EXHIBIT M-1
CONSOLIDATED FEDERAL INCOME TAX
ALLOCATION AGREEMENT AMONG MEMBERS OF THE
EMERA US HOLDINGS INC. AFFILIATED GROUP
WHEREAS, Emera US Holdings Inc., a corporation organized under the
laws of the State of Delaware ("EUSH") and a registered holding company under
the Public Utility Holding Company Act of 1935 ("Act"), together with its
subsidiary companies, direct and indirect, listed in Appendix A, comprise the
members of the EUSH consolidated group which will join annually in the filing of
a consolidated Federal income tax return, and it is now the intention of EUSH
and its subsidiaries, direct and indirect, (hereinafter collectively referred to
as the "Group"), to enter into an agreement for the allocation of federal income
taxes; and
WHEREAS, certain members of the Group will join annually in the filing
of certain consolidated state income tax returns (to the extent permitted or
required under applicable state income tax laws), and it is now the intention of
the Group to enter into an agreement for the allocation of state income taxes;
and
WHEREAS, by order dated [______________], 2003, the Securities and
Exchange Commission has authorized EUSH and its subsidiaries to enter into this
agreement as of October 1, 2001 and to allocate consolidated income taxes in the
manner herein provided; and
NOW, THEREFORE, each member ("Member") of the Group does hereby
covenant and agree with one another that the current consolidated income tax
liabilities of the Group shall be allocated as follows:
ARTICLE I.
Definitions and Interpretation
Section 1.1 Definitions.
For all purposes of this Agreement, except as otherwise expressly provided, the
following terms shall have the following respective meanings:
"Acquisition Indebtedness" means indebtedness incurred by Emera Inc. ("Emera")
to finance the acquisition (including related costs) by BHE Holdings Inc.,
through EUSH, of all of the issued and outstanding stock of Bangor
Hydro-Electric Company ("BHE") and any renewals or extensions thereof.
Acquisition Indebtedness also includes indebtedness incurred by Emera for the
purpose of refinancing the indebtedness relating to the acquisition (including
related costs) of all of the issued and outstanding stock of BHE.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Group" means EUSH and all of its subsidiaries which, from time to
time, may be included in any (i) federal income tax return filed by EUSH in
accordance with sections 1501 and 1502 of the Code or (ii) Other Return.
"Consolidated Return" means any consolidated federal income tax return or Other
Return filed by EUSH whether before or after the date hereof, which includes one
or more Members of the Group in a consolidated, combined or unitary group of
which EUSH is the common parent.
"Consolidated Return Year" means any period during which EUSH files a
consolidated federal income tax return or Other Return that includes one or more
Members of the Group in a consolidated, combined or unitary group of which EUSH
is a common parent.
"Consolidated Taxable Income" is the taxable income of the Group as computed for
federal or state income tax purposes.
"Consolidated Tax Liability" means, with reference to any taxable period, the
consolidated, combined or unitary tax liability (including any interest,
additions to tax and penalties) of the Consolidated Group for such taxable
period (including the consolidated federal income tax liability and other
consolidated, combined or unitary liability for Other Taxes).
"Corporate Taxable Income" means the income or loss of an associate company for
a tax year computed as though such company had filed a separate return on the
same basis as used in the Consolidated Return, except that dividend income from
associate companies shall be disregarded, and other intercompany transactions
eliminated in the Consolidated Return shall be given appropriate effect.
"Designated Official" means A. Xxxxxxx Xxxxxxx, President of EUSH or such other
official assigned such responsibilities.
"Other Return" means any consolidated, combined or unitary return of Other Taxes
filed by EUSH or another Member of the Group, whether before or after the date
hereof, which covers the operations of one or more Members of the Group.
"Other Taxes" means any taxes (including any interest and penalties) payable by
EUSH or another Member of the Group to the government of any state, municipal or
other political subdivision, including all agencies and instrumentalities of
such government.
"Person" means any individual, partnership, form, corporation, limited liability
company, joint stock company, unincorporated association, joint venture, trust
or other entity or enterprise, or any government or political subdivision or
agency, department or instrumentality thereof.
"Regulations" means the Treasury Regulations promulgated under the Code.
"Separate Return Tax" means the tax on the Corporate Taxable Income of a
corporation which is a Member computed for purposes of this Agreement as though
such company were not a Member of a consolidated group.
Section 1.2 References, Etc.
The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined herein in
the singular shall have the same meanings in the plural and vice versa. All
References herein to any Person includes such Person's successors and assigns.
All references herein to Articles and Sections shall, unless the context
requires a different construction, be deemed to be references to the Articles
and Sections of this Agreement. In this Agreement, unless a clear contrary
intention appears the word "including" (and with correlative meaning "include")
means "including but not limited to".
ARTICLE II.
Preparation and Filing of Tax Returns; Allocation of Taxes
Section 2.1 Federal Returns.
(a) A U.S. consolidated federal income tax return shall be prepared and filed by
EUSH for each taxable year in respect of which this Agreement is in effect and
for which the Consolidated Group is required or permitted to file a consolidated
federal income tax return. EUSH and all its subsidiaries shall execute and file
such consents, elections and other documents that may be required or appropriate
for the proper filing of such returns.
(b) (i) The Consolidated Group will elect, on a timely basis, in accordance with
Code Section 1552(a)(i) and Section 1.1552-1(c)(2) of the Regulations to
allocate its consolidated tax liability (other than alternative minimum tax
("AMT") and its related credits) among its Members under the method described in
Sections 1.1502-33(d)(3) and 1.1552-1(a)(1) commencing with the consolidated
taxable year ended December 31, 2001. The fixed percentage to be used for
purposes of Regulations Section 1.1502-33(d)(3)(i) is 100%. The general effect
of such method is that the Consolidated Tax Liability (other than AMT and its
related credits) of the Consolidated Group shall be apportioned among the
members of the Consolidated Group with the ratio that each Members separately
computed taxable income under 1.1552-1(a)(1), for companies that have a taxable
income, bears to the Consolidated Group's taxable income. Then such method
allocates an additional amount (the "Tax Benefit Amount") to each Member up to,
but not greater than, the excess, if any, of its Separate Return Tax liability
(other than AMT and its related credits) over the amount allocated to such
Member in the previous sentence. The total of the Tax Benefit Amounts allocated
to Members shall result in payments to, and an increase in the earnings and
profits of, the Members who had items of deduction, loss or credits to which
such Tax Benefit Amount is attributable. This election is intended to comply
with Rule 45(c)(5) under the Act, as modified by Section 2(d) below. (ii) The
allocation of the alternative minimum tax liability incurred by the Group and
the resulting minimum tax credit shall be allocated in the manner set forth in
Proposed and Temporary Treasury Regulation Sections 1.1502-55. This method
generally allocates (i) any AMT paid by the Group based on the relative separate
adjusted AMT of each Member and (ii) the minimum tax credit ("AMTC") on the
basis of the AMT previously assigned to such Member and assuming that AMTC is
utilized on a "first in/first out" methodology, and that to the extent that AMTC
arising in one year is not fully
utilized, such AMTC is utilized proportionately by the Members previously
assigned AMT for that year.
(c) Each Member's allocable share of the consolidated income tax liability as
determined in Section 2.1(b) hereby shall be used in both (i) the determination
of each Member's earnings and profits and (ii) determining the amounts to be
paid (as provided in Section 3.4 of this Agreement) by Members to EUSH with
respect to each Member's share of the Consolidated Group's Tax liability and
payments from EUSH to Members with respect to the use of a Member's tax
attributes.
(d) (i) The aggregate of all amounts paid by Members of the Consolidated Group
(the "Paying Members") as a result of the excess of each Members' Separate
Return Tax liability (as determined under Section 1.1552-1(a)(2)(ii) of the
Regulations) over the amount allocated to such Member as its share of the
Consolidated Tax Liability under Code Section 1552 (i.e., the Tax Benefit
Amount) shall be paid by EUSH to the other Members (the "Loss Members") which
had tax deductions, losses and credits to which such payments by the Paying
Members are attributable. The apportionment of such payments among Loss Members
shall be in a manner that reflects the Consolidated Group's absorption of such
tax attributes in the manner described in Section 2.1(e) below. The payments to
the Loss Members for their tax attributes shall be pursuant to a consistent
method which reasonably reflects such items of loss or credit (such consistency
and reasonableness to be determined by the Designated Official).
(ii) Notwithstanding the provisions of section 2.1(d)(i), the Tax Benefit Amount
allocated to EUSH and paid to EUSH as a result of its being a Loss Member shall
be limited to the lesser of the tax benefit of it's financing cost deduction
attributable to Acquisition Indebtedness or the tax benefit of it's separate tax
loss. The portion of EUSH' tax benefits which cannot be allocated and paid to
EUSH due to the operation of this Section shall be reallocated to Paying Members
of the Consolidated Group other than EUSH in accordance with the principles
contained in section 2.1(b)(i).
(e) In apportioning the payments to Loss Members for the Tax Benefit Amount
pursuant to Section 2.1(d) hereof:
(i) any consolidated net operating loss ("NOL") shall be allocated among the
group Members pursuant to Regulations Section 1.1502-21(b). To the extent the
consolidated NOL is carried back, any Member's individually allocable NOL shall
be deemed carried back and utilized in proportion to the amount that the
Member's NOL bears to the consolidated NOL. Analogous principles shall apply in
the case of NOL carryforwards;
(ii) with respect to each type of credit used to offset all or a portion of the
Consolidated Tax Liability otherwise payable, such credit shall be allocated
among the Members by crediting to each Member an amount of credit which that
Member would have available to utilize on a separate return basis in a manner
consistent with the method set forth in Section 2.1(e)(i) above.
(iii) the cost of any credit recapture which results in the payment of tax shall
be specifically allocated to the Member whose credit is recaptured determined in
a manner consistent with the provisions of Section 2.1(e)(i) above.
(f) The allocation of tax shall be subject to further adjustment from time to
time on account of the payment of additional tax or the receipt of a refund
attributable to either the filing of an amended return or on account of the
results of an audit conducted by the Internal Revenue Service or other relevant
taxing authority.
Section 2.2 Other Taxes.
(a) EUSH will prepare and file (or cause to be prepared and filed) all returns
of Other Taxes which are required to be filed with respect to the operations of
EUSH and its subsidiaries. In the event any taxing authority requires or permits
that a combined, consolidated or unitary return be filed for Other Taxes, which
return includes both EUSH and a subsidiary, EUSH may elect to file such return
and shall have the right to require any Member to be included in such return.
EUSH will advise each of its subsidiaries included in each Other Return and each
governmental office in which any Other Return is filed. Other Taxes shall be
allocated among the Group in a manner that is consistent with the method set
forth in Article 2 hereof. Furthermore, amounts due to or from EUSH with respect
to Other Taxes, shall be determined in a manner consistent with Sections 2.1(b)
and 2.1(d).
(b) Each Member of the Group that does not file an Other Return together with
any other Member of the Group shall be solely responsible and obligated to pay
the tax liability with respect to such return from its own funds. Such returns
shall be prepared and filed by EUSH or the Member filing the Other Return.
(c) If any Member of the Group is required to file a combined, consolidated or
unitary return for Other Taxes with another Member of the EUSH Group, but not
with EUSH (an "Other Taxes Subgroup"), then EUSH shall have the rights, powers
and obligations to file such tax returns and apportion among and, collect and
remit from, the applicable Members such Other Taxes as the rights, powers and
obligations given to EUSH under this Agreement with respect to the Consolidated
Tax Liability. Such returns shall be prepared and filed by EUSH. If the right to
file a combined, consolidated or unitary return for Other Taxes is optional,
then EUSH shall decide which of its subsidiaries should, to the extent permitted
by law, join in the filing of such return.
Section 2.3 Member Tax Information.
The Members of the Consolidated Group shall submit the tax information
requested by the Designated Official of EUSH in the manner and by the date
requested, in order to enable the Designated Official to calculate the amounts
payable by the Members pursuant to Article 3 hereof.
ARTICLE III.
Responsibility For Tax; Intercompany Payments
Section 3.1 Responsibility.
Assuming the Members of the Consolidated Group have fulfilled their
obligations pursuant to this Article III, then EUSH will be solely responsible
for, and will indemnify and
hold each Member of the Consolidated Group harmless with respect to, the payment
of: (a) the Consolidated Tax Liability for each taxable period for which, as
determined under Section 2.1 hereof, EUSH filed or should have filed a
Consolidated Return; and (b) any and all Other Taxes due or payable with respect
to any Other Return which is or should have been filed by EUSH.
Section 3.2 Federal Tax Payments.
(a) With respect to each Consolidated Return Year, the Designated Official shall
estimate and assess or pay to Members of the Consolidated Group their share of
estimated tax payments to be made on a projected consolidated federal income tax
return for each year. In making this determination, EUSH shall elect a method
for determining estimated tax and each Member shall follow that method. Such
Members will pay, to EUSH or be paid by EUSH, such estimates not later than the
15th day of the 4th, 6th, 9th and 12th months of such Consolidated Return Year.
With respect to any extension payment, the Designated Official shall estimate
and assess or pay to Members of the Consolidated Group their share of such
extension payment. The difference between (1) a Member's estimated tax payments
used for computation of the quarterly estimated payments plus their extension
payments and (2) such Member's actual Tax Liability for any Consolidated Return
Year as determined under Section 2.1(b) hereof, shall be paid to EUSH or by EUSH
within sixty (60) days after the filing of the consolidated federal income tax
return.
(b) EUSH shall have sole authority, to the exclusion of all other Members of the
Consolidated Group, to agree to any adjustment proposed by the Internal Revenue
Service or any other taxing authority with respect to items of income,
deductions or credits, as well as interest or penalties, attributable to any
Member of the Consolidated Group during any Consolidated Return Year in which
such Member was a Member of the Consolidated Group notwithstanding that such
adjustment may increase the amounts payable by Members of the Consolidated Group
under this Section 3.2 or Section 3.3 hereof. In the event of any adjustment to
the Consolidated Tax Liability relating to items of income, deductions or
credit, as well as interest or penalties, attributable to any Member of the
Consolidated Group by reason of an amended return, claim for refund or audit by
the Internal Revenue Service or any other taxing authority, the liability of all
other Members of the Consolidated Group under paragraphs (a) of this Section 3.2
or Section 3.3 hereof shall be redetermined to give effect to such adjustment as
if such adjustment had been made as a part of the original computation of such
liability, and payment from a Member to EUSH or by EUSH to a Member, as the case
may be, shall be promptly made after any payments are made to the Internal
Revenue Service or any other taxing authority, refunds received or final
determination of the matter in the case of contested proceedings. In such event,
any payments between the parties shall bear interest at the then prevailing rate
or rates on deficiencies assessed by the Internal Revenue Service or any other
relevant taxing authority, during the period from the due date of the
Consolidated Return (determined without regard to extensions of time for the
filing thereof) for the Consolidated Return Year to which the adjustments were
made to the date of payment.
Section 3.3 Other Tax Payments.
Payments by a Member with respect to Other Taxes and required
estimates thereof for which any other Member has joint and several liability
shall be calculated and made by or to such Member in the same manner as that
provided in Section 3.2. The principles set
forth in Section 3.2 governing the determination and adjustment of payments as
well as the method of payment to or from such Member with respect to federal
income taxes shall be equally applicable in determining and adjusting the amount
of and due date of payments to be made to or from such subsidiary with respect
to Other Taxes and estimates thereof. Each Member shall pay, directly to the
appropriate taxing authority, all taxes for which such Member is liable and for
which no other Member has joint or several liability.
Section 3.4 Payment Mechanics.
(a) Any payments to be made by a subsidiary of EUSH pursuant to Section 2.1,
2.2, 3.2 or 3.3 hereof shall be made by such subsidiary to EUSH by either
promptly crediting as an offset against amounts owed to such Member by EUSH or
to the extent no amounts are owed to such Member by EUSH, by cash payments to
EUSH. To the extent any payments are to be made to a subsidiary with respect to
the use of such subsidiary's tax attributes by the Consolidated Group pursuant
to Section 2.1, 2.2, 3.2 or 3.3 hereof, EUSH shall make such payment to such
subsidiary by either promptly crediting as an offset against amounts owed by
such Member to EUSH, or to the extent no amounts are owed to EUSH by such
Member, by cash payments to the Member.
(b) Tax payments by EUSH with respect to any Consolidated Tax Liability shall be
paid by EUSH and shall be debited to the Member of the Consolidated Group for
their respective shares of such Consolidated Tax Liability as determined
pursuant to Article II hereof. Tax refunds received by EUSH with respect to any
Consolidated Tax Liability, shall be paid by EUSH to the Member of the
Consolidated Group entitled to such tax refund, as determined under Article II.
(c) EUSH shall be responsible for maintaining the books and records with respect
to the inter-company accounts reflecting the amounts owned, collected and paid
with respect to taxes pursuant to this Agreement.
(d) EUSH may delegate to other Members of the Consolidated Group
responsibilities for the collection and disbursement of monies as required under
this Agreement as well as responsibilities for maintaining books and records as
required under this Agreement.
Section 3.5 Administration.
The provisions of this Agreement shall be administered by the
Designated Official. The interpretations of this Agreement by the Designated
Official shall be conclusive.
ARTICLE IV.
Miscellaneous Provisions
Section 4.1 Effect.
The provisions hereof shall fix the rights and obligations of the
parties as to the matters covered hereby whether or not such are followed for
federal income tax or other purposes by the Consolidated Group, including the
computation of earnings and profits for federal income tax purposes.
Section 4.2 Effective Date and Termination of Affiliation.
This Agreement shall be effective with respect to all taxable years
ending on or after October 1, 2001, in which any subsidiary of EUSH is a Member
of the Consolidated Group for any portion of the tax year. In the event that a
party to this Agreement ceases to be a Member of the Consolidated Group, the
rights and obligations of such party and each other party to this Agreement
shall survive, but only with respect to taxable years including or ending before
the date such party ceases to be a Member of the Consolidated Group.
Section 4.3 Notices.
Any and all notices, requests or other communications hereunder shall
be given in writing (a) if to EUSH to Attention: A. Xxxxxxx Xxxxxxx, Facsimile
Number: ____ and (b) if to any other person, at such other address as shall be
furnished by such person by like notice to the other parties.
Section 4.4 Expenses.
Each party hereto shall pay its own expenses incident to this
Agreement and the transactions contemplated hereby, including all legal and
accounting fees and disbursements.
Section 4.5 Benefit and Burden.
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors.
Section 4.6 Amendments and Waiver.
No amendment, modification, change or cancellation of this Agreement
shall be valid unless the same is in writing and signed by the parties hereto.
No waiver of any provision of this Agreement shall be valid unless in writing
and signed by the person against whom that waiver is sought to be enforced. The
failure of any party at any time to insist upon strict performance of any
condition, promise, agreement or understanding set forth herein shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same or any other condition, promise, agreement or
understanding at a future time.
Section 4.7 Assignments.
Neither this Agreement nor any right, interest or obligation hereunder
may be assigned by any party hereto and any attempt to do so shall be null and
void.
Section 4.8 Severability.
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
Section 4.9 Entire Agreement.
THIS AGREEMENT SETS FORTH ALL OF THE PROMISES, AGREEMENTS, CONDITIONS,
UNDERSTANDINGS, WARRANTIES AND REPRESENTATIONS AMONG THE PARTIES WITH RESPECT TO
THE TRANSACTIONS CONTEMPLATED HEREBY, AND SUPERSEDES ALL PRIOR AGREEMENTS,
ARRANGEMENTS AND UNDERSTANDINGS BETWEEN THE PARTIES HERETO, WHETHER WRITTEN,
ORAL OR OTHERWISE. THERE ARE NO PROMISES, AGREEMENTS, CONDITIONS,
UNDERSTANDINGS, WARRANTIES OR REPRESENTATIONS, ORAL OR WRITTEN, EXPRESS OR
IMPLIED, AMONG THE PARTIES EXCEPT AS SET FORTH HEREIN.
Section 4.10 Applicable Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE.
Section 4.11 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall constitute an original and together which shall constitute one
instrument. The parties hereto specifically recognize that from time to time
other corporations may become Members of the Consolidated Group and hereby agree
that such new Members may become Members to this Agreement by executing a copy
of this Agreement and it will be effective as if all the Members had re-signed.
Section 4.12 Attorneys' Fees.
If any Member or former Member hereto commences an action against
another party to enforce any of the terms, covenants, conditions or provisions
of this Agreement, or because of a default by a party under this Agreement, the
prevailing party in any such action shall be entitled to recover its costs,
expenses and losses, including attorneys' fees, incurred in connection with the
prosecution or defense of such action from the losing party.
Section 4.13 No Third Party Rights.
Nothing in this Agreement shall be deemed to create any right in any
creditor or other person or entity not a party hereto and this Agreement shall
not be construed in any respect to be a contract in whole or in part for the
benefit of any third party.
Section 4.14 Further Documents.
The parties agree to execute any and all documents, and to perform any
and all other acts, reasonably necessary to accomplish the purposes of this
Agreement.
Section 4.15 Headings and Captions.
The headings and captions contained in this Agreement are inserted and
included solely for convenience and shall not be considered or given any effect
in construing the provisions hereof if any question of intent should arise.
Section 4.16 Departing Members
(a) In the event that any Member of the Group at any time leaves the Group and,
under any applicable statutory provision or regulation, that Member is assigned
and deemed to take with it all or a portion of any of the tax attributes of the
Group (including but not limited to NOL, credit carry forwards, and AMTC carry
forwards), then to the extent that the amount of tax attributes so assigned
differs from the amount of such attributes previously allocated to such Member
under this agreement, the departing Member shall appropriately settle with the
Group. Such settlement shall consist of payment (1) on a dollar for dollar basis
for all differences in credits, and, (2) in the case of NOL differences (or
other differences related to other deductions), in a dollar amount computed by
reference to the amount of NOL multiplied by the applicable tax rate relating to
such NOL. The settlement payment shall be paid to EUSH within sixty days after
the Member leaves the Group. The settlement amounts shall be allocated among the
remaining Members of the Group in proportion to the relative level of attributes
possessed by each Member and the attributes of each Member shall be adjusted
accordingly.
(b) Upon the departure of any Member from the Group, such Member shall allocate
its items of income, deduction, loss and credit between the period that it was a
Member of the Group and the period thereafter based upon a closing of the books
methodology allowed under Treasury Regulation Section 1.1502-76(b)(2). The
difference between (1) its prior estimated taxes or payments of Tax Benefit and
(2) the amount of taxes due or payments of Tax Benefit due to that Member, shall
be appropriately settled on the day such Member leaves the Group or on an
alternative date mutually agreeable in writing to the Group and the departing
Member.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, each in its name and on its behalf by one of its officers duly
authorized.
[signatures]
Appendix A
Members of the EUSH Consolidated Group
--------------------------------------
Name of Company Incorporation
--------------- -------------
Emera US Holdings Inc. Delaware
BHE Holdings Inc. Delaware
Bangor Hydro-Electric Company Maine
Bangor Var Co. Inc. Maine Maine
Bangor Energy Resale Inc. Maine
CareTaker, Inc. Maine
Bangor Fiber Co. Inc. Maine
Bangor Line Co. Maine
Xxx Xxxxxxxx Xxxxx Xxxx Xxxxxxxxxxx Xx. Xxxxx
The Sebois Dam Co. Maine
East Branch Improvement Co. Maine
Xxxxxxx'x Falls Cam Co. Maine
Xxx Xxxxxxxx Xxxxx & Xxx Xxxxxxxxxxx Xx. Xxxxx
