1
EXHIBIT 10.3
TAX ALLOCATION AGREEMENT
THIS AGREEMENT ("Agreement") is entered into effective as of the
Deconsolidation Date among Enron Corp., formerly a Delaware corporation and
currently an Oregon corporation ("Enron"), Enron Oil & Gas Company, a Delaware
corporation ("EOG"), and those subsidiaries of EOG (the "EOG Subsidiaries")
listed on the signature pages of this Agreement as additional parties to this
Agreement. (Enron, EOG and the EOG Subsidiaries are referred to collectively as
the "Parties" and separately as a "Party").
Enron, EOG, and certain of the EOG Subsidiaries entered into that
certain First Amended and Restated Tax Allocation Agreement (the "Base
Agreement") on the 9th day of August, 1991. Enron, EOG, and certain of the EOG
Subsidiaries entered into that certain Modification "A" to the First Amended
and Restated Tax Allocation Agreement ("Modification A") on February 6, 1992.
Enron, EOG, and the EOG Subsidiaries entered into that certain 1995 Tax
Allocation Agreement (the "1995 Agreement") on December 11, 1995. Each of the
Base Agreement, Modification A, and the 1995 Agreement provided for the
apportionment and allocation of federal income and other tax liabilities among
the Parties.
On the Deconsolidation Date, Enron sold a number of shares of EOG
common stock which reduced Enron's ownership of EOG below that required to
include EOG in the Consolidated Return of the Enron Group for periods following
the Deconsolidation Date.
Enron, EOG, and the EOG Subsidiaries now desire to terminate the 1995
Agreement and to restate their respective rights, obligations and intentions as
to tax matters for the Post-Deconsolidation Date Period.
Accordingly, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Actual Tax Liability" is defined in Section 3.3.
"Actual Tax Savings" is defined in Section 3.3.
"Base Agreement" is defined in the preamble to this Agreement.
2
"Change Date" is defined in Section 3.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Alternative Minimum Tax Liability" means the
consolidated alternative minimum tax liability computed in accordance with
sections 55, 1502 and 1503 of the Code and shown on a Consolidated Return.
"Consolidated Group" means an "affiliated group" of corporations of
which one corporation is the "common parent" corporation, as such terms are
defined in section 1504(a)(1) of the Code.
"Consolidated Minimum Tax Credits" means the consolidated minimum tax
credits computed in accordance with sections 53, 1502 and 1503 of the Code and
shown on a Consolidated Return.
"Consolidated Return" means the consolidated federal income tax return
of a Consolidated Group for a taxable year.
"Consolidated Tax Liability" means the consolidated federal income tax
liability determined in accordance with Treasury Regulation ss. 1.1502-2 and
shown on a Consolidated Return, taking into account all credits to which the
Consolidated Group is entitled under the Code, but without regard to any
Consolidated Alternative Minimum Tax Liability or any Consolidated Minimum Tax
Credits.
"Deconsolidation Date" means the last day on which EOG was includible
as a member of the Enron Group, which the Parties believe to be December 13,
1995.
"Enron" is defined in the preamble to this Agreement.
"Enron Entity" for any taxable year means any corporation or other
entity which is required to be included in the Consolidated Return of the Enron
Group or in a Unitary Tax Return filed by Enron, other than an EOG Entity.
"Enron Group" means the Consolidated Group of which Enron is the
common parent corporation.
"EOG" is defined in the preamble to this Agreement.
"EOG Entity" for any taxable year means any of EOG, the EOG
Subsidiaries, and any other corporation or other entity 50 percent or more of
the outstanding equity interests (by
-2-
3
voting power or value) in which is owned directly or indirectly by any one or
more other EOG Entities.
"EOG Group" means the Consolidated Group of which EOG is the common
parent corporation.
"EOG 1995 Adjustment" is defined in Section 5.2.
"EOG 1995 Unsevered Adjustment" is defined in Section 5.2.
"EOG Subsidiaries" is defined in the preamble to this Agreement.
"EOG Unitary Loss" is defined in Section 2.2.
"Fuel Contracts" is defined in Section 2.1.
"Hypothetical Tax Liability" is defined in Section 3.3.
"Interest Rate" means eight percent (8%) per annum or, if lower, the
maximum rate of interest permitted by applicable law.
"Loss Contracts" means the Fuel Contracts listed in Schedule A to this
Agreement.
"Loss Contracts Tax Basis" is defined in Section 3.3.
"Modification A" is defined in the preamble to this Agreement.
"Net Swap Gain" is defined in Section 2.1
"1995 Agreement" is defined in the preamble to this Agreement.
"1995 Swap Transactions" is defined in Section 2.1.
"Party" and "Parties" are defined in the preamble to this Agreement.
"Permanent Difference" is defined in Section 5.2.
"Pre-Deconsolidation Date Period" means those taxable years ending on
or before December 31, 1994, plus the taxable period beginning January 1, 1995
and ending on and including the Deconsolidation Date.
-3-
4
"Post-Deconsolidation Date Period" means that period following the
Deconsolidation Date.
"Recognized Loss Allowance Year" is defined in Section 3.3.
"Recognized Loss Allowed Portion" is defined in Section 3.3.
"Recognized Loss Amortization Amount" is defined in Section 3.3.
"Section 29 Credits" means the credits provided by section 29 of the
Code, prior to application of the limitation of section 29(b)(6) of the Code.
"Swap Contracts" is defined in Section 2.1.
"Swap Contracts Tax Basis" means EOG's federal income tax basis in the
Swap Contracts resulting from the 1995 Swap Transactions.
"Tax" or "Taxes" means any tax imposed by any federal, state, local,
or foreign taxing authority, including, without limitation, income tax, add-on
or alternative minimum tax, ad valorem tax, environmental tax, excise tax,
franchise tax, gains tax, gross income tax, gross receipts tax, occupation tax,
payroll tax, profits tax, severance tax, value added tax, windfall profit tax,
withholding tax, and any other tax or like assessment, together with any
interest, penalties, additions to tax or additional amounts imposed in
connection with such tax.
"Tax Item" means any item of income, gain, loss, deduction or credit,
or other item, relevant to the determination of any Tax.
"Tax Opinion" is defined in Section 5.2.
"Timing Difference" is defined in Section 5.2.
"Unitary Tax" means a state income tax which reflects the combined
and/or consolidated tax reporting (either on a domestic or worldwide basis) of
a corporation and its affiliates and which is imposed by that state either (i)
on its apportioned and/or allocable share of the net income of a taxpayer and
its United States affiliates that are engaged in a unitary business, part of
which is conducted in the state or (ii) on its apportioned and/or allocable
share of the net income of a taxpayer and its affiliates, both domestic and
foreign, that are engaged in a unitary business. A "unitary business" is a
group of affiliated corporations that (i) exhibits common ownership,
centralized management, functional integration, and/or economies of scale, or
(ii) is doing business in the state and included in a Consolidated Return.
-4-
5
"Unitary Tax Liability" means the liability for a Unitary Tax.
"Unitary Tax Return" means a state income tax return with respect to a
Unitary Tax.
ARTICLE II
TAX RETURNS
2.1 AMENDED TAX RETURNS FOR 1995. Within 30 days following the
execution of this Agreement, Enron shall file an amended Consolidated Return
for the Enron Group for 1995, and as soon as practicable thereafter but in any
event within the time limits prescribed by applicable law, Enron shall file
(where applicable) amended Unitary Tax Returns for 1995, in each case to
reflect therein the recognition by EOG of gain (net of loss where determined by
Enron to be allowable by the relevant state taxing jurisdiction) on the
transfer of certain natural gas fuel supply contracts and natural gas fuel
purchase contracts and its position in a natural-gas-based notional principal
contract (collectively, the "Fuel Contracts") in exchange for two notional
principal contracts (the "Swap Contracts") with Enron Capital & Trade Resources
Corp. on March 31, 1995 (the "1995 Swap Transactions"). The Parties agree that
the amount of the gain from the 1995 Swap Transactions net of the amortization
of the Swap Contracts Tax Basis in the Pre-Deconsolidation Date Period is
$143,179,195 (the "Net Swap Gain") and that the amended tax returns will
reflect such amount except to the extent that the relevant state taxing
jurisdiction allows the Net Swap Gain to be offset by any loss from the 1995
Swap Transactions. Enron shall pay the additional Taxes attributable to the Net
Swap Gain so reflected in such amended tax returns.
2.2 UNITARY TAX RETURNS.
(a) Enron shall continue to file any Unitary Tax Return which
includes or reflects the operations of both Enron Entities and EOG Entities,
and shall allocate the Unitary Tax Liability owed pursuant to such Unitary Tax
Returns as provided in Section 2.2(b) or 2.2(c).
(b) With respect to any Unitary Tax Return which includes or
reflects the operations of any of the EOG Entities for any taxable year ending
on or before December 31, 1996, the Unitary Tax Liability for the period
covered by such Unitary Tax Return shall be allocated between Enron and EOG in
a manner consistent with the methodology followed for the Pre-Deconsolidation
Date Period. No Unitary Tax Liability shall be allocated to EOG by Enron for
1995 except (x) with respect to the Net Swap Gain reflected in the amended
returns as provided in Sections 2.1 and 3.1(iii) of this Agreement and (y) with
respect to any
-5-
6
change to the Unitary Tax Liability for 1995 by reason of the filing of any
other amended return or an audit of any tax return.
(c) With respect to any Unitary Tax Return which includes or
reflects the operations of any of the EOG Entities for any taxable year ending
after December 31, 1996, the Unitary Tax Liability for the period covered by
such Unitary Tax Return shall be allocated to EOG to the extent of the amount
of Unitary Tax which would be due with respect to such period if such Unitary
Tax Return included only those EOG Entities, and the balance of such Unitary
Tax Liability shall be allocated to Enron. If any such Unitary Tax Return would
show a loss for the taxable year if it included only the EOG Entities (an "EOG
Unitary Loss"), Enron shall compensate EOG for such EOG Unitary Loss, when and
to the extent that such EOG Unitary Loss actually is utilized and results in a
reduction in the amount of Unitary Tax Liability of one or more Enron Entities,
by the payment to EOG of an amount equal to the product of the EOG Unitary Loss
so utilized and the effective rate of Unitary Tax applicable to the EOG
Entities (as determined by Enron and EOG) for the taxable year in which such
EOG Unitary Loss is so utilized. In the event of any adjustment to an EOG Tax
Item or an EOG Unitary Loss (or its utilization) by reason of the filing of an
amended return or the audit of a tax return, the amount of any payment due from
Enron to EOG with respect to an EOG Unitary Loss shall be recomputed, and a
payment shall be made between Enron and EOG to reflect such adjustment.
(d) Schedules allocating the Unitary Tax Liability between the
Enron Entities and the EOG Entities, respectively, shall be prepared by Enron
and provided to EOG for its review by December 1 of the year in which the
Unitary Tax Return is filed. EOG shall pay to Enron the amount of Unitary Tax
Liability so allocated to the EOG Entities by December 31 of such year; any
amount not so paid shall bear interest at the Interest Rate until paid. If EOG
does not approve such schedules, EOG and Enron shall resolve their differences
on a mutually agreeable basis; if Enron and EOG agree on an allocation of
Unitary Tax Liability to the EOG Entities that is less than the amount
previously paid by EOG to Enron therefor, Enron shall refund such excess to EOG
together with interest at the Interest Rate. In the event a Unitary Tax Return
is amended or audited, schedules reallocating the Unitary Tax Liability between
the Enron Entities and the EOG Entities, respectively, shall be prepared by
Enron and provided to EOG for its review. EOG shall pay to Enron any increase
in the amount of Unitary Tax Liability so allocated to the EOG Entities, or
Enron shall pay to EOG any decrease in the amount of Unitary Tax Liability so
allocated to the EOG Entities, within 30 days after Enron delivers such
schedules to EOG; any amount not so paid shall bear interest at the Interest
Rate until paid. If EOG does not approve such schedules, EOG and Enron shall
resolve their differences on a mutually agreeable basis; if Enron and EOG agree
on a reallocation of Unitary Tax Liability to the EOG Entities that is less
than the amount previously paid by EOG to Enron therefor, Enron shall refund
such excess to EOG together with interest at the Interest Rate.
-6-
7
ARTICLE III
PAYMENTS BETWEEN PARTIES
3.1 PAYMENTS BETWEEN ENRON AND EOG. Upon the execution of this
Agreement, Enron shall be obligated to pay to EOG, and EOG shall be obligated
to pay to Enron, the following amounts on the following dates:
(i) Enron shall pay to EOG $13,000,000 on the date of
execution of this Agreement plus interest thereon at the Interest Rate
for the period from December 18, 1995 to the date of execution of this
Agreement.
(ii) EOG shall pay to Enron $50,112,718 in six annual
installments of $8,352,119.66 each (except for the last installment
which shall be in the amount of $8,352,119.70) as of January 1 of the
years 1996 through 2001. The first three such installments shall be
paid on the date of execution of this Agreement, and the remaining
three installments shall be paid on January 1, 1999, January 1, 2000
and January 1, 2001, respectively.
(iii) EOG shall pay to Enron the amount of Unitary Tax
Liability attributable to the Net Swap Gain reflected in the amended
Unitary Tax Returns filed pursuant to Section 2.1 of this Agreement,
within 5 days after delivery by Enron to EOG of a schedule of such
Unitary Tax Liability.
Any amount not paid on the date specified for such amount shall bear interest
at the Interest Rate until paid.
3.2 PAYMENTS FOR USE OF CREDITS. As of the date of this Agreement,
no Consolidated Minimum Tax Credits have been allocated to EOG or any EOG Entity
by Enron based on Consolidated Returns of the Enron Group for the
Pre-Deconsolidation Date Period. In the event Consolidated Minimum Tax Credits
are allocated to EOG or any EOG Entity for any taxable year or period in the
Pre-Deconsolidation Date Period, EOG shall make a good faith effort to utilize
such Consolidated Minimum Tax Credits, and shall be obligated to reimburse
Enron for the amount of such Consolidated Minimum Tax Credits so allocated to
EOG upon the occurrence of the earlier of the following two events:
(i) the date on which EOG files its federal income tax return
for a taxable year in the Post-Deconsolidation Date Period in which
EOG or any EOG Entity utilizes any such Consolidated Minimum Tax
Credits; or
-7-
8
(ii) the date on which the Tax liability of EOG or any EOG
Entity is reduced by such Consolidated Minimum Tax Credits (if not on
an original return) by reason of the receipt of a refund of Tax or the
reduction in a payment of Tax otherwise required to be made by EOG or
an EOG Entity.
Any minimum tax credits generated by EOG in the Post-Deconsolidation Date
Period shall be disregarded in making determinations pursuant to this Section
3.2. Payments by EOG to reimburse Enron shall be made for each taxable year in
the Post-Deconsolidation Date Period upon the occurrence of either of the above
events until the Consolidated Minimum Tax Credits allocated to EOG are used in
their entirety. In the event the amount of the Consolidated Minimum Tax Credits
allocated to EOG is adjusted, resulting in a reduction of Consolidated Minimum
Tax Credits previously utilized by EOG, and a payment has been made by EOG to
Enron pursuant to this Section 3.2, Enron shall be obligated to pay EOG for any
assessment of Taxes made against it by the Internal Revenue Service
attributable to such adjustment. Any such payment by Enron shall be made to EOG
on the day EOG pays the Internal Revenue Service the amount of such assessment.
3.3 PAYMENT FOR THE RECOGNITION OF LOSS ON 1995 SWAP TRANSACTIONS.
(a) In the event Enron's stock ownership in EOG is reduced on
any date after the execution of this Agreement (the "Change Date") such that
Enron and EOG are no longer members of the same controlled group (within the
meaning of section 267(b)(3) and (f) of the Code), Enron and EOG shall
determine EOG's federal income tax basis in the Loss Contracts as of the Change
Date (the "Loss Contracts Tax Basis"). If any portion of the Loss Contracts Tax
Basis is allowed as an item of deduction or amortization to the Enron Group (a
"Recognized Loss Allowed Portion") for any taxable year in the
Post-Deconsolidation Date Period (a "Recognized Loss Allowance Year"), Enron
shall be obligated to pay to EOG with respect to each of the six taxable years
commencing with such Recognized Loss Allowance Year the greater of (x) the
Actual Tax Savings (as determined in Section 3.3(a)(i)) or (y) the Recognized
Loss Amortization Amount (as determined in Section 3.3(a)(ii)). Each such
payment shall be made by Enron to EOG within 30 days after the filing of the
Consolidated Return of the Enron Group for the respective taxable year. In the
event of any adjustment that reduces the amount Enron is obligated to pay to
EOG under this Section 3.3, EOG shall repay to Enron an amount equal to such
reduction upon written notice from Enron of such adjustment.
(i) The "Actual Tax Savings" means the amount by which the
Hypothetical Tax Liability exceeds the Actual Tax Liability for any
taxable year. For this purpose, the "Actual Tax Liability" means the
Consolidated Tax Liability of the Enron Group for the taxable year,
and the "Hypothetical Tax Liability" means the amount that would be
the Actual Tax Liability for such
-8-
9
taxable year if the Recognized Loss Allowed Portion were not taken
into account.
(ii) The "Recognized Loss Amortization Amount" means an
amount determined by (x) multiplying the Recognized Loss Allowed
Portion by the maximum rate of tax imposed on corporations under
section 11 of the Code for the year in which the Recognized Loss
Allowed Portion is allowed as an item of deduction or amortization to
the Enron Group and (y) dividing the result by six.
(b) Notwithstanding the preceding provisions of this Section
3.3, in no event shall the aggregate payments made by Enron to EOG under
Section 3.3(a) with respect to any Recognized Loss Allowed Portion exceed an
amount determined by multiplying such Recognized Loss Allowed Portion by the
maximum rate of tax imposed on corporations under section 11 of the Code for
the year in which such Recognized Loss Allowed Portion is allowed as an item of
deduction or amortization to the Enron Group.
(c) Any Recognized Loss Allowed Portion shall be treated as an
EOG Unitary Loss for purposes of Section 2.2(c) of this Agreement.
3.4 PAYMENTS FOR SECTION 29 CREDITS. Enron shall pay to EOG on the
date of the execution of this Agreement the net amount of $669,184 related to
the net underreporting of Section 29 Credits for the taxable years 1992 through
1994 (which is comprised of $956,346 related to underreporting, and $ 287,162
related to overreporting, of Section 29 Credits for such years), together with
interest at the Interest Rate computed from the 15th day of the third month
following the end of the taxable year to which the respective Section 29
Credits relate.
3.5 PAYMENTS WITH RESPECT TO CAPITAL LOSS CARRYBACKS. If for any
taxable year in the Post-Deconsolidation Date Period EOG or an EOG Entity has a
"net capital loss" that is a "capital loss carryback" to a "prior taxable year"
in the Pre-Deconsolidation Date Period in which there is "capital gain net
income" (as such terms are defined in section 1212(a) of the Code), the
following payments shall be made between Enron and EOG upon the allowance of
such capital loss carryback as a deduction against the capital gain net income
for such prior taxable year:
(i) Enron shall pay to EOG an amount determined by
multiplying the capital loss carryback of EOG or such EOG Entity that
actually is allowed as a deduction to the Enron Group for the prior
taxable year by the statutory rate of federal income tax imposed on
the net capital gain of a corporation for such prior taxable year.
-9-
10
(ii) EOG shall pay to Enron an amount equal to 100% of the
Section 29 Credits shown on the Consolidated Return of the Enron Group
for the prior taxable year that are disallowed for the prior taxable
year because of the carryback of the net capital loss of EOG or such
EOG Entity to the prior taxable year, together with interest on such
amount at the Interest Rate from the 15th day of the third month
following the end of the prior taxable year until paid.
ARTICLE IV
INDEMNIFICATION FOR TAXES
4.1 EOG TAXES. EOG and the EOG Subsidiaries, jointly and severally,
shall be responsible for, and shall indemnify and hold Enron and each Enron
Entity harmless from, (x) all Taxes imposed on, incurred by, or measured by the
income, operations, assets or capital of, EOG or any EOG Entity and (y) all
Taxes imposed on or incurred by Enron or any Enron Entity which are allocated
to EOG or any EOG Entity by Enron in accordance with the allocation methodology
set forth in the Base Agreement, Modification A, or this Agreement, including
specifically, but without limitation, any Taxes attributable to the 1995 Swap
Transactions or the amended returns filed pursuant to Section 2.1 of this
Agreement in excess of those paid by Enron pursuant to Section 2.1 of this
Agreement. EOG, in turn, shall be entitled to receive all refunds of such
Taxes, if any (including any refund of Taxes attributable to the 1995 Net Swap
Transactions paid by Enron pursuant to Section 2.1 of this Agreement), from
either the applicable taxing authorities or Enron (in the event such refunds
have been made directly to Enron).
4.2 ENRON TAXES. Enron shall be responsible for, and shall indemnify
and hold EOG and the EOG Subsidiaries harmless from, (x) all Taxes imposed on,
incurred by, or measured by the income, operations, assets or capital of, Enron
or any Enron Entity and (y) all Taxes imposed on or incurred by EOG or any EOG
Entity which are allocated to Enron or any Enron Entity by Enron in accordance
with the allocation methodology set forth in the Base Agreement, Modification
A, or this Agreement. Enron, in turn, shall be entitled to receive all refunds
of such Taxes, if any, from either the applicable taxing authorities or EOG (in
the event such refunds have been made directly to EOG).
4.3 PAYMENTS. Any payment by a Party to indemnify another Party
pursuant to this Article IV shall be made within 5 days after demand therefor
by the indemnified Party.
-10-
11
ARTICLE V
AUDITS AND OTHER TAX PROCEEDINGS
5.1 GENERAL COOPERATION AND EXCHANGE OF INFORMATION.
(a) Enron, on the one hand, and EOG and the EOG Subsidiaries, on
the other hand, shall provide or cause to be provided to the other Party copies
of all correspondence received from any taxing authority in connection with the
liability of the Parties for Taxes for the Pre-Deconsolidation Date Period.
Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other hand,
shall also provide the other Party with access to or copies of any materials
requested by such Party which would be of assistance in resolving any tax
matters for the Pre-Deconsolidation Date Period. Further, the Parties will
provide each other with such cooperation and information as they may reasonably
request of each other in preparing or filing any return, amended return, or
claim for refund, in determining liability or right of refund, or in conducting
any audit or other proceeding in respect of Taxes imposed on the Parties or
their respective affiliates.
(b) Enron, on the one hand, and EOG and the EOG Subsidiaries, on
the other hand, and their affiliates, will preserve and retain all returns,
schedules, workpapers, and all material records and other documents relating to
any such returns, claims, audits, or other proceedings until the expiration of
the statutory period of limitations (including extensions) of the taxable
periods to which such documents relate and until the final determination of any
payments which may be required with respect to such periods under this
Agreement, and shall make such documents available at the then-current
corporate headquarters of such Party to the other Party or any affiliate
thereof, and their respective officers, employees, and agents, upon reasonable
notice and at reasonable times, it being understood that such representatives
shall be entitled to make copies of any such books and records relating to
Enron or EOG and the EOG Subsidiaries as they shall deem necessary.
(c) Enron, on the one hand, and EOG and the EOG Subsidiaries, on
the other hand, further agree to permit representatives of the other Party or
any affiliate thereof to meet with employees of such Party on a mutually
convenient basis in order to enable such representatives to obtain additional
information and explanations of any documents provided pursuant to this Section
5.1. Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other
hand, shall make available to the representatives of the other Party or any
affiliate thereof sufficient work space and facilities to perform the
activities described in this Section 5.1. Any information obtained pursuant to
this Section 5.1 shall be kept confidential, except as may otherwise be
necessary in connection with the filing of returns or claims for refund or in
conducting any audit or other proceeding. Each Party shall provide the
cooperation and information required by this Section 5.1 at its own expense.
-11-
12
5.2 AUDITS.
(a) In the event of an audit by the Internal Revenue Service or
any state, local or foreign taxing authority of a tax return filed by Enron for
any taxable period or portion thereof in the Pre-Deconsolidation Date Period,
or of any Unitary Tax Return or other tax return for any period that includes
both an Enron Entity and an EOG Entity, Enron shall give EOG timely and
reasonable notice of audit proceedings, and EOG and the EOG Subsidiaries shall
provide all necessary information and other assistance reasonably requested by
Enron with respect to issues concerning the activities of EOG and the EOG
Subsidiaries. All communications with the applicable taxing authority
concerning such audit shall be made or controlled by Enron. Enron shall use all
reasonable efforts to refute any unfavorable adjustments to EOG and the EOG
Entities, but Enron shall have full, exclusive and final control over all such
audit proceedings, except to the extent provided in Section 5.2(b).
(b) In the event that the Internal Revenue Service proposes an
adjustment to any Tax Item of EOG or any of the EOG Subsidiaries for that
portion of the 1995 taxable year ending on the Deconsolidation Date with
respect to which EOG has obtained and delivered to Enron a written opinion
satisfactory in form and substance to Enron of nationally recognized tax
counsel satisfactory to Enron (the "Tax Opinion") to the effect that it is at
least more likely than not that the tax treatment of such Tax Item (as reported
on the 1995 Consolidated Return of the Enron Group) will be upheld (an
adjustment which meets the foregoing Tax Opinion requirement is referred to as
an "EOG 1995 Adjustment"), EOG shall be permitted (at EOG's sole expense) to
control the audit proceedings and pursue any available administrative and
judicial remedies with respect to such EOG 1995 Adjustment, but only if such
EOG 1995 Adjustment can be separated from the audit and final determination of
all other adjustments proposed with respect to other Tax Items in the 1995
Consolidated Return of the Enron Group in a manner that would permit Enron to
control the settlement or contest of all such other Tax Items separate and
apart from the settlement or contest of the Tax Item related to such EOG 1995
Adjustment. Any EOG 1995 Adjustment which cannot be so separated from all other
adjustments (an "EOG 1995 Unsevered Adjustment") shall be subject to the
control of Enron as provided in Section 5.2(a). However, each of the EOG 1995
Unsevered Adjustments shall be categorized as either a Timing Difference or a
Permanent Difference. For this purpose, a "Timing Difference" is an EOG 1995
Unsevered Adjustment which, as finally determined, results in an increase in an
item of income or gain or decrease in an item of loss, deduction or credit for
1995 but will reverse by resulting in a decrease in an item of income or gain
or an increase in an item of loss, deduction or credit for any subsequent year
or years, and a "Permanent Difference" is any EOG 1995 Unsevered Adjustment, as
finally determined, other than a Timing Difference. The Timing Differences (in
the aggregate) and each Permanent Difference shall be subject to whichever of
the following is applicable:
-12-
13
(i) If the aggregate of all Timing Differences increases the
federal income tax liability of EOG and the EOG Entities for that
portion of the 1995 taxable year ending on the Deconsolidation Date by
at least $1,750,000, Enron shall pay to EOG interest, at the Interest
Rate, for each 12- month period commencing March 15, 1996 until March
15 following the taxable year in which all Timing Differences have
fully reversed, on an amount equal to 35% (or 100% in the case of
those Timing Differences which result from a decrease in an item of
tax credit for 1995) of the excess of (x) the aggregate of all Timing
Differences over (y) the amount of all Timing Differences which have
reversed by the end of the taxable year preceding the end of the
respective 12-month period.
(ii) If the aggregate of all Timing Differences increases the
federal income tax liability of EOG and the EOG Entities for that
portion of the 1995 taxable year ending on the Deconsolidation Date by
less than $1,750,000, Enron shall not be obligated to pay any amount
to EOG with respect to Timing Differences.
(iii) In the case of each Permanent Difference, the method
for dealing with the settlement or contest of such Permanent
Difference shall be determined by the tax personnel of Enron and EOG
as part of their general cooperation and exchange of information
contemplated by Section 5.1 of this Agreement. If the tax personnel
are unable to resolve such matter, the matter shall be referred to
senior management of Enron and EOG for resolution. If senior
management are also unable to resolve such matter, Enron shall be
obligated to pay to EOG (x) an amount determined by multiplying 35% of
the amount of such Permanent Difference as finally determined (or 100%
if such Permanent Difference resulted from a decrease in an item of
tax credit for 1995) by 50% if the Tax Opinion concluded that the Tax
Item related to such Permanent Difference was more likely than not to
be upheld or by such other higher percentage expressed in the Tax
Opinion as to the likelihood that such Tax Item would be upheld, plus
(y) interest on such amount, at the Interest Rate, from March 15, 1996
until such amount is paid.
5.3 ACTIONS BY EOG AND ENRON. In no event shall EOG or any EOG
Subsidiary file any tax return or amended tax return, claim any refund, or make
any tax election with respect to or which could in any way affect or be
inconsistent with (x) any tax return filed for any taxable period or portion
thereof in the Pre-Deconsolidation Date Period or (y) any Unitary Tax Return
for any period that includes both an Enron Entity and an EOG Entity, without
first obtaining the written permission of Enron. In no event shall Enron file
any amended tax return, claim any refund, or make any tax election affecting or
with respect to
-13-
14
the Pre-Deconsolidation Date Period that would have a material adverse effect
on EOG's financial condition or results of operation without first obtaining
the written permission of EOG. Upon written request from EOG, Enron shall take
all reasonable measures to timely obtain any refund of Tax due EOG or any EOG
Entity.
5.4 EOG TAX RETURNS. For any taxable period at any time during which
one or more members of the Enron Group own at least 50 percent (by voting power
or value) of the outstanding stock of EOG, EOG shall furnish to Enron a copy of
each Consolidated Return of the EOG Group, and any other tax return of any EOG
Entity requested by Enron, which is proposed to be filed by or with respect to
the EOG Group or an EOG Entity for such taxable period at least 15 days prior
to the proposed filing of such tax return with the applicable taxing authority.
With respect to any Consolidated Return filed with respect to the EOG Group for
a taxable period in the Post-Deconsolidation Date Period, EOG shall elect
pursuant to section 172(b)(3) of the Code to relinquish the carryback period
with respect to any net operating loss to the extent such loss otherwise could
be carried back to a taxable period in the Pre-Deconsolidation Date Period.
ARTICLE VI
OTHER PROVISIONS
6.1 EFFECT OF THIS AGREEMENT. The obligations of the Parties set
forth in this Agreement shall be unconditional and absolute, and shall remain
in effect without limitation as to time. All other tax sharing or allocation
agreements between Enron, on the one hand, and EOG and the EOG Subsidiaries, on
the other hand, including the Base Agreement and Modification A, shall
terminate effective with respect to taxable periods beginning after the
Deconsolidation Date, except that those provisions of the Base Agreement and
Modification A regarding the allocation of Unitary Tax Liability shall remain
in effect for the 1995 and 1996 taxable years except to the extent inconsistent
with the provisions of this Agreement.
6.2 TERMINATION OF 1995 AGREEMENT. Upon the execution of this
Agreement, the 1995 Agreement shall terminate and be of no force or effect
whatsoever.
6.3 CONFLICT. Because the terms of this Agreement generally
supersede the terms of the Base Agreement and Modification A, the Parties agree
that if there is any conflict or ambiguity between this Agreement and the Base
Agreement or Modification A, the terms of this Agreement shall control.
Notwithstanding the preceding sentence, if there is any conflict or ambiguity
between sections 2, 3 and 4 of Modification A and this Agreement, sections 2, 3
and 4 of Modification A shall control.
-14-
15
6.4 ASSIGNABILITY. The rights and obligations of the Parties under
this Agreement may not be assigned by any Party without the prior written
consent of the other Parties to this Agreement.
6.5. MODE OF PAYMENT. Any payment to be made by a Party to another
Party pursuant to this Agreement shall be made by wire transfer to the account
of the payee-Party specified in a notice to the payor-Party.
6.6. NOTICES. All notices or demands pursuant to this Agreement shall
be in writing and shall be delivered in person, by confirmed facsimile or by
registered or certified mail to the chief financial officer (or the chief
accounting and information officer in the case of Enron) of the Party to whom
notice or demand is given at the then-current corporate headquarters of such
Party, or to such other officer or address as a Party may have previously
furnished to the other Parties in the manner provided herein for giving notice.
Any notice or demand shall be deemed to have been received as of the date so
delivered in person or by confirmed facsimile or, if mailed, three days after
the date so mailed.
6.7 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Texas.
IN WITNESS WHEREOF, the Parties hereto have caused their names to be
subscribed and this Agreement to be executed by their respective authorized
officers, on the dates indicated, effective as of the date stated above.
ENRON CORP.
Date: 2-17-98 By: /s/ Xxxxxxx X. Xxxxxx
----------- -------------------------------------
Xxxxxxx X. Xxxxxx
Xx. Vice President & Chief
Accounting & Information Officer
16
ENRON OIL & GAS COMPANY
Date: 2-10-98 By: /s/ X. X. Xxxxxx
--------------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
ENRON OIL & GAS MARKETING, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
--------------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOG - CANADA, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
--------------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
ENRON OIL & GAS INTERNATIONAL, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
--------------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - TRINIDAD, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
--------------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
17
EOGI - AUSTRALIA, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - FRANCE, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - QATAR, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - UZBEKISTAN, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - KUWAIT, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
18
ENRON OIL & GAS - CARTHAGE, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
ERSO, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
ENRON OIL & GAS PROPERTY
MANAGEMENT, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
NILO OPERATING COMPANY
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - TRINIDAD U(a) BLOCK, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
19
EOGI - ALGERIA, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - KHAZAKSTAN, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - INDIA, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - CHINA, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
EOGI - UNITED KINGDOM, INC.
Date: 2-10-98 By: /s/ X. X. Xxxxxx
----------- -------------------------------------
Xxxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
20
SCHEDULE A
LOSS CONTRACTS
1. Gas Sales Contract dated September 2, 1987 between Enron Oil & Gas
Company ("Seller") and Cogenron, Inc. ("Buyer"), as amended.
2. Gas Sales Contract dated October 5, 1987 between Enron Oil & Gas
Company ("Buyer") and Panhandle Gas Company ("Seller"), as amended.
3. Swap Agreement effective November 1, 1990 between Enron Oil & Gas
Company and Banque Paribas, as amended.
