EXHIBIT 10.5
TAX SHARING AND DISAFFILIATION AGREEMENT
TAX SHARING AND DISAFFILIATION AGREEMENT dated as of _______, by and between
Voyager Internet Group. Com, a Nevada corporation ("VIGC"), and Voyager group
Inc, a Delaware corporation ("VYGP").
RECITALS
WHEREAS, VYGP is a first tier Subsidiary of VIGC;
WHEREAS, VIGC is the common parent of an affiliated group of
corporations within the meaning of Section 1504(a) of the Code, which currently
files consolidated federal income Tax Returns;
WHEREAS, pursuant to the Reorganization Agreement dated as of
__________________, 1999 by and between VIGC and VYGP (the "Reorganization
Agreement"), VIGC has contributed to VYGP the Transferred Assets, and VYGP has
assumed the Assumed Liabilities (as more fully described in the Reorganization
Agreement, the "Contribution"), and VIGC will distribute to the holders of VIGC
Common Stock all of the outstanding shares of VYGP Common Stock owned by VIGC,
with cash distributed in lieu of fractional shares of VYGP Common Stock (as
described more fully in the Reorganization Agreement, the "Distribution");
WHEREAS, VIGC and VYGP intend that the Contribution will qualify as a
reorganization within the meaning of Section 368(a)(1)(D) of the Code, and the
Distribution will qualify as a distribution described in Section 355 of the Code
and will not result in the recognition of any taxable gain or income to VIGC or
any shareholder of VIGC (except to the extent of cash received in lieu of any
fractional shares of VYGP Common Stock);
WHEREAS, after the Distribution Date, VYGP will cease to be a member of
the VIGC Affiliated Group for federal income Tax purposes;
WHEREAS, members of the VYGP Group and members of the VIGC Group desire
on behalf of themselves and their successors to set forth their rights and
obligations with respect to Taxes due for periods before, on and after the
Distribution Date; and
WHEREAS, capitalized terms used but not defined herein have the
meanings set forth in the Reorganization Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
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ARTICLE I
DEFINITIONS
1.01 For the purposes of this Agreement:
"AGREEMENT" shall mean this Tax Sharing and Disaffiliation Agreement as
the same may be amended from time to time.
"APPLICABLE FEDERAL RATE" shall have the meaning set forth in Section
274(d) of the Code, compounded quarterly.
"CHANGE IN FEDERAL TAX LAW" shall mean any of the following occurring
after the Distribution Date: any amendment to, or change in, the Internal
Revenue Code of 1986, as amended (or any Treasury Regulations thereunder); the
issuance of any revenue ruling, revenue procedure, notice, or other
pronouncement of general application by the Internal Revenue Service or any
successor administrative agency; or the receipt of a binding private letter
ruling addressed to VIGC, in each such case to the effect that no income or gain
will be recognized for federal income tax purposes by the VIGC Affiliated Group
upon the exercise by employees of any member of such group of options with
respect to VYGP stock.
"CLAIM" shall have the meaning set forth in Section 5.03(a) of this
Agreement.
"CONTRIBUTION" shall have the same meaning set forth in the third
recital.
"CONTROLLING PARTY" shall have the meaning set forth in Section 5.01 of
this Agreement.
"DISTRIBUTION" shall have the meaning set forth in the third recital.
"VYGP" shall have the meaning set forth in the preamble to this
Agreement.
"VYGP GROUP" shall mean, for any period, (i) VYGP, (ii) the VYGP
Business, to the extent operated as a division of an entity other than VYGP and
(iii) an affiliate of either of the foregoing or of VIGC, excluding any entity
that is principally engaged in the Retained Business. For purposes of the
foregoing, "affiliate" shall mean any Person that directly or indirectly
controls, or is under common control with, VYGP or the VYGP Business (as
described in (i) or (ii) in the preceding sentence). For purposes of this
definition, the term "control" means the power to direct management, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise; and the term "controlled" has the meaning correlative to the
foregoing. Notwithstanding the foregoing, for any period, (x) VYGP and VIGC
shall not be deemed to be under common control for purposes hereof due solely to
the fact that VYGP and VIGC indirectly or directly have common stockholders, (y)
the VYGP Business to the extent operated as a division of an entity other than
VYGP and VYGP shall neither be treated as a member of the VIGC Group nor be
deemed to be controlled by VIGC and (z) any Person controlled by both VYGP and
VIGC shall
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be treated as controlled solely by VYGP. A "member" of the VYGP Group shall
include, without limitation, the VYGP Business, to the extent operated as a
division of an entity other than VYGP.
"VYGP TAINTING ACT" shall mean:
(a) any inaccuracy or breach of any representation, warranty, or
covenant that is made by VYGP pursuant to Section 2.01 of this Agreement;
(b) any action (or failure to take any reasonably available action) by
any member of the VYGP Group; or
(c) any acquisition or other transaction involving the capital stock of
VYGP other than the Contribution or Distribution).
"VYGP TAXES" shall mean any Taxes (excluding Restructuring Taxes) that
are attributable to the VYGP Business. For purposes of the foregoing, Taxes
shall be deemed attributable to the VYGP Business to the extent such Taxes are
imposed as a result of (i) Tax Items of each foreign member of the VIGC Group or
the VYGP Group but, in the case of such a member organized under the laws of
France or the United Kingdom, only to the extent not directly related to the
Retained Business, (ii) Tax Items of each U.S. member of the VIGC Group or the
VYGP Group directly related to the VYGP Business, or (iii) the portion of Tax
Items of U.S. members not directly related to either the VYGP Business or the
Retained Business corresponding to the proportion of the aggregate revenues of
the U.S. members attributable to the VYGP Business relative to the aggregate
revenues of the U.S. members attributable to either the VYGP Business or the
Retained Business for the fiscal (accounting) year of VIGC in which, or with
which, ends the taxable year with respect to which the relevant Tax is imposed.
For purposes hereof, a "U.S. member" shall mean a member organized under the
laws of the United States or a State or a jurisdiction thereof or therein, and a
"foreign" member shall mean a member that is not a U.S. member. For purposes of
the foregoing, in the case of any entity or group having Tax Items attributable
to the VYGP Business, incremental Tax Benefits shall be attributed to foreign,
but not U.S. members of the VYGP Group or the VIGC Group.
"FILING PARTY" shall have the meaning set forth in Section 4.01 of this
Agreement.
"FINAL DETERMINATION" shall mean with respect to any issue (i) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (ii) a closing agreement (whether or not
entered into under Section 7121 of the Code) or any other binding settlement
agreement (whether or not with the IRS) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (iii) the
completion of the highest level of administrative proceedings if a judicial
contest is not or is no longer available.
"INDEMNITOR" shall have the meaning set forth in Section 5.02 of this
Agreement.
"LIABLE PARTY" shall have the meaning set forth in Section 4.01 of this
Agreement.
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"NET OPTION DEDUCTION" shall mean, for any taxable year of the VIGC
Affiliated Group, the excess for such group of (i) the aggregate net deduction
or loss recognized by such group for federal income tax purposes upon the
exercise by employees of any member of such group of options with respect to
VYGP stock over (ii) any aggregate net income or gain recognized for federal
income tax purposes by such group upon the exercise by employees of any member
of such group of options with respect to VYGP stock.
"POST-DISTRIBUTION PERIOD" shall mean any taxable year or other taxable
period beginning after the Distribution Date and, in the case of any taxable
year or other taxable period that begins before and ends after the Distribution
Date, that part of the taxable year or other taxable period that begins at the
beginning of the day after the Distribution Date.
"PRE-DISTRIBUTION PERIOD" shall mean any taxable year or other taxable
period that ends on or before the Distribution Date and, in the case of any
taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period through
the close of the Distribution Date.
"REORGANIZATION AGREEMENT" shall have the meaning set forth in the
third recital.
"REPRESENTATION LETTERS" shall mean the representation letters and any
other materials (including, without limitation, the ruling request and the
supplemental submissions to the IRS) delivered or deliverable by VIGC and others
in connection with the issuance by the IRS of the Tax Rulings.
"RESTRUCTURING TAXES" shall mean any Taxes (and other liabilities,
including, without limitation, liability to stockholders and the costs of
defending against the imposition of such Taxes and other liabilities) imposed as
a result of a Final Determination that (i) the Contribution failed to qualify as
a reorganization within the meaning of Section 368(a)(1)(D) of the Code, (ii)
the Distribution failed to qualify as a distribution described in Section 355 of
the Code, or (iii) any stock or securities of VYGP failed to qualify as
"qualified property" within the meaning of Section 355(c)(2) of the Code because
of the application of Section 355(d) or Section 355(e) of the Code to the
Distribution.
"RETAINED BUSINESS" shall have the meaning set forth in the
Reorganization Agreement.
"TAX" (and with correlative meaning, "Taxes" and "Taxable") means any
federal, state, local or foreign net income, gross income, gross receipts,
windfall profit, severance, property, production, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad
value, value-added, transfer, stamp, or environmental tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount imposed by any Governmental Authority.
"TAX BENEFITS" means benefits taken into account in computing the tax
liability of a member of either the VYGP Group or the VIGC Group, including the
benefit of the graduated tax rates of Section 11 of the Code, as well as any
similar or corresponding benefits under state or local
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tax law.
"TAX ITEM" means any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credit, receipt, proceeds or any other
item or event that increases or decreases Taxes paid or payable, including an
adjustment under Section 481 of the Code resulting from a change in accounting
method.
"TAX RETURN" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
"TAX RULINGS" shall mean the rulings by the IRS deliverable to VIGC in
connection with the Contribution and the Distribution.
"TRANSACTION TAXES" shall have the meaning set forth in Section 3.04(d)
of this Agreement.
"VIGC" shall have the meaning set forth in the preamble to this
Agreement.
"VIGC AFFILIATED GROUP" shall mean the corporations included in the
affiliated group, as defined in Section 1504 of the Code, of which VIGC are the
common parent, and any successor group.
"VIGC GROUP" shall mean, for any period, VIGC or an affiliate of VIGC
engaged principally in the Retained Business. For the purposes of the foregoing,
"affiliate" shall mean any Person that directly or indirectly controls, or is
under common control with, VIGC. For the purposes of this definition, the term
"control" means the power to direct the management of an entity, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise; and the term "controlled" has the meaning correlative to the
foregoing. Notwithstanding the foregoing, for any period, (x) VYGP and VIGC
shall not be deemed to be under common control for purposes hereof solely due to
the fact that VYGP and VIGC indirectly or directly have common stockholders, (y)
the VYGP Business to the extent operated as a division of an entity other than
VYGP and VYGP shall neither be treated as a member of the VIGC Group nor be
deemed to be controlled by VIGC and (z) any person controlled by both VYGP and
VIGC shall be treated as controlled solely by VYGP.
"VIGC TAINTING ACT" shall mean:
(a) any inaccuracy or breach of any representation, warranty, or
covenant that is made by VIGC pursuant to Section 2.02 of this Agreement;
(b) any action (or failure to take any reasonably available action) by
any member of the VIGC Group;
(c) any acquisition or other transaction involving the capital stock of
VIGC (other than the
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Contribution or Distribution).
"VIGC TAXES" shall mean any Taxes (excluding Restructuring Taxes) that
are attributable to the Retained Business. For purposes of the foregoing, Taxes
shall be deemed attributable to the Retained Business to the extent such Taxes
are imposed as a result of (i) Tax Items of each foreign member organized under
the laws of France or the United Kingdom to the extent directly related to the
Retained Business, (ii) Tax Items of each U.S. member of the VIGC Group or the
VYGP Group directly related to the Retained Business, or (iii) the portion of
Tax Items of U.S. members not directly related to either the VYGP Business or
the Retained Business corresponding to the proportion of the aggregate revenues
of the U.S. members attributable to the Retained Business relative to the
aggregate revenues of the U.S. members attributable to either the VYGP Business
or the Retained Business for the fiscal (accounting) year of VIGC in which, or
with which, ends the taxable year with respect to which the relevant Tax is
imposed. For purposes hereof, a "U.S. member" shall mean a member organized
under the laws of the U.S. or a State or a jurisdiction thereof or therein, and
a "foreign" member shall mean a member that is not a U.S. member. For purposes
of the foregoing, in the case of any entity or group having Tax Items
attributable to the Retained Business, incremental Tax Benefits shall be
attributable to U.S., but not foreign, members of the VYGP or VIGC Group.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01 VYGP. VYGP hereby represents and warrants that: (i) it has
examined the Tax Rulings and the Representation Letters, and (ii) the facts set
forth therein, and the representations made therein, to the extent descriptive
of the VYGP Group or the VYGP Business (including, without limitation, the facts
and representations in the Representation Letters and the Tax Rulings to the
extent that they relate to the VYGP Group or the VYGP Business, and the plans,
proposals, intentions and policies of the VYGP Group and the VYGP Business) were
true, correct and complete in all material respects when the Tax Rulings were
issued, and will be true, correct and complete in all material respects on the
Distribution Date.
2.02 VIGC. VIGC hereby represents and warrants that (i) it has examined
the Tax Rulings and the Representation Letters, and (ii) the facts set forth
therein, and the representations made therein, to the extent descriptive of the
VIGC Group or the Retained Business and not descriptive of the VYGP Group or the
VYGP Business (including, without limitation, the facts and representations in
the Representation Letters and the Tax Rulings to the extent that they relate to
the VIGC Group or the Retained Business and do not relate to the VYGP Group or
the VYGP Business, and the plans, proposals, intentions and policies of the VIGC
Group and the Retained Business, and not of the VYGP Group or the VYGP Business)
were true, correct and complete in all material respects when the Tax Rulings
were issued, and will be true, correct and complete in all material respects on
the Distribution Date.
ARTICLE III
TAX RETURNS, TAX PAYMENTS AND TAX SHARING OBLIGATIONS
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3.01 OBLIGATIONS TO FILE TAX RETURNS. (a) VIGC shall timely
file or cause to be filed all Tax Returns with respect to the VYGP Group that
(i) are due on or before the Distribution Date or (ii) are for any
Pre-Distribution Period and are filed on a consolidated, combined or unitary
basis and include any member of the VYGP Group, on one hand, and any member of
the VIGC Group, on the other hand, (except, in all cases, with respect to any
member of the VYGP Group for which VIGC would not have filed or cause to be
filed a Tax Return in accordance with past practice). VYGP shall timely file or
cause to be timely filed any other Tax Return with respect to the VYGP Group.
(b) VIGC shall timely file or cause to be timely filed all Tax Returns
with respect to the VIGC Group.
3.02 OBLIGATION TO REMIT TAXES. VIGC and VYGP shall each remit or cause
to be remitted any Taxes due in respect of any Tax Return it is required to file
or cause to be filed pursuant to Section 3.01, and shall be entitled to
reimbursement for such payments to the extent provided in Section 3.03.
3.03 TAX SHARING OBLIGATIONS AND PRIOR AGREEMENTS. (a) VYGP shall be
liable for and pay, and pursuant to Article XII of the Reorganization Agreement
shall indemnify, defend, and hold harmless VIGC and the VIGC Indemnified Parties
from and against, any and all Losses and Expenses incurred or suffered by VIGC
or one or more of the VIGC Indemnified Parties in connection with, relating to,
arising out of or due to, directly or indirectly (i) any VYGP Taxes and (ii) any
amount determined to be VYGP's liability under Section 3.04. VYGP shall be
entitled to any refund of or credit for Taxes for which VYGP is responsible
under this Section 3.03(a).
(b) VIGC shall be liable for and pay, and pursuant to Article XII of
the Reorganization Agreement shall indemnify, defend, and hold harmless VYGP and
the VYGP Indemnified Parties from and against, any and all Losses and Expenses
incurred or suffered by VYGP or one or more of the VYGP Indemnified Parties in
connection with, relating to, arising out of, or due to, directly or indirectly
(i) any VIGC Taxes and (ii) any amount determined to be VIGC's liability under
Section 3.04. VIGC shall be entitled to any refund of or credit for Taxes for
which VIGC is responsible under this Section 3.03(b).
(c) Except as set forth in this Agreement, the Reorganization Agreement
or any other Operating Agreement and in consideration of the mutual indemnities
and other obligations of this Agreement, any and all prior Tax sharing
agreements or practices between any member of the VIGC Group and any member of
the VYGP Group shall be terminated with respect to the VYGP Group as of the
Distribution Date.
3.04 RESTRUCTURING TAXES; OTHER TAXES RELATING TO THE
CONTRIBUTION OR DISTRIBUTION.
(a) VYGP and VIGC shall each be liable for 50% of Restructuring Taxes
that are imposed as a result of neither an VYGP Tainting Act nor a VIGC Tainting
Act. In the case of the imposition of a Restructuring Tax where there is both an
VYGP Tainting Act and a VIGC Tainting Act, and
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each of the VYGP Tainting Act and the VIGC Tainting Act would alone be
sufficient to result in the imposition of such Restructuring Tax, VYGP and VIGC
shall each be liable for 50% of such Restructuring Tax. In the case of a
Restructuring Tax that would not have been imposed but for the existence of both
an VYGP Tainting Act and a VIGC Tainting Act, VYGP and VIGC shall be liable for
such Restructuring Tax to the extent the VYGP Tainting Act and the VIGC Tainting
Act, respectively, contributed to the imposition of such Restructuring Tax.
(b) Except as described in Section 3.04(a), VYGP shall be liable for
Restructuring Taxes imposed as a result of an VYGP Tainting Act.
(c) Except as described in Section 3.04(a), VIGC shall be liable for
Restructuring Taxes imposed as a result of a VIGC Tainting Act.
(d) VIGC will determine the amount of sales, transfer, V.A.T. or other
similar taxes or fees (including, without limitation, all real estate, patent,
copyright and trademark transfer taxes and real estate recording fees but not
patent, copyright, and trademark recording fees, but excluding Restructuring
Taxes) payable in connection with the transactions contemplated by the
Reorganization Agreement (the "Transaction Taxes"). VIGC and VYGP shall each
file promptly and timely the Tax Returns for such Transaction Taxes with the
appropriate taxing authorities and remit payment of the Transaction Taxes.
Transaction Taxes shall be the liability of the Person who or which is primarily
liable therefore under applicable Tax law.
3.05 PERIOD THAT INCLUDES THE DATE OF DISTRIBUTION. (a) To the extent
permitted by law or administrative practice, the taxable year of the VYGP Group
shall be treated as closing at the close of the Distribution Date.
(b) If it is necessary for purposes of this Agreement to determine the
VYGP Taxes or VIGC Taxes for a taxable year that begins on or before and ends
after the Distribution Date and is not treated under Section 3.05(a) as closing
at the close of the Distribution Date, the determination shall be made by
assuming that such taxable year ended on a "closing of the books" basis at the
close of the Distribution Date, except that exemptions, allowances or deductions
that are calculated on an annual basis shall be apportioned on a time basis.
3.06 PAYMENTS IN RESPECT OF NET OPTION DEDUCTIONS. IF, following the
Distribution Date, VYGP provides to VIGC an unqualified opinion of independent
tax counsel of national standing selected by VYGP and reasonably acceptable to
VIGC concluding (in form and substance reasonably acceptable to VIGC) that,
based on a Change in Federal Tax Law, a Net Option Deduction will be available
to the VIGC Affiliated Group with respect to VYGP stock options exercised by
employees of any member of the VIGC Affiliated Group after the date of such tax
opinion, THEN for each taxable year of the VIGC Affiliated Group ending after
the date of such opinion (and taking into account only those VYGP options
exercised after the date of such opinion) VIGC shall remit to VYGP for each such
taxable year (A) the excess, if any, of (i) the aggregate amount of federal
income taxes that would have been payable by the VIGC Affiliated Group with
respect to such taxable year if the Net Option Deduction had been zero over (ii)
the aggregate amount of federal income taxes actually payable by the VIGC
Affiliated Group with respect to such
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taxable year minus (B) any tax or penalty other than federal income tax
(including, but not limited to, FICA, FUTA, and other similar taxes) borne by
any member of the VIGC Affiliated Group with respect to such taxable year as a
result of the exercise, after the date of such opinion, of VYGP stock options by
employees of any member of the VIGC Affiliated Group. At the election of VIGC,
VIGC's remittance with respect to a taxable year shall be conditioned upon
confirmation from independent tax counsel that no change in law or other
circumstance has occurred that would render the conclusion reached in the
original tax opinion to be no longer correct. VIGC shall remit amounts to VYGP
required by this Section 3.06 with respect to a taxable year as promptly as
practicable following the date the final income tax return for such taxable year
is filed by VIGC. If any Net Option Deduction for which payment has been made by
VIGC pursuant to this Section 3.06 is subsequently reduced, eliminated or
deferred, VYGP shall promptly indemnify VIGC for all Losses and Expenses arising
as a result of such reduction, elimination or deferral.
ARTICLE IV
PAYMENTS
4.01 GENERAL TAX PAYMENTS. With respect to any Taxes for which one
party (the "Liable Party") is liable under Section 3.03 and that are to be
remitted in connection with Tax Returns to be filed by the other party (the
"Filing Party") after the Distribution Date pursuant to Sections 3.01 and 3.02,
(i) upon the request of the Filing Party, the Liable Party shall promptly
provide to the Filing Party all information necessary to enable the Filing Party
to file such Tax Returns and (ii) assuming compliance by the Liable Party with
the Liable Party's obligations under clause (i) (or written waiver by the Filing
Party of such compliance), the Filing Party shall, not later than ten (10) days
prior to the due date for remitting such Taxes (or, if the due date is within
forty-five (45) days after the Distribution Date, as promptly following the
Distribution Date as possible) provide the Liable Party with a written request
showing in reasonable detail the calculation of the amount of such Liable
Party's Taxes (and any other amounts) owing by the Liable Party to the Filing
Party pursuant to this Agreement. The Liable Party shall have the right to
object in writing to such calculation on or before sixty (60) days after the
date on which such request is provided to the Liable Party, on the grounds that
there is substantial authority that such calculation is incorrect; provided that
if the Liable Party so objects, (i) the Filing Party and the Liable Party shall
promptly submit the dispute to an independent accounting or law firm acceptable
to both the Filing Party and the Liable Party for prompt resolution, whose
decision shall be final and binding on the Filing Party and the Liable Party,
and (ii) the party that such accounting or law firm determines has lost the
dispute shall pay all of the fees and expenses incurred in connection with
submitting such dispute. The Liable Party shall pay to the Filing Party any
amount not in dispute on or before the thirtieth (30th) day following the
receipt of such request by the Liable Party, with additional amounts to be paid
by the Liable Party (together with interest at the Applicable Federal Rate
accruing from the date on which such Return is filed) promptly upon resolution
of any objection.
4.02 OTHER PAYMENTS. Other payments due to a party under Section 3.03
shall be due not later than twenty (20) days after the receipt or crediting of a
refund or the receipt of notice of a Final Determination to the effect that the
indemnified party is liable for an indemnified cost, together with interest at a
rate equal to the Applicable Federal Rate from the date on which the
indemnifying party receives such receipt, credit or notice.
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4.03 NOTICE. VIGC and VYGP shall give each other prompt written notice
of any payment that may be due under this Agreement.
ARTICLE V
TAX AUDITS
5.01 GENERAL. Except as otherwise provided in this Agreement, each of
VYGP and VIGC (as the case may be, the "Controlling Party") shall have sole
responsibility for all audits or other proceedings with respect to Tax Returns
that it is required to file under Section 3.01. Except as provided in Section
5.03, the Controlling Party shall have the sole right to contest the audit or
proceeding and to employ advisors of its choice.
5.02 INDEMNIFIED CLAIMS IN GENERAL. VIGC or VYGP shall promptly notify
the other in writing upon the receipt of an actual notice of assessment by the
relevant Taxing authority of any proposed adjustment to a Tax Return that may
result in liability of the other party (the "Indemnitor") under this Agreement.
If the Indemnitor is not also the Controlling Party, the Controlling Party shall
provide the Indemnitor with information about the nature and amounts of the
proposed adjustments and, subject to additional rights of the Indemnitor in
certain circumstances under Section 5.03 of this Agreement, shall permit the
Indemnitor to participate in the proceeding at the Indemnitor's own expense;
provided, however, that the Controlling Party shall not be required to indemnify
the Indemnitor if the Controlling Party fails to notify or provide such
information to the Indemnitor, unless the Indemnitor is materially prejudiced
thereby. The Indemnitor shall pay all (or, in the case of Restructuring Taxes
for which liability is shared under Section 3.04(a) of this Agreement, a portion
based on the Indemnitor's share of such Restructuring Taxes) reasonable expenses
(including, but not limited to, legal and accounting fees) incurred by the
Controlling Party in connection with the assessment or adjustment within seven
(7) days after a written request by the Controlling Party.
5.03 CERTAIN FEDERAL INCOME TAX CLAIMS. (a) Any issues (other than
issues relating to Restructuring Taxes for which liability is shared under
Section 3.04(a), which shall be excluded from the provisions of this Section
5.03) raised by the IRS in any Tax inquiry, audit, examination, investigation,
dispute, litigation or other proceeding that would result in liability to the
Indemnitor under this Agreement that in the aggregate would equal or exceed
$250,000 with respect to any taxable year are defined as a Claim (a "Claim").
Except as provided in Section 5.03(d) and notwithstanding any other provision of
this Agreement that may be construed to the contrary, the Controlling Party
agrees to contest any Claim and not to settle any Claim without prior written
consent of the Indemnitor, provided that (i) the Controlling Party shall provide
notice to Indemnitor pursuant to Section 5.02 of any Claim, (ii) within thirty
(30) days after such notice is received by the Indemnitor, the Indemnitor shall
request in writing that such Claim be contested and the Indemnitor shall provide
an opinion of independent tax counsel, selected by the Indemnitor and reasonably
acceptable to the Controlling Party, to the effect that it is more likely than
not that a Final Determination will be substantially consistent with the
Indemnitor's position relating to such Claim, (iii) the Indemnitor shall agree
to pay (and shall pay) on demand all out-of-pocket costs, losses and expenses
(including, but not limited to, legal and accounting fees) paid or incurred by
the Controlling Party in connection with contesting such Claim, and (iv) the
Controlling Party, after reasonable
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consultation with the Indemnitor, shall determine in the Controlling Party's
sole discretion the nature of all actions to be taken to contest such Claim,
including (x) whether any action to contest such Claim shall initially be by way
of judicial or administrative proceeding, or both, (y) whether any such Claim
shall be contested by resisting payment thereof or by paying the same and
seeking a refund thereof, and (z) the court or other judicial body before which
judicial action, if any, shall be commenced. To the extent the Indemnitor is not
participating, the Controlling Party shall keep the Indemnitor (and, upon
request by the Indemnitor, its counsel) informed as to the progress of the
contest.
(b) If the Indemnitor requests that the Controlling Party accept a
settlement of a Claim offered by the IRS and if such Claim may, in the
reasonable discretion of the Controlling Party, be settled without prejudicing
any claims the IRS may have with respect to matters unrelated to the Claim, the
Controlling Party shall either accept such settlement offer or agree with the
Indemnitor that the Indemnitor's liability with respect to such Claim shall be
limited to the lesser of (i) an amount calculated on the basis of such
settlement offer plus interest owed to the IRS on the date of eventual payment
or (ii) the amount calculated on the basis of a Final Determination.
(c) If the Controlling Party shall elect to pay the Tax claimed and
seek a refund, the Indemnitor shall lend sufficient funds on an interest-free
basis to the Controlling Party (with no net after-tax cost to the Controlling
Party), to cover any applicable indemnity obligations of the Indemnitor. To the
extent such refund claim is ultimately disallowed, the loan or portion thereof
equal to the amount of the refund claim so disallowed shall be applied against
the Indemnitor's obligation to make indemnity payments pursuant to this
Agreement. To the extent such refund claim is allowed, the Controlling Party
shall pay to the Indemnitor all amounts advanced to the Controlling Party with
respect to the indemnity obligation within ten (10) days of the receipt of such
refund (or if the Controlling Party would have received such refund but for the
existence of a counterclaim or other claim not indemnified by the Indemnitor
under this Agreement, within ten (10) days of the final resolution of the
contest), plus an amount equal to any interest received (or that would have been
received) from the IRS that is properly attributable to such amount.
(d) Except as provided below, the Controlling Party shall not settle a
Claim that the Indemnitor is entitled to require the Controlling Party to
contest under Section 5.03(a) without the prior written consent of the
Indemnitor. At any time, whether before or after commencing to take any action
pursuant to this Section 5.03 with respect to any Claim, the Controlling Party
may decline to take action with respect to such Claim and may settle such Claim
without the prior written consent of the Indemnitor by notifying the Indemnitor
in writing that the Indemnitor is released from its obligations to indemnify the
Controlling Party with respect to such Claim (which notification shall release
the Indemnitor from such obligations except to the extent the Indemnitor has
agreed in writing that it would be willing to have its liability calculated on
the basis of a settlement offer, as provided in Section 5.03(b), at that point
in the contest) and with respect to any Claim related to such Claim or based on
the outcome of such Claim. If the Controlling Party settles any Claim or
otherwise takes or declines to take any action pursuant to this paragraph, the
Controlling Party shall pay to the Indemnitor any amounts paid or advanced by
the Indemnitor with respect to such Claim (other than amounts payable by the
Indemnitor in connection with a settlement offer pursuant to Section 5.03(b)),
plus interest attributable to such amounts.
<PAGE>
ARTICLE VI
COOPERATION
6.01 GENERAL. VIGC and VYGP shall cooperate with each other in the
filing of any Tax Returns and the conduct of any audit or other proceeding and
each shall execute and deliver such powers of attorney and make available such
other documents as are reasonably necessary to carry out the intent of this
Agreement. Each party agrees to notify the other party in writing of any audit
adjustments that do not result in Tax liability but can be reasonably expected
to affect Tax Returns of the other party, or any of its Subsidiaries, for a
Post-Distribution Period. Each party agrees to treat the Contribution and
Distribution for all income Tax purposes as not causing the recognition of any
income, gain or loss (except with respect to the payment of cash in lieu of
fractional shares).
6.02 COOPERATION WITH RESPECT TO TAX RETURN FILINGS, EXAMINATIONS AND
TAX RELATED CONTROVERSIES. (a) In addition to any obligations imposed pursuant
to the Reorganization Agreement, each member of the VIGC Group shall fully
cooperate with VYGP and its representatives, in a prompt and timely manner, in
connection with (i) the preparation and filing of and (ii) any inquiry, audit,
examination, investigation, dispute, or litigation involving, any Tax Return
required to be filed by VYGP pursuant to this Agreement, by or for any member of
the VYGP Group.
(b) VYGP shall fully cooperate with VIGC and its representatives, in a
prompt and timely manner, in connection with (i) the preparation and filing of
and (ii) any inquiry, audit, examination, investigation, dispute, or litigation
involving, any Tax Return required to be filed by VIGC pursuant to this
Agreement. Such cooperation shall include, but not be limited to, (x) the
execution and delivery to VIGC by VYGP of any power of attorney required to
allow VIGC and its counsel to participate in or control any inquiry, audit or
other administrative proceeding and to assume the defense or prosecution, as the
case may be, of any suit, action or proceeding pursuant to the terms of and
subject to the conditions set forth in Article V of this Agreement, and (y)
making available to VIGC, during normal business hours, and within fifteen (15)
days of any written request therefore, all books, records and information, and
the assistance of all officers and employees, necessary or useful in connection
with any Tax inquiry, audit, examination, investigation, dispute, litigation or
any other matter.
ARTICLE VII
RETENTION OF RECORDS; ACCESS
The VIGC Group and the VYGP Group shall:
(a) retain (for a minimum of five (5) years) records, documents,
accounting data and other information (including computer data) necessary for
the preparation and filing of all Tax Returns in respect of Taxes of the VIGC
Group or the VYGP Group or for the audit of such Tax Returns; and
(b) give to the other reasonable access to such records, documents,
accounting data and other information (including computer data) and to its
personnel (insuring their cooperation) and premises, for the purpose of the
current or potential review or audit of such Tax Returns to the extent relevant
<PAGE>
to an obligation or liability of a party under this Agreement or applicable law.
At any time after the Distribution Date that the VYGP Group proposes to destroy
such records, documents, accounting data or other information, the VYGP Group
shall first notify VIGC in writing and VIGC shall be entitled to receive such
records, documents, accounting data or other information proposed to be
destroyed.
ARTICLE VIII
DISPUTES
If VIGC and VYGP cannot agree on any calculation of any liabilities
under this Agreement, such calculation shall be made by any independent public
accounting firm acceptable to both VIGC and VYGP. The decision of such firm
shall be final and binding. The fees and expenses incurred in connection with
such calculation shall be borne by the party that such independent public
accounting firm determines has lost the dispute.
ARTICLE IX
TERMINATION OF LIABILITIES
Notwithstanding any other provision in this Agreement, any liabilities
determined under this Agreement shall survive indefinitely.
ARTICLE X
MISCELLANEOUS PROVISIONS
It is acknowledged that, as set forth more fully in the Reorganization
Agreement, (i) Transferred Assets include any right, title or interest in any
tax refund, credit or benefit to which VYGP is entitled in accordance with the
terms of this Agreement, (ii) Assumed Liabilities include all liabilities for
which VYGP is liable in accordance with the terms of this Agreement, (iii)
Retained Assets include any right, title or interest of VIGC in any tax refund,
credit or benefit to which VIGC is entitled in accordance with the terms of this
Agreement, and (iv) Retained Liabilities include all liabilities for which VIGC
is liable in accordance with the terms of this Agreement. It is further
acknowledged that rights, obligations and indemnification with respect thereto
are set forth in the Reorganization Agreement. Accordingly, it is further
acknowledged that Articles XII, XIII, XIV and XV of the Reorganization Agreement
shall govern, as relevant, this Agreement as if the Reorganization Agreement and
this Agreement were a single agreement; provided, that to the extent of any
inconsistency between the provisions of this Agreement and such provisions of
the Reorganization Agreement, the provisions of this Agreement shall apply in
applying this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
VIGC
By /s/John Hower
<PAGE>
Name: John Hower
Title: Director
VYGP
By /s/ John Southerland
Name: John Southerland
Title: Director
