TAX SHARING AGREEMENT

Exhibit 10.16

 

 

 

 

 

 

 

TAX SHARING AGREEMENT

 

DATED AS OF APRIL 4, 2004

 

BY AND AMONG

 

MOTOROLA, INC.

 

AND

 

FREESCALE SEMICONDUCTOR, INC.

 

 

TABLE OF CONTENTS

 

 

i

 

ii

 

 

iii

TAX SHARING AGREEMENT

 

This TAX SHARING AGREEMENT (this “Agreement” ) is entered into as of                  , 2004 by and between Motorola, Inc., a Delaware corporation ( “MINC” ), and Freescale Semiconductor, Inc., a Delaware corporation and a wholly owned subsidiary of MINC ( “Freescale” ) (MINC and Freescale are sometimes collectively referred to herein as the “Companies” ).

 

RECITALS

 

WHEREAS, the Board of Directors of MINC has determined that it would be appropriate and desirable to completely separate the Freescale Business (as defined below) from MINC;

 

WHEREAS, as of the date hereof, MINC is the common parent of an affiliated group of corporations, including Freescale, which has elected to file consolidated Federal income tax returns;

 

WHEREAS, MINC and Freescale have entered into the Master Separation and Distribution Agreement (as defined below), pursuant to which (A) MINC has agreed to contribute and otherwise transfer to Freescale, and Freescale has agreed to receive and assume, the assets and liabilities then associated with the Freescale Business as described therein; and (B) MINC and Freescale contemplate that Freescale shall consummate the IPO (as defined below);

 

WHEREAS, pursuant to the transactions contemplated by the Master Separation and Distribution Agreement, Freescale and its subsidiaries may cease to be members of the affiliated group (as that term is defined in Section 1504 of the Code) of which MINC is the common parent (the “Deconsolidation” );

 

WHEREAS, MINC intends, after the IPO, to distribute to shareholders of MINC the outstanding shares of Freescale Common Stock then owned by MINC; and

 

WHEREAS, the Companies desire to provide for and agree upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the IPO, and to provide for and agree upon other matters relating to Taxes;

 

NOW THEREFORE, in consideration of the mutual agreements contained herein, the Companies hereby agree as follows:

 

Section 1.      Definition of Terms . For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Master Separation and Distribution Agreement:

 

“Accountant” shall have the meaning set forth in Section 8.02(c) of this Agreement.

 

“Accounting Cutoff Date” means, with respect to Freescale, any date as of the end of which there is a closing of the financial accounting records for such entity.

“Active Trade or Business” means the active conduct (as defined in Section 355(b)(2) of the Code and the regulations thereunder) by Freescale of the Freescale Business.

 

“Adjustment Request” means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (a) any amended Tax return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, (b) any claim for equitable recoupment or other offset, and (c) any claim for refund or credit of Taxes previously paid.

 

“Affiliate” means any entity that is directly or indirectly “controlled” by either the person in question or an Affiliate of such person. “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise. Except as otherwise provided herein, the term Affiliate shall refer to Affiliates of a person as determined immediately after the Separation.

 

“Agreement” shall mean this Tax Sharing Agreement.

 

“Board Certificate” shall have the meaning set forth in Section 7.02(e) of this Agreement.

 

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

 

“Companies” means MINC and Freescale, collectively, and “Company” , as the context requires, means either MINC or Freescale.

 

“Contribution” means the contribution of assets by MINC itself directly to Freescale itself pursuant to Section 2.1 of the Master Separation and Distribution Agreement.

 

“Controlling Party” shall have the meaning set forth in Section 10.02(e) of this Agreement.

 

“Deconsolidation” shall have the meaning provided in the Recitals.

 

“Deconsolidation Date” means the last date on which Freescale qualifies as a member of the affiliated group (as defined in Section 1504 of the Code) of which MINC is the common parent.

 

“Distribution” has the meaning set forth in the Master Separation and Distribution Agreement.

 

“Distribution Date” has the meaning set forth in the Master Separation and Distribution Agreement.

 

“DGCL” means the Delaware General Corporation Law.

 

2

“Federal Income Tax” means any Tax imposed by Subtitle A of the Code, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Federal Other Tax” means any Tax imposed by the federal government of the United States of America other than any Federal Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Fifty-Percent or Greater Interest” shall have the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code.

 

“Final Determination” means the final resolution of liability for any Income Tax or Other Tax, which resolution may be for a specific issue or adjustment or for a taxable period, (a) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the laws of a State, local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such taxable period (as the case may be); (b) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the laws of a State, local, or foreign taxing jurisdiction; (d) by any allowance of a refund or credit in respect of an overpayment of Income Tax or Other Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Income Tax or Other Tax; (e) by a final settlement resulting from a treaty-based competent authority determination; or (f) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.

 

“Foreign Income Tax” means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, which is an income tax as defined in Treasury Regulation Section 1.901-2, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Foreign Other Tax” means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, other than any Foreign Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Foreign Stock Distribution” shall have the meaning set forth in Section 2.06 of this Agreement.

 

“Foreign Tax” means any Foreign Income Taxes or Foreign Other Taxes.

 

“Freescale” shall have the meaning provided in the first sentence of this Agreement.

 

“Freescale Adjustment” means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent Freescale would be exclusively liable for any

 

3

resulting Tax under this Agreement or exclusively entitled to receive any resulting Tax Benefit under this Agreement.

 

“Freescale Business” has the meaning of “SPS Business” set forth in the Master Separation and Distribution Agreement.

 

“Freescale Capital Stock” means all classes or series of capital stock of Freescale, including (i) the “Freescale Class A Common Stock” (as defined in the Master Separation and Distribution Agreement), (ii) the “Freescale Class B Common Stock” (as defined in the Master Separation and Distribution Agreement), (iii) all options, warrants and other rights to acquire such capital stock and (iv) all instruments properly treated as stock in Freescale for U.S. federal income tax purposes.

 

“Freescale Carryback” means any net operating loss, net capital loss, excess tax credit, or other similar Tax item of any member of the Freescale Group which may or must be carried from one Tax Period to another prior Tax Period under the Code or other applicable Tax Law.

 

“Freescale Class B Common Stock” has the meaning set forth in the Master Separation and Distribution Agreement.

 

“Freescale Common Stock” has the meaning set forth in the Master Separation and Distribution Agreement.

 

“Freescale Federal Consolidated Income Tax Return” shall mean any United States federal Income Tax Return for the affiliated group (as that term is defined in Code Section 1504) of which Freescale is the common parent.

 

“Freescale Group” means Freescale and its Affiliates, as determined immediately after the Separation.

 

“Freescale Separate Return” means any Separate Return of Freescale or any member of the Freescale Group.

 

“Group” means the MINC Group or the Freescale Group, or both, as the context requires.

 

“High-Level Dispute” means any dispute or disagreement (a) relating to liability under Section 7.05 of this Agreement or (b) in which the amount of liability in dispute exceeds $50 million.

 

“Income Tax” means any Federal Income Tax, State Income Tax or Foreign Income Tax.

 

“Indemnitee” shall have the meaning set forth in Section 13.03 of this Agreement.

 

“Indemnitor” shall have the meaning set forth in Section 13.03 of this Agreement.

 

“Internal Restructuring” shall have the meaning set forth in Section 7.02(f) of this Agreement.

 

“IPO” has the meaning set forth in the Master Separation and Distribution Agreement.

 

“IRS” means the United States Internal Revenue Service.

 

4

“Joint Adjustment” means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest which is neither a Freescale Adjustment nor a MINC Adjustment.

 

“Joint Return” shall mean any Return of a member of the MINC Group or the Freescale Group that is not a Separate Return.

 

“Master Separation and Distribution Agreement” means the Master Separation and Distribution Agreement, as amended from time to time, by and between MINC and Freescale dated                  , 2004.

 

“MINC” shall have the meaning provided in the first sentence of this Agreement.

 

“MINC Adjustment” means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent MINC would be exclusively liable for any resulting Tax under this Agreement or exclusively entitled to receive any resulting Tax Benefit under this Agreement.

 

“MINC Affiliated Group” shall have the meaning provided in the definition of “MINC Federal Consolidated Income Tax Return.”

 

“MINC Federal Consolidated Income Tax Return” means any United States federal Income Tax Return for the affiliated group (as that term is defined in Code Section 1504 and the regulations thereunder) of which MINC is the common parent (the “ MINC Affiliated Group ”).

 

“MINC Group” means MINC and its Affiliates, excluding any entity that is a member of the Freescale Group.

 

“MINC Reduction” shall have the meaning set forth in Section 2.03(a)(i)(B) of this Agreement.

 

“MINC Separate Return” means any Separate Return of MINC or any member of the MINC Group.

 

“MINC State Combined Income Tax Return” means a consolidated, combined or unitary State Income Tax Return that actually includes, by election or otherwise, one or more members of the MINC Group together with one or more members of the Freescale Group.

 

“Motorola Business” shall have the meaning provided in the Master Separation and Distribution Agreement.

 

“Non-Controlling Party” shall have the meaning set forth in Section 10.02(e) of this Agreement.

 

“Notified Action” shall have the meaning set forth in Section 7.04(a) of this Agreement.

 

“Other Tax” means any Federal Other Tax, State Other Tax, or Foreign Other Tax.

 

“Past Practices” shall have the meaning set forth in Section 4.04(a) of this Agreement.

 

5

“Payment Date” means (i) with respect to any MINC Federal Consolidated Income Tax Return, the due date for any required installment of estimated taxes determined under Code Section 6655, the due date (determined without regard to extensions) for filing the return determined under Code Section 6072, and the date the return is filed, and (ii) with respect to any other Tax Return, the corresponding dates determined under the applicable Tax Law.

 

“Payor” shall have the meaning set forth in Section 5.04 of this Agreement.

 

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for U.S. federal income tax purposes.

 

“Post-Deconsolidation Period” means any Tax Period beginning after the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Deconsolidation Date.

 

“Pre-Deconsolidation Period” means any Tax Period ending on or before the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Deconsolidation Date.

 

“Prime Rate” means the base rate on corporate loans charged by Citibank, N.A. from time to time, compounded daily on the basis of a year of 365 or 366 (as applicable) days and actual days elapsed.

 

“Privilege” means any privilege that may be asserted under applicable law, including, any privilege arising under or relating to the attorney-client relationship (including the attorney-client and work product privileges), the accountant-client privilege and any privilege relating to internal evaluation processes.

 

“Proposed Acquisition Transaction” means a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulation Section 1.355-7T, or any other regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by Freescale management or shareholders, is a hostile acquisition, or otherwise, as a result of which Freescale would merge or consolidate with any other Person or as a result of which any Person or any group of related Persons would (directly or indirectly) acquire, or have the right to acquire, from Freescale and/or one or more holders of outstanding shares of Freescale Capital Stock, a number of shares of Freescale Capital Stock that would, when combined with the number of shares of Freescale Capital Stock sold pursuant to the IPO and any other changes in ownership of Freescale Capital Stock pertinent for purposes of Section 355(e) of the Code, comprise 40% or more of (A) the value of all outstanding shares of stock of Freescale as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (B) the total combined voting power of all outstanding shares of voting stock of Freescale as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (A) the adoption by Freescale of a shareholder rights plan or (B) issuances by Freescale that satisfy Safe Harbor VI (relating to acquisitions in connection with a

 

6

person’s performance of services) or Safe Harbor VII (relating to acquisitions by a retirement plan of an employer) of Treasury Regulation Section 1.355-7T(d). For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated in this definition and its interpretation.

 

“Representation Letters” means the representation letters and any other materials (including, without limitation, a Ruling Request and any related supplemental submissions to the IRS) delivered or deliverable by MINC and others in connection with the rendering by Tax Advisors, and/or the issuance by the IRS, of the Tax Opinions/Rulings.

 

“Required Party” shall have the meaning set forth in Section 5.04 of this Agreement.

 

“Responsible Company” means, with respect to any Tax Return, the Company having responsibility for preparing and filing such Tax Return under this Agreement.

 

“Ruling” means a private letter ruling (including a supplemental private letter ruling) issued by the IRS to MINC in connection with the Contribution and Distribution.

 

“Ruling Request” means any letter filed by MINC with the IRS requesting a ruling regarding certain tax consequences of the Transactions (including all attachments, exhibits, and other materials submitted with such ruling request letter) and any amendment or supplement to such ruling request letter.

 

“Section 7.02(e) Acquisition Transaction” means any transaction or series of transactions, other than the IPO, that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 25% instead of 40%.

 

“Separate Return” means (a) in the case of any Tax Return of any member of the Freescale Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the MINC Group and (b) in the case of any Tax Return of any member of the MINC Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the Freescale Group.

 

“Separation” means the series of transactions, including transactions that occur after the IPO, that culminate in the transfer of the Freescale Business to Freescale.

 

“State Income Tax” means any Tax imposed by any State of the United States or by any political subdivision of any such State which is imposed on or measured by net income, including state and local franchise or similar Taxes measured by net income, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

7

“State Other Tax” means any Tax imposed by any State of the United States or by any political subdivision of any such State other than any State Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“State Tax” means any State Income Taxes or State Other Taxes.

 

“Steering Committee ” has the meaning set forth in the Master Separation and Distribution Agreement.

 

“Straddle Period” means any Tax Period that begins on or before and ends after the Deconsolidation Date.

 

“Tax” or “Taxes” means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem , stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

“Tax Advisor” means a United States tax counsel or accountant of recognized national standing.

 

“Tax Advisor Dispute” shall have the meaning set forth in Section 14 of this Agreement.

 

“Tax Attribute” or “Attribute” shall mean a net operating loss, net capital loss, unused investment credit, unused foreign tax credit, excess charitable contribution, general business credit or any other Tax Item that could reduce a Tax.

 

“Tax Authority” means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.

 

“Tax Benefit” means any refund, credit, or other reduction in otherwise required Tax payments.

 

“Tax Contest” means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes (including any administrative or judicial review of any claim for refund).

 

“Tax Contest Committee” shall have the meaning provided in Section 10.02(d).

 

“Tax Control” means the definition of “control” set forth in Section 368(c) of the Code (or in any successor statute or provision), as such definition may be amended from time to time.

 

“Tax-Free Status” means the qualification of the Contribution and Distribution, taken together, (a) as a reorganization described in Sections 355(a) and 368(a)(1)(D) of the Code, (b) as a transaction in which the stock distributed thereby is “qualified property” for purposes of Sections 355(d), 355(e) and 361(c) of the Code and (c) as a transaction in which MINC, Freescale and the shareholders of MINC recognize no income or gain for U.S. federal income tax purposes pursuant to Sections 355, 361 and 1032 of the Code, other than, in the case of MINC

 

8

and Freescale, intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated pursuant to Section 1502 of the Code.

 

“Tax Item” means, with respect to any Income Tax, any item of income, gain, loss, deduction, or credit.

 

“Tax Law” means the law of any governmental entity or political subdivision thereof relating to any Tax.

 

“Tax Opinions/Rulings” means the opinions of Tax Advisors and/or the rulings by the IRS deliverable to MINC in connection with the Contribution and the Distribution.

 

“Tax Period” means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.

 

“Tax Records” means Tax Returns, Tax Return workpapers, documentation relating to any Tax Contests, and any other books of account or records required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority.

 

“Tax-Related Losses” means (i) all federal, state and local Taxes (including interest and penalties thereon) imposed pursuant to any settlement, Final Determination, judgment or otherwise; (ii) all accounting, legal and other professional fees, and court costs incurred in connection with such Taxes; and (iii) all costs, expenses and damages associated with stockholder litigation or controversies and any amount paid by MINC (or any MINC Affiliate) or Freescale (or any Freescale Affiliate) in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Tax Authority, in each case, resulting from the failure of the Contribution and the Distribution to have Tax-Free Status.

 

“Tax Return” or “Return” means any report of Taxes due, any claim for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document required to be filed under the Code or other Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.

 

“Transactions” means the Contribution, the Distribution and the other transactions contemplated by the Master Separation and Distribution Agreement.

 

“Transfer Pricing Adjustment” shall mean any proposed or actual allocation by a Tax Authority of any Tax Item between or among any member of the MINC Group and any member of the Freescale Group with respect to any Pre-Deconsolidation Period.

 

“Treasury Regulations” means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.

 

“Unqualified Tax Opinion” means an unqualified “will” opinion of a Tax Advisor, which Tax Advisor is acceptable to MINC, on which MINC may rely to the effect that a transaction will not affect the Tax-Free Status. Any such opinion must assume that the

 

9

Contribution and Distribution would have qualified for Tax-Free Status if the transaction in question did not occur.

 

Section 2.         Allocation of Tax Liabilities.

 

Section 2.01    General Rule.

 

(a)    MINC Liability . MINC shall be liable for, and shall indemnify and hold harmless the Freescale Group from and against any liability for, Taxes which are allocated to MINC under this Section 2.

 

(b)    Freescale Liability . Freescale shall be liable for, and shall indemnify and hold harmless the MINC Group from and against any liability for, Taxes which are allocated to Freescale under this Section 2.

 

Section 2.02      Allocation of United States Federal Income Tax and Federal Other Tax. Except as provided in Section 2.05, Federal Income Tax and Federal Other Tax shall be allocated as follows:

 

(a)    Allocation of Tax Relating to MINC Federal Consolidated Income Tax Returns. With respect to any MINC Federal Consolidated Income Tax Return, MINC shall be responsible for any and all Federal Income Taxes due or required to be reported on any such Income Tax Return (including any increase in such Tax as a result of a Final Determination).

 

(b)    Allocation of Tax Relating to Federal Separate Income Tax Returns. (i) MINC shall be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any MINC Separate Return (including any increase in such Tax as a result of a Final Determination); (ii) Freescale shall be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any Freescale Separate Return (including any increase in such Tax as a result of a Final Determination).

 

(c)    Allocation of Federal Other Tax . MINC shall be responsible for any and all Federal Other Taxes attributable to the Motorola Business. Freescale shall be responsible for any and all Federal Other Taxes attributable to the Freescale Business.

 

Section 2.03    Allocation of State Income and State Other Taxes. Except as provided in Section 2.05, State Income Tax and State Other Tax shall be allocated as follows:

 

(a)    Allocation of Tax Relating to MINC State Combined Income Tax Returns. Except as provided in Sections 2.03(a)(i) and (ii) below, MINC shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any MINC State Combined Income Tax Return (including any increase in such Tax as a result of a Final Determination).

 

(i)      Allocation of Tax Relating to Post-Deconsolidation Periods.

 

(A)    With respect to any MINC State Combined Income Tax Returns relating to any Post-Deconsolidation Periods, Freescale shall be liable to MINC for State Income Tax liability computed as if all members of the Freescale Group included in the computation of such Tax had filed such State Income Tax Return

 

10

for such Freescale Group members based solely on the income and other Tax Items of such members for the period that such Freescale Group members are included in such MINC State Combined Income Tax Return (without regard to any Taxes or Tax Attributes arising with respect to any period or portion thereof ending on or prior to the Deconsolidation Date), but based on the apportionment factors derived by including all appropriate entities of both Groups on such State Income Tax Return. Any amount so allocated to the Freescale Group shall be a liability of Freescale to MINC under this Section 2, regardless of whether such amount exceeds the total Tax liability shown on such MINC State Combined Income Tax Return.

 

(B)    If, with respect to any MINC State Combined Income Tax Returns relating to any Post-Deconsolidation Periods, a Tax Attribute of any of the members of the Freescale Group arising in such Post-Deconsolidation Period actually reduces the combined Tax liability on the MINC State Combined Income Tax Return below the amount that would have been payable by MINC if the members of the Freescale Group had not been included in such Return (the “MINC Reduction” ), then MINC shall be liable to Freescale in an amount equal to the MINC Reduction.

 

(ii)    Allocation of Consolidated or Combined State Income Tax Adjustments . If there is any adjustment to the Tax liability with respect to any MINC State Combined Income Tax Return relating to any Post-Deconsolidation Periods as reported on such Tax Return as described in Section 2.03(a)(i) above, Freescale shall be liable to MINC, or MINC shall be liable to Freescale, for the difference between the amounts set forth in Section 2.03(a)(i) without regard to the adjustment and the amounts set forth in Section 2.03(a)(i) as adjusted.

 

(b)    Allocation of Tax Relating to Separate Returns. (i) MINC shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any MINC Separate Return (including any increase in such Tax as a result of a Final Determination); (ii) Freescale shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any Freescale Separate Return (including any increase in such Tax as a result of a Final Determination).

 

(c)    Allocation of State Other Tax . MINC shall be responsible for any and all State Other Taxes attributable to the Motorola Business. Freescale shall be responsible for any and all State Other Taxes attributable to the Freescale Business.

 

Section 2.04    Allocation of Foreign Taxes. Except as provided in Sections 2.05 and 2.06, Foreign Income Tax and Foreign Other Tax shall be allocated as follows:

 

(a)     MINC shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any MINC Separate Return, including Foreign Income Tax of MINC or any member of the MINC Group imposed by way of withholding by a member of the Freescale Group (and including any increase in such Foreign Income Tax as a result of a Final Determination).

 

11

(b)     Freescale shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any Freescale Separate Return, including Foreign Income Tax of Freescale or any member of the Freescale Group imposed by way of withholding by a member of the MINC Group (and including any increase in such Foreign Income Tax as a result of a Final Determination).

 

(c)     MINC shall be responsible for any and all Foreign Other Taxes attributable to the Motorola Business. Freescale shall be responsible for any and all Foreign Other Taxes attributable to the Freescale Business.

 

Section 2.05    Certain Transaction and Other Taxes.

 

(a)    Freescale Liability. Freescale shall be liable for, and shall indemnify and hold harmless the MINC Group from and against any liability for:

 

(i)    Any stamp, sales and use, gross receipts, value-added or other transfer Taxes imposed by any Tax Authority on any member of the Freescale Group (if such member is primarily liable for such Tax) on the transfers occurring pursuant to the Transactions;

 

(ii)    any Tax resulting from a breach by Freescale of any covenant in this Agreement, the Master Separation and Distribution Agreement or any Ancillary Agreement; and

 

(iii)    any Tax-Related Losses for which Freescale is responsible pursuant to Section 7.05 of this Agreement.

 

(b)    MINC Liability. MINC shall be liable for, and shall indemnify and hold harmless the Freescale Group from and against any liability for:

 

(i)    Any stamp, sales and use, gross receipts, value-added or other transfer Taxes imposed by any Tax Authority on any member of the MINC Group (if such member is primarily liable for such Tax) on the transfers occurring pursuant to the Transactions;

 

(ii)    any Tax resulting from a breach by MINC of any covenant in this Agreement, the Master Separation and Distribution Agreement or any Ancillary Agreement; and

 

(iii)    any Tax-Related Losses for which MINC is responsible pursuant to Section 7.05 of this Agreement.

 

Section 2.06    Foreign Stock Distributions. Notwithstanding any other provision of this Agreement, (i) MINC shall be responsible for 50 percent of any Foreign Income Tax, if any, imposed solely with respect to the distribution of shares of stock of a member of the MINC Group by a member of the Freescale Group pursuant to the Transactions (such distribution, a “Foreign Stock Distribution” ), (ii) neither MINC nor Freescale shall treat any Foreign Stock Distribution as giving rise to any Foreign Income Tax, unless otherwise required to do so

 

12

pursuant to a Final Determination and (iii) MINC shall control in all respects, including as to settlement, any Tax Contest, ruling request or other proceeding relating to any Foreign Stock Distribution.

 

Section 3.    Proration of Taxes for Straddle Periods.

 

(a)    General Method of Proration . In the case of any Straddle Period, Tax Items shall be apportioned between Pre-Deconsolidation Periods and Post-Deconsolidation Periods in accordance with the principles of Treasury Regulation Section 1.1502-76(b) as reasonably interpreted and applied by the Companies. No election shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year’s items). If the Deconsolidation Date is not an Accounting Cutoff Date, the provisions of Treasury Regulation Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate the items (other than extraordinary items) for the month which includes the Deconsolidation Date.

 

(b)    Transaction Treated as Extraordinary Item . In determining the apportionment of Tax Items between Pre-Deconsolidation Periods and Post-Deconsolidation Periods, any Tax Items relating to the Transactions shall be treated as extraordinary items described in Treasury Regulation Section 1.1502-76(b)(2)(ii)(C) and shall (to the extent occurring on or prior to the Deconsolidation Date) be allocated to Pre-Deconsolidation Periods, and any Taxes related to such items shall be treated under Treasury Regulation Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall (to the extent occurring on or prior to the Deconsolidation Date) be allocated to Pre-Deconsolidation Periods.

 

Section 4.    Preparation and Filing of Tax Returns.

 

Section 4.01    General . Except as otherwise provided in this Section 4, Tax Returns shall be prepared and filed when due (including extensions) by the person obligated to file such Tax Returns under the Code or applicable Tax Law. The Companies shall provide, and shall cause their Affiliates to provide, assistance and cooperation to one another in accordance with Section 8 with respect to the preparation and filing of Tax Returns, including providing information required to be provided in Section 8.

 

Section 4.02    MINC’s Responsibility. MINC has the exclusive obligation and right to prepare and file, or to cause to be prepared and filed:

 

(a)     MINC Federal Consolidated Income Tax Returns for any Tax Periods ending on, before or after the Deconsolidation Date;

 

(b)     MINC State Combined Income Tax Returns and any other Joint Returns which MINC reasonably determines are required to be filed (or which MINC chooses to be filed) by the Companies or any of their Affiliates for Tax Periods ending on, before or after the Deconsolidation Date; provided, however , that MINC shall provide written notice of such determination to file such MINC State Combined Income Tax Returns or other Joint Returns to Freescale; and

 

(c)     MINC Separate Returns and Freescale Separate Returns which MINC reasonably determines are required to be filed by the Companies or any of their Affiliates for Tax Periods

 

13

ending on, before or after the Deconsolidation Date (limited, in the case of Freescale Separate Returns, to such Returns as are required to be filed for Tax Periods ending on or prior to the Deconsolidation Date).

 

Section 4.03    Freescale Responsibility . Freescale shall prepare and file, or shall cause to be prepared and filed, all Tax Returns required to be filed by or with respect to members of the Freescale Group other than those Tax Returns which MINC is required to prepare and file under Section 4.02. The Tax Returns required to be prepared and filed by Freescale under this Section 4.03 shall include (a) any Freescale Federal Consolidated Income Tax Return for Tax Periods ending after the Deconsolidation Date and (b) Freescale Separate Returns required to be filed for Tax periods ending after the Deconsolidation Date.

 

Section 4.04    Tax Accounting Practices.

 

(a)    General Rule . Except as provided in Section 4.04(b), with respect to any Tax Return that Freescale has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 4.03, for any Pre-Deconsolidation Period or any Straddle Period (or any taxable period beginning after the Deconsolidation Date to the extent items reported on such Tax Return might reasonably be expected to affect items reported on any Tax Return for any Pre-Deconsolidation Period or any Straddle Period), such Tax Return shall be prepared in accordance with past practices (in the case of any such Tax Return for a taxable period beginning after the Deconsolidation Date, limited to past practices regarding the reporting of items on Schedule M-1 of the MINC Federal Consolidated Income Tax Return or any similar schedule of any other Tax Return required to be filed by MINC under this Agreement), accounting methods, elections or conventions ( “Past Practices” ) used with respect to the Tax Returns in question (unless there is no reasonable basis for the use of such Past Practices), and to the extent any items are not covered by Past Practices (or in the event that there is no reasonable basis for the use of such Past Practices), in accordance with reasonable Tax accounting practices selected by Freescale. Except as provided in Section 4.04(b), MINC shall prepare any Tax Return which it has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 4.02, in accordance with reasonable Tax accounting practices selected by MINC.

 

(b)    Reporting of Transaction Tax Items . The Tax treatment reported on any Tax Return of the Transactions shall be consistent with the treatment thereof in the Ruling Requests and the Tax Opinions/Rulings (and any Tax Return filed by MINC or any member of the MINC Group or caused to be filed by MINC, in each case with respect to periods prior to the Distribution Date or with respect to Straddle Periods), unless there is no reasonable basis for such Tax treatment. To the extent there is a Tax treatment relating to the Transactions which is not covered by the Ruling Requests or Tax Opinions/Rulings, the Companies shall agree on the Tax treatment to be reported on any Tax Return. For this purpose, the Tax treatment shall be determined by the Responsible Company with respect to such Tax Return and shall be agreed to by the other Company unless either (i) there is no reasonable basis for such Tax treatment, or (ii) such Tax treatment is inconsistent with the Tax treatment contemplated in the Ruling Requests and/or the Tax Opinions/Rulings. Such Tax Return shall be submitted for review pursuant to Section 4.06(a), and any dispute regarding such proper Tax treatment shall be referred for resolution pursuant to Section 14, sufficiently in advance of the filing date of such Tax Return (including extensions) to permit timely filing of the Tax Return.

 

14

Section 4.05    Consolidated or Combined Tax Returns . Freescale will elect and join, and will cause its respective Affiliates to elect and join, in filing any MINC State Combined Income Tax Returns and any Joint Returns that MINC determines are required to be filed or that MINC chooses to file pursuant to Section 4.02(b). With respect to any Freescale Separate Returns relating to any Tax Period (or portion thereof) ending on or prior to the Distribution Date, Freescale will elect and join, and will cause its respective Affiliates to elect and join, in filing consolidated, unitary, combined, or other similar joint Tax Returns, to the extent each entity is eligible to join in such Tax Returns, if MINC reasonably determines that the filing of such Tax Returns is consistent with past reporting practices, or, in the absence of applicable past practices, will result in the minimization of the net present value of the aggregate Tax to the entities eligible to join in such Tax Returns.

 

Section 4.06    Right to Review Tax Returns.

 

(a)    General . The Responsible Company with respect to any material Tax Return shall make such Tax Return and related workpapers available for review by the other Company, if requested, to the extent (i) such Tax Return relates to Taxes for which the requesting party would reasonably be expected to be liable, (ii) such Tax Return relates to Taxes and the requesting party would reasonably be expected to be liable in whole or in part for any additional Taxes owing as a result of adjustments to the amount of such Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for which the requesting party would reasonably be expected to have a claim for Tax Benefits under this Agreement, or (iv) the requesting party reasonably determines that it must inspect such Tax Return to confirm compliance with the terms of this Agreement. The Responsible Company shall use its reasonable best efforts to make such Tax Return available for review as required under this paragraph sufficiently in advance of the due date for filing of such Tax Return to provide the requesting party with a meaningful opportunity to analyze and comment on such Tax Return and shall use its reasonable best efforts to have such Tax Return modified before filing, taking into account the person responsible for payment of the Tax (if any) reported on such Tax Return an