TAX SHARING AGREEMENT
dated as of ________, 2000
among
DELTA WOODSIDE INDUSTRIES, INC.
DELTA APPAREL, INC.
and
DUCK HEAD APPAREL COMPANY, INC.
1
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT dated as of _______, 2000 among DELTA WOODSIDE
INDUSTRIES, INC., a South Carolina corporation (together with its successors,
"Delta Woodside"), DELTA APPAREL, INC., a Georgia corporation (together with its
successors, "Delta Apparel"), and DUCK HEAD APPAREL COMPANY, INC., a Georgia
corporation (together with its successors, "Duck Head").
RECITALS
WHEREAS, pursuant to the Tax laws of various jurisdictions, certain members
of the Delta Woodside Tax Group, certain members of the Delta Apparel Tax Group
and certain members of the Duck Head Tax Group, as defined below, have filed or
will file certain Tax returns on an affiliated, consolidated, combined, unitary
or other group basis (including as permitted by Section 1501 of the Internal
Revenue Code of 1986, as amended (the "Code")) (each such group, a "Consolidated
Group");
WHEREAS, the Board of Directors of Delta Woodside has determined that it is
in the best interests of Delta Woodside and its stockholders to distribute all
of the outstanding shares of the common stock of Delta Apparel and all of the
outstanding shares of the common stock of Duck Head to the holders of the common
stock of Delta Woodside on a pro rata basis (the "Distribution"); and
WHEREAS, the parties have set forth in this Agreement the rights and
obligations of Delta Woodside and the other members of the Delta Woodside Tax
Group, Delta Apparel and the other members of the Delta Apparel Tax Group, and
Duck Head and the other members of the Duck Head Tax Group with respect to the
handling and allocation of certain federal, state, local and other Taxes
incurred in Taxable periods beginning prior to the Distribution Date, and
various other Tax matters;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.
-----------
(a) As used herein, the following terms have the following meanings:
"Business Day" means any day other than a Saturday, a Sunday or one on
which banks are authorized or required by law to close in Greenville, South
Carolina.
2
"Delta Apparel Tax Group" means, at any time, Delta Apparel and any direct
or indirect corporate subsidiaries (including predecessors and successors
thereto) of Delta Apparel that would be eligible, assuming, where applicable,
that Delta Apparel is not a member of a group that includes Delta Woodside or
Duck Head, to join with Delta Apparel, (i) with respect to Federal Taxes, in the
filing of a consolidated Federal Tax return, (ii) with respect to State Taxes,
in the filing of an affiliated, consolidated, combined or unitary State Tax
return or (iii) with respect to other Taxes, in the filing of a Tax return as an
affiliated, consolidated, combined or unitary group.
"Delta Woodside Consolidated Group" means Delta Woodside and each direct
and indirect corporate subsidiary (including predecessors and successors
thereto) that is eligible to join with Delta Woodside (i) with respect to
Federal Taxes, in the filing of a consolidated Federal Tax return, (ii) with
respect to State Taxes, in the filing of an affiliated, consolidated, combined
or unitary State Tax return, or (iii) with respect to other Taxes, in the filing
of a Tax return as an affiliated, consolidated, combined or unitary group.
"Delta Woodside Tax Group" means, at any time, Delta Woodside and any
direct or indirect corporate subsidiaries (including predecessors and successors
thereto) of Delta Woodside that would be eligible, assuming, where applicable
that Delta Woodside is not a member of a group that includes Delta Apparel or
Duck Head, to join with Delta Woodside, (i) with respect to Federal Taxes, in
the filing of a consolidated Federal Tax return, (ii) with respect to State
Taxes, in the filing of an affiliated, consolidated, combined or unitary State
Tax return or (iii) with respect to other Taxes, in the filing of a Tax return
as an affiliated, consolidated, combined or unitary group.
"Designated Delta Apparel Affiliate" means Delta Apparel or the member of
the Delta Apparel Tax Group that has been designated as such by Delta Apparel.
"Designated Duck Head Affiliate" means Duck Head or the member of the Duck
Head Tax Group that has been designated as such by Duck Head.
"Distribution Agreement" means the Distribution Agreement dated as of March
15, 2000 among Delta Woodside, Delta Apparel and Duck Head.
"Distribution Date" means the Business Day on which the Distribution shall
be effected.
"Duck Head Tax Group" means, at any time, Duck Head and any direct or
indirect corporate subsidiaries (including predecessors and successors thereto)
of Duck Head that would be eligible, assuming, where applicable, that Duck Head
is not a member of a group that includes Delta Woodside or Delta Apparel, to
join with Duck Head, (i) with respect to Federal Taxes, in the filing of a
consolidated Federal Tax return, (ii) with respect to State Taxes, in the filing
of an
3
affiliated, consolidated, combined or unitary State Tax return or (iii) with
respect to other Taxes, in the filing of a Tax return as an affiliated,
consolidated, combined or unitary group.
"Effective Realization" (and the correlative terms, "Effectively Realized"
and "Effectively Realizes") means, with respect to a tax saving, tax benefit or
tax attribute, the earliest to occur of (i) the receipt by a member of the Delta
Woodside Tax Group, a member of the Delta Apparel Tax Group or a member of the
Duck Head Tax Group of cash from a Taxing Authority reflecting such tax saving,
tax benefit or tax attribute, (ii) the application of such tax saving, tax
benefit or tax attribute to reduce (A) the Tax liability on a Return of any of
such corporations or of any affiliated, consolidated, combined or unitary group
of which any of such corporations is a member, or (B) any other outstanding Tax
liability of any of such corporations or of such group, or (iii) a Final
Determination of the entitlement of any of such corporations or of such group to
such tax saving, tax benefit or tax attribute.
"Federal Employment Tax" means the Federal Insurance Contributions Act, the
Federal Unemployment Tax Act and any other federal tax that applies or that
shall apply to a corporation in connection with the payment or provision of
salaries, or the provision of benefits and other remuneration, to employees.
"Federal Tax" means any tax imposed under Subtitle A of the Code.
"Final Determination" means (i) with respect to Federal Taxes, (A) a
"determination" as defined in Section 1313(a) of the Code, or (B) the acceptance
by or on behalf of the IRS of Form 870-AD (or any successor form thereto) as a
final resolution of Tax liability for any Taxable period, except as to items in
respect of which the right of the taxpayer to file a claim for refund or the
right of the IRS to assert a further deficiency has been reserved; (ii) with
respect to Taxes other than Federal Taxes, any final determination of liability
in respect of a Tax that, under applicable law, is not subject to further
appeal, review or modification, through Tax Proceedings or otherwise (including,
without limitation, the expiration of a statute of limitations or a period for
the filing of claims for refunds, amended returns or appeals from adverse
determinations); or (iii) the payment of Tax by the corporation among the
members of the Delta Woodside Tax Group, the members of the Delta Apparel Tax
Group and the members of the Duck Head Tax Group that is responsible for payment
of such Tax under applicable law with respect to any item that has been
disallowed or adjusted by a Taxing Authority and as to which Delta Woodside,
Delta Apparel or Duck Head (as applicable) has made a determination that no
recoupment shall be sought.
"Fiscal 2000 Pre-Distribution Period" means the taxable period from July 4,
1999 through the Distribution Date.
"Grossed Up Tax Amount" means an additional amount (taking into account any
taxation of such additional amount) necessary to reflect the hypothetical Tax
consequences of the receipt or accrual of any payment, using the highest Tax
rate (or rates, in the case of an item that affects
4
more than one Tax) applicable to the recipient of such payment for the relevant
Taxable period, reflecting for example, the effect of any deductions available
for interest paid or accrued and for appropriate Taxes such as State Taxes.
"Intercompany Interest Rate" means the rate, from time to time, that is
equal to the London Interbank Offered Rate for dollar deposits, plus 2% per
annum.
"Intercompany Reorganization" shall have the meaning ascribed to that term
in the Distribution Agreement.
"IRS" means the Internal Revenue Service.
"Post-Distribution Period" means any taxable period (or portion thereof)
beginning after the close of business on the Distribution Date.
"Pre-Distribution Period" means any taxable period (or portion thereof)
ending on or before the close of business on the Distribution Date.
"Return" means any Tax return, statement, report, form or election
(including, without limitation, estimated Tax returns and reports, extension
requests and forms, and information returns and reports) required to be filed
with any Taxing Authority, in each case as amended and as finally adjusted.
"State Taxes" mean any income, franchise or similar tax payable to a state
or local taxing jurisdiction of the United States.
"Tax" (and the correlative term, "Taxable") means (i) any Federal Tax, or
any net income, alternative or add-on minimum, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, license,
withholding (as payor or recipient), payroll, employment, excise, severance,
stamp, capital stock, occupation, property, real property gains, environmental,
windfall, premium, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest thereon
and any penalty, addition to tax or additional amount thereto; (ii) any
liability of a corporation for the payment of any amounts of the type described
in clause (i) for any taxable period resulting from such corporation's being a
part of a Consolidated Group pursuant to the application of Treasury Regulations
Section 1.1502-6 (or a successor thereto) or any similar provision applicable
under state, local or foreign law; or (iii) any liability for the payment of any
amounts described in clause (i) as a result of any express or implied obligation
to indemnify any other person.
"Tax Asset" means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction, or any other loss, credit,
deduction or tax attribute that could reduce any tax (including, without
limitation, deductions, credits, alternative minimum net operating loss
carryforwards related to alternative minimum taxes or additions to the basis of
property).
5
"Tax Packages", with respect to a corporation, mean one or more packages of
information, relating to such corporation, that are reasonably necessary for the
purpose of preparing the Return of any Consolidated Group that includes such
corporation.
"Tax Proceeding" means any Tax audit, dispute or proceeding (whether
administrative or judicial). Without limiting the generality of the foregoing, a
reference to a Tax Proceeding relating to any taxable year shall include a Tax
Proceeding relating to multiple taxable years that include such taxable year,
notwithstanding that other included taxable years may be Post- Distribution
Periods.
"Taxing Authority" means any governmental authority (whether United States
or non- United States, and including, without limitation, any state,
municipality, political subdivision or governmental agency) responsible for the
imposition of any Tax.
(b) Each of the following terms is defined in the Section or portion of
this Agreement set forth opposite such term:
Term Section
Code Recitals
Consolidated Group Recitals
Delta Apparel Recitals
Delta Woodside Recitals
Distribution Recitals
Duck Head Recitals
Indemnitee 7.04
Indemnitor 7.04
Tax Benefit 7.07
(c) Each of the following terms has the definition for that term in the
Distribution Agreement: "Delta Apparel Business", "Delta Apparel Employee
Group", "Delta Woodside Business", "Delta Woodside Employee Group", "Duck Head
Business" and "Duck Head Employee Group".
(d) Any term used in this Agreement that is not defined in this Agreement
shall, to the extent the context requires, have the meaning assigned to it in
the Code or in comparable provisions of applicable Tax law.
6
ARTICLE 2
ADMINISTRATIVE AND COMPLIANCE MATTERS
SECTION 2.01. Sole Tax Sharing Agreement.
--------------------------
(a) Except for Sections 14.4(b) and 15.12 of the Distribution Agreement and
except for any agreement described in paragraph (b) below, any and all existing
Tax sharing agreements or arrangements, written or unwritten, among two or more
of any member of the Delta Woodside Tax Group, any member of the Delta Apparel
Tax Group and any member of the Duck Head Tax Group shall be or shall have been
terminated as of the Distribution Date. On and after the Distribution Date, none
of the members of the Delta Woodside Tax Group, the members of the Delta Apparel
Tax Group and the members of the Duck Head Tax Group shall have any rights or
liabilities (including, without limitation, any rights and liabilities that
accrued prior to the Distribution Date) under such terminated agreements and
arrangements.
(b) This Agreement shall not address the obligations or arrangements, if
any, solely (i) among members of the Delta Woodside Tax Group, (ii) among
members of the Delta Apparel Tax Group, or (iii) among members of the Duck Head
Tax Group. Without limiting the generality of the foregoing, that certain Income
Tax Sharing Agreement, dated as of August 1, 1997, by and between Delta Woodside
and Delta Xxxxx, Inc. remains in full force and effect notwithstanding this
Agreement.
SECTION 2.02. Designation of Agent.
--------------------
(a) Each member of the Delta Apparel Tax Group and each member of the Duck
Head Tax Group hereby irrevocably authorizes and designates Delta Woodside as
its agent, attorney- in-fact, coordinator and administrator for the purposes of
taking any and all actions with respect to Taxes for which such member is a
member of the Delta Woodside Consolidated Group in connection with any taxable
period that includes a Pre-Distribution Period. In connection with any
Pre-Distribution Period, Delta Woodside shall have the same authority under this
Section 2.02(a), with respect to the Taxes described in the preceding sentence,
to act on behalf of each member of the Delta Apparel Tax Group and each member
of the Duck Head Tax Group as would such member, were such member acting on its
own behalf, and as would the parent of the Consolidated Group that includes such
member, were such parent acting on behalf of such member. Delta Woodside
covenants to the Delta Apparel Tax Group and the Duck Head Tax Group that it
shall be responsible to see that matters handled pursuant to its exercise of its
authority under this Section 2.02(a) shall be handled promptly and, to the
knowledge of Delta Woodside, appropriately.
(b) Without limiting the generality of Section 2.02(a), Delta Woodside
shall have the authority, with respect to the Taxes and taxable periods
described in Section 2.02(a), to take any and all actions necessary, helpful or
incidental to, or otherwise in connection with, (i) the
7
preparation or filing of any Return or claim for refund (even where an item or
Tax Asset giving rise to an amended Return or claim for refund arises in a
Post-Distribution Period), (ii) the conduct, management, prosecution, defense,
contest, compromise or settlement of (A) any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any Return, or (B) any other
Tax Proceeding, (iii) the determination of the taxable periods (including,
without limitation, taxable periods that include a Post-Distribution Period)
that a settlement of a Tax Proceeding may impact and other timing
considerations, (iv) the determination as to whether any refunds shall be
received by way of refund or credited against tax liability, (v) the
determination as to the treatment of Tax Assets that are allowed under
applicable law to be carried back or carried forward, (vi) the determination as
to whether any, and what, Tax elections shall be made, (vii) the determination
as to whether any, and what, extensions shall be requested, (viii) the receipt
of confidential information from, or the provision of such information to, any
Taxing Authority, (ix) the making of payments to, or collection of refunds from,
any Taxing Authority, and (x) the performance of any and all actions that are
described to be undertaken by Delta Woodside under this Agreement or that are
necessary, helpful or incidental to the implementation of the provisions of this
Agreement.
(c) Notwithstanding anything in Section 10.07 to the contrary, Delta
Woodside may, in its sole and absolute discretion, delegate at any time all or a
portion of its authority, rights or obligations under this Agreement to any
corporation(s) or any person(s). Such delegation may be revoked by Delta
Woodside in its sole and absolute discretion.
SECTION 2.03. Preparation of Returns.
----------------------
(a) Delta Woodside shall prepare and file the Returns (including, without
limitation, the consolidated Federal Tax Returns and State Tax Returns) of the
Delta Woodside Consolidated Group for all taxable periods that include a
Pre-Distribution Period with the assistance of the members of the Delta Apparel
Tax Group and the members of the Duck Head Tax Group. In preparing such Returns,
Delta Woodside shall not discriminate among the members of the Delta Woodside
Consolidated Group. Without limiting the generality of Section 2.02, Delta
Woodside shall have the right to determine the manner in which such Returns
shall be prepared and filed, including, without limitation, the manner in which
any item of income, gain, loss, deduction or credit shall be reported thereon.
(b) The Returns of the Delta Woodside Consolidated Group for the taxable
year ended July 1, 2000 shall reflect the inclusion of the members of the Delta
Apparel Tax Group and the Duck Head Tax Group in the Delta Woodside Consolidated
Group for the Fiscal 2000 Pre- Distribution Period.
SECTION 2.04. Procedure for Collection of Information.
---------------------------------------
(a) No more than 60 days after the Distribution Date, the Designated Delta
Apparel Affiliate shall prepare and deliver to Delta Woodside Tax Packages with
respect to the members
8
of the Delta Apparel Tax Group for the Fiscal 2000 Pre-Distribution Period and
the Designated Duck Head Affiliate shall prepare and deliver to Delta Woodside
Tax Packages with respect to the members of the Duck Head Tax Group for the
Fiscal 2000 Pre-Distribution Period.
(b) At the request of the Designated Delta Apparel Affiliate or the
Designated Duck Head Affiliate, Delta Woodside shall forward thereto, within 60
days of such request or such lengthier period of time as Delta Woodside shall
determine to be appropriate, such information regarding Federal Tax and credit
allocations as is necessary for the preparation of Tax Packages related to State
Taxes with respect to the members of the Delta Apparel Tax Group or the members
of the Duck Head Tax Group, respectively.
SECTION 2.05. Allocation.
----------
(a) With respect to any Pre-Distribution Period, Delta Woodside may, at its
option, elect, and the Delta Apparel Tax Group shall join it in electing (if
necessary), to ratably allocate items of the Delta Apparel Tax Group in
accordance with relevant provisions of Treasury Regulations Section 1.1502-76.
If Delta Woodside exercises its option to make such election, the members of the
Delta Apparel Tax Group shall provide to Delta Woodside such statements as are
required under the regulations and other appropriate assistance.
(b) With respect to any Pre-Distribution Period, Delta Woodside may, at its
option, elect, and the Duck Head Tax Group shall join it in electing (if
necessary), to ratably allocate items of the Duck Head Tax Group in accordance
with relevant provisions of Treasury Regulations Section 1.1502-76. If Delta
Woodside exercises its option to make such election, the members of the Duck
Head Tax Group shall provide to Delta Woodside such statements as are required
under the regulations and other appropriate assistance.
SECTION 2.06. Certain Other Returns.
---------------------
(a) The members of the Delta Apparel Tax Group shall be solely responsible
for the preparation and filing of (i) their respective separate state and local
Returns, (ii) Returns filed on behalf of an affiliated, consolidated, combined
or unitary group that includes neither any member of the Delta Woodside Tax
Group nor any member of the Duck Head Tax Group, and (iii) Returns for all
taxable periods that begin after the Distribution Date.
(b) The members of the Duck Head Tax Group shall be solely responsible for
the preparation and filing of (i) their respective separate state and local
Returns, (ii) Returns filed on behalf of an affiliated, consolidated, combined
or unitary group that includes neither any member of the Delta Woodside Tax
Group nor any member of the Delta Apparel Tax Group, and (iii) Returns for all
taxable periods that begin after the Distribution Date.
9
ARTICLE 3
TAX SHARING
SECTION 3.01. Tax Sharing Principles With Respect to Federal Taxes for Each
-------------------------------------------------------------
Pre- Distribution Period. With respect to Federal Taxes:
------------------------
(a) For each taxable year during the Pre-Distribution Period prior to the
Fiscal 2000 Pre-Distribution Period, Delta Woodside shall be responsible for
paying any increase in Federal Taxes, and shall be entitled to receive the
benefit of any refund of or saving in Federal Taxes, that results from any Tax
Proceeding with respect to any Returns relating to Federal Taxes of the Delta
Woodside Consolidated Group.
(b) For the Fiscal 2000 Pre-Distribution Period, Delta Woodside shall be
responsible for paying any Federal Taxes, and shall be entitled to any refund of
or saving in Federal Taxes, with respect to the Delta Woodside Consolidated
Group.
SECTION 3.02. Tax Sharing Principles With Respect to State Taxes. With
----------------------------------------------------
respect to State Taxes, for each taxable period during the Pre-Distribution
Period, each corporation that is a member of the Delta Woodside Tax Group, the
Delta Apparel Tax Group or the Duck Head Tax Group shall be responsible for
paying any State Taxes, and any increase in States Taxes, and shall be entitled
to receive the benefit of any refund of or saving in State Taxes, with respect
to that corporation (or any predecessor by merger of that corporation) or that
results from any Tax Proceeding with respect to any Returns relating to State
Taxes of that corporation (or any predecessor by merger of that corporation).
SECTION 3.03. Tax Sharing Principles With Respect to Federal Employment
------------------------------------------------------------
Tax.
---
(a) Delta Woodside shall be responsible for the Federal Employment Taxes
payable with respect to the compensation paid, whether before, on or after the
Distribution Date, by any member of the Delta Woodside Consolidated Group for
any Pre-Distribution Period or by any member of the Delta Woodside Tax Group for
any period after the Distribution Date to all individuals who are members of the
Delta Woodside Employee Group.
(b) Delta Apparel shall be responsible for the Federal Employment Taxes
payable with respect to the compensation paid, whether before, on or after the
Distribution Date, by any member of the Delta Woodside Consolidated Group for
any Pre-Distribution Period or by any member of the Delta Apparel Tax Group for
any period after the Distribution Date to all individuals who are members of the
Delta Apparel Employee Group.
(c) Duck Head shall be responsible for the Federal Employment Taxes payable
with respect to the compensation paid, whether before, on or after the
Distribution Date, by any member of the Delta Woodside Consolidated Group for
any Pre-Distribution Period or by any
10
member of the Duck Head Tax Group for any period after the Distribution Date to
all individuals who are members of the Duck Head Employee Group.
SECTION 3.04. Tax Sharing Principles With Respect to Other Taxes. With
----------------------------------------------------
respect to any Taxes, other than Federal Employment Taxes, Federal Taxes and
State Taxes:
(a) Delta Woodside shall be responsible for any such Taxes, regardless of
the time period or circumstance with respect to which such Taxes are payable,
arising from or attributable to the Delta Woodside Business;
(b) Delta Apparel shall be responsible for any such Taxes, regardless of
the time period or circumstance with respect to which such Taxes are payable,
arising from or attributable to the Delta Apparel Business; and
(c) Duck Head shall be responsible for any such Taxes, regardless of the
time period or circumstance with respect to which such Taxes are payable,
arising from or attributable to the Duck Head Business.
SECTION 3.05. Post-Distribution Periods. The Delta Woodside Tax Group shall
-------------------------
be responsible for all Taxes, and shall receive the benefit of all Tax items, of
any member of the Delta Woodside Tax Group that relate to any Post-Distribution
Period. The Delta Apparel Tax Group shall be responsible for all Taxes, and
shall receive the benefit of all Tax items, of any member of the Delta Apparel
Tax Group that relate to any Post-Distribution Period. The Duck Head Tax Group
shall be responsible for all Taxes, and shall receive the benefit of all Tax
items, of any member of the Duck Head Tax Group that relate to any
Post-Distribution Period.
ARTICLE 4
CERTAIN REPRESENTATIONS AND COVENANTS
SECTION 4.01. Delta Apparel Tax Group Covenants. Delta Apparel and each
----------------------------------
other member of the Delta Apparel Tax Group covenant to each member of the Delta
Woodside Tax Group and each member of the Duck Head Tax Group that, on or after
the Distribution Date, Delta Apparel shall not, nor shall it permit any member
of the Delta Apparel Tax Group to, make or change any tax election, change any
accounting method, amend any Return, take any tax position on any Return, take
any action, omit to take any action or enter into any transaction that results
in an increased tax liability or reduction of any Tax Asset of the Delta
Woodside Tax Group or of the Duck Head Tax Group with respect to any
Pre-Distribution Period. The Delta Apparel Tax Group agrees that the Delta
Woodside Tax Group and the Duck Head Tax Group shall have no liability for any
Tax resulting from any action referred to in the
11
preceding sentence and agrees to hold harmless the Delta Woodside Tax Group and
the Duck Head Tax Group from any such Tax.
SECTION 4.02. Duck Head Tax Group Covenants. Duck Head and each other
-------------------------------
member of the Duck Head Tax Group covenant to each member of the Delta Woodside
Tax Group and each member of the Delta Apparel Tax Group that, on or after the
Distribution Date, Duck Head shall not, nor shall it permit any member of the
Duck Head Tax Group to, make or change any tax election, change any accounting
method, amend any Return, take any tax position on any Return, take any action,
omit to take any action or enter into any transaction that results in an
increased tax liability or reduction of any Tax Asset of the Delta Woodside Tax
Group or of the Delta Apparel Tax Group with respect to any Pre-Distribution
Period. The Duck Head Tax Group agrees that the Delta Woodside Tax Group and the
Delta Apparel Tax Group shall have no liability for any Tax resulting from any
action referred to in the preceding sentence and agrees to hold harmless the
Delta Woodside Tax Group and the Delta Apparel Tax Group from any such Tax.
ARTICLE 5
PAYMENTS
SECTION 5.01. Procedure for Making Payments. All payments to be made under
-----------------------------
this Agreement shall be made in immediately available funds. Except as otherwise
provided, all payments required to be made under this Agreement shall be due 30
days after the receipt of notice of such payment or, where no notice is
required, 30 days after (i) the fixing of a Tax liability, (ii) the Effective
Realization of a tax saving, tax benefit or tax attribute, (iii) the receipt of
a refund, or (iv) the resolution of a dispute. Unless otherwise indicated, any
payment that is not made when due shall bear interest at the Intercompany
Interest Rate. If, pursuant to a Final Determination, any amount paid by any
member of the Delta Woodside Tax Group, any member of the Delta Apparel Tax
Group or any member of the Duck Head Tax Group under this Agreement results in
any increased Tax liability or reduction of any Tax Asset of the recipient of
such payment, then, in addition to any amounts otherwise owed under this
Agreement, the payor shall pay the sum of (i) any interest or penalty
attributable to such increased tax liability or to the reduction of such Tax
Asset, and (ii) the Grossed Up Tax Amount.
ARTICLE 6
CERTAIN TAX MATTERS RELATED TO THE DISTRIBUTION AGREEMENT
AND TO POST-DISTRIBUTION DEDUCTIONS
SECTION 6.01. Payment of Grossed Up Tax Amounts. If any amount paid
---------------------------------
12
under the Distribution Agreement by one party to another party to that agreement
results in any increased Tax liability or reduction of any Tax Asset of any
member of the Delta Apparel Tax Group or any member of the Duck Head Tax Group,
in the case of Delta Woodside, or any member of the Delta Woodside Tax Group or
any member of the Duck Head Tax Group, in the case of Delta Apparel, or any
member of the Delta Woodside Tax Group or the Delta Apparel Tax Group, in the
case of Duck Head, then the party making such payment shall, in addition to
paying any amounts otherwise owed under the Distribution Agreement, indemnify
the recipient of such payment against and hold it harmless from, without
duplication, (i) such increased Tax or the reduction of such Tax Asset, (ii) any
interest or penalty attributable to such increased Tax liability or the
reduction of such Tax Asset and (iii) the Grossed Up Tax Amount.
SECTION 6.02. Deductions and Certain Taxes Related to Stock Options.
-----------------------------------------------------
(a) Delta Woodside shall claim the Federal Tax deductions and any State Tax
deductions attributable to the exercise, following the Distribution Date, of
options to purchase the stock of Delta Woodside that are held by a person who is
at the time the deduction is claimed (or, in the case of a person who is no
longer employed by a member of the Delta Woodside Tax Group, a member of the
Delta Apparel Tax Group or a member of the Duck Head Tax Group at the time the
deduction is claimed, who before or after the Distribution was) an employee of a
member of the Delta Woodside Tax Group.
(b) Delta Woodside shall claim the Federal Tax deductions and any State Tax
deductions attributable to the exercise, following the Distribution Date, of
options to purchase the stock of Delta Woodside that are held by a person who is
at the time the deduction is claimed (or, in the case of a person who is no
longer employed by a member of the Delta Woodside Tax Group, a member of the
Delta Apparel Tax Group or a member of the Duck Head Tax Group at the time the
deduction is claimed, who before or after the Distribution was) an employee of a
member of the Delta Apparel Tax Group or the Duck Head Tax Group.
(c) The employer of the person who exercises stock options (or, if such
person is not employed by a member of the Delta Woodside Tax Group, a member of
the Delta Apparel Tax Group or a member of the Duck Head Tax Group, the company
among the members of the Delta Woodside Tax Group, the members of the Delta
Apparel Tax Group and the members of the Duck Head Tax Group that employed such
person immediately before such individual ceased such employment) shall timely
pay the applicable Federal Employment Tax or any state employment tax in
connection with such exercise.
SECTION 6.03. Deductions Related to Employee Severance and Other Enumerated
-------------------------------------------------------------
Expenses. For purposes of computing Delta Woodside's Federal Taxes and Delta
--------
Woodside's State Taxes for any Pre-Distribution Period, Delta Woodside shall
receive the Federal Tax deductions and any State Tax deductions, as appropriate,
attributable to any and all expenses incurred in connection with the termination
of the employment of persons who were employees of Delta Woodside immediately
before the Distribution.
13
SECTION 6.04. Indemnification under Article 6. To the extent that any
---------------------------------
deduction accorded to a member of the Delta Woodside Tax Group by Section 6.02
or 6.03 is disallowed because a Taxing Authority makes a Final Determination
that a member of the Delta Apparel Tax Group or of the Duck Head Tax Group
should have claimed such deduction, the Designated Delta Apparel Affiliate or
Designated Duck Head Affiliate, respectively, shall pay to Delta Woodside an
amount equal to the resulting actual tax benefit Effectively Realized by the
Delta Apparel Tax Group or the Duck Head Tax Group, respectively, within 30 days
of the Effective Realization thereof.
ARTICLE 7
INDEMNITIES
SECTION 7.01. Indemnification by Delta Woodside Tax Group. Delta Woodside
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and each other member of the Delta Woodside Tax Group shall jointly and
severally indemnify Delta Apparel, the other members of the Delta Apparel Tax
Group, Duck Head, and the other members of the Duck Head Tax Group against and
hold them harmless from:
(a) liability for any Taxes for which any member of the Delta Woodside Tax
Group is responsible under Article 3 hereof (provided that, for purposes of the
foregoing portion of this Section 7.01(a), Taxes shall refer only to such taxes
as are described in clause (i) of the definition of such term in Section
1.01(a)), including without limitation, (i) any tax liability of any member of
the Delta Woodside Tax Group resulting from the existence of any excess loss
accounts or deferred intercompany gains immediately before the Distribution, and
(ii) any Federal Employment Tax of any member of the Delta Woodside Tax Group,
but excluding any Tax liability resulting from the Distribution except for such
amounts as are described in clause (i) of this Section 7.01(a);
(b) liability for Taxes relating to any taxable period resulting from a
breach by Delta Woodside or any other member of the Delta Woodside Tax Group of
any representation or covenant made by any member of the Delta Woodside Tax
Group in this Agreement; and
(c) liability for Taxes resulting from the Intercompany Reorganization or
from the Distribution, except (A) to the extent that such liability arises by
reason of the breach by (I) Delta Apparel or any other member of the Delta
Apparel Tax Group of any representation or covenant made by any member of the
Delta Apparel Tax Group in this Agreement, or (II) Duck Head or any other member
of the Duck Head Tax Group of any representation or covenant made by any member
of the Duck Head Tax Group in this Agreement, (B) for such amounts as are
described in Section 7.01(a)(i), and (C) for any tax liability of any member of
the Delta Woodside Tax Group resulting from the existence of any deferred
intercompany gains immediately before the Distribution.
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SECTION 7.02. Indemnification by Delta Apparel Tax Group. Delta Apparel and
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each other member of the Delta Apparel Tax Group shall jointly and severally
indemnify Delta Woodside, the other members of the Delta Woodside Tax Group,
Duck Head, and the other members of the Duck Head Tax Group against and hold
them harmless from:
(a) liability for any Taxes for which any member of the Delta Apparel Tax
Group is responsible under Article 3 hereof (provided that, for purposes of the
foregoing portion of this Section 7.02(a), Taxes shall refer only to such taxes
as are described in clause (i) of the definition of such term in Section
1.01(a)), including without limitation, (i) any tax liability of any member of
the Delta Apparel Tax Group resulting from the existence of any excess loss
accounts or deferred intercompany gains immediately before the Distribution, and
(ii) any Federal Employment Tax of any member of the Delta Apparel Tax Group,
but excluding any Tax liability resulting from the Distribution except for such
amounts as are described in clause (i) of this Section 7.02(a);
(b) liability for Taxes relating to any taxable period resulting from a
breach by Delta Apparel or any other member of the Delta Apparel Tax Group of
any representation or covenant made by any member of the Delta Apparel Tax Group
in this Agreement; and
(c) liability for Taxes resulting from the Intercompany Reorganization or
from the Distribution, except (A) to the extent that such liability arises by
reason of the breach by (I) Delta Woodside or any other member of the Delta
Woodside Tax Group of any representation or covenant made by any member of the
Delta Woodside Tax Group in this Agreement, or (II) Duck Head or any other
member of the Duck Head Tax Group of any representation or covenant made by any
member of the Duck Head Tax Group in this Agreement, (B) for such amounts as are
described in Section 7.02(a)(i), and (C) for any tax liability of any member of
the Delta Apparel Tax Group resulting from the existence of any deferred
intercompany gains immediately before the Distribution.
SECTION 7.03. Indemnification by Duck Head Tax Group. Duck Head and each
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other member of the Duck Head Tax Group shall jointly and severally indemnify
Delta Woodside, the other members of the Delta Woodside Tax Group, Delta
Apparel, and the other members of the Delta Apparel Tax Group against and hold
them harmless from:
(a) liability for any Taxes for which any member of the Duck Head Tax Group
is responsible under Article 3 hereof (provided that, for purposes of the
foregoing portion of this Section 7.03(a), Taxes shall refer only to such taxes
as are described in clause (i) of the definition of such term in Section
1.01(a)), including without limitation, (i) any tax liability of any member of
the Duck Head Tax Group resulting from the existence of any excess loss accounts
or deferred intercompany gains immediately before the Distribution, and (ii) any
Federal Employment Tax of any member of the Duck Head Tax Group, but excluding
any Tax liability resulting from the Distribution except for such amounts as are
described in clause (i) of this Section 7.03(a);
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(b) liability for Taxes relating to any taxable period resulting from a
breach by Duck Head or any other member of the Duck Head Tax Group of any
representation or covenant made by any member of the Duck Head Tax Group in this
Agreement; and
(c) liability for Taxes resulting from the Intercompany Reorganization or
from the Distribution, except (A) to the extent that such liability arises by
reason of the breach by (I) Delta Woodside or any other member of the Delta
Woodside Tax Group of any representation or covenant made by any member of the
Delta Woodside Tax Group in this Agreement, or (II) Delta Apparel or any other
member of the Delta Apparel Tax Group of any representation or covenant made by
any member of the Delta Apparel Tax Group in this Agreement, (B) for such
amounts as are described in Section 7.03(a)(i), and (C) for any tax liability of
any member of the Duck Head Tax Group resulting from the existence of any
deferred intercompany gains immediately before the Distribution.
SECTION 7.04. Additional Indemnity Amounts. Each party with indemnification
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obligations under Section 7.01, 7.02 or 7.03 (an "Indemnitor") shall also pay to
each party that is indemnified by such Indemnitor under such provision (an
"Indemnitee") all liabilities, losses, damages, assessments, settlements,
judgments, costs and properly documented expenses (including, without
limitation, expenses of investigation and reasonable attorneys' fees and
expenses) arising out of or incident to the imposition, assessment or assertion
of any liabilities or damage described in such provision, including, without
limitation, those incurred in the contest in good faith in appropriate
proceedings relating to the imposition, assessment or assertion of any such
liability or damage.
SECTION 7.05. Notice of Claim. The Indemnitee agrees to give prompt notice
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to the Indemnitor of the assertion of any claim, or the commencement of any
suit, action or proceeding, in respect of which indemnity may be sought under
Section 7.01, 7.02 or 7.03.
SECTION 7.06. Discharge of Indemnity. An Indemnitor shall discharge its
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obligations by paying all amounts specified in Sections 7.01, 7.02, 7.03 and
7.04 within 30 days of demand therefor. After a Final Determination of an
obligation against which an Indemnitee is indemnified, the Indemnitee shall send
a statement to the Indemnitor showing the amount, if any, due under such
provisions. Calculation mechanics relating to items described in Sections 7.01,
7.02 and 7.03 shall be in accordance with the principles of Article 3 to the
extent they are applicable. Notwithstanding that an Indemnitor disputes in good
faith the fact or the amount of any obligation under Section 7.01, 7.02 or 7.03,
payment thereunder and under Section 7.04 shall be made within 30 days of demand
therefor.
SECTION 7.07. Tax Benefits. If an indemnification obligation of any
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Indemnitor under this Article 7 arises in respect of an adjustment that makes
allowable to the Indemnitee any deduction, amortization, exclusion from income
or other allowance (a "Tax Benefit") that would not, but for such adjustment, be
allowable, then any payment by the Indemnitor pursuant to this Article 7 shall
be an amount equal to the excess of (a) the amount otherwise due but for this
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Section 7.07, over (b) the present value of the product of the Tax Benefit
multiplied by (i) in the case of a credit, 100 percent, or (ii) otherwise, the
highest Tax rate applicable to the Indemnitee in effect under applicable law at
the time such Tax Benefit becomes allowable to the Indemnitee. Present value
computations shall be made by discounting, at the Intercompany Interest Rate,
the product described in Section 7.07(b) in view of the date on which the Tax
Benefit becomes allowable.
ARTICLE 8
AUDIT AND OTHER TAX PROCEEDINGS
SECTION 8.01. Control Over Tax Proceedings.
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(a) Notwithstanding anything in this Agreement to the contrary, Delta
Woodside shall have full control over any and all matters with respect to which
the Delta Apparel Tax Group and the Duck Head Tax Group have provided authority
to Delta Woodside under Section 2.02, including, without limitation, any and all
matters that would give rise to an indemnification obligation under Article 7 on
the part of any member of the Delta Woodside Tax Group, any member of the Delta
Apparel Tax Group or any member of the Duck Head Tax Group. Delta Woodside shall
have absolute discretion with respect to any decisions to be made, or any action
to be taken, with respect to any matter described in the preceding sentence.
(b) Without limiting the generality of Section 8.01(a), Delta Woodside may,
in its sole and absolute discretion, settle any Tax Proceeding with respect to
the Taxes over which it has authority under Section 2.02 (including, without
limitation, a Tax Proceeding relating to any and all matters that would give
rise to an indemnification obligation under Section 7.01, 7.02 or 7.03). Any
such settlement shall be binding on the parties to this Agreement without
further recourse.
ARTICLE 9
COMMUNICATIONS AND COOPERATION
SECTION 9.01. Consult and Cooperate. Delta Woodside, Delta Apparel and Duck
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Head shall consult and cooperate (and shall cause their respective subsidiaries
to cooperate) fully at the times and to the extent reasonably requested by a
party to this Agreement in connection with all matters subject to this
Agreement. The cooperation under this Section 9.01 shall, subject to the terms
of this Agreement, include, without limitation:
(a) the retention and provision on reasonable request of any information
(including,
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without limitation, any books, records, documentation or other information)
pertaining to any Tax matters relating to the Delta Woodside Tax Group, the
Delta Apparel Tax Group or the Duck Head Tax Group, any necessary explanations
of information, and access to personnel, until the expiration of the applicable
statute of limitation (giving effect to any extension, waiver or mitigation
thereof);
(b) the execution, acknowledgment and delivery of any instrument or
document that may be necessary or helpful in connection with (i) any Return,
(ii) any Tax Proceeding or other litigation, investigation or action, or (iii)
the carrying out of the parties' respective obligations under this Agreement;
and
(c) the use of the parties' best efforts to obtain any documentation from a
Taxing Authority, another governmental authority or another third party that may
be necessary or helpful in connection with the foregoing.
SECTION 9.02. Provide Information. Delta Woodside, the Designated Delta
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Apparel Affiliate and the Designated Duck Head Affiliate shall keep one another
fully informed with respect to any material developments relating to the matters
subject to this Agreement.
SECTION 9.03. Tax Attribute Matters. Delta Woodside, the Designated Delta
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Apparel Affiliate and the Designated Duck Head Affiliate shall promptly advise
one another with respect to any proposed Tax adjustments, relating to a
Consolidated Group, that are the subject of a Tax Proceeding or other
litigation, investigation or action and that may materially affect any Tax
liability or Tax attribute of the other parties to this Agreement.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Guarantee. Delta Apparel guarantees the obligations under
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this Agreement of each other member of the Delta Apparel Tax Group. Duck Head
guarantees the obligations under this Agreement of each other member of the Duck
Head Tax Group. Delta Woodside guarantees the obligations under this Agreement
of each other member of the Delta Woodside Tax Group.
SECTION 10.02. Dispute Resolution. If the parties hereto are unable to
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resolve any disagreement or dispute relating to this Agreement within 20 days,
such disagreement or dispute shall be resolved by Delta Woodside. Any such
resolution shall be binding on the parties to this Agreement without further
recourse.
SECTION 10.03. Authorization. Each of Delta Woodside, Delta Apparel and
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Duck Head hereby represents and warrants that (i) it has the power and authority
to execute,
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deliver and perform this Agreement, (ii) this Agreement has been duly authorized
by all necessary corporate action on the part of such party, (iii) this
Agreement constitutes a legal, valid and binding obligation of such party, and
(iv) the execution, delivery and performance of this Agreement by such party
does not contravene or conflict with any provision of law or of such party's
charter or bylaws or any agreement, instrument or order binding on such party.
SECTION 10.04. Notices. All notices, requests and other communications to
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any party hereunder shall be in writing (including facsimile or similar writing)
and shall be given:
If to Delta Woodside:
Delta Woodside Industries, Inc.
000 Xxxxx Xxxx Xxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: President
Telecopy No.: (000) 000-0000
If to Duck Head:
Duck Head Apparel Company, Inc.
0000 Xxxxxx Xxxxxxxxxx Xxxxxxx
X.X. Xxx 000
Xxxxxx, Xxxxxxx 00000
Attention: President
Telecopy No.: (000) 000-0000
If to Delta Apparel:
Delta Apparel, Inc.
0000 Xxxxxxxxxxxx Xxxx.
Xxxxx 000
Xxxxxx, Xxxxxxx 00000
Attention: President
Telecopy No.: (000) 000-0000
or such other address or facsimile number as such party may hereafter specify in
writing for this purpose by notice to the other parties hereto. Each such
notice, request or other communication shall be effective (a) if given by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section 10.04 and the appropriate facsimile confirmation is received or
(b) if given by any other means, when delivered at the address specified in this
Section 10.04.
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SECTION 10.05. Amendments; No Waivers.
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(a) Any provision of this Agreement may be amended or waived if, and only
if, such amendment or waiver is in writing and signed, in the case of an
amendment, by Delta Woodside, Delta Apparel and Duck Head, or in the case of a
waiver, by the party or parties against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.06. Expenses. Except as specifically provided otherwise in this
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Agreement or in the Distribution Agreement, each party shall bear its own costs
and expenses (including, without limitation, reasonable attorneys' fees and
other professional fees and expenses).
SECTION 10.07. Successors and Assigns. The provisions of this Agreement
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shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors (whether by merger, acquisition of assets or
otherwise, and, including, without limitation, any successor succeeding to the
tax attributes of a party under Section 381 of the Code) and assigns, to the
same extent as if such successor or assign had been an original party to this
Agreement; provided that, except as set forth in this Agreement, no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of each of the other parties hereto.
SECTION 10.08. Governing Law. This Agreement shall be construed in
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accordance with and governed by the internal laws of the State of South
Carolina.
SECTION 10.09. Counterparts; Effectiveness; No Third Party Beneficiaries.
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(a) This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall become effective
upon the consummation of the Distribution, provided that at or before such time,
each party hereto shall have received a counterpart hereof signed by the other
parties hereto. No provision of this Agreement is intended to confer any rights,
benefits, remedies, obligations or liabilities hereunder upon any person other
than (i) the parties hereto, (ii) other members of the Delta Woodside Tax Group,
(iii) other members of the Delta Apparel Tax Group and (iv) other members of the
Duck Head Tax Group, together in each case with their respective successors and
assigns.
(b) All rights and obligations arising under this Agreement shall survive
until they are
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fully effectuated or performed. Notwithstanding anything in this Agreement to
the contrary, this Agreement shall remain in effect and its provisions shall
survive for the full period of all applicable statutes of limitation (giving
effect to any extension, waiver or mitigation thereof).
SECTION 10.10. Severability. If any one or more of the provisions of this
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Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein 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 so that the replacement provisions will be valid, legal
and enforceable and will have an economic effect that comes as close as possible
to that of the invalid, illegal or unenforceable provisions.
SECTION 10.11. Specific Performance. Each of Delta Woodside, the other
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members of the Delta Woodside Tax Group, Delta Apparel, the other members of the
Delta Apparel Tax Group, Duck Head and the other members of the Duck Head Tax
Group acknowledges and agrees that damages for a breach or threatened breach of
any of the provisions of this Agreement would be inadequate and that irreparable
harm would occur. In recognition of this fact, each such corporation agrees
that, in the event of such breach or threatened breach, in addition to any
damages, any of the other parties to this Agreement, without posting any bond,
shall be entitled to seek and obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction,
attachment or any other equitable remedy that may then be available to obligate
the breaching party to (i) comply with the covenants made by, and perform other
obligations of, it (or, as appropriate, of Delta Woodside, Delta Apparel or Duck
Head) under this Agreement, or (ii) if the breaching party is unable, for
whatever reason, to comply with such covenants and perform such obligations, to
take such other actions as are necessary or appropriate to give the other
parties to this Agreement the tax effect and the economic effect that come as
close as possible to compliance with such covenants and performance of such
obligations.
SECTION 10.12. Captions. Section captions used in this Agreement are for
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convenience only and shall not affect the construction of this Agreement.
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IN WITNESS WHEREOF the parties hereto have caused this Tax Sharing
Agreement to be duly executed by their respective authorized officers as of the
date first above written.
DELTA WOODSIDE INDUSTRIES, INC.
By /s/
_________________________
Title:
DELTA APPAREL, INC.
By /s/
_________________________
Title:
DUCK HEAD APPAREL COMPANY, INC.
By /s/
_________________________
Title:
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