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EXHIBIT 10.10
TAX ALLOCATION AGREEMENT
THIS AGREEMENT is made as of June 1, 1998 between INTERNATIONAL DATA
GROUP, INC., a Massachusetts corporation ("IDG"), and IDG BOOKS WORLDWIDE, INC.,
a Delaware corporation ("IDGB"; the term "IDGB" meaning IDGB and those of its
subsidiaries that are members of an affiliated group of corporations including
IDGB within the meaning of Section 1504(a) of the Internal Revenue Code of 1986,
as amended (the "Code")).
Preliminary Statement
IDG is currently the parent of an affiliated group of corporations
(including IDGB) within the meaning of Section 1504(a) of the Code ("IDG
Group"). IDG Group files consolidated returns for United States federal income
tax purposes ("Federal Returns"), files state income tax returns on a combined,
consolidated, unitary or similar basis ("State Returns"), and also files various
sales, property and miscellaneous tax returns ("Other Returns").
IDG and IDGB contemplate that in 1998 IDGB will issue shares of its
capital stock in a registered public offering, with the result that IDGB,
effective as of the closing date of the public offering (the "Separation Date"),
will no longer be part of IDG Group. On the Separation Date, after IDGB ceases
to be part of IDG Group for purposes of filing Federal Returns and most State
Returns, the Continuing IDG Group (as defined hereinafter) and IDGB may still be
required, or may find it advantageous, to file State Returns and Other Returns
in certain states where a combined or unitary tax return is available, even
though consolidation for purposes of Federal Returns is not then available. Such
continuing State Returns and Other Returns are referred to herein as "Continuing
Non-Federal Returns." The purpose of this Agreement is to set forth the
understanding of the parties with respect to the Federal Returns, State Returns,
Other Returns and Continuing Non-Federal Returns. Foreign tax returns are not
subject to this Agreement.
Agreements
IT IS MUTUALLY agreed by the parties hereto as follows:
1. CERTAIN DEFINITIONS; CONSTRUCTION.
1.1 The term "Continuing IDG Group" means the group of corporations
of which IDG is the common parent and with which IDG files an affiliated
consolidated federal income tax return, but excluding IDGB and subsidiaries of
IDGB that may exist now or in the future. For purposes of this Agreement, the
Continuing IDG Group shall be treated as a single corporate entity. The
Continuing IDG Group, on the one hand, and IDGB and its subsidiaries, on the
other, are sometimes herein referred to collectively as the "Two Companies" or
the "Companies." This Agreement anticipates that IDG will set aside and retain
certain sums calculated as provided herein. All references to IDG paying sums to
itself pursuant to this Agreement shall be satisfied by IDG setting aside sums
in respect of the obligations established under this Agreement.
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1.2. The section titles used herein are for convenience of reference
only and will not be considered in the interpretation or construction of any of
the provisions hereof. Words may be construed in the singular or the plural as
the context requires. All references to years refer to the tax year of IDG and
IDGB, which in each case end on September 30th in each year, although nothing
contained in this Agreement shall require either IDG or IDGB to maintain
September 30th as its tax year end.
2. FILING OF TAX RETURNS.
2.1. Federal Returns. For all fiscal periods ending on the Separation
Date as to which a consolidated Federal Return is appropriate in accordance with
the terms of this Agreement, IDG as the common parent will prepare and file or
cause to be prepared and filed the Federal Returns and any estimated payments
related thereto for the Continuing IDG Group and IDGB. IDGB will reimburse IDG
for IDGB's portion of the tax in accordance with this Agreement. Such
reimbursement will be the tax IDGB would have paid on a separate return basis.
2.2 State Returns and Other Returns. For all fiscal periods ending on
the Separation Date as to which a combined, consolidated, unitary or similar
State Return or Other Return is appropriate in accordance with the terms of this
Agreement, IDG as the common parent will prepare and file or cause to be
prepared and filed the State Returns and the Other Returns and any estimated
payments related thereto for the Continuing IDG Group and IDGB. Such State or
Other Returns may be filed on a combined, consolidated, or unitary basis or
using any other basis that IDG believes will result in a lower overall tax
liability to the Two Companies, for all States and other jurisdictions. IDGB
will reimburse IDG for IDGB's portion of the tax in accordance with this
Agreement. Such reimbursement will be the tax IDGB would have paid on a separate
return basis, but only if it was required to file a return in that jurisdiction.
2.3 Continuing Non-Federal Returns. For all fiscal periods commencing
after the Separation Date as to which a combined, consolidated, unitary or
similar Continuing Non-Federal Return is appropriate in accordance with the
terms of this Agreement, IDG will prepare and file or cause to be prepared and
filed the Continuing Non-Federal Returns and any estimated payments related
thereto for the Continuing IDG Group and IDGB. Such Continuing Non-Federal
Returns may be filed on a combined, consolidated or unitary basis, or any other
basis that IDG believes will result in lower overall tax liability to the Two
Companies, for all jurisdictions,. IDGB will reimburse IDG for IDGB's portion of
the tax in accordance with this Agreement. Such reimbursement will be the tax
IDGB would have paid on a separate return basis, but only if it was required to
file a return in that jurisdiction.
3. TIME OF PAYMENT OF TAX OBLIGATIONS TO IDG.
With respect to any fiscal period for which it is contemplated that IDG
will prepare and file a return pursuant to Section 2 of this Agreement, the
obligations of the Companies for tax payments in connection with Federal
Returns, State Returns, Other Returns and Continuing Non-Federal Returns will be
determined and paid as follows:
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3.1 Not later than the 15th day after the end of the fourth, sixth,
ninth and twelfth months of each consolidated taxable year of IDG, IDG will make
a reasonable determination (consistent with the provisions of Section 6655 of
the Code and any comparable provisions of state or local law) of the separate
Federal and State income tax liability, and the separate sales tax, property tax
and miscellaneous tax liability, that each Company would be required to pay as
estimated payments on a separate return basis for that period. Each Company
shall pay to IDG the amount of such liability within ten days.
3.2 After the end of IDG's fourth accounting quarter and before the
15th day of the third month thereafter, each Company will promptly pay to IDG
the entire amounts estimated to be due and payable under such Company's Federal
Returns and State Returns, and under such Company's Other Returns and Continuing
Non-Federal Returns, in each case as if filed on a separate return basis, less
all amounts previously paid with respect to that year pursuant to Section 3.1
hereof.
3.3 If, upon the filing of any combined, consolidated, unitary or
similar Federal Return or State Return, Other Return, or Continuing Non-Federal
Return, a revised calculation is made in the manner set forth in Section 3.2
hereof, and it is determined that either Company has paid to IDG with respect to
the consolidated taxable year an amount greater than that required by Section
3.2, then that excess will be promptly paid by IDG to that Company.
3.4 The parties acknowledge that IDGB shall accrue on its books the
taxes payable to IDG hereunder for periods prior to the Separation Date and that
such amounts shall not be included in the amounts to be distributed to IDG in
connection with the public offering of IDGB's shares.
4. TAX OBLIGATIONS OF IDG.
IDG will timely pay to the appropriate tax authority (and provide to
IDGB evidence of payment to the extent applicable to IDGB) the consolidated tax
liabilities of the Companies arising from filing a consolidated Federal Return
or a combined, consolidated, unitary or similar State Return, Other Return or
Continuing Non-Federal Return.
5. PAYMENT OF FUNDS BY IDG OR IDGB IN CERTAIN CASES.
With respect to any fiscal period for which it is contemplated that IDG
will prepare and file a return pursuant to Section 2 of this Agreement, after
the end of IDG's fourth quarter and before the 15th day of the third month
thereafter, if in any year one of the Companies incurs a loss, the other Company
shall pay to the first Company a sum equal to the amount of benefit realized by
the other Company that is attributable to the loss incurred by the first
Company. Any payment by IDGB shall be made to XXX.
0. CHANGES IN PRIOR YEAR'S TAX LIABILITIES.
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In the event that the consolidated, combined, unitary or similar tax
liability or the separate tax liability referred to in Sections 3, 4 and 5
hereof for any year for which a consolidated, combined, unitary or similar tax
return for the Two Companies was filed is or would be increased or decreased
by reason of filing an amended return or returns (including carry-back claims),
or by reason of the examination of the returns by the Internal Revenue Service
or any state or local taxing authority, the amounts of the payments under
Sections 3, 4 or 5, as the case may be, for each such year will be recomputed by
IDG to reflect the adjustments to taxable income or other basis of tax and tax
credits for the taxable year and interest or penalties, if any. In accordance
with those recomputations, additional sums will be paid by the Companies to IDG
or paid by IDG to the Companies regardless of whether a member (including IDGB)
has become a Departing Member (as defined hereinafter) subsequent to the taxable
year of recomputation.
7. NEW MEMBERS.
With respect to any fiscal period for which it is contemplated that IDG
will prepare and file a return pursuant to Section 2 of this Agreement, the
Companies agree that if IDG becomes the parent, as that term is used in Section
1504 of the Code, of one or more subsidiary corporations in addition to IDGB,
then, at IDG's election, each newly acquired subsidiary corporation may become a
separate party to this Agreement or an agreement substantially similar hereto by
consenting in writing to be bound by its provisions, effective immediately upon
its delivery to IDG, but the income and deductions or other basis for tax and
the tax credits of the newly acquired subsidiary corporations will first be
included in the consolidated Federal, State, Other or Continuing NonFederal
Returns as required by the Code or the applicable law of any state or other
jurisdiction.
8. DEPARTING MEMBERS.
8.1. The term "Departing Member" means a Company that is no longer
permitted under the Code or applicable state or local law to be included in the
consolidated Federal Return, a State Return, or Other Return with the other
Company. The parties contemplate that IDGB will become a Departing Member as to
Federal Returns and most State and Other Returns on the Separation Date and may
become a Departing Member as to Continuing Non-Federal Returns at some time in
the future.
8.2. In applying this Agreement to a Departing Member for the final
taxable year in which its income and deductions or other basis for tax and the
tax credits are required to be included in the consolidated Federal, State,
Other or Continuing Non-Federal Return: (i) the amount required to be paid by a
Departing Member under the provisions of Section 3 hereof and (ii) the amount
that the Departing Member is entitled to receive under the provisions of Section
5 hereof, will be determined by taking into account the income and deductions or
other basis for tax and the tax credits of the Departing Member only for the
fractional part of such year as the Departing Member was a member of the
consolidated group and included in the consolidated Federal, State, Other or
Continuing NonFederal Return.
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8.3. After the filing of the consolidated Federal, State, Other or
Continuing Non-Federal Return for the last taxable year that the Departing
Member was included therein, the Departing Member will be informed, if
applicable, of the amount of consolidated carry-overs as of the end of the
taxable year or period which are attributable to the Departing Member, as
provided by Treasury Regulations Section 1.1502-79 or comparable state or local
law or otherwise, including the agreement of the parties.
9. NO LIABILITY OF IDGB FOR TAXES OF OTHER IDG GROUP MEMBERS.
IDG shall pay, and shall indemnify and hold harmless IDGB from and
against, all taxes attributable to the IDG Group other than IDGB, whether
heretofore or hereafter arising or incurred, including, without limitation,
liability arising by reason of IDGB being severally liable for any taxes of the
IDG Group pursuant to Treasury Regulations Section 1.1502-6.
10. DETERMINATION OF SUMS DUE FROM AND PAYABLE TO MEMBERS.
IDG will determine the sums due from and payable to the Companies under
the provisions of this Agreement (including, without limitation, determinations
for purposes of Section 6 hereof). The Companies agree to provide IDG with such
information as may reasonably be necessary to make these determinations.
11. COOPERATION; TAX CLAIMS.
11.1 COOPERATION IN GENERAL. To the extent necessary to enable the
party preparing or filing a tax return or handling a tax claim as provided
herein, each of IDG and IDGB agrees to make available to the other party records
in its custody or control, to furnish other information, and otherwise to
cooperate to the extent reasonably required for the filing of tax returns the
handling of a tax claim.
11.2 NOTICE, DEFENSE, AND SETTLEMENT OF TAX CLAIMS.
(a) If the IDG Group or IDGB receives written notice of a
deficiency contest, audit, or other proceeding with respect to a proposed tax
liability for the other party is liable under this Agreement (including
liability hereunder to indemnify or reimburse a member of the other group), then
the recipient shall notify the other party of such matter by promptly sending
written notice thereof to IDG or IDGB, as the case may be. IDG and IDGB shall
cooperate to contest and defend any such proposed tax liability. The party that
is liable under applicable law for such proposed tax liability (without regard
to this Agreement) shall not settle, compromise, or otherwise agree to pay such
liability without the consent of the party that is liable for such tax under
this Agreement. Such consent shall not be unreasonably withheld.
(b) IDG shall be responsible for responding to any notice of
deficiency, contest, audit, or other proceedings with respect to a proposed tax
liability with respect to a Federal Return,
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State Return, Other Return or Continuing Non-Federal Return in which IDGB is
included. IDGB shall be responsible for responding to any notice of deficiency,
contest, audit, or other proceedings with respect to a proposed tax liability of
a stand alone tax return of IDGB. The cost and expense of IDG's handling of a
tax controversy, including legal and accounting fees, will be allocated to and
paid by the Company to which the tax controversy relates. If the tax controversy
relates to both Companies, the cost and expense will be allocated between the
Companies in the proportion that each Company's potential additional tax
liability bears to the total potential additional tax liability of both
Companies (determined in accordance with Section 6 hereof and assuming that the
tax controversy is resolved in favor of the taxing authority) for the taxable
year in issue. If the tax controversy encompasses more than one taxable year,
IDG will first allocate the cost and expense to each taxable year in the
proportion that the potential additional tax liability for each taxable year
bears to the total potential additional tax liability for the taxable years in
issue.
11.3 CONFIDENTIALITY. IDG and IDGB understand the confidential nature
of financial information disclosed in tax returns and the related supporting
documentation. Each of IDG and IDGB hereby agree to not release any tax and
supporting documentation or information with respect to the other party to any
outside party (other than taxing authorities pursuant to a legal obligation to
provide such information) without the consent of the other party.
12. RESOLUTION OF DISPUTES.
The parties hereto agree that litigation can be both costly and
inefficient and that alternative dispute resolution methods are, in general,
desirable. Accordingly, in case of any dispute or ambiguity concerning the
amount of any payment provided for under this Agreement, the parties shall
consider whether such dispute or ambiguity shall be resolved, in a manner
consistent with the principles and procedures set forth in this Agreement, by an
internationally recognized accounting firm (a so-called "Big Six" accounting
firm) jointly selected by the parties hereto. The parties may agree, but are not
required to agree, that the judgment of such accounting firm shall be conclusive
and binding upon each of the parties to this Agreement. The accounting firm's
fee shall be borne equally by each of the parties to this Agreement. If the
parties do not agree to pursue this or another method of alternative dispute
resolution, or if they do not agree that the resolution determined by the
accounting firm shall be binding, then the parties shall have the right to seek
resolution of the matter in the forums provided in Section 14.3.
13. EFFECTIVE DATE AND EXPIRATION.
This Agreement shall be effective beginning on the Separation Date, and
will continue until the expiration of the last statute of limitations applicable
to taxes governed by this Agreement. If the Separation Date shall not have
occurred by December 31, 1998, this Agreement shall not become effective and
shall no longer be binding on either party hereto in any respect.
14. GENERAL.
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14.1 WAIVER. Any waiver by any party of any default by the other
hereunder shall not be deemed to be a continuing waiver of such default or a
waiver of any other default or of any of the terms and conditions of this
Agreement.
14.2 AMENDMENTS. The terms and conditions of this Agreement may not be
superseded, modified, or amended except in writing stating that it is such a
modification and signed by an authorized representative of each party hereto.
14.3 GOVERNING LAW; FORUM SELECTION. This Agreement shall be governed
by the laws of the State of Delaware, without reference to its conflict of laws
principles. With respect to disputes arising out of this Agreement, unless the
parties otherwise agree, (i) any proceeding instituted by IDGB shall be subject
to the exclusive jurisdiction and venue of the Massachusetts state courts of
Middlesex County or Suffolk County, at the election of IDG (or, if there is
exclusive Federal jurisdiction, the United States District Court for the
District of Massachusetts), and (ii) any proceeding instituted by IDG shall be
subject to the exclusive jurisdiction and venue of the California state courts
of Santa Mateo County (or, if there is exclusive Federal jurisdiction, the
United States District Court for the Southern District of California), and the
parties consent to the personal and exclusive jurisdiction and venue of these
courts.
14.4 COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement between the parties as to the subject matter hereof, and supersedes
and replaces all prior or contemporaneous agreements, written or oral, regarding
such subject matter.
14.5 BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of each party hereto, its respective successors and assigns, and
each member of the IDG Group not a party hereto.
14.6 NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, by guaranteed overnight delivery by means of a nationally recognized
overnight delivery service, by fax, or by first class certified or registered
mail, return receipt requested, postage prepaid, to the following addresses.
(a) If to IDGB, at 000 Xxxx Xxxxxxxxx Xxxxxxxxx, Xxxxx 000,
Xxxxxx Xxxx, Xxxxxxxxxx 00000, Attention: Chief Financial Officer, or at such
other address or addresses as may have been furnished in writing by IDGB to IDG,
with a copy in each case to Xxxxx X. Xxx, Esq., Xxxxxx Xxxxxxx Xxxxxxxx &
Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, XX 00000.
(b) If to IDG, at 0 Xxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxxxxxxx
00000, Attention: Vice President and Controller, or at such other address or
addresses as may have been furnished to IDGB in writing by IDG, with a copy in
each case to Xxxxxx X. Xxxxxx, Xx., Esq., Xxxxx, Xxxx & Xxxxx LLP, Xxx Xxxx
Xxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000.
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Notices provided in accordance with this Section shall be deemed
delivered upon personal delivery, upon actual receipt or on the third business
day after deposit in the mail.
14.7 HEADINGS; COUNTERPARTS. Headings to Sections of this Agreement
are to facilitate reference only, do not form a part of this Agreement, and
shall not in any way affect the interpretation hereof.
14.8 PARTIAL INVALIDITY. If any provision in this Agreement shall be
found or be held to be invalid or unenforceable in any jurisdiction in which
this Agreement is being performed, then the meaning of said provision shall be
construed, to the extent feasible, so as to render the provision enforceable,
and if no feasible interpretation would save such provision, it shall be severed
from the remainder of this Agreement which shall remain in full force and
effect. In such event, the parties shall negotiate, in good faith, a substitute,
valid and enforceable provision which most nearly effects the parties' intent in
entering into this Agreement.
14.9 FORCE MAJEURE. Nonperformance of either party shall be excused to
the extent that performance is rendered impossible by strike, fire, flood,
governmental acts or orders or restrictions, failure of suppliers, or any other
reason where failure to perform is beyond the reasonable control of and is not
caused by the negligence of the nonperformance party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
INTERNATIONAL DATA GROUP, INC.
By:_____________________________________
IDG BOOKS WORLDWIDE, INC.
By:_____________________________________
