Exhibit 10.3
TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
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TAX ALLOCATION AND INDEMNIFICATION AGREEMENT dated as of October 25, 1996
(this "Agreement") between ▇.▇. ▇▇▇▇▇▇▇▇▇ & Sons Company, a Delaware corporation
("RRD"), and Donnelley Enterprise Solutions Incorporated, a Delaware corporation
(the "Company").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, RRD is the owner of all of the issued and outstanding capital
stock of the Company;
WHEREAS, RRD and the Company are members of an "affiliated group" (as
defined in Section 1504(a) of the Code) of which RRD is the common parent;
WHEREAS, as a result of the initial public offering of the Common Stock of
the Company pursuant to the Underwriting Agreement among the Company, Salomon
Brothers Inc, ▇▇▇▇▇▇▇▇▇▇ Securities and ▇.▇. ▇▇▇▇▇▇ Securities Inc. (the
"Underwriting Agreement"), it is expected that RRD and the Company will no
longer be members of an affiliated group; and
WHEREAS, RRD and the Company desire to set forth their rights and
obligations with respect to certain tax liabilities;
NOW, THEREFORE, in consideration of the agreements and mutual covenants
contained herein, the parties hereto agree as follows:
Section 1. Definitions. As used in this Agreement, the following terms
shall have the following meaning:
"Affiliate" shall mean, with respect to any entity, any other
individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust or unincorporated
organization which directly or indirectly controls, is controlled by or is
under common control with such entity.
"Balance Sheet" shall mean the balance sheet of the Company and the
Subsidiaries as of the Closing Date prepared in a manner consistent with the
balance sheet of June 30, 1996, included in Amendment No. 3 to the
Registration Statement on Form S-1 filed by the Company with the Securities
and Exchange Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Combined Group" shall mean the "affiliated group" (as defined in
Section 1504(a) of the Code) of which RRD is the common parent and any other
group of corporations that, at any time on or before the Closing Date, files
or has
filed Tax Returns on a combined, consolidated or unitary basis with the
Company or the Subsidiaries (other than such a group which includes or has
included the Company and/or one or more of the Subsidiaries, but no other
corporation).
"Company Group Member" shall mean the Company and the Subsidiaries (and,
after the Closing Date, any Affiliate thereof) and their respective successors
and assigns.
"Closing Date" shall mean the date of the closing of the initial public
offering of the Common Stock of the Company pursuant to the Underwriting
Agreement.
"RRD Group Member" shall mean RRD and any Affiliates of RRD (other than
the Company and the Subsidiaries) and their respective successors and assigns.
"Subsidiaries" shall mean Integrated Analysis, Inc. and LANSystems
(U.K.) Ltd.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall mean
any federal, state, local or foreign income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, value added, transfer or excise 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, imposed by any
governmental authority.
"Tax Package" has the meaning set forth in Section 3(c).
"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.
Section 2. Liability for Taxes. (a) RRD shall be liable for, and indemnify
each Company Group Member against, all (i) Taxes imposed on the Company or any
Subsidiary solely as a result of being a member of a Combined Group pursuant to
Treas. Reg. (S) 1.1502-6 or similar provisions of state and local law and (ii)
Taxes imposed on the Company or any Subsidiary, or for which the Company or any
Subsidiary may otherwise be liable, for any taxable year or period (or portion
thereof) that ends on or before the Closing Date; provided, however, that RRD
shall not be liable for, and shall not indemnify any Company Group Member
against, (A) any Taxes shown as a liability or reserve on the Balance Sheet and
(B) up to $100,000 of Taxes described in clause (ii) of this Section 2(a) that
are not shown as a liability or reserve on the Balance Sheet (Taxes described in
this proviso,
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"Excluded Taxes"). Except to the extent shown as an asset on the balance sheet,
RRD shall be entitled to any refund of (or credit for) Taxes attributable to RRD
or any of its Affiliates (including the Company and each of the Subsidiaries)
allocable to any taxable year or period (or portion thereof) that ends on or
before the Closing Date, and the Company agrees to remit any such refund paid to
it to RRD.
(b) The Company shall be liable for, and indemnify each RRD Group Member
against, all Taxes imposed on the Company or any Subsidiary, or for which the
Company or any Subsidiary may otherwise be liable (including, without
limitation, Excluded Taxes); provided, however, that the Company shall not be
liable for, and shall not indemnify any RRD Group Member against, any Taxes for
which RRD is expressly liable pursuant to Section 2(a) of this Agreement.
Except as provided in Section 2(a) or 2(d) of this Agreement, the Company shall
be entitled to any refund of (or credit for) Taxes attributable to the Company
or any Subsidiary for any taxable year or period (or portion thereof).
(c) For purposes of Sections 2(a) and 2(b) of this Agreement, the
allocation of Taxes of a Combined Group to the Company and the Subsidiaries for
the taxable year or period (or portion thereof) ending on the Closing Date shall
be determined consistent with RRD's current tax sharing arrangement. Further,
whenever it is necessary to determine the liability for Taxes of the Company or
any Subsidiary for a partial taxable year or period (including a partial period
ending on the Closing Date), the determination of the Taxes of the Company or
such Subsidiary for the portion of such period shall be determined on a "closing
of the books basis" by assuming that the books of the Company or such Subsidiary
were closed at the close of such period, except that Taxes (such as property
Taxes) imposed on a periodic basis shall be allocated on a daily basis and
deductions (such as depreciation) allowable on a periodic basis shall be
allocated on a daily basis.
(d) Notwithstanding Section 2(a) of this Agreement, if, as a result of any
action, suit, investigation, audit, claim, assessment or amended Tax Return,
there is any change after the Closing Date in an item of income, gain, loss,
deduction, credit or amount of Tax that results in an increase in a Tax
liability for which RRD would otherwise be liable pursuant to Section 2(a), and
such change results in a potential decrease (the "Decrease Amount") in the Tax
liability of the Company, any Subsidiary or any Affiliate thereof for any
taxable year or period (or portion thereof) beginning after the Closing Date,
then RRD shall be entitled to the full amount of such Decrease Amount (whether
through (i) a retention by RRD of any Tax refund, reduction in Taxes, Tax
credit, or other benefit equal to such Decrease Amount; (ii) a payment by the
Company of an amount equal to the Decrease Amount; (iii) an offset by RRD of
amounts otherwise payable by RRD to the Company; (iv) a combination of the
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foregoing; or (v) other means). The Decrease Amount shall be determined by
assuming that (i) the Company, any Subsidiary or any Affiliate thereof is
subject to Tax at the highest marginal rate in effect for all affected taxing
jurisdictions at the time the Decrease Amount is determined, and (ii) the
potential decrease in Tax liability will be recognized by the Company, any
Subsidiary or any Affiliate thereof immediately.
(e) The Company shall pay, and shall indemnify RRD against, any real
property transfer or gains Tax, sales Tax, use Tax, stamp Tax, stock transfer
Tax, or other similar Tax imposed on the transactions contemplated by this
Agreement.
Section 3. Tax Returns. (a) RRD shall file or cause to be filed when due
all Tax Returns of any Combined Group and shall remit or cause to be remitted
any Taxes due in respect of such Tax Returns. The Company shall file or cause
to be filed when due all Tax Returns that are required to be filed after the
Closing Date by or with respect to the Company and each Subsidiary (other than
the Tax Returns of any Combined Group) and shall remit or cause to be remitted
any Taxes due in respect of such Tax Returns (it being understood that the
Company may cause such Tax Returns to be filed and such Taxes to be remitted
through RRD pursuant to the Transition Services Agreement dated as of the date
hereof). RRD or the Company shall pay the other party for the Taxes for which
RRD or the Company, respectively, is liable pursuant to Sections 2(a), 2(b), or
2(e) of this Agreement but which are payable with any Tax Return to be filed by
the other party pursuant to this Section 3(a) upon the written request of the
party entitled to payment, setting forth in detail the computation of the amount
owed by RRD or the Company, as the case may be, but in no event earlier than 10
days prior to the due date for the payment of such Taxes. All Tax Returns which
the Company is required to file or cause to be filed in accordance with this
Section 3(a) shall be prepared and filed in a manner consistent with past
practice and, on such Tax Returns, no position shall be taken, election made or
method adopted that is inconsistent with positions taken, elections made or
methods used in preparing and filing similar Tax Returns in prior periods.
(b) None of the Company, any Subsidiary or, after the Closing Date, any
Affiliate thereof shall (or shall cause or permit the Company or any Subsidiary
to) amend, refile or otherwise modify any Tax Return relating in whole or in
part to the Company or any Subsidiary with respect to any taxable year or period
ending on or before the Closing Date without the prior written consent of RRD,
which consent may be withheld in the sole discretion of RRD.
(c) The Company shall promptly prepare (and cause each Subsidiary to
prepare) and provide to RRD a package of Tax information materials, including,
without limitation, schedules
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and work papers (the "Tax Package") required by RRD to enable RRD to prepare and
file all Tax Returns required to be prepared and filed by it pursuant to Section
3(a). The Tax Package shall be completed in accordance with past practice,
including past practice as to providing such information and as to the method of
computation of separate taxable income or other relevant measure of income of
the Company. The Company shall cause the Tax Package to be delivered to RRD
within 60 days after requested by RRD.
Section 4. Contest Provisions. RRD shall have the sole right to represent
the Company's and each Subsidiary's interests in any Tax audit or administrative
or court proceeding relating to taxable periods ending on or before or including
the Closing Date, and to employ counsel of its choice at its expense. None of
the Company or any of its Affiliates may settle any Tax claim for any taxable
year or period ending on or before or including the Closing Date which may be
the subject of indemnification by RRD under Section 2(a) of this Agreement
without the prior written consent of RRD, which consent may be withheld in the
sole discretion of RRD.
Section 5. Assistance and Cooperation. After the Closing Date, each of
RRD and the Company shall (and cause their respective Affiliates to):
(a) assist the other party in preparing any Tax Returns which such other
party is responsible for preparing and filing in accordance with Section 3(a)
of this Agreement;
(b) cooperate fully in preparing for any audits of, or disputes with taxing
authorities regarding, any Tax Returns of the Company and each Subsidiary;
(c) make available to the other and to any taxing authority as reasonably
requested all information, records, and documents relating to Taxes of the
Company and each Subsidiary;
(d) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments of the Company and each Subsidiary for
taxable periods for which the other may have a liability under this Agreement;
(e) furnish the other with copies of all correspondence received from any
taxing authority in connection with any Tax audit or information request with
respect to any such taxable period; and
(f) timely sign and deliver such certificates or forms as may be necessary
or appropriate to establish an exemption from (or otherwise reduce), or file
Tax Returns or other
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reports with respect to, Taxes described in Section 2(e) of this Agreement
(relating to sales, transfer and similar Taxes).
Section 6. General Provisions.
(a) Effectiveness. This Agreement will be effective from and after the
Closing Date.
(b) Entire Agreement; Binding Effect. This Agreement (i) constitutes the
entire agreement and supersedes all other agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (ii) shall not be assigned by either party (by operation of law or
otherwise) without the prior written consent of the other party.
(c) Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable, the enforceability
of the remaining provisions hereof will not in any way be affected or impaired
thereby.
(d) Applicable Law. This Agreement shall be governed by and be construed
in accordance with the laws of the State of Illinois, without giving effect to
the principles thereof relating to conflicts of laws.
(e) Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, if
telecopied (only if confirmed), if sent by FedEx or other overnight courier or
delivery service or if mailed by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the following addresses or facsimile
numbers:
(a) If to RRD:
▇.▇. ▇▇▇▇▇▇▇▇▇ & Sons Company
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Director
Federal & International Taxes
(b) If to the Company:
Donnelley Enterprise Solutions, Incorporated
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
The address or facsimile number of a party, for the purposes of this Section
6(e), may be changed by giving written notice to the
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other party of such change in the manner provided herein for giving notice.
Unless and until such written notice is received, the addresses and facsimile
numbers provided herein shall be deemed to continue in effect for all purposes
hereunder.
(f) Amendment and Waiver. No amendment of any provision of this Agreement
shall in any event be effective, unless the same shall be in writing and signed
by the parties hereto. Any failure of any party to comply with any obligation,
agreement or condition hereunder may only be waived in writing by the other
party, but such waiver shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No failure by any party to take any
action against any breach of this Agreement or default by the other party shall
constitute a waiver of such party's right to enforce any provision hereof or to
take any such action.
(g) Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and, subject to the Section 6(b)
hereof, their respective successors and assigns, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(i) Headings; Pronouns and Conjunctions. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Unless otherwise
indicated herein or the context otherwise requires, the singular shall include
the plural and the plural shall include the singular. The word "or" shall not be
deemed inclusive.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
▇.▇. ▇▇▇▇▇▇▇▇▇ & SONS COMPANY
By: /s/ W. ▇▇ ▇▇▇▇▇
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Name: W. ▇▇ ▇▇▇▇▇
Title: Executive Vice President
DONNELLEY ENTERPRISE SOLUTIONS
INCORPORATED
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President and
Chief Financial Officer
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