Exhibit 10.4
This Tax Sharing Agreement (the "Agreement"), dated as of
this 2nd day of December, 1996, by and between Consolidated
Freightways, Inc., a Delaware corporation ("CFI"), and
Consolidated Freightways Corporation, a Delaware corporation
("Holdings").
WHEREAS, CFI and Holdings have entered into a Distribution
Agreement dated as of November 25, 1996 (the "Distribution
Agreement"), providing for the distribution by CFI of the
common stock of Holdings to the holders of CFI common stock
as of the close of the day on the Distribution Date, and
setting forth the terms and conditions which will govern
certain relationships between the parties; and
WHEREAS, CFI and Holdings desire to set forth their
agreement on the proper allocation among CFI, Holdings and
their subsidiaries of federal, state, local and foreign
taxes and to provide for future cooperation with respect to
tax matters;
NOW, THEREFORE, in consideration of their mutual promises,
the parties agree as follows:
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ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally
applicable to both the singular and the plural forms of the
terms defined):
"Affiliate" means any corporation which is a member of the
Consolidated Group.
"CFI Affiliate" means any corporation, partnership or
other entity directly or indirectly controlled by CFI, other
than Holdings or any Holdings Affiliate.
"CFI Businesses" means the present and future
subsidiaries, divisions and business of any member of the
CFI Group, other than the present and future subsidiaries,
divisions and business of any member of the Holdings Group.
CFI Businesses shall include all former subsidiaries,
divisions and businesses other than the Holdings Businesses.
"CFI Group" means the group of corporations that
immediately after the Distribution Date are members of the
affiliated group of which CFI is the common parent (within
the meaning of section 1504 of the Code).
"Code" means the Internal Revenue Code of 1986 (or, if
relevant, the Internal Revenue Code of 1954), as amended, or
any successor thereto, as in effect for the taxable period
in question.
"Combined Jurisdiction" means, for any taxable period, any
jurisdiction in which Holdings or a Holdings Affiliate could
be or is included in a consolidated or combined return with
CFI or a CFI Affiliate for Other Tax purposes for such
period.
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"Consolidated Group" means the affiliated group of
corporations (within the meaning of section 1504 of the
Code) of which CFI is the common parent.
"Distribution" means the transfer by CFI of its ownership
of Holdings and the Holdings Affiliates from CFI by means of
a distribution of the stock of Holdings to CFI shareholders.
"Distribution Date" means the date determined by the CFI
Board of Directors as of which the Distribution shall be
effected.
"Final Determination" means the final resolution of
liability for any Tax for a taxable period (i) by the
appropriate IRS form which binds the taxpayer on the date of
acceptance by or on behalf of the IRS, or by a comparable
form under the laws of other jurisdictions; except that any
such form that reserves (whether by its terms or by
operation of law) the right of the taxpayer to file a claim
for refund and/or the right of the Taxing Authority to
assert a further deficiency shall not constitute a Final
Determination; (ii) by a decision, judgment, decree, or
other order by a court of competent jurisdiction, which has
become final and unappealable; (iii) by a closing agreement
or accepted offer in compromise under section 7121 or
section 7122 of the Code, or comparable agreements under the
laws of other jurisdictions; (iv) by any allowance of a
refund or credit in respect of an overpayment of Tax, but
only after the expiration of all periods during which such
refund may be recovered (including by way of offset) by the
Tax imposing jurisdiction; or (v) by any other final
disposition, including by reason of the expiration of the
applicable statute of limitations.
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"Holdings Affiliate" means any former or current
corporation, partnership or other entity directly or
indirectly controlled by Holdings.
"Holdings Businesses" means the present and future
subsidiaries, divisions and business of any member of the
Holdings Group. Holdings Businesses shall include all former
subsidiaries, divisions and businesses.
"Holdings Group" means the group of corporations that
immediately after the Distribution Date are members of the
affiliated group of corporations of which Holdings is the
common parent (within the meaning of section 1504(a) of the
Code).
"IRS" means the Internal Revenue Service.
"Other Taxes" is defined in Section 3.05.
"Representative" means with respect to any person or
entity, any of such person's or entity's directors,
officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
"Restructuring Taxes" means all Taxes resulting from the
disposition of Holdings stock undertaken to effect the
Holdings Distribution.
"Ruling Request" means the private letter ruling request
filed by CFI with the IRS dated February 22, 1996, as
supplemented from time to time, with respect to certain tax
aspects of the Distribution.
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"Tax" means any of the Taxes.
"Tax Controversy" is defined in Section 4.02.
"Tax Return" means any return, filing, questionnaire or
other document required to be filed, including requests for
extensions of time, filings made with estimated Tax
payments, claims for refund and amended returns that may be
filed, for any taxable period with any Taxing Authority
(whether domestic or foreign) in connection with any Tax
(whether or not a payment is required to be made with
respect to such filing) or any information reporting
requirement.
"Taxes" means any and all forms of taxation, whether
created or imposed by a national, municipal, state, federal,
or other governmental body (a "Taxing Authority") and,
without limiting the generality of the foregoing, shall
include net income, alternative or add-on minimum, any
special estimated tax payments required pursuant to section
847 of the Code, gross income, sales, use, ad valorem, gross
receipts, value added, franchise, profits, license,
transfer, recording, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property,
windfall profit, custom duty, or other tax, governmental fee
or other like assessment or charge of any kind whatsoever,
together with any related interest, penalties or other
additions to tax, or additional amounts imposed by any such
Taxing Authority on the Consolidated Group or any member
thereof.
"Taxing Authority" is defined under the term "Taxes."
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ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
Section 2.01. Manner of Filing. All Tax Returns
(relating to pre-Distribution and post-Distribution taxable
periods) filed by CFI and CFI Affiliates and Holdings and
Holdings Affiliates after the Distribution Date shall be
prepared on a basis which is consistent with the rulings of
Taxing Authorities or opinions of tax counsel retained or
approved by CFI and which are issued in connection or relate
directly to the Distribution and shall be filed on a timely
basis (including extensions) by the party responsible for
such filing under this Agreement.
Section 2.02. Pre-Distribution Federal Tax Returns
(a) Holdings will join, and will cause each Holdings
Affiliate to join, in all pre-Distribution federal Tax
Returns for the Consolidated Group to the extent they are
eligible to join in such returns under the provisions of the
Code and the regulations thereunder. Holdings will neither
elect to file separate returns for such periods nor will it
cause or permit any of the Holdings Affiliates to so elect.
(b) Holdings hereby irrevocably designates, and Holdings
agrees to cause each of the Holdings Affiliates to so
designate, CFI as its agent to take any and all actions
necessary or incidental to the filing of Form 1122 (or any
amendment thereto) with respect to any taxable period in
which Holdings or any of the Holdings Affiliates is a member
of the Consolidated Group, and Holdings agrees to deliver,
and to cause each Holdings Affiliate to deliver, executed
copies of Form 1122 (or any amendment thereto) to CFI, if
required, with respect to any such year.
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(c) CFI shall timely prepare and file, or cause to be
timely prepared and filed, all pre-Distribution federal Tax
Returns for the Consolidated Group. This shall include all
tax items required to be reported by the Holdings Group for
taxable periods ending before or including the Distribution
Date. Holdings shall provide CFI, with respect to Holdings
and Holdings Affiliates, its federal Tax Returns and
supporting schedules and additional information requested by
CFI for the 1996 taxable period ending on the Distribution
Date on a timely basis, as reasonably determined by CFI, in
order for CFI to timely file the Tax Returns for the
Consolidated Group. Upon request, CFI shall deliver to
Holdings copies of the relevant portions of the Consolidated
Group Tax Return for 1996, as determined by CFI, within 30
days after the day that it is filed.
(d) All Tax Returns relating to taxable periods ending
before or including the Distribution Date and submitted
after the date of this Agreement by Holdings shall be
prepared, and all items of such Tax Returns shall be
reported (in the absence of a controlling change in law or
circumstances, except with the consent of CFI, which consent
shall not be unreasonably withheld), in a manner that is
consistent with past practices, elections, accounting
methods, conventions, and principles of taxation
(collectively, "Tax Practices") used for the most recent
taxable periods for which Tax Returns involving similar
items have been filed prior to the Distribution Date. All
decisions relating to the preparation of Tax Returns under
Section 2.02 (including whether items are reported
consistent with past Tax Practices) shall be made in the
reasonable discretion of CFI. However, any decisions
regarding intercompany transactions, as defined under Treas.
Reg. 1.1502-13, shall be made as mutually agreed upon by
the parties or by CFI if mutual agreement is not reached,
with CFI's decision being subject to arbitration under
Section 5.04.
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Section 2.03. Post-Distribution Federal Tax Returns.
Holdings shall prepare and file, or cause to be filed, all
post-Distribution federal Tax Returns for the Holdings Group
for taxable periods beginning after the Distribution Date.
CFI shall prepare and file, or cause to be prepared and
filed, all post-Distribution federal Tax Returns for the CFI
Group for taxable periods beginning after the Distribution
Date. CFI and Holdings agree to notify each other within 60
days after such post-Distribution federal Tax Returns are
filed regarding any utilization by either party of minimum
tax credits generated in pre-Distribution taxable periods.
In addition CFI agrees to provide to Holdings periodic
estimates of the amount of minimum tax credits generated in
pre-Distribution years which are expected to be utilized in
post-Distribution returns of the CFI Group. CFI agrees to
provide such estimates within 60 days after each quarterly
federal estimated tax payment and within 60 days after an
application for automatic extension of time (Form 7004) is
filed. Holdings acknowledges that such estimates are subject
to change and CFI shall have no liability for any changes or
inaccuracies in such estimates.
ARTICLE III
PAYMENT OF TAXES
Section 3.01. Allocation of Tax Liability.
(a) For purposes of this Agreement, the Consolidated
Group's federal regular income tax liability for all periods
ending before or including the Distribution Date shall be
allocated in accordance with section 1552(a)(2) of the Code
and Treasury Regulations sections 1.1552-1(a)(2) and 1.1502-
33(d)(3). Accordingly, the consolidated federal regular
income tax liability to be allocated to each Affiliate
included in the federal Tax Return of the Consolidated Group
in the following manner:
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(1) Step 1. Each Affiliate shall first be allocated
that percentage of the consolidated federal regular income
tax liability which is equal to the percentage that the
total federal regular income tax liability of such
Affiliate, if computed on a separate return basis, (with the
adjustments provided by Treasury Regulation section 1.1552-
1(a)(2)) would be to the total amount of the federal regular
income tax of all Affiliates so computed.
(2) Step 2. An additional amount shall be allocated to
each Affiliate equal to one hundred percent (100%) of the
excess, if any, of (A) the "separate return tax liability"
of such Affiliate for the taxable year (as computed pursuant
to Treasury Regulation section 1.1552-1(a)(2)), over (B) the
tax liability of such Affiliate in accordance with Step 1 of
this Section 3.01(a).
(3) Step 3. The total of any additional amounts
allocated to Affiliates pursuant to Step 2 of this Section
3.01(a) (including amounts allocated as a result of a
carryback) shall be paid by such Affiliates to those other
Affiliates which had such losses, deductions, or credits in
proportion to the tax benefit derived by the Consolidated
Group from the losses, credits and deductions of all
Affiliates, as determined by CFI.
(4) For the purposes of this Agreement, Holdings'
allocable share of the consolidated federal regular income
tax liability, as determined under this Section, is the
aggregate amount of liability allocated to Holdings and any
Holdings Affiliate. CFI's allocable share of the
consolidated federal income tax liability, as determined
under this Section, is the aggregate amount of liability
allocated to CFI and any CFI Affiliate.
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(b) For purposes of this Agreement, the Consolidated
Group's federal minimum tax liability and environmental tax
liability for all periods ending before or including the
Distribution Date shall be allocated in accordance with the
allocation method set out in Proposed Regulations 1.1502-
55 and 1.1552-1(g) issued on December 30, 1992 (the
"Proposed Regulations"). If temporary or final regulations
are issued which differ from the Proposed Regulations, this
Agreement will be amended to reflect such changes to the
extent and for an effective date deemed necessary or
desirable by CFI.
Section 3.02. Alternative Minimum Tax Credits. A portion
of any consolidated minimum tax credit of the Consolidated
Group will be allocated to a Holdings Affiliate which ceases
to be a member of the Consolidated Group on the Distribution
Date in accordance with the allocation method set forth in
the Proposed Regulations. To the extent such Holdings
Affiliate was not allocated a corresponding amount of
alternative minimum tax in an earlier or the same tax year,
Holdings shall pay to CFI an amount equal to the amount of
any such credit utilized by the Holdings Affiliate on an
estimated basis on or before June 30 following the taxable
year in which the credit is utilized by such Holdings
Affiliate. Subsequent thereto, a final settlement payment,
if necessary, will be made within 10 days of filing the Tax
Return for such taxable year or, if later, 10 days after
receipt of notice of the amount of the settlement payment
required. Any payment required under this Section shall be
accompanied by a calculation setting forth the basis for the
amount paid. In calculating minimum tax credit utilization
and payment responsibility under this Section, minimum tax
credits allocated to Holdings Affiliates under this Section
shall be deemed used first. If temporary or final
regulations are issued which differ from the Proposed
Regulations, this Agreement will be amended to reflect such
changes to the extent and for an effective date deemed
necessary or desirable by CFI.
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Section 3.03. Payment of Consolidated Federal Income Tax.
(a) CFI shall pay all Taxes due with respect to the
consolidated federal income tax liability (including any
minimum tax or environmental tax liability) of the
Consolidated Group for all taxable periods ending before or
including the Distribution Date. Holdings shall pay to CFI
an amount equal to Holdings' and Holdings Affiliates' share
of such Taxes as determined in the manner provided in
Section 3.01. Furthermore, Holdings shall make estimated tax
payments to CFI or receive refunds on or before the
statutory payment dates under a method generally consistent
with past practices as reasonably determined by CFI. CFI
hereby acknowledges that, upon resolution of the
intercompany accounts as of the Distribution Date, all
federal Taxes have been paid by Holdings and Holdings
Affiliates with respect to federal consolidated Tax Returns
that have been filed for any period up to and including the
year ended December 31, 1994, and Holdings and Holdings
Affiliates shall have no further liability in respect
thereof except as otherwise provided in this Agreement.
(b) Except as otherwise provided in this Agreement,
Holdings shall pay all Taxes due with respect to the federal
income tax liability (including any minimum tax or
environmental tax liability) of the Holdings Group for
periods beginning after the Distribution Date.
Section 3.04. Tax Deficiencies and Refunds as to CFI
Filed Returns.
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(a) If as a result of any audit, amendment or other
change in a federal income Tax Return as filed by CFI or any
CFI Affiliate with respect to any taxable period ending
before or including the Distribution Date, there is an
additional amount of federal income Taxes (including minimum
tax and environmental tax) due and payable, or a refund of
federal income Taxes previously paid (whether by payment,
credit, offset against other federal income Taxes due or
otherwise), any such deficiency shall be paid by, and any
such refund shall be payable to, CFI.
(b) Holdings shall pay to CFI any federal income Taxes
paid by CFI as a result of any audit, amendment or other
change in a Consolidated Group Tax Return allocable to the
Holdings' Businesses (as determined under Section 3.01) with
respect to any taxable periods ending before or including
the Distribution Date. In determining the amount due under
this Section 3.04(b), the amount of federal income Taxes
paid by CFI shall include any additional tax payments or
deposits made by CFI for a taxable year subsequent to the
filing of the federal income tax return for the taxable
year, it being expressly recognized by Holdings that no
portion of such payments were charged to Holdings or a
Holdings Affiliate through the intercompany accounts.
(c) CFI shall pay to Holdings, reduced by reasonable
administrative costs (including legal and accounting
expenses) incurred by CFI or a CFI Affiliate, the amount of
any refund of federal income Taxes received (including by
offset against other federal Taxes due) as a result of any
audit, amendment or other change in a Consolidated Group Tax
Return allocable to the Holdings Businesses (as determined
under Section 3.01) with respect to any taxable period
ending before or including the Distribution Date.
(d) For purposes of both (b) and (c) of this Section, the
amount of any federal Taxes paid or federal Taxes received
(including by way of offset) as a result of any audit,
amendment or other change to a Consolidated Group Tax Return
shall be taken into account in the year to which they relate
and the Tax liability (including Other Taxes) for such year
shall be recomputed and allocated accordingly.
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Section 3.05 Penalties and Interest
(a) Any interest incurred by the Consolidated Group shall
be paid by the Affiliate to whom it is attributable. The
total amount of interest incurred by the Consolidated Group
will be apportioned to and paid by each Affiliate according
to (1) the ratio of the interest incurred by each Affiliate
so computed, plus (2) the additional interest, if any, that
such Affiliate would have paid on a separate return basis
over the allocated interest determined under (1) above.
Interest computed by an Affiliate on a separate return basis
shall be calculated using the interest rate or rates
applicable to the consolidated deficiency. Any additional
amount allocated to an Affiliate determined under (2) above
shall be paid to the Affiliate whose income or deduction
would have given rise to a refund on a separate return
basis, but in no case shall an Affiliate which incurs
interest under (2) above be required to pay more interest to
such receiving Affiliate than such receiving Affiliate would
have received on a separate return basis. In calculating
the allocable share of any interest payable by a Holdings
Affiliate with respect to any federal audit adjustments,
only interest actually payable to the IRS, and not interest
abated as a result of tax deposits, shall be taken into
account. CFI shall have sole discretion to determine how
tax deposits are allocated among taxable periods and audit
items. CFI shall act in good faith in making such
determination, with an intention to minimize the overall out-
of-pocket costs and financial reporting impacts on CFI and
Holdings.
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(b) Any interest received by the Consolidated Group as a
result of any refund of Tax shall be allocated to the
Affiliate whose income or deductions gave rise to the
refund. The amount of interest received by the Consolidated
Group will be apportioned to and received by each Affiliate
according to (1) the ratio of the interest to be received by
each Affiliate computed on a separate return basis to the
total of all the interest received by Affiliates so
computed, plus (2) the additional interest, if any, that
such Affiliate would have received on a separate return
basis over the allocated interest determined under (1)
above. Any additional amount allocated to an Affiliate
determined under (2) above shall be received from the
Affiliate whose income or deductions caused such interest
not to be received by the Consolidated Group, but in no case
shall an Affiliate which receives such interest receive more
interest than such Affiliate would have received on a
separate return basis.
(c) Any penalties incurred by the Consolidated Group
shall be paid by the Affiliate whose actions, income or
deductions caused such penalties. If a penalty was caused by
more than one Affiliate, such penalty shall be allocated
proportionately to those Affiliates that would have incurred
a penalty on a separate return basis. Any excess penalty
will be allocated in proportion to the actions, income or
deductions of each Affiliate which caused or contributed to
the penalty regardless of whether such Affiliate's actions,
income or deductions exceeded the minimum threshold required
for the penalty to be imposed.
(d) For purposes of this Agreement, Holdings' allocable
share of any interest or penalties, as determined under this
Section, is the aggregate amount of liability allocated to
Holdings and any Holdings Affiliate. CFI's allocable share
of any interest or penalties, as determined under this
Section, is the aggregate amount of liability allocated to
CFI and any CFI Affiliate.
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Section 3.06. Other Tax Returns of Holdings.
(a) Holdings shall prepare and file, or cause to be
prepared and filed, all appropriate Tax Returns or other
filings relating to Taxes other than federal income taxes
("Other Taxes") imposed on any member of the Holdings Group
or the Holdings Businesses except for returns and filings
with respect to Combined Jurisdictions.
(b) For any Combined Jurisdictions, CFI or a CFI
Affiliate, as appropriate, shall be responsible for the
preparation and filing of all returns and filings relating
to any Other Taxes imposed upon any member of the Holdings
Group for the same taxable periods with respect to which CFI
is responsible for filing federal income tax returns under
Section 2.02. For this purpose, Holdings (or the appropriate
Holdings Affiliate) shall provide CFI (or the appropriate
CFI Affiliate) such schedules and additional information
requested by CFI for any period for which such Tax Return
has not been filed as of the date hereof by the later of (i)
15 days after such request or (ii) 60 days prior to the date
on which such Tax Return shall be due. Unless required by
law, as reasonably determined by CFI, CFI shall file such
Tax Return consistent with such schedules and additional
information provided by Holdings or Holdings Affiliates. CFI
shall deliver to Holdings copies of relevant portions of
each Tax Return no later than 60 days after the day that
such Tax Return is filed. Unless required by law, as
reasonably determined by CFI, CFI shall not amend any such
Tax Return to reflect any change in information provided by
Holdings Businesses without the written consent of Holdings.
(c) CFI hereby acknowledges that all Other Taxes have
been paid with respect to Tax Returns that have been filed
(in any Combined Jurisdiction in which unitary or nexus
consolidation principles have been agreed upon by CFI and
Holdings or a Holdings Affiliate) on or before the
Distribution Date. Liability for payment of all Other Taxes
imposed by any Combined Jurisdiction shall be allocated
between the CFI Group and the Holdings Group. The allocation
shall be made in such manner as CFI shall reasonably deem
appropriate; provided, however, that the liability of the
Holdings Group shall not exceed the greater of (i) the total
amount that the Holdings Group would have paid if the
members of the Holdings Group filed their own return for
Other Taxes not combined with any other member of the CFI
Group, or (ii) a pro rata share of the combined liability of
the members of the Holdings Group and the CFI Group. CFI
shall be liable for the Other Taxes remaining after payment
of the Holdings Group's allocable share of the Other Taxes.
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(d) To the extent there is an Other Tax liability, but
the Holdings Group has a net aggregate loss in a Combined
Jurisdiction, the Holdings Group shall be entitled to the
benefit of the net aggregate loss, to the extent reasonably
determined by CFI, except limited (i) to the extent of its
nexus within the state, and (ii) to the extent such benefit
is eliminated or reduced by the fact that Holding Group's
inclusion in the Combined Jurisdiction increases the
liability of the combined group.
(e) To the extent that a refund is obtained by CFI
Businesses or Holdings Businesses and such refund relates to
Other Taxes in Combined Jurisdictions, Holdings or a
Holdings Affiliate shall be entitled to receive its
proportionate share of such refunds as determined by CFI (or
a member of the CFI Group, as appropriate), in accordance
with the principles of Section 3.06(c) or (d).
(f) CFI and Holdings shall be responsible for the filing
of their respective Tax Returns for (i) non-Combined
Jurisdictions, and (ii) jurisdictions outside the United
States that are due with respect to all taxable periods and
for the payment of all Taxes due or payable in connection
therewith.
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(g) If as a result of any audit, amendment or other
change in a Combined Jurisdiction Tax Return as filed by CFI
or a CFI Affiliate with respect to any taxable period ending
before or including the Distribution Date, there is an
additional amount of Taxes due and payable, or a refund of
Taxes previously paid (whether by payment, credit, offset
against other Taxes due or otherwise), any such deficiency
shall be paid by, and any such refund shall be payable to,
CFI or the CFI Affiliate. Holdings shall pay to CFI any
Taxes incurred as a result of any audit, amendment or other
change in a Combined Jurisdiction Tax Return with respect to
any taxable period ending before or including the
Distribution Date in a manner consistent with the provisions
outlined in Section 3.06(c) and (d). CFI or a CFI Affiliate
shall pay to Holdings the amount of any refund of Other
Taxes received (including by offset against Other Taxes due)
as a result of any audit, amendment or other change to a Tax
Return attributable to the Holdings Businesses with respect
to any taxable period ending before or including the
Distribution Date in a manner consistent with the provisions
outlined in Section 3.06(e).
(h) Notwithstanding the provisions of Section 3.06(g), if
Holdings or a Holdings Affiliate wishes to make advance
payment of, or enter into a cash bond with respect to, any
Taxes for which it would bear the burden under this
Agreement prior to the date that payment of such Taxes is
required by the relevant Taxing Authority, CFI shall permit
Holdings to make such advance payment or enter into such
cash bond and shall take such reasonable actions as may be
necessary to effectuate the same.
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Section 3.07. Restructuring Taxes.
(a) Notwithstanding any other provision of this Agreement
to the contrary, Holdings shall pay and shall indemnify and
hold harmless CFI from and against any and all Restructuring
Taxes and from and against any costs whatsoever connected
with such taxes, including, but not limited to, fees,
interest, penalties and reasonable attorney's fees to the
extent any portion of such Restructuring Taxes would not
have resulted: (i) but for a Ruling Misrepresentation or
Omission (as defined in Section 3.07(b)); or (ii) but for
the fact that, within three (3) years after the Distribution
Date, either Holdings or any member of the Holdings Group
has (A) made a material disposition outside the Holdings
Group by means of a sale or exchange of assets or capital
stock (except (x) the issuance by Holdings of its own stock
in an amount which does not exceed 10% of Holding's issued
and outstanding stock immediately following the Distribution
Date and (y) dispositions, if any, disclosed in the Ruling
Request), (B) made a distribution to its stockholders or
otherwise of any assets of the Holdings Group (other than
dividends paid in the ordinary course of business), (C) made
any repurchase of any Holdings Group capital stock
(excluding repurchases in connection with employee benefit
plans which comply with Revenue Procedure 91-63), (D) has
voluntary ceased to engage in the active conduct of a trade
or business within the meaning of section 355(b)(2) of the
Code, or (E) Holdings has liquidated or merged with any
other corporation (including a member of the Holdings Group)
unless, prior to each of cases (A), (B), (C), (D) and (E),
Holdings has received an opinion of counsel to the Holdings
Group (which opinion shall be reasonably satisfactory to
CFI) or a favorable supplemental ruling letter satisfactory
to CFI, that such act would not adversely affect the tax
consequences of the Distribution to CFI or the shareholders
of CFI, as set forth in any ruling issued by the IRS or in
any opinion of counsel to CFI obtained in lieu of such a
ruling.
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(b) For purposes of paragraph (a), a "Ruling
Misrepresentation or Omission" means with respect to
Holdings or a Holdings Affiliate (i) the failure of Holdings
or a member of the Holdings Group to comply in all material
respects with each written representation and statement
regarding Holdings or a Holdings Affiliate made to the IRS
in the Ruling Request or in a certificate provided to
counsel to the CFI Group for use in preparing its tax
opinion with respect to the Distribution, or (ii) any untrue
statement or alleged untrue statement of a material fact
contained in the Ruling Request (or certificate provided to
counsel) or the omission to state in the Ruling Request (or
certificate provided to counsel) a material fact required to
be stated therein or necessary to make the statements
therein not misleading, but only, in the case of both clause
(i) and (ii), insofar as any such statement or omission was
made in reliance upon, and in conformity with, written
information furnished by Holdings a Holdings Affiliate, or a
Representative of either specifically for use in the
preparation of the Ruling Request (or certificate provided
to counsel).
Section 3.08. Manner of Payment.
(a) Any payment required to be made pursuant to Sections
3.04, 3.05, 3.06, 3.07 or Section 3.10 with respect to any
Tax Return shall be made by wire transfer by the party
obligated to make such payment (i) in the case of a refund
of Tax, within 10 days after receipt (whether by way of
payment, credit, or offset against any payments due or
otherwise) of such refund or (ii) in the case of the payment
of Tax with respect to any such Tax Return, within 10 days
after the later of (x) such payment of Tax or (y) the
delivery of written demand for the payment hereunder to the
party obligated to make such payment hereunder. Any payment
described in clause (i) and any demand for payment described
in clause (ii) shall be accompanied by a calculation
consistent with past Tax Practices setting forth the basis
for the amount paid or demanded. Any payment not made within
the prescribed time period shall thereafter bear interest at
the federal underpayment rate established pursuant to
section 6621(a)(2) (substituting "5 percentage points" for
"3 percentage points" in the case any demand for payment
described in clause (ii) in an amount exceeding $100,000).
Page 19
(b) Notwithstanding the foregoing, in the case of
payments due from Holdings as a result of any IRS audit
adjustments which result in a deferred tax asset for
Holdings for taxable years following the Distribution Date,
at Holdings' request CFI shall enter into a note agreement
on reasonable commercial terms permitting Holdings to make
installment payments of the amounts due hereunder over a
period not longer than the lesser of (i) ___ years, or (ii)
the period over which such deferred tax asset is amortized
by Holdings.
Section 3.09. Liability for Taxes with Respect to Post-
Distribution Taxable Periods. Unless otherwise provided in
this Agreement, the CFI Group and the Holdings Group
severally shall pay all Taxes and shall be entitled to
receive and retain all refunds of Taxes with respect to
taxable periods beginning after the Distribution Date which
are attributable to the CFI Businesses and the Holdings
Businesses, respectively.
Section 3.10. Carrybacks and Carryforwards.
(a) In the event that Holdings, any Holdings Affiliate or
the Holdings Group incurs a loss or realizes a tax credit
in a Tax Return filed for periods after the Distribution
Date, loss or tax credit will not be carried back to any
Consolidated Group Tax Return without the specific consent
of CFI. CFI need consent only if the carryback of such loss
or credit to the Consolidated Group return will cause no
detriment to CFI's tax position. In determining whether a
carryback is likely to cause a detriment to its tax
position, CFI may take into account audit risks resulting
from claiming a carryback. If CFI agrees to carryback such
loss or credit, or is required by law to carryback such loss
Page 20
or credit, Holdings shall be entitled to its allocable
share of any refund of Tax obtained by the Consolidated
Group (or any member of the Consolidated Group in a Combined
Jurisdiction) as a result of the carryback of losses or
credits of any member of the Holdings Group from any taxable
period beginning after the Distribution Date to any taxable
period ending before or including the Distribution Date.
Such refund is limited to the net amount received by CFI (by
refund, offset against other Taxes or otherwise), net of any
net Tax cost incurred by CFI or a CFI Affiliate, which would
include the reduction of minimum tax credits previously
utilized by CFI, resulting from such refund, and shall be
paid in the manner and at the time specified in Section
3.08. In determining the net amount received by CFI as a
result of a carryback of losses or tax credits by Holdings
or a Holdings Affiliate, amounts carried back by Holdings or
a Holdings Affiliate shall be considered to reduce the
Consolidated Group's tax burden only to the extent that such
carrybacks reduce the Consolidated Group's tax burden after
first taking into account all other tax credits and
carrybacks available to the Consolidated Group. Holdings
shall indemnify CFI for any interest, fines and penalties
resulting from the carryback of any item under this
paragraph. Notwithstanding this Section 3.10, Holdings and
any member of the Holdings Group shall have the right, in
its sole discretion, to make the election under section
172(b)(3) of the Code, which would eliminate or limit the
carryback of any loss or credit of the Holdings Group to any
taxable period ending before or including the Distribution
Date.
(b) If CFI has a carryback of losses or credits from any
member of the CFI Group from any taxable period beginning
after the Distribution Date to any taxable period ending
before or including the Distribution, CFI shall be entitled
to any refund received from the Taxing Authority
attributable to the carryback. To the extent such refund is
reduced as a result of the inclusion of the Holdings Group
in the Tax Return to which the item is carried back and
results in additional minimum tax credits or other credits
being made available to the Holdings Group, Holdings shall
pay to CFI the amount of any tax savings when and if the
additional benefits are realized by Holdings.
Page 21
(c) Within 180 days following the close of the CFI tax
year in which the Distribution Date occurs, CFI shall
provide a schedule of the relevant carryforward items
allocable to Holdings for tax years following the
Distribution Date. CFI shall indemnify Holdings for any
interest, fines or penalties resulting from the
overstatement of the carryforward items or CFI shall
reimburse Holdings for any Tax benefits (including interest
at the rate specified in Section 3.08) foregone by Holdings
as a result of the understatement of the carryforward items.
Notwithstanding the foregoing, CFI shall not be required to
so indemnify or reimburse Holdings (i) with respect to any
overstated allocation of alternative minimum tax credits
made by CFI on a good faith basis, or (ii) to the extent the
overstatement or understatement of any carryforward items
other than alternative minimum tax credits results (x) from
a change in law or regulation (including the retroactive
effectiveness of any such law or regulation), (y) from an
audit or other adjustments to the Tax Returns as filed, or
(z) from incorrect information supplied by Holdings.
ARTICLE IV
COOPERATION AND EXCHANGE OF INFORMATION
Section 4.01. Cooperation.
(a) CFI and Holdings shall cooperate (and shall cause any
member of their group to cooperate) fully at such time and
to the extent reasonably requested by the other party in
connection with the preparation and filing of any return or
the conduct of any audit, dispute, proceeding suit or action
concerning any issues or any other matter contemplated
Page 22
hereunder. Such cooperation shall include, without
limitation, (i) the retention and provision on demand of
books, records, documentation or other information relating
to any Tax Return until the later of (x) the expiration of
the applicable federal or state statute of limitation
(giving effect to any extension, waiver, or mitigation
thereof) and (y) in the event any claim has been made under
this Agreement for which such information is relevant, until
a Final Determination with respect to such claim; (ii) the
provision of additional information with respect to and
explanation of Tax Practices and material provided under
clause (i) of this section; (iii) the execution of any
document that may be necessary or reasonably helpful in
connection with the filing of any Tax Return by any member
of the CFI Group or the Holdings Group, or in connection
with any audit, proceeding, suit or action addressed in the
preceding sentence; and (iv) the use of the parties'
reasonable best efforts to obtain any documentation from a
governmental authority or third party that may be necessary
or helpful in connection with the foregoing. Each party
shall make its employees and facilities available on a
mutually convenient basis to facilitate such cooperation.
(b) CFI and Holdings shall use reasonable efforts to keep
each other advised as to the status of Tax audits and
litigation involving any items reportable on a consolidated
federal income Tax Return or a combined Tax Return with
respect to the Holdings Businesses for pre-Distribution
periods and which (i) give rise to a Tax which could be
assessed against Holdings (or any Affiliate thereof) or (ii)
could give rise to a liability of Holdings (or any Affiliate
thereof) under this Agreement (either of which constitutes a
"Liability Issue"). The primary person for dealing with the
Holdings Liability Issues in Tax audits shall be a Holdings
Representative. CFI and Holdings shall promptly furnish each
other copies of any inquiries or requests for information
from any Taxing Authority or any other administrative,
judicial or other governmental authority concerning any
Liability Issue.
Page 23
CFI shall notify Holdings as to which
inquiries or information requests it desires to monitor and,
with respect to such matters, Holdings will submit for CFI
approval (which shall not be unreasonably withheld) the
information to be provided to a Taxing Authority or any
governmental authority in response to the inquiries or
requests. Holdings agrees to timely notify CFI regarding any
proposed written communication (i.e., communications not
related to inquiries or requests for information) by
Holdings or a Holdings Affiliate to any such Taxing
Authority or other governmental authority with respect to
such Liability Issue and CFI shall subsequently notify
Holdings as to which Liability Issues CFI desires to
monitor. Upon request by CFI, Holdings shall provide copies
of such written communications and documents to be submitted
therewith and receive approval from CFI to submit such
communications (which approval shall not be unreasonably
withheld and shall be given on a timely basis) prior to
submission to the Taxing Authority or other governmental
authority. CFI shall have the right to consult with Holdings
regarding any responses attributable to such requests. CFI
shall indemnify Holdings for any costs which would not have
been incurred, but for CFI's failure to grant approval to
Holdings to submit information for which CFI's approval is
required by this section; provided, however, this
indemnification shall not apply to CFI actions or decisions
made pursuant to Section 2.02(b). Furthermore, CFI and
Holdings, as the case may be, shall each promptly furnish to
the other upon receipt a copy of information document
requests, a notice of proposed adjustment, revenue agent's
report or similar report or notice of deficiency together
with all relevant documents and memos related to the
foregoing documents, notices or reports, received by any
member of the CFI Group or any member of the Holdings Group,
as the case may be, relating to any Liability Issue.
Page 24
(c) CFI shall advise Holdings with respect to items
reported in a revenue agent's report and provide periodic
updates, as necessary, as to the resolution of any such
items relating to the Consolidated Group that may affect any
member of the Holdings Group after the Distribution Date.
(d) Holdings shall promptly notify CFI of any inquiries
by any Taxing Authority or other administrative, judicial or
other governmental authority that relates to any Other Taxes
that may be imposed on CFI or a CFI Affiliate.
Section 4.02. Contest Provisions.
(a) Subject to the cooperation provisions of Section
4.01, CFI shall have full responsibility for and discretion
in handling any Tax controversy, including, without
limitation, an audit, technical advice request, arbitration
or dispute resolution procedure, protest to the Appeals
Division of the IRS, and litigation in Tax Court or any
other court of competent jurisdiction (a "Tax Controversy"),
involving a Tax Return of the Consolidated Group or a Tax
Return for a Combined Jurisdiction. However, upon request by
Holdings, and subject to CFI approval (which may not be
unreasonably withheld) and the cooperation provisions of
Section 4.01, Holdings shall have full responsibility and
discretion in the handling, at Holdings' expense of any Tax
Controversy with respect to any item reported on a Holdings
or Holdings Affiliate Tax Return that would give rise to a
payment of Tax for which Holdings would be liable, or a
refund of Tax for which Holdings would be entitled to
receive payment, under Article III hereof. If CFI approval
is not granted to Holdings for the handling of a Tax
Controversy item, CFI shall provide Holdings with a timely
written response which sets out the reasons for not granting
the approval. Furthermore, CFI shall be subject to the
cooperation provisions of Section 4.01 and shall allow
Holdings, at Holdings' expense, the right to consult with
CFI with respect to such Tax Controversy.
Page 25
(b) In addition to the cooperation and contest provisions
of Section 4.01 and Section 4.02(a), in the event that a
notice of deficiency is received by CFI from any Taxing
Authority and such notice relates in whole or in part to
Restructuring Taxes for which Holdings would be liable to
CFI pursuant to Section 3.06 hereof (the "Holdings
Restructuring Issue") then --
(1) CFI, upon receiving written request from
Holdings, which shall be given no later than a date
reasonably necessary to permit preparation and
timely filing of a petition in the Tax Court for
redetermination of the deficiency, shall timely file
such petition at Holdings' expense; provided,
however, that upon the request of Holdings, CFI
shall, at Holdings' expense: (A) pay the amount of
the deficiency (provided that Holdings has loaned to
CFI no later than three (3) business days before CFI
pays such deficiency, without interest and until a
Final Determination of the Holdings Restructuring
Issue, 100 percent of the amount of the portion of
the deficiency relating to the Holdings
Restructuring Issue; (B) file a claim for refund of
such Tax; and (C) if the claim is denied, bring an
action in a court of competent jurisdiction seeking
the refund of such Tax; and (2) In the event that a
judgment of the Tax Court or other court of
competent jurisdiction results in an adverse
determination with respect to the Holdings
Restructuring Issue and CFI notifies Holdings that
it does not intend to appeal such Holdings
Restructuring Issue, then Holdings shall have the
right to cause CFI to appeal such adverse
determination at Holdings' expense.
Page 26
(3) Holdings and its Representatives, at Holding's
expense, shall be entitled to participate in all
conferences, meetings, or proceedings with any Tax
Authority, the subject matter of which is or
includes the Holdings Restructuring Issue. Holdings
and its Representatives, at Holding's expense, shall
be entitled to participate in all appearances before
any court, the subject matter of which includes the
Holdings Restructuring Issue.(4)All actions taken
under this Section 4.02(b) at Holding's request or
direction shall be at Holdings' expense.(5) The
right to participate referred to in Section
4.02(b)(3) hereof shall include the submission and
content of documentation, protests, memoranda of
fact and law and briefs, the conduct of oral
arguments or presentations, the selection of
witnesses, and the negotiations of stipulations of
fact with respect to the Holdings Restructuring
Issue.(6)Within five (5) business days of the
receipt by CFI of a refund of any amounts loaned to
it by Holdings under paragraph (b)(1) above
(including any interest received by CFI), CFI shall
pay such refunded amount and interest, if any to
Holdings net of any net Tax detriment (as determined
by CFI) incurred by CFI or a CFI Affiliate resulting
from such refund.
Section 4.03. Information for Shareholders. CFI shall
provide each shareholder which receives Holdings stock
pursuant to the Distribution with the information necessary
for each such shareholder to comply with the requirements of
section 355 of the Code and the Treasury Regulations with
respect to statements that such shareholders must file with
their federal income tax returns demonstrating the
applicability of section 355 to the Distribution.
Page 27
ARTICLE V
MISCELLANEOUS
Section 5.01. Tax Indemnification.
(a) Holdings shall indemnify and hold harmless CFI and each
CFI Affiliate from and against any liability, cost or expense,
including, without limitation, any fine, penalty, interest,
charge, attorney's fee or accountant's fee arising out of
fraudulent or negligent information, workpapers, documents and
other items prepared by Holdings or a Holdings Affiliate used
in the preparation of any Tax Return filed by CFI and/or the
Consolidated Group for any period during which Holdings or a
Holdings Affiliate was or has been a member of the
Consolidated Group.
(b) Except as set forth in Section 5.01(a), CFI shall
indemnify and hold harmless Holdings and each Holdings
Affiliate from and against any liability, cost or expense,
including, without limitation, any fine, penalty, interest,
charge, attorney's fee or accountant's fee arising out of
fraudulent or negligent preparation of any Tax Return filed by
CFI and/or the Consolidated Group for any period during which
Holdings or a Holdings Affiliate was or has been a member of
the Consolidated Group.
Section 5.02. Breach. CFI shall indemnify and hold harmless
each member of the Holdings Group and Holdings shall indemnify
and hold harmless each member of the CFI Group from and
against any payment required to be made under this Agreement
as a result of the breach by a member of the CFI Group or the
Holdings Group, as the case may be, of any obligation under
this Agreement.
Section 5.03. Disclaimers.
(a) CFI disclaims all knowledge of or responsibility for the
content or accuracy of any separate returns or filings made by
Holdings or Holdings Affiliates except to the extent such
returns include information provided by CFI pursuant to
Section 3.10(c).
Page 28
(b) Holdings disclaims all knowledge of or responsibility for
the content or accuracy of any (i) separate returns or filings
made by CFI or CFI Affiliates, (ii) Tax Returns or filings
made by or on behalf of the Consolidated Group or any member
thereof for any period except to the extent such federal Tax
Returns or filings reflect items of the Holdings Businesses,
and (iii) Tax Returns or filings in Combined Jurisdictions,
except to the extent such Tax Returns or filings reflect items
of the Holdings Businesses.
Section 5.04. Resolution of Certain Disputes.
(a) Disagreements between CFI and Holdings with respect to
amounts that either claims is owed by the other (or by an
Affiliate of the other) under this Agreement or other matters
under this Agreement that are not resolved by mutual agreement
shall be resolved by arbitration pursuant to this Section
5.04. Until the time of a final resolution by the arbitrator
selected pursuant to Section 5.04(b), the time period for any
payments described in Section 3.08 (other than loans required
by Section 4.02(c)) shall be tolled. Such tolling, however,
shall not affect the accrual of interest.
(b) Selection of the Arbitrator. Any arbitrator selected
pursuant to this Section 5.04(b) shall have at least ten years
of experience in the field of corporate taxation, shall be an
attorney licensed to practice law in any state of the United
States or a certified public accountant licensed to practice
in any state of the United States and shall not be or have
been routinely employed by, retained or affiliated with either
party. The parties shall first attempt to agree on a mutually
satisfactory arbitrator. If the parties are unable to agree on
a mutually satisfactory arbitrator within 30 days after either
party notifies the other in writing of a disagreement
requiring arbitration pursuant to this Section 5.04 (15 days
in the case of a disagreement with respect to Section 4.01 or
Section 4.02), each party shall select an arbitrator. The two
arbitrators thus selected shall agree on and select a third
arbitrator. If the two arbitrators cannot agree on such third
arbitrator within 30 days (15 days in the case of a
disagreement with respect to Section 4.01 or Section 4.02),
the parties shall each select a different arbitrator and renew
the foregoing procedure. If the position of arbitrator is
vacated by virtue of events outside the control of the
parties, the person or persons who originally selected the
arbitrator to fill such position shall select a new arbitrator
to fill the position, unless the parties agree to continue the
arbitration with the remaining arbitrators. When used
hereafter, the term "arbitrator" may refer to the three
arbitrators so selected when appropriate and a decision of a
majority of such arbitrators shall constitute a decision by
the arbitrator in the appropriate context.
Page 29
(c) Arbitration Procedures.
(1) The arbitration shall be conducted in accordance
with the rules set forth in Exhibit A. The arbitration
shall not be conducted under the auspices of the American
Arbitration Association.
(2) Each party within 30 days after engagement of the
arbitrator shall submit to the arbitrator a written
statement of the party's position (including, where
relevant, the total net amount it asserts is owed by it
or is due to it) regarding the total amount in dispute,
together with a copy of such calculation.(3)The
arbitrator shall base his or her decision on the
following standards. In the case of a factual dispute
between the parties, the arbitrator shall make a
determination of the facts. In the case of a dispute
regarding a legal issue, including the proper application
of the Tax laws or the proper interpretation of this
Agreement, the arbitrator shall make a determination in
accordance with his or her best legal judgment. Upon
making determinations with respect to all factual and
legal issues in dispute, the arbitrator shall determine
the amount due by one party to the other or such other
matter with respect to the matter subject to the
arbitration. Where relevant, as to each matter in
dispute, the arbitrator shall find in favor of the party
whose statement submitted pursuant to paragraph (2) above
proposed the amount closest to the amount so determined.
(4) The arbitrator shall render a written decision
stating only the result of such decision as soon as
practicable. The arbitrator shall also orally explain the
bases of such decision to both parties as soon as
practicable. If and only if both parties request, the
arbitrator shall state the basis of such decision in
writing. As to each matter in dispute, the arbitrator's
decision shall be in an amount equal to one of the total
amounts asserted by one of the parties in the written
statements submitted pursuant to paragraph (2) above. The
arbitrator shall not, and is not authorized, to render a
decision in any other amount. (5) The arbitrator's
decision shall be final and binding on the parties. No
appeal to any court is contemplated by this Agreement and
each party, to the maximum extent permissible by law,
waives and relinquishes all rights and entitlements to
appeal such decision.
Page 30
Section 5.05. Notices. Any notice, demand, claim or other
communication under this Agreement shall be in writing and
shall be deemed given upon delivery if delivered personally or
by courier, upon mailing if sent by certified mail, return
receipt requested, postage prepaid, or upon completion of
transmission if sent by telecopy or facsimile, to the parties
at the following address:
CFI at: 0000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attn: General Counsel
Page 31
Holdings at: 000 Xxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attn: General Counsel
Section 5.06. Complete Agreement. This Agreement and the
Exhibit thereto constitute the entire agreement of the parties
concerning the subject matter hereof, supersede all other
agreements, whether or not written, in respect of any Tax
between or among CFI and CFI Affiliates, on the one hand, and
Holdings and Holdings Affiliates, on the other hand. This
Agreement may not be amended except by an agreement in
writing, signed by the parties hereto.
Section 5.07. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of California, without regard to the principles of
conflict of laws of the State of California.
Section 5.08. Successors and Assigns. A party's rights and
obligations under this Agreement may not be assigned without
the prior written consent of the other party. All of the
provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors
and permitted assigns.
Section 5.09. No Third-Party Beneficiaries. This Agreement
is solely for the benefit of the parties to this Agreement and
their respective Affiliates and should not be deemed to confer
upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of
those existing without the Agreement.
Page 32
Section 5.10. Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of the prohibition or unenforceability without
invalidating the remaining provisions. Any prohibition or
unenforceability of any provision of this Agreement in any
jurisdiction shall not invalidate or render unenforceable the
provision in any other jurisdiction.
Section 5.11. Expenses. Unless otherwise provided in this
Agreement, each party shall bear any and all expenses that
arise from their respective obligations under this Agreement
(including Arbitration). In the event either party to this
Agreement brings an action or proceeding for breach or
enforcement of this Agreement, the prevailing party in such
action or proceeding, whether or not such action or proceeding
proceeds to final judgment, shall be entitled to recover as an
element of its costs, and not as damages, such reasonable
attorneys' fees as may be awarded in the action or proceeding
in addition to whatever other relief to which the prevailing
party may be entitled.
Section 5.12. Counterparts. This Agreement may be signed in
any number of counterparts, each of which shall be an
original, with the same effect as if the signature thereto and
hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
CONSOLIDATED FREIGHTWAYS, INC.
By:/s/ X. X. Xxxxxxx
Its: President and CEO
CONSOLIDATED FREIGHTWAYS CORPORATION
By:/s/ S. D. Xxxxxxxx
Its: Senior Vice President and General
Counsel
Page 33
TAX SHARING AGREEMENT
Exhibit A
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (the
"Memorandum"), dated as of this day of December 2, 1996 by
and between Consolidated Freightways, Inc., a Delaware
corporation ("CFT"), and Consolidated Freightways
Corporation, a Delaware corporation ("Holding").
RECITALS
A. CFI and Holdings have entered into a Tax
Sharing Agreement dated as of December 2, 1996 (the "Tax
Sharing Agreement"). Capitalized terms in this Memorandum
and not otherwise defined have the meanings ascribed to them
in the Tax Sharing Agreement.
B. The Tax Sharing Agreement provides
generally for the allocation of tax liability and the timing
of payments with respect to tax liability arising out of the
audit of Tax Returns filed with respect to taxable periods
ending before or including the Distribution Date ("Pre-
Distribution Years"). CFI and Holdings believe it to be in
the best interest of each to provide more specifically with
respect to the timing and responsibility for federal income
tax payments, and the application of existing advance
payments and tax and interest reserves to the obligations of
CFI and Holdings under the Tax Sharing Agreement with
respect to the Pre-Distribution Years. This Memorandum is
intended to reflect the parties intentions with respect to
the application of the advance payments and tax and interest
reserves. It assumes that the audits of such Pre-
Distribution Years will be resolved in whole or in part, in
chronological order (earliest first). In the event that the
audits are resolved in some other sequence, the parties
will use their best efforts to adjust the payment provisions
provided herein in manner consistent with this Memorandum.
C. CFI and Holdings agree and recognize that
the Tax Sharing Agreement provides that the parties will
mutually cooperate and consult to properly determine their
respective liabilities and will share the necessary
information. The parties recognize that it is necessary to
protect such information as confidential.
Page 1
NOW THEREFORE, in consideration of their
mutual promises, the parties agree as follows:
1. No Transfer of Advance Payments or
Reserves
No transfer of existing consolidated Tax and
Interest Reserves or Advance Payments of Taxes will be made
by CFI to Holdings. However, it is the intention of the
parties to allocate the Tax and Interest Reserves to Items
attributable to both CFI and Holdings in the manner
described in Section 3. See attachment A for a disclosure
of the CFI General Ledger account balances for Tax and
Interest Reserves and Advanced Payments.
2. Application of Advance Payments in
Resolution of Federal Tax Audits. In resolving
federal tax audits for Pre-Distribution Years, CFI shall use
its reasonable best efforts to apply advance payments of
Taxes so as to minimized the federal consolidated
tax liability (including liability for interest, penalties,
and additions to tax) of the Consolidated Group, taken as a
whole.
3. Applications of Advance Payments and Tax
Reserves in Determining Liability Under the Tax Sharing
Agreement.
(a) Upon a Final Determination (or a
Partial Final Determination, as herein defined) of federal
tax liability for a Pre-Distribution Year, CFI will
determine the portion of the liability allocable to; (i) tax
attributable to timing items measured using the Federal tax
rate in effect at the Distribution Date which will be
available to Holdings or CFI as a deferred tax benefit in
tax years beginning on or after the Distribution Date
("Timing Items"); (ii) tax (including additions to tax)
attributable to items (including any tax rate differential)
which do not make available to Holdings or CFI a
deferred tax benefit in tax years beginning on or after the
Distribution Date ("Permanent Items"); and (iii) interest on
the tax Liability ("Interest").
(b) For purposes of determining tax and
interest liability to be allocated in paragraph 3(a) not
allocable to Timing Items, CFI and Holdings agree to use a
First In First Out (FIFO) method in applying Advance
Payments and in utilizing Tax and Interest Reserves so that
amounts are applied to earliest years and issues first, and
each subsequent year will sequentially use this same
FIFO method. CFI shall then allocate the tax and interest
liabilities between the CFI Business and the Holdings
Business.
(c) With respect to any portion of
federal tax liability allocated to Holdings Timing Items,
for Items arising from Pre 1991 years, Holdings shall pay
such amount to CFI within 30 days, or shall deliver to CFI
its promissory note for such amount, with a maturity date of
four [4] years from the date of issue, providing for annual
payments of interest at a rate equal to the "applicable
federal rate" under section 1274(d) of the Code as of the
issue date of the note. With respect to any portion of
federal tax liability allocated to Holdings Timing Items,
for Items arising from Post 1990 years, Holdings shall pay
such amount to CFI within 90 days with interest at a rate
equal to the "applicable federal rate" under section 1274(d)
of the code, unless the parties mutually agree to
alternative payment terms.
Page 2
(d) With respect to any portion of the federal
tax liability allocated to Holdings Permanent Items or
Interest, to the extent that such allocable portion is not
covered by available Tax and Interest Reserves (as
determined by CFI pursuant to Section 3(b) hereof), Holdings
shall pay such amount to CFI within 90 days with interest at
a rate equal to the "applicable federal rate" under section
1274(d) of the code, unless the parties mutually
agree to alternative payment terms.
(e) In the event that there has been a Partial
Final Determination for a Pre 1991 year and that there is an
item which arose in one of those years that has been
deferred for future resolution with the IRS (a "Contested
Item") and the Contested Item has not been resolved prior to
the Final Determination (or a Partial Final Determination)
with respect to a Post 1990 year then for purposes of the
allocation of tax and interest reserves in the Post
1990 years, CFI shall make a reasonable estimate of the
impact that the Contested Items(s) would have on the tax and
interest reserves. The purpose of this is to determine if
there are amounts payable under 3(d) from Holdings to CFI
due to Post 1990 Holdings items not expected to be covered
by this reasonableestimation of allocable tax and interest
reserves.
4. Additional Provisions
(a) The term "Partial Final
Determination" shall mean the final resolution of liability
or any tax for a taxable period by the appropriate IRS form
which binds the taxpayer as to the agreed items on
the date of acceptance by or on behalf of the IRS, but
reserves to the taxpayer the right to contest an identified
unagreed item.
(b) "Tax and Interest Reserves" means the
financial or book reserve as have been incorporated in the
balance sheet of CFI and which are limited to the amounts
disclosed in attachment A to this Memorandum.
"Advanced Payments" means those cash
payments made or credits of tax refunds applied to the IRS
in respect of potential audit settlement and which are
limited to the amounts disclosed in attachment A to this
Memorandum.
(d) Any disputes under this Memorandum
shall be subject to the dispute resolution procedures of
Section 5.04 of the Tax Sharing Agreement.
(e) The provisions of Sections 5.05,
5.06, 5.07, 5.08, 5.09, 5.10, 5.11 and 5.12 of the Tax
Sharing Agreement, as in effect as of the date hereof are
incorporated herein by this reference.
Page 3
IN WITNESS WHEREOF, the parties have
executed and delivered this Memorandum as of the date first
above written.
CONSOLIDATED FREIGHTWAYS CORPORATION
BY: /s/S. D. Xxxxxxxx
Its: Senior Vice President and General
Counsel
CONSOLIDATED FREIGHTWAYS, INC.
By:/s/X. X. Xxxxxxx
Its: President and Chief Executive Officer
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