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Exhibit 10.7
INDESCO TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (the "Tax Sharing Agreement"), made as of the
first day of the fiscal year of Indesco Holdings Co., a Delaware corporation
formerly known as AFA Holdings Co. ("Parent"), beginning on August 1, 1997 (the
"Effective Date"), by and among Parent, Indesco International, Inc., a Delaware
corporation formerly known as APC Holding, Inc. ("International"), Continental
Sprayers International, Inc., a Delaware corporation formerly known as
Continental Acquisition Corp. ("Continental"), and Afa Products, Inc., a
Delaware corporation ("Afa Products"). International is a direct subsidiary and
Continental and Afa Products are indirect subsidiaries of Parent includable in
the consolidated federal income tax return of the affiliated group (within the
meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the
"Code")) of which Parent is the common parent for all or part of the 52-53 week
taxable year of the Indesco Group that begins on January 1, 1998 and ends on
January 2, 1999.
Parent and, for as long as they are members of an affiliated group
(within the meaning of Code Section 1504) with Parent, International,
Continental and Afa Products, together with corporations that subsequently
become includable in such group, are referred to collectively as the "Parent
Group" and members of the Parent Group other than Parent are referred to as
"Indesco Subsidiaries".
International and, for as long as Continental and Afa Products would
be members of an affiliated group of which International is the common parent if
International were not owned by a corporation with which it is affiliated within
the meaning of Code Section 1504, Continental and Afa Products, together with
corporations that subsequently would be members of such a group that are made
parties to this Tax Sharing Agreement pursuant to Section 1.5 below, are
referred to collectively as the "International Group" and individually as
"International Subsidiaries".
A consolidated federal income tax return of an affiliated group
(within the meaning of Section 1504 of the Code) of which Parent is the common
parent that includes at least one International Subsidiary is referred to below
as a "Consolidated Return". For purposes of this Tax Sharing Agreement, "tax"
includes any applicable interest, penalties and additions to tax.
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The term "Credit Agreement" shall mean the credit agreement, dated
February 4, 1998, among APC Holding, Inc., as Borrower, and the Initial Lenders
named therein, and Nationscredit Commercial Corporation, as Collateral Agent and
as Initial Issuing Bank, and Nationsbridge, L.L.C., as Administrative Agent. The
term "Indenture" shall mean the indenture, dated April 23, 1998, among Indesco
International, Inc., Indesco's domestic Restricted Subsidiaries, and Norwest
Bank Minnesota, National Association, as trustee.
Parent and the International Subsidiaries wish to provide (i) for
tax sharing payments between the International Subsidiaries and Parent as
provided herein and (ii) for payment by Parent of the consolidated federal
income tax liability of the Parent Group.
In consideration of the foregoing, and of the mutual covenants and
promises contained herein, Parent and the International Subsidiaries agree as
follows:
1. General Provisions
1.1 Each International Subsidiary agrees to join with Parent
in the filing of a Consolidated Return for any taxable year for which Parent
files a Consolidated Return that includes such International Subsidiary.
1.2 Each International Subsidiary hereby irrevocably
designates Parent as its agent for the purpose of taking any and all action
necessary or incidental to the filing of Consolidated Returns. Each
International Subsidiary agrees, in connection with any tax matter, promptly to
furnish Parent with any and all information requested by Parent, to cooperate
with Parent in filing any return or consent or in seeking any refund or ruling
and to take any other action Parent requests, including, without limitation,
making elections and requesting extensions of time within which to file tax
returns.
1.3 Any reasonable fees and expenses for legal, accounting and
other professional services ("Parent Group Return Fees") rendered in connection
with the preparation of a Consolidated Return shall be allocated among the
members of the Parent Group in proportion to the ratio of (i) each member's
gross revenue for the taxable year with respect to which the Fees are paid to
(ii) the total gross revenue of all of the Parent Group for such taxable year.
Any Fees arising from the administration of this Agreement shall be allocated
among Parent and the International Subsidiaries in proportion to the ratio of
(i) Parent's and each International Subsidiary's gross revenue for the taxable
year with respect to which the Fees are paid to (ii) the total gross revenue of
Parent and all of the International Subsidiaries for such taxable year.
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1.4 Each International Subsidiary shall cooperate fully with
Parent in any tax audit, controversy or other administrative or legal proceeding
relating to a Consolidated Return or other tax matter (an "Audit"). Expenses of
any such Audit that involves International Subsidiaries, to the extent not
allocated under Section 1.3 above, shall be allocated among the members of the
Parent Group in proportion to the ratio of (i) the sum, if positive, of net
reductions of deduction and loss and net increases of income and gain for each
member of the Parent Group as a result of the Audit for the taxable year or
years involved in the Audit to (ii) the total of the amounts described in the
preceding clause (i) for all members of the Parent Group for such taxable year
or years or, if there is no member of the Parent Group for which the amount
described in clause (i) is a positive number, in proportion to the ratio of (i)
each member of the Parent Group's gross revenue for the taxable year or years
involved in the Audit to (ii) the total gross revenue of the Parent Group for
such taxable year or years. Parent shall have sole discretion and control, to be
exercised in good faith, as to the undertaking, conduct, settlement or other
disposition of any Audit arising out of or related to this Tax Sharing
Agreement, any Consolidated Return or any other tax matter.
1.5 Parent shall cause each United States corporation that is
or becomes a member of the same affiliated group (within the meaning of Section
1504 of the Code) as International and Parent, and that guarantees any of the
obligations of International under the Credit Agreement or the Indenture, to
become a party to this agreement.
1.6 Parent will pay the consolidated federal income tax
liability, including payments of estimated tax, of the Parent Group for each
taxable year (and any portion thereof). Parent will defend, indemnify and hold
harmless each member of the International Group from and against any liability
for federal income taxes, provided such member has paid all amounts required to
be paid by such member under this Agreement.
2. Payments
2.1 For each taxable year, each International Subsidiary
shall, at the times specified herein, pay to Parent the amount determined in
accordance with Section 3 below (defined in Section 3 below as a "Tax Sharing
Payment").
For each quarter of each taxable year, at least three business
days before the date on which a payment of estimated federal income tax would,
if owed, be made by Parent under Code Section 6655 (an "Estimated Tax Payment
Date"), each International Subsidiary shall pay to Parent the amount that such
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International Subsidiary would owe if the International Group's estimated tax
liability were determined in the same manner that the International Group
Separate Tax Liability is determined under Section 3 below and such
International Subsidiary's share of such estimated tax liability were determined
in the same manner that its Tax Sharing Payment is determined pursuant to
Section 3 below.
At least three days before the due date, without extension, of
the Consolidated Return for each taxable year (a "Return Payment Date"), each
International Subsidiary shall pay to Parent any portion of its Tax Sharing
Payment for such taxable year that was not previously paid to Parent pursuant to
the previous paragraph.
2 2.2 Any underpayment of a Tax Sharing Payment that an
International Subsidiary owes to Parent shall be added to the payment otherwise
required to be made by such International Subsidiary to Parent on the Estimated
Tax Payment Date or Return Payment Date next following the date on which the
amount of the underpayment first becomes reasonably ascertainable.
If the aggregate payments made by an International Subsidiary
under Section 2.1 above for a taxable year exceed the amount determined to be
the International Subsidiary's Tax Sharing Payment for such taxable year, the
overpayment shall be repaid to the International Subsidiary within 60 days after
the Return Payment Date.
3. Computation of Tax Sharing Payments
For each taxable year, Parent shall, in good faith, determine
the aggregate amount that would be owed by the International Group as federal
income tax if the International Group were not affiliated with the Parent Group
but instead were a separate affiliated group (within the meaning of Section 1504
of the Code), of which International was the common parent, that filed a
consolidated federal income tax return for such taxable year that included only
the members of the International Group, taking into account all of the
provisions of the Code and Treasury Regulations thereunder and computed, to the
extent applicable, in accordance with the actual elections, accounting methods,
conventions and other determinations made or used in preparing Parent's original
or, if an amended return is filed, Parent's Amended Consolidated Return (the
amount determined under this paragraph is referred to as the "International
Group Separate Tax Liability"). In computing the International Group Separate
Tax Liability, the International Group shall be entitled to take into account
the carryover and carryback of losses and credits of the International Group,
but only to the extent such
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losses and credits arose in a taxable period during which this Tax Sharing
Agreement applied, and after taking into account any and all limitations on the
use of such losses and credits imposed under the Code and the Treasury
Regulations thereunder.
For each taxable year, Parent shall, in good faith determine
the federal income tax that would be owed by each member of the International
Group if it were not a member of the International Group, but instead were a
stand-alone corporation filing its own federal income tax return, taking into
account all provisions of the Code and Treasury Regulations thereunder and
computed, to the extent applicable, in accordance with the actual elections,
accounting methods, conventions and other determinations made or used in
preparing Parent's original or, if an amended return is filed, Parent's Amended
Consolidated Return, (the amount determined under this paragraph is referred to
as the "International Subsidiary Separate Tax Liability"). In computing the
International Subsidiary Separate Tax Liability, an International Subsidiary
shall be entitled to take into account the carryover and carryback of losses and
credits of the International Subsidiary, but only to the extent such losses and
credits arose in a taxable period during which this Tax Sharing Agreement
applied, and after taking into account any and all limitations on the use of
such losses and credits imposed under the Code and the Treasury Regulations
thereunder.
The "Tax Sharing Payment" of each International Subsidiary
shall be an amount equal to the product of the International Group Separate Tax
Liability and a fraction the numerator of which is the International Subsidiary
Separate Tax Liability of the International Subsidiary and the denominator of
which is the sum of the International Subsidiary Separate Tax Liabilities of all
of the International Subsidiaries.
In no event shall the International Group or an International
Subsidiary be entitled (i) to a payment from Parent or from another Indesco
Subsidiary on account of the utilization by Parent or the other Indesco
Subsidiary of a loss, credit or other tax attribute, or a carryover or carryback
of a loss, credit or other tax attribute, of the International Group or the
International Subsidiary or (ii) except as provided in this Section 3 or in
Section 4.2 below, to any reduction of the International Group Separate Tax
Liability on account of a carryover or carryback of a loss, credit or other tax
attribute of the International Group or International Subsidiary.
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4. Adjustments
4.1 Any adjustment to the income, deduction or credit of an
International Subsidiary occurring after a Consolidated Return has been filed
for a taxable year, whether by reason of an amended return, a claim for refund,
a carryback or an audit (an "Adjustment") shall be given effect, as soon as the
amount of the Adjustment becomes reasonably ascertainable, by redetermining the
International Subsidiary's Tax Sharing Payment for such taxable year as if the
Adjustment had been part of the original determination hereunder.
Any interest and penalties that are owed to a taxing
authority in connection with an Adjustment shall be allocated among the
International Subsidiaries in proportion to the increases in their Tax Sharing
Payments as a result from the Adjustment, as determined by Parent. Each
International Subsidiary whose Tax Sharing Payment is increased by an Adjustment
promptly shall pay to Parent the amount of such increase together with the
International Subsidiary's allocable share of any interest and penalties.
Any decrease in the Tax Sharing Payment of an
International Subsidiary, as a result of an Adjustment or a carryback described
in Section 4.2 below, shall be repaid to the International Subsidiary as soon as
practicable after Parent has received any refund or reduction in tax liability
to which it is entitled as a result of the Adjustment and after the
determinations required to be made hereunder to determine the decrease in the
International Subsidiary's Tax Sharing Payment for the taxable year have been
made.
4.2 If the International Group has a net operating or a net
capital loss for a taxable year, determined in the manner that the International
Group Separate Tax Liability is determined under Section 3 above, the loss shall
be carried back and deducted in the carryback period prescribed by Code Section
172 or 1212, as the case may be, and, to the extent of the loss remaining after
it is carried back to prior taxable years not covered by this Tax Sharing
Agreement, shall be carried back to and deducted in computing the International
Group Separate Tax Liability for prior taxable years covered by this Tax Sharing
Agreement, but only in the manner and to the extent that the loss would have
been carried back and deducted under Code Section 172 had it constituted a net
operating loss deduction or Code Section 1212 had it constituted a net capital
loss deduction, as such provisions would have applied to a separate consolidated
return of the International Group, taking into account any and all limitations
on the use of such losses imposed by the Code and the Treasury Regulations
thereunder.
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Adjustments to the International Group Separate Tax
Liability for a taxable year covered by this Tax Sharing Agreement, as a result
of the carryback of a loss pursuant to this Section 4.2, shall be taken into
account as an Adjustment in the manner provided in Section 4.1 above. The
principles of this Section 4.2 shall be similarly applied to excess credits for
any taxable year covered by this Tax Sharing Agreement.
5. State Taxes
5.1 Each International Subsidiary agrees, at the request of
Parent, to join with Parent in a consolidated, combined or unitary state or
local income, franchise, net worth or like tax return (a "Combined Return") for
any taxable year for which Parent determines that it or an Indesco Subsidiary is
permitted or required to file a Combined Return that is permitted or required to
include such International Subsidiary.
5.2 Parent shall pay or cause to be paid the tax liability
reported on a Combined Return and will defend, indemnify and hold harmless each
member of the International Group from and against any liability for taxes
reported on such Combined Return, provided such member has paid all amounts
required to be paid by such member under this Agreement.
5.3 Each International Subsidiary that is included in a
Combined Return shall pay to Parent the amount of state and local income,
franchise, net worth and like tax that would have been payable by such
International Subsidiary if it had not been included in the Combined Return, but
instead had filed on a separate basis (the "Separate State and Local Tax
Liability"); provided, however, that if such Subsidiary is required to be
included in a Combined Return and, but for such requirement, a prudent business
person would not have elected to include such Subsidiary in the Combined Return,
it shall pay to Parent the greater of (i) its Separate State and Local Tax
Liability or (ii) the amount that bears the same ratio to the total tax
liability shown on the Combined Return as such Subsidiary's taxable income
apportioned to the state or local tax jurisdiction with which the Combined
Return is filed bears to the total taxable income apportioned to such
jurisdiction reported on the Combined Return.
5.4 Except as otherwise provided in this section 5, the
principles of this agreement that apply with respect to federal taxes also shall
apply with respect to state taxes.
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6. Determinations in Good Faith. Parent shall act in good faith in
taking any action and in making any determinations and computations that Parent
is required to make hereunder.
7. Disputes. In the event of a disagreement between Parent and an
International Subsidiary with respect to any calculation, payment or other
determination required to be made pursuant to this Agreement, the determination
of Parent's independent tax counsel or independent accounting firm of nationally
recognized standing shall, in the absence of manifest error, be conclusive and
binding on the parties hereto.
8. Effectiveness and Termination. This Agreement shall be effective
with respect to (i) any taxable year of Parent that ends after the Effective
Date in which there is filed a Consolidated Return or a Combined Return and (ii)
any taxable year of an International Subsidiary in which the International
Subsidiary is included in a Consolidated Return or a Combined Return, provided
that this Agreement shall not terminate as to any such taxable year prior to
termination of the Credit Agreement and Indenture. This Agreement shall remain
in effect with respect to a former International Subsidiary after the former
International Subsidiary is no longer a member of the Parent Group, but only
with respect to taxable years in which the former International Subsidiary was a
member of the Parent Group or was included in a Consolidated Return or a
Combined Return.
9. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and all of which, taken together,
shall constitute one agreement.
10. Governing Law. This Tax Sharing Agreement shall be governed by
the laws applicable to contracts entered into and to be fully performed within
the State of New York by residents thereof.
11. Successors and Assigns. This Tax Sharing Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
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12. Miscellaneous. No amendment or waiver of this Tax Sharing
Agreement shall be effective unless and until such amendment or waiver is
submitted to and approved by the Administrative Agent, as defined in the Credit
Agreement, as provided in ss.5.03(s) of the Credit Agreement, and until consent
of the Trustee is obtained pursuant to the Indenture.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the day and year first above written.
INDESCO HOLDINGS CO. INDESCO INTERNATIONAL, INC.
By: /s/ Ariel Gratch, President By: /s/ Ariel Gratch, Vice Chairman
__________________________ ____________________________
CONTINENTAL SPRAYERS INTERNATIONAL, INC.
By: /s/ L.H. Dixey, Jr., Vice AFA PRODUCTS, INC.
President
__________________________
By: /s/ L.H. Dixey, Jr., CFO
____________________________
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