EXHIBIT 2.7
EXHIBIT A TO
DISTRIBUTION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of _______________, 199__ by and among
PROVIDIAN CORPORATION, a Delaware corporation ("Company"), and PROVIDIAN
BANCORP, INC., a Delaware corporation and a direct wholly owned subsidiary of
Company ("Spinco").
RECITALS
WHEREAS:
A. Company is the common parent of an affiliated group of corporations
(the "Company Affiliated Group") within the meaning of Section 1504(a) of the
Code (as hereinafter defined), and the members of the Company Affiliated Group
have heretofore joined in filing consolidated Federal income tax returns.
B. Company expects, pursuant to the Agreement and Plan of Distribution
dated as of December 28, 1996 (the "Distribution Agreement") between Company and
Spinco and subject to the terms thereof, to distribute its entire interest in
Spinco to its shareholders. In furtherance of this decision, among other things
(and as more fully set forth in the Distribution Agreement), (i) Spinco intends
to undertake a recapitalization so that the number of shares of Spinco Common
Stock (as defined in the Distribution Agreement) outstanding and held by the
Company immediately prior to the Distribution Date (as hereinafter defined)
shall equal the number of shares of Company Common Stock (as defined in the
Distribution Agreement) outstanding on the Record Date (as defined in the
Distribution Agreement) and (ii) Company intends to distribute on the
Distribution Date pro rata to the holders of Company Common Stock all of the
outstanding shares of Spinco Common Stock (the "Distribution").
C. Immediately after the Distribution, Company will merge with LT Merger
Corp., a Delaware corporation ("Sub"), with Company surviving (the "Merger"), as
contemplated by the Plan and Agreement of Merger and Reorganization dated as of
December 28, 1996 (the "Merger Agreement") between AEGON N.V., a company formed
under the laws of The Netherlands ("Merger Partner"), Sub, and Company, in
connection with which the holders of Company Common Stock will receive common
stock of Merger Partner in a transaction intended to qualify as a reorganization
under Section 368(a) of the Code.
D. Company and Spinco intend the Distribution to be a transaction
described in Section 355 of the Code, after which neither Spinco nor any of its
Subsidiaries (as hereinafter defined) will be a member of the Company Affiliated
Group for Federal income tax purposes.
E. Company and Spinco desire on behalf of themselves, their respective
Subsidiaries and their successors to set forth their rights and obligations with
respect to Taxes (as hereinafter defined) due for periods before and after the
Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.2 "Company Group" shall mean, for any period, Company and its then
Subsidiaries.
1.3 "Distribution Date" shall mean the day on which, due to the
distribution of the shares of Spinco Common Stock to the holders of the Company
Common Stock, Spinco could no longer be considered a member of the Company
Affiliated Group.
1.4 "Event of Loss" shall mean the incurrence by the Company Group of any
liability for Taxes which arise as a result of the Distribution and related
transactions failing to qualify as a reorganization under Section 368(a)(1)(D)
of the Code and as a tax-free spinoff under Section 355 of the Code.
1.5 "Final Determination" shall mean with respect to any issue (i) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (ii) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service (the "Service")) entered into in
connection with or in contemplation of an administrative or judicial proceeding,
or (iii) the completion of the highest level of administrative proceedings if a
judicial contest is not available or is no longer available.
1.6 "Indemnitor" shall have the meaning set forth in Section 5.2.
1.7 "Overlap Period" shall have the meaning set forth in Section 2.5(b).
1.8 "Period After Distribution" shall mean any taxable year or other
taxable period beginning after the Distribution Date and, in the case of any
taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period that
begins after the close of the Distribution Date.
1.9 "Period Before Distribution" shall mean any taxable year or other
taxable period that ends on or before the Distribution Date and, in the case of
any taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period through
the close of the Distribution Date.
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1.10 "Spinco Group" shall mean, for any period, Spinco and its then
Subsidiaries.
1.11 "Subsidiary" shall mean a corporation, partnership, joint venture or
other business entity where 50% or more of the outstanding equity or voting
power of such entity is owned directly or indirectly by another corporation. In
determining whether a Subsidiary is a Subsidiary of Spinco or Company for any
period, Spinco shall not be considered a Subsidiary of Company, and any
Subsidiary of Spinco shall be considered a Subsidiary of Spinco, not Company,
for such period.
1.12 "Tax" or "Taxes" whether used in the form of a noun or adjective,
shall mean taxes on or measured by or with respect to income, franchise, gross
receipts, sales, use, excise, payroll, personal property, real property, ad-
valorem, value-added, leasing, leasing use and shall also include all other
taxes, levies, imposts, duties, charges or withholdings of any nature. Whenever
the term "Tax" or "Taxes" is used (including, without limitation, regarding any
duty to reimburse another party for indemnified Taxes or refunds or credit of
Taxes) it shall include penalties, fines, additions to Tax and interest thereon.
1.13 "Tax Returns" shall mean all returns or reports to be filed or that
may be filed for any period with any taxing authority (whether domestic or
foreign) in connection with any Tax (whether domestic or foreign).
1.14 "Tax Sharing Agreements" shall mean (i) the Tax Allocation Agreement
between Company and First Deposit National Bank, dated as of May 12, 1994; (ii)
the Tax Allocation Agreement between Company and Providian Credit Services,
Inc., dated as of May 12, 1994; and (iii) the Tax Allocation Agreement between
Company and Providian National Bank, dated as of May 12, 1994.
ARTICLE II
TAX RETURNS, TAX PAYMENTS, EVENT OF LOSS
AND TAX SHARING AGREEMENTS
2.1 Obligation to File Tax Returns. Company shall timely file or cause to
be filed all Tax Returns with respect to the Spinco Group that (a) are filed on
a consolidated, combined or unitary basis, (b) include Spinco or any of its
Subsidiaries and Company or any of its Subsidiaries, and (c) are required to be
filed (i) for any Period Before Distribution, or (ii) for any taxable year or
period of the Company Group that begins before and ends after the Distribution
Date. Spinco shall timely file or cause to be filed any other Tax Return with
respect to the Spinco Group.
2.2 Obligation to Remit Taxes. Company and Spinco shall each remit or
cause to be remitted on a timely basis any Taxes due in respect of any Tax for
which it is required to file a Tax Return or which is otherwise due and shall be
entitled to reimbursement for such payments only to the extent provided in
Section 2.3.
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2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) Spinco shall be liable for and shall hold the Company Group harmless
against any liability attributable to Spinco or to any Subsidiary that is a
member of the Spinco Group for Taxes, regardless of whether attributable to a
Period Before Distribution or a Period After Distribution, including any
liability asserted against any member of the Company Group under the provisions
of Treas. Reg. 1.1502-6(a) that impose several liability on members of an
affiliated group of corporations that files consolidated returns, or similar
provisions of any foreign, state or local law, in respect of Taxes of any member
of the Spinco Group. Spinco shall be entitled to any refund or credit of Taxes
for any period that is attributable to losses, deductions, credits, adjustments
to income or other tax attributes of the Spinco Group. Refunds or credits of
Taxes generated by losses, deductions, credits, adjustments to income or other
tax attributes of the Company Group shall not be treated as attributable to the
Spinco Group, even where such losses, deductions, credits, adjustments to income
or other tax attributes are used to offset income or Tax liability of the Spinco
Group. Any liability for Taxes or right to a refund under this Section 2.3(a)
shall be measured in accordance with the methods contained in the Tax Sharing
Agreements as implemented by the Company and Spinco prior to the date hereof.
(b) Company shall be liable for and shall hold the Spinco Group harmless
against (i) any liability attributable to Company or to any Subsidiary that is a
member of the Company Group for Taxes, regardless of whether attributable to a
Period Before Distribution or a Period After Distribution, including any
liability asserted against any member of the Spinco Group under the provisions
of Treas. Reg. 1.1502-6(a) that impose several liability on members of an
affiliated group of corporations that files consolidated returns, or similar
provisions of any foreign, state or local law, in respect of Taxes of any member
of the Company Group and (ii) any Tax liability for gain required to be
recognized by the Company as a result of the Distribution of the Spinco stock
failing to qualify under Section 355 of the Code, other than a Tax liability
resulting from the breach by Spinco of a representation contained in Section
2.4(c)(i) of this Agreement. Company shall be entitled to any refund of Taxes
for any period that is attributable to losses, deductions, credits, adjustments
to income or other tax attributes of Company Group. Refunds or credits of Taxes
generated by losses, deductions, credits, adjustments to income or other tax
attributes of the Spinco Group shall not be treated as attributable to the
Company Group, even where such losses, deductions, credits, adjustments to
income or other tax attributes are used to offset income or Tax liability of the
Company Group. Any liability for Taxes or right to a refund under this Section
2.3(b) shall be measured in accordance with the methods contained in the Tax
Sharing Agreements as implemented by the Company and Spinco prior to the date
hereof.
(c) Except for obligations between Company and First Deposit National
Bank, Providian Credit Services, Inc., or Providian National Bank under Sections
2 and 3 of the Tax Sharing Agreements and equivalent arrangements with the other
members of the Spinco Group for taxable periods ending on or before the
Distribution Date and except as set forth herein, the Tax Sharing Agreements and
any and all other tax sharing agreements or practices between any member of the
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Company Group and any member of the Spinco Group shall be terminated as of the
Distribution Date.
2.4 Event of Loss.
(a) Notwithstanding anything in Section 2.3 of this Agreement to the
contrary, to the extent that an Event of Loss is caused by an act (other than an
act required by the Distribution Agreement or the Merger Agreement) or omission
of the Spinco Group or the Spinco Group's shareholders that constitutes a breach
of Spinco's representation contained in Section 2.4(c)(i) of this Agreement,
Spinco shall indemnify and hold harmless each member of the Company Group from
and against such Event of Loss.
(b) Notwithstanding anything in Section 2.3 of this Agreement to the
contrary, to the extent that an Event of Loss is caused by an act (other than an
act required by the Distribution Agreement or the Merger Agreement) or omission
of the Company Group or the shareholders of the Company Group that constitutes a
breach of Company's representation contained in Section 2.4(c)(ii) of this
Agreement, Company shall indemnify and hold harmless each member of the Spinco
Group from and against such Event of Loss.
(c) (i) Spinco represents that, except as otherwise provided in the
Distribution Agreement or the Merger Agreement, it has no plan or intention, as
of the date hereof, to participate in any of the following described events or
transactions: a reorganization, consolidation or merger; the sale or disposition
of more than an immaterial portion of its assets other than in the ordinary
course of business; ceasing to engage in the active conduct of a trade or
business; the acquisition or disposition of shares of stock of Spinco by any
person or persons; the redemption or repurchase of shares of its stock by Spinco
or any successor; the recapitalization or other reclassification of the shares
of its stock by Spinco or any successor; exercising, transferring or
repurchasing rights distributed pursuant to a stock purchase rights plan; or any
other act or omission of Spinco which would result in the failure to comply with
each representation and statement made to the Service in connection with any
rulings received with respect to the Distribution or made to tax counsel in
connection with any tax opinions received with respect to the Distribution.
(ii) Company represents that, except as otherwise provided in the
Distribution Agreement or the Merger Agreement, it has no plan or intention, as
of the date hereof, to participate in any of the following described events or
transactions: a reorganization, consolidation or merger; the sale or
disposition of more than an immaterial portion of its assets other than in the
ordinary course of business; ceasing to engage in the active conduct of a trade
or business; the acquisition or disposition of shares of stock of Company by any
person or persons; the redemption or repurchase of shares of its stock by
Company or any successor; the recapitalization or other reclassification of the
shares of its stock by Company or any successor; exercising, transferring or
repurchasing rights distributed pursuant to a stock purchase rights plan; or any
other act or omission of Company which would result in the failure to comply
with each representation and statement made to the Service in
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connection with any rulings received with respect to the Distribution or made to
tax counsel in connection with any tax opinions received with respect to the
Distribution.
(iii) Spinco or Company, as the case may be, may engage in acts or
transactions described in paragraphs (i) or (ii) of this Section 2.4(c): (x) if
the act or transaction occurs after the expiration of two years from the
Distribution Date, (y) if the act or transaction consists of the sale, exchange
or disposition of assets having a fair market value on the Distribution Date of
10 percent or less of the fair market value of the total assets of the Company
or Spinco, as the case may be; or (z) if the other party to this Agreement
consents in writing in advance to such act or transactions (which consent may be
given or withheld in the sole discretion of such party), or if Spinco or
Company, as the case may be, at its discretion obtains a ruling from the
Service, or obtains an unqualified opinion from a nationally recognized tax
counsel or "Big Six" accounting firm, which ruling or opinion states, in form
satisfactory to the other party to this Agreement in its sole discretion, that
such action will not cause the Company Group to experience an Event of Loss, and
that any Service ruling obtained remains in full force and effect and may
continue to be relied upon by Spinco or Company, as the case may be, and their
respective shareholders. Any acts or transactions permitted under clauses (x) or
(y) of this paragraph (iii) of this Section 2.4(c) will not be treated as a
breach of the representations of Spinco or Company, as the case may be, for
purposes of applying the indemnification provisions of this Section 2.4 unless
there is a Final Determination that those acts or transactions result in an
Event of Loss. In addition, any acts or transactions permitted under clause (z)
of this paragraph (iii) of this Section 2.4(c) will not be treated as a breach
of the representations of Spinco or Company, as the case may be, for purposes of
applying the indemnification provisions of this Section 2.4.
2.5 Period that Includes the Distribution Date.
(a) To the extent permitted by law or administrative practice, the taxable
year or other taxable period of the Spinco Group shall be treated as closing at
the closing of the Distribution Date.
(b) If a taxable year or other taxable period (the "Overlap Period")
cannot be treated as closing at the closing of the Distribution Date under
Section 2.5(a) hereof, and if it is necessary for purposes of this Agreement to
determine the tax liability of any member of the Spinco Group or of the Company
Group for the period of time in such Overlap Period that either ends at the
closing of the Distribution Date or begins on the day after the Distribution
Date, such determination shall be made by assuming that such Overlap Period
ended at the close of the Distribution Date and that another taxable year or
other taxable period begins on the day after the Distribution Date and ends at
the end of the Overlap Period, except that exemptions, allowances or deductions
that are calculated for the full Overlap Period shall be apportioned on a per
diem basis.
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ARTICLE III
CARRYBACKS
Without the prior consent of Company, no member of the Spinco Group shall
carry back any net operating loss or other Tax attribute (unless required to
carry back such loss or Tax attribute by law) from a Period After Distribution
to a Period Before Distribution. Provided that Company consents to the carryback
or if the carryback is required by law, Company (or any other member of the
Company Group receiving such refund) shall promptly remit to Spinco any refunds
it receives with respect to any such carryback.
ARTICLE IV
PAYMENTS
4.1 Payments. Payments due to a party under Article II hereof shall be
paid not later than 30 days after the receipt or crediting of a refund or the
receipt of notice of a Final Determination which results in one of the parties
hereto becoming obligated to make a payment hereunder to the other party hereto.
4.2 Notice. Company and Spinco shall give each other reasonable notice of
any payment that may be due under this Agreement.
ARTICLE V
TAX AUDITS
5.1 General. Except as provided in Section 5.2, each of Spinco and
Company shall have sole responsibility for all audits or other proceedings with
respect to Tax Returns that it is required to file under Section 2.1.
5.2 Indemnified Claims. Company or Spinco shall promptly notify the other
in writing within 30 days of receiving any proposed adjustment to a Tax Return
that may result in liability of the other party (the "Indemnitor") under this
Agreement. The Indemnitor shall have the sole right to contest the proposed
adjustment, and to employ counsel of its choice at its expense; provided,
however, that if the proposed adjustment involves a consolidated, combined or
similar Tax Return for which the other party is responsible and cannot be
separated from the Tax Return under applicable law, the Indemnitor shall not
settle the proposed adjustment without the consent of the other party, which
consent shall not be unreasonably withheld. The Indemnitor shall provide the
other party with information concerning the proposed adjustments and, in the
sole discretion of the Indemnitor, may permit the other party to participate in
the proceeding.
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ARTICLE VI
COOPERATION
Company and Spinco shall cooperate with each other in the filing of any Tax
Returns and the conduct of any audit or other proceeding and each shall execute
and deliver such powers of attorney and make available such other documents as
are necessary to carry out the intent of this Agreement. Each party agrees to
notify the other party of any audit adjustments which do not result in Tax
liability but can be reasonably expected to affect Tax Returns of the other
party, or any of its Subsidiaries, for a Period After Distribution. Each party
agrees to treat the Distribution for all income tax purposes as a tax-free
spinoff under Section 355 of the Code unless and until there has been a Final
Determination that the Distribution is not a tax-free spinoff under Section 355
of the Code.
ARTICLE VII
RETENTION OF RECORDS; ACCESS
The Company Group and the Spinco Group shall (a) in accordance with their
current record retention policy, retain records, documents, accounting data and
other information (including computer data) necessary for the preparation and
filing of all Tax Returns in respect of Taxes of the Company Group or of the
Spinco Group or for the audit of such Tax Returns; and (b) give to the other
reasonable access to, and allow for the copying of, such records, documents,
accounting data and other information (including computer data) and give access
to its personnel (insuring their cooperation) and premises, for the purpose of
the review or audit of such Tax Returns to the extent relevant to an obligation
or liability of a party under this Agreement.
ARTICLE VIII
DISPUTES
If Company and Spinco cannot agree on any calculation of any liability
under this Agreement, such calculation shall be made by any "Big Six" accounting
firm acceptable to both Company and Spinco. The decision of such firm shall be
final and binding on both Company and Spinco. The fees and expenses incurred in
connection with such calculation shall be borne ratably, in accordance with the
determination of the allocation of the disputed liability between Company and
Spinco.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Notices and Governing Law. All notices required or permitted to be
given pursuant to this Agreement shall be given, and the applicable law
governing the interpretation of this Agreement shall be determined, by the
applicable provisions of the Distribution Agreement.
9.2 Treatment of Payments. The parties hereto shall treat any payments
made pursuant to the terms of this Agreement as a capital transaction for all
tax purposes.
9.3 Binding Effect; No Assignment; Third Party Beneficiaries. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
and their respective successors and assigns, including Merger Partner. Company
and Spinco hereby guarantee the performance of all actions, agreements and
obligations provided for under this Agreement of each member of the Company
Group and of the Spinco Group, respectively. Company and Spinco shall, upon the
written request of the other, cause any of their respective Subsidiaries to
execute this Agreement. Company or Spinco shall not assign any of its rights or
delegate any of its duties under this Agreement without the prior written
consent of the other party. No person (including, without limitation, any
employee of a party or any stockholder of a party) shall be, or shall be deemed
to be, a third party beneficiary of this Agreement.
9.4 Coordination with Employee Benefits Agreement. All rights,
obligations, and liabilities relating to any Company Plan (as defined in the
Employee Benefits Agreement Between Company and Spinco, Dated as of
____________, 199___ (the "Employee Benefits Agreement")) or Spinco Plan (as
defined in the Employee Benefits Agreement) shall be determined solely under the
Employee Benefits Agreement. This Tax Disaffiliation Agreement shall in no way
affect such rights, obligations, and liabilities as determined under the
Employee Benefits Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
PROVIDIAN CORPORATION
BY:________________________
Name:
Title:
PROVIDIAN BANCORP, INC.
BY:_________________________
Name:
Title:
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