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EXHIBIT 2.06
EXECUTION COPY
TAX MATTERS AGREEMENT
BY AND
AMONG
XCEL ENERGY INC.
AND ITS AFFILIATED COMPANIES
AND
NRG ENERGY, INC.
AND ITS AFFILIATED COMPANIES
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TAX MATTERS AGREEMENT
THIS TAX MATTERS AGREEMENT (this "Agreement") is made as of
December 5, 2003 by and among Xcel Energy
Inc., a registered public utility
holding company ("Xcel"), and the Xcel
subsidiaries whose names are set forth on
the signature pages of this Agreement (the
"Xcel Affiliated Companies" and,
together with Xcel, the "Xcel Group"), and
NRG Energy, Inc., a Delaware
corporation and an indirect, wholly-owned
subsidiary of Xcel ("NRG"), and the
NRG subsidiaries whose names are set forth
on the signature pages of this
Agreement (the "NRG Affiliated Companies"
and, together with NRG, the "NRG
Group"; for the avoidance of doubt, the
Xcel Group and the Xcel Affiliated
Companies shall not include any member of
the NRG Group).
RECITALS
WHEREAS, the Xcel Group files a consolidated federal income
tax return and certain consolidated,
combined or unitary state and local income
and franchise tax returns;
WHEREAS, the members of the NRG Group ceased to be members of
the Affiliated Group of which Xcel is the
common parent effective as of March
13, 2001 (the "Deconsolidation Date") as a
result of a public offering of NRG
common stock on March 12, 2001;
WHEREAS, prior to the Deconsolidation Date NRG and certain NRG
Affiliated Companies were party to a Tax
Allocation Agreement made as of
December 29, 2000 together with Xcel and
certain Xcel Affiliated Companies (the
"Prior Tax Allocation Agreement");
WHEREAS, NRG and certain related entities filed for protection
under Chapter 11 of the Bankruptcy Code on
May 14, 2003;
WHEREAS, on effectiveness of an NRG plan of reorganization
(the "Plan") Xcel's shares of NRG stock
will be cancelled; and
WHEREAS, the parties hereto have determined to enter into this
Agreement to establish their respective
rights and responsibilities concerning
certain tax matters following effectiveness
of the Plan;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good
and valuable consideration, the
receipt and sufficiency of which are hereby
acknowledged, the parties agree as
follows:
SECTION 1. DEFINITIONS
1.1 As used in this Agreement, the following capitalized terms
shall have the following meanings:
"Affiliated Group" has the meaning given to that term in
Section 1504(a) of the Code.
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"Audit" means any audit, examination, proceeding or appeal
relating to Taxes.
"Code" means the Internal Revenue Code of 1986, as amended.
"Deconsolidation Date" has the meaning given in the Recitals
to this Agreement.
"Effective Date" means the date on which NRG emerges from
bankruptcy pursuant to the terms of a
confirmed plan of reorganization.
"Final Determination" means with respect to any issue (i) a
decision, judgment, decree or other order
by any court of competent jurisdiction
that has become final and is not subject to
further appeal, or (ii) a closing
agreement entered into under Section 7121
of the Code or any other binding
settlement agreement entered into in
connection with or in contemplation of an
administrative or judicial proceeding,
excluding for this purpose an agreement
on Form 870.
"Form 870" means Internal Revenue Service Form 870, Waiver of
Restrictions on Assessment and Collection
of Deficiency in Tax and Acceptance of
Overassessment, any successor thereto, and
any similar form used for state or
local Tax purposes.
"Indemnification Amount" has the meaning given in Section 6.2.
"Indemnifying Party" means the party required to indemnify
another party pursuant to Section 6.1.
"Indemnitee" means the party entitled to indemnification from
another party pursuant to Section 6.1.
"NRG Affiliated Company" has the meaning given in the initial
paragraph of this Agreement.
"NRG Group" has the meaning given in the initial paragraph of
this Agreement.
"NRG Proposed Adjustment" means (i) a deficiency, claim or
adjustment relating to an Xcel Consolidated
Return that, if sustained, would
result in Xcel's payment of a Tax for which
NRG or an NRG Affiliated Company
would be responsible under this Agreement,
and (ii) an adjustment to any Tax
Item of NRG or any NRG Affiliated Company
that, if sustained, would cause NRG to
be in breach of the representation set
forth in Section 6(e) or the covenant set
forth in Section 7(c) of the Settlement
Agreement.
"NRG Separate Return" means any Separate Return of NRG or an
NRG Affiliated Company, and any
consolidated, combined or unitary Tax Return
filed by NRG or an NRG Affiliated Company
as common parent or its state or local
equivalent.
"Plan" has the meaning given in the Recitals to this
Agreement.
"Post-Deconsolidation Period" means any taxable period or
portion thereof beginning on or after the
Deconsolidation Date.
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"Pre-Deconsolidation Period" means any taxable period or
portion thereof ending before the
Deconsolidation Date.
"Prior Tax Allocation Agreement" has the meaning given in the
Recitals to this Agreement.
"Separate Return" means any Tax Return other than a
consolidated, combined or unitary Tax
Return.
"Settlement Agreement" means that certain Settlement Agreement
entered into as of December 5, 2003 by and
among Xcel, NRG and certain NRG
subsidiaries.
"Tax" means any federal, state, local or foreign tax based
upon or determined with reference to net
income or profits, including capital
gains and alternative or add-on minimum
tax, together with interest, additions
to tax or penalties related thereto.
"Tax Authority" means any federal, state, local or foreign
governmental authority or any subdivision,
agency, commission or authority
thereof or any quasi-governmental or
private body having jurisdiction over the
assessment, determination, collection or
imposition of any Tax.
"Tax Benefit" means a reduction in the Tax liability of a
taxpayer (or of the Affiliated Group of
which it is a member) for any taxable
period, determined in accordance with the
principles set forth on Schedule 1.1T
to this Agreement. 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 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 in the
current period and all prior periods, is
less than it would have been if such
Tax liability were determined without
regard to such Tax Item.
"Tax Detriment" means an increase in the Tax liability of a
taxpayer (or of the Affiliated Group of
which it is a member) for any taxable
period, determined in accordance with the
principles set forth on Schedule 1.1T
to this Agreement. Except as otherwise
provided in this Agreement, a Tax
Detriment shall be deemed to have been
realized or incurred with respect to 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 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 in the current
period and all prior periods, is more
than it would have been if such Tax
liability were determined without regard to
such Tax Item.
"Tax Item" means any item of income, gain, loss, deduction,
credit or other attribute, including net
operating loss carrybacks, that may
have the effect of increasing or decreasing
any Tax.
"Tax Law" means any federal, state, local or foreign law with
respect to Taxes, including the Code and
Treasury Regulations.
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"Tax Return" means any return, report, certificate, form or
similar statement or document, including
any schedule attached thereto and any
information return, amended Tax return,
claim for refund or declaration of
estimated Tax, required to be filed with a
Tax Authority in connection with the
determination, assessment or collection of
any Tax or the administration of any
Tax Law.
"Tax Structure" means the 'tax structure,' as that term is
defined in Section 1.6011-4 of the Treasury
Regulations, of the transactions
referred to in the Recitals to this
Agreement.
"Tax Treatment" means the 'tax treatment,' as that term is
defined in Section 1.6011-4 of the Treasury
Regulations, of the transactions
referred to in the Recitals to this
Agreement.
"Treasury Regulations" means the final, temporary and proposed
income Tax regulations promulgated under
the Code.
"Worthless Stock Deduction" means the deduction that Xcel or
an Xcel Affiliated Company will claim under
Section 165(g)(3) of the Code and
any comparable provision of state or local
law with respect to the loss of its
investment in NRG.
"Xcel Affiliated Company" has the meaning given in the initial
paragraph of this Agreement.
"Xcel Consolidated Return" means a consolidated U.S. federal
income Tax Return or a consolidated,
combined or unitary state or local income
or franchise Tax Return filed by Xcel as
common parent of an Affiliated Group
(or the state or local equivalent thereof),
including Tax Returns filed with
respect to periods before the
Deconsolidation Date by Xcel or by Xcel's
predecessor, Northern States Power Co.
"Xcel Consolidated Return Year" means any taxable year or
portion thereof for which Xcel or a
predecessor files or has filed an Xcel
Consolidated Return.
"Xcel Group" has the meaning given in the initial paragraph of
this Agreement.
"Xcel Separate Return" means any Separate Return of Xcel or an
Xcel Affiliated Company.
1.2 Principles of Construction.
As used in this Agreement, the singular shall be deemed to
include the plural and vice versa and
"including" shall mean "including, without
limitation." The captions and section
headings used in this Agreement are for
convenience only and shall not affect the
interpretation or construction of the
Agreement's provisions. "Section" means a
section of this Agreement unless
otherwise indicated.
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SECTION 2. EFFECT ON Prior Tax Allocation
Agreement
Except as expressly provided in this Agreement, the Prior Tax
Allocation Agreement shall cease to have
any effect as of the date hereof for
any taxable period, past, present or
future, but only as between Xcel or an Xcel
Affiliated Company, on the one hand, and
NRG or an NRG Affiliated Company, on
the other hand. The Prior Tax Allocation
Agreement shall continue to apply to
the Xcel Group, and any tax sharing
agreement to which NRG and the NRG
Affiliated Companies are the only parties
shall continue to apply to the NRG
Group.
SECTION 3. Tax Returns.
3.1 Preparation of Tax Returns; Payment of Taxes.
(a) Xcel shall timely file or cause to be filed all Tax
Returns required to be filed by Xcel, the
Xcel Group or an Xcel Affiliated
Company for a Post-Deconsolidation Period,
including the Xcel Consolidated
Returns for the 2002 tax year and the 2003
tax year. Xcel or an Xcel Affiliated
Company shall pay all Taxes due with
respect to such Tax Returns.
(b) NRG shall timely file or cause to be filed all Tax Returns
required to be filed by NRG, the NRG Group
or an NRG Affiliated Company for a
Post-Deconsolidation Period, including (i)
the short federal tax year that began
on the Deconsolidation Date and ended on
December 31, 2001, (ii) the federal
2002 tax year, (iii) the federal 2003 tax
year and (iv) the short Minnesota tax
year that began on May 15, 2003 and will
end on December 31, 2003. NRG or an NRG
Affiliated Company shall pay all Taxes due
with respect to such Tax Returns.
(c) Each of Xcel and NRG shall prepare all Tax Returns on the
basis that NRG and the NRG Affiliated
Companies joined in the Xcel Consolidated
Returns for all Pre-Deconsolidation Periods
in which they were permitted to join
under the Code or state or local Tax Law,
and that NRG and the NRG Affiliated
Companies did not and will not join in the
Xcel Consolidated Returns for any
Post-Deconsolidation Tax Period unless
required by state or local Tax Law.
(d) For purposes of Section 3.1(c), NRG and all eligible NRG
Affiliated Companies shall be treated as
members of the Xcel Minnesota unitary
tax group through and including May 14,
2003 and not as members of the Xcel
Minnesota unitary tax group on or after May
15, 2003. Income, gains, losses,
deductions and credits for the unitary and
post-unitary portions of 2003 shall
be determined based on a closing of the
books as of the end of business on May
14, 2003, which closing of the books shall
utilize NRG's month-end records for
April 2003 as adjusted in good faith and on
a basis consistent with past
practice for the period from May 1, 2003
through May 14, 2003. The deduction
arising from the Worthless Stock Deduction
shall be a post-unitary item (as
between Xcel and NRG).
(e) Except as otherwise provided in this Section 3.1, the
party required to file a Tax Return shall
have the exclusive right to determine
how each Tax Item is reported on such Tax
Return, whether to request an
extension of time in which to file such Tax
Return, which elections shall be
made on such Tax Return, which accounting
methods shall be chosen for such Tax
Return, and whether to retain outside
professionals in connection with
preparation and filing of such Tax
Return.
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3.2 Amendments to Filed Tax Returns.
(a) Xcel, in its sole discretion, may amend any Xcel
Consolidated Return, provided that if an
amendment would have required NRG or an
NRG Affiliated Company to make a payment to
Xcel under the Prior Tax Allocation
Agreement if the Prior Tax Allocation
Agreement still applied or imposes a Tax
Detriment on NRG or on an NRG Affiliated
Company, neither NRG nor the NRG
Affiliated Company shall be required to
make such payment and Xcel shall
reimburse and indemnify NRG for such Tax
Detriment when such Tax Detriment is
realized.
(b) NRG may request that Xcel amend, and Xcel shall so amend,
any Xcel Consolidated Return for a
Pre-Deconsolidation Period, provided that (i)
the period for filing an amended Tax Return
for such period has not expired,
(ii) the amendment does not involve a
carryback, (iii) the amendment relates
solely to a separate Tax Item of NRG or an
NRG Affiliated Company, (iv) Xcel
determines or NRG provides an opinion of a
nationally- recognized law or
accounting firm to the effect that there is
at least a "reasonable basis" (as
defined in Section 1.6662-3(b)(3) of the
Treasury Regulations) for the amendment
position and the amended return makes all
necessary disclosures, and (v) NRG
pays to Xcel any additional amount that NRG
or the NRG Affiliated Company would
be required to pay under the Prior Tax
Allocation Agreement as a result of such
amendment if the Prior Tax Allocation
Agreement still applied and NRG reimburses
and indemnifies Xcel for any Tax Detriment
that Xcel incurs as a result of such
amendment when such Tax Detriment is
realized. If the amended return results in
Xcel's receipt of a Tax refund, Xcel shall
remit the Tax refund to NRG within
two business days of receipt thereof
together with any interest received
thereon, less any unpaid amount described
in clause (v) of the immediately
preceding sentence.
(c) Each of Xcel and the Xcel Affiliated Companies, on the one
hand, and NRG and the NRG Affiliated
Companies on the other hand, may amend any
Xcel Separate Return or NRG Separate
Return, respectively, without the consent
of any other party and without incurring
any obligation to compensate any other
party.
(d) If a Tax Detriment for which compensation has been paid
pursuant to Section 3.2(a) or 3.2(b) is
decreased or eliminated as the result of
an audit adjustment or otherwise, the
compensated party shall pay the
compensating party the amount of the
decrease or the amount eliminated, without
interest.
3.3 Carrybacks.
(a) To the extent permitted by Tax Law, Xcel shall include on
an amended Xcel Consolidated Return, or
file a tentative application for refund
with respect to, any net operating loss
incurred by NRG or an NRG Affiliated
Company in its 2002 U.S. federal tax year
or a state or local tax year ending in
calendar year 2002, provided that (i) the
period for filing an amended Tax
Return for purposes of carrying back a net
operating loss has not expired and
(ii) no portion of the net operating loss
is absorbed in an Xcel Consolidated
Return Year that begins after December 31,
2000. Xcel shall remit any portion of
the associated Tax refund that is not
associated with displaced Tax credits to
NRG within two business days of receipt
thereof, together with any interest
received thereon. To the extent that the
displaced Tax credits produce
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a Tax Benefit for Xcel in a Tax year or
years after the year with respect to
which Xcel claims the Worthless Stock
Deduction, Xcel shall pay NRG an amount
equal to the Tax Benefit within ten
business days of realization thereof.
(b) NRG shall waive the carryback period for any net operating
loss reflected on an NRG Separate Return
not described in Section 3.3(a) if such
loss would, absent a waiver, be carried
back to a Pre-Deconsolidation Period. To
the extent that such carryback period may
not be waived, and in the case of any
carryback of an NRG or NRG Affiliated
Company capital loss, Xcel shall not be
required to pay over to NRG any Tax refund
received with respect to a
Pre-Deconsolidation Period.
3.4 Other Refunds.
Any refund of Taxes received or Tax Benefit realized with
respect to a Pre-Deconsolidation Period (or
a Post-Deconsolidation Period with
respect to which the NRG Affiliated
Companies are required to join in an Xcel
Consolidated Return under state or local
law) and unrelated to an amended Tax
Return, a carryback or a contest described
in Section 5 shall be allocated and
paid in a manner consistent with the Prior
Tax Allocation Agreement, subject to
later adjustment as provided therein.
3.5 Information and Cooperation; Record Retention.
Each of Xcel and the Xcel Affiliated Companies, on the one
hand, and NRG and the NRG Affiliated
Companies, on the other hand, shall provide
the other with all documents and
information, and make available employees and
officers, as reasonably requested by the
other party, on a mutually convenient
basis during normal business hours, to aid
the other party in preparing any Tax
Return described in Section 3.1 or
participating in an Audit or contest
described in Section 5, provided that Xcel
and the Xcel Affiliated Companies
shall be required to provide NRG only (i)
any Tax Return or portion thereof that
includes Tax Items of NRG or an NRG
Affiliated Company and (ii) any other
information that relates to NRG or an NRG
Affiliated Company. Each of Xcel and
the Xcel Affiliated Companies, on the one
hand, and NRG and the NRG Affiliated
Companies, on the other hand, shall retain
all records relating to Taxes
governed by this Agreement until expiry of
the related statute of limitations.
Prior to discarding or destroying such
records, the party retaining them shall
offer in writing to transfer them to the
other party at the other party's
expense. If the other party does not accept
such offer within thirty days, the
party retaining such records may discard or
destroy them.
3.6 Continuing Consolidation.
(a) Except as provided in Section 3.6(b), if NRG or any NRG
Affiliated Company is required by state or
local Tax Law to be included in an
Xcel Consolidated Return for a
Post-Deconsolidation Period, the parties shall
make payments and otherwise take actions as
the parties would have been required
to make or take pursuant to the Prior Tax
Allocation Agreement if the Prior Tax
Allocation Agreement still applied.
(b) If the Minnesota Tax Authority requires that NRG or any
eligible NRG Affiliated Company be treated
as a member of the Xcel Minnesota
unitary tax group at the time Xcel
recognizes a loss on its investment in NRG,
NRG and the NRG Affiliated Companies
shall
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forgo any payment to which they would be
entitled under the Prior Tax Allocation
Agreement to the extent, and only to the
extent, such payment results from the
Worthless Stock Deduction.
SECTION 4. ADDITIONAL COVENANTS.
4.1 Worthless Stock Deduction.
Neither Xcel nor any Xcel Affiliated Company shall claim the
Worthless Stock Deduction for any tax year
prior to the tax year in which the
Effective Date occurs.
4.2 Payment of Certain Federal and Minnesota Adjustments.
Xcel shall pay NRG the net amount shown on Schedule 4.2 to
this Agreement (as adjusted by reasonable
agreement of the parties hereto
through the Effective Date) within two
business days of the Effective Date.
4.3 Continuing Covenants.
Except as
otherwise provided in Section 3, Xcel and each Xcel
Affiliated Company, on the one hand, and
NRG and each NRG Affiliated Company, on
the other hand, shall take any action
reasonably requested by the other party
that would reasonably be expected to result
in a Tax Benefit or avoid a Tax
Detriment to the requesting party, provided
that such action does not cause the
party taking such action to bear any Tax
Detriment or other additional cost not
fully compensated for by the requesting
party.
SECTION 5. AUDITS AND CONTEST RIGHTS; JoinT
tax Liability.
5.1 Liability for Adjustments.
If Xcel as common parent of an Affiliated Group (or the state
or local equivalent thereof) is required to
pay any additional Tax with respect
to a Pre-Deconsolidation Period (or a
Post-Deconsolidation Period with respect
to which the NRG Affiliated Companies are
required to join in an Xcel
Consolidated Return under state or local
law), NRG shall pay Xcel the amount, if
any, that NRG or an NRG Affiliated Company
would have been required to pay Xcel
pursuant to the Prior Tax Allocation
Agreement if the Prior Tax Allocation
Agreement still applied.
5.2 Notice of Audits.
Xcel shall provide NRG with written notice of any Audit that
could give rise to a payment under Section
5.1 within ten business days of
Xcel's receipt of notice thereof, provided
that this Section 5.2 shall not apply
to any Audit commenced before the date of
this Agreement, which Audits are
described on Schedule 5.2 to this
Agreement.
5.3 Contests.
(a) Except as provided in Section 5.3(e), if a Tax Authority
assesses, asserts, proposes, recommends or
attempts to collect on an NRG
Proposed Adjustment, or submits a request
for information that reasonably may
relate to an NRG Proposed Adjustment or
potential
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NRG Proposed Adjustment, Xcel shall provide
NRG with prompt notice thereof and
NRG shall elect in writing, within ten
business days of receipt of notice from
Xcel, to contest the NRG Proposed
Adjustment or potential NRG Proposed
Adjustment in the manner provided in
Section 5.3(b) or to agree not to contest
the NRG Proposed Adjustment and pay Xcel
any amount required to be paid under
Section 5.1.
(b) If NRG elects to contest the NRG Proposed Adjustment, NRG
shall keep Xcel reasonably informed of the
contest and NRG's resolution of the
contest shall be binding on Xcel (subject
to Section 5.3(h)), the Xcel
Affiliated Companies, NRG and the NRG
Affiliated Companies, provided that NRG
pays Xcel any amount required to be paid
under Section 5.1. Without limiting the
generality of the foregoing, if NRG elects
to contest an NRG Proposed
Adjustment,
(i) NRG shall
assume responsibility for
contesting the NRG Proposed Adjustment and
settling or litigating it to a Final
Determination, all at NRG's sole cost and
expense;
(ii)
Xcel shall take all steps reasonably
necessary to authorize NRG to contest the
NRG Proposed Adjustment, including executing
powers of attorney and promptly delivering
to NRG any written materials received by
Xcel from any source o
