TAX SHARING AGREEMENT

EXHIBIT 10.2

TAX SHARING AGREEMENT

BY AND AMONG

HALLIBURTON COMPANY

AND ITS AFFILIATED COMPANIES

AND

KBR INC.

AND ITS AFFILIATED COMPANIES

January 1, 2006

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

TAX SHARING AGREEMENT

BY AND BETWEEN

HALLIBURTON COMPANY AND KBR, INC.

This Tax Sharing Agreement (the “Agreement”), dated as of this 1st day of January, 2006, by and between HALLIBURTON COMPANY, a Delaware corporation (“Halliburton”), KBR Holdings LLC, a Delaware limited liability company (“KBR Holdings”), and KBR, Inc., a Delaware corporation (“KBR, Inc.”), is entered into as of the 15th day of November, 2006.

RECITALS

WHEREAS, Halliburton is the common parent of an affiliated group of corporations within the meaning of Section 1504(a) of the Code (as defined herein), which currently files a consolidated federal income tax return;

WHEREAS, Halliburton Energy Services, Inc., a Delaware corporation (“HESI”), and certain other entities and divisions comprise the Energy Services Group of Halliburton (collectively, the “ESG Group”), and KBR (as defined herein) and certain other entities and divisions comprise the Energy & Chemicals Group and Government & Infrastructure Group of Halliburton (collectively, the “KBR Group”);

WHEREAS, the ESG Group and the KBR Group each include various corporations that join with Halliburton in the filing of a consolidated U.S. federal income tax return, as well as limited liability companies and other entities organized under the laws of domestic and foreign jurisdictions;

WHEREAS, Halliburton and KBR determined it would be appropriate and desirable, effective as of December 31, 2005, for KBR to reorganize its operations to separate the operations traditionally associated with KBR from the operations traditionally associated with Halliburton (the “Restructuring”);

WHEREAS, Halliburton and KBR contemplate that as part of the Restructuring, KBR may make an initial public offering (the “IPO”) of KBR common stock that would reduce Halliburton’s ownership of KBR to not less than the amount required for Halliburton to control KBR within the meaning of Section 368(c) of the Code with respect to the stock of KBR and to not less than the amount required for Halliburton to control KBR within the meaning of Section 1504(a)(2) of the Code with respect to the stock of KBR;

WHEREAS, Halliburton may determine that it is in the best interests of the Parties to cause (1) Kellogg Energy Services, Inc. to distribute the shares of KBR common stock to DII Industries, LLC, a Delaware limited liability company (“DII”), (2) DII in turn to distribute the shares of KBR common stock to HESI and (3) HESI in turn to distribute the shares of KBR common stock to Halliburton, subject to the terms and conditions of the Master Separation Agreement or the Master Separation and Distribution Agreement (as applicable) (collectively, the “Preliminary Distributions”);

WHEREAS, in connection with the Preliminary Distributions, Halliburton may determine that it is in the best interests of the Parties for Halliburton to distribute all of its shares of KBR common stock, on a pro rata basis, to the holders of the common stock of Halliburton, subject to the terms and conditions of the Master Separation Agreement or the Master Separation and Distribution Agreement (as applicable) (the “Distribution”);

WHEREAS, the Preliminary Distributions and the Distribution are intended to qualify as tax free distributions under Section 355 of the Code;

WHEREAS, upon the Deconsolidation (as defined herein), Halliburton and KBR will cease to be members of the same affiliated group for federal income tax purposes;

WHEREAS, the Parties wish to set forth the general principles under which they will allocate and share various Taxes (as defined herein) and related liabilities;

WHEREAS, in contemplation of the IPO and the Deconsolidation, Halliburton, on behalf of itself and its present and future subsidiaries other than KBR (“Halliburton Group”), and KBR, on behalf of itself and its present and future subsidiaries (“KBR Group”) are entering into this Agreement to provide for the allocation between the Halliburton Group and the KBR Group of all responsibilities, liabilities and benefits relating to all Taxes paid or payable by either group for all taxable periods beginning on or after the Effective Date (as defined herein) and to provide for certain other matters;

WHEREAS, the Parties intend and agree that the Effective Date with respect to the provisions of Articles II, III, VI and VIII is January 1, 2001.

NOW, THEREFORE, in consideration of the mutual agreements, provisions, and covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.01 Definitions . The following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):

“ Accounting Referee ” is defined in Section 8.11 herein.

“ Additional ESG Group Relief ” is defined in Section 3.14(a).

“ Additional KBR Group Relief ” is defined in Section 3.14(a).

“ Adequate Assurances ” means posting a bond or providing a letter of credit reasonably acceptable to the Indemnified Party; provided, however, if the Indemnifying Party fails to post such bond or provide such letter of credit, the Indemnifying Party shall provide cash equal to the Indemnity Amount to the Indemnified Party not less than thirty (30) days prior to the date on which such Tax would become due and payable by the Indemnified Party.

 

“ Affiliate ” of any person means any person, corporation, partnership or other entity directly or indirectly controlling, controlled by or under common control with such person.

“ Affiliated Group ” means an affiliated group of corporations within the meaning of Section 1504(a) (excluding Section 1504(b)) of the Code for the taxable period in question.

“ Code ” means the Internal Revenue Code of 1986, as amended, or any successor thereto, as in effect for the taxable period in question.

“ Combined Group ” means a group of corporations or other entities that files a Combined Return.

“ Combined Return ” means any Tax Return (other than for Federal Income Taxes) filed on a consolidated, combined (including nexus combination, worldwide combination, domestic combination, line of business combination or any other form of combination), unitary or Group Relief basis that includes activities of members of the ESG Group or the KBR Group, or both, as the case may be.

“ Compensatory Transaction ” has the meaning set forth in Section 7.03(b)(iii).

“ Consolidated Group ” means the affiliated group of corporations (as defined in Section 1504(a) of the Code) of which Halliburton is the common parent corporation.

“ Consolidated Return ” means a Tax Return filed with respect to Federal Income Taxes for the Consolidated Group.

“ Control ” means stock constituting a 50% or greater interest under Section 355(e) of the Code.

“ Deconsolidation ” means the event that reduces the amount of KBR stock owned directly or indirectly by Halliburton to be less than the amount required for Halliburton to control KBR within the meaning of Section 1504(a)(2) of the Code.

“ Deconsolidation Date ” means the date the Deconsolidation occurs.

“ Deconsolidation Year ” means the taxable year in which the Deconsolidation Date occurs.

“ Displaced ESG Tax Attribute ” has the meaning set forth in Section 5.12(g) of this Agreement.

“ Disputed Tax Issue ” is defined in Section 6.01(a) herein.

“ Disputed Tax Issue Indemnitee ” is defined in Section 6.01(a) herein.

“ Disputed Tax Issue Indemnitor ” is defined in Section 6.01(a) herein.

“ Disqualifying Action ” is defined in Section 7.03(a)(i) hereof.

 

“ Distribution ” has the meaning set forth in the Recitals to this Agreement.

“ Distribution Date ” is the date the Distribution occurs.

“ Dual Consolidated Loss ” has the meaning ascribed to such term in Treasury Regulation § 1.1503-2(c)(5), Treasury Regulation § 1.1503-2A(b)(2), or any successor regulations promulgated under section 1503 of the Code.

“ Effective Date ” is January 1, 2006, provided, however that the Effective Date with respect to Articles II, III, VI and VIII is January 1, 2001.

“ ESG Allocated Attributes ” has the meaning set forth in Section 3.09 or Section 5.09 of this Agreement as the case requires.

“ ESG Group ” has the meaning set forth in the Recitals to this Agreement.

“ ESG Group Combined Tax Liability ” means, with respect to any taxable period, the ESG Group’s liability for Taxes owed with respect to Combined Returns, as determined under Section 3.05 or Section 5.05 of this Agreement as the case requires.

“ ESG Group Federal Income Tax Liability ” means, with respect to any taxable period, the ESG Group’s liability for Federal Income Taxes, as determined under Section 3.03 or Section 5.03 of this Agreement as the case requires.

“ ESG Group Members ” means those entities or divisions of entities included in the ESG Group as set forth on Exhibit A, hereto.

“ ESG Group Pro Forma Combined Return ” means a pro forma Combined Return or other schedule prepared pursuant to Section 3.05 or Section 5.05 of this Agreement as the case requires.

“ ESG Group Pro Forma Consolidated Return ” means a pro forma consolidated U.S. Federal Income Tax Return or other schedule prepared pursuant to Section 3.03 or Section 5.03 of this Agreement as the case requires.

“ ESG Group Relief Tax Attribute ” is defined in Section 3.14(a).

“ ESG Stand-Alone Attributes ” has the meaning set forth in Section 3.09(a) or Section 5.09(a) of this Agreement as the case requires.

“ Federal Income Tax ” means any Tax imposed under Subtitle A of the Code or any other provision of United States Federal Income Tax law (including, without limitation, the Taxes imposed by Sections 11, 55, 59A, and 1201(a) of the Code), and any interest, additions to Tax or penalties applicable or related thereto.

“ Final Determination ” means the final resolution of any Tax (or other matter) for a taxable period, including related interest or penalties, that, under applicable law, is not subject to further appeal, review or modification through proceedings or otherwise, including (i) by the expiration of a statute of limitations or a period for the filing of claims for refunds, amending Tax Returns, appealing from adverse determinations, or recovering any refund (including by offset), (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable, (iii) by a closing agreement or an accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreements under laws of other jurisdictions, (iv) by execution of an Internal Revenue Service Form 870 or 870-AD, or by a comparable form under the laws of other jurisdictions (excluding, however, with respect to a particular Tax Item for a particular taxable period any such form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund and/or the right of the Tax Authority to assert a further deficiency with respect to such Tax Item for such period), or (v) by any allowance of a refund or credit, but only after the expiration of all periods during which such refund may be adjusted.

“ Foreign Tax Credit Adjustment ” has the meaning set forth in Section 5.12(f) hereof.

“ Group Relief ” has the meaning set forth in Section 3.14(a) hereof.

“ Halliburton Affiliated Group ” means, for each taxable period, the Affiliated Group of which Halliburton or any successor of Halliburton is the common parent.

“ Halliburton Affiliated Group Federal Income Tax Return ” means the consolidated Federal income Tax Return of the Halliburton Affiliated Group.

“ Halliburton Group ” is defined in the Recitals to this Agreement.

“ Indemnified Liability ” has the meaning set forth in Section 7.05.

“ Indemnified Party ” has the meaning set forth in Section 7.04(b) of this Agreement.

“ Indemnity Amount ” has the meaning set forth in Section 7.07.

“ Indemnifying Party ” has the meaning set forth in Section 7.04(b) of this Agreement.

“ IPO ” is defined in the Recitals to this Agreement.

“ IRS ” means the United States Internal Revenue Service or any successor thereto, including, but not limited to, its agents, representatives, and attorneys.

“ KBR ” means KBR Holdings from the Effective Date to the day immediately prior to the earlier of (i) the Deconsolidation Date or (ii) the date of the IPO and means KBR, Inc. from and after such date.

“ KBR Affiliated Group ” means, for each taxable period, the Affiliated Group of which KBR or any successor of KBR is the common parent.

“ KBR Allocated Attributes ” has the meaning set forth in Section 3.09 or Section 5.09 of this Agreement as the case requires.

 

“ KBR Businesses ” means the present, former and future subsidiaries, divisions and businesses of any member of the KBR Group which are not, or are not contemplated by the Master Separation Agreement or the Master Separation and Distribution Agreement (as applicable) to be, part of the Halliburton Group immediately after the Deconsolidation Date.

“ KBR Foreign Taxes ” has the meaning set forth in Section 5.12(f) of this Agreement.

“ KBR Group ” is defined in the Recitals to this Agreement.

“ KBR Group Combined Tax Liability ” means, with respect to any taxable period, the KBR Group’s liability for Taxes owed with respect to Combined Returns, as determined under Section 3.06 or Section 5.06 of this Agreement as the case requires.

“ KBR Group Federal Income Tax Liability ” means, with respect to any taxable period, the KBR Group’s liability for U.S. Federal Income Taxes, as determined under Section 3.04 or Section 5.04 of this Agreement as the case requires.

“ KBR Group Members ” means those entities or divisions of entities included in the KBR Group as set forth on Exhibit B, hereto.

“ KBR Group Pro Forma Combined Return ” means a pro forma Combined Return or other schedule prepared pursuant to Section 3.06 or Section 5.06 of this Agreement as the case requires.

“ KBR Group Pro Forma Consolidated Return ” means a pro forma consolidated U.S. Federal Income Tax Return or other schedule prepared pursuant to Section 3.04 or Section 5.04 of this Agreement as the case requires.

“ KBR Group Relief Tax Attribute ” has the meaning set forth in Section 3.14(a) of this Agreement.

“ KBR Losses ” has the meaning set forth in Section 5.12(g) of this Agreement.

“ KBR Restructuring Issue ” is defined in Section 6.01(c) herein.

“ KBR Stand-Alone Attributes ” has the meaning set forth in Section 3.09(b) or Section 5.09(b) of this Agreement as the case requires.

“ Loss Adjustment ” has the meaning set forth in Section 5.12(g) of this Agreement.

“ Master Separation Agreement ” means that certain Master Separation Agreement entered into by Halliburton and KBR, dated November 20, 2006, together with that certain Distribution Agreement entered into between Halliburton and KBR attached as a Schedule to such Master Separation Agreement.

“ Master Separation and Distribution Agreement ” means that certain Master Separation and Distribution Agreement entered into by Halliburton and KBR, dated November 20, 2006.

 

“ Non-Transacting Party ” is defined in Section 7.03(b)(i) herein.

“ Notice ” is defined in Section 8.01 herein.

“ Party ” means each of Halliburton and KBR, and, solely for purposes of this definition, “Halliburton” includes the Halliburton Group and “KBR” includes the KBR Group, all as of the Deconsolidation Date. Each of Halliburton and KBR shall cause the Halliburton Group and the KBR Group, respectively, to comply with this Agreement.

“ Post-Deconsolidation Period ” means any period beginning after the Deconsolidation Date.

“ Potential Disqualifying Action ” is defined in Section 7.03(a)(iii) hereof.

“ Pre-Deconsolidation Period ” means any period ending on or before the Deconsolidation Date.

“ Preliminary Distributions ” is defined in the Recitals to this Agreement.

“ Private Letter Ruling ” means the private letter ruling issued by the IRS to Halliburton in connection with the Spinoff.

“ Project Constructor ” means the transaction, effective December 15, 2003, pursuant to which Halliburton separated the ESG Group, on the one hand, from the Energy & Chemicals Group and the Government & Infrastructure Group (formerly the Engineering & Construction Group), on the other hand, with HESI acting as the holding company for the ESG Group and DII acting as the holding company for the Energy & Chemicals Group and the Government & Infrastructure Group.

“ Required Tax Attribute Carryback ” is defined in Section 5.13 hereof.

“ Restricted Period ” means the period beginning two years before the Distribution Date and ending two years after the Distribution Date.

“ Restructuring ” is defined in the Recitals to this Agreement.

“ Restructuring Taxes ” means any and all Taxes resulting from the Restructuring or from Project Constructor, and shall include any related interest, penalties, Tax credit recapture or other additions to Tax, including, without limitation, any Tax imposed pursuant to, or as a result of, the application of Section 311 of the Code.

“ Ruling Documents ” means (1) the request for a ruling under Section 355 and various other sections of the