INCOME TAX ALLOCATION AGREEMENT

Exhibit 10.2

THIS INCOME TAX ALLOCATION AGREEMENT (this “Agreement”) dated as of May 26, 2006 is made and entered into by Xxxxxx Industries, Inc., a Delaware corporation (“Xxxxxx”) and the Xxxxxx Affiliates (as defined below), and Xxxxxxx Water Products, Inc., a Delaware corporation (“Xxxxxxx”) and the Xxxxxxx Affiliates (as defined below).

RECITALS

WHEREAS, Xxxxxx is the common parent corporation of an “affiliated group” of corporations within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the “Code”) and of certain combined groups as defined under similar laws of other jurisdictions and Xxxxxxx and the Xxxxxxx Affiliates are, as of the date hereof, and have been members of such groups;

WHEREAS, the groups of which Xxxxxx is the common parent and Xxxxxxx and the Xxxxxxx Affiliates are members file or intend to file Consolidated Returns and Combined Returns (each as defined below);

WHEREAS, Xxxxxxx intends to effect the initial public offering by Xxxxxxx of Xxxxxxx common stock that will reduce Walter’s ownership of Xxxxxxx, on a fully diluted basis, to less than eighty percent (80%) of the value of Xxxxxxx’x common stock (the “IPO”);

WHEREAS, as a result of the reduction in Walter’s ownership, Xxxxxxx and the Xxxxxxx Affiliates will cease to be members of the Consolidated Group and may cease to be members of one or more Combined Groups (each as defined below);

WHEREAS, Xxxxxx intends to make a distribution of the issued and outstanding shares of Xxxxxxx stock pro rata to the holders of Xxxxxx capital stock in a transaction that is intended to qualify as a tax-free distribution under Section 355 of the Code; and

WHEREAS, Xxxxxx and Xxxxxxx desire to set forth their agreement regarding the allocation of taxes, the filing of tax returns, the administration of tax contests and other related matters and to replace in its entirety the Income Tax Allocation Agreement, dated as of October 3, 2005, between Xxxxxx and Xxxxxxx setting forth their agreement with respect to certain tax matters (the “Original Income Tax Allocation Agreement”) with the terms of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

SECTION 1. DEFINITIONS

1.1 “AUDIT” includes any audit, assessment of Taxes, other examination by any Tax Authority, proceeding, or appeal of such proceeding relating to Taxes, whether administrative or judicial.

1.2 “COMBINED GROUP” means a group of corporations or other entities that files a Combined Return.

1.3 “COMBINED RETURN” means any Tax Return with respect to Non-Federal Taxes filed on a consolidated, combined (including nexus combination, worldwide combination, domestic combination, line of business combination or any other form of combination) or unitary basis wherein one or more members of the Xxxxxxx Group join in the filing of a Tax Return with Xxxxxx or a Xxxxxx Affiliate that is not also a member of the Xxxxxxx Group.

1.4 “CONSOLIDATED GROUP” means the affiliated group of corporations within the meaning of Section 1504(a) of the Code of which Xxxxxx is the common parent and which includes the Xxxxxxx Group.

1.5 “CONSOLIDATED RETURN” means any Tax Return with respect to Federal Income Taxes filed by the Consolidated Group pursuant to Section 1501 of the Code.

1.6 “DECONSOLIDATION” means any event pursuant to which Xxxxxxx and the Xxxxxxx Group cease to be includible in either the Consolidated Group or any Combined Group, as the context requires.

1.7 “DECONSOLIDATION DATE” means the close of business on the day on which a Deconsolidation occurs. Unless otherwise required by the relevant Tax Authority or a court of competent jurisdiction, Xxxxxx and Xxxxxxx, for itself and the Xxxxxxx Group, agree to file all Tax Returns, and to take all other actions, relating to Federal Income Taxes or Non-Federal Combined Taxes in a manner consistent with the position that Xxxxxxx and the Xxxxxxx Group are includible in the Consolidated Group and any applicable Combined Group for all days from the date hereof through and including a Deconsolidation Date.

1.8 “DISTRIBUTION” means any distribution by Xxxxxx of the issued and outstanding shares of Xxxxxxx stock that Xxxxxx holds at such time in a transaction intended to qualify as a tax-free distribution under Section 355 of the Code.

1.9 “DISTRIBUTION TAXES” means any (i) Taxes imposed on, or increase in Taxes incurred by, Xxxxxx or any Xxxxxx Affiliate and (ii) any Taxes of a Xxxxxx shareholder (or former Xxxxxx shareholder) that are required to be paid or reimbursed by Xxxxxx or any Xxxxxx Affiliate pursuant to a legal determination, resulting from, or arising in connection with, the failure of a Distribution to qualify as a tax-free transaction under Section 355 of the Code (including, without limitation, any Tax resulting from the application of Section 355(d) or Section 355(e) of the Code to a Distribution) or corresponding provisions of the laws of any other jurisdictions. Any Tax referred to in the immediately preceding sentence shall be determined using the highest applicable statutory Tax rate for the relevant taxable period (or portion thereof).

1.10 “ESTIMATED TAX INSTALLMENT DATE” means the installment due dates prescribed in Section 6655(c) of the Code (presently April 15, June 15, September 15 and December 15).

1.11 “FEDERAL INCOME TAX” or “FEDERAL INCOME TAXES” means any tax imposed under Subtitle A of the Code (including the taxes imposed by Sections 11, 55, 59A, and 1201(a) of the Code), including any interest, additions to Tax, or penalties

applicable thereto, and any other income based United States Federal Tax which is hereinafter imposed upon corporations.

1.12 “FEDERAL TAX” means any Tax imposed under the Code or otherwise under United States federal Tax law.

1.13 “FINAL DETERMINATION” means (a) the final resolution of any Tax (or other matter) for a taxable period, including any related interest or penalties, that, under applicable law, is not subject to further appeal, review or modification through proceedings or otherwise, including (1) by the expiration of a statute of limitations (giving effect to any extension, waiver or mitigation thereof) or a period for the filing of claims for refunds, amended returns, appeals from adverse determinations, or recovering any refund (including by offset), (2) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable, (3) by a closing agreement or an accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreements under laws of other jurisdictions, (4) by execution of an IRS Form 870-AD, or by a comparable form under the laws of other jurisdictions (excluding, however, any such 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 Tax Authority to assert a further deficiency), or (5) by any allowance of a refund or credit, but only after the expiration of all periods during which such refund or credit may be recovered (including by way of offset) or (b) the payment of Tax by any member of the Consolidated Group or Combined Group with respect to any item disallowed or adjusted by a Tax Authority provided that Xxxxxx determines that no action should be taken to recoup such payment.

1.14 “IRS” means the Internal Revenue Service.

1.15 “MARKET VALUATION” means as of the first business day immediately following the date on which the Distribution is effected (i) with respect to Xxxxxxx, the fair market value of all of its issued and outstanding stock (measured using the mean of the high and low of the public trading price as published in The Wall Street Journal) as of such date, or (ii) with respect to Xxxxxx, the fair market value of all of its issued and outstanding stock (measured using the mean of the high and low of the public trading price as published in The Wall Street Journal) as of such date.

1.16 “XXXXXXX AFFILIATE” means any corporation or other entity, including any entity that is a disregarded entity for federal income tax purposes, directly or indirectly “controlled” by Xxxxxxx where “control” means the ownership of fifty percent (50%) or more of the ownership interests of such corporation or other entity (by vote or value) or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity.

1.17 “XXXXXXX BUSINESS” means the business and operations conducted by Xxxxxxx and its Affiliates as such business and operations will continue after the date of the IPO.

1.18 “XXXXXXX GROUP” means the affiliated group of corporations, including any entity that is a disregarded entity for federal income tax purposes, as defined in Section 1504(a) of the Code, or similar group of entities as defined under similar laws of other jurisdictions, of which Xxxxxxx would be the common parent if it were not a subsidiary of Xxxxxx, and any corporation or other entity, including any entity that is a disregarded entity

for federal income tax purposes, which may be or become a member of such group from time to time.

1.19 “XXXXXXX GROUP COMBINED TAX LIABILITY” means, with respect to any taxable year, the Xxxxxxx Group’s liability for Non-Federal Combined Taxes as determined under Section 3.6 of this Agreement.

1.20 “XXXXXXX GROUP FEDERAL INCOME TAX LIABILITY” means, with respect to any taxable year, the Xxxxxxx Group’s liability for Federal Income Taxes as determined under Section 3.5 of this Agreement.

1.21 “NON-FEDERAL COMBINED TAXES” means any Non-Federal Taxes with respect to which a Combined Return is filed.

1.22 “NON-FEDERAL SEPARATE TAXES” means any Non-Federal Taxes that are not Non-Federal Combined Taxes.

1.23 “NON-FEDERAL TAXES” means any Tax other than a Federal Tax.

1.24 “OFFICER’S CERTIFICATE” means a letter executed by an officer of Xxxxxx or Xxxxxxx and provided to Tax Counsel as a condition for the completion of a Tax Opinion or Supplemental Tax Opinion.

1.25 “POST-DECONSOLIDATION PERIOD” means a taxable period beginning after the applicable Deconsolidation Date.

1.26 “PRE-DECONSOLIDATION PERIOD” means any taxable period beginning on or prior to the applicable Deconsolidation Date.

1.27 “PRO FORMA XXXXXXX GROUP COMBINED RETURN” means a pro forma non-federal combined tax return or other schedule prepared pursuant to Section 3.6 of this Agreement.

1.28 “PRO FORMA XXXXXXX GROUP CONSOLIDATED RETURN” means a pro forma consolidated federal income tax return prepared pursuant to Section 3.5(b) of this Agreement.

1.29 “REDETERMINATION AMOUNT” means, with respect to any taxable year, the amount determined under Section 3.10 of this Agreement.

1.30 “RULING” means (i) any private letter ruling issued by the IRS in connection with a Distribution in response to a request for such a private letter ruling filed by Xxxxxx (or any Xxxxxx Affiliate) prior to the date of a Distribution, and (ii) any similar ruling issued by any other Tax Authority addressing the application of a provision of the laws of another jurisdiction to a Distribution.

1.31 “RULING DOCUMENTS” means (i) the request for a Ruling filed with the IRS, together with any supplemental filings or other materials subsequently submitted on behalf of Xxxxxx, its Affiliates and shareholders to the IRS, or on behalf of Xxxxxxx, its Affiliates and shareholders to the IRS the appendices and exhibits thereto, and any Ruling issued by the IRS to Xxxxxx (or any Xxxxxx Affiliate) or Xxxxxxx (or any Xxxxxxx Affiliate) in

connection with a Distribution and (ii) any similar filings submitted to, or rulings issued by, any other Tax Authority in connection with a Distribution.

1.32 “SUPPLEMENTAL RULING” means (i) any ruling (other than the Ruling) issued by the IRS in connection with a Distribution, and (ii) any similar ruling issued by any other Tax Authority addressing the application of a provision of the laws of another jurisdiction to a Distribution.

1.33 “SUPPLEMENTAL RULING DOCUMENTS” means (i) the request for a Supplemental Ruling, together with any supplemental filings or other materials subsequently submitted, the appendices and exhibits thereto, and any Supplemental Rulings issued by the IRS in connection with a Distribution and (ii) any similar filings submitted to, or rulings issued by, any other Tax Authority in connection with a Distribution.

1.34 “SUPPLEMENTAL TAX OPINION” has the meaning set forth in Section 4.2(c) of this Agreement.

1.35 “TAX ASSET” means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other deduction, credit or tax attribute which could reduce Taxes (including without limitation deductions and credits related to alternative minimum taxes).

1.36 “TAX AUTHORITY” includes the IRS and any state, local, or other governmental authority responsible for the administration of any Taxes.

1.37 “TAX COUNSEL” means a nationally recognized law firm or accounting firm selected by Xxxxxx to provide a Tax Opinion or a Supplemental Tax Opinion.

1.38 “TAX” or “TAXES” means any charges, fees, levies, imposts, duties, or other assessments of a similar nature, including without limitation, income, alternative or add-on minimum, gross receipts, excise, employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation, windfall profits, withholding, Social Security, unemployment, disability, ad valorem, estimated, highway use, commercial rent, capital stock, paid up capital, recording, registration, property, real property gains, value added, business license, custom duties, or other tax or governmental fee of any kind whatsoever, imposed or required to be withheld by any Tax Authority including any interest, additions to Tax, or penalties applicable thereto.

1.39 “TAX RETURN” OR “TAX RETURNS” means any return, declaration, statement, report, schedule, certificate, form, information return or any other document (and any related or supporting information) including an amended tax return required to be supplied to, or filed with, a Tax Authority with respect to Taxes.

1.40 “TAX OPINION” means an opinion issued by Tax Counsel as one of the conditions to completing a Distribution addressing certain United States federal income tax consequences of a Distribution under Section 355 of the Code.

1.41 “XXXXXX AFFILIATE” means any corporation or other entity, including any entity that is disregarded for federal income tax purposes, directly or indirectly “controlled” by Xxxxxx where “control” means the ownership of fifty percent (50%) or more of the ownership interests of such corporation or other entity (by vote or value) or the possession,

directly or indirectly, of the power to direct or cause the direction of the management or policies of such corporation or other entity, but at all times excluding Xxxxxxx or any Xxxxxxx Affiliate.

1.42 “XXXXXX BUSINESS” means all of the businesses and operations conducted by Xxxxxx and its Affiliates, excluding the Xxxxxxx Business, at any time, whether prior to, or after the date of the IPO.

SECTION 2. PREPARATION AND FILING OF TAX RETURNS

2.1 IN GENERAL. (a) Xxxxxx shall have the sole and exclusive responsibility for the preparation and filing of any Consolidated Return or Combined Return.

(b) Xxxxxxx shall, subject to Section 2.2 of this Agreement, be responsible for preparing and filing all Tax Returns of Xxxxxxx and the Xxxxxxx Affiliates other than those described in Section 2.1(a) of this Agreement.

2.2 PREPARATION AND FILING OF RETURNS. (a) All Tax Returns filed after the date of this Agreement by Xxxxxx, any Xxxxxx Affiliate, Xxxxxxx, or any Xxxxxxx Affiliate shall (1) be prepared in a manner that is consistent with Section 4 of this Agreement and the Code, and (2) filed on a timely basis (taking into account applicable extensions) by the party responsible for such filing under Section 2.1 of this Agreement.

(b) In its sole discretion, Xxxxxx shall have the exclusive right with respect to any Consolidated Return or Combined Return (a) to determine (1) the manner in which such Tax Return shall be prepared and filed, including, without limitation, the manner in which any item of income, gain, loss, deduction or credit shall be reported, (2) whether any extensions may be requested, (3) the elections that will be made by any member of the Consolidated Group or applicable Combined Group, and (4) whether any amended Tax Returns should be filed, (b) to control, contest, and represent the interests of the Consolidated Group and any Combined Group in any Audit and to resolve, settle, or agree to any adjustment or deficiency proposed, asserted or assessed as a result of any Audit, (c) to file, prosecute, compromise or settle any claim for refund, and (d) to determine whether any refunds, to which the Consolidated Group or applicable Combined Group may be entitled, shall be paid by way of refund or credited against the Tax liability of the Consolidated Group or applicable Combined Group. Xxxxxxx, for itself and its subsidiaries, hereby irrevocably appoints Xxxxxx as its agent and attorney-in-fact to take such action (including the execution of documents) as Xxxxxx xxx xxxx appropriate to effect the foregoing.

2.3 FURNISHING INFORMATION. Xxxxxxx (or the applicable Xxxxxxx Affiliate) shall (a) furnish to Xxxxxx in a timely manner such information and documents as Xxxxxx xxx reasonably request for purposes of (1) preparing any original or amended Consolidated Return or Combined Return, (2) contesting or defending any Audit relating to a Consolidated Return or a Combined Return, and (3) making any determination or computation necessary or appropriate under this Agreement, (b) cooperate in any Audit of any Consolidated Return or Combined Return, (c) retain and provide on demand books, records, documentation or other information relating to any tax return until the later of (1) the expiration of the applicable statute of limitations (giving effect to any extension, waiver, or mitigation thereof) and (2) in the event any claim is made under this Agreement for which such information is relevant, until a Final Determination with respect to such claim, and (d) take such action as Xxxxxx xxx deem appropriate in connection therewith. Xxxxxx shall provide Xxxxxxx (or the

applicable Xxxxxxx Affiliate) any assistance reasonably required in providing any information requested pursuant to this Section 2.3.

2.4 EXPENSES. Xxxxxxx shall reimburse Xxxxxx for any outside legal and accounting expenses incurred by Xxxxxx in the course of the conduct of any Audit regarding the Tax liability of the Consolidated Group or any Combined Group, and for any other expense incurred by Xxxxxx in the course of any litigation relating thereto, to the extent such costs are reasonably attributable to Xxxxxxx or any Xxxxxxx Affiliate and provided Xxxxxx has conferred with Xxxxxxx as to the portion of the Audit relating to Xxxxxxx or the Xxxxxxx Affiliate. Notwithstanding the foregoing, Xxxxxx shall have the sole discretion to control, contest, represent, file, prosecute, challenge or settle any Audit pursuant to Section 2.2 of this Agreement.

SECTION 3. PAYMENT OF TAXES AND TAX SHARING AMOUNTS

3.1 FEDERAL INCOME TAXES. Xxxxxx shall pay (or cause to be paid) to the IRS all Federal Income Taxes, if any, of the Consolidated Group.

3.2 NON-FEDERAL COMBINED TAXES. Xxxxxx shall pay (or cause to be paid) to the appropriate Tax Authorities all Non-Federal Combined Taxes, if any, of any Combined Group.

3.3 NON-FEDERAL SEPARATE TAXES AND OTHER TAXES. Xxxxxxx shall pay to the appropriate Tax Authorities all Non-Federal Separate Taxes and any other Taxes (other than those described in Section 3.1 and Section 3.2 of this Agreement), if any, of Xxxxxxx and the Xxxxxxx Affiliates.

3.4 XXXXXXX LIABILITY FOR FEDERAL INCOME TAXES AND NON-FEDERAL COMBINED TAXES. For each taxable year (or portion thereof ending on the applicable Deconsolidation Date) during a Pre-Deconsolidation Period, Xxxxxxx shall pay to Xxxxxx an amount equal to the sum of the Xxxxxxx Group Federal Income Tax Liability and the Xxxxxxx Group Combined Tax Liability for such period.

3.5 XXXXXXX GROUP FEDERAL INCOME TAX LIABILITY. (a) IN GENERAL. The Xxxxxxx Group Federal Income Tax Liability for each taxable year (or portion thereof ending on the applicable Deconsolidation Date) shall be the Xxxxxxx Group’s liability for Federal Income Taxes as determined on a Pro Forma Xxxxxxx Group Consolidated Return prepared in accordance with Section 3.5(b) of this Agreement.

(b) PRO FORMA FEDERAL RETURN. For each taxable year (or portion thereof ending on the applicable Deconsolidation Date) during a Pre-Deconsolidation Period, Xxxxxx shall prepare or cause to be prepared (and, as requested by Xxxxxx, Xxxxxxx shall cooperate in preparing) a Pro Forma Xxxxxxx Group Consolidated Return as if the Xxxxxxx Group were not and never were part of the Consolidated Group, but rather were a separate affiliated group of corporations of which Xxxxxxx were the common parent filing a consolidated federal income tax return pursuant to Section 1501 of the Code. For purposes of this Section 3.5(b), the Xxxxxxx Group’s Federal Income Tax Liability shall not be reduced by the Xxxxxxx Group’s carrybacks and carryovers of federal Tax Assets from other taxable years (such items being addressed by Section 3.5(c) herein).

(c) FEDERAL TAX ASSETS. Xxxxxx shall pay to the Xxxxxxx Group, not later than 15 business days after Xxxxxx makes a payment to, or receives a payment, credit or offset from any Tax Authority pursuant to this Section 3, the amount, if any, by which one or more federal Tax Assets of the Xxxxxxx Group reduced the Federal Income Tax liability of the Consolidated Group for any taxable year. For purposes of computing the amount of the payment described in this Section 3.5(c), one or more federal Tax Assets of the Xxxxxxx Group shall be considered to have reduced the Consolidated Group’s Federal Income Tax liability in a given year by an amount equal to the difference, if any, between (i) the amount of the Consolidated Group’s Federal Income Tax liability for the year computed without regard to such Tax Asset or Tax Assets and (ii) the amount of the Consolidated Group’s Federal Income Tax liability for the year computed with regard to such Tax Asset or Tax Assets.

3.6 XXXXXXX GROUP COMBINED TAX LIABILITY. (a) IN GENERAL. The Xxxxxxx Group Combined Tax Liability for each taxable year (or portion thereof ending on the applicable Deconsolidation Date) shall be the sum for such taxable period of the Xxxxxxx Group’s liability for each Non-Federal Combined Tax, as determined on Pro Forma Xxxxxxx Group Combined Returns prepared in a manner consistent with the principles and procedures set forth in Section 3.5 hereof.

(b) STATE TAX ASSETS. Xxxxxx shall pay to the Xxxxxxx Group, not later than 15 business days after Xxxxxx makes a payment to, or receives a payment, credit or offset from any Tax Authority pursuant to this Section 3, the amount, if any, by which one or more state or local Tax Assets of Xxxxxxx and the Xxxxxxx Affiliates reduced the Combined Tax liability of the applicable Combined Group for any taxable year. For purposes of computing the amount of the payment described in this Section 3.6(b), one or more state or local Tax Assets of Xxxxxxx and the Xxxxxxx Affiliates shall be considered to have reduced the Combined Group’s Tax liability in a given year by an amount equal to the difference, if any, between (i) the amount of the Combined Group’s Tax liability for the year computed without regard to such Tax Asset or Tax Assets and (ii) the amount of the Combined Group’s Tax liability for the year computed with regard to such Tax Asset or Tax Assets.

3.7 FOREIGN TAX ASSETS. Any other Tax Assets (other than Tax Assets described in Sections 3.5(c) and 3.6(b)) will be reimbursed at the time of use by Xxxxxx or Xxxxxx Affiliates in accordance with principles set forth in Sections 3.5(c) and 3.6(b).

3.8 TAX SHARING INSTALLMENT PAYMENTS. (a) FEDERAL INCOME TAXES. Not later than five business days prior to each Estimated Tax Installment Date with respect to any Pre-Deconsolidation Period, Xxxxxx shall determine under Section 6655 of the Code the estimated amount of the related installment of the Xxxxxxx Group Federal Income Tax Liability. Xxxxxxx shall then pay to Xxxxxx, not later than such Estimated Tax Installment Date, the amount thus determined.

(b) NON-FEDERAL COMBINED TAXES. Not later than five business days prior to any estimated tax installment date with respect to Non-Federal Combined Taxes for any Pre-Deconsolidation Period, Xxxxxx shall determine the estimated amount of the related installment of the Xxxxxxx Group Combined Tax Liability for the taxable year. Xxxxxxx shall pay to Xxxxxx, not later than the due date for such installment, the amount thus determined.

3.9 TAX SHARING TRUE-UP PAYMENTS. (a) FEDERAL INCOME TAXES. Not later than 15 business days after the Consolidated Return is filed with respect

to any Pre-Deconsolidation Period, Xxxxxx shall deliver to Xxxxxxx a Pro Forma Xxxxxxx Group Consolidated Return or other comparable schedule reflecting the Xxxxxxx Group Federal Income Tax Liability for such taxable year (or portion thereof ending on the applicable Deconsolidation Date). Not later than 10 business days after the date such Pro Forma Xxxxxxx Group Consolidated Return or other schedule is delivered, Xxxxxxx shall pay to Xxxxxx, or Xxxxxx shall pay to Xxxxxxx, as appropriate, an amount equal to the difference, if any, between the Xxxxxxx Group Federal Income Tax Liability for such taxable year (or portion thereof ending on the applicable Deconsolidation Date) and the aggregate amount paid by Xxxxxxx with respect to such taxable year (or portion thereof ending on the applicable Deconsolidation Date) under Section 3.8(a) of this Agreement.

(b) NON-FEDERAL COMBINED TAXES. Not later than 15 business days after the Combined Return is filed with respect to any period that includes any Pre-Deconsolidation Period, Xxxxxx shall deliver to Xxxxxxx a Pro Forma Xxxxxxx Group Combined Return or other comparable schedule reflecting the Xxxxxxx Group Combined Tax Liability for such taxable year (or portion thereof ending on the applicable Deconsolidation Date). Not later than 10 business days following delivery of such Pro Forma Xxxxxxx Group Combined Return or other schedule, Xxxxxxx shall pay to Xxxxxx, or Xxxxxx shall pay to Xxxxxxx, as appropriate, an amount equal to the difference, if any, between the Xxxxxxx Group Combined Tax Liability for such taxable year (or portion thereof ending on the applicable Deconsolidation Date) and the amount paid by Xxxxxxx with respect to such taxable year (or portion thereof ending on the applicable Deconsolidation Date) under Section 3.8(b) of this Agreement.

3.10 REDETERMINATION AMOUNT. (a) IN GENERAL. In the event of any redetermination of any item of income, gain, loss, deduction or credit of any member of the Consolidated Group or any Combined Group as a result of a Final Determination or any settlement or compromise with any Tax Authority (including any amended Tax Return or claim for refund filed by Xxxxxx), Xxxxxxx shall pay Xxxxxx or Xxxxxx shall pay Xxxxxxx, as the case may be, the Redetermination Amount.

(b) COMPUTATION. The Redetermination Amount shall be the difference, if any, between all amounts previously determined under Section 3 of this Agreement and all amounts that would have been determined under Section 3 of this Agreement taking such redetermination into account (including any additions to Tax or penalties applicable thereto), together with interest for each day calculated (1) with respect to redeterminations affecting Federal Income Taxes, at the rate determined, in the case of payment by Xxxxxxx to Xxxxxx, under Section 6621(a)(2) of the Code and, in the case of payment by Xxxxxx to Xxxxxxx, under Section 6621(a)(1) of the Code, and (2) with respect to redeterminations affecting Non-Federal Combined Taxes, under similar laws, if any, of other jurisdictions.

(c) PAYMENT. Xxxxxx shall deliver to Xxxxxxx a schedule reflecting the computation of any Redetermination Amount with respect to any taxable year. Not later than 5 business days after the date such schedule is delivered, Xxxxxxx shall pay Xxxxxx, or Xxxxxx shall pay Xxxxxxx, such Redetermination Amount.

3.11. INTEREST. Payments under this Section 3 that are not made within the prescribed period shall thereafter bear interest at the Federal short-term rate established pursuant to Section 6621 of the Code.

3.12. CARRYBACKS. (a) In the event any Tax Asset of the Xxxxxxx Group for any Post-Deconsolidation Period is eligible to be carried back to a Pre-Deconsolidation Period, Xxxxxxx shall, to the extent permitted by applicable law, elect to carry such amounts forward to any Post-Deconsolidation Period. If Xxxxxxx is required by law to carry back any such Tax Asset to a taxable Pre-Deconsolidation Period, Xxxxxx agrees to make a payment to Xxxxxxx to the extent that such a payment would be required under the terms of Section 3.5(c), Section 3.6(b) or Section 3.7 of this Agreement, net of any expenses incurred by Xxxxxx or Xxxxxx Affiliates. If subsequent to the payment by Xxxxxx to Xxxxxxx of any such amount, there shall be (a) a Final Determination which results in a disallowance or a reduction of the Tax Asset so carried back or (b) a reduction in the amount of the benefit realized by the Xxxxxx Group for any reason, Xxxxxxx shall repay to Xxxxxx, within 30 business days of such event any amount which would not have been payable to Xxxxxxx pursuant to this Section 3.12 had the amount of the benefit been determined in light of these events. Xxxxxxx shall hold Xxxxxx harmless for any penalty, addition to Tax or interest payable by any member of the Xxxxxx Group as a result of any such event. Any such amount shall be paid by Xxxxxxx to Xxxxxx within 30 business days of the payment by Xxxxxx or any member of the Consolidated Group or Combined Group of any such penalty, addition to Tax, or interest.

SECTION 4. DECONSOLIDATION AND DISTRIBUTION TAXES

4.1 CONTINUING COVENANTS. Xxxxxxx, for itself and the Xxxxxxx Affiliates, covenants that on or after a Deconsolidation it will not (nor will it cause or permit any member of the Xxxxxxx Group ), in respect of any Pre-Deconsolidation Period, (i) make or change any tax election, (ii) change any accounting method, (iii) amend any Tax Return or take any Tax position on any Tax Return that is inconsistent with any Tax position on any Tax Return of the Xxxxxx Group, or (iv) take any action, omit to take any action or enter into any transaction that results in any increased Tax liability or reduction of any Tax Asset of the Xxxxxx Group.

4.2 ADDITIONAL CONTINUING COVENANTS. (a) XXXXXXX RESTRICTIONS. Xxxxxxx agrees that, until such time as the stock of Xxxxxxx owned by Xxxxxx and Xxxxxx Affiliates constitutes fifty percent (50%) or less of the total combined voting power of all of the outstanding stock of Xxxxxxx, Xxxxxxx (1) will not knowingly take or fail to take, or permit any Xxxxxxx Affiliate to knowingly take or fail to take, any action that could reasonably be expected to preclude Walter’s ability to effectuate a Distribution, and (2) will not issue any stock of Xxxxxxx (or any instrument that is convertible, exercisable or exchangeable into any such stock) in an acquisition or public or private offering if, immediately after such issuance, Xxxxxx would, or would reasonably be expected to, not own stock of Xxxxxxx that, on a fully diluted basis, constitutes “control” (within the meaning of Section 368(c) of the Code) of Xxxxxxx. In the event of a Distribution, Xxxxxxx agrees that (1) it will take, and cause each Xxxxxxx Affiliate to take, any action reasonably requested by Xxxxxx in order to enable Xxxxxx to effectuate a Distribution (including, without limitation, any internal restructuring necessary to satisfy the active trade or business requirement of Section 355(b) of the Code) and (2) it will not take or fail to take, or permit any Xxxxxxx Affiliate to take or fail to take, any action where such action or failure to act would be inconsistent with any written representations of an officer of Xxxxxxx pursuant to Section 4.2(e) of this Agreement with respect to any material, information, covenant or representation that relates to facts or matters related to Xxxxxxx, any Xxxxxxx Affiliate, or the Xxxxxxx Business in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling other than as

permitted by Section 4.2(c) of this Agreement. For this purpose an action is considered inconsistent with a representation if the representation states that there is no plan or intention to take such action. In the event of a Distribution, Xxxxxxx agrees that it will not take (and it will cause the Xxxxxxx Affiliates to refrain from taking) any position on a Tax Return that is inconsistent with the treatment of a Distribution as a tax-free transaction under Section 355 of the Code.

(b) XXXXXX RESTRICTIONS. In the event of a Distribution, Xxxxxx agrees that it will not take or fail to take, or permit any Xxxxxx Affiliate to take or fail to take, any action where such action or failure to act would be inconsistent with any material, information, covenant or representation that relates to facts or matters related to Xxxxxx (or any Xxxxxx Affiliate) or within the control of Xxxxxx and is contained in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling. For this purpose an action is considered inconsistent with a representation if the representation states that there is no plan or intention to take such action. In the event of a Distribution, Xxxxxx agrees that it will not take (and it will cause the Xxxxxx Affiliates to refrain from taking) any position on a Tax Return that is inconsistent with the treatment of a Distribution as a tax-free transaction under Section 355 of the Code.

(c) CERTAIN XXXXXXX ACTIONS FOLLOWING A DISTRIBUTION. In the event of a Distribution, Xxxxxxx agrees that, during the 2-year period following a Distribution, without first obtaining, at Xxxxxxx’x own expense, either a supplemental opinion from Tax Counsel that such action will not result in Distribution Taxes (a “Supplemental Tax Opinion”) or a Supplemental Ruling that such action will not result in Distribution Taxes, unless in any such case Xxxxxx and Xxxxxxx agree otherwise, Xxxxxxx shall not (1) sell all or substantially all of the assets of Xxxxxxx or any Xxxxxxx Affiliate, (2) merge Xxxxxxx or any Xxxxxxx Affiliate with another entity, without regard to which party is the surviving entity, (3) transfer any assets of Xxxxxxx in a transaction described in Section 351 (other than a transfer to a corporation which files a consolidated return with Xxxxxxx and which is wholly-owned, directly or indirectly, by Xxxxxxx) or subparagraph (C) or (D) of Section 368(a)(1) of the Code, (4) issue stock of Xxxxxxx or any Xxxxxxx Affiliate (or any instrument that is convertible or exchangeable into any such stock) in an acquisition or public or private offering, or (5) facilitate or otherwise participate in any acquisition of stock in Xxxxxxx that would result in any shareholder owning five percent (5%) or more of the outstanding stock of Xxxxxxx. Xxxxxxx or any Xxxxxxx Affiliate shall only undertake any of such actions after Walter’s receipt of such Supplemental Tax Opinion or Supplemental Ruling and pursuant to the terms and conditions of any such Supplemental Tax Opinion or Supplemental Ruling or as otherwise consented to in writing in advance by Xxxxxx. The parties hereby agree that they will act in good faith to take all reasonable steps necessary to amend this Section 4.2(c), from time to time, by mutual agreement, to (i) add certain actions to the list contained herein, or (ii) remove certain actions from the list contained herein, in either case, in order to reflect any relevant change in law, regulation or administrative interpretation occurring after the date of this Agreement.

(d) NOTICE OF SPECIFIED TRANSACTIONS. Not later than 30 days prior to entering into any oral or written contract or agreement, and not later than 5 days after it first becomes aware of any negotiations, plan or intention (regardless of whether it is a party to such negotiations, plan or intention), regarding any of the transactions described in Section 4.2(c) of this Agreement, Xxxxxxx shall provide written notice of its intent to consummate

such transaction or the negotiations, plan or intention of which it becomes aware, as the case may be, to Xxxxxx.

(e) XXXXXXX COOPERATION. Xxxxxxx agrees that, at the request of Xxxxxx, Xxxxxxx shall cooperate fully with Xxxxxx to take any action necessary or reasonably helpful to effectuate a Distribution, including seeking to obtain, as expeditiously as possible, a Tax Opinion, Supplemental Tax Opinion, Ruling, and/or Supplemental Ruling. Such cooperation shall include the execution of any documents that may be necessary or reasonably helpful in connection with obtaining any Tax Opinion, Supplemental Tax Opinion, Ruling, and/or Supplemental Ruling (including, without limitation, any (i) power of attorney, (ii) Officer’s Certificate, (iii) Ruling Documents, (iv) Supplemental Rulings Documents, and/or (v) reasonably requested written representations confirming that (a) Xxxxxxx has read the Officer’s Certificate, Ruling Documents, and/or Supplemental Ruling Documents and (b) all information and representations, if any, relating to Xxxxxxx, any Xxxxxxx Affiliate, or the Xxxxxxx Business contained in the Officer’s Certificate, Ruling Documents, and/or Supplemental Ruling Documents are true, correct and complete in all material respects).

4.3 DISTRIBUTION TAXES. The parties have set forth how certain Tax matters with respect to a Distribution would be handled in the event that a Distribution is pursued at some future time.

(a) WALTER’S LIABILITY FOR DISTRIBUTION TAXES. In the event of a Distribution, notwithstanding Section 3 of this Agreement, Xxxxxx and each Xxxxxx Affiliate shall be jointly and severally liable for any Distribution Taxes, to the extent that such Distribution Taxes are attributable to, caused by, or result from, one or more of the following:

(1) any action or omission by Xxxxxx (or any Xxxxxx Affiliate) inconsistent with any material, information, covenant or representation related to Xxxxxx, any Xxxxxx Affiliate, or the Xxxxxx Business in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling (for the avoidance of doubt, disclosure of any action or fact that is inconsistent with any material, information, covenant or representation submitted to Tax Counsel, the IRS, or other Tax Authority, as applicable, in connection with an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling shall not relieve Xxxxxx (or any Xxxxxx Affiliate) of liability under this Agreement);

(2) any action or omission by Xxxxxx (or any Xxxxxx Affiliate), including a cessation, transfer to affiliates, or disposition of its active trades or businesses, or an issuance of stock, stock buyback or payment of an extraordinary dividend by Xxxxxx (or any Xxxxxx Affiliate) following a Distribution;

(3) any acquisition of any stock or assets of Xxxxxx (or any Xxxxxx Affiliate) by one or more other persons (other than Xxxxxxx or a Xxxxxxx Affiliate) prior to or following a Distribution; or

(4) any issuance of stock by Xxxxxx (or any Xxxxxx Affiliate).

(b) XXXXXXX’X LIABILITY FOR DISTRIBUTION TAXES. In the event of a Distribution, notwithstanding Section 3 of this Agreement, Xxxxxxx and each Xxxxxxx Affiliate shall be jointly and severally liable for any Distribution Taxes, to the extent that

such Distribution Taxes are attributable to, caused by, or result from, one or more of the following:

(1) any action or omission by Xxxxxxx (or any Xxxxxxx Affiliate) after a Distribution at any time, that is inconsistent with any written representations of an officer of Xxxxxxx pursuant to Section 4.2(e) of this Agreement with respect to any material, information, covenant or representation related to Xxxxxxx, any Xxxxxxx Affiliate, or the Xxxxxxx Business in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling (for the avoidance of doubt, disclosure by Xxxxxxx (or any Xxxxxxx Affiliate) to Xxxxxx (or any Xxxxxx Affiliate) of any action or fact that is inconsistent with any material, information, covenant or representation submitted to Tax Counsel, the IRS, or other Tax Authority, as applicable, in connection with an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents, Supplemental Ruling Documents, Ruling, or Supplemental Ruling shall not relieve Xxxxxxx (or any Xxxxxxx Affiliate) of liability under this Agreement);

(2) any action or omission by Xxxxxxx (or any Xxxxxxx Affiliate) after the date of a Distribution (including any act or omission that is in furtherance of, connected to, or part of a plan or series of related transactions (within the meaning of Section 355(e) of the Code) occurring on or prior to the date of a Distribution) including a cessation, transfer to affiliates or disposition of the active trades or businesses of Xxxxxxx (or any Xxxxxxx Affiliate), stock buyback or payment of an extraordinary dividend;

(3) any acquisition of any stock or assets of Xxxxxxx (or any Xxxxxxx Affiliate) by one or more other persons (other than Xxxxxx or any Xxxxxx Affiliate) prior to or following a Distribution; or

(4) any issuance of stock by Xxxxxxx (or any Xxxxxxx Affiliate) after a Distribution, including any issuance pursuant to the exercise of employee stock options or other employment related arrangements or the exercise of warrants.

(c) JOINT LIABILITY FOR REMAINING DISTRIBUTION TAXES. Xxxxxx and each Xxxxxx Affiliate shall be liable for a percentage of any Distribution Taxes (not otherwise allocated by Sections 4.3(a) or (b) of this Agreement) equal to the quotient of (i) Walter’s Market Valuation, divided by (ii) the sum of (x) Walter’s Market Valuation, and (y) Xxxxxxx’x Market Valuation. Xxxxxxx and each Xxxxxxx Affiliate shall be jointly and severally liable for a percentage of any Distribution Taxes (not otherwise allocated by Sections 4.3(a) or (b) of this Agreement) equal to the quotient of (i) Xxxxxxx’x Market Valuation, divided by (ii) the sum of (x) Walter’s Market Valuation, and (y) Xxxxxxx’x Market Valuation.

SECTION 5. MISCELLANEOUS

5.1 TERM. All rights and obligations arising hereunder shall survive until they are fully effectuated or performed provided that, notwithstanding anything in this Agreement to the contrary, this Agreement shall remain in effect and its provisions shall survive for the full period of all applicable statutes of limitation (giving effect to any extension, waiver or mitigation thereof).

5.2 ALLOCATIONS. (a) IN GENERAL. All computations with respect to any Pre-Deconsolidation Period shall be made pursuant to the principles of Treasury Regulations

Section 1.1502-76(b), taking into account such elections thereunder as Xxxxxx, in its sole discretion, shall make.

(b) TAX ASSETS. Xxxxxx shall advise Xxxxxxx in writing within 90 days after the filing of the Consolidated Return for the taxable year that includes the Deconsolidation Date of the allocation of any Tax Assets among Xxxxxx, each Xxxxxx Affiliate, Xxxxxxx, and each Xxxxxxx Affiliate. The parties hereby agree that, for purposes of determining such allocation, Xxxxxx shall be free to use any legally permissible method of allocation in its sole discretion.

5.3 CHANGES IN LAW. Any reference to a provision of the Code or a similar law of another jurisdiction shall include a reference to any successor provision to such provision.

5.4 CONFIDENTIALITY. Each party shall hold and cause its advisors and consultants to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information (other than any such information relating solely to the business or affairs of such party) concerning the other parties hereto furnished it by such other party or its representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (a) previously known by the party to which it was furnished, (b) in the public domain through no fault of such party, or (c) later lawfully acquired from other sources not under a duty of confidentiality by the party to which it was furnished), and each party shall not release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants who shall be advised of and agree to be bound by the provisions of this Section 5.4. Each party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar information.

5.5 SUCCESSORS. This Agreement shall be binding on and inure to the benefit of any successor, by merger, acquisition of assets or otherwise, to any of the parties hereto (including any successor of Xxxxxx and Xxxxxxx succeeding to the tax attributes of such party under Section 381 of the Code), to the same extent as if such successor had been an original party.

5.6 AUTHORIZATION, ETC. Each of the parties hereto hereby represents and warrants that it has the power and authority to execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all necessary corporate action on the part of such party, that this Agreement constitutes a legal, valid and binding obligation of each such party and that the execution, delivery and performance of this Agreement by such party does not contravene or conflict with any provision of law or of its charter or bylaws or any agreement, instrument or order binding on such party.

5.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements.

5.8 SECTION CAPTIONS. Section captions used in this Agreement are for convenience and reference only and shall not affect the construction of this Agreement.

5.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to laws and principles relating to conflicts of law.

5.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

5.11 WAIVERS AND AMENDMENTS. This Agreement shall not be waived, amended or otherwise modified except in writing, duly executed by all of the parties hereto.

5.12 SEVERABILITY. In case any one or more of the provisions in this Agreement should be invalid, illegal or unenforceable, the enforceability of the remaining provisions hereof will not in any way be effected or impaired thereby.

5.13 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit of the parties to this Agreement and each Xxxxxx Affiliate and Xxxxxxx Affiliate and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other rights in excess of those existing without this Agreement.

5.14 OTHER REMEDIES. Xxxxxxx recognizes that any failure by it or any Xxxxxxx Affiliate to comply with its obligations under Section 4 of this Agreement would, in the event of a Distribution, result in Distribution Taxes that would cause irreparable harm to Xxxxxx, Xxxxxx Affiliates, and their stockholders. Accordingly, Xxxxxx shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which Xxxxxx is entitled at law or in equity.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by a duly authorized officer as of the date first above written.


XXXXXX INDUSTRIES, INC.
on behalf of itself and the Xxxxxx Affiliates

By:		/s/ Xxxxxxx X. Xxxx
Name:			Xxxxxxx X. Xxxx
Title:			Executive Vice President and
			Chief Financial Officer

XXXXXXX WATER PRODUCTS, INC.
on behalf of itself and the Xxxxxxx Affiliates


By:	/s/ Xxxxxx X. Xxxxxxx
Name:			Xxxxxx X. Xxxxxxx
Title:			Vice President and Secretary

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INCOME TAX ALLOCATION AGREEMENT

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