1
EXHIBIT 10.3
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT is made as of August 21, 1997, between
Thermo Electron Corporation, a Delaware corporation ("Thermo Electron") and ONIX
Systems Inc., a Delaware corporation ("ONIX").
PRELIMINARY STATEMENT
Thermo Electron is the parent of an affiliated group of corporations
(including ONIX) within the meaning of Section 1504(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
Thermo Electron owns over 80% of the issued and outstanding shares of
voting common stock of Thermo Instrument Systems Inc. which in turn owns over
80% of the issued and outstanding shares of voting common stock of ONIX, the
only class of stock ONIX is authorized to issue. ONIX is required to file
consolidated federal income tax returns with Thermo Electron.
Thermo Electron as the common parent of an affiliated group of
corporations and ONIX recognize that any one of them that sustains a net
operating loss or otherwise generates beneficial tax attributes for a taxable
period may be deprived of such benefits when offset in that or other periods
against income or tax liabilities of the others.
AGREEMENTS
IT IS MUTUALLY agreed by the parties hereto as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 The Term "Thermo Electron Group" means the group of
corporations of which Thermo Electron is common parent and with which Thermo
Electron files a consolidated federal income tax return, excluding ONIX and
subsidiaries of ONIX that may exist now or in the future. For purposes of this
Agreement, the Thermo Electron Group shall be treated as a single corporate
entity. The Thermo Electron Group and ONIX and its subsidiaries, respectively,
are sometimes herein referred to collectively as the "Two Companies" or the
"Companies." The term "Deficit Company" means either one of the Companies that
has an ordinary loss, capital loss, special deduction or tax credit arising in a
consolidated return year, or in a prior separate return year, that is utilized
to a greater extent in the then current consolidated federal income tax return
than would have been the case if the Company had filed a separate federal income
tax return for the year. This Agreement anticipates that Thermo Electron will
set aside and retain certain sums calculated as provided herein. All reference
to Thermo Electron paying sums to itself pursuant to this Agreement shall be
satisfied by Thermo Electron setting aside sums in respect of the obligations
established under this Agreement.
2
1.2 The paragraph titles used herein are for convenience of
reference only and will not be considered in the interpretation or construction
of any of the provisions hereof. Words may be construed in the singular or the
plural as the context requires.
2. TAX RETURNS.
2.1 FEDERAL TAX RETURNS. Thermo Electron as the common parent
will prepare and file or cause to be prepared and filed federal and state income
tax returns on a consolidated basis, for the Thermo Electron Group and ONIX and
its subsidiaries for all fiscal periods as to which a consolidated return is
appropriate in accordance with the terms of this Agreement.
2.2 STATE TAX RETURNS. Thermo Electron as the common parent will
prepare and file or cause to be filed state income tax returns on a combined,
consolidated, unitary, or other method that Thermo Electron believes will result
in a lower overall tax liability to the Two Companies. ONIX will reimburse
Thermo Electron for its portion of the tax. Such reimbursement will be the tax
ONIX would have paid on a separate return basis, but only if it was required to
file a return in that state.
3. TIME OF PAYMENT OF FEDERAL OBLIGATIONS TO THERMO ELECTRON. The
obligations of the Companies for Federal income tax payments will be determined
and paid as follows:
(a) Not later than the 15th day after the end of the fourth,
sixth, ninth and twelfth months of each consolidated taxable year of Thermo
Electron, Thermo Electron will make a reasonable determination (consistent with
the provisions of Section 6655 of the Code) of the separate federal income tax
liability that each Company would be required to pay as estimated payments on a
separate return basis for that period. Each Company shall pay to Thermo Electron
the amount of such liability within ten days.
(b) After the end of Thermo Electron's fourth accounting quarter
and before the 15th day of the third month thereafter, each Company will
promptly pay to Thermo Electron the entire amounts estimated to be due and
payable under such Company's federal income tax return as if filed on a separate
return basis, less all amounts previously paid with respect to that year
pursuant to subparagraph (a) of this Paragraph 3.
(c) If upon the filing of the consolidated income tax return, a
revised calculation is made in the manner set forth in subparagraph (b) of this
Paragraph 3, and it is determined that either Company has paid to Thermo
Electron with respect to the consolidated taxable year an amount greater than
that required by Paragraph 3(b), then that excess will be promptly paid by
Thermo Electron to that Company.
4. TAX OBLIGATIONS OF THERMO ELECTRON. Thermo Electron will pay the
consolidated tax liabilities of the Companies arising from filing a consolidated
federal tax return.
5. PAYMENT OF FUNDS BY THERMO ELECTRON. If in any year ONIX incurs a
loss or generates tax credits or similar tax benefits (a "tax benefit item"),
Thermo Electron shall pay to
2
3
ONIX a sum equal to the amount of benefit realized by Thermo Electron that is
attributable to the ONIX tax benefit item; payments due to ONIX from Thermo
Electron under this section shall be made upon the earlier of (1) the year in
which ONIX would have obtained a tax benefit from the tax benefit item if ONIX
had in all years filed a separate federal income tax return or (2) the year in
which any applicable carry-forward period with respect to the tax benefit item
expires; provided that payments under this section shall be made first by being
taken into account in determining amounts payable to ONIX under Section 3, and
any remaining amount due to ONIX shall be paid by Thermo Electron to ONIX at the
times set forth for payments by ONIX under Section 3.
6. CHANGES IN PRIOR YEAR'S TAX LIABILITIES. In the event that the
consolidated tax liability or the separate tax liability referred to in
Paragraphs 3 and 5 hereof for any year for which a consolidated tax return for
the two Companies was filed is or would be increased or decreased by reason of
filing an amended return or returns (including carry-back claims), or by reason
of the examination of the returns by the Internal Revenue Service, the amounts
due Thermo Electron for payment of taxes under Paragraph 3 hereof, and the
amount to be paid to Thermo Electron for allocation to ONIX under Paragraph 5
hereof for each year will be recomputed by Thermo Electron to reflect the
adjustments to taxable income and tax credits for the taxable year and interest
or penalties, if any. In accordance with those recomputations, additional sums
will be paid by the Companies to Thermo Electron or paid by Thermo Electron to
the Companies regardless of whether a member has become a Departing Member (as
defined in Paragraph 8 hereof) subsequent to the taxable year of recomputation.
7. NEW MEMBERS. The Companies agree that if, subsequent to the
execution of this Agreement, Thermo Electron becomes the Parent, as that term is
used in Section 1504 of the Code, of one or more subsidiary corporations, in
addition to ONIX, then each newly acquired subsidiary corporation may become a
separate party to this Agreement by consenting in writing to be bound by its
provisions, effective immediately upon its delivery to Thermo Electron, but the
income, deductions and tax credits of the newly acquired subsidiary corporations
will first be included in the consolidated federal income tax return as required
by the Code.
8. DEPARTING MEMBERS.
8.1 The term "Departing Members," as used herein, will mean a
Company that is no longer permitted under the Code to be included in the
consolidated federal income tax return.
8.2 In applying this Agreement to a Departing Member for the
final taxable year in which its income, deductions, and tax credits are required
to be included in the consolidated federal income tax return: (i) the amount
required to be paid by a Departing Member under the provisions of Paragraph 3
hereof and (ii) the amount that the Departing Member is entitled to receive
under the provisions of Paragraph 5 hereof, will be determined by taking into
account the income, deductions and tax credits of the Departing Member only for
the fractional part of such year as the Departing Member was a member of the
consolidated group and included in the consolidated federal income tax return.
3
4
8.3 After the filing of the consolidated federal income tax
return for the last taxable year that the Departing Member was included therein,
the Departing Member will be informed of the amount of consolidated carry-overs
as of the end of the taxable year or period which are attributable to the
Departing Member, as provided by Treasury Regulations Section 1.1502-79 or
otherwise, including the agreement of the parties.
9. DETERMINATION OF SUMS DUE FROM AND PAYABLE TO MEMBERS. Thermo
Electron will determine the sums due from and payable to the Companies under the
provisions of this Agreement (including the determination for purposes of
Paragraph 6 hereof). The Companies agree to provide Thermo Electron with such
information as may reasonably be necessary to make these determinations. Issues
arising in the course of the determinations that are not expressly provided for
in this agreement will be resolved in an equitable manner.
10. TAX CONTROVERSIES. If a consolidated federal income tax return
for any taxable year during which this Agreement is in effect is examined by the
Internal Revenue Service, the examination, as well as any other matters relating
to that tax return, including any tax litigation, will be handled solely by
Thermo Electron. ONIX will cooperate with Thermo Electron and to this end will
execute protests, petitions, and any other documents as Thermo Electron
determines to be necessary or appropriate. The cost and expense of Thermo
Electron's handling of a tax controversy, including legal and accounting fees,
will be allocated to and paid by the Company to whom the tax controversy
relates. If the tax controversy relates to both Companies, the cost and expense
will be allocated between the Companies in the proportion that each Company's
potential additional tax liability bears to the total potential additional tax
liability of both Companies (determined in accordance with Paragraph 6 hereto
and assuming that the tax controversy is resolved in favor of the Internal
Revenue Service) for the taxable year on issue. If the tax controversy
encompasses more than one taxable year, Thermo Electron will first allocate the
cost and expense to each taxable year in the proportion that the potential
additional tax liability for each taxable year bears to the total potential
additional tax liability for the taxable years in issue.
11. EFFECTIVE DATE. This Agreement shall be effective beginning as of
the date of this Agreement, and will continue on a year-to-year basis thereafter
with respect to ONIX for so long as ONIX is permitted to file a consolidated
federal income tax return with Thermo Electron.
12. STATE TAXES. The two Companies will jointly file any state tax
return on a combined, consolidated, unitary, or other method that Thermo
Electron determines results in a lower overall tax liability to the Two
Companies. In the event that said state tax returns shall be filed, the
provisions of Sections 1-11 hereof shall apply, MUTATIS MUTANDIS (the necessary
changes being made) to the allocation, preparation, filing and payment related
to such state taxes and tax returns provided, however, that any benefit realized
by the filing of the combined, consolidated or unitary return will remain with
Thermo Electron.
4
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
THERMO ELECTRON CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------
Title: Treasurer
ONIX SYSTEMS INC.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------
Title: President
5
