Exhibit 10.5
EXECUTION COPY
TAX SHARING AGREEMENT
This Tax Sharing Agreement (this
“ Agreement ”) is entered into as of January 15,
2007, by and among Verizon Communications Inc., a Delaware
corporation (“ Verizon ”), Northern New England
Spinco Inc., a newly formed Delaware corporation and a wholly owned
subsidiary of Verizon (“ Spinco ”), and
FairPoint Communications, Inc., a Delaware corporation (“
FairPoint ”). Capitalized terms used in this
Agreement and not otherwise defined herein shall have the meanings
ascribed to such terms in the Merger Agreement, dated as of the
date hereof, by and among Verizon, FairPoint and Spinco (the
“ Merger Agreement ”).
RECITALS
WHEREAS, Verizon is the common
parent corporation of an affiliated group of corporations within
the meaning of Section 1504(a) of the Internal Revenue Code of
1986, as amended (the “ Code ”), that files a
consolidated U.S. federal income tax return;
WHEREAS, pursuant to the Merger
Agreement and the Distribution Agreement, among other things,
Verizon will transfer or cause to be transferred to Spinco or one
or more Subsidiaries of Spinco (pursuant to certain preliminary
restructuring transactions, including Internal Spinoffs) all of the
Spinco Assets and Spinco and/or one or more Subsidiaries of Spinco
will assume or cause to be assumed all of the Spinco
Liabilities;
WHEREAS, on the Distribution Date,
Verizon will distribute all of the issued and outstanding shares of
Spinco Common Stock on a pro rata basis to the holders of Verizon
Common Stock;
WHEREAS, pursuant to the Merger
Agreement, immediately following the Distribution, Spinco will
merge with and into FairPoint pursuant to the Merger;
WHEREAS, the parties to this
Agreement intend that ( i ) the First Internal
Spinoff qualify as a reorganization under Section 368(a)(1)(D) of
the Code and a distribution eligible for nonrecognition under
Sections 355(a) and 361(c) of the Code; ( ii ) the
Second Internal Spinoff qualify as a distribution eligible for
nonrecognition under Sections 355(a) and 361(c) of the Code; (
iii ) the Contribution, together with the
Distribution, qualify as a tax-free reorganization under Section
368(a)(1)(D) of the Code; ( iv ) the Distribution
qualify as a distribution of Spinco stock to Verizon stockholders
eligible for
nonrecognition under Sections 355(a)
and 361(c) of the Code; ( v ) no gain or loss be
recognized by Verizon for U.S. federal income tax purposes in
connection with the receipt of the Spinco Securities or the
consummation of the Debt Exchange; ( vi ) the Special
Dividend qualify as money transferred to creditors or distributed
to shareholders in connection with the reorganization within the
meaning of Section 361(b)(1) of the Code, to the extent that
Verizon distributes the Special Dividend to its creditors and/or
shareholders in connection with the Contribution; (
vii ) the Merger qualify as a tax-free reorganization
pursuant to Section 368(a) of the Code; and ( viii )
no gain or loss be recognized as a result of such transactions for
U.S. federal income tax purposes by any of Verizon, Spinco, and
their respective stockholders and Subsidiaries (except to the
extent of cash received in lieu of fractional shares);
and
WHEREAS, Verizon, Spinco and
FairPoint desire to set forth their rights and obligations with
respect to Taxes due for periods before and after the Distribution
Date and other Tax matters relating to the transactions
contemplated by the Merger Agreement and the Distribution
Agreement;
NOW, THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as
follows:
ARTICLE
I
DEFINITIONS
“ Affiliate ” has
the meaning set forth in the Merger Agreement.
“ Agreement ” has
the meaning set forth in the preamble.
“ Applicable Federal
Rate ” means the rate computed pursuant to Section
1274(d) of the Code, compounded quarterly, with respect to the
applicable period.
“ Code ” has the
meaning set forth in the recitals.
“ Contribution ”
has the meaning set forth in the Merger Agreement.
“ Distribution ”
has the meaning set forth in the Merger Agreement.
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“ Distribution
Agreement ” has the meaning set forth in the Merger
Agreement.
“ Distribution Date
” has the meaning set forth in the Distribution
Agreement.
“ Distribution
Disqualification ” means that ( i
) either the Contribution, taken together with the
Distribution, or the First Internal Spinoff fails to qualify as a
tax-free reorganization under Section 368(a)(1)(D) of the Code
pursuant to which no gain or loss is recognized for U.S. federal
income tax purposes by any of Verizon, Spinco or their
Subsidiaries; ( ii ) any of the Distribution or
the Internal Spinoffs fails to qualify as a distribution eligible
for nonrecognition under Section 355 of the Code, pursuant to which
no gain or loss is recognized for U.S. federal income tax purposes
by any of Verizon, Spinco, their Subsidiaries, or the stockholders
of Verizon, except to the extent of cash received in lieu of
fractional shares; ( iii ) the Debt Exchange (if
consummated) fails to constitute a transfer of qualified property
to Verizon’s creditors in connection with the reorganization
within the meaning of Section 361(c)(3) of the Code; and/or (
iv ) the Special Dividend fails to qualify as
money transferred to creditors or distributed to shareholders in
connection with the reorganization within the meaning of Section
361(b)(1) of the Code, but only to the extent that Verizon
distributes the Special Dividend to its creditors or
shareholders. For the avoidance of doubt, a Distribution
Disqualification shall occur if Verizon or any of its Subsidiaries
recognizes gain pursuant to Section 355(d), 355(e) and/or 355(f) of
the Code with respect to the Distribution and/or any Internal
Spinoff.
“ FairPoint ” has
the meaning set forth in the recitals.
“ FairPoint Group
” means FairPoint and all entities that are Subsidiaries of
FairPoint immediately following the Merger.
“ Final Determination
” means a determination within the meaning of Section 1313 of
the Code or any similar provision of state or local tax
law.
“ Income Taxes ”
means any and all Taxes based upon or measured by net or gross
income (including alternative minimum tax under Section 55 of the
Code and including any liability described in clauses (ii) or (iii)
of the definition of “Taxes” that relates to any Income
Tax).
“ Merger Agreement
” has the meaning set forth in the preamble.
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“ Non-Preparer Party
” has the meaning set forth in Section 2.02.
“ Other Taxes ”
means any and all Taxes other than Income Taxes, including any
liability described in clauses (ii) or (iii) of the definition of
“Taxes” that relates to any Other Tax.
“ Person ” means
any individual, partnership, joint venture, corporation, limited
liability company, trust, unincorporated organization, government
or department or agency of a government.
“ Post-Distribution
Period ” means any taxable year or other taxable period
beginning after the Distribution Date and, in the case of any
taxable year or other taxable period that begins before and ends
after the Distribution Date, that part of the taxable year or other
taxable period that begins at the beginning of the day after the
Distribution Date.
“ Potential Disqualifying
Action ” has the meaning set forth in Section
10.02(b).
“ Pre-Distribution
Period ” means any taxable year or other taxable period
that ends on or before the Distribution Date and, in the case of
any taxable year or other taxable period that begins before and
ends after the Distribution Date, that part of the taxable year or
other taxable period through the close of the Distribution
Date.
“ Spinco ” has
the meaning set forth in the preamble.
“ Spinco Group ”
means Spinco and all entities that are Subsidiaries of Spinco
immediately following the Contribution.
“ Spinco Return ”
has the meaning set forth in Section 2.01(b).
“ Spinco Securities
” has the meaning set forth in the Distribution
Agreement.
“ Subsidiary ”
has the meaning set forth in the Merger Agreement.
“ Tax ” or
“ Taxes ” has the meaning set forth in the
Merger Agreement.
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“ Tax Attribute ”
means any net operating loss carryover or carryback, net capital
loss carryover or carryback, investment tax credit carryover or
carryback, foreign tax credit carryover or carryback, charitable
deduction carryover or carryback or other similar item that could
reduce Income Tax for a past or future taxable period.
“ Tax Benefit ”
means, in the case of a separate state, local or other Tax Return,
the sum of the amount by which the Tax liability (after giving
effect to any alternative minimum or similar Tax) of a corporation
to the appropriate Taxing Authority is reduced (including by
deduction, entitlement to refund, credit or otherwise, whether
available in the current taxable year, as an adjustment to taxable
income in any other taxable year or as a carryforward or carryback,
as applicable) plus any interest from such government or
jurisdiction relating to such Tax liability, and in the case of a
consolidated federal Tax Return or combined, unitary or other
similar state, local or other Tax Return, the sum of the amount by
which the Tax liability of the affiliated group (within the meaning
of Section 1504(a) of the Code) or other relevant group of
corporations to the appropriate government or jurisdiction is
reduced (including by deduction, entitlement to refund, credit or
otherwise, whether available in the current taxable year, as an
adjustment to taxable income in any other taxable year or as a
carryforward or carryback, as applicable) plus any interest from
such government or jurisdiction relating to such Tax
liability.
“ Tax Contest ”
has the meaning set forth in Section 5.01.
“ Tax Dispute ”
has the meaning set forth in Article IX.
“ Tax Dispute
Arbitrator ” has the meaning set forth in Article
IX.
“ Tax Materials ”
has the meaning set forth in Section 10.01(a).
“ Tax Return ”
has the meaning set forth in the Merger Agreement.
“ Taxing Authority
” has the meaning set forth in the Merger
Agreement.
“ Transactions ”
has the meaning set forth in Section 2.04(a).
“ Transfer Taxes
” means any Merger Transfer Taxes and Distribution Transfer
Taxes (in each case, having the meaning set forth in the Merger
Agreement).
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“ Transition Services
Agreement ” has the meaning set forth in the Merger
Agreement.
“ Verizon ” has
the meaning set forth in the preamble.
“ Verizon Group ”
means Verizon and all Subsidiaries of Verizon at any time
preceding, at or following the Contribution, but shall not include
any member of the Spinco Group.
“ Verizon Consolidated
Group ” means any consolidated, combined or unitary group
of which any member of the Verizon Group is the common parent
corporation at any time.
“ Verizon Return
” has the meaning set forth in Section 2.01(a).
ARTICLE II
TAX RETURNS AND TAX
PAYMENTS
Section
2.01
Obligations to
File Tax Returns .
(a)
Verizon shall
file or cause to be filed any Tax Return that is required to be
filed after the Distribution Date that includes both (
i ) one or more members of the Verizon Group and (
ii ) one or more members of the Spinco Group or any
item of income, loss, gain, deduction or credit relating to the
Spinco Business (a “ Verizon Return ”).
Each member of the Spinco Group hereby irrevocably authorizes and
designates Verizon as its agent, coordinator and administrator for
the purpose of taking any and all actions necessary or incidental
to the filing of any such Verizon Return and, except as otherwise
provided herein, for the purpose of making payments to, or
collecting refunds from, any Taxing Authority in respect of a
Verizon Return. FairPoint shall cause members of the Spinco
Group to promptly prepare and deliver to Verizon in a manner
consistent with past practices pro forma Tax Returns and tax
information packages with respect to any Verizon Return. In
the case of any Verizon Return that includes any member of the
Spinco Group or any item relating to the Spinco Business only for
the portion of the relevant taxable period that ends on the
Distribution Date, Taxes shall be allocated to the portion of such
taxable period that ends on the Distribution Date based on an
actual or hypothetical closing of the books at the close of the
Distribution Date. Except as otherwise provided herein,
Verizon shall have the exclusive right to file,
prosecute,
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compromise or
settle any claim for refund for Taxes in respect of a Verizon
Return for which Verizon bears responsibility hereunder and to
determine whether any refunds of such Taxes to which the Verizon
Consolidated Group may be entitled shall be received by way of
refund or credit against the Tax liability of the Verizon
Consolidated Group.
(b)
FairPoint shall
file or cause to be filed any other Tax Return required to be filed
after the Distribution Date by or with respect to one or more
members of the Spinco Group (a “ Spinco Return
”). All Spinco Returns shall be prepared (
i ) on a basis that is consistent with the
Distribution Tax Opinion, the Merger Tax Opinions and the IRS
Ruling and ( ii ) in a manner consistent with
Verizon’s determination of the adjusted Tax basis of any
asset and the amount of any Tax Attribute or any similar item held
by the Spinco Group at the time of the Distribution. In the
case of any Spinco Return that includes any member of the Spinco
Group or any item relating to the Spinco Business only for the
portion of the relevant taxable period that begins after the
Distribution Date, Taxes shall be allocated to the portion of such
taxable period that begins after the Distribution Date based on an
actual or hypothetical closing of the books at the close of the
Distribution Date.
Section
2.02
Review of Tax
Returns . No later than thirty
(30) days prior to the date on which any Verizon Return or Spinco
Return is required to be filed (taking into account any valid
extensions), if the party that is not responsible for preparing
such Tax Return under Section 2.01 (the “ Non-Preparer
Party ”) is responsible for any portion of the Taxes
reported on such Tax Return, the party responsible for preparing
such Tax Return under Section 2.01 shall ( a ) submit
or cause to be submitted to the Non-Preparer Party such Tax Return
for review and comment and ( b ) shall consider in
good faithany changes to such Tax Return reasonably requested by
the Non-Preparer Party, to the extent that such changes relate to
items for which the Non-Preparer Party has responsibility
hereunder.
Section
2.03
Obligation to
Remit Taxes . Verizon and FairPoint
shall each timely remit or cause to be timely remitted to the
applicable Taxing Authority any Taxes due in respect of any Tax
Return that such party is required to file or cause to be filed
(or, in the case of a Tax for which no Tax Return is required to be
filed, which is otherwise payable by such party or a member of such
party’s affiliated group to any Taxing Authority) and shall
be entitled to reimbursement for such payments to the extent
provided herein; provided , however, that in the case of any
Tax Return, the Non-Preparer Party shall remit to the Party
required to file such Tax Return in immediately available funds the
amount of any Taxes reflected on such Tax Return for which the
Non-Preparer Party is responsible hereunder at least two (2)
Business Days before payment of the relevant amount is due to a
Taxing Authority.
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Section
2.04
Tax Sharing
and Indemnification Obligations .
(a)
Spinco and, from
and after the Merger, FairPoint shall be liable for and shall
indemnify and hold the Verizon Group harmless against any Taxes (
i ) resulting from ( A ) the Internal
Spinoffs, the Contribution, the Distribution, the Debt Exchange or
any transaction associated therewith (the “
Transactions ”), including Taxes arising from any
Distribution Disqualification, to the extent that such Taxes arise
as a result of any action (or failure to take any reasonably
required action to avoid a Distribution Disqualification) by Spinco
or any of its Affiliates following the Effective Time or any action
(or failure to take any reasonably required action to avoid a
Distribution Disqualification) by FairPoint or any of its
Affiliates (excluding the Spinco Group), or ( B ) any
breach of any representation, covenant or obligation of Spinco or
FairPoint under this Agreement or any other Transaction Agreement
to the extent that Taxes resulting from such breach are
attributable to ( x ) a Distribution Disqualification
or ( y ) a breach of Section 6.02 hereof, (
ii ) arising in the Pre-Distribution Period and
attributable to a member of the Spinco Group or to the income,
employees, assets or transactions of the Spinco Business, except
for Taxes resulting from the Transactions (including Taxes
resulting from the triggering into income of any items from
intercompany transactions under Section 1.1502-13 of the Treasury
Regulations or excess loss accounts under Section 1.1502-19 of the
Treasury Regulations) for which either FairPoint or Spinco is not
otherwise responsible pursuant to any other provision of this
Section 2.04(a) or this Agreement or ( iii ) arising
in the Post-Distribution Period and attributable to a member of the
Spinco Group or to the assets, employees, or transactions of the
Spinco Business. Taxes for which Spinco and FairPoint are
responsible pursuant to clause (ii) of the preceding sentence shall
be computed ( A ) as if Spinco and its Subsidiaries
had always conducted the Spinco Business as a separate affiliated
group of companies whose items of income, gain, loss, deduction,
and credit for U.S. federal income tax purposes included solely
such items attributable to the Spinco Business and none of such
items attributable to the Verizon Business and ( B )
by taking into account ( x ) elections and accounting
methods actually used in computing such items by the Verizon
Consolidated Group in filing its Tax Returns and ( y
) solely items of income, gain, loss, deduction, and credit arising
during the taxable periods for which the applicable Tax claim is
being brought under Section 2.04(a)(ii).
(b)
Except for Taxes
for which either Spinco or FairPoint is responsible under Section
2.04(a) or any other provision of this Agreement, Verizon shall be
liable for and shall indemnify and hold FairPoint and its
Subsidiaries and the Spinco Group harmless against, any Taxes (
i ) of the Verizon Group or any Verizon Consolidated
Group or any member thereof or attributable to the employees,
assets or transactions of the Verizon Business or (
ii ) of the Spinco Group or any member thereof
arising in the period ending on the Effective Time and resulting
from the Transactions, including Taxes arising from any
Distribution Disqualification.
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(c)
The
parties’ responsibilities for Transfer Taxes shall be
governed by Section 11.1 of the Merger Agreement.
(d)
Except as set
forth in this Agreement and in consideration of the mutual
indemnities and other obligations of this Agreement, any and all
prior Tax sharing or allocation agreements, arrangements or
practices between any member of the Verizon Group and any member of
the Spinco Group shall be terminated with respect to the Spinco
Group as of the Distribution Date, and no member of the Spinco
Group shall have any continuing rights or obligations
thereunder.
(e)
FairPoint shall
be entitled to any refund of or credit for Taxes for which
FairPoint is responsible under this Agreement, and Verizon shall be
entitled to any refund of or credit for Taxes for which Verizon is
responsible under 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 within five
days after the receipt of the refund. Each party shall be
entitled to offset any amount which it is owed under the
Transaction Agreements by any amounts owed to it by the other party
under this Section 2.04(e) or any other provision of this
Agreement.
(f)
All
indemnification obligations in respect of Taxes pursuant to this
Agreement shall be increased to include ( i )
all reasonable accounting, legal and other professional fees
and
