EXHIBIT 10.4
SUPPLEMENT TO TAX ALLOCATION AGREEMENT
This Supplement to Tax Allocation Agreement (the "Agreement") is
entered into as of September 29, 2001 by and among Xxx. Xxxxxx' Holding
Company, Inc., a Delaware corporation ("MFH"), all "MFH Subsidiaries" (as
defined below), TCBY Holding Company, Inc., a Delaware corporation
("TCBY"), all "TCBY Subsidiaries" (as defined below), and Xxx. Xxxxxx
Famous Brands, Inc., a Delaware corporation ("Parent").
Recitals
MFH and the MFH Subsidiaries were, prior to the effective time of
the "Combination" (as defined below), includible corporations in an
affiliated group of corporations of which MFH was the common parent, all
within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code").
TCBY and the TCBY Subsidiaries (except for TCBY Systems, LLC,
which is treated as a disregarded entity for U.S. Federal income tax
purposes and Americana Foods Limited Partnership, which is treated as a
partnership for U.S. Federal income tax purposes) were, prior to the
effective time of the Combination, includible corporations in an affiliated
group of corporations of which TCBY was the common parent (the "TCBY
Group"), all within the meaning of Section 1504 of Code.
Upon consummation of the Combination, MFH and TCBY each became
wholly-owned subsidiaries of Parent in a series of transactions (the
"Combination") treated for United States Federal income tax purposes as a
"reverse acquisition" within the meaning of Treasury Regulation
ss.1.1502-75(d)(3), such that the following were deemed to occur: (i) the
affiliated group of which MFH was the common parent continued in existence,
with Parent joining such affiliated group and replacing MFH as the common
parent of such affiliated group (the "Group"); (ii) the TCBY Group ceased
to exist; and (iii) TCBY and the TCBY Subsidiaries became members of the
Group.
Parent (i) will file consolidated Federal income tax returns on
behalf of itself and the other members of the Group and (ii) will file
unitary, combined, consolidated or similar state, local and foreign income
tax returns on behalf of itself and the other relevant members of the Group
in all jurisdictions where advisable.
Parent, MFH, the MFH Subsidiaries, TCBY, the TCBY Subsidiaries and
any other members admitted in the future to the Group will continue to be
governed by the Amended and Restated Tax Allocation Agreement (the "Tax
Allocation Agreement') dated as of September 27, 2001, by and among MFH,
the MFH Subsidiaries, TCBY, the TCBY Subsidiaries and Parent, as
supplemented and modified by this Agreement. In particular, the parties
hereto wish to provide for the equitable compensation of MFH for the
expected utilization of all or a part of the net operating loss and capital
loss attributes of the Group by TCBY and the TCBY Subsidiaries, and to
provide for reduced payments by TCBY and the TCBY Subsidiaries to Parent in
the manner provided herein.
Agreements
Accordingly, the parties agree as follows:
1. Definitions. Capitalized terms not otherwise defined shall have
the meaning given them in the Tax Allocation Agreement. For purposes of
this Agreement, except as otherwise expressly provided or unless the
context otherwise requires:
(a) "Adjusted TCBY Subgroup Separate Tax" means the TCBY
Subgroup Separate Tax, computed after taking into account MFH Attributes
utilized, in effect, against the taxable income, if any, of the TCBY
Subgroup by Parent to reduce the consolidated federal income tax.
(b) "MFH Attributes" means the net operating loss
carryforwards, capital loss carryforwards and any other similar attributes
of the Group on the date prior to the effective date of the Combination and
any operating losses and capital losses incurred by the MFH Subgroup on or
after the effective date of the Combination.
(c) "MFH Subgroup" means MFH and the MFH Subsidiaries.
(d) "MFH Subgroup Separate Tax" means the Subsidiary
Separate Tax computed with regard to the MFH Subgroup pursuant to Paragraph
1(d)(A) of the Tax Allocation Agreement.
(e) "MFH Subsidiaries" means (i) for Federal income tax
purposes, all corporations that would be entitled or required to join with
MFH in filing a consolidated Federal income tax return, determined as if
MFH were the common parent of an affiliated group of corporations under
Section 1504(a)(4) of the Code and (ii) for unitary, combined, consolidated
or similar state, local or foreign income tax purposes, all corporations
that would be entitled or required to join with MFH in filing a unitary,
combined, consolidated or similar state, local or foreign income tax
return, determined as if MFH were the deemed common parent for such
relevant tax purpose.
(f) "MFOC" means Xxx. Xxxxxx' Original Cookies, Inc., a
Delaware corporation.
(g) "Spread" has the meaning given to it in Paragraph 3 of
this Agreement.
(h) "TCBY Subgroup" means TCBY and the TCBY Subsidiaries.
(i) "TCBY Subgroup Separate Tax" means the Subsidiary
Separate Tax computed with regard to the TCBY Subgroup pursuant to
Paragraph 1(d)(A) of the Tax Allocation Agreement. Any net operating loss
or capital loss arising from the operations or disposition of Americana
Foods General Partner, Inc., FSL, Inc. or Americana Foods Limited
Partnership will be deemed to be an attribute of the TCBY Subgroup for all
purposes of this Agreement.
(j) "TCBY Subsidiary" means (i) for Federal income tax
purposes, all corporations (and TCBY Systems, LLC and Americana Foods
Limited Partnership) that would be entitled or required to join with TCBY
in filing a consolidated Federal income tax return, determined as if TCBY
were the common parent of an affiliated group of corporations under Section
1504(a)(4) of the Code and (ii) for unitary, combined, consolidated or
similar state, local or foreign income tax pur poses, all corporations that
would be entitled or required to join with TCBY in filing a unitary,
combined, consolidated or similar state, local or foreign income tax
return, determined as if TCBY were the deemed common parent for such
relevant tax purpose.
2. Designation of TCBY Subgroup. For purposes of the Tax
Allocation Agreement, the TCBY Subgroup shall constitute a subgroup under
Paragraph 1(d)(A) of the Tax Allocation Agreement. For purposes of the Tax
Allocation Agreement, each of the Subsidiary Separate Tax of the TCBY
Subgroup and the estimated tax payments of the TCBY Subgroup shall be based
on the Adjusted TCBY Subgroup Separate Tax. Any obligation of the TCBY
Subgroup shall be a joint and several obligation of each member of the TCBY
Subgroup.
3. Utilization by the TCBY Subgroup of MFH Attributes.
(a) Compensation for any utilization of MFH Attributes by
the TCBY Subgroup shall be made in accordance with this Paragraph 3.
(b) On or before any date on which the Group is obligated to
make any income tax payment with respect to which taxable income of the
TCBY Subgroup is being offset by MFH Attributes, TCBY Systems, LLC shall
make payments to MFOC and MFH (allocated as MFOC and MFH shall direct)
aggregat ing the sum of (A) 25% of the "Spread" (as defined below)
attributable to such utilization plus (B) the amount described in clause
(y) below. The "Spread" attribut able to any utilization of MFH Attributes
by the TCBY Subgroup shall be the excess of (x) the deemed value to the
TCBY Subgroup of such utilization calculated as 37% (which represents the
combined federal income tax rate and tax-effected state income tax rate) of
the aggregate amount of the MFH Attributes so utilized over (y) the present
value to MFOC and MFH of the MFH Attributes so utilized calculated using an
assumed tax rate of 37% (which represents the combined federal income tax
rate and tax-effected state income tax rate) and a 17.9% discount rate over
the period from the date of tax payment to the assumed date on which such
MFH Attributes would otherwise have been utilized by the MFH Subgroup. For
such purposes, the assumed date on which MFH Attributes would otherwise
have been utilized by MFOC or MFH will be established by assuming that the
first $6.2 million of MFH Attributes utilized by the TCBY Subgroup under
this provision would otherwise have been utilized by MFOC or MFH in
calendar year 2006, the next $8.8 million of MFH Attributes utilized by the
TCBY Subgroup under this provision would other wise have been utilized by
MFOC or MFH in calendar year 2005 and any remaining MFH Attributes utilized
by the TCBY Subgroup under this provision would other wise have been
utilized by MFOC or MFH in calendar year 2004, with income within any
particular Taxable Period deemed to accrue equally in the four quarters of
the period.
(c) The parties agree that taxable income of the TCBY
Subgroup shall be sheltered by MFH Attributes under this Paragraph 3 for so
long, but only for so long, as any remaining MFH Attributes would not be
needed to offset taxable income of the Group other than the TCBY Subgroup.
TCBY's right to utilize any MFH Attributes under this Paragraph 3 shall be
strictly conditioned on the actual receipt by MFOC and MFH of the specified
payments not later than the date of the filing of the related tax return.
The parties agree that Parent will provide a written notice to TCBY
Systems, LLC setting forth the amount and method of calculation of the
required payment at least two business days in advance of the date of the
filing of the related tax return. TCBY's payment obligations in such regard
are not subordinated to any other obligations of any member of the TCBY
Subgroup.
(d) For purposes of determining its Subsidiary Separate Tax
under Paragraph 1(d) of the Tax Allocation Agreement, no member of the MFH
Subgroup may take into account any of the MFH Attributes to the extent such
MFH Attributes have been utilized by the TCBY Subgroup and have resulted in
payment to MFH or MFOC under this Paragraph 3 of this Agreement.
(e) If (x) there is a redetermination of tax liability
pursuant to Paragraph 6(b) of the Tax Allocation Agreement and (y) such
redetermination results from a disallowance or limitation of MFH Attributes
that have been utilized and paid for (under Paragraph 3(b)) by the TCBY
Subgroup and (z) such MFH Attributes do not exist (or are limited) by
reason of a disallowance of losses or deductions claimed by the MFH
Subgroup (or Section 382 of the Code or the Treasury Regulations under
Section 1502 of the Code), then any amount payable by the TCBY Subgroup
pursuant to Paragraph 6(b) of the Tax Allocation Agreement as a result of
such redetermination shall be reduced by any amount actually paid by the
TCBY Subgroup pursuant to Paragraph 3(b) for such purported MFH Attributes
(and any interest provided for in applicable provisions of the Code
attributable to such amount actually paid by the TCBY Subgroup pursuant to
Paragraph 3(b)).
(f) If a "Section 382 Tax Event" or an "Other Tax Event"
(each as defined below) occurs during any Taxable Period ending after
August 31, 2001 through and including the Taxable Period of the Group
ending on the Saturday closest to December 31, 2006 (such Taxable Periods,
the "Relevant Taxable Periods"), and at the time that such Section 382 Tax
Event or Other Tax Event occurs less than $35,000,000 in MFH Attributes
shall have been utilized during the Relevant Taxable Periods by Parent and
its subsidiaries, then Parent shall pay to TCBY Systems, LLC the following
amount:
(i) in the event that a Section 382 Tax Event occurs, the
product of (A) the amount of the Covered Xxx. Xxxxxx
Merger Expenses times (B) the Xxx. Xxxxxx Attributes
Utilization Ratio; or
(ii) in the event that an Other Tax Event occurs, the
excess, if any, of (a) the amount of the Covered Xxx.
Xxxxxx Merger Expenses over (b) the aggregate amount,
over all of the Relevant Taxable Periods, of 75% of
the Spread.
"Covered Xxx. Xxxxxx Merger Expenses" shall mean that portion of the "Xxx.
Xxxxxx Merger Expenses" (as defined in the Amended and Restated Credit
Agreement dated as of August 31, 2001 among TCBY, TCBY Enterprises, Inc.,
TCBY Systems, LLC, and the lenders party thereto and Xxxxx Fargo Bank,
National Association, as agent) that are actually paid by any member of the
TCBY Subgroup.
"Xxx. Xxxxxx Attributes Utilization Ratio" shall mean (i) 1.0 minus (ii)
(A) the amount of the aggregate MFH Attributes utilized during the Relevant
Taxable Periods by Parent and its subsidiaries divided by (B) $35,000,000.
"Other Tax Event" shall mean any event or determination, other than a
Section 382 Tax Event, the effect of which is to reduce below $35,000,000
the aggregate amount of MFH Attributes that have either been utilized
during the Relevant Taxable Periods by Parent and its subsidiaries on or
prior to the occurrence of such Other Tax Event or remain eligible to be
utilized during the Relevant Taxable Periods by Parent and its
subsidiaries.
"Section 382 Tax Event" shall mean (i) any limitation on the use of MFH
Attributes under Section 382 of the Code or the Treasury Regulations under
Section 1502 of the Code (including a disposition of the stock or assets of
Parent, MFH, or any direct or indirect subsidiaries of MFH), (ii) any
failure of the MFH Attributes at the date of the Combination to have been
at least $35 million and (iii) a termination of this Supplement.
4. Reciprocity. The underlying principles of this Agreement shall
apply in the same general manner with respect to any tax benefit of the
TCBY Subgroup utilized by the MFH Subgroup.
5. State, Local and Foreign Taxes. The underlying
principles of this Agreement shall apply with respect to Federal income
taxes and may, in the reason able discretion of the Parent, apply in the
same general way with respect to unitary, combined, consolidated or similar
state, local and foreign income taxes, except that Paragraph 3 as written
already governs payments in respect of state and local income taxes.
6. Interpretations and Determinations. The application of this
Agreement and any dispute or ambiguity concerning the subject matter of
this Agreement shall be determined by Parent in its good faith discretion
in a manner consistent with the underlying principles of and procedures for
allocation under this Agreement. Such determination by Parent shall be
final and binding upon MFH, the MFH Subsidiaries, TCBY and the TCBY
Subsidiaries. Parent may from time to time establish any other special
rules that Parent in good xxxxx xxxxx necessary or appropriate to carry out
the purposes of this Agreement.
7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
The parties hereto have caused this Agreement to be duly executed
as of the date first written above.
XXX. XXXXXX FAMOUS BRANDS, INC.
By: /S/ XXXXXXX XXXX
-----------------------------------------
Name: Xxxxxxx Xxxx
Title: Sr. V.P., General Counsel
XXX. XXXXXX' HOLDING COMPANY, INC.
By: /S/ XXXXXXX XXXX
-----------------------------------------
Name: Xxxxxxx Xxxx
Title: Sr. V.P., General Counsel
TCBY HOLDING COMPANY, INC.
By: /S/ XXXXXXX XXXX
-----------------------------------------
Name: Xxxxxxx Xxxx
Title: Sr. V.P., General Counsel
SUBSIDIARIES:
XXX. XXXXXX' ORIGINAL COOKIES, INC.,
SUNSHINE PRETZEL TIME, INC., PEACHTREE
PRETZEL TIME, INC., CMBC, INC., THE XXX.
XXXXXX' BRAND, INC., XXX. XXXXXX COOKIES
AUSTRALIA, H&M OF CANADA, GREAT
AMERICAN COOKIE COMPANY, INC.,
LV-H&M, PRETZELMAKER, INC., FAIRFIELD
FOODS, INC., AIRPORT COOKIES, INC.,
PRETZEL TIME, INC.
By: /S/ XXXXXXX XXXX
-----------------------------------------
Name: Xxxxxxx Xxxx
Title: Sr. V.P., General Counsel
TCBY ENTERPRISES, INC., TCBY INTERNATIONAL,
INC., CMI PROPERTY HOLDINGS,
INC., JUICE WORKS DEVELOPMENT, INC.,
RIVERPORT EQUIPMENT AND DISTRIBUTION
COMPANY, TCBY OF KUWAIT, TCBY
INTERNATIONAL FOREIGN SALES CORPO
RATION, TCBY OF ARUBA, INC., TCBY OF
AUSTRALIA, INC., TCBY OF BOLIVIA, INC.,
TCBY OF COLUMBIA, INC., TCBY OF IRELAND,
INC., TCBY OF ISRAEL, INC., TCBY OF
JORDAN, INC., TCBY OF MEXICO, INC., TCBY
OF THE NETHERLANDS, INC., TCBY OF THE
PHILIPPINES, INC., TCBY OF PORTUGAL,
INC., TCBY OF QATAR, INC., TCBY OF SAUDI
ARABIA, INC., TCBY OF SOUTH AFRICA,
INC., TCBY OF TEXAS, INC., TCBY OF TURKEY,
INC., TCBY UNITED KINGDOM, INC.,
AMERICANA FOODS GENERAL PARTNER,
INC., FSL, INC.
By: /S/ XXXXXXX XXXX
-----------------------------------------
Name: Xxxxxxx Xxxx
Title: Sr. V.P., General Counsel
TCBY SYSTEMS, LLC
By: /S/ XXXXXXX XXXX
-----------------------------------------
Name: Xxxxxxx Xxxx
Title: Sr. V.P., General Counsel
AMERICANA FOODS LIMITED PARTNERSHIP
By: Americana Foods General Partner, Inc.
Its: General Partner
By: /S/ XXXXXXX XXXX
-----------------------------------------
Name: Xxxxxxx Xxxx
Title: Sr. V.P., General Counsel
All those other Subsidiaries appearing
on Schedule A to the Tax Allocation
Agreement, as such Schedule may be
amended from time to time.
