the Shareholders shall use their best efforts promptly to
resolve any such disagreement; provided, however, that in the event that the
Shareholders provide the Company with a legal opinion from a nationally
recognized law firm stating that there is substantial authority in support of
the information and return positions reflected in such Returns, such
information and return positions shall remain as reported in the Returns
prepared by the Shareholders hereunder. The Shareholders shall pay to the
Company, and the Company shall be responsible for the timely remittance of, all
Other Taxes required by law to be paid by DDI and DPI for the Final Full Period
or the Short Period. At the time the Returns contemplated by this Section 5.1
are delivered to DDI and DPI, the Shareholders shall pay to the Company the
amount of the Other Taxes attributable to DDI and DPI for the Final Full Period
and the Short Period to the extent such Other Taxes exceed the aggregate of the
estimated payments previously made by or on behalf of or attributable to DDI
and/or DPI, as the case may be, for such Periods. To the extent that the
aggregate of the estimated payments previously made by or on behalf of or
attributable to DDI and/or DPI for the Final Full Period or the Short Period
exceeds the liability for Other Taxes for any such Period, the Shareholders
shall be entitled to seek or require DDI and/or DPI to seek, a refund thereof,
and the Consolidated Group shall cooperate therewith as reasonably requested by
the Shareholders.
5.2 COMPANY RETURNS. With respect Other Taxes
attributable to the Company and/or the Subsidiaries, the Company and the
Subsidiaries shall prepare and file the
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Returns or the Final Full Period and the Period including the Short Period.
Except as otherwise provided in Section 5.3 hereof, the Company and the
Subsidiaries shall be liable for and shall indemnify and hold the Shareholders
harmless against Other Taxes attributable to the Company and/or the
Subsidiaries for the Final Full Period and the Short Period.
5.3 RESTRUCTURING TRANSACTIONS; STOCK REDEMPTION. With
respect to Other Taxes attributable to the Restructuring Transactions, the
Shareholders shall prepare and deliver to the Company for filing the Returns
required to be filed by the Consolidated Group or any member thereof as a
result of the Restructuring Transactions. The Company shall have the right to
review any such Returns (and all related workpapers) prepared by the
Shareholders prior to filing such Returns, and shall notify the Shareholders of
any disagreement with the information reported in any such Returns, whereupon
the Company and the Shareholders shall use their best efforts promptly to
resolve any such disagreement; provided, however, that in the event that the
Shareholders provide the Company with a legal opinion from a nationally
recognized law firm stating that there is substantial authority in support of
the information and return positions reflected in such Returns, such
information and return positions shall remain as reported in the Returns
prepared by the Shareholders hereunder. The Shareholders shall pay to the
Company, and the Company shall be responsible for the timely remittance of, all
Other Taxes required by law to be paid by the Consolidated Group with respect
to the Restructuring Transactions.
6. INCOME TAX AUDITS AND PROCEEDINGS.
6.1 NOTICES. The Company shall promptly notify the
Shareholders of the commencement of any audit by either the IRS and/or any
state taxing authority, as the case may be, of the Income Tax Returns of the
Consolidated Group for any Old Period, if the audit could result in an
adjustment that may affect (a) any item of income, deduction or credit of DDI
or DPI for that Period or the Tax with respect thereto, or (b) any item of
income, deduction or credit of the Consolidated Group attributable to the
Restructuring Transactions or the Stock Redemption or Taxes with respect
thereto, or (c) any other item of income, deduction, or credit of the
Consolidated Group for any Old Period. The Shareholders shall, upon receipt of
knowledge thereof, promptly notify the Company of any indication that an
adjustment may be made or proposed in a consolidated Federal Income Tax Return
and/or combined State Income Tax Return of the Consolidated Group for any Old
Period or that might affect the consolidated and/or combined taxable income,
deductions or credits of the Consolidated Group for any Old Period. Such
required notices shall contain Information (to the extent known to the party
giving such notice) describing the pending or threatened audit or assessment
and the potential Tax liability.
6.2 CONTEST. If the Shareholders make a written request
to the Company to contest my proposed adjustment to either a consolidated
Federal Income Tax Return and/or combined State Income Tax Return of the
Consolidated Group for any Old Period that may affect the taxable income or
loss of DDI or DPI for that Period, and if, in the opinion of counsel to the
Shareholders, there exists a meritorious basis for contesting the adjustment,
the Consolidated Group shall contest or settle the proposed adjustment at the
direction and at the expense of the Shareholders. Notwithstanding the
requirements of the preceding sentence, if the proposed adjustment relates to
an item of income, deduction or credit of DDI and/or DPI
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substantially similar to an item of income, deduction or credit of the Company
or the Subsidiaries for which the IRS and/or state taxing authority, as the
case may be, has proposed an adjustment, and if the Company and the
Subsidiaries are not able to settle or contest such item separately, the
Company shall have the right to settle or contest such items, and the
Shareholders shall be bound by the decision so long as the ultimate settlement
of such items is on substantially the same basis for the Company and the
Subsidiaries and DDI and/or DPI, taking into account, separately for the
Company and the Subsidiaries and DDI and/or DPI as to those items, the amounts
of the settlements and the proposed deficiencies.
6.3 RESTRUCTURING TRANSACTIONS; STOCK REDEMPTION. If
the Shareholders make a written request to the Company to contest any proposed
adjustment to either a consolidated Federal Income Tax Return and/or combined
State Income Tax Return of the Consolidated Group that may affect the income,
deductions or credits attributable to the Restructuring Transactions or the
Stock Redemption or Taxes with respect thereto, or any other adjustment hat
could result in the assessment of a Tax deficiency against the Consolidated
Group exceeding $50,000 with respect to any Old Period, and if, in the opinion
of counsel to the Shareholders, there exists a meritorious basis for contesting
the adjustment, the Consolidated Group shall contest or settle the proposed
adjustment at the direction and at the expense of the Shareholders.
6.4 CONTROL OF CONTEST. The Shareholders shall have the
right to participate in, and agree to cooperate with the Consolidated Group in,
any administrative or judicial proceedings in contesting a proposed adjustment
to either a consolidated Federal Income Tax Return or combined State Income Tax
Return of the Consolidated Group as contemplated by Section 6.2 or 6.3 hereof,
including joining with the Consolidated Group as a party in executing such
pleadings and other documents as the Consolidated Group may reasonably request
from time to time. The Shareholders shall have the right to select the initial
court in which to contest a proposed adjustment as contemplated by Section 6.2
or 6.3 hereof that relates solely to the income, deductions and credits of DDI
and/or DPI or that relates solely to the income, deductions and credits
attributable to the Restructuring Transactions and/or the Stock Redemption. If
the payment of any Tax is required in order to file any such judicial
proceeding, the payment shall be made by the party or parties that would
ultimately pay or be responsible for the Tax deficiency under this Agreement if
the court rendered a judgment in favor of the IRS or state taxing authority, as
the case may be. At the direction of the Shareholders, and at the expense of
the Shareholders, the Consolidated Group shall appeal any adverse judicial
determination with respect to an adjustment the contest or settlement of which
is directed by the Shareholders in accordance with Section 6.2 or 6.3 hereof,
unless no appeal lies from the decision.
6.5 SETTLEMENT OF CONTEST. Except as specifically
permitted by this Agreement, the Consolidated Group shall not effect any
compromise or settlement or take or fail to take any other action that would
affect the taxable income or loss of DDI and/or DPI for any Old Period or the
income, deductions and credits attributable to the Restructuring Transactions
or the Stock Redemption or the income, deductions and credits of the
Consolidated Group for any Old Period, or the Income Tax with respect thereto,
or extend the period for assessment and collection of Income Taxes relating to
DDI and/or DPI or the income, deductions and credits
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attributable to the Restructuring Transactions and/or the Stock Redemption or
the income, deductions and credits of the Consolidated Group for any Old
Period, without either (a) the written consent of the Shareholders, or (b)
paying the increase in Federal Income Taxes and/or State Income Taxes, as the
case may be, pertaining thereto, when due without any resort for Purchaser, the
Company, DDI, DPI or the Subsidiaries to reimbursement or indemnity therefor
from the Shareholders under this Agreement or otherwise.
7. OTHER AUDITS AND PROCEEDINGS.
7.1 NOTICES. The Consolidated Group shall, upon receipt
of knowledge thereof, (a) promptly notify the Shareholders of any indication
that an adjustment may be made or proposed in a Tax Return of DDI and/or DPI
that could affect the liability of DDI and/or DPI for Other Taxes for any Old
Period, (b) promptly notify the Shareholders of any indication that an
adjustment may be made or proposed in a Tax Return of any member of the
Consolidated Group that could affect the liability of any member of the
Consolidated Group for Other Taxes attributable to the Restructuring
Transactions or the Stock Redemption, and (c) promptly notify the Shareholders
of any indication that an adjustment may be made or proposed in a Tax Return of
any member of the Consolidated Group that could affect the liability of the
Consolidated Group for Other Taxes for any Old Period.
7.2 CONTEST. If the Shareholders make a written request
to the Company to contest any proposed adjustment to a Tax Return for any Old
Period that may affect the liability of DDI and/or DPI for Other Taxes for that
Period, and if, in the opinion of counsel to the Shareholders, there exists a
meritorious basis for contesting the adjustment, the Company shall cause DDI
and DPI to contest or settle the proposed adjustment at the direction and at
the expense of the Shareholders.
7.3 RESTRUCTURING TRANSACTIONS; STOCK REDEMPTION. If
the Shareholders make a written request to the Company to contest any proposed
adjustment to a Tax Return of any member of the Consolidated Group that may
affect the liability of any member of the Consolidated Group for Other Taxes
attributable to the Restructuring Transactions or the Stock Redemption or any
other adjustment that may result in the assessment of additional Other Taxes
exceeding $50,000, and if, in the opinion of counsel to the Shareholders, there
exists a meritorious basis for contesting the adjustment, the Consolidated
Group shall contest or settle the proposed adjustment at the direction and at
the expense of the Shareholders.
7.4 CONTROL OF CONTEST. The Shareholders shall have the
right to participate in, and agree to cooperate with the Consolidated Group in
any administrative or judicial proceedings in contesting a proposed adjustment
to a Tax Return of DDI and/or DPI as contemplated by Section 7.2 or 7.3 hereof,
including joining with the Consolidated Group as a party in executing such
pleadings and other documents as the Company may reasonably request from time
to time. At the direction of the Shareholders, and at the expense of the
Shareholders, the Consolidated Group shall appeal any adverse determination
with respect to an adjustment the contest or settlement of which is directed by
the Shareholders in accordance with Section 7.2 or 7.3 hereof, unless no appeal
lies from the decision.
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7.5 SETTLEMENT OF CONTEST. No member of the
Consolidated Group shall effect any compromise or settlement or take or fail to
take any other action that would increase the liability of DDI and/or DPI for
Other Taxes for any Period or the income, deductions and credits attributable
to the Restructuring Transactions or the Stock Redemption or the liability of
the Consolidated Group for Other Taxes for any Old Period, or extend the period
for assessment and collection of such Taxes without either (i) the written
consent of the Shareholders, or (ii) paying the resulting increase in such
Taxes without any resort for the Purchaser Parties or the Consolidated Group to
reimbursement or indemnity therefor from the Shareholders under this Agreement
or otherwise.
8. REFUNDS.
If as a result of any adjustment to a Return arising out of an
audit for any Old Period or any settlement thereof made in accordance with this
Agreement or any overpayment of Taxes, the Consolidated Group receives a refund
of Taxes, the Consolidated Group shall: (a) remit such refund to the
Shareholders, as and when such refund is received, to the extent that such
refund relates to an adjustment to items of income, deduction or credit of DDI
and/or DPI; (b) remit such refund to the Shareholders as and when such refund
is received, to the extent that such refund relates to adjustments to items of
income, deduction or credit attributable to the Restructuring Transactions or
the Stock Redemption or the Tax (other than any Closing Date Taxes which are
the responsibility of the Purchaser Parties and the Consolidated Group
hereunder) attributable to the Restructuring Transactions or the Stock
Redemption; or (c) remit such refund to the Shareholders as and when such
refund is received, to the extent that any other adjustment to items of income,
deduction or credit of the Consolidated Group for any Old Period is one in
respect of which any of the Purchaser Parties or the Consolidated Group would
be entitled to indemnification under Section 11.2 of the Purchase Agreement
notwithstanding the provisions of Section 11.7 of the Purchase Agreement.
Interest on any refund shall be payable by crediting a pro rata portion of the
amount of interest received from the taxing authority with respect to such
refund
9. DEFICIENCIES.
9.1 DDI AND DPI ITEMS. If as a result of any adjustment
to any Income Tax Return arising out of an audit for any Old Period or any
other formal action agreed to by any member of the Consolidated Group in
accordance with this Agreement, a taxing authority disallows any deduction
attributable to DDI and/or DPI taken on such Return, DDLLC shall remit to the
Company an amount equal to any interest and penalties payable to the taxing
authority with respect thereto and the net loss of Income Tax Benefit to the
Consolidated Group by reason of the disallowance of such deduction as and when
the Income Tax Benefit associated with such deduction is lost by the
Consolidated Group.
9.2 RESTRUCTURING TRANSACTIONS; STOCK REDEMPTION. If as
a result of any adjustment to any Return arising out of an audit for any Old
Period or any other formal action agreed to by any member of the Consolidated
Group in accordance with this Agreement, a taxing authority disallows any
deduction or increases the amount of any income attributable to the
Restructuring Transactions or Stock Redemption taken or reported on an Income
Tax Return
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for any Old Period, the Shareholders shall pay the Company the net loss of
Income Tax Benefits to the Consolidated Group by reason of the disallowance of
such deduction as and when the Income Tax Benefits associated with such
deduction are lost by the Consolidated Group. If and to the extent that any
such disallowed deduction may be taken by the Consolidated Group in any
subsequent Period, the Company shall remit to DDLLC an amount equal to the
Income Tax Benefits to the Consolidated Group by reason of such deduction as
and when such Income Tax Benefits are received by the Consolidated Group, but
only to the extent of the payments made by the Shareholders to the Company as a
consequence of the adjustment to the Return for the Period including the Short
Period. If the Consolidated Group has a net operating loss in the subsequent
Period in which such previously disallowed deduction is taken, then the
Consolidated Group shall, to the extent permitted under the applicable
provisions of the Code, carryback such loss to prior Periods and seek all
appropriate refunds.
9.3 OTHER ADJUSTMENTS. If as a result of any other
adjustment to any Return arising out of an audit for any Old Period or any
other formal action agreed to by the Consolidated Group in accordance with this
Agreement, a taxing authority disallows any deduction attributable to the
Consolidated Group taken on an Income Tax Return for any Old Period or the
Period including the Short Period, the Company shall remit to the Shareholders
an amount equal to the Income Tax Benefits to the Consolidated Group by reason
of such deduction if taken in a subsequent Period as and when such Income Tax
Benefits are received by the Consolidated Group, but only to the extent of any
indemnification payment which is paid by the Shareholders under Section 11.2 of
the Purchase Agreement as a direct or indirect consequence of the adjustment to
the Return for the Old Period.
10. INCOME TAX BENEFITS.
10.1 DEFINITION. As used in this Agreement, the term
"Income Tax Benefit" shall mean any deductions, losses or credits or any
decrease in income, gains or recapture of credits for the benefitting entity
(or group of entities).
10.2 WHEN REALIZED. An Income Tax Benefit shall be
deemed to have been realized for purposes of this Agreement (a) at the time any
refund of Income Taxes is received, (b) at the time any refund of Income Taxes
is applied against other Taxes due (which, in the case of refunds so applied in
the course of an audit or other proceeding, shall be the date on which the
audit or other proceeding is finalized), or (c) at the time a liability for
Income Taxes is otherwise reduced (which shall be 2 1/2 months after the close
of the taxable year in which such liability for Income Taxes arose).
10.3 COMPUTATION OF AMOUNT. The amount of an Income Tax
Benefit realized in any taxable period by an entity (or group of entities) with
respect to a particular Income Tax Benefit item shall be equal to the excess of
(a) the Tax liability of such entity (or group) for such taxable period,
computed without regard to such Income Tax Benefit item, over (b) the actual
Tax liability of such entity (or group) for such taxable period. The
computation of the amounts in clauses (a) and (b) shall take into account the
alternative minimum tax (and any credits with respect thereto).
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10.4 SUBSEQUENT CHANGES. Appropriate payments shall be
made between the parties to take account of subsequent changes in or detriments
(e.g., Income Taxes payable with respect to the receipt of refunds or interest
thereon) associated with an Income Tax Benefit.
11. COOPERATION.
The parties shall cooperate fully with each other in all
matters relating to Taxes and in the determination of amounts payable under
this Agreement. The Consolidated Group shall reimburse the Shareholders for
the reasonable out-of-pocket expenses that they incur in providing any
assistance to the Consolidated Group in the filing of any Return or any audit
thereof or the determination of any Tax for which the Consolidated Group is
responsible under this Agreement, and the Shareholders shall reimburse the
Consolidated Group for the reasonable out-of-pocket expenses incurred in
providing any assistance to the Shareholders in the filing of any return or any
audit thereof or the determination of any Tax for which the Shareholders are
responsible under this Agreement. In addition, the Shareholders shall
reimburse the Consolidated Group for the reasonable out-of-pocket expenses that
they incur in preparing and filing Returns that are required to be filed solely
by reason of the Restructuring Transactions or the Stock Redemption and in
connection with any audit thereof or the determination of any Tax attributable
to the Restructuring Transactions or the Stock Redemption, except to the extent
that such audit or determination of Tax relates to any Closing Date Taxes or
Stock Purchase Taxes. In the case of disagreement as to the course of action
to be pursued in dealing with taxing authorities (including, without
limitation, matters with respect to preparation and filing of Returns, conduct
of audits and proceedings in courts), except as otherwise expressly provided in
this Agreement, the decision of the party (the Consolidated Group, on the one
hand, or the Shareholders, on the other hand) that will economically benefit
from or be burdened by, the decision (or the party with the greatest benefit or
burden) shall control, but the controlling party shall indemnify the other
party from and against losses, damages and expenses incurred by the indemnified
party in pursuance of such course of action in excess of the losses, damages
and expenses which would have been incurred by the indemnified party had the
course of action proposed by the indemnified party been pursued. Any party
involved in any formal or informal action or proceeding relating to Tax matters
which affects the other party shall promptly give such other party written
notice thereof and keep such other party fully and timely informed of
developments.
12. MISCELLANEOUS PROVISIONS.
12.1 LIMITATION PERIOD. Notwithstanding any other
provision of this Agreement or the Purchase Agreement, no payment shall be
required to be made under this Agreement unless a written claim for such
payment, along with information and documentation reasonably necessary to
support such claim, is delivered to the party requested to make such payment
prior to the expiration of the applicable Tax statute of limitations with
respect to the Period to which such claim relates, as such limitation period
may be extended from time to time in accordance with this Agreement.
12.2 NOTICES. All notices, consents, requests,
instructions, approvals, and other communications provided for herein and in
all legal process in regard hereto shall be
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validly given, made or served if given in writing and delivered personally,
sent by facsimile transmission or sent by registered or certified mail, return
receipt requested, with postage prepaid, as follows:
If to the Purchasing c/o Dominick's Finer Foods, Inc.
Parties or the 000 Xxxxxxxxx Xxxxxx
Consolidated Group to: Xxxxxxxxxx, Xxxxxxxx 00000
Attention: General Counsel
Facsimile No. 000-000-0000
with a copy to: The Yucaipa Companies
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Facsimile No. 000-000-0000
and a copy to: Xxxxxx & Xxxxxxx
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile No. 213-891-8763
If to the Shareholders, c/o Xx. Xxxx X. Xxxxxx
to: Suite 250
000 Xxxx Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000-0000
Facsimile No. 000-000-0000
with a copy to: Jenner & Block
Xxx XXX Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Facsimile No. 000-000-0000
The address designated by any party hereto for the delivery of notices may be
changed from time to time by written notice delivered in a like manner. Notice
given by mail as set forth above shall be deemed delivered on the date the same
is postmarked, and notices delivered personally or by facsimile shall be deemed
delivered at the time of receipt thereof at the address or the facsimile number
set forth above.
12.3 BINDING EFFECT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their successors and
assigns. This Agreement shall not create any rights in any person other than
the parties hereto and their respective successors and assigns.
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12.4 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and each counterpart shall constitute an original
instrument, but all such separate counterparts shall constitute one and the
same agreement.
12.5 GOVERNING LAW AND VENUE. The validity, construction
and enforceability of this Agreement shall be governed in all respects by the
laws of the State of Illinois without regard to its conflict of laws rules.
Any action concerning the validity, construction or enforceability of this
Agreement shall be brought before a court of competent jurisdiction in Xxxx
County, Illinois.
12.6 SUCCESSORS AND ASSIGNS. Neither this Agreement, nor
any of the rights, duties or obligations hereunder, may be assigned by
operation of law or otherwise by the parties hereto without the prior written
consent of all other parties hereto; provided, however, that (i) all of the
rights, duties and obligations of the parties hereto shall survive the Mergers;
and (ii) Holdings and the Consolidated Group may assign this Agreement and
their rights hereunder to the agent bank pursuant to the Collateral Documents
(as defined in that certain credit Agreement dated as of March 22, 1995 among
Dominick's Supermarkets, Inc. and the other parties thereto and the lenders
identified therein).
12.7 WAIVER OF PROVISIONS. The terms, covenants,
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party
at any time to require performance of any provision hereof shall, in no manner,
affect the right at a later date to enforce the same. No waiver by any party
of any condition, or breach of any provision, term, covenant or warranty
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or of the breach of any other provision, term,
covenant or warranty of this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
DOMINICK'S SUPERMARKETS, INC., a Delaware XXXX, L.L.C., an Illinois limited liability
Corporation company
By /s/ Xxxxxx X. Xxxxxx By /s/ Xxxxx X. XxXxxxxx
------------------------------------------------- -------------------------------------------------
Xxxxxx X. Xxxxxx, President Xxxxx X. XxXxxxxx, Manager
DFF ACQUISITION STUB TWO, INC., a Delaware XXXX FAMILY L.L.C., an Illinois limited liability
corporation company
By /s/ Xxxxxx X. Xxxxxx By /s/ Xxxxx X. XxXxxxxx
------------------------------------------------- -------------------------------------------------
Xxxxxx X. Xxxxxx, President Xxxxx X. XxXxxxxx, Manager
DFF ACQUISITION SUB, INC., a Delaware corporation XXXX DEVELOPMENTS, L.L.C., an Illinois limited
liability company
By /s/ Xxxxxx X. Xxxxxx
-------------------------------------------------
Xxxxxx X. Xxxxxx, President By /s/ Xxxxx X. XxXxxxxx
-------------------------------------------------
Xxxxx X. XxXxxxxx, Manager
(signatures continued on next page)
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(signatures continued from previous page)
XXXX, INC. XXXX DEVELOPMENTS, INC., a Delaware corporation
a Delaware corporation
By /s/ Xxxxx X. XxXxxxxx
-------------------------------------------------
By /s/ Xxxxx X. XxXxxxxx Xxxxx X. XxXxxxxx, Manager
-------------------------------------------------
Xxxxx X. XxXxxxxx, Manager
DOMINICK'S FINER FOODS, INC., a Delaware
XXXX PROPERTIES, INC., a Delaware corporation corporation
By /s/ Xxxxx X. XxXxxxxx By /s/ Xxxxx X. XxXxxxxx
------------------------------------------------- -------------------------------------------------
Xxxxx X. XxXxxxxx, Manager Xxxxx X. XxXxxxxx, Manager
DOMINICK'S FINER FOODS, INC. OF ILLINOIS, an XXXX HAZELCREST, INC., a Delaware corporation
Illinois corporation
By /s/ Xxxxx X. XxXxxxxx
-------------------------------------------------
By /s/ Xxxxx X. XxXxxxxx Xxxxx X. XxXxxxxx, Manager
-------------------------------------------------
Xxxxx X. XxXxxxxx, Manager
JERRY'S DEEP DISCOUNT CENTERS, INC., an Illinois
XXXX'X OF BLOOMINGDALE, INC., an Illinois corporation
corporation
By /s/ Xxxxx X. XxXxxxxx
-------------------------------------------------
By /s/ Xxxxx X. XxXxxxxx Xxxxx X. XxXxxxxx, Manager
-------------------------------------------------
Xxxxx X. XxXxxxxx, Manager
SAVE-IT DISCOUNT FOODS CORPORATION, an Illinois
corporation
By /s/ Xxxxx X. XxXxxxxx
-------------------------------------------------
Xxxxx X. XxXxxxxx, Manager
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