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