Exhibit 10.8
TAX SHARING AGREEMENT
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THIS TAX SHARING AGREEMENT ("Agreement") is entered into as of November
__, 1997 by and between Centocor Diagnostics, Inc., a Pennsylvania corporation
("Diagnostics"), and Centocor, Inc., a Pennsylvania corporation ("Centocor").
RECITALS
WHEREAS, Centocor 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");
WHEREAS, Centocor beneficially owns all of the issued and outstanding
shares of Diagnostics' Class B Common Stock, par value $.01 per share and
Diagnostics is a member of the Centocor consolidated group for federal income
tax purposes;
WHEREAS, the parties are contemplating the possibility that Diagnostics
will issue shares of Class A Common Stock, $.01 par value per share, to the
public in an offering (the "Initial Public Offering") registered under the
Securities Act of 1933, as amended;
WHEREAS, the Centocor Group (as defined below) has filed and intends to
file consolidated federal income tax returns as permitted by Section 1501 of the
Code and certain members of the Diagnostics Group (as defined below) and certain
members of the Centocor Sub-Group (as defined below), have filed and intend to
file returns relating to Combined State Taxes (as defined below);
WHEREAS, Centocor and Diagnostics desire to agree upon a method for
determining the financial consequences to each party and their subsidiaries
resulting from the filing of a consolidated federal income tax return and the
filing of returns relating to Combined State Taxes.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Centocor and Diagnostics, for
themselves, their successors, and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the terms set forth below
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shall have the following meanings.
"Diagnostics Combined State Tax Liability" shall mean, with respect to
any taxable year and any jurisdiction, an amount of Combined State Taxes
determined in accordance with the principles set forth in the definition of
Diagnostics Federal Tax Liability.
"Diagnostics Federal Tax Liability" shall mean, with respect to any
taxable year, the sum of the Diagnostics Group's Federal Tax liability and any
interest, penalties and other additions to such taxes for such taxable year,
computed as if the Diagnostics Group were not and never were part of the
Centocor Group, but rather were a separate affiliated group of corporations
filing a consolidated federal income tax return pursuant to Section 1501 of the
Code, provided, however, that transactions with members of the Centocor Sub-
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Group shall be reflected according to the provisions of the consolidated return
regulations promulgated under the Code governing intercompany transactions, and
that Deconsolidation will trigger any deferred amounts, excess loss accounts or
similar items. Such computation shall be made (A) with negative adjustments for
any net operating losses, net capital losses and credits of any member of the
Centocor Sub-Group that are utilizable in such taxable year, as if the
Diagnostics Group incurred such losses or credits but only to the extent
allocated to Diagnostics Group based on the proportion of the Diagnostics
Group's total income to the Centocor Group's total income (each total income
determined without regard to such losses and credits), provided however, that
appropriate adjustments shall be made for the use of losses and credits in prior
years, (B) by taking account of any Tax Asset of the Diagnostics Group in
accordance with Section 2.1(c)(iii) hereof, (C) as though the highest rate of
tax specified in subsection (b) of Section 11 of the Code (or any other similar
rates applicable to specific types of income) were the only rates set forth in
that subsection, and with other similar adjustments as described in Section 1561
of the Code, and (D) reflecting the positions, elections and accounting methods
used by Centocor in preparing the consolidated federal income tax return for the
Centocor Group. The Diagnostics Group shall not be obligated to make any
payment to Centocor for the use by the Diagnostics Group of any net operating
losses, net capital losses and credits of any member of the Centocor Sub-Group.
"Diagnostics Group" shall mean, at any time, Diagnostics and any direct
or indirect corporate subsidiaries of Diagnostics that would be eligible to join
with Diagnostics, with respect to Federal Taxes, in the filing of a consolidated
federal income tax return and, with respect to Combined State Taxes, in the
filing of a consolidated, combined or unitary income or franchise tax return if
Diagnostics were not consolidated, combined or filing on a unitary basis with
any member of the Centocor Sub-Group.
"Combined State Tax" means, with respect to each state or local taxing
jurisdiction, any income, franchise or similar tax payable to such state or
local taxing jurisdiction in which a member of the Diagnostics Group files tax
returns with a member of the Centocor Sub-Group, on a consolidated, combined or
unitary basis for purposes of such income or franchise tax.
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"Deconsolidation" means any event pursuant to which Diagnostics ceases to
be a subsidiary corporation includible in a consolidated tax return of the
Centocor Group for Federal Tax purposes.
"Federal Tax" means any tax imposed under Subtitle A of the Code.
"Final Determination" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313 (a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to taxes other than
Federal Taxes, any final determination of liability in respect of a tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, (ii) any final disposition of a tax issue by
reason of the expiration of a statute of limitations or (iii) the payment of tax
by Centocor with respect to any item disallowed or adjusted by any taxing
authority where Centocor determines in good faith that no action should be taken
to recoup such payment.
"Post-Deconsolidation Tax Period" means (i) any tax period beginning and
ending after the date of Deconsolidation and (ii) with respect to a tax period
that begins before and ends after the date of Deconsolidation, such portion of
the tax period that commences on the day immediately after the date of
Deconsolidation.
"Pre-Deconsolidation Tax Period" means (i) any tax period beginning and
ending before or on the date of Deconsolidation and (ii) with respect to a
period that begins before and ends after the date of Deconsolidation, such
portion of the tax period ending on and including the date of Deconsolidation.
"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).
"Centocor Group" shall mean, at any time, Centocor and each direct and
indirect corporate subsidiary eligible to join with Centocor in the filing of a
consolidated federal income tax return.
"Centocor Sub-Group" shall mean, at any time, Centocor and each of its
direct and indirect corporate subsidiaries other than those subsidiaries that
are members of the Diagnostics Group.
1.2. Internal References. Unless the context indicates otherwise, references
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to Articles, Sections and paragraphs shall refer to the corresponding articles,
sections and paragraphs in this Agreement and references to the parties shall
mean the parties to this Agreement.
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ARTICLE II
TAX SHARING
2.1. Tax Sharing. (a) General. For each taxable year of the Centocor Group
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during which income, loss, or credit against tax of the Diagnostics Group are
includible in the consolidated Federal Tax return of the Centocor Group,
Diagnostics shall pay to Centocor an amount equal to the Diagnostics Federal Tax
Liability and for each taxable period during which income, loss or credit
against tax of any member of the Diagnostics Group are includible in a return
relating to a Combined State Tax, Diagnostics shall pay Centocor an amount equal
to the Diagnostics Combined State Tax Liability for such taxable period, each as
shown on the Pro Forma Returns (as defined in paragraph (c) below).
(b) Estimated Payments. Centocor shall determine the amount of the estimated
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tax installment of the Diagnostics Federal Tax Liability (corresponding to
Centocor's estimated Federal Tax installment), as determined under the
principles of Section 2.1(a) of this Agreement. Diagnostics shall, within 5
days of receipt of such determination (but in no event earlier than 5 days prior
to the due date of Centocor's corresponding estimated tax payment), pay to
Centocor the amount so determined. Centocor shall determine under provisions of
applicable law the amount of the estimated tax installment of the Diagnostics
Combined State Tax Liability (corresponding to the relevant estimated Combined
State Tax installment), as determined under the principles of Section 2.1(a) of
this Agreement. Diagnostics shall, within 5 days of receipt of such
determination (but in no event earlier than 5 days prior to the due date of
Centocor's corresponding estimated tax payment), pay to Centocor the amount so
determined.
(c) Payment of Taxes at Year-End.
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(i) At least 5 days prior to the due date (including all applicable and
valid extensions) for the Centocor Group's consolidated Federal Tax return,
Centocor shall make available to Diagnostics a pro forma Federal Tax return (a
"Pro Forma Federal Return") of the Diagnostics Group reflecting the Diagnostics
Federal Tax Liability. At least 5 days prior to the due date for each Combined
State Tax return, Centocor shall make available to Diagnostics the relevant pro
forma Combined State Tax return (each a "Pro Forma Combined State Return" and
together with the Pro Forma Federal Return, the "Pro Forma Returns") of the
Diagnostics Group reflecting the relevant Diagnostics Combined State Tax
Liability. The Pro Forma Returns shall be prepared in good faith in a manner
generally consistent with past practice.
(ii) On or before the date Centocor files its consolidated Federal Tax
return for any year for which payments are to be made under this Agreement,
Diagnostics shall pay to Centocor, or Centocor shall pay to Diagnostics, as
appropriate, an amount equal to the difference, if any, between the Diagnostics
Federal Tax Liability reflected on the Pro Forma Federal Return for such year
and the aggregate amount of the estimated installments of the Diagnostics
Federal Tax Liability for such year made pursuant to Section 2.1(b). On or
before the date Centocor files a Combined State Tax return for any year for
which payments are to be made under this Agreement, Diagnostics shall pay to
Centocor, or Centocor shall pay to Diagnostics, as appropriate, an amount equal
to the difference, if any, between the
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Diagnostics Combined State Tax Liability reflected on the relevant Pro Forma
Combined State Tax Return and the aggregate amount of the estimated installments
paid with respect to the corresponding Diagnostics Combined State Tax Liability
pursuant to Section 2.1(b).
(iii) If a Pro Forma Return reflects a Tax Asset (determined without
regard to any net operating losses, net capital losses or credits of any member
of the Centocor Sub-Group) that may under applicable law be used to reduce a
Federal Tax or Combined State Tax liability of the Centocor Group for any
taxable period, Centocor shall pay to Diagnostics an amount equal to the actual
tax saving (which would include refunds actually received) produced by such Tax
Asset at the time such tax saving is realized and the Pro Forma Returns of the
Diagnostic Group shall be adjusted to reflect such use. The amount of any such
tax saving for any taxable period shall be the amount of the reduction in taxes
payable by the Centocor Group to a taxing authority with respect to such tax
period as compared to the taxes that would have been payable to a taxing
authority with respect to such tax period in the absence of such Tax Asset.
(iv) In the event that Centocor makes a cash deposit with a taxing
authority in order to stop the running of interest or makes a payment of tax and
correspondingly takes action to recoup such payment (such as suing for a
refund), Diagnostics shall pay to Centocor an amount equal to Diagnostics' share
of the amount so deposited or paid (calculated in a manner consistent with the
determinations provided in this Article 2). Upon receipt by Centocor of a
refund of any amounts paid by it in respect of which Diagnostics shall have
advanced an amount hereunder, Centocor shall pay to Diagnostics the amount of
such refund, together with any interest received by it on such refund. If and
to the extent that any claim for refund or contest based thereupon shall be
unsuccessful, the payment by Diagnostics under Section 2.1(c)(iv) shall be
credited toward Diagnostics' obligations under this Section 2(c)(iv) and any
other payment obligation of Diagnostics under Section 2(d) below.
(d) Treatment of Adjustments. If any adjustment is made in a Federal Tax
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return of the Centocor Group or in a return relating to a Combined State Tax,
after the filing thereof, in which income or loss of the Diagnostics Group (or
any member thereof) is included, then at the time of a Final Determination of
the adjustment, Diagnostics shall pay to Centocor or Centocor shall pay to
Diagnostics, as the case may be, the difference between all payments actually
made under Section 2.1 with respect to the taxable year or period covered by
such tax return and all payments that would have been made under Section 2.1
taking such adjustment into account, together with any penalties actually paid
and interest for each day until the date of Final Determination calculated at
the rate determined, in the case of a payment by Diagnostics, under Section
6621(a)(2) of the Code and, in the case of a payment by Centocor, under Section
6621(a)(1) of the Code.
(e) Preparation of Returns and Contests. So long as (i) the Centocor Group
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elects to file consolidated Federal Tax returns as permitted by Section 1501 of
the Code or (ii) any Combined State Tax return is filed, Centocor shall prepare
and file such returns and any other returns, documents or statements required to
be filed with the Internal Revenue Service with respect to the determination of
the Federal Tax liability of the Centocor Group and with the appropriate taxing
authorities with respect to the determination of a Combined State Tax liability.
With respect to such return preparation, Centocor shall act in good faith with
regard
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to all members included in an applicable return. Centocor shall have the right
with respect to any consolidated Federal Tax returns or returns relating to a
Combined State Tax that it has filed or will file to determine in good faith (i)
the manner in which such returns, documents or statements shall be prepared and
filed, including, without limitation, the manner in which any item of income,
gain, loss, deduction or credit shall be reported, (ii) whether any extensions
should be requested, and (iii) the elections that will be made by any member of
the Centocor Group. In addition, Centocor shall have the right, in good faith,
to (i) contest, compromise or settle any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any Federal Tax return or
return relating to a Combined State Tax, (ii) file, prosecute, compromise or
settle any claim for refund, and (iii) determine whether any refunds shall be
received by way of refund or credited against tax liabilities. In addition,
Centocor shall prepare and file ruling requests, and take all other actions on
behalf of any member of the Centocor Group that it deems appropriate in
providing tax services to the members of the Centocor Group. Centocor shall, to
the extent such information is available, advise Diagnostics of any significant
Diagnostics tax issue being contested by the federal, state, local or other
relevant taxing authorities, and shall keep Diagnostics informed with respect to
any contest, compromise or settlement thereof.
ARTICLE III
POST-DECONSOLIDATION
3.1. Additional Rights and Liabilities Post-Deconsolidation.
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(a) Diagnostics covenants that on or after a Deconsolidation it will not, nor
will it cause or permit any member of the Diagnostics Group to make or change
any tax election, change any accounting method, amend any tax return or take any
tax position on any tax return, take any other 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 Centocor Group or any member thereof
(immediately after the Deconsolidation) in respect of any Pre-Deconsolidation
Tax Period, without first obtaining the written consent of an authorized
representative of Centocor.
(b) In the event of a Deconsolidation, Centocor may, at its option, elect and
Diagnostics shall join Centocor in electing (if necessary), (i) to reattribute
to itself certain Tax Assets of the Diagnostics Group pursuant to Treasury
Regulations Section 1.1502-20(g) and, if Centocor makes such election,
Diagnostics shall comply with the requirements of Treasury Regulations Section
1.1502-20(g)(5)) and (ii) to ratably allocate items (other than extraordinary
items) of the Diagnostics Group in accordance with relevant provisions of the
Treasury Regulations Section 1.1502-76. If Centocor elects to reattribute to
itself any Tax Assets under clause (i) this Section 3.1(b), Centocor shall pay
Diagnostics an amount agreed to by Centocor and Diagnostics at the time of
Centocor's election based on the effect of such election on the tax liability of
Centocor and Diagnostics.
(c) Where permitted by applicable law, Diagnostics shall elect not to
carryback any Tax Asset of the Diagnostics Group from a Post-Deconsolidation Tax
Period to a Pre-Deconsolidation Tax Period, unless otherwise permitted or
requested by Centocor. In the event of such carryback, Centocor agrees to pay
to Diagnostics the actual tax benefit received
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by the Centocor Group from the use in any Pre-Deconsolidation Tax Period of a
carryback of any Tax Asset of the Diagnostics Group from a Post-Deconsolidation
Tax Period. Such benefit shall be considered equal to the excess of (i) the
amount of Federal Taxes or Combined State Taxes, as the case may be, that would
have been payable by the Centocor Group in the absence of such carryback over
(ii) the amount of Federal Taxes or Combined State Taxes, as the case may be,
actually payable by the Centocor Group. Payment of the amount of such benefit
shall be made within 90 days of the filing of the applicable tax return for the
taxable year in which the Tax Asset is utilized. If, subsequent to the payment
by Centocor to Diagnostics 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
Centocor Group as a result of any other Tax Asset that arises in a Post-
Deconsolidation Tax Period, Diagnostics shall repay to Centocor, within 90 days
of such event described in (A) or (B) (an "Event" or, collectively, the
"Events") any amount which would not have been payable to Diagnostics pursuant
to this Section 3.1(c) had the amount of the benefit been determined in light of
the Events. Diagnostics shall hold Centocor harmless for any penalty or interest
payable by any member of the Centocor Group, as a result of any Event. Any such
amount shall be paid by Diagnostics to Centocor within 90 days of the payment by
Centocor or any member of the Centocor Group of any such interest or penalty.
Nothing in this Section 3.1(c) shall require Centocor to file a claim for refund
of Federal Taxes or Combined State Taxes which Centocor, in its sole discretion,
determines lacks substantial authority, as defined in the Code and the
regulations thereunder.
ARTICLE IV
MISCELLANEOUS
4.1. Limitation of Liability. Neither Centocor nor Diagnostics shall be
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liable to the other for any special, indirect, incidental or consequential
damages of the other arising in connection with this Agreement; provided,
however that in the event that (i) the Internal Revenue Service (or other
competent taxing authority) asserts a tax liability directly against Diagnostics
or any member of the Diagnostics Group, pursuant to its authority under Treasury
Regulation Section 1.1502-6 (or other relevant statutory authority), (ii)
Diagnostics has made all payments and performed all of its obligations otherwise
required of it under this Agreement with respect to such liability or otherwise,
and (iii) Centocor was given the opportunity to contest, settle or compromise
such liability pursuant to Section 2.1(e) of this Agreement, then Centocor shall
indemnify Diagnostics for actual payments made after a Final Determination with
respect to such liability to the extent that such payments exceed Diagnostics'
share of such liability (calculated in a manner that avoids double-counting
under this Agreement), such share determined in accordance with Article II of
this Agreement.
4.2. Subsidiaries. (a) Performance. Centocor agrees and acknowledges that
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Centocor shall be responsible for the performance of the obligations of each
member of the Centocor Sub-Group hereunder applicable to such subsidiary.
Diagnostics agrees and acknowledges that Diagnostics shall be responsible for
the performance by each member of the Diagnostics Group of the obligations
hereunder applicable to such member.
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(b) Application to Present and Future Subsidiaries. This Agreement is being
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entered into by Centocor and Diagnostics on behalf of themselves and each member
of the Centocor Sub-Group and Diagnostics Group, respectively. This Agreement
shall constitute a direct obligation of each such member and shall be deemed to
have been readopted and affirmed on behalf of any corporation which becomes a
member of the Centocor Sub-Group or Diagnostics Group in the future.
4.3. Cooperation. Centocor and Diagnostics shall cooperate fully in the
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implementation of this Agreement, including but not limited to, providing
promptly to the requesting party such assistance and documentation as may be
reasonably requested by such party in connection with any of the activities
described in Article II or Article III. In addition, Centocor and Diagnostics
shall retain all relevant tax records for relevant open periods in accordance
with past practice.
4.4. Agent. Each member of the Diagnostics Group hereby irrevocably appoints
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Centocor as its agent and attorney-in-fact to take any action as Centocor may
deem necessary or appropriate to effect Section 2.1 including, without
limitation, those actions specified in Treasury Regulation Section 1.1502-77(a).
4.5. Amendments. This Agreement may not be amended or terminated orally, but
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only by a writing duly executed by or on behalf of the parties hereto. Any such
amendment shall be validly and sufficiently authorized for purposes of this
Agreement if it is signed on behalf of Centocor and Diagnostics by any of their
respective presidents or vice presidents.
4.6. Term. Subject to Article III, this Agreement shall expire upon the date
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of Deconsolidation with respect to all Post-Deconsolidation periods; provided,
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however, that all rights and obligations arising hereunder with respect to a
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Pre-Deconsolidation Tax Period shall survive until they are fully effectuated or
performed and, provided, further, that notwithstanding anything in this
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Agreement to the contrary, all rights and obligations arising hereunder with
respect to a Post-Deconsolidation Tax Period 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).
4.7. Effective Date. This Agreement shall be effective as of August 22, 1997,
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shall govern all open taxable periods and shall supersede all prior agreements
as to the allocation of federal income tax liability between the parties to this
Agreement for all such open taxable years and for all subsequent taxable years.
4.8. Severability. If any provision of this Agreement or the application of
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any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid, illegal or unenforceable to any
extent, the remainder of this Agreement or such provision or the application of
such provision to such party or circumstances, other than those to which it is
so determined to be invalid, illegal or unenforceable, shall remain in full
force and effect to the fullest extent permitted by law and shall not be
affected thereby, unless such a construction would be unreasonable.
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4.9. Notices. All notices and other communications required or permitted
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hereunder shall be in writing, shall be deemed duly given upon actual receipt,
and shall be delivered (a) in person, (b) by registered or certified mail,
postage prepaid, return receipt requested, or (c) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of any
notice delivered pursuant to this clause (c) shall also be sent pursuant to
clause (b), addressed as follows:
(a) If to Diagnostics, to:
Chief Financial Officer
Centocor Diagnostics, Inc.
000 Xxxxx Xxxxxx Xxxxxxx
Xxxxxxx, XX 00000
Fax: (000) 000-0000
(b) If to Centocor, to:
Corporate Controller
Centocor, Inc.
000 Xxxxx Xxxxxx Xxxxxxx
Xxxxxxx, XX 00000
Fax: (000) 000-0000
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
4.10. Further Assurances. Centocor and Diagnostics shall execute,
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acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments and take such other action as may be necessary or advisable to
carry out their obligations under this Agreement and under any exhibit, document
or other instrument delivered pursuant hereto.
4.11. Entire Agreement. This Agreement constitutes the entire understanding
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of the parties hereto with respect to the subject matter hereof.
4.12. Successors. This agreement shall be binding on and inure to the
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benefit of any successor, by merger, acquisition of assets or otherwise, to any
of the parties hereto (including but not limited to any successor of Centocor
and Diagnostics 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
hereto.
4.13. Authorization, etc. Each of the parties hereto hereby represents and
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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.
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4.14. Section Captions. Section captions used in this Agreement are for
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convenience and reference only and shall not affect the construction of this
Agreement.
4.15. Governing Law. This agreement shall be governed by and construed in
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accordance with the internal laws of the Commonwealth of Pennsylvania without
giving effect to laws and principles relating to conflicts of law.
4.16. Counterparts. This Agreement may be executed in any number of
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counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
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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.
CENTOCOR DIAGNOSTICS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
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Name: Xxxxxxx X. Xxxxxx
Title: Vice President and
Chief Financial Officer
CENTOCOR, INC.
By: /s/ Xxxxxxx X. Xxxxxx
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Name: Xxxxxxx X. Xxxxxx
Title: Vice President-Finance and
Chief Financial Officer
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