TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
This Tax Allocation and Indemnification Agreement ("Agreement"), dated
as of May 16, 1997, is made and entered into by and among Xerox Financial
Services, Inc., a Delaware corporation ("Parent"), Talegen Holdings, Inc., a
Delaware corporation ("Seller"), Industrial Indemnity Holdings, Inc., a Delaware
corporation ("Company"), Fremont General Corporation, a Nevada corporation
("Buyer Parent"), and Fremont Indemnity Company, a California corporation
("Buyer").
A. Seller and Buyer are parties to a Stock Purchase Agreement dated as
of May __, 1997 ("Purchase Agreement"), pursuant to which Buyer will purchase
from Seller, and Seller will sell to Buyer, all of the issued and outstanding
capital stock of the Company.
B. The parties hereto wish to provide for indemnification against
certain liabilities for Taxes and for payments relating to certain Tax benefits,
as set forth herein. The parties also desire to allocate responsibility for the
preparation and filing of Tax Returns and the payment of Taxes, and provide for
related matters.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Purchase Agreement, the parties hereby agree as
follows:
1. DEFINITIONS. When used herein, the following terms shall have the
following meanings:
"AFFILIATE" -- as defined in the Purchase Agreement.
"BUYER GROUP" -- Buyer and each other includable corporation that joins
with Buyer in filing a consolidated federal Income Tax Return for the applicable
Taxable Year, and every other corporation that is, at any time after the Closing
Date, a direct or indirect Subsidiary of Buyer or any such includable
corporation.
"CLOSING" -- as defined in the Purchase Agreement.
"CLOSING DATE" -- as defined in the Purchase Agreement.
"CODE" -- the Internal Revenue Code of 1986, as amended.
"COMPANY FEDERAL TAX SETTLEMENT PAYMENT SCHEDULE" -- as defined in
Section 3(d)(i) hereof.
"COMPANY PRO FORMA ALTERNATIVE MINIMUM TAXABLE INCOME OR LOSS" --
Company Pro Forma Taxable Income or Loss modified as required under the
provisions the Code to determine alternative minimum taxable income.
"COMPANY PRO FORMA TAXABLE INCOME OR LOSS" -- as defined in Section
3(c)(i) hereof.
"FEDERAL TAX SETTLEMENT PAYMENT" -- as defined in Section 3(b) hereof.
"FINAL COMPANY FEDERAL TAX SETTLEMENT PAYMENT SCHEDULE" -- as defined in
Section 3(d)(iii)(B) hereof.
"FINAL PARENT FEDERAL TAX SETTLEMENT PAYMENT SCHEDULE" -- as defined in
Section 3(d)(iii)(B) hereof.
"FINAL DETERMINATION" -- (i) a decision, judgment, decree or other order
by the United States Tax Court or any other court of competent jurisdiction,
that has become final and unappealable, (ii) a closing agreement under Section
7121 of the Code or a comparable provision of any state, local or foreign tax
law that is binding against the Internal Revenue Service or other Taxing
Authority, (iii) any other final settlement with the Internal Revenue Service or
other Taxing Authority, or (iv) the expiration of an applicable statute of
limitations.
"GAAP FINANCIAL STATEMENTS" -- as defined in the Purchase Agreement.
"INCOME TAX" -- with respect to any corporation or group of
corporations, any and all Taxes based upon or measured by net income, including,
but not limited to any alternative or add-on minimum taxes, and any "special
estimated tax payment" made pursuant to Section 847 of the Code, imposed by the
Internal Revenue Service or any other Taxing Authority, together with interest,
penalties and other additions.
"INCOME TAX RETURN" -- with respect to any corporation or group of
corporations, any Tax Return with respect to Income Tax.
"INDEPENDENT ACCOUNTING FIRM" -- means any "Big Six" accounting firm or
its successor, except for the respective independent public accountants of
Seller, Buyer or their respective Affiliates or Subsidiaries.
"INFORMATION RETURN" -- with respect to any corporation or group of
corporations, any and all reports, returns, declarations or other filings (other
than Tax Returns), including but not limited to federal and state wage
reporting, employment, and unemployment Tax returns (e.g., IRS Forms 940, 941,
W-2, W-3 and their state and local equivalents) as well as reports of payments
made (e.g., IRS Forms 1099 and 1042), that are required under applicable law to
be supplied to any Taxing Authority.
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"LEESBURG TRAINING FACILITY" -- as defined in Section 7.1(g) of the
Purchase Agreement
"1990 THROUGH 1994 UNCOLLECTIBLE REINSURANCE DEDUCTIONS" -- the net
incremental deductions to which Company and its Subsidiaries are entitled for
uncollectible reinsurance recoverables for the 1990 through 1994 Taxable Years
applying the method for writing off uncollectible reinsurance recoverables
agreed to during the 1987 through 1989 Tax audit as set forth in Schedule 5(f)
hereto, whether such incremental deductions or the benefits arising from the
utilization thereof are secured or realized by the Company and its Subsidiaries
during the 1990 through 1994 Taxable Years or in subsequent Taxable Years.
"OVERDUE RATE" -- the prime rate of interest as reported in the "Money
Rates" column of the Wall Street Journal (or the generally prevailing "prime
rate" as charged by major New York banks, if a prime rate is not so published in
the Wall Street Journal) on the first business day of the month for which
interest is computed.
"PARENT FEDERAL TAX SETTLEMENT PAYMENT SCHEDULE" -- as defined in
Section 3(d)(ii) of this Agreement.
"POST-1996 STRADDLE PERIOD" -- the portion of a Straddle Period
beginning on January 1, 1997.
"POST-CLOSING TAXABLE YEAR" -- a Taxable Year that begins after the
Closing Date.
"PRE-1997 STRADDLE PERIOD" -- the portion of a Straddle Period ending on
and including December 31, 1996.
"PRE-CLOSING TAXABLE YEAR" -- a Taxable Year that begins before the
Closing Date.
"PRO FORMA ADJUSTMENTS" -- (i) the "additional deduction" allowable
under Section 847(1) of the Code; (ii) the amount includable in gross income
under Section 847(5) of the Code; (iii) any income, deduction, gain, or loss
attributable to (1) the payment for the leases and transfer of the fee interests
in the Leesburg Training Facility pursuant to Section 7.1(g) of the Purchase
Agreement; (2) any deferred intercompany transaction (as determined under Reg.
xx.xx. 1.1502-13 and -13T) occurring on or prior to Closing that is recognized
as a result of the sale of Company stock under the Purchase Agreement, or (3)
any excess loss account under Reg. ss. 1.1502-19 that is recognized as a result
of the sale of Company stock under the Purchase Agreement; (iv) any employee
compensation that Seller is required to pay under the Purchase Agreement; (v)
any Ridge Re Premium Expense; and (iv) any 1990 through 1994 Uncollectible
Reinsurance Deductions.
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"PURCHASE AGREEMENT" -- as defined in Paragraph A of the Preamble to
this Agreement.
"REG. ss." -- a provision of the Regulations promulgated under the Code.
"RIDGE RE PREMIUM EXPENSE" -- the Tax deduction for premiums under the
"Aggregate Excess of Loss Reinsurance Agreements" entered into as of December
31, 1992 with Ridge Reinsurance Limited, as amended through the date hereof.
"SAP Financial Statements" -- as defined in the Purchase Agreement.
"SELLER NOTES" -- the "XFS Promissory Notes" as defined in the Purchase
Agreement.
"STRADDLE PERIOD" -- any Taxable Year of Company or of any of its
Subsidiaries that begins before, and ends after, December 31, 1996.
"SUBSIDIARY" -- as defined in the Purchase Agreement.
"STUB PERIOD" -- the Taxable Year of Company and its Subsidiaries
beginning on January 1, 1997 and ending on and including the Closing Date.
"TAX" -- all taxes, charges, fees, and levies based upon gross income,
gross receipts, premiums, profits, sales, use, value added, transfer, employment
or payroll, including, without limitation, any ad valorem, environmental,
excise, license, occupation, property, severance, stamp, withholding, or
windfall profit tax, any custom duty or other tax, and any Income Tax, together
with any interest credit or charge, penalty, addition to tax or additional
amount imposed by any Taxing Authority.
"TAX RETURN" -- with respect to any corporation or group of
corporations, all reports, estimates, extension requests, information statements
and returns (other than Information Returns) relating to, or required to be
filed in connection with, any payment of any Tax.
"Taxable Year" -- with respect to any Tax of any corporation, or any
group of corporations filing a consolidated, combined or unitary return for
federal, state, local or foreign Tax purposes, the period for which the Tax is
computed.
"Taxing Authority" -- the Internal Revenue Service and any other
domestic or foreign governmental authority responsible for the administration of
any Tax.
"Xerox Affiliated Group" -- Xerox Corporation and each corporation (an
includable corporation) that joins with Parent in filing a consolidated federal
Income Tax Return for the applicable Taxable Year.
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"Xerox Group" -- the Xerox Affiliated Group and every other corporation
that is, at any time after the Closing Date, a direct or indirect Subsidiary of
any member of the Xerox Affiliated Group.
2. Filing of Tax Returns; Payment of Taxes.
(a) Filing of Tax Returns; Copies of Tax Returns.
(i) Federal Income Tax Returns. Parent shall cause to
be prepared and filed on a timely basis a consolidated federal Income Tax Return
for the Xerox Affiliated Group for the 1996 and 1997 Taxable Years and shall
include therein the income, gain, loss, deduction, expense and credits of
Company and its Subsidiaries, which items shall be determined on the basis of an
interim closing of the books for the portion of the 1997 Taxable Year during
which the Company and its Subsidiaries were members of the Xerox Affiliated
Group.
(A) A deduction for the Ridge Re Premium Expense
not deducted prior to the 1997 Taxable Year shall be claimed in the consolidated
federal Income Tax Return for the Xerox Affiliated Group for the 1997 Taxable
Year, provided, however, that if a change in law or regulation prevents such
deduction from being claimed in such Income Tax Return but permits Company to
claim such deduction, then Company shall claim such deduction in its federal
Income Tax Return for the first Taxable Year in which such deduction is
allowable to it, and within twenty (20) days after filing such federal Income
Tax Return, Company shall pay (or cause to be paid) to Parent an amount equal to
the Tax benefit attributable to such deduction. For purposes of the preceding
sentence, the amount of such Tax benefit shall be equal to the excess of the
amount of Company's federal Income Tax liability for all Taxable Years affected
computed without regard to such deduction over the amount of Company's actual
federal Income Tax liability for all Taxable Years affected after considering
such deduction. Within ten (10) business days after Parent's receipt of any
notice from Company or Buyer of a Final Determination that deductions claimed by
Company on any Tax Return for any Taxable Year beginning on or after January 1,
1997 or any Post-1996 Straddle Period in respect of the Ridge Re Premium Expense
are not allowable, Parent shall repay to Buyer or Company, to the extent of the
disallowed deductions, the Tax benefit amount Parent received from the Company.
(B) The amount of the discount under Section 846
of the Code with respect to the unpaid losses, loss adjustment expenses, and
salvage and subrogation of Company and its Subsidiaries, as of the Closing Date,
shall be determined for the Stub Period according to the interpolation
methodology set forth in Schedule 2(a) hereto and by allocating such unpaid
losses, loss adjustment expenses, and salvage and subrogation to the lines of
business and accident years in accordance with a Seller report provided to
Buyer. In determining the amounts and information included in such report,
Seller shall apply actuarial methods and assumptions which are consistent with
those applied by the Insurance Subsidiaries to estimate
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their liability for loss and loss adjustment expenses net of reinsurance and
retrocessional recoverables and salvage and subrogation as of December 31, 1996
in the SAP Financial Statements, taking into account the loss experience and
operations of the Insurance Subsidiaries through the Closing Date.
(ii) Tax Returns Other Than Federal Income Tax Returns.
Company shall prepare and, subject to Section 2(d)(ii) hereof, shall file (or
caused to be filed) on a timely basis all federal, state, local, and foreign Tax
Returns that (A) include Company or any of its Subsidiaries, or all of them, for
all Pre-Closing Taxable Years but (B) exclude all other members of the Xerox
Group.
(iii) Parent Review of Tax Returns Prior to Filing. At
least fifteen (15) days before each due date for the filing of Tax Returns
required to be filed in respect of the Company or its Subsidiaries, or any of
them, pursuant to Section 2(a)(ii) hereof, Company shall provide Parent a
schedule listing all Tax Returns due as of such date (showing for each such Tax
Return the taxpayer, type of Tax, the Taxing Authority, the total amount of Tax
shown on the Tax Return, and the amount of Tax due or overpaid). The Company
shall, within two (2) business days after Parent's request, provide to Parent a
copy of any listed Tax Return. Within ten (10) business days after each due date
for the filing of any Tax Return required to be filed pursuant to Section
2(a)(ii) hereof, Company shall provide to Parent a statement signed by Company's
Chief Financial Officer affirming that, except as otherwise disclosed in detail
in such affirmation statement -- (A) all Tax Returns required to be filed as of
such date were included on the respective schedule of Tax Returns provided to
Parent pursuant to this Section 2(a)(iii), (B) each Tax Return copy provided to
Parent is an exact copy of the Tax Return as filed with the Taxing Authority,
and (C) each Tax Return for which no copy was provided to Parent reported the
same amounts of total Tax and Tax due or overpaid as shown on the schedule for
such Tax Return.
(b) Extensions Taken Into Account. For purposes of this Section
2, any Tax Return shall be considered to have been filed on a timely basis if it
is filed on or before the due date for such filing, and the due date for filing
any Tax Return shall take into account all valid extensions.
(c) Filing Information; Closing of Taxable Years.
(i) Filing Information. Pursuant to Section 9(a)(i)
hereof, Company shall (and shall cause its Subsidiaries, or any of them, to)
submit to Parent in a timely fashion in accordance with past practice all filing
information necessary for the preparation and filing of the Income Tax Returns
for the 1996 Taxable Year and the Stub Period other than those Tax Returns that
are the responsibility of Company under Section 2(a)(ii) hereof, provided that
the filing information for the federal Income Tax Returns referred to in Section
2(a)(i) hereof shall be
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submitted to Parent no later than July 15, 1997 for the 1996 Taxable Year and no
later than July 15, 1998 for the Stub Period.
(ii) Closing of Taxable Years. Unless prohibited by
applicable law, for state, local and foreign Income Tax purposes, the Taxable
Year of Company and those of its Subsidiaries that (A) are members of the Xerox
Affiliated Group or (B) are included in any state, local or foreign
consolidated, combined or unitary Income Tax Return with one or more members of
the Xerox Affiliated Group shall end on and include the Closing Date, and
Company and its Subsidiaries shall begin a new Taxable Year on the day after the
Closing Date. All Tax Returns referred to in Section 2(a) hereof shall be
prepared and filed consistent with this Section 2(c)(ii).
(d) Consistent Preparation.
(i) Preparation of Tax Returns. Company shall prepare
(or cause to be prepared) all Tax Returns required to be prepared pursuant to
Section 2(a)(ii) hereof and all information required to be submitted to Parent
pursuant to Section 2(c)(i) hereof, using the methods used in reporting items of
income, gain, loss, deduction, expense and credit of Company and its
Subsidiaries, as reflected on Tax Returns filed prior to the date hereof, taking
into account any adjustments resulting from any audit or other examination of
such Tax Returns and applicable law as then in effect.
(ii) Disputes Over Treatment of Items. In the event
that Parent disputes any item shown on any Tax Return prepared (or caused to be
prepared) by Company pursuant to Section 2(a)(ii) hereof, neither Company nor
any of its Subsidiaries shall file such Tax Return except as in accordance with
the provisions of this Section 2(d)(ii). If Parent and Company are unable to
resolve such dispute between themselves no later than ten (10) business days
before the due date of such Tax Return, then they shall jointly retain an
Independent Accounting Firm to resolve such dispute, and they shall each take
all reasonable and appropriate steps necessary to assist the Independent
Accounting Firm in resolving such dispute prior to such due date; provided,
however, that the filing of such Tax Return shall not be delayed beyond its due
date. If for any reason such dispute is not resolved by the Tax Return due date,
the Tax Return shall be filed as though the Parent prevailed in the dispute and
shall be amended, if necessary, after the dispute is resolved by the Independent
Accounting Firm. The fees of the Independent Accounting Firm shall be borne
equally by the parties. The resolution of the Independent Accounting Firm under
this Section 2(d)(ii) shall be binding on both Parent and Company.
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3. Payment of Taxes and Federal Tax Settlement Payment.
(a) Payment of Taxes.
(i) Parent shall pay (or cause to be paid) to the
appropriate Taxing Authority all Income Taxes shown to be due and payable on
Income Tax Returns that it is responsible for filing pursuant to Sections
2(a)(i).
(ii) Company shall pay (or cause to be paid) to the
appropriate Taxing Authority all Taxes shown to be due on all state, local,
foreign and other federal Tax Returns that it is responsible for filing pursuant
to Section 2(a)(ii) hereof.
(b) Liability for Federal Tax Settlement Payments. Federal Tax
settlement payments shall be computed and made for the 1996 Taxable Year and the
Stub Period (the "Federal Tax Settlement Payments") in accordance with the terms
of this Agreement. There shall be no Tax settlement payments during and
attributable to the 1996 Taxable Year and the Stub Period other than the Federal
Tax Settlement Payments determined under this Agreement and any Tax settlement
payments made prior to the date of this Agreement; provided, however, that if a
Tax settlement payment must be made prior to the Closing Date under another
agreement between the Company or any of its Subsidiaries, on the one hand, and
Seller or any of its Subsidiaries (other than the Company and its Subsidiaries),
on the other hand, then the required payment shall be made under such other
agreement. Appropriate credit shall be given in making Federal Tax Settlement
Payments hereunder for any Tax settlement payments, under any agreement other
than this Agreement, made prior to the Closing Date relating to either the 1996
Taxable Year or the Stub Period (including repayments of any prior Tax
settlement payments for the 1996 Taxable Year or the Stub Period in excess of
the required Federal Tax Settlement Payments hereunder).
(c) Amount of the Federal Tax Settlement Payments.
(i) Company Pro Forma Taxable Income or Loss. For
purposes of determining the amount of the Federal Tax Settlement Payments due
under Section 3(b) for the 1996 Taxable Year and the Stub Period, the income or
loss of Company and its Subsidiaries shall be adjusted by excluding therefrom
the Pro Forma Adjustments and shall be determined on a pro forma basis as if
Company and its eligible Subsidiaries filed a consolidated federal Income Tax
Return separate from the Xerox Affiliated Group ("Company Pro Forma Taxable
Income or Loss").
(ii) Amount of Federal Tax Settlement Payments.
(A) Where the calculation of either Company Pro
Forma Taxable Income or Loss or Company Pro Forma Alternative Minimum Taxable
Income or Loss
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results in income for Company and Its Subsidiaries for a Taxable Year, Company
shall make a Federal Tax Settlement Payment to Parent, in accordance with
Section 3(e), which is equal to greater of (I) the amount determined by
multiplying Company Pro Forma Taxable Income or Loss for such Taxable Year by
the maximum corporate Income Tax rate applicable under the Code for such Taxable
Year to ordinary income or loss and capital gain or loss, as the case may be,
and (II) the amount determined by multiplying Company Pro Forma Alternative
Minimum Taxable Income or Loss for such Taxable Year by the maximum alternative
minimum Tax rate applicable under the Code for such Taxable Year.
(B) Where the calculation of both Company Pro
Forma Taxable Income or Loss and Company Pro Forma Alternative Minimum Taxable
Income or Loss result in losses for Company And Its Subsidiaries for a Taxable
Year, Parent shall make a Federal Tax Settlement Payment to Company, in
accordance with Section 3(e), equal to the Tax benefit actually realized by the
Xerox Affiliated Group from such loss. Such Tax benefit shall be calculated as
the difference in Tax liability resulting when such loss is included in the
calculation of the Xerox Affiliated Group Tax liability for the Taxable Year and
excluded from the calculation of the Xerox Affiliated Group Tax liability for
the Taxable Year.
(d) Federal Tax Settlement Payment Reporting
(i) Company Federal Tax Payment Schedules. Not later
than July 15, 1997, Company shall deliver to Parent a schedule showing the
amount of Company Pro Forma Taxable Income or Loss and the amount of Company Pro
Forma Alternative Minimum Taxable Income or Loss for the 1996 Taxable Year and,
if either amount is positive, such schedule shall show the Federal Tax
Settlement Payment for the 1996 Taxable Year. Not later than sixty (60) days
after the Closing Date, Company shall deliver to Parent a schedule showing the
amount of Company Pro Forma Taxable Income or Loss and the amount of Company Pro
Forma Alternative Minimum Taxable Income or Loss for the Stub Period and, if
either amount is positive, the Federal Tax Settlement Payment for the Stub
Period. Each such schedule (a "Company Federal Tax Settlement Payment Schedule")
shall be based on the Tax Return filing information provided pursuant to Section
2(c)(i) (to the extent available) and shall include all supporting workpapers
and a brief explanation of the basis on which Company Pro Forma Taxable Income
or Loss and Company Pro Forma Alternative Minimum Taxable Income or Loss were
computed. Except as otherwise expressly provided in this Agreement, the amount
of Company Pro Forma Taxable Income or Loss and Company Pro Forma Alternative
Minimum Taxable Income or Loss shall be determined, for all purposes of this
Agreement, in conformity with the information provided in Section 2(c)(i)
hereof.
(ii) Parent Federal Tax Settlement Payment Schedule.
Within thirty (30) days after Parent receives a Company Federal Tax Settlement
Payment Schedule for a Taxable Year that reflects losses in the computations of
both Company Pro Forma Taxable
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Income or Loss and Company Pro Forma Alternative Minimum Taxable Income or Loss,
Parent shall deliver to Company a revised schedule (a "Parent Federal Tax
Settlement Payment Schedule") showing the amount of the Federal Tax Settlement
Payment for the Taxable Year, taking into account any Tax benefit actually
realized by the Xerox Affiliated Group from such losses.
(iii) Preliminary and Final Federal Tax Settlement Payment
Schedules.
(A) To the extent that any Federal Tax Settlement
Payment cannot be determined with finality due to a lack of information and/or
the fact that the Xerox Affiliated Group's consolidated federal Income Tax
Return will not have been filed, Company or Parent, as the case may be, shall
estimate the amount of the Federal Tax Settlement Payment as nearly as possible
and shall timely deliver either the Company Federal Tax Settlement Payment
Schedule or the Parent Federal Tax Settlement Payment Schedule, as the case may
be, indicating the amount of the Federal Tax Settlement Payment estimated in
accordance with this Section 3(d)(iii)(A). In the case of a Company estimate,
Company shall cause its independent public accountant to certify to the Parent
that each such Company Federal Tax Settlement Payment Schedule provides a
reasonable estimate of the amount of Company Pro Forma Taxable Income or Loss
and the amount of Company Pro Forma Alternative Minimum Taxable Income or Loss
for the applicable Taxable Year determined in conformity with Section 2(c)(i)
hereof. In the case of a Parent estimate, Parent shall cause its independent
public accountant to certify to Buyer that each such Parent Federal Tax
Settlement Payment Schedule provides a reasonable estimate of the Federal Tax
Settlement Payment determined in conformity with Section 2(c)(i) hereof..
(B) If a Company Federal Tax Settlement Payment
Schedule provided for a Taxable Year in accordance with Section 3(d)(i) is based
on an estimate or is due on a date that is earlier than thirty (30) days after
the Closing Date, the Company shall prepare and provide a final schedule (a
"Final Company Federal Tax Settlement Payment Schedule") for such year in
accordance with the following deadlines: for the 1996 Taxable Year no later than
sixty days after the Closing Date, and for the Stub Period no later than July
15, 1998. If a Parent Federal Tax Settlement Payment Schedule provided for a
Taxable Year in accordance with Section 3(d)(ii) is based on an estimate or on a
Company Federal Tax Settlement Payment Schedule due on a date that is earlier
than thirty (30) days after the Closing Date, the Parent shall prepare and
provide a final schedule (a "Final Parent Federal Tax Settlement Payment
Schedule") for such year in accordance with the following deadlines: for the
1996 Taxable Year no later than ninety (90) days after the Closing Date and for
the Stub Period no later than October 15, 1998. Notwithstanding the provisions
of Section 3(d)(i) requiring the amount of Company Pro Forma Taxable Income or
Loss and Company Pro Forma Alternative Minimum Taxable Income or Loss to be
determined in conformity with the information provided in Section 2(c)(i)
hereof, where the Company Federal Tax Settlement Payment Schedule is due on a
date that is earlier than thirty (30) days after the Closing Date, the Company
shall have the right in preparing
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the Final Company Federal Tax Settlement Payment Schedule to change the
treatment of an item previously reflected in the Company Federal Tax Settlement
Payment Schedule on the ground that such change is necessary in order to conform
the treatment of the item to the method used in reporting such item as reflected
on Tax Returns filed prior to the date hereof, taking into account any
adjustments resulting from any audit or examination for such Tax Returns and
applicable law. In such event, Parent shall have the right pursuant to Section
3(d)(iv) hereof to dispute the Company's change in treatment of any item. (iv)
Disputes. Within fifteen (15) days after receiving a Company Federal Tax
Settlement Payment Schedule or a Final Company Federal Tax Settlement Payment
Schedule, Parent will notify Company of any disagreement with any element of
Company Pro Forma Taxable Income or Loss or Company Pro Forma Alternative
Minimum Taxable Income or Loss, or both, reflected therein. Within fifteen (15)
days after receiving a Parent Federal Tax Settlement Payment Schedule or a Final
Parent Federal Tax Settlement Payment Schedule, Company will notify Parent of
any disagreement with the Tax benefit calculation reflected thereon. Company and
Parent will promptly attempt to resolve any such disagreement. If Company and
Parent are unable to resolve any such disagreement within forty-five (45) days
after receipt of such notice, then the issues remaining unresolved with respect
to the amount of Company Pro Forma Taxable Income or Loss or Company Pro Forma
Alternative Minimum Taxable Income or Loss, or both, or with respect to the
Parent Federal Tax Settlement Payment Schedule or a Final Parent Federal Tax
Settlement Payment Schedule, or both, shall be resolved as follows:
(A) Company and Parent shall jointly retain an
Independent Accounting Firm and, within fifteen (15) days following retention of
the Independent Accounting Firm, Company and Parent shall present or cause to be
presented to the Independent Accounting Firm the issue or issues that must be
resolved.
(B) Company and Parent shall encourage the
Independent Accounting Firm to render its decision as soon as is reasonably
practicable, including, without limitation, prompt compliance with all
reasonable requests by the Independent Accounting Firm for information, papers,
books, records and the like. All decisions of the Independent Accounting Firm
with respect to the issues presented by the parties shall be final and binding
on the parties hereto.
(C) The fees of such Independent Accounting
Firm shall be borne equally by the parties.
(D) Within thirty (30) days after a disputed
Federal Tax Settlement Payment is agreed to by Company and Parent or determined
by the Independent Accounting Firm, Company or Parent, as the case may be, shall
pay to Parent or Company, as the case may be, the amount of the Federal Tax
Settlement Payment for the Taxable Year less any
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Federal Tax Settlement Payment amount previously paid in respect of such Taxable
Year.
(e) Timing of Federal Tax Settlement Payments.
(i) Payment by Company. Any Federal Tax Settlement
Payment due from Company to Parent shall be due and payable to Parent as of the
date the Company Federal Tax Settlement Payment Schedule or the Final Company
Federal Tax Settlement Payment Schedule, as the case may be, is required to be
delivered to the Parent in accordance with this Agreement, except to the extent
that a dispute with respect to any such Company Federal Tax Settlement Payment
Schedule or such Final Company Federal Tax Settlement Payment Schedule has
occurred and is continuing under Section 3(d)(iv) hereof. If such a dispute has
occurred, then the Federal Tax Settlement Payment shall become payable as
provided in Section 3(d)(iv)(D) hereof.
(ii) Payment by Parent. Any Federal Tax Settlement
Payment due from Parent to Company shall be due to Company as of the date the
Parent Federal Tax Settlement Payment Schedule or the Final Parent Federal Tax
Settlement Payment Schedule, as the case may be, is required to be delivered to
Company in accordance with this Agreement, except to the extent that a dispute
with respect to any such Parent Federal Tax Settlement Payment Schedule or such
Final Parent Federal Tax Settlement Payment Schedule has occurred and is
continuing under Section 3(d)(iv) hereof. If such a dispute has occurred, then
the Federal Tax Settlement Payment shall become payable as provided in Section
3(d)(iv)(D) hereof.
(iii) Interest on Additional Federal Tax Settlement
Payments. Any additional Federal Tax Settlement Payment arising from adjustments
shown on a Company Federal Tax Settlement Payment Schedule, a Final Company
Federal Tax Settlement Payment Schedule, a Parent Federal Tax Settlement Payment
Schedule, or a Final Parent Federal Tax Settlement Payment Schedule, as the case
may be, including adjustments arising from any dispute, shall include interest
from the due date of the Company Federal Tax Settlement Payment Schedule as
provided in Section 3(d)(i) hereof, or the due date of the Parent Federal Tax
Settlement Payment Schedule as provided in Section 3(d)(ii), as the case may be,
computed at the Overdue Rate.
4. Information Returns.
(a) Preparation of Information Returns. Parent shall prepare and
file (or cause to be prepared and filed) all Information Returns which are
required under applicable law to be filed by Parent or Seller in respect of the
Company and its Subsidiaries, provided, however, that Company shall provide to
Parent any and all information necessary or useful for the filing of such
Information Returns in an accurate and timely manner. Company shall prepare and
file (or cause to be prepared and filed), in a manner consistent with the prior
practices of Company and
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its Subsidiaries, as applicable, all Information Returns required to be filed by
Company and its Subsidiaries, or any of them.
(b) Extensions Taken Into Account. For purposes of this Section
4, any Information Return shall be considered to have been filed on a timely
basis if it is filed on or before the due date for such filing, and the due date
for filing any Information Return shall take into account all valid extensions.
(c) Payment of Charges and Fees; Indemnification. Any party
required to file any Information Return pursuant to this Section 4 shall pay any
related fees or charges (including any such fees or charges that shall
thereafter become due and payable with respect to such Information Returns due
to a Final Determination) and shall indemnify and hold the other party harmless
against any related interest and penalties, as well as any such fees or charges
which are assessed against such party as the result of a failure by the party
responsible for such filing to file any Information Return in a timely and
accurate manner.
5. Indemnification Relating to Taxes; Payment of Refunds; Other
Payments.
(a) Indemnification by Parent. Parent shall indemnify Buyer
against, and hold it harmless (on an after-tax basis) from:
(i) all liability for Taxes with respect to Company and
its Subsidiaries assessed after the Closing Date for all Pre-Closing Taxable
Years ending on or before December 31, 1996 and any Pre-1997 Straddle Period,
except
(A) to the extent of an amount equal to the Taxes
accrued in the GAAP Financial Statements as of December 31, 1996 of the Company
and its Subsidiaries, as reduced by an amount equal to any federal Income Taxes
accrued in such financial statements up to the amount of any Federal Tax
Settlement Payments that the Company ultimately is required to make in respect
of the 1996 Taxable Year pursuant to Section 3(c)(ii)(A), and
(B) to the extent that any such Tax is
attributable to an adjustment that results in an increase in the taxable income
of Company or its Subsidiaries for any Pre-Closing Taxable Years ending on or
before December 31, 1996 or any Pre-1997 Straddle Period and a related decrease
in the taxable income of Company or its Subsidiaries in a Post-Closing Taxable
Year beginning on or after January 1, 1997 or any Post-1996 Straddle Period; and
(ii) all liability for Taxes of any other member of the
Xerox Affiliated Group pursuant to any provision of joint and several liability
including, without limitation, Reg ss. 1.1502-6 and any corresponding provisions
of state, local or foreign law.
13
(iii) liability for federal Income Taxes with respect to
Company and its Subsidiaries assessed after the Closing Date for the Stub
Period, but only to the extent such liability is attributable to an adjustment
of an item of income or deduction included in the Pro Forma Adjustments which
adjustment does not result in a decrease in the taxable income of Company or its
Subsidiaries in a Post-Closing Taxable Year.
Notwithstanding anything in the foregoing that might otherwise be
read to the contrary, it is hereby understood and agreed that Parent shall have
no liability to indemnify Buyer against, or hold it harmless from: any Federal
Tax Settlement Payment the Company is required to make to Parent pursuant to
Section 3(c)(ii)(A), or any Tax the Company is required to pay (or cause to be
paid) pursuant to Section 3(a)(ii) hereof to the extent that such Tax does not
exceed an amount equal to the Taxes accrued in the GAAP Financial Statements as
of December 31, 1996 of the Company and its Subsidiaries, as reduced by an
amount equal to any federal Income Taxes accrued in such financial statements up
to the amount of any Federal Tax Settlement Payments that the Company ultimately
is required to make in respect of the 1996 Taxable Year pursuant to Section
3(c)(ii)(A).
(b) Obligation of the Buyer and Company to Indemnify. Buyer and
Company shall indemnify (on an after tax basis) the Parent and Seller against
all liability for Taxes with respect to Company and its Subsidiaries for which
the Parent is not required to indemnify the Buyer pursuant to Section 5(a)
hereof.
(c) Tax Obligations for Straddle Periods. Taxes relating to the
Company and its Subsidiaries for any Straddle Period shall be the joint
responsibility of Buyer and Company, on the one hand, and Parent and Seller, on
the other hand, and shall be apportioned (based on an interim closing of the
books) between the Pre-1997 Straddle Period and the Post-1996 Straddle Period in
a fair and equitable manner consistent with past accounting practices as
properly adjusted to reflect applicable Tax principles, or in the case of real,
personal, and intangible property taxes or any similar Tax, in accordance with
the principles of Section 164(d) of the Code.
(d) Notice and Payment of Indemnified Amounts.
(i) Duty to Notify. Buyer shall notify Parent of any
Taxes paid or incurred by Buyer, Company or its Subsidiaries which are subject
to indemnification by Parent under Section 5(a) hereof. Parent shall notify
Buyer of any Taxes paid or incurred by Parent or any other member of the Xerox
Group which are subject to indemnification by Buyer and Company under Section
5(b) hereof.
(ii) Explanation of Claim. Any notice contemplated by
this Section
14
5(d) shall include a detailed calculation (including, if
applicable, separate allocations of such Taxes between Pre-1997 and Post-1996
Straddle Periods and supporting work papers) and a brief explanation of the
basis for such indemnification.
(iii) Time for Payment. Within twenty (20) days after the
receipt of a notice described in this Section 5(d), the notified party shall pay
to the notifying party the amount requested in such notice, but only to the
extent that the notified party agrees with such request. To the extent that the
notified party disagrees with such request, it shall, within the applicable
twenty (20) day period, so notify the notifying party. If the parties are unable
to settle such disagreement between themselves no later than fifteen (15) days
after notice of the disagreement in accordance with this Section 5(d), then they
shall jointly retain an Independent Accounting Firm to resolve such dispute. The
fees of the Independent Accounting Firm shall be borne equally by the parties.
The resolution of the Independent Accounting Firm under this Section 5(d)(iii)
shall be binding on Parent on the one hand and Buyer and Company on the other
hand. Within ten (10) days after resolution of such dispute, Buyer or Company on
the one hand or Parent on the other hand, as the case may be, shall pay to
Parent on the one hand, or Buyer or Company on the other hand, as the case may
be, the amount determined by such Independent Accounting Firm to be due pursuant
to this Section 5 (d) together with interest at the Overdue Rate from the date
the payment was originally due.
(e) Parent's Right to Pursue and Retain Refunds. Parent and
Seller shall have the right to pursue and shall be entitled to retain, or to
receive prompt payment from Buyer, Company or its Subsidiaries to the extent
secured by any of them, any overpayment, refund or credit of Taxes (including,
without limitation, refunds and credits arising by reason of Tax Returns as
originally filed or amended Tax Returns) relating to Company and its
Subsidiaries for any and all Pre-Closing Taxable Years ending on or before
December 31, 1996 or any Pre-1997 Straddle Period, including without limitation
any refunds in respect of the 1990 through 1994 Uncollectible Reinsurance
Deductions; provided, however, that such right shall not extend to any
overpayment, refund, or credit of Taxes (other than with respect to the 1990
through 1994 Uncollectible Reinsurance Deductions) accrued as a receivable in
the GAAP Financial Statements as of December 31, 1996 of the Company and its
Subsidiaries. Buyer (or Company and its Subsidiaries) shall have the right to
pursue and shall be entitled to retain, or to receive prompt payment from Parent
or Seller to the extent secured by them, any overpayment, refund or credit of
Taxes relating to Company and its Subsidiaries to which Parent and Seller are
not entitled pursuant to the preceding sentence. If Buyer (or any of its
Subsidiaries) or Parent (or any of its Subsidiaries) receives a Tax refund to
which the other party is entitled pursuant to this Agreement, the Buyer or
Parent, as the case may be, shall pay or cause the recipient to pay the amount
of such refund (including any interest received thereon) to such other party
within ten (10) days after receipt thereof. Within ninety (90) days after the
end of each Taxable Year following the Closing Date, Buyer and Parent shall have
their respective Chief Financial Officers tender to the other party a statement
showing the aggregate amount of all Tax refunds received to
15
which Parent (or any of its Subsidiaries) or Buyer (or any of its Subsidiaries)
is entitled.
(f) Other Payments. Any Tax benefit realized by the Buyer Group
(or any member thereof) for any Post-Closing Taxable Year with respect to the
1990 through 1994 Uncollectible Reinsurance Deductions shall be paid to the
Parent in accordance with the terms hereof whether such Tax benefit results from
(i) an originally filed or amended Tax Return of the Buyer Group (or any member
thereof), (ii) an audit or other examination of, or claim for refund or amended
Tax Return with respect to, any Tax Return of (or including) any member of the
Xerox Group for any Pre-Closing Taxable Year or Pre-1997 Straddle Period, or
(iii) otherwise. A deduction or deductions for the 1990 through 1994
Uncollectible Reinsurance Deductions not allowed as deductions for any
Pre-Closing Taxable Year or Pre-1997 Straddle Period shall be claimed by the
Company and its Subsidiaries in the federal Income Tax Return(s) for the first
Taxable Year(s) in which such deduction(s) become allowable to Company or its
Subsidiaries, and within twenty (20) days after the filing of a Tax Return in
which such deductions are claimed, Buyer shall pay (or cause to be paid) to
Parent an amount equal to the Tax benefit attributable to such deductions. For
purposes of this provision, the amount of such Tax benefit shall be equal to the
excess of the amount of the federal Income Tax liability of the Buyer Group (or
any member thereof, as the case may be) for all Taxable Years affected computed
without regard to the 1990 through 1994 Uncollectible Reinsurance Deductions
over the amount of the actual federal Income Tax liability of the Buyer Group
(or any member thereof, as the case may be) for all Taxable Years affected after
considering the 1990 through 1994 Uncollectible Reinsurance Deductions. Within
ten (10) business days after Parent's receipt of any notice from Company or
Buyer of a Final Determination that deductions claimed by Company on any Tax
Return for any Taxable Year beginning on or after January 1, 1997 or any
Post-1996 Straddle Period in respect of the 1990 through 1994 Uncollectible
Reinsurance Deductions are not allowable, Parent shall repay to Buyer or
Company, to the extent of the disallowed deductions, the Tax benefit amount
Parent received from the Company.
(g) Changes Concerning Timing Differences Only. If, as a result
of the filing of an amended return or any Final Determination, there is any
change after the Closing Date in an item of income, gain, loss, deduction or
credit that results in an increase in a liability for Taxes for which Buyer
would otherwise be liable pursuant to this Agreement, and such change results in
a decrease in the liability for Taxes of Parent for any Pre-Closing Taxable Year
ending on or before December 31, 1996 or any Pre-1997 Straddle Period (other
than by reason of a carryback of losses, deductions or credits), Buyer shall not
be liable pursuant to this Agreement with respect to such increase to the extent
of such decrease. In no event shall any decrease in the liability for Taxes of
Parent for any Pre-Closing Taxable Year ending on or before December 31, 1996 or
any Pre-1997 Straddle Period attributable to the 1990 through 1994 Uncollectible
Reinsurance Deductions be treated as an item subject to the provisions of this
Section 5(g).
6. Capital Loss, Net Operating Loss, and Credit Carrybacks.
16
(a) Payments With Respect to Refund Claims.
(i) Filing of Claim for Refund; Payment of Tax Benefit.
If Company or any of its Subsidiaries realizes a capital loss or a credit in a
Post-Closing Taxable Year that is required, after application of paragraph (b),
below, to be carried back to a Taxable Year of the Xerox Affiliated Group (or
any member thereof), Parent shall promptly file (or shall cause promptly to be
filed) a claim for refund and shall pay (or cause to be paid) to Company the
full amount of any Tax benefit, net of any Tax due by the Xerox Affiliated Group
on account of such refund, within twenty (20) days of the date such Tax benefit
is realized. For purposes of this Section 6(a), the Tax benefit in any Taxable
Year shall be equal to the excess of (A) the Tax liability of the Xerox
Affiliated Group for such Taxable Year, computed without regard to the capital
loss or credit referred to above, over (B) the actual Tax liability of the Xerox
Affiliated Group for such Taxable Year after considering such capital loss or
credit.
(ii) Repayment of Tax Benefit. If Parent has paid an
amount in respect of any refund pursuant to Section 6(a)(i) hereof, that amount
shall be repaid to Parent (with interest at the Overdue Rate from the original
date of payment until the date repaid to Parent) within twenty (20) days after
demand therefor by Parent (A) to the extent that the Xerox Affiliated Group
subsequently realizes capital losses, credits, or net operating losses that
could have been carried back but for the carryback of capital losses or credits
of the Buyer Group (or its members) pursuant to this Section 6(a) or (B) to the
extent that the Tax benefit to the Xerox Affiliated Group is subsequently
reduced pursuant to a Final Determination.
(b) Election to Forgo Carrybacks of Losses, Etc. Company and its
Subsidiaries shall elect, where permitted by law, to carry forward any net
operating loss, net capital loss, credit or other item arising after the Closing
Date that would, absent such election, be carried back to a Pre-Closing Taxable
Year of Company or any of its Subsidiaries that file a consolidated, combined,
or unitary Tax Return with any member of the Xerox Affiliated Group. Buyer and
Seller agree that neither Xerox, Parent or Seller shall make any election
pursuant to Reg. ss. 1.1502-20(g) to reattribute to itself any net operating
loss or net capital loss carryover of the Company or any of its Subsidiaries
unless Buyer and Seller otherwise agree.
7. Payments.
(a) Time and Manner of Payments. All payments made pursuant to
Sections 3, 4, 5 or 6 hereof shall be made in immediately available funds.
Except as otherwise provided herein, any payment not made when due hereunder
shall bear interest at the Overdue Rate from the due date until the date of
actual payment. In the absence of a specified date, a payment shall be due
twenty (20) days after the later of (i) the date on which the notifying party
actually realizes the expense, by incurring an economic detriment, with respect
to which such notice
17
relates, or (ii) the date such notice is delivered.
(b) Nature of Payments. Any payment (other than interest on a
payment) owing to the Buyer pursuant to this Agreement shall be made to Company
and treated by all parties for all purposes as a payment to the Buyer made as a
reduction of purchase price for Company's stock followed by a contribution to
Company's capital by the Buyer. Any payment (other than interest on a payment)
owing to the Parent (or any member of the Xerox Group) shall be made to Parent
and treated by all parties for all purposes as a net adjustment to the purchase
price for Company's stock. Any liability or obligation with respect to such
payment shall be extinguished through payment to Company or Parent respectively.
(c) Deferral of Payments Until Closing. Notwithstanding anything
else to the contrary in this Agreement, any payment otherwise due hereunder
prior to the Closing Date shall become payable within thirty (30) days after the
Closing Date, and any such deferred payments shall bear interest at the Overdue
Rate from the date such payments would have been due under this Agreement absent
the provisions of this Section 7(c) through the date of actual payment.
8. Audits and Other Contests.
(a) Notice of Audits or Assessments. Buyer (and any member of the
Buyer Group) shall promptly notify Parent, and Parent shall promptly notify
Buyer, in writing within ten (10) business days from the receipt of notice of
any pending or threatened Tax audits or assessments of Company or its
Subsidiaries for any Pre-Closing Taxable Year.
(b) Federal Income Taxes. Parent shall have the sole right to
represent the interests of Company and its Subsidiaries and settle all issues,
and to employ counsel of its choice at its expense, in any audit or other
examination or administrative or court proceeding relating to federal Income
Taxes for any Pre-Closing Taxable Year, provided that Parent shall keep Buyer
reasonably informed on an ongoing basis with respect to issues affecting the
Company and its Subsidiaries, and further provided that Parent shall not settle
any Tax claim which may be subject to indemnification by Buyer hereunder, or
which may increase the Tax Liabilities of Buyer and its Subsidiaries for any
Post-Closing Taxable Year without the consent of Buyer (which shall not be
unreasonably withheld). For purposes of this Section 8(b), Buyer's consent shall
be considered to be unreasonably withheld unless, within forty-five (45) days
after request by Parent, Buyer (i) provides Parent with the terms of an
alternative proposed settlement of the issue that Parent seeks to settle and
(ii) delivers to Parent an opinion of a law firm agreed upon by Parent and Buyer
stating that it is more likely than not that Buyer's alternative proposed
settlement of such issue will be accepted in the audit or other examination or
administrative or court proceeding in which Parent seeks to settle such issue.
(c) Other Taxes. Parent shall have the sole right to represent
the interests of
18
Company and its Subsidiaries and settle all issues, and to employ counsel of its
choice at its expense, in any audit or administrative or court proceeding
relating to Taxes other than federal Income Taxes for any Pre-Closing Taxable
Year ending on or before December 31, 1996. Notwithstanding the foregoing and
subject to Parent's rights set forth in the preceding sentence, Buyer shall be
entitled, at its expense, to participate in the conduct of any Tax audit and any
judicial or administrative proceeding relating to any Tax audit described in
this Section 8(c); provided that Parent shall keep Buyer reasonably informed on
an ongoing basis with respect to issues affecting the Company and its
Subsidiaries, and further provided that Parent shall not settle any Tax claim
which may be subject to indemnification by Buyer hereunder, or which may
increase the Tax Liabilities of Buyer and its Subsidiaries for any Post-Closing
Taxable Year without the consent of Buyer (which shall not be unreasonably
withheld). For purposes of this Section 8(c), Buyer's consent shall be
considered to be unreasonably withheld unless, within forty-five (45) days after
request by Parent, Buyer (i) provides Parent with the terms of an alternative
proposed settlement of the issue that Parent seeks to settle and (ii) delivers
to Parent an opinion of a law firm agreed upon by Parent and Buyer stating that
it is more likely than not that Buyer's alternative proposed settlement of such
issue will be accepted in the audit or other examination or administrative or
court proceeding in which Parent seeks to settle such issue.
(d) Straddle Periods. All audits or administrative or court
proceedings relating to any Straddle Period shall be controlled jointly by
Parent and Buyer, each to employ counsel of its choice at its expense, provided,
however, that settlement (at the administrative level or during the course of
judicial proceedings) may only be entered into with the consents of both Parent
and Buyer (which, in either case, shall not be unreasonably withheld). In the
event of an issue arising pursuant to any contest referred to in this Sections
8(d), if Parent or Buyer proposes to settle on terms acceptable to a Taxing
Authority, but the other party, Parent or Buyer as the case may be, disagrees
with the proposed settlement, then the party proposing to settle may pay the
other party its share of the amount of Taxes attributable to the settlement
proposed and, in that event, the other party shall have sole responsibility for
the settlement of such issue.
9. Cooperation, Record Retention, and Confidentiality.
(a) Cooperation.
(i) Buyer, Company and Subsidiaries to Cooperate. Upon
Parent's request, Buyer shall promptly provide (and cause Company and its
Subsidiaries, and the other members of the Buyer Group to promptly provide)
Parent with such cooperation and assistance, documents and other information,
without charge, as Seller may reasonably request in connection with (A) the
preparation of any Tax Return or Information Return, (B) the conduct of any
audit or other examination or any judicial or administrative or court proceeding
referred to in Section 8 hereof relating to liability for, refunds of or
adjustments with respect to (or any other matter relating to) Taxes or Tax
Returns or Information Returns of the Xerox Group or any member of
19
such Group, or (C) the verification of an amount payable or receivable
hereunder.
(ii) Parent and Seller to Cooperate. Likewise, upon
Buyer's request, Seller shall promptly provide (and cause its Subsidiaries to
promptly provide) such cooperation and assistance, documents and other
information referred to in the preceding sentence, as Buyer may reasonably
request in the circumstances described in Section 9(a)(i) hereof.
(iii) Cooperation Defined. For purposes of this
Agreement, cooperation and assistance shall include, without limitation: (A)
providing all relevant information that is available to Buyer, Company and its
Subsidiaries, as the case may be, with respect to any audit or proceeding
referred to in Section 8(a) hereof; (B) executing and delivering any power of
attorney necessary or other documents or instruments to carry out the intent of
this Agreement; (C) promptly and timely filing appropriate claims for any
refund; preparation of responses to requests for information within the time
frame given by the Taxing Authority for responding to such requests for
information, and (D) making available to any party, during normal business hours
(1) all books, records, returns of Company and its Subsidiaries, relevant
extracts from revenue agent reports that are applicable to Company and its
Subsidiaries, and (2) the services of officers and employees (without
substantial interruption of employment), necessary or useful in connection with
the matters referred to in this Section 9(a), provided that the foregoing shall
be done in a manner so as not to interfere unreasonably with the conduct of the
business of Buyer and Company and its Subsidiaries.
(b) Record Retention.
(i) Records to Be Retained; Time Periods. Parent,
Seller, and Buyer shall each retain or cause to be retained all Tax Returns and
Information Returns and all books, records, schedules, workpapers, and other
documents relating thereto, including, without limitation, documents described
in the Record Retention Agreement to which Company is a party (a copy of which
is attached as Exhibit A), until the expiration of the later of (A) all
applicable statutes of limitations (taking into account any waivers or
extensions thereof), and (B) any retention period required by law or pursuant to
any record retention agreement with any Taxing Authority.
(ii) Prior Notices Required. Parent and Buyer shall
notify each other in writing of (A) any waivers, extension or expirations of
applicable statutes of limitations as referred to in Section 9(b)(i) hereof, and
(B) of any intended destruction, at least thirty (30) days prior thereto, of any
of the documents referred to in Section 9(b)(i) hereof. A party giving such a
notice under this Section 9(b)(ii) shall nonetheless refrain from disposing of
any of the materials referred to in Section 9(b)(i) hereof without first having
offered to transfer possession thereof to the notified party.
20
(c) Confidentiality. Except as required by law or with the prior
express written consent of all other parties to this Agreement, all Tax Returns
and Information Returns, documents, schedules, workpapers and other documents
relating thereto, as well as all information contained therein, shall be kept
confidential to the parties to this Agreement and their officers, employees,
agents and representatives, shall not be disclosed to any other Person, and
shall be used only for the purposes provided herein.
10. Subsequent Transferees. Except as provided in this Section 10, Buyer
shall not sell, transfer, assign, or otherwise dispose of, whether directly or
indirectly, either the stock of Company and/or its Subsidiaries or substantially
all of Buyer's assets, or both, and Buyer shall prevent Company and its
Subsidiaries (determined as of the Closing Date) from selling, transferring,
assigning, or otherwise disposing of all or substantially all of their assets,
unless the purchaser, transferee, or assignee thereof expressly assumes all of
the obligations of the transferor under this Agreement or unless prior to any
such transfer, the transferor has made such other provisions for the
satisfaction of its obligations under this Agreement as shall be agreed to by
the other parties to this Agreement in their reasonable discretion. Provided
that the terms of this Section 10 are complied with, any transferee of all or
substantially all of the stock of Company shall succeed to its transferor's
rights under this Agreement.
11. Miscellaneous.
(a) Effectiveness. This Agreement shall be effective from and
after the date hereof, provided, however, that this Agreement shall terminate
immediately upon a termination of the Purchase Agreement in accordance with its
terms and thereafter this Agreement shall be of no further force and effect.
(b) Entire Agreement. This Agreement and the Purchase
Agreement contain the entire agreement among the parties hereto with respect to
the subject matter hereof.
(c) Binding Effect; No Third Party Beneficiary. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors, legal representatives and permitted assigns. Nothing
expressed or implied in this Agreement is intended or shall be construed to
confer upon or give any Person other than the Parent, Seller, Company, or the
Buyer any rights or remedies or by reason of this Agreement or any transaction
contemplated hereby.
(d) Termination of Prior Agreements. With respect to Company and
its Subsidiaries, this Agreement terminates, as of the Closing Date, any and all
other agreements with respect to Taxes (other than the Purchase Agreement) to
which Company or any of its Subsidiaries, on the one hand, and Seller or any of
its Subsidiaries (other than Company and its Subsidiaries), on the other hand,
are or were parties at any time at or before the Closing Date.
21
This Agreement also extinguishes, as of the Closing Date, any and all
intercompany liabilities with respect to Taxes between Company or any of its
Subsidiaries, on the one hand, and Seller or any of its Subsidiaries (other than
Company and its Subsidiaries), on the other hand, that exist on the Closing
Date. Subject to the provisions of Section 3(b) hereof, the parties to this
Agreement intend (i) that there not be any payments by Parent or Seller to
Company or any of its Subsidiaries or by Company or any of its Subsidiaries to
Parent, Seller, or any of their Subsidiaries after the date of this Agreement
under any existing agreement with respect to Taxes (other than the Purchase
Agreement) and (ii) that payments with respect to Taxes on and after the date of
this Agreement be made only pursuant to this Agreement.
(e) No Double Recovery. Should it be necessary, equitable
adjustments will be made to prevent duplicate recovery for indemnification with
respect to the same item.
(f) Section 338(h)(10) Election. The parties hereto shall not
make a joint election under Section 338(h)(10) of the Code unless Buyer and
Seller agree otherwise.
(g) Guarantee of Performance. Parent hereby guarantees the
complete and prompt performance by the members of the Xerox Affiliated Group and
Buyer Parent, Buyer, and Company hereby guarantee the complete and prompt
performance by members of the Buyer Group, of all of their respective
obligations and undertakings pursuant to this Agreement.
(h) Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
(i) Indulgences, etc. Neither the failure nor any delay on the
part of any party hereto to exercise any right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right preclude any other further exercise of the same or any other right, nor
shall any waiver of any right with respect to any occurrence be construed as a
waiver of such right with respect to any other occurrence.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF, EXCEPT WITH RESPECT TO MATTERS
OF LAW CONCERNING THE INTERNAL CORPORATE AFFAIRS OF ANY CORPORATE ENTITY WHICH
IS A PARTY TO OR SUBJECT OF THIS AGREEMENT, AND AS TO THOSE MATTERS THE LAW OF
THE JURISDICTION UNDER WHICH THE RESPECTIVE ENTITY DERIVES ITS POWERS SHALL
GOVERN.
(k) Notices. All notices, requests, demands and other
communications
22
required or permitted under this Agreement shall be made to:
To Parent:
Xerox Financial Services, Inc.
000 Xxxxx Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxx Xxxxxxxxxxx
Vice President, Taxes
To Seller:
Talegen Holdings, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxx, Esq.
General Counsel
With copies to:
LeBoeuf, Lamb, Xxxxxx & XxxXxx, L.L.P.
0000 Xxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Facsimile: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxxxxx
23
To Buyer:
Fremont General Corporation
0000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxx Xxxxxxxxx
Director of Taxes
with a copy to the appropriate persons designated in Section 10.5 of the
Purchase Agreement for receiving notice on behalf of Parent and Seller and
Buyer, respectively.
(l) Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument executed and delivered by duly authorized officers of Buyer and
Parent, or, in the case of waiver, by the party waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any such right, power or privilege nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any such right, power or privilege. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any covenant contained in this Agreement shall in no way be limited by
the fact that the act, omission, occurrence or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be the subject
matter of any other representation, warranty, covenant or agreement contained in
this Agreement (or in any other agreement between the parties) as to which there
is no inaccuracy or breach.
(m) Survival of Obligations. The agreements, covenants and
obligations contained in this Agreement shall survive the consummation of the
transactions contemplated by the Purchase Agreement, and shall expire only when
claims arising therefrom are barred by all applicable statutes of limitation (as
may be extended from time to time).
(n) Variations in Number and Gender. All terms used in this
Agreement, and any variations of such terms, refer to the masculine, feminine or
neuter, singular or plural, as the context may require.
(o) Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all of such counterparts shall together constitute one and the same
instrument.
24
(p) Headings. The Section and paragraph captions herein are for
convenience or reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto on the date first
hereinabove written.
Xerox Financial Services, Inc.
By:___________________________
Talegen Holdings, Inc.
By:___________________________
Industrial Indemnity Holdings, Inc.
By:___________________________
Fremont General Corporation
By:___________________________
Fremont Indemnity Company
By:___________________________
25
Exhibit A
RECORD RETENTION AGREEMENT
26
Schedule 2(a)
INTERPOLATION METHODOLOGY PURSUANT TO SECTION 2(a)(1)(B)
For purposes of this Agreement, any discounting of unpaid losses (within the
meaning of Section 846 of the Code) and of salvage and subrogation required for
the Stub Period shall be done in accordance with the following interpolation
method:
The discount factor for AY + 0 shall be determined (with reference to
the development of losses for the portion of 1996 up to and including
the Closing Date) by adding to the industry discount factor (published
by the IRS for 1996) for AY + 0, a percentage of the excess (whether
positive or negative) of the industry factor for AY + 0 over the
industry factor for AY + 1 equal to the number of full months in 1996
following the Closing Date divided by 12, provided that the resulting
discount factor shall not be greater than one nor less than zero.
The discount factor for AY + 1 shall be determined by subtracting from
the industry discount factor for AY + 0, a percentage of the excess
(whether positive or negative) of the industry factor for AY + 0 over
the industry factor AY + 1 equal to 1 minus the percentage determined
pursuant to the preceding sentence.
Similar interpolative adjustments should be made for AY + 2, AY + 3, and
each succeeding accident year, in turn, with the resulting factors
applied to unpaid losses reflected in the books and records of the
Company for each accident year.
It is understood and agreed that the source of the above method of computing
discount factors for unpaid losses is the letter submitted by the American
Insurance Association on April 24, 1989 to the Internal Revenue Service, and
that the method of computing part year discount factors for unpaid losses
reflected in that letter is intended to be applied for purposes of this
Agreement.
27
Schedule 5(f)
1990 through 1994 Uncollectible Reinsurance (Income) Deductions
1990 $4,690,323
1991 (297,973)
1992 8,057,076
1993 (4,410,816)
1994 2,412,334
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Total $10,450,944
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