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Exhibit 10.2
GAMI-FALCON DISAFFILIATION
TAX SHARING AGREEMENT
This GAMI-FALCON DISAFFILIATION TAX SHARING AGREEMENT ("Agreement") made
as of October 28, 1994, by and among Great American Management and Investment,
Inc., a Delaware corporation ("GAMI"); Eagle Industrial Products Corporation,
O.D.E. Manufacturing, Inc., and Amerace Corporation, all Delaware corporations
(collectively "Eagle"); and Falcon Building Products, Inc., a Delaware
corporation ("Falcon"),
Witnesseth that:
WHEREAS, GAMI is the common parent corporation of the affiliated group
(as such terms are defined in Section 1504(a) of the Code) (the "Consolidated
Group") of which Eagle is a Member, and of which Falcon is a third tier
subsidiary and of which Falcon's direct and indirect subsidiaries (the "Falcon
Subsidiaries") are members; and
WHEREAS, GAMI, Eagle and Falcon are parties to a Tax Sharing Agreement
made as of the 31st day of January, 1994 (the "Existing Tax Sharing
Agreement"); and WHEREAS, shares of Falcon common stock will be sold pursuant
to a public offering; upon completion of the offering, GAMI and Eagle will not
own enough of the outstanding shares of Falcon stock for Falcon to be a member
of the Consolidated Group (the "Disaffiliation"); and
WHEREAS, upon and after the consummation of the transactions pursuant to
the Disaffiliation, and as a result thereof, Falcon and the Falcon
Subsidiaries will cease to be members of the Consolidated Group (the date of
such cessation being referred to herein as the "Disaffiliation Date"); and
WHEREAS, the parties to this Agreement desire to set forth their
agreement in relation to liability for taxes (including interest and penalties
thereon) that are or may be owed by, or asserted against, Falcon and the
Falcon Subsidiaries;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto
agree as follows:
1. General Intent and Third Party Rights-Indemnification
(a) It is the general intent of the parties to this Agreement that:
(1) GAMI and Eagle shall economically bear the burden of
all federal income taxes imposed on the income of the
Consolidated Group excluding Falcon and the Falcon Subsidiaries;
and that Falcon shall economically bear the burden of all federal
income taxes imposed on the income of Falcon or the Falcon
Subsidiaries;
(2) Falcon shall bear the burden of all taxes imposed on
Falcon or the Falcon Subsidiaries by state and local taxing
authorities, including, but not limited to, sales, use,
occupation, franchise, excise, income, or any other tax, fee or
assessment (a "non-Federal tax") imposed on Falcon, it being
acknowledged that Falcon and the Falcon Subsidiaries have at all
times relevant hereto filed
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non-Federal tax returns and paid all non-Federal tax amounts
computed on a stand-alone basis without regard to any affiliation
of Falcon with GAMI; and
(3) Falcon shall bear the burden of all foreign income
taxes imposed on Falcon and the Falcon Subsidiaries.
This Agreement shall be construed accordingly. This Agreement
shall not create any rights in any person other than the parties
to this Agreement and the Falcon Subsidiaries.
(b) GAMI and Eagle shall indemnify and hold Falcon harmless from and
against GAMI Taxes, and Falcon shall indemnify and hold GAMI and Eagle
harmless from and against Falcon Taxes.
2. Continuation of Existing Tax Sharing Agreement; Termination of All Other Tax
Sharing Agreements. The Existing Tax Sharing Agreement shall continue to apply
in accordance with its terms, except as modified by this Agreement. To the
extent a provision of the Existing Tax Sharing Agreement is inconsistent with a
provision of this Agreement, the Provision of this Agreement shall apply.
3. Certain Definitions. Capitalized terms not defined elsewhere in this
Agreement or in the Existing Tax Sharing Agreement shall have the following
meanings:
(a) The term "Tax" means any imposed by subtitle A of the Code.
(b) The term "Period" means the period of time under applicable law
for which a Tax is imposed.
(c) The term "Return" means the return or the report, if any, to be
filed with the IRS for a Tax with respect to a Period.
(d) "Old Periods" are Periods ending on or before the Disaffiliation
Date.
(e) The "Stub Period" is the Period of Falcon commencing August 1,
1994 and ending on the date of the interim closing of the books
pursuant to the Disaffiliation as set forth in Section 4(b). The Stub
Period is an Old Period.
(f) "New Periods" are Periods beginning after the Stub Period.
(g) "Falcon Taxes" are Taxes for which Falcon is liable under the
Existing Tax Sharing Agreement and this Agreement, and the related
Periods are "Falcon Periods".
(h) "GAMI Taxes" are all taxes imposed on the Consolidated Group
excluding Falcon Taxes.
(i) "IRS" shall mean the United States Internal Revenue Service.
(j) The "Maximum Applicable Corporate Tax Rate" with respect to a Tax
shall be the maximum marginal corporate tax rate determined without
regard to tax rate or tax benefit make-up provisions such as Section I
l(b)(1) (last sentence) of the Code.
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(k) "Final Computation" means the final computation of amounts owing
between the parties with respect to a period as such amount is
determined in the ordinary course of the preparation of the Return
filed with respect to such Period, and shall be deemed to have
occurred on the later of the date on which such Return is filed with
the IRS or the Disaffiliation Date.
(l) The term "Code" means the Internal Revenue Code of 1986, as
amended.
4. Special Rules for Computation and Payment of Taxes for Stub Period.
Stub Period.
(a) Computation and Payment of Taxes. The amount of the Stand Alone
Tax Liability (as such term is defined in Section I of the Existing
Tax Sharing Agreement) for the Stub Period of Falcon shall be
estimated and the amount of such estimate shall be due and payable on
the fifteenth day of the third calendar month following the calendar
month in which the Disaffiliation Date occurs. Actual amounts owing
between the parties with respect to the Stub Period shall be computed
on or before the due date (with extensions) of the GAMI return which
includes the Stub Period, and Falcon shall pay to Eagle any remaining
amounts owing, or Eagle shall refund to Falcon any excess amount paid
by Falcon, as appropriate. Amounts owing between the parties
hereunder which are paid after the fifteenth day of the third calendar
month following the calendar month in which the Disaffiliation Date
occurs shall bear interest from such date until the date paid at an
annual rate of 2 percent (2%) per annum over the prime rate in effect
from time to time at Bank of America Illinois.
(b) Interim Closing of Books. The computation of the Stand Alone Tax
Liability for the Stub Period shall be determined on the basis of an
interim closing of the books for financial reporting purposes for the
month end nearest the Disaffiliation Date. In the event there is not
an interim closing of the books for financial reporting purposes, then
the computation of the Stand Alone Tax Liability for the Stub Period
shall be determined on the basis of the Falcon internal financial
statements for the month end nearest the Disaffiliation Date or on any
other basis agreed to by the parties.
(c) Any item of income or gain included in the income of the
Consolidated Group under Reg.1.1502-19, relating to "excess loss
accounts", by reason of any transactions or events occurring on the
Disaffiliation Date shall not be taken into account in computing the
Stand Alone Tax Liability of Falcon but shall be treated as an item
entering into the computation of Tax economically borne by GAMI and
Eagle.
(d) Elections.
(1) No options otherwise available under Reg. I. 1502-76(b)(5) for the
Stub Period of Falcon shall be exercised without the consent of
both GAMI and Falcon.
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(2) With Respect to Falcon, GAMI shall not, and shall not permit
Falcon, to change any existing or adopt any new tax accounting
principle, method of accounting, or tax election, except as
provided herein or as agreed to by Falcon.
5. Adjustments to Taxes Subsequent to Final Computation.
(a) In General. In the event of adjustments to Taxes for an Old
Period Subsequent to the Final Computation thereof, whether such
adjustments arise pursuant to an IRS audit, a court proceeding, a
carryback, an amended Return or otherwise ("Tax Adjustments"), the
allocation of liabilities under the existing Tax Sharing Agreement and
this Agreement shall be recomputed and payments between the parties
shall be made as provided in the existing Tax Sharing Agreement and
this Agreement, subject to the following modifications:
(1) The amount owing by Falcon to GAMI and Eagle shall be
computed within 15 days after the time that GAMI or Eagle has
notified Falcon that it has realized a "Tax Detriment" (such Tax
Detriment being equal to the excess of: (x) the last made
computation of Tax for such Period after taking into account the
Tax Adjustments; over (y) the last made computation of Tax for
such Period determined without taking into account such Tax
Adjustments). GAMI and Eagle are deemed to realize a Tax
Detriment by either a payment of such Tax Detriment to the IRS,
or by an application by the IRS of such Tax Detriment against a
refund, and shall be paid 15 days after the date of such
computation.
(2) If an adjustment results in additional foreign tax imposed on
Falcon, then GAMI and Eagle shall pay Falcon either: (a) 100% of
such amount, if such amount gives rise to a credit against tax,
or (b) the Maximum Applicable Corporate Tax Rate applied to such
amount, if such amount gives rise to a loss or deduction (such
payment being referred to as the "Foreign Tax Refund").
Notwithstanding the foregoing, the maximum amount of any Foreign
Tax Refund under this Section 5(a)(2) from GAMI and Eagle to
Falcon shall not exceed the amount of any tax benefit realized by
GAMI and Eagle as a result of the imposition of such foreign tax
on Falcon. To the extent GAMI and Eagle have paid to Falcon a
Foreign Tax Refund in excess of the maximum amount payable under
this Section 5(a)(2), Falcon shall promptly return such excess
to GAMI and Eagle,
(3) If an adjustment occurs by reason of a carryback of a loss or
deduction with respect to a Falcon Tax from a New Period to an
Old Period, then GAMI shall pay Falcon 100% of such amount,
if such amount is a credit against tax, and the maximum
applicable corporate tax rate applied to such amount, if such
amount is a loss or deduction (such payment being referred to as
the "Carryback Refund"). Notwithstanding the foregoing, the
maximum amount of any carryback refund under this Section 5(a)(3)
from GAMI to Falcon shall not exceed the amount of any tax
benefit realized by GAMI as a result of such carryback. To the
extent GAMI has paid to Falcon a Carryback Refund in excess of
the maximum amount payable under this Section 5(a)(3), Falcon
shall promptly return such excess to GAMI.
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(4) Interest and penalties imposed by law on the taxpayer or the
IRS with respect to any Tax (including with respect to the making
and/or filing of the related Return) and reasonable expenses
incurred by the parties in connection with seeking a refund of
Tax or contesting a proposed deficiency of Tax shall be treated
under the principles set forth in this Agreement applicable to
the related Tax and shall relate to the Period to which such Tax
relates. This Section 5(a)(4) shall not be construed to modify
the provisions of the other Sections of this Agreement.
(5) Notwithstanding the foregoing, no payment shall be
required to be made under this Section 5(a) unless a written
claim for such payment, along with all information and
documentation reasonably necessary to support such claim, is
served on the party requested to make such payment prior to the
later of: (x) the fifth anniversary of the date of this
Agreement, or (y) the expiration of the applicable Tax statute of
limitations (including extensions) with respect to such Period to
which such claim relates.
(b) Tax refunds and payments of deficiencies in taxes shall be
treated under the foregoing principles and payments between the
parties shall be made promptly and to the extent necessary to
effectuate such principles.
6. Cooperation/Disagreements.
(a) The parties shall cooperate fully with each other in all matters
relating to Taxes and in the determination of amounts payable
hereunder. If the parties are unable to agree as to the amount of any
Tax owing between them under this Agreement, then the parties shall
select a mutually acceptable "Big 6" accounting firm to determine such
amount. The costs of such determination shall be borne equally by
both parties.
(b) Any party involved in any formal or informal act or proceeding
relating to Tax matters which affects the other party shall promptly
give such other party notice thereof and keep such other party fully
and timely informed of developments. Specifically:
(1) Upon receipt by Falcon of a written notice of any pending or
threatened Tax audits of or assessments against Falcon for Taxes
allocable to GAMI or Eagle, or upon receipt by GAMI or Eagle of a
written notice of any Pending or threatened Tax audits of or
assessments against GAMI or Eagle for Taxes allocable to Falcon
(either, a "Potential Tax Liability"), Falcon (or GAMI or Eagle,
as the case may be) shall promptly give notice thereof to GAMI or
Eagle (or Falcon, as the case may be) (the "Tax Claim Notice").
The Tax Claim Notice shall contain information (to the extent
known to Falcon or GAMI or Eagle, as the case may be) describing
the Potential Tax Liability.
(2) Subject to subparagraph (3) hereof, GAMI shall have the
sole right to represent Falcon's interests in any Tax audit or
administrative or court proceeding relating to a Potential Tax
Liability, to employ counsel of its choice at its expense and to
control the conduct of such audit or proceeding, including
settlement or other disposition thereof. If GAMI elects to so
represent Falcon's interests, it shall within thirty (30) days of
delivery of any Tax Claim Notice (or sooner, if the nature of the
Potential Tax Liability so requires) notify Falcon of its intent
to do
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so, and Falcon shall cooperate in the defense against or
compromise of any claim in any such proceeding. In that event,
GAMI shall reasonably and in good faith consult with Falcon with
respect to the defense against or compromise of any such
Potential Tax Liability, and GAMI shall use its best efforts to
vigorously defend Falcon with respect to such Potential Tax
Liability. If GAMI elects not to represent Falcon's interests,
Falcon may pay, compromise or contest such Potential Tax
Liability in such manner as it deems appropriate (in its sole
discretion).
(3) Notwithstanding subparagraph (2) hereof, in respect of
a Potential Tax Liability relating to Returns other than
consolidated, combined or unitary Returns of GAMI or Eagle or
their affiliates which include Falcon, neither GAMI nor Eagle may
settle, compromise or otherwise dispose of any such liability,
without the consent of Falcon (which consent shall not be
unreasonably withheld or delayed), if such settlement, compromise
or other disposition would have an adverse effect on Falcon for
New Periods. In that event, GAMI or Eagle shall permit Falcon,
through counsel of its own choosing and at the sole expense of
Falcon, to participate in the settlement, compromise or other
disposition of such Potential Tax Liability.
7. Miscellaneous Matters
(a) If Falcon and/or any of the Falcon Subsidiaries is required to
file a consolidated, combined, or unitary state, local or foreign
income tax return with GAMI or Eagle, then this Agreement shall apply
with respect to such income tax in a manner similar to its application
hereunder with respect to the federal income tax, taking into account
concepts applicable under the state, local, or foreign tax laws.
(b) Notice of any claim under this Agreement must be received by the
party against whom such claim is made no later than the expiration of
the applicable Tax statute of limitations (if any) with respect to the
Tax matter underlying such claims.
(c) The representations, warranties, covenants and
agreements of the parties set forth in this Agreement shall
survive the Disaffiliation Date indefinitely.
(d) All notices, requests, demands and other
communications which are required or may be given under this
Agreement shall be given to GAMI at:
Great American Management and Investment, Inc.
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
ATTN: Xxxxxx X. Xxxxxxxxx
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to Eagle at:
Eagle Industrial Products Corporation
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx XX 00
Xxxxxxx, Xxxxxxxx 00000
ATTN: Xxx X. Xxxxxxx
to Falcon at:
Falcon Building Products, Inc.
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx XX 00
Xxxxxxx, Xxxxxxxx 00000
ATTN: Xxx X. Xxxxxxx
(e) In the event that disaffiliation of Falcon from
the affiliated group of which GAMI is the common parent does
not occur as contemplated by this Agreement, then this
Agreement shall be void ab initio.
(f) This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective
successors and assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
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GREAT AMERICAN MANAGEMENT AND
INVESTMENT, INC.
By: \s\ Xxxxxx X. Xxxxxxxxx
--------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Executive Vice President
EAGLE INDUSTRIAL PRODUCTS CORPORATION
O.D.E. MANUFACTURING
AMERACE CORPORATION
By: \s\ Xxxxxxx Xxxxxxxx
---------------------------
Name: Xxxxxxx Xxxxxxxx
Title: Vice President-Treasurer
FALCON BUILDING PRODUCTS, INC.
By: \s\ Xxx X. Xxxxx
------------------------
Name: Xxx X. Xxxxx
Title: Senior Vice-President
