August 5, 1996
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT (the "Agreement"), dated as of the 5th
day of August, 1996, by and between FURNISHINGS INTERNATIONAL INC., a Delaware
corporation (referred to below as "Parent"), Simmons Upholstered Furniture
Corporation, a Delaware corporation ("Simmons"), Lifestyle Furnishings
International Ltd., a Delaware corporation ("LFI"), and LFI Receivables
Corporation, a Delaware corporation ("Receivables Corporation"; and together
with Simmons and LFI each, a "Subsidiary," and collectively, the
"Subsidiaries").
W I T N E S S E T H
WHEREAS, Parent is the common parent corporation of an affiliated
group of corporations within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended (referred to below as the "Code"); and
WHEREAS, such affiliated group proposes to file consolidated federal
income tax returns; and
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WHEREAS, Parent and each Subsidiary wish to enter into this
Agreement to set forth their understanding as to certain matters pertaining to
their federal income tax liabilities; and
WHEREAS, the Credit Agreement dated as of the date hereof among
Parent, LFI, the subsidiary borrowers named therein, the lenders named therein
and Chemical Bank and Chemical Bank Delaware (the "Credit Agreement"), requires
the Parent and each Subsidiary to enter into this Agreement as a condition for
the effectiveness of said Credit Agreement;
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements set forth below and for other consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties, intending
to be legally bound, agree as follows:
1. Definitions
For purposes of this Agreement, the terms set forth below
shall have the following meanings:
(a) Parent Group - All corporations (whether or not presently
in existence) included, from time to time, in the consolidated federal income
tax return filed by Parent.
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(b) Subsidiary Group - Subsidiary and all corporations
(whether or not presently in existence) that, at the pertinent time, would be
entitled or required to join with Subsidiary in filing consolidated federal
income tax returns if Subsidiary were a common parent corporation and were not a
member of the Parent Group. Those corporations presently included in each
Subsidiary Group are listed on Schedule 1, attached to this Agreement. For this
purpose, the Subsidiary Group with LFI as its parent shall not include
Receivables Corporation.
(c) Truncated Group - All corporations included in the Parent
Group that are not members of any Subsidiary Group.
(d) Parent Group Tax Liability - The consolidated federal
income tax liability (including any associated penalties) of the Parent Group
for any taxable year for which the Parent Group files a consolidated federal
income tax return. Such liability shall, in no event, be deemed to be less than
zero.
(e) Subsidiary Group Tax Liability - The federal income tax
liability (including any associated penalties), determined at the end of the
taxable year, of the Subsidiary Group, computed as if each Subsidiary Group were
not part of the Parent Group, but rather a separate affiliated group of
corporations filing a consolidated federal income tax return
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pursuant to Section 1502 of the Code. This computation shall be made without
regard to any carryovers of any member of each Subsidiary Group, unless those
carryovers were absorbed in computing the Parent Group Tax Liability for the
year. Such liability shall, in no event, be deemed to be less than zero. The
annual computation of each Subsidiary Group Tax Liability shall be determined
for purposes of this Agreement in accordance with the following principles:
(1) The income, deductions, credits, carryovers, and
other tax attributes of the Subsidiary Group shall be determined in
accordance with all elections actually made (or deemed made by operation
of law) by each member of the Subsidiary Group for purposes of computing
the Parent Group Tax Liability.
(2) If any transaction between any member of the
Subsidiary Group and any member of the Truncated Group constitutes an
intercompany transaction (as that term is defined in Section 1.1502-13 of
the Treasury Regulations) between members of the Parent Group, then that
member of the Subsidiary Group (or any other member of the Subsidiary
Group that inherits any portion of the deferred gain or loss of that
corporation pursuant to Section 1.1502-13(c)(6) of
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the Treasury Regulations) shall take into account the tax attributes
associated with the transaction at the time and in the manner it takes
those tax attributes into account for purposes of the Parent Group's
consolidated tax return.
(3) The income, deductions, credits, carryovers, and
other tax attributes relating to the Simmons Business, as such term is
defined in the Certificate of Incorporation of Parent, shall be deemed
included in the Subsidiary Group which includes Simmons, and shall not be
included in any other Subsidiary Group.
(4) The Subsidiary Group Tax Liability, for each
Subsidiary Group other than the Subsidiary Group including Simmons, is
limited by the percentage of the Parent Group Tax Liability (excluding,
for purposes of this calculation, the income, deductions, credits,
carryovers, and other tax attributes associated with Simmons) which the
tax of such Subsidiary Group if computed on a separate return would bear
to the total amount of the taxes for all Subsidiary Groups (other than the
Subsidiary Group including Simmons) and the Truncated Group so computed.
(f) Truncated Group Tax Liability - The federal income tax
liability (including any associated penalties),
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determined at the end of the taxable year, of the Parent Group, computed as if
each Subsidiary Group were not part of the Parent Group. This computation shall
be made without regard to any carryovers of any member of the Truncated Group
unless those carryovers were absorbed in computing the Parent Group Tax
Liability for the year. Such liability shall, in no event, be deemed to be less
than zero. The annual computation of the Truncated Group Tax Liability shall be
determined for purposes of this Agreement in accordance with the following
principles:
(1) The income, deductions, credits, carryovers, and
other tax attributes of the Truncated Group shall be determined in
accordance with all elections made (or deemed made by operation of law) by
each member of the Truncated Group for purposes of computing the Parent
Group Tax Liability.
(2) If any transaction between any member of any
Subsidiary Group and any member of the Truncated Group constitutes an
intercompany transaction (as that term is defined in Section 1.1502-13 of
the Treasury Regulations) between members of the Parent Group, then that
member of the Truncated Group (or any other member of the Truncated Group
that inherits any portion of the deferred gain or loss of
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that corporation pursuant to Section 1.1502-13(c)(6) of the Treasury
Regulations) shall take into account the tax attributes associated with
the transaction at the time and in the manner it takes those attributes
into account for purposes of the Parent Group's consolidated federal
income tax return.
(3) The income, deductions, credits, carryovers, and
other tax attributes relating to the Simmons Business, as such term is
defined in the Certificate of Incorporation of Parent, shall be deemed
included in the Subsidiary Group which includes Simmons, and shall not be
included in the Truncated Group Tax Liability.
(4) The Truncated Group Tax Liability is limited by the
percentage of the total tax which the tax of such Truncated Group if
computed on a separate return would bear to the total amount of the taxes
for all Subsidiary Groups and the Truncated Group so computed.
2. Payments With Respect to Tax Benefits and Burdens
(a) As long as the Parent owns sufficient stock
of any Subsidiary or corporation included in a Subsidiary Group entitling the
Parent to include such Subsidiary or corporation included in a Subsidiary Group
in a consolidated federal income
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tax return, the Parent and such Subsidiary shall join in the filing of
consolidated federal income tax returns with the Parent Group and agree to
furnish all information, execute all consents, elections and other documents and
take such actions as may be necessary or appropriate to prepare and file such
returns.
(b) If a consolidated federal income tax return filed by the
Parent Group for a taxable year evidences a liability for federal income taxes
for such year, the total liability as shown on such return shall be payable in
full by Parent.
(c) For any taxable year during which income, loss, or credit
against federal income tax of any Subsidiary or any other member of the
Subsidiary Group is includible in computing the Parent Group Tax Liability, each
Subsidiary shall pay to Parent an amount equal to its Subsidiary Group Tax
Liability, if any. This amount shall be paid before five days following the
earlier of (i) the date on which the Parent Group's consolidated federal income
tax return is filed or (ii) the date, following the close of such taxable year,
on which Parent notifies Subsidiary of Parent's final determination of the
Subsidiary Group Tax Liability.
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(d) For any taxable year during which income, loss, or credit
against federal income tax of any Subsidiary or any other member of the
Subsidiary Group is includible in computing the Parent Group Tax Liability,
Parent shall pay to each Subsidiary, pro rata as to each Subsidiary's loss or
credit, if any, in computing the Parent Group Tax Liability an amount equal to
the excess, if any, of the aggregate of the Truncated Group Tax Liability and
the Subsidiary Group Tax Liability for the taxable year over the Parent Group
Tax Liability for the taxable year. This payment shall be made within 30 days
after the Parent Group's consolidated return for a taxable year is filed.
(e) Each Subsidiary shall pay to Parent on or before each due
date for payments of estimated tax as provided in Section 6655 of the Code an
amount equal to the minimum payment of estimated tax that would have been
payable by its Subsidiary Group without incurring the penalty imposed by Section
6655 of the Code if the Subsidiary Group were filing a consolidated federal
income tax return apart from the other members of the Parent Group and had filed
such a consolidated return for at least the two preceding taxable years. Any
estimated tax payments made by Subsidiary to Parent under this paragraph 2(e)
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for any taxable year shall be applied to reduce the amount, if any, owing by
Subsidiary to Parent under paragraph 2(b) for that year. If the sum of the
payments made by any Subsidiary under this paragraph 2(e) for any taxable year
exceeds the amount owing by such Subsidiary to Parent under paragraph 2(b) for
that taxable year, Parent shall repay the excess to such Subsidiary within 10
days after the Parent Group's consolidated federal income return for that year
is filed.
3. Carrybacks.
(a) In the event that the Parent Group incurs a consolidated
net operating loss (as that term is defined in Section 1.1502-21(f) of the
Treasury Regulations) or a credit against federal income tax for any taxable
year and that consolidated net operating loss or tax credit is carried back to
and absorbed in a prior taxable year of Parent or any member of the Parent
Group, then the Parent Group Tax Liability, each Subsidiary Group Tax Liability,
and the Truncated Group Tax Liability for the prior taxable year shall be
recomputed accordingly, and the amount of the liabilities determined under
paragraph 2 of this Agreement shall be adjusted to conform to those
recomputations.
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(b) Parent shall be responsible for carrying out any
recomputations required by paragraph 3(a) and shall promptly send each
Subsidiary notification of any conforming adjustment of affected liabilities
under paragraph 2 of this Agreement. Within 10 days following the mailing of
that notice, Subsidiary shall pay Parent or Parent shall pay Subsidiary, as the
case may be, the amount of any increased liabilities under paragraph 2 of this
Agreement, as reflected in the notice.
(c) This Agreement shall have no application to the carryback
of a net operating loss or credit from a separate return year (within the
meaning of Section 1.1502-1(e) of the Treasury Regulations) of any Subsidiary or
another affiliated group of which Subsidiary is a member, as the case may be, to
any taxable year of the Parent Group.
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4. State and Local Taxes.
In the event any Subsidiary or a corporation included in a
Subsidiary Group is included in a joint, combined, consolidated or unitary state
or local income or franchise tax return with any member of the Parent Group
(other than another corporation in such Subsidiary Group), such Subsidiary shall
make payments to the Parent, and the Parent shall make payments to such
Subsidiary, on a state by state basis in a manner consistent with the approach
provided by paragraphs 2, 3 and 5 hereof. Each Subsidiary hereby consents to be
included in such joint, combined, consolidated or unitary returns as the Parent
in its discretion deems advisable. Payments made pursuant to this paragraph will
be deemed deductible pursuant to Section 164 of the Code for purposes of
computing the tax liabilities of the Subsidiary and the Parent as though they
were not filing a consolidated income tax return pursuant to paragraphs 2 and 3
hereof.
5. Subsequent Adjustments.
(a) If the Parent Group Tax Liability for a taxable year is
changed or adjusted for any reason other than the carryback of a net operating
loss or credit governed by paragraph 3 of this Agreement (including, but not
limited to, the filing of
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an amended return or claim for refund or an examination by the Internal Revenue
Service), then each Subsidiary Group Tax Liability and the Truncated Group Tax
Liability for such taxable year shall be recomputed accordingly, and the amount
of the liabilities determined under paragraph 2 of this Agreement shall be
adjusted to conform to those recomputations.
(b) Whenever any payment is due on account of a recomputation
pursuant to paragraph 5(a), an additional liability (referred to in this
Agreement as "Associated Interest") shall be determined to reflect the interest
cost or benefit associated with that recomputation and consequent adjustment to
liabilities under paragraph 2 of this Agreement. The liability for Associated
Interest shall be computed by applying the applicable rates of interest under
the rules prescribed by the Code and Treasury Regulations for the periods in
question to the adjusted liabilities under paragraph 2 of the Agreement. The
applicable rates of interest shall be determined as follows:
(1) In the case of an increase in an amount due under
paragraph 2(b) or a decrease in an amount due under paragraph 2(c), the
applicable rate shall be: (i) the rate (or rates) charged by the Internal
Revenue Service with respect to underpayments of income tax, to the extent
that
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the recomputation of any Subsidiary Group Tax Liability for the taxable
year of the adjustment served to create or increase an actual Parent Group
Tax Liability for the taxable year; and (ii) the rate paid by the Internal
Revenue Service on overpayments of income tax, to the extent that the
recomputation of any Subsidiary Group Tax Liability served to reduce or
eliminate a refund that the Parent Group would have been entitled to
receive if the Parent Group had consisted only of the members of the
Truncated Group in the taxable year for which the adjustment is made.
(2) In the case of a decrease in an amount due under
paragraph 2(b) or an increase in an amount due under paragraph 2(c), the
applicable rate shall be the rate (or rates) paid by the Internal Revenue
Service with respect to overpayments of income tax.
(c) Parent shall be responsible for carrying out any
recomputations required by paragraph 5(a) of this Agreement and for the
computation of Associated Interest required by paragraph 5(b) of this Agreement
and shall promptly send each Subsidiary written notification of both. Within 10
days following the mailing of that notice, Subsidiary shall pay Parent or Parent
shall pay Subsidiary, as the case may be, the amount of
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any increased liabilities under paragraph 2 of the Agreement and any Associated
Interest computed under section 5(b) of this Agreement, as reflected in the
notice.
(d) The provisions of this paragraph 5, together with those
provisions of paragraph 2 that may be invoked under this paragraph 5 from time
to time, shall remain in effect notwithstanding that Subsidiary may have ceased
to be a member of the affiliated group of corporations of which Parent is the
common parent.
6. Interest.
If any payment required to be made pursuant to paragraph 2, 3,
4, or 5 of this Agreement is not made within the time periods specified in those
paragraphs, the delinquent payment shall bear interest from its due date until
the date of actual payment at the rate (or rates) charged by the Internal
Revenue Service on underpayments of tax for the periods in question.
7. Effective Date.
This Agreement shall be effective for taxable years of the
Parent Group beginning after August 5, 1996.
8. Miscellaneous Provisions.
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(a) This Agreement contains the entire understanding of the
parties with respect to the subject matter of this Agreement, except that
nothing contained in this Agreement shall be construed to prevent Parent from
entering into tax benefit compensation agreements with members of the Parent
Group that are not also members of any Subsidiary Group or to prevent any
Subsidiary from entering into similar agreements with members of its Subsidiary
Group. No alteration, amendment, or modification of any of the terms of this
Agreement shall be valid unless made by an instrument signed in writing by an
authorized officer of each party.
(b) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (other than any conflicts of
law rule which might result in the application of the laws of any other
jurisdiction).
(c) This Agreement may be executed simultaneously 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.
(d) All notices and other communications hereunder shall be
deemed to have been duly given if delivered by hand or mailed by certified or
registered mail, postage prepaid:
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(i) if to Parent, to:
FURNISHINGS INTERNATIONAL INC.
1300 National Highway
Thomasville, North Carolina 27360
Facsimile No.: 910-476-4551
Attn: General Counsel
(ii) if to LFI, to:
LIFESTYLE FURNISHINGS INTERNATIONAL INC.
1300 National Highway
Thomasville, North Carolina 27360
Facsimile No.: 910-476-4551
Attn: General Counsel
(iii) if to Receivables Corporation, to:
LFI RECEIVABLES CORPORATION
1300 National Highway
Thomasville, North Carolina 27360
Facsimile No.: 910-476-4551
Attn: General Counsel
(iv) if to Simmons, to:
SIMMONS UPHOLSTERED FURNITURE CORPORATION
1314 Hanley Industrial Court
St. Louis, Missouri 63144
Facsimile No.: (314) 968-1818
Attn: President
(e) The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not constitute a part of the Agreement.
[Remaining Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be affixed hereto, all
as of the date and year first above written.
FURNISHINGS INTERNATIONAL INC.
By:_______________________________
Name:
Title:
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
By:_______________________________
Name:
LFI RECEIVABLES CORPORATION
By:_______________________________
Name:
Title:
[Signature Page to Tax Sharing Agreement]
LIFESTYLE HOLDINGS LTD.
By________________________________
Douglas C. Barnard
Secretary
LFI SERVICING CORPORATION
By________________________________
Douglas C. Barnard
Secretary
SIMMONS UPHOLSTERED FURNITURE CORPORATION
By________________________________
Robert L. George
Executive Vice President
SCHEDULE 1
Corporations Included in Each
Subsidiary Group
Subsidiary Group Including Simmons
Simmons Upholstered Furniture Corporation
Subsidiary Group Including Receivables Corporation
LFI Receivables Corporation
LFI Servicing Corporation
Subsidiary Group including LFI
Lifestyle Furnishings International Ltd.
Lifestyle Holdings Ltd.
Ametex Fabrics, Inc.
The Berkline Corporation
Dixie Furniture Company, Incorporated
Drexel Heritage Furnishings Inc.
D-H Retail Space, Inc.
Drexel Heritage Advertising, Inc.
Drexel Heritage Home Inspiration, Inc.
Frederick Edward, Inc.
Henredon Furniture Industries, Inc.
Henredon Transportation Co.
Henry Link Corporation
Interior Fabric Design, Inc.
Intro Europe, Inc.
La Barge, Inc.
Lexington Furniture Industries, Inc.
Lineage Services Incorporated
Link-Taylor Corporation
Maitland-Smith, Inc.
Marbro Lamp Company
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Ramm, Son & Crocker, Inc.
Robert Allen Fabrics, Inc.
Robert Allen Fabrics of N.Y., Inc.
Sunbury Textile Mills, Inc.
Universal Furniture Limited
Universal Furniture Industries, Inc.
Blue Mountain Trucking Corporation
Custom Truck Tires, Inc.
Young-Hinkle Corporation
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