CONFORMED COPY
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TAX ALLOCATION AGREEMENT
dated as of December 6, 1996,
by and among
ROCKWELL INTERNATIONAL CORPORATION,
NEW ROCKWELL INTERNATIONAL CORPORATION
and
THE BOEING COMPANY
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS..................................................... 2
1.1. Definitions.......................................... 2
ARTICLE II
FILING OF TAX RETURNS........................................... 9
2.1. Preparation of Tax Returns........................... 9
2.2. Pre-Merger Tax Returns............................... 10
2.3. Post-Merger Tax Returns.............................. 10
ARTICLE III
PAYMENT OF TAXES................................................ 11
3.1. Allocation of Tax Liabilities........................ 11
3.2. Tax Refunds, Carrybacks and California Tax
Credits.............................................. 12
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES............................. 13
4.1. Straddle Period Taxes................................ 13
4.2. Share of Allowable Taxes............................. 14
4.3. Calculations and Determinations...................... 14
4.4. Principles of Determination.......................... 15
4.5. Change in Law........................................ 15
ARTICLE V
NEWCO OPTIONS; COMPENSATION PAYMENTS; CERTAIN CONTRACTS;
GUNSHIP CLAIMS; ENVIRONMENTAL COVERAGE CLAIMS; HEALTH CARE
CLAIMS; B-1B CONTRACTS; FOREIGN SUBSIDIARIES;
CONSENT SOLICITATION............................................ 16
5.1. Tax Deductions Arising in Respect of Newco
Options.............................................. 16
5.2. Compensation Payments................................ 18
5.3. Percentage Completion Contracts...................... 19
5.4. Gunship Claims....................................... 20
5.5. Environmental Coverage Claims and Health
Care Claims.......................................... 20
5.6. B-1B Contracts....................................... 21
5.7. Research and Experimentation Credit.................. 21
5.8. Foreign Subsidiaries................................. 22
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5.9. Consent Solicitation; Repayment of Short-
Term Debt........................................... 22
ARTICLE VI
TAX INDEMNIFICATION; TAX CONTESTS.............................. 23
6.1. Indemnification..................................... 23
6.2. Notice of Indemnity................................. 26
6.3. Tax Contests........................................ 26
6.4. Timing Adjustments.................................. 27
6.5. Certain Post-Distribution Transactions.............. 28
6.6. Payments Net of Taxes............................... 30
ARTICLE VII
COOPERATION AND EXCHANGE OF INFORMATION........................ 31
7.1. Preparation of Returns.............................. 31
7.2. Cooperation and Exchange of Information............. 31
7.3. Record Retention.................................... 32
7.4. Notification of Certain Dispositions................ 33
ARTICLE VIII
MISCELLANEOUS.................................................. 33
8.1. Entire Agreement.................................... 33
8.2. Modification or Amendment........................... 33
8.3. Notices............................................. 33
8.4. No Third Party Beneficiaries........................ 34
8.5. Assignment.......................................... 35
8.6. Term................................................ 35
8.7. Captions............................................ 35
8.8. Severability........................................ 35
8.9. Specific Performance................................ 35
8.10. Counterparts........................................ 36
8.11. Governing Law....................................... 36
8.12. Agent............................................... 36
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TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT (this "Agreement"), dated as
of December 6, 1996, among ROCKWELL INTERNATIONAL CORPORATION, a
Delaware corporation (the "Company"), NEW ROCKWELL INTERNATIONAL
CORPORATION, a Delaware corporation and a wholly owned subsidiary of
the Company ("Newco"), and THE BOEING COMPANY, a Delaware corporation
("Acquiror").
W I T N E S S E T H:
WHEREAS, the Company, Acquiror and Boeing NA, Inc., a wholly
owned subsidiary of Acquiror ("Sub"), have entered into an Agreement
and Plan of Merger dated as of July 31, 1996 (the "Merger Agreement"),
providing for the Merger (as defined in the Merger Agreement) of Sub
with and into the Company;
WHEREAS, the Board of Directors of the Company has approved
an agreement and plan of distribution in the form attached as Annex A
to the Merger Agreement (the "Distribution Agreement");
WHEREAS, the execution and delivery of this Agreement by the
parties hereto is a condition to the obligations of the parties to the
Merger Agreement to consummate the Merger;
WHEREAS, the execution and delivery of this Agreement by the
parties hereto is a condition to the obligations of the parties to the
Distribution Agreement to consummate the Distribution (as defined in
the Distribution Agreement);
WHEREAS, Acquiror and the Company, on behalf of each of them
and the Company Group (as defined herein) and Newco, on behalf of
itself and the Newco Group (as defined herein), wish to provide for
the allocation between the Company Group and the Newco Group of all
responsibilities, liabilities and benefits relating to or affecting
Taxes (as hereinafter defined) paid or payable by either of them for
all taxable periods, whether beginning before, on or after the
Distribution Date (as hereinafter defined) and to provide for certain
other matters; and
NOW, THEREFORE, in consideration of the premises and of the
respective covenants and agreements set forth herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. Capitalized terms used in this Agreement
and not otherwise defined herein shall have the meanings assigned to
such terms in the Merger Agreement or the Distribution Agreement, as
the case may be. As used in this Agreement, the following terms shall
have the following respective meanings:
"Acquiror Tax Opinion" means the opinion received by
Acquiror from Cravath, Swaine & Xxxxx pursuant to Section 6.3(c) of
the Merger Agreement.
"Acquiror's Tax Representation Letter" means the
representation letter delivered by Acquiror substantially in the form
of Annex D to the Merger Agreement.
"Actually Realized" or "Actually Realizes" means, for
purposes of determining the timing of any Taxes (or related Tax cost
or benefit) relating to any payment, transaction, occurrence or event
(including any Tax Refund), the time at which the amount of Taxes
payable by such person is increased above or reduced below, as the
case may be, the amount of Taxes that such person would be required to
pay but for such payment, transaction, occurrence or event.
"Affiliated Group" means the affiliated group of which the
Company is the common parent.
"Allowable Tax" means any Tax of the Company Group which is
an allowable cost under the Federal Acquisition Regulation, 48 C.F.R.
Chapter 1, and associated regulations and agreements between the
Company and any U.S. governmental entity, which agreements are
described on Schedule 1.
"B-1B Contracts" means the B-1B Full Scale Development
Contract (No. F33657-81-C-0208) and the B-1B Production Contract (No.
F33657-81-C-0201).
"Business Acquisition Agreement" means the Business
Acquisition Agreement dated November 22, 1996 among
Rockwell Australia Limited, ACN 004 471 078 Pty Ltd and New Rockwell
Australia Pty Limited, as amended by Amending Agreement dated December
4, 1996.
"California Tax Credits" means any California Tax credits
for manufacturing and research property resulting from qualified costs
paid or incurred on or before the Distribution Date by any member of
the Company Group or the Newco Group.
"California Tax Deficiency" means any Tax Deficiency with
respect to California Taxes.
"Code" means the Internal Revenue Code of 1986, as amended,
and shall include corresponding provisions of any subsequently enacted
Federal Tax laws.
"Combined Taxes" means all Taxes due with respect to any
combined, consolidated or unitary state, local or foreign corporate
Tax liability for all Pre-Merger Taxable Periods and Straddle Periods
with respect to Joint Tax Returns.
"Company Employees and Former Employees" means individuals
who were employees of the Company Group on or before the Distribution
Date and who do not become employees of the Newco Group between the
Distribution Date and the date of the event giving rise to a deduction
in respect of any Newco Options held by such individuals or
Compensation Payments made to such individuals or who become employees
of the Newco Group on or after the Distribution Date but are employees
of the Company Group when any such Newco Options are exercised or
Compensation Payments are made.
"Company Group" means, solely for purposes of this Agreement
and not for purposes of any other Reorganization Agreement, the
Company and its affiliates, other than Newco and its affiliates
(determined after giving effect to the transfers contemplated by
Article II of the Distribution Agreement) and, for Post-Tax
Indemnification Periods, shall include Acquiror and its affiliates.
"Company Tax Item" means a Tax Item that is attributable to
the Company Group and is not a Newco Tax Item.
"Company Tax Opinions" means the opinions received by the
Company from Xxxxxxxxxx & Xxxxx LLP and Wachtell,
Lipton, Xxxxx & Xxxx pursuant to Section 6.2(c) of the Merger
Agreement.
"Compensation Payments" means all payments made by any
member of the Newco Group under Sections 8.4 and 8.6 of the
Distribution Agreement, to the extent that such payments relate to
benefits accrued as of the Time of Contribution (as defined in the
Distribution Agreement).
"Contract Profitability" as of the Distribution Date shall
mean (i) in the case of any long-term contract a portion of which is
accounted for on the "percentage completion method" of accounting and
a portion of which is accounted for on the "completed contract method"
of accounting, in each case for Federal Income Tax purposes, the
excess of (A) the aggregate amount of taxable income that would have
been reportable for Federal Income Tax purposes for all Tax
Indemnification Periods with respect to such contract if the contract
had been accounted for in its entirety on the percentage completion
method of accounting for Federal Income Tax purposes over (B) the
actual amount of taxable income reportable for Federal Income Tax
purposes for all Tax Indemnification Periods with respect to such
contract, and (ii) in the case of any other long-term contract
accounted for on the completed contract or percentage of completion
method of accounting for Federal Income Tax purposes, the deferred
contract profitability with respect to such contract as of the
Distribution Date as calculated for financial accounting purposes.
"Debt Refinancing" has the meaning set forth in Section 5.9.
"Distribution Date" means the later of (i) the date on which
the Distribution occurs or is deemed to occur for Federal Income Tax
purposes and (ii) the date on which the Merger occurs or is deemed to
occur for Federal Income Tax purposes. Solely for purposes of this
Agreement, the Distribution or the Merger, as the case may be, shall
be deemed effective as of the close of business on the Distribution
Date.
"Environmental Coverage Claims" shall have the meaning
ascribed thereto in the Post-Closing Covenants Agreement.
"Group" means either the Company Group or the Newco Group,
as the context provides.
"Health Care Claims" shall have the meaning ascribed thereto
in Section 3.8 of the Post-Closing Covenants Agreement.
"Income Tax Benefit" means for any taxable period the excess
of (i) the hypothetical Income Tax liability of the taxpayer for the
taxable period calculated as if the Timing Difference or Reverse
Timing Difference, as the case may be, had not occurred but with all
other facts unchanged, over (ii) the actual Income Tax liability of
the taxpayer for the taxable period, calculated taking into account
the Timing Difference or Reverse Timing Difference, as the case may be
(treating an Income Tax Refund as a negative Income Tax liability for
purposes of such calculation).
"Income Tax Detriment" means for any taxable period the
excess of (A) the actual Income Tax liability of the taxpayer for the
taxable period, calculated taking into account the Timing Difference
or Reverse Timing Difference, as the case may be, over (B) the
hypothetical Income Tax liability of the taxpayer for the taxable
period, calculated as if the Timing Difference or Reverse Timing
Difference, as the case may be, had not occurred but with all other
facts unchanged (treating an Income Tax Refund as a negative Income
Tax liability for purposes of such calculation).
"Income Taxes" means any Tax based upon, measured by, or
calculated with respect to (i) net income or profits (including, but
not limited to, any capital gains, minimum Tax and any Tax on items of
Tax preference, but not including sales, use, real property gains,
real or personal property, gross or net receipts, transfer or similar
Taxes) or (ii) multiple bases (including, but not limited to,
corporate franchise, doing business or occupation Taxes) if one or
more of the bases upon which such Tax may be based upon, measured by,
or calculated with respect to, is described in clause (i) above.
"Indemnitee" has the meaning set forth in Section 6.2.
"Indemnitor" has the meaning set forth in Section 6.2.
"Indemnity Issue" has the meaning set forth in Section 6.2.
"IRS" means the Internal Revenue Service.
"Joint Tax Return" means any Tax Return that includes a
member of the Company Group and a member of the Newco Group.
"Newco Group" means Newco and its affiliates, determined
immediately after the Distribution and the Merger.
"Newco Options" means those options to purchase Newco Common
Stock or Newco Class A Common Stock, as the case may be, resulting
from the conversion of Company Options in accordance with the
Distribution Agreement.
"Newco Tax Item" means a Tax Item solely attributable to the
Newco Group.
"Newco's Tax Representation Letter" means the representation
letter delivered by Newco and the Company substantially in the form of
Annex E to the Merger Agreement.
"Other Individuals" means individuals other than Company
Employees and Former Employees.
"Other Taxes" has the meaning set forth in Section 3.1(c).
"Post-Merger Taxable Period" means a taxable period
beginning after the Distribution Date.
"Post-Tax Indemnification Period" means any Post-Merger
Taxable Period and that portion of any Straddle Period that begins on
the day after the Distribution Date.
"Pre-Merger Taxable Period" means a taxable period ending on
or before the Distribution Date.
"Prior Arrangement" means the Company's existing finance
policy for allocation of Taxes (including disclosed practices) a copy
of which finance policy (in effect as of the date hereof) is attached
hereto as Schedule 2 and the advance agreements between the Company
and any U.S. governmental entity a copy of which is attached hereto as
Schedule 1.
"Responsible Party" has the meaning set forth in Section 6.3.
"Reverse Timing Difference" means an increase in income,
gain or recapture, or a decrease in deduction, loss or credit, as
calculated for Income Tax purposes, of the taxpayer for the Tax
Indemnification Period coupled with an increase in deduction, loss or
credit, or a decrease in income, gain or recapture, of the taxpayer
for any Post-Tax Indemnification Period.
"Rockwell Australia" has the meaning set forth in Section
5.8(a).
"Straddle Period" means a taxable period that includes but
does not end on the Distribution Date.
"Tax" or "Taxes" means all forms of taxation, whenever
created or imposed, and whether of the United States or elsewhere, and
whether imposed by a local, municipal, governmental, state, foreign,
federal or other body, and without limiting the generality of the
foregoing, shall include income, sales, use, ad valorem, gross
receipts, license, value added, franchise, transfer, recording,
withholding, payroll, wage withholding, employment, excise,
occupation, unemployment insurance, social security, business license,
business organization, stamp, environmental, premium and property
taxes, together with any related interest (including the actual
interest that would have accrued if there were no netting of Taxes),
penalties and additions to any such tax, or additional amounts imposed
by any Taxing Authority (domestic or foreign) upon the Company Group,
the Newco Group, the Acquiror or any of their respective members or
divisions or branches or affiliates.
"Tax Audit Proceeding" means any audit or other examination,
judicial or administrative proceeding relating to liability for or
refunds or adjustments with respect to Taxes.
"Tax Deficiency" means a net increase in Taxes payable as a
result of a Tax Audit Proceeding or an amendment of a Tax Return or an
event having a similar effect.
"Tax Indemnification Period" means any Pre-Merger Taxable
Period and that portion of any Straddle Period that ends on the
Distribution Date.
"Tax Item" means any item of income, gain, loss, deduction,
credit, provisions for reserves, recapture of credits or any other
item which is taken into account in determining taxable income or is
otherwise taken into account in determining Taxes paid or payable,
including an adjustment under Section 481 of the Code resulting from a
change in accounting method.
"Tax Opinions" means the Acquiror Tax Opinion and the
Company Tax Opinions.
"Tax Records" has the meaning set forth in Section 7.3.
"Tax Refund" means a refund of Taxes (including a reduction
in Taxes as a result of any credit or any offset against Taxes or Tax
Items) reduced (but not below zero) by any net increase in Taxes
Actually Realized by the recipient (or its affiliate) thereof as a
result of the receipt thereof; provided, however, that for purposes of
determining any net increase in Taxes resulting from the refund of
1994 Australian Taxes of Rockwell Australia, any reduction of foreign
tax credits for U.S. Tax purposes attributable to the receipt of such
refund shall not be taken into account.
"Tax Return" means any return, filing, questionnaire,
information return or other document required to be filed, including
requests for extensions of time, filings made with respect to
estimated tax payments, claims for refund and amended returns that may
be filed, for any period with any Taxing Authority (whether domestic
or foreign) in connection with any Tax or Taxes (whether or not a
payment is required to be made with respect to such filing).
"Taxing Authority" means any governmental or
quasi-governmental body exercising any Taxing authority or Tax
regulatory authority.
"Timing Difference" means an increase in income, gain or
recapture, or a decrease in deduction, loss or credit, as calculated
for Income Tax purposes, of the taxpayer for any Post-Tax
Indemnification Period coupled with an increase in deduction, loss or
credit, or a decrease in income, gain or recapture, of the taxpayer
for the Tax Indemnification Period.
"Transfer Taxes" means all transfer, documentary, sales,
use, registration, value-added and other similar Taxes (including all
applicable real estate transfer Taxes and real property transfer gains
Taxes) and related amounts (including any penalties, interest and
additions to Tax) arising as a result of or otherwise incurred in
connection with any of the transactions contemplated by the
Reorganization Agreements.
ARTICLE II
FILING OF TAX RETURNS
2.1. Preparation of Tax Returns.
(a) Consistent with Agreements. Each of the parties to this
Agreement agrees to, and to cause each of its relevant affiliates to,
report the Contribution and Distribution as transactions described in
Sections 351 and 355 of the Code and/or a "reorganization" under
Section 368(a)(1)(D) of the Code and the Merger as a "reorganization"
under Section 368(a)(1)(B) of the Code on all Tax Returns and other
filings, to take no position inconsistent therewith or with the
consummation of such transactions as set forth in the Merger
Agreement, the Distribution Agreement, the Acquiror's Tax
Representation Letter, Newco's Tax Representation Letter and the Tax
Opinions (in the absence of a controlling change in law or
circumstance), and to file or cause to be filed all such Tax Returns
on a timely basis (including extensions).
(b) Consistent with Past Practice. All Tax Returns described
in Section 2.2 hereof filed after the date of this Agreement, in the
absence of a controlling change in law or circumstances, shall be
prepared on a basis consistent with the elections, accounting methods,
conventions and principles of taxation used for the most recent
taxable periods for which Tax Returns involving similar Tax Items have
been filed and in a manner that does not unreasonably accelerate
deductions or defer income between Tax Indemnification Periods and
Post-Tax Indemnification Periods to the extent that a failure to do so
would result in an increase in Tax payable by, or a reduction in Tax
attributes of, a member of the Company Group in a Post-Tax
Indemnification Period. Subject to the provisions of this Agreement,
all decisions relating to the preparation of Tax Returns shall be made
in the sole
discretion of the party responsible under this Agreement for
such preparation.
(c) Newco Obligations. Newco agrees to cooperate in good
faith with the Company to determine the appropriate amount of Tax
Items attributable to the Company Group to be reflected on any Tax
Returns for Pre-Merger Taxable Periods or Straddle Periods to be
prepared and filed by Newco in accordance with Section 2.2. Newco
further agrees to provide the Company with a copy of each such Tax
Return at least three weeks before it is filed and to follow the
procedures in Section 4.3 relating to the calculation of Taxes and to
not file any such Tax Returns without the prior written consent of the
Company, which consent shall not be unreasonably withheld. If such
consent is withheld, the Company shall so notify Newco at least two
weeks prior to the due date for filing such Tax Returns. Newco will
promptly provide the Company with copies of all such Tax Returns after
filing.
2.2. Pre-Merger Tax Returns.
(a) Consolidated Federal Tax Returns. The Affiliated Group
consolidated Federal Tax Returns (including amendments thereto)
required to be filed or actually filed for any Pre-Merger Taxable
Period after the date hereof shall be prepared and filed or caused to
be prepared and filed by Newco, and the Company hereby irrevocably
designates, and agrees to cause each of its affiliates to so
designate, Newco as its agent to take any and all actions necessary or
incidental to the preparation and filing of such Tax Returns.
(b) Other Pre-Merger Taxable Period and Straddle Period Tax
Returns. All Tax Returns (including amendments thereto) other than
those described in Section 2.2(a) which include a member of the Newco
Group or the Company Group that are required to be filed or are
actually filed for any Pre-Merger Taxable Period or Straddle Period
shall be prepared and filed or caused to be prepared and filed by
Newco. The Company hereby irrevocably designates and agrees to cause
each of its affiliates to designate Newco as its agent to take any and
all actions necessary or incidental to the preparation and filing of
such other Tax Returns.
2.3. Post-Merger Tax Returns. All Tax Returns for all
Post-Merger Taxable Periods shall be the responsibility of the Newco
Group if such Tax Returns relate
to a member or members of the Newco Group or their respective assets
or businesses, and shall be the responsibility of the Company Group if
such Tax Returns relate to a member or members of the Company Group or
their respective assets or businesses.
ARTICLE III
PAYMENT OF TAXES
3.1. Allocation of Tax Liabilities.
(a) Consolidated Federal Tax Liabilities. Except as
otherwise provided in this Agreement, Newco shall pay or cause to be
paid, on a timely basis, all Taxes due with respect to the
consolidated Federal Tax liability for all Pre-Merger Taxable Periods
of the Affiliated Group. The Company and Acquiror on behalf of the
Company Group hereby assume and agree to pay directly to or at the
direction of Newco, at least two days prior to the date payment
(including estimated payment) thereof is due, the Company Group's
allocable share of those Federal Taxes which are Allowable Taxes for
all Pre-Merger Taxable Periods which have not been paid on or before
the Distribution Date.
(b) Combined, Consolidated and Unitary Corporate Taxes.
Except as otherwise provided in this Agreement, Newco or a member of
the Newco Group shall pay or caused to be paid, on a timely basis, all
Combined Taxes. The Company and Acquiror on behalf of the Company
Group hereby assume and agree to pay directly to or at the direction
of Newco, at least two days prior to the date payment (including
estimated payment) thereof is due, (i) the Company Group's allocable
share of those Combined Taxes which are Allowable Taxes for all
Pre-Merger Taxable Periods and the portion of any Straddle Period
ending on the Distribution Date which have not been paid on or before
the Distribution Date and (ii) the Company Group's allocable share of
those Combined Taxes for the portion of any Straddle Period commencing
on the day after the Distribution Date which have not been paid on or
before the Distribution Date.
(c) Other Taxes. Except as otherwise provided in this
Agreement, Newco shall pay or caused to be paid all Taxes of the
Company Group and the Newco Group other than those described in
Sections 3.1(a) and 3.1(b) ("Other Taxes") for all Pre-Merger Taxable
Periods and Straddle
Periods. The Company and Acquiror on behalf of the Company Group
hereby assume and agree to pay directly to or at the direction of
Newco, at least two days prior to the date payment (including
estimated payment) thereof is due, (i) the Company Group's allocable
share of those Other Taxes which are Allowable Taxes for all
Pre-Merger Taxable Periods and the portion of any Straddle Period
ending on the Distribution Date and which have not been paid on or
before the Distribution Date and (ii) the Company Group's allocable
share of those Other Taxes for the portion of any Straddle Period
commencing on the day after the Distribution Date which have not been
paid on or before the Distribution Date.
(d) Post-Merger Taxes. Except as provided otherwise in this
Agreement, all Taxes for all Post-Merger Taxable Periods shall be paid
or caused to be paid by the party responsible under this Agreement for
filing the Tax Return pursuant to which such Taxes are due or, if no
such Tax Returns are due, by the party liable for such Taxes.
3.2. Tax Refunds, Carrybacks and California Tax Credits.
(a) Retention and Payment of Tax Refunds. Except as
otherwise provided in this Agreement, Newco shall be entitled to
retain, and to receive within ten days after Actually Realized by the
Company Group, the portion of all Tax Refunds (including without
limitation Tax Refunds of Australian Taxes) of Taxes for which the
Newco Group is liable pursuant to Section 3.1 or Section 6.1(a), and
the Company shall be entitled to retain, and to receive within ten
days after Actually Realized by the Newco Group, the portion of all
Tax Refunds of Taxes for which the Company Group is liable pursuant to
Section 3.1 or Section 6.1(b). Notwithstanding the foregoing, all Tax
Refunds (i) of Allowable Taxes or (ii) resulting from the carryback of
any Company Tax Item arising in a Post-Tax Indemnification Period to a
Tax Indemnification Period (determined in a manner analogous to the
determination of an Income Tax Benefit) shall be for the account and
benefit of the Company Group.
(b) Carrybacks. Except as otherwise provided in this
Agreement, any Tax Refund (other than a Refund of Allowable Taxes)
resulting from the carryback of any Newco Tax Item arising in a
Post-Tax Indemnification Period to a Tax Indemnification Period
(determined in a manner analogous to the determination of an Income
Tax Benefit) shall be for
the account of Newco, and the Company shall pay over to Newco any such
Tax Refund within ten days after it is Actually Realized by the
Company.
(c) Refund Claims. Newco shall be permitted to file at
Newco's sole expense, and the Company shall reasonably cooperate with
Newco in connection with, any claims for Tax Refund to which Newco is
entitled pursuant to this Section 3.2 or any other provision of this
Agreement. Newco shall reimburse the Company for any reasonable
out-of-pocket costs and expenses incurred by any member of the
Company Group in connection with such cooperation. The Company shall
be permitted to file at the Company's sole expense, and Newco shall
reasonably cooperate with the Company in connection with, any claims
for Tax Refund to which the Company is entitled pursuant to this
Section 3.2 or any other provision of this Agreement. The Company
shall reimburse Newco for any reasonable out-of-pocket costs and
expenses incurred by any member of the Newco Group in connection with
such cooperation.
Any claim for a Tax Refund to which Newco is entitled under
this Agreement shall be subject to the Company Group's consent (such
consent not to be unreasonably withheld), to be exercised in a manner
analogous to that set forth in Section 2.1(c). Any claim for a Tax
Refund to which the Company Group is entitled under this Agreement
shall be subject to the Newco Group's consent (such consent not to be
unreasonably withheld), to be exercised in a manner analogous to that
set forth in Section 2.1(c).
(d) California Tax Credits. Notwithstanding anything to the
contrary in this Agreement, Newco shall be entitled to receive, within
ten days after Actually Realized by the Company Group, any Tax Refund
attributable to any California Tax Credits.
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
4.1. Straddle Period Taxes. In the case of any Straddle
Period:
(i) the periodic Taxes of the Company Group and the
Newco Group that are not based on income or receipts (e.g., property
Taxes) for the portion of any Straddle
Period ending on the Distribution Date shall be computed based on the
ratio of the number of days in such portion of the Straddle Period and
the number of days in the entire taxable period;
(ii) Taxes of the Company Group and the Newco Group for
the portion of any Straddle Period ending on the Distribution Date
(other than Taxes described in Section 4.1(i) above) shall be computed
as if such taxable period ended as of the close of business on the
Distribution Date, and, in the case of any Taxes of the Company Group
and the Newco Group attributable to the ownership by any member of the
Company Group and the Newco Group of any equity interest in any
partnership or other "flowthrough" entity, as if a taxable period of
such partnership or other "flowthrough" entity ended as of the close
of business on the Distribution Date; and
(iii) with respect to any Joint Tax Return for a
Straddle Period, the allocation of Tax liability between the Company
Group, on the one hand, and the Newco Group, on the other hand, shall
be determined in a manner analogous to that set forth in Treasury
Regulation Section 1.1552-1(a)(2).
4.2. Share of Allowable Taxes. The Company Group's and the
Newco Group's allocable share of Tax liability which is attributable
to Allowable Taxes for all Pre-Merger Taxable Periods and the portion
of any Straddle Period ending on the Distribution Date shall be
determined in accordance with the Prior Arrangement.
4.3. Calculations and Determinations. All calculations and
determinations required to be made pursuant to this Agreement shall be
made in good faith by Newco on a basis consistent with prior years and
in a manner that does not unreasonably accelerate deductions or defer
income between Tax Indemnification Periods and Post-Tax
Indemnification Periods, and such calculations and determinations
shall be subject to the written approval of the Company, which
approval shall not be unreasonably withheld. Whenever Newco is
required to make any of the calculations or determinations referred to
in the prior sentence, Newco shall provide the Company with (i)
preliminary drafts of any material calculations (including
calculations of the amount for which the Company Group will be liable
under this Agreement) or determinations as early as practicable, and
final copies of such
calculations (including calculations of the amount for which the
Company Group will be liable under this Agreement) or determinations
no later than nine weeks prior to the date on which applicable Tax
Returns are to be filed, and such other information as the Company
shall reasonably request and (ii) if requested by the Company, access
(during reasonable business hours and upon reasonable advance notice)
to copies of the relevant portions of any Tax Returns, reports or
other statements. If the Company's written approval of such
calculations and determinations is withheld, the Company shall so
notify Newco no later than six weeks prior to the date on which the
applicable Tax Returns are to be filed.
4.4. Principles of Determination. In implementing this
Agreement, except as otherwise specifically provided, the parties
shall make any adjustments that are necessary to ensure that, with
respect to Taxes for Straddle Periods or Pre-Merger Taxable Periods,
payments and reimbursements between the parties reflect the principles
that the Company is to bear responsibility for Taxes for the Company
Group (and any affiliates) that (i) are attributable to the portion of
any Straddle Period after the Distribution Date (calculated by
treating the day after the Distribution Date as the first day of a
taxable period) or (ii) are Allowable Taxes for any Pre-Merger Taxable
Period or for any Straddle Period, and that Newco is to bear
responsibility for all other Taxes for Straddle Periods and Pre-Merger
Taxable Periods.
4.5. Change in Law. Notwithstanding the agreement with
respect to reporting of Tax Items attributable to Newco Options,
Compensation Payments, Environmental Coverage Claims and Health Care
Claims set forth in Sections 5.1(a), 5.2(a) and 5.5(a) of this
Agreement, respectively, neither the Company Group nor the Newco Group
shall have any obligation to report any such Tax Items as set forth in
such Sections in the event that either such party determines that
there is no substantial authority to support reporting such Tax Items
on a Tax Return filed by such party as a result of a change in or
amendment to any law or regulation, or any change in the official
interpretation thereof, effective or occurring after the date of this
Agreement, and such Group provides prompt notice to the other Group of
any such determination.
ARTICLE V
NEWCO OPTIONS; COMPENSATION PAYMENTS; CERTAIN CONTRACTS;
GUNSHIP CLAIMS; ENVIRONMENTAL COVERAGE CLAIMS; HEALTH CARE
CLAIMS; B-1B CONTRACTS; FOREIGN SUBSIDIARIES;
CONSENT SOLICITATION.
5.1. Tax Deductions Arising in Respect of Newco Options.
(a) Tax Deductions. Notwithstanding anything to the contrary
in this Agreement, unless the IRS issues a contrary private letter
ruling to the Company or Newco, or Newco and the Company otherwise
agree in writing, (x) the Company Group (and not the Newco Group)
shall claim the post-Distribution Date Tax deductions in respect of
Newco Options held by Company Group Employees and Former Employees
(e.g., due to an option cash-out, an exercise of non-incentive stock
options or a disqualifying disposition) and shall pay to Newco the
amount of any Tax Refund (such Tax Refund not to include, or be
tax-effected for any Tax Refund of the Company's allocable share of
Allowable Taxes) arising in respect of such deductions within ten days
after such Tax Refund is Actually Realized by the Company Group
(including the time estimated Tax payments are due), and (y) the Newco
Group shall claim any post-Distribution Date Tax deductions in respect
of Newco Options held by any Other Individuals. Notwithstanding
anything to the contrary contained herein, to the extent that any Tax
deductions of the Company Group in respect of Newco Options held by
Company Group Employees and Former Employees are carried back from a
Post-Tax Indemnification Period to a Tax Indemnification Period, the
Company shall pay to Newco any resulting Tax Refunds to the extent
required pursuant to this Section 5.1(a), but the Company shall have
no obligation to pay to Newco any additional amounts under any other
provision of this Agreement (other than Section 6.6(a)) with respect
to such Tax Refunds.
(b) Notices, Withholding, Reporting. Newco shall promptly
notify the Company of any post-Distribution Date event giving rise to
income to any Company Employees and Former Employees in connection
with the Newco Options and, if required by law, the Company shall
withhold applicable Taxes and satisfy applicable Tax reporting
obligations in connection therewith. Newco shall within 10 days of
demand thereof reimburse the Company for all reasonable out-of-
pocket expenses incurred in connection with the Newco Options,
including with respect to incremental Tax reporting obligations and
any incremental employment Tax obligations; provided that the Company
shall use reasonable efforts to collect any such amounts required to
be paid by Company Employees and Former Employees.
(c) Tax Audit Adjustments. Notwithstanding the provisions of
Section 5.1(a), in the event a Tax Audit Proceeding shall determine
(by settlement or otherwise), or the parties otherwise determine
pursuant to Section 4.5, that all or a portion of the Tax deductions
in respect of Newco Options held by Company Employees and Former
Employees was not available to the Company Group, Newco shall pay to
the Company the amount of the resulting Tax Deficiency (such Tax
Refund not to include, or be tax-effected for, any Tax Refund of the
Company's allocable share of Allowable Taxes) within 10 days after the
Company Group has notified the Newco Group that such Tax Deficiency
has been Actually Realized. In the event a Tax Audit Proceeding shall
determine (by settlement or otherwise), or the parties otherwise
determine pursuant to Section 4.5, that all or a portion of the Tax
deductions in respect of Newco Options held by Other Individuals
should have been claimed by the Company Group, the Company shall claim
such Tax deductions (by an amended Tax Return or otherwise) and shall
pay to Newco the amount of any Tax Refund (such Tax Refund not to
include, or be tax-effected for, any Tax Refund of the Company's
allocable share of Allowable Taxes) arising in respect of such Tax
deduction, in each case within 10 days after such Tax Refund is
Actually Realized by the Company Group (including at the time
estimated Tax payments are due). In the event that any Tax Audit
Proceeding shall determine (by settlement or otherwise) that the
Company Group realized taxable income directly or indirectly as a
result of the exercise or settlement (including payment by Newco in
cash or stock) of the Newco Options or the disqualifying disposition
of any stock received upon exercise thereof (determined in a manner
analogous to the determination of an Income Tax Detriment), Newco
shall pay to the Company the amount of any resulting Tax Deficiency
(such Tax Refund not to include, or be tax-effected for, any Tax
Refund of the Company's allocable share of Allowable Taxes) within 10
days after the Company Group has notified the Newco Group that such
Tax Deficiency has been Actually Realized.
(d) IRS Ruling Request. At Newco's request and sole expense,
Newco and the Company shall jointly seek a private letter ruling from
the IRS regarding the proper party to claim the post-Distribution Date
Tax deductions in respect of Newco Options.
5.2. Compensation Payments.
(a) Tax Deductions. Notwithstanding anything to the contrary
in this Agreement, unless Newco and the Company otherwise agree in
writing, (x) the Company Group (and not the Newco Group) shall claim
the post-Distribution Date Tax deductions in respect of Compensation
Payments paid to Company Group Employees and Former Employees and
shall pay to Newco the amount of any Tax Refund (such Tax Refund not
to include, or be tax-effected for, any Tax Refund of the Company's
allocable share of Allowable Taxes) arising in respect of such Tax
deductions within ten days after such Tax Refund is Actually Realized
by the Company Group (including the time estimated Tax payments are
due) and (y) the Newco Group shall claim any post-Distribution Date
Tax deductions in respect of Compensation Payments paid to Other
Individuals. Notwithstanding anything to the contrary contained
herein, to the extent that any Tax deductions of the Company Group in
respect of Compensation Payments are carried back from a Post-Tax
Indemnification period to a Tax Indemnification Period, the Company
shall pay to Newco any resulting Tax Refunds to the extent required
pursuant to this Section 5.2(a), but the Company shall have no
obligation to pay to Newco any additional amounts under any other
provision of this Agreement (other than Section 6.6(a)) with respect
to such Tax Refunds.
(b) Notices, Withholding, Reporting. The Company shall
withhold applicable Taxes and satisfy applicable Tax reporting
obligations in connection with the Compensation Payments made to
Company Group Employees and Former Employees. Newco shall within 10
days of demand thereof reimburse the Company for all reasonable
out-of-pocket expenses incurred in connection with the Compensation
Payments, including with respect to incremental Tax reporting
obligations and any incremental employment Tax obligations resulting
from such Compensation Payments; provided that the Company shall use
reasonable efforts to collect any such amounts required to be paid by
Company Employees and Former Employees.
(c) Tax Audit Adjustments. Notwithstanding the provisions of
Section 5.2(a), in the event a Tax Audit Proceeding shall determine
(by settlement or otherwise), or the parties otherwise determine
pursuant to Section 4.5, that all or a portion of the Tax deductions
in respect of Compensation Payments paid to Company Employees and
Former Employees was not available to the Company Group, Newco shall
pay to the Company the amount of the resulting Tax Deficiency (such
Tax Refund not to include, or be tax-effected for, any Tax Refund of
the Company's allocable share of Allowable Taxes) within 10 days after
the Company Group has notified the Newco Group that such Tax
Deficiency has been Actually Realized. In the event a Tax Audit
Proceeding shall determine (by settlement or otherwise), or the
parties otherwise determine pursuant to Section 4.5, that all or a
portion of the Tax deductions in respect of Compensation Payments paid
to Other Individuals should have been claimed by the Company Group,
the Company shall claim such Tax deductions (by an amended Tax Return
or otherwise) and shall pay to Newco the amount of any Tax Refund
(such Tax Refund not to include, or be tax-effected for, any Tax
Refund of the Company's allocable share of Allowable Taxes) arising in
respect of such deductions, in each case within 10 days after such Tax
Refund is Actually Realized by the Company Group (including at the
time estimated Tax payments are due). In the event that any Tax Audit
Proceeding shall determine (by settlement or otherwise) that the
Company Group realized taxable income directly or indirectly as a
result of the payment of any Compensation Payments (determined in a
manner analogous to the determination of an Income Tax Detriment),
Newco shall pay to the Company the amount of any resulting Tax
Deficiency (such Tax Refund not to include, or be tax-effected for,
any Tax Refund of the Company's allocable share of Allowable Taxes)
within 10 days after the Company Group has notified the Newco Group
that such Tax Deficiency has been Actually Realized.
5.3. Percentage Completion Contracts.
(a) Adjustment to Contract Profitability. Newco and the
Company shall each bear one-half of any interest cost due to, and be
entitled to receive one-half of any interest refunded by, the IRS in
respect of Tax Indemnification Periods resulting from adjustments
required subsequent to the Distribution Date with respect to long-
term contracts held by the Company pursuant to the look-back method of
Treasury Regulation Section 1.460-6 or any comparable provision of
State, local or foreign Tax law.
The Company shall pay to Newco its share of any such refunded interest
within 10 days after such refund is Actually Realized by the Company,
and Newco shall pay to the Company its share of any such interest due
within 10 days after the Company Group has notified the Newco Group
that such interest cost has been Actually Realized by the Company
Group.
5.4. Gunship Claims.
(a) Gunship Claims Income Tax Paid. Newco hereby represents
that prior to the date hereof the Company has reflected in taxable
income on its U.S. Federal Income Tax Returns $181 million of income
relating to the Gunship Claims.
(b) Tax Item Timing Adjustments. If the Newco Group so
requests, the Company Group shall consent to Newco pursuing a claim
for a Tax Refund, at Newco's sole expense, in respect of Federal
Income Taxes paid by the Company prior to the date hereof with respect
to income relating to the Gunship Claims. Any such refund claim shall
be governed by Section 3.2. Notwithstanding any other provision in
this Agreement, Newco shall pay to the Company the amount of any
increase in Taxes for the Post-Tax Indemnification Period attributable
to the receipt of any resulting Tax Refund within 10 days after the
Company Group has notified the Newco Group that such increase has been
Actually Realized.
5.5. Environmental Coverage Claims and Health Care Claims.
(a) Tax Return Reporting. Newco and the Company shall each
report its proportionate share of Tax Items attributable to the
Environmental Coverage Claims and Health Care Claims, based on the
allocation of the proceeds of the Environmental Coverage Claims and
Health Care Claims (in the case of income Items), and the manner in
which costs are shared (in the case of deduction Items), pursuant to
Sections 3.2 and 3.8, respectively, of the Post-Closing Covenants
Agreement.
(b) Tax Audit Adjustments. (i) In the event a Tax Audit
Proceeding shall determine (by settlement or otherwise), or the
parties otherwise determine pursuant to Section 4.5, that the Company
Group should have reported Tax Items in respect of the Environmental
Coverage Claims or the Health Care Claims that were reported by the
Newco Group
pursuant to Section 5.5(a), Newco shall pay to the Company the amount
of any resulting Tax Deficiency (and shall have the right to receive
or retain any resulting Tax Refund) within ten days after the Company
has notified Newco that it has Actually Realized such Tax Deficiency
or after the Company Group has Actually Realized such Tax Refund, as
the case may be.
(ii) In the event a Tax Audit Proceeding shall determine (by
settlement or otherwise), or the parties otherwise determine pursuant
to Section 4.5, that the Newco Group should have reported Tax Items in
respect of the Environmental Coverage Claims or the Health Care Claims
that were reported by the Company Group pursuant to Section 5.5(a),
the Company shall pay to the Newco Group the amount of any resulting
Tax Deficiency (and shall have the right to receive or retain any
resulting Tax Refund) within ten days after Newco has notified the
Company that it has Actually Realized such Tax Deficiency or after the
Newco Group has Actually Realized such Tax Refund, as the case may be.
(c) For purposes of determining when a party has Actually
Realized a Tax Deficiency under Section 5.5(b), in the event and to
the extent Taxes payable by that the Company or Newco, as the case may
be, are not increased as a result of including Tax Items in the nature
of income attributable to the Environmental Coverage Claims or the
Health Care Claims because such Tax Items are offset by losses,
credits or other Tax Items of such party, such party shall be deemed
to have paid Taxes with respect to such offset Tax Items at the
highest applicable marginal rates.
5.6. B-1B Contracts.
(a) Tax Return Reporting. The Company Group shall report on
its Post-Tax Indemnification Period Income Tax Returns all Tax Items
arising in respect of the B-1B Contracts that are not reflected on the
Company's Income Tax Returns for any Tax Indemnification Period, shall
pay all Taxes with respect to such Tax Items and shall be entitled to
all Tax Refunds attributable to such Tax Items.
5.7. Research and Experimentation Credit. The Company Group
hereby consents to Newco pursuing its claim for Tax Refund in respect
of Tax Returns filed for the Tax Indemnification Period relating to
the research and experimentation tax credit.
5.8. Foreign Subsidiaries.
(a) Distribution of Australian Subsidiary. Prior to the
Distribution, Rockwell Australia Limited ("Rockwell Australia") will
be distributed to the Company in a transaction intended to qualify as
a transaction pursuant to Section 355 of the Code. In the event that
such transaction does not so qualify and the Company Group sells or
otherwise disposes of the stock of Rockwell Australia, the Company
shall pay to Newco, within 10 days after such Tax Refund is Actually
Realized by the Company, the amount of any Company Group Tax Refund
arising because such transaction failed to so qualify.
(b) Foreign Tax Credits, Subpart F Income and PFIC Income.
In the event that, during the period beginning on the Distribution
Date and ending on September 30, 1997, the Company Group engages in
any transaction outside of the ordinary course of business and such
transaction (i) affects the foreign tax credit computation with
respect to any amount taken into income by the Company Group with
respect to Rockwell Australia and its subsidiaries for the Tax
Indemnification Period, (ii) increases the amount includible in the
Company Group's income pursuant to Section 951 et seq of the Code that
is attributable to the Company's ownership interest in Rockwell
Australia and its subsidiaries for the Tax Indemnification Period or
(iii) increases the Company Group's Tax pursuant to Section 1291 et
seq of the Code that is attributable to the Company's ownership
interest in Rockwell Australia and its subsidiaries for the Tax
Indemnification Period, the Company shall pay to Newco any resulting
additional net Tax cost to the Newco Group for the Tax Indemnification
Period within ten days after notification by Newco that the Company
Group has Actually Realized such net Tax cost.
(c) In connection with the transactions contemplated under
the Business Acquisition Agreement, the Company Group will cooperate
with Newco, provide such information as Newco reasonably requests and
take all actions as reasonably requested by Newco to minimize the
Taxes payable by the Company Group or the Newco Group attributable to
any action taken in connection with such transactions including, but
not limited to, consenting to the filing by Newco for rollover relief.
5.9. Consent Solicitation; Repayment of Short-Term Debt.
(a) Any net Income Tax cost attributable to cancellation of
indebtedness income ("CODI"), or net Income Tax benefit attributable
to bond retirement premium ("BRP") (determined in each case in a
manner analogous to the determination of an Income Tax Detriment and
Income Tax Benefit, respectively), recognized by the Company Group as
a result of the transactions described in Sections 3.1 and 5.18 of the
Merger Agreement and/or a tender offer by Acquiror for the outstanding
notes of the Company (collectively, the "Debt Refinancing") shall be
for the account of Acquiror.
(b) The Company Group shall report any CODI or BRP resulting
from the Debt Refinancing as occurring in a Post-Tax Indemnification
Period in accordance with Treasury Regulation Section
1.1502-76(b)(ii)(B), unless the relevant Taxing Authority will not
accept a Tax Return on such basis.
ARTICLE VI
TAX INDEMNIFICATION; TAX CONTESTS
6.1. Indemnification.
(a) Newco Indemnification. Except as otherwise provided in
Article V or Section 6.1(b), Newco and the Newco Group shall be liable
for and shall indemnify, defend and hold harmless the members of the
Company Group and Acquiror and each of their respective affiliates and
Representatives from and against (A) all Taxes of the Company Group
and the Newco Group for Pre-Merger Taxable Periods other than the
Company Group's allocable share of Allowable Taxes for such Pre-Merger
Taxable Periods, (B) all Taxes of the Company Group and the Newco
Group for the portion of any Straddle Period ending on the
Distribution Date other than the Company Group's allocable share of
Allowable Taxes for such portion of any such Straddle Period, (C) all
Taxes of the Newco Group for the portion of any Straddle Period
beginning on the day after the Distribution Date (calculated by
treating the day after the Distribution Date as the first day of a
taxable period), (D) all Taxes of the Newco Group for Post-Merger
Taxable Periods, (E) all liability (as a result of Treasury Regulation
Section 1.1502-6(a) or otherwise) for Income Taxes of any person
(other than a member of the Company Group or the Newco Group) which is
or has ever been affiliated with any member of the Company Group or
the Newco Group or with which any member of the
Company Group or the Newco Group joins or has ever joined (or is or
has ever been required to join) in filing any consolidated, combined
or unitary Tax Return for any Pre-Merger Taxable Period or Straddle
Period, (F) the amount of any California Tax Deficiency resulting from
the receipt by the Company Group of any Tax Refund attributable to any
California Tax Credits, and the amount of any other net Tax cost
attributable to the California Tax Credits or any refund thereof, (G)
all Taxes for which Newco is liable pursuant to Article V or Section
6.5, (H) any Transfer Taxes imposed in connection with or as a result
of the Contribution and/or the Distribution, and one-half of any
Transfer Taxes imposed in connection with or as a result of the
Merger, (I) 50% of any Income Taxes payable by the Company Group in
any Post-Tax Indemnification Period with respect to any long-term
contract accounted for Federal income Tax purposes pursuant to the
"completed contract method" and/or the "percentage completion method"
of accounting to the extent attributable to Contract Profitability
with respect to such contract as of the Distribution Date, but only to
the extent such Contract Profitability exceeds $22 million in the
aggregate, (J) all Taxes for any taxable period (whether beginning
before, on or after the Distribution Date) that would not have been
payable but for the breach by any member of the Newco Group of any
representation, warranty or obligation under this Agreement, (K) all
Taxes for any taxable period (whether beginning before, on or after
the Distribution Date) that would not have been payable but for the
inaccuracy of the representations and warranties contained in clauses
(ix) or (xii) of Section 4.1(l) or clause (xi) of Section 4.1(m) of
the Merger Agreement or the breach of the covenant contained in
Section 5.1(n) of the Merger Agreement, (L) all liability for Taxes
resulting from the Contribution, Distribution and/or Merger (including
the transactions described in the last sentence of each of Sections
2.1(a), 2.1(b), 2.2(a) and 2.2(b) of the Distribution Agreement), (but
not including any Taxes attributable to collateral consequences of
such transactions, such as a reassessment of Company property for
property Tax purposes resulting from the change in control incident to
the Merger), (M) all Taxes that would not have been imposed but for
any reduction in the Tax attributes (including without limitation, Tax
loss carryovers and Tax basis in stock) of any member of the Company
Group that occurs as a result of the transactions (other than the
transfer of the stock of Rockwell Australia to the Company referred to
in Section 5.8(a)) contemplated under the Business Acquisition
Agreement (the "Rockwell Australia
Reorganization") (such additional Taxes to be computed taking into
account any Tax benefit resulting from the Rockwell Australia
Reorganization actually realized by any member of the Company Group at
or before the time such additional Taxes are imposed, provided,
however, that if any Tax benefit resulting from the Rockwell Australia
Reorganization is actually realized by any member of the Company Group
after the time such Taxes are imposed, the Company Group shall
reimburse Newco for the amount of any such reduction in Taxes as a
result therefrom, but not in excess of the amount previously paid by
the Newco Group pursuant to this Section 6.1(a)(M)), (N) all liability
for Taxes incurred by any member of the Company Group that would not
have been imposed except as a result of any action taken pursuant to
Section 5.8(c), and (O) all liability for any reasonable legal,
accounting, appraisal, consulting or similar fees and expenses
relating to the foregoing. Notwithstanding the foregoing, Newco shall
not indemnify, defend or hold harmless any member of the Company Group
from any liability for Taxes, other than Taxes resulting from the
failure of the Contribution or Distribution to qualify as transactions
described in Sections 351 or 355 of the Code and/or as a
"reorganization" under Section 368(a)(1)(D) of the Code and the Merger
as a "reorganization" pursuant to Section 368(a)(1)(B) of the Code,
resulting from any action taken by any member of the Company Group on
the Distribution Date after the Effective Time (other than actions
relating to the Debt Refinancing or in the ordinary course of
business) (a "Buyer Tax Act").
For purposes of clause (I) of the second preceding sentence,
Newco's indemnity obligation shall arise only at such time as the
Company Group Actually Realizes a Tax cost with respect to Contract
Profitability in excess of $22,000,000, which shall be deemed to occur
only after the Company Group has Actually Realized income items
attributable to Contract Profitability with respect to long-term
contracts in existence on the Distribution Date in an aggregate amount
of $22,000,000.
(b) Company and Acquiror Indemnification. (i) Company
Indemnification. Except as otherwise provided in Article V or Section
6.1(a), the Company shall be liable for and shall indemnify, defend
and hold harmless the Newco Group from and against (A) all Taxes of
the Company Group for Post-Merger Taxable Periods, (B) the Company
Group's allocable share of Allowable Taxes for Pre-Merger Taxable
Periods and the portion of any Straddle Period ending on the
Distribution Date, (C) all Taxes of the Company Group for the portion
of any Straddle Period beginning on the day after the Distribution
Date (calculated by treating the day after the Distribution Date as
the first day of a taxable period), (D) all Taxes resulting from a
Buyer Tax Act, (E) all Taxes for which the Company is liable pursuant
to Article V or Section 6.5, (F) all Taxes for any taxable period
(whether beginning before, on or after the Distribution Date) that
would not have been paid but for the breach by any member of the
Company Group of any representation, warranty or obligation under this
Agreement and (G) all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to the
foregoing.
(ii) Acquiror Indemnification. Acquiror shall indemnify
defend and hold harmless Newco for one-half of any Transfer Taxes
imposed in connection with or as a result of the Merger.
(c) Payments. Subject to Section 6.6(b), any indemnity
payment required to be made pursuant to this Section 6.1 shall be paid
within thirty days after the indemnified party makes written demand
upon the indemnifying party, but in no case earlier than five business
days prior to the date on which the relevant Taxes are required to be
paid (or would be required to be paid if no such Taxes are due) to the
relevant Taxing Authority (including estimated Tax payments).
6.2. Notice of Indemnity. Whenever a party hereto
(hereinafter an "Indemnitee") becomes aware of the existence of an
issue raised by any Taxing Authority which could reasonably be
expected to result in a determination that would increase the
liability for any Tax of the other party hereto or any member of its
Group for any Post-Tax Indemnification Period (in the case of the
Company Group) or for any Tax Indemnification Period (in the case of
the Newco Group) or require a payment hereunder to the other party
(hereinafter an "Indemnity Issue"), the Indemnitee shall in good faith
promptly give notice to such other party (hereinafter the
"Indemnitor") of such Indemnity Issue. The failure of any Indemnitee
to give such notice shall not relieve any Indemnitor of its
obligations under this Agreement except to the extent such Indemnitor
or its affiliate is actually materially prejudiced by such failure to
give notice.
6.3. Tax Contests. The Indemnitor and its representatives,
at the Indemnitor's expense, shall be entitled to participate (A) in
all conferences, meetings or proceedings with any Taxing Authority,
the subject matter of which is or includes an Indemnity Issue and (B)
in all appearances before any court, the subject matter of which is or
includes an Indemnity Issue. The party who has responsibility for
filing the Tax Return under this Agreement (the "Responsible Party")
with respect to which there could be an increase in liability for any
Tax or with respect to which a payment could be required hereunder
shall have the right to decide as between the parties hereto how such
matter is to be dealt with and finally resolved with the appropriate
Taxing Authority and shall control all audits and similar proceedings.
If no Tax Return is or was required to be filed in respect of an
Indemnity Issue, the Indemnitor shall be treated as the Responsible
Party with respect thereto. The Responsible Party agrees to cooperate
in the settlement of any Indemnity Issue with the other party and to
take such other party's interests into account. If the Indemnitor is
not the Responsible Party, such cooperation may include permitting the
Indemnitor, at the Indemnitor's sole expense, to litigate or otherwise
resolve any Indemnity Issue. If Newco is the Responsible Party and if
either (x) the Taxes at issue in the aggregate may equal or exceed
$50,000 (computed taking into account reasonably anticipated future
year Tax costs on a present value basis) or (y) the Indemnity Issue
relates to the qualification of the Contribution or the Distribution
as transactions described in Sections 351 and 355 of the Code and/or a
"reorganization" within the meaning of Section 368(a)(1)(D) of the
Code or the Merger as a "reorganization" within the meaning of Section
368(a)(1)(B) of the Code, (i) Newco shall not settle any such
Indemnity Issue without the prior written consent of the Acquiror,
which consent shall not be unreasonably withheld, (ii) the Acquiror,
and counsel of its own choosing, shall have the right to participate
fully, at its own expense, in all aspects of the defense of such
Indemnity Issue, (iii) Newco shall inform the Acquiror, reasonably
promptly in advance, of the date, time and place of all administrative
and judicial meetings, conferences, hearings and other proceedings
relating to such Indemnity Issue, (iv) the Acquiror shall, at its own
expense, be entitled to have its representatives (including counsel,
accountants and consultants) attend and participate in any such
administrative and judicial meetings, conferences, hearings and other
proceedings relating to such Indemnity Issue, (v) Newco shall provide
to the Acquiror all
information, document requests and responses, proposed notices of
deficiency, notices of deficiency, revenue agent's reports, protests,
petitions and any other documents relating to such Indemnity Issue
promptly upon receipt from, or in advance of submission to (as the
case may be), the relevant Taxing Authority or courts and (vi) Newco
shall not file or submit any protests, briefs, responses, petitions or
other documents relating to such Indemnity Issue with such relevant
Taxing Authority or courts without the prior written consent of the
Acquiror, which consent shall not be unreasonably withheld.
Notwithstanding any other provision of this Agreement, if Newco has
materially satisfied its obligations under this Agreement and if the
Company fails to permit Newco to control any Indemnity Issue relating
to the qualification of the Contribution and Distribution as
transactions described in Sections 351 and 355 of the Code and/or a
"reorganization" within the meaning of Section 368(a)(1)(D) of the
Code or the qualification of the Merger as a "reorganization" within
the meaning of Section 368(a)(1)(B) of the Code, then Newco shall not
be liable for and shall not indemnify the Company Group for any Tax
Deficiency resulting from an adverse determination of such Indemnity
Issue.
6.4. Timing Adjustments.
(a) Timing Differences. If a Tax Audit Proceeding or an
amendment of a Tax Return results in a Timing Difference, and such
Timing Difference results in a decrease in an indemnity obligation
Newco has or would otherwise have under Section 6.1 and/or an increase
in the amount of a Tax Refund to which Newco is entitled to under
Section 3.2, then in each Post-Tax Indemnification Period in which the
Company Group Actually Realizes an Income Tax Detriment, Newco shall
pay to the Company an amount equal to such Income Tax Detriment;
provided, however, that the aggregate payments which Newco shall be
required to make under this Section 6.4(a) with respect to any Timing
Difference shall not exceed the aggregate amount of the Income Tax
Benefits realized by the Newco Group for all taxable periods and the
Company Group for all Tax Indemnification Periods as a result of such
Timing Difference. Newco shall make all such payments within ten days
after the Company notifies Newco that the relevant Income Tax
Detriment has been Actually Realized.
(b) Reverse Timing Differences. If a Tax Audit proceeding or
an amendment of a Tax Return results in a
Reverse Timing Difference, and such Reverse Timing Difference results
in an increase in an indemnity obligation of Newco under Section 6.1
and/or a decrease in the amount of a Tax Refund to which Newco is or
would otherwise be entitled to under Section 3.2, then in each
Post-Tax Indemnification Period in which the Company Group Actually
Realizes an Income Tax Benefit, the Company shall pay to Newco within
ten days after the Company has Actually Realized such Income Tax
Benefit an amount equal to such Income Tax Benefit; provided, however,
that the aggregate payments which the Company shall be required to
make under this Section 6.4(b) which respect to any Reverse Timing
Difference shall not exceed the aggregate amount of the Income Tax
Detriments realized by the Company Group and the Newco Group for all
Tax Indemnification Periods as a result of such Reverse Timing
Difference.
6.5. Certain Post-Distribution Transactions.
(a) Consistent with Agreements. Newco shall, and shall cause
each Newco Group member to, comply with and take no action
inconsistent with Newco's Tax Representation Letter. Acquiror shall,
and shall cause each member of the Company Group to, comply with and
take no action inconsistent with Acquiror's Tax Representation Letter.
The Newco Group, Acquiror and the Company Group shall use their
respective best efforts to have the Contribution and the Distribution
qualify as transactions described in Sections 351 and 355 of the Code
and/or a "reorganization" within the meaning of Section 368(a)(1)(D)
of the Code and to have the Merger qualify as a "reorganization"
within the meaning of Section 368(a)(1)(B) of the Code. The parties
hereto intend that the sole remedy for breach of the covenants
contained in this Section 6.5(a) shall be as set forth in Section
6.5(b) hereof.
(b) Tax-Free Reorganization Treatment. Acquiror and the
Company agree to indemnify and hold the Newco Group harmless from and
against any Taxes resulting from any Action (as hereinafter defined)
which causes either the Contribution and the Distribution to fail to
qualify as transactions described in Sections 351 and 355 of the Code
and/or a "reorganization" within the meaning of Section 368(a)(1)(D)
of the Code or the Merger to qualify as a "reorganization" within the
meaning of Section 368(a)(1)(B) of the Code. An "Action" shall mean
any of the actions set forth on Schedule 6.5 hereof, taken by Acquiror
or the Company or any of their respective affiliates (other than
the members of the Newco Group) within the two-year period following
the Distribution Date. Notwithstanding the foregoing, an Action shall
not include any transaction or action disclosed or described in
Newco's Tax Representation Letter or the Acquiror's Tax Representation
Letter, or required or otherwise contemplated by any Reorganization
Agreement (or any agreement or document included as an exhibit
thereto), or of which the Company or Newco has actual knowledge as of
the Distribution Date. An Action shall not include any action on the
part of any member of the Newco Group, or any of their respective
shareholders, officers, directors or agents. Newco agrees to indemnify
and hold the Acquiror and the Company Group harmless from and against
any Tax liability resulting from or otherwise attributable to the
Contribution and Distribution failing to qualify under Sections 351
and 355 of the Code and/or a "reorganization" under Section
368(a)(1)(D) of the Code or the Merger failing to qualify as a
"reorganization" under Section 368(a)(1)(B) of the Code, except to the
extent such Tax liability results from an Action. For purposes of this
Section 6.5(b), the amount of any Taxes resulting from an Action shall
equal the difference between (i) the Taxes actually paid with respect
to the Contribution, Distribution and the Merger and (ii) the greater
of (x) the amount of Taxes that would have been payable with respect
to the Contribution and Distribution if such transactions had
qualified under Sections 351 and 355 of the Code and/or a
"reorganization" under Section 368(a)(1)(D) of the Code and the
Merger if such transaction had qualified as a "reorganization" under
Section 368(a)(1)(B) and (y) the amount of Taxes that would have been
payable with respect to the Contribution, Distribution and the Merger
in the absence of such Action.
6.6. Payments Net of Taxes. (a) Gross-Up and
Characterization. The amount of any payment under this Agreement or
under Section 2.1(b) of the Post-Closing Covenants Agreement shall be
(i) increased to take account of any net Tax cost incurred by the
recipient thereof as a result of the receipt or accrual of payments
hereunder (grossed-up for such increase) and (ii) reduced to take
account of any net Tax benefit realized by the recipient arising from
the incurrence or payment of any such payment, other than any such net
Tax benefit that the recipient is specifically entitled to retain
pursuant to this Agreement. In computing the amount of any such Tax
cost or Tax benefit, the recipient shall be deemed to recognize all
other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt or accrual of any
payment hereunder. Except as provided in Section 6.6(b), or unless the
parties otherwise agree to an alternative method for determining the
present value of any such anticipated Tax benefit or Tax cost, any
payment hereunder shall initially be made without regard to this
Section and shall be increased or reduced to reflect any such net Tax
cost (including gross-up) or net Tax benefit only after the recipient
has Actually Realized such cost or benefit. It is the intention of the
parties that payments made pursuant to this Agreement are to be
treated as relating back to the Contribution as an adjustment to the
assets and liabilities contributed thereunder, and the parties shall
not take any position inconsistent with such intention before any
Taxing Authority, except to the extent that a final determination (as
defined in Section 1313 of the Code) with respect to the recipient
party causes any such payment not to be so treated.
(b) Time for Payment. Notwithstanding any other provision of
this Agreement, to simplify the administration of this Agreement, the
payment of any amount less than $25,000 required to be made pursuant
to this Agreement by one party hereto to another party hereto need not
be made to such other party prior to thirty days following the later
of (i) the close of the calendar quarter during which such payment
obligation arose and (ii) the day during such calendar quarter when
the aggregate amount of all such less than $25,000 payment obligations
arising during such calendar quarter exceeds $150,000. Unless
otherwise specified by the recipient for items exceeding $100,000, any
such payment may be made on a net Tax basis (i.e., reduced to take
account of any net Tax benefit to be realized by the recipient
(computed at an effective Tax rate to be agreed upon from time-to-time
by the parties)) to the extent such recipient is entitled to a
corresponding deduction.
(c) Right to Offset. Any party making a payment under this
Agreement shall have the right to reduce any such payment by any
amounts owed to it by the other party to this Agreement.
ARTICLE VII
COOPERATION AND EXCHANGE OF INFORMATION
7.1. Preparation of Returns. The Company shall, and shall
cause each appropriate member of the Company Group to, prepare and
submit to Newco, at the Company's expense, (i) no later than 120 days
prior to the due date (taking into account any extensions), but in no
case earlier than 60 days after the close of the relevant taxable
period, for any Affiliated Group consolidated Federal Tax Returns or
any state, local or foreign combined or unitary corporate Joint Tax
Returns, all information that Newco shall reasonably request, in such
form as Newco shall have reasonably requested, to enable Newco to file
such Tax Returns and (ii) no later than 120 days prior to the due date
(taking into account any extensions), but in no case earlier than 60
days after the close of the relevant taxable period, for any other Tax
Return for Pre-Merger Taxable Periods and Straddle Periods which Newco
is responsible for filing, all information that Newco shall reasonably
request, in such form as Newco shall have reasonably requested, to
enable Newco to file such Tax Returns.
7.2. Cooperation and Exchange of Information. Each party
hereto, on behalf of itself and its affiliates, agrees to provide the
other party hereto with such cooperation and information as such other
party shall reasonably request in connection with the preparation or
filing of any Tax Return or claim for Tax Refund not inconsistent with
this Agreement or in conducting any audit or other proceeding in
respect to Taxes or to carry out the provisions of this Agreement. To
the extent necessary to carry out the purposes of this Agreement and
subject to the other provisions of this Agreement, such cooperation
and information shall include without limitation the non-exclusive
designation of an officer of Newco as an officer of the Company and
Acquiror and each of their affiliates for the purpose of signing Tax
Returns, cashing refund checks, pursuing refund claims, dealing with
Taxing Authorities and defending audits as well as promptly forwarding
copies of appropriate notices and forms or other communications
received from or sent to any Taxing Authority which relate to the
Company Group for the Tax Indemnification Period and providing copies
of all relevant Tax Returns for the Tax Indemnification Period,
together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by
Taxing Authorities, including without limitation, foreign Taxing
Authorities, and records concerning the ownership and Tax basis of
property, which either party may possess. Subject to the rights of the
Company Group under the other provisions of this Agreement, such
officer shall have the authority to execute powers of attorney
(including Form 2848) on behalf of each member of the Company Group
with respect to Tax Returns and Taxes for the Tax Indemnification
Period. Each party to this Agreement shall make, or shall cause its
affiliates to make, their employees and facilities available on a
mutually convenient basis to provide an explanation of any documents
or information provided hereunder.
7.3. Record Retention. The Company and Newco agree to retain
all Tax Returns, related schedules and workpapers, and all material
records and other documents as required under Section 6001 of the Code
and the regulations promulgated thereunder relating thereto ("Tax
Records") existing on the date hereof or created through the
Distribution Date, for 10 years from the Distribution Date and (ii)
allow the other parties to this Agreement and their Representatives
(and Representatives of any of its affiliates), at times and dates
reasonably acceptable to the retaining party, to inspect, review and
make copies of such records, and have access to such employees, as the
Company and Newco may reasonably deem necessary or appropriate from
time to time, such activities to be conducted during normal business
hours and without disruption to either of its businesses. At the end
of the 10-year period described in clause (i), the Company or Newco,
as the case may be, shall transfer such records (or cause such records
to be transferred) to the other party (at such other party's sole
expense), unless such other party notifies the Company or Newco, as
the case may be, within 90 days prior to the expiration of the 10-year
period, that such other party does not desire to receive such Tax
Records, in which case the Company or Newco, as the case may be, may
destroy or otherwise dispose of such undesired documents.
7.4. Notification of Certain Dispositions. Acquiror shall
give Newco at least 30 days prior written notice in the event that any
time prior to October 1, 2002 Rockwell Australia disposes of all or
any portion of the ownership interest in, or all or a substantial
portion of the assets of, A.C.N. 004 471 078 Pty. Ltd. Such notice
shall describe any such disposition in sufficient detail to enable
Newco (i) to comply with the requirements of
Section 367 of the Code and applicable regulations thereunder and (ii)
to enter into a revised gain recognition agreement under Section 367
of the Code and the applicable regulations if such disposition occurs
in a transaction in which no gain or loss is required to be recognized
under U.S. income tax principles or gain is recognized solely by
reason of Section 357(c) of the Code.
ARTICLE VIII
MISCELLANEOUS
8.1. Entire Agreement. This Tax Allocation Agreement
constitutes the entire agreement, and supersedes all other prior
agreements, understandings, representations and warranties, both
written and oral, among the parties, with respect to the subject
matter hereof and thereof.
8.2. Modification or Amendment. The parties hereto may
modify or amend this Agreement only by written agreement executed and
delivered by duly authorized officers of the respective parties.
Anything in this Agreement or any other Reorganization Agreement to
the contrary notwithstanding, in the event and to the extent that
there shall be a conflict between the provisions of this Agreement and
any other Reorganization Agreement, the provisions of this Agreement
shall control.
8.3. Notices. Any notice, request, instruction or other
communication to be given hereunder by any party to any other party
shall be in writing and shall be deemed to have been duly given (i) on
the date of delivery if delivered personally, or by telecopy or
telefacsimile, upon confirmation of receipt, (ii) on the first
business day following the date of dispatch if delivered by Federal
Express or other nationally reputable next-day courier service, or
(iii) on the third business day following the date of mailing if
delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set forth
below, or
pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
(a) If to Newco:
NEW ROCKWELL INTERNATIONAL CORPORATION
0000 Xxxx Xxxxx Xxxxxxxxx
Xxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxx, Xx., Esq.
Senior Vice President, General
Counsel and Secretary
Telecopy: (000) 000-0000
with copies to:
Xxxxxxxxxx & Xxxxx LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telecopy: (000) 000-0000
(b) if to Acquiror or the Company:
The Boeing Company
X.X. Xxx 0000
X/X 00-00
Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxxx X. Xxxxxxx
Vice President & General
Counsel
Telecopy: (000) 000-0000
with copies to:
Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxx, Esq.
Telecopy: (000) 000-0000
8.4. No Third Party Beneficiaries. Except as otherwise
expressly provided herein, nothing contained in this Agreement is
intended to confer upon any person or entity other than the parties
hereto and their respective successors and permitted assigns, any
benefit, right or remedies under or by reason of this Agreement.
8.5. Assignment. No party to this Agreement shall convey,
assign or otherwise transfer any of its rights or obligations under
this Agreement without the express written consent of the other
parties hereto in their sole and absolute discretion. Any such
conveyance, assignment or transfer without the express written consent
of the other parties shall be void ab initio. No assignment of this
Agreement shall relieve the assigning party of its obligations
hereunder.
8.6. Term. This Agreement shall commence on the date of
execution indicated below and shall continue in effect until otherwise
agreed to in writing by Newco and the Company, or their successors.
8.7. Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part
of this Agreement and shall not be deemed to limit or otherwise affect
any of the provisions hereof.
8.8. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a
court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions hereof, or the application of such provision
to persons or circumstances other than those as to which it has been
held invalid or unenforceable, shall remain in full force and effect
and shall in no way be affected, impaired or invalidated thereby, so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any
party. Upon any such determination, the parties shall negotiate in
good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.
8.9. Specific Performance. In the event of any actual or
threatened default in, or breach of, any of the terms, conditions and
provisions of this Agreement, the party or parties who are or are to
be thereby aggrieved shall have the right of specific performance and
injunctive relief giving effect to its or their rights under this
Agreement, in addition to any and all other rights and remedies at law
or in equity, and all such rights and remedies shall be cumulative.
The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate
compensation for
any loss and that any defense in any action for specific performance
that a remedy at law would be adequate is waived.
8.10. Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of separate counterparts, each
such counterpart being deemed to be an original instrument, and all
such counterparts shall together constitute the same agreement.
8.11. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New
York applicable to contracts made and to be performed entirely within
such State, without regard to the conflicts of law principles of such
State.
8.12. Agent. Any consent rights of members of the Newco
Group under this Agreement shall be exercised by Newco on behalf of
the Newco Group, and any notices given by the Company Group to Newco
shall be deemed to be given to each member of the Newco Group. Any
consent rights of the Company Group under this Agreement shall be
exercised by Acquiror on behalf of the Company Group, and any notices
given by Newco to Acquiror shall be deemed to be given to each member
of the Company Group.
IN WITNESS WHEREOF, this Agreement has been duly executed
and delivered by the duly authorized officers of the parties hereto on
the date first hereinabove written.
ROCKWELL INTERNATIONAL
CORPORATION
By:
/s/ XXXXXXX X. XXXXXX, XX.
----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice
President
NEW ROCKWELL INTERNATIONAL
CORPORATION
By:
/s/ XXXXXXX X. XXXXXX, XX.
----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice
President
THE BOEING COMPANY
By:
/s/ XXXXXX X. XXXXXX
----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President and Chief
Executive Officer
