- -------------------------------------------------------------------------------
TAX SHARING AGREEMENT
between
U S WEST, INC.
(to be renamed MEDIAONE GROUP, INC.)
and
USW-C, Inc.
(to be renamed U S WEST, INC.)
Dated as of June 5, 1998
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions; Certain Operating Conventions. . . . . . . . . . . . . . . . . . 2
ARTICLE II
Allocation and Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
Preparation and Filing of Tax Returns,
Cooperation and Record Retention. . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V
Refunds, Audits and Adjustments . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT, dated as of June 5, 1998, by and between U S
WEST, Inc., a Delaware corporation ("U S WEST") to be renamed MediaOne Group,
Inc. and USW-C, Inc., a Delaware corporation and wholly owned subsidiary of U
S WEST ("New U S WEST") to be renamed U S WEST, Inc.
W I T N E S S E T H
WHEREAS, New U S WEST and its subsidiaries are currently members of
the U S WEST Consolidated Group (as defined herein);
WHEREAS, pursuant to the Separation Agreement entered into between
U S WEST and New U S WEST dated June 5, 1998 (the "Separation Agreement"),
(a) U S WEST shall effect a restructuring of certain of its assets,
liabilities and businesses, as a result of which New U S WEST shall own the
Directories Business and the businesses currently attributed to the
Communications Group (each as defined in the Separation Agreement) (the
"Reorganization") and (b) U S WEST shall distribute all of the outstanding
capital stock of New U S WEST to its stockholders (the "Separation");
WHEREAS, the parties intend that for United States federal income
tax purposes the Reorganization and the Separation shall qualify as tax-free
transactions pursuant to Sections 332, 368(a) and 355 of the Code (as defined
herein);
WHEREAS, the parties wish to (a) provide for the payment of tax
liabilities and entitlement to refunds thereof, allocate responsibility for,
and cooperation in, the filing of tax returns and provide for certain other
matters relating to taxes and (b) set forth certain covenants and indemnities
relating to the preservation of the tax-free status of the Reorganization and
the Separation.
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and in any other document executed in
connection with this Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN OPERATING CONVENTIONS
1.1 For the purposes of this Agreement, the following terms shall
have the meanings set forth below:
ADJUSTMENTS shall mean any proposed or final change in the Tax
Liability of a taxpayer.
CODE shall mean the Internal Revenue Code of 1986, as amended.
COMBINED RETURN shall mean any combined, unitary, or consolidated
State Income Tax return that includes one or more members of the MediaOne
Group and one or more members of the New U S WEST Group (as hereinafter
defined).
COMBINED RETURN TAX SAVINGS shall mean, with respect to a Taxable
Year in which one or more Combined Returns were filed or required to be filed
in the Communications Group Region, the excess of the State Income Tax that
would have been payable to all Tax Authorities in the Communications Group
Region if the MediaOne Group had not been included in such Combined Returns
for such Taxable Year over the actual State Income Tax paid to such Tax
Authorities in respect of such Combined Returns.
COMMUNICATIONS GROUP REGION shall mean the 14-state region
comprised of the states of Arizona, Colorado, Idaho, Iowa, Minnesota,
Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah,
Washington and Wyoming.
CONTRIBUTED MEDIA GROUP SUBSIDIARIES shall mean each of U S WEST
Media Group, Inc. and U S WEST Capital Funding, Inc., and each of their
respective subsidiaries.
CONTRIBUTED SUBSIDIARIES shall mean each of U S WEST Foundation,
U S WEST Educational Foundation, U S WEST Investment Management Company,
U S WEST SPF, Co., U S WEST Federal Relations, Inc., and U S WEST IP Holdings,
Inc., and each of their respective subsidiaries.
FEDERAL INCOME TAX shall mean federal Taxes determined on the basis
of net income or profits (including, but not limited to, any alternative
minimum tax, capital gains and any Tax on items of Tax preferences) but
excluding non-income Taxes such as federal payroll and excise Taxes.
2
INDEMNIFYING PARTY shall mean any Person from which an Indemnified
Party is seeking indemnification pursuant to the provisions of this Agreement.
INDEMNIFIED PARTY shall mean any Person which is seeking
indemnification from an Indemnifying Party pursuant to the provisions of this
Agreement.
IRS shall mean the United States Internal Revenue Service.
MEDIAONE GROUP shall mean, individually and collectively, as the
case may be, each member of the U S WEST Consolidated Group, other than any
member of the New U S WEST Group.
NEW U S WEST GROUP shall mean, individually and collectively, as
the case may be, New U S WEST and its present and future direct and indirect
subsidiaries; PROVIDED, HOWEVER, that on or prior to the Separation Date,
none of the Contributed Subsidiaries or the Contributed Media Group
Subsidiaries shall be included as a member of the New U S WEST Group.
PERSON shall mean and includes any individual, corporation,
company, association, partnership, joint venture, limited liability company,
joint stock company, trust, unincorporated organization, or other entity.
POST-SEPARATION TAXABLE PERIOD shall mean a taxable period that
begins after the Separation Date.
PRE-SEPARATION TAXABLE PERIOD shall mean a taxable period that ends
on or before the Separation Date.
PRESENT VALUE BENEFIT shall mean the present value (based on a
discount rate equal to the short-term applicable federal rate as determined
under Section 1274(d) of the Code at the time of determination, and assuming
that the Indemnified Party will be liable for Taxes at all relevant times at
the maximum marginal rates) of any income tax benefit.
PROCEEDING shall mean any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds
or Adjustments with respect to Taxes.
REFUND shall mean any refund of Taxes, including any reduction in
liability for such Taxes by means of a credit, offset or otherwise.
3
RULING REQUEST shall mean the request by U S WEST for an advance
letter ruling from the IRS with respect to certain Tax aspects of the
Reorganization and the Separation.
SEPARATE RETURN shall mean any Tax Return, including any
consolidated, combined or unitary Tax Return, filed by either the New U S
WEST Group or the MediaOne Group but excluding any Tax Return filed which
includes one or more members of both groups.
SEPARATION DATE shall mean the date the Separation is effected.
STATE INCOME TAX shall mean any state or local jurisdiction Taxes
imposed on or measured by gross or net income, value added, net worth or
capital stock. State Income Taxes do not include business and occupation
taxes, gross receipts taxes, excise, sales or use taxes, real property gains,
real or personal property, transfer or similar taxes.
STRADDLE PERIOD shall mean a taxable period that includes, but does
not end on, the Separation Date.
TAX OR TAXES shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
receipts, capital, sales, use, gains, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp,
occupation, property and estimated taxes, custom duties, fees, assessments
and charges of any kind whatsoever, together with any interest and any
penalties, fines, additions to tax or additional amounts imposed by any
taxing authority (domestic or foreign) and shall include any transferee
liability in respect of Taxes.
TAX AUTHORITY shall mean the IRS and any other domestic or foreign
governmental authority responsible for the administration and collection of
Taxes.
TAX LIABILITIES shall mean all liabilities for Taxes.
TAX RETURNS shall mean all reports, returns, declaration forms and
statements filed or required to be filed with respect to Taxes.
TAX-TIMING ADJUSTMENT shall mean any Adjustment in one Taxable Year
which will result in an offsetting Adjustment or Adjustments (including an
Adjustment to the basis of an asset not eligible for depreciation or
amortization) in another Taxable Year.
4
TAXABLE YEAR shall mean the year on the basis of which taxable
income is computed.
TREASURY shall mean the United States Department of the Treasury.
U S WEST CONSOLIDATED GROUP shall mean the affiliated group of
corporations, within the meaning of Section 1504(a) of the Code, of which U S
WEST is the common parent, and any member of such group.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Capitalized terms not
otherwise defined in this Agreement shall have the meaning ascribed to them
in the Separation Agreement.
(b) The words "hereof", "herein", and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement as
a whole and not to any particular provision of this Agreement.
(c) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
1.3 TERMINATION OF TAXABLE YEARS. For Federal Income Tax
purposes, the Taxable Year of each member of the New U S WEST Group
(including the Contributed Subsidiaries and the Contributed Media Group
Subsidiaries) shall end as of the close of the Separation Date. New U S WEST
and U S WEST shall, unless prohibited by applicable law, take all action
necessary or appropriate to close the taxable period of each member of the
New U S WEST Group for all Tax purposes as of the close of the Separation
Date.
ARTICLE II
ALLOCATION AND PAYMENT
2.1 ALLOCATION OF TAXES. U S WEST and New U S WEST each agrees,
on its own behalf and on behalf of the MediaOne Group and the New U S WEST
Group, respectively, to allocate and pay its respective share of Taxes as
provided in this Agreement.
(a) Except as provided in Section 2.1(e), the Federal Income Tax
liability (including Refunds and deficiencies) of the U S WEST Consolidated
Group for any Pre-Separation Taxable Period and any Straddle Period shall be
allocated between the New U S WEST Group and the MediaOne Group in accordance
with Treasury Regulations Sections
5
1.1552-1(a)(3) and 1.1502-33(d)(3). The fixed percentage under Treasury
Regulations Section 1.1502-33(d)(3) shall be 100 percent.
(b) Except as provided in Section 2.1(e), the State Income Tax
liability of the New U S WEST Group and the MediaOne Group for any
Pre-Separation Taxable Period and any Straddle Period in any state included
in the Communications Group Region in which a Combined Return is or is
required to be filed shall be allocated between the New U S WEST Group and
the MediaOne Group in proportion to the state taxable income (positive or
negative) of each member of each group included in such Combined Return, or,
where the basis is other than net income, in proportion to each member's
respective Tax base. Each group shall appropriately compensate the other
group for any reduction in State Income Tax liability resulting from the
other group's having negative state taxable income.
(c) Except as provided in Section 2.1(e), the State Income Tax
liability of the New U S WEST Group and the MediaOne Group for any
Pre-Separation Taxable Period and any Straddle Period in any state not
included in the Communications Group Region in which a Combined Return is or
is required to be filed shall be allocated between the New U S WEST Group and
the MediaOne Group as follows:
(i) For the Taxable Years ended December 31, 1996, December 31,
1997 and on the Separation Date, all such State Income Tax liability for
each such Taxable Year shall be allocated to the New U S WEST Group to the
extent such State Income Tax liability does not exceed the Combined Return
Tax Savings actually realized by the New U S WEST Group for each such
Taxable Year. Any excess State Income Tax liability shall be allocated
66.6% to the New U S WEST Group and 33.4% to the MediaOne Group.
(ii) For Taxable Years ended on or prior to December 31, 1995,
all such State Income Tax liability shall be allocated 66.6% to the New U S
WEST Group and 33.4% to the MediaOne Group.
(iii) Notwithstanding the foregoing, any liability arising solely
out of the inclusion of the New U S WEST Group in a Tax Return which was
originally filed as a Separate Return by a member of the affiliated group
(as defined in Section 1504(a) of the Code) of which Continental
Cablevision, Inc. was the common parent corporation for the Taxable Year
ended December 31, 1996 shall be allocated 50% to the New U S WEST Group
and 50% to the MediaOne Group.
(d) Except as provided in Sections 2.1(c)(iii) and 2.1(e), all Tax
Liabilities of the New U S WEST Group and the MediaOne Group for any
Pre-Separation Taxable
6
Period and any Straddle Period arising out of the filing of a Separate Return
shall be allocated to the member to which such Tax Liabilities relate.
(e) Any Tax Liability of U S WEST arising out of operations
conducted directly by it and any Tax Liability of the Contributed
Subsidiaries for any Pre-Separation Taxable Period or any Straddle Period
shall be allocated 58% to the New U S WEST Group and 42% to the MediaOne
Group.
(f) Any Tax Liability arising out of Transaction Costs (as defined
in the Separation Agreement) shall be allocated as the underlying costs are
allocated pursuant to Section 1.1(l) of the Separation Disclosure Schedule.
2.2 TAX ATTRIBUTES. Tax attributes for Pre-Separation Taxable
Periods and any Straddle Period shall be allocated to the New U S WEST Group
and the MediaOne Group in accordance with the Code and Treasury Regulations
(and any applicable state, local and foreign laws or regulations). U S WEST
and New U S WEST shall jointly determine the amounts of such attributes as of
the Separation Date, or shall jointly estimate such amounts which are not
determinable as of the Separation Date, and hereby agree to compute all Tax
Liabilities for Taxable Years ending after the Separation Date consistently
with that determination. The principles of this paragraph shall apply with
respect to any adjustments to the Tax Liabilities of either the New U S WEST
Group or the MediaOne Group resulting from an election made under Treasury
Regulation Section 1.1502-76(b)(2)(ii).
2.3 TAX-TIMING ADJUSTMENTS. To the extent that any portion of any
Tax Liability (or Tax benefit) allocated under Section 2.1 relates to a
Tax-timing Adjustment, that portion of such Tax Liability (or Tax benefit)
shall be allocated to the entity that will receive the benefit (or detriment)
of that Tax-timing Adjustment. For purposes of this Agreement, the fact that
the period or periods in which offsetting Adjustments will arise is unknown
or not determinable shall not be taken into account.
2.4 PENALTIES, ADDITIONS TO TAX AND INTEREST. Penalties,
additions to Tax and interest on any Tax deficiencies or overpayments will be
allocated as the underlying deficiencies or overpayments are allocated under
this Agreement.
2.5 PAYMENT OF TAXES. U S WEST and New U S WEST each agrees to
pay or cause to be paid their respective shares of Taxes as allocated and
provided in this Agreement.
(a) For the Taxable Year ended December 31, 1997 and any Straddle
Period, New U S WEST shall timely pay to U S WEST an amount equal to the
allocable
7
Federal Income Tax liability of the New U S WEST Group determined under
Section 2.1(a), (e), and (f), including the New U S WEST Group's share of
estimated Federal Income Taxes. U S WEST shall be responsible for the
payment to the IRS of the Federal Income Tax liability of the U S WEST
Consolidated Group for such Taxable Years.
(b) For the Taxable Year ended December 31, 1997 and any Straddle
Period, New U S WEST shall timely pay to U S WEST an amount equal to the
allocable State Income Tax liability of the New U S WEST Group determined
under Sections 2.1(b), (c), (e) and (f), including the New U S WEST Group's
share of estimated State Income Taxes. U S WEST shall be responsible for the
payment to the applicable Tax Authority of such State Income Tax liabilities.
2.6 CHARACTERIZATION OF PAYMENTS. For all Tax purposes, the New
U S WEST Group and the MediaOne Group agree to treat (i) any payment required
by this Agreement as either a contribution by U S WEST to New U S WEST or a
distribution by New U S WEST to U S WEST, as the case may be, occurring
immediately prior to the Separation Date and (ii) any payment of interest or
non-federal Taxes by or to a Tax Authority as taxable or deductible, as the
case may be, to the party entitled under this Agreement to retain such
payment or required under this Agreement to make such payment, in either case
except as otherwise mandated by applicable law.
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION BY U S WEST. U S WEST shall pay, and shall
indemnify and hold the New U S WEST Group and their respective shareholders,
directors, officers, employees, affiliates, agents and successors harmless
from and against, without duplication, (i) all Tax Liabilities allocable to
the MediaOne Group under Article II, (ii) all Tax Liabilities attributable to
Tax Returns required to be filed by the MediaOne Group for any
Post-Separation Taxable Period, (iii) all Tax Liabilities incurred by the New
U S WEST Group by reason of the breach by U S WEST of any of its covenants
hereunder, and (iv) any costs and expenses related to the foregoing
(including, without limitation, reasonable attorneys' fees and expenses).
3.2 LIABILITY OF MEDIAONE GROUP FOR UNDERTAKING CERTAIN
TRANSACTIONS. Notwithstanding any other provision of this Agreement to the
contrary, if, as a result of any event, action, or failure to act wholly or
partially within the control of the MediaOne Group (including, without
limitation, any event, action, or failure to act that results in a breach of
any representation or in the inaccuracy of any statement made to the IRS in
connection with,
8
the Ruling Request), or any other event related to the acquisition of U S
WEST stock, any Taxes are imposed on the New U S WEST Group with respect to
any action taken pursuant to the Separation and the Reorganization,
including, without limitation, the transactions that were intended to be
tax-free under Sections 332, 355 and 368 of the Code, then U S WEST shall
indemnify and hold harmless the New U S WEST Group with respect to any such
Taxes on an after-tax basis.
3.3 INDEMNIFICATION BY NEW U S WEST. New U S WEST shall pay, and
shall indemnify and hold the MediaOne Group and their respective
shareholders, directors, officers, employees, affiliates, agents and
successors harmless from and against, without duplication, (i) all Tax
Liabilities allocable to the New U S WEST Group under Article II, (ii) all
Tax Liabilities attributable to Tax Returns required to be filed by the New
U S WEST Group for any Post-Separation Taxable Period, (iii) all Tax
Liabilities incurred by the MediaOne Group by reason of the breach by New
U S WEST of any of its covenants hereunder and (iv) any costs and expenses
related to the foregoing (including, without limitation, reasonable
attorneys' fees and expenses).
3.4 LIABILITY OF NEW U S WEST GROUP FOR UNDERTAKING CERTAIN
TRANSACTIONS. Notwithstanding any other provision of this Agreement to the
contrary, if, as a result of any event, action, or failure to act wholly or
partially within the control of the New U S WEST Group (including, without
limitation, any event, action or failure to act that results in a breach of
any representation or in the inaccuracy of any statement made to the IRS in
connection with, the Ruling Request), or any other event related to the
acquisition of New U S WEST stock, any Taxes are imposed on the MediaOne
Group with respect to any action taken pursuant to the Separation and the
Reorganization, including, without limitation, the transactions that were
intended to be tax-free under Sections 332, 355 and 368 of the Code, then New
U S WEST shall indemnify and hold harmless the MediaOne Group with respect to
any such Taxes on an after-tax basis.
3.5 PAYMENT. If the Indemnifying Party is required to indemnify
the Indemnified Party pursuant to this Article III, the Indemnified Party
shall submit its calculations of the amount required to be paid pursuant to
this Article IV (which shall be net of the Present Value Benefit realized or
realizable by the Indemnified Party), showing such calculations in sufficient
detail so as to permit the Indemnifying Party to understand the calculations.
Subject to the following sentence, the Indemnifying Party shall pay to the
Indemnified Party, no later than ten (10) business days after the
Indemnifying Party receives the Indemnified Party's calculations, the amount
that the Indemnifying Party is required to pay the Indemnified Party under
this Article III. If the Indemnifying Party disagrees with such
calculations, it must notify the Indemnified Party of its disagreement in
writing within
9
ten (10) business days of receiving such calculations. Any dispute regarding
such calculations shall be resolved in accordance with Section 6.13 of this
Agreement.
3.6 TIME LIMITS. Any claim under this Article III with respect to a
Tax Liability must be made no later than thirty (30) days after the expiration
of the applicable statute of limitations for assessment of such Tax Liability.
ARTICLE IV
PREPARATION AND FILING OF TAX RETURNS, COOPERATION
AND RECORD RETENTION
4.1 FEDERAL TAX RETURNS. New U S WEST and U S WEST hereby agree
to cooperate fully with each other to meet filing requirements for the U S
WEST Consolidated Group Tax Returns for any Pre-Separation Taxable Period and
any Straddle Period. New U S WEST, as agent for the U S WEST Consolidated
Group, will be responsible for the filing of such Tax Returns for the Taxable
Years ended December 31, 1997 and ending December 31, 1998, and, at the
request of U S WEST, shall use its best efforts to file the Tax Return for
the Taxable Year ending December 31, 1998 by its original due date. For
purposes of this Section 4.1, cooperation includes making available all
instructions, workpapers, research, data and notes of any kind required for
the completion of the Tax Return, as well as making available personnel to
assist in the consolidation effort. Personnel requirements, including the
use of third party contractors, will be negotiated and agreed upon between
U S WEST and New U S WEST. Interviewing and hiring of third-party contractors
will be done jointly, and costs of these contractors will be shared equally.
Any software license costs specifically related to a separate entity shall be
borne by that entity. Where software license costs are not discernible as
separate entity costs, such software license costs will be shared equally.
Due dates for information required for the U S WEST Consolidated Group Tax
Returns will be negotiated between U S WEST and New U S WEST and good faith
efforts will be made to meet those dates.
4.2 COMBINED RETURNS. New U S WEST and U S WEST hereby agree to
cooperate fully with each other to meet filing requirements for Combined
Returns for any Pre-Separation Taxable Period and any Straddle Period. New
U S WEST, as agent for U S WEST, will be responsible for the filing of the
Combined Returns for the Taxable Years ended December 31, 1997 and ending
December 31, 1998 and, at the request of U S WEST, shall use its best efforts
to file any Combined Returns for the Taxable Year ending December 31, 1998 by
their original due date. For purposes of this Section 4.2, cooperation
includes making available all instructions, workpapers, research, data and
notes of any kind required for the completion of the Combined Return, as well
as making available personnel to assist in
10
the combination effort. Personnel requirements, including the use of third
party contractors, will be negotiated and agreed upon between U S WEST and
New U S WEST. Interviewing and hiring of third-party contractors will be
done jointly, and costs of these contractors will be shared equally. Any
software license costs specifically related to a separate entity shall be
borne by that entity. Where software license costs are not discernible as
separate entity costs, such software license costs will be shared equally.
Due dates for information required for Combined Returns will be negotiated
between U S WEST and New U S WEST and good faith efforts will be made to meet
those dates.
4.3 SEPARATE RETURNS. Any Separate Return shall be prepared and
caused to be filed by the entity required by law to file such Separate Return.
4.4 COOPERATION; MAINTENANCE AND RETENTION OF RECORDS. U S WEST
and New U S WEST shall, and shall cause the MediaOne Group and the New U S
WEST Group respectively to, provide the requesting party with such assistance
and documents as may be reasonably requested by such party in connection with
(i) the preparation of any Tax Return, (ii) the conduct of any Proceeding,
(iii) any matter relating to Taxes of any member of the U S WEST Consolidated
Group, the New U S WEST Group or the MediaOne Group and (iv) any other matter
that is a subject of this Agreement. New U S WEST and U S WEST shall retain
or cause to be retained all Tax Returns, schedules and workpapers, and all
material records or other documents relating thereto, until the expiration of
the statute of limitations (including any waivers or extensions thereof) of
the Taxable Years to which such Tax Returns and other documents relate or
until the expiration of any additional period that any party reasonably
requests, in writing, with respect to specific material records or documents.
A party intending to destroy any material records or documents shall provide
the other party with reasonable advance notice and the opportunity to copy or
take possession of such records and documents. The parties hereto will
notify each other in writing of any waivers or extensions of the applicable
statute of limitations that may affect the period for which the foregoing
records or other documents must be retained.
ARTICLE V
REFUNDS, AUDITS AND ADJUSTMENTS
5.1 REFUNDS OF TAXES. Except as provided in Section 5.2 below,
New U S WEST shall be entitled to all Refunds relating to Taxes (plus any
interest thereon received with respect thereto from the applicable Tax
Authority) for which New U S WEST is or may be liable pursuant to Articles II
and III of this Agreement, and U S WEST shall be entitled to all Refunds
relating to Taxes (plus any interest thereon received with respect thereto
from the applicable Tax Authority) for which U S WEST is or may be liable
pursuant to the
11
provisions of Articles II and III of this Agreement. A party receiving a
Refund to which another party is entitled pursuant to this Agreement shall
pay the amount to which such other party is entitled (plus any interest
thereon received with respect thereto from the applicable Tax Authority)
within ten (10) days after the receipt of the Refund.
5.2 CARRYBACKS. (a) The carryback of any loss, credit or other
Tax attribute in any Post-Separation Taxable Period shall be in accordance
with the provisions of the Code and Treasury Regulations (and any applicable
state, local or foreign laws or regulations).
(b) In the event that the New U S WEST Group realizes any loss,
credit or other Tax attribute in any Post-Separation Taxable Period, such
group may elect to carry back such loss, credit or Tax attribute to a
Pre-Separation Taxable Period. U S WEST shall cooperate with New U S WEST in
seeking from the appropriate Tax Authority any Refund that reasonably would
result from such carryback. New U S WEST shall be entitled to any Refund (or
other Tax benefit) realized by the MediaOne Group (including any interest
thereon received from such Tax Authority) attributable to such carryback,
within ten (10) business days after such Refund (or other Tax benefit) is
received; PROVIDED, HOWEVER, that U S WEST shall be entitled to any Refund
(or other Tax benefit) that results from the carryback of a loss, credit or
other Tax attribute by the MediaOne Group from a Post-Separation Taxable
Period to a Pre-Separation Taxable Period.
(c) Except as otherwise provided by applicable law, if the
MediaOne Group and the New U S WEST Group both may carry back a loss, credit
or other Tax attribute to the same Pre-Separation Taxable Period, any Refund
(or other Tax benefit) resulting therefrom shall be allocated between U S
WEST and New U S WEST proportionately based on the relative amounts of the
Refunds (or other Tax benefits) to which the MediaOne Group and the New U S
WEST Group, respectively, would have been entitled had its carrybacks been
the only carrybacks to such Taxable Year.
(d) To the extent that the amount of a Refund to which a party is
entitled under this Section 5.2 is reduced by the applicable Tax Authority as
a result of the offset of such amount against a Tax Liability of the other
party, as allocated under this Agreement, the party which receives the
benefit of such offset shall appropriately compensate the other party within
ten (10) days of receipt of such benefit.
5.3 FEDERAL AUDITS AND ADJUSTMENTS.
(a) NOTIFICATION OF AUDIT. Each of U S WEST and New U S WEST shall
give written notice to the other party of any audit of the U S WEST Consolidated
Group Tax Return for any Pre-Separation Taxable Period or Straddle Period within
ten (10) business
12
days after receipt of written notification of such audit from the IRS. Such
notice shall include a copy of the notification received from the IRS.
(b) STATUTE OF LIMITATIONS. Any extension of the statute of
limitations for any Pre-Separation Taxable Period or Straddle Period shall be
with the mutual agreement of U S WEST and New U S WEST. Any dispute
regarding the extension of the statute of limitations shall be resolved in
accordance with Section 6.13 of this Agreement.
(c) AUDIT ACTIVITY. Each of U S WEST and New U S WEST will
coordinate its respective efforts with respect to audits of any
Pre-Separation Taxable Period and any Straddle Period and will furnish the
other with all necessary workpapers and records to respond to audit
inquiries. New U S WEST will be responsible as agent for the U S WEST
Consolidated Group for day-to-day contact with IRS agents assigned to such
audits. U S WEST will be responsible for responding to audit inquiries
regarding issues primarily affecting Tax Liabilities of the MediaOne Group,
but will act through New U S WEST, rather than directly contacting the IRS
with respect to such matters.
(d) NOTIFICATION. New U S WEST will provide timely reports to U S
WEST detailing significant activities, information requests, issues raised or
resolved, and any other relevant information, such reports to be no less
frequent than quarterly.
(e) PROPOSED ADJUSTMENTS. New U S WEST shall notify U S WEST of any
Adjustment to the U S WEST Consolidated Group Tax Returns within ten (10)
business days after receipt of notification of such Adjustment from the IRS.
New U S WEST shall include in its notice to U S WEST a copy of the notification
received from the IRS.
(i) AGREED ISSUES. New U S WEST will not enter into any
agreement with the IRS as agent for the U S WEST Consolidated Group with respect
to any Adjustment without the written consent of U S WEST, in those cases where
the MediaOne Group would be liable for more than 50% of the proposed Tax
Liability (as allocated under this Agreement) attributable to such Adjustment.
For purposes of this paragraph, all determinations shall be made separately for
each Adjustment.
(ii) UNAGREED ISSUES. In the event U S WEST and New U S WEST,
as the case may be, do not agree to all Adjustments for a Taxable Year,
decisions regarding the procedures and preferred forum for contesting
Adjustments on unagreed issues shall be made by whichever of the MediaOne Group
or the New U S WEST Group is responsible for more than 50% of the cumulative Tax
Liability attributable to such Adjustments. The party making the decision shall
consult in good faith with the other party and shall promptly notify the other
party of its decision.
13
(iii) CONSENT NOT REQUIRED. Notwithstanding any other provision
of this Agreement, if the IRS notifies U S WEST that the IRS will deal directly
with the MediaOne Group with respect to its Tax Liability, U S WEST shall have
full authority to act for the MediaOne Group and resolve any issue affecting its
Tax Liability without the consent of New U S WEST. U S WEST will provide New
U S WEST with a timely report summarizing any such audit activity, such report
to be no less frequent than quarterly.
(f) FEDERAL REFUND CLAIMS. If the New U S WEST Group desires to
file a claim for Refund with respect to a Taxable Year for which it was a
member of the U S WEST Consolidated Group, it shall prepare and submit to
U S WEST the claim for Refund and a statement specifying the date on which the
statute of limitations for filing the Refund claim will expire. U S WEST
will file the Refund claim prior to the date specified as the last day to
claim the Refund if such a filing is commercially reasonable, and will take
any other appropriate action at New U S WEST's request necessary to secure
the Refund.
(g) LITIGATION. Subject to the balance of this Section 5.3(g),
U S WEST and New U S WEST jointly shall conduct all Proceedings relating to
Adjustments of the MediaOne Group and the U S WEST Group as allocated under
this Agreement. U S WEST shall have the ability to control the conduct of
such Proceedings with respect to issues relating to an Adjustment for which
the MediaOne Group would be liable for more than 50% of the proposed Tax
Liability (as allocated under this Agreement) attributable to such
Adjustment. New U S WEST shall have the ability to control the conduct of
such Proceedings with respect to issues relating to an Adjustment for which
the New U S WEST Group would be liable for more than 50% of the proposed Tax
Liability (as allocated under this Agreement) attributable to such
Adjustment. The party with the ability to control the conduct of all or a
portion of the Proceedings pursuant to this Section 5.3(g) shall consult in
good faith with the other party, which other party shall be entitled to
participate in all conferences, meetings, and other matters related to the
resolution of such Proceedings.
5.4 AUDITS AND ADJUSTMENTS RELATED TO COMBINED RETURNS.
(a) NOTIFICATION OF AUDIT. Each of U S WEST and New U S WEST
shall give written notice to the other party of any audit of a Combined
Return for any Pre-Separation Taxable Period or Straddle Period within ten
(10) business days after receipt of written notification of such audit from a
Tax Authority. Such notice shall include a copy of the notification received
from the relevant Tax Authority.
(b) STATUTE OF LIMITATIONS. Any extension of the statute of
limitations for any Pre-Separation Taxable Period or Straddle Period shall be
with the mutual agreement of
14
U S WEST and New U S WEST. Any dispute regarding the extension of the
statute of limitations shall be resolved in accordance with Section 6.13 of
this Agreement.
(c) AUDIT ACTIVITY. Each of U S WEST and New U S WEST will
coordinate its respective efforts with respect to audits of Combined Returns
of any Pre-Separation Taxable Period and any Straddle Period and will furnish
the other with all necessary workpapers and records to respond to audit
inquiries. New U S WEST will be responsible as agent for any Combined Return
for day-to-day contact with state Tax Authorities regarding such audits.
U S WEST will be responsible for responding to audit inquiries regarding issues
primarily affecting Tax Liabilities of the MediaOne Group, but will act
through New U S WEST, rather than directly contacting the appropriate Tax
Authorities with respect to such matters.
(d) NOTIFICATION. With respect to a Combined Return, New U S WEST
will provide timely reports to U S WEST detailing significant activities,
information requests, issues raised or resolved, and any other relevant
information, such reports to be no less frequent than quarterly.
(e) PROPOSED ADJUSTMENTS. New U S WEST shall notify U S WEST of
any Adjustment to a Combined Return within ten (10) business days after
receipt of notification of such Adjustment from the applicable state Tax
Authority. New U S WEST shall include in its notice to U S WEST a copy of
the notification received from such Tax Authority.
(i) AGREED ISSUES. New U S WEST will not enter into any
agreement with a state Tax Authority as agent for U S WEST with respect to
any Adjustment in connection with a Combined Return without the written
consent of U S WEST in such cases where the MediaOne Group would be liable
for more than 50% of the proposed Tax Liability (as allocated under this
Agreement) at issue. For purposes of this paragraph, all determinations shall
be made separately for each Adjustment.
(ii) UNAGREED ISSUES. In the event U S WEST and New U S
WEST, as the case may be, do not agree to all Adjustments with respect to a
Combined Return for a Taxable Year, decisions regarding the procedures and
preferred forum for contesting Adjustments on unagreed issues shall be made
by whichever of the MediaOne Group or the New U S WEST Group is responsible
for more than 50% of the cumulative Tax Liability attributable to such
Adjustments. The party making the decision shall consult in good faith with
the other party and shall promptly notify the other party of its decision.
15
(f) STATE REFUND CLAIMS. If the New U S WEST Group desires to file a
claim for Refund with respect to a Taxable Year for which it filed a Combined
Return, it shall prepare and submit to U S WEST the claim for Refund and a
statement specifying the date on which the statute of limitations for filing the
Refund claim will expire. U S WEST will file the Refund claim prior to the date
specified if such filing is commercially reasonable and will take any other
appropriate action at New U S WEST's request necessary to secure the Refund.
(g) STATE TAX LITIGATION. Subject to the balance of this Section
5.4(g), U S WEST and New U S WEST jointly shall conduct all Proceedings relating
to Adjustments of the MediaOne Group and the New U S WEST Group allocated under
this Agreement in connection with a Combined Return. U S WEST shall have the
ability to control the conduct of such Proceedings with respect to issues
relating to an Adjustment for which the MediaOne Group would be liable for more
than 50% of the proposed Tax Liability (as allocated under this Agreement)
attributable to such Adjustment. New U S WEST shall have the ability to control
the conduct of such Proceedings with respect to issues relating to an Adjustment
for which the New U S WEST Group would be liable for more than 50% of the
proposed Tax Liability (as allocated under this Agreement) attributable to such
Adjustment. The party with the ability to control the conduct of all or a
portion of the Proceedings pursuant to this Section 5.4(g) shall consult in good
faith with the other party, which other party shall be entitled to participate
in all conferences, meetings, and other matters related to the resolution of
such Proceedings.
5.5 SEPARATE RETURN MATTERS. The New U S WEST Group and the MediaOne
Group will be responsible for and manage their respective Separate Return
Proceedings.
5.6 PAYMENT OF COSTS. All costs incurred, whether external or
internal (such as in-house tax and legal department salaries and other
personnel), with respect to a Proceeding shall be borne by the party with
respect to which the costs relate. All other costs relating to Tax Returns or
Proceedings not otherwise provided for in this Agreement shall be allocated 50%
to the New U S WEST Group and 50% to the MediaOne Group.
ARTICLE VI
MISCELLANEOUS
6.1 COVENANTS RELATING TO RULING REQUEST.
(a) U S WEST AND THE MEDIAONE GROUP. (i) U S WEST shall comply and
shall cause the MediaOne Group to comply with and otherwise not take any action
16
inconsistent with each representation and statement made to the IRS in
connection with the Ruling Request and (ii) until two (2) years after the
Separation Date, U S WEST will remain engaged in the active conduct of a trade
or business, as defined in Section 355(b) of the Code.
(b) NEW U S WEST AND THE NEW U S WEST GROUP. (i) New U S WEST shall
comply and shall cause the New U S WEST Group to comply with and otherwise not
take any action inconsistent with each representation and statement made to the
IRS in connection with the Ruling Request and (ii) until two (2) years after the
Separation Date, New U S WEST will remain engaged in the active conduct of a
trade or business, as defined in Section 355(b) of the Code.
6.2 TERMINATION OF PRIOR TAX SHARING AGREEMENTS. This Agreement
shall take effect on the Separation Date and shall replace all other agreements,
whether or not written, in respect of any Taxes between or among the MediaOne
Group on the one hand and the New U S WEST Group on the other. All such
replaced agreements shall be canceled as of the Separation Date to the extent
they relate to the New U S WEST Group, and any rights or obligations of the
MediaOne Group or the New U S WEST Group existing thereunder thereby shall be
fully and finally settled without any payment by any party thereto.
6.3 MERGER OR CONSOLIDATION. Neither New U S WEST nor U S WEST
(in either case, the "TRANSACTION PARTY") shall (i) consolidate with or merge
into any Person or permit any Person to consolidate with or merge into the
Transaction Party (other than a merger or consolidation in which the
Transaction Party is the surviving or continuing corporation) or (ii) sell,
assign, transfer, lease or otherwise dispose of, in one transaction or a
series of related transactions, all or substantially all of the assets of the
Transaction Party, unless the resulting, surviving or transferee Person shall
expressly assume, by instrument in form and substance reasonably satisfactory
to the other party, all of the obligations of the Transaction Party under
this Agreement.
6.4 SUBSIDIARIES. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements
and obligations set forth herein to be performed by any Subsidiary of such
party or by any entity that is contemplated to be a Subsidiary (as defined in
the Separation Agreement) of such party on or after the Separation Date.
6.5 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of Colorado, without reference to
choice of law principles, including matters of construction, validity and
performance.
17
6.6 AMENDMENT. This Agreement may be amended, modified or
supplemented only by a written Agreement signed by all of the parties hereto.
6.7 NOTICES. Notices, requests, permissions, waivers, referrals
and all other communications hereunder shall be in writing and shall be
deemed to have been duly given if signed by the respective persons giving
them (in the case of any corporation, the signature shall be by an officer
thereof) and delivered by hand or by telecopy or on the date of receipt
indicated on the return receipt if mailed (registered or certified, return
receipt requested, properly addressed and postage prepaid):
If to U S WEST, to:
U S WEST, Inc.
(to be renamed "MEDIAONE
GROUP, INC.")
188 Inverness Drive West
Englewood, Colorado 80112
Attention: Director of Taxes
Telephone: 303-858-5800
If to New U S WEST, to:
USW-C, Inc.
(to be renamed "U S WEST, INC.")
6300 South Syracuse Way
Suite 700 North
Englewood, Colorado 80111
Attention: Director of Taxes
Telephone: 303-850-3900
Such names and addresses may be changed by notice given in accordance with this
Section 6.7.
6.8 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter
contained herein, and supersedes and cancels all prior agreements,
negotiations, correspondence, undertakings and communications of the parties,
oral or written, respecting such subject matter.
18
6.9 HEADINGS; REFERENCES. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
All references herein to "Articles" or "Sections" shall be deemed to be
references to Articles or Sections hereof unless otherwise indicated.
6.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all
of which shall constitute one and the same original.
6.11 PARTIES IN INTEREST; ASSIGNMENT; SUCCESSOR. Neither this
Agreement nor any of the rights, interest or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of
the other parties. Subject to the preceding sentence, this Agreement shall
inure to the benefit of and be binding upon U S WEST and New U S WEST and
their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any other Person
any rights or remedies under or by reason of this Agreement.
6.12 CONFIDENTIALITY. Each of New U S WEST and U S WEST shall
hold, and each of the New U S WEST Group and the MediaOne Group shall use its
reasonable best efforts to hold, in strict confidence all information
concerning the other party obtained by it prior to the Separation Date or
furnished to it by such other party pursuant to this Agreement pursuant to
and in accordance with the terms of Section 10.5 of the Separation Agreement.
6.13 ARBITRATION. Resolution of any and all disputes arising from
or in connection with this Agreement, whether based on contract, tort,
statute or otherwise, including, but not limited to, disputes over
arbitrability and disputes in connection with claims by third parties shall
be exclusively governed by and settled in accordance with the provisions of
Section 12.2 of the Separation Agreement, provided, however, that nothing
contained in Section 12.2 of the Separation Agreement shall preclude either
party from seeking or obtaining injunctive relief or equitable or other
judicial relief to enforce such Section 12.2, or, pending resolution of
Disputes (as defined in the Separation Agreement) under such Section, to
preserve the status quo or to enforce an arbitral award rendered pursuant to
such Section.
6.14 SEVERABILITY; ENFORCEMENT. The invalidity of any portion
hereof shall not affect the validity, force or effect of the remaining
portions hereof. If it is ever held that any restriction hereunder is too
broad to permit enforcement of such restriction to its fullest extent, each
party agrees that a court of competent jurisdiction may enforce such
restriction
19
to the maximum extent permitted by law, and each party hereby consents and
agrees that such scope may be judicially modified accordingly in any
proceeding brought to enforce such restriction.
6.16 EFFECTIVE DATE. This Agreement shall become effective only upon
the occurrence of the Separation.
IN WITNESS WHEREOF, each of the Parties has caused this Tax Sharing
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first written above.
U S WEST, INC.
(to be renamed MEDIAONE GROUP, INC.)
By: /s/ Charles M. Lillis
-------------------------------------
Name: Charles M. Lillis
Title: Executive Vice President
USW-C, INC.
(to be renamed U S WEST, INC.)
By: /s/ Solomon D. Trujillo
-------------------------------------
Name: Solomon D. Trujillo
Title: President and Chief Executive
Officer
20