EX-10.3 6 dex103.htm FORM OF THE VIRGIN GROUP TAX RECEIVABLE AGREEMENT FORM OF TAX RECEIVABLE AGREEMENT dated as of Page
Exhibit 10.3
FORM OF TAX RECEIVABLE AGREEMENT
dated as of
, 2007
Table of Contents
Page | ||||
ARTICLE I | ||||
Section 1.01. | Definitions | 2 | ||
ARTICLE II DETERMINATION OF REALIZED TAX BENEFIT | ||||
Section 2.01. | NOL Utilization | 8 | ||
Section 2.02. | Tax Benefit Schedule | 8 | ||
Section 2.03. | Procedures, Amendments | 8 | ||
ARTICLE III | ||||
Section 3.01. | Payments | 9 | ||
Section 3.02. | No Duplicative Payments | 11 | ||
ARTICLE IV | ||||
Section 4.01. | Termination, Early Termination and Breach of Agreement | 12 | ||
Section 4.02. | Early Termination Notice | 12 | ||
Section 4.03. | Payment upon Early Termination | 13 | ||
ARTICLE V | ||||
Section 5.01. | Late Payments by the Corporation | 13 | ||
ARTICLE VI NO DISPUTES; CONSISTENCY; COOPERATION | ||||
Section 6.01. | Virgin Participation in the Corporation Tax Matters | 14 | ||
Section 6.02. | Consistency | 14 | ||
Section 6.03. | Cooperation | 14 | ||
ARTICLE VII | ||||
Section 7.01. | Notices | 15 | ||
Section 7.02. | Counterparts | 16 | ||
Section 7.03. | Entire Agreement; No Third Party Beneficiaries | 16 | ||
Section 7.04. | Governing Law | 16 |
i
Section 7.05. | Severability | 16 | ||
Section 7.06. | Successors; Assignment; Amendments; Waivers | 16 | ||
Section 7.07. | Titles and Subtitles | 17 | ||
Section 7.08. | Resolution of Disputes | 17 | ||
Section 7.09. | Reconciliation | 18 | ||
Section 7.10. | Withholding | 18 | ||
Section 7.11. | Affiliated Corporations; Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets | 19 | ||
Section 7.12. | Confidentiality | 19 | ||
Section 7.13. | Headings | 20 |
ii
This TAX RECEIVABLE AGREEMENT (as amended from time to time, this “Agreement”), dated as of , 2007, is hereby entered into by and among Virgin Mobile USA, Inc., a Delaware corporation (the “Corporation”) and Corvina Holdings Limited, a company incorporated in the British Virgin Islands (“Virgin”),
RECITALS
ARTICLE I
“Advisory Firm” means (i) Deloitte & Touche or (ii) any other law or accounting firm that is (A) nationally recognized as being expert in Tax matters and (B) that is agreed to by [Holdings] [VMU GP1, LLC] and Virgin.
“Advisory Firm Letter” shall mean a letter from the Advisory Firm stating that the relevant schedule, notice or other information to be provided by the Corporation to Virgin and all supporting schedules and work papers were prepared in a manner consistent with the terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and applicable law in existence on the date to which such schedule, notice or other information relates.
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.
“Agreed Rate” means LIBOR plus 300 basis points.
“Agreement” is defined in the preamble of this Agreement.
“Amended Schedule” is defined in Section 2.03(b) of this Agreement.
“Available Benefit” is defined in Section 3.03 of this Agreement.
A “Beneficial Owner” of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security. The terms “Beneficially Own” and “Beneficial Ownership” shall have correlative meanings.
“Biannual Payment Date” is defined in Section 3.01(a) of this Agreement.
“Board” means the board of directors of the Corporation.
“Business Day” means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of New York shall not be regarded as a Business Day.
2
“Change of Control” means:
i) a merger, reorganization, consolidation or similar form of business transaction directly involving the Corporation or indirectly involving the Corporation through one or more intermediaries unless, immediately following such transaction, more than 50% of the voting power of the then outstanding voting stock or other equities of the Corporation resulting from consummation of such transaction (including, without limitation, any parent or ultimate parent corporation of such Person that as a result of such transaction owns directly or indirectly the Corporation and all or substantially all of the Corporation’s assets) is held by the existing Corporation equityholders (determined immediately prior to such transaction); or
(ii) a transaction in which the Corporation, directly or indirectly, sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to another Person other than an Affiliate; or
(iii) a transaction in which there is an acquisition of control of the Corporation by a Person or group of Persons. The term “control” shall mean the possession, directly or indirectly, of the power to either (i) vote more than fifty percent (50%) of the securities having ordinary voting power for the election of directors (or comparable positions in the case of partnerships and limited liability companies), or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise (for the avoidance of doubt, consent rights do not constitute control for the purpose of this definition); or;
(iv) a transaction in which individuals who constitute the Board of Directors of the Corporation (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board of Directors of the Corporation, provided that any person becoming a director subsequent to the effective date of this Agreement, whose election or nomination for election is either (A) contemplated by a written agreement among equityholders of the Corporation on the effective date of this Agreement or (B) was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Corporation as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to be an Incumbent Director; or
(v) the liquidation or dissolution of the Corporation.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Stock” means Class A common stock, par value $0.01 per share, of the Corporation.
“Compensated NOLs” means, for a Taxable Year, (i) the NOLs utilized in determining the Realized Tax Benefit under this Agreement or (ii) if the Realized Tax Benefit under this Agreement plus the Realized Tax Benefit under the Sprint Tax Receivable Agreement exceeds the Overall Realized Tax Benefit for such Taxable Year, then the NOLs utilized in determining the Realized Tax Benefit multiplied by a fraction, the numerator of which is the
3
Realized Tax Benefit pursuant to this Agreement and the denominator of which is the sum of the Realized Tax Benefit pursuant to this Agreement and the Realized Tax Benefit pursuant to the Sprint Tax Receivable Agreement.
“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
“Corporation” is defined in the preamble of this Agreement.
“Corporation Return” means the federal Tax Return and/or state and/or local and/or foreign Tax Return, as applicable, of the Corporation filed with respect to Taxes of any Taxable Year.
“Default Rate” means LIBOR plus 625 basis points.
“Determination” shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of state, local and foreign tax law, as applicable, or any other event (including the execution of a Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax.
“Early Termination Agreement Date” is defined in Section 4.03(a) of this Agreement.
“Early Termination Date” means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.
“Early Termination Notice” is defined in Section 4.02 of this Agreement.
“Early Termination Payment” is defined in Section 4.03(b) of this Agreement.
“Early Termination Rate” means the lesser of (i) 7% and (ii) LIBOR plus 300 basis points.
“Early Termination Schedule” is defined in Section 4.02 of this Agreement.
“Expert” is defined in Section 7.09 of this Agreement.
“Holdings” is defined in the preamble of this Agreement.
“Imputed Interest” shall mean any interest imputed under Section 1272, 1274 or 483 or other provision of the Code and any similar provision of state, local and foreign tax law with respect to the Corporation’s payment obligations under this Agreement.
“Interest Amount” is defined in Section 3.01(b) of this Agreement.
“Interim Interest Amount” is defined in Section 3.01(b) of this Agreement.
“Investments” is defined in the preamble of this Agreement.
4
“IPO” shall mean the initial public offering of Common Stock of the Corporation pursuant to the Registration Statement.
“IPO Price” has the meaning set forth in Section 3.01(c).
“IRS” means the United States Internal Revenue Service.
“LIBOR” means for each month (or portion thereof) during any period, an interest rate per annum equal to the rate per annum reported, on the date two days prior to the first day of such month, on the Telerate Page 3750 (or if such screen shall cease to be publicly available, as reported on Reuters Screen page “LIBO” or by any other publicly available source of such market rate) for London interbank offered rates for U.S. dollar deposits for such month (or portion thereof).
“Material Objection Notice” has the meaning set forth in Section 4.02.
“Net Tax Benefit” is defined in Section 3.01(b) of this Agreement.
“NOL Payment” is defined in Section 5.01 of this Agreement.
“NOLs” is defined in the preamble of this Agreement.
“Non-NOL Tax Liability” means, with respect to any Taxable Year, the liability for Taxes of the Corporation using the same methods, elections, conventions and similar practices used on the relevant Corporation Return, but (i) without taking into account the NOLs, if any, (ii) using the Non-Stepped Up Tax Basis instead of the tax basis of the Original Assets and (iii) excluding any deduction attributable to the Imputed Interest. If all or any portion of the liability for Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of such Taxable Year, such liability shall not be included in determining the Non-NOL Tax Liability unless and until there has been a Determination.
“Non-Stepped Up Tax Basis” means, with respect to any asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustment had been made or, immediately after any Section 732 Event, the tax basis that such asset would have had if the Basis Adjustment were not included in such asset’s tax basis.
“NYSE Closing Price” has the meaning set forth in Section 3.01(c).
“Objection Notice” has the meaning set forth in Section 2.03(a).
“Overall Realized Tax Benefit” means, for a Taxable Year, the excess, if any, of the Non-NOL Tax Liability over the actual liability for Taxes of the Corporation for such Taxable Year. If all or a portion of the actual tax liability for Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
“Partnership” is defined in preamble of this Agreement.
5
“Partnership Agreement” means the Limited Partnership Agreement of the Partnership, dated [ ], 2007.
“Payment Date” means any date on which a payment is required to be made pursuant to this Agreement.
“Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.
“Preferred Stock” means a series of preferred stock of the Corporation with the terms described in Exhibit A hereto.
“Realized Tax Benefit” means, for a Taxable Year, the excess, if any, of the Non-NOL Tax Liability over the hypothetical liability for Taxes of the Corporation for such Taxable Year (i) using the Non-Stepped Up Tax Basis instead of the tax basis of the Original Assets and (ii) assuming that the Corporation could use all Uncompensated NOLs in accordance with all the applicable limitations on the use of such NOLs. If all or a portion of the actual tax liability for Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
“Realized Tax Detriment” means, for a Taxable Year, the excess, if any, of (i) the hypothetical liability for Taxes of the Corporation assuming that (A) the tax basis of any Original Asset is the Non-Stepped Up Tax Basis and (B) the Corporation could use Uncompensated NOLs in accordance with all applicable limitations on the use of such NOLs over (ii) the Non-NOL Tax Liability for such Taxable Year. If all or a portion of the actual liability for Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.
“Reconciliation Dispute” has the meaning set forth in Section 7.09.
“Reconciliation Procedures” shall mean those procedures set forth in Section 7.09 of this Agreement.
“Registration Statement” means the registration statement on Form S-1 (File No. 333-142524) of the Corporation.
“Reorganization Transactions” shall mean generally those transactions described in the Registration Statement and any other transactions ancillary to such transactions to effect the post-IPO organizational structure of the Corporation and the Partnership.
“Schedule” means any Tax Benefit Schedule and the Early Termination Schedule.
“Section 754 election” means any election made by the Partnership under section 754 of the Code.
6
“Sprint Tax Receivable Agreement” means the Tax Receivable Agreement dated as of , 2007, by and among the Corporation and Sprint Ventures, Inc., a Kansas corporation, and attached hereto as Annex A.
“Subsidiaries” means, with respect to any Person, as of any date of determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls more than 50% of the voting power or other similar interests or the sole general partner interest or managing member or similar interest of such Person.
“Tax Benefit Payment” is defined in Section 3.01(b) of this Agreement.
“Tax Benefit Schedule” is defined in Section 2.02 of this Agreement.
“Tax Receivable Agreements” shall mean this Agreement and the Sprint Tax Receivable Agreement.
“Tax Return” means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax.
“Taxable Year” means a taxable year as defined in Section 441(b) of the Code or comparable section of state, local or foreign tax law, as applicable, (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made) ending on or after the date hereof.
“Taxes” means any and all U.S. federal, state, local and foreign taxes, assessments or similar charges measured with respect to net income or profits and any interest related to such Tax.
“Taxing Authority” shall mean any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.
“Treasury Regulations” means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
“Uncompensated NOLs” means, for a Taxable Year, the excess, if any of the NOLs as of the date Investments is contributed to the Corporation over the sum of all Compensated NOLs for all prior Taxable Years.
“Valuation Assumptions” shall mean, as of an Early Termination Date, the assumptions that (i) in each Taxable Year ending on or after such Early Termination Date, the Corporation will have taxable income sufficient to fully utilize the Uncompensated NOLs in accordance with all applicable limitations on the use of such NOLs and the Imputed Interest during such Taxable Year or future Taxable Years, as applicable and (ii) the federal income tax
7
rates and state, local and foreign income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Date.
“Value Cap” is defined in Section 3.01(b) of this Agreement.
“Virgin Contribution” is defined in the preamble of this Agreement.
ARTICLE II
DETERMINATION OF REALIZED TAX BENEFIT
Section 2.03. Procedures, Amendments.
8
affecting such Schedule, (ii) to correct material inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was provided to Virgin, (iii) to comply with the Expert’s determination under the Reconciliation Procedures, (iv) to reflect a material change (relative to the amounts in the original Schedule) in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other tax item to such Taxable Year, or (v) to reflect a material change (relative to the amounts in the original Schedule) in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year (such Schedule, an “Amended Schedule”); provided, however, that such a change under clause (i) attributable to an audit of a Tax Return by an applicable Taxing Authority shall not be taken into account on an Amended Schedule unless and until there has been a Determination with respect to such change. The Corporation shall provide any Amended Schedule to Virgin within thirty calendar days of the occurrence of an event referred to in clauses (i) through (v) of the preceding sentence, and any such Amended Schedule shall be subject to approval procedures similar to those described in Section 2.03(a).
ARTICLE III
(ii) To the extent that a payment is to be made in Common Stock (and if applicable, Preferred Stock) and is due under this Section 3.01 prior to , 200[9], such payment shall be made on , 200[9]. If the first payment due to Virgin pursuant to Section 3.01(a)(i) is due after , 200[9], and such payment is to be made in Common Stock (and if applicable, Preferred Stock), such payment shall be made within five Business Days of a Tax Benefit Schedule delivered to Virgin becoming final in accordance with Section 2.03(a). After the first such payment, payments due to Virgin under this Section 3.01 which are to be made in Common Stock (and if applicable, Preferred Stock) shall be made on the second anniversary of the immediately preceding payment date (each date, including the date of the first payment, a “Biannual Payment Date”). Any payments to be made in Common Stock (and if applicable, Preferred Stock) that would have otherwise been due under Section 3.01(a)(i) without regard to this limitation shall be aggregated and paid on the next Biannual Payment Date. Each such Tax Benefit Payment shall be made in shares of Common Stock and, if applicable, Preferred Stock, in accordance with Section 3.01(c) to an entity Virgin previously designated to the Corporation or as otherwise agreed by the Corporation and Virgin. For the avoidance of doubt, no Tax Benefit Payment shall be made in respect of estimated tax payments, including, without limitation, estimated federal income tax payments.
9
(b) A “Tax Benefit Payment” means an amount, not less than zero, equal to 100% of the sum of the Net Tax Benefit (as defined below) and the Interest Amount (as defined below); provided, however, that solely to the extent that payments under this agreement are made in Common Stock (and if applicable, Preferred Stock) in no event shall the aggregate Tax Benefit Payments paid pursuant to this agreement exceed the amount equal to the product of (x) the IPO price times (y) fifty (50) percent of the number of shares of Common Stock and Class C common stock received by Virgin in respect of the Virgin Contribution (the “Value Cap”). The “Net Tax Benefit” shall equal: (i) the Corporation’s Realized Tax Benefit, if any, for a Taxable Year plus (ii) the amount of the excess of the Realized Tax Benefit reflected on an Amended Tax Benefit Schedule for a previous Taxable Year over the Realized Tax Benefit (or Realized Tax Detriment (expressed as a negative number)) reflected on the Tax Benefit Schedule for such previous Taxable Year, minus (iii) an amount equal to the Corporation’s Realized Tax Detriment (if any) for the current or any previous Taxable Year, minus (iv) the excess of the Realized Tax Benefit reflected on a Tax Benefit Schedule for a previous Taxable Year over the Realized Tax Benefit (or Realized Tax Detriment (expressed as a negative number)) reflected on the Amended Tax Benefit Schedule for such previous Taxable Year; provided, however, that to the extent of the amounts described in 3.01(b)(ii), (iii) and (iv) were taken into account in determining any Tax Benefit Payment in a preceding Taxable Year, such amounts shall not be taken into account in determining a Tax Benefit Payment attributable to any other Taxable Year; provided, further, for the avoidance of doubt, Virgin shall not be required to return any portion of any previously made Tax Benefit Payment. The “Interest Amount” shall equal the interest on any Net Tax Benefit calculated at the Agreed Rate from the due date (without extensions) for filing the Corporation Return with respect to Taxes for the Taxable Year for which the Net Tax Benefit is being measured until the applicable Biannual Payment Date. Notwithstanding the foregoing, for each Taxable Year ending on or after the date of a Change of Control, all Tax Benefit Payments, shall be calculated by utilizing the Valuation Assumptions, substituting the words “as of the closing date of a Change of Control” for “Early Termination Date”.
(c) The number of shares of Common Stock to be issued to Virgin under Section 3.01(a) in satisfaction of any Tax Benefit Payment on any Biannual Payment Date shall be equal to (i) the Tax Benefit Payment divided by (ii) the greater of (A) the closing price per share of the Corporation’s Common Stock on the New York Stock Exchange on the date of such issuance (the “NYSE Closing Price”) and (B) the initial offering price per share of the Common Stock (the “IPO Price”). If the NYSE Closing Price at the time of any Biannual Payment Date is less than the IPO Price, the Corporation shall also issue Preferred Stock to Virgin with a liquidation preference equal to the difference between such Tax Benefit Payment and the value at the NYSE Closing Price of the Common Stock issued to Virgin in respect of such Tax Benefit Payment.
(d) The Corporation covenants and agrees that if any shares of Common Stock or Preferred Stock issued to Virgin pursuant to this Agreement require registration with or approval of any governmental authority under any federal or state law before such shares of Common Stock or Preferred Stock may be issued to Virgin, the Corporation shall use reasonable efforts to cause such shares to be duly registered or approved, as the case may be. The Corporation shall use its reasonable efforts to list the shares of Common Stock required to be issued to Virgin pursuant to this Agreement prior to such issuance upon each national securities exchange or inter-dealer quotation system upon which the outstanding Common Stock may be
10
listed or traded at the time of such issuance. The Corporation covenants that all shares of Common Stock and Preferred Stock issued pursuant to this Agreement will, upon issue, be validly issued, fully paid and non-assessable.
(e) Notwithstanding the foregoing, to the extent that Virgin’s interest in the Corporation upon the closing of the IPO represents less than 50% of both (i) the total combined voting power of all classes of stock entitled to vote and (ii) the total value of all classes of stock of the Corporation, any Tax Benefit Payments made pursuant to this Agreement shall be made in cash. Such Tax Benefit Payments shall be paid within five Business Days of a Tax Benefit Schedule delivered to the Limited Partner becoming final in accordance with Section 2.03(a). Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to a bank account of Virgin previously designated to the Corporation or as otherwise agreed by the Corporation and Virgin. For the avoidance of doubt, in the event that this Section 3.01(e) is applicable, the Value Cap shall not apply to the Tax Benefit Payments.
Section 3.03. Coordination of Benefits With Other Tax Receivable Agreements.
(a) In the event that payments are due from the Corporation in any Taxable Year with respect to this Agreement (without regard to the limitation on payment dates set forth in Section 3.01(a)(ii)) and the Sprint Tax Receivable Agreement, and the Realized Tax Benefit under this Agreement plus the Realized Tax Benefit under the Sprint Tax Receivable Agreement exceeds the Overall Realized Tax Benefit to the Corporation as a result of the utilization of any NOLs under this Agreement and the amortization of the Basis Adjustment attributable to Exchanges or Section 732 Events under the Sprint Tax Receivable Agreement (as such terms are defined in the Sprint Tax Receivable Agreement), then for purposes of determining the payments due (or deemed to be due) under the Tax Receivable Agreements for such Taxable Year each party shall be entitled to a payment equal to the Overall Realized Tax Benefit for such taxable year multiplied by a fraction, the numerator of which is the Realized Tax Benefit to the Corporation attributable to that party which would have been realized in such taxable year (disregarding any benefits contributed by the other party) (the “Available Benefit”) and the denominator of which is the sum of the Available Benefits for that taxable year.
11
ARTICLE IV
Section 4.01. Termination, Early Termination and Breach of Agreement.
(a) This Agreement shall terminate upon the earlier of (i) the time that all Tax Benefit Payments have been made to Virgin under this Agreement and (ii) twenty years from the date hereof.
(b) Notwithstanding Section 4.01(a), the Corporation may terminate this Agreement by paying to Virgin the Early Termination Payment. Upon payment of the Early Termination Payments by the Corporation, neither Virgin nor the Corporation shall have any further payment obligations under this Agreement, other than any (i) Tax Benefit Payment agreed to by the Corporation and Virgin as due and payable but unpaid as of the Early Termination Notice and (ii) Tax Benefit Payment due for a Taxable Year ending prior to, with or including the date of the Early Termination Notice (except to the extent that such amount is included in the Early Termination Payment).
(c) In the event that the Corporation breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such breach and shall include, but not be limited to, (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of a breach, (ii) any Tax Benefit Payment agreed to by the Corporation and Virgin as due and payable but unpaid as of the Early Termination Notice and and (iii) any Tax Benefit Payment due for the Taxable Year ending prior to, with or including the date of a breach. Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement, Virgin shall be entitled to elect to receive the amounts set forth in (i), (ii) and (iii) above or to seek specific performance of the terms hereof. The parties agree that the failure to make any payment due pursuant to this Agreement within six months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within six months of the date such payment is due, provided that in the event that payment is not made within six months of the date such payment is due, Virgin shall be required to give written notice to the Corporation that the Corporation has breached its material obligations and so long as such payment is made within five Business Days of the delivery of such notice to the Corporation, the Corporation shall no longer be deemed to be in material breach of its obligations under this Agreement.
12
(b) The “Early Termination Payment” as of the date of the delivery of an Early Termination Schedule shall equal with respect to Virgin the present value, discounted at the Early Termination Rate as of such date, of all Tax Benefit Payments that would be required to be paid by the Corporation to Virgin beginning from the Early Termination Date assuming the Valuation Assumptions are applied. For purposes of calculating the present value pursuant to this Section 4.03(b) of all Tax Benefit Payments that would be required to be paid, it shall be assumed that absent the Early Termination Notice all Tax Benefit Payments would be paid on the due date (without extensions) for filing the Corporation Return with respect to Taxes for each Taxable Year.
ARTICLE V
13
ARTICLE VI
NO DISPUTES; CONSISTENCY; COOPERATION
14
ARTICLE VII
If to the Corporation, to:
Virgin Mobile USA, Inc.
00 Xxxxxxxxxxxx Xxxxxxxxx
Xxxxxx, XX 00000
Attention: General Counsel
Telecopy: (000) 000-0000
Confirmation: (000) 000-0000
with a copy to (which shall not constitute notice):
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(T) (000) 000-0000
(F) (000) 000-0000
Attention: Xxxx X. Xxxxx
Xxxxxx X. Xxxxxxx
If to Virgin, to:
Corvina Holdings Limited
c/o Virgin USA, Inc.
00 Xxxxxxxx Xxxxxx, 0xx xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
Telecopy: (000) 000-0000
Confirmation: (000) 000-0000
with a copy to (which shall not constitute notice):
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(T) (000) 000-0000
(F) (000) 000-0000
Attention: Xxxx X. Xxxxx
Xxxxxx X. Xxxxxxx
15
Any party may change its address or fax number by giving the other party written notice of its new address or fax number in the manner set forth above.
Section 7.04. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York.
No provision of this Agreement may be amended unless such amendment is approved in writing by the Corporation and Virgin. No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective.
16
All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.
Section 7.08. Resolution of Disputes.
(a) Any and all disputes which cannot be settled amicably, including any ancillary claims of any party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) shall be finally settled by arbitration conducted by a single arbitrator in New York in accordance with the then-existing Rules of Arbitration of the International Chamber of Commerce. If the parties to the dispute fail to agree on the selection of an arbitrator within thirty calendar days of the receipt of the request for arbitration, the International Chamber of Commerce shall make the appointment. The arbitrator shall be a lawyer and shall conduct the proceedings in the English language.
Performance under this Agreement shall continue if reasonably possible during any arbitration proceedings.
(b) Notwithstanding the provisions of paragraph (a), the Corporation may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling a party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), Virgin (i) expressly consents to the application of paragraph (c) of this Section 7.08 to any such action or proceeding, (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate, and (iii) irrevocably appoints the Corporation as it’s agent for service of process in connection with any such action or proceeding and agrees that service of process upon such agent, who shall promptly advise Virgin of any such service of process, shall be deemed in every respect effective service of process upon Virgin in any such action or proceeding.
(c) (i) VIRGIN HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF COURTS LOCATED IN NEW YORK, NEW YORK FOR THE PURPOSE OF ANY JUDICIAL PROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH (B) OF THIS SECTION 7.08, OR ANY JUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED
17
ARBITRATION ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT. Such ancillary judicial proceedings include any suit, action or proceeding to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirm an arbitration award. The parties acknowledge that the fora designated by this paragraph (c) have a reasonable relation to this Agreement, and to the parties’ relationship with one another.
(ii) The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding brought in any court referred to in paragraph (c) (i) of this Section 7.08 and such parties agree not to plead or claim the same.
18
(a) If the Corporation is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income tax return pursuant to Sections 1501 et seq. of the Code or any corresponding provisions of state, local or foreign law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments shall be computed with reference to the consolidated taxable income of the group as a whole.
(b) If any Person the income of which is included in the income of the Corporation’s affiliated or consolidated group transfers one or more assets to a corporation with which such entity does not file a consolidated tax return pursuant to Section 1501 of the Code, for purposes of calculating the amount of any Tax Benefit Payment (e.g., calculating the gross income of the Corporation’s affiliated or consolidated group and determining the Realized Tax Benefit) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset, plus (i) the amount of debt to which such asset is subject, in the case of a contribution of an encumbered asset or (ii) the amount of debt allocated to such asset, in the case of a contribution of a partner interest.
(c) Prior to agreeing to engage in any business combination, sale or purchase of assets, reorganization or similar transaction outside the ordinary course of its business which would not constitute a Change of Control for purposes of this Agreement and which could adversely affect the expected value of the benefits payable to Virgin under this Agreement, the Corporation shall obtain the consent of Virgin, such consent not to be unreasonably withheld, it being understood that such consent may be conditioned upon the Company’s agreement to make a make-whole payment or payments to Virgin at the time of such transaction or thereafter to compensate for such reduction in benefits.
19
If Virgin or its assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, the Corporation shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Subsidiaries and the accounts and funds managed by the Corporation and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.
[Signatures on following pages]
20
VIRGIN MOBILE USA, INC.
|
By: |
Name: |
Title: |
CORVINA HOLDINGS LIMITED
|
By: |
Name: |
Title: |
Signature Page to Tax Receivable Agreement
21
Exhibit A
Terms of Preferred Stock
Type of security: | Mandatorily redeemable preferred stock.
For so long as the preferred stock remains outstanding, (1) the Corporation will not declare, pay or set apart funds for the payment of any dividend or other distribution with respect to any junior stock or parity stock and (2) neither the Corporation, nor any of its subsidiaries, will, subject to certain exceptions, redeem, purchase or otherwise acquire for consideration junior stock or parity stock through a sinking fund or otherwise, in each case unless it has paid or set apart funds for the payment of all accumulated and unpaid dividends with respect to the shares of preferred stock and any parity stock for all preceding dividend periods. | |
Holders of preferred stock will be entitled to receive, out of funds legally available therefor, cash dividends at the Applicable Rate per annum of the liquidation preference, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year commencing on the issue date. Dividends on the preferred stock will be cumulative from the issue date. Accumulated but unpaid dividends will cumulate at the Applicable Rate. | ||
Applicable rate: | Fixed annual rate equal to LIBOR plus 5% on the issue date. | |
Optional redemption: | At any time, at the option of the Corporation, at the price equal to the liquidation preference, plus accrued by unpaid dividends. | |
Mandatory redemption date: | Seven (7) years from the issue date. | |
Voting rights: | Holders of preferred stock will not have any voting rights except as specifically provided for in our amended and restated certificate of incorporation or as otherwise from time to time required by law. |