EXHIBIT 10.4
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (this "Agreement") is dated as of July 6,
1998, between Silicon Graphics, Inc. ("SGI") and MIPS Technologies, Inc.
WITNESSETH
WHEREAS, SGI is the common parent of an affiliated group of corporations
which includes MIPS Technologies, Inc. (the "SGI Affiliated Group") and which
group and the members thereof file consolidated federal income tax returns as
well as certain consolidated, combined or unitary state income tax returns;
WHEREAS, MIPS Technologies, Inc. is a Member (as hereinafter defined) of
the SGI Affiliated Group;
WHEREAS, the SGI Affiliated Group has filed a consolidated federal income
tax return for its prior taxable years, and intends to file a consolidated
federal income tax return for subsequent years; and
WHEREAS, the parties hereto desire to set forth their agreements with
regard to their respective liabilities for federal, state, local and foreign
taxes for periods ending after the completion of the offering described in the
prospectus dated June 29, 1998 (the "Offering"), and to provide for certain
other tax matters.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
For purposes of this Agreement:
1.1 "Affiliated Group" means an affiliated group as defined in section
1504(a) of the Code.
1.2 "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any law which may be a successor thereto. A
reference to any section of the Code means such section as in effect from time
to time and any comparable provision of the Code or any successor law.
2
1.3 "Effective Period" shall have the meaning set forth in Article 8.1 of
this Agreement.
1.4 "MIPS Technologies, Inc. Subgroup" shall mean the group of
corporations, if any, that would constitute a separate Affiliated Group with
MIPS Technologies, Inc. as the common Parent if MIPS Technologies, Inc. was not
a Member of the SGI Affiliated Group. If no MIPS Technologies, Inc. Subgroup
exists, references to MIPS Technologies, Inc. Subgroup in this Agreement shall
be interpreted as references to MIPS Technologies, Inc..
1.5 "MIPS Technologies, Inc. Subgroup Separate Federal Amount" shall have
the meaning set forth in Article 4.2 of this Agreement.
1.6 "MIPS Technologies, Inc. Subgroup Separate State, Local and Foreign
Amount" shall have the meaning set forth in Article 4.3 of this Agreement.
1.7 "MIPS Technologies, Inc. Subgroup Separate Tax Return Amount" shall
having the meaning set forth in Article 4.1 of this Agreement.
1.8 "IRS" shall mean the Internal Revenue Service.
1.9 "Member" means, with respect to any SGI Consolidated Return Period, an
includible corporation (as defined in section 1504(b) of the Code) in an
Affiliated Group.
1.10 "Parent" means any Member that directly owns stock that possesses more
than 80 percent of the total voting power of the stock of another Member.
1.11 "Regulation" means an income tax regulation promulgated by the U.S.
Treasury Department under the Code. A reference to any section of the
Regulations means such section as in effect from time to time and any comparable
successor regulation.
1.12 "SGI Consolidated Federal Return" shall mean any consolidated federal
income Tax return or amendment thereof of the SGI Affiliated Group for any SGI
Consolidated Return Period.
1.13 "SGI Consolidated Return Period" shall mean any taxable period that
ends within the Effective Period of this Agreement for which a consolidated,
combined or unitary (as applicable) federal, state or local income tax return is
filed or required to be filed by the SGI Affiliated Group.
3
1.14 "SGI Consolidated Tax Liability" means, with respect to any SGI
Consolidated Return Period, the consolidated, combined or unitary Tax (as
defined in Article 1.17 of this Agreement) liability of the SGI Affiliated
Group.
1.15 "SGI State, Local and Foreign Returns" shall have the meaning set
forth in Article 2.2(a) of this Agreement.
1.16 "Subsidiary" means, with respect to any Parent, a Member, the majority
of whose voting stock is owned directly by such Parent.
1.17 "Tax" or "Taxes" shall mean all federal, including alternative minimum
tax and environmental tax, state, local and foreign gross or net income, gross
receipts, withholding, franchise, transfer, estimated or other tax or similar
charges and assessments, including all interest, penalties and additions imposed
with respect to such amounts.
1.18 "Tax Benefit" shall mean, with respect to Taxes, any item of loss,
deduction or credit, including, but not limited to, foreign tax credits,
alternative minimum tax credits, net operating losses and capital losses.
ARTICLE 2 - TAX RETURN FILING
2.1 SGI CONSOLIDATED FEDERAL RETURNS. (a) GENERAL. For any SGI
Consolidated Return Period, SGI shall have sole and exclusive responsibility for
the preparation and filing of all SGI Consolidated Federal Returns and
amendments thereto with the IRS. Such returns shall include all income, gains,
losses, deductions and credits of the MIPS Technologies, Inc. Subgroup.
(b) COOPERATION. The MIPS Technologies, Inc. Subgroup shall furnish SGI,
at least sixty (60) days before the due date (including extensions) of any such
SGI Consolidated Federal Return, with its completed section of such SGI
Consolidated Federal Return, prepared in accordance with this Agreement, in
accordance with instructions from SGI and in a manner consistent with prior
returns, if any, provided that such actions are not inconsistent with this
Agreement. The MIPS Technologies, Inc. Subgroup will also furnish SGI work
papers and other such information and documentation as is reasonable requested
by SGI with respect to the MIPS Technologies, Inc. Subgroup.
2.2 SGI STATE, LOCAL AND FOREIGN RETURNS. (a) GENERAL. For any SGI
Consolidated Return Period, SGI shall have sole and exclusive responsibility for
the preparation and filing of all combined, consolidated or unitary state, local
or foreign income or franchise Tax returns which are required to be filed by SGI
or a Subsidiary of SGI (such returns collectively, the "SGI State, Local and
Foreign Returns").
4
(b) COOPERATION. SGI will timely advise the MIPS Technologies, Inc.
Subgroup of the inclusion of the MIPS Technologies, Inc. Subgroup in any SGI
State, Local and Foreign Returns and the jurisdictions in which such returns
will be filed. The MIPS Technologies, Inc. Subgroup will evidence its agreement
to be included in such return on the appropriate form(s) and will take such
other actions as may be appropriate, in the opinion of SGI, to carry out the
purposes and intent of this Article 2.2, provided that such actions are not
inconsistent with this Agreement. The MIPS Technologies, Inc. Subgroup shall
furnish SGI, at least sixty (60) days before the due date (including extensions)
of any such SGI State, Local and Foreign Returns, with its completed section of
such SGI State, Local and Foreign Returns, prepared in accordance with this
Agreement, in accordance with instructions from SGI and in a manner consistent
with prior returns, if any, provided that such actions are not inconsistent with
this Agreement. MIPS Technologies, Inc. will also furnish SGI work papers and
other such information and documentation as is reasonable requested by SGI with
respect to MIPS Technologies, Inc..
ARTICLE 3 - SGI TAX LIABILITY
3.1 SGI CONSOLIDATED FEDERAL RETURN LIABILITY. Except to the extent
otherwise provided herein, for each SGI Consolidated Return Period, SGI shall be
liable for and indemnify the MIPS Technologies, Inc. Subgroup against all Taxes
due in respect of all SGI Consolidated Federal Returns, subject to reimbursement
from the MIPS Technologies, Inc. Subgroup as contemplated by Article 4 of this
Agreement.
3.2 SGI STATE, LOCAL AND FOREIGN RETURN LIABILITY. Except to the extent
otherwise provided herein, for each SGI State, Local and Foreign Return Period,
SGI shall be liable for and indemnify the MIPS Technologies, Inc. Subgroup
against all Taxes due in respect of all SGI State, Local and Foreign Returns,
subject to reimbursement from the MIPS Technologies, Inc. Subgroup as
contemplated by Article 4 of this Agreement.
ARTICLE 4 - MIPS TECHNOLOGIES, INC. SUBGROUP SEPARATE TAX RETURN AMOUNT
4.1 GENERAL. For any taxable period ending during the Effective Period of
this Agreement, the term "MIPS Technologies, Inc. Subgroup Separate Tax Return
Amount" shall mean the aggregate amount, whether a negative or positive, of (i)
the MIPS Technologies, Inc. Subgroup Separate Federal Amount and (ii) the MIPS
Technologies, Inc. Subgroup Separate State, Local and Foreign Amount, each as
adjusted pursuant to the terms of this Agreement.
4.2 COMPUTATION OF MIPS TECHNOLOGIES, INC. SUBGROUP SEPARATE FEDERAL
AMOUNT. For each SGI Consolidated Return Period that ends during the Effective
Period of this Agreement, the MIPS Technologies, Inc. Subgroup shall compute the
MIPS Technologies, Inc. Subgroup Separate Federal Amount for the portion of such
periods in which MIPS
5
Technologies, Inc. is a Member of the SGI Affiliated Group. "MIPS
Technologies, Inc. Subgroup Separate Federal Amount" means, with respect to
each SGI Consolidated Return Period, the federal Tax liability that would be
payable by the MIPS Technologies, Inc. Subgroup to the IRS (in which case
such amount will be positive), or the federal Tax refund that would be
payable by the IRS to the MIPS Technologies, Inc. Subgroup (in which case
such amount will be negative) IF (1) in the case that no MIPS Technologies,
Inc. Subgroup exists, MIPS Technologies, Inc. had filed a separate federal
income tax return for the SGI Consolidated Return Period or (2) in the case
that a MIPS Technologies, Inc. Subgroup exists, the MIPS Technologies, Inc.
Subgroup had filed a separate consolidated federal income tax return
exclusively with the Members of the MIPS Technologies, Inc. Subgroup for the
SGI Consolidated Return Period. In the event that the MIPS Technologies,
Inc. Subgroup would have a net operating loss, tax credit or other favorable
Tax attribute (a "Tax Attribute) for federal Tax purposes for a particular
SGI Consolidated Return Period that would eliminate the federal Tax liability
of the MIPS Technologies, Inc. Subgroup for such taxable period but would not
yield a federal Tax refund for MIPS Technologies, Inc. on a separate federal
income tax return basis or the MIPS Technologies, Inc. Subgroup on a separate
consolidated federal income tax return basis, the MIPS Technologies, Inc.
Subgroup Separate Federal Amount shall be zero for such taxable period, and
such federal Tax Attribute shall be recoverable, if at all, by MIPS
Technologies, Inc. or the MIPS Technologies, Inc. Subgroup in a subsequent
SGI Consolidated Return Period on such separate return basis, as herein
provided. In computing the MIPS Technologies, Inc. Subgroup Separate Federal
Amount, MIPS Technologies, Inc. and each Member of the MIPS Technologies,
Inc. Subgroup shall follow the Tax elections and other Tax positions adopted
or prescribed by SGI and shall take into account the adjustments and
modifications set forth in Article 4.4 of this Agreement.
4.3 COMPUTATION OF MIPS TECHNOLOGIES, INC. SUBGROUP SEPARATE STATE,
LOCAL AND FOREIGN AMOUNT. For each SGI Consolidated Return Period that ends
on or after the first day of the Effective Period of this Agreement, the MIPS
Technologies, Inc. Subgroup shall compute the MIPS Technologies, Inc.
Subgroup Separate State, Local and Foreign Amount for the portion of such
periods in which MIPS Technologies, Inc. is a Member of the SGI Affiliated
Group. "MIPS Technologies, Inc. Subgroup Separate State, Local and Foreign
Amount" means, with respect to each SGI Consolidated Return Period, the
state, local and foreign Tax liability that would be payable by the MIPS
Technologies, Inc. the applicable taxing authorities (in which case such
amount will be positive), or the state, local and foreign Tax refund that
would be payable by the applicable taxing authorities to MIPS Technologies,
Inc. (in which case such amount will be negative) IF (1) in the case that no
MIPS Technologies, Inc. Subgroup exists, MIPS Technologies, Inc. had filed a
separate state, local and foreign income or franchise tax returns for the SGI
Consolidated Return Period or (2) in the case that a MIPS Technologies, Inc.
Subgroup exists, the MIPS Technologies, Inc. Subgroup had filed combined,
consolidated or unitary state, local or foreign income or franchise tax
returns exclusively with the Members of the MIPS Technologies, Inc. Subgroup
6
for the SGI Consolidated Return Period. In the event that the MIPS
Technologies, Inc. Subgroup would have a net operating loss, tax credit or
other favorable Tax attribute (a "Tax Attribute) for state, local or foreign
Tax purposes for a particular SGI Consolidated Return Period that would
eliminate the state, local or foreign Tax liability of the MIPS Technologies,
Inc. Subgroup for such taxable period but would not yield a state, local or
foreign Tax refund for MIPS Technologies, Inc. on a separate state, local,
foreign or franchise tax return basis or the MIPS Technologies, Inc. Subgroup
on a separate combined, consolidated or unitary state, local or foreign
income or franchise tax return basis, the MIPS Technologies, Inc. Subgroup
Separate State, Local and Foreign Amount shall be zero for such taxable
period, and such state, local or foreign Tax Attribute shall be recoverable,
if at all, by MIPS Technologies, Inc. or the MIPS Technologies, Inc. Subgroup
in a subsequent SGI Consolidated Return Period on such separate return basis,
as herein provided. In computing the MIPS Technologies, Inc. Subgroup
Separate State, Local and Foreign Amount, MIPS Technologies, Inc. and each
Member of the MIPS Technologies, Inc. Subgroup, if any, shall follow the Tax
elections and other Tax positions adopted or prescribed by SGI and shall take
into account the adjustments and modifications set forth in Article 4.4 of
this Agreement.
4.4 ADJUSTMENTS. In computing the MIPS Technologies, Inc. Subgroup
Separate Federal Amount (and to the extent appropriate, the MIPS Technologies,
Inc. Subgroup Separate State, Local and Foreign Amount), MIPS Technologies, Inc.
and each Member of the MIPS Technologies, Inc. Subgroup, if any, shall take into
account the following adjustments and modifications:
(a) The MIPS Technologies, Inc. Subgroup Separate Federal Amount
shall be computed as if MIPS Technologies, Inc. came into
existence in a Code section 351 transaction on the date of the
Offering, and unless otherwise provided, MIPS Technologies, Inc.
shall be deemed not to have existed prior to such date. The MIPS
Technologies, Inc. Subgroup shall not be entitled to any Tax
Benefits of either the SGI Affiliated Group or MIPS Technologies,
Inc. that existed prior to the date of the Offering (a
"Preexisting Tax Benefit").
(b) Dividends from any Member of the SGI Affiliated Group shall be
eliminated.
(c) Items of income, gain, loss or deduction arising from a
transaction described in section 1.1552-1(a)(2)(ii) of the
Treasury Regulations shall be taken into account by the MIPS
Technologies, Inc. Subgroup, respectively, in the same manner and
in the same taxable years as such items are actually taken into
account on the SGI Consolidated Federal Return.
7
(d) Carryforwards and carrybacks of any Tax Benefit shall be
calculated as though SGI were the IRS and the MIPS Technologies,
Inc. Subgroup was a separate Affiliated Group of corporations
filing Tax returns on a consolidated, combined or unitary basis.
(e) Characterization of items of income, expense, gain or loss that
are determined on a consolidated or combined basis in the
calculation of SGI Consolidated Federal Return Liability and SGI
State, Local and Foreign Liability, such as characterizations
under Code section 1231, shall retain their characterization for
purposes of determining the MIPS Technologies, Inc. Subgroup
Separate Federal Amount and the MIPS Technologies, Inc. Subgroup
Separate State, Local and Foreign Amount.
(f) All ordinary income and capital gains shall be deemed to be
subject to Tax at the highest applicable Tax rate applicable to
taxable ordinary income of corporations.
(g) Any exemption or similar items that must be prorated or
apportioned among the component Members of the MIPS Technologies,
Inc. Subgroup shall not be taken into account.
(h) Estimated Tax payments made pursuant to Article 5 of this
Agreement shall not be included in the computation of the MIPS
Technologies, Inc. Subgroup Separate Tax Return Amount.
(i) Other adjustments reasonably specified by SGI and consistent with
this agreement shall be made.
4.5 PAYMENT OF MIPS TECHNOLOGIES, INC. SUBGROUP SEPARATE TAX RETURN
AMOUNT. (a) PAYMENT FROM MIPS TECHNOLOGIES, INC. SUBGROUP TO SGI. For any SGI
Consolidated Return Period covered by this Agreement, if the MIPS Technologies,
Inc. Subgroup Separate Tax Return Amount is a positive amount, MIPS
Technologies, Inc. shall pay such amount to SGI on or before the due date
(without extensions) of the SGI Consolidated Federal Returns for the appropriate
SGI Consolidated Return Period. Such payment shall be reduced by the estimated
Tax payments made by the MIPS Technologies, Inc. Subgroup for such taxable
period pursuant to Article 5 of this Agreement. For administrative or other
reasons, SGI may direct or allow the above payment to be made after the
prescribed date. If all relevant information necessary to determine the amount
of the payment is not available by the due date, the payment shall be based on
estimates, and adjustments shall be made when sufficient information is
available or as soon as practicable after the SGI Consolidated Federal Return
for the appropriate SGI Consolidated Return Period is filed.
8
(b) PAYMENT FROM SGI TO MIPS TECHNOLOGIES, INC. SUBGROUP. For any SGI
Consolidated Return Period covered by this Agreement, if the MIPS Technologies,
Inc. Subgroup Separate Tax Return Amount is a negative amount SGI shall pay to
MIPS Technologies, Inc. the amount that would have been allowed as a net Tax
refund to the MIPS Technologies, Inc. Subgroup on or before the due date
(without extensions) of the SGI Consolidated Federal Returns for the appropriate
SGI Consolidated Return Period. Such payment shall be increased by the
estimated Tax payments made by the MIPS Technologies, Inc. Subgroup for such
taxable period pursuant to Article 5 of this Agreement. For administrative or
other reasons, SGI may decide to make the above payment after the prescribed
date. If all relevant information necessary to determine the amount of the
payment is not available by the due date, the payment shall be based on
estimates, and adjustments shall be made when sufficient information is
available or as soon as practicable after the SGI Consolidated Federal Return
for the appropriate SGI Consolidated Return Period is filed.
ARTICLE 5 - ESTIMATED TAX PAYMENTS
5.1 The MIPS Technologies, Inc. Subgroup shall pay to the SGI quarterly
installments of estimated Tax. The amount of such payments for the first,
second, third and fourth installments shall cumulatively equal 25 percent, 50
percent, 75 percent and 100 percent, respectively, of the estimated full-year
MIPS Technologies, Inc. Subgroup Separate Tax Return Amount (including the
minimum tax and environmental tax). Settlement for such payment shall be made
on or before, or as soon as practicable after, the due date of the applicable
estimated Tax payment to be paid by SGI.
5.2 The MIPS Technologies, Inc. Subgroup shall pay to SGI any and all
interest and penalties imposed on the SGI Affiliated Group as a result of the
underpayment of estimated Tax attributable to the MIPS Technologies, Inc.
Subgroup. For purposes of this Article 5.2, the Chief Financial Officer of SGI
shall determine to which Member or Members of the SGI Affiliated Group the
underpayment is attributable. Such determination of the Chief Financial Officer
shall be final. A payment of such interest and penalties shall not be
considered a payment of estimated Tax.
ARTICLE 6 - ADJUSTMENTS TO SGI CONSOLIDATED TAX LIABILITY
6.1 GENERAL. If any adjustment in the SGI Consolidated Tax Liability is
made as a result of an audit by the IRS, the granting of a claim for refund, a
final decision by a court, the carryback or carryforward of a loss, deduction or
credit or any other similar circumstance, the Tax refund or Tax liability
resulting therefrom, including any interest and penalties (an "Adjustment"),
shall be allocated between the SGI Affiliated Group and the MIPS Technologies,
Inc. Subgroup in accordance with the principles of this Agreement as if such
adjustments had been taken into account in the year to which they relate.
9
6.2 ADJUSTMENT RESULTING IN BASIS INCREASE TO MIPS TECHNOLOGIES, INC.
SUBGROUP. If any Adjustment results in an increase in the adjusted basis of any
asset transferred by SGI to the MIPS Technologies, Inc. Subgroup, the MIPS
Technologies, Inc. Subgroup shall pay to SGI the amount of any Tax benefit
resulting to it by virtue of such basis increase as and when such Tax benefit is
realized. If any Adjustment results in a decrease in the adjusted basis of any
asset transferred by SGI to the MIPS Technologies, Inc. Subgroup, SGI shall pay
to the MIPS Technologies, Inc. Subgroup the amount of any Tax benefit resulting
to SGI by virtue of such basis decrease as and when such Tax benefit is
realized. The preceding sentences shall survive the expiration of the Effective
Period of this Agreement.
ARTICLE 7 - MISCELLANEOUS PROVISIONS
7.1 It is understood and acknowledged that, in accordance with Regulation
Xxxxxxx 0.0000-00, XXX will be the agent for all Members of the SGI Affiliated
Group with respect to all matters referred to therein. SGI shall have authority
to compromise or concede any Tax issues for any SGI Consolidated Return Period.
7.2 If for any reason the application of this Agreement results in an
inequitable and unintended allocation, the General Tax Counsel of SGI shall have
the authority to reallocate items to eliminate or reduce the inequity, provided
such reallocation, to the greatest extent possible, is based on the principles
of this Agreement.
7.3 If the MIPS Technologies, Inc. ceases to be a Member of the SGI
Affiliated Group, this Agreement shall apply with respect to any period in which
the income, losses or other Tax items of MIPS Technologies, Inc. are included in
the SGI Consolidated Tax Return. MIPS Technologies, Inc. shall remain liable to
SGI for payments required under this Agreement, including, but not limited to,
payments of Tax and estimated Tax for periods in which the MIPS Technologies,
Inc. Subgroup's income, losses or other Tax items are included in the SGI
Consolidated Tax Return and payments attributable to adjustments referred to in
Article 6 of this Agreement. Additionally, MIPS Technologies, Inc. shall
cooperate and provide reasonable access to books, records and other information
needed in connection with audits, administrative proceedings, litigation and
other similar matters related to periods in which MIPS Technologies, Inc. was a
member of the SGI Affiliated Group.
7.4 If MIPS Technologies, Inc. ceases to be a Member of the SGI Affiliated
Group, MIPS Technologies, Inc. shall not be entitled to any compensation from
SGI relating to (i) any federal Tax Attributes or (ii) any state, local or
foreign Tax Attributes that have not been utilized by MIPS Technologies, Inc. or
the MIPS Technologies, Inc. Subgroup on a separate return basis in any prior SGI
Consolidated Return Period.
10
7.5 Notwithstanding any other provision of this Agreement, SGI's
obligation to compensate or reimburse the MIPS Technologies, Inc. Subgroup for
its Tax Attributes shall terminate at such time as MIPS Technologies, Inc.
ceases to be a Member of the SGI Affiliated Group.
7.6 If MIPS Technologies, Inc. ceases to be a Member of the SGI Affiliated
Group, MIPS Technologies, Inc. shall pay to SGI the amount of any benefit MIPS
Technologies, Inc. receives from the use of any Preexisting Tax Benefit in any
taxable period after ceasing to be such a Member. The preceding sentence shall
survive the expiration of the Effective Period of this Agreement.
7.7 Any matter not specifically covered by this Agreement shall be handled
in the manner determined by SGI in accordance with the general principles of
this Agreement. Any dispute concerning the interpretation of this Agreement
shall be settled by the Chief Executive Officer, Chief Financial Officer and
General Tax Counsel of SGI.
7.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
ARTICLE 8 - EFFECTIVE PERIOD
8.1 This Agreement shall apply to all taxable periods that begin or end
after the after the date of the Offering, provided that the MIPS Technologies,
Inc. Subgroup is a Member of the SGI Affiliated Group for a portion of such
taxable period (the "Effective Period").
8.2 The termination of this Agreement shall not relieve any party of any
obligation arising hereunder.
* * * * * * *
11
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed and attested.
MIPS TECHNOLOGIES, INC.
By: /s/ Xxxxx X. Xxxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Chief Financial Officer
SILICON GRAPHICS, INC.
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Senior Vice President-
Corporate Operations
