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EXHIBIT 10.7
TAX AGREEMENT,
BY AND AMONG
CONTINENTAL AIRLINES, INC.
AND
EXPRESSJET HOLDINGS, INC.
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TAX AGREEMENT
TAX AGREEMENT (this "Agreement"), dated as of _______ __, 2001, by and
between Continental Airlines, Inc., a Delaware corporation ("Continental"), and
ExpressJet Holdings, Inc., a Delaware corporation ("Holdings").
RECITALS
WHEREAS, Continental is the common parent corporation of an affiliated
group of corporations within the meaning of Section 1504(a) of the Code and of
consolidated, combined, unitary and other similar groups as defined under
similar laws of other jurisdictions, and Holdings and certain Holdings
Affiliates are members of such groups;
WHEREAS, the groups of which Continental is the common parent and
Holdings and the Holdings Affiliates are members file Consolidated Returns and
Combined Returns;
WHEREAS, Continental and ExpressJet Airlines, Inc. (formerly known as
Continental Express, Inc.) entered into a Tax Agreement dated _____________ (the
"Original Tax Agreement") setting forth the principles and responsibilities
regarding the allocation of Taxes (as defined herein) and other related
liabilities and adjustments with respect to Taxes during the periods during
which members of the Holdings Group are members of the Continental Group.
WHEREAS, Continental and Holdings have entered into an Initial Public
Offering and Distribution Agreement dated __________ __, 2001 (the "IPO
Agreement"), and as a result of the transactions contemplated by that agreement
Holdings will cease to be a member of the Continental Group.
WHEREAS, Continental and Holdings now wish to terminate the Original
Tax Agreement effective as of the closing date of the Initial Public Offering
and to enter into this Agreement to set forth the principles and
responsibilities regarding Taxes.
NOW, THEREFORE, in consideration of the premises and the
representations, covenants and agreements contained herein and intending to be
legally bound, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.1 DEFINITIONS. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to such terms in the IPO Agreement. As used in
this Agreement, capitalized terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined).
"Agreed Rate" means, LIBOR plus 200 basis points.
"Agreement" has the meaning set forth in the Recitals.
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"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions located in the State of Texas are authorized or
obligated by law or executive order to close.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Combined Group" means a group of corporations or other entities that
files a Combined Return.
"Combined Return" means any Tax Return (other than for Federal Income
Taxes) filed on a consolidated, combined (including nexus combination, worldwide
combination, domestic combination, line of business combination or any other
form of combination) or unitary basis wherein Holdings or one or more Holdings
Affiliates join in the filing of such Tax Return (for any taxable period or
portion thereof) with Continental or one or more Continental Affiliates.
"Consolidated Group" means an affiliated group of corporations within
the meaning of Section 1504(a) of the Code that files a Consolidated Return.
"Consolidated Return" means any Tax Return with respect to Federal
Income Taxes filed on a consolidated basis wherein Holdings or one or more
Holdings Affiliates join in the filing of such Tax Return (for any taxable
period or portion thereof) with Continental or one or more Continental
Affiliates.
"Continental" has the meaning set forth in the Recitals.
"Continental Group" means the affiliated group of corporations as
defined in Section 1504(a) of the Code, or similar group of entities as defined
under corresponding provisions of the laws of other jurisdictions, of which
Continental is the common parent, and any corporation or other entity which is a
member of such group for the relevant taxable period or portion thereof, but
excluding any member of the Holdings Group.
"Deconsolidation" means with respect to each Tax Return (i) any event
pursuant to which Holdings and all Holdings Affiliates cease to be a subsidiary
corporations includable in the Consolidated Return, and (ii) any event pursuant
to which neither Holdings nor any Holdings Affiliate continues to be included in
a Combined Return. "Deconsolidation Date" means with respect to each Tax Return
the day on which a Deconsolidation occurs.
"Deconsolidation Period" means any Pre-Deconsolidation Period that
includes a Deconsolidation Date.
"Estimated Tax Installment Date" means the installments due dates
prescribed in Section 6655(c) of the Code (presently April 15, June 15,
September 15 and December 15).
"Federal Income Tax" means any Tax imposed under Subtitle A of the Code
or any other provision of United States federal Income Tax law (including the
Taxes imposed by Sections 11, 55, 59A, and 1201(a) of the Code), and any
interest, additions to Tax or penalties applicable or related thereto.
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"Fifty-Percent or Greater Interest" shall have the meaning ascribed to
such term for purposes of Sections 355(d) and (e) of the Code.
"Final Determination" means the final resolution of any Tax (or other
matter) for a taxable period, including related interest or penalties, that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, including (1) by the expiration of a statute
of limitations or a period for the filing of claims for Refunds, amending Tax
Returns, appealing from adverse determinations, or recovering any Refund
(including by offset), (2) by a decision, judgment, decree, or other order by a
court of competent jurisdiction, which has become final and unappealable, (3) by
a closing agreement or an accepted offer in compromise under Section 7121 or
7122 of the Code, or comparable agreements under laws of other jurisdictions,
(4) by execution of an Internal Revenue Service Form 870AD, or by a comparable
form under the laws of other jurisdictions (excluding, however, with respect to
a particular Tax Item for a particular taxable period any such form that
reserves (whether by its terms or by operation of law) the right of the taxpayer
to file a claim for Refund and/or the right of the Tax Authority to assert a
further deficiency with respect to such Tax Item for such period), or (5) by any
allowance of a Refund or credit, but only after the expiration of all periods
during which such Refund may be adjusted.
"Holdings" has the meaning set forth in the Recitals.
"Holdings Group" means the affiliated group of corporations as defined
in Section 1504(a) of the Code, or similar group of entities as defined under
corresponding provisions of the laws of other jurisdictions, of which Holdings
(or ExpressJet Airlines, Inc.) would be the common parent if it were not a
subsidiary of Continental, and any corporation or other entity which would be a
member of such group for the relevant taxable period or portion thereof.
"Holdings Group Combined Tax Liability" means, with respect to any
taxable period, the Holdings Group's liability for Non-Federal Combined Taxes as
determined under Section 4.3 of this Agreement.
"Holdings Group Federal Income Tax Liability" means, with respect to
any taxable period, the Holdings Group's liability for Federal Income Taxes as
determined under Section 4.2 of this Agreement.
"Income Tax" means (a) any Tax based upon, measured by, or calculated
with respect to (1) net income or profits (including, without limitation, any
capital gains Tax, minimum Tax and any Tax on items of Tax preference, but not
including sales, use, real or personal property, gross or net receipts, transfer
or similar Taxes) or (2) multiple bases if one or more of the bases upon which
such Tax may be based, measured by, or calculated with respect to, is described
in clause (1) above, or (b) any United States state or local franchise Tax.
"LIBOR" means, for each month (or portion thereof) during any period,
an interest rate per annum equal to the rate per annum reported, on the date two
Business Days prior to the first day of such month, on the Telerate Page 3750
(of if such screen shall cease to be publicly available, as reported on Reuters
Screen page "LIBO" or by any other publicly available source of
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such market rate) for London interbank offered rates for United States dollar
deposits for such month (or portion thereof).
"Person" means and includes any individual, partnership, joint venture,
limited liability company, corporation, association, joint stock company, trust,
unincorporated organization or similar entity or a governmental authority or any
department or agency or other unit thereof.
"Pre-Deconsolidation Period" means any taxable period with respect to a
Consolidated Return or Combined Return, as the case may be, ending on or before
or that includes a Deconsolidation Date.
"Pro Forma Holdings Group Combined Return" means a pro forma
Non-Federal Combined Tax return or other schedule prepared pursuant to Section
4.3 or Section 4.8 of this Agreement.
"Pro Forma Holdings Group Consolidated Return" means a pro forma
consolidated Federal Income Tax return or other schedule prepared pursuant to
Section 4.2 or Section 4.8 of this Agreement.
"Proceeding" means any assessment, audit, or other examination by any
Tax Authority, relating to Taxes (including Refunds), whether administrative or
judicial, and any appeal of the foregoing.
"Refund" means any refund of Taxes, including any reduction in Tax
liabilities by means of a credit, offset or otherwise
"Representatives" means with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
"Separate Return" means any Tax Return with respect to Holdings or any
Holdings Affiliate other than a Consolidated Return or a Combined Return.
"Tax" means any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, highway use,
commercial rent, capital stock, paid up capital, recording, registration,
property, real property gains, value added, business license, custom duties, or
other tax or governmental fee of any kind whatsoever, imposed or required to be
withheld by any Tax Authority including any interest, or penalties applicable
or related thereto.
"Tax Attribute" means a consolidated net operating loss, a consolidated
net capital loss, a consolidated unused investment credit, a consolidated unused
foreign tax credit, or a consolidated excess charitable contribution (as such
terms are used in Treasury Regulations 1.1502-79 and 1.1502-79A), or a U.S.
federal minimum tax credit or U.S. federal general business credit (but not tax
basis or earnings and profits) or any comparable Tax Item reflected on a
Combined
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Return that arises in a Pre-Deconsolidation Period (including the taxable period
in which a Deconsolidation Date occurs) and can be carried to a taxable period
ending after a Deconsolidation Date.
"Tax Authority" means a governmental authority (foreign or domestic) or
any subdivision, agency, commission or authority thereof or any
quasi-governmental or private body having jurisdiction over the assessment,
determination, collection or imposition of any Tax (including, without
limitation, the Internal Revenue Service).
"Tax Item" means any item of income, gain, loss, deduction, credit
other item reflected on a Tax Return or any Tax Attribute.
"Tax Return" means any return, report, certificate, form or similar
statement or document (including, any related or supporting information or
schedule attached thereto and any information return, amended Tax Return, claim
for Refund or declaration of estimated tax) required to be supplied to, or filed
with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.
"Treasury Regulations" means the final, temporary and proposed income
tax regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
ARTICLE II
FILING AND PREPARATION OF TAX RETURNS
SECTION 2.1 IN GENERAL.
(a) Continental shall have the sole and exclusive
responsibility for the preparation and filing of, and shall prepare and file or
cause to be prepared and filed: (1) all Consolidated Returns and (2) all
Combined Returns. Holdings hereby consents to be included in all such Tax
returns.
(b) Except as otherwise provided in Section 2.1(a) of this
Agreement, Holdings shall have the sole and exclusive responsibility for the
preparation and filing of, and shall prepare and file or cause to be prepared
and filed, all Tax Returns of Holdings and any Holdings Affiliate; provided
that, if Continental owns (or at any time during the taxable period to which
such Tax Return relates owned) a Fifty-Percent or Greater Interest in the
outstanding stock of Holdings, Holdings shall, at the request of Continental,
submit such Tax Returns to Continental (no later than thirty (30) Business Days
prior to the due date for the filing of such Tax Returns (taking into account
applicable extensions)) for Continental's review and approval, which approval
shall not be unreasonably withheld.
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SECTION 2.2 MANNER OF PREPARING AND FILING TAX RETURNS.
(a) Continental shall have the exclusive right, in its sole
discretion, with respect to any Tax Return described in Section 2.1(a) of this
Agreement to determine (1) the manner in which such Tax Return shall be prepared
and filed, including the elections, methods of accounting, positions,
conventions and principles of taxation to be used and the manner in which any
Tax Item shall be reported, (2) whether any extensions may be requested, (3) the
elections that will be made or revoked by Continental, each Continental
Affiliate, Holdings, and each Holdings Affiliate on such Tax Return, (4) whether
any amended Tax Returns shall be filed, (5) whether any claims for Refund shall
be made, (6) whether any Refunds shall be paid by way of refund or credited
against any liability for the related Tax, and (7) whether to retain outside
firms to prepare or review such Tax Return, whom to retain for such purpose and
the scope of any such retention.
(b) Holdings shall, at its expense, be responsible for
preparing (or causing to be prepared) and shall provide to Continental (or cause
to be so provided), all information that Continental shall reasonably request,
in such form as Continental shall reasonably request, relating to the rights and
obligations of Continental with respect to Taxes and Tax Returns hereunder,
including any such information so requested to enable Continental to prepare the
Tax Returns that it is required to prepare under Section 2.1 and allocate Taxes
as required by this Agreement (which information shall be provided by Holdings
no later than ten (10) Business Days prior to the due date (not taking into
account extensions) of such Tax Return).
SECTION 2.3 In the event that a Tax Item affects a Tax Return described
in Section 2.1(a) of this Agreement and also affects a Tax Return described in
Section 2.1(b) of this Agreement that is filed after the date of this Agreement,
Holdings shall conform the treatment of such Tax Item in any Tax Return
described in Section 2.1(b) of this Agreement to the treatment of such Tax Item
in the applicable Tax Return described in Section 2.1(a) of this Agreement.
ARTICLE III
Payment of Taxes to Tax Authorities
SECTION 3.1 CONSOLIDATED AND COMBINED TAXES. Continental shall timely
pay (or cause to be paid) to the appropriate Tax Authority all Taxes with
respect to each Consolidated Return and each Combined Return due for all
Pre-Deconsolidation Periods.
SECTION 3.2 SEPARATE TAXES. Holdings shall timely pay (or cause to be
paid) to the appropriate Tax Authorities all Taxes of Holdings or any Holdings
Affiliate reflected on a Separate Return and shall have no claim against
Continental or any Continental Affiliate for any such Taxes.
ARTICLE IV
Allocation of Taxes
SECTION 4.1 HOLDINGS LIABILITY FOR CONSOLIDATED AND COMBINED TAXES. For
each Deconsolidation Period, Holdings shall be liable for and shall pay to
Continental an amount equal to the sum of the Holdings Group Federal Income Tax
Liability and the Holdings Group Combined Tax Liability for such taxable period.
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SECTION 4.2 HOLDINGS GROUP FEDERAL INCOME TAX LIABILITY. The Holdings
Group Federal Income Tax Liability for a period shall be the Federal Income
Taxes for such taxable period, as determined on a Pro Forma Holdings Group
Consolidated Return prepared:
(a) assuming that the members of the Holdings Group were not
included in the Continental Consolidated Group and by
including only Tax Items of members of the Holdings Group
which are included in the Consolidated Return;
(b) except as provided in section 4.2(f), using all elections,
accounting methods and conventions used on the Consolidated
Return for such period;
(c) applying the highest statutory marginal corporate income Tax
rate in effect for such taxable period (or portion thereof);
(d) excluding any Tax Attributes for which Holdings has been
compensated pursuant to section 4.7;
(e) assuming the exemption amount in section 55 of the Code for
such year equals zero and that the amount specified in section
59(a)(a) of the Code is zero;
(f) assuming that the Holdings Group elects not to carry back any
net operating losses; and
(g) assuming that the utilization of any Tax Attribute
carryforward by Holdings (including, but not limited to, the
Holdings Group's deduction for any net operating loss
carryforwards under section 172 of the Code, any capital loss
carryforwards, any charitable contribution carryforwards or
any Tax credits) is limited to the amount of such Tax
Attributes actually utilized on the Consolidated Return for
such period.
SECTION 4.3 HOLDINGS GROUP COMBINED TAX LIABILITY. With respect to any
Deconsolidation Period, the Holdings Group Combined Tax Liability shall be the
sum for such taxable period of the Holdings Group's liability for each
Non-Federal Combined Tax, as determined on Pro Forma Holdings Group Combined
Returns prepared in a manner consistent with the principles and procedures set
forth in Section 4.2 hereof.
SECTION 4.4 PREPARATION AND DELIVERY OF PRO FORMA TAX RETURNS. Not
later than thirty (30) Business Days following the date on which the related
Consolidated Return or Combined Return, as the case may be, is filed with the
appropriate Tax Authority, Continental shall prepare and deliver to Holdings a
pro forma Tax Return calculating the Holdings Group Federal Income Tax Liability
or the Holdings Group Combined Tax Liability which is attributable to the period
covered by such filed Tax Return.
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SECTION 4.5 INSTALLMENT PAYMENTS.
(a) Consolidated Taxes. Not later than five (5) Business Days
prior to each Estimated Tax Installment Date with respect to any Consolidated
Return for the Deconsolidation Period, Continental may reasonably determine
under the principles of Section 6655 of the Code the estimated amount of the
related installment of the Holdings Group Federal Income Tax Liability and
provide Holdings with a written notice of such determination. Holdings shall pay
to Continental no later than the Estimated Tax Installment Date the amount thus
determined.
(b) Combined Taxes. Following the payment of any installment
payment with respect to any Combined Tax Return for any Deconsolidation Period,
Continental may reasonably determine the estimated amount of the Holdings Group
Combined Tax Liability and within the first twenty (20) Business Days following
such payment provide Holdings with a written notice of such determination.
Holdings shall pay to Continental the amount thus determined within five (5)
Business Days of the receipt of such notice.
SECTION 4.6 TRUE-UP PAYMENTS.
(a) Consolidated Taxes. Not later than fifteen (15) Business
Days following the completion and delivery to Holdings of the Pro Forma Holdings
Group Consolidated Return for the Deconsolidation Period, Holdings shall pay to
Continental, or Continental shall pay to Holdings, as appropriate, an amount
equal to the difference, if any, between the Holdings Group Federal Income Tax
Liability for such period and the aggregate amount paid by Holdings with respect
to such period under Section 4.5(a) of this Agreement and Section 4.5(a) of the
Original Tax Agreement.
(b) Combined Taxes. Not later than fifteen (15) Business Days
following the completion and delivery to Holdings of any Pro Forma Holdings
Group Combined Return for any Deconsolidation Period, Holdings shall pay to
Continental, or Continental shall pay to Holdings, as appropriate, an amount
equal to the difference, if any, between the Holdings Group Combined Tax
Liability for the Deconsolidation Period and the amounts paid by Holdings with
respect to such period under Section 4.5(b) this Agreement and 4.5(b) of the
Original Tax Agreement.
SECTION 4.7 PAYMENTS FOR USE OF ATTRIBUTES. Not later than 60 days
following the filing of the Consolidated Return for the Deconsolidation Period,
Continental shall determine the amount of the Tax Attributes of the Continental
Group that are allocable to the Holdings Group as of the end of such year based
upon the Consolidated Return as originally filed (the "Allocated Attributes")
and inform Holdings of such determination. If the amount of the Allocated
Attributes is less than the amount of Tax Attributes (as reasonably determined
by Continental) that would have been available to the Holdings Group at the end
of such year had the Holdings Group not been included in the Consolidated Return
(the "Stand-Alone Attributes"), Continental shall pay to Holdings the value of
such shortfall. If the amount of the Allocated Attributes is greater than the
Stand-Alone Attributes, Holdings shall pay to Continental the value of such
shortfall. Notwithstanding the foregoing, the Stand-Alone Attributes shall be
computed assuming that the utilization of any Tax Attribute carryforward by
Holdings is subject to the limitation described in Section 4.2(g).
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For purposes of this section, the value of any Tax Attribute shortfall or excess
shall be equal to the amount of Taxes (computed in accordance with section 4.2,
excluding section 4.2(g)) that would be avoided by the Holdings Group assuming
it had sufficient income to fully utilize such Tax Attributes in such year.
Notwithstanding any other provision of this section 4.7, in no event shall a
party to this Agreement be required to make any payment pursuant to this section
to the extent compensation was paid for the same Tax Attributes pursuant to
section 4.7 of the Original Tax Agreement.
SECTION 4.8 SUBSEQUENT CHANGES IN TREATMENT OF TAX ITEMS. For any
Pre-Deconsolidation Period, in the event of a change in the treatment of any Tax
Item of any member of a Consolidated Group or Combined Group as a result of a
Final Determination, the filing of a claim for Refund, the filing of an amended
Tax Return for such period or the reflection of a change in treatment reflected
in a subsequently filed Tax Return, the following steps shall be taken:
(a) To the extent such change affects a Deconsolidation Period
(including a change in the Tax Attributes of the Holdings Group as of the end of
such period), Continental shall prepare a revised Pro Forma Holdings Group
Consolidated Returns and/or revised Pro Forma Holdings Group Combined Returns,
as appropriate, to reflect the change of such Tax Item. Following the
preparation of such revised pro forma Tax Returns, Continental shall prepare and
deliver to Holdings a recalculation of the payment obligations under Sections
4.1 and 4.6 no later than twenty (20) Business Days following the event that
triggers the change. If any additional payment is required to be made (or any
refund of amounts previously paid) as a result of the change, such payment (plus
interest at the Agreed Rate from the date the original payment was made under
section 4.6) shall be made no later than ten (10) Business Days following the
delivery of the relevant recalculation.
(b) To the extent such change affects one or more
Pre-Deconsolidation Periods other than a Deconsolidation Period, Continental
shall prepare Pro Forma Holdings Group Consolidated Returns and/or Pro Forma
Holdings Group Combined Returns, as appropriate, for each such period with and
without the changed Tax Items and determine the amount of change, if any, in the
amount of Holdings Group Federal Income Tax Liability and/or Holdings Group
Combined Tax Liability for each such period that results from the change. If the
change results in a net increase in the Holdings Group Federal Income Tax
Liability and Holdings Group Combined Tax Liability for all affected periods,
Holdings shall pay to Continental the amount of the increase (plus interest at
the Agreed Rate from the filing date of the original relevant Tax Returns) no
later than twenty (20) Business Days following the event that triggers the
change. If the change results in a net decrease in the Holdings Group Federal
Income Tax Liability and Holdings Group Combined Tax Liability for all affected
periods, Continental shall pay to Holdings the amount of the increase (plus
interest at the Agreed Rate from the filing date of the original relevant Tax
Returns) no later than twenty (20) Business Days following the event that
triggers the change.
ARTICLE V
Tax Attributes
SECTION 5.1 ALLOCATION OF TAX ITEMS UPON DECONSOLIDATION.
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(a) In General. All Tax computations for any Deconsolidation
Period, shall be made pursuant to the principles of Section 1.1502-76(b) of the
Treasury Regulations or of a corresponding provision under the laws of other
jurisdictions.
(b) Reattribution. In the event of a Deconsolidation,
Continental may, at its option, elect to reattribute to itself certain Tax Items
of the Holdings Group pursuant to Section 1.1502-20(g) of the Treasury
Regulations. If Continental makes such election, Holdings shall comply with the
requirements of Section 1.1502-20(g)(4) of the Treasury Regulations.
SECTION 5.2 ALLOCATION OF TAX ATTRIBUTES. To the extent permitted by
applicable law, the relevant Tax Attributes with respect to the Consolidated
Group or Combined Group, as the case may be, shall be allocated to the
corporation or entity that created or generated such Tax Attributes.
SECTION 5.3 EARNINGS AND PROFITS. The Federal Income Tax liability of
the Consolidated Group shall, for purposes of determining the earnings and
profits of each member, be allocated in accordance with the methods prescribed
in Treasury Regulation section 1.1552-1(a)(2) and Treasury Regulation section
1.1502-33(d)(2)(ii) (using 100% as the fixed percentage).
ARTICLE VI
Additional Rights and Obligations
SECTION 6.1 PROVISION OF INFORMATION AND MUTUAL COOPERATION.
(a) Continental shall (and shall cause the Continental
Affiliates) and Holdings shall (and shall cause the Holdings Affiliates) to, (1)
furnish to the other in a timely manner such information, documents and other
materials as the other may reasonably request for purposes of (i) preparing any
Tax Return (or pro forma Tax return prepared in accordance with Section 4
hereof) or portion thereof for which the other has responsibility for preparing
under this Agreement, (ii) contesting or defending any Proceeding, and (iii)
making any determination or computation necessary or appropriate under this
Agreement, (2) make its employees available to the other to provide explanations
of documents and materials and such other information as the other may
reasonably request in connection with any of the matters described in subclauses
(i), (ii) and (iii) of clause (1) above, and (3) reasonably cooperate in
connection with any Proceeding.
(b) Continental shall (and shall cause the Continental
Affiliates to) and Holdings shall (and shall cause the Holdings Affiliates to)
retain and provide on reasonable demand books, records, documentation or other
information relating to any Tax Return or Proceeding, with respect to any
taxable period in which Continental owns a Fifty Percent or Greater Interest in
the outstanding stock of Holdings, until the later of (i) the expiration of the
applicable statute of limitations (after giving effect to any extension, waiver,
or mitigation thereof) and (ii) in the event any claim is made under this
Agreement or by any Tax Authority for which such information is relevant, until
a Final Determination is reached with respect to such claim. Notwithstanding
anything to the contrary included in this Agreement, the parties will comply in
all respects with the requirements of any applicable record retention agreement
with any Tax Authority.
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(c) Notwithstanding any other provision of this Agreement, no
member of the Continental Group shall be required to provide Holdings or any
Holdings Affiliate access to or copies of (1) any Tax information that relates
exclusively to any member of the Continental Group, (2) any Tax information as
to which any member of the Continental Group is entitled to assert the
protection of any privilege, or (3) any Tax information as to which any member
of the Continental Group is subject to an obligation to maintain the
confidentiality of such information. Continental shall use reasonable efforts to
separate any such information from any other information to which Holdings is
entitled to access or to which Holdings is entitled to copy under this
Agreement, to the extent consistent with preserving its rights under this
Section 6.1(c).
SECTION 6.2 INDEMNIFICATION.
(a) Failure to Pay. Continental and each Continental Affiliate
shall jointly and severally indemnify Holdings and each Holdings Affiliate, and
hold them harmless from and against any Tax or Losses that are attributable to,
or results from the failure of Continental or any Continental Affiliate to make
any payment required to be made under this Agreement. Holdings and each Holdings
Affiliate shall jointly and severally indemnify Continental and each Continental
Affiliate, and hold them harmless from and against any Tax or Losses that are
attributable to, or results from, the failure of Holdings or any Holdings
Affiliate to make any payment required to be made under this Agreement.
SECTION 6.3 INACCURATE OR INCOMPLETE INFORMATION. Continental and each
Continental Affiliate shall jointly and severally indemnify Holdings, each
Holdings Affiliate and each of their respective Representatives, and hold them
harmless from and against any net Taxes or net Losses attributable to
Continental or any Continental Affiliate supplying Holdings or any Holdings
Affiliate with inaccurate or incomplete information, in connection with the
preparation of any Tax Return or any Proceeding. Holdings and each Holdings
Affiliate shall jointly and severally indemnify Continental, each Continental
Affiliate and their respective Representatives, and hold them harmless from and
against any net Taxes or net Losses attributable to Holdings or any Holdings
Affiliate supplying Continental or any Continental Affiliate with inaccurate or
incomplete information, in connection with the preparation of any Tax Return or
any Proceeding.
SECTION 6.4 INTEREST. Unless a different rate of interest is provided
for in this Agreement, payments pursuant to this Agreement that are not made
within the period prescribed in this Agreement or, if no period is prescribed,
within fifteen (15) Business Days after demand for payment is made, shall bear
interest through and including the date of payment at a per annum rate equal the
Agreed Rate or such lesser rate as may be required by applicable law. Such
interest will be payable at the same time as the payment to which it relates and
shall be calculated based on a year of 365 or 366 days, as appropriate, for the
actual number of days for which due.
SECTION 6.5 CLOSING OF TAX PERIODS. For Federal Income Tax purposes,
the taxable year of the Holdings Group shall end as of the close of the
Deconsolidation Date and, with respect to all other Income Taxes, Continental
(or the appropriate member of the Continental Group) and Holdings (or the
appropriate member of the Holdings Group) shall, unless prohibited by applicable
law, take all action necessary or appropriate to close the taxable period of the
members of the Holdings Group as of the close of the Deconsolidation Date.
Neither any mem-
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ber of the Continental Group nor any member of the Holdings Group shall take any
position inconsistent with the preceding sentence on any Income Tax Return.
ARTICLE VII
Proceedings
SECTION 7.1 IN GENERAL.
(a) Subject to Section 7.1(b) of this Agreement, Continental
shall have the exclusive right, in its sole discretion, to control, contest, and
represent the interests of Continental, any Continental Affiliate, Holdings or
any Holdings Affiliate in any Proceeding relating to any Tax Return described in
Section 2.1(a) of this Agreement and to resolve, settle or agree to any
deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of any such Proceeding. Continental's rights shall extend to
any matter pertaining to the management and control of any Proceeding,
including, without limitation, execution of waivers, choice of forum, scheduling
of conferences and the resolution of any Tax Item.
(b) Holdings shall have the exclusive right, in its sole
discretion, to control, contest, and represent the interests of Holdings or any
Holdings Affiliate in any Proceeding relating to any Tax Return described in
Section 2.1(b) of this Agreement and to resolve, settle, or agree to any
deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of any such Proceeding; provided that, so long, as
Continental owns a Fifty-Percent or Greater Interest in the outstanding stock of
Holdings, the entering into of (or rejection of) any such resolution, settlement
or agreement or any decision in connection with (including the entering into of
or rejection of) any judicial or administrative proceeding relating to Taxes
shall be subject to Continental's review and approval, which approval shall not
be unreasonably withheld.
(c) In addition to the parties' obligations under Section 6.1
of this Agreement, (i) Holdings shall, and shall cause its Affiliates to,
cooperate fully with Continental in contesting or defending any Proceeding
described in Section 7.1(a), including, without limitation, by furnishing to
Continental in a timely manner such information, documents or other materials as
Continental may reasonably request and (ii) Continental shall, and shall cause
its Affiliates to, cooperate with Holdings in contesting or defending any
Proceeding described in 7.1(b).
SECTION 7.2 NOTICE. If Continental or any member of the Continental
Group receives written notice of or relating to, any Proceeding from a Tax
Authority that asserts, proposes or recommends a deficiency, claim or adjustment
that, if sustained, would result in the redetermination of a Tax Item of a
member of the Holdings Group, Continental shall promptly provide a copy of such
notice to Holdings (but in no event later than fifteen (15) Business Days
following the receipt of such notice). If Holdings or any member of the Holdings
Group receives written notice of, or relating to, any Proceeding from a Tax
Authority with respect to a Tax Return described in Section 2.l(a) of this
Agreement, Holdings shall promptly provide a copy of such notice to Continental
(but in no event later than fifteen (15) Business Days following the receipt of
such notice).
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SECTION 7.3 FAILURE TO NOTIFY. The failure of Continental or Holdings
to notify the other of any matter relating to a particular Tax for a taxable
period or to take any action specified in this Agreement shall not relieve such
other party of any liability and/or obligation which it may have under this
Agreement with respect to such Tax for such taxable period except to the extent
that such other party's rights hereunder are actually prejudiced by such
failure.
ARTICLE VIII
Dispute Resolution
SECTION 8.1 DISPUTE RESOLUTION. In the event that Continental or any
Continental Affiliate, as the case may be, on the one hand, and Holdings or any
Holdings Affiliate, as the case may be, on the other hand, disagree as to the
amount or calculation of any payment to be made under this Agreement, or the
interpretation or application of any provision under this Agreement, the parties
shall attempt in good faith to resolve such dispute. If such dispute is not
resolved within sixty (60) Business Days following the commencement of the
dispute, Continental and Holdings shall jointly retain a nationally recognized
law firm or independent public accounting firm, which firm is independent of
both parties (the "Independent Entity"), to resolve the dispute. The Independent
Entity shall act as an arbitrator to resolve all points of disagreement and its
decision shall be final and binding upon all parties involved. Following the
decision of the Independent Entity, Continental, the Continental Affiliates,
Holdings and the Holdings Affiliates shall each take or cause to be taken any
action necessary to implement the decision of the Independent Entity. The fees
and expenses relating to the Independent Entity shall be borne equally by
Continental and Holdings.
ARTICLE IX
Miscellaneous
SECTION 9.1 EFFECTIVENESS. This Agreement shall be effective on closing
date of the Initial Public Offering.
SECTION 9.2 NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and, unless otherwise
provided herein, shall be deemed to have been duly given (i) on the date of
service if served personally on the party to whom notice is given, (ii) on the
day of transmission if sent via facsimile transmission to the facsimile number
given below; provided, telephonic confirmation of receipt is obtained promptly
after completion of transmission, (iii) on the business day after delivery to an
overnight courier service or the Holdings mail service maintained by the United
States Postal Service, provided, receipt of delivery has been confirmed, or (iv)
on the fifth day after mailing, provided, receipt of delivery is confirmed, if
mailed to the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid, properly addressed and return-receipt
requested, to the party as follows:
If to Continental or any Continental Affiliate, to:
Continental Airlines, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Senior Vice President-Finance
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
Continental Airlines, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to Holdings, to:
ExpressJet Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change its address or fax number by giving the other party written
notice of its new address or fax number in the manner set forth above.
SECTION 9.3 CHANGES IN LAW. Any reference to a provision of the Code or
a law of another jurisdiction shall include a reference to any applicable
successor provision or law.
SECTION 9.4 SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party without the prior written consent of the other party.
SECTION 9.5 AUTHORIZATION, ETC. Each of the parties hereto hereby
represents and warrants that it has the power and authority to execute, deliver
and perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement
constitutes a legal, valid and binding obligation of such party (subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and general equity principles) and
that the execution, delivery and performance of this Agreement by such party
does not contravene or conflict with any provision of law or of its charter or
bylaws or any agreement, instrument or order binding on such party.
SECTION 9.6 COMPLETE AGREEMENT. This Agreement shall constitute the
entire agreement between Continental or any Continental Affiliate and Holdings
or any Holdings Affiliate with respect to the subject matter hereof and shall
supersede all previous negotiations, commitments and writings with respect to
such subject matter. Unless the context indicates otherwise, any reference to
Holdings in this Agreement shall refer to Holdings and the Holdings Affiliates
and any reference to Continental in this Agreement shall refer to Continental
and the Continental Affiliates. Notwithstanding anything to the contrary herein,
nothing in this Agreement shall modify the rights and obligations of the parties
as set forth in the IPO Agreement.
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SECTION 9.7 ORIGINAL TAX AGREEMENT TERMINATED. The Original Tax
Agreement is hereby terminated and no party thereto shall be entitled to pursue
any rights or remedies thereunder after the effective date of this Agreement.
SECTION 9.8 INTERPRETATION. The Section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. Whenever any words are used herein in the masculine gender, they
shall be construed as though they were also used in the feminine gender in all
cases where they would so apply. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
SECTION 9.9 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas
(regardless of the laws that might otherwise govern under applicable principles
of conflicts law) as to all matters, including, without limitation, matters of
validity, construction, effect, performance and remedies.
SECTION 9.10 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 9.11 LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 9.12 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for
the benefit of Continental, the Continental Affiliates, Holdings and the
Holdings Affiliates, and is not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 9.13 JURISDICTION; FORUM.
(a) By the execution and delivery of this Agreement,
Continental and Holdings submit and agree to cause the Continental Affiliates
and Holdings Affiliates, respectively, to submit to the personal jurisdiction of
any state or federal court in the State of Texas in any suit or proceeding
arising out of or relating to this Agreement.
(b) To the extent that Continental, Holdings, any Continental
Affiliate or any Holdings Affiliate has or hereafter may acquire any immunity
from jurisdiction of any Delaware court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Continental or Holdings, as the case may be, hereby irrevocably waives, and
agrees to cause the Continental Affiliates and the Holdings Affiliates,
respectively, to waive such immunity in respect of its obligations with respect
to this Agreement.
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(c) The parties hereto agree that an appropriate and
convenient, non-exclusive forum for any disputes between any of the parties
hereto or the Continental Affiliates and the Holdings Affiliates arising out of
this Agreement shall be in any state or federal court in the State of Delaware.
SECTION 9.14 CONFIDENTIALITY. Each party shall hold and cause its
Representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or, in the opinion of its counsel, by other
requirements of law, all information (other than any such information relating
solely to the business or affairs of such party) concerning the other parties
hereto furnished it by such other party or its Representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by the party to which it was furnished, (b) in the public
domain through no fault of such party, or (c) later lawfully acquired from other
sources by the party to which it was furnished), and each party shall not
release or disclose such information to any other person, except its
Representatives who shall be advised of the provisions of this Section. Each
party shall be deemed to have satisfied its obligation to hold confidential
information concerning or supplied by the other party if it exercises the same
care as it takes to preserve confidentiality for its own similar information.
SECTION 9.15 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by a duly authorized officer as of the date first above
written.
Continental Airlines, Inc.,
on behalf of itself and each
of the Continental Affiliates
By:_____________________________________
Name:___________________________________
Title:__________________________________
ExpressJet Holdings, Inc.
on behalf of itself and each of
the Holdings Affiliates
By:_____________________________________
Name:___________________________________
Title:__________________________________
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