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Exhibit 10.4
EXECUTION COPY
TAX SHARING AGREEMENT
BY AND BETWEEN
LUCENT TECHNOLOGIES INC.
AND
AGERE SYSTEMS INC.
DATED AS OF FEBRUARY 1, 2001
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS
1.1 Adjustment 1
1.2 Agere Tax Adjustment 1
1.3 Agere Tax Benefit 2
1.4 Agreement 2
1.5 Ascend Group 2
1.6 AT&T Restructuring Adjustment 2
1.7 Avaya Restructuring Adjustment 2
1.8 COLI 2
1.9 Consolidation 2
1.10 Consolidated Return 2
1.11 Controlling Party 3
1.12 Correlative Adjustment 3
1.13 Disputed Adjustment 3
1.14 Distribution Date 3
1.15 Federal Tax Allocation Agreement 3
1.16 Final Determination 3
1.17 Independent Third Party 4
1.18 Indemnified Party 4
1.19 Indemnifying Party 4
1.20 Initial Determination 4
1.21 Interested Party 4
1.22 Interested Party Notice 4
1.23 Lucent Tax Adjustment 4
1.24 Lucent Tax Benefit 4
1.25 Net Tax Liability Payable 4
1.26 Net Tax Refund Receivable 5
1.27 Non-Line of Business Adjustment 5
1.28 Restructuring Adjustment 5
1.29 Restructuring Tax 5
1.30 Restructuring Transaction 5
1.31 Return 5
1.32 Ruling 5
1.33 Ruling Documents 5
1.34 Separate Return 5
1.35 Separation and Distribution Agreement 6
1.36 Service 6
1.37 Significant Obligation 6
1.38 State and Local Income Tax Allocation Agreement 6
1.39 Supplemental Ruling 6
1.40 Supplemental Ruling Documents 6
1.41 Tax 6
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1.42 Tax Adjustments 6
1.43 Tax Benefit 6
1.44 Tax Contest 6
1.45 Taxing Authority 7
1.46 Ultimate Determination 7
ARTICLE II TAX ADJUSTMENTS/BENEFITS
2.1 In General 7
2.2 Tax Adjustments and Benefits 7
2.3 Restructuring Adjustments, AT&T Restructuring Adjustments
and Avaya Restructuring 9
Adjustments
2.4 Non-Line of Business Adjustments 10
ARTICLE III TAX CONTESTS
3.1 Notification of Tax Contests 12
3.2 Tax Contest Settlement Rights 12
3.3 Tax Contest Participation 13
3.4 Tax Contest Waiver 14
3.5 Tax Contest Dispute Resolution 15
ARTICLE IV PROCEDURE AND PAYMENT
4.1 Procedure 17
4.2 Payment 18
4.3 Interest 18
ARTICLE V ALLOCATION OF CURRENT TAXES INCURRED AS A
RESULT OF RESTRUCTURING ACTIVITIES
5.1 General 19
5.2 Allocation of Restructuring Taxes 19
5.3 Payment of Restructuring Taxes 19
5.4 Treatment of Losses 19
5.5 Treatment of Certain Foreign Tax Credits 19
ARTICLE VI OTHER TAX MATTERS
6.1 Tax Policies and Procedures during Consolidation 20
6.2 Cooperation 20
6.3 Filing of Returns 21
6.4 Tax Characterization of Payments 21
6.5 Liability for Actions Effecting Tax-Free
Nature of the Distribution 21
6.6 Deductions Related to Options 23
ARTICLE VII MISCELLANEOUS
7.1 Governing Law 23
7.2 Affiliates 23
7.3 Incorporation of Separation and Distribution
Agreement Provisions 24
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7.4 Notices 24
7.5 Conflicting or Inconsistent Provisions 24
7.6 Duration 25
7.7 Tax Allocation Agreements 25
7.8 No-Fault Agreement 25
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TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT, dated as of February 1, 2001, is by
and between Lucent and Agere. Capitalized terms used herein shall have the
respective meanings assigned to them in the Separation and Distribution
Agreement unless otherwise defined in Article I hereof.
WHEREAS, Lucent and Agere have executed the Separation and
Distribution Agreement pursuant to which Lucent's existing businesses will be
separated into two independent business; and
WHEREAS, it is appropriate and desirable to set forth the
principles and responsibilities of the parties to this Agreement regarding (i)
future Adjustments with respect to Taxes, Tax Contests and other related Tax
matters and (ii) current Tax liabilities that arise as a result of restructuring
activities undertaken to implement the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties, intending to
be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall
have the following meanings:
1.1. ADJUSTMENT means the deemed increase or decrease in a Tax,
determined on an issue-by-issue or transaction-by-transaction basis, as
appropriate, and using the assumptions set forth in the next sentence, resulting
from an adjustment made or proposed by a Taxing Authority with respect to any
amount reflected or required to be reflected on any Return relating to such Tax.
For purposes of determining such deemed increase or decrease in a Tax, the
following assumptions will be used: (a) in the case of any income Tax, the
highest marginal Tax rate or, in the case of any other Tax, the highest
applicable Tax rate, in each case in effect with respect to that Tax for the
Taxable period or any portion of the Taxable period to which the adjustment
relates; and (b) such determination shall be made without regard to whether any
actual increase or decrease in such Tax will in fact be realized with respect to
the Return to which such adjustment relates. For purposes of this Agreement,
Adjustment also means any Adjustment as defined in the Tax Sharing Agreement by
and among AT&T Corp., Lucent and XXX Xxxxxxxxxxx, dated as of February 1, 1996,
and any Adjustment as defined in the Tax Sharing Agreement by and between Lucent
and Avaya Inc. dated as of October 1, 2000.
1.2. AGERE TAX ADJUSTMENT means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are
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clearly attributable to the Agere Business; provided, however, that any
Adjustment comprising a Restructuring Adjustment shall not be considered in
determining the amount of any Agere Tax Adjustment.
1.3. AGERE TAX BENEFIT means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net decrease in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable to
the Agere Business; provided, however, that any Adjustment comprising a
Restructuring Adjustment shall not be considered in determining the amount of
any Agere Tax Benefit.
1.4. AGREEMENT means this Tax Sharing Agreement, including any
schedules, exhibits and appendices attached hereto.
1.5. ASCEND GROUP means any and all legal entities acquired by Lucent
as a result of the acquisition of Ascend Communications, Inc. on June 24, 1999.
1.6. AT&T RESTRUCTURING ADJUSTMENT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase or decrease in each such Tax, as the case may be,
equal to the sum of all Adjustments made pursuant to a Final Determination with
respect to each such Tax for each Taxable period or portion of a Taxable period
that are attributable to, or as a result of any transactions that give rise to a
Restructuring Adjustment as defined in and under the terms of the Tax Sharing
Agreement by and among AT&T Corp., Lucent and XXX Xxxxxxxxxxx, dated as of
February 1, 1996.
1.7. AVAYA RESTRUCTURING ADJUSTMENT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase or decrease in each such Tax, as the case may be,
equal to the sum of all Adjustments made pursuant to a Final Determination with
respect to each such Tax for each Taxable period or portion of a Taxable period
that are attributable to, or as a result of any transactions that give rise to a
Restructuring Adjustment as defined in and under the terms of the Tax Sharing
Agreement by and between Lucent and Avaya Inc., dated as of October 1, 2000.
1.8. COLI has the meaning set forth in Section 2.2(c) hereof.
1.9. CONSOLIDATION means, as appropriate, any Taxable period or any
portion of a Taxable period during which one or more members of the Agere Group
are members of a Lucent Consolidated Return.
1.10. CONSOLIDATED RETURN means for any Taxable period or any portion
of a Taxable period ending or deemed to end on or prior to the Distribution
Date, any consolidated or combined Return that includes one or more members of
the Lucent Group and/or one or more members of the Agere Group.
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1.11. CONTROLLING PARTY means Lucent or any other member of the Lucent
Group, or Agere or any other member of the Agere Group, as the case may be, that
filed or, if no such Return has been filed, was required to file, a Return that
is the subject of any Tax Contest, or any successor and/or assign of any of the
foregoing; provided, however, that in the case of any Consolidated Return, the
Person that actually filed such Consolidated Return (or any successor and/or
assign of such Person) will be the Controlling Party.
1.12. CORRELATIVE ADJUSTMENT means, in the case of an Adjustment
comprising a Non-Line of Business Adjustment or a Restructuring Adjustment, the
net present value of any future increases or decreases in a Tax that would be
realized, using the assumptions set forth in the next sentence, by either Lucent
or any other member of the Lucent Group, or Agere or any other member of the
Agere Group, as the case may be, in one or more Taxable periods (or any portion
of a Taxable period) but only if such increases or decreases (a) will take
effect or begin to take effect on or before the date on which the Final
Determination which contains the subject Non-Line of Business Adjustment or
Restructuring Adjustment is issued by the applicable Taxing Authority; and (b)
are a direct result of such an Adjustment to that Tax in the immediately
preceding Taxable period or portion of such Taxable period. For purposes of
clause (a) of the preceding sentence, any such future increases or decreases to
a Tax that relate to an allowance for depreciation or amortization shall be
deemed to begin to take effect either (i) on the date prescribed by applicable
law; or (ii) on a date that is otherwise mutually agreed in good faith by the
parties to this Agreement. For purposes of determining the net present value of
any such future increases or decreases in a Tax, the following assumptions will
be used: (i) a discount rate equal to the sum of the Prime Rate as of the date
of the Final Determination relating to such Non-Line of Business Adjustment or
Restructuring Adjustment plus 3.5%; (ii) in the case of any income Tax, the
highest marginal Tax rate or, in the case of any other Tax, the highest
applicable Tax rate, in each case in effect with respect to that Tax for the
Taxable period, or portion of the Taxable period in which the Non-Line of
Business Adjustment or Restructuring Adjustment was made; (iii) the
depreciation, amortization or credit rate or lives, if applicable, in effect for
the Taxable period or portion of the Taxable period, in which the Non-Line of
Business Adjustment or Restructuring Adjustment was made; and (iv) such
determination shall be made without regard to whether any actual increases or
decreases in such Tax will in fact be realized with respect to the future
Returns to which such Correlative Adjustment relates.
1.13. DISPUTED ADJUSTMENT has the meaning set forth in Section 3.4(b)
hereof.
1.14. DISTRIBUTION DATE means, for purposes of this Agreement, the
first date on which Lucent and Agere are no longer permitted to file Tax Returns
on a consolidated or combined basis, determined on a Tax jurisdiction by Tax
jurisdiction basis.
1.15. FEDERAL TAX ALLOCATION AGREEMENT means the Federal Tax Allocation
Agreement, effective as of October 1, 1996, by and among Lucent and each of its
subsidiaries.
1.16. FINAL DETERMINATION means (a) a decision, judgment, decree or
other order by any court of competent jurisdiction, which has become final and
is either no longer subject to appeal or for which a determination not to appeal
has been made; (b) a closing agreement made
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under Section 7121 of the Code or any comparable foreign, state, local,
municipal or other Taxing statute; (c) a final disposition by any Taxing
Authority of a claim for refund; or (d) any other written agreement relating to
an Adjustment between any Taxing Authority and any Controlling Party the
execution of which is final and prohibits such Taxing Authority or the
Controlling Party from seeking any further legal or administrative remedies with
respect to such Adjustment.
1.17. INDEPENDENT THIRD PARTY means a nationally recognized law firm or
any of the following accounting firms or their successors: Xxxxxx Xxxxxxxx &
Co.; Ernst & Young; KPMG; Deloitte & Touche; and PricewaterhouseCoopers.
1.18. INDEMNIFIED PARTY has the meaning set forth in Section 4.1(c)
hereof.
1.19. INDEMNIFYING PARTY has the meaning set forth in Section 4.1(c)
hereof.
1.20. INITIAL DETERMINATION has the meaning set forth in Section
3.5(b)(i) hereof.
1.21. INTERESTED PARTY means Lucent or any other member of the Lucent
Group, or Agere or any other member of the Agere Group (including any successor
and/or assign of any of each of the foregoing), as the case may be, to the
extent (a) such Person is not the Controlling Party with respect to a Tax
Contest; and (b) such Person (i) may be liable for, or required to make, any
indemnity payment, reimbursement or other payment pursuant to the provisions of
this Agreement with respect to such Tax Contest; or (ii) may be entitled to
receive any indemnity payment, reimbursement or other payment pursuant to the
provisions of this Agreement with respect to such Tax Contest; provided,
however, that in no event shall a member of either the Lucent Group or the Agere
Group, as the case may be, be an Interested Party in a Tax Contest in which
another member of its Group is the Controlling Party with respect to the Tax
Contest.
1.22. INTERESTED PARTY NOTICE has the meaning set forth in Section
3.4(b) hereof.
1.23. LUCENT TAX ADJUSTMENT means, with respect to any Taxable period
or portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable to
the Lucent Business (including the Ascend Group); provided, however, that any
Adjustment comprising a Restructuring Adjustment shall not be considered in
determining the amount of any Lucent Tax Adjustment.
1.24. LUCENT TAX BENEFIT means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net decrease in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable to
the Lucent Business (including the Ascend Group); provided, however, that any
Adjustment comprising a Restructuring Adjustment shall not be considered in
determining the amount of any Lucent Tax Benefit.
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1.25. NET TAX LIABILITY PAYABLE has the meaning set forth in Section
2.2(d) hereof.
1.26. NET TAX REFUND RECEIVABLE has the meaning set forth in Section
2.2(d) hereof.
1.27. NON-LINE OF BUSINESS ADJUSTMENT means, with respect to any
Taxable period or portion of a Taxable period, and as computed separately with
respect to each Tax, the net increase or decrease in each such Tax, as the case
may be, equal to the sum of all Adjustments made pursuant to a Final
Determination with respect to each such Tax for each such Taxable period or
portion of a Taxable period other than (a) any Restructuring Adjustments and any
Correlative Adjustment attributable to such Restructuring Adjustments; (b) any
Tax Adjustments; and (c) any Tax Benefits.
1.28. RESTRUCTURING ADJUSTMENT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase or decrease in each such Tax, as the case may be,
equal to the sum of all Adjustments made pursuant to a Final Determination with
respect to each such Tax for each Taxable period or portion of a Taxable period
that are attributable to, or as a result of a Restructuring Transaction.
Notwithstanding the foregoing Restructuring Adjustments shall not include any
Adjustments which are covered under Section 5.4, Section 5.5 and Section 6.5 of
this Agreement.
1.29. RESTRUCTURING TAX has the meaning set forth in Section 5.1
hereof.
1.30. RESTRUCTURING TRANSACTION means, any transactions undertaken to
effectuate the separation of Lucent's existing businesses into two independent
businesses as contemplated under the Separation and Distribution Agreement
including, but not limited to, any transactions undertaken pursuant to or
relating to the Separation, the Distribution and the Non-U.S. Plan.
1.31. RETURN means any return report, form or similar statement or
document (including, without limitation, any related or supporting information
or schedule attached thereto and any information return, claim for refund,
amended return and declaration of estimated tax) that has been or is required to
be filed with any Taxing Authority or that has been or is required to be
furnished to any Taxing Authority in connection with the determination,
assessment or collection of any Taxes or the administration of any laws,
regulations or administrative requirements relating to any Taxes.
1.32. RULING means (a) the initial private letter ruling, if any,
issued by the Service in connection with the Contribution and the Distribution
(and any related transactions) or (b) any similar ruling issued by any Tax
Authority other than the Service in connection with the Contribution and the
Distribution (and any related transactions).
1.33. RULING DOCUMENTS means (a) the request for the Ruling submitted
to the Service, together with the appendices and exhibits thereto and any
supplemental filings or other materials subsequently submitted to the Service,
in connection with the Contribution and the Distribution
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(and any related transactions) or (b) any similar ruling submitted to any other
Tax Authority in connection with the Contribution and the Distribution (and any
related transactions).
1.34. SEPARATE RETURN means any Return other than a Consolidated
Return.
1.35. SEPARATION AND DISTRIBUTION AGREEMENT means the Separation and
Distribution Agreement, dated as of February 1, 2001 by and between Lucent
Technologies Inc. and Agere Systems Inc.
1.36. SERVICE means the U.S. Internal Revenue Service or any successor
agency or authority.
1.37. SIGNIFICANT OBLIGATION means, in the case of an Interested Party,
and with respect to any Adjustment comprising either a Restructuring Adjustment
or Non-Line of Business Adjustment, either (a) a Shared Percentage that is
greater than or equal to 30%; or (b) an obligation to make or right to receive
any indemnity payment, reimbursement or other payment with respect to any such
Adjustment (including the effect of a Correlative Adjustment relating thereto)
pursuant to the terms of this Agreement that (i) in the case of any federal
income Tax is greater than $5 million, and (ii) in the case of any other Tax is
greater than $1 million.
1.38. STATE AND LOCAL INCOME TAX ALLOCATION AGREEMENT means the State
and Local Income Tax Allocation Agreement, effective as of October 1, 1996, by
and among Lucent and each of its subsidiaries.
1.39. SUPPLEMENTAL RULING means (a) any private letter ruling (other
than the Ruling) issued by the Service in connection with the Contribution and
the Distribution (and any related transactions) or (b) any similar ruling issued
by any Tax Authority other than the Service in connection with the Contribution
and the Distribution (and any related transactions).
1.40. SUPPLEMENTAL RULING DOCUMENTS has the meaning set forth in
Section 6.5(e) of this Agreement.
1.41. TAX (and, with correlative meanings, "Taxes" and "Taxable")
means, without limitation, and as determined on a jurisdiction-by-jurisdiction
basis, each foreign or U.S. federal, state, local or municipal income,
alternative or add-on minimum, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or any other tax, custom,
tariff, impost, levy, duty, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or penalty, addition to tax
or additional amount related thereto, imposed by any Taxing Authority.
1.42. TAX ADJUSTMENT means any Agere Tax Adjustment or any Lucent Tax
Adjustment, as the case may be.
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1.43. TAX BENEFIT means any Agere Tax Benefit or any Lucent Tax
Benefit, as the case may be.
1.44. TAX CONTEST means, without limitation, any audit, examination,
claim, suit, action or other proceeding relating to Taxes in which an Adjustment
to Taxes may be proposed, collected or assessed and in respect of which an
indemnity payment, reimbursement or other payment may be sought under this
Agreement.
1.45. TAXING 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 other imposition of Taxes.
1.46. ULTIMATE DETERMINATION has the meaning set forth in Section
3.5(b)(iii) hereof.
ARTICLE II
TAX ADJUSTMENTS/BENEFITS
2.1. IN GENERAL. (a) In determining Agere's liability and/or obligation
to make, or Lucent's right to receive, any indemnity payment, reimbursement or
other payment in respect of any Tax under this Agreement, any Taxable period or
portion of a Taxable period that includes the Distribution Date shall be deemed
to include and end on such Distribution Date, and Agere shall have no liability
and/or obligation to make, or right to receive, any indemnity payment,
reimbursement or other payment in respect of any Tax under this Agreement with
respect to any Taxable period or portion of a Taxable period that begins or is
deemed to begin after the Distribution Date.
(b) Any Adjustment relating to or arising out of the
employment of employees or former employees the Liabilities with respect to
which are assumed by Agere pursuant to Section 2.1 of the Employee Benefits
Agreement shall be deemed to be Adjustments that are clearly attributable to the
Agere Business and shall be deemed to comprise an Agere Tax Adjustment or Agere
Tax Benefit, as the case may be. All other Adjustments relating to or arising
out of the employment of employees or former employees shall be deemed to be
Adjustments that are clearly attributable to the Lucent Business and shall be
deemed to comprise a Lucent Tax Adjustment or Tax Benefit as the case may be.
2.2. TAX ADJUSTMENTS AND BENEFITS. (a) Agere shall be liable for, and
shall indemnify and hold harmless, subject to Section 3.4 and Section 3.5
hereof, any member of the Lucent Group, against any and all Agere Tax
Adjustments for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date, in each case with respect to
any Return of any member of the Agere Group or the Lucent Group. Agere shall be
entitled to receive, and shall be paid, subject to Section 3.4 and Section 3.5
hereof, by Lucent, the amount of any Agere Tax Benefits for any Taxable period
or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the Lucent Group.
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(b) Lucent shall be liable for, and shall indemnify and hold
harmless, as appropriate, and subject to Section 3.4 and Section 3.5 hereof, any
member of the Agere Group against any and all Lucent Tax Adjustments for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return of any member of the
Lucent Group or the Agere Group. Lucent shall be entitled to receive, and shall
be paid, subject to Section 3.4 and Section 3.5 hereof, by Agere, the amount of
any Lucent Tax Benefits for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the Agere Group.
(c) Notwithstanding anything in this Section 2.2 or elsewhere
in this Agreement to the contrary, Lucent and Agere shall share any Tax
Adjustment or Tax Benefit for any Taxable period ending or deemed to end on or
before the Distribution Date relating to corporate-owned life insurance ("COLI")
in the following proportions: 100% to Lucent and 0% to Agere.
(d) Notwithstanding anything in this Section 2.2 to the
contrary, in the case of any Tax Adjustment or Tax Benefit for any Taxable
period ending or deemed to end on or before the Distribution Date relating to
any state, local, or municipal income or franchise Tax that is filed or required
to be filed on a separate, combined, consolidated or nexus consolidated Return
basis, Lucent's and Agere's liability for, and/or right to receive, the amount
of any such Tax Adjustment or Benefit, as the case may be, shall be determined
on a jurisdiction-by-jurisdiction basis as follows:
(i) Such Tax Adjustment or Tax Benefit, as the case may be,
shall be divided into two segments in proportion to Lucent's and Agere's
relative contribution, if any, to the apportionment factor relevant to such Tax
Adjustment or Tax Benefit, as the case may be, with each such segment being
hereinafter referred to as the "Lucent segment" and the "Agere segment" for
purposes of this Section 2.2(d). For purposes of this Section 2.2(d), each of
Lucent's and Agere's relative contribution, if any, to an apportionment factor
shall be determined (A) in a manner that is consistent with the past practices
of Lucent and Agere, as the case may be, that have been used in determining
apportionment factors; and (B) by taking into account and giving effect to all
Adjustments reflected in a Final Determination with respect to the relevant
state, local or municipal income or franchise Tax for the Taxable period or
portion thereof that is at issue. Accordingly, the apportionment factor
allocation methodology will be applied to the Net Tax Liability Payable or the
Net Tax Refund Receivable as determined by the applicable state, local or
municipal Taxing Authority whether as a result of audit, refund claim or
otherwise. For purposes of the preceding sentence, Net Tax Liability Payable or
Net Tax Refund Receivable shall mean the amount specified in the Final
Determination issued by the applicable state, local or municipal Taxing
Authority after both giving effect to utilization of tax credits and net
operating losses and taking into account any Adjustments to apportionment
factors, Federal taxable income and state modifications to Federal taxable
income. In the event that the Final Determination reflects both Adjustments to
the overall apportionment factor and to state taxable income, Lucent's and
Agere's respective share, if any, of the Net Tax Liability Payable or the Net
Tax Refund Receivable would be calculated as follows:
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(a) First, by taking the revised state tax liability
as reflected in the Final Determination (i.e., the state tax
liability as originally filed (including any prior revisions)
modified by all of the Adjustments reflected in the Final
Determination) and multiplying it by the respective Lucent and
Agere share of the overall apportionment factor as revised per
such Final Determination in order to determine Lucent's and
Agere's revised share of the state tax liability (for purposes
of this calculation, Lucent's and Agere's share of the revised
overall apportionment factor will be a percentage determined
by dividing each company's revised individual factor by the
revised overall apportionment factor);
(b) Second, by taking the state tax liability prior
to revision by the Final Determination and multiplying it by
the respective Lucent and Agere share of the overall
apportionment factor prior to revision by such Final
Determination in order to determine Lucent's and Agere's share
of the state tax liability prior to the revisions made by such
Final Determination (for purposes of this calculation,
Lucent's and Agere's share of the overall apportionment factor
prior to its revision by the Final Determination will be a
percentage determined by dividing each company's individual
factor prior to the Final Determination by the overall
apportionment factor prior to its revision by the Final
Determination); and
(c) Third, the difference between items (a) and (b)
above shall constitute Lucent's and/or Agere's share of the
Net Tax Liability Payable or Net Tax Refund Receivable
resulting for the Adjustments made in the Final Determination.
(ii) Agere's liability for any state, local or municipal
income or franchise Tax Adjustment and/or right to receive any state, local or
municipal income or franchise Tax Benefit relating to each such separate,
combined, consolidated or nexus consolidated Return that is the subject of this
Section 2.2(d), if any, shall be equal to the amount of the Agere segment.
(iii) Lucent's liability for any state, local or municipal
income or franchise Tax Adjustment and/or right to receive any state, local or
municipal income or franchise Tax Benefit relating to each such separate,
combined, consolidated or nexus consolidated Return that is the subject of this
Section 2.2(d), if any, shall be equal to the amount of the Lucent segment.
2.3. RESTRUCTURING ADJUSTMENTS, AT&T RESTRUCTURING ADJUSTMENTS AND
AVAYA RESTRUCTURING ADJUSTMENTS.
(a) Agere shall be solely liable for, and shall indemnify and
hold harmless, as appropriate, any member of the Lucent Group against any
Restructuring Adjustment the amount of which increases a Tax for any Taxable
period or portion of a Taxable period ending or deemed to end on or before the
Distribution Date, in each case with respect to any Return of any member of the
Agere Group or the Lucent Group, up to a cumulative amount equal to $50 million.
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(b) Restructuring Adjustments in excess of a cumulative amount
of $50 million will be shared in proportion to the Shared Lucent Percentage and
the Shared Agere Percentage, respectively.
(c) Lucent and Agere shall share the amount of Lucent's share
of any AT&T Restructuring Adjustment in proportion to the Shared Lucent
Percentage and the Shared Agere Percentage, respectively.
(d) Lucent and Agere shall share the amount of Lucent's share
of any Avaya Restructuring Adjustment in proportion to the Shared Lucent
Percentage and the Shared Agere Percentage, respectively.
(e) Restructuring Adjustments shall be allocated between Agere
and Lucent as indicated in Section 2.3(a) and (b) provided, however, that if
there is a Correlative Adjustment with respect to a Restructuring Adjustment
then Lucent and Agere shall share such Restructuring Adjustment in the following
manner:
(i) first, the amount of any such Restructuring Adjustment
shall be increased or decreased, as appropriate, by the amount of the
Correlative Adjustment, the net amount resulting from such increase or decrease
being hereinafter referred to as the "Net Restructuring Adjustment" for purposes
of this Section 2.3(e);
(ii) second, the Net Restructuring Adjustment shall be
allocated between Lucent and Agere, in the same manner as a Restructuring
Adjustment under Section 2.3(a) and (b).
(iii) finally, with respect to a party to which a Correlative
Adjustment is attributable, that party's share of the Net Restructuring
Adjustment as allocated pursuant to paragraph (ii) of this Section 2.3(e) will
be increased or decreased, as appropriate, by the amount, if any, of the
Correlative Adjustment that is attributable to such party.
(f) Following the determination of a party's share of a
Restructuring Adjustment pursuant to Section 2.3(e) above, and subject to
Section 3.4 and 3.5 hereof, the Controlling Party of the Tax Contest to which
such Restructuring Adjustment relates shall (i) be entitled to reimbursement
from Lucent or Agere as the case may be, for each of their respective shares, if
any, of any Restructuring Adjustment the amount of which increases a Tax; and
(ii) reimburse Lucent or Agere, as the case may be, for each of their respective
shares, if any, of any Restructuring Adjustment the amount of which decreases a
Tax.
2.4. NON-LINE OF BUSINESS ADJUSTMENTS. (a) Agere shall be liable for,
and shall indemnify and hold harmless, as appropriate, any member of the Lucent
Group against Agere's share, as determined in Section 2.4(c) below, of any
Non-Line of Business Adjustment the amount of which increases a Tax for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date, in each case with respect to any Return of any
member of the Agere Group or the Lucent Group. Agere shall be entitled to
receive, and shall be paid by Lucent, Agere's share, as determined in Section
2.4(c) below, of any Non-Line of
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Business Adjustment the amount of which decreases a Tax for any Taxable period
or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the Lucent Group.
(b) Lucent shall be liable for, and shall indemnify and hold
harmless, as appropriate, (i) any member of the Agere Group against Lucent's
share, as determined in Section 2.4(c) below, of any Non-Line of Business
Adjustment the amount of which increases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the Distribution Date
with respect to any Return of any member of the Lucent Group or the Agere Group.
Lucent shall be entitled to receive, and shall be paid by Agere, Lucent's share,
as determined in Section 2.4(c) below, of any Non-Line of Business Adjustment
the amount of which decreases a Tax for any Taxable period or portion of a
Taxable period ending or deemed to end on or before the Distribution Date with
respect to any Return of any member of the Agere Group.
(c) Lucent and Agere shall share the amount of any Non-Line of
Business Adjustment if, and to the extent, each such party is liable for and/or
has an obligation to make, or has the right to receive, as the case may be, any
indemnity payment, reimbursement or other payment with respect to such Non-Line
of Business Adjustment under this Agreement, in proportion to the Shared Lucent
Percentage and the Shared Agere Percentage, respectively; provided, however,
that in the event that there is any Correlative Adjustment with respect to any
such Non-Line of Business Adjustment, then Lucent and Agere shall share such
Non-Line of Business Adjustment in the following manner in order to ensure that
the party or parties that will bear the burden or inure to the benefit of the
Correlative Adjustment in the future will share the Non-Line of Business
Adjustment in proportion to each of their respective Shared Percentages after
giving effect to such Correlative Adjustment:
(i) first, the amount of any such Non-Line of Business
Adjustment shall be increased or decreased, as appropriate, by the amount of the
Correlative Adjustment, the net amount resulting from such increase or decrease
being hereinafter referred to as the "Net Non-Line of Business Adjustment" for
purposes of this Section 2.4(c);
(ii) second, the Net Non-Line of Business Adjustment shall be
allocated between Lucent and Agere in proportion to the Shared Lucent Percentage
and the Shared Agere Percentage, respectively, to the extent each such party is
liable for and/or has an obligation to make, or has the right to receive, as the
case may be, any indemnity payment, reimbursement or other payment with respect
to such Non-Line of Business Adjustment under this Agreement; and
(iii) finally, with respect to a party to which a Correlative
Adjustment is attributable, that party's share of the Net Non-Line of Business
Adjustment as allocated pursuant to paragraph (ii) of this Section 2.4(c) will
be increased or decreased, as appropriate, by the amount, if any, of the
Correlative Adjustment that is attributable to such party in order to arrive at
such party's share of the Non-Line of Business Adjustment.
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(d) Following the determination of a party's share of a
Non-Line of Business Adjustment pursuant to Section 2.4(c) above, and subject to
Section 3.4 and 3.5 hereof, the Controlling Party of the Tax Contest to which
such Non-Line of Business Adjustment relates shall (i) be entitled to
reimbursement from Lucent or Agere as the case may be, for each of their
respective shares, if any, of any Non-Line of Business Adjustment the amount of
which increases a Tax; and (ii) reimburse Lucent or Agere, as the case may be,
for each of their respective shares, if any, of any Non-Line of Business
Adjustment the amount of which decreases a Tax.
ARTICLE III
TAX CONTESTS
3.1. NOTIFICATION OF TAX CONTESTS. The Controlling Party shall promptly
notify all Interested Parties of (a) the commencement of any Tax Contest
pursuant to which such Interested Parties may be required to make or entitled to
receive an indemnity payment, reimbursement or other payment under this
Agreement; and (b) as required and specified in Section 3.4 hereof, any Final
Determination made with respect to any Tax Contest pursuant to which such
Interested Parties may be required to make or entitled to receive any indemnity
payment, reimbursement or other payment under this Agreement. The failure of a
Controlling Party to promptly notify any Interested Party as specified in the
preceding sentence shall not relieve any such Interested Party of any liability
and/or obligation which it may have to the Controlling Party under this
Agreement except to the extent that the Interested Party was prejudiced by such
failure, and in no event shall such failure relieve the Interested Party from
any other liability or obligation which it may have to such Controlling Party.
3.2. TAX CONTEST SETTLEMENT RIGHTS. The Controlling Party shall have
the sole right to contest, litigate, compromise and settle any Adjustment that
is made or proposed in a Tax Contest without obtaining the prior consent of any
Interested Party; provided, however, that, unless waived by the parties in
writing, the Controlling Party shall, in connection with any proposed or
assessed Adjustment in a Tax Contest for which an Interested Party may be
required to make or entitled to receive an indemnity payment, reimbursement or
other payment under this Agreement (a) keep all such Interested Parties informed
in a timely manner of all actions taken or proposed to be taken by the
Controlling Party; and (b) timely provide all such Interested Parties with
copies of any correspondence or filings submitted to any Taxing Authority or
judicial authority, in each case in connection with any contest, litigation,
compromise or settlement relating to any such Adjustment in a Tax Contest. The
failure of a Controlling Party to take any action as specified in the preceding
sentence with respect to an Interested Party shall not relieve any such
Interested Party of any liability and/or obligation which it may have to the
Controlling Party under this Agreement except to the extent that the Interested
Party was actually prejudiced by such failure, and in no event shall such
failure relieve the Interested Party from any other liability or obligation
which it may have to such Controlling Party. The Controlling Party may, in its
sole discretion, take into account any suggestions made by an Interested Party
with respect to any such contest, litigation, compromise or settlement of any
Adjustment in a Tax Contest. All costs of any Tax Contest are to be borne by the
Controlling Party; provided, however, that (x) any costs related to an
Interested Party's attendance at any meeting with a Taxing Authority or hearing
or proceeding before any judicial authority pursuant to Section 3.3 hereof, (y)
the costs
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of any legal or other representatives retained by an Interested Party in
connection with any Tax Contest that is subject to the provisions of this
Agreement, shall be borne by such Interested Party, and (z) the costs of any
legal or other representatives retained by the Controlling Party in connection
with any Tax Contest that is subject to the provisions of this Agreement, shall
(i) in the case of a Tax Contest relating to a proposed Non-Line of Business
Adjustment or a Restructuring Adjustment, be borne by each party in proportion
to each of their respective Shared Percentage, and (ii) in the case of a Tax
Contest relating to any other proposed Tax Adjustment, be borne by the party
that would bear the Tax Adjustment under Section 2.2 of this Agreement.
3.3. TAX CONTEST PARTICIPATION. (a) Unless waived by the parties in
writing, the Controlling Party shall provide an Interested Party with written
notice reasonably in advance of, and such Interested Party shall have the right
to attend, any formally scheduled meetings with Taxing Authorities or hearings
or proceedings before any judicial authorities in connection with any contest,
litigation, compromise or settlement of any proposed or assessed Adjustment
comprising any Tax Adjustment or Tax Benefit that is the subject of any Tax
Contest pursuant to which such Interested Party may be required to make or
entitled to receive an indemnity payment, reimbursement or other payment under
this Agreement. In addition, unless waived by the parties in writing, the
Controlling Party shall provide each such Interested Party with draft copies of
any correspondence or filings to be submitted to any Taxing Authority or
judicial authority with respect to such Adjustments for such Interested Party's
review and comment. The Controlling Party shall provide such draft copies
reasonably in advance of the date that they are to be submitted to the Taxing
Authority or judicial authority and the Interested Party shall provide its
comments, if any, with respect thereto within a reasonable time before such
submission. The failure of a Controlling Party to provide any notice,
correspondence or filing as specified in this Section 3.3(a) to an Interested
Party shall not relieve any such Interested Party of any liability and/or
obligation which it may have to the Controlling Party under this Agreement
except to the extent that the Interested Party was actually prejudiced by such
failure, and in no event shall such failure relieve the Interested Party from
any other liability or obligation which it may have to such Controlling Party.
(b) Unless waived by the parties in writing, the Controlling
Party shall provide an Interested Party with written notice reasonably in
advance of, and such Interested Party shall have the right to attend, any
formally scheduled meetings with Taxing Authorities or hearings or proceedings
before any judicial authorities in connection with any contest, litigation,
compromise or settlement of any proposed or assessed Adjustment comprising any
Restructuring Adjustment or Non-Line of Business Adjustment that is the subject
of any Tax Contest pursuant to which such Interested Party may be required to
make or entitled to receive an indemnity payment, reimbursement or other payment
under this Agreement, but only if the Interested Party bears, or in the good
faith judgment of the Controlling Party, may bear, a Significant Obligation with
respect to such Adjustment; provided, however, that the Controlling Party may,
in its sole discretion, permit an Interested Party that does not bear, or
potentially bear, such a Significant Obligation with respect to such an
Adjustment comprising a Restructuring Adjustment or Non-Line of Business
Adjustment to attend any such meetings, hearings or proceedings that relate to
such Adjustment. In addition, unless waived by the parties in writing, the
Controlling Party shall
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provide each such Interested Party with draft copies of any correspondence or
filings to be submitted to any Taxing Authority or judicial authority with
respect to such Adjustments for such Interested Party's review and comment. The
Controlling Party shall provide such draft copies reasonably in advance of the
date that they are to be submitted to the Taxing Authority or judicial authority
and the Interested Party shall provide its comments, if any, with respect
thereto within a reasonable time before such submission. The failure of a
Controlling Party to provide any notice, correspondence or filing as specified
in this Section 3.3(b) to an Interested Party shall not relieve any such
Interested Party of any liability and/or obligation which it may have to the
Controlling Party under this Agreement except to the extent that the Interested
Party was actually prejudiced by such failure, and in no event shall such
failure relieve the Interested Party from any other liability or obligation
which it may have to such Controlling Party.
3.4. TAX CONTEST WAIVER. (a) The Controlling Party shall promptly
provide written notice, sent postage prepaid by United States mail, certified
mail, return receipt requested, to all Interested Parties in a Tax Contest (i)
that a Final Determination has been made with respect to such Tax Contest; and
(ii) enumerating the amount of the Interested Party's share of each Adjustment
reflected in such Final Determination of the Tax Contest for which such
Interested Party may be required to make or entitled to receive an indemnity
payment, reimbursement or other payment under this Agreement.
(b) Within ninety (90) days after an Interested Party receives
the notice described in Section 3.4(a) hereof from the Controlling Party, such
Interested Party shall execute a written statement giving notice to the
Controlling Party (i) that the Interested Party agrees with each Adjustment (and
its share thereof) enumerated in the notice described in Section 3.4(a) hereof
except with respect to those Adjustments (and/or its shares thereof) that, in
the good faith judgment of the Interested Party, it disagrees with and has
specifically enumerated its disagreement with, including the amount of such
disagreement, in the statement (each such disagreed Adjustment (and/or share
thereof) hereinafter referred to as a "Disputed Adjustment"); and (ii) that the
Interested Party thereby waives its right to a determination by an Independent
Third Party pursuant to the provisions of Section 3.5 hereof with respect to all
Adjustments to which it agrees with its share (this statement hereinafter
referred to as the "Interested Party Notice"). The failure of an Interested
Party to provide the Interested Party Notice to the Controlling Party within the
ninety (90) day period specified in the preceding sentence shall be deemed to
indicate that such Interested Party agrees with its share of all Adjustments
enumerated in the notice described in Section 3.4(a) hereof and that such
Interested Party waives its right to a determination by an Independent Third
Party with respect to all such Adjustments (and its shares thereof) pursuant to
Section 3.5 hereof.
(c) During the ninety (90) day period immediately following the
Controlling Party's receipt of the Interested Party Notice described in Section
3.4(b) above, the Controlling Party and the Interested Party shall in good xxxxx
xxxxxx with each other to resolve any disagreement over each Disputed Adjustment
that was specifically enumerated in such Interested Party Notice. At the end of
the ninety (90) day period specified in the preceding sentence, unless otherwise
extended in writing by the mutual consent of the parties, the Interested Party
shall be deemed to agree with all Disputed Adjustments that were specifically
enumerated in the
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Interested Party Notice and waive its right to a determination by an Independent
Third Party pursuant to Section 3.5 hereof with respect to all such Disputed
Adjustments unless, and to the extent, that at any time during such ninety (90)
day (or extended) period, either the Controlling Party or the Interested Party
has given the other party written notice that it is seeking a determination by
an Independent Third Party pursuant to Section 3.5 hereof regarding the
propriety of any such Disputed Adjustment.
(d) Notwithstanding anything in this Agreement to the
contrary, an Interested Party that does not have a Significant Obligation with
respect to an Adjustment comprising either a Restructuring Adjustment or
Non-Line of Business Adjustment has no right to a determination by an
Independent Third Party under Section 3.5 hereof with respect to any such
Adjustment comprising a Restructuring Adjustment or Non-Line of Business
Adjustment.
3.5. TAX CONTEST DISPUTE RESOLUTION. (a) In the event that either a
Controlling Party or an Interested Party has given the other party written
notice as required in Section 3.4(c) hereof that it is seeking a determination
by an Independent Third Party pursuant to this Section 3.5 with respect to any
Disputed Adjustment that was enumerated in an Interested Party Notice, then the
parties shall, within ten (10) days after a party has received such notice,
jointly select an Independent Third Party to make such determination. In the
event that the parties cannot jointly agree on an Independent Third Party to
make such determination within such ten (10) day period, then the Controlling
Party and the Interested Party shall each immediately select an Independent
Third Party and the Independent Third Parties so selected by the parties shall
jointly select, within ten (10) days of their selection, another Independent
Third Party to make such determination.
(b) In making its determination as to the propriety of any
Disputed Adjustment, the Independent Third Party selected pursuant to Section
3.5(a) above shall assume that the Interested Party is not required or entitled
under applicable law to be a member of any Consolidated Return. In addition, the
Independent Third Party shall make its determination according to the following
procedure:
(i) The Independent Third Party shall first analyze each
Disputed Adjustment for which a determination is sought pursuant to this Section
3.5 on a stand-alone basis to determine whether the actual outcome reached with
respect to such Disputed Adjustment as reflected in the Final Determination of
the Tax Contest was fair and appropriate taking into account the following
exclusive criteria: (A) the facts relating to such Adjustment; (B) the
applicable law, if any, with respect to such Adjustment; (C) the position of the
applicable Taxing Authority with respect to compromise, settlement or litigation
of such Adjustment; (D) the strength of the factual and legal arguments made by
the Controlling Party in reaching the outcome with respect to such Adjustment as
reflected in the Final Determination of the Tax Contest; and (E) the strength of
the factual and legal arguments being made by the Interested Party for the
alternative outcome being asserted by such Interested Party (including the
availability of facts, information and documentation to support such alternative
outcome). Based on this analysis, the Independent Third Party shall determine
what is the fair and appropriate outcome (hereinafter referred to as the
"Initial Determination") with respect to each such Disputed Adjustment.
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(ii) The Interested Party shall not be entitled to
modification of its share of a Disputed Adjustment under this Section 3.5 if, as
the case may be, either (A) the amount that would be paid by the Interested
Party under the Initial Determination with respect to such Disputed Adjustment
is 80% or more than the amount that would be paid by the Interested Party with
respect to such Disputed Adjustment under the actual outcome reached with
respect to such Disputed Adjustment; or (B) the amount that would be received by
the Interested Party under the Initial Determination with respect to such
Disputed Adjustment is 120% or less than the amount that the Interested Party
would receive with respect to such Disputed Adjustment under the actual outcome
reached with respect to such Disputed Adjustment. The Independent Third Party
will provide notice to the Controlling Party and the Interested Party in the
event the Interested Party is not entitled to modification of its share of the
Disputed Adjustment pursuant to this paragraph (ii).
(iii) If the modification of an Interested Party's share of a
Disputed Adjustment under this Section 3.5 is not prohibited pursuant to
paragraph (ii) above, then the Independent Third Party shall determine what is
the fair and appropriate outcome (hereinafter referred to as the "Ultimate
Determination") to the Interested Party with respect to such Disputed Adjustment
in the context of the entire Tax Contest as it relates to the Interested Party.
In making this determination, the Independent Third Party shall consider the
Disputed Adjustment as if it were raised in an independent audit of the
Interested Party by the appropriate Taxing Authority and the Independent Third
Party shall take into account and give appropriate weight in its sole discretion
to the following exclusive criteria: (A) the strength of the legal and factual
support for other potential, non-frivolous Adjustments with respect to matters
that were actually raised and contested by the applicable Taxing Authority in
the Tax Contest for which the Interested Party could have been liable under this
Agreement but which were eliminated or reduced as a result of the Controlling
Party agreeing to the Disputed Adjustment as reflected in the Final
Determination of the Tax Contest; (B) the effect of the actual outcome reached
with respect to the Disputed Adjustment on other Taxable periods and on other
positions taken or proposed to be taken in Returns filed or proposed to be filed
by the Interested Party; (C) the realistic possibility of avoiding examination
of potential, non-frivolous issues for which the Interested Party could be
liable under this Agreement and that were contemporaneously identified in
writings by the party or parties during the course of the Tax Contest but which
had not been raised and contested by the applicable Taxing Authority in the Tax
Contest; and (D) the benefits to the Interested Party in reaching a Final
Determination, and the strategy and rationale with respect to the Interested
Party's Disputed Adjustment that the Controlling Party had for agreeing to such
Disputed Adjustment in reaching the Final Determination, in each case that were
contemporaneously identified in writings by the party or parties during the
course of the Tax Contest.
(iv) The Interested Party shall only be entitled to
modification of its share of a Disputed Adjustment under this Section 3.5 if, as
the case may be, either (A) the amount that would be paid by the Interested
Party under the Ultimate Determination with respect to such Disputed Adjustment
is less than 80% of the amount that would be paid by the Interested Party with
respect to such Disputed Adjustment under the actual outcome reached with
respect to such Disputed Adjustment; or (B) the amount that would be received by
the Interested Party under the
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Ultimate Determination with respect to such Disputed Adjustment is more than
120% of the amount that the Interested Party would receive with respect to such
Disputed Adjustment under the actual outcome reached with respected to such
Disputed Adjustment. If an Interested Party is entitled to modification of its
share of any Disputed Adjustment under the preceding sentence, the amount the
Interested Party is entitled to receive, or is required to pay, as the case may
be, with respect to such Disputed Adjustment shall be equal to the amount of the
Ultimate Determination of such Disputed Adjustment. The Independent Third Party
will provide notice to the Controlling Party and the Interested Party stating
whether the Interested Party is entitled to modification of its share of the
Disputed Adjustment pursuant to this paragraph (iv) and, if the Interested Party
is entitled to such modification, the amount as determined in the preceding
sentence that the Interested Party is entitled to receive from, or required to
pay to, the Controlling Party with respect to such Disputed Adjustment.
(c) Any determination made or notice given by an Independent
Third Party pursuant to this Section 3.5 shall be (i) in writing; (ii) made
within sixty (60) days following the selection of the Independent Third Party as
set forth in Section 3.5(a) of this Agreement unless such period is otherwise
extended by the mutual consent of the parties; and (iii) final and binding upon
the parties. The costs of any Independent Third Party retained pursuant to this
Section 3.5 shall be shared equally by the parties. The Controlling Party and
the Interested Party shall provide the Independent Third Party jointly selected
pursuant to Section 3.5(a) hereof with such information or documentation as may
be appropriate or necessary in order for such Independent Third Party to make
the determination requested of it. Upon issuance of an Independent Third Party's
notice under Section 3.5(b)(ii) or Section 3.5(b)(iv) hereof, the Controlling
Party or the Interested Party, as the case may be, shall pay as specified in
Article IV of this Agreement, the amount, if any, of the Disputed Adjustment to
the appropriate party.
ARTICLE IV
PROCEDURE AND PAYMENT
4.1. PROCEDURE. (a) If an Interested Party has any liability and/or
obligation to make, or the right to receive, any indemnity payment,
reimbursement or other payment with respect to an Adjustment under this
Agreement for which it does not have a right to a determination by an
Independent Third Party under Section 3.5 hereof, then the amount of such
Adjustment shall be immediately due and payable upon receipt by the Interested
Party of a notice of Final Determination of a Tax Contest as required and
specified in Section 3.4(a) hereof.
(b) If after (i) notice of a Final Determination of a Tax
Contest as required and specified in Section 3.4(a) hereof has been given by a
Controlling Party to an Interested Party; and (ii) the Interested Party
receiving such notice has either:
(A) failed to provide the Interested Party Notice specified in
Section 3.4(b) hereof within the ninety (90) day period set forth in Section
3.4(b);
(B) provided the Interested Party Notice specified in Section
3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b)
agreeing to all Adjustments (and the
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Interested Party's share of all such Adjustments) and waiving the right to an
Independent Third Party determination pursuant to Section 3.5 hereof with
respect to all such Adjustments (and the Interested Party's share of such
Adjustments);
(C) provided the Interested Party Notice specified in Section
3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b)
agreeing with some, but not all, Adjustments (and the Interested Party's share
of such agreed Adjustments) and waiving the right to an Independent Third Party
Determination pursuant to Section 3.5 hereof with respect to all such agreed
Adjustments (and the Interested Party's share of such Adjustments); or
(D) provided the Interested Party Notice specified in Section
3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b)
specifically enumerating the Disputed Adjustments to which it does not agree and
for which the notice specified in either Section 3.5(b)(ii) or Section
3.5(b)(iv) hereof relating to any such Disputed Adjustment has been given by an
Independent Third Party,
then the amount of any Adjustment agreed to or deemed to be agreed to by the
Interested Party, or for which an Independent Third Party notice has been given
pursuant to either Section 3.5(b)(ii) or Section 3.5(b)(iv) hereof, as set forth
in each of clauses (A), (B), (C) or (D) above, shall be immediately due and
payable.
(c) Any Person entitled to any indemnification, reimbursement
or other payment under this Agreement with respect to the amount of any
Adjustment that has become immediately due and payable under this Section 4.1
(the "Indemnified Party") shall notify in writing the Person against whom such
indemnification, reimbursement or other payment is sought (the "Indemnifying
Party") of its right to and the amount of such indemnification, reimbursement or
other payment; provided, however, that the failure to notify the Indemnifying
Party shall not relieve the Indemnifying Party from any liability and/or
obligation which it may have to an Indemnified Party on account of the
provisions contained in this Agreement except to the extent that the
Indemnifying Party was actually prejudiced by such failure, and in no event
shall such failure relieve the Indemnifying Party from any other liability or
obligation which it may have to such Indemnified Party. The Indemnifying Party
shall make such indemnity payment, reimbursement or other payment to the
Indemnified Party within thirty (30) days of the receipt of the written notice
specified in the preceding sentence; provided, however, that, in the case of any
Final Determination of a Tax Contest involving a state, local or municipal Tax
in which the Indemnifying Party is also the Controlling Party with respect to
such Tax Contest and, as Controlling Party, is entitled to receive an overall
net refund from the applicable state, local or municipal Taxing Authority with
respect to such state, local or municipal Tax, then the Indemnifying Party shall
be required to make such indemnity payment, reimbursement or other payment to
the Indemnified Party within thirty (30) days from the date the Indemnifying
Party actually receives payment of or obtains the benefit of the net refund due
from the applicable state, local or municipal Taxing Authority.
4.2. PAYMENT. Any indemnity payment, reimbursement or other payment
required to be made pursuant to this Agreement by an Indemnifying Party to an
Indemnified Party shall be
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made, at the option of the Indemnifying Party, by (a) certified check payable to
the order of the Indemnified Party; or (b) wire transfer of immediately
available funds to such bank and/or other account of the Indemnified Party as
from time to time the Indemnified Party shall have directed the Indemnifying
Party, in writing.
4.3. INTEREST. Any indemnity payment, reimbursement or other payment
required to be made by an Interested Party pursuant to this Agreement shall bear
interest at the Prime Rate plus 2%, per annum, from the date such Interested
Party receives the notice of Final Determination made with respect to a Tax
Contest, as provided in Section 3.4(a) hereof. Any indemnity payment,
reimbursement or other payment required to be made by a Controlling Party to an
Interested Party pursuant to this Agreement shall bear interest at the Prime
Rate plus 2%, per annum, from a date thirty (30) days after the date of a Final
Determination made with respect to a Tax Contest; provided, however, that, in
the case of any Final Determination of a Tax Contest involving a state, local or
municipal Tax in which the Controlling Party is entitled to receive an overall
net refund from the applicable state, local or municipal Taxing Authority with
respect to such state, local or municipal Tax, such indemnity payment,
reimbursement or other payment to be made by the Controlling Party shall bear
interest at the Prime Rate plus 2%, per annum, from the date the Controlling
Party actually receives payment of or obtains the benefit of the net refund due
from the applicable state, local or municipal Taxing Authority.
ARTICLE V
ALLOCATION OF CURRENT TAXES INCURRED
AS A RESULT OF RESTRUCTURING ACTIVITIES
5.1. GENERAL. This Article V governs the allocation of Taxes incurred
as a result of restructuring activities undertaken to implement the Distribution
("Restructuring Taxes") which in the judgement of the parties are currently
required to be taken into account in determining Taxable income for any Taxable
period or portion of a Taxable period that includes the Distribution Date.
Article II of this Agreement sets forth the principles and responsibilities of
the parties to this Agreement regarding future adjustments with respect to Taxes
as a result of audits, refund claims, or otherwise. The parties acknowledge that
the provisions of this Article V override any contrary provisions in the Federal
Tax Allocation Agreement and the State and Local Income Tax Allocation
Agreement.
5.2. ALLOCATION OF RESTRUCTURING TAXES. Agere shall bear sole
responsibility for any Restructuring Tax unless (i) Lucent is able to record a
tax asset on its books due to the Restructuring Tax or (ii) Lucent is able to
claim a foreign tax credit with respect to the Restructuring Tax on its taxable
year 0000 Xxxxxx Xxxxxx Federal income tax return, as originally filed or
subsequently amended, in either of which case Lucent shall bear such
Restructuring Tax.
5.3. PAYMENT OF RESTRUCTURING TAXES. The party liable for a
Restructuring Tax under Section 5.2 hereof shall pay such tax to the other party
at least five business days prior to the date that the party responsible to pay
such Restructuring Tax to the relevant Taxing Authority is required to make a
Tax payment (whether estimated Tax or otherwise) to the relevant Taxing
Authority with respect to such Restructuring Tax.
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5.4. TREATMENT OF LOSSES. Any loss, capital or otherwise, incurred as a
result of restructuring activities undertaken to implement the Distribution
shall remain with the legal entity recognizing such loss; and notwithstanding
any other provision of this Agreement any Adjustment with respect to such loss
will be for the account of the entity recognizing such loss.
5.5 TREATMENT OF CERTAIN FOREIGN TAX CREDITS. Notwithstanding any other
provision of this Agreement, solely to the extent that as a result of a
Restructuring Transaction in a particular country, Lucent realized a net tax
decrease solely resulting from a foreign tax credit and any corresponding income
inclusion on its taxable year 0000 Xxxxxx Xxxxxx Federal income tax return, as
originally filed or subsequently amended, any Adjustment with respect to such
net tax decrease will be for the account of Lucent.
ARTICLE VI
OTHER TAX MATTERS
6.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION. It is understood
and agreed that during Consolidation:
(a) Members of the Agere Group shall each adopt and follow the
Tax policies and procedures that have been established by Lucent and
communicated to Agere unless, Lucent shall otherwise consent, as provided
herein. In the event that a member of the Agere Group desires to adopt and
follow a Tax policy or procedure that is different from that established by
Lucent, Agere shall, in writing, (i) request Lucent's consent to do so; and (ii)
provide Lucent with the reasons for the request to adopt and follow such
different Tax policy or procedure. If Lucent determines in its good faith
judgment that it would be reasonable and appropriate from the perspective of the
Lucent Group for such member of the Agere Group to adopt and follow such
different Tax policy or procedure, Lucent shall provide its written consent
thereto.
(b) Lucent shall provide to Agere timely written notice of any
material proposed change in established Tax policies or procedures.
(c) Lucent shall establish all Return positions and make all
Tax elections relating to a Consolidated Return. Members of the Agere Group
shall take such Consolidated Return positions and make such Tax elections
relating to a Consolidated Return as may be taken or made by Lucent, or as
reasonably requested by Lucent to be taken or made by any member of the Agere
Group unless Lucent shall otherwise consent, as provided herein. In the event
that Agere determines that it would be reasonable and appropriate for any member
of the Agere Group to take positions or make elections relating to a
Consolidated Return that are different from those taken or made by Lucent (or
reasonably requested by Lucent of any member of the Agere Group) Agere shall, in
writing, (i) request Lucent's consent to do so; and (ii) provide Lucent with the
reasons for the request to take such different positions or make such different
elections. If Lucent determines in its good faith judgment that it would be
reasonable and appropriate from the perspective of the Lucent Group for such
member of the Agere Group to take such different positions or make such
different elections, Lucent shall provide its written consent thereto.
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6.2. COOPERATION. Except as otherwise provided in this Agreement, and
without limiting the provisions contained in Article VIII of the Separation and
Distribution Agreement which are incorporated herein by reference pursuant to
Section 7.3(a) hereof, each member of the Lucent Group and the Agere Group, as
the case may be, shall, at their own expense, cooperate with each other in the
filing of, or any Tax Contest relating to, any Return and any other matters
relating to Taxes and, in connection therewith, shall (i) maintain appropriate
books and records for any and all Taxable periods or any portion of a Taxable
period that may be required by Lucent's record retention policies; (ii) provide
to each other such information as may be necessary or useful in the filing of,
or any Tax Contest relating to, any such Return; (iii) execute and deliver such
consents, elections, powers of attorney and other documents that may be required
or appropriate for the proper filing of any such Return or in conjunction with
any Tax Contest relating to any such Return; and (iv) make available for
responding to inquiries of any other party or any Taxing Authority, appropriate
employees and officers of and advisors retained by any member of the Lucent
Group or the Agere Group, as the case may be.
6.3. FILING OF RETURNS. The Person that would be the Controlling Party
with respect to any Tax Contest relating to a Return for which any indemnity
payment, reimbursement or other payment may be sought under this Agreement shall
(a) prepare and file, or cause to be prepared and filed, any such Return within
the time prescribed for filing such Return (including all extensions of time for
filing); and (b) shall timely pay, or cause to be timely paid, the amount of any
Tax shown to be due and owing on any such Return; provided, however, that in the
case of Taxes which are Agere Liabilities pursuant to Section 2.3(a)(ii) of the
Separation and Distribution Agreement if Lucent or any other member of the
Lucent Group is required pursuant to this Agreement to file such Return and pay
the Taxes shown as due thereon, Agere will pay to Lucent, in advance of the date
on which Lucent must pay such Taxes, an amount equal to the amount of such Taxes
which are Liabilities of Agere. Such Person shall bear all costs associated with
preparing and filing, or causing to be prepared and filed, any such Return.
Except as provided in Section 6.1 (c) hereof (relating to Consolidated Returns),
such Person shall establish all Return positions and make all Tax elections
relating to such Returns.
6.4. TAX CHARACTERIZATION OF PAYMENTS. For all Tax purposes and
notwithstanding any other provision of this Agreement, to the extent permitted
by applicable law, the parties hereto shall treat any payment made pursuant to
this Agreement (other than any payment made in satisfaction of an intercompany
obligation) as a capital contribution or dividend distribution, as the case may
be, immediately prior to the Distribution Date and, accordingly, as not
includible in the taxable income of the recipient. If, as a result of a Final
Determination, it is determined that the receipt or accrual of any payment made
under this Agreement is taxable to the recipient of such payment, the party
making such payment shall pay to the recipient an amount equal to any increase
in the income Taxes of the recipient as a result of receiving the payment
(grossed up to take into account such payment, if applicable).
6.5 LIABILITY FOR ACTIONS EFFECTING TAX FREE NATURE OF THE
DISTRIBUTION.
(a) The provisions of this Section 6.5 override any contrary
provisions in this
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Agreement, the Separation and Distribution Agreement, or any other agreements
between Lucent and Agere.
(b) Agere agrees that it will not take or fail to take, or
permit any Agere Affiliate to take or fail to take, any action where such action
or failure to act would be inconsistent with any material, information, covenant
or representation in the Ruling Documents, Supplemental Ruling Documents, Ruling
or Supplemental Ruling.
(c) Agere and each Agere Affiliate shall be responsible for
one hundred percent (100%) of any Restructuring Adjustments that are
attributable to, or result from, any act or failure to act described in Section
6.5(b) of this Agreement by Agere or any Agere Affiliate. Agere and each Agere
Affiliate shall jointly and severally indemnify Lucent, each Lucent Affiliate
and their directors, officers and employees and hold them harmless from and
against such Restructuring Adjustments.
(d) Lucent and each Lucent Affiliate shall be responsible for
one hundred percent (100%) of any Restructuring Adjustments that are
attributable to, or result from, any act or failure to act where such act or
failure to act would be inconsistent with any material, information, covenant or
representation in the Ruling Documents, Supplemental Ruling Documents, Ruling or
Supplemental Ruling by Lucent or any Lucent Affiliate. Lucent and each Lucent
Affiliate shall jointly and severally indemnify Agere, each Agere Affiliate and
their directors, officers and employees and hold them harmless from and against
such Restructuring Adjustments.
(e) Lucent agrees that at the reasonable request of Agere,
Lucent shall cooperate with Agere 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 purposes of confirming (i) the
continuing validity of (A) the Ruling or (B) any Supplemental Ruling issued
previously, and (ii) compliance on the part of Agere or any Agere Affiliate with
its obligations under Section 6.5 of this Agreement. Further, in no event shall
Lucent file any Supplemental Ruling at the reasonable request of Agere under
this Section 6.5(e) unless Agere 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 Agere and any Agere Affiliate contained
in the Supplemental Ruling Documents are true, correct and complete in all
material respects. Agere shall reimburse Lucent for all reasonable costs and
expenses incurred by Lucent in obtaining a Supplemental Ruling requested by
Agere. Agere hereby agrees that Lucent shall have sole and exclusive control
over the process of obtaining a Supplemental Ruling, and that only Lucent shall
apply for a Supplemental Ruling. Agere further agrees that it shall not seek any
guidance from the Service or any other Tax Authority concerning the
Distribution.
(f) In the case of any Adjustment comprising a Restructuring
Adjustment that relates to the Distribution and arises as a result of (i) the
acquisition of all or a portion of the Agere stock and/or its assets by any
means whatsoever by any Person other than an Affiliate of Agere following such
Distribution or (ii) any negotiations, agreements or arrangements by Agere
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with respect to transactions or events (including, without limitation, stock
issuances, pursuant to the exercise of stock options or otherwise, option
grants, capital contributions or acquisitions, or a series of such transactions
or events) that cause the Distribution to be treated as part of a plan pursuant
to which one or more persons acquire directly or indirectly stock of Agere
representing a "50-percent or greater interest" therein within the meaning of
Section 355(d)(4) of the Code, then the Shared Lucent Percentage with respect to
such Adjustment shall be 0% and the Shared Agere Percentage shall be 100%.
(g) In the case of any Adjustment comprising a Restructuring
Adjustment that relates to the Distribution and arises as a result of (i) the
acquisition of all or a portion of the Lucent stock and/or its assets by any
means whatsoever by any Person other than an Affiliate of Lucent following such
Distribution or (ii) any negotiations, agreements or arrangements by Lucent with
respect to transactions or events (including, without limitation, stock
issuances, pursuant to the exercise of stock options or otherwise, option
grants, capital contributions or acquisitions, or a series of such transactions
or events) that cause the Distribution to be treated as part of a plan pursuant
to which or more persons acquire directly or indirectly stock of Lucent
representing a "50-percent or greater interest" therein within the meaning of
Section 355(d)(4) of the Code, then the Shared Lucent Percentage with respect to
such Adjustment shall be 100% and the Shared Agere Percentage shall be 0%.
6.6 DEDUCTIONS RELATED TO OPTIONS. In the case of the exercise of
options to purchase Agere stock which are held by employees of Agere pursuant to
Section 6.3(a) of the Employee Benefits Agreement: (i) the Agere Group shall
claim any tax deduction attributable to such exercise on its tax return and the
Lucent Group shall not claim such deductions on its tax return as originally
filed, and (ii) to the extent any such deductions are disallowed to Agere, and a
Taxing Authority determines that Lucent was entitled to such deductions
("determination"), the Lucent Group shall pay to the Agere Group an amount equal
to the "tax benefit" realized by the Lucent Group as a result of such
deductions. The Lucent Group covenants to take such actions as are necessary to
keep the relevant tax years open so that it will be able to file amended tax
returns for such years. For purposes of this paragraph, the "tax benefit" is an
amount equal to the amount of the deduction multiplied by the highest statutory
federal income tax rate to which Lucent is subject (regardless of actual
liability) plus an amount equal to the amount of the deduction multiplied by the
lesser of Agere or Lucent's weighted average state statutory income tax rate
(less federal benefit).
Lucent shall pay to the Agere Group the "tax benefit" within 30 days of the
Lucent Group's receipt of a refund or realization of a reduction of tax owed as
a result of claiming such deductions plus the amount of interest the Lucent
Group receives from the relevant Taxing Authority with respect to such refund.
Alternatively, the Agere Group may elect to receive within 30 days of the date
of such determination, the net present value of the "tax benefit" based on the
timing of the receipt of such refund or reduction of tax owed by the Lucent
Group in subsequent tax return years. The net present value of the "tax benefit"
shall be discounted from the midpoint of the future tax year that Lucent shall
reasonably project to receive a refund or realize a reduction of tax owed
related to such deductions back to the date of determination at the rate of
Lucent's cost of borrowing. In no event will such discount period be greater
than 3 years
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for purposes of determining the net present value of the "tax benefit".
ARTICLE VII
MISCELLANEOUS
7.1. GOVERNING LAW. To the extent not preempted by any applicable
foreign or U.S. federal, state, or local Tax law, this Agreement shall be
governed by and construed and interpreted in accordance with the laws of the
State of New York, irrespective of the choice of laws principles of the State of
New York, as to all matters, including matters of validity, construction,
effect, performance and remedies.
7.2. AFFILIATES. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Affiliate of such party;
provided, however, that for purposes of the foregoing, no Person shall be
considered an Affiliate of a party if such Person is a member of another party's
Group.
7.3. INCORPORATION OF SEPARATION AND DISTRIBUTION AGREEMENT PROVISIONS.
The following provisions of the Separation and Distribution Agreement are hereby
incorporated herein by reference, and unless otherwise expressly specified
herein, such provisions shall apply as if they are fully set forth herein
(references in this Section 7.3 to an "Article" shall mean Articles of the
Separation and Distribution Agreement):
(a) Article VIII (relating to Exchange of Information and
Confidentiality); and
(b) Article XII (relating to Miscellaneous Provisions, except as
otherwise specified herein).
7.4. NOTICES. Except for any notice or other communication required to
be given by a Controlling Party under this Agreement, Lucent and Agere (or any
other Person delegated in writing by each of the foregoing) shall serve as the
single point of contact to receive or give any notice or other communication
required or permitted to be given to any member of each of their respective
Groups under this Agreement. Unless specifically provided otherwise in this
Agreement, all notices or other communications under this Agreement shall be in
writing and shall be deemed to be duly given when (a) delivered in person, or
(b) sent by facsimile; or (c) deposited in the United States mail, postage
prepaid and sent certified mail, return receipt requested; or (d) deposited in
private express mail, postage prepaid, addressed as follows:
If to any member of the Lucent Group, to:
Lucent Technologies Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attn: Vice President, Global Tax and Trade
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If to any member of the Agere Group, to:
Agere Systems Inc.
000 Xxxxx Xxxxxxxxx
Xxxxxxxxx, Xxxxxxxxxxxx 00000
Attn: Vice President - Tax
Any party may, by written notice to the other parties, change the address to
which such notices are to be given.
7.5. CONFLICTING OR INCONSISTENT PROVISIONS. With respect to the
subject matter hereof, in the event that any provision or term of this Agreement
conflicts or is inconsistent with any provision or term of any other agreement
between or among Lucent or any other member of the Lucent Group and Agere or any
other member of the Agere Group, as the case may be, which is in effect on or
prior to the date hereof, the provision or term of this Agreement shall control
and apply and the provision or term of any other agreement shall, to the extent
of such conflict or inconsistency, be inoperative and inapplicable.
7.6. DURATION. Notwithstanding anything in this Agreement or the
Separation and Distribution Agreement to the contrary, the provisions of this
Agreement shall survive for the full period of all applicable statutes of
limitations (giving effect to any waiver, mitigation or extension thereof).
7.7. TAX ALLOCATION AGREEMENTS. Agere hereby assumes and agrees
faithfully to perform and fulfill all obligations and other Liabilities of any
member of the Agere Group under the Federal Tax Allocation Agreement and the
State and Local Income Tax Allocation Agreement, in accordance with each of
their respective terms.
7.8. NO-FAULT AGREEMENT. The parties agree that the provisions of this
Agreement operate without regard to whether a Tax Liability is incurred as a
result of a mistake made by either party, and the parties agree that they intend
to avoid review by an Independent Third Party. The parties acknowledge that this
Agreement may not cover every possible factual scenario, and, if required, they
agree to negotiate amendments to the Agreement in good faith to address
situations not addressed in this Agreement, such amendments to be consistent
with the spirit of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Tax Sharing
Agreement to be executed by their duly authorized representatives.
LUCENT TECHNOLOGIES INC.
By: /s/ XXXXXXX X. XXXXXXXXX, XX.
-------------------------------
Name: Xxxxxxx X. Xxxxxxxxx, Xx.
Title: Vice President, Global Tax and Trade
AGERE SYSTEMS INC.
By: /s/ XXXX X. XXXXXXXXXX, XX.
-------------------------------
Name: Xxxx X. Xxxxxxxxxx, Xx.
Title: Vice President - Tax
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