Document:

Exhibit 10.2

 

TAX MATTERS AGREEMENT

 

DATED AS OF SEPTEMBER 28, 2018

 

BY AND BETWEEN

 

SERVICEMASTER GLOBAL HOLDINGS, INC.,

 

AND

 

FRONTDOOR, INC.

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
Section 1.
    	
Definition of Terms
    	
2
    
	
 
    	
 
    	
 
    
	
Section 2.
    	
Allocation of Tax   Liabilities
    	
11
    
	
 
    	
 
    	
 
    
	
Section 2.01
    	
General Rule
    	
11
    
	
Section 2.02
    	
Allocation of United   States Federal Income Tax and Federal Other Tax
    	
11
    
	
Section 2.03
    	
Allocation of State   Income and State Other Taxes
    	
12
    
	
Section 2.04
    	
Allocation of Foreign   Taxes
    	
13
    
	
Section 2.05
    	
Certain Transaction and   Other Taxes
    	
13
    
	
 
    	
 
    	
 
    
	
Section 3.
    	
Proration of Taxes for   Straddle Periods
    	
14
    
	
 
    	
 
    	
 
    
	
Section 4.
    	
Preparation and Filing   of Tax Returns
    	
14
    
	
 
    	
 
    	
 
    
	
Section 4.01
    	
General
    	
14
    
	
Section 4.02
    	
Parent’s Responsibility
    	
14
    
	
Section 4.03
    	
SpinCo’s Responsibility
    	
15
    
	
Section 4.04
    	
Tax Accounting   Practices
    	
15
    
	
Section 4.05
    	
Consolidated or   Combined Tax Returns
    	
15
    
	
Section 4.06
    	
Right to Review Tax   Returns
    	
16
    
	
Section 4.07
    	
SpinCo Carrybacks and   Claims for Refund
    	
16
    
	
Section 4.08
    	
Apportionment of   Earnings and Profits and Tax Attributes
    	
17
    
	
 
    	
 
    	
 
    
	
Section 5.
    	
Tax Payments
    	
17
    
	
 
    	
 
    	
 
    
	
Section 5.01
    	
Payment of Taxes With   Respect to Joint Returns
    	
17
    
	
Section 5.02
    	
Payment of Taxes With   Respect to Section 2.03(c) Returns
    	
18
    
	
Section 5.03
    	
Indemnification   Payments
    	
19
    
	
 
    	
 
    	
 
    
	
Section 6.
    	
Tax Benefits
    	
19
    
	
 
    	
 
    	
 
    
	
Section 6.01
    	
Tax Benefits
    	
19
    
					

 

i

 

	
Section 6.02
    	
Parent and SpinCo   Income Tax Deductions in Respect of Certain Equity Awards and Incentive   Compensation
    	
20
    
	
 
    	
 
    	
 
    
	
Section 7.
    	
Tax-Free Status
    	
21
    
	
 
    	
 
    	
 
    
	
Section 7.01
    	
Tax Opinions/Rulings   and Representation Letters
    	
21
    
	
Section 7.02
    	
Restrictions on SpinCo
    	
21
    
	
Section 7.03
    	
Restrictions on Parent
    	
24
    
	
Section 7.04
    	
Procedures Regarding   Opinions and Rulings
    	
24
    
	
Section 7.05
    	
Liability for   Tax-Related Losses
    	
25
    
	
Section 7.06
    	
Section 336(e) Election
    	
27
    
	
 
    	
 
    	
 
    
	
Section 8.
    	
Assistance and   Cooperation
    	
28
    
	
 
    	
 
    	
 
    
	
Section 8.01
    	
Assistance and   Cooperation
    	
28
    
	
Section 8.02
    	
Income Tax Return   Information
    	
28
    
	
Section 8.03
    	
Reliance by Parent
    	
29
    
	
Section 8.04
    	
Reliance by SpinCo
    	
29
    
	
 
    	
 
    	
 
    
	
Section 9.
    	
Tax Contests
    	
29
    
	
 
    	
 
    	
 
    
	
Section 9.01
    	
Notice
    	
29
    
	
Section 9.02
    	
Control of Tax Contests
    	
30
    
	
 
    	
 
    	
 
    
	
Section 10.
    	
Effective Date; Termination   of Prior Intercompany Tax Allocation Agreements
    	
32
    
	
 
    	
 
    	
 
    
	
Section 11.
    	
Survival of Obligations
    	
32
    
	
 
    	
 
    	
 
    
	
Section 12.
    	
Treatment of Payments;   Tax Gross Up
    	
32
    
	
 
    	
 
    	
 
    
	
Section 12.01
    	
Treatment of Tax   Indemnity and Tax Benefit Payments
    	
32
    
	
Section 12.02
    	
Tax Gross Up
    	
32
    
	
Section 12.03
    	
Interest Under This   Agreement
    	
33
    
	
 
    	
 
    	
 
    
	
Section 13.
    	
Disagreements
    	
33
    
	
 
    	
 
    	
 
    
	
Section 13.01
    	
Interaction with   Article VII of the Separation and Distribution Agreement
    	
33
    
				

 

ii

 

	
Section 13.02
    	
Dispute Resolution
    	
33
    
	
 
    	
 
    	
 
    
	
Section 14.
    	
Late Payments
    	
34
    
	
 
    	
 
    	
 
    
	
Section 15.
    	
Expenses
    	
34
    
	
 
    	
 
    	
 
    
	
Section 16.
    	
General Provisions
    	
34
    
	
 
    	
 
    	
 
    
	
Section 16.01
    	
Addresses and Notices
    	
34
    
	
Section 16.02
    	
Binding Effect
    	
35
    
	
Section 16.03
    	
Waiver
    	
35
    
	
Section 16.04
    	
Severability
    	
35
    
	
Section 16.05
    	
Authority
    	
35
    
	
Section 16.06
    	
Further Action
    	
35
    
	
Section 16.07
    	
Integration
    	
35
    
	
Section 16.08
    	
Construction
    	
36
    
	
Section 16.09
    	
No Double Recovery
    	
36
    
	
Section 16.10
    	
Counterparts
    	
36
    
	
Section 16.11
    	
Governing Law
    	
36
    
	
Section 16.12
    	
Jurisdiction
    	
36
    
	
Section 16.13
    	
Amendment
    	
36
    
	
Section 16.14
    	
SpinCo Subsidiaries
    	
37
    
	
Section 16.15
    	
Successors
    	
37
    
	
Section 16.16
    	
Injunctions
    	
37
    
				

 

iii

 

TAX MATTERS AGREEMENT

 

This TAX MATTERS AGREEMENT (this “Agreement”) is entered into as of September 28, 2018, by and between ServiceMaster Global Holdings, Inc., a Delaware corporation (“Parent”) and frontdoor, inc., a Delaware corporation and a wholly owned subsidiary of Parent (“SpinCo”) (Parent and SpinCo sometimes collectively referred to herein as the “Companies” and, as the context requires, individually referred to herein as a “Company”).

 

RECITALS

 

WHEREAS, the board of directors of Parent (the “Parent Board”) has determined that it is in the best interests of Parent and its stockholders to create a new publicly traded company that shall operate the SpinCo Business;

 

WHEREAS, in furtherance of the foregoing, the Parent Board has determined that it is appropriate and desirable to separate the SpinCo Business from the Parent Business (the “Separation”) and, following the Separation, to make a distribution, on a pro rata basis, to holders of Parent Shares on the Record Date of at least eighty percent (80%) of the outstanding SpinCo Shares (the “Distribution”);

 

WHEREAS, SpinCo has been incorporated solely for these purposes and has not engaged in activities, except in connection with the Separation and the Distribution;

 

WHEREAS, for U.S. federal income tax purposes, the Contribution and the Distribution, taken together, are intended to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code;

 

WHEREAS, in connection with the Separation, and in accordance with the Plan of Reorganization, SMCS Holdco II, Inc. (a Delaware corporation and a wholly owned subsidiary of Parent, “SMCS Holdco II”) has distributed or will distribute, prior to the Contribution and Distribution, stock possessing at least eighty percent (80%) of the combined voting power of all classes of stock of American Home Shield Corporation (a Delaware corporation and a wholly owned subsidiary of Parent, “AHS”) to The ServiceMaster Company, LLC (a Delaware limited liability company disregarded as separate from Parent for U.S. federal income tax purposes) in a transaction intended to qualify as generally tax-free for U.S. federal income tax purposes under Section 355 of the Code (the “Internal Distribution”);

 

WHEREAS, in order to effectuate the Separation and the Distribution, Parent and SpinCo have entered into that certain Separation and Distribution Agreement, dated as of September 28, 2018 (together with the Schedules, Exhibits and Appendices thereto, the “Separation and Distribution Agreement”);

 

WHEREAS, as of the date hereof, Parent is the common parent of an affiliated group of corporations, including SpinCo, which affiliated group has elected to file consolidated U.S. federal income tax returns;

 

 

WHEREAS, pursuant to the Separation and Distribution Agreement, Parent and SpinCo have agreed to separate the SpinCo Business from Parent by means of, among other actions, (i) the Internal Distribution, (ii) the Contribution and (iii) the Distribution;

 

WHEREAS, as a result of the Distribution, SpinCo and its subsidiaries will cease to be members of the affiliated group (as that term is defined in Section 1504 of the Code) of which Parent is the common parent (the “Deconsolidation”);

 

WHEREAS, the parties desire to provide for and agree upon the allocation between the Companies of liabilities for Taxes arising prior to, as a result of, and subsequent to the Distribution, and to provide for and agree upon other matters relating to Taxes; and

 

WHEREAS, the Companies acknowledge that this Agreement, the Separation and Distribution Agreement and the other Ancillary Agreements represent the integrated agreement of Parent and SpinCo relating to the Separation and the Distribution, are being entered into together, and would not have been entered into independently.

 

NOW THEREFORE, in consideration of the mutual agreements contained herein, the parties hereby agree as follows:

 

Section 1.                                          Definition of Terms.  For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement:

 

“Accounting Cutoff Date” means, with respect to SpinCo and any member of the SpinCo Group the Tax Items of which are included in the Parent Federal Consolidated Income Tax Return, any date as of the end of which there is a closing of the financial accounting records for such entity.

 

“Active Trade or Business” means the active conduct (as defined in Section 355(b)(2) of the Code and the regulations thereunder) by SpinCo and its “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code) of the AHS Business.

 

“Adjustment Request” means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (a) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, (b) any claim for equitable recoupment or other offset, and (c) any claim for refund or credit of Taxes previously paid.

 

“Affiliate” means any entity that is directly or indirectly “controlled” by either the person in question or an Affiliate of such person.  “Control”, for purposes of the definition of Affiliate, 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.  The term Affiliate shall refer to Affiliates of a person as determined immediately after the Distribution.

 

“Agreement” means this Tax Matters Agreement.

 

2

 

“AHS” shall have the meaning set forth in the Recitals.

 

“AHS Business” means the business, operations and activities of providing home warranty plans for household systems and appliances in the United States, as conducted by AHS immediately prior to the Internal Distribution.

 

“AHS Capital Stock” means all classes or series of capital stock of AHS, including (i) the shares of common stock of AHS, (ii) all options, warrants and other rights to acquire such stock and (iii) all instruments properly treated as stock in AHS for U.S. federal income tax purposes.

 

“Board Certificate” shall have the meaning set forth in Section 7.02(e) of this Agreement.

 

“Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to close in the United States or New York, New York.

 

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

 

“Companies” and “Company” shall have the meaning provided in the first sentence of this Agreement.

 

“Contribution” means the transfer by Parent (or an entity disregarded as separate from Parent for U.S. federal income tax purposes) directly to SpinCo, pursuant to the Separation and Distribution Agreement, of certain SpinCo Assets in actual or constructive exchange for (i) the issuance by SpinCo to Parent (or such disregarded entity) of SpinCo Shares, (ii) the assumption by SpinCo of certain SpinCo Liabilities and (iii) the issuance by SpinCo to Parent (or such disregarded entity) of the SpinCo Debt.

 

“Controlling Party” shall have the meaning set forth in Section 9.02(f) of this Agreement.

 

“Deconsolidation” shall have the meaning provided in the Recitals.

 

“Deconsolidation Date” means the last date on which SpinCo qualifies as a member of the affiliated group (as defined in Section 1504 of the Code) of which Parent is the common parent.

 

“DGCL” means the Delaware General Corporation Law.

 

“Distribution” shall have the meaning set forth in the Recitals.

 

“Due Date” means with respect to a Tax Return, the date (taking into account all valid extensions) on which such Tax Return is required to be filed under applicable Law.

 

“Employee Matters Agreement” has the meaning set forth in the Separation and Distribution Agreement.

 

3

 

“Federal Income Tax” means any Tax imposed by Subtitle A of the Code, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Federal Other Tax” means any Tax imposed by the federal government of the United States of America (other than any Federal Income Taxes), and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Fifty-Percent or Greater Interest” shall have the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code.

 

“Filing Date” shall have the meaning set forth in Section 7.05(d) of this Agreement.

 

“Final Determination” means the final resolution of liability for any Tax, which resolution may be for a specific issue or adjustment or for a Tax Period, (a) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the laws of a State, local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such Tax Period (as the case may be); (b) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the laws of a State, local, or foreign taxing jurisdiction; (d) by any allowance of a refund or credit in respect of an overpayment of Income Tax or Other Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Income Tax or Other Tax; (e) by a final settlement resulting from a treaty-based competent authority determination; or (f) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.

 

“Foreign Income Tax” means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, which is an income tax as defined in Treasury Regulation Section 1.901-2, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Foreign Other Tax” means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, other than any Foreign Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Foreign Tax” means any Foreign Income Taxes or Foreign Other Taxes.

 

“Group” means the Parent Group or the SpinCo Group, or both, as the context requires.

 

“Income Tax” means any Federal Income Tax, State Income Tax or Foreign Income Tax.

 

“Indemnitee” shall have the meaning set forth in Section 12.03 of this Agreement.

 

4

 

“Indemnitor” shall have the meaning set forth in Section 12.03 of this Agreement.

 

“Internal Distribution” shall have the meaning set forth in the Recitals.

 

“Internal Restructuring” means (i) any internal restructuring (including by making or revoking any election under Treasury Regulations Section 301.7701-3) involving SpinCo and/or any of its subsidiaries or (ii) any direct or indirect contribution, sale or other transfer by SpinCo to any of its subsidiaries of any of the assets contributed or transferred to SpinCo as part of the Contribution or pursuant to the Separation and Distribution Agreement.

 

“IRS” means the United States Internal Revenue Service.

 

“Joint Return” shall mean any Return of a member of the Parent Group or the SpinCo Group that is not a Separate Return.

 

“Non-Controlling Party” shall have the meaning set forth in Section 9.02(f) of this Agreement.

 

“Notified Action” shall have the meaning set forth in Section 7.04(a) of this Agreement.

 

“Other Tax” means any Federal Other Tax, State Other Tax, or Foreign Other Tax.

 

“Parent” shall have the meaning provided in the first sentence of this Agreement.

 

“Parent Adjustment” means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent Parent would be exclusively liable for any resulting Tax under this Agreement or exclusively entitled to receive any resulting Tax Benefit under this Agreement.

 

“Parent Affiliated Group” shall have the meaning provided in the definition of “Parent Federal Consolidated Income Tax Return.”

 

“Parent Board” shall have the meaning set forth in the Recitals.

 

“Parent Business” shall have the meaning provided in the Separation and Distribution Agreement.

 

“Parent Federal Consolidated Income Tax Return” means any United States Federal Income Tax Return for the affiliated group (as that term is defined in Section 1504 of the Code and the regulations thereunder) of which Parent is the common parent (the “Parent Affiliated Group”).

 

“Parent Foreign Combined Income Tax Return” means a consolidated, combined or unitary or other similar Foreign Income Tax Return or any Foreign Income Tax Return with respect to any profit and/or loss sharing group, group payment or similar group or fiscal unity that actually includes, by election or otherwise, one or more members of the Parent Group together with one or more members of the SpinCo Group.

 

5

 

“Parent Group” means Parent and its Affiliates, excluding any entity that is a member of the SpinCo Group.

 

“Parent Group Transaction Returns” shall have the meaning set forth in Section 4.04(b) of this Agreement.

 

“Parent Separate Return” means any Separate Return of Parent or any member of the Parent Group.

 

“Parent State Combined Income Tax Return” means a consolidated, combined or unitary State Income Tax Return that actually includes, by election or otherwise, one or more members of the Parent Group together with one or more members of the SpinCo Group.

 

“Past Practices” shall have the meaning set forth in Section 4.04(a) of this Agreement.

 

“Payment Date” means (i) with respect to any Parent Federal Consolidated Income Tax Return, the due date for any required installment of estimated taxes determined under Section 6655 of the Code, the due date (determined without regard to extensions) for filing the return determined under Section 6072 of the Code, and the date the return is filed, and (ii) with respect to any other Tax Return, the corresponding dates determined under the applicable Tax Law.

 

“Payor” shall have the meaning set forth in Section 5.03(a) of this Agreement.

 

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for U.S. federal income tax purposes.

 

“Post-Deconsolidation Period” means any Tax Period beginning after the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Deconsolidation Date.

 

“Pre-Deconsolidation Period” means any Tax Period ending on or before the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Deconsolidation Date.

 

“Privilege” means any privilege that may be asserted under applicable law, including, any privilege arising under or relating to the attorney-client relationship (including the attorney-client and work product privileges), the accountant-client privilege and any privilege relating to internal evaluation processes.

 

“Proposed Acquisition Transaction” means a transaction or series of transactions (or any “agreement,” “understanding” or “arrangement,” within the meaning of Section 355(e) of the Code and Treasury Regulation Section 1.355-7, or any other regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by SpinCo management or shareholders (or AHS management or shareholders), is a hostile acquisition, or otherwise, as a result of which SpinCo or AHS would merge or consolidate with

 

6

 

any other Person or as a result of which any Person or any group of Persons would (directly or indirectly) acquire, or have the right to acquire, (I) from SpinCo and/or one or more holders of outstanding shares of SpinCo Capital Stock, a number of shares of SpinCo Capital Stock that would, when combined with any other changes in ownership of SpinCo Capital Stock pertinent for purposes of Section 355(e) of the Code, comprise 40% or more of (a) the value of all outstanding shares of stock of SpinCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (b) the total combined voting power of all outstanding shares of voting stock of SpinCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series or (II) from AHS and/or one or more holders of outstanding shares of AHS Capital Stock, a number of shares of AHS Capital Stock that would, when combined with any other changes in ownership of AHS Capital Stock pertinent for purposes of Section 355(e) of the Code, comprise 40% or more of (a) the value of all outstanding shares of stock of AHS as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (b) the total combined voting power of all outstanding shares of voting stock of AHS as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series.  Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (A) the adoption by SpinCo of a shareholder rights plan or (B) issuances by SpinCo that satisfy Safe Harbor VIII (relating to acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d).  For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders.  This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly.  Any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated in this definition and its interpretation.

 

“Representation Letters” means the representation letters and any other materials (including, without limitation, a Ruling Request and any related supplemental submissions to the IRS) delivered or deliverable by, or on behalf of, Parent, SpinCo and others in connection with the rendering by Tax Advisors and/or the issuance by the IRS of the Tax Opinions/Rulings.

 

“Required Party” shall have the meaning set forth in Section 5.03(a) of this Agreement.

 

“Responsible Company” means, with respect to any Tax Return, the Company having responsibility for preparing and filing such Tax Return under this Agreement.

 

“Ruling” means a private letter ruling (including a supplemental private letter ruling) issued by the IRS to Parent pertaining to or in connection with the Internal Distribution, the Contribution and/or the Distribution.

 

“Ruling Request” means any letter filed by Parent with the IRS requesting a ruling regarding certain tax consequences of the Transactions (including all attachments, exhibits, and other materials submitted with such ruling request letter) and any amendment or supplement to such ruling request letter.

 

7

 

“Section 2.03(c) Return” means any  Separate Tax Return of one Company (or its Affiliates) in respect of which the other Company could reasonably be expected to be responsible, pursuant to Section 2.03(c), for some or all of any State Other Taxes due with respect to or required to be reported on such Return.

 

“Section 336(e) Election” has the meaning set forth in Section 7.06.

 

“Section 7.02(e) Acquisition Transaction” means any transaction or series of transactions that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 25% instead of 40%.

 

“Separate Return” means (a) in the case of any Tax Return of any member of the SpinCo Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the Parent Group and (b) in the case of any Tax Return of any member of the Parent Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the SpinCo Group.

 

“Separation” shall have the meaning set forth in the Recitals.

 

“Separation and Distribution Agreement” shall have the meaning set forth in the Recitals.

 

“SMCS Holdco II” shall have the meaning set forth in the Recitals.

 

“SpinCo” shall have the meaning provided in the first sentence of this Agreement, and references herein to SpinCo shall include any entity treated as a successor to SpinCo.

 

“SpinCo Adjustment” means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent SpinCo would be exclusively liable for any resulting Tax under this Agreement or exclusively entitled to receive any resulting Tax Benefit under this Agreement.

 

“SpinCo Business” has the meaning set forth in the Separation and Distribution Agreement.

 

“SpinCo Capital Stock” means all classes or series of capital stock of SpinCo, including (i) the shares of common stock of SpinCo, (ii) all options, warrants and other rights to acquire such stock and (iii) all instruments properly treated as stock in SpinCo for U.S. federal income tax purposes.

 

“SpinCo Carryback” means any net operating loss, net capital loss, excess tax credit, or other similar Tax item of any member of the SpinCo Group which may or must be carried from one Tax Period to another prior Tax Period under the Code or other applicable Tax Law.

 

“SpinCo Federal Consolidated Income Tax Return” means any United States federal Income Tax Return for the affiliated group (as that term is defined in Section 1504 of the Code) of which SpinCo is the common parent.

 

8

 

“SpinCo Group” means SpinCo and its Affiliates, as determined immediately after the Distribution.

 

“SpinCo Separate Return” means any Separate Return of SpinCo or any member of the SpinCo Group.

 

“State Income Tax” means any Tax imposed by any State of the United States (or by any political subdivision of any such State) or the District of Columbia, in each case, which is imposed on or measured by net income, including state and local franchise or similar Taxes measured by net income, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“State Other Tax” means any Tax imposed by any State of the United States (or by any political subdivision of any such State) or the District of Columbia, in each case, other than any State Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“State Tax” means any State Income Taxes or State Other Taxes.

 

“Straddle Period” means any Tax Period that begins on or before and ends after the Deconsolidation Date.

 

“Tax” or “Taxes” means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, escheat, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Tax Advisor” means a United States tax counsel or accountant of recognized national standing.

 

“Tax Attribute” or “Attribute” shall mean a net operating loss, net capital loss, unused investment credit, unused foreign tax credit, excess charitable contribution, general business credit or any other Tax Item that could reduce a Tax.

 

“Tax Authority” means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.

 

“Tax Benefit” means any refund, credit, or other reduction in otherwise required Tax payments.

 

“Tax Contest” means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes (including any administrative or judicial review of any claim for refund).

 

9

 

“Tax Control” means the definition of “control” set forth in Section 368(c) of the Code (or in any successor statute or provision), as such definition may be amended from time to time.

 

“Tax-Free Status” means the qualification of (I) the Contribution and Distribution, taken together, (a) as a reorganization described in Sections 355(a) and 368(a)(1)(D) of the Code, (b) as a transaction in which the stock distributed thereby is “qualified property” for purposes of Sections 355(d), 355(e) and 361(c) of the Code, and (c) as a transaction in which the holders of Parent Shares recognize no income or gain for U.S. federal income tax purposes pursuant to Section 355 and (II) the Internal Distribution (a) as a transaction described in Section 355(a) of the Code, (b) as a transaction in which the stock of AHS distributed thereby is “qualified property” for purposes of Sections 355(d), 355(e) and 361(c) of the Code and (c) as a transaction in which Parent recognizes no income or gain for U.S. federal income tax purposes pursuant to Section 355.

 

“Tax Item” means, with respect to any Income Tax, any item of income, gain, loss, deduction, credit, recapture of credit or any other item which increases or decreases Taxes paid or payable.

 

“Tax Law” means the law of any governmental entity or political subdivision thereof relating to any Tax.

 

“Tax Opinions/Rulings” means (i) the opinions of Wachtell, Lipton, Rosen & Katz and of PwC deliverable to Parent pertaining to or in connection with, and regarding the Federal Income Tax treatment of, the Internal Distribution, the Contribution and/or the Distribution and (ii) any Rulings.

 

“Tax Period” means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.

 

“Tax-Related Losses” means (i) all federal, state, local and foreign Taxes (including interest and penalties thereon) imposed (or that would be imposed) pursuant to any settlement, Final Determination, judgment or otherwise, (ii) all accounting, legal and other professional fees, and court costs incurred in connection therewith, and (iii) all costs, expenses and damages associated with stockholder litigation or controversies and any amount paid by Parent (or any Parent Affiliate) or SpinCo (or any SpinCo Affiliate) in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Tax Authority, in the case of each of clauses (i) through (iii), resulting from the failure of the Internal Distribution, the Contribution or the Distribution to have Tax-Free Status.

 

“Tax Return” or “Return” means any report of Taxes due, any claim for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, questionnaire, declaration, or document filed or required to be filed under the Code or other Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.

 

“Transactions” means the Internal Distribution, the Contribution, the Distribution and the other transactions contemplated by the Separation and Distribution Agreement.

 

10

 

“Treasury Regulations” means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.

 

“Unqualified Tax Opinion” means an unqualified “will” opinion of a Tax Advisor, which Tax Advisor is acceptable to Parent, on which Parent may rely to the effect that a transaction will not affect the Tax-Free Status of the Contribution and the Distribution (taken together) and the Internal Distribution; provided, that (i) any tax opinion obtained in connection with a proposed acquisition of SpinCo Capital Stock entered into on or before the two-year anniversary of the Distribution Date shall not qualify as an Unqualified Tax Opinion unless such tax opinion also concludes that such proposed acquisition (a) will not be treated as “part of a plan (or series of related transactions),” within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, that includes the Distribution and (b) will not be treated as “part of a plan (or series of related transactions),” within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, that includes the Internal Distribution and (ii) any tax opinion obtained in connection with a proposed acquisition of AHS Capital Stock entered into on or before the two-year anniversary of the Distribution Date shall not qualify as an Unqualified Tax Opinion unless such tax opinion also concludes that such proposed acquisition will not be treated as “part of a plan (or series of related transactions),” within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, that includes the Internal Distribution.  Any such opinion must assume that the Contribution and Distribution (taken together) and the Internal Distribution would have qualified for Tax-Free Status if the transaction in question did not occur.

 

Section 2.                                          Allocation of Tax Liabilities.

 

Section 2.01                            General Rule.

 

(a)                                 Parent Liability.  Parent shall be liable for, and shall indemnify and hold harmless the SpinCo Group from and against any liability for, Taxes which are allocated to Parent under this Section 2.

 

(b)                                 SpinCo Liability.  SpinCo shall be liable for, and shall indemnify and hold harmless the Parent Group from and against any liability for, Taxes which are allocated to SpinCo under this Section 2.

 

Section 2.02                            Allocation of United States Federal Income Tax and Federal Other Tax.  Except as otherwise provided in Section 2.05, Federal Income Tax and Federal Other Tax shall be allocated as follows:

 

(a)                                 Allocation of Tax Relating to Parent Federal Consolidated Income Tax Returns.  With respect to any Parent Federal Consolidated Income Tax Return, Parent shall be responsible for any and all Federal Income Taxes due or required to be reported on any such Income Tax Return (including any increase in such Tax as a result of a Final Determination).  For the absence of doubt, Parent shall be responsible for any and all Federal Income Taxes resulting from Section 965 of the Code with respect to any deferred foreign income corporations (as defined in Section 965 of the Code) owned directly or indirectly by Parent prior to the Distribution (regardless of

 

11

 

when the inclusion under Section 965 occurs and regardless of when the tax is paid or required to be paid).

 

(b)                                 Allocation of Tax Relating to Federal Separate Income Tax Returns.  (i) Parent shall be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any Parent Separate Return (including any increase in such Tax as a result of a Final Determination); (ii) SpinCo shall be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any SpinCo Separate Return (including any increase in such Tax as a result of a Final Determination).

 

(c)                                  Allocation of Federal Other Tax.  (i) Parent shall be responsible for any and all Federal Other Taxes due with respect to or required to be reported on any Parent Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the Parent Group; (ii) SpinCo shall be responsible for any and all Federal Other Taxes due with respect to or required to be reported on any SpinCo Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the SpinCo Group.

 

Section 2.03                            Allocation of State Income and State Other Taxes.  Except as otherwise provided in Section 2.05, State Income Tax and State Other Tax shall be allocated as follows:

 

(a)                                 Allocation of Tax Relating to Parent State Combined Income Tax Returns.  Parent shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any Parent State Combined Income Tax Return (including any increase in such Tax as a result of a Final Determination).

 

(b)                                 Allocation of State Income Tax Relating to Separate Returns.  (i) Parent shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any Parent Separate Return (including any increase in such Tax as a result of a Final Determination); (ii) SpinCo shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any SpinCo Separate Return (including any increase in such Tax as a result of a Final Determination).

 

(c)                                  Allocation of State Other Tax.  (i) Parent shall be responsible for any and all State Other Taxes attributable to, or arising with respect to, assets or activities of the Parent Business (as determined by Parent) due with respect to or required to be reported on any SpinCo Separate Return, including any increase in such Taxes (as determined by Parent) as a result of a Final Determination; (ii) other than State Other Taxes for which Parent is responsible in accordance with clause (i) above, SpinCo shall be responsible for any and all State Other Taxes due with respect to or required to be reported on any SpinCo Separate Return; (iii) SpinCo shall be responsible for any and all State Other Taxes attributable to, or arising with respect to, assets or activities of the SpinCo Business (as determined by Parent) due with respect to or required to be reported on any Parent Separate Return, including any increase in such Taxes (as determined by Parent) as a result of a Final Determination; and (iv) other than State Other Taxes for which SpinCo is responsible in accordance with clause (iii) above, Parent shall be responsible for any and all State Other Taxes due with respect to or required to be reported on any Parent Separate Return.

 

12

 

Section 2.04                            Allocation of Foreign Taxes.  Except as otherwise provided in Section 2.05, Foreign Income Tax and Foreign Other Tax shall be allocated as follows:

 

(a)                                 Allocation of Tax Relating to Parent Foreign Combined Income Tax Returns.  Parent shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any Parent Foreign Combined Income Tax Return (including any increase in such Tax as a result of a Final Determination).

 

(b)                                 Allocation of Foreign Income Tax Relating to Separate Returns.  (i) Parent shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any Parent Separate Return (including any increase in such Foreign Income Tax as a result of a Final Determination); (ii) SpinCo shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any SpinCo Separate Return (including any increase in such Foreign Income Tax as a result of a Final Determination).

 

(c)                                  Allocation of Foreign Other Tax.  (i) Parent shall be responsible for any and all Foreign Other Taxes due with respect to or required to be reported on any Parent Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the Parent Group; (ii) SpinCo shall be responsible for any and all Foreign Other Taxes due with respect to or required to be reported on any SpinCo Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the SpinCo Group.

 

Section 2.05                            Certain Transaction and Other Taxes.

 

(a)                                 SpinCo Liability.  SpinCo shall be liable for, and shall indemnify and hold harmless the Parent Group from and against any liability for:

 

(i)                                     Any stamp, sales and use, gross receipts, value-added or other transfer Taxes imposed by any Tax Authority on any member of the SpinCo Group (if such member is primarily liable for such Tax) on the transfers occurring pursuant to the Transactions;

 

(ii)                                  Any Tax resulting from a breach by SpinCo of any representation or covenant in this Agreement, the Separation and Distribution Agreement, any Ancillary Agreement, any Representation Letter or any Tax Opinion/Ruling; and

 

(iii)                               Any Tax-Related Losses for which SpinCo is responsible pursuant to Section 7.05 of this Agreement.

 

(b)                                 Parent Liability.  Parent shall be liable for, and shall indemnify and hold harmless the SpinCo Group from and against any liability for:

 

(i)                                     Any stamp, sales and use, gross receipts, value-added or other transfer Taxes imposed by any Tax Authority on any member of the Parent Group (if such member is primarily liable for such Tax) on the transfers occurring pursuant to the Transactions;

 

13

 

(ii)                                  Any Tax resulting from a breach by Parent of any representation or covenant in this Agreement, the Separation and Distribution Agreement, any Ancillary Agreement, any Representation Letter or any Tax Opinion/Ruling; and

 

(iii)                               Any Tax-Related Losses for which Parent is responsible pursuant to Section 7.05 of this Agreement.

 

Section 3.                                          Proration of Taxes for Straddle Periods.

 

(a)                                 General Method of Proration.  In the case of any Straddle Period, Tax Items shall be apportioned between Pre-Deconsolidation Periods and Post-Deconsolidation Periods in accordance with the principles of Treasury Regulation Section 1.1502-76(b) as reasonably interpreted and applied by Parent.  With respect to the Parent Federal Consolidated Income Tax Return for the taxable year that includes the Distribution, no election shall be made under Treasury Regulations Section 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year’s items).  If the Deconsolidation Date is not an Accounting Cutoff Date, the provisions of Treasury Regulations Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate the items (other than extraordinary items) for the month which includes the Deconsolidation Date.

 

(b)                                 Transactions Treated as Extraordinary Item.  In determining the apportionment of Tax Items between Pre-Deconsolidation Periods and Post-Deconsolidation Periods, any Tax Items relating to the Transactions shall be treated as extraordinary items described in Treasury Regulations Section 1.1502-76(b)(2)(ii)(C) and shall (to the extent occurring on or prior to the Deconsolidation Date) be allocated to Pre-Deconsolidation Periods, and any Taxes related to such items shall be treated under Treasury Regulations Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall (to the extent occurring on or prior to the Deconsolidation Date) be allocated to Pre-Deconsolidation Periods.

 

Section 4.                                          Preparation and Filing of Tax Returns.

 

Section 4.01                            General.  Except as otherwise provided in this Section 4, Tax Returns shall be prepared and filed on or before their Due Date by the Person obligated to file such Tax Returns under the Code or applicable Tax Law.  The Companies shall provide, and shall cause their Affiliates to provide, assistance and cooperation to one another in accordance with Section 8 with respect to the preparation and filing of Tax Returns, including by providing information required to be provided pursuant to Section 8.

 

Section 4.02                            Parent’s Responsibility.  Parent has the exclusive obligation and right to prepare and file, or to cause to be prepared and filed:

 

(a)                                 Parent Federal Consolidated Income Tax Returns for any Tax Periods ending on, before or after the Deconsolidation Date;

 

(b)                                 Parent State Combined Income Tax Returns, Parent Foreign Combined Income Tax Returns and any other Joint Returns which Parent reasonably determines are required to be filed (or which Parent chooses to be filed) by the Companies or any of their Affiliates for Tax Periods ending on, before or after the Deconsolidation Date; and

 

14

 

(c)                                  Parent Separate Returns and SpinCo Separate Returns which Parent reasonably determines are required to be filed by the Companies or any of their Affiliates for Tax Periods ending on, before or after the Deconsolidation Date (limited, in the case of SpinCo Separate Returns, to such Returns for which the Due Date is on or before the Deconsolidation Date).

 

Section 4.03                            SpinCo’s Responsibility.  SpinCo shall prepare and file, or shall cause to be prepared and filed, all Tax Returns required to be filed by or with respect to members of the SpinCo Group other than those Tax Returns which Parent is required or entitled to prepare and file under Section 4.02.  The Tax Returns required to be prepared and filed by SpinCo under this Section 4.03 shall include (a) any SpinCo Federal Consolidated Income Tax Return for Tax Periods ending after the Deconsolidation Date and (b) SpinCo Separate Returns for which the Due Date is after the Deconsolidation Date.

 

Section 4.04                            Tax Accounting Practices.

 

(a)                                 General Rule.  Except as otherwise provided in Section 4.04(b), with respect to any Tax Return that SpinCo has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 4.03, (i) for any Pre-Deconsolidation Period or any Straddle Period (or any taxable period beginning after the Deconsolidation Date to the extent items reported on such Tax Return could reasonably be expected to affect items reported on any Tax Return that Parent has the obligation or right to prepare and file for any Pre-Deconsolidation Period or any Straddle Period) or (ii) that is Section 2.03(c) Return, such Tax Return shall be prepared in accordance with past practices, accounting methods, elections or conventions (“Past Practices”) used with respect to the Tax Returns in question (unless there is no reasonable basis for the use of such Past Practices or unless there is no adverse effect to Parent), and to the extent any items are not covered by Past Practices (or in the event that there is no reasonable basis for the use of such Past Practices or there is no adverse effect to Parent), in accordance with reasonable Tax accounting practices selected by SpinCo.  Except as otherwise provided in Section 4.04(b), Parent shall prepare any Tax Return which it has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 4.02, in accordance with reasonable Tax accounting practices selected by Parent.

 

(b)                                 Reporting of Transactions.  The Tax treatment reported on any Tax Return of the Transactions shall be consistent with the treatment thereof in the Ruling Requests and the Tax Opinions/Rulings, unless there is no reasonable basis for such Tax treatment.  The Tax treatment of the Transactions reported on any Tax Return for which SpinCo is the Responsible Company shall be consistent with that on any Tax Return filed or to be filed by Parent or any member of the Parent Group or caused or to be caused to be filed by Parent, in each case with respect to periods prior to the Distribution Date or with respect to Straddle Periods (“Parent Group Transaction Returns”), unless there is no reasonable basis for such Tax treatment.  To the extent the Tax treatment relating to any aspect of the Transactions is not covered by the Ruling Requests, the Tax Opinions/Rulings or Parent Group Transaction Returns, the Companies shall report such Tax treatment on any and all Tax Returns in a manner that is consistent with Parent’s intention or determination with respect thereto.

 

Section 4.05                            Consolidated or Combined Tax Returns.  SpinCo will elect and join, and will cause its respective Affiliates to elect and join, in filing any Parent State Combined Income

 

15

 

Tax Returns, Parent Foreign Combined Income Tax Returns and any Joint Returns that Parent determines are required to be filed or that Parent chooses to file pursuant to Section 4.02(b).  With respect to any SpinCo Separate Returns relating to any Tax Period (or portion thereof) ending on or prior to the Distribution Date, SpinCo will elect and join, and will cause its respective Affiliates to elect and join, in filing consolidated, unitary, combined, or other similar joint Tax Returns, to the extent each entity is eligible to join in such Tax Returns, if Parent reasonably determines that the filing of such Tax Returns is consistent with past reporting practices, or, in the absence of applicable past practices, will result in the minimization of the net present value of the aggregate Tax to the entities eligible to join in such Tax Returns.

 

Section 4.06                            Right to Review Tax Returns.

 

(a)                                 General.  The Responsible Company with respect to any Tax Return shall make such Tax Return (or the relevant portions thereof) and related workpapers available for review by the other Company, if requested, to the extent (i) such Tax Return relates to Taxes for which the requesting party is or could reasonably be expected to be liable, (ii) the requesting party would reasonably be expected to be liable in whole or in part for any additional Taxes owing as a result of material adjustments to the amount of Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for which the requesting party would reasonably be expected to have a claim for material Tax Benefits under this Agreement, (iv) reasonably necessary for the requesting party to confirm compliance with the terms of this Agreement or (v) such Tax Return is required by the requesting party to comply with its reporting obligations to the Securities and Exchange Commission.  The Responsible Company shall use reasonable efforts to make such Tax Return available for review as required under this paragraph sufficiently in advance of the Due Date of such Tax Return to provide the requesting party with a meaningful opportunity to analyze and comment on such Tax Return and shall use reasonable efforts to have such Tax Return modified before filing, taking into account the person responsible for payment of the Tax (if any) reported on such Tax Return and whether the amount of Tax liability with respect to such Tax Return is material.  The Companies shall attempt in good faith to resolve any disagreement arising out of the review of such Tax Return and, failing that, such disagreement shall be resolved in accordance with the disagreement resolution provisions of Section 13 as promptly as practicable.

 

(b)                                 Execution of Returns Prepared by Other Party.  In the case of any Tax Return which is required to be prepared and filed by one Company under this Agreement and which is required by law to be signed by the other Company (or by its authorized representative), the Company which is legally required to sign such Tax Return shall not be required to sign such Tax Return under this Agreement if there is no reasonable basis for the Tax treatment of any item reported on the Tax Return.

 

(c)                                  Section 2.03(c) Returns.  In furtherance of and without limiting Section 4.06(a), SpinCo shall provide Parent, at least 30 days in advance of the relevant Due Date, any Section 2.03(c) Return that is a SpinCo Separate Return (and any related workpapers) for Parent’s review and comment.

 

Section 4.07                            SpinCo Carrybacks and Claims for Refund.  SpinCo hereby agrees that, unless Parent consents in writing, (i) no Adjustment Request with respect to any Joint Return

 

16

 

shall be filed and (ii) any available elections to waive the right to claim in any Pre-Deconsolidation Period with respect to any Joint Return any SpinCo Carryback arising in a Post-Deconsolidation Period shall be made, and no affirmative election shall be made to claim any such SpinCo Carryback; provided, however, that the parties agree that any such Adjustment Request shall be made with respect to any SpinCo Carryback related to U.S. federal or State Taxes, upon the reasonable request of SpinCo, if (a) such SpinCo Carryback is necessary to prevent the loss of the federal and/or State Tax Benefit of such SpinCo Carryback, (b) such Adjustment Request, based on Parent’s sole determination, will cause no Tax detriment to any member of the Parent Group and (c) such Adjustment Request, based on Parent’s sole determination, will not result in any unreimbursed expense for any member of the Parent Group.  Any Adjustment Request which Parent consents to make under this Section 4.07 shall be prepared and filed by the Responsible Company for the Tax Return to be adjusted.

 

Section 4.08                            Apportionment of Earnings and Profits and Tax Attributes.  Parent shall be entitled in good faith to instruct SpinCo in writing of the portion, if any, of any earnings and profits, previously taxed earnings and profits, Tax Attribute, basis, overall foreign loss or any consolidated, combined, unitary or comingled attribute which Parent determines shall be allocated to, apportioned to or adjusted by the SpinCo Group under applicable law in connection with the Transactions.  SpinCo and all members of the SpinCo Group shall prepare all Tax Returns in accordance with (and shall not take any Tax position that is inconsistent with) such written instructions.  As soon as practicable after receipt of a written request from SpinCo, Parent shall provide copies of any studies, reports, and workpapers supporting the earnings and profits, previously taxed earnings and profits, basis, overall foreign loss and other Tax Attributes allocable to SpinCo.  In the event of a subsequent adjustment to the earnings and profits, previously taxed earnings and profits, basis, overall foreign loss or any Tax Attributes determined by Parent pursuant to this Section 4.08, Parent or SpinCo, as the case may be, shall promptly notify the other Company in writing of such adjustment.  For the absence of doubt, Parent shall not be liable to SpinCo or any member of the SpinCo Group for any failure of any determination under this Section 4.08 to be accurate under applicable law.

 

Section 5.                                          Tax Payments.

 

Section 5.01                            Payment of Taxes With Respect to Joint Returns.  In the case of any Joint Return reflecting Taxes for which both Parent and SpinCo are responsible under Section 2:

 

(a)                                 Computation and Payment of Tax Due.  At least three Business Days prior to any Payment Date for any Tax Return, the Responsible Company shall compute the amount of Tax required to be paid to the applicable Tax Authority (taking into account the requirements of Section 4.04 relating to consistent accounting practices, as applicable) with respect to such Tax Return on such Payment Date.  The Responsible Company shall pay such amount to such Tax Authority on or before such Payment Date (and provide notice and proof of payment to the other Company).

 

(b)                                 Computation and Payment of Liability With Respect To Tax Due.  Within 30 days following the earlier of (i) the Due Date for filing any such Tax Return (excluding any Tax Return with respect to payment of estimated Taxes or Taxes due with a request for extension of time to file) or (ii) the date on which such Tax Return is filed (excluding any Tax Return with

 

17

 

respect to payment of estimated Taxes or Taxes due with a request for extension of time to file), if Parent is the Responsible Company, then SpinCo shall pay to Parent the amount allocable to the SpinCo Group under the provisions of Section 2, and if SpinCo is the Responsible Company, then Parent shall pay to SpinCo the amount allocable to the Parent Group under the provisions of Section 2, in each case, plus interest computed at the Prime Rate on the amount of the payment based on the number of days from the earlier of (i) the Due Date of the Tax Return or (ii) the date on which such Tax Return is filed, to the date of payment.

 

(c)                                  Adjustments Resulting in Underpayments.  In the case of any adjustment pursuant to a Final Determination with respect to any such Tax Return, the Responsible Company shall pay to the applicable Tax Authority when due any additional Tax due with respect to such Return required to be paid as a result of such adjustment pursuant to a Final Determination.  If the Responsible Company is Parent, Parent shall compute the amount attributable to the SpinCo Group in accordance with Section 2 and SpinCo shall pay to Parent any amount due to Parent (or, if the Responsible Company is SpinCo, SpinCo shall compute the amount attributable to the Parent Group in accordance with Section 2 and Parent shall pay to SpinCo any amount due to SpinCo) under Section 2 within 30 days following the later of (i) the date the additional Tax was paid by the Responsible Company or (ii) the date of receipt of a written notice and demand from the Responsible Company for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto.  Any payments required under this Section 5.01(c) shall include interest computed at the Prime Rate based on the number of days from the date the additional Tax was paid by the Responsible Company to the date of the payment under this Section 5.01(c).

 

Section 5.02                            Payment of Taxes With Respect to Section 2.03(c) Returns.  In the case of any Section 2.03(c) Return:

 

(a)                                 Computation and Payment of Tax Due.  At least three Business Days prior to any Payment Date for any Section 2.03(c) Return, the Responsible Company shall compute the amount of Tax required to be paid to the applicable Tax Authority (taking into account the requirements of Section 4.04 relating to consistent accounting practices, as applicable) with respect to such Tax Return on such Payment Date.  The Responsible Company shall pay such amount to such Tax Authority on or before such Payment Date (and provide notice and proof of payment to the other Company).

 

(b)                                 Computation and Payment of Liability With Respect To Tax Due.  Within 30 days following the earlier of (i) the Due Date for filing any such Section 2.03(c) Return or (ii) the date on which such Section 2.03(c) Return is filed, if Parent is the Responsible Company, then SpinCo shall pay to Parent the amount for which SpinCo is responsible under the provisions of Section 2.03(c), and if SpinCo is the Responsible Company, then Parent shall pay to SpinCo the amount for which Parent is responsible under the provisions of Section 2.03(c), in each case, plus interest computed at the Prime Rate on the amount of the payment based on the number of days from the earlier of (i) the Due Date of the Section 2.03(c) Return or (ii) the date on which such Section 2.03(c) Return is filed, to the date of payment.

 

(c)                                  Adjustments Resulting in Underpayments.  In the case of any adjustment pursuant to a Final Determination with respect to any such Section 2.03(c) Return, the Responsible

 

18

 

Company shall pay to the applicable Tax Authority when due any additional Tax due with respect to such Return required to be paid as a result of such adjustment pursuant to a Final Determination.  If the Responsible Company is Parent, Parent shall compute the amount attributable to the assets or activities of the SpinCo Business in accordance with Section 2.03(c) and SpinCo shall pay to Parent such amount within 30 days of the later of (i) the date the additional Tax was paid by Parent or (ii) the date of receipt of a written notice and demand from Parent for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto.  If the Responsible Company is SpinCo, (x) SpinCo shall, within 15 days of payment of such additional Tax to the applicable Tax Authority, provide Parent with written notice thereof accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto and (y) Parent shall, within 45 days of receipt of such statement, compute the amount attributable to the assets or activities of the Parent Business in accordance with Section 2.03(c) and pay to SpinCo such amount.

 

Section 5.03                            Indemnification Payments.

 

(a)                                 Subject to Section 7.05(d) and 7.05(e), if any Company (the “Payor”) is required under applicable Tax Law to pay to a Tax Authority a Tax that another Company (the “Required Party”) is liable for under this Agreement, the Required Party shall reimburse the Payor within 30 days of delivery by the Payor to the Required Party of an invoice for the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto.  The reimbursement shall include interest on the Tax payment computed at the Prime Rate based on the number of days from the date of the payment to the Tax Authority to the date of reimbursement under this Section 5.03.

 

(b)                                 All indemnification payments under this Agreement shall be made by Parent directly to SpinCo and by SpinCo directly to Parent, as applicable; provided, however, that if the Companies mutually agree with respect to any such indemnification payment, any member of the Parent Group, on the one hand, may make such indemnification payment to any member of the SpinCo Group, on the other hand, and vice versa.

 

Section 6.                                          Tax Benefits.

 

Section 6.01                            Tax Benefits.

 

(a)                                 Except as set forth below, Parent shall be entitled to any refund (and any interest thereon received from the applicable Tax Authority) of Income Taxes and Other Taxes for which Parent is liable hereunder, SpinCo shall be entitled to any refund (and any interest thereon received from the applicable Tax Authority) of Income Taxes and Other Taxes for which SpinCo is liable hereunder and a Company (the first Company) receiving a refund to which another Company (the second Company) is entitled hereunder shall pay over such refund to the second Company within 30 days after such refund is received (together with interest computed at the Prime Rate based on the number of days from the date the refund was received to the date the refund was paid over).  The second Company, upon the request of the first Company, shall promptly repay the first Company the amount paid over pursuant to the preceding sentence

 

19

 

(together with any penalties, interest or other charges imposed by the relevant Tax Authority) in the event that the first Company is required to repay such refund to such Tax Authority.

 

(b)                                 If a member of the SpinCo Group actually realizes in cash any Tax Benefit as a result of an adjustment  pursuant to a Final Determination to any Taxes for which a member of the Parent Group is liable hereunder (or to the tax basis or any Tax Attribute of a member of the Parent Group) (a “Parent Final Determination Adjustment”) and such Tax Benefit would not have arisen but for such adjustment (determined on a “with and without” basis), or if a member of the Parent Group actually realizes in cash any Tax Benefit as a result of an adjustment pursuant to a Final Determination to any Taxes for which a member of the SpinCo Group is liable hereunder (or to the tax basis or any Tax Attribute of a member of the SpinCo Group) and such Tax Benefit would not have arisen but for such adjustment (determined on a “with and without” basis), SpinCo or Parent, as the case may be, shall make a payment to either Parent or SpinCo, as appropriate, within 30 days following such actual realization of the Tax Benefit, in an amount equal to such Tax Benefit actually realized in cash (including any Tax Benefit actually realized as a result of the payment), plus interest on such amount computed at the Prime Rate based on the number of days from the date of such actual realization of the Tax Benefit to the date of payment of such amount under this Section 6.01(b).  In the case of a Parent Final Determination Adjustment, then, upon the written request of and at the expense of Parent, SpinCo shall (and, if applicable, shall cause the relevant member of the SpinCo Group to) amend any Tax Return thereof to the extent such amendment would result in a corresponding or correlative Tax Benefit (which shall include, without limitation, any step-up in tax basis).

 

(c)                                  No later than 30 days after a Tax Benefit described in Section 6.01(b) is actually realized in cash by a member of the Parent Group or a member of the SpinCo Group, Parent (if a member of the Parent Group actually realizes such Tax Benefit) or SpinCo (if a member of the SpinCo Group actually realizes such Tax Benefit) shall provide the other Company with a written calculation of the amount payable to such other Company by Parent or SpinCo pursuant to this Section 6.  In the event that Parent or SpinCo disagrees with any such calculation described in this Section 6.01(c), Parent or SpinCo shall so notify the other Company in writing within 30 days of receiving the written calculation set forth above in this Section 6.01(c).  Parent and SpinCo shall endeavor in good faith to resolve such disagreement, and, failing that, the amount payable under this Section 6 shall be determined in accordance with the disagreement resolution provisions of Section 13 as promptly as practicable.

 

(d)                                 SpinCo shall be entitled to any refund that is attributable to, and would not have arisen but for, a SpinCo Carryback pursuant to, and in accordance with, the proviso set forth in Section 4.07.  Any such payment of such refund made by Parent to SpinCo pursuant to this Section 6.01(d) shall be recalculated in light of any Final Determination (or any other facts that may arise or come to light after such payment is made, such as a carryback of a Parent Group Tax Attribute to a Tax Period in respect of which such refund is received) that would affect the amount to which SpinCo is entitled, and an appropriate adjusting payment shall be made by SpinCo to Parent such that the aggregate amounts paid pursuant to this Section 6.01(d) equals such recalculated amount (with interest computed at the Prime Rate).

 

Section 6.02                            Parent and SpinCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation. To the extent permitted by applicable law, solely the

 

20

 

member of the Group for which the relevant individual is employed at the time of the vesting, exercise, disqualifying disposition, payment or other relevant taxable event, as appropriate, in respect of the equity awards and other incentive compensation described in Article IV of the Employee Matters Agreement (or, if such individual is not then employed by a member of any Group, the Group member at which such individual was most recently employed) shall be entitled to claim any Income Tax deduction in respect of such equity awards and other incentive compensation on its respective Tax Return associated with such event.

 

Section 7.                                          Tax-Free Status.

 

Section 7.01                            Tax Opinions/Rulings and Representation Letters.

 

(a)                                 Each of SpinCo and Parent hereby represents and agrees that (A) it has carefully reviewed or will carefully review the Representation Letters prior to the date submitted and (B) subject to any qualifications therein, all information, representations and covenants contained in such Representation Letters that concern or relate to such Company or any member of its Group are and will be true, correct and complete.

 

(b)                                 If any Representation Letters have not yet been submitted, SpinCo and Parent shall use their commercially reasonable efforts and shall cooperate in good faith to finalize (or cause to be finalized) the same as soon as possible and to cause the same to be submitted to the Tax Advisors, the IRS or such other governmental authorities as Parent shall deem necessary or desirable.  SpinCo and Parent shall take such other commercially reasonable actions as may be necessary or desirable, to obtain any Tax Opinions/Rulings that have not yet been obtained.

 

(c)                                  SpinCo hereby represents and warrants that it has no plan or intention to take any action or to fail to take any action (or to cause or permit any member of its Group to take or fail to take any action), in each case, from and after the date hereof, that could reasonably be expected to cause any representation or statement made in this Agreement, the Separation and Distribution Agreement, the Representation Letters, or any of the Ancillary Agreements to be untrue.

 

(d)                                 SpinCo hereby represents and warrants that, during the period beginning two years before the date of the consummation of the Internal Distribution and ending on the Distribution Date, there was no “agreement,” “understanding,” “arrangement,” “substantial negotiations” or “discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the SpinCo Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding an acquisition, directly or indirectly, of all or a significant portion of the SpinCo Capital Stock (or any predecessor) or the AHS Capital Stock; provided, however, that no representation is made regarding any “agreement,” “understanding,” “arrangement,” “substantial negotiations” or “discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of Parent.

 

Section 7.02                            Restrictions on SpinCo.

 

(a)                                 SpinCo agrees that it will not take or fail to take, or cause or permit any SpinCo Affiliate to take or fail to take, any action where such action or failure to act would be

 

21

 

inconsistent with or cause to be untrue any material, information, statement, covenant or representation in this Agreement, the Separation and Distribution Agreement, any of the Ancillary Agreements, any Representation Letters or any Tax Opinions/Rulings.  SpinCo agrees that it will not take or fail to take, or permit any SpinCo Affiliate to take or fail to take, any action which prevents or could reasonably be expected to prevent (A) the Tax-Free Status (including the issuance of any SpinCo Capital Stock or AHS Capital Stock that would prevent the Distribution or the Internal Distribution from qualifying as a tax-free distribution under Section 355 of the Code) or (B) any transaction contemplated by the Separation and Distribution Agreement, to the extent such transaction is intended by Parent to be tax-free or tax-advantaged, from so qualifying (it being agreed and understood that SpinCo shall not agree, and shall prevent any SpinCo Affiliate from agreeing, in any Tax Contest to any position that is inconsistent with the Tax treatment, as intended or determined by Parent, of the Transactions).

 

(b)                                 Pre-Distribution Period.  During the period from the date hereof until the completion of the Distribution, SpinCo shall not take any action (including the issuance of SpinCo Capital Stock) or permit any SpinCo Affiliate to take any action (including the issuance of AHS Capital Stock) if, as a result of taking such action, (i) SpinCo could have a number of shares of SpinCo Capital Stock (computed on a fully diluted basis or otherwise) issued and outstanding, including by way of the exercise of stock options (whether or not such stock options are currently exercisable) or the issuance of restricted stock, that could cause Parent to cease to have Tax Control of SpinCo or (ii) AHS could have a number of shares of AHS Capital Stock (computed on a fully diluted basis or otherwise) issued and outstanding, including by way of the exercise of stock options (whether or not such stock options are currently exercisable) or the issuance of restricted stock, that could cause SMCS Holdco II to cease to have Tax Control of SpinCo.

 

(c)                                  SpinCo agrees that, from the date hereof until the first day after the two-year anniversary of the Distribution Date, it will (i) maintain its status as a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code, (ii) cause AHS to maintain AHS’s status as a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code, (iii) not engage in any transaction that would result in SpinCo or AHS ceasing to be a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code and (iv) cause AHS not to engage in any transaction that would result in AHS ceasing to be a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code, in the case of each of clauses (i) through (iv), taking into account Section 355(b)(3) of the Code.

 

(d)                                 SpinCo agrees that, from the date hereof until the first day after the two-year anniversary of the Distribution Date, it will not (and it will cause AHS not to, where applicable) (i) enter into any Proposed Acquisition Transaction or, to the extent SpinCo has the right to prohibit (or cause to be prohibited) any Proposed Acquisition Transaction, permit any Proposed Acquisition Transaction to occur (whether by (I) redeeming rights under a shareholder rights plan, (II) finding a tender offer to be a “permitted offer” under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition Transaction, or (III) approving any Proposed Acquisition Transaction, whether for purposes of Section 203 of the DGCL or any similar corporate statute, any “fair price” or other provision of SpinCo or AHS’s charter or bylaws or otherwise), (ii) merge or consolidate with any other

 

22

 

Person or liquidate or partially liquidate, (iii) in a single transaction or series of transactions, sell or transfer (other than sales or transfers of inventory in the ordinary course of business) all or substantially all of the assets that were transferred, directly or indirectly, to SpinCo pursuant to the Separation and Distribution Agreement or pursuant to the Contribution, or sell or transfer 60% or more of the gross assets of the Active Trade or Business or 60% or more of the consolidated gross assets of SpinCo and its Affiliates or AHS (such percentages to be measured based on fair market value as of the date of the Internal Distribution or the External Distribution, as applicable), (iv) redeem or otherwise repurchase (directly or through an Affiliate) any SpinCo stock or AHS stock, or rights to acquire stock, except (in the case of repurchases of SpinCo stock) to the extent such repurchases satisfy Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment of such Revenue Procedure by Revenue Procedure 2003-48), (v) amend its certificate of incorporation (or other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of SpinCo Capital Stock or AHS Capital Stock (including, without limitation, through the conversion of one class of stock into another class of stock) or (vi) take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation or covenant made in the Representation Letters or the Tax Opinions/Rulings) which in the aggregate (and taking into account any other transactions described in this subparagraph (d)) would be reasonably likely to have the effect of causing or permitting one or more persons (whether or not acting in concert) to acquire directly or indirectly stock representing a Fifty-Percent or Greater Interest in SpinCo or AHS or otherwise jeopardize the Tax-Free Status, unless, in each case, prior to taking any such action set forth in the foregoing clauses (i) through (vi), (A) SpinCo shall have requested that Parent obtain a Ruling in accordance with Section 7.04(b) and (d) of this Agreement to the effect that such transaction will not affect the Tax-Free Status and Parent shall have received such a Ruling in form and substance satisfactory to Parent in its sole and absolute discretion, which discretion shall be exercised in good faith solely to preserve the Tax-Free Status (and in determining whether a Ruling is satisfactory, Parent may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations made in connection with such Ruling), or (B) SpinCo shall provide Parent with an Unqualified Tax Opinion in form and substance satisfactory to Parent in its sole and absolute discretion, which discretion shall be exercised in good faith solely to preserve the Tax-Free Status (and in determining whether an opinion is satisfactory, Parent may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations if used as a basis for the opinion, and Parent may determine that no opinion would be acceptable to Parent) or (C) Parent shall have waived the requirement to obtain such Ruling or Unqualified Tax Opinion.

 

(e)                                  Certain Issuances of SpinCo Capital Stock or AHS Capital Stock.  If SpinCo or AHS proposes to enter into any Section 7.02(e) Acquisition Transaction or if SpinCo, to the extent SpinCo has the right to prohibit (or cause to be prohibited) any Section 7.02(e) Acquisition Transaction, proposes to permit any Section 7.02(e) Acquisition Transaction to occur, in each case, during the period from the date hereof until the first day after the two-year anniversary of the Distribution Date, SpinCo shall provide Parent, no later than ten days following the signing of any written agreement (by SpinCo, any SpinCo Affiliate or AHS) with respect to the Section 7.02(e) Acquisition Transaction, with a written description of such transaction (including the type and amount of SpinCo Capital Stock or AHS Capital Stock, as the case may be, to be issued in such transaction) and a certificate of the Board of Directors of

 

23

 

SpinCo to the effect that the Section 7.02(e) Acquisition Transaction is not a Proposed Acquisition Transaction or any other transaction to which the requirements of Section 7.02(d) apply (a “Board Certificate”).

 

(f)                                    SpinCo Internal Restructuring.  SpinCo shall not engage in, cause or permit any Internal Restructuring during or with respect to any Tax Period (or portion thereof) ending on or prior to the Distribution Date without obtaining the prior written consent of Parent (such prior written consent not to be unreasonably withheld).  SpinCo shall provide written notice to Parent describing any Internal Restructuring proposed to be taken during or with respect to any Tax Period (or portion thereof) beginning after the Distribution Date and ending on or prior to the two-year anniversary of the Distribution Date and shall consult with Parent regarding any such proposed actions reasonably in advance of taking any such proposed actions and shall consider in good faith any comments from Parent relating thereto.

 

Section 7.03                            Restrictions on Parent.  Parent agrees that it will not take or fail to take, or cause or permit any member of the Parent Group to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material, information, statement, covenant or representation in this Agreement, the Separation and Distribution Agreement, any of the Ancillary Agreements, any Representation Letters or any Tax Opinions/Rulings.  Parent agrees that it will not take or fail to take, or cause or permit any member of the Parent Group to take or fail to take, any action which prevents or could reasonably be expected to prevent (A) the Tax-Free Status or (B) any transaction contemplated by the Separation and Distribution Agreement, to the extent such transaction is intended by Parent as of the date hereof to be tax-free or tax-advantaged, from so qualifying; provided, however, that this Section 7.03 shall not be construed as obligating Parent to consummate the Distribution without the satisfaction or waiver of all conditions set forth in Section 3.3 of the Separation and Distribution Agreement nor shall it be construed as preventing Parent from terminating the Separation and Distribution Agreement pursuant to Section 9.1 thereof.

 

Section 7.04                            Procedures Regarding Opinions and Rulings.

 

(a)                                 If SpinCo notifies Parent that it desires to take one of the actions described in clauses (i) through (vi) of Section 7.02(d) (a “Notified Action”), Parent and SpinCo shall reasonably cooperate to attempt to obtain the Ruling or Unqualified Tax Opinion referred to in Section 7.02(d), unless Parent shall have waived the requirement to obtain such Ruling or Unqualified Tax Opinion.

 

(b)                                 Rulings or Unqualified Tax Opinions at SpinCo’s Request.  Parent agrees that at the reasonable request of SpinCo pursuant to Section 7.02(d), Parent shall cooperate with SpinCo and use its reasonable efforts to seek to obtain, as expeditiously as possible, a Ruling from the IRS or an Unqualified Tax Opinion for the purpose of permitting SpinCo to take the Notified Action.  Further, in no event shall Parent be required to file a request for any such Ruling under this Section 7.04(b) unless SpinCo represents that (A) it has read such request, and (B) all information and representations, if any, relating to any member of the SpinCo Group, contained in such request (or in any documents relating thereto) are (subject to any qualifications therein) true, correct and complete.  SpinCo shall reimburse Parent for all reasonable costs and expenses incurred by the Parent Group in preparing and filing any such request and in obtaining a Ruling

 

24

 

or Unqualified Tax Opinion requested by SpinCo within ten Business Days after receiving an invoice from Parent therefor.

 

(c)                                  Rulings or Unqualified Tax Opinions at Parent’s Request.  Parent shall have the right to obtain a Ruling or an Unqualified Tax Opinion at any time in its sole and absolute discretion.  If Parent determines to obtain a Ruling or an Unqualified Tax Opinion, SpinCo shall (and shall cause each Affiliate of SpinCo to) cooperate with Parent and take any and all actions reasonably requested by Parent in connection with obtaining the Ruling or Unqualified Tax Opinion (including, without limitation, by making any representation or covenant or providing any materials or information requested by the IRS or Tax Advisor; provided that SpinCo shall not be required to make (or cause any Affiliate of SpinCo to make) any representation or covenant that is inconsistent with historical facts or as to future matters or events over which it has no control).  Parent and SpinCo shall each bear its own costs and expenses in obtaining a Ruling or an Unqualified Tax Opinion requested by Parent.

 

(d)                                 SpinCo hereby agrees that Parent shall have sole and exclusive control over the process of obtaining any Ruling, and that only Parent shall apply for a Ruling.  In connection with obtaining a Ruling pursuant to Section 7.04(b), (A) Parent shall keep SpinCo informed in a timely manner of all material actions taken or proposed to be taken by Parent in connection therewith; (B) Parent shall (1) reasonably in advance of the submission of any documents relating to the request for such Ruling, provide SpinCo with a draft copy thereof, (2) reasonably consider SpinCo’s comments on such draft copy, and (3) provide SpinCo with a final copy; and (C) Parent shall provide SpinCo with notice reasonably in advance of, and SpinCo shall have the right to attend, any formally scheduled meetings with the IRS (subject to the approval of the IRS) that relate to such Ruling.  Neither SpinCo nor any SpinCo Affiliate directly or indirectly controlled by SpinCo shall seek any guidance from the IRS or any other Tax Authority (whether written, verbal or otherwise) at any time concerning the Internal Distribution, the Contribution or the Distribution (including the impact of any transaction on the Internal Distribution, the Contribution or the Distribution) or the Transactions.

 

Section 7.05                            Liability for Tax-Related Losses.

 

(a)                                 Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.05(c), SpinCo shall be responsible for, and shall indemnify and hold harmless Parent and its Affiliates (and, for the absence of doubt, SMCS Holdco II) and each of their respective officers, directors and employees from and against, one hundred percent (100%) of any Tax-Related Losses that are attributable to or result from any one or more of the following:  (A) the acquisition (other than pursuant to the Internal Distribution, the Contribution or the Distribution), by any means whatsoever or by any Person, of all or a portion of (i) SpinCo Capital Stock, (ii) AHS Capital Stock, and/or (iii) Spinco’s assets, AHS’s assets, or any of their subsidiaries’ assets, (B) any “agreement,” “understanding,” “arrangement,” “substantial negotiations” or “discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by (i) any one or more officers or directors of any member of the SpinCo Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding transactions or events that cause the Internal Distribution or the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire, directly or indirectly, stock of SpinCo, stock of AHS, or stock of any Subsidiary of SpinCo or

 

25

 

AHS, in each case, representing a Fifty-Percent or Greater Interest therein or (ii) any one or more officers or directors of AHS or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding transactions or events that cause the Internal Distribution to be treated as part of a plan pursuant to which one or more Persons acquire, directly or indirectly, stock of AHS or stock of any Subsidiary of AHS, in each case, representing a Fifty-Percent or Greater Interest therein, (C) any action or failure to act by SpinCo after the Distribution (including, without limitation, any amendment to SpinCo’s or AHS’s certificate of incorporation (or other organizational documents), whether through a stockholder vote or otherwise) affecting the voting rights of SpinCo stock (including, without limitation, through the conversion of one class of SpinCo Capital Stock into another class of SpinCo Capital Stock) or AHS stock (including, without limitation, through the conversion of one class of SpinCo Capital Stock into another class of SpinCo Capital Stock), (D) any act or failure to act by SpinCo, any member of the SpinCo Group or AHS described in Section 7.02 (regardless of whether such act or failure to act is covered by a Ruling, Unqualified Tax Opinion or waiver, as applicable, described in Section 7.02(d) or by a Board Certificate described in Section 7.02(e) or a consent described in Section 7.02(f)), or (E) any breach by SpinCo of its agreement and representations set forth in Section 7.01.

 

(b)                                 Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.05(c), Parent shall be responsible for, and shall indemnify and hold harmless SpinCo and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of any Tax-Related Losses that are attributable to, or result from any one or more of the following:  (A) the acquisition (other than pursuant to the Transactions) of all or a portion of Parent’s stock and/or its or its subsidiaries’ assets by any means whatsoever by any Person, (B) any “agreement,” “understanding,” “arrangement,” “substantial negotiations” or “discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the Parent Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding transactions or events that cause the Distribution or the Internal Distribution respectively to be treated as part of a plan pursuant to which one or more Persons acquire, directly or indirectly, stock of Parent or stock of SMCS Holdco II, in each case, representing a Fifty-Percent or Greater Interest therein, (C) any act or failure to act by Parent or a member of the Parent Group described in Section 7.03 or (D) any breach by Parent of its agreement and representations set forth in Section 7.01(a).

 

(c)                                  Notwithstanding anything in Section 7.05(b) or any other provision of this Agreement or the Separation and Distribution Agreement to the contrary:

 

(i)                                     SpinCo shall be responsible for, and shall indemnify and hold harmless Parent and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of (I) any Tax-Related Losses resulting from the application of Section 355(e) or Section 355(f) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in Parent or any member of the Parent Group) and (II) any other Tax-Related Losses resulting (for the absence of doubt, in whole or in part) from an acquisition after the Distribution of any stock or assets of SpinCo, any SpinCo Affiliate or AHS by any means whatsoever by any Person or any

 

26

 

action or failure to act by SpinCo affecting the voting rights of SpinCo stock, the stock of any SpinCo Affiliate, or AHS stock; and

 

(ii)                                  For purposes of calculating the amount and timing of any Tax-Related Losses for which SpinCo is responsible under this Section 7.05, Tax-Related Losses shall be calculated by assuming that Parent, the Parent Affiliated Group and each member of the Parent Group (I) pay Tax at the highest marginal corporate Tax rates in effect in each relevant taxable year and (II) have no Tax Attributes in any relevant taxable year.

 

(d)                                 SpinCo shall pay Parent the amount of any Tax-Related Losses for which SpinCo is responsible under this Section 7.05:  (A) in the case of Tax-Related Losses described in clause (i) of the definition of Tax-Related Losses, no later than ten Business Days prior to the Due Date of the Tax Return that Parent files, or causes to be filed, for the year of the Contribution or the Distribution, as applicable (the “Filing Date”) (provided that if such Tax-Related Losses arise pursuant to a Final Determination described in clause (a), (b) or (c) of the definition of “Final Determination,” then SpinCo shall pay Parent no later than two Business Days after the date of such Final Determination with interest calculated at the Prime Rate plus two percent, compounded semiannually, from the date that is ten Business Days prior to the Filing Date through the date of such Final Determination (but not in duplication of interest charged by the applicable Tax Authority)) and (B) in the case of Tax-Related Losses described in clause (ii) or (iii) of the definition of Tax-Related Losses, no later than the later of (x) the date that is two Business Days after the date Parent pays such Tax-Related Losses and (y) the date that is five Business Days after SpinCo receives notification from Parent of the amount of such Tax-Related Losses due.

 

(e)                                  Parent shall calculate in good faith and notify SpinCo of the amount of any Tax-Related Losses for which SpinCo is responsible under this Section 7.05.  Such calculation shall be binding on SpinCo absent manifest error.  At SpinCo’s reasonable request, Parent shall make available to SpinCo the portion of any Tax Return or other documentation and related workpapers that are relevant to the determination of the Tax-Related Losses attributable to SpinCo pursuant to this Section 7.05.

 

Section 7.06                            Section 336(e) Election.  If Parent determines, in its sole discretion, that a protective election under Section 336(e) of the Code (a “Section 336(e) Election”) shall be made with respect to the Distribution (or the Internal Distribution), SpinCo shall (and shall cause AHS or any relevant member of the SpinCo Group to) join with Parent (or SMCS Holdco II or any relevant member of the Parent Group) in the making of such election and shall take any action reasonably requested by Parent or that is otherwise necessary to give effect to such election (including making any other related election).  If a Section 336(e) Election is made with respect to the Distribution (or the Internal Distribution), then (a) in the event the Contribution or the Distribution (or the Internal Distribution) fails to have Tax-Free Status and Parent is not entitled to indemnification for the Tax-Related Losses arising from such failure, SpinCo shall pay over to Parent any Tax Benefit arising from the step-up in Tax basis resulting from the Section 336(e) Election within 30 days of SpinCo (or AHS or any member of the SpinCo Group) realizing such Tax Benefit in cash and (b) this Agreement shall be amended in such a manner as is determined by Parent in good faith to take into account such Section 336(e) Election.

 

27

 

Section 8.                                          Assistance and Cooperation.

 

Section 8.01                            Assistance and Cooperation.

 

(a)                                 The Companies shall cooperate (and cause their respective Affiliates to cooperate) with each other and with each other’s agents, including accounting firms and legal counsel, in connection with Tax matters relating to the Companies and their Affiliates including (i) preparation and filing of Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the right to and amount of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed.  Each of the Companies shall also make available to the other, as reasonably requested and available, personnel (including officers, directors, employees and agents of the Companies or their respective Affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes.

 

(b)                                 Any information or documents provided under this Section 8 shall be kept confidential by the Company receiving such information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any Tax Contest.  Notwithstanding any other provision of this Agreement or any other agreement, (i) neither Parent nor any Parent Affiliate shall be required to provide SpinCo or any SpinCo Affiliate or any other Person access to or copies of any information or procedures (including the proceedings of any Tax Contest) other than information or procedures that relate solely to SpinCo, the business or assets of SpinCo or any SpinCo Affiliate and (ii) in no event shall Parent or any Parent Affiliate be required to provide SpinCo, any SpinCo Affiliate or any other Person access to or copies of any information if such action could reasonably be expected to result in the waiver of any Privilege.  In addition, in the event that Parent determines that the provision of any information to SpinCo or any SpinCo Affiliate could be commercially detrimental, violate any law or agreement or waive any Privilege, the parties shall use reasonable best efforts to permit compliance with its obligations under this Section 8 in a manner that avoids any such harm or consequence.

 

Section 8.02                            Income Tax Return Information.  SpinCo and Parent acknowledge that time is of the essence in relation to any request for information, assistance or cooperation made by Parent or SpinCo pursuant to Section 8.01 or this Section 8.02.  SpinCo and Parent acknowledge that failure to conform to the deadlines set forth herein or reasonable deadlines otherwise set by Parent or SpinCo could cause irreparable harm.

 

(a)                                 Each Company shall provide to the other Company information and documents relating to its Group required by the other Company to prepare Tax Returns.  Any information or documents the Responsible Company requires to prepare such Tax Returns shall be provided in such form as the Responsible Company reasonably requests and in sufficient time for the Responsible Company to file such Tax Returns on a timely basis.

 

28

 

(b)                                 At SpinCo’s sole expense, SpinCo shall provide such information as is reasonably requested in writing by Parent in connection with the preparation of Tax Returns in accordance with the reasonable deadlines set forth in such written request.

 

(c)                                  At Parent’s sole expense, Parent shall provide such information as is reasonably requested in writing by SpinCo in connection with the preparation of Tax Returns in accordance with the reasonable deadlines set forth in such written request.

 

Section 8.03                            Reliance by Parent.  If any member of the SpinCo Group supplies information to a member of the Parent Group in connection with Taxes and an officer of a member of the Parent Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the Parent Group identifying the information being so relied upon, the chief financial officer of SpinCo (or any officer of SpinCo as designated by the chief financial officer of SpinCo) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete.  SpinCo agrees to indemnify and hold harmless each member of the Parent Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the SpinCo Group having supplied, pursuant to this Section 8, a member of the Parent Group with inaccurate or incomplete information in connection with Taxes.

 

Section 8.04                            Reliance by SpinCo.  If any member of the Parent Group supplies information to a member of the SpinCo Group in connection with Taxes and an officer of a member of the SpinCo Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the SpinCo Group identifying the information being so relied upon, the chief financial officer of Parent (or any officer of Parent as designated by the chief financial officer of Parent) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete.  Parent agrees to indemnify and hold harmless each member of the SpinCo Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the Parent Group having supplied, pursuant to this Section 8, a member of the SpinCo Group with inaccurate or incomplete information in connection with Taxes.

 

Section 9.                                          Tax Contests.

 

Section 9.01                            Notice.  Each of the Companies shall provide prompt notice to the other Company of any written communication from a Tax Authority regarding any pending or threatened Tax Contest or assessment related to Taxes of which it becomes aware related to Taxes for which it could reasonably expect to be indemnified by the other Company hereunder.  Such notice shall attach copies of the pertinent portion of any written communication from a Tax Authority and contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters.  If an indemnified party has knowledge of an asserted Tax liability with respect to a matter for which it is to be indemnified hereunder and such party fails to give the indemnifying party prompt notice of such asserted Tax liability, then such failure shall not relieve the indemnifying party of any obligation

 

29

 

which it may have to the indemnified party under this Agreement except to the extent that the indemnifying party is actually prejudiced by such failure.

 

Section 9.02                            Control of Tax Contests.

 

(a)                                 Separate Company Taxes; Section 2.03(c) Returns.  In the case of any Tax Contest with respect to any Separate Return (other than a Section 2.03(c) Return), the Company having liability for the Tax shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(f).  In the case of any Tax Contest with respect to any SpinCo Separate Return that is a Section 2.03(c) Return, (i) if Parent so notifies SpinCo in writing within 30 days after receiving notice from SpinCo about such Tax Contest, Parent shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(f), and (ii) if Parent does not so notify SpinCo, SpinCo shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(f).  In the case of any Tax Contest with respect to any Parent Separate Return that is a Section 2.03(c) Return, Parent shall have exclusive control over the Tax Contest (including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(f)), unless Parent provides SpinCo with written notice that SpinCo shall be the Controlling Party with respect to such Tax Contest.  Any reasonable costs and expenses incurred by Parent or SpinCo relating to any Tax Contest with respect to a Section 2.03(c) Return shall be borne by (i) SpinCo, to the extent such costs and expenses are attributable (as determined by Parent) to Taxes for which SpinCo is or would be responsible or (ii) Parent, to the extent such costs and expenses are attributable (as determined by Parent) to Taxes for which Parent is or would be responsible.

 

(b)                                 Parent Federal Consolidated Income Tax Return.  In the case of any Tax Contest with respect to any Parent Federal Consolidated Income Tax Return, Parent shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(f).

 

(c)                                  Parent State Combined Income Tax Return. In the case of any Tax Contest with respect to any Parent State Combined Income Tax Return, Parent shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(f).

 

(d)                                 Parent Foreign Combined Income Tax Return. In the case of any Tax Contest with respect to any Parent Foreign Combined Income Tax Return, Parent shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(f).

 

(e)                                  Joint Returns.  In the case of any Tax Contest with respect to any Joint Return (other than any Parent Federal Consolidated Income Tax Return, any Parent State Combined Income Tax Return or any Parent Foreign Combined Income Tax Return), Parent shall have exclusive control over the Tax Contest (including exclusive authority with respect to any settlement of such Tax liability, subject to Section 9.02(f)), unless Parent provides SpinCo with written notice that SpinCo shall be the Controlling Party with respect to such Tax Contest.

 

30

 

(f)                                    Settlement Rights.  The Controlling Party shall have the sole right to contest, litigate, compromise and settle any Tax Contest without obtaining the prior consent of the Non-Controlling Party.  Unless waived by the parties in writing, in connection with any potential adjustment in a Tax Contest as a result of which adjustment the Non-Controlling Party may reasonably be expected to become liable to make any indemnification payment (or any payment under Section 6) to the Controlling Party under this Agreement:  (i) the Controlling Party shall keep the Non-Controlling Party informed in a timely manner of all actions taken or proposed to be taken by the Controlling Party with respect to such potential adjustment in such Tax Contest; (ii) the Controlling Party shall provide the Non-Controlling Party copies of any written materials relating to such potential adjustment in such Tax Contest received from any Tax Authority; (iii) the Controlling Party shall timely provide the Non-Controlling Party with copies of any correspondence or filings submitted to any Tax Authority or judicial authority in connection with such potential adjustment in such Tax Contest; and (iv) the Controlling Party shall consult with the Non-Controlling Party and offer the Non-Controlling Party a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such potential adjustment in such Tax Contest.  The failure of the Controlling Party to take any action specified in the preceding sentence with respect to the Non-Controlling Party shall not relieve the Non-Controlling Party of any liability or obligation which it may have to the Controlling Party under this Agreement in respect of such adjustment, except to the extent that the Non-Controlling Party was actually harmed by such failure, and in no event shall such failure relieve the Non-Controlling Party from any other liability or obligation which it may have to the Controlling Party under this Agreement.  In the case of any Tax Contest described in this Section 9.02, “Controlling Party” means the Company entitled to control the Tax Contest under such Section and “Non-Controlling Party” means the other Company.

 

(g)                                 Power of Attorney.  Each member of the SpinCo Group shall execute and deliver to Parent (or such member of the Parent Group as Parent shall designate) any power of attorney or other similar document reasonably requested by Parent (or such designee) in connection with any Tax Contest (as to which Parent is the Controlling Party) described in this Section 9.  Each member of the Parent Group shall execute and deliver to SpinCo (or such member of the SpinCo Group as SpinCo shall designate) any power of attorney or other similar document reasonably requested by SpinCo (or such designee) in connection with any Tax Contest (as to which SpinCo is the Controlling Party) described in this Section 9.

 

31

 

Section 10.                                   Effective Date; Termination of Prior Intercompany Tax Allocation Agreements.  This Agreement shall be effective as of the date hereof.  As of the date hereof or on such other date (on or prior to the Distribution Date) as Parent may determine, (i) all prior intercompany Tax allocation agreements or arrangements solely between or among Parent and/or any of its Subsidiaries, on the one hand, and SpinCo and/or any of its Subsidiaries, on the other hand, shall be terminated, and (ii) amounts due under such agreements as of the date hereof shall be settled.  Upon such termination and settlement, no further payments by or to Parent or by or to SpinCo, with respect to such agreements shall be made, and all other rights and obligations resulting from such agreements between the Companies and their Affiliates shall cease at such time.  Any payments pursuant to such agreements shall be disregarded for purposes of computing amounts due under this Agreement.

 

Section 11.                                   Survival of Obligations.  The representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time.

 

Section 12.                                   Treatment of Payments; Tax Gross Up.

 

Section 12.01                     Treatment of Tax Indemnity and Tax Benefit Payments.  In the absence of any change in Tax treatment under the Code or other applicable Tax Law, for all Income Tax purposes, the Companies agree to treat, and to cause their respective Affiliates to treat:

 

(a)                                 any indemnity payments made by a Company under this Agreement or the Separation and Distribution Agreement (and any payment of the Final Adjustment Amount made by a Company under the Separation and Distribution Agreement) as distributions or capital contributions, as appropriate, occurring immediately before the Distribution (but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Section 1552 of the Code or the regulations thereunder or Treasury Regulations Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws)) or as payments of an assumed or retained liability,

 

(b)                                 any payment of interest or State Income Taxes by or to a Tax Authority, as taxable or deductible, as the case may be, to the Company entitled under this Agreement to retain such payment or required under this Agreement to make such payment; and

 

(c)                                  any Tax Benefit payments made by a Company under Sections 6 or 7.06, as distributions or capital contributions, as appropriate, occurring immediately before the Distribution (but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Section 1552 of the Code or the regulations thereunder or Treasury Regulation Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws)) or as payments of an assumed or retained liability.

 

Section 12.02                     Tax Gross Up.  If notwithstanding the manner in which payments described in Section 12.01(a) and (c) were reported, there is an adjustment to the Tax liability of a Company as a result of its receipt of a payment pursuant to this Agreement or the Separation and Distribution Agreement, such payment shall be appropriately increased so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt

 

32

 

thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment which the Company receiving such payment would otherwise be entitled to receive.  For purposes of this Section 12.02, the amount of any Income Taxes payable with respect to the receipt of a payment pursuant to this Agreement or the Separation and Distribution Agreement shall be calculated by assuming that the recipient or the Group of which it is a member, as applicable, (I) pays Tax at the highest marginal corporate Tax rates in effect in each relevant taxable year and (II) has no Tax Attributes in any relevant taxable year.

 

Section 12.03                     Interest Under This Agreement.  Anything herein to the contrary notwithstanding, to the extent one Company (“Indemnitor”) makes a payment of interest to another Company (“Indemnitee”) under this Agreement with respect to the period from the date that the Indemnitee made a payment of Tax to a Tax Authority to the date that the Indemnitor reimbursed the Indemnitee for such Tax payment, the interest payment shall be treated as interest expense to the Indemnitor (deductible to the extent provided by law) and as interest income by the Indemnitee (includible in income to the extent provided by law).  The amount of the payment shall not be adjusted to take into account any associated Tax Benefit to the Indemnitor or increase in Tax to the Indemnitee.

 

Section 13.                                   Disagreements.

 

Section 13.01                     Interaction with Article VII of the Separation and Distribution Agreement.  In the event of any dispute between any member of the Parent Group and any member of the SpinCo Group as to any matter covered by this Agreement, the Companies shall agree as to whether such dispute shall be governed by the procedures set forth in Section 13.02 of this Agreement or in Article VII of the Separation and Distribution Agreement.  If the Parties cannot agree within thirty (30) days from the time such dispute arises as to which procedure will govern such dispute, such disagreement shall be resolved pursuant to Article VII of the Separation and Distribution Agreement.

 

Section 13.02                     Dispute Resolution.  With respect to any dispute governed by this Section 13.02, the Companies shall appoint a nationally recognized “Big Four” independent public accounting firm (other than the current auditing firm of Parent or SpinCo) (the “Accounting Firm”) to resolve such dispute.  The Companies shall cooperate in good faith in jointly selecting the Accounting Firm.  In this regard, the Accounting Firm shall make determinations with respect to the disputed items based solely on representations made by Parent and SpinCo and their respective Representatives, and not by independent review, shall function only as an expert and not as an arbitrator and shall be required to make a determination in favor of one Company only.  The Companies shall require the Accounting Firm to resolve all disputes no later than fifteen (15) days after the submission of such dispute to the Accounting Firm, but in no event later than the relevant Payment Date, and agree that all decisions by the Accounting Firm with respect thereto shall be final and conclusive and binding on the Companies.  The Accounting Firm shall resolve all disputes in a manner consistent with this Agreement.  To the extent not inconsistent with this Agreement, the Accounting Firm shall resolve all disputes in a manner consistent with the Past Practices of Parent and the members of the Parent Group, except as otherwise required by applicable Law.  The Companies shall require the Accounting Firm to render all determinations in writing and to set forth, in reasonable detail, the basis for such

 

33

 

determination.  The fees and expenses of the Accounting Firm shall be paid by the non-prevailing Company.  Notwithstanding the foregoing provisions of this Section 13, a Party may seek preliminary provisional or injunctive judicial relief with respect to  any dispute under this Agreement without first complying with the procedures set forth in this Section 13 (or Article VII of the Separation and Distribution Agreement) if such action is reasonably necessary to avoid irreparable damage.

 

Section 14.                                   Late Payments.  Any amount owed by one party to another party under this Agreement which is not paid when due shall bear interest at the Prime Rate plus two percentage points, compounded semiannually, from the due date of the payment to the date paid.  To the extent interest required to be paid under this Section 14 duplicates interest required to be paid under any other provision of this Agreement, interest shall be computed at the higher of the interest rate provided under this Section 14 or the interest rate provided under such other provision.

 

Section 15.                                   Expenses.  Except as otherwise provided in this Agreement, each party and its Affiliates shall bear their own expenses incurred in connection with the preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement.

 

Section 16.                                   General Provisions.

 

Section 16.01                     Addresses and Notices.  Each party giving any notice required or permitted under this Agreement will give the notice in writing and use one of the following methods of delivery to the party to be notified, at the address set forth below or another address of which the sending party has been notified in accordance with this Section 16.01:  (a) personal delivery; (b) commercial overnight courier with a reasonable method of confirming delivery; or (c) pre-paid, United States of America certified or registered mail, return receipt requested.  Notice to a party is effective for purposes of this Agreement only if given as provided in this Section 16.01 and shall be deemed given on the date that the intended addressee actually receives the notice.

 

	
If   to Parent:
    	
with a copy to:
    
	
 
    	
 
    
	
ServiceMaster   Global Holdings, Inc.
    	
ServiceMaster Global Holdings, Inc.
    
	
150   Peabody Place
    	
150 Peabody Place
    
	
Memphis,   Tennessee 38103
    	
Memphis, Tennessee   38103
    
	
Attention:
    	
Vice President, Tax
    	
Attention:
    	
Chief Financial Officer
    
	
E-mail:
    	
Shannon.Sparks@servicemaster.com
    	
E-mail:
    	
tony.dilucente@servicemaster.com
    
	
 
    	
 
    
	
If   to SpinCo:
    	
with a copy to:
    
	
 
    	
 
    
	
frontdoor,   inc.
    	
frontdoor, inc.
    
	
150   Peabody Place
    	
150 Peabody Place
    
	
Memphis,   Tennessee 38103
    	
Memphis, Tennessee   38103
    
	
Attention:   Chief Financial Officer
    	
Attention: General   Counsel
    
	
E-mail:   brian.turcotte@frontdoorhome.com
    	
E-mail:   jeffrey.fiarman@frontdoorhome.com
    

 

34

 

A party may change the address for receiving notices under this Agreement by providing written notice of the change of address to the other parties.

 

Section 16.02                     Binding Effect.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns.  None of the parties hereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other parties hereto.

 

Section 16.03                     Waiver.  The parties may waive a provision of this Agreement only by a writing signed by the party intended to be bound by the waiver.  A party is not prevented from enforcing any right, remedy or condition in the party’s favor because of any failure or delay in exercising any right or remedy or in requiring satisfaction of any condition, except to the extent that the party specifically waives the same in writing.  A written waiver given for one matter or occasion is effective only in that instance and only for the purpose stated.  A waiver once given is not to be construed as a waiver for any other matter or occasion.  Any enumeration of a party’s rights and remedies in this Agreement is not intended to be exclusive, and a party’s rights and remedies are intended to be cumulative to the extent permitted by law and include any rights and remedies authorized in law or in equity.

 

Section 16.04                     Severability.  If any provision of this Agreement is determined to be invalid, illegal or unenforceable, the remaining provisions of this Agreement remain in full force, if the essential terms and conditions of this Agreement for each party remain valid, binding and enforceable.

 

Section 16.05                     Authority.  Each of the parties represents to the other that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate or other action, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.

 

Section 16.06                     Further Action.  The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other parties and their Affiliates and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other parties in accordance with Section 9.

 

Section 16.07                     Integration.  This Agreement, together with any exhibits and schedules appended hereto, constitutes the final agreement between the parties, and is the complete and exclusive statement of the parties’ agreement on the matters contained herein.  All prior and contemporaneous negotiations and agreements between the parties with respect to the matters

 

35

 

contained herein are superseded by this Agreement, as applicable.  In the event of any conflict or inconsistency between this Agreement and the Separation and Distribution Agreement, or any other agreements relating to the transactions contemplated by the Separation and Distribution Agreement, with respect to matters addressed herein, the provisions of this Agreement shall control.

 

Section 16.08                     Construction.  The language in all parts of this Agreement shall in all cases be construed according to its fair meaning and shall not be strictly construed for or against any party.  The captions, titles and headings included in this Agreement are for convenience only, and do not affect this Agreement’s construction or interpretation.  Unless otherwise indicated, all “Section” references in this Agreement are to sections of this Agreement.  This Agreement shall be deemed to be the joint work product of the parties hereto and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.

 

Section 16.09                     No Double Recovery.  No provision of this Agreement shall be construed to provide an indemnity or other recovery for any costs, damages, or other amounts for which the damaged party has been fully compensated under any other provision of this Agreement or under any other agreement or action at law or equity.  Unless expressly required in this Agreement, a party shall not be required to exhaust all remedies available under other agreements or at law or equity before recovering under the remedies provided in this Agreement.

 

Section 16.10                     Counterparts.  The parties may execute this Agreement in multiple counterparts, each of which constitutes an original as against the party that signed it, and all of which together constitute one agreement.  This Agreement is effective upon delivery of one executed counterpart from each party to the other party.  The signatures of the parties need not appear on the same counterpart.  The delivery of signed counterparts by facsimile or email transmission that includes a copy of the sending party’s signature is as effective as signing and delivering the counterpart in person.

 

Section 16.11                     Governing Law.  The internal laws of the State of Delaware (without reference to its principles of conflicts of law) govern the construction, interpretation and other matters arising out of or in connection with this Agreement and any exhibits and schedules hereto and thereto (whether arising in contract, tort, equity or otherwise).

 

Section 16.12                     Jurisdiction.  If any dispute arises out of or in connection with this Agreement, except as expressly contemplated by another provision of this Agreement, the parties irrevocably (and the parties will cause each other member of their respective Group to irrevocably) (a) consent and submit to the exclusive jurisdiction of federal and state courts located in Delaware, (b) waive any objection to that choice of forum based on venue or to the effect that the forum is not convenient, and (c) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO TRIAL OR ADJUDICATION BY JURY.

 

Section 16.13                     Amendment.  The parties may amend this Agreement only by a written agreement signed by each party to be bound by the amendment and that identifies itself as an amendment to this Agreement.

 

36

 

Section 16.14                     SpinCo Subsidiaries.  If, at any time, SpinCo acquires or creates one or more subsidiaries that are includable in the SpinCo Group (or that would be so includable if membership in the SpinCo Group were measured after such acquisition or creation), they shall be subject to this Agreement and all references to the SpinCo Group herein shall thereafter include a reference to such subsidiaries.

 

Section 16.15                     Successors.  This Agreement shall be binding on and inure to the benefit of any successor by merger, acquisition of assets, or otherwise, to any of the parties hereto (including but not limited to any successor of Parent or SpinCo succeeding to the Tax attributes thereof under Section 381 of the Code), to the same extent as if such successor had been an original party to this Agreement.

 

Section 16.16                     Injunctions.  The parties acknowledge that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached.  The parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which they may be entitled at law or in equity.

 

[Remainder of page intentionally left blank; signature page follows]

 

37

 

IN WITNESS WHEREOF, each party has caused this Agreement to be executed on its behalf by a duly authorized officer on the date first set forth above.

 

	
“Parent”
    	
“SpinCo”
    
	
 
    	
 
    
	
SERVICEMASTER GLOBAL   HOLDINGS, INC.
    	
FRONTDOOR, INC.
    
	
 
    	
 
    
	
By:
    	
/s/ Anthony D.   Dilucente
    	
 
    	
By:
    	
/s/ Rexford J. Tibbens
    
	
Name:
    	
Anthony D. Dilucente
    	
Name:
    	
Rexford J. Tibbens
    
	
Title:
    	
Senior Vice President   and Chief Financial Officer
    	
Title:
    	
President and Chief   Executive Officer
    
					

 

[Signature Page to Tax Matters Agreement]Exhibit 10.3

 

EMPLOYEE MATTERS AGREEMENT

 

BY AND BETWEEN

 

SERVICEMASTER GLOBAL HOLDINGS, INC.

 

AND

 

FRONTDOOR, INC.

 

DATED AS OF SEPTEMBER 28, 2018

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE I   DEFINITIONS
    	
2
    
	
 
    	
 
    
	
Section 1.01.
    	
Definitions
    	
2
    
	
Section 1.02.
    	
Interpretation
    	
8
    
	
 
    	
 
    	
 
    
	
ARTICLE II GENERAL   PRINCIPLES FOR ALLOCATION OF LIABILITIES
    	
9
    
	
 
    	
 
    
	
Section 2.01.
    	
General Principles
    	
9
    
	
Section 2.02.
    	
Adoption and Transfer   and Assumption of Benefit Plans
    	
10
    
	
Section 2.03.
    	
Individual Agreements
    	
13
    
	
Section 2.04.
    	
We Listen Dispute   Resolution Plan
    	
13
    
	
Section 2.05.
    	
Reimbursement
    	
14
    
	
 
    	
 
    
	
ARTICLE III   ASSIGNMENT OF EMPLOYEES
    	
15
    
	
 
    	
 
    
	
Section 3.01.
    	
Active Employees
    	
15
    
	
Section 3.02.
    	
Payroll and Related   Taxes
    	
16
    
	
 
    	
 
    	
 
    
	
ARTICLE IV   EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION
    	
17
    
	
 
    	
 
    
	
Section 4.01.
    	
Generally
    	
17
    
	
Section 4.02.
    	
Equity Incentive Awards
    	
17
    
	
Section 4.03.
    	
Nonequity Incentive   Practices and Plans
    	
21
    
	
Section 4.04.
    	
Director Compensation
    	
22
    
	
 
    	
 
    	
 
    
	
ARTICLE V   QUALIFIED RETIREMENT PLAN
    	
23
    
	
 
    	
 
    
	
Section 5.01.
    	
SpinCo 401(k) Plan
    	
23
    
	
 
    	
 
    	
 
    
	
ARTICLE VI   NONQUALIFIED DEFERRED COMPENSATION PLAN
    	
25
    
	
 
    	
 
    
	
Section 6.01.
    	
Parent Deferred   Compensation Plans
    	
25
    
	
Section 6.02.
    	
Participation; Distributions
    	
25
    
	
 
    	
 
    	
 
    
	
ARTICLE VII   WELFARE BENEFIT PLANS
    	
26
    
	
 
    	
 
    
	
Section 7.01.
    	
Welfare Plans
    	
26
    
	
Section 7.02.
    	
COBRA
    	
27
    
	
Section 7.03.
    	
Vacation, Holidays and   Leaves of Absence
    	
27
    
	
Section 7.04.
    	
Workers’ Compensation
    	
28
    
	
Section 7.05.
    	
Insurance Contracts
    	
28
    
	
Section 7.06.
    	
Third-Party Vendors
    	
28
    

 

i

 

	
ARTICLE VIII   MISCELLANEOUS
    	
29
    
	
 
    	
 
    
	
Section 8.01.
    	
Preservation of Rights   to Amend
    	
29
    
	
Section 8.02.
    	
Fiduciary Matters
    	
29
    
	
Section 8.03.
    	
Further Assurances
    	
29
    
	
Section 8.04.
    	
Counterparts; Entire   Agreement; Corporate Power
    	
29
    
	
Section 8.05.
    	
Governing Law
    	
30
    
	
Section 8.06.
    	
Assignability
    	
30
    
	
Section 8.07.
    	
Third-Party   Beneficiaries
    	
30
    
	
Section 8.08.
    	
Notices
    	
31
    
	
Section 8.09.
    	
Severability
    	
32
    
	
Section 8.10.
    	
Force Majeure
    	
32
    
	
Section 8.11.
    	
Headings
    	
32
    
	
Section 8.12.
    	
Survival of Covenants
    	
33
    
	
Section 8.13.
    	
Waivers of Default
    	
33
    
	
Section 8.14.
    	
Dispute Resolution
    	
33
    
	
Section 8.15.
    	
Specific Performance
    	
33
    
	
Section 8.16.
    	
Amendments
    	
33
    
	
Section 8.17.
    	
Interpretation
    	
33
    
	
Section 8.18.
    	
Limitations of   Liability
    	
34
    
	
Section 8.19.
    	
Mutual Drafting
    	
34
    
	
 
    	
 
    	
 
    
	
Scheduled 2.02(a)
    	
Benefit Plans to be   Replicated by SpinCo Group
    	
 
    
	
 
    	
 
    	
 
    
	
Schedule 7.01(a)
    	
Parent Welfare Plans
    	
 
    

 

ii

 

EMPLOYEE MATTERS AGREEMENT

 

This EMPLOYEE MATTERS AGREEMENT, dated as of September 28, 2018 (this “Agreement”), is by and between ServiceMaster Global Holdings, Inc., a Delaware corporation (“Parent”), and frontdoor, inc., a Delaware corporation (“SpinCo”).

 

R E C I T A L S:

 

WHEREAS, the board of directors of Parent (the “Parent Board”) has determined that it is in the best interests of Parent and its shareholders to create a new publicly traded company that shall operate the SpinCo Business;

 

WHEREAS, in furtherance of the foregoing, the Parent Board has determined that it is appropriate and desirable to separate the SpinCo Business from the Parent Business (the “Separation”) and, following the Separation, make a distribution, on a pro rata basis, to holders of Parent Shares on the Record Date of at least 80.1 percent (80.1%)  of the outstanding SpinCo Shares owned by Parent (the “Distribution”);

 

WHEREAS, SpinCo has been incorporated solely for these purposes and has not engaged in activities, except in connection with the Separation and the Distribution;

 

WHEREAS, for U.S. federal income tax purposes, the Contribution and the Distribution, taken together, are intended to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, and this Agreement is intended to be, and is hereby adopted as, a “plan of reorganization” within the meaning of Treasury Regulations Section 1.368-2(g);

 

WHEREAS, SpinCo and Parent have prepared, and SpinCo has filed with the SEC, the Form 10, which includes the Information Statement, and which sets forth disclosures concerning SpinCo, the Separation and the Distribution;

 

WHEREAS, in order to effectuate the Separation and Distribution, Parent and SpinCo have entered into a Separation and Distribution Agreement, dated as of the date hereof (the “Separation and Distribution Agreement”);

 

WHEREAS, in addition to the matters addressed by the Separation and Distribution Agreement, the Parties desire to enter into this Agreement to set forth the terms and conditions of certain employment, compensation and benefit matters; and

 

WHEREAS, the Parties acknowledge that this Agreement, the Separation and Distribution Agreement and the other Ancillary Agreements represent the integrated agreement of Parent and SpinCo relating to the Separation and Distribution, are being entered into together and would not have been entered into independently.

 

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

 

ARTICLE I
 DEFINITIONS

 

Section 1.01.                          Definitions.  For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement.

 

“Actions” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Affiliate” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Agreement” shall have the meaning set forth in the Preamble to this Agreement and shall include all Schedules hereto and all amendments, modifications, and changes hereto entered into pursuant to Section 8.16.

 

“Assets” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Benefit Plan” shall mean any contract, agreement, policy, practice, program, plan, trust, commitment or arrangement providing for benefits, perquisites or compensation of any nature from an employer to any Employee, or to any family member, dependent, or beneficiary of any such Employee, including cash or deferred arrangement plans, profit sharing plans, post-employment programs, pension plans, thrift plans, supplemental pension plans, welfare plans, stock option, stock purchase, stock appreciation rights, restricted stock, restricted stock units, performance stock units, other equity-based compensation and contracts, agreements, policies, practices, programs, plans, trusts, commitments and arrangements providing for terms of employment, fringe benefits, severance benefits, change in control protections or benefits, travel and accident, life, accidental death and dismemberment, disability and accident insurance, tuition reimbursement, adoption assistance, travel reimbursement, vacation, sick, personal or bereavement days, leaves of absences and holidays; provided, however, that the term “Benefit Plan” does not include any government-sponsored benefits, such as workers’ compensation, unemployment or any similar plans, programs or policies or Individual Agreements.

 

“COBRA” shall mean the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as codified at Section 601 et seq. of ERISA and at Section 4980B of the Code.

 

“Code” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Concentration Election” shall mean an election by a holder to have an equity award granted prior to April 23, 2018 to such holder adjusted in connection with the Separation into only stock of (i) Parent, in the case of a Parent Group Employee or (ii) SpinCo, in the case of a SpinCo Group Employee.

 

“Distribution” shall have the meaning set forth in the Recitals.

 

2

 

“Distribution Date” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Distribution Ratio” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Effective Time” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Employee” shall mean any Parent Group Employee or SpinCo Group Employee.

 

“ERISA” shall mean the U.S. Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

“Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

 

“FICA” shall have the meaning set forth in Section 3.02.

 

“Force Majeure” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Former Employees” shall mean Former Parent Group Employees and Former SpinCo Group Employees.

 

“Former Parent Group Employee” shall mean any individual who is a former employee of the Parent Group as of the Effective Time and who is not a Former SpinCo Group Employee.

 

“Former SpinCo Group Employee” shall mean any individual who is a former employee of Parent or any of its Subsidiaries or former Subsidiaries as of the Effective Time, in each case, whose most recent employment with Parent was with a member of the SpinCo Group or was primarily engaged in the SpinCo Business.

 

“FUTA” shall have the meaning set forth in Section 3.02.

 

“Governmental Authority” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Group” shall mean either the SpinCo Group or the Parent Group, as the context requires.

 

“HIPAA” shall mean the U.S. Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations promulgated thereunder.

 

“Individual Agreement” shall mean any individual (a) employment contract, (b) retention, severance or change in control agreement, or (c) other agreement containing restrictive covenants (including confidentiality, noncompetition and nonsolicitation provisions)

 

3

 

between a member of the Parent Group and a SpinCo Group Employee or any Former SpinCo Group Employee, as in effect immediately prior to the Effective Time.

 

“IRS” shall mean the U.S. Internal Revenue Service.

 

“Law” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Liabilities” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Option Exercise Price Ratio” shall mean, with respect to a Parent Option Award, the quotient obtained by dividing (i) the per share exercise price of such Parent Option immediately prior to the Effective Time, by (ii) the Pre-Separation Parent Stock Value.

 

“Parent” shall have the meaning set forth in the Preamble.

 

“Parent 401(k) Plan” shall mean the ServiceMaster Profit Sharing and Retirement Plan, as in effect or as it may be amended from time to time.

 

“Parent Awards” shall mean Parent Option Awards, Parent RSU Awards, and Parent Deferred Shares Equivalents, collectively.

 

“Parent Benefit Plan” shall mean any Benefit Plan established, sponsored or maintained by Parent or any of its Subsidiaries immediately prior to the Effective Time, but excluding any SpinCo Benefit Plan.

 

“Parent Board” shall have the meaning set forth in the Recitals.

 

“Parent Business” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Parent Change in Control” shall have the meaning set forth in Section 4.02(e)(i).

 

“Parent Compensation Committee” shall mean the Compensation Committee of the Parent Board.

 

“Parent Deferred Compensation Plan” shall mean the Parent Deferred Compensation Plan, as amended and restated as of October 28, 2016.

 

“Parent Deferred Shares Equivalents” shall mean an award of deferred shares equivalents granted pursuant to a Parent Omnibus Plan that is outstanding immediately prior to the Effective Time.

 

“Parent Group” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Parent Group Employees” shall have the meaning set forth in Section 3.01(a)(ii).

 

4

 

“Parent Liabilities” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Parent Non-Equity Incentive Practices” shall mean the corporate nonequity incentive practices of the Parent Group.

 

“Parent Omnibus Plan” shall mean the Amended and Restated ServiceMaster Global Holdings, Inc. Stock Incentive Plan, as amended as of October 25, 2012 and the Amended and Restated ServiceMaster Global Holdings, Inc. 2014 Omnibus Incentive Plan, as amended and restated as of April 27, 2015.

 

“Parent Option Award” shall mean an award of options to purchase Parent Shares granted pursuant to a Parent Omnibus Plan that is outstanding as of immediately prior to the Effective Time.

 

“Parent Ratio” shall mean the quotient obtained by dividing (a) the Pre-Separation Parent Stock Value by (b) the Post-Separation Parent Stock Value.

 

“Parent RSU Award” shall mean any Parent RSU Award (Concentrated) and/or any Parent RSU Award (Legacy).

 

“Parent RSU Award (Concentrated)” shall mean a restricted stock unit award outstanding as of immediately prior to the Effective Time, including any time-based restricted stock unit and (if any) performance restricted stock unit award, granted pursuant to the Parent Omnibus Plan, either (i) on or after April 23, 2018, or (ii) prior to April 23, 2018 and as to which the holder thereof has made a Concentration Election.

 

“Parent RSU Award (Legacy)” shall mean an award of restricted stock units, including any time-based restricted stock unit or performance restricted stock unit, granted pursuant to a Parent Omnibus Plan prior to April 23, 2018, which is outstanding as of immediately prior to the Effective Time and as to which the holder thereof has not made a Concentration Election.

 

“Parent Shares” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Parent Transition Employees” shall have the meaning set forth in Section 2.02(f).

 

“Parent Welfare Plan” shall mean any Parent Benefit Plan which is a Welfare Plan.

 

“Parties” shall mean the parties to this Agreement.

 

“Person” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Post-Separation Deferred Shares Equivalents” shall mean a Parent Deferred Shares Equivalent adjusted as of the Effective Time in accordance with Section 4.02(d).

 

5

 

“Post-Separation Parent Awards” shall mean Post-Separation Parent Option Awards, Post-Separation Parent RSU Awards, and Post-Separation Deferred Shares Equivalents, collectively.

 

“Post-Separation Parent Option Award” shall mean a Parent Option Award, as adjusted as of the Effective Time in accordance with Section 4.02(a).

 

“Post-Separation Parent RSU Award” shall mean a Parent RSU Award, as adjusted as of the Effective Time in accordance with Section 4.02(c) or Section 4.02(c), as applicable.

 

“Post-Separation Parent Stock Value” shall mean the opening per-share price of Parent Shares on the NYSE on the first regular trading session (9:30 a.m. to 4:00 p.m. EST) after the Distribution Date.

 

“Pre-Separation Parent Stock Value” shall mean the closing per-share price of Parent Shares trading “regular way with due bills” on the NYSE on the last regular trading session (9:30 am to 4:00 pm EST) on the Distribution Date.

 

“QDRO” shall mean a qualified domestic relations order within the meaning of Section 206(d) of ERISA and Section 414(p) of the Code.

 

“Record Date” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Securities Act” shall mean the U.S. Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

 

“Separation” shall have the meaning set forth in the Recitals.

 

“Separation and Distribution Agreement” shall have the meaning set forth in the Recitals.

 

“SpinCo” shall have the meaning set forth in the Preamble.

 

“SpinCo 401(k) Plan” shall mean the SpinCo 401(k) Savings Plan, to be adopted by SpinCo prior to or on the Distribution Date as described in Section 5.01.

 

“SpinCo 401(k) Trust” shall have the meaning set forth in Section 5.01(a).

 

“SpinCo Awards” shall mean SpinCo Option Awards, SpinCo RSU Awards and SpinCo Deferred Shares Equivalents, collectively.

 

“SpinCo Benefit Plan” shall mean any Benefit Plan established, sponsored, maintained or contributed to by a member of the SpinCo Group as of or after the Effective Time.

 

“SpinCo Board” shall mean the Board of Directors of SpinCo.

 

“SpinCo Business” shall have the meaning set forth in the Separation and Distribution Agreement.

 

6

 

“SpinCo Change in Control” shall have the meaning set forth in Section 4.02(e)(i).

 

“SpinCo Designees” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“SpinCo Deferred Shares Equivalents” shall mean an award of deferred shares equivalents assumed pursuant to the SpinCo Omnibus Plan in accordance with Section 4.02(d).

 

“SpinCo Flex Plan” shall have the meaning set forth in Section 7.01(c).

 

“SpinCo Group” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“SpinCo Group Employees” shall have the meaning set forth in Section 3.01(a).

 

“SpinCo Liabilities” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“SpinCo Non-Equity Incentive Practices” shall mean the corporate nonequity incentive practices, as established by SpinCo as of the Effective Time pursuant to Section 2.02(a) and Section 4.03(a).

 

“SpinCo Omnibus Plan” shall mean the SpinCo 2017 Omnibus Incentive Plan, as established by SpinCo as of the Effective Time pursuant to Section 2.02(a) and Section 4.01.

 

“SpinCo Option Award” shall mean an award of stock options assumed and granted by SpinCo pursuant to the SpinCo Omnibus Plan in accordance with Section 4.02(a).

 

“SpinCo Ratio” shall mean the quotient obtained by dividing (a) the Pre-Separation Parent Stock Value by (b) the SpinCo Stock Value.

 

“SpinCo RSU Award” shall mean an award of restricted stock units (including any performance restricted stock units) assumed and granted pursuant to the SpinCo Omnibus Plan in accordance with Section 4.02(b) or Section 4.02(c), as applicable.

 

“SpinCo Shares” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“SpinCo Stock Value” shall mean opening per-share price of SpinCo Shares on the NASDAQ on the first regular trading session (9:30 a.m. to 4:00 p.m. EST) after the Distribution Date.

 

“SpinCo Transition Employees” shall have the meaning set forth in Section 2.02(f).

 

“SpinCo Welfare Plan” shall mean a Welfare Plan established, sponsored, maintained or contributed to by any member of the SpinCo Group for the benefit of SpinCo Group Employees and Former SpinCo Group Employees.

 

7

 

“Subsidiary” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Tax” shall have the meaning set forth in the Tax Matters Agreement.

 

“Third-Party Claim” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“Transfer Date” shall have the meaning set forth in Section 2.02(f).

 

“Transferred Account Balances” shall have the meaning set forth in Section 7.01(c).

 

“Transferred Director” shall mean each SpinCo nonemployee director as of the Effective Time who served on the Parent Board immediately prior to the Effective Time.

 

“Transition Services Agreement” shall have the meaning set forth in the Separation and Distribution Agreement.

 

“U.S.” shall mean the United States of America.

 

“We Listen” shall have the meaning set forth in Section 2.04.

 

“Welfare Plan” shall mean any “welfare plan” (as defined in Section 3(1) of ERISA) or a “cafeteria plan” under Section 125 of the Code, and any benefits offered thereunder, and any other plan offering health benefits (including medical, prescription drug, dental, vision, mental health, substance abuse and retiree health), disability benefits, or life, accidental death and dismemberment, and business travel insurance, pre-Tax premium conversion benefits, dependent care assistance programs, employee assistance programs, paid time-off programs, contribution funding toward a health savings account, flexible spending accounts or severance.

 

Section 1.02.                          Interpretation.  Section 10.15 of the Separation and Distribution Agreement is hereby incorporated by reference.

 

8

 

ARTICLE II
 GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES

 

Section 2.01.                          General Principles.

 

(a)                                 Acceptance and Assumption of SpinCo Liabilities.  Except as otherwise provided by this Agreement, on or prior to the Effective Time, but in any case prior to the Distribution, SpinCo and the applicable SpinCo Designees shall accept, assume and agree faithfully to perform, discharge and fulfill all of the following Liabilities in accordance with their respective terms (each of which shall be considered a SpinCo Liability), regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to, at or subsequent to the Effective Time, regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by Parent’s or SpinCo’s respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates against any member of the Parent Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the Parent Group or the SpinCo Group, or any of their respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates:

 

(i)                                     any and all wages, salaries, incentive compensation, equity compensation, commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any SpinCo Group Employees and Former SpinCo Group Employees after the Effective Time, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;

 

(ii)                                  any and all Liabilities whatsoever with respect to claims under a SpinCo Benefit Plan, taking into account the SpinCo Benefit Plan’s assumption of Liabilities with respect to SpinCo Group Employees and Former SpinCo Group Employees that were originally the Liabilities of the corresponding Parent Benefit Plan with respect to periods prior to the Effective Time; and

 

(iii)                               any and all Liabilities expressly assumed or retained by any member of the SpinCo Group pursuant to this Agreement.

 

(b)                                 Acceptance and Assumption of Parent Liabilities.  Except as otherwise provided by this Agreement, on or prior to the Effective Time, but in any case prior to the Distribution, Parent and certain members of the Parent Group designated by Parent shall accept, assume and agree faithfully to perform, discharge and fulfill all of the following Liabilities in accordance with their respective terms (each of which shall be considered a Parent Liability), regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to, at or subsequent to the Effective Time, regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by Parent’s or SpinCo’s respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates against any member of the Parent Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or

 

9

 

alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the Parent Group or the SpinCo Group, or any of their respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates:

 

(i)                                     any and all wages, salaries, incentive compensation, equity compensation, commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any Parent Group Employees and Former Parent Group Employees after the Effective Time, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;

 

(ii)                                  any and all Liabilities whatsoever with respect to claims under a Parent Benefit Plan, taking into account a corresponding SpinCo Benefit Plan’s assumption of Liabilities with respect to SpinCo Group Employees and Former SpinCo Group Employees that were originally the Liabilities of such Parent Benefit Plan with respect to periods prior to the Effective Time; and

 

(iii)                               any and all Liabilities expressly assumed or retained by any member of the Parent Group pursuant to this Agreement.

 

(c)                                  Unaddressed Liabilities.  To the extent that this Agreement does not address particular Liabilities under any Benefit Plan and the Parties later determine that they should be allocated in connection with the Distribution, the Parties shall agree in good faith on the allocation, taking into account the handling of comparable Liabilities under this Agreement.

 

Section 2.02.                          Adoption and Transfer and Assumption of Benefit Plans.

 

(a)                                 Adoption by SpinCo of Benefit Plans.  As of no later than the Effective Time, SpinCo shall, or shall cause the members of the SpinCo Group to adopt Benefit Plans (and related trusts, if applicable) as contemplated and in accordance with the terms of this Agreement, which Benefit Plans are generally intended to contain terms substantially similar in all material respects to those of the corresponding Parent Benefit Plans as in effect immediately prior to the Effective Time, as listed on Schedule 2.02(a) to this Agreement, with such changes, modifications or amendments to the SpinCo Benefit Plans as may be required by applicable Law or to reflect the Separation and Distribution, including limiting participation in any such SpinCo Benefit Plan to SpinCo Group Employees and Former SpinCo Group Employees who participated in the corresponding Benefit Plan immediately prior to the Effective Time.

 

(b)                                 Plans Not Required to Be Adopted.  With respect to any Benefit Plan not listed or otherwise addressed in this Agreement, the Parties shall agree in good faith on the treatment of such plan taking into account the handling of any comparable plan under this Agreement and, notwithstanding that SpinCo shall not have an obligation to continue to maintain any such plan with respect to the provision of future benefits from and after the Effective Time, SpinCo shall remain obligated to pay or provide any previously accrued or incurred benefits to the SpinCo Group Employees and Former SpinCo Group Employees consistent with Section 2.01(a) of this Agreement.

 

10

 

(c)                                  Information, Elections and Beneficiary Designations.  Each Party shall use its commercially reasonable efforts to provide the other Party with information describing each Benefit Plan election made by an Employee or Former Employee that may have application to such Party’s Benefit Plans from and after the Effective Time, and each Party shall use its commercially reasonable efforts to administer its Benefit Plans using those elections, including any beneficiary designations.  To the extent transferred, any beneficiary designation made by a SpinCo Group Employee or Former SpinCo Group Employee under a corresponding Parent Benefit Plan shall be transferred to and be in full force and effect under the corresponding SpinCo Benefit Plan until such beneficiary designation is replaced or revoked by the SpinCo Employee or Former SpinCo Employee who made the beneficiary designation.  Each Party shall, upon reasonable request, use its commercially reasonable efforts to provide the other Party and the other Party’s respective Affiliates, agents, and vendors all information reasonably necessary to the other Party’s operation or administration of its Benefit Plans.

 

(d)                                 Service Credit and Other Factors Determining Benefits.  As of the Effective Time, the SpinCo Benefit Plans shall provide for each SpinCo Group Employee who is employed immediately following the Effective Time by a member of the SpinCo Group and each Former SpinCo Group Employee that all service, all compensation and other factors affecting benefit determinations that, as of the Distribution Date, were recognized under the corresponding Parent Benefit Plan shall receive full recognition and credit and shall be taken into account under such SpinCo Benefit Plan to the same extent as though arising under such SpinCo Benefit Plan, except as duplication of benefits would result.

 

(e)                                  No Duplication or Acceleration of Benefits.  Notwithstanding anything to the contrary in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, no participant in any Benefit Plan shall receive service credit or benefits or recognition of compensation or other factors to the extent that receipt of such service credit or benefits or recognition of compensation or other factors would result in duplication of benefits provided to such participant by the corresponding Benefit Plan or any other plan, program or arrangement sponsored or maintained by a member of the Group that sponsors the corresponding Benefit Plan.  Furthermore, unless expressly provided for in this Agreement, the Separation and Distribution Agreement or in any Ancillary Agreement or required by applicable Law, no provision in this Agreement shall be construed to (i) create any right to accelerate vesting distributions or entitlements under any Benefit Plan sponsored or maintained by a member of the Parent Group or member of the SpinCo Group on the part of any Employee or Former Employee or (ii) limit the ability of a member of the Parent Group or SpinCo Group to amend, merge, modify eliminate, reduce or otherwise alter in any respect any benefit under any Benefit Plan sponsored or maintained by a member of the Parent Group or SpinCo Group, respectively, or any trust, insurance policy or funding vehicle related thereto.

 

(f)                                   Transition Services.  The Parties acknowledge that the Parent Group or the SpinCo Group may provide administrative services for certain of the other Party’s compensation and benefit programs for a transitional period under the terms of the Transition Services Agreement.  The Parties agree to enter into a business associate agreement (if required by HIPAA or other applicable health information privacy Laws) in connection with such Transition Services Agreement.  The Parties agree that the certain individuals providing services under the Transition Services Agreement may be employed by the Parent Group (“Parent Transition Employees”) or

 

11

 

the SpinCo Group (“SpinCo Transition Employees”) during a transition period beginning on the Effective Date and ending on a date to be agreed upon between Parent and SpinCo in writing (the “Transfer Date”).  Except as otherwise expressly provided in this Agreement, the Parent Transition Employees will be treated as Parent Group Employees and SpinCo Transition Employees shall be treated as SpinCo Group Employees for purposes of this Agreement. The Parties hereby acknowledge and agree that, except for offers of employment by SpinCo or a member of the SpinCo Group or by the Parent or a member of the Parent Group as provided in Section 2.02(f) of this Agreement, the Non-Solicitation provision agreed to by the Parties in the Separation and Distribution Agreement shall apply in respect of the Parent Transition Employees and SpinCo Transition Employees.  On or before the Transfer Date but after receiving written consent by Parent, such written consent not to be unreasonably withheld, SpinCo may, or may cause a member of the SpinCo Group, to offer employment to the Parent Transition Employee as of the Transfer Date, with such terms and conditions of employment as SpinCo or such member of the SpinCo Group shall deem appropriate.  On or before the Transfer Date but after receiving written consent by SpinCo, such written consent not to be unreasonably withheld, Parent may, or may cause a member of the Parent Group, to offer employment to the SpinCo Transition Employee as of the Transfer Date, with such terms and conditions of employment as Parent or such member of the Parent Group shall deem appropriate.  As of the Transfer Date, the employment of each Parent Transition Employee who accepts SpinCo’s offer of employment shall be transferred to the SpinCo Group and the employment of each SpinCo Transition Employee who accepts Parent’s offer of employment shall be transferred to the Parent Group.  As of the applicable Transfer Date, the applicable member of the SpinCo Group and Parent Group shall credit each Parent Transition Employee or SpinCo Transition Employee, respectively, with the amount of accrued but unused paid time off and other time off benefits as such Parent Transition Employee or SpinCo Transition Employee, respectively, had with the Parent Group or SpinCo Group immediately prior to such Transfer Date under the paid time off or vacation policies then in effect (to the extent such vacation or paid time off has not been paid out if required by Law).  With respect to each Parent Transition Employee who accepts SpinCo’s or the SpinCo Group member’s offer of employment, each SpinCo Group Benefit Plan shall provide that all service, all compensation, and all other factors affecting benefit determinations that, as of the completion of the Transfer Date, were recognized under the corresponding Parent Group Benefit Plan (for periods immediately before the Transfer Date) shall receive full recognition, credit, and validity and be taken into account under such SpinCo Group Benefit Plan to the same extent as though arising under such Parent Group Benefit Plan consistent with principals applicable for the treatment of SpinCo Employees under the SpinCo Group Plans immediately following the Effective Time. With respect to each SpinCo Transition Employee who accepts Parent’s or the Parent Group member’s offer of employment, each Parent Group Benefit Plan shall provide that all service, all compensation, and all other factors affecting benefit determinations that, as of the completion of the Transfer Date, were recognized under the corresponding SpinCo Group Benefit Plan (for periods immediately before the Transfer Date) shall receive full recognition, credit, and validity and be taken into account under such Parent Group Benefit Plan to the same extent as though arising under such SpinCo Group Benefit Plan consistent with the principals applicable for the treatment of SpinCo Employees under the SpinCo Group Plans immediately following the Effective Time.  Notwithstanding the immediately preceding sentence, in no event shall the crediting of service or any other action taken pursuant to the immediately preceding sentence result in the duplication of benefits for any Parent Transition Employee or SpinCo Transition Employee under any Parent 

 

12

 

Group Benefit Plan and any SpinCo Group Benefit Plan.  Except as otherwise determined by the Parties (in a manner consistent with Section 409A of the Code), each Parent Transition Employee or SpinCo Transition Employee who commences employment with the SpinCo Group or Parent Group, respectively shall be deemed to have experienced a termination of employment for purposes of the terms and conditions of Post-Separation Parent Awards and SpinCo Awards of such Parent Transition Employee or SpinCo Transition Employee as of the Transfer Date.

 

(g)                                  Beneficiaries.  References to Parent Group Employees, Former Parent Group Employees, SpinCo Group Employees, Former SpinCo Group Employees, and current and former nonemployee directors of either Parent or SpinCo, shall be deemed to refer to their beneficiaries, dependents, survivors and alternate payees, as applicable.

 

Section 2.03.                          Individual Agreements.

 

(a)                                 Assignment by Parent.  To the extent necessary, Parent shall assign, or cause an applicable member of the Parent Group to assign, to SpinCo or another member of the SpinCo Group, as designated by SpinCo, all Individual Agreements, with such assignment to be effective as of no later than the Effective Time; provided, however, that to the extent that assignment of any such Individual Agreement is not permitted by the terms of such agreement or by applicable Law, effective as of the Effective Time, each member of the SpinCo Group shall be considered to be a successor to each member of the Parent Group for purposes of, and a third-party beneficiary with respect to, such Individual Agreement, such that each member of the SpinCo Group shall enjoy all of the rights and benefits under such agreement (including rights and benefits as a third-party beneficiary), with respect to the business operations of the SpinCo Group; provided, further, that in no event shall Parent be permitted to enforce any Individual Agreement (including any agreement containing noncompetition or nonsolicitation covenants) against a SpinCo Group Employee or Former SpinCo Group Employee for action taken in such individual’s capacity as a SpinCo Group Employee or Former SpinCo Group Employee other than on behalf of SpinCo Group as requested by SpinCo Group in its capacity as a third-party beneficiary.

 

(b)                                 Assumption by SpinCo.  Effective as of the Effective Time, SpinCo shall, or shall cause the members of the SpinCo Group to assume and honor any individual agreement to which any SpinCo Group Employee or Former SpinCo Group Employee is a party with any member of the Parent Group, including any Individual Agreement.

 

Section 2.04.                          We Listen Dispute Resolution Plan.  Commencing on January 1, 2009, Parent, on behalf of itself and its Subsidiaries and Affiliates, entered into agreements with all employees to use the We Listen Dispute Resolution Plan (“We Listen”) as the sole and exclusive program to resolve disputes through several resolution steps and finally by binding arbitration.  The We Listen program includes the original 2009 program, as well as amendments in 2012, 2013 and 2015.  As of the Distribution Date, Parent assigns its rights under We Listen to SpinCo, and SpinCo assumes the obligations of Parent under We Listen as to all SpinCo Group Employees, Former SpinCo Group Employees and applicants for employment with SpinCo; provided that subject to Article VII of the Separation and Distribution Agreement, for any dispute involving both the Parent Group and SpinCo Group, the Parties shall cooperate in good faith.

 

13

 

Section 2.05.                          Reimbursement.

 

(a)                                 By SpinCo.  From time to time after the completion of the Separation, SpinCo shall promptly reimburse Parent for the cost of any obligations or Liabilities that Parent elects to, or is compelled to, pay or otherwise satisfy, that are or that pursuant to this Agreement have become, the responsibility of the SpinCo Group.  Parent shall invoice SpinCo after the end of each fiscal month for all such costs (if any) in such fiscal month.  SpinCo shall pay any amounts due by SpinCo hereunder in immediately available funds within thirty (30) days of SpinCo’s receipt of each invoice therefor.  Any amount not paid within thirty (30) days after the date when payable shall bear interest at the Applicable Rate (as defined in the Transition Services Agreement) from the date such amount is due.  SpinCo shall not deduct, set off, counterclaim or otherwise withhold any amount owed by it to Parent (on account of any obligation owed by the Parent Group, whether or not such obligation has been finally adjudicated, settled or otherwise agreed upon in writing) against the amounts payable pursuant to this Agreement; provided that in the event SpinCo dispute any amount on an invoice, SpinCo shall notify Parent in writing within twenty (20) days after SpinCo’s receipt of such invoice and shall describe in detail the reason for disputing such amount, provide any documents or other materials supporting its dispute, and will be entitled to withhold only the amount in dispute during the pendency of the dispute.  SpinCo shall cause the timely payment of the undisputed portion of each invoice in the manner set forth in this Agreement and shall be subject to late charges at the Applicable Rate and any other costs incurred by Parent pursuant to this Section 2.05(a) on any amount that is unsuccessfully disputed.

 

(b)                                 By Parent.  From time to time after the completion of the Separation, Parent shall promptly reimburse SpinCo for the cost of any obligations or Liabilities that SpinCo elects to, or is compelled to, pay or otherwise satisfy, that are or that pursuant to this Agreement have become, the responsibility of the Parent Group.  SpinCo shall invoice Parent after the end of each fiscal month for all such costs (if any) in such fiscal month.  Parent shall pay any amounts due by Parent hereunder in immediately available funds within thirty (30) days of Parent’s receipt of each invoice therefor.  Any amount not paid within thirty (30) days after the date when payable shall bear interest at the Applicable Rate from the date such amount is due.  Parent shall not deduct, set off, counterclaim or otherwise withhold any amount owed by it to SpinCo (on account of any obligation owed by the SpinCo Group, whether or not such obligation has been finally adjudicated, settled or otherwise agreed upon in writing) against the amounts payable pursuant to this Agreement; provided that in the event Parent disputes any amount on an invoice, Parent shall notify SpinCo in writing within twenty (20) days after Parent’s receipt of such invoice and shall describe in detail the reason for disputing such amount, provide any documents or other materials supporting its dispute, and will be entitled to withhold only the amount in dispute during the pendency of the dispute.  Parent shall cause the timely payment of the undisputed portion of each invoice in the manner set forth in this Agreement and shall be subject to late charges at the Applicable Rate and any other costs incurred by SpinCo and controlled pursuant to this Section 2.05(b) on any amount that is unsuccessfully disputed.

 

14

 

ARTICLE III
 ASSIGNMENT OF EMPLOYEES

 

Section 3.01.                          Active Employees.

 

(a)                                 Assignment and Transfer of Employees.  Effective as of no later than the Effective Time and except as otherwise agreed to by the Parties, (i) the applicable member of the Parent Group shall have taken such actions as are necessary to ensure that each individual who is intended to be an employee of the SpinCo Group as of immediately after the Effective Time (including any such individual who is not actively working as of the Effective Time as a result of an illness, injury or leave of absence approved by the Parent Human Resources department or otherwise taken in accordance with applicable Law) (collectively, the “SpinCo Group Employees”) is employed by a member of the SpinCo Group as of immediately after the Effective Time, and (ii) the applicable member of the Parent Group shall have taken such actions as are necessary to ensure that each individual who is intended to be an employee of the Parent Group as of immediately after the Effective Time (including any such individual who is not actively working as of the Effective Time as a result of an illness, injury or leave of absence approved by the Parent Human Resources department or otherwise taken in accordance with applicable Law) and any other individual employed by the Parent Group as of the Effective Time who is not a SpinCo Group Employee (collectively, the “Parent Group Employees”) is employed by a member of the Parent Group as of immediately after the Effective Time.  Each of the Parties agrees to execute, and to seek to have the applicable Employees execute, such documentation, if any, as may be necessary to reflect such assignment and/or transfer.

 

(b)                                 At-Will Status.  Nothing in this Agreement shall create any obligation on the part of any member of the Parent Group or any member of the SpinCo Group to (i) continue the employment of any Employee or permit the return from a leave of absence for any period after the date of this Agreement (except as required by applicable Law) or (ii) change the employment status of any Employee from “at-will,” to the extent that such Employee is an “at-will” employee under applicable Law.  Except as provided in this Agreement, this Agreement shall not limit the ability of the Parent Group or the SpinCo Group to change the position, compensation or benefits of any Employees for performance related, business or any other reason.

 

(c)                                  Severance.  The Parties acknowledge and agree that the Separation, Distribution and the assignment, transfer or continuation of the employment of Employees as contemplated by this Section 3.01 shall not be deemed an involuntary termination of employment entitling any SpinCo Group Employee or Parent Group Employee to severance payments or benefits.

 

(d)                                 Not a Change in Control.  The Parties acknowledge and agree that neither the consummation of the Separation, Distribution nor any transaction contemplated by this Agreement, the Separation and Distribution Agreement or any other Ancillary Agreement shall be deemed a “change in control,” “change of control,” or term of similar import for purposes of any Benefit Plan sponsored or maintained by any member of the Parent Group or member of the SpinCo Group and except as provided in this Agreement or as otherwise required by applicable law or Individual Agreement, no provision of this Agreement shall be construed to accelerate any

 

15

 

vesting or create an right or entitlement to any compensation or benefits on the part of any Employee.

 

Section 3.02.                          Payroll and Related Taxes.  With respect to the SpinCo Group Employees transferred to the SpinCo Group during the tax year ending on and including the Separation, (i) Parent shall (A) be responsible for all payroll obligations, tax withholding and reporting obligations regarding all such SpinCo Group Employees for the period prior to such transfer, and (B) furnish a Form W-2 or similar earnings statement to, all such SpinCo Group Employees for such period and (ii) with respect to the remaining portion of the tax year, SpinCo will (A) be responsible for all payroll obligations, tax withholding and reporting obligations regarding, all such SpinCo Group Employees, and (B) furnish a Form W-2 or similar earning statement to, all such SpinCo Group Employees.  With respect to each affected SpinCo Group Employee, Parent and SpinCo shall, and shall cause their respective Affiliates to (to the extent practicable and to the extent permitted by applicable Law) (x) treat SpinCo (or the applicable member of the SpinCo Group) as a “successor employer” and treat Parent (or the applicable member of the Parent Group) as a “predecessor” within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, to the extent appropriate, for purposes of taxes imposed under the United States Federal Insurance Contributions Act, as amended (“FICA”), or the United States Federal Unemployment Tax Act, as amended (“FUTA”), and (y) file tax returns, exchange wage payment information and report wage payments made by the respective predecessor and successor employer on separate IRS Forms W-2 or similar earnings statements to each such SpinCo Group Employee for the tax year in which the Separation occurs, in a manner provided in Section 4.02(1) of Revenue Procedure 2004-53.

 

16

 

ARTICLE IV
 EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION

 

Section 4.01.                          Generally.  Each Parent Award granted that is outstanding as of immediately prior to the Effective Time shall be adjusted as described below; provided, however, effective immediately prior to the Effective Time, the Parent Compensation Committee may provide for different adjustments with respect to some or all Parent Awards to the extent that the Parent Compensation Committee deems such adjustments necessary and appropriate.  Any adjustments made by the Parent Compensation Committee pursuant to the foregoing sentence shall be deemed incorporated by reference herein as if fully set forth below and shall be binding on the Parties and their respective Affiliates.  Before the Effective Time, the SpinCo Omnibus Plan shall be established, with such terms as are necessary to permit the implementation of the provisions of Section 4.02.

 

Section 4.02.                          Equity Incentive Awards.

 

(a)                                 Option Awards.  Each Parent Option Award that is outstanding immediately prior to the Effective Time shall be converted as of the Effective Time into either a Post-Separation Parent Option Award or a SpinCo Option Award as described below:

 

(i)                                     Each Parent Option Award held by a Parent Group Employee and Former Employee shall be converted as of the Effective Time, through an adjustment thereto, into a Post-Separation Parent Option Award and shall, except as otherwise provided in this Section 4.02(a), be subject to the same terms and conditions (including with respect to vesting and expiration) after the Effective Time as applicable to such Parent Option Award immediately prior to the Effective Time.  From and after the Effective Time:

 

(A)                               the number of Parent Shares subject to such Post-Separation Parent Option Award, rounded down to the nearest whole share, shall be equal to the product obtained by multiplying (1) the number of Parent Shares subject to the corresponding Parent Option Award immediately prior to the Effective Time, by (2) the Parent Ratio; and

 

(B)                               the per share exercise price of such Post-Separation Parent Option Award, rounded up to the nearest cent, shall be equal to the product obtained by multiplying (1) the Post-Separation Parent Stock Value, by (2) the Option Exercise Price Ratio.

 

(ii)                                  Each Parent Option Award held by a SpinCo Group Employee shall be converted as of the Effective Time into a SpinCo Option Award outstanding under the SpinCo Omnibus Plan and shall, except as otherwise provided in this Section 4.02(a), be subject to the same terms and conditions (including with respect to vesting and expiration) after the Effective Time as applicable to such Parent Option Award immediately prior to the Effective Time.  From and after the Effective Time:

 

(A)                               the number of SpinCo Shares subject to such SpinCo Option Award, rounded down to the nearest whole share, shall be equal to the product obtained by

 

17

 

multiplying (1) the number of Parent Shares subject to the corresponding Parent Option Award immediately prior to the Effective Time, by (2) the SpinCo Ratio; and

 

(B)                               the per share exercise price of such SpinCo Option Award, rounded up to the nearest cent, shall be equal to the product obtained by multiplying (1) the SpinCo Stock Value, by (2) the Option Exercise Price Ratio of the corresponding Parent Option Award.

 

Notwithstanding anything to the contrary in this Section 4.02(a), the exercise price, the number of Parent Shares and SpinCo Shares subject to each Post-Separation Parent Option Award and SpinCo Option Award, and the terms and conditions of exercise of such options, shall be determined in a manner consistent with the requirements of Section 409A of the Code; provided, further, that, in the case of any Parent Option Award to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code as of immediately prior to the Effective Time, the exercise price, the number of Parent Shares and SpinCo Shares subject to such option award, and the terms and conditions of exercise of such option award shall be determined in a manner consistent with the requirements of Section 424(a) of the Code.

 

(b)                                 RSU Awards (Legacy).  Each Parent RSU Award (Legacy) that is outstanding as of immediately prior to the Effective Time shall be converted, as of the Effective Time, into a Post-Separation Parent RSU Award and a SpinCo RSU Award and each such award shall, except as otherwise provided in this Section 4.02(b), be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as were applicable to such Parent RSU Award (Legacy) prior to the Effective Time; provided, however, that from and after the Effective Time the number of shares subject to (i) the Post-Separation Parent RSU Award shall be equal to the number of Parent Shares subject to the corresponding Parent RSU Award (Legacy) immediately prior to the Effective Time, and (ii) the SpinCo RSU Award shall be equal to the product, rounded down to the nearest whole share, obtained by multiplying (A) the number of Parent Shares subject to the Parent RSU Award (Legacy) immediately prior to the Effective Time by (B) the Distribution Ratio.

 

(c)                                  RSU Awards (Concentrated).  Each Parent RSU Award (Concentrated) that is outstanding as of immediately prior to the Effective Time shall be treated as follows:

 

(i)                                     If the holder is not a SpinCo Group Employee, such award shall be converted, as of the Effective Time, into a Post-Separation Parent RSU Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions (including with respect to vesting and expiration) after the Effective Time as were applicable to such Parent RSU Award (Concentrated) immediately prior to the Effective Time; provided, however, that from and after the Effective Time, the number of Parent Shares subject to such Post-Separation Parent RSU Award shall be equal to the product, rounded down to the nearest whole share, obtained by multiplying (A) the number of Parent Shares subject to the corresponding Parent RSU Award (Concentrated) immediately prior to the Effective Time by (B) the Parent Ratio.

 

(ii)                                  If the holder is a SpinCo Group Employee, such award shall be converted, as of the Effective Time, into a SpinCo RSU Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions (including with respect

 

18

 

to vesting and expiration) after the Effective Time as were applicable to such Parent RSU Award (Concentrated) immediately prior to the Effective Time; provided, however, that from and after the Effective Time, the number of SpinCo Shares subject to such SpinCo RSU Award shall be equal to the product, rounded down to the nearest whole share, obtained by multiplying (A) the number of Parent Shares subject to the corresponding Parent RSU Award (Concentrated) immediately prior to the Effective Time by (B) the SpinCo Ratio.

 

(d)                                 Deferred Shares Equivalents.

 

(i)                                     If the holder is not a Transferred Director, such award shall be converted, as of the Effective Time, into a Post-Separation Deferred Shares Equivalent Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions after the Effective Time as were applicable to such Parent Deferred Shares Equivalent Award immediately prior to the Effective Time; provided, however, that from and after the Effective Time, the number of Parent Shares subject to such Post-Separation Parent Deferred Shares Equivalent Award shall be equal to the product, rounded down to the nearest whole share, obtained by multiplying (A) the number of Parent Shares subject to the corresponding Parent Deferred Shares Equivalent Award immediately prior to the Effective Time by (B) the Parent Ratio.

 

(ii)                                  If the holder is a Transferred Director, such award shall be converted, as of the Effective Time, into a SpinCo Deferred Shares Equivalent Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions after the Effective Time as were applicable to such Parent Deferred Shares Equivalent Award immediately prior to the Effective Time; provided, however, that from and after the Effective Time, the number of SpinCo Shares subject to such SpinCo Deferred Shares Equivalent Award shall be equal to the product, rounded down to the nearest whole share, obtained by multiplying (A) the number of Parent Shares subject to the corresponding Parent Deferred Shares Equivalent Award immediately prior to the Effective Time by (B) the SpinCo Ratio.

 

(e)                                  Miscellaneous Award Terms.

 

(i)                                     With respect to Post-Separation Parent Awards and SpinCo Awards, (A) employment with or service to the Parent Group shall be treated as employment with or service to SpinCo with respect to SpinCo Awards held by a Parent Group Employee who is employed by a member of the Parent Group immediately following the Effective Time, and (B) employment with or service to the SpinCo Group shall be treated as employment with or service to Parent with respect to Post-Separation Parent Awards held by SpinCo Group Employees who is employed by a member of the SpinCo Group immediately following the Effective Time.  In addition, none of the Separation, the Distribution or any employment transfer described in Section 3.01(a) shall constitute a termination of employment for any Employee for purposes of any Post-Separation Parent Award or any SpinCo Award.  After the Effective Time, for any award adjusted under this Section 4.02, any reference to a “change in control,” “change of control” or similar definition in an award agreement, employment agreement or Parent Omnibus Plan applicable to such award (x) with respect to Post-Separation Parent Awards, shall be deemed to refer to a “change in control,” “change of control” or similar definition as set forth in the applicable award agreement, employment agreement or Parent Omnibus Plan (a “Parent Change in Control”),

 

19

 

and (y) with respect to SpinCo Awards, shall be deemed to refer to a “Change in Control” as defined in the SpinCo Omnibus Plan (a “SpinCo Change in Control”).  Without limiting the foregoing, with respect to provisions related to vesting of awards, a Parent Change in Control shall be treated as a SpinCo Change in Control for purposes of SpinCo Awards held by Parent Group Employees, Former Employees (to the extent applicable) and Parent nonemployee directors, and a SpinCo Change in Control shall be treated as a Parent Change in Control for purposes of Post-Separation Parent Awards held by SpinCo Group Employees and Transferred Directors.

 

(ii)                                  Any determination in respect of a Post-Separation Parent RSU Award and SpinCo RSU Award which in either case was adjusted from a Parent RSU Award (Legacy), in each case, granted to the holder pursuant to the Parent Omnibus Plan or the SpinCo Omnibus Plan, as applicable, and this Section 4.02, shall be made by the Compensation Committee of the Board of Directors of the Party to which the holder provides services immediately after the Effective Time (Parent or SpinCo, as applicable); provided that any such determination shall apply uniformly to both the applicable Post-Separation Parent Award and the corresponding SpinCo RSU Award held by such holder.

 

(f)                                   Settlement; Tax Reporting and Withholding.

 

(i)                                     Except as otherwise provided in this Section 4.02(f), after the Effective Time, Post-Separation Parent Awards, regardless of by whom held, shall be settled by Parent, and SpinCo Awards, regardless of by whom held, shall be settled by SpinCo.

 

(ii)                                  Upon the vesting, payment or settlement, as applicable, of SpinCo Awards, SpinCo shall be solely responsible for ensuring the satisfaction of all applicable Tax withholding requirements on behalf of each SpinCo Group Employee and for ensuring the collection and remittance of applicable employee withholding Taxes to the Parent Group with respect to each Parent Group Employee (with Parent Group being responsible for remittance of the applicable employee Taxes and payment and remittance of the applicable employer Taxes relating to Parent Group Employees to the applicable Governmental Authority).  Upon the vesting, payment or settlement, as applicable, of Post-Separation Parent Awards, Parent shall be solely responsible for ensuring the satisfaction of all applicable Tax withholding requirements on behalf of each Parent Group Employee or Former Employee and for ensuring the collection and remittance of applicable employee withholding Taxes to the SpinCo Group with respect to each SpinCo Group Employee (with SpinCo Group being responsible for remittance of the applicable employee Taxes and payment and remittance of the applicable employer Taxes relating to SpinCo Group Employees to the applicable Governmental Authority).  Following the Effective Time, Parent shall be responsible for all income Tax reporting in respect of Post-Separation Parent Awards and SpinCo Awards held by Parent Group Employees, Former Employees (as applicable) and individuals who are or were Parent nonemployee directors, and SpinCo shall be responsible for all income Tax reporting in respect of Post-Separation Parent Awards and SpinCo Awards held by SpinCo Group Employees and Transferred Directors.

 

(iii)                               Following the Effective Time, if any Post-Separation Parent Award held by a SpinCo Group Employee or Transferred Director shall fail to become vested, such Post-Separation Parent Award shall be forfeited to Parent, and if any SpinCo Award held by a

 

20

 

Parent Group Employee or nonemployee director of Parent shall fail to become vested, such SpinCo Award shall be forfeited to SpinCo.

 

(g)                                  Cooperation.  Each of the Parties shall establish an appropriate administration system to administer, in an orderly manner, (i) exercises of vested Post-Separation Parent Options and SpinCo Options, (ii) the vesting and forfeiture of unvested Post-Separation Parent Awards and SpinCo Awards, and (iii) the withholding and reporting requirements with respect to all awards.  Each of the Parties shall work together to unify and consolidate all indicative data and payroll and employment information on regular timetables and make certain that each applicable Person’s data and records in respect of such awards are correct and updated on a timely basis.  The foregoing shall include employment status and information required for vesting and forfeiture of awards and Tax withholding/remittance, compliance with trading windows and compliance with the requirements of the Exchange Act and other applicable Laws.

 

(h)                                 Registration and Other Regulatory Requirements.  SpinCo agrees to file the appropriate registration statements with respect to, and to cause to be registered pursuant to the Securities Act, the SpinCo Shares authorized for issuance under the SpinCo Omnibus Plan, as required pursuant to the Securities Act, not later than the Effective Time and in any event before the date of issuance of any SpinCo Shares pursuant to the SpinCo Omnibus Plan.  The Parties shall take such additional actions as are deemed necessary or advisable to effectuate the foregoing provisions of this Section 4.02(h), including to the extent applicable, compliance with securities Laws and other legal requirements associated with equity compensation awards in affected non-U.S. jurisdictions.  Parent agrees to facilitate the adoption and approval of the SpinCo Omnibus Plan consistent with the requirements of Treasury Regulations Section 1.162-27(f)(4)(iii).

 

Section 4.03.                          Nonequity Incentive Practices and Plans.

 

(a)                                 Corporate Bonus Practices.

 

(i)                                     The SpinCo Group shall be responsible for determining all bonus awards that would otherwise be payable under the SpinCo Non-Equity Incentive Practices to SpinCo Group Employees or Former SpinCo Group Employees for any performance periods that are open when the Effective Time occurs.  The SpinCo Group shall also determine for SpinCo Group Employees or Former SpinCo Group Employees (A) the extent to which established performance criteria (as interpreted by the SpinCo Group, in its sole discretion) have been met, and (B) the payment level for each SpinCo Group Employee or Former SpinCo Group Employee.  The SpinCo Group shall assume all Liabilities with respect to any such bonus awards payable to SpinCo Group Employees or Former SpinCo Group Employees for any performance periods that are open when the Effective Time occurs and thereafter, and no member of the Parent Group shall have any obligations with respect thereto.

 

(ii)                                  The Parent Group shall be responsible for determining all bonus awards that would otherwise be payable under the Parent Non-Equity Incentive Practices to Parent Group Employees or Former Parent Group Employees for any performance periods that are open when the Effective Time occurs.  The Parent Group shall also determine for Parent Group Employees or Former Parent Group Employees (A) the extent to which established performance

 

21

 

criteria (as interpreted by the Parent Group, in its sole discretion) have been met, and (B) the payment level for each Parent Group Employee or Former Parent Group Employee.  The Parent Group shall retain (or assume as necessary) all Liabilities with respect to any such bonus awards payable to Parent Group Employees or Former Parent Group Employees for any performance periods that are open when the Effective Time occurs and thereafter, and no member of the SpinCo Group shall have any obligations with respect thereto.

 

(b)                                 Parent Retained Bonus Plans.  No later than the Effective Time, the Parent Group shall continue to retain (or assume as necessary) any incentive plan for the exclusive benefit of Parent Group Employees and Former Parent Group Employees, whether or not sponsored by the Parent Group, and, from and after the Effective Time, shall be solely responsible for all Liabilities thereunder.

 

(c)                                  SpinCo Retained Bonus Plans.  No later than the Effective Time, the SpinCo Group shall continue to retain (or assume as necessary) any incentive plan for the exclusive benefit of SpinCo Group Employees and Former SpinCo Group Employees, whether or not sponsored by the SpinCo Group, and, from and after the Effective Time, shall be solely responsible for all Liabilities thereunder.

 

Section 4.04.                          Director Compensation.  Parent shall be responsible for the payment of any fees for service on the Parent Board that are payable at, before, or after the Effective Time, and SpinCo shall not have any responsibility for any such payments.  With respect to any SpinCo nonemployee director, SpinCo shall be responsible for the payment of any fees for service on the SpinCo Board that are payable at any time after the Effective Time and Parent shall not have any responsibility for any such payments.

 

22

 

ARTICLE V
 QUALIFIED RETIREMENT PLAN

 

Section 5.01.                          SpinCo 401(k) Plan.

 

(a)                                 Establishment of Plan.  Effective on or before the Distribution Date,  SpinCo shall or shall cause the members of the SpinCo Group to adopt and establish the SpinCo 401(k) Plan and a related trust (the “SpinCo 401(k) Trust”), which shall be intended to meet the tax qualification requirements of Section 401(a) of the Code, the tax exemption requirement of Section 501(a) of the Code, and the requirements described in Sections 401(k) and (m) of the Code and which through December 31, 2018 shall have substantially the similar terms in all material respects as of immediately prior to the Distribution Date as the Parent 401(k) Plan.  Notwithstanding the foregoing, SpinCo may make such changes, modifications or amendments to the SpinCo 401(k) Plan as may be required by applicable Law or as are necessary and appropriate to reflect the Separation or which result from vendor limitations.  Before the Distribution Date, SpinCo shall provide Parent with (i) a copy of the SpinCo 401(k) Plan, SpinCo 401(k) Trust and favorable opinion and (ii) a copy of certified resolutions of the SpinCo Board (or its authorized committee or other delegate) evidencing adoption of the SpinCo 401(k) Plan and SpinCo 401(k) Trust and the assumption by the SpinCo 401(k) Plan of the Liabilities described in Sections 5.01(b) and (c).

 

(b)                                 Transfer of Account Balances.  No later than thirty (30) days following the Effective Time (or such other times as mutually agreed to by the parties), Parent shall cause the trustee of the Parent 401(k) Plan to transfer from the trust which forms a part of the Parent 401(k) Plan to the SpinCo 401(k) Trust, the account balances of SpinCo Group Employees and Former SpinCo Group Employees under the Parent 401(k) Plan, determined as of the date of the transfer.  Unless otherwise agreed by the parties, such transfers shall be made in kind, including promissory notes evidencing the transfer of outstanding loans.  Any Asset and Liability transfers pursuant to this Section 5.01 shall comply in all respects with Sections 414(l) and 411(d)(6) of the Code and if required, shall be made not less than thirty (30) days after Parent shall have filed the notice under Section 6058(b) of the Code.  The parties agree that to the extent that any Assets are not transferred in kind, the assets transferred will be mapped into an appropriate investment vehicle.

 

(c)                                  Transfer of Liabilities.  Effective as of the Effective Time but subject to the Asset transfer specified in Section 5.01(b) above, the SpinCo 401(k) Plan shall assume and be solely responsible for all the Liabilities for or relating to SpinCo Group Employees or Former SpinCo Group Employees under the Parent 401(k) Plan.  SpinCo shall be responsible for all ongoing rights of or relating to SpinCo Group Employees for future participation (including the right to make payroll deductions) in the SpinCo 401(k) Plan.

 

(d)                                 SpinCo 401(k) Plan Provisions.  The SpinCo 401(k) Plan shall provide that:

 

(i)                                     SpinCo Group Employees and Former SpinCo Group Employees shall be eligible to participate in the SpinCo 401(k) Plan as of the Effective Time to the extent that they were eligible to participate in the Parent 401(k) Plan as of immediately prior to the Effective Time;

 

23

 

(ii)                                  the account balance of each SpinCo Group Employee and Former SpinCo Group Employees under the Parent 401(k) Plan as of the date of the transfer of Assets from the Parent 401(k) Plan (including any outstanding promissory notes relating to outstanding loans) shall be credited to such individual’s account under the SpinCo 401(k) Plan; and

 

(iii)                               the SpinCo 401(k) Plan shall assume and honor the terms of all QDROs in effect under the Parent 401(k) Plan in respect of SpinCo Group Employees and Former SpinCo Group Employees immediately prior to the Effective Time.

 

(iv)                              Plan Fiduciaries.  For all periods at and after the Effective Time, the parties agree that the applicable fiduciaries of each of the Parent 401(k) Plan and the SpinCo 401(k) Plan, respectively, shall have the authority with respect to the Parent 401(k) Plan and the SpinCo 401(k) Plan, respectively, to determine the investment alternatives, the terms and conditions with respect to those investment alternatives and such other matters as are within the scope of their duties under ERISA and the terms of the applicable plan documents.

 

(e)                                  No Distributions.  No SpinCo Group Employee shall be entitled to a right to a distribution of his or her benefit under the Parent 401(k) Plan as a result of his or her transfer of employment from the Parent Group to the SpinCo Group nor as a result of the completion of the Separation.

 

24

 

ARTICLE VI
 NONQUALIFIED DEFERRED COMPENSATION PLAN

 

Section 6.01.                          Parent Deferred Compensation Plans.  Parent shall retain all Liability with respect to the Parent Deferred Compensation Plan with respect to Employees and Former Employees, whether arising before, on or after the Distribution Date.

 

Section 6.02.                          Participation; Distributions.  The Parties acknowledge that none of the transactions contemplated by this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement shall trigger a payment or distribution of compensation under any of the Parent Deferred Compensation Plan for any participant and, consequently, that the payment or distribution of any compensation to which such participant is entitled under any such plan shall occur upon such participant’s separation from service from the Parent Group or SpinCo Group or at such other time as provided in the applicable deferred compensation plan or participant’s deferral election; provided, however, that for the avoidance of doubt, any Transition Employee who leaves employment with Parent Group after the Distribution Date shall experience a separation from service for purposes of such plan, regardless of whether the Transition Employee immediately commences employment with Spinco Group.

 

25

 

ARTICLE VII
 WELFARE BENEFIT PLANS

 

Section 7.01.                          Welfare Plans.

 

(a)                                 Establishment of SpinCo Welfare Plans.  Except as otherwise provided in this Article VII, as of or before the Effective Time, SpinCo shall, or shall cause the members of the SpinCo Group to establish the SpinCo Welfare Plans pursuant to Section 2.02(a) that generally correspond to the Parent Welfare Plans in which such SpinCo Group Employees participate immediately prior to the Effective Time.  Through December 31, 2018, the SpinCo Welfare Plans shall have terms substantially similar in all material respects to those of the corresponding Parent Welfare Plans listed on Schedule 7.01(a), and in all cases, with such changes, modifications or amendments as may be required by applicable Law or as are necessary and appropriate to reflect the Separation.  In addition, SpinCo or members of the SpinCo Group shall retain the right to modify, amend, alter or terminate the terms of any SpinCo Welfare Plan to the same extent that the Parent Group had such rights under the corresponding Parent Welfare Plan.

 

(b)                                 Waiver of Conditions; Benefit Maximums.  To the extent commercially available, SpinCo shall or shall cause the members of the SpinCo Group to use commercially reasonable efforts to cause the SpinCo Welfare Plans to:

 

(i)                                     with respect to initial enrollment as of the Effective Time, waive (x) all limitations as to preexisting conditions, exclusions, and service conditions with respect to participation and coverage requirements applicable to any SpinCo Group Employee or Former SpinCo Group Employee, other than limitations that were in effect with respect to the SpinCo Group Employee or Former SpinCo Group Employee under the applicable Parent Welfare Plan as of immediately prior to the Effective Time, and (y) any waiting period limitation or evidence of insurability requirement applicable to a SpinCo Group Employee or Former SpinCo Group Employee other than limitations or requirements that were in effect with respect to such SpinCo Group Employee or Former SpinCo Group Employee under the applicable Parent Welfare Plans as of immediately prior to the Effective Time; and

 

(ii)                                  take into account (x) with respect to aggregate annual, lifetime, or similar maximum benefits available under the SpinCo Welfare Plans, a SpinCo Group Employee’s or Former SpinCo Group Employee’s prior claim experience under the Parent Welfare Plans and any Benefit Plan that provides leave benefits; and (y) any eligible expenses incurred by a SpinCo Group Employee or Former SpinCo Group Employee and his or her covered dependents during the portion of the plan year of the applicable Parent Welfare Plan ending as of the Effective Time to be taken into account under such SpinCo Welfare Plan for purposes of satisfying all deductible, coinsurance, and maximum out-of-pocket requirements applicable to such SpinCo Group Employee or Former SpinCo Group Employee and his or her covered dependents for the applicable plan year to the same extent as such expenses were taken into account by Parent for similar purposes prior to the Effective Time as if such amounts had been paid in accordance with such SpinCo Welfare Plan.

 

(c)                                  Flexible Spending Accounts.  As of no later than the Effective Time, SpinCo shall or shall cause the members of the SpinCo Group to establish SpinCo Welfare Plans

 

26

 

that shall provide health or dependent care flexible spending account benefits to SpinCo Group Employees on and after the Effective Time (collectively, the “SpinCo Flex Plan”).  The Parties shall use commercially reasonable efforts to ensure that as of the Effective Time any health and dependent care flexible spending accounts of SpinCo Group Employees (whether positive or negative) (the “Transferred Account Balances”) under Parent Welfare Plans are transferred as soon as practicable after the Effective Time, from the Parent Welfare Plans to the SpinCo Flex Plan.  Such SpinCo Flex Plan shall assume responsibility as of the Effective Time for all outstanding health or dependent care claims under the corresponding Parent Welfare Plans of each SpinCo Group Employee for the year in which the Effective Time occurs and shall assume and agree to perform the obligations of the corresponding Parent Welfare Plans from and after the Effective Time.  As soon as practicable after the Effective Time, and in any event within thirty (30) days after the amount of the Transferred Account Balances is determined or such later date as mutually agreed upon by the Parties, Parent shall pay SpinCo the net aggregate amount of the Transferred Account Balances, if such amount is positive, and SpinCo shall pay Parent the net aggregate amount of the Transferred Account Balances, if such amount is negative.

 

(d)                                 Allocation of Welfare Plan Assets and Liabilities.  Effective as of the Effective Time, the Parent Group shall retain or assume, as applicable, and be responsible for all assets (including any insurance contracts, policies or other funding vehicles) and Liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by or on behalf of Parent Group Employees or Former Parent Group Employees under the Parent Welfare Plans or SpinCo Welfare Plans before, at, or after the Effective Time, and the SpinCo Group shall retain or assume, as applicable, and be responsible for all assets (including any insurance contracts, policies or other funding vehicles) and Liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by or on behalf of SpinCo Group Employees or Former SpinCo Group Employees under the SpinCo Welfare Plans or Parent Welfare Plans before, at, or after the Effective Time.  No SpinCo Welfare Plan shall provide coverage to any Parent Group Employee or Former Parent Group Employee after the Effective Time, and no Parent Welfare Plan shall provide coverage to any SpinCo Group Employee or Former SpinCo Group Employee after the Effective Time.

 

Section 7.02.                          COBRA.  The Parent Group shall continue to be responsible for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, and the corresponding provisions of the Parent Welfare Plans with respect to any Parent Group Employees and any Former Parent Group Employees (and their covered dependents) who incur a qualifying event under COBRA before, as of, or after the Effective Time.  Effective as of the Effective Time, the SpinCo Group shall assume responsibility for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, and the corresponding provisions of the SpinCo Welfare Plans with respect to any SpinCo Group Employees or Former SpinCo Group Employees (and their covered dependents) who incur a qualifying event or loss of coverage under the SpinCo Welfare Plans and/or the Parent Welfare Plans before, as of, or after the Effective Time.  The Parties agree that the consummation of the transactions contemplated by the Separation and Distribution Agreement shall not constitute a COBRA qualifying event for any purpose of COBRA.

 

Section 7.03.                          Vacation, Holidays and Leaves of Absence.  Effective as of no later than the Effective Time, the SpinCo Group shall assume all Liabilities of the SpinCo Group with

 

27

 

respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each SpinCo Group Employee, unless otherwise required by applicable Law.  The Parent Group shall retain all Liabilities with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each Parent Group Employee.

 

Section 7.04.                          Workers’ Compensation.  The treatment of workers’ compensation claims shall be governed by Section 5.1 of the Separation and Distribution Agreement.

 

Section 7.05.                          Insurance Contracts.  To the extent that any Welfare Plan is funded through the purchase of an insurance contract or is subject to any stop loss contract, the Parties shall cooperate and use their commercially reasonable efforts to replicate such insurance contracts for SpinCo or Parent as applicable (except to the extent that changes are required under applicable Law or filings by the respective insurers) and to maintain any pricing discounts or other preferential terms for both Parent and SpinCo for a reasonable term.  Neither Party shall be liable for failure to obtain such insurance contracts, pricing discounts, or other preferential terms for the other Party.  Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.05.

 

Section 7.06.                          Third-Party Vendors.  Except as provided below, to the extent that any Welfare Plan is administered by a third-party vendor, the Parties shall cooperate and use their commercially reasonable efforts to replicate any contract with such third-party vendor for Parent or SpinCo, as applicable and to maintain any pricing discounts or other preferential terms for both Parent and SpinCo for a reasonable term.  Neither Party shall be liable for failure to obtain such pricing discounts or other preferential terms for the other Party.  Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.06.

 

28

 

ARTICLE VIII
 MISCELLANEOUS

 

Section 8.01.                          Preservation of Rights to Amend.  Except as set forth in this Agreement, the rights of each member of the Parent Group and each member of the SpinCo Group to amend, waive, or terminate any plan, arrangement, agreement, program, or policy referred to herein shall not be limited in any way by this Agreement.

 

Section 8.02.                          Fiduciary Matters.  Parent and SpinCo each acknowledge that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard.  Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.

 

Section 8.03.                          Further Assurances.  Each Party hereto shall take, or cause to be taken, any and all reasonable actions, including the execution, acknowledgment, filing and delivery of any and all documents and instruments that any other Party hereto may reasonably request in order to effect the intent and purpose of this Agreement and the transactions contemplated hereby.

 

Section 8.04.                          Counterparts; Entire Agreement; Corporate Power.

 

(a)                                 This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

 

(b)                                 This Agreement, the Separation and Distribution Agreement and the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein.  This Agreement, the Separation and Distribution Agreement and the Ancillary Agreements together govern the arrangements in connection with the Separation and the Distribution and would not have been entered into independently.

 

(c)                                  Parent represents on behalf of itself and each other member of the Parent Group, and SpinCo represents on behalf of itself and each other member of the SpinCo Group, as follows:

 

(i)                                     each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and

 

29

 

(ii)                                  this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms hereof.

 

(d)                                 Each Party acknowledges that it and each other Party is executing this Agreement by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by e-mail in portable document format (.pdf) shall be effective as delivery of such executed counterpart of this Agreement.  Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by e-mail in portable document format (.pdf)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.

 

Section 8.05.                          Governing Law.  This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware, irrespective of the choice of laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.

 

Section 8.06.                          Assignability.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, however, that neither Party may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party hereto.  Notwithstanding the foregoing, no such consent shall be required for the assignment of a Party’s rights and obligations under this Agreement, the Separation and Distribution Agreement and all other Ancillary Agreements (except as may be otherwise provided in any such Ancillary Agreement) in whole (i.e., the assignment of a Party’s rights and obligations under this Agreement and all Ancillary Agreements at the same time) in connection with a change of control of a Party so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party.

 

Section 8.07.                          Third-Party Beneficiaries.  The provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person except the Parties any rights or remedies hereunder.  There are no third-party beneficiaries of this Agreement, and this Agreement shall not provide any Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.  Nothing in this Agreement is intended to amend any employee benefit plan or affect the applicable plan sponsor’s right to amend or terminate any employee benefit plan pursuant to the terms of such plan.  The provisions of this Agreement are solely for the benefit of the Parties, and no current or

 

30

 

former Employee, officer, director, or independent contractor or any other individual associated therewith shall be regarded for any purpose as a third-party beneficiary of this Agreement.

 

Section 8.08.                          Notices.  All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by certified mail, return receipt requested or by electronic mail (e-mail) so long as the confirmation of receipt of such e-mail is requested and received, to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 8.08):

 

If to Parent, to:

 

ServiceMaster Global Holdings, Inc.
 150 Peabody Place
 Memphis, Tennessee  38103
 Attention:                    Dion Persson
 E-mail:                                   dion.persson@servicemaster.com

 

with a copy (which shall not constitute notice), to:

 

Wachtell, Lipton, Rosen & Katz
 51 West 52nd Street
 New York, New York  10019
 Attention:                       Andrew Brownstein
                                                                               S. Iliana Ongun
 E-mail:                                      ARBrownstein@wlrk.com
                                                                               SIOngun@wlrk.com

 

If to SpinCo (prior to the Effective Time), to:

 

frontdoor, inc.
 150 Peabody Place 
 Memphis, Tennessee  38103
 Attention:                       General Counsel
 E-mail:                                      Jeffrey.Fiarman@frontdoorhome.com

 

with a copy (which shall not constitute notice), to:

 

Wachtell, Lipton, Rosen & Katz
 51 West 52nd Street
 New York, New York  10019
 Attention:                       Andrew Brownstein
                                                                               S. Iliana Ongun
 E-mail:                                      ARBrownstein@wlrk.com
                                                                               SIOngun@wlrk.com

 

31

 

If to SpinCo (from and after the Effective Time), to:

 

frontdoor, inc.
 150 Peabody Place 
 Memphis, Tennessee  38103
 Attention:                       General Counsel
 E-mail:                                      Jeffrey.Fiarman@frontdoorhome.com

 

with a copy (which shall not constitute notice), to:

 

Wachtell, Lipton, Rosen & Katz
 51 West 52nd Street
 New York, New York  10019
 Attention:                       Andrew Brownstein
                                                                               S. Iliana Ongun
 E-mail:                                      ARBrownstein@wlrk.com
                                                                               SIOngun@wlrk.com

 

A Party may, by notice to the other Party, change the address to which such notices are to be given or made.

 

Section 8.09.                          Severability.  If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.  Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.

 

Section 8.10.                          Force Majeure.  No Party shall be deemed in default of this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement for any delay or failure to fulfill any obligation (other than a payment obligation) hereunder or thereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure.  In the event of any such excused delay, the time for performance of such obligations (other than a payment obligation) shall be extended for a period equal to the time lost by reason of the delay.  A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to the other Party of the nature and extent of any such Force Majeure condition; and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement and the Ancillary Agreements, as applicable, as soon as reasonably practicable.

 

Section 8.11.                          Headings.  The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

32

 

Section 8.12.                          Survival of Covenants.  Except as expressly set forth in this Agreement, the covenants, representations and warranties contained in this Agreement, and Liability for the breach of any obligations contained herein, shall survive the Separation and Distribution and shall remain in full force and effect.

 

Section 8.13.                          Waivers of Default.  Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party.  No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

 

Section 8.14.                          Dispute Resolution.  The dispute resolution procedures set forth in Article VII of the Separation and Distribution Agreement shall apply to any dispute, controversy or claim arising out of or relating to this Agreement.

 

Section 8.15.                          Specific Performance.  Subject to the provisions of Article VII of the Separation and Distribution Agreement, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its or their rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative.  The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived.  Any requirements for the securing or posting of any bond with such remedy are waived by each of the Parties.

 

Section 8.16.                          Amendments.  No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

 

Section 8.17.                          Interpretation.  In this Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement; (c) Article, Section, Schedule, Exhibit and Appendix references are to the Articles, Sections, Schedules, Exhibits and Appendices to this Agreement unless otherwise specified; (d) unless otherwise stated, all references to any agreement (including this Agreement and each Ancillary Agreement) shall be deemed to include the exhibits, schedules and annexes (including all Schedules, Exhibits and Appendixes) to such agreement; (e) the word “including” and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references to “business day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to

 

33

 

close in the United States or Memphis, Tennessee; (i) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (j) unless expressly stated to the contrary in this Agreement or in any Ancillary Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to September 28, 2018.

 

Section 8.18.                          Limitations of Liability.  Notwithstanding anything in this Agreement to the contrary, neither SpinCo or any member of the SpinCo Group, on the one hand, nor Parent or any member of the Parent Group, on the other hand, shall be liable under this Agreement to the other for any indirect, incidental, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim).

 

Section 8.19.                          Mutual Drafting.  This Agreement shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.

 

[Remainder of page intentionally left blank]

 

34

 

IN WITNESS WHEREOF, the Parties have caused this Employee Matters Agreement to be executed by their duly authorized representatives as of the date first written above.

 

 

	
 
    	
SERVICEMASTER GLOBAL   HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: Anthony D. Dilucente
    
	
 
    	
 
    	
Title:   Senior Vice President and Chief Financial   Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
FRONTDOOR, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: Rexford J. Tibbens
    
	
 
    	
 
    	
Title:   President and Chief Executive Officer

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00287-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00287-of-00352.parquet"}]]