Agreement as of
July 25, 2008 by and among Starfire Holding Corporation
(“Parent”), a Delaware corporation, having offices at
767 Fifth Avenue, New York and XO Holdings, Inc., a Delaware
corporation (“XO”), having offices at 13865 Sunrise
Valley Drive, Herndon Virginia, 20171 and the XO Subsidiaries (as
defined below).
WHEREAS, Parent is
the common parent of an affiliated group (as such term is defined
in the Internal Revenue Code of 1986, as amended, or any succeeding
law (the “Code”)) of corporations for federal income
tax purposes:
WHEREAS, Parent
and its subsidiaries have been filing consolidated federal income
tax returns (“Consolidated Federal Returns”) and will
continue to file Consolidated Federal Returns;
WHEREAS, XO and
its subsidiaries joined the Consolidated Group (as defined below)
in filing Consolidated Federal Returns for the Prior Consolidation
Period (as defined below);
WHEREAS, during
the Prior Benefit Period (as defined below), the Consolidated Group
utilized a Prior Consolidation Tax Benefit (as defined
below);
WHEREAS, it is
contemplated that the XO Group will continue to file separate state
or local income or franchise tax returns unless Parent elects, or
is required by law, to file such returns on a consolidated or
combined basis with the XO Group (“Consolidated State
Returns”);
WHEREAS, XO has
minority shareholders and third-party lenders; and
WHEREAS, Parent
and XO believe it is desirable to provide for the allocation and
payment of federal and state income tax liabilities and certain
related matters.
NOW, THEREFORE, in
consideration of the foregoing and of the covenants set forth
below, the parties hereto have agreed as follows:
(i) “XO
Group” means XO together with the XO Subsidiaries. “XO
Subsidiaries” means all direct and indirect subsidiaries of
XO that are eligible to be included in a Consolidated Return (as
defined below) with XO.
(ii) “Consolidated
Returns” mean all Consolidated Federal Returns and
Consolidated State Returns.
(iii) “Federal
Income Taxes” means any income tax imposed under the Code
including, without limitation, the corporate income tax, the
minimum tax imposed on corporations, and the personal holding
company tax.
(iv) “State
Income Taxes” means any income or franchise tax imposed under
the tax law of any state (or political subdivision thereof)
including, without limitation, corporate income taxes and minimum
taxes.
(v) “Net
Operating Loss” means the amount of any net operating loss as
defined in the Code or under the tax law of any state.
(vi) “Net
Capital Loss” means the amount of any net capital loss as
defined in the Code or under the tax law of any state.
(vii) “Credit”
means the amount of any tax credit allowed under the Code or under
the tax law of any state including, without limitation, investment
tax credits ad foreign tax credits.
(viii) The
“Regulations” means the federal income tax regulations
and proposed federal income tax regulations issued by the Secretary
of the Treasury interpreting the Code and state and local income
tax regulations and rules issued by applicable state and local
administrative authorities.
(ix) The
“Consolidated Group” means the affiliated group (as
defined in the Code) of which Parent (or its successor) is the
common parent, for so long as such affiliated group files a
Consolidated Return.
(x) “Tax
Benefits” as to any entity (or group of entities) means the
Net Operating Losses, Net Capital Losses, and Credits generated by
or available to such entity (or group of entities) and any
carryforwards thereof.
(xi) “Final
Determination” shall mean the final resolution of liability
for any Tax for a taxable period, (i) by IRS Form 870 or
870-AD (or any successor form thereto), on the date of the final
acceptance by or on behalf of a party thereto and XO’s
approval (which shall not be unreasonably withheld) in the case of
a challenge of any XO Tax Benefit, or by a comparable form under
the laws of another jurisdiction; except that a Form 870 or
870-AD or comparable form that reserves (whether by its terms or by
operation of law) the right of the taxpayer to file a claim for
refund and/or the right of taxing authority to assert a further
deficiency shall not constitute a Final Determination; (ii) by
a decision, judgment, decree, or other order by a court of
competent jurisdiction, which has become final and unappealable;
(iii) by a closing agreement or accepted offer in compromise
under Section 7121 or 7122 of the Code, or comparable
agreement under the laws of another jurisdiction with such
agreement or acceptance being approved by XO (which approval shall
not be unreasonably withheld) in the case of any matter relating to
an XO Tax Benefit; (iv) by any allowance of a refund or credit in
respect of an overpayment of Tax, but only after the expiration of
all periods during which such refund may be recovered (including by
way of offset) by the Tax imposing jurisdiction; or (v) by any
other final disposition, including by reason of the expiration of
the applicable statute of limitations or by mutual agreement of the
parties.
(xii) “Current
Consolidation Tax Benefits” means any Tax Benefit for which
Parent is obligated to make a payment to XO under
Section 4(d).
(xiii) “Excess
XO Tax Benefits” means any Tax Benefit of the XO Group
(determined as if the XO Group had always filed separate
Consolidated Returns with respect to the XO Group) that reduces the
liability of the Consolidated Group for Federal Income Taxes or
Consolidated State Income Taxes for any taxable year ending after
the date hereof in excess of
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the Section
4(d) Amount. For avoidance of doubt, the Excess XO Tax Benefits
shall be calculated by not taking into account the Prior
Consolidation Tax Benefit.
(xiv) “Previously
Reimbursed XO Tax Benefit” means any Tax Benefit of the XO
Group for which Parent has previously made a payment to XO under
Section 4(d) hereof.
(xv) “Prior
Benefit Period” means the period beginning with the beginning
of the Prior Consolidation Period and ending December 31,
2004.
(xvi) “Prior
Consolidation Period” means the period beginning
January 16, 2003 until January 16, 2004.
(xvii) “Prior
Consolidation Tax Benefit” means the Tax Benefit of the XO
Group (determined as if the XO Group had filed a separate
Consolidated Return with respect to the XO Group for each year
taxable year during the Prior Consolidation Period) that reduced
the tax liability of the Consolidated Group during the Prior
Benefit Period as reflected on the Consolidated Return filed by the
Consolidated Group as adjusted by any Final Determination (but only
to the extent that the utilization of such adjustment resulted in a
reduction of the tax liability of the Consolidated
Group).
(xviii) “Section 4(d)
Amount” shall have the meaning set forth in Section 4(d)
hereof.
2. Joinder
in Consolidated Returns .
(a) XO hereby
agrees and consents (i) to join with the Consolidated Group in
the filing of Consolidated Returns with respect to any fiscal year
in which Parent elects to file such returns, (ii) to use its
best efforts to cause each of the XO Subsidiaries to consent to the
filing of Consolidated Returns for such years, (iii) to
furnish to Parent all information relating to members of the XO
Group as may be necessary or appropriate for the preparation of
Consolidated Returns, (iv) to execute and deliver to Parent,
and use its best efforts to cause the XO Subsidiaries to execute
and deliver to Parent, all consents, directors’ resolutions
and other documentation which Parent may reasonably require to
evidence Parent’s authority to file Consolidated Returns, and
(v) to maintain the same fiscal year as Parent and use its best
efforts to cause the XO Subsidiaries to maintain the same fiscal
year as Parent for all periods in which Parent and XO are members
of an affiliated group (as defined in the Code); provided, however,
the foregoing shall not be interpreted to prevent XO from issuing
additional stock pursuant to strategic transactions, corporate
acquisitions, debt conversions and settlements, warrants, options
or rights to subscribe to its stock, or for other corporate
purposes, which would cause the XO Group to not be a part of the
Consolidated Group.
(b) Parent
hereby consents to join with the Consolidated Group in the Filing
of Consolidated Returns; provided, however, that Parent is not
precluded from taking any action which would require Parent to
discontinue the filing of Consolidated Returns including, without
limitation, a sale or other disposition of all or a portion of its
stock ownership in XO and/or the filing of an application with the
Commissioner of Internal Revenue, or other appropriate authorities,
including tax authorities of any state (or political subdivision
thereof) (“Taxing Authorities”) on behalf of the
Consolidated Group, requesting permission to discontinue the filing
of Consolidated Returns.
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(c) Parent
shall prepare and file Consolidated Returns on behalf of the
Consolidated Group and may charge XO and the XO Subsidiaries an
appropriate amount for XO’s share of reasonable out-of-pocket
expenses related to the preparation of such returns. Parent shall
make all decisions regarding any elections or other matters
relating to the preparation and filing of Consolidated Returns;
provided, however, that in making elections and other decisions
with respect to members of the XO Group, Parent shall consult with
the XO Group and in good faith consider their recommendations
regarding the possibility of making such elections in a manner as
to maximize the Tax Benefits that would be available to the XO
Group.
(d) XO will
promptly pay to Parent an appropriate amount for all reasonable
out-of-pocket expenses (including legal and accounting expenses)
incurred by Parent in connection with any administrative or
judicial proceedings with respect to such Consolidated Returns to
the extent that such proceedings are reasonably allocable to the XO
Group; provided however that XO will not be responsible for the
payment of any such expenses to the extent they are allocable to
Parent’s utilization of Prior Consolidation Tax Benefits or
other of XO’s Tax Benefits unless Parent has made a payment
to XO for the use of such Tax Benefits under
Section 4(d).
3. Payment
of Tax and Refunds .
Subject to the
provisions of this Agreement and compliance with the terms hereof,
Parent shall be obligated to and shall make all payments and be
entitled to all refunds of Federal Income Taxes and estimated
Federal Income Taxes on behalf of any and all members of the
Consolidated Group, and shall indemnify and hold the
members
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