Exhibit 10.5
TAX SHARING AGREEMENT
AGREEMENT dated this 6th day of February, 1997 by and between Dart Group
Corporation, a Delaware corporation ("Dart"), and SFW Acquisition Corp., a
Delaware corporation ("SFW").
WHEREAS, all of the outstanding stock of SFW is owned directly or indirectly by
Dart; and
WHEREAS, Dart and SFW desire to establish an arrangement whereby the federal,
state, and local income tax returns of SFW and its direct and indirect
subsidiaries which will be included, along with SFW, in the consolidated federal
income tax returns to be filed by Dart (such subsidiaries and SFW collectively,
the "SFW Group") will be prepared by Dart and the income tax liabilities of the
SFW Group will be determined and paid by Dart and rebilled to SFW for
settlement.
NOW, THEREFORE, Dart and SFW agree as follows:
ARTICLE I
1.01 Preparation and Filing of Tax Returns by Dart. SFW shall prepare and give
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to Dart (from time-to-time during each taxable year upon the request of
Dart) federal, state, and other tax packages showing the gross income,
deductions, taxable income, and credits of the SFW Group as if such group
was a separate and independent affiliated group filing a consolidated
federal income tax return (with SFW as the common parent). Dart shall
prepare and timely file or shall cause the preparation and timely filing of
all appropriate federal, state, and other income tax returns of each member
of the SFW Group.
1.02 Payment of Taxes by Dart to Taxing Authorities. Dart shall pay or cause to
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be paid all income taxes, interest, and penalties due with respect to
federal, state, and other income tax returns relating to income earned or
recognized by the SFW Group.
1.03 Allocation of Taxes by Dart to SFW. Dart shall determine the income taxes,
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interest, and penalties of the SFW Group as if such group was a separate
and independent affiliated group filing a consolidated federal income tax
return (with SFW as the common parent), and shall allocate and bill all
such income taxes, interest, and penalties to SFW. For this purpose, the
SFW Group's taxes shall not be reduced by reason of any deduction or credit
attributable to any member of the Dart affiliated group which is not also a
member of the SFW Group. In the event that the Dart affiliated group files
its consolidated federal income tax return on the basis of the alternative
minimum tax, the tax of the SFW Group will be calculated on a regular tax
or alternative minimum tax basis, as appropriate for the SFW Group as if it
were a separate and independent affiliated group filing a consolidated
federal income tax
return (with SFW as the common parent). Dart shall consult with SFW in the
determination of the SFW Group's income tax liabilities. As used in this
section and elsewhere in this agreement, the term "affiliated group" shall
have the meaning set forth in section 1504 of the Internal Revenue Code of
1986, as amended (the "Code").
1.04 Determinations by Dart in Accordance with Allocation Policy Objectives. In
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the event that it may be unclear as to the result of the application of
Section 1.03 to specific situations which may arise and which are not
specifically addressed in Section 1.03, the allocation of taxes shall be
determined using the following tax allocation policy objectives as a guide:
(1) The tax allocation policy is meant to fairly allocate federal, state,
and local tax liabilities to SFW as if the SFW Group filed a
consolidated tax return on behalf of the SFW Group and paid its tax on
a separate affiliated group basis;
(2) The tax allocation policy should be neutral towards performance
criteria established for the SFW Group;
(3) The tax allocation policy should be logical and result in fairly
presenting the financial position and results of operations of the SFW
Group in any separate statements provided to outside parties; and
(4) The tax allocation policy should be simple to administer and provide
for a means of recording the tax provisions in interim and year-end
financial statements in a timely manner.
1.05 Payment of Allocated Taxes. Subject to section 1.06, SFW shall pay to Dart
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within 90 days after the end of their taxable years the tax liability
allocated to SFW pursuant to section 1.03. If for any taxable year the SFW
Group has a net operating loss computed on a separate affiliated group
basis (and computed without regard to any net operating loss carryover from
periods ending on or before the date of this Agreement) that reduces the
consolidated tax liability of the Dart affiliated group below the amount
that would have been payable if such member of the SFW Group had not
incurred such loss, Dart shall pay the amount of the tax reduction so
computed to SFW within 90 days after the end of such year. The tax
liability of the Dart affiliated group, less the amount of tax liability
allocated to SFW, shall be the sole responsibility of Dart and the other
members of the Dart affiliated group, excluding members of the SFW Group.
The foregoing sentence shall not affect any right to indemnification for
any taxes (including penalties and interest thereon) that Dart or other
members of its affiliated group may have from any person who is not a
member of the Dart affiliated group.
1.06 Interim Estimated Payments. From time to time prior to the end of each
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taxable year, SFW shall reimburse Dart (within 30 days following each
request by Dart), on a basis consistent with the guidelines set forth in
section 1.04, for that portion of any
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estimated federal income tax payments attributable to the inclusion of the
SFW Group in the Dart consolidated federal income tax return. Any amounts
so paid in any year shall operate to reduce the amount payable to Dart
following the end of such year pursuant to section 1.05 above, and any
negative balance resulting from such reduction shall promptly be refunded
by Dart to SFW.
1.07 Application of Tax Allocation to State and Local Income Taxes. Sections
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1.03 through 1.06 are to apply to the allocation of state and local income
taxes where the tax liability of any member of the SFW Group is affected by
its affiliated ownership status. It is anticipated that the methods of
payment and allocation may vary somewhat in these cases from those
specifically described in Sections 1.03 through 1.06, but the guiding
intent in these instances is to apply the general principles of such
sections.
1.08 Conduct of Tax Audits and Disputes; Tax Adjustments. Dart and its duly
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appointed representatives shall have the right on behalf of each member of
the SFW Group to supervise or otherwise coordinate any examination process
and to negotiate, resolve, settle and contest any asserted tax deficiencies
or assert and prosecute any claim for refund. Dart will be reimbursed for
any costs including, but not limited to, accounting and legal costs,
associated with any conference, hearing, or court proceeding related to
taxes of the SFW Group. In the event of any adjustment to the tax returns
of Dart or any member of the SFW Group as filed (by reason of an amended
return, claim for refund, an audit by the Internal Revenue Service or other
taxing authority, or otherwise), the liability of Dart and SFW hereunder
shall be redetermined to give effect to any such adjustment as if it had
been made as part of the original computation of tax liability, and
appropriate payments between Dart and SFW shall be made in accordance with
the foregoing provisions of this Agreement within 30 days after any
payments are made or refunds are received as a result of the adjustment,
or, in the case of contested proceedings, within 30 days after a final
determination of the contest.
1.09 Effectiveness of the Foregoing Provision. The provisions of Sections 1.01
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through 1.08 above shall remain in effect with respect to all periods
during which any member of the SFW Group is included in the consolidated
federal income tax return filed by Dart.
ARTICLE II
2.01 Earnings and Profits Adjustments. This Agreement is not intended to
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establish the method by which the earnings and profits of each member of
the SFW Group will be determined. Dart reserves the right to elect the
method for allocating tax liability for the purposes of determining
earnings and profits as set forth in sections 1.1552-1(a) and 1.1502-33(d)
of the Treasury Regulations.
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2.02 Expenses. Except as otherwise provided herein, all costs and expenses
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incurred in connection with this Agreement and transactions contemplated
hereby shall be paid by the party incurring such costs and expenses.
2.03 Authority to Amend Agreement Due to Change in Law or Regulation. SFW
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agrees that Dart shall have the authority to amend this Agreement as
required in order to comply with changes hereafter in the Code, Treasury
Regulations, or state provisions relating to consolidated income tax
returns.
2.04 Entire Agreement. This Agreement contains the entire agreement between the
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parties and supersedes all prior agreements, arrangements, and
understandings relating to the subject matter hereof. There are no written
or oral agreements, understandings, representations or warranties between
or among the parties other than those set forth or referred to in this
Agreement.
2.05 Elections. SFW, for itself and on behalf of all members of the SFW Group,
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hereby agrees that Dart shall have the authority to make on behalf of each
member of the SFW Group all elections which are available under the Code,
Treasury Regulations, or state provisions relating to taxes.
2.06 Subsidiaries. If at any time hereafter SFW acquires direct or indirect
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ownership of any subsidiary corporation that is affiliated with Dart within
the meaning of section 1504(a) of the Code, such subsidiary corporation
shall be included in the SFW Group, and all references to the SFW Group
herein shall thereafter be interpreted to include such subsidiary.
2.07 Section Headings. The section and paragraph headings contained in this
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Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement.
2.08 Notices. All notices, consents, requests, instructions, approvals and
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other communications provided for herein and all legal process in regard
hereto shall be validly given, made or served if in writing, when delivered
personally (by courier service or otherwise), when delivered by telecopy
and confirmed by returned telecopy, addressed as follows or, in each case,
to such other address as may be specified by a party in writing to the
other party:
(a) if to Dart, to:
3300 75th Avenue
Landover, MD 20785
Attention: Chief Financial Officer
Telecopy Number: (301) 772-3910
(b) if to SFW, to:
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3300 75th Avenue
Landover, MD 20785
Attention: President
Telecopy Number: (301) 772-3910
2.09 Governing Law. This Agreement shall be governed by and construed in
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accordance with the laws of the State of Delaware without reference to the
choice of law principles thereof.
2.10 Illegality. In case any provision in this Agreement shall be invalid,
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illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby,
unless such remaining provisions are inconsistent with the policy
objectives set forth in section 1.04.
2.11 Successors and Assigns; Merger with Shoppers Food Warehouse Corp. This
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Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. The parties intend
that SFW will be merged with and into Shoppers Food Warehouse Corp., a
Delaware corporation ("Shoppers Food"). Following such merger, all
references herein to SFW shall be interpreted to be references to Shoppers
Food.
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the
parties of the day first above written.
DART GROUP CORPORATION SFW ACQUISITION CORP.
By: /s/ Mark A. Flint By: /s/ Elliot R. Arditti
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Name: Mark A. Flint Name: Elliot R. Arditti
Title: Chief Financial Officer Title: Secretary
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