FORM OF TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT, made as of __________, 1999 (the
"Agreement"), by and among xXXxX*s Inc. (hereinafter referred to as "xXXxX*s"),
and iTurf Inc., (hereinafter referred to as "iTurf") for taxable years
commencing on and after January 1, 1999.
RECITALS
X. xXXxX*s and its subsidiaries form an affiliated group (the "xXXxX*s
Group") within the meaning of Section 1504(a) of the Internal Revenue Code
including any successor provision thereto (the "Code"), and the xXXxX*s
Group desires to continue to file a consolidated Federal income tax return
and consolidated or combined state income tax returns where allowed by
law;
B. It is contemplated that concurrently with or shortly after the execution
of this Agreement, iTurf may consummate an initial public offering of less
than 20 percent of its common stock;
C. It would be to the mutual advantage of the parties hereto, and could
result in reduced Federal and State income tax being paid by all parties,
if a consolidated Federal income tax return and consolidated or combined
state income (or franchise) tax returns (where allowed) are filed which
will include xXXxX*s (and its subsidiaries) and iTurf in accordance with
the terms of applicable state law and regulations.
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
I. Consolidated Return
X. xXXxX*s and iTurf shall file such consents and other documents and
take such action as may be necessary to continue filing a
consolidated tax return for the xXXxX*s Group, and such consolidated
or combined state income tax returns as allowed.
X. xXXxX*s and iTurf shall cause any corporation that is currently or
which hereafter becomes an affiliate of either of them and a member
of the xXXxX*s Group to join in this Agreement.
X. xXXxX*s and iTurf shall maintain, and shall cause any subsidiaries
subsequently formed or acquired to maintain, concurrent fiscal
years.
D. Any dispute between the parties with respect to the operation or
interpretation of
this Agreement shall be referred to and decided by the independent
public accountants for the xXXxX*s Group.
II. Calculation of Corporate Income Tax Liability
A. Beginning with the tax year commencing February 1, 1999, and for
each tax year thereafter, each member of the xXXxX*s Group,
including iTurf but other than xXXxX*s, will pay to xXXxX*s an
amount equal to its Federal corporate income tax liability computed
as if that member filed a separate Federal income tax return for
such period. In making this computation, items specified in Treas.
Reg. ss. 1.1552-1(a)(2)(ii)-(a) through (i) shall be computed as if
a xXXxX*s consolidated return had been filed.
B. This paragraph B applies in the event that the computation set forth
in paragraph A, above, results in iTurf incurring a net operating
loss or unutilized tax credit (such iTurf loss or credit hereinafter
referred to as a "Tax Attribute") with respect to any taxable year,
which Tax Attribute is absorbed (within the meaning of Treasury
Regulation Section 1.1502-32) by another member of the xXXxX*s Group
(other than iTurf) in the same (or another preceding or succeeding
taxable year). In that event, at the close of the tax year in which
the Tax Attribute is incurred or absorbed (whichever is later), an
intercompany note receivable ("Tax Receivable") in favor of iTurf
payable by xXXxX*s shall be created in an amount equal to the
portion of Tax Attribute absorbed multiplied by the highest marginal
federal corporate income tax rate provided for in Section 11 of the
Code or any successor provision thereto (or in the case of the
absorption of a credit, the amount of such credit).
C. Principles similar to the principles set forth in this Section II
shall be applied in determining (i) the amounts of any consolidated
or combined state, local or foreign corporate income (or franchise)
tax liability that is required to be paid by members of the xXXxX*s
Group, including iTurf, but other than xXXxX*s, to xXXxX*s, and (ii)
the amount of any Tax Receivable in favor of iTurf payable by
xXXxX*s that shall be created to reflect the absorption by any
member of the xXXxX*s Group (other than iTurf) of any Tax Attribute
for state, local or foreign income tax purposes.
III. Liability for Tax Payments
X. xXXxX*s will pay the Federal corporate tax liabilities of the
xXXxX*s Group for any period in which the xXXxX*s Group files a
consolidated Federal income tax return. If the xXXxX*s Group files a
consolidated or combined return for any state, locality or foreign
jurisdiction for any period, xXXxX*s will pay the liability arising
out of that return.
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B. iTurf and each member of the xXXxX*s Group shall pay to xXXxX*s the
amount of its federal tax liability (and where iTurf or another
member has been included in a consolidated or combined return, the
amount of the state, local or foreign tax liability relating to such
inclusion) as computed pursuant to the provisions of Section II,
above.
C. If the consolidated or combined federal, state, local or foreign
income tax liability is adjusted for any taxable period, whether by
means of an amended return, claim for refund, or audit by the
Internal Revenue Service or any other taxing authority, the
obligation of each member shall be recomputed under Section II and
this Section III of this Agreement to give effect to such
adjustments. In the case of a refund, xXXxX*s shall make payments to
each member for its share of the refund, within thirty days after
the refund is received by the xXXxX*s, and in the case of an
increase in tax liability, each member shall pay to xXXxX*s its
allocable share of such increased tax liability within twenty days
after receiving notice of such liability from xXXxX*s. If any
interest (or penalty) is to be paid or received as a result of a
consolidated federal income tax deficiency or refund, such interest
shall be allocated in the ratio each member's change in federal,
state, local or foreign income tax liability bears to the total
change in such tax liability.
D. Any payments that iTurf is required to make pursuant to this
Agreement may be satisfied by a corresponding offset to, and
reduction of, the amount of any Tax Receivable. In the event iTurf
leaves the xXXxX*s Group, for any tax year in which it is no longer
a member, it shall become entitled to the payment of the Tax
Receivable to the extent, and in the amount, of its aggregate
federal, state, local and foreign income tax liability computed
pursuant to the principles of Section II of this Agreement. To the
extent that a Tax Receivable is not offset, reduced or paid pursuant
to the preceding sentences of this paragraph D, the outstanding
amount of the receivable shall be paid at the close of the fifth
succeeding calendar year following its creation.
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IV. Method and Time of Payment
Payments of consolidated estimated tax for the consolidated xXXxX*s Group at the
normal quarterly due dates will be made by xXXxX*s. Each member of the xXXxX*s
Group (including iTurf) will pay to xXXxX*s at those quarterly due dates, such
amounts as determined by xXXxX*s, based on estimates of the payment obligation
of each member pursuant to this Agreement prepared by xXXxX*s and computed
pursuant to the provisions of Section II, above, as of the close of the
appropriate quarter. Upon the determination of the xXXxX*s Group's consolidated
tax liability for the year, each member (including iTurf) shall make/receive
payment to/from xXXxX*s in an amount equal to such member's liability for the
entire year determined pursuant to paragraph III, above, less amounts already
paid for estimated tax. In the event a member leaves the xXXxX*s Group, the
payment obligation of or to such member pursuant to this paragraph shall be
computed as of the day immediately preceding the first day any such member is no
longer a member of the xXXxX*s Group and payment of the obligation of such
member shall be made no later than the quarterly due date as described above and
payments by xXXxX*s to such member should be made no later than 30 days after
the close of the last quarter of the taxable year.
V. Successors Assigns
The provisions and terms of this Agreement shall be binding on and inure to the
benefit of any successor, by merger, acquisition of assets or otherwise, of any
of the parties hereto.
VI. New Members/Members Leaving the Group
If, at any time any other company becomes a member of the xXXxX*s Group, the
parties hereto agree that such member shall become a party to this Agreement by
executing a duplicate copy of this Agreement. Unless otherwise specified, such
named member shall have all the rights and obligations of a subsidiary under
this Agreement. Any member corporation which leaves the xXXxX*s Group shall
continue to be bound by this Agreement with respect to periods during which it
was a member.
VII. Parent Designate
xXXxX*s may designate a subsidiary (other than iTurf) to act on behalf of the
xXXxX*s Group in performing the duties identified in this Agreement (other than
xXXxX*s obligation with respect to the Tax Receivable).
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VIII. Duration
Unless earlier terminated by mutual agreement of the parties, this Agreement
shall remain in effect with respect to any tax year for which iTurf is a member
of the xXXxX*s Group, and in any event so long as a Tax Receivable remains
outstanding.
IX. General
All material including but not limited to, returns, supporting schedules, work
papers, correspondence and other documents relating to the consolidated return
shall be made available to any party to this Agreement during regular business
hours. This Agreement shall be governed by the laws of Delaware. This Agreement
contains the entire agreement of the parties and there are no agreements,
representations or warranties not contained herein. This Agreement may not be
amended except by written instrument executed with the same formality as this
Agreement; provided, however, that as long as xXXxX*s has direct or beneficial
ownership of 30% or more of the voting power represented by the voting
securities of iTurf and no other person directly or beneficially owns a greater
percentage of such voting power, no amendment of a material term or waiver of a
material obligation of this Agreement shall be valid unless it has been approved
by a majority of the members of the board of directors of the iTurf who are not
directors or officers of xXXxX*s or the beneficial owners of five percent or
more of the outstanding voting securities of xXXxX*s. This Agreement may be
executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective with respect to the periods written above.
xXXxX*s Inc.
By:_______________________________________________
Name:
Title: Chief Financial Officer
iTurf Inc.
By:_______________________________________________
Name:
Title: Chief Operating Officer
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