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Exhibit 10.4
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TAX ALLOCATION AGREEMENT
by and between
ROCKWELL INTERNATIONAL CORPORATION
and
CONEXANT SYSTEMS, INC.
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December [31], 1998
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS ................................................. 2
1.01 General ................................................... 2
1.02 Schedules, etc. ........................................... 8
ARTICLE II FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS ............ 9
2.01 Preparation of Tax Returns ................................ 9
2.02 Payment of Taxes .......................................... 12
2.03 Tax Refunds and Carrybacks ................................ 15
2.04 Allocation of Straddle Period Taxes ....................... 17
2.05 Schedule of Foreign Income Tax Returns and Payments ....... 17
ARTICLE III TAX INDEMNIFICATION; TAX CONTESTS ........................... 18
3.01 Indemnification ........................................... 18
3.02 Conexant Tax Acts ......................................... 20
3.03 Notice of Indemnity ....................................... 21
3.04 Payments .................................................. 21
3.05 Tax Contests .............................................. 24
ARTICLE IV COMPENSATION PAYMENTS; OPTIONS; INVENTORY WRITEDOWN; CELERITAS
LITIGATION; CALIFORNIA MANUFACTURER'S INVESTMENT CREDIT 25
4.01 Compensation Payments ..................................... 25
4.02 Stock Options ............................................. 26
4.03 Inventory Writedown ....................................... 28
4.04 Celeritas Litigation ...................................... 29
4.05 Tax Benefit Attributable to California Manufacturers
Investment Credit Carryforward ......................... 29
4.06 Change in Law ............................................. 29
ARTICLE V COOPERATION AND EXCHANGE OF INFORMATION ..................... 30
5.01 Inconsistent Actions ...................................... 30
5.02 Ruling Request ............................................ 30
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5.03 IRS Gain Recognition Agreement; Notification of Certain
Dispositions ........................................... 30
5.04 Cooperation and Exchange of Information ................... 31
5.05 Tax Records ............................................... 32
ARTICLE VI MISCELLANEOUS ............................................... 33
6.01 Entire Agreement; Construction ............................ 33
6.02 Effectiveness ............................................. 33
6.03 Survival of Agreements .................................... 33
6.04 Governing Law ............................................. 33
6.05 Notices ................................................... 33
6.06 Consent to Jurisdiction ................................... 35
6.07 Amendments ................................................ 35
6.08 Successors and Assigns .................................... 36
6.09 Captions; Currency ........................................ 36
6.10 Severability .............................................. 36
6.11 No Third Party Beneficiaries .............................. 36
6.12 Schedules ................................................. 37
6.13 Termination ............................................... 37
6.14 Waivers; Remedies ......................................... 37
6.15 Counterparts .............................................. 37
6.16 Performance ............................................... 37
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TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (this "AGREEMENT") is made and entered
into as of December [31], 1998, by and between ROCKWELL INTERNATIONAL
CORPORATION, a Delaware corporation ("ROCKWELL"), and CONEXANT SYSTEMS, INC., a
Delaware corporation and, as of the date hereof, a wholly-owned subsidiary of
Rockwell ("CONEXANT").
W I T N E S S E T H :
WHEREAS, the Rockwell Board (as hereinafter defined) has determined
that it is appropriate and desirable to distribute all outstanding shares of
Conexant Common Stock (as hereinafter defined) on a pro rata basis to the
holders of Rockwell Common Stock (as hereinafter defined);
WHEREAS, the Rockwell Board has determined that it is appropriate
and desirable to effectuate the Distribution (as hereinafter defined) in a
transaction that will qualify under Section 368(a)(1)(D) of the Code (as
hereinafter defined) as a tax-free reorganization; and
WHEREAS, Rockwell and Conexant wish to provide for and agree upon
the allocation between the Rockwell Tax Group (as hereinafter defined) and the
Conexant Tax Group (as hereinafter defined) of all responsibilities, liabilities
and benefits relating to or affecting Taxes (as hereinafter defined) paid or
payable by either of them for all taxable periods, whether beginning before, on
or after the Distribution Date (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and of the
respective agreements contained in this Agreement, the parties hereto hereby
agree as follows:
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ARTICLE I
DEFINITIONS
1.01 GENERAL. 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):
"ACTUALLY REALIZED" shall mean, for purposes of determining the
timing of any Taxes (or related Tax cost or benefit) relating to any payment,
transaction, occurrence or event, the time at which the amount of Taxes payable
by any person is increased above or reduced below, as the case may be, the
amount of Taxes that such person would be required to pay but for the payment,
transaction, occurrence or event.
"AUTOMOTIVE DISTRIBUTION" shall mean the distribution of the Meritor
Automotive, Inc. common stock on a pro rata basis to holders of Rockwell Common
Stock on September 30, 1997 pursuant to the Distribution Agreement by and
between Rockwell and Meritor Automotive, Inc. dated September 30, 1997.
"AUTOMOTIVE RULING REQUEST" shall mean the private letter ruling
request dated March 17, 1997 filed by Rockwell with the IRS (as modified or
supplemented by any materials submitted to the IRS), seeking rulings that, inter
alia, the Automotive Distribution qualified for U.S. federal Income Tax purposes
as a tax-free reorganization under Section 368(a)(1)(D) of the Code.
"AUTOMOTIVE TRANSACTION AGREEMENTS" shall have the meaning ascribed
thereto in the Distribution Agreement by and between Rockwell and Meritor
Automotive, Inc. dated September 30, 1997.
"BOEING" shall mean The Boeing Company, a Delaware corporation.
"BOEING TAX GROUP" shall mean Boeing and its affiliates.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, or
any successor legislation.
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"COMPENSATION PAYMENTS" shall mean all non-qualified employee
benefit plan and welfare benefit plan payments made by any member of the
Conexant Tax Group under Sections ___________________ of the Employee Matters
Agreement dated as of December [31], 1998 by and between Rockwell and Conexant.
"CONEXANT" shall have the meaning ascribed thereto in the preamble.
"CONEXANT COMMON STOCK" shall mean, collectively, the Common Stock,
par value $1 per share, of Conexant and the related Rights.
"CONEXANT COMMON STOCK OPTIONS" shall mean options to acquire
Conexant Common Stock.
"CONEXANT GROUP EMPLOYEES AND FORMER EMPLOYEES" shall mean
individuals (i) who are employees of any member of the Conexant Tax Group on the
date of the event giving rise to a deduction in respect of any Compensation
Payments made to such individuals or Stock Options held by such individuals,
(ii) who were employees of any member of the Conexant Tax Group and were not
thereafter employees of any member of the Rockwell Tax Group, or (iii) who were
employees of Old Rockwell and its affiliates who were engaged in the Conexant
business and who retired on or before December 6, 1996 and were not thereafter
employees of any member of the Rockwell Tax Group.
"CONEXANT TAX ACT" shall have the meaning set forth in Section
3.02(a).
"CONEXANT TAX GROUP" shall mean (i) Conexant, (ii) any corporation
or other legal entity which Conexant directly or indirectly owns immediately
following the Distribution, (iii) California Solution Networks Corporation, (iv)
Brooktree Technologies Ltd., (v) Brooktree International Ltd., and (vi)
Brooktree Ltd.
"CONEXANT TAX REPRESENTATION LETTER" shall mean the letter delivered
by Conexant to Rockwell on the Distribution Date, substantially in the form set
forth in Schedule 3.02(b) attached hereto.
"DISTRIBUTION" shall mean the distribution of the Conexant Common
Stock on a pro rata basis to holders
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of Rockwell Common Stock on the Distribution Date pursuant to the Distribution
Agreement.
"DISTRIBUTION AGREEMENT" shall mean the Distribution Agreement dated
as of December [31], 1998 by and between Rockwell and Conexant.
"DISTRIBUTION DATE" shall mean the date on which the Distribution
occurs (or, if different, the date on which the Distribution is deemed to occur
for U.S. federal Income Tax purposes). For purposes of this Agreement, the
Distribution shall be deemed effective as of the end of the day on the
Distribution Date.
"DISTRIBUTION TRANSACTION" shall mean any transaction undertaken in
connection with the Distribution and described in the Ruling Request except for
those transactions specified on Schedule 1.01 that are being carried out for
business reasons unrelated to the Distribution.
"FOREIGN INCOME TAX" shall mean any Income Tax other than a U.S.
federal, state or local Income Tax.
"FOREIGN INCOME TAX RETURNS" shall mean any Income Tax Return which
is not a U.S. federal, state or local Income Tax Return.
"INCOME TAX" shall mean (a) any Tax based upon, measured by, or
calculated with respect to (i) net income or profits (including, but not limited
to, any capital gains, minimum Tax and any Tax on items of Tax preference, but
not including sales, use, real or personal property, gross or net receipts,
transfer or similar Taxes) or (ii) multiple bases (including, but not limited
to, corporate franchise, doing business or occupation Taxes) if one or more of
the bases upon which such Tax may be based, measured by, or calculated with
respect to, is described in clause (i) above, or (b) any U.S.
state or local franchise Tax.
"INCOME TAX BENEFIT" shall mean for any taxable period the excess of
(i) the hypothetical Income Tax liability of the taxpayer for the taxable period
calculated as if the Timing Difference or Reverse Timing Difference, as the case
may be, had not occurred but with all other facts unchanged, over (ii) the
actual Income Tax liability of the taxpayer for the taxable period,
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calculated taking into account the Timing Difference or Reverse Timing
Difference, as the case may be (treating an Income Tax refund or credit as a
negative Income Tax liability for purposes of such calculation).
"INCOME TAX DETRIMENT" shall mean for any taxable period the excess
of (i) the actual Income Tax liability of the taxpayer for the taxable period,
calculated taking into account the Timing Difference or Reverse Timing
Difference, as the case may be, over (ii) the hypothetical Income Tax liability
of the taxpayer for the taxable period, calculated as if the Timing Difference
or Reverse Timing Difference, as the case may be, had not occurred but with all
other facts unchanged (treating an Income Tax refund or credit as a negative
Income Tax liability for purposes of such calculation).
"INCOME TAX RETURN" shall mean any Tax Return that relates to Income
Taxes.
"INDEMNITEE" shall have the meaning set forth in Section 3.03.
"INDEMNITOR" shall have the meaning set forth in Section 3.03.
"INDEMNITY ISSUE" shall have the meaning set forth in Section 3.03.
"INVENTORY WRITEDOWN" shall mean the planned 1998 writedown of
inventory by Conexant.
"IRS" shall mean the Internal Revenue Service.
"IRS GAIN RECOGNITION AGREEMENT" shall mean any gain recognition
agreement entered into between the IRS and any member of the Rockwell Tax Group
or the Conexant Tax Group pursuant to Section 367 of the Code and the
regulations thereunder or the Ruling, and any revised or successor agreement
thereto.
"OLD ROCKWELL" shall mean the corporation, formerly named Rockwell
International Corporation, which owned all of the Rockwell Common Stock prior to
the distribution of the Rockwell Common Stock to the shareholders of such
corporation on December 6, 1996.
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"PRE-DISTRIBUTION TAXABLE PERIOD" shall mean a taxable period ending
on or before the Distribution Date.
"POST-DISTRIBUTION TAX ACT" shall have the meaning set forth in
Section 3.01(a).
"POST-DISTRIBUTION TAXABLE PERIOD" shall mean a taxable period
beginning after the Distribution Date.
"POST-TAX INDEMNIFICATION PERIOD" shall mean any Post-Distribution
Taxable Period and that portion of any Straddle Period that begins on the day
after the Distribution Date.
"REVERSE TIMING DIFFERENCE" shall mean an increase in income, gain
or recapture, or a decrease in deduction, loss or credit, as calculated for
Income Tax purposes, of the taxpayer for the Tax Indemnification Period coupled
with an increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for any Post-Tax Indemnification Period.
"RIGHTS" shall have the meaning ascribed thereto in the Distribution
Agreement.
"ROCKWELL" shall have the meaning ascribed thereto in the preamble.
"ROCKWELL BOARD" shall mean the Board of Directors of Rockwell or a
duly authorized committee thereof.
"ROCKWELL COMMON STOCK" shall mean the Common Stock, par value $1.00
per share, of Rockwell.
"ROCKWELL COMMON STOCK OPTIONS" shall mean options to acquire
Rockwell Common Stock.
"ROCKWELL TAX GROUP" shall mean (i) Rockwell, (ii) any corporation
or other legal entity which Rockwell directly or indirectly owns immediately
following the Distribution, (iii) any other corporation or other legal entity
which Rockwell or Old Rockwell directly or indirectly owned at any time prior to
the Distribution (but only with respect to the period such corporation or other
entity was so owned by Rockwell or Old Rockwell) other than a member of the
Conexant Tax Group, and (iv) solely for purposes of this Agreement and not for
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purposes of any other Transaction Agreement, for any taxable period up to or
including December 6, 0000, Xxx Xxxxxxxx and any other corporation or legal
entity owned by Old Rockwell other than a member of the Conexant Tax Group.
"RULING" shall mean the private letter ruling issued by the IRS in
reply to the Ruling Request including any amendment or supplement thereto.
"RULING REQUEST" shall mean the private letter ruling request dated
June 29, 1998 filed by Rockwell with the IRS (as modified or supplemented by any
materials submitted to the IRS), seeking rulings that, inter alia, the
Distribution will qualify for U.S. federal Income Tax purposes as a tax-free
reorganization under Section 368(a)(1)(D) of the Code.
"STOCK OPTIONS" shall mean Conexant Common Stock Options or Rockwell
Common Stock Options.
"STRADDLE PERIOD" shall mean a taxable period that includes but does
not end on the Distribution Date.
"TAX" and "TAXES" shall mean all forms of taxation, whenever created
or imposed, and whether of the United States or elsewhere, and whether imposed
by a federal, state, municipal, governmental, territorial, local, foreign or
other body, and without limiting the generality of the foregoing, shall include
net income, gross income, gross receipts, sales, use, value added, ad valorem,
transfer, recording, franchise, profits, license, lease, service, service use,
payroll, wage, withholding, employment, unemployment insurance, workers
compensation, social security, excise, severance, stamp, business license,
business organization, occupation, premium, property, environmental, windfall
profits, customs, duties, alternative minimum, estimated or other taxes, fees,
premiums, assessments or charges of any kind whatever imposed or collected by
any governmental entity or political subdivision thereof, together with any
related interest and any penalties, additions to such tax or additional amounts
imposed with respect thereto by any Tax Authority.
"TAX AUTHORITY" shall mean, with respect to any Tax, any
governmental entity, quasi-governmental body or political subdivision thereof
that imposes such Tax and
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the agency (if any) charged with the determination or collection of such Tax for
such entity, body or subdivision.
"TAX GROUP" shall mean the Rockwell Tax Group or the Conexant Tax
Group, as the case may be.
"TAX INDEMNIFICATION PERIOD" shall mean any Pre-Distribution Taxable
Period and that portion of any Straddle Period that ends on the Distribution
Date.
"TAX RETURN" shall mean any return, filing, questionnaire,
information return, election or other document required or permitted to be
filed, including requests for extensions of time, filings made with respect to
estimated tax payments, claims for refund and amended returns that may be filed,
for any period with any Tax Authority (whether domestic or foreign) in
connection with any Tax (whether or not a payment is required to be made with
respect to such filing).
"TIMING DIFFERENCE" means an increase in income, gain or recapture,
or a decrease in deduction, loss or credit, as calculated for Income Tax
purposes, of the taxpayer for any Post-Tax Indemnification Period coupled with
an increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for the Tax Indemnification Period.
"TRANSACTION AGREEMENTS" shall have the meaning ascribed thereto in
the Distribution Agreement.
Any capitalized term not otherwise defined in this Agreement shall
have the meaning ascribed to it in the Distribution Agreement.
1.02 SCHEDULES, ETC. References to a "SCHEDULE" are, unless
otherwise specified, to the Schedule attached to this Agreement; references to
"SECTION" or "Article" are, unless otherwise specified, to one of the Sections
or Articles of this Agreement; references to "SUB-SECTION" are, unless the
context otherwise requires, references to the section in which the reference
appears; and references to this Agreement include the Schedules.
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ARTICLE II
FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS
2.01 PREPARATION OF TAX RETURNS.
(a) UNITED STATES FEDERAL INCOME TAX RETURNS. Rockwell shall prepare
and file or cause to be prepared and filed all U.S. federal Income Tax Returns
(including amendments thereto) which include a member of the Rockwell Tax Group
or a member of the Conexant Tax Group which are required to be filed for any
Pre-Distribution Taxable Period. Conexant hereby irrevocably designates, and
agrees to cause each of its affiliates to so designate, Rockwell as its agent to
take any and all actions necessary or incidental to the preparation and filing
of such U.S. federal Income Tax Returns.
(b) UNITED STATES STATE AND LOCAL INCOME TAX RETURNS. (i) Rockwell
shall prepare and file or cause to be prepared and filed all U.S. state and
local Income Tax Returns (including amendments thereto) (A) which are required
to be filed for any Pre-Distribution Taxable Period which include a member of
the Rockwell Tax Group or a member of the Conexant Tax Group and (B) which are
required to be filed for any Straddle Period which (I) relate to a member or
members of the Rockwell Tax Group or their respective businesses, assets or
activities, (II) relate to members of each of the Rockwell Tax Group (other than
Rockwell Science Center, LLC, Rockwell Electronic Commerce Corporation and
Rockwell Xxxxxxx Filter Products Corporation) and the Conexant Tax Group or
their respective businesses, assets or activities, or (III) relate to a member
of the Conexant Tax Group for a period in which such member conducts or has
conducted both a Conexant business and a non-Conexant business (other than a
business being conducted by Rockwell Science Center, LLC, Rockwell Electronic
Commerce Corporation and Rockwell Xxxxxxx Filter Products Corporation). Conexant
hereby irrevocably designates, and agrees to cause each of its affiliates to so
designate, Rockwell as its agent to take any and all actions necessary or
incidental to the preparation and filing of such U.S. state and local Income Tax
Returns.
(ii) All U.S. state and local Income Tax Returns (including
amendments thereto) which relate to a member of the Conexant Tax Group or their
respective
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businesses, assets or activities for all Straddle Periods which are not the
responsibility of the Rockwell Tax Group shall be the responsibility of the
Conexant Tax Group.
(c) FOREIGN INCOME TAX RETURNS. (i) Conexant shall prepare and file
or cause to be prepared and filed all Foreign Income Tax Returns which are
required to be filed for any Pre-Distribution Taxable Period or any Straddle
Period which relate to the entities set forth on Schedule 2.01(c) attached
hereto. Rockwell hereby irrevocably designates, and agrees to cause each of its
affiliates to so designate, Conexant as its agent to take any and all actions
necessary or incidental to the preparation and filing of such Foreign Income Tax
Returns.
(ii) Rockwell shall prepare and file or cause to be prepared and
filed all Foreign Income Tax Returns (including amendments thereto) which
include a member of the Conexant Tax Group which are required to be filed for
any Pre-Distribution Taxable Period or any Straddle Period which relate to the
entities set forth on Schedule 2.01(c) attached hereto. Conexant hereby
irrevocably designates, and agrees to cause each of its affiliates to so
designate, Rockwell as its agent to take any and all actions necessary or
incidental to the preparation and filing of such Foreign Income Tax Returns.
(d) NON-INCOME TAX RETURNS. (i) All Tax Returns (including
amendments thereto) which are not Income Tax Returns for all Pre-Distribution
Taxable Periods and all Straddle Periods shall be the responsibility of the
Rockwell Tax Group if such Tax Returns (A) relate to a member or members of the
Rockwell Tax Group or their respective businesses, assets or activities, (B)
relate to members of each of the Rockwell Tax Group and the Conexant Tax Group
or their respective businesses, assets or activities, or (C) relate to a member
of the Conexant Tax Group for a period in which such member conducts or has
conducted both a Conexant business and a non-Conexant business. Conexant hereby
irrevocably designates, and agrees to cause each of its affiliates to so
designate, Rockwell as its agent to take any and all actions necessary or
incidental to the preparation and filing of such Tax Returns.
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(ii) All Tax Returns (including amendments thereto) which are not
Income Tax Returns which relate to a member of the Conexant Tax Group or their
respective businesses, assets or activities for all Pre-Distribution Taxable
Periods and Straddle Periods which are not the responsibility of the Rockwell
Tax Group shall be the responsibility of the Conexant Tax Group.
(e) POST-DISTRIBUTION DATE TAX RETURNS. All Tax Returns (including
amendments thereto) for all Post-Distribution Taxable Periods shall be the
responsibility of the Rockwell Tax Group if such Tax Returns relate to a member
or members of the Rockwell Tax Group or their respective businesses, assets or
activities, and shall be the responsibility of the Conexant Tax Group if such
Tax Returns relate to a member or members of the Conexant Tax Group or their
respective businesses, assets or activities.
(f) CONSISTENT WITH PAST PRACTICE; REVIEW BY NON-RESPONSIBLE PARTY.
Unless Rockwell and Conexant otherwise agree in writing, all Tax Returns
(including amendments thereto) described in this Section 2.01 filed after the
date of this Agreement, in the absence of a controlling change in law or
circumstances, shall be prepared on a basis consistent with the elections,
accounting methods, conventions and principles of taxation used for the most
recent taxable periods for which Tax Returns involving similar matters have been
filed. Upon the request of the non-responsible party, the party responsible
under this Section 2.01 for preparation of a particular Tax Return shall make
available a draft of such Tax Return (or relevant portions thereof) for review
and comment by such non-responsible party. Subject to the provisions of this
Agreement, all decisions relating to the preparation of Tax Returns shall be
made in the sole discretion of the party responsible under this Agreement for
such preparation.
(g) RESPONSIBILITY FOR FILING. Although, pursuant to this Agreement,
Rockwell or Conexant may be responsible for filing a particular Tax Return,
Rockwell and Conexant have agreed that the actual preparation and filing of
certain Tax Returns will be done by the non-responsible party. Schedule 2.01(g)
attached hereto sets forth a schedule specifying such Tax Returns. Rockwell
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and Conexant may agree from time to time to additions or deletions from Schedule
2.01(g).
2.02 PAYMENT OF TAXES.
(a) UNITED STATES FEDERAL INCOME TAXES. Except as otherwise provided
in this Agreement, Rockwell shall pay or cause to be paid, on a timely basis,
all Taxes due with respect to the consolidated U.S. federal Income Tax liability
for all Pre-Distribution Taxable Periods of all members of the Rockwell Tax
Group or the Conexant Tax Group.
(b) UNITED STATES STATE AND LOCAL INCOME TAXES. Except as otherwise
provided in this Agreement:
(i) Rockwell shall pay or cause to be paid, on a timely basis, all
Taxes due with respect to the U.S. state and local Income Tax liability (A) for
all Pre-Distribution Taxable Periods of all members of the Rockwell Tax Group or
the Conexant Tax Group and (B) for all Straddle Periods which relate to (I) a
member or members of the Rockwell Tax Group or their respective businesses,
assets or activities, (II) members of each of the Rockwell Tax Group (other than
Rockwell Science Center, LLC, Rockwell Electronic Commerce Corporation and
Rockwell Xxxxxxx Filter Products Corporation) and the Conexant Tax Group or
their respective businesses, assets or activities, or (III) a member of the
Conexant Tax Group for a period in which such member conducts or has conducted
both a Conexant business and a non-Conexant business (other than a business
being conducted by Rockwell Science Center, LLC, Rockwell Electronic Commerce
Corporation and Rockwell Xxxxxxx Filter Products Corporation), provided,
however, that Conexant, on behalf of the Conexant Tax Group, hereby assumes and
agrees to pay directly to or at the direction of Rockwell, at least two days
prior to the date payment (including estimated payment) thereof is due, the
portion of such U.S. state and local Income Taxes for that portion of any
Straddle Period which begins on the day after the Distribution Date which
relates to a member of the Conexant Tax Group or its business, assets or
activities.
(ii) Conexant shall pay or cause to be paid, on a timely basis, all
U.S. state and local Income Taxes for all Straddle Periods which relate to a
member of the Conexant Tax Group, its business, assets or activities
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which are not the responsibility of the Rockwell Tax Group other than any U.S.
state and local Income Taxes imposed in connection with the transactions
contemplated by the Transaction Agreements or any other agreement entered into
for the purpose of implementing the Distribution, provided, however, that
Rockwell, on behalf of the Rockwell Tax Group, hereby assumes and agrees to pay
directly to or at the direction of Conexant, at least two days prior to the date
payment (including estimated payment) thereof is due, the portion of such U.S.
state and local Income Taxes actually due which relates to Rockwell Science
Center, LLC, Rockwell Electronic Commerce Corporation, and Rockwell Xxxxxxx
Filter Products Corporation or their business, assets or activities.
(c) FOREIGN INCOME TAXES. Except as otherwise provided in this
Agreement:
(i) Conexant shall pay or cause to be paid, on a timely basis, all
Foreign Income Taxes due with respect to Foreign Income Tax liability for all
Pre-Distribution Taxable Periods and all Straddle Periods which relate to the
entities set forth on Schedule 2.01(c) attached hereto, provided, however,
Rockwell, on behalf of the Rockwell Tax Group, hereby assumes and agrees to pay
directly to or at the direction of Conexant, at least two days prior to the date
payment (including estimated payment) thereof is due such Foreign Income Tax
liability resulting from any Distribution Transaction; and
(ii) Except as provided in Section 2.02(c)(i) above, Rockwell shall
pay or cause to be paid, on a timely basis, all Foreign Income Taxes due with
respect to the Income Tax liability of all members of the Conexant Tax Group or
Rockwell Tax Group for all Pre-Distribution Taxable Periods and Straddle
Periods, provided, however, that Conexant, on behalf of the Conexant Tax Group,
hereby assumes and agrees to pay directly to or at the direction of Rockwell, at
least two days prior to the date payment (including estimated payment) thereof
is due (A) the portion of such Foreign Income Taxes for that portion of any
Straddle Period which begins on the day after the Distribution Date which
relates to a member of the Conexant Tax Group or its business, assets or
activities and (B) any such Foreign Income Taxes which may be due as a result of
any transaction specified on Schedule 1.01.
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(d) NON-INCOME TAXES. Except as otherwise provided in this
Agreement:
(i) Rockwell shall pay or cause to be paid, on a timely basis, all
Taxes due with respect to the non-Income Tax liability for all Pre-Distribution
Taxable Periods and Straddle Periods which relate to (A) a member or members of
the Rockwell Tax Group or their respective businesses, assets or activities, (B)
members of each of the Rockwell Tax Group and the Conexant Tax Group or their
respective businesses, assets or activities, or (C) a member of the Conexant Tax
Group for a period in which such member conducts or has conducted both a
Conexant business and a non-Conexant business, provided, however, that Conexant,
on behalf of the Conexant Tax Group, hereby assumes and agrees to pay directly
to or at the direction of Rockwell, at least two days prior to the date payment
(including estimated payment) thereof is due the portion of such non-Income
Taxes which relates to a member of the Conexant Tax Group (other than such
non-Income Taxes which relate to the Science Center, ECD or the filter products
business) or the Conexant business, assets or activities for such
Pre-Distribution Taxable Periods and Straddle Periods other than any such
non-Income Taxes resulting from any Distribution Transaction; and
(ii) Conexant shall pay or cause to be paid, on a timely basis, all
non-Income Taxes for all Pre-Distribution Taxable Periods and Straddle Periods
which relate to the Conexant Tax Group business, assets or activities which are
not the responsibility of the Rockwell Tax Group other than any non-Income Taxes
imposed in connection with the transactions contemplated by the Transaction
Agreements or any other agreement entered into for the purpose of implementing
the Distribution.
(e) POST-DISTRIBUTION DATE TAXES. Except as otherwise provided in
this Agreement, all Taxes for all Post-Distribution Taxable Periods shall be
paid or caused to be paid by the party responsible under this Agreement for
filing the Tax Return pursuant to which such Taxes are due or, if no such Tax
Returns are due, by the party liable for such Taxes.
(f) CREDIT FOR PRIOR TAX PAYMENTS. To the extent any member of a Tax
Group has made a payment of
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Taxes (including estimated Taxes) on or before the Distribution Date, the party
liable for paying such Taxes under this Agreement shall be entitled to treat the
payment as having been paid or caused to have been paid by such party, and such
party shall not be required to reimburse the party which actually paid such
Taxes.
(g) RESPONSIBILITY FOR PAYMENT; NOTICE OF PAYMENT DUE. Although
Rockwell or Conexant may be responsible for paying a particular Tax liability,
Rockwell and Conexant may agree that the actual payment to a Taxing Authority of
certain Tax liabilities will be made by the non-responsible party. Rockwell and
Conexant may agree to prepare a schedule setting forth such Tax liabilities and
may agree from time to time to additions or deletions from such schedule. In
each case where Rockwell or Conexant, as the case may be, is required to make
payment of Taxes to the other party, Rockwell or Conexant, as the case may be
shall notify the other party as to the amount of Taxes due from the other party
at least five days prior to the date payment (including estimated payment) is
due.
2.03 TAX REFUNDS AND CARRYBACKS.
(a) RETENTION AND PAYMENT OF TAX REFUNDS. Except as otherwise
provided in this Agreement, Rockwell shall be entitled to retain, and to receive
within ten days after Actually Realized by the Conexant Tax Group, the portion
of all refunds or credits of Taxes for which the Rockwell Tax Group is liable
pursuant to Section 2.02 or Section 3.01(a) or is treated as having paid or
caused to have been paid pursuant to Section 2.02(f), and Conexant shall be
entitled to retain, and to receive within ten days after Actually Realized by
the Rockwell Tax Group, the portion of all refunds or credits of Taxes for which
the Conexant Tax Group is liable pursuant to Section 2.02 or Section 3.01(b)
(including all non-Income Taxes for which Conexant would have been liable
pursuant to Section 2.02(d) had such non-Income Taxes been due and not paid) or
is treated as having paid or caused to have been paid pursuant to Section
2.02(f). The amount of any refund or credit of Taxes to which Rockwell or
Conexant is entitled to retain or receive pursuant to the foregoing sentence
shall be reduced to take account of any Taxes incurred by the Conexant Tax
Group, in the case of a refund or credit to which Rockwell is entitled, or the
Rockwell Tax Group, in the case of a refund or credit
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to which Conexant is entitled, upon the receipt of such refund or credit.
(b) CARRYBACKS. Unless the parties otherwise agree in writing,
Conexant shall elect and shall cause each member of the Conexant Tax Group to
elect, where permitted by law, to carry forward any net operating loss, net
capital loss, charitable contribution or other item arising after the
Distribution Date that could, in the absence of such election, be carried back
to a Pre-Distribution Taxable Period. Except as otherwise provided in this
Agreement, notwithstanding the provisions of Section 2.03(a), (i) any refund or
credit of Taxes resulting from the carryback of any item of Taxes attributable
to the Conexant Tax Group arising in a Post-Tax Indemnification Period to a Tax
Indemnification Period shall be for the account and benefit of the Conexant Tax
Group, and (ii) any refund or credit of Taxes resulting from the carryback of
any item of Taxes attributable to the Rockwell Tax Group arising in a Post-Tax
Indemnification Period to a Tax Indemnification Period shall be for the account
and benefit of the Rockwell Tax Group.
(c) REFUND CLAIMS. Rockwell shall be permitted to file at Rockwell's
sole expense, and Conexant shall reasonably cooperate with Rockwell in
connection with, any claims for refund of Taxes to which Rockwell is entitled
pursuant to this Section 2.03 or any other provision of this Agreement. Rockwell
shall reimburse Conexant for any reasonable out-of-pocket costs and expenses
incurred by any member of the Conexant Tax Group in connection with such
cooperation. Conexant shall be permitted to file at Conexant's sole expense, and
Rockwell shall reasonably cooperate with Conexant in connection with, any claims
for refunds of Taxes to which Conexant is entitled pursuant to this Section 2.03
or any other provision of this Agreement. Conexant shall reimburse Rockwell for
any reasonable out-of-pocket costs and expenses incurred by any member of the
Rockwell Tax Group in connection with such cooperation.
2.04 ALLOCATION OF STRADDLE PERIOD TAXES. In the case of any
Straddle Period:
(a) the Taxes of a member of the Rockwell Tax Group or the Conexant
Tax Group or its business, assets or activities for that portion of any Straddle
Period
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beginning after the Distribution Date (other than Taxes described in 2.04(a)
above) shall be computed on a "closing-of-the-books" basis as if such taxable
period began on the day after the Distribution Date, and, in the case of any
Taxes of a member of the Rockwell Tax Group or the Conexant Tax Group or its
business with respect to any equity interest in any partnership or other
"flowthrough" entity, as if a taxable period of such partnership or other
"flowthrough" entity began as of the day after the Distribution Date; and
(b) the Taxes of the Rockwell Tax Group and the Conexant Tax Group
with respect to any Tax Return for a Straddle Period which includes a member of
each of the Rockwell Tax Group and the Conexant Tax Group or their respective
businesses, assets or activities shall be allocated between the Rockwell Tax
Group, on the one hand, and the Conexant Tax Group, on the other hand,
determined in a manner analogous to that set forth in Treasury Regulation
Section 1.1552-1(a)(2).
2.05 SCHEDULE OF FOREIGN INCOME TAX RETURNS AND PAYMENTS. Following
the Distribution Date, Rockwell and Conexant agree to use their best efforts to
jointly prepare a schedule showing (a) each Foreign Income Tax Return required
to be filed by a member of the Rockwell Tax Group and each Foreign Income Tax
Return required to be filed by a member of the Conexant Tax Group for taxable
periods ending after [September 30, 1998] and (b) the party responsible for
filing such Foreign Income Tax Returns.
ARTICLE III
TAX INDEMNIFICATION; TAX CONTESTS
3.01 INDEMNIFICATION.
(a) ROCKWELL INDEMNIFICATION. Subject to Section 3.01(b) and Section
3.02, Rockwell shall indemnify, defend and hold harmless each member of the
Conexant Tax Group and each of their respective shareowners, directors,
officers, employees and agents and each of the heirs, executors, successors and
assigns of any of the foregoing from and against:
(i) all Taxes of the Rockwell Tax Group;
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(ii) all Taxes of the Conexant Tax Group for all Pre-Distribution
Taxable Periods and all Straddle Periods for which Rockwell is liable pursuant
to Section 2.02;
(iii) all liability as a result of Treasury Regulation Section
1.1502-6(a) (which imposes several liability on members of an affiliated group
that file a U.S. federal consolidated Income Tax return) or comparable U.S.
state or local provision for Income Taxes of any person which is or has ever
been affiliated with any member of the Rockwell Tax Group or with which any
member of the Rockwell Tax Group joins or has ever joined (or is or has ever
been required to join) in filing any consolidated, combined or unitary Income
Tax Return for any Tax period ending on or before or including the Distribution
Date;
(iv) all Taxes for any Tax period (whether beginning before, on or
after the Distribution Date) that would not have been payable but for the breach
by any member of the Rockwell Tax Group of any representation, warranty,
covenant or obligation under this Agreement;
(v) all liability for a breach by any member of the Rockwell Tax
Group of any representation, warranty, covenant or obligation under this
Agreement;
(vi) all Income Taxes and non-Income Taxes imposed in connection
with the transactions contemplated by the Transaction Agreements or any other
agreement entered into for the purpose of implementing the Distribution [other
than any transaction specified on Schedule 1.01];
(vii) all Taxes for which Rockwell is liable pursuant to Section
3.02; and
(viii) all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to the foregoing.
Notwithstanding the foregoing and subject to Section 3.01(b) and Section 3.02,
Rockwell shall not indemnify, defend or hold harmless any member of the Conexant
Tax Group from any liability for Taxes (other than Taxes resulting from (I) the
failure of the Distribution to qualify as a reorganization described in
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Section 368(a)(1)(D) of the Code, (II) the failure of the Distribution to
qualify as tax-free to Rockwell under Section 361(c) of the Code or (III) the
failure of any pre-Distribution transaction specified in Schedule 3.01 to be
non-taxable) attributable to any action (including the making of an election
under Section 338 of the Code) taken by any member of the Conexant Tax Group
after the Distribution (other than any such action expressly required or
otherwise expressly contemplated by the Transaction Agreements or any other
agreement entered into for the purpose of implementing the Distribution or taken
in the ordinary course of business) (a "POST-DISTRIBUTION TAX ACT").
(b) CONEXANT INDEMNIFICATION. Conexant shall be liable for, and
shall indemnify, defend and hold harmless each member of the Rockwell Tax Group
and each of the respective shareowners, directors, officers, employees and
agents and each of the heirs, executors, successors and assigns of any of the
foregoing from and against:
(i) all Taxes of any member of the Conexant Tax Group (other than
Taxes for which Rockwell provides indemnification pursuant to Section 3.01(a));
(ii) all Taxes for any Tax period (whether beginning before, on or
after the Distribution Date) that would not have been payable but for the breach
by any member of the Conexant Tax Group of any representation, warranty,
covenant or obligation under this Agreement;
(iii) all liability for a breach by any member of the Conexant Tax
Group of any representation, warranty, covenant or obligation under this
Agreement;
(iv) all Taxes for which Conexant is liable pursuant to Section
3.02;
(v) all Taxes arising under any IRS Gain Recognition Agreement
specified in Schedule 5.03 or any revised or successor agreement thereto;
(vi) all Taxes attributable to a Post-Distribution Tax Act; and
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(vii) all liability for any reasonable legal, accounting, appraisal,
consulting or similar fees and expenses relating to the foregoing.
3.02 CONEXANT TAX ACTS.
(a) Notwithstanding Section 3.01, Conexant agrees to indemnify,
defend and hold harmless each member of the Rockwell Tax Group and each of the
respective shareowners, directors, officers, employees and agents and each of
the heirs, executors, successors and assigns of any of the foregoing from and
against any Taxes resulting from any Conexant Tax Act which causes (i) the
Distribution to fail to qualify as a reorganization described in Section
368(a)(1)(D) of the Code, (ii) the Distribution to fail to qualify as tax-free
to Rockwell under Section 361(c) of the Code, or (iii) any pre-Distribution
transaction specified in Schedule 3.01 undertaken in connection with the
Distribution or the Automotive Distribution to become taxable. A Conexant Tax
Act shall mean any action specified on Schedule 3.02(a) attached hereto.
(b) Conexant shall, and shall cause each member of the Conexant Tax
Group to, comply with and take no action inconsistent with the Conexant Tax
Representation Letter, unless, pursuant to a favorable ruling letter obtained
from the IRS which is satisfactory to Rockwell or the advice of Xxxxxxxxxx &
Xxxxx LLP or other nationally recognized tax counsel to Rockwell, which advice
shall be satisfactory to Rockwell, such act or omission would not adversely
affect the U.S. federal Income Tax consequences of the Distribution to Rockwell
or the shareowners of Rockwell. Notwithstanding Sections 3.01(b)(iii),
3.01(b)(iv) and 3.01(b)(vi), the parties intend that the sole remedy for breach
of the covenants contained in this Section 3.02(b) shall be as set forth in
Section 3.02(a).
(c) Notwithstanding the foregoing, a Conexant Tax Act shall not
include any transaction or action specifically disclosed or specifically
described in any of the Transaction Agreements or, except as specifically set
forth in Schedule 3.01 occurring on or prior to the Distribution Date, any
action taken on or prior to the Distribution Date. A Conexant Tax Act shall not
include any action on the part of any member of the Rockwell Tax Group. Rockwell
agrees to indemnify and hold each member
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of the Conexant Tax Group harmless from and against any Taxes resulting from the
failure of the Distribution to qualify (i) as a reorganization described in
Section 368(a)(1)(D) of the Code or (ii) as tax-free to Rockwell under Section
361(c) of the Code, except where such failure is attributable to a Conexant Tax
Act.
3.03 NOTICE OF INDEMNITY. Whenever a party hereto (hereinafter an
"INDEMNITEE") becomes aware of the existence of an issue raised by any Tax
Authority which could reasonably be expected to result in a determination that
would increase the liability for any Tax of the other party hereto or any member
of its Tax Group for any Tax period or require a payment hereunder by the other
party (hereinafter an "INDEMNITY ISSUE"), the Indemnitee shall in good faith
promptly give notice to such other party (hereinafter the "INDEMNITOR") of such
Indemnity Issue. The failure of the Indemnitee to give such notice shall not
relieve the Indemnitor of its obligations under this Agreement, except to the
extent such Indemnitor or a member of its Tax Group is actually prejudiced by
such failure to give notice.
3.04 PAYMENTS.
(a) TIMING ADJUSTMENTS. (i) Timing Differences. If a Tax audit
proceeding or an amendment of a Tax Return results in a Timing Difference, and
such Timing Difference results in a decrease in an indemnity obligation Rockwell
has or would otherwise have under Section 3.01(a) and/or an increase in the
amount of a Tax refund or credit to which Rockwell is entitled under Section
2.03, then in each Post-Tax Indemnification Period in which the Conexant Tax
Group Actually Realizes an Income Tax Detriment, Rockwell shall pay to Conexant
an amount equal to such Income Tax Detriment; provided, however, that the
aggregate payments which Rockwell shall be required to make under this Section
3.04(a)(i) with respect to any Timing Difference shall not exceed the aggregate
amount of the Income Tax Benefits realized by the Rockwell Tax Group for all
taxable periods and the Conexant Tax Group for all Tax Indemnification Periods
as a result of such Timing Difference. Rockwell shall make all such payments
within ten days after Conexant notifies Rockwell that the relevant Income Tax
Detriment has been Actually Realized.
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(ii) Reverse Timing Differences. If a Tax audit proceeding or an
amendment to a Tax Return results in a Reverse Timing Difference, and such
Reverse Timing Difference results in an increase in an indemnity payment
obligation of Rockwell under Section 3.01 and/or a decrease in the amount of a
Tax refund or credit to which Rockwell is or would otherwise be entitled under
Section 2.03, then in each Post-Tax Indemnification Period in which the Conexant
Tax Group Actually Realizes an Income Tax Benefit, Conexant shall pay to
Rockwell within ten days after Conexant has Actually Realized such Income Tax
Benefit an amount equal to such Income Tax Benefit, provided, however, that the
aggregate payments which Conexant shall be required to make under this Section
3.04(a)(ii) with respect to Reverse Timing Differences shall not exceed the
aggregate amount of the Income Tax Detriments realized by the Conexant Tax Group
and the Rockwell Tax Group for all Tax Indemnification Periods as a result of
such Reverse Timing Difference.
(b) TIME FOR PAYMENT. Except as otherwise provided in this Section
3.04(b), any indemnity payment required to be made pursuant to this Agreement
shall be paid within thirty days after the indemnified party makes written
demand upon the indemnifying party, provided that in no event shall such payment
be required to be made earlier than five business days prior to the date on
which the relevant Taxes (including estimated Taxes) are required to be paid (or
would be required to be paid if no such Taxes are due) to the relevant Tax
Authority. Notwithstanding any other provision in this Agreement, to simplify
the administration of this Agreement, the payment of any amount less than
$100,000 required to be made pursuant to this Agreement by one party hereto to
another party hereto need not be made to such other party prior to thirty days
following the later of (i) the close of the calendar quarter during which such
payment obligation arose and (ii) the day during such calendar quarter when the
aggregate amount of all such less than $100,000 payment obligations arising
during such calendar quarter exceeds $500,000. Unless otherwise specified by the
recipient for items exceeding $250,000, any such payment may be made on a net
Tax basis (i.e., reduced to take account of any net Tax benefit to be realized
by the recipient (computed at the effective Tax rate set forth in Section
3.04(c)) to the extent such recipient is entitled to a corresponding deduction.
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(c) PAYMENTS NET OF TAXES AND TAX BENEFITS. The amount of any
payment under this Agreement shall be (i) reduced to take into account any net
Tax benefit realized by the recipient's Tax Group arising from the incurrence or
payment by such recipient's Tax Group of any amount in respect of which such
payment is made and (ii) increased to take into account any net Tax cost
incurred by the recipient's Tax Group as a result of the receipt or accrual of
payments hereunder (grossed-up for such increase), in each case determined by
treating the recipient as recognizing all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt of
accrual of any payment hereunder. In determining the amount of any such Tax
benefit or Tax cost, the recipient's Tax Group shall be deemed to be subject to
(A) U.S. federal Income Taxes and foreign Income Taxes at the maximum statutory
rate then in effect and (B) U.S. state and local Income Taxes at an assumed rate
of [FIVE] percent net of U.S. federal Income Tax benefits. Except as otherwise
provided in this Agreement or unless the parties otherwise agree to an
alternative method for determining the present value of any such anticipated Tax
benefit or Tax cost, any payment hereunder shall initially be made without
regard to this section and shall be increased or reduced to reflect any such net
Tax cost (including gross-up) or net Tax benefit only after the recipient's Tax
Group has Actually Realized such Tax cost or Tax benefit.
(d) RIGHT TO OFFSET. Any party making a payment under this Agreement
shall have the right to reduce any such payment by any undisputed amounts owed
to it by the other party to this Agreement.
(e) CHARACTERIZATION OF PAYMENTS. It is the intention of the parties
to this Agreement that payments made pursuant to this Agreement are to be
treated as relating back to the Distribution as an adjustment to the assets and
liabilities transferred thereunder, and the parties shall not take any position
inconsistent with such intention before any Tax Authority, except to the extent
that a final determination (as defined in Section 1313 of the Code) with respect
to the recipient party causes any such payment not to be so treated.
3.05 TAX CONTESTS. The Indemnitor and its representatives, at the
Indemnitor's expense, shall be entitled to participate (a) in all conferences,
meetings
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and proceedings with any Tax Authority, the subject matter of which is or
includes an Indemnity Issue and (b) in all appearances before any court, the
subject matter of which is or includes an Indemnity Issue. The party who has
responsibility for filing the Tax Return under this Agreement (the "RESPONSIBLE
PARTY") with respect to which there could be an increase in liability for any
Tax or with respect to which a payment could be required hereunder shall have
the right to decide as between the parties hereto how such matter is to be dealt
with and finally resolved with the appropriate Tax Authority and shall control
all audits and similar proceedings. If no Tax Return is or was required to be
filed in respect of an Indemnity Issue, the Indemnitor shall be treated as the
Responsible Party with respect thereto. The Responsible Party agrees to
cooperate in the settlement of any Indemnity Issue with the other party and to
take such other party's interests into account. Notwithstanding any other
provision of this Agreement, if Rockwell has materially satisfied its
obligations under this Agreement and if Conexant fails to permit Rockwell to
control any audit or proceeding regarding any Indemnity Issue relating to (i)
the qualification of the Distribution as a "reorganization" within the meaning
of Section 368(a)(1)(D) of the Code or as tax-free to Rockwell under Section
361(c) of the Code, (ii) the qualification of any transactions undertaken
pursuant to the Transaction Agreements or described in the Ruling Request as
transactions described in Section 355 of the Code, "reorganizations" within the
meaning of Section 368(a)(1)(D) of the Code or as otherwise tax-free
transactions or (iii) the qualification of any transactions undertaken pursuant
to the Automotive Transaction Agreements or described in the Automotive Ruling
Request as transactions described in Section 355 of the Code, "reorganizations"
within the meaning of Section 368(a)(1)(D) of the Code or as otherwise tax-free
transactions, then Rockwell shall not be liable for and shall not indemnify the
Conexant Tax Group for any Tax deficiency resulting from an adverse
determination of such Indemnity Issue.
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ARTICLE IV
COMPENSATION PAYMENTS; OPTIONS; INVENTORY WRITEDOWN; CELERITAS LITIGATION;
CALIFORNIA MANUFACTURER'S INVESTMENT CREDIT
4.01 COMPENSATION PAYMENTS.
(a) TAX DEDUCTIONS. Notwithstanding anything to the contrary in this
Agreement, unless Rockwell and Conexant otherwise agree in writing, (i) the
Boeing Tax Group (and not the Conexant Tax Group) shall claim the
post-Distribution Date Tax deductions in respect of Compensation Payments paid
to Conexant Group Employees and Former Employees who ceased employment on or
before December 6, 1996 and Rockwell shall pay to Conexant the amount received
from Boeing as a result of any Tax benefit realized arising in respect of such
Tax deductions within ten days after such amount is received by Rockwell, (ii)
the Conexant Tax Group (and not the Rockwell Tax Group) shall claim the
post-Distribution Date Tax deductions in respect of Compensation Payments paid
by the Conexant Tax Group to all other Conexant Group Employees and Former
Employees, and (iii) the Rockwell Tax Group (and not the Conexant Tax Group)
shall claim the post-Distribution Date Tax deductions in respect of Compensation
Payments paid by the Rockwell Tax Group to all other Conexant Group Employees
and Former Employees.
(b) NOTICES, WITHHOLDING, REPORTING. The party responsible for
making the Compensation Payments pursuant to the Employee Matters Agreement
shall withhold applicable Taxes and satisfy applicable Tax reporting obligations
in connection with the Compensation Payments made to all Conexant Group
Employees and Former Employees.
(c) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of Section
4.01(a), in the event a Tax audit proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.06, that
all or a portion of the Tax deductions in respect of Compensation Payments paid
to Conexant Group Employees or Former Employees was not available to the party
claiming the Tax deduction, then the appropriate party shall claim such Tax
deductions (by an amended Tax Return or otherwise) and shall pay to the
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party which had previously claimed such Tax deduction, within ten days after
such Tax deduction has been Actually Realized by the such appropriate party, the
amount of the resulting Tax benefit to such appropriate party.
4.02 STOCK OPTIONS.
(a) STOCK OPTION ADJUSTMENTS. Pursuant to the terms of the Employee
Matters Agreement, Rockwell Common Stock Options outstanding at the time of the
Distribution will be adjusted as follows:
(i) Rockwell Common Stock Options held by employees of the Conexant
Tax Group at the time of the Distribution will be replaced with Conexant Common
Stock Options;
(ii) except as provided in (iii) below, Rockwell Common Stock
Options held by persons other than employees of the Conexant Tax Group at the
time of the Distribution will be adjusted so that following the Distribution
each such holder will hold Rockwell Common Stock Options and Conexant Common
Stock Options; and
(iii) Rockwell Common Stock Options granted prior to January 1, 1990
or after August 31, 1998 held by persons other than employees of the Conexant
Tax Group at the time of the Distribution will remain Rockwell Common Stock
Options.
(b) TAX DEDUCTIONS. Notwithstanding anything to the contrary in this
Agreement, unless the IRS issues a contrary private letter ruling to Rockwell or
Conexant, or Rockwell and Conexant otherwise agree in writing, (i) the Rockwell
Tax Group or the Boeing Tax Group (and not the Conexant Tax Group) shall claim
the post-Distribution Date Tax deductions in respect of Rockwell Common Stock
Options and (ii) the Conexant Tax Group (and not the Rockwell Tax Group or the
Boeing Tax Group) shall claim any post-Distribution Date Tax deductions in
respect of Conexant Common Stock Options.
(c) NOTICES, WITHHOLDING, REPORTING. (i) Rockwell shall promptly
notify Conexant of any post-Distribution Date event giving rise to income to any
Conexant Group Employees and Former Employees in connection with the Rockwell
Common Stock Options and, if
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required by law, Conexant shall withhold applicable Taxes and satisfy applicable
Tax reporting obligations in connection therewith. Rockwell shall within ten
days of demand thereof reimburse Conexant for all reasonable out-of-pocket
expenses incurred in connection with the Rockwell Common Stock Options,
including with respect to incremental Tax reporting obligations and any
incremental employment Tax obligations; provided that Conexant shall use
reasonable efforts to collect any such amounts required to be paid by Conexant
Group Employees and Former Employees from such Conexant Group Employees and
Former Employees.
(ii) Conexant shall promptly notify Rockwell of any
post-Distribution Date event giving rise to income to any non-Conexant Group
Employees and Former Employees in connection with the Conexant Common Stock
Options and, if required by law, Rockwell shall withhold applicable Taxes and
satisfy applicable Tax reporting obligations in connection therewith. Conexant
shall within ten days of demand thereof reimburse Rockwell for all reasonable
out-of-pocket expenses incurred in connection with the Conexant Common Stock
Options, including with respect to incremental Tax reporting obligations and any
incremental employment Tax obligations; provided that Rockwell shall use
reasonable efforts to collect any such amounts required to be paid by
non-Conexant Group Employees and Former Employees from such non-Conexant Group
Employees and Former Employees.
(d) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of Section
4.02(b), in the event a Tax audit proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.06, that
all or a portion of the Tax deductions in respect of Rockwell Common Stock
Options or Conexant Common Stock Options should have been claimed by the
Conexant Tax Group or the Rockwell Tax Group, respectively, the Conexant Tax
Group or the Rockwell Tax Group, respectively, shall claim such Tax deductions
(by an amended Tax Return or otherwise) and shall pay to Rockwell or Conexant,
as the case may be, the amount of any Tax refund or credit arising in respect of
such Tax deduction within ten days after such Tax refund or credit is Actually
Realized by the Conexant Tax Group or the Rockwell Tax Group, as the case may
be.
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4.03 INVENTORY WRITEDOWN.
(a) TAX DEDUCTIONS. Notwithstanding anything to the contrary in this
Agreement, unless Rockwell and Conexant otherwise agree in writing, the Rockwell
Tax Group (and not the Conexant Tax Group) shall claim the Tax deductions in
respect of the Inventory Writedown as set forth in Schedule 4.03 attached
hereto.
(b) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of Section
4.03(a), in the event a Tax audit proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.06 or
otherwise, that all or a portion of the Tax deductions in respect of the
Inventory Writedown should be or should have been claimed by the Conexant Tax
Group, the Conexant Tax Group shall claim such Tax deductions (by an amended Tax
Return or otherwise) and shall pay to Rockwell the amount of any Tax refund or
credit arising in respect of such Tax deduction within ten days after such Tax
refund or credit is Actually Realized by the Conexant Tax Group.
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4.04 CELERITAS LITIGATION.
(a) TAX DEDUCTIONS. Notwithstanding anything to the contrary in this
Agreement, unless the IRS issues a contrary private letter ruling to Rockwell or
Conexant, or Rockwell and Conexant otherwise agree in writing, (i) the Rockwell
Tax Group (and not the Conexant Tax Group) shall claim the tax deduction in
respect of amounts paid on or before December 31, 1998 in connection with the
Celeritas Technologies, Ltd. litigation as more fully described in Schedule 4.05
attached hereto.
(b) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of Section
4.05(a), in the event a Tax audit proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.06 or
otherwise, that all or a portion of the Tax deductions in respect of the
Celeritas Technologies, Ltd. litigation should be or should have been claimed by
the Conexant Tax Group, the Conexant Tax Group shall claim such Tax deductions
(by an amended Tax Return or otherwise) and shall pay to Rockwell the amount of
any Tax refund or credit arising in respect of such Tax deduction within ten
days after such Tax refund or credit is Actually Realized by the Conexant Tax
Group.
4.05 TAX BENEFIT ATTRIBUTABLE TO CALIFORNIA MANUFACTURERS INVESTMENT
CREDIT CARRYFORWARD. Notwithstanding anything in this Agreement to the contrary,
the Conexant Tax Group shall pay to the Rockwell Tax Group the amount of any
savings in Taxes attributable to California manufacturer's investment credit
carryforwards as set forth in Schedule 4.06 hereto.
4.06 CHANGE IN LAW. Notwithstanding the agreement with respect to
reporting of Tax items and the claiming of the deductions set forth in Article 4
of this Agreement, neither the Conexant Tax Group nor the Rockwell Tax Group
shall have any obligation to report any such Tax items or claim such deductions
as set forth in such Article in the event that either such party determines,
based on an opinion of nationally recognized tax counsel, which opinion shall be
satisfactory to the other party, that there is no substantial authority to
support reporting such Tax items or claiming such deductions on a Tax Return
filed by such party as a result of a change in or amendment to any law or
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regulation, or any change in the official interpretation thereof, effective or
occurring after the date of this Agreement, and such Tax Group provides prompt
notice to the other Tax Group of any such determination.
ARTICLE V
COOPERATION AND EXCHANGE OF INFORMATION
5.01 INCONSISTENT ACTIONS. Each party to this Agreement agrees (i)
to, and to cause each of the relevant members of its Tax Group to, report the
Distribution as a transaction described in Section 368(a)(1)(D) of the Code on
all Tax Returns and other filings, (ii) to use its best efforts to ensure that
the Distribution receives such treatment for U.S. federal Tax purposes and (iii)
that, unless it has obtained the prior written consent of the other party, it
(and the members of its Tax Group) shall not take any action inconsistent with,
or fail to take any action required by, the Transaction Agreements.
5.02 RULING REQUEST. Each party hereto represents that neither it
(nor any of the members of its Tax Group) will take or has any plan or intention
to take any action which is inconsistent with any factual statements,
representations or other similar conditions contained in the Ruling Request or
in the Ruling.
5.03 IRS GAIN RECOGNITION AGREEMENT; NOTIFICATION OF CERTAIN
DISPOSITIONS. Conexant shall give Rockwell at least sixty days prior written
notice in the event that at any time prior to the date which is ten years after
the Distribution Date, Conexant directly or indirectly disposes of all or any
portion of the ownership interest in, or all or a substantial portion of the
assets of, any entity identified on Schedule 5.03. Such notice shall describe
any such disposition in sufficient detail to enable Rockwell (i) to comply with
the requirements of Section 367 of the Code, applicable regulations thereunder
and any IRS Gain Recognition Agreement, and (ii) if applicable, to enter into a
revised IRS Gain Recognition Agreement under Section 367 of the Code and the
applicable regulations thereunder. At the time of the delivery of such notice,
Conexant
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shall provide to Rockwell security reasonably satisfactory to Rockwell
for the performance of all obligations of Conexant under Section 3.01(b) hereof
and this Section 5.03 in respect of the disposition referred to in such notice.
5.04 COOPERATION AND EXCHANGE OF INFORMATION. Each party hereto
agrees to provide, and to cause each member of its Tax Group to provide, such
cooperation and information as such other party shall request, on a timely
basis, in connection with the preparation or filing of any Tax Return or claim
for Tax refund not inconsistent with this Agreement or in conducting any Tax
audit, Tax dispute, or otherwise in respect of Taxes or to carry out the
provisions of this Agreement. To the extent necessary to carry out the purposes
of this Agreement and subject to the other provisions of this Agreement, such
cooperation and information shall include without limitation the non-exclusive
designation of an officer of Rockwell as an officer of Conexant and each of its
affiliates for the purpose of signing Tax Returns, cashing refund checks,
pursuing refund claims, dealing with Tax Authorities and defending audits as
well as promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any Tax Authority which relate to the
Conexant Tax Group for the Tax Indemnification Period and providing copies of
all relevant Tax Returns for the Tax Indemnification Period, together with
accompanying schedules and related workpapers, documents relating to rulings or
other determinations by Tax Authorities, including without limitation, foreign
Tax Authorities, and records concerning the ownership and Tax basis of property,
which either party may possess. Subject to the rights of the Conexant Tax Group
under the other provisions of this Agreement, such officer shall have the
authority to execute powers of attorney (including Form 2848) on behalf of each
member of the Conexant Tax Group with respect to Tax Returns for the Tax
Indemnification Period. Each party to this Agreement shall make, or shall cause
its affiliates to make, its employees and facilities available on a mutually
convenient basis to provide an explanation of any documents or information
provided hereunder.
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5.05 TAX RECORDS.
(a) Rockwell and Conexant agree to (and to cause each member of
their respective Tax Group to) (i) retain all Tax Returns, related schedules and
workpapers, and all material records and other documents as required under
Section 6001 of the Code and the regulations promulgated thereunder relating
thereto existing on the date hereof or created through the Distribution Date,
for a period of at least ten years following the Distribution Date and (ii)
allow the party to this Agreement, at times and dates reasonably acceptable to
the retaining party, to inspect, review and make copies of such records, as
Rockwell and Conexant may reasonably deem necessary or appropriate from time to
time. In addition, after the expiration of such ten-year period, such Tax
Returns, related schedules and workpapers, and material records shall not be
destroyed or otherwise disposed of at any time, unless, prior to such
destruction or disposal, (A) the party proposing to destroy or otherwise dispose
of such records shall provide no less than 30 days' prior written notice to the
other party, specifying in reasonable detail the records proposed to be
destroyed or disposed of and (B) if a recipient of such notice shall request in
writing prior to the scheduled date for such destruction or disposal that any of
the records proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such requested records at the expense of the party
requesting such records.
(b) Notwithstanding anything in this Agreement to the contrary, if
any party fails to comply with the requirements of Section 5.05(a) hereof, the
party failing so to comply shall be liable for, and shall hold the other party,
harmless from, any Taxes (including without limitation, penalties for failure to
comply with the record retention requirements of the Code) and other costs
resulting from such party's failure to comply.
ARTICLE VI
MISCELLANEOUS
6.01 ENTIRE AGREEMENT; CONSTRUCTION. This Agreement, the
Distribution Agreement, all other
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Transaction Agreements, including any annexes, schedules and exhibits hereto or
thereto, and other agreements and documents referred to herein and therein, will
together constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and shall supersede all prior negotiations,
agreements and understandings of the parties of any nature, whether oral or
written, with respect to such subject matter. Notwithstanding any other
provisions in this Agreement to the contrary, in the event and to the extent
that there shall be a conflict relating to Taxes between the provisions of this
Agreement and the provisions of the Distribution Agreement or any other
Transaction Agreement, the provisions of this Agreement shall control.
6.02 EFFECTIVENESS. All covenants and agreements of the parties
contained in this Agreement shall be subject to and conditioned upon the
Distribution becoming effective.
6.03 SURVIVAL OF AGREEMENTS. Except as otherwise contemplated by
this Agreement, all covenants and agreements of the parties contained in this
Agreement shall remain in full force and effect and shall survive the Time of
Distribution.
6.04 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the internal laws of the State of New York applicable to
contracts made and to be performed entirely within such State, without regard to
the conflicts of law principles of such State.
6.05 NOTICES. All notices, requests, claims, demands and other
communications required or permitted to be given hereunder will be in writing
and will be delivered by hand or telecopied or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
will be deemed given when so delivered by hand or telecopied, or three business
days after being so mailed (one business day in the case of express mail or
overnight courier service). All such notices, requests, claims, demands and
other communications will be addressed as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice:
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(a) If to Rockwell:
Rockwell International Corporation
000 Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Mr. W. Xxxxxxx Xxxxxx
Senior Vice President,
Finance and Planning and
Chief Financial Officer
Telecopy: (000) 000-0000
with a copy to:
Rockwell International Corporation
000 Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Xx., Esq.
Senior Vice President,
General Counsel and
Secretary
Telecopy: (000) 000-0000
(b) If to Conexant:
Conexant Systems, Inc.
0000 Xxxxxxxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xx. Xxxxxx X. Xxxxxx
President
Telecopy: (000) 000-0000
with a copy to:
Conexant Systems, Inc.
0000 Xxxxxxxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: [ ].
[ ]
Telecopy: (949) 221-[ ]
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6.06 CONSENT TO JURISDICTION. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of (a) the Court of Chancery in and for
the State of Delaware and the Superior Court in and for the State of Delaware
and (b) the U.S. District Court for the District of Delaware, for the purposes
of any suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby (and agrees not to commence any action, suit or
proceeding relating thereto except in such courts). Each of the parties further
agrees that service of any process, summons, notice or document hand delivered
or sent by U.S. registered mail to such party's respective address set forth in
Section 6.05 will be effective service of process for any action, suit or
proceeding in Delaware with respect to any matters to which it has submitted to
jurisdiction as set forth in the immediately preceding sentence. Each of the
parties irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Court of Chancery in and for the
State of Delaware and the Superior Court in and for the State of Delaware or
(ii) the U.S. District Court for the District of Delaware, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
6.07 AMENDMENTS. This Agreement may not be amended, modified or
supplemented except by a written agreement executed by Rockwell and Conexant.
6.08 SUCCESSORS AND ASSIGNS. The rights and benefits under this
Agreement may not be assigned and the duties and obligations may not be
delegated by any party in whole or in part without the prior written consent of
the other party, which consent shall not be unreasonably withheld or delayed.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.
6.09 CAPTIONS; CURRENCY. The article, section and paragraph captions
herein and the table of contents hereto are for convenience of reference only,
do not constitute part of this Agreement and will not be deemed to limit or
otherwise affect any of the provisions
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hereof. Unless otherwise specified, all references herein to numbered articles
or sections are to articles and sections of this Agreement and all references
herein to schedules are to schedules to this Agreement. Unless otherwise
specified, all references contained in this Agreement or in any schedule
referred to herein to dollars or "$" shall mean U.S. dollars.
6.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to the
party as a result thereof, the parties will negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
6.11 NO THIRD PARTY BENEFICIARIES. Except for the provisions of
Article III relating to Tax Indemnification, this Agreement is solely for the
benefit of the parties hereto and the respective members of their Tax Group and
should not be deemed to confer upon third parties (including any employee of
Rockwell or Conexant or of any Rockwell or Conexant subsidiary) any remedy,
claim, reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
6.12 SCHEDULES. All schedules attached hereto are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the respective meanings assigned to such terms in this
Agreement.
6.13 TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Time of Distribution by and in
the sole discretion of the Rockwell Board without the approval of Conexant or of
Rockwell's shareowners. In the event of
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such termination, no party will have any liability of any kind to any other
party on account of such termination.
6.14 WAIVERS; REMEDIES. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any waiver on the part of any party hereto of any right, power
or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor will any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which the parties may otherwise have at law or equity.
6.15 COUNTERPARTS. This Agreement may be executed in separate
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts will together constitute the same agreement.
6.16 PERFORMANCE. Each party hereto will cause to be performed, and
hereby guarantees the performance of all actions, agreements and obligations set
forth herein to be performed by any subsidiary or any member of such party's Tax
Group.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties as of the date first
hereinabove written.
ROCKWELL INTERNATIONAL CORPORATION
By:
Name: Xxxxxxx X. Xxxxxx, Xx.
Title: Senior Vice President,
General Counsel and
Secretary
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CONEXANT SYSTEMS, INC.
By:
Name: [ ]
Title: [ ]
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