TAX INDEMNITY AGREEMENT
This Tax Indemnity Agreement (the "Agreement') is made and entered into this
14th day of October 1999, by and between MidAmerican Energy Holdings Company, an
Iowa corporation ("MidAmerican"), and XxxxXxxxxxxx.Xxx Inc., a Delaware
corporation ("HMSV").
RECITALS
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1. As of the date of this Agreement, MidAmerican owns 95.22% of the
common stock of HMSV and MidAmerican and HMSV are members of the same
consolidated group for federal income tax purposes.
2. On October 7, 1999 HMSV merged with MidAmerican Realty Services
Company ("MRSC"), an Iowa corporation, with HMSV surviving and
becoming, by reasons of such merger, the successor to MRSC.
Immediately following the merger, HMSV made an initial public offering
of its equity securities (the "Offering") which upon the date of the
closing of such Offering (the "Closing Date") will reduce
MidAmerican's ownership of HMSV to less than 80% and will further
result in HMSV (and, by reason of the merger, MRSC) no longer being a
member of the same consolidated group for federal income tax purposes
as MidAmerican.
3. MidAmerican and HMSV desire to set forth their intentions with respect
to certain matters relating to (i) determining and computing tax
liability for the time periods prior to the Closing Date, (ii)
procedures the parties will follow with respect to tax proceedings and
(iii) other matters relating to taxes.
In consideration of the mutual covenants and agreements herein contained,
MidAmerican and HMSV agree as follows:
1. MIDAMERICAN AND HMSV TAX SHARING.
A. HMSV Obligation.
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From and after the Closing Date, HMSV shall pay MidAmerican the dollar
value as calculated in Section 1.C. below of any federal, state or
local income tax liability (including without limitation deficiencies,
interest, and penalties) relating to the HMSV Group (as defined below)
with respect to (1) any items of income, deduction, and credit
accruing to the HMSV Group on or before the Closing Date, and (2) any
taxes of the HMSV Group for any taxable year or period ending prior
to, or on the Closing Date. For purposes of this Agreement, the "HMSV
Group" means HMSV, its subsidiaries and their respective businesses
and operations; and the "MidAmerican Group" means MidAmerican, its
subsidiaries (other than the HMSV Group) and their respective
businesses and operations.
B. MidAmerican Obligation.
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From and after the Closing Date, MidAmerican shall pay HMSV for the
dollar value as calculated in Section 1.C. below of any federal, state
or
local income tax benefits (including without limitation the tax
benefits related to deductions, credits, losses, and carryovers)
relating to the HMSV Group with respect to (1) any items of income,
deduction, and credit accruing to the HMSV Group on or before the
Closing Date, and (2) any tax refunds of the HMSV Group for any
taxable year or period ending on or before the Closing Date.
C. Tax Payment Computation.
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1. Method of Calculation.
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For purposes of computing and allocating taxes pertaining to the
filing, amendment, or audit of tax returns for all taxable
periods ending on or before the Closing Date, MidAmerican shall
compute the tax liability of the MidAmerican Group as if it and
the HMSV Group were separate consolidated tax groups (the
resulting amount being hereinafter referred to as the
"MidAmerican Group Stand-Alone Tax Liability"). MidAmerican will
then compute the tax liability of the MidAmerican Group as if it
and the HMSV Group were one consolidated group (the resulting
amount being hereinafter referred to as the "MidAmerican Group
Consolidated Tax Liability"). The arithmetic difference between
the MidAmerican Group Stand-Alone Tax Liability and the
MidAmerican Group Consolidated Tax Liability is hereinafter
referred to as the "Tax Allowance". HMSV shall be entitled to, or
responsible for, as the case may be, all Tax Allowances resulting
from taxable events occurring on or before the Closing Date.
2. MidAmerican Payment.
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In accordance with Section 1.C.1. above, if the MidAmerican Group
Consolidated Tax Liability is less than the MidAmerican
Group-Stand-Alone Tax Liability, MidAmerican shall pay an amount
equal to the Tax Allowance to HMSV pursuant to Section 1.D.
below.
3. HMSV Payment.
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In accordance with Section 1.C.l. above, if the MidAmerican Group
Consolidated Tax Liability is greater than the MidAmerican Group
Stand-Alone Tax Liability, HMSV shall pay an amount equal to the
Tax Allowance to MidAmerican pursuant to Section 1.D. below.
D. Tax Payments.
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MidAmerican shall make quarterly estimated payments of taxes for the
MidAmerican Group during each tax year and then make one or more
adjustments relating to such tax payments after each respective tax
year. The date upon which MidAmerican makes such estimated payment of
taxes or the date upon which MidAmerican makes such adjustment shall
be referred to as a "Tax Determination Date". Prior to each Tax
Determination Date, MidAmerican shall make the computations required
by Section 1.C. of this Agreement. Within 10 days after the Tax
Determination Date, MidAmerican shall (i) provide HMSV with notice
setting forth a summary of the computations required by this Section
(the "Tax Determination Notice") and (ii) make any payment to HMSV
required to be made by MidAmerican pursuant to Section 1.C. HMSV shall
make any payment to MidAmerican required by Section 1.C. within 10
days of receipt of the Tax Determination Notice.
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2. FILING OF TAX RETURNS.
A. Tax Returns.
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The federal, state and local consolidated, combined, or separate
corporate income or franchise tax returns of the MidAmerican Group and
the HMSV Group for the period ended December 31, 1999 shall be
prepared and filed by MidAmerican. Such returns shall include the
results of operations of the MidAmerican Group for the periods ended
on or before December 31, 1999 and of the HMSV Group for the periods
ended on or before the Closing Date, except in cases where certain
states may require inclusion of the HMSV Group with the MidAmerican
Group on a combined basis for periods ending after the Closing Date.
With respect to all taxable periods including periods ending on or
before the Closing Date, MidAmerican in consultation with HMSV, shall
make all computations, allocations, determinations and elections
affecting the MidAmerican Group and the HMSV Group consistent with
prior period returns of the group consisting of the MidAmerican Group
and the HMSV Group in accordance with U.S. Treasury regulations
promulgated under Section 1502 of the Internal Revenue Code (the
"Code") and with state and local income tax laws and regulations.
Subject to the right to payment from HMSV as provided in this
Agreement, MidAmerican shall pay or discharge any and all federal,
state and local income or franchise taxes, assessments, interest,
penalties or deficiencies reflected on such returns.
B. Refunds and Amended Returns.
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Only MidAmerican, after consulting with HMSV, may make, or cause to be
made, application for refunds, file original or amended reports and
returns and make other required filings for the periods ended on or
before the Closing Date for HMSV.
3. TAX PROCEEDINGS.
A. Notice of Adjustment.
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In the event the Internal Revenue Service or any State Department of
Revenue proposes in a letter or a notice of deficiency an adjustment
(a "Proposed Adjustment") to the federal or state income tax liability
of the HMSV Group, which adjustment, if sustained, could result in an
obligation on the part of HMSV to pay MidAmerican pursuant to the
terms of this Agreement, MidAmerican shall promptly upon receipt of
such letter or notice, but not later than 20 days thereafter, notify
HMSV in writing of such Proposed Adjustment and or any action taken or
proposed to be taken by the Internal Revenue Service or State
Department of Revenue with respect thereto (the "Notice of
Adjustment") and, if timely requested by HMSV in writing, request to
the extent so permitted by law an extension of time to file a formal
protest to such Proposed Adjustment. The omission by MidAmerican to so
notify HMSV shall not relieve HMSV of any payment obligation set forth
in this Agreement.
B. Notice of Contest.
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MidAmerican shall be required to protest such Proposed Adjustment only
upon receipt of a written request from HMSV (the "Notice of Contest")
to make such protest within 30 days of receipt by HMSV of the Notice
of Adjustment.
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C. Probable Threshold.
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Upon receipt of the Notice to Contest, MidAmerican shall request a
legal opinion from counsel (selected by MidAmerican) of the likelihood
of success in contesting the Proposed Adjustments set forth in the
Notice of Adjustment, unless MidAmerican in its sole discretion
determines the likelihood of success is probable and a legal opinion
is not necessary. The cost of such opinion shall be paid for by HMSV.
If such counsel provides MidAmerican with an opinion to the effect
that it is "probable" that such contest will be successful (the
"Probable Opinion"), then MidAmerican shall elect to either (i)
immediately contest such Proposed Adjustment in accordance with
Section 3.D. below or (ii) decline to contest such proposed
adjustment. MidAmerican shall notify HMSV in writing of its election
to contest or not to contest within 10 days of MidAmerican's receipt
of the Probable Opinion. MidAmerican may discontinue its protest of
such Proposed Adjustment at any time by providing HMSV with prompt
notice of such discontinuance. Upon MidAmerican's election not to
contest such proposed adjustment or the discontinuance of
MidAmerican's contest of such Proposed Adjustment, MidAmerican shall
promptly pay HMSV the amount HMSV would have been entitled to receive
if such contest would have been successful, such amount to be
determined in accordance with Section 1. MidAmerican agrees to
indemnify and hold HMSV harmless from and against any amount due and
owing from HMSV (as determined in accordance with Section #1) as a
result of the aforementioned failure by MidAmerican to protest, or the
discontinuance by MidAmerican of the protest, of such Proposed
Adjustment. If the opinion of the aforementioned counsel does not
constitute a Probable Opinion, then MidAmerican or HMSV may, after
consultation with the other party, contest such Proposed Adjustment
and take any and all other action it so elects; provided that the
costs, fees and expenses of such action shall be the responsibility of
the party electing to contest the Proposed Adjustment.
D. Administrative and Judicial Proceedings.
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If MidAmerican elects to contest such Proposed Adjustment after
receiving a Probable Opinion or waiving such requirement, MidAmerican
shall select counsel to contest such Proposed Adjustment and shall be
entitled; subject to Section 3.C., to (i) forego any administrative
appeals, proceedings, hearings or conferences with the Internal
Revenue Service or any state or local tax authority, (ii) refrain from
paying any tax assessed and contest any deficiency, or (iii) pay any
tax assessed and claim a refund; provided, however, that if
MidAmerican pays such tax, HMSV shall reimburse MidAmerican for such
payment within 10 days of receipt by HMSV of an invoice therefore from
MidAmerican; and further provided that MidAmerican shall keep HMSV
fully informed in respect thereof and consult in good faith with HMSV
regarding the contest of such Proposed Adjustment including choice of
forum. MidAmerican shall, upon the conclusion of any administrative
proceedings, promptly notify HMSV of the outcome of such proceedings,
and shall notify HMSV at least 30 days in advance of the last date for
filing a petition in any court of competent jurisdiction with respect
thereto. In the event of an unfavorable resolution of administrative
proceedings, MidAmerican shall (x) contest any Proposed Adjustment
beyond the level of administrative proceedings upon receipt of HMSV's
written request therefore within 30 days of MidAmerican's receipt of
notice of such unfavorable resolution, (y) shall consider in good
faith any advice offered by HMSV concerning the court of competent
jurisdiction in which the adjustment is most likely to be favorably
resolved and (z) shall keep HMSV informed as to the progress of any
litigation and, if requested by HMSV, shall consult with HMSV and
consider in good
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faith (1) any recommendations by HMSV concerning the conduct of such
proceedings, and (2) HMSV's request for an opportunity to be present
and represented by HMSV's counsel at all formal and informal
proceedings before the judicial forum or with opposing counsel and
shall endeavor in good faith to permit HMSV's counsel an opportunity
to review and comment in advance on all submissions in connection with
such litigation. MidAmerican shall take such reasonable action during
the course of such proceedings as MidAmerican deems advisable after
good faith consultation with HMSV (whenever in MidAmerican's good
faith judgment such consultation is practicable) to preserve as a
basis for appeal any legal issue which HMSV or HMSV's counsel has
identified in writing. MidAmerican shall be required to appeal any
adverse judicial determination only if (A) an appeal is timely
requested in writing by HMSV and (B) MidAmerican is furnished with an
opinion from counsel selected by MidAmerican, at HMSV's expense, to
the effect that it is "probable" that the appeal will prevail.
E. Payment of Costs and Fees.
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Except as otherwise expressly provided herein, for so long as
MidAmerican shall contest or continue to contest any claim or
assertion by the Internal Revenue Service or any state or local tax
authority under the terms of this Agreement, HMSV shall pay
MidAmerican, in addition to the tax if paid by MidAmerican in
accordance with 3.D., all fees, costs and expenses associated with
such contest. HMSV shall pay MidAmerican within 10 days of receipt by
HMSV of an invoice from MidAmerican. In the event HMSV does not pay
MidAmerican within such period, MidAmerican shall have no further
obligation to contest such Proposed Adjustment.
4. OTHER TAX MATTERS.
HMSV hereby covenants and agrees that except as set forth herein, HMSV
shall not make any elections or allocations, for federal, state, or local
income tax purposes which are permitted by law which would have an adverse
impact on MidAmerican or the MidAmerican Group without the prior written
consent of MidAmerican.
5. MISCELLANEOUS.
A. Cooperation.
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MidAmerican and HMSV shall cooperate with each other with respect to
the preparation of tax returns pursuant to Section 2 and proceedings
under Section 3 including access to all necessary personnel and
records and with respect to any other matter relating to this
Agreement as reasonably requested by a party. All charges for labor
and direct out-of-pocket expenses shall be in accordance with the
Administrative Services Agreement then in effect between the parties,
and if no such agreement is then in effect, as mutually agreed upon by
the parties.
B. Entire Agreement Amendments.
----------------------------
This Agreement constitutes the sole and entire agreement between the
parties with respect to the subject matter herein and supersedes all
previous oral or written proposals, commitments, agreements and all
other communications between the parties. This Agreement shall not be
amended,
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modified or supplemented except by a written instrument signed by an
authorized representative of each of the parties hereto.
C. Assignment.
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This Agreement may not be assigned by either party without the prior
written consent of the other party.
D. Partial Invalidity.
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Wherever possible, each provision hereof shall be interpreted in such
a manner as to be effective and valid under applicable law, but in the
event any one or more of the provisions contained herein shall, for
any reason, be held invalid, illegal or unenforceable in any respect,
such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without
invalidating the remaining provisions hereof or affecting the
validity, legality or enforceability of such provision in any other
jurisdiction.
E. Waiver.
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Failure by either party to insist upon the strict performance of any
term or condition herein shall not be deemed a waiver of any rights or
remedies that either party may have against the other nor in any way
affect the validity of this Agreement or any part hereof or the right
of any party thereafter to enforce each and every provision. No waiver
of any breach of this Agreement shall be held to constitute a waiver
of any other or subsequent breach.
F. Governing Law.
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This Agreement shall be governed by, construed and interpreted
pursuant to the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties have caused this Tax Indemnity Agreement to be
duly executed as of the day and year first above written.
MIDAMERICAN ENERGY HOLDINGS XXXXXXXXXXXX.XXX
COMPANY INC.
By: /s/ X. X. Xxxxxxx By: /s/ Xxxxxx X. XxXxxxxx
-------------------------------- ------------------------------
Name: Xxxxxxx X. Xxxxxxx Name: Xxxxxx X. XxXxxxxx
Title: Senior V.P. & CFO Title: Senior Vice President
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