Conformed Copy
TAX SHARING AND INDEMNIFICATION AGREEMENT
THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"), dated as
of November 20, 1996, by and between Alco Standard Corporation, an Ohio
corporation ("Alco") and Unisource Worldwide, Inc., a Delaware corporation
("Unisource"), on behalf of themselves, the Alco Group, the Unisource Group and
their respective successors.
RECITALS
WHEREAS, the Alco Board of Directors has determined that it is appropriate
and desirable to distribute all of the outstanding shares of the Unisource
common stock on a pro rata basis to the holders of the Alco common stock (the
"Distribution") in a transaction that will qualify as a tax-free distribution
for federal income tax purposes under section 355 of the Code (as defined
below); and
WHEREAS, Unisource and its affiliates will accordingly cease to be members
of the affiliated group (within the meaning of Section 1504(a) of the Code) of
which Alco is the common parent, effective as of January 1, 1997 (the "Effective
Date"); and
WHEREAS, Alco and Unisource desire to provide for and agree upon the
allocation of liabilities for Taxes with respect to the parties; and
WHEREAS, the parties hereto also desire to provide for: (1) the preparation
and filing of Tax Returns along with the payment of Taxes shown due and payable
thereon, (2) the retention and maintenance of relevant records necessary to
prepare and file appropriate Tax Returns, as well as the provision for
appropriate access to those records by the parties to this Agreement, (3) the
conduct of audits, examinations and proceedings by appropriate governmental
entities which could result in a redetermination of Taxes of the parties to this
Agreement, (4) the treatment of refunds of Taxes and Carrybacks of the parties,
(5) the cooperation of all parties with one another in order to fulfill their
duties and responsibilities under this Agreement and under the Code and other
applicable law, and (6) any other matters related to Taxes , including
allocation of and indemnification for any Taxes imposed solely as a result of
the Distribution or any steps taken to effect the Distribution; and
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto
agree as follows:
SECTION I
Definitions
-----------
As used in this Agreement (including the Recitals hereof), the following
definitions shall apply:
(a) "Adjustment" shall mean any proposed or final change in the tax
liability of a taxpayer.
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(b) "Affiliated Group" shall mean an affiliated group of corporations
(whether or not presently in existence) within the meaning of Code
section 1504(a).
(c) "Alco Affiliated Group" shall mean, for each taxable period, the
Affiliated Group of which Alco or its successor is the common parent
corporation.
(d) "Alco Group" shall mean, for each tax period, (i) the corporations that
comprise the Alco Affiliated Group, and (ii) the corporations that
would be members of the Alco Affiliated Group, but for the fact that
they are foreign corporations.
(e) "Alco Affiliated Group Tax Liability" shall mean, for each tax period,
the consolidated federal income tax liability (including any associated
penalties) of the Alco Group for any taxable year for which the Alco
Affiliated Group files a consolidated federal income tax return.
(f) "Carryback Item" shall mean any net operating loss, net capital loss,
unused general business tax credit, or any other Tax item of the
Unisource Affiliated Group which, under the Code or any other
applicable Tax law, may be carried back and may generate a Tax Benefit
for any member of the Alco Group.
(g) "Code" shall mean the United States Internal Revenue Code of 1986, as
amended, or any successor law.
(h) "Consolidated Personal Property Tax Return" means a tax return
reflecting personal property taxes for any two or more members of the
Alco Group, which is required to be filed on a consolidated return
basis.
(i) "Distribution" shall mean the pro rata distribution of all of the
Unisource common stock to the holders of the common stock of Alco.
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(j) "Effective Date" shall mean January 1, 1997.
(k) "Final Determination" shall mean the final resolution of any tax
matter. A Final Determination shall result from the first to occur of:
(i) the expiration of thirty (30) days after the IRS' acceptance of
a Waiver of Restrictions on Assessment and Collection of
Deficiency in Tax and Acceptance of Over Assessment on Federal
Revenue (Form 870 or 870-AD or any successor comparable form)
(the "Waiver")), except as to reserved matters specified
therein, or the expiration of thirty (30) days after acceptance
by any other taxing authority of a comparable agreement or form
under the laws of any other jurisdiction, including State,
local, and foreign; unless, within such period, the taxpayer
gives notice to the other party to this Agreement of the
taxpayer's intention to attempt to recover all or part of any
amount paid pursuant to the Waiver by the filing of a timely
claim for refund;
(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial
review (by appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under Code section 7121, or
the acceptance by the IRS of an offer in compromise under Code
section 7122, or comparable agreements under the laws of any
other jurisdiction, including State, local, and foreign, except
as to reserved matters specified therein;
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(iv) the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund that was
disallowed in whole or part by the IRS or any other taxing
authority;
(v) the expiration of the applicable statute of limitations; or
(vi) an agreement by the parties hereto that a Final Determination
has been made.
(l) "Indemnifying Party" shall mean any party that is required to pay any
other party pursuant to the terms and conditions of this Agreement with
respect to an Adjustment under Section VI(b).
(m) "Indemnified Party" shall mean any party who is entitled to receive
payment from an Indemnifying Party pursuant to the terms and conditions
of this Agreement with respect to an Adjustment under Section VI(b).
(n) "IRS" shall mean the United States Internal Revenue Service or any
successor thereto, including but not limited to its agents,
representatives, and attorneys.
(o) "Nexus" shall mean a presence of property (owned or rented), payroll,
employment of individuals, sales, or other factors which cause
activities to be subject to Unitary Income Tax in a particular
jurisdiction.
(p) "Restructuring Liability" means any Tax Liability resulting from any
actions, restructurings, acts, or omissions necessary to implement the
Distribution and its associated events, including, for example,
intercompany sales, liquidations, and mergers. The term "Restructuring
Liability," however, shall not include any liability or liabilities
arising under Section V of this Agreement.
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(q) "Ruling" means the private letter ruling issued by the Service in reply
to the Ruling Request (and, in the event Alco and Unisource join in
requesting an amendment or supplement thereto, such amendment or
supplemental ruling).
(r) "Ruling Request" means the private letter ruling request filed by the
parties with the Service on April 29, 1996 (and, if applicable, as
modified or supplemented by any materials submitted to the Service),
seeking rulings that, among other things, the Distribution will qualify
for federal income tax purposes as a tax-free distribution under
Section 355 of the Code.
(s) "Separate Tax Return" shall mean all Tax Returns other than Unitary
Income Tax returns, Consolidated Personal Property Tax Returns, and all
Tax Returns filed on a consolidated basis.
(t) "Straddle Period" shall have the meaning ascribed to it in Section
II(a).
(u) "Tax Benefit" shall mean a reduction in the Tax Liability of a taxpayer
(or of the Affiliated Group of which it is a member) for any taxable
period. Except as otherwise provided in this Agreement, a Tax Benefit
shall be deemed to have been realized or received from a Tax Item in a
taxable period only if and to the extent that the Tax Liability of the
taxpayer (or of the Affiliated Group of which it is a member) for such
period, after taking into account the effect of the Tax Item on the Tax
Liability of such taxpayer in all prior periods, is less than it would
have been if such Tax Liability were determined without regard to such
Tax Item. Whenever any party is required under this Agreement to pay an
amount equal to a Tax Benefit, the payment of that amount shall not
itself be deemed to give rise to a
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a Tax Benefit.
(v) "Tax Detriment" shall mean an increase in the Tax Liability of a
taxpayer (or of the Affiliated Group of which it is a member) for any
taxable period. Except as otherwise provided in this Agreement, a Tax
Detriment shall be deemed to have been realized or suffered from a Tax
Item in a taxable period, only if and to the extent that the Tax
Liability of the taxpayer (or the Affiliated Group of which it is a
member) for such period, after taking into account the effect of the
Tax Item on the Tax Liability of such taxpayer in all prior periods, is
greater than it would have been if such Tax Liability were determined
without regard to such Tax Item.
(w) "Tax Item" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which may have the
effect of increasing or decreasing Taxes paid or payable.
(x) "Tax Liability" shall mean the net amount of Taxes due and paid or
payable for any taxable period, determined after applying all tax
credits and all applicable carrybacks for net operating losses, net
capital losses, unused general business tax credits, or any other Tax
Items arising from a prior or subsequent taxable period, and all other
relevant adjustments, and shall include, without limitation, the net
amount due and paid or payable for alternative minimum tax imposed
under Code section 55 or similar alternative or add-on minimum taxes.
(y) "Tax Returns" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or
required to be filed in connection with any Taxes, including
information returns or reports with respect
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to backup withholding and other payments to third parties.
(z) "Taxes" means all federal, state, territorial, local, foreign and other
net income, gross income, gross receipts, sales, use, value added, ad
valorem, transfer, franchise, profits, license, lease, withholding,
payroll, employment, unemployment insurance, workers compensation
insurance, social security, excise, severance, stamp, business license,
occupation, premium, property, environmental, windfall profits,
customs, duties, alternative minimum, estimated or other taxes, fees,
premiums, assessments or charges of any kind whatever imposed or
collected by any governmental entity or political subdivision thereof,
which any member of the Alco Group or the Unisource Group is required
to pay, collect or withhold, together with any interest and any
penalties, additions to Tax or additional amounts with respect thereto,
and the term "Tax" means any one of the foregoing Taxes.
(aa) "Unisource Affiliated Group" shall mean, for each tax period, Unisource
and all corporations of which Unisource or its successor is the common
parent corporation (whether or not presently in existence) that, at the
pertinent time, would be required or entitled to join with Unisource in
filing consolidated federal income tax returns if (i) Unisource were a
common parent corporation and not a member of the Alco Affiliated
Group, and (ii) Unisource and such corporations had duly elected to
file consolidated federal income tax returns for the period including
such time.
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(bb) "Unisource Group" shall mean, for each tax period, (i) the
corporations that are members of the Unisource Affiliated Group, and
(ii) the corporations that would be members of the Unisource
Affiliated Group but for the fact that they are foreign corporations.
(cc) "Unisource Stand-alone Federal Consolidated Tax Liability" shall mean,
for each tax period, the amount of the federal income tax liability
(or refund) that the Unisource Affiliated Group would have had,
computed as if the Unisource Affiliated Group had been a separate
affiliated group of corporations filing a consolidated federal income
tax return pursuant to Section 1502 of the Code for such tax period
and all prior and subsequent tax periods during which Unisource was
(or is) a member of the Alco Affiliated Group. For purposes of the
preceding sentence, the term "Unisource Affiliated Group" shall
include any subsidiary or division of Alco that is operated under the
control of Unisource and is included in the "Unisource Group" as that
term is defined in the Distribution Agreement entered into between
Alco Standard Corporation and Unisource Worldwide, Inc., dated as of
November 20, 1996 (the "Distribution Agreement"). In computing the
Unisource Stand-alone Federal Consolidated Tax Liability for the tax
year that includes the Straddle Period, the tax attributes associated
with intercompany transactions or distributions that are taken into
account during the Straddle Period between any members of the
Unisource Affiliated Group and any members of the Alco Affiliated
Group that are not members of the Unisource Affiliated Group shall be
taken into account, to the extent actually paid. Any consolidated net
9
operating losses, capital losses, or credits attributable to any
member of the Unisource Affiliated Group for any period ending prior
to the period under consideration shall not be taken into account.
(dd) "Unitary Group" shall mean all members of the Alco Group and the
Unisource Group, or portions of such members and all other entities
contained in a collective business unit identified by a state or local
taxing jurisdiction as the basis for its Unitary Income Tax assessment
and for which a Unitary Income Tax return is filed or due.
(ee) "Unitary Income Tax" shall mean state or local taxing jurisdictions'
consolidated income taxes; unitary or combined reporting income taxes;
and consolidated, unitary, or combined reporting franchise taxes.
SECTION II
Preparation and Filing of Tax Return
------------------------------------
(a) Alco shall prepare and file, or cause to be prepared and filed, all
Tax Returns of or with respect to all members of the Alco Group for
all tax periods ending before the Effective Date, and all periods
beginning before the Effective Date and ending on or after the
Effective Date ("Straddle Periods"), other than Separate Tax Returns
of or with respect to members of the Unisource Group.
(b) Unisource shall prepare and file, or cause to be prepared and filed,
all Tax Returns of or with respect to members of the Unisource Group
for all tax periods
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beginning on or after the Effective Date, and all Separate Tax Returns
of or with respect to all members of the Unisource Group.
(c) Any Straddle Period Returns prepared by one or more members of the
Alco Group, or one or more members of the Unisource Group, as the case
may be (the "Preparing Party"), shall be prepared in accordance with
past Tax accounting practices used with respect to the Returns in
question (unless such past practices are no longer permissible under
the Code or other applicable Laws), and to the extent any items are
not covered by past practices (or in the event such past practices are
no longer permissible under the Code or other applicable Laws), in
accordance with reasonable Tax accounting practices selected by the
Preparing Party.
(d) For the Alco Affiliated Group's consolidated federal income tax return
for the period ending September 30, 1997, which will include the tax
items of the Unisource Affiliated Group for the period from October 1,
1996 through December 31, 1996 (the "Short Period"), Unisource will
provide Alco with a pro forma federal income tax return relating to
the Short Period by September 1, 1997.
SECTION III
Payment of Taxes
----------------
(a) Taxes Generally. Except as provided in Sections III(b), III(c),
----------------
III(d), and V of this Agreement: (i) Alco shall pay, or cause to be
paid, and shall indemnify and hold Unisource harmless against all Tax
Liabilities that relate to all Tax Returns
11
that Alco is required to prepare and file, or cause to be prepared and
filed, pursuant to Section II of this Agreement; and (ii) Unisource
shall pay, or cause to be paid, and shall indemnify and hold Alco
harmless against all Tax Liabilities that relate to all Tax Returns
and Separate Tax Returns that Unisource is required to prepare and
file, or cause to be prepared and filed, pursuant to Section II of
this Agreement.
(b) Federal Consolidated Income Taxes.
---------------------------------
(i) If a consolidated federal income tax return is filed by the
Alco Affiliated Group for any taxable year, and if that return
evidences a liability for federal income taxes for such year,
the total liability as shown on such return shall be payable in
full to the IRS by Alco.
(ii) For the tax year ended September 30, 1996, Unisource shall not
make any payments to Alco in respect of federal consolidated
income tax liability unless Alco remits additional payments to
the IRS on either December 15, 1996 or June 15, 1997 (each, an
"Additional Payment"). Unisource shall pay to Alco forty
percent (40%) of any Additional Payment within thirty (30) days
of Alco's remittance of such Additional Payment to the IRS. Any
overpayments of estimated taxes for the tax year ended on
September 30, 1996 shall be allocated forty percent (40%) to
Unisource and sixty percent (60%) to Alco. Alco shall pay to
Unisource its allocable share of any overpayment no later than
thirty (30) days after receiving any refund of such
overpayment. For purposes of this Section III(b)(ii),
Unisource's
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forty percent (40%) allocable share of any Additional Payment
or overpayment shall be computed without taking any alternative
minimum tax credit carryforward into account.
(iii) For the tax year that includes the Straddle Period, Unisource
shall pay to Alco an amount equal to Unisource's share of each
of Alco's payments in respect of estimated federal consolidated
income tax liability for the Straddle Period, calculated in
accordance with the estimated tax payment method employed for
the Alco Affiliated Group's tax year ending on September 30,
1997 (or such other method as agreed to by the parties); any
such payment by Unisource shall be due within thirty (30) days
after Alco remits the pertinent tax payment to the IRS.
Unisource's share of the Alco Affiliated Group's final federal
consolidated income tax liability for the Straddle Period shall
equal the Unisource Stand-alone Federal Consolidated Tax
Liability for the Straddle Period, and Unisource shall pay to
Alco such amount (or receive such refund or reduction in future
estimated tax payments from Alco), after taking into account
payments with respect to estimated taxes made pursuant to the
immediately preceding sentence, no later than the earlier of
September 30, 1997 or within thirty (30) days after Unisource
provides Alco with the information required under Section II(d)
of this Agreement. Unisource shall also pay to Alco the amount
of any penalty assessed against Alco for an underpayment of
estimated taxes to the extent Alco's estimated tax
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underpayment is due to Unisource's underpayment of estimated
taxes paid to Alco. Such payment shall be made within thirty
days of Alco providing written notice to Unisource of such
underpayment of estimated taxes by Unisource.
(iv) If any tax year ending before or including the Effective Date
is subsequently examined by the IRS, and an Adjustment results
from such examination, then Unisource's share of the Alco
Group's additional federal consolidated income Tax Liability
(or Tax Benefit) for that tax year resulting from the
Adjustment shall be computed in accordance with a method to be
agreed to by the parties, and payments under this Section
III(b) shall be adjusted to conform to those recomputations. It
is generally assumed that in the majority of cases the benefit
or burden of an Adjustment would be readily attributable either
to the Alco Group or to the Unisource Group and that the
benefit or burden would be computed at the highest marginal tax
rate for C corporations provided in the Internal Revenue Code
for the pertinent year. If the parties cannot agree upon the
method to recompute Unisource's share of the Alco Group's
additional federal consolidated income Tax Liability (or Tax
Benefit), then Unisource's share of the Alco Group's additional
federal consolidated income Tax Liability (or Tax Benefit)
shall be equal to the difference between (x) the Unisource
Stand-alone Federal Consolidated Tax Liability for the
pertinent year computed without taking the Adjustment into
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account and (y) the Unisource Stand-alone Federal Consolidated
Tax Liability for the pertinent year after taking the
Adjustment into account.
(v) The provisions of this Section III shall remain in effect
notwithstanding that Unisource may have ceased to be a member
of the affiliated group of corporations of which Alco is the
common Parent.
(c) Unitary Income Taxes.
--------------------
(i) The Unisource Group's share of Unitary Income Tax liabilities
for any tax periods for which there is a Unitary Income Tax
Liability shall be allocated in accordance with Section
III(c)(ii) and Appendix I hereto.
(ii) The total Unitary Income Tax liability due to a taxing
jurisdiction where members of the Unisource Group are included
in a Unitary Group with members of Alco Group shall be
determined jointly by Alco and Unisource and then allocated
within such Unitary Group. Nexus both for purposes of the
determination of the Unitary Income Tax liability in a
particular jurisdiction and for purposes of the allocation of
such liability in the Unitary Group shall be determined jointly
by Alco and Unisource. Should a particular taxing jurisdiction
subsequently determine Nexus differently from a determination
previously used, or otherwise determine that an adjustment is
necessary, the Unitary Income Tax liability shall be governed
by the subsequent determination or adjustment, and any
additional Unitary Income Tax liabilities arising therefrom
shall be allocated among the Unitary Group in accordance with
this Section III(c).
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(d) Consolidated Personal Property Taxes.
------------------------------------
(i) Unisource shall pay to Alco an amount equal to the Unisource
Group's share, if any, of Tax Liabilities reflected on any
Consolidated Personal Property Tax Return filed by Alco.
(ii) If any taxable year is subsequently examined, and an Adjustment
results from such examination, then the Unisource Group's share
of Tax Liabilities with respect to the Consolidated Personal
Property Tax Return for such year shall be recomputed, and
payments under Section III(d)(i) shall be adjusted to conform
to those recomputations.
(e) Subject to the provisions of Section V, Alco shall pay and hold
Unisource harmless from any Restructuring Liability. In addition, if,
as a result of the payment by Alco of any Restructuring Liability,
Unisource derives a Tax Benefit, then Unisource shall pay to Alco an
amount equal to such Tax Benefit within thirty (30) days of filing the
tax return pertaining to such Tax Benefit. If, however, as a result of
a Final Determination, the Tax Benefit is reduced, in whole or in
part, then Alco shall pay to Unisource an amount equal to the
reduction of such Tax Benefit including interest, computed in
accordance with Section IX(r) of this Agreement.
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SECTION IV
Carrybacks and Alternative Minimum Tax Credits
----------------------------------------------
(a) In the event Unisource or any other member of the Unisource Affiliated
Group desires to carry back a loss or other Tax Benefit arising in a
year ending after the Effective Date (the "Loss Year") to an Alco
Affiliated Group federal consolidated income tax return for a pre-
Effective Date period (the "Carryback year"), Unisource shall notify
Alco in writing of its intent to carry back such item (and to forego
any election to waive such Carryback Item). Alco shall cooperate with
Unisource in connection with the filing and processing of any
Unisource Carryback Item and shall provide Unisource with copies of
all correspondence in connection therewith.
(b) Subject to Section IV(c), if, pursuant to the terms of Section IV(a)
hereof, Unisource elects to carryback a loss or other Tax Benefit item
to a pre-Effective Date period, Alco shall pay to Unisource an amount
equal to the lesser of (i) any reduction in the Unisource Stand-alone
Federal Consolidated Tax Liability for the Carryback Year (and all
other pre-Effective Date Periods), or (ii) the excess of the Alco
Affiliated Group Tax Liability, as originally computed for the
Carryback Year (and all other years), over the Alco Affiliated Group
Tax Liability for the Carryback Year (and all other years), after
taking the Carryback Item into account.
(c) For purposes of determining the amount due under Section IV(b), in the
event that both Alco and Unisource have Carryback Items available for
use in a pre-
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Effective Date period, the order of use of such Carryback Items shall
be determined under the Code and applicable Regulations.
(d) If Alco is required to make a payment to Unisource with respect to any
Unisource Carryback Item under this Section IV, Alco shall make such
payment within thirty (30) days of receiving the Tax refund
attributable to such Unisource Carryback Item, and Alco is required to
file a claim for refund within thirty (30) days after written notice
of such claim has been delivered by Unisource to Alco.
(e) If a Loss Year or a Carryback Year is subsequently examined by the
IRS, and an Adjustment results from such examination, then Unisource's
share of the Alco Group's additional federal consolidated income Tax
Liability (or Tax Benefit) for that tax year resulting from the
Adjustment shall be computed in accordance with a method to be agreed
to by the parties. It is generally assumed that in the majority of
cases the benefit or burden of an Adjustment would be readily
attributable either to the Alco Group or to the Unisource Group and
that the benefit or burden would be computed at the highest marginal
tax rate for C corporations provided in the Internal Revenue Code for
the pertinent year. If the parties cannot agree upon the method to
recompute Unisource's share of the Alco Group's additional federal
consolidated income Tax Liability (or Tax Benefit), then Unisource's
share of the Alco Group's additional federal consolidated income Tax
Liability (or Tax Benefit) shall be equal to the difference between
(x) the Unisource Stand-alone Federal Consolidated Tax Liability for
the pertinent year computed without taking the Adjustment into account
and (y) the Unisource
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Stand-alone Federal Consolidated Tax Liability for the pertinent year after
taking the Adjustment into account.
(f) Where it lawfully minimizes the Alco Group's Unitary Income Tax liability,
Unisource Group losses, credits, or other deductions may be carried back to
the Alco Group's Unitary Income Tax return for any period at Unisource's
election. Under such circumstances, Alco shall file, within thirty (30)
days, any such carryback return or claim, and upon receipt of any resulting
refund, Alco shall pay to Unisource (in accordance with Section III(b)
hereof) its allocable share of any such refund which may be received,
together with any interest pertaining thereto, within thirty (30) days of
receiving such refund and interest. In the event of a subsequent
examination, appropriate adjustments of such payments shall be made.
(g) Each member of the Unisource Affiliated Group hereby agrees that Alco shall
be responsible, in the exercise of its discretion (but consistent with
Treasury Regulation (S) 1.1502-55, as proposed or finalized as of the date
of filing the Alco Affiliated Group consolidated federal income tax return
for the Straddle Period), for determining the extent to which any
consolidated alternative minimum tax credits of the Alco Affiliated Group
for the Straddle Period or any prior period shall be allocated to the
members of the Unisource Affiliated Group as a consequence of their
departure from the Alco Affiliated Group, and each member of the Unisource
Affiliated Group shall abide by Alco's determination in this regard, unless
and until Alco's determination is modified pursuant to a Final
Determination.
19
SECTION V
---------
Liability for Taking Certain Actions Inconsistent with the Ruling or Ruling
---------------------------------------------------------------------------
Request
-------
(a) In the event that either party, or employee, officer, or director of such
party, takes any action inconsistent with, or fails to take any action
required by, or in accordance with, the Ruling Request or the Ruling, then
such party shall be liable for and shall indemnify and hold the other party
harmless from any Tax Liabilities resulting from such action or failure to
act.
(b) If, within two years after the Effective Date, either party engages in any
transaction involving its stock or assets, and as a result of that
transaction, the Distribution is treated as a taxable event,
notwithstanding the receipt of the Ruling, then the party engaging in such
transaction shall hold the other party harmless from any Tax Liabilities
that result from the treatment of the Distribution as a taxable event.
SECTION VI
----------
Cooperation and Exchange of Information; Audits and Adjustments
---------------------------------------------------------------
(a) Tax Return Information.
----------------------
(i) Unisource shall, and shall cause each appropriate member of the
Unisource Group to, provide Alco with all information and other
assistance reasonably requested by Alco to enable the members of the
20
Alco Group to prepare and file the Tax Returns required to be filed
by them pursuant to this Agreement.
(ii) Alco shall, and shall cause each appropriate member of the Alco
Group to, provide Unisource with all information and other
assistance reasonably requested by Unisource to enable the members
of the Unisource Group to file the Tax Returns required to be filed
by them pursuant to this Agreement.
(iii) Within thirty (30) days after the filing by a member of the Alco
Group of a Tax Return that affects the liability or the
determination of the liability for taxes of any member of the
Unisource Group, the pertinent member of the Alco Group shall
provide Unisource with a copy of so much of the Tax Return that is
relevant to a member of the Unisource Group.
(b) Audits and Adjustments.
----------------------
(i) Whenever Alco or Unisource receives in writing from the IRS or any
other taxing authority notice of an Adjustment that may give rise to
a payment from the other party under this Agreement, Alco or
Unisource, as the case may be, shall give written notice of the
Adjustment to the other party within thirty (30) days of becoming
aware of the Adjustment but in no case later than thirty (30) days
before Alco or Unisource, as the case may be, is required to respond
to the IRS or other taxing authority. The Indemnifying Party at its
own expense shall have primary control over all matters relating to
the Adjustment that may give rise to a payment
21
obligation by the Indemnifying Party, provided, however, that the
-------- -------
Indemnified Party may settle, partially settle, or otherwise resolve
any controversy involving the Indemnified Party's return to which
the particular Adjustment relates, so long as the Indemnified Party
does not settle, partially settle, or otherwise resolve the
controversy in a manner inconsistent with the Indemnifying Party's
position, without prior written consent, which may not be
unreasonably withheld, from the Indemnifying Party.
(ii) Unisource agrees reasonably to cooperate with Alco, in the
negotiation, settlement, or litigation of any liability for taxes of
any member of the Alco Group.
(iii) Alco agrees reasonably to cooperate with Unisource in the
negotiation, settlement, or litigation of any liability for taxes of
any member of the Unisource Group.
(iv) Alco will reasonably promptly notify Unisource in writing of any
Adjustments involving changes in the tax basis of the assets of any
Unisource property, specifying the nature of changes so that the
Unisource Group will be able to reflect the revised basis in its tax
books and records for periods beginning on or after the Effective
Date.
For purposes of this Section, the term "party" shall refer to any member of the
Alco Group and any member of the Unisource Group, as the case may be.
22
SECTION VII
-----------
Retention of Records
--------------------
(a) Alco and Unisource agree to retain the appropriate records which may affect
the determination of the liability for taxes of any member of the Alco
Group or the Unisource Group, respectively, until such time as there has
been a Final Determination with respect to such liability for taxes.
(b) Alco and Unisource will notify each other in writing of any waivers or
extensions of the applicable statute of limitations that may affect the
period for which any materials, records, or documents must be retained.
SECTION VIII
------------
Resolution of Disputes
----------------------
(a) If the parties are, after negotiation in good faith, unable to agree upon
the appropriate application of this Agreement, the controversy shall be
settled by arbitration in accordance with the rules of the American
Arbitration Association (the "AAA").
(b) Upon written notice by any party to the other party that the controversy is
to be submitted to arbitration, each party shall appoint an independent
arbitrator (who shall be a tax attorney or independent certified public
accountant) within thirty (30) days, and the two arbitrators so appointed
shall appoint a third arbitrator
23
within thirty (30) days after the appointment of the last arbitrator
appointed within the initial thirty (30) day period. If any party fails to
appoint an arbitrator or the parties agree on a single arbitrator, the
controversy shall be determined by a single arbitrator. If the two
arbitrators are unable to agree on a third arbitrator within thirty (30)
days, any party may apply to the AAA to make such appointment, and all
parties shall be bound by any appointment so made.
(c) The locale of the arbitration shall be Wayne, Pennsylvania, or any other
location mutually agreed on by all parties.
(d) The award of the arbitrators (or arbitrator) shall be final, and judgment
upon the award rendered may be entered in any court having Jurisdiction.
(e) The fees and expenses of the AAA arbitration panel shall be borne in equal
parts by the parties, unless the arbitration award specifies otherwise.
SECTION IX
----------
Miscellaneous
-------------
(a) Term of the Agreement. This Agreement shall become effective as of the date
---------------------
of its execution and, except as otherwise expressly provided herein, shall
continue in full force and effect indefinitely.
(b) Elections Under Code Section 1552. Nothing in this Agreement is intended
---------------------------------
to change or otherwise affect any election made by or on behalf of the Alco
Affiliated Group with respect to the calculation of earnings and profits
under
24
Code Section 1552.
(c) Injunctions. The parties acknowledge that irreparable damage would occur
-----------
in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached.
Subject to Section IX, the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in
any court having jurisdiction, such remedy being in addition to any other
remedy to which they may be entitled at law or in equity.
(d) Severability. If any term, provision, covenant, or restriction of this
------------
Agreement is held by a court of competent jurisdiction (or an arbitrator or
arbitration panel) to be invalid, void, or unenforceable, the remainder of
the terms, provisions, covenants, and restrictions set forth herein shall
remain in full force and effect, and shall in no way be affected, impaired,
or invalidated. It is hereby stipulated and declared to be the intention
of the parties that they would have executed the remaining terms,
provisions, covenants, and restrictions without including any of such which
may be hereafter declared invalid, void, or unenforceable. In the event
that any such term, provision, covenant, or restriction is held to be
invalid, void, or unenforceable, the parties hereto shall use their best
efforts to find and employ an alternate means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant, or restriction.
(e) Assignment. Except by operation of law or in connection with the sale of
----------
all or substantially all the assets of a party hereto, this Agreement shall
not be
25
assignable, in whole or in part, directly or indirectly by any party hereto
without the advance written consent of the other party, and any attempt to
assign any rights or obligations arising under this Agreement without such
consent shall be void; provided, however, that the provisions of this
Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and
permitted assigns.
(f) Further Assurances. Subject to the provisions hereof, the parties hereto
------------------
shall make, execute, acknowledge, and deliver such other instruments and
documents, and take all such other actions, as may be reasonably required
in order to effectuate the purposes of this Agreement and to consummate the
transactions contemplated hereby. Subject to the provisions hereof, each
of the parties shall, in connection with entering into this Agreement,
performing its obligations hereunder and taking any and all actions
relating hereto, comply with all applicable laws, regulations, orders, and
decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, other regulatory or administrative
agency, commission or similar authority, and promptly provide the other
parties with all such information as they may reasonably request in order
to be able to comply with the provisions of this sentence.
(g) Parties in Interest. Except as herein otherwise specifically provided,
-------------------
nothing in this Agreement expressed or implied is intended to confer any
right or benefit upon any person, firm, or corporation other than the
parties and their respective
26
successors and permitted assigns.
(h) Waivers, Etc.. No failure or delay on the part of the parties in exercising
-------------
any power or right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this
Agreement nor consent to any departure by the parties therefrom shall in
any event be effective unless the same shall be in writing, and then such
waiver or consent shall be effective only in the specific instance and for
the purpose for which given.
(i) Setoff. All payments to be made by any party under this Agreement shall be
------
made without setoff, counterclaim, or withholding, all of which are
expressly waived.
(j) Change of Law. If, due to any change in applicable law or regulations or
-------------
their interpretation by any court of law or other governing body having
jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
(k) Confidentiality. Subject to any contrary requirement of law and the right
---------------
of each party to enforce its rights hereunder in any legal action, each
party agrees that it shall keep strictly confidential, and shall cause its
employees and agents to keep
27
strictly confidential, any information which it or any of its employees or
agentsmay require pursuant to, or in the course of performing its
obligations under, any provision of this Agreement.
(l) Headings. Descriptive headings are for convenience only and shall not
--------
control or affect the meaning or construction of any provision of this
Agreement.
(m) Counterparts. For the convenience of the parties, any number of
------------
counterparts of this Agreement may be executed by the parties hereto, and
each such executed counter-part shall be, and shall be deemed to be, an
original instrument.
(n) Notices. All notices, consents, requests, instructions, approvals, and
-------
other communications provided for herein shall be validly given, made, or
served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid, or by facsimile transmission to
Alco at: Alco Standard Corporation
825 Duportail Road
Wayne, PA 19087
Attn.: Director of Taxes
Unisource at: Unisource Worldwide, Inc.
825 Duportail Road
Wayne, PA 19087
Attn..: Vice President, Taxes
or to such other address as any party may, from time to time, designate in
a
28
written notice given in a like manner. Notice given by telegram shall be
deemed deliveredwhen received by the recipient. Notice given by mail as set
out above shall be deemed delivered five (5) calendar days after the date
the same is mailed. Notice given by facsimile transmission shall be deemed
delivered on the day of transmission provided telephone confirmation of
receipt is obtained promptly after completion of transmission.
(o) Pre-Distribution Earnings and Profits. Alco and Unisource agree to
-------------------------------------
allocate pre-Distribution earnings and profits in accordance with Treasury
Regulation Section 1.312-10.
(p) Deferred Compensation Payments and deductions with respect to Alco's
---------------------
deferred compensation plans are generally discussed in Section 6.02 of the
Benefits Agreement entered into between Alco Standard Corporation and
Unisource Worldwide, Inc. dated as of November 20, 1996 (the "Benefits
Agreement"). In the event that Alco makes a payment to Unisource pursuant
to Section 6.02 of the Benefits Agreement, the parties agree that Alco will
not take a deduction for the amount of such payment and Unisource will not
include such payment in income. It is the intent of the parties that the
after-tax cost to Unisource of payments made under Section 6.02 of the
Benefits Agreement will be zero (0), taking into account any Adjustment
resulting from a Final Determination.
(q) Costs and Expenses. Unless otherwise specifically provided herein, each
------------------
party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.
29
(r) Cancellation of Tax Allocation or Tax-Sharing Agreements. Except
--------------------------------------------------------
as otherwise expressly provided herein, on or prior to the Effective Date,
Alco shall cancel or cause to be canceled all agreements (other than this
Agreement) providing for the allocation or sharing of Income and Taxes to
which any member of the Unisource Group would otherwise be bound following
the Distribution.
(s) Interest on Late Payments. Any payment required under this Agreement that
-------------------------
is not paid within the time specified herein shall be subject to interest
computed in accordance with Article XII of the Distribution Agreement.
SECTION X
---------
Applicable Law
--------------
This Agreement shall be governed by and construed and enforced in accordance
with the domestic substantive laws of the Commonwealth of Pennsylvania without
regard to any choice or conflict of laws, rules, or provisions that would cause
the application of the domestic substantive laws of any other jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed by
30
their respective officers, each of whom is duly authorized, all as of the day
and year first above written.
ALCO STANDARD CORPORATION
By: /s/ John E. Stuart
----------------------------------
Title: Chairman and Chief Executive Officer
UNISOURCE WORLDWIDE, INC.
By: /s/ Ray B. Mundt
----------------------------------
Title: Chairman and Chief Executive Officer
31
APPENDIX I
Allocation of Unitary Income Tax Liabilities and Benefits
---------------------------------------------------------
(a) Pursuant to Section III(c) of the Tax Sharing and Indemnification
Agreement, the Unisource Group, shall be allocated a pro rata share of any
Unitary Income Tax cost or benefit, including interest and penalties (either as
originally reported or as adjusted upon audit, amended return, or ultimate
settlement, or otherwise), arising by reason of its activities' being included
in a Unitary Income Tax return with activities of the Alco Group. In order to
ascertain the Unisource Group's allocated tax cost or benefit of such Unitary
Income Tax return in a particular jurisdiction for a particular tax period the
following principles shall apply: (1) any taxable income or loss from Alco
Standard Acquisition Capital Corporation ("ASACC") shall be allocated to the
groups that received the loans which resulted in such income or loss and (2) the
taxable income or loss of Alco that appears on line 30 of the pro forma federal
Form 1120 of Alco Corporate shall be allocated sixty percent (60%) to the Alco
Group and forty percent (40%) to the Unisource Group. This paragraph (a) shall
govern cases involving universal unitary treatment (i.e., cases in which both
the Alco Group and the Unisource Group are treated as part of a single unitary
business, as is currently expected to be the case in Minnesota) and cases
involving group unitary treatment (i.e., cases in which the Alco Group and the
Unisource Group are each treated as distinct unitary businesses, as is currently
expected to be the case in California). Any costs or expenses incurred to
protest or resolve universal unitary tax treatment shall be allocated sixty
percent (60%) to the Alco Group and forty percent (40%) to the Unisource Group.
Appendix I
(b) In cases of selective unitary treatment, (i.e., where Alco
Corporate and ASACC are treated as a unitary business, but no member of the
Unisource Group is treated as part of a unitary group, as is currently the case
in Connecticut), Unisource will be allocated 40 percent of the Unitary Income
Tax cost or benefit attributable to the Alco Corporate's and ASACC's inclusion
in the selective Alco unitary grouping. Any third-party costs or expenses
incurred to protest or resolve selective unitary treatment shall be allocated
sixty percent (60%) to the Alco Group and forty percent (40%) to the Unisource
Group.
Appendix I