TAX ALLOCATION AGREEMENT

EXHIBIT 10.01

 

TAX ALLOCATION AGREEMENT

 

dated as of January 10, 2006

 

between

 

ALBERTO-CULVER COMPANY

 

and

 

SALLY HOLDINGS, INC.

TABLE OF CONTENTS

 

TAX ALLOCATION AGREEMENT

 

TAX ALLOCATION AGREEMENT (this “ Agreement ”), dated as of January 10, 2006 between Alberto-Culver Company, a Delaware corporation (“ Alberto-Culver ”), and Sally Holdings, Inc., a Delaware corporation (“ Spinco ”), and, as of the date hereof, a wholly owned subsidiary of Alberto-Culver.

 

RECITALS

 

WHEREAS, Alberto-Culver is the common parent of an affiliated group of corporations within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), which currently files consolidated federal income Tax Returns;

 

WHEREAS, pursuant to the Separation Agreement dated as of the date hereof between Alberto-Culver and Spinco (as may be amended from time to time in accordance with its terms, the “ Separation Agreement ”), Alberto-Culver will distribute to its stockholders all of the issued and outstanding shares of common stock, no par value of Spinco (“ Spinco Common Stock ”), on a pro rata basis (as described more fully in the Separation Agreement, the “ Distribution ”);

 

WHEREAS, Alberto-Culver, Spinco, Regis Corporation, a Minnesota corporation (“ Regis ”), Roger Merger Inc., a Delaware corporation and a direct, wholly owned Subsidiary of Regis (“ Merger Sub ”), and Roger Merger Subco LLC, a Delaware limited liability company and direct, wholly owned Subsidiary of Regis (“ Subco” ), have entered into the Agreement and Plan of Merger dated as of the date hereof (the “ Merger Agreement ”) pursuant to which, immediately following the Distribution, Merger Sub will be merged with and into Spinco (the “ Merger ”), with Spinco being the surviving corporation and immediately following the Merger the surviving corporation in the Merger will merge with and into Subco;

 

WHEREAS, the parties to this Agreement intend that the Distribution qualify under Section 355 of the Code, as a tax-free distribution;

 

WHEREAS, after the Distribution Date (as defined in the Separation Agreement), neither Spinco nor any of the Spinco Subsidiaries (as hereinafter defined) that prior to the Distribution Date was a member of the Alberto-Culver Affiliated Group (as hereinafter defined) for federal income Tax purposes will continue to be a member of the Alberto-Culver Affiliated Group for federal income Tax purposes; and

 

WHEREAS, the Spinco Group and the Alberto-Culver Group (as hereinafter defined) desire on behalf of themselves and their successors to set forth their rights and obligations with respect to Taxes due for periods before, on and after the Distribution Date.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

 

SECTION 1.01. General . Capitalized terms used in this Agreement have the meanings set forth in this Agreement, or, when not so defined, in the Separation Agreement or the Merger Agreement. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

“ Affiliate ” has the meaning set forth in the Separation Agreement; provided that the term “Affiliate” shall not include any Shareholder.

 

“ Agreement ” means this Tax Allocation Agreement as the same may be amended from time to time.

 

“ Alberto-Culver ” has the meaning set forth in the preamble.

 

“ Alberto-Culver Affiliated Group ” means the domestic corporations included in the affiliated group, as defined in Section 1504 of the Code, of which Alberto-Culver is the common parent, and any successor group.

 

“ Alberto-Culver Factual Representation ” means any factual descriptions or factual representations with respect to the Alberto-Culver Group, the Alberto-Culver Business, the Spinco Group or the Spinco Business made in writing to the IRS in connection with the Private Letter Ruling Request or made in connection with the Tax Opinion, except that such term shall not include (a) any representation that is a legal conclusion regarding business purpose, lack of device, or Code Section 355(e), (b) any description of the transactions contemplated by the Merger Agreement or any of the Transaction Agreements or (c) any facts or representations provided by Regis or which are not solely with respect to the Alberto-Culver Group, the Alberto-Culver Business, the Spinco Group or the Spinco Business.

 

“ Alberto-Culver Group ” means Alberto-Culver and the Alberto-Culver Subsidiaries.

 

“ Alberto-Culver Subsidiary ” means each direct and indirect Subsidiary of Alberto-Culver (other than Spinco and the Spinco Subsidiaries).

 

“ Alberto-Culver Tainting Act ” means:

 

(a) any inaccuracy of any Alberto-Culver Factual Representation;

 

(b) any action (or failure to take any reasonably available action) by Alberto-Culver or any Alberto-Culver Subsidiary other than an action contemplated by the Merger Agreement or any of the Transaction Agreements;

 

(c) any acquisition or other transaction involving the capital stock of Alberto-Culver or any Affiliate of Alberto-Culver (other than the distribution of the Spinco Common Stock in the Distribution, Regis’s acquisition of Spinco in the Merger, or any action taken by the Shareholders); or

 

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(d) any Prohibited Act performed by Alberto-Culver or an Affiliate of Alberto-Culver.

 

“ Alberto-Culver Taxes ” means any Taxes (excluding Restructuring Taxes) that are attributable to Alberto-Culver or any Alberto-Culver Subsidiary pursuant to the allocation principles of Sections 2.05 , 2.08 and 2.09 .

 

“ Claim ” has the meaning set forth in Section 3.03 .

 

“ Controlling Party ” has the meaning set forth in Section 3.01 .

 

“ Distribution ” has the meaning set forth in the second recital.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ Estimated Retained Tax Amount ” has the meaning set forth in Section 2.08(a) .

 

“ Final Determination ” means with respect to any issue (a) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final and not subject to further appeal, (b) a closing agreement (whether or not entered into under Section 7121 of the Code) or any other binding settlement agreement (whether or not with the IRS) entered into in connection with or in contemplation of an administrative or judicial proceeding, or (c) the completion of the highest level of administrative proceedings if a judicial contest is not or is no longer available.

 

“ Final Retained Tax Amount ” has the meaning set forth in Section 2.08(b) .

 

“ Final Tax Amount Determination ” has the meaning set forth in Section 2.08(c) .

 

“ Indemnitor ” has the meaning set forth in Section 3.02 .

 

“ Indemnifiable Losses ” has the meaning set forth in the Separation Agreement.

 

“ Independent Expert ” has the meaning set forth in Section 2.08(b) .

 

“ Independent Firm ” has the meaning set forth in Article VI .

 

“ IRS ” means the United States Internal Revenue Service.

 

“ Merger Agreement ” has the meaning set forth in the third recital.

 

“ Objection Notice ” has the meaning set forth in Section 2.08(b) .

 

“ Person ” has the meaning set forth in the Merger Agreement.

 

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“ Post-Distribution Period ” means any Taxable year or other Taxable period beginning after the Distribution Date and, in the case of any Taxable year or other Taxable period that begins on or before and ends after the Distribution Date, that part of the Taxable year or other Taxable period that begins at the beginning of the day after the Distribution Date.

 

“ Pre-Distribution Period ” means any Taxable year or other Taxable period that ends on or before the Distribution Date and, in the case of any Taxable year or other Taxable period that begins on or before and ends after the Distribution Date, that part of the Taxable year or other Taxable period through the close of the Distribution Date.

 

“ Private Letter Ruling ” means any private letter ruling received from the IRS to the effect that, on the basis of the facts, representations and assumptions set forth in the written request for such ruling which are consistent with the state of facts existing at the Distribution Time, the Distribution will constitute a tax-free distribution under Section 355 of the Code.

 

“ Prohibited Acts ” has the meaning specified in Section 4.02(b) .

 

“ Proposed Retained Tax Amount ” has the meaning set forth in Section 2.08(a) .

 

“ Regis Factual Representation ” means any factual descriptions or factual representations provided by Regis and made in writing by Alberto-Culver to the IRS in connection with the Private Letter Ruling Request or made in connection with the Tax Opinion except that such term shall not include (a) any representation that is a legal conclusion regarding business purpose, lack of device, or Code Section 355(e), (b) any description of the transactions contemplated by the Merger Agreement or any of the Transaction Agreements or (c) any facts or representations provided by any member of the Alberto-Culver Group or which are not solely with respect to Regis.

 

“ Restricted Period ” has the meaning specified in Section 4.02(a) .

 

“ Restructuring Taxes ” means any Taxes (and other liabilities, including, without limitation, liability to stockholders and the costs of defending against the imposition of such Taxes and other liabilities) imposed as a result of a Final Determination that (a) the Distribution failed to constitute a tax-free distribution under Section 355 of the Code, or (b) any stock or securities of Spinco failed to qualify as “qualified property” within the meaning of Section 355(c)(2) or Section 361(c)(2) of the Code because of the application of Section 355(d) or Section 355(e) of the Code to the Distribution.

 

“ Retained Tax Amount ” has the meaning set forth in Section 2.08(a) .

 

“ Ruling Request ” means the ruling request and any other materials (including the attachments and supplemental submissions to the IRS) delivered or deliverable by Alberto-Culver and others in connection with the issuance by the IRS of the Private Letter Ruling.

 

“ Separation Agreement ” has the meaning set forth in the second recital.

 

“ Shareholder ” has the meaning assigned to such term in the Shareholders Agreement.

 

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“ Spinco ” has the meaning set forth in the preamble and shall include any successor to Spinco.

 

“ Spinco Group ” means Spinco and the Spinco Subsidiaries.

 

“ Spinco Subsidiary ” means each direct and indirect Subsidiary of Spinco.

 

“ Spinco Tainting Act ” means:

 

(a) any inaccuracy of any Regis Factual Representation;

 

(b) any action (or failure to take any reasonably available action) by Spinco or any Affiliate of Spinco after the Distribution Date other than an action contemplated by the Merger Agreement or any of the Transaction Agreements;

 

(c) any acquisition or other transaction involving the capital stock of Spinco or any Affiliate of Spinco (other than the distribution of the Spinco Common Stock in the Distribution and Regis’s acquisition of Spinco in the Merger or any action taken by the Shareholders); or

 

(d) any Prohibited Act performed by Spinco or any Affiliate of Spinco after the Distribution Date.

 

“ Spinco Taxes ” means any Taxes (excluding Restructuring Taxes and any Taxes related to an excess loss account or a deferred intercompany gain) that are attributable to Spinco or any Spinco Subsidiary pursuant to the allocation principles of Sections 2.05 , 2.08 and 2.09 .

 

“ Subsidiary ” means, when used with respect to any Person, any corporation or other organization, whether incorporated or unincorporated, at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries.

 

“ Tax ” (and, with correlative meaning, “ Taxes ” and “ Taxable ”) means any tax, in any sense, including (a) any federal, state, municipal, county, local, foreign or other Governmental Entity net income, gross income, receipts, windfall profit, severance, real, personal, tangible, escheatable, unclaimed or abandoned property, goods and services, value added, estimated, capital stock, production, sales, use, license, excise, franchise, employment, unemployment, social security, payroll, withholding, alternative or add-on minimum, ad valorem, transfer, stamp, or environmental tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any Governmental Entity, including any fines, penalties or interest arising under ERISA; and (b) any liability of either party for the payment of amounts with respect to payments of a type described in clause (a)  as a result of being a member of an affiliated, consolidated, combined or unitary group.

 

“ Tax Carryover Attribute ” has the meaning specified in Section 2.07 .

 

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“ Tax Opinion ” means the tax opinion described in Section 8.1(i) of the Merger Agreement.

 

“ Tax Return ” means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.

 

“ Transaction Taxes ” has the meaning set forth in Section 2.04(b) .

 

ARTICLE II

TAX RETURNS, TAX PAYMENTS AND TAX SHARING OBLIGATIONS

 

SECTION 2.01. Obligations to File Tax Returns . (a) From and after the Distribution Time, Alberto-Culver shall timely file or cause to be timely filed all income Tax Returns with respect to the Spinco Group that include any Pre-Distribution Period and are filed on a consolidated, combined or unitary basis and include Spinco or any Spinco Subsidiary, on the one hand, and Alberto-Culver or any Alberto-Culver Subsidiary, on the other hand. From and after the Distribution Time, Spinco shall timely file or cause to be timely filed any other Tax Return with respect to any member of the Spinco Group. From and after the Distribution Time, subject to the terms and limitations in the Merger Agreement, at Spinco’s request and cost as provided in Section 7.22 of the Merger Agreement, Alberto-Culver shall prepare or cause to be prepared all Tax Returns of Spinco, which have been previously prepared or caused to be prepared by Alberto-Culver on behalf of Spinco, for all Pre-Distribution Periods where such Tax Returns are due after the Distribution Date.

 

(b) Alberto-Culver shall timely file or cause to be timely filed all Tax Returns with respect to the Alberto-Culver Group.

 

(c) Any consolidated, combined or unitary Tax Return filed on or after the Distribution Date that includes Spinco or any Spinco Subsidiary for a Pre-Distribution Period shall be prepared on a basis consistent with the elections, methods of accounting, positions, conventions and principles of taxation and the manner in which any Tax item or other information is reported as reflected in comparable income Tax Returns filed before the date of this Agreement. The preceding sentence shall not apply (i) to the extent otherwise contemplated or required by the Ruling Request or Private Letter Ruling, or (ii) if there has been a change in Applicable Laws. Alberto-Culver shall (A) make available each Tax Return described in this Section 2.01(c) to Spinco for its review and approval (not to be unreasonably withheld or delayed) at least 15 days prior to filing, and (B) make any reasonable revisions to such Tax Returns that are requested by Spinco that affect the amount of Taxes that are allocated to Spinco or any Spinco Subsidiary.

 

(d) Alberto-Culver agrees to comply with the requirements of Section 7.15(c) of the Merger Agreement.

 

SECTION 2.02. Obligation to Remit Taxes . Following the Distribution Date, Alberto-Culver and Spinco shall each remit or cause to be remitted any Taxes due in respect of any Tax Return it is required to file or cause to be filed pursuant to Section 2.01 .

 

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SECTION 2.03. Tax Sharing Obligations and Prior Agreements .

 

(a) From and after the Distribution Time, Spinco shall, in a manner consistent with Article IV of the Separation Agreement (including the principles of Section 4.05 of the Separation Agreement), indemnify, defend, and hold harmless Alberto-Culver and the Alberto-Culver Indemnified Parties from and against, any and all Indemnifiable Losses incurred or suffered by Alberto-Culver or one or more of the Alberto-Culver Indemnified Parties in connection with, relating to, arising out of, or due to, directly or indirectly, (i) any Spinco Taxes (including, for the avoidance of doubt, any Spinco Taxes arising from a redetermination thereof from an audit or examination); and (ii) any amount determined to be Spinco’s liability under Section 2.04 . Any amount payable by Spinco to Alberto-Culver with respect to any Tax pursuant to this Section 2.03(a) shall be reduced by any direct or indirect payments made by Spinco or any Spinco Affiliate with respect to such Tax after the Distribution Date to any Alberto-Culver Indemnified Party. From and after the Distribution Time, Spinco shall be entitled to any refund of or credit for Taxes for which Spinco is responsible under this Agreement.

 

(b) From and after the Distribution Time, Alberto-Culver shall, in a manner consistent with Article IV of the Separation Agreement (including the principles of Section 4.05 of the Separation Agreement), indemnify, defend, and hold harmless Spinco and the Spinco Indemnified Parties from and against, any and all Indemnifiable Losses incurred or suffered by Spinco or one or more of the Spinco Indemnified Parties in connection with, relating to, arising out of, or due to, directly or indirectly, (i) any Alberto-Culver Taxes (including, for the avoidance of doubt, any Alberto-Culver Taxes arising from a redetermination thereof from an audit or examination); and (ii) any amount determined to be Alberto-Culver’s liability under Section 2.04 . Any amount payable by Alberto-Culver to Spinco with respect to any Tax pursuant to this Section 2.03(b) shall be reduced by any direct or indirect payments made by Alberto-Culver or any Alberto-Culver Affiliate with respect to such Tax after the Distribution Date to any Spinco Indemnified Party. From and after the Distribution Time, Alberto-Culver shall be entitled to any refund of or credit for Taxes for which Alberto-Culver is responsible under this Agreement.

 

(c) Except as set forth in this Agreement or the Separation Agreement and in consideration of the mutual indemnities and other obligations of this Agreement, any and all prior Tax sharing agreements or practices between Alberto-Culver or any Alberto-Culver Subsidiary, on the one hand, and Spinco or any Spinco Subsidiary, on the other hand, shall be terminated as of the Distribution Date.

 

SECTION 2.04. Restructuring Taxes; Other Taxes Relating to the Distribution . (a) Spinco shall be liable for 60% and Alberto-Culver shall be liable for 40% of any Restructuring Taxes that are imposed as a result of neither a Spinco Tainting Act nor an Alberto-Culver Tainting Act. In the case of the imposition of a Restructuring Tax where there is both a Spinco Tainting Act and an Alberto-Culver Tainting Act, and each of the Spinco Tainting Act and the Alberto-Culver Tainting Act would alone be sufficient to result in the imposition of such Restructuring Tax, Spinco shall be liable for 60% and Alberto-Culver shall be liable for 40% of such Restructuring Tax. In the case of a Restructuring Tax that would not have been imposed but for the existence of both a Spinco Tainting Act and an Alberto-Culver Tainting Act, Spinco

 

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and Alberto-Culver shall be liable for such Restructuring Tax to the extent the Spinco Tainting Act and the Alberto-Culver Tainting Act, respectively, contributed to the imposition of such Restructuring Tax. Spinco shall be liable for Restructuring Taxes imposed solely as a result of a Spinco Tainting Act, and Alberto-Culver shall be liable for Restructuring Taxes imposed solely as a result of an Alberto-Culver Tainting Act. In the case of a Tainting Act that results from a Prohibited Act, the party that committed or whose Affiliate committed such Prohibited Act shall be liable for Restructuring Taxes imposed without regard to whether an opinion or supplemental ruling pertaining to such Prohibited Act pursuant to Section 4.02 was obtained, and without regard to whether the other party gave its consent to such action pursuant to Section 4.02 or otherwise.

 

(b) Spinco shall be liable for 66  ² / 3 % and Alberto-Culver shall be liable for 33  ¹ / 3 % of any sales, transfer, value added or other similar Taxes or fees (including all real estate, patent, copyright and trademark transfer Taxes and real estate recording fees but excluding patent, copyright, and trademark recording fees (which are governed by Section 7.6 of the Merger Agreement) and excluding Restructuring Taxes) payable in connection with the transactions contemplated by the Separation Agreement (the “ Transaction Taxes ”). The parties agree to timely sign and deliver such certificates or forms as are requested by the other party and may be necessary or appropriate to enable such party to file promptly and timely the Tax Returns for such Transaction Taxes with the appropriate Taxing authorities and remit payment of the Transaction Taxes.

 

SECTION 2.05. Period that Includes the Date of Distribution . To the extent permitted or required by Applicable Laws or administrative practice, the Taxable year of the Spinco Group shall be treated as closing at the close of the Distribution Date taking into account the principles of Treasury Regulation Section 1.1502-76(b) or of a corresponding provision under the laws of an applicable state, local, municipal or foreign jurisdiction, except that no “ratable allocation election” for extraordinary items as defined thereunder will be made. Notwithstanding the foregoing, the parties agree that, to the extent permissible by Applicable Laws, they shall allocate Expenses for which Tax benefits are available (such as immediate deductions, amortization or depreciation, increased basis or otherwise) to Spinco’s Post-Distribution Period to the extent that Expense is borne by Spinco or any post-Distribution Affiliate of Spinco; and to the extent such an allocation is not permissible by Applicable Laws, Alberto-Culver agrees to pay over any amount of Tax benefit it determines in good faith that Alberto-Culver realized as a result of such Expenses being allocated to the Pre-Distribution Period. To the extent the Taxable year of the Spinco Group is not permitted or required to be closed by Applicable Laws or administrative practice, such Taxable year shall be deemed to close at the close of the Distribution Date for all purposes under this Agreement. For the avoidance of doubt, any deduction arising by reason of any compensation paid to an employee of Spinco on the Distribution Date (including compensation arising from the exercise of options or the vesting of restricted stock) shall be allocable to the Taxable year ending on the Distribution Date.

 

SECTION 2.06. Tax Attributes . Tax benefit carryforwards to Post-Distribution Periods, including net operating loss carryforwards, net capital loss carryforwards, foreign Tax credit carryforwards and research and development credit carryforwards shall be computed and allocated between the Alberto-Culver Group and the Spinco Group based on the group that generated such item, except to the extent otherwise provided under Applicable Laws.

 

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SECTION 2.07. Carryback Provisions . Unless the parties otherwise agree in writing, Spinco shall elect and shall cause each of the Spinco Subsidiaries to elect, where permitted by Applicable Laws, to carry forward any loss, credit or similar Tax attribute (“Tax Carryover Attribute”) arising in a Post-Distribution Period that could, in the absence of such election, be carried back to a Pre-Distribution Period. Any refund or credit of Taxes resulting from the required carryback of any Tax Carryover Attribute attributable to Spinco arising in a Post-Distribution Period shall be for the account and benefit of Spinco; provided , however , that Alberto-Culver shall only be required to pay such amount to Spinco at the time such amount is actually realized in cash, credit, refund or offset by the Alberto-Culver Group after taking into account all other Tax attributes of the Alberto-Culver Affiliated Group. Any refund, credit or offset of Taxes resulting from the carryback of any Tax Carryover Attribute attributable to Alberto-Culver arising in a Post-Distribution Period shall be for the account and benefit of Alberto-Culver. If Spinco or any Spinco Subsidiary recognizes a Tax Carryover Attribute that, under Applicable Laws, must be carried back to a Pre-Distribution Period during which Spinco or any Spinco Subsidiary joined in filing a Tax Return on a consolidated, combined, or unitary basis with one or more of Alberto-Culver or any Alberto-Culver Subsidiary, Alberto-Culver shall, at Spinco’s expense, file appropriate refund claims within a reasonable period after being requested by Spinco to do so.

 

SECTION 2.08. Allocation of Tax Liability .

 

(a) Responsibility for Unpaid Taxes as of the Distribution Date . For purposes of this Agreement, the “ Retained Tax Amount ” shall equal (i) all accrued and unpaid income Taxes, net of overpaid income Taxes, of Spinco or any of its Subsidiaries for the Pre-Distribution Period that are payable, or refundable, with Tax Returns due after the Distribution Date (other than combined, consolidated or unitary Tax Returns of Spinco or any of its Subsidiaries to the extent such Tax Returns include Alberto-Culver or any Alberto-Culver Subsidiary, which will be paid by, or refundable to, Alberto-Culver or a member of the Alberto-Culver Group) and (ii) an amount equal to $3.9 million as full compensation for Taxes attributable to Pre-Distribution Periods for which Tax Returns have already been filed as of the Distribution Date. Alberto-Culver shall deliver to Spinco, not later than five Business Days prior to the Distribution Date, an estimate of the Retained Tax Amount (the “ Estimated Retained Tax Amount ”), which amount, subject t