FIRST AMENDMENT TO THE TAX SHARING AGREEMENT
This FIRST AMENDMENT TO THE TAX SHARING AGREEMENT (the "Amendment") is
entered into as of the 17th day of February, 1997, by and among THE DOW
CHEMICAL COMPANY, a Delaware corporation ("Dow"), as Common Parent, on behalf
of itself and the other members of the Dow Group (other than any member of
the Destec Group), and DESTEC ENERGY, INC., a Delaware corporation
("Destec"), on behalf of itself and the other members of the Destec Group.
WHEREAS, Dow and Destec entered into a Tax Sharing Agreement, effective
May 15, 1996 (the "Agreement");
WHEREAS, Dow has agreed to sell the Destec stock it owns pursuant to
the Agreement and Plan of Merger, dated February 17, 1997, among Dow, Destec,
NGC Corporation, a Delaware corporation ("NGC"), and NGC Acquisition
Corporation II, a Delaware corporation (the "Acquisition Agreement");
WHEREAS, pursuant to the Acquisition Agreement, Dow and NGC intend to
make a joint election for Destec (and all U.S. corporations that are
subsidiaries of Destec) under Section 338(h)(10) of the Code and NGC or a
successor of NGC intends to make elections under Section 338(g) of the Code
for certain non-U.S. direct or indirect subsidiaries;
WHEREAS, the corporations which comprise the Destec Group will no
longer be Members of the Dow Group after the date of the Effective Time as
defined in the Acquisition Agreement, and therefore Dow and Destec deem it
necessary to amend the Agreement in certain respects; and
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained in this Amendment, the parties agree as
follows:
Paragraph 1. Capitalized terms used in this Amendment and not
otherwise defined in this Amendment have the meaning ascribed to such terms
in the Agreement.
Paragraph 2. Section 1(aa) of the Agreement shall be amended by
changing clause (b) thereof by deleting "the Effective Date" and inserting in
place thereof "January 1, 1996".
Paragraph 3. Section 5 of the Agreement shall be amended by adding at
the end thereof the following paragraph (d):
(d) Lignite. In determining the Destec Group Consolidated Tax
Liability and the Destec Group State and Local Tax Liability for
the Final Taxable Year, the Pro Forma Destec Return shall exclude
any amount of gain resulting from the exercise by Dow of its rights
to purchase lignite containing properties from Destec pursuant to
the First Amended Lease Agreement dated January 1, 1990 between
Destec Ventures, Inc., as lessor, and Dow, as lessee.
Paragraph 4. Section 5 of the Agreement shall be amended by adding at
the end thereof the following paragraph (e):
(e) Payments With Respect To Final Taxable Year. The Destec
Group Consolidated Tax Liability and the Destec Group State and
Local Tax Liability for the Final Taxable Year shall be calculated
assuming no elections under Section 338(h)(10) or 338(g) of the
Code will be made. For purposes of calculating the amount of any
payment from Dow to Destec pursuant to Section 7(b) of this
Agreement, Destec shall be treated as ceasing to be a Member of the
Dow Group at the end of the Final Taxable Year pursuant to a stock
sale and no consolidated loss or credit carryovers as of the end of
the Final Taxable Year shall be considered allocable to Destec
under the Consolidated Return Regulations, and Dow will be treated
as having utilized all items of loss, deduction, credit or similar
tax attributes of the Destec Group in determining the Dow Group
Consolidated Tax Liability and the Dow Group State and Local Tax
Liability for the Final Taxable Year. At the Effective Time under
the Acquisition Agreement, Dow shall pay Destec $10 million, which
amount shall be netted or offset against any amount owed by Dow to
Destec with respect to the Final Taxable Year pursuant to the
Agreement. If by January 31, 1999, $10 million exceeds the
cumulative amount owed by Dow to Destec pursuant to the Tax Sharing
Agreement with respect to the Final Taxable Year, then Destec shall
refund to Dow the amount of such excess within 10 business days.
Paragraph 5. Section 8 of the Agreement shall be amended by adding at
the end thereof the following paragraph (e):
(e) If an adjustment described in Section 8(a) gives rise to
an obligation of Destec to make a payment to Dow pursuant to this
Section 8, and as a result of such adjustment Dow receives a refund
of tax or a reduction of its liability for taxes (including by
reason of a reduction of the gain recognized by the Dow Group as a
result of an election with respect to Destec under Section
338(h)(10) of the Code), the amount of such payment from Destec to
Dow shall be reduced by the amount of such refund (including any
interest or penalties included therein) or such reduction,
provided, however, that if such refund is received or such
reduction is taken into account after the date of such payment,
Destec shall pay the full amount of such payment to Dow, and Dow
shall pay an amount equal to such refund or the amount of such
reduction to Destec within 10 business days after the date such
refund is received or such reduction is taken into account.
Paragraph 6. Section 15 of the Agreement is hereby deleted.
Paragraph 7. Section 19 of the Agreement shall be amended by inserting
the following sentence after the first sentence:
This Agreement shall not affect the application of the Tax Agreement
between Dow and Destec effective September 25, 1990 and the Tax
Agreement between Dow and Destec effective January 5, 1992 with
respect to taxable years or portions thereof that are not Taxable Years.
Paragraph 8. All provisions of the Agreement remain in full force and
effect, except (a) as modified by this Amendment, and (b) to the extent that
Section 12 or 16 of the Agreement conflicts with any of the provisions of
Section 6.14 of the Acquisition Agreement, in which case the provisions of
Section 6.14 of the Acquisition Agreement shall govern.
Paragraph 9. Section 16 of the Agreement shall be amended by deleting
the words "of the Dow Group (other than the Destec Group)" and adding in its
place the words "due with respect to a Consolidated Return or a Combined
Return".
Paragraph 10. Section 5(a) of the Agreement shall be amended by
deleting in the first sentence thereof the words "and the Destec Group State
and Local Tax Liability".
Paragraph 11. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware, U.S.A.
Paragraph 12. This Amendment shall be effective as of the Effective
Time under the Acquisition Agreement.
Paragraph 13. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, and said
counterparts shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first set forth above.
THE DOW CHEMICAL COMPANY
By /s/ B.G. Taylorson
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Name: B.G. Taylorson
Title: Corporate Director,
Mergers & Acquisitions
DESTEC ENERGY, INC.
By /s/ Enrique M. Larroucau
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Name: Enrique M. Larroucau
Title: Senior Vice President,
Chief Financial Officer
and Treasurer