TAX ALLOCATION AGREEMENT

Exhibit 10.1

TAX ALLOCATION AGREEMENT

by and between

FORTUNE BRANDS, INC.

and

FORTUNE BRANDS HOME & SECURITY, INC.

Dated as of September 28, 2011

 

i

 

ii

 

iii

EXHIBITS

Exhibit A     Plan of Separation

 

iv

SCHEDULES

 

 

v

TAX ALLOCATION AGREEMENT

This TAX ALLOCATION AGREEMENT (this “ Agreement ”) is made as of September 28, 2011, by and between Fortune Brands, Inc., a Delaware corporation (“ Fortune Brands ”), and Fortune Brands Home & Security, Inc., a Delaware corporation (“ H&S ”), and, as of the date hereof, a wholly-owned subsidiary of Fortune Brands. Fortune Brands and H&S are referred to herein as “ Parties ” or each individually as a “ Party .”

WHEREAS, Fortune Brands, through the H&S Subsidiaries (as defined herein) and the Transferred Subsidiaries (as defined herein), is engaged in the business of designing, manufacturing and selling home and security products, as described more fully in the Form 10 Registration Statement (as defined herein) (the “ Transferred Business ”);

WHEREAS, the board of directors of Fortune Brands (the “ Fortune Board ”) has determined that it would be advisable and in the best interests of Fortune Brands and its stockholders for Fortune Brands to transfer to H&S (i) 100% of the ownership interests of the Transferred Subsidiaries (as defined herein) and (ii) the Transferred Business Assets (as defined herein) as further described in the Separation and Distribution Agreement by and between Fortune Brands and H&S (the “ Separation and Distribution Agreement ”), dated September 27, 2011;

WHEREAS, the Fortune Board has determined that it would be advisable and in the best interests of Fortune Brands and its stockholders for Fortune Brands to distribute on a pro rata basis to the holders of shares of Fortune Brands’ common stock, par value $3.125 per share (“ Fortune Brands Shares ”), without any consideration being paid by the holders of such Fortune Brands Shares, all of the outstanding shares of H&S common stock, par value $0.01 per share (“ H&S Shares ”), owned by Fortune Brands as of the Distribution Date (as defined herein);

WHEREAS, for federal income tax purposes, the Contribution, Conversion and Distribution, together with the other actions described in Exhibit A, (collectively, the “ Plan of Separation ”) are intended to qualify for tax-free treatment under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “ Code ”);

WHEREAS, it is the intention of the Parties that the distribution of H&S Shares to the stockholders of Fortune Brands, except for cash received in lieu of any factions H&S Shares, will qualify as tax-free under Section 355(a) of the Code to such stockholders and as tax-free to Fortune Brands under Section 361(c) of the Code; and

WHEREAS, in connection with the Plan of Separation, the Parties desire to set forth their agreement with respect to tax matters for taxable periods prior to and including the Distribution Date, in line with the following: (i) H&S is responsible for and shall pay all taxes attributable to the H&S Business and will indemnify Fortune Brands for these taxes, (ii) Fortune Brands is responsible for and shall pay all taxes to the extent such taxes are not attributable to the H&S Business and will indemnify H&S for these taxes, (iii) the Parties will cooperate to efficiently settle Audits, (iv) the Parties are restricted from taking certain actions that could cause the Distribution or certain internal transactions undertaken in anticipation of the Distribution to fail to qualify for tax-free or tax-favored treatment, and each Party will be responsible for any taxes

 

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imposed as a result of the failure of the Distribution or the internal transactions to qualify for tax-favored treatment under the Code if such failure is attributable to certain post-distribution actions taken by that Party or in respect of that Party’s shareholders, and (v) the Parties will cooperate fully and share information with respect to the tax matters covered herein.

NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, each of the Parties mutually covenants and agrees as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

SECTION 1.1 Definitions . As used in this Agreement, the following terms shall have the following meanings:

“ Acting Party ” has the meaning set forth in Section 5.4 .

“ Active Business ” means the business conducted by each of the Active Business Entities (as defined herein) as of the Distribution Date.

“ Affiliate ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Agreement ” has the meaning set forth in the preamble hereto.

“ Active Business Entities ” means (a) Fortune Brands International Corp., a Delaware corporation, (b) Moen Incorporated, a Delaware corporation, (c) Jim Beam Brands Co., a Delaware corporation, and (d) Wood Terminal Co., a Delaware corporation.

“ Audit ” means any audit (including a determination of the status of qualified and non-qualified employee benefit plans), assessment of Taxes, other examination by or on behalf of any Taxing Authority (including notices), proceeding, or appeal of such a proceeding relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations initiated by a Party or any of its Subsidiaries.

“ Business Day ” means any day other than a Saturday, Sunday or a day on which banks are required to be closed in Chicago, Illinois.

“ Challenging Party ” has the meaning set forth in Section 9.2(d) .

“ Change of Control ” means the occurrence of any of the following (a) the direct or indirect sale, transfer or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of a Party, (b) the adoption of a plan relating to the liquidation or dissolution of a Party other than (i) the consolidation with, merger into or transfer of all or part of the properties and assets of any Subsidiary of a Party to such Party or any other Subsidiary of such Party and (ii) the merger of a Party with an Affiliate solely for the purpose of reincorporating (or re-forming) the Party in

 

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another jurisdiction or changing such Party’s name, (c) the consummation of any transaction (including any merger or consolidation) the result of which is that any Person becomes the beneficial owner, directly or indirectly, of more than 50 percent of the voting stock of such Party, measured by voting power rather than number of shares, (d) during any consecutive two-year period, individuals who at the beginning of such period constituted the board of directors of a Party (together with any new directors whose election by such board of directors or whose nomination for election by the stockholders of a Party was approved by a vote of a majority of the directors then still in office who are entitled to vote to elect such new director and were either directors at the beginning of such period or persons whose election as directors or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors of such Party then in office or (e) a Party consolidates with, or merges with or into, directly or indirectly, any unrelated Person, or any unrelated Person consolidates with, or merges with or into, a Party, in any such event pursuant to a transaction in which any of the outstanding voting stock of such Party or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the voting stock of such Party outstanding immediately prior to such transaction is converted into or exchanged for voting stock of the surviving or transferee Person constituting a majority of the outstanding shares of such voting stock of such surviving or transferee Person (immediately after giving effect to such issuance).

“ Code ” has the meaning set forth in the recitals to this Agreement.

“ Contribution ” has the meaning set forth in Section 3.1(e) of the Separation and Distribution Agreement.

“ Conversion ” has the meaning set forth in Section 3.1(g) of the Separation and Distribution Agreement.

“ Correlative Adjustment ” means a disallowance of an item of deduction, loss or credit (or an increase of an item of income or gain) attributable to a Party or that Party’s Subsidiaries, that is included in a Tax Return for a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, and that directly results in a correlative increase of an item of deduction, loss or credit (or reduction of an item of income or gain) with respect to another Party or that Party’s Subsidiaries with respect to a Tax Return for a Pre-Distribution Tax Period or a Straddle Tax Period .

“ Correlative Detriment ” has the meaning set forth in Section 4.1(b) .

“ CPR ” has the meaning set forth in Section 12.2(b) .

“ Dispute ” has the meaning set forth in Section 12.2(a) .

“ Distribution ” has the meaning set forth in Section 4.3 of the Separation and Distribution Agreement.

“ Distribution Date ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

 

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“ Distribution Taxes ” mean any and all Taxes (a) required to be paid by or imposed on a Party or any of its Subsidiaries resulting from, or directly arising in connection with, the failure of the Contribution, Conversion, and Distribution, taken together, to qualify as a reorganization described in Sections 355(a) and 368(a)(1)(D) of the Code (or the failure to qualify under or the application of corresponding provisions of the Laws of other jurisdictions); (b) required to be paid by or imposed on a Party or any of its Subsidiaries resulting from, or directly arising in connection with, the failure of the stock distributed in the Distribution to constitute “qualified property” for purposes of Sections 355(d), 355(e) and Section 361(c) of the Code (or any corresponding provision of the Laws of other jurisdictions); or (c) required to be paid by or imposed on a Party or any of its Subsidiaries resulting from, or directly arising in connection with, the failure of any transaction undertaken in connection with or pursuant to the Plan of Separation to qualify for Tax-Free Status, in whole or in part.

“ Distribution Tax-Related Losses ” shall mean (a) all Distribution Taxes imposed pursuant to any Final Determination; (b) all reasonable accounting, legal and other professional fees and court costs incurred in connection with such Distribution Taxes; and (c) all reasonable costs and expenses and all damages associated with shareholder litigation or controversies and any amount paid by any Fortune Brands Party or H&S Party in respect of the liability of shareholders, whether paid to shareholder or to the IRS or any other Taxing Authority, in each case, resulting from the failure of the Distribution or any other transaction contemplated by the IRS Ruling or any Tax Opinion to have Tax-Free Status.

“ Due Date ” means the date (taking into account all valid extensions) upon which a Tax Return is required to be filed with or Taxes are required to be paid to a Taxing Authority, whichever is applicable.

“ Effective Time ” has the meaning set forth in Section 4.3 of the Separation and Distribution Agreement.

“ Employee Matters Agreement ” means the Employee Matters Agreement by and between Fortune Brands and H&S, dated as September 28, 2011.

“ Estimated Tax Return ” has the meaning set forth in Section 2.1(c)(iv) .

“ Final Amount ” has the meaning set forth in Section 9.2(d) .

“ Final Determination ” means the final resolution of liability for any Tax for any taxable period, by or as a result of:

 

(a)

a final decision, judgment, decree or other order by any court of competent jurisdiction that can no longer be appealed;

 

(b)

a final settlement with the IRS, a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of other jurisdictions, which resolves the liability for the Taxes addressed in such agreement for any taxable period;

 

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(c)

any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax; or

 

(d)

any other final disposition, including by reason of the expiration of the applicable statute of limitations.

“ Form 10 Registration Statement ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Fortune Board ” has the meaning set forth in the recitals to this Agreement.

“ Fortune Brands ” has the meaning set forth in the first paragraph of this Agreement.

“ Fortune Brands Business ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Fortune Brands Non-Separated Issue ” has the meaning set forth in Section 9.2(b)(iii) of this Agreement.

“ Fortune Brands Parties ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Fortune Brands Party’s Tax Attributes ” has the meaning set forth in Section 5.2(a) of this Agreement.

“ Fortune Brands Separated Issue ” has the meaning set forth in Section 9.2(b)(ii) of this Agreement.

“ Fortune Brands Shares ” has the meaning set forth in the recitals to this Agreement.

“ Fortune Brands Tainting Act ” has the meaning set forth in Section 5.1(a) .

“ H&S ” has the meaning set forth in the first paragraph of this Agreement.

“ H&S Allocable Audit Portion ” means the amount of any additional Taxes due and payable that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date that are not reported on a Tax Return filed for such Pre-Distribution Tax Period or Straddle Tax Period to the extent such Taxes are attributable to any H&S-Fortune Brands Entities. The determination of the amount of additional Taxes due and payable that are attributable to the H&S-Fortune Brands Entities shall be calculated on a “with and without basis,” by calculating the amount of the excess (if any) of (a) the net amount of Taxes due and payable pursuant to a Final Determination, over (b) the net amount of Taxes that would be due and payable from the Final Determination that are not attributable to the operations conducted through the H&S Business; provided , however , that (a) and (b) shall be determined by ignoring any available losses, deductions, allowances or credits of the Fortune Brands Parties that are permitted or allowed as a result of consolidated, combined, unitary, group, or similar relief of the Parties (or their Subsidiaries).

 

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“ H&S Allocable Portion ” means, with respect to a Tax Return filed after the Distribution Date for either a Pre-Distribution Tax Period or Straddle Tax Period, the amount of Taxes due and payable, after taking into account all prior payments, including estimated payments, for such Pre-Distribution Tax Period or Straddle Tax Period attributable to any H&S-Fortune Brands Entity. The determination of the amount of Taxes due and payable that are attributable to the H&S-Fortune Brands Entities for a given Tax Return shall be calculated on a “with and without basis,” by calculating the amount of the excess (if any) of (a) the net amount of Taxes shown as due and payable on such Tax Return as filed, over (b) the net amount of Taxes that would be shown as due and payable on such Tax Return if such Tax Return were recalculated excluding the H&S-Fortune Brands Entities; provided , however , that (a) and (b) shall be determined by ignoring any available losses, deductions, allowances or credits of Fortune Brands that are permitted or allowed as a result of consolidated, combined, unitary, group, or similar relief of the Parties (or their Subsidiaries). To the extent the H&S Allocable Portion is determined to be less than zero (for example, due to an overpayment of estimated taxes by an H&S Party to a Fortune Brands Party), such amount shall be treated as a Refund to which H&S is entitled as of the due date of the applicable Tax Return. Notwithstanding anything to contrary, the H&S Allocable Portion shall be computed by taking into account any W-2 wages of any Fortune Brands Party, as permitted under Law, for purposes of determining the eligibility for any deduction allowable under Section 199 of the Code.

“ H&S Business ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ H&S-Fortune Brands Entities ” mean each of the H&S Parties that has filed or is required to file, with respect to itself, its predecessor or any of its assets, any Tax Return on a consolidated, combined, unitary, group, or other basis with any Fortune Brands Party.

“ H&S Non-Separated Issue ” has the meaning set forth in Section 9.2(b)(iii) of this Agreement.

“ H&S Parties ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ H&S Party’s Tax Attributes ” has the meaning set forth in Section 5.2(b) of this Agreement.

“ H&S Separated Issue ” has the meaning set forth in Section 9.2(b)(ii) of this Agreement.

“ H&S Settlement Amount ” has the meaning set forth in Section 9.2(d) of this Agreement.

“ H&S Shares ” has the meaning set forth in the recitals to this Agreement.

“ H&S Subsidiaries ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ H&S Tainting Act ” has the meaning set forth in Section 5.1(b) .

 

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“ Income Taxes ” mean:

 

(a)

all Taxes based upon, measured by, or calculated with respect to (i) net income or profits (including, any capital gains, minimum tax or any Tax on items of tax preference, but not including sales, use, real, or personal property, gross or net receipts, value added, excise, leasing, transfer or similar Taxes), or (ii) multiple bases (including, corporate franchise, doing business and occupation Taxes) if one or more bases upon which such Tax is determined is described in clause (a)(i) above; and

 

(b)

any related interest and any penalties, additions to such Tax or additional amounts imposed with respect thereto by any Taxing Authority.

“ Income Tax Returns ” mean all Tax Returns that relate to Income Taxes.

“ Indemnified Party ” means the Party which is or may be entitled pursuant to this Agreement to receive any payments (including reimbursement for Taxes or costs and expenses) from another Party.

“ Indemnifying Party ” means the Party which is or may be required pursuant to this Agreement to make indemnification or other payments (including reimbursement for Taxes and costs and expenses) to another.

“ Initial Amount ” has the meaning set forth in Section 9.2(d) .

“ IRS ” means the United States Internal Revenue Service or any successor thereto, including its agents, representatives, and attorneys.

“ IRS Ruling ” means the requests submitted to the IRS for all private letter rulings to be obtained by Fortune Brands from the IRS in connection with the Plan of Separation, and any supplemental materials submitted to the IRS relating thereto, and the IRS private letter rulings received by Fortune Brands with respect to the Plan of Separation.

“ Law ” means any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, administrative pronouncement, order, requirement or rule of law (including common law), or any income tax treaty.

“ McDermott ” means McDermott Will & Emery LLP.

“ Mediation Request ” has the meaning set forth in Section 12.2(b) .

“Non-Acting Party ” has the meaning set forth in Section 5.4 .

“ Non-Challenging Party ” has the meaning set forth in Section 9.2(d) .

“ Non-Challenging Party’s Benefit ” has the meaning set forth in Section 9.2(d) .

“ Non-Income Tax Returns ” mean all Tax Returns other than Income Tax Returns.

 

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“ Party ” has the meaning set forth in the first paragraph of this Agreement.

“ Person ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Plan of Separation ” has the meaning set forth in the recitals to this Agreement.

“ Post-Distribution Income Tax Returns ” mean, collectively, all Income Tax Returns required to be filed by a Party or any of its Subsidiaries for a Post-Distribution Tax Period.

“ Post-Distribution Ruling ” has the meaning set forth in Section 5.4 .

“ Post-Distribution Tax Period ” means a Tax year beginning and ending after the Distribution Date.

“ Pre-Distribution Income Tax Returns ” mean, collectively, all Income Tax Returns required to be filed by a Party or any of its Subsidiaries for a Pre-Distribution Tax Period.

“ Pre-Distribution Tax Period ” means a Tax year beginning and ending on or before the Distribution Date.

“ Pre-Distribution U.S. Income Tax Audit ” means any Audit of any U.S. federal, state, or local Income Tax Return filed, or allegedly required to be filed, for any Pre-Distribution Tax Period or Straddle Tax Period which includes an H&S-Fortune Brands Entity .

“ Preparing Party ” has the meaning set forth in Section 2.1(a) .

“ Prime Rate ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Procedure ” has the meaning set forth in Section 12.2(b) .

“ Proposed Acquisition Transaction ” means a transaction or series of transactions (or any agreement, understanding, arrangement, or substantial negotiations within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, to enter into a transaction or series of related transactions), as a result of which a Party (or any successor thereto) would merge or consolidate with 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 (through an option or otherwise), from any Party (or any successor thereto) or one or more holders of its stock, respectively, any amount of stock of the Party, as the case may be, that would, when combined with any other changes in ownership of the stock of the Party, comprise more than 35 percent of (a) the value of all outstanding stock of the Party 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 stock of the Party 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. For purposes of determining whether a transaction constitutes an indirect acquisition for purposes of the first sentence of this definition, any recapitalization or other action resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect

 

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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 the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.

“ Qualified Tax Counsel ” means any law firm or accounting firm of national reputation approved by Fortune Brands or H&S, as appropriate, which approval shall not be unreasonably withheld.

“ Refund ” means any refund of Taxes (including any overpayment of Taxes that can be refunded or, alternatively, applied to future Taxes payable), including any interest paid on or with respect to such refund of Taxes; provided , however , the amount of the refund of Taxes shall be net of any Taxes imposed by any Taxing Authority on the receipt of the refund.

“ Restricted Period ” means the period beginning at the Effective Time and ending on the two-year anniversary of the day after the Distribution Date.

“ Restricted Person ” means any Person that had in effect at any time during the two-year period preceding the Distribution Date, a confidentiality agreement with any Fortune Brands Party or H&S Party in respect of the potential acquisition of any of the Active Businesses and each of such Person’s Affiliates, successors and assigns.

“ Separation and Distribution Agreement ” has the meaning set forth in the recitals to this Agreement.

“ Straddle Period Income Tax Returns ” mean, collectively, all Income Tax Returns required to be filed by a Party or any of its Subsidiaries for a Straddle Tax Period.

“ Straddle Tax Period ” means a Tax year beginning before the Distribution Date and ending after the Distribution Date.

“ Subsidiary ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Tainting Act ” has the meaning set forth in Section 5.3 .

“ Tax ” or “ Taxes ” whether used in the form of a noun or adjective, means taxes on or measured by income, franchise, gross receipts, sales, use, excise, payroll, personal property, real property, ad-valorem, value-added, leasing, leasing use, unclaimed property or other taxes, levies, imposts, duties, charges, or withholdings of any nature. Whenever the term “Tax” or “Taxes” is used it shall include penalties, fines, additions to tax and interest thereon.

“ Tax Attributes ” mean for U.S. federal, state, local, and non-U.S. Income Tax purposes, earnings and profits, tax basis, net operating and capital loss carryovers or carrybacks, alternative minimum Tax credit carryovers or carrybacks, general business credit carryovers or carrybacks, income tax credits or credits against income tax, disqualified interest and excess limitation carryovers or carrybacks, overall foreign losses, research and experimentation credit base periods, and all other items that are determined or computed on an affiliated group basis (as defined in Section 1504(a) of the Code determined without regard to the exclusion contained in Section 1504(b)(3) of the Code), or similar Tax items determined under applicable Tax law.

 

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“ Tax Benefit ” means the reduction in Taxes resulting from the payment by a Party (or its Subsidiaries) of amounts that are indemnified by the other Party under this Agreement or the Separation and Distribution Agreement.

“ Tax-Free Status ” means the qualification of the Distribution or any other transaction contemplated by the IRS Ruling or any Tax Opinion as a transaction in which gain or loss is not recognized, in whole or in part, and no amount is included in income, including by reason of Distribution Taxes, for U.S. federal, state, and local income tax purposes (other than intercompany items, excess loss accounts or other items required to be taken into account pursuant to Treasury Regulations promulgated under Section 1502 of the Code).

“ Tax Opinions ” mean certain Tax opinions and supporting memoranda rendered by McDermott to Fortune Brands or any of its Subsidiaries in connection with the Plan of Separation.

“ Tax Package ” means:

 

(a)

a pro forma Tax Return relating to the operations of any H&S Party that is required to be included in an Income Tax Return that is required to be filed by any Fortune Brands Party; and

 

(b)

all information relating to the operations of the H&S Parties that is reasonably necessary to prepare and file such pro forma Tax Return consistent with past practices.

“ Tax Representation Letter ” means any letter containing certain representations and covenants issued by Fortune Brands or any of its Subsidiaries to McDermott in connection with the Tax Opinions.

“ Tax Returns ” mean any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended tax return, claim for refund, or declaration of estimated Tax) required to be supplied to, or filed with, a Taxing Authority in connection with the determination, assessment or collection of any Tax or the administration of any Laws relating to any Taxes.

“ Taxing Authority ” means any governmental authority or any subdivision, agency, commission, or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection, or imposition of any Tax (including the IRS).

“ Timing Item ” has the meaning set forth in Section 4.1(b) of this Agreement.

“ Total Benefit ” has the meaning set forth in Section 9.2(d) .

 

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“ Transaction Agreements ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Transferred Business ” has the meaning set forth in the recitals to this Agreement

“ Transferred Business Assets ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Transferred Subsidiaries ” has the meaning set forth in Section 1.1 of the Separation and Distribution Agreement.

“ Treasury Regulations ” mean the final and temporary (but not proposed) income tax and administrative regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

“ Unqualified Tax Opinion ” means an unqualified reasoned “will” opinion of Qualified Tax Counsel, which opinion is reasonably acceptable to Fortune Brands or H&S, as applicable, and upon which each of the Parties may rely to confirm that a transaction (or transactions) will not result in Distribution Taxes, including confirmation in accordance with Circular 230 or otherwise that may be provided for purposes of avoiding any applicable penalties or additions to Tax for purposes of this definition. For purposes hereof, an opinion is “reasoned” if it describes the reasons for the conclusions, including the facts and analysis supporting the conclusions.

“ U.S. ” means the United States.

SECTION 1.2 Interpretation .

(a) For purposes of this Agreement:

(i) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation;”

(ii) the word “or” is not exclusive;

(iii) the words “herein,” “hereunder,” “hereof,” “hereby,” “hereto” and words of similar import shall be deemed to be references to this Agreement as a whole and not to any particular Section or other provision hereof; and

(iv) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including.”

(b) In this Agreement, unless the context clearly indicates otherwise:

(i) words used in the singular include the plural and words used in the plural include the singular;

(ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement;

 

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(iii) reference to any Person’s “Affiliates” shall be deemed to mean such Person’s Affiliates following the Distribution;

(iv) reference to any gender includes the other gender;

(v) reference to any Article, Section, Exhibit or Schedule means such Article or Section of, or such Exhibit or Schedule to, this Agreement, as the case may be;

(vi) reference to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;

(vii) reference to any Law means such Law (including all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;

(viii) accounting terms used herein shall have the meanings ascribed to them by Fortune Brands and its Subsidiaries, including H&S, in its and their internal accounting and financial policies and procedures in effect immediately prior to the date of this Agreement;

(ix) if there is any conflict between the provisions of this Agreement and the Separation and Distribution Agreement or any of the other Transaction Agreements, the provisions of this Agreement shall control with respect to all matters related to Taxes or Tax Returns of the Fortune Brands Parties or the H&S Parties unless explicitly stated otherwise herein or therein;

(x) any portion of this Agreement obligating a Party to take any action or refrain from taking any action, as the case may be, shall mean that such Party shall also be obligated to cause its relevant Subsidiaries to take such action or refrain from taking such action, as the case may be; and

(xi) unless otherwise specified in this Agreement, all references to dollar amounts herein shall be in respect of lawful currency of the United States.

(c) The titles to Articles and headings of Sections contained in this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of or to affect the meaning or interpretation of this Agreement, and this Agreement and the Transaction Agreements shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting an instrument or causing any instrument to be drafted.

(d) The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.

 

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ARTICLE II

PREPARATION AND FILING OF TAX RETURNS

SECTION 2.1 Responsibility of Parties to Prepare and File Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns .

(a) General . To the extent not previously filed and subject to the rights and obligations of each of the Parties set forth herein, Schedule 2.1(a) sets forth the Parties (each, a “ Preparing Party ”) that are responsible for preparing or causing to be prepared all Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns. Unless otherwise provided in this Agreement, the Preparing Party is responsible for the costs and expenses associated with such preparation. The Party responsible, or whose Affiliate is responsible, for filing a Pre-Distribution Income Tax Return or Straddle Period Income Tax Return under applicable Law shall timely file or cause to be timely filed such Income Tax Returns with the applicable Taxing Authority. Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns shall be prepared and filed in a manner (i) consistent with the past practice of the Parties and their Subsidiaries unless otherwise modified by a Final Determination or required by applicable Law; and (ii) consistent with (and the Parties and their Subsidiaries shall not take any position inconsistent with) the IRS Ruling, the Tax Representation Letters, and the Tax Opinions. No Parties shall take any actions inconsistent with the assumptions (including items of income, gain, deduction, loss and credit) made in determining all estimated or advance payments of Income Tax on or prior to the Distribution Date.

(b) Tax Package . To the extent not previously provided, the Party other than the Preparing Party shall (at its own cost and expense), to the extent that a Pre-Distribution Income Tax Return or a Straddle Period Income Tax Return includes items of that Party or its Subsidiaries, prepare and provide or cause to be prepared and provided to the Preparing Party a Tax Package relating to that Pre-Distribution Income Tax Return or Straddle Period Income Tax Return. Such Tax Package shall be provided in a timely manner consistent with the past practices of the Parties and their Subsidiaries. In the event a Party does not fulfill its obligations pursuant to this Section 2.1(b) , the Preparing Party shall be entitled, at the sole cost and expense of the first Party, to prepare or cause to be prepared the information required to be included in the Tax Package for purposes of preparing any such Pre-Distribution Income Tax Return or Straddle Period Income Tax Return.

(c) Procedures Relating to the Review and Filing of Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns .

(i) In the case of Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns, to the extent not previously filed, no later than 30 days prior to the Due Date of each such Tax Return (reduced to 15 days for state or local Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns), the Preparing Party shall make available or cause to be made available drafts of such Tax Return (together with all related work papers) to the other Party. The other Party shall have access to any and all data and information necessary for the preparation of all such Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns and the Parties shall cooperate fully in the preparation and review of such Tax

 

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Returns. Subject to the preceding sentence, no later than 15 days after receipt of such Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns (reduced to 5 days for state or local Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns), the other Party shall have a right to object to such Pre-Distribution Income Tax Return or Straddle Period Income Tax Return (or items with respect thereto) by written notice to the Preparing Party; such written notice shall contain such disputed item (or items) and the basis for its objection.

(ii) With respect to a Pre-Distribution Income Tax Return or Straddle Period Income Tax Return submitted by the Preparing Party to the other Party pursuant to Section 2.1(c)(i) , if the other Party does not object by proper written notice described in Section 2.1(c)(i) , such Pre-Distribution Income Tax Return or Straddle Period Income Tax Return shall be deemed to have been accepted and agreed upon, and to be final and conclusive, for purposes of this Section 2.1(c)(ii) . If a Party does object by proper written notice described in Section 2.1(c)(i) , the Parties shall act in good faith to resolve any such dispute as promptly as practicable; provided , however , that, notwithstanding anything to the contrary contained herein, if the Parties have not resolved the disputed item or items by the day 5 days prior to the Due Date of such Pre-Distribution Income Tax Return or Straddle Period Income Tax Return, such Tax Return shall be filed as prepared pursuant to this Section 2.1 (revised to reflect all initially disputed items that the Parties have agreed upon prior to such date).

(iii) In the event that a Pre-Distribution Income Tax Return or Straddle Period Income Tax Return is filed that includes any disputed item for which proper notice was given pursuant to this Section 2.1(c) that was not finally resolved and agreed upon, such disputed item (or items) shall be resolved in accordance with Section 12.2 . In the event that the resolution of such disputed item (or items) in accordance with Section 12.2 with respect to a Pre-Distribution Income Tax Return or a Straddle Period Income Tax Return is inconsistent with such Pre-Distribution Income Tax Return or Straddle Period Income Tax Return as filed, the Preparing Party (with cooperation from the other Party) shall, as promptly as practicable, amend such Tax Return to properly reflect the final resolution of the disputed item (or items). In the event that the amount of Taxes shown to be due and owing on a Pre-Distribution Income Tax Return or Straddle Period Income Tax Return is adjusted as a result of a resolution pursuant to Section 12.2 , proper adjustment shall be made to the amounts previously paid or required to be paid in accordance with Article III in a manner that reflects such resolution.

(iv) Notwithstanding anything to the contrary in this Section 2.1 , in the case of any Income Tax Return for estimated Taxes (“ Estimated Tax Return ”) for a Pre-Distribution Tax Period, to the extent not previously filed, as soon as practicable prior to the Due Date of each such Estimated Tax Return, the Preparing Party shall make available or cause to be made available drafts of such Estimated Tax Return (together with all related work papers) to the other Party. The other Party shall have access to any and all data and information necessary for the preparation of such Estimated Tax Returns and the Parties shall cooperate fully in the preparation and review of such Estimated Tax Returns in a manner consistent with past practice. Subject to the preceding sentence, a Party shall have a right to object by written notice to the other Party (and such written notice shall contain such disputed item (or items) and the basis for the objection) and the principles of Section 2.1(c)(ii) shall apply to such Estimated Tax Return.

 

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(v) For the avoidance of doubt, Section 2.1(c) shall only apply to Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns which could reasonably result in both Parties becoming responsible for a payment of Taxes pursuant to Article III or a payment to the other Party pursuant to Section 9.3 .

SECTION 2.2 Responsibility of Parties to Prepare and File Post-Distribution Income Tax Returns and Non-Income Tax Returns . The Party or its Subsidiary responsible under applicable Law for filing a Post-Distribution Income Tax Return or a Non-Income Tax Return shall prepare and timely file or cause to be prepared and timely filed that Tax Return (at that Party’s own cost and expense).

SECTION 2.3 Time of Filing Tax Returns; Manner of Tax Return Preparation . Unless otherwise required by a Taxing Authority pursuant to a Final Determination, the Parties shall prepare and file or cause to be prepared and filed all Tax Returns and take all other actions in a manner consistent with (and shall not take any position inconsistent with) any assumptions, representations, warranties, covenants, and conclusions provided by the Parties (or any of their Subsidiaries) in connection with the Plan of Separation, the IRS Ruling, the Tax Representation Letter and the Tax Opinion.

ARTICLE III

RESPONSIBILITY FOR PAYMENT OF TAXES

SECTION 3.1 Responsibility of Fortune Brands for Taxes . Except as otherwise provided in this Agreement, Fortune Brands shall be liable for and shall pay or cause to be paid the following Taxes:

(a) to the applicable Taxing Authority, any Taxes due and payable on all Pre-Distribution Income Tax Returns and Straddle Period Income Tax Returns that Fortune Brands is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.1 ; and

(b) to the applicable Taxing Authority, any Taxes due and payable on all Post-Distribution Income Tax Returns and Non-Income Tax Returns that Fortune Brands is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.2 .

SECTION 3.2 Responsibility of H&S for Taxes . Except as otherwise provided in this Agreement, H&S shall be liable for and shall pay or cause to be paid the following Taxes:

(a) to the applicable Taxing Authority, any Taxes due and payable on all Pre-Distribution Income Tax Returns and Straddle Period In