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Exhibit 10.4
TAX ALLOCATION AGREEMENT
by and between
ROCKWELL INTERNATIONAL CORPORATION
and
MERITOR AUTOMOTIVE, INC.
September [ ], 1997
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS....................................................................2
1.01 General..................................................................2
1.02 Schedules, etc...........................................................8
ARTICLE II FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS...............................8
2.01 Preparation of Tax Returns...............................................8
2.02 Payment of Taxes........................................................11
2.03 Tax Refunds and Carrybacks..............................................15
2.04 Allocation of Straddle Period Taxes.....................................17
2.05 Schedule of Tax Returns Covering Foreign Income Taxes and Payments......17
ARTICLE III TAX INDEMNIFICATION; TAX CONTESTS.............................................18
3.01 Indemnification.........................................................18
3.02 Automotive Tax Acts.....................................................20
3.03 Notice of Indemnity.....................................................21
3.04 Payments................................................................21
3.05 Tax Contests............................................................24
ARTICLE IV COMPENSATION PAYMENTS; OPTIONS; FOREIGN TAX CREDITS...........................25
4.01 Compensation Payments...................................................25
4.02 Stock Options...........................................................26
4.03 Foreign Tax Credits.....................................................27
4.04 Change in Law...........................................................27
ARTICLE V COOPERATION AND EXCHANGE OF INFORMATION.......................................28
5.01 Inconsistent Actions....................................................28
5.02 Ruling Request..........................................................28
5.03 IRS Gain Recognition Agreement; Notification of Certain Dispositions....28
5.04 Cooperation and Exchange of Information.................................28
5.05 Tax Records.............................................................29
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ARTICLE VI MISCELLANEOUS.................................................................30
6.01 Entire Agreement; Construction..........................................30
6.02 Effectiveness...........................................................31
6.03 Survival of Agreements..................................................31
6.04 Governing Law...........................................................31
6.05 Notices.................................................................31
6.06 Consent to Jurisdiction.................................................33
6.07 Amendments..............................................................33
6.08 Successors and Assigns..................................................34
6.09 Captions; Currency......................................................34
6.10 Severability............................................................34
6.11 No Third Party Beneficiaries............................................34
6.12 Schedules...............................................................35
6.13 Termination.............................................................35
6.14 Waivers; Remedies.......................................................35
6.15 Counterparts............................................................35
6.16 Performance.............................................................35
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TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (this "AGREEMENT") is made and
entered into as of September __, 1997, by and between ROCKWELL INTERNATIONAL
CORPORATION, a Delaware corporation ("ROCKWELL"), and MERITOR AUTOMOTIVE, INC.,
a Delaware corporation and, as of the date hereof, a wholly-owned subsidiary of
Rockwell ("AUTOMOTIVE").
W I T N E S S E T H :
WHEREAS, the Rockwell Board (as hereinafter defined) has
determined that it is appropriate and desirable to distribute all outstanding
shares of Automotive Common Stock (as hereinafter defined) on a pro rata basis
to the holders of Rockwell Common Stock (as hereinafter defined);
WHEREAS, the Rockwell Board has determined that it is
appropriate and desirable to effectuate the Distribution (as hereinafter
defined) in a transaction that will qualify under Section 368(a)(1)(D) of the
Code (as hereinafter defined) as a tax-free reorganization; and
WHEREAS, Rockwell and Automotive wish to provide for and agree
upon the allocation between the Rockwell Tax Group (as hereinafter defined) and
the Automotive Tax Group (as hereinafter defined) of all responsibilities,
liabilities and benefits relating to or affecting Taxes (as hereinafter defined)
paid or payable by either of them for all taxable periods, whether beginning
before, on or after the Distribution Date (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and of the
respective agreements contained in this Agreement, the parties hereto hereby
agree as follows:
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ARTICLE I
DEFINITIONS
1.01 GENERAL. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"ACTUALLY REALIZED" shall mean, for purposes of determining
the timing of any Taxes (or related Tax cost or benefit) relating to any
payment, transaction, occurrence or event, the time at which the amount of Taxes
payable by any person is increased above or reduced below, as the case may be,
the amount of Taxes that such person would be required to pay but for the
payment, transaction, occurrence or event.
"AUTOMOTIVE" shall have the meaning ascribed thereto in the
preamble.
"AUTOMOTIVE COMMON STOCK" shall mean, collectively, the Common
Stock, par value $1 per share, of Automotive and the related Rights.
"AUTOMOTIVE COMMON STOCK OPTIONS" shall mean options to
acquire Automotive Common Stock.
"AUTOMOTIVE GROUP EMPLOYEES AND FORMER EMPLOYEES" shall mean
individuals (i) who are employees of any member of the Automotive Tax Group on
the date of the event giving rise to a deduction in respect of any Compensation
Payments made to such individuals or Stock Options held by such individuals,
(ii) who were employees of any member of the Automotive Tax Group and were not
thereafter employees of any member of the Rockwell Tax Group, or (iii) who were
employees of Old Rockwell and its affiliates who were engaged in the automotive
business and who retired on or before December 6, 1996 and were not thereafter
employees of any member of the Rockwell Tax Group.
"AUTOMOTIVE INTRAGROUP TRANSACTION" shall mean (i) any
transaction in furtherance of the Appropriations Request, submitted by ▇.▇.
▇▇▇▇▇▇ on May 22, 1996 and approved by ▇. ▇▇▇▇▇ on June 5, 1997, (ii) any other
transfer between members of the Automotive Tax
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Group of intangible property rights during 1996 and 1997, and (iii) any other
similar transfer between members of the Automotive Tax Group of assets outside
the ordinary course of business during 1996 and 1997.
"AUTOMOTIVE TAX ACT" shall have the meaning set forth in
Section 3.02(a).
"AUTOMOTIVE TAX GROUP" shall mean (i) Automotive and (ii) any
corporation or other legal entity which Automotive directly or indirectly owns
immediately following the Distribution.
"AUTOMOTIVE TAX REPRESENTATION LETTER" shall mean the letter
delivered by Automotive to Rockwell on the Distribution Date, substantially in
the form set forth in Schedule 3.02(b) attached hereto.
"BOEING" shall mean The Boeing Company, a Delaware
corporation.
"BOEING TAX GROUP" shall mean Boeing and its affiliates.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended, or any successor legislation.
"COMPENSATION PAYMENTS" shall mean all non-qualified employee
benefit plan and welfare benefit plan payments made by any member of Automotive
Tax Group under Section __ of the Employee Matters Agreement.
"DISTRIBUTION" shall mean the distribution of the Automotive
Common Stock on a pro rata basis to holders of Rockwell Common Stock on the
Distribution Date pursuant to the Distribution Agreement.
"DISTRIBUTION AGREEMENT" shall mean the Distribution Agreement
dated as of _____________, 1997 by and between Rockwell and Automotive.
"DISTRIBUTION DATE" shall mean the date on which the
Distribution occurs (or, if different, the date on which the Distribution is
deemed to occur for U.S. federal Income Tax purposes). For purposes of this
Agreement, the Distribution shall be deemed effective as of the close of
business on the Distribution Date.
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"DISTRIBUTION TRANSACTION" shall mean any transaction
undertaken in connection with the Distribution and described in the Ruling
Request except for those transactions specified on Schedule 1.01 that are being
carried out for business reasons unrelated to the Distribution.
"INCOME TAX BENEFIT" shall mean for any taxable period the
excess of (i) the hypothetical Income Tax liability of the taxpayer for the
taxable period calculated as if the Timing Difference or Reverse Timing
Difference, as the case may be, had not occurred but with all other facts
unchanged, over (ii) the actual Income Tax liability of the taxpayer for the
taxable period, calculated taking into account the Timing Difference or Reverse
Timing Difference, as the case may be (treating an Income Tax refund or credit
as a negative Income Tax liability for purposes of such calculation).
"INCOME TAX DETRIMENT" shall mean for any taxable period the
excess of (i) the actual Income Tax liability of the taxpayer for the taxable
period, calculated taking into account the Timing Difference or Reverse Timing
Difference, as the case may be, over (ii) the hypothetical Income Tax liability
of the taxpayer for the taxable period, calculated as if the Timing Difference
or Reverse Timing Difference, as the case may be, had not occurred but with all
other facts unchanged (treating an Income Tax refund or credit as a negative
Income Tax liability for purposes of such calculation).
"INCOME TAX RETURN" shall mean any Tax Return that relates to
Income Taxes.
"INCOME TAXES" shall mean (a) any Tax based upon, measured by,
or calculated with respect to (i) net income or profits (including, but not
limited to, any capital gains, minimum Tax and any Tax on items of Tax
preference and the Michigan Single Business Tax, but not including sales, use,
real property gains, real or personal property, gross or net receipts, transfer
or similar Taxes) or (ii) multiple bases (including, but not limited to,
corporate franchise, doing business or occupation Taxes) if one or more of the
bases upon which such Tax may be based, measured by, or calculated with respect
to, is described in clause (i) above, or (b) any U.S. state or local franchise
Tax.
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"INDEMNITEE" shall have the meaning set forth in Section 3.03.
"INDEMNITOR" shall have the meaning set forth in Section 3.03.
"INDEMNITY ISSUE" shall have the meaning set forth in Section
3.03.
"IRS" shall mean the Internal Revenue Service.
"IRS GAIN RECOGNITION AGREEMENT" shall mean any gain
recognition agreement entered into between the IRS and any member of the
Rockwell Tax Group or the Automotive Tax Group pursuant to Section 367 of the
Code and the regulations thereunder or the Ruling, and any revised or successor
agreement thereto.
"OLD ROCKWELL" shall mean the corporation, formerly named
Rockwell International Corporation, which owned all of the Rockwell Common Stock
prior to the distribution of the Rockwell Common Stock to the shareholders of
such corporation on December 6, 1996.
"PRE-DISTRIBUTION TAXABLE PERIOD" shall mean a taxable period
ending on or before the Distribution Date.
"POST-DISTRIBUTION TAX ACT" shall have the meaning set forth
in Section 3.01(a).
"POST-DISTRIBUTION TAXABLE PERIOD" shall mean a taxable period
beginning after the Distribution Date.
"POST-TAX INDEMNIFICATION PERIOD" shall mean any
Post-Distribution Taxable Period and that portion of any Straddle Period that
begins on the day after the Distribution Date.
"REVERSE TIMING DIFFERENCE" shall mean an increase in income,
gain or recapture, or a decrease in deduction, loss or credit, as calculated for
Income Tax purposes, of the taxpayer for the Tax Indemnification Period coupled
with an increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for any Post-Tax Indemnification Period.
"RIGHTS" shall have the meaning ascribed thereto in the
Distribution Agreement.
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"RISSCO" shall mean Rockwell International Suspension Systems
Company, Inc.
"ROCKWELL" shall have the meaning ascribed thereto in the
preamble.
"ROCKWELL BOARD" shall mean the Board of Directors of Rockwell
or a duly authorized committee thereof.
"ROCKWELL COMMON STOCK" shall mean the Common Stock, par value
$1.00 per share, of Rockwell.
"ROCKWELL COMMON STOCK OPTIONS" shall mean options to acquire
Rockwell Common Stock.
"ROCKWELL TAX GROUP" shall mean (i) Rockwell, (ii) any
corporation or other legal entity which Rockwell directly or indirectly owns
immediately following the Distribution, (iii) any other corporation or other
legal entity which Rockwell or Old Rockwell directly or indirectly owned at any
time prior to the Distribution (but only with respect to the period such
corporation or other entity was so owned by Rockwell or Old Rockwell) other than
a member of the Automotive Tax Group, and (iv) solely for purposes of this
Agreement and not for purposes of any other Transaction Agreement, for any
taxable period up to or including December 6, ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇ and any other
corporation or legal entity owned by Old Rockwell other than a member of the
Automotive Tax Group.
"RULING" shall mean the private letter ruling issued by the
IRS in reply to the Ruling Request including any amendment or supplement
thereto.
"RULING REQUEST" shall mean the private letter ruling request
dated March 17, 1997 filed by Rockwell with the IRS (as modified or supplemented
by any materials submitted to the IRS), seeking rulings that, inter alia, the
Distribution will qualify for U.S. federal Income Tax purposes as a tax-free
reorganization under Section 368(a)(1)(D) of the Code.
"STOCK OPTIONS" shall mean Automotive Common Stock Options or
Rockwell Common Stock Options.
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"STRADDLE PERIOD" shall mean a taxable period that includes
but does not end on the Distribution Date.
"TAX" and "TAXES" shall mean all forms of taxation, whenever
created or imposed, and whether of the United States or elsewhere, and whether
imposed by a federal, state, municipal, governmental, territorial, local,
foreign or other body, and without limiting the generality of the foregoing,
shall include net income, gross income, gross receipts, sales, use, value added,
ad valorem, transfer, recording, franchise, profits, license, lease, service,
service use, payroll, wage, withholding, employment, unemployment insurance,
workers compensation, social security, excise, severance, stamp, business
license, business organization, occupation, premium, property, environmental,
windfall profits, customs, duties, alternative minimum, estimated or other
taxes, fees, premiums, assessments or charges of any kind whatever imposed or
collected by any governmental entity or political subdivision thereof, together
with any related interest and any penalties, additions to such tax or additional
amounts imposed with respect thereto by any Tax Authority.
"TAX AUTHORITY" shall mean, with respect to any Tax, any
governmental entity, quasi-governmental body or political subdivision thereof
that imposes such Tax and the agency (if any) charged with the determination or
collection of such Tax for such entity, body or subdivision.
"TAX GROUP" shall mean the Rockwell Tax Group or the
Automotive Tax Group, as the case may be.
"TAX INDEMNIFICATION PERIOD" shall mean any Pre-Distribution
Taxable Period and that portion of any Straddle Period that ends on the
Distribution Date.
"TAX RETURN" shall mean any return, filing, questionnaire,
information return or other document required to be filed, including requests
for extensions of time, filings made with respect to estimated tax payments,
claims for refund and amended returns that may be filed, for any period with any
Tax Authority (whether domestic or foreign) in connection with any Tax (whether
or not a payment is required to be made with respect to such filing).
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"TIMING DIFFERENCE" means an increase in income, gain or
recapture, or a decrease in deduction, loss or credit, as calculated for Income
Tax purposes, of the taxpayer for any Post-Tax Indemnification Period coupled
with an increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for the Tax Indemnification Period.
"TRANSACTION AGREEMENTS" shall have the meaning ascribed
thereto in the Distribution Agreement.
Any capitalized term not otherwise defined in this Agreement
shall have the meaning ascribed to it in the Distribution Agreement.
1.02 SCHEDULES, ETC. References to a "SCHEDULE" are, unless
otherwise specified, to the Schedule attached to this Agreement; references to
"SECTION" or "ARTICLE" are, unless otherwise specified, to one of the Sections
or Articles of this Agreement; references to "SUB-SECTION" are, unless the
context otherwise requires, references to the section in which the reference
appears; and references to this Agreement include the Schedules.
ARTICLE II
FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS
2.01 PREPARATION OF TAX RETURNS.
(a) UNITED STATES FEDERAL INCOME TAX RETURNS. (i) Except as
provided in Section 2.01(a)(ii), Rockwell shall prepare and file or cause to be
prepared and filed all U.S. federal Income Tax Returns (including amendments
thereto) which include a member of the Rockwell Tax Group or a member of the
Automotive Tax Group which are required to be filed for any Pre-Distribution
Taxable Period. Automotive hereby irrevocably designates, and agrees to cause
each of its affiliates to so designate, Rockwell as its agent to take any and
all actions necessary or incidental to the preparation and filing of such U.S.
federal Income Tax Returns.
(ii) Automotive shall prepare and file or cause to be prepared
and filed all U.S. federal Income Tax Returns (including amendments thereto) of
RISSCO
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which are required to be filed for any Pre-Distribution Taxable Period or
Straddle Period.
(b) UNITED STATES STATE AND LOCAL INCOME TAX RETURNS. (i)
Except as provided in Section 2.01(b)(ii), Rockwell shall prepare and file or
cause to be prepared and filed all U.S. state and local Income Tax Returns
(including amendments thereto) which include a member of the Rockwell Tax Group
or a member of the Automotive Tax Group which are required to be filed for any
Pre-Distribution Taxable Period or Straddle Period. Automotive hereby
irrevocably designates, and agrees to cause each of its affiliates to so
designate, Rockwell as its agent to take any and all actions necessary or
incidental to the preparation and filing of such U.S. state and local Income Tax
Returns.
(ii) Automotive shall prepare and file or cause to be prepared
and filed all U.S. state and local Income Tax Returns (including amendments
thereto) of RISSCO which are required to be filed for any Pre-Distribution
Taxable Period or Straddle Period.
(c) FOREIGN INCOME TAX RETURNS. (i) Automotive shall prepare
and file or cause to be prepared and filed:
(A) all Brazilian, Chinese, Czech Republic, Indian, Irish,
Italian, Mexican, Portuguese, Singapore, Spanish and Turkish Income Tax Returns
(including amendments thereto) which include a member of the Automotive Tax
Group which are required to be filed for any Pre-Distribution Taxable Period or
any Straddle Period; and
(B) all Income Tax Returns (including amendments thereto)
which are required to be filed for any Pre-Distribution Taxable Period or any
Straddle Period which are (I) Australian Income Tax Returns which relate to
Rockwell Standard of Australia Ltd., (II) Canadian Income Tax Returns which
relate to RISS Holdings, Ltd., (III) Japanese Income Tax Returns which relate to
Nippon Automotive Body Systems Corp. or (IV) Netherlands Income Tax Returns
which relate to ROR Rockwell B.V.
Rockwell hereby irrevocably designates, and agrees to cause each of its
affiliates to so designate, Automotive
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as its agent to take any and all actions necessary or incidental to the
preparation and filing of such foreign Income Tax Returns.
(ii) Rockwell shall prepare and file or cause to be prepared
and filed all Argentinean, Australian, Barbadian, Canadian, French, German, Hong
Kong, Japanese, Korean, Netherlands and United Kingdom Income Tax Returns
(including amendments thereto) not referred to in Section 2.01(c)(i) which
include a member of the Automotive Tax Group which are required to be filed for
any Pre-Distribution Taxable Period or any Straddle Period. Automotive hereby
irrevocably designates, and agrees to cause each of its affiliates to so
designate, Rockwell as its agent to take any and all actions necessary or
incidental to the preparation and filing of such foreign Income Tax Returns.
(d) NON-INCOME TAX RETURNS. (i) All Tax Returns (including
amendments thereto) which are not Income Tax Returns for all Pre-Distribution
Taxable Periods and all Straddle Periods shall be the responsibility of the
Rockwell Tax Group if such Tax Returns (A) relate to a member or members of the
Rockwell Tax Group or their respective businesses, assets or activities, (B)
relate to members of each of the Rockwell Tax Group and the Automotive Tax Group
or their respective businesses, assets or activities, or (C) relate to a member
of the Automotive Tax Group for a period in which such member conducts or has
conducted both an automotive business and a nonautomotive business. Automotive
hereby irrevocably designates, and agrees to cause each of its affiliates to so
designate, Rockwell as its agent to take any and all actions necessary or
incidental to the preparation and filing of such Tax Returns.
(ii) All Tax Returns (including amendments thereto) which are
not Income Tax Returns which relate to a member of the Automotive Tax Group or
their respective businesses, assets or activities for all Pre-Distribution
Taxable Periods and Straddle Periods which are not the responsibility of the
Rockwell Tax Group shall be the responsibility of the Automotive Tax Group.
(e) POST-DISTRIBUTION DATE TAX RETURNS. All Tax Returns
(including amendments thereto) for all Post-Distribution Taxable Periods shall
be the responsibility
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of the Rockwell Tax Group if such Tax Returns relate to a member or members of
the Rockwell Tax Group or their respective businesses, assets or activities, and
shall be the responsibility of the Automotive Tax Group if such Tax Returns
relate to a member or members of the Automotive Tax Group or their respective
businesses, assets or activities.
(f) CONSISTENT WITH PAST PRACTICE Unless Rockwell and
Automotive otherwise agree in writing, all Tax Returns (including amendments
thereto) described in this Section 2.01 filed after the date of this Agreement,
in the absence of a controlling change in law or circumstances, shall be
prepared on a basis consistent with the elections, accounting methods,
conventions and principles of taxation used for the most recent taxable periods
for which Tax Returns involving similar matters have been filed. Subject to the
provisions of this Agreement, all decisions relating to the preparation of Tax
Returns shall be made in the sole discretion of the party responsible under this
Agreement for such preparation.
(g) RESPONSIBILITY FOR FILING. Although, pursuant to this
Agreement, Rockwell or Automotive may be responsible for filing a particular Tax
Return, Rockwell and Automotive have agreed that the actual preparation and
filing of certain Tax Returns will be done by the non-responsible party.
Schedule 2.01 attached hereto sets forth a schedule specifying such Tax Returns.
Rockwell and Automotive may agree from time to time to additions or deletions
from Schedule 2.01.
2.02 PAYMENT OF TAXES.
(a) UNITED STATES FEDERAL INCOME TAXES. Except as otherwise
provided in this Agreement:
(i) Rockwell shall pay or cause to be paid, on a timely basis,
all Taxes due with respect to the consolidated U.S. federal Income Tax liability
for all Pre-Distribution Taxable Periods of all members of the Rockwell Tax
Group or the Automotive Tax Group (other than RISSCO); and
(ii) Automotive shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the U.S.
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federal Income Tax liability for any Pre-Distribution Taxable Period or Straddle
Period of RISSCO.
(b) UNITED STATES STATE AND LOCAL INCOME TAXES. Except as
otherwise provided in this Agreement:
(i) Rockwell shall pay or cause to be paid, on a timely basis,
all Taxes due with respect to the U.S. state and local Income Tax liability for
all Pre-Distribution Taxable Periods or Straddle Periods of all members of the
Rockwell Tax Group or the Automotive Tax Group (other than RISSCO), provided,
however, that Automotive, on behalf of the Automotive Tax Group, hereby assumes
and agrees to pay directly to or at the direction of Rockwell, at least two days
prior to the date payment (including estimated payment) thereof is due, the
portion of such U.S. state and local Income Taxes for that portion of any
Straddle Period which begins on the day after the Distribution Date which
relates to a member of the Automotive Tax Group or its business, assets or
activities; and
(ii) Automotive shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the U.S. state and local Income Tax
liability for all Pre-Distribution Taxable Periods and Straddle Periods of
RISSCO.
(c) FOREIGN INCOME TAXES. Except as otherwise provided in this
Agreement:
(i) Automotive shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to
(A) the Brazilian, Chinese, Czech Republic, Indian, Irish,
Italian, Mexican, Portuguese, Singapore, Spanish and Turkish Income Tax
liability for all Pre-Distribution Taxable Periods and all Straddle Periods of
all members of the Automotive Tax Group or their respective businesses, assets
or activities, and
(B) the Income Tax liability for all Pre-Distribution Taxable
Periods and Straddle Periods which relate to (I) the Australian Income Tax
liability of Rockwell Standard of Australia Ltd., (II) the Canadian Income Tax
liability of RISS Holdings, Ltd., (III) the Japanese Income Tax liability of
Nippon Automotive Body
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Systems Corp. and (IV) the Netherlands Income Tax liability of ROR Rockwell
B.V.,
provided, however, Rockwell, on behalf of the Rockwell Tax Group, hereby assumes
and agrees to pay directly to or at the direction of Automotive, at least two
days prior to the date payment (including estimated payment) thereof is due such
foreign Income Tax liability resulting from any Distribution Transaction; and
(ii) Except as provided in Section 2.02(c)(i) above, Rockwell
shall pay or cause to be paid, on a timely basis, all foreign Taxes due with
respect to the Argentinean, Australian, Barbadian, Canadian, French, German,
Hong Kong, Japanese, Korean, Netherlands and United Kingdom Income Tax liability
of all members of the Automotive Tax Group for all Pre-Distribution Taxable
Periods and Straddle Periods, provided, however, that Automotive, on behalf of
the Automotive Tax Group, hereby assumes and agrees to pay directly to or at the
direction of Rockwell, at least two days prior to the date payment (including
estimated payment) thereof is due (A) the portion of such foreign Income Taxes
for that portion of any Straddle Period which begins on the day after the
Distribution Date which relates to a member of the Automotive Tax Group or its
business, assets or activities, (B) any such foreign Income Taxes which may be
due as a result of any Automotive Intragroup Transaction and (C) any such
foreign Income Taxes which may be due as a result of any transaction specified
on Schedule 1.01.
Notwithstanding the foregoing provisions of this Section 2.02(c), Automotive
shall pay or cause to be paid (on a timely basis), the Canadian Income Tax
liability resulting from any Distribution Transaction up to a maximum total
amount of $60 million. If the Canadian Income Tax liability resulting from any
Distribution Transaction shall exceed $60 million, Rockwell shall pay or cause
to be paid (on a timely basis) such excess. If, at the time the Canadian Income
Tax Return of Rockwell International Canada Ltd. and its affiliates for the year
ended September 30, 1997 is filed, Automotive shall have paid in the aggregate
less than $60 million to the Canadian Tax Authorities in respect the Canadian
Income Tax liability resulting from any Distribution Transaction, then
Automotive, on behalf of the Automotive Tax Group, hereby assumes and agrees to
pay directly to
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or at the direction of Rockwell, at least two days after such Canadian Income
Tax Return is filed, the difference between $60 million and the amount paid by
Automotive to the Canadian Tax Authorities in respect of any Distribution
Transaction.
(d) NON-INCOME TAXES. Except as otherwise provided in this
Agreement:
(i) Rockwell shall pay or cause to be paid, on a timely basis,
all Taxes due with respect to the non-Income Tax liability for all
Pre-Distribution Taxable Periods and Straddle Periods which relate to (A) a
member or members of the Rockwell Tax Group or their respective businesses,
assets or activities, (B) members of each of the Rockwell Tax Group and the
Automotive Tax Group or their respective businesses, assets or activities, or
(C) a member of the Automotive Tax Group for a period in which such member
conducts or has conducted both an automotive business and a nonautomotive
business, provided, however, that Automotive, on behalf of the Automotive Tax
Group, hereby assumes and agrees to pay directly to or at the direction of
Rockwell, at least two days prior to the date payment (including estimated
payment) thereof is due (I) the portion of such non-Income Taxes which relates
to a member of the Automotive Tax Group or its automotive business, assets or
activities for such Pre-Distribution Taxable Periods and Straddle Periods other
than any such non-Income Taxes resulting from any Distribution Transaction, (II)
any such non-Income Taxes which may be due as a result of any Automotive
Intragroup Transaction and (III) any such non-Income Taxes which may be due as a
result of any transaction specified on Schedule 1.01; and
(ii) Automotive shall pay or cause to be paid, on a timely
basis, all non-Income Taxes for all Pre-Distribution Taxable Periods and
Straddle Periods which relate to a member of the Automotive Tax Group, its
business, assets or activities which are not the responsibility of the Rockwell
Tax Group other than any non-Income Taxes imposed in connection with the
transactions contemplated by the Transaction Agreements or any other agreement
entered into for the purpose of implementing the Distribution.
Notwithstanding the foregoing provisions of this Section 2.02(d), Automotive
shall pay or cause to be paid (on a
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timely basis) any such non-Income Taxes imposed in connection with the
transactions specified on Schedule 1.01.
(e) POST-DISTRIBUTION DATE TAXES. Except as otherwise provided
in this Agreement, all Taxes for all Post-Distribution Taxable Periods shall be
paid or caused to be paid by the party responsible under this Agreement for
filing the Tax Return pursuant to which such Taxes are due or, if no such Tax
Returns are due, by the party liable for such Taxes.
(f) CREDIT FOR ESTIMATED TAX PAYMENTS. To the extent any
member of a Tax Group has made a payment of Taxes (including estimated Taxes) on
or before the Distribution Date, the party responsible for paying such Taxes
under this Agreement shall be entitled to treat the payment as having been made
by such responsible party, and such responsible party shall not be required to
reimburse the party which actually paid such Taxes. Notwithstanding the
foregoing, no payment of Taxes by any member of a Tax Group on or before the
Distribution Date shall be treated as having been paid in respect of
Automotive's obligation to pay the Canadian Income Taxes resulting from any
Distribution Transaction in accordance with the provisions of Sections 2.02(c)
and 3.01(b).
(g) RESPONSIBILITY FOR PAYMENT. Although Rockwell or
Automotive may be responsible for paying a particular Tax liability, Rockwell
and Automotive have agreed that the actual payment to a Taxing Authority of
certain Tax liabilities will be made by the non-responsible party. Schedule 2.02
attached hereto sets forth a schedule specifying such Tax liabilities. Rockwell
and Automotive may agree from time to time to additions or deletions from
Schedule 2.02.
2.03 TAX REFUNDS AND CARRYBACKS.
(a) RETENTION AND PAYMENT OF TAX REFUNDS. Except as otherwise
provided in this Agreement, Rockwell shall be entitled to retain, and to receive
within ten days after Actually Realized by the Automotive Tax Group, the portion
of all refunds or credits of Taxes for which the Rockwell Tax Group is liable
pursuant to Section 2.02 or Section 3.01(a), and Automotive shall be entitled to
retain, and to receive within ten days after Actually Realized by the Rockwell
Tax Group, the portion of all
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refunds or credits of Taxes for which the Automotive Tax Group is liable
pursuant to Section 2.02 or Section 3.01(b).
(B) CARRYBACKS. Unless the parties otherwise agree in writing,
Automotive shall elect and shall cause each member of the Automotive Tax Group
to elect, where permitted by law, to carry forward any net operating loss, net
capital loss, charitable contribution or other item arising after the
Distribution Date that could, in the absence of such election, be carried back
to a Pre-Distribution Taxable Period. Except as otherwise provided in this
Agreement, notwithstanding the provisions of Section 2.03(a), (i) any refund or
credit of Taxes resulting from the carryback of any item of Taxes attributable
to the Automotive Tax Group arising in a Post-Tax Indemnification Period to a
Tax Indemnification Period shall be for the account and benefit of the
Automotive Tax Group, and (ii) any refund or credit of Taxes resulting from the
carryback of any item of Taxes attributable to the Rockwell Tax Group arising in
a Post-Tax Indemnification Period to a Tax Indemnification Period shall be for
the account and benefit of the Rockwell Tax Group.
(C) REFUND CLAIMS. Rockwell shall be permitted to file at
Rockwell's sole expense, and Automotive shall reasonably cooperate with Rockwell
in connection with, any claims for refund of Taxes to which Rockwell is entitled
pursuant to this Section 2.03 or any other provision of this Agreement. Rockwell
shall reimburse Automotive for any reasonable out-of-pocket costs and expenses
incurred by any member of the Automotive Tax Group in connection with such
cooperation. Automotive shall be permitted to file at Automotive's sole expense,
and Rockwell shall reasonably cooperate with Automotive in connection with, any
claims for refunds of Taxes to which Automotive is entitled pursuant to this
Section 2.03 or any other provision of this Agreement. Automotive shall
reimburse Rockwell for any reasonable out-of-pocket costs and expenses incurred
by any member of the Rockwell Tax Group in connection with such cooperation.
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2.04 ALLOCATION OF STRADDLE PERIOD TAXES. In the case of any
Straddle Period:
(a) the periodic Taxes of a member of the Rockwell Tax Group
or the Automotive Tax Group or its business, assets or activities that are not
based on income or receipts (e.g., property Taxes) for that portion of any
Straddle Period beginning after the Distribution Date shall be computed based on
the ratio of the number of days in such portion of the Straddle Period to the
number of days in the entire taxable period;
(b) the Taxes of a member of the Rockwell Tax Group or the
Automotive Tax Group or its business, assets or activities for that portion of
any Straddle Period beginning after the Distribution Date (other than Taxes
described in 2.04(a) above) shall be computed on a "closing-of-the-books" basis
as if such taxable period began on the day after the Distribution Date, and, in
the case of any Taxes of a member of the Rockwell Tax Group or the Automotive
Tax Group or its business with respect to any equity interest in any partnership
or other "flowthrough" entity, as if a taxable period of such partnership or
other "flowthrough" entity began as of the day after the Distribution Date; and
(c) the Taxes of the Rockwell Tax Group and the Automotive Tax
Group with respect to any Tax Return for a Straddle Period which includes a
member of each of the Rockwell Tax Group and the Automotive Tax Group or their
respective businesses, assets or activities shall be allocated between the
Rockwell Tax Group, on the one hand, and the Automotive Tax Group, on the other
hand, determined in a manner analogous to that set forth in Treasury Regulation
Section 1.1552-1(a)(2).
2.05 SCHEDULE OF TAX RETURNS COVERING FOREIGN INCOME TAXES AND
PAYMENTS. Schedule 2.05 attached hereto sets forth a schedule showing (a) each
Tax Return covering foreign Income Taxes required to be filed by a member of the
Rockwell Tax Group and each Tax Return covering foreign Income Taxes required to
be filed by a member of the Automotive Tax Group for taxable periods ending
after September 30, 1996, (b) the period for which Rockwell is required to file
any such Tax Return and (c) the period for which Automotive is required to file
any such Tax Return.
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ARTICLE III
TAX INDEMNIFICATION; TAX CONTESTS
3.01 INDEMNIFICATION.
(a) ROCKWELL INDEMNIFICATION. Subject to Section 3.01(b) and
Section 3.02, Rockwell shall indemnify, defend and hold harmless each member of
the Automotive Tax Group and each of their respective stockholders, directors,
officers, employees and agents and each of the heirs, executors, successors and
assigns of any of the foregoing from and against:
(i) all Taxes of the Rockwell Tax Group;
(ii) all Taxes of the Automotive Tax Group for all
Pre-Distribution Taxable Periods and all Straddle Periods for which Rockwell is
liable pursuant to Section 2.02;
(iii) all liability as a result of Treas. Reg. Section
1.1502-6(a) (which imposes several liability on members of an affiliated group
that file a U.S. federal consolidated Income Tax return) or comparable U.S.
state or local provision for Income Taxes of any person which is or has ever
been affiliated with any member of the Rockwell Tax Group or with which any
member of the Rockwell Tax Group joins or has ever joined (or is or has ever
been required to join) in filing any consolidated, combined or unitary Income
Tax Return for any Tax period ending on or before or including the Distribution
Date;
(iv) all Taxes for any Tax period (whether beginning before,
on or after the Distribution Date) that would not have been payable but for the
breach by any member of the Rockwell Tax Group of any representation, warranty,
covenant or obligation under this Agreement;
(v) all liability for a breach by any member of the Rockwell
Tax Group of any representation, warranty, covenant or obligation under this
Agreement;
(vi) all Income Taxes and non-Income Taxes imposed in
connection with the transactions contemplated by the Transaction Agreements or
any other agreement entered into for the purpose of implementing the
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Distribution other than any transaction specified on Schedule 1.01;
(vii) all Taxes for which Rockwell is liable pursuant to
Section 3.02; and
(viii) all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to the foregoing.
Notwithstanding the foregoing and subject to Section 3.01(b) and Section 3.02,
Rockwell shall not indemnify, defend or hold harmless any member of the
Automotive Tax Group from any liability for Taxes (other than Taxes resulting
from the failure of the Distribution to qualify as a reorganization described in
Section 368(a)(1)(D) of the Code or the failure of any pre-Distribution tax-free
transaction specified in Schedule 3.01 to be non-taxable) attributable to any
action (including the making of an election under Section 338 of the Code) taken
by any member of the Automotive Tax Group after the Distribution (other than any
such action expressly required or otherwise expressly contemplated by the
Transaction Agreements or any other agreement entered into for the purpose of
implementing the Distribution or taken in the ordinary course of business) (a
"POST-DISTRIBUTION TAX ACT").
(b) AUTOMOTIVE INDEMNIFICATION. Automotive shall be liable
for, and shall indemnify, defend and hold harmless each member of the Rockwell
Tax Group and each of the respective stockholders, directors, officers,
employees and agents and each of the heirs, executors, successors and assigns of
any of the foregoing from and against:
(i) all Taxes of any member of the Automotive Tax Group (other
than Taxes for which Rockwell provides indemnification pursuant to Section
3.01(a));
(ii) all Taxes for any Tax period (whether beginning before,
on or after the Distribution Date) that would not have been payable but for the
breach by any member of the Automotive Tax Group of any representation,
warranty, covenant or obligation under this Agreement;
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(iii) all liability for a breach by any member of the
Automotive Tax Group of any representation, warranty, covenant or obligation
under this Agreement;
(iv) all Taxes for which Automotive is liable pursuant to
Section 3.02;
(v) all Taxes arising under any IRS Gain Recognition Agreement
specified in Schedule 5.03 or any revised or successor agreement thereto;
(vi) all Canadian Income Taxes resulting from any Distribution
Transaction;
(vii) all Taxes attributable to a Post-Distribution Tax Act;
and
(viii) all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to the foregoing.
Notwithstanding the foregoing, Automotive's liability under Section 3.01(b)(vi)
shall not exceed $60 million reduced by (A) any amounts paid after the
Distribution Date by Automotive to (and not refunded to Automotive by) the
Canadian Tax Authorities in respect of such liability and (B) all amounts paid
to Rockwell pursuant to the last sentence of Section 2.02(c).
3.02 AUTOMOTIVE TAX ACTS.
(a) Notwithstanding Section 3.01, Automotive agrees to
indemnify, defend and hold harmless each member of the Rockwell Tax Group and
each of the respective stockholders, directors, officers, employees and agents
and each of the heirs, executors, successors and assigns of any of the foregoing
from and against any Taxes resulting from any Automotive Tax Act which causes
(i) the Distribution to fail to qualify as a reorganization described in Section
368(a)(1)(D) of the Code or (ii) any non-taxable pre-Distribution transaction
specified in Schedule 3.01 undertaken in connection with the Distribution to
become taxable. An Automotive Tax Act shall mean any action specified on
Schedule 3.02(a) attached hereto.
(b) Automotive shall, and shall cause each member of the
Automotive Tax Group to, comply with and
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take no action inconsistent with the Automotive Tax Representation Letter,
unless, pursuant to a favorable ruling letter obtained from the IRS which is
satisfactory to Rockwell or in the opinion of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP or other
nationally recognized tax counsel to Rockwell, which opinion shall be
satisfactory to Rockwell, such act or omission would not adversely affect the
U.S. federal Income Tax consequences of the Distribution to Rockwell or the
stockholders of Rockwell. Notwithstanding Sections 3.01(b)(iii), 3.01(b)(iv) and
3.01(b)(vii), the parties intend that the sole remedy for breach of the
covenants contained in this Section 3.02(b) shall be as set forth in Section
3.02(a).
(c) Notwithstanding the foregoing, an Automotive Tax Act shall
not include any transaction or action specifically disclosed or specifically
described in the Automotive Tax Representation Letter or any of the Transaction
Agreements. An Automotive Tax Act shall not include any action on the part of
any member of the Rockwell Tax Group. Rockwell agrees to indemnify and hold each
member of the Automotive Tax Group harmless from and against any Taxes resulting
from the failure of the Distribution to qualify under Section 368(a)(1)(D) of
the Code, except where such failure is attributable to an Automotive Tax Act.
3.03 NOTICE OF INDEMNITY. Whenever a party hereto (hereinafter
an "INDEMNITEE") becomes aware of the existence of an issue raised by any Tax
Authority which could reasonably be expected to result in a determination that
would increase the liability for any Tax of the other party hereto or any member
of its Tax Group for any Tax period or require a payment hereunder by the other
party (hereinafter an "INDEMNITY ISSUE"), the Indemnitee shall in good faith
promptly give notice to such other party (hereinafter the "INDEMNITOR") of such
Indemnity Issue. The failure of the Indemnitee to give such notice shall not
relieve the Indemnitor of its obligations under this Agreement, except to the
extent such Indemnitor or a member of its Tax Group is actually prejudiced by
such failure to give notice.
3.04 PAYMENTS.
(a) TIMING ADJUSTMENTS. (i) Timing Differences. If a Tax audit
proceeding or an amendment of a Tax Return results in a Timing Difference, and
such
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Timing Difference results in a decrease in an indemnity obligation Rockwell
has or would otherwise have under Section 3.01(a) and/or an increase in the
amount of a Tax refund or credit to which Rockwell is entitled under Section
2.03, then in each Post-Tax Indemnification Period in which the Automotive Tax
Group Actually Realizes an Income Tax Detriment, Rockwell shall pay to
Automotive an amount equal to such Income Tax Detriment; provided, however, that
the aggregate payments which Rockwell shall be required to make under this
Section 3.04(a)(i) with respect to any Timing Difference shall not exceed the
aggregate amount of the Income Tax Benefits realized by the Rockwell Tax Group
for all taxable periods and the Automotive Tax Group for all Tax Indemnification
Periods as a result of such Timing Difference. Rockwell shall make all such
payments within ten days after Automotive notifies Rockwell that the relevant
Income Tax Detriment has been Actually Realized.
(ii) Reverse Timing Differences. If a Tax audit proceeding or
an amendment to a Tax Return results in a Reverse Timing Difference, and such
Reverse Timing Difference results in an increase in an indemnity payment
obligation of Rockwell under Section 3.1 and/or a decrease in the amount of a
Tax refund or credit to which Rockwell is or would otherwise be entitled under
Section 2.03, then in each Post-Tax Indemnification Period in which the
Automotive Tax Group Actually Realizes an Income Tax Benefit, Automotive shall
pay to Rockwell within ten days after Automotive has Actually Realized such
Income Tax Benefit an amount equal to such Income Tax Benefit, provided,
however, that the aggregate payments which Automotive shall be required to make
under this Section 3.04(a)(ii) with respect to Reverse Timing Differences shall
not exceed the aggregate amount of the Income Tax Detriments realized by the
Automotive Tax Group and the Rockwell Tax Group for all Tax Indemnification
Periods as a result of such Reverse Timing Difference.
(b) TIME FOR PAYMENT. Except as otherwise provided in this
Section 3.04(b), any indemnity payment required to be made pursuant to this
Agreement shall be paid within thirty days after the indemnified party makes
written demand upon the indemnifying party, provided that in no event shall such
payment be made earlier than five business days prior to the date on which the
relevant Taxes (including estimated Taxes) are required
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to be paid (or would be required to be paid if no such Taxes are due) to the
relevant Tax Authority. Notwithstanding any other provision in this Agreement,
to simplify the administration of this Agreement, the payment of any amount less
than $100,000 required to be made pursuant to this Agreement by one party hereto
to another party hereto need not be made to such other party prior to thirty
days following the later of (i) the close of the calendar quarter during which
such payment obligation arose and (ii) the day during such calendar quarter when
the aggregate amount of all such less than $100,000 payment obligations arising
during such calendar quarter exceeds $500,000. Unless otherwise specified by the
recipient for items exceeding $250,000, any such payment may be made on a net
Tax basis (i.e., reduced to take account of any net Tax benefit to be realized
by the recipient (computed at the effective Tax rate set forth in Section
3.04(c)) to the extent such recipient is entitled to a corresponding deduction.
(c) PAYMENTS NET OF TAXES AND TAX BENEFITS. The amount of any
payment under this Agreement shall be (i) reduced to take into account any net
Tax benefit realized by the recipient arising from the incurrence or payment by
such recipient of any such payment and (ii) increased to take into account any
net Tax cost incurred by the recipient as a result of the receipt or accrual of
payments hereunder (grossed-up for such increase), in each case determined by
treating the recipient as recognizing all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt of
accrual of any payment hereunder. In determining the amount of any such Tax
benefit or Tax cost, the recipient shall be deemed to be subject to (A) U.S.
federal Income Taxes and foreign Income Taxes at the maximum statutory rate then
in effect and (B) U.S. state and local Income Taxes at an assumed rate of five
percent net of U.S. federal Income Tax benefits. Except as otherwise provided in
this Agreement or unless the parties otherwise agree to an alternative method
for determining the present value of any such anticipated Tax benefit or Tax
cost, any payment hereunder shall initially be made without regard to this
section and shall be increased or reduced to reflect any such net Tax cost
(including gross-up) or net Tax benefit only after the recipient has Actually
Realized such Tax cost or Tax benefit.
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(d) RIGHT TO OFFSET. Any party making a payment under this
Agreement shall have the right to reduce any such payment by any undisputed
amounts owed to it by the other party to this Agreement.
(e) CHARACTERIZATION OF PAYMENTS. It is the intention of the
parties to this Agreement that payments made pursuant to this Agreement are to
be treated as relating back to the Distribution as an adjustment to the assets
and liabilities transferred thereunder, and the parties shall not take any
position inconsistent with such intention before any Tax Authority, except to
the extent that a final determination (as defined in Section 1313 of the Code)
with respect to the recipient party causes any such payment not to be so
treated.
3.05 TAX CONTESTS. The Indemnitor and its representatives, at
the Indemnitor's expense, shall be entitled to participate (a) in all
conferences, meetings and proceedings with any Tax Authority, the subject matter
of which is or includes an Indemnity Issue and (b) in all appearances before any
court, the subject matter of which is or includes an Indemnity Issue. The party
who has responsibility for filing the Tax Return under this Agreement (the
"RESPONSIBLE PARTY") with respect to which there could be an increase in
liability for any Tax or with respect to which a payment could be required
hereunder shall have the right to decide as between the parties hereto how such
matter is to be dealt with and finally resolved with the appropriate Tax
Authority and shall control all audits and similar proceedings. If no Tax Return
is or was required to be filed in respect of an Indemnity Issue, the Indemnitor
shall be treated as the Responsible Party with respect thereto. The Responsible
Party agrees to cooperate in the settlement of any Indemnity Issue with the
other party and to take such other party's interests into account.
Notwithstanding any other provision of this Agreement, if Rockwell has
materially satisfied its obligations under this Agreement and if Automotive
fails to permit Rockwell to control any Indemnity Issue relating to the
qualification of the Distribution as a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code or the qualification of any transactions
undertaken pursuant to the Transaction Documents or described in the Ruling
Request as transactions described in Section 355 of the Code, "reorganizations"
within the meaning of Section 368(a)(1)(D) of the Code or as otherwise tax-free
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transactions, then Rockwell shall not be liable for and shall not indemnify the
Automotive Tax Group for any Tax deficiency resulting from an adverse
determination of such Indemnity Issue.
ARTICLE IV
COMPENSATION PAYMENTS; OPTIONS; FOREIGN TAX CREDITS
4.01 COMPENSATION PAYMENTS.
(a) TAX DEDUCTIONS. Notwithstanding anything to the contrary
in this Agreement, unless Rockwell and Automotive otherwise agree in writing,
(i) the Boeing Tax Group (and not the Automotive Tax Group) shall claim the
post-Distribution Date Tax deductions in respect of Compensation Payments paid
to Automotive Group Employees and Former Employees who ceased employment on or
before December 6, 1996 and Rockwell shall pay to Automotive the amount received
from Boeing as a result of any Tax benefit realized arising in respect of such
Tax deductions within ten days after such amount is received by Rockwell, and
(ii) the Automotive Tax Group (and not the Rockwell Tax Group) shall claim the
post-Distribution Date Tax deductions in respect of Compensation Payments paid
to all other Automotive Group Employees and Former Employees.
(b) NOTICES, WITHHOLDING, REPORTING. Automotive shall withhold
applicable Taxes and satisfy applicable Tax reporting obligations in connection
with the Compensation Payments made to all Automotive Group Employees and Former
Employees.
(c) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of
Section 4.01(a), in the event a Tax audit proceeding shall determine (by
settlement or otherwise), or the parties otherwise determine pursuant to Section
4.04, that all or a portion of the Tax deductions in respect of Compensation
Payments paid to Automotive Group Employees or Former Employees was not
available to the party claiming the Tax deduction, then in the case of such Tax
deductions claimed by the Boeing Tax Group, Automotive shall claim such Tax
deductions (by an amended Tax return or otherwise) and shall pay to Rockwell
(which shall in turn pay such amount to Boeing) the amount of the resulting Tax
deficiency within ten
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days after such Tax deduction has been Actually Realized by the Automotive Tax
Group.
4.02 STOCK OPTIONS.
(a) TAX DEDUCTIONS. Notwithstanding anything to the contrary
in this Agreement, unless the IRS issues a contrary private letter ruling to
Rockwell or Automotive, or Rockwell and Automotive otherwise agree in writing,
(i) the Rockwell Tax Group or the Boeing Tax Group (and not the Automotive Tax
Group) shall claim the post-Distribution Date Tax deductions in respect of
Rockwell Common Stock Options held by Automotive Group Employees and Former
Employees and (ii) the Automotive Tax Group (and not the Rockwell Tax Group or
the Boeing Tax Group) shall claim any post-Distribution Date Tax deductions in
respect of Automotive Common Stock Options held by Automotive Group Employees
and Former Employees.
(b) NOTICES, WITHHOLDING, REPORTING. Rockwell shall promptly
notify Automotive of any post-Distribution Date event giving rise to income to
any Automotive Group Employees and Former Employees in connection with the
Rockwell Common Stock Options and, if required by law, Automotive shall withhold
applicable Taxes and satisfy applicable Tax reporting obligations in connection
therewith. Rockwell shall within ten days of demand thereof reimburse Automotive
for all reasonable out-of-pocket expenses incurred in connection with the
Rockwell Common Stock Options, including with respect to incremental Tax
reporting obligations and any incremental employment Tax obligations; provided
that Automotive shall use reasonable efforts to collect any such amounts
required to be paid by Automotive Group Employees and Former Employees from such
Automotive Group Employees and Former Employees.
(c) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of
Section 4.02(a), in the event a Tax audit proceeding shall determine (by
settlement or otherwise), or the parties otherwise determine pursuant to Section
4.04, that all or a portion of the Tax deductions in respect of Rockwell Common
Stock Options held by Automotive Group Employees and Former Employees should
have been claimed by the Automotive Tax Group, Automotive shall claim such Tax
deductions (by an amended Tax Return or otherwise) and shall pay to Rockwell the
amount of any Tax refund or credit arising in respect of
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such Tax deduction within ten days after such Tax refund or credit is Actually
Realized by the Automotive Tax Group.
4.03 FOREIGN TAX CREDITS.
(a) CANADIAN FOREIGN TAX CREDITS. Unless Rockwell and
Automotive otherwise agree in writing, the Rockwell Tax Group (and not the
Automotive Tax Group) shall be entitled to claim on its U.S. federal Income Tax
Return for the fiscal year ended September 30, 1997 at least $________ million
of the foreign Income Tax credits attributable to the Canadian Income Taxes
incurred by Rockwell International of Canada Ltd. and its affiliates.
(b) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of
Section 4.03(a), in the event a Tax audit proceeding shall determine (by
settlement or otherwise), or the parties otherwise determine pursuant to Section
4.04, that all or a portion of the foreign Tax credits allocated to Rockwell
pursuant to Section 4.03(a) should have been claimed by the Automotive Tax
Group, Automotive shall claim such Tax credits (by an amended Tax Return or
otherwise) and shall pay to Rockwell the amount of any Tax refund or credit
arising in respect of such Tax credits within ten days after such Tax refund or
credit is Actually Realized by the Automotive Tax Group.
4.04 CHANGE IN LAW. Notwithstanding the agreement with respect
to reporting of Tax items attributable to Compensation Payments and Options set
forth in Sections 4.01 and 4.02 of this Agreement, respectively, and the
claiming of foreign Tax credits set forth in Section 4.03 of this Agreement,
neither the Automotive Tax Group nor the Rockwell Tax Group shall have any
obligation to report any such Tax items or to claim any foreign Tax credits as
set forth in such Sections in the event that either such party determines, based
on an opinion of nationally recognized tax counsel, which opinion shall be
satisfactory to the other party, that there is no substantial authority to
support reporting such Tax items or claiming such Tax credits on a Tax Return
filed by such party as a result of a change in or amendment to any law or
regulation, or any change in the official interpretation thereof, effective or
occurring after the date of this Agreement, and such Tax Group provides prompt
notice to the other Tax Group of any such determination.
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ARTICLE V
COOPERATION AND EXCHANGE OF INFORMATION
5.01 INCONSISTENT ACTIONS. Each party to this Agreement agrees
(i) to, and to cause each of the relevant members of its Tax Group to, report
the Distribution as a transaction described in Section 368(a)(1)(D) of the Code
on all Tax Returns and other filings, (ii) to use its best efforts to ensure
that the Distribution receives such treatment for U.S. federal Tax purposes and
(iii) that, unless it has obtained the prior written consent of the other party,
it (and the members of its Tax Group) shall not take any action inconsistent
with, or fail to take any action required by, the Transaction Agreements.
5.02 RULING REQUEST. Each party hereto represents that neither
it (nor any of the members of its Tax Group) will take or has any plan or
intention to take any action which is inconsistent with any factual statements,
representations or other similar conditions contained in the Ruling Request or
in the Ruling.
5.03 IRS GAIN RECOGNITION AGREEMENT; NOTIFICATION OF CERTAIN
DISPOSITIONS. Automotive shall give Rockwell at least sixty days prior written
notice in the event that at any time prior to the date which is ten years after
the Distribution Date, Automotive directly or indirectly disposes of all or any
portion of the ownership interest in, or all or a substantial portion of the
assets of, any entity identified on Schedule 5.03. Such notice shall describe
any such disposition in sufficient detail to enable Rockwell (i) to comply with
the requirements of Section 367 of the Code, applicable regulations thereunder
and any IRS Gain Recognition Agreement, and (ii) if applicable, to enter into a
revised IRS Gain Recognition Agreement under Section 367 of the Code and the
applicable regulations thereunder. At the time of the delivery of such notice,
Automotive shall provide to Rockwell security reasonably satisfactory to
Rockwell for the performance of all obligations of Automotive under Section
3.01(b) hereof and this Section 5.03 in respect of the disposition referred to
in such notice.
5.04 COOPERATION AND EXCHANGE OF INFORMATION. Each party
hereto agrees to provide, and to cause each
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member of its Tax Group to provide, such cooperation and information as such
other party shall request, on a timely basis, in connection with the preparation
or filing of any Tax Return or claim for Tax refund not inconsistent with this
Agreement or in conducting any Tax audit, Tax dispute, or otherwise in respect
of Taxes or to carry out the provisions of this Agreement. To the extent
necessary to carry out the purposes of this Agreement and subject to the other
provisions of this Agreement, such cooperation and information shall include
without limitation the non-exclusive designation of an officer of Rockwell as an
officer of Automotive and each of its affiliates for the purpose of signing Tax
Returns, cashing refund checks, pursuing refund claims, dealing with Tax
Authorities and defending audits as well as promptly forwarding copies of
appropriate notices and forms or other communications received from or sent to
any Tax Authority which relate to the Automotive Tax Group for the Tax
Indemnification Period and providing copies of all relevant Tax Returns for the
Tax Indemnification Period, together with accompanying schedules and related
workpapers, documents relating to rulings or other determinations by Tax
Authorities, including without limitation, foreign Tax Authorities, and records
concerning the ownership and Tax basis of property, which either party may
possess. Subject to the rights of the Automotive Tax Group under the other
provisions of this Agreement, such officer shall have the authority to execute
powers of attorney (including Form 2848) on behalf of each member of the
Automotive Tax Group with respect to Tax Returns for the Tax Indemnification
Period. Each party to this Agreement shall make, or shall cause its affiliates
to make, its employees and facilities available on a mutually convenient basis
to provide an explanation of any documents or information provided hereunder.
5.05 TAX RECORDS.
(a) Rockwell and Automotive agree to (and to cause each member
of their respective Tax Group to) (i) retain all Tax Returns, related schedules
and workpapers, and all material records and other documents as required under
Section 6001 of the Code and the regulations promulgated thereunder relating
thereto existing on the date hereof or created through the Distribution Date,
for a period of at least ten years following the Distribution Date and (ii)
allow the party to this Agreement, at times
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and dates reasonably acceptable to the retaining party, to inspect, review and
make copies of such records, as Rockwell and Automotive may reasonably deem
necessary or appropriate from time to time. In addition, after the expiration of
such ten-year period, such Tax Returns, related schedules and workpapers, and
material records shall not be destroyed or otherwise disposed of at any time,
unless, prior to such destruction or disposal, (A) the party proposing to
destroy or otherwise dispose of such records shall provide no less than 30 days'
prior written notice to the other party, specifying in reasonable detail the
records proposed to be destroyed or disposed of and (B) if a recipient of such
notice shall request in writing prior to the scheduled date for such destruction
or disposal that any of the records proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such requested records at
the expense of the party requesting such records.
(b) Notwithstanding anything in this Agreement to the
contrary, if any party fails to comply with the requirements of Section 5.05(a)
hereof, the party failing so to comply shall be liable for, and shall hold the
other party, harmless from, any Taxes (including without limitation, penalties
for failure to comply with the record retention requirements of the Code) and
other costs resulting from such party's failure to comply.
ARTICLE VI
MISCELLANEOUS
6.01 ENTIRE AGREEMENT; CONSTRUCTION. This Agreement, the
Distribution Agreement, all other Transaction Agreements, including any annexes,
schedules and exhibits hereto or thereto, and other agreements and documents
referred to herein and therein, will together constitute the entire agreement
between the parties with respect to the subject matter hereof and thereof and
shall supersede all prior negotiations, agreements and understandings of the
parties of any nature, whether oral or written, with respect to such subject
matter. Notwithstanding any other provisions in this Agreement to the contrary,
in the event and to the extent that there shall be a conflict relating to Taxes
between the
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provisions of this Agreement and the provisions of the Distribution Agreement or
any other Transaction Agreement, the provisions of this Agreement shall control.
6.02 EFFECTIVENESS. All covenants and agreements of the
parties contained in this Agreement shall be subject to and conditioned upon the
Distribution becoming effective.
6.03 SURVIVAL OF AGREEMENTS. Except as otherwise contemplated
by this Agreement, all covenants and agreements of the parties contained in this
Agreement shall remain in full force and effect and shall survive the Time of
Distribution.
6.04 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
6.05 NOTICES. All notices, requests, claims, demands and other
communications required or permitted to be given hereunder will be in writing
and will be delivered by hand or telecopied or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
will be deemed given when so delivered by hand or telecopied, or three business
days after being so mailed (one business day in the case of express mail or
overnight courier service). All such notices, requests, claims, demands and
other communications will be addressed as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice:
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(a) If to Rockwell:
Rockwell International Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Mr. W. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Senior Vice President,
Finance and Planning and
Chief Financial Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Rockwell International Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esq.
Senior Vice President,
General Counsel and
Secretary
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to Automotive:
Meritor Automotive, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Senior Vice President and
Chief Financial Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
Meritor Automotive, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Senior Vice President,
General Counsel and
Secretary
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
6.06 CONSENT TO JURISDICTION. Each of the parties hereto
irrevocably submits to the exclusive jurisdiction of (a) the Court of Chancery
in and for the State of Delaware and the Superior Court in and for the State of
Delaware and (b) the U.S. District Court for the District of Delaware, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby (and agrees not to commence any action,
suit or proceeding relating thereto except in such courts). Each of the parties
further agrees that service of any process, summons, notice or document hand
delivered or sent by U.S. registered mail to such party's respective address set
forth in Section 6.05 will be effective service of process for any action, suit
or proceeding in Delaware with respect to any matters to which it has submitted
to jurisdiction as set forth in the immediately preceding sentence. Each of the
parties irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Court of Chancery in and for the
State of Delaware and the Superior Court in and for the State of Delaware or
(ii) the U.S. District Court for the District of Delaware, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
6.07 AMENDMENTS. This Agreement may not be amended, modified
or supplemented except by a written agreement executed by Rockwell and
Automotive.
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6.08 SUCCESSORS AND ASSIGNS. The rights and benefits under
this Agreement may not be assigned and the duties and obligations may not be
delegated by any party in whole or in part without the prior written consent of
the other party, which consent shall not be unreasonably withheld or delayed.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.
6.09 CAPTIONS; CURRENCY. The article, section and paragraph
captions herein and the table of contents hereto are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. Unless otherwise
specified, all references herein to numbered article or sections are to article
and sections of this Agreement and all references herein to schedules are to
schedules to this Agreement. Unless otherwise specified, all references
contained in this Agreement or in any schedule referred to herein to dollars
shall mean U.S. dollars.
6.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to the
party as a result thereof, the parties will negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
6.11 NO THIRD PARTY BENEFICIARIES. Except for the provisions
of Article III relating to Tax Indemnification, this Agreement is solely for the
benefit of the parties hereto and the respective members of their Tax Group and
should not be deemed to confer upon third parties (including any employee of
Rockwell or Automotive or of any Rockwell or Automotive subsidiary) any remedy,
claim, reimbursement, claim of action or other right in
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excess of those existing without reference to this Agreement.
6.12 SCHEDULES. All schedules attached hereto are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the respective meanings assigned to such terms in this
Agreement.
6.13 TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Time of Distribution by and in
the sole discretion of the Rockwell Board without the approval of Automotive or
of Rockwell's shareowners. In the event of such termination, no party will have
any liability of any kind to any other party on account of such termination.
6.14 WAIVERS; REMEDIES. No failure or delay by any party
hereto in exercising any right, power or privilege hereunder will operate as a
waiver thereof, nor will any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder, nor will any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties may otherwise have at law or equity.
6.15 COUNTERPARTS. This Agreement may be executed in separate
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts will together constitute the same agreement.
6.16 PERFORMANCE. Each party hereto will cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any subsidiary or any member of
such party's Tax Group.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties as of the date first
hereinabove written.
ROCKWELL INTERNATIONAL CORPORATION
By:
--------------------------------
Name:
Title:
MERITOR AUTOMOTIVE, INC.
By:
--------------------------------
Name:
Title:
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