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EXHIBIT 2.4
TAX SHARING AND INDEMNITY AGREEMENT
This Tax Sharing and Indemnity Agreement, dated April 2, 2001, is by and
between Quantum Corporation ("QUANTUM"), a Delaware corporation, Insula
Corporation, a Delaware corporation, ("SPINCO"), and Maxtor Corporation
("MAXTOR"), a Delaware corporation.
RECITALS
A. Quantum is the common parent of an affiliated group of corporations
(the "QUANTUM GROUP").
B. The business of Quantum and other members of the Quantum Group involve
two product lines: hard disk drives and DLTape and storage systems. (The
businesses related to these product lines are referred to as the "HDD BUSINESS"
and the "DDS BUSINESS.")
C. In August 1999, Quantum recapitalized its stock into two classes of
tracking stock, the "HDD STOCK" and the "DSS STOCK" (the "RECAPITALIZATION").
Each class tracks the results of one of the businesses of the Quantum Group.
D. Quantum prepares separate financial statements for each of its two lines
of business. For this purpose, each line of business is allocated a share of the
group's aggregate tax liability. This allocation is made as though each business
were conducted by a separate subsidiary, using the allocation method described
in section 1.1502-32(b)(3)(iv)(D) of the Treasury regulations. Thus, each line
of business is allocated the amount of tax that it would have paid if it had
been a separate and independent corporation. To the extent that the tax
liability attributable to one business is reduced by losses, credits or other
tax attributes of the other business, the first business must pay the second
business for the use of those tax attributes.
E. Maxtor is also engaged in the disk drive business.
F. Quantum and Maxtor would like to combine their disk drive businesses,
without including Quantum's DSS Business in the combined entity.
G. To accomplish their objectives, the parties agreed to a plan of
reorganization reflected in an Amended and Restated Agreement and Plan of
Merger and Reorganization (the "MERGER AGREEMENT") dated as of October 3, 2000,
by and among Quantum, Spinco, Maxtor and Hawaii Acquisition Corporation, a
wholly-owned subsidiary of Maxtor. As part of the plan, Quantum is transferring
to Spinco all of the assets of its HDD Business in exchange for all of the
stock of Spinco. Quantum will distribute the Spinco stock pro rata to the
holders of HDD Stock in redemption of their HDD Stock (the "DISTRIBUTION").
Spinco will then merge with and into Maxtor (the "MERGER").
H. Quantum and Spinco would like to allocate responsibilities for certain
tax matters. In particular, the parties would like to provide for (1) payments,
as appropriate, to reflect differences
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between estimates of tax liability for periods beginning before the date of the
Distribution (the "DISTRIBUTION DATE") and the liability shown on the tax
returns filed for those periods, (2) the retention, maintenance and provision
of access to all records necessary to prepare and file appropriate tax returns,
and (3) indemnity for certain tax obligations.
I. In the Merger, Maxtor will assume the obligations of Spinco and
succeed to Spinco's rights under this Agreement. Maxtor acknowledges its
assumption of these obligations and its succession to Spinco's rights under
this Agreement as a result of the Merger.
AGREEMENT
To accomplish the purposes described above, Quantum, Spinco and Maxtor
agree as follows:
1. Settlement of Tax Liability for Pre-Distribution Taxable Years.
Within 30 days after filing a tax return for any taxable period beginning
before the date of the Distribution Date, Quantum shall allocate the tax
liability for the period covered by the return between the HDD Business and the
DSS Business and notify Spinco of the allocation. Quantum shall make this
allocation in a manner consistent with its prior practice, using the method
described in section 1.1502-32(b)(3)(iv)(D) of the Treasury regulations and
treating the HDD Business and the DSS Business as though they had been
conducted by separate members of the Quantum Group. Quantum shall pay Spinco,
or Spinco shall pay Quantum, as appropriate, to reflect the differences between
the allocation of the liability shown on the tax return and the allocation of
estimated liability used for purposes of determining prior payments between the
two businesses. For purposes of this Agreement, references to Spinco shall,
when appropriate, be construed as references to Maxtor, as successor to Spinco.
2. Retention of and Access to Records; Cooperation and Assistance.
(a) Retention of and Access to Records. Quantum and Spinco shall retain
all tax returns for periods beginning before the Distribution Date, together
with all related reports, work papers, schedules or other documents or computer
files, and, subject to the confidentiality provisions of Section 5, shall make
these documents or files available to the other upon request. Neither Quantum
nor Spinco shall dispose of any of these documents or files without the other's
permission.
(b) Cooperation and Assistance. Subject to the confidentiality
provisions of Section 5, Quantum and Spinco shall provide each other with such
cooperation, assistance, and information as either of them may reasonably
request of the other with respect to the filing with any taxing authority of
any tax return, amended return, claim for refund, or other document.
3. Indemnity Obligations of Spinco
(a) Certain Pre-Distribution Tax Liabilities. Subject to the limitation
provided by Section 3(b), Spinco shall indemnify Quantum and its affiliates and
hold them harmless from and against any taxes, and related interest and
penalties, imposed on Quantum or any affiliate attributable to
(i) the conduct of the DSS business before the Recapitalization;
or
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(ii) the conduct of the HDD business before the Distribution.
For purposes of this Section 3(a), taxes shall be allocated between the DSS
Business and the HDD Business as described in Section 1. Taxes attributable to
a taxable year that includes the date of the Recapitalization shall be
allocated between the pre- and post-Recapitalization periods within that year
based on the period to which the tax relates, if the tax can be specifically
related to either period, or on a pro rata basis, if the tax cannot be
specifically related to either period.
(b) Limitation on Indemnity for Pre-Distribution Tax Liabilities. To the
extent the cumulative amounts described in Section 3(a), exclusive of any
gross-up provided pursuant to Section 4, exceed $142 million, Spinco's
indemnity obligation shall be limited to 50 percent of such excess.
(c) Tax Liabilities Resulting from Restructuring. Spinco shall indemnify
Quantum and its affiliates and hold them harmless from and against any taxes,
and related interest and penalties, imposed on Quantum or any affiliate that are
attributable to transactions undertaken to separate Quantum's HDD Business from
its DSS Business, including the transaction in which Quantum Peripherals
(Europe) S.A. transfers assets related to the HDD Business to QPE-Controlled,
which will be tax-free under Swiss law, subject to requirements regarding the
conduct of business and continuing stock ownership after the transaction. The
indemnity provided by this Section 3(c) shall apply to taxes, and related
interest and penalties, on separation transactions regardless of whether the
action causing the tax occurs before or after the Distribution, but shall not
apply to the extent that any taxes, interest, or penalties result from actions
taken by Quantum or a subsidiary after the Distribution.
(d) Tax Liabilities Resulting from Distribution. Spinco shall indemnify
Quantum and hold it harmless and against any taxes, and related interest and
penalties, imposed on Quantum as a result of the Distribution, except to the
extent that such taxes, and related interest and penalties, result from one or
more acquisitions of Quantum stock after the Distribution or actions taken by
Quantum after the Distribution.
(e) Timing of Indemnity Payments; Insurance; Tax Controversies.
(i) Timing of Indemnity Payments. Any indemnity payments required by
this Section 3 shall be made within 10 days after a final determination of
an indemnified tax liability. For this purpose, an agreement between the
corporation liable for an asserted tax deficiency and the relevant tax
authority to settle the claimed deficiency shall constitute a final
determination.
(ii) Insurance. Maxtor, as successor to Spinco, shall control
submission of claims, correspondence and resolution of disputes ("Claims
Control") with insurance providers relating to all insurance policies
covering tax liabilities described in Section 3(d) ("Tax Insurance").
Quantum shall cooperate with Maxtor with respect to Claims Control
matters. If Maxtor fails to timely make an indemnity payment to Quantum
required under Section 3(d), Quantum shall assume Claims Control;
provided, however, that Maxtor shall reassume
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Claims Control if Maxtor subsequently tenders full payment to Quantum of
all outstanding indemnity obligations under Section 3(d). If Quantum
receives Tax Insurance proceeds in reimbursement of any liability for
which Quantum was previously indemnified by Maxtor, Quantum shall promptly
remit those proceeds to Maxtor.
(iii) Control of Contests of Indemnified Tax Liabilities.
(A) Quantum shall notify Maxtor of the commencement of any
audits of income tax returns filed by Quantum or an affiliate with
the Internal Revenue Service, the state of California, Colorado or
Massachusetts, or any foreign taxing authority, in any case for a
taxable period beginning before the Distribution Date.
(B) If, with respect to any taxable period and any type of tax
liability, Quantum or an affiliate of Quantum receives from a taxing
authority any request for information, letters, forms or schedules
("Audit Correspondence") that could reasonably relate to issues that,
if resolved unfavorably to the taxpayer, would give rise to an
indemnifiable tax liability, Quantum shall timely provide Maxtor with
a copy of the Audit Correspondence and shall consult with Maxtor
regarding the response to the Audit Correspondence.
(C) If any audit results in a claimed tax deficiency that would
be subject to indemnity by Maxtor, as successor to Spinco, in whole
or in part, Maxtor shall have the right to control the contest of
that portion of the claimed deficiency that would be subject to
indemnity, including the right to decide whether to settle that
portion of the controversy. If Maxtor assumes control of all or part
of a contest, (1) Quantum shall execute any powers of attorney or
other documents necessary to enable Maxtor to participate in the
contest, (2) Maxtor shall pay the costs it incurs in participating in
the contest, (3) Maxtor shall consult with Quantum and not
unreasonably reject Quantum's advice regarding the handling of that
portion of the contest controlled by Maxtor, and (4) Quantum shall
not deny any request by the applicable taxing authority to extend the
statute of limitations if, in Quantum's reasonable judgment, the
denial would materially prejudice Maxtor's ability to defend the
claim subject to indemnity.
4. Gross-Up for Taxes on Required Payments. If the receipt or accrual of
any payment required by this Agreement is subject to any tax, the payor shall
pay an additional amount so that the total amount received by the payee, net of
any applicable taxes, equals the amount of the required payment. If a
reasonable basis exists to treat a payment as not to subject to tax, no
gross-up shall be required under this Section 4 unless the payment is finally
determined to be subject to tax.
5. Confidentiality of Documents and Information. Any documents or
information provided pursuant to this Agreement in connection with a tax
contest or filing with a tax authority shall be provided or disclosed by the
recipient only to those of its employees responsible for the tax contest or
filing or to attorneys or accountants advising the recipient on these matters.
Any wider
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dissemination of these documents or this information shall be allowed only if
required by law or authorized by the party providing the documents or
information.
6. Dispute Resolution.
(a) If a dispute, controversy or claim ("DISPUTE") arises between Quantum
and Spinco relating to the interpretation or performance of this Agreement, or
the grounds for the termination hereof, appropriate senior executives (e.g.
director or V.P. level) of each party who shall have the authority to resolve
the matter shall meet to attempt in good faith to negotiate a resolution of the
Dispute prior to pursuing other available remedies. Discussions and
correspondence relating to attempts to resolve the Dispute shall be treated as
confidential information developed for the purpose of settlement and shall be
exempt from discovery or production and shall not be admissible. If the senior
executives are unable to resolve the Dispute within thirty (30) days from the
date of their initial meeting (the "DISPUTE RESOLUTION COMMENCEMENT DATE"), and
either party wishes to pursue its rights relating to the Dispute, then the
Dispute will be mediated by a mutually acceptable mediator appointed pursuant
to the mediation rules of JAMS/Endispute within thirty (30) days after written
notice by one party to the other demanding non-binding mediation. Neither party
shall unreasonably withhold consent to the selection of a mediator or the
location of the mediation. Quantum and Spinco shall share the costs of the
mediation equally, except that each party shall bear its own costs and
expenses, including attorney's fees, witness fees, travel expenses, and
preparation costs. The parties may also agree to replace mediation with some
other form of non-binding or binding ADR.
(b) Any Dispute that the parties cannot resolve through mediation within
ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise
mutually agreed, shall be submitted to final and binding arbitration under the
then current Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), by three (3) arbitrators in Santa Xxxxx County,
California. These arbitrators shall be selected by the mutual agreement of the
parties or, failing such agreement, shall be selected according to the AAA
rules. The parties shall instruct the arbitrators to prepare and deliver a
written, reasoned opinion stating their decision within thirty (30) days of the
completion of the arbitration. The prevailing party in the arbitration shall be
entitled to expenses, including costs and attorneys' and other professional
fees, incurred in connection with the arbitration (but excluding any costs and
fees associated with prior negotiation or mediation). The decision of the
arbitrator shall be final and non-appealable and may be enforced in any court
of competent jurisdiction. The use of any ADR procedures shall not be construed
under the doctrine of laches, waiver or estoppel to adversely affect the rights
of either party.
(c) Any Dispute regarding the following matters is not required to be
negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality; any claim
where interim relief from the court is sought to prevent serious and
irreparable injury to one of the parties or to others. However, the parties to
the Dispute shall make a good faith effort to negotiate and mediate such
Dispute, according to the above procedures, while the court action is pending.
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(d) Unless otherwise agreed in writing, the parties shall continue to
honor all commitments under this Agreement during the course of dispute
resolution pursuant to the provisions of this Section 6 with respect to all
matters not subject to such dispute, controversy, or claim.
7. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and shall
supersede all prior written and oral and all contemporaneous oral agreements
and understandings with respect to the subject matter hereof.
8. Governing Law. This Agreement shall be construed in accordance with,
and all Disputes hereunder shall be governed by, the laws of the State of
California, excluding its conflict of law rules. The Superior Court of Santa
Xxxxx County and/or the United States District Court for the Northern District
of California shall have jurisdiction and venue over all Disputes between the
parties that are permitted to be brought in a court of law pursuant to Section
6.
9. Notices. Notices, demands, offers, requests or other communications
required or permitted to be given pursuant to the terms of this Agreement shall
be given in writing to the following addresses:
if to Quantum:
Quantum Corporation
000 XxXxxxxx Xxxx.
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Fax: (000) 000-0000
with a copy to:
Xxxxxx Xxxx, Esq., Xxxxxxx Xxxxxxx, Esq.
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Fax: (000) 000-0000
if to Maxtor:
Maxtor Corporation
000 Xxxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: General Counsel
Fax: (000) 000-0000
with a copy to:
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Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Xxxxx Xxxxxx, Esq.
Fax: (000) 000-0000
Or to such other address as the party to whom notice is given may have
previously furnished to the others in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also
be sent via certified mail, return receipt requested. All other notices may
also be sent by fax, confirmed by first class mail. All notices shall be deemed
to have been given and received on the earlier of actual delivery or three (3)
days from the date of postmark.
10. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
11. Binding Effect; Assignment. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Quantum may not
assign this Agreement, or any rights or obligations hereunder, without the
prior written consent of Spinco and Maxtor, and neither Maxtor nor Spinco may
assign this Agreement or any rights or obligations hereunder, without the prior
written consent of Quantum, and any such assignment shall be void.
12. Severability. If any term or any other provision of this Agreement is
determined by a court, administrative agency or arbitrator to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to either Quantum, on the one hand, or Spinco and Maxtor, on the other.
Upon a determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the fullest extent possible.
13. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any agreement herein, nor shall any single or partial exercise of
any such right preclude other or further exercise thereof or of any other
right. All rights and remedies existing under this Agreement are cumulative to,
and not exclusive of, any rights or remedies otherwise available.
14. Amendment. No change or amendment will be made to this Agreement
except by an instrument in writing signed on behalf of each of the parties to
such agreement.
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15. Authority. Each of the parties hereto represents that (a) it has the
corporate or other requisite power and authority to execute, deliver, and
perform this Agreement, (b) the execution, delivery and performance of this
Agreement by it have been duly authorized by all necessary corporate or other
actions, (c) it has duly and validly executed and delivered this Agreement, and
(d) this Agreement is a legal, valid and binding obligation, enforceable
against it in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and general equity principles.
16. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated.
17. Certain Compensation Deductions. For purposes of section 162 and 83(h)
of the Internal Revenue Code, Maxtor shall not claim deductions with respect to
(i) the exercise of vested options to acquire DSS Stock by former Quantum
employees or (ii) the exercise by former Quantum employees of options to
acquire stock of Maxtor (where such options were received in exchange for
options to acquire HDD Stock) to the extent such options were vested as of the
date of the Merger.
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IN WITNESS WHEREOF, the parties have caused this Tax Sharing and Indemnity
Agreement to be duly executed as of the date first set forth above.
QUANTUM CORPORATION INSULA CORPORATION
By: /s/ XXXXXXX XXXXX By: /s/ XXXXX XXXX
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Name: XXXXXXX XXXXX Name: Xxxxx Xxxx
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Title: CHAIRMAN & CEO Title: Secretary
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MAXTOR CORPORATION
By: /s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
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Title: V.P., General Counsel & Secretary
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