TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (this "Agreement") is dated as of January
21, 1999, by and among Lipha Americas, Inc. ("Lipha"), a Delaware corporation,
Lipha Pharmaceuticals, Inc., a New York corporation, Lipha Tech, Inc., a
Delaware corporation, Allergy Free II, Inc., a Delaware corporation, Allergy
Free Limited Partner, Inc., a Delaware corporation, EM Pharma, Inc., a Delaware
corporation, Xxx, Inc. ("Xxx"), a Delaware corporation, and Xxx Limited Partner,
Inc., a Delaware corporation.
W I T N E S S E T H
WHEREAS, Lipha is the common parent of a group of corporations which
group and the members thereof file consolidated federal income tax returns (the
"Affiliated Group");
WHEREAS, the fiscal year of the Affiliated Group is the calendar year;
WHEREAS, the Affiliated Group intends to file a consolidated federal
income tax return (as well as participate in certain consolidated, combined or
unitary state, local and foreign income tax returns) for the current year and
subsequent years;
WHEREAS, the consolidated federal income tax return liability of the
Affiliated Group is currently apportioned among its members in accordance with
the method set forth in Code Section 1552(a)(1) and Treasury Regulation Section
1.1552-1(a)(1) and the Affiliated Group has elected to follow the method
described in Treasury Regulation Section 1.1502-33(d)(3) with a 100 percent
allocation to account for the use of the tax attributes of one member of the
Affiliated Group by another member; and
WHEREAS, the parties hereto desire to set forth their agreements with
regard to their respective liabilities for Taxes (as defined below) for the
taxable year beginning January 1, 1998 and all taxable periods thereafter, and
to provide for certain other tax matters.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Article 1 - Definitions
For purposes of this Agreement:
1.1 "Affiliated Group" means an affiliated group as defined in Code
Section 1504(a).
1.2 "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any law which may be a successor thereto. A
reference to any section of the Code means such section (or comparable provision
of a successor law) as in effect from time to time.
1.3 "Lipha Affiliated Group" means any group of corporations that are
parties to this Agreement and that are required or permitted to file
consolidated federal income tax returns or consolidated, combined or unitary
local, state or foreign tax returns.
1.4 "Member" means any corporation within the Lipha Affiliated Group.
1.5 "Tax" or "Taxes" shall mean all federal, state, local or foreign
taxes based upon or measured in whole or in part by net income, as well as any
franchise or similar tax, together with interest, penalties and other additions
thereto, imposed by the relevant Taxing Authority.
1.6 "Tax Attribute" shall mean any net operating loss, net capital
loss, investment tax credit, foreign tax credit, targeted jobs tax credit, low
income housing credit, credit for research activities, orphan drug credit,
charitable deduction or any other credit or tax attribute (or carryforward or
carryback thereof), including additions to basis of property, which could reduce
any Tax, including, without limitation, deductions, credits, or alternative
minimum net operating loss carryforwards related to alternative minimum taxes.
1.7 "Taxing Authority" shall mean the Internal Revenue Service ("IRS")
or any other domestic federal, state, local, or foreign governmental authority
responsible for the administration of any Tax.
1.8 "Tax Return" shall mean any return, filing, questionnaire or other
document required to be filed, including requests for extensions of time,
filings made with estimated Tax payments, claims for refund and amended returns
that may be filed, for any taxable period with any Taxing Authority in
connection with any Tax or Taxes (whether or not payment is required to be made
with respect to such filing).
1.9 "Treasury Regulation" shall mean an income tax regulation
promulgated by the U.S. Treasury Department under the Code. A reference to any
section of the Treasury Regulations means such section as in effect from time to
time and any comparable successor regulation.
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Article 2 - Tax Return Filings
2.1 Designee. Lipha may substitute Xxx, Inc., or any other Member, as
its designee for purposes of the administration of this Agreement.
2.2 Lipha Consolidated Federal Returns.
2.2.1 General. Lipha shall have sole and exclusive
responsibility for the preparation and filing of all consolidated federal income
Tax Returns for the Lipha Affiliated Group (such returns, collectively, the
"Lipha Consolidated Federal Returns") and amendments thereto with the IRS.
2.2.2 Cooperation. Each Member shall furnish Lipha, at least
forty-five (45) days before the extended due date of any Lipha Consolidated
Federal Return, with its completed section of such Lipha Consolidated Federal
Return, prepared in accordance with this Agreement, in accordance with
instructions from Lipha and in a manner consistent with prior returns, if any,
provided that such actions are not inconsistent with this Agreement. Each Member
will also furnish Lipha with work papers and other such information and
documentation as is reasonably requested by Lipha with respect to such Member.
2.3 Lipha State, Local and Foreign Returns.
2.3.1 General. Lipha shall have sole and exclusive
responsibility for the preparation and filing of all combined, consolidated or
unitary state, local or foreign Tax Returns which are required to be filed by
Lipha or a Member of the Lipha Affiliated Group (such returns, collectively, the
"Lipha State, Local and Foreign Returns") and amendments thereto with the
relevant Taxing Authority.
2.3.2 Cooperation. Lipha will timely advise a Member of its
inclusion in any Lipha State, Local or Foreign Returns and the jurisdictions in
which such returns will be filed. The relevant Member will evidence its
agreement to be included in such return on the appropriate form(s) and will take
such other actions as may be appropriate, in the opinion of Lipha, to carry out
the purposes and intent of this Section 2.3, provided that such actions are not
inconsistent with this Agreement. The relevant Member shall furnish Lipha, at
least forty-five (45) days before the extended due date of any such Lipha State,
Local and Foreign Returns, with its completed section of such Lipha State, Local
and Foreign Returns, prepared in accordance with this Agreement, in accordance
with instructions from Lipha and in a manner consistent with prior returns, if
any, provided that such actions are not inconsistent with this Agreement. The
relevant Member will also furnish Lipha with work papers and other such
information and documentation as is reasonably requested by Lipha with respect
to such Member.
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Article 3 - Lipha Tax Liability
3.1 Lipha Consolidated Federal Return Liability. Except to the extent
otherwise provided herein, Lipha shall be liable for all Taxes due in respect of
all Lipha Consolidated Federal Returns, subject to reimbursement from the
Members as contemplated by Article 4 of this Agreement (the "Lipha Consolidated
Federal Return Liability").
3.2 Lipha State, Local and Foreign Return Liability. Except to the
extent otherwise provided herein, Lipha shall be liable for all Taxes due in
respect of all Lipha State, Local and Foreign Returns, subject to reimbursement
from the Members as contemplated by Article 4 of this Agreement (the "Lipha
State, Local and Foreign Return Liability" and, collectively with the Lipha
Consolidated Federal Return Liability, the "Lipha Consolidated Return
Liability").
Article 4 - Allocation of Tax Liability
4.1 Except to the extent otherwise provided in this Article 4, all
Taxes due in respect of the Lipha Consolidated Return Liability shall be
apportioned among the Members in accordance with the method set forth in Code
Section 1552(a)(1) and Treasury Regulation Section 1.1552-1(a)(1) and in
Proposed Treasury Regulation Sections 1.1552-1(g) and (h). In addition, the
Lipha Affiliated Group has elected to allocate additional amounts to reflect the
absorption by one Member of the Tax Attributes of another Member pursuant to
Treasury Regulation Section 1.1502-33(d)(3) with a 100 percent allocation (the
"Percentage Method"). The parties hereto acknowledge and consent to the
Percentage Method election. The amounts allocated under the Percentage Method
shall be treated as allocations of Tax liability for purposes of Treasury
Regulation Section 1.1552-1(b)(2).
For purposes of calculating a Member's "separate return tax liability"
as defined in Treasury Regulation Section 1.1552-1(a)(2)(ii), the following
adjustments and modifications shall apply:
(a) Where Lipha State, Local and Foreign Return Liability is
computed using an apportionment ratio based on the combined factors of the
Members included in such Tax Return (the "group apportionment ratio"), the
apportionment of net income or loss to each Member shall, subject to Section 7.7
hereof, be accomplished using the group apportionment ratio and not the separate
apportionment ratio of such Member.
(b) Characterization of items of income, expense, gain or loss
that are determined on a consolidated or combined basis in the calculation of
Lipha Consolidated Return Liability (such as characterizations under Code
Section 1231) shall retain such characterization for purposes of determining the
"separate return tax liability."
(c) The applicable Tax rate shall be the relevant maximum
statutory rate in effect for corporations during the relevant taxable period.
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(d) Elections as to tax credits and tax computations which may
have been different from the consolidated treatment if separate returns were
filed shall be made on an annual basis by Lipha.
(e) Estimated tax payments made pursuant to Article 5 of this
Agreement shall not be included in the computation of the separate return tax
liability.
4.2 Allocation of Interest and Penalties. Any interest imposed in
connection with any Tax liability shall be allocated in the same manner as the
underlying Tax liability. Any penalty imposed in connection with any Tax
liability shall be the responsibility of the party whose action or inaction
resulted in the imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the same manner
as the underlying Tax liability.
4.3 Payments Under Sections 4.1 and 4.2. The total of any Tax liability
allocated to each Member (other than Lipha) pursuant to Sections 4.1 and 4.2 of
this Agreement (including amounts allocated as a result of a carryback) shall be
paid by such Member to Lipha on or before the extended due date of the Lipha
Consolidated Federal Return and the Lipha State, Local, or Foreign Returns for
the relevant taxable period. Such payments from each Member shall be reduced by
the estimated Tax payments made by such Member for such taxable period pursuant
to Article 5 of this Agreement. For administrative or other reasons, Lipha may
direct or allow the above payment to be made after the prescribed date. If all
relevant information necessary to determine the amount of the payment is not
available by the due date, the payment shall be based on estimates, and
adjustments shall be made when sufficient information is available or as soon as
practicable after the Lipha Consolidated Federal Return or the Lipha State,
Local, or Foreign Return, as the case may be, for the relevant taxable period is
filed.
4.4 Reimbursement of Members. Lipha shall use the total of any
additional amounts allocated pursuant to the Percentage Method described in
Section 4.1 to reimburse those Members which had the Tax Attributes to which
such additional amounts are attributable.
Article 5 - Estimated Tax Payments
5.1 Each Member shall pay to Lipha quarterly installments of its
estimated Federal, state, local and/or foreign Taxes. The amount of such
payments for the first, second, third and fourth installments shall cumulatively
equal 25 percent, 50 percent, 75 percent and 100 percent, respectively, of the
estimated full-year Tax liability of such Member determined under Sections 4.1
and 4.2 above (including alternative minimum tax and environmental tax).
Settlement for such payment shall be made on or before the due date of the
applicable estimated Tax payment to be paid by Lipha. For administrative or
other reasons, Lipha may direct or allow the above payment to be made after the
prescribed date. Any overpayment of estimated tax shall be refunded by Lipha to
the paying Member within thirty (30) days after the filing of the relevant
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Lipha Consolidated Federal Return or Lipha State, Local or Foreign Return,
subject to the provisions of Section 7.2 of this Agreement.
Article 6 - Adjustments to Lipha Consolidated Return Liability
6.1 General. If any adjustment in the Lipha Consolidated Return
Liability is made as a result of an audit by the relevant Taxing Authority, the
granting of a claim for refund, a final decision by a court, the carryback or
carryforward of a loss, deduction or credit or any other similar circumstance,
the Tax refund or Tax liability resulting therefrom, including any interest and
penalties (an "Adjustment"), shall be allocated between the Members in
accordance with the principles of this Agreement as if such Adjustments had been
taken into account in the year to which they relate.
Article 7 - Miscellaneous Provisions
7.1 Governing Law. This Agreement is made and shall be construed in all
respect in accordance with the laws of the State of Delaware without regards to
its conflicts of laws principles.
7.2 Offset. No payment shall be required to be made by one party (the
"first party") to another party (the "second party") pursuant to this Agreement
to the extent that there is an amount then due and payable under this Agreement
by the second party to the first party.
7.3 Agent. It is understood and acknowledged that, in accordance with
Treasury Regulation Section 1.1502-77, Lipha will be the agent, with full power
of substitution, for all Members of the Affiliated Group with respect to all
matters referred to therein. Lipha shall have authority to compromise or concede
any Tax issues with respect to any Lipha Consolidated Federal Return or Lipha
State, Local or Foreign Return, subject to the provisions of Section 7.5 of this
Agreement.
7.4 Reallocation. If for any reason the application of this Agreement
results in an inequitable and unintended allocation, Lipha shall have the
authority to reallocate items to eliminate or reduce the inequity, provided such
reallocation is based on the principles of this Agreement.
7.5 Effects of Deconsolidation. If any Member corporation ceases to be
a Member of a Lipha Affiliated Group (a "Former Member"), this Agreement shall
apply with respect to any period in which the income of the Former Member is
included in the Lipha Consolidated Federal Return or any Lipha State, Local or
Foreign Return. The Former Member shall remain liable to Lipha for payments
required under this Agreement, including, but not limited to, payments of Tax
and estimated Tax for periods in which the Former Member's income is
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included in a Lipha Consolidated Federal Return or any Lipha State, Local or
Foreign Return, and payments attributable to Adjustments referred to in Article
6 of this Agreement.
Lipha and any Former Member shall promptly notify the other in writing
upon the commencement of any Tax audit, administrative or judicial proceeding,
or other similar matter (a "contest") that could affect the Lipha Affiliated
Group or the Former Member. Each such notice shall contain factual information
(to the extent known) describing the asserted Tax liability in reasonable detail
and shall include copies of any notice or other document received from the
relevant Taxing Authority. Lipha shall be entitled to conduct and control any
such contest. The Former Member shall be entitled to participate in any such
contest and, at its own expense, may employ counsel separate from the counsel
employed by Lipha. Lipha shall not, without the Former Member's prior written
consent (which shall not be unreasonably withheld), admit any liability with
respect to, or settle, compromise or discharge any claim on a basis that would
prejudice the interests of such Former Member. The Former Member shall cooperate
and provide reasonable access to books, records and other information needed in
connection with any contest related to periods in which the Former Member was a
Member of the Lipha Affiliated Group. This Section 7.5 shall survive the
termination of this Agreement.
7.6 New Members. The parties hereto specifically recognize that from
time to time other companies may become Members of the Lipha Affiliated Group
and hereby agree that such new Members may become parties to this Agreement by
executing the master copy of this Agreement which shall be maintained at Lipha's
corporate headquarters. It will not be necessary for the other Members to
re-execute the Agreement but the new Member may simply sign the existing
Agreement and it will be effective as if the other Members had re-executed it.
7.7 California Tax Sharing Agreement. The parties hereto acknowledge
and consent to the continuing validity and effect of the California Tax Sharing
Agreement, entered into between Lipha and EM Industries, Inc. on or about
October 14, 1994, a copy of which is attached hereto as Annex A. The
apportionment procedure set forth in Section 4.1 of this Agreement shall apply
with respect to that portion of the California Tax liability allocated to Lipha
under that California Tax Sharing Agreement; provided, however, that the
California Tax liability of each Member, with the exception of Xxx, shall be
determined as though such Member were individually subject to California
taxation (and was not part of a unitary business or group) and calculated using
the separate apportionment ratio of such Member. Xxx shall pay to Lipha the
total amount of any remaining California Tax liability not reimbursed by other
Members pursuant to this Section (or paid by EM Industries, Inc.).
7.8 Amendments and Modifications. Any alteration, modification,
addition, deletion, or other change in the relevant portions of the consolidated
income tax return provisions of the Code or the regulations thereunder shall
automatically be made applicable to this Agreement mutatis mutandis.
7.9 Successors and Assigns. This Agreement shall not be assignable by
any Member without the prior written consent of the other Members. This
Agreement shall bind and inure
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to the respective successors and assigns of the parties hereto; but no
assignment shall relieve any party's obligations hereunder without the written
consent of the other parties.
7.10 Unenforceability. In the event any of the provisions of this
Agreement are held to be unenforceable or invalid by any court of competent
jurisdiction, unless the unenforceability or invalidity thereof causes a
substantial departure from the underlying intent and sense of the remainder of
this Agreement, the validity and enforceability of the remaining provisions
shall not be affected thereby, except those remaining provisions of which the
unenforceable or invalid provisions comprise an integral part of from which they
are otherwise clearly inseparable. In the event any provision is held
unenforceable or invalid, the parties shall use their best efforts to agree upon
an enforceable and valid provision which shall be a reasonable substitute for
such unenforceable or invalid provision in light of the purpose of this
Agreement and, upon so agreeing, shall incorporate such substitute provision in
this Agreement.
7.11 Disputes. Any matter not specifically covered by this Agreement
shall be handled in the manner determined by Lipha in accordance with the
general principles of this Agreement. Any dispute concerning the meaning,
interpretation, or application of any provision of this Agreement will be
reviewed by Lipha. If any disagreement remains after such review, that
disagreement will be resolved by arbitration. In such case, the arbitrator will
be a retired or former judge of the United States Tax Court or such other
qualified person as the relevant parties may agree to designate, provided that
such individual has had substantial experience with regard to settling complex
Tax disputes. The decision of the arbitrator will be final and binding on the
relevant parties. The arbitrator shall allocate the costs of arbitration,
including fees for attorneys and accountants, to the relevant parties in the
same manner as any underlying Tax liability.
7.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
Article 8 - Effective Period
8.1 This Agreement shall be effective for the taxable year 1998 and all
taxable periods subsequent to 1998, subject to Section 8.2 hereof.
8.2 Subject to Section 7.5 hereof, this Agreement will terminate as to
any party when such party ceases to be a Member of any Lipha Affiliated Group,
provided that this Agreement shall remain in full force and effect with respect
to the other parties as long as two or more parties hereto continue to be
Members. Notwithstanding the foregoing, in the event any Member corporation
ceases to be a Member of the Affiliated Group for any reason whatsoever, this
Agreement shall remain in full force and effect with respect to such Member's
inclusion in
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any Lipha State, Local or Foreign Return. The termination of this Agreement
shall not relieve any party of any obligation arising hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed and attested.
LIPHA AMERICAS, INC. XXX, INC.
By: /s/ Xxxxxx X. Xxxxx By: /s/ Xxxxxxx X. Xxxx
--------------------------- --------------------------
Name: Xxxxxx X. Xxxxx Name: Xxxxxxx X. Xxxx
Title: Vice President- Title: President and CEO
Finance
LIPHA PHARMACEUTICALS, INC. XXX LIMITED PARTNER, INC.
By: /s/ Xxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxxx
--------------------------- --------------------------
Name: Xxxxx X. Xxxxxxx Name: Xxxxxx X. Xxxxx
Title: Exec. Vice-Pres. & COO Title: Executive Vice
President and CFO
ALLERGY FREE II, INC. LIPHA TECH, INC.
By: /s/ Xxxxxxx X. Xxxx By: /s/ T.H. Winkofske
--------------------------- --------------------------
Name: Xxxxxxx X. Xxxx Name: T.H. Winkofske
Title: Chairman Title: President
ALLERGY FREE LIMITED PARTNER, INC. EM PHARMA, INC.
By: /s/ Xxxxxxx X. Xxxx By: /s/ Xxxxxxx X. Xxxx
--------------------------- --------------------------
Name: Xxxxxxx X. Xxxx Name: Xxxxxxx X. Xxxx
Title: President and CEO Title: President and CEO
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