1
EXHIBIT 10.2
TAX SEPARATION AGREEMENT
This agreement ("Agreement") is entered by and between Green and
Downstream to be effective as of the date of the Distribution referred to in
the recitals below (the "Effective Date"). Other capitalized terms used herein
are defined when first used in the Agreement or in paragraph 9.
WHEREAS, Green is the common parent of an affiliated group of
corporations filing a consolidated federal income tax return (the "Green
Group"); Downstream and its subsidiaries are members of the Green Group; and
the members of the Green Group are parties to the Tax Sharing Agreement;
WHEREAS, the stock of certain members of the Green Group will be
contributed to Downstream, and the stock of Downstream will be distributed to
the shareholders of Green (the "Distribution") in a transaction intended to
qualify for nonrecognition under section 355 of the Internal Revenue Code of
1986, as amended (the "Code");
WHEREAS, in connection with the Distribution, the parties desire
to terminate the application of the Tax Sharing Agreement to Downstream and the
Downstream Subsidiaries ("Downstream Group"), to provide an allocation of
liability for taxes between the Downstream Group on the one hand and Green and
the Green Subsidiaries ("New Green Group") on the other hand, and to agree as
to certain other tax matters;
NOW, THEREFORE, in consideration of the mutual premises and
covenants set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Green and Downstream
agree as follows:
1. LIABILITY FOR TAXES.
1.1 NON-CONSOLIDATED TAXES. Each corporation shall be liable for its
own Non-Consolidated Taxes, whether incurred before or after the Distribution.
1.2 CONSOLIDATED TAXES. Green shall be liable for all Consolidated
Taxes and shall indemnify and hold each member of the Downstream Group
harmless from and against all Consolidated Taxes. Green shall pay each
Consolidated Tax not later than 30 days after the date on which Green has
received written notice from Downstream that the liability for the relevant tax
has been fixed by a Final Determination. Except as provided in part 2, the New
Green Group shall not be obligated to make any payments to the Downstream
Group, and the Downstream Group shall not be obligated to make any payments to
the New Green Group in respect of Consolidated Taxes.
-1-
2
2. INTER-GROUP ADJUSTMENTS.
2.1 PRIOR PERIODS. Insofar as it applies to the Downstream Group,
Green and Downstream shall cause each Tax Sharing Agreement to terminate and to
have no further force and effect as of the end of the day immediately preceding
the Effective Date. Except as provided in paragraph 2.4, no adjustments shall
be made in respect of all inter-company debits and credits heretofore made
pursuant to each Tax Sharing Agreement or otherwise with respect to all periods
ending before January 1, 1998 ("Prior Periods"). Except as provided in this
Agreement, neither Green nor any Green Subsidiary shall have any claim against
Downstream or any Downstream Subsidiary with respect to taxes on or after the
Effective Date and vice versa.
2.2 TRANSITION PERIOD. For the period from January 1, 1998, to the
Effective Date ("Transition Period"), Downstream shall owe Green an amount
equal to the Downstream Tax Obligation, which shall be paid as follows:
(a) Immediately prior to the Effective Date, Downstream shall
pay Green an amount equal to the excess of Green's estimate of the Downstream
Tax Obligation ("Estimated Obligation") over the aggregate amount of prior
payments by the Downstream Group with respect to Consolidated Taxes for the
Transition Period. For such purposes, a payment includes an offset through
accounting entry or other settlement of intercompany accounts.
(b) Within 30 days after the Downstream Tax Obligation is
calculated pursuant to paragraph 3, including the resolution of any disputed
items pursuant to paragraph 3.3 ("Calculated Obligation"), Downstream shall pay
to Green any excess of the Calculated Obligation over the Estimated Obligation,
and Green shall pay to Downstream any excess of the Estimated Obligation over
the Calculated Obligation.
2.3 DISQUALIFYING STOCK CHANGE. Downstream shall indemnify and hold
Green harmless from and against all taxes imposed in a Final Determination on
any gain recognized by Green pursuant to section 355(e) of the Code as a result
of a direct or indirect change in the stock ownership of Downstream following
the Distribution unless such change results from any act of Green, any Green
Subsidiary, or any affiliate thereof.
2.4 INVENTORY ADJUSTMENTS. Downstream shall indemnify and hold Green
harmless from and against all taxes resulting from a Final Determination that
adjusts the manner in which the Downstream Group accounts for its inventory for
tax purposes for the Transition Period or Prior Periods or any of them. The
indemnity is not only for taxes imposed for each year in which an adjustment is
made, but also for taxes for other years that would not have been imposed if
there had been no adjustment. The statute of limitations with respect to the
indemnity for an increase in tax for a year shall begin in the year in which
the tax is imposed and not the year for which the adjustment is made.
-2-
3
3. CALCULATION OF DOWNSTREAM TAX OBLIGATION.
3.1 PRO FORMA RETURNS. On or before the later of one year after the
Effective Date and 45 days before the filing of the last federal income tax
return that includes any part of the Transition Period, Green shall provide
Downstream with copies of pro forma stand-alone federal income tax returns for
the Downstream Group for the Transition Period. The obligation to furnish
returns is dealt with in part 5.
3.2 PRO FORMA RETURN CALCULATIONS. Each pro forma tax return shall
be prepared in accordance with the methodology set forth in the definition of
"Downstream Tax Obligation" and, except as expressly provided in such
definition, shall be consistent with the federal income tax returns filed by
the Green Group. The use of any method, election, or convention that is not
determined by past practice of the Green Group must be identified by Green in
writing and may be disputed by Downstream. Within 30 days of its receipt of
such pro forma returns, Downstream may dispute any amounts shown on such pro
forma returns by specifying in writing each disputed item and the amount
thereof in dispute. If Green and Downstream are unable to agree with respect
to any disputed item within 30 days, the dispute shall be resolved in
accordance with the resolution procedure prescribed in paragraph 3.3. Within
30 days after Downstream has received such pro forma returns and all disputes
have been resolved, the Downstream Tax Obligation shall be calculated on the
basis of such pro forma returns, as adjusted to conform to the manner in which
the disputes of issues were resolved. If the resolution procedure has not been
completed with respect to any such pro forma return prior to the due date
(including extensions) for filing the federal income tax return relating to
such pro forma return, Green shall file such tax return in the manner
determined by Green reflecting all disputed items that have been resolved in
the manner so resolved and reflecting all unresolved disputed items in the
manner proposed by Green. Upon the resolution of all such unresolved disputed
items, Green may file an amended tax return reflecting the resolution thereof
in the manner so resolved.
3.3 RESOLUTION PROCEDURE. Any disputed item shall be submitted to
the Tax Arbitrator. Green and Downstream shall present their arguments to the
Tax Arbitrator within 30 days after such submission. The Tax Arbitrator shall
resolve the dispute in a fair and equitable manner and in accordance with
applicable tax law. However, the Tax Arbitrator shall not resolve a legal
issue against Green unless the Tax Arbitrator is of the opinion that its
resolution would at least more likely than not be sustained by a court if
litigated or that Downstream's position with respect to such legal issue has
Substantial Authority and is consistent with the past practice of the Green
Group. The Tax Arbitrator's determination shall be binding on the parties.
Green and Downstream shall each be responsible for one-half of the cost and
fees of the Tax Arbitrator.
4. ALLOCATION OF UNUSED LOSSES AND CREDITS. The net operating losses
("NOL") and credits, of the Green Group that are not used or usable by the
Green Group for Prior Periods or for the Transition Period shall be apportioned
between the New Green Group and the Downstream Group in accordance with the
methods required by temporary or final Treasury Regulations under section 1502
of the Code. The alternative minimum tax credit carryovers that are not
prescribed by
-3-
4
temporary or final regulations shall be apportioned among the members of the
New Green Group and the Downstream Group in the ratio to which each would have
been entitled to such credit carryovers if each had filed a separate corporate
tax return for all relevant periods. Any disagreement as to the appropriate
method or as to proper application of a method shall be resolved by the Tax
Arbitrator.
5. FILING OF TAX RETURNS.
5.1 NON-CONSOLIDATED RETURNS. Each entity shall be responsible for
each Non-consolidated Tax Return that it is required to file. Green shall
cause each member in the Green Group to file each Non-consolidated Tax Return
that is due (after extensions) before the Effective Date.
5.2 CONSOLIDATED RETURNS. To the extent permitted by law, Green and
Downstream shall cause the Downstream Group to be included in the consolidated
federal income tax returns filed by the Green Group and in each Consolidated
State Return that includes a member of the Green Group for each period that
includes a portion of the Transition Period and for all Prior Periods. Green
may continue to file a separate tax return in jurisdictions in which the Green
Group is authorized to file either a separate or consolidated tax return and in
which Green has heretofore filed separate tax returns. Green shall furnish
Downstream with a copy of all such consolidated federal income tax returns and
Consolidated State Tax Returns as soon as completed. Such returns shall
include the customary schedules showing separate company income of each member
of the Green Group. If any such return is not completed within 30 days before
the extended filing date, Green shall furnish a copy of the then current draft
of such return and shall afford Downstream an opportunity to comment on any
such return or draft. Downstream shall file all consolidated returns of the
Downstream Group for any period beginning after the Effective Date.
6. AUDITS.
6.1 GENERAL. Except as provided in this part 6 below, Green shall
control the conduct of all stages of any audit or administrative or judicial
proceeding with respect to Consolidated Taxes, and Downstream shall control the
conduct of all other audits or administrative or judicial proceedings with
respect to the tax liability of the Downstream Group.
6.2 INVENTORY ADJUSTMENTS AUDIT. If the IRS on audit proposes any
inventory adjustment for which Downstream is liable pursuant to paragraph 2.4,
Green will notify Downstream of such proposed adjustments and shall allow
Downstream to assume control of the conduct of such audit or any further
administrative or judicial proceeding with respect to such proposed
adjustments, including, without limitation, by providing Downstream and its
counsel with powers of attorney or other appropriate documents that will enable
Downstream and its counsel to conduct such proceedings. If Downstream does not
elect to assume control of such audit or proceeding, Downstream shall
nevertheless be entitled to participate in such proceeding on the basis set
forth in clauses (a), (b) and (c) of paragraph 6.3.
-4-
5
6.3 DISQUALIFYING STOCK CHANGE AUDIT. If the IRS at any time
asserts that there has been a disqualifying stock ownership change for which
Downstream is liable pursuant to paragraph 2.2, Green shall (a) consult with
Downstream with respect to material action Green may take, (b) permit
Downstream to review and comment on any material written submission to any
taxing authority, and (c) permit Downstream to participate in conferences with
taxing authorities and submit pertinent material in support of Green's
position. Green shall not accept any proposed adjustment or enter into any
settlement or agreement in compromise without the written consent of
Downstream, subject to the following: if Green believes that a proposed
settlement is fair and properly takes into account the hazards of litigation,
Downstream must either agree to such settlement or pay to Green for payment to
the IRS or deposit in escrow the amount of taxes to be assessed by the IRS (or
post an acceptable bond). In such event, if Downstream agrees in writing that
it will be liable for any taxes that may be assessed, Green shall allow
Downstream at its cost to assume control of further administrative or judicial
proceedings concerning this issue including, without limitation, by providing
Downstream and its counsel with powers of attorney or other appropriate
documents that will enable Downstream and its counsel to conduct such
proceedings.
6.4 POST-TRANSITION PERIOD TAX IMPACT. Green shall give prompt
notice to Downstream of any tax adjustment proposed in writing pursuant to any
audit or other proceeding that, if consistently applied to the Transition
Period or periods after the Effective Date, would have an adverse effect on the
tax liability of Downstream or any Downstream Subsidiary for which Downstream
is responsible pursuant to this Agreement. If Downstream requests, Green shall
discuss with Downstream the position Green intends to take regarding any issue
concerning such taxes.
7. POST-EFFECTIVE DATE RELATIONS.
7.1 COOPERATION. The New Green Group and Downstream Group agree to
cooperate with each other in providing the information necessary to permit each
to determine its correct tax liability, to prepare all tax returns and other
documents to be filed with all taxing authorities, and to conduct any tax
audit or other proceeding. Such cooperation shall include making employees
available for consultation and making work papers and other records available
during regular business hours. One party may charge the other for the
information and other assistance furnished pursuant to the foregoing only for
out-of-pocket cost incurred for any duplication cost, travel costs, and similar
reasonable costs.
7.2 CONSISTENCY. No member of the New Green Group or the Downstream
Group shall take a position on a return or in dealings with taxing authorities
that is inconsistent with the returns as filed if such position could
reasonably be expected to adversely affect the past, present, or future tax
liability of the other party unless (a) both parties agree or (b) the Tax
Arbitrator concludes that the original position is not supported, and the
proposed change position is supported, by Substantial Authority.
8. EMPLOYEE STOCK OPTIONS. Green shall be entitled to any tax deduction or
other benefit attributable to the exercise, after the Effective Date, of any
option to acquire common stock of Green
-5-
6
that is held by an employee of any member of the Green Group as of the
Effective Date, and Downstream shall be entitled to any tax deduction or other
benefit attributable to the exercise, after the Effective Date, of any option
to acquire common stock of Downstream that is held by any such employee.
9. DEFINITIONS.
"Consolidated State Return" means any consolidated, combined, or unitary
income tax return that is required to be filed with a state, local, or foreign
jurisdiction and that includes any member of the New Green Group on the one
hand and any member of the Downstream Group on the other hand.
"Consolidated Taxes" means any taxes reportable on a consolidated
federal income tax return that includes any member of the New Green Group on
the one hand and any member of the Downstream Group on the other hand or on any
Consolidated State Return.
"Downstream Subsidiary" means any corporation or other legal entity in
which Downstream or any Downstream Subsidiary owns, directly or indirectly,
immediately after the Distribution and before any other transaction, more than
50% of the stock or other equity interest entitled to vote on the election of
members to the board of directors or similar governing body.
"Downstream Tax Obligation" means an amount equal to the greater of
(a) 38% of the aggregate net income of the members of the
Downstream Group for the Transition Period as determined for federal income tax
purposes, without regard (i) to any carryover or carryback of losses or credits
incurred in other periods (except for carryovers attributable to the Downstream
Group that are actually utilized by the Green Group in the Transition Period)
or any adjustments required in computing alternative minimum taxable income, or
(ii) to income, gains, and deductions attributable to receivables, oil and gas
assets, and other assets distributed (or otherwise transferred without full
consideration) during the Transition Period by a corporation that will be a
member of the Downstream Group after the Effective Date to a corporation that
will be a member of the New Green Group after the Effective Date and
(b) 24% of the net income as determined in clause (a) except
with the adjustments required in computing alternative minimum taxable income.
In making each calculation, the aggregate amount of taxable gain attributable
to intercompany transactions within the meaning of Treasury Regulations section
1.1502-13 shall not exceed the gain attributable to the Atlas Refinery and no
items of any income, gain, or interest attributable to the recapture of dual
consolidated losses within the meaning of Section 1503 of the Code shall be
taken into account.
-6-
7
"Final Determination" means the final resolution of liability for tax
for any tax period or for any tax issue as a result of (a) a final and
unappealable judgment or other order of a court of competent jurisdiction, (b)
a closing agreement or accepted offer in compromise under sections 7121 or 7122
of the Code, or a comparable agreement under the laws of other jurisdictions,
which resolves the entire liability for such tax or such issue for such tax
period, or (c) any other final disposition, including by reason of the
expiration of the applicable statute of limitations.
"Green Subsidiary" means any corporation or other legal entity in which
Green or any Green Subsidiary owns, directly or indirectly, immediately after
the Distribution and before any other transaction, more than 50% of the stock
or other equity interest entitled to vote on the election of members to the
board of directors or similar governing body.
"Non-Consolidated Taxes" means all taxes other than Consolidated Taxes.
"Substantial Authority" has the meaning provided in the Treasury
Regulations under section 6662 of the Code.
"Tax Arbitrator" means the national office of an independent accounting
firm of national reputation selected by Green and reasonably acceptable to
Downstream.
"Tax Sharing Agreement" means the Tax Sharing Agreement among the
members of the Green Group dated as of April 1, 1998, and any other Tax
allocation or Tax sharing agreement or arrangement that, prior to the Effective
Date, may have been entered into between any member of the New Green Group on
the one hand and any member of the Downstream Group on the other hand.
"taxes" means all federal, state, local and foreign taxes, and other
assessments of a similar nature (whether imposed directly or by way of
withholding), including any interest, penalties, and additions thereto.
10. GENERAL PROVISIONS.
10.1 ASSIGNABILITY. Neither this Agreement nor any right or interest
hereunder shall be assignable by any party hereto without each other party's
prior written consent.
10.2 LEVY. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, execution, attachment, levy or
similar process or assignment by operation of law, and any attempt, voluntary
or involuntary, to effect such action shall be null, void and of no effect.
10.3 SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors.
-7-
8
10.4 ENTIRE AGREEMENT. This Agreement supersedes all prior written or
oral agreements between the parties with respect to the matters contemplated
herein, and is intended as a complete and exclusive statement of the terms of
the agreement between the parties with respect to the subject hereof. This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be an estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel.
10.5 SURVIVAL. The provisions of this Agreement shall survive the
Effective Date and remain in full force until all periods of limitations
(giving effect to any extension, wavier or mitigation thereof) have expired and
no further carry backs to such periods are possible and for 30 days thereafter.
At such time, all remaining payments required under this Agreement shall become
immediately due and payable.
10.6 APPLICABLE LAW. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
EXECUTED this _________ day of April, 1998
GREEN
By:
---------------------------------
Name:
Title:
DOWNSTREAM
By:
---------------------------------
Name:
Title:
-8-