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EXHIBIT 10.2
FORM OF
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT ("Agreement") is made effective as of
_______________, 2000 by and among C-Cube Microsystems Inc. ("C-Cube"), a
Delaware corporation, on behalf of itself and the C-Cube Subgroup (as defined
below), C-Cube Semiconductor Inc. ("Semiconductor"), a Delaware corporation, and
Harmonic Inc., a Delaware corporation ("Harmonic"). Capitalized terms used and
not otherwise defined herein shall have the meanings assigned to them in Section
1 below.
RECITALS
WHEREAS, C-Cube is the common parent corporation of an affiliated group
of corporations (as defined in Section 1504(a) of the Code) which includes
Semiconductor;
WHEREAS, C-Cube files Consolidated Group Returns on behalf of the
Affiliated Group and C-Cube files or causes to be filed Combined Returns and
other Returns on behalf of itself and its subsidiaries;
WHEREAS, as set forth in the Reorganization Agreement and the Separation
Agreement, and subject to the terms and conditions thereof, C-Cube wishes to
transfer and assign to Semiconductor substantially all of the assets and
liabilities currently associated with the Semiconductor Business, including the
stock, investments and similar interests currently held by C-Cube in certain
subsidiaries and other entities that conduct such business (the "Separation");
WHEREAS, following the Separation and in connection with the merger of
C-Cube and Harmonic (the "Merger"), C-Cube intends to distribute all of its
shares of Semiconductor Common Stock, on a pro rata basis, to the holders of the
common stock of C-Cube, subject to the terms and conditions of the Separation
Agreement (the "Public Distribution");
WHEREAS, the Separation and Public Distribution are intended to cause
the recognition of gain by C-Cube, and Semiconductor has agreed to bear the
resulting tax liability; and
WHEREAS, as a result of the Public Distribution, Semiconductor and its
domestic subsidiaries will cease to be members of the Affiliated Group, and the
parties hereto have determined to enter into this Agreement, setting forth their
agreement with respect to certain tax matters.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. DEFINITIONS
All terms not defined in this Agreement shall have the meaning set forth
in the Separation Agreement and the Reorganization Agreement.
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"Adjustment" means an adjustment determined on an issue-by-issue or
transaction-by-transaction basis, as appropriate, made or proposed with respect
to any amount that previously formed the basis for the computation of an amount
due hereunder, whether such adjustment arises as a result of a Tax Contest or
otherwise.
"Affiliated Group" means the group of corporations including C-Cube as
the common parent corporation and all other corporations which are eligible or
required to be included in a Consolidated Group Return with C-Cube as the common
parent corporation, which group shall include, for periods prior to the Public
Distribution, Semiconductor and its subsidiaries that are so eligible.
"After-Tax Basis" in reference to an indemnity payment shall mean an
amount that, after (i) subtraction of the aggregate additional Taxes (if any)
incurred or to be incurred by the party receiving the indemnity payment as a
result of the receipt of a payment hereunder and (ii) addition of the tax
benefit (if any) to the party receiving the indemnity payment on account of the
Adjustment to which such payment relates, is equal to the amount of the Tax
Adjustment. "After-Tax Basis" in reference to a benefit payment, including a
refund, shall mean an amount that, after (i) addition of the aggregate
additional Taxes (if any) incurred or to be incurred by the party making the
benefit payment on account of the Tax benefit to which such benefit payment
relates and (ii) subtraction of the Tax benefit (if any) to the party making the
benefit payment as a result of the making of such payment, is equal to the
amount of the Tax benefit. For purpose of determining such additional Taxes
incurred or to be incurred and such Tax benefit, the following assumptions will
be used: (a) in the case of any income Tax, the highest marginal Tax rate or, in
the case of any other Tax, the highest applicable Tax rate, in each case in
effect with respect to that Tax for the Taxable period or any portion of the
Taxable period to which the indemnity payment or benefit payment relates; and
(b) such determination shall be made without regard to whether any actual
additional Taxes or Tax benefit will in fact be realized with respect to the
Return to which such payment relates, due to tax attributes of a party (or lack
thereof) unrelated to the item giving rise to such indemnity payment or benefit
payment.
"Carryforward Tax Attribute" means a deductible or creditable
consolidated Federal tax attribute or state or local tax attribute that can be
carried forward from one tax period to subsequent tax periods, including, but
not limited to, (i) a consolidated net operating loss, a consolidated net
capital loss, a consolidated unused foreign investment credit, a consolidated
unused foreign tax credit, or a consolidated excess charitable contribution, and
(ii) the consolidated minimum tax credit, or other consolidated general business
credits.
"C-Cube Separate Company Return" shall mean any Return of C-Cube or any
direct or indirect subsidiary of C-Cube other than a Consolidated Group Return,
a Combined Return, or a Semiconductor Separate Company Return.
"C-Cube Straddle Period Return" shall mean any Return with respect to a
Straddle Period other than a Semiconductor Straddle Period Return.
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"C-Cube Subgroup" means C-Cube and its present and future subsidiaries
(other than Semiconductor and its present and future subsidiaries).
"C-Cube Tax Adjustment" shall mean, with respect to any Taxable period
or portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase in each such Tax equal to the sum of all Tax Adjustments
with respect to which a Final Determination has been made for each such Taxable
period or portion of a Taxable period that are attributable to the income,
assets and/or business of any member of the C-Cube Subgroup; provided, however,
Semiconductor Tax Adjustment shall not be treated as, and shall be excluded from
the definition of, C-Cube Tax Adjustment.
"C-Cube Tax Benefit" shall mean, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net decrease in each such Tax equal to the sum of all Tax Adjustments
with respect to which a Final Determination has been made such Tax for each such
Taxable period or portion of a Taxable period that are attributable to the
income, assets and/or business of any member of the C-Cube Subgroup, the
Semiconductor Subgroup, and/or the Semiconductor Business; provided, however,
that any Semiconductor Tax Benefit shall not be a C-Cube Tax Benefit.
"Code" means the U.S. Internal Revenue Code of 1986, as amended.
"Combined Return" means the Return of state income or franchise Tax
required to be filed by a group of corporations on a unitary basis as opposed to
a separate company basis.
"Consolidated Group Return" means a consolidated federal income Tax
Return filed pursuant to Section 1501 of the Code and the Regulations
thereunder.
"Consolidated Period" means that period of time during which
Semiconductor is a member of the Affiliated Group.
"Consolidated Return Year" means any taxable year or period with respect
to which C-Cube is required to file a Consolidated Group Return as the common
parent corporation.
"Distribution Date" means the date on which the Public Distribution
occurs.
"Divicom" means DiviCom Inc., which was a wholly-owned subsidiary of
C-Cube until it merged into C-Cube on January 28, 2000.
"Divicom Merger Taxes" means all Taxes incurred by Divicom or C-Cube
prior to or upon the occurrence of the Merger that would not have been incurred
but for the merger of Divicom into C-Cube. Such Taxes shall not be reduced by
any amounts that could be mitigated by a restructuring of the ownership of all
or any portion of the assets owned by Divicom prior to such merger.
"Final Determination" means (a) a decision, judgment, decree or other
order by any court of competent jurisdiction, which has become final and is
either no longer subject to appeal or for which
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a determination not to appeal has been made; (b) a closing agreement made under
Section 7121 of the Code or any comparable foreign, state, local, municipal or
other Taxing statute; (c) a final disposition by any Taxing Authority of a claim
for refund; or (d) any other written agreement or state of facts which results
in an Adjustment becoming final and prohibits such Taxing Authority from seeking
any further legal or administrative remedies with respect to an Adjustment.
"Group Refund Claim" means any claim filed by C-Cube on behalf of the
Affiliated Group for a refund of federal income Taxes or on behalf of the
Unitary Group for a refund of state income or franchise Taxes to the extent such
claim is either (a) filed prior to the Distribution Date, or (b) filed in
accordance with Section 2.5 or Section 5.
"Initial Stock Price" has the meaning set forth in the definition of A
in Section 4.1(a) hereof.
"IRS" means the United States Internal Revenue Service.
"Mailing Date" has the meaning set forth in Section 4.1(a).
"Merger Date" means the date on which the Merger occurs.
"Pre-Semi Disposition Non-Semiconductor Tax Deficiency" means the sum of
(i) the excess, if any, of Pre-Semi Disposition Non-Semiconductor Taxes (other
than such Taxes that are attributable to an Adjustment) over the amount included
in the Tax Offset Amount attributable to Pre-Semi Disposition Non-Semiconductor
Taxes, and (ii) the amount of any Tax Adjustment attributable to any Pre-Semi
Disposition Non-Semiconductor Taxes with respect to which there has been a Final
Determination.
"Pre-Semi Disposition Non-Semiconductor Taxes" shall mean Taxes
attributable to periods prior to the Distribution Date that are not Semi Spin
Taxes and are not otherwise attributable to the Semiconductor Business;
provided, however, that the term Pre-Semi Disposition Non-Semiconductor Taxes
shall not include Divicom Merger Taxes.
"Pre-Semi Disposition Taxes" shall mean Taxes of C-Cube and its
subsidiaries attributable to periods through the Distribution Date but not
including (i) Semi Spin Taxes and (ii) except as provided in Section 6.3,
Pre-Semi Disposition Non-Semiconductor Taxes (or any reduction or refund
thereof) arising from an Adjustment. The parties agree that the Section 41
Credits shall not be taken into account as a credit in determining Pre-Semi
Disposition Taxes, but rather shall be treated as provided in Section 5 hereof.
Notwithstanding the foregoing, Pre-Semi Disposition Taxes shall also include all
Divicom Merger Taxes.
"Public Distribution" has the meaning set forth in the recitals hereto.
"Regulations" means the Regulations issued by the Secretary of the
Treasury interpreting the Code.
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"Reorganization Agreement" means the Amended and Restated Agreement and
Plan of Merger and Reorganization by and between C-Cube Microsystems Inc. and
Harmonic Inc. dated as of December 9, 1999.
"Retained Cash" means cash retained by C-Cube pursuant to Sections
4.1(a) and 4.1(b) in order to pay Semi Spin Taxes and Pre-Semi Disposition
Taxes, respectively.
"Return" means any return, report, form or similar statement or document
(including, without limitation, any related or supporting information or
schedule attached thereto and any information return, claim for, amended return
and declaration of estimated Tax) that has been or is required to be filed with
any Taxing Authority or that has been or is required to be furnished to any
Taxing Authority in connection with the determination, assessment or collection
of any Taxes or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
"Section 41 Credits" shall have the meaning set forth in Section 5
hereof.
"Semi Spin Taxes" shall mean the corporate Tax liability incurred as a
direct result of the Semi Spin, and any Taxes incurred in any internal
restructuring undertaken in connection with the Separation and the Public
Distribution (including but not limited to all of the steps described the
Separation Agreement and Ancillary Agreements thereto, and including all
intercompany stock and asset transfers and related incorporations and issuances
of stock undertaken in preparation for the Separation and the Public
Distribution), and any Taxes and other amounts incurred by C-Cube, Semiconductor
or their affiliates as a result of a claim by any person arising from the tax
treatment of the Separation, the Public Distribution or any such internal
restructuring. The parties agree that the Section 41 Credits shall not be taken
into account as a credit in determining Semi Spin Taxes, but rather shall be
treated as provided in Section 5 hereof.
"Semiconductor Business" shall have the meaning set forth in the
Separation Agreement.
"Semiconductor Separate Company Return" shall mean any Return (including
but not limited to a Semiconductor Straddle Period Return) with respect to a
taxable period of any member of the Semiconductor Subgroup, other than any
Consolidated Group Return or Combined Return.
"Semiconductor Straddle Period Return" shall mean any Return with
respect to a Straddle Period that is also a taxable period of a member of the
Semiconductor Subgroup or that relates principally to the Semiconductor
Business, and that is not a Consolidated Group Return or a Combined Return.
"Semiconductor Subgroup" shall mean Semiconductor and its past, present
and future subsidiaries.
"Semiconductor Tax Adjustment" shall mean, with respect to any Pre-Semi
Disposition Tax or a Semi Spin Tax for any Taxable period or portion of a
Taxable period, and as computed separately with respect to each Tax, the net
increase in each such Tax equal to the sum of all Tax Adjustments pertaining to
such Pre-Semi Disposition Tax and Semi Spin Tax with respect to which
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a Final Determination has been made. In the event an Adjustment pertains to both
a Semiconductor Tax Adjustment and a C-Cube Tax Adjustment, the parties shall
equitably allocate such Tax Adjustment and treat it as a C-Cube Tax Adjustment
in part and a Semiconductor Tax Adjustment in part in a manner consistent with
the intent of this Agreement. If any portion of the item giving rise to the Tax
Adjustment can reasonably be allocated to each party based on such party's
contribution to the underlying Adjustment, such portion shall be so allocated,
and any portion that is not capable of being so allocated shall be allocated
based on any reasonable method, provided that in the event of a dispute the
dispute resolution provisions of Section 4.3 shall apply.
"Semiconductor Tax Benefit" shall mean, with respect to any Pre-Semi
Disposition Tax or a Semi Spin Tax for any Taxable period or portion of a
Taxable period, and as computed separately with respect to each Tax, the net
decrease in each such Tax equal to the sum of all Tax Adjustments pertaining to
such Tax (i) attributable to the income, assets and/or business of any member of
the Semiconductor Subgroup or the Semiconductor Business and (ii) with respect
to which a Final Determination has been made for each such Taxable period or
portion of a Taxable period (including, but not limited to, periods prior to the
Public Distribution). In the event a net decrease in Tax is attributable to both
the Semiconductor Subgroup or the Semiconductor Business, on one hand, and to
the C-Cube Subgroup, on the other hand, the parties shall equitably allocate
such net decrease and treat it as a C-Cube Tax Benefit in part and a
Semiconductor Tax Benefit in part in a manner consistent with the intent of this
Agreement. If any portion of the item giving rise to the net decrease can
reasonably be allocated to each party based on such party's contribution to the
underlying Adjustment, such portion shall be so allocated, and any portion that
is not capable of being so allocated shall be allocated based on any reasonable
method, provided that in the event of a dispute the dispute resolution
provisions of Section 4.3 shall apply.
"Separate Return Period" means that period of time following the
Distribution Date during which Semiconductor (or any member of the Semiconductor
Subgroup) is not a member of the Affiliated Group.
"Separation Agreement" means the Master Separation and Distribution
Agreement, dated as of ____________________, 2000 by and among C-Cube,
Semiconductor, and C-Cube Semiconductor II Inc.
"Straddle Period" shall mean any Taxable period that begins before and
ends after the Distribution Date.
"Tax" (and, with correlative meanings, "Taxes" and "Taxable") means,
without limitation, and as determined on a jurisdiction-by-jurisdiction basis,
each foreign or U.S. federal, state, local or municipal income, alternative or
add-on minimum, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, value added or any other tax, custom, tariff,
impost, levy, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty, addition to tax or
additional amount related thereto, imposed by any Taxing Authority.
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"Tax Adjustment" shall mean the increase or decrease in Tax (which for
the sake of clarity shall include all interest, penalties, additions to tax and
additional amounts related thereto), using the assumptions set forth in the next
sentence, resulting from an Adjustment. For purpose of determining such deemed
increase or decrease in Tax, the following assumptions will be used: (a) in the
case of any income Tax (or franchise tax based on income), the highest marginal
Tax rate or, in the case of any other Tax, the highest applicable Tax rate, in
each case in effect with respect to that Tax for the Taxable period or any
portion of the Taxable period to which the adjustment relates; and (b) such
determination shall be made without regard to whether any actual increase or
decrease in such Tax will in fact be realized with respect to the Return to
which such adjustment relates. Notwithstanding the foregoing sentence, a capital
loss Tax Adjustment shall be considered to result in a decrease in Tax only when
and to the extent such capital loss is utilized, and for this purpose a capital
loss shall be deemed utilized only if it would be utilized after taking account
of all other items of income, gain, loss, deduction or credit.
"Tax Contest" means any audit, examination, claim, suit, action or other
proceeding relating to Taxes.
"Tax Offset Amount" shall have the meaning given in Section 3.2.
"Tax Retention Schedule" has the meaning set forth in Section 4.1(c).
"Taxing Authority" means any governmental authority or any subdivision,
agency, commission or authority thereof, or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or other
imposition of Taxes.
"Unitary Group" means the group of corporations having C-Cube as the
common parent corporation that is eligible or required to be included in a
Combined Return with C-Cube.
2. FILING OF CONSOLIDATED GROUP RETURNS
2.1 Consent to File. Semiconductor hereby consents, on its behalf
and on behalf of every other member of the Semiconductor Subgroup, to the filing
of Consolidated Group Returns by C-Cube on behalf of the Affiliated Group, for
each Consolidated Return Year in which any member of the Semiconductor Subgroup
is included, and to any applications for extensions of time to file such Returns
which C-Cube in its sole judgment shall make to the IRS. Semiconductor hereby
consents, on its behalf and on behalf of every other member of the Semiconductor
Subgroup, to the filing of Combined Returns by C-Cube on behalf of the Unitary
Group in which any member of the Semiconductor Subgroup is included, and to any
applications for extensions of time to file such Returns which application
C-Cube in its sole judgment shall make to the applicable Taxing Authorities.
2.2 Responsibility for Preparing and Filing Returns for Periods
Commencing Prior to the Distribution Date. Semiconductor shall be entitled to
prepare and shall be responsible for the preparation of all Consolidated Group
Returns for the Affiliated Group, all Combined Returns for the Unitary Group,
and all C-Cube Separate Company Returns and Semiconductor
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Separate Company Returns for all the periods that commence prior to the
Distribution Date (including C-Cube Straddle Period Returns and Semiconductor
Straddle Period Returns), including but not limited to determining all Return
positions and making Tax elections relating to such Returns. Semiconductor shall
provide each such Return to C-Cube for its review at least 60 days prior to the
due date, including extensions, for filing such Return. C-Cube shall have the
right to review and approve those Returns provided that approval shall not be
unreasonably withheld. All Returns described in this Section 2.2 shall be filed
in accordance with the past practices consistently applied, provided that
Semiconductor shall provide C-Cube with reasonable notice of actions needed to
be taken by C-Cube in connection with such filing. Such Returns shall also be
prepared in a manner consistent with the final computation of Semi Spin Taxes
and Pre-Semi Disposition Taxes pursuant to Section 4.3. C-Cube and Semiconductor
agree to cooperate in connection with the filing of all Returns described in
this Section 2.2, including providing reasonably requested information and
taking the actions necessary to file such Returns. Semiconductor shall give to
C-Cube immediately upon request by C-Cube a copy of any Return that has been
prepared by Semiconductor. Notwithstanding the foregoing, Returns claiming the
Section 41 Credits shall be filed in accordance with Section 5.
2.3 Responsibility for Preparing and Filing Returns for Periods
Commencing After the Distribution Date. C-Cube shall be responsible for the
preparation and filing of C-Cube Separate Company Returns with respect to any
member of the C-Cube Subgroup, all Consolidated Group Returns for members of the
Affiliated Group, and all Combined Returns for the Unitary Group, in each case
for all periods commencing on or after the Distribution Date. Semiconductor
shall be responsible for the preparation and filing of Semiconductor Separate
Company Returns with respect to any member of the Semiconductor Subgroup for all
periods commencing on or after the Distribution Date. C-Cube shall provide to
Semiconductor portions of the Returns that are prepared by it pursuant to this
Section 2.3 and that relates to Taxes for which Semiconductor is or could be
liable under this Agreement at least 60 days prior to the anticipated filing
date of such Returns and Semiconductor shall have the right to approve those
portions of the Returns, provided that approval may not be unreasonably
withheld.
2.4 Further Action. Each of Semiconductor and C-Cube agrees, at
C-Cube's or Semiconductor's request, respectively, to furnish to the requesting
party and/or any Taxing Authority upon reasonable request any and all necessary
information (including but not limited to any Tax information relevant to
periods prior to the Public Distribution) and to execute all reasonably
requested elections and other documents which may be necessary or appropriate,
in the reasonable judgment of Semiconductor or C-Cube, to evidence
Semiconductor's or C-Cube's consent or to facilitate the preparing and filing of
such Returns and applications for extension of time to file the Returns
described in this Section 2. This obligation applies to Consolidated Group
Returns and Combined Returns that include any member of the Semiconductor
Subgroup even if such Return is filed after such member is no longer a member of
the Affiliated Group or the Unitary Group.
2.5 Amended Returns. Semiconductor shall have the right to prepare
and to cause C-Cube to file any amended Return or claim for refund prepared by
Semiconductor relating to any Return or portion thereof that Semiconductor has
the right to prepare under this Section 2, provided
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that no such amended Return shall be filed unless Semiconductor has paid to
C-Cube, on an After-Tax Basis, all costs (including Taxes and reasonable
out-of-pocket costs) that will be incurred by C-Cube in connection with or as a
result of the filing thereof; and, provided, further, that claims for refund of
Section 41 Credits may only be filed in accordance with Section 5. C-Cube shall
have the right to review and approve such amended Returns or claims for refund,
if any, provided that approval may not be unreasonably withheld. C-Cube agrees
to cooperate with Semiconductor in connection with the filing of any such
amended Returns or claims for refund, including providing reasonably requested
information and taking reasonably requested actions necessary to file such
Returns or claims for refund. C-Cube shall not have the right to file any
amended Return or claim for refund increasing the Taxes payable by Semiconductor
under this Agreement without the consent of Semiconductor (not to be
unreasonably withheld) or unless C-Cube reasonably determines that such Return
or claim is required by law to be filed or necessary in order to avoid any
material penalty amount with respect to which C-Cube is not indemnified by
Semiconductor under this Agreement.
3. ALLOCATION AND PAYMENT OF LIABILITIES FOR TAXES
3.1 Payment Responsibility.
(a) Taxes for Which Semiconductor is Liable.
(i)Consolidated Group Returns, Combined Returns and C-Cube
Separate Company Returns. Semiconductor shall be responsible for, and shall pay
on a timely basis and indemnify and hold C-Cube harmless on an After-Tax Basis
from and against, all Pre-Semi Disposition Taxes and all Semi Spin Taxes, and to
the extent such amounts are required to be reflected in any Consolidated Group
Return, Combined Return and C-Cube Separate Company Return, such amounts shall
be paid to C-Cube no later than three days prior to the time C-Cube is required
to pay such Taxes without penalty or interest.
(ii) Semiconductor Separate Company Returns. Semiconductor
shall be responsible for, and shall pay on a timely basis and indemnify and hold
C-Cube harmless on an After-Tax Basis from and against, all Taxes required to be
reflected in any Semiconductor Separate Company Return or Semiconductor Straddle
Period Return.
(iii) Allocation in the Case of C-Cube Straddle Period
Return. For purposes of Section 3.1(a)(i), in the event of a C-Cube Separate
Company Return that is a C-Cube Straddle Period Return, the amount of Taxes that
will be treated as Pre-Semi Disposition Taxes will be determined as if the
relevant taxable period ended on the close of the Distribution Date (except that
Taxes imposed on a basis other than net or gross income, receipts, sales,
payroll or the like shall be prorated on a daily basis).
(b) Taxes for Which C-Cube is Liable. Except as provided in
Section 3.1(a), C-Cube shall be responsible for, and shall pay on a timely basis
and indemnify and hold Semiconductor harmless on an After-Tax Basis, from and
against, (i) all Taxes required to be
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reflected in a C-Cube Separate Company Return, and (ii) except as provided in
Section 6.3, Pre-Semi Disposition Non-Semiconductor Taxes attributable to an
amended Return (other than an amended Return prepared by or at the request of
Semiconductor) or to an Adjustment.
3.2 Credit for Amounts Retained/Deficiencies in Amounts Retained.
Semiconductor's liability under Section 3.1(a) with respect to any Tax shall be
treated as having been paid to the extent of the amount set forth with respect
to such Tax on the Tax Retention Schedule and retained by C-Cube pursuant to
Section 4 hereof ("Tax Offset Amounts").
3.3 Refunds. To the extent any Tax for which Semiconductor or C-Cube
is liable pursuant to this Agreement or the Reorganization Agreement is
subsequently refunded or credited to the other party by a Taxing Authority,
other than as a result of or in connection with an Adjustment governed by
Section 6, the receiving party shall reimburse the responsible party no later
than three (3) days following the receipt of such refund of Tax or reduction in
Tax otherwise payable, after subtracting the aggregate additional Taxes (if any)
incurred or to be incurred by the party receiving the refund or credit as a
result of the receipt of that refund or credit and any other amounts due from
the other party pursuant to this Agreement. For purposes of this Section 3.3,
C-Cube shall be treated as the party liable pursuant to this Agreement and the
Reorganization Agreement for Pre-Semi Disposition Non-Semiconductor Taxes.
3.4 Separate Return Indemnity. C-Cube shall indemnify and hold
Semiconductor and the Semiconductor Subgroup harmless on an After-Tax Basis for
any Taxes of C-Cube or the C-Cube Subgroup attributable to any period (or
portion thereof) following the Distribution Date (other than any such Taxes that
are Pre-Semi Disposition Taxes or Semi Spin Taxes) and Semiconductor shall
indemnify and hold C-Cube and the C-Cube Subgroup harmless on an After-Tax Basis
for any Taxes relating to Semiconductor Separate Period Returns.
3.5 Interest. To the extent any amount is not paid by the due date
set forth in this Agreement, interest shall accrue on such unpaid amount at a
rate of [__] %.
4. RETENTION OF CASH BY C-CUBE; TAX LIABILITY CALCULATION.
4.1 Retention of Cash. Under the Reorganization Agreement, C-Cube is
to retain cash sufficient to pay Semi Spin Taxes and Pre-Semi Disposition Taxes.
This Section 4 sets forth the mechanisms for (i) determining the amount of the
cash to be retained by C-Cube to pay such Taxes, and (ii) adjustments to such
retained cash.
(a) Calculation of Amount Initially Retained to Pay Semi Spin
Taxes ("T").
T = r (A- B - C - D + E) - F
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Where:
r = C-Cube's estimated combined state and federal income tax rate. An
initial good-faith written estimate of r shall be communicated to Harmonic by
C-Cube no later than [10] days after the date on which the proxy materials
relating to the Merger and Distribution have been mailed to Harmonic and C-Cube
stockholders, as appropriate (the "Mailing Date"). Harmonic may comment up to
[20] days after the Mailing Date (or, if later, 10 days following receipt of
such written estimate from C-Cube), and C-Cube agrees to give careful
consideration to Harmonic's comments. In the event of a disagreement between
C-Cube and Harmonic, the provisions of Section 4.1(e) shall apply.
A = the total implied market capitalization of Semiconductor on the
Distribution Date, which shall equal the number of shares of Semiconductor's
common stock to be distributed in the Public Distribution multiplied by the
closing trading price of Semiconductor's common stock (which will be trading on
a "when issued" basis) at 4:00 PM (the close of trading) on the third trading
day before the Distribution Date; provided, however, that the closing trading
price of the Semiconductor common stock on a date closer to the Distribution
Date shall be used if practicable (the "Initial Stock Price").
B = the estimated tax basis of the Semiconductor stock immediately prior
to the Public Distribution, which basis shall include, pursuant to Regulations
Section 1.1502-32(b)(3)(iv)(D), an estimate of the Section 41 Credits to be
received from C-Cube pursuant to Section 5. An initial good-faith estimate of
the value of B shall be communicated to Harmonic by C-Cube no later than [10]
days after the the Mailing Date. Harmonic may comment up to [20] days after the
the Mailing Date (or, if later, 10 days following receipt of such written
estimate from C-Cube), and C-Cube agrees to give careful consideration to
Harmonic's comments. In the event of a disagreement between C-Cube and Harmonic,
the provisions of Section 4.1(e) shall apply.
C = the estimated deductions attributable to the exercise of C-Cube
compensatory stock options exercised on or after October 27, 1999, and on or
before the record date for the Public Distribution (the "Exercise Period"),
based on C-Cube's option exercise records and assuming that "disqualifying
dispositions" occur with respect to 80% of all C-Cube stock acquired pursuant to
the exercise of C-Cube options that are "incentive stock options" under Section
422 of the Code, and provided that no deductions that offset Pre-Semi
Disposition Taxes shall be included in the calculation of C (it being the
intention of the parties that such deductions shall not factor into the
computations of Pre-Semi Disposition Taxes). To the extent that, as of the date
of determination of C, there are actual disqualifying dispositions of shares of
C-Cube stock that were acquired pursuant to the exercise of C-Cube "incentive
stock options" during the Exercise Period, and C-Cube has knowledge of the
actual amount realized from the disposition, the value of C shall be determined
by using the actual sales price of the stock for purposes of applying Section
422(c)(2) of the Code. Except as provided in the immediately preceding sentence,
the portion of the value of C attributable to the deemed disqualifying
disposition of shares acquired pursuant to the exercise of incentive stock
options shall be determined by assuming that the amount realized from the sale
is equal to the fair market value of the stock received upon exercise. An
initial good-faith written estimate of the value of C shall be communicated to
Harmonic by C-Cube no later than [10] days after the Mailing Date.
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Harmonic may comment up to [20] days after the Mailing Date (or, if later, 10
days following receipt of such written estimate from C-Cube), and C-Cube agrees
to give careful consideration to Harmonic's comments. In the event of a
disagreement between C-Cube and Harmonic, the provisions of Section 4.1(e) shall
apply. C-Cube shall provide Harmonic with a revised written good-faith estimate
of C no later than 5 PM, Pacific Time, on the date that is three (3) business
days before the scheduled Distribution Date. Harmonic may comment up to 24 hours
following receipt of such revised estimate, and C-Cube agrees to give careful
consideration to Harmonic's comments. In the event of a disagreement between
C-Cube and Harmonic, the provisions of Section 4.1(e) shall apply.
D = the estimated capitalized expenses, plus the estimated deductible
expenses (other than those covered or included in B and C), attributable to the
Separation and the Public Distribution that will reduce the amount of gain to be
recognized by C-Cube as a result of the Public Distribution, and provided that
no amounts that offset Pre-Semi Disposition Taxes shall be included in the
calculation of D (it being the intention of the parties that such deductions
shall not factor into the computation of Pre-Semi Disposition Taxes). An initial
good-faith estimate of D shall be communicated to Harmonic by C-Cube no later
than [10] days after the Mailing Date. Harmonic may comment up to [20] days
after the Mailing Date (or, if later, 10 days following receipt of such estimate
from C-Cube), and C-Cube agrees to give careful consideration to Harmonic's
comments. In the event of a disagreement between C-Cube and Harmonic, the
provisions of Section 4.1(e) shall apply.
E = the taxable income arising from transfers of assets and other
transactions undertaken by C-Cube and its subsidiaries outside of the ordinary
course of business of C-Cube prior to and in contemplation of the Public
Distribution, including all such amounts arising from the internal restructuring
undertaken in connection with the Separation and Public Distribution but not
including taxable income, if any, arising from the merger of Divicom into
C-Cube, which taxable income, if any, shall be taken into account in determining
Pre-Semi Disposition Taxes to the extent provided elsewhere in this Agreement.
An initial good-faith estimate of E shall be communicated to Harmonic by C-Cube
no later than [10] days after the Mailing Date. Harmonic may comment up to [20]
days after the Mailing Date (or if later, 10 days following receipt of such
estimate from C-Cube), and C-Cube agrees to give careful consideration to
Harmonic's comments. In the event of a disagreement between C-Cube and Harmonic,
the provisions of Section 4.1(e) shall apply.
F = any tax credits of the Affiliated Group attributable to periods (or
portions of periods) prior to the Distribution Date (but not including Section
41 Credits covered in Section 5) and estimated tax payments paid by C-Cube prior
to the Distribution Date which did not offset Pre-Semi Disposition Taxes (with
such credits and estimated tax payments applied first to Pre-Semi Disposition
Taxes). An initial estimate of F shall be communicated to Harmonic by C-Cube no
later [10] days after the Mailing Date. Harmonic may comment up to [20] days
after the Mailing Date (or, if later, 10 days following receipt of such estimate
from C-Cube), and C-Cube agrees to give careful consideration to Harmonic's
comments. In the event of a disagreement between C-Cube and Harmonic, the
provisions of Section 4.1(e) shall apply.
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(b) Calculation of Amount Retained to Pay Pre-Semi Disposition
Taxes. C-Cube shall provide Harmonic with an initial good-faith written estimate
of the Pre-Semi Disposition Taxes no later than [10] days after the Mailing
Date. Harmonic may comment up to [20] days after the Mailing Date (or, if later,
10 days following receipt of such written estimate from C-Cube), and C-Cube
agrees to give careful consideration to Harmonic's comments. In the event of a
disagreement between C-Cube and Harmonic, the provisions of Section 4.1(e) shall
apply.
(c) Pursuant to Section 2.2 of the Separation Agreement, C-Cube
shall certify the amount of its cash reserve to Harmonic prior to the merger of
C-Cube and Harmonic, which schedule shall include a breakdown of the amount
retained for Pre-Semi Disposition Taxes, Semi Spin Taxes, and Pre-Semi
Disposition Non-Semiconductor Taxes (in each case on a Tax-by-Tax basis) (the
"Tax Retention Schedule").
(d) All interest earned by C-Cube on the Retained Cash from the
Distribution Date to the date the underlying Taxes are paid or (if applicable)
returned to Semiconductor, after subtraction of the aggregate additional Taxes
incurred or to be incurred by C-Cube (if any) as a result of interest received
or accrued with respect to the Retained Cash, shall be paid to Semiconductor.
(e) It is the intent of the parties that, at least 10 days prior
to the scheduled Distribution Date, the parties shall have agreed on the amount
of Retained Cash, including all amounts that are included in the computation of
Retained Cash other than the Initial Stock Price but computed using a nonbinding
estimate for the Initial Stock Price. If C-Cube and Harmonic fail to reach an
agreement by such time, either party shall be entitled to submit the matter to a
mutually acceptable arbitrator, provided that such arbitrator and its affiliates
shall not have had C-Cube, Harmonic or any affiliate thereof as a client within
two years of such time (and neither party reasonably objects to the independence
of such arbitrator on other grounds). If C-Cube and Harmonic are unable to
mutually agree upon an arbitrator within one week of a party's notification to
the other party of its desire to arbitrate such a dispute, then each party shall
select an arbitrator and such two arbitrators shall have one week to select a
third arbitrator who shall have final authority to resolve such dispute within
ten (10) days of such arbitrator's selection. C-Cube and Harmonic shall share
equally in the fees and expenses of such arbitrators. The determination by such
arbitrator shall be final and binding on the parties for purposes of applying
this Section 4.1, absent fraud or manifest error. Pursuant to Section 3.2(e) of
the Separation Agreement, the final determination of Retained Cash pursuant to
this Section 4.1 shall be a condition to the Distribution.
4.2 Interim Recalculation of Taxes and True-Up.
(a) Semi Spin Taxes.
(i) No later than twenty (20) days after the Public
Distribution, Semiconductor shall deliver to Harmonic a written recalculation of
the Semi Spin Taxes using the equation described in Section 4.1 above, and
submit the recalculation to weighted-average price Harmonic for review. In such
recalculation, Semiconductor shall use the weighted average price of
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Semiconductor stock on the date on which Semiconductor Stock first trades
publicly (not including trading on a "when issued" basis), which the parties
anticipate will be the trading date immediately following the Distribution Date,
in lieu of the Initial Stock Price in the computation of A. In addition,
Semiconductor shall use the actual tax rate for each jurisdiction in which
C-Cube files a Return, actual tax basis, actual option deductions and actual
other capitalized and deductible expenses , and other actual amounts, each to
the extent available at such time, in calculating variables r, B, C, D, E and F,
respectively, in lieu of the estimates set forth above. Notwithstanding the
foregoing, in the event Semiconductor does not deliver such recalculation to
Harmonic within such time period, Harmonic shall have the right, but not the
obligation, to prepare such calculations and deliver the same to Semiconductor,
in which case references to Harmonic and Semiconductor in clause (ii) below
shall be read to refer to Semiconductor and Harmonic, respectively.
(ii) In the event that Harmonic disagrees with Semiconductor
as to the recalculation of the Semi Spin Taxes as provided in (i), Harmonic
shall notify Semiconductor no more than 20 days after Semiconductor submits its
recalculation to Harmonic. Semiconductor and Harmonic shall then discuss the
computation of the Semi Spin Taxes in a good faith effort to reach an agreement
as to the amount of the Semi Spin Taxes.
(iii) If Semiconductor and Harmonic fail to reach an
agreement by the day which is 60 days after the Distribution Date, either party
shall be entitled to submit the matter to a mutually acceptable third-party
arbitrator. If the parties are unable to mutually agree upon an arbitrator
within one week of a party's notification to the other party of its desire to
arbitrate such a dispute, then each party shall have one week to select an
arbitrator and such two arbitrators shall have one week to select a third
arbitrator who shall have final authority to resolve such dispute within twenty
(20) days of such arbitrator's selection. Semiconductor and Harmonic shall share
equally in the fees and expenses of such arbitrators.
(iv) If the recalculated Semi Spin Taxes (after completion
of any discussion or arbitration regarding said recalculation) exceed the
related Tax Offset Amounts, Semiconductor shall pay Harmonic such excess within
three (3) days of the completion of any discussion or arbitration regarding said
recalculation. If the recalculated Semi Spin Taxes (after completion of any
discussion or arbitration regarding said recalculation) are less than the
related Tax Offset Amounts, Harmonic shall pay Semiconductor such difference
within three (3) days of the completion of any discussion or arbitration
regarding said recalculation. Any such payments shall be reflected appropriately
on the Tax Retention Schedule.
(b) Basis Adjustment. Unless otherwise determined by the
third-party arbitrator in accordance with this Section 4.2, or unless otherwise
required pursuant to the terms of any Final Determination, payments made by
Harmonic to Semiconductor under this Section 4.2 shall be treated as an increase
in the basis of Semiconductor stock, for purposes of calculating Semi Spin
Taxes. Payments made by Semiconductor to Harmonic under this Section 4.2 shall
be treated as a decrease in the basis of Semiconductor stock for purposes of
calculating Semi Spin Taxes.
4.3 Recalculation of Semi Spin Taxes and Pre-Semi Disposition Taxes.
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(a) In connection with the preparation of the Returns for which
it is responsible under Sections 2.2 and 2.3 hereof, Semiconductor shall prepare
a final calculation of Semi Spin Taxes and Pre-Semi Disposition Taxes, based on
actual figures available for such taxable periods. Semiconductor shall submit
such written calculation to Harmonic no later than sixty (60) days prior to
filing the relevant Return with respect to the Tax involved, provided that
failure to deliver such calculation by such time shall not affect
Semiconductor's liability hereunder (but shall be taken into account in
determining whether Semiconductor owes any interest or penalties).
Notwithstanding the foregoing, in the event Semiconductor does not deliver such
final calculation to Harmonic within such time period, Harmonic shall have the
right, but not the obligation, to prepare such calculations and deliver the same
to Semiconductor, in which case references to Harmonic and Semiconductor in
subSection (b) below shall be read refer to Semiconductor and Harmonic,
respectively.
(b) Harmonic shall have twenty (20) days after receiving such
written calculation to review the calculation. In the event that Harmonic
disagrees with Semiconductor as to the amount of the Semi Spin Taxes or Pre-Semi
Disposition Taxes to which such calculation relates, Harmonic shall notify
Semiconductor no more than 20 days after Semiconductor submits such
recalculation to Harmonic. Semiconductor and Harmonic shall then discuss the
computation of the Semi Spin Taxes and Pre-Semi Disposition Taxes in a good
faith effort to reach an agreement as to the amount of the Semi Spin Taxes and
Pre-Semi Disposition Taxes.
(c) If Semiconductor and Harmonic fail to reach an agreement by
the day which is 60 days after the date Semiconductor provided its calculations
to Harmonic, either party shall be entitled to submit the matter to a mutually
acceptable third-party arbitrator. If the parties are unable to mutually agree
upon an arbitrator within one week of a party's notification to the other party
of its desire to arbitrate such a dispute, then each party shall have one week
to select an arbitrator and such two arbitrators shall have one week to select a
third arbitrator who shall have final authority to resolve such dispute within
twenty (20) days of such arbitrator's selection. Semiconductor and Harmonic
shall share equally in the fees and expenses of such arbitrators.
(d) If the recalculated Semi Spin Taxes and Pre-Semi Disposition
Taxes (after completion of any discussion or arbitration regarding said
recalculation) exceed the related Tax Offset Amounts (adjusted for amounts paid
pursuant to Sections 3.1(a) and 4.2), Semiconductor shall pay Harmonic such
excess within three (3) days of the completion of any discussion or arbitration
regarding said recalculation. If the recalculated Semi Spin Taxes and Pre-Semi
Disposition Taxes (after completion of any discussion or arbitration regarding
said recalculation) are less than the related Tax Offset Amounts (adjusted for
amounts paid pursuant to Sections 3.1(a) and 4.2), Harmonic shall pay
Semiconductor such difference within three (3) days of the completion of any
discussion or arbitration regarding said recalculation.
(e) Basis Adjustment. Unless otherwise determined by the
third-party arbitrator in accordance with this Section 4.3, or unless otherwise
required pursuant to the terms of any Final Determination, payments made by
Harmonic to Semiconductor under this Section 4.3 shall be treated as an increase
in the basis of Semiconductor stock, for purposes of calculating Semi Spin
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Taxes. Unless otherwise required pursuant to the terms of any Final
Determination, payments made by Semiconductor to Harmonic under this Section 4.3
shall be treated as a decrease in the basis of Semiconductor stock for purposes
of calculating Semi Spin Taxes.
4.4 Liability for the Divicom Merger Taxes. The liability for state
and local Taxes of Harmonic or the C-Cube Subgroup that would not have been
incurred but for the merger of Divicom into C-Cube shall be allocated by the
mutual agreement of the parties in accordance with Schedule 4.4, provided,
however, that the liability for the Divicom Merger Taxes shall be allocated as
provided elsewhere in this Agreement. Nothing in this Section 4 shall be deemed
to limit a party's liability under Section 3 or Section 6 hereof.
5. SECTION 41 RESEARCH CREDITS
In accordance with Section 502 of the Ticket to Work and Work Incentives
Improvement Act of 1999, Semiconductor shall prepare and submit to C-Cube U.S.
Federal Income Tax Returns on or after October 1, 2000, which Returns will
reflect claims for refund of all Section 41 research credits attributable to the
period commencing on July 1, 1999, and ending on the Distribution Date (the
"Section 41 Credits"). Harmonic shall review such Returns and have the right to
approve such Returns, provided that approval may not be unreasonably withheld.
If Harmonic approves of such Returns, Harmonic shall file such Returns within a
reasonable period after receiving such Returns from Semiconductor (but in no
event earlier than October 1, 2000). In the event of a disagreement regarding
such Returns, procedures similar to those described in Section 4.3(c) shall
apply. C-Cube shall pay to Semiconductor the portion of the refund of such
credits actually received to the extent such credits are attributable to the
period commencing on July 1, 1999, and ending on the Distribution Date, less any
Pre-Semi Disposition Non-Semiconductor Tax Deficiency.
6. DISPUTES WITH TAXING AUTHORITIES
6.1 Tax Contests.
(a) Subject to Section 6.1(b), in the event of a Tax Contest
concerning the amount of any Tax liability for which Semiconductor is or could
be liable pursuant to this Agreement or refund due to or in respect of such Tax
liability (including but not limited to the Semi Spin Taxes), C-Cube hereby
expressly grants to Semiconductor the authority to act on behalf of C-Cube and
the Affiliated Group in matters related to such Tax liability. Subject to
Section 6.1(b), the parties hereby expressly appoint (subject to the consent of
the relevant Taxing Authority) Semiconductor to act as agent for the Affiliated
Group in any Tax Contest related to such Tax liability. Following receipt from
Harmonic of notice of the existence of such a Tax Contest and subject to Section
6.1(b), Semiconductor shall have the responsibility with respect to any such Tax
Contest and shall handle such Tax Contest in a prudent and diligent manner;
provided, however, that
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Harmonic shall be given copies of all correspondence with the relevant Taxing
Authority promptly upon receipt or transmission of such correspondence, and
shall receive reasonable advance notice of and opportunity to participate in, at
its sole cost and expense, all meetings and proceedings pertaining to such Tax
Contest, and shall be consulted prior to the making or accepting (tentatively or
otherwise) of any offers to settle such Tax Contest. No decision to pursue,
settle, or appeal any Tax Contest, Group Refund Claim or other claim for refund
of Tax related shall be made by Semiconductor without the prior written approval
of C-Cube, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, until such time as C-Cube receives notice that the Taxing Authority
intends to raise issues with respect to which Semiconductor could have liability
hereunder, C-Cube shall be entitled to deal directly with such Taxing Authority.
Semiconductor and C-Cube shall each bear their own costs (including attorneys
and accountants fees) in carrying out their responsibilities under this Section
6.1(a).
(b) Semiconductor shall, as a condition to exercising its
authority under Section 6.1(a) above, acknowledge in a writing reasonably
satisfactory to C-Cube its obligation to indemnify C-Cube on an After-Tax Basis
for any Tax liability arising from such Tax Contest and for which Semiconductor
is liable under this Agreement. Harmonic shall have the right to assume the
defense of any Tax Contest described in Section 6.1(a) in the event it
reasonably determines that cause exists for doing so, and Semiconductor shall
reimburse Harmonic for all reasonable out of pocket costs in assuming such
defense. Cause shall be deemed to exist if (i) Harmonic reasonably determines
that its interests would be jeopardized by a failure of Semiconductor to
adequately defend a Tax Contest in a prudent and diligent manner (including by
failure to make the acknowledgment in the first sentence of this Section
6.1(b)), (ii) Harmonic gives written notice of its determination, and (iii)
Semiconductor fails to act within 10 days of such notice to cure the defect
cited by Harmonic in such notice; provided, however, that clauses (ii) and (iii)
shall not apply if and to the extent that Harmonic reasonably determines that
providing such notice and awaiting Semiconductor's response would materially
jeopardize Harmonic's interests. In the event Harmonic has assumed the defense
of a Tax Contest for cause, Semiconductor shall reassume the defense of such Tax
Contest upon providing proof reasonably satisfactory to Harmonic that it shall
adequately defend such Tax Contest and payment to Harmonic of all reasonable
costs incurred in assuming such defense and defending such Tax Contest in the
interim; provided, however, that Semiconductor shall be given no more than one
opportunity to reassume the defense of any Tax Contest during any twelve-month
period.
6.2 Agreement to Cooperate. Each of C-Cube and Semiconductor agrees
to cooperate and cause their affiliates to cooperate fully and in a timely
manner in connection with the preparation of Returns, the pursuit of any Group
Refund Claim or other claim for refund of Taxes or the conduct of any Tax
Contest. The parties will bear their own expenses in connection with such
cooperation except as otherwise provided herein. This agreement to cooperate
extends beyond the date after which Semiconductor is no longer a member of the
Affiliated Group.
6.3 Adjustments.
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(a) In the event there is a C-Cube Tax Adjustment, Semiconductor
Tax Adjustment, C-Cube Tax Benefit, or Semiconductor Tax Benefit:
(i)Semiconductor shall be liable for, and shall indemnify
and hold the C-Cube Subgroup harmless on an After-Tax Basis, against any and all
Semiconductor Tax Adjustments (and any reasonable fees and other out-of-pocket
costs incurred by C-Cube in connection with such Semiconductor Tax Adjustments);
(ii) Subject to Section 6.3(d), Semiconductor shall be
entitled to any Semiconductor Tax Benefits on an After-Tax Basis;
(iii) Subject to Section 6.3(d), C-Cube shall be liable for,
and shall indemnify and hold Semiconductor harmless, on an After-Tax Basis
against any and all C-Cube Tax Adjustments (and any reasonable fees and other
out-of pocket costs incurred by Semiconductor in connection with such
Semiconductor Tax Adjustments); and
(iv) C-Cube shall be entitled to receive on an After-Tax
Basis the amount of any C-Cube Tax Benefits.
(b) C-Cube and Semiconductor shall share the amount of any Tax
Adjustment if, and to the extent, each party is liable for and/or has an
obligation to make, or has the right to receive, as the case may be, an
indemnity payment, or other payment with respect to such Tax Adjustment under
Section 6.3(a), in proportion to the amounts of the underlying Adjustments
giving rise to such Tax Adjustment attributable to the C-Cube Subgroup
(excluding for this purpose the Semiconductor Business) and the Semiconductor
Subgroup (including for this purpose the Semiconductor Business), respectively.
(c) Indemnity payments required by Section 6.3(a) and 6.3(b)
shall be paid within 30 days of the date of such Final Determination provided
that all payments shall include interest at the statutory underpayment rate (if
applicable) through the date of payment by the party obligated hereunder. Each
party shall provide the other with prompt written notice of each such Final
Determination.
(d) Notwithstanding anything herein to the contrary, C-Cube
shall have the right to receive from Semiconductor on an After-Tax Basis the
amount of any Section 41 Credits theretofore paid to Semi in accordance with
Section 5 hereof to the extent of any Pre-Semi Disposition Non-Semiconductor Tax
Deficiency, regardless of whether such deficiency arises from an Adjustment.
Such amount shall be paid to C-Cube no later than five (5) days following notice
from C-Cube that such Pre-Semi Disposition Non-Semiconductor Tax Deficiency has
been paid or incurred. Any amount not paid by Semi when due shall bear interest
at the rate provided in Section 3.5.
6.4 State Sales Tax Responsibilities. Schedule A hereto sets forth a
list of states to which C-Cube has made commitments relating to sales taxes,
including but not limited to commitments to register to do business, and the
nature of such commitments with each of those states. Harmonic shall assume
C-Cube's responsibilities and commitments in connection with
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ongoing discussions with state sales tax authorities to the extent set forth on
Schedule A, subject to Semiconductor's obligations to indemnify C-Cube hereunder
for all Pre-Semi Disposition Taxes and Semi Spin Taxes. Harmonic agrees to
register to do business in those states where C-Cube has committed to register
to do business, as set forth on Schedule A.
7. TAX ATTRIBUTE CARRYOVERS
7.1 Carryforward Tax Attributes. C-Cube and Semiconductor shall
reasonably cooperate to allocate Carryover Tax Attributes among the members of
the C-Cube Subgroup and the Semiconductor Subgroup in a manner that enables such
members to succeed to such attributes attributable to C-Cube (other than the
Semiconductor Business) and the Semiconductor Business, respectively; provided,
however, that any such attribute that may not be so allocated under applicable
law shall remain the property of the member entitled to such attribute under
applicable law, and there shall be no obligation of such member or its
affiliates to compensate any other member for the use of such Carryforward Tax
Attribute.
7.2 Carryback Items from Separate Return Tax Periods. With respect
to carrybacks of Semiconductor or net operating losses, net capital losses,
unused tax credits and other deductible or creditable Tax attributes to a
Consolidated Period from a Separate Return Period which would be permitted under
the Code and the Regulations (or state law or state regulations), Semiconductor
shall make an irrevocable election under Regulations Section 1.1502-21(b)(3)(i)
(or comparable state law or state regulations), to relinquish any carryback
period which would include the Consolidated Period. In cases where Semiconductor
cannot relinquish the carryback period (other than by reason of Semiconductor
failing to make such irrevocable election) or, if the parties otherwise agree,
C-Cube shall cooperate with Semiconductor in seeking Tax refunds from the
appropriate Taxing Authority, at Semiconductor's expense, and Semiconductor
shall be entitled to such refund on an After-Tax Basis, including interest paid
by the Taxing Authority in connection with such refund, less any reasonable out
of pocket costs incurred by C-Cube in connection with such refund; provided
however, that Semiconductor shall indemnify and hold C-Cube harmless from and
against any and all collateral Tax consequences resulting from or caused by the
carryback of deductible or creditable Tax attributes by Semiconductor from a
Separate Return Period to a Consolidated Period, including but not limited to,
Tax attributes of C-Cube that expire unused (including Tax attributes that
expire during a Tax period subsequent to the Tax period during which the
Semiconductor Tax attribute carried back was generated or taxes paid that are no
longer available for refund) and which would have been used but for
Semiconductor's carryback. The amount of such indemnity shall be limited to the
actual Tax benefits to which C-Cube would have been entitled in the absence of
the carryback of the deductible or creditable Tax attribute of Semiconductor,
plus interest at the rate of [__] % from the date any additional tax cost or
lost benefit was incurred by C-Cube. Semiconductor shall have the right to
review the collateral Tax consequences being indemnified. The amount of the
refund due to Semiconductor from C-Cube shall be reduced and offset by the
amount of the indemnification, if any, to which C-Cube is entitled.
8. RECORDS
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8.1 Retention by C-Cube. C-Cube shall, until the end of the
applicable statute of limitations for each Tax year (giving effect to any
extensions thereof), retain all material, including but not limited to, returns,
supporting schedules, workpapers, correspondence, and other documents relating
to the Affiliated Group and the Unitary Group in which any member of the
Semiconductor Subgroup was a member, to the extent such materials are in
C-Cube's possession and transferred to Harmonic in the Merger, and shall make
such items available to Semiconductor for inspection or copying (at
Semiconductor's expense) during C-Cube's regular business hours.
8.2 Retention by Semiconductor. Semiconductor shall, until the end
of the applicable statute of limitations for each Tax year (giving effect to any
extensions thereof), retain all material, supporting schedules, workpapers,
correspondence, and other documents relating to the Affiliated Group and any
Unitary Group and shall make such items available to C-Cube for inspection or
copying (at C-Cube's expense) during Semiconductor's regular business hours.
9. TERM AND TERMINATION
9.1 Term. This Agreement shall be effective as of the date hereof
and shall apply to and govern all subsequent Taxable periods, unless the parties
hereto each agree in writing to terminate this Agreement. Notwithstanding any
such termination, this Agreement shall continue in effect with respect to any
payment due from one party to the other with respect to any Taxable period
occurring prior to the effective date of the termination of this Agreement.
10. MISCELLANEOUS
10.1 Except as otherwise provided in this Agreement, in no event
shall any member of the C-Cube Group or the Semiconductor Group be liable to any
other member of the C-Cube Group or the Semiconductor Group for any special,
consequential, indirect, incidental or punitive damages or lost profits, however
caused and on any theory of liability (including negligence) arising in any way
out of this Agreement, whether or not such party has been advised of the
possibility of such damages.
10.2 Entire Agreement. This Agreement, the Restated Merger
Agreement, the other Ancillary Agreements and the Exhibits and Schedules
referenced or attached hereto and thereto, constitute the entire agreement
between the parties with respect to the subject matter hereof and shall
supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof. In the event any
provision of any agreement conflicts with a provision of the Restated Merger
Agreement or any other Ancillary Agreement, this Agreement will govern.
10.3 Governing Law. This Agreement shall be governed and construed
and enforced in accordance with the laws of the State of Delaware as to all
matters regardless of the laws that might otherwise govern under the principles
of conflicts of laws applicable thereto.
10.4 Assignment; Binding Upon Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective legal
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representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
not be assigned by any party hereto. Any member corporation which leaves the
Affiliated Group shall be bound by this Agreement.
10.5 Severability. If any term or other provision of this Agreement
is determined by a nonappealable decision by a court, administrative agency or
arbitrator to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to either party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the fullest extent possible.
10.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which shall
constitute one and the same agreement.
10.7 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of either party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
10.8 Amendment and Waivers. No change or amendment will be made to
this Agreement and no waiver will be made under this Agreement except by an
instrument in writing signed on behalf of each of the parties to such agreement.
10.9 Expenses. Unless otherwise provided, all fees and expenses
incurred in connection with this Agreement will be paid by the party incurring
such fees or expenses.
10.10 Dispute Resolution. In the event of any dispute arising under
this Agreement, the dispute resolution procedure provided for such dispute in
this Agreement, if any, shall control. If no dispute resolution procedure is
provided for such dispute, the dispute resolution provisions of Section 4.6 of
the Separation Agreement shall control.
10.11 Notices. Any notice, demand, offer, request or other
communication required or permitted to be given by either party pursuant to the
terms of this Agreement shall be in writing and shall be deemed effectively
given the earlier of (i) when received, (ii) when delivered personally, (iii)
one (1) business day after being delivered by facsimile (with receipt of
appropriate confirmation), (iv) one (1) business day after being deposited with
an overnight courier service or (v) four (4) days after being deposited in the
U.S. mail, First Class with postage prepaid, and
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addressed to the attention of the party's General Counsel at the address of its
principal executive office or such other address as a party may request by
notifying the other in writing.
10.12 Construction of Agreement. A reference to a Section will mean
a Section in this Agreement unless otherwise explicitly set forth. The titles
and headings herein are for reference purposes only and will not in any manner
limit the construction of this Agreement which will be considered as a whole.
10.13 Jurisdiction and Venue. The parties hereto irrevocably consent
to and agree that any litigation or other dispute resolution proceeding among
the parties relating to this Agreement will take place in Santa Xxxxx County,
California. The parties hereby irrevocably consent to the personal jurisdiction
or and the venue in the state and federal court within such county.
10.14 Further Assurances. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
10.15 Intention of the Parties. It is the intention of the parties
that Semiconductor shall make C-Cube whole, on an After-Tax Basis, for (i) any
Pre-Semi Disposition Taxes, (ii) Semi Spin Taxes, (iii) any increase in those
Taxes as a result of Adjustments, except for any Adjustments with respect to
Pre-Semi Disposition Non-Semiconductor Taxes (other than as provided in Section
6.3). It is also the intention of the parties to avoid double payment,
double-crediting or other double-counting of any items (including items set
forth in Section 4) which would result in an inequitable and unintended benefit
to one party or parties to the detriment of the other party or parties. The
parties agree that the provisions of this Agreement shall be interpreted in
accordance with the intent stated in this paragraph, and if there are other
issues not addressed by this Agreement, the parties agree to pay to each other
such other amounts as are consistent with the intent stated in this paragraph.
10.16 References to and Obligations of C-Cube. The parties agree
that Semiconductor shall indemnify and hold Harmonic harmless from and against
any breach of this Agreement by C-Cube prior to the Merger (or after the Merger
if such breach is a result of actions or inaction of C-Cube or Semiconductor
prior to the Merger), and that following the Merger, references in this
Agreement shall be deemed where appropriate, including where consistent with
Semiconductor's obligation to indemnify C-Cube as specified in this Agreement,
to constitute references to Harmonic as the successor to C-Cube.
10.17 Semiconductor Authorization. Semiconductor hereby represents
and warrants that it has received the necessary authorization to execute this
Agreement on behalf of itself and its subsidiaries, including all members of the
Semiconductor Subgroup.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers.
C-CUBE MICROSYSTEMS INC. C-CUBE SEMICONDUCTOR INC.
ON ITS OWN BEHALF AND ON BEHALF THE
C-CUBE SUBGROUP
By: By:
---------------------------------- ---------------------------------
Name: Name:
-------------------------------- -------------------------------
Title: Title:
------------------------------- ------------------------------
HAROMONIC INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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SCHEDULE 4.4
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SCHEDULE A TO TAX SHARING AGREEMENT
BY AND AMONG C-CUBE, SEMICONDUCTOR, AND HARMONIC
----------------------------------------------------------------------------------------------------------------
STATE/LOCALITY SALES TAX REGISTRATION REQUIREMENTS AGREEMENTS RELATING
TO SALES TAXES (NONE UNLESS NOTED)
----------------------------------------------------------------------------------------------------------------
Arizona Negotiated agreement with respect to
past taxes with commitment to file
Registration required in all listed states. returns for 8-year future period.
--------------------- ----------------------------------------
California
--------------------- ----------------------------------------
Colorado
--------------------- ----------------------------------------
Colorado (Boulder)
--------------------- ----------------------------------------
Florida Negotiated agreement with respect to past
taxes with commitment to file returns for
8-year future period.
--------------------- ----------------------------------------
Georgia Negotiated agreement with respect to past
taxes with indefinite commitment to file
future returns.
--------------------- ----------------------------------------
Hawaii Negotiated agreement with respect to past
taxes with commitment to file returns for
8-year future period.
--------------------- ----------------------------------------
Illinois Negotiated agreement with respect to past
taxes with indefinite commitment to file
future returns.
--------------------- ----------------------------------------
Louisiana
--------------------- ----------------------------------------
Maryland Negotiated agreement with respect to past
taxes with commitment to file returns for
8-year future period.
--------------------- ----------------------------------------
Massachusetts Negotiated agreement with respect to past
taxes with commitment to file returns for
8-year future period.
--------------------- ----------------------------------------
Minnesota
--------------------- ----------------------------------------
Nevada
--------------------- ----------------------------------------
New Jersey
--------------------- ----------------------------------------
New Mexico
--------------------- ----------------------------------------
New York Negotiated agreement with respect to
past taxes with indefinite commitment to
file future returns.
--------------------- ----------------------------------------
North Carolina Negotiated agreement with respect
to past taxes with commitment to file
returns for 8-year future period.
--------------------- ----------------------------------------
Pennsylvania Negotiated agreement with respect to past
taxes with indefinite commitment to file
future returns.
--------------------- ----------------------------------------
Rhode Island
--------------------- ----------------------------------------
Texas Negotiated agreement with respect to past
taxes with commitment to file returns for
8-year future period.
--------------------- ----------------------------------------
Virginia
--------------------- ----------------------------------------
Washington
--------------------- ----------------------------------------
Wyoming Verbal commitment to file in the future.
----------------------------------------------------------------------------------------------------------------
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