TAX SHARING AGREEMENT
BETWEEN THE DOW CHEMICAL COMPANY
AND
DESTEC ENERGY, INC. AND ITS SUBSIDIARIES
EFFECTIVE AS OF MAY 15, 1996
TABLE OF CONTENTS
1. Definitions 2
2. Scope and Cooperation 7
3. Filing of Returns 8
4. Pro Forma Destec Return 11
5. Payments by Destec 17
6. Payments to Destec 18
7. Use of Attributes; Additional Rights and Obligations
Upon Deconsolidation 18
8. Adjustments 21
9. Remittances by and to Destec 23
10. Carrybacks 24
11. Allocation of Dow Group Consolidated Tax Liability
for Purposes of Determining Earnings and Profits 25
12. Dow Control of Conduct of Audits; Litigation; Expenses 25
13. Partnership Interests 26
14. Administration; Resolution of Disputes 26
15. Additional Agreements 27
16. Indemnification Against Joint and Several Liability 30
17. Interpretation 31
18. Effect of Agreement 31
19. Term 31
20. Assignment 32
21. Confidentiality 32
22. Documentation 32
23. Additional Members 32
24. Tax Law Changes 33
25. Successors and Assigns 33
26. Counterparts 33
27. Headings 33
28. Severability 33
29. Entire Agreement 34
30. Notices 34
31. Governing Law 34
1
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT is made and entered into as of May 15, 1996
by and among THE DOW CHEMICAL COMPANY, a Delaware corporation ("Dow"), as
Common Parent, on behalf of itself and the other members of the Dow Group
(other than any member of the Destec Group), and DESTEC ENERGY, INC., a
Delaware corporation ("Destec"), on behalf of itself and the other members of
the Destec Group.
WHEREAS, Dow is the Common Parent of the Dow Group, and files a
Consolidated Return for the Dow Group, which currently excludes the Destec
Group;
WHEREAS, Destec is the Common Parent of an Affiliated Group comprised of
Destec and its Subsidiaries, and files a Consolidated Return for the Destec
Group;
WHEREAS, certain state and local consolidated, combined or unitary
income or franchise tax returns are filed for various Members or for the Dow
Group;
WHEREAS, Dow currently owns approximately 78 percent of the total issued
and outstanding shares of the common stock of Destec, and Dow's ownership of
Destec shares may increase to 80 percent, resulting in the corporations
comprising the Destec Group being considered to be Members of the Dow Group;
WHEREAS, the parties hereto were parties to a Tax Agreement effective
September 25, 1990 and now wish to modify that agreement and to provide for
the sharing of the Dow Group Consolidated Tax Liability and the state and
local income and franchise tax liabilities relating to such consolidated,
combined or
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unitary returns and certain other matters relating to the inclusion of the
Destec Group in the Dow Group going forward; and
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as
follows:
1. DEFINITIONS.
The following terms as used in this Agreement, shall have the meanings
set forth below:
(a) AFFILIATED GROUP shall have the meaning attributed to that term in
Section 1504(a) of the Code.
(b) AGREEMENT shall mean this Tax Sharing Agreement, as amended from
time to time.
(c) BUSINESS DAY shall have the meaning attributed to that term in
Section 15(f) of this Agreement.
(d) CODE shall mean the Internal Revenue Code of 1986, as amended, and
shall include corresponding provisions of any subsequently enacted federal
tax laws.
(e) COMBINED RETURN, shall mean any non-federal tax return that (a) is
filed on a combined, consolidated or unitary basis between or among (i) the
Dow Group, or any Member thereof, and (ii) the Destec Group, or any Member
thereof, and (b) where any Member of the Dow Group (other than the Destec
Group) makes any payment to the appropriate state or local tax authority on
behalf of all Members of the Dow Group and the Destec Group included in such
return.
(f) COMMON PARENT shall have the meaning of that term as it is used in
the Consolidated Return Regulations.
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(g) COMPLETION, for any Taxable Year of the Dow Group, shall mean the
date on which the Pro Forma Destec Tax Return for such Taxable Year is
delivered to Dow pursuant to Section 4 of this Agreement.
(h) CONSOLIDATED RETURN, for any Taxable Year of the Dow Group shall
mean a consolidated federal income tax return filed pursuant to section 1501
of the Code by the Common Parent for such Taxable Year.
(i) CONSOLIDATED RETURN REGULATIONS shall mean Income Tax Regulations
Sections 1.1502-1 through 1.1502-100(26 C.F.R.), as amended from time to time.
(j) DESIGNATED CREDIT shall have the meaning attributed to that term in
Section 4(f) of this Agreement.
(k) DESTEC GROUP shall mean Destec and those present and future
corporations that would be considered Includible Corporations of an
Affiliated Group of which Destec would be the Common Parent if it were not
includible in the Dow Group.
(l) DESTEC GROUP CONSOLIDATED TAX LIABILITY shall for any Taxable Year
mean the consolidated federal income tax liability imposed under sections 11,
55 and 59A of the Code or any successor provisions thereto, determined on the
basis of the Pro Forma Destec Return, as adjusted by Dow pursuant to this
Agreement. In making such computation for any such Taxable Year, such
liability shall be determined:
(i) on the basis of the highest rate of corporate tax in effect
for such taxable year under section 11 of the Code, as though such rate
were the only income tax rate in effect for such Taxable Year,
(ii) on the assumption that the "exemption amount" specified in
Section 55 of the Code for such Taxable Year is zero, and
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(iii) on the further assumption that the amount specified in
Section 59A(a)(2) of the Code for such Taxable Year is zero.
(m) DESTEC GROUP STATE AND LOCAL TAX LIABILITY shall equal, for each
Combined Return, (i) the sum of the Separate Taxable Incomes for all Members
of the Destec Group that are included in a Combined Return and have nexus in
the jurisdiction for which the Combined Return is filed, divided by (ii) the
sum of the Separate Taxable Incomes for all Members of the Destec Group and
the Dow Group that are included in the Combined Return and have nexus in such
jurisdiction, multiplied by (iii) the total tax liability, net of any tax
credits, reflected on such Combined Return.
(n) DOW GROUP, as of any particular date, shall mean the Affiliated
Group of which Dow (or any successor thereto) is the Common Parent as of such
date.
(o) DOW GROUP CONSOLIDATED TAX LIABILITY shall mean the consolidated
federal income tax liability of the Dow Group for any Taxable Year for which
the Dow Group files a Consolidated Return.
(p) EFFECTIVE DATE shall mean the date on which Destec becomes a Member
of the Dow Group.
(q) FINAL DETERMINATION shall mean with respect to any issue or item
(i) the execution of a final and irrevocable closing agreement or other
settlement agreement with the Service or the relevant state or local taxing
authorities, (ii) the expiration of the time for filing a claim for refund
or, if a refund claim has been timely filed, the expiration of the time for
instigating suit in respect of such refund claim, (iii) the expiration of the
time for filing a petition with the Tax Court or the relevant state or local
tribunal if no such petition has been filed and no suit has been instigated
in respect of the subject matter of such petition, or (iv) a final
unappealable decision of any court of competent jurisdiction.
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(r) INCLUDIBLE CORPORATION shall have the meaning attributed to that
term in section 1504(b) of the Code.
(s) INCOME TAX REGULATIONS shall mean the regulations (26 C.F.R), as
amended from time to time, promulgated pursuant to the Code.
(t) MEMBER, for any Taxable Year of the Dow Group, shall mean any
corporation (or any predecessor or successor in interest to such corporation
under section 381 of the Code or otherwise which was or is an Includible
Corporation) which at any time during such Taxable Year is an Includible
Corporation that is included in the Dow Group and shall include any such
corporation which at any time during such Taxable Year is the Common Parent.
(u) PURCHASE PRICE PER SHARE shall have the meaning attributed to that
term in Section 15(c) of this Agreement.
(v) PRO FORMA DESTEC RETURN shall have the meaning attributed to that
term in Section 4(a) of this Agreement.
(w) REFUNDABLE DESIGNATED CREDIT shall have the meaning attributed to
that term in Section 4(f)(iii) of this Agreement.
(x) SEPARATE TAXABLE INCOME means, for any non-federal jurisdiction,
with respect to any Member of the Destec Group or the Dow Group, the taxable
income allocable to such jurisdiction for any taxable year (but in no case
less than zero), determined without reference to any carrybacks or
carryforwards of any net operating loss, net capital loss, charitable
contribution or other item attributable to any other taxable period, as
determined on a basis that is consistent with the manner in which the Members
of the Destec Group and the Dow Group's Separate Taxable Income has been
determined in the past. If no Combined Return has previously been filed in
a state or local tax jurisdiction for a Member of the Destec Group or the Dow
Group, the Separate Taxable Income shall be determined by Dow in a
reasonable manner in accordance with its past practice of computing
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Separate Taxable Income for other Members joining in the filing of a Combined
Return in such jurisdiction.
(y) SERVICE shall mean the Internal Revenue Service.
(z) SUBSIDIARY shall mean as to any entity (including the parent
corporation) a corporation that would be an Includible Corporation in an
Affiliated Group of which the parent corporation would be the Common Parent.
(aa) TAXABLE YEAR shall mean (a) any taxable year or portion thereof
beginning on or after January 1, 1996 with respect to which a Consolidated
Return is filed on behalf of the Dow Group which includes Destec (or any
successor corporation) or (b) any taxable year beginning on or after the
Effective Date with respect to which a Combined Return is filed by Dow or any
Subsidiary or Dow (other than Destec or any Subsidiary of Destec) which
includes Destec or any Subsidiary of Destec; provided, however, that if
Destec or a Subsidiary of Destec is included in the Dow Group for only a
portion of a Taxable Year of the Dow Group, the "Taxable Year" with respect
to Destec or such Subsidiary shall include only that portion of the Taxable
Year in which Destec or such Subsidiary is included in the Dow Group.
2. SCOPE AND COOPERATION.
(a) SCOPE. This Agreement relates solely to (i) federal income tax
liabilities and (ii) income tax liabilities with respect to certain state and
local jurisdictions in which Destec and/or any Subsidiary of Destec
participated with Dow or any Subsidiary of Dow (other than Destec or any of
its Subsidiaries) in the filing of a Combined Return. Under this Agreement,
the Destec Group will, with certain modifications set forth in this
Agreement, compute its tax liability as if the Destec Group was not part of
the Dow Group. However, so long as Destec or any Subsidiary of Destec is a
Member of the Dow Group, the Destec Group is obligated to provide information
and make payments of the Destec Group
7
Consolidated Tax Liability and the Destec Group State and Local Tax Liability
to Dow, and is subject to the standards and control of Dow in preparing and
filing the Consolidated Return (and any Combined Return).
(b) COOPERATION. Dow and Destec shall cooperate, and each shall cause
its respective Subsidiaries to cooperate fully in the implementation of this
Agreement on a consolidated basis, including but not limited to, providing
promptly to the requesting party such assistance and documentation (at the
expense of the providing party if related to any Taxable Year) as may be
requested by such party in connection with the preparation or filing of the
Consolidated Return (and any Combined Return), and the conduct of any audit
or other examination, or judicial or administrative proceeding or
determination relating thereto.
3. FILING OF RETURNS.
(a) APPOINTMENT OF DOW AS AGENT FOR CONSOLIDATED RETURN. Destec and
each of its Subsidiaries hereby appoint Dow as their agent, with respect to
all periods during which Destec or such Subsidiary, as the case may be, is a
Member of the Dow Group, for the purpose of filing the Consolidated Return
and of making any election or application or taking any action in connection
therewith on behalf of Destec and such Subsidiary. Nothing herein shall be
construed as requiring Dow to file a Consolidated Return for any Taxable Year;
PROVIDED, HOWEVER, that if Dow decides not to file a Consolidated Return it
shall notify Destec in writing within a period reasonably sufficient to
permit Destec to file timely returns for Members of the Destec Group.
(b) DOW CONTROL OVER CONSOLIDATED RETURN. Dow shall prepare and file,
or cause to be prepared and filed, the Consolidated Return and any other
documents or statements required to be filed with the Service that pertain to
the determination of the Dow Group Consolidated Tax Liability for each
Taxable Year of the Dow Group. In its sole and absolute discretion, but
after prior good faith consultation with Destec on issues which impact the
Destec Group Consolidated
8
Tax Liability (if requested by the Tax Director of Destec), Dow shall have
the right with respect to any Consolidated Return that it has filed or will
file to determine (regardless of the manner in which an item or matter may
have been reported by Destec on a Pro Forma Destec Return):
(i) the manner in which such Consolidated Return, as well as any
other documents or statements incidental or related thereto shall be
prepared and filed, including without limitation, the manner in which
any item of income, gain, loss, deduction, expense or credit of Destec
or any Subsidiary of Destec shall be reported therein or thereon;
(ii) whether any extensions (including extensions of the date for
filing or any statute of limitations) with respect to any Consolidated
Return will be requested;
(iii) the elections that will be made in any such Consolidated
Return by any Member, including without limitation, elections by Destec
or any Subsidiary of Destec;
(iv) whether to file an amended Consolidated Return and to prosecute,
compromise or settle any claim for refund set forth therein; and
(v) whether any refunds to which the Dow Group may be entitled
shall be passed by way of cash refund or credited against the Dow Group
Consolidated Tax Liability for any Taxable Year or Taxable Years of the
Dow Group.
Destec and each Subsidiary of Destec hereby irrevocably appoints Dow as its
agent and attorney-in-fact to take any action (including the execution of
documents) as Dow may deem appropriate to effect the foregoing. Nothing
contained in this Agreement shall limit Dow's discretion to determine the
manner in which any item shall be reported on the Consolidated Return.
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(c) APPOINTMENT OF DOW AS AGENT FOR CERTAIN COMBINED RETURNS. Destec
and each Subsidiary of Destec hereby appoint Dow as their agent with respect
to all periods during which Destec or such Subsidiary, as the case may be, is
a Member of the Dow Group, for the purpose of filing any Combined Return that
Dow (or any Subsidiary of Dow, other than Destec or any of its Subsidiaries)
may elect to file, and for making any election or application or taking any
action (including any extension of statutes of limitation) in connection
therewith on behalf of Destec and such Subsidiary. Destec and each of its
Subsidiaries hereby consent to the filing of such returns, and to the making
of such elections and applications. Nothing contained in this Agreement
shall be construed as requiring Dow or any Subsidiary of Dow to file a
Combined Return on behalf of Destec or any Subsidiary of Destec for any
Taxable Year. Dow shall in its sole and absolute discretion determine
whether and with respect to which jurisdictions Destec or any of its
Subsidiaries shall participate in the filing of any Combined Return.
(d) OTHER RETURNS. Destec and its Subsidiaries shall be solely
responsible for filing all tax returns not described in subsections (b) and
(c) of this Section 3 and that relate solely to Destec and/or its
Subsidiaries.
(e) ASSISTANCE AND RESPONSIBILITY FOR SUPPORT OF RETURNS; PROVISION OF
FINANCIAL DATA. Destec and its Subsidiaries shall assist Dow in the filing,
to the extent permitted by law, of a Consolidated Return and such Combined
Returns as Dow elects to file or cause to be filed, by maintaining such books
and records and providing such information as may be necessary or useful in
the filing of such returns and executing any documents and taking any actions
which Dow may reasonably request in connection therewith including without
limitation designing and implementing systems, processes and programs for the
compilation and review of financial data; the review of transactions and
accounting methods; and the preparation of returns and of supporting
documentation to assure that such returns and all related reports and
schedules are complete and accurate. Destec
10
shall, at its own expense, provide Dow with all information required by Dow
to reflect completely and accurately the financial results of the Destec
Group in the Dow Group's Consolidated Return (or a Combined Return). Such
information shall be in such form as determined by Dow from time to time and
shall be delivered to Dow on a mutually agreed upon date, but in no event
later than the first business day in June of the year following such Taxable
Year. Destec shall, at its own expense, maintain sufficient books, records
and expertise to support all returns, positions taken thereon and methods
used to prepare such returns until there has been a Final Determination with
respect to all issues included on such returns. Dow and Destec shall provide
one another with such other information concerning such returns and the
application of payments made under this Agreement as Dow or Destec may
reasonably request of one another.
4. PRO FORMA DESTEC RETURN.
(a) INITIAL PREPARATION OF PRO FORMA DESTEC RETURN. For each Taxable
Year for which a Consolidated Return is filed and Destec or any Subsidiary of
Destec is a Member of the Dow Group, Destec shall prepare on behalf of the
Destec Group a pro forma consolidated federal income tax return as the Common
Parent of the Destec Group (the "Pro Forma Destec Return") covering that
portion of the Taxable Year in which the Destec Group is included in the Dow
Group. The Pro Forma Destec Return shall be complete and accurate, and shall
be in such form and include such information as shall be determined from time
to time by Dow. The Pro Forma Destec Return shall be prepared in accordance
with subsections (b) and (c) of this Section 4 and shall report the
consolidated federal taxable income (including, for all purposes of this
Agreement, alternative minimum taxable income) for such Taxable Year that,
the Destec Group would have reported if it had not been included in the
Consolidated Return filed for the Dow Group with respect to such Taxable Year
and all prior Pro Forma Destec Returns had been actual returns. The
provisions of the Code that require consolidated calculations, including
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without limitation, sections 861, 1201, 1212 and 1231, shall be applied
separately to the Destec Group, but with any simplifying conventions approved
or suggested by the Tax Director of Dow. The Pro Forma Destec Return shall
include gains and losses with respect to deferred intercompany transactions
if, and only if, and to the extent that, such gains or losses are actually
restored and reflected on the Dow Group's Consolidated Return.
(b) STANDARDS FOR POSITIONS TAKEN ON PRO FORMA DESTEC RETURN. Destec
shall prepare the Pro Forma Destec Return by reporting the tax treatment of
any item by utilizing such positions that, in Destec's discretion, are
appropriate for the Destec Group; provided, that each position is more likely
than not to be ultimately sustained; and provided further that the elections
made and the positions taken by Destec on the Pro Forma Destec Return shall
be consistent with the elections made and the positions reflected on the
relevant portion of the Dow Group's Consolidated Return (including carryovers
or carrybacks of net operating losses, net capital losses, excess tax credits
or other tax attributes from prior or subsequent taxable years). Destec may
utilize a position on the Pro Forma Destec Return that does not meet this
standard but that does have a reasonable basis in law and in fact; BUT ONLY
IF Destec has obtained, after prior notice to and consultation with Dow,
Dow's written consent to utilize such position on Pro Forma Destec Return for
such Taxable Year. Except as otherwise required by tax law, Destec may not
utilize a position on the Pro Forma Destec Return that is inconsistent with
any position utilized on a Pro Forma Destec Return or Consolidated Return for
a prior taxable year.
(c) STANDARDS FOR METHODS AND ELECTIONS ON PRO FORMA DESTEC RETURN. The
Pro Forma Destec Return shall reflect any elections made and tax accounting
methods used by Dow with respect to the Dow Group's Consolidated Return that
in the sole and absolute discretion of Dow, but after prior good faith
consultation with Destec (if requested by the Tax Director of Destec), should
be made, taken or
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used consistently by the Dow Group in filing such Consolidated Return. Destec
may utilize any other election, method or simplifying convention subject to
Dow's approval, which approval shall not be unreasonably withheld, in
preparing the Pro Forma Destec Return. Notwithstanding the foregoing, Destec
may not utilize any election or method in preparing the Pro Forma Destec
Return for a Taxable Year that is inconsistent with any election, position or
method utilized on a Pro Forma Destec Return or Consolidated Return for a
prior taxable year if the effect of such treatment is to allow a double
deduction or benefit with respect to any item (or unless Destec has
eliminated such double deduction or benefit in a manner acceptable to Dow).
(d) DELIVERY TO DOW OF PRO FORMA DESTEC RETURN; ASSISTANCE. Destec will
deliver to Dow the Pro Forma Destec Return on a mutually agreed date, but in
no event later than the due date of the Dow Group's Consolidated Return
(taking into account any extensions thereof that have been granted to Dow).
Appropriate personnel of Destec or a Destec Subsidiary that are responsible
for the preparation of the Pro Forma Destec Return shall be available upon
reasonable notice to meet with appropriate personnel of Dow to discuss all
aspects of such return and upon request by Dow shall furnish or make
available for inspection any and all documents used in preparation of the Pro
Forma Destec Return (documents relied upon by Destec in ascertaining whether
any position is more likely than not to be ultimately sustained or has a
reasonable basis in law or in fact shall be furnished only to the principal
tax legal officer of Dow under cover of the attorney-client privilege and
work product doctrine).
(e) ADJUSTMENT BY DOW OF PRO FORMA DESTEC RETURN. Dow, within 60 days
of the due date of the Dow Group's Consolidated Return (taking into account
any extensions thereof that have been granted to Dow) shall adjust the Pro
Forma Destec Return, as appropriate in accordance with the terms of this
Agreement and after prior notice to and good faith consultation with Destec,
to correct any error
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of fact or law thereon or any error in mechanical calculation and any failure
to reflect the principles set forth in this Section 4; provided, however,
that if Dow proposes an adjustment to the Pro Forma Destec Return because of
Dow's belief that Destec's position is not more likely than not to be
sustained and Destec objects to such adjustment, Dow and Destec shall jointly
select and pay for a nationally recognized law firm to render an opinion as
to whether the position advocated by Destec is more likely than not to be
sustained if challenged, in which case, the adjustment proposed by Dow can
only be made if the opinion from the nationally recognized law firm confirms
that the position advocated by Destec is NOT more likely than not to be
sustained if challenged. In the event that Dow and Destec are unable to agree
on a nationally recognized law firm, Dow shall nominate three such firms
(excluding the firms of King & Spalding, Xxxxxx & Xxxxxxxxx, and Groom and
Xxxxxxxx) which have not provided Dow significant tax services in the past
three years, and Destec shall select one of the nominated firms to render
such opinion if the firm is able to do so. Acceptance by Dow of the Pro Forma
Destec Return shall not necessarily indicate agreement by Dow nor relieve
Destec of liability for any adjustment made upon audit or other assessment.
Similarly, any failure by Dow to properly and fully adjust the Pro Forma
Destec Return within the 60-day period set forth in this Section 4(e) shall
not prevent Dow, in its sole and absolute discretion, but after prior good
faith consultation with the Tax Director of Destec, from making subsequent
adjustments in accordance with the procedures of this Section 4(e), as
circumstances warrant within the applicable statute of limitation
(determined as if the Pro Forma Destec Return were an actual return that is
subject to any extensions that have been granted by Dow with respect to the
Consolidated Return) nor relieve Destec of liability for such adjustments. If
as a result of such adjustment any amounts due to or from Destec under this
Agreement differ from the corresponding amounts prior to such adjustment,
payment of such difference shall be made to Destec or
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by Destec in the manner provided in Section 9 within 10 days following such
adjustments.
(f) UTILIZATION OF CREDITS TO REDUCE DESTEC GROUP CONSOLIDATED TAX
LIABILITY UNDER CERTAIN CIRCUMSTANCES. For purposes of computing the Destec
Group Consolidated Tax Liability for a Taxable Year, the portion of the
income tax credits described in section 29 of the Code which cannot otherwise
under this Agreement be utilized by the Destec Group in computing such
liability because of statutory or income limitations, may be utilized by the
Destec Group pursuant to this section 4(f) (such unutilized credits shall
hereinafter be referred to as "Designated Credits").
(i) USE OF DESIGNATED CREDITS IN CURRENT TAXABLE YEAR. Amounts of
Designated Credits generated in a Taxable Year may be applied to reduce the
Destec Group Consolidated Tax Liability (including alternative minimum tax
liability) for the Taxable Year, but not below zero, notwithstanding the
impact of any statutory or income limitations, but only if and to the extent
that such Designated Credits reduce the Dow Group Consolidated Tax Liability
for such Taxable Year.
(ii) USE OF REFUNDABLE DESIGNATED CREDITS IN CURRENT TAXABLE YEAR.
The limitation set forth in Section 4(f)(i) of this Agreement that prevents
Designated Credits from reducing the Destec Group Consolidated Tax Liability
below zero shall not apply to Refundable Designated Credits. Subject to the
limitations set forth below, Refundable Designated Credits generated in the
current Taxable Year may be utilized to reduce the Destec Group Consolidated
Tax Liability with respect to such Taxable Year below zero (and result in a
negative amount that is refundable to Destec to the extent provided herein),
but only if and to the extent that such Refundable Designated Credits reduce
the Dow Group Consolidated Tax Liability. Notwithstanding the foregoing,
Destec will not be permitted to utilize
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Refundable Designated Credits with respect to a Taxable Year pursuant to
this Section 4(f) in an amount greater than $10 million with respect to
any Taxable Year. Refundable Designated Credits that are utilized shall
be applied against the $10 million limitation in the year that they are
utilized. In the event that the amount of Refundable Designated Credits
that can be utilized pursuant to this Section 4(f) with respect to a
Taxable Year is less than the applicable limitation amount, such excess
shall not increase the available limitation in any subsequent Taxable
Year. Dow shall refund in cash to Destec 100% of the Refundable
Designated Credits that are permitted to be utilized pursuant to this
Section 4(f) within 60 days of the Completion date for such Taxable Year.
(iii) DEFINITION OF REFUNDABLE DESIGNATED CREDITS. For purposes
of this Agreement, Refundable Designated Credits are Designated Credits
that are generated by resources purchased by the Destec Group prior to
May 15, 1996, and cannot be utilized under Section 4(f)(i) solely
because of the limitation contained therein that prevents Designated
Credits from reducing the Destec Group Tax Liability below zero. For
purposes of determining whether Designated Credits are Refundable
Designated Credits with respect to a particular Taxable Year, Designated
Credits that reduce the Destec Group Consolidated Tax Liability below
zero shall first be considered to have been generated by resources
purchased by the Destec Group on or after May 15, 1996, to the extent
Designated Credits are generated by such resources in such Taxable Year.
(iv) RESTRICTION ON DOUBLE BENEFIT. Nothing in this Section 4(f)
or any other provision of this Agreement shall be construed to entitle
Destec or any Subsidiary of Destec to receive a double benefit or
compensation with respect to any Designated Credit, Refundable
Designated Credit or a carryforward or carryback thereof. Nothing in
this Section 4(f) is intended to limit the Destec Group's ability to
carry back or carry forward credits,
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including Designated Credits or Refundable Designated Credits, pursuant
to Section 8(b).
5. PAYMENTS BY DESTEC.
(a) GENERAL AND DESTEC GROUP CONSOLIDATED TAX LIABILITY. For each
Taxable Year of the Dow Group, Destec shall pay to Dow the amount of the
Destec Group Consolidated Tax Liability and the Destec Group State and Local
Tax Liability, in the amounts, at the time or times and in the manner as
herein provided.
(i) In the event that the estimated Destec Group Consolidated Tax
Liability for such Taxable Year is greater than zero, Destec shall make
quarterly payments of its estimated Destec Group Consolidated Tax
Liability for such Taxable Year. The amount of each such quarterly
payment shall be determined by Destec and shall equal the amount which
Destec would be required under Section 6655(d) of the Code (or under any
successor section of the Code) to pay to the Service for such quarter
were Destec to make installment payments of the Destec Group
Consolidated Tax Liability for such Taxable Year in accordance with the
provisions of such section.
(ii) If the actual Destec Group Consolidated Tax Liability for such
Taxable Year exceeds the total estimated payments, if any, which Destec
made pursuant to Section 5(a)(i) hereof for such Taxable Year, Destec
shall pay an amount equal to such excess to Dow.
(iii) Each of the quarterly payments required to be made by
pursuant to Section 5(a)(i) hereof shall be made in the manner provided
in Section 9(a) hereof on or before the due date for the payment of the
respective quarterly estimate of the Dow Group Consolidated Tax
Liability for such Taxable Year.
(b) DESTEC GROUP STATE AND LOCAL TAX LIABILITY. For each Taxable Year
with respect to which Destec or any of its Subsidiaries particpates in the
filing of a
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Combined Return, Destec shall pay to Dow, within 30 days of receipt of a xxxx
from Dow, the Destec Group's State and Local Tax Liability for such Taxable
Year.
(c) OTHER TAXES. Destec shall be solely responsible for paying tax
with respect to all tax returns that Destec or any of its Subsidiaries have
responsibility for filing pursuant to this Agreement.
6. PAYMENTS TO DESTEC.
(a) For each Taxable Year of the Dow Group, if the payments made by
Destec pursuant to Section 5(a)(i) hereof of the estimated Destec Group
Consolidated Tax Liability for such Taxable Year exceeds the actual Destec
Group Consolidated Tax Liability for such Taxable Year, Dow shall pay to
Destec an amount equal to such excess.
(b) Any payment that Destec may be entitled to receive for such Taxable
Year pursuant to Section 6(a) hereof shall be paid to Destec in the manner
provided in Section 9(a) hereof on or before 45 calendar days after
Completion.
7. USE OF ATTRIBUTES; ADDITIONAL RIGHTS AND OBLIGATIONS UPON
DECONSOLIDATION.
(a) In determining the Dow Group Consolidated Tax Liability and in
preparing the Consolidated Return for each taxable year, Dow may utilize on
behalf of the Dow Group all the tax attributes and other items of income,
gain, loss, deduction, expense, credit, etc. of Destec and its Subsidiaries
arising in such taxable year or which arose in another taxable year or
taxable years and which properly may be carried back or carried forward to
such taxable year, without regard to whether such attributes and items are
concurrently being, have previously been or may subsequently be utilized in
determining for any Taxable Year or Taxable Years, the Destec Group
Consolidated Tax Liability. Except as expressly provided in Section 4,
Section 7(b), and Section 8 of this Agreement, neither Destec nor any of its
18
Subsidiaries shall in any manner be entitled to any compensation for the use
of any attributes and other items of income, gain, loss, deduction, expense,
credit, etc. of Destec and its Subsidiaries. Moreover, in the event Destec
or any of its Subsidiaries ceases for any reason to be a Member of the Dow
Group either (A) after any of its tax attributes or items of income, gain,
loss, deduction, expense, credit, etc. has been utilized by Dow on behalf of
the Dow Group in determining the Dow Group Consolidated Tax Liability for any
Taxable Year or Taxable Years of the Dow Group, but before Destec has
utilized such attribute or item (in whole or in part) in determining for any
Taxable Year or Taxable Years, the Destec Group Consolidated Tax Liability or
(B) after any of its tax attributes or items of income, gain, loss,
deduction, expense, credit, etc. has been utilized by Destec on behalf of the
Destec Group in determining the Destec Group Consolidated Tax Liability for
any Taxable Year or Taxable Years, but before Dow has utilized such attribute
or item (in whole or in part) in determinig for any Taxable Year or Taxable
Years, the Dow Group Consolidated Tax Liability, neither Dow nor Destec, as
the case may be, shall be obligated or required to compensate such other
party in any manner for any amount as a result of the occurrence of such
event, except as expressly provided in Section 7(b) below.
(b) In the event Destec or any of its Subsidiaries ceases for any reason
to be a Member of the Dow Group, then within 90 days after the filing of the
Consolidated Return for the last Taxable Year that Destec or such Subsidiary
was included therein, Dow shall inform Destec or such Subsidiary, as the case
may be, of the amount of consolidated loss and credit carryovers as of the
end of the Taxable Year that are allocable to Destec or such Subsidiary,
pursuant to the Consolidated Return Regulations. In the event that Dow
determines that the amount of any particular category of loss or credit
carryover attributes so allocated to Destec or such Subsidiary exceeds the
amount of loss and credit attributes of such category (other than Designated
Credits that reduced the Destec Group Tax Liability for any Taxable Year
pursuant to Section 4(f) of this Agreement) that
19
would have been available to Destec or such Subsidiary if the Destec Group
had not been included in the Dow Group for the current Taxable Year and all
prior Taxable Years and all Pro Forma Destec Returns had been actual returns,
then Destec or such Subsidiary shall pay to Dow within 10 days of
notification of the determination described in this Section 7(b), an amount
equal to the value of such attributes, as described below. In the event that
Dow determines that (A) the amount of loss and credit carryover attributes of
any particular category so allocated to Destec or such Subsidiary is less
than (B) the amount of the loss and credit attributes of such category (other
than Designated Credits that reduced the Destec Group Tax Liability for any
Taxable Year pursuant to Section 4(f) of this Agreement) that would have been
available to Destec or such Subsidiary if the Destec Group that not been
included in the Dow Group for the current Taxable Year and all prior Taxable
Years and all Pro Forma Destec Returns had been actual returns, then Dow
shall pay to Destec or its Subsidiaries, within 10 days of notification of
the determination described in this Section 7(b), an amount equal to the
value such attributes would have had, as described below. Dow's
determinations pursuant to this Section 7(b) shall be presumptively correct
and shall be binding on the parties hereto. At Destec's request, the
calculation of any such amounts shall be verified by a Big Six accounting
firm jointly selected by Dow and Destec, whose fees and expenses shall be
shared equally by Dow and Destec, and whose final determination shall be
final and binding on the parties hereto. For purposes of this Section 7(b),
tax credits shall be valued on a dollar-for-dollar basis and losses or
deductions shall be valued at 38 percent of their nominal amount.
(c) If a Member at any time acquires the assets and properties of
another Member pursuant to a transaction to which Section 381 of the Code
applies or otherwise, the acquiring Member shall, from and after the date of
such acquisition, be responsible for all of the undertakings and obligations
of such other Member hereunder and shall, from and after such date, be
entitled to receive any and all
20
payments that such other Member would be entitled to receive hereunder.
Provided such other Member ceases to exist solely as a result of such
transaction, such event shall not, except as expressly provided herein, in
any way result in any acceleration of the time at which any payments
hereunder are due to or from such other Member, and, except as expressly
provided herein to the contrary, all such payments shall be made to or by
the acquiring Member at the same time or times that such payments would be
payable to or by such other Member had such other Member continued to exist
as a Member hereunder.
8. ADJUSTMENTS.
(a) If any adjustment is made with respect to a Taxable Year during
which Destec or any of its Subsidiaries is a member of the Dow Group to any
item of income, gain, loss, deduction expense or credit of Destec or any
Subsidiary of Destec by reason of the filing of an amended Consolidated
Return (or an amended Combined Return), a claim for refund with respect to
such Taxable Year or an audit with respect to such Taxable Year by the
Service (or the applicable state and local taxing authority), the amounts, if
any, due to or from Destec under this Agreement shall be redetermined by
taking into account any such adjustment and applying the procedures set
forth in this Agreement. Dow shall have sole and absolute discretion, but
after prior good faith consultation with the Tax Director of Destec, to
determine whether and in what amount an adjustment applies to Destec or any
of its Subsidiaries. If, as a result of such redetermination, any amounts due
to or from Destec under this Agreement differ from the amounts previously
paid, then except as herein provided, payment of such difference together
with any interest, penalty or addition to tax properly allocated to Destec
shall be made to Destec or by Destec in the manner provided in Section 9(a)
as follows: (a) in the case of an adjustment resulting in a credit or refund
of tax, within 10 calendar days of the date on which such refund or notice
of such credit is received by Dow or Destec with respect to such adjustment,
or (b) in the case of an adjustment
21
resulting in a payment of additional tax, within 10 calendar days of the date
on which such additional tax is paid. Any interest, penalty or addition to
tax will be allocated as Dow, in its discretion, deems just and proper in
view of all applicable circumstances (to the extent practicable, however,
such allocations shall reflect the amount of interest that the Destec Group
would have paid on a stand alone basis). Neither acceptance of a Pro Forma
Destec Return nor failure by Dow to file consistently with such Pro Forma
Destec Return shall relieve Destec of liability for an adjustment under this
Section 8(a).
(b) REFUND OF TAX SHARING PAYMENT. In the event that the Pro Forma
Destec Return (or the corresponding calculation with respect to the Destec
Group State and Local Tax Liability) for any Taxable Year reflects a net
operating loss, net capital loss, Designated Credit, excess tax credit or
other tax attribute, such attributes (other than Designated Credits that have
reduced the Destec Group Consolidated Tax Liability pursuant to Section
4(f)(i) and (ii) and Designated Credits described in section 4(f)(iii), which
may be carried forward pursuant to Section 4(f)(iii)), may be carried back or
carried forward, as the case may be, and utilized in calculating the Destec
Group Consolidated Tax Liability (or the Destec Group State and Local Tax
Liability) for prior or subsequent Taxable Years in the same manner as such
attributes would have been carried back or carried forward and deducted if
the Pro Forma Destec Returns had been actual returns or, in the case of state
and local tax, under applicable state or local provisions, as such
provisions would have been applied to a Combined Return, but after taking
into account any limitation on the use of such attributes imposed pursuant
to the Code or the Income Tax Regulations (or with respect to a Combined
Return, applicable state or local provisions). In such case the Destec Group
Consolidated Tax Liability (or the Destec Group State and Local Tax Liability)
shall be recomputed for the Taxable Year or Years to which such attributes
are carried and for any subsequent Taxable Years to take into account such
attributes, and payments made pursuant to Sections 5 and 6 of this Agreement
shall be appropriately
22
adjusted. In the case of any carryback of attributes pursuant to this Section
8(b), any payment between Dow and Destec required by such adjustment shall be
paid within 45 days after Completion (or the corresponding date with respect
to the relevant Combined Return) for the year in which such attribute arises.
(c) For purposes of Section 8(b), if the Pro Forma Destec Return for a
Taxable Year reflects a net operating loss, in addition to the carryback
provisions set forth in Section 8(b), the Destec Group can also carry back
and recalculate its Destec Group Consolidated Tax Liability for any taxable
year prior to a Taxable Year that would otherwise be permitted under the Code
and applicable Income Tax Regulations (assuming the Destec Group had never
become a Member of the Dow Group), and if such carryback would have resulted
in a refund of the Destec Group Consolidated Tax Liability for such taxable
year, and if the net operating loss is reflected in the Dow Group
Consolidated Return and reduces the Dow Group Consolidated Tax Liability for
the Taxable Year in which it occurs, Dow will pay Destec the lesser of (a)
the amount of such refund that Destec would otherwise have received from the
Service resulting from such carryback, or (b) the amount by which the Dow
Group Consolidated Tax Liability for the Taxable Year was reduced by the
reflection of the net operating loss.
(d) Except as provided in Section 8(a) or 8(b) of this Agreement, Destec
may not amend a Pro Forma Destec Tax Return for a prior Taxable Year or
otherwise cause a redetermination of the Destec Group Consolidated Tax
Liability for a prior Taxable Year. Nothing in this Section 8 shall be
construed to entitle Destec or any Subsidiary of Destec to receive a double
benefit or compensation with respect to any attribute.
9. REMITTANCES BY AND TO DESTEC.
(a) Until such time as Dow notifies Destec in writing to the contrary,
any and all payments that Destec agrees to make hereunder shall be made and
23
remitted by Destec directly to Dow. Dow shall be responsible for making all
payments required to be made hereunder to Destec.
(b) Any payment required to be made hereunder by Destec or Dow that is
not made on or before the date on which such payment is due under the terms
of this Agreement shall bear interest at the rate specified from time to time
pursuant to section 6621(a)(2) of the Code, and the party to whom such
payment is due shall be entitled to receive interest computed at such rate
upon the late payment of any such amount which is required at any time to be
paid hereunder.
10. CARRYBACKS.
If part or all of an unused consolidated net operating loss or tax credit of
Destec or one of its Subsidiaries arises in a year in which Destec or such
Subsidiary is not a Member of the Dow Group and is carried back to a year in
which Destec or such Subsidiary is a Member of the Dow Group, any refund or
reduction in tax liability arising from the carryback will be retained by or
allocated to Dow. Dow shall have no obligation to pay to Destec or its
Subsidiaries the amount of any refund or credit of federal income tax that
Dow may receive as a result of such carryback (nor will such occurrence
affect the amount of compensation, if any, to which Destec or any of its
Subsidiaries is entitled pursuant to Section 7(b) of this Agreement).
11. ALLOCATION OF DOW GROUP CONSOLIDATED TAX LIABILITY FOR PURPOSES OF
DETERMINING EARNINGS AND PROFITS.
The Dow Group Consolidated Tax Liability for each Taxable Year of the
Dow Group shall, for purposes of determining the earnings and profits of each
Member, be allocated among the Members in accordance with the methods
prescribed in Section 1.1552-1(a)(1) of the Income Tax Regulations.
Notwithstanding the foregoing, Dow may, in its sole and absolute discretion,
change the method set forth above to the extent that it is permitted to do so
by applicable law; provided
24
further that such change in method is consistently applied to all Members of
the Dow Group.
12. DOW CONTROL OF CONDUCT OF AUDITS, LITIGATION, EXPENSES.
(a) In any audit, conference or other proceeding with the Service or the
relevant state or local authorities, or in any judicial proceedings
concerning the determination of the Dow Group Consolidated Return Liability
or the state or local income tax liability of any consolidated, combined or
unitary group including Dow or any of its Subsidiaries (other than Destec or
a Subsidiary of Destec) and Destec (for any of the Subsidiaries of Destec),
Dow shall have the exclusive right to contest (with the participation of the
Tax Director of Destec in (a) any examination by the Service at the district
level or by any state or local authority, or (b) in the preparation and
submission of any protest brief or other submission to the Service's
appellate division or in any similar administrative proceeding before any
state or local authority), compromise or settle any adjustment or deficiency
proposed, asserted or assessed as a result of such proceeding and to extend
or refuse to extend the applicable time period for making assessments or
adjustments. Destec and each Subsidiary of Destec hereby appoints Dow as its
agent for the purpose of conducting such contest or proposing and concluding
any such compromise and settlement. Dow shall have control over the
proceedings, but shall confer in good faith with Destec regarding any proposed
adjustment bearing on any material liability of Destec pursuant to this
Agreement. Destec shall support any audit or other examination or judicial or
administrative proceeding with respect to any Taxable Year, at its own
expense, in any reasonable way requested by Dow. Nothing herein shall limit
Dow's discretion to determine whether and in what amount an item arising from
Destec or any Destec Subsidiary shall be conceded or otherwise compromised
and whether and in what amount an item results in an adjustment to Destec
described in Section 8(a);
25
provided, however, that such decision shall be made only after full and
complete good faith consultation with the Tax Director of Destec.
(b) EXPENSES. Destec shall reimburse Dow for all expenses (including
without limitation, legal and accounting fees) incurred by Dow in the course
of proceedings described in this Section 12 to the extent such expenses are
allocable, in Dow's sole and absolute discretion, but after prior good faith
consultation with Destec (if requested by the Tax Director of Destec), to
Destec Group Items.
13. PARTNERSHIP INTERESTS.
In connection with any partnership interest for which Destec or a Destec
Subsidiary is the Tax Matters Partner, Destec shall to the maximum extent
feasible make elections, use accounting methods, and report positions with
respect to such partnership interest that are consistent with positions
reported on the Dow Group's Consolidated Return and report positions on the
Pro Forma Destec Return that are consistent with those reported for such
partnership interest on the Dow Group's Consolidated Return. Destec shall
confer in good faith with Dow in advance regarding any such item which may be
or could be inconsistent with items on the Dow Group's Consolidated Return.
14. ADMINISTRATION; RESOLUTION OF DISPUTES.
The provisions of this Agreement will be administered by Dow. Except as
otherwise expressly governed by the terms of this Agreement, Dow may use any
reasonable method in making any computations or allocations hereunder, and
Dow's calculations will be conclusive unless a written objection is provided
to Dow within one year of such calculations. If written objection is timely
made by Destec, the disputed issue (other than disputes described in Section
4(e) of this Agreement, which disputes shall be governed solely by such
provision) shall be resolved by a Big Six accounting firm jointly selected by
Dow and Destec, whose
26
determination will be conclusive and binding upon the parties and whose fees
and expenses shall be shared equally by Dow and Destec. Nothing in this
Section 14 is intended to limit Dow's discretion in making any computations,
allocations or determinations that may expressly be made under this Agreement
in Dow's sole and absolute discretion.
15. ADDITIONAL AGREEMENTS. In order to permit the exercise of Destec's
employee stock options outstanding on the date of this Agreement in
accordance with their terms, and in order to permit Destec to continue to
issue and sell securities for financing, incentive compensation and other
purposes, and in connection therewith to avoid the inadvertent exclusion of
the Destec Group from the Dow Group as a result of a reduction to below 80% of
Dow's ownership of Destec caused by the exercise of such options or the
issuance or sale of securities by Destec, Destec and Dow agree as follows:
(a) SHARE PURCHASE RIGHT. In the event that, after the Effective Date,
Destec shall become obligated to, or otherwise undertakes to issue or sell
additional, unissued or treasury shares, whether by the exercise of options,
warrants, conversion or exchange rights, or otherwise, and upon completion of
such issuance or sale (a "Disqualifying Sale") Destec will cease to be a
Member of the Dow Group, Dow is hereby granted the right to acquire from
Destec, prior to the completion of the Disqualifying Sale and at the Purchase
Price Per Share (as defined in subsection (c) below) for the day immediately
preceding the date of the Destec Notice (as defined in subsection (b) below),
that number of whole shares of additional, unissued or treasury shares of
Destec necessary to prevent Dow's ownership from falling below the level
required to prevent Destec from ceasing to be a Member of the Dow Group. The
right granted in this Section 15 is a continuing right and may be exercised
by Dow from time to time during the term of this Agreement as may be
necessary in order to maintain Destec as a Member of the Dow Group; PROVIDED,
however, that if at any time Dow shall elect not to
27
exercise the rights granted in this Section 15 and permit the issuance or
sale by Destec of a number of additional, unissued or treasury shares
sufficient to cause Destec to cease to be a Member of the Dow Group, the
rights granted in this Section 15 shall immediately terminate.
(b) NOTIFICATION PROCEDURES. Destec agrees to give Dow notice (the
"Destec Notice") at least ten Business Days prior to the completion (by
delivery of certificates representing the shares against payment therefor) of
a Disqualifying Sale in order to permit Dow to exercise its share purchase
right contained in Section 15. The Destec Notice shall contain (i) a
statement of the number of shares to be issued in the Disqualifying Sale (ii)
a calculation of the number of shares which Dow is entitled to purchase
pursuant to this Section 15, (iii) a statement of the Purchase Price Per
Share and the aggregate purchase price required to be paid by Dow for such
shares, and (iv) a form of Purchase Notice and accompanying letter containing
the representations required to be made by Dow pursuant to Section 15(d).
(c) PURCHASE PRICE PER SHARE. The Purchase Price Per Share for shares
of Destec capital stock on any day means the average (mean) of the reported
"high" and "low" sale prices for such shares as reported in THE WALL STREET
JOURNAL'S NYSE-Composite Transactions listing for such day (corrected for
obvious typographical errors), or if such shares are not reported in such
listing, then the average of the reported "high" and "low" sale prices on the
largest national securities exchange (based on the aggregate dollar value of
securities listed) on which such shares are listed or traded, or if such
shares are not listed or traded on any national securities exchange, then the
average of the reported "high" and "low" sale prices for such shares in the
national market system or the over-the-counter market, as applicable, of the
National Association of Securities Dealers Automated Quotation System, or, if
such prices shall not be reported thereon, the average between the closing
bid and asked prices reported by the National
28
Quotation Bureau Incorporated, or, in all other cases, the value established
by the Board of Directors of Destec in good faith.
(d) PURCHASE PROCEDURE. In the event that Dow determines to exercise
its purchase right contained in Section 15, it shall deliver to Destec prior
to the expiration of the ten Business Day period referred to in subsection
15(b) above notice of its election to purchase all, but not less than all, of
the shares Dow is entitled to purchase under this Section 15 (the "Purchase
Notice"). The Purchase Notice shall be (i) sent concurrently with payment of
the Purchase Price Per Share for each share being purchased and (ii)
accompanied by a letter containing representations by Dow that (A) it
understands that the Destec shares have not been registered under the
Securities Act of 1933, as amended, or any state securities law, in reliance
on exemptions therefrom, (B) it has had access to and an opportunity to
inspect relevant business, financial and other corporate information and data
of Destec sufficient to enable it to evaluate the merits and risks of the
purchase of the Destec shares, (C) persons acting on behalf of Destec have
made available to it the opportunity to ask questions and receive answers
regarding the financial condition, results of operation and business affairs
of Destec, (D) it has such knowledge and experience in financial and business
matters, particularly with respect to the electric power industry, that it is
capable of evaluating the merits and risks of the purchase of the Destec
shares, (E) it is purchasing the Destec shares for its own account, for
investment purposes and not with a view to, or for offer or sale for Destec
in connection with, any distribution thereof, and it is not participating in
any such distribution or the underwriting of any such distributions, (F) it
understands that the Destec shares must be held until the resale thereof is
subsequently registered under applicable securities laws, or an exemption
from registration is available, and (G) it agrees that the stock transfer
records of Destec will reflect a stop transfer instruction with respect to
the shares, and that certificates representing the Destec shares will be
stamped or otherwise imprinted with the following legend:
29
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAW. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR AN OPINION OF COUNSEL TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
(e) SPECIAL AGREEMENTS OF DESTEC. Destec agrees to take all corporate
action required in order to permit Dow to exercise its continuing right
contained in this Section 15, including the adoption of resolutions approving
an amendment or amendments to Destec's certificate of incorporation
increasing the number of authorized but unissued shares of capital stock to a
number sufficient to permit the exercise of such right and, in the event that
any such amendment is required, Destec agrees not to complete the sale or
issuance of the shares giving rise to Dow's right to exercise its purchase
right hereunder prior to the approval of the necessary amendment by Destec's
stockholders and the filing of such amendment with the Secretary of State of
the State of Delaware.
(f) CERTAIN DEFINITIONS. As used in this agreement, the term "Business
Day" shall mean a day in the City of Houston, Xxxxxx County, Texas, that is
not a legal holiday or a day on which banking institutions are authorized or
obligated by law to close.
16. INDEMNIFICATION AGAINST JOINT AND SEVERAL LIABILITY.
Except as may be expressly provided otherwise in this Agreement, Dow
shall be liable for, and agrees to defend, hold harmless and indemnify the
Destec Group from and against, any and all taxes (and any interest, penalties
and similar amounts relating thereto) of the Dow Group (other than the Destec
Group),
30
including, but not limited to, any such taxes (and any interest, penalties
and similar amounts relating thereto) for which the Destec Group (or any
Member thereof) is or may be or become liable for under any successor or
transferee liability law or other similar law or under Section 1.1502-6 or
1.1502-78(b)(2) of the Income Tax Regulations or any similar provision under
any applicable foreign, state, or local law.
17. INTERPRETATION.
This Agreement is intended to provide for the calculation and allocation
of certain federal and state and local income tax liabilities between the Dow
Group (other than Destec and its Subsidiaries) and the Destec Group, and any
situation or circumstance concerning such calculation and allocation that is
not specifically contemplated hereby or provided for herein shall be dealt
with in a manner consistent with the underlying principles of calculation and
allocation in this Agreement.
18. EFFECT OF AGREEMENT.
This Agreement shall determine the liability of Dow and Destec as to the
matters provided for herein, whether or not such determination is effective
for purposes of the Code or of state or local revenue laws, for financial
reporting purposes or for any other purpose.
19. TERM.
This Agreement will apply to Taxable Years ending after the Effective
Date and all subsequent Taxable Years, unless Dow and Destec agree in writing
to terminate this Agreement. Notwithstanding such termination, this
Agreement will continue in effect with respect to any payment or refunds due
for all Taxable Years prior to termination. Destec or any Subsidiary of
Destec that leaves the Dow Group will be bound by this Agreement. The failure
of one or more parties
31
hereto to qualify for inclusion in the Consolidated Return filed by Dow will
not operate to terminate this Agreement with respect to the other parties as
long as two or more parties hereto continue to so qualify.
20. ASSIGNMENT.
Rights and obligations under this Agreement will not be assignable by
any party without the prior written consent of the other parties.
21. CONFIDENTIALITY.
Dow, Destec and the Subsidiaries of Destec agree that any information
furnished among one another pursuant to this Agreement is confidential and,
except as and to the extent required during the course of the preparation of
returns or the conduct of an audit or litigation, shall not be disclosed to
other persons.
22. DOCUMENTATION.
All material, including but not limited to, returns, supporting
schedules, work papers, correspondence, and other documents relating to the
Consolidated Return and any Combined Returns filed for a Taxable Year subject
to this Agreement will be made available to any party to the Agreement during
regular business hours for a minimum period equal to applicable federal and
state record retention requirements (or the applicable statute of limitations
period).
23. ADDITIONAL MEMBERS.
The parties hereto specifically recognize that from time to time other
Subsidiaries of Dow and Destec may become or become again Members of the Dow
Group and hereby agree that this Agreement shall be deemed to have been
adopted and affirmed, or readopted and reaffirmed, by such Subsidiary. Dow and
32
Destec shall, upon the written request of the other, cause any of their
respective Subsidiaries formally to ratify and execute this Agreement.
24. TAX LAW CHANGES.
Any alteration, modification, addition, deletion, or other change in the
Code or the Income Tax Regulations (or the applicable state and local tax
provisions) will automatically be applicable to this Agreement when changed.
25. SUCCESSORS AND ASSIGNS.
This Agreement will bind and inure to the benefit of the respective
successors and assigns of the parties hereto; but no assignment will relieve
any party of its obligations hereunder without the written consent of the
other parties.
26. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
27. HEADINGS.
The headings in this Agreement are inserted for convenience only and
shall not constitute a part hereof or affect the interpretation of this
Agreement.
28. SEVERABILITY.
If any provision of this Agreement is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties to the maximum extent practicable. In any
event, all other provisions of this Agreement shall be deemed valid, binding
and enforceable to their full extent.
33
29. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and, except as expressly contained
herein there are no written or oral promises, covenants, undertakings,
representations or warranties of the parties with respect to the subject
matter hereof.
30. NOTICE.
Any notices or other communications required or permitted by this
Agreement shall be effective upon receipt, shall be in writing personally
delivered or mailed by registered or certified mail, return receipt
requested, or sent by facsimile to the persons and addresses shown below:
(a) The Dow Chemical Company
0000 Xxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxx Xxxx, Director of Taxes
(b) Destec Energy, Inc.
X.X. Xxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attention: Xx. Xxxxxxx X. Xxxxx, Xx., Director of Taxes
with a copy to:
Destec Energy, Inc.
X.X. Xxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attention: Xx. Xxxxxx Xxxxxxxxx, General Counsel
31. GOVERNING LAW.
34
This Agreement shall be construed and interpreted, and all rights and
liabilities of the parties hereto with respect to this Agreement shall be
governed by the laws of the State of Delaware, U.S.A.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers as of the
date first set above.
THE DOW CHEMICAL COMPANY
BY /s/ XXXXXXX X. XXXX
------------------------------------
Xxxxxxx X. Xxxx
Tax Director and Assistant Secretary
DESTEC ENERGY, INC.
BY /s/ XXXXXXX XXXXXXXXX
------------------------------------
Xxxxxxx Xxxxxxxxx
Senior Vice President, CFO
and Treasurer
35
