TAX SHARING AGREEMENT
among
Valero Energy Corporation
Valero Refining and Marketing Company
and
PG&E Corporation
TABLE OF CONTENTS
Page
Section 1. Definition of Terms. . . . . . . . . . . . . . . . .1
Section 2. Allocation of Tax Liabilities. . . . . . . . . . . ..6
2.01 General Rule. . . . . . . . . . . . . . . . . . . . .6
2.02 Allocation of Federal Income Tax. . . . . . . . . . .6
2.03 Allocation of State Income Taxes. . . . . . . . . . .7
2.04 Allocation of Other Taxes . . . . . . . . . . . . . .8
2.05 Transaction Taxes . . . . . . . . . . . . . . . . . .8
Section 3. Allocation of Tax Credit Carryforwards . . . . . . . 9
3.01 Allocation of Alternative Minimum Tax Credit
Carryforwards. . . . . . . . . . . . . . . . . . . 9
3.02 Allocation of Other Credit Carryforwards. . . . . . 10
Section 4. Preparation and Filing of Tax Returns. . . . . . . .10
4.01 General . . . . . . . . . . . . . . . . . . . . . . 10
4.02 Refining's Responsibility . . . . . . . . . . . . . 10
4.03 Valero's Responsibility . . . . . . . . . . . . . . 11
4.04 Consistent Tax Accounting Practices . . . . . . . . 11
4.05 Consolidated or Combined Return . . . . . . . . . . 11
4.06 Right to Review Tax Returns . . . . . . . . . . . . 11
4.07 Claims for Refund, Carrybacks, and
Self-Audit Adjustments. . . . . . . . . . . . . . 13
Section 5. Tax Payments and Intercompany Xxxxxxxx . . . . . . .14
5.01 Payment of Taxes with Respect to Valero Federal
Consolidated Income Tax Returns Filed After
the Time of Distribution . . . . . . . . . . . . .14
5.02 Payment of Federal Income Tax Related to Adjustments15
5.03 Payment of Consolidated or Combined State Income
Tax With Respect to Returns Filed After the
Time of Distribution. . . . . . . . . . . . . . . .15
5.04 Payment of State Income Taxes Related to Adjustments16
5.05 Payment of Separate Company Taxes . . . . . . . . . 16
5.06 Indemnification Payments. . . . . . . . . . . . . . 16
Section 6. Tax Benefits for Account of Other Party. . . . . . .16
Section 7. Assistance and Cooperation . . . . . . . . . . . . .17
7.01 General . . . . . . . . . . . . . . . . . . . . . . 17
7.02 Income Tax Return Information . . . . . . . . . . . 17
Section 8. Tax Records. . . . . . . . . . . . . . . . . . . . .17
Section 9. Tax Contests . . . . . . . . . . . . . . . . . . . .18
9.01 Notices . . . . . . . . . . . . . . . . . . . . . . 18
9.02 Control of Tax Contest. . . . . . . . . . . . . . . 18
Section 10. Effective Date; Termination of Prior
Intercompany Tax Allocation Agreements . . . . . 19
Section 11. No Inconsistent Actions . . . . . . . . . . . . . .19
Section 12. Survival of Obligations . . . . . . . . . . . . . .20
Section 13. Employee Matters. . . . . . . . . . . . . . . . . .20
Section 14. Treatment of Payments; Tax Gross Up . . . . . . . .20
Section 15. Disagreements . . . . . . . . . . . . . . . . . . .21
Section 16. Late Payments . . . . . . . . . . . . . . . . . . .21
Section 17. Expenses. . . . . . . . . . . . . . . . . . . . . .21
Section 18. General Provisions. . . . . . . . . . . . . . . . .22
TAX SHARING AGREEMENT
This Agreement is made and entered into as of ______________, 1997
by and between Valero Energy Corporation, a Delaware corporation ("Valero"),
Valero Refining and Marketing Company, a Delaware corporation ("Refining") and
PG&E Corporation, a California corporation ("Acquiror"). Valero and Refining
are sometimes collectively referred to herein as the "Companies." Capitalized
terms used in this Agreement are defined in Section 1 below. Unless otherwise
indicated, all "Section" references in this Agreement are to sections of this
Agreement.
RECITALS
WHEREAS, as of the date hereof, Valero is the common parent of an
affiliated group of corporations, including Refining, which has elected to
file consolidated federal income tax returns; and
WHEREAS, the Companies have entered into a Distribution Agreement
setting forth the corporate transaction pursuant to which Valero will
distribute Refining's common stock to Valero shareholders in a transaction
intended to qualify as a tax-free distribution under Section 355 of the Code;
and
WHEREAS, as a result of the Distribution, Refining and its
respective subsidiaries, will cease to be members of the affiliated group of
which Valero is the common parent, effective as of the Time of Distribution;
and
WHEREAS, the Companies desire to provide for and agree upon the
allocation between the parties of liabilities for Taxes arising prior to, as a
result of, and subsequent to the transaction contemplated by the Distribution
Agreement, and to provide for and agree upon other matters relating to Taxes;
NOW THEREFORE, in consideration of the mutual promises, covenants
and conditions contained herein, the Companies and Acquiror hereby agree as
follows:
Section 1. Definition of Terms. For purposes of this Agreement
(including the recitals hereof), the following terms have the following
meanings.
"Accounting Firm" shall have the meaning provided in Section 15.
"Acquiror" means PG&E Corporation, a California corporation.
"Adjustment Request" means any formal or informal claim or request
filed with any Tax Authority or with any administrative agency or court, for
the adjustment, refund, or credit of Taxes, including (a) any amended Tax
Return claiming adjustment to the Taxes as reported on the Tax Return or, if
applicable, as previously adjusted, or (b) any claim for refund or credit of
Taxes previously paid.
"Agreement" shall mean this Tax Sharing Agreement.
"Allocated Federal Tax Liability" shall have the meaning provided in
Section 5.01(b)(i).
"Carryback" means any net operating loss, net capital loss, excess
tax credit or other similar Tax Item which may or must be carried from one Tax
Period to another Tax Period under the Code or other applicable Tax Law.
"Code" means the United States Internal Revenue Code of 1986, as
amended, or any successor law.
"Companies" means Valero and Refining, collectively, and "Company"
means any one of Valero or Refining.
"Consolidated or Combined Income Tax" means any Income Tax computed
by reference to the assets and activities of members of more than one Group.
"Consolidated Tax Liability" means, with respect to any Valero
Federal Consolidated Income Tax Return, the "tax liability of the group" as
that term is used in Treasury Regulation Section 1.1552-1(a) and any interest,
penalties, additions to tax, or additional amounts in respect thereto;
provided that such tax liability shall be treated as including any alternative
minimum tax liability under Code Section 55; and provided further that in the
case of the Tax Period which includes the Time of Distribution, the
Consolidated Tax Liability shall be computed as if the Time of Distribution
were the last day of the Tax Period.
"Cumulative Federal Tax Payment" shall have the meaning provided in
Section 5.01(b)(ii).
"Distribution Agreement" means the agreement setting forth the
corporate transaction required to effect the distribution to Valero
shareholders of all the outstanding common stock of Refining, and to which
this Agreement is attached as an exhibit.
"Distribution" means the distribution to Valero shareholders at the
Time of Distribution of all of the outstanding common stock of Refining owned
by Valero.
"Effective Time" shall have the meaning provided in the Merger
Agreement.
"Federal Income Tax" means any Tax imposed by Subtitle A of the
Code.
"Group" means the Valero Group or the Refining Group, as the context
requires.
"Income Tax" means any Federal Income Tax or State Income Tax.
"Merger" means the merger of [PG&E SubCo] with and into Valero as
described in the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger between
Valero and Acquiror and [PG&E SubCo] dated as of ____________ 1997.
"Payment Date" means (i) with respect to any Valero Federal
Consolidated Income Tax Return, the due date for any required installment of
estimated taxes determined under Code Section 6655, the due date (determined
without regard to extensions) for filing the return determined under Code
Section 6072, and the date the return is filed, and (ii) with respect to any
Tax Return for any Consolidated or Combined State Income Tax, the
corresponding dates determined under the applicable Tax Law.
"Post-Distribution Period" means any Tax Period beginning after the
Time of Distribution.
"Pre-Distribution Period" means any Tax Period ending on or before
the Time of Distribution.
"Prime Rate" means the base rate on corporate loans charged by
Citibank, N.A., New York, New York from time to time, compounded daily on the
basis of a year of 365 or 366 (as applicable) days and actual days elapsed.
"Prior Intercompany Tax Allocation Agreements" means any written or
oral agreement or any other arrangements relating to allocation of Taxes
existing between or among the Valero Group, and the Refining Group as of the
Time of Distribution (other than this Agreement and other than any such
agreement or arrangement between or among persons who are members of a single
Group).
"Prohibited Action" shall have the meaning provided in Section 11.
"Refining" means Valero Refining and Marketing Company, a Delaware
corporation, and any successor.
"Refining Adjustment" means any proposed adjustment by a Tax
Authority or any claim for a Tax refund to the extent the Refining Group would
be exclusively liable for any resulting Tax under this Agreement and
exclusively entitled to receive any resulting Tax Benefit under this
Agreement.
"Refining Group" means the VRM Group as that term is defined in the
Distribution Agreement.
"Refining Group Prior Federal Tax Liability" shall have the meaning
provided in Section 2.02(b)(ii).
"Refining Group Prior State Tax Liability" shall have the meaning
provided in Section 2.03(b)(ii)(B).
"Refining Group Recomputed Federal Tax Liability" shall have the
meaning provided in Section 2.02(b)(i).
"Refining Group Recomputed State Tax Liability" shall have the
meaning provided in Section 2.03(b)(ii)(A).
"Responsible Company" means, with respect to any Tax Return, the
Company having responsibility for preparing and filing such Tax Return under
this Agreement.
"Separate Company Tax" means any Tax computed by reference to the
assets and activities of a member or members of a single Group.
"State Income Tax" means any Tax imposed by any State of the United
States or by any political subdivision of any such State which is imposed on
or measured by net income, including state and local franchise or similar
Taxes measured by net income.
"Subsidiary" shall have the meaning set forth in the Merger
Agreement.
"Tax" or "Taxes" means any income, gross income, gross receipts,
profits, capital stock, franchise, withholding, payroll, social security,
workers compensation, unemployment, disability, property, ad valorem, stamp,
excise, occupation, service, sales, use, license, lease, transfer, import,
export, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment, or other charge in the nature of or in lieu of
any tax) imposed by any governmental entity or political subdivision thereof,
and any interest, penalties, additions to tax, or additional amounts in
respect of the foregoing.
"Tax Authority" means, with respect to any Tax, the governmental
entity or political subdivision thereof that imposes such Tax and the agency
(if any) charged with the collection of such Tax for such entity or
subdivision.
"Tax Benefit" means any refund, credit, or other reduction in
otherwise required Tax payments (including any reduction in estimated tax
payments).
"Tax Contest" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any of the Companies or their Subsidiaries (including
any administrative or judicial review of any claim for refund) for any Tax
Period ending on or before the Time of Distribution.
"Tax Item" means, with respect to any Income Tax, any item of
income, gain, loss, expense, or credit.
"Tax Law" means the law of any governmental entity or political
subdivision thereof relating to any Tax.
"Tax Opinion" means the opinion letter to be issued by Valero's tax
counsel as required by the Merger Agreement.
"Tax Period" means, with respect to any Tax, the period for which
the Tax is reported as provided under the Code or other applicable Tax Law.
"Tax Records" means Tax Returns, Tax Return work-papers,
documentation relating to any Tax Contests, and any other books of account or
records required to be maintained, or that have been maintained, under the
Code or other applicable Tax Laws or under any record retention agreement with
any Tax Authority.
"Tax Return" means any report of Taxes due, any claims for refund of
Taxes paid, any information return with respect to Taxes, or any other similar
report, statement, declaration, or document required to be filed under the
Code or other Tax Law, including any attachments, exhibits, or other materials
submitted with any of the foregoing and including any amendments or
supplements to any of the foregoing.
"Time of Distribution" means the Time of Distribution as that term
is defined in the Distribution Agreement.
"Transaction" means the events contemplated by the Distribution
Agreement and by the Merger Agreement.
"Treasury Regulations" means the regulations promulgated from time
to time under the Code as in effect for the relevant Tax Period.
"Valero" means Valero Energy Corporation, a Delaware corporation,
and any successor.
"Valero Adjustment" means any proposed adjustment by a Tax Authority
or any claim for a Tax refund to the extent the Valero Group would be
exclusively liable for any resulting Tax under this agreement and exclusively
entitled to receive any resulting Tax Benefit under this Agreement.
"Valero Federal Consolidated Income Tax Return" means any United
States federal Tax Return for the affiliated group (as that term is defined in
Code Section 1504) that includes Valero as the common parent and includes any
member of the Refining Group.
"Valero Group" means the Company Group as that term is defined in
the Distribution Agreement.
"VNG December 31, 1996 Balance Sheet" means the VNG December 31 1996
Balance Sheet as that term is defined in the Merger Agreement.
Section 2. Allocation of Tax Liabilities. The provisions of this
Section 2 are intended to determine each Company's liability for Taxes with
respect to Pre-Distribution Periods. Once the liability has been determined
under this Section 2, Section 5 determines the time when payment of the
liability is to be made, and whether the payment is to be made to the Tax
Authority directly or to another Company.
2.01 General Rule.
(a) Valero Liability. The Valero Group shall be liable for all
Taxes not specifically allocated to the Refining Group under this Section 2.
Valero shall indemnify and hold harmless the Refining Group from and against
any liability for Taxes for which the Valero Group is liable under this
Section 2.01(a).
(b) Refining Liability. Refining shall be liable for, and shall
indemnify and hold harmless the Valero Group from and against any liability
for Taxes which are allocated to the Refining Group under this Section 2.
2.02 Allocation of Federal Income Tax. Except as provided in
Sections 2.04 and 2.05, Federal Income Tax shall be allocated as follows:
(a) Allocation of Tax Reported on Valero Federal Consolidated
Income Tax Returns Filed After the Time of Distribution. With respect to any
Valero Federal Consolidated Income Tax Return filed after the Time of
Distribution, the Consolidated Tax Liability shall be allocated among the
Valero and Refining Groups in accordance with the method prescribed in
Treasury Regulation Sections 1.1502-33(d)(3) and 1.1552-1(a)(2) (as in effect
on the date hereof) determined by treating each Group as a single member of
the consolidated group. For purposes of such allocation the fixed percentage
of additional amounts to be allocated under Treasury Regulation Section
1.1502-33(d)(3)(i) shall be 100%. Any amount so allocated to the Refining
Group shall be a liability of Refining to Valero under this Section 2.
Amounts described in Code Section 1561 (relating to limitations on certain
multiple benefits) shall be divided equally among the Valero Group and the
Refining Group to the extent permitted by the Code.
(b) Allocation of Valero Federal Consolidated Income Tax Return Tax
Adjustments. If there is any adjustment to the reported Consolidated Tax
Liability with respect to any Valero Federal Consolidated Income Tax Return,
or to such Consolidated Tax Liability as previously adjusted, Refining shall
be liable to Valero for the excess (if any) of:
(i) the Consolidated Tax Liability that would have been allocated
to the Refining Group in accordance with Section 2.02(a), taking into account
any adjustments to the reported Consolidated Tax Liability, or to such
Consolidated Tax Liability as previously adjusted (the "Refining Group
Recomputed Federal Tax Liability"); over
(ii) the Consolidated Tax Liability allocated to the Refining Group
in accordance with Section 2.02(a) based on the return as filed (or if
applicable, as previously adjusted) (the "Refining Group Prior Federal Tax
Liability").
If the Refining Group Prior Federal Tax Liability exceeds the Refining Group
Recomputed Federal Tax Liability, Valero shall be liable to Refining for such
excess.
2.03 Allocation of State Income Taxes. Except as provided in
Sections 2.04 and 2.05, State Income Taxes shall be allocated as follows:
(a) Separate Company Taxes. In the case of any State Income Tax
which is a Separate Company Tax, Refining shall be liable for such Tax imposed
on any members of the Refining Group, and Valero shall be liable for such Tax
imposed on any members of the Valero Group.
(b) Consolidated or Combined State Income Taxes. In the case of
any Consolidated or Combined State Income Tax, the liability of Refining with
respect to such Tax for any Tax Period shall be computed as follows:
(i) Allocation of Tax Reported on Tax Returns Filed after the Time
of Distribution. In the case of any Consolidated or Combined State
Income Tax reported on any Tax Return filed after the Time of Distribution,
Refining shall be liable to Valero for the excess (if any) of:
(A) the State Income Tax liability computed by including
all members of the Valero and Refining Groups in the filing of a Consolidated
or Combined Tax Return based on the income, apportionment factors, and other
items of such members; over
(B) the State Income Tax liability computed as if only
the Valero Group members had filed a Consolidated or Combined Tax Return based
upon the income, apportionment factors, and other items of such members.
(ii) Allocation of Consolidated or Combined State Income Tax
Adjustments. If there is any adjustment to the amount of Consolidated or
Combined State Income Tax reported on any Tax Return (or as previously
adjusted), Refining shall be liable to Valero for the excess (if any) of:
(A) the State Income Tax liability computed as if all
members of the Refining Group included in the Tax Return had filed a
Consolidated or Combined Tax Return based upon the income, apportionment
factors, and other items of such members as so adjusted (the "Refining Group
Recomputed State Tax Liability"); over
(B) the State Income Tax liability computed as if all
members of the Refining Group included in the Tax Return had filed a
Consolidated or Combined Tax Return based upon the income, apportionment
factors, and other items of such members as previously reported (or, if
applicable, as previously adjusted) (the "Refining Group Prior State Tax
Liability").
If the Refining Group Prior State Tax Liability exceeds the Refining Group
Recomputed State Tax Liability, Valero shall be liable to Refining for such
excess.
2.04 Allocation of Other Taxes. Except as provided in this Section
2.04 or Section 2.05, all Taxes other than those specifically allocated
pursuant to Section 2.02 or 2.03 shall be allocated based on the legal entity
on which the legal incidence of the Tax is imposed. Refining shall be liable
for all Taxes imposed on any member of the Refining Group and Valero shall be
liable for all Taxes imposed on any member of the Valero Group, except that
Refining shall be liable for all Taxes (other than Income Taxes) with respect
to Tax Periods ending on or before December 31, 1996 (or, with respect to
Taxes that are not assessed with respect to periods, such Taxes due and
payable on or before December 31, 1996), except for such Taxes provided for in
the VNG December 31, 1996 Balance Sheet, but only to the extent such Taxes
exceed $5,000,000 in the aggregate, and except that Refining shall not be
liable with respect to any Tax or Tax Return which is (i) the subject of the
litigation set forth and described in Section I, paragraphs 3 through 6, of
Schedule 5.1(l) of the Merger Agreement (the "Existing Tax Claims"), or (ii)
heretofore or hereafter made a subject of any claim, demand or litigation
involving claims substantially similar to those asserted in the Existing Tax
Claims. The Companies believe that there is no Tax not specifically allocated
pursuant to Section 2.02 or 2.03 which is legally imposed on more than one
legal entity (e.g., joint and several liability); however, if there is any
such Tax, it shall be allocated in accordance with past practices as
reasonably determined by the affected Companies, or in the absence of such
practices, in accordance with any allocation method agreed upon by the
affected Companies.
2.05 Transaction Taxes.
(a) Refining Liability. Except with respect to any liability with
respect to any Tax that is reflected on the VNG December 31, 1996 Balance
Sheet, and except to the extent of Valero's liability pursuant to Section
2.05(b) below, Refining shall be liable for all Taxes resulting from the
Transaction including:
(i) Any sales and use, gross receipts, or other transfer Taxes
resulting from the Transaction;
(ii) any Tax resulting from any income or gain recognized under
Treasury Regulation Sections 1.1502-13 or 1.1502-19 (or any comparable
provisions of other applicable Tax Laws) as a result of the Transaction;
(iii) any Tax resulting from any income or gain recognized
as a result of the Transaction contemplated by the Distribution Agreement
failing to qualify for tax-free treatment under Code Section 355 or 361(c), or
other provisions of the Code or other applicable Tax Laws, or as a result of
the Merger failing to constitute a "reorganization" under Code Section 368 or
any comparable provisions of other applicable Tax Laws (as contemplated in the
Merger Agreement);
provided, however, that Refining shall be liable for Taxes described in
Section 2.05(a)(i) and Section 2.05(a)(ii) only to the extent that the
aggregate amount of such Taxes exceeds $3,000,000. For purposes of this
Section 2.05(a),any increase in Tax resulting from any disallowance of
deductions pursuant to Section 162(m) of the Code or Section 280G of the Code
shall be treated as a Tax resulting from the Transaction and described in
Section 2.05(a)(ii); provided, however, that this sentence shall not apply to
any such Tax reflected on the VNG December 31, 1996 Balance Sheet.
(b) Indemnity for Inconsistent Acts and Misrepresentations. Valero
shall be liable for, and shall indemnify and hold harmless the Refining Group
from and against any liability for, any Tax (described in subparagraph
(a)(iii)) above but only to the extent resulting solely from any breach of
Valero's covenants under Section 11 of this Agreement. Acquiror shall be
liable for, and shall indemnify and hold harmless the Refining Group from and
against any liability for, any Tax described in subparagraph (a)(iii) above
but only to the extent resulting either (x) from any breach of Acquiror's
representations or covenants under Section 11 of this Agreement or (y) from
the inaccuracy of any factual statements or representations made by Acquiror
and relating to Acquiror or its Subsidiaries (other than the Valero Group) in
connection with the Tax Opinion.
Section 3. Allocation of Tax Credit Carryforwards.
3.01 Allocation of Alternative Minimum Tax Credit Carryforwards.
With respect to the Valero Federal Consolidated Income Tax Return filed for
calendar year 1995, the consolidated minimum tax credit carryforward
("Consolidated MTC") reported therein is allocated among the Valero and
Refining Groups as follows:
Valero Group $ 6,049,232
Refining Group 15,266,111
Total $ 21,315,343
Valero and Refining mutually represent that no additional amount of
Consolidated MTC is expected to be generated nor is any Consolidated MTC
expected to be utilized on the Valero Federal Consolidated Income Tax Return
for calendar year 1996. Any adjustments to the above amounts for Tax Periods
ending after 1995 and on or before the Time of Distribution shall be allocated
among the Valero and Refining Groups in accordance with the principles of Code
Section 53 and Proposed Treasury Regulation 1.1502-55(h)(6)(ii).
3.02 Allocation of Other Credit Carryforwards. With respect to the
Valero Federal Consolidated Income Tax Return filed for calendar year 1995,
the consolidated general business credit carryforward ("Consolidated GBC")
reported therein is allocated among the Valero and Refining Groups as follows:
Valero Group $ 4,920,738
Refining Group 11,119,818
Total $16,040,556
Any adjustments to the above amounts of Consolidated GBC or any other credits
allowable against any Tax for Tax Periods ending after 1995 and on or before
the Time of Distribution shall be allocated among the Valero and Refining
Groups in accordance with past tax accounting practices used with respect to
such credits (unless such past practices are no longer permissible under the
Code or other applicable Tax Law). Based upon the Companies' latest estimate
of 1996 taxable income, the Consolidated GBC at the end of calendar year 1996
is as follows:
Valero Group $ 245,621
Refining Group 274,349
Total $519,970
Section 4. Preparation and Filing of Tax Returns.
4.01 General. Except as otherwise provided in this Section 4, Tax
Returns shall be prepared and filed when due (including extensions) by the
person obligated to file such Tax Return under the Code or applicable Tax Law.
The Companies shall provide, and shall cause their Subsidiaries to provide,
assistance and cooperate with one another in accordance with Section 7 with
respect to the preparation and filing of Tax Returns, including providing
information required to be provided in Section 7.
4.02 Refining's Responsibility. Refining shall have the exclusive
obligation and right to properly prepare and timely file, or to cause to be
properly prepared and timely filed:
(a) Valero Federal Consolidated Income Tax Returns for Tax Periods
ending on or before the end of the day on which the Time of Distribution
occurs.
(b) Tax Returns for State Income Taxes (excluding any amended
returns, but including Tax Returns with respect to State Income Taxes that are
Separate Company Taxes) which the Companies reasonably determine are required
to be filed by the Companies or any of their Subsidiaries for Tax Periods
ending on or before the end of the day on which the Time of Distribution
occurs.
Nothing in this Section 4.02 shall impose on Refining any liability for any
failure to file any Tax Return, or for failure to file any Tax Return when
due, with respect to any Pre-Distribution Period if the due date for such
return (including extensions) was prior to the Time of Distribution.
4.03 Valero's Responsibility. Valero shall prepare and file, or
shall cause to be prepared and filed, Tax Returns required to be filed by or
with respect to members of the Valero Group other than those Tax Returns which
Refining is required to prepare and file under Section 4.02. The Tax Returns
required to be prepared and filed by Valero under this Section shall include
Tax Returns for Federal or State Income Taxes (excluding any amended returns,
but including Tax Returns with respect to State Income Taxes that are Separate
Company Taxes) which the Companies reasonably determine, in accordance with
Valero's past practices, are required to be filed by any member of the Valero
Group for Tax Periods ending after the end of the day on which the Time of
Distribution occurs.
4.04 Consistent Tax Accounting Practices. Any Tax Return for any
Pre-Distribution Period and any Tax Return for any Post-Distribution Period to
the extent items reported on such Tax Return might reasonably be expected to
affect Tax Items reported on any Tax Return for any Pre-Distribution Period,
shall be prepared in accordance with past Tax accounting practices used with
respect to the Tax Returns in question (unless such past practices are no
longer permissible under the Code or other applicable Tax Law), and to the
extent any items are not covered by past practices (or in the event such past
practices are no longer permissible under the Code or other applicable Tax
Law), in accordance with reasonable Tax accounting practices selected by the
Company whose Tax liability for such Tax Period will be most affected by such
selection.
4.05 Consolidated or Combined Return. The Companies will elect and
join, and will cause their respective Subsidiaries to elect and join, in
filing consolidated, unitary, combined, or other similar Tax Returns with
respect to any Tax Period ending on or before the end of the day on which the
Time of Distribution occurs, to the extent each entity is eligible to join in
such Tax Returns, if the Companies reasonably determine that the filing of
such Tax Returns is consistent with past reporting practices, or in the
absence of applicable past practices, will result in the minimization of the
net present value of the aggregate Tax to the entities eligible to join in
such Tax Returns.
4.06 Right to Review Tax Returns.
(a) General. The Responsible Company with respect to any Tax
Return shall make such Tax Return and related work-papers available for review
by the other Companies during regular business hours, if requested, in the
event (i) such Tax Return relates to Taxes for which the requesting party may
be liable, (ii) such Tax Return relates to Taxes for which the requesting
party may be liable in whole or in part for any additional Taxes owing as a
result of adjustments to the amount of Taxes reported on such Tax Return,
(iii) such Tax Return relates to Taxes for which the requesting party may have
a claim for Tax Benefits under this Agreement, or (iv) the requesting party
reasonably determines that it must inspect such Tax Return to confirm
compliance with the terms of this Agreement. The Responsible Company shall
use its reasonable best efforts to make such Tax Return available for review
as required under this paragraph sufficiently in advance of, but in any event
no later than thirty calendar days prior to, the due date for filing such Tax
Returns to provide the requesting party with a meaningful opportunity to
analyze and comment on such Tax Returns and have such Tax Returns modified
before filing, taking into account the person responsible for payment of the
Tax (if any) reported on such Tax Return and the materiality of the amount of
Tax liability with respect to such Tax Return. The Companies shall attempt in
good faith to resolve any issues arising out of the review of such Tax
Returns.
(b) Reporting of Transaction Tax Items. The Companies agree that
the tax treatment reported on any Tax Return of Tax Items relating to the
Transaction shall be consistent with the treatment of such item in the Tax
Opinion. To the extent there is a Tax Item relating to the Transaction which
is not covered by the Tax Opinion, the Companies shall agree on the tax
treatment of any such Tax Item reported on any Tax Return. For this purpose,
the tax treatment of such Tax Items on a Tax Return by the Responsible Company
with respect to such Tax Return shall be agreed to by the other Company unless
either (i) such other Company reasonably believes that such tax treatment may
result in a penalty or addition to Tax under applicable Tax Law, or (ii) such
tax treatment is inconsistent with the tax treatment contemplated in the Tax
Opinion. Such Tax Return shall be submitted for review pursuant to Section
4.06(a), and any dispute regarding such proper tax treatment shall be referred
for resolution pursuant to Section 15, sufficiently in advance of the filing
date of such Tax Return (including extensions) to permit timely filing of the
return.
(c) Execution of Returns Prepared by Other Party. In the case of
any Tax Return which is required to be prepared and filed by one Company under
this Agreement and which is required by law to be signed by another Company
(or by its authorized representative), the Company which is legally required
to sign such Tax Return (the "Signatory Company") shall not be required to
sign such Tax Return under this Agreement if the Signatory Company reasonably
believes that the tax treatment of the items reported on the Tax Return may
result in a penalty or addition to Tax under applicable Tax Law.
4.07 Claims for Refund, Carrybacks, and Self-Audit Adjustments.
(a) Consent Required for Adjustment Requests Related to
Consolidated or Combined Income Taxes. Except as provided in paragraph (b)
below, each of the Companies hereby agrees that, unless the other Company
consents in writing, which consent shall not be unreasonably withheld, (i) no
Adjustment Request with respect to any Consolidated or Combined Income Tax for
a Pre-Distribution Period shall be filed, and (ii) any available elections to
waive the right to claim, in any Pre-Distribution Period with respect to any
Consolidated or Combined Income Tax, any Carryback arising in a
Post-Distribution Period shall be made, and no affirmative election shall be
made to claim any such Carryback. Any Adjustment Request which Valero
consents to make under this Section 4.07 shall be prepared and filed by
Refining under Section 4.02. Valero shall provide to Refining all information
required for the preparation and filing of such Adjustment Request in such
form and detail as reasonably requested by Refining.
(b) Exception for Adjustment Requests Related to Audit Adjustments.
Each of the Companies shall be entitled, without the consent of the other
Company, to require Refining to file an Adjustment Request to take into
account any net operating loss, net capital loss, deduction, credit, or other
adjustment attributable to such Company or any member of its Group
corresponding to any adjustment resulting from any audit by the Internal
Revenue Service or other Tax Authority with respect to Consolidated or
Combined Income Taxes for any Pre-Distribution Period. For example, if the
Internal Revenue Service requires either Company to capitalize an item
deducted for the taxable year 1993, the Company shall be entitled, without the
consent of the other Company, to require Refining to file an Adjustment
Request for the taxable year 1994 (and later years) to take into account any
depreciation or amortization deductions in such years directly related to the
item capitalized in 1993.
(c) Other Adjustment Requests Permitted. Nothing in this Section
4.07 shall prevent either Company or its Subsidiaries from filing any
Adjustment Request with respect to Income Taxes which are not Consolidated or
Combined Income Taxes or with respect to any Taxes other than Income Taxes.
Any refund or credit obtained as a result of any such Adjustment Request (or
otherwise) shall be for the account of the person liable for the Tax under
this Agreement.
(d) Payment of Refunds. Any refunds or other Tax Benefits received
by either Company (or any of its Subsidiaries) as a result of any Adjustment
Request which are for the account of the other Company (or member of such
other Company's Group) shall be paid by the Company receiving (or whose
Subsidiary received) such refund or Tax Benefit to such other Company in
accordance with Section 6.
Section 5. Tax Payments and Intercompany Xxxxxxxx.
5.01 Payment of Taxes with Respect to Valero Federal Consolidated
Income Tax Returns Filed After the Time of Distribution. In the case of any
Valero Federal Consolidated Income Tax Return the due date for which
(including extensions) is after the Time of Distribution,
(a) Computation and Payment of Tax Due. At least thirty calendar
days prior to any Payment Date, Refining shall compute the amount of Tax
required to be paid to the Internal Revenue Service (taking into account the
requirements of Section 4.04 relating to consistent accounting practices) with
respect to such Tax Return and shall notify Valero in writing of the amount of
Tax required to be paid on or before such due date. Valero will pay such
amount to the Internal Revenue Service on or before the due date.
(b) Computation and Payment of Refining Liability With Respect to
Tax Due. At least three business days before any Payment Date, Refining will
pay to Valero the excess (if any) of --
(i) the Consolidated Tax Liability determined as of such
Payment Date with respect to the applicable Tax Period allocable to the
members of the Refining Group as determined by Refining in a manner consistent
with the provisions of Section 2.02(a) (relating to allocation of the
Consolidated Tax Liability --) (the "Allocated Federal Tax Liability"), over
(ii) the cumulative net payments with respect to such Tax
Return prior to such Payment Date by the members of Refining Group (the
"Cumulative Federal Tax Payment").
If the Refining Group Cumulative Federal Tax Payment is greater than the
Refining Group Allocated Federal Tax Liability, then Valero shall pay such
excess to Refining within 10 business days following such Payment Date.
(c) Deemed Cumulative Federal Tax Payment for First Payment Date
After the Time of Distribution. For purposes of Section 5.01(b)(ii), the
Refining Group's Cumulative Federal Tax Payment as of the first Payment Date
after the Time of Distribution shall be deemed equal to the portion of the
total payments of Tax by the affiliated group with respect to the Tax Return
allocated to the Refining Group in accordance with Section 2.02(a) determined
by substituting for the "tax liability of the group" as such term is used in
Treasury Regulation Section 1.1552-1(a)(2) the amount of such total payments
of Tax. For example, if the Time of Distribution is March 1, 1997, and prior
to April 15, 1997 (i.e., the first Payment Date after the Time of
Distribution) the total payments of Tax by the affiliated group with respect
to Valero's Federal Consolidated Income Tax Return for the year ended December
31, 1996 is $100x, the portion of such $100x deemed paid by the Refining Group
as of April 15, 1997 (excluding the payment to be made on that date) would be
determined under Section 2.02(a).
(d) Interest on Intergroup Tax Allocation Payments. In the case of
any payments required under paragraph (b) of this subsection 5.01, the payor
shall also pay to the payee an amount of interest computed at the Prime Rate
on the amount of the payment required under paragraph (b), as applicable,
based on the number of days from the applicable Payment Date to the date of
payment of the amount determined under such paragraph (b).
5.02 Payment of Federal Income Tax Related to Adjustments.
(a) Adjustments Resulting in Underpayments. Valero shall pay to
the Internal Revenue Service when due any additional Federal Income Tax
required to be paid as a result of any adjustment to the Consolidated Federal
Income Tax Liability with respect to any Valero Federal Consolidated Income
Tax Return for any Pre-Distribution Period. Refining shall pay to Valero the
Refining Group's share of any such additional Tax payment determined in
accordance with Section 2.02(a) within 30 days from the later of (i) the date
the additional Tax was paid by Valero or (ii) the date of receipt by Refining
of a written notice and demand from Valero for payment of the amount due,
accompanied by evidence of payment and a statement detailing the Taxes paid
and describing in reasonable detail the particulars relating thereto.
Refining shall also pay to Valero interest on the Refining Group's respective
share of such Tax computed at the Prime Rate based on the number of days from
the date the additional Tax was paid by Valero to the date of its payment to
Valero under this Section 5.02(a).
(b) Adjustments Resulting in Overpayments. Within 30 days of
receipt by Valero of any Tax Benefit resulting from any adjustment to the
Consolidated Federal Income Tax Liability with respect to any Valero Federal
Consolidated Income Tax Return for any Pre-Distribution Period, Valero shall
pay to Refining the Refining Group's respective share of any such Tax Benefit
determined in accordance with Section 2.02(a). Valero shall also pay to
Refining interest on Refining Group's respective share of such Tax Benefit
computed at the Prime Rate based on the number of days from the date the Tax
Benefit was received by Valero to the date of payment to Refining under this
Section 5.02(b).
5.03 Payment of Consolidated or Combined State Income Tax With
Respect to Returns Filed After the Time of Distribution. In the case of any
Tax Return for any Consolidated or Combined State Income Tax the due date for
filing of which (including extensions) is after the Time of Distribution, at
least thirty calendar days prior to any Payment Date with respect to such Tax
Return, Refining shall compute the amount of Tax required to be paid to the
applicable Tax Authority (taking into account the requirements of Section 4.04
relating to consistent accounting practices) and shall notify Valero in
writing of the amount of Tax required to be paid on or before such due date.
Valero will pay such amount to such Tax Authority on or before the due date.
At least three business days before such Payment Date, Refining shall pay to
Valero the Tax liability allocable to the Refining Group as determined under
the provisions of Section 2.03(b)(i).
5.04 Payment of State Income Taxes Related to Adjustments.
(a) Adjustments Resulting in Underpayments. Valero shall pay to
the applicable Tax Authority when due any additional State Income Tax required
to be paid as a result of any adjustment to the Tax liability with respect to
any Tax Return for any Consolidated or Combined State Income Tax for any
Pre-Distribution Period. Refining shall pay to Valero the Refining Group's
share of any such additional Tax payment determined in accordance with Section
2.03(b)(ii) within 30 days from the later of (i) the date the additional Tax
was paid by Valero or (ii) the date of receipt by Refining of a written notice
and demand from Valero for payment of the amount due, accompanied by evidence
of payment and a statement detailing the Taxes paid and describing in
reasonable detail the particulars relating thereto. Refining shall also pay
to Valero interest on the Refining Group's respective share of such Tax
computed at the Prime Rate based on the number of days from the date the
additional Tax was paid by Valero to the date of its payment to Valero under
this Section 5.04(a).
(b) Adjustments Resulting in Overpayments. Within 30 days of
receipt by Valero of any Tax Benefit resulting from any adjustment to the Tax
liability with respect to any Tax Return for any Consolidated or Combined
State Income Tax for any Pre-Distribution Period, Valero shall pay to Refining
the Refining Group's share of any such Tax Benefit determined in accordance
with Section 2.03(b)(ii). Valero shall also pay to Refining interest on the
Refining Group's share of such Tax Benefit computed at the Prime Rate based on
the number of days from the date the Tax Benefit was received by Valero to the
date of payment to Refining under this Section 5.04(b).
5.05 Payment of Separate Company Taxes. Each Company shall pay, or
shall cause to be paid, to the applicable Tax Authority when due all Separate
Company Taxes owed by such Company or a member of such Company's Group.
5.06 Indemnification Payments. If any Company (the "payor") is
required to pay to such Tax Authority a Tax that another Company (the
"responsible party") is required to pay to such Tax Authority under this
Agreement, the responsible party shall reimburse the payor within 30 days of
delivery by the payor to the responsible party of an invoice for the amount
due, accompanied by evidence of payment and a statement detailing the Taxes
paid and describing in reasonable detail the particulars relating thereto.
The reimbursement shall include interest on the Tax payment computed at the
Prime Rate based on the number of days from the date of the payment to the Tax
Authority to the date or reimbursement under this Section 5.06.
Section 6. Tax Benefits for Account of Other Party. If a member of
one Group receives any Tax Benefit with respect to any Taxes for which a
member of another Group is liable hereunder, the Company receiving such Tax
Benefit shall make a payment to the Company who is liable for such Taxes
hereunder within 30 days following receipt of the Tax Benefit in an amount
equal to the Tax Benefit (including any Tax Benefit realized as a result of
the payment) plus interest on such amount computed at the Prime Rate based on
the number of days from the date of receipt of the Tax Benefit to the date of
payment of such amount under this Section 6.
Section 7. Assistance and Cooperation.
7.01 General. After the Time of Distribution, each of the
Companies shall cooperate (and cause their respective Subsidiaries to
cooperate) with each other and with each other's agents, including accounting
firms and legal counsel, in connection with Tax matters relating to the
Companies and their Subsidiaries including (i) preparation and filing of Tax
Returns (including, where necessary, preparation of Tax Returns by one Company
for signature by the other Company), (ii) determining the liability for and
amount of any Taxes due (including estimated Taxes) or the right to and amount
of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any
administrative or judicial proceeding in respect of Taxes assessed or proposed
to be assessed. Such cooperation shall include making all information and
documents in their possession relating to the Companies and their Subsidiaries
available to such other Companies as provided in Section 8. Each of the
Companies shall also make available to each other, as reasonably requested and
available, personnel (including officers, directors, employees and agents of
the Companies or their respective Subsidiaries) responsible for preparing,
maintaining, and interpreting information and documents relevant to Taxes, and
personnel reasonably required as witnesses or for purposes of providing
information or documents in connection with any administrative or judicial
proceedings relating to Taxes. Any information or documents provided under
this Section 7 shall be kept confidential by the Company receiving the
information or documents, except as may otherwise be necessary in connection
with the filing of Tax Returns or in connection with any administrative or
judicial proceedings relating to Taxes.
7.02 Income Tax Return Information. Each Company will provide to
each other Company information and documents relating to their respective
Groups required by the other Companies to prepare Tax Returns. The
Responsible Company shall determine a reasonable compliance schedule for such
purpose in accordance with Valero's past practices. Any additional
information or documents the Responsible Company requires to prepare such Tax
Returns will be provided in accordance with past practices, if any, or as the
Responsible Company reasonably requests and in sufficient time for the
Responsible Company to file such Tax Returns timely.
Section 8. Tax Records.
(a) Retention of Tax Records. Except as provided in paragraph (b),
Refining shall preserve and keep all Tax Records exclusively relating to the
assets and activities of the Refining Group's Pre-Distribution Periods, and
Valero shall preserve and keep all other Tax Records relating to Taxes for so
long as the contents thereof may become material in the administration of any
matter under the Code or other applicable Tax Law, but in any event until the
later of (i) the expiration of any applicable statutes of limitation, and (ii)
seven years after the Time of Distribution. If prior to the expiration of the
applicable statute of limitation and such seven-year period Refining or Valero
reasonably determines that any Tax Records which it is required to preserve
and keep under this Section 8 are no longer material in the administration of
any matter under the Code or other applicable Tax Law, such Company may
dispose of such records upon 90 days prior written notice to the other
Company. Such notice shall include a list of the records to be disposed of
describing in reasonable detail each file, book or other record accumulation
being disposed. The notified Company shall have the opportunity, at its cost
and expense, to copy or remove, within such 90-day period, all or any part of
such Tax Records.
(b) State Income Tax Returns. Tax Returns with respect to State
Income Taxes and workpapers prepared in connection with preparing such Tax
Returns shall be preserved and kept, in accordance with the guidelines of
paragraph (a), by the Company responsible for preparing and filing the
applicable Tax Return.
(c) Access to Tax Records. The Companies and their respective
Subsidiaries shall make available to each other for inspection and copying
during normal business hours upon reasonable notice all Tax Records in their
possession to the extent reasonably required by the other Company in
connection with the preparation of Tax Returns, audits, litigation, or the
resolution of items under this Agreement.
Section 9. Tax Contests.
9.01 Notices. Each of the parties shall provide prompt notice to
the other parties of any pending or threatened Tax audit, assessment or
proceeding or other Tax Contest of which it becomes aware related to Taxes for
Tax Periods for which it is indemnified by one or more other parties
hereunder. Such notice shall contain factual information (to the extent
known) describing any asserted Tax liability in reasonable detail and shall be
accompanied by copies of the relevant portions of any notice and other
documents received from any Tax Authority in respect of any such matters. If
an indemnified party has knowledge of an asserted Tax liability with respect
to a matter for which it is to be indemnified hereunder and such party fails
to give the indemnifying party prompt notice of such asserted Tax liability,
then if the indemnifying party is precluded from contesting the asserted Tax
liability in any forum as a result of the failure to give prompt notice, the
indemnifying party shall have no obligation to indemnify the indemnified party
for any Taxes arising out of such asserted Tax liability.
9.02 Control of Tax Contest.
(a) Separate Company Taxes. In the case of any Tax Contest with
respect to any Separate Company Tax, the Company having liability for the Tax
shall have exclusive control over the Tax Contest, including exclusive
authority with respect to any settlement of such Tax liability.
(b) Consolidated or Combined Income Taxes. In the case of any Tax
Contest with respect to any Consolidated or Combined Income Tax, Refining
shall control the defense or prosecution of the portion of the Tax Contest
directly and exclusively related to any Refining Adjustment, including
settlement of any such Refining Adjustment, and Valero shall control the
defense or prosecution of all other portions of the Tax Contest, including
settlement of any Valero Adjustment. A Company shall not agree to any Tax
liability for which the other Company may be liable under this Agreement, or
compromise any claim for any Tax Benefit which the other Company may be
entitled under this Agreement, without such other Company's written consent
(which consent may be given or withheld at the sole discretion of the Company
from which the consent would be required). Notwithstanding any other
provision contained in this Section 9, the indemnified party may settle any
claim otherwise indemnifiable hereunder for any Tax Period (x) if the
indemnified party waives the indemnification payment that might otherwise be
payable under this Agreement in respect of such claim for such Tax Period and
any other claim the contest of which is precluded by such settlement or (y)
the party responsible for payment hereunder consents in writing to such
settlement, such consent not to be unreasonably withheld based solely on the
merits of the items indemnifiable hereunder.
Section 10. Effective Date; Termination of Prior Intercompany Tax
Allocation Agreements. This Agreement shall be effective at the Time of
Distribution. Immediately prior to the close of business at the Time of
Distribution (i) all Prior Intercompany Tax Allocation Agreements shall be
terminated, and (ii) amounts due under such agreements as of the Time of
Distribution shall be settled as of the Time of Distribution (including
capitation or distribution of amounts due or receivable under such
agreements). Upon such termination and settlement, no further payments by or
to Valero, or by or to the Refining Group with respect to such agreements
shall be made, and all other rights and obligations resulting from such
agreements between the Companies and their Subsidiaries shall cease at such
time. Any payments pursuant to such agreements shall be ignored for purposes
of computing amounts due under this Agreement.
Section 11. No Inconsistent Actions. Each of the Companies and the
Acquiror covenants and agrees that it will not take any action, and it will
cause its Subsidiaries to refrain from taking any action, which is
inconsistent with the Tax treatment of the Transaction contemplated in the Tax
Opinion (any such act or failure to act is referred to in this Section 11 as a
"Prohibited Action"), unless such Prohibited Action is required by law, or the
person acting has obtained the prior written consent of each of the other
parties (which consent shall not be unreasonably withheld). With respect to
any Prohibited Action proposed by a Company or the Acquiror (the "Requesting
Party"), each of the other parties (the "Requested Parties") shall grant its
consent to such Prohibited Action if the Requesting Party either obtains a
ruling from the Internal Revenue Service or other applicable Tax Authority or
an opinion of independent tax counsel with respect to the Prohibited Action
that is reasonably satisfactory to each of the Requested Parties (except that
the Requesting Party shall not submit any such ruling request if a Requested
Party determines in good faith that filing such request might have a
materially adverse affect upon such Requested Party). Without limiting the
foregoing:
(i) Refining represents and warrants that neither it nor any
of its Subsidiaries nor, to the best knowledge of Refining, any other person
or entity, has any plan or intent to take any action which is inconsistent
with any factual statements or representations made in connection with the Tax
Opinion. Regardless of any change in circumstances, Refining covenants and
agrees that it will not take, and it will cause its Subsidiaries to refrain
from taking, any such inconsistent action on or before the last day of the
calendar year ending after the second anniversary of the Time of Distribution
other than as permitted in this Section 11. For purposes of applying this
Section 11 to any such inconsistent action prior to the Effective Time, the
members of the Valero Group shall be treated as Subsidiaries of Refining.
(ii) Acquiror represents and warrants that neither it nor any
of its Subsidiaries has any plan or intent to take any action which is
inconsistent with any factual statements or representations made in connection
with the Tax Opinion. Regardless of any change in circumstances, Acquiror
covenants and agrees that it will not take, and it will cause Valero and the
other Subsidiaries of Acquiror to refrain from taking, any such inconsistent
action on or before the last day of the calendar year ending after the second
anniversary of the Time of Distribution other than as permitted in this
Section 11.
Section 12. Survival of Obligations. The obligations and
liabilities of the parties, as well as the representations, warranties,
covenants and agreements, set forth in this Agreement shall be unconditional
and absolute and shall remain in effect without limitation as to time.
Section 13. Employee Matters. Each of the Companies agrees to
utilize, or cause its Subsidiaries to utilize, the alternative procedure set
forth in Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to wage
reporting.
Section 14. Treatment of Payments; Tax Gross Up.
(a) Treatment of Tax Indemnity and Tax Benefit Payments. In the
absence of any change in tax treatment under the Code or other applicable Tax
Law:
(i) any Tax indemnity payments made by a Company under Section
5 shall be reported for Tax purposes by the payor and the recipient as
distributions or capital contribution, as appropriate, occurring immediately
before the Distribution but only to the extent the payment does not relate to
a Tax allocated to the payor in accordance with Treasury Regulation Section
1.1502-33(d) (or under corresponding principles of other applicable Tax Laws),
and
(ii) any Tax Benefit payments made by a Company under Section
6, shall be reported for Tax purposes by the payor and the recipient as
distributions or capital contributions, as appropriate, occurring immediately
before the Distribution but only to the extent payment does not relate to a
Tax allocated to the payor in accordance with Treasury Regulation Section
1.1502-33(d) (or under corresponding principles of other applicable Tax Laws).
(b) Tax Gross Up. If, notwithstanding the manner in which Tax
indemnity payments and Tax Benefit payments were reported, there is an
adjustment to the Tax liability of a Company as a result of its receipt of a
payment or its payment pursuant to this Agreement, such payment shall be
appropriately adjusted so that the amount of such payment, reduced by the
amount of all Income Taxes payable with respect to the receipt thereof (but
taking into account all correlative Tax Benefits resulting from the payment of
such Income Taxes), shall equal the amount of the payment which the Company
receiving such payment would otherwise be entitled to receive pursuant to this
Agreement.
Section 15. Disagreements. If after good faith negotiations the
parties cannot agree on the application of this Agreement to any matter, then
the matter will be referred to a nationally recognized accounting firm
acceptable to each of the parties (the "Accounting Firm"). The Accounting
Firm shall furnish written notice to the parties of its resolution of any such
disagreement as soon as practical, but in any event no later than 45 days
after its acceptance of the matter for resolution. Any such resolution by the
Accounting Firm will be conclusive and binding on all parties to this
Agreement. In accordance with Section 17, each party shall pay its own fees
and expenses (including the fees and expenses of its representatives) incurred
in connection with the referral of the matter to the Accounting Firm. All
fees and expenses of the Accounting Firm in connection with such referral
shall be shared equally by the parties affected by the matters.
Section 16. Late Payments. Any amount owed by one party to another
party under this Agreement which is not paid when due shall bear interest at
the Prime Rate plus three percent, compounded semiannually, from the due date
of the payment to the date paid. To the extent interest required to be paid
under this Section 16 duplicates interest required to be paid under any other
provision of this Agreement, interest shall be computed at the higher of the
interest rate provided under this Section or the interest rate provided under
such other provision.
Section 17. Expenses. Except as otherwise provided in this
Agreement, each party and its Subsidiaries shall bear its own expenses
incurred in connection with preparation of Tax Returns and other matters
related to Taxes under the provisions of this Agreement.
Section 18. General Provisions.
(a) Addresses and Notices. Any notice, demand, request or report
required or permitted to be given or made to any party under this Agreement
shall be in writing and shall be deemed given or made when delivered in part
or when sent by first class mail or by other commercially reasonable means of
written communication (including delivery by an internationally recognized
courier service or by facsimile transmission) to the party at the party's
address as follows:
If to Refining: ________________________
________________________
________________________
________________________
If to Valero: ________________________
________________________
________________________
________________________
If to Acquiror: ________________________
________________________
________________________
________________________
A party may change the address for receiving notices under this Agreement by
providing written notice of the change of address to the other parties.
(b) Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.
(c) Waiver. No failure by any party to insist upon the strict
performance of any obligation under this Agreement or to exercise any right or
remedy under this Agreement shall constitute waiver of such obligation, right,
or remedy or any other obligation, rights, or remedies under this Agreement.
(d) Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein
shall not be affected thereby.
(e) Further Action. The parties shall execute and deliver all
documents, provide all information, and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this Agreement,
including the execution and delivery to the other parties and their
Subsidiaries and representatives of such powers of attorney or other
authorizing documentation as is reasonably necessary or appropriate in
connection with Tax Contests (or portions thereof) under the control of such
other parties in accordance with Section 9.
(f) Integration. This Agreement constitutes the entire agreement
among the parties pertaining to the subject matter of this Agreement and
supersedes all prior agreements and understandings pertaining thereto. In the
event of any inconsistency between this Agreement and the Distribution
Agreement or any other agreements relating to the transactions contemplated by
the Distribution Agreement, the provisions of this Agreement shall control.
(g) Construction. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning and shall not be
strictly construed for or against any party.
(h) No Double Recovery; Subrogation. No provision of this
Agreement shall be construed to provide an indemnity or other recovery for any
costs, damages, or other amounts for which the damaged party has been fully
compensated under any other provision of this Agreement or under any other
agreement or action at law or equity. Unless expressly required in this
Agreement, a party shall not be required to exhaust all remedies available
under other agreements or at law or equity before recovering under the
remedies provided in this Agreement. Subject to any limitations provided in
this Agreement (for example, the limitation on filing claims for refund in
Section 4.08), the indemnifying party shall be subrogated to all rights of the
indemnified party for recovery from any third party.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by the respective officers as of the date set forth above.
VALERO ENERGY CORPORATION
By:
Its:
VALERO REFINING AND MARKETING
COMPANY
By:
Its:
PG&E CORPORATION
By:
Its:
