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Exhibit 10.8
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT is dated as of the _____ day of
_______________, 1998, by and between Essef Corporation, an Ohio corporation
("Essef"), and Xxxxxxx & Sylvan Pools Corporation, an Ohio corporation ("A&S").
R E C I T A L S
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WHEREAS, Essef owns eighty percent (80%) or more 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, Essef and A&S presently intend to join in the filing of
consolidated federal income tax returns and, where applicable, consolidated or
combined state income or franchise tax returns ("Consolidated Tax Returns") for
all taxable years in which they are eligible to do so and during which Essef is
the common parent of a consolidated or combined group that includes A&S (the
"Essef Group"); and
WHEREAS, in connection with such Consolidated Tax Returns for the Essef
Group's taxable year that ended September 30, 1977, and subsequent years, Essef
and A&S consider it in their mutual best interests to provide herein for the
allocation of a portion of the federal income tax and state income or franchise
tax liabilities (collectively, "Tax Liabilities") of the Essef Group to A&S
generally in accordance with such liability as A&S would have incurred if it
filed separate federal income and state income or franchise tax returns;
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. DEFINITIONS. For purposes of this Agreement, "consolidated return,"
"consolidated group," "common parent," "member," "taxable year," "carryover,"
"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 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.
2. COOPERATION. As long as A&S and Essef are members of the Essef Group
and are eligible to file Consolidated Tax Returns, A&S will join in the filing
by Essef of such Consolidated Tax Returns and will execute such documents and
take such actions as Essef may request in connection therewith.
3. CONSOLIDATED TAX RETURN LIABILITY. For each taxable year to which
this Agreement applies (as set forth in Section 11 below) and for which A&S is
included in one or more of Essef's Consolidated Tax Returns, A&S shall pay to
Essef, at such time before the date on which each such Consolidated Tax Return
is required to be filed (including any extensions
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granted by the Internal Revenue Service) as will permit Essef timely to pay the
Tax Liability shown thereon, an amount equal to the separate federal income and,
as applicable, state income or franchise tax ("Separate Tax") liability,
including liability for any minimum tax imposed by the Code or by the state
taxing authority, that A&S would have incurred if it had filed Separate Tax
returns for the taxable year and for all taxable years during which A&S was
included in that Consolidated Tax Return of the Essef Group. Any amounts paid by
A&S pursuant to Section 6 hereof shall be credited against such Separate Tax
liability. If pursuant to the Separate Tax computation for A&S it would be
entitled to a refund of tax, then Essef shall make a payment in the amount of
such refund to A&S on the date that the Consolidated Tax Return of the Essef
Group is required to be filed or, if the Essef Group is entitled to receive a
refund as a result of its filing of the Consolidated Tax Return, within 10 days
after Essef receives such refund.
4. SEPARATE TAX LIABILITY OF A&S. The Separate Tax liability of A&S
shall be computed in the following manner (and, in the case of state income or
franchise tax, consistently with the following principles):
(a) All items of income, deduction, loss, and credit properly
attributable to A&S for the taxable year shall be taken into account; provided,
however, that gain or loss from the sale of property, recapture of depreciation
deductions, and other items that are otherwise deferred in accordance with
Section 1.1502-13 or other provisions of the Treasury Regulations relating to
the transfer of property to another member of the Essef Group shall be taken
into account in the Separate Tax calculation only in the taxable year and to the
extent that such item is taken into account in the computation of the
Consolidated Tax Liability of the Essef Group for such taxable year.
(b) Carryover and carryback items (including, without
limitation, net operating losses, capital losses, general business credits, and
foreign tax credits) shall be taken into account as though A&S had filed
Separate Tax Returns throughout the period of consolidation.
(c) The Separate Tax computation for A&S for any taxable year
to which this Agreement applies shall reflect the income, loss, deduction, and
credit items of all corporations that are (1) members of the Essef Group, (2)
join in the Consolidated Tax Return of the Essef Group for such year, and (3)
would be entitled to be included in a Consolidated Tax Return of a group of
which A&S were the common parent. Under such circumstances, A&S shall compute
its Separate Tax liability as though it filed a Consolidated Tax Return with the
other corporations that would be members of the consolidated group of which A&S
would be the common parent.
(d) All items of income, loss, deduction, or credit shall be
taken into account on a basis consistent with the treatment accorded such items
in the Consolidated Tax Return of the Essef Group, except to the extent that the
filing of a Separate Tax return would have required different treatment of an
item.
(e) A&S shall be deemed to have made all applicable elections
consistently with Essef's elections with respect to the Consolidated Tax Return.
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(f) A portion of the amounts in each taxable income bracket in
the tax table in Section 11(b)(1) of the Code shall be allocated to A&S for a
taxable year based on the percentage that A&S's separate taxable income
determined as set forth herein for that year bears to the Essef Group's taxable
income for that year.
5. OTHER TAXES OF A&S. A&S shall be responsible for the payment of all
of its taxes that are not shown on a Consolidated Tax Return.
6. ESTIMATED TAXES. A&S shall pay to Essef such amounts of estimated
tax payments as Essef deems appropriate taking into account the portion of the
Tax Liabilities that A&S is required under this Agreement to pay to Essef. Such
payments will be made at such times as will permit Essef to timely make
estimated tax payments to the Internal Revenue Service.
7. ADJUSTMENTS. It is recognized that subsequent adjustments may be
made, on audit or otherwise, in the Tax Liabilities of the Essef Group for a
year to which this Agreement applies, and that such adjustments may affect the
treatment of items included in the computation of the Separate Tax of A&S and
thus require correlative adjustments in the payments by A&S required hereunder.
To the extent such a subsequent adjustment, if reflected in the original
Separate Tax computation of A&S, would have decreased the amount of tax shown to
be due or increased the amount of refund, Essef will make a payment to A&S in an
amount equal to such decrease or increase, together with interest and penalties,
if any. To the extent such a subsequent adjustment would have increased the
amount of such Separate Tax or decreased the amount of refund, A&S shall make a
supplemental payment to Essef in an amount equal to such increase or decrease,
together with interest and penalties, if any. Each payment required by this
paragraph shall be made not later than ten days after final determination of the
amount thereof, or, if the payment is due to an adjustment in the Consolidated
Tax Return of the Essef Group that entitles Essef to a refund from the Internal
Revenue Service, not later than ten days after Essef's receipt of such refund.
8. LATE PAYMENT. If any payment required by this Agreement is not
timely made, interest shall accrue on the unpaid amount at the percentage rate
then applicable to underpayments under Section 6621(a)(2) of the Code.
9. COMPUTATIONS. All computations of the Separate Tax liability of A&S
shall be made by Essef in consultation with A&S. Final determinations of the
appropriateness of Separate Tax computations shall be the sole prerogative of
Essef, provided that such determination is not found to be inappropriate by the
Public Accounting Firm responsible for the audit of the Essef Group's published
financial statements.
10. INDEMNIFICATION OF A&S FOR PAYMENT OF OTHER ESSEF GROUP TAXES. In
the event that A&S pays any Tax Liabilities of the Essef Group in excess of the
payments by A&S required hereunder, Essef shall indemnify A&S for such excess
payments.
11. APPLICABLE PERIOD. This Agreement shall apply to the taxable year
ended September 30, 1997, and to subsequent taxable years in which A&S is
included in any
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Consolidated Tax Returns of the Essef Group. This Agreement shall continue to
apply to such taxable years after A&S is no longer so included, for example, for
purposes of computing any adjustments under Section 7 hereof.
12. FURTHER AGREEMENTS. A&S may enter into such arrangements with its
subsidiaries, if any, as may be consistent herewith and appropriate to
fulfilling the purposes of this Agreement.
13. INDEMNIFICATION. For each taxable year to which this Agreement
applies, Essef and A&S shall indemnify and hold each other harmless against any
interest or penalties incurred under the Code by reason of any act or omission
on the part of the indemnifying party.
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
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XXXXXXX & SYLVAN POOLS CORPORATION
By
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