1
EXHIBIT 10.56
TAX ALLOCATION AGREEMENT
AGREEMENT dated July 21, 1995, by and among Hyundai Electronics America
(parent, and hereinafter referred to as HEA) and each of its undersigned
subsidiaries.
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group
(Affiliated Group) as defined in Section 1504(a); and
WHEREAS, such Affiliated Group will file a U.S. consolidated income tax
return for its tax year 1994 and is required to file consolidated tax returns
for subsequent years; and
WHEREAS, HEA desires to exercise sole discretion over the methods by
which it files its consolidated federal income tax return, including assembly
and organization of information; filing of returns; payment of estimates, tax,
interest and penalties, tax audit and other contacts with the Internal Revenue
Service and settlement on its consolidated federal income tax return; and
WHEREAS, it is the intent and desire of the parties hereto that a method
be established for allocating the consolidated tax liability of the Affiliated
Group among its members, for reimbursing HEA for payment of such liability, for
compensating any party for use of its losses or tax credits, and to provide for
the allocation and payment of any refund arising from a carryback of losses or
tax credits from subsequent tax years.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. A U.S. consolidated income tax return shall be filed by HEA for the
tax year ended December 31, 1994, and for each subsequent taxable period in
respect of which this agreement is in effect and for which the Affiliated Group
is required or permitted to file a consolidated tax return. Each member of the
Affiliated Group shall execute and file such consent, elections, and other
documents that may be required or appropriate for the proper filing of such
returns.
2. Each subsidiary agrees that it will undertake all measures prescribed
by HEA to provide information requested by HEA for its consolidated federal
income tax return, cooperate as prescribed by HEA in any tax audit or
investigation of HEA's consolidated federal income tax return, execute any tax
settlement arrangement recommended by HEA in connection therewith, make prompt
payment to HEA of any consequential additional tax, interest or penalties
calculated, and make provision with HEA for regular review and approval by HEA
of tax procedures of the subsidiary.
3. HEA and each subsidiary agree that the consolidated tax liability for
each year, determined in accordance with Regulation 1.1502-2, shall be
apportioned among them in
1
2
accordance with the provisions of Regulation 1.1502-33(d)(2)(ii), (effective for
taxable years beginning January 1, 1995, pursuant to amendment by T.D. 8560,
reference should be made to Regulation 1.1502-33(d)(3) and the applicable
provisions thereunder). In applying that regulation, the tax liability of the
group shall be allocated to the members of the group on the basis of the
percentage of the total tax which the tax of such member, if computed on a
separate return, would bear to the total amount of the taxes for all members of
the group so computed, pursuant to Section 1552(a)(2) of the Code and Regulation
1.1552-1(a)(2)(ii). Also, fixed percentage to be used for purposes of applying
Regulation 1.1502-33(d)(2)(ii)(b) shall be 100 percent. Thus, under Regulation
1.1502-33(d)(2)(ii)(b), an additional amount shall be allocated to each member
of the affiliated group equal to 100 percent of the excess, if any, of the
separate return tax liability of such member for the tax year (computed as
provided in Regulation 1.1552-1(a)(2)(ii) over the tax liability allocated under
Section 1552(a)(2) as outlined above, and credited to the members that had items
of income, deduction, credit, and so forth to which any difference is
attributable.
Under this provision there will be no additional benefit to the
subsidiaries for their losses in the current year, if HEA has the ability to
utilize its own net operating loss carryforwards. The following example
illustrates this point.
Example. If each member had filed a separate return, taxable income is
as follows: HEA $1,000, Sub I ($1,000), and all other members of the Affiliated
Group $0. Accordingly, the Affiliated Group's consolidated liability is $0. HEA
has net operating loss carryforwards from prior years in excess of $1,000. No
tax liability is allocated to HEA (and credited to Sub I) since HEA's separate
return liability would be $0 as a result of utilizing its net operating loss
carryforwards.
4. HEA and each subsidiary agree that if the consolidated tax liability
for each year includes any liability for alternative minimum tax and/or
environmental tax, the alternative minimum tax, allowable minimum tax credit,
and environmental tax shall be allocated among the members in accordance with
Proposed Regulations Section 1.1552-1(g). HEA and each subsidiary further agree
that upon subsequent revisions or finalization of the Proposed Regulations, this
paragraph shall be reviewed to determine whether such Regulations are consistent
with the intent of the parties to this agreement.
5. Payment of the consolidated tax liability for a taxable period shall
include the payment of estimated tax installments due for such taxable period,
and each subsidiary shall pay to HEA its share of each payment within ten days
or other mutually agreeable time of receiving notice of such payment from HEA,
but in no event later than the due date for each such payment. Any amounts paid
by a subsidiary on account of a separate return or separate estimated tax
payments that are credited against the consolidated tax liability of the
Affiliated Group shall be included in determining the payments due from such
subsidiary. Any overpayment of estimated tax should be refunded to the
subsidiary. Additions to tax, penalties, interest and other costs incurred by
HEA because a subsidiary has overestimated its tax benefit shall be borne by
that subsidiary.
2
3
6. If for any taxable period the separate return liability of any member
of the Affiliated Group, including HEA, exceeds the consolidated tax liability
for such period as a result of any excess losses or tax credits of one or more
members, then the member who has absorbed the excess losses or credits shall pay
to each such member whose excess losses or credits were absorbed were absorbed
its allocable portion of such excess amount within 30 days after the date of
filing of the consolidated return for such period. In order to compute each
member's tax on a separate return basis, the Affiliated Group shall allocate to
each member, the Group's Research Credit and Foreign Tax Credit pursuant to the
principles of Regulations 1.41-8(a)(4) Examples (1) & (2), and 1.1502-4(f)(2),
respectively. The following example illustrates this point.
Example. If each member had filed a separate return, taxable income is
as follows: HEA $1,000, Sub I $1,000, and all other members of the Group $0.
Thus, HEA's consolidated liability is $680. The HEA Group is unable to generate
a research credit on a consolidated basis. Sub I's R&D expenditure and base
period computed on a separate return basis would result in a research credit of
$1,000. However, since the HEA consolidated group has no research credit, no
amount of credit is allowed to Sub I on a separate return basis. Therefore, $340
in tax liability would be allocated to both HEA and Sub I.
7. If part or all of an unused loss or tax credit is allocated to a
member of the Affiliated Group pursuant to Regulation 1.1502-79, and is carried
back or forward to a year in which such member filed a separate return or a
consolidated return with another affiliated group, any refund or reduction in
tax liability arising from the carryback or carryover shall be retained by such
member. Notwithstanding the above, HEA shall determine whether an election shall
be made not to carry back part or all of a consolidated net operating loss for
any tax year in accordance with Section 172(b)(3).
8. If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return, claim for refund, or after a tax audit by
the Internal Revenue Service, the liability of each member shall be recomputed
to give effect to such adjustments, and in the case of a refund, HEA shall make
payment to each member for its share of the refund, determined in the same
manner as in paragraph 2 above, within ten days or other mutually agreeable
time, after the refund is received by HEA, and in the case of an increase in tax
liability, each member shall pay to HEA its allocable share of such increased
tax liability within ten days or other mutually agreeable time after receiving
notice of such liability from HEA.
9. If for any taxable period, a member's tax attributes (tax credits and
NOLs) are utilized by the Group in computing consolidated tax liability and the
member is not reimbursed on a current basis pursuant to this agreement, then
upon deconsolidation of any party to this agreement, the member shall be
reimbursed by the members of the Group who utilized the tax attributes only when
such members fully utilize their tax attributes.
10. Each subsidiary shall refrain from entering into agreements which,
in the opinion of HEA, affect the subject matter of this Agreement without the
prior written approval of HEA; submit to HEA for review and consolidation all
federal income tax returns and other related
3
4
information sixty days prior to the required federal filing date (including
extensions) or at such other date as HEA may designate.
11. The principles expressed in this agreement with respect to the HEA
Affiliated Group federal income tax return shall apply with equal force to all
state and local income and franchise tax matters filed on a consolidated,
combined or unitary basis.
12. If during a consolidated return period HEA or any subsidiary
acquires or organizes another corporation that is required to be included in the
consolidated return, then such corporation shall join in and be bound by this
agreement.
13. This agreement shall apply to the tax year ending December 31, 1994,
and all subsequent taxable periods unless HEA and the subsidiaries agree to
terminate the agreement. Notwithstanding such termination, this agreement shall
continue in effect with respect to any payment or refunds due for all taxable
periods prior to the termination.
14. This agreement shall be binding upon and inure to the benefit of any
successor, whether by statutory merger, acquisition of assets, or otherwise, to
any of the parties hereto, to the same extent as if the successor had been an
original party to the agreement.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their duly authorized representatives on July 21, 1995.
Hyundai Electronics America
by /s/ Authorized Signatory
___________________________________________
Axil Computer, Inc.
by /s/ Authorized Signatory
___________________________________________
Image Quest Technologies, Inc.
by /s/ Authorized Signatory
___________________________________________
Symbios Logic Inc.
by /s/ Authorized Signatory
___________________________________________
Symbios Logic Solutions
by /s/ Authorized Signatory
___________________________________________
TV/COM International, Inc.
by /s/ Authorized Signatory
___________________________________________
4
5
SUPPLEMENT TO TAX ALLOCATION AGREEMENT
Hyundai Electronics America (parent, and hereinafter referred to as HEA)
and each of its undersigned subsidiaries desire to modify the Tax Allocation
Agreement dated July 21, 1995 ("Tax Agreement"), as follows:
1. HEA and its subsidiary Symbios Logic, Inc. ("SYMBIOS") are parties
with Hyundai Electronics Industries Co., Ltd. to a Parent Ownership and License
Agreement effective February 16, 1995 ("License Agreement"). The License
Agreement will have certain U.S. federal and state income tax consequences.
2. For all purposes of the Tax Agreement, the MPD Patents and Patent
Applications ("MPD Patents") acquired by HEA from AT&T-G18 will be treated as
being owned exclusively by SYMBIOS. Moreover, SYMBIOS will be treated as owning
100% of the tax attributes associated with the MPD Patents, including tax basis
and amortization rights for the entire $40 million paid AT&T-18 for the MPD
Patents.
For example, the purposes of the Tax Agreement, SYMBIOS rather than HEA
will be entitled to amortize over the prescribed period 100% of the tax basis of
the MPD Patents in the calculation of its separate return tax liability under
the Tax Agreement.
3. While the Tax Agreement generally applies to Tax Allocations for
periods during which the parties participate together in filing a consolidation
return, in order to provide similar benefits to SYMBIOS for periods subsequent
to its participation with HEA in a consolidated return, HEA would continue to
make payments to SYMBIOS with respect to HEA's utilization of tax benefits
arising from deductions associated with the MPD Patents, at the time such
benefits are utilized and at HEA's marginal tax rates.
4. The parties to the Tax Agreement acknowledge that the provisions
herein may have the effect of creating distributions and capital contributions
for U.S. federal income tax purposes. For example, amortization deductions with
respect to the MPD Patents recognized by HEA for U.S. federal income tax
purposes but by SYMBIOS for purposes of the Tax Agreement may result in a
capital contribution by HEA to SYMBIOS due to the resulting reduction in the
SYMBIOS separate return tax liability under the Tax Agreement.
5. The parties to the Tax Agreement acknowledge that earnings and
profits adjustments and investment account adjustments recognized by Affiliated
Group members for U.S. federal Income tax purposes may differ from such
adjustments that would apply if the modification to separate return tax
liabilities under the Tax Agreement resulting from the provisions herein were
also effective for U.S. federal income purposes. For example, subject to the
provisions of paragraph 3 above, the "shifting" of amortization deductions with
respect to the MPD Patents from HEA to SYMBIOS for purposes of the Tax Agreement
are not anticipated to reduce the earnings and profits of SYMBIOS, or HEA's
investment in SYMBIOS for U.S. federal income tax purposes.
5
6
6. This Supplement shall apply tot he same except as the Tax Agreement,
and during the same period.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their duly authorized representatives.
Hyundai Electronics America
by /s/ Authorized Signatory
___________________________________________
Axil Computer, Inc.
by /s/ Authorized Signatory
___________________________________________
Image Quest Technologies, Inc.
by /s/ Authorized Signatory
___________________________________________
Symbios Logic Inc.
by /s/ Authorized Signatory
___________________________________________
Symbios Logic Solutions
by /s/ Authorized Signatory
___________________________________________
TV/COM International, Inc.
by /s/ Authorized Signatory
___________________________________________
6
7
ADDENDUM TO TAX ALLOCATION AGREEMENT
WHEREAS Hyundai Electronics America (parent, and hereinafter referred to
as HEA) has acquired or organized additional subsidiaries which will be included
in its federal consolidated income tax return; and
WHEREAS, HEA and the undersigned subsidiaries desire the new
subsidiaries to participate in the Tax Allocation Agreement dated July 21, 1995
("Tax Agreement").
NOW, THEREFORE, the undersigned subsidiaries shall join the Affiliated
Group and be bound by the Tax Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this addendum to be
executed by their duly authorized representatives.
Hyundai Electronics America
by /s/ Authorized Signatory
___________________________________________
Maxtor Corporation
by /s/ Authorized Signatory
___________________________________________
Odeum Microsystems
by /s/ Authorized Signatory
___________________________________________
7