EXHIBIT 10.5
TAX ALLOCATION AGREEMENT
BY AND AMONG
CENTERPOINT ENERGY, INC.
AND ITS AFFILIATED COMPANIES
AND
TEXAS GENCO HOLDINGS, INC.
AND ITS AFFILIATED COMPANIES
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (this "Agreement"), dated _______, 2002, by
and among CenterPoint Energy, Inc., a Texas corporation ("CP"), each CP
Affiliated Company, Texas Genco Holdings, Inc., a Texas corporation ("Texas
Genco"), and each Texas Genco Affiliated Company is entered into in connection
with the Distribution (as defined below).
RECITALS
WHEREAS, CP is the common parent of an affiliated group of corporations
within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), which currently files a consolidated federal income tax
return, and which, together with other affiliated corporations, is party to the
Tax Sharing Agreement (as defined below);
WHEREAS, as set forth in the Master Separation Agreement, dated December
31, 2000, and subject to the terms and conditions thereof, Reliant Energy,
Incorporated, the predecessor to CP, transferred all of its Texas electric
generating assets to a limited partnership subsidiary of Texas Genco, and the
limited partnership subsidiary of Texas Genco assumed all of the liabilities
associated with such electric generating assets; and
WHEREAS, in accordance with the Texas statute that mandates the
deregulation of the Texas electric business and in order to establish the
"stranded costs" attributable to the electric power generation facilities owned
by Texas Genco and pursuant to that certain Separation Agreement between
CenterPoint Energy, Inc. and Texas Genco Holdings, Inc., dated __________, 2002,
CP will distribute approximately 20% of its shares of Texas Genco common stock,
on a pro rata basis, to the holders of the common stock of CP (the
"Distribution");
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS
1.1 In General. As used in this Agreement, the following capitalized terms
shall have the following meanings:
"Affiliated Company" means, for income tax purposes, any entity in
which a common parent holds 80% or more of the voting power and value of
such corporation.
"Audit" includes any audit, assessment of Taxes, other examination by
any Tax Authority, proceeding, or appeal of such a proceeding relating to
Taxes, whether administrative or judicial, including proceedings relating
to competent authority determinations.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Consolidated Group" means a group of one or more corporations
connected through stock ownership with a common parent in which the common
parent owns at least 80% of the total voting power and value of such
corporation and that files a Consolidated Return.
"Consolidated Return" means any Tax Return with respect to Federal
Income Taxes filed on a consolidated basis.
"Consolidated Return Regulations" shall mean the Treasury Regulations
promulgated under Chapter 6 of Subtitle A of the Code, including, as
applicable, any predecessors or successors thereto.
"Consolidated State Tax" means any Tax incurred by a Legal Entity that
is not a Federal Income Tax and that is filed on a combined, unitary, or
consolidated basis.
"Consolidated State Tax Return" means a Tax Return filed with respect
to a Consolidated State Tax liability.
"CP" has the meaning set forth in the Recitals to this Agreement.
"CP Consolidated State Tax" means a Consolidated State Tax for a
particular Tax period for which CP or a member of the CP Group has the
legal obligation to file a Tax Return with respect to such Consolidated
State Tax.
"CP Consolidated State Tax Return" means a Tax Return filed with
respect to a CP Consolidated State Tax.
"CP Group" means CP, any CP Affiliated Company or other entity of
which CP is the common parent corporation or other entity which may be, or
may become a member of such group from time to time.
"CP Consolidated Group" means with respect to a particular Tax period
a Consolidated Group in which CP is the common parent for all or a portion
of such Tax period.
"DIT" shall mean any "deferred intercompany transaction" or
"intercompany transaction" within the meaning of the Treasury Regulations
(or predecessors thereto).
"Distribution" has the meaning set forth in the Recitals to this
Agreement.
"Distribution Date" means the date on which the Distribution is
effective.
"Federal Income Tax" means any Tax imposed under Subtitle A of the
Code (including the Taxes imposed by Sections 11, 55, and 1201(a) of the
Code), and any interest, additions to Tax or penalties applicable or
related thereto, and any other income-based U.S. federal Tax which is
hereinafter imposed upon corporations.
"Filing Party" has the meaning set forth in Section 2.3 of this
Agreement.
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"Final Determination" means with respect to any issue (i) a decision,
judgment, decree or other order by any court of competent jurisdiction,
which decision, judgment, decree or other order has become final and not
subject to further appeal, (ii) a closing agreement (whether or not entered
into under Section 7121 of the Code) or any other binding settlement
agreement (whether or not with the Service) entered into in connection with
or in contemplation of an administrative or judicial proceeding, or (iii)
the completion of the highest level of administrative proceedings if a
judicial contest is not or is no longer available.
"Income Taxes" means (1) any tax based upon, measured by, or
calculated with respect to (A) net income or profits (including any capital
gains tax, minimum tax and any tax on items of Tax preference, but not
including sales, use, real or personal property, gross or net receipts,
transfer or similar taxes) or (B) multiple bases if one or more of the
bases upon which such tax may be based, measured by, or calculated with
respect to, is described in clause (A) above, or (2) any U.S., state or
local franchise tax.
"Indemnifying Party" means a person who has an obligation to indemnify
another person under Section 5.2. "Indemnitee" means a person who is owed
an indemnification obligation by another person under Section 5.2.
"Joint Return" shall mean any Tax Return that includes at least two
Legal Entities, of which one Legal Entity is a member of the Texas Genco
Group and the other Legal Entity is a member of the CP Group.
"Legal Entity" shall mean a corporation, partnership, limited
liability company or other legal entity under the corporation, partnership,
limited liability company or other organizational laws of a state or other
jurisdiction.
"Non-Filing Party" has the meaning set forth in Section 2.3 of this
Agreement.
"Redetermination" shall mean any redetermination as the result of an
Audit by the Service (or the relevant state, local or foreign governmental
authority), a claim for refund, an amended Tax Return or otherwise and that
is resolved by a Final Determination.
"Separate Tax" means any Tax incurred by a Legal Entity that is not a
Federal Income Tax and that is filed on a separate company basis.
"Separate Return" means any Tax Return filed with respect to a
Separate Tax liability.
"Service" means the Internal Revenue Service.
"Tax" includes any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation,
occupation, premiums, environmental, estimated, excise, employment, sales,
use, transfer, license, payroll, franchise, severance, stamp, occupation,
windfall profits, withholding,
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social security, unemployment, disability, ad valorem, estimated, highway
use, commercial rent, capital stock, paid up capital, recording,
registration, property, real property gains, value added, business license,
custom duties, or other tax or governmental fee of any kind whatsoever,
imposed or required to be withheld by any Tax Authority including any
interest, additions to tax, or penalties applicable or related thereto.
"Tax Authority" means any governmental authority or any subdivision,
agency, commission or authority thereof or any quasi-governmental or
private body having jurisdiction over the assessment, determination,
collection or imposition of any Tax (including the Service).
"Tax Benefit" means a reduction in the Tax liability of a taxpayer (or
of the affiliated group of which it is a member) for any taxable period.
Except as otherwise provided in this Agreement, a Tax Benefit shall be
deemed to have been realized or received from a Tax Item in a taxable
period only if and to the extent that the Tax liability of the taxpayer (or
of the affiliated group of which it is a member) for such period, after
taking into account the effect of the Tax Item on the Tax liability of such
taxpayer in the current period and all prior periods, is less than it would
have been if such Tax liability were determined without regard to such Tax
Item.
"Tax Detriment" means an increase in the Tax liability of a taxpayer
(or of the affiliated group of which it is a member) for any taxable
period. Except as otherwise provided in this Agreement, a Tax Detriment
shall be deemed to have been realized or received from a Tax Item in a
taxable period only if and to the extent that the Tax liability of the
taxpayer (or of the affiliated group of which it is a member) for such
period, after taking into account the effect of the Tax Item on the Tax
liability of such taxpayer in the current period and all prior periods, is
more than it would have been if such Tax liability were determined without
regard to such Tax Item.
"Tax Item" means any item of income, gain, loss, deduction or credit,
or other attribute that may have the effect of increasing or decreasing any
Tax.
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated August
6, 1997, entered into by and among Houston Industries, Incorporated
(predecessor to CP), NorAm Energy Corp., and Houston Industries Energy,
Inc.
"Tax Return" means any return, report, certificate, form or similar
statement or document (including, any related or supporting information or
schedule attached thereto and any information return, amended Tax return,
claim for refund or declaration of estimated Tax) required to be supplied
to, or filed with, a Tax Authority in connection with the determination,
assessment or collection of any Tax or the administration of any laws,
regulations or administrative requirements relating to any Tax.
"Texas Genco" has the meaning set forth in the Recitals to this
Agreement.
"Texas Genco Group" means Texas Genco and any Texas Genco Affiliated
Company of which Texas Genco would be the common parent corporation if
Texas Genco were not a member of the CP Group.
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"Treasury Regulations" means the final, temporary and proposed income
Tax regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
1.2 Construction Principles. As used in this Agreement, the singular shall
be deemed to include the plural and vice versa, and the captions and section
headings are inserted for convenience of reference only and are not intended to
have any significance for the interpretation of, or construction of, the
provisions of this Agreement. It is intended that this Agreement shall comply
with the Public Utility Holding Company Act of 1935, Rule 45(c), to the extent
relevant, and all ambiguities shall be interpreted and resolved accordingly.
SECTION 2. PREPARATION AND FILING OF TAX RETURNS.
2.1 In General. CP shall timely file or cause to be filed all Tax Returns
that are filed on a consolidated, combined or unitary basis and shall include
Texas Genco and the Texas Genco Affiliates as members of the CP Group with
respect to the Tax Items of Texas Genco and the Texas Genco Affiliates. If Texas
Genco is required to file a Separate Return, CP shall timely file or cause to be
filed all such Separate Returns.
2.2 Information and Cooperation.
(a) CP and Texas Genco shall provide each other all documents and
information, and make available employees and officers of CP and Texas Genco, as
reasonably requested by the other party, on a mutually convenient basis during
normal business hours, to aid the other party in preparing any Tax Return
described in Section 2.1 of this Agreement or to contest any Audit of any such
Tax Return.
(b) In the case of any Tax Return described in Section 2.1 of this
Agreement, CP will provide Texas Genco with a copy of that portion of each such
Tax Return to the extent it relates to Texas Genco or any Texas Genco Affiliated
Company, together with all related tax accounting work papers, not later than
five (5) days after the receipt of a written request therefor.
2.3 Manner of Filing Tax Returns. Except as otherwise provided in this
Section 2.3 of this Agreement, the party that is required to file a return under
Section 2.1 of this Agreement (the "Filing Party") shall have the exclusive
right to determine (1) the manner in which such Tax Return shall be prepared and
filed, including the elections, methods of accounting, positions, conventions
and principles of taxation to be used and the manner in which any Tax Item shall
be reported, (2) whether any extensions may be requested, (3) the elections that
will be made in such Tax Return, (4) whether any amended Tax Returns shall be
filed, (5) whether any claims for refund shall be made, (6) whether any refunds
shall be paid by way of refund or credited against any liability for the related
Tax, and (7) whether to retain outside specialists to prepare such Tax Return,
whom to retain for such purpose and the scope of any such retainer. (The party
who is not the Filing Party is referred to herein as the "Non-Filing Party".)
2.4 Agent. Texas Genco hereby irrevocably designates, and agrees to cause
each Texas Genco Affiliated Company to so designate, CP as its sole and
exclusive agent and attorney-in-fact to take such action (including execution of
documents) as CP, in its sole
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discretion, may deem appropriate in any and all matters (including Audits)
relating to any Consolidated Return and any other Tax Return described in
Section 2.1 of this Agreement.
SECTION 3. TAX SHARING AND PAYMENTS.
3.1 In General.
(a) Sharing Agreement. Except to the extent specifically modified or
supplemented herein, the Tax Sharing Agreement shall continue in full force and
effect. The provisions of the Tax Sharing Agreement shall fix the rights and
obligations of the parties as to the matters covered thereby.
(b) Federal Income Tax Payments. With respect to CP Consolidated Group
federal income Taxes, no later than five (5) days prior to the due date
(including extensions) of any consolidated federal income Tax Return of the CP
Consolidated Group:
(i) Texas Genco shall pay to CP no later than five (5) days prior to
the due date (including extensions) of such Tax Return, the excess, if any,
of (A) the sum of (I) the aggregate amount of any Tax that would not have
been incurred by the CP Consolidated Group but for the inclusion of any
Legal Entity that is a member of the Texas Genco Group in the CP
Consolidated Group and (II) the aggregate amount of any Tax refund, credit
or other Tax Benefit that would have been realized or received with respect
to such Tax Return (or any other Tax Return that has been or could have
been filed) by the CP Consolidated Group but for the inclusion of any Legal
Entity that is a member of the Texas Genco Group in the CP Consolidated
Group over (B) the aggregate amount previously paid by Texas Genco pursuant
to this clause (i); and
(ii) CP shall pay to Texas Genco no later than five (5) days prior to
the due date (including extensions of such Tax Return) the excess, if any,
of (A) the sum of (I) the aggregate amount of any Tax that would have been
incurred by the CP Consolidated Group but for the inclusion of any Legal
Entity that is a member of the Texas Genco Group in the CP Consolidated
Group and (II) the aggregate amount of any Tax refund, credit or other Tax
Benefit realized or received with respect to such Tax Return that would not
have been realized or received by the CP Consolidated Group but for the
inclusion of any Legal Entity that is a member of the Texas Genco Group in
the CP Consolidated Group over (B) the aggregate amount previously paid by
CP pursuant to this clause (ii).
(c) Consolidated, Combined, Unitary or Joint Return State Tax Payments.
With respect to consolidated, combined, unitary or other Joint Return Taxes,
other than consolidated federal income Taxes, no later than five (5) days prior
to the due date (including extensions) of any Joint Return of the CP
Consolidated Group:
(i) Texas Genco shall pay to CP the excess, if any, of (A) the sum of
(I) the aggregate amount of any Tax that would not have been incurred by
the CP Consolidated Group but for the inclusion of any Legal Entity that is
a member of
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the Texas Genco Group in the CP Consolidated Group and (II) the aggregate
amount of any Tax refund, credit or other Tax Benefit that would have been
realized or received with respect to such Tax Return (or any other Tax
Return that has been or could have been filed) by the CP Consolidated Group
but for the inclusion of any Legal Entity that is a member of the Texas
Genco Group in the CP Consolidated Group over (B) the aggregate amount
previously paid by Texas Genco pursuant to this clause (i); and
(ii) CP shall pay Texas Genco the excess, if any, of (A) the sum of
(I) the aggregate amount of any Tax that would have been incurred by the CP
Consolidated Group but for the inclusion of any Legal Entity that is a
member of the Texas Genco Group in the CP Consolidated Group and (II) the
aggregate amount of any Tax refund, credit or other Tax Benefit realized or
received with respect to such Tax Return that would not have been realized
or received by the CP Consolidated Group but for the inclusion of any Legal
Entity that is a member of the Texas Genco Group in the CP Consolidated
Group over (B) the aggregate amount previously paid by CP pursuant to this
clause (ii).
(d) DITS. The Consolidated Return Regulations and the consolidated federal
income Tax Returns filed by the CP Consolidated Group pursuant to this Agreement
or the Tax Sharing Agreement, respectively, shall determine the timing of the
recognition of Tax Items with respect to DITS and the determination of whether
the CP Consolidated Group or the Texas Genco Group (and which member thereof)
shall bear the Tax Benefit or burden of such Tax Items, and each group shall be
responsible for the Tax Items recognized by its respective members with respect
to any DITS.
(e) Estimated Federal Tax Payments.
(i) In the case of any Federal Income Taxes for the CP Consolidated
Group, Texas Genco (on behalf of itself and each Affiliated Company of
Texas Genco) shall provide to CP no later than 8 days prior to the due date
for each payment of an installment of estimated Federal Income Taxes (as
determined under Section 6655 of the Code or successor provision then in
effect) of the CP Consolidated Group ("Estimated Federal Installment
Payment") such information pertaining to Texas Genco or an Affiliated
Company of Texas Genco as is necessary for CP to compute the amount of such
Estimated Federal Installment Payment.
(ii) On or before the due date of such Estimated Federal Installment
Payment, CP shall inform Texas Genco of either (A) the amount ("Texas Genco
Estimated Federal Installment Payment") that Texas Genco (on behalf of
itself and each Affiliated Company of Texas Genco) must pay CP with respect
to such Estimated Federal Installment Payment, or (B) the amount ("Texas
Genco Estimated Federal Installment Refund") CP must pay Texas Genco with
respect to such Estimated Federal Installment Payment. CP shall compute the
amount of each Texas Genco Estimated Federal Installment Payment or the
Texas Genco Estimated Federal Installment Refund, as the case may be, so as
to equal the
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portion of the Estimated Federal Installment Payment that is allocable to
Texas Genco and the Affiliated Companies of Texas Genco taking into account
previous Texas Genco Estimated Federal Installment Payments and Texas Genco
Estimated Federal Installment Refunds that have been made for the same
period. CP shall calculate the portion of each Estimated Federal
Installment Payment of the Texas Genco Group that is allocable to Texas
Genco and the Affiliated Companies of Texas Genco by (C) computing the sum
of the estimated Federal Income Tax payments that Texas Genco and each
Affiliated Company of Texas Genco would have been required to pay if each
of Texas Genco and each Affiliated Company of Texas Genco had filed a
Federal Income Tax Return on a separate company basis for such estimated
Federal Income Tax period and (D) taking into account adjustments, if any,
that are applicable on a Consolidated Return basis to the CP Consolidated
Group Consolidated Return for such period. Texas Genco shall pay CP the
Texas Genco Estimated Federal Installment Payment within 24 hours after the
due date of the Estimated Federal Installment Payment to which it relates,
and CP shall pay Texas Genco the Texas Genco Estimated Federal Installment
Refund within 24 hours after the due date of the Estimated Federal
Installment Payment to which it relates.
(iii) If (A) the portion of the actual Federal Income Tax Liability of
the CP Consolidated Group that is allocable, as determined by CP in
accordance with the Tax Sharing Agreement and consistent with the past
practices utilized by the CP Tax Department in completing previous CP
Consolidated Group Consolidated Returns, to Texas Genco and the Affiliated
Companies of Texas Genco exceeds (B)(I) the sum of the Texas Genco
Estimated Federal Installment Payments for such period less (II) the sum of
the Texas Genco Estimated Federal Installment Refunds for such period, then
CP shall inform Texas Genco of the amount of such excess on or before the
due date of the CP Consolidated Group Consolidated Return for such period.
Texas Genco (on behalf of itself and each Affiliated Company of Texas
Genco) shall pay the amount of such excess to CP within 24 hours after the
due date of the CP Consolidated Group Consolidated Return.
(iv) If (A) (I) the sum of the Texas Genco Estimated Federal
Installment Payments for a period less (II) the sum of the Texas Genco
Estimated Federal Installment Refunds for such period exceeds (B) the
portion of the actual Federal Income Tax Liability of the CP Consolidated
Group for such period that is allocable, as determined by CP in accordance
with the Tax Sharing Agreement and consistent with past practices utilized
by the CP Tax Department in implementing previous CP Consolidated Group
Returns, to Texas Genco and the Affiliated Companies of Texas Genco, then
CP shall pay the amount of such excess to Texas Genco within 24 hours after
the due date of the CP Consolidated Group Consolidated Return for such
period.
(v) CP shall calculate the portion of the actual Federal Income Tax
Liability of the CP Consolidated Group that is allocable to Texas Genco and
the Affiliated Companies of Texas Genco for Sections 3.1(e)(iii) and (iv)
consistent with the principles set forth in the penultimate sentence of
Section 3.1(e)(ii).
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(f) Estimated Payments of CP Consolidated State Taxes and Texas Genco
Separate State Taxes.
(i) In the case of any CP Consolidated State Tax for any period that
includes a member of the Texas Genco Group or in the case of any Separate
Tax of the Texas Genco Group, Texas Genco (on behalf of itself and each
Affiliated Company of Texas Genco) shall provide to CP no later than 8 days
prior to the due date for each payment of an installment of CP Consolidated
State Tax ("Estimated Consolidated State Installment Payment") or Separate
Tax of Texas Genco ("Estimated Separate State Installment Payment") such
information pertaining to Texas Genco or an Affiliated Company of Texas
Genco as is necessary for CP to compute the amount of such Estimated
Consolidated State Installment Payment or such Estimated Separate State
Installment Payment.
(ii) On or before the due date of such Estimated Consolidated State
Installment Payment, CP shall inform Texas Genco of either (A) the amount
("Texas Genco Estimated Consolidated State Installment Payment") that Texas
Genco (on behalf of itself and each Affiliated Company of Texas Genco) must
pay CP with respect to such Estimated Consolidated State Installment
Payment, or (B) the amount ("Texas Genco Consolidated Estimated State
Installment Refund") CP must pay Texas Genco with respect to such Estimated
Consolidated State Installment Payment. CP shall compute the amount of each
Texas Genco Estimated Consolidated State Installment Payment or Texas Genco
Estimated Consolidated State Installment Refund, as the case may be, so as
to equal the portion of the Estimated Consolidated State Installment
Payment that is allocable to Texas Genco and the Affiliated Companies of
Texas Genco taking into account previous Texas Genco Estimated Consolidated
State Installment Payments and Texas Genco Estimated Consolidated State
Installment Refunds that have been made for the same period. CP shall
calculate the portion of each Estimated Consolidated State Installment
Payment that is allocable to Texas Genco and the Affiliated Companies of
Texas Genco by (C) computing the sum of the estimated CP Consolidated State
Tax payments that Texas Genco and each Affiliated Company of Texas Genco
would have been required to pay if each of Texas Genco and each Affiliated
Company of Texas Genco had filed a CP Consolidated State Tax Return on a
separate company basis for such estimated CP Consolidated State Tax period
and (D) taking into account adjustments, if any, that are applicable on a
Consolidated State Tax basis to the CP Consolidated State Tax Return for
such period. Texas Genco shall pay CP the Texas Genco Estimated
Consolidated State Installment Payment within 24 hours after the due date
of the Estimated Consolidated State Installment Payment to which it
relates, and CP shall pay Texas Genco the Texas Genco Estimated
Consolidated State Installment Refund within 24 hours after the due date of
the Estimated Consolidated State Installment Payment to which it relates to
the extent that CP has cash available from tax installment payments from
other members of the CP Consolidated Group and shall pay Texas Genco the
balance, if any, of the Texas Genco Estimated Consolidated State
Installment Refund within 5 business days after the date that CP receives
the refund from the taxing authority.
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(iii) On or before the due date of each Estimated Separate State
Installment Payment, CP shall inform Texas Genco of either (A) the amount
("Texas Genco Estimated Separate State Installment Payment") that Texas
Genco (on behalf of itself and each Affiliated Company of Texas Genco) must
pay CP with respect to such Estimated Separate State Installment Payment,
or (B) the amount ("Texas Genco Estimated Separate State Installment
Refund") CP must pay Texas Genco with respect to such Estimated Separate
State Installment Payment. CP shall compute the amount of each Texas Genco
Estimated Separate State Installment Payment or Texas Genco Estimated
Separate State Installment Refund, as the case may be, so as to equal the
Estimated Separate State Installment Payment of Texas Genco and the
Affiliated Companies of Texas Genco taking into account previous Texas
Genco Estimated Separate State Installment Payments and Texas Genco
Estimated Separate State Installment Refunds that have been made for the
same period. Texas Genco shall pay CP the Texas Genco Estimated Separate
State Installment Payment within 24 hours after the due date of the
Estimated Separate State Installment Payment to which it relates, and CP
shall pay Texas Genco the Texas Genco Estimated Separate State Installment
Refund within 5 business days after the date that CP receives the refund
from the taxing authority.
(iv) If (A) the portion of the actual CP Consolidated State Tax
Liability for a period that is allocable, as determined by CP in accordance
with the Tax Sharing Agreement and determined as if each of Texas Genco and
each Affiliated Company of Texas Genco had filed a CP Consolidated State
Tax Return on a separate company basis for such estimated CP Consolidated
State Tax period, to Texas Genco and the Affiliated Companies of Texas
Genco exceeds (B)(I) the sum of the Texas Genco Estimated Consolidated
State Installment Payments for such period less (II) the sum of the Texas
Genco Estimated Consolidated State Installment Refunds for such period,
then Texas Genco (on behalf of itself and each Affiliated Company of Texas
Genco) shall pay the amount of such excess to CP within 24 hours after the
due date of the CP Consolidated State Tax Return for such period.
(v) If (A) (I) the sum of the Texas Genco Estimated Consolidated State
Installment Payments for a period less (II) the sum of the Texas Genco
Estimated Consolidated State Installment Refunds for such period exceeds
(B) the portion of the actual CP Consolidated State Tax Liability for such
period that is allocable, as determined by CP in accordance with the Tax
Sharing Agreement and if each of Texas Genco and each Affiliated Company of
Texas Genco had filed a CP Consolidated State Tax Return on a separate
company basis for such estimated CP Consolidated State Tax period, to Texas
Genco and the Affiliated Companies of Texas Genco, then CP shall pay the
amount of such excess to Texas Genco within 24 hours after the due date of
the CP Consolidated State Tax Return for such period to the extent that CP
has cash available from tax installment payments from other members of the
CP Consolidated Group and shall pay Texas Genco the balance, if any, of the
Texas Genco Estimated
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Consolidated State Installment Refund within 5 business days after the date
that CP receives the refund from the taxing authority.
(vi) If (A) the sum of the Separate Tax of Texas Genco for a period
exceeds (B)(I) the sum of the Texas Genco Estimated Separate State
Installment Payments for such period less (II) the sum of the Texas Genco
Estimated Separate State Installment Refunds for such period, then Texas
Genco (on behalf of itself and each Affiliated Company of Texas Genco)
shall pay the amount of such excess to CP within 24 hours after the due
date of the CP Consolidated State Tax Return for such period.
(vii) If (A) (I) the sum of the Texas Genco Estimated Separate State
Installment Payments for a period less (II) the sum of the Texas Genco
Estimated Separate State Installment Refunds for such period exceeds (B)
the sum of the Separate Tax of Texas Genco for such period, then CP shall
pay the amount of such excess to Texas Genco within 5 business days after
the date that CP receives the refund from the taxing authority.
(g) State Allocation Rules. For purposes of CP's determination under
Section 3.1(c) and Section 3.1(f) of the portion of the actual CP Consolidated
State Tax liability that is allocable to Texas Genco and the Affiliated
Companies of Texas Xxxxx, XX shall allocate the amount by which the net
aggregate CP Consolidated State Tax liability for a particular period is
increased or decreased because a Legal Entity included in the CP Consolidated
State Tax Return created a nexus in a jurisdiction resulting in the imposition
of a CP Consolidated State Tax by such jurisdiction that would not otherwise had
been imposed but for such nexus either (A) completely to Texas Genco and the
Affiliated Companies of Texas Genco if such Legal Entity is a member of the
Texas Genco Group or (B) completely to the members of the CP Group if the Legal
Entity is not a member of the Texas Genco Group.
3.2 Payments. CP shall pay (or cause to be paid) to the Service all Federal
Income Taxes, if any, of the CP Consolidated Group that are attributable to
Texas Genco and shall pay (or cause to be paid) to the appropriate Tax
Authorities all Consolidated State Tax, if any, and all Separate Taxes, if any,
that relate to the Texas Genco Group.
SECTION 4. ALLOCATION OF CERTAIN TAX ITEMS.
4.1 Net Operating Losses. Net operating loss carryovers, current losses and
other Tax attributes available to the CP Consolidated Group may be used by any
member of the CP Consolidated Group without compensation to other members of the
Consolidated Group generating such attributes.
4.2 Adjustments.
(a) In the event of any Redetermination of any Joint Return for any taxable
period, the amounts required to be paid pursuant to Section 3 or 4 of this
Agreement shall be recomputed for such taxable period to take into account such
Redetermination, and payments pursuant to Section 3 or 4 of this Agreement
hereof shall be appropriately adjusted. Each party shall pay each other party an
amount equal to the difference between the payment or payments
11
previously made between the parties in respect of such redetermined Tax Return
and the amount that would have been paid pursuant to this Agreement in respect
of such redetermined Tax Return if such redetermined Tax Return had been filed
on the basis of the Redetermination, plus interest at the statutory rate and
applicable penalties.
(b) Any refund of Taxes received will be allocated in a manner consistent
with the existing Tax Sharing Agreement in effect for such period and Section
3.1 of this Agreement.
SECTION 5. INDEMNIFICATION AND CONTEST PROVISIONS.
5.1 General Indemnification.
(a) CP and each CP Affiliated Company shall jointly and severally indemnify
Texas Genco, each Texas Genco Affiliated Company, and their respective
directors, officers and employees, and hold them harmless from and against any
and all Taxes for which CP or any CP Affiliated Company is liable under this
Agreement and any loss, cost, damage or expense, including reasonable attorneys'
fees and costs, that is attributable to, or results from the failure of CP, any
CP Affiliated Company, or any director, officer or employee to make any payment
required to be made under this Agreement.
(b) Texas Genco and each Texas Genco Affiliated Company shall jointly and
severally indemnify CP, each CP Affiliated Company, and their respective
directors, officers and employees, and hold them harmless from and against any
and all Taxes for which Texas Genco or any Texas Genco Affiliated Company is
liable under this Agreement and any loss, cost, damage or expense, including
reasonable attorneys' fees and costs, that is attributable to, or results from
the failure of Texas Genco, any Texas Genco Affiliated Company, or any director,
officer or employee to make any payment required to be made under this
Agreement.
5.2 Payments.
(a) In General. Except as otherwise provided under this Agreement, to the
extent that the Indemnifying Party has an indemnification or payment obligation
to the Indemnitee pursuant to this Agreement, the Indemnitee shall provide the
Indemnifying Party with its calculation of the amount of such indemnification
payment. Such calculation shall provide sufficient detail to permit the
Indemnifying Party to reasonably understand the calculations. All
indemnification payments shall be made to the Indemnitee or to the appropriate
Tax Authority as specified by the Indemnitee within the time prescribed for
payment in this Agreement, or if no period is prescribed, within thirty (30)
days after delivery by the Indemnitee to the Indemnifying Party of written
notice of a payment or if such liability is contested pursuant to Section 6.3 of
this Agreement, within thirty (30) days of the incurrence of such an amount
based on a Final Determination, together with a computation of the amounts due.
(b) Electronic Payments. Any payment required under this Agreement shall be
made by electronic funds transfer of immediately available funds.
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5.3 Prompt Performance. All actions required to be taken by any party under
this Agreement shall be performed within the time prescribed for performance in
this Agreement, or if no period is prescribed, such actions shall be performed
promptly.
5.4 Interest. Payments pursuant to this Agreement that are not made within
the period prescribed in this Section 5.4 shall bear interest for the period
from and including the date immediately following the last date of the period
through and including the date of payment at a per annum rate equal to the prime
rate as published in The Wall Street Journal on the date of determination, plus
two percent (2%). Such interest will be payable at the same time as the payment
to which it relates and shall be calculated on the basis of a year of 365 days
and the actual number of days for which due.
5.5 Tax Records. The parties to this Agreement hereby agree to retain and
provide on proper demand by any Taxing Authority (subject to any applicable
privileges) the books, records, documentation and other information relating to
any Tax Return until the later of (a) the expiration of the applicable statute
of limitations (giving effect to any extension, waiver or mitigation thereof)
and (b) in the event any claim is made under this Agreement for which such
information is relevant, until a Final Determination with respect to such claim.
SECTION 6. AUDITS AND CONTEST RIGHTS.
6.1 In General.
(a) The members of the Texas Genco Group shall cooperate and provide
reasonable access to books, records and other information needed in connection
with Audits, administrative proceedings, litigation and other similar matters
related to periods in which such member of the Texas Genco Group was a member of
the CP Consolidated Group.
(b) Except as otherwise provided in this Agreement, the respective Filing
Party shall have the right to control, contest, and represent the interests of
CP, any CP Affiliated Company, Texas Genco or any Texas Genco Affiliated Company
in any Audit relating to any Tax Return that the Filing Party is responsible for
filing under Section 2.1 of this Agreement and to resolve, settle or agree to
any deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of any such Audit. The Filing Party's rights shall extend to
any matter pertaining to the management and control of an Audit, including
execution of waivers, choice of forum, scheduling of conferences and the
resolution of any Tax Item.
6.2 Notice. If, after the date of this Agreement, CP (or any CP Affiliated
Company) or Texas Genco (or any Texas Genco Affiliated Company) receives written
notice of, or relating to, an Audit from a Tax Authority that asserts, proposes
or recommends a deficiency, claim or adjustment that, if sustained, could result
in Taxes for which the other party is responsible under this Agreement, then the
party receiving such notice shall provide a copy of such notice to such other
party within ten (10) days of receipt thereof.
6.3 Contests.
(a) If any Tax Authority asserts, proposes or recommends a deficiency,
claim or adjustment that, if sustained, could result in Taxes for which the
Non-Filing Party is
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responsible under this Agreement, then upon request by the Non-Filing Party, the
Filing Party shall contest, or continue to contest, any deficiency, claim or
adjustment and the Filing Party shall keep the Non-Filing Party informed in a
timely manner reasonably in advance of all actions taken or proposed to be taken
by the Filing Party in connection with such deficiency, claim or adjustment.
(b) In the case of an Audit with respect to any Tax Item, the Filing Party
shall:
(1) in the case of any material correspondence or filing submitted to
the Tax Authority or any judicial authority that relates to the merits of
such deficiency, claim or adjustment (i) reasonably in advance of such
submission, but subject to applicable time constraints imposed by such Tax
Authority or judicial authority, provide the Non-Filing Party with a draft
copy of the portion of such correspondence or filing that relates to such
deficiency, claim or adjustment, (ii) incorporate, subject to applicable
time constraints imposed by such Tax Authority or judicial authority, the
Non-Filing Party's comments and changes on such draft copy of such
correspondence or filing, and (iii) provide the Non-Filing Party with a
final copy of the portion of such correspondence or filing that relates to
such deficiency, claim or adjustment;
(2) provide the Non-Filing Party with notice reasonably in advance of,
and the Non-Filing Party shall have the right to attend, any meetings with
the Tax Authority (including meetings with examiners) or hearings or
proceedings before any judicial authority to the extent they relate to such
deficiency, claim or adjustment; and
(3) at the Filing Party's reasonable request (or upon the Filing
Party's consent to a request by the Non-Filing Party, which consent shall
not be unreasonably withheld), the Non-Filing Party shall assume
responsibility for (i) contesting and presenting the merits with respect to
any deficiency, claim or adjustment that, if sustained, would result in
Taxes for which the Non-Filing Party is responsible under this Agreement,
or (ii) resolving, settling or agreeing to any such deficiency, claim or
adjustment. Any such request (or consent) by the Filing Party shall be
subject to the Non-Filing Party's continued compliance with the conditions
of Section 6.4 of this Agreement and to such other conditions as the Filing
Party and Non-Filing Party reasonably agree.
6.4 Limitations.
(a) In General. The Filing Party shall have no obligation to contest, or to
continue to contest, any deficiency, claim or adjustment in accordance with
Section 6.3, and the Non-Filing Party shall have no right to control or
participate under Section 6.3 of this Agreement unless:
(1) within thirty (30) days of a reasonable request by the Filing
Party, the Non-Filing Party shall deliver to the Filing Party a written
opinion of a nationally recognized tax attorney, to the effect that the
Non-Filing Party's
14
position with respect to such deficiency, claim or adjustment is supported
by a reasonable basis (within the meaning of Treasury Regulations Section
1.6662-3(b)(3));
(2) the Non-Filing Party shall have agreed to be bound by a Final
Determination of such deficiency, claim or adjustment;
(3) the Non-Filing Party shall have agreed to pay, and shall be
currently paying, all reasonable out of pocket costs and expenses incurred
by the Filing Party to contest such deficiency, claim or assessment
including reasonable outside attorneys', accountants' and investigatory
fees and disbursements;
(4) the Non-Filing Party shall have advanced to the Filing Party, on
an interest-free basis (and with no additional net after-tax cost to the
Filing Party), the amount of Tax in controversy (but not in excess of the
lesser of (A) the amount of Tax for which the Non-Filing Party could be
liable under this Agreement or (B) the amounts actually expended by the
Filing Party for this item) to the extent necessary for the contest to
proceed in the forum selected by the Filing Party;
(5) the Non-Filing Party shall have provided to the Filing Party all
documents and information, and shall have made available employees and
officers of the Non-Filing Party, as may be necessary, useful or reasonably
required by the Filing Party in contesting such deficiency, claim or
adjustment; and
(6) the contest of such deficiency, claim or adjustment shall involve
no material danger of the sale, forfeiture or loss of, or the creation of
any lien on, any asset of the Filing Party (except if the Non-Filing Party
shall have adequately bonded such lien or otherwise made provision to
protect the interests of the Filing Party in a manner reasonably
satisfactory to the Filing Party).
(b) Settlement. Notwithstanding Section 6.4(a), the Filing Party may
resolve, settle or agree to any deficiency, claim or adjustment proposed,
asserted or assessed in connection with any Audit of any Tax Return that it is
responsible for filing under Section 2.1 of this Agreement if the Filing Party
has provided the Non-Filing Party with a reasonable opportunity to review a copy
of that portion of the settlement or compromise proposal which relates to the
claim for which the Filing Party is seeking indemnification hereunder; provided,
that if (a) the Filing Party fails to provide the Non-Filing Party such a
reasonable opportunity to review such portion of such proposal, or (b) after
such reasonable opportunity to review such proposal the Non-Filing Party in
writing reasonably withholds its consent to all or part of such settlement or
compromise proposal, then, unless the Filing Party was not required to continue
the applicable contest under the terms of Section 6.4(a), the Non-Filing Party
shall not be obligated to indemnify the Filing Party hereunder to the extent of
the amount attributable to the loss to which such settlement or compromise
relates as to which the Non-Filing Party has reasonably withheld its consent, or
with respect to any other loss for which a successful contest is foreclosed
because of such settlement or compromise as to which the Non-Filing Party has
reasonably
15
withheld its consent. If the Filing Party effects a settlement or compromise of
such contest, notwithstanding that the Non-Filing Party has reasonably withheld
its consent thereto, the Filing Party shall repay to the Non-Filing Party such
amounts that the Non-Filing Party advanced pursuant to clause (a)(4) of this
Section 6.4 hereof as relate to such claim, to the extent that the Non-Filing
Party has reasonably withheld its consent to the settlement or compromise
thereof (together with interest at the prime rate as published in the Wall
Street Journal on any such amount paid by the Non-Filing Party from the date
paid by Lessee to the date repaid by the Filing Party).
(c) Waiver. Notwithstanding any other provision of this Section 6.4, the
Filing Party may resolve, settle, or agree to any deficiency, claim or
adjustment for any taxable period if the Filing Party waives it right to
indemnity with respect to such Tax Item. In such event, the Filing Party shall
promptly reimburse the Non-Filing Party for all amounts previously advanced by
the Non-Filing Party to the Filing Party in connection with such deficiency,
claim or adjustment under Section 6.4(a)(4) of this Agreement. In addition, the
Filing Party shall reimburse the Non-Filing Party for any Tax Detriment that
directly results from the settlement of such deficiency, claim or adjustment. No
waiver by the Filing Party under this Section 6.4(c) with respect to any
deficiency, claim or adjustment relating to any single Tax Item, position, issue
or transaction or relating to any single Tax for any one taxable period shall
operate as a waiver with respect to any other deficiency, claim or adjustment.
6.5 Failure to Notify, Etc. The failure of the Filing Party promptly to
notify the Non-Filing Party of any matter relating to a particular Tax for a
taxable period or to take any action specified in Section 6.3 of this Agreement
shall not relieve the Non-Filing Party of any liability and/or obligation which
it may have to the Filing Party under this Agreement with respect to such Tax
for such taxable period except to the extent that the Non-Filing Party's rights
hereunder are materially prejudiced by such failure and in no event shall such
failure relieve the Non-Filing Party of any other liability and/or obligation
which it may have to the Filing Party.
6.6 Remedies. Except as otherwise provided in this Agreement, the parties
hereby agree that the sole and exclusive remedy for a breach by the Filing Party
of the Filing Party's obligations to the Non-Filing Party with respect to a
deficiency, claim or adjustment relating to the redetermination of a Tax Item of
the Non-Filing Party for a taxable period shall first be a reduction in the
amount that would otherwise be payable by the Non-Filing Party for such taxable
period and then an increase in amount that would otherwise be payable by the
Filing Party for such taxable period, in either case because of the breach. The
parties further agree that no claim against the Filing Party and no defense to
the Non-Filing Party's liabilities to the Filing Party under this Agreement
shall arise from the resolution by the Filing Party of any deficiency, claim or
adjustment relating to the redetermination of any Tax Item of the Filing Party.
SECTION 7. MISCELLANEOUS.
7.1 Effectiveness. This Agreement shall become effective upon execution by
the parties hereto.
7.2 Notices. Any notice, request, instruction or other document to be given
or delivered under this Agreement by any party to another party shall be in
writing and shall be
16
deemed to have been duly given or delivered when (a) delivered in person, (b)
deposited in the United States mail, postage prepaid and sent certified mail,
return receipt requested or (c) delivered to Federal Express or similar service
for overnight delivery to the address of the party set forth below:
If to CP or any CP Affiliated Company, to _______________, with a copy
to _____________:
--------------------------
--------------------------
--------------------------
--------------------------
If to Texas Genco or any Texas Genco Affiliated Company, to
_____________, with a copy to ______________:
--------------------------
--------------------------
--------------------------
--------------------------
Any party may, by written notice to the other parties, change the address or the
party to which any notice, request, instruction or other document is to be
delivered.
7.3 Changes in Law.
(a) Any reference to a provision of the Code or a law of another
jurisdiction shall include a reference to any applicable successor provision or
law.
(b) If, due to any change in applicable law or regulations or their
interpretation by any court of law or other governing body having jurisdiction
subsequent to the date of this Agreement, performance of any provision of this
Agreement or any transaction contemplated thereby shall become impracticable or
impossible, the parties hereto shall use their commercially reasonable efforts
to find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.
7.4 Confidentiality. For a period of three years, commencing on the date of
this Agreement, each party shall hold and cause its directors, officers,
employees, advisors and consultants to hold in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the opinion
of its counsel, by other requirements of law, all information (other than any
such information relating solely to the business or affairs of such party)
concerning the other parties hereto furnished it by such other party or its
representatives pursuant to this Agreement
17
(except to the extent that such information can be shown to have been
(a) in the public domain through no fault of such party or (b) later lawfully
acquired from other sources not under a duty of confidentiality by the party to
which it was furnished), and each party shall not release or disclose such
information to any other person, except its directors, officers, employees,
auditors, attorneys, financial advisors, bankers and other consultants who shall
be advised of and agree to be bound by the provisions of this Section 7.4. Each
party shall be deemed to have satisfied its obligation to hold confidential
information concerning or supplied by the other party if it exercises the same
care as it takes to preserve confidentiality for its own similar information.
7.5 Successors. This Agreement shall be binding on and inure to the benefit
and detriment of any successor, by merger, acquisition of assets or otherwise,
to any of the parties hereto, to the same extent as if such successor had been
an original party.
7.6 Affiliated Companies. CP shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein to be performed by CP or any CP Affiliated Company. Texas Genco shall
cause to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Texas Genco
Affiliated Company.
7.7 Authorization, Etc. Each of the parties hereto hereby represents and
warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party, that this Agreement constitutes a
legal, valid and binding obligation of each such party and that the execution,
delivery and performance of this Agreement by such party does not contravene or
conflict with any provision of law or of its charter or bylaws or any agreement,
instrument or order binding on such party.
7.8 Entire Agreement. This Agreement contains the entire agreement among
the parties hereto with respect to the subject matter hereof.
7.9 Governing Law; Jurisdiction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas as to
all matters regardless of the law that might otherwise govern under the
principles of conflicts of law applicable thereto.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
7.11 Severability. If any term, provision, covenant, or restriction of this
Agreement is held by a court of competent jurisdiction (or an arbitrator or
arbitration panel) to be invalid, void, or unenforceable, the remainder of the
terms, provisions, covenants, and restrictions set forth herein shall remain in
full force and effect, and shall in no way be affected, impaired, or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants, and restrictions without including any of such which may be hereafter
declared invalid, void, or unenforceable. In the event that any such term,
provision, covenant or restriction is held to be invalid, void or
18
unenforceable, the parties hereto shall use their best efforts to find and
employ an alternate means to achieve the same or substantially the same result
as that contemplated by such terms, provisions, covenant, or restriction.
7.12 No Third Party Beneficiaries. This Agreement is solely for the benefit
of CP, the CP Affiliated Companies, Texas Genco and the Texas Genco Affiliated
Companies. This Agreement should not be deemed to confer upon third parties any
remedy, claim, liability, reimbursement, cause of action or other rights in
excess of those existing without this Agreement.
7.13 Waivers, Etc. No failure or delay on the part of the parties in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing.
7.14 Setoff. All payments to be made by any party under this Agreement may
be netted against payments due to such party under this Agreement, but otherwise
shall be made without setoff, counterclaim or withholding, all of which are
hereby expressly waived.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by a duly authorized officer as of the date first above written.
CENTERPOINT ENERGY, INC.
On behalf of Itself and Its Affiliated Companies
By:
--------------------------------------------
Name:
Title:
TEXAS GENCO HOLDINGS, INC.
On behalf of Itself and Its Affiliated Companies
By:
--------------------------------------------
Name:
Title:
20
