EXHIBIT 2.8
TAX SHARING AGREEMENT
BY AND AMONG
HEWLETT-PACKARD COMPANY
AND ITS AFFILIATES
AND
AGILENT TECHNOLOGIES, INC.
AND ITS AFFILIATES
Dated November 1, 1999
TABLE OF CONTENTS
Page
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Section 1. Definitions................................................... 2
1.1 In General............................................... 2
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"Additional Japan Restructuring Tax"..................... 2
"Additional Restructuring Tax"........................... 2
"After Tax Amount"....................................... 2
"Agilent Affiliate"...................................... 3
"Agilent Business"....................................... 3
"Agilent Group".......................................... 3
"Agilent Group Combined Tax Liability"................... 3
"Agilent Group Federal Income Tax Liability"............. 3
"Agilent Historic Affiliate"............................. 3
"Agilent Uncontrolled Affiliate"......................... 3
"Agilent VP"............................................. 3
"Applicable Spinoff"..................................... 4
"Audit".................................................. 4
"Carryback Period"....................................... 4
"Cash Distribution"...................................... 4
"Code"................................................... 4
"Combined Group"......................................... 4
"Combined Return"........................................ 4
"Consolidated Group"..................................... 4
"Consolidated Return".................................... 4
"Consolidated Return Year" .............................. 4
"Contemplated Domestic Restructuring Taxes".............. 5
"Contemplated Foreign Restructuring Taxes"............... 5
"Contemplated Japan Restructuring Tax"................... 5
"Customs Taxes".......................................... 5
"Distribution Date"...................................... 5
"Domestic Restructuring"................................. 5
"Domestic Restructuring Tax"............................. 5
"Estimated Tax Installment Date"......................... 5
"Federal Income Tax"..................................... 5
"Federal Income Tax Benefit" ............................ 6
"Federal Tax"............................................ 6
"Filing Party"........................................... 6
"Final Determination".................................... 6
i
"Foreign Operating Tax".................................. 6
"Foreign Restructuring".................................. 6
"Foreign Restructuring Tax".............................. 7
"Foreign Tax Authority".................................. 7
"Hewlett-Packard Affiliate".............................. 7
"Hewlett-Packard Business"............................... 7
"Hewlett-Packard Foreign Sales Corporation".............. 7
"Hewlett-Packard Uncontrolled Affiliate"................. 7
"Hewlett-Packard VP"..................................... 7
"Income Taxes"........................................... 7
"Indemnifying Party"..................................... 8
"Indemnitee"............................................. 8
"Internal Distribution".................................. 8
"Initial Private Letter Ruling".......................... 8
"Interest Accrual Period"................................ 8
"Interim Period"......................................... 8
"IPO".................................................... 8
"Japan Restructuring Tax"................................ 8
"Joint Responsibility Item".............................. 8
"Non-Federal Combined Tax"............................... 8
"Non-Federal Separate Tax"............................... 8
"Non-Federal Tax"........................................ 8
"Non-Filing Party"....................................... 9
"Option"................................................. 9
"Payment Period"......................................... 9
"Post-Distribution Period"............................... 9
"Pre-Distribution Period"................................ 9
"Pre-Separation Period".................................. 9
"Privilege".............................................. 9
"Pro Forma Agilent Group Combined Return"................ 9
"Pro Forma Agilent Group Consolidated Return"............ 9
"Public Distribution" ................................... 9
"Redetermination Amount"................................. 10
"Restriction Period"..................................... 10
"Restructuring Tax"...................................... 10
"Ruling Documents"....................................... 10
"Separate Return"........................................ 10
"Separation"............................................. 10
"Separation Agreement"................................... 10
"Separation Date"........................................ 10
ii
"Service"................................................ 10
"Sole Responsibility Item" .............................. 10
"Spinoff"................................................ 10
"Supplemental Ruling".................................... 11
"Supplemental Ruling Documents".......................... 11
"Tax".................................................... 11
"Tax Arbiter"............................................ 11
"Tax Asset".............................................. 11
"Tax Authority".......................................... 11
"Tax Benefit"............................................ 11
"Tax Detriment".......................................... 12
"Tax Item"............................................... 12
"Tax Law"................................................ 12
"Tax Return"............................................. 12
"Treasury Regulations"................................... 12
1.2 Construction Principles.................................. 12
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Section 2. Preparation and Filing of Tax Returns......................... 13
2.1 In General............................................... 13
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2.2 Provision of Tax Return Information...................... 13
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2.3 Manner of Filing Tax Returns............................. 15
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2.4 Review of Tax Returns.................................... 16
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2.5 Agent.................................................... 17
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Section 3. Tax Sharing................................................... 17
3.1 In General............................................... 17
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3.2 Agilent Group Federal Income Tax Liability............... 18
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3.3 Agilent Group Combined Tax Liability..................... 18
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3.4 Cooperation.............................................. 19
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Section 4. Payment of Taxes and Tax Sharing Amounts...................... 19
4.1 Federal Income Taxes..................................... 19
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4.2 Non-Federal Combined Taxes............................... 19
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4.3 Non-Federal Separate Taxes............................... 19
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4.4 Other Federal Taxes...................................... 19
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4.5 Tax Sharing Installment Payments......................... 20
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4.6 Tax Sharing True-up Payments............................. 20
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4.7 Redetermination Amounts.................................. 21
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Section 5. Restructuring Taxes and Deconsolidation....................... 22
iii
5.1 Liability for Restructuring Taxes........................ 22
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5.2 Agilent Representations.................................. 23
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5.3 Hewlett-Packard Representations.......................... 25
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5.4 Private Letter Rulings................................... 27
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5.5 Carrybacks............................................... 28
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5.6 Allocation of Tax Items.................................. 29
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5.7 Continuing Covenants..................................... 29
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5.8 Allocation of Tax Assets................................. 30
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5.9 Japan Restructuring Taxes................................ 30
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5.10 Certain Foreign Operating Taxes.......................... 33
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5.11 Other Restructuring Taxes................................ 34
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Section 6. Additional Obligations........................................ 35
6.1 Indemnification.......................................... 35
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6.2 Payments................................................. 36
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6.3 Prompt Performance....................................... 37
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6.4 After Tax Amounts........................................ 37
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6.5 Interest................................................. 37
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6.6 Tax Records. ........................................... 37
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Section 7. Audits........................................................ 38
7.1 In General............................................... 38
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7.2 Notice................................................... 39
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7.3 Participation Rights..................................... 39
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7.4 Limitations.............................................. 40
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7.5 Failure to Notify, Etc................................... 42
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7.6 Affirmative Claims....................................... 43
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7.7 Remedies................................................. 43
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Section 8. Stock Options and Restricted Stock............................ 44
8.1 In General............................................... 44
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8.2 Notices, Withholding, Reporting.......................... 44
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8.3 Adjustments.............................................. 44
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Section 9. Other Tax Matters............................................. 45
9.1 Other Adjustments........................................ 45
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9.2 Research Tax Credit...................................... 45
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9.3 Foreign Sales Corporation Matters........................ 45
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9.4 Intercompany Pricing Adjustments......................... 45
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iv
Section 10. Miscellaneous................................................. 46
10.1 Effectiveness........................................... 46
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10.2 Notices................................................. 46
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10.3 Changes in Law.......................................... 47
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10.4 Confidentiality......................................... 47
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10.5 Successors.............................................. 48
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10.6 Affiliates.............................................. 48
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10.7 Authorization, Etc...................................... 49
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10.8 Entire Agreement........................................ 49
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10.9 Applicable Law; Jurisdiction............................ 49
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10.10 Dispute Resolution...................................... 49
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10.11 Counterparts............................................ 50
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10.12 Severability............................................ 50
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10.13 No Third Party Beneficiaries............................ 50
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10.14 Waivers, Etc............................................ 50
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10.15 Setoff.................................................. 50
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v
TAX SHARING AGREEMENT
---------------------
THIS TAX SHARING AGREEMENT (this "Agreement"), dated as of November 1,
1999, by and among Hewlett-Packard Company ("Hewlett-Packard"), a Delaware
corporation and each Hewlett-Packard Affiliate (as defined below), and Agilent
Technologies, Inc. ("Agilent"), a Delaware corporation and currently a direct,
wholly owned subsidiary of Hewlett-Packard, and each Agilent Affiliate (as
defined below) is entered into in connection with the Spinoff (as defined
below).
RECITALS
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WHEREAS, as set forth in the Master Separation and Distribution
Agreement dated as of August 12, 1999 (the "Separation Agreement"), and subject
to the terms and conditions thereof, Hewlett-Packard wishes to transfer and
assign to Agilent substantially all of the assets and liabilities currently
associated with the Agilent Business (as defined below) and the stock,
investments and similar interests currently held by Hewlett-Packard in
subsidiaries and other entities that conduct such business (the "Separation");
WHEREAS, following the Separation, Hewlett-Packard and Agilent
currently contemplate that Agilent will make an initial public offering (the
"IPO") of Agilent Common Stock that will reduce Hewlett-Packard's ownership of
Agilent on a fully-diluted basis to not less than 80.1 percent;
WHEREAS, Agilent intends to distribute all of the proceeds of the IPO
to Hewlett-Packard and Hewlett-Packard intends to segregate such funds for
distribution to its creditors or shareholders (the "Cash Distribution");
WHEREAS, Hewlett-Packard intends to distribute all of its shares of
Agilent Common Stock, on a pro rata basis, to the holders of the common stock of
Hewlett-Packard, subject to the terms and conditions of the Separation Agreement
(the "Public Distribution");
WHEREAS, prior to consummating the Separation and the Public
Distribution, various Hewlett-Packard Affiliates and the Agilent Affiliates will
have undertaken certain restructuring transactions designed to separate the
Agilent Business from the Hewlett-Packard Business in jurisdictions outside of
the United States, as defined in Section 7701(a)(9) of the Code, (the "Foreign
Restructuring"), and Hewlett-Packard World Trade, Inc., a wholly owned Delaware
subsidiary of
Hewlett-Packard, will contribute all of its property relating to the Agilent
Business into Agilent World Trade, Inc., a newly formed Delaware corporation,
and will distribute all of the stock of Agilent World Trade, Inc. to Hewlett-
Packard (the "Internal Distribution");
WHEREAS, the Separation, the Public Distribution, the Internal
Distribution and certain of the transactions involved in the Foreign
Restructuring are intended to qualify as tax free reorganizations and
distributions under Sections 368(a)(1)(D) and 355 of the Code; and
WHEREAS, in contemplation of the Public Distribution pursuant to which
Agilent and its domestic subsidiaries will cease to be members of the Hewlett-
Packard Group (as defined below), the parties hereto have determined to enter
into this Agreement, setting forth their agreement with respect to certain tax
matters.
AGREEMENT
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NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Definitions
1.1 In General. As used in this Agreement, the following capitalized
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terms shall have the following meanings:
"Additional Japan Restructuring Tax" means any Additional
Restructuring Tax incurred with respect to the sale of the Hewlett-Packard
Business by Hewlett-Packard Japan to the Hewlett-Packard Affiliate that will
continue to conduct such business in Japan after the Separation Date
("Additional Japan Restructuring Tax")
"Additional Restructuring Tax" has the meaning set forth in Section
5.1(b) of this Agreement.
"After Tax Amount" means any additional amount necessary to reflect
the hypothetical Tax consequences of the receipt or accrual of any payment
required to be made under this Agreement (including payment of an additional
amount or amounts hereunder and the effect of the deductions available for
interest paid or accrued and for Taxes such as state and local income Taxes),
determined by
2
using the highest marginal corporate Tax rate (or rates, in the case of an item
that affects more than one Tax) for the relevant taxable period (or portion
thereof).
"Agilent Affiliate" means any corporation or other entity directly or
indirectly controlled by Agilent.
"Agilent Business" has the meaning set forth in the Separation
Agreement.
"Agilent Group" means the affiliated group of corporations as defined
in Section 1504(a) of the Code, or similar group of entities as defined under
corresponding provisions of the laws of other jurisdictions, of which Agilent
would be the common parent corporation immediately after the Separation Date if
it were not a subsidiary of Hewlett-Packard, and any corporation or other entity
which may become a member of such group from time to time.
"Agilent Group Combined Tax Liability" means, with respect to any
taxable period, the Agilent Group's liability for Non-Federal Combined Taxes as
determined under Section 3.3 of this Agreement.
"Agilent Group Federal Income Tax Liability" means, with respect to
any taxable period, the Agilent Group's liability for Federal Income Taxes as
determined under Section 3.2 of this Agreement.
"Agilent Historic Affiliate" means any Agilent Affiliate that was
directly or indirectly controlled by Hewlett-Packard on or before October 31,
1999, or any Agilent Uncontrolled Affiliate in which Hewlett-Packard directly or
indirectly owned an equity or other ownership interest on or before October 31,
1999, in either case including the companies listed in Appendix E of this
Agreement.
"Agilent Uncontrolled Affiliate" means any corporation or other entity
in which Agilent directly or indirectly owns an equity or other ownership
interest but which Agilent does not directly or indirectly control.
"Agilent VP" means the vice president of Agilent with authority over
Tax matters.
3
"Applicable Spinoff" means each of the transactions identified in
Appendix D of this Agreement, each of which is intended to qualify as a non-
recognition transaction under the Code.
"Audit" includes any audit, assessment of Taxes, other examination by
any Tax Authority, proceeding, or appeal of such a proceeding relating to Taxes,
whether administrative or judicial, including proceedings relating to competent
authority determinations.
"Carryback Period" has the meaning set forth in Section 5.5(a) of this
Agreement.
"Cash Distribution" has the meaning set forth in the Recitals to this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Group" means a group of corporations or other entities that
files a Combined Return.
"Combined Return" means any Tax Return with respect to Non-Federal
Taxes filed on a consolidated, combined (including nexus combination, worldwide
combination, domestic combination, line of business combination or any other
form of combination) or unitary basis wherein Agilent or one or more Agilent
Affiliates join in the filing of such Tax Return (for any taxable period or
portion thereof) with Hewlett-Packard or one or more Hewlett-Packard Affiliates.
"Consolidated Group" means an affiliated group of corporations within
the meaning of Section 1504(a) of the Code that files a Consolidated Return.
"Consolidated Return" means any Tax Return with respect to Federal
Income Taxes filed on a consolidated basis wherein Agilent or one or more
Agilent Affiliates join in the filing of such Tax Return (for any taxable period
or portion thereof) with Hewlett-Packard or one or more Hewlett-Packard
Affiliates.
"Consolidated Return Year" means any taxable year for which a
Consolidated Return is filed.
4
"Contemplated Domestic Restructuring Taxes" means the Domestic
Restructuring Taxes set forth in Appendix C of this Agreement.
"Contemplated Foreign Restructuring Taxes" means the Foreign
Restructuring Taxes as calculated and agreed to by Hewlett-Packard and Agilent
on or before December 15, 1999.
"Contemplated Japan Restructuring Tax" means the Contemplated Foreign
Restructuring Tax imposed with respect to the sale of the Hewlett-Packard
Business by Hewlett-Packard Japan to the Hewlett-Packard Affiliate that will
continue to conduct such business in Japan after the Separation Date.
"Customs Taxes" means any Federal Taxes that are administered by the
United States Customs Service, together with reasonable professional fees
incurred in connection therewith.
"Distribution Date" has the meaning set forth in the Separation
Agreement.
"Domestic Restructuring" means the transactions undertaken by Hewlett-
Packard and Agilent (and their respective affiliates) designed to separate the
Agilent Business from the Hewlett-Packard Business in the United States, as
defined in Section 7701(a)(9) of the Code, including the Internal Distribution,
the Separation, the Cash Payment and the Public Distribution.
"Domestic Restructuring Tax" means any Tax imposed by the United
States, or any political subdivision thereof, upon Hewlett-Packard (or any
Hewlett-Packard Affiliate) or Agilent (or any Agilent Affiliate) directly in
connection with the Domestic Restructuring, together with reasonable
professional fees incurred in connection therewith.
"Estimated Tax Installment Date" means the estimated Tax installment
due dates prescribed in Section 6655(c) of the Code (presently February 15,
April 15, July 15 and October 15), and any other date on which an installment of
estimated Taxes is required to be made.
"Federal Income Tax" means any Tax imposed under Subtitle A of the
Code (including the Taxes imposed by Sections 11, 55, 59A, and 1201(a) of the
Code), and any interest, additions to Tax or penalties applicable or related
thereto,
5
and any other income-based United States Federal Tax which is hereinafter
imposed upon corporations.
"Federal Income Tax Benefit" means, with respect to any Carryback
Period, the amount determined under Section 5.5(a) of this Agreement.
"Federal Tax" means any Tax imposed or required to be withheld by any
Tax Authority of the United States.
"Filing Party" has the meaning set forth in Section 2.3(c) of this
Agreement.
"Final Determination" means any of (1) the final resolution of any Tax
(or other matter) for a taxable period, including related interest or penalties,
that, under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise, including (A) by the expiration
of a statute of limitations or a period for the filing of claims for refunds,
amending Tax Returns, appealing from adverse determinations, or recovering any
refund (including by offset), (B) by a decision, judgment, decree, or other
order by a court of competent jurisdiction, which has become final and
unappealable, (C) by a closing agreement or an accepted offer in compromise
under Section 7121 or 7122 of the Code, or comparable agreements under laws of
other jurisdictions, (D) by execution of an Internal Revenue Service Form 870 or
870AD, or by a comparable form under the laws of other jurisdictions (excluding,
however, with respect to a particular Tax Item for a particular taxable period
any such form that reserves (whether by its terms or by operation of law) the
right of the taxpayer to file a claim for refund and/or the right of the Tax
Authority to assert a further deficiency with respect to such Tax Item for such
period), or (E) by any allowance of a refund or credit, but only after the
expiration of all periods during which such refund or credit may be recovered
(including by way of offset), or (2) the payment of Tax by any member of the
Consolidated Group or Combined Group with respect to any Tax Item disallowed or
adjusted by a Tax Authority provided that the party liable for payment of such
tax determines that no action should be taken to recoup such payment.
"Foreign Operating Tax" means any Tax imposed by any Foreign Tax
Authority other than a Restructuring Tax.
"Foreign Restructuring" has the meaning set forth in the Recitals to
this Agreement.
6
"Foreign Restructuring Tax" means any Tax imposed by any Tax Authority
upon Hewlett-Packard (or any Hewlett-Packard Affiliate) or Agilent (or any
Agilent Affiliate) directly in connection with the Foreign Restructuring,
together with reasonable professional fees incurred in connection therewith.
"Foreign Tax Authority" means any Tax Authority other than a Tax
Authority of the United States (as defined in Section 7701(a)(9) of the Code) or
any political subdivision thereof.
"Hewlett-Packard Affiliate" means any corporation or other entity
directly or indirectly controlled by Hewlett-Packard, but excluding Agilent or
any Agilent Affiliate.
"Hewlett-Packard Business" means any business of Hewlett-Packard other
than the Agilent Business.
"Hewlett-Packard Foreign Sales Corporation" means any Hewlett-Packard
Affiliate that is a FSC, within the meaning of Section 922 of the Code.
"Hewlett-Packard Group" means the affiliated group of corporations as
defined in Section 1504(a) of the Code, or similar group of entities as defined
under corresponding provisions of the laws of other jurisdictions, of which
Hewlett-Packard is the common parent corporation, and any corporation or other
entity which may be, may have been or may become a member of such group from
time to time, but excluding any member of the Agilent Group.
"Hewlett-Packard Uncontrolled Affiliate" means any corporation or
other entity (other than Agilent, any Agilent Affiliate or any Agilent
Uncontrolled Affiliate) in which Hewlett-Packard directly or indirectly owns an
equity or other ownership interest but which Hewlett-Packard does not directly
or indirectly control.
"Hewlett-Packard VP" means the vice president of Hewlett-Packard with
authority over Tax matters.
"Income Taxes" means (1) any Tax based upon, measured by, or
calculated with respect to (A) net income or profits (including any capital
gains Tax, 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 (B) multiple bases if one or more of the bases upon which such
Tax may be based,
7
measured by, or calculated with respect to, is described in clause (A) above, or
(2) any U.S. state or local franchise Tax.
"Indemnifying Party" has the meaning set forth in Section 6.2(a) of
this Agreement.
"Indemnitee" has the meaning set forth in Section 6.2(a) of this
Agreement.
"Internal Distribution" has the meaning set forth in the Recitals to
this Agreement.
"Initial Private Letter Ruling" means the first private letter ruling
issued by the Service to Hewlett-Packard in connection with the Spinoff.
"Interest Accrual Period" has the meaning set forth in Section 6.5 of
this Agreement.
"Interim Period" means any taxable period that begins on or after the
Separation Date but before the Distribution Date.
"IPO" has the meaning set forth in the Recitals to this Agreement.
"Japan Restructuring Tax" means any Contemplated Japan Restructuring
Tax and any Additional Japan Restructuring Tax.
"Joint Responsibility Item" means any Tax Item for which the Non-
Filing Party's responsibility under this Agreement could exceed one million
dollars ($1,000,000), but not a Sole Responsibility Item.
"Non-Federal Combined Tax" means any Non-Federal Tax with respect to
which a Combined Return is filed or could be filed.
"Non-Federal Separate Tax" means any Non-Federal Tax other than a Non-
Federal Combined Tax.
"Non-Federal Tax" means any Tax that is not a Federal Tax.
8
"Non-Filing Party" has the meaning set forth in Section 2.3(e) of this
Agreement.
"Option" means an option to acquire common stock, or other equity-
based incentives the economic value of which is designed to mirror that of an
option, including non-qualified stock options, discounted non-qualified stock
options, cliff options to the extent stock is issued or issuable (as opposed to
cash compensation), and tandem stock options to the extent stock is issued or
issuable (as opposed to cash compensation).
"Payment Period" has the meaning set forth in Section 6.5 of this
Agreement.
"Post-Distribution Period" means a taxable period beginning on or
after the Distribution Date.
"Pre-Distribution Period" means any Pre-Separation Period and/or
Interim Period.
"Pre-Separation Period" means a taxable period beginning before the
Separation Date.
"Privilege" means any privilege that may be asserted under applicable
law including, any privilege arising under or relating to the attorney-client
relationship (including the attorney-client and work product privileges), the
accountant-client privilege, and any privilege relating to internal evaluation
processes.
"Pro Forma Agilent Group Combined Return" means a pro forma Non-
Federal Combined Tax Return or other schedule prepared pursuant to Section 3.3
of this Agreement.
"Pro Forma Agilent Group Consolidated Return" means a pro forma
consolidated Federal Income Tax Return or other schedule prepared pursuant to
Section 3.2 of this Agreement.
"Public Distribution" has the meaning set forth in the Recitals to
this Agreement.
9
"Redetermination Amount" means, with respect to any Tax for any
taxable period, the amount determined under Section 4.7 of this Agreement.
"Restriction Period" means the period beginning on the date hereof and
ending thirty (30) months after the Distribution Date.
"Restructuring Tax" means a Domestic Restructuring Tax or a Foreign
Restructuring Tax, in each case including both Contemplated and Additional
Restructuring Taxes.
"Ruling Documents" means (1) the request for a ruling under Section
355 and various other Sections of the Code, filed with the Service in connection
with the Spinoff, together with any supplemental filings or ruling requests or
other materials subsequently submitted on behalf of Hewlett-Packard, its
subsidiaries and shareholders to the Service, the appendices and exhibits
thereto, and any rulings issued by the Service to Hewlett-Packard (or any
Hewlett-Packard Affiliate) in connection with the Spinoff or (2) any similar
filings submitted to, or rulings issued by, any other Tax Authority in
connection with the Spinoff.
"Separate Return" means any Tax Return with respect to Non-Federal
Separate Taxes filed by Hewlett-Packard, Agilent, or any of their respective
affiliates.
"Separation" has the meaning set forth in the Recitals to this
Agreement.
"Separation Agreement" has the meaning set forth in the Recitals to
this Agreement.
"Separation Date" has the meaning set forth in the Separation
Agreement.
"Service" means the Internal Revenue Service.
"Sole Responsibility Item" means any Tax Item for which the Non-Filing
Party has the entire economic liability under this Agreement.
"Spinoff" means the separation of the Agilent Business from the
Hewlett-Packard Business, and the Public Distribution.
10
"Supplemental Ruling" means (1) any ruling issued by the Service in
connection with the Spinoff other than the Initial Private Letter Ruling or (2)
any similar ruling issued by any other Tax Authority addressing the application
of a provision of the laws of another jurisdiction to the Spinoff.
"Supplemental Ruling Documents" has the meaning set forth in Section
5.4(b)(i) of this Agreement.
"Tax" includes any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, estimated,
highway use, commercial rent, capital stock, paid up capital, recording,
registration, property, real property gains, value added, business license,
custom duties, or other tax or governmental fee of any kind whatsoever, imposed
or required to be withheld by any Tax Authority including any interest,
additions to tax, or penalties applicable or related thereto.
"Tax Arbiter" means a nationally recognized tax attorney or tax
accountant that is a member of a nationally recognized law firm or accounting
firm which firm is independent of both parties.
"Tax Asset" means any Tax Item that has accrued for Tax purposes, but
has not been used during a taxable period, and that could reduce a Tax in
another taxable period, including a net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or credit
related to alternative minimum tax.
"Tax Authority" means any governmental authority or any subdivision,
agency, commission or authority thereof or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or
imposition of any Tax (including the Service).
"Tax Benefit" means a reduction in the Tax liability of a taxpayer (or
of the affiliated group of which it is a member) for any taxable period. Except
as otherwise provided in this Agreement, a Tax Benefit shall be deemed to have
been realized or received from a Tax Item in a taxable period only if and to the
extent that the Tax liability of the taxpayer (or of the affiliated group of
which it is a member)
11
for such period, after taking into account the effect of the Tax Item on the Tax
liability of such taxpayer in the current period and all prior periods, is less
than it would have been if such Tax liability were determined without regard to
such Tax Item.
"Tax Detriment" means an increase in the Tax liability of a taxpayer
(or of the affiliated group of which it is a member) for any taxable period.
Except as otherwise provided in this Agreement, a Tax Detriment shall be deemed
to have been realized or received from a Tax Item in a taxable period only if
and to the extent that the Tax liability of the taxpayer (or of the affiliated
group of which it is a member) for such period, after taking into account the
effect of the Tax Item on the Tax liability of such taxpayer in the current
period and all prior periods, is more than it would have been if such Tax
liability were determined without regard to such Tax Item.
"Tax Item" means any item of income, gain, loss, deduction or credit,
or other attribute that may have the effect of increasing or decreasing any Tax.
"Tax Law" means any federal, state, local or foreign law with respect
to Taxes, including the Code and Treasury Regulations.
"Tax Return" means any return, report, certificate, form or similar
statement or document (including, any related or supporting information or
schedule attached thereto and any information return, amended tax return, claim
for refund or declaration of estimated tax) required to be supplied to, or filed
with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.
"Treasury Regulations" means the final, temporary and proposed income
tax regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
1.2 Construction Principles. As used in this Agreement, words in any
-----------------------
gender shall be deemed to include all other genders, the singular shall be
deemed to include the plural and vice versa, and the captions and section
headings are inserted for convenience of reference only and are not intended to
have any significance for the interpretation of, or construction of, the
provisions of this Agreement.
12
Section 2. Preparation and Filing of Tax Returns
2.1 In General.
----------
(1) Hewlett-Packard shall have the responsibility for the
preparation and filing of (1) all Tax Returns with respect to Hewlett-Packard,
any Hewlett-Packard Affiliate, Agilent and/or any Agilent Affiliate (other than
returns required to be filed after October 31, 1999 of an Agilent Historic
Affiliate or returns required to be filed with respect to an Agilent Historic
Affiliate for taxable periods prior to any acquisition of such Agilent Historic
Affiliate by Hewlett-Packard or any Hewlett-Packard Affiliate) for any Pre-
Separation Period and (2) all Consolidated Returns and all Combined Returns for
any Interim Period.
(2) Except as provided in Section 2.1(a) of this Agreement,
Agilent shall have the responsibility for the preparation and filing of all Tax
Returns for (1) Agilent and any Agilent Affiliate which are required to be filed
for any Interim Period and any Post-Distribution Period, (2) any Agilent
Historic Affiliate which are required to be filed after October 31, 1999 and (3)
any Agilent Historic Affiliate for taxable periods prior to the acquisition of
such Agilent Historic Affiliate by Hewlett-Packard or any Hewlett-Packard
Affiliate.
2.2 Provision of Tax Return Information.
-----------------------------------
(1) Agilent shall provide Hewlett-Packard all documents and
information, and make available employees and officers of Agilent as Hewlett-
Packard reasonably requests, on a mutually convenient basis during normal
business hours, to aid Hewlett-Packard in preparing any Tax Return described in
Section 2.1(a) of this Agreement to the extent that such Tax Return relates to
the business, assets or activities that are transferred to Agilent (or any
Agilent Affiliate), any Pro Forma Agilent Group Consolidated Returns described
in Section 4.6(a) of this Agreement, and any Pro Forma Agilent Group Combined
Returns described in Section 4.6(b) of this Agreement, or to contest any Audit
of any such Tax Return. Without limiting the foregoing, in this regard, Agilent
agrees to provide (1) the information set forth in Appendix A to this Agreement,
on or before the dates set forth therein, with respect to Consolidated Returns,
and (2) the information set forth in Appendix B to this Agreement, on or before
the dates set forth therein, with respect to Combined Returns.
(2) In the case of any Tax Return for a Pre-Distribution
Period described in Section 2.1(a) of this Agreement, Hewlett-Packard shall
provide
13
employees of Agilent responsible for preparing its Tax Returns with access to
each such Tax Return, and will provide Agilent with a copy of that portion of
each such Tax Return to the extent it relates to Agilent or any Agilent
Affiliate, together with all related Tax accounting work papers, not later than
five (5) days after the receipt of a written request therefor. In addition,
Hewlett-Packard will provide employees of Agilent responsible for preparing its
Tax Returns with access to any private letter rulings, together with any
requests therefor and related documents, issued to Hewlett-Packard prior to the
Distribution Date, and will provide Agilent with a copy of such rulings or
documents to the extent that the issues discussed therein are relevant to
Agilent or an Agilent Affiliate, not later than five (5) days after the receipt
of a written request therefor.
(3) Hewlett-Packard shall provide Agilent all documents and
information, and make available employees and officers of Hewlett-Packard as
Agilent reasonably requests, on a mutually convenient basis during normal
business hours to aid Agilent in preparing any Tax Return described in Section
2.1(b) of this Agreement, or to contest any Audit of any such Tax Return.
(4) Notwithstanding any other provision of this Agreement,
neither Hewlett-Packard nor any Hewlett-Packard Affiliate shall be required to
provide Agilent or any Agilent Affiliate access to or copies of any information
that relates to Hewlett-Packard or any Hewlett-Packard Affiliate and not to the
business or assets of Agilent or any Agilent Affiliate. In addition, in the
event that Hewlett-Packard determines that the provision of any information to
Agilent or any Agilent Affiliate could be commercially detrimental, violate any
law or agreement or waive any Privilege, the parties shall take all reasonable
measures to permit the compliance with such obligations in a manner that avoids
any such harm or consequence.
(5) To the extent that Agilent acquires Tax Return software
from Hewlett-Packard, any information that relates solely to Hewlett-Packard
(and not to the business or assets of Agilent) that is included in such software
shall be deleted from such software as soon as practicable (unless such removal
would adversely affect the Agilent information included in such software) and
Agilent shall inform Hewlett-Packard of the deletions that are made.
14
2.3 Manner of Filing Tax Returns.
----------------------------
(1) All Tax Returns filed after the date of this Agreement by
Hewlett-Packard, any Hewlett-Packard Affiliate, Agilent and/or any Agilent
Affiliate shall be (1) prepared in a manner that is consistent with (A) the
Ruling Documents and (B) Sections 5.6 and 5.8 of this Agreement, and (2) filed
on a timely basis (including extensions) by the party responsible for such
filing under Section 2.1 of this Agreement.
(2) Hewlett-Packard (for itself and the Hewlett-Packard
Affiliates) and Agilent (for itself and the Agilent Affiliates) agree to file
all Tax Returns for any Pre-Distribution Period, and to take all other actions
in a manner consistent with the position that Agilent and the Agilent Affiliates
are part of any Consolidated Group and any Combined Group for all days through
and including the Distribution Date.
(3) Except as otherwise provided in this Section 2.3 or Sections
2.4 and 7.6 of this Agreement, the party that is required to file a return under
Section 2.1 of this Agreement (the "Filing Party") shall have the exclusive
right to determine (1) the manner in which such Tax Return shall be prepared and
filed, including the elections, methods of accounting, positions, conventions
and principles of taxation to be used and the manner in which any Tax Item shall
be reported, (2) whether any extensions may be requested, (3) the elections that
will be made in such Tax Return, (4) whether any amended Tax Returns shall be
filed, (5) whether any claims for refund shall be made, (6) whether any refunds
shall be paid by way of refund or credited against any liability for the related
Tax, and (7) whether to retain outside specialists to prepare such Tax Return,
whom to retain for such purpose and the scope of any such retainer.
(4) In the event that a Tax Item affects a Tax Return described
in Section 2.1(a) of this Agreement and also affects a Tax Return described in
Section 2.1(b) of this Agreement that is filed after the date of this Agreement,
the Filing Party shall conform the treatment of such Tax Item in any Tax Return
described in Section 2.1(b) of this Agreement to the treatment of such Tax Item
in the applicable Tax Return described in Section 2.1(a) of this Agreement.
(5) Any Tax Return described in (1) Section 2.1(a) of this
Agreement (but only with respect to Tax Items of Agilent or an Agilent
Affiliate) or (2) Section 2.1(b) of this Agreement, in either case which Tax
Return is filed after the date of this Agreement, shall be prepared on a basis
consistent with the elections,
15
methods of accounting, positions, conventions and principles of taxation and the
manner in which any Tax Item or other information is reported as reflected on
the most recently filed prior Tax Returns involving similar matters. The
preceding sentence shall not apply (1) to the extent otherwise required by
Section 2.3(a)(1) of this Agreement, (2) if the Filing Party obtains the prior
written consent (which consent shall not be unreasonably withheld) of the other
party (the "Non-Filing Party"), or (3) if there is a change in controlling law.
(6) Any Tax Return filed by Hewlett-Packard or Agilent with
respect to any Pre-Distribution Period will be filed in conformance with
Hewlett-Packard's existing intercompany pricing guidelines and any existing or
future agreements (copies of which have been or will be provided to the Agilent
VP) with respect thereto entered into with any Tax Authority, except to the
extent that Agilent enters into an agreement with any Tax Authority for the same
period and any such agreement does not result in any Tax Detriment to Hewlett-
Packard with respect to the Interim Period.
2.4 Review of Tax Returns.
---------------------
(1) The Filing Party shall provide the Non-Filing Party a draft
copy of any Tax Return that the Filing Party has prepared, together with all
related Tax and accounting work papers, not later than thirty (30) days before
the due date, including extensions, for filing such Tax Return with the
applicable Tax Authority; provided, however, that the Filing Party may redact
-------- -------
portions of any such Tax Return or related work papers to the extent that the
information set forth therein does not reasonably relate to the Non-Filing
Party. To the extent that the Filing Party makes any such redactions, the Filing
Party will provide an index of such redactions to the Non-Filing Party.
(2) The Filing Party shall accept any request by the Non-Filing
Party, that is made not later than one hundred five (105) days before the due
date, including extensions, for filing the applicable Tax Return, to incorporate
any election, method of accounting or other position, convention or principle of
taxation on such Tax Return to the extent that it relates to a Tax Item with
respect to the Non-Filing Party or any affiliate thereof, or the activities or
business of either, provided that, if reasonably requested by the Filing Party,
--------
the Non-Filing Party produces a written opinion of nationally recognized tax
counsel that there is substantial authority (within the meaning of Section 6662
of the Code) in support of such election, method of accounting or other
position, convention or principle of taxation.
16
(3) Hewlett-Packard shall make its employees reasonably
available, to the extent consistent with Hewlett-Packard's process for preparing
a Consolidated Return or a Combined Return, at mutually convenient times during
normal business hours to discuss information pertinent to Agilent or any Agilent
Affiliate contained in such Consolidated Return or Combined Return prior to the
date on which Hewlett-Packard intends to file such Consolidated Return or
Combined Return.
2.5 Agent. Agilent hereby irrevocably designates, and agrees to cause
-----
each Agilent Affiliate to so designate, Hewlett-Packard as its sole and
exclusive agent and attorney-in-fact to take such action (including execution of
documents) as Hewlett-Packard, in its sole discretion, may deem appropriate in
any and all matters (including Audits) relating to any Tax Return described in
Section 2.1(a) of this Agreement; provided, however, that Hewlett-Packard shall
-------- -------
not exercise its rights as agent and attorney-in-fact in any manner that is
inconsistent with the rights granted to Agilent under this Agreement, and
nothing in this Section 2.5 shall limit the rights granted to Agilent under this
Agreement.
Section 3. Tax Sharing
3.1 In General.
----------
(1) Hewlett-Packard shall be responsible for, and shall
indemnify and hold harmless Agilent against, all Taxes that relate to Hewlett-
Packard, any Hewlett-Packard Affiliate, Agilent or any Agilent Affiliate for all
Pre-Separation Periods other than (1) Restructuring Taxes for which Agilent or
any Agilent Affiliate is liable under Section 5 of this Agreement, (2) Taxes of
any Agilent Historic Affiliate (other than Hewlett-Packard Japan, Ltd. or
Yokogawa Analytical Systems, Inc.) which are unpaid as of October 31, 1999 or
(3) Customs Taxes for which Agilent is liable under Section 3.1(c) of this
Agreement. In addition, Hewlett-Packard shall indemnify and hold harmless
Agilent against all Taxes that relate to any Hewlett-Packard Uncontrolled
Affiliate or any Agilent Uncontrolled Affiliate for all Pre-Separation Periods
other than Taxes of any such entity that is an Agilent Historic Affiliate and
which are unpaid as of October 31, 1999.
(2) For each Interim Period, Agilent shall be liable for an
amount equal to the sum of the Agilent Group Federal Income Tax Liability and
the Agilent Group Combined Tax Liability for such taxable period.
17
(3) For each Pre-Separation Period, Agilent shall be liable for
eighteen percent (18%) of any Customs Taxes with respect to such taxable period
that are imposed as a result of any Final Determination with respect to the
Audit with respect to Customs Taxes that is currently pending as of the date of
this Agreement.
(4) Agilent shall indemnify and hold harmless Hewlett-Packard
against any liability for Taxes imposed on any Agilent Uncontrolled Affiliate
with respect to taxable periods beginning on or after the Separation Date, and
Hewlett-Packard shall indemnify and hold harmless Agilent against any liability
for Taxes imposed on any Hewlett-Packard Uncontrolled Affiliate with respect to
taxable periods beginning on or after the Separation Date.
3.2 Agilent Group Federal Income Tax Liability. No later than fifteen
------------------------------------------
(15) days after the filing of the Consolidated Return for the Interim Period,
Hewlett-Packard and Agilent shall prepare a Pro Forma Agilent Group Consolidated
Return. The Agilent Group Federal Income Tax Liability shall be the Agilent
Group's liability for Federal Income Taxes for such taxable period, as
determined on such Pro Forma Agilent Group Consolidated Return prepared:
(1) on the basis of the Consolidated Return for such period,
determined by including only Tax Items created by Agilent or any Agilent
Affiliate (or otherwise allocated thereto under Section 5.8 of this Agreement)
which are included in, and actually utilized on, the Consolidated Return; and
(2) applying the highest marginal corporate Tax rate in effect
for such taxable period (or any portion thereof).
3.3 Agilent Group Combined Tax Liability. With respect to any
------------------------------------
Interim Period, the Agilent Group Combined Tax Liability shall be the sum for
such taxable period of the Agilent Group's liability for each Non-Federal
Combined Tax, as determined on a Pro Forma Agilent Group Combined Return
prepared in a manner consistent with the principles and procedures set forth in
Section 3.2 of this Agreement.
3.4 Cooperation. Hewlett-Packard shall make its employees available
-----------
to Agilent, at mutually convenient times during normal business hours, as
Agilent reasonably requests, to explain each Pro Forma Agilent Group
Consolidated Return prepared after the date of this Agreement pursuant to
Section 3.2 of this Agreement and each Pro Forma Agilent Group Combined Return
prepared after the date of this Agreement pursuant to Section 3.3 of this
Agreement. Hewlett-Packard
18
shall accept all reasonable suggestions made by Agilent to incorporate any
election, method of accounting or other position, convention or principle of
taxation on such Pro Forma Agilent Group Consolidated Returns and Pro Forma
Agilent Group Combined Returns, provided that, if requested by Hewlett-Packard,
--------
Agilent produces a written opinion of nationally recognized tax counsel that
there is substantial authority (within the meaning of Section 6662 of the Code)
in support of such election, method of accounting or other position, convention
or principle of taxation.
Section 4. Payment of Taxes and Tax Sharing Amounts
4.1 Federal Income Taxes. Hewlett-Packard shall pay (or cause to be
--------------------
paid) to the Service all Federal Income Taxes, if any, of any Consolidated Group
due and payable for all Pre-Distribution Periods.
4.2 Non-Federal Combined Taxes. Hewlett-Packard shall pay (or cause
--------------------------
to be paid) to the appropriate Tax Authorities all Non-Federal Combined Taxes,
if any, of any Combined Group due and payable for all Pre-Distribution Periods.
4.3 Non-Federal Separate Taxes. Agilent shall pay (or cause to be
--------------------------
paid) to the appropriate Tax Authorities all Non-Federal Separate Taxes, if any,
that relate to the Agilent Group and any Agilent Affiliate, and Hewlett-Packard
shall pay (or cause to be paid) to the appropriate Tax Authorities all Non-
Federal Separate Taxes, if any, that relate to the Hewlett-Packard Group and any
Hewlett-Packard Affiliate.
4.4 Other Federal Taxes. The parties shall each pay (or cause to be
-------------------
paid) to the appropriate Tax Authorities all of their respective Federal Taxes
(excluding Federal Income Taxes for Pre-Distribution Periods, which are governed
by Section 4.1 of this Agreement), if any.
19
4.5 Tax Sharing Installment Payments.
--------------------------------
(1) Federal Income Taxes. Not later than eight (8) business days
--------------------
prior to each Estimated Tax Installment Date with respect to Federal Income
Taxes for any Interim Period (four (4) business days in the case of the first
Estimated Tax Installment Date for any Interim Period), Hewlett-Packard shall
notify Agilent of its determination, under the principles of Section 6655 of the
Code, of the estimated amount of the related installment of the Agilent Group
Federal Income Tax Liability. Agilent shall pay to Hewlett-Packard not later
than such Estimated Tax Installment Date the amount thus determined.
(2) Non-Federal Combined Taxes. Not later than eight (8)
--------------------------
business days prior to each Estimated Tax Installment Date with respect to Non-
Federal Combined Taxes for any Interim Period (four (4) business days in the
case of the first Estimated Tax Installment Date for any Interim Period),
Hewlett-Packard shall notify Agilent of its determination of the estimated
amount of the related installment of the Agilent Group Combined Tax Liability.
Agilent shall pay to Hewlett-Packard not later than such Estimated Tax
Installment Date the amount thus determined.
4.6 Tax Sharing True-up Payments.
----------------------------
(1) Federal Income Taxes. Not later than fifteen (15) business
--------------------
days after the completion of the Pro Forma Agilent Group Consolidated Return
reflecting the Agilent Group Federal Income Tax Liability for any Interim
Period, Agilent shall pay to Hewlett-Packard, or Hewlett-Packard shall pay to
Agilent, as appropriate, an amount equal to the difference, if any, between the
Agilent Group Federal Income Tax Liability for such period and the aggregate
amount paid by Agilent with respect to such period under Section 4.5(a) of this
Agreement; provided that in the event that Hewlett-Packard is entitled to a
--------
refund on its Consolidated Return for such period and Hewlett-Packard is
required to make a payment to Agilent under this Section 4.6(a), then Hewlett-
Packard shall make such payment not later than forty-five (45) days after the
completion of the Pro Forma Agilent Group Consolidated Return reflecting the
Agilent Group Federal Income Tax Liability for such period.
(2) Non-Federal Combined Taxes. Not later than fifteen (15)
--------------------------
business days after the completion of Pro Forma Agilent Group Combined Return
reflecting the Agilent Group Combined Tax Liability for any Interim Period,
Agilent shall pay to Hewlett-Packard, or Hewlett-Packard shall pay to Agilent,
as
20
appropriate, an amount equal to the difference, if any, between the Agilent
Group Combined Tax Liability for such period and the amount paid by Agilent with
respect to such period under Section 4.5(b) of this Agreement; provided that in
--------
the event that Hewlett-Packard is entitled to a refund on a Combined Return for
such period and Hewlett-Packard is required to make a payment to Agilent under
this Section 4.6(b), then Hewlett-Packard shall make such payment not later than
forty-five (45) days after the completion of the Pro Forma Agilent Group
Combined Return reflecting the Agilent Group Combined Tax Liability for such
period.
(3) Treatment of Certain Tax Items. If a Tax Item (other than
------------------------------
a Tax Item or portion thereof taken into account under Sections 5.9, 5.10 or
5.11 of this Agreement) created by Agilent or any Agilent Affiliate (or
otherwise allocated thereto under Section 5.8 of this Agreement) is used on a
Consolidated Return or Combined Return and a portion of the Tax Item so used did
not otherwise reduce the amount that Agilent is required to pay Hewlett-Packard
under this Section 4 for such period, then for purposes of this Section 4.6, the
Agilent Group Federal Income Tax Liability or the Agilent Group Combined Tax
Liability, as the case may be, shall be reduced by the amount of any reduction
of Hewlett-Packard's Tax liability with respect to such Consolidated Return or
Combined Return resulting from the use of such portion of such Tax Item. Any
reduction pursuant to the preceding sentence may result in a negative amount so
as to cause the amount payable by Hewlett-Packard under this Section 4.6 to
exceed the aggregate amounts, if any, paid by Agilent under Section 4.5 for the
applicable period.
4.7 Redetermination Amounts.
-----------------------
(1) For any Interim Period, in the event of a redetermination of
any Tax Item of any member of a Consolidated Group or Combined Group (other than
Tax Items relating to Restructuring Taxes and Foreign Operating Taxes which are
subject to Section 5 of this Agreement), as a result of a refund of Taxes paid,
a Final Determination or any settlement or compromise with any Tax Authority,
Hewlett-Packard and Agilent shall prepare jointly, in accordance with the
principles and procedures set forth in Section 3 of this Agreement, revised Pro
Forma Agilent Consolidated Returns and/or revised Pro Forma Agilent Combined
Returns, as appropriate, to reflect the redetermination of such Tax Item as a
result of such refund, Final Determination, settlement or compromise. Agilent
shall pay to Hewlett-Packard, or Hewlett-Packard shall pay to Agilent, as
appropriate, an amount equal to the difference, if any, between the Tax
liability reflected on such revised pro forma tax returns and the Tax liability
for such period as originally computed pursuant to Section 3 of this Agreement.
21
(2) To the extent that one party is compensated for the use of a
Tax Asset on a Consolidated Return or Combined Return under this Section 4.7,
and such use permanently prevents the other party from using a Tax Asset in a
subsequent period, then the first party shall reimburse the second party for
such amount.
(3) To the extent that Hewlett-Packard receives a refund with
respect to Taxes paid on a Separate Return of an Agilent Historic Affiliate for
any Pre-Separation Period, Hewlett-Packard shall pay the amount of such refund
to Agilent.
Section 5. Restructuring Taxes and Deconsolidation
5.1 Liability for Restructuring Taxes.
---------------------------------
(1) In General. Except as otherwise provided in this Agreement,
----------
all Contemplated Domestic Restructuring Taxes and all Contemplated Foreign
Restructuring Taxes shall be the obligation of the entity that is liable for
such Taxes under the Tax Law.
(2) Increases in Restructuring Taxes. In the event that Hewlett-
--------------------------------
Packard, any Hewlett-Packard Affiliate, Agilent, or any Agilent Affiliate incurs
any Domestic Restructuring Taxes or Foreign Restructuring Taxes other than
Contemplated Domestic Restructuring Taxes or Contemplated Foreign Restructuring
Taxes, the amount of such additional Taxes (the "Additional Restructuring
Taxes") shall be allocated between Hewlett-Packard and Agilent as follows:
(1) Liability for Breach of Representation. To the
--------------------------------------
extent that any Additional Restructuring Taxes are primarily attributable to a
breach of representation made by Agilent pursuant to Section 5.2 of this
Agreement, then one hundred percent (100%) of the amount of such Additional
Restructuring Taxes shall be allocated to Agilent. To the extent that any
Additional Restructuring Taxes are primarily attributable to a breach of
representation made by Hewlett-Packard pursuant to Section 5.3 of this
Agreement, then one hundred percent (100%) of the amount of such Additional
Restructuring Taxes shall be allocated to Hewlett-Packard.
(2) Tax Liability for Foreign Restructuring. To the
---------------------------------------
extent that any Additional Restructuring Taxes imposed by any Tax
22
Authority with respect to the Foreign Restructuring are primarily attributable
to any action taken, or the failure to take any action, by Hewlett-Packard (or
any Hewlett-Packard Affiliate) or Agilent (or any Agilent Affiliate), including
any Taxes imposed as a result of any violation of any agreement entered into
with a Foreign Tax Authority with respect to the Foreign Restructuring, then one
hundred percent (100%) of the amount of such Additional Restructuring Taxes
shall be allocated to such party.
(3) Other Liability. Except as provided in Section
---------------
5.1(b)(i) or (ii), any Additional Restructuring Taxes shall be allocated eighty-
two percent (82%) to Hewlett-Packard and eighteen percent (18%) to Agilent.
5.2 Agilent Representations and Covenants. Agilent, for itself and
-------------------------------------
the Agilent Affiliates, hereby represents, warrants and covenants that:
(1) Agilent has reviewed the information and representations
made in the Ruling Documents submitted to the Service prior to the date of this
Agreement (and any Supplemental Ruling Documents), copies of which were
delivered to the Agilent VP on September 17, 1999, and, to Agilent's knowledge,
all of such information or representations that relate to Agilent or any Agilent
Affiliate, or the business or operations of either, are true, correct and
complete.
(2) Agilent will not, and will cause each Agilent Affiliate not
to, take any action, or fail or omit to take any action, that would cause any of
the information or representations made in the Ruling Documents or Supplemental
Ruling Documents that relate to Agilent or any Agilent Affiliate, or the
business or operations of either, to be untrue, regardless of whether such
information or representations were included in the Initial Private Letter
Ruling (or any Supplemental Ruling).
(3) Neither Agilent nor any Agilent Affiliate will, directly or
indirectly, during the Restriction Period:
(1) enter into, or otherwise be a party to, any
transaction or arrangement (including, without limitation, stock issuances,
stock acquisitions, and transactions involving the stock or substantially all of
the assets of Agilent or any Agilent Affiliate) pursuant to which one or more
persons acquire stock of Agilent or any Agilent Affiliate representing a "50-
percent or greater interest" within the meaning of Section 355(d)(4) of the Code
that would cause Section 355(e) of the Code to apply to any Applicable Spinoff;
or
23
(2) take or fail to take any other action (including,
without limitation, any cessation, transfer to affiliates or disposition of its
active trade or business, and certain reacquisitions of its stock and payments
of extraordinary dividends to its shareholders) that would cause any Applicable
Spinoff to fail to qualify for nonrecognition of gain or loss under the Code.
(4) During the Restriction Period:
(1) neither Agilent nor any Agilent Affiliate will,
directly or indirectly, in a single transaction or in a series of transactions:
(1) issue stock or other equity interests of Agilent or any Agilent Affiliate
(including, without limitation, options, rights, warrants or securities
exercisable for, or convertible into stock of Agilent or any Agilent Affiliate,
or any similar arrangement); or (2) redeem, purchase or otherwise reacquire any
of its capital stock (other than through stock purchases meeting the
requirements of section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696); which,
when aggregated with all other such specified transactions undertaken during the
Restriction Period, would involve the acquisition (determined under the
principles of Section 355 of the Code) by one or more persons of more than
thirty-five percent (35%) of the stock of Agilent or any Agilent Affiliate
(including stock issued by Agilent in the IPO):
(2) Agilent will not undertake any transaction that is
treated as a liquidation or merger under the Code; and
(3) no Agilent Affiliate will liquidate or merge with
or into any other entity (other than in a liquidation or merger with or into
another Agilent Affiliate that would not affect the qualification of an
Applicable Spinoff as a reorganization under Sections 368(a) and/or 355 of the
Code);
unless (1) Hewlett-Packard consents in writing, which consent shall not be
unreasonably withheld, or (2) Hewlett-Packard obtains, at Agilent's request, a
Supplemental Ruling from the applicable Tax Authority that such transaction or
series of transactions will not adversely affect the Tax treatment of any
Applicable Spinoff. If the Service issues guidance or Treasury Regulations are
issued under Section 355(e) of the Code, the parties hereby agree to meet to
review the conditions and requirements set forth in this Section 5.2(d) and to
consider making appropriate revisions thereto. Not later than fifteen (15) days
prior to consummating any of the transactions described in the first sentence of
this Section 5.2(d), Agilent shall provide notice of such transaction to the
Agilent VP; not later than five (5) days prior to consummating
24
any of the transactions described in the first sentence of this Section 5.2(d),
Agilent shall provide notice of such transaction to the Hewlett-Packard VP (such
notice to be provided under method (1) or (3) of Section 11.2 of this
Agreement); provided, however, that in the event that Agilent determines that
-------- -------
such notice could be commercially detrimental, violate any law or agreement or
waive any Privilege, the parties shall take all reasonable measures to permit
Agilent's compliance with its obligations under this Section 5.2(d) (including
its obligations to obtain Hewlett-Packard's consent or a Supplemental Ruling) in
a manner that avoids any such harm or consequence. Nothing in this Section
5.2(d) shall limit the liability of either party to this Agreement for any
Restructuring Taxes that are the responsibility of such party under this
Agreement.
(5) Agilent recognizes that any failure by it or any Agilent
Affiliate to comply with their obligations under this Section 5.2 may result in
Additional Restructuring Taxes which could cause irreparable harm to Hewlett-
Packard, the Hewlett-Packard Affiliates and their stockholders, and that such
persons may be inadequately compensated by monetary damages for such failure.
Accordingly, if (1) Agilent or any Agilent Affiliate shall fail to comply with
any obligation under this Section 5.2 which would be reasonably foreseeable to
result in any Additional Restructuring Taxes, and (2) Agilent shall fail to
provide Hewlett-Packard with a written opinion of nationally recognized tax
counsel that such failure to comply with such obligation will not result in any
increase in Taxes of Hewlett-Packard or any Hewlett-Packard Affiliate, and such
opinion is provided to Hewlett-Packard for its review and approval, which
approval will not be unreasonably withheld, then Hewlett-Packard and each
Hewlett-Packard Affiliate shall be entitled to injunctive relief in addition to
all other remedies.
5.3 Hewlett-Packard Representations. Hewlett-Packard, for itself and
-------------------------------
the Hewlett-Packard Affiliates, hereby represents, warrants and covenants that:
(1) Hewlett-Packard has reviewed the information and
representations made in the Ruling Documents submitted to the Service prior to
the date of this Agreement (and any Supplemental Ruling Documents), and, to its
knowledge, all of such information or representations that relate to Hewlett-
Packard or any Hewlett-Packard Affiliate, or the business or operations of
either, are true, correct and complete.
(2) Hewlett-Packard will not, and will cause each Hewlett-
Packard Affiliate not to, take any action, or fail or omit to take any action,
that would cause any of the information or representations made in the Ruling
Documents or
25
Supplemental Ruling Documents to be untrue, regardless of whether such
information or representations were included in the Initial Private Letter
Ruling (or any Supplemental Ruling).
(3) Neither Hewlett-Packard nor any Hewlett-Packard Affiliate
will, directly or indirectly, during the Restriction Period:
(1) enter into, or otherwise be a party to, any
transaction or arrangement (including, without limitation, stock issuances,
stock acquisitions, and transactions involving the stock or substantially all of
the assets of Hewlett-Packard or any Hewlett-Packard Affiliate) pursuant to
which one or more persons acquire stock of Hewlett-Packard or any Hewlett-
Packard Affiliate representing a "50-percent or greater interest" within the
meaning of Section 355(d)(4) of the Code that would cause Section 355(e) of the
Code to apply to any Applicable Spinoff; or
(2) take or fail to take any other action (including,
without limitation, any cessation, transfer to affiliates or disposition of its
active trade or business, and certain reacquisitions of its stock and payments
of extraordinary dividends to its shareholders) that would cause any Applicable
Spinoff to fail to qualify for nonrecognition of gain or loss under the Code.
(4) Hewlett-Packard recognizes that any failure by it or any
Hewlett-Packard Affiliate to comply with their obligations under this Section
5.3 may result in Additional Restructuring Taxes which could cause irreparable
harm to Agilent, the Agilent Affiliates and their stockholders, and that such
persons may be inadequately compensated by monetary damages for such failure.
Accordingly, if (1) Hewlett-Packard or any Hewlett-Packard Affiliate shall fail
to comply with any obligation under this Section 5.3 which would be reasonably
foreseeable to result in any Additional Restructuring Taxes, and (2) Hewlett-
Packard shall fail to provide Agilent with a written opinion of nationally
recognized tax counsel that such failure to comply with such obligation will not
result in any increase in Taxes of Agilent any Agilent Affiliate, and such
opinion is provided to Agilent for its review and approval, which approval will
not be unreasonably withheld, then Agilent and each Agilent Affiliate shall be
entitled to injunctive relief in addition to all other remedies.
5.4 Private Letter Rulings.
----------------------
(1) Information. Hewlett-Packard has provided Agilent with a
-----------
copy of the Initial Private Letter Ruling and copies of the Ruling Documents
26
submitted on or prior to the date hereof, and shall provide Agilent with copies
of any additional Ruling Documents prepared after the date hereof prior to the
submission of such Ruling Documents to a Tax Authority.
(2) Supplemental Rulings.
--------------------
(1) In General. Hewlett-Packard agrees that at the
----------
reasonable request of Agilent, Hewlett-Packard shall cooperate with Agilent and
use its reasonable best efforts to seek to obtain, as expeditiously as possible,
a Supplemental Ruling or other guidance from the Service or any other Tax
Authority for the purpose of confirming (1) the continuing validity of (A) the
Initial Private Letter Ruling, (B) any similar ruling issued by any Tax
Authority addressing the application of a provision of the laws of another
jurisdiction to the Internal Distribution or the Public Distribution and/or (C)
any Supplemental Rulings issued previously, and (2) compliance on the part of
Agilent or an Agilent Affiliate with its obligations under Section 5.2 of this
Agreement. However, Hewlett-Packard shall not be obligated to seek a
Supplemental Ruling if it reasonably believes that seeking such Supplemental
Ruling would adversely affect Hewlett-Packard or any Hewlett-Packard Affiliate.
Further, in no event shall Hewlett-Packard be required to file any Supplemental
Ruling unless Agilent represents that (1) it has read the request for the
Supplemental Ruling and any materials, appendices and exhibits submitted or
filed therewith (the "Supplemental Ruling Documents") and (2) all information
and representations, if any, relating to Agilent and any Agilent Affiliate
contained in the Supplemental Ruling Documents are true, correct and complete in
all material respects. Agilent shall reimburse Hewlett-Packard for all costs and
expenses incurred by Hewlett-Packard in obtaining a Supplemental Ruling
requested by Agilent. Agilent hereby agrees that only Hewlett-Packard shall
apply for a Supplemental Ruling, unless such Supplemental Ruling relates to a
ruling addressing the Spinoff issued by any Foreign Tax Authority to Agilent or
any Agilent Affiliate. Agilent further agrees that it shall not seek any
guidance (whether written or oral) from the Service or any other Tax Authority
concerning the Spinoff except as set forth in this Section 5.4(b). For the
avoidance of doubt, the preceding sentence shall not in any way limit the
ability of any outside counsel to Agilent to request informal guidance from the
Service regarding such issues on an anonymous basis.
(2) Participation Rights. If Hewlett-Packard
--------------------
determines to obtain a Supplemental Ruling or other guidance after the date of
this Agreement: (1) Hewlett-Packard shall keep Agilent informed in a timely
manner of all material actions taken or proposed to be taken by Hewlett-Packard
in connection therewith; (2) Hewlett-Packard shall (A) reasonably in advance of
the
27
submission of any such Supplemental Ruling Documents provide Agilent with a
draft copy thereof, (B) reasonably consider Agilent's comments on such draft
copy, and (C) provide Agilent with a final copy; and (3) to the extent that such
Supplemental Ruling relates to Agilent or any Agilent Affiliate, Hewlett-Packard
shall (A) incorporate Agilent's comments on all submissions of Supplemental
Ruling Documents, and (B) provide Agilent with notice reasonably in advance of,
and Agilent shall have the right to attend, any meetings with the Tax Authority
(subject to the approval of the Tax Authority) that relate to such Supplemental
Ruling.
5.5 Carrybacks.
----------
(1) In General. Hewlett-Packard agrees to pay to Agilent the
----------
Federal Income Tax Benefit from the use in any Pre-Distribution Period (the
"Carryback Period") of a carryback of any Tax Asset of the Agilent Group from a
Post-Distribution Period (other than a carryback of any Tax Asset attributable
to Restructuring Taxes or Foreign Operating Taxes taken into account under
Sections 5.9, 5.10 or 5.11 of this Agreement); provided, however, that if such
-------- -------
carryback permanently prevents Hewlett-Packard from using a Tax Asset, Agilent
shall reimburse Hewlett-Packard for such payment to the extent of such
disallowance. The Federal Income Tax Benefit of a carryback of a Tax Asset shall
be considered equal to the greater of (1) the increase in the amount Hewlett-
Packard would have paid Agilent or (2) the decrease in the amount Agilent would
have paid Hewlett-Packard had the amount of such Tax Asset applied to the
Carryback Period arisen in such Carryback Period and the provisions of Sections
3 and 4 of this Agreement applied to such period. If subsequent to the payment
by Hewlett-Packard to Agilent of the Federal Income Tax Benefit of a carryback
of a Tax Asset of the Agilent Group, there shall be a Final Determination which
results in a (1) change to the amount of the Tax Asset so carried back or (2)
change to the amount of such Federal Income Tax Benefit, Agilent shall repay to
Hewlett-Packard, or Hewlett-Packard shall repay to Agilent, as the case may be,
any amount which would not have been payable to such other party pursuant to
this Section 5.5 had the amount of the benefit been determined in light of these
events. Agilent shall indemnify Hewlett-Packard and hold it harmless from and
against any interest, addition to Tax or penalty payable by any member of the
Hewlett-Packard Group as a result of any such event. Nothing in this Section 5.5
shall require Hewlett-Packard to file an amended Tax Return or claim for refund
of Federal Income Taxes; provided, however, that Hewlett-Packard shall use its
-------- -------
reasonable best efforts to use any carryback of a Tax Asset of the Agilent Group
that is carried back under this Section 5.5. Nothing in this Agreement is
intended to limit the ability of Agilent and the Agilent Affiliates to implement
Tax
28
planning strategies designed to reduce or eliminate any carryback of any Tax
Assets of the Agilent Group from any Post-Distribution Period to any Interim
Period.
(2) Net Operating Losses. Notwithstanding any other provision
--------------------
of this Agreement, unless Hewlett-Packard otherwise expressly agrees in writing,
Agilent hereby expressly agrees to elect (under Section 172(b)(3) of the Code
and, to the extent feasible, any similar provision of any state, local or
foreign Tax Law) to relinquish any right to carryback net operating losses (in
which event no payment shall be due from Hewlett-Packard to Agilent in respect
of such net operating losses).
5.6 Allocation of Tax Items. All Tax computations for (1) any
-----------------------
Interim Periods ending on the Distribution Date and (2) the immediately
following taxable period of Agilent or any Agilent Affiliate, shall be made
pursuant to the principles of Section 1.1502-76(b) of the Treasury Regulations
or of a corresponding provision under the laws of other jurisdictions, as
determined by Hewlett-Packard, taking into account all reasonable suggestions
made by Agilent with respect thereto.
5.7 Continuing Covenants. Hewlett-Packard (for itself and each
--------------------
Hewlett-Packard Affiliate) and Agilent (for itself and each Agilent Affiliate)
agree (1) not to take any action reasonably expected to result in an increased
Tax liability to the other, a reduction in a Tax Asset of the other or an
increased liability to the other under this Agreement and (2) to take any action
reasonably requested by the other that would reasonably be expected to result in
a Tax Benefit or avoid a Tax Detriment to the other, provided that such action
does not result in any additional cost not fully compensated for by the
requesting party. The parties hereby acknowledge that the preceding sentence is
not intended to limit, and therefore shall not apply to, the rights of the
parties with respect to matters otherwise covered by this Agreement.
5.8 Allocation of Tax Assets.
------------------------
(1) In General. Hewlett-Packard and Agilent shall cooperate in
----------
determining the allocation of any Tax Assets among Hewlett-Packard, each
Hewlett-Packard Affiliate, Agilent and each Agilent Affiliate that is occasioned
by the Spinoff. The parties hereby agree that in the absence of controlling
legal authority or unless otherwise provided under this Agreement, Tax Assets
shall be allocated to the legal entity that incurred the cost or burden
associated with the creation of such Tax Asset.
29
(2) Earnings and Profits. Hewlett-Packard will advise Agilent
--------------------
in writing of the decrease in Hewlett-Packard earnings and profits attributable
to the Public Distribution under Section 312(h) of the Code, as well as the
amounts of any allocations required under Temp. Treas. Reg. ? 7.367(b)-10T or
Treas. Reg. ?? 1.1248-2 or -3 (or other applicable Treasury Regulations), as a
result of the Spinoff (i) not later than April 30, 2000, with respect to
transactions completed during fiscal year 1999 and (ii) not later than April 30,
2001 with respect to transactions completed during fiscal year 2000; provided,
--------
however, that Hewlett-Packard shall provide Agilent with estimates of such
-------
amounts (determined in accordance with past practice) prior to such anniversary
as reasonably requested by Agilent. In the event that any temporary or final
amendments to the Treasury Regulations referenced in the preceding sentence are
promulgated after the date of this Agreement that provide for any election to
apply such regulations retroactively (including any election that would permit
retroactive application of the rules set forth in Prop. Treas. Reg. ?
1.367(b)-5), then any such election shall be made only to the extent that the
Hewlett-Packard VP and Agilent VP agree to make such election.
5.9 Japan Restructuring Taxes.
-------------------------
(1) In General. Hewlett-Packard or a Hewlett-Packard Affiliate
----------
shall provide Agilent or an Agilent Affiliate with funding as of November 1,
1999 in an amount equal to the sum of:
(1) one hundred percent (100%) of the amount of the
Contemplated Japan Restructuring Tax to the extent that the parties reasonably
expect any foreign tax credits attributable thereto to be allocated to any
Hewlett-Packard Affiliate for Federal Income Tax purposes; plus
(2) sixty percent (60%) of the amount of any remaining
Contemplated Japan Restructuring Tax.
The funding to be provided by Hewlett-Packard to Agilent under this Section
5.9(a) shall be provided according to the procedures set forth in Section 2.2 of
the Separation Agreement. To the extent that the allocations referred to in
paragraphs (a)(i) and (ii) have not been ascertained as of December 15, 1999, a
subsequent adjustment to the funding to be provided by Hewlett-Packard to
Agilent under this Section 5.9(a) may be made at such time as such allocation is
ascertained, to the extent agreed by Hewlett-Packard and Agilent.
30
(2) Use of Foreign Tax Credits by Hewlett-Packard. To the extent
---------------------------------------------
that Hewlett-Packard or a Hewlett-Packard Affiliate receives a Tax Benefit
attributable to an increase in foreign tax credits by reason of any Japan
Restructuring Tax, Hewlett-Packard shall pay Agilent forty percent (40%) of its
Tax Benefit, to the extent that such credits relate to the Contemplated Japan
Restructuring Tax funded by Hewlett-Packard under paragraph (a)(ii) of this
Section 5.9; eighteen percent (18%) of its Tax Benefit, to the extent that such
credits relate to an Additional Japan Restructuring Tax funded by Hewlett-
Packard and Agilent under Section 5.1(b)(iii) of this Agreement; and one hundred
percent (100%) of its Tax Benefit, to the extent that such credits relate to an
Additional Japan Restructuring Tax funded entirely by Agilent under Section
5.1(b)(i) or (ii) of this Agreement. For purposes of this Section 5.9(b),
Hewlett-Packard's Tax Benefit shall be determined first by measuring the
incremental impact on Hewlett-Packard's Federal Income Tax liability (after
taking into account the impact of all other Tax Items to Hewlett-Packard but
without regard to any Tax Items relating to any Additional Japan Restructuring
Taxes) solely as a result of any increase in foreign tax credits attributable to
Contemplated Japan Restructuring Taxes, and then by measuring the incremental
impact on Hewlett-Packard's Federal Income Tax liability (after taking into
account any Tax Items relating to any Contemplated Japan Restructuring Taxes)
solely as a result of any increase in foreign tax credits attributable to
Additional Japan Restructuring Taxes. This Section 5.9(b) shall apply to a Tax
Benefit with respect to Hewlett-Packard's liability on the Consolidated Return
for the fiscal year ending October 31, 2000 only to the extent that such Tax
Benefit is not attributable to foreign tax credits treated as used on the Pro
Forma Agilent Consolidated Return for such period (such use determined without
regard to any carryback of Japan Restructuring Taxes). Appendix F to this
Agreement sets forth examples illustrating the intended application of this
Section 5.9(b).
(3) Use of Foreign Tax Credits by Agilent. To the extent that
-------------------------------------
Agilent receives a Tax Benefit attributable to an increase in foreign tax
credits by reason of any Japan Restructuring Tax, Agilent shall pay Hewlett-
Packard one hundred percent (100%) of its Tax Benefit, to the extent that such
credits relate to the Contemplated Restructuring Tax funded by Hewlett-Packard
under paragraph (a)(i) of this Section 5.9; sixty percent (60%) of its Tax
Benefit, to the extent that such credits relate to the Contemplated Japan
Restructuring Tax funded by Hewlett-Packard under paragraph (a)(ii) of this
Section 5.9; eighty-two percent (82%) of its Tax Benefit, to the extent that
such credits relate to an Additional Japan Restructuring Tax funded by Hewlett-
Packard and Agilent under Section 5.1(b)(iii) of this Agreement; and one hundred
percent (100%) of its Tax Benefit, to the extent that such credits relate to an
Additional Japan Restructuring Tax funded entirely by
31
Hewlett-Packard under Section 5.1(b)(i) or (ii) of this Agreement. For purposes
of this Section 5.9(c), Agilent's Tax Benefit shall be determined first by
measuring the incremental impact on Agilent's Federal Income Tax liability
(after taking into account the impact of all other Tax Items to Agilent but
without regard to any Tax Items relating to any Additional Japan Restructuring
Taxes) solely as a result of any increase in foreign tax credits attributable to
Contemplated Japan Restructuring Taxes, and then by measuring the incremental
impact on Agilent's Federal Income Tax liability (after taking into account any
Tax Items relating to any Contemplated Japan Restructuring Taxes) solely as a
result of any increase in foreign tax credits attributable to Additional Japan
Restructuring Taxes. In making this determination with respect to the Interim
Period, Agilent shall be treated as receiving a Tax Benefit only to the extent
any credits are treated as used on the Pro Forma Agilent Consolidated Return for
such period (such use determined without regard to any carryback of Japan
Restructuring Taxes). Appendix F to this Agreement sets forth examples
illustrating the intended application of this Section 5.9(c).
(4) Subsequent Adjustments. If taking into account subsequent
----------------------
events (including, for example, carrybacks of other foreign tax credits and
Final Determinations that affect foreign tax credit computations), and taking
into account any previous adjustments pursuant to this Section 5.9(d), one of
the parties determines that it did not receive any portion of the Tax Benefit
for which it previously had made a payment to the other party pursuant to
paragraph (b) or (c) of this Section 5.9, Agilent shall pay Hewlett-Packard, or
Hewlett-Packard shall pay Agilent, as appropriate, an amount such that the net
payment (if any) equals the portion of the net Tax Benefit (taking into account
such subsequent events) specified in paragraph (b) or (c) of this Section 5.9.
(5) Other Contemplated Restructuring Taxes. The parties will
--------------------------------------
determine the impact, if any, on the amount of cash to be transferred by
Hewlett-Packard to Agilent as soon as practicable after the amount of each
Contemplated Restructuring Tax is ascertained.
5.10 Certain Foreign Operating Taxes.
-------------------------------
(1) Fiscal Year 1999 and Prior Periods. If Agilent or any
----------------------------------
Agilent Affiliate receives any Tax Benefit (including any reduction in the
amount required to be paid by Agilent to Hewlett-Packard under Section 4 of this
Agreement with respect to any Pro Forma Agilent Consolidated Return) solely as a
result of receiving a dividend or deemed distribution to which a foreign tax
credit for Foreign Operating Taxes accrued by any Hewlett-Packard Affiliate,
Hewlett-Packard Japan
32
Ltd. or Yokogawa Analytical Systems, Inc. with respect to fiscal year 1999 or
any prior period is attributable (including the amount of any such credits that
are used by Agilent as a result of a carryback), Agilent shall pay the amount of
such Tax Benefit to Hewlett-Packard; for this purpose Agilent's Tax Benefit
shall be determined by measuring the incremental impact on Agilent's Federal
Income Tax liability prior to taking into account the impact of any
Restructuring Tax, but after the impact of all other Tax Items to Agilent.
Appendix F to this Agreement sets forth examples illustrating the intended
application of this Section 5.10(a).
(2) Fiscal Years 2000 and 2001. If Hewlett-Packard or any
--------------------------
Hewlett-Packard Affiliate receives any Tax Benefit (other than any Tax Benefit
that reduces the amount required to be paid by Agilent to Hewlett-Packard under
Section 4 of this Agreement with respect to any Pro Forma Agilent Consolidated
Return) solely as a result of receiving a dividend or deemed distribution to
which a credit for Foreign Operating Taxes accrued by any Agilent Affiliate with
respect to fiscal years 2000 or 2001 is attributable (including the amount of
any such credits that are used by Hewlett-Packard as a result of a carryback),
Hewlett-Packard shall pay the amount of such Tax Benefit to Agilent; for this
purpose Hewlett-Packard's Tax Benefit shall be determined by measuring the
incremental impact on Hewlett-Packard's Federal Income Tax liability prior to
taking into account the impact of any Restructuring Tax, but after the impact of
all other Tax Items to Hewlett-Packard. Appendix F to this Agreement sets forth
examples illustrating the intended application of this Section 5.10(b).
(3) Ordering Rule. For purposes of determining whether Hewlett-
-------------
Packard (or any Hewlett-Packard Affiliate) or Agilent (or any Agilent Affiliate)
receives a Tax Benefit attributable to Foreign Operating Taxes, any earnings
that gave rise to a Foreign Operating Tax (including any amount deemed received
under Section 78 of the Code that is attributable to such earnings) shall be
taken into account only with respect to such Foreign Operating Tax and not with
respect to any Restructuring Tax.
(4) Subsequent Adjustments. If taking into account subsequent
----------------------
events (including, for example, carrybacks of other foreign tax credits and
Final Determinations that affect foreign tax credit computations), and taking
into account any previous adjustments pursuant to this Section 5.10(d), one of
the parties determines that it did not receive any portion of the Tax Benefit
for which it previously had made a payment to the other party pursuant to
paragraph (a) or (b) of this Section 5.10, Agilent shall pay Hewlett-Packard, or
Hewlett-Packard shall pay Agilent, as appropriate, an amount such that the net
payment (if any) equals the
33
portion of the net Tax Benefit (taking into account such subsequent events)
specified in paragraph (a) or (b) of this Section 5.10.
5.11 Other Restructuring Taxes.
-------------------------
(1) Use of Foreign Tax Credits by Hewlett-Packard. If
---------------------------------------------
Hewlett-Packard or any Hewlett-Packard Affiliate receives any Tax Benefit (other
than any Tax Benefit that reduces the amount required to be paid by Agilent to
Hewlett-Packard under Section 4 of this Agreement with respect to any Pro Forma
Agilent Consolidated Return) solely as a result of any increase in foreign tax
credits attributable to any Restructuring Tax (other than any Japan
Restructuring Tax) funded by Agilent under Section 5.1 of this Agreement,
Hewlett-Packard shall pay the amount of such Tax Benefit to Agilent that is
attributable to the portion of such Restructuring Tax funded by Agilent; for
this purpose Hewlett-Packard's Tax Benefit shall be determined by measuring the
incremental impact on Hewlett-Packard's Federal Income Tax liability prior to
taking into account the impact of any Japan Restructuring Tax, but after the
impact of all other Tax Items to Hewlett-Packard (including any Foreign
Operating Taxes taken into account under Section 5.10 of this Agreement).
(2) Use of Foreign Tax Credits by Agilent. If Agilent or any
-------------------------------------
Agilent Affiliate receives any Tax Benefit (including any reduction in the
amount required to be paid by Agilent to Hewlett-Packard under Section 4 of this
Agreement with respect to any Pro Forma Agilent Consolidated Return) solely as a
result of any increase in foreign tax credits attributable to any Restructuring
Tax (other than any Japan Restructuring Tax) funded by Hewlett-Packard under
Section 5.1 of this Agreement, Agilent shall pay the amount of such Tax Benefit
to Hewlett-Packard that is attributable to the portion of such Restructuring Tax
funded by Hewlett-Packard; for this purpose Agilent's Tax Benefit shall be
determined by measuring the incremental impact on Agilent's Federal Income Tax
liability prior to taking into account the impact of any Japan Restructuring
Tax, but after the impact of all other Tax Items to Agilent (including any
Foreign Operating Taxes taken into account under Section 5.10 of this
Agreement).
(3) Subsequent Adjustments. If taking into account subsequent
----------------------
events (including, for example, carrybacks of other foreign tax credits and
Final Determinations that affect foreign tax credit computations), and taking
into account any previous adjustments pursuant to this Section 5.11(c), one of
the parties determines that it did not receive any portion of the Tax Benefit
for which it previously had made a payment to the other party pursuant to
paragraph (a) or (b) of this
34
Section 5.11, Agilent shall pay Hewlett-Packard, or Hewlett-Packard shall pay
Agilent, as appropriate, an amount such that the net payment (if any) equals the
portion of the net Tax Benefit (taking into account such subsequent events)
specified in paragraph (a) or (b) of this Section 5.11.
Section 6. Additional Obligations
6.1 Indemnification.
---------------
(1) In General. Hewlett-Packard and each Hewlett-Packard
----------
Affiliate shall jointly and severally indemnify Agilent, each Agilent Affiliate
and their respective directors, officers and employees, and hold them harmless
from and against any and all Taxes for which Hewlett-Packard or any Hewlett-
Packard Affiliate is liable under this Agreement and any loss, cost, damage or
expense, including reasonable attorneys' fees and costs, that is attributable
to, or results from the failure of Hewlett-Packard, any Hewlett-Packard
Affiliate or any director, officer or employee to make any payment required to
be made under this Agreement. Agilent and each Agilent Affiliate shall jointly
and severally indemnify Hewlett-Packard, each Hewlett-Packard Affiliate and
their respective directors, officers and employees, and hold them harmless from
and against any and all Taxes for which Agilent or any Agilent Affiliate is
liable under this Agreement and any loss, cost, damage or expense, including
reasonable attorneys' fees and costs, that is attributable to, or results from,
the failure of Agilent, any Agilent Affiliate or any director, officer or
employee to make any payment required to be made under this Agreement.
(2) Inaccurate or Incomplete Information. Hewlett-Packard and
------------------------------------
each Hewlett-Packard Affiliate shall jointly and severally indemnify Agilent,
each Agilent Affiliate and their respective directors, officers and employees,
and hold them harmless from and against any cost, fine, penalty, or other
expense of any kind attributable to the negligence of Hewlett-Packard or any
Hewlett-Packard Affiliate in supplying Agilent or any Agilent Affiliate with
inaccurate or incomplete information, in connection with the preparation of any
Tax Return. Agilent and each Agilent Affiliate shall jointly and severally
indemnify Hewlett-Packard, each Hewlett-Packard Affiliate and their respective
directors, officers and employees, and hold them harmless from and against any
cost, fine, penalty, or other expenses of any kind attributable to the
negligence of Agilent or any Agilent Affiliate in supplying Hewlett-Packard or
any Hewlett-Packard Affiliate with inaccurate or incomplete information, in
connection with the preparation of any Tax Return.
35
(3) No Indemnification for Tax Items. Nothing in this Agreement
--------------------------------
shall be construed as a guarantee of the existence or amount of any loss,
credit, carryforward, basis or other Tax Item, whether past, present or future,
of Hewlett-Packard, any Hewlett-Packard Affiliate, Agilent or any Agilent
Affiliate.
6.2 Payments.
--------
(1) In General. Except as otherwise provided under this
----------
Agreement, to the extent that one party (the "Indemnifying Party") has an
indemnification or payment obligation to the other party (the "Indemnitee")
pursuant to this Agreement, the Indemnitee shall provide the Indemnifying Party
with its calculation of the amount of such indemnification payment. Such
calculation shall provide sufficient detail to permit the Indemnifying Party to
reasonably understand the calculations. All indemnification payments shall be
made to the Indemnitee or to the appropriate Tax Authority as specified by the
Indemnitee within the time prescribed for payment in this agreement, or if no
period is prescribed, within thirty (30) days after delivery by the Indemnitee
to the Indemnifying Party of written notice of a payment by or the incurrence of
such an amount based on a Final Determination, together with a computation of
the amounts due.
(2) Electronic Payments. Any payment required under this
-------------------
Agreement in an amount in excess of one million dollars ($1,000,000.00) shall be
made by electronic funds transfer of immediately available funds.
(3) Treatment of Payments. Unless otherwise required by any
---------------------
Final Determination, the parties agree to treat any payments (other than
payments of interest pursuant to Sections 5.5 or 6.5 of this Agreement and
payments of After Tax Amounts pursuant to Section 6.4 of this Agreement)
pursuant to this Agreement as relating back to the last taxable period beginning
on or before the Distribution Date and, accordingly, as not includible in
income.
6.3 Prompt Performance. All actions required to be taken by any
------------------
party under this agreement shall be performed within the time prescribed for
performance in this agreement, or if no period is prescribed, such actions shall
be performed promptly.
6.4 After Tax Amounts. If pursuant to a Final Determination it is
-----------------
determined that the receipt or accrual of any payment made under this Agreement
(other than payments of interest pursuant to Sections 5.5 or 6.5 of this
Agreement) is subject to any Tax, the party making such payment shall be liable
for (a) the After
36
Tax Amount with respect to such payment and (b) interest at the rate described
in Section 6.5 of this Agreement on the amount of such Tax from the date such
Tax accrues through the date of payment of such After Tax Amount. A party making
a demand for a payment pursuant to this Agreement and for a payment of an After
Tax Amount with respect to such payment shall separately specify and compute
such After Tax Amount. However, a party may choose not to specify an After Tax
Amount in a demand for payment pursuant to this Agreement without thereby being
deemed to have waived its right subsequently to demand an After Tax Amount with
respect to such payment.
6.5 Interest. Payments pursuant to this Agreement that are not made
--------
within the period prescribed in this Agreement (the "Payment Period") shall bear
interest for the period from and including the date immediately following the
last date of the Payment Period through and including the date of payment (the
"Interest Accrual Period") at a per annum rate equal to the prime rate as
published in The Wall Street Journal on the date of determination, plus two
percent (2%). Such interest will be payable at the same time as the payment to
which it relates and shall be calculated on the basis of a year of 365 days and
the actual number of days for which due.
6.6 Tax Records. The parties to this Agreement hereby agree to
-----------
retain and provide on demand books, records, documentation and other information
relating to any Tax Return until the later of (1) the expiration of the
applicable statute of limitations (giving effect to any extension, waiver or
mitigation thereof) and (2) in the event any claim is made under this Agreement
for which such information is relevant, until a Final Determination with respect
to such claim.
Section 7. Audits
7.1 In General.
----------
(1) Except as otherwise provided in this Agreement, the Filing
Party shall have the right to control, contest, and represent the interests of
Hewlett-Packard, any Hewlett-Packard Affiliate, Agilent or any Agilent Affiliate
in any Audit relating to any Tax Return that the Filing Party is responsible for
filing under Section 2.1 of this Agreement and to resolve, settle or agree to
any deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of any such Audit. The Filing Party's rights shall extend to
any matter pertaining to the management and control of an Audit, including
execution of waivers, choice of forum, scheduling of conferences and the
resolution of any Tax Item.
37
(2) Notwithstanding Section 7.1(a), for so long as Hewlett-
Packard owns fifty percent (50%) or more of the outstanding stock (by vote or
value) of Agilent, the entering into of any resolution, settlement or agreement
or any decision in connection with (including the entering into of) any judicial
or administrative proceeding relating to Taxes of Hewlett-Packard Japan or
Yokogawa Analytical Systems by Agilent or any Agilent Affiliate shall be subject
to Hewlett-Packard's review and approval, which approval shall not be
unreasonably withheld.
(3) Notwithstanding Sections 7.1(a) and (b), and subject to the
conditions and limitations set forth in Sections 7.2, 7.3 and 7.4 of this
Agreement,
(1) the Non-Filing Party shall have control over
decisions to resolve, settle or otherwise agree to any deficiency, claim or
adjustment with respect to any Sole Responsibility Item; and
(2) the Filing Party and the Non-Filing Party shall
have joint control over decisions to resolve, settle or otherwise agree to any
deficiency, claim or adjustment with respect to any Joint Responsibility Item.
7.2 Notice. If after the date of this Agreement, Hewlett-Packard (or
------
any Hewlett-Packard Affiliate) or Agilent (or any Agilent Affiliate) receives
written notice of, or relating to, an Audit from a Tax Authority that asserts,
proposes or recommends a deficiency, claim or adjustment that, if sustained,
could result in Taxes for which the other party is responsible under this
Agreement, then the party receiving such notice shall provide a copy of such
notice to such other party within ten (10) days of receipt thereof.
7.3 Participation Rights.
--------------------
(1) If a Tax Authority asserts, proposes or recommends a
deficiency, claim or adjustment that, if sustained, could result in Taxes for
which the Non-Filing Party is responsible under this Agreement, then the Filing
Party shall keep the Non-Filing Party informed in a timely manner of all actions
taken or proposed to be taken by the Filing Party in connection with such
deficiency, claim or adjustment.
(2) In the case of an Audit with respect to any Sole
Responsibility Item or Joint Responsibility Item, the Filing Party shall:
38
(1) in the case of any material correspondence or filing
submitted to the Tax Authority or any judicial authority that relates to the
merits of such deficiency, claim or adjustment (1) reasonably in advance of such
submission, but subject to applicable time constraints imposed by such Tax
Authority or judicial authority, provide the Non-Filing Party with a draft copy
of the portion of such correspondence or filing that relates to such deficiency,
claim or adjustment, (2) incorporate, subject to applicable time constraints
imposed by such Tax Authority or judicial authority, the Non-Filing Party's
comments and changes on such draft copy of such correspondence or filing, and
(3) provide the Non-Filing Party with a final copy of the portion of such
correspondence or filing that relates to such deficiency, claim or adjustment;
and
(2) provide the Non-Filing Party with notice reasonably in
advance of, and the Non-Filing Party shall have the right to attend, any
meetings with the Tax Authority (including meetings with examiners) or hearings
or proceedings before any judicial authority to the extent they relate to such
deficiency, claim or adjustment.
(3) At the Filing Party's reasonable request (or upon the Filing
Party's consent to a request by the Non-Filing Party, which consent shall not be
unreasonably withheld), the Non-Filing Party shall assume responsibility for (1)
presenting the merits with respect to (A) any deficiency, claim or adjustment
that, if sustained, would result in Taxes for which the Non-Filing Party is
responsible under this Agreement, or (B) subject to Section 7.6 of this
Agreement, any affirmative claim relating to a Tax Item of the Non-Filing Party,
or (2) resolving, settling or agreeing to any such deficiency, claim or
adjustment. Any such request (or consent) by the Filing Party shall be subject
to the Non-Filing Party's continued compliance with the conditions of Section
7.4 of this Agreement and to such other conditions as the Filing Party and Non-
Filing Party reasonably agree.
7.4 Limitations.
-----------
(1) In General. The Filing Party shall have no obligation to
----------
contest, or to continue to contest, any deficiency, claim or adjustment and the
Non-Filing Party shall have no rights to control under Section 7.1(c) of this
Agreement or to participate under Section 7.3 of this Agreement unless:
(1) within thirty (30) days of a reasonable request by
the Filing Party, the Non-Filing Party shall deliver to the Filing Party a
39
written opinion of nationally recognized tax counsel to the effect that the Non-
Filing Party's position with respect to such deficiency, claim or adjustment is
supported by substantial authority (within the meaning of Section 6662 of the
Code);
(2) the Non-Filing Party shall have agreed to be bound
by a Final Determination of such deficiency, claim or adjustment;
(3) the Non-Filing Party shall have agreed to pay, and
shall be currently paying, all reasonable out of pocket costs and expenses
incurred by the Filing Party to contest such deficiency, claim or assessment
including reasonable outside attorney's, accountants' and investigatory fees and
disbursements;
(4) the Non-Filing Party shall have advanced to the
Filing Party, on an interest-free basis (and with no additional net after-tax
cost to the Filing Party), the amount of Tax in controversy (but not in excess
of the lesser of (A) the amount of Tax for which the Non-Filing Party could be
liable under this Agreement or (B) the amounts actually expended by the Filing
Party for this item) to the extent necessary for the contest to proceed in the
forum selected by the Filing Party;
(5) the Non-Filing Party shall have provided to the
Filing Party all documents and information, and shall have made available
employees and officers of the Non-Filing Party, as may be necessary, useful or
reasonably required by the Filing Party in contesting such deficiency, claim or
adjustment; and
(6) the contest of such deficiency, claim or
adjustment shall involve no material danger of the sale, forfeiture or loss of,
or the creation of any lien on, any asset of the Filing Party (except if the
Non-Filing Party shall have adequately bonded such lien or otherwise made
provision to protect the interests of the Filing Party in a manner reasonably
satisfactory to the Filing Party).
(2) Settlement. Notwithstanding Section 7.4(a), the Filing Party
----------
may resolve, settle or agree to any deficiency, claim or adjustment proposed,
asserted or assessed in connection with any Audit of any Tax Return that it is
responsible for filing under Section 2.1 of this Agreement without the Non-
Filing Party's consent (and shall have no obligation to appeal such deficiency,
claim or adjustment in any judicial forum) if such deficiency, claim or
adjustment would result in:
40
(1) a liability of the Non-Filing Party with respect
to a Sole Responsibility Item, unless within sixty (60) days of a reasonable
request by the Filing Party, the Non-Filing Party delivers to the Filing Party a
written opinion of nationally recognized tax counsel to the effect that it is
more likely than not that the Non-Filing Party's position with respect to such
deficiency, claim or adjustment will be upheld on appeal (or that it is more
likely than not that a determination with respect to such deficiency, claim or
adjustment will be reversed or substantially modified upon appeal in a manner
favorable to the Non-Filing Party), provided that if the Filing Party delivers
--------
to the Non-Filing Party a written opinion of counsel to the effect that
appealing such determination in a judicial forum would be detrimental to the
Filing Party, then the Non-Filing Party shall be required to deliver a written
opinion of nationally recognized tax counsel to the effect that such
determination should be reversed or substantially modified upon appeal in a
manner favorable to the Non-Filing Party; or
(2) a liability of the Non-Filing Party with respect
to a Joint Responsibility Item, unless within sixty (60) days of a request by
the Filing Party, the Non-Filing Party delivers to the Filing Party a written
opinion of nationally recognized tax counsel to the effect that the Non-Filing
Party's position with respect to such deficiency, claim or adjustment should be
upheld on appeal (or that a determination with respect to such deficiency, claim
or adjustment should be reversed or substantially modified upon appeal in a
manner favorable to the Non-Filing Party).
(3) Waiver. Notwithstanding any other provision of
------
this Section 7.4, the Filing Party may resolve, settle, or agree to any
deficiency, claim or adjustment for any taxable period that, if sustained, would
result in (1) a Redetermination Amount resulting from a redetermination of a Tax
Item of the Non-Filing Party or (2) any Restructuring Taxes for which the Non-
Filing Party could be responsible under this Agreement if the Filing Party
notifies the Non-Filing Party in writing that it waives the payment by the Non-
Filing Party for such taxable period of any amount that would not be payable by
the Non-Filing Party under this Agreement but for such deficiency, claim or
adjustment (but not including amounts described in Section 7.4(a)(iii) of this
Agreement that relate to the conduct to date of the contest). In such event, the
Filing Party shall promptly reimburse the Non-Filing Party for all amounts
previously advanced by the Non-Filing Party to the Filing Party in connection
with such deficiency, claim or adjustment under Section 7.4(a)(iv) of this
Agreement. In addition, the Filing Party shall reimburse the Non-Filing Party
for any Tax Detriment that directly results from the settlement of such
deficiency, claim or adjustment. No waiver by the Filing Party under this
Section 7.4(c) with respect to
41
any deficiency, claim or adjustment relating to any single Tax Item, position,
issue or transaction or relating to any single Tax for any one taxable period
shall operate as a waiver with respect to any other deficiency, claim or
adjustment.
7.5 Failure to Notify, Etc. The failure of the Filing Party promptly
-----------------------
to notify the Non-Filing Party of any matter relating to a particular Tax for a
taxable period or to take any action specified in Section 7.3 of this Agreement
shall not relieve the Non-Filing Party of any liability and/or obligation which
it may have to the Filing Party under this Agreement with respect to such Tax
for such taxable period except to the extent that the Non-Filing Party's rights
hereunder are materially prejudiced by such failure and in no event shall such
failure relieve the Non-Filing Party of any other liability and/or obligation
which it may have to the Filing Party.
7.6 Affirmative Claims.
------------------
(1) In General. Subject to the principles of Sections 7.3 and
----------
7.4 of this Agreement, the Filing Party shall assert any affirmative claim
(including, without limitation, by filing an amended return or claim for refund)
relating to a Tax Item of the Non-Filing Party to the relevant Tax Authority
provided that (1) the Non-Filing Party agrees in advance to provide full
compensation to the Filing Party for any cost or detriment to the Filing Party
that would result from successfully asserting such claim, and (2) the Non-Filing
Party reasonably requests that such claim be asserted within the applicable time
period set forth in Section 7.6(b) or 7.6(c) of this Agreement. The Filing Party
may, in its sole discretion, assert any affirmative claim that does not satisfy
the foregoing conditions or that is not described in Section 7.6(b) or 7.6(c) of
this Agreement.
(2) Consolidated Return Years. Agilent shall request that
-------------------------
Hewlett-Packard assert any affirmative claims relating to a Tax Item of a member
of the Agilent Group for a Consolidated Return Year no later than the date that
is one hundred eighty (180) days after the date on which Hewlett-Packard
delivers written notice to Agilent that an examination of the Consolidated
Return for the applicable Consolidated Return Year is to begin.
(3) Combined Returns. The Non-Filing Party shall request that
----------------
the Filing Party assert any affirmative claims relating to a Tax Item of the
Non-Filing Party for a Pre-Distribution Period for which a Combined Return has
been filed no later than the date that is one hundred eighty (180) days (but
subject to applicable time constraints imposed by the Tax Authority) after the
date on which the
42
Filing Party delivers written notice to the Non-Filing Party that an examination
of the Combined Return for the applicable Pre-Distribution Period has begun or
is to begin.
7.7 Remedies. Except as otherwise provided in this Agreement, the
--------
parties hereby agree that the sole and exclusive remedy for a breach by the
Filing Party of the Filing Party's obligations to the Non-Filing Party with
respect to a deficiency, claim or adjustment relating to the redetermination of
a Tax Item of the Non-Filing Party for a taxable period shall first be a
reduction in the amount that would otherwise be payable by the Non-Filing Party
for such taxable period and then an increase in amount that would otherwise be
payable by the Filing Party for such taxable period, in either case because of
the breach. The parties further agree that no claim against the Filing Party and
no defense to the Non-Filing Party's liabilities to the Filing Party under this
Agreement shall arise from the resolution by the Filing Party of any deficiency,
claim or adjustment relating to the redetermination of any Tax Item of the
Filing Party.
Section 8. Stock Options and Restricted Stock
8.1 In General. The parties hereto agree that Hewlett-Packard shall
----------
be entitled to any Tax Benefit arising by reason of exercises of Options to
purchase shares of Hewlett-Packard stock, and that Agilent shall be entitled to
any Tax Benefit arising by reason of exercises of Options to purchase shares of
Agilent stock. In addition, Hewlett-Packard shall be entitled to any Tax Benefit
arising by reason of the lapse of any restrictions with respect to shares of
Hewlett-Packard stock, Agilent stock or other property subject to a substantial
risk of forfeiture (within the meaning of Section 83 of the Code) held by an
employee of Hewlett-Packard, and Agilent shall be entitled to any Tax Benefit
arising by reason of the lapse of any restrictions with respect to shares of
Agilent stock, Hewlett-Packard stock or other property subject to a substantial
risk of forfeiture (within the meaning of Section 83 of the Code) held by an
employee of Agilent. The parties hereto agree to report all Tax deductions with
respect to stock options and other equity issued to their employees consistently
with this Section 8.1, to the extent permitted by the Tax Law.
8.2 Notices, Withholding, Reporting. Hewlett-Packard shall promptly
-------------------------------
notify Agilent of any post-Separation Date event giving rise to income to any
Agilent Group employees or former employees in connection with exercises of
options to purchase shares of Hewlett-Packard stock, or the lapse of any
restrictions with respect to shares of Hewlett-Packard stock or other property
subject to a substantial risk of forfeiture (within the meaning of Section 83 of
the Code). If
43
required by the Tax Law, Agilent shall withhold applicable Taxes and satisfy
applicable Tax reporting obligations in connection therewith.
8.3 Adjustments. If Agilent or any Agilent Affiliate receives any
-----------
Tax Benefit to which Hewlett-Packard is entitled under Section 8.1 of this
Agreement, Agilent shall pay the amount of such Tax Benefit to Hewlett-Packard.
If Hewlett-Packard or any Hewlett-Packard Affiliate receives any Tax Benefit to
which Agilent is entitled under Section 8.1 of this Agreement, Hewlett-Packard
shall pay the amount of such Tax Benefit to Agilent.
Section 9. Other Tax Matters
9.1 Other Adjustments. Except as otherwise provided under this
-----------------
Agreement, if, pursuant to a Final Determination, a party to this Agreement
suffers an unanticipated Tax Detriment and, as a result, the other party to this
Agreement obtains a corresponding unanticipated Tax Benefit, and such Tax
Detriment is not otherwise compensated under this Agreement, then the party
obtaining such Tax Benefit shall make a payment to the other party in an amount
equal to such Tax Benefit.
9.2 Research Tax Credit. Within 180 days after the Distribution
-------------------
Date, Hewlett-Packard will furnish the Agilent Group, pursuant to Section 41 of
the Code, a draft of the base period information the Agilent Group will need to
properly compute its research tax credits for any taxable period beginning on or
after the Separation Date, and within thirty (30) days of receipt of such draft,
Agilent shall provide Hewlett-Packard with any comments thereon. Hewlett-Packard
shall reasonably consider all reasonable suggestions on such draft, and shall
provide the final base period information to Agilent no later than 240 days
after the Distribution Date.
9.3 Foreign Sales Corporation Matters.
---------------------------------
(1) For purposes of this Agreement, any Tax Items with respect
to a Hewlett-Packard Foreign Sales Corporation that relate to the Agilent
Business shall be allocated to Agilent and, to the extent not otherwise
reimbursed under this Agreement, Agilent shall reimburse Hewlett-Packard for any
Tax Detriment attributable thereto. In addition, any commissions that relate to
the Agilent Business shall be paid by Agilent.
44
(2) In the event that any Tax Items are allocated to Agilent
pursuant to Section 9.3(a), Hewlett-Packard will pay (or will cause to be paid)
to Agilent (or a designated Agilent Affiliate) an amount equal to that portion
of the after-tax commission (as determined after taking into account any
expenses) of the applicable Hewlett-Packard Foreign Sales Corporation that
relates to the Agilent Business.
9.4 Intercompany Pricing Adjustments. If, pursuant to any agreement
--------------------------------
entered into by Hewlett-Packard with any Tax Authority, intercompany pricing
adjustments are required or permitted to be made by Hewlett-Packard (Malaysia)
Sdn Bhd, Hewlett-Packard Medical Products (Quindao) Ltd. or Hewlett-Packard
Shanghai Analytical Products Co. Ltd. with respect to fiscal year 1999 or prior
periods, then, subject to Section 2.3(f) of this Agreement, any such required or
permitted payments shall be made.
Section 10. Miscellaneous
10.1 Effectiveness. This Agreement shall become effective upon
-------------
execution by the parties hereto.
10.2 Notices. Any notice, request, instruction or other document to
-------
be given or delivered under this Agreement by any party to another party shall
be in writing and shall be deemed to have been duly given or delivered when (1)
delivered in person, (2) deposited in the United States mail, postage prepaid
and sent certified mail, return receipt requested or (3) delivered to Federal
Express or similar service for overnight delivery to the address of the party
set forth below:
If to Hewlett-Packard or any Hewlett-Packard Affiliate, to the
Hewlett-Packard VP, with a copy to the General Counsel of Hewlett-Packard, at:
Hewlett-Packard Company
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
45
A copy of any notice, request, instruction or other document to be given to
Hewlett-Packard or any Hewlett-Packard Affiliate that relates to Japanese
Operating Tax or Japanese Restructuring Tax matters shall also be delivered to:
Hewlett-Packard Japan Ltd.
Attention: Tax Department
0-0 Xxxxxxxx-xxx, Xxxxxxxx-xxx
Xxxxx 000-0000
Xxxxx
If to Agilent or any Agilent Affiliate, to the Agilent VP, with a copy
to the General Counsel of Agilent:
Agilent Technologies Inc.
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Any party may, by written notice to the other parties, change the address or the
party to which any notice, request, instruction or other document is to be
delivered.
10.3 Changes in Law.
--------------
(1) Any reference to a provision of the Code or a law of
another jurisdiction shall include a reference to any applicable successor
provision or law.
(2) If, due to any change in applicable law or regulations or
their interpretation by any court of law or other governing body having
jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such provision.
10.4 Confidentiality. Each party shall hold and cause its directors,
---------------
officers, employees, advisors and consultants to hold in strict confidence,
unless compelled to disclose by judicial or administrative process or, in the
opinion of its counsel, by other requirements of law, all information (other
than any such information relating solely to the business or affairs of such
party) concerning the other parties hereto furnished it by such other party or
its representatives pursuant to this
46
Agreement (except to the extent that such information can be shown to have been
(1) in the public domain through no fault of such party or (2) later lawfully
acquired from other sources not under a duty of confidentiality by the party to
which it was furnished), and each party shall not release or disclose such
information to any other person, except its directors, officers, employees,
auditors, attorneys, financial advisors, bankers and other consultants who shall
be advised of and agree to be bound by the provisions of this Section 10.4. Each
party shall be deemed to have satisfied its obligation to hold confidential
information concerning or supplied by the other party if it exercises the same
care as it takes to preserve confidentiality for its own similar information.
10.5 Successors. This Agreement shall be binding on and inure to the
----------
benefit and detriment of any successor, by merger, acquisition of assets or
otherwise, to any of the parties hereto, to the same extent as if such successor
had been an original party.
10.6 Affiliates. Hewlett-Packard shall cause to be performed, and
----------
hereby guarantees the performance of, all actions, agreements and obligations
set forth herein to be performed by any Hewlett-Packard Affiliate, and Agilent
shall cause to be performed, and hereby guarantees the performance of, all
actions, agreements and obligations set forth herein to be performed by any
Agilent Affiliate; provided, however, that (1) if it is contemplated that an
-------- -------
Agilent Affiliate may cease to be an Agilent Affiliate as a result of a transfer
of its stock or other ownership interests to a third party in exchange for
consideration in an amount approximately equal to the fair market value of the
stock or other ownership interests transferred and such consideration is not
distributed outside of the Agilent Group to the shareholders of Agilent then
Agilent shall request in writing no later than thirty (30) days prior to such
cessation that Hewlett-Packard execute a release of such Agilent Affiliate from
its obligations under this Agreement effective as of such transfer provided that
Agilent shall have confirmed in writing its obligations and the obligations of
its remaining Agilent Affiliates with respect to their own obligations and those
of the departing Agilent Affiliate and that such departing Agilent Affiliate
shall have executed a release of any rights it may have against Hewlett-Packard
or any Hewlett-Packard Affiliate by reason of this Agreement, and (2) if it is
contemplated that a Hewlett-Packard Affiliate may cease to be a Hewlett-Packard
Affiliate as a result of a transfer of its stock or other ownership interests to
a third party in exchange for consideration in an amount approximately equal to
the fair market value of the stock or other ownership interests transferred and
such consideration is not distributed outside of the Hewlett-Packard Group to
the shareholders of Hewlett-Packard then Hewlett-Packard shall request in
writing no later than thirty (30) days
47
prior to such cessation that Agilent execute a release of such Hewlett-Packard
Affiliate from its obligations under this Agreement effective as of such
transfer provided that Hewlett-Packard shall have confirmed in writing its
obligations and the obligations of its remaining Hewlett-Packard Affiliates with
respect to their own obligations and the obligations of the departing Hewlett-
Packard Affiliate and that such departing Hewlett-Packard Affiliate shall have
executed a release of any rights it may have against Agilent or any Agilent
Affiliate by reason of this Agreement.
10.7 Authorization, Etc. Each of the parties hereto hereby
------------------
represents and warrants that it has the power and authority to execute, deliver
and perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement
constitutes a legal, valid and binding obligation of each such party and that
the execution, delivery and performance of this Agreement by such party does not
contravene or conflict with any provision of law or of its charter or bylaws or
any agreement, instrument or order binding on such party.
10.8 Entire Agreement. This Agreement contains the entire agreement
----------------
among the parties hereto with respect to the subject matter hereof and
supersedes any prior Tax sharing agreements between Hewlett-Packard (or any of
its Affiliates) and Agilent (or any of its Affiliates) and such prior tax
sharing agreements shall have no further force and effect.
10.9 Applicable Law; Jurisdiction. This Agreement shall be governed
----------------------------
by and construed and enforced in accordance with the laws of the State of
Delaware without giving effect to laws and principles relating to conflicts of
law. Each party to this Agreement irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the Chancery Court in and for New Castle
County, Delaware and of the courts of the United States of America located in
the State of Delaware for any actions, suits or proceedings arising out of or
relating to this agreement and the transactions contemplated hereby (and agree
not to commence any action, suit or proceeding relating thereto except in such
courts), and further agree that service of any process, summons, notice or
document by U.S. registered mail at the address set forth in Section 10.2 of
this Agreement shall be effective service of process for any action, suit or
proceeding brought against you in any such court. You hereby irrevocably and
unconditionally waive any objection to the laying of venue of any action, suit
or proceeding arising out of this agreement or the transactions contemplated
hereby, in the Chancery Court in and for New Castle County, Delaware and of the
courts of the United States of America located in the State of Delaware, and
hereby further irrevocably and unconditionally waive and agree not to plead or
48
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
10.10 Dispute Resolution. The resolution of any and all disputes
------------------
arising from or in connection with this Agreement shall be governed by and
settled in accordance with the provisions of Section 5.9 of the Separation
Agreement; provided, however, that at the request of Hewlett-Packard or Agilent,
-------- -------
a Tax Arbiter will be appointed for purposes of the non-binding mediation
procedures described in Section 5.9(b) of the Separation Agreement.
10.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
10.12 Severability. If any term, provision, covenant, or restriction
------------
of this Agreement is held by a court of competent jurisdiction (or an arbitrator
or arbitration panel) to be invalid, void, or unenforceable, the remainder of
the terms, provisions, covenants, and restrictions set forth herein shall remain
in full force and effect, and shall in no way be affected, impaired, or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants, and restrictions without including any of such which may be hereafter
declared invalid, void, or unenforceable. In the event that any such term,
provision, covenant or restriction is held to be invalid, void or unenforceable,
the parties hereto shall use their best efforts to find and employ an alternate
means to achieve the same or substantially the same result as that contemplated
by such terms, provisions, covenant, or restriction.
10.13 No Third Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of Hewlett-Packard, the Hewlett-Packard Affiliates, Agilent and the
Agilent Affiliates. This Agreement should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, cause of action or other
rights in excess of those existing without this Agreement.
10.14 Waivers, Etc. No failure or delay on the part of the parties
-------------
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then
49
tions contemplated hereby, in the Chancery Court in and for New Castle County,
Delaware and of the courts of the United States of America located in the State
of Delaware, and hereby further irrevocably and unconditionally waive and agree
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.
10.10 Dispute Resolution. The resolution of any and all disputes
------------------
arising from or in connection with this Agreement shall be governed by and
settled in accordance with the provisions of Section 5.9 of the Separation
Agreement; provided, however, that at the request of Hewlett-Packard or
-------- -------
Agilent, a Tax Arbiter will be appointed for purposes of the non-binding
mediation procedures described in Section 5.9(b) of the Separation Agreement.
10.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
10.12 Severability. If any term, provision, covenant, or restriction
------------
of this Agreement is held by a court of competent jurisdiction (or an arbitrator
or arbitration panel) to be invalid, void, or unenforceable, the remainder of
the terms, provisions, covenants, and restrictions set forth herein shall remain
in full force and effect, and shall in no way be affected, impaired, or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants, and restrictions without including any of such which may be hereafter
declared invalid, void, or unenforceable. In the event that any such term,
provision, covenant or restriction is held to be invalid, void or unenforceable,
the parties hereto shall use their best efforts to find and employ an alternate
means to achieve the same or substantially the same result as that contemplated
by such terms, provisions, covenant, or restriction.
10.13 No Third Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of Hewlett-Packard, the Hewlett-Packard Affiliates, Agilent and the
Agilent Affiliates. This Agreement should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, cause of action or other
rights in excess of those existing without this Agreement.
10.14 Waivers, Etc. No failure or delay on the part of the parties in
-------------
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
10.15 Setoff. All payments to be made by any party under this
------
Agreement may be netted against payments due to such party under this Agreement,
but otherwise shall be made without setoff, counterclaim or withholding, all of
which are hereby expressly waived.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by a duly authorized officer as of the date first above
written.
HEWLETT-PACKARD COMPANY
on behalf of itself and the Hewlett-Packard Affiliates
By /s/ XXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
Tax, Licensing & Customs
AGILENT TECHNOLOGIES INC.
on behalf of itself and the Agilent Affiliates
By /s/ XXXX PESCHCKE-KOEDT
--------------------------------------------
Name: Xxxx Peschcke-Koedt
Title: Vice President
Global Tax & Trade
50
APPENDIX A
Information to be Provided to Hewlett-Packard by Agilent
With respect to Consolidated Returns
On or before February 1, 2001:
. Trial balances
. Schedule M adjustments
On or before April 1, 2001:
. Earnings and profits of Agilent and each Agilent Affiliate
. Research credit calculations
. Foreign tax credit calculations
. Qualified exports for HP Foreign Sales Corporation
. All information necessary to perform calculations under Section 861 of
the Code and the Treasury Regulations thereunder
All information should be in machine readable form, wherever possible.
X-0
XXXXXXXX X
Information to be Provided to Hewlett-Packard by Agilent
With respect to Combined Returns
On or before April 1, 2001:
. List of states in which Agilent or any Agilent Affiliate has nexus for
state income and franchise Tax purposes
. Property factor information
. Sales factor information
. Payroll factor information
. Business/non-business income split for all applicable states
All information should be in machine readable form, wherever possible.
B-1
APPENDIX C
Contemplated Domestic Restructuring Taxes
None
C-1
APPENDIX D
Applicable Spinoffs
1. The Public Distribution.
2. The Internal Distribution.
3. Each additional Foreign Restructuring transaction identified in a
written schedule agreed to by the Hewlett-Packard VP and the
Agilent VP on or before December 15, 1999.
D-1
APPENDIX E
Certain Agilent Historic Affiliates
Agilent Tecnologias de Costa Rico S.A.
Biomolecular Separations
BT&D
Caliper Technologies
Cascade Microtech Inc.
Cerjac
Chartered Silicon Partners Pte Ltd.
Diametrics Medical Inc.
Discovery Partners
EESof
Four Pi
Heartstream, Inc.
Hewlett-Packard Japan, Ltd.
Hewlett-Packard (Malaysia) Sdn Bhd
Hewlett-Packard Medical Products (Qindao) Ltd.
Hewlett-Packard Microsensor Tech
Hewlett-Packard Microwave Products (M) Sdn Bhd
Hewlett-Packard Shanghai Analytical Products Co. Ltd.
Hewlett-Packard Singapore Vision Operation Pte Ltd.
Infinity
Irori Inc.
i-Stat Corporation
Libra Syscom
LumiLEDS
Metrix Network Systems
Microelectrics & Computer Technology Group
Microelectronics Tech
Micronics Japan
Optimization Systems Associates
Xxxx, Inc.
Xxxxxxx
Quosnetics
Rockland Technologies Inc.
Scope Communications, Inc.
Security Force Software
E-1
Shanghai Huatek Software Engineering Company Ltd.
Telecom Technologies, Inc.
Telegra Corporation
Versatest
Vital Technology PTE
Yokogawa Analytical Systems, Inc.
E-2
APPENDIX F
Illustrative Foreign Tax Credit Examples
Example 1: All FY1999 and FY2000 Foreign Operating Taxes and the Contemplated
Japan Restructuring Tax are included by Hewlett-Packard
---------------------------------------------------------------
1999 2000 2001
---- ---- ----
---------------------------------------------------------------
Pretax operating earnings 100 140 160
---------------------------------------------------------------
Foreign Operating Taxes (50%) (50) (70) (80)
---------------------------------------------------------------
Current earnings 50 70 80
---------------------------------------------------------------
Contemplated Japan Restructuring
Tax (100) n/a n/a
---------------------------------------------------------------
Earnings and Profits (50) 20 80
---------------------------------------------------------------
---------------------------------------------------------------
Dividend Income n/a 20 80
---------------------------------------------------------------
Section 78 gross-up n/a 220 80
---------------------------------------------------------------
US taxable income n/a 240 160
---------------------------------------------------------------
US tax (35%) n/a 84 56
---------------------------------------------------------------
Foreign tax credit n/a (220) (24)
---------------------------------------------------------------
---------------------------------------------------------------
Tax Benefit n/a 136 24
---------------------------------------------------------------
. Assuming that no foreign tax credits with respect to the Contemplated Japan
Restructuring Tax are allocated to any Hewlett-Packard Affiliate under
Section 367(b) of the Code and the applicable regulations, then under
Section 5.9(a) of the Agreement, Hewlett-Packard will be required to
provide Agilent with funding equal to 60, which is sixty percent of the
Contemplated Japan Restructuring Tax.
. The stacking rules of Sections 5.9 and 5.10 require that any Tax Benefit
with respect to Foreign Operating Taxes be taken into account prior to
taking into account any Tax Benefit with respect to the Japan Restructuring
Tax. Because all of the foreign tax credits with respect to the FY1999
Foreign
F-1
Operating Tax are funded and included by Hewlett-Packard, Agilent will
receive no Tax Benefit with respect thereto, so no adjustments are required
under Section 5.10(a). However, because all of the foreign tax credits with
respect to the FY2000 Foreign Operating Tax are funded by Agilent but
included by Hewlett-Packard, an adjustment will be required under Section
5.10(b).
. The required adjustment under Section 5.10(b) is made by measuring the
incremental impact on Hewlett-Packard's Federal Income Tax liability after
the impact of all other Tax Items to Hewlett-Packard (other than the Japan
Restructuring Tax). Accordingly, the FY2000 Foreign Operating Taxes are
taken into account after the FY1999 Foreign Operating Taxes.
--------------------------------------------
FY1999 operating earnings 100
--------------------------------------------
US tax (35%) (35)
--------------------------------------------
FY1999 Foreign Operating Tax 50
--------------------------------------------
--------------------------------------------
FY1999 Operating Tax Benefit 15
--------------------------------------------
--------------------------------------------
FY2000 operating earnings 140
--------------------------------------------
US tax (35%) (49)
--------------------------------------------
FY2000 Foreign Operating Tax 70
--------------------------------------------
--------------------------------------------
FY2000 Operating Tax Benefit 21
--------------------------------------------
Thus, Hewlett-Packard retains the first 15 of its total 136 of Tax Benefit,
because that amount relates to the FY1999 Foreign Operating Taxes. The Tax
Benefit attributable to FY2000 Foreign Operating Taxes, which is 21, must
be paid to Agilent under Section 5.10(b) of the Agreement. (No adjustment
is required with respect to FY2001 Foreign Operating Taxes because they are
included by Agilent.)
. Finally, Hewlett-Packard's Tax Benefit with respect to the Contemplated
Japan Restructuring Tax must be taken into account. Because 36 of its total
136 of Tax Benefit was attributable to Foreign Operating Taxes, only 100 of
Tax Benefit remains. Under Section 5.9(b), forty percent of this amount, or
40, must be paid by Hewlett-Packard to Agilent.
F-2
. To summarize, Hewlett-Packard is required to provide Agilent with initial
funding of 60 for the Contemplated Japan Restructuring Tax. In addition,
Hewlett-Packard must make an additional payment to Agilent of 61, which
represents 21 of Tax Benefit attributable to the FY2000 Foreign Operating
Taxes and 40 of Tax Benefit attributable to the Japan Restructuring Tax.
Example 2: All FY1999 and FY2000 Foreign Operating Taxes and the Japan
Restructuring Tax are included by Agilent
----------------------------------------------------------------
1999 2000 2001
---- ---- ----
----------------------------------------------------------------
Pretax operating earnings 100 140 160
----------------------------------------------------------------
Foreign Operating Taxes (50%) (50) (70) (80)
----------------------------------------------------------------
Current earnings 50 70 80
----------------------------------------------------------------
Contemplated Japan Restructuring Tax (120) n/a n/a
----------------------------------------------------------------
Earnings and Profits (70) 0 80
----------------------------------------------------------------
----------------------------------------------------------------
Dividend Income n/a n/a 80
----------------------------------------------------------------
Section 78 gross-up n/a n/a 320
----------------------------------------------------------------
US taxable income n/a n/a 400
----------------------------------------------------------------
US tax (35%) n/a n/a 140
----------------------------------------------------------------
Foreign tax credit n/a n/a (320)
----------------------------------------------------------------
----------------------------------------------------------------
Tax Benefit n/a n/a 180
----------------------------------------------------------------
. Assuming that no foreign tax credits with respect to the Contemplated Japan
Restructuring Tax are allocated to any Hewlett-Packard Affiliate under
Section 367(b) of the Code and the applicable regulations, then under
Section 5.9(a) of the Agreement, Hewlett-Packard will be required to
provide Agilent with funding equal to 72, which is sixty percent of the
Contemplated Japan Restructuring Tax.
F-3
. The stacking rules of Sections 5.9 and 5.10 require that any Tax Benefit
with respect to Foreign Operating Taxes be taken into account prior to
taking into account any Tax Benefit with respect to the Japan Restructuring
Tax. Because all of the foreign tax credits with respect to the FY1999
Foreign Operating Tax are funded by Hewlett-Packard but included by
Agilent, an adjustment will be required under Section 5.10(a). However,
because all of the foreign tax credits with respect to the FY2000 and
FY2001 Foreign Operating Tax are funded and included by Agilent, no
adjustment will be required under Section 5.10(b).
. The required adjustment under Section 5.10(a) is made by measuring the
incremental impact on Agilent's Federal Income Tax liability after the
impact of all other Tax Items to Agilent (other than the Japan
Restructuring Tax). Accordingly, the FY2000 and FY2001 Foreign Operating
Taxes are taken into account before the FY1999 Foreign Operating Taxes.
--------------------------------------------------
FY2000/FY2001 operating earnings 300
--------------------------------------------------
US tax (35%) (105)
--------------------------------------------------
FY2000/2001 Foreign Oper. Tax 150
--------------------------------------------------
--------------------------------------------------
FY2000/2001 Oper. Tax Benefit 45
--------------------------------------------------
--------------------------------------------------
FY1999 operating earnings 100
--------------------------------------------------
US tax (35%) (35)
--------------------------------------------------
FY1999 Foreign Operating Tax 50
--------------------------------------------------
--------------------------------------------------
FY1999 Operating Tax Benefit 15
--------------------------------------------------
Thus, Agilent retains the first 45 of its total 180 of Tax Benefit, because
that amount relates to the FY2000 and FY2001 Foreign Operating Taxes. The
Tax Benefit attributable to FY1999 Foreign Operating Taxes, which is 15,
must be paid to Hewlett-Packard under Section 5.10(a) of the Agreement.
. Finally, Agilent's Tax Benefit with respect to the Contemplated Japan
Restructuring Tax must be taken into account. Because 60 of its total 180
of Tax Benefit was attributable to Foreign Operating Taxes, only 120 of Tax
F-4
Benefit remains. Under Section 5.9(c), sixty percent of this amount, or
72, must be paid by Agilent to Hewlett-Packard.
. To summarize, Hewlett-Packard is required to provide Agilent with initial
funding of 72 for the Japan Restructuring Tax. Agilent, however, is
required to make a subsequent payment to Hewlett-Packard of 87, which
represents 15 of Tax Benefit attributable to the FY1999 Foreign Operating
Taxes and 72 of Tax Benefit attributable to the Contemplated Japan
Restructuring Tax.
Example 3: Same as Example 2, but Agilent exceeds its Section 904 limitation.
. Assuming that Agilent is able to use only 100 of its 180 of available Tax
Benefit in FY2001, then the first 45 of Tax Benefit would be allocated to
the FY2000/FY2001 Foreign Operating Taxes, and the next 15 of Tax Benefit
would be allocated to the FY1999 Foreign Operating Taxes. The remaining 40
of Tax Benefit would be allocated to the Japan Restructuring Tax, 24 (60%
of 40) of which would represent the amount required to be paid to Hewlett-
Packard. Accordingly, Agilent would be required to make a payment of 39
(15 + 24) to Hewlett-Packard.
. The remaining 80 of Tax Benefit that could not be used by Agilent in FY2001
would be available for carryback or carryforward. If Agilent were able to
carry back this Tax Benefit into the Consolidated Return, then Hewlett-
Packard would be able to use the Tax Benefit. In such a case, because the
entire carryback relates to the Japan Restructuring Tax, a payment of 40
percent of the amount of the Tax Benefit carryback would be required to be
made by Hewlett-Packard to Agilent under Section 5.9(b) of the Agreement.
Thus, Hewlett-Packard would be required to pay Agilent 32.
. To the extent that the excess Tax Benefit could not be used by Agilent in
FY2001 or carried back into the Consolidated Return (because, for example,
other foreign tax credit also were carried back into the Consolidated
Return), Agilent would retain such excess as a carryforward. If Agilent
used that Tax Benefit in a subsequent year, then Agilent would be required
to pay 60 percent of the amount so used to Hewlett-Packard pursuant to
Section 5.9(c) and (d) of the Agreement.
F-5
Example 4: Some (but not all) FY1999 and FY2000 Foreign Operating Taxes are
included by Hewlett-Packard
-----------------------------------------------------------
1999 2000 2001
---- ---- ----
-----------------------------------------------------------
Pretax operating earnings 100 140 160
-----------------------------------------------------------
Foreign Operating Taxes (50%) (50) (70) (80)
-----------------------------------------------------------
Current earnings 50 70 80
-----------------------------------------------------------
Contemplated Japan Restructuring Tax (100) n/a n/a
-----------------------------------------------------------
Earnings and Profits (50) 20 90
-----------------------------------------------------------
-----------------------------------------------------------
Dividend Income n/a 10 90
-----------------------------------------------------------
Section 78 gross-up n/a 110 190
-----------------------------------------------------------
US taxable income n/a 120 280
-----------------------------------------------------------
US tax (35%) n/a 42 98
-----------------------------------------------------------
Foreign tax credit n/a (110) (190)
-----------------------------------------------------------
-----------------------------------------------------------
Tax Benefit n/a 68 92
-----------------------------------------------------------
. Because the dividend to Hewlett-Packard in FY2000 attracts only part of the
credits attributable to the FY1999 and FY2000 Foreign Operating Tax and the
Contemplated Japan Restructuring Tax, the Tax Benefit available to Hewlett-
Packard is less than in Example 1. Of the 68 of available Tax Benefit, the
first 15 is allocable to the FY1999 Foreign Operating Tax. The next 21 is
allocable to the FY2000 Foreign Operating Tax and, accordingly, must be
paid by Hewlett-Packard to Agilent. The remaining 32 of Tax Benefit is
allocable to the Contemplated Japan Restructuring Tax, 12.8 of which must
be paid by Hewlett-Packard to Agilent.
. The dividend to Agilent in FY2001 attracts both FY2001 Foreign Operating
Taxes and the remaining credits attributable to the Contemplated Japan
Restructuring Tax. The first 24 of Agilent's 92 Tax Benefit, therefore, is
retained by Agilent. The remaining 68 of Tax Benefit, however, is subject
to
F-6
adjustment under Section 5.9(b) of the Agreement. Thus, Agilent is required
to make a payment of 40.8 to Hewlett-Packard.
Example 5: Subsequent Adjustments
. Assume that the facts are the same as Example 1, but that upon examination
of the Consolidated Return for FY2000, the Service disallows 110 of the Tax
Benefit claimed by Hewlett-Packard on that Tax Return. Because the last 100
of the Tax Benefit claimed by Hewlett-Packard in FY2000 related to the
Contemplated Japan Restructuring Tax, the amount paid by Hewlett-Packard to
Agilent under Section 5.9(b) of the Agreement would be subject to
adjustment under Section 5.9(d) of the Agreement. In addition, because the
next 10 of Tax Benefit related to the FY2000 Foreign Operating Tax, that
amount also would be subject to adjustment under Section 5.9(d) of the
Agreement. As a result, Agilent would be required to make a payment of 50
to Hewlett-Packard, representing the 40 previously paid by Hewlett-Packard
to Agilent with respect to the Contemplated Japan Restructuring Tax and 10
of the 21 previously paid by Hewlett-Packard to Agilent with respect to the
FY2000 Foreign Operating Tax.
F-7
