HAY ISLAND HOLDING COMPANY
AND
▇▇▇▇▇▇▇ INTERNATIONAL GROUP INC.
AND ITS SUBSIDIARIES
FORM OF TAX SHARING AGREEMENT
This Tax Sharing Agreement (hereinafter referred to as the "Agreement")
provides for the allocation, settlement, and financial statement presentation of
federal income taxes in the consolidated federal income tax return of ▇▇▇▇▇▇▇
INTERNATIONAL GROUP INC. (the "Sub") and its subsidiaries (the "SubGroup
Members") (collectively, the "SubGroup") and HAY ISLAND HOLDING COMPANY (the
"Parent").
W I T N E S S E T H :
WHEREAS, the parties hereto are members of an affiliated group (the
"Group") as defined in Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
WHEREAS, the Parent has agreed to ensure that the Group has properly
elected to file consolidated federal income tax returns using the methods
prescribed in Treasury Regulations Section 1.1502-33(d)(3) and Treasury
Regulations Section 1.1552-1(a)(2) for purposes of determining the earnings and
profits of each member of the Group and of the Group;
WHEREAS, the Parent and the members of the Group agree that as a
condition precedent to filing a consolidated tax return it is necessary to
properly provide in this Agreement methods for (1) allocating consolidated
federal
income tax liability for federal income tax purposes among members of
the Group, (2) reimbursing Parent for payment or assumption of such tax
liability on behalf of members of the Group and (3) having those members of the
Group that benefit from the losses or credits of other members compensate such
other members for use of the benefits; and
WHEREAS, while the Parent and members of the Group currently file a
consolidated tax return, both parties acknowledge that the Parent has the right
to deconsolidate SubGroup, in which event, Parent would no longer be obligated
to the IRS for federal taxes which relate to SubGroup;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1.1 PREPARATION
The parent shall prepare and file a consolidated federal income tax
return including SubGroup until notice of revocation is given by Parent to
SubGroup.
1.2 PAYMENT OF TAX
The Parent shall act as sole agent for SubGroup and all other members
of the Group for payment of any tax liability as may be shown on a consolidated
federal income tax return of the Group and for all other purposes as required by
Treasury Regulations Section 1.1502-77(a).
1.3 INTERCOMPANY PAYMENTS
The Parent and SubGroup shall accrue responsibilities for payment and
make payments to each other in such amounts, at such time and in such manner as
provided in
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Article 2 of this Agreement. The obligations created as a result of this
Agreement between the Parent and SubGroup shall be treated as if between an
unrelated party, on an arms-length basis.
1.4 CONSIDERATION
In consideration for Parent and other members of the consolidated
group remaining liable for the tax liability of SubGroup, SubGroup hereby agrees
to the terms and conditions contained in this Agreement, including the
obligation to reimburse Parent for payment or assumption of any SubGroup tax
liability.
ARTICLE 2
2.1 DETERMINATION OF SUBGROUP'S TAXABLE INCOME LOST AND TAXABLE GAINS
(a) SubGroup shall collectively (i.e., disregarding payments and
transactons between SubGroup members) determine its taxable income or loss
on a separate return basis for each income year calculated pursuant to Treasury
Regulations Section 1.1502-12 ("Separate Taxable Income or Tax Loss").
(b) In addition to determining its Separate Taxable Income or Tax
Loss for each taxable year, SubGroup shall collectively determine its taxable
capital gains and its taxable gains subject to Section 1231 of the Code with
respect to each transaction giving rise to such taxable gain ("Separate Taxable
Gains"). Such determination shall be made as soon as is administratively
feasible after each event which gave rise to each such Separate Taxable Gain.
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2.2 DETERMINATION OF TAX LIABILITY BY SUBGROUP
(a) To the extent that SubGroup collectively has Separate Taxable
Income or Separate Taxable Gains during any income year, SubGroup shall be
liable for the payment to Parent of an amount equal to SubGroup's "Separate Tax
Liability."
(b) For all purposes of this Agreement, SubGroup's "Separate Tax
Liability" shall be equal to the sum of (i) the federal tax liability which
SubGroup would have incurred with respect to this Separate Taxable Income if
SubGroup had filed its own separate consolidated federal tax return and (ii) the
federal tax liability which SubGroup would have incurred with respect to its
Separate Taxable Gains if SubGroup had filed its own separate consolidated
federal tax return.
(c) To the extent that SubGroup had Separate Taxable Income in any
year and is eligible to carry forward a net operating loss of SubGroup from a
prior income year to the current income year, the Separate Taxable Income of
SubGroup shall be reduced by such net operating loss.
(d) To the extent that SubGroup has Separate Taxable Gains in any
income year and is eligible to carry forward a capital loss of SubGroup from a
prior income year to the current income year, the Separate Taxable Gains of
SubGroup shall be reduced by such capital loss.
(e) SubGroup's liability to Parent for payment of SubGroup's Separate
Tax Liability shall accrue: (i) with respect to SubGroup's Separate Taxable
Income, ratably during each income year, and (ii) with respect to SubGroup's
Separate Taxable Gains, as of the date of the transaction which gave rise to
each such Separate Taxable Gain. Notwithstanding
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anything to the contrary in the foregoing, payment shall be made at such times
and in such manner as is set forth in Section 2.7 below.
2.3 CREDIT FOR SEPARATE TAX LOSS
(a) To the extent that SubGroup has Separate Tax Loss during any
income year, the Parent shall accrue for the account of SubGroup an amount equal
to the tax benefit attributable to such Separate Tax Loss that SubGroup would
have realized if SubGroup had filed its own separate consolidated federal return
during the current income year and SubGroup had been able to utilize such tax
benefit as the result of the carryback of such Separate Tax Loss to an income
year in which SubGroup had Separate Taxable Income, but only if and to the
extent that such Separate Taxable Income was generated during the period
SubGroup was a member of the Group. If SubGroup is not able to utilize the tax
benefit attributable to such Separate Tax Loss due to the absence of any
Separate Taxable Income in prior years to which SubGroup could carryback such
Separate Tax Loss, Parent shall accrue for the account of SubGroup an amount
equal to the tax benefit attributable to such Separate Tax Loss for a subsequent
tax year during which SubGroup has Separate Taxable Income to which such tax
benefit could be carried over.
(b) Notwithstanding that SubGroup has Separate Tax Loss during any
income year, SubGroup shall be liable for payment to the Parent of an amount
equal to SubGroup's Separate Tax Liability accrued during such year with respect
to its Separate Taxable Gains to the extent such Separate Taxable Gains are not
offset by such Separate Tax Loss.
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(c) Parent's liability to SubGroup for payment of credits for federal
income tax purposes for Separate Tax Loss shall accrue ratably during each
income year in which such credit is accrued.
2.4 TAX CREDITS
If SubGroup has any tax credits which for federal income tax purposes
can be applied against its Separate Tax Liability, the Parent shall credit the
account of SubGroup.
2.5 APPLICABLE TAX RATES
The Separate Tax Liability of SubGroup will be computed pursuant to
Section 2.2 by applying the then-appropriate corporate tax rates for its
computed Separate Taxable Income and Separate Taxable Gains. Any tax
adjustments necessitated by this method of allocation to ensure that
the sum of tax charges/credits is equal to the tax liability of the
Group will be borne by the Parent.
2.6 ALTERNATIVE MINIMUM TAX
Notwithstanding the provisions of Sections 2.2 and 2.3 of this
Agreement, in the event that the Group must pay the federal alternative minimum
tax pursuant to Code Section 55, SubGroup will be charged by the Parent with its
separate share of the total alternative minimum tax liability of the Group that
reflects the alternative minimum taxable income resulting from the federal
alternative minimum tax attributes of SubGroup based upon the Separate
Alternative Minimum Taxable Income calculated for SubGroup.
2.7 PAYMENT OF TAX LIABILITY; SECURITY FOR PAYMENT
SubGroup shall pay to Parent the amount of its Separate Tax Liability,
as determined and accrued under Section 2.2 of this Agreement, including payment
of any
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estimated tax due with respect thereto within 20 days upon request by the
Parent but in any event no later than March 15, June 15, September 15, and
December 15 of each income year. Such payment requests are intended but are not
required to support the federal income tax payments required to be made by the
Parent. The Parent will make such payments of any federal income tax as shall
be due throughout the income year on the days provided for payment of such tax,
including installments of estimated federal income taxes due pursuant to Code
Section 6655.
2.8 PAYMENT OF TAX BENEFITS
The Parent shall pay SubGroup any amounts accrued under Section 2.3
and 2.4 of this Agreement the later of: (i) thirty (30) days after the Parent
files with Internal Revenue Service a consolidated federal tax return, amended
return or refund claim in which tax benefit attributable to SubGroup is
actually utilized to provide a tax savings to the Group or (ii) when the
SubGroup would, under a seperate return calculation, be able to utilize the tax
benefit. The amount due and payable to SubGroup shall not exceed the amount of
such tax savings actually utilized by the Group as a result of such filing.
2.9 ADJUSTMENT OF CONSOLIDATED FEDERAL TAX LIABILITY
In the event that for any reason there is an adjustment to the Group's
federal income tax liability, the consolidated tax liability of each member
shall be recomputed in accordance with the provisions of this Agreement to
reflect such adjustment. In the event of any overpayment of tax by SubGroup as
determined as a result of such adjustment, the Parent shall
make payment to SubGroup for the amount of the overpayment within ten (10) days
after the determination of such overpayment. However, if the overpayment of tax
results in a refund of
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tax from the Internal Revenue Service, the Parent shall make payment to
SubGroup for its share of such refund, including interest, within ten (10) days
after receipt of the refund by the Parent. In the event of an underpayment of
tax by SubGroup as determined as a result of such adjustment, SubGroup shall
pay to the Parent its allocable share of such increased tax liability and any
penalties, additions to tax or interest within a reasonable time, but no later
than thirty (30) days after receiving notice of such liability from the Parent.
2.10 INDEMNIFICATION
To the extent not inconsistent with the foregoing provisions of this
Agreement, and solely regarding federal and state taxes, the Parent shall
indemnify and save the SubGroup harmless from any and all claims, demands,
actions (including federal or state tax liens, levies, audits, investigations
and assessments), interest, penalties, causes of action, suits, proceedings,
damages, liabilities, and costs and expenses of every nature whatsoever arising
therefrom (collectively a "Claim" or "Claims") that arise from the conduct
and/or tax positions taken by the Parent after the date of this Agreement.
ARTICLE 3
ADMINISTRATIVE
3.1 EFFECTIVE DATE
This Agreement shall be effective as of January 1, 1997, and shall
continue in effect until terminated as provided in Section 3.2 of this
Agreement.
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3.2 TERMINATION, AMENDMENT, ETC.
This Agreement may not be amended, waived, discharged or terminated,
except by a written statement signed by the Parent with written notice delivered
to SubGroup. In the event this Agreement is terminated, the methods for
allocating consolidated federal tax liability adopted by the Group shall
nonetheless be given effect with respect to any tax liability, payment or refund
for all taxable years prior to the income year in which termination occurs,
Subject to the provisions of Section 3.4.
3.3 RECORDS AND FINANCIAL STATEMENT PRESENTATION
Each party to this Agreement shall maintain its books, accounts and
records so as to disclose clearly and accurately the precise nature and details
of the transactions effected under this Agreement.
3.4 FEDERAL TAX RECEIVABLE AND PAYABLE ACCOUNTS
(a) Sub shall maintain separate accounts computed in accordance with
Article 2 of this Agreement showing the following.
3.4.1.1 Amounts due to the Parent with respect to SubGroup's
Separate Tax Liability (the "Consolidated Federal Tax Payable Account"); and
3.4.1.2 Amounts due from the Parent with respect to tax
benefits of SubGroup utilized in accordance with the terms of this Agreement to
offset the Group's federal income tax liability (the "Consolidated Federal Tax
Receivable Account").
(b) The amounts credited to the Consolidated Federal Tax Payable
Account and the Consolidated Federal Tax Receivable Account shall be shown on
the financial statements of the Parent and SubGroup, as appropriate.
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(c) Any balance in the Consolidated Federal Tax Receivable Account of
SubGroup shall be carried forward (but shall not be carried back) to offset
amounts Subsequently accrued in SubGroup's Consolidated Federal Tax Payable
Account during SubGroup's "carryforward period" specified in Code Section 172.
Subject to the following paragraph, the Parent in its sole discretion may offset
amounts in the Consolidated Federal Tax Payable Account and Tax Receivable
Account of any members within a Corporate subgroup of the Group. For purposes
of this Subsection, a Corporate subgroup is defined as one or more subsidiaries
within the common parent that is a subgroup within the Group. The common parent
and its subsidiaries together consist of a Corporate subgroup.
(d) In the event that SubGroup ceases to be a member of the group,
the Consolidated Federal Tax Receivable and Payable Accounts of SubGroup shall
be netted against each other and the remaining unreimbursed balance shall be
payable upon deconsolidation from one to the other. In the event that the
Group's consolidated status is terminated for federal income tax purposes, the
Consolidated Federal Tax Receivable and Payable Accounts of each member of the
Group shall be netted against each other and all remaining unreimbursed
balances shall be immediately payable upon the Group's termination from one
member to any other.
3.5 COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall constitute an original, but all of which, when taken together, shall
constitute but one instrument.
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3.6 NOTICES
All notices, requests, or other communications which any of the
parties to this Agreement may desire or be required to give hereunder shall be
in writing and shall be hand-delivered or sent by registered mail or by a
nationally-recognized overnight courier service to the attention of the Chief
Financial Officers of the Parent and Sub at their principal business offices.
IN WITNESS WHEREOF, Parent and SubGroup have caused this Agreement to
be executed and delivered by their duly-authorized officers, as of the ___ day
of ________, _____.
HAY ISLAND HOLDING COMPANY
By:_____________________________________________
Vice President
▇▇▇▇▇▇▇ INTERNATIONAL GROUP INC. (on its own behalf and on
behalf of each SubGroup Member.)
By:_____________________________________________
Chief Financial Officer and Executive Vice President
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