FORM OF TAX SHARING AGREEMENT by and among DISCOVERY HOLDING COMPANY, DISCOVERY COMMUNICATIONS, INC., ASCENT MEDIA CORPORATION, ASCENT MEDIA GROUP, LLC and ASCENT MEDIA CREATIVE SOUND SERVICES, INC. Dated as of l, 2008
Exhibit
10.2
FORM OF
by and among
DISCOVERY HOLDING COMPANY,
DISCOVERY COMMUNICATIONS, INC.,
ASCENT MEDIA CORPORATION,
ASCENT MEDIA GROUP, LLC
and
ASCENT MEDIA CREATIVE SOUND SERVICES, INC.
Dated as of l, 2008
TABLE OF CONTENTS
ARTICLE I DEFINITIONS |
2 | |||
1.01 General |
2 | |||
1.02 Interpretation |
8 | |||
ARTICLE II TAX RETURNS AND TAX PAYMENTS |
8 | |||
2.01 Obligations To File Tax Returns |
8 | |||
2.02 Obligation To Remit Taxes |
9 | |||
2.03 Tax Sharing Obligations And Prior Agreements |
9 | |||
2.04 Amended Returns |
11 | |||
ARTICLE III REPRESENTATIONS AND COVENANTS |
11 | |||
3.01 Compliance With The Tax Opinion |
11 | |||
3.02 Consistent Treatment |
12 | |||
ARTICLE IV INDEMNITY OBLIGATIONS AND PAYMENTS |
12 | |||
4.01 Indemnity Obligations |
12 | |||
4.02 Notice |
13 | |||
4.03 Timing Of Payments |
13 | |||
4.04 Treatment Of Payments |
14 | |||
ARTICLE V TAX CONTESTS AND THIRD-PARTY CLAIMS |
14 | |||
5.01 Notice of Tax Contests |
14 | |||
5.02 Control Of Tax Contests By DHC |
14 | |||
5.03 Control Of Tax Contests By Spinco |
15 | |||
5.04 Third-Party Claims |
15 | |||
ARTICLE VI COOPERATION |
15 | |||
ARTICLE VII RETENTION OF RECORDS; ACCESS; CONFIDENTIALITY |
15 | |||
7.01 Retention of Records; Access |
15 | |||
7.02 Confidentiality |
16 | |||
ARTICLE VIII DISPUTE RESOLUTION |
16 | |||
ARTICLE IX MISCELLANEOUS PROVISIONS |
17 | |||
9.01 Governing Law |
17 | |||
9.02 Application To Present And Future Subsidiaries |
17 | |||
9.03 Binding Effect; Benefit; Successors |
17 | |||
9.04 Further Assurances |
17 | |||
9.05 Survival; Termination |
17 | |||
9.06 Reorganization Agreement |
18 |
THIS TAX SHARING AGREEMENT (this “Agreement”) is entered into by and among DISCOVERY
HOLDING COMPANY, a Delaware corporation (“DHC”), DISCOVERY COMMUNICATIONS, INC., a Delaware
corporation (“New DHC”), ASCENT MEDIA CORPORATION, a Delaware corporation
(“Spinco”), ASCENT MEDIA GROUP, LLC, a Delaware limited liability company (“AMG”),
and [ASCENT MEDIA CREATIVE SOUND SERVICES, INC.], a New York corporation (the “Audio
Company”, and together with DHC, New DHC, Spinco, and AMG, the “Parties”). Capitalized
terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed to
such terms in the Reorganization Agreement, dated as of June 4, 2008, by and among the Parties (the
“Reorganization Agreement”).
RECITALS
WHEREAS, DHC is the common parent corporation of the DHC Affiliated Group; and
WHEREAS, Spinco is a newly-formed, wholly-owned Subsidiary of DHC; and
WHEREAS, DHC will effect the DHC restructuring transactions described in the Reorganization
Agreement and/or the Tax Opinion for the purpose of aggregating the Spinco Business and Assets in
the Spinco Group, and separating the Audio Business therefrom, prior to the Distribution
(collectively, the “Restructuring”); and
WHEREAS, on the Distribution Date, DHC will distribute all of the issued and outstanding
common stock of Spinco to the holders of record on the record date for the Distribution of
Discovery Holding Company Series A Common Stock (“DHC Series A Common Stock”) and Discovery
Holding Company Series B Common Stock (“DHC Series B Common Stock” and, together with the
DHC Series A Common Stock, the “DHC Common Stock”) (the “Distribution”); and
WHEREAS, the Parties intend that the Distribution will qualify as a tax-free transaction under
Sections 368(a) and 355 of the Internal Revenue Code of 1986, as amended (the “Code”) (or
any corresponding provision of any successor statute), and that as a result of such transaction,
the Spinco Entities will cease to be members of the DHC Affiliated Group for federal income Tax
purposes; and
WHEREAS, the Parties desire to provide for and agree upon the allocation between the Parties
of liabilities for Taxes arising prior to, as a result of, and subsequent to the Distribution, and
to provide for and agree upon other matters relating to Taxes.
NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth
below, the Parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 General . As used in this Agreement, the following terms shall have the following meanings:
“Agreement” shall have the meaning set forth in the Preamble to this Agreement.
“AMG” shall have the meaning set forth in the Preamble to this Agreement.
“Audio Business” shall have the meaning set forth in the Reorganization Agreement.
“Audio Company” shall have the meaning set forth in the Preamble to this Agreement.
“Business Day” shall mean any day that is not a Saturday, a Sunday or any other day on
which banks are required or authorized by law to be closed in New York, New York.
“CFO” shall have the meaning set forth in Article VIII.
“Claim” shall have the meaning set forth in Section 4.02.
“Code” shall have the meaning set forth in the Recitals.
“DHC” shall have the meaning set forth in the Preamble to this Agreement.
“DHC/ANPP Transaction Agreement” shall mean the Transaction Agreement dated as of June
4, 2008 among DHC, New DHC, DHC Merger Sub, Inc., Advance/Xxxxxxxx
Programming Partnership, and with respect to Section 5.14 thereof only, Advance Publications,
Inc., and Xxxxxxxx Broadcasting Corporation.
2
“DHC Affiliated Group” shall mean an affiliated group of corporations within the
meaning of Section 1504(a) of the Code, of which DHC is the common parent corporation, that has
filed consolidated federal income Tax Returns.
“DHC Common Stock” shall have the meaning set forth in the Recitals.
“DHC Filed Tax Return” shall have the meaning set forth in Section 2.01(a).
“DHC Group” shall mean DHC and each of its Subsidiaries immediately after the
Distribution, and Persons that become Subsidiaries of DHC thereafter. For the avoidance of doubt,
immediately following the Distribution, the DHC Group shall not include any of the Spinco Entities.
“DHC Series A Common Stock” shall have the meaning set forth in the Recitals.
“DHC Series B Common Stock” shall have the meaning set forth in the Recitals.
“DHC Taxes” shall have the meaning set forth in Section 2.03(a).
“Dispute” shall have the meaning set forth in Article VIII.
“Distribution” shall have the meaning set forth in the Recitals.
“Distribution Date” shall have the meaning set forth in the Reorganization Agreement.
“Final Determination” shall mean a determination within the meaning of Section 1313 of
the Code or any similar provision of state or local Tax law.
“Governmental Entity” shall mean any nation or government, any state, municipality or
other political subdivision thereof and any entity, body, agency, commission, department, board,
bureau or court, whether domestic, foreign or multinational, exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government and any official
thereof.
“Group” shall mean the DHC Group or the Spinco Group, as the context requires.
3
“Indemnifiable Losses” shall mean any and all damages, losses, deficiencies,
liabilities, obligations, penalties, judgments, settlements, claims, payments, fines, interest,
costs and expenses (including, without limitation, the costs and expenses of any and all actions
and demands, assessments, judgments, settlements and compromises relating thereto and the
reasonable costs and expenses of attorneys’, accountants’, consultants’ and other professionals’
fees and expenses incurred in the investigation or defense thereof or the enforcement of rights
hereunder), including direct and consequential damages. For the avoidance of doubt, the Parties
agree that any and all amounts required to be paid by any member of the DHC Group to any ANPP
Indemnified Parties (as such term is defined in the DHC/ANPP Transaction Agreement) pursuant to the
indemnification provisions in Article IX of the DHC/ANPP Transaction Agreement, as a result of any
matter for which the DHC Group is entitled to indemnification by the Spinco Group pursuant to this
Agreement, shall constitute direct damages incurred by such DHC Group member for all purposes of
this Agreement.
“Indemnified Party” shall have the meaning set forth in Section 4.02.
“Indemnifying Party” shall have the meaning set forth in Section 4.02.
“LMC Tax Sharing Agreement” shall mean the Tax Sharing Agreement dated as of July 20,
2005, as amended, between Liberty Media Corporation, a Delaware corporation, and DHC, and any
entities which became parties thereto pursuant to Section 10.8 thereof.
“LMC TSA Liabilities” shall mean any obligation or liability to make any payment to
LMC or any LMC Indemnitee (as defined in the LMC Tax Sharing Agreement) or to any Governmental
Entity pursuant to the terms of the LMC Tax Sharing Agreement.
“New DHC” shall have the meaning set forth in the Preamble to this Agreement.
“Parties” shall have the meaning set forth in the Preamble to this Agreement.
“Payment Period” shall have the meaning set forth in Section 4.03.
“Person” shall have the meaning set forth in the Reorganization Agreement.
“Post-Distribution Period” shall mean any Taxable Period beginning after the
Distribution Date and, in the case of any Straddle Period, that part of the Taxable Period that
begins on the day following the Distribution Date.
4
“Pre-Distribution Period” shall mean any Taxable Period that ends on or before the
Distribution Date and, in the case of any Straddle Period, that part of the Taxable Period through
and including the Distribution Date.
“Reorganization” shall have the meaning set forth in the Recitals.
“Reorganization Agreement” shall have the meaning set forth in the Preamble to this
Agreement.
“Restructuring” shall have the meaning set forth in the Recitals.
“Spinco” shall have the meaning set forth in the Preamble to this Agreement.
“Spinco Business and Assets” shall mean the assets and businesses owned or operated by
the Spinco Entities on the Distribution Date.
“Spinco Common Stock” shall have the meaning set forth in the Reorganization
Agreement.
“Spinco Entities” shall have the meaning set forth in the Reorganization Agreement.
“Spinco External Distribution Tax Liability” shall mean any Taxes arising as a result
of the Distribution, except to the extent such Taxes arise as a result of any breach on or after
the Distribution Date of any representation, warranty, covenant or other obligation contained in
the Tax Materials or this Agreement by DHC or any member of the DHC Group or any shareholder of
DHC.
“Spinco Filed Tax Return” shall have the meaning set forth in Section 2.01(b).
“Spinco Group” shall mean Spinco, all Persons that are Subsidiaries of Spinco
immediately after the Distribution, and Persons that become Subsidiaries of Spinco thereafter.
“Spinco Restructuring Tax Liability” shall mean any Taxes arising as a result of the
Restructuring, except to the extent such Taxes arise as a result of any action undertaken after the
Distribution Date by DHC, any member of the DHC Group or any shareholder of DHC.
5
“Spinco Tax Asset” shall mean any Tax Asset of the DHC Affiliated Group or any member
of the DHC Group (including any adjustment to any such Tax Asset) that has accrued for Tax purposes
but has not been utilized during a Pre-Distribution Period, determined as of the Distribution Date
in accordance with the principles of Section 2.03(c).
“Spinco Tax Benefit Amount” shall mean, as of any date, the aggregate amount of any
Tax Benefits realized on or before such date by any member of the DHC Group as a result of the
utilization of a Spinco Tax Asset in any Post-Distribution Period.
“Spinco Taxes” shall have the meaning set forth in Section 2.03(b).
“Straddle Period” shall mean any Taxable Period that begins on or before and ends
after the Distribution Date.
“Straddle Tax Return” shall mean any Tax Return for a Straddle Period.
“Subsidiary” shall have the meaning set forth in the Reorganization Agreement.
“Tax” or “Taxes” shall mean (i) all taxes, charges, fees, duties, levies,
imposts, rates or other assessments or governmental charges of any kind imposed by any federal,
state, local or foreign Governmental Entity, including, without limitation, whether disputed or not
and including any interest, penalties, charges or additions attributable thereto, income, gross
receipts, employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, custom duties, property, sales, use, license, capital stock, transfer, franchise,
registration, payroll, withholding, social security, unemployment, disability, value added,
alternative or add-on minimum or other taxes and unclaimed property assessments, (ii) liability for
the payment of any amount of the type described in clause (i) above arising as a result of being
(or having been) a member of any group or being (or having been) included or required to be
included in any Tax Return related thereto, and (iii) liability for the payment of any amount of
the type described in clauses (i) or (ii) above as a result of any express or implied obligation to
indemnify or otherwise assume or succeed to the liability of any other Person.
“Tax Advisor” shall have the meaning set forth in Article VIII.
“Tax Asset” shall mean any net operating loss, net capital loss, investment tax
credit, foreign tax credit, research and experimentation credit, charitable deduction, credit
related to alternative minimum tax, or any other loss, credit, deduction or Tax attribute which
could reduce any Tax.
6
“Tax Benefit” shall mean the sum of the amounts by which the Tax liability of a
corporation or affiliated group (within the meaning of Section 1504(a) of the Code) or other
relevant group of corporations to the appropriate Governmental Entity for any Taxable Period is
actually reduced (including by deduction, entitlement to refund, credit or otherwise) plus any
interest received from such Governmental Entity relating to such Tax liability.
“Tax Certificates” shall mean certificates of officers of DHC and Spinco, dated as of
•, 2008, provided to Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP in connection with the Tax Opinion.
“Tax Contest” shall have the meaning set forth in Section 5.01.
“Tax Information Packages” shall mean any information required in order to prepare and
file any DHC Filed Tax Return.
“Tax Item” shall mean, with respect to any Tax, any item of income, gain, loss,
deduction or credit, or other attribute that may have the effect of increasing or decreasing any
Tax.
“Tax Materials” shall have the meaning set forth in Section 3.01(a).
“Tax Opinion” shall mean the written opinion of Skadden, Arps, Slate, Xxxxxxx & Xxxx
LLP, dated as of •, 2008, regarding certain U.S. federal income tax consequences of certain
transactions effected as part of the Reorganization and the Distribution.
“Tax Return” shall mean any return, report, certificate, form or similar statement or
document (including any related supporting information or schedule attached thereto and any
information return, claim for refund or declaration of estimated Tax), or any amendment to any of
the foregoing, supplied to or filed with, or required to be supplied to or filed with, a
Governmental Entity, or any xxxx for or notice related to ad valorem or other similar Taxes
received from a Governmental Entity, in each case, in connection with the determination, assessment
or collection of any Tax or the administration of any laws, regulations or administrative
requirements relating to any Tax.
“Taxable Period” shall mean, with respect to any Tax, the year, or shorter period, if
applicable, with respect to which the Tax is incurred as provided under applicable Tax law.
“Third-Party Claim” shall mean any claim, investigation action, suit or proceeding
made or commenced by a third party for which the Indemnifying Party may be liable under this
Agreement, other than a Tax Contest.
7
“Treasury Regulations” shall mean the regulations promulgated from time to time under
the Code as in effect for the relevant Taxable Period.
1.02 Interpretation. For all purposes of this Agreement: (i) the terms defined in this Agreement include the
plural as well as the singular; (ii) all references in this Agreement to “Preamble”, “Recitals”,
“Articles”, “Sections” and other subdivisions are to the designated Preamble, Recitals, Articles,
Sections and other subdivisions of the body of this Agreement; (iii) pronouns of either gender or
neuter include, as appropriate, the other pronoun forms; (iv) the words “herein,” “hereof” and
“hereunder” and other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; (v) “or” is not exclusive; (vi) “including” shall
be deemed to be followed by “but not limited to”; and (vii) any definition of or reference to any
statute shall be construed as referring also to any rules and regulations promulgated thereunder.
ARTICLE II
TAX RETURNS AND TAX PAYMENTS
2.01 Obligations To File Tax Returns.
(a) The DHC Group shall have the sole and exclusive responsibility for the preparation and
filing of each Tax Return filed or required to be filed after the Distribution Date that includes
any member of the DHC Group (each, a “DHC Filed Tax Return”). Upon DHC’s request, Spinco
shall prepare and deliver to DHC in a manner consistent with past practices pro forma Tax Returns
and Tax Information Packages with respect to each member of the Spinco Group or portion of the
Spinco Business and Assets required to be included in, or reflected on, a DHC Filed Tax Return no
later than ninety (90) days before the due date for the filing of the relevant Tax Return. DHC
shall provide to Spinco no later than thirty (30) days in advance of the due date for the filing
thereof, and Spinco shall have a reasonable opportunity to review and comment on, any such DHC
Filed Tax Return (or the relevant portion thereof) to the extent that Spinco is responsible for any
portion of the Taxes reported on such DHC Filed Tax Return. Each member of the Spinco Group hereby
irrevocably authorizes and designates DHC as its agent for the purpose of taking any and all
actions necessary or incidental to the filing of any such DHC Filed Tax Returns and, except as
otherwise provided herein, for the purpose of making payments to, or collecting refunds from, any
Governmental Entity in respect of a DHC Filed Tax Return. Except as otherwise provided herein, DHC
shall have the exclusive right to file, prosecute, compromise or settle any claim for, or refund
of, Taxes in respect of a DHC Filed Tax Return and to determine whether any refunds of Taxes to
which the DHC Group may be entitled shall be received by way of refund or credit against the Tax
liability of the DHC Group. For purposes of this Section 2.01, validly filed
extensions of time to file tax returns should be treated as extending the date such returns
are required to be filed.
(b) The Spinco Group shall have the sole and exclusive responsibility for the preparation and
filing of each Tax Return that is required to be filed after the Distribution Date that includes
any member of the Spinco Group or the Spinco Business and Assets that is not
8
a DHC Filed Tax Return
(each, a “Spinco Filed Tax Return”); provided, however, that, except as
otherwise required by law, (x) all Spinco Filed Tax Returns shall be prepared on a basis that is
consistent with the Tax Opinion with respect to the Restructuring transactions and the Distribution
addressed therein and consistent with DHC’s past Tax accounting practices and reporting positions
to the extent relevant to the Spinco Business and Assets, and (y) Spinco shall provide to DHC no
later than thirty (30) days in advance of the due date for the filing thereof (giving effect to any
validly filed extensions thereto), and DHC shall have a reasonable opportunity to review and
comment on, any such Spinco Filed Tax Return (or the relevant portion thereof) to the extent that
DHC is responsible for any portion of the Taxes reported on such Spinco Filed Tax Return.
2.02 Obligation To Remit Taxes. The DHC Group and the Spinco Group shall each remit or cause to be remitted to the applicable
Governmental Entity in a timely manner any Taxes due in respect of any Tax Return that such Group
is required to file (or, in the case of a Tax for which no Tax Return is required to be filed,
which is otherwise payable by such Group or a member of such Group to any Governmental Entity). In
the case of any DHC Filed Tax Return or Spinco Filed Tax Return, for which the Group not required
to file such Tax Return is obligated under this Agreement to pay all or a portion of the Taxes
reported as due on such Tax Return, the Group filing such Tax Return shall notify the other Group,
in writing, of its obligation to pay such Taxes and the Group receiving such notice shall pay such
amount to the Group filing such Tax Return in accordance with the notice and payment provisions
contained in Article IV.
2.03 Tax Sharing Obligations And Prior Agreements.
(a) DHC Responsibility. DHC and the members of the DHC Group shall be responsible for the payment of (and shall be
entitled to any refund of, whether received in cash or applied against future Tax obligations): (i)
all Taxes attributable to any member of the DHC Group for any Post-Distribution Period (other than
Taxes arising as a result of the Distribution or the Restructuring), (ii) Taxes arising as a result
of the Distribution to the extent such Taxes arise as a result of any breach on or after the
Distribution Date of any representation, warranty, covenant or other obligation contained in the
Tax Materials or this Agreement by DHC or any member of the DHC Group or any shareholder of DHC,
and (iii) Taxes arising as a result of the Restructuring to the extent such Taxes arise as a result
of any action undertaken after the Distribution Date by DHC, any member of the DHC Group or any
shareholder of DHC (all or any of such Taxes, collectively, the “DHC Taxes”).
(b) Spinco Responsibility. Subject to Section 4.01(b), Spinco and the members of the Spinco Group shall be responsible for
the payment of (and shall be entitled to any refund of, whether received in cash or applied against
future Tax obligations, except as otherwise provided in Section 2.03(e)): (i) all Taxes
attributable to any member of the DHC Group for any Pre-Distribution Period (other than Taxes
arising as a result of the Distribution or the Restructuring), (ii) all Taxes attributable to any
member of the Spinco Group or the operation or ownership of the Spinco Business and Assets for any
Pre-Distribution Period or Post-Distribution Period, (iii) the Spinco External Distribution Tax
Liability, and (iv) the Spinco Restructuring Tax Liability (all or any of such Taxes, collectively,
the “Spinco Taxes”).
9
(c) Allocation of Taxes. For purposes of Section 2.01, this Section 2.03 and the determination of a Spinco Tax Asset, in
the case of any Straddle Period or Straddle Tax Return, Tax Items shall be allocated between the
portion of the Straddle Period that is a Pre-Distribution Period and the portion of the Straddle
Period that is a Post-Distribution Period based on an actual or hypothetical closing of the books
method at the close of the Distribution Date, as if the Distribution Date were the end of the
Taxable Period; provided, that any Tax Items not susceptible to such allocation shall be
apportioned pro rata on the basis of elapsed days during the relevant portion of the Taxable
Period. No election shall be made under Treasury Regulations Section 1.1502-76(b)(2)(ii)(D)
(relating to ratable allocation of a year’s items). Notwithstanding the foregoing or Treasury
Regulations Section 1.1502-76(b)(1)(ii)(B), in determining the allocation of Tax Items between
Pre-Distribution Periods and Post-Distribution Periods, any Tax Items relating to the Distribution
or the Restructuring shall be treated as extraordinary items described in Treasury Regulations
Section 1.1502-76(b)(2)(ii)(C) and shall be allocated to a Pre-Distribution Period, and any Taxes
related to such Tax Items shall be treated under Treasury Regulations Section 1.1502-76(b)(2)(iv)
as relating to such extraordinary item and shall be allocated to a Pre-Distribution Period.
(d) Deposits. If, prior to the Distribution, a deposit is made with respect to any Tax for which any member of
the Spinco Group is responsible under this Agreement, such deposit shall be assigned to the Spinco
Group and the Spinco Group shall only be liable for the amount of such Tax ultimately due in excess
of the applicable deposit. Refunds of such deposits shall be remitted to, and any credits with
respect to Taxes attributable to such deposits shall be for the benefit of, the Spinco Group.
(e) Refunds; Carrybacks.
(i) Except as provided in Section 2.03(e)(ii), if, with respect to any Spinco
Taxes, the DHC Group receives a refund of Taxes or other Tax Benefit from a
Governmental Entity, DHC shall remit to Spinco within fifteen (15) days of the
receipt of such refund or the actual realization of such Tax Benefit, the amount of
such refund or Tax Benefit. Any payment required to be
made under this Section 2.03(e) shall be paid net of any Tax liability of any
member of the DHC Group resulting from the receipt of such refund or the realization
of such Tax Benefit.
(ii) Any refund of Taxes or other Tax Benefit arising or resulting from the
carryback of any Tax Asset of the DHC Group that is not a Spinco Tax Asset from a
Post-Distribution Period to a Pre-Distribution Period shall be for the account of
the DHC Group, and no member of the DHC Group shall have any obligation to
compensate or make a payment to any member of the Spinco Group with respect thereto.
(f) Spinco Tax Asset.
(i) Except as set forth in Section 4.01(b), any refund or other Tax Benefit
obtained in any Post-Distribution Period as a result of or pursuant to the
utilization of a Spinco Tax Asset shall be for the account of the
10
DHC Group, and no
member of the DHC Group shall have any obligation to compensate or make a payment to
any member of the Spinco Group with respect thereto.
(ii) For the avoidance of doubt, Spinco makes no representation under this
Agreement as to the amount, if any, of a Spinco Tax Asset, or the amount, if any, of
the Spinco Tax Benefit Amount.
(g) LMC TSA Liabilities. Notwithstanding any other provision in this Section 2.03, DHC shall be liable for, and shall
indemnify and hold harmless each member of the Spinco Group from and against, any LMC TSA
Liabilities.
(h) Prior Agreements. Except as set forth in this Agreement and in consideration of the mutual indemnities and other
obligations of this Agreement, any and all prior Tax sharing or allocation agreements or practices
between any member of the DHC Group and any member of the Spinco Group shall be terminated as of
the Distribution Date, and no member of the DHC Group or the Spinco Group shall have any continuing
rights or obligations thereunder.
2.04 Amended Returns.
(a) Spinco Amended Returns. Spinco shall not, and shall not permit any member of the Spinco Group, to file any amended Tax
Return that includes any member of the DHC Group or any of the assets or operations of the
Audio Business or that includes any Tax for which DHC is responsible under this Agreement without
the consent of DHC, not to be unreasonably withheld. DHC shall provide a response to a request for
such consent from Spinco within seven (7) Business Days following the receipt of such request.
Receipt of consent by Spinco or a member of the Spinco Group from DHC under the provisions of this
Section 2.04(a) shall not limit or modify Spinco’s continuing indemnification obligation under
Section 4.01(b).
(b) DHC Amended Returns. DHC shall not, and shall not permit any member of the DHC Group, to file any amended Tax Return
that includes any member of the Spinco Group or any of the Spinco Business and Assets or that
includes any Tax for which Spinco is responsible under this Agreement without the consent of
Spinco, not to be unreasonably withheld. Spinco shall provide a response to a request for such
consent from DHC within seven (7) Business Days following the receipt of such request. Receipt of
consent by DHC or a member of the DHC Group from Spinco under the provisions of this Section
2.04(b) shall not limit or modify DHC’s continuing indemnification obligation under Section
4.01(a).
ARTICLE III
REPRESENTATIONS AND COVENANTS
3.01 Compliance With The Tax Opinion.
11
(a) DHC (on behalf of itself and all other members of the DHC Group) hereby represents and
warrants (and shall be deemed to represent and warrant on and as of the Distribution Date) that (i)
it has examined (A) the Tax Opinion, (B) the Tax Certificates, and (C) any other materials
delivered or deliverable in connection with the rendering of the Tax Opinion, as such materials, if
any, are identified or deliverable in connection with the rendering of the Tax Opinion or the Tax
Certificates (the materials referenced in (A), (B) and (C) are collectively referred to herein as
the “Tax Materials”), and (ii) the facts presented and representations made therein, to the
extent descriptive of or otherwise relating to DHC or any member of the DHC Group or the Audio
Business, were true, correct and complete in all material respects at the time presented or
represented and from such time until and including the date hereof. DHC (on behalf of itself and
all other members of the DHC Group) hereby confirms and agrees to comply with any and all covenants
and agreements in the Tax Materials applicable to DHC or any member of the DHC Group or the Audio
Business.
(b) Spinco (on behalf of itself and all other members of the Spinco Group) hereby represents
and warrants (and shall be deemed to represent and warrant on and as of the Distribution Date) that
(i) it has examined the Tax Materials and (ii) the facts presented and representations made
therein, to the extent descriptive of or otherwise relating to Spinco or any member of the Spinco
Group or the Spinco Business and Assets, were true, correct and
complete in all material respects at the time presented or represented and from such time
until and including the date hereof. Spinco (on behalf of itself and all other members of the
Spinco Group) hereby confirms and agrees to comply with any and all covenants and agreements in the
Tax Materials applicable to Spinco or any member of the Spinco Group or the Spinco Business and
Assets.
3.02 Consistent Treatment. Unless and until there has been a Final Determination to the contrary, each Party agrees not to
take any position on any Tax Return, in connection with any Tax Contest or otherwise that is
inconsistent with (a) the allocation of Taxes and any Tax Items (including, without limitation, any
Spinco Tax Asset) between the DHC Group and the Spinco Group as set forth in this Agreement, (b)
the Tax Opinion, or (c) the Tax treatment of any transaction described in the Reorganization
Agreement.
ARTICLE IV
INDEMNITY OBLIGATIONS AND PAYMENTS
4.01 Indemnity Obligations.
(a) DHC Indemnity. The DHC Group shall indemnify and hold harmless Spinco and any
member of the Spinco Group from and against, and will reimburse Spinco for (i) all DHC Taxes and
(ii) all Taxes and Indemnifiable Losses arising out of, based upon or relating or attributable to
any breach on or after the Distribution Date of any representation, warranty, covenant or
obligation contained in the Tax Materials or this Agreement by DHC or any member of the DHC Group
or any shareholder of DHC.
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(b) Spinco Indemnity.
(i) The Spinco Group shall indemnify and hold harmless DHC and any member of
the DHC Group from and against, and will reimburse DHC for (i) all Spinco Taxes and
(ii) all Taxes and Indemnifiable Losses arising out of, based upon or relating or
attributable to any inaccuracy in or breach on or after the Distribution Date of any
representation, warranty, covenant or obligation contained in the Tax Materials or
this Agreement by Spinco or any member of the Spinco Group or any shareholder of
Spinco after the Distribution.
(ii) Notwithstanding anything herein to the contrary, no indemnification by the
Spinco Group under this Section 4.01(b), and no obligation of the Spinco Group
pursuant to Section 2.03(b), will be due and payable unless and until the sum of the
aggregate amount of all Spinco Taxes and
the aggregate amount of all other Taxes and Indemnifiable Losses for which DHC
would otherwise be entitled to indemnification or reimbursement pursuant to Section
4.01(b)(i) exceeds the Spinco Tax Benefit Amount as then in effect, whereupon the
Spinco Group will be obligated to pay to DHC only those Spinco Taxes and other Taxes
and Indemnifiable Losses that exceed the Spinco Tax Benefit Amount.
(iii) In the event that the Spinco Group makes any indemnification payments
under this Section 4.01(b) and the Spinco Tax Benefit Amount is subsequently
increased (as a result of the utilization of a Spinco Tax Asset), DHC shall repay to
Spinco the amount of such increase, but only to the extent of any such
indemnification payments previously made by the Spinco Group.
4.02 Notice. A Party making a claim for indemnification under this Agreement (the “Indemnified Party”)
shall provide the Party from whom such indemnification is sought (the “Indemnifying Party”)
with written notice of such claim describing such claim in reasonable detail and accompanied by
reasonable documentation supporting such claim (the “Claim”) no later than twenty (20)
Business Days after the Indemnified Party (i) files a Tax Return reporting Taxes due which are
subject to reimbursement or (ii) receives written notice from any Governmental Entity with respect
to Taxes that may be subject to indemnification under this Agreement; provided,
however, that in the event that timely notice is not provided, the Indemnifying Party shall
be relieved of its obligation to indemnify the Indemnified Party only to the extent that such delay
results in actual increased costs or actual prejudice.
4.03 Timing Of Payments. The Indemnifying Party shall pay the amount of any Claim to the Indemnified Party within ten (10)
Business Days after receipt of the Claim, provided that, if such Claim is still subject to the
outcome of any Tax Contest, then payment shall not be due until ten (10) Business Days after such
Claim either is resolved through a Final Determination, or prior to a Final Determination, if the
Indemnified Party and the Indemnifying Party agree on the indemnification obligation under this
Agreement with respect to such Claim. All indemnification payments due under this Agreement shall
be made by wire transfer of immediately available funds to a bank account of the Indemnified Party.
Any payment that is not
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made within the period prescribed in this Agreement or, if no period is
prescribed, within ten (10) Business Days after demand for payment is made (the “Payment
Period”) shall be subject to interest at a rate per annum equal to the annualized six month
LIBOR rate plus seventy-five basis points (or the maximum legal rate, whichever is lower). Unless
the Parties otherwise agree, the annualized six month LIBOR rate used shall be the per annum rate
for deposits in U.S. dollars for a six-month period that appears on Bridge’s Telerate Service
display at page 3750 (or such other page as may replace such page) as of 11:00 A.M. London time on
the last day of the Payment Period. Such interest will be payable at the same time as the payment
to which it relates and shall be calculated on the basis of a year of 365 days and the actual
number of days for which due.
4.04 Treatment Of Payments. For all Tax purposes and to the extent permitted by applicable Tax law, the Parties shall treat
any payment made pursuant to this Agreement as a capital contribution or a distribution, as the
case may be, occurring immediately prior to the Distribution. If any such payment (or portion
thereof) causes, directly or indirectly, an increase in the Tax liability of the recipient (or any
of the members of its Group) under one or more applicable Tax laws, after taking into account the
Tax treatment of the item or event giving rise to such payment, the payor’s payment obligation (or
portion thereof) under this Agreement shall be grossed-up to take into account the additional Taxes
owed by the recipient (or any of the members of its Group); provided, however, that
the payor shall not be required to gross-up any such payment obligation in the event, and to the
extent, the increase in the Tax liability of the recipient (or any member of its Group) caused by
such payment is attributable to any breach on or after the Distribution Date of a representation,
covenant or obligation of the recipient (or any member of its Group) contained in the Tax Materials
or this Agreement.
ARTICLE V
TAX CONTESTS AND THIRD-PARTY CLAIMS
5.01 Notice of Tax Contests. The Indemnified Party shall promptly notify the Indemnifying Party in writing upon receipt by the
Indemnified Party or any member of its group of a written communication from any Governmental
Entity with respect to any pending or threatened audit, claim, dispute, suit, action, proposed
assessment or other proceeding (a “Tax Contest”) concerning any Taxes for which the
Indemnifying Party may be liable under this Agreement.
5.02 Control Of Tax Contests By DHC. DHC shall have the sole responsibility and control over the handling of any Tax Contest,
including the exclusive right to communicate with agents of the Governmental Entity and to control,
resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in
connection with or as a result of any such Tax Contest, involving any DHC Filed Tax Return;
provided, however, that DHC shall not resolve, settle or agree to any deficiency,
claim or adjustment proposed, asserted or assessed in connection with or as a result of any such
Tax Contest that affects the liability of Spinco or a member of the Spinco Group under this
Agreement without the consent of Spinco, not to be unreasonably withheld. Spinco shall provide a
response to a request for such consent from DHC within seven (7) Business Days following the
receipt of such request. Subject to DHC’s rights
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under this Section 5.02, upon request by Spinco,
Spinco shall, at its own expense, be allowed to participate in the handling of any such Tax Contest
with respect to any item that may affect the liability of Spinco (or any member of the Spinco
Group) under this Agreement; provided, however, that such rights shall be limited
to the extent that DHC’s right to control or otherwise participate in the relevant Tax Contest are
limited pursuant to the LMC Tax Sharing Agreement.
5.03 Control Of Tax Contests By Spinco. Spinco shall have the full responsibility and control over the handling of any Tax Contest,
including the exclusive right to communicate with agents of the Governmental Entity and to control,
resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in
connection with or as a result of any such Tax Contest, involving any Spinco Filed Tax Return;
provided, however, that Spinco’s right to control or otherwise participate in a Tax
Contest involving a Spinco Filed Tax Return shall be limited to the extent that DHC’s right to
control or otherwise participate in the relevant Tax Contest are limited pursuant to the LMC Tax
Sharing Agreement; provided, further, that Spinco shall not resolve, settle or
agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or
as a result of any such Tax Contest that affects the liability of DHC or a member of the DHC Group
under this Agreement without the consent of DHC, not to be unreasonably withheld. DHC shall provide
a response to a request for such consent from Spinco within seven (7) Business Days following the
receipt of such request. Subject to Spinco’s rights under this Section 5.03, upon request by DHC,
DHC shall, at its own expense, be allowed to participate in the handling of any such Tax Contest
with respect to any item that may affect the liability of DHC or any member of the DHC Group, as
the case may be, under this Agreement.
5.04 Third-Party Claims. To the extent not inconsistent with any specific term of this Agreement, the procedures set forth
in Section 5.1 of the Reorganization Agreement shall apply in relevant part to any Third-Party
Claim.
ARTICLE VI
COOPERATION
Except as otherwise provided herein, each Party shall fully cooperate, and shall cause all
members of such Party’s Group to fully cooperate, with the other Parties in connection with the
preparation and filing of any Tax Return or the conduct of any Tax Contest (including, where
appropriate or necessary, providing a power of attorney) concerning any issues or any other matter
contemplated under this Agreement. Each Party shall make its employees and facilities available on
a mutually convenient basis to facilitate such cooperation.
ARTICLE VII
RETENTION OF RECORDS; ACCESS; CONFIDENTIALITY
7.01 Retention of Records; Access.
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(a) For so long as the contents thereof may become material in the administration of any
matter under applicable Tax law, but in any event until the later of (x) the
expiration of any applicable statutes of limitation and (y) seven (7) years after the
Distribution Date, the Parties shall (i) retain records, documents, accounting data and other
information (including computer data) necessary for the preparation and filing of all Tax Returns
in respect of Taxes of any member of either the DHC Group or the Spinco Group for any
Pre-Distribution Period or any Post-Distribution Period or for any Tax Contests relating to such
Tax Returns, and (ii) give to the other Parties reasonable access to such records, documents,
accounting data and other information (including computer data), or relevant portion thereof, and
to its personnel and premises, for the purpose of the review or audit of such Tax Returns to the
extent relevant to an obligation or liability of a Party under this Agreement or for purposes of
the preparation or filing of any such Tax Return, the conduct of any Tax Contest or any other
matter reasonably and in good faith related to the Tax affairs of the requesting Party.
(b) At any time after the Distribution Date that the DHC Group proposes to destroy such
materials or information, it shall first notify the Spinco Group in writing and the Spinco Group
shall be entitled to receive such materials or information proposed to be destroyed that relate to
any member of the Spinco Group or the Spinco Assets and Business for any Pre-Distribution Period.
At any time after the Distribution Date that the Spinco Group proposes to destroy such materials or
information, it shall first notify the DHC Group in writing and the DHC Group shall be entitled to
receive such materials or information proposed to be destroyed.
7.02 Confidentiality. Each Party shall hold and cause its directors, officers, employees, advisors and consultants to
hold in strict confidence, unless compelled to disclose by judicial or administrative process or,
in the opinion of its counsel, by other requirements of law, all information (other than any such
information relating solely to the business or affairs of such Party) concerning the other Party
hereto furnished to it by such other Party or its representatives pursuant to this Agreement
(except to the extent that such information can be shown to have been (x) in the public domain
through no fault of such Party, (y) later lawfully acquired from other sources not known to be
under the duty of confidentiality by the Party to which it was furnished, or (z) independently
developed), and each Party shall not release or disclose such information to any other Person,
except its directors, officers, employees, auditors, attorneys, financial advisors, bankers and
other consultants who shall be advised of and agree to be bound by the provisions of this Section
7.02. Each Party shall be deemed to have satisfied its obligations to hold confidential information
concerning or supplied by the other Party if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
ARTICLE VIII
DISPUTE RESOLUTION
In the event of any disagreement arising under this Agreement, including any dispute in
connection with a claim by a third party (a “Dispute”), the Parties shall promptly
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notify
the chief financial officer of each of DHC and Spinco (each, a “CFO” and, together, the
“CFOs”) of such Dispute, who together shall attempt in good faith to resolve such Dispute.
If such Dispute is not resolved within seven (7) Business Days following the date on which the CFOs
receive notification, the Parties to such Dispute shall jointly retain an independent, nationally
recognized law or accounting firm (the “Tax Advisor”) to act as an arbitrator in order to
resolve the Dispute. The Tax Advisor’s determination as to any Dispute shall be made in accordance
with the terms of this Agreement and shall be final and binding on the Parties and not subject to
collateral attack for any reason (other than manifest error). All fees and expenses of the Tax
Advisor shall be shared equally by each of the Parties to the Dispute.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 Governing Law. THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES HERETO SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF COLORADO
APPLICABLE TO CONTRACTS MADE AND PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY CHOICE OR
CONFLICT OF LAWS PROVISIONS OR RULES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY OTHER
JURISDICTION.
9.02 Application To Present And Future Subsidiaries. This Agreement is being entered into by DHC and Spinco on behalf of themselves and the members of
their respective Groups. This Agreement shall constitute a direct obligation of each such entity
and shall be deemed to have been readopted and affirmed on behalf of any entity that becomes a
Subsidiary of DHC or Spinco in the future.
9.03 Binding Effect; Benefit; Successors. This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their
respective successors (including, but not limited to, any successor of DHC or Spinco succeeding to
the Tax attributes of such Party under Section 381 of the Code), to the same extent as if such
successor had been an original party hereto.
9.04 Further Assurances. Subject to the provisions hereof, the Parties hereto shall make, execute, acknowledge and deliver
such other instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate the transactions
contemplated hereby.
9.05 Survival; Termination. Notwithstanding any other provision of this Agreement to the contrary, all representations,
warranties, covenants and obligations contained in this Agreement shall survive for the term of
this Agreement, notwithstanding any investigation by the Parties or the consummation of the
Distribution, the transactions contemplated by the DHC/ANPP Transaction Agreement or any other
transaction contemplated hereby. This Agreement shall terminate at such time as all obligations and
liabilities of the Parties have been satisfied. The obligations and liabilities of the Parties
arising under this Agreement shall continue
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in full force and effect until all such obligations
have been met and such liabilities have been paid in full, whether by expiration of time, operation
of law, or otherwise.
9.06 Reorganization Agreement. To the extent not inconsistent with any specific term of this Agreement, the provisions of the
Reorganization Agreement shall apply in relevant part to this Agreement, including 4.1(b)
Authorization and Validity of Agreement; 5.3 Specific Performance; 8.2 No Third-Party Rights; 8.3
Notices; 8.4 Complete Agreement; 8.5 Amendment, Modification or Waiver; 8.8 Severability; 8.9
Headings.
* * *
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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and
year first above written.
| DISCOVERY HOLDING COMPANY |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| DISCOVERY COMMUNICATIONS, INC. |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| ASCENT MEDIA CORPORATION |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| ASCENT MEDIA GROUP, LLC |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| ASCENT MEDIA CREATIVE SOUND SERVICES, INC. |
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| By: | ||||
| Name: | ||||
| Title | ||||
