EXHIBIT 10.1
EXECUTION COPY
TAX MATTERS
AGREEMENT
by and among
DUKE ENERGY
CORPORATION,
SPECTRA ENERGY
CORP,
and
THE OTHER SPECTRA ENERGY
PARTIES
Dated as of
December 13, 2006
TAX MATTERS
AGREEMENT
THIS TAX MATTERS AGREEMENT is
entered into as of December 13, 2006, by and among Duke Energy
Corporation, a Delaware corporation (“ Duke Energy
”), Spectra Energy Corp (f/k/a Gas SpinCo, Inc.), a Delaware
corporation (“ Spectra Energy ”), and each of
the Other Spectra Energy Parties; each a “Party” and
collectively, the “ Parties ”.
R E C I T A L S:
WHEREAS, Duke Energy, acting through
its direct and indirect subsidiaries, currently conducts a number
of businesses, including (i) the Gas Business, and
(ii) the Power Business;
WHEREAS, as of the date hereof, Duke
Energy and its direct and indirect domestic subsidiaries are
members of an Affiliated Group, of which Duke Energy is the common
parent;
WHEREAS, the Board of Directors of
Duke Energy has determined that it is appropriate, desirable and in
the best interests of Duke Energy and its stockholders to separate
Duke Energy into two separate, independent and publicly traded
companies: (i) one comprising the Gas Business, which shall be
owned and conducted, directly or indirectly, by Spectra Energy, and
(ii) one comprising the Power Business which shall continue to
be owned and conducted, directly or indirectly, by Duke Energy (the
“ Separation ”);
WHEREAS, in order to effect the
Separation, (i) Duke Energy Services Inc. intends to transfer
certain Gas Assets and Gas Liabilities to Duke Energy Enterprises
Corp. (“ Internal Contribution 1 ”) and
distribute the stock of Duke Energy Enterprises Corp. to PanEnergy
Corp. (“ Internal Distribution 1 ”);
(ii) PanEnergy Corp. intends to transfer certain Gas Assets
and Gas Liabilities to Duke Energy Enterprises Corp. (“
Internal Contribution 2 ”) and distribute the stock of
Duke Energy Enterprises Corp. to Duke Energy Registration Services,
Inc. (“ Internal Distribution 2 ”);
(iii) Duke Energy Registration Services, Inc. intends to
transfer certain Gas Assets and Gas Liabilities to Duke Energy
Enterprises Corp. (“ Internal Contribution 3 ”
and together with Internal Contribution 1 and Internal Contribution
2, the “ Internal Contributions ”) and
distribute the stock of Duke Energy Enterprises Corp. to Duke
Capital, LLC (“ Internal Distribution 3 ,” and
together with Internal Distribution 1 and Internal Distribution 2,
the “ Internal Distributions ”); and
(iv) Duke Energy intends to transfer the membership interests
of Duke Capital LLC to Spectra Energy (the “
Contribution ”) and distribute all of the issued and
outstanding shares of common stock of Spectra Energy, on a pro rata
basis (the “ Distribution ,” and together with
the Internal Contributions, Internal Distributions and the
Contribution, the “ Spin-Off ”) to the holders
of the outstanding common stock of Duke Energy.
WHEREAS, Duke Energy and Spectra
Energy have determined that it is necessary and desirable, as part
of the Separation, to allocate, transfer, retain or assign to the
Spectra Energy Group, the Gas Assets and Gas Liabilities, and to
allocate, transfer, retain or assign to the Duke Energy Group, the
Power Assets and Power Liabilities;
WHEREAS, to effect this separation
Duke Energy and Spectra Energy entered into that certain Separation
and Distribution Agreement dated as of even date hereof (as amended
or otherwise modified from time to time, the “ Separation
Agreement ”);
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WHEREAS, it is the intention of the
Parties that Internal Contribution 1 and Internal Distribution 1
together qualify as a reorganization within the meaning of sections
368(a)(1)(D) and 355 of the Code;
WHEREAS, it is the intention of the
Parties that Internal Contribution 2 and Internal Distribution 2
together qualify as a reorganization within the meaning of sections
368(a)(1)(D) and 355 of the Code;
WHEREAS, it is the intention of the
Parties that Internal Contribution 3 and Internal Distribution 3
together qualify as a reorganization within the meaning of sections
368(a)(1)(D) and 355 of the Code;
WHEREAS, it is the intention of the
Parties that the Contribution, and the Distribution together
qualify as a reorganization within the meaning of sections
368(a)(1)(D) and 355 of the Code;
WHEREAS, in contemplation of the
Separation, pursuant to which the Spectra Energy Group will cease
to be members of the Affiliated Group of which Duke Energy is the
parent, if (but only if) the Distribution occurs, the Parties have
determined to enter into this Agreement, setting forth their
agreement with respect to certain tax matters; and
NOW, THEREFORE, in consideration of
the foregoing premises, the mutual promises and covenants
hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
Parties, intending to be legally bound, agree as
follows:
Section 1.
Definitions.
Capitalized terms used in this
Agreement and not otherwise defined in this Section 1 shall
have the meanings set forth in the Separation Agreement. As used in
this Agreement, the following capitalized terms shall have the
following meanings:
“ Affiliated Group
” means an affiliated group of corporations within the
meaning of section 1504(a)(1) of the Code that files a consolidated
return for United States federal Income Tax purposes.
“ After Tax Amount
” means any additional amount necessary to reflect the
hypothetical Tax consequences of the receipt or accrual of any
payment required to be made under this Agreement (including payment
of an additional amount or amounts hereunder and the effect of the
deductions available for interest paid or accrued and for Taxes
such as state and local Income Taxes), determined by using the
highest applicable statutory corporate Income Tax rate (or rates,
in the case of an item that affects more than one Tax) for the
relevant taxable period (or portion thereof).
“ Agreement ”
shall have the meaning set forth in the preamble hereto.
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“ Audit ” means
any audit, assessment of Taxes, other examination by any Taxing
Authority, proceeding, or appeal of such a proceeding relating to
Taxes, whether administrative or judicial, including proceedings
relating to competent authority determinations.
“ Business Day ”
shall have the meaning set forth in the Separation
Agreement.
“ Carryback Period
” shall have the meaning set forth in
Section 4.02.
“ Code ” means
the Internal Revenue Code of 1986, as amended.
“ Combined Return
” means any Tax Return, other than with respect to United
States federal Income Taxes, filed on a consolidated, combined
(including nexus combination, worldwide combination, domestic
combination, line of business combination or any other form of
combination) or unitary basis wherein Spectra Energy or one or more
Spectra Energy Affiliates join in the filing of such Tax Return
(for any taxable period or portion thereof) with Duke Energy or one
or more Duke Energy Affiliates.
“ Consolidated Return
” means any Tax Return with respect to United States federal
Income Taxes filed on a consolidated basis wherein Spectra Energy
or one or more Spectra Energy Affiliates join in the filing of such
Tax Return (for any taxable period or portion thereof) with Duke
Energy or one or more Duke Energy Affiliates.
“ Contribution ”
shall have the meaning set forth in the recitals hereto.
“ Deferred Intercompany
Item ” shall mean any income, gain, deduction or loss
from transactions between members of the same Affiliated Group that
is deferred for U.S. federal income tax purposes under the
principles in Treasury Regulations § 1.1502-13, or any similar
provision under state, local or foreign law.
“ Distribution ”
shall have the meaning set forth in the recitals hereto.
“ Distribution Date
” shall have the meaning set forth in the Separation
Agreement.
“ Distribution Taxes
” means any Taxes imposed on, or increase in Taxes incurred
by, Duke Energy or any Duke Energy Affiliate, and any Taxes of a
Duke Energy shareholder (or former Duke Energy shareholder) that
are required to be paid or reimbursed by Duke Energy or any Duke
Energy Affiliate pursuant to a Final Determination, provided that
Duke Energy shall have vigorously defended itself in any legal
proceeding involving Taxes of a Duke Energy shareholder, (without
regard to whether such Taxes are offset or reduced by any Tax
Asset, Tax Item, or otherwise) resulting from, or arising in
connection with, the failure of Internal Contribution 1, Internal
Distribution 1, Internal Contribution 2, Internal Distribution 2,
Internal Contribution 3, Internal Distribution 3, the Contribution
or the Distribution to qualify as a transaction in which no income,
gain or loss is recognized pursuant to sections 355 and
368(a)(1)(D) of the Code (including any Tax resulting from the
application of section 355(d) or section 355(e) of the Code to
Internal Distribution 1, Internal Distribution 2, Internal
Distribution 3 or the Distribution) or corresponding provisions of
the laws of any other jurisdictions. Any Income Tax referred to in
the immediately preceding sentence shall be determined using the
highest applicable statutory corporate Income Tax rate for the
relevant taxable period (or portion thereof).
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“ Duke Energy ”
shall have the meaning set forth in the preamble hereto.
“ Duke Energy Affiliate
” means any Person included in the Duke Energy
Group.
“ Duke Energy Business
Records ” shall have the meaning set forth in
Section 9.01(c).
“ Duke Energy Group
” shall have the meaning set forth in the Separation
Agreement.
“ Duke Energy Separate Tax
Liability ” means an amount equal to the Tax liability
that Duke Energy and each Duke Energy Affiliate would have incurred
if they had filed a consolidated return, combined return or a
separate return, as the case may be, separate from the members of
the Spectra Energy Group, for the relevant Tax period, and such
amount shall be computed by Duke Energy in a manner consistent with
(i) general Tax accounting principles, (ii) the Code and
the Treasury Regulations promulgated thereunder, and
(iii) past practice, if any. For the avoidance of doubt, the
Duke Energy Separate Tax Liability shall in no event be less than
zero.
“ Duke Energy Stock
Options ” means options to acquire Duke Energy common
stock.
“ Duke Energy Tax Acts
” shall have the meaning set forth in
Section 4.01(a).
“ Effective Time
” shall have the meaning set forth in the Separation
Agreement.
“ Estimated Tax Installment
Date ” means, with respect to United States federal
Income Taxes, the estimated Tax installment due dates prescribed in
section 6655(c) of the Code and, in the case of any other Tax,
means any other date on which an installment payment of an
estimated amount of such Tax is required to be made.
“ Exchangeco Tax
” means any Tax imposed on Spectra Energy or any Spectra
Energy Affiliate in connection with (i) the transfer of shares
of Duke Energy stock to Spectra Energy or any Spectra Energy
Affiliate during any Post-Distribution Period in connection with a
transfer of such stock to holders of Duke Energy Canada Exchangeco
Inc. exchangeable shares; (ii) the transfer of cash by Duke
Energy to Spectra Energy or any Spectra Energy Affiliate in
connection with any Duke Energy dividend; or (iii) the
transfer of shares of Duke Energy stock to holders of Duke Energy
Canada Exchangeco Inc. exchangeable shares.
“ Excluded Spectra Energy
Affiliates ” means Duke Energy Early Grove Company and
Duke Energy Virginia Pipeline Company.
“ Filing Party ”
shall have the meaning set forth in Section 8.01.
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“ Final Determination
” means the final resolution of liability for any Tax for any
taxable period, by or as a result of (i) a final and
unappealable decision, judgment, decree or other order by any court
of competent jurisdiction; (ii) a final settlement with the
IRS, a closing agreement or accepted offer in compromise under
section 7121 or section 7122 of the Code, or a comparable agreement
under the laws of other jurisdictions, which resolves the entire
Tax liability for any taxable period; (iii) any allowance of a
refund or credit in respect of an overpayment of Tax, but only
after the expiration of all periods during which such refund may be
recovered by the jurisdiction imposing the Tax; or (iv) any
other final disposition, including by reason of the expiration of
the applicable statute of limitations.
“ Force Majeure ”
shall have the meaning set forth in the Separation
Agreement.
“ Gas Assets ”
shall have the meaning set forth in the Separation
Agreement.
“ Gas Business ”
shall have the meaning set forth in the Separation
Agreement.
“ Gas Liabilities
” shall have the meaning set forth in the Separation
Agreement.
“ Income Tax ”
means any federal, state, local or foreign Tax determined (in whole
or in part) by reference to net income, net worth, gross receipts
or capital, or any such Taxes imposed in lieu of such a Tax. For
the avoidance of doubt, the term “Income Tax” includes
any franchise Tax, net worth, gross receipts, capital or any such
Taxes imposed in lieu of such a Tax.
“ Income Tax Return
” means any Tax Return relating to any Income Tax.
“ Internal Contribution
1 ” shall have the meaning set forth in the recitals
hereto.
“ Internal Contribution
2 ” shall have the meaning set forth in the recitals
hereto.
“ Internal Contribution
3 ” shall have the meaning set forth in the recitals
hereto.
“ Internal
Contributions ” shall have the meaning set forth in the
recitals hereto.
“ Internal Distribution
1 ” shall have the meaning set forth in the recitals
hereto.
“ Internal Distribution
2 ” shall have the meaning set forth in the recitals
hereto.
“ Internal Distribution
3 ” shall have the meaning set forth in the recitals
hereto.
“ Internal
Distributions ” shall have the meaning set forth in the
recitals hereto.
“ IRS ” means the
United States Internal Revenue Service or any successor thereto,
including its agents, representatives, and attorneys.
“ IRS Ruling ”
means the private letter ruling issued by the IRS in connection
with the Spin-Off, which is a condition to the Distribution under
the Separation Agreement.
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“ IRS Ruling Documents
” means the request for the IRS Ruling filed with the IRS,
together with all supplemental filings or other materials
subsequently submitted on behalf of Duke Energy, the Duke Energy
Affiliates and Duke Energy’s shareholders to the IRS, the
appendices and exhibits thereto, and the IRS Ruling
itself.
“ Joint Responsibility
Item ” means any Tax Item, including Distribution Taxes,
for which the non-Filing Party’s responsibility under this
Agreement could exceed one million dollars ($1,000,000), but not a
Sole Responsibility Item.
“ Non-Income Tax Return
” means any Tax Return relating to any Tax other than an
Income Tax.
“ Officer’s
Certificate ” means a letter executed by an officer of
Duke Energy or Spectra Energy and provided to Spin-Off Tax Counsel
or Tax Counsel as a condition for the completion of the Spin-Off
Tax Opinion, a Supplemental Tax Spin-Off Opinion or Supplemental
Tax Opinion.
“ Other Spectra Energy
Parties ” means the entities listed in Schedule
1.1(129) of the Separation Agreement other than Spectra Energy
and the Excluded Spectra Energy Affiliates.
“ Owed Party ”
shall have the meaning set forth in Section 7.05.
“ Owing Party ”
shall have the meaning set forth in Section 7.05.
“ Parties ” shall
have the meaning set forth in the preamble hereto.
“ Payment Period
” shall have the meaning set forth in
Section 7.05(e).
“ Post-Distribution
Period ” means any taxable period beginning after the
Distribution Date.
“ Power Assets ”
shall have the meaning set forth in the Separation
Agreement.
“ Power Business
” shall have the meaning set forth in the Separation
Agreement.
“ Power Liabilities
” shall have the meaning set forth in the Separation
Agreement.
“ Pre-Distribution
Period ” means any taxable period beginning on or before
the Distribution Date.
“ Separation ”
shall have the meaning set forth in the preamble hereto.
“ Separation Agreement
” shall have the meaning set forth in the recitals
hereto.
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“ Sole Responsibility
Item ” means any Tax Item for which the non-Filing Party
has the entire economic liability under this Agreement.
“ Spectra Energy
” shall have the meaning set forth in the preamble
hereto.
“ Spectra Energy
Affiliate ” means any Person included in the Spectra
Energy Group.
“ Spectra Energy Business
Records ” shall have the meaning set forth in
Section 9.01(c).
“ Spectra Energy Group
” shall have the meaning set forth in the Separation
Agreement.
“ Spectra Energy Separate
Tax Liability ” means an amount equal to the Tax
liability that Spectra Energy and each Spectra Energy Affiliate
would have incurred if they had filed a consolidated return,
combined return or a separate return, as the case may be, separate
from the members of the Duke Energy Group, for the relevant Tax
period, and such amount shall be computed by Duke Energy in a
manner consistent with (i) general Tax accounting principles,
(ii) the Code and the Treasury Regulations promulgated
thereunder, and (iii) past practice, if any. For the avoidance
of doubt, the Spectra Energy Separate Tax Liability shall in no
event be less than zero, and nothing in this Agreement shall be
construed to require compensation by Duke Energy for any losses of
Spectra Energy or any Spectra Energy Affiliate.
“ Spectra Energy Stock
Options ” means options to acquire Spectra Energy common
stock.
“ Spectra Energy Tax
Acts ” shall have the meaning set forth in
Section 4.01(b).
“ Spin-Off ”
shall have the meaning set forth in the recitals hereto.
“ Spin-Off Tax Counsel
” means Skadden, Arps, Slate, Meagher & Flom
LLP.
“ Spin-Off Tax Opinion
” means the opinion to be issued by Spin-Off Tax Counsel, as
one of the conditions to completing the Spin-Off, addressing
certain United States federal Income Tax consequences of the
Spin-Off under section 355 of the Code.
“ Supplemental Ruling
” means any ruling (other than the IRS Ruling) issued by any
Taxing Authority in connection with the Spin-Off.
“ Supplemental Ruling
Documents ” means any request for a Supplemental Ruling,
together with any supplemental filings or other materials
subsequently submitted, the appendices and exhibits thereto, and
any Supplemental Rulings issued.
“ Supplemental Spin-Off Tax
Opinion ” means any opinion (other than the Spin-Off Tax
Opinion) issued by any tax counsel in connection with the
Spin-Off.
“ Supplemental Tax
Opinion ” shall have the meaning set forth in
Section 4.04(d).
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“ Tax Asset ”
means any Tax Item that has accrued for Tax purposes, but has not
been realized during the taxable period in which it has accrued,
and that could reduce a Tax in another taxable period, including a
net operating loss, net capital loss, investment tax credit,
foreign tax credit, charitable deduction or credit related to
alternative minimum tax or any other Tax credit.
“ Tax Benefit ”
means a reduction in the Tax liability (or increase in refund or
credit or any item of deduction or expense) of a taxpayer (or of
the Affiliated Group, or similar group of entities as defined under
corresponding provisions of the laws of any other jurisdiction, of
which it is a member) for any taxable period. Except as otherwise
provided in this Agreement, a Tax Benefit shall be deemed to have
been realized or received from a Tax Item in a taxable period only
if and to the extent that the Tax liability of the taxpayer (or of
the Affiliated Group, or similar group of entities as defined under
corresponding provisions of the laws of any other jurisdiction, of
which it is a member) for such period, after taking into account
the effect of the Tax Item on the Tax liability of such taxpayer
(or of the Affiliated Group, or similar group of entities as
defined under corresponding provisions of the laws of any other
jurisdiction, of which it is a member) in the current period and
all prior periods, is less than it would have been had such Tax
liability been determined without regard to such Tax
Item.
“ Tax Counsel ”
means a nationally recognized law firm mutually agreed upon by Duke
Energy and Spectra Energy to provide a Supplemental Tax
Opinion.
“ Tax Detriment ”
means an increase in the Tax liability (or reduction in refund or
credit or any item of deduction or expense) of a taxpayer (or of
the Affiliated Group, or similar group of entities as defined under
corresponding provisions of the laws of any other jurisdiction, of
which it is a member) for any taxable period. Except as otherwise
provided in this Agreement, a Tax Detriment shall be deemed to have
been realized or incurred from a Tax Item in a taxable period only
if and to the extent that the Tax liability of the taxpayer (or of
the Affiliated Group, or similar group of entities as defined under
corresponding provisions of the laws of any other jurisdiction, of
which it is a member) for such period, after taking into account
the effect of the Tax Item on the Tax liability of such taxpayer
(or of the Affiliated Group, or similar group of entities as
defined under corresponding provisions of the laws of any other
jurisdiction, of which it is a member) in the current period and
all prior periods, is more than it would have been had such Tax
liability been determined without regard to such Tax
Item.
“ Tax Item ”
means any item of income, gain, loss, deduction, expense or credit,
or other attribute that may have the effect of increasing or
decreasing any Tax.
“ Tax Return ”
means any return, report, certificate, form or similar statement or
document (including any related or supporting information or
schedule attached thereto and any information return, amended tax
return, claim for refund or declaration of estimated Tax) required
to be supplied to, or filed with, a Taxing Authority in connection
with the determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative
requirements relating to any Tax.
“ Tax Material ”
shall have the meaning set forth in
Section 9.01(a).
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“ Taxes ” means
all federal, state, local or foreign taxes, charges, fees, duties,
levies, imposts, rates or other assessments, including income,
gross receipts, excise, property, sales, use,