EXHIBIT 10.11
TAX SHARING AGREEMENT
THIS AGREEMENT is made this 13th day of March, 1996 by and among The
Fairchild Corporation, a Delaware corporation ("TFC"), RHI Holdings, Inc., a
Delaware corporation ("RHI") and Shared Technologies Inc., a Delaware
corporation ("Shared Technologies").
WHEREAS, TFC currently owns all of the outstanding common stock of
RHI, RHI currently owns all of the outstanding common stock of Fairchild
Industries, Inc., a Delaware corporation ("FII"), and FII owns all of the
outstanding common stock of VSI Corporation, a Delaware corporation ("VSI");
WHEREAS, the operations of TFC, RHI, FII and VSI are presently
included in the consolidated Federal income tax return filed for an affiliated
group (within the meaning of ss. 1504 of the Internal Revenue Code of 1986, as
amended ("Code")) (the "TFC Group") of which TFC is the common parent;
WHEREAS, TFC, RHI, FII and Shared Technologies have signed an
Agreement and Plan of Merger on November 9, 1995, a First Amendment to Agreement
and Plan of Merger as of February 2, 1996, a Second Amendment to Agreement and
Plan of Merger as of February 23, 1996 and a Third Amendment to Agreement and
Plan of Merger as of March 1, 1996 (as so amended, the "Merger Agreement") under
which, inter alia, FII will merge into Shared Technologies;
WHEREAS, TFC, RHI and Shared Technologies desire to enter into an
agreement providing for payments among TFC, RHI and Shared Technologies with
respect to certain tax benefits and for indemnification with respect to certain
tax liabilities;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto, intending to be
legally bound, agree as follows:
1. Indemnity
A. Definition
This agreement applies to all Federal, State, local, and foreign taxes
(including income, franchise, withholding, and alternative minimum taxes), and
also includes all interest, penalties and additions imposed with respect to such
amounts (all such taxes and other amounts are collectively, "Taxes").
B. Tax Indemnification
(1) TFC and RHI, jointly and severally, shall pay and indemnify and
shall hold Shared Technologies harmless from and against (i) all Taxes and
claims for Taxes paid or payable by FII or VSI with respect to any taxable year
or period of FII or VSI or predecessor entities of either of them which ends on
or before the date of the merger of FII into Shared Technologies (the
"Deconsolidation Date"), including any tax liability which arises because FII
and VSI cease on the Deconsolidation Date to be members of the TFC Group or of
any other group filing a combined or consolidated tax return for foreign, state,
or local tax purposes and including any tax liability of FII and VSI resulting
from the Fairchild Reorganization as further described on Schedule 9.1 attached
to the Merger Agreement, and (ii) all taxes and claims for Taxes paid or payable
by FII or VSI by virtue of Section 1.1502-6 of the Treasury Regulations, or by
virtue of any similar provision of foreign, state, or local law by reason that
FII and VSI were members of a group which files or has filed a consolidated
federal income tax return, or a combined or consolidated foreign, state, or
local tax return. For purposes of this Agreement, any taxable year beginning
before and ending after the Deconsolidation Date shall be treated as ending on
the Deconsolidation Date.
For purposes of this Agreement any income or deduction arising from
transactions characterized as deferred intercompany transactions for Federal
income tax purposes which occurred before the Deconsolidation Date shall be
deemed attributable to a period ending on or before the Deconsolidation Date
(the "Pre-Deconsolidation Period").
(2) Shared Technologies shall pay RHI and indemnify RHI and shall hold
RHI harmless to the extent of any reduction in tax payable by Shared
Technologies for any taxable year beginning on or after the Deconsolidation Date
(a "Post-Deconsolidation Period") as a result of a final disallowance of any
loss, deduction, or credit claimed by FII or VSI as members of the TFC Group in
a Pre-Deconsolidation Period and the allowance of such deduction or credit in a
Post-Deconsolidation Period (or as a result of a final determination that
additional income is to be recognized in a Pre-Deconsolidation Period in lieu of
income which had been recognized in a Post-Deconsolidation Period). Such payment
shall be limited in all cases to the amount of the reduction in actual tax
otherwise payable by Shared Technologies and shall be paid when the reduction in
tax is recognized by Shared Technologies.
(3) Notwithstanding any other representation and warranty or other
provision in the Merger Agreement or this Agreement, any reduction in tax
payable by Shared Technologies for a Post-Deconsolidation Period as a result of
utilization of net operating loss carryforwards or tax credit carryforwards of
FII and VSI originating in a Pre-Deconsolidation Period shall not result in any
payment by Shared Technologies to RHI of any of the reduction in actual tax
otherwise payable by Shared Technologies. All carryforwards and carrybacks shall
be utilized in the order provided by the Code and Treasury Regulations
thereunder. Notwithstanding any other representation and warranty or other
provision in the Merger Agreement or this Agreement, TFC and RHI make no
representation or warranty as to (i) the amount of any net operating loss and
tax credits of the TFC Group allocable to FII or VSI on the Effective Date of
the Merger of FII into Shared Technologies as a result of the operations of FII
and VSI prior to the Effective Date; (ii) the amount of any net operating loss
and tax credit of FII and VSI that will be utilized by other members of the TFC
Group before the Deconsolidation Date; and (iii) the amount of any reduction in
tax payable by Shared Technologies due to utilization of any net operating loss
and tax credit of the TFC Group allocable to FII and VSI as a result of the
operations of FII and VSI prior to the Effective Date.
(4) Any reduction in tax payable by the TFC Group as a result of the
allowance of any additional loss, deduction, or credit claimed by the TFC Group
on a claim for refund or amended return filed after the Deconsolidation Date for
a Pre-Deconsolidation Period shall result in payment by RHI to Shared
Technologies of an amount equal to the increase in actual tax otherwise payable
by Shared Technologies caused by the allowance of the loss, deduction or credit
claimed by the TFC Group. Said payment shall be made at the time the increase in
tax is paid by Shared Technologies.
(5) Any reduction in tax payable by the TFC Group as a result of
utilization of net operating losses or tax credits of FII or VSI that originated
in a Post-Deconsolidation Period shall result in payment by RHI and TFC, jointly
and severally, to Shared Technologies of an amount equal to the increase in
actual tax otherwise payable by Shared Technologies caused by the TFC Group's
use of such net operating loss or credit. RHI and TFC, jointly and severally,
shall pay such amount at the time such increase is calculable. The TFC Group is
not required to take any action to reduce its taxes to the extent such reduction
causes a permanent tax detriment to the TFC Group.
(6) Except as provided in Paragraph 1(B)(5), all tax refunds received
by FII or VSI for any periods prior to the Deconsolidation Date received by
Shared Technologies shall be promptly paid by Shared Technologies to RHI.
(7) Shared Technologies is responsible for, and will not be
indemnified for, any taxes arising out of an election under ss. 338 of the Code
and Shared Technologies will not make any election under ss. 338 of the Code
regarding the transactions contemplated by the Merger Agreement. Shared
Technologies and RHI agree to report the merger of FII into Shared Technologies
on their Federal and state income tax returns as a statutory merger under ss.
368(a)(1)(A) of the Code. Shared Technologies and RHI agree to report all
dividends declared and paid by Shared Technologies to RHI with respect to
Convertible Preferred Stock and Special Preferred Stock on their Federal and
State Income Tax Returns as dividends.
(8) If any item resulting in an indemnification hereunder is
disallowed by a taxing authority and all remedies discussed in paragraph 2 below
are exhausted, then the indemnitee shall promptly return the related
indemnification amounts to the indemnitor.
C. Time for Indemnification
Unless otherwise specified herein, payments required under paragraph
1(B) above shall be made not later than the date or dates on which the estimated
payments or returns are filed, or, if later, the date of any required notice or
exhaustion of remedies, as applicable.
D. Returns, Payments and Refunds
(1) The TFC Group shall include the results of FII and VSI operations
for the Pre-Deconsolidation Period, including the results of the Fairchild
Reorganization as described in Schedule 9.1 to the Merger Agreement, in its
consolidated Federal income tax return and any combined state tax return or
report for the Pre-Deconsolidation Period. The TFC Group and RHI shall file or
cause to be filed, when due, all required federal, state, foreign, local, and
other returns, reports and declarations involving taxes for (either mandatorily
or at the discretion of TFC and on a consolidated, separate or any other basis)
the operations and assets, including the results of the Fairchild Reorganization
as described in Schedule 9.1 to the Merger Agreement, of FII and VSI for all
taxable periods ending or deemed to end on or before the Deconsolidation Date.
Shared Technologies shall file or cause to be filed, when due, all required,
Federal, state, foreign, local, and other returns, reports and declarations
involving taxes for the operations and assets of FII and VSI for any taxable
period beginning on or after the Deconsolidation Date. RHI and Shared
Technologies shall cooperate in filing the returns, reports and declarations for
FII and VSI described in this subparagraph (1) and shall make relevant records
available to each other and to FII and VSI at no cost. Each return, report or
declaration filed for a Pre-Deconsolidation Period pursuant to this subparagraph
(1) shall be prepared in a manner consistent with the accounting principles and
methods, elections and practices employed by the TFC Group in preparing the same
or similar returns, reports and declarations for taxable periods prior to the
Deconsolidation Date.
(2) The TFC Group, RHI and Shared Technologies shall each pay or cause
to be paid to the appropriate authorities all amounts payable with respect to
any returns, reports or declarations which such party is required to file or
cause to be filed pursuant to the preceding subparagraph (1).
2. Tax Contests
A. If a written claim is made by any taxing authority that, if
successful, could result in the indemnification of Shared Technologies by TFC or
RHI hereunder (an "Indemnifiable Claim"), Shared Technologies shall promptly
notify TFC and RHI in writing of such fact. In the event that such written
notice is not given within thirty (30) days of the receipt of such claim, the
obligation to indemnify with respect to such claim shall terminate if each of
TFC and RHI is thereafter unable, directly or indirectly, to contest such claim,
pursue other administrative remedies, or sue for refund upon payment of the
amount which is the subject of the claim.
B. Shared Technologies shall take, and shall cause FII and VSI to
take, any and all actions in connection with any audit or similar proceeding
relating to a Pre-Deconsolidation Period, or in connection with contesting any
Indemnifiable Claim, as RHI shall reasonably request from time to time. RHI
shall control all audits or similar proceedings relating to a
Pre-Deconsolidation Period and all proceedings in connection with contesting any
Indemnifiable Claim and shall be entitled to utilize counsel of its own choosing
in connection therewith; provided that, where the results of any such contest
would have a material adverse impact on the ability of Shared Technologies, FII
or VSI to obtain the benefit of any item of deduction, loss or credit (or
require Shared Technologies, FII or VSI to recognize additional income) in any
Post-Deconsolidation Period, RHI shall reasonably consult with Shared
Technologies in connection with such contest. In connection with any such
proceedings, RHI, in its sole discretion, may: pursue or forego any
administrative appeal, proceedings, hearings and conferences with the relevant
taxing authority; pay the tax claims and sue for a refund (where applicable law
permits such refund suits) or contest the claim in any other legally permissible
manner; prosecute such contest to a determination in a court of initial
jurisdiction and in any applicable appellate courts; or take any other action it
deems appropriate. RHI shall reimburse Shared Technologies for all reasonable
out-of-pocket costs (including fees and disbursements of outside counsel and
accountants) incurred in complying with any request by RHI pursuant to the first
sentence of this subparagraph (B). If costs are incurred in connection with a
dispute involving both Pre-Deconsolidation Period and Post-Deconsolidation
Periods, RHI and Shared Technologies shall agree on a reasonable allocation of
such costs.
C. Shared Technologies shall not settle or otherwise compromise any
Indemnifiable Claim of FII and VSI without RHI's prior written consent;
provided, however, that, nothing contained herein shall require Shared
Technologies to contest a claim which it would otherwise be required to contest
pursuant hereto if Shared Technologies shall reasonably consult with RHI with
respect to such claim and shall waive payment by RHI of any amount that might
otherwise be payable by RHI hereunder by way of indemnity in respect of such or
any similar claim.
D. The payments for Taxes among TFC, RHI and Shared Technologies under
their agreement are not subject to the $4 Million Basket in Sections 11.2 and
11.3 of the Merger Agreement.
3. Interest
If any amount payable by TFC or RHI to Shared Technologies or by
Shared Technologies to TFC or RHI pursuant to this Agreement is not paid at the
time set forth herein, the amount shall bear interest, from the date of such
event, at a rate equal to the rate of interest as described in ss. 6621(a) of
the Code and computed thereunder from time to time.
4. Entire Agreement: Prior Tax Agreements
This Tax Agreement constitutes the entire agreement of the parties
concerning the subject matter hereof and supersedes and terminates all prior tax
agreements among TFC, RHI, FII, VSI and the parties hereto effective on the day
immediately preceding the merger of FII into Shared Technologies.
5. Expenses
Unless otherwise expressly provided in this Agreement, each party
shall bear any and all expenses that arise from its respective obligations under
this Agreement.
6. Amendment
This Agreement may not be amended except by an agreement in writing
signed by the parties hereto.
7. Notices
All notices and other communications hereunder shall be in writing and
shall be delivered by hand or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
addresses for the party as shall be specified by like notice) and shall be
deemed given on the date on which such notice is received:
If To: RHI Holdings, Inc.
or to The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 22001
Facsimile No.: (703) 888-5674
Attention: Donald Miller, Esq.
With a copy to: James J. Clark, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Facsimile No.: (212) 269-5420
If To: Shared Technologies Inc.
100 Great Meadow Road, Suite 104
Wethersfield, CT 06109
Facsimile No.: (203) 258-2401
Attention: Legal Department
With a copy to: Walter D. Wekstein, Esq.
Harold J. Carroll, Esq.
Gadsby & Hannah
125 Summer Street
Boston, MA 02110
Facsimile No.: (617) 345-7050
8. Successors or Assigns
This Agreement shall constitute a direct obligation of TFC, RHI and
Shared Technologies and shall be binding upon, and shall inure to the benefit
of, the successors and assigns of the corporations bound hereby.
9. Titles and Headings
Titles and headings to sections herein are included for the
convenience of reference only and are not intended to be a part, or to affect
the meaning or interpretation, of this Agreement.
10. 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. Without prejudice to any rights or remedies otherwise available to
any party hereto, each party hereto acknowledges that damages would be an
inadequate remedy for any breach of the provisions of this Agreement and agrees
that the obligations of the parties hereunder shall be specifically enforceable.
11. Governing Law
This Agreement shall be governed by the laws of the State of Delaware,
without regard to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
SHARED TECHNOLOGIES INC.
By: /s/ Vincent DiVincenzo
Title
THE FAIRCHILD CORPORATION
By: /s/ John C. Flynn
Title
RHI HOLDINGS, INC.
By: /s/ John C. Flynn
Title