EXHIBIT 2.4
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TAX ALLOCATION AGREEMENT
by and among
CONEXANT SYSTEMS, INC.
WASHINGTON SUB, INC.
and
ALPHA INDUSTRIES, INC.
June 25, 2002
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS........................................................................2
Section 1.01 General............................................................................2
Section 1.02 Schedules, etc.....................................................................9
ARTICLE II FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS...................................9
Section 2.01 Preparation of Tax Returns.........................................................9
Section 2.02 Payment of Taxes..................................................................11
Section 2.03 Tax Refunds and Carrybacks........................................................14
Section 2.04 Allocation of Straddle Period Taxes...............................................15
ARTICLE III TAX INDEMNIFICATION; TAX CONTESTS.................................................16
Section 3.01 Indemnification...................................................................16
Section 3.02 Distribution Taxes................................................................18
Section 3.03 Notice of Indemnity...............................................................19
Section 3.04 Payments..........................................................................19
Section 3.05 Tax Contests......................................................................21
ARTICLE IV OPTIONS; COMPENSATION PAYMENTS; INTEREST
CHARGE FOR LATE PAYMENTS; CURRENCY
CALCULATIONS; EFFECTIVE TIME OF
TRANSACTIONS .....................................................................22
Section 4.01 Stock Options and Restricted Stock................................................22
Section 4.02 Compensation Payments.............................................................23
Section 4.03 Change in Law.....................................................................24
Section 4.04 Interest Charge for Late Payments.................................................24
Section 4.05 Currency Calculations.............................................................24
Section 4.06 Effective Time of Transaction.....................................................25
ARTICLE V COOPERATION AND EXCHANGE OF INFORMATION...........................................25
Section 5.01 Inconsistent Actions..............................................................25
Section 5.02 Ruling Request....................................................................25
Section 5.03 [Intentionally Omitted]...........................................................25
Section 5.04 Cooperation and Exchange of Information...........................................25
Section 5.05 Tax Records.......................................................................26
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ARTICLE VI MISCELLANEOUS.....................................................................27
Section 6.01 Entire Agreement; Construction....................................................27
Section 6.02 Effectiveness.....................................................................27
Section 6.03 Survival of Agreements............................................................28
Section 6.04 Governing Law.....................................................................28
Section 6.05 Notices...........................................................................28
Section 6.06 Dispute Resolution................................................................30
Section 6.07 Consent to Jurisdiction...........................................................30
Section 6.08 Amendments........................................................................31
Section 6.09 Successors and Assigns............................................................31
Section 6.10 Captions; Currency................................................................31
Section 6.11 Severability......................................................................32
Section 6.12 Parties in Interest...............................................................32
Section 6.13 Schedules.........................................................................32
Section 6.14 Waivers; Remedies.................................................................32
Section 6.15 Counterparts......................................................................32
Section 6.16 Performance.......................................................................33
Section 6.17 Interpretation....................................................................33
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TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT (this "AGREEMENT") dated as of June 25, 2002,
by and among CONEXANT SYSTEMS, INC., a Delaware corporation ("CONEXANT"),
WASHINGTON SUB, INC., a Delaware corporation and a wholly-owned subsidiary of
Conexant ("WASHINGTON"), and ALPHA INDUSTRIES, INC., a Delaware corporation
("ALPHA").
WHEREAS, Conexant and Washington have entered into a contribution and
distribution agreement (the "DISTRIBUTION AGREEMENT"), pursuant to which (a) all
the Washington Assets (as defined in the Distribution Agreement) will be
assigned to Washington and/or to one or more of the Washington Subsidiaries (as
defined in the Distribution Agreement) and all of the Washington Liabilities (as
defined in the Distribution Agreement) will be assumed by Washington and/or by
one or more of the Washington Subsidiaries, all as provided in the Distribution
Agreement (the "CONTRIBUTION") and (b) all of the issued and outstanding shares
of common stock, par value $.01 per share, of Washington (the "WASHINGTON COMMON
STOCK") will be distributed on a pro rata basis to Conexant's stockholders as
provided in the Distribution Agreement (the "DISTRIBUTION");
WHEREAS, the Boards of Directors of Conexant, Washington and Alpha have
approved an agreement and plan of reorganization (the "MERGER AGREEMENT")
pursuant to which Washington and Alpha will enter into a merger transaction in
order to advance the long-term strategic business interests of Conexant,
Washington and Alpha;
WHEREAS, the Boards of Directors of Conexant, Washington and Alpha have
determined to consummate such merger transaction by means of a business
combination transaction in which, immediately following the Distribution
Washington will merge with and into Alpha (the "MERGER"), with Alpha being the
surviving corporation;
WHEREAS, the parties to this Agreement intend that the Contribution and
the Distribution qualify under Sections 355 and 368 of the Code (as defined
herein) as a reorganization, that the Merger qualify under Section 368 of the
Code as a reorganization and that the Merger Agreement shall constitute a "plan
or reorganization" for purposes of Sections 354 and 361 of the Code; and
WHEREAS, Conexant and Alpha wish to provide for and agree upon the
allocation between the Conexant Tax Group (as defined herein) and the Alpha Tax
Group (as defined herein) of all responsibilities, liabilities and benefits
relating to
or affecting Taxes (as defined herein) paid or payable by either of them for all
taxable periods, whether beginning before, on or after the Distribution Date (as
defined herein).
NOW, THEREFORE, in consideration of the premises and of the respective
agreements contained in this Agreement, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 GENERAL. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined). Any capitalized term
not otherwise defined in this Agreement shall have the meaning ascribed to it in
the Distribution Agreement.
"ACTUALLY REALIZED" shall mean, for purposes of determining the timing
of any Taxes (or related Tax cost or benefit) relating to any payment,
transaction, occurrence or event, the time at which the amount of Taxes
(including estimated Taxes) payable by any person is increased above or reduced
below, as the case may be, the amount of Taxes that such person would be
required to pay but for the payment, transaction, occurrence or event.
"ALPHA" shall have the meaning ascribed thereto in the preamble.
"ALPHA COMMON STOCK" shall mean the Common Stock, par value $0.25 per
share, of Alpha and the associated preferred share purchase rights.
"ALPHA COMMON STOCK OPTIONS" shall mean options to acquire shares of
Alpha Common Stock.
"ALPHA GROUP EMPLOYEES AND FORMER EMPLOYEES" shall mean individuals (i)
who are employees of any member of the Alpha Tax Group on the date of the event
giving rise to a deduction in respect of any Compensation Payments made to such
individuals or Stock Options or Restricted Stock held by such individuals or
(ii) who were employees of any member of the Alpha Tax Group and were not
thereafter employees of any member of the Conexant Tax Group.
"ALPHA POST-DISTRIBUTION TAX ACT" shall have the meaning set forth in
Section 3.01(a).
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"ALPHA RESTRICTED STOCK" shall mean shares of Alpha Common Stock
subject to restrictions on transferability and subject to a substantial risk of
forfeiture.
"ALPHA TAX ACT" shall have the meaning set forth in Section 3.02(b).
"ALPHA TAX GROUP" shall mean (i) Alpha, (ii) any member of the
Washington Tax Group, and (iii) any corporation or other legal entity which
Alpha directly or indirectly owned or owns prior to, on or following the
Distribution Date.
"ALPHA TAX REPRESENTATION LETTER" shall mean the letter delivered by
Alpha to Conexant on the Distribution Date, substantially in the form set forth
in Schedule 3.02(c) attached hereto.
"ASSET PURCHASE AGREEMENTS" shall mean those asset purchase agreements
dated as of December 16, 2001 by and between Conexant and Alpha, as amended and
restated as of June 25, 2002, providing for the sale of certain assets to Alpha
after the Merger.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"COMPENSATION PAYMENTS" shall mean all non-qualified employee benefit
plan and welfare benefit plan payments made by any member of the Alpha Tax Group
under the Employee Matters Agreement dated as of the date hereof by and among
Conexant, Washington and Alpha.
"CONEXANT" shall have the meaning ascribed thereto in the preamble.
"CONEXANT BOARD" shall mean the Board of Directors of Conexant or a
duly authorized committee thereof.
"CONEXANT COMMON STOCK" shall mean the Common Stock, par value of $1
per share, of Conexant and the associated preferred share purchase rights.
"CONEXANT COMMON STOCK OPTIONS" shall mean options to acquire Conexant
Common Stock.
"CONEXANT GROUP EMPLOYEES AND FORMER EMPLOYEES" shall mean individuals
(i) who are employees of any member of the Conexant Tax Group on the date of the
event giving rise to a deduction in respect of any Compensation Payments made to
such individuals or Stock Options or Restricted Stock held by such individuals,
or (ii) who were employees of any member of the Conexant Tax Group and were not
thereafter employees of any member of the Alpha Tax Group.
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"CONEXANT RESTRICTED STOCK" shall mean shares of Conexant Common Stock
subject to restrictions on transferability and subject to a substantial risk of
forfeiture.
"CONEXANT TAX GROUP" shall mean (i) Conexant, (ii) any corporation or
other legal entity which Conexant directly or indirectly owns immediately
following the Distribution Date other than a member of the Alpha Tax Group,
(iii) any other corporation or other legal entity which Conexant directly or
indirectly owned at any time on or prior to the Distribution Date other than a
member of the Alpha Tax Group, and (iv) solely for purposes of this Agreement
and not for purposes of any other Transaction Agreement or the Merger Agreement,
for any taxable period (A) Old Rockwell and any other corporation or legal
entity owned by Old Rockwell other than a member of the Alpha Tax Group and (B)
Rockwell and any other corporation or legal entity owned by Rockwell other than
a member of the Alpha Tax Group.
"CONEXANT TAX REPRESENTATION LETTER" shall mean the letter delivered by
Conexant to Alpha on the Distribution Date, substantially in the form set forth
in Schedule 3.02(d) attached hereto.
"CONEXANT/WASHINGTON TAX GROUP" shall mean any corporation or other
legal entity which is a member of the Conexant Tax Group or the Washington Tax
Group but only with respect to taxable periods (or portions thereof) ending on
or before or including the Distribution Date.
"CONTRIBUTION" shall have the meaning ascribed thereto in the
Distribution Agreement.
"DISTRIBUTION" shall mean the distribution of the Washington Common
Stock on a pro rata basis to holders of Conexant Common Stock and Conexant
Series B Preferred Stock on the Distribution Date pursuant to the Distribution
Agreement.
"DISTRIBUTION AGREEMENT" shall have the meaning ascribed thereto in the
preamble.
"DISTRIBUTION TAXES" shall mean any Taxes resulting from (a) the
failure of the Contribution and the Distribution to qualify as a reorganization
under Sections 355 and 368 of the Code, (b) the failure of the Contribution and
the Distribution to qualify as tax-free to Conexant under Sections 355(c) and
361(c) of the Code, or (c) the failure of any pre-Distribution transaction
specified in Schedule 3.01(b) to be non-taxable.
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"DISTRIBUTION TRANSACTION" shall mean any transaction undertaken in
connection with the Distribution and described in the Ruling Request.
"DISTRIBUTION DATE" shall mean the date on which the Distribution
occurs (or, if different, the date on which the Distribution is deemed to occur
for U.S. federal Income Tax purposes). For purposes of this Agreement, the
Distribution shall be deemed effective as of the end of the day on the
Distribution Date.
"FINANCING AGREEMENT " shall mean the financing agreement dated as of
June 25, 2002 by and among Alpha, certain of its subsidiaries and Conexant.
"FOREIGN INCOME TAX" shall mean any Income Tax other than a U.S.
federal, state or local Income Tax.
"FOREIGN INCOME TAX RETURNS" shall mean any Income Tax Return which is
not a U.S. federal, state or local Income Tax Return.
"INCOME TAX" shall mean (a) any Tax based upon, measured by, or
calculated with respect to (i) net income or profits (including, but not limited
to, any capital gains, minimum Tax and any Tax on items of Tax preference, but
not including sales, use, real or personal property, gross or net receipts,
transfer or similar Taxes) or (ii) multiple bases (including, but not limited
to, corporate franchise, doing business or occupation Taxes) if one or more of
the bases upon which such Tax may be based, measured by, or calculated with
respect to, is described in clause (i) above, or (b) any U.S. state or local
franchise Tax; including in the case of each of (a) and (b) any related interest
and any penalties, additions to such Tax or additional amounts imposed with
respect thereto by any Tax Authority.
"INCOME TAX BENEFIT" shall mean for any taxable period the excess of
(i) the hypothetical Income Tax liability of the taxpayer for the taxable period
calculated as if the Timing Difference or Reverse Timing Difference, as the case
may be, had not occurred but with all other facts unchanged, over (ii) the
actual Income Tax liability of the taxpayer for the taxable period, calculated
taking into account the Timing Difference or Reverse Timing Difference, as the
case may be (treating an Income Tax refund or credit as a negative Income Tax
liability for purposes of such calculation).
"INCOME TAX DETRIMENT" shall mean for any taxable period the excess of
(i) the actual Income Tax liability of the taxpayer for the taxable period,
calculated taking into account the Timing Difference or Reverse Timing
Difference, as the case may be, over (ii) the hypothetical Income Tax liability
of the taxpayer for the taxable period, calculated as if the Timing Difference
or Reverse Timing Difference, as the
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case may be, had not occurred but with all other facts unchanged (treating an
Income Tax refund or credit as a negative Income Tax liability for purposes of
such calculation).
"INCOME TAX RETURN" shall mean any Tax Return that relates to Income
Taxes.
"INDEMNITEE" shall have the meaning set forth in Section 3.03.
"INDEMNITOR" shall have the meaning set forth in Section 3.03.
"INDEMNITY ISSUE" shall have the meaning set forth in Section 3.03.
"IRS" shall mean the Internal Revenue Service.
"NON-INCOME TAX" shall mean any Tax other than an Income Tax.
"OLD ROCKWELL" shall mean the corporation, formerly named Rockwell
International Corporation, which owned all of the Rockwell Common Stock prior to
the distribution of the Rockwell Common Stock to the shareholders of such
corporation on December 6, 1996.
"PERSON" shall mean any individual, partnership, joint venture,
corporation, limited liability entity, trust, unincorporated organization or
other entity (including a governmental entity).
"POST-DISTRIBUTION TAXABLE PERIOD" shall mean a taxable period
beginning after the Distribution Date.
"POST-TAX INDEMNIFICATION PERIOD" shall mean any Post-Distribution
Taxable Period and that portion of any Straddle Period that begins on the day
after the Distribution Date.
"PRE-DISTRIBUTION TAXABLE PERIOD" shall mean a taxable period ending on
or before the Distribution Date.
"REPRESENTATIVE" shall mean, with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
"RESTRICTED STOCK" shall mean Alpha Restricted Stock or Conexant
Restricted Stock.
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"REVERSE TIMING DIFFERENCE" shall mean an increase in income, gain or
recapture, or a decrease in deduction, loss or credit, as calculated for Income
Tax purposes, of the taxpayer for the Tax Indemnification Period coupled with an
increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for any Post-Tax Indemnification Period.
"RIGHTS" shall have the meaning ascribed thereto in the Distribution
Agreement.
"ROCKWELL" shall mean Rockwell Automation, Inc., formerly named
Rockwell International Corporation, a Delaware corporation.
"ROCKWELL COMMON STOCK" shall mean the Common Stock, par value of $1
per share, of Rockwell.
"ROCKWELL TAX GROUP" shall mean Rockwell and its affiliates.
"RULING" shall mean a private letter ruling issued by the IRS in reply
to the Ruling Request including any amendment or supplement thereto in form and
substance reasonably satisfactory to Conexant and Alpha.
"RULING REQUEST" shall mean a private letter ruling request filed by
Conexant with the IRS (as modified or supplemented), seeking rulings that, inter
alia, the Contribution and the Distribution will qualify under Sections 355 and
368 of the Code as a reorganization.
"STOCK PURCHASE AGREEMENT" shall mean that stock purchase agreement
dated as of December 16, 2001 by and between Conexant and Alpha, as amended and
restated as of June 25, 2002, providing for the sale of certain stock to Alpha
after the Merger.
"STOCK OPTIONS" shall mean Alpha Common Stock Options or Conexant
Common Stock Options.
"STRADDLE PERIOD" shall mean a taxable period that includes but does
not end on the Distribution Date.
"TAX" and "TAXES" shall mean all forms of taxation, whenever created or
imposed, and whether of the United States or elsewhere, and whether imposed by a
federal, state, municipal, governmental, territorial, local, foreign or other
body, and without limiting the generality of the foregoing, shall include net
income, gross income, gross receipts, sales, use, value added, ad valorem,
transfer, recording, franchise, profits, license, lease, service, service use,
payroll, wage, withholding,
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employment, unemployment insurance, workers compensation, social security,
excise, severance, stamp, business license, business organization, occupation,
premium, property, environmental, windfall profits, customs, duties, alternative
minimum, estimated or other taxes, fees, premiums, assessments or charges of any
kind whatever imposed or collected by any governmental entity or political
subdivision thereof, together with any related interest and any penalties,
additions to such tax or additional amounts imposed with respect thereto by any
Tax Authority.
"TAX AUTHORITY" shall mean, with respect to any Tax, any governmental
entity, quasi-governmental body or political subdivision thereof that imposes
such Tax and the agency (if any) charged with the determination or collection of
such Tax for such entity, body or subdivision.
"TAX GROUP" shall mean the Conexant Tax Group or the Alpha Tax Group,
as the case may be.
"TAX INDEMNIFICATION PERIOD" shall mean any Pre-Distribution Taxable
Period and that portion of any Straddle Period that ends on the Distribution
Date.
"TAX RETURN" shall mean any return, filing, questionnaire, information
return, election or other document required or permitted to be filed, including
requests for extensions of time, filings made with respect to estimated tax
payments, claims for refund and amended returns that may be filed, for any
period with any Tax Authority (whether domestic or foreign) in connection with
any Tax (whether or not a payment is required to be made with respect to such
filing).
"TIMING DIFFERENCE" means an increase in income, gain or recapture, or
a decrease in deduction, loss or credit, as calculated for Income Tax purposes,
of the taxpayer for any Post-Tax Indemnification Period coupled with an increase
in deduction, loss or credit, or a decrease in income, gain or recapture, of the
taxpayer for the Tax Indemnification Period.
"TRANSACTION AGREEMENTS" shall have the meaning ascribed thereto in the
Distribution Agreement.
"WASHINGTON" shall have the meaning ascribed thereto in the preamble.
"WASHINGTON TAX GROUP" shall mean (i) Washington and (ii) any
corporation or other legal entity which Washington directly or indirectly owns
following the Contribution.
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SECTION 1.02 SCHEDULES, ETC. References to a "SCHEDULE" are, unless
otherwise specified, to a Schedule attached to this Agreement; references to
"SECTION" or "ARTICLE" are, unless otherwise specified, to one of the Sections
or Articles of this Agreement; references to "SUB-SECTION" are, unless the
context otherwise requires, references to the section in which the reference
appears; and references to this Agreement include the Schedules.
ARTICLE II
FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS
SECTION 2.01 PREPARATION OF TAX RETURNS.
(a) UNITED STATES FEDERAL INCOME TAX RETURNS.
(i) Conexant shall prepare and file or cause to be prepared and filed
all U.S. federal Income Tax Returns (including amendments thereto) which are
required to be filed in respect of (A) a member of the Conexant/Washington Tax
Group for any Pre-Distribution Taxable Period or Straddle Period or (B) a member
of the Conexant Tax Group for any Post-Distribution Taxable Period. Alpha hereby
irrevocably designates, and agrees to cause each of its affiliates to designate,
Conexant as its agent to take any and all actions necessary or incidental to the
preparation and filing of such U.S. federal Income Tax Returns of Conexant's
affiliated group.
(ii) All U.S. federal Income Tax Returns (including amendments thereto)
with respect to the Washington Tax Group for Post-Distribution Taxable Periods
shall be the responsibility of the Alpha Tax Group.
(b) UNITED STATES STATE AND LOCAL INCOME TAX RETURNS.
(i) Conexant shall prepare and file or cause to be prepared and filed
all U.S. state and local Income Tax Returns (including amendments thereto) which
are required to be filed in respect of (A) a member of the Conexant/Washington
Tax Group for any Pre-Distribution Taxable Period or Straddle Period or (B) a
member of the Conexant Tax Group for any Post-Distribution Taxable Period. Alpha
hereby irrevocably designates, and agrees to cause each of its affiliates to
designate, Conexant as its agent to take any and all actions necessary or
incidental to the preparation and filing of such U.S. state and local Income Tax
Returns of members of the Washington Tax Group.
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(ii) All U.S. state and local Income Tax Returns (including amendments
thereto) with respect to the Washington Tax Group for Post-Distribution Taxable
Periods shall be the responsibility of the Alpha Tax Group.
(c) FOREIGN INCOME TAX RETURNS.
(i) Conexant shall prepare and file or cause to be prepared and filed
all Foreign Income Tax Returns (including amendments thereto) which are required
to be filed in respect of (A) a member of the Conexant/Washington Tax Group for
any Pre-Distribution Taxable Period or Straddle Period (other than any entity
set forth on Schedule 2.01(c) attached hereto) or (B) a member of the Conexant
Tax Group for any Post-Distribution Taxable Period. Alpha hereby irrevocably
designates, and agrees to cause each of its affiliates to designate, Conexant as
its agent to take any and all actions necessary or incidental to the preparation
and filing of such Foreign Income Tax Returns of members of the Washington Tax
Group.
(ii) All Foreign Income Tax Returns (including amendments thereto) (A)
with respect to the Washington Tax Group for Post-Distribution Taxable Periods
and (B) with respect to entities set forth on Schedule 2.01(c) attached hereto
required to be filed after the Distribution Date, shall be the responsibility of
the Alpha Tax Group.
(d) NON-INCOME TAX RETURNS.
(i) Conexant shall prepare and file or cause to be prepared and filed
all Tax Returns (including amendments thereto) which are Non-Income Tax Returns
which are required to be filed in respect of (A) a member of the
Conexant/Washington Tax Group (other than Washington or any member of the
Washington Tax Group which has never conducted a non-Washington business) for
any Pre-Distribution Taxable Period or Straddle Period or (B) a member of the
Conexant Tax Group for any Post-Distribution Taxable Period. Alpha hereby
irrevocably designates, and agrees to cause each of its affiliates to designate,
Conexant as its agent to take any and all actions necessary or incidental to the
preparation and filing of such Non-Income Tax Returns of members of the
Washington Tax Group.
(ii) All Non-Income Tax Returns (including amendments thereto) required
to be filed (A) with respect to Washington or any member of the Washington Tax
Group which has never conducted a non-Washington business and (B) with respect
to the Washington Tax Group for Post-Distribution Taxable Periods, shall be the
responsibility of the Alpha Tax Group.
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(e) CONSISTENT WITH PAST PRACTICE; REVIEW BY NON-RESPONSIBLE PARTY.
Unless Conexant and Alpha otherwise agree in writing, all Tax Returns (including
amendments thereto) described in this Section 2.01 filed after the date of this
Agreement for Pre-Distribution Taxable Periods or Straddle Periods, in the
absence of a controlling change in law or circumstances, shall be prepared on a
basis consistent with the elections, accounting methods, conventions and
principles of taxation used for the most recent taxable periods for which Tax
Returns involving similar matters have been filed. Upon the request of the
non-responsible party, the party responsible under this Section 2.01 for
preparation of a particular Tax Return for Pre-Distribution Taxable Periods or
Straddle Periods shall make available a draft of such Tax Return (or relevant
portions thereof) for review and comment by such non-responsible party. Subject
to the provisions of this Agreement, all decisions relating to the preparation
of Tax Returns shall be made in the sole discretion of the party responsible
under this Agreement for such preparation.
(f) RESPONSIBILITY FOR FILING. Although, pursuant to this Agreement,
Conexant or Alpha may be responsible for filing a particular Tax Return,
Conexant and Alpha have agreed that the actual preparation and filing of certain
Tax Returns will be done by the non-responsible party. Schedule 2.01(f) attached
hereto sets forth a schedule specifying such Tax Returns. Conexant and Alpha may
agree from time to time to additions to or deletions from Schedule 2.01(f).
SECTION 2.02 PAYMENT OF TAXES.
(a) UNITED STATES FEDERAL INCOME TAXES. Except as otherwise provided in
this Agreement:
(i) Conexant shall pay or cause to be paid, on a timely basis, all
Taxes due with respect to the consolidated U.S. federal Income Tax liability for
(A) all members of the Conexant/Washington Tax Group for any Pre-Distribution
Taxable Period or Straddle Period and (B) any member of the Conexant Tax Group
for any Post-Distribution Taxable Period; and
(ii) Alpha shall pay or cause to be paid, on a timely basis, all Taxes
due with respect to the consolidated U.S. federal Income Tax liability for any
member of the Washington Tax Group for any Post-Distribution Taxable Period.
(b) UNITED STATES STATE AND LOCAL INCOME TAXES. Except as otherwise
provided in this Agreement:
(i) Conexant shall pay or cause to be paid, on a timely basis, all
Taxes due with respect to the U.S. state and local Income Tax liability for (A)
all
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members of the Conexant/Washington Tax Group for any Pre-Distribution Taxable
Period or Straddle Period and (B) any member of the Conexant Tax Group for any
Post-Distribution Taxable Period; provided, however, that Alpha, on behalf of
the Washington Tax Group, hereby assumes and agrees to pay directly to or at the
direction of Conexant, at least five days prior to the date payment (including
estimated payment) thereof is due, the portion of such U.S. state and local
Income Taxes for that portion of any Straddle Period which begins on the day
after the Distribution Date (calculated pursuant to Section 2.04) which relates
to a member of the Washington Tax Group or its business, assets or activities;
and
(ii) Alpha shall pay or cause to be paid, on a timely basis, all Taxes
due with respect to the U.S. state and local Income Tax liability for any member
of the Washington Tax Group for any Post-Distribution Taxable Period.
(c) FOREIGN INCOME TAXES. Except as otherwise provided in this
Agreement:
(i) Conexant shall pay or cause to be paid, on a timely basis, all
Taxes due with respect to the Foreign Income Tax liability for (A) all members
of the Conexant/Washington Tax Group for any Pre-Distribution Taxable Period or
Straddle Period (other than any entity set forth on Schedule 2.01(c) attached
hereto) and (B) any member of the Conexant Tax Group for any Post-Distribution
Taxable Period; provided, however, that Alpha, on behalf of the Washington Tax
Group, hereby assumes and agrees to pay directly to or at the direction of
Conexant, at least five days prior to the date payment (including estimated
payment) thereof is due, the portion of such Foreign Income Taxes for that
portion of any Straddle Period which begins on the day after the Distribution
Date (calculated pursuant to Section 2.04) which relates to a member of the
Washington Tax Group or its business, assets or activities; and
(ii) Alpha shall pay or cause to be paid, on a timely basis, all Taxes
due with respect to the Foreign Income Tax liability (A) for any member of the
Washington Tax Group for any Post-Distribution Taxable Period and (B) for any
entity set forth on Schedule 2.01(c) attached hereto.
(d) NON-INCOME TAXES. Except as otherwise provided in this Agreement:
(i) Conexant shall pay or cause to be paid, on a timely basis, all
Taxes due with respect to the Non-Income Tax liability for (A) all members of
the Conexant/Washington Tax Group (other than Washington or any member of the
Washington Tax Group which has never conducted a non-Washington business) for
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any Pre-Distribution Taxable Period or Straddle Period and (B) any member of the
Conexant Tax Group for any Post-Distribution Taxable Period; provided, however,
that Alpha, on behalf of the Washington Tax Group, hereby assumes and agrees to
pay directly to or at the direction of Conexant, at least five days prior to the
date payment (including estimated payment) thereof is due, the portion of such
Non-Income Taxes for that portion of any Straddle Period which begins on the day
after the Distribution Date (calculated pursuant to Section 2.04) which relates
to a member of the Washington Tax Group or its business, assets or activities;
(ii) Alpha shall pay or cause to be paid, on a timely basis, all Taxes
due with respect to the Non-Income Tax liability (A) for any member of the
Washington Tax Group for any Post-Distribution Taxable Period and (B) for
Washington or any member of the Washington Tax Group which has never conducted a
non-Washington business for any Pre-Distribution Taxable Period or Straddle
Period; and
(iii) Conexant agrees that for all periods prior to the Distribution,
it shall pay or cause Washington and each member of the Washington Tax Group
that has never conducted a non-Washington business to pay its respective
Non-Income Tax liabilities consistent with the Conexant Tax Group's past
practice for paying such Non-Income Tax liabilities.
(iv) Notwithstanding any other provision of this Agreement, all
transfer taxes incurred in connection with the Contribution, the Distribution
and/or the Merger shall be paid in accordance with the provisions of Section
4.09 of the Distribution Agreement.
(e) POST-DISTRIBUTION DATE TAXES. Except as otherwise provided in this
Agreement, all Taxes for all Post-Distribution Taxable Periods shall be paid or
caused to be paid by the party responsible under this Agreement for filing the
Tax Returns pursuant to which such Taxes are due or, if no such Tax Returns are
due, by the party liable for such Taxes.
(f) CREDIT FOR PRIOR TAX PAYMENTS. To the extent any member of a Tax
Group has made a payment of Taxes (including estimated Taxes) on or before the
Distribution Date, the party liable for paying such Taxes under this Agreement
shall be entitled to treat the payment as having been paid or caused to have
been paid by such party, and such party shall not be required to reimburse the
party which actually paid such Taxes.
13
(g) RESPONSIBILITY FOR PAYMENT; NOTICE OF PAYMENT DUE. Although
Conexant or Alpha may be responsible for paying a particular Tax liability,
Conexant and Alpha may agree that the actual payment to a Taxing Authority of
certain Tax liabilities will be made by the non-responsible party. Conexant and
Alpha may agree to prepare a schedule setting forth such Tax liabilities and may
agree from time to time to additions to or deletions from such schedule. In each
case where Conexant or Alpha, as the case may be, is required to make payment of
Taxes to the other party, Conexant or Alpha, as the case may be, shall notify
the other party as to the amount of Taxes due from the other party at least five
days prior to the date payment (including estimated payment) is due.
SECTION 2.03 TAX REFUNDS AND CARRYBACKS.
(a) RETENTION AND PAYMENT OF TAX REFUNDS. Except as otherwise provided
in this Agreement, Conexant shall be entitled to retain, and to receive within
ten days after Actually Realized by the Alpha Tax Group, the portion of all
refunds or credits of Taxes for which the Conexant Tax Group is liable pursuant
to Section 2.02 or Section 3.01(a) or is treated as having paid or caused to
have been paid pursuant to Section 2.02(f), and Alpha shall be entitled to
retain, and to receive within ten days after Actually Realized by the Conexant
Tax Group, the portion of all refunds or credits of Taxes for which the Alpha
Tax Group is liable pursuant to Section 2.02 or Section 3.01(b) or is treated as
having paid or caused to have been paid pursuant to Section 2.02(f). The amount
of any refund or credit of Taxes to which Conexant or Alpha is entitled to
retain or receive pursuant to the foregoing sentence shall be reduced to take
account of any Taxes incurred by the Alpha Tax Group, in the case of a refund or
credit to which Conexant is entitled, or the Conexant Tax Group, in the case of
a refund or credit to which Alpha is entitled, upon the receipt of such refund
or credit.
(b) CARRYBACKS. Unless the parties otherwise agree in writing, Alpha
shall elect and shall cause each member of the Alpha Tax Group to elect, where
permitted by law, to carry forward any net operating loss, net capital loss,
charitable contribution or other item arising after the Distribution Date that
could, in the absence of such election, be carried back to a Pre-Distribution
Taxable Period. Except as otherwise provided in this Agreement, notwithstanding
the provisions of Section 2.03(a), (i) any refund or credit of Taxes resulting
from the carryback of any item of Taxes attributable to the Alpha Tax Group
arising in a Post-Tax Indemnification Period to a Tax Indemnification Period
shall be for the account and benefit of the Alpha Tax Group, and (ii) any refund
or credit of Taxes resulting from the carryback of any item of Taxes
attributable to the Conexant Tax Group arising in a Post-Tax Indemnification
Period to a Tax Indemnification Period shall be for the account and benefit of
the Conexant Tax Group.
14
(c) REFUND CLAIMS. Conexant shall be permitted to file at Conexant's
sole expense, and Alpha shall reasonably cooperate with Conexant in connection
with, any claims for refund of Taxes to which Conexant is entitled pursuant to
this Section 2.03 or any other provision of this Agreement. Conexant shall
reimburse Alpha for any reasonable out-of-pocket costs and expenses incurred by
any member of the Alpha Tax Group in connection with such cooperation. Alpha
shall be permitted to file at Alpha's sole expense, and Conexant shall
reasonably cooperate with Alpha in connection with, any claims for refunds of
Taxes to which Alpha is entitled pursuant to this Section 2.03 or any other
provision of this Agreement. Alpha shall reimburse Conexant for any reasonable
out-of-pocket costs and expenses incurred by any member of the Conexant Tax
Group in connection with such cooperation.
SECTION 2.04 ALLOCATION OF STRADDLE PERIOD TAXES. In the case of any
Straddle Period:
(a) PERIODIC TAXES. (i) The periodic Taxes of a member of the Conexant
Tax Group or the Alpha Tax Group or its business, assets or activities that are
not based on income or receipts (e.g., property Taxes) for the portion of any
Straddle Period which ends on the Distribution Date shall be computed based on
the ratio of the number of days in such portion of the Straddle Period and the
number of days in the entire taxable period; and (ii) the periodic taxes of a
member of the Conexant Tax Group or the Alpha Tax Group or its business, assets
or activities that are not based on income or receipts for the portion of any
Straddle Period beginning on the day after the Distribution Date shall be
computed based on the ratio of the number of days in such portion of the
Straddle Period and the number of days in the entire taxable period.
(b) NON-PERIODIC TAXES. (i) The Taxes of a member of the Conexant Tax
Group or the Alpha Tax Group or its business, assets or activities for that
portion of any Straddle Period ending on the Distribution Date (other than Taxes
described in Section 2.04(a) above), shall be computed on a
"closing-of-the-books" basis as if such taxable period ended as of the close of
business on the Distribution Date, and, in the case of any Taxes of a member of
the Conexant Tax Group or the Alpha Tax Group or its business, assets or
activities with respect to any equity interest in any partnership or other
"flowthrough" entity, as if the taxable period of such partnership or other
"flowthrough" entity ended on the Distribution Date; and (ii) the Taxes of a
member of the Conexant Tax Group or the Alpha Tax Group or its business, assets
or activities for that portion of any Straddle Period beginning after the
Distribution Date (other than Taxes described in Section 2.04(a) above), shall
be computed on a "closing-of-the-books" basis as if such taxable period began on
the day after the Distribution Date, and, in the case of any Taxes of a member
of the
15
Conexant Tax Group or the Alpha Tax Group or its business, assets or activities
with respect to any equity interest in any partnership or other "flowthrough"
entity, as if the taxable period of such partnership or other "flowthrough"
entity began as of the day after the Distribution Date.
(c) The Taxes of the Conexant Tax Group and the Alpha Tax Group with
respect to any Tax Return for a Straddle Period which includes a member of each
of the Conexant Tax Group and the Alpha Tax Group or their respective
businesses, assets or activities shall be allocated between the Conexant Tax
Group, on the one hand, and the Alpha Tax Group, on the other hand, determined
in a manner analogous to that set forth in Treasury Regulation Section
1.1552-1(a)(2).
ARTICLE III
TAX INDEMNIFICATION; TAX CONTESTS
SECTION 3.01 INDEMNIFICATION.
(a) CONEXANT INDEMNIFICATION. Subject to Section 3.01(b) and Section
3.02, Conexant shall indemnify, defend and hold harmless each member of the
Alpha Tax Group and each of their respective Representatives and each of the
heirs, executors, successors and assigns of any of the foregoing from and
against:
(i) all Taxes of the Conexant Tax Group;
(ii) all Taxes of the Washington Tax Group for all Pre-Distribution
Taxable Periods and all Straddle Periods for which Conexant is liable pursuant
to Section 2.02 or 3.02;
(iii) all liability as a result of Treasury Regulation Section
1.1502-6 or comparable U.S. state or local provision for Income Taxes of any
person which is or has ever been affiliated with any member of the
Conexant/Washington Tax Group or with which any member of the
Conexant/Washington Tax Group joins or has ever joined (or is or has ever been
required to join) in filing any consolidated, combined or unitary Income Tax
Return for any Tax period ending on or before or including the Distribution Date
except to the extent the Alpha Tax Group is liable for such Taxes pursuant to
Section 2.02 or 3.02;
(iv) all Taxes for any Tax period (whether beginning before, on or
after the Distribution Date) attributable to the breach by any member of the
Conexant
16
Tax Group of any representation, warranty, covenant or obligation under this
Agreement;
(v) all liability for a breach by any member of the Conexant Tax
Group of any representation, warranty, covenant or obligation under this
Agreement;
(vi) all Taxes imposed in connection with the transactions
contemplated by the Distribution Agreement undertaken to carry out the
Contribution and Distribution; and
(vii) all liability for any reasonable legal, accounting, appraisal,
consulting or similar fees and expenses relating to the foregoing.
Notwithstanding the foregoing, Conexant shall not indemnify, defend or hold
harmless any member of the Alpha Tax Group nor any of their respective
Representatives or heirs, executors, successors and assigns of any of them from
any liability for Taxes (other than with respect to Distribution Taxes)
attributable to (I) any transfer taxes incurred in connection with the
Contribution, the Distribution and/or the Merger (which shall be paid in
accordance with the provisions of Section 4.09 of the Distribution Agreement) or
(II) any Alpha Post-Distribution Tax Act. An "ALPHA POST-DISTRIBUTION TAX ACT"
shall mean any action specified on Schedule 3.01(a) attached hereto.
(b) ALPHA INDEMNIFICATION. Alpha shall be liable for, and shall
indemnify, defend and hold harmless each member of the Conexant Tax Group and
each of the respective Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing from and against:
(i) all Taxes of any member of the Washington Tax Group or Alpha Tax
Group (other than Taxes for which Conexant is obligated to provide
indemnification for pursuant to Section 3.01(a));
(ii) all Taxes for any Tax period (whether beginning before, on or
after the Distribution Date) attributable to the breach by any member of the
Alpha Tax Group or Washington Tax Group of any representation, warranty,
covenant or obligation under this Agreement;
(iii) all liability for a breach by any member of the Alpha Tax
Group or Washington Tax Group of any representation, warranty, covenant or
obligation under this Agreement;
(iv) all Taxes attributable to an Alpha Post-Distribution Tax Act;
17
(v) all transfer taxes incurred in connection with the Contribution,
the Distribution and/or the Merger; and
(vi) all liability for any reasonable legal, accounting, appraisal,
consulting or similar fees and expenses relating to the foregoing.
SECTION 3.02 DISTRIBUTION TAXES.
(a) Except as otherwise provided in this Section 3.02, Conexant
agrees to indemnify, defend and hold harmless each member of the Alpha Tax Group
and each of the respective Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing from and against any Distribution
Taxes.
(b) Alpha agrees to indemnify, defend and hold harmless each member
of the Conexant Tax Group and each of the respective Representatives and each of
the heirs, executors, successors and assigns of any of the foregoing from and
against any Distribution Taxes resulting from any Alpha Tax Act. For purposes of
this Agreement, in determining the amount of any such Taxes resulting from an
Alpha Tax Act for which Alpha shall be liable, any net operating losses which
would otherwise be taken into account in determining the amount of such
liability shall be ignored. An "ALPHA TAX ACT" shall be as specified on Schedule
3.02(a) attached hereto.
(c) Alpha shall, and shall cause each member of the Alpha Tax Group
to, comply with and take no action inconsistent with the Alpha Tax
Representation Letter, unless, pursuant to a favorable ruling letter obtained
from the IRS which is satisfactory to Conexant or the advice of nationally
recognized Tax counsel to Conexant, which advice shall be satisfactory to
Conexant, such act or omission would not adversely affect the U.S. federal
Income Tax consequences of the Contribution and the Distribution to Conexant or
the shareowners of Conexant. Notwithstanding Sections 3.01(b)(iii) and
3.01(b)(iv), the parties intend that the sole remedy for breach of the covenants
contained in this Section 3.02(c) shall be as set forth in Section 3.02(b).
(d) Conexant shall, and shall cause each member of the Conexant Tax
Group to, comply with and take no action inconsistent with the Conexant Tax
Representation Letter, unless, pursuant to a favorable ruling letter obtained
from the IRS which is satisfactory to Alpha or the advice of nationally
recognized Tax counsel to Alpha, which advice shall be satisfactory to Alpha,
such act or omission would not adversely affect the U.S. federal Income Tax
consequences of the Contribution and the Distribution to Conexant or the
shareowners of Conexant. Notwithstanding
18
Section 3.01(a)(v), the parties intend that the sole remedy for breach of the
covenants contained in this Section 3.02(d) shall be as set forth in Section
3.02(a).
(e) Notwithstanding the foregoing, an Alpha Tax Act (other than
paragraphs 7 or 8 thereof) shall not include any transaction or action
specifically disclosed or specifically described in any of the Transaction
Agreements, the Merger Agreement, the Stock Purchase Agreement or the Asset
Purchase Agreements or, except as specifically set forth in Schedule 3.01(b),
any action taken on or prior to the Distribution Date. An Alpha Tax Act shall
not include any action on the part of any member of the Conexant Tax Group.
SECTION 3.03 NOTICE OF INDEMNITY. Whenever a party hereto
(hereinafter an "INDEMNITEE") becomes aware of the existence of an issue raised
by any Tax Authority which could reasonably be expected to result in a
determination that would increase the liability for any Tax of the other party
hereto or any member of its Tax Group for any Tax period or require a payment
hereunder by the other party (hereinafter an "INDEMNITY ISSUE"), the Indemnitee
shall in good faith promptly give notice to such other party (hereinafter the
"INDEMNITOR") of such Indemnity Issue. The failure of the Indemnitee to give
such notice shall not relieve the Indemnitor of its obligations under this
Agreement, except to the extent such Indemnitor or a member of its Tax Group is
actually prejudiced by such failure to give notice.
SECTION 3.04 PAYMENTS.
(a) TIMING ADJUSTMENTS.
(i) TIMING DIFFERENCES. If a Tax audit proceeding or an amendment of
a Tax Return results in a Timing Difference, and such Timing Difference results
in a decrease in an indemnity obligation Conexant has or would otherwise have
under Section 3.01(a) and/or an increase in the amount of a Tax refund or credit
to which Conexant is entitled under Section 2.03, then in each Post-Tax
Indemnification Period in which the Alpha Tax Group Actually Realizes an Income
Tax Detriment, Conexant shall pay to Alpha an amount equal to such Income Tax
Detriment; provided, however, that the aggregate payments which Conexant shall
be required to make under this Section 3.04(a)(i) with respect to any Timing
Difference shall not exceed the aggregate amount of the Income Tax Benefits
realized by the Conexant Tax Group for all taxable periods and the Alpha Tax
Group for all Tax Indemnification Periods as a result of such Timing Difference.
Conexant shall make all such payments within ten days after Alpha notifies
Conexant that the relevant Income Tax Detriment has been Actually Realized.
19
(ii) REVERSE TIMING DIFFERENCES. If a Tax audit proceeding or an
amendment to a Tax Return results in a Reverse Timing Difference, and such
Reverse Timing Difference results in an increase in an indemnity payment
obligation of Conexant under Section 3.01(a) and/or a decrease in the amount of
a Tax refund or credit to which Conexant is or would otherwise be entitled under
Section 2.03, then in each Post-Tax Indemnification Period in which the Alpha
Tax Group Actually Realizes an Income Tax Benefit, Alpha shall pay to Conexant
within ten days after Alpha has Actually Realized such Income Tax Benefit an
amount equal to such Income Tax Benefit; provided, however, that the aggregate
payments which Alpha shall be required to make under this Section 3.04(a)(ii)
with respect to Reverse Timing Differences shall not exceed the aggregate amount
of the Income Tax Detriments realized by the Alpha Tax Group and the Conexant
Tax Group for all Tax Indemnification Periods as a result of such Reverse Timing
Difference.
(b) TIME FOR PAYMENT. Except as otherwise provided in this Section
3.04(b), any indemnity payment required to be made pursuant to this Agreement
shall be paid within thirty days after the indemnified party makes written
demand upon the indemnifying party, provided that in no event shall such payment
be required to be made earlier than five business days prior to the date on
which the relevant Taxes (including estimated Taxes) are required to be paid (or
would be required to be paid if no such Taxes are due) to the relevant Tax
Authority. Notwithstanding any other provision in this Agreement, to simplify
the administration of this Agreement, the payment of any amount less than
$100,000 required to be made pursuant to this Agreement by one party hereto to
another party hereto need not be made to such other party prior to thirty days
following the later of (i) the close of the calendar quarter during which such
payment obligation arose and (ii) the day during such calendar quarter when the
aggregate amount of all such less than $100,000 payment obligations arising
during such calendar quarter exceeds $250,000. Unless otherwise specified by the
recipient for items exceeding $500,000, any such payment may be made on a net
Tax basis (i.e., reduced to take account of any net Tax benefit to be realized
by the recipient (computed at the effective Tax rate set forth in Section
3.04(c)) to the extent such recipient is entitled to a corresponding deduction.
(c) PAYMENTS NET OF TAXES AND TAX BENEFITS. The amount of any
payment under this Agreement shall be (i) reduced to take into account any net
Tax benefit realized by the recipient's Tax Group arising from the incurrence or
payment by such recipient's Tax Group of any amount in respect of which such
payment is made and (ii) increased to take into account any net Tax cost
incurred by the recipient's Tax Group as a result of the receipt or accrual of
payments hereunder (grossed-up for such increase), in each case determined by
treating the recipient as recognizing all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt of
accrual of any payment hereunder.
20
In determining the amount of any such Tax benefit or Tax cost, (I) if the
recipient's Tax Group's taxable income for the year, after taking into account
tax loss carryovers, is negative or zero, the recipient's Tax Group shall be
deemed not subject to Tax for such purpose, and (II) in all other cases, the
recipient's Tax Group shall be deemed to be subject to Tax as follows: (A) U.S.
federal Income Taxes and foreign Income Taxes at the maximum statutory rate then
in effect and (B) U.S. state and local Income Taxes at an assumed rate of five
percent net of U.S. federal Income Tax benefits. Except as otherwise provided in
this Agreement or unless the parties otherwise agree to an alternative method
for determining the present value of any such anticipated Tax benefit or Tax
cost, any payment hereunder shall initially be made without regard to this
section and shall be increased or reduced to reflect any such net Tax cost
(including gross-up) or net Tax benefit only after the recipient's Tax Group has
Actually Realized such Tax cost or Tax benefit.
(d) RIGHT TO OFFSET. Any party making a payment under this Agreement
shall have the right to reduce any such payment by any undisputed amounts owed
to it by the other party to this Agreement.
(e) CHARACTERIZATION OF PAYMENTS. It is the intention of the parties
to this Agreement that payments made pursuant to this Agreement are to be
treated as relating back to the Distribution as an adjustment to capital (i.e.,
capital contribution or distribution), and the parties shall not take any
position inconsistent with such intention before any Tax Authority, except to
the extent that a final determination (as defined in Section 1313 of the Code)
with respect to the recipient party causes any such payment not to be so
treated.
SECTION 3.05 TAX CONTESTS. The Indemnitor and its representatives,
at the Indemnitor's expense, shall be entitled to participate (a) in all
conferences, meetings and proceedings with any Tax Authority, the subject matter
of which is or includes an Indemnity Issue and (b) in all appearances before any
court, the subject matter of which is or includes an Indemnity Issue. The party
who has responsibility for filing the Tax Return under this Agreement (the
"RESPONSIBLE PARTY") with respect to which there could be an increase in
liability for any Tax or with respect to which a payment could be required
hereunder shall have the right to decide as between the parties hereto how such
matter is to be dealt with and finally resolved with the appropriate Tax
Authority and shall control all audits and similar proceedings. If no Tax Return
is or was required to be filed in respect of an Indemnity Issue, the Indemnitor
shall be treated as the Responsible Party with respect thereto. The Responsible
Party agrees to cooperate in the settlement of any Indemnity Issue with the
other party and to take such other party's interests into account.
21
ARTICLE IV
OPTIONS; COMPENSATION PAYMENTS; INTEREST CHARGE FOR
LATE PAYMENTS; CURRENCY CALCULATIONS; EFFECTIVE TIME OF
TRANSACTIONS
SECTION 4.01 STOCK OPTIONS AND RESTRICTED STOCK.
(a) STOCK OPTION ADJUSTMENTS. Conexant Common Stock Options
outstanding at the time of the Distribution will be adjusted in accordance with
the terms of the Employee Matters Agreement.
(b) TAX DEDUCTIONS. Notwithstanding anything to the contrary in this
Agreement, unless the IRS issues a contrary private letter ruling to Conexant or
Alpha, or Conexant or Alpha otherwise agree in writing, (A) the Conexant Tax
Group (and not the Alpha Tax Group) shall claim the post-Distribution Date Tax
deductions in respect of Conexant Common Stock Options and Conexant Restricted
Stock and (B) the Alpha Tax Group (and not the Conexant Tax Group) shall claim
any post-Distribution Date Tax deductions in respect of Alpha Common Stock
Options and Alpha Restricted Stock, except to the extent (x) the optionees or
holders would not be (I) "Conexant Group Employees and Former Employees", as
such term is defined in the tax allocation agreement between Conexant and
Rockwell dated December 31, 1998 or (II) Alpha Group Employees and Former
Employees and (y) the tax allocation agreement applicable to such optionees or
holders allocates the tax deduction to the employer corporation, in which case
Conexant shall, within ten days after payment is received from the employer
corporation in accordance with the terms of such tax allocation agreement, pay
such amounts to Alpha.
(c) NOTICES, WITHHOLDING, REPORTING.
(i) Conexant shall promptly notify Alpha of any post-Distribution
Date event giving rise to income to any Alpha Group Employees and Former
Employees in connection with the Conexant Common Stock Options and Conexant
Restricted Stock and, if required by law, Alpha shall withhold applicable Taxes
and satisfy applicable Tax reporting obligations in connection therewith.
Conexant shall within ten days of demand thereof reimburse Alpha for all
reasonable out-of-pocket expenses incurred in connection with the Conexant
Common Stock Options and Conexant Restricted Stock, including with respect to
incremental Tax reporting obligations and any incremental employment Tax
obligations; provided that Alpha shall use reasonable efforts to collect any
such amounts required to be paid by Alpha
22
Group Employees and Former Employees from such Alpha Group Employees and Former
Employees.
(ii) Alpha shall promptly notify Conexant of any post-Distribution
Date event giving rise to income to any Conexant Group Employees and Former
Employees in connection with the Alpha Common Stock Options and Alpha Restricted
Stock and, if required by law, Conexant shall withhold applicable Taxes and
satisfy applicable Tax reporting obligations in connection therewith. Alpha
shall within ten days of demand thereof reimburse Conexant for all reasonable
out-of-pocket expenses incurred in connection with the Alpha Common Stock
Options and Alpha Restricted Stock, including with respect to incremental Tax
reporting obligations and any incremental employment Tax obligations; provided
that Conexant shall use reasonable efforts to collect any such amounts required
to be paid by Conexant Group Employees and Former Employees from such Conexant
Group Employees and Former Employees.
(d) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of Section
4.01(b), in the event a Tax audit proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.03, that
all or a portion of the Tax deductions in respect of Conexant Common Stock
Options and Conexant Restricted Stock or Alpha Common Stock Options and Alpha
Restricted Stock should have been claimed by the Alpha Tax Group or the Conexant
Tax Group, respectively, the Alpha Tax Group or the Conexant Tax Group,
respectively, shall claim such Tax deductions (by an amended Tax Return or
otherwise) and shall pay to Conexant or Alpha, as the case may be, the amount of
any Tax refund or credit arising in respect of such Tax deduction within ten
days after such Tax refund or credit is Actually Realized by the Alpha Tax Group
or the Conexant Tax Group, as the case may be.
SECTION 4.02 COMPENSATION PAYMENTS.
(a) TAX DEDUCTIONS. Notwithstanding anything to the contrary in this
Agreement, unless Conexant and Alpha otherwise agree in writing, (i) the
Rockwell Tax Group (and not the Conexant Tax Group or the Alpha Tax Group) shall
claim the Post-Distribution Date Tax deductions in respect of Compensation
Payments paid by the Rockwell Tax Group to Alpha Group Employees and Former
Employers, (ii) the Alpha Tax Group (and not the Conexant Tax Group) shall claim
the Post-Distribution Date Tax deductions in respect of Compensation Payments
paid by the Alpha Tax Group to all other Alpha Group Employees and Former
Employees, and (iii) the Conexant Tax Group (and not the Alpha Tax Group) shall
claim the Post-Distribution Date Tax deductions in respect of Compensation
Payments paid by
23
the Conexant Tax Group to all other Alpha Group Employees and Former Employees.
(b) NOTICES, WITHHOLDING, REPORTING. The party responsible for
making the Compensation Payments pursuant to the Employee Matters Agreement
shall withhold applicable Taxes and satisfy applicable Tax reporting obligations
in connection with the Compensation Payments made to all Alpha Group Employees
and Former Employees.
(c) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions of Section
4.02(a), in the event a Tax audit proceeding shall determine (by settlement or
otherwise), or the parties otherwise determine pursuant to Section 4.03, that
all or a portion of the Tax deductions in respect of Compensation Payments paid
to Alpha Group Employees and Former Employees was not available to the party
claiming the Tax deduction, then the appropriate party shall claim such Tax
deductions (by an amended Tax Return or otherwise) and shall pay to the party
which had previously claimed such Tax deduction, within ten days after such Tax
deduction has been Actually Realized by the such appropriate party, the amount
of the resulting Tax benefit to such appropriate party.
SECTION 4.03 CHANGE IN LAW. Notwithstanding the agreement with
respect to reporting of Tax items and the claiming of the deductions set forth
in Article 4 of this Agreement, neither the Alpha Tax Group nor the Conexant Tax
Group shall have any obligation to report any such Tax items or claim such
deductions as set forth in such Article in the event that either such party
determines, based on an opinion of nationally recognized tax counsel, which
opinion shall be satisfactory to the other party, that there is no substantial
authority to support reporting such Tax items or claiming such deductions on a
Tax Return filed by such party as a result of a change in or amendment to any
law or regulation, or any change in the official interpretation thereof,
effective or occurring after the date of this Agreement, and such Tax Group
provides prompt notice to the other Tax Group of any such determination.
SECTION 4.04 INTEREST CHARGE FOR LATE PAYMENTS. Any amount due and
owing by one party to the other party pursuant to this Agreement that is not
paid when due shall bear interest from the due date thereof until paid at a rate
equal to the prime rate of Citibank, N.A. in effect on the date such payment was
required to be made.
SECTION 4.05 CURRENCY CALCULATIONS. All currency calculations shall
be made in accordance with Section 7.17 of the Distribution Agreement.
24
SECTION 4.06 EFFECTIVE TIME OF TRANSACTION. Conexant and Alpha agree
that any transaction that, pursuant to the Distribution Agreement, is expressly
effective immediately after the Time of Distribution shall be treated for
federal Income Tax purposes as occurring at the beginning of the day following
the Distribution Date.
ARTICLE V
COOPERATION AND EXCHANGE OF INFORMATION
SECTION 5.01 INCONSISTENT ACTIONS. Each party to this Agreement
agrees (i) to, and to cause each of the relevant members of its Tax Group to,
report the Contribution and Distribution as a reorganization described in
Sections 355 and 368 of the Code and the Merger as a reorganization described in
Section 368 of the Code on all Tax Returns and other filings, (ii) to use its
best efforts to ensure that the Distribution and the Merger receive such
treatment for U.S. federal Income Tax purposes and (iii) that, unless it has
obtained the prior written consent of the other party, it (and the members of
its Tax Group) shall not take any action inconsistent with, or fail to take any
action required by, the Transaction Agreements and the Merger Agreement. For all
Post-Distribution Taxable Periods, each party to this Agreement agrees to, and
to cause each of the relevant members of its Tax Group to, in the absence of a
controlling change in law or circumstances, report on all Tax Returns the tax
consequences of the transactions undertaken pursuant to the Transaction
Agreements, the Merger Agreement, the Stock Purchase Agreement, the Asset
Purchase Agreements and the Ruling Request in accordance with the positions
taken (including valuations and purchase price allocations) with respect to such
transactions to the extent reported on Tax Returns filed with respect to all
Pre-Distribution Taxable Periods and Straddle Periods in respect of such
transactions.
SECTION 5.02 RULING REQUEST. Each party hereto represents that
neither it (nor any of the members of its Tax Group) will take or has any plan
or intention to take any action which is inconsistent with any factual
statements, representations or other similar conditions contained in the Ruling
Request or in the Ruling.
SECTION 5.03 [INTENTIONALLY OMITTED].
SECTION 5.04 COOPERATION AND EXCHANGE OF INFORMATION. Each party
hereto agrees to provide, and to cause each member of its Tax Group to provide,
such cooperation and information as such other party shall request, on a timely
basis, in connection with the preparation or filing of any Tax Return or claim
for Tax refund
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not inconsistent with this Agreement or in conducting any Tax audit, Tax
dispute, or otherwise in respect of Taxes or to carry out the provisions of this
Agreement (including any cooperation required to carry out the intentions of the
parties as set forth in the preamble), which cooperation and information shall
include in particular, making its employees involved in the research and
development process available to the other party and having such employees
provide such assistance as the other party may require for such purposes,
provided, however, that neither party shall be obligated to provide the other
party Tax Returns, documentation or other information of a proprietary or
confidential nature for purposes of verifying any calculation, and provided
further, that in any such case where one party does not provide the other party
with Tax Returns, documentation or information because it is proprietary or
confidential, both parties shall cooperate in developing mutually acceptable
procedures including retaining a mutually agreeable accounting firm to review
such Tax Returns, documentation or information for purposes of verifying such
calculation. To the extent necessary to carry out the purposes of this Agreement
and subject to the other provisions of this Agreement, such cooperation and
information shall include without limitation the non-exclusive designation of an
officer of Conexant as an officer of Alpha and each of its affiliates for the
purpose of signing Tax Returns, cashing refund checks, pursuing refund claims,
dealing with Tax Authorities and defending audits as well as promptly forwarding
copies of appropriate notices and forms or other communications received from or
sent to any Tax Authority which relate to the Alpha Tax Group for the Tax
Indemnification Period and providing copies of all relevant Tax Returns for the
Tax Indemnification Period, together with accompanying schedules and related
workpapers, documents relating to rulings or other determinations by Tax
Authorities, including without limitation, foreign Tax Authorities, and records
concerning the ownership and Tax basis of property, which either party may
possess. Subject to the rights of the Alpha Tax Group under the other provisions
of this Agreement, such officer shall have the authority to execute powers of
attorney (including Form 2848) on behalf of each member of the Alpha Tax Group
with respect to Tax Returns for the Tax Indemnification Period. Each party to
this Agreement shall make, or shall cause its affiliates to make, its employees
and facilities available on a mutually convenient basis to provide an
explanation of any documents or information provided hereunder.
SECTION 5.05 TAX RECORDS.
(a) Conexant and Alpha agree to (and to cause each member of their
respective Tax Group to) (i) retain all Tax Returns, related schedules and
workpapers, and all material records and other documents as required under
Section 6001 of the Code and the regulations promulgated thereunder relating
thereto existing on the date hereof or created through the Distribution Date,
for a period of at least ten years following the Distribution Date and (ii)
allow the party to this
26
Agreement, at times and dates reasonably acceptable to the retaining party, to
inspect, review and make copies of such records, as Conexant and Alpha may
reasonably deem necessary or appropriate from time to time. In addition, after
the expiration of such ten-year period, such Tax Returns, related schedules and
workpapers, and material records shall not be destroyed or otherwise disposed of
at any time, unless, prior to such destruction or disposal, (A) the party
proposing to destroy or otherwise dispose of such records shall provide no less
than 30 days' prior written notice to the other party, specifying in reasonable
detail the records proposed to be destroyed or disposed of and (B) if a
recipient of such notice shall request in writing prior to the scheduled date
for such destruction or disposal that any of the records proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such requested records at the expense of the party requesting such records.
(b) Notwithstanding anything in this Agreement to the contrary, if
any party fails to comply with the requirements of Section 5.05(a) hereof, the
party failing so to comply shall be liable for, and shall hold the other party,
harmless from, any Taxes (including without limitation, penalties for failure to
comply with the record retention requirements of the Code) and other costs
resulting from such party's failure to comply.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 ENTIRE AGREEMENT; CONSTRUCTION. This Agreement, the
Distribution Agreement, all other Transaction Agreements and the Merger
Agreement, including any annexes, schedules and exhibits hereto or thereto, and
other agreements and documents referred to herein and therein, will together
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and will supersede all prior negotiations, agreements
and understandings of the parties of any nature, whether oral or written, with
respect to such subject matter. Notwithstanding any other provisions in this
Agreement to the contrary, in the event and to the extent that there is a
conflict relating to Taxes between the provisions of this Agreement and the
provisions of the Distribution Agreement, any other Transaction Agreement or the
Merger Agreement, the provisions of this Agreement will control.
SECTION 6.02 EFFECTIVENESS. All covenants and agreements of the
parties contained in this Agreement shall be subject to and conditioned upon the
Distribution becoming effective.
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SECTION 6.03 SURVIVAL OF AGREEMENTS. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement will remain in full force and effect and survive the
Time of Distribution.
SECTION 6.04 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the internal laws of the State of Delaware
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
SECTION 6.05 NOTICES. All notices, requests, claims, demands and
other communications required or permitted to be given hereunder will be in
writing and will be delivered by hand, telecopied, e-mailed or sent, postage
prepaid, by registered, certified or express mail or reputable overnight courier
service and will be deemed given when so delivered by hand or telecopied, when
e-mail confirmation is received if delivered by e-mail, or three business days
after being so mailed (one business day in the case of express mail or overnight
courier service). All such notices, requests, claims, demands and other
communications will be addressed as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) If to Conexant:
Conexant Systems, Inc.
0000 Xxxxxxxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxx
Chairman of the Board and Chief Executive
Officer
Telecopy: (000) 000-0000
E-mail: xxxxxx.xxxxxx@xxxxxxxx.xxx
28
with a copy to:
Conexant Systems, Inc.
0000 Xxxxxxxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. X'Xxxxxx, Esq.
Senior Vice President, General Counsel
and Secretary
Telecopy: (000) 000-0000
E-mail: xxxxxx.x'xxxxxx@xxxxxxxx.xxx
(b) If to Washington after the Effective Time:
Washington Sub, Inc.
c/o Alpha Industries, Inc.
00 Xxxxxx Xxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx
Chief Financial Officer
Telecopy: (000) 000-0000
E-mail: xxxxxxxx@xxxxxxxx.xxx
with a copy to:
Alpha Industries, Inc.
00 Xxxxxx Xxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
General Counsel
Telecopy: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxx.xxx
29
(c) If to Alpha
Alpha Industries, Inc.
00 Xxxxxx Xxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx
Chief Financial Officer
Telecopy: (000) 000-0000
E-mail: xxxxxxxx@xxxxxxxx.xxx
with a copy to:
Alpha Industries, Inc.
00 Xxxxxx Xxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
General Counsel
Telecopy: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxx.xxx
SECTION 6.06 DISPUTE RESOLUTION. Any dispute, claim or controversy
arising out of or relating to any provision of this Agreement or the breach,
performance, enforcement or validity or invalidity thereof will be resolved in
accordance with the procedures set forth in Section 7.05 of the Distribution
Agreement, provided that each such mediator or arbitrator selected pursuant to
such procedures shall have an expertise in Tax matters.
SECTION 6.07 CONSENT TO JURISDICTION. Each of Conexant, Washington
and Alpha irrevocably submits to the exclusive jurisdiction of (i) the Court of
Chancery in and for the State of Delaware and the Superior Court in and for the
State of Delaware and (ii) the United States District Court for the District of
Delaware, for the purposes of any suit, action or other proceeding arising out
of or relating to this Agreement or any transaction contemplated hereby or the
breach, performance, enforcement or validity or invalidity of any thereof (and
agrees not to commence any action, suit or proceeding relating thereto except in
such courts). Each of Conexant, Washington and Alpha further agrees that service
of any process, summons, notice or document hand delivered or sent by U.S.
registered mail to such party's respective address set forth in Section 6.05
will be effective service of process for any action, suit or proceeding in
Delaware with respect to any matters to which it
30
has submitted to jurisdiction as set forth in the immediately preceding
sentence. Each of Conexant, Washington and Alpha irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby or the breach, performance, enforcement or validity or invalidity of any
thereof in (i) the Court of Chancery in and for the State of Delaware and the
Superior Court in and for the State of Delaware or (ii) the United States
District Court for the District of Delaware, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum. Notwithstanding the foregoing, each party agrees that
a final judgment in any action, suit or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment in any jurisdiction or in
any other manner provided in law or in equity
SECTION 6.08 AMENDMENTS. This Agreement cannot be amended, modified
or supplemented except by a written agreement executed by Conexant and Alpha.
SECTION 6.09 SUCCESSORS AND ASSIGNS. Neither party to this Agreement
will convey, assign or otherwise transfer any of its rights or obligations under
this Agreement without the prior written consent of the other party in its sole
and absolute discretion. Notwithstanding the foregoing, Conexant or Alpha may
(without obtaining any consent) assign, delegate or sublicense all or any
portion of its rights and obligations hereunder to (i) the surviving entity
resulting from a merger or consolidation involving such party, (ii) the
acquiring entity in a sale or other disposition of all or substantially all of
the assets of such party as a whole or of any line of business or division of
such party, or (iii) any other Person that is created as a result of a spin-off
from, or similar reorganization transaction of, such party or any line of
business or division of such party. In the event of an assignment pursuant to
(ii) or (iii) above, the nonassigning party shall, at the assigning party's
request, use good faith commercially reasonable efforts to enter into separate
agreements with each of the resulting entities and take such further actions as
may be reasonably required to assure that the rights and obligations under this
Agreement are preserved, in the aggregate, and divided equitably between such
resulting entities. Any such conveyance, assignment or transfer requiring the
prior written consent of another party which is made without such consent will
be void ab initio. No assignment of this Agreement will relieve the assigning
party of its obligations hereunder.
SECTION 6.10 CAPTIONS; CURRENCY. The article, section and paragraph
captions herein and the table of contents hereto are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. Unless otherwise
specified, all
31
references herein to numbered articles or sections are to articles and sections
of this Agreement and all references herein to schedules are to schedules to
this Agreement. Unless otherwise specified, all references contained in this
Agreement or in any schedule referred to herein to dollars or "$" shall mean
U.S. dollars.
SECTION 6.11 SEVERABILITY. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to any
party as a result thereof, the parties will negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
SECTION 6.12 PARTIES IN INTEREST. Except for the provisions of
Article III relating to Tax Indemnification, this Agreement is solely for the
benefit of the parties hereto and the respective members of their Tax Group and
should not be deemed to confer upon third parties (including any employee of
Conexant or Alpha or of any Conexant or Alpha subsidiary) any remedy, claim,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 6.13 SCHEDULES. All schedules attached hereto are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the respective meanings assigned to such terms in this
Agreement.
SECTION 6.14 WAIVERS; REMEDIES. No failure or delay by any party
hereto in exercising any right, power or privilege hereunder will operate as a
waiver thereof, nor will any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder, nor will any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
Subject to Section 6.06, the rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies which the parties may otherwise
have at law or in equity.
SECTION 6.15 COUNTERPARTS. This Agreement may be executed in
separate counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts will together constitute the same
agreement.
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SECTION 6.16 PERFORMANCE. Each party hereto will cause to be
performed, and hereby guarantees the performance of all actions, agreements and
obligations set forth herein to be performed by any subsidiary or any member of
such party's Tax Group.
SECTION 6.17 INTERPRETATION. Any reference to any Federal, state,
local, or foreign Law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. For the purposes
of this Agreement, (i) words in the singular shall be held to include the plural
and vice versa and words of one gender shall be held to include the other gender
as the context requires, (ii) the terms "hereof ", "herein", and "herewith" and
words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement
and (iii) the word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation".
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties as of the date first
hereinabove written.
CONEXANT SYSTEMS, INC.
By: /s/ XXXXXX X. X'XXXXXX
--------------------------------------
Name: Xxxxxx X. X'Xxxxxx
Title: Senior Vice President,
General Counsel &
Secretary
WASHINGTON SUB, INC.
By: /s/ XXXXXX X. X'XXXXXX
--------------------------------------
Name: Xxxxxx X. X'Xxxxxx
Title: Vice President and
Secretary
ALPHA INDUSTRIES, INC.
By: /s/ XXXX X. XXXXXXX
--------------------------------------
Name: Xxxx X. Xxxxxxx
Title: Vice President, Chief
Financial Officer,
Treasurer & Secretary
34
