1
EXHIBIT 99.3
TAX SHARING AGREEMENT
Agreement (the "Agreement") entered into as of the 30th day of
September, 1999, and amended and restated as of the ___ day of ___, 2001, by and
between The Xxxxxxxx Companies, Inc., a Delaware corporation ("Xxxxxxxx"), and
Xxxxxxxx Communications Group, Inc. a Delaware corporation ("Communications").
RECITALS
Xxxxxxxx and Communications currently are includible corporations in an
affiliated group of corporations of which Xxxxxxxx is the common parent, all
within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code").
Xxxxxxxx and Communications entered into a tax sharing agreement dated
September 30, 1999 (the "Tax Sharing Agreement") to allocate and settle among
themselves the consolidated Federal income tax liabilities of the TWC Group (as
hereinafter defined), the unitary, combined, consolidated or similar state
income tax liabilities of the parties and, if and as determined by Xxxxxxxx,
certain other tax liabilities.
Xxxxxxxx intends to distribute most of the stock of Communications
owned by Xxxxxxxx (equal to at least 80% of the outstanding voting and
non-voting stock of Communications) to Xxxxxxxx' public shareholders (the
"Spin-off") as a result of which Communications will cease to be an includible
corporation in the TWC Group.
Xxxxxxxx and Communications wish to amend and restate the Tax Sharing
Agreement and execute this Agreement which will, as of the date hereof,
supersede the Tax Sharing Agreement and be the sole governing agreement between
Xxxxxxxx and Communications to allocate and settle among themselves the
consolidated Federal income tax liabilities of the TWC Group, the unitary,
combined, consolidated or similar state income tax liabilities of the parties
and certain other tax liabilities arising prior to or after the Spin-off.
AGREEMENTS
Accordingly, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
The defined terms used in this Agreement shall, except as otherwise
expressly provided or unless the context otherwise requires, have the meanings
specified in this Article I. The singular shall include the plural and masculine
gender shall include the feminine, the neuter and vice versa, as the context
requires.
2
"Assets" means the assets of Xxxxxxxx or Communications or any
"predecessor or successor" (within the meaning Section 355(e)(4)(D) of the Code)
of such corporation; it being understood that any transfer, sale or assignment
of the assets of Xxxxxxxx, Communications, a predecessor or a successor in the
ordinary course of business shall not be taken into account for purposes of
section 5.03(b) of this agreement.
"Established Market" means: (i) a national securities exchange
registered under Section 6 of the Securities and Exchange Act of 1934; (ii) an
interdealer quotation system sponsored by a national securities association
registered under Section 15A of the Securities Act of 1934 or (iii) any
additional market designated by the IRS.
"Final Determination" means an IRS Form 870 or 870AD that reflects an
adjustment to any item (or a component of an item) shown on a Tax return
(whether or not such adjustment results in a deficiency in Taxes) and any
similar state, local or foreign form, a closing agreement or an accepted offer
in compromise with the IRS (or appropriate state, local or foreign taxing
authority) or any other adjustment to any item to which the taxpayer concedes
(including, but not limited to, the filing of an amended return upon which the
taxpayer adjusts an item in the favor of the IRS (or the appropriate state,
local or foreign taxing authority)) or as to which the period of limitations has
expired (whether or not such adjustment results in a deficiency in Taxes), a
claim for refund that has been allowed, a deficiency notice with respect to
which the period for filing a petition with the Tax Court has expired, or a
decision of any court of competent jurisdiction that is not subject to appeal or
the time for appeal of which has expired.
"IPO Date" means October 1, 1999 (the date of the initial public
offering of stock of Communications).
"IRS" means the Internal Revenue Service.
"Non-Federal Income Taxes" means all state, local, foreign and Federal
Taxes, other than Federal income taxes.
"Payment Date" means the earliest date on which at least one of the
following occurs with respect to a person: (i) a transfer of money to the IRS
(or appropriate state, local or foreign taxing authority) by (or for the account
of) such person; (ii) an offset by the IRS (or appropriate state, local or
foreign taxing authority) against a refund claim or credit such person has with
the IRS (or appropriate state, local or foreign taxing authority); or (iii) the
netting by the IRS (or appropriate state, local or foreign taxing authority)
against another Tax item of such person if such Tax item could result in a
refund, credit or reduction in Tax for such person.
"Post-IPO Date / Pre-Spin-off WCG Attribute" means any operating loss
or loss or credit carryover or similar attribute of WCG attributable to dates
beginning on the IPO Date and ending on the Spin-off Date (including the portion
of the taxable year beginning on January 1, 2001 and ending on the Spin-off
Date). If an amended return is filed or there is any change by Final
Determination to an operating loss or loss or credit carryover or similar
attribute of WCG (or items giving rise to such operating loss or loss or credit
carryover or similar attribute of WCG), Xxxxxxxx shall allocate such changes in
the operating loss or loss or credit carryover or similar
-2-
3
attribute of WCG (and/or reallocate any previously allocated operating loss or
loss or credit carryover or similar attribute of WCG that is affected by a
change in items giving rise to such operating loss or loss or credit carryover
or similar attribute of WCG) between Xxxxxxxx and WCG pursuant to the following
method: (i) if the item (that caused the adjustment) has been previously
allocated between Xxxxxxxx and WCG on a Federal income tax return or on Exhibit
B, the change to such item shall be allocated in the same manner such item was
allocated on the most recently filed Federal income tax return, or if such item
has not been allocated on such return, in the same manner such item was
allocated on Exhibit B; (ii) if (i) does not apply, to the extent that such item
clearly relates to the income, assets or operations of Xxxxxxxx (or non-WCG
members of the TWC Group), the change to such item shall be allocated to
Xxxxxxxx and to the extent that the item clearly relates to the income, assets
or operations of WCG, the change to such item shall be allocated to WCG; (iii)
if neither (i) nor (ii) apply, then the change to such item shall be allocated
pro-rata according to the most relevant measure for such item, unless Xxxxxxxx
and WCG otherwise agree that another allocation method would be more equitable.
If such item is an adjustment with respect to the 1999 taxable year, such item
shall first be allocated to periods before and after the IPO Date as provided
below in the definition of Pre-IPO Date WCG Attribute.
"Pre-IPO Date WCG Attribute" means any operating loss or loss or credit
carryover or similar attribute of WCG attributable to dates preceding the IPO
Date (including the portion of the 1999 taxable year beginning on January 1,
1999 and ending on the day preceding the IPO Date). Any operating loss or loss
or credit carryover or similar attribute of WCG attributable to a taxable year
ending in or before 1998 shall be a Pre-IPO Date WCG Attribute notwithstanding
any changes to such items resulting from an amended return or a Final
Determination. The Pre-IPO Date WCG Attributes (and items giving rise to such
attributes) attributable to the taxable year 1999 initially shall be based on
the total amount of operating loss or loss or credit carryovers or similar
attribute of WCG set forth in the latest (regular or amended) TWC Group
consolidated 1999 Federal income tax return that is filed prior to the Spin-off
Date or, if not so set forth, then as set forth on Exhibit C. If an amended
return is filed or there is any change by Final Determination to an operating
loss or loss or credit carryover or similar attribute of WCG (or items giving
rise to such operating loss or loss or credit carryover or similar attribute of
WCG) for the taxable year 1999, Xxxxxxxx shall first allocate such changes in
the operating loss or loss or credit carryover or similar attribute of WCG
(and/or reallocate any previously allocated operating loss or loss or credit
carryover or similar attribute of WCG that is affected by a change in items
giving rise to such operating loss or loss or credit carryover or similar
attribute of WCG) to periods before and after the IPO Date, and (if such
attribute is allocated to a date after the IPO Date) between Xxxxxxxx and WCG
pursuant to the following method: (i) if the item (that caused the adjustment)
has been previously allocated between Xxxxxxxx and WCG on the TWC Group
consolidated 1999 Federal income tax return or on Exhibit C, the change to such
item shall be allocated in the same manner such item was allocated on the latest
(regular or amended) TWC Group consolidated 1999 Federal income tax return, or
if such item has not been allocated on such return, in the same manner such item
was allocated on Exhibit C; (ii) if (i) does not apply, (a) for allocations of
items to periods before and after the IPO Date, to the extent that such item
clearly relates to periods prior to the IPO Date, the change to such item shall
be allocated to the period prior to the IPO Date, and to the extent that such
item clearly relates to periods after the
-3-
4
IPO Date, the change to such item shall be allocated to the period after the IPO
Date and (b) for allocations of items between Xxxxxxxx and WCG, to the extent
that the item clearly relates the income, assets or operations of Xxxxxxxx, the
change to such item shall be allocated to Xxxxxxxx, and to the extent that the
item clearly relates the income, assets or operations of WCG, the change to such
item shall be allocated to WCG; (iii) if neither (i) nor (ii) apply, then such
item shall be allocated pro-rata according to the most relevant measure for such
item, unless Xxxxxxxx and WCG otherwise agree that another allocation method
would be more equitable.
"Private Letter Ruling" means the private letter ruling regarding the
Spin-off issued by the IRS on August 2, 2000 and the supplemental private letter
ruling regarding the Spin-off issued by the IRS on March 27, 2001 (and any
additional supplemental rulings), including the private letter ruling request
regarding the Spin-off filed with the IRS on February 4, 2000 and the subsequent
written submissions made to the IRS in connection with such private letter
ruling request (or any supplemental requests).
"Refund Date" means the earliest date on which at least one of the
following occurs with respect to a person: (i) a transfer of money by the IRS
(or appropriate state, local or foreign taxing authority) to (or for the account
of) such person; (ii) an offset by the IRS (or appropriate state, local or
foreign taxing authority) against another payment owed by such person; or (iii)
the netting by the IRS (or appropriate state, local or foreign taxing authority)
against another Tax item of such person if such Tax item could result in a
payment, an assessment, or an increase in Tax for such person.
"Spin-off Date" means the date that the Spin-off occurs.
"Stock" means common or preferred stock or any instrument that might
reasonably be treated as common or preferred stock for federal income tax
purposes; provided, however, for purposes of Section 5.03(b) only, the term
Stock shall not include stock in Xxxxxxxx or Communications acquired by an
employee or director of Xxxxxxxx or Communications (or a person related to
Xxxxxxxx or Communications under Section 355(d)(7)(A) of the Code) in connection
with the performance of services as an employee or director for the corporation
or a person related to it under Section 355(d)(7)(A) of the Code (and that is
not excessive by reference to the services performed) in a transaction in which
Section 83 of the Code applies.
"Stock Options" means call options, warrants, convertible obligations,
the conversion feature of convertible stock, put options, redemption agreements
(including rights to cause the redemption of stock), any other instruments that
provide for the right or possibility to issue, redeem, or transfer stock
(including an option on an option), or any other similar interest treated as an
option; provided, however, the term Stock Options only includes instruments that
provide for the right or possibility to issue, redeem or transfer stock and does
not include for purposes of Section 5.03(b) only: (i) an option that is part of
a security arrangement in a typical lending transaction (including a purchase
money loan), if the arrangement is subject to customary commercial conditions;
(ii) an option to acquire stock in Communications or Xxxxxxxx with customary
terms and conditions provided to an employee or director of Communications,
Xxxxxxxx, or a person related to Communications or Xxxxxxxx in connection with
the performance of services for the corporation or a person related to it (and
is not excessive by
-4-
5
reference to the services performed) and that immediately after the Spin-off and
6 months thereafter (a) is nontransferable within the meaning of Treasury
Regulation Section 1.83-3(d) and (b) does not have a readily ascertainable fair
market value as defined in Treasury Regulation Section 1.83-7(b); and (iii) an
option entered into between shareholders of a corporation (or a shareholder and
the corporation) that is exercisable only upon death, disability or mental
incompetency of the shareholder, or, in the case of stock acquired in connection
with the performance of services for a corporation, or a person related to the
corporation, the shareholder's separation from service.
"Taxable Period" means, with respect to any period for which a
consolidated Federal income tax return is filed on behalf of the TWC Group that
includes Communications, the period (i) beginning on the IPO Date and ending on
December 31, 1999; (ii) thereafter, for each annual period ending on December 31
of each year (for all annual periods that precede the calendar year in which the
Spin-off occurs); and (iii) beginning on January 1 of the calendar year in which
the Spin-off occurs and ending on the Spin-off Date.
"Taxes" means all taxes, assessments, charges, duties, fees, levies or
other governmental charges, including, without limitation, all Federal, state,
local, foreign and other income, franchise, profits, capital gains, capital
stock, transfer, sales, use, occupation, property, excise, severance, windfall
profits, stamp, license, payroll, withholding and other taxes, assessments,
charges, duties, fees, levies or other governmental charges of any kind
whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a return), all estimated taxes, deficiency assessments,
additions to tax, penalties and interest and shall include any liability for
such amounts as a result either of being a member of a combined, consolidated,
unitary or affiliated group or of a contractual obligation to indemnify any
person or other entity.
"TWC Group" means Xxxxxxxx and other corporations (whether existing or
hereafter formed or acquired) that at the time would be entitled or required to
join with Xxxxxxxx in filing a consolidated Federal income tax return.
"WCG" means the group of corporations consisting of Communications and
all members of the TWC Group owned, directly or indirectly and in whole or in
part, by Communications (but shall not include Xxxxxxxx or any other corporation
in the TWC Group in which a member of the WCG does not directly own a 5%
interest).
"WCG Loss Carryover" means the TWC Group consolidated loss (or other
similar attribute) attributable to Communications or such other member of WCG,
if any (as determined by Xxxxxxxx and Communications in accordance with any
permitted method under the consolidated return provisions of the Code and
Treasury Regulations thereunder) that becomes an attribute of Communications or
such other member of WCG after the Spin-off pursuant to Section 2.01(c).
"WCG Credit Carryover" means the TWC Group consolidated credit
carryovers (or other similar attribute) attributable to Communications or such
other member of WCG, if any (as
-5-
6
determined by Xxxxxxxx and Communications in accordance with any permitted
method under the consolidated return provisions of the Code and Treasury
Regulations thereunder) that becomes an attribute of Communications or such
other member of WCG after the Spin-off pursuant to Section 2.01(c).
ARTICLE II
PAYMENTS
Section 2.01 Redeterminations of Pre-Spin-off Date Tax Liability.
(a) In the event of any Final Determination with respect a Post-IPO/
Pre-Spin-off WCG Attribute (whether or not such Final Determination occurs prior
to or after the Spin-off or whether such Final Determination is a result of an
audit adjustment, amended return or otherwise):
(1) Communications shall pay to Xxxxxxxx the sum of (i) the net
reduction in any Federal income tax credits (except for credits resulting from
the payment of the alternative minimum tax), to the extent the reduction in such
credits does not reduce the WCG Credit Carryover, (ii) 35% of the net reduction
in any Federal income tax deduction, net operating loss or other loss, to the
extent the reduction in such deduction or loss does not reduce the WCG Carryover
Loss and (iii) 35% of the net increase in an item of income or gain, to the
extent the increase in such item of income or gain does not reduce any Federal
income tax deduction, net operating loss or other loss described in (ii) or
reduce the WCG Carryover Loss), that (in the case of (i), (ii) or (iii)) results
from the adjustment of such Post-IPO / Pre-Spin-off Date WCG Attribute. Such
payment shall be made on or before the later of: (a) the date of the Final
Determination for such adjustment and (b) the Payment Date for such adjustment;
and
(2) Xxxxxxxx shall pay to Communications the sum of: (i) the net
increase in any Federal income tax credits (except for credits resulting from
the payment of the alternative minimum tax), to the extent the increase in such
credits does not increase the WCG Credit Carryover; (ii) 35% of the net increase
in any Federal income tax deduction, net operating loss or other loss, to the
extent the increase in such deduction or loss does not increase the WCG
Carryover Loss; and (iii) 35% of the net decrease in an item of income or gain,
to the extent the decrease in such item of income or gain does not increase any
Federal income tax deduction, net operating loss or other loss described in (ii)
or increase the WCG Carryover Loss, that (in the case of (i), (ii) or (iii))
results from the adjustment of such Post-IPO / Pre-Spin-off Date WCG Attribute.
Such payment shall be made on or before the later of: (a) the date of the Final
Determination for such adjustment and (b) the Refund Date for such adjustment.
(b) Xxxxxxxx and Communications have settled all payments with respect
to Taxes for all periods prior to the IPO Date and no payments shall be required
to be made by Xxxxxxxx to Communications or Communications to Xxxxxxxx with
respect to Taxes (including, without limitation, an adjustment to any Pre-IPO
Date WCG Attribute) for any periods prior to the IPO Date.
-6-
7
(c) Ceasing to Be a Member of the TWC Group. Communications will cease
to be a member of the TWC Group at the close of the Spin-off Date. Xxxxxxxx and
Communications shall work together in good faith to allocate the income, gain,
loss, deduction and expense of WCG for the taxable year in which such
deconsolidation occurs between the pre-deconsolidation period of such taxable
year and the post-deconsolidation period of such taxable year generally in
accordance with the closing of the books method, but using a ratable allocation
for the items arising in the month the Spin-off occurs (as set forth in Treasury
Regulations Section 1.1502-76(b)(2)(iii)) if the Spin-off does not occur on the
last day of a calendar month. Neither Xxxxxxxx nor WCG shall take any position
on a Tax return that is inconsistent with these allocations. The TWC Group
consolidated loss or credit carryovers (or other similar attributes) existing at
the close of the 2001 taxable year that are attributable to Communications or
such other member of WCG, if any (as determined by Xxxxxxxx and Communications
in accordance with any permitted method under the consolidated return provisions
of the Code and Treasury Regulations thereunder), shall constitute attributes of
Communications or such other member of WCG.
No amounts shall be due to Communications in the event that
Communications realizes in any taxable year (beginning after the
deconsolidation) a loss, credit or other attribute that would be permitted under
applicable Federal income tax law to be carried back to one or more Taxable
Periods that precede such taxable year. Communications shall be entitled after
the Spin-off Date to make any election permitted by Section 172(b)(3) of the
Code.
Section 2.02 Form of Payment. Unless otherwise agreed upon by the
parties, any payment required to be made by a party pursuant to this Article II
shall be made by wire transfer of immediately available funds.
Section 2.03 General. The parties agree to treat any payment provided
for under this Agreement (except for a payment of interest or state income or
franchise taxes, to the extent the payor is entitled to a deduction for such
payment of interest or state income or franchise taxes) as a distribution by
Communications to Xxxxxxxx or a capital contribution by Xxxxxxxx to
Communications, as the case may be, in each case as if it had occurred prior to
the Spin-off Date.
Section 2.04 Interest.
(a) Interest on Late Payments under this Agreement. There shall be
added to any payment required to be made by Communications or Xxxxxxxx under
this Agreement (a "Required Payment") interest at the underpayment rate set
forth in Section 6621(a)(2) of the Code (compounded daily) for the period
beginning on the date such Required Payment is required to be paid pursuant to
this Agreement (the "Required Payment Date") and ending on the date of receipt
of the Required Payment (plus any accrued interest relating to such Required
Payment under this Section 2.04(a)) by Xxxxxxxx or Communications, as the case
may be; provided, however, the interest rate that shall be used in this Section
2.04(a) shall be the large corporate underpayment rate set forth in Section
6621(c) of the Code (instead of the underpayment rate set forth in Section
6621(a)(2) of the Code) to the extent that the Required Payment relates to an
adjustment for which the IRS has imposed interest at the large corporate
underpayment rate set forth in Section 6621(c).
-7-
8
(b) Interest arising prior to a Required Payment Date. There shall be
added to any payment required to be made by Communications under this Agreement
for which the Required Payment Date is after December 31, 2005, interest at the
underpayment rate set forth in Section 6621(a)(2) of the Code (compounded daily)
for the period beginning on (and including) January 1, 2006 and ending on the
earlier of: (i) the date such payment is actually made by Communications and
(ii) the Required Payment Date, to the extent that such payment relates to an
adjustment for which the IRS is charging or has charged Xxxxxxxx interest or for
which Xxxxxxxx paid money to the IRS (or offset or netted another deficiency or
tax item with the IRS) to satisfy all or a portion of the deficiency (or to
otherwise prevent the IRS from charging interest); provided, however, the
interest rate that shall be used in this Section 2.04(b) shall be the large
corporate underpayment rate set forth in Section 6621(c) of the Code (instead of
the underpayment rate set forth in Section 6621(a)(2) of the Code) to the extent
that such payment relates to an adjustment for which the IRS has imposed
interest at the large corporate underpayment rate set forth in Section 6621(c).
All payments of interest set forth in this section (b) shall be paid at the same
time the payment giving rise to such interest is due under this Agreement.
ARTICLE III
TAX MATTERS; COOPERATION; INDEMNIFICATION
Section 3.01 Xxxxxxxx as Agent.
(a) General rule. Communications hereby irrevocably appoints Xxxxxxxx
as its agent, and (subject to Section 2.01(c) (regarding allocation of tax items
for the taxable year in which the Spin-off occurs)) Communications hereby agrees
that Xxxxxxxx shall have sole and absolute authority, for the purposes of
preparing and filing consolidated Federal income tax returns for the TWC Group
(including, without limitation, preparing and filing estimated tax returns,
amended tax returns and claims for refund, determining tax return positions,
selecting methods of accounting and making elections). Communications agrees
that Xxxxxxxx (acting reasonably and with an obligation to consider suggestions
by Communications) shall: (i) (A) represent any member of WCG that is a member
of the TWC Group with respect to any consolidated Federal income tax audit or
consolidated Federal income tax controversy (including, without limitation, any
proceeding with the IRS and any judicial proceedings, whether any such
proceedings relate to a claim for additional taxes or a claim for refund of
taxes), (B) settle or compromise any claim for additional, or any claim for
refund of, Federal income taxes of any member of WCG that is a member of the TWC
Group, and (C) direct all communications between the IRS and any employee of a
member of WCG that is a member of the TWC Group with respect to any issue that
could affect an item reflected on the consolidated Federal income tax return of
the TWC Group; (ii) engage outside counsel, accountants and other experts with
respect to Federal income tax matters relating to any member of WCG that is a
member of the TWC Group; and (iii) take any other action in connection with
Federal income tax matters relating to any member of WCG that is a member of the
TWC Group (or relating to any other member of the TWC Group) as Xxxxxxxx
determines to be necessary or appropriate. Communications agrees that no
employee of WCG or any of its member companies will provide any information
(whether written or oral)
-8-
9
to the IRS that could affect an item reflected on the consolidated Federal
income tax return of the TWC Group, except at the direction of Xxxxxxxx.
(b) Exceptions for certain matters affecting Communications.
Notwithstanding (a), the following exceptions shall apply to the general rule
set forth in (a) if there is an audit or any proposed adjustment that could
affect the amount that Communications owes pursuant to this Agreement (a
"Communications Tax Matter"):
(i) Xxxxxxxx shall promptly give Communications notice of the
commencement of a Communications Tax Matter, and Xxxxxxxx shall inform
Communications of the status of, and any material discussion or provision of
material information by Xxxxxxxx with respect to, a Communications Tax Matter.
In addition, Communications shall have the right to provide documentation to an
IRS agent and present an argument to an IRS agent supporting a position that is
consistent with the positions taken by Xxxxxxxx with respect to such audit;
provided, however, that Xxxxxxxx shall have full rights to control the audit and
all presentations to an IRS agent and to be present during any presentation by
Communications to the IRS.
(ii) Xxxxxxxx shall inform Communications of any formal conference with
Appeals regarding a Communications Tax Matter. To the extent feasible, Xxxxxxxx
shall provide copies to Communications of any written submissions to Appeals
that contain discussions of a Communications Tax Matter a reasonable period
prior to the submission of such written materials, and, to the extent feasible,
Xxxxxxxx agrees to consult with Communications in good faith regarding the legal
arguments raised in such submissions. Communications does not have the right to
be present or represented at appeals conferences, but Xxxxxxxx, at
Communications' request, will discuss with Communications what transpired at an
appeals conference regarding a Communications Tax Matter.
(iii) Xxxxxxxx shall not enter into a settlement regarding a
Communications Tax Matter without the consent of Communications, such consent
not to be unreasonably withheld or delayed.
(iv) If (a) Communications furnishes to Xxxxxxxx an opinion of
nationally recognized tax counsel that it is more likely than not that the IRS's
position regarding a Communications Tax Matter will not be sustained by a court,
and (b) Communications shall have acknowledged in writing its obligation to
indemnify Xxxxxxxx in the event the litigation is unsuccessful, Communications
can compel Xxxxxxxx to litigate a position, using counsel acceptable to both
Communications and Xxxxxxxx, at Communications' expense. With respect to any
Communications Tax Matter that cannot be litigated or separated from any other
matter, Xxxxxxxx shall have the right to use its own counsel and such counsel
shall control the litigation (including making legal and strategic decisions and
making arguments in court), but Xxxxxxxx shall consider in good faith
suggestions and concerns raised by Communications' counsel regarding the
Communications Tax Matter, and, if reasonably feasible, Xxxxxxxx shall permit
Communications' counsel to control the legal arguments with respect to the
Communications Tax Matter.
-9-
10
(v) The failure by Xxxxxxxx to comply with any of the provisions of
this Section 3.01(b) shall only preclude Xxxxxxxx from recovering any amounts
under this Agreement to the extent that such failure prejudiced Communications'
ability to provide legal or factual information that likely would have reduced
Communications' obligations pursuant to this Agreement.
Section 3.02 Cooperation. Communications shall cooperate with Xxxxxxxx,
and Xxxxxxxx shall cooperate with Communications, regarding the application of
all aspects of this Agreement (including, without limitation, the proper and
timely preparation and filing of any tax return to which this Agreement applies,
the calculation of basis or determination of any payment provided for under this
Agreement and the conduct of any tax audit or tax controversy to which this
Agreement applies) (i) by maintaining such books, records, accounting data and
other information in its possession necessary for the preparation and filing of
all consolidated Federal income tax returns of the TWC Group for 10 years and by
not disposing of any such books, records, accounting data and other information
after such 10-year period without first providing Xxxxxxxx or Communications, as
the case may be, with a 90-day opportunity to obtain such books, records,
accounting data and other information; (ii) by providing such other information
as requested by Xxxxxxxx or Communications, as the case may be, (iii) by
executing such documents and (iv) by taking any such other action (including,
without limitation, making any officers, directors, employees and agents
available to Xxxxxxxx or Communications, as the case may be), in each such case
as Xxxxxxxx or Communications, as the case may be, may request from time to
time. Communications or Xxxxxxxx, as the case may be, shall secure the covenant
of any acquirer of any member of WCG or Xxxxxxxx, as the case may be, to comply
with this Section 3.02 for the benefit of Xxxxxxxx and Xxxxxxxx'x successors and
assigns or for the benefit of Communications or Communications's successor and
assigns, as the case may be. For purposes of this section 3.02, in addition to
Communications's obligations pursuant to this section, Communications shall
cause WCG to comply with each obligation pursuant to this section, and in
addition to Xxxxxxxx'x obligations pursuant to this section, Xxxxxxxx shall
cause all non-WCG members of the TWC Group to comply with each obligation
pursuant to this section.
Section 3.03 Indemnification.
(a) Failure to pay. Communications hereby indemnifies and holds
harmless Xxxxxxxx and the other non-WCG members of the TWC Group against any
interest, penalties, additions to tax, expenses, losses, claims, damages or
liabilities for any failure to file, properly or timely, any tax return to which
this Agreement applies to the extent that Communications has failed to timely
make all of the payments required under this Agreement. Xxxxxxxx hereby
indemnifies and holds harmless Communications and the other WCG members of the
TWC Group against any interest, penalties, additions to tax, expenses, losses,
claims, damages or liabilities for any failure to file, properly or timely, any
tax return to which this Agreement applies to the extent that Xxxxxxxx has
failed to timely make all of the payments required under this Agreement.
(b) Failure to cooperate or provide information. Communications shall
indemnify Xxxxxxxx for all expenses, losses, claims, damages or liabilities
(including without limitation, any interest and penalties) caused by the failure
of any member of WCG to comply with Section 3.02
-10-
11
(which shall include, without limitation, the failure of any member of WCG to
provide accurate or complete information or to take proper tax reporting
positions). Xxxxxxxx shall indemnify Communications for all expenses, losses,
claims, damages or liabilities (including without limitation, any interest and
penalties) caused by the failure of Xxxxxxxx to comply with Section 3.02 (which
shall include, without limitation, the failure of any non-WCG members of the TWC
Group to provide accurate or complete information or to take proper tax
reporting positions).
(c) Federal income tax liabilities of TWC Group. Xxxxxxxx will
indemnify Communications and the other members of WCG for the Federal income tax
liabilities of the TWC Group for all Taxable Periods except to the extent that
such liability relates to an adjustment to a Post-IPO / Pre-Spin-off WCG
Attribute for which Communications has not paid Xxxxxxxx as set forth in
pursuant to Section 2.01(a)(1).
Section 3.04 Tax Benefits.
Any payment to be made by one party (the "Payor") to the other party
(the "Payee") pursuant to this Agreement (an "Indemnity Payment") shall be
reduced by any Tax Savings Actually Realized by the Payee on or prior to the
date such payment is due; provided, however, that if there are any Tax Savings
Actually Realized by the Payee after the Payor has already made one or more
payments to the Payee pursuant to this Agreement ("Prior Payor Payments"), the
Payee shall first pay to the Payor the amount of the Tax Savings Actually
Realized (up to the amount of the Prior Payor Payments) no later than the date
such Tax Savings are Actually Realized, and any excess of the Tax Savings
Actually Realized over the Prior Payor Payments shall be applied to reduce any
future payments to be made by the Payor to the Payee pursuant to this Agreement.
For purposes of this Agreement, a "Tax Benefit" means the increase in
deductions, losses or tax credits or decrease in the income, gains or recapture
of tax credits which the Payee determines in its reasonable discretion that it
could have reported or taken into account (including by way of any increase in
basis) due to a transaction or event (including, but not limited to, a Final
Determination) that triggers an Indemnity Payment. "Tax Savings Actually
Realized" means, for a particular taxable period, the amount by which the Payee
reasonably determines that a Tax Benefit has actually reduced the federal income
tax that would have been due and payable for such taxable period but for the Tax
Benefit.
ARTICLE IV
STATE, LOCAL, FOREIGN AND OTHER FEDERAL TAXES
4.01 Payments for changes in state, local, foreign and federal Taxes
other than federal income taxes.
(a) If there is a Final Determination (attributable to a Taxable
Period) that results in an adjustment to the Non-Federal Income Taxes reported
on a Tax return that includes Xxxxxxxx or another non-WCG member of the TWC
Group, on the one hand, and Communications or another member of the WCG, on the
other hand (a "Cross-Group Return"), then all members of
-11-
12
WCG that are included in such Cross-Group Return shall: (i) determine the
hypothetical Non-Federal Income Tax liability of such WCG members (for such
Non-Federal Income Taxes for which there is an adjustment) as if such WCG
members (as a group) had filed a Non-Federal Income Tax return without taking
into account the adjustment (the "Non-Adjusted Separate Return Liability"); and
(ii) determine the hypothetical Non-Federal Income Tax liability of such WCG
members (for such Non-Federal Income Taxes for which there is an adjustment) if
such WCG members (as a group) had filed a Non-Federal Income Tax return taking
into account the adjustment (the "Adjusted Separate Return Liability"). For
purposes of the hypothetical calculations in (i) and (ii), losses shall be
considered a zero Tax liability.
(b) Xxxxxxxx shall pay to Communications the excess of the Non-Adjusted
Separate Return Liability over the Adjusted Separate Return Liability on or
before the later of: (a) the date of the Final Determination and (ii) the
Payment Date related to such adjustment.
(c) Communications shall pay to Xxxxxxxx the excess of the Adjusted
Separate Return Liability over the Non-Adjusted Separate Return Liability on or
before the later of: (a) the date of the Final Determination and (ii) the Refund
Date related to such adjustment.
4.02 Tax Matters for Non-Federal Income Taxes. All matters relating to
any Non-Federal Income Taxes that are not otherwise addressed in this Agreement
(including, without limitation, preparing and filing such tax returns, paying
such Taxes and handling such tax audits or tax controversies) shall be the
responsibility of the party that is the relevant taxpayer.
ARTICLE V
SPIN-OFF COVENANTS AND INDEMNITIES
Section 5.01 General Spin-off Covenant.
(a) Communications (and each member of WCG) agrees that it will not
take any action or fail to take any action: (i) that would cause (in whole or in
part) the Spin-off to fail to qualify as a tax-free distribution pursuant to
Section 355 of the Code; or (ii) that is inconsistent with any factual statement
or any representation made, or any conclusions set forth, in the Private Letter
Ruling.
(b) Xxxxxxxx (and each non-WCG member of the TWC Group) agrees that it
will not take any action or fail to take any action: (i) that would cause (in
whole or in part) the Spin-off to fail to qualify as a tax-free distribution
pursuant to Section 355 of the Code; or (ii) that is inconsistent with any
factual statement or any representation made, or any conclusions set forth, in
the Private Letter Ruling.
Section 5.02 General Spin-off Indemnity.
(a) Communications agrees to indemnify, defend and hold harmless
Xxxxxxxx and Xxxxxxxx' affiliates (and any successors to the foregoing) on an
after-tax basis for any Taxes, losses, claims and expenses (including, without
limitation, losses, claims and expenses arising out of claims by Xxxxxxxx'
shareholders against Xxxxxxxx and Xxxxxxxx' affiliates (and any
-12-
13
successors to the foregoing)) resulting from any action that WCG takes or fails
to take that causes (in whole or in part) the Spin-off to fail to qualify as a
tax-free distribution pursuant to Section 355 of the Code.
(b) Xxxxxxxx agrees to indemnify, defend and hold harmless
Communications and Communications' affiliates (and any successors to the
foregoing) on an after-tax basis for any Taxes, losses, claims and expenses
(including, without limitation, losses, claims and expenses arising out of
claims by Communications' shareholders against Communications and
Communications' affiliates (and any successors to the foregoing)) resulting from
any action that Xxxxxxxx takes or fails to take that causes (in whole or in
part) the Spin-off to fail to qualify as a tax-free distribution pursuant to
Section 355 of the Code.
Section 5.03 Section 355(e) Covenant.
(a) General. Xxxxxxxx and Communications each agree that it will not
(i) issue, sell, transfer or assign (or enter into any agreement, understanding,
arrangement, or substantial negotiations concerning the issuance, sale, transfer
or assignment of ) any of its Stock, Stock Options or Assets or (ii) take any
action or fail to take any action that facilitates the direct or indirect sale,
transfer or assignment of any of its Stock, Stock Options or Assets such that
one or more persons acquire (or are treated as acquiring pursuant to Section
355(e) of the Code) directly or indirectly an amount of Stock in Xxxxxxxx or
Communications, as the case may be, such that Section 355(e) of the Code would
apply to the Spin-off.
(b) Reporting and Restrictions. (i) At quarterly intervals beginning on
June 30, 2001 and at any other time reasonably requested by the party to receive
such report, during the period commencing on the date of the Spin-off and ending
2 years after such date, Xxxxxxxx will provide to Communications and
Communications will provide to Xxxxxxxx a report ("Report") listing for the
period commencing two years before the date of the Spin-off and ending on the
date of the Report any issuance, sale, transfer, or assignment (or any
agreement, understanding, arrangement, or substantial negotiations concerning
the issuance, sale, arrangement, or assignment) of the reporting corporation's:
(x) Stock (to the extent such issuance, sale, transfer, or assignment has been
documented in Schedules 13D or 13G filed with the Securities and Exchange
Commission, and excluding any sale, transfer, or assignment of Stock between two
shareholders neither of whom own (either directly or indirectly) five-percent or
more of the Stock of the corporation whose Stock is transferred (treating all
options as exercised), provided that the reporting corporation has not
authorized such sale, transfer, or assignment); (y) Stock Options; and (z)
Assets (excluding: (A) any sale, transfer, or assignment of Assets that is fully
taxable to Xxxxxxxx or Communications; and (B) any other sale, transfer, or
assignment of Assets that in the aggregate does not exceed 5 percent of the
gross assets of the selling, transferring, or assigning corporation as reflected
on such corporation's balance sheet during any 90 day period).
(ii) At any time during the quarterly period between Reports that the
issuance, sale, transfer, or assignment (or any agreement, understanding,
arrangement, or substantial negotiations concerning the issuance, sale,
arrangement, or assignment) of the reporting corporation's Stock or Stock
Options (other than those expressly excluded from Xxxxxxxx' and Communications'
reporting obligations under this section 5.03(b)) exceeds 5 percent by vote or
-13-
14
value of the reporting corporation's outstanding Stock (treating Stock Options
as exercised), or the issuance, sale, transfer, or assignment (or any agreement,
understanding, arrangement, or substantial negotiations concerning the issuance,
sale, arrangement, or assignment) of the reporting corporation's Assets (other
than those expressly excluded from Xxxxxxxx' and Communications' reporting
obligations under this section 5.03(b)) exceeds 5 percent of the gross assets of
the selling, transferring, or assigning corporation as reflected on such
corporation's balance sheet, a notice ("Notice") of such transaction must be
given to the other party as soon as possible.
(iii) Xxxxxxxx' and Communications' obligations to issue Reports and
Notices will be extended beyond the 2 year reporting period (not to exceed 5
years after the Spin-off) until the consummation of any agreement,
understanding, arrangement or substantial negotiations for the issuance, sale,
transfer or assignment of the reporting corporations' Stock, Stock Options or
Assets that is reported during the 2 year period after the Spin-off.
(iv) If any issuance, sale, transfer or assignment (or agreement,
understanding, arrangement or substantial negotiations) of the reporting
corporation's Stock, Stock Options or Assets (other than those expressly
excluded from Xxxxxxxx' and Communications' reporting obligations under this
section 5.03(b)) is not to be reported, nationally recognized tax advisors
retained by each of Xxxxxxxx and Communications must first concur to such
exclusion. If such advisors disagree, such issuance, sale, transfer or
assignment (or agreement, understanding, arrangement or substantial
negotiations) will be reported. If, before the two-year anniversary of the
Spin-off, the issuances, sales, transfers or assignments (or agreements,
understandings, arrangements, or substantial negotiations) of the reporting
corporation's Stock, Stock Options or Assets that are reported pursuant to this
section 5.03(b), in the aggregate, would equal or exceed 48 percent (the "48
percent Threshold"), such company (or companies, if both have reached the 48
percent Threshold) shall not take any action or fail to take any action that
would cause the 48 percent Threshold to be exceeded without obtaining a ruling
from the IRS that such issuance, sale, transfer or assignment (or agreement,
understanding, arrangement or substantial negotiations concerning the issuance,
sale, transfer or assignment) will not cause Section 355(e) of the Code to apply
to the Spin-off. Xxxxxxxx and Communications will not be required to report any
issuance, sale, transfer, or assignment of Stock, Stock Options or Assets with
respect to which the IRS has issued (i) a private letter ruling to Xxxxxxxx or
Communications or (ii) other IRS guidance that can be relied upon by the
reporting corporation under the Code, to the effect that the transaction is not
to be taken into account in applying Section 355(e) of the Code. Communications
and Xxxxxxxx shall cooperate in applying for a private letter ruling that will
seek to minimize the potential restrictions imposed by Section 355(e) of the
Code.
Section 5.04 Section 355(e) Indemnity Provisions.
(a) Communications agrees to indemnify, defend and hold harmless
Xxxxxxxx and Xxxxxxxx' affiliates (and any successors to the foregoing) on an
after-tax basis for any Taxes, losses, claims and expenses resulting from
Section 355(e) of the Code applying to the Spin-off as a result of (in whole or
in part) the direct or indirect acquisition (including a transfer of Assets
treated as an acquisition pursuant to Section 355(e) of the Code) by one or more
persons of any of the Stock or Stock Options of Communications.
-14-
15
(b) Xxxxxxxx agrees to indemnify, defend and hold harmless
Communications and Communications' affiliates (and any successors to the
foregoing) on an after-tax basis for any Taxes, losses, claims and expenses
resulting from Section 355(e) of the Code applying to the Spin-off as a result
of (in whole or in part) the direct or indirect acquisition (including a
transfer of Assets treated as an acquisition pursuant to Section 355(e) of the
Code) by one or more persons of any of the stock of Xxxxxxxx.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
without the prior written consent of the other party, such consent not to be
unreasonably withheld or delayed.
Section 6.02 Expenses. Each party hereto will bear their own legal,
accounting and other expenses incurred by such party in connection with the
negotiation, preparation and execution of this Agreement and any other agreement
prepared in connection with the Spin-off and with respect to actions taken
pursuant to the operation of this Agreement and any other agreement executed in
connection with the Spin-off (unless otherwise provided in such other
agreement).
Section 6.03 Effect of Agreement. This Agreement shall determine the
rights and liabilities of the parties as to the matters provided for in this
Agreement, whether or not such determination is effective for financial
reporting or other purposes.
Section 6.04 Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties in respect of the subject matter
contained in this Agreement and supersedes all prior or contemporaneous
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any party or by any officer, employee
or representative of any party.
Section 6.05 Amendments and Waivers. This Agreement shall not be
modified, supplemented or terminated except by a writing duly signed by each of
the parties hereto, and no waiver of any provision of this Agreement shall be
effective unless in a writing duly signed by the party sought to be bound.
Section 6.06 Code References. Any references to Sections of the Code
shall be deemed to refer to any corresponding provisions of succeeding law as in
effect from time to time.
Section 6.07 Notices. Any payment, notice, communication or approval
required or permitted to be given under this Agreement shall be deemed to have
been duly given if delivered by hand or deposited in the United States mail,
postage prepaid and sent by certified or registered mail, if addressed to
Xxxxxxxx, at:
-15-
16
THE XXXXXXXX COMPANIES, INC.
XXX XXXXXXXX XXXXXX
XXXXX, XXXXXXXX 00000
ATTENTION: XXXX XXXXXXXX
if addressed to Communications, at:
XXXXXXXX COMMUNICATIONS GROUP, INC.
XXX XXXXXXXX XXXXXX
XXXXX, XXXXXXXX 00000
ATTENTION: XXXXX XXXXXXXX
Section 6.08 Third Parties. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give to any person
other than the parties hereto any rights or remedies under or by reason of this
Agreement.
Section 6.09 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of law.
Section 6.10 Severability. If any provision of this Agreement or the
application of this Agreement in any circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of this
Agreement in any other circumstance shall not be affected thereby, the
provisions of this Agreement being severable in any such instance.
Section 6.11 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.12 Dispute Resolution. The parties agree that any dispute
arising under this Agreement shall be resolved in accordance with the Dispute
Resolution procedures set forth in the Amended and Restated Separation Agreement
made by and between Xxxxxxxx and Communications dated concurrently herewith.
Section 6.13 Examples. Examples illustrating the operation of certain
sections of this Agreement are set forth in Exhibit A attached hereto.
-16-
17
The parties hereto have caused this Agreement to be duly executed as of
the date first written above.
THE XXXXXXXX COMPANIES, INC.
[STAMP]
BY: /s/ XXXX X. XXXXXXXX
-----------------------------------------------
ITS: Senior Vice President
-------------------------------------------------
XXXXXXXX COMMUNICATIONS GROUP, INC.
BY: /s/ XXXXXX X. XXXXXX
-----------------------------------------------
ITS: Vice President
-------------------------------------------------
-17-
