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Exhibit 10.3
1995 TAX ALLOCATION AGREEMENT
THIS 1995 TAX ALLOCATION AGREEMENT ("Agreement") is entered into
effective as of the Deconsolidation Date between Enron Corp., a Delaware
corporation with its principal place of business being Houston, Texas
("Enron"), Enron Oil & Gas Company, also a Delaware corporation with its
principal place of business being Houston, Texas ("EOG"), and those
subsidiaries of EOG listed below as additional parties. (Enron, EOG, and those
EOG subsidiaries listed below are hereinafter collectively referred to as the
"Parties" and singularly as a "Party", while EOG and such subsidiaries are
collectively referred to as "EOG").
RECITALS
WHEREAS, Enron and EOG previously entered into that certain First
Amended and Restated Tax Allocation Agreement (hereinafter the "Base
Agreement") executed in August 1991 generally providing for the apportionment
and allocation of federal income and other tax liabilities between the Parties;
and
WHEREAS, the Parties subsequently modified the terms of the Base
Agreement, as reflected in Modification "A" to the First Amended and Restated
Tax Allocation Agreement executed in 1992 (the Base Agreement and Modification
"A" are hereinafter collectively referred to as the "Earlier Agreements") so as
to further specify their agreement as to the apportionment and allocation of
federal income and other tax liabilities; and
WHEREAS, Enron is considering selling a certain number of shares of
common stock that it owns in EOG, thus reducing its ownership interest in EOG
below 80 percent and thereby precluding Enron from continuing to include EOG in
the consolidated federal income tax returns prepared by Enron as common parent
for the taxable periods following the Deconsolidation Date;
WHEREAS, EOG has represented in various public statements that the
Deconsolidation, when coupled with the effectiveness of the Earlier Agreements
and this Agreement, will not have a material adverse effect on its financial
condition or results of operations; and
WHEREAS, the Earlier Agreements do not fully address the obligations
of the Parties vis-a-vis one another upon a Deconsolidation; and
WHEREAS, the Parties have agreed to change many of the provisions of
the Earlier Agreements and thus would like to memorialize such agreement
regarding their respective rights, obligations, and intentions as to any tax
payments to be made by EOG to Enron or by Enron to EOG for the
Post-Deconsolidation Date Period and, in particular, the Parties' rights,
obligations, and intentions with respect to (i) paragraph 7 of Modification "A"
and (ii) any refund of Taxes to be received by the Consolidated Group
attributable to the four years from 1988 through and including 1991, and have
such terms generally supersede those of the Earlier Agreements.
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NOW, THEREFORE, the Parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions: As used in this Agreement, the following terms
have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of any subsequent federal tax laws.
"Consolidated Group" means the "affiliated group" of corporations of
which Enron is the "common parent corporation", as such terms are defined in
Code Section 1504(a)(1).
"Consolidated Minimum Tax Credit(s)" means the consolidated minimum
tax credit(s) computed in accordance with Code Sections 53, 1502, and 1503,
and shown on a Consolidated Return with respect to those tax periods up to and
including the Deconsolidation Date.
"Consolidated Return" means the consolidated federal income tax return
of the Consolidated Group for each taxable year as filed or to be filed by
Enron on behalf of the Consolidated Group.
"Consolidated Tax Liability" means, generally, the consolidated
federal income tax liability computed in accordance with Treasury Regulation
Section 1.1502-2 and shown on a Consolidated Return, taking into account all
credits to which the Consolidated Group is entitled under the Code, but not
taking into account any "consolidated alternative minimum tax liability" (as
provided under Code Sections 55, 1502, and 1503) or any Consolidated Minimum
Tax Credit.
"Deconsolidation" means that event which causes Enron to no longer
have the requisite ownership interest in EOG so as to allow the Parties to file
as a Consolidated Group.
"Deconsolidation Date" means that date when Enron and EOG no longer
constitute a Consolidated Group.
"Earlier Agreements" has that meaning ascribed to it in the Recitals.
"Party" and "Parties" have that meaning ascribed to them in the
Recitals.
"Pre-Deconsolidation Date Period" means, chronologically, those tax
years prior to the 1995 tax year plus that period in time beginning January 1,
1995 and ending on and including the Deconsolidation Date.
"Post-Deconsolidation Date Period" means, chronologically, that period
following the Deconsolidation Date.
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"Taxes" or "Tax" means federal income taxes as provided in Code
Section 11, alternative minimum tax as provided in Code Section 55, and any
state taxes measured by net income (including state taxes measured by net income
reflected in any Unitary Tax Returns filed by Enron) and any interest or
penalties thereon. The term Taxes or Tax, however, specifically excludes any
tax imposed by any foreign government.
"Unitary Tax Return" means a state income tax return which reflects
the combined and/or consolidated reporting (either on a domestic or worldwide
basis) of Enron and its affiliates for a state which either (i) imposes its
income tax on its apportioned and/or allocable share of the net income and its
United States affiliates that are engaged in a "unitary business", part of
which is conducted in the state or (ii) imposes its income tax on its
apportioned and/or allocable share of the net income of a taxpayer and its
affiliates--both domestic and foreign--that are engaged in a unitary business.
Other terms defined herein have the meanings given them.
ARTICLE II
TAX INDEMNIFICATION
2.1 Enron's Tax Indemnification for the Pre-Deconsolidation Date
Period: Enron shall be liable for, indemnify, and hold EOG harmless for all
Taxes (i) imposed on or incurred by EOG for the Pre-Deconsolidation Date Period
and (ii) equitably apportioned to EOG by Enron for all tax periods beginning
before and ending after the Deconsolidation Date. Enron, in turn, shall be
entitled to receive all refunds of such Taxes, if any, from either the
applicable tax authorities or EOG (in the event such refund(s) have been made
directly to EOG), except with respect to the $10.5 million amount set forth in
Section 2.4(a) below.
2.2 EOG's 1995 Tax Liability and Payment
(a) EOG's sole liability for Taxes for the portion of the
Pre-Deconsolidation Date Period attributable to the 1995 tax year shall be
based on EOG's preparation of its portion of Enron's 1995 Consolidated Return
and Enron's review thereof. Any discrepancies between EOG's return position
and Enron's subsequent review shall be resolved by consultation by each Party's
respective tax officers and Enron's ultimate determination shall be controlling
as long as such determination does not have a material adverse effect on EOG's
financial condition or results of operations.
(b) The Parties agree that in determining EOG's allocable
share of the (i) Unitary and (ii) Consolidated Tax Liabilities for the 1995 tax
year that they shall follow the allocation and methodology set forth in the
Earlier Agreements.
(c) EOG shall pay Enron its allocable share of the
estimated Unitary and Consolidated Tax Liabilities for the 1995 tax year, net
of any 1995 Code Section 29 credits, within 45 days from the Deconsolidation
Date. A "true-up" payment shall be made by EOG to Enron or Enron to EOG, if
any, within 15 days after Enron's subsequent determination of EOG's liability
based on
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taxable income and tax credits reported as part of Enron's 1995 Unitary and
Consolidated Returns and EOG's separate state Tax returns.
(d) Enron shall be liable for, indemnify, and hold EOG
harmless for all Taxes attributable to the event of Deconsolidation.
2.3 Government of India Taxes: Enron shall be liable for,
indemnify, and hold EOG harmless for additional taxes, interest, and penalties
assessed by India (including all third-party professional fees and
out-of-pocket costs incurred with respect to the conduct of any audit or the
defense against any assessment) due to (i) a disallowance of deduction for
pre-production sharing costs in fiscal years ended March 31, 1994 and March 31,
1995 and (ii) the failure to file an Association of Persons Return ("AOP") for
the year ended March 31, 1995. Enron shall also be liable for, indemnify, and
hold EOG harmless for any payment required to be made to Reliance Industries
Limited or its affiliates ("RIL") or Oil & Natural Gas Corporation Limited
("ONGC") and all third-party professional fees and out-of-pocket costs incurred
by EOG with respect to the defense against any action or claim made by RIL or
ONGC due to the failure to file AOP for the period ended March 31, 1995.
2.4 Other Payments to be Made Between the Parties
(a) Enron is obligated to pay to EOG $10.5 million
attributable to a federal income tax refund to be received by Enron for the
four tax years from 1988 through and including 1991.
(b) In consideration of Enron's tax indemnification as
set forth in Sections 2.1 and 2.3 to this Agreement, EOG shall be obligated to
pay to Enron $13 million no later than on the Deconsolidation Date.
(c) In the event Enron has not paid EOG the $10.5 million
refund amount by the Deconsolidation Date, EOG shall have the right to offset
its $13 million indemnification payment obligation to Enron by such $10.5
million sum thus resulting in a net payment by EOG to Enron of $2.5 million no
later than on the Deconsolidation Date.
ARTICLE III
MINIMUM TAX CREDIT
AND RELATED MATTERS ASSOCIATED WITH DECONSOLIDATION
3.1 Consolidated Minimum Tax Credit
(a) As currently calculated by Enron, no Consolidated
Minimum Tax Credits have been allocated to EOG by Enron based on Consolidated
Returns filed through tax year ended December 31, 1994 under the methodology
followed for the Pre-Deconsolidation Date Period and Enron has not made any
determination of EOG's allocable share of Consolidated Minimum Tax
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Credits for the 1995 tax year. In the event Consolidated Minimum Tax Credits
are allocated to EOG, EOG shall be obligated to reimburse Enron for the amount
of such credits allocated to EOG. EOG shall make a good faith effort to
utilize such credits. Payments to be made by EOG to Enron shall be made upon
the occurrence of the earlier of the following two events:
(i) The date of EOG's filing of its federal
income tax return for the tax year in the Post-Deconsolidation Date
Period when EOG utilizes any reallocated Consolidated Minimum Tax
Credits; or
(ii) The date EOG's liability is reduced by such
credits if not on an original return and EOG receives a refund or
reduces a payment otherwise required to be made.
(b) For purposes of Section 3.1(a) any minimum tax
credits generated by EOG in the Post-Deconsolidation Date Period shall be
disregarded in making this determination.
(c) For purposes of Section 3.1(a), any payments to be
made between EOG and Enron may be made for more than one tax year of the
Post-Deconsolidation Date Period until the reallocated Consolidated Minimum Tax
Credit is used (or could have been used) in its entirety.
3.2 Consolidated Minimum Tax Credit Allocation Adjustments: In
the event the amount of the Consolidated Minimum Tax Credits allocated to EOG
are adjusted resulting in a reduction of Consolidated Minimum Tax Credits
previously utilized by EOG and a payment has been made by EOG to Enron pursuant
to the terms of Section 3.1, Enron shall be obligated to pay EOG for any
assessment of Taxes made against it by the Internal Revenue Service
attributable to such adjustment from the date of payment pursuant to Section
3.1. Payment shall be made by Enron to EOG on the day EOG pays the Internal
Revenue Service for such assessment.
ARTICLE IV
AUDITS AND OTHER TAX PROCEEDINGS
4.1 General Cooperation and Exchange of Information
(a) EOG shall provide, or cause to be provided, to Enron
copies of all correspondence received from any taxing authority by EOG in
connection with the liability of the Parties for Taxes for the
Pre-Deconsolidation Date Period. EOG shall also provide Enron with access to
or copies of any materials requested by Enron which would assist Enron in
resolving any tax matters for the Consolidated Group for the
Pre-Deconsolidation Date Period. Further, the Parties will provide each other
with such cooperation and information as they may reasonably request of each
other in preparing or filing any return, amended return, or claim for refund,
in determining liability or right of refund, or in conducting any audit or
other proceeding, in respect of Taxes imposed on the Parties or their
respective affiliates.
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(b) Enron on one hand and EOG on the other hand and their
affiliates will preserve and retain all returns, schedules, workpapers, and all
material records or other documents relating to any such returns, claims,
audits, or other proceedings until the expiration of the statutory period of
limitations (including extensions) of the taxable periods to which such
documents relate and until the final determination of any payments which may be
required with respect to such periods under this Agreement and shall make such
documents available at the then-current corporate headquarters of such Party to
the other Party or any affiliate thereof, and their respective officers,
employees, and agents, upon reasonable notice and at reasonable times, it being
understood that such representative shall be entitled to make copies of any
such books and records relating to Enron or EOG as they shall deem necessary.
(c) Enron on one hand and EOG on the other hand further
agree to permit representatives of the other Party or any affiliate thereof to
meet with employees of such Party on a mutually convenient basis in order to
enable such representatives to obtain additional information and explanations
of any documents provided pursuant to this Section 4.1. Enron on one hand and
EOG on the other hand shall make available to the representatives of the other
Party or any affiliate thereof sufficient workspace and facilities to perform
the activities described in this Section. Any information obtained pursuant to
this Section 4.1 shall be kept confidential, except as may be otherwise
necessary in connection with the filing of returns or claims for refund or in
conducting any audit or other proceeding. Each Party shall provide the
cooperation and information required by this Section 4.1 at its own expense.
4.2 Audits: In the event of an audit by the Internal Revenue
Service, or by any state or local tax authority, of a return filed by Enron for
the Pre-Deconsolidation Date Period, Enron shall give EOG timely and reasonable
notice of audit proceedings and EOG will provide all necessary information and
other assistance reasonably requested by Enron with respect to issues
concerning the activities of EOG. All communications with the Internal Revenue
Service concerning such audit will be made by Enron unless otherwise agreed
between the Parties hereto.
4.3 Material Adverse Impact to EOG: Notwithstanding the
provisions of Section 4.2, the Parties agree that in no event shall Enron file
any amended tax return, claim for refund, or make any tax election affecting
the Pre-Deconsolidation Date Period that would have any material adverse
impact on EOG's financial condition or results of operations without first
obtaining the written permission of EOG.
ARTICLE V
UNITARY TAX RETURNS
FOR POST-DECONSOLIDATION DATE PERIOD FILINGS
Enron agrees to continue to file any Unitary Tax Returns and allocate
Unitary tax liability for the Post-Deconsolidation Date Period in which the
operations of EOG are reflected in a manner consistent with the methodology
followed for the Pre-Deconsolidation Date Period.
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ARTICLE VI
OTHER PROVISIONS
6.1 Effect of the Agreement: The obligations of the Parties set
forth under this Agreement shall be unconditional and absolute, and shall
remain in effect without limitation as to time. Further, all prior tax sharing
and allocation agreements between Enron and EOG (including the Earlier
Agreements) shall terminate effective as of the Deconsolidation Date, except
that those provisions of the Earlier Agreement regarding the allocation of
Consolidated Tax Liability shall remain in effect for the 1995 tax year until
the provisions of Section 2.2 of this Agreement are fully implemented by the
Parties.
6.2 Conflict or Ambiguity: Because the terms of this Agreement
generally supersede the terms of the Earlier Agreements, the Parties agree that
if there is any conflict or ambiguity between the Earlier Agreements and this
Agreement the terms of this Agreement shall control.
6.3 Assignability: The rights and obligations of the Parties under
this Agreement may not be assigned by a Party without the prior written consent
of the other Party to this Agreement.
6.4 Governing Law: This Agreement shall be governed by the laws of
the state of Texas.
IN WITNESS WHEREOF, the Parties hereto have caused their names to be
subscribed and executed by the respective authorized officers on the dates
indicated, effective as of the date first written above.
ENRON CORP.
By: /s/ XXXXXX X. XXXXXXX
___________________________________
Xxxxxx X. Xxxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
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ENRON OIL & GAS COMPANY
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
ENRON OIL & GAS INTERNATIONAL, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
EOGI-TRINIDAD, INC.
By: /s/ XXXXX X. XXXXXX
___________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
_________________________________
EOGI-AUSTRALIA, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
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EOGI-FRANCE, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
EOGI-RUSSIA, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
EOGI-QATAR, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
EOGI-UZBEKISTAN, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
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EOGI-KUWAIT, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
ENRON OIL & GAS-CARTHAGE, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
ERSO, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
ENRON OIL & GAS PROPERTY MANAGEMENT, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
___________________________________
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ENRON OIL & GAS MARKETING, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
I N HOLDINGS, INC.
By: /s/ XXXXX X. XXXXXX
_____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
___________________________________
NILO OPERATING COMPANY
By: /s/ XXXXX X. XXXXXX
_____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
EOGI-TRINIDAD U(a) BLOCK, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
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EOGI-ALGERIA, INC.
By: /s/ XXXXX X. XXXXXX
____________________________________
Xxxxx X. Xxxxxx
Vice President, Tax
Date: December 11, 1995
__________________________________
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EOGI-KAZAKHSTAN, INC.
By: /s/ XXXXXX X. XXXX
____________________________________
Xxxxxx X. Xxxx
Assistant Secretary
Date: 12-11-95
__________________________________
EOGI-INDIA, INC.
By: /s/ XXXXXX X. XXXX
____________________________________
Xxxxxx X. Xxxx
Assistant Secretary
Date: 12-11-95
__________________________________
EOGI-CHINA, INC.
By: /s/ XXXXXX X. XXXX
____________________________________
Xxxxxx X. Xxxx
Assistant Secretary
Date: 12-11-95
__________________________________
ENRON OIL & GAS INDIA LTD.
By: /s/ XXXXXX X. XXXX
____________________________________
Xxxxxx X. Xxxx
Assistant Secretary
Date: 12-11-95
__________________________________
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EOGI-UNITED KINGDOM, INC.
By: /s/ XXXXX X. XXXXX
____________________________________
Xxxxx X. Xxxxx
Assistant Secretary
Date: December 11, 1995
__________________________________
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IN WITNESS WHEREOF, the Parties hereto have caused their names to be
subscribed and executed by the respective authorized officers on the dates
indicated, effective as of the date first written above.
ENRON OIL & GAS INVESTMENTS, INC.
By: /s/ XXXXXXX XXXXXX
____________________________________
Xxxxxxx Xxxxxx
President
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