EXHIBIT 10.38
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT (this "Agreement"), is made and entered
into as of June 24, 2002, by and between ALLERGAN, INC., a Delaware corporation
("Allergan"), and ADVANCED MEDICAL OPTICS, INC., a Delaware corporation and
wholly owned subsidiary of Allergan ("AMO").
WHEREAS, Allergan, AMO and Allergan's other subsidiaries have joined
in filing consolidated federal Income Tax Returns and certain consolidated,
combined, unitary or similar state, foreign and local Tax Returns;
WHEREAS, pursuant to a Contribution and Distribution Agreement dated
as of June 24, 2002, by and among Allergan and AMO (the "Distribution
Agreement"), Allergan will distribute to the holders of its common stock all of
the shares of common stock of AMO (the "Distribution");
WHEREAS, pursuant to the Distribution Agreement, AMO will leave the
Allergan Group (as defined herein); and
WHEREAS, the parties hereto wish to provide for (i) the allocation of,
and indemnification against, certain liabilities for Taxes, (ii) the preparation
and filing of Tax Returns and the payment of Taxes with respect thereto, and
(iii) certain related matters.
NOW THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth below, the parties agree as follows:
ARTICLE I.
DEFINITIONS
When used herein the following terms shall have the following
meanings:
Actual Additional Taxes Payable: as defined in Section 3.6(f) of this
Agreement.
Actual Taxes Payable: as defined in Section 3.4(a) of this Agreement.
Acquisition: with respect to the stock of Allergan or AMO, as
applicable, any acquisition of stock or issuance of stock, excluding (a) any
acquisition of stock that qualifies under Treasury Regulation section
1.355-7T(d)(5) or any successor thereto, (b) any acquisition of stock that is in
connection with the performance of services as an employee or director and that
qualifies under Treasury Regulation section 1.355-7T(d)(6) or any successor
thereto, including, without limitation, any acquisition of stock pursuant to an
AMO Equity Plan, and (c) any acquisition of stock by a retirement plan of an
employer that qualifies under Treasury Regulation section 1.355-7T(d)(7) or any
successor thereto.
Acquisition Approval Process: as defined in Section 5.2(b) of this
Agreement.
Additional Pre-Closing Straddle Period Portion: as defined in Section
3.6(f) of this Agreement.
Adverse Consequence(s): all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, liens, losses, expenses, and fees,
including court costs and reasonable attorney's fees and expenses.
Affiliate: with respect to any corporation (the "given corporation"),
each entity that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the given
corporation. For purposes of this definition, "control" means the possession,
directly or indirectly, of 50% or more of the voting power or value of
outstanding equity interests.
Affiliated Group: an affiliated group of corporations within the
meaning of Code Section 1504(a) (and without regard to the exclusions contained
in Code Section 1504(b)) for the Taxable Period or, for purposes of any state,
foreign or local Tax matters that are filed on a consolidated, combined, unitary
or similar basis, any consolidated, combined, unitary or similar group of
corporations within the meaning of the corresponding provisions of tax law for
the jurisdiction in question.
After-Tax Basis: any indemnity payment made hereunder shall give
effect to, and be adjusted by the value of, any and all Income Tax Benefit(s)
for federal, state, foreign or other Income Tax purposes attributable to the
payment of the indemnified liability, which value shall be determined on an
assumed basis by (a) multiplying the amount of any applicable deductions,
losses, offsets or other Income Tax items (such amount determined as if such
deductions, losses, offsets or other Income Tax items will generate an immediate
deduction for the full amount ultimately available) by (i) 39%, (ii) if no state
Income Tax Benefit shall result therefrom (determined on a hypothetical basis by
using the highest marginal corporate Income Tax rate), 35% (such percentages to
increase or decrease on a percentage-for-percentage basis with any subsequent
increases or decreases in the current 35% maximum marginal federal Income Tax
rate for corporations, and 100% minus the maximum marginal federal Income Tax
rate for corporations (e.g., 65%) of any increases or decreases in the maximum
marginal state or local Income Tax rate for corporations), or (iii) if such
indemnity payment is made on account of the payment of a foreign Income Tax to
which an Income Tax Benefit in a foreign jurisdiction is attributable, the
applicable statutory rate of Income Tax in the foreign jurisdiction in which the
Income Tax Benefit results, and (b) valuing any credits or other direct
reductions of Income Tax on a dollar-for-dollar basis. For example, if a payment
of $100 (other than a payment of foreign Income Tax) that is deductible by the
indemnitee is indemnified hereunder, the indemnification payment with respect
thereto (applying the characterization set forth in Section 7.2) shall be
reduced by $39 to $61.
Allergan: as defined in the preamble to this Agreement.
Allergan Business: as defined in the Distribution Agreement.
2
Allergan Group: Allergan and each corporation that is a member of an
Affiliated Group with respect to which Allergan is the common parent.
AMO: as defined in the preamble to this Agreement.
AMO Business: as defined in the Distribution Agreement; provided,
however, that for Taxable Periods or portions thereof after the Closing Date,
the "AMO Business" shall include any business or operations conducted by any of
the AMO Members.
AMO Equity Plan: each of the following stock option or employee stock
purchase plans adopted by AMO for the benefit of its employees and directors:
the AMO Incentive Compensation Plan, the AMO Employee Stock Purchase Plan, and
the AMO International Employee Stock Purchase Plan (each in the form and under
the plan name adopted by AMO as of the Distribution Date); provided, however,
that any acquisition of AMO stock shall not be treated as acquired pursuant to
an AMO Equity Plan for purposes of this Agreement if the acquiror or a
coordinating group of which the acquiror is a member is a controlling
shareholder or a 10-percent shareholder of AMO within the meaning of Treasury
Regulation section 1.355-7T(d)(6) or any successor thereto.
AMO Group: AMO and each corporation that was a Pre-Distribution Member
and which, on the day after the Closing Date, will be a member of an Affiliated
Group with respect to which AMO is the common parent. For purposes of this
Agreement, the AMO Group shall exist as of the day after the Closing Date.
AMO Group Allocable Portion: With respect to a Tax Return filed after
the Closing Date for either a Pre-Closing Taxable Period or Straddle Period, the
amount of Taxes for such period attributable to the AMO Business (net of any
previously paid estimated Taxes for such period that are attributable to the AMO
Business). The determination of the amount of Taxes attributable to the AMO
Business for a given Tax Return shall be calculated on a "with and without
basis," by calculating the amount of the excess (if any) of (i) the amount of
Taxes shown as due and payable on such Tax Return as filed, over (ii) the amount
of Taxes that would be shown as due and payable on such Tax Return if such Tax
Return was recalculated excluding the AMO Business. For purposes of this
determination, any Transaction Taxes incurred shall be deemed not to have been
incurred as part of the conduct of the AMO Business, regardless of which entity
incurs such Transaction Taxes.
AMO Member: a corporation that is a member of the AMO Group.
Audit: any audit, assessment of Taxes, other examination by any Taxing
Authority, proceeding or appeal of such a proceeding relating to Taxes, whether
judicial or administrative.
Carrybacks: as defined in Section 4.3 of this Agreement.
Carryforwards: as defined in Section 4.4 of this Agreement.
Closing Date: the date on which the Distribution is effected by
Allergan.
3
Code: the Internal Revenue Code of 1986, as amended, or any successor
thereto, as in effect for the Taxable Year in question.
Dispute Resolution Procedure: a procedure whereby (i) Allergan shall
select a representative of a nationally recognized accounting firm or nationally
recognized law firm; (ii) AMO shall select a representative of a second
nationally recognized accounting firm or nationally recognized law firm; (iii)
the two representatives so selected shall together select a representative of a
third nationally recognized accounting firm or nationally recognized law firm;
and (iv) the three representatives together (or, if they are unable to agree, a
majority of them) shall, within a reasonable period of time, decide the issue(s)
submitted to them. The fees of the three representatives and all other costs of
the dispute resolution shall be borne by the losing party in the dispute. Any
decision rendered pursuant to a Dispute Resolution Procedure shall be final and
binding on all Post-Distribution Members and AMO Members.
Distribution: as defined in the preamble to this Agreement.
Distribution Agreement: as defined in the preamble to this Agreement.
Employment Tax(es): any federal, state, foreign or local payroll,
employment, occupation, social security, unemployment, disability, or other Tax
in respect of compensation of employees.
Estimated Additional Pre-Closing Straddle Period Portion: as defined
in Section 3.6(e) of this Agreement.
Estimated AMO Group Allocable Portion: as defined in Section 3.4(a) of
this Agreement.
Final Determination: (i) a decision, judgment, decree, or other order
by a court of competent jurisdiction, which has become final and unappealable;
(ii) a closing agreement or accepted offer in compromise under Code Sections
7121 or 7122, or comparable agreements under the laws of other jurisdictions;
(iii) any other final settlement with the IRS or other Taxing Authority
(including the execution of IRS Form 870AD, or a comparable form under the laws
of other jurisdictions, but excluding any such form that reserves (whether by
its terms or by operation of law) the right of the taxpayer to file a claim for
refund and/or the right of the Taxing Authority to assert a further deficiency);
(iv) the expiration of an applicable statute of limitations; or (v) the
allowance of a refund or credit, but only after the expiration of all periods
during which such refund or credit may be recovered (including by way of
offset).
Group: the Allergan Group, Pre-Distribution Allergan Group,
Post-Distribution Allergan Group or AMO Group, as the context requires.
Implementation Agreements: as defined in the Distribution Agreement.
Income Tax(es): with respect to any corporation or Affiliated Group,
any and all Taxes based upon or measured by net income (regardless of whether
denominated as an "income tax," a "franchise tax" or otherwise).
4
Income Tax Benefit: any Tax Benefit relating to Income Tax.
Income Tax Return: a Tax Return relating to the payment of any Income
Tax or to the receipt of any refund of any Income Tax.
Indemnification Threshold: as defined in Section 6.4 of this
Agreement.
IRS: the Internal Revenue Service or any successor thereto, including
but not limited to its Representatives.
IRS Ruling: The letter ruling issued by the IRS in response to the
Ruling Request.
Newly Formed AMO Member: an AMO Member other than a Pre-Existing AMO
Member.
Overdue Rate: a variable rate of interest per annum equal to the
Federal short-term rate as established from time to time pursuant to Code
Section 1274(d).
Post-Closing Straddle Period: with respect to any Straddle Period, the
portion beginning after the Closing Date and ending on the last day of such
Taxable Year.
Post-Closing Taxable Period: a Taxable Year that begins after the
Closing Date.
Post-Distribution Allergan Group: Allergan and each corporation that
was a Pre-Distribution Member and which, on the day after the Closing Date, will
be a member of an Affiliated Group with respect to which Allergan is the common
parent. For purposes of this Agreement, the Post-Distribution Allergan Group
shall exist as of the day after the Closing Date.
Post-Distribution Member: a corporation that was a Pre-Distribution
Member and is a member of the Post-Distribution Allergan Group as of the day
after the Closing Date.
Pre-Closing Straddle Period: with respect to any Straddle Period, the
portion beginning on the first day of such Taxable Year and ending at the close
of business on the Closing Date.
Pre-Closing Taxable Period: a Taxable Year that ends on or before the
Closing Date.
Pre-Distribution Allergan Group: Allergan and each corporation that is
a member of an Affiliated Group with respect to which Allergan is the common
parent during any Pre-Closing Taxable Period. For purposes of this Agreement,
the Pre-Distribution Allergan Group shall terminate at the close of business on
the Closing Date.
Pre-Distribution Member: a corporation that was a member of the
Pre-Distribution Allergan Group at any time on or prior to the Closing Date.
5
Pre-Existing AMO Member: each of Allergan K.K., Allergan (Hangzou)
Pharmaceutical Co. Ltd and Allergan Trading International Limited.
Representative(s): with respect to any person or entity, any of such
person's or entity's directors, officers, employees, agents, consultants,
accountants, attorneys and other advisors.
Ruling Request: The private letter ruling request filed by Allergan
with the IRS, as supplemented and amended from time to time, with respect to
certain federal Income Tax matters relating to the Distribution and other
related matters.
Section 355 Tax Treatment: as defined in Section 5.1 of this
Agreement.
Section 355(e) Gain: as defined in Section 5.2 of this Agreement.
Special Year-End Item: any item of taxable income that, as a matter of
law, is taken into account at the end of a Taxable Year but relates to
operations throughout the year, including, without limitation, income taken into
account under Sections 951-964 of the Code, and profits splits in accordance
with Section 936 of the Code.
Stock Option: when immediately preceded by "Allergan," means an option
to purchase Allergan common stock pursuant to an Allergan stock option plan.
When immediately preceded by "AMO," "Stock Option" means an option to purchase
AMO common stock pursuant to an AMO stock option plan.
Straddle Period: any Taxable Year beginning before and ending after
the Closing Date.
Tax Benefit(s): (i) in the case of a Tax for which a consolidated
federal, or a consolidated, combined, unitary or similar state, foreign or local
Tax Return is filed, the amount by which the Tax liability of the Affiliated
Group is reduced (by deduction, entitlement to refund, credit, offset or
otherwise, whether available in the current Taxable Year, as an adjustment to
taxable income in any other Taxable Year or as a carryforward or carryback, and
including the effect on other Taxes of such reduction), plus any interest
received with respect to any related Tax refund, and (ii) in the case of any
other Tax, the amount by which the Tax liability of a corporation is reduced (by
deduction, entitlement to refund, credit, offset or otherwise, whether available
in the current Taxable Year, as an adjustment to taxable income in any other
Taxable Year or as a carryforward or carryback, and including the effect on
other Taxes of such reduction), plus any interest received with respect to any
related Tax refund, determined in the case of both (i) and (ii) on a basis
consistent with the computation of After-Tax Basis.
Tax Practices: the most recently applied policies, procedures and
practices employed by the Allergan Group in the preparation and filing of, and
positions taken on, any Tax Returns of Allergan or any Pre-Distribution Member
or Allergan Affiliate for any Pre-Closing Taxable Period.
6
Tax Return(s): with respect to any corporation or Affiliated Group,
all returns, reports, estimates, statements, declarations, information returns,
claims for refund and other filings relating to, or required to be filed by any
taxpayer in connection with, Taxes, including any schedule or attachment
thereto.
Taxable Period: a Pre-Closing Taxable Period, a Post-Closing Taxable
Period or a Straddle Period.
Taxable Year: a taxable year (which may be shorter than a full
calendar or fiscal year) or similar period with respect to which any Tax may be
imposed.
Tax(es): any federal, state, foreign or local income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty or addition thereto.
Taxing Authority: the IRS or any other domestic or foreign
governmental authority responsible for the administration of any Tax.
Transaction Taxes: all Taxes occurring solely as a result of the
Transactions, provided, however, that "Transaction Taxes" shall not include any
Taxes resulting from the failure of the Distribution to qualify as tax-free
under Section 355 of the Code.
Transactions: the Contribution (as defined in the Distribution
Agreement), the Distribution, and the series of transactions constituting the
Restructuring Plan (as defined in the Distribution Agreement).
ARTICLE II.
FILING OF TAX RETURNS
Section 2.1 Preparation and Filing of Tax Returns.
(a) By Allergan. Allergan shall prepare and timely file (or cause
to be prepared and timely filed):
(i) all Tax Returns of the Allergan Group or any
Pre-Distribution Member or group of Pre-Distribution Members for all
Pre-Closing Taxable Periods that are filed on or after the date of
this Agreement;
(ii) all Tax Returns of the Allergan Group or any
Pre-Distribution Member or group of Pre-Distribution Members, other
than Newly Formed AMO Members, for all Straddle Periods; and
7
(iii) all Tax Returns of the Post-Distribution Allergan
Group or any Post-Distribution Member or group of Post-Distribution
Members for all Post-Closing Taxable Periods.
(b) By AMO. AMO shall prepare and timely file (or cause to be
prepared and timely filed):
(i) all Tax Returns of the Newly Formed AMO Members for all
Straddle Periods; and
(ii) all Tax Returns of the AMO Group or any AMO Member or
group of AMO Members for all Post-Closing Taxable Periods.
Section 2.2 Provision of Filing Information. AMO (or Allergan, as the
case may be) shall cooperate and assist Allergan (or AMO) in the preparation and
filing of all Tax Returns subject to Section 2.1 and any tax planning related
thereto, and shall submit to Allergan (or AMO) (i) all necessary filing
information in a manner consistent with past Tax Practices and (ii) all other
information reasonably requested by Allergan (or AMO) in connection with the
preparation of such Tax Returns and any such tax planning promptly after such
request, including permission to copy any applicable documents. In particular,
with respect to any Tax Return described in Section 2(a)(ii) that relates to an
AMO Member, AMO shall sign the Tax Return as prepared by Allergan and shall
otherwise cooperate with Allergan so as to enable Allergan to file the Tax
Return on behalf of AMO. It is expressly understood and agreed that Allergan's
(or AMO's) ability to discharge its Tax Return preparation and filing
responsibilities is contingent upon AMO (or Allergan) providing Allergan (or
AMO) with all cooperation, assistance and information reasonably necessary or
requested for the filing of such Tax Returns and that AMO (or Allergan) shall
indemnify Allergan (or AMO), if, and to the extent that, Taxes are increased as
a result of material inaccuracies in such information or failures to provide
such information and assistance on a timely basis.
Section 2.3 Taxable Year and Allocation of Tax Items. AMO and Allergan
agree that, to the extent permitted by applicable law:
(a) the Taxable Year of the AMO Members included in the
consolidated federal Income Tax Return of the Allergan Group for the Taxable
Period that includes the Closing Date (and all corresponding consolidated,
combined, unitary or similar state, foreign or local Income Tax Returns of the
Allergan Group) shall end at the close of business on the Closing Date, and the
AMO Group and each AMO Member shall begin a new Taxable Year for purposes of
such federal, state, foreign or local Income Taxes on the day after the Closing
Date;
(b) the determination of the items of income to be included in
Tax Returns of the Allergan Group for the Straddle Period and Tax Returns of AMO
Members for the initial Post-Closing Taxable Period shall be determined by
Allergan in the exercise of its discretion on a reasonable and equitable basis
consistent with Treasury Regulation section 1.1502-76 or any similar provisions
under state, local or foreign law;
8
(c) for purposes of this determination, any Taxes attributable to
a Special Year-End Item shall be treated as occurring ratably throughout the
applicable Taxable Year; and
(d) all federal, state, foreign or local Tax Returns shall be
filed consistently with the positions adopted by Allergan pursuant to this
Section 2.3.
Section 2.4 Advance Review of Tax Returns.
(a) At least fifteen (15) days prior to the filing of any Tax
Return (including amendments thereto) of a Pre-Existing AMO Member for a
Straddle Period (excluding any Tax Return which includes both a Pre-Existing AMO
Member and an entity other than a Pre-Existing AMO Member), Allergan shall
provide AMO with a draft of such Tax Return. AMO and its Representatives shall
have the right to review all related work papers prior to the filing of any such
Tax Return. Allergan shall consult with AMO regarding AMO's comments with
respect to such Tax Returns and shall in good faith (i) consult with AMO in an
effort to resolve any differences with respect to the preparation and accuracy
of such Tax Returns, and (ii) consider AMO's recommendations for alternative
positions with respect to items reflected on such Tax Returns; provided,
however, that Allergan shall not be required to consider any such recommendation
if the result thereof would adversely affect the Taxes of the Allergan Group or
any Post-Distribution Member for any Taxable Period (including an increase in
the amount payable by Allergan pursuant to Section 3.2), and Allergan may
condition the acceptance of any such recommendation upon the receipt of
appropriate indemnification from AMO for any increases in Taxes that may result
from the adoption of the relevant alternative position.
(b) In the case of each Tax Return (including amendments thereto)
subject to the conformity requirements of Section 2.5 and filed by AMO pursuant
to Section 2.1(b), AMO shall provide Allergan with a draft of any such Tax
Return at least fifteen (15) days prior to the filing thereof. Allergan and its
Representatives, shall have the right to review all related work papers prior to
the filing of any such Tax Return. AMO shall consult with Allergan regarding
Allergan's comments with respect to such Tax Returns and shall in good faith (i)
consult with Allergan in an effort to resolve any differences with respect to
the preparation and accuracy of such Tax Returns, their consistency with past
Tax Practices, and their consistency with the IRS Ruling and the Ruling Request,
and (ii) consider Allergan's recommendations for alternative positions with
respect to items reflected on such Tax Returns; provided, however, that AMO
shall not be required to consider any such recommendation if the result thereof
would adversely affect the Taxes of the AMO Group or any AMO Member for any
Taxable Period, and AMO may condition the acceptance of any such recommendation
upon the receipt of appropriate indemnification from Allergan for any increases
in Taxes that may result from the adoption of the relevant alternative position.
Section 2.5 Consistent Positions on Tax Returns. AMO shall (a) prepare
all Tax Returns for Pre-Existing AMO Members filed pursuant to this Agreement
for all Taxable Years ended on or before December 31, 2004, in a manner
consistent with past Tax Practices, and (b) prepare all Tax Returns filed
pursuant to this Agreement in a manner consistent with the IRS Ruling and the
Ruling Request, except in either (a) or (b) as otherwise required by changes in
applicable
9
law or material underlying facts, as the parties hereto shall otherwise consent
in writing, which consent shall not be unreasonably withheld, or as required by
a Final Determination.
ARTICLE III.
PAYMENT OF TAXES
Section 3.1 Pre-Closing Taxable Periods. Allergan shall pay and be
liable for all Taxes shown due and payable on all Tax Returns as filed pursuant
to Section 2.1(a)(i) hereof; provided, however, that AMO shall be liable for,
and shall indemnify Allergan for, the AMO Group Allocable Portion of such Taxes
shown to be due and payable on such Tax Returns as filed.
Section 3.2 Straddle Periods.
(a) Allergan shall pay and be liable for all Taxes shown due and
payable on all Tax Returns as filed pursuant to Section 2.1(a)(ii) hereof (other
than Tax Returns for Pre-Existing AMO Members); provided, however, that AMO
shall be liable for, and shall indemnify Allergan for, the AMO Group Allocable
Portion of such Taxes shown to be due and payable on such Tax Returns as filed.
(b) AMO shall pay and be liable for all Taxes shown due and
payable on all Tax Returns as filed pursuant to Section 2.1(b)(i) hereof;
provided, however, that Allergan shall be liable for, and shall indemnify AMO
for, any Transaction Taxes shown to be due and payable on such Tax Returns as
filed.
(c) AMO shall pay and be liable for all Taxes shown due and
payable on all Tax Returns of Pre-Existing AMO Members as filed by Allergan
pursuant to Section 2.1(a)(ii) hereof; provided, however, that Allergan shall be
liable for, and shall indemnify AMO for, the amount of the excess, if any, of
(i) such Taxes shown to be due and payable on such Tax Returns as filed over
(ii) the AMO Group Allocable Portion of such Taxes.
Section 3.3 Post-Closing Taxable Periods.
(a) Allergan shall pay and be liable for all Taxes shown to be
due and payable on all Tax Returns as filed pursuant to Section 2.1(a)(iii)
hereof.
(b) AMO shall pay and be liable for all Taxes shown to be due and
payable on all Tax Returns as filed pursuant to Section 2.1(b)(ii) hereof.
Section 3.4 Reimbursement Procedure for AMO Group Allocable Portion of
Taxes Shown on Tax Returns of Pre-Existing AMO Members for Straddle Periods.
(a) Prior to the payment of Taxes shown due and payable on any
Tax Returns for a Pre-Existing AMO Member filed pursuant to Section 2.1(a)(ii)
hereof, (i) Allergan shall provide AMO with (A) an estimate of the AMO Group
Allocable Portion of the Taxes shown on such Pre-Existing AMO Member Tax Return
(the "Estimated AMO Group Allocable Portion") and (B) the amount of the Taxes
shown as due and payable on such Pre-Existing AMO Member Tax Returns (the
"Actual Taxes Payable"), (ii) AMO shall provide Allergan with a check made out
10
to the appropriate taxing authority in the amount of the Actual Taxes Payable at
least ten (10) days prior to the filing of such Tax Return, and (iii) Allergan
shall pay AMO, within ten (10) days of Allergan's receipt of the amount set
forth in Section 3.4(a)(ii), an amount equal to the excess, if any, of (A) the
Actual Taxes Payable over (B) the Estimated AMO Group Allocable Portion.
(b) Within one hundred twenty (120) days after Allergan files
each Tax Return for a Pre-Existing AMO Member filed pursuant to Section
2.1(a)(ii) hereof, Allergan shall notify AMO of the amount of Tax for which
Allergan is liable pursuant to Section 3.2(c) hereof. Any notification
contemplated by this Section 3.4(b) shall include the determination of the AMO
Group Allocable Portion for such Tax Return, supporting work papers and an
explanation of the basis for indemnification hereunder. Within sixty (60) days
of receipt of such notice, (i) AMO shall either notify Allergan of any
objections to the determination of the amount of Allergan's liability (whereupon
the parties shall use their best efforts to resolve any such disagreement), or
(ii) AMO (or Allergan, as the case may be) shall pay to Allergan (or AMO), in
accordance with Article VII, the amount by which the AMO Group Allocable Portion
for such Tax Return is greater than (or is less than) the Estimated AMO Group
Allocable Portion previously determined with respect to such Tax Return;
provided, however, that notwithstanding Section 7.1, any payment made after such
60-day period shall include interest at the Overdue Rate from the last day of
such 60-day period. Any disputes between the parties not settled within such
60-day period will be resolved through the Dispute Resolution Procedure in
accordance with Section 8.4 hereof.
Section 3.5 Reimbursement Procedure for AMO Group Allocable Portion of
Taxes Shown on Other Tax Returns. Except as otherwise provided in Section 3.4
with respect to Pre-Existing AMO Member Straddle Period Tax Returns, within one
hundred twenty (120) days after Allergan files each Tax Return filed pursuant to
Section 2.1(a)(i) or 2.1(a)(ii) hereof, pursuant to which any AMO Member may be
liable for any Taxes pursuant to Sections 3.1 or 3.2, Allergan shall notify AMO
of the amount of Tax for which AMO is liable pursuant to Sections 3.1 and 3.2
hereof. Any notification contemplated by this Section 3.5 shall include the
determination of the AMO Group Allocable Portion for such Tax Return, supporting
work papers and an explanation of the basis for indemnification hereunder.
Within sixty (60) days of receipt of such notice, AMO shall either (a) notify
Allergan of any objections to the determination of the amount of AMO's liability
(whereupon the parties shall use their best efforts to resolve any such
disagreement) or (b) pay to Allergan the amount requested in the notice in
accordance with Article VII; provided, however, that notwithstanding Section
7.1, any payment made after such 60-day period shall include interest at the
Overdue Rate from the last day of such 60-day period. Any disputes between the
parties not settled within such 60-day period will be resolved through the
Dispute Resolution Procedure in accordance with Section 8.4 hereof.
Section 3.6 Additional Taxes.
(a) Except as otherwise provided in Article V, Allergan shall pay
and be liable for, and shall indemnify AMO for, all additional Taxes that shall
become due and payable as a result of a Final Determination with respect to all
Taxes attributable to Pre-Closing Taxable Periods or Straddle Periods (other
than Taxes for Straddle Periods for either Newly Formed AMO Members or
Pre-Existing AMO Members), regardless of whether such additional Tax is part of
the AMO Group Allocable Portion of such Taxes.
11
(b) Except as otherwise provided in Article V, for additional
Taxes that shall become due and payable as a result of a Final Determination
with respect to all Taxes attributable to Post-Closing Taxable Periods, Allergan
shall pay and be liable for such additional Taxes of the Post-Distribution
Allergan Group or any Post-Distribution Member or group of Post-Distribution
Members, and AMO shall pay and be liable for such additional Taxes of the AMO
Group or any AMO Member or group of AMO Members.
(c) Except as otherwise provided in Article V, for additional
Taxes that shall become due and payable as a result of a Final Determination
with respect to all Taxes attributable to Straddle Periods for Newly Formed AMO
Members, AMO shall pay and be liable for such additional Taxes.
(d) Except as otherwise provided in Article V, for additional
Taxes that shall become due and payable as a result of a Final Determination
with respect to all Taxes attributable to Straddle Periods for Pre-Existing AMO
Members, AMO shall pay and be liable for such additional Taxes; provided,
however that Allergan shall be liable for, and shall indemnify AMO for, any such
additional Taxes attributable to Pre-Closing Straddle Periods.
(e) For purposes of Section 3.6(d), no later than ten (10) days
before AMO is required to pay any additional Taxes that shall become due and
payable as a result of a Final Determination with respect to all Taxes
attributable to Straddle Periods for Pre-Existing AMO Members, Allergan shall
(i) provide AMO with an estimate of the amount of such additional Taxes
attributable to the Pre-Closing Straddle Period (the "Estimated Additional
Pre-Closing Straddle Period Portion"), and (ii) pay AMO an amount equal to the
Estimated Additional Pre-Closing Straddle Period Portion.
(f) For purposes of Section 3.6(d), within one hundred twenty
(120) days after AMO pays any additional Taxes that shall become due and payable
as a result of a Final Determination with respect to all Taxes attributable to
Straddle Periods for Pre-Existing AMO Members (the "Actual Additional Taxes
Payable"), Allergan shall allocate the Actual Additional Taxes Payable between
Pre- and Post-Closing Straddle Periods in its discretion using any reasonable
and equitable method that it determines to be appropriate, and Allergan shall
notify AMO of the amount of such Taxes allocable to Pre-Closing Straddle Periods
(the "Additional Pre-Closing Straddle Period Portion"). Any notification
contemplated by this Section 3.6(f) shall include the basis for the allocation
of the Actual Additional Taxes Payable between the Pre- and Post-Closing
Straddle Periods and supporting work papers. Within sixty (60) days of receipt
of such notice, AMO shall either (i) notify Allergan of any objections to the
determination of the Additional Pre-Closing Straddle Period Portion (whereupon
the parties shall use their best efforts to resolve any such disagreement) or
(ii) Allergan (or AMO, as the case may be) shall pay to AMO (or Allergan), in
accordance with Article VII, the amount by which the Additional Pre-Closing
Straddle Period Portion is greater than (or is less than) the Estimated
Additional Pre-Closing Straddle Period Portion previously determined; provided,
however, that notwithstanding Section 7.1, any payment made after such 60-day
period shall include interest at the Overdue Rate from the last day of such
60-day period. Any disputes between the parties not settled within such 60-day
period will be resolved through the Dispute Resolution Procedure in accordance
with Section 8.4 hereof.
12
ARTICLE IV.
REFUNDS, CARRYBACKS, TAX BENEFITS, AND TAX ATTRIBUTES
Section 4.1 Amendments to Tax Returns. Allergan shall be entitled to
amend Tax Returns filed by it pursuant to Section 2.1(a), and AMO shall be
entitled to amend Tax Returns filed by it pursuant to Section 2.1(b); provided,
however, that, AMO (or Allergan) shall not amend any Tax Return of a
Pre-Existing AMO Member (excluding any Tax Return which includes both a
Pre-Existing AMO Member and an entity other than a Pre-Existing AMO Member) with
respect to issues for which Allergan (or AMO) may be responsible in part for
Taxes under Section 3.6, except (a) pursuant to the settlement or other
resolution of an Audit subject to Article XI or (b) with Allergan's (or AMO's)
written consent (which consent shall not be unreasonably withheld), provided,
however, that such consent may be conditioned upon the receipt of appropriate
indemnification for any increases in liability for Taxes that may result from
the amendment; and, provided, however, that such prohibition shall not extend to
the correction of mathematical or material factual errors or other adjustments
necessary to conform such Tax Returns to applicable law or to comply with
Section 2.5.
Section 4.2 Refunds of Taxes. Allergan shall be entitled to any refund
of Taxes for which Allergan would be ultimately liable pursuant to a Final
Determination of such Taxes under Section 3.6, and AMO shall be entitled to any
refund of Taxes for which AMO would be ultimately liable pursuant to a Final
Determination of such Taxes under Section 3.6. If Allergan or any
Post-Distribution Member (or AMO or any AMO Member, as the case may be) receives
a Tax refund to which AMO or any AMO Member (or Allergan or any
Post-Distribution Member) is entitled pursuant to this Agreement, Allergan (or
AMO) shall pay (in accordance with Article VII) the amount of such refund
(including any interest received thereon) to AMO (or Allergan) within thirty
(30) days after receipt thereof.
Section 4.3 Carrybacks. AMO shall notify Allergan promptly of the
existence of any items of deduction, loss or credit (the "Carrybacks") arising
in a Post-Closing Taxable Year that may be carried back to a Pre-Closing Taxable
Period or Straddle Period of the Allergan Group or any Pre-Distribution Member
if AMO would like to utilize such Carrybacks. AMO may carry such deduction, loss
or credit back to a Pre-Closing Taxable Period or Straddle Period, but AMO
hereby expressly agrees (on its behalf and on behalf of all AMO Members and
successors thereto) that Allergan or any Post-Distribution Member is entitled to
and may retain any cash refund or reduction of a Tax liability or any other Tax
Benefit obtained by Allergan, any Post-Distribution Member, AMO or any AMO
Member as a result of any Carrybacks without compensation to AMO or any AMO
Member, unless Allergan, in its sole discretion, agrees to compensate AMO or an
AMO Member for the use of such Carrybacks.
Section 4.4 Carryforwards. If any AMO Members have attributable to
them, under applicable federal and state Income Tax law (including, without
limitation, Code Section 1502 and the Treasury Regulations promulgated
thereunder), any net operating loss carryforwards, investment tax credit
carryforwards, alternative minimum tax credit carryforwards or foreign tax
credit carryforwards (the "Carryforwards"), the parties hereto agree that the
AMO Group and the AMO Members shall be exclusively entitled to use and benefit
from the Carryforwards without compensation to the Allergan Group or any
Pre-Distribution Member. Allergan hereby agrees to
13
take any action or make any election reasonably required to permit AMO and the
AMO Members to utilize the Carryforwards; provided, however, that no such action
or election shall be required if it would adversely affect in any way the Income
Tax liabilities of the Allergan Group or any Post-Distribution Member for any
Taxable Year. The parties also hereby agree that the provisions of this Section
4.4 shall apply with respect to any similar carryforwards available under
applicable state, foreign or local Tax law.
Section 4.5 Determination of Tax Attributes. In a reasonable and
equitable manner consistent with applicable law, Allergan shall determine the
allocation of all tax attributes of the Pre-Distribution Allergan Group,
including, but not limited to, earnings and profits, basis and net operating
losses, between the Post-Distribution Allergan Group and the AMO Group. Allergan
and AMO agree to file all federal, state, foreign or local Tax Returns in a
manner consistent with such allocation except as otherwise required by either
changes in applicable law or a Final Determination.
Section 4.6 Tax Benefits from Exercise of Allergan Stock Options by
AMO Employees. After the Closing Date, AMO shall notify Allergan at the end of
each quarter of any event occurring during such quarter that gives rise to any
deduction in respect of the exercise of an Allergan Stock Option by an
individual who is an employee of the AMO Group on the day after the Closing
Date. Notwithstanding anything to the contrary in this Agreement, Allergan shall
be entitled to, and, within thirty (30) days of providing notice to Allergan in
accordance with the preceding sentence, AMO shall pay Allergan an amount equal
to the value of, such deduction, less an amount equal to the Employment Taxes
payable by AMO on account of such exercise of an Allergan Stock Option;
provided, however, that if Allergan determines that, under applicable law,
Allergan is entitled to include such deduction on its Tax Returns, Allergan
shall notify AMO promptly of such determination, and Allergan (and not AMO)
shall be entitled to include such deduction on its Tax Return, in which case,
(a) AMO shall not be required to pay to Allergan an amount equal to the value of
such deduction, but (b) AMO shall indemnify Allergan against the loss of such
deduction pursuant to a Final Determination (less an amount equal to the
Employment Taxes payable by AMO on account of the exercise of such Allergan
Stock Option). For purposes of determining AMO's indemnification obligation
under this Section 4.6, if any, the value of any deduction shall be determined
on an assumed basis by multiplying the amount of any applicable deductions by
(a) 39%, (b) if no state Income Tax Benefit shall result therefrom (determined
on a hypothetical basis by using the highest marginal corporate Income Tax
rate), 35% (such percentages to increase or decrease on a
percentage-for-percentage basis with any subsequent increases or decreases in
the current 35% maximum marginal federal Income Tax rate for corporations, and
100% minus the maximum marginal federal Income Tax rate for corporations (e.g.,
65%) of any increases or decreases in the maximum marginal state or local Income
Tax rate for corporations), or (c) if the Allergan Stock Option is exercised by
an AMO Group employee employed in a foreign jurisdiction and if any foreign
Income Tax Benefits shall result to AMO therefrom, the overall effective
economic rate of Income Tax in the foreign jurisdictions in which the Income Tax
Benefits result. For example, if, after the Closing Date, an AMO employee
exercises an Allergan Stock Option with respect to which exercise $100 is
deductible by AMO (and no foreign Income Tax Benefit results to AMO therefrom),
AMO shall make an indemnification payment to Allergan (applying the
characterization set forth in Section 7.2) of $39 (less the amount of Employment
Taxes payable by AMO on account of the AMO employee's exercise of the Allergan
Stock Option).
14
The parties hereby agree that if there is a change in generally accepted
accounting principles related to the issuance or exercise of stock options,
Allergan and AMO will negotiate in good faith a reasonable and equitable
amendment to this Section 4.6 to compensate for such change.
ARTICLE V.
DISTRIBUTION TAX TREATMENT
Section 5.1 Section 355 Tax Treatment.
(a) The parties expressly agree for all purposes to treat the
Distribution as a tax-free distribution under Code Section 355 in accordance
with the IRS Ruling and Ruling Request (the "Section 355 Tax Treatment"). Each
party hereto also expressly agrees (i) to comply (and to cause each of its
Affiliates to comply) with the representations set forth in the Ruling Request,
(ii) not to take (and to cause each of its Affiliates not to take) any action
(except where such action is required by law) that is inconsistent with the
treatment of the Distribution and all related transactions in accordance with
the Section 355 Tax Treatment, and (iii) to take (and to cause each of its
Affiliates to take) any and all actions reasonably available to such party (or
Affiliate) to support and defend the Section 355 Tax Treatment.
(b) Notwithstanding anything to the contrary in Article III,
Sections 6.1 or 6.2 herein:
(i) If there is a Final Determination that results in the
disallowance, in whole or in part, of the Section 355 Tax Treatment
(other than Section 355(e) Gain, which is addressed by Section 5.2),
and any AMO Member (and no Post-Distribution Member) has breached
Section 5.1(a) or has taken any action after the Distribution which
breach or action results in such disallowance, then AMO shall be
liable for, and shall indemnify and hold each Post-Distribution Member
harmless for, any Taxes and other Adverse Consequences which would not
have occurred but for such disallowance.
(ii) If there is a Final Determination that results in the
disallowance, in whole or in part, of the Section 355 Tax Treatment
(other than Section 355(e) Gain, which is addressed by Section 5.2),
and any Post-Distribution Member (and no AMO Member) has breached
Section 5.1(a) or has taken any action after the Distribution which
breach or action results in such disallowance, then Allergan shall be
liable for, and shall indemnify and hold each AMO Member harmless for,
any Taxes and other Adverse Consequences which would not have occurred
but for such disallowance.
(iii) If there is a Final Determination that results in the
disallowance, in whole or in part, of the Section 355 Tax Treatment,
and if one or more Post-Distribution Members and one or more AMO
Members have breached Section 5.1(a) or have taken action(s) after the
Distribution which breach or action result in such disallowance, then
any Taxes and other Adverse Consequences which would not have occurred
but for such disallowance shall be allocated between
15
Allergan and AMO in accordance with their responsibility for such
Taxes and other Adverse Consequences as determined pursuant to the
Dispute Resolution Procedure.
Section 5.2 Section 355(e) Taxes.
(a) Unless, for each Acquisition described in this Section
5.2(a), the Acquisition Approval Process is first satisfied at AMO's expense,
AMO shall not take or allow any action, and shall cause its Affiliates to
refrain from taking or allowing any action, which would result in the direct or
indirect Acquisition by one or more persons of either:
(i) any interest in AMO, regardless of size, either (A)
during the six month period following the Closing Date or (B) for
which Acquisition there was any agreement, understanding, arrangement
or substantial negotiations during the six month period following the
Closing Date; or
(ii) a fifteen percent (15%) or greater interest in AMO,
measured either individually or when cumulated with all prior
Acquisitions occurring after the Closing Date, during the two year
period following the Closing Date.
(b) As used herein with reference to any Acquisition, the
"Acquisition Approval Process" shall be satisfied if and only if all of the
following requirements are satisfied in the order set forth below:
(i) AMO notifies Allergan of the proposed Acquisition;
(ii) AMO obtains either (A) an opinion of a nationally
recognized law firm or a nationally recognized accounting firm
(acceptable in either case to Allergan), which opinion may be relied
upon by Allergan, that such Acquisition will not be treated as part of
a plan or series of transactions with the Distribution within the
meaning of Section 355(e); or (B) a ruling from the IRS that such
Acquisition will not be treated as part of a plan or series of
transactions with the Distribution within the meaning of Section
355(e), provided, however, that no such ruling from the IRS may be
sought without the prior approval of Allergan;
(iii) AMO submits the opinion or ruling described in Section
5.2(b)(ii) to Allergan for Allergan's review; provided that if AMO
submits an opinion to Allergan and Allergan finds the opinion
unsatisfactory, Allergan may require AMO to obtain a ruling for
Allergan's review prior to Allergan's approval of the proposed
Acquisition; and
(iv) Allergan provides AMO with written approval of the
proposed Acquisition; provided, however, that
(A) for any Acquisition described by Section 5.2(a)(i),
Allergan's approval may be provided or withheld at Allergan's
sole discretion; and
16
(B) for any Acquisition described by Section 5.2(a)(ii)
(and not also described by Section 5.2(a)(i)), Allergan may not
unreasonably withhold its approval, and Allergan may withhold its
approval only for reasons related to the Section 355 Tax
Treatment or AMO's ability to satisfy its indemnification
obligations under this Agreement.
(c) If Section 355(e) of the Code is applicable to the
Distribution because the Distribution was part of a plan (or series of related
transactions) pursuant to which one or more persons acquired directly or
indirectly AMO stock representing a "50-percent or greater interest" within the
meaning of Section 355(e), AMO shall pay and be liable for, and shall indemnify
Allergan against any liability for, any resulting Taxes (the "Section 355(e)
Gain") and other Adverse Consequences regardless of whether the Acquisition
Approval Process has been satisfied.
(d) If Section 355(e) of the Code is applicable to the
Distribution because the Distribution was part of a plan (or series of related
transactions) pursuant to which one or more persons acquired directly or
indirectly Allergan stock representing a "50-percent or greater interest" within
the meaning of Section 355(e), Allergan shall pay and be liable for, and shall
indemnify AMO against any liability for, the Section 355(e) Gain and other
Adverse Consequences.
ARTICLE VI.
INDEMNIFICATION.
Section 6.1 By Allergan.
(a) Taxes. Subject to Article V, Allergan shall indemnify and
hold AMO and each AMO Member harmless (on an After-Tax Basis) against any and
all Taxes for which Allergan is ultimately liable pursuant to Article III,
taking into account any reimbursement obligations described therein.
(b) Member Liability. Subject to Section 6.2 and Article V,
Allergan shall indemnify and hold AMO and each AMO Member harmless (on an
After-Tax Basis) against each and every liability for Taxes of the Allergan
Group asserted by any Taxing Authority under Treasury Regulation Section
1.1502-6, or any similar law, rule or regulation to the extent applicable to any
state, foreign or local Tax matters that are filed on a consolidated, combined,
unitary or similar basis.
Section 6.2 By AMO. Subject to Article V, AMO shall indemnify and hold
the Allergan Group and each Post-Distribution Member harmless (on an After-Tax
Basis) against the Taxes for which AMO is ultimately liable pursuant to Article
III, taking into account any reimbursement obligations described therein.
Section 6.3 Procedure for Indemnification. (a) Except as otherwise
provided in Sections 3.4, 3.5 or 3.6, AMO (or Allergan, as the case may be)
shall notify Allergan (or AMO) of any Taxes paid by the AMO Group or any AMO
Member (or the Allergan Group or any Post-Distribution Member) which are subject
to indemnification under this Article VI. Any notification
17
contemplated by this Section 6.3 shall include a detailed calculation
(including, if applicable, separate allocations of such Taxes between Pre- and
Post-Closing Taxable Periods and supporting work papers) and a brief explanation
of the basis for indemnification hereunder. Whenever a notification described in
this Section 6.3 is given, the notified party shall pay the amount requested in
such notice to the notifying party in accordance with Article VII, but only to
the extent that the notified party agrees with such request. To the extent the
notified party disagrees with such request, it shall, within thirty (30) days of
receipt of such notice, so notify the notifying party, whereupon the parties
shall use their best efforts to resolve any such disagreement. To the extent not
otherwise provided for in this Article VI or in Article VII, any payment made
after such 30-day period shall include interest at the Overdue Rate from the
date of receipt of original notice of such payment. Any disputes between the
parties not settled within such 30-day period will be resolved through the
Dispute Resolution Procedure in accordance with Section 8.4 hereof.
Section 6.4 Indemnification Threshold. No Tax liability of $250,000
(the "Indemnification Threshold") or less in the aggregate shall in any event be
indemnified under this Agreement; and provided, however, that after the
Indemnification Threshold is met by either AMO or Allergan, all indemnification
payments owed pursuant to this Agreement shall be paid relating back to the
first dollar without regard to any Indemnification Threshold.
Section 6.5 Loss of Tax Benefits. Appropriate payments shall be made
between the parties to take account of a Final Determination which results in a
loss of, or change in any Tax Benefit that has been taken into account for
purposes of determining the After-Tax Basis of any indemnification payment.
ARTICLE VII.
METHOD, TIMING AND CHARACTER OF PAYMENTS REQUIRED BY THIS AGREEMENT.
Section 7.1 Payment in Immediately Available Funds; Interest; Method.
All payments made pursuant to this Agreement shall be made in immediately
available funds. Except as otherwise provided herein, any payment not made
within thirty (30) days of receipt of notice of such payment (or, in the case
where no notice of payment is required, within thirty (30) days of the date on
which such payment first becomes due and payable) shall thereafter bear interest
at the Overdue Rate from the date of receipt of notice of such payment (or the
date on which such payment first becomes due and payable, as the case may be).
All indemnification payments made pursuant this Agreement shall be made by and
between Allergan (and not any other Post-Distribution Member) and AMO (and not
any other AMO Member).
Section 7.2 Characterization of Payments. Any payment (other than
interest thereon) made hereunder by Allergan to AMO or by AMO to Allergan shall
be treated by all parties for all purposes to the extent permitted by law as a
non-taxable dividend distribution or capital contribution made prior to the
close of business on the Closing Date, except to the extent that Allergan and
AMO treat a payment as the settlement of an intercompany liability. If, pursuant
to a Final Determination or as mutually agreed by Allergan and AMO, it is
determined that the receipt or accrual of any payment under this Agreement
(other than interest thereon) is, itself, subject to, or will result in the
payment by the recipient of, any Tax (including, but not limited to, Taxes
resulting
18
from the creation of an excess loss account or from the loss of Tax Benefits),
the party making such payment shall be required to pay an additional amount to
cover the additional Tax (on an After-Tax Basis), together with interest at the
Overdue Rate from the date the Tax accrues through the date of payment of the
additional amount. For example, if AMO and Allergan agree that an
indemnification payment of $100 made hereunder by AMO to Allergan is fully
taxable to Allergan but not deductible to AMO, AMO shall pay Allergan an amount
equal to $100 plus the amount of Tax that Allergan will pay as a result having
received the payment (assuming that the payment of additional Tax does not
result in a Tax Benefit, which would reduce the total payment calculated on an
After-Tax Basis).
ARTICLE VIII.
COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY; DISPUTES.
Section 8.1 Provision of Cooperation, Documents and Other Information.
Upon reasonable request by a requesting party, Allergan and AMO shall promptly
provide (and shall cause their respective Affiliates to provide) such requesting
party with such cooperation and assistance, documents, and other information,
without charge, as may be necessary or reasonably helpful in connection with (a)
the preparation and filing of any original or amended Tax Return, (b) the
conduct of any Audit involving to any extent Taxes or Tax Returns within the
scope of this Agreement, or (c) the verification by a party of an amount payable
hereunder to, or receivable hereunder from, another party. Such cooperation and
assistance shall include, without limitation: (i) the provision on demand of
books, records, Tax Returns, documentation or other information relating to any
relevant Tax Return; (ii) the execution of any document that may be necessary or
reasonably helpful in connection with the filing of any Tax Return by the
Allergan Group, a Pre-Distribution Member, a Post-Distribution Member, the AMO
Group or an AMO Member, or in connection with any Audit of the type generally
referred to in the preceding sentence, including, without limitation, the
execution of powers of attorney and extensions of applicable statutes of
limitations with respect to Tax Returns which Allergan may be obligated to file
on behalf of AMO Members pursuant to Section 2.1; (iii) the prompt and timely
filing of appropriate claims for refund; and (iv) the use of reasonable best
efforts to obtain any documentation from a governmental authority or a third
party that may be necessary or helpful in connection with the foregoing. Each
party shall make its employees and facilities available on a mutually convenient
basis to facilitate such cooperation.
Section 8.2 Retention of Books and Records. Allergan, each
Post-Distribution Member, AMO and each AMO Member shall retain or cause to be
retained all Tax Returns, and all books, records, schedules, work papers, and
other documents relating thereto, until the expiration of the later of (a) seven
(7) years from the close of the applicable Taxable Year, (b) all applicable
statutes of limitations (including any waivers or extensions thereof), (c) the
completion of any audits with respect to the applicable Taxable Year, and (d)
any retention period required by law (e.g., depreciation or inventory records)
or pursuant to any record retention agreement. The parties hereto shall notify
each other in writing of any waivers, extensions or expirations of applicable
statutes of limitations. The parties hereto shall provide at least thirty (30)
days prior written notice of any intended destruction of the documents referred
to in this Section 8.3. A party giving such a notification shall not dispose of
any of the foregoing materials without first obtaining the written approval
(which may not be unreasonably withheld) of the notified party and, in lieu of
destruction
19
or disposition, the notified party shall be permitted to take possession, at its
sole cost, of the foregoing materials which affect (or potentially affect) its
liability for Tax.
Section 8.3 Confidentiality of Documents and Information. Except as
required by law or with the prior written consent of the other party, all Tax
Returns, documents, schedules, work papers and similar items and all information
contained therein which are within the scope of this Agreement shall be kept
confidential by the parties hereto and their Representatives, shall not be
disclosed to any other person or entity and shall be used only for the purposes
provided herein.
Section 8.4 Disputes. If Allergan and AMO are unable to agree on any
calculation, numerical value, procedure or payment set forth in or required by
this Agreement, including, but not limited to, any dispute under Sections
3.4(b), 3.5, 3.6(f) or 6.3, such item shall be determined pursuant to the
Dispute Resolution Procedure.
ARTICLE IX.
AUDITS.
Section 9.1 Status and Other Information Regarding Audits and
Disputes. Upon the receipt by Allergan or any Post-Distribution Member (or AMO
or any AMO Member, as the case may be) of notice of, or relating to, an Audit
which asserts, proposes or recommends a deficiency, claim or adjustment
(including the receipt of a IRS Form 5701 or comparable form from any other
Taxing Authority) that, if sustained, would affect the liability for Taxes which
are subject to indemnification by AMO (or Allergan) under this Agreement,
Allergan (or AMO) shall promptly notify AMO (or Allergan) in writing of the
receipt of such notice. Allergan (or AMO) shall use reasonable best efforts to
keep AMO (or Allergan) advised as to the status of Audits pertaining to Taxes
subject to indemnification by AMO (or Allergan) under this Agreement. To the
extent relating to any such issue, Allergan (or AMO) shall promptly furnish AMO
(or Allergan) with copies of any inquiries or requests for information from any
Taxing Authority or any other administrative, judicial or other governmental
authority, as well as copies of any revenue agent's report or similar report,
notice of proposed adjustment or notice of deficiency.
Section 9.2 Control and Settlement.
(a) Pre-Closing Taxable Periods. Allergan shall have the right to
control, and to represent the interests of all affected taxpayers in, any Audit
relating, in whole or in part, to any Pre-Closing Taxable Period, and to employ
counsel of its choice at its expense.
(b) Straddle Periods.
(i) Allergan shall have the right to control, and to
represent the interests of all affected taxpayers in, any Audit
relating, in whole or in part to any Straddle Period (other than Tax
Returns for a Straddle Period of a Newly Formed AMO Member which Tax
Returns do not also include an entity other than a Newly Formed AMO
Member), and to employ counsel of its choice at its expense; provided,
however, that, with respect to such issues for which AMO may be
responsible in part for Taxes under Section 3.6 and Article V,
Allergan shall in good
20
faith (A) afford AMO full opportunity to observe at any such
proceedings and to review any submissions related to such issues, (B)
consult with AMO regarding its comments with respect to such
proceedings and submissions in an effort to resolve any differences
with respect to Allergan's positions with regard to such issues, (C)
in good faith consider AMO's recommendations for alternative positions
with respect to such issues, (D) advise AMO of the reasons for
rejecting any such alternative position, and (E) provide AMO with
final copies of such submissions. In the event of any disagreement
regarding the proceedings, Allergan shall have the ultimate control of
the Audit and any settlement or other resolution thereof.
(ii) AMO shall have the right to control, and to represent
the interests of all affected taxpayers in, any Audit relating, in
whole or in part to any Straddle Period for any Newly Formed AMO
Members, and to employ counsel of its choice at its expense; provided,
however, that AMO shall in good faith (A) afford Allergan full
opportunity to observe at any such proceedings and to review any
submissions related thereto and (B) not agree to settle any such
proceeding in a manner that could reasonably be expected to have a
material and adverse effect on (x) any indemnification obligation of
Allergan hereunder or (y) any Tax liability of the Allergan Group or
any Post-Distribution Member for any Taxable Period, without the prior
written consent of Allergan, which consent shall not be unreasonably
withheld.
(c) Post-Closing Taxable Periods.
(i) Allergan shall have the right to control, and to
represent the interests of all affected taxpayers in, any Audit
relating solely to any Post-Closing Taxable Period of the
Post-Distribution Allergan Group or any Post-Distribution Member, and
to employ counsel of its choice at its expense.
(ii) AMO shall have the right to control, and to represent
the interests of all affected taxpayers in, any Audit relating solely
to any Post-Closing Taxable Period of the AMO Group or any AMO Member,
and to employ counsel of its choice at its expense; provided, however,
that for any Audit of Tax Returns for Taxable Years ending on or
before December 31, 2004, AMO shall in good faith (A) afford Allergan
full opportunity to observe at any such proceedings and to review any
submissions related thereto and (B) not agree to settle any such
proceeding in a manner that could reasonably be expected to have a
material and adverse effect on (x) any indemnification obligation of
Allergan hereunder or (y) any Tax liability of the Allergan Group or
any Post-Distribution Member for any Taxable Period, without the prior
written consent of Allergan, which consent shall not be unreasonably
withheld.
ARTICLE X.
MISCELLANEOUS.
21
Section 10.1 Effectiveness. This Agreement shall be effective from and
after the Closing Date and shall survive until the expiration of any applicable
statute of limitations.
Section 10.2 Entire Agreement. This Agreement and the Distribution
Agreement, together with all documents and instruments referred to herein and
therein constitute the entire agreement and supersede and terminate all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
Section 10.3 Guarantees of Performance. Allergan and AMO hereby
guarantee the complete and prompt performance by the members of their respective
Affiliated Groups of all of their obligations and undertakings pursuant to this
Agreement. If after the Closing Date either Allergan or AMO shall be acquired by
another entity such that 50% or more of its common stock is in common control by
the acquirer, such acquirer shall, by making such acquisition, simultaneously
agree to jointly and severally guarantee the complete and prompt performance by
the acquired corporation and any Affiliate of the acquired corporation of all of
their obligations and undertakings pursuant to this Agreement.
Section 10.4 Severability. The invalidity of any portion hereof shall
not affect the validity, force or effect of the remaining portions hereof. If it
is ever held that any restriction hereunder is too broad to permit enforcement
of such restriction to its fullest extent, each party agrees that a court of
competent jurisdiction may enforce such restriction to the maximum extent
permitted by law, and each party hereby consents and agrees that such scope may
be judicially modified accordingly in any proceeding brought to enforce such
restriction.
Section 10.5 Indulgences, etc. Neither the failure nor any delay on
the part of any party hereto to exercise any right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right preclude any other or further exercise of the same or any other right, nor
shall any waiver of any right with respect to any occurrence be construed as a
waiver of such right with respect to any other occurrence.
Section 10.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of California, without regard
to any applicable conflicts of laws.
Section 10.7 Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be made in the
manner provided in Section 12.09 of the Distribution Agreement.
Section 10.8 Amendments. This Agreement may be amended at any time
only by written agreement executed and delivered by duly authorized officers of
AMO and Allergan.
Section 10.9 Assignments. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
22
Section 10.10 Headings; References. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. All
references herein to "Article", "Sections" or "Exhibits" shall be deemed to be
references to Articles or Sections hereof or Exhibits hereto unless otherwise
indicated.
Section 10.11 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 10.12 Predecessors and Successors. To the extent necessary to
give effect to the purposes of this Agreement, any reference to any corporation,
Affiliated Group or member of an Affiliated Group shall also include any
predecessors or successors thereto, by operation of law or otherwise.
Section 10.13 Tax Elections. Nothing in this Agreement is intended to
change or otherwise affect any previous tax election made by or on behalf of the
Allergan Group. Allergan, as common parent of the Allergan Group, shall continue
to have sole discretion to make any and all elections with respect to all
members of the Allergan Group for all Taxable Periods for which it is obligated
to file Tax Returns under Section 2.1(a). AMO, as common parent of the AMO
Group, shall have sole discretion to make any and all elections with respect to
all members of the AMO Group for all Taxable Periods for which it is obligated
to file Tax Returns under Section 2.1(b).
Section 10.14 Specific Performance. The parties hereto agree that the
remedy at law for any breach of this Agreement will be inadequate and that any
party by whom this Agreement is enforceable shall be entitled to specific
performance in addition to any other appropriate relief or remedy. Such party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunctive or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable laws, each party waives any
objection to the imposition of such relief.
Section 10.15 Further Assurances. Subject to the provisions hereof,
the parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each
party shall, in connection with entering into this Agreement, performing its
obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority and promptly provide the other party with all such information as it
may reasonably request in order to be able to comply with the provisions of this
sentence.
Section 10.16 Governing Provisions for Certain Foreign Taxes. To the
extent that an Implementation Agreement for a particular foreign jurisdiction
explicitly addresses the allocation and liability of VAT, sales and similar
Taxes, and as a consequence the Implementation Agreement
23
conflicts with certain provisions of this Agreement, then, to such extent, the
provisions of the Implementation Agreement shall govern.
Section 10.17 Setoff. All payments to be made by any party under this
Agreement shall be made without setoff, counterclaim or withholding, all of
which are expressly waived.
Section 10.18 Expenses. Except as specifically provided in this
Agreement or in a Related Agreement, all fees and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Section 10.19 Rules of Construction. Any ambiguities shall be resolved
without regard to which party drafted the Agreement.
[Signature Page To Follow]
24
IN WITNESS WHEREOF, Allergan and AMO have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
ALLERGAN, INC.,
a Delaware corporation
By: /s/ David E. I. Pyott
-----------------------------------------
Name: David E. I. Pyott
Title: Chairman of the Board, President and
Chief Executive Officer
ADVANCED MEDICAL OPTICS, INC.,
a Delaware corporation
By: /s/ James V. Mazzo
-----------------------------------------
Name: James V. Mazzo
Title: President and Chief Executive Officer
S-1