EXHIBIT 10.3
TAX SHARING AGREEMENT
This tax sharing agreement (the "AGREEMENT"), dated as of October 31, 2006,
by and between MedCom USA, Incorporated, a Delaware corporation ("MEDCOM") and
Card Activation Technologies Inc., a Delaware corporation ("CAT") which as of
the date of this agreement is a wholly owned subsidiary of MedCom.
RECITALS:
MedCom desires to separate its businesses into independent companies.
MedCom intends to spin-off (the "SPIN-OFF") to its shareholders a substantial
portion of the outstanding capital stock of CAT at the date and time of such
Spin-off (the "SPIN-OFF DATE").
The parties recognize that it will be necessary or advisable to define
their respective rights and responsibilities pertaining to federal and state
income tax (the term "state income tax" includes all state franchise taxes
measured by net income) liabilities.
Therefore, in consideration of the mutual covenants and subject to the
terms and conditions contained in this agreement, the parties agree as follows:
1. LIABILITIES ATTRIBUTABLE TO PRE-SPIN-OFF PERIODS.
(a) RETURNS. MedCom, on a consolidated basis with CAT has timely
filed (or has obtained or will obtain valid extensions of time for
filing and will file) all federal and state income tax returns which are
required to be filed for periods up to and including the Spin-off Date.
(b) TAX LIABILITIES. Reasonable estimates of federal and state
income taxes of CAT for all pre-Spin-off periods (and taxes deemed to
be attributable to pre-Spin-off periods, pursuant to Section 3) have been
or will be reflected in the pre-Spin-off financial statements of CAT in
accordance with MedCom's tax allocation and settlements policy, subject to
adjustments to be made upon filing the final MedCom consolidated federal
income tax return in which CAT are included.
(c) TAX CARRYFORWARDS. The parties agree that none of MedCom's
accrued consolidated federal net operating loss, investment tax credit
and other federal tax carryforwards ("CARRYFORWARDS"), if any, are
attributable to CAT's operations and no portion of the same will be
allocated to CAT.
(d) SETTLEMENT OF TAX LIABILITY. Prior to, or concurrent with,
the Spin-off, CAT will settle with MedCom, its current income tax
liability and intercompany tax note accounts (as determined in Section
1(b), before the return adjustments noted in such section). Such settlement
shall be effected by payments and/or adjustments to shareholder's equity of
CAT, as mutually agreed by the parties.
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(e) POST-SPIN-OFF ADJUSTMENT TO PRE-SPIN-OFF LIABILITIES. Subject
to Section 1(f), MedCom and CAT agree that tax deficiencies of
(including applicable penalties and interest), or refunds due, CAT
attributable to any period ending on or before the Spin-off Date, and
whether the result of audits, discovery of errors or otherwise, will be
paid or retained by MedCom, except to the extent that: (i) an additional
tax liability results in an adjustment that will provide CAT a tax benefit
in future periods (e.g., an adjustment to tax depreciation that increases
the tax basis of assets of CAT and that will provide increased tax
deductions to CAT) or has been accrued on the financial statements of CAT
prior to the Spin-off, (ii) an additional tax benefit results in an
adjustment that will provide CAT a tax liability in future periods, or
(iii) the payment or retention by MedCom would result in either MedCom or
CAT incurring or receiving a double liability or benefit attributable to
the same item.
(f) PAYMENT OF POST-SPIN-OFF ADJUSTMENTS TO PRE-SPIN-OFF
LIABILITIES. Post-Spin-off adjustments to pre-Spin-off liabilities,
under Sections 1(b), 1(c), 1(e)(i), 1(e)(ii), 1(e)(iii) and 2(c), shall not
become payable, whether by MedCom to CAT or CAT to MedCom, until such time
as the net aggregate amount of all then existing claims owed by one party
to the other exceeds the sum of $2,500 at which time all such amounts shall
become payable. In the event that net aggregate adjustments owed by one
party to the other never exceeds $2,500, no amounts shall become payable by
that party.
Payment of amounts payable by MedCom shall be paid within 30 days upon
receipt of a full accounting of such amounts from CAT. Payment of
amounts payable by CAT shall be paid within 30 days of the date on which
CAT receives a benefit attributable to the adjustments. Notwithstanding the
foregoing, all amounts shall be paid no later than three years from the
extended due date of the final pre-Spin-off return. In the event that
amounts become payable after this date, payment will become due and be paid
within 30 days of receipt of notification, which notification shall include
a full accounting.
Once the net aggregate amount exceeds $2,500 and payment has been made
by one party to the other, any subsequent adjustment (including
adjustments to amounts already paid) shall become due within 30 days of
receipt of notification, which notification shall include a full
accounting. MedCom, or CAT, as applicable, shall provide the other party
with an annual accounting of all of such adjustments, regardless of whether
or not the amounts have become payable or a payment is required. This
subparagraph does not preclude CAT from adjusting their post-Spin-off tax
returns to reflect the sum of the adjustments prior to payment.
(g) ADMINISTRATION. After the Spin-off, MedCom, and its officers,
employees, representatives or agents, shall not sign or execute any
waivers, extensions or other agreements relating to any federal or state
statute of limitation for any tax period ending on or prior to the Spin-off
Date, and MedCom shall provide the necessary powers of attorney to enable
CAT to sign tax returns, claims for refund, protests of assessments and
statute of limitation agreements with respect to periods ending on or prior
to the Spin-off Date.
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CAT shall be entitled to participate in the resolution of any
pre-Spin-off audit dispute which affects post-Spin-off tax returns of
CAT, provided however, that MedCom shall be entitled to determine the final
resolution. The party receiving notification from a taxing authority shall
promptly notify the other party in the event any such audit dispute arises.
2. LIABILITIES ATTRIBUTABLE TO POST-SPIN-OFF PERIODS.
(a) RETURNS. CAT shall be responsible for preparing and filing
any and all income tax returns on behalf of itself for tax periods
ending after the Spin-off Date.
(b) TAX LIABILITIES. CAT shall be responsible for the payment of
all liabilities and entitled to receive all refunds of federal and
state income taxes for periods beginning and ending after the Spin-off Date
attributable to the post-Spin-off operations of itself (including
liabilities deemed attributable to post-Spin-off periods, pursuant to
Section 3).
(c) TAX CARRYBACKS. Any carryback of federal or state tax net
operating losses or tax credits of CAT from periods beginning after
the Spin-off Date (including carrybacks deemed attributable to
post-Spin-off periods, pursuant to Section 3) to periods ending on or prior
to the Spin-off Date will be paid by MedCom to CAT, but only to the extent
that those losses or credits offset taxable income or tax liability of CAT
in the carryback period as permitted by law or regulation and result in a
cash refund to MedCom. The time for the payment of tax carrybacks by MedCom
to CAT, and resulting from application of this paragraph (c), shall be
determined in accordance with Section 1(f).
(d) ADMINISTRATION. MedCom shall allow CAT reasonable access to
properties and records so as to enable CAT to fully perform its
obligations under this agreement.
3. LIABILITIES ATTRIBUTABLE TO PERIODS WHICH STRADDLE THE SPIN-OFF
DATE. In the event that an income tax return is required to be filed by CAT for
a period that straddles the Spin-off Date, the resulting liability, loss and/or
credit carryback deemed attributable to the preSpin-off period shall be
determined on a proforma basis. The difference between such proforma amount and
the amount actually determined upon filing the applicable income tax return
shall be deemed to be attributable to the postSpin-off period.
4. THIRTY DAY RULE. MedCom, at its sole discretion, may elect to
disregard certain tax periods of 30 days or less as provided in Treasury
Regulation 1.1502-76(b)(5). In such case the Spin-off Date, as used in this
agreement, shall be adjusted for the period so disregarded.
5. RESTRICTIONS ON CERTAIN ACTIONS. CAT hereby agrees to be liable for
taxes incurred by Medcom that arise as a result of CAT taking or failing to take
certain actions that result in the distribution failing to meet the requirements
of a tax-free distribution under Sections 355 and 368(a)(1)(D) of the Code. CAT
agrees that it will not take any actions that would result in any tax being
imposed on the spin off. More specifically, for the two-year period following
the spin off, CAT have agreed not to:
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(a) Sell or otherwise issue to any person, or redeem or otherwise
acquire from any person, any of its equity securities; provided,
however that CAT may (1) sell or otherwise issue equity securities or
repurchase equity securities in certain circumstances permitted by the
IRS guidelines, and (2) sell or otherwise issue equity securities
provided that such issuance, individually or when aggregated with
other issuances and any transactions occurring in the four-year period
beginning on the date which is two years before the distribution date,
and with any other transaction which is part of a plan or series of
related transactions (within the meaning of Section 355(e) of the
Code) that includes the spin off (other than sales or issuances of
equity securities described in clause (1) above), results in one or
more persons acquiring, directly or indirectly (as determined under
Section 355(e) of the Code, taking into account applicable
constructive ownership rules), stock representing a 35% or greater
interest, by vote or value, in CAT.
(b) Sell, transfer, or otherwise dispose of CAT assets that, in the
aggregate, constitute more than 50% of its gross assets, excluding any
sales conducted in the ordinary course of our business.
(c) Voluntarily dissolve or liquidate or engage in any merger (except
for certain cash acquisition mergers), consolidation, or other
reorganization, except for certain mergers and liquidations of its
wholly owned subsidiaries to the extent not inconsistent with the
tax-free status of the spin off.
(d) Take any action (including, but not limited to, the sale or
disposition of any stock, securities, or other assets), or fail to
take any action that would cause Medcom to recognize gain under any
gain recognition agreement to which Medcom is a party.
(e) Amend its certificate of incorporation (or any other
organizational document), or take any action, whether through a
stockholder vote or otherwise, affecting the relative voting rights of
its separate classes of stock (including, without limitation, through
the conversion of one class of stock into another class of stock), but
only to the extent such amendment, action or conversion, if treated as
an issuance of equity securities, would otherwise be prohibited by the
tax sharing agreement.
(f) Solicit any person to make a tender offer for, or otherwise
acquire or sell, its equity securities, participate in or support any
unsolicited tender offer for, or other acquisition, issuance, or
disposition of, our equity securities, or approve or otherwise permit
any proposed business combination or merger or any transaction which,
individually or when aggregated with any other transactions occurring
within the four-year period beginning on the date which is two years
before the distribution date, and with any other transaction which is
part of a plan or series of related transactions (within the meaning
of Section 355(e) of the Code) that includes the spin off (other than
certain issuances of equity securities permitted by IRS guidelines),
results in one or more persons acquiring, directly or indirectly (as
determined under Section 355(e) of the Code, taking into account
applicable constructive ownership rules), stock representing a 35% or
greater interest, by vote or value, in CAT.
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In addition, CAT agrees not to engage in certain of the actions described
above, whether before or after the two-year period following the spin off, if it
is pursuant to an arrangement negotiated (in whole or in part) prior to the
first anniversary of the spin off.
6. AMENDMENTS. This agreement may not be amended or revised except by a
written instrument signed by both parties to this agreement.
7. WAIVERS. The failure of any party to this agreement at any time to
require strict performance by the other party of any provision of this agreement
shall not waive or diminish such party's right to later demand strict
performance of that or any other provision of this agreement.
8. GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
9. NOTICES. All notices and other communications shall be in writing
and shall be delivered by hand or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or such other
addresses for a party as shall be specified by like notices) and shall be deemed
given on the date of which such notice is received.
To MedCom: 7975 North Hayden Road, Suite D-333
Scottsdale, AZ 85258
To CAT: 33 West Jackson Blvd., Suite 1618
Chicago, IL 60604-3749
10. SUCCESSORS AND ASSIGNS. This agreement and the obligations and
rights incident to it shall inure to the benefit of the successors and permitted
assigns of the parties to this agreement.
11. RELATIONSHIP OF PARTIES. Nothing contained in this agreement shall
be deemed to constitute the appointment of either party as the agent of the
other.
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In witness, the parties to this agreement have executed this agreement as
of the date first above written.
"MEDCOM" MEDCOM USA, INCORPORATED,
a Delaware corporation
By: /s/ William P. Williams
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William P. Williams, CEO
"CAT" CARD ACTIVATION TECHNOLOGIES INC.,
a Delaware corporation
By: /s/ Michael Malet
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Michael Malet, Executive Vice President
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