TAX AGREEMENT
THIS AGREEMENT, is entered into as of June 30, 1999, among
Media News Group, Inc., a Delaware corporation ("ANI"), Denver Newspapers, Inc.,
a Delaware corporation ("DNI") and Media General, Inc., a Virginia corporation
("Media General").
R E C I T A L S
A. ANI is the common parent corporation of an affiliated group
of corporations which, together with any other corporations which may become
members of such affiliated group, is referred to as the "ANI Consolidated
Group."
B. Pursuant to an agreement dated June 30, 1999, DNI will
enter the ANI Consolidated Group effective at the end of business on June 30,
1999. DNI, if it were not included in the ANI Consolidated Group, would be
the common parent corporation of an affiliated group of corporations within
the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended
(the "Code"), which, together with any other corporations which may become
members of such affiliated group, is referred to as the "DNI Consolidated
Group."
C. It is intended that, effective July 1, 1999, the Denver
Post Corporation, a Colorado Corporation, will merge with and into DNI with
DNI being the surviving corporation.
D. ANI, DNI and Media General desire to set forth in this
Agreement their agreement as to certain matters relating to the inclusion of
the DNI Consolidated Group in the ANI Consolidated Group, including the
allocation of tax liabilities for years in which the DNI Consolidated Group
is so included, and certain other matters relating to taxes.
The parties agree as follows:
1. EFFECTIVE DATE.
This Agreement shall be effective as of the first date upon
which DNI is included in the ANI Consolidated Group.
2. FILING OF CONSOLIDATED RETURNS AND PAYMENT OF
CONSOLIDATED TAX LIABILITY.
For all taxable years in which ANI files consolidated
federal income tax returns (any such return of the ANI Consolidated Group for
any taxable year, an "ANI Consolidated Return") and is entitled to include
the DNI Consolidated Group in such returns under Sections 1501-1504, or
successor provisions, of the Code, ANI shall include the DNI Consolidated
Group in the consolidated federal income tax returns it files as the common
parent corporation of the ANI Consolidated Group. ANI, DNI and the other
members of the ANI Consolidated Group shall file any and all consents,
elections or other documents and take any other actions as ANI shall deem
necessary or appropriate to effect the filing of such federal income tax
returns. For all taxable years in which the DNI Consolidated Group is
included in the ANI Consolidated Group, ANI shall pay the entire federal
income tax liability of the ANI Consolidated Group. ANI shall indemnify and
hold harmless DNI against any federal income tax liability arising as a
result of the DNI Consolidated Group or any member thereof being part of the
ANI Consolidated Group; PROVIDED, HOWEVER, that DNI shall make payments to,
or receive payments from, ANI as provided in this Agreement in settlement of
the DNI Consolidated Group's federal income tax liability (determined with
reference to the Pro Forma DNI Return) or as compensation for use of the
federal income tax attributes of the DNI Consolidated Group which actually
reduce the ANI Consolidated Group federal income tax liability for any
taxable year (which term shall
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throughout this Agreement include any short taxable year) in which the DNI
Consolidated Group is included in the ANI Consolidated Group (any such
taxable year, an "Agreement Year").
With respect to any payment to be made by DNI to ANI, ANI
to DNI, or ANI to Media General pursuant to this Agreement, (or with respect
to the creation of any receivable between such entities in connection
herewith) ANI shall send to Media General at least 3 days prior to such
payment (or creation of such receivable) a written calculation of such
payment (or receivable) and a brief explanation setting forth the manner in
which such payment (or receivable) was computed. Upon Media General's
request, ANI shall provide Media General with any additional information
relating to tax computations under this Agreement including, without
limitation, a copy of the Pro Forma DNI Returns.
3. PRO FORMA DNI RETURN.
For each Agreement Year for which ANI files an ANI
Consolidated Return that includes the DNI Consolidated Group, ANI shall
prepare a pro forma federal income tax return for the DNI Consolidated Group
(a "Pro Forma DNI Return"). Except as otherwise provided herein, the Pro
Forma DNI Return for each Agreement Year shall be prepared as if DNI filed a
consolidated return on behalf of the DNI Consolidated Group for such taxable
year and all prior taxable years. The Pro Forma DNI Return shall reflect any
carryovers or carrybacks of net operating losses, net capital losses, excess
tax credits, or other tax attributes from other taxable years of the DNI
Consolidated Group. The Pro Forma DNI Return shall be prepared in a manner
that reflects all elections, positions, and methods used in the ANI
Consolidated Return that must be applied on a consolidated basis and
otherwise shall be prepared in a manner consistent with the ANI Consolidated
Return. The provisions of the Code that require
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consolidated computations, such as Sections 861, 1201-1212, and 1231, shall
be applied separately to the DNI Consolidated Group for purposes of preparing
the Pro Forma DNI Returns. With respect to transactions between the DNI
Consolidated Group and the ANI Consolidated Group, for purposes of preparing
the Pro-Forma DNI Returns, Section 1.1502-13 of the Income Tax Regulations
shall be applied as if the DNI Consolidated Group and the ANI Consolidated
Group (excluding the members of the DNI Consolidated Group) were separate
affiliated groups. For purposes of this Agreement, all determinations made as
if the DNI Consolidated Group had never been included in the ANI Consolidated
Group and as if all Pro Forma DNI Returns were actual returns shall reflect
any actual short taxable years resulting from the DNI Consolidated Group
joining or leaving the ANI Consolidated Group.
4. PRO FORMA DNI RETURN PAYMENTS.
For each Agreement Year, DNI shall make periodic payments
to ANI as ANI determines in its sole discretion are equal to the estimated
tax payments that would be due from the DNI Consolidated Group if it were not
included in the ANI Consolidated Group no later than the dates on which
payments of estimated tax would be due from the DNI Consolidated Group if it
were not included in the ANI Consolidated Group. The balance of the tax that
would be due (including interest, but not including any penalties or other
additions to tax) from the DNI Consolidated Group if it were not included in
the ANI Consolidated Group for an Agreement Year shall be paid by DNI to ANI
no later than the due date of the ANI Consolidated Return for that taxable
year. If DNI's total periodic payments to ANI for any Agreement Year exceed
the amount of its liability under the preceding sentence, ANI shall refund
such excess to DNI (with interest) no later than the date on which the
balance of the ANI Consolidated Group's income tax
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liability is due. For purposes of this Agreement, the term "federal income
tax liability" means the tax imposed by Sections 11, 55 and 59A of the Code,
or any successor provisions to such Sections. ANI shall notify DNI of any
amounts due from DNI to ANI pursuant to this Section 4 no later than 5
business days prior to the date such payments are due and such payments shall
not be considered due until the later of the due date described above or the
fifth day from the notice from ANI. Any item of federal income, gain, loss,
deduction or credit shall be taken into account in computing payments to or
from DNI or to Media General only once.
5. LOSSES, CREDITS OR OTHER ATTRIBUTES.
If, for any Agreement Year, the consolidated federal income
tax liability of the ANI Consolidated Group as reflected in the ANI
Consolidated Return is actually reduced by an amount (the "Reduction Amount")
attributable to the utilization of a net operating loss, net capital loss,
excess tax credits or other tax attributes ("Tax Attributes") reflected in a
Pro Forma DNI Return, that has not already been used in a Pro-Forma DNI
Return to reduce the Pro-Forma DNI Return Payments, then, no later than the
date on which the balance of the ANI Consolidated Group's income tax
liability is due, ANI shall pay to Media General an amount equal to 20
percent of the Reduction Amount, such payment to be treated for income tax
purposes as a contribution of 100% of the Reduction Amount by ANI to DNI
followed by a dividend of 80 percent of such Reduction Amount to ANI and 20%
of such Reduction Amount to Media General. Any such payment which is made
after the due date thereof shall bear interest at the rate applicable to
underpayments of income tax. DNI shall repay to ANI 100% of such Reduction
Amount to the extent such Tax Attributes have not previously been subject to
adjustment
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pursuant to Section 7 hereof and are subsequently used on a Pro-Forma DNI
Return to reduce the Pro-Forma DNI Return Payments.
The determination of whether any federal tax attributes of
the DNI Consolidated Group actually have been utilized by the ANI
Consolidated Group to reduce its consolidated federal income tax liability,
and the amount of any such reduction, shall be made by comparing (1) the ANI
Consolidated Group's consolidated federal income tax liability computed
taking into account the federal tax attributes of the DNI Consolidated Group
to (2) the amount of such consolidated federal income tax liability computed
without taking into account the federal tax attributes of the DNI
Consolidated Group.
6. PREPARATION OF TAX PACKAGE AND OTHER FINANCIAL REPORTING
INFORMATION.
DNI shall provide to ANI in a format determined by ANI all
information requested by ANI as necessary to prepare the ANI Consolidated
Return and the Pro Forma DNI Return (the "ANI Tax Package"). The ANI Tax
Package with respect to any taxable year shall be provided to ANI on a basis
consistent with current practices of the ANI Consolidated Group no later than
September 1 of the following fiscal year. DNI shall also provide to ANI
current federal taxable income, current and deferred tax liabilities, tax
reserve items, and any additional current or prior information required by
ANI on a timely basis consistent with current practices of the ANI
Consolidated Group as are communicated to DNI by ANI.
7. RETURNS, AUDITS, REFUNDS, AMENDED RETURNS,
LITIGATION, AND ADJUSTMENTS.
(a) RETURNS. ANI shall have exclusive and sole
responsibility and control with respect to the preparation and filing of the
ANI Consolidated Returns and any other returns, amended returns and other
documents or statements required to be filed with the Internal
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Revenue Service in connection with the determination of the federal income
tax liability of the ANI Consolidated Group.
(b) AUDITS; REFUND CLAIMS. ANI will have exclusive and sole
responsibility and control with respect to the conduct of Internal Revenue
Service examinations of the returns filed by the ANI Consolidated Group and
any refund claims with respect thereto. DNI shall cooperate with ANI during
the course of any such proceeding. ANI shall give DNI notice of and consult
with DNI with respect to any issues arising in such proceedings relating to
items of income, gain, loss, deduction or credit of members of the DNI
Consolidated Group ("DNI Consolidated Return Items").
(c) LITIGATION. If the federal income tax liability of the
ANI Consolidated Group becomes the subject of litigation in any court, the
conduct of the litigation shall be controlled exclusively by ANI. DNI shall
cooperate with ANI during the course of litigation, and ANI shall consult
with DNI regarding any issues arising in such litigation relating to DNI
Consolidated Return Items.
(d) EXPENSES. DNI shall reimburse ANI for all incremental
reasonable out-of-pocket expenses payable to third parties (including,
without limitation, legal, consulting, and accounting fees) incurred by ANI
in the course of proceedings described in paragraphs (a), (b) and (c) of this
Section to the extent such expenses are reasonably attributable to DNI
Consolidated Return Items for any Agreement Year.
(e) RECALCULATION OF PAYMENTS TO REFLECT ADJUSTMENTS. To
the extent that any audit, litigation or claim for refund with respect to an
ANI Consolidated Return results in an additional payment of tax (including a
payment of tax made preliminary to commencing a refund
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claim or litigation) or a refund of tax (any such additional payment or
refund, an "Adjustment") relating to the treatment of a DNI Consolidated
Return Item a corresponding adjustment shall be made to the corresponding Pro
Forma DNI Return.
All calculations of payments made pursuant to this
Agreement shall be recomputed to reflect the effect of any Adjustments on the
relevant Pro Forma DNI Return and on any Reduction Amount giving rise to a
payment to Media General pursuant to Section 5. If as a result of such
recomputation an amount is owed by DNI to ANI or by ANI to DNI, then within 5
days after any such Adjustment, DNI or ANI, as the case may be, shall make
such payment to the other party reflecting such Adjustment, plus interest
pursuant to Section 9 of this Agreement calculated as if payments by and to
DNI pursuant to Sections 4 and 5 of this Agreement and this Section 7 were
payments and refunds of federal income taxes. DNI shall not be required to
pay to ANI the amount of any penalties, additions to tax or additional
amounts incurred by the ANI Consolidated Group as a result of an adjustment
to any DNI Consolidated Return Item for an Agreement Year, but shall be
required to pay interest pursuant to Section 9 of this Agreement
If as a result of such recomputation an additional amount
is owed by ANI to Media General pursuant to Section 5 of this Agreement, then
within 5 days after any such Adjustment, ANI shall make such payment to Media
General, reflecting such Adjustment, in each case plus interest pursuant to
Section 9 of this Agreement calculated as if payments pursuant to Section 5
of this Agreement and this Section 7 were payments of federal income taxes.
If (i) as a result of such recomputation relating to the
disallowance of a Tax Attribute and elimination of a related Reduction
Amount, or (ii) as a result of the carryback of a
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Tax Attribute of the ANI Consolidated Group (not including, for this purpose,
the members of the DNI Consolidated Group), a payment previously made from
ANI to Media General (or to its transferees pursuant to Section 1.03(b) of
the Shareholder's Agreement (as defined below) pursuant to Section 5 herein
would not have been owing, then, 20% of such unrepaid Reduction Amount
(without any interest or penalties added thereto) shall be credited against
(i) any dividends otherwise to be paid to Media General (or its transferees
pursuant to Section 1.03(b) of the Shareholder's Agreement) with respect to
their remaining shares of DNI common stock (ii) any amounts payable to Media
General (or its transferees pursuant to Section 1.03(b) of the Shareholder's
Agreement) with respect to exercise of their "put" rights or ANI's exercise
of its "call" rights with respect to such common stock pursuant to Section 4
of the Shareholder's Agreement, (iii) any amounts payable to Media General
pursuant to Section 1.6 of the Stock Purchase Agreement, as that term is
defined in the Shareholder's Agreement, and (iv) any subsequent payments
otherwise owing to Media General (or its transferees pursuant to Section
1.03(b) of the Shareholder's Agreement) pursuant to Section 5 herein. The
foregoing obligations shall expire at such time as Media General (or a
transferee pursuant to Section 1.03(b) of the Shareholder's Agreement)
disposes of its shares of DNI common stock (other than to a transferee
pursuant to Section 1.03(b) of the Shareholder's Agreement) and ANI and DNI
shall have no claim against Media General (or any such transferee) with
respect to such obligations thereafter.
8. FIDUCIARY DUTIES
The parties acknowledge that, notwithstanding any other
provision of this Agreement, ANI and DNI's actions pursuant to this Agreement
(including, without limitation, actions relating to the preparation and
filing of tax returns, settlement of audits and litigations,
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and similar proceedings) shall be subject to the fiduciary duties and fair
dealing obligations set forth in Section 6.02(g) of the Shareholders'
Agreement concurrently entered into between ANI, DNI and Media General (the
"Shareholder's Agreement").
9. INTEREST.
Interest required to be paid by or to DNI pursuant to this
Agreement shall, unless otherwise specified, be computed at the applicable
rate and in the manner provided in the Code for interest on underpayments and
overpayments, respectively, of federal income tax for the relevant period,
except that payments concurrently owing from ANI to DNI and DNI to ANI shall
be treated as bearing interest at the identical interest rate. Any other
payments required pursuant to this Agreement which are not made within the
time period specified in this Agreement shall bear interest at the applicable
federal rate, as defined in Code Section 1274, for a short-term debt
instrument with monthly compounding, other than payments made by ANI to Media
General pursuant to the first paragraph of Section 5 hereof.
10. FOREIGN, STATE AND LOCAL INCOME TAXES.
In the case of foreign, state or local taxes based on or
measured by the net income of the ANI Consolidated Group, or any combination
of members thereof (other than solely with respect to members which are
members of the DNI Consolidated Group or which are members of the ANI
Consolidated Group but not the DNI Consolidated Group) on a combined,
consolidated or unitary basis, the provisions of Sections 1 through 9 of this
Agreement with respect to sharing of federal income tax liability, including,
without limitation, the indemnification provided in Section 2, shall apply
with equal force to such foreign, state or local tax whether or not the DNI
Consolidated Group is included in the ANI Consolidated Group for federal
income tax purposes;
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PROVIDED, HOWEVER, that interest pursuant to the first sentence of Section 9
of this Agreement shall be computed at the rate and in the manner provided
under such foreign, state or local law for interest on underpayments and
overpayments of such tax for the relevant period and references to provisions
of the Code shall be deemed to be references to analogous provisions of
state, local, and foreign law. ANI shall have the sole and exclusive
responsibility for determining if a combined, consolidated or unitary tax
return should be filed for any foreign, state or local tax purpose.
11. CONFIDENTIALITY.
Each of ANI, DNI and Media General agrees that any
information furnished pursuant to this Agreement is confidential and, except
as, and to the extent, required during the course of an audit or litigation
or other administrative or legal proceeding, shall not be disclosed to other
persons.
12. SUCCESSORS AND ACCESS TO INFORMATION.
This Agreement shall be binding upon and inure to the
benefit of any successor to any of the parties, by merger, acquisition of
assets or otherwise, to the same extent as if the successor had been an
original party to this Agreement, provided, however, that Media General's
rights and obligations hereunder shall be assignable only pursuant to a
Transfer (as defined in the Shareholder's Agreement) pursuant to Section
1.03(b) or Section 1.03(d) of the Shareholder's Agreement. If Media General
disposes of all or any portion of its interest in DNI (including by means of
a disposition to ANI), then (a) with respect to taxable periods (or portions
thereof) occurring prior to such transaction, its rights and obligations
under this Agreement shall not be reduced, but its obligations shall be
enforceable only in respect of the shares, if any, held by
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Media General and its transferees pursuant to Section 1.03(b) of the
Shareholder's Agreement
and
(b) with respect to taxable periods (or portions thereof) occurring after
such disposition, its rights and obligations under this Agreement shall be
reduced proportionately, or extinguished, as the case may be, to reflect such
disposition. Media General and its transferees shall have no rights or
obligations hereunder in respect of shares transferred to ANI or its
affiliates. If for any taxable year the DNI Consolidated Group is no longer
included in the ANI Consolidated Group, ANI and DNI agree to provide to the
other party any information reasonably required to complete tax returns for
taxable periods beginning after the DNI Consolidated Group is no longer
included in an ANI Consolidated Return, and each of ANI and DNI will
cooperate with respect to any audits or litigation relating to any ANI
Consolidated Return.
13. GOVERNING LAW.
This Agreement shall be governed by and construed in
accordance with the laws of New York excluding (to the greatest extent
permissible by law) any rule of law that would cause the application of the
laws of any jurisdiction other than the State of New York.
14. HEADINGS.
The headings in this Agreement are for convenience only and
shall not be deemed for any purpose to constitute a part or to affect the
interpretation of this Agreement.
15. COUNTERPARTS.
This Agreement may be executed simultaneously in two or
more counterparts, each of which will be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one counterpart.
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16. SEVERABILITY.
If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the maximum extent
practicable. In any event, all other provisions of this Agreement shall be
deemed valid, binding, and enforceable to their full extent.
17. TERMINATION.
Unless otherwise agreed by the parties, this Agreement
shall remain in force and be binding so long as the period of assessments
under the Code remains unexpired for any taxable year during which the DNI
Consolidated Group is included in an ANI Consolidated Return; PROVIDED,
HOWEVER, that neither ANI nor DNI shall have any liability to the other party
with respect to tax liabilities for taxable years in which the DNI
Consolidated Group is not included in the ANI Consolidated Returns.
18. SUCCESSOR PROVISIONS.
Any reference herein to any provisions of the Code or
Treasury Regulations shall be deemed to include any amendments or successor
provisions thereto as appropriate.
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IN WITNESS WHEREOF, each of the parties of this Agreement
has caused this Agreement to be executed by its duly authorized officer on
this date of ______________, 1999.
Media News Group, Inc.
By: /s/
-----------------------------------
Name:
Title:
Denver Newspapers, Inc.
By: /s/
-----------------------------------
Name:
Title:
Media General, Inc.
By: /s/
-----------------------------------
Name:
Title:
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