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.
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.
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.
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
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
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
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,
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
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
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
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
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.
(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
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.
(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
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.
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.
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
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.)
/s/ Charles M. Lillis
By:
Name: Charles M. Lillis
Title: Executive Vice President
USW-C, INC.
(to be renamed U S WEST, INC.)
/s/ Solomon D. Trujillo
By:
Name: Solomon D. Trujillo
Title: President and Chief Executive
Officer
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