DRAFT
(SEPTEMBER 8, 1999)
TAX INDEMNITY AGREEMENT
This Tax Indemnity Agreement (the "Agreement") is made and entered into this
___day of September 1999, by and between MidAmerican Energy Holdings Company, an
Iowa corporation ("MidAmerican"), and MidAmerican Realty Services Company, an
Iowa corporation ("MRSC").
RECITALS
1. As of the date of this Agreement, MidAmerican owns 95.22% of the
common stock of MRSC and MidAmerican and MRSC are members of the same
consolidated group for federal income tax purposes.
2. MRSC currently intends to merge with and into ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Inc., a
Delaware corporation ("HomeServices"), with HomeServices surviving and
becoming, by reasons of such merger, the successor to MRSC under this
Agreement. Immediately following the merger, HomeServices will make an
initial public offering of its equity securities (the "Offering")
which upon the date of the closing of such Offering (the "Closing
Date") would reduce MidAmerican's ownership of HomeServices to less
than 80% and would further result in HomeServices (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 MRSC 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) to
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 MRSC agree as follows:
1. MIDAMERICAN AND MRSC TAX SHARING.
A. MRSC Obligation. From and after the Closing Date, MRSC 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 MRSC
Group (as defined below) with respect to (1) any items of income,
deduction, and credit accruing to the MRSC Group on or before the
Closing Date, and (2) any taxes of the MRSC Group for any taxable year
or period ending prior to, or on the Closing Date. For purposes of
this Agreement, the "MRSC Group" means MRSC, its subsidiaries and
their respective businesses and operations; and the "MidAmerican
Group" means MidAmerican, its subsidiaries (other than the MRSC Group)
and their respective businesses and operations.
B. MidAmerican Obligation. From and after the Closing Date, MidAmerican
shall pay MRSC 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 MRSC Group with respect to (1)
any items of income, deduction, and credit accruing to the MRSC Group
on or before the Closing Date, and (2) any tax refunds of the MRSC
Group for any taxable year or period ending on or before the Closing
Date.
C. Tax Payment Computation.
1. Method of Calculation. 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 MRSC 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 MRSC 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". MRSC 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. 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 MRSC pursuant to
Section 1.D. below.
3. MRSC Payment. 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, MRSC shall pay an
amount equal to the Tax Allowance to MidAmerican pursuant to
Section 1.D. below.
D. Tax Payments. 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
MRSC with notice setting forth a summary of the computations required
by this Section (the "Tax Determination Notice") and (ii) make any
payment to MRSC required to be made by MidAmerican pursuant to Section
1.C. MRSC 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. The federal, state and local consolidated, combined, or
separate corporate income or franchise tax returns of the MidAmerican
Group and the MRSC 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 MRSC Group for the periods
ended on or before the Closing Date, except in cases where certain
states may require inclusion of the MRSC 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 MRSC, shall
make all computations, allocations, determinations and elections
affecting the MidAmerican Group and the MRSC Group consistent with
prior period returns of the group consisting of the MidAmerican Group
and the MRSC 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 MRSC 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. Only MidAmerican, after consulting with
MRSC, 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 MRSC.
3. TAX PROCEEDINGS.
A. Notice of Adjustment. 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 MRSC Group, which adjustment, if
sustained, could result in an obligation on the part of MRSC 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 MRSC 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 MRSC 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 MRSC shall not relieve MRSC of
any payment obligation set forth in this Agreement.
B. Notice of Contest. MidAmerican shall be required to protest such
Proposed Adjustment only upon receipt of a written request from MRSC
(the "Notice of Contest") to make such protest within 30 days of
receipt by MRSC of the Notice of Adjustment.
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C. Probable Threshold. 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 MRSC. 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 MRSC 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 MRSC 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 MRSC the amount MRSC 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 MRSC harmless from and against any amount due and
owing from MRSC (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 may, after
consultation with MRSC, 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 MidAmerican.
D. Administrative and Judicial Proceedings. 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, MRSC shall
reimburse MidAmerican for such payment within 10 days of receipt by
MRSC of an invoice therefor from MidAmerican; and further provided
that MidAmerican shall keep MRSC fully informed in respect thereof and
consult in good faith with MRSC regarding the contest of such Proposed
Adjustment including choice of forum. MidAmerican shall, upon the
conclusion of any administrative proceedings, promptly notify MRSC of
the outcome of such proceedings, and shall notify MRSC 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 MRSC'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 MRSC concerning the court of competent jurisdiction in
which the adjustment is most likely to be favorably resolved and (z)
shall keep MRSC informed
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as to the progress of any litigation and, if requested by MRSC, shall
consult with MRSC and consider in good faith (1) any recommendations
by MRSC concerning the conduct of such proceedings, and (2) MRSC's
request for an opportunity to be present and represented by MRSC's
counsel at all formal and informal proceedings before the judicial
forum or with opposing counsel and shall endeavor in good faith to
permit MRSC'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 MRSC (whenever in MidAmerican's good faith judgment
such consultation is practicable) to preserve as a basis for appeal
any legal issue which MRSC or MRSC'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
MRSC and (B) MidAmerican is furnished with an opinion from counsel
selected by MidAmerican, at MRSC's expense, to the effect that it is
"probable" that the appeal will prevail.
E. Payment of Costs and Fees. 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, MRSC
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. MRSC shall pay MidAmerican within 10 days of receipt by
MRSC of an invoice from MidAmerican. In the event MRSC does not pay
MidAmerican within such period, MidAmerican shall have no further
obligation to contest such Proposed Adjustment.
4. OTHER TAX MATTERS.
MRSC hereby covenants and agrees that except as set forth herein, MRSC
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. MidAmerican and MRSC 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. This Agreement may not be assigned by either party without
the prior written consent of the other party.
D. Partial Invalidity. 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. 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. 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 MIDAMERICAN REALTY SERVICES
COMPANY COMPANY
By: By:
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Name: Name:
Title: Title:
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