EXHIBIT 10.1
TAX SHARING AGREEMENT
By and Among BP America Inc.
and Affiliated Corporations
Dated Effective April 18, 2000
TABLE OF CONTENTS
1. DEFINITIONS............................................................................................ 2
2. SCOPE AND COOPERATION.................................................................................. 8
3. FILING OF RETURNS...................................................................................... 9
4. PRO FORMA VRI RETURN; VRI PRO FORMA STATEMENT; PRO FORMA STATE RETURN.................................. 9
5. PAYMENTS BY VRI........................................................................................ 9
6. PAYMENTS TO VRI........................................................................................ 9
7. USE OF ATTRIBUTES; ADDITIONAL RIGHTS AND OBLIGATIONS UPON DECONSOLIDATION.............................. 9
8. ADJUSTMENTS............................................................................................ 9
9. REMITTANCES BY AND TO VRI.............................................................................. 9
10. CARRYBACK AND CARRYFORWARDS............................................................................ 9
11. ALLOCATION OF BPA GROUP CONSOLIDATED TAX LIABILITY FOR PURPOSES OF DETERMINING EARNINGS AND PROFITS.... 9
12. BPA CONTROL OF CONDUCT OF AUDITS, LITIGATION; EXPENSES................................................. 9
13. INDEMNIFICATION FOR CERTAIN INCOME TAXES............................................................... 9
14. PARTNERSHIP INTERESTS.................................................................................. 9
15. LIMITATIONS ON CERTAIN PRO FORMA VRI RETURN DEDUCTIONS................................................. 9
16. ADMINISTRATION; RESOLUTION OF DISPUTES................................................................. 9
17. INTERPRETATION......................................................................................... 9
18. EFFECT OF AGREEMENT.................................................................................... 9
19. TERM................................................................................................... 9
20. ASSIGNMENT............................................................................................. 9
21. CONFIDENTIALITY........................................................................................ 9
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22. DOCUMENTATION.......................................................................................... 9
23. ADDITIONAL MEMBERS..................................................................................... 9
24. TAX LAW CHANGES........................................................................................ 9
25. SUCCESSORS AND ASSIGNS................................................................................. 9
28. COUNTERPARTS........................................................................................... 9
29. HEADINGS............................................................................................... 9
30. SEVERABILITY........................................................................................... 9
31. ENTIRE AGREEMENT....................................................................................... 9
32. CONFLICTS BETWEEN THIS AGREEMENT AND THE STOCK PURCHASE AGREEMENT...................................... 9
33. NOTICES................................................................................................ 9
34. GOVERNING LAW.......................................................................................... 9
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TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT is made and entered into as of the Effective Date,
by and among BP AMERICA INC., a Delaware corporation ("BPA"), as Common Parent,
VASTAR RESOURCES, INC., a Delaware corporation ("VRI"), and the Subsidiaries (as
hereinafter defined) of VRI that are signatories hereto.
WHEREAS, BPA is the Common Parent of the BPA Group, which includes the VRI
Group, and files a Consolidated Return for the BPA Group;
WHEREAS, VRI would be the Common Parent of an Affiliated Group comprised of
VRI and its Subsidiaries if it were not a Subsidiary of BPA;
WHEREAS, certain state and local consolidated, combined or unitary income or
franchise tax returns shall be filed for various Members or for the BPA Group;
WHEREAS, VRI and Atlantic Richfield Company, a Delaware corporation ("ARCO")
had previously entered into a tax sharing agreement dated as of October 1, 1993,
as amended as of June 1, 1995, January 1, 1997 and October 30, 1998 (such
agreement, as amended, the "Prior Agreement"), which agreement shall apply to
all Taxable Years (as that term is defined in the Prior Agreement) beginning
prior to the Effective Date;
WHEREAS, the parties hereto wish to provide for the sharing of the BPA Group
Consolidated Tax Liability and the state and local income and franchise tax
liabilities relating to such consolidated, combined or unitary returns and
certain other matters relating to the inclusion of the VRI Group in the BPA
Group; and
WHEREAS, VRI and its Subsidiaries desire to be indemnified by BPA with
respect to certain income tax liabilities, and BPA is willing to so indemnify
VRI and each of the Subsidiaries of the VRI Group.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
1. Definitions.
The following terms as used in this Agreement, shall have the meanings set
forth below:
(a) Actual Basis shall have the meaning attributed to that term in Section 7(b)
of this Agreement.
(b) Affiliated Group shall have the meaning attributed to that term in section
1504(a) of the Code.
(c) Agreement shall mean this Tax Sharing Agreement, as amended from time to
time.
(d) Benchmark amount shall have the meaning attributed to that term in Section
4(h)(x) of this Agreement.
(e) BPA Group, as of any particular date, shall mean the Affiliated Group of
which BPA (or any successor thereto) is the Common Parent as of such date.
(f) BPA Group Consolidated Tax Liability shall mean the consolidated federal
income tax liability of the BPA Group for any Taxable Year for which the
BPA Group files a Consolidated Return.
(g) Calculated Basis shall have the meaning attributed to that term in Section
7(b) of this Agreement.
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(h) Code shall mean the Internal Revenue Code of 1986, as amended, and shall
include corresponding provisions of any subsequently enacted federal tax
laws.
(i) Common Parent shall have the meaning of that term as it is used in the
Consolidated Return Regulations.
(j) Completion, for any Taxable Year of the BPA Group, shall mean the date on
which the Pro Forma VRI Tax Return (or, if applicable, any Pro Forma State
Return) for such Taxable Year is delivered to BPA pursuant to Section 4 of
this Agreement.
(k) Consolidated Return, for any Taxable Year of the BPA Group, shall mean a
consolidated federal income tax return filed pursuant to section 1501 of
the Code by the Common Parent for such Taxable Year.
(l) Consolidated Return Regulations shall mean Income Tax Regulations sections
1.1502-1 through 1.1502-100 (26 C.F.R.), as amended from time to time.
(m) Conveyance Agreement shall mean that certain General Conveyance and
Assumption Agreement, dated as of October 8, 1993, between ARCO and VRI.
(n) Designated Credit shall mean (i) in the case of income tax credits
described in section 29 of the Code ("section 29 credits") that do not
constitute Refundable Designated Credits, as defined below, the product of
the amount of such credits multiplied by 96.75% (or by 100% in the event
that VRI has made a Section 4(h)(iv)(B) Election to receive payment for
such credits, solely for purposes of calculating the amount of such
payment), (ii) Refundable Designated Credits and (iii) income tax credits
described in section 43 of the Code ("section 43 credits"), provided that
all of such credits are generated by any member of the VRI Group (1) in the
ordinary course of its trade or business of exploration, development,
production and marketing of
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natural resources and (2) from interests in properties that are acquired by
any Member of the VRI Group in the ordinary course of its trade or
business. All determinations of whether a Designated Credit was generated
or whether a property was acquired by a Member of the VRI Group in the
ordinary course of its trade or business shall be made by BPA in its sole
and absolute discretion. Upon request from BPA, VRI shall provide
certifications relating to the facts associated with the generation or
acquisition of such credits and shall furnish such additional data or
information as BPA may require in order to make such determinations.
(o) Discount Factor shall have the meaning attributed to that term in Section
4(h)(iv)(B) of this Agreement.
(p) Eligible Credits shall have the meaning attributed to that term in Section
4(h)(iv)(B) of this Agreement.
(q) Eligible Refundable Designated Credit shall have the meaning attributed to
that term in Section 4(h)(iii) of this Agreement.
(r) Effective Date shall mean April 18, 2000.
(s) Exchange Agreement shall mean that certain exchange agreement dated as of
August 4, 1998 by and among Mobil Exploration & Producing US, Inc., as
agent for Mobil Oil Exploration & Producing Southeast Inc. and Mobil Texas
& New Mexico Inc., and Western Midway Company."
(t) Final Determination shall mean with respect to any issue or item (i) the
execution of a final and irrevocable closing agreement or other settlement
agreement with the Service (as hereinafter defined) or the relevant state
or local taxing authorities, (ii) the expiration of the time for filing a
claim for refund or, if a refund claim has been
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timely filed, the expiration of the time for instigating suit in respect of
such refund claim, (iii) the expiration of the time for filing a petition
with the Tax Court or the relevant state or local tribunal if no such
petition has been filed and no suit has been instigated in respect of the
subject matter of such petition, or (iv) a final, unappealable decision of
any court of competent jurisdiction.
(u) Includible Corporation shall have the meaning attributed to that term in
section 1504(b) of the Code.
(v) Income Tax Regulations shall mean the regulations (26 C.F.R.), as amended
from time to time, promulgated pursuant to the Code.
(w) Member, for any Taxable Year of the BPA Group, shall mean any corporation
(or any predecessor or successor in interest to such corporation under
section 381 of the Code or otherwise which was or is an Includible
Corporation) which at any time during such Taxable Year is an Includible
Corporation that is included in the BPA Group and shall include any such
corporation which at any time during such Taxable Year is the Common
Parent.
(x) New property shall have the meaning attributed to that term in Section
4(h)(iii) of this Agreement.
(y) Prior Agreement shall have the meaning attributed to that term in the
preamble to this Agreement
(z) Pro Forma State Return shall have the meaning attributed to that term in
Section 4(i) of this Agreement.
(aa) Pro Forma VRI Return shall have the meaning attributed to that term in
Section 4(a) of this Agreement.
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(bb) Reconciliation Statement shall have the meaning attributed to that term in
Section 4(d) of this Agreement.
(cc) Redetermined Basis shall have the meaning attributed to that term in
Section 7(b) of this Agreement.
(dd) Refundable Designated Credit shall have the meaning attributed to that term
in Section 4(h)(iii) of this Agreement.
(ee) Section 4(h)(iv)(B) Election shall have the meaning attributed to that term
in Section 4(h)(iv)(B) of this Agreement.
(ff) Service shall mean the Internal Revenue Service.
(gg) Stock Purchase Agreement shall mean that certain stock purchase agreement
dated as of August 4, 1998 between ARCO and VRI.
(hh) Subsidiary shall mean as to any entity (the parent corporation) a
corporation that would be an Includible Corporation in an Affiliated Group
of which the parent corporation would be the Common Parent.
(ii) Taxable Year shall mean any taxable year or portion thereof beginning on or
after the Effective Date, with respect to which a Consolidated Return is
filed on behalf of the BPA Group which includes VRI (or any successor
corporation) or (in the case of any consolidated, combined or unitary state
or local return) any such taxable year with respect to which a
consolidated, combined or unitary state or local income tax return is filed
by BPA or any Subsidiary of BPA (other than VRI or any Subsidiary of VRI)
which includes VRI or any Subsidiary of VRI; provided, however, that if VRI
or a Subsidiary of VRI is included in the BPA Group for only a portion of a
Taxable Year of the BPA Group, the "Taxable Year" with respect to VRI or
such Subsidiary shall include only that
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portion of the Taxable Year in which VRI or such Subsidiary is included in
the BPA Group.
(jj) VRI Group shall mean VRI and those present and future corporations that
would be considered Includible Corporations of an Affiliated Group of which
VRI would be the Common Parent if it were not includible in the BPA Group.
(kk) VRI Group Consolidated Tax Liability shall for any Taxable Year mean the
consolidated federal income tax liability imposed under sections 11, 55 and
59A of the Code or any successor provisions thereto, determined on the
basis of the Pro Forma VRI Return, as adjusted by BPA pursuant to this
Agreement. In making such computation for any such Taxable Year, such
liability shall be determined:
(i) on the basis of the highest rate of corporate tax in effect for such
taxable year under section 11 of the Code, as though such rate were
the only income tax rate in effect for such Taxable Year,
(ii) on the assumption that the "exemption amount" specified in section 55
of the Code for such Taxable Year is zero, and
(iii) on the further assumption that the amount specified in section
59A(a)(2) of the Code for such Taxable Year is zero.
(ll) VRI Group State and Local Tax Liability, for a Taxable Year, shall mean the
aggregate state and local income tax liability and franchise tax liability
with respect to franchise taxes that are based upon or measured by income
(all such taxes are referred to herein as income taxes) with respect to
each relevant state or local taxing jurisdiction for any Taxable Year for
which VRI and/or any Subsidiary of VRI participates with BPA and/or any
Subsidiary of BPA (other than VRI or any of its Subsidiaries) in the filing
of a
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consolidated, combined or unitary state or local income tax return or
report with such jurisdiction computed in a manner consistent with the
steps taken in the computation of the VRI Group Consolidated Tax Liability
that VRI and/or any of its Subsidiaries would have incurred with respect to
each such jurisdiction for such Taxable Year if VRI and/or any such
Subsidiary had filed with each such jurisdiction either a separate return
(in a case where only one Member of the VRI Group joins in the filing of
such consolidated, combined or unitary return) or a consolidated, combined
or unitary return (in a case where more than one Member of the VRI Group
joins in the filing of such consolidated, combined or unitary return)
including only those Members of the VRI Group actually joining in such
consolidated, combined or unitary return.
(mm) VRI Pro Forma Statement shall have the meaning attributed to that term in
Section 4(e) of this Agreement.
2. Scope and Cooperation.
(a) Scope. This Agreement relates solely to (i) federal income tax liabilities
and (ii) income tax liabilities with respect to certain state and local
jurisdictions in which VRI and/or any Subsidiary of VRI participates with
BPA or any Subsidiary of BPA (other than VRI or any of its Subsidiaries) in
the filing of a consolidated, combined or unitary return. Under this
Agreement, the VRI Group will, with certain modifications set forth in this
Agreement, compute its tax liability as if the VRI Group was not part of
the BPA Group. However, so long as VRI or any Subsidiary of VRI is a
Member of the BPA Group, the VRI Group is obligated to provide information
and make payments of the VRI Group Consolidated Tax Liability and the VRI
Group State and Local Tax Liability to BPA, and is subject to the standards
and control of BPA in preparing and filing the
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Consolidated Return (and any applicable state or local consolidated,
combined or unitary returns).
(b) Cooperation. BPA and VRI shall cooperate, and each shall cause its
respective Subsidiaries to cooperate, fully in the implementation of this
Agreement on a consolidated basis, including but not limited to, providing
promptly to the requesting party such assistance and documentation (at the
expense of the providing party if related to any Taxable Year) as may be
requested by such party in connection with the preparation or filing of the
Consolidated Return (and any applicable state or local consolidated,
combined or unitary returns), audit or other examination, or judicial or
administrative proceeding or determination relating thereto.
3. Filing of Returns.
(a) Appointment of BPA as Agent For Consolidated Return. VRI and each of its
Subsidiaries hereby appoint BPA as their agent, with respect to all periods
during which VRI or such Subsidiary, as the case may be, is a Member of the
BPA Group, for the purpose of filing the Consolidated Return and for making
any election or application or taking any action in connection therewith on
behalf of VRI and such Subsidiary. Nothing herein shall be construed as
requiring BPA to file a Consolidated Return for any Taxable Year;
provided, however, that if BPA decides not to file a Consolidated Return it
shall notify VRI in writing within a period reasonably sufficient to permit
VRI to file timely returns for Members of the VRI Group.
(b) BPA Control Over Consolidated Return. BPA shall prepare and file, or cause
to be prepared and filed, the Consolidated Return and any other documents
or statements required to be filed with the Service that pertain to the
determination of the
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BPA Group Consolidated Tax Liability for each Taxable Year of the BPA
Group. In its sole and absolute discretion, BPA shall have the right with
respect to any Consolidated Return that it has filed or will file to
determine (regardless of the manner in which an item or matter may have
been reported by VRI on a Pro Forma VRI Return):
(i) the manner in which such Consolidated Return, as well as any other
documents or statements incidental or related thereto, shall be prepared
and filed, including without limitation, the manner in which any item of
income, gain, loss, deduction, expense or credit of VRI or any Subsidiary
of VRI shall be reported therein or thereon;
(ii) whether any extensions with respect to any Consolidated Return will be
requested;
(iii) the elections that will be made in any such Consolidated Return by
any Member, including without limitation, elections by VRI or any
Subsidiary of VRI;
(iv) whether to file an amended Consolidated Return and to prosecute,
compromise or settle any claim for refund set forth therein; and
(v) whether any refunds to which the BPA Group may be entitled shall be
paid by way of cash refund or credited against the BPA Group Consolidated
Tax Liability for any Taxable Year or Taxable Years of the BPA Group.
VRI and each Subsidiary of VRI hereby irrevocably appoints BPA as its agent
and attorney-in-fact to take any action (including the execution of
documents) as BPA may deem appropriate to effect the foregoing. Nothing
contained in this
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Agreement shall limit BPA's discretion to determine the manner in which any
item shall be reported on the Consolidated Return.
(c) Appointment of BPA as Agent for Certain Consolidated, Combined or Unitary
State and Local Returns. VRI and each Subsidiary of VRI hereby appoint BPA
as its agent, with respect to all periods during which VRI or such
Subsidiary, as the case may be, is a Member of the BPA Group, for the
purpose of filing any consolidated, combined or unitary state or local
income tax returns that include any Member of the VRI Group that BPA (or
any Subsidiary of BPA, other than VRI or any of its Subsidiaries) may elect
to file, and for making any election or application or taking any action in
connection therewith on behalf of VRI and such Subsidiary. VRI and each of
its Subsidiaries hereby consent to the filing of such returns, and to the
making of such elections and applications. Nothing contained in the
Agreement shall be construed as requiring BPA or any Subsidiary of BPA to
file consolidated, combined or unitary state or local income tax returns on
behalf of VRI or any Subsidiary of VRI for any Taxable Year. BPA shall in
its sole and absolute discretion determine whether and with respect to
which jurisdictions VRI or any of its Subsidiaries shall participate in the
filing of any consolidated, combined or unitary state or local returns with
BPA or any Subsidiary of BPA (other than VRI or any Member of the VRI
Group); provided, however, that if BPA or any Subsidiary of BPA decides not
to file a consolidated, combined or unitary state or local return with VRI
or any of its Subsidiaries, BPA shall notify VRI in writing within a period
reasonably sufficient to permit VRI to file or cause to be filed timely
returns for VRI or any of its Subsidiaries.
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(d) Other Returns. VRI and its Subsidiaries shall be solely responsible for
filing all tax returns not described in subsections (b) and (c) of this
Section 3 and that relate solely to VRI and/or its Subsidiaries.
(e) Assistance and Responsibility for Support of Returns; Provision of
Financial Data. VRI and its Subsidiaries shall assist BPA in the filing,
to the extent permitted by law, of a Consolidated Return and such
consolidated, combined or unitary income tax returns for Members of the BPA
Group (including the VRI Group) as BPA elects to file or cause to be filed,
by maintaining such books and records and providing such information as may
be necessary or useful in the filing of such returns and executing any
documents and taking any actions which BPA may reasonably request in
connection therewith, including without limitation, maintaining adequate
programs for the compilation and review of financial data; the review of
transactions and accounting methods; and the preparation of returns and of
supporting documentation to assure that such returns and all related
reports and schedules are complete and accurate. VRI shall, at its own
expense, provide BPA with all information required by BPA to reflect
completely and accurately the financial results of the VRI Group in the BPA
Group's Consolidated Return (or a state and local consolidated, combined or
unitary return that includes a Member of the VRI Group). Such information
shall be in such form as determined by BPA from time to time and shall be
delivered to BPA on a mutually agreed upon date, but in no event later than
60 days prior to the due date of the BPA Group's Consolidated Return
(taking into account any extensions thereof that have been granted to BPA)
or the corresponding due date with respect to an applicable state and local
consolidated, combined or unitary return. VRI shall, at its own expense,
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maintain sufficient books, records and expertise to support all returns,
positions taken thereon and methods used to prepare such returns until
there has been a Final Determination with respect to all issues included on
such returns. BPA and VRI shall provide one another with such other
information concerning such returns and the application of payments made
under this Agreement as BPA or VRI may reasonably request of one another.
BPA shall timely provide any applicable tax projection information
previously prepared by BPA to VRI upon VRI's reasonable request to assist
VRI with its budget and planning processes and with making any decisions
required or allowed under Section 4(h)(iv)(B) of this Agreement. For each
Taxable Year ending on or before December 31, 2002, BPA shall also provide
VRI with sufficient data so that VRI may determine the amount of Designated
Credits (and other credits that would be treated as Designated Credits if
such credits were generated by a member of the VRI Group) that were
actually used on the BPA Group's Consolidated Return for such Taxable Year.
4. Pro Forma VRI Return; VRI Pro Forma Statement; Pro Forma State Return.
(a) Initial Preparation of Pro Forma VRI Return. For 2000 and each Taxable
Year thereafter for which a Consolidated Return is filed and VRI or any
Subsidiary of VRI is a Member of the BPA Group, VRI shall prepare on behalf
of the VRI Group a pro forma consolidated federal income tax return as the
Common Parent of the VRI Group (the "Pro Forma VRI Return") covering that
portion of the Taxable Year in which the VRI Group is included in the BPA
Group. The Pro Forma VRI Return shall be complete and accurate, and shall
be in such form and include such information as shall be determined from
time to time by BPA. The Pro Forma VRI Return shall be prepared in
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accordance with subsections (b), (c) and (h) of this Section 4 and shall
report the consolidated federal taxable income (including, for all purposes
of this Agreement, alternative minimum taxable income) for such Taxable
Year that the VRI Group would have reported if it had not been included in
the Consolidated Return filed for the BPA Group with respect to such
Taxable Year and all prior Pro Forma VRI Returns had been actual returns;
provided, however, that, except as provided in Section 4(h) and Section
8(b), the Pro Forma VRI Return shall not reflect carryovers or carrybacks
of net operating losses, net capital losses, excess tax credits or other
tax attributes from prior or subsequent taxable years. The provisions of
the Code that require consolidated calculations, including without
limitation, sections 861, 1201-1212 and 1231, shall be applied separately
to the VRI Group. The elections made and the positions taken by VRI on the
Pro Forma VRI Return shall be consistent with those described on the VRI
Pro Forma Statement, as adjusted pursuant to subsection (f) of this Section
4, and the Pro Forma VRI Return shall not reflect items of income,
deduction, loss, gain or credit other than those reflected on the relevant
portion of the BPA Group's Consolidated Return or the VRI Pro Forma
Statement, as adjusted pursuant to subsection (f) of this Section 4. The
Pro Forma VRI Return shall include gains and losses with respect to
deferred intercompany transactions if, and only if, and to the extent that,
such gains or losses are actually restored and reflected on the BPA Group's
Consolidated Return. For purposes of the Pro Forma VRI Return, the tax
basis of each of the assets contributed from ARCO to VRI pursuant to the
Conveyance Agreement immediately after such contribution shall be the same
as the tax basis of each such asset in the hands of ARCO immediately prior
to such contribution.
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(b) Standards For Positions Taken on Pro Forma VRI Return. VRI shall prepare
the Pro Forma VRI Return by reporting the tax treatment of any item by
utilizing such positions that, in VRI's discretion, are appropriate for the
VRI Group; provided, that each position is more likely than not to be
ultimately sustained. VRI may utilize a position on the Pro Forma VRI
Return that does not meet this standard but that does have a reasonable
basis in law and in fact; but only if VRI has obtained, after prior notice
to and consultation with BPA, BPA's written consent to utilize such
position on the BPA Group's Consolidated Return for such Taxable Year.
Each proposal by VRI to BPA to consent to a position on the basis that it
has a reasonable basis in law or in fact must include, if requested by BPA,
a written confirmation described in the first sentence of Section 4(f),
below. VRI may not utilize a position on the Pro Forma VRI Return that is
inconsistent with any position utilized on a Pro Forma VRI Return or
Consolidated Return for a prior taxable year if the effect of such
treatment is to allow a double deduction or benefit or avoid an inclusion
with respect to any item (e.g., VRI may not expense an item and then claim
a depreciation deduction with respect to such item in a subsequent taxable
year) unless such treatment is consistent with the manner in which such
item is treated on the BPA Group's Consolidated Return for the relevant
taxable years (or unless VRI has eliminated such double deduction or
benefit in a manner acceptable to BPA).
(c) Standards for Methods and Elections on Pro Forma VRI Return. The Pro Forma
VRI Return shall reflect any elections made and tax accounting methods used
by BPA with respect to the BPA Group's Consolidated Return that in the sole
and absolute discretion of BPA should be made, taken or used consistently
by a group filing
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a Consolidated Return. VRI may utilize any other election or method,
subject to BPA's approval, which approval shall not be unreasonably
withheld, in preparing the Pro Forma VRI Return. Notwithstanding the
foregoing, VRI may not utilize any election or method in preparing the Pro
Forma VRI Return for a Taxable Year that is inconsistent with any election,
position or method utilized on a Pro Forma VRI Return or Consolidated
Return for a prior taxable year if the effect of such treatment is to allow
a double deduction or benefit with respect to any item (or unless VRI has
eliminated such double deduction or benefit in a manner acceptable to BPA).
(d) Delivery to BPA of Pro Forma VRI Return; Reconciliation Statement; and
Assistance. VRI will deliver to BPA the Pro Forma VRI Return on a mutually
agreed date, but in no event later than 60 days after the due date of the
BPA Group's Consolidated Return (taking into account any extensions thereof
that have been granted to BPA). The Pro Forma VRI Return will be
accompanied by a written statement (the "Reconciliation Statement") that
reconciles the difference in taxable income and tax liability and other
items shown on the Pro Forma VRI Return and on the portions of the BPA
Group's Consolidated Return that pertain to the Members of the VRI Group
(such reconciliation shall include disclosure of any elections, methods or
positions used in the preparation of the Pro Forma VRI Return that differ
from elections, methods or positions taken on the portions of the BPA
Group's Consolidated Return that pertain to such Members). Appropriate
personnel of VRI or a VRI Subsidiary that are responsible for the
preparation of the Pro Forma VRI Return and the Reconciliation Statement
shall be available upon reasonable notice to meet with appropriate
personnel of BPA to discuss all aspects of such return and such statement
and upon
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request by BPA shall furnish or make available for inspection any and all
documents used in preparation of the Pro Forma VRI Return (documents relied
upon by VRI in ascertaining whether any position is more likely than not to
be ultimately sustained or has a reasonable basis in law or in fact shall
be furnished only to the principal tax legal officer of BPA under cover of
the attorney-client privilege).
(e) VRI Pro Forma Statement. VRI shall prepare and deliver to the principal
tax legal officer of BPA on a mutually agreed upon date but in no event
later than 60 days before the due date for the BPA Group's Consolidated
Return (taking into account any extensions thereof that have been granted
to BPA), a written, privileged and confidential statement (the "VRI Pro
Forma Statement") setting forth: (i) a description of all elections and
methods proposed to be used in the preparation of the Pro Forma VRI Return
and (ii) a statement of all positions proposed to be taken on such return
(A) that meet the "more likely than not" standard or (B) that are not
described in subclause (A), above, but which have a reasonable basis in law
or in fact and with respect to which BPA has provided written consent
pursuant to Section 4(b) of this Agreement. Appropriate personnel of VRI
or a VRI Subsidiary that are responsible for the preparation of the VRI Pro
Forma Statement shall be available upon reasonable notice to meet with
appropriate personnel of BPA to discuss all aspects of such statement and
upon request by BPA shall furnish or make available for inspection any and
all documents used in preparation of the VRI Pro Forma Statement (documents
relied upon by VRI in ascertaining whether any position is more likely than
not to be ultimately sustained or has a reasonable basis in law or in fact
shall be furnished only to the principal tax legal officer of BPA under
cover of the attorney-client privilege).
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(f) Further Verification of VRI Positions; Opinion Procedure. By written
notice no later than 15 days following the receipt by BPA of the VRI Pro
Forma Statement, BPA may request VRI to provide written confirmation to the
principal tax legal officer of BPA, with detailed analysis and weighing of
the facts and legal authorities, that any positions specified by BPA and
that are proposed to be reflected on the Pro Forma VRI Return are more
likely than not to be ultimately sustained. VRI shall provide such
confirmation no later than 15 days following the receipt by VRI of the
written request by BPA. A position will be presumed not to be more likely
than not to be ultimately sustained (and the VRI Pro Forma Statement shall
be appropriately adjusted) if BPA and VRI are unable to agree within 10
days following the date that VRI provides such written confirmation (or
within 25 days from the date that BPA requests such confirmation, if
earlier) that such position is more likely than not to be ultimately
sustained. In such event, VRI may rebut this presumption if VRI provides
to BPA, at VRI's expense, within 30 days after the expiration of such 10-
day or 25-day period, as the case may be, a written opinion from Miller &
Chevalier Chartered or Thompson & Knight or any other law firm acceptable
to BPA to the effect that such position is more likely than not to be
ultimately sustained.
(g) Adjustment By BPA of Pro Forma VRI Return. BPA, within 60 days of receipt
of the Pro Forma VRI Return shall adjust the Pro Forma VRI Return, as
appropriate in accordance with the terms of this Agreement and after prior
notice to and consultation with VRI, to correct any error of fact or law
thereon or any error in mechanical calculation and any failure to reflect
the principles set forth in this Section 4. Acceptance by BPA of the Pro
Forma VRI Return, the Reconciliation Statement or the
18
VRI Pro Forma Statement shall not necessarily indicate agreement by BPA nor
relieve VRI of liability for any adjustment made upon audit or other
assessment. Similarly, any failure by BPA to properly and fully adjust the
Pro Forma VRI Return within the 60-day period set forth in this Section
4(g) shall not prevent BPA, in its sole and absolute discretion, from
making subsequent adjustments contemplated by this Section 4(g), as
circumstances warrant within the applicable statute of limitations
(determined as if the Pro Forma VRI Return were an actual return that is
subject to any extensions that have been granted by BPA with respect to the
Consolidated Return) nor relieve VRI of liability for such adjustments. If
as a result of such adjustment any amounts due to or from VRI under this
Agreement differ from the corresponding amounts prior to such adjustment,
payment of such difference shall be made to VRI or by VRI in the manner
provided in Section 9(a) within 10 days following such adjustment.
(h) Utilization of Credits to Reduce VRI Group Consolidated Tax Liability Under
Certain Circumstances.
(i) Use of Designated Credits in Current Taxable Year. Amounts of
Designated Credits generated in a Taxable Year may be applied to
reduce the VRI Group Consolidated Tax Liability for the Taxable Year
in the same manner as if the Pro Forma VRI Return were an actual
return. In addition, Designated Credits may further reduce the VRI
Group Consolidated Tax Liability (including a reduction below zero
which will result in a negative amount that is refundable to VRI to
the extent provided herein), without regard to the impact of any
statutory or income limitations but only if and to the extent that (A)
such Designated Credits
19
reduce the BPA Group Consolidated Tax Liability for such Taxable Year
(or in the case of carryover Designated Credits, a prior Taxable Year)
or (B) VRI has made a Section 4(h)(iv)(B) Election with respect to
such credits. Notwithstanding the foregoing, the refund, if any, that
VRI is permitted to receive with respect to any Taxable Year that is
attributable to the utilization of Refundable Designated Credits
pursuant to this Section 4(h) (including credits utilized pursuant to
the carryover provisions of Sections 4(h)(iv) and 4(h)(v) of this
Agreement) may not exceed $20 million, and (B) VRI will not be
permitted to receive a refund that is attributable to the use of
section 43 credits.
Refundable Designated Credits that are utilized pursuant to the
carryover provisions of Sections 4(h)(iv) and 4(h)(v) shall be applied
against the $20 million limitation in the year that they are utilized.
In the event that the amount of VRI's refund that is attributable to
its use of Refundable Designated Credits pursuant to this Section 4(h)
with respect to a Taxable Year is less than $20 million, such
shortfall shall not increase the $20 million limitation in any
subsequent Taxable Year.
BPA shall refund in cash to VRI the tax benefit associated with
the Designated Credits that are permitted to be refunded pursuant to
this Section 4(h) within 60 days of the actual reduction in the BPA
Group Consolidated Tax Liability (or, in the case of Refundable
Designated Credits that are utilized pursuant to Section 4(h)(v),
within 60 days of Completion date) for such Taxable Year. For
purposes of this
20
Section 4(h)(i), the actual reduction in the BPA Group Consolidated Tax
Liability occurs when credits are either applied on the BPA Group's
Consolidated Return for a Taxable Year or used to reduce the BPA Group's
estimated income tax payments for such year (as determined by BPA). To the
extent that VRI has received a refund pursuant to Section 4(h) with respect
to Designated Credits, the amount of carryovers on the Pro Forma VRI Return
shall be correspondingly reduced (adjustments shall also be made to reflect
subsequent adjustments pursuant to this Section 4(h) or Section 8).
(ii) Effect of Subsequent Adjustments on Section 4(h)(i) Refunds. If VRI has
received a refund from BPA pursuant to this Section 4(h)(i) with respect to
a Taxable Year as a result of any Designated Credit and (A) BPA determines
that such credits did not reduce the BPA Group Consolidated Tax Liability
for such year (or, if applicable, for a prior Taxable Year) or (B) if the
amount of Designated Credits for which VRI has received a refund with
respect to a Taxable Year exceeds the amount of section 29 or section 43
credits from Members of the VRI Group that are eligible to be treated as
Designated Credits in such year and utilized under this Section 4(h) in
such year, then VRI shall reimburse BPA for any payment received within 60
days of receiving from BPA a schedule setting forth BPA's calculation of
VRI's reimbursement obligations pursuant to this sentence. BPA shall make
such calculation within 30 days of the Completion date for such Taxable
Year; however, any failure by BPA to
21
redetermine the amount of credits that reduce the BPA Group Consolidated
Tax Liability or to reconcile the amount of Designated Credits utilized
within the 30-day period set forth in the preceding sentence shall not
prevent BPA, in its sole and absolute discretion, from making subsequent
calculations of VRI's refund obligations contemplated by the preceding
sentence, as circumstances warrant, within the applicable statute of
limitations (determined as if the Pro Forma VRI Return were an actual
return that is subject to any extensions that have been granted by BPA
with respect to the Consolidated Return).
(iii) Definition of Refundable Designated Credits and Eligible Refundable
Designated Credits; VRI Schedule. For purposes of this Agreement,
Refundable Designated Credits are Designated Credits that (A) are
described in section 29 of the Code, and (B) are attributable to
production from mineral properties acquired, directly or indirectly, by
VRI in the ordinary course of its trade or business on or after June 1,
1995 that represent either a new economic interest in such mineral
property or an increased economic interest therein (collectively "new
property"). For purposes of this Agreement, Refundable Designated Credits
that are attributable to new property acquired, directly or indirectly by
VRI on or before January 1, 2000 are referred to as "Eligible Refundable
Designated Credits".
On or prior to January 1 of each Taxable Year, VRI shall deliver a
written schedule to BPA that sets forth (W) the amount of section 29
22
credits that the VRI Group expects to generate during such year, (X) the
amount of such credits that will be attributable to new property, (Y) the
amount of Eligible Refundable Designated Credits and (Z) the amount of
section 29 credits that are carried over pursuant to the carryover
provisions of Section 4(h)(iv)(A) and 4(h)(v) in category (Y) of the
preceding clause. In addition, VRI shall include in its VRI Pro Forma
Statement with respect to each Taxable Year a schedule that sets forth
the actual amount of section 29 credits in each of the categories
referenced in the previous sentence with respect to such Taxable Year and
a written statement that reconciles the amounts set forth on the schedule
included with the VRI Pro Forma Statement with the corresponding
projected amounts on the schedule referenced in the preceding sentence.
(iv) Designated Credits Carried Forward by the BPA Group. (A) Amounts of
Designated Credits (whether or not such credits may also qualify as
Refundable Designated Credits) which were not allowed to reduce the VRI
Group Consolidated Tax Liability under Sections 4(h)(i) for the Taxable
Year solely because such Designated Credits did not reduce the BPA Group
Consolidated Tax Liability in the Taxable Year or the ARCO Group
Consolidated Tax Liability (as that term is defined in the Prior
Agreement) under the Prior Agreement, but which are carried forward by
the BPA Group (including credits described in section 29 of the Code that
are carried forward as a minimum tax credit), may be carried forward by
23
the VRI Group and may be applied in a subsequent Taxable Year to reduce the
VRI Group Consolidated Tax Liability, including a reduction below zero,
notwithstanding the impact of any statutory or income limitations, but only
when and to the extent that such Designated Credits reduce or are deemed to
reduce the BPA Group Consolidated Tax Liability. For purposes of the
preceding sentence, the provisions of Sections 4(h)(i) and 4(h)(iii) shall
apply to section 29 credits carried over pursuant to this Section
4(h)(iv)(A) as if such credits were generated by sales of production from
the well in the Taxable Year to which they are carried. The preceding
sentence is not intended to affect the application of the ordering rule
contained in the first sentence of Section 4(h)(vi) of this Agreement.
(B) Election To Receive Discounted Payment For Certain Designated
Credits. BPA shall notify VRI within 31 days after the close of each
Taxable Year ending on or before December 31, 2002 of the amount of
Designated Credits described in section 29 of the Code (including Eligible
Refundable Designated Credits) (for the avoidance of doubt, Refundable
Designated Credits that do not constitute Eligible Refundable Designated
Credits shall not be included) ("Eligible Credits") that are being carried
forward by the BPA Group on the BPA Group's Consolidated Return for such
Taxable Year to the immediately succeeding Taxable Year. VRI may make an
irrevocable, written election (a "Section 4(h)(iv)(B) Election") within 30
days of the date of receipt of
24
such notice from BPA to receive a current payment from BPA for all or a
portion of such Eligible Credits as provided in this Section 4(h)(iv)(B)
without regard to whether such credits have reduced the BPA Group
Consolidated Tax Liability in the current Taxable Year or a prior Taxable
Year. The Section 4(h)(iv)(B) Election shall be signed by the principal tax
Officer of VRI and shall set forth the amount of Eligible Credits for which
VRI elects to receive payment pursuant to this Section 4(h)(iv)(B). BPA
shall pay to VRI within 10 days after the receipt of the Section
4(h)(iv)(B) Election the product of the elected amount of Eligible Credits
and the Discount Factor. For purposes of this Agreement, the "Discount
Factor" shall be (X) 85% for the Taxable Year ending on December 31, 2000,
(Y) 88% for the Taxable Year ending on December 31, 2001 and (Z) 90% for
the Taxable Year ending on December 31, 2002. VRI shall not thereafter be
entitled to any additional compensation for the Eligible Credits that are
the subject of a Section 4(h)(iv)(B) Election, including without
limitation, pursuant to Section 4(h)(iv)(A).
In specific application of Section 4(h)(vii) of this Agreement, if
any adjustment is made that affects the amount of Eligible Credits carried
forward on the BPA Group's Consolidated Return that causes the amount of
such Eligible Credits in any Taxable Year to be greater or less than the
amount of Eligible Credits that are the subject of a Section 4(h)(iv)(B)
Election for such year, amounts due with respect to such Section
4(h)(iv)(B) Election shall be recalculated to take into account such
25
adjustment. If the adjustment increases the amount of Eligible Credits,
then VRI shall not be deemed to have made a Section 4(h)(iv)(B) Election
with respect to such additional Eligible Credits for purposes of this
calculation unless VRI shall have made a Section 4(h)(iv)(B) Election with
respect to all of the Eligible Credits for such year. If the adjustment
causes the amount of such Eligible Credits to be less than the amount of
Eligible Credits that are the subject of a Section 4(h)(iv)(B) Election for
such year, VRI shall be deemed to have made a Section 4(h)(iv)(B) Election
for such lesser amount. If the recalculated amount is less than the amount
paid by BPA to VRI, VRI shall refund to BPA the difference, with interest
as provided in Section 9(b). If the recalculated amount is greater than the
amount paid by BPA to VRI, BPA shall make an additional payment to VRI of
the difference, with interest as provided in Section 9(b).
(v) Refundable Designated Credits Previously Utilized by the BPA Group or by
the ARCO Group. Amounts of Refundable Designated Credits that have been
applied to reduce the BPA Group Consolidated Tax Liability in a prior
Taxable Year or the ARCO Group Consolidated Tax Liability under the Prior
Agreement, but which have not been applied to reduce the VRI Group
Consolidated Tax Liability, including a reduction below zero, under Section
4(h)(iv)(B) or under Section 4(h)(i) solely because of the limitation
contained in Section 4(h)(i) that limits refunds with respect to Refundable
Designated Credits, may be applied to reduce the VRI Group
26
Consolidated Tax Liability in any subsequent Taxable Year, including a
reduction below zero, notwithstanding any statutory or income limitations.
For purposes of the preceding sentence, the provisions of Sections 4(h)(i)
and 4(h)(iii) shall apply to Refundable Designated Credits carried over
pursuant to this Section 4(h)(v) as if such credits were generated by sales
of production from the well in the Taxable Year to which they are carried.
The preceding sentence is not intended to affect the application of the
ordering rule contained in the first sentence of Section 4(h)(vi) of this
Agreement
(vi) Rules for Determining Utilization of Designated Credits and Refundable
Designated Credits. BPA shall determine whether Designated Credits
(whether or not such credits may also qualify as Refundable Designated
Credits) reduce the BPA Group Consolidated Tax Liability for any Taxable
Year by applying credits in the order and subject to other rules under the
Code and, for credits of the same priority or category thereunder, by using
a pro rata convention. If a Designated Credit (or a credit described in
section 29 of the Code that (A) is generated after the Effective Date, but
prior to January 1, 2003 and (B) would be treated as a Designated Credit if
such credit were generated by a member of the VRI Group) described in
section 29 of the Code (whether or not such credit may also qualify as a
Refundable Designated Credit) is carried forward by the BPA Group as a
minimum tax credit, such credit shall be deemed utilized only after all
other credits generated by the BPA Group in the current year have been
27
used, but shall then be ordered and prioritized in the same manner as a
section 29 credit that is generated in the current year. Section 29
credits (including carryovers) that are not eligible to be treated as
Refundable Designated Credits shall be deemed to be used prior to section
29 credits (including carryovers) that are eligible to be treated as
Refundable Designated Credits in situations where either type of credits
may be considered (taking into account the ordering rule set forth in the
first sentence of this Section 4(h)(vi)) to have reduced the VRI Group
Consolidated Tax Liability in a Taxable Year. Section 29 credits
(including carryovers) that are not eligible to be treated as Eligible
Refundable Designated Credits shall be deemed to be used prior to section
29 credits (including carryovers) that are eligible to be treated as
Eligible Refundable Designated Credits in situations where either type of
credits may be considered (taking into account the ordering rule set
forth in the first sentence of this Section 4(h)(vi)) to have reduced the
VRI Group Consolidated Tax Liability in a Taxable Year. BPA's
determinations pursuant to this Section 4(h)(vi) shall be binding upon
the parties hereto.
(vii) Subsequent Adjustments. If any adjustment is made to any item of income,
gain, loss, deduction, expense or credit of the BPA Group, whether or not
such item relates to VRI or any Member of the VRI Group, by reason of the
filing of an amended Consolidated Return, a claim for refund, a post-
filing change, an audit by the Service or otherwise, and such adjustment
either reduces or increases the amount of Designated
28
Credits or Refundable Designated Credits or the amount of either category
of such credits that reduce the BPA Group Consolidated Tax Liability for
such Taxable Year, BPA shall redetermine the amount of Designated
Credits, Refundable Designated Credits and Eligible Credits in all
affected Taxable Years and the application of such credits under this
Agreement by taking into account such adjustment. BPA shall have sole and
absolute discretion to determine whether and in what amount an adjustment
affects the amount of Designated Credits, Refundable Designated Credits
or Eligible Credits or the BPA Group's utilization of same in any given
Taxable Year. If the net amounts due from VRI under this Agreement (in
the Taxable Year to which the redetermination relates and, if applicable,
a prior year or a subsequent year) after a redetermination exceed the
amounts previously paid, or if the net amount of any refund to VRI (in
the Taxable Year to which the redetermination relates and, if applicable,
a prior year or a subsequent year) under this Section 4(h) after a
redetermination is less than the amount previously paid, then VRI shall
make payment of such difference to BPA. VRI shall be liable for any
interest, penalty or addition to tax as BPA, in its discretion, deems
just and proper in view of all applicable circumstances (to the extent
practicable, however, such allocations shall, if applicable, reflect the
amount of interest that the VRI Group would have paid on a stand alone
basis; to the extent that VRI is required to repay to BPA all or a
portion of any refund that it received pursuant to Section 4(h), VRI
shall
29
be liable for interest at the rate specified in Section 9(b) hereof
on the amount of such repayment from the date that the refund was
received to the date that payment is made to BPA). If the net amounts
due from VRI under this Agreement (in the Taxable Year to which the
redetermination relates and, if applicable, a prior year or a subsequent
year) after a redetermination are less than the amounts previously paid,
or if the net amount of any refund to VRI under this Section 4(h)
(taking into account the limitation on refunds in Section 4(h)(i)) (in
the Taxable Year to which the redetermination relates and, if
applicable, a prior year or a subsequent year) after a redetermination
is more than the amount previously paid, then BPA shall make payment of
such difference to VRI, with interest as provided in Section 9(b) of
this Agreement.
(viii) Displaced Credits. If VRI has reduced the VRI Group Consolidated Tax
Liability or received a refund pursuant to this Section 4(h) for any
Taxable Year pursuant to this Section 4(h) as a result of any Designated
Credit of any Member of the VRI Group, and such Designated Credit is
subsequently displaced by another attribute of the BPA Group in a
situation where Section 4(h)(vii) does not apply, VRI shall reimburse
BPA for any amount by which VRI's liability to BPA was reduced as a
result of the use of the displaced Designated Credit or repay to BPA the
amount of the refund from BPA that was attributable to the use of the
displaced Designated Credit. For purposes of this Section 4(h)(viii),
Eligible Refundable Designated Credits shall be deemed to be displaced
prior to
30
other Refundable Designated Credits and other Refundable Designated
Credits shall be deemed to be displaced prior to Designated Credits. A
Designated Credit that is displaced may be carried forward pursuant to
Section 4(h)(iv) thereafter, or, with the consent of BPA, carried back
if BPA determines that the circumstances giving rise to such
displacement will allow it to utilize a greater amount of Designated
Credits in a prior Taxable Year than it would have utilized absent such
circumstances.
(ix) Restriction on Double Benefit. Nothing in this Section 4(h) or any other
provision of this Agreement shall be construed to entitle VRI or any
Subsidiary of VRI to receive a double benefit or compensation with
respect to any Designated Credit, Refundable Designated Credit or a
carryforward or carryback thereof, taking into account benefits received
under the Prior Agreement. Nothing in this Section 4(h) is intended to
limit the VRI Group's ability to carry back or carry forward credits,
including Designated Credits or Refundable Designated Credits, pursuant
to Section 8(b).
(x) Special Provisions; Refundable Designated Credits. Section 4(h)(i), and
the other provisions in this Agreement that relate to Refundable
Designated Credits, are intended to benefit the VRI Group in
circumstances where it grows its business by means of new property
acquisitions that produce additional section 29 credits. To the extent
that any Member of the VRI Group engages in a transaction or a series of
transactions that produce or maintain a Refundable Designated Credit
31
benefit under this Section 4(h), but which in substance do not expand the
business of the VRI Group consistent with such intention, refunds of
Refundable Designated Credits shall not be allowed under this Section 4(h),
notwithstanding any other contrary provision in this Agreement. BPA shall
make all determinations contemplated by the preceding sentence, in its sole
and absolute discretion, and may do so by reference to (A) the projected
aggregate annual amount of section 29 credits that would be generated from
the sale of qualified fuels from economic interests in properties held by
Members of the VRI Group as of June 1, 1995, based on the projected
production profiles on such properties as of such date (the "benchmark
amount"), and (B) the overall section 29 credits generated in such year by
Members of the VRI Group in excess of such benchmark amount, where such
excess arises from new properties.
(i) Pro Forma State Return. For 2000 and each Taxable Year thereafter, VRI
shall prepare in each case on behalf of the VRI Group a pro forma
consolidated, combined or unitary return or returns (as the case may be)
(the "Pro Forma State Return") that sets forth the VRI Group State and
Local Tax Liability calculated in accordance with this Agreement. The
provisions of this Section 4 other than Section 4(h) shall apply with equal
force to the Pro Forma State Return, provided however, the due date for
each Pro Forma State Return shall be 60 days after the due date (including
extensions thereof) for filing the corresponding state or local income tax
return for the Taxable Year, or, if later, December 15th of the year
following the close of
32
the Taxable Year.
(j) Special Provisions Applicable to the Assets Acquired By Vastar Offshore,
Inc. and Vastar Pipeline, LLC. Notwithstanding anything else to the
contrary in this Agreement, the Pro Forma VRI Return and the Pro Forma
State Return shall be prepared (i) as if the aggregate adjusted tax basis
of Vastar Offshore, Inc. ("VOI") and Vastar Pipeline, LLC ("VPL") in all of
the assets acquired by VOI and VPL pursuant to the Exchange Agreement on
the initial date of such acquisition was $440,021,187 and (ii) as if such
adjusted tax basis were allocated among such assets in the manner specified
on Appendix A to the Third Amendment to the Tax Sharing Agreement dated as
of October 30, 1998 by and among ARCO, VRI, VOI, VPL and the Subsidiaries
of VRI that are signatories thereto. Moreover, tax reimbursement payments
made to the VRI Group pursuant to Section 10.1 or 10.2 of the Stock
Purchase Agreement, and tax reimbursement payments made by the VRI Group
pursuant to such Sections of the Stock Purchase Agreement, shall not be
considered items of income or deduction, respectively, on the Pro Forma VRI
Return or the Pro Forma State Return.
5. Payments by VRI.
(a) General and VRI Group Consolidated Tax Liability. For each Taxable Year of
the BPA Group, VRI shall pay to BPA the amount of the VRI Group
Consolidated Tax Liability and the VRI Group State and Local Tax Liability,
in the amounts, at the time or times and in the manner as herein provided.
(i) In the event that the estimated VRI Group Consolidated Tax Liability
for such Taxable Year is greater than zero, VRI shall make quarterly
payments of its estimated VRI Group Consolidated Tax Liability for
such
33
Taxable Year. The amount of each such quarterly payment shall be
determined by VRI and shall equal the amount which VRI would be
required under section 6655(d) of the Code (or under any successor
section of the Code) to pay to the Service for such quarter were VRI
to make installment payments of the VRI Group Consolidated Tax
Liability for such Taxable Year in accordance with the provisions of
such section.
(ii) If (A) the sum of (x) the actual VRI Group Consolidated Tax Liability
for such Taxable Year plus (y) the additions to tax under section 6655
of the Code (or under any successor section of the Code) that would
have been imposed if the VRI Group Consolidated Tax Liability were an
actual tax liability and the payments made pursuant to Section 5(a)(i)
were actual estimated tax payments exceeds (B) the total estimated
payments, if any, which VRI made pursuant to Section 5(a)(i) hereof
for such Taxable Year, VRI shall pay an amount equal to such excess to
BPA.
(iii) Each of the quarterly payments required to be made by VRI pursuant
to Section 5(a)(i) hereof shall be made in the manner provided in
Section 9(a) hereof on or before the due date for the payment of the
respective quarterly estimate of the BPA Group Consolidated Tax
Liability for such Taxable Year. Any amount required to be paid by
VRI for such Taxable Year pursuant to Section 5(a)(ii) hereof shall
be paid by VRI in the manner provided in Section 9(a) hereof as
follows: (A) on the fifteenth day of the third month after the end
of such Taxable Year VRI shall pay an amount equal to VRI's best
estimate, as determined by VRI, of the
34
amount, if any, that VRI owes pursuant to Section 5(a)(ii) hereof
for such Taxable Year, and (B) on Completion for such Taxable Year
an amount equal to the excess, if any, of (x) the amount determined
for such Taxable Year as the amount payable by VRI pursuant to
Section 5(a)(ii) hereof for such Taxable Year over (y) the amount,
if any, paid by VRI for such Taxable Year pursuant to clause (A)
above, together with interest thereon on such amount at the rate
specified in Section 9(b) hereof from the date on which the payment
referred to in clause (A) above was made to Completion.
(b) VRI Group State and Local Tax Liability. For each Taxable Year with
respect to which VRI or any of its Subsidiaries participates in the filing
of any consolidated, combined or unitary state or local income tax return
with BPA or any Subsidiary of BPA (other than VRI or any of its
Subsidiaries), (A) VRI shall pay to BPA, no later than the date on which
payment of the respective estimated state or local payment is due, the
amount of estimated taxes that VRI or any such Subsidiary of VRI would have
been required to pay if VRI or any Subsidiary of VRI had filed for such
period either a separate return (in the case where only one Member of the
VRI Group joins in the filing of such consolidated, combined or unitary
return) or a consolidated, combined or unitary return (in a case where more
than one Member of the VRI Group joins in the filing of such consolidated,
combined or unitary return) using only factors and items of income,
expense, or credit that relate to the Members of the VRI Group included in
such return and (B) VRI shall pay to BPA, on the dates set forth in Section
5(a)(iii), above, (as adjusted, as appropriate, to reflect differing due
dates for payment of such
35
taxes) an amount equal to the excess, if any, of the aggregate amount of
the VRI Group State and Local Tax Liability for such Taxable Year over the
aggregate amount of the VRI Group's estimated tax payments actually made to
BPA with respect to such state or local income tax for such period together
with any applicable penalties, additions to tax and interest calculated in
the manner provided in Section 5(a)(ii) and (iii), above.
(c) Other Taxes. VRI shall be solely responsible for paying tax with respect
to all tax returns that VRI or any of its Subsidiaries have responsibility
for filing pursuant to this Agreement.
6. Payments to VRI.
(a) For each Taxable Year of the BPA Group, if (A) the sum of (x) the payments
made by VRI pursuant to Section 5(a)(i) hereof of the estimated VRI Group
Consolidated Tax Liability for such Taxable Year plus (y) any payments
pursuant to clause (A) of the second sentence of Section 5(a)(iii) exceeds
(B) the sum of (x) the actual VRI Group Consolidated Tax Liability for such
Taxable Year plus (y) any amounts described in subclause (y) of clause (A)
of Section 5(a)(ii), BPA shall pay to VRI an amount equal to such excess.
If the aggregate payments made by VRI pursuant to Section 5(b) hereof of
the estimated VRI Group State and Local Tax Liability for such Taxable Year
exceed the actual VRI Group State and Local Tax Liability for such Taxable
Year, BPA shall pay to VRI an amount equal to the difference between (A)
the payments that VRI made pursuant to Section 5(b) hereof for such Taxable
Year and (B) the amount of the actual VRI Group State and Local Tax
Liability (including amounts with respect to penalties or additions to tax
with respect to underpayments of estimated tax) for such Taxable Year.
36
(b) Any payment that VRI may be entitled to receive for such Taxable Year
pursuant to Section 6(a) hereof shall be paid to VRI in the manner provided
in Section 9(a) hereof on or before 45 calendar days after Completion.
7. Use of Attributes; Additional Rights and Obligations Upon Deconsolidation.
(a) In determining the BPA Group Consolidated Tax Liability and in preparing
the Consolidated Return for each taxable year, BPA may utilize on behalf of
the BPA Group all the tax attributes and other items of income, gain, loss,
deduction, expense, credit, etc. of VRI and its Subsidiaries arising in
such taxable year or which arose in another taxable year or taxable years
and which properly may be carried back or carried forward to such taxable
year, without regard to whether such attributes and items are concurrently
being, have previously been or may subsequently be utilized in determining
for any Taxable Year or Taxable Years, the VRI Group Consolidated Tax
Liability. Except as expressly provided in Section 4 and Section 7(b) of
this Agreement, neither VRI nor any of its Subsidiaries shall in any manner
be entitled to any compensation for the use of any attributes and other
items of income, gain,
37
loss, deduction expense, credit, etc. of VRI and its Subsidiaries.
Moreover, in the event VRI or any of its Subsidiaries ceases for any reason
to be a Member of the BPA Group either (i) after any of its tax attributes
or items of income, gain, loss, deduction, expense, credit, etc. has been
utilized by BPA on behalf of the BPA Group in determining the BPA Group
Consolidated Tax Liability for any Taxable Year or Taxable Years of the BPA
Group, but before VRI has utilized such attribute or item (in whole or in
part) in determining for any Taxable Year or Taxable Years, the VRI Group
Consolidated Tax Liability or (ii) after any of its tax attributes or items
of income, gain, loss, deduction, expense, credit, etc. has been utilized
by VRI on behalf of the VRI Group in determining the VRI Group Consolidated
Tax Liability for any Taxable Year or Taxable Years, but before BPA has
utilized such attribute or item (in whole or in part) in determining for
any Taxable Year or Taxable Years, the BPA Group Consolidated Tax
Liability, neither BPA nor VRI, as the case may be, shall be obligated or
required to compensate such other party in any manner for any amount as a
result of the occurrence of such event, except as expressly provided in
Section 7(b) below.
(b) In the event VRI or any of its Subsidiaries ceases for any reason to be a
Member of the BPA Group, then after the filing of the Consolidated Return
for the last Taxable Year that VRI or such Subsidiary was included therein,
BPA shall inform VRI or such Subsidiary, as the case may be, of the amount
of consolidated loss and credit carryovers as of the end of the Taxable
Year that are allocable to VRI or such Subsidiary, pursuant to the
Consolidated Return Regulations. In the event that BPA determines that the
amount of any particular category of loss or credit carryover attributes so
allocated to VRI or such Subsidiary exceeds the amount of loss and credit
attributes of such category (other than Designated Credits (including
carryovers) that reduced the VRI Group Consolidated Tax Liability or with
respect to which VRI has received a refund from BPA for any Taxable Year
pursuant to Section 4(h) of this Agreement or any payment from ARCO under
the Prior Agreement) that would have been available to VRI or such
Subsidiary if the VRI Group had not been included in the BPA Group for the
current Taxable Year and all prior Taxable Years and in the ARCO Group (as
that term is defined in the Prior Agreement) for all prior Taxable Years
under the Prior Agreement and all Pro Forma VRI Returns had been actual
returns, then VRI
38
or such Subsidiary shall pay to BPA at the time such additional loss and
credit attributes are actually utilized the amount of the benefit derived
therefrom. In the event that BPA determines that (i) the amount of loss and
credit carryover attributes of any particular category so allocated to VRI
or such Subsidiary is less than (ii) the amount of the loss and credit
attributes of such category (other than Designated Credits (including
carryovers) that reduced the VRI Group Tax Liability for any Taxable Year
pursuant to Section 4(h) of this Agreement or with respect to which VRI has
received a refund from BPA for any Taxable Year pursuant to Section 4(h) of
this Agreement or any payment from ARCO under the Prior Agreement) that
would have been available to VRI or such Subsidiary if the VRI Group had
not been included in the BPA Group for the current Taxable Year and all
prior Taxable Years and in the ARCO Group for all prior Taxable Years under
the Prior Agreement and all Pro Forma VRI Returns had been actual returns,
then, following written notification from VRI or such Subsidiary of the
amount of such liability, BPA shall pay to VRI or its Subsidiaries, at the
time any additional loss or credit carryovers would have been utilized if
the amount of carryovers described in clause (ii) had been available, the
benefit that would have been derived therefrom. Payments pursuant to the
foregoing two sentences shall be due only at such time as such additional
loss or credit carryovers are or would have been utilizable.
Notwithstanding anything to the contrary in the Code or other applicable
authority, BPA shall make the determinations required by this Section 7(b)
as if all Designated Credits described in Section 4(h)(iv) are credits that
would have been available for carry forward by the VRI Group and as if all
Pro Forma VRI Returns had been actual returns.
39
In the event that BPA and VRI determine that the aggregate tax basis of the
Gulf Assets (as defined in the Stock Purchase Agreement) immediately following
an event that causes VRI to cease to be a Member of the BPA Group (taking into
account any step up in such basis relating to such event, whether pursuant to a
section 338(h)(10) election or otherwise) (the "Actual Basis") is less than the
aggregate tax basis that would have resulted (taking into account all allowed or
allowable depreciation or amortization deductions) on such date if the initial
tax basis of such assets as of the Closing Date of the Stock Purchase Agreement
had been $440,021,187 (the "Calculated Basis"), then BPA shall pay to VRI an
amount equal to the discounted present value (based on a discount rate of 10%,
compounded annually) of the dollar amount of deductions for depreciation and
depletion attributable to the difference between the Actual Basis and the
Calculated Basis, as determined in a commercially reasonable manner. In the
event that (A) VRI becomes the Common Parent of its own Affiliated Group for the
year beginning on the date it ceases to be a member of the BPA Group and (B)
there is a Final Determination after such date that the initial tax basis of the
Gulf Assets as of the Closing Date of the Stock Purchase Agreement is less than
$440,021,187 and as a result the aggregate tax basis of the Gulf Assets as of
the date of the calculation set forth in the preceding sentence (taking into
account any increase in such tax basis related to such event) ("Redetermined
Basis") is less than the Actual Basis used by the parties in such calculation,
then BPA shall recalculate the amounts, if any, that it owes pursuant to the
preceding sentence using the Redetermined Basis in lieu of the Actual Basis and
shall promptly pay to VRI the excess of the recalculated amount over the amount,
if any, paid to VRI pursuant to the initial calculation.
40
In the event that VRI ceases for any reason to be a Member of the BPA Group
at a time when the aggregate amount of deductions that have been disallowed
pursuant to the second sentence of Section 15 of this Agreement is less than
$5,300,000, then VRI shall pay to BPA at the time that VRI leaves the BPA Group
an amount equal to the product of BPA's combined effective tax rate at such time
multiplied by the difference between $5,300,000, and the aggregate amount of
deductions that have been disallowed under the second sentence of Section 15 of
this Agreement prior to such date.
Any payment due pursuant to this Section 7(b) shall be made, in the manner
provided in Section 9(a) hereof, 90 days after the filing of the tax return for
the taxable year in which such tax deduction or credit is utilized or absorbed
(or, in the case of a payment to VRI, would have been utilized or absorbed).
BPA's determinations pursuant to this Section 7(b) shall be presumptively
correct and shall be binding on the parties hereto. At BPA's request, VRI or
the applicable Subsidiary shall promptly notify BPA of any amounts due by any
party pursuant to this Section 7(b). At BPA's request, the calculation of any
such amounts shall be verified by a nationally recognized accounting firm
selected by BPA, whose fees and expenses shall be shared equally by BPA and VRI.
(c) If a Member at any time acquires the assets and properties of another
Member pursuant to a transaction to which section 381 of the Code applies
or otherwise, the acquiring Member shall, from and after the date of such
acquisition, be responsible for all of the undertakings and obligations of
such other Member hereunder and shall, from and after such date, be
entitled to receive any and all payments that
41
such other Member would be entitled to receive hereunder. Provided such
other Member ceases to exist solely as a result of such transaction, such
event shall not, except as expressly provided herein, in any way result in
any acceleration of the time at which any payments hereunder are due to or
from such other Member, and, except as expressly provided herein to the
contrary, all such payments shall be made to or by the acquiring Member at
the same time or times that such payments would be payable to or by such
other Member had such other Member continued to exist as a Member
hereunder.
8. Adjustments.
(a) If any adjustment is made with respect to a Taxable Year during which VRI
or any of its Subsidiaries is a Member of the BPA Group to any item of
income, gain, loss, deduction, expense or credit of VRI or any Subsidiary
of VRI by reason of the filing of an amended Consolidated Return (or an
amended state and local consolidated, combined or unitary return), a claim
for refund with respect to such Taxable Year or an audit with respect to
such Taxable Year by the Service (or the applicable state and local taxing
authority), the amounts, if any, due to or from VRI under this Agreement
shall be redetermined by taking into account any such adjustment and
applying the procedures set forth in this Agreement. BPA shall have sole
and absolute discretion to determine whether and in what amount an
adjustment applies to VRI or any of its Subsidiaries. If, as a result of
such redetermination, any amounts due to or from VRI under this Agreement
differ from the amounts previously paid, then except as herein provided,
payment of such difference together with any interest, penalty or addition
to tax allocated to VRI shall be made to VRI or by VRI in the manner
provided in Section 9(a)
42
as follows: (i) in the case of an adjustment resulting in a credit or
refund of tax, within 10 calendar days of the date on which such refund or
notice of such credit is received by BPA with respect to such adjustment,
or (ii) in the case of an adjustment resulting in a payment of additional
tax, within 10 calendar days of the date on which such additional tax is
paid by BPA. Any interest, penalty or addition to tax will be allocated as
BPA, in its discretion, deems just and proper in view of all applicable
circumstances (to the extent practicable, however, such allocations shall
reflect the amount of interest and penalty that the VRI Group would have
paid on a stand alone basis). Neither acceptance of a Pro Forma VRI Return
nor failure by BPA to file consistently with such Pro Forma VRI Return
shall relieve VRI of liability for an adjustment under this Section 8(a).
(b) Refund of Tax Sharing Payment. In the event that the Pro Forma VRI Return
(or the corresponding calculation with respect to the VRI Group State and
Local Tax Liability) for any Taxable Year or for any Taxable Year under the
Prior Agreement reflects a net operating loss, net capital loss, excess tax
credit or other tax attribute, such attributes (other than Designated
Credits or Refundable Designated Credits that have reduced the VRI Group
Consolidated Tax Liability, including a reduction below zero, pursuant to
Section 4(h)(i), 4(h)(iv)(A) or 4(h)(iv)(B) and Refundable Designated
Credits that may be carried forward pursuant to Section 4(h)(v) of this
Agreement or the corresponding provisions of the Prior Agreement), may be
carried back or carried forward, as the case may be, and utilized in
calculating the VRI Group Consolidated Tax Liability (or the VRI Group
State and Local Tax Liability) for prior or subsequent Taxable Years,
including carrybacks to and carryforwards from Taxable Years under
43
the Prior Agreement, in the same manner as such attributes would have been
carried back or carried forward and deducted if the Pro Forma VRI Returns
had been actual returns or, in the case of state and local tax, under
applicable state or local provisions, as such provisions would have been
applied to a consolidated, combined or unitary return filed with respect to
the VRI Group (or one or more Members thereof), but after taking into
account any limitation on the use of such attributes imposed pursuant to
the Code or the Income Tax Regulations (or with respect to state and local
tax, applicable state or local provisions). In such case, the VRI Group
Consolidated Tax Liability (or the VRI Group State and Local Tax Liability)
shall be recomputed for the Taxable Year or Years to which such attributes
are carried and for any subsequent Taxable Years to take into account such
attributes, and payments made pursuant to Sections 5 and 6 of this
Agreement, or, if applicable, Sections 5 and 6 of the Prior Agreement,
shall be appropriately adjusted. In the case of any carryback of attributes
pursuant to this Section 8(b), any payment between BPA and VRI required by
such adjustment shall be paid within 45 days after Completion (or the
corresponding date with respect to the relevant consolidated, combined or
unitary state or local tax return) for the year in which such attribute
arises.
(c) Except as provided in Sections 8(a) or 8(b) of this Agreement, VRI may not
amend a Pro Forma VRI Tax Return for a prior Taxable Year or otherwise
cause a redetermination of the VRI Group Consolidated Tax Liability for a
prior Taxable Year. Nothing in this Section 8 shall be construed to
entitle VRI or any Subsidiary of VRI to receive a double benefit or
compensation with respect to any attribute, taking into account benefits
received under the Prior Agreement.
44
9. Remittances by and to VRI.
(a) Until such time as BPA notifies VRI in writing to the contrary, any and all
payments that VRI agrees to make hereunder shall be made and remitted by
VRI directly to BPA. BPA shall be responsible for making all payments
required to be made hereunder to VRI.
(b) Any payment required to be made hereunder by VRI or BPA that is not made on
or before the date on which such payment is due under the terms of this
Agreement shall bear interest at the rate specified from time to time
pursuant to section 6621(a)(2) of the Code, and the party to whom such
payment is due shall be entitled to receive interest computed at such rate
upon the late payment of any such amount which is required at any time to
be paid hereunder.
(c) On or before March 15 of each Taxable Year, BPA shall prepare a written
schedule based on the projected amounts of section 29 credits that the VRI
Group expect to generate in such year, that sets forth the amount of such
credits that BPA anticipates that it will use in such year. From time to
time during the Taxable Year, BPA may amend the schedule to increase or
decrease its estimated usage. Notwithstanding Section 9(b), no interest or
penalties will be due from VRI with respect to any VRI estimated tax
payment made pursuant to Section 5(a) or Section 5(b) to the extent the
underpayment of VRl's estimated tax is directly attributable to VRl's good
faith reliance on such written estimate for the Taxable Year to which the
VRI estimated payment relates.
10. Carryback and Carryforwards.
45
(a) If part or all of an unused consolidated net operating loss or tax credit
of VRI or one of its Subsidiaries arises in a year in which VRI or such
Subsidiary is not a Member of the BPA Group and is carried back to a year
in which VRI or such Subsidiary is a Member of the BPA Group, any refund or
reduction in tax liability arising from the carryback will be retained by
or allocated to BPA. BPA shall have no obligation to pay to VRI or its
Subsidiaries the amount of any refund or credit of federal income tax that
BPA may receive as a result of such carryback (nor will such occurrence
affect the amount of compensation, if any, to which VRI or any of its
Subsidiaries is entitled pursuant to Section 7(b) of this Agreement).
11. Allocation of BPA Group Consolidated Tax Liability For Purposes of
Determining Earnings and Profits.
(a) The BPA Group Consolidated Tax Liability for each Taxable Year of the BPA
Group shall, for purposes of determining the earnings and profits of each
Member, be allocated among the Members in accordance with the method
prescribed in section 1.1552-1(a)(2) of the Income Tax Regulations. In
addition, VRI shall keep such records as are required to permit BPA to
adjust the bases of the stock of VRI and its Subsidiaries pursuant to
section 1.1502-32 of the Consolidated Return Regulations. Notwithstanding
the foregoing, BPA may, in its sole and absolute discretion, change the
method set forth above, to the extent that it is permitted to do so by
applicable law.
12. BPA Control of Conduct of Audits, Litigation; Expenses.
(a) In any audit, conference or other proceeding with the Service or the
relevant state or local authorities, or in any judicial proceedings
concerning the determination of the BPA Group Consolidated Tax Liability or
the state or local income tax liability of any
46
consolidated, combined or unitary group including BPA or any of its
Subsidiaries (other than VRI or a Subsidiary of VRI) and VRI (or any of the
Subsidiaries of VRI), BPA shall have the exclusive right to contest,
compromise or settle any adjustment or deficiency proposed, asserted or
assessed as a result of such proceeding and to extend or refuse to extend
the applicable time period for making assessments or adjustments. VRI and
each Subsidiary of VRI hereby appoints BPA as its agent for the purpose of
conducting such contest or proposing and concluding any such compromise and
settlement. BPA shall have control over the proceedings, but shall confer
with VRI regarding any proposed adjustment bearing on any material
liability of VRI pursuant to this Agreement. VRI shall support any audit or
other examination or judicial or administrative proceeding with respect to
any Taxable Year, at its own expense, in any reasonable way requested by
BPA. Nothing herein shall limit BPA's discretion to determine whether and
in what amount an item arising from VRI or any VRI Subsidiary shall be
conceded or otherwise compromised and whether and in what amount an item
results in an adjustment to VRI described in Section 8(a).
(b) Expenses. VRI shall reimburse BPA for all third party expenses (including,
without limitation, legal and accounting fees) incurred by BPA in the
course of proceedings described in this Section 12 to the extent such
expenses are allocable, in BPA's sole and absolute discretion, to VRI Group
items.
13. Indemnification For Certain Income Taxes.
(a) BPA shall indemnify VRI on an after-tax basis (taking into account, when
realized, any tax detriment or tax benefit to VRI (or any VRI Subsidiary)
of (x) a payment hereunder or (y) the liability to the Service or state,
local or foreign taxing
47
authority giving rise to such a payment), with respect to and in the
amount of:
(i) Any liability for federal income tax incurred by VRI or any Subsidiary
of VRI for any Taxable Year with respect to which VRI or such
Subsidiary is included in the BPA Group's Consolidated Return;
provided that VRI shall have made payments to BPA as provided in this
Agreement in complete satisfaction of the VRI Group Consolidated Tax
Liability for such Taxable Year;
(ii) Any liability for state or local income tax incurred by VRI or any
Subsidiary of VRI with respect to any jurisdiction for any Taxable
Year with respect to which VRI or any such Subsidiary of VRI
participates in the filing of a consolidated, combined or unitary
return with BPA or any Subsidiary of BPA (other than VRI or any
Subsidiary of VRI); provided and to the extent that VRI shall have
made payments to BPA as provided in this Agreement in complete
satisfaction of the VRI Group State and Local Tax Liability for such
Taxable Year;
(iii) Any liability for federal, state or local income tax incurred by VRI
or any Subsidiary of VRI, to the extent attributable to any Member
of the BPA Group (other than VRI or any of its Subsidiaries) and for
which VRI or such Subsidiary is liable as a result of being included
in a Consolidated Return of the BPA Group or as a result of
participating in the filing of a consolidated, combined or unitary
state or local income tax return with BPA or any Subsidiary of BPA
(other than VRI or any VRI Subsidiary); and
48
(iv) Interest, penalties and additions to tax, and costs and expenses in
connection with any liabilities described in Sections 13(a)(i), (ii)
and (iii) above, except as otherwise provided in this Agreement.
(b) BPA shall pay to VRI amounts due under Sections 13(a)(i), (ii) and (iii)
and Section 13(a)(iv) (to the extent such amounts are related to amounts
under Sections 13(a)(i), (ii) and (iii)) no later than 7 days after the
date of a Final Determination with respect thereto; provided, however, that
no such indemnification shall be made to the extent that VRI has failed to
make a payment to BPA under the provisions of this Agreement as of the date
the payment under this Section 13 becomes due.
(c) If any adjustment giving rise to a tax liability described in Section
13(a)(iv) of the Prior Agreement hereof as to which ARCO has previously
provided indemnification results in any tax deduction or tax credit for
federal, state, local or foreign income tax purposes to VRI or any of its
Subsidiaries for any taxable year that was not taken into account in
calculating the original indemnification payment, VRI shall pay to BPA an
amount equal to the sum of (x) the amount of such credit and (y) the amount
of such deduction, multiplied by the maximum composite federal, state,
local and foreign income tax rate to which VRI or the relevant Subsidiary
is subject for the taxable year in which or with respect to which such
benefit is realized; provided, however, that such composite rate shall be
calculated by taking into account only those federal, state, local and
foreign income taxes with respect to which such deduction is allowed.
Payments made under this Section 13(c) shall be made upon the later to
occur of (x) 120 days after there has been a Final Determination under
applicable law of the adjustment
49
giving rise to such payment and (y) 90 days after the filing of the tax
return for the taxable year in which such tax deduction or credit is
utilized or absorbed, or such tax liability is due, as the case may be.
14. Partnership Interests.
In connection with any partnership interest for which VRI or a VRI
Subsidiary is the Tax Matters Partner, VRI shall to the maximum extent feasible
make elections, use accounting methods, and report positions with respect to
such partnership interest that are consistent with positions reported on the BPA
Group's Consolidated Return and report positions on the Pro Forma VRI Return
that are consistent with those reported for such partnership interest on the BPA
Group's Consolidated Return. VRI shall confer with BPA in advance regarding any
such item that may be or could be inconsistent with items on the BPA Group's
Consolidated Return.
15. Limitations on Certain Pro Forma VRI Return Deductions.
Notwithstanding any provision in this Agreement to the contrary, the Pro
Forma VRI Return shall not include any deductions with respect to any amounts
for which ARCO established a reserve account on its books in 1993 to the extent
such amounts are not also reflected as of the date of payment in any reserve
account established on VRl's books. Notwithstanding any provision in this
Agreement to the contrary, in light of the fact that the book expense of certain
amounts to be paid to participants or beneficiaries by VRI pursuant to the terms
of its nonqualified deferred compensation plans has been taken into account on
ARCO's books and will not (under generally accepted accounting principles) be
taken into account on VRl's books, the deductions on the Pro Forma VRI Return in
the Taxable Year commencing on January
50
1, 2005 and in each Taxable Year thereafter shall be reduced by $530,000 per
Taxable Year until the aggregate amount of deductions that have been disallowed
pursuant to this sentence equals $5,300,000.
16. Administration; Resolution of Disputes.
The provisions of this Agreement will be administered by BPA. Except as
otherwise expressly governed by the terms of this Agreement, BPA may use any
reasonable method in making any computations or allocations hereunder, and BPA's
calculations will be conclusive unless a written objection is provided to BPA
within one year of such calculations. If written objection is timely made by
VRI, the disputed issue (other than disputes described in Section 4(f) of this
Agreement, which disputes shall be governed solely by such provision) shall be
resolved by a nationally recognized accounting firm selected by BPA, whose
determination will be conclusive and binding upon the parties and whose fees and
expenses shall be shared equally by BPA and VRI. Nothing in this Section 16 is
intended to limit BPA's discretion in making any computations, allocations or
determinations that may be made under this Agreement in BPA's sole and absolute
discretion.
17. Interpretation.
This Agreement is intended to provide for the calculation and allocation of
certain federal and state and local income tax liabilities between the BPA Group
(other than VRI and its Subsidiaries) and the VRI Group, and any situation or
circumstance concerning such calculation and allocation that is not specifically
contemplated hereby or provided for herein shall be dealt with in a manner
consistent with the underlying principles of calculation and allocation in this
Agreement.
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18. Effect of Agreement.
This Agreement shall determine the liability of BPA and VRI as to the
matters provided for herein, whether or not such determination is effective for
purposes of the Code or of state or local revenue laws, for financial reporting
purposes or for any other purpose.
19. Term.
This Agreement will apply to Taxable Years ending after the Effective Date
and all subsequent Taxable Years, unless BPA and VRI agree in writing to
terminate this Agreement. Notwithstanding such termination, this Agreement will
continue in effect with respect to any payment or refunds due for all Taxable
Years prior to termination and all subsequent taxable years to the extent
required to comply with Section 7(b) and the provisions of Sections 13, 21 and
32 shall survive the termination of this Agreement. VRI or any Subsidiary of
VRI that leaves the BPA Group will be bound by this Agreement. The failure of
one or more parties hereto to qualify for inclusion in the Consolidated Return
filed by BPA will not operate to terminate this Agreement with respect to the
other parties as long as two or more parties hereto continue so to qualify.
20. Assignment.
A party's rights and obligations under this Agreement will not be
assignable by any party without the prior written consent of the other parties.
The preceding sentence notwithstanding, VRI shall be permitted to assign its
rights to receive payments from BPA pursuant to Section 4(h) of this Agreement
without BPA's consent.
21. Confidentiality.
52
BPA, VRI and the Subsidiaries of VRI agree that any information furnished
among one another pursuant to this Agreement is confidential and, except as and
to the extent required during the course of an audit or litigation, shall not be
disclosed to other persons.
22. Documentation.
All material including, but not limited to, returns, supporting schedules,
work papers, correspondence, and other documents relating to the consolidated
federal income tax returns filed for a taxable year subject to this Agreement
will be made available to any party to the Agreement during regular business
hours for a minimum period equal to applicable federal and state record
retention requirements (or the applicable statute of limitations period).
23. Additional Members.
The parties hereto specifically recognize that from time to time other
Subsidiaries of VRI may become Members of the BPA Group and hereby agree that
VRI shall cause such corporations to become parties to this Agreement by causing
such Members to execute the master copy of this Agreement, which will be
maintained at BPA's headquarters. It will not be necessary for all the parties
hereto to re-execute the Agreement, but the new Members may simply execute a
counterpart of the existing Agreement, which will remain in effect as if all
parties had signed contemporaneously.
24. Tax Law Changes.
Any alteration, modification, addition, deletion or other change in the
Code or the Income Tax Regulations (or the applicable state and local tax
provisions) will automatically be applicable to this Agreement when changed.
53
25. Successors and Assigns.
This Agreement will bind and inure to the benefit of the respective
successors and assigns of the parties hereto; but no assignment will relieve any
party of its obligations hereunder without the written consent of the other
parties.
28. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
26. Headings.
The headings in this Agreement are inserted for convenience only and shall
not constitute a part hereof or affect the interpretation of this
Agreement.
27. Severability.
If any provision of this Agreement is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties to the maximum extent practicable. In any
event, all other provisions of this Agreement shall be deemed valid, binding and
enforceable to their full extent.
28. Entire Agreement.
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein. No alteration, amendment or
modification of any of the terms of this Agreement shall be valid unless made by
an instrument signed in writing by an authorized officer of BPA and of VRI.
29. Conflicts Between This Agreement and the Stock Purchase Agreement.
In the event a conflict arises between the terms of this Agreement and the
terms
54
of the Stock Purchase Agreement during any Taxable Year in which this
Agreement is in effect, the terms of this Agreement shall control. The parties
hereto intend that this Agreement shall supersede Sections 11.1(a)(v) and
11.1(b) of the Stock Purchase Agreement and shall constitute the parties' final
agreement with respect to such sections. VRI and its Affiliates further agree
to release ARCO and BPA from any indemnity obligations pursuant to Section
11.1(a)(v) of the Stock Purchase Agreement. It is intended that this Agreement
shall constitute a writing described in Section 12.3 of the Stock Purchase
Agreement. If the items of income, deduction, gain, loss, credits and other tax
attributes of the Gulf Assets are included in the Pro Forma VRI Return and the
Pro Forma State Return in accordance with this Agreement and the Prior Agreement
for the periods after the Closing Date (as defined in the Stock Purchase
Agreement) and VRI satisfies its payment obligations with respect thereto
pursuant to this Agreement and the Prior Agreement, then VOI and the VRI Group
shall have no further liability to ARCO and BPA for income and franchise taxes
attributable to the Gulf Assets. Furthermore, the tax indemnity provisions of
this Agreement and the Prior Agreement shall be applicable with respect to the
payment by VRI of such taxes.
33. Notices.
Any payment, notice or communication required or permitted to be given
under this Agreement shall be in writing (including telecopy communication) and
mailed, telecopied or delivered:
55
If to BPA:
BP America Inc.
200 East Randolph Drive
Chicago, Illinois 60601-7125
Attention: Vice President & General Tax Officer
If to VRI:
VASTAR Resources, Inc.
15375 Memorial Drive
Houston, Texas 77079
Attention: General Tax Officer
or to such other address that a party shall furnish in writing to the other
party. All such notices and communications shall be effective when received.
31. Governing Law.
This Agreement will be construed and enforced in accordance with the laws
of the State of Texas, without giving effect to the principles of conflict of
laws.
* * *
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers as of the date
first set forth above.
BP AMERICA, INC.
BY /s/ James G. Nemeth
______________________________
56
VASTAR RESOURCES, INC.
BY /s/ A. Shawn Noonan
___________________________
F&H PIPELINE COMPANY
BY /s/ A. Shawn Noonan
______________________________
GRANT GATHERING COMPANY
BY /s/ A. Shawn Noonan
______________________________
WILBURTON HUB, INC.
BY: /s/ A. Shawn Noonan
____________________________
VASTAR GAS MARKETING, INC.
BY: /s/ A. Shawn Noonan
_____________________________
VASTAR HOLDINGS, INC.
BY: /s/ A. Shawn Noonan
_____________________________
57
VASTAR POWER MARKETING, INC.
BY: /s/ A. Shawn Noonan
______________________________
VASTAR OFFSHORE, INC.
BY: /s/ A. Shawn Noonan
______________________________
VASTAR PIPELINE, LLC
BY: /s/ A. Shawn Noonan
_____________________________
VASTAR ENERGY, INC.
BY: /s/ A. Shawn Noonan
______________________________
58