EXHIBIT 10.5
TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT (the "Agreement") dated as of , 1996, between
Commercial Intertech Corp, an Ohio corporation (CIC), and Cuno Incorporated, a
Delaware Corporation (Cuno).
WHEREAS, CIC is currently the common parent of an affiliated group of
corporations (the "Old Company Group") within the meaning of Section 1502 of the
Internal Revenue Code of 1986, as amended (the "Code") filing consolidated,
combined or unitary income tax returns ("Consolidated Returns"), pursuant to
which CIC and one or more other members of the Affiliated Group pay Taxes (as
defined herein) on a consolidated basis ("Consolidated Taxes");
WHEREAS CIC will distribute the stock of Cuno to its shareholders ("Spin-Off"),
in a transaction intended to qualify as a tax-free spin-off under Section 355 of
the Code.
WHEREAS, on the beginning of the first day after the date on which the Spin-Off
occurs (the "Distribution Date"), Cuno and its subsidiaries (collectively, the
"Cuno Group"), will cease to be members of the Old Company Group;
WHEREAS, CIC and Cuno desire to allocate the liability for the Taxes of members
of the Old Company Group for any Tax Period (including short Tax Periods and any
portion of any Tax Period) which period (or portion) ends on or before the
Distribution Date (a "Pre-Distribution Tax Period") among the members of the Old
Company Group in a manner consistent with the tax allocation agreement and
practices of the Old Company Group as in effect on the Distribution Date, and to
provide for certain other tax-related matters;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows.
ARTICLE I
CERTAIN DEFINITIONS
The following terms used herein shall have the meanings set forth below (such
terms to be equally applicable to the singular and plural forms of the terms
defined or referred to below):
1.1 "Agreement" shall have the meaning set forth in the recitals to this
Agreement.
1.2 "Code" shall have the meaning set forth in the recitals to this Agreement.
1.3 "CIC Group" means CIC and any subsidiaries which CIC continues to own
following the Distribution that are eligible to join in a consolidated tax
return with CIC, together with CIC.
1.4 "Consolidated Return" shall have the meaning set forth in the recitals to
this Agreement.
1.5 "Consolidated Group" or "consolidated group" means an affiliated group of
corporations filing a consolidated federal income tax return, as defined in
Treasury Regulation Section 1.1502-1 (h).
1.6 "Distribution Date" shall have the meaning set forth in the recitals to
this Agreement.
1.7 "Income Taxes" means any and all Taxes based upon or measured by net income
(including, without limitation, any alternative minimum tax under Section 55 of
the Code) imposed by or payable to the U.S., or any state, county, local or
foreign government or any subdivision or agency thereof, and such term shall
include any interest (whether paid or received), penalties or additions to tax
attributable thereto.
1.8 "Income Tax Liabilities" means all liabilities for Income Taxes net of
refunds, net of refunds including liabilities for Income Taxes assumed by a
party pursuant to a contract.
1.9 "Indemnified Party" means the party that is entitled to indemnification by
another party pursuant to this Agreement.
1.10 "Indemnifying Party" means the party that is required to indemnify another
party pursuant to this Agreement.
1.11 "Independent Accounting Firm" means a "big six" independent accounting
firm, jointly selected by the parties; or, if the parties cannot agree on such
accounting firm, Cuno and CIC shall each submit the name of a "big six"
independent accounting firm that does not at the time and has not in the prior
two years provided services to any member of the Cuno Group or the CIC Group,
and the "Independent Accounting Firm" shall mean the firm selected by lot from
these two firms.
1.12 "Information Return" means any report, return, declaration or other
information or filing (other than a Tax Return) required to be supplied to any
taxing authority or jurisdiction.
1.13 "Cuno Group" shall have the meaning set forth in the recitals to this
Agreement.
1.14 "Material Tax Election" means any election, change in annual accounting
period, change or adoption of any accounting method, filing of any amended Tax
Return, entering into any closing agreement, settlement of any Tax claim or
Proceeding relating to any member of the Old Company Group or the Cuno Group,
surrender of any right to claim a Refund, or consent to any extension or waiver
of the limitation period applicable to any Tax claim or assessment.
1.15 "Old Company Group" shall have the meaning set forth in the recitals to
this Agreement.
1.16 "Other Taxes" means all Taxes other than Income Taxes.
1.17 "Overpayment Rate" means the rate specified under Section 6621 (a) (1) of
the Code for overpayments of tax.
1.18 "Post-Distribution Tax Period" means any Tax Period ending after the
Distribution Date (other than "Pre-Distribution Tax Period" below).
1.19 "Pre-Distribution Tax Period" shall have the meaning set forth in the
recitals to this Agreement.
1.20 "Proceeding" means any audit or other examination, judicial or
administrative proceeding relating to liability for or refunds or adjustments
with respect to Taxes.
1.21 "Property Taxes" shall have the meaning set forth in Section 3.2 (a) (I) of
this Agreement.
1.22 "Refund" means any refund of Income Taxes or Other Taxes, including any
reduction in liabilities for such taxes.
1.23 "Short Period" shall have the meaning set forth in Section 3.1 (a) of this
Agreement.
1.24 "Spin-Off" shall have the meaning set forth in the recitals to this
Agreement.
1.25 "Tax Period" means any twelve month period which constitutes the taxable
year of a party hereto.
1.26 "Tax Return" means any report, return, declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to Income Taxes or Other Taxes, including, without limitation, any
documents with respect to or accompanying payments of estimated Income Taxes or
Other Taxes, or with respect to or accompanying requests for the extension of
time in which to tile any such report, return, declaration or other document.
1.27 "Taxes" means any Income Taxes and all taxes, levies or other like
assessments, charges or fees, including, without limitation, any excise, real or
personal property, gains, sales, use, license, real estate or personal property
transfer, net worth, stock transfer, payroll, ad valorem and other governmental
taxes and any withholding obligation imposed by or payable to the U.S., or any
state, county, local or foreign government or subdivision or agency thereof, and
any interest (whether paid or received), penalties or additions to tax
attributable thereto.
1.28 "Taxing Authorities" means any governmental authority which imposes, or is
responsible for the imposition of a Tax.
1.29 "Transfer" means any transfer of assets by a member of the Old Company
Group which occurs in contemplation of or to effectuate the Spinoff and which
may give rise to deferred intercompany gain or gain pursuant to Code section
311(b).
1.30 "Distribution" shall mean the distribution of Cuno stock to the
shareholders pursuant to the spin-off described in the Recitals to this
Agreement.
1.31 "Transfer and Distribution Taxes" means any Taxes imposed or assessed
against any member of the Old Company Group, the CIC Group or the Cuno Group,
attributable to or occasioned by, the Transfer described in 1.29 and/or a
Distribution described in 1.30 above.
ARTICLE II
TERMINATION OF PRIOR TAX SHARING AGREEMENTS
Termination of Prior Tax Sharing Agreement. This AGREEMENT shall take
effect on the Distribution Date and shall supersede all other agreements,
whether or not written in respect of any Taxes between the Cuno Group and the
CIC Group their respective predecessors or successors, except to the extent
necessary to effectuate section 4.1 and section 5.1 of this Agreement with
respect to the Cuno Group and the CIC Group. All such replaced agreements shall
terminate as of the Distribution Date, and any rights or obligations created
thereunder thereby shall be settled in the normal course.
ARTICLE III
RETURN PREPARATION, FILING AND PAYMENT OF TAXES
3.1 Control of Tax Matters.
(a) Return Preparation and Filing.
(i) Pre-Distribution Tax period. Cuno hereby irrevocably designates, and
agrees to cause each of its subsidiaries to so designate, CIC as its agent to
take any and all actions, necessary or incidental to the preparation of
Consolidated Returns and the filing of such Consolidated Returns and claims for
Refunds or forms relating to any Pre-Distribution Tax period.
(ii) Short Period. For any Tax Period that begins prior to the Distribution
Date and ends on the Distribution Date (a "Short Period") of CIC or any of its
subsidiaries that was a member of the Old Company Group for any Pre-Distribution
Tax Period, CIC will timely prepare and file (in a manner consistent with past
practice of CIC, unless CIC reasonably determines that such practice is
inconsistent with the then existing state of the law) with the appropriate
Taxing Authorities all Consolidated Returns required to be filed for such Short
Period.
(iii) Separate Company Returns. Each Company that was a member of the Old
Company Group shall be responsible for filing all of its Tax Returns for the Tax
Period which includes the Distribution Date, other than any Consolidated Federal
Income Tax Returns for Short Periods.
3.2 Cooperation and Record Retention.
(a) CIC and Cuno agrees to cooperate fully, and will cause each of their
subsidiaries to so cooperate, in a timely manner consistent with existing
practice in filing any return or consent contemplated by this Agreement. CIC
and Cuno also agree to take, and will cause the appropriate subsidiary to
take, such action or actions as CIC or Cuno may reasonably request, including
but not limited to the filing of requests for the extension of time within which
to file Consolidated Returns, and to cooperate in connection with any refund
claim with respect to any Pre-Distribution Tax Period. CIC and Cuno further
agree to furnish timely, and to cause each of their subsidiaries to so furnish
CIC or Cuno with any and all information reasonably requested in order to carry
out the provision of this Agreement. Without limiting the generality of the
foregoing sentence, CIC and Cuno specifically agree to provide each other
promptly, but in any event within 10 days of receipt thereof, copies of any
correspondence or notices received from the Internal Revenue Service of any
other Taxing authority with respect to any Consolidated Return of the Old
Company Group for a Pre-Distribution Tax Period.
(b) CIC and Cuno shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with any Proceeding. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
Proceeding, and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. CIC and Cuno agree (i) to retain all books and records with respect
to tax matters pertinent to the Old Company Group and the Cuno Group relating to
any Pre-Distribution Tax Period, and to abide by all record retention agreements
entered into with any Taxing Authority, and (ii) to give the other party
reasonable written notice prior to destroying or discarding any such books and
records and, if the other party so requests, CIC or Cuno as the case may be,
shall allow the requesting party to take possession of such books and records.
CIC and Cuno further acknowledge and agree that any such books and records
necessary to establish the amount of any loss or tax credit carry forward shall
be retained until the expiration of the statute of limitations in respect of the
year in which such loss or tax credit carry foward are utilized to reduce
taxable income, or tax.
ARTICLE IV
REFUNDS AND CONTESTS
4.1 Refunds of Income Taxes or Other Taxes. The Cuno Group shall be entitled to
all Refunds attributable to the Cuno Group, and the CIC Group shall be entitled
to all Refunds attributable to the CIC Group or the Old Company Group (other
than those attributable to the Cuno Group). For this purpose, Refunds
attributable to the Cuno Group shall mean Refunds determined pursuant to the
prior tax sharing agreement and practices between CIC and Cuno. Refunds
attributable to the Old Company Group shall mean Refunds determined pursuant to
such tax sharing agreement and practices (other than those attributable to the
Cuno Group). A party receiving a Refund to which another party is entitled
pursuant to this Agreement shall pay the amount to which such other party is
entitled within ten days after the receipt of the Refund.
4.2 Contests.
(a) Except as provided below, in the event that any deficiencies or Refund
claims arise with respect to an Income Tax Liability with respect to any
Consolidated Return of the Old Company Group for a Pre-Distribution Tax Period
except as provided below, CIC shall control all Proceedings with respect
thereto. In the event that any issue or issues are raised during such
Proceedings that may result, directly or indirectly, in deficiencies or refund
claims related to Taxes that would be required to be paid by Cuno pursuant to
this Agreement, both Cuno and CIC agree and acknowledge that the contest of any
such issue or issues shall be conducted jointly. With respect to such joint
contests, neither party shall have the right to accept or enter into the
settlement of any Tax liability, or compromise any Tax claim to the extent such
liability or claim relates to an item for which the other party has indemnity
liability hereunder, without the prior written consent of the other party (which
consent shall not be unreasonably withheld).
CIC's right to indemnity hereunder shall be conditioned on compliance with this
Agreement. CIC shall be required to give notice to Cuno upon the receipt of oral
or written notice from any governmental authority or agent thereof of an issue
that may result in Taxes for which a claim for indemnity from Cuno may be made,
under this Agreement. Cuno agrees to pay its own expenses incurred in connection
with its participation in any such Proceedings.
(b) Cuno and CIC agree to cooperate in all reasonable respects with respect to
Tax deficiencies or Refund claims described in Section 4.2 of this Agreement,
which cooperation shall include executing and filing such waivers, consents,
forms court petitions, refund claims, complaints, powers of attorney and other
documents needed from time to time in order to defend, prosecute or resolve such
deficiencies or claims.
ARTICLE V
INDEMNIFICATION FOR TAXES
5.1 Cuno Group and Cuno Group Income Taxes. The Cuno Group shall pay, and shall
indemnify and hold the CIC Group harmless against (i) all Income Tax Liabilities
of any member of the Cuno Group for all Tax Periods (Including Tax Periods or
portions thereof during which any member of the Cuno Group was a member of the
Old Company Group but excluding all Income Tax Liabilities arising from the
Transfer and Distribution as provided for in Section 5.3 hereof) and (ii) all
Income Tax Liabilities incurred pursuant to Treasury Regulation Section 1.1502-6
or any comparable state, local or other provision providing for several
liabilities as a result of any member of the Cuno Group having been a member of
any consolidated, combined, unitary or other group (other than the Old Company
Group). For purposes of clause (i) of this section 5.1, the Income Tax
Liabilities of any member or members of the Cuno Group for any Pre-Distribution
Tax Period shall be determined pursuant to the prior tax sharing agreement and
practices between CIC and Cuno.
5.2 CIC Group and CIC Group Income Taxes. The CIC Group shall pay, and shall
indemnify and hold the Cuno Group harmless against, (i) all Income Tax
Liabilities of any member of the Old Company Group (other than Income Tax
Liabilities of any member of the Cuno Group for any Tax Period) but excluding
all Income Tax Liabilities arising from the Transfer and Distribution as
provided for in Section 5.3 hereof and (ii) all Income Tax Liabilities incurred
pursuant to Treasury Regulation Section 1.1502-6 or any comparable state, local
or other provision providing for several liabilities as a result of any member
of the Old Company Group or the CIC Group (other than any member of the Cuno
Group) having been a member of any other consolidated, combined, unitary or
other group. For purposes of clause (i) of this section 5.2, the Income Tax
Liabilities of any member or members of the Old Company Group for any Pre-
Distribution Tax Period shall be determined pursuant to the prior tax sharing
agreement and practices between CIC and Cuno.
5.3 Transfer and Distribution Taxes.
(a) Cuno shall pay, indemnify and hold the CIC Group harmless from any Transfer
and Distribution Taxes other than Income Taxes attributable to (i) the
restoration of deferred intercompany gain under the United States consolidated
income tax return regulations or (ii) recognition of gain pursuant to Code
section 311(b).
(b) Any Income Tax solely attributable to failure of Distribution to qualify
under Section 355 (hereafter "Spin-Off Taxes") shall be allocated and
apportioned as described in Sections 5(b)(i), (ii), and (iii) below. CIC and
Cuno acknowledge and agree that in determining the proper amount of working
capital required by each group after the Spin-Off, it is intended by the parties
to have the Spin-Off qualify for tax-free treatment under Code sections
368(a)(1)(D) and 355 (i.e., a "Tax-Free Spin-Off"). Therefore, it is
contemplated and agreed that neither CIC nor Cuno nor their respective
shareholders will take any action that will cause the Spin-Off to fail to
qualify for favorable tax treatment under Code sections 368(a)(1)(D) and 355
(i.e., a "Taxable Spin-Off). In the event that the Spin-Off is ultimately
determined to be a Taxable Spin-Off, it is possible that CIC will incur Spin-Off
Taxes, which taxes shall be allocated and apportioned as follows:
(i) If the Spin-Off Taxes are incurred due to a change of control, the
Group undergoing such change of control shall pay, indemnify and hold
the other Group harmless from all Spin-Off Taxes.
(ii) If the Spin-Off Taxes are incurred due to either CIC or Cuno breaching
any of the representation or covenants with respect to the Spin-Off,
any Spin-Off Taxes shall be paid by and the responsibility of the
breaching party.
(iii) If the Spin-Off Taxes are incurred for any reason other than (i) or
(ii) above, Cuno and CIC will each pay, indemnify, and hold harmless
the other party, for 50% of such taxes.
Since it is contemplated by the parties that the working capital requirements of
The Cuno Group and The CIC Group will be affected by the payment of any Spin-Off
Taxes, and that such working capital would be apportioned differently if the
Spin-Off Taxes were anticipated before the Spin-Off, it is agreed that any
payment or indemnification made pursuant to this section relating to Spin-Off
Taxes as well as other Transfer and Distribution Taxes, shall, for Income Tax
purposes, relate back and be deemed to have been paid immediately prior to the
Spin-Off. In the event that the Indemnified Party is required to pay Income
Taxes on the receipt of indemnification for the Spin-Off Taxes, the Indemnifying
Party shall further compensate the Indemnified Party by making an additional
payment (i.e., a "Gross-up Payment") equal to the Income Tax on the sum of (A)
the indemnification for the Spin-Off Taxes and (B) the Gross-up Payment, such
that the Indemnified Party will be made whole on an after tax basis for the
amounts received pursuant to this Section 5. For purposes of calculating the
required Gross-up payment, the highest United States federal marginal income tax
rate in the year of payment plus 4% shall be used.
5.4 Other Taxes. (a) The CIC Group shall pay, and shall indemnify and hold
the Cuno Group harmless against, all liabilities for all Other Taxes
attributable to the income, property or activities of any member of the Old
Company Group or the CIC Group (other than, in both cases, a member of the Cuno
Group). Except as provided in the preceding sentence, the Cuno Group shall pay,
and shall indemnify and hold the CIC Group harmless against, all liabilities for
all Other Taxes attributable to the income, property or activities of any member
of the Cuno Group.
(b) To the extent that the Indemnifying Party is required to indemnify another
party pursuant to this Article V, the Indemnifying Party shall pay to the
Indemnifying Party, no later than 10 days prior to the due date of the relevant
Tax Return or estimated Tax Return or 10 days after the Indemnifying Party
received the Indemnified Party's calculations, whichever occurs later, the
amount that the Indemnifying Party is required to pay the Indemnified Party.
The Indemnified Party shall submit its calculations of the amount required to be
paid pursuant to this Article V, showing such calculations in sufficient detail
so as to permit the Indemnifying Party to understand the calculations. If the
Indemnifying Party disagrees with such calculations, it must notify the
Indemnified Party of its disagreement in writing within 15 days of receiving
such calculations. Any dispute regarding such calculations shall be resolved in
accordance with this Agreement.
ARTICLE VI
GENERAL PROVISIONS
6.1 Computations.
Other than determinations of whether there are any indemnity obligations under
this Agreement, all computations or recomputations of Income Tax Liability and
all determinations, computations or recomputations of any amount or any payment
(including, but not limited to, computations of the amount of the Income Tax
Liability, the amount or effect of any loss, credit or deduction, the effect of
a Federal statutory Tax rate change for a taxable year, and the amount of any
interest, penalties or additions imposed with respect to any Income Tax) with
respect to any Consolidated Return shall be prepared by the CIC and submitted to
Cuno for its written approval. Any disagreement as to such computations after
submission to Cuno by CIC shall be resolved by an Independent Accounting Firm.
6.2 Offsets.
No payment shall be required to be made by either party to the other pursuant to
this Agreement to the extent that there is an amount then due and payable under
this Agreement to the party that is to make such payment.
6.3 Assignment.
Neither this Agreement nor any of the rights, interest or obligations under this
Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable to, the parties hereto and
their respective successors and assigns.
6.4 Survival.
The provisions of this Agreement shall remain in full force until all periods of
limitations, including any extensions or waiver periods, for all Tax Periods of
CIC and Cuno prior to or including the date of the distribution have expired.
6.5 Notices.
Any notices, payments or other communications required by this Agreement shall
be made to the Chief Executive Officer of the Cuno Group and the CIC Group.
Copies of such notices, payments or other communications shall also be sent to
the attention of the director of taxes of the Cuno Group and the CIC Group.
6.6 Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Ohio.
6.7 Entire Agreement.
This Agreement (a) constitutes the entire agreement and supersedes all prior
agreement and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and (b) is not intended to
confer upon any person other than the parties hereto any rights or remedies.
The parties agree that to the extent the provision of any other agreements
executed in connection with the Spin-Off are inconsistent with the provisions
hereof, the provisions of the Agreement shall prevail.
6.8 Severability.
If any provision of this Agreement or the application of any such provision to
any person circumstances shall be held invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof.
6.9 Headings.
The headings of the sections of this Agreement are inserted for convenience only
and shall not constitute a part thereof or affect in any way the meaning or
interpretation of this Agreement.
6.10 Counterparts.
This Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.