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Exhibit 10.16
INDEMNIFICATION AGREEMENT
This Agreement is made and entered into as of the 20th day of October,
1995 by and among CMS Energy Corporation, a Michigan corporation ("CMS"), CMS
Enterprises, Inc., a Michigan corporation ("Enterprises"), CMS NOMECO Oil & Gas
Co., a Michigan corporation ("Nomeco"), CMS NOMECO International, Inc., f/k/a
Walter International, Inc., a Texas corporation ("Walter"), Walter Congo
Holdings, Inc., a Texas corporation ("Walter Holdings") and Walter
International Congo, Inc., f/k/a Amoco Congo Exploration Company, a Delaware
corporation ("Walter Congo").
RECITALS.
1. An agreement (the "Amoco Tax Agreement") was entered into as of the 23rd
day of February, 1995 by and among Amoco Corporation, an Indiana
corporation ("Amoco"), Amoco Production Company, a Delaware corporation
("APC"), Walter, Walter Holdings, Walter Congo, Nuevo Energy Company, a
Delaware corporation ("Nuevo"), the Congo Holdings Company, a Texas
corporation ("Nuevo Holdings"), and Nuevo Congo Company, a Texas
corporation ("Nuevo Congo").
2. Pursuant to the Amoco Tax Agreement, Walter, Walter Holdings, Walter
Congo, Nuevo, Nuevo Holdings and Nuevo Congo agreed to jointly and
severally indemnify and hold harmless APC, its Affiliates and their
respective directors, officers and employees from and against any and all
Taxes, tax credits utilized, interest, penalties, cost of enforcement,
and reasonable attorneys fees incurred in defending against any claim for
Taxes, interest, penalties, or additional income or enforcement of the
indemnification, if any, arising out of, or based upon, or with respect
to any failure by Walter, Walter Holdings, Walter Congo, Nuevo, Nuevo
Holdings or Nuevo Congo to comply with each and every obligation and
covenant of the Amoco Tax Agreement (generally relating to the avoidance
of a "Triggering Event" within the meaning of Treasury Regulation Section
1.1503-2).
3. An agreement (the "CMS Tax Agreement") was entered into as of the 24th
day of February, 1995 by and among Amoco, APC, CMS, Enterprises, Nomeco,
Walter, Walter Holdings and Walter Congo.
4. Pursuant to the CMS Tax Agreement, CMS, Enterprises, Nomeco, Walter,
Walter Holdings and Walter Congo agreed to jointly and severally
indemnify and hold harmless APC, its Affiliates and their respective
directors, officers and employees from and against any and all Taxes, tax
credits utilized, interest, penalties, cost of enforcement, and
reasonable attorneys fees incurred in defending against any claim for
Taxes, interest, penalties, or additional income or the enforcement of
the indemnification, if any, arising out of, or based upon, or with
respect to any failure by CMS, Enterprises, Nomeco, Walter, Walter
Holdings, or Walter Congo, to comply with each and every obligation and
covenant of the CMS Tax Agreement (generally relating to the avoidance of
a "Triggering Event" within the meaning of Treasury Regulation Section
1.1503-2).
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5. An agreement (the "Guarantee Agreement") was entered into as of the 17th
day of January, 1995 by and between Nomeco and APC whereby Nomeco agreed
to guarantee certain of Walter's potential liabilities, including certain
obligations of Walter under the Amoco Tax Agreement.
6. The Amoco Tax Agreement was entered into as part of a transaction by
which Walter Congo, a Congolese affiliate of APC, was acquired by an
affiliate of Walter and Nuevo Congo, a Congolese affiliate of APC, was
acquired by an affiliate of Nuevo (collectively, the "Initial
Acquisitions"). The CMS Tax Agreement was entered into as part of a
transaction by which, among other matters, CMS acquired Walter and then
contributed the stock of Walter to Enterprises, followed by a
contribution by Enterprises of the Walter stock to Nomeco (collectively
the "Walter Acquisition").
7. As a part of (a) the Initial Acquisitions and (b) the Walter Acquisition,
Amoco, Walter, CMS and Nuevo (and certain of their respective affiliates)
requested certain private letter rulings from the Internal Revenue
Service dealing, generally, with whether (i) the tax losses resulting
from the operations of APC's Congolese affiliates (and utilized by Amoco
to reduce its United States federal income tax liability) constituted
"dual consolidated losses" within the meaning of Section 1503(d) of the
Internal Revenue Code of 1986, as amended (the "Code") and Treasury
Regulation Section 1.1503-2(c)(5), and (ii) the various transactions
relating to the Initial Acquisitions and the Walter Acquisition
constituted "Triggering Events" within the meaning of Treasury Regulation
Section 1.1503-2. Pursuant to the requests for private letter rulings
described in the preceding sentence, Amoco, Walter, Nuevo, CMS and
certain former shareholders of Walter submitted forms of closing
agreements and protective closing agreements (collectively, the "Closing
Agreements") for execution by the Internal Revenue Service and the
appropriate taxpayers relating to the treatment of the Congolese losses
as a result of the Initial Acquisitions and the transactions entered into
pursuant to the Walter Acquisition, as well as certain agreements with
respect to the utilization and treatment of such losses in the future.
Although the Closing Agreements have not yet been entered into by the
Internal Revenue Service or the appropriate taxpayers, it is contemplated
that such agreements (subject to possible modification) will be entered
into in the near future.
8. The parties believe that it is appropriate for (a) CMS to indemnify
Nomeco, Walter, Walter Congo and Walter Holdings against certain
liabilities that such indemnified party may incur in the future under the
Amoco Tax Agreement, the CMS Tax Agreement, the Guarantee Agreement or
the Closing Agreements and for (b) Nomeco and Walter to indemnify CMS and
Enterprises against certain liabilities that CMS or Enterprises may incur
in the future under the CMS Tax Agreement or the Closing Agreements.
NOW, THEREFORE, in consideration of the premises and the respective covenants,
agreements and conditions contained herein, the parties hereby agree as
follows:
1. INDEMNITY
A. If, as a result of (1) any event that occurs prior to the effective
date of the initial consummation of the Nomeco initial public
offering (the "Effective Date"), (2) an act or omission of CMS or
any entity that controls, is controlled by, or is under
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common control with, CMS (other than Nomeco or any of its
subsidiaries) taken on or after the Effective Date, or (3) an act or
omission of Nomeco or any of its subsidiaries taken on or after the
Effective Date with Consent (as defined below), a liability arises
or is asserted to arise under the CMS Tax Agreement, the Amoco Tax
Agreement or the Guarantee Agreement, then CMS agrees to indemnify
and hold harmless Nomeco, Walter, Walter Holdings and/or Walter
Congo, as they may be, against (1) any and all amounts which they
are required to pay under the CMS Tax Agreement; (2) any amounts
which Walter, Walter Holdings or Walter Congo are required to pay
under the Amoco Tax Agreement not related to dual consolidated
losses of Nuevo, Nuevo Holdings or Nuevo Congo; (3) any amounts
which Nomeco is required to pay under the Guarantee Agreement not
related to dual consolidated losses of Nuevo, Nuevo Holdings or
Nuevo Congo; (4) any and all costs of enforcement of this indemnity
(including reasonable attorney fees); and (5) all reasonable
attorneys fees incurred in defending against any liability under the
Amoco Tax Agreement, the Guarantee Agreement or the CMS Tax
Agreement (including defending against any such liability by
defending against any claim for taxes asserted by the Internal
Revenue Service but not including defending against any liability
related to dual consolidated losses of Nuevo, Nuevo Holdings or
Nuevo Congo). For purposes of this Agreement, Consent means
approval of an action by the Board of Directors of Nomeco, which
approval includes the affirmative vote of a majority of those
members of the Board of Directors of Nomeco who are employees of CMS
or any of its subsidiaries (other than Nomeco or any of its
subsidiaries).
B. If as a result of (1) any event that occurs prior to the Effective
Date or (2) an act or omission of CMS or any entity that controls,
is controlled by, or is under common control with, CMS (other than
Nomeco or any of its subsidiaries) taken on or after the Effective
Date or (3) an act or omission of Nomeco or any of its subsidiaries
taken on or after the Effective Date with Consent, a liability
arises or is asserted to arise under any of the Closing Agreements,
then CMS agrees to indemnify and hold harmless Nomeco, Walter,
Walter Holdings and Walter Congo against (1) any and all amounts
payable by such indemnified party pursuant to the terms of the
Closing Agreements; (2) any and all costs of enforcement of this
indemnity (including reasonable attorneys fees); and (3) all
reasonable attorneys fees incurred in defending against any claim
for payments pursuant to the terms of the Closing Agreements.
C. If, as a result of an act or omission of Nomeco or any of its
subsidiaries taken on or after the Effective Date without Consent, a
liability arises or is asserted to arise under the CMS Tax
Agreement, then Nomeco agrees to indemnify and hold harmless CMS and
Enterprises against (1) any and all amounts which they are required
to pay under the CMS Tax Agreement; (2) all costs of enforcement of
this indemnity (including reasonable attorney fees); and (3) all
reasonable attorneys fees incurred in defending against any
liability under the CMS Tax Agreement (including defending against
any such liability by defending against any claim for taxes asserted
by the Internal Revenue Service).
D. If, as a result of an act or omission of Nomeco or any of its
subsidiaries taken on or after the Effective Date without Consent, a
liability arises or is asserted to arise
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under any of the Closing Agreements, then Nomeco agrees to indemnify
and hold harmless CMS and Enterprises against (1) taxes and all
amounts payable by CMS or Enterprises pursuant to the terms of the
Closing Agreements; (2) all costs of enforcement of this indemnity
(including reasonable attorneys fees); and (3) all reasonable
attorneys fees incurred in defending against any claim for payments
pursuant to the terms of the Closing Agreements.
E. All indemnity payments hereunder shall be made on an "after-tax
basis," and therefore shall be in an amount which, after subtraction
of the amount of all federal, state and foreign taxes payable by the
recipient thereof as a result of the receipt or accrual of such
payment (the "Gross-Up Amount"), and after taking into account the
reduction in federal, state and foreign taxes payable by the
recipient as a result of allowable deductions for the payment or
accrual of items included in the amount of the indemnity payable
hereunder, shall be sufficient as of the date of payment to
compensate the recipient for such indemnified event.
The determination of the Gross-Up Amount payable with respect to an
indemnified event shall be made by the recipient in the exercise of
its reasonable judgment. Such recipient shall furnish the payor
with a notice (the "Gross-Up Notice") setting forth the Gross-Up
Amount so payable and, in reasonable detail, the computation of such
amount. If reasonably requested by the payor in writing within 10
days of receipt of such Notice, such computation shall be subject to
verification at the expense of the payor by the firm of independent
certified public accountants which regularly reviews the recipient's
financial statements, provided, however that the cost of such
verification shall be at the cost of the recipient if such
accountants determine that the Gross-Up Amount payable is less than
90% of the amount set forth in the Gross-Up Notice. Such
verification which is made by such accountants in accordance
herewith shall be conclusive absent manifest error.
2. RIGHTS OF INDEMNIFYING PARTY
Upon the agreement to pay CMS or Enterprises in full any indemnified
amounts hereunder, the indemnified party agrees to assign to Nomeco any
and all rights which such party possesses as an indemnifying party (but
not as an indemnified party) under the CMS Tax Agreement or as a payor
under the Closing Agreements. To the extent that Amoco fails to
recognize the assignment of any such rights under the CMS Tax Agreement,
CMS agrees to exercise any such rights on behalf of, and as directed by,
Nomeco. Upon the agreement to pay Nomeco, Walter, Walter Holdings or
Walter Congo in full any indemnified amounts hereunder, the indemnified
party agrees to assign to CMS any and all rights which such party
possesses as an indemnifying party (but not as an indemnified party)
under the Amoco Tax Agreement, the CMS Tax Agreement or the Guarantee
Agreement (as the case may be) or as a payor under the Closing
Agreements.
3. NOTICES
A. CMS agrees to furnish to Nomeco promptly a copy of any notice
received or delivered by CMS or any of its Affiliates under the CMS
Tax Agreement or the Closing Agreements. Nomeco and Walter agree to
furnish to CMS promptly a
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copy of any notice received or delivered by Nomeco or Walter or any
of their Affiliates under the Amoco Tax Agreement, the CMS Tax
Agreement or the Closing Agreements. Nomeco and Walter further
agree to comply with the provisions of the first paragraph of
Article 7 A of the CMS Tax Agreement as if Nomeco and Walter were
referenced therein together with Amoco and CMS. CMS further agrees
to comply with the provisions of the first paragraph of Article 7 A
of the Amoco Tax Agreement as if CMS were referenced therein
together with the other parties thereto.
B. All notices shall be given in writing and shall be delivered (i) by
hand to the party for which intended, (ii) by registered or
certified mail, return receipt requested, postage prepaid, (iii) by
telex, or (iv) by facsimile, all of which addressed to the party for
which it is intended at the following respective addresses or such
other person or address previously furnished in writing by such
party in the manner provided herein:
To CMS or Enterprises: CMS Energy Corporation
c/o Corporate Tax Department
212 W. Michigan Avenue
Jackson, MI 49201
Telephone: (517) 788-2965
Facsimile: (517) 788-0433
Attention: Theodore J. Vogel
Director of Corporate
Taxes and
Tax Counsel
To Nomeco, Walter, CMS Nomeco Oil & Gas Co.
Walter Holdings or 1 Jackson Square
Walter Congo: Jackson, Michigan 49204
Telephone: (517)787-9037
Facsimile: (517)787-6360
Attention: Paul E. Geiger
C. The date of service of the notice shall be the date on which notice
is received.
4. CONTEST
A. Upon receipt by Nomeco of a written notice from CMS or Enterprises
of a claim that an amount may be payable by Nomeco to CMS or
Enterprises pursuant to Sections 1.C. or 1.D. hereof (hereafter
called a "Claim Notice"), Nomeco may request, in writing, that CMS
or Enterprises contest (or use its best efforts to cause Amoco or
Amoco's affiliates to contest) the adjustment which resulted in such
Claim Notice. CMS shall (and shall use its best efforts to cause
Amoco or Amoco's affiliates to) consult in good faith with Nomeco
with respect to the prosecution and possible settlement of such
contest, including the opportunity to be present at and participate
in all conferences with the Internal Revenue Service with respect to
the adjustment giving rise to the Claim Notice. In connection with
any such contest, CMS shall provide (and use its best efforts to
cause Amoco or Amoco's affiliates to provide) Nomeco with copies of
all documents, pleadings,
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briefs and other documents to be submitted to the Internal Revenue
Service or any other party sufficiently prior to such submission so
as to permit Nomeco and its counsel with an opportunity to comment
thereon and shall consider Nomeco's comments in good faith.
B. Neither CMS nor Enterprises is required to contest (or cause Amoco
or Amoco's affiliate to contest) such adjustment until CMS shall
have received from Nomeco, at Nomeco's expense, a written opinion of
independent tax counsel reasonably satisfactory to CMS to the effect
that there is substantial authority in law and fact for contesting
such adjustment and Nomeco shall have agreed to pay, and shall pay,
CMS on demand all reasonable out-of-pocket costs and expenses which
CMS may incur in connection with contesting such adjustment,
including without limitation, reasonable fees for attorneys and
accountants.
C. If Nomeco shall have requested CMS to contest (or cause Amoco or
Amoco's affiliates to contest) such adjustment as above provided in
subsections A or B and shall have duly complied with all the terms
of this Section, Nomeco's liabilities for indemnification under this
Agreement with respect to such adjustment (but not for the costs and
expenses incurred in connection with the contest of such adjustment)
shall be deferred until a Final Determination of the liability of
CMS or Enterprises has occurred. (For purposes of this Agreement,
the term "Final Determination" shall be (x) a decision, judgment,
decree or other order has become final (i.e., when all allowable
appeals conducted in accordance with this Section have been
exhausted by either party to the action) or in any case where
judicial review shall at the time be unavailable, a decision,
judgment, decree or other order of an administrative, official or
agency of competent jurisdiction, which decision, judgment, decree
or other order has become final (i.e., all administrative appeals
have been exhausted by either party to the action), (y) a closing
agreement entered into under Section 7121 of the Code or any other
settlement agreement entered into in connection with an
administrative or judicial proceeding, in accordance with this
Section 4 or (z) the expiration of the time for instituting a claim
for refund, or if such claim were filled, the expiration of the time
for instituting suit with respect thereto.) At such time, Nomeco
shall become obligated for the payment of any indemnification
hereunder resulting from the outcome of such contest and such amount
shall be paid within 30 days after such Final Determination.
Notwithstanding anything herein to the contrary, neither CMS nor
Enterprises (or their representatives or affiliates) shall enter
into a closing agreement under Section 7121 of the Code or any other
settlement agreement in connection with an administrative or
judicial proceeding with respect to any matter for which it is
entitled to be indemnified hereunder, unless it first obtains the
written consent of Nomeco to such closing agreement or settlement
agreement or expressly waives its right to receive indemnification
hereunder with respect to such matter. The failure of CMS or
Enterprises to obtain the consent described in the preceding
sentence shall constitute a waiver by each of CMS and Enterprises of
its right to receive indemnification hereunder with respect to such
matter.
D. Upon receipt by CMS of a written notice from Nomeco or its
subsidiaries of a claim that an amount may be payable by CMS to
Nomeco or its subsidiaries
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pursuant to Sections 1.A. or 1.B. hereof, CMS shall have rights
reciprocal to those of Nomeco described in paragraphs A., B. and C.
of this Section 4.
5. DEFINITIONS
All capitalized terms in this Agreement not otherwise defined herein
shall have the meanings as set forth in the CMS Tax Agreement.
6. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective permitted successors and assigns. No party
to this Agreement shall be relieved of its obligations hereunder, by
assignment or otherwise, without the prior written consent of the other
parties hereto.
7. GOVERNING LAW
This Agreement shall be governed by the laws of Michigan excluding any
choice of law provisions which would require the application of the law
of any other jurisdiction.
8. FURTHER ASSURANCES
The parties hereto hereby agree to execute all such further instruments
and documents, and to take all such other actions, as may be reasonable
and appropriate to further effectuate the intent of this Agreement.
9. HEADINGS
Headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of the Agreement for any
other purpose.
10. SEVERABILITY OF PROVISIONS, EFFECTIVENESS
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or un-enforceability of such provision in any
other jurisdiction.
11. EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
12. ENTIRE AGREEMENT
Except for the Amoco Tax Agreement, the CMS Tax Agreement, the Closing
Agreements, the Guarantee Agreement and the Agreement for the Allocation
of Income Tax Liabilities and Benefits dated as of January 1, 1994 among
CMS and its various
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direct and indirect subsidiaries, including Nomeco (the "Tax Allocation
Agreement"), this Agreement represents the entire understanding of the
parties with respect to the subject matter hereof. There are no other
terms, conditions, representations or warranties, express or implied,
written or oral, except as set forth herein or in the Amoco Tax
Agreement, the CMS Tax Agreement, the Closing Agreements, the Guarantee
Agreement and the Tax Allocation Agreement. In the event of a conflict
between the provisions of this Agreement and the Tax Allocation
Agreement, the provisions of this Agreement shall control. No
amendments, modifications or additions hereto shall be binding unless
executed in writing by all of the parties to this Agreement.
IN WITNESS WHEREOF, the parties have negotiated and duly executed this
agreement on the day and year first written above.
CMS ENERGY CORPORATION CMS NOMECO INTERNATIONAL, INC.
By:_____________________________________ By:________________________________
Name: Name:
Title: Title:
CMS ENTERPRISES COMPANY WALTER CONGO HOLDINGS, INC.
By:_____________________________________ By:________________________________
Name: Name:
Title: Title:
CMS NOMECO OIL & GAS CO. WALTER INTERNATIONAL CONGO,INC.
By:_____________________________________ By:________________________________
Name: Name:
Title: Title:
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