EXHIBIT 10.22
TAX SETTLEMENT AGREEMENT
This Tax Settlement Agreement (this "Agreement"), dated as of March 12,
1999, is entered into among Telephone and Data Systems, Inc., a Delaware
corporation ("TDS"), Aerial Communications, Inc., a Delaware corporation
("Aerial"), and Aerial Operating Co., Inc., a Delaware corporation ("AOC"),
and has reference to the following circumstances.
1. TDS, Aerial and AOC are parties to a Tax Allocation Agreement dated
as of September 8, 1998 (the "Tax Allocation Agreement").
2. TDS and Aerial have agreed that it is desirable for TDS to make a
payment to Aerial with respect to certain losses incurred by the Aerial Group
and used in computing the consolidated tax liabilities of the TDS Group, in
lieu of the treatment of such losses provided under the Tax Allocation
Agreement.
3. TDS is the common parent of an affiliated group of corporations which
files a consolidated tax return (the "TDS Group").
4. For purposes of this Agreement, the term "Aerial Group" means Aerial
and its subsidiaries as if they constituted a separate affiliated group of
corporations which files a consolidated tax return.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto agree as follows.
Section 1. Tax Settlement Payment. On or before March 15, 1999, TDS
shall pay Aerial $114,500,000 (the "Tax Settlement Payment"). In
consideration of the Tax Settlement Payment, the amount of the net operating
and capital losses and tax credits of the Aerial Group taken into account
under the Tax Allocation Agreement shall be adjusted to exclude the net
operating and capital losses and tax credits attributable to the Aerial Group
that are absorbed by the TDS Group in periods ending on or before December
31, 1999.
Section 2. Tax Settlement Model. The tax settlement model attached to
this Agreement as Schedule 1 has been prepared solely for purposes of making
the adjustments contemplated by Sections 3, 4, 5 and 6 hereof, and the
parties agree that it does not represent a projection of the anticipated
results of the TDS Group, the Aerial Group or any member thereof and that,
except for the adjustments noted, it was not relied upon by the parties
hereto in arriving at the amount of the Tax Settlement Payment. For a period
of 90 days after the date of this Agreement, TDS and Aerial shall be entitled
to object to such model on the grounds that it contains computational errors
or errors in the application of the federal income tax law. The procedures
set forth in Section 8 of this Agreement shall apply to resolve any such
objections. Within 10 days after the resolution of any such objections, the
parties shall modify such model accordingly (as so modified, the "Tax
Settlement Model") and shall adjust the Tax Settlement Payment by payment
from TDS to Aerial or from Aerial to TDS, as the case may be, of the
difference between the Tax Settlement Payment shown on the model attached as
Schedule 1 and the Tax Settlement Payment shown on the Tax Settlement Model,
plus interest on such difference as provided in Section 9.
Section 3. 1998 Results. The Tax Settlement Model is based on estimates
of the taxable income or loss of the members of the TDS Group for the
consolidated return year ended December 31, 1998 (the "1998 Results"). Within
30 days after filing the consolidated federal income tax return of the TDS
Group
for such year, TDS shall recalculate the Tax Settlement Model, reflecting in
such recalculation the 1998 Results as reported on such return. The change to
reflect the 1998 Results shall be the only change made in this recalculation.
TDS shall provide a copy of the Tax Settlement Model as recalculated to
Aerial, together with such supporting information as Aerial may reasonably
request to determine the correctness of the recalculation. For a period of 30
days after receipt, Aerial shall have the opportunity to object solely on the
grounds that the Tax Settlement Model as recalculated does not accurately
reflect the 1998 Results. The procedures set forth in Section 8 of this
Agreement shall apply to resolve any such objections. Within 10 days after
the resolution of any such objections, the parties shall modify the Tax
Settlement Model accordingly (as so modified, the "Adjusted Tax Settlement
Model") and shall adjust the Tax Settlement Payment by payment from TDS to
Aerial or from Aerial to TDS, as the case may be, of the difference between
the Tax Settlement Payment shown on the Tax Settlement Model and the Tax
Settlement Payment shown on the Adjusted Tax Settlement Model, plus interest
on such difference as provided in Section 9.
Section 4. Spin-Off Date. The Tax Settlement Model is based on the
assumption that TDS will distribute to its shareholders the stock of Aerial
that it now owns on August 31, 1999. If Aerial ceases to be a member of the
TDS Group (on account of such distribution or the consummation of another
transaction) on a later date (the "Departure Date"), the adjustments set
forth on Exhibit A shall be made. If the Departure Date occurs on a date that
is between two of the dates in the table set forth on Exhibit A, the
adjustment to the Tax Settlement Payment and the amount of Aerial Losses
shall be determined by interpolation based on the number of days. If Aerial
is a member of the TDS Group on January 1, 2000, the Departure Date shall be
treated as December 31, 1999 for purposes of this Section. The figures in the
table set forth on Exhibit A shall be adjusted to reflect any changes made to
the Tax Settlement Model pursuant to Sections 2 and 3. TDS shall pay Aerial
the adjustment to the Tax Settlement Payment provided by this Section within
10 days after the Departure Date (or December 31, 1999 in the event that
Aerial is a member of the TDS Group of January 1, 2000), plus interest on
such adjustment as provided in Section 9.
Section 5. 1999 Results. Within 30 days after filing the consolidated
federal income tax return of the TDS Group for the consolidated return year
ending December 31, 1999 (the "1999 Return"), TDS shall provide to Aerial a
statement setting forth the amount of the consolidated net operating and
capital losses of the TDS Group that are attributable to the Aerial Group as
of the close of such consolidated return year (the "Adjusted Aerial Losses").
TDS shall provide such supporting information as Aerial may reasonably
request to determine whether such statement is consistent with the 1999
Return. For a period of 30 days after receipt, Aerial shall have the
opportunity to object solely on the grounds that such statement is
inconsistent with the 1999 Return. The procedures set forth in Section 8 of
this Agreement shall apply to resolve any such objections. Within 10 days
after the resolution of any such objections, TDS shall adjust the Tax
Settlement Payment by paying to Aerial an amount equal to 13% of the excess,
if any, of (i) the Aerial Losses (as determined under Section 4) over (ii)
the Adjusted Aerial Losses, plus interest on such amount, if any, as provided
in Section 9. However, TDS shall not be obligated to make any payment to
Aerial pursuant to the preceding sentence or pursuant to Section 6 until the
aggregate amount of the excess determined pursuant to the preceding sentence
and Section 6 exceeds 10% of the Aerial Losses.
Section 6. IRS Adjustments. If it is finally determined, as a result of
audit by the Internal Revenue Service of any consolidated return year of the
TDS Group through December 31, 1999, that there is an adjustment that
decreases (or increases) the amount of the Adjusted Aerial Losses, TDS shall
provide to Aerial a statement of the Adjusted Aerial Losses as finally
determined (the "Final Aerial Losses") within 30 days after such final
determination. TDS shall provide such supporting information as Aerial may
reasonably request to ascertain the amount of the Final Aerial Losses. For a
period of 30 days after receipt, Aerial shall have the opportunity to object
to such statement solely on the grounds it does not properly reflect the
amount of the Final Aerial Losses. The procedures set forth in Section 8 of
this Agreement shall apply to resolve any such objections. Within 10 days
after the resolution of any such objections, TDS shall adjust the Tax
Settlement Payment by paying to Aerial an amount equal to 13% of the excess,
if any, of (i) the Adjusted Aerial Losses over (ii) the Final Aerial Losses,
plus interest on such amount, if any, as provided in Section 9.
However, TDS shall not be obligated to make any payment to Aerial pursuant to
the preceding sentence or pursuant to Section 5 until the aggregate amount of
the excess determined pursuant to the preceding sentence and Section 5
exceeds 10% of the Aerial Losses. TDS shall have the right to make, at any
time and from time to time, a nonrefundable prepayment of an estimate of its
liability under this Section. Any amount which is so prepaid shall cease to
bear interest as of the date of prepayment.
Section 7. Section 338(h)(10) Sale and Similar Transactions. TDS shall
not, without the consent of a majority of the independent directors of
Aerial, (i) sell or agree to sell the stock of Aerial and join or agree to
join in making an election under section 338(h)(10) of the Internal Revenue
Code of 1986, as amended (the "Code"), with respect to such sale or (ii)
cause or permit the Aerial Group, while its members are members of the TDS
Group, to dispose of or agree to dispose of assets constituting 50% or more
of the assets of the Aerial Group in a transaction, or in a series of
transactions pursuant to a plan (which shall be conclusively presumed to
exist in the case of all transactions occurring within a two-year period), in
which the Aerial Group recognizes all or substantially all of the gain with
respect to such assets. In addition, this Agreement is subject to the
approval by the Board of Directors of Aerial (the "Aerial Board"),
concurrently with the approval of this Agreement, of a resolution which
authorizes the Special Committee of the Aerial Board to consider any proposal
relating to the sale, merger, consolidation or other business combination
involving substantially all of the common stock or assets of Aerial and to
report to the Board of Directors of Aerial as a whole the Special Committee's
recommendation with respect thereto.
Section 8. Resolution of Objections. Any objection raised under Sections
2, 3, 5 or 6 of this Agreement shall be in writing and shall set forth in
reasonable detail the nature of the objection and the corrections that the
objecting party believes should be made. The parties shall attempt to resolve
all such objections within 30 days, but to the extent they cannot do so, they
shall present unresolved objections to the Chicago office of Xxxxxx Xxxxxxxx
LLP. The fees and expenses of Xxxxxx Xxxxxxxx LLP shall be borne equally by
TDS and Aerial. If TDS or Aerial disputes Xxxxxx Xxxxxxxx'x resolution of any
objection, the objection shall be submitted to, and finally determined by,
binding arbitration conducted in Chicago by the American Arbitration
Association in accordance with its Commercial Rules. TDS and Aerial shall
share equally the cost of such arbitration, including the administrative fee,
the compensation of the arbitrator and the costs of any neutral witnesses;
the parties shall each bear all their own costs and expenses of arbitration,
including legal and accounting fees and expenses.
Section 9. Interest. If a payment is to be made pursuant to Sections 2,
3, 4, 5 or 6 of this Agreement, interest shall be added to such payment,
computed at 13%, compounded annually, from (and including) the date of the
Tax Settlement Payment through (and including) the day before such payment is
made.
Section 10. Method of Payment. All payments to be made under this
Agreement shall be made by wire transfer of immediately available funds to an
account specified by the recipient thereof.
Section 11. Effect on Other Agreements. This Agreement is intended to
settle only the respective rights and obligations of the parties under the
Tax Allocation Agreement with respect to the net operating and capital losses
and tax credits specifically referred to in this Agreement. Subject to the
foregoing sentence, the execution of this Agreement is not intended to
prejudice or waive any party's rights to contest, or assert its
interpretation of, any or all of the provisions of the Tax Allocation
Agreement under applicable law, including, without limitation, the right to
contest the allocation between TDS and Aerial of responsibility for any taxes
resulting from an election under section 338(h)(10) of the Code with respect
to Aerial. In the event that TDS's reimbursement obligation under the Tax
Allocation Agreement is limited or extinguished by application of any
provision of the Tax Allocation Agreement or for any other reason, Aerial
shall nevertheless be entitled to receive and retain the Tax Settlement
Payment and any other payment made to Aerial hereunder.
Section 12. Use of Tax Settlement Payment. TDS acknowledges and agrees
that the Tax Settlement Payment may be used by the Aerial Group for general
corporate purposes and that no prepayment is due to TDS under the Revolving
Credit Agreement, dated as of August 31, 1998, between TDS and AOC, as
amended, or otherwise as a result of the Tax Settlement Payment or any other
payment to be made by TDS to Aerial in accordance with this Agreement.
Section 13. Disclosure of Alternative Transactions. As of the date of
this Agreement, TDS has fully disclosed to the Special Committee of the Board
of Directors of Aerial the existence and status of all inquiries, offers or
proposals received or made by TDS or Aerial regarding the possible sale or
transfer of Aerial or a significant portion of its equity securities, assets
or businesses, including any merger or other business combination transaction
involving Aerial or its subsidiaries.
Section 14. Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be validly
given, made or served, if in writing and delivered personally, by telegram or
sent by registered mail, postage prepaid to:
TDS at: 00 Xxxxx XxXxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000-0000
Attention: President
with separate copies at such address to the attention of the Chief Financial
Officer and the Corporate Secretary
Aerial at: 0000 X. Xxxx Xxxx Xxx.
Xxxxx 0000
Xxxxxxx, XX 00000
Attention: President
with separate copies at such address to the attention of the Chief Financial
Officer and the Corporate Secretary
AOC at: 0000 X. Xxxx Xxxx Xxx.
Xxxxx 0000
Xxxxxxx, XX 00000
Attention: President
with separate copies at such address to the attention of the Chief Financial
Officer and the Corporate Secretary, or to such other address as any party may,
from time to time, designate in a written notice given in a like manner. Any
notice given under this Agreement shall be deemed delivered when received at the
appropriate address.
Section 15. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Illinois
applicable to contracts made and to be performed therein.
IN WITNESS WHEREOF, TDS, Aerial and AOC have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized,
all as of the day and year first above written.
Telephone and Data Systems, Inc.
By: /s/ XxXxx X. Xxxxxxx, Xx.
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XxXxx X. Xxxxxxx, Xx.
President and CEO
Aerial Communications, Inc.
By: /s/ Xxxxxx X. Xxxxxxxxx
-------------------------
Xxxxxx X. Xxxxxxxxx
President and CEO
Aerial Operating Co., Inc.
By: /s/ Xxxxxx X. Xxxxxxxxx
-------------------------
Xxxxxx X. Xxxxxxxxx
President
