EXHIBIT 10.1
TAX SHARING AGREEMENT
dated as of June 14, 1999
among
RJR NABISCO HOLDINGS CORP.
(to be renamed "Nabisco Group Holdings Corp.")
▇.▇. ▇▇▇▇▇▇▇▇ TOBACCO HOLDINGS, INC.
(formerly named "RJR Nabisco, Inc.")
NABISCO HOLDINGS CORP.
and
▇. ▇. ▇▇▇▇▇▇▇▇ TOBACCO COMPANY
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT dated as of June 14, 1999 among RJR Nabisco
Holdings Corp. (to be renamed "Nabisco Group Holdings Corp."), a Delaware
corporation (together with its successors, "Holdings"), ▇.▇. ▇▇▇▇▇▇▇▇ Tobacco
Holdings, Inc. (formerly named "RJR Nabisco, Inc."), a Delaware corporation
(together with its successors, "RJRN"), Nabisco Holdings Corp., a Delaware
corporation (together with its successors, "Nabisco"), and ▇. ▇. ▇▇▇▇▇▇▇▇
Tobacco Company, a New Jersey corporation (together with its successors,
"RJRT").
RECITALS
WHEREAS, pursuant to the tax laws of various jurisdictions, Holdings,
certain members of the RJRN Tax Group and certain members of the Nabisco Tax
Group, as defined below, file certain tax returns on an affiliated,
consolidated, combined, unitary or other group basis (including as permitted by
Section 1501 of the Internal Revenue Code of 1986, as amended (the "Code"))
(each such group, a "Consolidated Group");
WHEREAS, the Board of Directors of Holdings has determined that it is
in the best interests of Holdings and its stockholders to cause all of the
outstanding shares of the Class B common stock of Nabisco to be directly held by
Holdings (the "Internal Distribution") and to distribute all of the outstanding
shares of the common stock of RJRN to the holders of the common stock of
Holdings on a pro rata basis (the "Distribution");
WHEREAS, in this Agreement, the parties have set forth certain
representations and covenants that support the treatment of each of the
Distribution and the Internal Distribution as a transaction described in Section
355(a)(1) of the Code;
WHEREAS, in this Agreement, the parties have set forth the rights and
obligations of Nabisco and the other members of the Nabisco Tax Group, RJRN and
the other members of the RJRN Tax Group, and Holdings with respect to the
handling and allocation of certain federal, state, local and other taxes
incurred in Taxable periods beginning prior to the Distribution Date, and
various other tax matters; and
WHEREAS, Holdings and the Nabisco Tax Group will continue to file
certain tax returns on a Consolidated Group basis following the Distribution,
and, in this Agreement, have set forth their respective rights and obligations
with respect to the handling and allocation of certain federal, state, local and
other taxes incurred in Taxable periods prior and subsequent to the
Distribution;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) As used herein, the following terms have
the following meanings:
"After-Tax Amount" means an additional amount (taking into account any
taxation of such additional amount) necessary to reflect the hypothetical tax
consequences of the receipt or accrual of any payment, using the highest tax
rate (or rates, in the case of an item that affects more than one tax)
applicable to the recipient of such payment for the relevant taxable period,
reflecting for example, the effect of any deductions available for interest paid
or accrued and for appropriate taxes such as State Taxes.
"Business Day" means any day other than a Saturday, a Sunday or one on
which banks are authorized or required by law to close in New York, New York.
"Combined State Taxes" mean any State Tax, the return for which is
filed on an affiliated, consolidated, combined or unitary basis by (i) a group
that includes Holdings and at least one member of the Nabisco Tax Group, or (ii)
a group that includes at least one member of the RJRN Tax Group and at least one
corporation among Holdings and the members of the Nabisco Tax Group.
"Deconsolidation Date" means the date of any Nabisco Deconsolidation.
"Del Monte State Tax" means any State Taxes for which the Nabisco Tax
Group may be liable by reason of an assertion by a Taxing Authority or a Final
Determination that Del Monte Corporation and at least one member of the Nabisco
Tax Group are part of an affiliated, consolidated, combined or unitary group.
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"Designated RJRN Affiliate" means RJRT or the member of the RJRN Tax
Group that has been designated as such by RJRN.
"Distribution Agreement" means the Distribution Agreement dated as of
May 12, 1999 among Holdings, RJRN and RJRT.
"Distribution Date" means the Business Day on which the Distribution is
effected.
"Effective Realization" (and the correlative terms, "Effectively
Realized" and "Effectively Realizes") means, with respect to a tax saving, tax
benefit or tax attribute, the earliest to occur of (i) the receipt by any of
Holdings, a member of the Nabisco Tax Group or a member of the RJRN Tax Group of
cash from a Taxing Authority reflecting such tax saving, tax benefit or tax
attribute, or (ii) the application of such tax saving, tax benefit or tax
attribute to reduce (A) the tax liability on a Return of any of such
corporations or of any affiliated, consolidated, combined or unitary group of
which any of such corporations is a member, or (B) any other outstanding tax
liability of any of such corporations or of such group; provided that any
reference in this definition to tax shall include, without limitation, a
reference to a recovery of statutory interest.
"Federal Employment Tax" means the Federal Insurance Contributions Act,
the Federal Unemployment Tax Act and any other federal tax that applies or that
shall apply to a corporation in connection with the payment or provision of
salaries, or the provision of benefits and other remuneration, to employees.
"Federal Tax" means any tax imposed under Subtitle A of the Code.
"Final Determination" means (i) with respect to Federal Taxes, (A) a
"determination" as defined in Section 1313(a) of the Code, or (B) the acceptance
by or on behalf of the IRS of Form 870-AD (or any successor form thereto) as a
final resolution of Tax liability for any Taxable period, except as to items in
respect of which the right of the taxpayer to file a claim for refund or the
right of the IRS to assert a further deficiency has been reserved; (ii) with
respect to Taxes other than Federal Taxes, any final determination of liability
in respect of a Tax that, under applicable law, is not subject to further
appeal, review or modification, through Tax Proceedings or otherwise (including,
without limitation, the expiration of a statute of limitations or a period for
the filing of claims for refunds, amended returns or appeals from adverse
determinations); or (iii) the payment of tax by the corporation among Holdings,
the members of the Nabisco Tax Group and the members of the RJRN Tax Group that
is responsible for payment of such tax under applicable law with respect to any
item that has been disallowed or adjusted by a Taxing Authority and as to which
Holdings has made
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a determination that no recoupment would be sought. For the avoidance of doubt,
any determination made by Holdings pursuant to clause (iii) of this definition
shall not preclude Holdings from reversing or otherwise modifying such
determination.
"Holdings Consolidated Group" means (i) Holdings and each direct and
indirect corporate subsidiary (including predecessors and successors thereto)
that is eligible to join with Holdings (A) with respect to Federal Taxes, in the
filing of a consolidated Federal Tax return, (B) with respect to State Taxes, in
the filing of an affiliated, consolidated, combined or unitary State Tax return,
or (C) with respect to other Taxes, in the filing of a Tax return as an
affiliated, consolidated, combined or unitary group, or (ii) the corporations
that are members of a group that (A) files a Tax return as an affiliated,
consolidated, combined or unitary group and (B) includes at least one member of
the Nabisco Tax Group and one member of the RJRN Tax Group. A reference to the
Holdings Consolidated Group in this Agreement shall include a reference to any
affiliated, consolidated, combined or unitary group of which RJRN was the parent
during any taxable period (or portion thereof) ending on or before April 29,
1989.
"Intercompany Interest Rate" means the rate, from time to time, that is
equal to the London Interbank Offered Rate for dollar deposits.
"Intercompany Services Agreement" means the Intercompany Services
Agreement to be dated as of the Distribution Date among Holdings, Nabisco and
RJRN, substantially in the form of Exhibit C to the Distribution Agreement.
"Internal Distribution Date" means May 18, 1999.
"International Tobacco Purchase Agreement" means the Purchase Agreement
dated as of ▇▇▇▇▇ ▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ Tobacco Inc., RJRT and RJRN.
"International Tobacco Sale" means (i) the sale to Japan Tobacco Inc.
pursuant to the International Tobacco Purchase Agreement of the capital stock of
the companies listed in Exhibit D to such agreement and of certain other assets,
and (ii) the restructuring transactions and other transactions undertaken in
preparation for such sale.
"IRS" means the Internal Revenue Service.
"Nabisco Combined State Tax Liability" means, with respect to any
taxable period and any jurisdiction, an amount of Combined State Taxes
determined in accordance with the principles set forth in the definition of
Nabisco
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Federal Tax Liability and comparable provisions under applicable law.
"Nabisco Deconsolidation" means any event pursuant to which Nabisco
ceases to be a subsidiary includible in a Consolidated Group filing a
consolidated Federal Tax return of which Holdings is a member.
"Nabisco Federal Tax Liability" means, with respect to any taxable
period, the sum of the Nabisco Tax Group's Federal Tax liability and any
interest, penalties and other additions to such taxes for such taxable period,
computed as if the Nabisco Tax Group were not part of the Holdings Consolidated
Group, but rather were a separate affiliated group of corporations filing a
consolidated Federal Tax return pursuant to Section 1501 of the Code; provided,
however, that transactions with members of the RJRN Tax Group or Holdings shall
be reflected in accordance with applicable provisions of the consolidated return
regulations governing intercompany transactions. Without limiting the generality
of the foregoing, such computation shall be made (i) without regard to the
income, deductions (including, without limitation, net operating loss and
capital loss deductions) and credits in any taxable period of any member of the
Holdings Consolidated Group that is not a member of the Nabisco Tax Group, (ii)
by taking account of any Tax Asset of the Nabisco Tax Group in accordance with
the principles of Section 3.05(d), (iii) with regard to tax carryforwards and
tax carrybacks (including, without limitation, carryforwards and carrybacks of
net operating losses or capital losses) of any member of the Nabisco Tax Group,
but without regard to any carryforwards from a taxable year or portion thereof
ending on or before December 31, 1994 and arising solely due to creating the
Nabisco Tax Group as if it were not part of the Holdings Consolidated Group,
(iv) as though the highest rate of tax specified in Section 11(b) of the Code
were the only rates set forth in that subsection, and (v) by taking account of
the positions, elections and accounting methods reflected in the consolidated
Federal Tax returns, as amended and as finally adjusted, of the Holdings
Consolidated Group.
"Nabisco Tax Group" means, at any time, Nabisco and any direct or
indirect corporate subsidiaries (including predecessors and successors thereto)
of Nabisco that would be eligible, if Nabisco were not a member of a group that
included Holdings or RJRN, to join with Nabisco, (i) with respect to Federal
Taxes, in the filing of a consolidated Federal Tax return, (ii) with respect to
State Taxes, in the filing of an affiliated, consolidated, combined or unitary
State Tax return, or (iii) with respect to other Taxes, in the filing of a Tax
return as an affiliated, consolidated, combined or unitary group.
"Name Change Merger" means such term as it is defined in the
Distribution Agreement.
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"1999 Pre-Distribution Period" means the taxable period from January 1,
1999 through the Distribution Date.
"Post-Deconsolidation Period" means any taxable period (or portion
thereof) beginning after the close of business on the Deconsolidation Date.
"Post-Distribution Period" means any taxable period (or portion
thereof) beginning after the close of business on the Distribution Date.
"Post-1989 Period" means any taxable period (or portion thereof)
beginning after the close of business on December 31, 1989.
"Pre-Deconsolidation Period" means any taxable period (or portion
thereof) ending on or before the close of business on the Deconsolidation Date.
"Pre-Distribution Period" means any taxable period (or portion thereof)
ending on or before the close of business on the Distribution Date.
"Pre-1990 Period" means any taxable period (or portion thereof) ending
on or before the close of business on December 31, 1989.
"Return" means any Tax return, statement, report, form or election
(including, without limitation, estimated Tax returns and reports, extension
requests and forms, and information returns and reports) required to be filed
with any Taxing Authority, in each case as amended and as finally adjusted.
"RJRN Combined State Tax Liability" means, with respect to any taxable
period and any jurisdiction, an amount of Combined State Taxes determined in
accordance with the principles set forth in the definition of RJRN Federal Tax
Liability and comparable provisions under applicable law.
"RJRN Federal Tax Liability" means, with respect to any taxable period,
the sum of the RJRN Tax Group's Federal Tax liability and any interest,
penalties and other additions to such taxes for such taxable period, computed as
if the RJRN Tax Group were not part of the Holdings Consolidated Group, but
rather were a separate affiliated group of corporations filing a consolidated
Federal Tax return pursuant to Section 1501 of the Code; provided, however, that
transactions with members of the Nabisco Tax Group or Holdings shall be
reflected in accordance with applicable provisions of the consolidated return
regulations governing intercompany transactions. Without limiting the generality
of the foregoing, such computation shall be made (i) without regard to the
income, deductions (including, without limitation, net operating loss and
capital loss deductions) and credits in any taxable period of any member of the
Holdings
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Consolidated Group that is not a member of the RJRN Tax Group, (ii) by taking
account of any Tax Asset of the RJRN Tax Group in accordance with the principles
of Section 3.04(d), (iii) with regard to tax carryforwards and tax carrybacks
(including, without limitation, carryforwards and carrybacks of net operating
losses or capital losses) of any member of the RJRN Tax Group, (iv) as though
the highest rate of tax specified in Section 11(b) of the Code were the only
rates set forth in that subsection, (v) by taking account of the positions,
elections and accounting methods reflected in the consolidated Federal Tax
returns, as amended and as finally adjusted, of the Holdings Consolidated Group,
and (vi) without gain, if any, attributable to the Internal Distribution.
"RJRN Tax Group" means, at any time, RJRN and any direct or indirect
corporate subsidiaries (including predecessors and successors thereto) of RJRN,
except for the members of the Nabisco Tax Group, that would be eligible, if RJRN
were not a member of a group that included Holdings, to join with RJRN, (i) with
respect to Federal Taxes, in the filing of a consolidated Federal Tax return,
(ii) with respect to State Taxes, in the filing of an affiliated, consolidated,
combined or unitary State Tax return or (iii) with respect to other Taxes, in
the filing of a Tax return as an affiliated, consolidated, combined or unitary
group.
"State Tax" means any income, franchise or similar tax payable to a
state or local taxing jurisdiction of the United States.
"Tax" (and the correlative term, "Taxable") means (i) any Federal Tax,
or any net income, alternative or add-on minimum, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, license,
withholding (as payor or recipient), payroll, employment, excise, severance,
stamp, capital stock, occupation, property, real property gains, environmental,
windfall, premium, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever (including, without limitation, any
Tobacco Tax), together with any interest thereon and any penalty, addition to
tax or additional amount thereto; (ii) any liability of a corporation for the
payment of any amounts of the type described in clause (i) for any taxable
period resulting from such corporation's being a part of a Consolidated Group
pursuant to the application of Treasury Regulations Section 1.1502-6 (or a
successor thereto) or any similar provision applicable under state, local or
foreign law; or (iii) any liability for the payment of any amounts described in
clause (i) as a result of any express or implied obligation to indemnify any
other person.
"Tax Asset" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction, or any other loss, credit,
deduction or tax attribute that could be applied to reduce any tax (including,
without limitation, deductions, credits, alternative minimum net operating loss
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carryforwards related to alternative minimum taxes or additions to the basis of
property). For the avoidance of doubt, any elimination, reduction or other
change in an overall foreign loss account or excess credit limitation shall not
be considered a Tax Asset.
"Tax Opinion" means the opinion dated as of May 12, 1999 of ▇▇▇▇▇ ▇▇▇▇
& ▇▇▇▇▇▇▇▇ regarding the Federal Tax consequences of the Distribution and the
Internal Distribution, together with bring-downs of such opinion to each of the
Internal Distribution Date and the Distribution Date.
"Tax Proceeding" means any Tax audit, dispute or proceeding (whether
administrative or judicial). Without limiting the generality of the foregoing, a
reference to a Tax Proceeding relating to any taxable year shall include a Tax
Proceeding relating to multiple taxable years that include such taxable year,
notwithstanding that other included taxable years may be (i) Post-Distribution
Periods, in the case of the RJRN Tax Group, or (ii) Post-Deconsolidation
Periods, in the case of the Nabisco Tax Group.
"Taxing Authority" means any governmental authority (whether United
States or non-United States, and including, without limitation, any state,
municipality, political subdivision or governmental agency) responsible for the
imposition of any Tax.
"Tobacco Claim" means such term as it is defined in the Distribution
Agreement.
"Tobacco Tax" means (i) any excise, custom duty or other tax, whether
United States or non-United States, (A) levied on or otherwise determined in
whole or in part, directly or indirectly, by the quantity, weight, raw
ingredient or other component content, value, cost or price (whether
intercompany, wholesale, retail, undiscounted, discounted or otherwise) of
cigarettes or other tobacco products, or (B) in connection with the manufacture,
development, import, export, shipment, delivery, transportation, movement,
receipt, distribution, sale, offering for sale, marketing, promotion or
advertisement of cigarette or other tobacco products, or (ii) any claim for
payment of any amounts described in clause (i), together, in the case of each of
clauses (i) and (ii), with any interest thereon and any penalty, addition to tax
or additional amount thereto.
"Two-Year Period" means the period that begins on the date on which the
Internal Distribution shall be effected and that ends on the date that is two
years after the Distribution Date.
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(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
Combined State Tax Payment Date 3.02(a)
Corporate Headquarters Expenses 6.04(a)
Employer Group 6.02(a)
Federal Tax Payment Date 3.02(a)
Indemnitee 7.04
Indemnitor 7.04
Pro Forma Combined State Return 3.04(a)
Pro Forma Federal Return 3.04(a)
Pro Forma Returns 3.04(a)
R&D Credits 3.10
Tax Asset Beneficiary 3.06
Tax Asset Provider 3.06
(c) Any term used in this Agreement that is not defined in this
Agreement shall, to the extent the context requires, have the meaning assigned
to it in the Code or in comparable provisions of applicable Tax law.
ARTICLE 2
ADMINISTRATIVE AND COMPLIANCE MATTERS
SECTION 2.01. Sole Tax Sharing Agreement. (a) Except for Sections 7.03,
8.04 and 10.08 of the Distribution Agreement, any and all existing Tax sharing
agreements or arrangements, written or unwritten, among two or more of Holdings,
any member of the Nabisco Tax Group and any member of the RJRN Tax Group
(including, without limitation, the Tax Sharing Agreement dated January 26, 1995
between Holdings and Nabisco) shall be or shall have been terminated as of the
Distribution Date. On and after the Distribution Date, none of Holdings, the
members of the Nabisco Tax Group and the members of the RJRN Tax Group shall
have any rights or liabilities (including, without limitation, any rights and
liabilities that accrued prior to the Distribution Date) under such terminated
agreements and arrangements, and this Agreement shall be the sole Tax sharing
agreement among such corporations.
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(b) This Agreement shall not address the obligations or arrangements,
if any, (i) among members of the RJRN Tax Group, or (ii) among members of the
Nabisco Tax Group.
SECTION 2.02. Designation of Agent. (a) Each member of the RJRN Tax
Group and each member of the Nabisco Tax Group hereby irrevocably authorizes and
designates Holdings as its agent, attorney-in-fact, coordinator and
administrator for the purposes of taking any and all actions with respect to (i)
Taxes for which such member is a member of the Holdings Consolidated Group and
(ii) Federal Employment Taxes of such member, in the case of each of clauses (i)
and (ii) in connection with any taxable year that includes a Pre-Distribution
Period, in the case of the RJRN Tax Group, or in connection with any taxable
year that includes a Pre-Deconsolidation Period, in the case of the Nabisco Tax
Group. In connection with any taxable year that includes a Pre-Distribution
Period, in the case of a member of the RJRN Tax Group, or with any taxable year
that includes a Pre-Deconsolidation Period, in the case of a member of the
Nabisco Tax Group, Holdings shall have the same authority under this Section
2.02(a), with respect to such Taxes as are described in the preceding sentence,
to act on behalf of each member of the RJRN Tax Group and each member of the
Nabisco Tax Group as would such member, were such member acting on its own
behalf, and as would the parent of the Consolidated Group that includes such
member, were such parent acting on behalf of such member. Holdings covenants to
the RJRN Tax Group and the Nabisco Tax Group that it shall be responsible to see
that matters handled pursuant to its exercise of its authority under this
Section 2.02(a) shall be handled promptly and, to the knowledge of Holdings,
appropriately.
(b) Without limiting the generality of Section 2.02(a), Holdings shall
have the authority, with respect to such Taxes and such taxable years as are
described in Section 2.02(a), to take any and all actions necessary, helpful or
incidental to, or otherwise in connection with, (i) the preparation or filing of
any Return or claim for refund (even where an item or Tax Asset giving rise to
an amended Return or claim for refund arises in a Post-Distribution Period, in
the case of the RJRN Tax Group, or in a Post-Deconsolidation Period, in the case
of the Nabisco Tax Group), (ii) the conduct, management, prosecution, defense,
contest, compromise or settlement of (A) any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any Return or claim for refund,
or (B) any other Tax Proceeding, (iii) the determination of the taxable years
(including, without limitation, taxable years that include a Post-Distribution
Period, in the case of the RJRN Tax Group, or a Post-Deconsolidation Period, in
the case of the Nabisco Tax Group) that a settlement of a Tax Proceeding may
impact and other timing considerations, (iv) the determination as to whether any
refunds shall be received by way of refund, credited against tax liability or
otherwise applied to any tax period, (v) the determination as to the treatment
of
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Tax Assets that are allowed under applicable law to be carried back or carried
forward, (vi) the determination as to whether any Tax elections shall be made or
modified, (vii) the determination as to whether any extensions shall be
requested or granted, (viii) the receipt of confidential information from, or
the provision of such information to, any Taxing Authority, and (ix) the making
of payments to, or collection of refunds from, any Taxing Authority.
(c) Notwithstanding anything in Section 11.07 to the contrary,
Holdings may, in its sole and absolute discretion, delegate (including, without
limitation, pursuant to the Intercompany Services Agreement) at any time all or
a portion of its authority, rights or obligations under this Agreement to any
corporation(s) or any person(s) (including, without limitation, Nabisco and/or
Nabisco, Inc.). Such delegation may be revoked by Holdings in its sole and
absolute discretion.
SECTION 2.03. Preparation of Returns. (a) Holdings shall prepare and
file the Returns (including, without limitation, the consolidated Federal Tax
Returns and Combined State Tax Returns) of the Holdings Consolidated Group for
all taxable years through the taxable year in which a Nabisco Deconsolidation
occurs with the assistance of the members of the Nabisco Tax Group and, in the
case of any taxable year that includes a Pre-Distribution Period, the assistance
of the members of the RJRN Tax Group. In preparing such Returns, Holdings shall
not discriminate among the members of the Holdings Consolidated Group. Without
limiting the generality of Section 2.02, Holdings shall have the right to
determine the manner in which such Returns shall be prepared and filed,
including, without limitation, the manner in which any item of income, gain,
loss, deduction or credit shall be reported thereon.
(b) The Returns of the Holdings Consolidated Group for the taxable
year ended December 31, 1999 shall reflect the inclusion of the members of the
RJRN Tax Group in the Holdings Consolidated Group for the 1999 Pre-Distribution
Period.
SECTION 2.04. Certain Information Furnished By Holdings. Within a
reasonable period of time (as determined by Holdings) following the
Distribution, Holdings shall deliver to each of the Designated RJRN Affiliate
and Nabisco a copy of such Federal Tax and Combined State Tax information on the
International Tobacco Sale and other tax matters as is reasonably necessary for
the preparation by the RJRN Tax Group of Pro Forma Returns pursuant to Section
3.04(a). Such information shall include (i) the amounts of gain or income, if
any (by company and by the type of gain or income), on the dispositions of such
assets as are described in clause (i) of the definition of International Tobacco
Sale in Section 1.01(a), (ii) any rulings or opinions received from, or material
correspondence with, Tax Authorities or independent counsel relating to the
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International Tobacco Sale, (iii) any elections made or to be made in connection
with the International Tobacco Sale (including, without limitation, any Federal
Tax elections pursuant to Treasury Regulations Section 301.7701-2), (iv) foreign
tax credit computations relating to the International Tobacco Sale, (v) pro
forma Federal Tax returns for each of RJRN and RJR Industries, Inc., and (vi)
pro forma Federal Tax returns for the corporations that were sold to Japan
Tobacco Inc. and that were members of the Holdings Consolidated Group for
Federal Tax purposes prior to the International Tobacco Sale.
SECTION 2.05. Allocation. Holdings may, at its option, elect, and the
RJRN Tax Group shall join it in electing (if necessary), to ratably allocate
items (other than extraordinary items) of the RJRN Tax Group in accordance with
relevant provisions of Treasury Regulations Section 1.1502-76. If Holdings makes
such an election, the members of the RJRN Tax Group shall provide to Holdings
such statements as are required under the regulations and other appropriate
assistance.
SECTION 2.06. Certain Other Returns. (a) The members of the RJRN Tax
Group shall be solely responsible for the preparation and filing of (i) their
respective separate State Tax Returns, (ii) Returns filed on behalf of an
affiliated, consolidated, combined or unitary group that includes neither
Holdings nor any member of the Nabisco Tax Group, and (iii) Returns for all
taxable years that begin after the Distribution Date.
(b) The members of the Nabisco Tax Group shall be solely responsible
for the preparation and filing of (i) their respective separate State Tax
Returns, (ii) Returns filed on behalf of an affiliated, consolidated, combined
or unitary group that includes neither Holdings nor any member of the RJRN Tax
Group, and (iii) Returns for all taxable years that begin after the
Deconsolidation Date.
ARTICLE 3
TAX SHARING
SECTION 3.01. General Tax Sharing Principles. (a) The Designated RJRN
Affiliate shall pay to Holdings an amount equal to the RJRN Federal Tax
Liability, as shown on the Pro Forma Federal Return (as defined in Section
3.04(a) below) of the RJRN Tax Group for the 1999 Pre-Distribution Period. For
each taxable year of the Holdings Consolidated Group during which income, loss
or credit against tax of any member of the RJRN Tax Group is includible in a
return relating to a Combined State Tax of the Holdings Consolidated Group, the
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Designated RJRN Affiliate shall pay to Holdings an amount equal to the RJRN
Combined State Tax Liability, as shown on the Pro Forma Combined State Returns
(as defined in Section 3.04(a) below) of the RJRN Tax Group for (i) such taxable
year, if such taxable year ends prior to the Distribution Date, or (ii) the 1999
Pre-Distribution Period, if such taxable year includes the Distribution Date.
(b) For each taxable year of the Holdings Consolidated Group during
which income, loss or credit against tax of any member of the Nabisco Tax Group
is includible in the consolidated Federal Tax return of the Holdings
Consolidated Group, Nabisco shall pay to Holdings an amount equal to the Nabisco
Federal Tax Liability, as shown on the Pro Forma Federal Return of the Nabisco
Tax Group for (i) such taxable year, if such taxable year ends prior to a
Nabisco Deconsolidation, or (ii) the period from the beginning of such taxable
year through the Deconsolidation Date, if a Nabisco Deconsolidation occurs
during such taxable year. For each taxable year of the Holdings Consolidated
Group during which income, loss or credit against tax of any member of the
Nabisco Tax Group is includible in a return relating to a Combined State Tax of
the Holdings Consolidated Group, Nabisco shall pay to Holdings an amount equal
to the Nabisco Combined State Tax Liability, as shown on the Pro Forma Combined
State Returns of the Nabisco Tax Group for (i) such taxable year, if such
taxable year ends prior to a Nabisco Deconsolidation, or (ii) the period from
the beginning of such taxable year through the Deconsolidation Date, if a
Nabisco Deconsolidation occurs during such taxable year.
SECTION 3.02. Estimated Payments by RJRN Tax Group. (a) No later than
20 Business Days prior to each date on which an estimated Federal Tax
installment or an estimated Combined State Tax installment of the Holdings
Consolidated Group is due (including all applicable and valid extensions) (a
"Federal Tax Payment Date" or "Combined State Tax Payment Date", respectively)
with respect to a taxable year during which any member of the RJRN Tax Group is
included in the Holdings Consolidated Group, the Designated RJRN Affiliate shall
(i) determine (under Section 6655(d) of the Code or, if applicable, Section
6655(e) or other provisions of the Code in the case of Federal Taxes, or under
comparable provisions of Combined State Tax law) the estimated amount of the
related installment of the RJRN Federal Tax Liability or of the RJRN Combined
State Tax Liability, respectively (taking into account, without limitation, the
inclusion of the RJRN Tax Group in the Holdings Consolidated Group for the 1999
Pre-Distribution Period, in the case of the taxable year that includes the
Distribution Date), and (ii) deliver a written statement to Holdings reflecting
such determination. No later than two Business Days prior to the Federal Tax
Payment Date or the Combined State Tax Payment Date, as the case may be, the
Designated RJRN Affiliate shall pay to Holdings the amount thus determined.
13
(b) Holdings may adjust the determination made by the Designated RJRN
Affiliate under Section 3.02(a) if it notifies the Designated RJRN Affiliate, no
later than 10 Business Days prior to the applicable Federal Tax Payment Date or
Combined State Tax Payment Date, that the Designated RJRN Affiliate's
calculation of any amounts reflected in such determination is incorrect or
incomplete. Any adjustment made by Holdings under this Section 3.02(b) shall be
treated for the purposes of Section 3.02(a) as though it had always been
reflected in the determination made by the Designated RJRN Affiliate. The
Designated RJRN Affiliate shall not be permitted to invoke the dispute
resolution procedures in Section 11.02 until it shall have paid the amounts
reflected on such determination, as adjusted by Holdings.
SECTION 3.03. Estimated Payments by Nabisco Tax Group. (a) No later
than 20 Business Days prior to each Federal Tax Payment Date or Combined State
Tax Payment Date with respect to a taxable year during which any member of the
Nabisco Tax Group is included in the Holdings Consolidated Group, Nabisco shall
(i) determine (under Section 6655(d) of the Code or, if applicable, Section
6655(e) or other provisions of the Code in the case of Federal Taxes, or under
comparable provisions of Combined State Tax law) the estimated amount of the
related installment of the Nabisco Federal Tax Liability or of the Nabisco
Combined State Tax Liability, respectively (taking into account, without
limitation, the inclusion of the Nabisco Tax Group in the Holdings Consolidated
Group only for the period from the beginning of the taxable year through the
Deconsolidation Date, in the case of a taxable year during which a Nabisco
Deconsolidation occurs), and (ii) notify Holdings of such determination. No
later than two Business Days prior to the Federal Tax Payment Date or the
Combined State Tax Payment Date, as the case may be, Nabisco shall pay to
Holdings the amount thus determined.
(b) Holdings may adjust the determination made by Nabisco under
Section 3.03(a) if it notifies Nabisco, no later than 10 Business Days prior to
the applicable Federal Tax Payment Date or Combined State Tax Payment Date, that
Nabisco's calculation of any amounts reflected in such determination is
incorrect or incomplete. Any adjustment made by Holdings under this Section
3.03(b) shall be treated for the purposes of Section 3.03(a) as though it had
always been reflected in the determination made by Nabisco. Nabisco shall not be
permitted to invoke the dispute resolution procedures in Section 11.02 until it
shall have paid the amounts reflected on such determination, as adjusted by
Holdings.
SECTION 3.04. Payment of Taxes at Year-End by RJRN Tax Group. (a) No
later than December 15, 1999, the Designated RJRN Affiliate shall deliver to
Holdings a pro forma Federal Tax return (a "Pro Forma Federal Return") of the
RJRN Tax Group reflecting the RJRN Federal Tax Liability for the 1999 Pre-
14
Distribution Period. No later than December 15, 1999, for each Combined State
Tax liability of the Holdings Consolidated Group, the Designated RJRN Affiliate
shall deliver to Holdings a pro forma Combined State Tax Return (each a "Pro
Forma Combined State Return", and, together with the Pro Forma Federal Return,
the "Pro Forma Returns") of the RJRN Tax Group reflecting the related RJRN
Combined State Tax Liability for the 1999 Pre-Distribution Period. The
Designated RJRN Affiliate shall not take any unreasonable position in preparing
such Pro Forma Returns. Each Pro Forma Return shall be delivered together with a
statement showing a calculation of the amount to be paid pursuant to Section
3.04(c) below.
(b) Upon receipt of a Pro Forma Return from the Designated RJRN
Affiliate, Holdings may adjust such return if it determines that the calculation
of the RJRN Federal Tax Liability or the RJRN Combined State Liability, as the
case may be, reflected on such return is incorrect or incomplete. Any adjustment
made by Holdings under this Section 3.04(b) shall be treated for purposes of
Article 3 as though it had always been reflected on such Pro Forma Return. The
Designated RJRN Affiliate shall not be permitted to invoke the dispute
resolution procedures in Section 11.02 until it shall have paid any amounts
required under Section 3.04(c).
(c) No later than two Business Days prior to the due date (including
all applicable and valid extensions) for the Return of the Holdings Consolidated
Group to which a Pro Forma Return described in Section 3.04(a) relates, the
Designated RJRN Affiliate shall pay to Holdings, or Holdings shall pay to the
Designated RJRN Affiliate, as appropriate, an amount equal to the difference, if
any, between the RJRN Federal Tax Liability or the RJRN Combined State Tax
Liability, as the case may be, reflected on such Pro Forma Return for the
taxable period covered thereby and the aggregate amount of the estimated
installments paid by the Designated RJRN Affiliate with respect to such taxable
period in accordance with the principles of Section 3.02.
(d) If a Pro Forma Return of the RJRN Tax Group described in Section
3.04(a) reflects a Tax Asset that may under applicable law be used to reduce a
Federal Tax liability or State Tax liability, in each case for any taxable
period of a member of the Holdings Consolidated Group that is not also a member
of the RJRN Tax Group, Holdings shall pay to the Designated RJRN Affiliate (and,
as appropriate, shall receive payment from Nabisco of) an amount equal to the
actual tax saving produced by such Tax Asset within 30 days of the Effective
Realization of such tax saving, and the Pro Forma Returns of the RJRN Tax Group
and other relevant determinations under this Article 3 shall thereafter reflect
such use. The amount of the tax saving under this Section 3.04(d) or under
Section 3.05(d) for any taxable period shall be the amount of the reduction in
15
Federal Taxes or State Taxes that are payable to a Taxing Authority with respect
to such taxable period, as compared to the Federal Taxes or State Taxes that
would have been payable to a Taxing Authority with respect to such taxable
period in the absence of such Tax Asset. Without limiting the generality of the
foregoing, the determination of the tax saving under this Section 3.04(d) or
under Section 3.05(d) shall take into account the application of Section 3.06.
SECTION 3.05. Payment of Taxes at Year-End by Nabisco Tax Group. (a) No
later than 20 Business Days prior to the due date (including all applicable and
valid extensions) for the Holdings Consolidated Group's consolidated Federal Tax
return for a taxable year that begins prior to a Nabisco Deconsolidation,
Nabisco shall deliver to Holdings a Pro Forma Federal Return of the Nabisco Tax
Group reflecting the Nabisco Federal Tax Liability for (i) such taxable year, if
such taxable year ends prior to a Nabisco Deconsolidation, or (ii) the period
from the beginning of such taxable year through the Deconsolidation Date, if a
Nabisco Deconsolidation occurs during such taxable year. No later than 20
Business Days prior to the due date (including all applicable and valid
extensions) for each Combined State return of the Holdings Consolidated Group
for a taxable year that begins prior to a Nabisco Deconsolidation, Nabisco shall
deliver to Holdings a Pro Forma Combined State Return of the Nabisco Tax Group
reflecting the related Nabisco Combined State Tax Liability for (i) such taxable
year, if such taxable year ends prior to a Nabisco Deconsolidation, or (ii) the
period from the beginning of such taxable year through the Deconsolidation Date,
if a Nabisco Deconsolidation occurs during such taxable year. Nabisco shall not
take any unreasonable position in preparing such Pro Forma Returns. Each Pro
Forma Return shall be delivered together with a statement showing a calculation
of the amount to be paid pursuant to Section 3.05(c) below.
(b) Upon receipt of a Pro Forma Return from Nabisco, Holdings may
adjust such return if it determines that the calculation of the Nabisco Federal
Tax Liability or the Nabisco Combined State Liability, as the case may be,
reflected on such return is incorrect or incomplete. Any adjustment made by
Holdings under this Section 3.05(b) shall be treated for the purposes of Article
3 as though it had always been reflected on such Pro Forma Return. Nabisco shall
not be permitted to invoke the dispute resolution procedures in Section 11.02
until it shall have paid any amounts required under Section 3.05(c).
(c) No later than two Business Days prior to the due date for the
Return of the Holdings Consolidated Group that results in the delivery of a Pro
Forma Return pursuant to Section 3.05(a) above, Nabisco shall pay to Holdings,
or Holdings shall pay to Nabisco, as appropriate, an amount equal to the
difference, if any, between the Nabisco Federal Tax Liability or the Nabisco
Combined State Tax Liability, as the case may be, reflected on such Pro Forma
Return for the
16
taxable period covered thereby and the aggregate amount of the estimated
installments paid by Nabisco with respect to such taxable period in accordance
with the principles of Section 3.03.
(d) If a Pro Forma Return of the Nabisco Tax Group described in
Section 3.05(a) reflects a Tax Asset that may under applicable law be used to
reduce a Federal Tax liability or a State Tax liability, in each case for any
taxable period of a member of the Holdings Consolidated Group that is not also a
member of the Nabisco Tax Group, Holdings shall pay to Nabisco (and, as
appropriate, shall receive payment from the Designated RJRN Affiliate of) an
amount equal to the actual tax saving (which would be computed in accordance
with Section 3.04(d)) produced by such Tax Asset within 30 days of the Effective
Realization of such tax saving, and the Pro Forma Returns of the Nabisco Tax
Group and other relevant determinations under this Article 3 shall thereafter
reflect such use.
SECTION 3.06. Foreign Tax Credit Considerations. In connection with any
determinations under this Agreement of the tax saving or tax benefit Effectively
Realized by a corporation (the "Tax Asset Beneficiary") from the use of a Tax
Asset of another corporation (the "Tax Asset Provider"), (i) there shall be
taken into account the tax saving or tax benefit from any net increase in the
foreign tax credits that the Tax Asset Beneficiary or any other member of the
Nabisco Tax Group or of the RJRN Tax Group, whichever (if either) includes the
Tax Asset Beneficiary as a member, Effectively Realizes by reason of the use of
such Tax Asset, at the time of the Effective Realization of such tax saving or
tax benefit from the net increase in the foreign tax credits, and (ii) there
shall not be taken into account the tax effect of (A) any net decrease in the
foreign tax credits to which the corporations described in clause (i) may be
entitled by reason of the use of such Tax Asset, or (B) any change in the
foreign tax credits to which any other corporation, including the Tax Asset
Provider, may be entitled by reason of the use of such Tax Asset.
SECTION 3.07. Remittances To Taxing Authorities. (a) In the event that
Holdings makes a cash remittance (other than a mandatory estimated tax payment
or a payment of tax in connection with the filing of a Return at year-end) with
a Taxing Authority to stop the running of interest in whole or in part, Nabisco
and the Designated RJRN Affiliate shall pay to Holdings an amount equal to the
appropriate share of the Nabisco Tax Group or the RJRN Tax Group, respectively,
of the amount to be so remitted no later than two Business Days prior to the
date on which Holdings makes such remittance to such Taxing Authority. For
purposes of this Section 3.07(a), the appropriate share of the Nabisco Tax Group
or the RJRN Tax Group, as the case may be, of any remittance shall be determined
by Holdings. No later than five Business Days prior to the date planned for a
remittance under this Section 3.07(a), Holdings shall notify Nabisco
17
and the Designated RJRN Affiliate of (i) such planned date, and (ii) their
respective appropriate shares of such remittance.
(b) Upon the Effective Realization by Holdings, any member of the
Nabisco Tax Group or any member of the RJRN Tax Group of the benefit
attributable to the refund or recoupment of amounts paid by Nabisco or the
Designated RJRN Affiliate under Section 3.07(a), the corporation that
Effectively Realized such benefit shall pay to Nabisco or the Designated RJRN
Affiliate, respectively, the amount of such refund or recoupment, together with
interest, if any, received thereon, within 30 days of Effective Realization
thereof. If and to the extent that any claim for refund or contest relating to
amounts paid under Section 3.07(a) shall be unsuccessful, any payment made by
Nabisco or the Designated RJRN Affiliate under Section 3.07(a) shall be credited
toward any payment obligations of Nabisco or the RJRN Tax Group, respectively,
under Article 3.
SECTION 3.08. Carrybacks from Periods After the Distribution. (a)
Holdings agrees to pay the Designated RJRN Affiliate, within 30 days of
Effective Realization, the actual Federal Tax or Combined State Tax benefit
Effectively Realized by any member of the Holdings Consolidated Group from the
use in any taxable year that includes a Pre-Distribution Period (but that is not
a Pre-1990 Period) of a carryback of any Tax Asset of any member of the RJRN Tax
Group from a Post-Distribution Period. Such tax benefit shall be considered
equal to the excess of (i) the amount of Federal Taxes or Combined State Taxes,
as the case may be, that would have been payable (or the Federal Tax or Combined
State Tax refund actually receivable) by the Holdings Consolidated Group in the
absence of such carryback, over (ii) the amount of Federal Taxes or Combined
State Taxes actually payable (or the Federal Tax or Combined State Tax refund
that would have been receivable). The determination of the tax benefit under
this Section 3.08(a) shall take into account (A) the application of Section
3.06, (B) the receipt by any member of the Holdings Consolidated Group of any
interest on a carryback that results in a tax refund, or (C) the reduction of
any interest otherwise owed by any member of the Holdings Consolidated Group as
a result of a carryback that reduces a tax deficiency.
(b) If, subsequent to the payment by Holdings to the Designated RJRN
Affiliate of an amount pursuant to Section 3.08(a), there shall be (i) a Final
Determination that results in a disallowance or a reduction of the Tax Asset so
carried back or (ii) a reduction in the amount of the tax benefit Effectively
Realized by the Holdings Consolidated Group from such Tax Asset as a result of
the use by the Holdings Consolidated Group of a Tax Asset of Holdings or any
member of the Nabisco Tax Group, the Designated RJRN Affiliate shall repay to
Holdings, within 30 days of such event, any amount that would not have been
18
payable by Holdings pursuant to Section 3.08(a) had the amount of the tax
benefit been determined in light of such event. In addition, the RJRN Tax Group
shall hold Holdings and the Nabisco Tax Group harmless from any penalty or
interest payable as a result of any event described in the preceding sentence.
SECTION 3.09. Treatment of Adjustments. (a) If any adjustment is made
in a Return relating to Federal Taxes or Combined State Taxes of the Holdings
Consolidated Group, after the filing thereof, in which income or loss of any
member of the RJRN Tax Group is included, then within 30 days of the time of a
Final Determination of such adjustment, the Designated RJRN Affiliate shall pay
to Holdings, or Holdings shall pay to the Designated RJRN Affiliate, as the case
may be and as appropriate, (i) the difference between (A) all payments actually
made, net of all refunds or recoupments received or otherwise Effectively
Realized, by the Designated RJRN Affiliate (or treated as such) in accordance
with the principles of Article 3 for the taxable year covered by such Return,
and (B) all payments that would have been made by the Designated RJRN Affiliate
(or treated as such) in accordance with the principles of this Article 3 for the
taxable year covered by such Return taking such adjustment into account, and
(ii) related adjustments to penalties and interest. Without limiting the
generality of Section 3.09(a)(ii) or 3.09(b)(ii), the determination of penalties
and interest generally shall take into account the timing and magnitude of the
relevant payments, refunds or recoupments made.
(b) If any adjustment is made in a Return relating to Federal Taxes
or Combined State Taxes of the Holdings Consolidated Group, after the filing
thereof, in which income or loss of any member of the Nabisco Tax Group is
included, then within 30 days of the time of a Final Determination of such
adjustment, Nabisco shall pay to Holdings, or Holdings shall pay to Nabisco, as
the case may be and as appropriate, (i) the difference between (A) all payments
actually made, net of all refunds or recoupments received or otherwise
Effectively Realized, by Nabisco (or treated as such) in accordance with the
principles of Article 3 for the taxable year covered by such Return, and (B) all
payments that would have been made by Nabisco (or treated as such) in accordance
with the principles under Article 3 for the taxable year covered by such Return
taking such adjustment into account, and (ii) related adjustments to penalties
and interest.
(c) Any refunds or credits of tax received or otherwise Effectively
Realized by Holdings, a member of the Nabisco Tax Group or a member of the RJRN
Tax Group, as the case may be, relating to a taxable year that includes a
Pre-Distribution Period, to the extent reflecting a tax saving attributable to
any item of income, loss, credit, deduction or other tax attribute of (i) any
member of the Nabisco Tax Group or of the RJRN Tax Group, in the case of
Holdings, shall be paid to Nabisco or the Designated RJRN Affiliate,
respectively, (ii) Holdings
19
or any member of the RJRN Tax Group, in the case of a member of the Nabisco Tax
Group, shall be paid to Holdings (and, as appropriate, forwarded by Holdings to
the Designated RJRN Affiliate), or (iii) Holdings or any member of the Nabisco
Tax Group, in the case of a member of the RJRN Tax Group, shall be paid to
Holdings (and, as appropriate, forwarded by Holdings to Nabisco), in each case
within 30 days of Effective Realization of such tax saving. In addition, any
refunds or credits of tax received or Effectively Realized by Holdings or a
member of the Nabisco Tax Group, as the case may be, relating to a taxable year
that includes a Post-Distribution Period, to the extent reflecting a tax saving
attributable to any item of income, loss, credit, deduction or other tax
attribute of any member of the Nabisco Tax Group or Holdings, respectively,
shall be paid to Nabisco or Holdings, respectively, within 30 days of Effective
Realization of such tax saving. Notwithstanding anything in this Section 3.09(c)
to the contrary, no payment shall be required to the extent such refunds or
credits are attributable to a Tax Asset or an adjustment for which the
corporation that receives or otherwise Effectively Realizes the refund or credit
has previously made payment in accordance with the principles of this Agreement.
(d) For purposes of this Agreement, any income, loss, credit,
deduction or other tax attribute of, any tax liability, refund or credit of tax
or interest of, or any payments by or on behalf of, any member of the Holdings
Consolidated Group (including, without limitation, Holdings or a member of the
Nabisco Tax Group) with respect to a Pre-1990 Period shall be treated as an item
of the RJRN Tax Group. If, with respect to any Pre-1990 Period, Holdings or any
member of the Nabisco Tax Group Effectively Realizes the benefit of a refund of
any statutory interest or any Federal Tax or State Tax, Holdings or Nabisco,
respectively, shall promptly remit to the Designated RJRN Affiliate the amount
of such refund (net of any taxes on the taxable portion, if any, of such refund
for which Holdings or the Nabisco Tax Group, respectively, is liable), together
with any interest received thereon.
SECTION 3.10. Treatment of R&D Credits. For purposes of this Agreement,
if the amount of the research and development credits (the "R&D Credits")
actually allowable to the Holdings Consolidated Group with respect to any
taxable period is less than the sum of (i) the separately computed amount of R&D
Credits of the RJRN Tax Group with respect to such taxable period and (ii) the
separately computed amount of R&D Credits of the Nabisco Tax Group with respect
to such taxable period, in the case of each of clauses (i) and (ii), calculated
as though the relevant tax group were not a part of the Holdings Consolidated
Group (but rather were a separate Consolidated Group), then for purposes of this
Agreement each of the RJRN Tax Group and the Nabisco Tax Group shall be entitled
only to its proportionate share of the actually allowable R&D Credits of the
Holdings Consolidated Group with respect to such taxable period.
20
ARTICLE 4
CERTAIN REPRESENTATIONS AND COVENANTS IN CONNECTION WITH THE
DISTRIBUTION AND THE INTERNAL DISTRIBUTION
SECTION 4.01. RJRN Tax Group Representations. RJRN and each other
member of the RJRN Tax Group represent to Holdings and each member of the
Nabisco Tax Group that as of the date of this Agreement there is no plan or
intention to (i) liquidate RJRN or RJRT or merge or consolidate any of such
corporations with any other person subsequent to the Distribution, (ii) sell or
otherwise dispose of the assets of RJRN, RJRT or any other member of the RJRN
Tax Group subsequent to the Distribution, except in the ordinary course of
business, (iii) take any action inconsistent with the information and
representations furnished by RJRN in connection with the Tax Opinion, (iv)
purchase stock of RJRN other than in accordance with the requirements of Revenue
Procedure 96-30 and in conformity with the representations furnished by RJRN in
connection with the Tax Opinion, or (v) enter into any negotiations, agreements
or arrangements with respect to transactions or events (including, without
limitation, stock issuances, pursuant to the exercise of options or otherwise,
option grants, capital contributions or acquisitions, or a series of such
transactions or events, but excluding the Internal Distribution and the
Distribution) that may cause the Distribution and/or the Internal Distribution
to be treated as part of a plan pursuant to which one or more persons acquire
directly or indirectly stock of RJRN, Nabisco or Holdings representing a
"50-percent or greater interest" therein within the meaning of Section 355(d)(4)
of the Code.
SECTION 4.02. Holdings and Nabisco Tax Group Representations. Holdings
and each member of the Nabisco Tax Group represent to each member of the RJRN
Tax Group that as of the date of this Agreement there is no plan or intention to
(i) liquidate Holdings, Nabisco or Nabisco, Inc. or merge or consolidate any of
such corporations with any other person subsequent to the Internal Distribution,
(ii) sell or otherwise dispose of the assets of Holdings, Nabisco, Nabisco, Inc.
or any other member of the Nabisco Tax Group subsequent to the Internal
Distribution, except (A) in the ordinary course of business, or (B) pursuant to
plant rationalization programs, to the extent implemented in a manner consistent
with practice prior to the Distribution, (iii) take any action inconsistent with
the information and representations furnished by Holdings in connection with the
Tax Opinion, (iv) purchase stock of Nabisco or Holdings, other than (A) in
accordance with the requirements of Revenue Procedure 96-30 and in conformity
with the representations furnished by Holdings in connection with the Tax
Opinion (including, without limitation, the purchase by Nabisco on the New York
Stock Exchange of shares of its Class A common stock for delivery upon the
exercise of employee stock options), or (B)
21
any payment of cash in lieu of fractional shares in any reverse stock split with
respect to the common stock of Holdings or Nabisco following the Internal
Distribution, or (v) enter into any negotiations, agreements or arrangements
with respect to transactions or events (including stock issuances, pursuant to
the exercise of options or otherwise, option grants, capital contributions or
acquisitions, or a series of such transactions or events, but excluding the
Internal Distribution and the Distribution) that may cause the Internal
Distribution and/or the Distribution to be treated as part of a plan pursuant to
which one or more persons acquire directly or indirectly stock of Nabisco,
Holdings or RJRN representing a "50-percent or greater interest" therein within
the meaning of Section 355(d)(4) of the Code.
SECTION 4.03. Representations of Holdings, RJRN Tax Group and Nabisco
Tax Group. Each of Holdings, the members of the Nabisco Tax Group, RJRN and the
other members of the RJRN Tax Group represents that it is not aware of any plan
or intention by the shareholders or securityholders of Holdings to sell,
exchange, transfer or otherwise dispose of any of their stock or securities in
Holdings or RJRN subsequent to the Distribution.
SECTION 4.04. RJRN Tax Group Covenants. RJRN and each other member of
the RJRN Tax Group covenant to Holdings and each member of the Nabisco Tax Group
that (i) during the Two-Year Period, RJRN and RJRT shall not liquidate or merge
or consolidate with any other person, (ii) during the Two-Year Period, RJRN
shall not sell, exchange, distribute or otherwise dispose of the assets of RJRN,
RJRT or any other member of the RJRN Tax Group, except in the ordinary course of
business, (iii) during the Two-Year Period, RJRT shall continue the active
conduct of the historic trade or business (i.e., the manufacture, distribution
and sale of cigarettes and other tobacco products in the United States), within
the meaning of Section 355 of the Code, conducted throughout the five-year
period prior to the Internal Distribution, (iv) no member of the RJRN Tax Group
shall purchase stock of RJRN, other than in accordance with the requirements of
Revenue Procedure 96-30 and in conformity with the representations furnished by
RJRN in connection with the Tax Opinion, (v) on or after the Distribution Date,
RJRN shall not, nor shall it permit any member of the RJRN Tax Group to, make or
change any tax election, change any accounting method, amend any Return or take
any tax position on any Return, take any action, omit to take any action or
enter into any transaction that results in an increased tax liability or
reduction of any Tax Asset of Holdings or of the Nabisco Tax Group with respect
to any Pre-Distribution Period that is not also a Pre-1990 Period, and (vi)
during the Two-Year Period, RJRN shall not enter into any transaction or make
any change in equity structure (including, without limitation, stock issuances,
pursuant to the exercise of options or otherwise, option grants, capital
contributions or acquisitions, or a series of such transactions or events, but
22
excluding the Distribution and the Internal Distribution) that may cause the
Distribution and/or the Internal Distribution to be treated as part of a plan
pursuant to which one or more persons acquire directly or indirectly stock of
RJRN, Nabisco or Holdings representing a "50-percent or greater interest"
therein within the meaning of Section 355(d)(4) of the Code. The RJRN Tax Group
agrees that Holdings and the Nabisco Tax Group shall have no liability for any
Tax resulting from any action referred to in the preceding sentence and agrees
to hold harmless Holdings and the Nabisco Tax Group from any such Tax.
SECTION 4.05. Holdings and Nabisco Tax Group Covenants. Holdings and
each member of the Nabisco Tax Group covenant to each member of the RJRN Tax
Group that (i) during the Two-Year Period, Holdings, Nabisco and Nabisco, Inc.
shall not liquidate or merge or consolidate with any other person, (ii) during
the Two-Year Period, Holdings shall not sell, exchange, distribute or otherwise
dispose of the assets of Holdings, Nabisco, Nabisco, Inc. or any other member of
the Nabisco Tax Group, except (A) in the ordinary course of business, (B)
pursuant to plant rationalization programs, to the extent implemented in a
manner consistent with practice prior to the Distribution, or (C) for an asset,
(I) the gross proceeds of disposition of which do not exceed $10 million, (II)
which, together with all other assets to which this clause (C) has been applied,
would not have aggregate gross proceeds of disposition in excess of $200
million, and (III) which is not part of a plan for the disposition of multiple
assets unless each of the assets covered by such plan would meet the
requirements of this clause (C), (iii) during the Two-Year Period, Nabisco, Inc.
shall continue the active conduct of the historic trade or business (i.e., the
manufacture, distribution and sale of cookies, crackers and other food and snack
products within the United States), within the meaning of Section 355 of the
Code, conducted throughout the five-year period prior to the Internal
Distribution, (iv) during the Two-Year Period, neither any member of the Nabisco
Tax Group nor Holdings shall purchase stock of Nabisco or Holdings other than
(A) in accordance with the requirements of Revenue Procedure 96-30 and in
conformity with the representations furnished by Holdings in connection with the
Tax Opinion (including, without limitation, the purchase by Nabisco on the New
York Stock Exchange of shares of its Class A common stock for delivery upon the
exercise of employee stock options), or (B) any payment of cash in lieu of
fractional shares in any reverse stock split with respect to the common stock of
Nabisco or Holdings following the Internal Distribution, and (v) during the
Two-Year Period, each of Nabisco and Holdings shall not enter into any
transaction or make any change in equity structure (including, without
limitation, stock issuances, pursuant to the exercise of options or otherwise,
option grants, capital contributions or acquisitions, or a series of such
transactions or events, but excluding the Internal Distribution and the
Distribution) that may cause the Internal Distribution and/or the Distribution
to be treated as part of a plan pursuant to which one or more persons acquire
directly or
23
indirectly stock of Nabisco, Holdings or RJRN representing a "50-percent or
greater interest" therein within the meaning of Section 355(d)(4) of the Code.
Each of Holdings and Nabisco agrees that the members of the RJRN Tax Group shall
have no liability for any Tax resulting from any action referred to in the
preceding sentence taken by Holdings or any member of the Nabisco Tax Group,
respectively, and agrees to indemnify and hold harmless any member of the RJRN
Tax Group from any such Tax.
SECTION 4.06. Exceptions. Notwithstanding the foregoing, RJRN and the
other members of the RJRN Tax Group shall be permitted to take an action
inconsistent with the covenants contained in Section 4.04, and Holdings and the
members of the Nabisco Tax Group shall be permitted to take an action
inconsistent with the covenants contained in Section 4.05, if, prior to taking
such action the Designated RJRN Affiliate, Holdings or Nabisco, as the case may
be, (i) provides notification, upon determining that it shall pursue such
action, to the other parties to this Agreement of its plans with respect to such
action, and promptly responds to any inquiries made by such parties following
such notification, and (ii) obtains either (A) a ruling from the IRS to the
effect that such action shall not cause the Distribution to be taxable to
Holdings or its shareholders or the Internal Distribution to be taxable to RJRN
or Holdings, or (B) an opinion of ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ (or of an independent
counsel, comparable thereto, that is nationally recognized as an expert in
Federal Tax matters), which opinion and, in the case of counsel other than ▇▇▇▇▇
▇▇▇▇ & ▇▇▇▇▇▇▇▇, which counsel are acceptable to the parties to which the
relevant covenant(s) in this Agreement have been made, to the same effect as is
set forth in clause (A).
ARTICLE 5
COVENANTS AND OTHER MATTERS FOLLOWING NABISCO DECONSOLIDATION
SECTION 5.01. Certain Nabisco Covenants. Nabisco covenants to Holdings
that upon or after a Nabisco Deconsolidation it shall not, nor shall it cause or
permit any member of the Nabisco Tax Group to, make or change any tax election,
change any accounting method, amend any Return or take any tax position on any
Return, take any action, omit to take any action or enter into any transaction
that results in any increased tax liability or reduction of any Tax Asset of the
Holdings Consolidated Group with respect to any Pre-Deconsolidation Period;
provided, however, that with respect to a Pre-Deconsolidation Period that is
also a Post-1989 Period, for purposes of this Section 5.01, the Holdings
Consolidated Group shall include only those members of the Holdings Consolidated
Group that are not members of the Nabisco Tax Group. Nabisco
24
agrees that Holdings and the RJRN Tax Group, as applicable, shall have no
liability for any tax or any increase in indemnification obligations resulting
from any action referred to in the preceding sentence and agrees to hold
harmless such corporations from any such tax or increase in indemnification
obligations.
SECTION 5.02. Carrybacks from Periods Following Nabisco
Deconsolidation. (a) Holdings agrees to pay to Nabisco the actual Federal Tax or
Combined State Tax benefit Effectively Realized by any member of the Holdings
Consolidated Group from the use in any taxable year that includes a
Pre-Deconsolidation Period and that does not include a Pre-1990 Period of a
carryback of any Tax Asset of any member of the Nabisco Tax Group from a taxable
year that includes a Post-Deconsolidation Period. Such tax benefit shall be
considered equal to the excess of (i) the Federal Taxes or Combined State Taxes,
as the case may be, that would have been payable (or the Federal Tax or Combined
State Tax refund actually receivable) by the Holdings Consolidated Group in the
absence of such carryback, over (ii) the amount of Federal Taxes or Combined
State Taxes actually payable (or the Federal Tax or Combined State Tax refund
that would have been receivable). Without limiting the generality of the
foregoing, the determination of the tax benefit under this Section 5.02(a) shall
take into account the application of Section 3.06. Payment of the amount of the
tax benefit under this Section 5.02(a) shall be made within 30 days of the
Effective Realization thereof.
(b) If, subsequent to the payment by Holdings to Nabisco of an amount
under Section 5.02(a), there shall be (i) a Final Determination that results in
a disallowance or a reduction of the Tax Asset so carried back or (ii) a
reduction in the amount of the benefit Effectively Realized by the Holdings
Consolidated Group from such Tax Asset as a result of the use by the Holdings
Consolidated Group of a Tax Asset of Holdings or of the RJRN Tax Group, Nabisco
shall repay to Holdings, within 30 days of such event, any amount that would not
have been payable to Nabisco pursuant to Section 5.02(a) had the amount of the
benefit been determined in light of such events. Nabisco shall hold Holdings
harmless from any penalty or interest payable as a result of any event described
in the preceding sentence.
25
ARTICLE 6
DEDUCTIONS AND CERTAIN TAX MATTERS RELATED TO THE DISTRIBUTION
AGREEMENT
SECTION 6.01. Payment of After-Tax Amounts. If any amount paid by RJRN
or Holdings under the Distribution Agreement results in any increased tax
liability or reduction of any Tax Asset of Holdings or any member of the Nabisco
Tax Group, in the case of RJRN, or any member of the RJRN Tax Group, in the case
of Holdings, then the party making such payment shall, in addition to paying any
amounts otherwise owed under the Distribution Agreement, indemnify the recipient
of such payment against and hold it harmless from (i) such increased tax or the
reduction of such Tax Asset, (ii) any interest or penalty attributable to such
increased tax liability or the reduction of such Tax Asset and (iii) the
After-Tax Amount.
SECTION 6.02. Deductions and Certain Taxes Related to Stock Options and
Restricted Stock. (a) The Holdings Consolidated Group shall claim, and for
purposes of this Agreement Holdings shall be entitled to the economic benefit
of, any Federal Tax deductions and State Tax deductions with respect to a
Post-Distribution Period that are attributable to the exercise of options to
purchase the stock of Holdings, of Nabisco or of RJRN or the vesting of
restricted stock of Holdings, of Nabisco or of RJRN, in each case that are held
by a person who (i) at the time the deduction is claimed is an employee of
Holdings, (ii) at the time the deduction is claimed is not employed by any
corporation among Holdings, the members of the RJRN Tax Group and the members of
the Nabisco Tax Group (collectively, the "Employer Group"), but who (A) on the
day before the Distribution Date was an employee of Holdings or (B) on the day
before the Distribution Date was not employed by any corporation in the Employer
Group and was last employed, among the corporations in the Employer Group, by
Holdings, or (iii) notwithstanding anything in Section 6.04 or this Section 6.02
to the contrary except for Section 6.02(b)(iii), has been an employee of
Holdings at any time after the Distribution.
(b) The Holdings Consolidated Group shall claim, and for purposes of
this Agreement the Nabisco Tax Group shall be entitled to the economic benefit
of, any Federal Tax deductions and State Tax deductions with respect to a
Post-Distribution Period that are attributable to the exercise of options to
purchase the stock of Holdings, of Nabisco or of RJRN or the vesting of
restricted stock of Holdings, of Nabisco or of RJRN, in each case that are held
by a person who (i) at the time the deduction is claimed is an employee of a
member of the Nabisco Tax Group, (ii) at the time the deduction is claimed is
not employed by any corporation in the Employer Group, but who (A) on the day
before the
(NY) 17560/178/TAX/tax.sharing.agt.wpd
26
Distribution Date was an employee of a member of the Nabisco Tax Group or (B) on
the day before the Distribution Date was not employed by any corporation in the
Employer Group and was last employed, among the corporations in the Employer
Group, by a member of the Nabisco Tax Group, or (iii) in the case of options to
purchase the stock of Nabisco or restricted stock of Nabisco and notwithstanding
anything in Section 6.04 or this Section 6.02 to the contrary, is ▇▇. ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ or ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
(c) The RJRN Tax Group shall claim, and for purposes of this Agreement
the RJRN Tax Group shall be entitled to the economic benefit of, any Federal Tax
deductions and State Tax deductions with respect to a Post-Distribution Period
that are attributable to the exercise of options to purchase the stock of
Holdings, of Nabisco or of RJRN or the vesting of restricted stock of Holdings,
of Nabisco or of RJRN, in each case that are held by a person who (i) at the
time the deduction is claimed is an employee of a member of the RJRN Tax Group,
or (ii) at the time the deduction is claimed is not employed by any corporation
in the Employer Group, but who (A) on the day before the Distribution Date was
an employee of a member of the RJRN Tax Group or (B) on the day before the
Distribution Date was not employed by any corporation in the Employer Group and
was last employed, among the corporations in the Employer Group, by a member of
the RJRN Tax Group.
(d) For purposes of this Section 6.02, references to options to
purchase stock of any corporation and references to the restricted stock of any
corporation are limited to options and restricted stock outstanding immediately
after the Distribution.
SECTION 6.03. Certain Employment Taxes. (a) The employer of the person
who exercises stock options or with respect to whom restricted stock vests (or,
if such person is not employed by a corporation in the Employer Group at the
time of such exercise or vesting, the corporation in the Employer Group that
last employed such person) shall timely pay all applicable Federal Employment
Taxes and state employment taxes in connection with such exercise or vesting.
(b) If the payor under Section 6.03(a) of Federal Employment Taxes and
state employment taxes in connection with the exercise of options to purchase
the stock of Nabisco, or the vesting of restricted stock of Nabisco, held by ▇▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ or ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ is not a member of the Nabisco Tax
Group, Nabisco shall pay to such payor an amount equal to such taxes within 30
days of Nabisco's receipt of documentation that such payor has remitted such
taxes to the appropriate Taxing Authorities.
27
SECTION 6.04. Deductions Related to Employee Severance and Certain
Other Expenses. (a) The Holdings Consolidated Group shall claim, and for
purposes of this Agreement the Nabisco Tax Group shall be entitled to the
economic benefit of, any Federal Tax deductions and State Tax deductions, as
appropriate, that are attributable to (i) the expenses (except for expenses
related to stock options and restricted stock) arising out of (A) the closing of
the corporate headquarters of RJRN and Holdings, or (B) the severance and
benefit payment obligations to Holdings Employees (as defined in the
Distribution Agreement) arising as a result of the completion of the
Distribution, or (ii) such miscellaneous expenses as are described in Section
10.03(b)(iii) of the Distribution Agreement (collectively, the "Corporate
Headquarters Expenses").
(b) Notwithstanding anything in Section 10.03(b) of the Distribution
Agreement to the contrary, upon the provision by Holdings of not less than 15
days' notice to Nabisco that (i) Holdings is required to make a cash payment of
Corporate Headquarters Expenses to a third party no later than a specified date,
and (ii) the sum of such payment and all prior payments of Corporate
Headquarters Expenses exceeds the amount transferred by RJRN to Holdings
pursuant to Section 10.03(b)(iii) of the Distribution Agreement, Nabisco shall
remit to Holdings cash equal to such excess prior to such specified date.
SECTION 6.05. Deductions Related to Certain Litigation Expenses. The
RJRN Tax Group shall claim, and for purposes of this Agreement RJRN shall be
entitled to the economic benefit of, any Federal Tax deductions and State Tax
deductions, as appropriate, that are attributable to the expenses (including,
without limitation, attorneys' fees, expenses of investigation and other
expenses) incurred in the defense of Tobacco Claims against (i) RJRN, including,
without limitation, Tobacco Claims the defense of which has been assumed by
Holdings pursuant to the Distribution Agreement, or (ii) Holdings, Nabisco,
Nabisco, Inc. or any other Nabisco Indemnitee as such term is defined in the
Distribution Agreement, to the extent that RJRN has agreed under the
Distribution Agreement to indemnify such party against any liabilities in
connection with such Tobacco Claims, provided that, in the case of each of (i)
and (ii), RJRN has satisfied its obligations under the relevant provisions of
the Distribution Agreement.
SECTION 6.06. Indemnification under Article 6. (a) To the extent that
any deduction that is allocated to Holdings under Section 6.02(a) is disallowed
because a Taxing Authority makes a Final Determination that a member of the RJRN
Tax Group or of the Nabisco Tax Group should have claimed such deduction, the
Designated RJRN Affiliate or Nabisco, respectively, shall pay to Holdings an
amount equal to the resulting actual tax benefit Effectively Realized by the
RJRN Tax Group or the Nabisco Tax Group, respectively, within 30 days of the
Effective Realization thereof.
28
(b) To the extent that any deduction that is allocated to a member of
the Nabisco Tax Group under Section 6.02(b) or 6.04 is disallowed because a
Taxing Authority makes a Final Determination that Holdings or a member of the
RJRN Tax Group should have claimed such deduction, Holdings or the Designated
RJRN Affiliate, respectively, shall pay to Nabisco an amount equal to the
resulting actual tax benefit Effectively Realized by Holdings or the RJRN Tax
Group, respectively, within 30 days of the Effective Realization thereof.
(c) To the extent that any deduction that is allocated to a member of
the RJRN Tax Group under Section 6.02(c) or 6.05 is disallowed because a Taxing
Authority determines that Holdings or a member of the Nabisco Tax Group should
have claimed such deduction, Holdings or Nabisco, respectively, shall pay to the
Designated RJRN Affiliate an amount equal to the resulting actual tax benefit
Effectively Realized by Holdings or the Nabisco Tax Group, respectively, within
30 days of the Effective Realization thereof.
ARTICLE 7
INDEMNITIES
SECTION 7.01. Indemnification of Holdings and Nabisco Tax Group by RJRN
Tax Group. RJRN, RJRT and each other member of the RJRN Tax Group shall jointly
and severally indemnify Holdings, Nabisco, Nabisco, Inc. and the other members
of the Nabisco Tax Group against and hold them harmless from:
(a) liability for Taxes attributable to any member of the RJRN Tax
Group relating to any taxable period (provided that, for purposes of the
foregoing portion of this Section 7.01(a), Taxes shall refer only to such taxes
as are described in clause (i) of the definition of such term in Section
1.01(a)), including without limitation, (i) any Tax liability resulting from the
International Tobacco Sale, (ii) any Tobacco Tax liability, (iii) any tax
liability of any member of the RJRN Tax Group resulting from the existence of
any excess loss accounts or deferred intercompany gains immediately before the
Distribution, (iv) any Federal Employment Tax of any member of the RJRN Tax
Group and (v) any Puerto Rican tax liability of any member of the RJRN Tax
Group, but excluding any Tax liability resulting from the Internal Distribution
except (A) to the extent the Internal Distribution is taxable by reason of a
breach by RJRN or any other member of the RJRN Tax Group of any representation
or covenant made by any member of the RJRN Tax Group in this Agreement, and (B)
for such amounts as are described in clause (iii) of this Section 7.01(a);
29
(b) liability for Taxes relating to any taxable period resulting from
a breach by RJRN or any other member of the RJRN Tax Group of any representation
or covenant made by any member of the RJRN Tax Group in this Agreement;
(c) liability for Taxes relating to any Pre-1990 Period of Holdings,
Nabisco, Nabisco, Inc. or any other member of the Holdings Consolidated Group;
and
(d) liability for Taxes of Del Monte Corporation relating to any
taxable period (or portion thereof) ending on or before the close of business on
January 9, 1990, including, without limitation, (i) any tax liability pursuant
to the Stock Purchase Agreement dated as of September 24, 1989, as amended,
among DMPF Corp., RJR Investments, Inc., DMPF Holdings Corp. and RJRN, and (ii)
any Del Monte State Tax.
SECTION 7.02. Indemnification of RJRN Tax Group by Holdings or Nabisco
Tax Group. (a) Holdings shall indemnify RJRN, RJRT and the other members of the
RJRN Tax Group against and hold them harmless from:
(i) liability for Taxes attributable to Holdings (including,
without limitation, any Federal Employment Tax of Holdings)
relating to a Post-1989 Period, provided that, for purposes of
this Section 7.02(a)(i), (A) Tax shall refer only to such
taxes as are described in clause (i) of the definition of such
term in Section 1.01(a), and (B) any Federal Employment Tax
relating to a Pre- 1990 Period shall be treated as relating to
a Post-1989 Period;
(ii) liability for Taxes relating to any taxable period
resulting from a breach by Holdings of any representation or
covenant made by Holdings in this Agreement;
(iii) liability for Taxes resulting from the Name Change
Merger; and
(iv) liability for Taxes resulting from the Internal
Distribution or from the Distribution, except (A) to the
extent that such liability arises by reason of the breach by
RJRN or any other member of the RJRN Tax Group of any
representation or covenant made by any member of the RJRN Tax
Group in this Agreement, and (B) for such amounts as are
described in Section 7.01(a)(iii).
30
(b) Nabisco, Nabisco, Inc. and each other member of the Nabisco Tax
Group shall jointly and severally indemnify RJRN, RJRT and the other members of
the RJRN Tax Group against and hold them harmless from:
(i) liability for Taxes attributable to any member of the
Nabisco Tax Group (including, without limitation, any Federal
Employment Tax of any member of the Nabisco Tax Group)
relating to a Post-1989 Period, provided that, for purposes of
this Section 7.02(b)(i), (A) Tax shall refer only to such
taxes as are described in clause (i) of the definition of such
term in Section 1.01(a), and (B) any Federal Employment Tax
relating to a Pre- 1990 Period shall be treated as relating to
a Post-1989 Period; and
(ii) liability for Taxes relating to any taxable period
resulting from a breach by Nabisco or any other member of the
Nabisco Tax Group of any representation or covenant made by
any member of the Nabisco Tax Group in this Agreement.
SECTION 7.03. Indemnification Between Holdings and Nabisco. (a)
Holdings shall indemnify Nabisco, Nabisco, Inc. and the other members of the
Nabisco Tax Group against and hold them harmless from:
(i) liability for Taxes attributable to Holdings (including,
without limitation, any Federal Employment Tax of Holdings)
relating to a Post-1989 Period, provided that, for purposes of
this Section 7.03(a)(i), (A) Tax shall refer only to such
taxes as are described in clause (i) of the definition of such
term in Section 1.01(a), and (B) any Federal Employment Tax
relating to a Pre- 1990 Period shall be treated as relating to
a Post-1989 Period;
(ii) liability for Taxes resulting from the Name Change
Merger;
(iii) liability for Taxes resulting from the Internal
Distribution or from the Distribution, except (A) the extent
that such liability arises by reason of the breach by (I) RJRN
or any other member of the RJRN Tax Group of any
representation or covenant made by any member of the RJRN Tax
Group in this Agreement, or (II) Nabisco or any other member
of the Nabisco Tax Group of any representation or covenant
made by any member of the Nabisco Tax Group in this Agreement,
(B) for such amounts as are described in Section 7.01(a)(iii),
and (C) for any tax liability of any member of the Nabisco Tax
Group resulting from the existence of any deferred
intercompany gains immediately before the
31
Distribution; and
(iv) liability for Taxes relating to any taxable period
resulting from a breach by Holdings of any representation or
covenant made by Holdings in this Agreement.
(b) Nabisco, Nabisco, Inc. and each other member of the Nabisco Tax
Group shall jointly and severally indemnify Holdings against and hold it
harmless from:
(i) liability for Taxes attributable to the Nabisco Tax Group
(including, without limitation, any Federal Employment Tax of
the Nabisco Tax Group) relating to a Post-1989 Period,
provided that, for purposes of this Section 7.03(b)(i), Tax
shall refer only to such taxes as are described in clause (i)
of the definition of such term in Section 1.01(a), and (B) any
Federal Employment Tax relating to a Pre-1990 Period shall be
treated as relating to a Post-1989 Period; and
(ii) liability for Taxes relating to any taxable period
resulting from a breach by Nabisco or any other member of the
Nabisco Tax Group of any representation or covenant made by
any member of the Nabisco Tax Group in this Agreement.
SECTION 7.04. Additional Indemnity Amounts. Each party with
indemnification obligations under Section 7.01, 7.02 or 7.03 (an "Indemnitor")
shall also pay to each party that is indemnified by such Indemnitor under such
provision (an "Indemnitee") all liabilities, losses, damages, assessments,
settlements, judgments, costs or properly documented expenses (including,
without limitation, expenses of investigation and attorneys' fees and expenses)
arising out of or incident to the imposition, assessment or assertion of any
liabilities or damage described in such provision, including, without
limitation, those incurred in the contest in good faith in appropriate
proceedings relating to the imposition, assessment or assertion of any such
liability or damage.
SECTION 7.05. Notice of Claim. The Indemnitee agrees to give prompt
notice to the Indemnitor of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 7.01, 7.02 or 7.03.
SECTION 7.06. Discharge of Indemnity. An Indemnitor shall discharge its
obligations by paying all amounts specified in Sections 7.01, 7.02, 7.03 and
7.04 within 30 days of demand therefor. After a Final Determination of an
obligation
32
for which an Indemnitee is to be indemnified, the Indemnitee shall send a
statement to the Indemnitor showing the amount, if any, due under such
provisions. Certain calculation mechanics relating to items described in
Sections 7.01, 7.02 and 7.03 shall be in accordance with the principles of
Article 3. Notwithstanding that an Indemnitor disputes in good faith the fact or
the amount of any obligation under Section 7.01, 7.02 or 7.03, payment
thereunder and under Section 7.04 shall be made within 30 days of demand
therefor.
SECTION 7.07. Certain Effects of Indemnification Obligations. (a) If
(i) (A) an indemnification obligation of the RJRN Tax Group under Section 7.01
arises in respect of an adjustment that makes a Tax Asset allowable to Holdings
or any member of the Nabisco Tax Group in a Post-1989 Period or (B) any other
adjustment for which the RJRN Tax Group is liable under this Agreement makes a
Tax Asset allowable to Holdings or any member of the Nabisco Tax Group in a
Post-1989 Period, and (ii) such Tax Asset would not be allowable but for such
adjustment, then Holdings or Nabisco, respectively, shall pay to the Designated
RJRN Affiliate an amount equal to the actual tax saving produced by such Tax
Asset within 30 days of the Effective Realization of such tax saving, provided
that the RJRN Tax Group has satisfied its obligations under this Agreement in
respect of the adjustment giving rise to such tax saving.
(b) If (i) (A) an indemnification obligation of Holdings or any member
of the Nabisco Tax Group under Section 7.02 or 7.03, as the case may be, arises
in respect of an adjustment that makes a Tax Asset allowable to any member of
the Holdings Consolidated Group in a Pre-1990 Period or to any member of the
RJRN Tax Group in a Post-1989 Period or (B) any other adjustment for which
Holdings or the Nabisco Tax Group is liable under this Agreement makes a Tax
Asset allowable to any member or the RJRN Tax Group, and (ii) such Tax Asset
would not be allowable but for such adjustment, then the Designated RJRN
Affiliate shall pay to Holdings or Nabisco, respectively, an amount equal to the
actual tax saving produced by such Tax Asset within 30 days of the Effective
Realization of such tax saving, provided that Holdings or Nabisco, as the case
may be, has satisfied its obligations under this Agreement in respect of the
adjustment giving rise to such tax saving. Without limiting the generality of
the foregoing, if a Tax Asset is made allowable in a Pre-1990 Period, the amount
to be paid under this Section 7.07(b) shall not exceed the indemnification
obligation that arises in respect of the adjustment that makes such Tax Asset
allowable.
(c) The amount of the tax saving under Section 7.07(a) or under Section
7.07(b) for any taxable period shall be the amount of the reduction in taxes
payable to a Taxing Authority with respect to such taxable period as compared to
the taxes that would have been payable to a Taxing Authority with respect to
such taxable period in the absence of such Tax Asset. Without limiting the
generality
33
of the foregoing, the determination of the tax saving under Section 7.07(a) or
under Section 7.07(b) shall take into account the application of Section 3.06.
ARTICLE 8
AUDIT AND OTHER TAX PROCEEDINGS
SECTION 8.01. Control Over Tax Proceedings. (a) Notwithstanding Section
11.02 or anything in this Agreement to the contrary, Holdings shall have full
control over any and all matters with respect to which the Nabisco Tax Group and
the RJRN Tax Group have provided authority to Holdings under Section 2.02,
including, without limitation, any and all matters that would give rise to an
indemnification obligation under Article 7 on the part of any member of the
Nabisco Tax Group or any member of the RJRN Tax Group. Holdings shall have
absolute discretion with respect to any decisions to be made, or any action to
be taken, with respect to any matter described in the preceding sentence.
(b) Without limiting the generality of Section 8.01(a), Holdings may,
in its sole and absolute discretion, settle any Tax Proceeding with respect to
the Taxes over which it has authority under Section 2.02(a) (including, without
limitation, a Tax Proceeding relating to any and all matters that would give
rise to an indemnification obligation under Section 7.01, 7.02 or 7.03). Any
such settlement shall be binding on the parties to this Agreement without
further recourse. Section 11.02 shall not apply with respect to (i) any such
settlement or (ii) any Tax Proceeding with respect to the Taxes over which
Holdings has authority under Section 2.02(a).
SECTION 8.02. Del Monte State Taxes and Certain Other State Taxes.
Holdings shall conduct, and shall have full control over all matters relating
to, any Tax Proceedings in connection with (i) Del Monte State Taxes, or (ii)
any State Tax liability of Holdings or any member of the Nabisco Tax Group
(including, without limitation, tax liabilities that are reflected on (A) a
separate State Tax return, or (B) a Combined State Tax return filed on behalf of
an affiliated, consolidated, combined or unitary group that does not include any
member of the RJRN Tax Group) with respect to any Pre-1990 Period. In its sole
and absolute discretion, Holdings may determine that the RJRN Tax Group shall be
required to conduct such Tax Proceedings following the provision by Holdings of
not less than 180 days' notice to the Designated RJRN Affiliate to such effect.
SECTION 8.03. Federal Employment Taxes. Holdings shall conduct, and
shall have full control over all matters relating to, any Tax Proceedings in
34
connection with any Federal Employment Tax for which (i) any member of the
Nabisco Tax Group is liable with respect to a taxable year that begins prior to
a Nabisco Deconsolidation, or (ii) any member of the RJRN Tax Group is liable
with respect to a taxable year that begins prior to the Distribution Date.
ARTICLE 9
COMMUNICATIONS AND COOPERATION
SECTION 9.01. Consult and Cooperate. Holdings, Nabisco, RJRN and RJRT
shall consult and cooperate (and shall cause their respective subsidiaries to
cooperate) fully at such time and to the extent reasonably requested by a party
to this Agreement in connection with all matters subject to this Agreement;
provided that (a) in the case of the companies listed in Exhibit D to the
International Tobacco Purchase Agreement, RJRN and RJRT shall be required to
cause such companies to cooperate only to the extent allowed under the
International Tobacco Purchase Agreement, and (b) for the avoidance of doubt,
any disagreement as to the scope of the consultation and cooperation required
under this Section 9.01 shall be governed by Section 11.02. The cooperation
under this Section 9.01 shall include, without limitation:
(i) the retention and provision on reasonable request of any
information (including, without limitation, any books, records, documentation or
other information) pertaining to Tax matters relating to Holdings, the Nabisco
Tax Group and the RJRN Tax Group, any necessary explanations of information, and
access to personnel, until the expiration of the applicable statute of
limitation (giving effect to any extension, waiver, or mitigation thereof);
(ii) the execution, acknowledgment and delivery of any instrument or
document that may be necessary or helpful in connection with (A) any Return, (B)
any Tax Proceeding or other litigation, investigation or action, or (C) the
carrying out of the parties' respective obligations under this Agreement; and
(iii) the use of the parties' best efforts to obtain any documentation
from a Taxing Authority, another governmental authority or another third party
that may be necessary or helpful in connection with the foregoing.
SECTION 9.02. Provide Information. Holdings, Nabisco and the Designated
RJRN Affiliate shall keep one another fully informed with respect to any
material developments relating to the matters subject to this Agreement.
35
SECTION 9.03. Tax Attribute Matters. Holdings, Nabisco and the
Designated RJRN Affiliate shall promptly advise one another with respect to any
proposed Tax adjustments, relating to a Consolidated Group, that are the subject
of a Tax Proceeding or other litigation, investigation or action and that may
materially affect any Tax liability or Tax attribute of the other parties to
this Agreement.
ARTICLE 10
PAYMENTS
SECTION 10.01. Procedure for Making Payments. All payments to be made
under this Agreement shall be made in immediately available funds. Except as
otherwise provided, all payments required to be made under this Agreement shall
be due 30 days after the receipt of notice of such payment or, where no notice
is required, 30 days after (i) the fixing of a tax liability, (ii) the Effective
Realization of a tax saving, tax benefit or tax attribute, (iii) the receipt of
a refund, or (iv) the resolution of a dispute. Unless otherwise indicated, any
payment that is not made when due shall bear interest at the Intercompany
Interest Rate. If, pursuant to a Final Determination, any amount paid by
Holdings, the members of the Nabisco Tax Group or the members of the RJRN Tax
Group under this Agreement results in any increased tax liability or reduction
of any Tax Asset of the recipient of such payment, then, in addition to any
amounts otherwise owed under this Agreement, the payor shall pay the sum of (i)
any interest or penalty attributable to such increased tax liability or to the
reduction of such Tax Asset, and (ii) the After-Tax Amount.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Guarantee. Nabisco shall guarantee the obligations under
this Agreement of each other member of the Nabisco Tax Group. RJRN and RJRT
shall guarantee the obligations under this Agreement of each other member of the
RJRN Tax Group.
SECTION 11.02. Dispute Resolution. If the parties hereto are unable to
resolve any disagreement or dispute relating to this Agreement within 20 days,
such disagreement or dispute shall be resolved by Holdings. Any such resolution
shall be binding on the parties to this Agreement without further recourse.
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SECTION 11.03. Authorization. Each of Holdings, RJRN, Nabisco and RJRT
hereby represents and warrants that (i) it has the power and authority to
execute, deliver and perform this Agreement, (ii) this Agreement has been duly
authorized by all necessary corporate action on the part of such party, (iii)
this Agreement constitutes a legal, valid and binding obligation of such party,
and (iv) the execution, delivery and performance of this Agreement by such party
does not contravene or conflict with any provision or law or of such party's
charter or bylaws or any agreement, instrument or order binding on such party.
SECTION 11.04. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile or similar
writing) and shall be given:
if to Holdings, to:
Nabisco Group Holdings Corp.
f/k/a RJR Nabisco Holdings Corp.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: To be determined
if to RJRN and/or RJRT, to:
▇.▇. ▇▇▇▇▇▇▇▇ Tobacco Holdings, Inc.
f/k/a/ RJR Nabisco, Inc.
▇. ▇. ▇▇▇▇▇▇▇▇ Tobacco Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇
▇▇▇▇▇▇▇-▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Vice President -- Tax
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
if to Nabisco, to:
Nabisco Holdings Corp.
▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Senior Vice President -- Tax
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
37
and, in each case, to:
Nabisco, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Vice President -- Tax Audits and Research
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or any other address or facsimile number as such party may hereafter specify in
writing for this purpose by notice to the other parties to this Agreement. Each
such notice, request or other communication under this Section 11.04 shall be
effective (a) if given by facsimile, when such facsimile is transmitted to the
facsimile number specified in this Section and the appropriate facsimile
confirmation is received or (b) if given by any other means, when delivered at
the address specified in this Section.
SECTION 11.05. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver
is in writing and signed by the parties that would be affected by such amendment
or waiver.
(b) Without limiting the generality of Section 11.05(a), Holdings and
the Nabisco Tax Group shall have the right, in connection with any of the
matters covered by this Agreement or other tax matters, to make additional
arrangements between themselves without the approval of RJRN or RJRT, so long as
the RJRT Tax Group's rights under this Agreement are not adversely affected by
such additional arrangements.
(c) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
provided in this Agreement shall be cumulative and not exclusive of any rights
or remedies provided by law.
SECTION 11.06. Expenses. (a) Except as specifically provided otherwise
in this Agreement or in Section 10.03 or 10.08 of the Distribution Agreement,
each party shall bear its own costs and expenses (including, without limitation,
attorneys' fees and other professional fees and expenses).
(b) Without limiting the generality of Section 11.06(a), each party
shall bear the costs and expenses in connection with the preparation for or
conduct of
38
litigation (or any other Tax Proceeding that is not a Tax audit) relating to
taxes (i) that are a liability of such party, and/or (ii) against which such
party has an indemnification obligation under Article 7.
SECTION 11.07. Successors and Assigns. The provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties to this
Agreement and their respective successors (whether by merger, acquisition of
assets or otherwise, and, including, without limitation, any successor
succeeding to the tax attributes of a party under Section 381 of the Code) and
assigns, to the same extent as if such successor or assign had been an original
party to this Agreement; provided that, except as set forth in this Agreement,
no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of each of the other
parties to this Agreement.
SECTION 11.08. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of New York.
SECTION 11.09. Counterparts; Effectiveness; No Third Party
Beneficiaries. (a) This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement shall become
effective upon the consummation of the Distribution, provided that at or before
such time, each party to this Agreement shall have received a counterpart of
this Agreement signed by the other parties. The parties to this Agreement do not
intend that any of its provisions will or do confer any rights, benefits,
remedies, obligations or liabilities under this Agreement upon any person other
than (i) the parties to this Agreement, (ii) other members of the Nabisco Tax
Group and (iii) other members of the RJRN Tax Group, together in each case with
their respective successors and assigns.
(b) All rights and obligations arising under of this Agreement shall
survive until they are fully effectuated or performed. Notwithstanding anything
in this Agreement to the contrary, this Agreement shall remain in effect and its
provisions shall survive for the full period of all applicable statutes of
limitation (giving effect to any extension, waiver or mitigation thereof).
SECTION 11.10. Severability. If any one or more of the provisions of
this Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
in this Agreement shall not in any way be affected or impaired by such holding.
The parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions so that the replacement provisions will be
valid, legal and enforceable and will have an economic effect which comes as
close as
39
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 11.11. Specific Performance. Each of RJRN and the other members
of the RJRN Tax Group acknowledges and agrees that damages for a breach or
threatened breach of any of the provisions of this Agreement would be inadequate
and that irreparable harm would occur. In recognition of this fact, each such
corporation agrees that, if there is a breach or threatened breach, in addition
to any damages, any of the other nonbreaching parties to this Agreement, without
posting any bond, shall be entitled to seek and obtain equitable relief in the
form of specific performance, temporary restraining order, temporary or
permanent injunction, attachment or any other equitable remedy that may then be
available to obligate the breaching party to (i) comply with the covenants made
by, and perform other obligations of, it (or, as appropriate, of RJRN) under
this Agreement, or (ii) if the breaching party is unable, for whatever reason,
to comply with such covenants and perform such obligations, to take such other
actions as are necessary, advisable or appropriate to give the other parties to
this Agreement (and the other corporations in the Nabisco Tax Group) the tax
effect and the economic effect that come as close as possible to compliance with
such covenants and performance of such obligations.
SECTION 11.12. Captions. Section captions used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
40
IN WITNESS WHEREOF, the parties to this Agreement have caused this Tax
Sharing Agreement to be duly executed by their respective authorized officers as
of the date first above written.
RJR NABISCO HOLDINGS CORP.
By /s/ ▇. ▇. ▇▇▇▇▇▇▇
---------------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President
-- Taxation
▇.▇. ▇▇▇▇▇▇▇▇ TOBACCO HOLDINGS,
INC.
By /s/ ▇. ▇. ▇▇▇▇▇▇▇
---------------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President
-- Taxation
NABISCO HOLDINGS CORP.
By /s/ ▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Senior Vice President -- Tax
▇. ▇. ▇▇▇▇▇▇▇▇ TOBACCO COMPANY
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President, Chief
Financial Officer and Treasurer
41