EXHIBIT 99.2
TAX DISAFFILIATION AGREEMENT
between
MELVILLE CORPORATION,
on behalf of itself and its
Post-Distribution Affiliates
and
FOOTSTAR, INC.,
on behalf of itself and its
Post-Distribution Affiliates
Table of Contents
Page
1. Definitions.......................................................... 2
2. Federal and State Taxes--Administrative and Compliance Matters....... 10
(a) Sole Tax Sharing Agreement..................................... 10
(b) Designation of Agent........................................... 10
(c) Pre-Distribution Period Returns................................ 12
3. Consolidated Federal, Consolidated State and Unitary State Taxes --
Allocation of Taxes.................................................. 12
(a) General......................................................... 12
(b) Estimated Payments............................................. 12
(c) Payment of Taxes at Year-End................................... 13
(d) Carrybacks and Certain Other Matters............................ 16
4. Other Taxes.......................................................... 19
5. Certain Representations and Covenants................................ 20
(a) (I) Footstar Representations.................................. 20
(II) Melville Representations................................. 21
(III) Footstar and Melville Representations................... 21
(b) Footstar Covenants............................................. 21
(c) Melville Covenants.............................................. 23
(d) Exceptions..................................................... 24
6. Indemnities.......................................................... 25
(a) Footstar Indemnity............................................. 25
(b) Melville Indemnity............................................. 26
(c) Discharge of Indemnity......................................... 28
(d) Tax Benefits.................................................... 29
(e) Refunds......................................................... 30
(f) Clerical Errors................................................. 30
(g) Method of Calculation........................................... 31
7. Communication and Cooperation........................................ 32
(a) Consult and Cooperate.......................................... 32
(b) Provide Information............................................ 33
(c) Tax Attribute Matters.......................................... 34
8. Audits and Contest................................................... 34
9. Payments............................................................. 35
10. Notices.............................................................. 37
11. Costs and Expenses................................................... 37
12. Effectiveness; Termination and Survival.............................. 38
13. Section Headings..................................................... 38
14. Entire Agreement; Amendments and Waivers............................. 38
(a) Entire Agreement............................................... 38
(b) Waiver......................................................... 38
15. Governing Law and Interpretation..................................... 39
16. Dispute Resolution................................................... 39
17. Counterparts......................................................... 39
18. Assignments; Third Party Beneficiaries................................ 39
Exhibit A.................................................................. 43
Exhibit B.................................................................. 45
TAX DISAFFILIATION AGREEMENT
This Agreement is entered into as of the 24 day of September, 1996
between Melville Corporation ("Melville"), a New York corporation,
on behalf of itself and its Post-Distribution Affiliates, and Footstar, Inc.
("Footstar"), a Delaware corporation, on behalf of itself and its
Post-Distribution Affiliates.
W I T N E S S E T H:
WHEREAS, Melville and Footstar intend to enter into a Distribution
Agreement dated as of September 24, 1996 (the "Distribution Agreement"),
providing for the distribution by Melville to its shareholders of all of the
common stock of Footstar (the "Distribution");
WHEREAS, Melville and Footstar desire to set forth their agreement
on the rights and obligations of Melville, Footstar and their respective
Affiliates with respect to the handling and allocation of federal, state,
local and foreign Taxes incurred in Taxable periods beginning prior to the
Distribution Date and various other Tax matters;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Definitions
(a) As used in this Agreement:
"Affiliate" of any person shall mean any individual, corporation,
partnership or other entity directly or indirectly owning more than 50 percent
of, owned more than 50 percent by, or under more than 50 percent common
ownership with, such person.
"After-Tax Amount" shall mean an additional amount necessary to
reflect the hypothetical Tax consequences of the receipt or accrual of any
payment, using the maximum statutory 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 year, reflecting for example, the effect of the deductions
available for interest paid or accrued and for Taxes such as state and local
income Taxes.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
or any successor thereto.
"Consolidated Federal Tax" shall mean the consolidated Federal Tax
liability of the Melville Consolidated Group for any period as to which a
consolidated Federal Tax Return was or is filed by Melville, or any successor
thereto, for such group.
"Consolidated State Tax" shall mean with respect to each State,
any income or franchise Tax payable with respect to a group of at least two
corporations, other than a Unitary State Tax.
"Distribution" shall mean a distribution by Melville of all of the
common stock of Footstar to its shareholders.
"Distribution Date" shall mean the date on which the Distribution
shall be effected.
"Federal Tax" shall mean any Tax imposed under Subtitle A of the
Code and any related penalty imposed under Subtitle F of the Code.
"Final Determination" shall mean (i) with respect to Federal
Taxes, (A) a "determination" as defined in Section 1313(a) of the Code, or (B)
the date of acceptance by or on behalf of the Internal Revenue Service of Form
870-AD (or any successor form thereto), as a final resolution of Tax liability
for any Taxable period, except that a Form 870-AD (or successor form thereto)
that reserves the right of the taxpayer to file a claim for refund and/or the
right of the Internal Revenue Service to assert a further deficiency shall not
constitute a Final Determination with respect to the item or items so
reserved; (ii) with respect to Taxes other than Federal Taxes, any final
determination of liability in respect of a Tax provided for under applicable
law; (iii) any final disposition by reason of the expiration of the applicable
statute of limitations; and (iv) the payment of Tax by Melville, Footstar, or
any Affiliate of Melville or Footstar, whichever is responsible for payment of
such Tax under applicable law, with respect to any item disallowed or adjusted
by a Taxing Authority, provided that the provisions of Section 8 hereof have
been complied with, or, if such section is inapplicable, that the party
responsible under the terms of this Agreement for such Tax is notified by the
party paying such Tax that it has determined that no action should be taken to
recoup such disallowed item, and the other party agrees with such
determination.
"Footstar Group" shall mean Footstar and its Affiliates
immediately after the Distribution Date, including any predecessors thereto;
provided, however, that for purposes of this Agreement, each Related Footwear
Business for which separate accounting records were kept shall be treated for
purposes of this Agreement like a separate corporation that is a member of the
Footstar Group (including, without limitation, the BOQ, Fan Club, Open
Country, Pimento, Meldisco, ▇▇▇▇ ▇▇▇▇ and Smart Step activities previously
conducted by Melville); provided further, that if with respect to any
Pre-Distribution Period (or portion thereof) Melville or any of its current or
former Affiliates was involved solely in the conduct of a Related Footwear
Business (including, without limitation, Calzados Ped Regal, S.A. and ▇▇▇▇
▇▇▇▇ Manufacturing, Inc.), such member shall be treated as a member of the
Footstar Group for such Pre-Distribution Period (or portion thereof); and
provided further, that if with respect to any Pre-Distribution Period (or
portion thereof) any Affiliate of Footstar (other than MEP) was not involved
in the conduct of a Related Footwear Business (including, without limitation,
Meldisco HK Limited, during the period it was doing business as Top Gun
Company Limited, and Melville Foreign, Inc., to the extent it is the successor
to Melville Canada Specialty Retailing Inc., TEU Canada Holdings Inc., ▇▇▇▇
▇▇▇▇▇ TEU, Inc., Fairview TEU, Inc. or Markville Centre TEU, Inc.), such
member shall not be treated as a member of the Footstar Group for such
Pre-Distribution Period (or portion thereof). For the purpose of avoiding
ambiguity, the parties agree that (except as set forth in the last proviso
above) the Pre-Distribution Tax Liability of the Footstar Group includes the
portion of such liability attributable to the corporations (domestic or
foreign) comprising the Meldisco, Footaction (including Open Country and Fan
Club) and ▇▇▇▇ ▇▇▇▇ (including Smart Step) retail chains and MEP, and to any
business activity conducted by Melville or any of its Affiliates (domestic or
foreign) which is or was a Related Footwear Business.
"Melville Consolidated Group" shall mean, with respect to any
Taxable period, (i) with respect to Consolidated Federal Taxes, the affiliated
group of corporations of which Melville (or a successor) was or is the common
parent (within the meaning of Section 1504 of the Code), (ii) with respect to
Consolidated State Taxes and Unitary State Taxes, the consolidated, combined
or unitary group of which Melville (or a successor) or any of its Affiliates
was or is a member, and (iii) with respect to any Other Tax payable with
respect to a group which includes or included at least one member of the
Melville Group and at least one member of the Footstar Group, such group.
"Melville Group" shall mean, with respect to any Taxable period,
Melville, its Affiliates (including their predecessors and successors) at any
time prior to the Distribution (including, without limitation, the Non-Chain
Corporations) other than those Affiliates comprising the Footstar Group.
"MEP" shall mean Meldisco (Europe) Purchasing Ltd. and its
predecessors and successors, and current and former subsidiaries, including
but not limited to MIT Sales AG and MEP-Ventas.
"Non-Chain Corporations" shall mean Computer Development, Inc.,
Melville Equipment Leasing Corporation, MC Retail, Inc., Melville Realty
Company and their direct and indirect subsidiaries.
"Other Taxes" is defined in Section 4.
"Post-Distribution Affiliate" shall mean with regard to Melville,
any person that is or that will be an Affiliate of Melville or a successor to
Melville after the Distribution and, with regard to Footstar, any person that
is or that will be an Affiliate of Footstar or a successor to Footstar after
the Distribution.
"Post-Distribution Period" shall mean any taxable period (or
portion thereof) beginning after the close of business on the Distribution
Date.
"Pre-Distribution Period" shall mean any Taxable period ending on
or before the close of business on the Distribution Date; provided that if a
Taxable period ending after the Distribution Date contains any days which fall
prior to or on the Distribution Date, any portion of such Taxable period up to
or including the Distribution Date shall also be included in the
Pre-Distribution Period.
"Pre-Distribution Tax Liability" shall mean (i) the Consolidated
Federal Tax, and (ii) the Consolidated State Tax liability of any group that
includes at least one member of the Melville Group and at least one member of
the Footstar Group, (iii) the Unitary State Tax liability of any group which
includes at least one member of the Melville Group and at least one member of
the Footstar Group, and (iv) any Other Taxes, in each case for any
Pre-Distribution Period.
"Prime" shall mean the rate announced from time to time as "prime"
by ▇▇▇▇▇▇ Guaranty Trust Company as its prime rate.
"Referee" is defined in Section 16.
"Related Footwear Business" shall mean any business activity
(including but not limited to those activities related to the conduct of
manufacturing, purchasing, distribution and sales operations) associated with
the Meldisco (including Pimento), Footaction (including Open Country and Fan
Club) or ▇▇▇▇ ▇▇▇▇ (including BOQ, Pimento and Smart Step) retail chain which
was conducted by the Melville Group, including (but not limited to) the
activities associated with the Meldisco, Open Country, Fan Club, Smart Step
and ▇▇▇▇ ▇▇▇▇ chains which were conducted by Melville, and excluding any
activity conducted by the Non-Chain Corporations.
"Return" shall mean any Tax return, statement, report or form
(including estimated Tax returns and reports, extension requests and forms,
and information returns and reports) required to be filed with any Taxing
Authority.
"Tax" (and the correlative meaning, "Taxes," "Taxing" and
"Taxable") shall mean (A) any tax imposed under Subtitle A of the Code, any
net income, gross income, gross receipts, alternative or add-on minimum,
sales, use, value-added, goods and services, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, transfer, recording,
severance, stamp, occupation, premium, property, environmental, custom duty,
or other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by a Taxing Authority; (B) any liability of a member
of the Melville Group or the Footstar Group, as the case may be, for the
payment of any amounts of the type described in clause (A) for any Taxable
period resulting from the application of Treasury Regulation Section 1.1502-6
or any similar provision applicable under state, local or foreign law; and (C)
any liability of a member of the Melville Group or the Footstar Group for the
payment of any amounts described in clause (A) as a result of any express or
implied obligation to indemnify any other party.
"Tax Asset" shall mean any net operating loss, net capital loss,
investment Tax credit, foreign Tax credit, target jobs Tax credit, low income
housing credit, research and experimentation credit, charitable deduction or
any other credit or Tax attribute, including additions to basis of property,
which could reduce any Tax, including, without limitation, deductions,
credits, or alternative minimum net operating loss carryforwards related to
alternative minimum Taxes.
"Tax Packages" shall mean one or more packages of information,
including but not limited to the Corptax file and the divisional
reconciliation, that are (i) reasonably necessary for the purpose of preparing
Federal Tax, Consolidated State Tax, Unitary State Tax Returns or Other Tax
returns of the Melville Consolidated Group with respect to a Pre-Distribution
Period and (ii) completed in all material respects in accordance with the
standards that Melville has established for its subsidiaries with respect to
the relevant Pre-Distribution Period.
"Tax Proceeding" shall mean any Tax audit, dispute or proceeding
(whether administrative or judicial).
"Taxing Authority" shall mean any governmental authority (domestic
or foreign) responsible for the imposition of any Tax.
"Unitary State Tax" shall mean, with respect to each State, any
income or franchise Tax payable with respect to a group of at least two
corporations and based upon a group apportionment percentage.
(b) Any term used in this Agreement which is not defined in this
Agreement shall, to the extent the context requires, have the meaning assigned
to it in the Code or the applicable Treasury regulations thereunder and, in
the case of Consolidated State Taxes, Unitary State Taxes, and Other Taxes,
in comparable provisions of applicable law.
2. Federal and State Taxes--Administrative and Compliance
Matters.
(a) Sole Tax Sharing Agreement. The parties acknowledge that
there has not been a Final Determination of the Pre-Distribution Tax
Liability, and that certain members of the Footstar Group are includible in
the Melville Consolidated Group for the Pre-Distribution Period. This
Agreement shall constitute the sole Tax sharing agreement between Melville and
its Post-Distribution Affiliates, on one hand, and Footstar and its
Post-Distribution Affiliates, on the other hand, and, to the extent there is
any inconsistency between this Agreement and any existing Tax sharing
agreements or arrangements, written or unwritten, between Melville and its
Post-Distribution Affiliates, on one hand, and Footstar and its
Post-Distribution Affiliates, on the other hand, this Agreement shall govern.
(b) Designation of Agent. Footstar and each member of the
Footstar Group, with respect to Consolidated Federal Taxes, each hereby
irrevocably designate Melville or its successors as its agent, coordinator,
and administrator, and, with respect to Consolidated State Taxes, Unitary
State Taxes and any Other Taxes payable with respect to a group which includes
at least one member of the Melville Group and at least one member of the
Footstar Group, each hereby irrevocably authorize Melville to designate a
member of the Melville Group, or a successor of such member, as its agent,
coordinator, and administrator, for the purpose of taking any and all actions
(including the execution of waivers of applicable statutes of limitation)
necessary or incidental to the filing of any Return, any amended Return, or
any claim for refund (even where an item or Tax Asset giving rise to an
amended Return or refund claim arises in a Post-Distribution Period), credit
or offset of Tax or any other proceedings, and for the purpose of making
payments to, or collecting refunds from, any Taxing Authority, in each case
relating to any Pre-Distribution Period. Melville or the member of the
Melville Group, as the case may be, as agent, covenants to Footstar that it
shall be responsible to see that all such administrative matters relating
thereto shall be handled promptly and appropriately. Melville shall inform
and consult with Footstar prior to taking any action on behalf of, or which
will have any material impact on the Tax liability of the Footstar Group,
including, without limitation, strategies relating to waivers of any statute
of limitations period that have otherwise expired.
(c) Pre-Distribution Period Returns. Melville and its
Post-Distribution Affiliates will prepare, with the assistance of Footstar and
its Post-Distribution Affiliates, and file the Consolidated Federal Tax
Returns and the Consolidated State and Unitary State Tax Returns for all
Pre-Distribution Periods. With respect to the 1996 year, Footstar and its
Post-Distribution Affiliates shall prepare and deliver to Melville all Tax
Packages within 120 days after the Distribution Date.
3. Consolidated Federal, Consolidated State and Unitary State
Taxes -- Allocation of Taxes.
(a) General. For the 1995 and 1996 Taxable years of the Melville
Consolidated Group, Footstar shall pay, or cause to be paid, to Melville an
amount equal to (i) the Footstar Group's share of the Melville Consolidated
Group's Consolidated Federal Tax and Consolidated State Tax liability,
determined in accordance with Exhibit A to this Agreement, and (ii) the
Footstar Group's share of the Melville Consolidated Group's Unitary State Tax
liability, determined in accordance with Exhibit B to this Agreement.
(b) Estimated Payments. Promptly after Melville or any of its
Affiliates makes an estimated Tax payment with respect to the 1996 Taxable
year (other than a payment which relates solely to minimum Taxes due), whether
or not such payment is made prior to the Distribution Melville shall (i) in
good faith determine the amount of the Footstar Group's share of such
estimated Tax payment (X) in accordance with the principles of Exhibit A to
this Agreement, in the case of an estimated Tax payment in respect of the
Consolidated Federal Tax or any Consolidated State Tax liability of the
Melville Consolidated Group, and (Y) in accordance with the principles of
Exhibit B to this Agreement using 1995 apportionment factors, adjusted for
significant dispositions or transfers of assets, in the case of an estimated
Tax payment in respect of any Unitary State Tax liability of the Melville
Consolidated Group and (ii) deliver a written statement to Footstar reflecting
the determination described above. Footstar shall pay to Melville or Melville
shall pay to Footstar, as appropriate, the amount so determined in accordance
with Section 9 hereof.
(c) Payment of Taxes at Year-End.
(i) Promptly after Melville or any of its Affiliates files
an application to extend the due date of a Return for the 1995 or
1996 Taxable year, whether or not such application is filed prior
to the Distribution, Melville shall (a) in good faith determine
the estimated amount of the Footstar Group's share of the Melville
Consolidated Group's Consolidated Federal Tax or Consolidated
State Tax liability for such Return in accordance with the
principles of Exhibit A to this Agreement or, in the case of a
Unitary State Tax Return, in accordance with the principles of
Exhibit B to this Agreement using 1994 and 1995 apportionment
factors for 1995 and 1996, respectively, adjusted for significant
dispositions or transfers of assets, and (b) deliver a written
statement to Footstar reflecting the determination described
above. Footstar shall pay to Melville, or Melville shall pay to
Footstar, as appropriate, in accordance with Section 9 hereof, an
amount equal to the difference, if any, between (x) the amounts so
determined and (y) the aggregate amount of estimated installments
paid with respect to the Footstar Group's share of such Tax
liability for such year made pursuant to Section 3(b), adjusted to
take into account amounts previously paid or received by Footstar
or any Affiliate in connection with any previous extension
payments made either before or after the Distribution.
(ii) Promptly after Melville or a member of the Melville
Consolidated Group files a Consolidated Federal Tax Return,
Consolidated State Tax Return or Unitary State Tax Return, as the
case may be, for which payments are to be made under this
Agreement, whether or not such Return is filed prior to the
Distribution, Melville shall deliver to Footstar a written
statement setting forth the difference between (x) the Footstar
Group's share of the Melville Consolidated Group's Consolidated
Federal Tax, Consolidated State Tax or Unitary State Tax liability
for such Return, determined in accordance with the principles of
Exhibit A or B to this Agreement, as the case may be, and (y) the
aggregate amount of payments with respect to the Footstar Group's
share of such Tax liability for such year made pursuant to Section
3(b) or Section 3(c)(i). Footstar shall pay to Melville, or
Melville shall pay to Footstar, as appropriate, in accordance with
Section 9 hereof, an amount equal to such difference, if any.
(iii) If the determination of the Footstar Group's share of
the Melville Consolidated Group's Consolidated Federal Tax,
Consolidated State Tax or Unitary State Tax reflects a Tax Asset
that may under applicable law be used to reduce a Federal Tax,
Consolidated State Tax or Unitary State Tax liability, as the case
may be, of any member of the Melville Group for any Tax period,
Melville shall pay to Footstar the actual Tax saving produced by
such Tax Asset within 30 days of the receipt by Melville or any
Melville Affiliate of any refund, credit or other offset
attributable thereto from the relevant Taxing Authority. The
amount of any such tax saving for any tax period shall be the
amount of the reduction in Taxes payable to a Taxing Authority (or
the increase in any Tax refund) with respect to such period as
compared to the Taxes that would have been payable to a Taxing
Authority (or the Tax refund that would have been received) with
respect to such period in the absence of such Tax Asset; provided,
however, that in the event that the use in a Pre-Distribution
Period of a Tax Asset, attributable to any member of the Footstar
Group, gives rise to, or increases, any alternative minimum Tax
liability, Melville shall pay to Footstar, or Footstar shall pay
to Melville, as the case may be, an amount equal to the difference
between (i) the maximum hypothetical Tax savings that could result
from the use of such Tax Asset determined using the maximum
applicable regular tax rate in effect for such Taxable year (or,
in the case of a credit, 100 percent) and (ii) the Footstar
Group's share of the alternative minimum Tax liability or increase
in alternative minimum Tax liability, as the case may be,
determined in accordance with Exhibit A to this Agreement.
(d) Carrybacks and Certain Other Matters.
(i) Subject to the provisions of Exhibit A hereto,
Melville agrees to pay Footstar the actual benefit received by the
Melville Consolidated Group in any Tax period from the use in any
Pre-Distribution Period of any Tax Asset arising in a
Post-Distribution Period. Such benefit shall be considered equal
to the excess of the amount of Tax that would have been payable
(or of the Tax refund that would have been receivable) by the
Melville Consolidated Group in any Tax period in the absence of
such carryback over the amount of Tax actually payable (or of the
Tax refund actually receivable) by the Melville Consolidated Group
in such period; provided, however, that in the event that the use
in a Pre-Distribution Period of a Tax Asset, attributable to any
member of the Footstar Group, gives rise to, or increases, any
alternative minimum Tax liability, Melville shall pay to Footstar,
or Footstar shall pay to Melville, as the case may be, an amount
equal to the difference between (i) the maximum hypothetical Tax
savings that could result from the use of such Tax Asset
determined using the maximum applicable regular tax rate in effect
for such Taxable year and (ii) the Footstar Group's share of the
alternative minimum Tax liability or increase in alternative
minimum Tax liability, as the case may be, determined in
accordance with Exhibit A to this Agreement. Payment of the
amount of such benefit shall be made within 30 days of the receipt
by any member of the Melville Consolidated Group of any refund,
credit or other offset attributable thereto from the relevant
Taxing Authority.
(ii) If, subsequent to the payment by Melville to Footstar
of any amount referred to in Section 3(d)(i) above, there shall be
(A) a Final Determination which results in a disallowance or a
reduction of the Tax Asset so carried back or (B) a reduction in
the amount of the benefit realized by the Melville Consolidated
Group from such carryback as a result of a Final Determination or
the use by the Melville Consolidated Group of a Tax Asset of the
Melville Group, Footstar shall repay to Melville the amount which
would not have been payable to Footstar pursuant to Section 3(d)(i)
had the amount of the benefit been determined in light of such
event. In addition, Footstar shall hold Melville and each of its
Post-Distribution Affiliates harmless for any penalty or interest
payable by any member of the Melville Consolidated Group as a
result of any such event referred to in the preceding sentence.
Any amounts payable under this Section 3(d)(ii) shall be paid by
Footstar to Melville within 30 days of demand therefor. To the
extent Footstar's repayment obligation arises due to the use by the
Melville Consolidated Group of a Tax asset of a member of the
Melville Group, Footstar shall pay Melville interest on the amount
repaid to Melville from the date such amount was paid by Melville
to Footstar until such repayment at Prime.
(iii) The parties hereto acknowledge that, in connection
with the disposition or deconsolidation of certain members of the
Melville Group, Melville has entered into, and intends to enter
into, agreements similar to this Agreement (the "Melville Group
Agreements") relating to Tax matters involving such members.
Notwithstanding anything to the contrary in this Agreement, to the
extent that (i) Melville would be required under Section 3 of this
Agreement to make a payment to Footstar in respect of a Tax saving
or Tax benefit attributable to a Tax Asset of the Footstar Group
and (ii) Melville would be required under a Melville Group
Agreement or Agreements to make a similar payment to a member or
members of the Melville Group in respect of the same Tax saving or
Tax benefit, then the portion of such Tax saving or benefit
attributable to a Tax Asset of the Footstar Group shall be
calculated in accordance with Treasury Regulations Section
1502-21A and any successor thereto.
4. Other Taxes
(a) Liability for all Taxes other than Consolidated Federal
Taxes or Consolidated State or Unitary Taxes ("Other Taxes") attributable to
the Footstar Group or attributable to any lease termination payment made by a
member of the Footstar Group shall be the sole responsibility of Footstar and
its Post-Distribution Affiliates. Liability for all Other Taxes attributable
to the Melville Group (other than as provided in the preceding sentence) shall
be the sole responsibility of Melville and its Post-Distribution Affiliates.
The responsibility for preparing (with Melville's cooperation as provided in
Section 7 hereof) and filing all Returns, and for making all payments to any
Taxing Authority, relating solely to Other Taxes attributable to the Footstar
Group shall be the sole responsibility of Footstar and its Post-Distribution
Affiliates. The responsibility for preparing (with Footstar's cooperation as
provided in Section 7 hereof) and filing all other Returns, and for making all
payments to any Taxing Authority, relating to Other Taxes for any
Pre-Distribution Period shall be the sole responsibility of Melville and its
Post-Distribution Affiliates. Promptly after a payment of Other Taxes by
Melville, or any of its Post-Distribution Affiliates on one hand, or Footstar
or any of its Post-Distribution Affiliates, on the other hand, the paying
party shall notify the non-paying party of the amount of such Other Taxes, if
any, which is attributable to the non-paying party, in accordance with Section
4(c). The non-paying party shall pay to the paying party, in accordance with
Section 9 hereof, such amount.
(b) Footstar shall be entitled to all refunds and credits of
Other Taxes attributable to the Footstar Group, and Melville shall be entitled
to all refunds and credits of Other Taxes attributable to the Melville Group.
(c) The determination of whether Other Taxes are attributable to
the Melville Group, on one hand, or the Footstar Group, on the other hand,
shall be made in accordance with past practices.
(d) Notwithstanding anything to the contrary herein, all
transfer, documentary, sales, use, stamp, registration and other such Taxes
and fees (including any penalties and interest) incurred in connection with
Section 2.02 of the Distribution Agreement dated as of the date hereof among
Melville, Footstar and Footaction Center, Inc. shall be borne and paid equally
by Melville and Footstar. The party that is required by applicable law to
file any Return or make any payment with respect to any such Tax shall do so,
and the other party shall cooperate with respect thereto as necessary. The
non-paying party shall reimburse the paying party in accordance with this
Section 4(d) within 5 business days after it receives notice of the payment of
such Tax.
5. Certain Representations and Covenants.
(a) (I) Footstar Representations. Footstar and its
Post-Distribution Affiliates each represents that, as of the date hereof, and
covenants that on the Distribution Date there is no plan or intention (A) to
liquidate Footstar or to merge or consolidate Footstar with any other person
subsequent to the Distribution, (B) to sell or otherwise dispose of any asset
of Footstar or those of its Post-Distribution Affiliates subsequent to the
Distribution, except in the ordinary course of business and except with
respect to the ▇▇▇▇ ▇▇▇▇ chain, MEP or the distribution centers located in
Morrow, Georgia, Huntington, Indiana or Clinton, New Jersey, (C) to take any
action inconsistent with the information furnished to ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ in
connection with its tax opinion with respect to the Distribution, (D) issue
stock of Footstar, other than pursuant to the Distribution, representing more
than 20 percent of the total combined voting power or more than 20 percent of
the total value of all classes of Footstar stock.
(II) Melville Representations. Melville and its
Post-Distribution Affiliates each represents that, as of the date hereof, and
covenants that on the Distribution Date there is no plan or intention to take
any action inconsistent with the information furnished to ▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇ in connection with its tax opinion with respect to the Distribution.
(III) Footstar and Melville Representations. Footstar and
Melville and their respective Post-Distribution Affiliates each represents
that, as of the date hereof, and covenants that on the Distribution Date
neither Footstar nor Melville and their respective Post-Distribution
Affiliates (as applicable) is aware of any present plan or intention by the
current shareholders of Melville to sell, exchange, transfer by gift, or
otherwise dispose of any of their stock in, or securities of, Melville or
Footstar subsequent to the Distribution.
(b) Footstar Covenants. Footstar covenants to Melville that (i)
during the two-year period following the Distribution Date it will not
liquidate, merge or consolidate with any other person, or sell, exchange,
distribute or otherwise dispose of its assets or those of its Post-Distribution
Affiliates, except in the ordinary course of business and except for the
disposition of assets of the ▇▇▇▇ ▇▇▇▇ chain or MEP, or the distribution
centers located in Morrow, Georgia, Huntington, Indiana or Clinton, New
Jersey, (ii) following the Distribution, Footstar will, for a minimum of two
years, continue the active conduct of the historic business conducted by
Footstar throughout the five year period prior to the Distribution, (iii)
other than pursuant to the Distribution during the two-year period following
the Distribution Date it will not issue stock of Footstar representing more
than 20 percent of the total combined voting power or more than 20 percent of
the total value of all classes of Footstar stock, (iv) Footstar will not, nor
will it permit any of its Post-Distribution Affiliates to, take any action
inconsistent with the information furnished to ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ in
connection with its tax opinion with respect to the Distribution and (v)
during the period beginning on the Distribution Date and ending upon the
expiration of the statute of limitations period applicable to the Taxable year
in which the Distribution occurs (after giving effect to any extension,
mitigation or waiver thereof), Footstar will not, nor will it permit any of
its Post-Distribution Affiliates to make or change any accounting method,
amend any Tax Return or take any Tax position on any Tax Return, change the
manner in which it conducts its business, take any other action, omit to take
any action or enter into any transaction that results in any increased Tax
liability with respect to a Pre-Distribution Period, or reduction of any Tax
Asset which was created in a Pre-Distribution Period, of the Melville Group or
any member thereof without first obtaining the written consent of an authorized
representative of Melville; provided, however, that if a change in law
(including the enactment of any statute or the issuance of any proposed,
temporary or final regulations, or administrative pronouncement or judicial
decision) would have a material adverse effect on the aggregate Tax liability
of Footstar and its Post-Distribution Affiliates, then, notwithstanding
anything to the contrary in this clause (iii), Footstar shall be entitled to
take, or to permit its Post-Distribution Affiliates to take, such minimum
action as is necessary to eliminate or mitigate the effect of the change in
law. Footstar agrees to notify Melville of any action taken under the proviso
contained in the preceding sentence.
(c) Melville Covenants. Melville covenants to Footstar that (i)
it will not change its year-end for any Tax year beginning prior to January 1,
1997, (ii) it will not, nor will it permit any of its Post-Distribution
Affiliates to, take any action inconsistent with the information furnished to
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ in connection with its tax opinion with respect to the
Distribution and (iii) during the period beginning on the Distribution Date
and ending upon the expiration of the statute of limitations period applicable
to the Taxable year in which the Distribution occurs (after giving effect to
any extension, mitigation or waiver thereof), Melville will not, nor will it
permit any of its Post-Distribution Affiliates to make or change any
accounting method, amend any Tax Return or take any Tax position on any Tax
Return, change the manner in which it conducts its business, take any other
action, omit to take any action or enter into any transaction that results in
any increased Tax liability with respect to a Pre-Distribution Period or
reduction of any Tax Asset which was created in a Pre-Distribution Period of
the Footstar Group or any member thereof without first obtaining the written
consent of an authorized representative of Footstar; provided, however, that
if a change in law (including the enactment of any statute or the issuance of
any proposed, temporary or final regulations, or administrative pronouncement
or judicial decision) would have a material adverse effect on the aggregate
Tax liability of Melville and its Post-Distribution Affiliates, then,
notwithstanding anything to the contrary in this clause (c), Melville shall be
entitled to take, or to permit its Post-Distribution Affiliates to take, such
minimum action as is necessary to eliminate or mitigate the effect of the
change in law. Melville agrees to notify Footstar of any action taken under
the proviso contained in the preceding sentence.
(d) Footstar and Melville Covenant. The parties hereto agree to
act in good faith in complying with the terms of this Agreement.
(e) Exceptions. Notwithstanding the foregoing, Footstar and its
Post-Distribution Affiliates may take actions inconsistent with the covenants
contained in Section 5(b)(i) through (iv) above, and Melville and its
Post-Distribution Affiliates may take actions inconsistent with the covenants
contained in Section (c)(ii) above, if:
(i) Footstar or Melville, as the case may be, obtains a ruling
from the Internal Revenue Service to the effect that such actions will
not result in the Distribution being taxable to Melville or its
shareholders; or
(ii) Footstar or Melville, as the case may be, obtains an opinion
of counsel recognized as an expert in federal income tax matters and
acceptable to the other party to the same effect as in Section 5(e)(i).
6. Indemnities.
(a) Footstar Indemnity. Footstar and each corporation that is a
Post-Distribution Affiliate of Footstar will jointly and severally indemnify
Melville and its Post-Distribution Affiliates against and hold them harmless
from
(i) any Pre-Distribution Tax Liability assessed pursuant to a
Final Determination, to the extent attributable to an adjustment of any
item of income, gain, gross receipts, loss, credit, deduction or other
Tax attribute of any member of the Footstar Group;
(ii) any liability or damage resulting from a breach by Footstar or
any of its Post-Distribution Affiliates of any representation or
covenant made by Footstar herein; and
(iii) any liability or damage under the securities laws or otherwise
resulting from information furnished by Footstar in connection with the
Distribution.
For the purpose of avoiding ambiguity, the parties agree that (except as set
forth in the third proviso of the definition of "Footstar Group") Footstar and
its Post-Distribution Affiliates shall be responsible for any Tax for a
Pre-Distribution Period attributable to the corporations (domestic or foreign)
comprising the Meldisco (including Pimento), Footaction (including Open
Country and Fan Club) and ▇▇▇▇ ▇▇▇▇ (including BOQ, Pimento and Smart Step)
retail chains and MEP, and to any business activity conducted by Melville or
any of its Affiliates (domestic or foreign) which is or was a Related Footwear
Business.
(b) Melville Indemnity. Melville and each corporation that is a
Post-Distribution Affiliate of Melville will jointly and severally indemnify
Footstar and its Post-Distribution Affiliates against and hold them harmless
from
(i) any Pre-Distribution Tax Liability, or Tax liability
resulting from the Distribution, other than any such liabilities
described in Section 6(a);
(ii) any Tax liability allocable to a member of the Melville Group
which is a liability of the Footstar Group under clause (B) of the
definition of Tax with respect to any Pre-Distribution Period or any Tax
year of the Melville Consolidated Group which includes (but does not end
on) the Distribution Date;
(iii) any liability or damage resulting from a breach by Melville
or any of its Post-Distribution Affiliates of any representation or
covenant made by Melville herein; and
(iv) any liability or damage under the securities laws or otherwise
resulting from information furnished by Melville in connection with the
Distribution.
For the purpose of avoiding ambiguity, the parties agree that (except as set
forth in the first two provisos of the definition of "Footstar Group")
Melville and its Post-Distribution Affiliates shall be responsible for any Tax
for a Pre-Distribution Period attributable to (x) the corporations (domestic
or foreign) comprising the CVS, Bob's, Linens 'n Things, Wilsons, ▇▇▇-Bee,
Marshalls, This End Up, Prints Plus, Chess King, Foxmoor and Accessory Lady
retail chains, (y) the Non-Chain Corporations and (z) to any business activity
conducted by Melville or any of its Affiliates (domestic or foreign) which is
or was directly related to the businesses conducted by the corporations
specified in clauses (x) and (y). If a Post-Distribution Affiliate of
Melville ceases to be an Affiliate of Melville as a result of a sale of its
stock (other than one described in the immediately following sentence) to a
third party (whether or not treated as a sale of stock for Tax purposes), such
Post-Distribution Affiliate shall be released from its obligations under this
Agreement upon such sale and neither Melville nor any of its other
Post-Distribution Affiliates shall have any obligation to indemnify Footstar
or any of its Post-Distribution Affiliates under Section 6(b)(iii) for any
liability or damage attributable to actions taken after such sale by such
Post-Distribution Affiliate. If a Post-Distribution Affiliate of Melville
ceases to be an Affiliate of Melville as a result of one or more public
offerings or a distribution by Melville of its stock, at such time, if such
Post-Distribution Affiliate agrees to continue to be bound by the terms of
this Agreement, any indemnification obligation under Section 6(b)(iii)
attributable to actions taken by such Post-Distribution Affiliate after it
ceases to be an Affiliate of Melville shall be solely the liability of such
Post-Distribution Affiliate, and Footstar and its Post-Distribution Affiliates
shall have no rights against Melville or any of its other Post-Distribution
Affiliates for the payment of such obligation. It is understood by the parties
hereto that the two preceding sentences do not limit in any way the ability of
Melville or its Post-Distribution Affiliates to sell operating assets, rather
than stock, to a third party and, in the case of a sale of operating assets of
any chain other than CVS, Melville shall have no obligation to indemnify
Footstar or any of its Post-Distribution Affiliates under Section 6(b)(iii)
as a result of such an asset sale.
(c) Discharge of Indemnity. Footstar, Melville and their
respective Post-Distribution Affiliates shall discharge their obligations
under Section 6(a) and 6(b) hereof, respectively, by paying the relevant
amount within 30 days of demand therefor. After a Final Determination of an
obligation of Footstar or any of its Post-Distribution Affiliates under Section
6(a), Melville shall send a statement to Footstar showing the amount due
thereunder. After a Final Determination of an obligation of Melville or any
of its Post-Distribution Affiliates under Section 6(b), Footstar shall send a
statement to Melville showing the amount due thereunder. Calculation mechanics
relating to items described in Section 6(a)(i) are set forth in Section 3(c).
Notwithstanding the foregoing, if either Footstar, Melville or any of their
respective Post-Distribution Affiliates disputes in good faith the fact or the
amount of its obligation under Section 6(a) or Section 6(b), then no payment
of the amount in dispute shall be required until any such good faith dispute is
resolved in accordance with Section 16 hereof; provided, however, that any
amount not paid within 30 days of demand therefor shall bear interest as
provided in Section 9.
(d) Tax Benefits. If an indemnification obligation of
Melville, Footstar or any of their respective Post-Distribution Affiliates
under this Section 6 arises in respect of an adjustment that makes allowable
to Melville or its Affiliates, or Footstar or its Affiliates, respectively,
any deduction, amortization, exclusion from income or other allowance (a "Tax
Benefit") which would not, but for such adjustment, be allowable, then any
payment by Melville, Footstar or any of their respective Post-Distribution
Affiliates, as the case may be, pursuant to this Section 6 shall be an amount
equal to (X) the amount otherwise due but for this subsection (d), minus (Y)
the present value of the product of the Tax Benefit multiplied (i) by the
maximum federal or state, as the case may be, corporate tax rate in effect at
the time such Tax Benefit becomes allowable to Melville or its Affiliates, or
Footstar or its Affiliates (as the case may be) or (ii) in the case of a
credit, by 100 percent. The present value of such product shall be determined
by discounting such product from the time the Tax Benefit becomes allowable at
a rate equal to Prime.
(e) Refunds. Any refunds of Tax received by Melville or any of
its Post-Distribution Affiliates relating to a Pre-Distribution Period, to the
extent attributable to any item of income, loss, credit, deduction or other
tax attribute of any member of the Footstar Group shall be paid by Melville to
Footstar within 30 days of receipt. Any amount not paid when due shall bear
interest as provided in Section 9.
(f) Clerical Errors. If, as a result of a correction of a
clerical error made by booking any item at one member of the Melville
Consolidated Group instead of another, (i) the Pre-Distribution Tax Liability
allocable to the Footstar Group or the Melville Group, as the case may be, is
increased, (ii) the Pre-Distribution Tax Liability allocable to the other
group is decreased by an offsetting amount, and (iii) no Tax payment is
required to be made to a Taxing Authority in respect of the correction of the
clerical error, then the group referred to in clause (ii) of this Section 6(f)
shall be treated as having made a Tax payment in an amount equal to the
increased Pre-Distribution Tax Liability described in clause (i) of this
Section 6(f) and shall be entitled to indemnification therefor under this
Section 6 without regard to Section 6(d).
(g) Method of Calculation. (i) Except as otherwise provided, the
amount of any liability of Footstar and its Post-Distribution Affiliates or of
Melville and its Post-Distribution Affiliates under this Section 6 shall be
calculated pursuant to the method described in Exhibit A hereto; provided,
however, that the calculation of any party's share of Unitary State Tax shall
be calculated pursuant to the method described in Exhibit B hereto.
(ii) For purposes of this Section 6, in the case of Taxes that
are imposed on a periodic basis and are payable for a Tax period that includes
(but does not end on) the Distribution Date, the portion of such Tax related
to the portion of such Tax period ending on the Distribution Date shall (x) in
the case of any Taxes other than Taxes based upon or related to income, sales,
gross receipts, wages, capital expenditures or expenses, be deemed to be the
amount of such Tax for the entire Tax period multiplied by a fraction the
numerator of which is the number of days in the Tax period ending on the
Distribution Date and the denominator of which is the number of days in the
entire Tax period, and (y) in the case of any Tax based upon or related to
income, sales, gross receipts, wages, capital expenditures or expenses, be
deemed equal to the amount which would be payable if the relevant Tax period
ended on the Distribution Date and applying the weighted average 1996 Tax rate
for the relevant Tax applicable to the corporation subject to such Tax.
7. Communication and Cooperation.
(a) Consult and Cooperate. Footstar and Melville shall consult
and cooperate (and shall cause each of their Post-Distribution Affiliates to
cooperate) fully at such time and to the extent reasonably requested by the
other party in connection with all matters subject to this Agreement. Such
cooperation shall include, without limitation,
(i) the retention and provision on reasonable request of any and
all information including all books, records, documentation or other
information pertaining to Tax matters relating to the Melville Group and
the Footstar 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 of any document that may be necessary or
helpful in connection of any required Return or in connection with any
audit, proceeding, suit or action;
(iii) reporting to the other party, on a quarterly basis, on the
status of any Tax audit relating to a Pre-Distribution Period; and
(iv) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing.
(b) Provide Information. Melville and Footstar shall keep each
other fully informed with respect to any material development relating to the
matters subject to this Agreement. Melville shall provide to Footstar copies
of all Information Document Requests relating to a Pre-Distribution Period
issued by the Internal Revenue Service on Form 4564 or any successor thereto
and any analogous requests issued by any other Tax Authority (collectively,
"Requests"), and (to the extent practicable in light of the relevant Taxing
Authority's requirements) shall use reasonable efforts to provide copies of
the response to each Request more than two business days prior to filing such
response; provided, however, that Melville's failure to deliver a copy of a
response to a Request before such two-day period shall not relieve Footstar of
its obligations under this Agreement. Melville shall not be required to
provide Footstar with copies of the responses to any Requests unless
specifically related to the Footstar group; provided, however, Footstar shall
not be entitled to review or receive the portion of any response which does
not specifically relate to the Footstar Group.
(c) Tax Attribute Matters. Melville and Footstar shall advise
and consult with each other with respect to any proposed Tax adjustments
relating to the Melville Consolidated Group or, with respect to Other Taxes,
any group which includes at least one member of the Melville Group and at
least one member of the Footstar Group, which are the subject of an audit or
investigation, or are the subject of any proceeding or litigation, and which
may affect any Tax attribute of Melville, Footstar, the Melville Group, the
Footstar Group or any Post-Distribution Affiliate of Melville or Footstar
(including, but not limited to, basis in an asset or the amount of earnings and
profits).
8. Audits and Contest.
(a) Notwithstanding anything in this Agreement to the contrary,
Melville shall have full control over all matters relating to any Federal Tax
return filed by the Melville Consolidated Group, any Consolidated State or
Unitary State Tax Return, any Other Tax Return (other than one relating solely
to the Footstar Group), or any Tax Proceeding relating to any Tax matters of
at least one member of the Melville Group. Except as provided in Section
8(b), Melville shall have absolute discretion with respect to any decisions to
be made, or the nature of any action to be taken, with respect to any matter
described in the preceding sentence.
(b) No settlement of any Tax Proceeding relating to any matter
which would cause a payment obligation under Sections 6(a) or 6(b) shall be
accepted or entered into by or on behalf of the party entitled to receive a
payment under either Section 6(a) or Section 6(b), whichever is applicable,
unless the party ultimately responsible for such payment under either Section
6(a) or Section 6(b), whichever is applicable (the "Indemnitor"), consents
thereto in writing (which consent shall not be unreasonably withheld). If
such consent is unreasonably withheld, all expenses relating to the contest of
such matter shall be borne by the Indemnitor, and otherwise they shall be
borne equally by the Indemnitor and the indemnified party. If the Indemnitor
does not respond to the indemnified party's request for consent within 30
days, the Indemnitor will be deemed to have consented to the settlement.
(c) The indemnified party 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 hereunder.
The failure of the indemnified party to give notice as provided in this
Section 8(c) shall not relieve the Indemnitor of its obligations under this
Agreement, except to the extent that the Indemnitor is materially prejudiced
by such failure to give notice.
(d) With respect to Returns relating to Other Taxes solely
attributable to the Footstar Group, Footstar and its Post-Distribution
Affiliates shall have full control over all matters relating to any Tax
Proceeding in connection therewith. Footstar and its Post-Distribution
Affiliates shall have absolute discretion with respect to any decisions to be
made, or the nature of any action to be taken, with respect to any matter
described in the preceding sentence.
9. Payments.
All payments to be made hereunder shall be made in immediately
available funds. Except as otherwise provided, all payments required to be
made pursuant to this Agreement will be due 30 days after the receipt of
notice of such payment or, where no notice is required, 30 days after the
fixing of liability or the resolution of a dispute. Payments shall be deemed
made when received. Any payment that is not made when due shall bear interest
at the rate per annum determined, from time to time, under the provision of
Section 6621(a)(2) of the Code for each day until paid; provided, however,
that, if an obligation or the amount thereof is being disputed in good faith,
any payment required after resolution of such dispute shall bear interest at
Prime until and including the thirtieth day after such resolution. If,
pursuant to a Final Determination, any amount paid by Melville, Footstar or
their respective Post-Distribution Affiliates pursuant to this Agreement
results in any increased Tax liability or reduction of any Tax Asset of any
member of the Footstar Group, Footstar or its Post-Distribution Affiliates, or
the Melville Group, Melville or its Post-Distribution Affiliates,
respectively, then Melville or Footstar, as the case may be, shall indemnify
the other party and hold it harmless from any interest or penalty attributable
to such increased Tax liability or the reduction of such Tax asset and shall
pay to the other party, in addition to amounts otherwise owed, 50 percent of
the After-Tax Amount; provided, however, that with respect to any amount paid
pursuant to Section 3(d)(ii) (other than as a result of the use by the
Melville Consolidated Group of a Tax Asset of the Melville Group), Section
6(a)(ii) or (iii) or Section 6(b)(iii) or (iv), Melville or Footstar, as the
case may be, shall pay to the other party 100 percent of the After-Tax Amount.
10. Notices.
Any notice, demand, claim, or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
delivery or mailing thereof, as the case may be, if delivered personally or
sent by certified mail, return receipt requested, postage prepaid, to the
parties at the following addresses (or at such other address as a party may
specify by notice to the other):
If to Melville, to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to Footstar, to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
11. Costs and Expenses.
Except as expressly set forth in this Agreement, each party shall
bear its own costs and expenses incurred pursuant to this Agreement. For
purposes of this Agreement, "out-of-pocket" expenses shall include reasonable
attorney fees, accountant fees and other related professional fees and
disbursements.
12. Effectiveness; Termination and Survival.
This Agreement shall become effective upon the consummation of the
Distribution. 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).
13. Section Headings.
The headings contained in this Agreement are inserted for
convenience only and shall not constitute a part hereof or in any way affect
the meaning or interpretation of this Agreement.
14. Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. This Agreement and the exhibits hereto
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein. No alteration, amendment, modification, or
waiver of any of the terms of this Agreement shall be valid unless made by an
instrument signed by an authorized officer of Melville and Footstar, or in the
case of a waiver, by the party against whom the waiver is to be effective.
(b) Waiver. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver hereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any right, power or privilege.
15. Governing Law and Interpretation. This Agreement has been
made in and shall be construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts.
16. 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 a nationally recognized law
firm or accounting firm expert in Tax matters that is mutually acceptable to
the parties hereto (a "Referee"). A Referee so chosen shall resolve any such
disagreement pursuant to such procedures as it may deem advisable. Any such
resolution shall be binding on the parties hereto without further recourse.
Except as otherwise provided herein, the costs of any Referee shall be
apportioned between Melville and Footstar as determined by such Referee in such
manner as the Referee deems reasonable, taking into account the circumstances
of the dispute, the conduct of the parties and the result of the dispute.
17. Counterparts.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
18. Assignments; Third Party Beneficiaries.
Except as provided below, this Agreement shall be binding upon and shall inure
only to the benefit of the parties hereto and their respective successors and
assigns. This Agreement is not intended to benefit any person other than the
parties hereto and such successors and assigns, and no such other person shall
be a third party beneficiary hereof. If, during the period beginning on the
Distribution Date and ending upon the expiration of all statute of limitations
periods applicable to Pre-Distribution Periods, any corporation becomes an
Affiliate of either Melville or Footstar, as the case may be, then upon the
request of either Footstar or Melville, as the case may be, the other party
shall provide evidence of such Affiliate's agreement to be bound by the terms
of this Agreement. During the period beginning on the Distribution Date and
ending upon the expiration of all statute of limitations periods applicable to
Pre-Distribution Periods, no entity shall be entitled to acquire a controlling
interest in Melville or Footstar unless such entity agrees to be bound by the
terms of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first written above.
Melville on its own behalf and on
behalf of its Post-Distribution
Affiliates.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Financial Officer
Bob's, Inc. on its own behalf and on
behalf of the Melville Post-Distribution
Affiliates in the Bob's chain.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Chairman/ Chief Executive Officer
Linens 'n Things, Inc. on its own behalf and on
behalf of the Melville Post-Distribution
Affiliates in the Linens 'n Things chain.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer & President
Footstar on its own behalf and on
behalf of its Post-Distribution
Affiliates.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
Footaction, Inc. on its own behalf and on behalf
of the Footstar Post-Distribution Affiliates in
the Footaction, ▇▇▇▇ ▇▇▇▇ and Meldisco chains.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
Exhibit A
1. The Footstar Group's share of any Pre-Distribution Consolidated Federal
or Consolidated State Tax liability shall be, with respect to such
Federal or Consolidated State Taxes, as applicable, calculated as if
Footstar were the parent of a group filing its own consolidated return
for all Pre-Distribution Periods; provided, however, that (i) income,
deductions, credits and losses shall be computed in a manner consistent
with past practices, (ii) the applicable Tax rate shall be the
appropriate maximum statutory rate in effect during the relevant year,
(iii) in no event shall the Footstar Group's share of any Consolidated
Federal or Consolidated State Tax liability exceed the amount that would
have constituted the Footstar Group's share of such liability if such
share had been calculated in accordance with the allocation principles
set forth in Treas. Reg. Section 1.1552-1(a)(2) and Treas. Reg. Section
1.1502-33(d)(2)(ii) as in effect prior to Treasury Decision 8597, except
to the extent consistent with past practice and (iv) notwithstanding
anything to the contrary in this Agreement, with respect to all
Pre-Distribution Tax Periods, Footstar and its Post-Distribution
Affiliates will be liable for all Taxes attributable to the Related
Footwear Business and MEP, calculated in accordance with past practice.
Notwithstanding anything to the contrary in this Agreement, any
deduction attributable to the exercise of an option to acquire Melville
stock by a person who is an employee of a member of the Footstar Group
at the time of such exercise shall be treated as a deduction allocable
to the member of the Footstar Group employing such person.
2. For purposes of paragraph 1 above, "Tax liability" (1) shall exclude any
liability for the payment of alternative minimum tax; and (2) shall
refer to an actual out-of-pocket payment to any Taxing Authority, after
taking into account the utilization of net operating losses and any
other Tax Assets.
3. Any alternative minimum Tax liability (and any Tax Assets attributable
to such liability) and any environmental Tax imposed under Section 59A
of the Code shall be allocated among the members of the Melville
Consolidated Group in accordance with the formulas referenced in
Proposed Treasury Regulation Section 1.1502-5(b)(6).
4. For all Pre-Distribution Periods, Melville shall have the right, in its
sole discretion, to elect (in an original or an amended return) to
deduct currently any Taxes of foreign countries and of possessions of
the United States. In the event that Melville elects not to deduct
currently such Taxes but instead to elect to take a foreign tax credit
under the provisions of Part III of Subchapter N of the Code, any
consolidated unused foreign tax credit of the Melville Consolidated
Group shall be apportioned to the members of such group pursuant to
Treas. Reg. Section 1.1502-79(d).
5. Any interest imposed in connection with any Tax liability shall be
allocated in the same manner as the underlying Tax liability, as
provided above.
6. Any penalty imposed in connection with any Tax liability shall be the
responsibility of the party whose action or inaction resulted in the
imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the same
manner as the underlying Tax liability, as provided above.
Exhibit B
1. The Footstar Group's share of any Pre-Distribution Unitary State Tax
Liability shall be, with respect to each State, the aggregate amount of
Unitary State Tax Liability of all members of the Footstar Group that
are members of the relevant Melville Consolidated Group. A member's
liability for its share of Pre-Distribution Unitary State Tax shall be
determined in accordance with paragraph 3 of this Exhibit B; provided,
however, that (i) income, deductions, credits and losses shall be
computed in a manner consistent with past practices, (ii) credits and
any minimum taxes shall be allocated to the member responsible for the
generation of such credit or taxes, and (iii) notwithstanding anything to
the contrary in this Agreement, any deduction attributable to the
exercise of an option to acquire Melville stock by a person who is an
employee of a member of the Footstar Group at the time of such exercise
shall be treated as a deduction allocable to the member of the Footstar
Group employing such person.
2. The Footstar Group's share of any Pre-Distribution Unitary State Tax
Assets shall be, with respect to each State, the aggregate amount of
Unitary State Tax Assets of all members of the Footstar Group. A
member's share of such Unitary State Tax Assets shall be determined in
accordance with paragraph 3 of this Exhibit B.
3. A member of the Footstar Group's share of any Pre-Distribution Unitary
State Tax Liability or Pre-Distribution Unitary State Tax Asset shall be
the product of (i) such Unitary State Tax Liability or Unitary State Tax
Asset, as the case may be, and (ii) the percentage of the numerator used
in determining the apportionment percentage of the Melville Consolidated
Group for such Unitary State which is attributable to such member of the
Footstar Group.
4. With respect to all Pre-Distribution Tax Periods, Footstar and its
Post-Distribution Affiliates will be liable for all Unitary State Taxes
attributable to the Retail Footwear Businesses or MEP, calculated in
accordance with past practice.
5. Any interest imposed in connection with any Tax liability shall be
allocated in the same manner as the underlying Tax liability, as
provided above.
6. Any penalty imposed in connection with any Tax liability shall be the
responsibility of the party whose action or inaction resulted in the
imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the same
manner as the underlying Tax liability, as provided above.