Exhibit 10.2
TAX DISAFFILIATION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of ____________, 2002, by and between CT
HOLDINGS, INC., a Delaware corporation (Parent), and CITADEL SECURITY SOFTWARE
INC. (Spinco), a Delaware corporation.
RECITALS
A. Spinco, a Delaware corporation, is a first tier subsidiaries of Parent.
B. Parent is the common parent of an affiliated group of corporations within the
meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the
Code), which currently files consolidated Federal income tax returns.
C. As reflected in the Agreement and Plan of Distribution (the Distribution
Agreement) dated _____, 2002 by and between Parent and Spinco, Parent has formed
Spinco as a first tier subsidiary.
D. In addition, after such formation, Parent contributed its security software
business to Spinco along with certain intercompany debt (the First
Distribution).
E. After these contributions and pursuant to the Distribution Agreement, Parent
shall distribute to its stockholders all of the outstanding shares of stock of
Spinco, on a pro rata basis (the Second Distribution, and together with the
First Distribution, the Distribution).
F. Parent and Spinco intend that the Distributions will qualify as distributions
described in Section 355 of the Code and will not result in the recognition of
any taxable gain or income to Parent, Spinco or any of their respective
stockholders.
G. From the day after the Date of the Second Distribution forward, Spinco and
its subsidiaries shall cease to be a member of the Parent affiliated group for
all applicable tax purposes.
H. Parent and Spinco desire on behalf of themselves, their subsidiaries and
their successors to set forth their rights and obligations with respect to taxes
due for periods before and after the Second Distribution.
NOW, THEREFORE, in consideration of the transactions recited above and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
Definitions
For the purposes of this Agreement:
1.01 40 Percent Interest shall have the meaning ascribed to the term 50-percent
or greater interest in Section 355(e)(4) of the Code, substituting therein 40
each place 50 appears.
1.02 40 Percent Threshold shall have the meaning set forth in Section 2.04(d)
(v).
1.03 Ancillary Agreements shall have the meaning specified in the Distribution
Agreement.
1.04 Affiliate shall mean, when used with respect to any specified Person, a
Person that directly or indirectly controls, is controlled by, or is under
common control with such specified Person; provided, however, that for purposes
of this Agreement, any Person who was a member of both Groups prior to the
Distribution shall be deemed to be an Affiliate only of the Group of which such
Person is a member following the Distribution. As used herein, control means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or other interests, by contract or otherwise. Any
contrary provision of this Agreement notwithstanding, neither Parent nor any
Parent Subsidiaries shall be deemed to be an Affiliate of SpinCo, and neither
SpinCo nor any SpinCo Subsidiaries shall be deemed to be
an Affiliate of Parent.
1.05 After Tax Basis shall mean, with respect to any payment to be received,
that the amount of such payment is increased to the extent necessary so that,
after deduction of all taxes (assuming for this purpose that the recipient of
such payment is subject to taxation at the highest federal and applicable state
and local marginal rates applicable to widely held corporations for the year in
which such income is taxable) required to be paid by the recipient (less any tax
savings to be realized, utilizing the same tax rate assumptions as set forth in
the immediately preceding parenthetical phrase, by the recipient as a result of
the payment of such amounts) with respect to the receipt of such amounts, such
increased payment (as so reduced) is equal to the payment otherwise required to
be made.
1.06 Agreement shall mean this Tax Disaffiliation Agreement dated __________,
2002, between Parent and Spinco, as the same may be amended from time to time.
1.07 Applicable Federal Rate shall have the meaning set forth in Section 1274(d)
of the Code for a short term rate, compounded quarterly.
1.08 Assets shall mean the assets of Parent, Spinco, their respective
Affiliates, or a predecessor or successor (within the meaning Section
355(e)(4)(D) of the Code) of such corporations or their Affiliates; it being
understood that any transfer, sale or assignment of the assets of Parent,
Spinco, their Affiliates, or a predecessor or a successor in the ordinary course
of business shall not be taken into account for purposes of Section 2.04(d) of
this agreement, unless in conjunction with a transaction described in Section
355(e)(3)(B) of the Code or Final or Temporary regulations promulgated
thereunder.
1.09 Claim shall have the meaning set forth in Section 5.03(a).
1.10 Closing Price of Spinco Common Stock or Parent Common Stock on any day
shall mean the last reported sales price for such stock, on such day, or in the
case no sale takes place on such day, the average of the reported closing bid
and asked prices for the stock in either case as reported on the Over The
Counter Bulletin Board.
1.11 Code shall have the meaning set forth in paragraph B of the recitals.
1.12 Controlling Party shall have the meaning set forth in Section 5.01.
1.13 Corporate Transactions shall have the meaning set forth in the Distribution
Agreement.
1.14 Date of the First Distribution shall mean January __, 2002.
1.15 Date of the Second Distribution shall mean the Distribution Date specified
in the Distribution Agreement.
1.16 Distribution Agreement shall have the meaning set forth in paragraph C of
the recitals.
1.17 Distribution Related Gain shall mean any gain recognized by Parent, or
Parent's or Spinco's stockholders, by virtue of (i) either the Contribution or
the Distribution failing to qualify as a distribution described in Section 355
of the Code, (ii) any stock or securities of Spinco failing to qualify as
qualified property within the meaning of Section 355(c)(2)(B) and 361(c)(2)(B)
of the Code, (iii) the application of Section 355(f) of the Code to the First
Distribution, or (iv) the application of Section 355(e) of the Code to the
Second Distribution.
1.18 Distributions shall have the meaning set forth in paragraph G of the
recitals.
1.19 Final Determination shall mean with respect to any issue (a) 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, (b) a binding closing agreement whether or not entered into
under Section 7121 of the Code or any other binding settlement agreement
(whether or not with the Internal Revenue Service), or (c) the completion of the
highest level of administrative proceedings if a judicial contest is not or is
no longer available.
1.20 First Distribution shall have the meaning set forth in paragraph E of the
recitals.
1.21 First Spinco Notification Letter shall have the meaning set forth in
Section 2.03(c)(ii).
1.22 Indemnitor shall have the meaning set forth in Section 5.02.
1.23 IRS shall have the meaning set forth in Section 2.04(d)(vi).
1.24 Market Cap shall mean, with respect to Parent or Spinco, the total of (a)
the average Closing Price of Parent Common Stock or Spinco Common Stock,
respectively, over the 10 business days following the Date of the Second
Distribution, multiplied by (b) the number of outstanding shares of such common
stock on the Date of the Second Distribution.
1.25 Parent shall have the meaning set forth in the preamble to this Agreement.
1.26 Parent Common Stock shall mean the common stock of Parent, par value $0.01
per share.
1.27 Parent Group shall mean, for any period, Parent and its then Subsidiaries.
Under no circumstances shall the Parent Group include any member of the Spinco
Group.
1.28 Parent Notification Letter shall have the meaning set forth in Section
2.03(c)(ii).
1.29 Parent Subsidiary or Subsidiary of Parent shall include all of the
Subsidiaries listed on [EXHIBIT A] attached hereto. None of Spinco or the Spinco
Subsidiaries shall be considered a Subsidiary of Parent.
1.30 Parent Tainting Act means any act or acts first occurring after the Date of
the Second Distribution of or involving any Person (other than Spinco or any
Person that is an Affiliate of Spinco immediately before or immediately after
such action or actions), or any omission or omissions of any Person (other than
Spinco or any Person that is an Affiliate of Spinco immediately before or
immediately after such omission or omissions), of an act or acts first available
to it after the Date of the Second Distribution, if such action or omission
contributes to a Final Determination that the First or Second Distribution
results in any Distribution Related Gain.
1.31 Intentionally Omitted
1.32 Intentionally Omitted
1.33 Period After the Second Distribution shall mean (i) any taxable year or
other taxable period beginning after the Date of the Second Distribution and,
(ii) in the case of any Stub Period, that part of the Stub Period that begins on
the day immediately after the Date of the Second Distribution.
1.34 Period Before the Second Distribution shall mean (i) any taxable year or
other taxable period that ends on, at the close of, or before the Date of the
Second Distribution and, (ii) in the case of any Stub Period, that part of the
Stub Period through and including the Date of the Second Distribution.
1.35 Person shall mean any individual, partnership, joint venture, corporation,
limited liability company, trust, unincorporated organization, government or
department or agency of a government.
1.36 Restructuring Taxes means any taxes resulting from the Corporate
Transactions or either Distribution, including, but not limited to, any taxes
imposed pursuant to or as a result of Sections 311 or 1001 of the Code or the
Treasury Regulations under Section 1502 of the Code (and any applicable similar
federal, state, local or foreign taxes, together with related interest,
penalties and additions to tax), but excluding (i) any taxes imposed as a result
of a Final Determination that the First or Second Distribution results in any
Distribution Related Gain, and (ii) any transfer taxes imposed on the transfer
of real or personal property in the Corporate Transactions.
1.37 Second Distribution shall have the meaning set forth in paragraph G of the
recitals.
1.38 Second Spinco Notification Letter shall have the meaning set forth in
Section 2.03(c)(ii).
1.39 Spinco shall have the meaning set forth in the preamble to this Agreement.
1.40 Spinco Common Stock shall mean the common stock of Spinco, par value $.01
per share.
1.41 Spinco Group shall mean, for any period, Spinco and its then Subsidiaries.
Under no circumstances shall the Spinco Group include any member of the Parent
Group.
1.42 Spinco Subsidiary or Subsidiary of Spinco shall include all of the
Subsidiaries listed on [EXHIBIT B] attached hereto. None of the Parent
Subsidiaries shall be considered a Subsidiary of Spinco.
1.43 Spinco Tainting Act means any act or acts first occurring after the Date of
the Second Distribution of or involving any Person (other than Parent or any
Person that is an Affiliate of Parent immediately before or immediately after
such action or actions), or any omission or omissions of any Person (other than
Parent or any Person that is an Affiliate of Parent immediately before or
immediately after such omission or omissions) of an act or acts first available
to it after the Date of the Second Distribution, if such act or omission
contributes to a Final Determination that First or Second Distribution results
in any Distribution Related Gain.
1.44 Spinco Tax Adjustment Amount shall have the meaning set forth in Section
2.03(c)(ii).
1.45 Spinco Tax Position shall have the meaning set forth in Section 2.03(c)(i).
1.46 Stock shall mean common or preferred stock or any instrument that might
reasonably be treated as common or preferred stock for federal income tax
purposes; provided, however, for purposes of Section 2.04(d)(i) only, the term
Stock shall not include stock in Parent or Spinco acquired by an employee or
director of such corporation (or a Person related to such corporation under
Section 355(d)(7)(A) of the Code) in connection with the performance of services
as an employee or director for the corporation or a Person related to it under
Section 355(d)(7)(A) of the Code (and that is not excessive by reference to the
services performed) in a transaction in which Section 83 of the Code applies.
1.47 Stock Options shall mean call options, warrants, convertible obligations,
the conversion feature of convertible stock, put options, redemption agreements
(including rights to cause the redemption of stock), any other instruments that
provide for the right or possibility to issue, redeem, or transfer stock
(including an option on an option), or any other similar interest treated as an
option; provided, however, for purposes of Section 2.04(d)(i) only the term
Stock Options only includes instruments that provide for the right or
possibility to issue, redeem or transfer stock and does not include: (i) an
option that is part of a security arrangement in a typical lending transaction
(including a purchase money loan), if the arrangement is subject to customary
commercial conditions; (ii) an option to acquire stock in Parent or Spinco with
customary terms and conditions provided to an employee or director of such
corporation, or a person related to Parent or Spinco under Section 355(d)(7)(A)
of the Code in
connection with the performance of services for the corporation or a person
related to it under Section 355(d)(7)(A) of the Code (and is not excessive by
reference to the services performed) and that immediately after the Second
Distribution and 6 months thereafter (a) is nontransferable within the meaning
of Treasury Regulation Section 1.83-3(d) and (b) does not have a readily
ascertainable fair market value as defined in Treasury Regulation Section
1.83-7(b); and (iii) an option entered into between shareholders of a
corporation (or a shareholder and the corporation) that is exercisable only upon
death, disability or mental incompetency of the shareholder, or, in the case of
stock acquired in connection with the performance of services for a corporation,
or a person related to the corporation under Section 355(d)(7)(A) (and that is
not excessive by reference to the services performed), the shareholder's
separation from service.
1.48 Stub Period shall mean any taxable year or other taxable period that begins
on or before and ends after the Date of the Second Distribution.
1.49 Subsidiary shall mean a corporation, limited liability company,
partnership, joint venture or other business entity if 50% or more of the
outstanding equity or voting power of such entity is owned directly or
indirectly by the corporation with respect to which such term is used. Each of
the Subsidiaries listed on Exhibit A, attached hereto, shall be considered a
Subsidiary of Parent. Each of the Subsidiaries listed on Exhibit B, attached
hereto, shall be considered a Subsidiary of Spinco. Notwithstanding any
provision of this agreement to the contrary, Spinco shall not be considered a
Subsidiary of Parent.
1.50 tax or taxes whether used in the form of a noun or adjective, shall mean
all forms of taxation, whenever created or imposed, including, but not limited
to, taxes on or measured by income, franchise, gross receipts, sales, use,
excise, payroll, personal property (tangible or intangible), real property,
ad-valorem, value-added, leasing, leasing use or other taxes, levies, imposts,
duties, charges or withholdings of any nature whether imposed by a nation,
locality, municipality, government, state, federation, or other governmental
body (a Taxing Authority). Whenever the term tax or taxes is used (including,
without limitation, in the context of any duty to pay, or to reimburse another
party or indemnify for taxes or refunds or credits of taxes) it shall include
penalties, fines, additions to tax and interest thereon. The term tax or taxes
does not include any unclaimed or abandoned property remitted or required to be
remitted to any Taxing Authority under applicable law.
1.51 Taxing Authority shall have the meaning set forth in Section 1.50.
1.52 Tax Returns shall mean all reports, returns, information statements,
questionnaires, evidence of tax payments, invoices or other documents received
from, or required to be filed or that may be filed for any period with, any
Taxing Authority (whether domestic or foreign) in connection with any tax or
taxes (whether domestic or foreign).
All capitalized terms used but not defined herein shall have the meaning given
to such terms in the Distribution Agreement.
ARTICLE II
Tax Returns, Tax Payments and Tax Sharing Obligations
2.01 Obligations to File Tax Returns.
(a) Spinco shall prepare, at its own expense, and shall timely file or cause to
be filed (i) all Tax Returns with respect to the Spinco Group and the Parent
Group that are due (including extensions) after the Date of the Second
Distribution but are for a taxable year or period ending on or before the Date
of the Second Distribution, (ii) all Tax Returns with respect to the Spinco
Group for any taxable year or other taxable period beginning after the Date of
the Second Distribution, (iii) all Tax Returns filed on a separate company basis
for any member of the Spinco Group for any Stub Period, and (iv) all Tax Returns
filed on a consolidated, combined or unitary basis for the Stub Period other
than those described in clause (iii) of Section 2.01(b). Spinco shall make full
and timely payment of all taxes shown due on all Tax Returns described in this
Section 2.01(a).
(b) Parent shall prepare, at its own expense, and shall timely file or cause to
be filed (i) all Tax Returns with respect to the Parent Group for any taxable
year or other taxable period beginning after the Date of the Second
Distribution,
(ii) all Tax Returns filed on a separate company basis, for any member of the
Parent Group for any Stub Period, and (iii) all Tax Returns filed on a
consolidated, combined or unitary basis for the Stub Period that include one or
more members of the Parent Group (whether or not they include one or more
members of the Spinco Group). Subject to Section 2.03(c) hereof, Parent shall
make full and timely payment of all taxes shown due on all Tax Returns described
in this Section 2.01(b).
(c) To the extent required or permitted by law or administrative practice, in
the case of any Tax Return prepared by Parent pursuant to clause (iii) of
Section 2.01(b) that includes one or more members of the Spinco Group, the
taxable year of the Spinco Group shall be treated as closing at the close of the
Date of the Second Distribution.
2.02 Obligation to Remit Taxes.Spinco and Parent shall each timely remit or
cause to be remitted any taxes due in respect of any tax for which it is
required to file a Tax Return hereunder and shall be entitled to reimbursement
for such payments only to the extent provided in Section 2.03.
2.03 Tax Sharing Obligations and Prior Agreements.
(a) Spinco's obligations. Other than liabilities dealt with elsewhere in this
Agreement and except as provided in Section 3.01(d), Spinco shall be liable for
and shall indemnify and hold the Parent Group harmless on an After Tax Basis
against (i) any tax liability of any member of the Spinco Group or any member of
the Parent Group for any Period Before the Second Distribution, (ii) any tax
liability for any member of the Spinco Group for any Period After the Second
Distribution, and (iii) any amount determined to be Spinco's liability under
Section 2.04 hereof. Except as provided in Section 3.01 for refunds attributable
to carry backs, Spinco shall be entitled to any refund of or credit for taxes
for which Spinco is responsible under this Section 2.03(a) or with respect to
which Spinco is required to file a Tax Return under Section 2.01 hereof.
(b) Parent's Obligations. Other than liabilities dealt with elsewhere in this
Agreement, Parent shall be liable for, and shall hold the Spinco Group harmless
on an After Tax Basis against (i) any tax liability of any member of the Parent
Group for any Period After the Second Distribution, and (ii) any amount
determined to be Parent's liability under Section 2.04 hereof. Except as
provided in Section 3.01 for refunds attributable to carry backs, Parent shall
be entitled to any refund of or credit for taxes for any periods for which
Parent is responsible under this Section 2.03(b) or with respect to which Parent
is required to file a Tax Return under Section 2.01 hereof.
(c) Spinco's Stub Period Liability. (i) Subject to clause (ii) of this Section
2.03(c), with respect to any Tax Return that is described in clause (ii) or
(iii) of Section 2.01(b), or with respect to any estimated tax payment relating
to any such Tax Return, Parent shall, in good faith, calculate Spinco's tax
liability under clause (i) of the first sentence of Section 2.03(a) with respect
to such Tax Return or estimated tax payment and notify Spinco of such amount.
Such notification shall constitute a request for payment, and, subject to the
following sentence, Spinco shall pay such amount, in immediately available
funds, to Parent within five (5) days after receipt of such notice from Parent,
provided that Spinco shall not be obligated to make such payment to Parent
earlier than ten (10) days prior to the due date for the filing or making of the
relevant Tax Return or estimated tax payment. If Spinco determines, in good
faith, that its tax liability under clause (i) of the first sentence of Section
2.03(a) with respect to such Tax Return or estimated payment should be greater
than the amount determined by Parent for such return or payment, Spinco can
elect to pay a greater amount to Parent and provide Parent with a statement
describing the tax position taken by Spinco implicit in the determination of
such larger amount (the Spinco Tax Position). If pursuant to the proceeding
sentence Spinco pays a greater amount, Parent covenants, to the extent permitted
by law, to take the Spinco Tax Position on the Tax Return or payment in question
and will remit the larger amount received from Spinco to the appropriate Taxing
Authority when filing such return or payment. After the filing or making of any
Tax Return or estimated tax payment mentioned in this clause (i) of Section
2.03(c), Parent shall supply Spinco with a copy of each tax return (or evidence
of each estimated tax payment) with respect to which Spinco shall have made
payment.
(ii) Spinco shall make an initial determination, in good faith, of the amount
(the Spinco Tax Adjustment Amount) of its tax liability under clause (i) of the
first sentence of Section 2.03(a) with respect to all Tax Returns that are
described in clause (ii) and (iii) of Section 2.01(b), such tax liability to be
determined without regard to payments, if any, that Spinco shall have made to
Parent pursuant to clause (i) of this Section 2.03(c) (such determination, with
calculations in reasonable detail, being referred to as the First Spinco
Notification Letter). If Parent determines in good faith that Spinco's
determination of the
9
Spinco Tax Adjustment Amount is incorrect, Parent shall notify Spinco of such
determination (including in such notification its determination of the correct
amount of the Spinco Tax Adjustment Amount) (the Parent Notification Letter)
within thirty (30) days of receipt of the First Spinco Notification Letter. If
Spinco objects to Parent's determination of the Spinco Tax Adjustment Amount in
the Parent Notification Letter, it must notify Parent within twenty (20) days of
receipt of the Parent Notification Letter (the Second Spinco Notification
Letter). If the dispute is not resolved by mutual accord within thirty (30) days
of Parent's receipt of the Second Spinco Notification Letter, the dispute shall
be resolved under the provisions of Article VIII. Until Parent and Spinco reach
agreement, or any dispute between them is resolved pursuant to Article VIII, as
to the Spinco Tax Adjustment Amount, the provisions of clause (i) of this
Section 2.03(c) shall continue to apply. Clause (i) of this Section 2.03(c) will
not apply once Parent and Spinco reach agreement or any dispute between them as
to the Spinco Tax Adjustment is resolved pursuant to Article VIII. Within ten
(10) days of such agreement or resolution, Spinco shall pay to Parent an amount
equal to the excess of (x) the Spinco Tax Adjustment Amount, as so agreed or
resolved, over (y) the payments, if any, that Spinco shall have theretofore made
to Parent pursuant to clause (i) of this Section 2.03(c). In the event that the
payments that Spinco shall have theretofore made to Parent pursuant to clause
(i) of this Section 2.03(c) shall exceed the Spinco Tax Adjustment Amount,
Parent shall, within ten (10) days of such agreement or resolution, pay the
amount of such excess to Spinco.
(d) Except as set forth in this Agreement and in consideration of the mutual
indemnities and other obligations of this Agreement, any and all prior tax
sharing agreements or practices between any member of the Parent Group and any
member of the Spinco Group shall be terminated as of the Date of the Second
Distribution.
2.04 Restructuring Taxes; Other Taxes Relating to the Distribution.
(a) Generally. Notwithstanding any other provision of this Agreement to the
contrary, Spinco shall bear any Restructuring Taxes (together with any
reasonable expenses, including, but not limited to, attorney's fees, incurred in
defending any audit or examination with respect to Restructuring Taxes). In the
event of a Final Determination that the First or Second Distribution results in
any Distribution Related Gain (other than a Final Determination that the First
or Second Distribution results in any Distribution Related Gain which
determination would not have been made but for a Parent Tainting Act or a Spinco
Tainting Act), the liability of Parent and Spinco for any taxes arising from
such Final Determination, including any liability to stockholders arising from
such Final Determination (together with any reasonable expenses, including, but
not limited to, attorney's fees incurred in defending against any liability)
shall be borne by Parent and Spinco pro rata based on their relative Market
Caps. Also, in the event of a Final Determination that the First or Second
Distribution results in any Distribution Related Gain which determination would
not have been made but for the occurrence of both a Parent Tainting Act and a
Spinco Tainting Act, any taxes or liability resulting from such Final
Determination (together with any reasonable expenses, including, but not limited
to, attorney's fees incurred in defending against any liability) shall be borne
by Parent and Spinco pro rata based on their relative Market Caps.
(b) Covenant and Indemnification for Spinco Tainting Acts. Spinco covenants that
neither Spinco nor any member of the Spinco Group shall commit or be party to or
the subject of any Spinco Tainting Act. In the event of a Final Determination
that the First or Second Distribution results in any Distribution Related Gain
which Final Determination would not have been made but for a Spinco Tainting
Act, Spinco shall pay, and shall indemnify and hold harmless Parent and its
Affiliates on an After Tax Basis, from and against, any liability of Parent or
their Affiliates to any Taxing Authority, Parent stockholders or Spinco
stockholders (together with any reasonable expenses, including, but not limited
to, attorney's fees incurred in defending against any such liability) resulting
from a Final Determination that the First or Second Distribution results in any
Distribution Related Gain.
(c) Covenant and Indemnification for Parent Tainting Acts. Parent covenants that
neither Parent nor any member of the Parent Group shall commit or be party to or
the subject of any Parent Tainting Act. In the event of a Final Determination
that the First or Second Distribution results in any Distribution Related Gain
which Final Determination would not have been made but for a Parent Tainting
Act, Parent shall pay, and shall indemnify and hold harmless Spinco and its
Affiliates on an After Tax Basis, from and against, any liability of Spinco,
Parent, or their Affiliates to any Taxing Authority, Parent stockholders or
Spinco stockholders (together with
any reasonable expenses, including, but not limited to, attorney's fees incurred
in defending against any such liability) resulting from a Final Determination
that the First or Second Distribution results in any Distribution Related Gain.
(d) Reporting and Restrictions. (i) At quarterly intervals beginning on March
31, 2002 and at any other time reasonably requested by the party to receive such
report, during the period commencing immediately after the Date of the Second
Distribution and ending two years after such date, Parent will provide to
Spinco, and Spinco will provide to Parent a report (Report) listing for the
period commencing immediately after the Date of the Second Distribution and
ending on the date of the Report any issuance, sale, transfer, assignment or
redemption (or any agreement, understanding, arrangement, or substantial
negotiations concerning the issuance, sale, transfer, assignment or redemption)
of the reporting corporation's: (x) Stock (excluding any sale, transfer, or
assignment of Stock between two shareholders neither of whom own, either
directly or indirectly, five-percent or more of the Stock of the corporation
whose Stock is transferred (treating all options as exercised), provided that
the reporting corporation has not authorized such sale, transfer, or assignment
and that such sale, transfer, or assignment meets the requirements of the safe
harbor in Temporary regulations Section 1.355-7(f)(5)); (y) Stock Options; and
(z) Assets (excluding: (A) any sale, transfer, or assignment of Assets that is
fully taxable to the transferee; and (B) any other sale, transfer, or assignment
of Assets that in the aggregate does not exceed 5 percent of the gross assets of
the selling, transferring, or assigning corporation as reflected on such
corporation's balance sheet during any 90 day period)
(ii) In addition within two months following the Date of the Second
Distribution, Spinco shall provide to Parent a Report listing any issuance,
sale, transfer, assignment or redemption (or any agreement, understanding,
arrangement, or substantial negotiations, whether or not consummated, concerning
the issuance, sale, arrangement, assignment or redemption) of Parent's and
Spinco's Stock, Stock Options, or Assets in each instance for the period
commencing two years before the Date of the First Distribution and ending on the
Date of the Second Distribution. For purposes of this clause (ii) of Section
2.04(d) the exclusions from Parent's and Spinco's Asset reporting obligations
contained in clause (i) of Section 2.04(d) shall not apply, but the exclusions
to Parent's and Spinco's Stock reporting obligations contained in clause (i) of
Section 2.04(d) shall apply.
(iii) At any time that the issuance, sale, transfer, assignment or redemption
(or any agreement, understanding, arrangement, or substantial negotiations
concerning the issuance, sale, arrangement, assignment or redemption) of the
reporting corporation's Stock or Stock Options would exceed ten (10) percent by
vote or value of the reporting corporation's outstanding Stock (treating Stock
Options as exercised) when aggregated with all prior such issuances, sales,
transfer, assignments or redemptions, or the issuance, sale, transfer, or
assignment (or any agreement, understanding, arrangement, or substantial
negotiations concerning the issuance, sale, transfer, or assignment) of the
reporting corporation's Assets, when aggregated with all prior such issuances,
sales, transfers of assignments, exceeds 10 percent of the gross assets of the
selling, transferring, or assigning corporation as reflected on such
corporation's balance sheet, a notice (Notice) of such transaction must be given
to the other party 30 days prior to such issuance, transfer, assignment or
redemption (or the entering into of any agreement, understanding, arrangement,
or substantial negotiations concerning the issuance, sale, arrangement,
assignment or redemption). For purposes of this clause (iii) of Section 2.04(d):
(y) the exclusions from Parent's and Spinco's Asset reporting obligations
contained in clause (i) of Section 2.04(d) shall not apply, but the exclusions
to Parent's and Spinco's Stock reporting obligations contained in clause (i) of
Section 2.04(d) shall apply, and (z) the transactions described in clause (ii)
of this Section 2.04(d) shall be aggregated with transactions described in this
clause (iii) for purposes of determining the obligation to issue a Notice under
this clause (iii) of Section 2.04(d).
(iv) Parent's and Spinco's obligations to issue Reports and Notices will be
extended beyond the 2 year reporting period (not to exceed 5 years after the
Date of the Second Distribution) until the consummation of any agreement,
understanding, arrangement or substantial negotiations for the issuance, sale,
transfer or assignment of the reporting corporations' Stock, Stock Options or
Assets that is reported or required to be reported during the 2 year period
after the Date of the Second Distribution.
(v) If, before the two-year anniversary of the Second Distribution, the
issuances, sales, transfers, assignments, or redemptions (or agreement,
understanding, arrangement or substantial negotiations concerning the issuance,
sale,
transfer, assignment or redemption) of the reporting corporation's Stock, Stock
Options or Assets that are required to be reported pursuant to clause (iii) of
this Section 2.04(d), in the aggregate, would equal or exceed (as calculated
using a method provided by a nationally recognized tax advisor acceptable to
both Parent and Spinco) a 40 Percent Interest in such reporting company (the 40
Percent Threshold), such company (or companies, if both have reached the 40
Percent Threshold) shall not take any action or fail to take any action that
would cause the 40 Percent Threshold to be exceeded without obtaining an opinion
from a nationally recognized tax advisor (acceptable to both Parent and Spinco)
that such issuance, sale, transfer, assignment, or redemption (or agreement,
understanding, arrangement or substantial negotiations concerning the issuance,
sale, transfer, assignment or redemption) will not cause Section 355(e) of the
Code to apply to the Second Distribution or Section 355(f) of the Code to apply
to the First Distribution. The expense of obtaining any opinion under this
clause (v) of Section 2.04(d) will be borne by the party whose issuance, sale,
transfer, assignment, redemption is the subject of such opinion.
(vi) For purposes of this Section 2.04(d), Parent and Spinco will not be
required to report any issuance, sale, transfer, assignment, or redemption of
Stock, Stock Options or Assets with respect to which (y) the Internal Revenue
Service (IRS) has issued a private letter ruling to Parent or Spinco, or (z) a
nationally recognized tax advisor acceptable to both Parent and Spinco has
issued an opinion, that such issuance, sale, transfer, assignment, or redemption
is not required to be taken into account in applying Sections 355(e) or 355(f)
of the Code by reason of any statutory provision that may hereafter be enacted,
any applicable final or temporary regulations that may hereafter be issued, or
any applicable guidance that may hereafter be published by the IRS upon which
taxpayers are authorized to rely. The expense of obtaining any opinion under
this Section 2.04(d)(iv) from a nationally recognized tax advisor or an IRS
private letter ruling will be borne by the party whose issuance, sale, transfer,
assignment or redemption is the subject of such opinion or private letter
ruling.
(f) Transfer Taxes. Notwithstanding clause (i) of Section 2.03(a), liability for
any transfer taxes imposed on any transfer in the Corporate Transactions of real
or personal property will be allocated between Spinco and Parent according to
Section 7.5 of the Distribution Agreement.
ARTICLE III
Carrybacks, Distributions and Elections
3.01 Carrybacks.
(a) To the extent permitted by law, any member of the Spinco Group shall be
entitled to carry back any net operating loss or other item from a taxable
period ending after the Date of the Second Distribution to a taxable period
ending on or before the Date of the Second Distribution. At the direction of
Spinco, Parent shall file any claim for refund relating to such carry back. Any
refund of taxes resulting from any such carryback by a member of the Spinco
Group shall be payable to Spinco as provided in Section 4.01. Spinco shall
indemnify and hold Parent harmless for any tax liability that results from any
refund claim relating to a carryback under this Section 3.01(a). Notwithstanding
any other provision of this Agreement to the contrary, Spinco shall be
considered the Controlling Party for purposes of Article V for any tax audit or
proceeding involving any period ending on or before the Date of the Second
Distribution to which the net operating loss or other item is carried back and
Spinco shall have sole right to contest such audit or proceeding and to employ
advisors of its choice under Section 5.01.
(b) To the extent permitted by law, any member of the Parent Group shall be
entitled, upon consent from Spinco (which consent shall not be unreasonably
delayed or withheld), to carry back any net operating loss or other item from a
taxable period ending after the Date of the Second Distribution to a taxable
period ending on or before the Date of the Second Distribution. Parent shall be
responsible for filing any claim for refund relating to such carry back, except
that Parent shall not file any claim without prior written approval of such
claim by Spinco (which approval shall not be unreasonably delayed or withheld).
Any refund of taxes resulting from any such carryback by a member of the Parent
Group shall be payable to Parent as provided in Section 4.01. Parent shall
indemnify and hold Spinco harmless for any tax liability that results from any
refund claim relating to a carryback under this Section 3.01(b). Notwithstanding
any other provision of this Agreement to the contrary, Spinco shall be
considered the Controlling Party for purposes of Article V for any tax audit or
proceeding involving any period ending on or before the Date of the Second
Distribution to which the net operating loss or other item is carried back and
Spinco shall have sole right to contest such audit or proceeding and to employ
advisors of its choice under Section 5.01 provided,
however, that Spinco shall (i) permit Parent to participate at its own expense
in any proceedings relating to any claim for refund pursuant to this Section
3.01(b); (ii) shall, at Parent's request, contest any denial (in whole or in
part) of any such claim for refund, provided that Parent shall agree to pay to
Spinco on demand all out-of-pocket costs, losses and expenses (including, but
not limited to, legal and accounting fees) paid or incurred by Spinco in
connection with contesting such claim; (iii) not settle any such claim for
refund without Parent's consent (which consent shall not be unreasonably delayed
or withheld); provided that if Spinco wishes to settle such claim and Parent
does not consent, Parent will pay to Spinco on demand all out-of-pocket costs,
losses and expenses (including, but not limited to, legal and accounting fees)
paid or incurred by Spinco in connection with contesting such claim, regardless
of whether Parent requested such claim to be contested; and (iv) to the extent
Parent is not participating, shall keep Parent informed as to all significant
developments relating to any such claim for refund or the contest of any denial
thereof.
(c) To the extent Parent elects to carry back any net operating loss or other
item from a taxable period beginning after the Date of the Second Distribution
to a Stub Period (any refund resulting from which carry back to be payable to
Parent as provided in Section 4.01), Spinco shall not be liable (notwithstanding
clause (i) of Section 2.03(a) to the contrary) for any tax liability resulting
from a claim of refund for such carry back.
3.02 Distributions and Elections.
(a) No member of the Spinco Group shall make any tax election, pay or cause to
be paid any distribution from an Affiliate or take any other action that would
cause an actual increase in the taxes for which the Parent Group is responsible
or would cause an actual reduction in the amount of any refund of taxes payable
to the Parent Group.
(b) No member of the Parent Group shall make any tax election, pay or cause to
be paid any distribution from an Affiliate or take any other action that would
cause an actual increase in the taxes for which the Spinco Group is responsible
or would cause an actual reduction in the amount of any refund of taxes payable
to the Spinco Group.
(c) Neither Spinco nor Parent shall be liable to the other under Section 3.02(a)
or Section 3.02(b) for any tax position on a Tax Return that independent tax
counsel selected by Spinco (in the case of a Tax Return position desired to be
taken by any member of the Spinco Group) or Parent (in the case of a Tax Return
position desired to be taken by any member of the Parent Group), the identity of
which is reasonably acceptable to the other party, opines that such position is
necessary and required to comply with the Code, the regulations or other
applicable law.
(d) To the extent permitted by law, Spinco and Parent will file any Tax Return
which such party is responsible to file for the Stub Period or for any Period
Before the Second Distribution consistent with the tax principles and methods
reflected in the Parent fiscal year ending December 31, 2001 federal income tax
return as filed.
ARTICLE IV
Payments
4.01 Payments. Subject to the provisions of Section 2.03 and Section 5.03, and
except as otherwise explicitly provided herein, all payments due hereunder to a
party shall be paid not later than twenty (20) days after the receipt or
crediting of a refund or the receipt of notice of a Final Determination by
reason of which a party is liable for an indemnified cost pursuant to this
Agreement, together with interest at a rate equal to the Applicable Federal Rate
from the date on which the indemnifying party receives such receipt, credit or
notice.
4.02 Notice. Spinco and Parent shall give each other prompt written notice of
any payment that may be due under this Agreement.
4.03 Reimbursement. Any party hereto that is entitled to indemnification,
payment or reimbursement pursuant to the terms of this agreement shall be
reimbursed on an After Tax Basis for all reasonable expenses (including, but not
limited to, attorney's fees) incurred in connection with the enforcement of its
rights hereunder. The preceding sentence shall not be construed to limit a
party's entitlement to reimbursements or payments to which it otherwise is
entitled pursuant to the terms of this agreement.
ARTICLE V
Tax Audits
5.01 General. Except as provided in Sections 3.01, 5.02 and 6.02 hereof, each of
Spinco and Parent shall have sole responsibility for all audits or other
proceedings with respect to Tax Returns that it is required to file under
Section 2.01 (the Controlling Party). Except as provided in Section 5.03 hereof,
the Controlling Party shall have the sole right to contest the audit or
proceeding and to employ advisors of its choice. In addition, Spinco shall be
considered the Controlling Party of any audit or other proceeding with respect
to any Tax Return filed before the Date of the Second Distribution.
5.02 Indemnified Claims in General. Spinco and Parent shall promptly notify the
other in writing prior to the issuance of an actual notice of assessment by the
relevant Taxing Authority (for example, if by the IRS, prior to the issuance of
a Form 5701 Notice of Proposed Adjustment) of any proposed adjustment to a Tax
Return that may result in liability of the other party (the Indemnitor) under
this Agreement. If there is no Indemnitor other than the Controlling Party,
Sections 5.02 and 5.03 are inapplicable and Section 5.01 shall govern the rights
of the parties with respect to the audit or proceeding. If the Indemnitor is not
also the Controlling Party (as may be the case in the Stub Period), the
Controlling Party shall provide the Indemnitor with information about the nature
and amounts of the proposed adjustments and shall permit the other party to
participate in the proceeding at its own expense, provided, however, that the
failure of the Controlling Party to notify or provide such information to the
Indemnitor shall not affect the Indemnitor's indemnity obligations hereunder
unless and to the extent the Indemnitor is materially prejudiced thereby. Upon a
Final Determination of the assessment or proposed adjustment, the Indemnitor
shall pay its pro rata share (based on its share of liability resulting from the
Final Determination) of all reasonable expenses (including, but not limited to,
legal and accounting fees) incurred by the Controlling Party in connection with
the assessment or proposed adjustment within seven (7) days after a written
request by the Controlling Party.
5.03 Certain Federal Income Tax Claims in the Stub Period. (a) Any issues raised
by the IRS in any tax inquiry, audit, examination, investigation, dispute,
litigation or other proceeding relating to the Stub Period which would result in
federal income tax liability to the Indemnitor is defined as a Claim. Except as
provided in Sections 3.01(b), 5.03(d) and the second sentence of Section 5.02
hereof, and notwithstanding any other provision of this Agreement that may be
construed to the contrary, the Controlling Party agrees to contest any Claim and
not to settle any Claim without the prior written consent of the Indemnitor,
provided that (i) the Controlling Party shall provide notice to Indemnitor
pursuant to Section 5.02 hereof of any Claim, (ii) within thirty (30) days after
notice by the Controlling Party to the Indemnitor of a Claim is received by the
Indemnitor, the Indemnitor shall request in writing that such Claim be
contested, (iii) within thirty (30) days after notice by the Controlling Party
to the Indemnitor of such Claim is received by the Indemnitor, the Indemnitor
shall have provided an opinion of independent tax counsel, selected by the
Indemnitor and reasonably acceptable to the Controlling Party, to the effect
that it is more likely than not that a Final Determination shall be
substantially consistent with the Indemnitor's position relating to such Claim,
(iv) the Indemnitor agrees to pay on demand all out-of-pocket costs, losses and
expenses (including, but not limited to, legal and accounting fees) paid or
incurred by the Controlling Party in connection with contesting such Claim,
except for a Claim where the expenses are shared pursuant to Section 2.04(a)
hereof, and (v) the Controlling Party, after reasonable consultation with the
Indemnitor, shall determine in its sole discretion the nature of all actions to
be taken to contest such Claim, including (1) whether any action to contest such
Claim shall initially be by way of judicial or administrative proceeding, or
both, (2) whether any such Claim shall be contested by resisting payment thereof
or by paying the same and seeking a refund thereof, and (3) the court or other
judicial body before which judicial action, if any, shall be commenced. To the
extent the Indemnitor is not participating, the Controlling Party shall keep the
Indemnitor and, upon request by the Indemnitor, its counsel, informed as to the
progress of the contest.
(b) If the Indemnitor requests that the Controlling Party accept a settlement of
a Claim offered by the IRS and if such Claim may, in the reasonable discretion
of the Controlling Party, be settled without prejudicing any claims the IRS may
have with respect to matters other than the transactions contemplated by the
Distribution Agreement, the Controlling Party shall either accept such
settlement offer or agree with the Indemnitor that the Indemnitor's liability
with respect to such Claim shall be limited to the lesser of (i) an amount
calculated on the basis of such settlement offer or (ii) the amount calculated
on the basis of a Final Determination. After a settlement or a Final
Determination, the Controlling Party shall reimburse the Indemnitor in an amount
equal to the excess, if any, of the amount of
expenses paid by the Indemnitor pursuant to clause (iv) of Section 5.03(a) over
the Indemnitor's pro rata portion of such expenses based on the Indemnitor's
share of the liability with respect to such Claim as determined under the first
sentence of this Section 5.03(b).
(c) If the Controlling Party shall elect to pay the Claim and seek a refund, the
Indemnitor shall lend sufficient funds on an interest-free basis to the
Controlling Party, and with no net after-tax cost to the Controlling Party, to
cover any applicable indemnity obligations of the Indemnitor. To the extent such
refund claim is ultimately disallowed, the loan or portion thereof equal to the
amount of the refund claim so disallowed shall be applied against the
Indemnitor's obligation to make indemnity payments pursuant to this Agreement.
In addition if the refund is ultimately disallowed, the Controlling Party shall
reimburse the Indemnitor for the Controlling Party's pro rata portion of the
expenses paid by the Indemnitor under clause (iv) of Section 5.03(a) based on
the Controlling Party's share of the tax previously paid. To the extent such
refund claim is allowed, the Controlling Party shall pay to the Indemnitor (i)
the amounts loaned or advanced to the Controlling Party with respect to the
indemnity obligation (not to exceed the Indemnitor's share of any refund), and
(ii) the Controlling Party's pro rata portion of the expenses paid by the
Indemnitor under clause (iv) of Section 5.03(a) based on the Controlling Party's
share of any refund, within ten (10) days of the receipt of such refund (or if
the Controlling Party would have received such refund but for the existence of a
counterclaim or other claim not indemnified by the Indemnitor under this
Agreement, within ten (10) days of the final resolution of the contest), plus an
amount equal to any interest received (or that would have been received) from
the IRS that is properly attributable to such amount.
(d) Except as provided below, the Controlling Party shall not settle a Claim
that Indemnitor is entitled to require the Controlling Party to contest under
Section 5.03(a) without the prior written consent of the Indemnitor. At any
time, whether before or after commencing to take any action pursuant to this
Section 5.03 with respect to any Claim, the Controlling Party may decline to
take action with respect to such Claim and may settle such Claim without the
prior written consent of the Indemnitor by notifying the Indemnitor in writing
that the Indemnitor is released from its obligations to indemnify the
Controlling Party with respect to such Claim (which notification shall release
the Indemnitor from such obligations except to the extent the Indemnitor has
agreed in writing that it would be willing to have its liability calculated on
the basis of a settlement offer, as provided in Section 5.03(b), at that point
in the contest) and with respect to any Claim the resolution of which is based
on the outcome of such Claim. If the Controlling Party settles any Claim without
the consent of the Indemnitor or otherwise takes or declines to take any action
pursuant to this paragraph, the Controlling Party shall (i) reimburse the
Indemnitor for all the expenses paid by the Indemnitor pursuant to clause (iv)
of Section 5.03(a), and (ii) pay to the Indemnitor any other amounts paid or
advanced by the Indemnitor with respect to such Claim (other than amounts
payable by the Indemnitor in connection with a settlement offer pursuant to
Section 5.03(b)), plus interest at a rate equal to the Applicable Federal Rate
from the date on which the amounts were advanced.
ARTICLE VI
Cooperation
6.01 General. Parent 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 reasonably necessary to carry out the intent of this Agreement.
Each party agrees to notify the other party in writing 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 the Stub Period
or a Period After the Second Distribution. Each party agrees to treat the First
and Second Distribution for all income tax purposes as not causing the
recognition of any gain or loss.
6.02 Cooperation With Respect to Tax Return Filings, Examinations and Tax
Related Controversies.
(a) Parent's Obligations. In addition to any obligations imposed pursuant to the
Distribution Agreement, Parent and each other member of the Parent Group shall
fully cooperate with Spinco and its representatives, in a prompt and timely
manner, in connection with (i) the preparation and filing of and (ii) any
inquiry, audit, examination, investigation, dispute, or litigation involving,
any Tax Return filed or required to be filed by or for any member of the Spinco
Group for any taxable period ending on or before the Date of the Second
Distribution. Such cooperation shall include, but not be limited to, (x) the
execution and delivery to Spinco by the appropriate Parent Group
member of any power of attorney required to allow Spinco and its counsel to
participate on behalf of Parent or such other Parent Group member in any
inquiry, audit or other administrative proceeding and to assume the defense or
prosecution, as the case may be, of any suit, action or proceeding for which
Spinco is the Controlling Party, (y) making available to Spinco, during normal
business hours, and within thirty (30) days of any written request therefor, all
books, records and information, and the assistance of all appropriate officers
and employees, reasonably necessary or useful in connection with any tax
inquiry, audit, examination, investigation, dispute, litigation or any other
matter, and (z) use of its commercially reasonable best efforts in defending
Spinco's interests in any tax inquiry, audit, examination, investigation,
dispute, litigation or any other matter for which Parent is the Controlling
Party.
(b) Spinco's Obligations. In addition to any obligations imposed pursuant to the
Distribution Agreement, Spinco shall fully cooperate with Parent and its
representatives, in a prompt and timely manner, in connection with (i) the
preparation and filing of and (ii) any inquiry, audit, examination,
investigation, dispute, or litigation involving, any Tax Return filed or
required to be filed by or for any member of the Parent Group which includes
Spinco or any other member of the Spinco Group. Such cooperation shall include,
but not be limited to, (x) the execution and delivery to Parent by the
appropriate Spinco Group member of any power of attorney required to allow
Parent and its counsel to participate on behalf of Spinco or such other Spinco
Group member in any inquiry, audit or other administrative proceeding and to
assume the defense or prosecution, as the case may be, of any suit, action or
proceeding for which Parent is the Controlling Party, (y) making available to
Parent, during normal business hours, and within thirty (30) days of any written
request therefor, all books, records and information, and the assistance of all
appropriate officers and employees, reasonably necessary or useful in connection
with any tax inquiry, audit, examination, investigation, dispute, litigation or
any other matter, and (z) the use of its commercially reasonable best efforts in
defending Parent's interests in any tax inquiry, audit, examination,
investigation, dispute, litigation or other matter for which Spinco is the
Controlling Party.
(c) Remedy for Failure to Comply. If Spinco reasonably determines that Parent is
not for any reason fulfilling its obligations under Section 6.02(a) hereof, or
if Parent reasonably determines that Spinco is not for any reason fulfilling its
obligations under Section 6.02(b) hereof, then Parent or Spinco, as the case may
be, shall have the right to appoint an independent nationally-recognized public
accounting or law firm to assist the other in meeting its obligations under this
Section 6.02. Such entity shall have complete access, during normal business
hours to all books, records and information, and the reasonable cooperation of
all appropriate officers and employees, of Parent or Spinco, as the case may be.
In addition, the non-fulfilling party shall be responsible for any additional
tax liability caused by the non-fulfillment of its obligations under Section
6.02(a) or (b). Anything in the preceding provisions of this Section 6.02(c) to
the contrary notwithstanding, if the party alleged not to have fulfilled or be
fulfilling its obligations under Section 6.02(a) or 6.02(b), as applicable,
shall maintain that it fulfilled its obligations under Section 6.02(a) or
Section 6.02(b), as applicable, and/or that no additional liability resulted
from any non-fulfillment with respect to Section 6.02(a) or Section 6.02(b), as
applicable, such matter or matters shall be determined by independent counsel
agreed to by both the allegedly non-fulfilling party and the party alleging
non-fulfillment (which determination shall be final and binding). If such
independent counsel shall determine that the allegedly non-fulfilling party in
fact fulfilled its obligations under Section 6.02(a) or Section 6.02(b), as
applicable: (i) the fees and expenses of the accounting or law firm appointed
pursuant to the first sentence of this Section 6.02(c) as well as the fees and
expenses of the independent counsel making such determination shall be paid by
the party alleging non-fulfillment, and (ii) liability for taxes alleged to have
resulted from such non-fulfillment shall be borne by Spinco or Parent without
regard to this Section 6.02(c). If such independent tax counsel shall determine
that the alleged non-fulfilling party did not fulfill its obligations under
Section 6.02(a) or 6.02(b), as applicable: (i) the fees and expenses referred to
in clause (i) of the preceding sentence shall be borne by the party determined
not to have fulfilled such obligations, and (ii) the additional tax liability
alleged to have been caused by such non-fulfillment shall be borne by the
non-fulfilling party, unless and to the extent that such independent counsel
determines that such taxes were not caused by such non-fulfillment, in which
case and to which extent liability for taxes alleged to have resulted from such
non-fulfillment shall be borne by Spinco or Parent without regard to this
Section 6.02(c).
19
ARTICLE VII
Retention of Records; Access
The Parent Group and the Spinco Group shall (a) in accordance with their then
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 Parent Group or the Spinco
Group for any Period Before the Second Distribution or any Stub Period for the
audit of such Tax Returns; and (b) give to the other reasonable access to such
records, documents, accounting data and other information (including computer
data) and 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. At any time after the
Date of the Second Distribution that either the Parent Group or the Spinco
proposes to destroy such material or information, it shall first notify the
other Group in writing, and the other Group shall be entitled to receive such
materials or information proposed to be destroyed.
ARTICLE VIII
Disputes
If Parent and Spinco cannot agree on the calculation of any liabilities under
this Agreement, such calculation shall be made by any independent public
accounting firm acceptable to both Parent and Spinco. The decision of such firm
shall be final and binding. The fees and expenses incurred in connection with
such calculation shall be allocated between and borne by the parties based upon
the independent public accounting firm's determination with respect to the
disputed calculation. Any accounting firm engaged pursuant to this Article VIII
shall be empowered to make determinations with respect to matters of calculation
only and not with regard to the proper interpretation of this Agreement.
ARTICLE IX
Termination of Liabilities
Notwithstanding any other provision in this Agreement, any liabilities
determined under this Agreement shall not terminate any earlier than the
expiration of the applicable statute of limitation for such liability. All other
covenants under this Agreement shall survive indefinitely.
ARTICLE X
Miscellaneous Provisions
10.01 Complete Agreement; Construction. This Agreement, together with the
Ancillary Agreements, shall constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
10.02 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each of the
parties and delivered to the other parties.
10.03 Survival of Agreements. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Date of the Second Distribution.
10.04 Notices. All notices and other communications hereunder shall be in
writing, shall reference this Agreement and shall be hand delivered or mailed by
registered or certified mail (return receipt requested) or sent by any means of
electronic message transmission with delivery confirmed (by voice or otherwise)
to the parties at the following addresses (or at such other addresses for a
party as shall be specified by like notice) and will be deemed given on the date
on which such notice is received:
To Parent:
CT Holdings, Inc.
0000 Xxxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
To SpinCo:
Citadel Security Software Inc.
0000 Xxxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
10.05 Waivers. The failure of any party to require strict performance by any
other party of any provision in this Agreement shall not waive or diminish that
party's right to demand strict performance thereafter of that or any other
provision hereof.
10.06 Amendments. This Agreement may not be modified or amended except by an
agreement in writing signed by each of the parties hereto.
10.07 Successors and Assigns. The provisions to this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
10.08 Subsidiaries. Each of the parties hereto shall cause to be performed, and
hereby guarantees the performance of, all actions, agreements and obligations
set forth herein to be performed by any Subsidiary of such party or by any
entity that is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
10.09 Third-Party Beneficiaries. This Agreement is solely for the benefit of the
parties hereto and their respective Subsidiaries and Affiliates and should not
be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
10.10 Title and Headings. Titles and headings to Sections herein are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
10.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED IN THE STATE OF DELAWARE.
10.12 Dispute Resolution. Any dispute arising out of or relating to the
performance, breach or interpretation of this Agreement shall be handled in
accordance with Article VIII of this Agreement (solely with respect to matters
of computation) and Article V of the Distribution Agreement.
10.13 Severability. In the event any one or more of the provisions contained in
this Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic or
operational effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
CT HOLDINGS, INC.
By _____________________________
Name: _____________________________
Title: _____________________________
CITADEL SECURITY SOFTWARE INC.
By _____________________________
Name: _____________________________
Title: _____________________________
