Exhibit 10.7
AMENDED AND RESTATED TAX MATTERS
AGREEMENT
THIS AMENDED AND RESTATED TAX
MATTERS AGREEMENT (the “Agreement”), dated as of
June 18 , 2004, is entered into between Viacom Inc., a
Delaware corporation (“Viacom”), and Blockbuster Inc.,
a Delaware corporation (“Blockbuster”). This Agreement
is effective as of the first day after the earlier of (i) the
closing of any exchange offer by Viacom pursuant to an effective
Form S-4 to exchange stock of Blockbuster for stock of Viacom or
(ii) a distribution of stock of Blockbuster described in Section
355 of the Code (as defined below) (the “Effective
Date”). Notwithstanding the preceding sentence, Sections
11(b)(iii) and 11(f) are effective as of the date of this
Agreement.
R E C I T A L S
A. Viacom is the common parent
corporation of an affiliated group of corporations which, together
with any other corporations which may become members of such
affiliated group, is referred to as the “Viacom Consolidated
Group”.
B. Blockbuster, if it were not
included in the Viacom Consolidated Group on the date hereof, would
be the common parent corporation of an affiliated group of
corporations within the meaning of Section 1504 of the Internal
Revenue Code of 1986, as amended (the “Code”), which,
together with any other corporations which may become members of
such affiliated group, is referred to as the “Blockbuster
Consolidated Group”.
C. Viacom and Blockbuster entered
into a Tax Matters Agreement (the “Prior Agreement”)
dated as of August 16, 1999 (the “IPO Date”) which set
forth their agreement as to certain matters relating to the
inclusion of the Blockbuster Consolidated Group in the Viacom
Consolidated Group, including the allocation of tax liabilities for
years in which the Blockbuster Consolidated Group is so included,
and certain other matters relating to taxes.
D. Viacom and Blockbuster desire to
amend and restate the Prior Agreement.
The parties agree as
follows:
1. Filing of Consolidated Returns
and Payment of Consolidated Tax Liability .
For all taxable years in which
Viacom files consolidated federal income tax returns (any such
return of the Viacom Consolidated Group for any taxable year, a
“Viacom Consolidated Return”) and is entitled to
include the Blockbuster Consolidated Group in such returns under
Sections 1501-1504, or successor provisions, of the Code, Viacom
shall include the Blockbuster Consolidated Group in the
consolidated federal income tax returns it files as the common
parent corporation of the Viacom Consolidated Group. Viacom,
Blockbuster, and the other members of the Viacom Consolidated Group
shall file any and all consents, elections or other documents and
take any other actions necessary or appropriate to effect the
filing of such federal income tax returns. For all taxable years in
which the Blockbuster Consolidated Group is included in the Viacom
Consolidated Group, Viacom shall pay the entire federal income tax
liability of the Viacom Consolidated Group and shall indemnify and
hold
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harmless Blockbuster against any such liability;
provided , however , that Blockbuster shall make
payments to Viacom or receive payments from Viacom as provided in
the Agreement in settlement of the Blockbuster Consolidated
Group’s share of the entire federal income tax liability of
the Viacom Consolidated Group for any taxable year (which term
shall throughout the Agreement include any short taxable year)
beginning on or after the IPO Date during which the Blockbuster
Consolidated Group is included in the Viacom Consolidated Group
(any such taxable year, an “Agreement Year” and any
taxable year ending on or before the IPO Date, a
“pre-Agreement Year”). For purposes of this Agreement,
the Blockbuster Consolidated Group shall be deemed to have a
taxable year beginning on January 1, 1999 and ending on the IPO
Date (which year shall be treated as a pre-Agreement Year), and the
Blockbuster Consolidated Group shall be deemed to have a taxable
year beginning on the day after the IPO Date and ending on December
31, 1999 (or, if earlier, the date on which the Blockbuster
Consolidated Group’s actual taxable year beginning January 1,
1999 ends) which year shall be treated as an Agreement
Year.
2. Pro Forma Blockbuster
Return .
For each Agreement Year, Viacom
shall prepare a pro forma consolidated federal income tax return
for the Blockbuster Consolidated Group (a “Pro Forma
Blockbuster Return”). Except as otherwise provided herein,
the Pro Forma Blockbuster Return for each Agreement Year shall be
prepared as if Blockbuster filed a consolidated return on behalf of
the Blockbuster Consolidated Group for such taxable year;
provided , however , that the Pro Forma Blockbuster
Return shall not include any deduction or other tax benefit
attributable to the exercise of an option to purchase Viacom stock
by an employee of Blockbuster (or its affiliates). The Pro Forma
Blockbuster Return shall reflect any carryovers of net operating
losses, net capital losses, excess tax credits, or other tax
attributes from prior Agreement Years’ Pro Forma Blockbuster
Returns which could have been utilized by the Blockbuster
Consolidated Group (excluding those attributes carried back
pursuant to Section 5 herein) if the Blockbuster Consolidated Group
had never been included in the Viacom Consolidated Group and all
Pro Forma Blockbuster Returns had been actual returns, but
otherwise shall not reflect any tax benefits that arise from any
adjustment to a pre-Agreement Year or carryovers of any other tax
attributes from a pre-Agreement Year, regardless of whether such
attributes were utilized (on audit or otherwise) on a tax return of
Viacom in a pre-Agreement Year. The Pro Forma Blockbuster Return
shall be prepared in a manner that reflects all elections,
positions, and methods used in the Viacom Consolidated Return that
must be applied on a consolidated basis and otherwise shall be
prepared in a manner consistent with the Viacom Consolidated
Return. The provisions of the Code that require consolidated
computations, such as Sections 861, 1201-1212, and 1231, shall be
applied separately to the Blockbuster Consolidated Group. Section
1.1502-13 of the Income Tax Regulations shall be applied as if the
Blockbuster Consolidated Group and the Viacom Consolidated Group
(excluding the members of the Blockbuster Group) were separate
affiliated groups, except that the Pro Forma Blockbuster Return
shall also include any gains or losses of the members of the
Blockbuster Consolidated Group on transactions within the
Blockbuster Consolidated Group (including in years prior to the
first Agreement Year) which must be taken into account pursuant to
Section 1.1502-13 of the Income Tax Regulations and reflected on
the Viacom Consolidated Return if the Blockbuster Consolidated
Group ceases to be included in the Viacom Consolidated Group. For
purposes of the Agreement, all determinations made as if the
Blockbuster Consolidated Group had never been included in the
Viacom Consolidated Group and as
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if all Pro Forma Blockbuster Returns were actual
returns shall reflect any actual short taxable years resulting from
the Blockbuster Consolidated Group joining or leaving the Viacom
Consolidated Group.
3. Pro Forma Blockbuster Return
Payments .
For each Agreement Year, Blockbuster
shall make periodic payments (“Periodic Payments”) to
Viacom in such amounts as determined by Viacom based upon the
estimated tax payments that would be due from the Blockbuster
Consolidated Group if it were not included in the Viacom
Consolidated Group no later than the dates on which payments of
estimated tax would be due from the Blockbuster Consolidated Group
if it were not included in the Viacom Consolidated Group. The
balance of the tax due for an Agreement Year shall be paid to
Viacom no later than March 15 of the following year (the
“Balance Payment”). Blockbuster shall pay to Viacom no
later than the date on which a Viacom Consolidated Return for any
Agreement Year is filed an amount equal to the sum of (i) the
federal income tax liability shown on the corresponding Pro Forma
Blockbuster Return prepared for the Agreement Year and (ii) the
additions to tax, if any, under Section 6655 of the Code that would
have been imposed on Blockbuster (treating the amount due to Viacom
under (i) above as its federal income tax liability and treating
any periodic payments to Viacom pursuant to the first sentence of
this Section 3 as estimated payments under Section 6655 of the
Code) and which result from the inaccuracy of any information
provided by Blockbuster to Viacom pursuant to Section 5 hereof or
from the failure of Blockbuster to provide any requested
information, reduced by (iii) the sum of the amount of the Periodic
Payments and the Balance Payment (collectively, the “Total
Periodic Payments”), plus (iv) any interest and additions to
tax (other than under Section 6655 of the Code) that would be due
under the Code if the Total Periodic Payments were actual payments
of tax. If Blockbuster’s Total Periodic Payments to Viacom
for any Agreement Year exceed the amount of its liability under the
preceding sentence, Viacom shall refund such excess to Blockbuster
within 30 days after filing the Viacom Consolidated Return. For
purposes of the Agreement, the term “federal income tax
liability” includes the tax imposed by Sections 11, 55 and
59A of the Code, or any successor provisions to such Sections.
Viacom shall notify Blockbuster of any amounts due from Blockbuster
to Viacom pursuant to this Section 3 no later than 5 business days
prior to the date such payments are due and such payments shall not
be considered due until the later of the due date described above
or the fifth day from the notice from Viacom.
4. Payments for Taxable Years in
the Event of Deconsolidation .
(a) Payments by Blockbuster to
Viacom . If for any taxable year after the Blockbuster
Consolidated Group ceases to be included in the Viacom Consolidated
Group (a “Post-Consolidation Year”), (i) the federal
income tax liability of the Blockbuster Consolidated Group is less
than (ii) the federal income tax liability that would have been
imposed with respect to the same period if the Blockbuster
Consolidated Group had not been included in the Viacom Consolidated
Group for any Agreement Year, all Pro Forma Blockbuster Returns had
been actual returns for such years, and no carryovers of
Blockbuster attributes from pre-Agreement years were permitted,
then Blockbuster shall pay to Viacom the excess of (ii) over (i)
within 10 days of the filing of the Blockbuster Post-Consolidation
Year return.
(b) Payments by Viacom to
Blockbuster . If for any Post-Consolidation Year (i) the
federal income tax liability of the Blockbuster Consolidated Group
is greater than (ii)
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the federal income tax liability that would have
been imposed with respect to the same period if the Blockbuster
Consolidated Group had not been included in the Viacom Consolidated
Group for any Agreement Year, all Pro Forma Blockbuster Returns had
been actual returns for such years, and no carryovers of
Blockbuster attributes from pre-Agreement Years were permitted,
then Viacom shall pay to Blockbuster the excess of (i) over (ii)
within 10 days of notification by Blockbuster to Viacom of the
filing of the Blockbuster Post-Consolidation Year
return.
(c) Documentation . Prior to
the payment of any amounts due pursuant to this Section 4, the
parties shall exchange such information and documentation as is
reasonably satisfactory to each of them in order to substantiate
the amounts due pursuant to this Section 4. Any disputes as to such
amounts and documentation which cannot be resolved prior to the
date a payment is due shall be referred to an independent
accounting firm whose fees shall paid one half by Blockbuster and
one half by Viacom.
(d) No Post-Consolidation Year
Carrybacks . If a Blockbuster federal income tax return with
respect to a Post-Consolidation Year reflects a net operating loss,
net capital loss, excess tax credits, or any other tax attribute,
such attribute may not be carried back to a Viacom tax
return.
5. Carrybacks .
If a Pro Forma Blockbuster Return
reflects a net operating loss, net capital loss, excess tax credit
or other tax attribute (a “Pro Forma Blockbuster
Attribute”), which is actually utilized in a Viacom
Consolidated Return (including any amendments thereto), then,
within 30 days after the later of (i) the due date for the Viacom
Consolidated Return (taking into account any extensions thereof) or
(ii) the date such Pro Forma Blockbuster Attribute is actually
realized in cash (whether directly or by offset), Viacom shall pay
to Blockbuster an amount equal to the lesser of (x) the refund
which the Blockbuster Consolidated Group would have received as a
result of the carryback of such Pro Forma Blockbuster Attribute to
a Pro Forma Blockbuster Return for any prior Agreement Year or
Years (determined as if the first Agreement Year were the earliest
taxable year to which such attributes could be carried back) or (y)
the tax savings or tax benefit realized by Viacom with respect to
the use of such Pro Forma Blockbuster Attribute in a Viacom
Consolidated Return. All calculations of deemed refunds pursuant to
this Section 5 shall include interest computed as if Blockbuster
had filed a claim for refund or an application for a tentative
carryback adjustment pursuant to Section 6411(a) of the Code on the
date on which the Viacom Consolidated Return is filed.
6. Preparation of Tax Package and
Other Financial Reporting Information .
Blockbuster shall provide to Viacom
in a format determined by Viacom all information requested by
Viacom as necessary to prepare the Viacom Consolidated Return and
the Pro Forma Blockbuster Return (the “Viacom Tax
Package”). The Viacom Tax Package with respect to any taxable
year shall be provided to Viacom on a basis consistent with current
practices of the Viacom Consolidated Group no later than April 1 of
the following year. Blockbuster shall also provide to Viacom
information required to determine the Total Periodic Payments,
current federal taxable income, current and deferred tax
liabilities, tax reserve items, and any additional current or prior
information required by Viacom on a timely basis consistent with
current practices of the Viacom Consolidated Group.
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7. Returns, Audits, Refunds,
Amended Returns, Litigation, Adjustments and Rulings
.
(a) Returns . Viacom shall
have exclusive and sole responsibility for the preparation and
filing of the Viacom Consolidated Returns (including requests for
extensions thereof) and any other returns, amended returns and
other documents or statements required to be filed with the
Internal Revenue Service (the “IRS”) in connection with
the determination of the federal income tax liability of the Viacom
Consolidated Group.
(b) Audits; Refund Claims .
Viacom will have exclusive and sole responsibility and control with
respect to the conduct of IRS examinations of the returns filed by
the Viacom Consolidated Group and any refund claims with respect
thereto. Blockbuster shall assist and cooperate with Viacom during
the course of any such proceeding. Viacom shall give Blockbuster
notice of and consult with Blockbuster with respect to any issues
relating to items of income, gain, loss, deduction or credit of any
member of the Blockbuster Consolidated Group (any such items,
“Blockbuster Consolidated Return Items”). Viacom shall
not settle or otherwise compromise any Blockbuster Consolidated
Return Item that would result in additional liability for
Blockbuster under this Agreement without the written consent of
Blockbuster, which consent shall not be unreasonably withheld. If
Blockbuster does not respond to Viacom’s request for consent
within 30 days, Blockbuster shall be deemed to have consented.
Notwithstanding the foregoing, Viacom shall have the right in its
sole discretion to pay any disputed taxes and sue for a refund in
the forum of its choice. In the case of any audit or litigation
with respect to a Blockbuster return for a Post-Consolidation Year,
Blockbuster shall not settle or otherwise compromise any matter
relating to the treatment of any item arising in an Agreement Year
or a pre-Agreement Year in a manner which would affect the
liability of Viacom to Blockbuster or Blockbuster to Viacom
pursuant to Section 4 without the consent of Viacom, which consent
shall not be unreasonably withheld.
(c) Litigation . If the
federal income tax liability of the Viacom Consolidated Group
becomes the subject of litigation in any court, the conduct of the
litigation shall be controlled exclusively by Viacom. Blockbuster
shall assist and cooperate with Viacom during the course of
litigation, and Viacom shall consult with Blockbuster regarding any
issues relating to Blockbuster Consolidated Return
Items.
(d) Procedural Protections .
In addition to any other procedural protection provided to
Blockbuster in this Section 7, (i) Viacom shall use reasonable
efforts to provide Blockbuster with the opportunity to be present
or otherwise participate in all meetings and conversations with the
IRS and state taxing authorities on issues specifically related to
any Blockbuster Entity (as defined below); (ii) Viacom shall
provide Blockbuster with copies of any and all Information Data
Requests and similar state requests for information (each an
“IDR”) that specifically relate to any Blockbuster
Entity as soon as reasonably practicable following receipt of an
IDR by Viacom; (iii) Blockbuster shall have 10 days from the date
it receives an IDR from Viacom to review, provide comments on, and
deliver all documents and other information necessary to support
the responses to the IDR; (iv) Blockbuster shall have the right to
review each response to an IDR that specifically relates to any
Blockbuster Entity before it is submitted to the IRS or state
taxing authority; and (v) Blockbuster shall have the right to
review all positions taken that specifically relate to or affect
any Blockbuster Entity in resolving audits and litigation prior to
Viacom executing or taking the position. The
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parties agree that the provisions of this
Section 7(d) are merely procedural and that any deviation therefrom
does not affect the application and validity of the other
provisions of this Agreement, including without limitation, Section
3 and Section 4.
(e) Expenses . Blockbuster
shall reimburse Viacom for all reasonable out-of-pocket expenses
(including, without limitation, legal, consulting and accounting
fees) in the course of proceedings (i) described in paragraphs (b)
and (c) of this Section to the extent such expenses are reasonably
attributable to Blockbuster Consolidated Return Items for any
Agreement Year or (ii) relating to any assertion of liability
attributable in whole or in part to actions or events covered by
Section 11.
(f) Recalculation of Payments to
Reflect Adjustments . To the extent that any audit, litigation
or claim for refund with respect to a Viacom Consolidated Return or
a Blockbuster return for a Post-Consolidation Year results in an
additional payment of tax (including a payment of tax made
preliminary to commencing a refund claim or litigation) or a refund
of tax (any such additional payment or refund, an
“Adjustment”) relating to the treatment of a
Blockbuster Consolidated Return Item for an Agreement Year, a
corresponding adjustment shall be made to the corresponding Pro
Forma Blockbuster Return.
All calculations of payments made
pursuant to Sections 3, 4, and 5 of the Agreement shall be
recomputed to reflect the effect of any Adjustments on the relevant
Pro Forma Blockbuster Return or on the liability of the Blockbuster
Consolidated Group for a Post-Consolidation Year. Within 5 days
after any such Adjustment, Blockbuster or Viacom, as appropriate,
shall make additional payments or refund payments to the other
party reflecting such Adjustment, plus interest pursuant to Section
8 of the Agreement calculated as if payments by and to Blockbuster
pursuant to Sections 3, 4, and 5 of the Agreement and this Section
7 were payments and refunds of federal income taxes. Blockbuster
shall further pay to Viacom the amount of any penalties or
additions to tax incurred by the Viacom Consolidated Group as a
result of an adjustment to any Blockbuster Consolidated Return Item
for an Agreement Year.
(g) Rulings . Blockbuster
shall assist and cooperate with Viacom and take all actions
requested by Viacom in connection with any ruling requests
submitted by Viacom to the IRS, including rulings unrelated to the
Distributions (defined in Section 11(a) below).
(h) Applicability with Respect to
All Consolidated Returns . The provisions of Section 7(a), (b)
and (c) above shall apply to Viacom Consolidated Returns and
Blockbuster Consolidated Return Items for all taxable years in
which the Blockbuster Consolidated Group (or any member thereof) is
includable in the Viacom Consolidated Group.
(i) Document Retention, Access to
Records & Use of Personnel . Until the expiration of the
relevant statute of limitations (including extensions), each of
Blockbuster and Viacom shall (i) retain records, documents,
accounting data, computer data and other information that each
party knowingly has in its possession and control necessary for the
preparation, filing, review, audit or defense of all tax returns
relevant to an obligation, right or liability of either party under
the Agreement (the “Records”); and (ii) give the other
party reasonable access to such Records and to its personnel
(insuring their cooperation) and premises during regula
