Exhibit 10.6
TAX AGREEMENT
This Agreement is made as of the 26th day of February 1999 by and among Xxxx
Atlantic Corporation, a Delaware corporation ("BAC"), Xxxx Atlantic Network
Systems Company, a Delaware corporation ("BANS"), and FLAG Telecom Holdings
Limited, a limited company organized under the laws of Bermuda ("FLAG
Holdings").
WHEREAS, BANS currently owns approximately 38% of common stock of FLAG Limited,
a limited company organized under the laws of Bermuda ("FLAG"); and
WHEREAS, BANS has agreed to exchange 21,996,928 shares of its FLAG common stock
for 21,996,928 shares of the common stock of FLAG Holdings (the "First
Exchange"), to be followed, upon satisfaction of certain regulatory conditions,
by a second exchange by BANS of the remaining 217,536,730 shares of its FLAG
common stock for 217,536,730 shares of the common stock of FLAG Holdings (the
"Second Exchange"); and
WHEREAS, BANS' agreement to undertake these exchanges is conditioned, among
other things, on each exchange not resulting in gain or loss to BANS or BAC for
United States income tax purposes; and
WHEREAS, to avoid such recognition of gain or loss, (i) the First Exchange must
qualify as a transfer to FLAG Holdings within the meaning of Section 351(a) of
the Internal Revenue Code of 1986 (the "Code"); (ii) the Second Exchange must
qualify as a corporate reorganization within the meaning of Section 368(a)(1)(B)
of the Code; and (iii) with respect to each exchange, BAC (as the parent of the
affiliated group of corporations that includes BANS) must enter into a "gain
recognition agreement" with the Internal Revenue Service pursuant to Section
1.367(a)-8 of the Treasury Regulations; and
WHEREAS, under each gain recognition agreement, BAC will be required to
recognize gain or loss in connection with the applicable exchange if, within the
five full taxable years of BAC following the year in which the exchange occurs,
FLAG Holdings disposes of any FLAG shares, or FLAG disposes of substantially all
of its assets; and
WHEREAS, the parties wish to assure that neither BAC nor BANS will be required
to recognize gain or loss with respect to either the First Exchange or the
Second Exchange and, to that end, the parties have requested an opinion of
counsel from Xxxxxx, Xxxxx & Xxxxxxx, as tax counsel to FLAG ("Tax Counsel"),
that neither exchange will result in gain or loss to BAC, BANS, or other U.S.
shareholders of FLAG.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. FIRST EXCHANGE
With respect to the First Exchange, FLAG Holdings agrees that:
(a) it will make such representations regarding itself, its
shareholders, and FLAG as are necessary to enable Tax Counsel
to render an opinion that the First Exchange will qualify as a
transfer described in section 351(a) of the Code; and
(b) during the five full taxable years of BAC following the year
in which the First Exchange occurs, it will not dispose of any
FLAG shares and it will neither cause nor permit FLAG to
dispose of substantially all of FLAG's assets within the
meaning of Sections 1.367(a)-8(e)(1), (2), and (3) of the
Treasury Regulations (or any successor Treasury Regulations).
2. SECOND EXCHANGE
With respect to the Second Exchange, FLAG Holdings agrees that:
(a) it will make such representations regarding itself, its
shareholders, and FLAG as are necessary to enable Tax Counsel
to render an opinion that the Second Exchange will qualify as
a corporate reorganization described in section 368(a)(1)(B)
of the Code; and
(b) during the five full taxable years of BAC following the year
in which the Second Exchange occurs, it will not dispose of
any FLAG shares and it will neither cause nor permit FLAG to
dispose of substantially all of its assets within the meaning
of Sections 1.367(a)-8(e)(1), (2), and (3) of the Treasury
Regulations (or any successor Treasury Regulations).
3. INDEMNIFICATION
If FLAG Holdings or FLAG or any shareholder of either company (other
than BANS) should breach any of the agreements or representations
provided for in Sections 1 and 2 above, FLAG Holdings shall promptly
notify BAC and BANS of such breach and shall promptly indemnify BAC and
BANS for (i) any Federal, State or local income tax cost incurred by
BAC or BANS as a result of such breach, and (ii) any other costs or
expenses incurred by BAC or BANS in connection with such breach,
provided, further, that any such indemnification payment under clause
(i) shall be in accordance with the following provisions:
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(a) the payment shall be grossed-up so that the net amount
realized by the indemnified party, after taking into account
income taxes incurred by such party with respect to the
indemnification payment, is equal to the tax cost described in
clause (i) above;
(b) if, at the time of such payment, BAC or BANS is a shareholder
of FLAG Holdings, BAC or BANS shall receive, in addition to
the amount calculated in accordance with Section 3(a) above
(the "Section 3(a) amount"), a further amount equal to (x) the
Section 3(a) amount, multiplied by (y) the percentage of FLAG
Holdings shares owned by BAC or BANS;
(c) any payment obligations arising under Sections 3(a) and (b)
above after the Second Exchange may be settled by the issuance
of common stock of FLAG Holdings if, in the opinion of Tax
Counsel, payment in cash will result in the second exchange
not qualifying as a corporate reorganization within the
meaning of Section 368(a)(1)(B) of the Code, provided that, if
payment is made in common stock, the value of such stock shall
be equal to the amount of cash that would have been paid under
Sections 3(a) and (b), calculated as if the payment under
Section 3(a) was fully taxable to BAC to BANS; and
(d) if, subsequent to an indemnification under this Section,
either BAC or BANS realizes a U.S. tax benefit from any
increased basis in FLAG Holdings shares attributable to a
breach of Sections 1 or 2 above that resulted in such
indemnification payment, BAC or BANS shall promptly repay to
FLAG Holdings that portion of such indemnification payment
equal to the tax benefit realized (together with the related
gross-up amounts calculated in accordance with Sections 3(a)
and (b) above).
4. ENTIRE AGREEMENT/SUCCESSORS AND ASSIGNS
This Agreement constitutes the entire agreement between the parties and
supersedes any previous agreements, arrangements or understandings
between them relating to the subject matter hereof. Each party
acknowledges that it is not relying on any statements, warranties or
representations given or made by the other party relating to the
subject matter hereof, save as expressly set out in this Agreement. The
rights and obligations of each party to this Agreement shall apply to
and be assumed by the party's successors or assigns (if any).
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5. VARIATION/SURVIVAL
No variation or amendment to this Agreement shall be effective unless
in writing signed by authorized representatives of each of the parties.
This Agreement and the obligations of the parties hereto shall remain
in full force and effect, notwithstanding any disposition by BAC or
BANS of any shares of FLAG Holdings or FLAG.
6. NOTICES
Any notice, request, demand or other communication required or
permitted hereunder shall be in writing and shall be sufficiently given
if in English, and delivered by hand or sent by prepaid registered or
certified mail (airmail if international) by facsimile or by prepaid
international courier of international reputation addressed to the
appropriate party at the following address or to such other address or
place as such party may from time to time designate:
If to FLAG Holdings or FLAG:
FLAG Telecom Holdings Limited
The Emporium Xxxxxxxx
00 Xxxxx Xxxxxx - 0xx Xxxxx
Xxxxxxxx XX00 Xxxxxxx
Attention: Chairman and CEO
Tel: 0 000 000 0000
Fax: 0 000 000 0000
with copy to:
FLAG Telecom Limited
000 Xxxxx Xxxxxx - 0xx Xxxxx
Xxxxxx X0X 0XX
U.K.
Attention: General Counsel
If to BAC or BANS:
Xxxx Atlantic
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: President - International Group
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with copy to:
Xxxx Atlantic
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Associate General Counsel - International
Tel: 000 000-0000
Fax: 000 000-0000
Any notice, request demand or other communication given or made
pursuant to this Section shall be deemed to have been received (i) in
the case of hand delivery, on the date of receipt as evidenced by a
receipt of delivery from the recipient, (ii) in the case of mail
delivery, on the date which is seven days after the mailing thereof,
and (iii) in the case of transmission by facsimile, on the date of
transmission with confirmed answer back. Each such communication sent
by facsimile shall be promptly confirmed by notice in writing
hand-delivered or sent by courier, mail or air mail as provided herein,
but failure to send such a confirmation shall not affect the validity
of such communication.
7. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which as so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
8. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of New York without regard to the laws of New York governing
conflicts of laws.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
and year first above written.
FLAG TELECOM XXXX ATLANTIC NETWORK
HOLDINGS LIMITED SYSTEMS COMPANY
By: /s/ Xxxxxx Xxxxxx By: /s/ Xxxxxx X. Xxxxx
------------------------------ ----------------------------
Name: Xxxxxx Xxxxxx Name: Xxxxxx X. Xxxxx
Title: Deputy Chairperson Title: President
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XXXX ATLANTIC CORPORATION
By: /s/ Name of Signatory
----------------------------
Name:
Title: Secretary
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