EXHIBIT 10.1
TAX SHARING AGREEMENT
THIS AGREEMENT is entered into as of the 20th day of March, 1997, by
and among WMS Industries Inc., a Delaware corporation ("WMS"), Xxxxxxxx Hotel
Corporation, a Delaware corporation ("Xxxxxxxx"), WHG Resorts & Casino Inc.
(formerly known as WMS Hotel Corporation), a Delaware corporation ("Hotel"), ESJ
Hotel Corporation, a Delaware corporation ("ESJ"), WMS Property Inc., a Delaware
corporation ("WPI"), and WHG El Con Corp. (formerly known as WMS El Con Corp.),
a Delaware corporation ("El Con"), (Xxxxxxxx, Hotel, ESJ, WPI and El Con
hereinafter sometimes referred to as the "Hotel Subsidiaries" or the "Hotel
Group").
WITNESSETH:
WHEREAS, WMS and the Hotel Subsidiaries (hereinafter sometimes referred
to as "Members", or in the singular "Member") have been part of an affiliated
group ("WMS Group") as defined by Section 1504(a) of the Internal Revenue Code
of 1986, as amended (hereafter referred to by Sections); and
WHEREAS, the WMS Group has filed consolidated federal income tax
returns in accordance with Section 1501; and
WHEREAS, WMS is the Common Parent (as such term is defined in Section
1504(a)) for the affiliated group which includes WMS and the Hotel Subsidiaries;
and
WHEREAS, pursuant to the Plan of Reorganization and Distribution
Agreement dated as of March 20, 1997, the following will occur (and in the order
enumerated): (i) Xxxxxxxx will be merged with and into Hotel; (ii) WPI will be
merged with and into ESJ; (iii) the capital stock of ESJ will be transferred to
Xxxxxxx de Puerto Rico Associates, Incorporated ("PPRA"); and (iv) WMS will
distribute all of its stock in Hotel to the common stockholders of WMS in a
transaction intended to qualify for tax-free treatment under Section 355 (the
"Distribution") and as a result, Hotel and the Hotel Subsidiaries will leave the
WMS Group; and
WHEREAS, WMS and the Hotel Subsidiaries have filed consolidated federal
income tax returns for the taxable years ending on or prior to June 30, 1996
(the "Prior Periods") and will file such a return for the WMS Group's current
year ending June 30, 1997 (the "Current Period") which will include the Hotel
Subsidiaries for the period ending as of the close of the day of the
Distribution (the "Distribution Date") (in the case of Xxxxxxxx, Hotel and El
Con) or the date of the Contribution (the "Contribution Date") (in the case of
WPI and ESJ) in accordance with Section 1501 and regulations issued under
Section 1502; and
WHEREAS, the Members desire to provide and fix the responsibilities
for: (1) the preparation and filing of tax returns along with the payments of
taxes shown to be due and
payable therein (as well as estimated or advance payments required prior to the
filing of said returns) for all periods prior to and following the Distribution
Date or the Contribution Date; (2) the retention and maintenance of all relevant
records necessary to prepare and file appropriate tax returns, as well as the
provision for appropriate access to those records for all parties to this
Agreement; (3) the conduct of audits, examinations, and proceedings by
appropriate governmental authorities which could result in a redetermination of
tax liabilities (for all periods prior to or following the Distribution Date) of
any party to this Agreement; and (4) the cooperation of all parties with one
another to fulfill their duties and responsibilities under this Agreement and
under applicable law;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. PAYMENT OF TAXES
WMS shall pay all taxes due (or receive all refunds) in
connection with the filing of WMS's consolidated federal income tax returns for
all taxable periods beginning before the Distribution or Contribution Dates, and
with any request for extension of time within which to file such returns.
2. PREDISTRIBUTION TAX RETURNS
All consolidated federal income tax returns that include a
member of the WMS Group and/or the Hotel Group that are required to be filed for
periods beginning before the Distribution or Contribution Dates shall be
prepared and filed by WMS. The Hotel Group shall, for such taxable periods,
provide WMS with (i) true and correct separate federal income tax returns for
each member of the Hotel Group, and (ii) a true and correct reconciliation of
book income to federal taxable income for each member of the Hotel Group.
3. ALLOCATION OF TAX ATTRIBUTES
All tax attributes of the WMS Group will be allocated among
WMS (and its subsidiaries other than the Hotel subsidiaries), and the Hotel
subsidiaries, in accordance with the Regulations promulgated pursuant to Section
1502 or analogous provisions of state, local, or foreign law.
4. CARRYBACKS OF TAX ATTRIBUTES
Except as provided in Section 8(c) hereof, if, for any taxable
year beginning on or after the Distribution or Contribution Dates, Hotel or any
Member of the Hotel Group recognizes a tax attribute that Hotel or such Member
of the Hotel Group, under the applicable provisions of the Code and Regulations
promulgated under Section 1502 thereof, is permitted or required to carry back
to a prior taxable year of the WMS Group or the prior taxable year of a Member
of the WMS Group, WMS shall, at Hotel's cost and expense, file appropriate
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refund claims within a reasonable period after being requested by Hotel. WMS (or
the Member of the WMS Group receiving such refund) shall promptly remit to Hotel
any refunds it receives with respect to any tax attribute so carried back.
5. TAX AUDITS AND CONTROVERSIES
(a) WMS, at its own expense, shall have the exclusive
authority to represent each member of the Hotel Group before the Internal
Revenue Service ("IRS") or any other governmental agency or authority or before
any court with respect to any matter affecting the tax liability of any member
of either the WMS Group or the Hotel Group for any period beginning before the
Distribution or Contribution Dates with respect to any return for which WMS has
filing responsibility. Such representation shall include, but shall not be
limited to exclusive control over (i) any response to any examination of any
such tax returns and (ii) any contest through a final determination of any issue
included in any such tax return that includes a member of the WMS Group
including, but not limited to, (A) whether and in what forum to conduct such
contest and (B) except as otherwise provided in this Section 5, whether and on
what basis to settle such contest. WMS shall give timely notice to Hotel of any
inquiry, the assertion of any claim or the commencement of any suit, action or
proceeding to the extent that any issue raised therein could directly or
indirectly adversely impact any Member of the Hotel Group and will give Hotel
such information with respect thereto as Hotel may reasonably request. Upon
notice to WMS, Hotel may, at its own expense, participate in any such inquiry,
audit or other administrative proceeding and to the extent any such inquiry,
audit or other administrative proceeding relates to an item of the Hotel Group,
then Hotel may assume at its own expense the defense or prosecution, as the case
may be, of any inquiry, audit, suit or action or proceeding provided that each
Hotel representative is reasonably satisfactory to WMS and Hotel shall
thereafter consult with WMS upon WMS's request for such consultation from time
to time, with respect to such proceeding.
(b) In the event either WMS or Hotel notifies the other party
in writing that it wishes to settle any audit, inquiry, suit, action or
proceeding (each an "Action") affecting the tax liability of the other party
(including by application of this Agreement), such other party shall have the
right (by giving written notice to the party wishing to settle the Action within
a reasonable amount of time, considering all the facts and circumstances, of
having received notice of the intention to settle), to prohibit such settlement,
in which case the party favoring settlement shall have the right (within thirty
(30) days of receipt of the other party's written notice prohibiting the
settlement) to pay to the other party (or receive from the other party) an
amount (a "Settlement Amount") equal to the aggregate amount which it would have
paid (or received) after application of each provision of this Agreement other
than this Section 5(b), in full satisfaction of the Action and its obligation to
pay amounts (or right to receive amounts) as provided in this Agreement. The
party opposing the settlement shall thereafter control, in its sole and absolute
discretion, the further defense and disposition of the Action, and shall be
fully and wholly liable for all taxes (and receive any refund of taxes)
resulting therefrom and shall indemnify and hold harmless the party favoring the
settlement from any and all liability for taxes that results from the ultimate
resolution of the Action in excess of the Settlement Amount. The
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party opposing the settlement shall have no obligation or duty to reimburse or
refund to the other party any portion of the Settlement Amount, regardless of
the ultimate resolution of the Action. The party favoring the settlement shall
have the right, at its own expense, to participate in any Action for which the
other party has assumed control under this Section 5(b). If the party favoring
settlement does not on a timely basis exercise its right to make or receive a
settlement amount, the obligation of WMS and Hotel under this Agreement shall be
determined as if the proposed settlement did not exist (e.g., the party favoring
settlement cannot settle an Action without again complying with the procedure
set forth in this Section 5(b)).
6. RETENTION OF BOOKS AND RECORDS
WMS and the Hotel Subsidiaries each agree to retain all tax
records, related schedules and work papers, and all material records and other
documents relating thereto existing on the date hereof or created through or
with respect to taxable periods ending on or before the Distribution Date or the
Contribution Date, until the later of (i) the expiration of the statute of
limitations (including extensions) of the taxable year to which such tax returns
and other documents relate or (ii) ten years from the date hereof.
7. COOPERATION REGARDING RETURN FILINGS, EXAMINATIONS AND
CONTROVERSIES
(a) In addition to any obligations imposed pursuant to the
Plan of Reorganization and Distribution Agreement, Hotel and each Member of the
Hotel Group shall fully cooperate with WMS and its representatives, in a prompt
and timely manner, in connection with (A) the preparation and filing of and (B)
any inquiry, audit, examination, investigation, dispute, or litigation involving
any tax returns filed or required to be filed by or for any member of the WMS
Group for any taxable period beginning before the Distribution Date or the
Contribution Date. Such cooperation shall include, but not be limited to, (x)
the execution and delivery to WMS by the appropriate Hotel Group Member of any
power of attorney or other necessary document to allow WMS and its counsel to
participate on behalf of Hotel or any Hotel Group Member in any action and to
assume the defense or prosecution, as the case may be, of any action, pursuant
to the terms of Section 5 of this Agreement and (y) making available to WMS,
during normal business hours, and within sixty (60) days of any request
therefor, all books, records and information (which books, records and
information may be copied by WMS at its expense) and the assistance of all
officers and employees, reasonably necessary or useful in connection with any
Action, including the preparation of the consolidated federal tax return for the
Current Period.
(b) In addition to any obligations imposed pursuant to the
Plan of Reorganization and Distribution Agreement, WMS and each Member of the
WMS Group shall fully cooperate with Hotel and its representatives, in a prompt
and timely manner, in connection with (A) the preparation and filing of and (B)
any inquiry, audit, examination, investigation, dispute, or litigation involving
any tax returns filed or required to be filed by or for any Member of the Hotel
Group for any taxable period beginning before the Distribution or Contribution
Dates. Such cooperation shall include, but not be limited to, (x) the execution
and delivery to
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Hotel by the appropriate WMS Group member of any power of attorney or other
necessary document to allow Hotel and its counsel to participate on behalf of
WMS or any WMS Group member in any action and to assume the defense or
prosecution, as the case may be, of any action, pursuant to the terms of Section
5(a) of this Agreement and (y) making available to Hotel, during normal business
hours, and within sixty (60) days of any request therefor, all books, records
and information (which books, records, and the assistance of all officers and
employees, reasonably necessary or useful in connection with any action,
including the preparation of the consolidated federal tax return for the Current
Period).
8. REFUNDS AND SUBSEQUENT ADJUSTMENTS
(a) If part or all of an unused consolidated net operating
loss or tax credit is allocated to a Member of the Hotel Group pursuant to
Section 1.1502-79 of the Regulations, and it is carried back or forward to a
year in which such Member actually filed or files a separate income tax return
or a consolidated federal income tax return with another affiliated group, any
refund or reduction in tax liability arising from the carryback or carryover
shall be retained by such Member. Notwithstanding the preceding sentence, WMS
shall determine whether an election shall be made not to carryback any
consolidated net operating loss ("NOL") arising in a consolidated return year
(including any portion allocated to a Member under Section 1.1502-79) in
accordance with Section 172(b)(3).
(b) If the consolidated federal income tax liability is
adjusted for the Prior Periods or the Current Period, whether by means of an
amended return, claim for refund, or after an audit by the IRS, WMS shall be
solely responsible for the payment of any additional tax liability and will
retain any tax refunds. WMS shall indemnify the Hotel Subsidiaries against any
liability for such taxes including any liability asserted pursuant to Regulation
Section 1.1502-6 and Hotel and the Hotel Subsidiaries will promptly pay over to
WMS any tax refunds received with respect to such periods.
(c) If Hotel or a Member of the Hotel Group shall be entitled
to an Income Tax Benefit (as herein defined) for any taxable period ending after
the Distribution Date or the Contribution Date on account of a redetermination
of the tax treatment of any item of income, gain, deduction, loss or credit in
the consolidated federal income tax return for the Prior Periods or the Current
Period, then such Hotel Group Member shall (i) not elect to waive the carryback
period pursuant to Section 172(b)(3) with respect to any NOL generated or
increased as a result of such Income Tax Benefit and (ii) pay over to WMS the
amount of any Income Tax Reduction (as herein defined) as a result of such
Income Tax Benefit. In addition, notwithstanding Section 4 of this Agreement,
WMS shall retain the portion of any refund received with respect to the
carryback of an NOL (or other tax attribute) to a prior taxable year of the WMS
Group, to the extent such NOL (or other tax attribute) resulted from the
realization of such Income Tax Benefit.
For purposes of this Section 8(c):
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(A) "Income Tax Benefit" shall mean any decrease in
any item of income, gain or investment tax credit recapture or
any increase in any item of deduction (including depletion,
depreciation or amortization deductions which result from an
addition to basis of any asset); and
(B) "Income Tax Reduction" shall mean (i) with
respect to any taxable period for which an income tax return
shall have been filed, receipt of a refund of income tax
previously paid with respect to such period plus interest
thereon as provided by law (or any reduction in income tax
liability in lieu of such refund and interest); and (ii) with
respect to any taxable period for which an income tax return
shall not have been filed, a reduction in the income tax that
would otherwise have been payable with respect to such period.
9. STATE AND LOCAL TAXES
Each Member shall timely file its own returns and pay its own state and
local income and franchise taxes; provided, however, that if any two or more
Members are required or elect, or WMS elects or causes any two or more Members
to elect, to file combined or consolidated (or similar) income tax returns for
any taxable year under any state or local income tax law, the financial
consequences of filing such returns among such Members shall be determined in a
manner as similar as practicable to those provided herein for federal income tax
purposes.
10. EFFECTIVE DATE
This Agreement shall become effective upon the Distribution and shall
continue in effect until otherwise agreed in writing by WMS and Hotel or their
successors.
11. MISCELLANEOUS PROVISIONS
(a) All material including, but not limited to, returns,
supporting schedules, work papers, correspondence, and other documents relating
to the consolidated federal income tax returns filed for a taxable year during
which this Agreement was in effect shall be made available to any party to this
Agreement during regular business hours until the later of (i) the expiration of
the statute of limitations (including extensions) of the taxable year to which
such tax returns and other documents relate or (ii) ten years from the date
hereof.
(b) The provisions of this Agreement shall be administered by
the Chief Executive Officer of WMS. A dispute between the parties with respect
to the operation or interpretation of this Agreement shall be decided by three
arbitrators who must all be certified public accountants or attorneys
specializing in tax law. WMS and Hotel shall each choose an arbitrator who will
choose a third arbitrator. The court of arbitrators shall be held in the State
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of Illinois in the city of Chicago. The losing party shall bear the cost of
arbitration including all fees for attorneys and accountants.
(c) Any alteration, modification, addition, deletion, or other
change in the consolidated income tax return provisions of the Code or the
regulations thereunder shall automatically be applied to this Agreement mutatis
mutandis.
(d) This Agreement shall bind successors and assigns of the
parties hereto; but no assignment shall relieve any party's obligations
hereunder without the written consent of the other parties.
(e) All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if signed by the respective
party hereto giving such notice or other communication (in the case of any
corporation and signature shall be by an authorized officer thereof) upon
receipt of: hand delivery; certified or registered Mail, return receipt
requested; or telecopy transmission with confirmation of receipt:
IF TO HOTEL, TO:
WHG Resorts & Casinos Inc.
0000 Xxxx Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxx Xxxx 00000
Telecopier: (000) 000-0000
Attention: Chief Financial Officer
IF TO WMS, TO:
WMS Industries Inc.
0000 Xxxxx Xxxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telecopier: (000) 000-0000
Attention: Chief Financial Officer
Such names and addresses may be changed from time to time by such
notice.
(f) This Agreement shall be governed by the laws of the
State of Illinois.
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IN WITNESS WHEREOF, the parties have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective as of the date first written above.
WMS INDUSTRIES INC.
By: ______________________________
Name: Xxxxxx X. Xxxx, Xx.
Title: Vice President - Finance
WHG RESORTS & CASINOS INC.
By: ______________________________
Name: Xxxxxx X. Xxxx, Xx.
Title: Vice President - Finance
ESJ HOTEL CORPORATION
By: ______________________________
Name: Xxxxxx X. Xxxx, Xx.
Title: Vice President - Finance
WMS EL CON CORP.
By: ______________________________
Name: Xxxxxx X. Xxxx, Xx.
Title: Vice President - Finance
WMS PROPERTY INC.
By: ______________________________
Name: Xxxxxx X. Xxxx, Xx.
Title: Vice President - Finance
XXXXXXXX HOTEL CORPORATION
By: ______________________________
Name: Xxxxxx X. Xxxx, Xx.
Title: Vice President - Finance
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