TAX DISAFFILIATION AGREEMENT
Dated as of September [29], 1997
between
HFS Incorporated
and
Avis Rent A Car, Inc.
TAX DISAFFILIATION AGREEMENT
This Tax Disaffiliation Agreement (the "Agreement") is made and
entered into as of September [29], 1997 by and among HFS Incorporated, a
Delaware corporation ("HFS") and Avis Rent A Car, Inc., a Delaware corporation
("Spinco").
WHEREAS, HFS is the common parent of an affiliated group ("Affiliated
Group") of corporations within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
WHEREAS, on or prior to October 16, 1997, HFS Car Rental Inc.
(formerly, Avis, Inc.), a Delaware corporation ("Avis") was the common parent
of an Affiliated Group of corporations whose members included, among others,
Wizard Co., Inc., a Delaware corporation ("Wizard"), Reserve Claims Management
Co., a Delaware corporations ("Claims Management"), Wizcom International, Ltd.,
a Delaware corporation ("Wizcom") and its wholly-owned subsidiary Preferred
Holidays, Inc., a Delaware corporation ("Preferred Holidays"), Avis Rent A Car
System, Inc., a Delaware corporation ("ARACS") and certain of their respective
Subsidiaries (as defined herein);
WHEREAS, Spinco, the beneficial owner of ARACS, Claims Management,
Avis International, Ltd, a Delaware corporation ("International"), Avis
Enterprises, Inc., a Delaware corporation ("Enterprises"), Pathfinder Insurance
Company, a Colorado domiciled stock insurance company ("Pathfinder"), Global
Excess and Reinsurance Ltd., a Bermuda domiciled insurer ("Global Excess") and
PF Claims Mgt. Ltd., a New York corporation ("PF Claims"), intends to issue
approximately 75 percent of the vote and value of its common stock to the
public in an initial public offering ("IPO");
WHEREAS, immediately after the date of the initial public offering,
HFS intends to file consolidated federal income tax returns on behalf of itself
and each Member (as defined herein) of the Post-IPO HFS Group (as defined
herein), and Spinco intends to file consolidated federal income tax returns on
behalf of itself and each Member of the Post-IPO Spinco Group (as defined
herein); and
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WHEREAS, HFS and Spinco desire on behalf of themselves, their
Subsidiaries (as defined herein) and their successors to set forth their rights
and obligations with respect to Taxes (as defined herein) relating to taxable
periods before and after the date of the IPO;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the Parties (as defined herein) hereto, intending to be
legally bound hereby, agree as follows.
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
1.1 "Acquisition Date" shall mean October 16, 1996.
1.2 "Affiliated Group" shall have the meaning set forth in the
Recitals.
1.3 "Agreement" shall have the meaning set forth in the Recitals.
1.4 "ARACS" shall have the meaning set forth in the Recitals.
1.5 "Avis" shall have the meaning set forth in the Recitals.
1.6 "Claims Management" shall have the meaning set forth in the
Recitals.
1.7 "Code" shall have the meaning set forth in the Recitals.
1.8 "Due Date" shall mean, with respect to any Tax Return or payment
of any Taxes with respect to a Tax Return, the date on which such Tax Return is
due to be filed with or such payment is due to be made to the appropriate Tax
Authority pursuant to applicable law,
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giving effect to any applicable extensions of the time for such filing or
payment.
1.9 "Enterprises" shall have the meaning set forth in the Recitals.
1.10 "Final Determination" shall mean (1) the entry of a decision of a
court of competent jurisdiction at such time as an appeal may no longer be
taken from such decision or (2) the execution of a closing agreement or its
equivalent between the particular taxpayer and the relevant Tax Authority.
1.11 "Global Excess" shall have the meaning set forth in the Recitals.
1.12 "Indemnifiable Loss" shall mean, with respect to any claim by an
Indemnified Party for indemnification pursuant to Article IV hereof, any and
all losses, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
demands, assessments, judgements, settlements, and compromises relating thereto
and reasonable attorneys' and accountants' fees and expenses in connection
therewith) suffered by such Indemnified Party with respect to such claim.
1.13 "Indemnifiable Party" shall mean any Party entitled to receive
indemnification from another Party pursuant to Article IV hereof.
1.14 "Interim HFS Group" shall mean, for any Interim Period, the then
Affiliated Group of corporations of which HFS was the common parent and which
joined in filing consolidated U.S. federal income Tax Returns.
1.15 "Interim Period" shall mean any taxable year or period that
begins on or after the day following the Acquisition Date and ends on or prior
to the IPO Date and, (i) in the case of a Straddle Period that begins on or
before, and ends after, the Acquisition Date, that portion of such Straddle
Periods that begins on the date immediately following the Acquisition Date, or
(ii) in the case of a Straddle Period that begins on or before, and ends after,
the IPO Date, that portion of such Straddle Period that ends on the IPO Date.
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1.16 "Interim Spinco Group" shall mean, for any Interim Period, Spinco
and its then Subsidiaries. Notwithstanding the foregoing, the Subsidiaries of
Spinco shall be deemed to include, for the entire Interim Period, PF Claims,
Global Excess, Pathfinder, Avis Enterprises, International, ARACS, Claims
Management and each of their respective Subsidiaries.
1.17 "International" shall have the meaning set forth in the Recitals.
1.18 "IPO Date" shall mean the last day on which Spinco and its then
Subsidiaries could be considered members of the Affiliated Group of
corporations of which HFS is the common parent and which join in filing
consolidated U.S. federal income Tax Returns.
1.19 "Member" shall mean (i) a member of a particular Affiliated Group
of corporations which join in filing consolidated U.S. federal income Tax
Returns or (ii) a member of a particular group defined in this Agreement.
1.20 "Party" shall mean HFS or Spinco.
1.21 "Pathfinder" shall have the meaning set forth in the Recitals.
1.22 "Paying Party" shall have the meaning set forth in Section 4.4
hereof.
1.23 "PF Claims" shall have the meaning set forth in the Recitals.
1.24 "Post-IPO HFS Group" shall mean, for any Post-IPO Period, the
Affiliated Group of corporations of which HFS is the common parent and which
join in filing consolidated U.S. Federal income Tax Returns.
1.25 "Post-IPO Period" shall mean any taxable period beginning the day
after the IPO Date and, in the case of any Straddle Period that begins on or
before, and ends after, the IPO Date, that portion of such Straddle Period that
begins on the day after the IPO Date.
1.26 "Post-IPO Spinco Group" shall mean, for any Post-IPO Period, (i)
the Affiliated Group of corporations of which Spinco is the common parent and
which join in
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filing consolidated U.S. Federal income Tax Returns and (ii) Spinco and/or any
of its Subsidiaries.
1.27 "Post-IPO Stub Period" shall mean any taxable year or period
after the IPO Date and ending on or before December 31, 1997.
1.28 "Pre-Acquisition Avis Group" shall mean, for any Pre-Acquisition
Period, (i) the then Affiliated Group of corporations of which Avis was the
common parent and which joined in filing consolidated U.S. Federal income Tax
Returns and (ii) Avis and/or any of its then Subsidiaries.
1.29 "Pre-Acquisition HFS Group" shall mean, for any Pre-Acquisition
Period, the then Affiliated Group of corporations of which HFS was the common
parent and which joined in filing consolidated U.S. Federal income Tax Returns.
1.30 "Pre-Acquisition Period" shall mean any taxable period or portion
thereof that ends on or before the Acquisition Date and, in the case of any
Straddle Period that begins on or before, and ends after, the Acquisition Date,
that portion of such Straddle Period that ends on the Acquisition Date.
1.31 "Preferred Holidays" shall have the meaning set forth in the
Recitals.
1.32 "Refund" shall have the meaning set forth in Article V.
1.33 "Spinco" shall have the meaning set forth in the Recitals.
1.34 "Straddle Period" shall mean any taxable period that (i) begins
on or before, and ends after, the Acquisition Date or (ii) begins on or before,
and ends after, the IPO Date.
1.35 "Subsidiary" shall mean, with respect to any Party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such Party or any other Subsidiary of such Party is a general partner
(excluding partnerships, the general partnership interests of which held by
such Party or any Subsidiary
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of such Party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Party or by one or more of its Subsidiaries, or by such Party and one
or more of its Subsidiaries.
1.36 "Tax Attribute" shall mean any net operating loss, investment tax
credit, foreign tax credit, or other credit, deduction or tax attribute
(including basis).
1.37 "Tax Authority" shall mean the Internal Revenue Service and any
other state, local, foreign or other governmental authority responsible for the
administration of Taxes.
1.38 "Tax Claim" shall mean a notice of deficiency, proposed
adjustment, assessment, audit, examination or other administrative or court
proceeding, suit, dispute or other claim with respect to Taxes or a Tax Return.
1.39 "Taxes" shall mean all taxes, charges, fees, levies, imposts,
duties and other assessments, including, without limitation, income, gross
receipts, excise, alternative minimum, personal property, real property, sales,
ad valorem, value-added, withholding, social security, occupation, use,
service, service use, leasing, leasing use, license, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by any Tax Authority,
whether computed on a separate, consolidated, unitary, combined or any other
basis, together with any interest, fines, penalties and additional amounts
attributable to, imposed on, or with respect to, any such taxes, charges, fees,
levies, imposts, duties or other assessments, and interest thereon.
1.40 "Tax Returns" shall mean all returns, reports, declarations,
information, estimates, schedules, filings or documents (including any related
or supporting information) filed or required by any Tax Authority to be filed
with respect to Taxes, including, without limitation, all information returns,
claims for refund, amended returns, declarations of estimated Tax, and requests
for
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extensions of time to file any item described in this paragraph.
1.41 "Transfer Tax" shall mean all sales, use, transfer (including
real property transfer and gains), stamp, documentary, filing, recordation and
other similar Taxes and fees which may be imposed or assessed as a result of
the IPO and the transactions contemplated thereby, together with any interest,
additions or penalties with respect thereto and any interest in respect of such
additions or penalties.
1.42 "Treasury Regulations" shall mean the United States income Tax
regulations promulgated by the Treasury Department under the Code, as the same
may be amended hereafter from time to time.
1.43 "Underpayment Rate" shall mean the interest rate specified under
Section 6621(a)(2) of the Code.
1.44 "Wizard" shall have the meaning set forth in the Recitals.
1.45 "Wizcom" shall have the meaning set forth in the Recitals.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
2.1 Preparation and Filing of Pre-Acquisition Period Tax Returns.
(a) HFS shall prepare and timely file or cause to be prepared and
timely filed (in each case, at its own cost and expense and in a manner
consistent with past practice) all Tax Returns of the Pre-Acquisition HFS Group
and any Member thereof for any Pre-Acquisition Period.
(b) To the extent not filed prior to the IPO Date, Spinco shall
prepare or cause to be prepared (in each case, at its own cost and expense and
in a manner consistent with past practice) all consolidated Federal and
consolidated, combined, unitary and similar state and local income Tax Returns
of the Pre-Acquisition
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Avis Group and any Member thereof for any Pre-Acquisition Period. For purposes
of this Section 2.1(b), Spinco shall prepare or cause to be prepared a combined
income tax return for New York State. At least 30 days prior to the Due Date of
any Tax Return which Spinco is required to prepare (or cause to be prepared)
pursuant to this Section 2.1(b), Spinco shall deliver such Tax Returns to HFS.
Upon its consent, HFS shall timely file (or cause to be timely filed) such Tax
Returns.
(c) Spinco shall prepare and timely file or cause to be prepared
and timely filed (in each case, at its own cost and expense and in a manner
consistent with past practice) all Tax Returns not described in Section 2.1(b)
of this Agreement required to be filed by the Pre-Acquisition Avis Group or any
Member thereof for any Pre-Acquisition Period, provided, however, that with
respect to any Tax Return of Avis, Wizard, Wizcom or Preferred Holidays
relating to a Straddle Period beginning on or before the Acquisition Date and
ending after the Acquisition Date with respect to which HFS is liable for any
amount of Tax shown to be due thereon pursuant to this Agreement, Spinco shall
prepare or cause to be prepared (in each case, at its own cost and expense and
in a manner consistent with past practice) such Tax Return and, at least 30
days prior to the Due Date thereof, shall deliver or cause to be delivered such
Tax Return to HFS for its review, together with a statement showing in
reasonable detail Spinco's calculation of any Taxes attributable to such
Straddle Period for which HFS is liable. Any disputes regarding such
calculations shall be resolved in accordance with Article IX of this Agreement.
HFS shall timely file or cause to be timely filed such Tax Returns.
2.2 Preparation and Filing of Interim Period Tax Returns and Other
Information.
(a) Except for those Tax Returns that Spinco is required to
prepare and timely file or cause to be prepared and timely filed pursuant to
Section 2.2(b) of this Agreement, HFS shall prepare and timely file or cause to
be prepared and timely filed (in each case, at its own cost and expense and in
a manner consistent with past practice) all Tax Returns of the Interim HFS
Group and any Member thereof for any Interim Period. As promptly as practicable
but in no event later than 90
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days before the Due Date of any such Tax Return, Spinco shall prepare or cause
to be prepared (in each case, at its own cost and expense and in a manner
consistent with past practice) pro forma statements for all Members of the
Pre-Acquisition Avis Group that, after the Acquisition Date, are Members of the
Interim HFS Group, for any Interim Period.
(b) Spinco shall prepare and timely file or cause to be prepared
and timely filed (in each case, at its own cost and expense and in a manner
consistent with past practice) all Tax Returns of the Interim Spinco Group and
any Member thereof.
2.3 Preparation and Filing of Post-IPO Period Tax Returns.
(a) HFS shall prepare and timely file or cause to be prepared and
timely filed (in each case, at its own cost and expense and in a manner
consistent with past practice) all Tax Returns of the Post-IPO HFS Group or any
Member thereof for any Post-IPO Period. As promptly as practicable but in no
event later than 90 days before the Due Date of any such Tax Return, Spinco
shall prepare pro forma statements for each of Avis, Wizard, Wizcom and
Preferred Holidays for any Post-IPO Stub Period.
(b) Spinco shall prepare and timely file or cause to be prepared
and timely filed (in each case, at its own cost and expense and in a manner
consistent with past practice) all Tax Returns of the Spinco Group and any
Member thereof for any Post-IPO Period.
2.4 Consistent Positions on Tax Returns; No Amendments.
(a) The Parties agree that, subject to any Final Determination
requiring a position to the contrary (of which the Party to which such Final
Determination relates shall give notice to the other), with respect to any Tax
Returns filed pursuant to this Agreement, the parties shall file and shall
cause their affiliates to file all such Tax Returns (or any position reflected
on a pro forma statement attributable to a Tax Return) consistently with one
another.
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(b) Spinco shall not (and shall cause each of its Subsidiaries
not to) file or amend any Tax Return of the Pre-Acquisition Avis Group or any
Member thereof or the Interim Spinco Group or any Member thereof for any
Pre-Acquisition Period or Interim Period, respectively, without the consent of
HFS or unless a Final Determination has occurred.
ARTICLE III
PAYMENTS WITH RESPECT TO TAXES
3.1 Payments of Taxes By Spinco.
(a) Spinco shall pay (or cause to be paid) all Taxes of, or
attributable to, (i) the PreAcquisition Avis Group and any Member thereof for
any Pre-Acquisition Period, (ii) the Interim Spinco Group and any Member
thereof for any Interim Period and (iii) the Spinco Group and any Member
thereof for any Post-IPO Period.
(b) With respect to any consolidated Federal or state
consolidated, unitary, combined or other similar income Tax Return of the
Interim HFS Group or any Member thereof that the Interim HFS Group or any such
Member is required to timely file pursuant to Article II of this Agreement,
Spinco shall pay or cause to be paid to HFS its portion of the Taxes shown to
be due on such Tax Return, as determined under this Agreement, at least 10 days
prior to the Due Date for such Tax Return. With respect to any Tax Return of
Avis, Wizard, Wizcom or Preferred Holidays relating to a Straddle Period
beginning on or before the Acquisition Date and ending after the Acquisition
Date that HFS is required to timely file or cause to be timely filed pursuant
to Article II of this Agreement, Spinco shall pay or cause to be paid to HFS
(or Avis, Wizard, Wizcom or Preferred Holidays, as directed by HFS), Spinco's
portion of the Taxes shown to be due on such Tax Return, as determined under
this Agreement, at least 10 days prior to the Due Date for such Tax Return.
3.2 Payment of Taxes by HFS. HFS shall pay all Taxes of, or
attributable to, (i) the Pre-Acquisition HFS Group and any Member thereof for
any Pre-Acquisition
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Period, (ii) the Interim HFS Group and any Member thereof for any Interim
Period (other than Taxes for which Spinco is obligated to pay pursuant to
Section 3.1(a)(ii) of this Agreement) and (iii) the Post-IPO HFS Group and any
Member thereof for any Post-IPO Period.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification by Spinco. Spinco shall pay, and shall indemnify,
defend and hold harmless HFS and any Member of the Post-IPO HFS Group from and
against all Indemnifiable Losses arising out of or resulting from, directly or
indirectly, (i) Taxes of, or attributable to, the Pre-Acquisition Avis Group or
any Member thereof for any Pre-Acquisition Period, (ii) Taxes incurred pursuant
to Treasury Regulations Section 1.1502-6 (or similar provisions under state,
local or foreign law imposing several liability upon members of a consolidated,
combined, affiliated or unitary group) as a result of Avis, Wizard, Wizcom,
Preferred Holidays or any other Member of the Pre-Acquisition Avis Group having
been a member of another Affiliated Group (other than the Interim HFS Group) or
combined, consolidated, affiliated or unitary group, (iii) Taxes of, or
attributable to, the Interim Spinco Group for any Interim Period, (iv) Transfer
Taxes for which Spinco is liable pursuant to Section 11.1 of this Agreement and
(v) Taxes of, or attributable to, the Post-IPO Spinco Group or any Member
thereof for any Post-IPO Period.
4.2 Indemnification By HFS. HFS shall pay, and shall indemnify, defend
and hold harmless Spinco and any Member of the Post-IPO Spinco Group from and
against all Indemnifiable Losses arising out of or resulting from, directly or
indirectly, (i) Taxes of, or attributable to, the Pre-Acquisition HFS Group or
any Member thereof for any Pre-Acquisition Period, (ii) Taxes of, or
attributable to, the Interim HFS Group or any Member thereof (other than the
Interim Spinco Group or any Member thereof) for any Interim Period, (iii) Taxes
of, or attributable to, the Post-IPO HFS Group or any Member thereof, for any
Post-IPO Period.
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4.3 Computation of Taxes Relating To Straddle Periods. For purposes of
determining the amount of Taxes which relate to a Straddle Period, the
Acquisition Date (or the IPO Date) shall be treated as the last day of a
taxable period, and the portion of any such Tax that is allocable to the
taxable period that is so deemed to end on and include the Acquisition Date (or
the IPO Date): (i) in the case of Taxes that are either (x) based upon or
related to income or receipts (and corresponding losses and deductions) or (y)
imposed in connection with the sale, exchange, transfer, assignment or
distribution of property (real or personal, tangible or intangible) (and
corresponding losses and deductions), shall be deemed equal to the amount which
would be payable if the period for which Tax is assessed ended on and included
the Acquisition Date (or the IPO Date), and (ii) in the case of Taxes other
than Taxes described in clause (i) hereof, shall be computed on a per diem
basis.
4.4 Payments. To the extent that a Party (a "Paying Party") owes money
to an Indemnified Party pursuant to this Article IV, the Paying Party shall pay
the Indemnified Party, no later than 10 business days prior to the Due Date of
the relevant Tax Return or 5 business days after the Paying Party receives the
Indemnified Party's calculations, whichever is later, the amount for which the
Paying Party is required to indemnify the Indemnified Party under this Article
IV. The Indemnified Party shall submit the Indemnified Party's calculations of
the amount required to be paid pursuant to this Article IV, showing such
calculations in sufficient detail so as to permit the Paying Party to
understand the calculations. Any dispute regarding such calculations shall be
resolved in accordance with Article IX of this Agreement.
ARTICLE V
REFUNDS
HFS shall be entitled to all refunds of Taxes ("Refunds") that are
attributable to (i) Members of the HFS Group for any Pre-Acquisition Period,
(ii) Members of the Interim HFS Group (other than the Interim Spinco Group) for
any Interim Period and (iii) Members of the Post-IPO HFS Group for any Post-IPO
Period. Spinco shall be entitled to all Refunds of Taxes that are attributable
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to (i) Members of the Pre-Acquisition Avis Group for any Pre-Acquisition Period
(ii) Members of the Interim Spinco Group for any Interim Period, and (iii)
Members of the Post-IPO Spinco Group for any Post-IPO Period. Notwithstanding
the foregoing, HFS shall be entitled to all Refunds of Taxes of Avis, Wizard,
Wizcom and Preferred Holidays for any Pre-Acquisition period which results from
the carryback of a loss, credit or other Tax Attribute from a Interim Period or
Post-IPO Period. Refunds relating to Straddle Periods shall be equitably
apportioned between HFS and Spinco in accordance with the provisions of this
Agreement governing Straddle Periods. A Party receiving a Refund to which the
other Party is entitled pursuant to this Agreement shall pay the amount to
which such other party is entitled within 10 days after the receipt of such
Refund.
ARTICLE VI
CARRYBACKS; NET OPERATING LOSSES
6.1 Carrybacks. In the event of a realization of any loss or credit
for tax purposes by a Party or any of its Subsidiaries for any taxable period
beginning on or after the IPO Date, the Party (or any of its Subsidiaries)
realizing such loss or credit may, in its sole discretion, to the extent
permitted under applicable law, elect not to carry back such loss or credit.
6.2 Net Operating Losses.
(a) Determination of Federal Income Tax Net Operating Losses
Attributable to Members of Pre-Acquisition Avis Group. With respect to the
amount of net operating loss carryovers attributable to the Pre-Acquisition
Avis Group (and each Member thereof) as of the Acquisition Date, the Parties
hereby agree that for Federal income tax purposes the net operating loss
carryforwards of the Pre-Acquisition Avis Group (and each Member thereof) as of
the Acquisition Date is as set forth on Schedule A, attached hereto. HFS and
Spinco shall not take any position contrary to Schedule A on any applicable Tax
Return, in any proceeding before any taxing authority or otherwise, unless
consent of the other Party is obtained or a Final Determination has occurred.
In the event that any of the losses set forth
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on Schedule A is disputed by any taxing authority, the Party receiving notice
of the dispute shall promptly notify the other party hereto concerning
resolution of the dispute (control of which shall be governed by Article VII of
this Agreement).
(b) No Indemnification for Utilization of Net Operating Losses
and Other Tax Attributes of Pre-Acquisition Avis Group. Notwithstanding
anything to the contrary contained in this Agreement, no Party to this
Agreement shall be entitled to any payment, indemnification or compensation for
the utilization (prior to or after the IPO Date) of the net operating losses,
tax credits and other tax attributes of the Pre-Acquisition Avis Group (or any
Member thereof) or the Interim Spinco Group (or any Member thereof).
(c) Determination of State and Local Income Tax Net Operating
Losses Attributable to Members of Pre-Acquisition Avis Group. HFS and Spinco
shall cooperate with each other and shall act together in good faith to
determine and agree upon, for state and local income tax purposes, the net
operating loss carryforwards of the Pre-Acquisition Avis Group (and each Member
thereof) and any state or local combined, unitary, consolidated or similar
group (as may be determined by the Parties) which includes Members of the
Pre-Acquisition Avis Group. HFS and Spinco shall be bound by such
determinations for purposes of determining any Taxes and shall not take any
position contrary to such determinations on any applicable Tax Return, in any
proceeding before any taxing authority or otherwise, unless consent of the
other Party is obtained or a Final Determination has occurred. In the event
that any of such determinations is disputed by any taxing authority, the Party
receiving notice of the dispute shall promptly notify the other party hereto
concerning resolution of the dispute (control of which shall be governed by
Article VII of this Agreement).
(d) Net Operating Loss Carryovers to Consolidated Return and
Separate Return Years. For Federal income tax purposes, with respect to the
Federal net operating losses of Members of the Pre-Acquisition Avis Group, the
consolidated net operating loss of the Pre-Acquisition Avis Group, and the
carryovers of such net operating losses to consolidated return and separate
return years, the Parties shall follow and consistently
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apply the rules of Temporary Treasury Regulations Section 1.1502-21T, including
for all tax years ending on or after January 29, 1991 that were open as of
January 1, 1997. Similar principles shall apply with respect to other tax
attributes. Unless otherwise required by state or local law, consistent rules
shall apply for state or local income tax purposes.
(e) Apportionment of Consolidated Section 382 Limitation. With
respect to the apportionment of the Federal "consolidated Section 382
limitation" (as determined by HFS in its sole discretion under Temporary
Treasury Regulations Section 1.1502-93T) caused as a result of the acquisition
of Avis by a Subsidiary of HFS, the Parties shall follow the rules of Temporary
Treasury Regulations Section 1.1502-95T(c). Accordingly, the Parties hereby
agree that HFS will cause Avis to allocate to Spinco the sum of (i) no less
than the lesser of (A) $20 million of the "value element" (as defined in
Temporary Treasury Regulations Section 1.1502-95T(c)(2)(i)) (the "Annual Value
Element") of the consolidated Section 382 limitation, as determined by HFS in
its sole discretion or (B) 50 percent of the Annual Value Element of the
consolidated Section 382 limitation, as determined by HFS in its sole
discretion, and (ii) no less than the lesser of (A) $50 million of the
"adjustment element" (as defined in Temporary Treasury Regulations Section
1.1502-95T(c)(2)(ii)) (the "Adjustment Element") of the consolidated Section
382 limitation, as determined by HFS in its sole discretion or (B) 15 percent
of the Adjustment Element of the consolidated Section 382 limitation, as
determined by HFS in its sole discretion. To the extent any apportionment of
any state or local net operating loss limitation is required to or may be made,
HFS shall determine such allocation in its sole discretion consistent with
applicable state or local law.
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ARTICLE VII
TAX CLAIMS
7.1 Notification of Tax Claims. If a Tax Claim shall be delivered,
sent, commenced, or initiated to or against either HFS or any Member of the
Post-IPO HFS Group or Spinco or any Member of the Post-IPO Spinco Group by any
Tax Authority with respect to Taxes for which one Party to this Agreement may
be entitled to indemnification from the other Party, HFS or Spinco, as the case
may be, shall promptly notify the other Party in writing of such Tax Claim.
7.2 Control of Tax Claims.
(a) Except as provided in Section 7.2(b) of this Agreement, HFS
shall control (at its own expense and with counsel of its own choice) all Tax
Claims relating to Taxes for which one Party may be entitled to indemnification
from the other Party pursuant to this Agreement. With respect to any Tax Claim
that HFS is entitled to control pursuant to this Section 7.2(a), HFS may permit
Spinco (at its own cost and expense and with counsel of its choice) to control
any such Tax Claim, provided, that Spinco shall (i) keep HFS informed of all
material developments and events relating to such Tax Claim, (iii) consult with
HFS with respect to any such Tax Claim, (iii) act in good faith and (iv) use
all reasonable efforts to preserve any net operating losses or other Tax
Attributes; provided, further, that Spinco shall not be entitled to settle or
otherwise compromise, either administratively or after commencement of
litigation, any such Tax Claim without the prior written consent of HFS.
(b) Spinco shall assume and control the defense of any Tax Claim
that solely relates or is attributable to the Pre-Acquisition Avis Group or any
Member thereof, the Interim Spinco Group or any Member thereof or the Post-IPO
Spinco Group or any Member thereof, provided, however, that the provisions of
Section 7.2(a) shall apply if any Tax Claim has the potential of reducing the
Federal income tax net operating loss carryforwards of the Pre-Acquisition Avis
Group.
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ARTICLE VIII
COOPERATION; MAINTENANCE OF BOOKS AND RECORDS
8.1 Cooperation. HFS and Spinco agree that, after the IPO Date,:
(a) Each Party shall assist (and cause its Subsidiaries and
affiliates to assist) the other in preparing any Tax Returns which the other
Party is responsible for preparing and filing;
(b) the Parties shall cooperate fully in preparing for any audits
of, or disputes with taxing authorities regarding, any Tax Returns and payments
in respect thereof;
(c) the Parties shall make available to each other and to any
taxing authority as reasonably requested all relevant books and records
relating to Taxes;
(d) the Parties shall provide timely notice to the other in
writing of any pending or proposed audits or assessments with respect to Taxes
for which the other may have an indemnification obligation under this
Agreement;
(e) the Parties shall furnish each other with copies of all
relevant correspondence received from any Tax authority in connection with any
audit or information request with respect to any Taxes referred to in
subsection (d) above; and
(f) except as otherwise provided herein, the Party requesting
assistance or cooperation shall bear the other's out-of-pocket expenses in
complying with such request to the extent that those expenses are attributable
to fees and other costs of unaffiliated third-party service providers other
than attorney's fees.
8.2 Maintenance of Books and Records. HFS and Spinco shall (and shall
cause each of their respective Subsidiaries after the IPO Date to) (a) until
the expiration of the relevant statutes of limitations (giving effect to any
applicable extensions or waivers), retain records, documents, accounting data
and other information
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(including computer data) necessary for the preparation and filing of all Tax
Returns in respect of Taxes of any group (as defined in this Agreement) or
Member thereof or for a Tax Claim by a Tax Authority relating to such Tax
Returns; and (b) give to the other group reasonable access to such records,
documents, accounting data and other information (including computer data) and
to its personnel (ensuring their cooperation) and premises, for the purpose of
the review or audit of such Tax Returns to the extent relevant to an obligation
or liability of any Party under this Agreement. Prior to destroying any
records, documents, data or other information described in this Article VIII,
the Party (or its affiliate) wishing to destroy such items shall give the other
Party (or its affiliate) a reasonable opportunity to obtain such items (at such
other Party's (or its affiliate's) expense.
ARTICLE IX
DISPUTES
If the Parties disagree as to the calculation of any Tax or the amount
of any payment to be made under, or any other matter arising out of, this
Agreement, the Parties shall cooperate in good faith to resolve any such
dispute, and any agreed-upon amount shall be paid to the appropriate Party. If
the Parties are unable to resolve any such dispute within 30 days thereafter,
such dispute shall be resolved by a mutually agreeable nationally recognized
accounting firm (other than any such accounting firm generally retained by HFS
or Spinco) (the "Independent Accountants"). If and to the extent that the
dispute presents legal issues, the Independent Accountants shall have the
authority to consult a nationally recognized independent law firm (other than
any law firm generally retained by HFS or Spinco) (the "Independent Lawyers").
The Independent Accountants on the advice, if applicable, of the Independent
Lawyers, shall make their determination as promptly as practicable and such
determination shall be final and binding on the Parties and shall be deemed a
final arbitration award that is enforceable pursuant to all terms of the
Federal Arbitration Act, 9 U.S.C. xx.xx. 1 et. seq. The fees and expenses
relating to the engagement of the Independent Accountants and the Independent
Lawyers shall be shared by HFS and Spinco in accordance with the final
allocation of the Tax
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liability in dispute. Following the decision of the Independent Accountants
and, if applicable, the Independent Lawyers, the Parties shall each take (or
cause to be taken) any action that is necessary or appropriate to implement
such decision, including, without limitation, the filing of amended Tax Returns
and the prompt payment of underpayments or overpayment, with interest
calculated on such underpayments or overpayments at the Underpayment Rate from
the date such underpayment or overpayment is paid or refunded.
ARTICLE X
SURVIVAL
Notwithstanding any other provision in this Agreement to the contrary,
the rights and obligations provided for in this Agreement shall survive
indefinitely.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Transfer Taxes. Spinco shall prepare (or cause to be prepared)
and timely file (or cause to be timely filed) with the appropriate Tax
Authority all Tax Returns required to be filed in respect of Transfer Taxes
imposed with respect to the IPO. Spinco shall pay (or cause to be paid) all
Transfer Taxes attributable to the IPO.
11.2 Effective Date of Agreement; Termination of Existing Tax Sharing
Agreements. This Agreement shall take effect as of the IPO Date and any and all
existing Tax Sharing Agreements and arrangements, written or unwritten (other
than those provided by this Agreement) between or among any Member or Members
of the Post-IPO HFS Group and any Members or Members of the Post-IPO Spinco
Group shall be terminated as of the IPO Date and any and all rights or
obligations existing thereunder shall be fully and finally settled without any
payment by any party thereto.
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11.3 Interest on Late Payments. Any payment required by this Agreement
which is not made on or before the date required to be made hereunder shall
bear interest after such date at the Underpayment Rate. All payments made
pursuant to this Agreement shall be made in immediately available funds.
11.4 Determination and Characterization of Payments. (a) All
indemnification payments under this Agreement shall be determined on a pre-Tax
basis, i.e., without regard to the Tax consequences to the indemnified Party of
making a payment that is indemnified by another Party under this Agreement or
of receiving a payment under this Agreement as indemnification therefor.
(b) The payments made pursuant to this Agreement shall be treated as
occurring immediately before the IPO, and no Member of the Post-IPO HFS Group
or the Post-IPO Spinco Group and none of the Subsidiaries of any such Member
shall take any position inconsistent with such treatment before any Tax
Authority, except to the extent that a Final Determination with respect to the
recipient Party causes any such payment to not be so treated.
11.5 Notices. All notices and written communications under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when received addressed as follows:
If to HFS,
HFS Car Rental, Inc.
c/o HFS Incorporated
0 Xxxxxx Xxx
Xxxxxxxxxx, XX 00000
Attn: General Counsel
Telecopy Number: (000) 000-0000
If to Spinco,
Avis Rent A Car, Inc.
000 Xxx Xxxxxxx Xxxx
Xxxxxx Xxxx, XX 00000
Attn: General Counsel
Telecopy Number: (000) 000-0000
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Any Party may, by written notice so delivered to the other Party,
change the address to which delivery of any notice shall thereafter be made.
11.6 Governing Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of New York, without regard to the
conflicts of law rules of such state.
11.7 Amendments. This Agreement may not be amended except by an
agreement in writing, signed by the Parties.
11.8 Parties in Interest. None of the Parties may assign its rights or
delegate any of its duties under this Agreement without the prior written
consent of the other Party, except that HFS may assign its rights and delegate
its duties hereunder to CUC International Inc. ("CUC") or an entity controlled
by CUC in connection with the proposed merger of HFS and CUC. This Agreement
shall be binding on, and shall inure to the benefit of, the parties and the
respective successors, assigns, and persons controlling any of the corporations
bound hereby. HFS, on the one hand, and Spinco, on the other hand, hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of HFS's Subsidiaries and Spinco's Subsidiaries,
respectively. No person (including, without limitation, any employee of a Party
or any stockholder of a Party) shall be, or shall be deemed to be, a third
party beneficiary of this Agreement.
11.9 Entire Agreement. This Agreement constitutes the entire agreement
of the parties concerning the subject matter hereof and supersedes all prior
agreements, whether or not written, concerning such subject matter.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute together the same document.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
HFS INCORPORATED
By
---------------------------
Name:
Title:
AVIS RENT A CAR INC.
By
---------------------------
Name:
Title:
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