EXHIBIT 99.e
TAX ALLOCATION AGREEMENT
by and among
CONEXANT SYTEMS, INC.
WASHINGTON SUB, INC.
and
ALPHA INDUSTRIES, INC.
[ ], 2002
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS.......................................... 2
Section 1.01 General.............................................. 2
Section 1.02 Schedules, etc....................................... 9
ARTICLE II FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS..... 9
Section 2.01 Preparation of Tax Returns........................... 9
Section 2.02 Payment of Taxes..................................... 11
Section 2.03 Tax Refunds and Carrybacks........................... 14
Section 2.04 Allocation of Straddle Period Taxes.................. 15
ARTICLE III TAX INDEMNIFICATION; TAX CONTESTS.................... 16
Section 3.01 Indemnification...................................... 16
Section 3.02 Distribution Taxes................................... 18
Section 3.03 Notice of Indemnity.................................. 19
Section 3.04 Payments............................................. 19
Section 3.05 Tax Contests......................................... 21
ARTICLE IV OPTIONS; COMPENSATION PAYMENTS; INTEREST CHARGE FOR
LATE PAYMENTS; CURRENCY CALCULATIONS; EFFECTIVE
TIME OF TRANSACTIONS.............................. 22
Section 4.01 Stock Options........................................ 22
Section 4.02 Compensation Payments................................ 23
Section 4.03 Change in Law........................................ 24
Section 4.04 Interest Charge for Late Payments.................... 24
Section 4.05 Currency Calculations................................ 24
Section 4.06 Effective Time of Transaction........................ 24
ARTICLE V COOPERATION AND EXCHANGE OF INFORMATION.............. 25
Section 5.01 Inconsistent Actions................................. 25
Section 5.02 Ruling Request....................................... 25
Section 5.03 [Intentionally Omitted].............................. 25
Section 5.04 Cooperation and Exchange of Information.............. 25
Section 5.05 Tax Records.......................................... 26
ARTICLE VI MISCELLANEOUS........................................ 27
Section 6.01 Entire Agreement; Construction....................... 27
Section 6.02 Effectiveness........................................ 27
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Section 6.03 Survival of Agreements............................... 28
Section 6.04 Governing Law........................................ 28
Section 6.05 Notices.............................................. 28
Section 6.06 Dispute Resolution................................... 30
Section 6.07 Consent to Jurisdiction.............................. 30
Section 6.08 Amendments........................................... 31
Section 6.09 Successors and Assigns............................... 31
Section 6.10 Captions; Currency................................... 31
Section 6.11 Severability......................................... 32
Section 6.12 Parties in Interest.................................. 32
Section 6.13 Schedules............................................ 32
Section 6.14 Waivers; Remedies.................................... 32
Section 6.15 Counterparts......................................... 32
Section 6.16 Performance.......................................... 33
Section 6.17 Interpretation....................................... 33
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TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT (this "AGREEMENT") dated as of [ ],
2002, by and among CONEXANT SYSTEMS, INC., a Delaware corporation ("CONEXANT"),
WASHINGTON SUB, INC., a Delaware corporation and a wholly-owned subsidiary of
Conexant ("WASHINGTON"), and ALPHA INDUSTRIES, INC., a Delaware corporation
("ALPHA").
WHEREAS, Conexant and Washington have entered into a
contribution and distribution agreement (the "DISTRIBUTION AGREEMENT"), pursuant
to which (a) all the Washington Assets (as defined in the Distribution
Agreement) will be assigned to Washington and/or to one or more of the
Washington Subsidiaries (as defined in the Distribution Agreement) and all of
the Washington Liabilities (as defined in the Distribution Agreement) will be
assumed by Washington and/or by one or more of the Washington Subsidiaries, all
as provided in the Distribution Agreement (the "CONTRIBUTION") and (b) all of
the issued and outstanding shares of common stock, par value $.01 per share, of
Washington (the "WASHINGTON COMMON STOCK") will be distributed on a pro rata
basis to Conexant's stockholders as provided in the Distribution Agreement (the
"DISTRIBUTION");
WHEREAS, the Boards of Directors of Conexant, Washington and
Alpha have approved an agreement and plan of reorganization (the "MERGER
AGREEMENT") pursuant to which Washington and Alpha will enter into a merger
transaction in order to advance the long-term strategic business interests of
Conexant, Washington and Alpha;
WHEREAS, the Boards of Directors of Conexant, Washington and
Alpha have determined to consummate such merger transaction by means of a
business combination transaction in which, immediately following the
Distribution Washington will merge with and into Alpha (the "MERGER"), with
Alpha being the surviving corporation;
WHEREAS, the parties to this Agreement intend that the
Contribution and the Distribution qualify under Sections 355 and 368 of the Code
(as defined herein) as a reorganization, that the Merger qualify under Section
368 of the Code as a reorganization and that the Merger Agreement shall
constitute a "plan or reorganization" for purposes of Sections 354 and 361 of
the Code; and
WHEREAS, Conexant and Alpha wish to provide for and agree upon
the allocation between the Conexant Tax Group (as defined herein) and the Alpha
Tax Group (as defined herein) of all responsibilities, liabilities and benefits
relating to
or affecting Taxes (as defined herein) paid or payable by either of them for all
taxable periods, whether beginning before, on or after the Distribution Date (as
defined herein).
NOW, THEREFORE, in consideration of the premises and of the
respective agreements contained in this Agreement, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 GENERAL. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined). Any capitalized
term not otherwise defined in this Agreement shall have the meaning ascribed to
it in the Distribution Agreement.
"ACTUALLY REALIZED" shall mean, for purposes of determining
the timing of any Taxes (or related Tax cost or benefit) relating to any
payment, transaction, occurrence or event, the time at which the amount of Taxes
(including estimated Taxes) payable by any person is increased above or reduced
below, as the case may be, the amount of Taxes that such person would be
required to pay but for the payment, transaction, occurrence or event.
"ALPHA" shall have the meaning ascribed thereto in the
preamble.
"ALPHA COMMON STOCK" shall mean the Common Stock, par value
$0.25 per share, of Alpha and the associated preferred share purchase rights.
"ALPHA COMMON STOCK OPTIONS" shall mean options to acquire
shares of Alpha Common Stock.
"ALPHA GROUP EMPLOYEES AND FORMER EMPLOYEES" shall mean
individuals (i) who are employees of any member of the Alpha Tax Group on the
date of the event giving rise to a deduction in respect of any Compensation
Payments made to such individuals or Stock Options or Restricted Stock held by
such individuals or (ii) who were employees of any member of the Alpha Tax Group
and were not thereafter employees of any member of the Conexant Tax Group.
"ALPHA POST-DISTRIBUTION TAX ACT" shall have the meaning set
forth in Section 3.01(a).
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"ALPHA TAX ACT" shall have the meaning set forth in Section
3.02(b).
"ALPHA TAX GROUP" shall mean (i) Alpha, (ii) any member of the
Washington Tax Group, and (iii) any corporation or other legal entity which
Alpha directly or indirectly owned or owns prior to, on or following the
Distribution Date.
"ALPHA TAX REPRESENTATION LETTER" shall mean the letter
delivered by Alpha to Conexant on the Distribution Date, substantially in the
form set forth in Schedule 3.02(c) attached hereto.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended, or any successor legislation.
"COMPENSATION PAYMENTS" shall mean all non-qualified employee
benefit plan and welfare benefit plan payments made by any member of the Alpha
Tax Group under the Employee Matters Agreement dated as of the date hereof by
and among Conexant, Washington and Alpha.
"CONEXANT" shall have the meaning ascribed thereto in the
preamble.
"CONEXANT BOARD" shall mean the Board of Directors of Conexant
or a duly authorized committee thereof.
"CONEXANT COMMON STOCK" shall mean the Common Stock, par value
of $1 per share, of Conexant and the associated preferred share purchase rights.
"CONEXANT COMMON STOCK OPTIONS" shall mean options to acquire
Conexant Common Stock.
"CONEXANT GROUP EMPLOYEES AND FORMER EMPLOYEES" shall mean
individuals (i) who are employees of any member of the Conexant Tax Group on the
date of the event giving rise to a deduction in respect of any Compensation
Payments made to such individuals or Stock Options or Restricted Stock held by
such individuals, or (ii) who were employees of any member of the Conexant Tax
Group and were not thereafter employees of any member of the Arizona Tax Group.
"CONEXANT TAX GROUP" shall mean (i) Conexant, (ii) any
corporation or other legal entity which Conexant directly or indirectly owns
immediately following the Distribution Date other than a member of the Alpha Tax
Group, (iii) any other corporation or other legal entity which Conexant directly
or indirectly owned at any time on or prior to the Distribution Date other than
a member of the Alpha Tax Group, and (iv) solely for purposes of this Agreement
and not for purposes of any other Transaction Agreement or the Merger Agreement,
for any taxable period
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(A) Old Rockwell and any other corporation or legal entity owned by Old Rockwell
other than a member of the Alpha Tax Group and (B) Rockwell and any other
corporation or legal entity owned by Rockwell other than a member of the Alpha
Tax Group.
"CONEXANT TAX REPRESENTATION LETTER" shall mean the letter
delivered by Conexant to Alpha on the Distribution Date, substantially in the
form set forth in Schedule 3.02(d) attached hereto.
"CONEXANT/WASHINGTON TAX GROUP" shall mean any corporation or
other legal entity which is a member of the Conexant Tax Group or the Washington
Tax Group but only with respect to taxable periods (or portions thereof) ending
on or before or including the Distribution Date.
"CONTRIBUTION" shall have the meaning ascribed thereto in the
Distribution Agreement.
"DISTRIBUTION" shall mean the distribution of the Washington
Common Stock on a pro rata basis to holders of Conexant Common Stock and
Conexant Series B Preferred Stock on the Distribution Date pursuant to the
Distribution Agreement.
"DISTRIBUTION AGREEMENT" shall have the meaning ascribed
thereto in the preamble.
"DISTRIBUTION TAXES" shall mean any Taxes resulting from (a)
the failure of the Contribution and the Distribution to qualify as a
reorganization under Sections 355 and 368 of the Code, (b) the failure of the
Contribution and the Distribution to qualify as tax-free to Conexant under
Sections 355(c) and 361(c) of the Code, (c) the failure of any pre-Distribution
transaction specified in Schedule 3.01(b) to be non-taxable, or (d) the failure
of the receipt of proceeds from the Stock and Asset Sale to qualify as tax-free
to Conexant under Section 361(b)(3) of the Code.
"DISTRIBUTION TRANSACTION" shall mean any transaction
undertaken in connection with the Distribution and described in the Ruling
Request.
"DISTRIBUTION DATE" shall mean the date on which the
Distribution occurs (or, if different, the date on which the Distribution is
deemed to occur for U.S. federal Income Tax purposes). For purposes of this
Agreement, the Distribution shall be deemed effective as of the end of the day
on the Distribution Date.
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"FOREIGN INCOME TAX" shall mean any Income Tax other than a
U.S. federal, state or local Income Tax.
"FOREIGN INCOME TAX RETURNS" shall mean any Income Tax Return
which is not a U.S. federal, state or local Income Tax Return.
"INCOME TAX" shall mean (a) any Tax based upon, measured by,
or calculated with respect to (i) net income or profits (including, but not
limited to, any capital gains, minimum Tax and any Tax on items of Tax
preference, but not including sales, use, real or personal property, gross or
net receipts, transfer or similar Taxes) or (ii) multiple bases (including, but
not limited to, corporate franchise, doing business or occupation Taxes) if one
or more of the bases upon which such Tax may be based, measured by, or
calculated with respect to, is described in clause (i) above, or (b) any U.S.
state or local franchise Tax; including in the case of each of (a) and (b) any
related interest and any penalties, additions to such Tax or additional amounts
imposed with respect thereto by any Tax Authority.
"INCOME TAX BENEFIT" shall mean for any taxable period the
excess of (i) the hypothetical Income Tax liability of the taxpayer for the
taxable period calculated as if the Timing Difference or Reverse Timing
Difference, as the case may be, had not occurred but with all other facts
unchanged, over (ii) the actual Income Tax liability of the taxpayer for the
taxable period, calculated taking into account the Timing Difference or Reverse
Timing Difference, as the case may be (treating an Income Tax refund or credit
as a negative Income Tax liability for purposes of such calculation).
"INCOME TAX DETRIMENT" shall mean for any taxable period the
excess of (i) the actual Income Tax liability of the taxpayer for the taxable
period, calculated taking into account the Timing Difference or Reverse Timing
Difference, as the case may be, over (ii) the hypothetical Income Tax liability
of the taxpayer for the taxable period, calculated as if the Timing Difference
or Reverse Timing Difference, as the case may be, had not occurred but with all
other facts unchanged (treating an Income Tax refund or credit as a negative
Income Tax liability for purposes of such calculation).
"INCOME TAX RETURN" shall mean any Tax Return that relates to
Income Taxes.
"INDEMNITEE" shall have the meaning set forth in Section 3.03.
"INDEMNITOR" shall have the meaning set forth in Section 3.03.
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"INDEMNITY ISSUE" shall have the meaning set forth in Section
3.03.
"IRS" shall mean the Internal Revenue Service.
"NON-INCOME TAX" shall mean any Tax other than an Income Tax.
"OLD ROCKWELL" shall mean the corporation, formerly named
Rockwell International Corporation, which owned all of the Rockwell Common Stock
prior to the distribution of the Rockwell Common Stock to the shareholders of
such corporation on December 6, 1996.
"PERSON" shall mean any individual, partnership, joint
venture, corporation, limited liability entity, trust, unincorporated
organization or other entity (including a governmental entity).
"POST-DISTRIBUTION TAXABLE PERIOD" shall mean a taxable period
beginning after the Distribution Date.
"POST-TAX INDEMNIFICATION PERIOD" shall mean any
Post-Distribution Taxable Period and that portion of any Straddle Period that
begins on the day after the Distribution Date.
"PRE-DISTRIBUTION TAXABLE PERIOD" shall mean a taxable period
ending on or before the Distribution Date.
"REPRESENTATIVE" shall mean, with respect to any Person, any
of such Person's directors, officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
"REVERSE TIMING DIFFERENCE" shall mean an increase in income,
gain or recapture, or a decrease in deduction, loss or credit, as calculated for
Income Tax purposes, of the taxpayer for the Tax Indemnification Period coupled
with an increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for any Post-Tax Indemnification Period.
"RIGHTS" shall have the meaning ascribed thereto in the
Distribution Agreement.
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"ROCKWELL" shall mean Rockwell International Corporation, a
Delaware corporation.
"ROCKWELL COMMON STOCK" shall mean the Common Stock, par value
of $1 per share, of Rockwell.
"ROCKWELL TAX GROUP" shall mean Rockwell and its affiliates.
"RULING" shall mean a private letter ruling issued by the IRS
in reply to the Ruling Request including any amendment or supplement thereto in
form and substance reasonably satisfactory to Conexant and Alpha.
"RULING REQUEST" shall mean a private letter ruling request
filed by Conexant with the IRS (as modified or supplemented), seeking rulings
that, inter alia, the Contribution and the Distribution will qualify under
Sections 355 and 368 of the Code as a reorganization.
"STOCK AND ASSET SALE" shall mean the sale of certain stock
and assets pursuant to the Stock and Asset Purchase Agreement.
"STOCK AND ASSET PURCHASE AGREEMENT" shall mean that stock and
asset purchase agreement dated as of December 16, 2001 by and between Conexant
and Alpha providing for the sale of certain stock and assets to Alpha after the
Merger.
"STOCK OPTIONS" shall mean Alpha Common Stock Options or
Conexant Common Stock Options.
"STRADDLE PERIOD" shall mean a taxable period that includes
but does not end on the Distribution Date.
"TAX" and "TAXES" shall mean all forms of taxation, whenever
created or imposed, and whether of the United States or elsewhere, and whether
imposed by a federal, state, municipal, governmental, territorial, local,
foreign or other body, and without limiting the generality of the foregoing,
shall include net income, gross income, gross receipts, sales, use, value added,
ad valorem, transfer, recording, franchise, profits, license, lease, service,
service use, payroll, wage, withholding, employment, unemployment insurance,
workers compensation, social security, excise, severance, stamp, business
license, business organization, occupation, premium, property, environmental,
windfall profits, customs, duties, alternative minimum, estimated or other
taxes, fees, premiums, assessments or charges of any kind whatever imposed or
collected by any governmental entity or political
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subdivision thereof, together with any related interest and any penalties,
additions to such tax or additional amounts imposed with respect thereto by any
Tax Authority.
"TAX AUTHORITY" shall mean, with respect to any Tax, any
governmental entity, quasi-governmental body or political subdivision thereof
that imposes such Tax and the agency (if any) charged with the determination or
collection of such Tax for such entity, body or subdivision.
"TAX GROUP" shall mean the Conexant Tax Group or the Alpha Tax
Group, as the case may be.
"TAX INDEMNIFICATION PERIOD" shall mean any Pre-Distribution
Taxable Period and that portion of any Straddle Period that ends on the
Distribution Date.
"TAX RETURN" shall mean any return, filing, questionnaire,
information return, election or other document required or permitted to be
filed, including requests for extensions of time, filings made with respect to
estimated tax payments, claims for refund and amended returns that may be filed,
for any period with any Tax Authority (whether domestic or foreign) in
connection with any Tax (whether or not a payment is required to be made with
respect to such filing).
"TIMING DIFFERENCE" means an increase in income, gain or
recapture, or a decrease in deduction, loss or credit, as calculated for Income
Tax purposes, of the taxpayer for any Post-Tax Indemnification Period coupled
with an increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for the Tax Indemnification Period.
"TRANSACTION AGREEMENTS" shall have the meaning ascribed
thereto in the Distribution Agreement.
"WASHINGTON" shall have the meaning ascribed thereto in the
preamble.
"WASHINGTON TAX GROUP" shall mean (i) Washington and (ii) any
corporation or other legal entity which Washington directly or indirectly owns
following the Contribution.
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SECTION 1.02 SCHEDULES, ETC. References to a "SCHEDULE" are,
unless otherwise specified, to a Schedule attached to this Agreement; references
to "SECTION" or "ARTICLE" are, unless otherwise specified, to one of the
Sections or Articles of this Agreement; references to "SUB-SECTION" are, unless
the context otherwise requires, references to the section in which the reference
appears; and references to this Agreement include the Schedules.
ARTICLE II
FILING OF TAX RETURNS; PAYMENT OF TAXES; REFUNDS(1)
SECTION 2.01 PREPARATION OF TAX RETURNS.
(a) UNITED STATES FEDERAL INCOME TAX RETURNS.
(i) Conexant shall prepare and file or cause to be
prepared and filed all U.S. federal Income Tax Returns (including amendments
thereto) which are required to be filed in respect of (A) a member of the
Conexant/Washington Tax Group for any Pre-Distribution Taxable Period or
Straddle Period or (B) a member of the Conexant Tax Group for any
Post-Distribution Taxable Period. Alpha hereby irrevocably designates, and
agrees to cause each of its affiliates to designate, Conexant as its agent to
take any and all actions necessary or incidental to the preparation and filing
of such U.S. federal Income Tax Returns of Conexant's affiliated group.
(ii) All U.S. federal Income Tax Returns (including
amendments thereto) with respect to the Washington Tax Group for
Post-Distribution Taxable Periods shall be the responsibility of the Alpha Tax
Group.
(b) UNITED STATES STATE AND LOCAL INCOME TAX RETURNS.
(i) Conexant shall prepare and file or cause to be
prepared and filed all U.S. state and local Income Tax Returns (including
amendments thereto) which are required to be filed in respect of (A) a member of
the Conexant/Washington Tax Group for any Pre-Distribution Taxable Period or
Straddle Period or (B) a member of the Conexant Tax Group for any
Post-Distribution Taxable Period. Alpha hereby irrevocably designates, and
agrees to cause each of its affiliates
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(1) To be finalized by the parties in good faith based on the internal
restructuring plan to be developed.
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to designate, Conexant as its agent to take any and all actions necessary or
incidental to the preparation and filing of such U.S. state and local Income Tax
Returns of members of the Washington Tax Group.
(ii) All U.S. state and local Income Tax Returns
(including amendments thereto) with respect to the Washington Tax Group for
Post-Distribution Taxable Periods shall be the responsibility of the Alpha Tax
Group.
(c) FOREIGN INCOME TAX RETURNS.
(i) Conexant shall prepare and file or cause to be
prepared and filed all Foreign Income Tax Returns (including amendments thereto)
which are required to be filed in respect of (A) a member of the
Conexant/Washington Tax Group for any Pre-Distribution Taxable Period or
Straddle Period (other than any entity set forth on Schedule 2.01(c) attached
hereto) or (B) a member of the Conexant Tax Group for any Post-Distribution
Taxable Period. Alpha hereby irrevocably designates, and agrees to cause each of
its affiliates to designate, Conexant as its agent to take any and all actions
necessary or incidental to the preparation and filing of such Foreign Income Tax
Returns of members of the Washington Tax Group.
(ii) All Foreign Income Tax Returns (including amendments
thereto) (A) with respect to the Washington Tax Group for Post-Distribution
Taxable Periods and (B) with respect to entities set forth on Schedule 2.01(c)
attached hereto required to be filed after the Distribution Date, shall be the
responsibility of the Alpha Tax Group.
(d) NON-INCOME TAX RETURNS.
(i) Conexant shall prepare and file or cause to be
prepared and filed all Tax Returns (including amendments thereto) which are
Non-Income Tax Returns which are required to be filed in respect of (A) a member
of the Conexant/Washington Tax Group (other than Washington or any member of the
Washington Tax Group which has never conducted a non-Washington business) for
any Pre-Distribution Taxable Period or Straddle Period or (B) a member of the
Conexant Tax Group for any Post-Distribution Taxable Period. Alpha hereby
irrevocably designates, and agrees to cause each of its affiliates to designate,
Conexant as its agent to take any and all actions necessary or incidental to the
preparation and filing of such non-U.S. federal Income Tax Returns.
(ii) All Non-Income Tax Returns (including amendments
thereto) required to be filed in respect of Washington or any member of the
Washington Tax
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Group which has never conducted a non-Washington business shall be the
responsibility of the Alpha Tax Group.
(e) CONSISTENT WITH PAST PRACTICE; REVIEW BY
NON-RESPONSIBLE PARTY. Unless Conexant and Alpha otherwise agree in writing, all
Tax Returns (including amendments thereto) described in this Section 2.01 filed
after the date of this Agreement for Pre-Distribution Taxable Periods or
Straddle Periods, in the absence of a controlling change in law or
circumstances, shall be prepared on a basis consistent with the elections,
accounting methods, conventions and principles of taxation used for the most
recent taxable periods for which Tax Returns involving similar matters have been
filed. Upon the request of the non-responsible party, the party responsible
under this Section 2.01 for preparation of a particular Tax Return for
Pre-Distribution Taxable Periods or Straddle Periods shall make available a
draft of such Tax Return (or relevant portions thereof) for review and comment
by such non-responsible party. Subject to the provisions of this Agreement, all
decisions relating to the preparation of Tax Returns shall be made in the sole
discretion of the party responsible under this Agreement for such preparation.
(f) RESPONSIBILITY FOR FILING. Although, pursuant to this
Agreement, Conexant or Alpha may be responsible for filing a particular Tax
Return, Conexant and Alpha have agreed that the actual preparation and filing of
certain Tax Returns will be done by the non-responsible party. Schedule 2.01(f)
attached hereto sets forth a schedule specifying such Tax Returns. Conexant and
Alpha may agree from time to time to additions to or deletions from Schedule
2.01(f).
SECTION 2.02 PAYMENT OF TAXES.
(a) UNITED STATES FEDERAL INCOME TAXES. Except as
otherwise provided in this Agreement:
(i) Conexant shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the consolidated U.S. federal Income Tax
liability for (A) all members of the Conexant/Washington Tax Group for any
Pre-Distribution Taxable Period or Straddle Period and (B) any member of the
Conexant Tax Group for any Post-Distribution Taxable Period; and
(ii) Alpha shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the consolidated U.S. federal Income Tax
liability for any member of the Washington Tax Group for any Post-Distribution
Taxable Period.
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(b) UNITED STATES STATE AND LOCAL INCOME TAXES. Except as
otherwise provided in this Agreement:
(i) Conexant shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the U.S. state and local Income Tax
liability for (A) all members of the Conexant/Washington Tax Group for any
Pre-Distribution Taxable Period or Straddle Period and (B) any member of the
Conexant Tax Group for any Post-Distribution Taxable Period; provided, however,
that Alpha, on behalf of the Washington Tax Group, hereby assumes and agrees to
pay directly to or at the direction of Conexant, at least five days prior to the
date payment (including estimated payment) thereof is due, the portion of such
U.S. state and local Income Taxes for that portion of any Straddle Period which
begins on the day after the Distribution Date (calculated pursuant to Section
2.04) which relates to a member of the Washington Tax Group or its business,
assets or activities; and
(ii) Alpha shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the U.S. state and local Income Tax
liability for any member of the Washington Tax Group for any Post-Distribution
Taxable Period.
(c) FOREIGN INCOME TAXES. Except as otherwise provided in
this Agreement:
(i) Conexant shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the Foreign Income Tax liability for (A)
all members of the Conexant/Washington Tax Group for any Pre-Distribution
Taxable Period or Straddle Period (other than any entity set forth on Schedule
2.01(c) attached hereto) and (B) any member of the Conexant Tax Group for any
Post-Distribution Taxable Period; provided, however, that Alpha, on behalf of
the Washington Tax Group, hereby assumes and agrees to pay directly to or at the
direction of Conexant, at least five days prior to the date payment (including
estimated payment) thereof is due, the portion of such Foreign Income Taxes for
that portion of any Straddle Period which begins on the day after the
Distribution Date (calculated pursuant to Section 2.04) which relates to a
member of the Washington Tax Group or its business, assets or activities; and
(ii) Alpha shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the Foreign Income Tax liability (A) for
any member of the Washington Tax Group for any Post-Distribution Taxable Period
and (B) for any entity set forth on Schedule 2.01(c) attached hereto.
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(d) NON-INCOME TAXES. Except as otherwise provided in
this Agreement:
(i) Conexant shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the Non-Income Tax liability for (A) all
members of the Conexant/Washington Tax Group (other than Washington or any
member of the Washington Tax Group which has never conducted a non-Washington
business) for any Pre-Distribution Taxable Period or Straddle Period and (B) any
member of the Conexant Tax Group for any Post-Distribution Taxable Period;
provided, however, that Alpha, on behalf of the Washington Tax Group, hereby
assumes and agrees to pay directly to or at the direction of Conexant, at least
five days prior to the date payment (including estimated payment) thereof is
due, the portion of such Non-Income Taxes for that portion of any Straddle
Period which begins on the day after the Distribution Date which relates to a
member of the Washington Tax Group or its business, assets or activities;
(ii) Alpha shall pay or cause to be paid, on a timely
basis, all Taxes due with respect to the Non-Income Tax liability (A) for any
member of the Washington Tax Group for any Post-Distribution Taxable Period and
(B) for Washington or any member of the Washington Tax Group which has never
conducted a non-Washington business for any Pre-Distribution Taxable Period or
Straddle Period; and
(iii) Conexant agrees that for all periods prior to the
Distribution, it shall pay or cause Washington and each member of the Washington
Tax Group that has never conducted a non-Washington business to pay its
respective Non-Income Tax liabilities consistent with the Conexant Tax Group's
past practice for paying such Non-Income Tax liabilities.
(e) POST-DISTRIBUTION DATE TAXES. Except as otherwise
provided in this Agreement, all Taxes for all Post-Distribution Taxable Periods
shall be paid or caused to be paid by the party responsible under this Agreement
for filing the Tax Returns pursuant to which such Taxes are due or, if no such
Tax Returns are due, by the party liable for such Taxes.
(f) CREDIT FOR PRIOR TAX PAYMENTS. To the extent any
member of a Tax Group has made a payment of Taxes (including estimated Taxes) on
or before the Distribution Date, the party liable for paying such Taxes under
this Agreement shall be entitled to treat the payment as having been paid or
caused to have been paid by such party, and such party shall not be required to
reimburse the party which actually paid such Taxes.
13
(g) RESPONSIBILITY FOR PAYMENT; NOTICE OF PAYMENT DUE.
Although Conexant or Alpha may be responsible for paying a particular Tax
liability, Conexant and Alpha may agree that the actual payment to a Taxing
Authority of certain Tax liabilities will be made by the non-responsible party.
Conexant and Alpha may agree to prepare a schedule setting forth such Tax
liabilities and may agree from time to time to additions to or deletions from
such schedule. In each case where Conexant or Alpha, as the case may be, is
required to make payment of Taxes to the other party, Conexant or Alpha, as the
case may be, shall notify the other party as to the amount of Taxes due from the
other party at least five days prior to the date payment (including estimated
payment) is due.
SECTION 2.03 TAX REFUNDS AND CARRYBACKS.
(a) RETENTION AND PAYMENT OF TAX REFUNDS. Except as
otherwise provided in this Agreement, Conexant shall be entitled to retain, and
to receive within ten days after Actually Realized by the Alpha Tax Group, the
portion of all refunds or credits of Taxes for which the Conexant Tax Group is
liable pursuant to Section 2.02 or Section 3.01(a) or is treated as having paid
or caused to have been paid pursuant to Section 2.02(f), and Alpha shall be
entitled to retain, and to receive within ten days after Actually Realized by
the Conexant Tax Group, the portion of all refunds or credits of Taxes for which
the Alpha Tax Group is liable pursuant to Section 2.02 or Section 3.01(b) or is
treated as having paid or caused to have been paid pursuant to Section 2.02(f).
The amount of any refund or credit of Taxes to which Conexant or Alpha is
entitled to retain or receive pursuant to the foregoing sentence shall be
reduced to take account of any Taxes incurred by the Alpha Tax Group, in the
case of a refund or credit to which Conexant is entitled, or the Conexant Tax
Group, in the case of a refund or credit to which Alpha is entitled, upon the
receipt of such refund or credit.
(b) CARRYBACKS. Unless the parties otherwise agree in
writing, Alpha shall elect and shall cause each member of the Alpha Tax Group to
elect, where permitted by law, to carry forward any net operating loss, net
capital loss, charitable contribution or other item arising after the
Distribution Date that could, in the absence of such election, be carried back
to a Pre-Distribution Taxable Period. Except as otherwise provided in this
Agreement, notwithstanding the provisions of Section 2.03(a), (i) any refund or
credit of Taxes resulting from the carryback of any item of Taxes attributable
to the Alpha Tax Group arising in a Post-Tax Indemnification Period to a Tax
Indemnification Period shall be for the account and benefit of the Alpha Tax
Group, and (ii) any refund or credit of Taxes resulting from the carryback of
any item of Taxes attributable to the Conexant Tax Group arising in a Post-Tax
Indemnification Period to a Tax Indemnification Period shall be for the account
and benefit of the Conexant Tax Group.
14
(c) REFUND CLAIMS. Conexant shall be permitted to file at
Conexant's sole expense, and Alpha shall reasonably cooperate with Conexant in
connection with, any claims for refund of Taxes to which Conexant is entitled
pursuant to this Section 2.03 or any other provision of this Agreement. Conexant
shall reimburse Alpha for any reasonable out-of-pocket costs and expenses
incurred by any member of the Alpha Tax Group in connection with such
cooperation. Alpha shall be permitted to file at Alpha's sole expense, and
Conexant shall reasonably cooperate with Alpha in connection with, any claims
for refunds of Taxes to which Alpha is entitled pursuant to this Section 2.03 or
any other provision of this Agreement. Alpha shall reimburse Conexant for any
reasonable out-of-pocket costs and expenses incurred by any member of the
Conexant Tax Group in connection with such cooperation.
SECTION 2.04 ALLOCATION OF STRADDLE PERIOD TAXES. In the case
of any Straddle Period:
(a) PERIODIC TAXES. (i) The periodic Taxes of a member of
the Conexant Tax Group or the Alpha Tax Group or its business, assets or
activities that are not based on income or receipts (e.g., property Taxes) for
the portion of any Straddle Period which ends on the Distribution Date shall be
computed based on the ratio of the number of days in such portion of the
Straddle Period and the number of days in the entire taxable period; and (ii)
the periodic taxes of a member of the Conexant Tax Group or the Alpha Tax Group
or its business, assets or activities that are not based on income or receipts
for the portion of any Straddle Period beginning on the day after the
Distribution Date shall be computed based on the ratio of the number of days in
such portion of the Straddle Period and the number of days in the entire taxable
period.
(b) NON-PERIODIC TAXES. (i) The Taxes of a member of the
Conexant Tax Group or the Alpha Tax Group or its business, assets or activities
for that portion of any Straddle Period ending on the Distribution Date (other
than Taxes described in Section 2.04(a) above), shall be computed on a
"closing-of-the-books" basis as if such taxable period ended as of the close of
business on the Distribution Date, and, in the case of any Taxes of a member of
the Conexant Tax Group or the Alpha Tax Group or its business, assets or
activities with respect to any equity interest in any partnership or other
"flowthrough" entity, as if the taxable period of such partnership or other
"flowthrough" entity ended on the Distribution Date; and (ii) the Taxes of a
member of the Conexant Tax Group or the Alpha Tax Group or its business, assets
or activities for that portion of any Straddle Period beginning after the
Distribution Date (other than Taxes described in Section 2.04(a) above), shall
be computed on a "closing-of-the-books" basis as if such taxable period began on
the day after the Distribution Date, and, in the case of any Taxes of a member
of the
15
Conexant Tax Group or the Alpha Tax Group or its business, assets or activities
with respect to any equity interest in any partnership or other "flowthrough"
entity, as if the taxable period of such partnership or other "flowthrough"
entity began as of the day after the Distribution Date.
(c) The Taxes of the Conexant Tax Group and the Alpha Tax
Group with respect to any Tax Return for a Straddle Period which includes a
member of each of the Conexant Tax Group and the Alpha Tax Group or their
respective businesses, assets or activities shall be allocated between the
Conexant Tax Group, on the one hand, and the Alpha Tax Group, on the other hand,
determined in a manner analogous to that set forth in Treasury Regulation
Section 1.1552-1(a)(2).
ARTICLE III
TAX INDEMNIFICATION; TAX CONTESTS
SECTION 3.01 INDEMNIFICATION.
(a) CONEXANT INDEMNIFICATION. Subject to Section 3.01(b)
and Section 3.02, Conexant shall indemnify, defend and hold harmless each member
of the Alpha Tax Group and each of their respective Representatives and each of
the heirs, executors, successors and assigns of any of the foregoing from and
against:
(i) all Taxes of the Conexant Tax Group;
(ii) all Taxes of the Washington Tax Group for all
Pre-Distribution Taxable Periods and all Straddle Periods for which Conexant is
liable pursuant to Section 2.02 or 3.02;
(iii) all liability as a result of Treasury Regulation
Section 1.1502-6 or comparable U.S. state or local provision for Income Taxes of
any person which is or has ever been affiliated with any member of the
Conexant/Washington Tax Group or with which any member of the
Conexant/Washington Tax Group joins or has ever joined (or is or has ever been
required to join) in filing any consolidated, combined or unitary Income Tax
Return for any Tax period ending on or before or including the Distribution Date
except to the extent the Alpha Tax Group is liable for such Taxes pursuant to
Section 2.02 or 3.02;
(iv) all Taxes for any Tax period (whether beginning
before, on or after the Distribution Date) attributable to the breach by any
member of the Conexant
16
Tax Group of any representation, warranty, covenant or obligation under this
Agreement;
(v) all liability for a breach by any member of the
Conexant Tax Group of any representation, warranty, covenant or obligation under
this Agreement;
(vi) all Taxes imposed in connection with the transactions
contemplated by the Distribution Agreement undertaken to carry out the
Contribution and Distribution; and
(vii) all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to the foregoing.
Notwithstanding the foregoing, Conexant shall not indemnify, defend or hold
harmless any member of the Alpha Tax Group nor any of their respective
Representatives or heirs, executors, successors and assigns of any of them from
any liability for Taxes (other than with respect to Distribution Taxes)
attributable to any Alpha Post-Distribution Tax Act. An "ALPHA POST-DISTRIBUTION
TAX ACT" shall mean any action specified on Schedule 3.01(a) attached hereto.
(b) ALPHA INDEMNIFICATION. Alpha shall be liable for, and
shall indemnify, defend and hold harmless each member of the Conexant Tax Group
and each of the respective Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing from and against:
(i) all Taxes of any member of the Washington Tax Group
or Alpha Tax Group (other than Taxes for which Conexant is obligated to provide
indemnification for pursuant to Section 3.01(a));
(ii) all Taxes for any Tax period (whether beginning
before, on or after the Distribution Date) attributable to the breach by any
member of the Alpha Tax Group or Washington Tax Group of any representation,
warranty, covenant or obligation under this Agreement;
(iii) all liability for a breach by any member of the Alpha
Tax Group or Washington Tax Group of any representation, warranty, covenant or
obligation under this Agreement;
(iv) all Taxes attributable to an Alpha Post-Distribution
Tax Act; and
17
(v) all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to the foregoing.
SECTION 3.02 DISTRIBUTION TAXES.
(a) Except as otherwise provided in this Section 3.02,
Conexant agrees to indemnify, defend and hold harmless each member of the Alpha
Tax Group and each of the respective Representatives and each of the heirs,
executors, successors and assigns of any of the foregoing from and against any
Distribution Taxes.
(b) Alpha agrees to indemnify, defend and hold harmless
each member of the Conexant Tax Group and each of the respective Representatives
and each of the heirs, executors, successors and assigns of any of the foregoing
from and against any Distribution Taxes resulting from any Alpha Tax Act. For
purposes of this Agreement, in determining the amount of any such Taxes
resulting from an Alpha Tax Act for which Alpha shall be liable, any net
operating losses which would otherwise be taken into account in determining the
amount of such liability shall be ignored. An "ALPHA TAX ACT" shall mean any
action specified on Schedule 3.02(a) attached hereto.
(c) Alpha shall, and shall cause each member of the Alpha
Tax Group to, comply with and take no action inconsistent with the Alpha Tax
Representation Letter, unless, pursuant to a favorable ruling letter obtained
from the IRS which is satisfactory to Conexant or the advice of nationally
recognized Tax counsel to Conexant, which advice shall be satisfactory to
Conexant, such act or omission would not adversely affect the U.S. federal
Income Tax consequences of the Contribution and the Distribution to Conexant or
the shareowners of Conexant. Notwithstanding Sections 3.01(b)(iii) and
3.01(b)(iv), the parties intend that the sole remedy for breach of the covenants
contained in this Section 3.02(c) shall be as set forth in Section 3.02(b).
(d) Conexant shall, and shall cause each member of the
Conexant Tax Group to, comply with and take no action inconsistent with the
Conexant Tax Representation Letter, unless, pursuant to a favorable ruling
letter obtained from the IRS which is satisfactory to Alpha or the advice of
nationally recognized Tax counsel to Alpha, which advice shall be satisfactory
to Alpha, such act or omission would not adversely affect the U.S. federal
Income Tax consequences of the Contribution and the Distribution to Conexant or
the shareowners of Conexant. Notwithstanding Section 3.01(a)(v), the parties
intend that the sole remedy for breach of the covenants contained in this
Section 3.02(d) shall be as set forth in Section 3.02(a).
18
(e) Notwithstanding the foregoing, an Alpha Tax Act shall not
include any transaction or action specifically disclosed or specifically
described in any of the Transaction Agreements, the Merger Agreement or the
Stock and Asset Purchase Agreement or, except as specifically set forth in
Schedule 3.01(b) occurring on or prior to the Distribution Date, any action
taken on or prior to the Distribution Date. An Alpha Tax Act shall not include
any action on the part of any member of the Conexant Tax Group.
SECTION 3.03 NOTICE OF INDEMNITY. Whenever a party hereto
(hereinafter an "INDEMNITEE") becomes aware of the existence of an issue raised
by any Tax Authority which could reasonably be expected to result in a
determination that would increase the liability for any Tax of the other party
hereto or any member of its Tax Group for any Tax period or require a payment
hereunder by the other party (hereinafter an "INDEMNITY ISSUE"), the Indemnitee
shall in good faith promptly give notice to such other party (hereinafter the
"INDEMNITOR") of such Indemnity Issue. The failure of the Indemnitee to give
such notice shall not relieve the Indemnitor of its obligations under this
Agreement, except to the extent such Indemnitor or a member of its Tax Group is
actually prejudiced by such failure to give notice.
SECTION 3.04 PAYMENTS.
(a) TIMING ADJUSTMENTS.
(i) TIMING DIFFERENCES. If a Tax audit proceeding or an
amendment of a Tax Return results in a Timing Difference, and such Timing
Difference results in a decrease in an indemnity obligation Conexant has or
would otherwise have under Section 3.01(a) and/or an increase in the amount of a
Tax refund or credit to which Conexant is entitled under Section 2.03, then in
each Post-Tax Indemnification Period in which the Alpha Tax Group Actually
Realizes an Income Tax Detriment, Conexant shall pay to Alpha an amount equal to
such Income Tax Detriment; provided, however, that the aggregate payments which
Conexant shall be required to make under this Section 3.04(a)(i) with respect to
any Timing Difference shall not exceed the aggregate amount of the Income Tax
Benefits realized by the Conexant Tax Group for all taxable periods and the
Alpha Tax Group for all Tax Indemnification Periods as a result of such Timing
Difference. Conexant shall make all such payments within ten days after Alpha
notifies Conexant that the relevant Income Tax Detriment has been Actually
Realized.
(ii) REVERSE TIMING DIFFERENCES. If a Tax audit proceeding
or an amendment to a Tax Return results in a Reverse Timing Difference, and such
Reverse Timing Difference results in an increase in an indemnity payment
obligation of Conexant under Section 3.01(a) and/or a decrease in the amount of
a Tax refund or
19
credit to which Conexant is or would otherwise be entitled under Section 2.03,
then in each Post-Tax Indemnification Period in which the Alpha Tax Group
Actually Realizes an Income Tax Benefit, Alpha shall pay to Conexant within ten
days after Alpha has Actually Realized such Income Tax Benefit an amount equal
to such Income Tax Benefit; provided, however, that the aggregate payments which
Alpha shall be required to make under this Section 3.04(a)(ii) with respect to
Reverse Timing Differences shall not exceed the aggregate amount of the Income
Tax Detriments realized by the Alpha Tax Group and the Conexant Tax Group for
all Tax Indemnification Periods as a result of such Reverse Timing Difference.
(b) TIME FOR PAYMENT. Except as otherwise provided in
this Section 3.04(b), any indemnity payment required to be made pursuant to this
Agreement shall be paid within thirty days after the indemnified party makes
written demand upon the indemnifying party, provided that in no event shall such
payment be required to be made earlier than five business days prior to the date
on which the relevant Taxes (including estimated Taxes) are required to be paid
(or would be required to be paid if no such Taxes are due) to the relevant Tax
Authority. Notwithstanding any other provision in this Agreement, to simplify
the administration of this Agreement, the payment of any amount less than
$100,000 required to be made pursuant to this Agreement by one party hereto to
another party hereto need not be made to such other party prior to thirty days
following the later of (i) the close of the calendar quarter during which such
payment obligation arose and (ii) the day during such calendar quarter when the
aggregate amount of all such less than $100,000 payment obligations arising
during such calendar quarter exceeds $250,000. Unless otherwise specified by the
recipient for items exceeding $500,000, any such payment may be made on a net
Tax basis (i.e., reduced to take account of any net Tax benefit to be realized
by the recipient (computed at the effective Tax rate set forth in Section
3.04(c)) to the extent such recipient is entitled to a corresponding deduction.
(c) PAYMENTS NET OF TAXES AND TAX BENEFITS. The amount of
any payment under this Agreement shall be (i) reduced to take into account any
net Tax benefit realized by the recipient's Tax Group arising from the
incurrence or payment by such recipient's Tax Group of any amount in respect of
which such payment is made and (ii) increased to take into account any net Tax
cost incurred by the recipient's Tax Group as a result of the receipt or accrual
of payments hereunder (grossed-up for such increase), in each case determined by
treating the recipient as recognizing all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt of
accrual of any payment hereunder. In determining the amount of any such Tax
benefit or Tax cost, the recipient's Tax Group shall be deemed to be subject to
Tax as follows: (A) U.S. federal Income Taxes and foreign Income Taxes at the
maximum statutory rate then in effect and (B) U.S. state and local Income Taxes
at an assumed rate of five percent net of
20
U.S. federal Income Tax benefits. Except as otherwise provided in this Agreement
or unless the parties otherwise agree to an alternative method for determining
the present value of any such anticipated Tax benefit or Tax cost, any payment
hereunder shall initially be made without regard to this section and shall be
increased or reduced to reflect any such net Tax cost (including gross-up) or
net Tax benefit only after the recipient's Tax Group has Actually Realized such
Tax cost or Tax benefit.
(d) RIGHT TO OFFSET. Any party making a payment under
this Agreement shall have the right to reduce any such payment by any undisputed
amounts owed to it by the other party to this Agreement.
(e) CHARACTERIZATION OF PAYMENTS. It is the intention of
the parties to this Agreement that payments made pursuant to this Agreement are
to be treated as relating back to the Distribution as an adjustment to capital
(i.e., capital contribution or distribution), and the parties shall not take any
position inconsistent with such intention before any Tax Authority, except to
the extent that a final determination (as defined in Section 1313 of the Code)
with respect to the recipient party causes any such payment not to be so
treated.
SECTION 3.05 TAX CONTESTS. The Indemnitor and its
representatives, at the Indemnitor's expense, shall be entitled to participate
(a) in all conferences, meetings and proceedings with any Tax Authority, the
subject matter of which is or includes an Indemnity Issue and (b) in all
appearances before any court, the subject matter of which is or includes an
Indemnity Issue. The party who has responsibility for filing the Tax Return
under this Agreement (the "RESPONSIBLE PARTY") with respect to which there could
be an increase in liability for any Tax or with respect to which a payment could
be required hereunder shall have the right to decide as between the parties
hereto how such matter is to be dealt with and finally resolved with the
appropriate Tax Authority and shall control all audits and similar proceedings.
If no Tax Return is or was required to be filed in respect of an Indemnity
Issue, the Indemnitor shall be treated as the Responsible Party with respect
thereto. The Responsible Party agrees to cooperate in the settlement of any
Indemnity Issue with the other party and to take such other party's interests
into account.
21
ARTICLE IV
OPTIONS; COMPENSATION PAYMENTS;
INTEREST CHARGE FOR LATE PAYMENTS;
CURRENCY CALCULATIONS; EFFECTIVE TIME OF TRANSACTIONS
SECTION 4.01 STOCK OPTIONS.
(a) STOCK OPTION ADJUSTMENTS. Conexant Common Stock
Options outstanding at the time of the Distribution will be adjusted in
accordance with the terms of the Employee Matters Agreement.
(b) TAX DEDUCTIONS. Notwithstanding anything to the
contrary in this Agreement, unless the IRS issues a contrary private letter
ruling to Conexant or Alpha, or Conexant or Alpha otherwise agree in writing,
(A) the Conexant Tax Group (and not the Alpha Tax Group) shall claim the
post-Distribution Date Tax deductions in respect of Conexant Common Stock
Options and (B) the Alpha Tax Group (and not the Conexant Tax Group) shall claim
any post-Distribution Date Tax deductions in respect of Alpha Common Stock
Options, except to the extent (x) the optionees would not be (I) "Conexant Group
Employees and Former Employees", as such term is defined in the tax allocation
agreement between Conexant and Rockwell dated December 31, 1998 or (II) Alpha
Group Employees and Former Employees and (y) the tax allocation agreement
applicable to such optionees allocates the tax deduction to the employer
corporation, in which case Conexant shall, within ten days after payment is
received from the employer corporation in accordance with the terms of such tax
allocation agreement, pay such amounts to Alpha.
(c) NOTICES, WITHHOLDING, REPORTING.
(i) Conexant shall promptly notify Alpha of any
post-Distribution Date event giving rise to income to any Alpha Group Employees
and Former Employees in connection with the Conexant Common Stock Options and,
if required by law, Alpha shall withhold applicable Taxes and satisfy applicable
Tax reporting obligations in connection therewith. Conexant shall within ten
days of demand thereof reimburse Alpha for all reasonable out-of-pocket expenses
incurred in connection with the Conexant Common Stock Options, including with
respect to incremental Tax reporting obligations and any incremental employment
Tax obligations; provided that Alpha shall use reasonable efforts to collect any
such amounts required to be paid by Alpha Group Employees and Former Employees
from such Alpha Group Employees and Former Employees.
22
(ii) Alpha shall promptly notify Conexant of any
post-Distribution Date event giving rise to income to any Conexant Group
Employees and Former Employees in connection with the Alpha Common Stock Options
and, if required by law, Conexant shall withhold applicable Taxes and satisfy
applicable Tax reporting obligations in connection therewith. Alpha shall within
ten days of demand thereof reimburse Conexant for all reasonable out-of-pocket
expenses incurred in connection with the Alpha Common Stock Options, including
with respect to incremental Tax reporting obligations and any incremental
employment Tax obligations; provided that Conexant shall use reasonable efforts
to collect any such amounts required to be paid by Conexant Group Employees and
Former Employees from such Conexant Group Employees and Former Employees.
(d) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions
of Section 4.01(b), in the event a Tax audit proceeding shall determine (by
settlement or otherwise), or the parties otherwise determine pursuant to Section
4.03, that all or a portion of the Tax deductions in respect of Conexant Common
Stock Options or Alpha Common Stock Options should have been claimed by the
Alpha Tax Group or the Conexant Tax Group, respectively, the Alpha Tax Group or
the Conexant Tax Group, respectively, shall claim such Tax deductions (by an
amended Tax Return or otherwise) and shall pay to Conexant or Alpha, as the case
may be, the amount of any Tax refund or credit arising in respect of such Tax
deduction within ten days after such Tax refund or credit is Actually Realized
by the Alpha Tax Group or the Conexant Tax Group, as the case may be.
SECTION 4.02 COMPENSATION PAYMENTS.
(a) TAX DEDUCTIONS. Notwithstanding anything to the
contrary in this Agreement, unless Conexant and Alpha otherwise agree in
writing, (i) the Rockwell Tax Group (and not the Conexant Tax Group or the Alpha
Tax Group) shall claim the Post-Distribution Date Tax deductions in respect of
Compensation Payments paid by the Rockwell Tax Group to Alpha Group Employees
and Former Employers, (ii) the Alpha Tax Group (and not the Conexant Tax Group)
shall claim the Post-Distribution Date Tax deductions in respect of Compensation
Payments paid by the Alpha Tax Group to all other Alpha Group Employees and
Former Employees, and (iii) the Conexant Tax Group (and not the Alpha Tax Group)
shall claim the Post-Distribution Date Tax deductions in respect of Compensation
Payments paid by the Conexant Tax Group to all other Alpha Group Employees and
Former Employees.
(b) NOTICES, WITHHOLDING, REPORTING. The party
responsible for making the Compensation Payments pursuant to the Employee
Matters Agreement shall withhold applicable Taxes and satisfy applicable Tax
reporting obligations in
23
connection with the Compensation Payments made to all Alpha Group Employees and
Former Employees.
(c) TAX AUDIT ADJUSTMENTS. Notwithstanding the provisions
of Section 4.02(a), in the event a Tax audit proceeding shall determine (by
settlement or otherwise), or the parties otherwise determine pursuant to Section
4.03, that all or a portion of the Tax deductions in respect of Compensation
Payments paid to Alpha Group Employees and Former Employees was not available to
the party claiming the Tax deduction, then the appropriate party shall claim
such Tax deductions (by an amended Tax Return or otherwise) and shall pay to the
party which had previously claimed such Tax deduction, within ten days after
such Tax deduction has been Actually Realized by the such appropriate party, the
amount of the resulting Tax benefit to such appropriate party.
SECTION 4.03 CHANGE IN LAW. Notwithstanding the agreement with
respect to reporting of Tax items and the claiming of the deductions set forth
in Article 4 of this Agreement, neither the Alpha Tax Group nor the Conexant Tax
Group shall have any obligation to report any such Tax items or claim such
deductions as set forth in such Article in the event that either such party
determines, based on an opinion of nationally recognized tax counsel, which
opinion shall be satisfactory to the other party, that there is no substantial
authority to support reporting such Tax items or claiming such deductions on a
Tax Return filed by such party as a result of a change in or amendment to any
law or regulation, or any change in the official interpretation thereof,
effective or occurring after the date of this Agreement, and such Tax Group
provides prompt notice to the other Tax Group of any such determination.
SECTION 4.04 INTEREST CHARGE FOR LATE PAYMENTS. Any amount due
and owing by one party to the other party pursuant to this Agreement that is not
paid when due shall bear interest from the due date thereof until paid at a rate
equal to the prime rate of Citibank, N.A. in effect on the date such payment was
required to be made.
SECTION 4.05 CURRENCY CALCULATIONS. All currency calculations
shall be made in accordance with Section 7.17 of the Distribution Agreement.
SECTION 4.06 EFFECTIVE TIME OF TRANSACTION. Conexant and Alpha
agree that any transaction that, pursuant to the Distribution Agreement, is
expressly effective immediately after the Time of Distribution shall be treated
for federal Income Tax purposes as occurring at the beginning of the day
following the Distribution Date.
24
ARTICLE V
COOPERATION AND EXCHANGE OF INFORMATION
SECTION 5.01 INCONSISTENT ACTIONS. Each party to this
Agreement agrees (i) to, and to cause each of the relevant members of its Tax
Group to, report the Contribution and Distribution as a reorganization described
in Sections 355 and 368 of the Code and the Merger as a reorganization described
in Section 368 of the Code on all Tax Returns and other filings, (ii) to use its
best efforts to ensure that the Distribution and the Merger receive such
treatment for U.S. federal Income Tax purposes and (iii) that, unless it has
obtained the prior written consent of the other party, it (and the members of
its Tax Group) shall not take any action inconsistent with, or fail to take any
action required by, the Transaction Agreements and the Merger Agreement.
SECTION 5.02 RULING REQUEST. Each party hereto represents that
neither it (nor any of the members of its Tax Group) will take or has any plan
or intention to take any action which is inconsistent with any factual
statements, representations or other similar conditions contained in the Ruling
Request or in the Ruling.
SECTION 5.03 [Intentionally omitted]
SECTION 5.04 COOPERATION AND EXCHANGE OF INFORMATION. Each
party hereto agrees to provide, and to cause each member of its Tax Group to
provide, such cooperation and information as such other party shall request, on
a timely basis, in connection with the preparation or filing of any Tax Return
or claim for Tax refund not inconsistent with this Agreement or in conducting
any Tax audit, Tax dispute, or
25
otherwise in respect of Taxes or to carry out the provisions of this Agreement
(including any cooperation required to carry out the intentions of the parties
as set forth in the preamble), which cooperation and information shall include
in particular, making its employees involved in the research and development
process available to the other party and having such employees provide such
assistance as the other party may require for such purposes, provided, however,
that neither party shall be obligated to provide the other party Tax Returns,
documentation or other information of a proprietary or confidential nature for
purposes of verifying any calculation, and provided further, that in any such
case where one party does not provide the other party with Tax Returns,
documentation or information because it is proprietary or confidential, both
parties shall cooperate in developing mutually acceptable procedures including
retaining a mutually agreeable accounting firm to review such Tax Returns,
documentation or information for purposes of verifying such calculation. To the
extent necessary to carry out the purposes of this Agreement and subject to the
other provisions of this Agreement, such cooperation and information shall
include without limitation the non-exclusive designation of an officer of
Conexant as an officer of Alpha and each of its affiliates for the purpose of
signing Tax Returns, cashing refund checks, pursuing refund claims, dealing with
Tax Authorities and defending audits as well as promptly forwarding copies of
appropriate notices and forms or other communications received from or sent to
any Tax Authority which relate to the Alpha Tax Group for the Tax
Indemnification Period and providing copies of all relevant Tax Returns for the
Tax Indemnification Period, together with accompanying schedules and related
workpapers, documents relating to rulings or other determinations by Tax
Authorities, including without limitation, foreign Tax Authorities, and records
concerning the ownership and Tax basis of property, which either party may
possess. Subject to the rights of the Alpha Tax Group under the other provisions
of this Agreement, such officer shall have the authority to execute powers of
attorney (including Form 2848) on behalf of each member of the Alpha Tax Group
with respect to Tax Returns for the Tax Indemnification Period. Each party to
this Agreement shall make, or shall cause its affiliates to make, its employees
and facilities available on a mutually convenient basis to provide an
explanation of any documents or information provided hereunder.
SECTION 5.05 TAX RECORDS.
(a) Conexant and Alpha agree to (and to cause each member
of their respective Tax Group to) (i) retain all Tax Returns, related schedules
and workpapers, and all material records and other documents as required under
Section 6001 of the Code and the regulations promulgated thereunder relating
thereto existing on the date hereof or created through the Distribution Date,
for a period of at least ten years following the Distribution Date and (ii)
allow the party to this Agreement, at times and dates reasonably acceptable to
the retaining party, to inspect,
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review and make copies of such records, as Conexant and Alpha may reasonably
deem necessary or appropriate from time to time. In addition, after the
expiration of such ten-year period, such Tax Returns, related schedules and
workpapers, and material records shall not be destroyed or otherwise disposed of
at any time, unless, prior to such destruction or disposal, (A) the party
proposing to destroy or otherwise dispose of such records shall provide no less
than 30 days' prior written notice to the other party, specifying in reasonable
detail the records proposed to be destroyed or disposed of and (B) if a
recipient of such notice shall request in writing prior to the scheduled date
for such destruction or disposal that any of the records proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such requested records at the expense of the party requesting such records.
(b) Notwithstanding anything in this Agreement to the
contrary, if any party fails to comply with the requirements of Section 5.05(a)
hereof, the party failing so to comply shall be liable for, and shall hold the
other party, harmless from, any Taxes (including without limitation, penalties
for failure to comply with the record retention requirements of the Code) and
other costs resulting from such party's failure to comply.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 ENTIRE AGREEMENT; CONSTRUCTION. This Agreement,
the Distribution Agreement, all other Transaction Agreements and the Merger
Agreement, including any annexes, schedules and exhibits hereto or thereto, and
other agreements and documents referred to herein and therein, will together
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and will supersede all prior negotiations, agreements
and understandings of the parties of any nature, whether oral or written, with
respect to such subject matter. Notwithstanding any other provisions in this
Agreement to the contrary, in the event and to the extent that there is a
conflict relating to Taxes between the provisions of this Agreement and the
provisions of the Distribution Agreement, any other Transaction Agreement or the
Merger Agreement, the provisions of this Agreement will control.
SECTION 6.02 EFFECTIVENESS. All covenants and agreements of
the parties contained in this Agreement shall be subject to and conditioned upon
the Distribution becoming effective.
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SECTION 6.03 SURVIVAL OF AGREEMENTS. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement will remain in full force and effect and survive the
Time of Distribution.
SECTION 6.04 GOVERNING LAW. This Agreement will be governed by
and construed in accordance with the internal laws of the State of Delaware
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
SECTION 6.05 NOTICES. All notices, requests, claims, demands
and other communications required or permitted to be given hereunder will be in
writing and will be delivered by hand, telecopied, e-mailed or sent, postage
prepaid, by registered, certified or express mail or reputable overnight courier
service and will be deemed given when so delivered by hand or telecopied, when
e-mail confirmation is received if delivered by e-mail, or three business days
after being so mailed (one business day in the case of express mail or overnight
courier service). All such notices, requests, claims, demands and other
communications will be addressed as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) If to Conexant:
Conexant Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman of the Board and Chief
Executive Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇.▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
28
with a copy to:
Conexant Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇, Esq.
Senior Vice President, General Counsel
and Secretary
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇.▇'▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
(b) If to Washington after the Effective Time:
Washington Sub, Inc.
c/o Alpha Industries, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Financial Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
with a copy to:
Alpha Industries, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
General Counsel
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
29
(c) If to Alpha
Alpha Industries, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Financial Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
with a copy to:
Alpha Industries, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
General Counsel
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
SECTION 6.06 DISPUTE RESOLUTION. Any dispute, claim or
controversy arising out of or relating to any provision of this Agreement or the
breach, performance, enforcement or validity or invalidity thereof will be
resolved in accordance with the procedures set forth in Section 7.05 of the
Distribution Agreement, provided that each such mediator or arbitrator selected
pursuant to such procedures shall have an expertise in Tax matters.
SECTION 6.07 CONSENT TO JURISDICTION. Each of Conexant,
Washington and Alpha irrevocably submits to the exclusive jurisdiction of (i)
the Court of Chancery in and for the State of Delaware and the Superior Court in
and for the State of Delaware and (ii) the United States District Court for the
District of Delaware, for the purposes of any suit, action or other proceeding
arising out of or relating to this Agreement or any transaction contemplated
hereby or the breach, performance, enforcement or validity or invalidity of any
thereof (and agrees not to commence any action, suit or proceeding relating
thereto except in such courts). Each of Conexant, Washington and Alpha further
agrees that service of any process, summons, notice or document hand delivered
or sent by U.S. registered mail to such party's respective address set forth in
Section 6.05 will be effective service of process for any action, suit or
proceeding in Delaware with respect to any matters to which it
30
has submitted to jurisdiction as set forth in the immediately preceding
sentence. Each of Conexant, Washington and Alpha irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby or the breach, performance, enforcement or validity or invalidity of any
thereof in (i) the Court of Chancery in and for the State of Delaware and the
Superior Court in and for the State of Delaware or (ii) the United States
District Court for the District of Delaware, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum. Notwithstanding the foregoing, each party agrees that
a final judgment in any action, suit or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment in any jurisdiction or in
any other manner provided in law or in equity.
SECTION 6.08 AMENDMENTS. This Agreement cannot be amended,
modified or supplemented except by a written agreement executed by Conexant and
Alpha.
SECTION 6.09 SUCCESSORS AND ASSIGNS. Neither party to this
Agreement will convey, assign or otherwise transfer any of its rights or
obligations under this Agreement without the prior written consent of the other
party in its sole and absolute discretion. Notwithstanding the foregoing,
Conexant or Alpha may (without obtaining any consent) assign, delegate or
sublicense all or any portion of its rights and obligations hereunder to (i) the
surviving entity resulting from a merger or consolidation involving such party,
(ii) the acquiring entity in a sale or other disposition of all or substantially
all of the assets of such party as a whole or of any line of business or
division of such party, or (iii) any other Person that is created as a result of
a spin-off from, or similar reorganization transaction of, such party or any
line of business or division of such party. In the event of an assignment
pursuant to (ii) or (iii) above, the nonassigning party shall, at the assigning
party's request, use good faith commercially reasonable efforts to enter into
separate agreements with each of the resulting entities and take such further
actions as may be reasonably required to assure that the rights and obligations
under this Agreement are preserved, in the aggregate, and divided equitably
between such resulting entities. Any such conveyance, assignment or transfer
requiring the prior written consent of another party which is made without such
consent will be void ab initio. No assignment of this Agreement will relieve the
assigning party of its obligations hereunder.
SECTION 6.10 CAPTIONS; CURRENCY. The article, section and
paragraph captions herein and the table of contents hereto are for convenience
of reference only, do not constitute part of this Agreement and will not be
deemed to limit or otherwise affect any of the provisions hereof. Unless
otherwise specified, all
31
references herein to numbered articles or sections are to articles and sections
of this Agreement and all references herein to schedules are to schedules to
this Agreement. Unless otherwise specified, all references contained in this
Agreement or in any schedule referred to herein to dollars or "$" shall mean
U.S. dollars.
SECTION 6.11 SEVERABILITY. If any provision of this Agreement
or the application thereof to any Person or circumstance is determined by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to any
party as a result thereof, the parties will negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
SECTION 6.12 PARTIES IN INTEREST. Except for the provisions of
Article III relating to Tax Indemnification, this Agreement is solely for the
benefit of the parties hereto and the respective members of their Tax Group and
should not be deemed to confer upon third parties (including any employee of
Conexant or Alpha or of any Conexant or Alpha subsidiary) any remedy, claim,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 6.13 SCHEDULES. All schedules attached hereto are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the respective meanings assigned to such terms in this
Agreement.
SECTION 6.14 WAIVERS; REMEDIES. No failure or delay by any
party hereto in exercising any right, power or privilege hereunder will operate
as a waiver thereof, nor will any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder, nor will any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
Subject to Section 6.06, the rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies which the parties may otherwise
have at law or in equity.
SECTION 6.15 COUNTERPARTS. This Agreement may be executed in
separate counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts will together constitute the same
agreement.
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SECTION 6.16 PERFORMANCE. Each party hereto will cause to be
performed, and hereby guarantees the performance of all actions, agreements and
obligations set forth herein to be performed by any subsidiary or any member of
such party's Tax Group.
SECTION 6.17 INTERPRETATION. Any reference to any Federal,
state, local, or foreign Law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. For
the purposes of this Agreement, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof ",
"herein", and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement and (iii) the word "including" and words
of similar import when used in this Agreement shall mean "including, without
limitation".
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties as of the date first
hereinabove written.
CONEXANT SYSTEMS, INC.
By:
-----------------------------
Name:
Title
WASHINGTON SUB, INC.
By:
-----------------------------
Name:
Title
ALPHA INDUSTRIES, INC.
By:
-----------------------------
Name:
Title
34
