EXHIBIT 12
TAX SHARING AGREEMENT
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This TAX SHARING AGREEMENT (the "Agreement") by and among Endo
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Pharmaceuticals Holdings Inc., a Delaware corporation ("Endo"), Endo Inc., a
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Delaware corporation and wholly owned subsidiary of Endo, and Endo Pharma LLC, a
Delaware limited liability company ("Endo LLC"), is effective as of this 17th
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day of July, 2000.
WHEREAS the members of Endo LLC have agreed to exchange the shares of
common stock, par value $.01 per share, of Endo ("Endo Common Stock") currently
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beneficially owned by them for membership interests of Endo LLC;
WHEREAS under the Parent Plan certain officers and employees of Endo
have been granted stock options exercisable against Endo to purchase newly
issued shares of Endo Common Stock in certain circumstances;
WHEREAS Endo and Endo Inc. entered into an Agreement and Plan of
Merger with Algos Pharmaceutical Corporation, a Delaware corporation, on
November 26, 1999 (as may be amended and restated from time to time, the "Merger
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Agreement");
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WHEREAS in connection with the Merger, employee stock options granted
or to be granted under the Parent Plan will be amended as provided in Section
5.9 of the Merger Agreement in order to provide that such options will be
exercisable solely into shares of Parent Common Stock that are beneficially
owned by certain holders of Parent Common Stock immediately following the Parent
Recapitalization and prior to the Effective Time (such amended options, the
"Endo LLC Options");
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WHEREAS the shares of Endo Common Stock to be delivered upon exercise
of the Endo LLC Options will be provided entirely by Endo LLC and not directly
or indirectly by Endo or any other Endo stockholder; and
WHEREAS under the Internal Revenue Code of 1986, as amended (the
"Code") and the Treasury Regulations, rulings and other interpretations
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thereunder, deductible compensation expense resulting from the exercise of a
Endo LLC
Option by an Endo officer or employee is treated for income tax purposes as a
deduction of Endo;
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
PAYMENTS
Section 1.1 Payments to Endo LLC.
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(a) Upon the occurrence of a Liquidity Event, Endo (or any successor
entity) shall pay to Endo LLC or its designees by wire transfer in immediately
available funds in U.S. dollars the Tax Benefit Amount to the extent such Tax
Benefit Amount has not previously resulted in a payment under this Section 1.1.
(b) For purposes of this Agreement, "Liquidity Event" shall mean any
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transaction or series of transactions resulting in (A) a sale of greater than
20% on a fully diluted basis of the common equity of Endo through (i) a primary
offering by Endo, (ii) a secondary sale of Endo Common Stock by Endo LLC or
other holders of Endo Common Stock pursuant to a registration rights agreement
or (iii) a combination of primary and secondary offerings described in clauses
(i) and (ii) of this subsection, (B) a Change of Control or (C) a sale of all or
substantially all of the assets of Endo.
(c) For purposes of this Agreement, "Change of Control" shall mean (i)
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any merger, consolidation or other business combination that requires the
approval of holder of Endo Common Stock, (ii) any transaction or series of
transactions resulting in an acquisition by any Person (or Persons acting in
concert) unrelated to Endo LLC or its Affiliates of greater than 50% of the
equity of Endo measured by vote or value on a fully diluted basis or (iii) the
consummation by Endo of a plan of complete liquidation or a dissolution of Endo.
(d) For purposes of this Agreement, "Tax Benefit Amount" means the
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cumulative excess (if any) of (A) the Taxes that would have been payable by Endo
and its Subsidiaries for all taxable periods or portions thereof after the
Effective Date if none of the Endo LLC Options had been exercised over (B) the
actual Taxes payable by Endo and its Subsidiaries for such periods. For the
avoidance of doubt and for purposes of this Section 1(d), in order to determine
the Tax Benefit Amount for any taxable period of Endo and its Subsidiaries in
which a net operating loss carryforward deduction ("NOL") is utilized, the
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portion of the NOL attributable to deductions resulting from the exercise of
Endo LLC Options shall be treated as utilized last. By way of example, and
solely for the avoidance of doubt, if Endo has a loss for tax purposes in Year 1
of $100, consisting of $65 of deductions attributable to the exercise of Endo
LLC Options and $35 of deductions attributable to interest expense, and in Year
2 Endo has $40 of taxable income prior to application of the NOL, $35 of the $40
NOL applied against Year 2 income will be deemed to be attributable to the
interest expense and $5 of the NOL will be deemed attributable to the exercise
of the Endo LLC Options. Therefore, the Tax Benefit Amount would be the Taxes
that would have been payable by Endo if its NOL in Year 2 had been only $35. The
NOL carryforward to Year 3 of $60 would then be treated as consisting entirely
of deductions resulting from the exercise of the Endo LLC Options.
(e) The parties hereby agree that no payments shall be made and no
rights to any payment shall accrue to Endo LLC under this Agreement until the
occurrence of a Liquidity Event, if any, and that Endo and its Subsidiaries
shall not credit to an account of Endo LLC or any other Person, set aside any
funds or assets, or otherwise make available to or subject to a claim of Endo
LLC or any other Person any amounts hereunder until such amounts become payable
to Endo LLC pursuant to Section 1.1(a) hereof.
(f) The parties hereby agree that, notwithstanding anything herein to
the contrary, (i) any payments made pursuant to this Section 1.1 shall be
treated as payments described in Section 302 of the Code and shall take no
position inconsistent with this treatment for any tax purpose and (ii) no amount
shall be payable hereunder, and Endo LLC shall not be entitled to any payment
hereunder, to the extent any such payment is not permitted under Endo's Senior
Credit Facility, unless or until such time as such payment is either permitted
under the Senior Credit Facility or the Senior Credit Facility is terminated.
For purposes hereof, "Senior Credit Facility" shall mean the Credit Agreement
dated as of August 26, 1997, by and between Endo Pharmaceuticals Inc. and The
Chase Manhattan Bank, as
amended, restated, modified, renewed, refunded, replaced, or refinanced, in
whole or in part, from time to time.
ARTICLE II
GENERAL PROVISIONS
Section 2.1 Survival This Agreement shall survive until the later of
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(a) the close of the last taxable period of Endo or any successor to Endo in
which a deduction may be allowable to Endo or its Subsidiaries or their
successors as a result of or attributable to the exercise of an Option or (b)
the payment by Endo of all amounts payable under Section 1.1 hereof.
Section 2.2 Notices. All notices and other communications hereunder
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shall be in writing and shall be deemed given when delivered personally, one day
after being delivered to an overnight courier or when telecopied (with a
confirmatory copy sent by overnight courier) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Endo or Endo Inc., to:
Endo Pharmaceuticals Holdings Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Endo LLC or ▇▇▇▇▇ & Company:
▇▇▇▇▇ & Company
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
and with copies to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
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▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq. and ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Section 2.3 Interpretation. When a reference is made in this Agreement to
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a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 2.4 Counterparts. This Agreement may be executed in counter
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parts, all of which shall be considered one and the same agreement, and shall
become effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
Section 2.5 Entire Agreement; No Third-Party Beneficiaries. Except for
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the Merger Agreement and the Mutual Confidentiality and Non-Disclosure Agreement
between the parties dated October 21, 1998, this Agreement is the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
Section 2.6 Governing Law. This Agreement shall be governed by, and
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construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREE MENT OR THE ACTIONS OF ENDO, ENDO LLC OR ENDO INC. IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCE MENT THEREOF.
Section 2.7 Assignment. Neither this Agreement nor any of the rights,
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interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. 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.
Section 2.8 Severability. If any term or other provision of this
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Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
Section 2.9 Modifications, Supplements and Amendment. This Agreement may
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be modified, supplemented or amended from time to time by the parties hereto;
provided that any such modification, supplement or amendment must be approved by
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a majority of the members of the Board of Directors of Endo who do not then (by
themselves or through an Affiliate) have a financial interest in Endo LLC or
otherwise have a financial interest in any payments that may be made by Endo or
any successor to Endo hereunder).
Section 2.10 Definitions. Terms not otherwise defined herein have the
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meaning given such terms in the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized all as of the
date first written above.
ENDO PHARMACEUTICALS HOLDINGS INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President & Chief Executive Officer
ENDO INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President & Chief Executive Officer
ENDO PHARMA LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Financial Officer