\n 9.3 Changes in Law………………………………………………………………………………..20
\n 9.4 Confidentiality……………………………………………………………………………….20
\n 9.5 Successors……………………………………………………………………………………21
\n 9.6 Affiliated Companies…………………………………………………………………………..21
\n 9.7 Authorization, Etc…………………………………………………………………………….21
\n 9.8 Entire Agreement………………………………………………………………………………21
\n 9.9 Governing Law; Jurisdiction…………………………………………………………………….21
\n 9.10 Dispute Resolution……………………………………………………………………………21
\n 9.11 Counterparts…………………………………………………………………………………21
\n 9.12 Severability…………………………………………………………………………………21
\n 9.13 No Third Party Beneficiaries…………………………………………………………………..22
\n 9.14 Waivers, Etc…………………………………………………………………………………22
\n 9.15 Setoff………………………………………………………………………………………22
\n<\/c><\/s><\/table>\n ii
\n 4<\/p>\n
TAX INDEMNIFICATION AGREEMENT<\/p>\n
THIS TAX INDEMNIFICATION AGREEMENT (this “Agreement”), dated as of
\nSeptember 1, 2000, by and among The Southern Company (“Southern”), a Delaware
\ncorporation and each Southern Affiliated Company, and Southern Energy, Inc.
\n(“Southern Energy”), a Delaware corporation and currently a direct, wholly owned
\nsubsidiary of Southern, and each Southern Energy Affiliated Company is entered
\ninto in connection with the Spinoff (as defined below).<\/p>\n
RECITALS<\/p>\n
WHEREAS, Southern is the common parent of an affiliated group of
\ncorporations within the meaning of Section 1504(a) of the Internal Revenue Code
\nof 1986, as amended (the “Code”), which currently files a consolidated federal
\nincome tax return, and which, together with Southern Energy and other affiliated
\ncorporations, is party to the Tax Allocation Agreement (as defined below);<\/p>\n
WHEREAS, as set forth in the Master Separation and Distribution
\nAgreement dated as of September 1, 2000 (the “Separation Agreement”), and
\nsubject to the terms and conditions thereof, Southern and Southern Energy have
\ndetermined it would be appropriate and desirable for Southern to separate the
\nSouthern Energy Group from the Southern Group, and in connection with such
\nseparation (as more fully discussed in the Separation Agreement), for Southern
\nto acquire HoldCo (as defined below) from Southern Energy (the “HoldCo
\nTransaction”);<\/p>\n
WHEREAS, Southern and Southern Energy contemplate that in addition to
\nthe HoldCo Transaction, Southern Energy will make an initial public offering
\n(the “IPO”) of Southern Energy common stock that will reduce Southern’s
\nownership of Southern Energy on a fully-diluted basis to not less than 80.1
\npercent;<\/p>\n
WHEREAS, subsequent to the IPO, Southern intends to distribute all of
\nits shares of Southern Energy common stock, on a pro rata basis, to the holders
\nof the common stock of Southern, subject to the terms and conditions of the
\nSeparation Agreement (the “Distribution”);<\/p>\n
WHEREAS, the Distribution is intended to qualify as a tax free
\ndistribution under Section 355 of the Code;<\/p>\n
WHEREAS, upon the Distribution, Southern Energy will cease to be a
\nmember of the Southern Consolidated Group for federal income tax purposes; and<\/p>\n
WHEREAS, in contemplation of the Distribution pursuant to which
\nSouthern Energy and its domestic subsidiaries will cease to be members of the
\nSouthern Group (as defined below), the parties hereto have determined to enter
\ninto this Agreement, setting forth their agreement with respect to certain Tax
\nmatters.<\/p>\n
5<\/p>\n
NOW THEREFORE, in consideration of the mutual covenants and promises
\ncontained herein, and other good and valuable consideration, the receipt and
\nsufficiency of which are hereby acknowledged, the parties agree as follows:<\/p>\n
SECTION 1. DEFINITIONS<\/p>\n
1.1 In General. As used in this Agreement, the following capitalized
\nterms shall have the following meanings:<\/p>\n
“Adequate Assurances” means posting a bond or providing a letter of
\ncredit reasonably acceptable to the Indemnitee; provided, however, if the
\nIndemnifying Party fails to post such bond or provide such letter of credit, the
\nIndemnifying Party shall provide cash equal to the Indemnity Amount to the
\nIndemnitee not less than thirty (30) days prior to the date on which such Tax
\nwould become due and payable by the Indemnitee.<\/p>\n
“Affiliated Company” means, for income tax purposes, any entity in
\nwhich a common parent holds 80% or more of the voting power and value of such
\ncorporation. In the case of Southern, such term shall exclude Southern Energy
\nand any Southern Energy Affiliated Company.<\/p>\n
“Audit” includes any audit, assessment of Taxes, other examination by
\nany Tax Authority, proceeding, or appeal of such a proceeding relating to Taxes,
\nwhether administrative or judicial, including proceedings relating to competent
\nauthority determinations.<\/p>\n
“Code” means the Internal Revenue Code of 1986, as amended.<\/p>\n
“Consolidated Group” means a group of one or more corporations
\nconnected through stock ownership with a common parent in which the common
\nparent owns at least 80% of the total voting power and value of such corporation
\nand that files a Consolidated Return.<\/p>\n
“Consolidated Return” means any Tax Return with respect to Federal
\nIncome Taxes filed on a consolidated basis wherein Southern Energy or any
\nAffiliated Company joins in the filing of such Tax Return (for any taxable
\nperiod) with Southern or one more Southern Affiliated Companies.<\/p>\n
“Consolidated Return Year” means any taxable year for which a
\nConsolidated Return is filed.<\/p>\n
“Control” means stock representing 50% or more of the total combined
\nvoting power of all classes of stock entitled to vote or at least 50% of the
\ntotal value of shares of all classes of stock.<\/p>\n
“Distribution” has the meaning set forth in the Recitals to this
\nAgreement.<\/p>\n
“Distribution Date” means the date on which the Distribution is
\neffective.<\/p>\n
2<\/p>\n
6<\/p>\n
“Federal Income Tax” means any Tax imposed under Subtitle A of the Code
\n(including the Taxes imposed by Sections 11, 55, and 1201(a) of the Code), and
\nany interest, additions to Tax or penalties applicable or related thereto, and
\nany other income-based U.S. federal Tax which is hereinafter imposed upon
\ncorporations.<\/p>\n
“Filing Party” has the meaning set forth in Section 2.3(b) of this
\nAgreement.<\/p>\n
“Final Determination” means with respect to any issue (i) a decision,
\njudgment, decree or other order by any court of competent jurisdiction, which
\ndecision, judgment, decree or other order has become final and not subject to
\nfurther appeal, (ii) a closing agreement (whether or not entered into under
\nSection 7121 of the Code) or any other binding settlement agreement (whether or
\nnot with the IRS) entered into in connection with or in contemplation of an
\nadministrative or judicial proceeding, or (iii) the completion of the highest
\nlevel of administrative proceedings if a judicial contest is not or is no longer
\navailable.<\/p>\n
“HoldCo” means the entity created by Southern Energy that will own all
\nof the stock of SE Finance Capital Corporation and Southern Company Capital
\nFunding, Inc. and will be merged with Southern Company Energy Solutions, Inc.<\/p>\n
“HoldCo Transaction” has the meaning set forth in the Recitals of this
\nAgreement.<\/p>\n
“Income Taxes” means (1) any tax based upon, measured by, or calculated
\nwith respect to (A) net income or profits (including any capital gains tax,
\nminimum tax and any tax on items of Tax preference, but not including sales,
\nuse, real or personal property, gross or net receipts, transfer or similar
\ntaxes) or (B) multiple bases if one or more of the bases upon which such tax may
\nbe based, measured by, or calculated with respect to, is described in clause (A)
\nabove, or (2) any U.S., state or local franchise tax.<\/p>\n
“Indemnified Liability” has the meaning set forth in Section 6.3.<\/p>\n
“Indemnifying Party” has the meaning set forth in Section 6.2(d) of
\nthis Agreement.<\/p>\n
“Indemnitee” has the meaning set forth in Section 6.2(d) of this
\nAgreement.<\/p>\n
“Indemnity Amount” has the meaning set forth in Section 6.5.<\/p>\n
“Initial Private Letter Ruling” means the first private letter ruling
\nissued by the Service to Southern in connection with the Spinoff.<\/p>\n
“Non-Filing Party” has the meaning set forth in Section 2.3(c) of this
\nAgreement.<\/p>\n
“Option” means an option to acquire common stock, or other equity-based
\nincentives the economic value of which is designed to mirror that of an option,
\nincluding non-qualified stock options, discounted non-qualified stock options,
\ncliff options to the extent stock is issued or issuable (as opposed to cash
\ncompensation), and tandem stock options to the extent stock is issued or
\nissuable (as opposed to cash compensation).<\/p>\n
3<\/p>\n
7<\/p>\n
“Post-Distribution Period” means any taxable period or portion thereof
\nbeginning after the Distribution Date.<\/p>\n
“Pre-Distribution Period” means any taxable period or portion thereof
\nending on or prior to the Distribution Date.<\/p>\n
“Prohibited Act” has the meaning set forth in Section 6.2(c).<\/p>\n
“Restricted Period” means the period beginning two years before the
\ndate of the Distribution and ending two years after the Distribution Date.<\/p>\n
“Restructuring” means the transactions undertaken by Southern and
\nSouthern Energy (and their respective Affiliated Companies) designed to
\naccomplish the HoldCo Transaction.<\/p>\n
“Restructuring Tax” means any Tax imposed as a result of the
\ntransactions contemplated by the Restructuring.<\/p>\n
“Ruling Documents” means (1) the request for a ruling under Section 355
\nand various other Sections of the Code, filed with the Service in connection
\nwith the Spinoff, together with any supplemental filings or ruling requests or
\nother materials subsequently submitted on behalf of Southern, its subsidiaries
\nand shareholders to the Service, the appendices and exhibits thereto, and any
\nrulings issued by the Service to Southern in connection with the Spinoff or (2)
\nany similar filings submitted to, or rulings issued by, any other Tax Authority
\nin connection with the Spinoff.<\/p>\n
“Separate Tax” means any Tax incurred by an entity that is not a
\nFederal Income Tax arising from the filing of the Consolidated Return.<\/p>\n
“Separate Return” means any Tax Return filed by any entity that is not
\npart of the Consolidated Tax Return.<\/p>\n
“Separation Agreement” has the meaning set forth in the Recitals to
\nthis Agreement.<\/p>\n
“Service” means the Internal Revenue Service.<\/p>\n
“Southern Energy Group” means Southern Energy and any Southern Energy
\nAffiliated Company of which Southern Energy would be the common parent
\ncorporation after the HoldCo Transaction.<\/p>\n
“Southern Energy Historic Group” means Southern Energy or any Southern
\nEnergy Affiliated Company, including SE Finance Capital Corporation, in
\nexistence prior to the creation and transfer of HoldCo.<\/p>\n
4<\/p>\n
8<\/p>\n
“Southern Group” means Southern, any Southern Affiliated Company or
\nother entity of which Southern is the common parent corporation, and any
\ncorporation or other entity which may be, or may become a member of such group
\nfrom time to time after the HoldCo Transaction. Southern Company Energy
\nSolutions, Inc., shall at all times remain a member of the Southern Group
\nnotwithstanding any merger into HoldCo.<\/p>\n
“Southern Historic Group” means Southern or any Southern Affiliated
\nCompany (other than Southern Energy or any Southern Energy Affiliated Company)
\nthat was part of Southern’s Consolidated Group prior to the HoldCo Transaction,
\nincluding Southern Company Energy Solutions, Inc.<\/p>\n
“Spinoff” means the separation of the Southern Energy Group from the
\nSouthern Group through the Distribution.<\/p>\n
“Tax” includes any charges, fees, levies, imposts, duties, or other
\nassessments of a similar nature, including income, alternative or add-on
\nminimum, gross receipts, profits, lease, service, service use, wage, wage
\nwithholding, employment, workers compensation, business occupation, occupation,
\npremiums, environmental, estimated, excise, employment, sales, use, transfer,
\nlicense, payroll, franchise, severance, stamp, occupation, windfall profits,
\nwithholding, social security, unemployment, disability, ad valorem, estimated,
\nhighway use, commercial rent, capital stock, paid up capital, recording,
\nregistration, property, real property gains, value added, business license,
\ncustom duties, or other tax or governmental fee of any kind whatsoever, imposed
\nor required to be withheld by any Tax Authority including any interest,
\nadditions to tax, or penalties applicable or related thereto.<\/p>\n
“Tax Allocation Agreement” means the Income Tax Allocation Agreement
\nentered into by and among Southern and all the members of its Consolidated Group
\ndated December 29, 1981, as amended, pursuant to which the parties agreed upon
\nthe allocation of Tax Items relating to the Consolidated Group and the
\nConsolidated Return.<\/p>\n
“Tax Authority” means any governmental authority or any subdivision,
\nagency, commission or authority thereof or any quasi-governmental or private
\nbody having jurisdiction over the assessment, determination, collection or
\nimposition of any Tax (including the Service).<\/p>\n
“Tax Benefit” means a reduction in the Tax liability of a taxpayer (or
\nof the affiliated group of which it is a member) for any taxable period. Except
\nas otherwise provided in this Agreement, a Tax Benefit shall be deemed to have
\nbeen realized or received from a Tax Item in a taxable period only if and to the
\nextent that the Tax liability of the taxpayer (or of the affiliated group of
\nwhich it is a member) for such period, after taking into account the effect of
\nthe Tax Item on the Tax liability of such taxpayer in the current period and all
\nprior periods, is less than it would have been if such Tax liability were
\ndetermined without regard to such Tax Item.<\/p>\n
“Tax Detriment” means an increase in the Tax liability of a taxpayer
\n(or of the affiliated group of which it is a member) for any taxable period.
\nExcept as otherwise provided in this Agreement, a Tax Detriment shall be deemed
\nto have been realized or received from a Tax Item in a taxable period only if
\nand to the extent that the Tax liability of the taxpayer (or of the<\/p>\n
5
\n 9
\naffiliated group of which it is a member) for such period, after taking into
\naccount the effect of the Tax Item on the Tax liability of such taxpayer in the
\ncurrent period and all prior periods, is more than it would have been if such
\nTax liability were determined without regard to such Tax Item.<\/p>\n
“Tax Item” means any item of income, gain, loss, deduction or credit,
\nor other attribute that may have the effect of increasing or decreasing any Tax.<\/p>\n
“Tax Law” means any federal, state, local or foreign law with respect
\nto Taxes, including the Code and Treasury Regulations.<\/p>\n
“Tax Return” means any return, report, certificate, form or similar
\nstatement or document (including, any related or supporting information or
\nschedule attached thereto and any information return, amended Tax return, claim
\nfor refund or declaration of estimated Tax) required to be supplied to, or filed
\nwith, a Tax Authority in connection with the determination, assessment or
\ncollection of any Tax or the administration of any laws, regulations or
\nadministrative requirements relating to any Tax.<\/p>\n
“Treasury Regulations” means the final, temporary and proposed income
\nTax regulations promulgated under the Code, as such regulations may be amended
\nfrom time to time (including corresponding provisions of succeeding
\nregulations).<\/p>\n
1.2 Construction Principles. As used in this Agreement, the singular
\nshall be deemed to include the plural and vice versa, and the captions and
\nsection headings are inserted for convenience of reference only and are not
\nintended to have any significance for the interpretation of, or construction of,
\nthe provisions of this Agreement. It is intended that this Agreement shall
\ncomply with the Public Utility Holding Company Act of 1935, Rule 45(c), to the
\nextent relevant, and all ambiguities shall be interpreted and resolved
\naccordingly.<\/p>\n
SECTION 2. PREPARATION AND FILING OF TAX RETURNS.<\/p>\n
2.1 In General.<\/p>\n
(a) During the Pre-Distribution Period, Southern shall timely file or
\ncause to be filed all Tax Returns that are filed on a consolidated, combined or
\nunitary basis and include any member of the Southern Energy Group or Southern
\nEnergy Historic Group as provided in the Tax Allocation Agreement. Each entity
\nrequired to file a Separate Return shall timely file or cause to be filed all
\nsuch Separate Returns for any Pre-Distribution Period. Notwithstanding the
\nforegoing, Southern shall timely file or cause to be filed all Tax Returns with
\nrespect to HoldCo.<\/p>\n
(b) Southern shall timely file or cause to be filed any Tax Return
\nrelated to the Southern Group for any Post-Distribution Period. Southern Energy
\nshall timely file or cause to be filed any Tax Return related to the Southern
\nEnergy Group for any Post-Distribution Period.<\/p>\n
6<\/p>\n
10<\/p>\n
2.2 Information and Cooperation.<\/p>\n
(a) Southern and Southern Energy shall provide each other all documents
\nand information, and make available employees and officers of Southern and
\nSouthern Energy, as reasonably requested by the other party, on a mutually
\nconvenient basis during normal business hours, to aid the other party in
\npreparing any Tax Return described in Section 2.1 of this Agreement to the
\nextent that such Tax Return relates to any Pre-Distribution Period or to contest
\nany Audit of any such Tax Return.<\/p>\n
(b) In the case of any Tax Return for a Pre-Distribution Period
\ndescribed in Section 2.1 of this Agreement, Southern will provide Southern
\nEnergy with a copy of that portion of each such Tax Return to the extent it
\nrelates to Southern Energy or any Southern Energy Affiliated Company, together
\nwith all related tax accounting work papers, not later than five (5) days after
\nthe receipt of a written request therefor. In addition, Southern will provide to
\nemployees of Southern Energy responsible for preparing its Tax Returns with
\naccess to any private letter rulings, together with any requests therefor and
\nrelated documents and any other relevant information, as it relates to Southern
\nEnergy for any period prior to the Distribution Date, and will provide Southern
\nEnergy with a copy of such rulings or documents to the extent that the issues
\ndiscussed therein are relevant to Southern Energy or a Southern Energy
\nAffiliated Company, not later than five (5) days after the receipt of a written
\nrequest therefor.<\/p>\n
(c) Notwithstanding any other provision of this Agreement, neither
\nSouthern nor any Southern Affiliated Company shall be required to provide
\nSouthern Energy or any Southern Energy Affiliated Company access to or copies of
\nany information that relate to Southern or any Southern Affiliated Company
\nunless it also relates to Southern Energy or a Southern Energy Affiliated
\nCompany. In addition, in the event that Southern determines that the provision
\nof any information to Southern Energy or any Southern Energy Affiliated Company
\ncould be commercially detrimental, violate any law or agreement or waive any
\nprivilege that may be asserted under applicable law including, any privilege
\narising under or relating to the attorney-client relationship (including the
\nattorney-client and work product privileges), the accountant-client privilege,
\nand any privilege relating to internal evaluation processes, the parties shall
\ntake all reasonable measures to permit the compliance with such obligations in a
\nmanner that avoids any such harm or consequence. In the event that Southern
\nEnergy determines that the provision of any information to Southern or any
\nSouthern Affiliated Company could be commercially detrimental, violate any law
\nor agreement or waive any privilege that may be asserted under applicable law
\nincluding, any privilege arising under or relating to the attorney-client
\nrelationship (including the attorney-client and work product privileges), the
\naccountant-client privilege, and any privilege relating to internal evaluation
\nprocesses, the parties shall take all reasonable measures to permit the
\ncompliance with such obligations in a manner that avoids any such harm or
\nconsequence.<\/p>\n
2.3 Manner of Filing Tax Returns.<\/p>\n
(a) Southern (for itself and the Southern Affiliated Companies) and
\nSouthern Energy (for itself and the Southern Energy Affiliated Companies) agree
\nto file all Tax Returns for any Pre-Distribution Period, and to take all other
\nactions in a manner consistent with the position that<\/p>\n
7<\/p>\n
11<\/p>\n
Southern Energy and the Southern Energy Affiliated Companies are part of the
\nSouthern Consolidated Group for all periods through and including the
\nDistribution Date.<\/p>\n
(b) Except as otherwise provided in this Section 2.3 of this Agreement,
\nthe party that is required to file a return under Section 2.1 of this Agreement
\n(the “Filing Party”) shall have the exclusive right to determine (1) the manner
\nin which such Tax Return shall be prepared and filed, including the elections,
\nmethods of accounting, positions, conventions and principles of taxation to be
\nused and the manner in which any Tax Item shall be reported, (2) whether any
\nextensions may be requested, (3) the elections that will be made in such Tax
\nReturn, (4) whether any amended Tax Returns shall be filed, (5) whether any
\nclaims for refund shall be made, (6) whether any refunds shall be paid by way of
\nrefund or credited against any liability for the related Tax, and (7) whether to
\nretain outside specialists to prepare such Tax Return, whom to retain for such
\npurpose and the scope of any such retainer. Notwithstanding the foregoing, if
\nSouthern Energy requests Southern to make a particular determination under this
\nSection 2.3(b) with respect to a Tax Return of Southern Energy or a Southern
\nEnergy Affiliated Company, Southern shall not unreasonably withhold its consent
\nto such request.<\/p>\n
(c) Any Tax Return described in Section 2.1(a) of this Agreement (but
\nonly with respect to Tax Items of Southern Energy or an Southern Energy
\nAffiliated Company), which Tax Return is filed after the date of this Agreement,
\nshall be prepared on a basis consistent with the elections, methods of
\naccounting, positions, conventions and principles of taxation and the manner in
\nwhich any Tax Item or other information is reported as reflected on the most
\nrecently filed prior Tax Returns involving similar matters. The preceding
\nsentence shall not apply if the Filing Party obtains the prior written consent
\n(which consent shall not be unreasonably withheld) of the other party (the
\n“Non-Filing Party”).<\/p>\n
2.4 Agent. Southern Energy hereby irrevocably designates, and agrees to
\ncause each Southern Energy Affiliated Company to so designate, Southern as its
\nsole and exclusive agent and attorney-in-fact to take such action (including
\nexecution of documents) as Southern, in its sole discretion, may deem
\nappropriate in any and all matters (including Audits) relating to any
\nConsolidated Return described in Section 2.1(a) of this Agreement; provided,
\nhowever, that Southern shall not exercise its rights as agent and
\nattorney-in-fact in any manner that is inconsistent with the rights granted to
\nSouthern Energy under this Agreement, and nothing in this Section 2.4 shall
\nlimit the rights granted to Southern Energy under this Agreement.<\/p>\n
SECTION 3. REPRESENTATIONS AND COVENANTS.<\/p>\n
3.1 Southern Energy Representations and Covenants. Southern Energy, for
\nitself and the Southern Energy Affiliated Companies, hereby represents, warrants
\nand covenants that:<\/p>\n
(a) Southern Energy has reviewed the information and representations
\nmade in the Ruling Documents submitted to the Service prior to the date of this
\nAgreement and, to Southern Energy’s knowledge, all of such information or
\nrepresentations that relate to Southern Energy or any Southern Energy Affiliated
\nCompany, or the business or operations of either, are true, correct and
\ncomplete.<\/p>\n
8<\/p>\n
12<\/p>\n
(b) Southern Energy will not, and will cause each Southern Energy
\nAffiliated Company not to, take any action, or fail or omit to take any action,
\nthat would cause any of the information or representations made in the Ruling
\nDocuments that relate to Southern Energy, the Southern Energy Historic Group, or
\nany Southern Energy Affiliated Company or the business or operations of each, to
\nbe untrue, regardless of whether such information or representations were
\nincluded in the Initial Private Letter Ruling (or any supplemental ruling).<\/p>\n
3.2 Southern Representations and Covenants. Southern, for itself and
\nthe Southern Affiliated Companies, hereby represents, warrants and covenants
\nthat:<\/p>\n
(a) Southern has reviewed the information and representations made in
\nthe Ruling Documents submitted to the Service prior to the date of this
\nAgreement, and, to its knowledge, all of such information or representations
\nthat relate to Southern or any Southern Affiliated Company or the business or
\noperations of either, are true, correct and complete.<\/p>\n
(b) Southern will not, and will cause each Southern Affiliated Company
\nnot to, take any action, or fail or omit to take any action, that would cause
\nany of the information or representations made in the Ruling Documents to be
\nuntrue, regardless of whether such information or representations were included
\nin the Initial Private Letter Ruling.<\/p>\n
SECTION 4. TAX SHARING AND PAYMENTS.<\/p>\n
4.1 In General. Except to the extent specifically modified or
\nsupplemented herein, the Tax Allocation Agreement shall continue in full force
\nand effect. Consequently, for example, for taxable periods ending on or before
\nthe Distribution Date, payments to Southern or Southern Energy, as the case may
\nbe, shall continue to be made in accordance with past practices. The provisions
\nof the Tax Allocation Agreement shall fix the rights and obligations of the
\nparties as to the matters covered thereby. Notwithstanding any other provision
\nof this Agreement, the Tax Allocation Agreement shall not apply to any
\nPost-Distribution Period of Southern Energy and the Southern Energy Group,
\nexcept as provided in Section 5.2(b) of this Agreement.<\/p>\n
(a) Southern Energy shall be responsible for, and shall indemnify and
\nhold harmless Southern against, any and all Taxes incurred by Southern Energy,
\nthe Southern Energy Group, or the Southern Energy Historic Group (except as
\nprovided below) for any Pre-Distribution Period in accordance with past
\npractices and the principles set forth in the Tax Allocation Agreement other
\nthan any Restructuring Taxes for which Southern or any Southern Affiliated
\nCompany is liable under Section 5 of this Agreement. Southern shall be
\nresponsible for, and shall indemnify and hold harmless Southern Energy against,
\nany and all Taxes incurred by Southern or any Southern Affiliated Company (other
\nthan Taxes attributable to Southern Energy or any Southern Energy Affiliated
\nCompany) for any Pre-Distribution Period (except as provided below) in
\naccordance with past practices and the principles set forth in the Tax
\nAllocation Agreement other than any Restructuring Taxes for which Southern
\nEnergy or any Southern Energy Affiliated Company is liable under Section 5 of
\nthis Agreement.<\/p>\n
9<\/p>\n
13<\/p>\n
(b) Southern shall be responsible for, and shall indemnify and hold
\nharmless Southern Energy against, any and all Taxes incurred by HoldCo and its
\nAffiliated Companies for any tax period.<\/p>\n
(c) Southern Energy shall be responsible for all Taxes that relate to
\nthe Southern Energy Group with respect to any Post-Distribution Period. Southern
\nshall be responsible for all Taxes that relate to the Southern Group with
\nrespect to any Post-Distribution Period.<\/p>\n
4.2 Payments.<\/p>\n
(a) Federal Income Taxes. Southern shall pay (or cause to paid) to the
\nService all Federal Income Taxes, if any, of any Consolidated Group due and
\npayable for all Pre-Distribution Periods.<\/p>\n
(b) Separate Taxes. Southern shall pay (or cause to be paid) to the
\nappropriate Tax Authorities all Separate Taxes, if any, that relate to Southern,
\nthe Southern Historic Group, or the Southern Group. Southern Energy shall pay
\n(or cause to be paid) to the appropriate Tax Authorities all Separate Taxes, if
\nany, that relate to Southern Energy, the Southern Energy Historic Group or the
\nSouthern Energy Group.<\/p>\n
SECTION 5. ALLOCATION OF CERTAIN TAX ITEMS.<\/p>\n
5.1 Liability for Restructuring Taxes and Deconsolidation.<\/p>\n
(a) Southern shall be responsible for, and shall indemnify and hold
\nharmless Southern Energy against any and all Restructuring Taxes relating to
\nHoldCo Transaction.<\/p>\n
(b) Except as otherwise provided by this Agreement, all Taxes arising
\nfrom the deconsolidation of the Southern Energy Group from the Southern Group
\nshall be the obligation of the entity that is liable for such Taxes under
\napplicable Tax Law.<\/p>\n
5.2 Carryforwards and Carrybacks.<\/p>\n
(a) Southern shall notify Southern Energy after the Distribution Date
\nof any consolidated carryover item which may be partially or totally attributed
\nto and carried over by a Southern Energy Affiliated Company and will notify
\nSouthern Energy of subsequent adjustments which may affect such carryover item.<\/p>\n
(b) Notwithstanding any other provision of this Agreement, Southern
\nEnergy shall not be required to make any election under Section 172(b)(3) of the
\nCode and, to the extent feasible, any similar provision of any state or local
\nTax Law, to relinquish any right to carryback net operating losses. Upon a
\nrequest by Southern Energy, Southern shall be required to include on an amended
\nConsolidated Return any net operating losses of Southern Energy arising in a
\nPost-Distribution Period to the extent allowed under the Code; provided, that if
\nSouthern incurs a Tax<\/p>\n
10
\n 14<\/p>\n
Detriment related to the inclusion of such net operating losses on the
\nConsolidated Return, Southern Energy shall indemnify Southern for the amount of
\nsuch Tax Detriment.<\/p>\n
5.3 Refunds. Any refund of Taxes received in a Pre-Distribution Period
\nwill be allocated in a manner consistent with the existing Tax Allocation
\nAgreement. Any refund of Taxes received in a Post-Distribution Period resulting
\nfrom an adjustment made to a Tax Return filed for a Pre-Distribution Period will
\nbe allocated to the party whose Return resulted in such refund, including any
\nrefund relating to the carryback of a net operating loss pursuant to Section
\n5.2(b).<\/p>\n
5.4 Allocation of Tax Items.<\/p>\n
(a) All Tax computations (1) ending on the Distribution Date and (2)
\nthe immediate following Tax period of Southern Energy or any Southern Energy
\nAffiliated Company, shall be made pursuant to the principles of Section
\n1.1502-76(b) of the Treasury Regulations or of a corresponding provision under
\nthe laws of other jurisdictions, as determined by Southern, taking into account
\nall reasonable suggestions made by Southern Energy with respect thereto.<\/p>\n
(b) Earnings and Profits. Southern will advise Southern Energy in
\nwriting of the decrease in Southern earnings and profits attributable to the
\nDistribution under Section 312(h) of the Code as a result of the Spin-Off not
\nlater than November 15, 2002, with respect to transactions completed during
\nfiscal year 2001; provided, however, that Southern shall provide Southern Energy
\nwith estimates of such amounts (determined in accordance with past practice) as
\nreasonably requested by Southern Energy.<\/p>\n
5.5 Continuing Covenants. Southern (for itself and each Southern
\nAffiliated Company) and Southern Energy (for itself and each Southern Energy
\nAffiliated Company) agree (1) not to take any action reasonably expected to
\nresult in an increased Tax Detriment to the other party or a reduction in a Tax
\nBenefit of the other party under this Agreement, and (2) to take any action
\nreasonably requested by the other party that would reasonably be expected to
\nresult in a Tax Benefit or avoid a Tax Detriment to the other party, provided
\nthat such action does not result in any additional cost not fully compensated
\nfor by the requesting party. The parties hereby acknowledge that the preceding
\nsentence is not intended to limit, and therefore shall not apply to, the rights
\nof the parties with respect to matters otherwise covered by this Agreement.<\/p>\n
SECTION 6. INDEMNIFICATION PROVISIONS.<\/p>\n
6.1 General Indemnification.<\/p>\n
(a) In General. Southern Energy and each Southern Energy Affiliated
\nCompany shall jointly and severally indemnify Southern, each Southern Affiliated
\nCompany and their respective directors, officers and employees, and hold them
\nharmless from and against any and all Taxes for which Southern Energy or any
\nSouthern Energy Affiliated Company is liable under this Agreement and any loss,
\ncost, damage or expense, including reasonable attorneys’ fees and costs, that is
\nattributable to, or results from, the failure of Southern Energy, any Southern
\nEnergy Affiliated Company or any director, officer, or employee to make any
\npayment required to be made under this Agreement. Southern and each Southern
\nAffiliated Company shall jointly and<\/p>\n
11
\n 15<\/p>\n
severally indemnify Southern Energy, each Southern Energy Affiliated Company and
\ntheir respective directors, officers and employees, and hold them harmless from
\nand against any and all Taxes for which Southern or any Southern Affiliated
\nCompany is liable under this Agreement and any loss, cost, damage or expense,
\nincluding reasonable attorneys’ fees and costs, that is attributable to, or
\nresults from the failure of Southern any Southern Affiliated Company or any
\ndirector, officer or employee to make any payment required to be made under this
\nAgreement.<\/p>\n
(b) Inaccurate or Incomplete Information. Southern Energy and each
\nSouthern Energy Affiliated Company shall jointly and severally indemnify
\nSouthern, each Southern Affiliated Company and their respective directors,
\nofficers and employees, and hold them harmless from and against any cost, fine,
\npenalty, or other expenses of any kind attributable to the negligence of
\nSouthern Energy or any Southern Energy Affiliated Company in supplying Southern
\nor any Southern Affiliated Company with inaccurate or incomplete information, in
\nconnection with the preparation of any Tax Return. Southern and each Southern
\nAffiliated Company shall jointly and severally indemnify Southern Energy, each
\nSouthern Energy Affiliated Company and their respective directors, officers and
\nemployees, and hold them harmless from and against any cost, fine, penalty, or
\nother expense of any kind attributable to the negligence of Southern or any
\nSouthern Affiliated Company in supplying Southern Energy or any Southern Energy
\nAffiliated Company with inaccurate or incomplete information, in connection with
\nthe preparation of any Tax Return.<\/p>\n
6.2 Spinoff Indemnification.<\/p>\n
(a) In General. Notwithstanding anything herein or in the Tax
\nAllocation Agreement to the contrary, the provisions of this Section 6 shall
\ngovern all matters among the parties hereto related to an Indemnified Liability
\n(as defined in Section 6.3 below) and an Indemnity Amount (as defined in Section
\n6.5 below).<\/p>\n
(b) Continued Conduct of Business. During the Restricted Period, each
\nof Southern and Southern Energy agrees that it will not cease the active conduct
\nof its trade or business within the meaning of Section 355(b) of the Code nor
\ncause or permit to be caused a change in its Control (other than the
\nDistribution).<\/p>\n
(c) Ruling Requirement for Major Transactions Undertaken by Southern
\nEnergy during the Restricted Period. During the Restricted Period, Southern and
\nSouthern Energy will not enter into any of the following transactions, or enter
\ninto any other transaction which, by itself or in the aggregate, may cause the
\nDistribution to be treated as part of a plan pursuant to which one or more
\npersons acquire directly or indirectly stock representing Control of Southern or
\nSouthern Energy, as the case may be, within the meaning of Code Section 355(e):<\/p>\n
(i) merge or consolidate with or into any other corporation;<\/p>\n
(ii) liquidate or partially liquidate (within the meaning of
\n such terms as defined in Section 346 and Section 302, respectively, of
\n the Code);<\/p>\n
12
\n 16<\/p>\n
(iii) sell or transfer all or substantially all its assets
\n (within the meaning of Rev. Proc. 77-37, 1977 – 2 C.B. 568) in a single
\n transaction or series of related transactions;<\/p>\n
(iv) redeem or otherwise repurchase any of Southern or
\n Southern Energy’s capital stock; or<\/p>\n
(v) make any change in its equity structure (including stock
\n issuances, pursuant to the exercise of options or otherwise, option
\n grants, the adoption of, or authorization of shares under a stock
\n option plan, capital contributions or acquisition but not including the
\n Distribution), (actions (i), (ii), (iii), (iv) and (v) are referred to
\n as the “Prohibited Acts”), unless Southern or Southern Energy first
\n obtains, and permits the other party to review, a supplemental ruling
\n from the Service, that such transaction, and any transaction related
\n thereto, will not affect the qualification of the Spin-Off under
\n Section 355 of the Code.<\/p>\n
(d) Indemnification. If Southern or Southern Energy breaches any
\nrepresentations set forth in Section 3 of this Agreement or takes any action or
\nenters into any agreement to take any action, including, without limitation, any
\nbreach of Sections 6.2(b) and (c), and the Spin-Off shall fail to qualify under
\nSection 355 of the Code as a result of such action or actions, then such party
\n(the “Indemnifying Party”) shall indemnify and hold harmless the other party
\nagainst any and all federal, state and local taxes, interest, penalties and
\nadditions to Tax imposed upon or incurred by Southern, the Southern Group, any
\nshareholder of Southern, Southern Energy or the Southern Energy Group, as the
\ncase may be, (each such party an “Indemnitee”) as a result of the failure of the
\nSpin-Off to so qualify to the extent provided herein. For purposes of this
\nAgreement, the failure of the Spin-Off to qualify under Section 355 of the Code
\nshall include, without limitation, the imposition of any Tax upon any Indemnitee
\nunder Code Section 355(e).<\/p>\n
6.3 Indemnified Liability. For purposes of this Agreement, the term
\n“Indemnified Liability” means any liability imposed upon or incurred by (1)
\nSouthern, any member of the Southern Group, or Southern shareholder for which
\nSouthern, any other member of the Southern Group or Southern shareholder is
\nindemnified and held harmless under Section 6.4, or (2) Southern Energy or any
\nmember of the Southern Energy Group, for which Southern Energy or any other
\nmember of the Southern Energy Group is indemnified and held harmless under
\nSection 6.4, but shall not refer to the amount of such liability.<\/p>\n
6.4 Amount of Indemnified Liability for Income Taxes. The amount of an
\nIndemnified Liability for a federal or state Tax incurred by an Indemnitee based
\non or determined with reference to income shall be deemed to be the amount of
\nTax computed by multiplying (i) the taxing jurisdiction’s highest effective Tax
\nrate applicable to Indemnitee of the character subject to Tax as a result of the
\nfailure of the Spin-Off to qualify under Section 355 of the Code for the taxable
\nperiod in which the Spin-Off occurs, times (ii) the gain or income of Indemnitee
\nwhich is subject to Tax in the taxing jurisdiction as a result of the failure of
\nthe Spin-Off to qualify under Section 355 of the Code, and (iii) in the case of
\na state, times the percentage representing the extent to which such gain or
\nincome is apportioned or allocated to such state; provided, however, that in the
\ncase of a state Tax determined as a percentage of Federal Income Tax liability,
\nthe amount of Indemnified Liability shall be deemed to be the amount of Tax
\ncomputed by<\/p>\n
13
\n 17<\/p>\n
multiplying (i) that state’s highest effective rate applicable to Indemnitee of
\nthe character subject to Tax as a result of the failure of the Spin-Off to
\nqualify under Section 355 of the Code for taxable period in which the Spin-Off
\noccurs, times (ii) the amount of deemed Federal Income Tax (whether or not
\nincurred) imposed upon Indemnitee from the failure of the Spin-Off to qualify
\nunder Section 355 of the Code computed in accordance with this Section 6.6,
\ntimes (iii) the percentage representing the extent to which the gain or income
\nrequired to be recognized on the Spin-Off is apportioned to such state.<\/p>\n
6.5 Indemnity Amount. With respect to any Indemnified Liability, the
\namount which the Indemnifying Party shall pay to Indemnitee as indemnification
\n(the “Indemnity Amount”) shall be the sum of (i) the amount of the Indemnified
\nLiability, as determined under Section 6.4, (ii) any penalties and interest
\nimposed with respect to the Indemnified Liability and (iii) an amount such that
\nwhen the sum of the amounts set forth in clauses (i), (ii) and this clause (iii)
\nof this Section 6.5 are reduced by all Taxes imposed as a result of the receipt
\nof such sum, (taking into account any related current credits or deductions
\npayable by the Indemnitee or any of its Affiliated Companies under any law or
\ngovernmental authority) the reduced amount is equal to the sum of the amounts
\nset forth in clauses (i) and (ii) of this Section 6.5 .<\/p>\n
6.6 Alternate Remedy. Southern and Southern Energy, respectively,
\nrecognize that any failure by it or any Affiliated Company to comply with their
\nobligations under this Section 6 may result in additional Taxes which could
\ncause irreparable harm to Southern and its shareholders, the Southern Affiliated
\nCompanies, and\/or Southern Energy and the Southern Energy Affiliated Companies,
\nand that such entities may be inadequately compensated by monetary damages for
\nsuch failure. Accordingly, if (A) (1) either party shall fail to comply with any
\nobligation under this Section 6 which would be reasonably foreseeable to result
\nin any additional Taxes, and (2) such party shall fail to provide the other
\nparty with a written opinion of a nationally recognized tax attorney, or a tax
\naccountant that is a member of a nationally recognized law firm or accounting
\nfirm that the failure to comply with such obligation will not result in any
\nincrease in Taxes of Southern and its shareholders, any Southern Affiliated
\nCompany, Southern Energy or any Southern Energy Affiliated Company, as the case
\nmay be, and such opinion is provided to such party for its review and approval,
\nwhich approval will not be unreasonably withheld, or (B) if it is probable that
\nthe failure by such party to comply with any such obligation under this Section
\n6 will result in an Indemnified Liability under this Agreement and the
\nIndemnifying Party fails to provide Adequate Assurances to the Indemnitee of its
\nability to pay the Indemnity Amount under this Agreement, then Southern or
\nSouthern Energy, as the case may be, shall be entitled to injunctive relief in
\naddition to all other remedies.<\/p>\n
6.7 Payments.<\/p>\n
(a) In General. Except as otherwise provided under this Agreement, to
\nthe extent that any party has an indemnification or payment obligation to
\nanother party pursuant to this Agreement, the indemnitee shall provide the
\nindemnifying party with its calculation of the amount of such indemnification
\npayment. Such calculation shall provide sufficient detail to permit the
\nindemnifying party to reasonably understand the calculations. All
\nindemnification payments shall be made to such indemnitee or to the appropriate
\nTax Authority as specified by the indemnitee within the time prescribed for
\npayment in this Agreement, or if no period is prescribed, within<\/p>\n
14<\/p>\n
18<\/p>\n
thirty (30) days after delivery by the indemnitee to the indemnifying party of
\nwritten notice of a payment or if such liability is contested pursuant to
\nSection 7.3 of this Agreement, within thirty (30) days of the incurrence of such
\nan amount based on a Final Determination, together with a computation of the
\namounts due. Any disputes with respect to indemnification payments shall be
\nresolved in accordance with Section 9.10 below.<\/p>\n
(b) Electronic Payments. Any payment required under this Agreement in
\nan amount in excess of one million dollars ($1,000,000.00) shall be made by
\nelectronic funds transfer of immediately available funds.<\/p>\n
6.8 Prompt Performance. All actions required to be taken by any party
\nunder this Agreement shall be performed within the time prescribed for
\nperformance in this Agreement, or if no period is prescribed, such actions shall
\nbe performed promptly.<\/p>\n
6.9 Interest. Payments pursuant to this Agreement that are not made
\nwithin the period prescribed in this Section 6.7(a) shall bear interest for the
\nperiod from and including the date immediately following the last date of the
\nperiod through and including the date of payment at a per annum rate equal to
\nthe prime rate as published in The Wall Street Journal on the date of
\ndetermination, plus two percent (2%). Such interest will be payable at the same
\ntime as the payment to which it relates and shall be calculated on the basis of
\na year of 365 days and the actual number of days for which due.<\/p>\n
6.10 Tax Records. The parties to this Agreement hereby agree to retain
\nand provide on proper demand by any Taxing Authority (subject to any applicable
\nprivileges) the books, records, documentation and other information relating to
\nany Tax Return until the later of (a) the expiration of the applicable statute
\nof limitations (giving effect to any extension, waiver or mitigation thereof)
\nand (b) in the event any claim is made under this Agreement for which such
\ninformation is relevant, until a Final Determination with respect to such claim.<\/p>\n
SECTION 7. AUDITS AND CONTEST RIGHTS.<\/p>\n
7.1 In General. Upon the termination of Southern Energy and the
\nSouthern Energy Group as members of the Southern Consolidated Group, the Tax
\nAllocation Agreement shall apply with respect to any period in which the income
\nof the terminating member is included in the Consolidated Return. The
\nterminating member shall remain liable to Southern for payments required under
\nthe Tax Allocation Agreement, including, but not limited to, payments of Tax and
\nestimated Tax for periods in which the member’s income is included in the
\nSouthern Consolidated Return. Subject to Section 2.2(c) of this Agreement, the
\nterminating member shall cooperate and provide reasonable access to books,
\nrecords and other information needed in connection with Audits, administrative
\nproceedings, litigation and other similar matters related to periods in which
\nthe member was a member of the Southern Consolidated Group. Notwithstanding the
\nforegoing, Southern Energy and the Southern Energy Group will not be required
\nunder the Tax Allocation Agreement to pay more on a combined or consolidated
\nbasis than that which it would have been required to pay had Southern Energy or
\na member of the Southern Energy Group filed a separate Federal Income Tax
\nReturn.<\/p>\n
15<\/p>\n
19<\/p>\n
(b) Except as otherwise provided in this Agreement, the respective
\nFiling Party shall have the right to control, contest, and represent the
\ninterests of Southern, any Southern Affiliated Company, Southern Energy or any
\nSouthern Energy Affiliated Company in any Audit relating to any Tax Return that
\nthe Filing Party is responsible for filing under Section 2.1 of this Agreement
\nand to resolve, settle or agree to any deficiency, claim or adjustment proposed,
\nasserted or assessed in connection with or as a result of any such Audit. The
\nFiling Party’s rights shall extend to any matter pertaining to the management
\nand control of an Audit, including execution of waivers, choice of forum,
\nscheduling of conferences and the resolution of any Tax Item.<\/p>\n
7.2 Notice. If, after the date of this Agreement, Southern (or any
\nSouthern Affiliated Company) or Southern Energy (or any Southern Energy
\nAffiliated Company) receives written notice of, or relating to, an Audit from a
\nTax Authority that asserts, proposes or recommends a deficiency, claim or
\nadjustment that, if sustained, could result in Taxes for which the other party
\nis responsible under this Agreement, then the party receiving such notice shall
\nprovide a copy of such notice to such other party within ten (10) days of
\nreceipt thereof.<\/p>\n
7.3 Contests.<\/p>\n
(a) If any Tax Authority asserts, proposes or recommends a deficiency,
\nclaim or adjustment that, if sustained, could result in Taxes for which the
\nNon-Filing Party is responsible under this Agreement, then upon request by the
\nNon-Filing Party, the Filing Party shall contest, or continue to contest, any
\ndeficiency, claim or adjustment and the Filing Party shall keep the Non-Filing
\nParty informed in a timely manner reasonably in advance of all actions taken or
\nproposed to be taken by the Filing Party in connection with such deficiency,
\nclaim or adjustment.<\/p>\n
(b) In the case of an Audit with respect to any Tax Item, the Filing
\nParty shall:<\/p>\n
(1) in the case of any material correspondence or filing
\nsubmitted to the Tax Authority or any judicial authority that relates to the
\nmerits of such deficiency, claim or adjustment (i) reasonably in advance of such
\nsubmission, but subject to applicable time constraints imposed by such Tax
\nAuthority or judicial authority, provide the Non-Filing Party with a draft copy
\nof the portion of such correspondence or filing that relates to such deficiency,
\nclaim or adjustment, (ii) incorporate, subject to applicable time constraints
\nimposed by such Tax Authority or judicial authority, the Non-Filing Party’s
\ncomments and changes on such draft copy of such correspondence or filing, and
\n(iii) provide the Non-Filing Party with a final copy of the portion of such
\ncorrespondence or filing that relates to such deficiency, claim or adjustment;<\/p>\n
(2) provide the Non-Filing Party with notice reasonably in
\nadvance of, and the Non-Filing Party shall have the right to attend, any
\nmeetings with the Tax Authority (including meetings with examiners) or hearings
\nor proceedings before any judicial authority to the extent they relate to such
\ndeficiency, claim or adjustment; and<\/p>\n
(3) at the Filing Party’s reasonable request (or upon the
\nFiling Party’s consent to a request by the Non-Filing Party, which consent shall
\nnot be unreasonably withheld), the Non-Filing Party shall assume responsibility
\nfor (i) contesting and presenting the merits with respect to any deficiency,
\nclaim or adjustment that, if sustained, would result in Taxes for which the<\/p>\n
16<\/p>\n
20<\/p>\n
Non-Filing Party is responsible under this Agreement, or (ii) resolving,
\nsettling or agreeing to any such deficiency, claim or adjustment. Any such
\nrequest (or consent) by the Filing Party shall be subject to the Non-Filing
\nParty’s continued compliance with the conditions of Section 7.4 of this
\nAgreement and to such other conditions as the Filing Party and Non-Filing Party
\nreasonably agree.<\/p>\n
7.4 Limitations.<\/p>\n
(a) In General. The Filing Party shall have no obligation to contest,
\nor to continue to contest, any deficiency, claim or adjustment in accordance
\nwith Section 7.3, and the Non-Filing Party shall have no right to control or
\nparticipate under Section 7.3 of this Agreement unless:<\/p>\n
(1) within thirty (30) days of a reasonable request by the
\nFiling Party, the Non-Filing Party shall deliver to the Filing Party a written
\nopinion of a nationally recognized tax attorney or tax accountant that is a
\nmember of a recognized law firm or accounting firm, to the effect that the
\nNon-Filing Party’s position with respect to such deficiency, claim or adjustment
\nis supported by a reasonable basis (within the meaning of Treasury Regulations
\nSection 1.6662-3(b)(3));<\/p>\n
(2) the Non-Filing Party shall have agreed to be bound by a
\nFinal Determination of such deficiency, claim or adjustment;<\/p>\n
(3) the Non-Filing Party shall have agreed to pay, and shall
\nbe currently paying, all reasonable out of pocket costs and expenses incurred by
\nthe Filing Party to contest such deficiency, claim or assessment including
\nreasonable outside attorneys’, accountants’ and investigatory fees and
\ndisbursements;<\/p>\n
(4) the Non-Filing Party shall have advanced to the Filing
\nParty, on an interest-free basis (and with no additional net after-tax cost to
\nthe Filing Party), the amount of Tax in controversy (but not in excess of the
\nlesser of (A) the amount of Tax for which the Non-Filing Party could be liable
\nunder this Agreement or (B) the amounts actually expended by the Filing Party
\nfor this item) to the extent necessary for the contest to proceed in the forum
\nselected by the Filing Party;<\/p>\n
(5) the Non-Filing Party shall have provided to the Filing
\nParty all documents and information, and shall have made available employees and
\nofficers of the Non-Filing Party, as may be necessary, useful or reasonably
\nrequired by the Filing Party in contesting such deficiency, claim or adjustment;
\nand<\/p>\n
(6) the contest of such deficiency, claim or adjustment shall
\ninvolve no material danger of the sale, forfeiture or loss of, or the creation
\nof any lien on, any asset of the Filing Party (except if the Non-Filing Party
\nshall have adequately bonded such lien or otherwise made provision to protect
\nthe interests of the Filing Party in a manner reasonably satisfactory to the
\nFiling Party).<\/p>\n
17<\/p>\n
21<\/p>\n
(b) Settlement. Notwithstanding Section 7.4(a), the Filing Party may
\nresolve, settle or agree to any deficiency, claim or adjustment proposed,
\nasserted or assessed in connection with any Audit of any Tax Return that it is
\nresponsible for filing under Section 2.1 of this Agreement if the Filing Party
\nhas provided the Non-Filing Party with a reasonable opportunity to review a copy
\nof that portion of the settlement or compromise proposal which relates to the
\nclaim for which the Filing Party is seeking indemnification hereunder; provided,
\nthat if (a) the Filing Party fails to provide the Non-Filing Party such a
\nreasonable opportunity to review such portion of such proposal, or (b) after
\nsuch reasonable opportunity to review such proposal the Non-Filing Party in
\nwriting reasonably withholds its consent to all or part of such settlement or
\ncompromise proposal, then, unless the Filing Party was not required to continue
\nthe applicable contest under the terms of Section 7.4(a), the Non-Filing Party
\nshall not be obligated to indemnify the Filing Party hereunder to the extent of
\nthe amount attributable to the loss to which such settlement or compromise
\nrelates as to which the Non-Filing Party has reasonably withheld its consent, or
\nwith respect to any other loss for which a successful contest is foreclosed
\nbecause of such settlement or compromise as to which the Non-Filing Party has
\nreasonably withheld its consent. If the Filing Party effects a settlement or
\ncompromise of such contest, notwithstanding that the Non-Filing Party has
\nreasonably withheld its consent thereto, the Filing Party shall repay to the
\nNon-Filing Party such amounts that the Non-Filing Party advanced pursuant to
\nclause (a)(4) of this Section 7.4 hereof as relate to such claim, to the extent
\nthat the Non-Filing Party has reasonably withheld its consent to the settlement
\nor compromise thereof (together with interest at the prime rate as published in
\nthe Wall Street Journal on any such amount paid by the Non-Filing Party from the
\ndate paid by Lessee to the date repaid by the Filing Party).<\/p>\n
(c) Waiver. Notwithstanding any other provision of this Section 7.4,
\nthe Filing Party may resolve, settle, or agree to any deficiency, claim or
\nadjustment for any taxable period if the Filing Party waives it right to
\nindemnity with respect to such Tax Item. In such event, the Filing Party shall
\npromptly reimburse the Non-Filing Party for all amounts previously advanced by
\nthe Non-Filing Party to the Filing Party in connection with such deficiency,
\nclaim or adjustment under Section 7.4(a)(4) of this Agreement. In addition, the
\nFiling Party shall reimburse the Non-Filing Party for any Tax Detriment that
\ndirectly results from the settlement of such deficiency, claim or adjustment. No
\nwaiver by the Filing Party under this Section 7.4(c) with respect to any
\ndeficiency, claim or adjustment relating to any single Tax Item, position, issue
\nor transaction or relating to any single Tax for any one taxable period shall
\noperate as a waiver with respect to any other deficiency, claim or adjustment.<\/p>\n
7.5 Failure to Notify, Etc. The failure of the Filing Party promptly to
\nnotify the Non-Filing Party of any matter relating to a particular Tax for a
\ntaxable period or to take any action specified in Section 7.3 of this Agreement
\nshall not relieve the Non-Filing Party of any liability and\/or obligation which
\nit may have to the Filing Party under this Agreement with respect to such Tax
\nfor such taxable period except to the extent that the Non-Filing Party’s rights
\nhereunder are materially prejudiced by such failure and in no event shall such
\nfailure relieve the Non-Filing Party of any other liability and\/or obligation
\nwhich it may have to the Filing Party.<\/p>\n
7.6 Remedies. Except as otherwise provided in this Agreement, the
\nparties hereby agree that the sole and exclusive remedy for a breach by the
\nFiling Party of the Filing Party’s obligations to the Non-Filing Party with
\nrespect to a deficiency, claim or adjustment relating to<\/p>\n
18<\/p>\n
22<\/p>\n
the redetermination of a Tax Item of the Non-Filing Party for a taxable period
\nshall first be a reduction in the amount that would otherwise be payable by the
\nNon-Filing Party for such taxable period and then an increase in amount that
\nwould otherwise be payable by the Filing Party for such taxable period, in
\neither case because of the breach. The parties further agree that no claim
\nagainst the Filing Party and no defense to the Non-Filing Party’s liabilities to
\nthe Filing Party under this Agreement shall arise from the resolution by the
\nFiling Party of any deficiency, claim or adjustment relating to the
\nredetermination of any Tax Item of the Filing Party.<\/p>\n
SECTION 8. STOCK OPTIONS.<\/p>\n
8.1 In General. The parties hereto agree that Southern shall be
\nentitled to any Tax Benefit arising by reason of exercises of Options to
\npurchase shares of Southern stock, and that Southern Energy shall be entitled to
\nany Tax Benefit arising by reason of exercises of Options to purchase shares of
\nSouthern Energy stock. The parties hereto agree to report all Tax deductions
\nwith respect to stock options and other equity issued to their employees
\nconsistently with this Section 8.1, to the extent permitted by the Tax Law.<\/p>\n
8.2 Notices, Withholding, Reporting. Southern shall promptly notify
\nSouthern Energy of any Post-Separation Date event giving rise to income to any
\nSouthern Energy Group employees or former employees in connection with exercises
\nof options to purchase shares of Southern stock. If required by the Tax Law,
\nSouthern Energy shall withhold applicable Taxes and satisfy applicable Tax
\nreporting obligations in connection therewith.<\/p>\n
8.3 Adjustments. If Southern Energy or any Southern Energy Affiliated
\nCompany receives any Tax Benefit to which Southern is entitled under Section 8.1
\nof this Agreement, Southern Energy shall pay the amount of such Tax Benefit to
\nSouthern. If Southern or any Southern Affiliated Company receives any Tax
\nBenefit to which Southern Energy is entitled under Section 8.1 of this
\nAgreement, Southern shall pay the amount of such Tax Benefit to Southern Energy.<\/p>\n
SECTION 9. MISCELLANEOUS<\/p>\n
9.1 Effectiveness. This Agreement shall become effective as of the date
\nhereof. In the event Southern does not effect the Distribution as contemplated
\nby the Separation Agreement but Southern Energy and the Southern Energy Group
\ncease to be members of the Southern Consolidated Group for any reason (a
\n“Deconsolidation Event”), this Agreement shall continue in full force and effect
\nsubject to the following exceptions: (i) Sections 3, 5.4(b), and 6.2 – 6.6
\nhereof shall no longer be effective, (ii) the definition of “Distribution Date”
\nshall mean the date on which a Deconsolidation Event is effective, (iii) the
\ndefinition of “Post-Distribution Period” shall mean any taxable period or
\nportion thereof beginning after the date of the Deconsolidation Event, and (iv)
\nthe definition of “Pre-Distribution Period” shall mean any taxable period or
\nportion thereof ending on or prior to the date of the Deconsolidation Event.<\/p>\n
9.2 Notices. Any notice, request, instruction or other document to be
\ngiven or delivered under this Agreement by any party to another party shall be
\nin writing and shall be deemed to have been duly given or delivered when (a)
\ndelivered in person, (b) deposited in the United<\/p>\n
19<\/p>\n
23<\/p>\n
States mail, postage prepaid and sent certified mail, return receipt requested
\nor (c) delivered to Federal Express or similar service for overnight delivery to
\nthe address of the party set forth below:<\/p>\n
If to Southern or any Southern Affiliated Company, to W. Dean Hudson,
\nwith a copy to the General Counsel of Southern, at:<\/p>\n
The Southern Company
\n 270 Peachtree Street
\n Atlanta, Georgia 30303<\/p>\n
If to Southern Energy or any Southern Energy Affiliated Company, to
\nJames A. Ward, with a copy to the General Counsel of Southern Energy:<\/p>\n
Southern Energy, Inc.
\n 900 Ashwood Parkway
\n Suite 500
\n Atlanta, Georgia 30338<\/p>\n
Any party may, by written notice to the other parties, change the address or the
\nparty to which any notice, request, instruction or other document is to be
\ndelivered.<\/p>\n
9.3 Changes in Law.<\/p>\n
(a) Any reference to a provision of the Code or a law of another
\njurisdiction shall include a reference to any applicable successor provision or
\nlaw.<\/p>\n
(b) If, due to any change in applicable law or regulations or their
\ninterpretation by any court of law or other governing body having jurisdiction
\nsubsequent to the date of this Agreement, performance of any provision of this
\nAgreement or any transaction contemplated thereby shall become impracticable or
\nimpossible, the parties hereto shall use their commercially reasonable efforts
\nto find and employ an alternative means to achieve the same or substantially the
\nsame result as that contemplated by such provision.<\/p>\n
9.4 Confidentiality. For a period of three years, commencing on the
\ndate of this Agreement, each party shall hold and cause its directors, officers,
\nemployees, advisors and consultants to hold in strict confidence, unless
\ncompelled to disclose by judicial or administrative process or, in the opinion
\nof its counsel, by other requirements of law, all information (other than any
\nsuch information relating solely to the business or affairs of such party)
\nconcerning the other parties hereto furnished it by such other party or its
\nrepresentatives pursuant to this Agreement (except to the extent that such
\ninformation can be shown to have been (a) in the public domain through no fault
\nof such party or (b) later lawfully acquired from other sources not under a duty
\nof confidentiality by the party to which it was furnished), and each party shall
\nnot release or disclose such information to any other person, except its
\ndirectors, officers, employees, auditors, attorneys, financial advisors, bankers
\nand other consultants who shall be advised of and agree to be bound by the
\nprovisions of this Section 9.4. Each party shall be deemed to have satisfied its<\/p>\n
20<\/p>\n
24<\/p>\n
obligation to hold confidential information concerning or supplied by the other
\nparty if it exercises the same care as it takes to preserve confidentiality for
\nits own similar information.<\/p>\n
9.5 Successors. This Agreement shall be binding on and inure to the
\nbenefit and detriment of any successor, by merger, acquisition of assets or
\notherwise, to any of the parties hereto, to the same extent as if such successor
\nhad been an original party.<\/p>\n
9.6 Affiliated Companies. Southern shall cause to be performed, and
\nhereby guarantees the performance of, all actions, agreements and obligations
\nset forth herein to be performed by any Southern Affiliated Company, and
\nSouthern Energy shall cause to be performed, and hereby guarantees the
\nperformance of, all actions, agreements and obligations set forth herein to be
\nperformed by any Southern Energy Affiliated Company.<\/p>\n
9.7 Authorization, Etc. Each of the parties hereto hereby represents
\nand warrants that it has the power and authority to execute, deliver and perform
\nthis Agreement, that this Agreement has been duly authorized by all necessary
\ncorporate action on the part of such party, that this Agreement constitutes a
\nlegal, valid and binding obligation of each such party and that the execution,
\ndelivery and performance of this Agreement by such party does not contravene or
\nconflict with any provision of law or of its charter or bylaws or any agreement,
\ninstrument or order binding on such party.<\/p>\n
9.8 Entire Agreement. This Agreement and the Tax Allocation Agreement
\ncontains the entire agreement among the parties hereto with respect to the
\nsubject matter hereof.<\/p>\n
9.9 Governing Law; Jurisdiction. This Agreement shall be governed by
\nand construed and enforced in accordance with the laws of the State of Georgia
\nas to all matters regardless of the law that might otherwise govern under the
\nprinciples of conflicts of law applicable thereto.<\/p>\n
9.10 Dispute Resolution. The resolution of any and all disputes arising
\nfrom or in connection with this Agreement shall be governed by and settled in
\naccordance with the provisions of Section 5.7 of the Separation Agreement;
\nprovided, however, that at the request of Southern or Southern Energy, a
\nnationally recognized tax attorney or tax accountant that is a member of a
\nnationally recognized law firm or accounting firm, which firm is independent of
\nboth parties, will be appointed for purposes of the non-binding mediation
\nprocedures described in Section 5.7(b) of the Separation Agreement.<\/p>\n
9.11 Counterparts. This Agreement may be executed in any number of
\ncounterparts, each of which shall be deemed an original, but all of which
\ntogether shall constitute one and the same Agreement.<\/p>\n
9.12 Severability. If any term, provision, covenant, or restriction of
\nthis Agreement is held by a court of competent jurisdiction (or an arbitrator or
\narbitration panel) to be invalid, void, or unenforceable, the remainder of the
\nterms, provisions, covenants, and restrictions set forth herein shall remain in
\nfull force and effect, and shall in no way be affected, impaired, or
\ninvalidated. It is hereby stipulated and declared to be the intention of the
\nparties that they would have executed the remaining terms, provisions,
\ncovenants, and restrictions without including any<\/p>\n
21<\/p>\n
25<\/p>\n
of such which may be hereafter declared invalid, void, or unenforceable. In the
\nevent that any such term, provision, covenant or restriction is held to be
\ninvalid, void or unenforceable, the parties hereto shall use their best efforts
\nto find and employ an alternate means to achieve the same or substantially the
\nsame result as that contemplated by such terms, provisions, covenant, or
\nrestriction.<\/p>\n
9.13 No Third Party Beneficiaries. This Agreement is solely for the
\nbenefit of Southern, the Southern Affiliated Companies, Southern Energy and the
\nSouthern Energy Affiliated Companies. This Agreement should not be deemed to
\nconfer upon third parties any remedy, claim, liability, reimbursement, cause of
\naction or other rights in excess of those existing without this Agreement.<\/p>\n
9.14 Waivers, Etc. No failure or delay on the part of the parties in
\nexercising any power or right hereunder shall operate as a waiver thereof, nor
\nshall any single or partial exercise of any such right or power, or any
\nabandonment or discontinuance of steps to enforce such right or power, preclude
\nany other or further exercise thereof or the exercise of any other right or
\npower. No modification or waiver of any provision of this Agreement nor consent
\nto any departure by the parties therefrom shall in any event be effective unless
\nthe same shall be in writing.<\/p>\n
9.15 Setoff. All payments to be made by any party under this Agreement
\nmay be netted against payments due to such party under this Agreement, but
\notherwise shall be made without setoff, counterclaim or withholding, all of
\nwhich are hereby expressly waived.<\/p>\n
22
\n 26<\/p>\n
IN WITNESS WHEREOF, each of the parties hereto has caused this
\nAgreement to be executed by a duly authorized officer as of the date first above
\nwritten.<\/p>\n
THE SOUTHERN COMPANY
\n on behalf of itself and the Southern Affiliated Companies<\/p>\n
By:
\n ———————————————————
\n Name: H. Allen Franklin
\n Title: President and Chief Operating Officer<\/p>\n
SOUTHERN ENERGY, INC.
\n on behalf of itself and the Southern Energy
\n Affiliated Companies<\/p>\n
By:
\n ———————————————————
\n Name: S. Marce Fuller
\n Title: President and Chief Executive Officer<\/p>\n
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