1
FORM OF
TAX SHARING AGREEMENT
BY AND AMONG
▇. ▇. ▇▇▇▇▇ & CO.,
▇. ▇. ▇▇▇▇▇ & CO.-CONN.
AND
SEALED AIR CORPORATION
DATED AS OF [ ], 1998
2
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (this "Agreement"), dated as of
__________, 1998, by and among ▇. ▇. ▇▇▇▇▇ & Co., a Delaware corporation
("Grace"), ▇. ▇. ▇▇▇▇▇ & Co.-▇▇▇▇., a Connecticut corporation and a wholly owned
subsidiary of Grace ("Grace-Conn."), and Sealed Air Corporation, a Delaware
corporation ("Sealed Air").
RECITALS
WHEREAS, Grace, Packco Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Grace, and Sealed Air have entered
into an Agreement and Plan of Merger (the "Merger Agreement");
WHEREAS, Grace, Grace-Conn. and Grace Specialty Chemicals,
Inc., a Delaware corporation and a wholly owned subsidiary of Grace ("New
Grace"), have entered into the Distribution Agreement;
AND WHEREAS, Grace, on behalf of itself and the Packco Group,
and Grace-Conn., on behalf of itself and the New Grace Group, wish to provide
for the allocation between the Packco Group and the New Grace Group of all
responsibilities, liabilities and benefits relating to or affecting Taxes (as
hereinafter defined) paid or payable by either of them for all taxable periods,
whether beginning before, on or after the Distribution Date (as hereinafter
defined) and to provide for certain other matters.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the Distribution Agreement or the Merger
Agreement. 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):
"Action": as defined in Section 5.3(a).
"Active New Grace Businesses": as defined in Section 5.2(b).
"Active Packo Business": as defined in Section 5.1(b).
-2-
3
"Adjusted Item": as defined in Section 3.2(a)(v).
"Adjusted Party" means the party for the account of which is
an Adjusted Item.
"Affiliated Group" means the affiliated group of which Grace
is the common parent or any predecessor or successor thereto.
"Code" means the Internal Revenue Code of 1986, as amended,
and shall include corresponding provisions of any subsequently enacted federal
tax laws.
"Conn Prepared Returns": as defined in Section 2.2(a).
"Conn Prior Payments": as defined in Section 3.2(c)(iii).
"Consistency/Basis Disagreement": as defined in Section
2.2(b).
"Corresponding Item": as defined in Section 3.2(a)(v).
"Corresponding Party" means the party for the account of which
is a Corresponding Item.
"Del Prepared Returns": as defined in Section 2.2(a).
"Discontinued Businesses": shall mean (x) the can sealing and
coating portion of the New Grace Business which portion is described in the
proviso to the definition of the Packaging Business and (y) certain other
businesses currently accounted for as discontinued operations.
"Distribution Date" means the date on which the Distribution
occurs. For purposes of this Agreement, the Distribution shall be deemed
effective as of the close of business on the Distribution Date.
"Equity Securities" means any stock or other equity securities
treated as stock for tax purposes, or options, warrants, rights, convertible
debt, or any other instrument or security that affords any Person the right,
whether conditional or otherwise, to acquire stock.
"Final Determination" means the final resolution of liability
for any Tax for a taxable period (i) by a duly executed IRS Form 870 or 870-AD
(or any successor forms thereto), on the date such Form is effective, or by a
comparable form under the laws of other jurisdictions; except that a Form 870 or
870-AD or comparable 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
-3-
4
with respect to the right so reserved; (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 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 jurisdiction
imposing Tax; or (v) by any other final disposition, including by reason of the
expiration of the applicable statute of limitations or by mutual agreement of
the parties.
"Foreign Cap" shall mean $3 million.
"Foreign Packco Subsidiary" means a Packco Subsidiary
organized in a foreign jurisdiction.
"Foreign Packco Tax Item" means a Tax Item of a Foreign Packco
Subsidiary arising in the Pre-Distribution Period attributable to the Packaging
Business conducted by such Subsidiary other than any Tax Item of a Foreign
Packco Subsidiary arising as a result of a Foreign Transfer.
"Foreign New Grace Subsidiary" means a New Grace Subsidiary
organized in a foreign jurisdiction.
"Forwarding Party": as defined in Section 4.1.
"Forwarding Responsibilities": as defined in Section 4.1.
"Hypothetical Pre-Distribution Tax": as defined in Section
2.2(d).
"Hypothetical Pre-Distribution Overall Tax Benefit": as
defined in Section 2.2(d).
"Indemnified Amount": as defined in Section 4.1.
"Indemnitee": as defined in Section 4.2(a).
"Indemnitor": as defined in Section 4.2(a).
"Indemnity Issue": as defined in Section 4.2(a).
"Interest": as defined under "Taxes" below.
"IRS" means the Internal Revenue Service.
"New Grace Tax Item" means a Tax Item arising in the
Pre-Distribution Period attributable to (i) New Grace, Grace-Conn., Packco, any
Foreign New Grace Subsidiary, any member of the Affiliated Group which was a
member prior to the Distribution
-4-
5
Date or any member of the affiliated group for United States federal income tax
purposes of which ▇. ▇. ▇▇▇▇▇ & Co., a New York corporation, was the common
parent or (ii) the New Grace Business conducted by any Foreign Packco
Subsidiary.
"Overall Tax Benefit" shall mean, for any taxable period, the
net operating loss, unused credits (taking into account foreign tax credits when
realized regardless of the period for which the associated earnings and profits
were earned) and any other aggregate net unused Tax Benefit not used to reduce
Taxes for the period.
"Packco Prior Payments": as defined in Section 3.2(c)(iii).
"Packaging Tax Item" means a Tax Item attributable to Sealed
Air, any member of the Packco Group or otherwise relating to the Packaging
Business or the Packaging Assets that is not a New Grace Tax Item or a Foreign
Packco Tax Item.
"Payee": as defined in Section 3.2(c).
"Payor": as defined in Section 3.2(c).
"Post-Distribution Period" means the Post-Distribution Taxable
Periods and the portion of any Straddle Period beginning on the date after the
Distribution Date.
"Post-Distribution Taxable Period" means any taxable period
beginning after the Distribution Date.
"Pre-Distribution Period" means the Pre-Distribution Taxable
Periods and the portion of any Straddle Period ending on the Distribution Date.
"Pre-Distribution Schedules": as defined in Section 2.2(b).
"Pre-Distribution Taxable Period" means any taxable period
ending on or before the Distribution Date
"Proceeding" shall mean any audit or other examination,
judicial or administrative proceeding relating to liability for or refunds or
adjustments with respect to Taxes.
"Recipient Group": as defined in Section 4.1.
"Restriction Period" means the period beginning on the date
hereof and ending on the two-year anniversary of the Effective Time.
"Reviewing Party": as defined in Section 5.3(c).
"Ruling/Opinion Exception": as defined in Section 5.1.
-5-
6
"Sealed Air Parties" means Sealed Air and each of its past,
present or future Affiliates, other than any member of the Packco Group.
"Straddle Period" means a taxable period that includes, but
does not end on, the Distribution Date.
"Substantial Authority": as defined in Section 2.1.
"Tax Benefit" means any item of loss, deduction, credit or any
other Tax Item which decreases Taxes paid or payable.
"Tax Deficiency" means an assessment of Taxes, as a result of
a Final Determination.
"Tax Detriment" means any item of income, gain, recapture of
credit or any other Tax Item which increases Taxes paid or payable.
"Tax-Free Status" means the qualification of the Distribution
(i) as a transaction described in Section 355(a)(1) of the Code, (ii) as a
transaction in which the stock distributed thereby is qualified property for
purposes of Section 355(c)(2) of the Code and (iii) as a transaction in which
each of Grace, Grace-Conn., Packco, New Grace and each member of the New Grace
Group recognizes no income or gain.
"Tax Item" means any item of income, gain, loss, deduction,
credit, recapture of credit or any other item which increases or decreases Taxes
paid or payable, including an adjustment under Code Section 481 resulting from a
change in accounting method.
"Tax Opinions" shall mean the Grace Tax Opinion and the Sealed
Air Tax Opinion.
"Tax Refund" means a refund of Taxes as the result of a Final
Determination.
"Tax Return" means any return, filing, questionnaire,
information return 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 period with any taxing
authority (whether domestic or foreign) in connection with any Tax or Taxes
(whether or not a payment is required to be made with respect to such filing).
"Taxes" means all forms of taxation, whenever created or
imposed, and whether of the United States or elsewhere, and whether imposed by a
local, municipal, governmental, state, foreign, federation or other body, and,
without limiting the generality of the foregoing, shall include income, sales,
use, ad valorem, gross receipts, trade, license, value added, franchise,
-6-
7
transfer, recording, withholding, payroll, employment, excise, occupation,
unemployment insurance, social security, business license, business
organization, stamp, environmental, premium and property taxes, together with
any related interest, penalties and additions to any such tax, or additional
amounts imposed by any taxing authority (domestic or foreign) (such interest,
penalties, additions and additional amounts, "Interest").
"Transaction Party": as defined in Section 5.3(c).
ARTICLE II.
FILING OF TAX RETURNS
Section 2.1. Manner of Filing. All Tax Returns filed after the
Distribution Date and the Pre-Distribution Schedules shall be prepared on a
basis which is consistent with the consummation of the transactions as set forth
in the Distribution Agreement, the Grace Tax Matters Certificate, the Sealed Air
Tax Matters Certificate, the Tax Opinions and any opinions, rulings, agreements
or written advice relating to Foreign Transfers (in the absence of a controlling
change in law or circumstances) and shall be filed on a timely basis (including
extensions) by the party responsible for such filing under this Agreement. The
Pre-Distribution Schedules and all Tax Returns in respect of a Pre-Distribution
Taxable Period or portion, ending on the Distribution Date of any Straddle
Period, that include any member of the New Grace Group or the Packco Group shall
be prepared on the basis of substantial authority or on a reasonable basis with
(if applicable) appropriate disclosure (each, "Substantial Authority");
provided, however, that such Schedules and Returns shall be prepared on a basis
consistent with the elections (other than elections relating to carrybacks and
carryforwards described in Section 3.3(a)), accounting methods, conventions and
principles of taxation used for the most recent taxable periods of members of
the New Grace Group for which Tax Returns involving similar Tax Items have been
filed, to the extent that a failure to do so would result in a Tax Detriment, or
a reduction in a Tax Benefit, to a member of the Packco Group, as long as such
consistent position has Substantial Authority. All Tax Returns in respect of a
Post-Distribution Taxable Period or portion, beginning after the Distribution
Date, of any Straddle Period, shall be prepared with Substantial Authority;
provided, however, that such Returns shall be prepared on a basis consistent
with the elections (other than elections relating to carrybacks and
carryforwards described in Section 3.3(a)), accounting methods, conventions and
principles of taxation used for the most recent taxable periods of members of
the New Grace Group for which Tax Returns involving similar Tax Items have been
filed, to the extent that a failure to do so would result in a Tax Detriment, or
a reduction in a Tax Benefit, to a member of the other Group, as long as such
consistent position has Substantial Authority. In the event of a conflict with
respect to a Straddle Period between the requirements of the immediately
preceding sentence
-7-
8
and the second preceding sentence, the second preceding sentence shall prevail.
Subject to the provisions of this Agreement, all decisions relating to the
preparation of Tax Returns shall be made in the sole discretion of the party
responsible under this Agreement for such preparation. Grace shall provide
Grace-Conn. with copies of all Tax Returns filed after the Distribution Date
that relate to any member of the New Grace Group. Grace-Conn. shall provide
Grace with a copy of any portion of a Tax Return necessary to confirm
Grace-Conn.'s entitlement to payment hereunder in respect of a carryback or
refund.
Section 2.2. Pre-Distribution and Straddle Period Tax Returns.
(a) Grace shall prepare and file, or cause to be prepared and
filed, any Tax Returns required to be filed by a member or members of the New
Grace Group or the Packco Group for any Pre-Distribution Taxable Period and any
Straddle Period; provided, however, that Grace-Conn. shall prepare and file, or
cause to be prepared and filed, any Tax Returns relating solely to a member or
members of the New Grace Group or their respective assets or businesses (such
Tax Returns to be prepared and filed, or caused to be prepared and filed, by
Grace, the "Del Prepared Returns", and by Grace-Conn., the "Conn Prepared
Returns", respectively).
(b) With respect to any Del Prepared Return that has not been
filed as of the Distribution Date and relates to a Pre-Distribution Taxable
Period or a Straddle Period, Grace-Conn. shall, 25 calendar days before the due
date (including extensions) for such Return, provide Grace with a schedule
(collectively, the "Pre-Distribution Schedules") detailing the computation of
(i) in the case of a Pre-Distribution Taxable Period, the Tax and/or Overall Tax
Benefit and (ii) in the case of a Straddle Period, the Hypothetical
Pre-Distribution Tax and/or Hypothetical Pre-Distribution Overall Tax Benefit,
in either case, attributable to the member or members of the New Grace Group or
the Packco Group included in such Return. Any Pre-Distribution Schedule relating
to a Pre-Distribution Taxable Period shall be delivered to Grace in the form of
a completed, but unexecuted Tax Return. If Grace so requests, Grace-Conn. shall
discuss with Grace the preparation of, and allow Grace periodically to review
major issues with respect to, any Pre-Distribution Schedule. In the event that
Grace disagrees with any Tax Item reflected (or anticipated to be reflected) on
a Pre-Distribution Schedule and demonstrates (by means of a written explanation
in sufficient detail to permit such conclusion to be verified) its conclusion
that Grace-Conn. has failed to comply with the requirements of the second
sentence of Section 2.1 hereof (a "Consistency/Basis Disagreement"), Grace-Conn.
shall explain its calculation of such Tax Item within 14 days of receipt of
Grace's written explanation. The parties shall attempt in good faith mutually to
resolve any Consistency/Basis
-8-
9
Disagreements prior to the due date for filing the relevant Tax Return.
(c) Whether or not any Consistency/Basis Disagreements or any
other disagreements relating to a Tax Item on a Pre-Distribution Schedule have
been resolved by the applicable due date, Grace shall (i) prepare the Del
Prepared Returns on the basis of, and in a manner consistent with, the
Pre-Distribution Schedules, (ii) provide Grace-Conn. with a copy of each Del
Prepared Return 14 calendar days before such Return is filed and reflect any
comments thereon provided in good faith by Grace-Conn. and (iii) provide
Grace-Conn. with a copy of each Del Prepared Return two business days after such
Return is filed. In the event that any Consistency/Basis Disagreements relating
to a Pre-Distribution Schedule have not been resolved prior to the filing of the
relevant Tax Return, such disagreements shall be promptly resolved pursuant to
Section 6.7 hereof.
(d) The "Hypothetical Pre-Distribution Tax" shall mean the Tax
that would have been due for the taxable period ending on the Distribution Date
if the Distribution Date were the last day of the taxable period. The
"Hypothetical Pre-Distribution Overall Tax Benefit" shall mean the Overall Tax
Benefit that would have arisen in the taxable period ending on the Distribution
Date if the Distribution Date were the last day of the taxable period. Such Tax
or Overall Tax Benefit shall be computed by determining items of income,
expense, deduction, loss and credit on a "closing of the books" basis,
reflecting tax accounting principles as of the close of business on the
Distribution Date.
Section 2.3. Post-Distribution Tax Returns. Any Tax Return for
a Post-Distribution Taxable Period shall be the responsibility of the New Grace
Group if such Tax Return relates solely to a member or members of the New Grace
Group or their respective assets or businesses, and shall be the responsibility
of the Packco Group if such Tax Return relates solely to a member or members of
the Packco Group or Sealed Air or their respective assets or businesses.
ARTICLE III.
PAYMENT OF TAXES
Section 3.1. Allocation of Tax Liabilities With Respect to
Unfiled Returns.
(a) All Taxes shall be paid by the party responsible under
this Agreement for filing the Tax Return pursuant to which such Taxes are due;
provided, however, that
(i) in the case of Taxes due with respect to
Del Prepared Returns for Pre-Distribution Taxable Periods or Straddle Periods,
Grace-Conn. shall pay Grace the amount, if any,
-9-
10
of the Tax or Hypothetical Pre-Distribution Tax, as the case may be, if any,
reflected in the Pre-Distribution Schedule relating to such Tax Return
attributable to the member or members of the New Grace Group or the Packco Group
included in such Return. Such payment shall be made, at Grace-Conn.'s
discretion, either in immediately available funds on the morning of the relevant
date when payment is due to the governmental authority in respect of such Tax
Return or, if not in immediately available funds, two business days prior to
such due date. Grace shall forward any such payment that it receives from
Grace-Conn. to the appropriate taxing authority.
(ii) in the case of Del Prepared Returns for
any taxable period, on the relevant date on which payment is due (or a refund is
received) in respect of such Tax Return, Grace shall pay Grace-Conn. the amount,
if any, of the actual reduction in Taxes, or the actual increase in the Tax
refund, that would have been payable or receivable with respect to such Tax
Return but for any Overall Tax Benefit (or Hypothetical Pre-Distribution Tax
Benefit) that is for the account of Grace-Conn. under Section 3.2(a)(iii),
below. In the case of a payment by Grace in respect of a reduction in Taxes,
such payment shall be made in immediately available funds on the morning of the
relevant due date or, if not in immediately available funds, two business days
prior to the due date.
(iii) the parties intend that, in
implementing this Section 3.1(a), payment and reimbursement between the parties
shall reflect the principles of Section 3.2(a).
(b) Notwithstanding anything to the contrary, any Tax Item
resulting from any act or omission not in the ordinary course of business (other
than transactions contemplated by this Agreement, the Distribution Agreement,
the Merger Agreement or the Benefits Agreement) on the part of any member of the
Packco Group or any of the Sealed Air Parties occurring on the Distribution Date
after the Effective Time shall be deemed to arise in a taxable period which
begins after the Distribution Date.
Section 3.2. Indemnities; Redetermined Tax Liabilities. Except
as otherwise provided in Article V:
(a) Indemnities.
(i) Grace-Conn. shall be responsible for (w)
any Tax for a Pre-Distribution Taxable Period (and any Hypothetical
Pre-Distribution Tax for a Straddle Period) of Grace, Grace-Conn., Packco, any
Foreign New Grace Subsidiary, any current or former member of the Affiliated
Group which was a member prior to the Distribution Date or any current or former
member of the affiliated group for United States federal income tax purposes of
which ▇. ▇. ▇▇▇▇▇ & Co., a New York corporation,
-10-
11
was the common parent, (x) any Tax for a Pre-Distribution Taxable Period (and
any Hypothetical Pre-Distribution Tax for a Straddle Period) of a Foreign Packco
Subsidiary attributable to the Packaging Business reflected on a Tax Return
filed by such Subsidiary on or before the Distribution Date or on a
Pre-Distribution Schedule, (y) any Tax of any member of the New Grace Group or a
Foreign Packco Subsidiary, in either case, to the extent attributable to the New
Grace Business and (z) 75% (or if the Packco Group has borne an amount of Tax in
respect of adjustments to Foreign Packco Tax Items (and fees and expenses in
Proceedings relating to such adjustments) that exceeds the Foreign Cap, then
100%) of any increase in Tax of a member of the Packco Group attributable to an
adjustment to a Foreign Packco Tax Item.
(ii) Grace shall be responsible for any
Taxes (x) of any member of the Packco Group or otherwise relating to the
Packaging Business or the Packaging Assets (except to the extent that
Grace-Conn. is responsible for such Taxes pursuant to clause (i) above) and (y)
of any of the Sealed Air Parties, whether arising before, on or after the
Distribution Date.
(iii) Any Overall Tax Benefit (or
Hypothetical Pre-Distribution Overall Tax Benefit) shall be for the account of
Grace-Conn. to the extent that such Overall Tax Benefit (or Hypothetical
Pre-Distribution Overall Tax Benefit) is attributable to (w) Grace, Grace-Conn.,
Packco, any Foreign New Grace Subsidiary, any current or former member of the
Affiliated Group which was a member prior to the Distribution Date or any
current or former member of the affiliated group for United States federal
income tax purposes of which ▇. ▇. ▇▇▇▇▇ & Co., a New York corporation, was the
common parent, in each case, for the Pre-Distribution Period, (x) the Packaging
Business of a Foreign Packco Subsidiary for the Pre-Distribution Period
reflected on a Tax Return filed by such Subsidiary on or before the Distribution
Date or on a Pre-Distribution Schedule (other than the Foreign NOLs), (y) a
Pre-Distribution Period of any member of the New Grace Group or a Foreign Packco
Subsidiary, in either case, to the extent attributable to the New Grace Business
(other than the Foreign NOLs) or (z) any adjustment to a Foreign Packco Tax
Item.
(iv) For purposes of determining the amount
for which Grace or Grace-Conn. is responsible for paying the other party, or
entitled to receive from the other party, in the event of any adjustment,
including a Final Determination, of a Tax Item of a Foreign Packaging Subsidiary
(other than a Tax Item that arises as a result of a Foreign Transfer), Tax Items
that are clearly attributable to the Packaging Business or the New Grace
Business, respectively, shall be allocated to such Business and Tax Items that
are not so attributable shall be allocated in the proportion that the earnings
from operations of such Business operated by such Subsidiary bears to the total
earnings from operations of such Subsidiary, as reflected in audited financial
-11-
12
statements for the most recent, as of the end of such taxable period, full-year
accounting period. Tax Items so allocated shall be treated for all purposes of
this Agreement as attributable to the Business to which they are allocated.
(v) Timing Adjustments. In the event of any
adjustment, including a Final Determination, of a Tax Item (the "Adjusted Item")
which results in a Tax Benefit or Tax Detriment for the account of one party and
a corresponding Tax Detriment or Tax Benefit (the "Corresponding Item") for the
account of the other party, then (I) if the Corresponding Item is a Tax Benefit,
the Corresponding Party shall pay the Adjusted Party and (II) if the
Corresponding Item is a Tax Detriment, the Adjusted Party shall pay the
Corresponding Party, in either case, for each taxable period in which a member
of the Group of the party entitled to payment under this Section 3.2(a)(v)
actually realizes the Tax Benefit, in the case of (I), or the Tax Detriment, in
the case of (II), by reason of the adjustment, an amount equal to such realized
Tax Benefit, in the case of (I), or realized Tax Detriment, in the case of (II),
including interest (computed at a 5% annual rate) from the original due date
(without extensions) for filing of the Return for such taxable period through
the date of payment under this Section 3.2(a)(v).
(b) Final Determinations. In the case of any Final
Determination regarding a Tax Return, any Tax Deficiency shall be paid to the
appropriate taxing authority by, and any Tax Refund received from the
appropriate taxing authority shall be paid to, the party which filed such
Return; provided, however, that whether or not there is a Tax Deficiency or Tax
Refund and whether or not a payment is required to or from the appropriate
taxing authority, Grace shall make payments to, or receive payments from,
Grace-Conn. based upon the following principles:
(i) Grace-Conn. shall make a payment to
Grace in an amount equal to (x) any increase in the Tax of any of the Sealed Air
Parties or any member of the Packco Group resulting from any adjustment to a New
Grace Tax Item and (y) 75% (or, if the Packco Group has borne an amount of Tax
in respect of adjustments to Foreign Packco Tax Items (and fees and expenses in
Proceedings relating to such adjustments) that exceeds the Foreign Cap, then
100%) of any increase in the Tax of any of the Sealed Air Parties or any member
of the Packco Group resulting from any adjustment to a Foreign Packco Tax Item,
in either case (x) or (y), together with any Interest relating thereto that is
or has been imposed by the relevant taxing authority (or would have been imposed
but for an offsetting Packaging Tax Item).
(ii) Grace shall pay to Grace-Conn. an
amount equal to (x) any decrease in the Tax of any of the Sealed Air Parties or
any member of the Packco Group resulting from any adjustment to a New Grace Tax
Item and (y) any decrease in the Tax of any of the Sealed Air Parties or any
member of the Packco Group resulting from any adjustment to a Foreign Packco Tax
Item,
-12-
13
in either case (x) or (y), together with any Interest relating thereto that is
or has been paid by the relevant taxing authority (or would have been paid but
for an offsetting Packaging Tax Item).
(iii) The parties intend that, in
implementing this Section 3.2(b), payment and reimbursement between the parties
shall reflect the principles of Section 3.2(a).
(iv) Payments otherwise required to be made
under this Section 3.2(b) with respect to a single Final Determination shall be
netted and offset against each other so that either Grace shall make a payment
to Grace-Conn. or Grace-Conn. shall make a payment to Grace, but not both.
(c) Calculation and Payment of Amounts.
(i) All calculations and determinations
required to be made pursuant to this Article III shall initially be made by the
party obligated to make such payment (the "Payor") in its good faith. If the
party entitled to receive a payment (the "Payee") so requests, the Payor shall
present its calculations and determinations to the Payee in writing. The Payee
shall be deemed to consent to such calculations and determinations unless the
Payee notifies the Payor in writing within 30 days of receiving such
calculations and determinations. If the Payee disagrees with the Payor's
calculations and determinations, the parties shall attempt in good faith
mutually to resolve the disagreement. In the event that they cannot so resolve
the disagreement, it shall be resolved promptly pursuant to Section 6.7 hereof.
(ii) For all tax purposes, the parties
hereto agree to treat, and to cause their respect affiliates to treat, (x) any
payment required to be paid to a member of the other Group by this Agreement as
an adjustment to the portion of the New Grace Capital Contribution that is
contributed from Grace to New Grace and (ii) any payment of interest or Taxes
(other than U.S. Federal income taxes) by or to a taxing authority as taxable or
deductible, as the case may be, to the party entitled under this Agreement to
retain such payment or required under this Agreement to make such payment, in
either case except as otherwise mandated by the law or a Final Determination. In
the event of such a Final Determination, the payment in question shall be
adjusted to place the parties in the same after-tax position that they would
have enjoyed absent such Final Determination. Any payment required by this
Agreement that is not made on or before the date required hereunder shall bear
interest, from and after such date through the date of payment, at the
appropriate market interest rate.
(iii) Payment of any amount required to be
made pursuant to this Article III as a result of a Final
-13-
14
Determination shall become due and payable after such Final Determination has
been made within ten business days of the receipt of written notice from the
party entitled to receive such payment to the party required to make such
payment. Any amounts required to be paid in respect of Taxes or Overall Tax
Benefits pursuant to this Article III shall be adjusted to avoid duplication of
payments and to take into account the sum of any payments previously made by any
member of the Packco Group on or prior to the Distribution Date or by
Grace-Conn. or any other member of the New Grace Group at any time in respect of
such Taxes or Overall Tax Benefits (the "Conn Prior Payments") and the sum of
any payments previously made by any member of the Packco Group after the
Distribution Date in respect of such Taxes or Overall Tax Benefits (the "Packco
Prior Payments"). Appropriate payments will be made between the parties in the
event that the Conn Prior Payments or the Packco Prior Payments, respectively,
exceed the amounts for which Grace-Conn. or Packco, respectively, is responsible
under the principles of Section 3.2(a).
(d) Other Tax Liabilities and Refunds. Any Tax or Tax refund
that is not otherwise covered by Section 3.1 or 3.2(b) shall be allocated, and
payment shall be made by Grace-Conn. or Grace, using the principles of Sections
3.2(a); provided, however, that any Tax refund (whether or not governed by
Section 3.1 or 3.2(b)) arising as a result of an adjustment of a Foreign Packco
Tax Item shall be allocated in the same manner and to the same extent as Taxes
and expenses in respect of adjustments of Foreign Packco Tax Items have been
borne (it being agreed and understood that to the extent that the Foreign Cap
has been exceeded, such refund shall be entirely for the benefit of Grace-Conn.
and to the extent that refunds are shared 75% by Grace-Conn. and 25% by Grace
the Foreign Cap shall be increased by the amount refunded to Grace). Any Tax
refund received by one party that is for the account of the other party shall be
paid to such other party promptly upon receipt thereof. Any Tax paid by one
party that is the responsibility of the other party shall be reimbursed promptly
by the other party.
Section 3.3. Carrybacks and Refund Claims. (a) Any Tax refund
resulting from the carryback by any member of the New Grace Group of any Tax
Item arising after the Distribution Date to a Pre-Distribution Taxable Period or
a Straddle Period shall be for the account of Grace-Conn., and Grace shall
promptly pay over to Grace-Conn. any such Tax refund that it receives. In the
event that a member of the New Grace Group, on the one hand, and a member of the
Packco Group or a Sealed Air Party, on the other hand, are each entitled to
carryback a Tax Item to a Pre-Distribution Taxable Period or a Straddle Period,
the respective Tax Items shall be utilized under the rules of applicable law
(which shall be, in the case of carrybacks to such periods of the Affiliated
Group and carrybacks under foreign or State law with respect to which there is
no applicable rule regarding the priority of such utilization, the rules
contained in Treasury Regulation Section 1.1502-21T). Any election affecting the
carryback
-14-
15
or carryforward of any Tax Item of any member of the New Grace Group, or a
payment to or by such a member under this Agreement in respect of a carryback or
carryforward, including the elections under Section 172(b)(3) of the Code and
Treasury Regulation Section 1.1502-21T(b)(3) and 1.172-13(c) with respect
to the taxable years of the Affiliated Group that begin on each of January 1,
1997, and January 1, 1998, shall not be made without the consent of Grace-Conn.
and shall be made if Grace-Conn. so requests.
(b) Grace-Conn. shall be permitted to file, and Grace shall
fully cooperate with Grace-Conn. in connection with, any refund claim. To the
extent that such a refund claim (other than a claim arising from a carryback)
does not result in a Tax refund (or would not result in a refund if a claim were
filed) as the result of an offsetting Packaging Tax Item (including a Packaging
Tax Item carried back to a Pre-Distribution Taxable Period or a Straddle
Period), Grace shall remit to Grace-Conn. the amount of any decrease in Tax that
results or would have resulted from such refund claim.
Section 3.4. Liability for Taxes with Respect to
Post-Distribution Periods. Unless otherwise specifically provided in this
Agreement or the Distribution Agreement, the New Grace Group shall pay all Taxes
and shall be entitled to receive and retain all refunds of Taxes with respect to
periods beginning after the Distribution Date which are attributable to the New
Grace Business. Unless otherwise provided in this Agreement, the Packco Group
shall pay all Taxes and shall be entitled to receive and retain all refunds of
Taxes with respect to periods beginning after the Distribution Date which are
attributable to the Packaging Business.
ARTICLE IV.
INDEMNITY, COOPERATION AND EXCHANGE OF INFORMATION
Section 4.1. Breach. Grace-Conn. shall be liable for and shall
indemnify, defend and hold harmless the Packco Indemnitees from and against, and
Grace shall be liable for and shall indemnify, defend and hold harmless the New
Grace Indemnitees from and against, any payment required to be made as a result
of the breach by a member of the New Grace Group or the Packco Group,
respectively, of any obligation under this Agreement. If any member of the
Packco Group or the New Grace Group, fails to comply in any respect whatsoever
with any of its responsibilities under this Agreement relating to promptly
forwarding to any member of the other Group (the "Recipient Group") any
communications with and refunds received from any taxing authority ("Forwarding
Responsibilities"), then Grace or Grace-Conn., as the case may be, (the
"Forwarding Party") shall be liable for and shall indemnify and hold the New
Grace Indemnitees or the Packco Indemnitees, as the case may be, harmless from
and against any costs or expenses (including,
-15-
16
without limitation, Taxes and reasonably incurred lawyers' and accountants'
fees) ("Indemnified Amount") incurred by or imposed upon any member of the
Recipient Group arising out of, in connection with or relating to such
communication; provided, however, that the liability of the Forwarding Party
with respect to any one such failure shall be equal to that portion of the
Indemnified Amount that a member of the Recipient Group demonstrates is caused
(directly or indirectly) by such failure.
Section 4.2. Contests. (a) Whenever a party hereto (the
"Indemnitee") becomes aware of the existence of an issue that could increase the
liability for any Tax, or decrease the amount of any refund, of the other party
hereto or any member of its Group or require a payment hereunder (an "Indemnity
Issue"), the Indemnitee shall in good faith promptly give notice to such other
party (the "Indemnitor") of such Indemnity Issue. The failure of any Indemnitee
to give such notice shall not relieve any Indemnitor of its obligations under
this Agreement, except to the extent that such Indemnitor or its affiliate is
actually materially prejudiced by such failure to give notice.
(b) The Indemnitor and its representatives, at the
Indemnitor's expense, shall be entitled to participate (i) in all conferences,
meetings or proceedings with any taxing authority, the subject matter of which
is or includes an Indemnity Issue in respect of a Pre-Distribution Period and
(ii) in all appearances before any court, the subject matter of which is or
includes an Indemnity Issue in respect of a Pre-Distribution Period.
(c) Except as provided in Section 4.2(d), Grace-Conn. shall
have the right to decide as between the parties hereto how any Indemnity Issue
for a Pre-Distribution Taxable Period is to be dealt with and finally resolved
with the appropriate taxing authority and shall control all Proceedings relating
thereto. Grace agrees to cooperate with Grace-Conn. in the settlement of any
such Indemnity Issue; provided, however, that Grace-Conn. shall act in good
faith in the conduct of such Proceedings and shall keep Grace reasonably
informed of any developments which can reasonably be expected to affect
adversely Grace. Such cooperation shall include permitting Grace-Conn. to
litigate or otherwise resolve any such Indemnity Issue. It is expressly the
intention of the parties to this Agreement to take, and the parties shall take,
all actions necessary to establish Grace-Conn. as the sole agent for Tax
purposes of each member of the Affiliated Group, as if Grace-Conn. were the
common parent of the Affiliated Group, with respect to all combined,
consolidated and unitary Tax Returns of the Affiliated Group for the
Pre-Distribution Taxable Periods.
(d) The parties jointly shall represent the interests of (i)
the Affiliated Group in any Proceeding relating to any Straddle Period and (ii)
any Foreign Packco Subsidiary in any Proceeding relating to any taxable period
that involves an Indemnity Issue. Neither party shall settle any dispute
relating
-16-
17
to any such period without the consent of the other party (which consent shall
not be unreasonably withheld); provided, however, that if either party proposes
a settlement and the other party does not consent thereto, the nonconsenting
party shall assume control of the Proceeding (and bear all subsequently incurred
costs, fees and expenses relating thereto) and the respective liabilities of the
parties shall be determined pursuant to Section 6.7 based on the magnitude and
likelihood of success of the issues involved in the Proceeding, the
reasonableness of the settlement offer, the expense of continuing the Proceeding
and other relevant factors. Any other disputes regarding the conduct or
resolution of any such Proceeding shall be resolved pursuant to Section 6.7. All
costs, fees and expenses paid to third parties in the course of such Proceeding
shall be borne by the parties in the same ratio as the ratio in which, pursuant
to the terms of this Agreement, the parties would share the responsibility for
payment of the Taxes asserted by the taxing authority in its claim or assessment
if such claim or assessment were sustained in its entirety; provided, however,
that in the event that any party hereto retains its own advisors or experts in
connection with any Proceeding, the costs and expenses thereof shall be borne
solely by such party.
Section 4.3. Cooperation and Exchange of Information.
(a) Grace shall, and shall cause each appropriate member of
the Packco Group to, prepare and submit to Grace-Conn., as soon as practicable,
but in no event later than the date that is 30 days after a request from
Grace-Conn. (i) all information as Grace-Conn. shall reasonably request to
enable Grace-Conn. to file any Conn Prepared Return or prepare any
Pre-Distribution Schedule (which information shall be provided in the form and
of the quality in which comparable information was provided prior to the
Distribution) and (ii) any Del Prepared Return (including any amended return)
for any year within the carryback or carryforward period for an Overall Tax
Benefit or Hypothetical Pre-Distribution Overall Tax Benefit that is for the
account of Grace-Conn. or for any year with respect to which Grace is entitled
to a payment under Section 3.2(a)(v). Grace-Conn. shall bear any out-of-pocket
marginal expense paid by any member of the Packco Group in preparing and
submitting such information in respect of a Pre-Distribution Schedule relating
to a Pre-Distribution Taxable Period, and the parties shall share equally any
such expenses in respect of a Pre-Distribution Schedule relating to a Straddle
Period.
(b) Each party on behalf of itself and each member of its
Group, agrees to provide the other party and the members of such party's Group
with such cooperation and information as the second party or its Group members
shall reasonably request in connection with the preparation or filing of any Tax
Return, Pre-Distribution Schedule or claim for refund not inconsistent with this
Agreement or in conducting any Proceeding in respect of Taxes. Such cooperation
and information shall include, without
-17-
18
limitation, (i) execution and delivery of a power of attorney by Grace or any
other member of the Packco Group to Grace-Conn. or another member of the New
Grace Group or designation of an officer of Grace-Conn. or another member of the
New Grace Group as an officer of Grace or any other member of the Packco Group
for the purpose of signing Tax Returns, cashing refund checks and conducting
Proceedings if ▇▇▇▇▇ ▇▇▇▇. could not otherwise exercise its rights under this
Agreement with respect to such Returns, refunds or Proceedings, (ii) promptly
forwarding copies of appropriate notices and forms or other communications
received from or sent to any taxing authority which relate to the Affiliated
Group, the Packaging Business or the New Grace Business and (iii) providing
copies of all relevant portions of Tax Returns, accompanying schedules, related
workpapers, documents relating to rulings or other determinations by taxing
authorities, including, without limitation, foreign taxing authorities, and
records concerning the ownership and Tax basis of property, which either party
may possess. Each party shall make, and shall cause the members of the Packco
Group to make, their employees and facilities available on a mutually convenient
basis to provide explanation of any documents or information provided hereunder.
(c) Grace and Grace-Conn. agree to retain all Tax Returns,
related schedules and workpapers, and all material records and other documents
as required under Section 6001 of the Code and the regulations promulgated
thereunder relating thereto existing on the date hereof or created through the
Distribution Date, until the expiration of the statute of limitations (including
extensions) of the taxable years to which such Tax Returns and other documents
relate and until the Final Determination of any payments which may be required
in respect of such years under this Agreement. Grace-Conn. and Grace agree to
advise each other promptly of any such Final Determination. Any information
obtained under this Section shall be kept confidential, except as may be
otherwise necessary in connection with the filing of Tax Returns or claims for
refund or in conducting any audit or other proceeding.
(d) If (i) any member of the Packco Group fails to provide any
information requested pursuant to this Section 4.3(a) by the dates and in the
manner specified in Section 4.3(a) hereof or (ii) with respect to information
not requested pursuant to Section 4.3(a) hereof, any member of either Group
fails to provide any information requested pursuant to this Section 4.3, within
a reasonable period, then the requesting party shall have the right to engage a
"Big Six" public accounting firm of its choice to gather such information. Each
party agrees upon two business days' notice, in the case of a failure to provide
information pursuant to Section 4.3 hereof to permit any such "Big Six" public
accounting firm full access to all appropriate records or other information in
the possession of any member of the party's Group during reasonable business
hours, and promptly
-18-
19
to reimburse or pay directly all costs and expenses in connection with the
engagement of such public accountants.
(e) If any member of either Group supplies information
pursuant to this Agreement and an officer of any member of the other Group signs
a statement or other document under penalties of perjury in reliance upon the
accuracy of such information and so requests, then a duly authorized officer of
the member supplying such information shall certify, under penalties of perjury,
the accuracy and completeness of the information so supplied. Grace agrees to
indemnify and hold harmless each New Grace Indemnitee, and Grace-Conn. agrees to
indemnify and hold harmless each Packco Indemnitee, from and against any cost,
fine, penalty or other expense of any kind attributable to the gross negligence
or willful misconduct of a member of the Packco Group, or New Grace Group, as
the case may be, in supplying a member of the other Group with inaccurate or
incomplete information.
ARTICLE V.
CERTAIN POST-DISTRIBUTION TRANSACTIONS
Section 5.1. Sealed Air and Packco Group Covenants.
Unless, in the case of any of Sections 5.1(a) through (f)
below, Grace has obtained a ruling letter from the IRS or an opinion of
nationally recognized counsel to Grace, in either case, to the effect that,
without material qualification, such act or omission will not adversely affect
the federal income tax consequences of the Distribution to any of Grace,
Grace-Conn. or the stockholders of Grace-Conn., as set forth in the Tax
Opinions, and the substance of, and basis for, such conclusion in such ruling or
opinion is reasonably satisfactory to Grace-Conn. in its good faith solely with
regard to preserving the Tax-Free Status of the Distribution (the
"Ruling/Opinion Exception"):
(a) No Sealed Air Party at any time nor any member of the
Packco Group at any time after the Effective Time shall take any action, or fail
or omit to take any action, that would cause any representation made in the
Sealed Air Tax Matters Certificate or the Grace Tax Matters Certificate to be
untrue in a manner that would have an adverse effect on the Tax-Free Status of
the Distribution.
(b) Until the first day after the Restriction Period, the
Packco Group shall continue the active conduct of the Packaging Business (the
"Active Packco Business"). The Packco Group shall not liquidate, dispose of, or
otherwise discontinue the conduct of any material portion of the Active Packco
Business. The Packco Group shall continue the active conduct of the Packaging
Business primarily through officers and employees of the Packco Group (and not
through independent contractors).
(c) Until the first day after the Restriction Period,
-19-
20
no Sealed Air Party nor any member of the Packco Group shall sell or otherwise
issue to any Person, or redeem or otherwise acquire from any Person (other than
any member of the Packco Group), any Equity Securities of Grace or any other
member of the Packco Group; provided, however, that purchases that, in the
aggregate, meet the requirements of Section 4.05(1)(b) of Revenue Procedure
96-30 shall not constitute a redemption or acquisition of stock of Grace for
purposes of this Section 5.1(c).
(d) Until the first day after the Restriction Period, no
Sealed Air Party nor any member of the Packco Group shall (i) solicit any Person
to make a tender offer for, or otherwise acquire or sell, the Equity Securities
of Grace, (ii) participate in or support any unsolicited tender offer for, or
other acquisition or disposition of, the Equity Securities of Grace or (iii)
approve or otherwise permit any proposed business combination or any transaction
which, in the case of (i), (ii) or (iii), individually or in the aggregate,
together with the transactions contemplated under the Distribution Agreement,
the Merger Agreement, the Benefits Agreement and this Agreement, results in one
or more Persons acquiring (other than in acquisitions not taken into account for
purposes of Section 355(e)) directly or indirectly stock representing a 50
percent or greater interest (within the meaning of Section 355(e) of the Code)
in Grace. In addition, no Sealed Air Party nor any member of the Packco Group
shall at any time, whether before or subsequent to the expiration of the
Restriction Period, engage in any action described in clauses (i), (ii) or (iii)
of the preceding sentence if it is pursuant to an arrangement negotiated (in
whole or in part) prior to the Distribution, even if at the time of the
Distribution it is subject to various conditions, nor shall any such Party or
member take any action, or fail or omit to take any action, that would cause
Section 355(d) or (e) to apply to the Distribution.
(e) Until the first day after the Restriction Period, no
Sealed Air Party nor the members of the Packco Group shall sell, transfer, or
otherwise dispose of or agree to dispose of assets (including, for such purpose,
any shares of capital stock of a Subsidiary) that, in the aggregate, constitute
more than 60% of the gross assets of Packco, nor shall they sell, transfer, or
otherwise dispose of or agree to dispose of assets (including, for such purpose,
any shares of capital stock of a Subsidiary) that, in the aggregate, constitute
more than 60% of the consolidated gross assets of the Packco Group. The
foregoing sentence shall not apply to sales, transfers, or dispositions of
assets in the ordinary course of business. The percentages of gross assets or
consolidated gross assets of Packco or the Packco Group, as the case may be,
sold, transferred, or otherwise disposed of, shall be based on the fair market
value of the gross assets of Packco and the Packco Group as of the Effective
Time, and for this purpose, the values set forth in the Packaging Business
Disclosure Letter Balance Sheet shall be conclusive.
-20-
21
(f) Until the first day after the Restriction Period, neither
Packco nor its Subsidiaries shall voluntarily dissolve or liquidate or engage in
any merger, consolidation or other re-organization. The foregoing sentence shall
not apply to trans-actions in which Packco acquires another corporation, limited
liability company, limited partnership, general partner-ship or joint venture
solely for cash or other consideration that is not Equity Securities.
Reorganizations of Packco with its Affiliates, and liquidations of Packco's
Affiliates, are not subject to Section 5.1(b) or this Section 5.1(f) to the
extent not inconsistent with the structure necessary for the Distribution to
qualify for Tax-Free Status.
(g) Until the first day after the Restriction Period, Grace
shall ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇. with a copy of any ruling request that Sealed Air,
Grace or any of their Affiliates may file with the IRS and any opinion received
that relates to or otherwise reasonably could be expected to have an effect on
the Tax-Free Status of the Distribution.
Section 5.2. New Grace Covenants.
Unless, in the case of any of Sections 5.2(a) through (e)
below, Grace-Conn. has obtained a ruling letter from the IRS or an opinion of
nationally recognized counsel to Grace-Conn., in either case, to the effect
that, without material qualification, such act or omission will not adversely
affect the federal income tax consequences of the Distribution to any of Grace,
Grace-Conn. or the stockholders of Grace-Conn., as set forth in the Tax
Opinions, and the substance of, and basis for, such conclusion in such ruling or
opinion is reasonably satisfactory to Grace in its good faith solely with regard
to preserving the Tax-Free Status of the Distribution:
(a) No member of the New Grace Group shall take any action, or
fail or omit to take any action, that would cause any representation made in the
Sealed Air Tax Matters Certificate or the Grace Tax Matters Certificate to be
untrue in a manner that would have an adverse effect on the Tax-Free Status of
the Distribution.
(b) Until the first day after the Restriction Period, the New
Grace Group shall continue the active conduct of one of the Active New Grace
Businesses. "Active New Grace Businesses" shall mean each of the ▇▇▇▇▇ ▇▇▇▇▇▇▇
business and the Grace Construction Business. The New Grace Group may dispose
of, liquidate or discontinue the conduct of the ▇▇▇▇▇ ▇▇▇▇▇▇▇ business or the
Grace Construction Products business if it actively continues the conduct of the
other. The New Grace Group shall continue the active conduct of at least one of
the Active New Grace Businesses primarily through officers and employees of the
New Grace Group (and not through independent contractors).
(c) Until the first day after the Restriction Period,
-21-
22
no member of the New Grace Group shall sell or otherwise issue to any Person, or
redeem or otherwise acquire from any Person (other than any member of the New
Grace Group), any Equity Securities of New Grace or any other member of the New
Grace Group; provided, however, that purchases that, in the aggregate, meet the
requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 shall not
constitute a redemption or acquisition of stock of New Grace for purposes of
this Section 5.2(c).
(d) Until the first day after the Restriction Period, no
member of the New Grace Group shall (i) solicit any Person to make a tender
offer for, or otherwise acquire or sell, the Equity Securities of New Grace,
(ii) participate in or support any unsolicited tender offer for, or other
acquisition or disposition of, the Equity Securities of New Grace or (iii)
approve or otherwise permit any proposed business combination or any transaction
which, in the case of (i), (ii) or (iii), individually or in the aggregate,
together with the transactions contemplated under the Distribution Agreement,
the Merger Agreement, the Benefits Agreement and this Agreement, results in one
or more Persons acquiring (other than in acquisitions not taken into account for
purposes of Section 355(e)) directly or in-directly stock representing a 50
percent or greater interest (within the meaning of Section 355(e) of the Code)
in New Grace. In addition, no member of the New Grace Group shall at any time,
whether before or subsequent to the expiration of the Restriction Period, engage
in any action described in clauses (i), (ii) or (iii) of the preceding sentence
if it is pursuant to an arrangement negotiated (in whole or in part) prior to
the Distribution, even if at the time of the Distribution it is subject to
various conditions, nor shall any such member take any action, or fail or omit
to take any action, that would cause Section 355(d) or (e) of the Code to apply
to the Distribution.
(e) Until the first day after the Restriction Period, no
member of the New Grace Group shall sell, transfer, or other-wise dispose of or
agree to dispose of assets (including, for such purpose, any shares of capital
stock of a Subsidiary) that, in the aggregate, constitute more than 60% of the
gross assets of New Grace, nor shall they sell, transfer, or otherwise dispose
of or agree to dispose of assets (including, for such purpose, any shares of
capital stock of a Subsidiary) that, in the aggregate, constitute more than 60%
of the consolidated gross assets of the New Grace Group. The foregoing sentence
shall not apply to sales, transfers, or dispositions of assets in the ordinary
course of business or to a sale, transfer or disposition of any or all of the
Discontinued Businesses and either of the Active New Grace Businesses; provided,
however, that in the event of a sale, transfer or disposition of one of the
Active New Grace Businesses, the retained Active New Grace Business shall be
conducted by a member of the New Grace Group at substantially the same level as
on the Distribution Date. The percentages of gross assets or consolidated gross
assets of New Grace or the New Grace Group, as the case may be, sold,
transferred, or otherwise
-22-
23
disposed of, shall be based on the fair market value of the gross assets of New
Grace and the New Grace Group as of the Effective Time, and for this purpose,
the values set forth in the [Registration Statements] shall be conclusive.
(f) Until the first day after the Restriction Period,
Grace-Conn. shall ▇▇▇▇▇▇▇ ▇▇▇▇▇ with a copy of any ruling request that
Grace-Conn. or any of its Affiliates may file with the IRS and any opinion
received that relates to or otherwise reasonably could be expected to have an
effect on the Tax-Free Status of the Distribution.
Section 5.3. Responsibility for Taxes.
(a) Sealed Air and Grace agree to indemnify and hold the
Grace-Conn. Indemnitees harmless from and against all Indemnifiable Losses
resulting from (x) any Action which causes the Distribution to fail to have
Tax-Free Status or (y) the Merger failing to qualify as a reorganization under
Section 368 of the Code. An "Action" shall mean any act or omission which fails
to comply with any of the representations in the Sealed Air Tax Matters
Certificate or the covenants in Section 5.1 and any act or omission which would
fail to comply with any of the covenants in Section 5.1 but for compliance with
the Ruling/Opinion Exception. An "Action" shall also include an action or
omission which would be a breach of the covenant contained in the first sentence
of Section 5.1(d), if such covenant were in effect until the day which is five
years after the Effective Time instead of until the first day after the
Restriction Period.
(b) Grace-Conn. agrees to indemnify and hold the Packco
Indemnitees harmless from and against any Tax resulting from the failure of the
Distribution to have Tax-Free Status, except where such failure is attributable
to an Action.
(c) For purposes of Sections 5.1 and 5.2 hereof, when a tax
opinion or ruling of one party (the "Transaction Party") is required to be
reasonably satisfactory to the other party (the "Reviewing Party"), the
Reviewing Party at the request of the Transaction Party shall designate
nationally recognized counsel to review such opinion or ruling without revealing
the substance of the underlying transaction to the Reviewing Party and the
concurrence of such outside counsel to the sufficiency of such opinion or ruling
shall constitute "reasonable satisfaction" to the Reviewing Party for purposes
of this Agreement.
Section 5.4. Injunction. The parties hereto agree that the
payment of monetary compensation would not be an adequate remedy for a breach of
the obligations contained in Article V hereof, and each party consents to the
issuance and entry of an injunction against the taking of any action by it or a
member of its Group that would constitute such a breach; provided, however, that
the foregoing shall be without prejudice
-23-
24
to and shall not constitute a waiver of any other remedy either party may be
entitled to at law or at equity hereunder.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. Expenses. Unless otherwise expressly provided in
this Agreement, the Distribution Agreement or the Merger Agreement, each party
shall bear any and all expenses that arise from their respective obligations
under this Agreement.
Section 6.2. Foreign Transfer Taxes. Adjusted Foreign Transfer
Taxes shall be shared by the parties as provided in the Distribution Agreement.
Audit adjustments and Final Determinations of such Taxes shall be governed by
the Distribution Agreement. This Agreement governs responsibilities of the
parties with respect to filing Tax Returns relating to Foreign Transfer Taxes,
paying Foreign Transfer Taxes reflected on such Tax Returns to the applicable
governmental authority and conducting Proceedings relating to Foreign Transfer
Taxes. For purposes of determining indemnity and reimbursement obligations of
the parties under this Agreement, Tax Items arising as a result of the Foreign
Transfers (but not Tax Items arising from any actual distribution of Subsidiary
Excess Cash) shall be disregarded, and the Pre-Distribution Schedules shall not
reflect such Tax Items.
Section 6.3. Payments Paid or Received on Behalf of
Indemnitees; Right to Designate Payee. Each of Grace-Conn. and Grace shall be
entitled to designate an Affiliate of such party as payee with respect to any
payment that would otherwise be made to Grace-Conn. or Grace, respectively,
under this Agreement. Any payment received by Grace-Conn. or Grace,
respectively, or its respective designees shall be received on behalf of the
relevant Grace-Conn. Indemnitees or Packco Indemnitees.
Section 6.4. Foreign Exchange Rate. If any amount required to
be paid hereunder is determined by reference to a Tax, Tax refund, Tax Benefit
or Tax Detriment that is denominated in a currency other than United States
dollars, such payment shall be made in United States dollars and the amount
thereof shall be computed using the Foreign Exchange Rate for such currency
determined as of the date that such Tax is paid, such Tax refund is received or
such Tax Benefit or Tax Detriment reduces or increases the amount of Tax or Tax
refund that would otherwise be paid or received.
Section 6.5. Amendment. This Agreement may not be amended
except by an agreement in writing, signed by the parties hereto. Anything in
this Agreement or the Distribution Agreement to the contrary notwithstanding, in
the event and to the extent that there shall be a conflict between the
provisions of this Agreement and the Distribution Agreement, the provisions of
this Agreement shall control.
-24-
25
Section 6.6. Notices. All notices and other communications
hereunder shall be in writing and shall be delivered by hand including overnight
business courier or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other addresses
for a party as shall be specified by like notice) and shall be deemed given on
the date on which such notice is received:
(a) To Grace-Conn. or any member of the New Grace Group:
▇. ▇. ▇▇▇▇▇ & Co.-▇▇▇▇.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Secretary
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) To Grace or any member of the Packco Group:
care of Sealed Air
Park ▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: [ ]
Fax: [ ]
with a copy to:
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Section 6.7. Resolution of Disputes. Any disputes between the
parties with respect to this Agreement regarding the practice and preparation of
returns or the calculation of amounts shall be resolved by a "Big Six" public
accounting firm whose determination shall be conclusive and binding on the
parties. The fees and expenses of such firm shall be shared equally by
Grace-Conn. and Grace, except as otherwise provided herein. Any other disputes
shall be resolved by a "Big Six" public accounting firm or a law firm or by any
other procedure that the parties may choose.
Section 6.8. Application to Present and Future Subsidiaries.
This Agreement is being entered into by Grace-
-25-
26
Conn. and Grace on behalf of themselves and each member of the New Grace Group
and Packco Group, respectively. This Agreement shall constitute a direct
obligation of each such member. Grace-Conn. and Grace hereby guarantee the
performance of all actions, agreements and obligations provided for under this
Agreement of each member of the New Grace Group and the Packco Group,
respectively. Grace-Conn. and Grace shall, upon the written request of the
other, cause any of their respective Group members formally to execute this
Agreement. This Agreement shall be binding upon, and shall inure to the benefit
of, the successors and assigns of any of the corporations bound hereby.
Section 6.9. Term. This Agreement shall commence on the date
of execution indicated below and shall continue in effect until otherwise agreed
to in writing by Grace-Conn. and Grace, or their successors.
Section 6.10. Titles and Headings. Titles and headings to
Sections herein are inserted for the convenience of reference only and are not
intended to be a part or to affect the meaning or interpretation of this
Agreement.
Section 6.11. Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 6.12. Governing Law. This Agreement shall be governed
by the laws of the State of Delaware.
-26-
27
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the __ day of ___________, 1998.
▇. ▇. ▇▇▇▇▇ & CO.
By: _______________________________
Name:
Title:
▇. ▇. ▇▇▇▇▇ & CO.-CONN.
By: _______________________________
Name:
Title:
SEALED AIR CORPORATION
By: _______________________________
Name:
Title:
-27-
