EXHIBIT B-5 (REV.)
[Date]
PROGRESS ENERGY, INC. AND SUBSIDIARY COMPANIES
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INTERCOMPANY INCOME TAX ALLOCATION AGREEMENT
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WHEREAS, Progress Energy, Inc., a corporation organized under the laws
of the State of North Carolina ("Energy") and a registered holding company under
the Public Utility Holding Company Act of 1935 ("Act"), together with its
subsidiary companies, direct and indirect, listed as parties hereto, comprise
the members (the "Members") of the Energy consolidated group which will join
annually in the filing of a consolidated Federal income tax return, and it is
now the intention of Energy and its subsidiaries, direct and indirect,
(hereinafter collectively referred to as the "Energy Group"), to enter into an
agreement for the allocation of current federal income taxes; and
WHEREAS, certain Members of the Energy 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 Energy Group to enter into an agreement for the allocation of current
state income taxes; and
WHEREAS, by order dated [______________], 2002, the Securities and
Exchange Commission has authorized Energy and its subsidiaries to enter into
this agreement and to allocate consolidated income taxes in the manner herein
provided; and
NOW, THEREFORE, each Member of the Energy Group does hereby covenant
and agree with one another that the current consolidated income tax liabilities
of the Energy Group shall be allocated as follows:
ARTICLE I.
DEFINITIONS AND INTERPRETATION
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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 Energy to finance
its acquisition (including related costs) of all of the issued and
outstanding stock of Florida Progress Corporation, and any renewals or
extensions thereof. Acquisition Indebtedness includes indebtedness incurred
by Energy for the purpose of refinancing the acquisition (including related
costs) of all of the issued and outstanding stock of Florida Progress
Corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Group" means Energy and all of its subsidiaries which, from
time to time, may be included in any (i) federal income tax return filed by
Energy 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 Energy whether before or after the date hereof, which
includes one or more Members of the Energy Group in a consolidated,
combined or unitary group of which Energy is the common parent.
"Consolidated Return Year" means any period during which Energy files a
consolidated federal income tax return or Other Return that includes one or
more Members of the Energy Group in a consolidated, combined or unitary
group of which Energy is a common parent.
"Consolidated Taxable Income" is the taxable income of the Consolidated
Group.
"Consolidated Tax" 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 the Executive Director of Tax or such other
official assigned the responsibilities of the Executive Director of Tax.
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"Other Return" means any consolidated, combined or unitary return of Other
Taxes filed by Energy or another Member of the Energy Group, whether before
or after the date hereof, which covers the operations of one or more
Members of the Energy Group.
"Other Taxes" means any taxes (including any interest and penalties)
payable by Energy or another Member of the Energy 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 an
associate company computed 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
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Section 2.1 Federal Returns.
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(a) A U.S. consolidated federal income tax return shall be prepared
and filed by Energy 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. Energy 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(b) and section 1.1552-1(c)(2) of the
Regulations to allocate the Consolidated Tax liability (other than alternative
minimum tax ("AMT") and its related credits) among the Members under the method
described in Sections 1.1502-33(d)(3) and 1.1552-1(a)(2) commencing with its
first Consolidated Return 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 to first allocate the Consolidated Tax
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liability among the Members of the Consolidated Group on the basis of the
percentage of the total Consolidated Tax which the tax of such Member (other
than AMT and its related credits) if computed on a separate return basis would
bear to the total amount of the taxes (other than AMT and its related credits)
for all Members of the Consolidated Group so computed. 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 Amount allocated
to Members having a positive allocation of tax 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 AMT liability incurred by the
Energy 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 Energy 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 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 Energy with
respect to each Member's share of the Consolidated Tax and payments from Energy
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 Energy to 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 party
charged with the administration of this Agreement in accordance with Section 3.5
of this Agreement).
(ii) Notwithstanding the provisions of Section 2.1(d)(i), the
Tax Benefit Amount allocated to Energy and paid to Energy as a result of its
being a Loss Member shall be limited to its Tax Benefit Amount determined
without regard to this Section 2.1(b)(ii) multiplied by a fraction, the
numerator of which is Energy's interest deduction attributable to its
Acquisition Indebtedness, and the denominator of which is the sum of all of
Energy's deductions. The portion of Energy's Tax Benefit Amount which cannot be
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allocated and paid to Energy due to the operation of this section shall be
reallocated to the Paying Members of the Consolidated Group other than Energy in
accordance with the principles contained in Section 2.1(b)(i).
(e) In apportioning the payments to Loss Members of 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
1.1502-79(a)(3). 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.
Section 2.2 Other Taxes. (a) Energy or its delegate 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 Energy 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 Energy and a subsidiary, Energy may elect to file such return and
shall have the right to require any Member to be included in such return. Energy
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 Energy Group in a manner that is consistent with the method
set forth in Article II hereof. Furthermore, amounts due to Energy or from
Energy, 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 Energy Group that does not file an Other
Return together with any other Member of the Energy 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 Energy or its
delegate.
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(c) If any Member of the Energy Group is required to file a combined,
consolidated or unitary return for Other Taxes with another Member of the Energy
Group, but not with Energy (an "Other Taxes Subgroup"), then Energy 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 Energy under this Agreement with respect
to the Consolidated Tax liability. Such returns shall be prepared and filed by
Energy. If the right to file a combined, consolidated or unitary return for
Other Taxes is optional, then Energy shall decide which of its subsidiaries
should, to the extent permitted by law, join in 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 Energy
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
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Section 3.1 Responsibility. Assuming the Members of the Consolidated Group
have fulfilled their obligations pursuant to Sections 3.2 and 3.3 below, then
Energy 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 for each Consolidated Return Year for which, as determined
under Section 2.1 hereof, Energy filed a Consolidated Return; and (b) any and
all Other Taxes due or payable with respect to any Other Return which is filed
by Energy.
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, Energy shall elect a method for determining estimated tax and
each Member shall follow that method. Such Members will pay, to Energy or be
paid by Energy, 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 of Energy shall estimate and assess or pay to
Members of the Consolidated Group their share of such estimated 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 allocation of the Consolidated Tax liability for any
Consolidated Return Year as determined under Section 2.1(b) hereof, shall be
paid to Energy or by Energy within sixty (60) days after the filing of the
consolidated federal income tax return.
(b) Energy 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 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 relating to items of income, deductions or credit, as well as
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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 Energy or by Energy 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 Member 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 Energy pursuant to Section 2.1, 2.2, 3.2 or 3.3 hereof shall be made by such
subsidiary to Energy by either crediting as an offset against amounts owed to
such subsidiary by Energy or to the extent no amounts are owed to such
subsidiary by Energy, by cash payments to Energy. 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(d), 2.2, 3.2(b) or
3.3 hereof, Energy shall make such payment to such subsidiary by either
crediting as an offset against amounts owed by such subsidiary to Energy, or to
the extent no amounts are owed to Energy by such subsidiary, by cash payments to
the subsidiary.
(b) Tax payments by Energy with respect to any Consolidated Tax
liability shall be paid by Energy and shall be debited to the Members of the
Consolidated Group for their respective shares of such Consolidated Tax as
determined pursuant to Article II hereof. Tax refunds received by Energy with
respect to any Consolidated Tax shall be paid by Energy to the Members of the
Consolidated Group entitled to such tax refund, as determined.
(c) Energy shall be responsible for maintaining the books and records
reflecting the intercompany accounts reflecting the amounts owned, collected and
paid with respect to taxes pursuant to this Agreement.
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(d) Energy 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 of Energy. The interpretations of this
Agreement by the Designated Official of Energy shall be conclusive.
ARTICLE IV.
MISCELLANEOUS PROVISIONS
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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
January 1, 2001, in which any subsidiary of Energy 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 Energy to Attention: Designated
Official, Facsimile Number: 000-000-0000 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 Right to Delegate. Energy may delegate any of its rights or
obligations under this Agreement to an appropriate affiliate, including Progress
Energy Service Company, LLC.
Section 4.7 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
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to insist upon strict performance of the same or any other condition, promise,
agreement or understanding at a future time.
Section 4.8 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 4.9 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 4.10 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 4.11 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
Section 4.12 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 parties to this
Agreement by executing a copy of this Agreement and it will be effective as if
all the parties had re-signed.
Section 4.13 Attorneys' Fees. If a party hereto commences an action against
any other 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 4.14 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 4.15 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.
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Section 4.16 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 4.17 Legal Counsel Acknowledgement. The parties acknowledge that
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by the parties hereto.
Section 4.18 Departing Members.
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(a) In the event that any Member of the Energy Group at any time
leaves the Energy 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 Energy 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 Energy 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, in an amount
computed by reference to the amount of NOL multiplied by the applicable tax rate
relating to such NOL. The settlement amounts shall be allocated among the
remaining Members of the Energy 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 Energy Group, such
Member shall allocate its items of income, deduction, loss and credit between
the period that it was a Member of the Energy Group and the period thereafter
based upon a closing of the books methodology. The difference between (1) its
prior estimated taxes or payments of Tax Benefit Amount and (2) the amount of
taxes due or payments of Tax Benefit Amount due to that Member, shall be
appropriately settled at closing or at an alternative date mutually agreeable to
the Energy Group and the departing Member.
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EXECUTED as of the date and year first above written.
By:____________________________________
Printed Name:__________________________
Title:_________________________________
By:____________________________________
Printed Name:__________________________
Title:_________________________________
By:____________________________________
Printed Name:__________________________
Title:_________________________________
By:____________________________________
Printed Name:__________________________
Title:_________________________________
By:____________________________________
Printed Name:__________________________
Title:_________________________________
By:____________________________________
Printed Name:__________________________
Title:_________________________________
[signatures continued]
