Exhibit 10.7
AMENDED AND RESTATED TAX ALLOCATION AGREEMENT
This Amended and Restated Agreement, dated as of [ ], 2002 and
effective for taxable years commencing on or after January 1, 1996, is entered
into by and between Citigroup Inc. ("Citigroup"), formerly known as Travelers
Group Inc., a Delaware Corporation and Travelers Property Casualty Corp.
("TAP"), formerly knows as The Travelers Insurance Group Inc., a Connecticut
Corporation.
WHEREAS, TAP owns, directly or indirectly, the issued and outstanding
shares of the TAP subsidiaries listed on Attachment I, as from time to time may
be amended, attached hereto and incorporated herein by reference as if set forth
in full (such Attachment I subsidiaries are collectively referred to herein as
the "TAP Subsidiaries").
WHEREAS, Citigroup, TAP and the TAP Subsidiaries (or their respective
predecessor corporations) have been, through the date hereof, members of an
"affiliated group" ("Citigroup Affiliated Group") of "includible corporations"
("Includible Corporations"), as such terms are defined in section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code"), which has elected to
file a consolidated Federal income tax return pursuant to section 1501 of the
Code ("Consolidated Federal Tax Return");
WHEREAS, Citigroup, TAP and the TAP Subsidiaries, including
subsidiaries of subsidiaries, have filed and may be required to file combined
returns of certain state and local income or franchise taxes;
WHEREAS, on the date hereof TAP has completed or will complete an
initial public offering of shares of its class A common stock (the "IPO") which
has resulted or will result in TAP and its subsidiaries no longer qualifying as
Includible Corporations and being ineligible to file a Consolidated Federal Tax
Return with Citigroup;
WHEREAS, Citigroup and TAP have agreed to undertake a series of
transactions which are intended to qualify as tax-free distributions under Code
section 355 and include the distribution (1) to Citigroup of all of the
outstanding shares of class A and B common stock of TAP owned by subsidiaries of
Citigroup in two successive internal distributions (the "Internal
Distributions") and (2) by Citigroup of an amount of such stock representing
Code section 368(c) "control" of TAP to the holders of Citigroup's common stock
(the "External Distribution" and, together with the Internal Distributions, the
"Distributions"); and
WHEREAS, Citigroup and TAP wish to provide for the allocation of
liabilities, and procedures to be followed, with respect to taxes of the parties
hereto and their subsidiaries, if any, under the terms of this Amended and
Restated Tax Allocation Agreement ("Agreement").
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Definitions
(a) "Citigroup Affiliated Group" shall have the meaning ascribed to
such term in the prefatory language to this Agreement.
(b) "Citigroup State Group" means some or all of the members of the
Citigroup Affiliated Group (including subsidiaries of subsidiaries) which have
been filing or hereafter shall file returns of state or local income or
franchise taxes as a group of which Citigroup or a Citigroup affiliate is the
common parent. Such common parent shall hereafter be referred to as the
"Citigroup State Parent." Citigroup State Group does not include a group
consisting solely of two or more TAP Subgroup members.
(c) "Code" shall have the meaning ascribed to such term in the
prefatory language to this Agreement.
(d) "Compensation Expense Differential" shall have the meaning
specified in Paragraph 11 hereof.
(e) "Consolidated Federal Income Taxes" means the Federal income taxes
relating to the Citigroup Affiliated Group for such taxable periods covered by
this Agreement.
(f) "Consolidated Federal Tax Return" shall have the meaning ascribed
to such term in the prefatory language to this Agreement and shall include any
amendments filed with respect to such returns.
(g) "Deficit Member" when used for the Federal income tax allocation
provisions of this Agreement (paragraphs 2 through 13) means the Member having
an ordinary loss, capital loss, special deduction or tax credit arising in
either a consolidated return year (past, present or future) or in a prior
separate return year, which is utilized to a greater extent in the then current
consolidated Federal income tax return than would have been the case, if such
Member had filed a separate Federal income tax return for the year.
(h) "Departing Member" shall have the meaning specified in paragraph
10(a) hereof.
(i) "Dispose" (and with correlative meaning, "Disposition") shall mean
pay, discharge, settle or otherwise dispose.
(j) "Distributions" shall have the meaning ascribed to such term in the
prefatory language to this Agreement.
(k) "Employer" and "Employers" shall have the meaning specified in
paragraph 11 hereof.
(l) "External Distribution" shall have the meaning ascribed to such
term in the prefatory language to the Agreement.
(m) "Final Determination" shall mean (i) the entry of a decision of a
court of competent jurisdiction at such time as an appeal may no longer be taken
from such
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decision, (ii) the execution of a closing agreement or its equivalent
between the particular taxpayer and the IRS or the relevant governmental taxing
authority and (iii) any other final Disposition complying with the provisions of
this Agreement.
(n) "Group Deficit Member" means "Deficit Member" as defined in
Paragraph 1(b) of the Travelers Tax Sharing Agreement.
(o) "Internal Distributions" shall have the meaning ascribed to such
term in the prefatory language to this Agreement.
(p) "IPO" shall have the meaning ascribed to such term in the prefatory
language to this Agreement.
(q) "IRS" shall mean the United States Internal Revenue Service.
(r) "Losses" shall mean all Taxes (including any interest, additions to
tax, or penalties applicable thereto), losses, liability and expense, including,
without limitation, attorneys fees and expenses in connection with any action,
suit or proceeding.
(s) "Marginal Tax Benefit" shall mean the aggregate tax effect measured
with and without the Compensation Expense Differential for each of the TAP
Subgroup members and reflects the net change in the cumulative tax liability
associated with Federal income or state or local income and franchise taxes
incurred by such TAP Subgroup member solely as a result of the Compensation
Expense Differential.
(t) "Member," when used for purposes of the Federal income tax
allocation provisions of this Agreement (paragraphs 2 through 13) means the TAP
Subgroup considered as one member, as such term is defined in Treasury
Regulations section 1.1502-1(b), and as if such group comprised an affiliated
group which filed a Consolidated Federal Tax Return separately from Citigroup.
(u) "Plan" shall have the meaning specified in paragraph 11 hereof.
(v) "Promptly" shall mean not to exceed 30 days.
(w) "Spin-Off Taxes" shall mean any and all Taxes (including any
interest, additions to tax, or penalties applicable thereto) imposed on
Citigroup or any Includible Member of the Citigroup Affiliated Group arising in
connection with the failure of the Distributions to qualify under section 355(a)
and (c) or, if applicable, section 361(c) of the Code, or the application of
section 355(e) of the Code to any of the Distributions.
(x) "State Parent" means Citigroup State Parent.
(y) "TAP State Subgroup" when used for the state and local tax
allocation provisions of this Agreement (paragraphs 14 through 26) TAP, if
applicable, and any of its subsidiaries, if applicable, to the extent any are
included in a Citigroup Combined State Return.
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(z) "TAP Subgroup" shall mean TAP and its subsidiaries.
(aa) "Tax" or "Taxes" shall include where applicable, all interest and
penalties assessed or assessable against the taxpayer by the relevant taxing
authority.
(bb) "Tax Claim" means a notice of deficiency, proposed adjustment,
assessment, audit, examination, suit, dispute or other claim with respect to
Taxes or a Tax Return.
(cc) "Tax Return" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended Tax Return relating to Taxes.
(dd) "Travelers Tax Sharing Agreement" means the Travelers Group Inc.
Tax Sharing Agreement effective January 1, 1989, as amended.
2. Consolidated Federal Income Taxes.
The provisions of paragraphs 3 through 13 shall apply with respect to
all taxable periods during which TAP and the TAP Subgroup are included in the
Consolidated Federal Tax Return of Citigroup. Paragraph 11 shall apply for all
taxable periods without regard to whether TAP and the TAP Subgroup are included
in the Consolidated Federal Tax Return of Citigroup.
3. Citigroup as Agent. Except as otherwise provided in paragraph
27(a) of this Agreement:
Citigroup shall be the sole agent for the TAP Subgroup, in all matters
relating to liability for Consolidated Federal Income Taxes. TAP and its
subsidiaries shall cooperate fully in providing Citigroup with all information
and documents necessary or desirable to enable Citigroup to perform its
obligations under paragraphs 3 through 13 hereof, including completion of audits
by the IRS or other governmental agencies in connection with the Consolidated
Federal Tax Return covered by this Agreement and determination of the proper
liabilities for such Consolidated Federal Income Taxes.
4. Tax Returns.
(a) Citigroup shall file on behalf of TAP and the TAP Subgroup all
Consolidated Federal Tax Returns. TAP shall prepare and forward to Citigroup pro
forma income tax returns for TAP and all corporations in the TAP Subgroup in
such form and at such times as Citigroup may reasonably request. At Citigroup's
request, TAP shall join and shall cause its respective subsidiaries to join (if
such corporations are Includible Corporations in the Citigroup Affiliated Group)
in the Consolidated Federal Tax Return of Citigroup and, if required, execute
its consent to each such filing on any form as may be prescribed therefor.
(b) The decision of the Citigroup most senior tax officer ("Citigroup
Tax Officer") shall, subject to the provisions of this Agreement, be binding in
any dispute
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between Citigroup, TAP and/or the TAP Subgroup, for example, as to what tax
position should be taken with respect to any item or transaction in the
Consolidated Federal Tax Return of Citigroup; provided, however, in connection
therewith, the Citigroup Tax Officer shall act in good faith with regard to TAP
and the TAP Subgroup companies included in such return.
5. Tax Obligations of Citigroup. Except as otherwise provided in
paragraph 27 of this Agreement:
Citigroup agrees to pay the Consolidated Federal Income Taxes arising
from filing a Consolidated Federal Tax Return. In the event that TAP or any of
its subsidiaries, or successors in interest thereto, directly pays, or causes to
pay all or a portion of the Consolidated Federal Income Taxes arising from the
filing of such a Consolidated Federal Tax Return, Citigroup shall Promptly
reimburse the member to the extent such payment exceeds such member's allocable
Consolidated Federal Income Taxes, as determined herein. This obligation shall
be continuing and ongoing and each such liability for each such period covered
herein shall survive any subsequent transaction, unless such liability shall be
extinguished, with specificity, in an agreement subsequent to the effective date
hereof.
6. Federal Tax Obligations of TAP and the TAP Subgroup.
(a) TAP shall pay to Citigroup a sum equal to that portion of the
Consolidated Federal Income Taxes for each taxable year which, from time to
time, may be allocated to the TAP Subgroup pursuant to the allocation method set
forth in Treasury Regulations section 1.1552-1(a)(2).
(b) For purposes of this Agreement, amounts allocated to the TAP
Subgroup under Treasury Regulations section 1.1552-1(a)(2) shall be computed on
the basis of the Federal income tax of the TAP Subgroup, as if such group filed
a separate consolidated return with TAP as the common parent. However, in
determining the separate return liability for Federal income taxes for the TAP
Subgroup, where the TAP Subgroup's separate return liability would otherwise be
determined under section 55 of the Code, and the Consolidated Federal Tax
Liability is determined under section 11 of the Code, the TAP Subgroup's
liability shall also be determined under section 11 of the Code.
(c) The liability of the TAP Subgroup under this Agreement for
Consolidated Federal Income Taxes allocated to the TAP Subgroup shall be a
separate, distinct and absolute liability, not otherwise subject to offset or
reduction for any reason. Such liability may be reallocated and assessed
consistent with the terms of this Agreement for the period up to and including
the date of the first anniversary of the date upon which there was a Final
Determination of Consolidated Federal Income Tax liability for the period
covered by this Agreement, and such liability shall be continuing and ongoing,
and each such liability for each period covered herein shall survive any
subsequent transaction, unless such liability shall be extinguished, with
specificity, in an agreement subsequent to the effective date hereof.
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7. Additional Obligations of the TAP Subgroup.
TAP shall pay to Citigroup a sum equal to 100 percent of the difference
("Difference") between the amount determined under paragraph 6 hereof and, if
larger, the separate return tax liability of the TAP Subgroup as provided by
Treasury Regulations section 1.1502-33(d)(2)(ii), as if the TAP Subgroup were a
single member of the Citigroup Affiliated Group. In determining the Difference
for all purposes hereof, where the TAP Subgroup's separate return liability
would otherwise be determined under section 55 of the Code and the Consolidated
Federal Tax liability is determined under section 11 of the Code, the TAP
Subgroup's liability shall also be determined under section 11 of the Code, and
any payments made by or on behalf of such member to Citigroup pursuant to
paragraph 18 hereof concerning the allocation of state and local taxes shall be
treated as payments to the state or local taxing authority.
8. Time of Payment of Obligations of TAP.
The obligations of TAP under paragraphs 6 and 7 hereof shall be
determined and paid as follows:
(a) Within 15 days after the end of the third, fifth, eighth and
eleventh month of each Citigroup consolidated taxable year or other applicable
Federal due date used by Citigroup, Citigroup shall make a reasonable
determination of the separate Federal income tax liability which the TAP
Subgroup would be required to pay as estimated tax payments on a separate return
basis for such period employing the same method for calculating estimated tax
installment payments as that used by Citigroup for such installment. TAP shall
pay in immediately available funds on the applicable Federal due date to
Citigroup the amount of such liability upon presentation of such estimate.
(b) After the end of the Citigroup fourth accounting quarter, and on
the fifteenth day of the third month thereafter, TAP shall pay to Citigroup the
entire amount estimated to be due and payable pursuant to paragraphs 6 and 7
hereof, less all amounts previously paid with respect to such year pursuant to
subparagraph 8(a).
(c) If, upon the filing of the Consolidated Federal Tax Return, it is
determined that TAP has paid to Citigroup with respect to the consolidated
taxable year an amount greater than that required by paragraphs 6 and 7 hereof,
then the full amount of such overpayment shall be Promptly refunded by Citigroup
to TAP. If it is determined that TAP owes additional amounts pursuant to
paragraphs 6 and 7 hereof, then TAP shall Promptly pay such amounts to
Citigroup.
(d) All payments made and liabilities incurred pursuant to this
Agreement shall be calculated using that method of accounting employed by the
TAP Subgroup members included in the Citigroup Consolidated Federal Tax Return.
9. Changes in Prior Year's Tax Liabilities.
In the event that the Consolidated Federal Income Taxes or the separate
Federal income tax liability of the TAP Subgroup which is used in paragraphs 6
or 7
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computations for any year covered by this Agreement is increased or decreased
through the mechanism of an amended return or returns, or by reason of the
examination of the returns by the IRS, the amount due from TAP for payment of
taxes under paragraphs 6 and 7 hereof, and the amounts to be allocated to the
Group Deficit Members under the Travelers Tax Sharing Agreement for each year,
shall be recomputed by Citigroup to reflect the adjustments to taxable income,
tax and tax credits for the taxable year. In accordance with such recomputations
and no later than the date Citigroup pays, receives or is otherwise charged or
credited funds by the IRS additional sums shall be paid Promptly by TAP to
Citigroup, or by Citigroup to TAP, as applicable, regardless of whether a TAP
Subgroup subsidiary has become a Departing Member (as defined in paragraph 10
hereof) subsequent to the taxable year of recomputation.
10. Departing Members.
(a) The term "Departing Member," as used in paragraph 11, shall mean
the TAP Subgroup at the time when it is no longer includible in the Citigroup
Affiliated Group.
(b) In applying this Agreement to a Departing Member for the final
taxable year in which its income, gains, losses, deductions and tax credits are
required to be included in a Consolidated Federal Tax Return:
(i) The amount required to be paid by a Departing Member under the
provisions of paragraphs 6 and 7 hereof and
(ii) The amount that such Departing Member is entitled to receive under
the provisions of paragraph 7 of the Travelers Tax Sharing Agreement, shall be
determined by taking into account the income, gains, losses, deductions and tax
credits of such Departing Member only for the fractional part of such year as
the Departing Member was a member of the Citigroup Affiliated Group and included
in the Consolidated Federal Tax Return, except that this subparagraph 10(b)
shall not be construed to amend, alter, augment or detract from the rights and
obligations of such Departing Member, Citigroup, or TAP, as applicable, as shall
or may be provided otherwise by contract or agreement executed as part of the
cessation of membership in the Citigroup Affiliated Group. Such determination
shall be made on the basis of actual results during such part of such year
except that allocations may be made with respect to any partial month and that
any item occurring in a partial month that does not occur in the ordinary course
of business on a regularly recurring basis shall be allocated to the portion of
the month in which it actually occurs as otherwise provided if such method
conforms with then existing regulations applicable to such computations under
the provisions of the Code.
(c) After the filing of the Consolidated Federal Tax Return for the
last taxable year the Departing Member was included therein, the Departing
Member will be informed of the amount of consolidated carryovers as of the end
of the taxable year or period which are attributable to the Departing Member, as
provided by Treasury Regulations section 1.1502-21.
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(d) To the extent that the Departing Member (or any of its subsidiaries
or subgroups) could actually carry back to a Consolidated Federal Tax Return a
separate return net operating loss, such Departing Member shall inform Citigroup
in writing that such entity or subgroup may carryback such loss. In the case of
any such notification, such net operating loss may be carried back to a
Consolidated Federal Return, provided that Citigroup consents in writing to the
carryback, such consent not to be unreasonably withheld.
(e) If a Departing Member or any of its subsidiaries receives notice of
any examination, claim, settlement, or proposed adjustment in respect of the tax
liability relating to periods before it became a Departing Member, the Departing
Member shall Promptly notify Citigroup in writing.
11. Stock-Based Incentive Compensation.
Notwithstanding any other provision of this Agreement to the contrary,
Citigroup, TAP and the TAP Subsidiaries, as applicable, acknowledge that certain
employees employed by TAP and the TAP Subsidiaries, including subsidiaries of
subsidiaries, or successors in interest thereof, or a Departing Member,
collectively referred to hereafter as "Employers" and each individually referred
to as an "Employer," are or may be participants in the Citigroup Capital
Accumulation Plan, the Citigroup Employee Incentive Plan, the Citigroup Employee
Stock Purchase Plan, the Citigroup Group Stock Option Plan, or predecessor,
successor or similar plans or arrangements using the stock of Citigroup
("Plan"), and that some portion of the employee compensation deductible by the
Employer arises from the provisions of the Code. To the extent that such
Employer recognizes a compensation expense deduction on a Tax Return ("Full Tax
Expense") which differs from the compensation expense charged to such Employer's
financial accounting income statement ("Book Expense"), such difference
hereafter referred to as "Compensation Expense Differential," the Employer shall
pay to Citigroup, if the Full Tax Expense exceeds the Book Expense, or Citigroup
shall pay to the Employer, in the year that the Full Tax Expense is recognized,
if the Book Expense exceeds the Full Tax Expense, an amount equal to the
Marginal Tax Benefit realized by the TAP Subgroup member pursuant to paragraph
1(s) herein (see Exhibit II). The parties hereto jointly acknowledge that the
liability arising under this paragraph 11 shall be continuing and ongoing for
all subsequent taxable periods, including TAP Subgroup Tax Returns filed for
post Citigroup Affiliated Group periods, and each such liability for each period
covered herein shall survive any subsequent transaction, unless such liability
shall be extinguished, with specificity, in an agreement subsequent to the
effective date hereof.
12. Tax Claims. Except as otherwise provided in paragraph 27 of
this Agreement:
Citigroup shall exclusively control and shall have the right to Dispose
of any Tax Claims relating to the Consolidated Federal Tax Return of Citigroup;
provided, however, in connection therewith, Citigroup is obligated under this
Agreement to act in good faith with regard to the TAP Subgroup companies
included in such return. TAP and the TAP Subgroup shall cooperate with Citigroup
and, to this end, shall include, but not be limited
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to, executing Promptly powers of attorney, protests, petitions, consents to
extend statutes of limitations and any other documents as Citigroup shall
determine to be necessary or appropriate. Citigroup's cost of handling a TAP
Subgroup Tax Claim, including legal and accounting fees, shall be allocated to
and paid by the TAP Subgroup. If the tax controversy relates to more than one
Member of the Citigroup Affiliated Group, costs and expenses shall be fairly
allocated among such members on the basis of time spent for legal, accounting or
other services rendered with respect to each Member's controversy or on such
other basis as may be determined to be appropriate by Citigroup.
13. Determination of Sums Due From and Payable to Citigroup.
Citigroup shall determine the sums due from and payable to TAP and the
TAP Subgroup with respect to Federal income taxes under the foregoing provisions
of this Agreement. TAP agrees to provide Promptly to Citigroup such information
as shall reasonable be necessary to make such determinations.
14. Combined, Consolidated or Unitary State and Local Taxes.
The provisions of paragraphs 14 through 25 shall apply to state and
local taxes for which liability is to be computed on the basis of a combined,
consolidated or unitary state or local tax return of the character filed by the
Citigroup State Group. The combined, consolidated or unitary state and local
taxes provided for in this Agreement are referred to herein respectively as
"Citigroup Combined State Return Taxes" and such tax return shall be referred to
herein respectively as the "Citigroup Combined State Tax Return" "Combined State
Return Taxes" shall mean "Citigroup Combined State Return Taxes".
15. State Parent as Agent.
The State Parent shall be the sole agent for the Citigroup State Group
in all matters relating to liability for Combined State Return Taxes for such
group. TAP, or any member of the TAP Subgroup, shall not cause the termination
of such agency. The TAP State Subgroup shall not have authority to act for or to
represent itself in any such matter. TAP and its subsidiaries shall cooperate
fully in providing the State Parent, as appropriate, with all information and
documents necessary or desirable to enable State Parent to perform its
obligations under paragraphs 15 through 25, including completion of state and
local governmental tax audits in connection with such Combined State Tax Returns
and determination of the proper liability for such Combined State Return Taxes
of the entities included in returns thereof.
16. Tax Returns.
(a) The State Parent shall include the TAP State Subgroup where it is obligated
to file Combined State Tax Returns including such Subgroup. The TAP State
Subgroup, however, shall Promptly prepare and forward to the State Parent pro
forma state and local income or franchise tax returns with related allocation
and apportionment factor data for it in such form and at such times as the State
Parent may reasonably request. In addition, TAP shall prepare and forward, or
cause to be prepared and forwarded, to the State Parent at least five days prior
to the last permissible date for
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payments set forth in paragraph 18 hereof sufficient information for the State
Parent to prepare the calculations referred to in such paragraph.
(b) At the State Parent's request, the TAP State Subgroup shall join in
filing any Combined State Tax Return to be filed in any applicable jurisdictions
and, if required, shall execute Promptly its consent to each such filing on any
form as may be prescribed therefor. The decision of the Citigroup Tax Officer,
shall, subject to the provisions of this Agreement, be binding in any dispute
between the State Parent and the TAP State Subgroup, for example, as to what tax
position should be taken with respect to any item or transaction of the TAP
State Subgroup includible in any Combined State Tax Return; provided, however,
in connection therewith, such Citigroup Tax Officer is obligated under this
Agreement to act in good faith with regard to TAP Subgroup companies included in
such return.
17. State Tax Obligation of State Parent.
Citigroup, through the State Parent, agrees to pay the Combined State
Return Taxes arising from filing any Combined State Tax Return. In the event
that TAP or any of its subsidiaries, or successor in interest thereto, directly
pays or causes to pay all or a portion of the Combined State Return, the State
Parent shall Promptly indemnify TAP to the extent such payment exceeds TAP State
Subgroup's allocable share of the Combined State Tax Return Liability, as
determined herein. This obligation shall be continuing and ongoing and each such
liability shall survive any subsequent transaction, unless such liability shall
be extinguished, with specificity, in an agreement subsequent to the effective
date hereof.
18. Computation of the TAP State Subgroup's Share of Combined
State Return Taxes Combined State Tax Return Liability.
(a) TAP will pay to Citigroup an amount equal to the tax liability of
the respective TAP State Subgroup for each taxable period and for each state in
which such TAP State Subgroup joined in the filing of a Combined State Tax
Return, determined as if the TAP State Subgroup had filed a separate combined
state or local tax return for such subgroup, except to the extent that such
amount is not consistent with the specific methodology described below. In
determining the separate combined tax liability of the TAP State Subgroup, the
amount of such liability shall be computed without taking into account any
carryback or carryover of tax attributes for which reimbursement is provided
under paragraph 20. The TAP State Subgroup for purposes of determining its
separate combined return liability shall be entitled to the benefit of any and
all elections affecting the computation of such separate combined return
liability. The TAP State Subgroup shall not be restricted by any elections
included in any Combined State Tax Return; provided, however, if the TAP State
Subgroup election creates an allocation of less than the combined return
liability, the shortfall will be allocated pro rata to the members of the
combined return.
(b) The TAP State Subgroup's share of its liability for the Combined
State Return Taxes allocated to the TAP State Subgroup for each taxable year
shall be a
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separate, distinct and absolute liability of TAP, not otherwise subject to
offset or reduction, for any reason, without the express, written consent of the
Citigroup Tax Officer. Such liability may be reallocated and assessed to TAP
consistent with the terms of this Agreement, for the period up to and including
the date of the first anniversary of the date upon which there was a Final
Determination of Combined State Tax Return liability for the period covered by
this Agreement, and such liability shall be continuing and ongoing, and each
such liability for each period covered herein shall survive any subsequent
transaction, unless such liability shall be extinguished, with specificity, in
an agreement subsequent to the effective date hereof.
(c) The specific methodology for computing the TAP State Subgroup's
share of its liability for the Combined State Return Taxes shall conform to one
of the methods presented in Exhibit I, except to the extent that such liability
is not otherwise determined under a separate state tax allocation agreement. The
methods presented in Exhibit I depict hypothetical situations only and shall not
be interpreted or construed as providing either rights or obligations
inconsistent with the express terms of this Agreement. The decision of the
Citigroup Tax Officer shall, subject to the provisions of this agreement, be
binding as to which method shall be employed in the equitable allocation of a
Combined State Return Tax liability, and the method employed need not be
consistent with the one employed in allocating a Combined State Tax Return
liability in prior or subsequent tax years.
19. Time for Payments.
The obligations of the TAP State Subgroup under paragraph 18 herein
shall be determined and paid as follows:
(a) Promptly after the end of the third, fifth, eighth and eleventh
month of each combined or consolidated state or local taxable year or other
applicable state due date used by the State Parent, the State Parent shall make
a reasonable determination of the TAP State Subgroup's separate combined state
or local tax liability which the TAP State Subgroup would be required to pay as
estimated tax payments on a separate combined return basis for such period
employing the same method for calculating estimated tax installment payments as
that used by the State Parent pursuant to the provisions of paragraph 18, for
each state or locality based upon its operating results for such period. TAP
shall Promptly pay to Citigroup the amount of such liability upon presentation
of such estimate.
(b) Before the unextended due date of the Combined State Tax Return,
TAP shall Promptly pay to Citigroup the entire amount estimated to be due and
payable from the TAP State Subgroup pursuant to paragraph 18 hereof, less all
amounts previously paid with respect to such TAP State Subgroup for such year
pursuant to subparagraph 19(a).
(c) If upon the filing of the Combined State Tax Return, it is
determined that TAP has paid to Citigroup an amount greater than that required
to be paid by TAP pursuant to paragraph 18 hereof, then the full amount of such
overpayment shall be
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Promptly paid and refunded by Citigroup to TAP. If it is determined that TAP
owes additional amounts pursuant to paragraph 22 hereof, then TAP shall Promptly
pay such amounts to Citigroup.
20. Reimbursement for the use of TAP State Subgroup State Tax
Attributes.
TAP shall be entitled to reimbursement from Citigroup for any tax
attribute (including, but not limited to, net operating loss, net capital loss,
net section 1231 loss or investment tax credit) which was not used by the TAP
State Subgroup in computing its separate combined return liability pursuant to
paragraph 17, only if such attribute results in a current tax benefit in any
Combined State Tax Return. In the case of an attribute other than a tax credit,
the amount of such reimbursement shall be as determined by Exhibit I. In the
case of a tax credit, the amount of such reimbursement shall be equal to the
amount of the credit. Amounts so determined pursuant to this paragraph 20 shall
be Promptly paid by Citigroup to TAP. This paragraph 20 shall not be construed
in such a manner that TAP or the TAP State Subgroup shall be entitled to a
double benefit with respect to such tax attribute.
21. Adjustments when a Member of the TAP State Subgroup ceases to
be included in a Combined State Tax Return.
In the event that a Member of the TAP State Subgroup ceases to be
included in a Combined State Tax Return (a "Departing TAP State Subgroup
Member"), the following adjustments shall be made:
(a) The amounts required to be paid by TAP under paragraphs 18 and
19(c) and the amount TAP is entitled to receive under paragraph 20 for the last
taxable year in which such Departing TAP State Subgroup Member is included in
the Combined State Tax Return shall be determined by Citigroup by taking into
account the income, deductions and tax credits of such Departing TAP State
Subgroup Member only for the fractional part of such year as the Departing TAP
State Subgroup Member was included in the Combined State Tax Return. Such
determination shall be made on the basis of actual results during such part of
such year except that allocations may be made with respect to any partial month
and that any item occurring in a partial month that does not occur in the
ordinary course of business on a regularly recurring basis shall be allocated to
the portion of the month in which it actually occurs.
(b) After the filing of the Combined State Tax Return for the last
taxable year that the Departing TAP State Subgroup Member was included therein,
the Departing TAP State Subgroup Member will be informed of the amount of
combined or consolidated carryovers as of the end of the taxable year or period
which is attributable to the Departing TAP State Subgroup Member.
22. Change in Prior Year's Tax Liability.
In the event that the Combined State Return Taxes or the separate state
or local tax liability referred to in paragraph 18 hereof for any year covered
by this Agreement is or would be increased or decreased by reason of filing an
amended return or returns, or
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by reason of examination of the returns by either the IRS or the state or local
taxing authority, the amounts due from the State Parent for payment of taxes
under paragraph 18 hereof, or the amount to be paid by Citigroup as
reimbursement for the use of the TAP State Subgroup's tax attributes pursuant to
paragraph 20, shall be recomputed by the State Parent, on behalf of the State
Parent, to reflect the adjustments to taxable income and tax credits for the
taxable year. In accordance with such recomputations, additional sums shall be
paid by TAP to Citigroup or paid by Citigroup to TAP, regardless of whether the
TAP State Subgroup has ceased to be included in the Combined State Tax Return
subsequent to the taxable year of recomputation.
23. Refunds from Separate Return Year.
Subject to paragraph 21 hereof, and if allowable under applicable state
law, the TAP State Subgroup shall be entitled to receive any and all state or
local tax refunds, including interest, received from the carryback of losses,
deductions or tax credits of such TAP State Subgroup to a separate return year
of such TAP State Subgroup.
24. Tax Claims.
The State Parent shall exclusively control and Dispose of any Tax
Claims relating to a Combined State Tax Return for any taxable year during which
this Agreement is in effect. TAP shall cooperate with the State Parent and such
cooperation shall include, but not be limited to, executing Promptly protests,
petitions, or any other documents as the State Parent shall determine to be
necessary or appropriate. The State Parent's cost of handling a TAP Tax Claim,
including legal and accounting fees, shall be allocated to and paid by TAP. If
the Tax Claim does not relate solely to the TAP State Subgroup, such cost and
expense shall be fairly allocated among TAP State Subgroup Members on the
Combined State Tax Return on the basis of legal, accounting or other time spent
with respect to each such member's controversy or on such other basis as may be
determined to be appropriate by the State Parent.
25. Determination of Sums due from and payable to TAP.
The State Parent shall determine the sum due from and payable to TAP
with respect to state and local taxes under the foregoing provisions of this
Agreement. TAP agrees to provide the State Parent with such information as shall
reasonably be necessary to make such determinations.
26. Settlement of Tax Controversy.
The State Parent shall notify TAP Promptly of an item of Tax Claim for
any taxable period for which any TAP Subgroup Member was a Member of the
Consolidated Federal Tax Return or the Combined State Tax Return. The failure of
the State Parent to notify TAP does not abrogate any liability otherwise arising
under this Agreement, if TAP reasonably believes that the State Parent is
proposing to Dispose of any item of tax controversy and such Disposition creates
an obligation by TAP to make a payment pursuant to this Agreement and TAP
objects to such settlement, the State Parent, at its sole option, shall grant
TAP, at TAP's sole cost and expense, the right to undertake the
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defense of, and to Dispose of (exercising reasonable business judgment) the item
of tax controversy on behalf of, and for the account of, the State Parent. If
TAP shall fail, within a reasonable time after receipt of notice of such right
under this paragraph, to defend such Tax Claim, the State Parent shall have the
right, but not the obligation, to undertake the defense of and to Dispose of
(exercising reasonable business judgment) such item
27. Certain Tax Matters Relating to the Distributions.
(a) Notwithstanding anything in this Agreement to the contrary:
(i) Citigroup shall exclusively control and shall have the right to
Dispose of all Tax Claims relating to a Consolidated Federal Tax Return or a
Citigroup Combined State Tax Return for which it would bear the financial
responsibility of any Tax pursuant to this Agreement (giving effect to any
indemnification obligations hereunder).
(ii) Subject to paragraphs 27(a)(v) and (vi) hereof, TAP shall
exclusively control and have the right to Dispose of all Tax Claims for which it
would bear 100 percent of the financial responsibility of any Tax assessed
pursuant to this Agreement (giving effect to any indemnification obligations
hereunder).
(iii) If all or any part of a Tax Claim would require Citigroup and TAP
both to have financial responsibility for any Tax assessed, then Citigroup shall
exclusively control and have the right to Dispose of such Tax Claim, but
Citigroup must act in good faith with regard to the TAP Subgroup. Subject to
paragraph 27(a)(v) hereof, Citigroup will not Dispose of any such Tax Claim
without TAP's prior written consent, which consent shall not be unreasonably
withheld or delayed. Further, with respect to Tax Claims governed by this
paragraph 27(a)(iii), if one party wishes to Dispose of all or part of such Tax
Claim and the other party does not, (A) the party desiring to Dispose can make a
payment to the other party, in an amount equal to the amount the governmental
authority is willing to accept in settlement of the Tax Claim(s), in full
satisfaction of its obligations with respect to such Tax Claim(s) and (B) the
party receiving such payment will become solely responsible for any Tax assessed
with respect to such Tax Claim(s).
(iv) Citigroup and TAP shall jointly control any Tax Claims regarding
Spin-Off Taxes for which TAP bears the financial responsibility pursuant to this
Agreement.
(v) Notwithstanding the foregoing, Citigroup shall have the right to
Dispose of all or any part of any Tax Claim (including Tax Claims for which TAP
would bear 100 percent of the financial responsibility) without TAP's consent,
provided, that if TAP's indemnification obligations pursuant to this Agreement
with respect to such Tax Claim that is the subject of such Disposition is (A)
less than $10 million in the aggregate for the examination cycle to which the
Disposition relates, TAP will remain liable for such Taxes and (B) at least $10
million in the aggregate for the examination cycle to which the Disposition
relates, TAP shall have no further indemnification obligation with respect to
the Tax Claim(s) that are the subject of such Disposition.
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(vi) If the parties hereto disagree as to any matter arising under
paragraph 27 of this Agreement, the parties shall cooperate in good faith to
resolve any such dispute, and any agreed-upon amount shall be paid to the
appropriate party. If the parties are unable to resolve any such dispute within
fifteen business days thereafter, such dispute shall be resolved by an
internationally recognized accounting firm or law firm acceptable to both
Citigroup and TAP. The decision of such firm shall be final and binding. The
fees and expenses incurred in connection with such decision shall be shared by
Citigroup and TAP in accordance with the final allocation of the Tax liability
in dispute in relation to the original amount claimed to be due by Citigroup and
TAP. Following the decision of such firm, the parties shall each take (or cause
to be taken) any action that is necessary or appropriate to implement such
decision, including, without limitation, the filing of amended Tax Returns and
the prompt payment of underpayments or overpayments, with interest calculated on
such underpayments or overpayment at the applicable rate from the date such
payment was due.
(b) Cooperation on Tax Matters. Citigroup and TAP shall cooperate by
furnishing or causing to be furnished to each other, upon request, as Promptly
as practicable, such assistance and information (including access to books and
records relating to Citigroup and its subsidiaries and TAP and its subsidiaries,
as the case may be) as is reasonably necessary to obtain a private letter ruling
or supplemental ruling from the IRS regarding the tax-free status of the
Distributions, for the preparation and filing of any Tax Return, for the
preparation for, and conduct of, any audit and for the prosecution or defense of
any claim, suit or proceeding relating to Taxes of Citigroup and its
subsidiaries and TAP and its subsidiaries. Such assistance shall include making
employees and representatives available upon the reasonable request of the
requesting party during normal business hours and in a manner that does not
interfere unreasonably with the conduct of the business of the other party.
Citigroup and TAP shall retain or cause to be retained all pertinent books and
records until the applicable period for assessment under applicable law (giving
effect to any and all extensions or waivers) has expired and to abide or cause
the abidance with all record retention agreements entered into with any
governmental authority. Each of Citigroup and TAP shall give reasonable notice
to the other party prior to transferring, discarding or destroying any such
books and records relating to Tax matters. Citigroup and TAP each shall execute
and deliver such powers of attorney and other documents that are reasonably
requested to carry out the intent of this Agreement.
(c) TAP Representations, Warranties and Covenants with respect to the
Distributions. TAP affirms that the description of facts, representations,
covenants and assumptions, as they relate to TAP and the TAP Subgroup, that are
included in the ruling request initially submitted to the IRS with respect to
the Distributions and in any supplemental submissions thereto (the "Ruling
Request"), are and will be true, correct and complete as submitted and will
continue to be on the date of and after the Distributions.
(d) Indemnity for Spin-Off Taxes and Certain Restructuring Taxes.
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(i) TAP will be 100 percent liable for all Losses arising from Spin-Off
Taxes attributable to any act, failure to act or omission by TAP or any member
of the TAP Subgroup, or the failure of any representation made in the Ruling
Request with respect to TAP, the TAP Subsidiaries or The Travelers Insurance
Company ("TIC") to be true. The indemnity for Losses arising from Spin-Off Taxes
addressed in this paragraph 27(d)(i) shall be fully "grossed up" for any Losses
resulting from the receipt of any such indemnity payments.
(ii) Citigroup will be responsible for any Losses arising from (A) the
failure of the distribution by TAP of 100 percent of the stock of TIC prior to
the IPO to be tax-free under section 355 of the Code, except to the extent that
such Losses are attributable to any act, failure to act or omission by TAP or
any member of the TAP Subgroup, or the failure of any representation made in the
Ruling Request with respect to TAP, the TAP Subsidiaries or TIC to be true or
(B) Spin-Off Taxes other than Spin-Off Taxes that are the responsibility of TAP
under paragraph 27(d)(i) hereof.
(iii) Citigroup will be responsible for any Taxes which result from the
(A) recapitalization of Citigroup common stock held by TAP into Citigroup series
YYY preferred shares and (B) recognition of deferred intercompany gain with
respect to Citigroup shares held by TAP that is triggered by the contribution of
such shares to TIC by TAP before the External Distribution or the IPO.
Citigroup's liability for such Taxes shall be limited to $50 million.
(iv) For purposes of subparagraphs (d)(i) and (ii) of this paragraph
27, references to representations made in the Ruling Request with respect to TIC
shall be to the best knowledge of the management of TAP.
(e) To the extent that payments made by Citigroup to TAP pursuant to
the terms of the Indemnification Agreement between Citigroup and TAP (relating
to asbestos indemnities), dated as of March [ ], 2002, are deductible by
Citigroup and taxable income to TAP, Citigroup shall pay TAP an amount equal to
the Tax on the amount that is both deductible by Citigroup and taxable income to
TAP. The indemnity for Taxes addressed in this paragraph 27(e) shall be fully
"grossed up" for any Taxes resulting from the receipt of any such indemnity
payments.
(f) TAP shall indemnify Citigroup for any Taxes arising from the
disposition of Travelers Asset Funding Corp. to TAP prior to the IPO but only to
the extent that such Taxes exceed $1 million.
(g) Any indemnity payments that are made between the parties pursuant
to this paragraph 27 will be treated as if they were made immediately prior to
the IPO or in such other manner as may be required by the private letter ruling
issued by the IRS with respect to the Distributions.
(h) Notwithstanding anything in this Agreement to the contrary, no
party to this Agreement or any of its subsidiaries shall be liable for any
consequential damages, damages for lost profits or other similar types of
damages.
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(i) To the extent that retirement and other benefit payments made by
TIC to certain employees or former employees of TIC, TAP or their respective
subsidiaries pursuant to the Contribution and Assumption Agreement between TIC
and TAP, dated as of [ ], 2002, are not deductible by TIC, TAP shall indemnify
TIC in an amount equal to the Tax on the amount that is not deductible by TIC.
The indemnity for Taxes addressed in this paragraph 27(i) shall be fully
"grossed up" for any Taxes resulting from the receipt of any such indemnity
payments.
(j) To the extent that PFS recognizes net taxable income solely from
the transactions relating to TAP's assignment of the Connecticut River Plaza
lease to PFS ("CRP Income"), TAP shall pay Citigroup within 30 days after the
end of each taxable year, an amount equal to (1) the 90-day LIBOR rate in effect
as of the end of such taxable year, as published in the Wall Street Journal,
multiplied by (2) the amount of federal income tax paid or payable by PFS with
respect to the CRP Income less the cumulative amount of such tax recovered
through amortization of the CRP Income (on a straight line basis for the
remaining term of the Connecticut River Plaza lease). In the event that interest
is assessed to Citigroup based upon an IRS audit adjustment, such assessment,
(net of any offsetting benefits arising from the same transaction) will be
Promptly paid by TAP to Citigroup.
28. Other Taxes.
(a) TAP assumes responsibility and liability for all TAP Subsidiaries'
Taxes not covered by this Agreement, including without limitation, state, local
(filed either as separate returns or in combination with other TAP affiliates)
and foreign income taxes and excise taxes, property taxes, premium taxes,
payroll taxes and employee withholding taxes relating to the business of any one
or more subsidiaries of TAP.
(b) Unless otherwise provided in an Applicable Restructuring Document
(as such term is defined in the Intercompany Agreement, dated as of [ ], 2002,
by and between TAP and Citigroup (the "Intercompany Agreement")), TAP assumes
responsibility and liability for and shall indemnify Citigroup against all
sales, use, privilege, transfer, documentary, gains, stamp, duties, recording
and similar Taxes and fees imposed upon any party incurred in connection with
the Reorganization (as such term is defined in the Intercompany Agreement).
29. Execution of Documents.
Citigroup and TAP, acting through their duly authorized officers, shall
execute or cause to be executed Promptly any and all joinders and consents,
authorizations and other documents required to effectuate this Agreement, as of
such date provided therein.
30. Amendment.
This Agreement may be amended from time to time by agreement in writing
executed by all of the parties hereto or all of the parties then bound hereby.
This Agreement constitutes the entire agreement with respect to the subject
matter hereof and supersedes all prior written and oral understandings with
respect thereto. No representation, promise, inducement or statement of
intention has been made by the parties hereto which is not embodied in this
Agreement or the written statements, or other documents delivered pursuant
hereto, and no party shall be bound by or liable for any alleged representation,
promise, inducement or statement of intention not so set forth.
31. Miscellaneous.
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(a) Captions. The paragraph captions are inserted in the Agreement
merely for convenience and are not to be construed as a part of this Agreement,
or in any way limiting and affecting the language of any paragraph of this
Agreement.
(b) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
(c) Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their successors and assigns, as well as any
additional parties hereto, their successors and assigns, as well as any
additional parties hereto, their successors and assigns. To the extent that this
Agreement imposes obligations upon any Member of the Citigroup Affiliated Group
(other than the TAP Subgroup or TAP State Subgroup), Citigroup will perform or
cause such Member to perform such obligations, and this Agreement is enforceable
only against Citigroup.
(d) Severability. In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable, the same shall not affect any other provision of this
Agreement, and this Agreement shall be construed in a manner which, as nearly as
possible, reflects the original intent of the parties.
(e) No Prejudice. This Agreement has been jointly prepared by the
parties hereto and the terms hereof shall not be construed in favor of or
against any party on account of its participation in such preparation.
(f) Words in Singular and Plural Form. Words used in the singular form
in this Agreement shall be deemed to import the plural, and vice versa, as the
sense may require.
(g) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which together shall constitute
a single agreement.
(h) Parties in Interest. Nothing expressed or implied in this Agreement
is intended or shall be construed to confer upon or give to any person, firm or
corporation, other than the parties hereto, any rights or remedies under or by
reason of this Agreement or any transaction contemplated hereby.
(i) Statutory References. References to the Code shall mean the
Internal Revenue Code of 1986, as amended and as in effect from time to time,
and any law which shall have been a predecessor or shall be a successor thereto.
A reference to any section of the Code means such section as is in effect from
time to time and any comparable provision of any predecessor or successor law.
(j) Notice.
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Any notice, request or other communication required or permitted in
this agreement shall be in writing and shall be sufficiently given, if
personally delivered or is sent by registered or certified mail, postage
prepaid, addressed as follows:
To Citigroup: Citigroup, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Tax Officer
To TAP: Travelers Property Casualty Corp.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Vice President, Taxes
32. Governing Law.
This Agreement shall be governed by the law of the State of New York.
33. Travelers Tax Sharing Agreement.
The Travelers Tax Sharing Agreement shall survive this Agreement and
shall remain in full force; provided, however, that if any provision in the
Travelers Tax Sharing Agreement is inconsistent with a provision in this
Agreement, the provision of this Agreement shall control.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written or have executed Attachment I, as
amended from time to time, effective as of the date noted therein.
CITIGROUP INC.
By:
------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chief Tax Officer
TRAVELERS PROPERTY CASUALTY CORP.
By:
------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, Vice President, Tax
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