EXHIBIT 10.4
TAX ALLOCATION AGREEMENT
by and between
PLAINS RESOURCES INC.
and
PLAINS EXPLORATION & PRODUCTION COMPANY, L.P.
July 3, 2002
TABLE OF CONTENTS
Page
1. Spinco Group............................................................2
2. Tax Returns.............................................................2
3. Obligation for Payment of Taxes.........................................4
4. No Plains Tax Payments..................................................5
5. Spinco Tax Payments.....................................................5
6. Tax Benefits Before Spin-Off; Deferred Intercompany Gains...............7
7. Spinco Tax Benefits After Spin-Off; No Payment by Spinco................7
8. Tax Audits..............................................................8
9. Proposed Adjustments....................................................8
10. Notice of Settlement or Compromise......................................9
11. Spinco's Right to Contest...............................................9
12. Subsequent Adjustments or Refunds......................................10
13. Spinco Spin-Off Tax Indemnity..........................................11
14. Future Actions.........................................................12
15. Combined, Consolidated or Unitary Basis Returns........................13
16. Earnings and Profits Information.......................................13
17. Tax Interpretation.....................................................13
18. Consistent Tax Treatment...............................................14
19. Retention of Records...................................................14
20. Post Spin-Off Period Taxes.............................................14
21. Expenses...............................................................15
22. Definitions............................................................15
(a) "After-Tax Basis"................................................15
(b) "Agreed Rate"....................................................15
(c) "Code"...........................................................15
(d) "Conversion".....................................................15
(e) "Converted Corporation"..........................................15
(f) "Distribution Agreement".........................................16
(g) "Items of Loss or Tax Benefit"...................................16
(h) "Interim Period".................................................16
-i-
TABLE OF CONTENTS
(continued)
Page
(i) "Plains".........................................................16
(j) "Plains Group"...................................................16
(k) "Returns"........................................................16
(l) "Ruling".........................................................16
(m) "Short Period"...................................................16
(n) "Spinco".........................................................16
(o) "Spinco Group"...................................................16
(p) "Spin-Off".......................................................16
(q) "Spin-Off Date"..................................................16
(r) "Spin-Off Tax"...................................................17
(s) "Xxxxxxx Inc."...................................................17
(t) "Tax Authority"..................................................17
(u) "Taxes"..........................................................17
(v) "Transfer Tax"...................................................18
23. Notices................................................................18
24. Binding Effect; Successors.............................................18
25. Severability...........................................................19
26. Entire Agreement.......................................................19
27. Governing Law..........................................................20
28. Arbitration............................................................20
-ii-
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT, made and entered into as of the __day of
July, 2002, by and between Plains Resources Inc., a Delaware corporation
("Plains"), and Plains Exploration & Production Company, L.P., a California
limited partnership ("Plains E&P").
W I T N E S S E T H:
WHEREAS, Plains is the common parent of an affiliated group of corporations
(hereinafter referred to as the "Plains Group") within the meaning of Section
1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
members of the Plains Group have heretofore joined in filing consolidated
Federal income Tax Returns;
WHEREAS, on or about the date hereof, certain assets associated with the
upstream business conducted by the Plains Group, including the stock of certain
subsidiaries included in the Plains Group and engaged in the upstream business,
will be contributed to the capital of Spinco or otherwise acquired by Spinco or
one or more of its subsidiaries;
WHEREAS, Plains and Xxxxxxx Resources, Inc., the sole general partner of
Plains E&P ("Xxxxxxx Inc."), currently contemplate that Plains E&P will
(collectively, the "Conversion") (1) convert from a California limited
partnership to a Delaware limited partnership and immediately thereafter (2)
convert from a Delaware limited partnership to a Delaware corporation (such
corporation, the "Converted Corporation)";
WHEREAS, Plains, on a date to be determined by Plains (the "Spin-Off
Date"), will distribute to its stockholders all of the outstanding stock of
Spinco that it then holds (the "Spin-Off"), and thereafter Spinco and its
subsidiaries will no longer be members of the Plains Group for Federal income
Tax purposes; and
WHEREAS, the parties desire to provide for the sharing of the Federal,
state, local and foreign income Tax liabilities and benefits accrued prior to
the Spin-Off between Plains and its subsidiaries and Spinco and its
subsidiaries;
NOW, THEREFORE, the parties hereto agree as follows:
1. Spinco Group. For purposes of this Agreement, the "Spinco Group" shall
mean (i) Spinco, (ii) Spinco's subsidiaries, and (iii) those corporations and
other entities whose stock or ownership interests will be contributed to Spinco
prior to the Spin-Off Date, all of such subsidiaries of Spinco and such
corporations and other entities being listed on Exhibit A attached hereto.
Unless otherwise specified, whenever items of income, gain, loss, deduction,
credit, or other Tax attributes of Spinco are referred to in this Agreement
(hereinafter "Items of Loss or Tax Benefit"), the reference shall be to the
collective amounts of such items for the Spinco Group.
2. Tax Returns. Plains shall prepare and file or cause to be prepared and
filed timely all appropriate Returns in respect of Spinco and the other members
of the Spinco Group that (i) are required to be filed on or before the Spin-Off
Date; or (ii) are required to be filed after the Spin-Off Date that (A) are
required to include, on a consolidated, combined or unitary basis, the
operations of Spinco or any other member of the Spinco Group for any Tax period
or portion thereof ending on or before the Spin-Off Date; or (B) are required to
be filed by Spinco or any other member of the Spinco Group on a separate return
basis for any Tax period ending on or before the Spin-Off Date. To the extent
requested by Plains, Spinco shall participate in the filing of and shall file
any required Returns with respect to any Tax period that ends on or before the
Spin-Off Date. Spinco shall prepare or cause to be prepared the schedules in
respect of Spinco and other members of the Spinco Group containing the
information necessary for Plains to
-2-
prepare any consolidated, combined or unitary Returns. If Plains, after
consulting with Spinco, files any such consolidated, combined or unitary Return
using information with respect to Spinco and the other members of the Spinco
Group that is different from the information prepared and furnished by Spinco,
and Plains and Spinco thereafter are unable to resolve such difference, such
difference shall constitute a claim for purposes of Paragraph 28 of this
Agreement. Spinco shall also prepare or cause to be prepared and shall file or
cause to be filed all other Returns required of Spinco or any other members of
the Spinco Group, or in respect of its or any of their activities, for any Tax
period ending after the Spin-Off Date that includes the operations of Spinco or
any other member of the Spinco Group prior to the Spin-Off Date. The parties
hereto will, to the extent permitted by applicable law, elect with the relevant
Tax Authority to treat for all purposes the Spin-Off Date as the last day of a
Tax period of Spinco and the other members of the Spinco Group, and such period
shall be treated as a "Short Period" for purposes of this Agreement. In any case
where applicable law does not permit Spinco to treat the Spin-Off Date as the
last day of a Short Period, then for purposes of this Agreement, the portion of
such Taxes that is attributable to the operations of Spinco and the other
members of the Spinco Group for such Interim Period (as defined below) shall be
(i) in the case of Taxes that are not based in whole or in part on income or
gross receipts, the total amount of such Taxes for the period in question
multiplied by a fraction, the numerator of which is the number of days in the
Interim Period, and the denominator of which is the total number of days in the
entire period in question, and (ii) in the case of Taxes that are based in whole
or in part on income or gross receipts, the Taxes that would be due with respect
to the Interim Period, if such Interim Period were a Short Period. "Interim
Period" means with respect to any Taxes imposed on Spinco or any other members
of the Spinco Group for which the Spin-Off Date is not the last day of a Short
Period,
-3-
the period of time beginning on the first day of the actual Tax period that
includes (but does not end on) the Spin-Off Date and ending on and including the
Spin-Off Date. Any franchise Tax shall be allocated to the Tax period or portion
thereof during which the right to do business obtained by the payment of such
franchise Tax relates, regardless of whether such franchise Tax is measured by
income, operations, assets or capital relating to another Tax period.
3. Obligation for Payment of Taxes. Plains shall be entitled to receive
from Spinco amounts calculated in accordance with Paragraphs 5, 12 and 13
hereof. Except as otherwise provided in Paragraph 5, the amounts, if any, that
Spinco shall be obligated to pay Plains pursuant to Paragraph 5, with respect to
Tax periods of the Plains Group ending on or prior to the Spin-Off Date, shall
be paid (i) within 30 days after the Spin-Off Date where the Taxes were paid by
Plains on or before the Spin-Off Date and shall include interest thereon
calculated for the period from the Spin-Off Date to the date of payment at a per
annum rate of interest (computed on the basis of the actual number of days
elapsed (including the Spin-Off Date but excluding the payment date) over a year
of 365 or 366 days, as the case may be) equal to the underpayment rate under
Section 6601 of the Code, or (ii) within 30 days after the date of payment where
the Taxes are paid by Plains after the Spin-Off Date. This initial settlement
shall be based on the Returns as they have been filed and shall include any
amendments of or adjustments to such Returns that have been finally settled.
Except as otherwise provided in Paragraph 5, any amounts that Spinco shall be
obligated to pay Plains pursuant to Paragraph 5 with respect to Tax periods of
the Plains Group ending after the Spin-Off Date shall be paid within 30 days
after filing of the Returns for such Tax periods. In the event of an adjustment
to the amount of payment for any Tax period as determined under Paragraph 12,
Plains shall be entitled to receive from Spinco such payment within 30 days
after payment of a deficiency to or receipt of a refund
-4-
from the Tax Authority. In the event of an adjustment under Paragraph 12
resulting in no additional payment to or receipt of a refund from the Tax
Authority, settlement shall be made within 30 days after filing of the amended
Return or final settlement of the adjustment. In the event that Spinco is
delinquent in paying to Plains any amount due pursuant to this Paragraph 3,
including any interest accrued thereon pursuant to this Paragraph 3, such unpaid
amount shall bear interest from the original due date until paid at a per annum
rate equal to the lesser of (a) 18 percent and (b) the maximum lawful
non-usurious rate of interest, if any, which under applicable law Plains is
permitted to charge Spinco thereon from time to time.
4. No Plains Tax Payments. Notwithstanding any other provision of this
Agreement to the contrary, Plains shall not be obligated to pay Spinco for any
Items of Loss or Tax Benefit of the Spinco Group used by the Plains Group to
reduce its Federal income Tax liability or Federal taxable income for any Tax
period ending on or before the Spin-Off Date. For purposes of these
computations, the allocation of Tax attributes to the Spinco Group and
absorption thereof by the Plains Group for each Tax period shall be determined
in accordance with the Treasury Regulations under (S) 1502 of the Code, applied
in a manner consistent with practices and methods followed in reporting the
Federal income Tax liability of the Plains Group for such Tax periods. In any
instance where a Tax attribute must be characterized, the characterization
prescribed by the aforementioned Treasury Regulations will control.
5. Spinco Tax Payments. For each Tax period of the Plains Group which
includes income of the Spinco Group, Spinco shall be obligated to pay Plains an
amount equal to the product of (i) the net taxable income of the Spinco Group
included in the consolidated Federal income Tax Return of the Plains Group for
such period, multiplied by (ii) the highest marginal statutory Federal corporate
income Tax rate applicable to such income for such period; provided,
-5-
however, that no payment shall be required pursuant to this Paragraph 5 to the
extent such payments have previously been made by the Spinco Group to members of
the Plains Group other than the Spinco Group under any Tax sharing agreement or
arrangement (whether written or oral) or any other similar system of payments
with respect to Federal income Taxes of the Plains Group in existence prior to
the Spin-Off Date, including, but not limited to, any estimated Tax payments.
For purposes of these computations, the allocation of Tax attributes to the
Plains Group and absorption thereof by the Spinco Group for each Tax period
shall be determined in accordance with the Treasury Regulations under (S)1502 of
the Code, applied in a manner consistent with practices and methods followed in
reporting the Federal income Tax liability of the Plains Group for such Tax
periods. In any instance where a Tax attribute must be characterized, the
characterization prescribed by the aforementioned Treasury Regulations will
control. To the extent, if any, that the amount of Taxes Plains is required to
pay for a Tax period that includes any net taxable income of the Spinco Group is
less than the amount calculated as owed by Spinco to Plains under this Paragraph
5, the amount owed by Spinco to Plains shall be (i) reduced to the extent that
such difference is attributable to Items of Loss or Tax Benefit of the Plains
Group used which would have otherwise expired unused but for the fact that the
Spinco Group had net taxable income for such Tax period, or (ii) deferred to the
extent such difference is attributable to Items of Loss or Tax Benefit of the
Plains Group used which would have otherwise carried forward to a subsequent
year or years but for the fact that the Spinco Group had net taxable income for
such Tax period. In the event an amount otherwise payable by Spinco to Plains is
deferred pursuant to clause (ii) of the immediately preceding sentence, such
amount shall be paid by Spinco to Plains within 30 days after the filing of the
Tax Return for the Tax period in which such Tax benefits of the Plains Group
previously used would have been
-6-
used. Any amount payable by Spinco to Plains pursuant to the immediately
preceding sentence shall not be greater than the amount of Tax paid by Plains as
a consequence of the Tax benefits of the Plains Group previously having been
used to offset taxable income of the Spinco Group.
6. Tax Benefits Before Spin-Off; Deferred Intercompany Gains. For purposes
of the calculations under Paragraphs 5, 12 and 13 of this Agreement, any loss of
or decrease in any Items of Loss or Tax Benefit resulting from or attributable
to the transfer of assets to Spinco or any other member of the Spinco Group in
connection with the Spin-Off (under the Treasury Regulations governing Federal
consolidated returns) shall be ignored and all calculations shall be made as
though all such Items of Loss or Tax Benefit were available for use by the
Plains Group. In the event any deferred intercompany gain attributable to assets
transferred to Spinco or any other members of the Spinco Group by other members
of the Plains Group is recognized by the Plains Group by reason of the Spin-Off,
such deferred intercompany gain, if any, shall be deemed to be a gain of the
Spinco Group for its taxable year ending on the Spin-Off Date for purposes of
all calculations under this Agreement, including the calculation of Taxes owed
by Spinco to Plains pursuant to Paragraphs 3, 5, 12 and 13 hereof.
Notwithstanding anything in this Agreement to the contrary, with respect to any
items of income or gain resulting from an acceleration of an excess loss account
prior to or on the Spin-Off Date, Spinco shall not be liable to Plains for Taxes
or the use of Items of Loss or Tax Benefit resulting from those items of income
or gain.
7. Spinco Tax Benefits After Spin-Off; No Payment by Spinco.
Notwithstanding anything in this Agreement to the contrary, with respect to
items of loss or other Tax benefits apportioned to and carried over by the
Spinco Group after the Spin-Off (under the Treasury Regulations governing
Federal consolidated income Tax Returns) and regardless of whether such
-7-
Tax benefits (x) are used by the Spinco Group to reduce its Federal income Tax
liability after the Spin-Off or (y) expire unused by the Spinco Group, Spinco
shall not have any obligation to pay Plains for any such item of loss or other
Tax benefit.
8. Tax Audits. In the event of an audit by any Tax Authority of a Return
filed by Plains for any Tax period ending prior to or on the Spin-Off Date (or
any Tax period thereafter in which a carryforward of the Spinco Group's Tax
benefits is used), Plains shall give Spinco timely and reasonable notice of such
audit proceedings and Spinco shall have the right to participate in any such
audit; provided, however, that Plains shall have the full power and authority to
control such audit. In connection with any such audit, Spinco will provide all
necessary information and other assistance reasonably requested by Plains with
respect to issues concerning the activities of the Spinco Group. All
communications with any such Tax Authority and its employees concerning any such
audit will be made by Plains unless otherwise agreed between the parties hereto.
In connection with its participation in any audit, Spinco shall be given
reasonable notice of all material meetings, investigations, field examinations
and similar events and copies of all relevant material correspondence between
the Tax Authority conducting the audit and Plains.
9. Proposed Adjustments. Plains shall give prompt notice to Spinco of any
adjustment or adjustments proposed by any Tax Authority relating to the
activities of the Spinco Group for any Tax period ending prior to or on the
Spin-Off Date. After consulting with Spinco, Plains shall determine in its sole
discretion the nature of all action to be taken to contest such proposed
adjustment, including whether any such action shall initially be contested by
way of judicial or administrative proceedings, or both, whether any such
proposed adjustment shall be contested by resisting payment thereof or by paying
the same and seeking a refund thereof, and if
-8-
Plains shall undertake to contest such proposed adjustment, the court or other
judicial body before which such action will be commenced. Plains shall have full
control over any contest or administrative proceeding pursuant to this
Paragraph, but Spinco, at its expense and subject to approval by Plains, which
approval shall not be unreasonably withheld, may participate in any proceedings
contesting any proposed adjustment relating to the activities of the Spinco
Group.
10. Notice of Settlement or Compromise. Plains shall give prompt notice to
Spinco of any proposal made to it at the time of an audit or otherwise, to
settle or compromise issues relating to the Tax liabilities of the Spinco Group
for any Tax period ending prior to or on the Spin-Off Date. Plains will not
accept or offer any settlement or compromise of such issues without the consent
of Spinco, and such consent shall not be unreasonably withheld. If, in Plains's
opinion, Spinco unreasonably withholds such consent, Plains shall have the right
to settle or compromise such issues on the basis contained in the notice to
Spinco. If Spinco thereafter desires to dispute such settlement or compromise,
Spinco's claim with respect thereto shall constitute a claim for purposes of
Paragraph 28 of this Agreement.
11. Spinco's Right to Contest. Should Plains decline or cease to contest
any proposed adjustment relating to the activities of the Spinco Group for any
Tax period ending prior to or on the Spin-Off Date, Plains shall so notify
Spinco. Spinco, at its expense and upon providing reasonable assurances to
Plains of Spinco's ability to pay any Taxes resulting from any such proposed
adjustment, may contest such proposed adjustment; but in no event shall Spinco
be permitted to accept or offer any settlement or compromise that would require
the settlement or compromise of issues relating to the Tax liabilities of
members of the Plains Group other than the Spinco Group.
-9-
12. Subsequent Adjustments or Refunds. With respect to any Tax period of
the Plains Group after December 31, 2001, for which Plains received (or would be
entitled to receive) from Spinco a payment pursuant to Paragraph 5 or this
Paragraph 12, if the filing of an amended income Tax Return, final determination
of any adjustment made by any Tax Authority or the receipt of a refund by Plains
occurs with respect to such period and such event would cause a difference in
the amount of payment required for such period as previously calculated pursuant
to Paragraph 5 or this Xxxxxxxxx 00, Xxxxxx shall give Spinco prompt notice of
such difference and Plains shall be obligated to pay or entitled to receive from
Spinco the amount of such difference. Any amount required to be paid pursuant to
this Paragraph 12 shall include any interest imposed by or received from the Tax
Authority if the adjustment results in the payment of Tax to or receipt of Tax
from the Tax Authority.
In addition, Plains and Spinco acknowledge and agree that the tax sharing
agreement in effect for the Plains Group as of December 31, 2001, shall be
negated and canceled as of the Spin-Off Date. Plains and Spinco further agree
that there are no claims or causes of action under such tax sharing agreement as
of December 31, 2001, for periods ending on or before December 31, 2001, by
either of them or any member of their respective group against the other or any
member of the other's group, and they release each other from any and all such
claims. With respect to Taxes for periods ending after December 31, 2001, Plains
and Spinco agree that this Agreement shall control. Spinco agrees that it will
have no right to request that Plains file an amended return or a claim for
refund for any reason, unless Spinco agrees to pay any Tax liability shown
thereon or therein and Plains, in its absolute discretion (which may be withheld
for any reason), agrees. In the event Spinco generates net operating losses or
other Items of Loss or Tax Benefit after the Spin-Off Date that may otherwise be
carried back to the taxable income
-10-
or Tax liability of the Plains Group prior to the Spin-Off Date, Spinco agrees
to relinquish the entire carry back period with respect to each such net
operating loss or other Items of Loss or Tax Benefit under Section 172(b)(3) or
other appropriate sections and to carry forward any such losses and other items.
13. Spinco Spin-Off Tax Indemnity. Notwithstanding any other provision of
this Agreement to the contrary, Spinco shall be liable for, shall pay and shall
indemnify and hold Plains and the other members of the Plains Group harmless, on
an After-Tax Basis, against (A) any Transfer Taxes and other Taxes which may be
imposed or assessed as a result of the contribution by Plains to the capital of
Spinco or the acquisition (by sale or purchase or otherwise) by Spinco or one or
more of the other members of the Spinco Group of assets associated with the
upstream business conducted by the Plains Group, including the stock of certain
subsidiaries included in the Plains Group and engaged in the exploration and
production business, (B) any Taxes resulting from the recognition of deferred
intercompany gains as contemplated by Paragraph 6 hereof, and (C) any Spin-Off
Tax. In determining the amount of, and the time of payment of, any such Transfer
Taxes, other Taxes or Spin-Off Tax owed by Spinco to Plains, the principles set
forth in the last three sentences of Paragraph 5 shall apply.
In addition, Spinco shall be liable, and shall indemnify Plains, for 50
percent of any Tax to which Plains or any member of the Plains Group is subject
as a result of the application of any provision of the Code to the Spin-Off,
including without limitation, Section 311(b), Section 355(c)(2), Section 355(e)
or Section 361(c)(2) of the Code (or any corresponding or similar provision of
state, local or foreign law), other than (i) any Spin-Off Tax, which is provided
for in the immediately preceding paragraph, or (ii) any such Tax which results
(x) solely from the fact that one or more persons acquire after the Spin-Off
Date directly or
-11-
indirectly stock representing a 50-percent or greater interest in Plains and
such acquisition is subject to Section 355(e) of the Code, (y) from the failure
of Plains or any other member of the Plains Group (other than Spinco or any
other member of the Spinco Group) to comply with the covenants, agreements and
representations in the Ruling, except to the extent that any of the covenants,
agreements or representations require compliance by Spinco or any other member
of the Spinco Group after the Spin-Off, or (z) from any action by, or failure to
take an action on the part of, Plains or any other member of the Plains Group
(other than Spinco or any other member of the Spinco Group).
14. Future Actions. Spinco agrees that, during the three-year period
following the Spin-Off, it will not engage in any transaction that could
adversely affect the tax treatment of the Spin-Off without the prior written
consent of Plains, which consent may be withheld only if reasonable, unless (i)
Spinco delivers to Plains a supplemental ruling from the Internal Revenue
Service or a tax opinion acceptable to Plains of nationally recognized tax
counsel to the effect that the proposed transaction would not adversely affect
the tax treatment of the Spin-Off, or (ii) Spinco or another person or entity
acceptable to Plains provides to, or for the benefit of, Plains a cash escrow,
letter of credit or other comparable security acceptable to Plains in an amount
equal to the Taxes and accrued interest thereon (which accrued interest shall be
increased over time until such Taxes are paid or determined not to be payable)
that Plains reasonably calculates would be payable if the Spin-Off were
determined to be a taxable event for Tax purposes, with the terms and conditions
of any such cash escrow, letter of credit or other security being mutually
acceptable to Plains and Spinco or such other person or entity, as the case may
be. Plains agrees to cooperate with and provide reasonable assistance to Spinco
in the event that Spinco requests a supplemental ruling from the Internal
Revenue Service.
-12-
15. Combined, Consolidated or Unitary Basis Returns. The parties
acknowledge that certain state, local or foreign Tax Authorities may require, or
one of the parties may desire, to file amended or original state, local or
foreign income Tax Returns on a combined, consolidated or unitary basis. In this
regard, Spinco agrees that it will have no right to request that Plains file an
amended return or a claim for refund for any reason, unless Spinco agrees to pay
any Tax liability shown thereon or therein and Plains, in its absolute
discretion (which may be withheld for any reason), agrees. Such filing may
result in an aggregate decrease in the state, local or foreign income Tax of
both parties; however, one party may suffer a Tax increase compared to its
state, local or foreign income Tax liability calculated on a separate company
basis, while the other party enjoys a Tax decrease. In any such event, the
parties intend that the required calculations for determining which party owes
Taxes to the other with respect thereto be made by utilizing the principles set
forth in Paragraphs 3, 4, 5 and 12 hereof.
16. Earnings and Profits Information. The parties agree to share such
information as is necessary to allocate properly the earnings and profits of the
Spinco Group in accordance with the Code and Treasury Regulations for Tax
periods prior to or ending on the Spin-Off Date. After the Spin-Off, Plains
agrees to provide Spinco and Spinco's independent auditors with such information
as is necessary to verify amounts received or receivable or paid or payable by
Spinco under this Agreement. Spinco agrees to make available to Plains, upon
request, all Federal, state, local and foreign Tax Returns, work papers and
other documents pertaining to the activities of the Spinco Group prior to the
Spin-Off.
17. Tax Interpretation. For all Tax purposes and notwithstanding any other
provision of this Agreement, to the extent permitted by applicable law, the
parties hereto shall treat any payment made pursuant to this Agreement as a
capital contribution or dividend distribution, as
-13-
the case may be, immediately prior to the Spin-Off Date and, accordingly, as not
includible in the taxable income of the recipient. If it is finally determined
that the receipt or accrual of any payment made under this Agreement is taxable
to the recipient, the payor shall pay to the recipient, on an After-Tax Basis,
an amount equal to any increase in the Taxes of the recipient as a result of
receiving the payment from the payor.
18. Consistent Tax Treatment. To the extent that assets are assigned, sold,
transferred or conveyed by a member of the Plains Group to Spinco or another
member of the Spinco Group in contemplation of the Separation (as defined in the
Distribution Agreement) or the Spin-Off and any such transaction is treated as a
sale for Tax purposes, the aggregate purchase price shall be allocated among the
assets assigned, sold, transferred or conveyed as determined by Plains in its
sole discretion. Each of Plains and Spinco agrees to report and, where
applicable, to cause the members of their respective groups to report, the
purchase prices of such assets as determined by Plains.
19. Retention of Records. Each party hereto agrees, to the extent
potentially relevant to the other party, to (1) retain, in accordance with
Plains' record retention policies in effect on the date of this Agreement, all
records, documents, accounting and other information (including computer data)
necessary for the preparation and filing of all Returns or the audit of such
Returns, and (2) give to the other party reasonable access to such records,
documents, accounting data, Returns and related books and records and other
information (including computer data) and to its personnel (insuring their
cooperation) and premises, for purposes of the review or audit of such Returns
to the extent relevant to an obligation or liability of a party under this
Agreement.
20. Post Spin-Off Period Taxes. Except as otherwise provided to the
contrary in this Agreement, (i) Plains and the other members of the Plains Group
(which, for this purpose, shall
-14-
not include Spinco and the other members of the Spinco Group) shall be solely
responsible for all Taxes of the Plains Group (which, for this purpose, shall
not include Spinco and the other members of the Spinco Group) arising in Tax
periods beginning after the Spin-Off Date, and (ii) Spinco and the other members
of the Spinco Group shall be solely responsible for all Taxes of the Spinco
Group arising in Tax periods beginning after the Spin-Off Date.
21. Expenses. Each party will bear its own expenses in complying with this
Agreement, including but not limited to the cost of employee work hours. The
sharing of fees and expenses of nonemployees and independent contractors
mutually engaged by the parties shall be agreed upon before such persons are
engaged.
22. Definitions.
(a) "After-Tax Basis" means, with respect to any payment, an amount
calculated by taking into account the Tax consequences of the receipt of such
payment, as well as any Tax benefit associated with the liability giving rise to
the payment, in each case calculated on a present value basis using the Agreed
Rate.
(b) "Agreed Rate" means the annual rate of interest quoted, from time
to time, by JPMorgan Chase Bank in Houston, Texas as its prime rate of interest
for the purpose of determining the interest rates charged by it for United
States dollar commercial loans made in the United States.
(c) "Code" has the meaning set forth in the first recital hereof.
(d) "Conversion" has the meaning set forth in the third recital
hereto.
(e) "Converted Corporation" has the meaning set forth in the third
recital hereto.
-15-
(f) "Distribution Agreement" means that certain Master Separation
Agreement dated as of the date hereof, by and between Plains and Spinco, as the
same may be amended or otherwise modified from time to time pursuant to the
terms thereof.
(g) "Items of Loss or Tax Benefit" has the meaning set forth in
Paragraph 1 hereof.
(h) "Interim Period" has the meaning set forth in Paragraph 2 hereof.
(i) "Plains" has the meaning set forth in the preamble hereto.
(j) "Plains Group" has the meaning set forth in the first recital
hereto.
(k) "Returns" means all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes, and the term "Return"
means any one of the foregoing Returns.
(l) "Ruling" means that certain private letter ruling issued by the
Internal Revenue Service on May 22, 2002, with respect to the Spin-Off and
relating to the tax consequences associated with the distribution of all
outstanding shares of Spinco common stock, as the same may be amended,
supplemented or otherwise modified or added to by the Internal Revenue Service
on or before the Spin-Off Date.
(m) "Short Period" has the meaning set forth in Paragraph 2 hereof.
(n) "Spinco" means, as the case may be, Plains E&P or the Converted
Corporation.
(o) "Spinco Group" has the meaning set forth in Paragraph 1 hereof.
(p) "Spin-Off" has the meaning set forth in the fourth recital hereof.
(q) "Spin-Off Date" has the meaning set forth in the fourth recital
hereof.
-16-
(r) "Spin-Off Tax" means any Tax to which Plains or any member of the
Plains Group is subject as a result of the application of any provision of the
Code to the Spin-Off, including without limitation, Section 311(b), Section
355(c)(2), Section 355(e) or Section 361(c)(2) of the Code (or any corresponding
or similar provision of state, local or foreign law), which results (i) solely
from the fact that one or more persons acquire after the Spin-Off Date directly
or indirectly stock representing a 50-percent or greater interest in Spinco and
such acquisition is subject to Section 355(e) of the Code; (ii) from the failure
of Spinco or any other member of the Spinco Group to comply with the covenants,
agreements and representations in the Ruling; (iii) from any action by, or
failure to take an action on the part of, Spinco or any other member of the
Spinco Group, or (iv) from any combination of (i) through (iii) above.
(s) "Xxxxxxx Inc." has the meaning set forth in the third recital
hereto.
(t) "Tax Authority" means the United States Internal Revenue Service
or any other comparable state, local or foreign governmental authority.
(u) "Taxes" means all federal, state, local, foreign and other taxes,
duties, levies, imposts, customs or other assessments, including, without
limitation, all net income, alternative minimum, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, profit share, license,
value added, withholding, payroll, employment, excise, estimated, severance,
stamp, occupation, premium, property, windfall profits, or other taxes, of any
kind whatsoever, together with any interest, penalties, additions to tax, fines
or other additional amounts imposed thereon or related thereto, and the term
"Tax" means any one of the foregoing Taxes.
-17-
(v) "Transfer Tax" means any excise, sales, use, transfer,
documentary, filing, recordation or other similar tax or fee, together with any
interest, additions or penalties with respect thereto and any interest in
respect of such additions or penalties.
23. Notices. All notices and other communications to be given or made
hereunder shall be in writing and shall be (a) personally delivered with signed
receipt obtained acknowledging delivery; (b) transmitted by postage prepaid
registered mail, return receipt requested (air mail if international); or (c)
transmitted by facsimile; to a party at the address set out below (or at such
other address as it may have provided notification for the purposes hereof to
the other party hereto in accordance with this Section).
If to Spinco: Plains Exploration & Production Company, L.P.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Fax number: 000-000-0000
Attention: General Counsel
If to Plains: Plains Resources Inc.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Fax number: (000) 000-0000
Attention: Chief Executive Officer
24. Binding Effect; Successors. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and any
successor, by merger, acquisition of substantially all of a party's assets or
otherwise, to either of the parties hereto (including but not limited to any
successor of Plains or Spinco succeeding to the Tax attributes of Plains or
Spinco under Section 381 of the Code), to the same extent as if such successor
had been an original party to this Agreement. In addition, in the event of an
acquisition of substantially all of the assets of Spinco in which gain or loss
is not recognized, in whole or in part, for Federal
-18-
income Tax purposes, Spinco shall ensure that any purchaser of such assets shall
assume the obligations set forth in this Agreement.
25. Severability. Any provision of this Agreement that is determined by
arbitration as provided herein or a court of competent jurisdiction to be
invalid, illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable, so long as the
material purposes of this Agreement can be determined and effectuated. Should
any provision of this Agreement be so declared invalid, illegal or
unenforceable, the parties shall agree on a valid provision to substitute for
it.
26. Entire Agreement. This Agreement, including the exhibit and other
writings referred to herein or delivered pursuant hereto and the Distribution
Agreement, as well as the other agreements entered into by and between Plains
and Spinco in connection with the transactions contemplated by the Distribution
Agreement, constitutes the entire agreement between Plains and Spinco with
respect to the subject matter hereof and supersedes all other agreements,
representations, warranties, statements, promises and undertakings, whether oral
or written, with respect to the subject matter hereof, including, without
limitation, any and all Tax sharing agreements or arrangements (whether oral or
written) between Plains and the other members of the Plains Group (other than
the Spinco Group) on the one hand and Spinco and the other members of the Spinco
Group on the other hand, that require payments or indemnities to be made with
respect to Taxes. This Agreement may not be amended, altered or modified except
by a writing signed by duly authorized officers of Plains and Spinco.
-19-
27. Governing Law. All questions arising out of this Agreement and the
rights and obligations created herein, or its validity, existence,
interpretation, performance or breach, shall be governed by and construed in
accordance with the internal laws of the State of Texas, without regard to or
the application of the rules of conflicts of laws set forth in such laws.
28. Arbitration. The parties agree that any claim arising out of or related
to this Agreement shall be governed by the dispute resolution, arbitration and
choice of forum provisions set forth in Article VIII of the Distribution
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PLAINS RESOURCES INC.
By: /s/ Xxxx X. Xxxxxxxx
-----------------------------------------
Xxxx X. Xxxxxxxx
Executive Vice President
PLAINS EXPLORATION & PRODUCTION
COMPANY, L.P.
By: Xxxxxxx Resources, Inc., its Sole General
Partner
By: /s/ Xxxx X. Xxxxxxxx
-----------------------------------------
Xxxx X. Xxxxxxxx
Vice President
-20-
