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EXHIBIT 10.2
TAX SHARING AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of July, 1996, by and
among WMS Industries Inc., a Delaware corporation ("WMS"), Midway Games Inc., a
Delaware corporation ("Midway"), and each direct and indirect wholly owned
Midway subsidiary listed on Exhibit A and incorporated herein by reference
("Midway Subsidiaries").
WITNESSETH:
WHEREAS, WMS, Midway and the Midway Subsidiaries (hereinafter sometimes
referred to as "Members"; or in the singular "Member") are part of an affiliated
group ("WMS Group") as defined by Section 1504(a) of the Internal Revenue Code
of 1986, as amended (hereafter referred to by Sections);
WHEREAS, the WMS Group (as it then existed) has elected to file
consolidated federal income tax returns for the taxable year commencing May 30,
1981 and thereafter in accordance with Section 1501; and
WHEREAS, WMS is the Common Parent (as such term is defined in Section
1504(a)) for the affiliated group which includes WMS, Midway and Midway
Subsidiaries; and
WHEREAS, the Members desire to agree upon a method for (i) determining
the amount which Midway and the Midway Subsidiaries must pay to WMS in respect
of federal income taxes; (ii) compensating any Member for use of its "net
operating loss", "tax credits" and other tax benefits in arriving at the WMS
Group tax liability as determined under the federal consolidated return
regulations; and (iii) providing for the receipt of any refund arising from a
carryback of net operating losses or tax credits from subsequent taxable years
and for payments upon subsequent adjustments.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, for the WMS Group's first taxable year beginning July 1, 1996
and taxable years thereafter, the parties hereto agree as follows:
1. TAX PAYMENT CALCULATION
(a) The consolidated federal income tax liability of the WMS
Group, as determined under Section 1.1502-2 of the Regulations shall be
allocated to the Members in accordance with Section 1.1552-1(a)(1);
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(b) An additional amount shall be allocated to each Member
equal to 100 percent of the excess, if any, of (i) the "separate return tax
liability" of such Member for the taxable year over (ii) the tax liability of
such Member computed in accordance with Paragraph 1(a). For purposes of the
preceding sentence, the "separate return tax liability" of each Member for the
taxable year shall be determined as if such Member were filing a separate tax
return under the Code, and the term will not have the meaning set forth in
Section 1.1502-12 of the Regulations. In determining "separate return tax
liability" of a Member for purposes of their Agreement:
(i) any dividends received by one Member from another
Member will be assumed to qualify for the 100 percent dividends
received deduction of Section 243 of the Code, or shall be
eliminated from such calculation in accordance with Section
1.1502-14(a)(1) of the Regulations;
(ii) gain or loss on intercompany transactions shall
be treated by each Member in the manner required by Section
1.1502-13 of the Regulations;
(iii) limitations on the calculation of a deduction or
the utilization of tax credits or the calculation of a tax
liability shall be made on a consolidated basis; accordingly,
the limitations provided in Sections 38(c), 55(a), 170(b)(2),
and 172(b)(2) of the Code and similar limitations shall be
applied on a consolidated basis; and
(iv) elections as to tax credits and tax computations
which may have been different from the consolidated treatment
if separate returns were filed shall be made on an annual basis
as determined by WMS.
(c) Each Member shall pay WMS its allocated federal income tax
liability pursuant to paragraph 1(a). Each Member benefitting from net operating
losses and tax credits shall pay to WMS an additional amount determined pursuant
to paragraph 1(b). WMS shall pay to each Member which had net operating or
capital losses, tax credits or other tax benefits to which such total is
attributable, its allocable share of the total of additional amounts due from
other Members determined ratably in respect of such benefits or by such other
consistent method which reasonably reflects such losses, credits or other tax
benefits (such consistency and reasonableness to be determined by the party
charged with the administration of this Agreement in accordance with Paragraph
7(c) of this Agreement). However, for this purpose, the amounts paid to Members
will generally be deemed consistent and reasonable if paid on a basis equal to
the rate of tax in effect for the year to which such losses are carried, based
on the amount of such losses utilized, and 100 percent of tax credits utilized
(unless, due to special circumstances, this would
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be inequitable) and which is substantiated by specific records maintained by the
group for such purposes.
For purposes of this Agreement, the "net operating loss" of a
Member is the deduction which such member would have had available if it
actually filed a separate return for the year but would not include any portion
of a Member's net operating loss sustained in a prior or subsequent year which
had been absorbed by the WMS Group, any other affiliated group, or by the Member
in computing actual liabilities for prior or subsequent years. Notwithstanding
the preceding sentence, no benefit under Paragraph 3(c) of this Agreement shall
be granted a Member unless the net operating loss is availed of in reducing the
consolidated federal income tax liability. The rules stated in the previous
sentences regarding carryover net operating losses will also apply in the
computation of other carryover items such as capital losses general business tax
credits, foreign tax credits, charitable contribution deductions and other tax
benefits.
In calculating any benefit from a carryback or carryover of net
operating losses, adjustments shall be made to such prior or subsequent year's
separate return tax liability as required under Section 172(b)(2) and 172(d) of
the Code. For purposes of this calculation, the election under Section 172(b)(3)
shall be made on a separate company basis.
(d) Payments for these allocable shares are to be made no later
than ten (10) days after the date of filing of the consolidated federal income
tax return for such taxable year. The Chief Executive Officer of WMS shall have
the right to assess Members their share of estimated tax payments to be made on
the projected consolidated income tax liability for each year. Payment to WMS
shall be made ten (10) days after such assessment.
2. REFUNDS AND SUBSEQUENT ADJUSTMENTS
(a) If part or all of an unused consolidated net operating loss
or tax credit is allocated to a Member of the WMS Group pursuant to Section
1.1502-79 of the Regulations, and it is carried back or forward to a year in
which such Member actually filed or files a separate income tax return or a
consolidated federal income tax return with another affiliated group, any refund
or reduction in tax liability arising from the carryback or carryover shall be
retained by such Member. Notwithstanding the above, WMS shall determine whether
an election shall be made not to carryback any consolidated net operating loss
arising in a consolidated return year (including any portion allocated to a
Member under Section 1.1502-79) in accordance with Section 172(b)(3) of the
Code.
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(b) If the consolidated federal income tax liability is
adjusted for any taxable period, whether by means of an amended return, claim
for refund, or after an audit by the Internal Revenue Service, the liability of
each Member shall be recomputed to give effect to such adjustments. In the case
of a refund, WMS shall pay to each Member such Member's share of the refund,
determined in the same manner, within twenty (20) days after the refund is
received and in the case of an increase in tax liability, each Member shall pay
to WMS its allocable share of such increased tax liability within twenty (20)
days after receiving notice of such liability from WMS. If any interest is to be
paid or received as a result of a consolidated federal income tax deficiency or
refund, such interest shall be allocated to the Members in the same manner as
each Member's change in consolidated federal income tax liability or right to a
refund is determined. Any penalty shall be allocated upon such basis as the
president of WMS deems just and proper in view of all applicable circumstances.
(c) If the consolidated federal income tax liability of the WMS
Group is adjusted for any taxable period prior to the Effective Date stated in
Section 4, the preceding subparagraph shall be applied as if this Agreement was
in effect for such prior period except that the portion of any adjustments which
are characterized as "permanent differences" as defined by Generally Accepted
Accounting Principals shall be deemed to be attributable to WMS.
3. STATE AND LOCAL TAXES
Each Member shall timely file its own returns and pay its own state and
local income and franchise taxes; provided, however, that if any two or more
Members are required or elect, or WMS elects or causes any two or more Members
to elect, to file combined or consolidated (or similar) income tax returns for
any taxable year under any state or local income tax law, the financial
consequences of filing such returns among such Members shall be determined in a
manner as similar as practicable to those provided herein for federal income tax
purposes.
4. EFFECTIVE DATE
This Agreement shall be effective for the tax period beginning July 1,
1996, and all subsequent taxable years, unless the Members agree in writing to
terminate the Agreement. Notwithstanding such termination, this Agreement shall
continue in effect with respect to any payment or refunds due for all taxable
periods prior to termination.
5. MISCELLANEOUS PROVISIONS
(a) For purposes of this Agreement, the subsidiaries of WMS
(other than Midway) that are includible corporations in the WMS Group will be
considered Members. No payment, however, will be required to be made to or by
the WMS Subsidiaries.
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(b) For purposes of this Agreement, all payments due or from
any of Midway or the Midway Subsidiaries shall be netted and aggregated and paid
to or by Midway. Nothing in this Agreement shall be interpreted to require
Midway to make any payments to the Midway Subsidiaries.
(c) The Agreement shall not be assignable by any Member without
the prior written consent of the others.
(d) All material including but not limited to, returns,
supporting schedules, work papers, correspondence, and other documents relating
to the consolidated federal income tax returns filed for a taxable year during
which this Agreement was in effect shall be made available to any Member to the
Agreement during regular business hours for a minimum period equal to applicable
federal record retention requirements.
(e) The provisions of this Agreement shall be administered by
the Chief Executive Officer of WMS. A dispute between the parties with respect
to the operation or interpretation of this Agreement shall be decided by three
arbitrators who must all be certified public accountants or attorneys
specializing in tax law. WMS and Midway shall each choose an arbitrator who will
choose a third arbitrator. The court of arbitrators shall be held in the State
of Illinois in the city of Chicago. The losing party shall bear the cost of
arbitration including all fees for attorneys and accountants.
(f) Any Member corporation which leaves the consolidated group
shall be bound by this Agreement.
(g) The Members hereto recognize that from time to time other
companies may become Members of the WMS Group and hereby agree that such new
Members may become parties to this Agreement by executing the master copy of
this Agreement which shall be maintained at WMS's headquarters. It will not be
necessary for all the other Members to re-execute this Agreement; the new Member
may sign the existing Agreement, and it will be effective as if the old Members
had re-executed.
(h) Any alteration, modification, addition, deletion, or other
change in the consolidated income tax return provisions of the 1986 Code or the
regulations thereunder shall automatically be applied to this Agreement mutatis
mutandis.
(i) Failure of one or more parties hereto to qualify as a
member of the "affiliated group" within the meaning of Section 1504(a) of the
Code shall not terminate this Agreement with respect to the other parties as
long as two or more parties hereto continue so to qualify.
(j) This Agreement shall bind successors and assigns of the
parties hereto; but no assignment shall relieve any party's obligations
hereunder without the written consent of the other parties.
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(k) All notices and other communications hereunder shall be
deemed to have been duly given if delivered by hand or mailed by certified or
registered mail, postage prepaid, to the Chief Financial Officer of any Member,
c/o WMS Industries Inc., 0000 X. Xxxxxxxxxx Xxxxxx, Xxxxxxx, XX 00000 or such
other person as any member shall designate by a duly delivered notice to all
other Members.
(l) This Agreement shall be governed by the laws of the State
of Illinois.
IN WITNESS WHEREOF, the parties have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective as of the date first written above.
DATED:
WMS INDUSTRIES INC.
By: /s/ Xxxx X. Xxxxxxxx
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Title: President
MIDWAY GAMES INC.
By: /s/ Xxxx X. Xxxxxxxx
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Title: President
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MIDWAY HOME ENTERTAINMENT INC.
By: /s/ Xxxx X. Xxxxxxxx
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Title: Chairman
MIDWAY INTERACTIVE INC.
By: /s/ Xxxx X. Xxxxxxxx
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Title: President
ATARI GAMES CORPORATION
By: /s/ Xxxx X. Xxxxxxxx
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Title: Chairman
TENGEN INC.
By: /s/ Xxxx X. Xxxxxxxx
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Title: Chairman
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EXHIBIT A
Midway Home Entertainment Inc.
Midway Interactive Inc.
Atari Games Corporation
Tengen Inc.