1
EXHIBIT 10.7
AMENDED AND RESTATED TAX SHARING AGREEMENT
BETWEEN
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
AND
McDATA CORPORATION
EFFECTIVE AS OF MAY 31, 2000
2
EXHIBIT 10.7
AMENDED AND RESTATED TAX SHARING AGREEMENT
THIS AMENDED AND RESTATED TAX SHARING AGREEMENT (this
"Agreement"), dated as of May 31, 2000, by and among ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, a
Massachusetts corporation ("Parent" or "EMC"), on behalf of itself and the EMC
Affiliates (as defined below), and McDATA Corporation, a Delaware corporation
and currently an indirect, controlled subsidiary of Parent ("McDATA"), on behalf
of itself and the McDATA Affiliates (as defined below), is entered into in
connection with the Distribution (as defined below).
RECITALS
WHEREAS, the board of directors of Parent has determined that
it is appropriate and desirable to distribute, subject to certain conditions, to
its common shareholders all of Parent's interest in McDATA's common stock on the
Distribution Date (as defined below);
WHEREAS, the Distribution (as defined below) is intended to
qualify as a tax free distribution under Section 355 of the Code (as defined
below);
WHEREAS, Parent and the Affiliated Companies are part of an
affiliated group filing consolidated Federal income tax returns and certain
consolidated, combined, or unitary state or local income tax returns;
WHEREAS, it is appropriate and desirable to set forth the
principles and responsibilities of the parties to this Agreement regarding the
allocation of tax and other related liabilities and adjustments with respect to
taxes, tax contests and other related tax matters; and
WHEREAS, to that end, the parties to this Agreement wish to
amend and restate the Tax Sharing Agreement, dated January 1, 1997, by and among
Parent and each of the Affiliated Companies, as supplemented by that certain
Addendum to Section 6(a) of the Tax Sharing Agreement by and between Parent,
McDATA Holdings Corporation and McDATA effective as of January 1, 1997, and as
supplemented by that certain Letter Agreement by and between Parent and McDATA
dated as of April 27, 1999;
3
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto agree to amend and restate said
Tax Sharing Agreement, as so supplemented, as follows:
Section 1. DEFINITIONS
(a) As used in this Agreement:
"AFFILIATED COMPANIES" shall mean, for each taxable year, all
Members of the EMC Consolidated Group other than the common parent corporation.
"AFFILIATED GROUP" shall mean an affiliated group of
corporations within the meaning of Code section 1504(a) for the taxable year in
question.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended and in effect for the taxable year in question.
"EMC AFFILIATE" shall mean each subsidiary of EMC other than
McDATA or any McDATA Affiliate.
"EMC CONSOLIDATED GROUP" shall mean, for each taxable year,
the Affiliated Group of which EMC is the common parent.
"IRS" means the United States Internal Revenue Service or any
successor thereto, including, but not limited to, its agents, representatives
and attorneys.
"MCDATA AFFILIATE" shall mean each subsidiary of McDATA.
"MEMBERS" shall mean, for each taxable year, each includible
member of the EMC Consolidated Group.
"SEPARATE RETURN TAX LIABILITY" shall have the meaning set
forth in Section 2(c) below.
2
4
"SEPARATE RETURN YEAR" shall mean any taxable year for which a
former or future Member is not included in the EMC Consolidated Group's
consolidated Federal income tax return.
"TAX ATTRIBUTES" shall mean income, gain, loss, deduction and
credit, and all items entering into the computation thereof, for Federal income
tax purposes.
"TREASURY REGULATIONS" shall mean the income tax regulations
promulgated under the Code applicable to the taxable year in question.
(b) Any term used in this Agreement that is not defined in
this Agreement shall, unless the context otherwise requires, have the meaning
assigned in the Code or in the Treasury Regulations thereunder.
Section 2. FILING OF CONSOLIDATED FEDERAL INCOME TAX RETURNS AND PAYMENT
OF TAXES
(a) FILING BY EMC.
(i) EMC will file consolidated federal income tax
returns on behalf of the EMC Consolidated Group for each taxable year ending
after the date hereof during which EMC and any one or more Affiliated Companies
are members of the EMC Consolidated Group.
(ii) Parent shall prepare the return and shall have
the right to exercise all the powers and shall have all the duties of a common
parent as are conferred upon it by the Code and Treasury Regulations. Parent and
its Affiliated Companies shall execute and file such consents, elections and
other documents that may be required or appropriate for the proper filing and
defense of such returns.
(b) OBLIGATIONS TO MAKE TAX SHARING PAYMENTS. For each taxable
year or period during which EMC and any one or more of the Affiliated Companies
are members of the EMC Consolidated Group, each Member will pay to EMC its
respective allocable share of the EMC Consolidated Group's consolidated federal
income tax liability for that taxable year or period. For these purposes, a
Member's allocable share of such tax liability equals the portion thereof that
is allocable to that Member in accordance with Treasury Regulation Section
1.1552-1(a)(2), in conjunction with the supplemental method set forth in
Treasury Regulation Section 1.1502- 33(d)(3), as provided in Section 2(c) of
this Agreement.
3
5
(c) CALCULATION OF TAX SHARING PAYMENT. In order to compensate
Members of the EMC Consolidated Group for the use of net operating losses or tax
credits in arriving at the consolidated federal income tax liability of the EMC
Consolidated Group, the Members of the EMC Consolidated Group agree to determine
and allocate the tax liability of the EMC Consolidated Group among them selves
in the following manner:
Step 1. The income of the Parent shall be adjusted, if so elected,
to allocate to the Parent the tax deduction allowed in
accordance with the ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ & Subsidiaries' Stock
Option and Stock Purchase Plan Agreement, effective January 1,
1997. The Member who would have been entitled to the tax
deduction under Section 421(b) of the Code, but for the
allocation allowed to the Parent under the ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
and Subsidiaries' Stock Option and Stock Purchase Plan
Agreement, shall increase their income by the amount of the
deduction allowed to the Parent. The consolidated federal
income tax liability, as determined under Treasury Regulation
Section 1.1502-2, shall then be allocated to the Members in
accordance with Treasury Regulation Section 1.1552-1(a)(2).
Step 2. An additional amount shall be allocated to each Member
equal to 100 percent of the excess, if any, of (1) the
Separate Return Tax Liability (as defined below) of such
Member for the taxable year over (2) the tax liability
allocated to such Member in accordance with Step 1 of
paragraph c of this section. For purposes of the preceding
sentence, the Separate Return Tax Liability of each Member for
the taxable year shall be determined as if such Member were
filing a separate tax return under the Code, and shall not
have the same meaning as Treasury Regulation Section
1.1502-12. For purposes hereof, the term "tax" shall include
regular corporate income tax or alternative minimum tax.
For purposes of determining the Separate Return Tax Liability
of a Member:
(1) Any dividends received by one Member from another
Member will be assumed to qualify for the 100 percent
dividends-received deduction of Section 243 of the
Code, or excluded
4
6
from income to the extent permitted by Treasury
Regulation Section 1.1502-13(f)(2)(ii).
(2) Gain or loss on intercompany transactions, whether
deferred or not, shall be treated by each Member in
the manner required by Treasury Regulation Section
1.1502-13.
(3) Limitations on utilization of Tax Attributes, such as
the calculation of a deduction or the utilization of
tax credits or the calculation of a tax liability,
shall be made on a consolidated basis. Accordingly,
the limitations provided in Section 38(c) (relating
to general business credit); 170(b)(2) (relating to
charitable contribution deduction), and 172(b)(2)
(relating to net operating loss deduction) of the
Code and similar limitations shall be applied on a
consolidated basis. Under the principles of Revenue
Ruling 66-374, 1966-2 C.B. 427, the "net operating
loss" of a Member is the deduction which such Member
would have had available if it actually filed a
separate return for the year and thus would not
include any portion of a Member's net operating loss
sustained in a prior or subsequent year which had
been absorbed by the EMC Consolidated Group or by the
Member in computing actual liabilities for prior or
subsequent years. Notwithstanding the preceding
sentence, no benefit shall be granted a Member unless
the net operating loss is availed of in reducing the
consolidated Federal income tax liability. The rules
stated in the previous sentences regarding carryover
net operating losses will also apply in the
computation of other Tax Attribute carryover items
such as general business credits, foreign tax
credits, and charitable contribution deductions.
(4) Elections as to tax credits and tax computations
which may have been different from the consolidated
treatment if separate returns were filed shall be
made on an annual basis by Parent.
(5) In calculating any benefit from a carryback or
carryover of net operating losses, adjustments shall
be made to each prior or subsequent year's Separate
Return Tax Liability as required under Section
172(b)(2) and 172(d) of the Code. For purposes
5
7
of this calculation, the election under Section
172(b)(3) of the Code shall be made on a separate
company basis.
(6) The sharing of the consolidated alternative minimum
tax shall be in accordance with Proposed Treasury
Regulation 1.1552-1(g), Allocation of Consolidated
AMT and Allowable MTC to Members.
(7) Each Members' separate research and experimentation
tax credit for purposes of Step 2 shall be calculated
in accordance with Section 41(f)(1)(A)(ii) of the
Code.
Step 3. The total of any additional amounts allocated to
Members pursuant to Step 2 of paragraph (c) of this Section
(including amounts allocated as a result of a carryback) shall
be paid (as provided in paragraph (b) of this Section) by such
members to those other Members which had items of income,
deductions, net operating losses, or tax credits to which the
Step 2 amount is attributable, pursuant to a consistent method
which reasonably reflects such items of income, deductions,
net operating losses, or tax credits (such consistency and
reasonableness to be determined by parent). However, for this
purpose, the amounts paid to Members will be deemed consistent
and reasonable if paid on a basis equal to 35 percent (or the
current federal tax rate on corporations) of net operating
losses utilized and 100 percent of tax credits utilized and
which is substantiated by specific records maintained by the
group for such purposes.
(Examples 1 and 2 attached to this Agreement illustrate the allocation of the
federal tax liability among the group members.)
Section 3. TAX SHARING PAYMENTS
(a) Each Member shall pay Parent, or otherwise account to
Parent for, its Separate Return Tax Liability (if greater than zero) determined
under Section 2(c) of this Agreement. Parent shall pay to each Member with Tax
Attributes used by the EMC Consolidated Group during the taxable year, or
otherwise account to such Member for, such Member's allocable share of the tax
benefit to the EMC Consolidated Group of the utilization of such Tax Attributes.
Such tax benefit shall be determined on a marginal tax basis (calculating
consolidated tax liability with and
6
8
without use of such Tax Attributes), and allocated to each Member whose Tax
Attributes are used by the EMC Consolidated Group during the taxable year
pursuant to a consistent method which reasonably reflects the utilization of
such Tax Attributes (such consistency and allocation to be determined by
Parent). Payments for these allocable shares are to be made no later than ten
days after the date of filing of the consolidated Federal income tax return for
such taxable year, except as may otherwise be agreed to by Parent and the
appropriate Member.
(b) Parent shall have the right to assess Members their share
of estimated tax payments to be made on the projected consolidated Federal
income tax liability for each year. Payment to Parent shall be made ten days
after such assessment, except as may otherwise be agreed to by Parent and the
appropriate Member. Such Member will receive credit for such prepayments in the
year-end computation under Paragraph (a) of this Section 3.
(c) If part or all of an unused consolidated Tax Attribute is
allocated to a Member of the EMC Consolidated Group pursuant to Treasury
Regulation Section 1.1502-79 or otherwise, and it is carried back or forward to
a year in which such Member filed or files a separate income tax return or a
consolidated Federal income tax return with another Affiliated Group, any refund
or reduction in tax liability arising from the carryback or carryover shall be
retained by such Member. (If such refund or reduction goes to some entity other
than the Member, then such entity shall pay over such amount to the Member.)
Notwithstanding the above, Parent shall determine whether an election shall be
made not to carry back any consolidated net operating loss or other Tax
Attribute arising in a consolidated return year (including any portion allocated
to a Member under Treasury Regulation Section 1.1502-79) in accordance with
Section 172(b)(3)(C) of the Code or other applicable provision.
Section 4. TAX INDEMNITY
Except as otherwise agreed, Parent shall be liable for, and
shall indemnify and hold each Affiliated Company harmless (subject to setoff for
any unpaid amount under Section 2, paragraph (b) of this Agreement) against any
and all Federal income tax for periods in which it is included in the EMC
Consolidated Group's consolidated Federal income tax return. Each Affiliated
Company shall be liable for, and shall indemnify and hold each other Member
harmless against any and all Federal income tax for periods in which it is not
included in the EMC Consolidated Group's consolidated Federal income tax
return.
7
9
Section 5. ADJUSTMENT TO FEDERAL INCOME TAX LIABILITY
Parent shall control all decisions as to tax audits and
proceedings as exclusive agent of each of the Affiliated Companies. If the
consolidated Federal income tax liability is adjusted for any taxable year,
whether by means of an amended return, claim for refund, or after-tax audit by
the IRS, the liability of each Member shall be recomputed under this Agreement
to give effect to such adjustments. In the case of a refund, Parent shall make
payment to each Member for its share of the refund, determined in the same
manner as in Section 2 of this Agreement, within ten days after the refund is
received by Parent, and in the case of an increase in tax liability, each Member
shall pay to Parent its allocable share of such increased tax liability within
ten days after receiving notice of such liability from Parent. If any interest
is to be paid or received as a result of a consolidated Federal income tax
deficiency or refund, such interest shall be allocated to the Members in the
ratio each Member's change in consolidated Federal income tax liability bears to
the total change in tax liability. Any penalty shall be allocated upon such a
basis as Parent deems just and proper in view of all applicable circumstances.
Section 6. CERTAIN STATE AND LOCAL INCOME TAX LIABILITIES
(a) Parent shall include certain Affiliated Companies in
certain consolidated, combined, or unitary state or local income tax returns.
Unless otherwise agreed, the allocation of each state's tax liability shall be
based upon the percentage of each member's post-apportionment separate company
state tax over the sum of each member's post-apportionment separate company
state tax. This allocation methodology shall be applied to the filing of
returns, assessments and claims for refund and reimbursements with respect to
state and local franchise or income tax liabilities to which any Member of the
EMC Consolidated Group is subject and which are required to be determined on a
unitary, combined or consolidated basis.
(b) If the parties are, after negotiation in good faith,
unable to agree upon the appropriate application of such rules with respect to
such franchise or income tax liabilities, the controversy shall be settled by
Parent's regular independent outside accounting firm.
(c) This section shall not apply to separate return filing
states. In those states, each member will bear its separate return liability.
8
10
(d) For purposes of all state tax liabilities incurred in
Arizona, California, Connecticut and Florida:
(i) McDATA Holdings Corporation, an EMC Affiliate, or
any successor thereto, will absorb the additional state tax liability resulting
from its inclusion in a combined or unitary return in the event that McDATA's
activities have created a unitary or combined filing requirement;
(ii) The determination of the state tax allocation
for the jurisdictions to which this paragraph (d) applies shall be based upon
the percentage of each Member's separate federal taxable income (as shown on
line 30 of the EMC Consolidated Group's consolidated federal income tax return)
over the sum of each Member's separate federal taxable income; and
(iii) The allocation methodology set forth in this
paragraph (d) shall be applied to the filing of returns, assessments and claims
for refund and reimbursements with respect to state and local franchise or
income tax liabilities to which any Member of the EMC Consolidated Group are
subject and which are required to be determined on a unitary, combined or
consolidated basis.
Section 7. MUTUAL COOPERATION - AUDIT BY TAXING AUTHORITY
(a) Each Member shall be notified by the Parent of an audit by
a taxing authority which includes any year in which a Member was included in the
consolidated return. The Parent shall provide to each Member the changes
proposed by the taxing authority.
(b) Parent and the Affiliated Companies shall provide each
other with such assistance as may be reasonably requested by either of them in
connection with the preparation and execution of any tax return, any audit or
other examination by any taxing authority, or any judicial or administrative
proceedings relating to any tax liability, and each will retain and, upon the
request of the other, provide the other with any records or information which
may be relevant to such return, audit or examination proceedings. Parent and the
Affiliated Companies agree to take whatever reasonable action is necessary to
minimize the aggregate tax liabilities of each of the Members, including filing
tax returns on a consolidated, combined or unitary basis, or not filing on such
basis.
9
11
Section 8. DECONSOLIDATION OF MCDATA
(a) PRIVATE LETTER RULING. Parent will provide to McDATA
copies of any material, information, covenant, representation or other documents
to be submitted to the IRS in connection with its request for any ruling with
respect to the Distribution reasonably in advance of the submission of any such
documents, will incorporate any reasonable suggestions or comments on such
documents made by McDATA, and will provide to McDATA copies of the final
documents submitted to the IRS. Promptly upon the receipt of any ruling from the
IRS, Parent will provide a copy of such ruling to McDATA.
(b) INDEMNIFICATION FOR DISTRIBUTION TAXES.
(i) INDEMNIFICATION BY MCDATA. McDATA shall, for
itself and as agent for each member of the McDATA Group, indemnify, defend and
hold harmless the EMC Group from and against any and all Distribution Taxes that
are primarily attributable to:
(A) any act, failure to act or omission of or by
McDATA (or any member of the McDATA Group) that
is inconsistent with any material, information,
covenant or representation in (1) any ruling
obtained from the IRS with respect to the
Distribution or (2) any documents submitted to
the IRS in connection with a request for any
such ruling;
(B) any act, failure to act or omission of or by
McDATA (or any member of the McDATA Group)
after the Distribution Date, including,
without limitation, a cessation, transfer to
affiliates, or disposition of its active
trades or businesses, or an issuance of
stock, stock buyback or payment of an
extraordinary dividend by McDATA (or any
member of the McDATA Group) following the
Distribution;
(C) any acquisition of any stock or assets of
McDATA (or any member of the McDATA Group) by
one or more other persons prior to or following
the Distribution; or
(D) any issuance of stock by McDATA (or any member
of
10
12
the McDATA Group), or change in ownership of
stock in McDATA (or any member of the McDATA
Group), that causes Section 355(d) or Section
355(e) of the Code to apply to the
Distribution.
(ii) INDEMNIFICATION BY EMC. EMC shall, for itself
and as agent for each member of the EMC Group, indemnify, defend and hold
harmless the McDATA Group from and against any and all Distribution Taxes that
are primarily attributable to:
(A) any act, failure to act or omission of or by
EMC (or any member of the EMC Group) that is
inconsistent with any material, information,
covenant or representation in (1) any ruling
obtained from the IRS with respect to the
Distribution or (2) any documents submitted to
the IRS in connection with a request for any
such ruling;
(B) any act, failure to act or omission of or by
EMC (or any member of the EMC Group) after the
Distribution Date, including, without
limitation, a cessation, transfer to
affiliates, or disposition of its active trades
or businesses, or an issuance of stock, stock
buyback or payment of an extraordinary dividend
by EMC (or any member of the EMC Group)
following the Distribution;
(C) any acquisition of any stock or assets of EMC
(or any member of the EMC Group) by one or more
other persons prior to or following the
Distribution; or
(D) any issuance of stock by EMC (or any member of
the EMC Group), or change in ownership of stock
in EMC (or any member of the EMC Group), that
causes Section 355(d) or Section 355(e) of the
Code to apply to the Distribution.
(c) CERTAIN ACTIONS DURING RESTRICTION PERIOD. During the
Restriction Period, unless (1) McDATA obtains the advance written consent of
Parent, which consent shall not be unreasonably withheld if McDATA provides
Parent with a written opinion of nationally recognized counsel or "Big 5"
accounting
11
13
firm, in form and substance satisfactory to Parent, to the effect that such
transaction or transactions will not adversely affect the tax treatment of the
Distribution, or (2) Parent obtains, at McDATA's request (and expense), a
private letter ruling from the IRS that such transaction or series of
transactions will not adversely affect the tax treatment of the Distribution,
McDATA will not, directly or indirectly:
(i) enter into, or otherwise be a party to, any
transaction or arrangement (including, without limitation, stock issuances,
stock acquisitions, and transactions involving the stock or substantially all of
the assets of McDATA) pursuant to which one or more persons acquire stock of
McDATA representing a "50-percent or greater interest" within the meaning of
Section 355(d)(4) of the Code that would cause Section 355(e) of the Code to
apply to the Distribution;
(ii) take or fail to take any other action
(including, without limitation, any cessation, transfer to affiliates or
disposition of its active trade or business, and certain reacquisitions of its
stock and payments of extraordinary dividends to its shareholders) that would
cause the Distribution to fail to qualify for nonrecognition of gain or loss
under the Code;
(iii) issue stock or other equity interests of McDATA
(including, without limitation, options, rights, warrants or securities
exercisable for, or convertible into stock of McDATA, or any similar
arrangement), or redeem, purchase or otherwise reacquire any of its capital
stock (other than through stock purchases meeting the requirements of section
4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696); which, when aggregated with
all other such specified transactions undertaken during the Restriction Period,
would involve the acquisition (determined under the principles of Section 355 of
the Code) by one or more persons of more than thirty-five percent (35%) of the
stock of McDATA (including stock issued by McDATA in the IPO); or
(iv) undertake any transaction that is treated as a
liquidation or reorganization under the Code.
(d) NOTICE OF SPECIFIED TRANSACTIONS. Not later than fifteen
(15) days prior to entering into any oral or written contract or agreement
regarding any of the transactions described in paragraph (b), McDATA shall
provide written notice of its intent to consummate such transaction to Parent.
12
14
(e) CARRYBACKS.
(i) IN GENERAL. Parent agrees to pay to McDATA the
United States federal income Tax Benefit from the use in any period prior to the
Deconsolidation Date of a carryback of any Tax Asset of the McDATA Group from
any period after the Deconsolidation Date. If subsequent to the payment by
Parent to McDATA of the United States federal income Tax Benefit of a carryback
of a Tax Asset of the McDATA Group, there is an adjustment (whether by means of
an amended return, claim for refund or after-tax audit by the IRS) which results
in a (1) change to the amount of the Tax Asset so carried back or (2) change to
the amount of such United States federal income Tax Benefit, McDATA shall repay
to Parent, or Parent shall repay to McDATA, as the case may be, the difference
between the amount of the Tax Benefit actually paid and the amount that would
have been paid if such amount had been determined in light of these events.
(ii) NET OPERATING LOSSES. Notwithstanding any other
provision of this Agreement, McDATA hereby expressly agrees to elect (under
Section 172(b)(3) of the Code and, to the extent feasible, any similar provision
of any state, local or foreign tax law) to relinquish any right to carryback net
operating losses for any tax year with respect to which such net operating loss
could otherwise be carried back into a consolidated return or a combined return
of the EMC Consolidated Group (in which event no payment shall be due from
Parent to McDATA in respect of such net operating losses).
(f) ALLOCATION OF TAX ITEMS. All tax computations for (1) any
periods ending on the Deconsolidation Date and (2) the immediately following
taxable period of McDATA or any member of the McDATA Group, shall be made
pursuant to the principles of section 1.1502-76(b) of the Treasury Regulations,
as determined by Parent, taking into account all reasonable suggestions made by
McDATA with respect thereto.
(g) OPTIONS.
(i) Notwithstanding any other provision of this
Agreement, but without duplication of any other adjustment provided in this
Agreement, (A) Parent shall be entitled to any Tax Benefit arising by reason of
(1) exercises of options to acquire shares of Parent stock and (2) any
disqualifying disposition of shares of Parent stock within the meaning of
Section 421(b) of the Code, and (B) McDATA shall be entitled to any Tax Benefit
arising by reason of exercises of
13
15
options to acquire shares of McDATA stock. Parent and McDATA agree to report all
tax deductions with respect to stock options consistently with this paragraph to
the extent permitted by the Code, to withhold any applicable taxes and satisfy
any applicable tax reporting obligations with respect to exercises of options to
acquire shares of Parent or McDATA stock by their respective employees, and to
timely provide to each other such information as may be necessary to satisfy
such withhold ing and reporting obligations. If McDATA receives any Tax Benefit
to which Parent is entitled under this paragraph, McDATA shall pay the amount of
such Tax Benefit to Parent, and if Parent receives any Tax Benefit to which
McDATA is entitled under this paragraph, Parent shall pay the amount of such Tax
Benefit to McDATA. For purposes of this paragraph, any Tax Benefit attributable
to any disqualifying disposition during a McDATA Separate Return Year of shares
of Parent stock or McDATA stock, as the case may be, within the meaning of
Section 421(b) of the Code shall be an amount equal to thirty-seven (37) percent
of any deduction attributable thereto, and McDATA or Parent, as the case may be,
shall be required to pay such amount to Parent or McDATA, as the case may be,
when McDATA or Parent, as the case may be, actually obtains and utilizes such
deduction on its United States federal income tax returns.
(ii) Parent agrees that in conjunction with the
contemplated initial public offering of McDATA stock and the Distribution,
McDATA's liability under the Stock Option Agreement with respect to any issuance
of Parent shares from the exercise of Parent stock options, will be limited to
the payment of the option price by the employees. Parent will not cross charge
McDATA the difference between the option price and fair market value on the date
of exercise. Parent will not require the issuance of additional shares from
McDATA, as a result of its capital contribution to McDATA resulting from the
exercise and issuance of Parent stock. The Tax Benefit that accrues as a result
of the exercise of a non-qualified option or the disqualifying disposition of an
incentive stock option with respect to Parent stock or McDATA stock, as the case
may be, will be due and payable within thirty (30) days of filing the federal
income tax return on which the Tax Benefit was utilized, to Parent or McDATA, as
the case may be, in cash.
(h) CONTINUING COVENANTS. Parent (for itself and each member
of the EMC Group) and McDATA (for itself and each member of the McDATA Group)
agree (1) not to take any action reasonably expected to result in an increased
tax liability to the other, a reduction in a Tax Asset of the other or an
increased liability to the other under this Agreement and (2) to take any action
reasonably requested by the other that would reasonably be expected to result in
a Tax Benefit or avoid a Tax
14
16
Detriment to the other, provided that such action does not result in any
additional direct or indirect cost not fully compensated for by the requesting
party. The parties hereby acknowledge that the preceding sentence is a statement
of general principle and is not intended to limit, and therefore shall not apply
to, the rights of the parties with respect to matters otherwise covered by this
Agreement.
(i) ADDITIONAL DEFINITIONS. For purposes of this Section 8:
"DECONSOLIDATION DATE" shall mean the date on which McDATA
ceases to be a Member of the EMC Consolidated Group.
"DISTRIBUTION" shall have the meaning ascribed to such term in
that certain Master Transaction Agreement between ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and McDATA
Corporation.
"DISTRIBUTION DATE" shall have the meaning ascribed to such
term in that certain Master Transaction Agreement between ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and
McDATA Corporation.
"DISTRIBUTION TAXES" shall mean any and all taxes imposed on
Parent or any Member resulting from, or arising in connection with, the failure
of the Distribution to be tax-free to such party under the Code (including,
without limitation, any tax resulting from the failure of the Distribution to
qualify under Section 355 of the Code or the application of Section 355(d) or
Section 355(e) of the Code to the Distribution) or corresponding provisions of
the laws of any other jurisdictions.
"EMC GROUP" shall have the meaning ascribed to such term in
that certain Master Transaction Agreement between ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and McDATA
Corporation.
"MCDATA GROUP" shall have the meaning ascribed to such term in
that certain Master Transaction Agreement between ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and McDATA
Corporation.
"RESTRICTION PERIOD" shall mean the period beginning on
January 1, 1999 and ending twenty-seven (27) months after the Distribution Date.
"TAX ASSET" shall mean any item that has accrued for United
States federal income tax purposes, but has not been used during a taxable
period, and that
15
17
could reduce a United States federal income tax in another taxable period,
including a net operating loss, net capital loss, investment tax credit, foreign
tax credit, research and experimentation credit, charitable deduction or credit
related to alternative minimum tax or any other United States federal income
tax credit.
"TAX BENEFIT" shall mean a reduction in the tax liability of a
taxpayer (or of the affiliated group of which it is a member) for any taxable
period. Except as otherwise provided in this Agreement, a Tax Benefit shall be
deemed to have been realized or received from a tax item in a taxable period
only if and to the extent that the tax liability of the taxpayer (or of the
affiliated group of which it is a member) for such period, after taking into
account the effect of the tax item on the tax liability of such taxpayer in the
current period and all prior periods, is less than it would have been if such
tax liability were determined without regard to such tax item.
"TAX DETRIMENT" shall mean an increase in the tax liability of
a taxpayer (or of the affiliated group of which it is a member) for any taxable
period. Except as otherwise provided in this Agreement, a Tax Detriment shall be
deemed to have been realized or received from a tax item in a taxable period
only if and to the extent that the tax liability of the taxpayer (or of the
affiliated group of which it is a member) for such period, after taking into
account the effect of the tax item on the tax liability of such taxpayer in the
current period and all prior periods, is more than it would have been if such
tax liability were determined without regard to such tax item.
Section 9. MISCELLANEOUS
(a) INJUNCTIONS. The parties acknowledge that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. The parties hereto shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
such remedy being in addition to any other remedy to which they may be entitled
at law or equity.
(b) ASSIGNMENT. Except by operation of law or in connection
with the sale of all or substantially all the assets of a party hereto, this
Agreement shall not be assignable, in whole or in part, directly or indirectly,
by any party hereto without the written consent of the other parties; and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void;
16
18
PROVIDED, HOWEVER, that the provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns, but no assignment shall relieve any
party's obligations hereunder without the written consent of the other parties.
(c) FURTHER ASSURANCES. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, performing
its obligations thereunder and taking any and all actions relating hereto,
comply with all applicable laws, regulations, orders and decrees, obtain all
required consents and approvals and make all required filings with any
governmental agency, other regulatory or administrative agency, commission or
similar authority and promptly provide the other parties with all such
information as they may reasonably request in order to be able to comply with
the provisions of this paragraph.
(d) PARTIES IN INTEREST. Except as herein otherwise
specifically provided, nothing in this Agreement expressed or implied is
intended to confer any right or benefit upon any person, firm or corporation
other than the parties and their respective successors and permitted assigns.
(e) WAIVERS, ETC.. No failure or delay on the part of the
parties in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent to any departure by the parties therefrom shall in any event be
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
(f) SETOFF. All payments to be made by any party under this
Agreement shall, except to the extent otherwise specifically provided herein, be
made without setoff, counterclaim or withholding, all of which are expressly
waived.
(g) CHANGE OF LAW. If due to any change in applicable law or
regulations interpretation thereof by any court of law or other governing body
having
17
19
jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.
(h) Any Member corporation which leaves the EMC Consolidated
Group shall be bound by this Agreement.
(i) The Members hereto specifically recognize that from time
to time other companies may become Members of the EMC Consolidated Group and
hereby agree that such new Members may become parties to this Agreement by
executing the master copy of the Agreement which shall be maintained at Parent's
headquarters. It will not be necessary for all the other Members to re-sign the
Agreement, but the new Member may simply sign the existing Agreement and it will
be effective as if the old Members had re-signed.
(j) Any alteration, modification, addition, deletion, or other
change in the consolidated income tax return provisions of the Code or the
Treasury Regulations shall automatically be applicable to this Agreement mutatis
mutandis.
(k) Failure of one or more parties hereto to qualify by
meeting the definition of Member of the EMC Consolidated Group shall not operate
to terminate this Agreement with respect to the other parties as long as two or
more parties hereto continue so to qualify.
(l) CONFIDENTIALITY. Subject to any contrary requirement of
law or regulation and the right of each party to enforce its rights hereunder in
any legal action, each party agrees that it shall keep strictly confidential,
and shall cause its employees and agents to keep strictly confidential, any
information which it or any of its agents or employees may acquire pursuant to,
or in the course of performing its obligations under, any provision of this
Agreement; PROVIDED, HOWEVER, that such obligation to maintain confidentiality
shall not apply to information which (1) at the time of disclosure was in the
public domain not as a result of acts by the receiving party or (2) was in the
possession of the receiving party at the time of disclosure.
(m) HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
18
20
(n) COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
(o) GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed therein.
(p) ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes any prior tax sharing agreements between Parent and McDATA and any of
their respective affiliates or subsidiaries and such prior tax sharing
agreements shall have no further force and effect.
19
21
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers, each of whom is duly
authorized, all as of the day and year first above written.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
on behalf of itself and the EMC Affiliates
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title:
McDATA CORPORATION
on behalf of itself and the McDATA Affiliates
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Financial Officer
20
