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Tax Indemnification Agreement

This is an actual contract between Enbridge Energy Management L L C and Enbridge Energy Partners.

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Sectors: Energy
Governing Law: Texas, View Texas State Laws
Effective Date: October 17, 2002
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Exhibit 10.1


TAX INDEMNIFICATION AGREEMENT


This TAX INDEMNIFICATION AGREEMENT (the "Agreement") dated as of October 17, 2002 is entered into between Enbridge Inc., an Alberta, Canada corporation ("Enbridge"), and Enbridge Energy Management, L.L.C., a Delaware limited liability company ("Management").


RECITALS


WHEREAS, Management was formed pursuant to the Limited Liability Company Agreement of Enbridge Energy Management, L.L.C. effective as of May 14, 2002 which was amended by the Amended and Restated Limited Liability Company Agreement of Enbridge Energy Management, L.L.C. dated as of the date hereof (the "Management L.L.C. Agreement").


WHEREAS, Management authorized the issuance of two classes of limited liability company interests consisting of the "Listed Shares" and the "Voting Shares," the rights and obligations of which are more specifically described in the Management L.L.C. Agreement.


WHEREAS, Enbridge Energy Partners, L.P., a Delaware limited partnership (the "MLP"), pursuant to the Third Amended and Restated Agreement of Limited Partnership of Enbridge Energy Partners, L.P. dated as of the date hereof (the "MLP Partnership Agreement"), authorized the issuance of the new class of partnership interest hereinafter referred to as the "I-Units."


WHEREAS, Management issued one Voting Share to EECI (as defined herein) in exchange for $1,000.


WHEREAS, Management issued and sold Listed Shares to the public and EECI.


WHEREAS, Management applied the net proceeds from the issuance and sale of such Voting Share and Listed Shares to acquire I-Units from the MLP in exchange for $336,472,500. In addition, Management purchased the Purchase Rights (as defined herein) and its rights under this Agreement from Enbridge for $500,000.


WHEREAS, Enbridge has agreed to indemnify Management for certain tax consequences attributable to the Indemnifiable Events described below.


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


AGREEMENT


1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings. Any reference to any person shall include such person and its permitted successors and assigns. Except where expressly stated otherwise, any agreement referred to in this Agreement shall mean such agreement as amended, supplemented or modified from time to time in accordance with the applicable provisions thereof. Capitalized terms not otherwise


defined herein have the meaning assigned them in the Management L.L.C. Agreement (including Annex A thereof).


"After-Tax Basis" means in respect of any amount received or accrued by any Person (or in the case of a payee which is a pass-through or disregarded entity for the relevant Tax purposes, the Persons who are required to take into account any items of income, gain, loss or deduction with respect to such entity) (the "base amount"), the base amount supplemented by a further payment, if necessary, to such Person such that, after reduction for all Taxes actually imposed on such Person as a result of the receipt or accrual of the base amount and such further payment (after giving effect to all deductions and credits, if any, actually utilized by such Person arising from the event or circumstance giving rise to the base amount), the net amount received by such Person shall be equal to the base amount.


"Business Day" means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States or Canada or the states of New York or Texas or the province of Alberta shall not be regarded as a Business Day.


"Change in Law" means the occurrence after the date hereof of (i) the enactment of, or amendment to, any provision of the Code, Treasury Regulations thereunder or any administrative pronouncement, (ii) the enactment of, or amendment to, any provision of the Tax law of any state (or political subdivision thereof) in which Management is subject to Tax, or (iii) the issuance of a Final Determination of the United States Supreme Court or the United States Court of Appeals for the federal judicial circuit to which appeal would lie from a case concerning Indemnifiable Events relating to Management; PROVIDED, THAT (x) a change in the rate of any Tax shall not be treated as a Change in Law, and (y) an administrative pronouncement shall be treated as a Change in Law only if Management provides Enbridge a written opinion of independent, nationally-recognized tax counsel selected by Management (such counsel and form of opinion to be reasonably satisfactory to Enbridge) to the effect that such counsel is unable to conclude that a Reasonable Basis exists to take a position contrary to such administrative pronouncement.


"Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of successor law.


"Common Unit" has the meaning set forth in the MLP Partnership Agreement.


"EECI" means Enbridge Energy Company, Inc., a Delaware corporation, the sole general partner of the MLP and the owner of the Voting Shares.


"Enbridge" is defined in the introduction to this Agreement.


"Final Determination," in respect of Enbridge, the MLP or Management means: (i) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all appeals allowable by law as of right and hereunder by either party to the action have been exhausted or the time for filing such appeals has expired; (ii) a closing agreement entered into under section 7121 of the Code or any other settlement agreement entered into with the applicable taxing authority in connection with


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an administrative or judicial proceeding (including a state or local proceeding); (iii) the expiration of the time for instituting a suit with respect to a claimed deficiency; or (iv) the expiration of the time for instituting a claim for refund, or if such a claim were filed, the expiration of the time for instituting a suit with respect thereto.


"Indemnifiable Event" means either (i) an increase, as a result of a Change in Law, an audit by the applicable taxing authority or any action taken by Enbridge or EECI that is inconsistent with the Tax Assumptions, in the sum of Taxes imposed on, payable by, or withheld from payments to Management, over the sum of Taxes, if any, Management would have paid or incurred in such year or shorter tax period with respect thereto based on the Tax Assumptions, computed in each case as provided in Section 4, (ii) any insufficiency or inadequacy of cash to pay Taxes as contemplated by the definition of "Tax Assumptions" (which insufficiency or inadequacy shall be treated as additional Tax for purposes of Section 3(a)(1)), or (iii) any of the situations described in the last sentence of Section 3(a)(3).


"Indemnity Amount" has the meaning set forth in Section 3(a)(1).


"Interest Rate" means the applicable federal rate (within the meaning of section 1274(d) of the Code).


"IRS" means the United States Internal Revenue Service.


"I-Unit" is defined in the recitals to this Agreement. The terms and provisions of the I-Units are more specifically set forth in the MLP Partnership Agreement.


"Listed Shares" means the ownership interests in Management described in the recitals to this Agreement, the rights and obligations of which are more specifically described in the Management L.L.C. Agreement.


"Management" is defined in the introduction to this Agreement.


"Management L.L.C. Agreement" is defined in the recitals to this Agreement.


"Management Subsidiary" means any limited liability company, partnership, corporation, joint venture or other entity that is, directly or indirectly, wholly-owned by Management.


"MLP" is defined in the recitals to this Agreement.


"MLP Partnership Agreement" is defined in the recitals to this Agreement.


"Non-Taxable" means in respect of any transaction, event or circumstance, not causing or giving rise to the realization or recognition of any taxable income or other basis for the imposition of Tax.


"Purchase Rights" means the rights and obligations associated with the purchase of Listed Shares by Enbridge, the terms and provisions of which are more specifically set forth in Annex A of the Management L.L.C. Agreement.


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"Realized Tax Savings" shall have the meaning set forth in Section 3(a)(3).


"Reasonable Basis" for a position exists if tax counsel may properly advise reporting such position on a Tax return in accordance with Formal Opinion 85-352 of the American Bar Association or any successor thereto.


"Revenue Agent's Report" means a report sent to a taxpayer under cover of a transmittal (30 day) letter relating to proposed adjustments in such taxpayer's United States federal income tax liability referred to in Treasury Regulation Section 601.105(c)(2)(i).


"Tax" or "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions or withholdings (including, without limitation, income, franchise, gross receipts, sales, rental, use, turnover, value added, property (tangible and intangible), excise and stamp taxes) of any nature whatsoever, together with any and all assessments, penalties, fines, additions and interest relating thereto; provided, however, that the term "Tax" or "Taxes" does not include any Texas franchise taxes or capital based state taxes, or any assessments, penalties, fines, additions or interest relating thereto.


"Tax Assumptions" means the following assumptions with respect to the basis of taxation of Management and its capability to pay Taxes to which it may be subject relative to the cash which it has available to pay such Taxes:


(1) The formation and capitalization of Management and all transactions
related or incidental thereto (including, without limitation, this
Agreement), its issuance of Listed Shares and Voting Shares and its
acquisition of I-Units will be Non-Taxable to Management.


(2) Any receipt by Management of the Purchase Rights from Enbridge will
be Non-Taxable to Management.


(3) Any transfer by Management of the Purchase Rights to the holders of
Listed Shares will be Non-Taxable to Management.


(4) Management is treated as a corporation for United States federal,
state and local income Tax purposes.


(5) Each Listed Share and Voting Share is treated as an ownership
interest in Management, and each owner of a Listed Share or a Voting
Share is treated as a shareholder of Management, for United States
federal, state and local income Tax purposes.


(6) The MLP is treated as a partnership for United States federal, state
and local income Tax purposes.


(7) Management, by virtue of its ownership of I-Units, is treated as a
partner in the MLP for United States federal, state and local income
Tax purposes.


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(8) The allocation of MLP Tax Items, as set forth in the MLP Partnership
Agreement, is respected for United States federal, state and local
income Tax purposes.


(9) Management's ownership of additional I-Units following cash
distributions to holders of Common Units, occurring pursuant to the
MLP Partnership Agreement, is Non-Taxable to Management.


(10) Distributions of additional Listed Shares and Voting Shares by
Management to holders of Listed Shares and Voting Shares, made
pursuant to the Management L.L.C. Agreement, are Non-Taxable to
Management.


(11) To the extent that Management engages in the management and control
of, or provides services to, the MLP, any reimbursement of
Management by the MLP or EECI (or Affiliates of either) in respect
of its services and other expenses incurred by Management will,
after the payment by Management of any fees or expenses incurred by
Management in respect of the management and control of, or services
provided to, the MLP, be adequate to pay all Taxes, if any, payable
by Management by virtue of either (i) its management and control of,
or services provided to, the MLP or (ii) the receipt of such
reimbursement from the MLP or EECI (or Affiliates of either), after
taking into account all related deductions and credits.


(12) Management does not own any assets other than I-Units, the Purchase
Rights, its rights under this Agreement and agreements related to
the management and control of or the provision of services to the
MLP or its Affiliates, cash, deposits and short-term securities or
evidences of indebtedness, and any other assets permitted to be
owned by it under the Management L.L.C. Agreement.


(13) If there is a sale, exchange, redemption or other disposition of
I-Units owned by Management or a complete or partial liquidation of
the MLP, the cash received by Management pursuant thereto will be
sufficient to satisfy any Tax payable by Management as a result of
such sale, exchange, redemption, liquidation or other disposition.


"Tax Items" means items of income, gain, loss, deduction and credit for income Tax purposes.


"Treasury Regulations" means temporary or final United States Treasury regulations.


"Voting Shares" means the ownership interest in Management described in the recitals to this Agreement, the rights and obligations of which are more specifically set forth in the Management L.L.C. Agreement.


2. TAX REPRESENTATIONS. Management represents, warrants and covenants to Enbridge, and Enbridge represents, warrants and covenants to Management that, for all United States federal, state and local income Tax purposes:


(a) It will treat Management as a corporation.


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(b) It will treat the owners of Listed Shares and Voting Shares as
shareholders of Manageme
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