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TAX SHARING AGREEMENT
between
U S WEST, INC.
(to be renamed MEDIAONE GROUP, INC.)
and
USW-C, Inc.
(to be renamed U S WEST, INC.)
Dated as of , 1998
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TABLE OF CONTENTS
Page
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ARTICLE I
Definitions; Certain Operating Conventions . . . . . . . . . . . . . . 2
ARTICLE II
Allocation and Payment . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
Preparation and Filing of Tax Returns,
Cooperation and Record Retention . . . . . . . . . . . . . . . . . . . 10
ARTICLE V
Refunds, Audits and Adjustments. . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT, dated as of _____________, by and between U S
WEST, Inc., a Delaware corporation ("U S WEST") to be renamed MediaOne Group,
Inc. and USW-C, Inc., a Delaware corporation and wholly owned subsidiary of
U S WEST ("New U S WEST") to be renamed U S WEST, Inc.
W I T N E S S E T H
WHEREAS, New U S WEST and its subsidiaries are currently members of the
U S WEST Consolidated Group (as defined herein);
WHEREAS, pursuant to the Separation Agreement entered into between U S
WEST and New U S WEST dated _________ (the "Separation Agreement"), (a) U S
WEST shall effect a restructuring of certain of its assets, liabilities and
businesses, as a result of which New U S WEST shall own the Directories
Business and the businesses currently attributed to the Communications Group
(each as defined in the Separation Agreement) (the "Reorganization") and (b)
U S WEST shall distribute all of the outstanding capital stock of New U S
WEST to its stockholders (the "Separation");
WHEREAS, the parties intend that for United States federal income tax
purposes the Reorganization and the Separation shall qualify as tax-free
transactions pursuant to Sections 332, 368(a) and 355 of the Code (as defined
herein);
WHEREAS, the parties wish to (a) provide for the payment of tax
liabilities and entitlement to refunds thereof, allocate responsibility for,
and cooperation in, the filing of tax returns and provide for certain other
matters relating to taxes and (b) set forth certain covenants and indemnities
relating to the preservation of the tax-free status of the Reorganization and
the Separation.
NOW, THEREFORE, in consideration of the mutual promises and undertakings
contained herein and in any other document executed in connection with this
Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN OPERATING CONVENTIONS
1.1 For the purposes of this Agreement, the following terms shall have
the meanings set forth below:
ADJUSTMENTS shall mean any proposed or final change in the Tax Liability
of a taxpayer.
CODE shall mean the Internal Revenue Code of 1986, as amended.
COMBINED RETURN shall mean any combined, unitary, or consolidated State
Income Tax return that includes one or more members of the MediaOne Group and
one or more members of the New U S WEST Group (as hereinafter defined).
COMBINED RETURN TAX SAVINGS shall mean, with respect to a Taxable Year
in which one or more Combined Returns were filed or required to be filed in
the Communications Group Region, the excess of the State Income Tax that
would have been payable to all Tax Authorities in the Communications Group
Region if the MediaOne Group had not been included in such Combined Returns
for such Taxable Year over the actual State Income Tax paid to such Tax
Authorities in respect of such Combined Returns.
COMMUNICATIONS GROUP REGION shall mean the 14-state region comprised of
the states of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska,
New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming.
CONTRIBUTED MEDIA GROUP SUBSIDIARIES shall mean each of U S WEST Media
Group, Inc. and U S WEST Capital Funding, Inc., and each of their respective
subsidiaries.
CONTRIBUTED SUBSIDIARIES shall mean each of U S WEST Foundation, U S
WEST Educational Foundation, U S WEST Investment Management Company, U S WEST
SPF, Co., U S WEST Federal Relations, Inc., and U S WEST IP Holdings, Inc.,
and each of their respective subsidiaries.
FEDERAL INCOME TAX shall mean federal Taxes determined on the basis of
net income or profits (including, but not limited to, any alternative minimum
tax, capital gains and any Tax on items of Tax preferences) but excluding
non-income Taxes such as federal payroll and excise Taxes.
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INDEMNIFYING PARTY shall mean any Person from which an Indemnified Party
is seeking indemnification pursuant to the provisions of this Agreement.
INDEMNIFIED PARTY shall mean any Person which is seeking indemnification
from an Indemnifying Party pursuant to the provisions of this Agreement.
IRS shall mean the United States Internal Revenue Service.
MEDIAONE GROUP shall mean, individually and collectively, as the case
may be, each member of the U S WEST Consolidated Group, other than any member
of the New U S WEST Group.
NEW U S WEST GROUP shall mean, individually and collectively, as the
case may be, New U S WEST and its present and future direct and indirect
subsidiaries; provided, however, that on or prior to the Separation Date,
none of the Contributed Subsidiaries or the Contributed Media Group
Subsidiaries shall be included as a member of the New U S WEST Group.
PERSON shall mean and includes any individual, corporation, company,
association, partnership, joint venture, limited liability company, joint
stock company, trust, unincorporated organization, or other entity.
POST-SEPARATION TAXABLE PERIOD shall mean a taxable period that begins
after the Separation Date.
PRE-SEPARATION TAXABLE PERIOD shall mean a taxable period that ends on
or before the Separation Date.
PRESENT VALUE BENEFIT shall mean the present value (based on a discount
rate equal to the short-term applicable federal rate as determined under
Section 1274(d) of the Code at the time of determination, and assuming that
the Indemnified Party will be liable for Taxes at all relevant times at the
maximum marginal rates) of any income tax benefit.
PROCEEDING shall mean any audit or other examination, or any judicial or
administrative proceeding, relating to liability for or refunds or
Adjustments with respect to Taxes.
REFUND shall mean any refund of Taxes, including any reduction in
liability for such Taxes by means of a credit, offset or otherwise.
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RULING REQUEST shall mean the request by U S WEST for an advance letter
ruling from the IRS with respect to certain Tax aspects of the Reorganization
and the Separation.
SEPARATE RETURN shall mean any Tax Return, including any consolidated,
combined or unitary Tax Return, filed by either the New U S WEST Group or the
MediaOne Group but excluding any Tax Return filed which includes one or more
members of both groups.
SEPARATION DATE shall mean the date the Separation is effected.
STATE INCOME TAX shall mean any state or local jurisdiction Taxes
imposed on or measured by gross or net income, value added, net worth or
capital stock. State Income Taxes do not include business and occupation
taxes, gross receipts taxes, excise, sales or use taxes, real property gains,
real or personal property, transfer or similar taxes.
STRADDLE PERIOD shall mean a taxable period that includes, but does not
end on, the Separation Date.
TAX OR TAXES shall mean all taxes, charges, fees, imposts, levies or
other assessments, including, without limitation, all net income, gross
receipts, capital, sales, use, gains, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp,
occupation, property and estimated taxes, custom duties, fees, assessments
and charges of any kind whatsoever, together with any interest and any
penalties, fines, additions to tax or additional amounts imposed by any
taxing authority (domestic or foreign) and shall include any transferee
liability in respect of Taxes.
TAX AUTHORITY shall mean the IRS and any other domestic or foreign
governmental authority responsible for the administration and collection of
Taxes.
TAX LIABILITIES shall mean all liabilities for Taxes.
TAX RETURNS shall mean all reports, returns, declaration forms and
statements filed or required to be filed with respect to Taxes.
TAX-TIMING ADJUSTMENT shall mean any Adjustment in one Taxable Year
which will result in an offsetting Adjustment or Adjustments (including an
Adjustment to the basis of an asset not eligible for depreciation or
amortization) in another Taxable Year.
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TAXABLE YEAR shall mean the year on the basis of which taxable income is
computed.
TREASURY shall mean the United States Department of the Treasury.
U S WEST CONSOLIDATED GROUP shall mean the affiliated group of
corporations, within the meaning of Section 1504(a) of the Code, of which U S
WEST is the common parent, and any member of such group.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Capitalized terms not
otherwise defined in this Agreement shall have the meaning ascribed to them
in the Separation Agreement.
(b) The words "hereof", "herein", and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement.
(c) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
1.3 TERMINATION OF TAXABLE YEARS. For Federal Income Tax purposes, the
Taxable Year of each member of the New U S WEST Group (including the
Contributed Subsidiaries and the Contributed Media Group Subsidiaries) shall
end as of the close of the Separation Date. New U S WEST and U S WEST shall,
unless prohibited by applicable law, take all action necessary or appropriate
to close the taxable period of each member of the New U S WEST Group for all
Tax purposes as of the close of the Separation Date.
ARTICLE II
ALLOCATION AND PAYMENT
2.1 ALLOCATION OF TAXES. U S WEST and New U S WEST each agrees, on its
own behalf and on behalf of the MediaOne Group and the New U S WEST Group,
respectively, to allocate and pay its respective share of Taxes as provided
in this Agreement.
(a) Except as provided in Section 2.1(e), the Federal Income Tax
liability (including Refunds and deficiencies) of the U S WEST Consolidated
Group for any Pre-Separation Taxable Period and any Straddle Period shall be
allocated between the New U S WEST Group and the MediaOne Group in accordance
with Treasury Regulations Sections
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1.1552-1(a)(3) and 1.1502-33(d)(3). The fixed percentage under
Treasury Regulations Section 1.1502-33(d)(3) shall be 100 percent.
(b) Except as provided in Section 2.1(e), the State Income Tax
liability of the New U S WEST Group and the MediaOne Group for any
Pre-Separation Taxable Period and any Straddle Period in any state included
in the Communications Group Region in which a Combined Return is or is
required to be filed shall be allocated between the New U S WEST Group and
the MediaOne Group in proportion to the state taxable income (positive or
negative) of each member of each group included in such Combined Return, or,
where the basis is other than net income, in proportion to each member's
respective Tax base. Each group shall appropriately compensate the other
group for any reduction in State Income Tax liability resulting from the
other group's having negative state taxable income.
(c) Except as provided in Section 2.1(e), the State Income Tax
liability of the New U S WEST Group and the MediaOne Group for any
Pre-Separation Taxable Period and any Straddle Period in any state not
included in the Communications Group Region in which a Combined Return is or
is required to be filed shall be allocated between the New U S WEST Group and
the MediaOne Group as follows:
(i) For the Taxable Years ended December 31, 1996, December 31,
1997 and on the Separation Date, all such State Income Tax liability for
each such Taxable Year shall be allocated to the New U S WEST Group to
the extent such State Income Tax liability does not exceed the Combined
Return Tax Savings actually realized by the New U S WEST Group for each
such Taxable Year. Any excess State Income Tax liability shall be
allocated 66.6% to the New U S WEST Group and 33.4% to the MediaOne Group.
(ii) For Taxable Years ended on or prior to December 31, 1995,
all such State Income Tax liability shall be allocated 66.6% to the
New U S WEST Group and 33.4% to the MediaOne Group.
(iii) Notwithstanding the foregoing, any liability arising solely
out of the inclusion of the New U S WEST Group in a Tax Return which was
originally filed as a Separate Return by a member of the affiliated group
(as defined in Section 1504(a) of the Code) of which Continental
Cablevision, Inc. was the common parent corporation for the Taxable Year
ended December 31, 1996 shall be allocated 50% to the New U S WEST Group
and 50% to the MediaOne Group.
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(d) Except as provided in Sections 2.1(c)(iii) and 2.1(e), all Tax
Liabilities of the New U S WEST Group and the MediaOne Group for any
Pre-Separation Taxable Period and any Straddle Period arising out of the
filing of a Separate Return shall be allocated to the member to which such
Tax Liabilities relate.
(e) Any Tax Liability which is a Shared Liability (as defined in the
Separation Agreement), shall be allocated in the following manner:
(i) Any Tax Liability of U S WEST arising out of operations
conducted directly by it and any Tax Liability of the Contributed
Subsidiaries for any Pre-Separation Taxable Period or any Straddle Period
shall be allocated 58% to the New U S WEST Group and 42% to the MediaOne
Group.
(ii) Any Tax Liability arising out of Transaction Costs (as defined
in the Separation Agreement) shall be allocated as the underlying costs are
allocated pursuant to Section 1.1(l) of the Separation Disclosure Schedule.
2.2 TAX ATTRIBUTES. Tax attributes for Pre-Separation Taxable Periods
and any Straddle Period shall be allocated to the New U S WEST Group and the
MediaOne Group in accordance with the Code and Treasury Regulations (and any
applicable state, local and foreign laws or regulations). U S WEST and New U
S WEST shall jointly determine the amounts of such attributes as of the
Separation Date and hereby agree to compute all Tax Liabilities for Taxable
Years ending after the Separation Date consistently with that determination.
2.3 TAX-TIMING ADJUSTMENTS. To the extent that any portion of any Tax
Liability (or Tax benefit) allocated under Section 2.1 relates to a
Tax-timing Adjustment, that portion of such Tax Liability (or Tax benefit)
shall be allocated to the entity that will receive the benefit (or detriment)
of that Tax-timing Adjustment. For purposes of this Agreement, the fact that
the period or periods in which offsetting Adjustments will arise is unknown
or not determinable shall not be taken into account.
2.4 PENALTIES, ADDITIONS TO TAX AND INTEREST. Penalties, additions to
Tax and interest on any Tax deficiencies or overpayments will be allocated as
the underlying deficiencies or overpayments are allocated under this
Agreement.
2.5 PAYMENT OF TAXES. U S WEST and New U S WEST each agrees to pay or
cause to be paid their respective shares of Taxes as allocated and provided
in this Agreement.
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(a) For the Taxable Year ended December 31, 1997 and any Straddle
Period, New U S WEST shall timely pay to U S WEST an amount equal to the
allocable Federal Income Tax liability of the New U S WEST Group determined
under Section 2.1(a) and (e), including the New U S WEST Group's share of
estimated Federal Income Taxes. U S WEST shall be responsible for the
payment to the IRS of the Federal Income Tax liability of the U S WEST
Consolidated Group for such Taxable Years.
(b) For the Taxable Year ended December 31, 1997 and any Straddle
Period, New U S WEST shall timely pay to U S WEST an amount equal to the
allocable State Income Tax liability of the New U S WEST Group determined
under Sections 2.1(b), (c) and (e), including the New U S WEST Group's share
of estimated State Income Taxes. U S WEST shall be responsible for the
payment to the applicable Tax Authority of such State Income Tax liabilities.
2.6 CHARACTERIZATION OF PAYMENTS. For all Tax purposes, the New U S
WEST Group and the MediaOne Group agree to treat (i) any payment required by
this Agreement as either a contribution by U S WEST to New U S WEST or a
distribution by New U S WEST to U S WEST, as the case may be, occurring
immediately prior to the Separation Date and (ii) any payment of interest or
non-federal Taxes by or to a Tax Authority as taxable or deductible, as the
case may be, to the party entitled under this Agreement to retain such
payment or required under this Agreement to make such payment, in either case
except as otherwise mandated by applicable law.
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION BY U S WEST. U S WEST shall pay, and shall
indemnify and hold the New U S WEST Group and their respective shareholders,
directors, officers, employees, affiliates, agents and successors harmless
from and against, without duplication, (i) all Tax Liabilities allocable to
the MediaOne Group under Article II, (ii) all Tax Liabilities attributable to
Tax Returns required to be filed by the MediaOne Group for any
Post-Separation Taxable Period, (iii) all Tax Liabilities incurred by the New
U S WEST Group by reason of the breach by U S WEST of any of its covenants
hereunder, and (iv) any costs and expenses related to the foregoing
(including, without limitation, reasonable attorneys' fees and expenses).
3.2 LIABILITY OF MEDIAONE GROUP FOR UNDERTAKING CERTAIN TRANSACTIONS.
Notwithstanding any other provision of this Agreement to the contrary, if, as
a result of any
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event, action, or failure to act wholly or partially within the control of
the MediaOne Group (including, without limitation, any event, action, or
failure to act that results in a breach of any representation or in the
inaccuracy of any statement made to the IRS in connection with, the Ruling
Request), or any other event related to the acquisition of U S WEST stock,
any Taxes are imposed on the New U S WEST Group with respect to any action
taken pursuant to the Separation and the Reorganization, including, without
limitation, the transactions that were intended to be tax-free under Sections
332, 355 and 368 of the Code, then U S WEST shall indemnify and hold harmless
the New U S WEST Group with respect to any such Taxes on an after-tax basis.
3.3 INDEMNIFICATION BY NEW U S WEST. New U S WEST shall pay, and shall
indemnify and hold the MediaOne Group and their respective shareholders,
directors, officers, employees, affiliates, agents and successors harmless
from and against, without duplication, (i) all Tax Liabilities allocable to
the New U S WEST Group under Article II, (ii) all Tax Liabilities
attributable to Tax Returns required to be filed by the New U S WEST Group
for any Post-Separation Taxable Period, (iii) all Tax Liabilities incurred by
the MediaOne Group by reason of the breach by New U S WEST of any of its
covenants hereunder and (iv) any costs and expenses related to the foregoing
(including, without limitation, reasonable attorneys' fees and expenses).
3.4 LIABILITY OF NEW U S WEST GROUP FOR UNDERTAKING CERTAIN
TRANSACTIONS. Notwithstanding any other provision of this Agreement to the
contrary, if, as a result of any event, action, or failure to act wholly or
partially within the control of the New U S WEST Group (including, without
limitation, any event, action or failure to act that results in a breach of
any representation or in the inaccuracy of any statement made to the IRS in
connection with, the Ruling Request), or any other event related to the
acquisition of New U S WEST stock, any Taxes are imposed on the MediaOne
Group with respect to any action taken pursuant to the Separation and the
Reorganization, including, without limitation, the transactions that were
intended to be tax-free under Sections 332, 355 and 368 of the Code, then New
U S WEST shall indemnify and hold harmless the MediaOne Group with respect to
any such Taxes on an after-tax basis.
3.5 PAYMENT. If the Indemnifying Party is required to indemnify the
Indemnified Party pursuant to this Article III, the Indemnified Party shall
submit its calculations of the amount required to be paid pursuant to this
Article IV (which shall be net of the Present Value Benefit realized or
realizable by the Indemnified Party), showing such calculations in sufficient
detail so as to permit the Indemnifying Party to understand the calculations.
Subject to the following sentence, the Indemnifying Party shall pay to the
Indemnified Party, no later than ten (10) business days after the
Indemnifying Party receives
9
the Indemnified Party's calculations, the amount that the Indemnifying Party
is required to pay the Indemnified Party under this Article III. If the
Indemnifying Party disagrees with such calculations, it must notify the
Indemnified Party of its disagreement in writing within ten (10) business
days of receiving such calculations. Any dispute regarding such calculations
shall be resolved in accordance with Section 6.13 of this Agreement.
3.6 TIME LIMITS. Any claim under this Article III with respect to a
Tax Liability must be made no later than thirty (30) days after the
expiration of the applicable statute of limitations for assessment of such
Tax Liability.
ARTICLE IV
PREPARATION AND FILING OF TAX RETURNS, COOPERATION
AND RECORD RETENTION
4.1 FEDERAL TAX RETURNS. New U S WEST and U S WEST hereby agree to
cooperate fully with each other to meet filing requirements for the U S WEST
Consolidated Group Tax Returns for any Pre-Separation Taxable Period and any
Straddle Period. New U S WEST, as agent for the U S WEST Consolidated Group,
will be responsible for the filing of such Tax Returns for the Taxable Years
ended December 31, 1997 and ending December 31, 1998, and, at the request of
U S WEST, shall use its best efforts to file the Tax Return for the Taxable
Year ending December 31, 1998 by its original due date. For purposes of this
Section 4.1, cooperation includes making available all instructions,
workpapers, research, data and notes of any kind required for the completion
of the Tax Return, as well as making available personnel to assist in the
consolidation effort. Personnel requirements, including the use of third
party contractors, will be negotiated and agreed upon between U S WEST and
New U S WEST. Interviewing and hiring of third-party contractors will be
done jointly, and costs of these contractors will be shared equally. Any
software license costs specifically related to a separate entity shall be
borne by that entity. Where software license costs are not discernible as
separate entity costs, such software license costs will be shared equally.
Due dates for information required for the U S WEST Consolidated Group Tax
Returns will be negotiated between U S WEST and New U S WEST and good faith
efforts will be made to meet those dates.
4.2 COMBINED RETURNS. New U S WEST and U S WEST hereby agree to
cooperate fully with each other to meet filing requirements for Combined
Returns for any Pre-Separation Taxable Period and any Straddle Period. New U
S WEST, as agent for U S ▇▇▇▇, ▇▇▇▇ be responsible for the filing of the
Combined Returns for the Taxable Years ended December 31, 1997 and ending
December 31, 1998 and, at the request of U S WEST, shall
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use its best efforts to file any Combined Returns for the Taxable Year ending
December 31, 1998 by their original due date. For purposes of this Section
4.2, cooperation includes making available all instructions, workpapers,
research, data and notes of any kind required for the completion of the
Combined Return, as well as making available personnel to assist in the
combination effort. Personnel requirements, including the use of third party
contractors, will be negotiated and agreed upon between U S WEST and New U S
WEST. Interviewing and hiring of third-party contractors will be done
jointly, and costs of these contractors will be shared equally. Any software
license costs specifically related to a separate entity shall be borne by
that entity. Where software license costs are not discernible as separate
entity costs, such software license costs will be shared equally. Due dates
for information required for Combined Returns will be negotiated between U S
WEST and New U S WEST and good faith efforts will be made to meet those dates.
4.3 SEPARATE RETURNS. Any Separate Return shall be prepared and caused
to be filed by the entity required by law to file such Separate Return.
4.4 COOPERATION; MAINTENANCE AND RETENTION OF RECORDS. U S WEST and
New U S WEST shall, and shall cause the MediaOne Group and the New U S WEST
Group respectively to, provide the requesting party with such assistance and
documents as may be reasonably requested by such party in connection with (i)
the preparation of any Tax Return, (ii) the conduct of any Proceeding, (iii)
any matter relating to Taxes of any member of the U S WEST Consolidated
Group, the New U S WEST Group or the MediaOne Group and (iv) any other matter
that is a subject of this Agreement. New U S WEST and U S WEST shall retain
or cause to be retained all Tax Returns, schedules and workpapers, and all
material records or other documents relating thereto, until the expiration of
the statute of limitations (including any waivers or extensions thereof) of
the Taxable Years to which such Tax Returns and other documents relate or
until the expiration of any additional period that any party reasonably
requests, in writing, with respect to specific material records or documents.
A party intending to destroy any material records or documents shall provide
the other party with reasonable advance notice and the opportunity to copy or
take possession of such records and documents. The parties hereto will
notify each other in writing of any waivers or extensions of the applicable
statute of limitations that may affect the period for which the foregoing
records or other documents must be retained.
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ARTICLE V
REFUNDS, AUDITS AND ADJUSTMENTS
5.1 REFUNDS OF TAXES. Except as provided in Section 5.2 below, New U S
WEST shall be entitled to all Refunds relating to Taxes (plus any interest
thereon received with respect thereto from the applicable Tax Authority) for
which New U S WEST is or may be liable pursuant to Articles II and III of
this Agreement, and U S WEST shall be entitled to all Refunds relating to
Taxes (plus any interest thereon received with respect thereto from the
applicable Tax Authority) for which U S WEST is or may be liable pursuant to
the provisions of Articles II and III of this Agreement. A party receiving a
Refund to which another party is entitled pursuant to this Agreement shall
pay the amount to which such other party is entitled (plus any interest
thereon received with respect thereto from the applicable Tax Authority)
within ten (10) days after the receipt of the Refund.
5.2 CARRYBACKS. (a) The carryback of any loss, credit or other Tax
attribute in any Post-Separation Taxable Period shall be in accordance with
the provisions of the Code and Treasury Regulations (and any applicable
state, local or foreign laws or regulations).
(b) In the event that the New U S WEST Group realizes any loss, credit
or other Tax attribute in any Post-Separation Taxable Period, such group may
elect to carry back such loss, credit or Tax attribute to a Pre-Separation
Taxable Period. U S WEST shall cooperate with New U S WEST in seeking from
the appropriate Tax Authority any Refund that reasonably would result from
such carryback. New U S WEST shall be entitled to any Refund (or other Tax
benefit) realized by the MediaOne Group (including any interest thereon
received from such Tax Authority) attributable to such carryback, within ten
(10) business days after such Refund (or other Tax benefit) is received;
PROVIDED, HOWEVER, that U S WEST shall be entitled to any Refund (or other
Tax benefit) that results from the carryback of a loss, credit or other Tax
attribute by the MediaOne Group from a Post-Separation Taxable Period to a
Pre-Separation Taxable Period.
(c) Except as otherwise provided by applicable law, if the MediaOne
Group and the New U S WEST Group both may carry back a loss, credit or other
Tax attribute to the same Pre-Separation Taxable Period, any Refund (or other
Tax benefit) resulting therefrom shall be allocated between U S WEST and New
U S WEST proportionately based on the relative amounts of the Refunds (or
other Tax benefits) to which the MediaOne Group and the New U S WEST Group,
respectively, would have been entitled had its carrybacks been the only
carrybacks to such Taxable Year.
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(d) To the extent that the amount of a Refund to which a party is
entitled under this Section 5.2 is reduced by the applicable Tax Authority as
a result of the offset of such amount against a Tax Liability of the other
party, as allocated under this Agreement, the party which receives the
benefit of such offset shall appropriately compensate the other party within
ten (10) days of receipt of such benefit.
5.3 FEDERAL AUDITS AND ADJUSTMENTS.
(a) NOTIFICATION OF AUDIT. Each of U S WEST and New U S WEST shall
give written notice to the other party of any audit of the U S WEST
Consolidated Group Tax Return for any Pre-Separation Taxable Period or
Straddle Period within ten (10) business days after receipt of written
notification of such audit from the IRS. Such notice shall include a copy of
the notification received from the IRS.
(b) STATUTE OF LIMITATIONS. Any extension of the statute of
limitations for any Pre-Separation Taxable Period or Straddle Period shall be
with the mutual agreement of U S WEST and New U S WEST. Any dispute
regarding the extension of the statute of limitations shall be resolved in
accordance with Section 6.13 of this Agreement.
(c) AUDIT ACTIVITY. Each of U S WEST and New U S WEST will coordinate
its respective efforts with respect to audits of any Pre-Separation Taxable
Period and any Straddle Period and will furnish the other with all necessary
workpapers and records to respond to audit inquiries. New U S WEST will be
responsible as agent for the U S WEST Consolidated Group for day-to-day
contact with IRS agents assigned to such audits. U S WEST will be
responsible for responding to audit inquiries regarding issues primarily
affecting Tax Liabilities of the MediaOne Group, but will act through New U S
WEST, rather than directly contacting the IRS with respect to such matters.
(d) NOTIFICATION. New U S WEST will provide timely reports to U S WEST
detailing significant activities, information requests, issues raised or
resolved, and any other relevant information, such reports to be no less
frequent than quarterly.
(e) PROPOSED ADJUSTMENTS. New U S WEST shall notify U S WEST of any
Adjustment to the U S WEST Consolidated Group Tax Returns within ten (10)
business days after receipt of notification of such Adjustment from the IRS.
New U S WEST shall include in its notice to U S WEST a copy of the
notification received from the IRS.
(i) AGREED ISSUES. New U S WEST will not enter into any agreement
with the IRS as agent for the U S WEST Consolidated Group with respect to any
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Adjustment without the written consent of U S WEST, in those cases where the
MediaOne Group would be liable for more than 50% of the proposed Tax
Liability (as allocated under this Agreement) attributable to such
Adjustment. For purposes of this paragraph, all determinations shall be made
separately for each Adjustment.
(ii) UNAGREED ISSUES. In the event U S WEST and New U S WEST, as
the case may be, do not agree to all Adjustments for a Taxable Year,
decisions regarding the procedures and preferred forum for contesting
Adjustments on unagreed issues shall be made by whichever of the MediaOne
Group or the New U S WEST Group is responsible for more than 50% of the
cumulative Tax Liability attributable to such Adjustments. The party making
the decision shall consult in good faith with the other party and shall
promptly notify the other party of its decision.
(iii) CONSENT NOT REQUIRED. Notwithstanding any other provision
of this Agreement, if the IRS notifies U S WEST that the IRS will deal
directly with the MediaOne Group with respect to its Tax Liability, U S WEST
shall have full authority to act for the MediaOne Group and resolve any issue
affecting its Tax Liability without the consent of New U S WEST. U S WEST
will provide New U S WEST with a timely report summarizing any such audit
activity, such report to be no less frequent than quarterly.
(f) FEDERAL REFUND CLAIMS. If the New U S WEST Group desires to file a
claim for Refund with respect to a Taxable Year for which it was a member of
the U S WEST Consolidated Group, it shall prepare and submit to U S WEST the
claim for Refund and a statement specifying the date on which the statute of
limitations for filing the Refund claim will expire. U S WEST will file the
Refund claim prior to the date specified as the last day to claim the Refund
if such a filing is commercially reasonable, and will take any other
appropriate action at New U S WEST's request necessary to secure the Refund.
(g) LITIGATION. Subject to the balance of this Section 5.3(g), U S
WEST and New U S WEST jointly shall conduct all Proceedings relating to
Adjustments of the MediaOne Group and the U S WEST Group as allocated under
this Agreement. U S WEST shall have the ability to control the conduct of
such Proceedings with respect to issues relating to an Adjustment for which
the MediaOne Group would be liable for more than 50% of the proposed Tax
Liability (as allocated under this Agreement) attributable to such
Adjustment. New U S WEST shall have the ability to control the conduct of
such Proceedings with respect to issues relating to an Adjustment for which
the New U S WEST Group would be liable for more than 50% of the proposed Tax
Liability (as allocated under this Agreement) attributable to such
Adjustment. The party with the ability to control the conduct of all or a
portion of the Proceedings pursuant to this Section 5.3(g) shall consult in
good faith with the other party,
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which other party shall be entitled to participate in all conferences,
meetings, and other matters related to the resolution of such Proceedings.
5.4 AUDITS AND ADJUSTMENTS RELATED TO COMBINED RETURNS.
(a) NOTIFICATION OF AUDIT. Each of U S WEST and New U S WEST shall
give written notice to the other party of any audit of a Combined Return for
any Pre-Separation Taxable Period or Straddle Period within ten (10) business
days after receipt of written notification of such audit from a Tax
Authority. Such notice shall include a copy of the notification received
from the relevant Tax Authority.
(b) STATUTE OF LIMITATIONS. Any extension of the statute of
limitations for any Pre-Separation Taxable Period or Straddle Period shall be
with the mutual agreement of U S WEST and New U S WEST. Any dispute
regarding the extension of the statute of limitations shall be resolved in
accordance with Section 6.13 of this Agreement.
(c) AUDIT ACTIVITY. Each of U S WEST and New U S WEST will coordinate
its respective efforts with respect to audits of Combined Returns of any
Pre-Separation Taxable Period and any Straddle Period and will furnish the
other with all necessary workpapers and records to respond to audit
inquiries. New U S WEST will be responsible as agent for any Combined Return
for day-to-day contact with state Tax Authorities regarding such audits. U S
WEST will be responsible for responding to audit inquiries regarding issues
primarily affecting Tax Liabilities of the MediaOne Group, but will act
through New U S WEST, rather than directly contacting the appropriate Tax
Authorities with respect to such matters.
(d) NOTIFICATION. With respect to a Combined Return, New U S WEST will
provide timely reports to U S WEST detailing significant activities,
information requests, issues raised or resolved, and any other relevant
information, such reports to be no less frequent than quarterly.
(e) PROPOSED ADJUSTMENTS. New U S WEST shall notify U S WEST of any
Adjustment to a Combined Return within ten (10) business days after receipt
of notification of such Adjustment from the applicable state Tax Authority.
New U S WEST shall include in its notice to U S WEST a copy of the
notification received from such Tax Authority.
(i) AGREED ISSUES. New U S WEST will not enter into any agreement
with a state Tax Authority as agent for U S WEST with respect to any
Adjustment in connection with a Combined Return without the written consent
of U S WEST in such cases
15
where the MediaOne Group would be liable for more than 50% of the proposed
Tax Liability (as allocated under this Agreement) at issue. For purposes of
this paragraph, all determinations shall be made separately for each
Adjustment.
(ii) UNAGREED ISSUES. In the event U S WEST and New U S WEST, as
the case may be, do not agree to all Adjustments with respect to a Combined
Return for a Taxable Year, decisions regarding the procedures and preferred
forum for contesting Adjustments on unagreed issues shall be made by
whichever of the MediaOne Group or the New U S WEST Group is responsible for
more than 50% of the cumulative Tax Liability attributable to such
Adjustments. The party making the decision shall consult in good faith with
the other party and shall promptly notify the other party of its decision.
(f) STATE REFUND CLAIMS. If the New U S WEST Group desires to file a
claim for Refund with respect to a Taxable Year for which it filed a Combined
Return, it shall prepare and submit to U S WEST the claim for Refund and a
statement specifying the date on which the statute of limitations for filing
the Refund claim will expire. U S WEST will file the Refund claim prior to
the date specified if such filing is commercially reasonable and will take
any other appropriate action at New U S WEST's request necessary to secure
the Refund.
(g) STATE TAX LITIGATION. Subject to the balance of this Section
5.4(g), U S WEST and New U S WEST jointly shall conduct all Proceedings
relating to Adjustments of the MediaOne Group and the New U S WEST Group
allocated under this Agreement in connection with a Combined Return. U S
WEST shall have the ability to control the conduct of such Proceedings with
respect to issues relating to an Adjustment for which the MediaOne Group
would be liable for more than 50% of the proposed Tax Liability (as allocated
under this Agreement) attributable to such Adjustment. New U S WEST shall
have the ability to control the conduct of such Proceedings with respect to
issues relating to an Adjustment for which the New U S WEST Group would be
liable for more than 50% of the proposed Tax Liability (as allocated under
this Agreement) attributable to such Adjustment. The party with the ability
to control the conduct of all or a portion of the Proceedings pursuant to
this Section 5.4(g) shall consult in good faith with the other party, which
other party shall be entitled to participate in all conferences, meetings,
and other matters related to the resolution of such Proceedings.
5.5 SEPARATE RETURN MATTERS. The New U S WEST Group and the MediaOne
Group will be responsible for and manage their respective Separate Return
Proceedings.
5.6 PAYMENT OF COSTS. All costs incurred, whether external or internal
(such as in-house tax and legal department salaries and other personnel),
with respect to a Proceeding
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shall be borne by the party with respect to which the costs relate. All
other costs relating to Tax Returns or Proceedings not otherwise provided for
in this Agreement shall be allocated 50% to the New U S WEST Group and 50% to
the MediaOne Group.
ARTICLE VI
MISCELLANEOUS
6.1 COVENANTS RELATING TO RULING REQUEST.
(a) U S WEST AND THE MEDIAONE GROUP. (i) U S WEST shall comply and
shall cause the MediaOne Group to comply with and otherwise not take any
action inconsistent with each representation and statement made to the IRS in
connection with the Ruling Request and (ii) until two (2) years after the
Separation Date, U S WEST will remain engaged in the active conduct of a
trade or business, as defined in Section 355(b) of the Code.
(b) NEW U S WEST AND THE NEW U S WEST GROUP. (i) New U S WEST shall
comply and shall cause the New U S WEST Group to comply with and otherwise
not take any action inconsistent with each representation and statement made
to the IRS in connection with the Ruling Request and (ii) until two (2) years
after the Separation Date, New U S WEST will remain engaged in the active
conduct of a trade or business, as defined in Section 355(b) of the Code.
6.2 TERMINATION OF PRIOR TAX SHARING AGREEMENTS. This Agreement shall
take effect on the Separation Date and shall replace all other agreements,
whether or not written, in respect of any Taxes between or among the MediaOne
Group on the one hand and the New U S WEST Group on the other. All such
replaced agreements shall be canceled as of the Separation Date to the extent
they relate to the New U S WEST Group, and any rights or obligations of the
MediaOne Group or the New U S WEST Group existing thereunder thereby shall be
fully and finally settled without any payment by any party thereto.
6.3 MERGER OR CONSOLIDATION. Neither New U S WEST nor U S WEST (in
either case, the "Transaction Party") shall (i) consolidate with or merge
into any Person or permit any Person to consolidate with or merge into the
Transaction Party (other than a merger or consolidation in which the
Transaction Party is the surviving or continuing corporation) or (ii) sell,
assign, transfer, lease or otherwise dispose of, in one transaction or a
series of related transactions, all or substantially all of the assets of the
Transaction Party, unless the resulting, surviving or transferee Person shall
expressly assume, by instrument in
17
form and substance reasonably satisfactory to the other party, all of the
obligations of the Transaction Party under this Agreement.
6.4 SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements
and obligations set forth herein to be performed by any Subsidiary of such
party or by any entity that is contemplated to be a Subsidiary (as defined in
the Separation Agreement) of such party on or after the Separation Date.
6.5 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of Colorado, without reference to choice of law
principles, including matters of construction, validity and performance.
6.6 AMENDMENT. This Agreement may be amended, modified or supplemented
only by a written Agreement signed by all of the parties hereto.
6.7 NOTICES. Notices, requests, permissions, waivers, referrals and
all other communications hereunder shall be in writing and shall be deemed to
have been duly given if signed by the respective persons giving them (in the
case of any corporation, the signature shall be by an officer thereof) and
delivered by hand or by telecopy or on the date of receipt indicated on the
return receipt if mailed (registered or certified, return receipt requested,
properly addressed and postage prepaid):
If to U S WEST, to:
U S WEST, Inc.
(to be renamed "MEDIAONE
GROUP, INC.")
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Director of Taxes
Telephone: 303-
Telecopy: 303-
18
If to New U S WEST, to:
USW-C, Inc.
(to be renamed "U S WEST, INC.")
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Director of Taxes
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Such names and addresses may be changed by notice given in accordance with
this Section 6.7.
6.8 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter
contained herein, and supersedes and cancels all prior agreements,
negotiations, correspondence, undertakings and communications of the parties,
oral or written, respecting such subject matter.
6.9 HEADINGS; REFERENCES. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. All
references herein to "Articles" or "Sections" shall be deemed to be
references to Articles or Sections hereof unless otherwise indicated.
6.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all
of which shall constitute one and the same original.
6.11 PARTIES IN INTEREST; ASSIGNMENT; SUCCESSOR. Neither this
Agreement nor any of the rights, interest or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of
the other parties. Subject to the preceding sentence, this Agreement shall
inure to the benefit of and be binding upon U S WEST and New U S WEST and
their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any other Person
any rights or remedies under or by reason of this Agreement.
6.12 CONFIDENTIALITY. Each of New U S WEST and U S WEST shall hold,
and each of the New U S WEST Group and the MediaOne Group shall use its
reasonable best
19
efforts to hold, in strict confidence all information concerning the other
party obtained by it prior to the Separation Date or furnished to it by such
other party pursuant to this Agreement pursuant to and in accordance with the
terms of Section 10.5 of the Separation Agreement.
6.13 ARBITRATION. Resolution of any and all disputes arising from or
in connection with this Agreement, whether based on contract, tort, statute
or otherwise, including, but not limited to, disputes over arbitrability and
disputes in connection with claims by third parties shall be exclusively
governed by and settled in accordance with the provisions of Section 12.2 of
the Separation Agreement, provided, however, that nothing contained in
Section 12.2 of the Separation Agreement shall preclude either party from
seeking or obtaining injunctive relief or equitable or other judicial relief
to enforce such Section 12.2, or, pending resolution of Disputes (as defined
in the Separation Agreement) under such Section, to preserve the status quo
or to enforce an arbitral award rendered pursuant to such Section.
6.14 SEVERABILITY; ENFORCEMENT. The invalidity of any portion hereof
shall not affect the validity, force or effect of the remaining portions
hereof. If it is ever held that any restriction hereunder is too broad to
permit enforcement of such restriction to its fullest extent, each party
agrees that a court of competent jurisdiction may enforce such restriction to
the maximum extent permitted by law, and each party hereby consents and
agrees that such scope may be judicially modified accordingly in any
proceeding brought to enforce such restriction.
6.16 EFFECTIVE DATE. This Agreement shall become effective only upon
the occurrence of the Separation.
IN WITNESS WHEREOF, each of the Parties has caused this Tax Sharing
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first written above.
U S WEST, Inc.
By:
-------------------------------------
Name:
Title:
USW-C, Inc.
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By:
-------------------------------------
Name:
Title:
21