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EXHIBIT 10.3
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT (the "Agreement") is dated as of June __, 1999
and executed effective as of the effective date (defined in Section 1.4 of this
Agreement), by and between ROCHE HOLDINGS, INC., a Delaware Corporation,
hereinafter referred to as "RHI", and GENENTECH, INC., a Delaware Corporation,
hereinafter referred to as "GNE".
W I T N E S S E T H :
WHEREAS, RHI has obtained control of at least 80% of the stock value and
80% of the voting power of GNE, permitting RHI and GNE under IRC Section 1504(a)
the privilege of filing a U.S. consolidated tax return and certain state and
local combined reports; and
WHEREAS, RHI will, from the above effective date, exercise that privilege
and include the taxable income, losses, credits, etc. of GNE as a fully
consolidated subsidiary in all of its consolidated federal and combined state
and local tax filings, payments, estimates, and other matters as are required
by law or in which it determines such inclusion is appropriate;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements contained herein, RHI and GNE hereby agree as follows:
ARTICLE I
DEFINED TERMS; PREPARATION OF TAX RETURNS AND TAX ESTIMATES
SECTION 1.1 Defined Terms. As used in this Agreement:
"RHI Group" means, for U.S. federal tax purposes, the affiliated group (within
the meaning of IRC Section 1504(a)) filing a consolidated return of which RHI
(or any successor corporation) is the common parent, and for state and local
tax purposes, RHI and/or any subsidiaries of RHI (direct or indirect and past,
current or future) includible in a group filing a consolidated or combined
return.
"GNE Group" means GNE and its subsidiaries (direct or indirect and past,
current or future).
"GNE Consolidated Group" means, for U.S. federal tax purposes, the member or
members of the GNE Group that are includible in the consolidated return filed
by the RHI Group, and for state or local tax purposes, the member or members of
the GNE Group that are includible in a group that (i) also includes RHI or at
least one subsidiary of RHI (other than a member of the GNE Group) as a member
and (ii) files a consolidated or combined return.
SECTION 1.2 Preparation of Proforma Tax Returns. GNE will be responsible for
the preparation of a proforma Form 1120 for the GNE Consolidated Group for U.S.
federal tax purposes, as well as proforma tax returns for the GNE Consolidated
Group for all applicable state and local combined filings, reporting on such
proforma returns the GNE Consolidated Group's items of income, gain, expense,
deduction, loss, credit, carryforwards, carrybacks
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and other such tax reporting items pursuant to the Stand-Alone Method (as
defined below). Once prepared, such proforma returns will be delivered by GNE
to RHI for its approval or recomputation in accordance with the provisions of
Article IV of this Agreement.
SECTION 1.3. State and Local Tax Returns - Separate and Combined Filings. GNE
will continue to prepare and directly file, or cause to be prepared and filed,
state and local tax returns, extensions, and payments of tax liability in any
state or locality in which RHI does not file a combined return, and in which
GNE determines that one or more members of the GNE Group has a nexus. GNE
further acknowledges that the state combined returns which are currently
applicable to this Section (and thus will be filed with RHI on a combined RHI
Group basis) are those in California; Colorado; Illinois; Kansas; Minnesota;
and New Hampshire; however, GNE also acknowledges that RHI reserves the right
to commence additional state or local combined filings in the future based on
RHI's tax planning or tax strategies for the RHI Group, or where such a
combined state or local filing becomes necessary in order to comply with state
or local tax requirements.
SECTION 1.4. Preparation of Federal/State/Local Tax Estimates. GNE will be
responsible for the computation pursuant to the Stand-Alone Method (as defined
below) and submission to RHI for its approval or recomputation (in accordance
with Article IV of this Agreement) of the GNE Consolidated Group's quarterly
estimated tax liability (including the estimate of any final amount due on the
tax return extension due dates), based on the GNE Consolidated Group's items of
income, gain, deduction, loss, credit, etc.
SECTION 1.5. Effective Date. This Agreement shall be effective as of the first
day (the "Consolidation Date") on which GNE is a member of the RHI Group and
shall govern all taxable periods of the members of the RHI Group and/or the GNE
Group that are open as of such day and all subsequent taxable periods.
ARTICLE II
STAND-ALONE METHOD
SECTION 2.1. Stand-Alone Method. GNE shall prepare all of the proforma tax
returns of the GNE Consolidated Group, and RHI and GNE shall make all other
computations and determinations under this Agreement relating to the GNE
Consolidated Group or any of its members, using the "Stand-Alone Method." The
Stand-Alone Method is the method that would apply to the GNE Consolidated Group
if it never were a part of the RHI Group, but instead filed its own
consolidated or combined return under the applicable provisions of federal,
state or local tax law and regulations dealing with such returns (provided,
however, that transactions between (x) a member of the GNE Group and (y) a
member of the RHI Group that is not a member of the GNE Group, shall be
accounted for pursuant to the provisions of the regulations under IRC Section
1502 that govern intercompany transactions). Under the Stand-Alone Method, (a)
the income, gains, expenses, deductions, losses and credits in any taxable
period of any member of the RHI Group that is not a member of the GNE
Consolidated Group shall be disregarded, (b) the income, gains, expenses,
deductions, losses and credits in any taxable period of any member of the GNE
Consolidated Group shall be taken into account, (c) all computations shall be
made in conformity with the positions, elections and accounting methods used by
RHI in preparing the consolidated and combined
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returns of the RHI Group, (d) the highest marginal tax rate to which the GNE
Consolidated Group could be subject under applicable federal, state or local
law shall be deemed to be the only tax rate to which such group is subject
under such law, (e) subject to (c) and (d), all computations and other
determinations shall be made in accordance with the federal, state and local
tax laws and regulations applying to consolidated or combined groups
(including, in the case of any company that becomes or ceases to be a member of
the GNE Consolidated Group, the laws and regulations applicable to a company
that becomes or ceases to be a member of a consolidated or combined group), as
well as all other relevant federal, state and local tax laws and regulations.
RHI shall determine, in its sole discretion, the proper interpretation and
application of the Stand-Alone Method as it relates to any and all items and
calculations reflected in the computation of the GNE Consolidated Group's
proforma tax liability, an overpayment or refund of such liability, a
recomputation of such liability (together with any related interest, penalty or
additional amount) upon a subsequent adjustment of the RHI Group's tax
liability, or a carryforward or carryback of a loss, credit or other tax
attribute of the GNE Consolidated Group or any member thereof to a taxable
period beginning prior to the Consolidation Date or to a separate return year,
and in the event of a disagreement between RHI and GNE as to such matters,
RHI's determination shall be final and binding.
ARTICLE III
PAYMENT OF TAX LIABILITIES AND RECEIPT OF REFUNDS
SECTION 3.1. Payment of Tax Liabilities. After the initial computation by GNE
of a GNE Consolidated Group tax liability and the approval or recomputation of
such tax liability by RHI pursuant to Article IV, GNE will remit to RHI by
federal bank wire the amount of such tax liability as so approved or recomputed.
SECTION 3.2. Date of Payment. GNE shall remit to RHI the amounts necessary
under Section 3.1 of this Agreement at least one business day prior to the
applicable federal/state/local due dates as required by the specific
federal/state/local law which necessitated the computation. For example, GNE
shall remit to RHI payments for quarterly estimated Federal tax no later than
April 14, June 14, September 14, and December 14 of each calendar year.
SECTION 3.3. Tax Overpayments and Refunds. If GNE determines that it has
overpaid a GNE Consolidated Group tax liability to RHI or is entitled to a
refund from RHI of such a tax liability on account of a carryback of a tax
attribute, GNE may request a refund or the offset of such overpayment against
future tax liabilities. Upon approval or recomputation by RHI in accordance with
Article IV of the amount requested as a refund or offset, RHI will refund or
allow as an offset the amount so approved or recomputed (and, in the case of a
refund, will pay interest thereon which is computed pursuant to the Stand-Alone
Method (which method includes the applicable federal, state or local tax laws
and regulations which govern the computation of such interest)). Refund claims
made by GNE under Section 6.3 shall be governed by principles corresponding to
those set forth in the previous sentence.
SECTION 3.4. Limitation to GNE of RHI Group Tax Liabilities/Benefits. The
liability of the members of the GNE Group to RHI for payments of tax under this
Agreement shall include, and be exclusively limited to, tax liabilities of the
GNE Consolidated Group computed pursuant to the Stand-Alone Method. In
addition, the ability of the members of the GNE
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Group to claim tax benefits from RHI is exclusively limited to tax benefits of
the GNE Consolidated Group computed pursuant to the Stand-Alone Method. Under
no circumstances shall any member of the GNE Group be held liable for the tax
liability of the consolidated/combined RHI Group, or of any of its individual
members; provided, that a GNE Group member may be held liable for a tax of the
consolidated/combined RHI Group to the extent that such tax is attributable
(determined using the Stand-Alone Method) to the members of the GNE
Consolidated Group and GNE has not previously made a payment to RHI equal to
such attributable portion of such tax. In addition, under no circumstances will
any member of the GNE Group be the beneficiary of tax benefits which accrue to
any member of the RHI Group that is not a member of the GNE Group, or to the
RHI Group as a whole as a result of the RHI Group's consolidated/combined tax
filings.
ARTICLE IV
SUBMISSION OF TAX DATA TO RHI; RHI APPROVAL AND
RECOMPUTATION RIGHTS
SECTION 4.1 Submission of Data; RHI Approval and Recomputation Rights. GNE will
submit to RHI for its review the proforma GNE Consolidated Group tax returns,
quarterly estimates and refund or carryback claims (including refund claims
made under Section 6.3) prepared by GNE under this Agreement. Any such proforma
filing will include all official forms, consents, elections, riders, and other
such documents that may be required or appropriate for such proforma filing.
RHI may approve, or may adjust or modify, any of the computations reflected on a
proforma filing submitted by GNE. In the case of any such adjustment or
modification by RHI, RHI shall recompute GNE's liability to RHI, or RHI's
liability to GNE, in accordance with such adjustment or modification, and such
recomputation shall be binding on GNE. RHI will prepare the final RHI Group
returns or estimated tax filings utilizing the data and proforma filings
submitted by GNE (as adjusted or modified by RHI pursuant to this Section 4.1
or Section 4.2) and by RHI's other includible subsidiaries, and thereafter RHI
will submit such returns or filings directly to the appropriate taxing
authority.
SECTION 4.2 Adjustment of Tax Data. In order to comply with applicable laws and
regulations or for any other reason which RHI, in its sole discretion, deems to
be necessary, RHI reserves the right to adjust and change the tax data as
submitted by GNE on the GNE Consolidated Group proforma returns prior to, and
for purposes of, inclusion of that data in any consolidated/combined RHI Group
tax filing. This right of adjustment of RHI includes, but is not limited to,
any or all income, gain, expense, deduction, loss or credit items as shown on
the GNE proforma returns, and may be made by RHI for any reason which it deems
necessary.
SECTION 4.3 Timeliness of Submission. In order to permit RHI sufficient time to
prepare the final Group tax returns and estimates, GNE will submit the data
under Section 4.1 of this Agreement to RHI no later than the following dates:
o tax returns: 30 days prior to the governmental due date;
o tax estimates and extensions: 7 days prior to the tax payment due date.
SECTION 4.4 Group Tax Planning and Strategies. GNE agrees to provide to RHI
upon its request any and all financial and tax data relating to any GNE Group
member that is
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necessary in order to allow RHI to develop tax planning opportunities and
overall tax strategies for the RHI Group. In addition, it is expected that,
upon request, GNE will participate in tax planning meetings and discussions
with RHI from time to time.
SECTION 4.5 Representation to Outside Governmental Bodies. RHI will develop and
oversee implementation of all positions on behalf of the RHI Group regarding
federal, state and local tax legislation, regulations and all other related
governmental actions which could affect the RHI Group. All direct and indirect
contacts with any federal, state and local official or agency which could
affect the RHI Group shall be coordinated by RHI.
SECTION 4.6 Access to Consolidated and Combined Tax Returns, and GNE Proforma
Returns. Under no circumstances will GNE be given copies of, or access to, the
RHI Group's consolidated and combined tax filings in which any member of the
GNE Group is a member. In addition, no other RHI subsidiary (except Roche
Consulting Corporation) will be given a copy of, or be given access to, GNE's
proforma tax returns and other financial data submitted to RHI under Section
4.1 of this Agreement.
ARTICLE V
TAX EXAMINATIONS
SECTION 5.1 Pre-Acquisition Year Tax Examinations. For any federal, state
and/or local tax examinations of one or more members of the GNE Group for tax
periods beginning prior to the effective date of this Agreement, GNE will
conduct or cause the applicable GNE Group member to conduct such examinations
with the applicable taxing authority, provided that GNE will timely notify RHI
of the commencement of any such examination and, with respect to any
examination which RHI determines may affect or involve an issue relating to a
computation reflected on a return of the RHI Group or a member thereof, will
(or, as applicable, will cause the applicable member of the GNE Group to) (x)
timely and fully inform RHI of developments relating to such examination, (y)
consult regularly with RHI as to the conduct of such examination, and (z) not
settle, fail to appeal or otherwise compromise any issue raised in such
examination without RHI's prior consent.
SECTION 5.2 Post-Acquisition Year Tax Examinations. In accordance with any
federal, state and/or local tax examination conducted of the RHI Group in which
a GNE Group member was a member of the consolidated/combined RHI Group tax
filing, GNE and the applicable GNE Group member or members will cooperate fully
with RHI and/or its representatives to provide any additional tax data,
requested documentation, physical access, and/or financial information which,
in the discretion of RHI, is necessary to provide to governmental personnel.
RHI will have the sole authority to select and close such Post-Acquisition year
tax examinations for all federal, state and/or local RHI Group
consolidated/combined tax filings.
SECTION 5.3 GNE Tax Examination Adjustments. If any adjustment is made to a
consolidated or combined return of the RHI Group, after the filing thereof, in
which income or loss of the members of the GNE Consolidated Group is included,
then at the time of the Final Determination of such adjustment, GNE shall pay
to RHI or RHI shall pay to GNE, as the case may be, (x) the difference between
(I) all payments of tax liability of the GNE Consolidated Group actually made
by GNE under Article III with respect to the taxable
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period covered by such consolidated or combined return (less any related
refunds previously paid by RHI), and (II) all payments that would have been
made under Article III taking such adjustment into account, together with (y)
any applicable interest, penalties or additional amounts computed pursuant to
the Stand-Alone Method. "Final Determination" means (1) with respect to federal
taxes, a "determination" as defined in IRC Section 1313(a) or execution of an
IRS Form 870AD and, with respect to state or local 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 (including the expiration of a statute of limitations or a period for
the filing of claims for refunds, amended returns or appeals from adverse
determinations) or (2) the payment of tax by any member of the RHI Group with
respect to any item disallowed or adjusted by a taxing authority (including,
without limitation, a court or other judicial body), provided that RHI
determines that no action should be taken to recoup such payment.
SECTION 5.4 R&D Tax Credit. Promptly after the date hereof, GNE will notify the
Internal Revenue Service that GNE is withdrawing its present position relating
to the calculation and allocation of research and development tax credits and
will take all other appropriate actions to terminate its position with the
Internal Revenue Service. To the extent necessary and permitted by law, GNE
will file amended returns for all open taxable periods beginning prior to the
Consolidation Date, which amended returns shall adopt the methodology relating
to the research and development tax credits that is currently used by the RHI
Group.
ARTICLE VI
CARRYFORWARDS AND CARRYBACKS OF ATTRIBUTES TO AND FROM
SEPARATE RETURN YEARS
SECTION 6.1 Pre-Consolidation Tax Attribute Carryforwards. Any deduction, loss,
credit or tax attribute incurred by the GNE Consolidated Group in a tax period
beginning prior to the Consolidation Date, a carryforward of which is still
available to the GNE Consolidated Group as of that date, shall be carried
forward by the GNE Consolidated Group to the extent and in the manner dictated
by the Stand-Alone Method for purposes of computing GNE's tax liability payable
to RHI under Article III of this Agreement.
SECTION 6.2 Tax Attribute Carrybacks to Pre-Consolidation Periods. Any
deduction, loss, credit or tax attribute incurred by the GNE Consolidated Group
in a period beginning after the Consolidation Date shall be carried back to
taxable periods of the GNE Consolidated Group beginning before the
Consolidation Date to the extent and in the manner dictated by the Stand-Alone
Method. Section 3.3 shall govern any claim by GNE for a refund from RHI on
account of such a carryback; provided, that GNE shall be entitled to such a
refund from RHI only once GNE has taken all available steps under federal,
state or local law to obtain such refund from the applicable taxing authority
and, in such a case, only to the extent of the excess of (x) the refund as
computed pursuant to the Stand-Alone Method over (y) any refund actually
received by GNE from the applicable taxing authority; and provided further,
that at the time GNE requests such a refund from RHI, GNE shall provide RHI
with appropriate information (including copies of correspondence with the
applicable taxing authority) relating to GNE's entitlement to a refund under
this sentence, and GNE shall thereafter provide such additional related
information as RHI requests.
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SECTION 6.3 Carrybacks and Carryforwards of Tax Attributes to Separate Return
Years. In the case of any company that becomes or ceases to be a member of the
GNE Consolidated Group, the portion of any deduction, loss, credit or tax
attribute incurred by the GNE Consolidated Group in a taxable period in which
such company is a member of the group that is attributable to such company shall
be carried back or forward to taxable periods of such company in which it is not
a member of such group to the extent and in the manner dictated by the
Stand-Alone Method. GNE may, on behalf of such company, file with RHI a pro
forma refund claim on account of such a carryback or carryforward, provided,
however, that GNE's entitlement to receive such a refund from RHI on behalf of
such company shall be limited as set forth in the next two sentences. In the
case of a carryback, GNE shall be entitled to a refund only once the applicable
company has taken all available steps under federal, state or local law to
obtain a refund from the applicable taxing authority and, in such a case, only
to the extent of the excess of (x) the refund as computed pursuant to the
Stand-Alone Method over (y) any refund actually received by the company from the
applicable taxing authority. In the case of a carryforward, GNE shall be
entitled to a refund only to the extent of the excess of (1) the applicable
company's actual tax liability reflected on the return that the company files
with the applicable taxing authority for the relevant taxable period (as such
liability is adjusted by RHI upon a review by it of the computations reflected
on such return) over (2) the company's tax liability for such taxable period, as
computed pursuant to the Stand-Alone Method. At the time that GNE requests a
refund from RHI under this Section 6.3, GNE shall provide RHI with appropriate
information (including, in the case of a carryback, copies of correspondence
with the applicable taxing authority regarding a refund, and in the case of a
carryforward, the applicable company's return for the applicable period and
supporting workpapers) relating to GNE's entitlement to such refund, and GNE
shall thereafter provide such additional related information as RHI requests. In
addition to the rules set forth in this Section, Section 3.3 shall govern any
such refund claimed by GNE from RHI.
ARTICLE VII
CARRYFORWARDS AND CARRYBACKS OF ATTRIBUTES, OTHER THAN TO
AND FROM SEPARATE RETURN YEARS
SECTION 7.1 Carryforwards and Carrybacks of GNE Consolidated Group Tax
Attributes for Purposes of Pro Forma Returns. In the event a GNE Consolidated
Group proforma return includes losses, deductions, credits or other tax
attributes which were limited to the GNE Consolidated Group on its proforma
return (and hence can only be carried back or carried forward), that tax
attribute shall remain the property of the GNE Consolidated Group for
utilization in a future GNE Consolidated Group proforma return as a
carryforward, or for utilization in a prior GNE Consolidated Group return as a
carryback, in conformity with the Stand-Alone Method. Section 3.3 shall govern
any claim by GNE of a refund on account of such a carryback.
SECTION 7.2 Utilization of Tax Attributes by RHI on RHI Group Return.
Notwithstanding Sections 7.1 of this Agreement, RHI is entitled to fully
utilize currently any tax attributes arising from a GNE Consolidated Group
proforma return on the corresponding RHI Group consolidated/combined return,
and RHI will separately track whether that tax attribute may be carried back or
carried forward on an RHI Group-wide basis. Under no circumstances,
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however, will the utilization by RHI of a GNE Consolidated Group tax attribute
affect the GNE Consolidated Group's ability to utilize that attribute on the
GNE Consolidated Group's own proforma return. For example, a current GNE
Consolidated Group tax loss which RHI is able to utilize currently on an RHI
Group consolidated/combined basis, will be refunded by RHI to GNE at such time
when the GNE Consolidated Group is able to utilize that loss as either a
carryforward or carryback on a proforma return.
ARTICLE VIII
SUCCESSORS
SECTION 8.1 Successors. This agreement shall be binding on an inure to the
benefit of any successor, by merger, acquisition of assets or otherwise, to any
current or future member of the RHI Group and/or the GNE Group (including, but
not limited to any successor to such a member succeeding to the tax attributes
of such member under Section 381 of the Internal Revenue Code), to the same
extent as if such successor had been an original party hereto.
ARTICLE IX
AUTHORIZATION, ETC.
SECTION 9.1 Authorization, etc. RHI is entering into this Agreement on behalf
of itself and the other members (current and future) of the RHI Group (other
than those RHI Group members that are also members of the GNE Group), and GNE
is entering into this Agreement on behalf of itself and the other members
(current and future) of the GNE Group. RHI and GNE each hereby represents and
warrants that it has the power and authority, on behalf of itself and,
respectively, the other members (current and future) of the RHI Group (other
than those RHI Group members that are also members of the GNE Group), and the
other members (current and future) of the GNE Group, 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.
ARTICLE X
GOVERNING LAW
SECTION 10.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the laws and
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principles relating to conflicts of law.
ARTICLE XI
COUNTERPARTS
SECTION 11.1 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.
ARTICLE XII
WAIVERS AND AMENDMENTS
SECTION 12.1 Waivers and Amendments. This Agreement shall not be waived,
amended or otherwise modified except in writing, duly executed by all of the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
GENENTECH, INC.
By
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Title:
ROCHE HOLDINGS, INC.
By
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Title:
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