Exhibit
10.3
EXECUTION VERSION
TAX ALLOCATION AGREEMENT dated as of August 4
2008 (this “ Agreement ”) among Kraft Foods
Inc., a Virginia corporation (“ Parent ”), Cable
Holdco, Inc., a newly organized Delaware corporation and direct
wholly-owned Subsidiary of KFG (“ Splitco ”) and
Ralcorp Holdings, Inc., a Missouri corporation (“
RMT Partner ”, collectively, the “
Companies ”). Capitalized terms used in
this Agreement are defined in Article I below or in the
RMT Transaction Agreement.
WHEREAS, as of the date of this Agreement,
Parent is the common parent of an Affiliated Group of corporations,
including KFG and Splitco, which has elected to file consolidated
U.S. Federal income Tax Returns;
WHEREAS, the Companies have entered into the RMT
Transaction Agreement, which sets forth the corporate transactions
pursuant to which:
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at the time of,
or prior to, the RMT Debt Incurrence, pursuant to the Newco
Contribution, KFG shall transfer, or cause to be transferred, the
U.S. Acquired Assets (excluding the Modesto Facility) and cash as
set forth in the RMT Transaction Agreement to Newco in exchange for
the assumption by Newco of the U.S. Assumed Liabilities (other than
the RMT Debt) and, pursuant to the Modesto Purchase, Parent shall
cause the Modesto Facility to be transferred to Newco in exchange
for a cash payment and certain other consideration;
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immediately
prior to the Splitco Contribution, KFG shall incur the RMT Debt and
receive the RMT Debt Proceeds pursuant to the RMT Debt
Incurrence;
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following the
RMT Debt Incurrence, pursuant to the Splitco Contribution, Parent
will cause KFG to contribute the limited liability company
interests in Newco to Splitco in exchange for (i) the issuance by
Splitco to KFG of the Splitco Securities, (ii) the issuance by
Splitco to KFG of a certain number of shares of Splitco Common
Stock pursuant to the Splitco Share Issuance and (iii) the
assumption by Splitco of the RMT Debt;
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immediately
following the Splitco Contribution, the Splitco Share Issuance and
the issuance of Splitco Securities, and prior to the Distribution,
KFG shall distribute all the issued and outstanding shares of
Splitco Common Stock held by KFG to Parent pursuant to the Internal
Spin;
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immediately
following the Internal Spin, KFG shall consummate the Internal Debt
Repayment by transferring the RMT Debt Proceeds to Parent in
exchange for the retirement of outstanding intercompany
debt;
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immediately
following the Internal Debt Repayment, KFG may consummate the
Internal Debt Exchange by transferring the Splitco Securities to
Parent in exchange for the retirement of outstanding intercompany
debt;
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following the
Internal Spin, the Internal Debt Repayment and the Internal Debt
Exchange, if applicable, and on the Distribution Date, Parent shall
consummate the Distribution of the Splitco Common Stock to Eligible
Parent Stockholders;
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immediately
following the Distribution, pursuant to the Splitco Merger, Splitco
shall merge with and into Merger Sub, whereby each issued share of
Splitco Common Stock shall be converted into the right to receive
one fully paid and nonassessable share of RMT Partner Common
Stock;
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immediately
following the Splitco Merger, pursuant to the Short Form Merger,
the Splitco Merger Surviving Company shall merge with and into RMT
Partner;
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immediately
following the Short Form Merger, pursuant to the Non-U.S.
Transfers, Parent shall cause the Non-U.S. Transferors to sell and
transfer the Non-U.S. Acquired Assets to the Non-U.S. Transferees,
in exchange for the irrevocable assumption by the Non-U.S.
Transferees of the Non-U.S. Assumed Liabilities and certain other
consideration; and
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on or following
the Distribution Date, Parent may cause the External Debt Exchange
to be effected;
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WHEREAS, the parties intend the Proposed
Transactions to qualify for the Intended Tax-Free
Treatment;
WHEREAS, as a result of the Distribution,
Splitco and its Subsidiaries will cease to be members of the Parent
Group;
WHEREAS, the Companies desire to allocate among
the Companies the Tax responsibilities, liabilities and benefits of
transactions arising prior to, as a result of, and subsequent to
the Proposed Transactions, and to provide for and agree upon other
matters relating to Taxes; and
NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained herein, the Companies (each on
behalf of itself, each of its Affiliates, and its future
Affiliates) hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01 Definition of
Terms. The following terms shall have the following
meanings (such meanings to apply equally to both the singular and
the plural forms of the terms defined). All section and
Exhibit references are to this Agreement unless otherwise
stated.
“ Acquired Assets ” has the
meaning set forth in the RMT Transaction Agreement.
“ Active Trade or Business ”
means the active conduct by Splitco of the businesses conducted by
the members of the Splitco Group as of the Distribution
(determined in accordance with Code
Section 355(b)).
“ Affiliate ” of any person
means another person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common
control with, such first person. For purposes of this
definition, “ control ” means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether
through ownership of voting securities, by contract or
otherwise.
“ Affiliated Group ” means an
affiliated group as that term is defined in Section 1504(a) of
the Code.
“ Agreement ” has the meaning
set forth in the preamble.
“ Business Employees ” has
the meaning set forth in the RMT Transaction Agreement.
“ Closing Date ” has the
meaning set forth in the RMT Transaction Agreement.
“ Code ” has the meaning set
forth in the RMT Transaction Agreement.
“ Collateral Agreements ” has
the meaning set forth in the RMT Transaction Agreement.
“ Companies ” has the meaning
set forth in the preamble.
“ Consolidated or Combined State Income
Tax ” means any State Income Tax computed on a
consolidated, combined or unitary basis.
“ Consolidated or Combined State Income
Tax Return ” means any Tax Return relating to
Consolidated or Combined State Income Tax.
“ Contribution ” has the
meaning set forth in the RMT Transaction Agreement.
“ Distribution ” has the
meaning set forth in the RMT Transaction Agreement.
“ Distribution Date ” has the
meaning set forth in the RMT Transaction Agreement.
“ Eligible Parent Stockholders
” has the meaning set forth in the RMT Transaction
Agreement.
“ Employee Equity Grants ”
has the meaning set forth in Section 4.01(c)(i).
“ External Debt Exchange ”
has the meaning set forth in the RMT Transaction
Agreement.
“ Federal Consolidated Return
” means any U.S. Federal Tax Return for an Affiliated
Group.
“ Final Determination ” means
the final resolution of liability for any Tax for any taxable
period by or as a result of (i) a final and unappealable
decision, judgment, decree or other order by any court of competent
jurisdiction; (ii) a final settlement with the IRS, a closing
agreement or accepted offer in compromise under Code
Sections 7121 or 7122, or a comparable arrangement under
the laws of another jurisdiction; (iii) any allowance of a
refund in respect of an overpayment of Tax, but only after the
expiration of all periods during which such amount may be recovered
by the Taxing Authority imposing the Tax; or (iv) any other
final disposition, including by reason of the expiration of the
applicable statute of limitations.
“ Group ” means the Parent
Group or the Splitco Group, or both, as the context
requires.
“ Indemnitee ” has the
meaning set forth in Section 5.01.
“ Indemnifying Party ” has
the meaning set forth in Section 5.01.
“ Intended Tax-Free Treatment
” has the meaning set forth in the RMT Transaction
Agreement.
“ Internal Debt Exchange ”
has the meaning set forth in the RMT Transaction
Agreement.
“ Internal Debt Repayment ”
has the meaning set forth in the RMT Transaction
Agreement.
“ Internal Spin ” has the
meaning set forth in the RMT Transaction Agreement.
“ IRS ” means the U.S.
Internal Revenue Service.
“ IRS Ruling ” has the
meaning set forth in the RMT Transaction Agreement.
“ KFG ” has the meaning set
forth in the RMT Transaction Agreement.
“ Merger Sub ” has the
meaning set forth in the RMT Transaction Agreement.
“ Mergers ” has the meaning
set forth in the RMT Transaction Agreement.
“ Modesto Facility ” has the
meaning set forth in the RMT Transaction Agreement.
“ Modesto Purchase ” has the
meaning set forth in the RMT Transaction Agreement.
“ Newco ” has the meaning set
forth in the RMT Transaction Agreement.
“ Newco Contribution ” has
the meaning set forth in the RMT Transaction Agreement.
“ Non-U.S. Acquired Assets ”
has the meaning set forth in the RMT Transaction
Agreement.
“ Non-U.S. Assumed Liabilities
” has the meaning set forth in the RMT Transaction
Agreement.
“ Non-U.S. Transfer ” has the
meaning set forth in the RMT Transaction Agreement.
“ Non-U.S. Transferees ” has
the meaning set forth in the RMT Transaction Agreement.
“ Non-U.S. Transferors ” has
the meaning set forth in the RMT Transaction Agreement.
“ Parent ” has the meaning
set forth in the preamble.
“ Parent Deferred Stock Awards
” has the meaning set forth in the RMT Transaction
Agreement.
“ Parent Group ” means the
Affiliated Group of which Parent is the common
parent. The Parent Group shall include Splitco and other
members of the Splitco Group only for taxable periods ending on or
before the Distribution Date.
“ Parent Group Federal Consolidated
Return ” means any Federal Consolidated Return for the
Parent Group.
“ Past Practices ” has the
meaning set forth in Section 3.03(a).
“ Planned Acquisitions ” has
the meaning set forth in Section 4.02(c)(ii).
“ Post-Distribution Period ”
means any taxable period (or portion thereof) beginning after the
Distribution Date.
“ Pre-Distribution Period ”
means any taxable period (or portion thereof) ending on or before
the Distribution Date.
“ Prohibited Act ” has the
meaning set forth in Section 4.02(c).
“ Property Taxes ” means
real, personal and intangible property Taxes.
“ Proposed Transactions ” has
the meaning set forth in the RMT Transaction Agreement.
“ Recoverable Taxes ” has the
meaning set forth in Section 2.03.
“ Related Persons ” has the
meaning set forth in Section 4.01(d)(iii).
“ Responsible Party ” means,
with respect to any Tax Return, the party having responsibility for
preparing and filing such Tax Return under this
Agreement.
“ Restricted Period ” means
the two-year period commencing on the day following the
Distribution Date.
“ RMT Debt ” has the meaning
set forth in the RMT Transaction Agreement.
“ RMT Debt Incurrence ” has
the meaning set forth in the RMT Transaction Agreement.
“ RMT Debt Proceeds ” has the
meaning set forth in the RMT Transaction Agreement.
“ RMT Partner ” has the
meaning set forth in the preamble.
“ RMT Partner Canada ” has
the meaning set forth in the RMT Transaction Agreement.
“ RMT Partner Common Stock ”
has the meaning set forth in the RMT Transaction
Agreement.
“ RMT Transaction Agreement ”
means the RMT Transaction Agreement, as amended from time to time,
by and among Parent, Splitco, RMT Partner and Merger Sub, dated as
of November 15, 2007.
“ Ruling ” means all private
letter rulings (including the IRS Ruling) granted by the IRS
relating to the Proposed Transactions (whether granted prior to, on
or after the date hereof), requests for such rulings, including all
supplemental ruling requests and information submissions, and any
exhibit to any of the foregoing.
“ Short Form Merger ” has the
meaning set forth in the RMT Transaction Agreement.
“ Spin-off ” has the meaning
set forth in the RMT Transaction Agreement.
“ Splitco ” has the meaning
set forth in the preamble.
“ Splitco Capital Stock ”
means (i) all classes of stock of Splitco, Merger Sub or
RMT Partner, as the case may be, including common stock
and all other instruments treated as equity in Splitco, Merger Sub
or RMT Partner, as the case may be, for U.S. Federal income tax
purposes and (ii) all options, warrants and other rights to
acquire such stock. If Splitco, Merger Sub or RMT
Partner merges into another entity or consolidates with another
entity to form a new entity, Splitco Capital Stock shall refer to
the capital stock of such new entity.
“ Splitco Carryback ” means
any net operating loss, net capital loss, excess Tax credit or
other similar Tax item of any member of the Splitco Group that may
or must be carried from one taxable period to a prior taxable
period under applicable tax law.
“ Splitco Common Stock ” has
the meaning set forth in the RMT Transaction Agreement.
“ Splitco Contribution ” has
the meaning set forth in the RMT Transaction Agreement.
“ Splitco Group ” means
Splitco and each entity that is a Subsidiary of Splitco on the
Distribution Date.
“ Splitco Merger ” has the
meaning set forth in the RMT Transaction Agreement.
“ Splitco Merger Surviving Company
” has the meaning set forth in the RMT Transaction
Agreement.
“ Splitco Securities ” has
the meaning set forth in the RMT Transaction Agreement.
“ Splitco Share Issuance ”
has the meaning set forth in the RMT Transaction
Agreement.
“ Split-off ” has the meaning
set forth in the RMT Transaction Agreement.
“ State Income Tax ” means
any Tax imposed by any state of the United States or by any
political subdivision of any such state which is imposed on or
measured by net income, including state and local franchise or
similar Taxes measured by net income.
“ Straddle Period ” means any
taxable period that begins on or before and ends after the
Distribution Date.
“ Subsidiary ” of any person
means, at any date, any corporation, partnership, joint venture or
other entity of which the applicable person owns, directly or
indirectly, more than 50% of the outstanding voting securities
or equity interests.
“ Supplemental Ruling ” means
a Ruling to the effect that a Prohibited Act would not adversely
affect any of the conclusions with respect to the Intended Tax-Free
Treatment set forth in the original Ruling.
“ Supplemental Tax Opinion ”
means a tax opinion to the effect that a Prohibited Act would not
adversely affect any of the conclusions with respect to the
Intended Tax-Free Treatment set forth in any Ruling or any other
Tax Opinion (including any other Supplemental Tax Opinion or
Supplemental Ruling).
“ TAA Dispute ” means any
dispute arising in connection with this Agreement.
“ Tax Representations ” has
the meaning set forth in the RMT Transaction Agreement.
“ Taxes ” means any tax,
wherever created or imposed, and whether of the United States or
elsewhere, and whether imposed by a Taxing Authority or by
contract, and, without limiting the generality of the foregoing,
shall include income, gross receipts, property, sales, use,
license, excise, franchise, employment, payroll, unemployment
insurance, social security, stamp, environmental, value added,
alternative or added minimum, ad valorem, trade, recording,
withholding, occupation or transfer tax, custom or duty or other
like governmental assessment or charge of any kind whatsoever,
together with any related interest, penalties and additions imposed
by any Taxing Authority or by contract.
“ Tax Advisor ” means a U.S.
tax counsel of recognized national standing reasonably acceptable
to both parties.
“ Tax Benefit ” means any
item of loss, deduction, credit, refund or any other Tax Item that
decreases Taxes paid or payable. Tax Benefits are to be
determined using the assumption that each party pays Federal,
state, local and foreign Tax at the highest applicable marginal
corporate Tax rate and can fully utilize any available Tax
Benefits.
“ Tax Contest ” means an
audit, review, examination or any other administrative or judicial
proceeding with the purpose or effect of determining or
redetermining Taxes.
“ Tax Detriment ” means any
item of income, gain, recapture of credit or any other Tax Item
that increases Taxes paid or payable.
“ Tax Item ” means, with
respect to any income Tax, any item of income, gain, loss,
deduction and credit.
“ Tax Loss ” means the
increase in Tax paid or payable to the relevant Taxing Authority
(or, without duplication, the reduction in any Tax Benefit)
attributable to a Tax Detriment.
“ Tax Opinion ” means the
opinions of Tax Advisors relating to the Proposed Transactions,
including those issued at the time of the Distribution.
“ Tax Return ” or “
Return ” means any return, filing, report,
questionnaire, information statement, claim for refund, or other
document required or permitted to be filed, including any
amendments that may be filed, for any taxable period with any
Taxing Authority.
“ Taxing Authority ” means
any governmental authority imposing Taxes.
“ Transaction Taxes ” means
all (i) Taxes of any member of the Parent Group or the Splitco
Group resulting from, or arising in connection with, the failure of
the Proposed Transactions to have the Intended Tax-Free Treatment,
(ii) Taxes of the type described in clause (i) of any
third party for which any member of the Parent Group or the Splitco
Group is or becomes liable, and (iii) reasonable out of pocket
legal, accounting and other advisory and court fees in connection
with liability for Taxes described in clauses (i)
or (ii). For the avoidance of doubt,
“Transaction Taxes” does not include Transfer
Taxes.
“ Transfer Tax Return ” means
any Tax Return for Transfer Taxes.
“ Transfer Taxes ” has the
meaning set forth in Section 2.03.
“ U.S. Acquired Assets ” has
the meaning set forth in the RMT Transaction Agreement.
“ U.S. Assumed Liabilities ”
has the meaning set forth in the RMT Transaction
Agreement.
“ Worksheet ” has the meaning
set forth in Section 4.01(c)(i).
ARTICLE II
Payment of Taxes
SECTION 2.01
Pre-Distribution/Post-Distribution Taxes . (a)
Except as provided in Sections 2.01(f), 2.02 and 2.03, Parent shall
indemnify and hold harmless RMT Partner, Splitco and each member of
the Splitco Group from and against (i) all Taxes of the Parent
Group (including, for all Pre-Distribution Periods, each member of
the Splitco Group and the portion of any Taxes for a Straddle
Period that are allocated to the Pre-Distribution Period pursuant
to Section 2.01(c) below) and (ii) all Taxes of any
affiliated, consolidated, combined or unitary group of which
Splitco or any member of Splitco Group was a member before the
Distribution Date, including pursuant to Treas. Reg. 1.1502-6
or analogous or similar state, local or foreign law or
regulation.
(b) Except as provided in
Sections 2.01(a), 2.01(e), 2.02 and 2.03, RMT Partner and
Splitco shall indemnify and hold harmless Parent and each member of
the Parent Group from and against (i) all Taxes of the Splitco
Group for any Post-Distribution Period (including the portion of
any Taxes for a Straddle Period that are allocated to the
Post-Distribution Period pursuant to Section 2.01(c) below) and
(ii) any Tax Losses that result from the failure by RMT
Partner, Splitco or any member of the Splitco Group to use a
consistent position as provided in Section 3.03 (without
regard to whether Parent’s written consent was
obtained). For the avoidance of doubt, RMT Partner and
Splitco shall have no obligation to indemnify and hold harmless
Parent or any member of the Parent Group pursuant to this Section
2.01(b) with respect to any Taxes arising from any action by RMT
Partner or Splitco expressly required by the RMT Transaction
Agreement.
(c) In the case of any Straddle
Period (i) Property Taxes and related exemptions, allowances
or deductions that are calculated on an annualized basis shall be
apportioned between the Pre-Distribution Period and the
Post-Distribution Period on a daily pro-rata basis and
(ii) all other Taxes and related items shall be apportioned
between the Pre-Distribution Period and the Post-Distribution
Period on a closing of the books basis as of the close of business
on the Distribution Date.
(d) The amount or economic benefit of
any Tax Benefit of any member of the Splitco Group (i) arising
in any Pre-Distribution Period shall be for the account of the
Parent Group, (ii) arising in any Post-Distribution Period shall be
for the account of the Splitco Group and (iii) arising in any
Straddle Period shall be apportioned between the Pre-Distribution
Period and the Post-Distribution Period pursuant to the principles
set forth in Section 2.01(c) above. For the
avoidance of doubt, the amount or economic benefit of any
deductions with respect to the exercise of Parent stock options or
other stock awards held by the Business Employees as of the
Distribution Date shall be treated as arising in the
Pre-Distribution Period, regardless of the date on which such stock
options or other awards are exercised, and such treatment shall not
result in a Tax indemnification obligation of RMT Partner or
Splitco. Any wage or payroll withholding Taxes
attributable to the exercise or vesting of Parent’s stock
options or other stock awards shall be the sole responsibility of
Parent.
(e) Other Income Taxes
. For the avoidance of doubt, any Tax Item resulting
from Splitco ceasing to be a member of the Parent Group (including
any Tax Items required to be taken into account by the Parent Group
under Treas. Reg. §§ 1.1502-13 and 1.1502-19)
shall be treated as arising in the Pre-Distribution
Period.
(f) Except as provided in Sections
2.01(e) (Other Income Taxes), 2.02 (Transaction Taxes) and 2.03
(Transfer Taxes), which Taxes, for the avoidance of doubt, are
provided for exclusively in such sections, RMT Partner and Splitco
shall indemnify and hold harmless Parent and each member of the
Parent Group from and against Taxes of Parent or any member of the
Parent Group imposed as a result of actions taken by, or at the
direction of, RMT Partner or the Splitco Group on the Distribution
Date but following the Distribution, other than actions by RMT
Partner and Splitco expressly required by the RMT Transaction
Agreement.
SECTION 2.02 Transaction
Taxes . (a) Parent shall indemnify and hold harmless
RMT Partner, Splitco and each member of the Splitco Group from and
against any Transaction Taxes other than those described in Section
2.02(b). For the avoidance of doubt, Parent shall
indemnify and hold harmless RMT Partner, Splitco and each member of
the Splitco Group from and against (i) any Transaction Taxes
attributable to the distribution by Parent of Splitco Common Stock
to holders of Parent Deferred Stock Awards and (ii) any Transaction
Taxes in connection with the Merger that are directly attributable
to any actions undertaken pursuant to and described in the
“Accounting Cut-Off Matters” and
“Inventory” sections of the letter agreement entitled
“Re: Allocation Agreement”, dated August 4, 2008,
between Parent and RMT Partner.
(b) RMT Partner and Splitco shall
indemnify and hold harmless Parent and each member of the Parent
Group from and against any Transaction Taxes that are attributable
to:
(i) other than Transaction Taxes
attributable to actions by RMT Partner and Splitco expressly
required by the RMT Transaction Agreement:
(A) any inaccurate representation
made in Sections 4.01(b), 4.01(c) or 4.01(d);
(B) any inaccurate statement of fact
or inaccurate Tax Representation (or omission to state a material
fact, the omission of which causes the facts stated or Tax
Representations made not to be complete and accurate in all
material respects) made by RMT Partner in a letter or certificate
that forms the basis for any Tax Opinion or Ruling;
(C) any action or failure to take
action by RMT Partner, the Splitco Group (taken at the direction of
RMT Partner) or any of their Affiliates, after the date of the RMT
Transaction Agreement until the Distribution Date, that violates
the covenants made by RMT Partner or Splitco set forth in this
Agreement; or
(D) any other action or failure to
take action (including Prohibited Acts) by RMT Partner, the Splitco
Group or any of their Affiliates after the Distribution Date that
violates the covenants made by RMT Partner or Splitco set forth in
this Agreement.
(ii) the failure of the Mergers to
qualify for the Intended Tax-Free Treatment, except where such
failure is a result of a breach of a Tax Representation or covenant
by Parent; provided , however, (A) RMT Partner and Splitco
shall have no liability under this Section 2.02(b)(ii) with respect
to or as a result of any deemed sale of Splitco Common Stock
attributable to such stock being treated for Federal income tax
purposes as not having been distributed to the stockholders of
Parent or any resulting failure by Parent to distribute an amount
of Splitco Common Stock constituting “control” of
Splitco within the meaning of Section 368(c) of the Code, and (B)
RMT Partner and Splitco shall have no liability under this Section
2.02(b)(ii) with respect to the failure of the Splitco Merger to
qualify for the Intended Tax-Free Treatment if Splitco is the
surviving entity in the Splitco Merger.
For the avoidance of doubt, Parent's right to be
indemnified and held harmless under this Section 2.02(b) shall
be determined without regard to whether a written waiver from
Parent, a Supplemental Ruling or a Supplemental Opinion was
obtained under Sections 4.02(d) or 4.02(f).
(c) The party responsible for any
Transaction Taxes under Sections 2.02(a) or 2.02(b), as the case
may be, shall be entitled to the economic benefit of any Tax
Benefits of such Transaction Taxes.
SECTION 2.03 Transfer Taxes
. RMT Partner and Splitco shall be liable and shall
indemnify Parent and each member of the Parent Group for any
value-added, sales
