TAX SHARING AGREEMENT

Exhibit 10.1

 

TAX SHARING AGREEMENT

by and among

FMC TECHNOLOGIES, INC.

AND ITS AFFILIATES

and

JOHN BEAN TECHNOLOGIES CORPORATION

AND ITS AFFILIATES

TABLE OF CONTENTS

 

 

i

 

ii

TAX SHARING AGREEMENT

This TAX SHARING AGREEMENT , dated as of July 31, 2008, by and among FMC TECHNOLOGIES, INC. (“ Parent ”), a Delaware corporation, by and on behalf of itself and each Affiliate of Parent, and JOHN BEAN TECHNOLOGIES CORPORATION (“ Spinco ”), a Delaware corporation and currently a direct, wholly owned subsidiary of Parent, by and on behalf of itself and each Affiliate of Spinco. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in Article I hereof.

RECITALS

WHEREAS, the Board of Directors of Parent has determined that it is in the best interests of Parent and its stockholders to separate Parent’s existing businesses into two independent companies (the “ Separation ”);

WHEREAS, to effect the Separation, Parent intends to cause the transfer to Spinco of certain assets of Parent and its subsidiaries, and the assumption by Spinco of certain liabilities of Parent and its subsidiaries associated with the assets being transferred, all of which are primarily related to the Spinco Business (the “ Contribution ”) as contemplated by Separation and Distribution Agreement dated as of July 31, 2008 (the “ Separation Agreement ”) and the Ancillary Agreements;

WHEREAS, in connection with the Separation, the Board of Directors of Parent has determined that it would be advisable and in the best interests of Parent and its stockholders for Parent to distribute to the holders of the issued and outstanding shares of common stock of Parent (the “ Parent Common Stock ”) as of the Record Date 100% of the issued and outstanding shares of common stock of Spinco (the “ Spinco Common Stock ”), together with the associated preferred stock purchase rights (each share of such stock, together with the associated preferred stock purchase right, a “ Spinco Share ”), on the basis of 0.216 Spinco Shares for every share of Parent Common Stock (the “ Distribution ”);

WHEREAS, the Contribution and Distribution are intended to qualify as a tax-free reorganization and distribution under Sections 368(a)(1)(D) and 355 of the Code; and

WHEREAS, in contemplation of the Distribution, Parent and Spinco desire to set forth their agreement on the rights and obligations of Parent and Spinco and their respective Affiliates with respect to the responsibility, handling and allocation of federal, state, local, and foreign Taxes, and various other Tax matters.

NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants, and provisions of this Agreement, Parent, Spinco, and their respective Affiliates mutually covenant and agree as follows:

ARTICLE I

DEFINITIONS

“ Affiliate ” means any corporation, partnership, limited liability company, or other entity directly or indirectly Controlled by the entity in question. For purposes of this Agreement, an Affiliate of Parent shall not include Spinco or any entity that is also an Affiliate of Spinco.

“ After Tax Amount ” means any additional amount necessary to reflect (through a gross-up mechanism) the hypothetical Tax consequences of the receipt or accrual of any payment required to be made under this Agreement (including payment of an additional amount or amounts hereunder and the effect of the deductions available for interest paid or accrued and for Taxes such as state and local Income Taxes), determined by using the applicable corporate Tax rate (or rates, in the case of an item that affects more than one Tax) for the relevant taxable jurisdiction and period (or portion thereof).

“ Agreement ” means this Tax Sharing Agreement, including any schedules, exhibits, and appendices attached hereto.

“ Cash Acquisition Merger ” means a merger of a newly-formed subsidiary of Spinco with a corporation, limited liability company, limited partnership, general partnership or joint venture (in each case, not previously owned, directly or indirectly, by Spinco) solely for cash pursuant to which Spinco acquires such corporation, limited liability company, limited partnership, general partnership or joint venture and no Equity Securities of Spinco or any Spinco Affiliate are issued, sold, redeemed, or acquired, directly or indirectly.

“ Code ” means the Internal Revenue Code of 1986 (or, if relevant, the Internal Revenue Code of 1954), as amended, or any successor thereto, as in effect for the taxable period in question.

“ Combined Jurisdiction ” means, for any taxable period, any jurisdiction with respect to which a Combined Return is filed for United States federal, state, local, or foreign Income Tax purposes.

“ Combined Return ” means any combined, unitary, or consolidated Tax Return or report, or any Tax Return or report for a single entity that operated a Spinco Business for any portion of the relevant Tax period (and which is not otherwise a Spinco Separate Tax Return), used in the determination of a United States federal, state, local, or foreign Income Tax liability.

“ Contribution ” has the meaning prescribed in the recitals to this Agreement.

“ Control ” means the ownership of stock or other securities possessing at least 50 percent of the total combined voting power of all classes of securities entitled to vote.

“ Deferred Tax Assets ” means, as of a given date, the amount of deferred tax benefits (including deferred tax consequences attributable to deductible temporary differences and carryforwards) that would be recognized as assets on a business enterprise’s balance sheet computed in accordance with GAAP, but without regard to valuation allowances.

“ Deferred Tax Liabilities ” means, as of a given date, the amount of deferred tax liabilities (including deferred tax consequences attributable to deductible temporary differences) that would be recognized as liabilities on a business enterprise’s balance sheet computed in accordance with GAAP, but without regard to valuation allowances.

“ Deferred Taxes ” means, as of a given date, the amount of Deferred Tax Assets, less the amount of Deferred Tax Liabilities. Deferred Taxes may be a net negative or positive amount, and shall be computed without regard to any payments to be made pursuant to Section 2.10.

“ Distribution ” has the meaning prescribed in the preamble to this Agreement.

“ Distribution Date ” means the date on which the Spinco stock is distributed by Parent to its shareholders in a transaction intended to qualify as a tax-free distribution under Sections 355 and 368(a)(1)(D) of the Code.

“ Employee Restricted Stock ” means either Parent Restricted Stock or Spinco Restricted Stock.

“ Employee Stock Option ” means either a Parent Stock Option or a Spinco Stock Option.

“ Equity Securities ” means any stock or other equity securities treated as stock for Tax purposes, or options, warrants, rights, convertible debt, or any other instrument or security that affords any Person the right, whether conditional or otherwise, to acquire stock or to be paid an amount determined by reference to the value of stock.

“Estimated Spinco Separate Tax Liability” has the meaning prescribed in Section 2.2(e).

“ Filing Party ” has the meaning prescribed in Section 3.2(b).

“ Final Determination ” shall mean the final resolution of liability for any Tax for a taxable period, including any related interest, penalties or other additions to tax, (i) by Internal Revenue Service Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the IRS, or by a comparable form under the laws of other jurisdictions; except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund and/or the right of the Taxing Authority to assert a further deficiency with respect to a Tax Item shall not constitute a Final Determination with respect to such Tax Item; (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (iii) by a closing agreement or accepted offer in compromise under Section 7121 or Section 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iv) by 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 (including by way of offset) by the jurisdiction imposing such Tax; or (v) by any other final disposition, including by reason of the expiration of the applicable statute of limitations.

 

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“ GAAP ” means United States generally accepted accounting principles as in effect on the Distribution Date.

“ Income Taxes ” means all federal, state, local, and foreign income Taxes or other Taxes based on income or net worth, and any other franchise or similar Taxes.

“ IRS ” means the United States Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives, and attorneys.

“ Liability Issue ” has the meaning prescribed in Section 5.1(c).

“ Non-filing Party ” has the meaning prescribed in Section 3.2(b).

“ Non-preparing Party ” has the meaning prescribed in Section 3.4(a).

“ Option ” means an option to acquire common stock, or other equity-based incentives the economic value of which is designed to mirror that of an option, including non-qualified stock options, discounted non-qualified stock options, cliff options to the extent stock is issued or issuable (as opposed to cash compensation), and tandem stock options to the extent stock is issued or issuable (as opposed to cash compensation).

“ Other Taxes ” means all taxes other than Income Taxes, including (but not limited to) transfer, sales, use, payroll, property, and unemployment Taxes.

“ Owed Party ” has the meaning prescribed in Section 7.5.

“ Owing Party ” has the meaning prescribed in Section 7.5.

“ Parent ” has the meaning prescribed in the preamble to this Agreement.

“ Parent Common Stock ” has the meaning prescribed in the recitals to this Agreement.

“ Parent Consolidated Group ” means the affiliated group of corporations (within the meaning of Section 1504 of the Code) of which Parent is the common parent prior to the Distribution Date.

“ Parent Employee ” means an employee of Parent or any Parent Affiliate immediately after the Distribution.

“ Parent Group ” means the group of corporations that, immediately after the Distribution Date, are members of the affiliated group of corporations of which Parent is the common parent (within the meaning of Section 1504 of the Code).

 

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“ Parent Representation Letter ” means an officer’s certificate in which certain representations, warranties and covenants are made on behalf of Parent and its Affiliates in connection with the issuance of a Tax Opinion or Tax Ruling.

“ Parent Restricted Stock ” means Parent common stock received by a Parent or Spinco Employee in connection with his or her employment, which stock has not yet been included in the income of such Employee as of the Distribution Date.

“ Parent Separate Tax Return ” means any Tax Return for any Tax period that includes one or more members of the Parent Group, but does not include any members of the Spinco Group.

“ Parent Stock Option ” means an Option to acquire Parent common stock received by a Parent or Spinco Employee in connection with his or her employment, which Option has not yet been exercised as of the Distribution Date.

“ Person ” means any natural person, corporation, general partnership, limited partnership, limited liability company, limited liability partnership, proprietorship, trust, association, union, governmental authority or other entity, enterprise, authority or organization.

“ Post-Distribution Tax Period ” means, with respect to a given entity, any taxable period (or portion thereof) for which a Tax Return is filed, if such period begins after the Distribution Date.

“ Pre-Distribution Tax Period ” means, with respect to a given entity, any taxable period (or portion thereof) for which a Tax Return is filed, if such period ends on or before the Distribution Date.

“ Preparing Party ” has the meaning prescribed in Section 3.4(a).

“ Reportable Transaction ” means a reportable or listed transaction as defined in Section 6011 of the Code or Treasury Regulations thereunder.

“ Representation Letter ” means the Spinco Representation Letter and the Parent Representation Letter.

“ Responsible Party ” has the meaning prescribed in Section 5.2.

“ Restriction Period ” means the period beginning on the date hereof and ending on the second anniversary of the Distribution Date.

“ Ruling Documents ” means the Ruling Request, the appendices, attachments and exhibits thereto, and any additional or supplemental information submitted to the IRS in connection with the Ruling Request.

“ Ruling Request ” means the private letter ruling request filed by Parent with the IRS dated March 20, 2008 pertaining to certain Tax aspects of the Contribution and the Distribution.

 

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“ Separation Agreement ” has the meaning prescribed in the recitals to this Agreement.

“ Spinco ” has the meaning prescribed in the preamble to this Agreement.

“ Spinco Available FTCs ” has the meaning prescribed in Section 2.6(a).

“ Spinco Allocated FTCs ” has the meaning prescribed in Section 2.6(a).

“ Spinco Available NOLs ” has the meaning prescribed in Section 2.5(a).

“ Spinco Allocated NOLs ” has the meaning prescribed in Section 2.5(a).

“ Spinco Assets ” has the meaning prescribed in Section 1.1 of the Separation Agreement.

“ Spinco Business ” has the meaning prescribed in Section 1.1 of the Separation Agreement.

“ Spinco Common Stock ” has the meaning prescribed in the recitals to this Agreement.

“ Spinco Employee ” means an employee of Spinco or any Spinco Affiliate immediately after the Distribution.

“ Spinco Group ” means the group of corporations that, immediately after the Distribution Date, will be members of the affiliated group of corporations of which Spinco is the common parent (within the meaning of Section 1504 of the Code). For purposes of this definition, it is assumed that Spinco will elect to file consolidated federal income tax returns with Spinco as the common parent for the taxable year beginning immediately after the Distribution.

“ Spinco Representation Letter ” means an officer’s certificate in which certain representations, warranties and covenants are made on behalf of Spinco and its Affiliates in connection with the issuance of a Tax Opinion or Tax Ruling.

“ Spinco Restricted Stock ” means Spinco common stock received by a Spinco Employee or Parent Employee in connection with his or her employment, which stock has not yet been included in the income of such Employee as of the Distribution Date.

“ Spinco Separate Tax Liability ” means an amount equal to the Tax liability that Spinco and all Spinco Affiliates would have incurred on a consolidated, combined, unitary or separate basis (as applicable) as if at all times on or before the Distribution Date (a) each Spinco Asset transferred to Spinco or a Spinco Affiliate in connection with the Separation had at all relevant times been owned by such transferee entity, and the Spinco Business had been conducted solely and entirely by Spinco and the Spinco Affiliates, and (b) Spinco had been the common parent of an affiliate group (as defined in section 1504(a) of the Code without regard to Section 1504(b) of the Code) that was (i) separate from the members of the Parent Group and (ii) consisted solely of Spinco and the Spinco Affiliates.

 

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“ Spinco Separate Tax Return ” means any Tax Return for any Tax period that includes one or more members of the Spinco Group, but does not include any members of the Parent Group.

“ Spinco Share ” has the meaning prescribed in the recitals to this Agreement.

“ Spinco Stock Option ” means an Option to acquire Spinco common stock received by a Spinco Employee or Parent Employee in connection with his or her employment, which Option has not yet been exercised as of the Distribution Date.

“ Straddle Period ” means, with respect to a given entity, any state, local, or foreign taxable period beginning on or before the Distribution Date and ending after the Distribution Date;

“ Supplemental Ruling ” means any IRS private letter ruling issued in connection with the Contribution and/or the Distribution other than the Ruling Request.

“ Supplemental Ruling Documents ” means the Supplemental Ruling Request, the appendices, attachments and exhibits thereto, and any additional or supplemental information submitted to the IRS in connection with the Supplemental Ruling Request.

“ Supplemental Ruling Request ” means the Supplemental Ruling request filed by Parent with the IRS pertaining to certain Tax aspects of the Contribution and/or the Distribution.

“ Tax ” and “ Taxes ” mean any form of taxation, whenever created or imposed, and whenever imposed by a Taxing Authority, and without limiting the generality of the foregoing, shall include any net income, alternative or add-on minimum tax, gross income, sales, use, ad valorem, gross receipts, value added, franchise, profits, license, transfer, recording, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profit, custom duty, annual report, or other tax, government fee, or other like assessment or charge, of any kind whatsoever, together with any related interest, penalties, or other additions to tax, or additional amount imposed by any such Taxing Authority.

“ Tax Asset ” means any Tax Item that has accrued for Tax purposes (including a net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable contribution deduction, credit related to alternative minimum tax and any other Tax credit), that could reduce a Tax in the taxable period in which it accrued, but which is available to reduce a Tax in a later taxable period.

“ Taxing Authority ” means any national, municipal, governmental, state, federal, foreign, or other body, or any quasi-governmental or private body, having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

“ Tax Benefit ” means, without double counting, the sum of (i) the amount of the reduction in the Tax liability of an entity (or of the consolidated or combined group of which it is a member), whether temporary or permanent, for any taxable period that arises, or may arise in the future, as a result of any adjustment to, or addition or deletion of, a Tax Item in the computation of the Tax liability of the entity (or the consolidated or combined group of which it

 

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is a member), and (ii) the amount by which the entity’s (or consolidated or combined group of which it is a member) Deferred Taxes are increased as a result of such adjustment, addition, or deletion.

“ Tax Controversy ” has the meaning prescribed in Section 5.2(a).

“ Tax Detriment ” means, without double counting, the sum of (i) the amount of the increase in the Tax liability of an entity (or of the consolidated or combined group of which it is a member), whether temporary or permanent, for any taxable period that arises, or may arise in the future, as a result of any adjustment to, or addition or deletion of, a Tax Item in the computation of the Tax liability of the entity (or the consolidated or combined group of which it is a member), and (ii) the amount by which the entity’s (or consolidated or combined group of which it is a member) Deferred Taxes are decreased as a result of such adjustment, addition, or deletion.

“ Tax-Free Status ” means the qualification of the Contribution and the Distribution as a tax-free reorganization (i) described in Sections 355(a) and 368(a)(1)(D) of the Code, (ii) in which the stock distributed thereby is qualified property for purposes of Section 361(c) of the Code, (iii) in which each of Parent, the Parent Affiliates, Spinco, and the Spinco Affiliates recognize no income or gain other than intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated pursuant to Section 1502 of the Code, and (iv) in which no gain or loss is recognized by (and no amount is included in the income of) holders of Parent common stock upon the receipt of Spinco common stock pursuant to the Contribution and Distribution, other than cash in lieu of fractional shares.

“ Tax Item ” means any item of income, gain, loss, deduction, credit, recapture of credit, or any other item (including the basis or adjusted basis of property) which increases or decreases Income Taxes paid or payable in any taxable period.

“ Tax Opinion ” means an opinion issued to Parent by a law firm or an accounting firm with respect to the qualification of the Separation and the Distribution for treatment under Sections 355 and 368(a)(1)(D) of the Code.

“ Tax Package ” means the information and documents in the possession of the Non-preparing Party and its Affiliates that are reasonably necessary for the preparation of a Tax Return by the Preparing Party and its Affiliates with respect to a Combined Return, assembled in all material respects in accordance with the standards that Parent has heretofore applied to divisions and Affiliates of Parent.

“ Tax Return ” means any return, filing, questionnaire or other document required to be filed, including requests for extensions of time, filings made with estimated Tax payments, claims for refund or amended returns, that may be filed for any taxable period with any Taxing Authority in connection with any Tax or Taxes (whether or not a payment is required to be made with respect to such filing).

“ Tax Ruling ” means the IRS private letter ruling issued to Parent on July 8, 2008 in connection with the Ruling Request.

 

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“Trademark Agreement” means the Trademark Assignment and Co-Existence Agreement, dated as of July 31, 2008, between Parent and Spinco.

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

ARTICLE II

RESPONSIBILITY FOR TAXES

 

2.1

Responsibility and Indemnification for Taxes.

(a)        From and after the Distribution Date, without duplication, each of Parent and Spinco shall be responsible for, and shall pay its respective share of, the liability for Taxes of Parent, Spinco, and their respective Affiliates as provided in this Agreement. Parent and its Affiliates shall indemnify and hold harmless Spinco and its Affiliates from any Taxes for which Parent is responsible pursuant to this Agreement. Spinco and its Affiliates shall indemnify and hold harmless Parent and its Affiliates from any Taxes for which Spinco is responsible pursuant to this Agreement.

(b)        Payments to Taxing Authorities and between the parties, as the case may be, shall be made in accordance with the provisions of this Agreement.

 

2.2

Income Taxes.

(a)        Subject to the limitations set forth in Section 2.7, Spinco shall be responsible for all Income Taxes (i) incurred on any Combined Return for any Tax period which includes the Distribution Date in any Combined Jurisdiction to the extent such Taxes constitute a Spinco Separate Tax Liability, excluding (A) any Income Taxes attributable to the Foreign Transfers (as defined in the Separation Agreement) and (B) any Income Taxes resulting from the application of Treasury Regulation Sections 1.1502-13 and 1.1502-19 to the Separation, (ii) incurred on any Spinco Separate Tax Return for any Tax period, (iii) incurred on any Combined Return for any Tax period ending before the Distribution Date in any Combined Jurisdiction to the extent such Income Taxes constitute a Spinco Separate Tax Liability and are paid after the Distribution Date, including but not limited to, any Income Taxes resulting from a Final Determination, and (iv) of Parent and its Affiliates attributable to acts or omissions of Spinco or its Affiliates taken after the Distribution (other than acts or omissions in the ordinary course of business or otherwise contemplated by the Separation Agreement).

(b)        Parent shall be responsible for all Income Taxes (i) incurred on any Combined Return in any Combined Jurisdiction for any Tax period which are not the responsibility of Spinco pursuant to Section 2.2(a), (ii) incurred on any Parent Separate Tax Return, and (iii) imposed under Treasury Regulation Section 1.1502-6 or under any comparable or similar provision of state, local or foreign laws or regulations on Spinco or its Affiliates as a result of such company being a member of a consolidated, combined, or unitary group with Parent or any Parent Affiliate during any Tax period.

 

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(c)        Notwithstanding anything in Section 2.2(a) or 2.2(b) to the contrary, any Income Taxes (including, but not limited to, any Income Taxes resulting from a Final Determination) incurred on any Combined Return in any Combined Jurisdiction that are directly attributable to the Trademark Agreement shall be borne 50% by Parent and 50% by Spinco.

(d)        Not later than 90 days following the Distribution Date, any Spinco Separate Tax Liability related to Section 2.2(a)(i) shall be computed by Spinco (i) assuming Spinco and each Spinco Affiliate use the same accounting methods and elections as the Parent Group uses in filing its relevant consolidated or combined Tax Return, (ii) applying the applicable corporate Income Tax rate in effect for the relevant Tax period in the relevant jurisdiction, (iii) with respect to any U.S. federal income Tax, excluding any Spinco Available NOLs (as computed in accordance with Section 2.5(a)) or Spinco Available FTCs (as computed in accordance with Section 2.6(a)), (iv) with respect to any U.S. state and local Taxes using overall apportionment factors, and (v) in a manner consistent with past practice, if any. Any Spinco Separate Tax Liability related to Section 2.2(a)(iii) shall be computed by Parent, but otherwise consistent with this Section 2.2(d).

(e)        Not later than 45 days following the Distribution Date, with respect to any Spinco Separate Tax Liability related to Section 2.2(a)(i), Spinco shall determine and pay to Parent an amount equal to the Estimated Spinco Separate Tax Liability. For each relevant jurisdiction, the Estimated Spinco Separate Tax Liability shall equal the product of (x) audited GAAP earnings before interest and Taxes generated by the Spinco Business (and reported on the relevant Combined Return), and (y) the applicable corporate Income Tax rate in effect for the relevant Tax period. Any amount of Estimated Spinco Separate Tax Liability paid under this Section 2.2(e) shall be a credit against any final payment required to be made by Spinco with respect to the relevant Combined Return.

 

2.3

Other Taxes.

(a)        Spinco shall be responsible for all Other Taxes attributable to Spinco and its Affiliates or to the Spinco Business for all Tax periods.

(b)        Parent shall be responsible for all Other Taxes attributable to Parent and its Affiliates (other than Spinco and its Affiliates) and to its business activities other than the Spinco Business, or resulting from the Contribution and Distribution, for all Tax periods.

 

2.4

Allocation of Certain Income Taxes and Income Tax Items.

(a)        If Parent, Spinco or any of their respective Affiliates is permitted but not required under applicable U.S. federal, state, local or foreign Tax laws to treat the Distribution Date as the last day of a taxable period, then the parties shall treat such date as the last day of a taxable period under such applicable Tax law, and shall file any elections necessary or appropriate to such treatment; provided that this Section 2.4(a) shall not be construed to require Parent to change its taxable year.

(b)        Transactions occurring, or actions taken, on the Distribution Date but after the Distribution outside the ordinary course of business by, or with respect to, Spinco or any of its Affiliates shall be deemed subject to the “next day rule” of Treasury Regulation Section

 

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1.1502-76(b)(1)(ii)(B) (and under any comparable or similar provision under state, local or foreign laws or regulations, provided that if there is no comparable or similar provision under state, local or foreign laws or regulations, then the transaction will be deemed subject to the “next day rule” of Treasury Regulation Section 1.1502-76(b)(1)(ii)(B)) and as such shall for purposes of this Agreement be treated (and consistently reported by the parties) as occurring in a Post-Distribution Tax Period of Spinco or a Spinco Affiliate, as appropriate, and reported on a Spinco Separate Tax Return.

(c)        Tax attributes determined on a consolidated or combined basis for taxable periods ending before or including the Distribution Date shall be allocated to Parent and its Affiliates, and Spinco and its Affiliates, in accordance with the Code and the Treasury Regulations (and any applicable state, local, or foreign law or regulation). Parent shall reasonably determine the amounts and proper allocation of such attributes, and the Tax basis of the assets and liabilities transferred to Spinco in connection with the Contribution and Distribution, as of the Distribution Date; provided that Spinco shall be entitled to participate in such determination. Parent and Spinco agree to compute their Tax liabilities for taxable periods after the Distribution Date consistent with that determination and allocation, and treat the Tax Assets and Tax Items as reflected on any federal (or applicable state, local or foreign) Income Tax Return filed by the parties as presumptively correct.

 

2.5

Payment for Use of Net Operating Losses.

(a)        Not later than 30 days following the filing of the 2008 U.S. federal income Tax Return for the Parent Consolidated Group, Parent shall determine the following amounts: (i) the aggregate amount of U.S. federal net operating loss carryforwards available to the Parent Consolidated Group as of January 1, 2008 which are attributable to the Spinco Business (based on the same principles used to allocate net operating losses to Spinco pursuant to Section 2.4(dc)), (ii) the aggregate amount of U.S. federal net operating losses generated by the Spinco Business from January 1, 2008 up to and including the Distribution Date that are available to the Parent Consolidated Group (the sum of (i) and (ii) shall be considered the “Spinco Available NOLs”), and (iii) the amount of the Spinco Available NOLs that are allocable to the Spinco Group as of the day after the Distribution Date in accordance with Section 2.4(c) hereof (the “Spinco Allocated NOLs”).

(b)        If the amount of Spinco Available NOLs exceeds the amount of Spinco Allocated NOLs, then Parent shall pay an amount to Spinco equal to the product of (i) the applicable corporate Income Tax rate and (ii) such excess. Such amount shall be paid by Parent not later than 45 days following the filing of the 2008 U.S. federal income Tax Return for the Parent Consolidated Group.

 

2.6

Payment for Use of Foreign Tax Credits.

(a)        Not later than 30 days following the filing of the 2008 U.S. federal income Tax Return for the Parent Consolidated Group, Parent shall determine the following amounts: (i) the aggregate amount of foreign tax credit carryforwards available to the Parent Consolidated Group as of January 1, 2008 which are attributable to the Spinco Business (based on the same principles used to allocate foreign tax credits to Spinco pursuant to Section 2.4(c)), (ii) the

 

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aggregate amount of foreign tax credits generated by the Spinco Business from January 1, 2008 up to and including the Distribution Date that are available to the Parent Consolidated Group (the sum of (i) and (ii) shall be considered the “ Spinco Available FTCs ”), and (iii) the amount of the Spinco Available FTCs that are allocable to the Spinco Group as of the day after the Distribution Date in accordance with Section 2.4(c) hereof (the “ Spinco Allocated FTCs ”).

(b)        If the amount of Spinco Available FTCs exceeds the amount of Spinco Allocated FTCs, then Parent shall pay an amount to Spinco equal to such excess. Such amount shall be paid by Parent not later than 45 days following the filing of the 2008 U.S. federal income Tax Return for the Parent Consolidated Group.

 

2.7

Audit Adjustments.

(a)        Temporary Items.

i)        Not later than 30 days after any Final Determination is made with respect to any Combined Return for any Tax period for which Parent or any Parent Affiliate is the Preparing Party, Parent shall determine the amount of any Tax Detriment or Tax Benefit attributable to the adjustment of any temporary Tax Items reported (or required to be reported) on such Combined Return. If, and to the extent, the amount of any such Tax Detriment or Tax Benefit so determined i) relates to an adjustment of Income Taxes that constitute a Spinco Separate Tax Liability, and ii) results in (or can reasonably be expected to result in) a Tax Benefit or Tax Detriment to Spinco or any Spinco Affiliate in a Post-Distribution Period attributable to a corresponding increase or decrease in the tax basis of any Spinco or Spinco Affiliate asset or liability, then not later than 45 days after such Final Determination is made, Spinco shall pay to Parent the amount of any such Tax Detriment, or Parent shall pay to Spinco the amount of any such Tax Benefit, as appropriate.

ii)        Not later than 30 days after any Final Determination is made with respect to any Combined Return for any Tax period for which Spinco or any Spinco Affiliate is the Preparing Party, Spinco shall determine the amount of any Tax Detriment or Tax Benefit attributable to the adjustment of any temporary Tax Items reported (or required to be reported) on such Combined Return. If, and to the extent, the amount of any such Tax Detriment or Tax Benefit so determined i) relates to an adjustment of Income Taxes that do not constitute a Spinco Separate Tax Liability, and ii) results in (or can reasonably be expected to result in) a Tax Benefit or Tax Detriment to Parent or any Parent Affiliate in a Post-Distribution Period attributable to a corresponding increase or decrease in the tax basis of any Parent or Parent Affiliate asset or liability, then not later than 45 days after such Final Determination is made, Parent shall pay to Spinco the amount of any such Tax Detriment, or Spinco shall pay to Parent the amount of any such Tax Benefit, as appropriate.

(b)        Permanent Items.

i)        Not later than 30 days after any Final Determination is made with respect to any Combined Return for any Tax period for which Parent or any Parent

 

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Affiliate is the Preparing Party, Parent shall determine the amount of any Tax Detriment or Tax Benefit attributable to the adjustment of any permanent Tax Items reported (or required to be reported) on such Combined Return. If, and to the extent, the amount of any such Tax Detriment or Tax Benefit so determined relates to an adjustment of Income Taxes that constitute a Spinco Separate Tax Liability, then not later than 45 days after such Final Determination is made, Spinco shall pay to Parent the amount of any such Tax Detriment, or Parent shall pay to Spinco the amount of any such Tax Benefit, as appropriate.

ii)        Not later than 30 days after any Final Determination is made with respect to any Combined Return for any Tax period for which Spinco or any Spinco Affiliate is the Preparing Party, Spinco shall determine the amount of any Tax Detriment or Tax Benefit attributable to the adjustment of any permanent Tax Items reported (or required to be reported) on such Combined Return. If, and to the extent, the amount of any such Tax Detriment or Tax Benefit so determined relates to an adjustment of Income Taxes that do not constitute a Spinco Separate Tax Liability, then not later than 45 days after such Final Determination is made, Parent shall pay to Spinco the amount of any such Tax Detriment, or Spinco shall pay to Parent the amount of any such Tax Benefit, as appropriate.

iii)        A Party shall be required to make payment under this Section 2.7(b) only to the extent the cumulative amount of all payments otherwise required to be made by such Party under Sections 2.7(b)(i) and 2.7(b)(ii), net of the cumulative amount of all payments such Party is otherwise entitled to receive from the other Party under Sections 2.7(b)(i) and 2.7(b)(ii), exceeds the greater of a) $2,000,000 or, b) the sum of $2,000,000 and the net amount (after the application of Section 2.7(b)(iv) below) of all payments previously made by such Party under this Section 2.7(b).

iv)        If subsequent to the time a Party makes a payment under this Section 2.7(b), a Final Determination is made with respect to any Combined Return which would have had the effect of reducing the required amount of such payment if such Final Determination were made prior to such payment, then the other Party which received such payment shall make a payment to such Party in an amount equal to such reduction.

(c)        Calculation.

i)        For purposes of Section 2.7, the Parties agree that the extent to which any Tax Detriment or Tax Benefit is treated as being attributable to either a permanent adjustment or a temporary adjustment shall be made in a manner consistent with past historical practice of the Parent Consolidated Group.

ii)        For purposes of determining any amount due under this Section 2.7, any foreign Taxes shall be translated into U.S. dollars using the same exchange rate as is used for purposes of translating the income statement of the relevant entity for the month in which the Tax is assessed.

 

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iii)        Any Tax Detriment or Tax Benefit determined under this Section 2.7 shall be calculated by applying the applicable corporate Income Tax rate in effect for the relevant Tax period in the relevant jurisdiction.

2.8       Tax Refunds.     Except as provided in Section 2.9 and subject to the limitations set forth in Section 2.7:

(a)        Parent shall be entitled to all refunds (including refunds paid by means of a credit against other or future Tax liabilities) and credits with respect to any Tax for which Parent is responsible under Section 2.1. Spinco shall be entitled to all refunds (including refunds paid by means of a credit against other or future Tax liabilities) and credits with respect to any Tax for which Spinco is responsible under Section 2.1.

(b)        Spinco and Parent shall each forward to the other party, or reimburse such other party for, any refunds received by the first party and due to such other party pursuant to this Section 2.8. Where a refund is received in the form of a credit against other or future Tax liabilities, reimbursement with respect to such refund shall be due in each case on the due date for payment of the Tax against which such refund has been credited. All payments made pursuant to this Section 2.8 shall describe in reasonable detail the basis for the calculation of the amount being paid.

(c)        If one party reasonably so requests, the other party (at the first party’s expense) shall file for and pursue any refund to which the first party is entitled under this Section; provided that the other party need not pursue any refund on behalf of the first party unless the first party provides the other party a certification by an appropriate officer of the first party setting forth the first party’s belief (together with supporting analysis) that the Tax treatment of the Tax Items on which the entitlement to such refund is based is more likely than not correct, and is not a Tax Item arising from a Reportable Transaction.

(d)        If the other party pays any amount to the first party under this Section 2.8 and, as a result of a subsequent Final Determination, the first party is not entitled to some or all of such amount, the other party shall notify the first party of the amount to be repaid to the other party, and the first party shall then repay such amount to the other party, together with any interest, fines, additions to Tax, penalties or any additional amounts imposed by a Taxing Authority relating thereto.

 

2.9

Carrybacks.

(a)        Notwithstanding anything in this Agreement, Spinco shall file (or