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Exhibit 2.3
Execution Copy
TAX SHARING AGREEMENT
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THIS TAX SHARING AGREEMENT is dated as of the 30th day of April, 1999,
by and between Pentair, Inc., a Minnesota corporation ("Pentair"), Essef
Corporation, an Ohio corporation ("Essef"), and Xxxxxxx & Sylvan Pools
Corporation, an Ohio corporation ("A&S").
R E C I T A L S
WHEREAS, Essef currently owns 100 percent of the total voting power and
value of the issued and outstanding stock of A&S and is the common parent of an
"affiliated group," as defined in Section 1504(a) of the Internal Revenue Code
of 1986, as amended ("Code"); and
WHEREAS, Pentair and Essef have executed an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which the shareholders of Essef will
receive both cash and shares of A&S in exchange for all of their shares of Essef
and, at the conclusion of the merger, Pentair will own 100 percent of the
outstanding shares of Essef; and
WHEREAS, A&S has heretofore joined with Essef in filing Consolidated
Tax Returns for a consolidated group that includes Essef, A&S, and certain other
corporations (the "Essef Group") for a taxable year that ends on September 30,
and most recently ended on September 30, 1998, and Essef, A&S, and Pentair
consider it in their mutual best interests to provide herein for the allocation
of the federal income tax, and state, local, and foreign income, franchise, and
other tax liabilities (collectively, "Tax Liabilities") of A&S and the remainder
of the Essef Group for taxable years ended prior to the Closing Date of the
Merger Agreement (the "Closing Date") and for the taxable year that includes the
Closing Date;
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. DEFINITIONS. For purposes of this Agreement:
a. "Consolidated return," "consolidated group," "taxable year,"
"carryback," and similar terms used herein and bearing on federal
income tax liability shall have the respective meanings ascribed to
them in the Code and the Treasury Regulations thereunder, and, where
applicable, specifically the provisions thereof relating to
consolidated federal income tax returns. For state, local, or foreign
tax purposes, such terms shall be interpreted and applied in a manner
so as to achieve as nearly as possible the intention reflected herein
with respect to the federal income tax.
b. "Accountant" means Ernst & Young LLP, or such other United States of
America accounting firm as A&S and Essef may mutually agree.
c. "Tax" or "Taxes" means any federal, state, local, foreign, or other
tax of any kind whatsoever (together with any interest, penalties, or
additions imposed with respect thereto), including, without limitation,
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, service, premium, windfall profits,
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environmental, customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, rental, lease,
ad valorem, or other tax.
d. "Tax Affiliate" means, with respect to any Person, any other Person
who, directly or indirectly, controls, is controlled by, or is under
common control with, such Person; provided, however, that for purposes
of this Agreement, Tax Affiliates of Essef will not include A&S.
e. "Tax Benefit" means a reduction in the amount of Taxes that would
otherwise be payable, whether resulting from a deduction, credit,
reduced gain or increased loss from the disposition of an asset, or
otherwise; a person will be deemed to have recognized a Tax Benefit at
the time the amount of Taxes such person otherwise would pay is
reduced;
f. "Tax Returns" means all returns, declarations, reports, claims for
refunds, information returns, statements, and other forms required to
be filed with respect to any Taxes, including any schedule or
attachment thereto, and including any amendments or supplements
thereof.
g. "Final Determination" means with respect to any Tax for any period
the later of (i) the date on which the statute of limitations for
instituting a claim for refund of such Tax has expired, or if such
claim was filed, the expiration of the time for instituting suit with
respect thereto; and (ii) the date on which all administrative and
judicial proceedings with respect to any such assessments or refunds
have been finally settled through agreement of the parties to the
proceeding or by an administrative or judicial decision from which no
appeal can be taken or the time for taking any such appeal has expired.
h. "Income Taxes" means any Tax based on or measured by or with respect
to gross or net income (including, without limitation, capital gain
taxes, minimum taxes, income taxes collected by withholding and Taxes
on Tax preference items) or receipts (together with any interest,
penalties, and additions to Tax imposed with respect thereto).
i. "Income Tax Return" means any Tax Return with respect to Income
Taxes.
j. "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated association, a limited liability company, a governmental
entity (or any department, agency, or political subdivision thereof),
or any other entity.
k. "Split-Off" shall have the same meaning as in the Merger Agreement.
l. "Transition Agreement" means that certain agreement dated April 30,
1999 among Essef, A&S, and Pentair for the purpose of implementing
certain of the transfers and other transactions contemplated by the
Merger Agreement, and particularly the Split-Off.
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2. TAXES ALLOCATED TO PENTAIR AND ESSEF. Pentair and Essef will be responsible
for, will pay or cause to be paid, and will indemnify and hold A&S harmless from
and against any and all liability for the following Taxes:
a. all Taxes imposed on or asserted against Essef, Pentair, or any of
their Tax Affiliates (including any obligations for Tax Liabilities of
other Persons that have been assumed, by indemnity or otherwise, by
Essef, Pentair, or any of their Tax Affiliates) with respect to any
taxable periods, and, subject to Section 4(a) hereof, all Taxes imposed
on or asserted against A&S (including any obligations for Tax
Liabilities of other Persons that have been assumed, by indemnity or
otherwise, by A&S or any of its Tax Affiliates on or before the Closing
Date) with respect to all taxable periods that end on or prior to the
Closing Date, including any short taxable year of A&S that ends on the
Closing Date either by operation of law or pursuant to an election made
as provided in Section 3(a) hereof;
b. subject to Section 4(a) hereof, all Taxes imposed on or asserted
against A&S arising out of the inclusion of A&S in any consolidated
return filed by Essef, Pentair, or any of their Tax Affiliates,
including, without limitation, any liability asserted under section
1502-6 of the U.S. Treasury regulations and any similar provisions
relating to state, local, or foreign Taxes;
c. subject to the provisions of Section 4(b) hereof, all Taxes imposed
on Essef, A&S, or any of their Tax Affiliates as a result of the
Split-Off pursuant to the Merger Agreement;
d. all Taxes arising as a result of any election filed under section
338 of the Code, or any similar provision of state, local, or foreign
law, as a result of Pentair's acquisition of the shares of Essef
pursuant to the Merger Agreement; and
e. all Taxes allocated to Essef, Pentair, or any of their Tax
Affiliates pursuant to Section 3 hereof.
3. STRADDLE PERIODS.
a. With respect to any taxable period of A&S that would (absent an
election) include, but not end until after, the Closing Date (a
"Straddle Period"), Pentair, Essef (including its Tax Affiliates), and
A&S will, to the extent permitted by applicable law, elect with the
relevant Tax authority to close such Straddle Period as of the close of
the Closing Date.
b. Pentair and Essef will be responsible for, will pay or cause to be
paid, and will indemnify and hold A&S harmless from and against, any
Income Taxes owed by A&S for the portion of any Straddle Period up to
and including June 30, 1999. For purposes of this Section 3(b), Income
Taxes for the portion of a Straddle Period up to and including June 30,
1999, will be determined based upon an interim closing of the books
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of A&S as of June 30, 1999, based upon the accounting practices and
procedures used by A&S in preparing its Tax Returns.
c. As to any Tax other than an Income Tax (a "Non-Income Tax") for any
Straddle Period, Pentair and Essef will be responsible for, will pay or
cause to be paid, and will indemnify and hold A&S harmless from and
against, (i) with respect to any Non-Income Tax that is determined
based upon specific transactions (including, but not limited to, value
added, sales and use Taxes), all Non-Income Taxes applicable to
transactions that have occurred during the period through June 30,
1999, and (ii) with respect to any Non-Income Tax that is not based
upon specific transactions (including, but not limited to, license,
real property, personal property, franchise and doing business Taxes),
a portion of such Non-Income Tax equal to the full amount of such
Non-Income Tax multiplied by a fraction, the numerator of which is the
number of days in the Straddle Period ending on June 30, 1999 and the
denominator of which is the number of days in the entire Straddle
Period; provided that Pentair's and Essef's allocation will be adjusted
appropriately to reflect the actual proportionate period of property
ownership or the activity of A&S during the Straddle Period, as
applicable, for any such Non-Income Taxes imposed with respect to the
ownership of specific items of property held by A&S or the activity of
A&S, as applicable, during the Straddle Period.
d. Pentair and Essef will pay to A&S the amount of any Tax Benefit
recognized by Essef that is attributable to any loss or other Tax
attribute that, if the Split-Off had occurred on June 30, 1999, would
have been reported by A&S on its own Tax Returns, or that otherwise
results from the activities or operations of A&S after June 30, 1999.
4. TAXES ALLOCATED TO A&S.
a. Other than those Taxes for which Pentair or Essef is responsible
pursuant to Sections 2 and 3 hereof, A&S will be responsible for, will
pay or cause to be paid, and will indemnify and hold Pentair and Essef
harmless from and against any and all Taxes imposed on A&S if, in the
case of Income Taxes, the taxable income accrued after June 30, 1999,
or if, in the case of other Taxes, the event giving rise to the Tax
occurred after June 30, 1999.
b. Within 30 calendar days of the Closing Date, A&S will pay to Essef
the amount, if any, computed under this subsection, which will be
determined as prescribed below.
i. First, calculate the Tax that Essef will owe on the gain
recognized as a result of the Split-Off of the A&S stock (the
"A&S Stock Tax") pursuant to the Merger Agreement, using (x)
an assumed effective tax rate of 39 percent, (y) the stock
value determined under Section 5 hereof, and (z) the tax basis
reflected in Essef's books and records at the beginning of the
Closing Date, as adjusted for the net amount of dividend
distributed by A&S pursuant to Section 4.1 of the Transition
Agreement, after any adjustments required by the Code and the
Treasury regulations.
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ii. Second, calculate the Tax Benefit that Essef will
recognize because of payments (whether in cash or otherwise)
made in satisfaction of compensatory stock options (including
options accelerated in connection with the Merger), pursuant
to the Merger Agreement (the "Essef Stock Option Tax
Benefit"), using an assumed effective tax rate of 39 percent.
iii. Third, calculate the nondeductible cash payments that
Essef is obligated to make as a result of the accelerated
vesting of compensatory stock options (the "Parachute Cost").
iv. Fourth, calculate the surplus (the "Surplus") or shortfall
(the "Shortfall") in the proceeds (the "Proceeds") received by
or credited to Essef upon the exercise of the compensatory
stock options referenced in (ii) above. The Surplus shall be
the amount by which the Proceeds exceed $5.8 million and the
Shortfall shall be the amount by which $5.8 million exceeds
the Proceeds. However, there shall be no Shortfall for
purposes hereof unless the Proceeds are less than $5.55
million and there shall be no Surplus for purposes hereof
unless the Proceeds are greater than $6.05 million.
v. To the extent that the excess of (x) the sum of the Essef
Stock Option Tax Benefit plus the Surplus over (y) the sum of
the A&S Stock Tax plus the Parachute Cost plus the Shortfall
(which excess is referred to as the "Net Tax Benefit") is less
than $4.2 million, A&S will pay to Essef the amount by which
$4.2 million exceeds the Net Tax Benefit. At A&S's option, any
amount owing to Essef under this subsection may be satisfied
and discharged by A&S's delivering to Essef a promissory note
consistent with the terms set forth in Exhibit A hereto.
vi. To the extent that the Net Tax Benefit exceeds $4.2
million, the consequences thereof are not the subject of this
Agreement but will be addressed as prescribed in Section 4.1
of the Transition Agreement.
vii. Apart from any amount payable under this Section, A&S
will have no obligation to Essef, Pentair, or any of their Tax
Affiliates on account of the A&S Stock Tax or the Essef Stock
Option Tax Benefit.
viii. The time deadlines prescribed herein will apply
notwithstanding any other timing provisions of this Agreement.
The calculations contemplated by this subsection will be made
initially by A&S within 30 calendar days after the Closing
Date and will then promptly be presented to Essef for its
review and approval. If Essef disagrees with any of the
calculations, it will notify A&S within 30 calendar days of
receiving the calculations from A&S. In the event of such a
disagreement, representatives of the parties will meet to
resolve their differences. If they are unable to resolve all
disagreements within 10 calendar days after Essef has notified
A&S of the disagreement, any remaining disagreements will be
resolved as prescribed in Section 14 hereof. The due date for
any payments required under this subsection will be extended
by the period of
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time required to resolve any disagreements between Essef and
A&S with regard to the calculations.
5. For purposes of computing the capital gain tax referenced in Sections 2(c)
and 4(b) hereof, the parties agree as follows:
a. The A&S stock is expected to be publicly traded, beginning on the
Closing Date, on the NASDAQ market. The parties will value the A&S
stock at the mean between the high and the low trading prices on the
first full day of trading following the Closing, unless, after
reviewing the results of the first five trading days following the
Closing, either Pentair or A&S, each in its sole discretion, determines
that such value does not reflect the value of the A&S shares for tax
purposes on the Closing Date.
b. If either Pentair or A&S makes the determination referenced
immediately above, the parties will commence discussions and attempt to
agree on the value for the A&S stock (the "Value") based upon the
trading pattern of the A&S stock and on other relevant facts and
circumstances, including an appraisal obtained from Rhone Group of the
fair market value of the A&S stock on the Closing Date, which appraisal
will reflect in substantial part the trading prices obtained in the
public securities market for the Essef stock in the last several days
prior to the Closing Date.
c. If after 15 calendar days following the commencement of the
discussions referenced above, Pentair and A&S have not agreed on the
Value, the question will be referred to binding arbitration by an
arbitrator (the "Arbitrator") mutually agreeable to both Pentair and
A&S. The Arbitrator shall be either a tax partner in one of the five
largest public accounting firms doing business in the United States or
a tax partner in a law firm having at least 20 professionals listed
firm-wide in the most recent edition of The Tax Directory published by
Tax Analysts. In either case, the Arbitrator shall be an individual
with expertise in the issues of law and fact that relate to the
valuation of corporate stock distributed in corporate spin-offs or
split-offs. The Arbitrator shall base his decision on the
considerations referenced in Section 5(b).
6. REFUNDS OF INDEMNIFIED TAXES.
a. A&S will promptly remit to Pentair or Essef an amount equal to all
refunds (including interest thereon and any amounts applied against a
Tax Liability for other taxable periods) of any Taxes for which A&S is
indemnified pursuant to this Agreement ("Essef's Refunds").
b. Pentair and Essef will promptly remit (and will cause their Tax
Affiliates to promptly remit) to A&S an amount equal to all refunds
(including interest thereon and any amounts applied against a Tax
Liability for other taxable periods) of any Taxes for which Essef is
indemnified pursuant to this Agreement ("A&S's Refunds").
c. Upon the request of Essef, A&S will file claims for Essef's Refunds
in such form as Essef may reasonably request. Essef will have the sole
right to prosecute any claims
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for Essef's Refunds (by suit or otherwise) at Essef's expense and with
counsel of Essef's choice. A&S will cooperate fully with Essef and its
counsel in connection with any claims for Essef's Refunds.
d. Upon the request of A&S, Essef will file claims for A&S's Refunds in
such form as A&S may reasonably request. A&S will have the sole right
to prosecute any claims for A&S's Refunds (by suit or otherwise) at
A&S's expense and with counsel of A&S's choice. Essef will cooperate
fully with A&S and its counsel in connection with any claims for A&S's
Refunds.
e. Except as otherwise provided in this Agreement, any refunds of Taxes
other than Essef's Refunds or A&S's Refunds will be the property of the
payee of such refunds and no other party to this Agreement or its Tax
Affiliates will have any right to such refunds.
7. TAX CARRYBACKS
a. If A&S incurs any net operating loss, net capital loss, or other
deduction or credit in any taxable period ending after the Closing Date
(a "Post-Closing Carryback") that may be carried back to any taxable
period ending on or before the Closing Date, Essef and Pentair will
cooperate with A&S in filing an appropriate refund claim or amended Tax
Return and will assign and promptly remit to A&S the amount of any
refund of Tax received by, or Tax Benefit recognized by, Pentair or
Essef or any of their Tax Affiliates, as a result of such Post-Closing
Carryback.
b. If Pentair or Essef makes any remittance to A&S under Section 7(a)
hereof and all or part of such Post-Closing Carryback is subsequently
disallowed, then A&S shall promptly pay to Essef or Pentair that
portion of the remittance that relates to the portion of the
Post-Closing Carryback that is disallowed and, in addition thereto, any
other costs or expenses incurred by Pentair or Essef in respect to the
disallowed portion of the Post-Closing Carryback, including any
interest attributable thereto that is assessed by the taxing authority.
8. NO OBLIGATION TO FILE AMENDED TAX RETURNS. Except as otherwise specifically
provided in this Agreement, neither A&S, Pentair, or Essef, nor any of their
respective Tax Affiliates, will be obligated to file any amended Tax Return or
other Tax refund claim.
9. PREPARATION AND FILING OF TAX RETURNS.
a. Pentair or Essef will prepare or cause to be prepared, and file or
cause to be filed (i) all consolidated, combined, or unitary Income Tax
Returns of Essef or any of its Tax Affiliates that include A&S and that
are listed in Schedule 9(a)(i) hereto, and (ii) all Income Tax Returns
required to be filed by or on behalf of A&S for taxable periods ending
on or before the Closing Date (including by reason of any election
under Section 3 hereof) and that are listed in Schedule 9(a)(ii)
hereto, and (iii) all other Tax Returns required to be filed by or on
behalf of A&S on or before the Closing Date. Pentair and Essef covenant
that, except for the returns referenced in Schedule 9(a)(i) hereto,
neither
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they nor any of their Tax Affiliates will file or cause to be filed any
consolidated, combined, or unitary returns that include A&S without
giving A&S at least 30 days notice of their intent to do so and
obtaining the prior written approval of A&S to being so included.
b. A&S will prepare or cause to be prepared, and file or cause to be
filed, all Tax Returns of A&S other than those set forth in Section
9(a) hereof. A&S will prepare all A&S Tax Returns for taxable periods
including, but ending after, the Closing Date ("Straddle Period
Returns") in a manner consistent with A&S's past Tax accounting
practice and, in the absence thereof, reasonable Tax accounting
practices selected by A&S.
c. Neither Pentair, Essef, nor A&S, nor any of their Tax Affiliates,
will exercise any election available under section 1.1502-76(b)(2) of
the U.S. Treasury regulations or any corresponding provisions of other
Tax laws for any Straddle Period.
d. A&S will assist Pentair or Essef in timely obtaining any required
signatures or other filing requirements in respect of Tax Returns
prepared by Pentair or Essef for A&S pursuant to section 9(a).
e. Upon request of either A&S or Essef, the other party shall make
available prior to filing (and after filing) for inspection and copying
all Tax Returns and related workpapers with respect to Taxes to the
extent that (i) such Tax Return relates to Taxes for which the
requesting party may be liable, (ii) such Tax Return relates to Taxes
for which the requesting party may be liable in whole or in part for
any additional Taxes owing as a result of adjustments to the amount of
Taxes reported on such Tax Return, (iii) the requesting party
reasonably determines that it must inspect such Tax Return to confirm
compliance with the terms of this Agreement. A&S and Essef shall
attempt in good faith to resolve any issues arising out of the review
of such Tax Returns.
10. PROCEDURES FOR SETTLEMENT OF TAX ALLOCATIONS.
a. This Section 10(a) will govern the settlement as between A&S, on the
one hand, and Essef and Pentair, on the other hand, of all Straddle
Period Tax allocations for Taxes that are reported on a Straddle Period
Return. With respect to each Straddle Period Return that involves Taxes
subject to allocation pursuant to Section 3(b) hereof, A&S will, at
least sixty (60) days prior to the final due date (including
extensions) of such Straddle Period Return, provide to Essef (i) a copy
of such Straddle Period Return (including supporting schedules and
workpapers) and (ii) a statement (including supporting schedules and
workpapers) certifying the amount of Tax shown on such Straddle Period
Return that is allocable to Essef pursuant to Section 3(b) hereof
reduced by any payments made by A&S prior to the Closing Date, and by
Essef and its Tax Affiliates at any time, in respect of such Taxes
(whether as estimated Taxes or otherwise) (the "Statement"). Essef and
its authorized representatives will have the right to review the
Statement for thirty (30) days following its receipt of the Statement
(the "30-Day Review Period"). If Essef disagrees with the allocation in
the Statement, it will notify
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A&S in writing of such disagreement prior to the close of the 30-Day
Review Period, and Essef and A&S will consult and attempt to resolve in
good faith the disagreement. In the event, Essef and A&S are unable to
resolve the disagreement within fifteen (15) days following the end of
the 30-Day Review Period, Essef and A&S will jointly request that the
disagreement be resolved pursuant to the procedures prescribed in
Section 14 hereof. Not later than five (5) days after the later of (i)
the end of the 30-Day Review Period, or (ii) if there is a
disagreement, the date notice is provided to Essef and A&S regarding
the resolution of the disagreement pursuant to Section 14, Essef or
Pentair shall pay to A&S or A&S will pay to Essef or Pentair, as the
case may be, an amount equal to the difference between the Taxes shown
on the Statement or in such notice (as the case may be) as being
allocable to Essef pursuant to Section 3(b) hereof, and (ii) any
payments made by A&S on or prior to the Closing Date, and by Essef and
its Tax Affiliates at any time, in respect of such Taxes (whether as
Estimated Taxes or otherwise).
b. This Section 10(b) will govern the settlement as between A&S, on the
one hand, and Essef and Pentair, on the other hand, of all Straddle
Period Tax allocations for Taxes that are not required to be reported
on a Straddle Period Return (e.g., Taxes that are assessed without the
filing of a Tax Return). With respect to each such Tax subject to
allocation pursuant to Section 3(b) hereof, A&S will, at least thirty
(30) days prior to the final due date of such Tax, provide to Essef (i)
a copy of the Tax assessment or other supporting schedules and
workpapers and (ii) a statement (including supporting schedules and
workpapers) certifying the amount of Tax that is allocable to Essef
pursuant to Section 3(b) hereof reduced by any payments made by A&S on
or prior to the Closing Date, and by Essef and its Tax Affiliates at
any time, in respect of such Taxes (whether as estimated Taxes or
otherwise) (the "Statement"). Essef and its authorized representatives
will have the right to review the Statement for ten (10) days following
Essef's receipt of the Statement (the "10-Day Review Period"). If Essef
disagrees with the allocation in the Statement, it will notify A&S in
writing of such disagreement prior to close of the 10-Day Review
Period, and Essef and A&S will consult and attempt to resolve in good
faith the disagreement. In the event Essef and A&S are unable to
resolve the disagreement within ten (10) days following the end of the
10-Day Review Period, Essef and A&S will jointly request to resolve the
disagreement pursuant to Section 14. Not later than five (5) days after
the later of (i) the end of the 10-Day Review Period, or (ii) if there
is a disagreement, the date notice is provided to Essef and A&S
regarding the resolution of the disagreement pursuant to Section 14,
Essef or Pentair will pay to A&S or A&S will pay to Essef, as the case
may be, an amount equal to the difference between (i) the Taxes shown
on the Statement or in such notice (as the case may be) as being
allocable to Essef pursuant to Section 3(b) hereof, and (ii) any
payments made by the A&S on or prior to the Closing Date, and by Essef
and its Tax Affiliates at any time, in respect of such Taxes (whether
as estimated Taxes or otherwise).
11. COOPERATION; ACCESS TO INFORMATION; TAX RECORDS.
a. Essef and A&S will cooperate fully with each other with respect to,
and will make available to each other, such Tax data and other
information as may be reasonably required for (i) the preparation of
any Tax Returns required to be prepared by Essef or
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A&S under this Agreement, (ii) determining the liability for and amount
of any Taxes due or the right to and amount of any refund of Taxes,
(iii) examinations of Tax Returns, and (iv) any administrative or
judicial proceeding in respect of Taxes assessed or proposed to be
assessed. Such cooperation shall include making all information and
documents in their possession relating to such Tax Returns, Tax
Liabilities or refunds, examinations, or administrative or judicial
proceedings available to the other party as provided in Section 11(b)
hereof. Essef and A&S shall also make available to the other, as
reasonably requested and available, personnel (including officers,
directors, employees and agents of Essef and A&S and their Tax
Affiliates) responsible for preparing, maintaining and interpreting
information and documents relevant to Taxes, and personnel reasonably
required as witnesses or for purposes of providing information or
documents in connection with any administrative or judicial proceedings
relating to Taxes. Any information or documents provided under this
Section 11, shall be kept confidential by the party receiving the
information or documents, except as may otherwise be necessary in
connection with the filing of Tax Returns or in connection with any
administrative or judicial proceedings relating to Taxes.
b. Essef and A&S and their respective Tax Affiliates shall make
available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax records in their
possession to the extent reasonably required by the other party in
connection with the preparation of Tax Returns, audits, litigation, or
the resolution of items under this Agreement. Essef, A&S, and their
respective Tax Affiliates shall preserve and keep such Tax records in
their possession until the expiration of any applicable statutes of
limitation and as otherwise required by law, but in any event for a
period not less than eight (8) years after the Closing Date.
Notwithstanding the foregoing, a party or its Tax Affiliates may
dispose of records sooner upon ninety (90) days prior notice to the
other party. Such notice shall include a list of the records to be
disposed of describing in reasonable detail each file, book or other
record accumulation being disposed. The notified party shall have the
opportunity, at its cost and expense, to copy or remove, within such
ninety (90) day period, all or any part of such Tax records. For
purposes of this Section 11, Tax records include Tax Returns, journal
vouchers, cash vouchers, general ledgers, material contracts, return
workpapers, and any other records pertaining to or used in the
preparation of Tax Returns.
12. AUDITS.
a. A&S or Essef (the "Notifying Party") will promptly notify the other
(the "Notified Party") in writing upon the receipt of notice of any
pending or threatened Tax audits or assessments (i) relating to any
taxable period of A&S ending on, prior to, or including the Closing
Date, or (ii) that may affect the determination of Taxes for which the
Notified Party is or may be obligated to indemnify the Notifying Party
pursuant to this Agreement. The notice required under this Section
12(a) is referred to in this Agreement as the "Audit Notification."
b. Subject to Section 12(c) hereof, the Notified Party will have the
right, at its election, (i) to represent the Notifying Party and to
exclusively control the handling of
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any Tax audit or assessment referred to in Section 12(a) hereof,
including in any administrative or court proceeding relating thereto,
(ii) to employ counsel of its choice at its expense and to control the
conduct of such audit, assessment, or proceeding, including settlement
or other disposition thereof and (iii) to settle the contest of any Tax
or agree to an adjustment to any Tax referred to in Section 12(a) (the
rights under (i), (ii) and (iii) are referred to in this Agreement
collectively as the "Representation Right"); PROVIDED, however, that
the Representation Right will apply only to any issues or items (x)
relating to any taxable period of A&S ending on, prior to, or including
the Closing Date, or (y) that may affect the determination of Taxes for
which the Notified Party is or may be obligated to indemnify the
Notifying Party pursuant to this Agreement. As reasonably necessary,
the Notifying Party will fully cooperate, and will cause its Tax
Affiliates to fully cooperate, at the Notified Party's expense, with
the Notified Party and its counsel in the defense against or compromise
of any claim in any said audit, assessment, or proceeding, such
cooperation to include (but not be limited to) the grant of any
necessary powers of attorney.
c. To exercise the Representation Right, the Notified Party must first,
within a reasonable period following the receipt of the Audit
Notification, (i) notify the Notifying Party in writing that the
Notified Party intends to exercise the Representation Right, and (ii)
deliver to the Notifying Party a written statement acknowledging the
Notified Party's obligation to indemnify the Notifying Party in
accordance with the terms of this Agreement with respect to the Taxes
as to which the Notified Party exercises the Representation Right.
d. The Notifying Party's personnel shall have the right to participate
in any administrative or judicial proceedings for which the Notified
Party exercises its Representation Right (including assisting with
field audits, administrative appeals, and subsequent litigation) in so
far as they relate to the Notifying Party, and such participation shall
be reflected by the grant of appropriate powers of attorney.
e. A&S and Essef shall have exclusive control of all administrative and
judicial proceedings related to their respective Taxes other than those
described in Section 12(a).
f. For so long as the Notified Party is exercising its Representation
Right, it shall not be required to indemnify the Notifying Party
pursuant to Section 13 hereof until there occurs a Final Determination
of the liability of A&S for the Tax.
13. PROCEDURES FOR OBTAINING INDEMNIFICATION.
a. If either Essef or A&S (the "Indemnified Party") determines that it
or any of its Tax Affiliates is or may be entitled to indemnification
by the other party (the "Indemnifying Party") under this Agreement as a
result of the allocations of responsibility for Taxes set forth in
Sections 2 through 4, the Indemnified Party will promptly deliver to
the Indemnifying Party a written notice and demand therefor (the
"Notice") specifying the basis for its claim for indemnification, the
nature of the claim, and, if known, the amount for which the
Indemnified Party reasonably believes it or any
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of its Tax Affiliates is entitled to be indemnified. The Notice must be
received by the Indemnifying Party no later than thirty (30) days
before the expiration of the applicable Tax statute of limitations;
provided, however, that if the Indemnified Party does not receive
notice from the applicable governmental taxing authority ("Government
Notice") that an item exists that could give rise to a claim for
indemnification hereunder more than thirty (30) days before the
expiration of the applicable Tax statute of limitations, then the
Notice must be received by the Indemnifying Party immediately after the
Indemnified Party receives the Government Notice. Unless the
Indemnifying Party objects to the claim for indemnification (in the
manner set forth in Section 13(b) hereof), and subject to Section
12(f), the Indemnifying Party will pay the Indemnified Party the amount
set forth in the Notice, in cash or other immediately available funds,
within thirty (30) days after receipt of the Notice; provided, however,
that if the amount for which the Indemnified Party reasonably believes
it is entitled to be indemnified is not known at the time of the
Notice, the Indemnified Party will deliver to the Indemnifying Party a
further notice specifying such amount as soon as reasonably practicable
after such amount is known and payment will then be made as set forth
above.
b. The Indemnifying Party may object to the claim for indemnification
(or the amount thereof) set forth in any Notice by giving the
Indemnified Party, within thirty (30) days following receipt of such
Notice, written notice setting forth the Indemnifying Party's grounds
for so objecting (the "Objection Notice"). If the Indemnifying Party
does not give the Indemnified Party the Objection Notice within such
thirty (30)-day period, the Indemnifying Party may exercise any and all
of its rights under applicable law to collect such amount.
c. If Essef and A&S are unable to settle any dispute regarding a claim
for indemnification within thirty (30) days after receipt of the
Objection Notice, they will, in accordance with Section 14, jointly
request to resolve the dispute as promptly as possible under the
procedures set forth in Section 14.
d. Failure by the Indemnified Party to promptly deliver to the
Indemnifying Party a Notice in accordance with Section 13(a) hereof
will not relieve the Indemnifying Party of any of its obligations under
this Agreement except to the extent the Indemnifying Party is
prejudiced by such failure.
e. The indemnification provisions of this Section 13 shall be the
exclusive remedy following the Closing Date for the allocation of Taxes
pursuant to this Agreement.
14. PROCEDURES FOR RESOLVING DISPUTES. Except as provided in Section 5, if Essef
and A&S fail to mutually agree on the resolution of any of the matters in this
Agreement that require the agreement of the parties, then such matter shall be
referred to the Accountant for a binding determination. Essef and A&S shall
deliver to the Accountant copies of any schedules or documentation that may be
reasonably required by the Accountant to make its determination. Essef and A&S
shall be entitled to make presentations to the Accountant in connection
therewith. Essef and A&S shall use all reasonable efforts to cause the
Accountant to promptly complete such determination. The determination of the
Accountant shall be final and binding on
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all parties. The costs incurred in retaining the Accountant to make a
determination shall be shared equally by Essef and A&S.
15. PAYMENT. If a party (the "Payor") fails to make a payment due and owing
under this Agreement to the other party or any of its Tax Affiliates (the
"Payee") within 10 business days after the parties hereto agree (or there is a
binding determination by the Accountant) that such payment is due and owing, the
Payor will pay to the Payee interest on such payment from and including the date
the parties reach such agreement (or such binding determination is made) to but
excluding the day the Payor makes such payment, at a rate equal to seven percent
(7%) per annum.
16. AMENDMENTS. Any amendment, supplement, variation, alternation, or
modification to this Agreement must be made in writing and duly executed by an
authorized representative or agent of each of the parties hereto.
17. ASSIGNMENT. This Agreement and all the rights and obligations granted hereby
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns, it being expressly agreed that this Agreement shall not
be assigned nor shall any rights or obligations arising hereunder be transferred
by one party without the prior written consent of the other parties. Prior to
the Closing Date, Essef and A&S may elect to form a holding company for the
ownership of the A&S stock. In that event, (i) Essef will transfer the shares of
A&S stock to the holding company and shares of common stock of the holding
company will be issued in substitution of the A&S stock in the Split-Off and
(ii) the benefits and obligations contemplated by this Tax Sharing Agreement
will be binding upon and inure to the holding company, provided that A&S will
not be released from its obligations hereunder.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties and supersedes any and all prior or contemporaneous understandings,
negotiations, or agreements between the parties relating to the transactions
contemplated hereby or the subject matter of this Agreement, and shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal representatives.
19. NO WAIVER. The failure in any one or more instances of a party to insist
upon performance of any of the terms, covenants, or conditions of this
Agreement, to exercise any right or privilege conferred in this Agreement, or to
waive any breach of any of the terms, covenants, or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights, or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.
20. NO DOUBLE RECOVERY. No provision of this Agreement shall be construed to
provide an indemnity or other recovery for any Taxes, costs, damages, or other
amounts for which the damaged person has been fully compensated under any other
provision of this Agreement or under any other agreement or action at law or in
equity.
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21. SEVERABILITY. Any provisions of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdictions, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any other jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, each party hereby waives any law that renders any provision
hereof prohibited or unenforceable in any respect.
22. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, and all such counterparts shall be deemed to
constitute one and the same instrument.
23. FEES, COSTS AND EXPENSES. Except as otherwise provided herein, each party
shall be responsible for its own fees, costs, and expenses incurred by it in
connection with this Agreement.
24. THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended to create,
nor shall anything in this Agreement be deemed to create or have created, any
third party beneficiary rights.
25. CONSTRUCTION. All references to this Agreement shall include all attachments
hereto, and words importing the singular shall include the plural and vice
versa, and words importing a gender shall include other genders.
26. HEADINGS. The descriptive section headings contained in this Agreement are
for convenience of reference only and shall not control or affect the meaning or
construction of any provision of this Agreement.
27. NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered, five (5)
business days after mailing when mailed by certified mail, return receipt
requested, or one (1) business day after sending via Federal Express or similar
overnight courier service, or when receipt is confirmed when sent by facsimile.
Such notices or other communications shall be sent to the following addresses,
unless other addresses are subsequently specified in writing:
a. If to the Essef, to:
Essef Corporation
c/o Xxxxxxx & Sylvan Pools Corporation
000 Xxxx Xxxxx
Xxxxxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx X. Xxxxx
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with a copy to:
Squire, Xxxxxxx & Xxxxxxx L.L.P.
0000 Xxx Xxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx Xxx Xxxxxxxxx, Esq.
b. If to A&S, to:
Xxxxxxx & Sylvan Pools Corporation
000 Xxxx Xxxxx
Xxxxxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
with a copy to:
Squire, Xxxxxxx & Xxxxxxx L.L.P.
0000 Xxx Xxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx Xxx Xxxxxxxxx, Esq.
c. If to Pentair, to:
Pentair, Inc.
Waters Edge Plaza
0000 Xxxxxx Xxxx X0 Xxxx
Xxxxx Xxxx, Xxxxxxxxx 00000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx
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with a copy to:
Pentair, Inc.
Waters Edge Plaza
0000 Xxxxxx Xxxx X0 Xxxx
Xxxxx Xxxx, Xxxxxxxxx 00000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
with a copy to:
Xxxxx & Xxxxxxx
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxx, III, Esq.
28. GOVERNING LAW. This Agreement shall be governed by and controlled as to its
validity, enforcement, interpretation, construction, effect, and in all other
respects by the laws of the State of Ohio (without giving effect to any choice
or conflict of law provision or rule thereof) applicable to contracts made and
to be performed in that State.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized representatives as of the day and year first above
written.
ESSEF CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxx
--------------------------------------
Its: President
--------------------------------------
XXXXXXX & SYLVAN POOLS CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxx
--------------------------------------
Its: Chief Executive Officer
--------------------------------------
PENTAIR, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
--------------------------------------
Its: Executive Vice President
--------------------------------------
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LIST OF OMITTED SCHEDULES
Exhibit A to Tax Sharing Agreement (Summary Terms of Astro Senior Subordinated
Debt Security).
The registrant agrees to furnish supplementally a copy of the foregoing
Exhibit A to the Tax Sharing Agreement to the Commission upon request.
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