Exhibit 10.4
TAX SHARING AGREEMENT
by and among
CENDANT CORPORATION
and
PHH CORPORATION
*The term “Confidential” indicates material that has
been omitted and for which confidential treatment has been
requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.
TAX SHARING AGREEMENT
This
Tax Sharing Agreement (this “Agreement”) is dated as of
January 31, 2005, by and among Cendant Corporation, a Delaware
corporation (“Cendant”), PHH Corporation, a Maryland
corporation (“PHH”), and each PHH Affiliate that
executes this Agreement. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in
Article VII hereof.
RECITALS
WHEREAS, as of the date hereof, Cendant and its
direct and indirect domestic subsidiaries are members of an
Affiliated Group, of which Cendant is the common parent
corporation;
WHEREAS, Cendant’s Board of Directors has
determined that it is appropriate and desirable for Cendant to
distribute all of its shares of PHH common stock to Cendant
shareholders;
WHEREAS, Cendant and PHH have agreed to
undertake a series of transactions including (i) as more fully
set forth in the Steps Memo, the contribution by PHH to Cendant
Mobility Services Corporation, a Delaware corporation
(“Mobility”), of certain assets, and, in connection
therewith, the distribution by Mobility to PHH of $100 million
to be distributed by PHH to its creditors, followed by the
distribution by PHH to Cendant of all of the stock of Mobility
(collectively, the “Internal Distribution”),
(ii) the distribution by Cendant to its common shareholders
pro rata of all of the stock of PHH (the
“Distribution”), and (iii) each of the other
transactions set forth in the Steps Memo and each other transaction
effected on or before the Distribution Date that is related to the
transactions set forth in the Steps Memo (collectively, the
“Internal Reorganization”); and
WHEREAS, the Internal Distribution is intended
to qualify as a reorganization and distribution that are tax-free
to PHH, Mobility, and Cendant under sections 368(a)(1)(D), 361(c),
and 355 of the Code; the Distribution is intended to qualify as a
distribution that is tax-free to Cendant and its shareholders under
section 355 of the Code; and steps comprising the Internal
Reorganization are intended to be tax-free to Cendant and PHH and
their respective affiliates.
WHEREAS, in contemplation of the Distribution
pursuant to which PHH and its direct and indirect domestic
subsidiaries will cease to be members of the Affiliated Group of
which Cendant is the common parent, Cendant and PHH desire to set
forth their agreement on the rights and obligations of Cendant and
PHH and their respective groups with respect to handling and
allocating Taxes for periods beginning before and after the
Distribution Date, Taxes, if any, resulting from transactions
effectuated in connection with the Internal Distribution, the
Distribution, the Internal Reorganization, and various other Tax
matters.
1
NOW,
THEREFORE, in consideration of the foregoing and the terms,
conditions, covenants and provisions of this Agreement, Cendant and
PHH mutually covenant and agree as follows:
ARTICLE I
PREPARATION AND FILING OF TAX RETURNS; PAYMENT
OF TAXES
Section 1.1
Cendant’s Responsibility . (a) Cendant shall have
sole and exclusive responsibility for the preparation and timely
filing of:
(i) all Cendant
Separate Income Tax Returns;
(ii) all Cendant
Consolidated and Combined Income Tax Returns; and
(iii) all Tax
Returns required to be filed by Cendant or any Cendant Affiliate
with respect to Other Taxes
as determined pursuant to Section 1.3 hereof.
(b)
Subject to Section 1.2(c), and
Sections 2.1(b), (c), and (d), Cendant shall be liable for and
shall timely pay, or cause to be paid, to the applicable Taxing
Authority all Taxes required to be reported on Tax Returns for
which it has responsibility under this Section 1.1 and shall
be entitled to receive and retain any refunds of Taxes paid with
respect thereto.
Section 1.2
PHH’s Responsibility . (a) PHH shall have sole
and exclusive responsibility for the preparation and timely filing
of:
(i) all PHH
Separate Income Tax Returns;
(ii) all PHH
Consolidated and Combined Income Tax Returns; and
(iii) all Tax
Returns required to be filed by PHH or any PHH Affiliate with
respect to Other Taxes as
determined pursuant to Section 1.3 hereof.
(b) Subject to
Section 2.1(a), (c), and (d), PHH shall be liable for and
shall timely pay, or cause to be paid, to the applicable Taxing
Authority all Taxes required to be reported on Tax Returns for
which it has responsibility under this Section 1.2 and subject
to Section 1.6, shall be entitled to receive and retain any
refunds of Taxes paid with respect thereto.
(c)
Notwithstanding Section 1.1 or any other provision of this
Agreement to the contrary, PHH shall be liable for any Taxes
attributable to transactions or actions taken by
2
PHH or any PHH Affiliate on the
Distribution Date, except for (i) any transactions or actions
undertaken in the ordinary course of business consistent with past
practices or (ii) the Distribution, to the extent PHH would
not otherwise be liable for any such Taxes under Section 2.1(b),
(c), or (d). To the extent required or permissible, any
extraordinary item, within the meaning of Treasury
Regulation Section 1.1502-76(b)(2)(ii)(C), of PHH or any
PHH Affiliate that occurs or results from a transaction that takes
place on the Distribution Date shall be treated as occurring at the
beginning of the day following the Distribution Date.
Section 1.3
Liability for Other Taxes . PHH shall and shall cause each
PHH Affiliate to prepare and timely file all Tax Returns for Other
Taxes in respect of which the legal incidence of the Other Tax is
imposed on PHH or any PHH Affiliate, as the case may be, and PHH
shall be liable for and timely pay (or cause to be paid) all such
Other Taxes. Cendant shall and shall cause each Cendant Affiliate
to prepare and timely file all Tax Returns for Other Taxes in
respect of which the legal incidence of the Other Tax is imposed on
Cendant or any Cendant Affiliate, as the case may be, and Cendant
shall be liable for and timely pay (or cause to be paid) all such
Other Taxes. Responsibility for filing any Tax Return and liability
for paying any Other Tax that is legally imposed on more than one
legal entity (e.g., joint and several liability) shall be allocated
in accordance with past practices as reasonably determined by
Cendant, or in the absence of such practices, in accordance with
any reasonable allocation method determined by Cendant.
Section 1.4
Agent . PHH hereby irrevocably designates, and agrees to
cause each PHH Affiliate to so designate, Cendant as its sole and
exclusive agent and attorney-in-fact and agrees to take such action
and to cause the PHH Affiliates to take such action (including
execution of powers of attorney and other documents) as Cendant may
reasonably request in connection with any matter relating to Taxes,
provided , that except as otherwise provided in
Section 1.6(g) and Section 5.4, this Section 1.4
shall not apply to Taxes described in
Section 1.2(b).
Section 1.5
Manner of Tax Return Preparation .
(a) Unless
otherwise required by a Taxing Authority, the parties hereto shall
prepare and file all Tax Returns and take all other actions in a
manner consistent with this Agreement. All Tax Returns shall be
filed on a timely basis (taking into account applicable extensions)
by the party responsible for filing such Tax Returns under this
Agreement.
(b) Subject to
Section 1.5(a), Cendant shall have the exclusive right in its
reasonable discretion with respect to any Tax Return described in
Section 1.1 to determine all relevant matters, including
without limitation (1) the manner in which such Tax Return
shall be prepared and filed, including the elections, methods of
accounting, positions, conventions and principles of taxation to be
used and the manner in which any Tax Asset or Tax related matter
regarding such Tax Return shall be reported, provided that
Cendant shall elect out of bonus depreciation under section 168(k)
of the Code for PHH and each PHH Affiliate for the taxable year
ended December 31, 2004, (2) whether any extensions may
be requested, (3) the elections that will be made by Cendant,
any Cendant Affiliate, PHH, or any PHH Affiliate on such
Tax
3
Return, (4) whether any
amended Tax Return(s) shall be filed, (5) whether any claim(s)
for refund shall be made, (6) whether any refund shall be paid
by way of refund or credited against any liability for the related
Tax, and (7) whether to retain outside firms to prepare or
review such Tax Returns.
Section 1.6
Certain Tax Benefits .
(a) PHH shall pay
to Cendant the amount of any Tax Benefit Realized by PHH or any PHH
Affiliate in each taxable year that is attributable to the
transactions undertaken pursuant to the Avis Merger Agreement being
characterized in a manner other than as reported by Cendant or any
Cendant Affiliate on its originally filed applicable income Tax
Returns. Within sixty (60) days of any Final Determination
that may give rise to an obligation of PHH under this
Section 1.6(a) (an “Avis Final Determination”),
Cendant shall notify PHH in writing of such Avis Final
Determination and shall provide PHH with such information
reasonably required by PHH for PHH and each relevant PHH Affiliate
to account for any Tax Asset (or any increase in any Tax Asset) and
to determine the Tax Benefit potentially available attributable to
the Avis Final Determination. Notwithstanding the foregoing, the
failure of Cendant to provide notice to PHH within the time
required by the preceding sentence shall not relieve PHH of any
liability and/or obligation which it may have under this
Section 1.6.
(b) Within sixty
(60) days after PHH receives notice of any Avis Final
Determination, PHH shall provide to Cendant a schedule showing, in
reasonable detail, the effect of the Avis Final Determination (the
“Tax Benefit Schedule”) on any Tax Asset or Tax
liability of PHH and the PHH Affiliates for each taxable period
ending on or before the date of the notice for which PHH filed the
applicable Tax Return. Within thirty (30) days of the
finalization of the Tax Benefit Schedule, as described in
subsection (d) below, PHH shall take or cause to be taken all
steps necessary or appropriate to Realize any Tax Benefit
attributable to past taxable periods, including the prompt filing
of amended Tax Returns and/or claims for refund.
(c) PHH shall file
and shall cause each PHH Affiliate to file all current and future
Tax Returns consistent with the Avis Final Determination and so as
to Realize as quickly as possible any Tax Benefit potentially
available to PHH and each PHH Affiliate, and shall provide to
Cendant a Tax Benefit Schedule and a calculation of the Tax Benefit
Realized annually, no later than 120 days prior to the due
date, including applicable extensions, of PHH’s federal
Income Tax Return until such time as the parties in good faith
agree that PHH has no remaining obligation for any Tax
Benefit.
(d) Each time PHH
delivers the Tax Benefit Schedule to Cendant, PHH shall also
(i) deliver to Cendant schedules and work papers providing
reasonable detail regarding the preparation of the Tax Benefit
Schedule and the Tax Benefit Realized and an Advisory Firm Letter
supporting such Tax Benefit Schedule and Tax Benefit Realized and
(ii) allow Cendant reasonable access to the appropriate
representatives at PHH and each PHH Affiliate and the Advisory Firm
in connection with its review of such schedule. The Tax Benefit
Schedule shall become final and binding on the parties unless
Cendant, within thirty (30) calendar days after receiving such
schedule, provides PHH with notice of a good faith objection to
such Tax Benefit
4
Schedule. If a Dispute arises
between PHH and Cendant with respect to the Tax Benefit Schedule,
Tax Benefit or the Tax Benefit Realized, such Dispute shall be
resolved in accordance with the principles and procedures set forth
in Section 6.3.
(e) PHH shall pay
Cendant the amount of Tax Benefit Realized by PHH and each PHH
Affiliate within thirty (30) days of the date on which such
Tax Benefit is Realized by PHH or such PHH Affiliate, as the case
may be.
(f) There shall be
an adjustment to any Tax Benefit calculated under Section 1.6
hereof in the event of an Audit which results in a Final
Determination that increases or decreases the amount of such Tax
Benefit to PHH or any PHH Affiliate reported on any relevant Tax
Return of PHH or any PHH Affiliate. PHH shall promptly inform
Cendant of any such Audit, shall use its reasonable best efforts to
sustain the Tax Benefit at issue in the Audit, and shall, at
Cendant’s request, allow Cendant to participate in the Audit.
Upon receiving written notice of a Final Determination affecting
any Tax Benefit, PHH shall redetermine the relevant Tax Benefit,
taking into account the Final Determination (the “Restated
Tax Benefit”). If the Restated Tax Benefit is greater than
the relevant Tax Benefit, PHH shall promptly pay Cendant the
difference between such amounts. If the Restated Tax Benefit is
less than the relevant Tax Benefit, Cendant shall pay to PHH the
difference between such amounts promptly after receipt of written
notice setting forth the amount due and the computation
thereof.
(g) New Jersey
Business Incentive Program .
(i)
Notwithstanding anything to the contrary set forth in this
Agreement, Cendant shall have the exclusive right and sole
discretion to control, contest and represent the interests of PHH
and each PHH Affiliate in any filing, claim and/or proceeding
relating or attributable to the New Jersey Business Employment
Incentive Program (the “BEIP”) for all periods ending
on or prior to the Distribution Date. In connection with this
Section 1.6(g), PHH shall designate, and shall cause each PHH
Affiliate to designate, Cendant (and Cendant employees and
representatives of Cendant) as its attorney-in-fact and agrees to
take such action and cause each PHH Affiliate to take such action
(including execution of appropriate powers of attorney and other
documents) as Cendant may reasonably request for all periods ending
on or prior to the Distribution Date. With respect to a filing,
claim and/or proceeding relating or attributable to the BEIP for a
Straddle Period (as defined below), PHH shall have the right and
discretion to control, contest and represent the interests of PHH
and each PHH Affiliate, provided that (x) Cendant shall
have the right to participate in any such contest or other matter
relating to the BEIP for such Straddle Period, and PHH and each PHH
Affiliate shall keep Cendant fully informed of all matters relating
to such contest or other matter and (y) PHH shall use
reasonable best efforts to obtain any BEIP Payments (as defined
below) that are attributable to such Straddle Period and are
otherwise legally obtainable by PHH and/or one or more PHH
Affiliates.
5
\
(ii)
Notwithstanding anything to the contrary set forth in this
Agreement, PHH shall pay to Cendant, no later than five calendar
days after receipt by PHH and each PHH Affiliate, as the case may
be, of each BEIP Payment (as defined below), an amount equal to
(x) with respect to all periods ending on or before the
Distribution Date, the Net BEIP Payment (as defined below)
attributable to each BEIP Payment and (y) with respect to any
period that begins on or before and ends after the Distribution
Date (a “Straddle Period”), the Net BEIP Payment for
such Straddle Period multiplied by a fraction the numerator of
which is the number of calendar days in the Straddle Period ending
on (and including) the Distribution Date and the denominator of
which is the number of calendar days in such entire Straddle
Period. For purposes of the Agreement, (i) “BEIP
Payment” means each payment received by PHH and each PHH
Affiliate from the State of New Jersey attributable to the BEIP,
(ii) “Net BEIP Payment” means the excess of
(x) one hundred percent (100%) of each BEIP Payment received
by PHH and each PHH Affiliate over (y) the PHH BEIP Deductible
Amount, and (iii) “PHH BEIP Deductible Amount” means,
with respect to each BEIP Payment, the lesser of
(x) 10 percent of such BEIP Payment and
(y) *CONFIDENTIAL. PHH shall provide to Cendant promptly upon
request any contract (and any modification or amendments thereto)
between PHH and the PHH Consultant.
Section 1.7
Net Operating Losses . Notwithstanding any other provision
of this Agreement, PHH shall elect (under section 172(b)(3) of the
Code and, to the extent feasible, any similar provision of any
state, local or foreign Tax law) to relinquish any right to carry
back net operating losses to any Cendant Consolidated and Combined
Income Tax Return.
ARTICLE II
DISTRIBUTION TAXES AND INTERNAL REORGANIZATION
TAXES
Section 2.1
Distribution Taxes and Internal Reorganization Taxes
.
(a)
Cendant’s Liability for Distribution Taxes and Internal
Reorganization Taxes . Notwithstanding any other provision of
this Agreement to the contrary other than Section 2.1(c),
Cendant shall be liable for one hundred percent (100%) of any
Distribution Taxes and/or Internal Reorganization Taxes that are
attributable to, or result from, one or more of the
following:
(i)
any action, or failure or omission to act, by Cendant or any
Cendant Affiliate that is inconsistent with any material,
information, fact, or statement, or that constitutes a breach of
any covenant or representation, pertaining to Cendant or any
Cendant Affiliate in the Cendant Representation Letters;
6
*The term
“Confidential” indicates material that has been omitted
and for which confidential treatment has been requested. All such
omitted material has been filed with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
(ii)
any action, or failure or omission to act, by Cendant or any
Cendant Affiliate after the Distribution, including, without
limitation, a cessation, transfer to affiliates, or disposition of
its active trades or businesses or other businesses, or an issuance
of stock, stock buyback, or payment of an extraordinary dividend by
Cendant or any Cendant Affiliate following the
Distribution;
(iii)
any acquisition of stock or other equity or assets of Cendant or
any Cendant Affiliate by one or more other Persons occurring prior
to or following the Distribution; or
(iv)
any issuance of stock by Cendant or any Cendant Affiliate, or
change in ownership of stock in Cendant or any Cendant Affiliate,
that causes section 355(d) or section 355(e) of the Code to apply
to the Distribution.
(b) PHH’s
Liability for Distribution Taxes and Internal Reorganization
Taxes . Notwithstanding any other provision of this Agreement
to the contrary other than Section 2.1(c), PHH shall be liable
for one hundred percent (100%) of any Distribution Taxes and/or
Internal Reorganization Taxes that are attributable to, or result
from, one or more of the following:
(i)
any action, or failure or omission to act, by PHH or any PHH
Affiliate that is inconsistent with any material, information,
fact, or statement, or that constitutes a breach of any covenant or
representation, pertaining to PHH in the PHH Representation
Letter;
(ii)
any action, or failure or omission to act, by PHH or any PHH
Affiliate after the Distribution, including without limitation, a
cessation, transfer to affiliates or disposition of its active
trades or businesses or other businesses, or an issuance of stock,
stock buyback, or payment of an extraordinary dividend by PHH or
any PHH Affiliate following the Distribution;
(iii)
any acquisition of stock or other equity or assets of PHH or any
PHH Affiliate by one or more other Persons following the
Distribution; or
(iv)
any issuance of stock by PHH or any PHH Affiliate, or change in
ownership of stock in PHH or any PHH Affiliate, that causes section
355(d) or section 355(e) of the Code to apply to the
Distribution.
(c) First Party
Responsible . The first party to act or fail to act in a manner
that results in the imposition of Distribution Taxes and/or
Internal Reorganization Taxes shall be liable for one hundred
percent (100%) of such Distribution Taxes and/or Internal
Reorganization Taxes pursuant to Section 2.1(a) or 2.1(b), as
applicable; provided , that if such first party is
subsequently able to act, and does act, in a manner that results in
Distribution Taxes and/or Internal Reorganization Taxes not being
imposed, then such first party shall not be liable for
any
7
Distribution Taxes and/or
Internal Reorganization Taxes imposed as a result of any act, or
failure or omission to act, by the other party subsequent to the
first party’s action, or failure or omission to
act.
(d) “No
Fault” Allocation . In the event of the imposition of
Distribution Taxes or Internal Reorganization Taxes for which
neither party is liable pursuant to Sections 2.1(a) or 2.1(b),
such Taxes shall be borne 86.3 percent by Cendant and
13.7 percent by PHH.
Section 2.2
Continuing Covenants .
(a) PHH shall not
and shall cause the PHH Affiliates not to take any action, or fail
or omit to take any action that would cause any of the facts,
representations or statements set forth in the PHH Representation
Letter to be untrue. Moreover, (x) during the two-year period
following the Distribution Date, PHH will not cease to be engaged
in the active trade or business relied upon for purposes of
satisfying the requirements of Section 355(b) of the Code with
respect to the Internal Distribution and/or the Distribution, and
(y) during the applicable period provided in Section
355(e)(2)(B) of the Code with respect to the Distribution, PHH will
not enter into any transaction or make or permit any change in
equity structure (including, without limitation, stock issuances,
pursuant to the exercise of options, option grants or otherwise,
capital contributions, or mergers or acquisitions, but not
including the Distribution) that could cause the Distribution or
the Internal Distribution to be treated as part of a plan pursuant
to which one or more Persons acquire directly or indirectly PHH
stock representing a “50-percent or greater interest”
within the meaning of Section 355(e) of the Code.
(b)
Notwithstanding Section 2.2(a), PHH shall be permitted to take
and shall permit the PHH Affiliates to take actions inconsistent
with the covenants contained in such section if: (i) PHH
obtains a ruling from the IRS in form and substance acceptable to
Cendant to the effect that such actions will not result in the
Distribution, the Internal Distribution or the Internal
Reorganization, as the case may be, being taxable transactions, in
whole or in part, or (ii) PHH obtains an opinion in form and
substance acceptable to Cendant of nationally recognized tax
counsel acceptable to Cendant to the effect that such actions will
not result in the Distribution, the Internal Distribution or the
Internal Reorganization being taxable transactions, in whole or in
part. Notwithstanding the receipt of an IRS ruling or a tax opinion
described in this Section 2.2(b), PHH and the PHH Affiliates shall
not be relieved of any indemnification obligations under this
Agreement.
ARTICLE III
INDEMNIFICATION
Section 3.1
Generally .
(a) Cendant shall
indemnify PHH, each PHH Affiliate, and their respective directors,
officers and employees, and hold them harmless from and against all
Taxes and associated Losses, without duplication, (i) for
which Cendant is liable under this Agreement,
8
(ii) imposed on PHH or any
PHH Affiliate under Treasury Regulation Section 1.1502-6
(or any corresponding provision of state, local, or foreign Tax
law) as a result of PHH or any PHH Affiliate being a member of the
Affiliated Group (or similar group under state, local, or foreign
Tax law) of which Cendant or any Cendant Affiliate is the common
parent, except to the extent that PHH otherwise would be liable for
such Taxes under Article II of this Agreement, or (iii)
attributable to a breach of any covenant or obligation of Cendant
under this Agreement.
(b) PHH shall
indemnify Cendant, each Cendant Affiliate, and their respective
directors, officers, and employees, and hold them harmless from and
against all Taxes and associated Losses, without duplication,
(i) for which PHH is liable under this Agreement,
(ii) imposed on any Cendant Affiliate under Treasury
Regulation Section 1.1502-6 (or any corresponding
provision of state, local, or foreign Tax law) as a result of any
Cendant Affiliate being a member of the Affiliated Group (or
similar group under state, local, or foreign Tax law) of which PHH
or any PHH Affiliate is the common parent, except to the extent
that Cendant otherwise would be liable for such Taxes under
Article II of this Agreement, o
