EXHIBIT 10.4
SECOND AMENDED AND RESTATED
TAX ALLOCATION AGREEMENT
by and between
PLAINS RESOURCES INC.
and
PLAINS EXPLORATION & PRODUCTION COMPANY
November 20, 2002
TABLE OF CONTENTS
Page
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1. Spinco Group................................................................... 1
2. Tax Returns.................................................................... 2
3. Obligation for Payment of Taxes................................................ 2
4. No Plains Tax Payments......................................................... 3
5. Spinco Tax Payments............................................................ 3
6. Tax Benefits Before Spin-Off; Deferred Intercompany Gains...................... 4
7. Spinco Tax Benefits After Spin-Off; No Payment by Spinco....................... 4
8. Allocation of Expenses for Plains Options and Spinco Stock Appreciation Rights. 4
9. Tax Audits..................................................................... 4
10. Proposed Adjustments........................................................... 5
11. Notice of Settlement or Compromise............................................. 5
12. Spinco's Right to Contest...................................................... 5
13. Subsequent Adjustments or Refunds.............................................. 5
14. Spinco Spin-Off Tax Indemnity.................................................. 6
15. Future Actions................................................................. 6
16. Combined, Consolidated or Unitary Basis Returns................................ 6
17. Earnings and Profits Information............................................... 7
18. Tax Interpretation............................................................. 7
19. Consistent Tax Treatment....................................................... 7
20. Retention of Records........................................................... 7
21. Post Spin-Off Period Taxes..................................................... 7
22. Expenses....................................................................... 7
23. Definitions.................................................................... 8
(a) "After-Tax Basis"......................................................... 8
(b) "Agreed Rate"............................................................. 8
(c) "Code".................................................................... 8
(d) "Distribution Agreement".................................................. 8
(e) "Items of Loss or Tax Benefit"........................................... 8
(f) "Interim Period"......................................................... 8
(g) "Plains".................................................................. 8
(h) "Plains Group"........................................................... 8
(i) "Returns"............................................................... 8
(j) "Ruling"................................................................ 8
(k) "Short Period"............................................................ 8
(l) "Spinco"................................................................. 8
(m) "Spinco Group"............................................................ 8
(n) "Spin-Off"................................................................ 8
(o) "Spin-Off Date"........................................................... 8
(p) "Spin-Off Tax"............................................................ 8
(q) "Tax Authority"........................................................... 8
(r) "Taxes".................................................................. 8
(s) "Transfer Tax"............................................................ 9
24. Notices........................................................................ 9
25. Binding Effect; Successors..................................................... 9
26. Severability................................................................... 9
27. Entire Agreement............................................................... 9
28. Governing Law.................................................................. 10
29. Arbitration.................................................................... 10
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SECOND AMENDED AND RESTATED
TAX ALLOCATION AGREEMENT
THIS SECOND AMENDED AND RESTATED TAX ALLOCATION AGREEMENT, made and entered
into as of the 20th day of November, 2002, by and between Plains Resources
Inc., a Delaware corporation ("Plains"), and Plains Exploration & Production
Company, a Delaware corporation ("Spinco").
WITNESSETH:
WHEREAS, Plains is the common parent of an affiliated group of corporations
(hereinafter referred to as the "Plains Group") within the meaning of Section
1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
members of the Plains Group have heretofore joined in filing consolidated
Federal income Tax Returns;
WHEREAS, on or about July 3, 2002, certain assets associated with the
upstream business conducted by the Plains Group, including the stock of certain
subsidiaries included in the Plains Group and engaged in the upstream business,
were contributed to the capital of Spinco or otherwise acquired by Spinco or
one or more of its subsidiaries;
WHEREAS, on September 18, 2002, Spinco (1) converted from a California
limited partnership to a Delaware limited partnership and immediately
thereafter (2) converted from a Delaware limited partnership to a Delaware
corporation;
WHEREAS, Plains, on a date to be determined by Plains (the "Spin-Off Date"),
will distribute to its stockholders all of the outstanding stock of Spinco that
it then holds (the "Spin-Off"), and thereafter Spinco and its subsidiaries will
no longer be members of the Plains Group for Federal income Tax purposes;
WHEREAS, on July 3, 2002, the parties entered into the Tax Allocation
Agreement to provide for the sharing of the Federal, state, local and foreign
income Tax liabilities and benefits accrued prior to the Spin-Off between
Plains and its subsidiaries and Spinco and its subsidiaries;
WHEREAS, on October 2, 2002, the parties entered into the Amended and
Restated Tax Allocation Agreement to determine Spinco's potential liability to
Plains for Spinco's use of the Tax benefits of the Plains Group prior to the
Spin-Off; and
WHEREAS, the parties now desire to amend and restate the Amended and
Restated Tax Allocation Agreement to allocate the expenses related to the
Plains employee stock options, Plains restricted stock, Spinco restricted
stock, and Spinco employee stock appreciation rights that are exercised or
which vest after the Spin-Off.
NOW, THEREFORE, the parties hereto agree as follows:
1. Spinco Group. For purposes of this Agreement, the "Spinco Group" shall
mean (i) Spinco, (ii) Spinco's subsidiaries, and (iii) those corporations and
other entities whose stock or ownership interests will be contributed to Spinco
prior to the Spin-Off Date, all of such subsidiaries of Spinco and such
corporations and other entities being listed on Exhibit A attached hereto.
Unless otherwise specified, whenever Items of Loss or Tax Benefit (as defined
below) of Spinco are referred to in this Agreement the reference shall be to
the collective amounts of such items for the Spinco Group. For purposes of this
Agreement, items of income, gain, loss, deduction, credit, or other Tax
attributes on or prior to the Spin-Off Date are referred to as "Items of Loss
or Tax Benefit".
2. Tax Returns. Plains shall prepare and file or cause to be prepared and
filed timely all appropriate Returns in respect of Spinco and the other members
of the Spinco Group that (i) are required to be filed on or before the Spin-Off
Date; or (ii) are required to be filed after the Spin-Off Date that (A) are
required to include, on a consolidated, combined or unitary basis, the
operations of Spinco or any other member of the Spinco Group for any Tax period
or portion thereof ending on or before the Spin-Off Date; or (B) are required
to be filed by Spinco or any other member of the Spinco Group on a separate
return basis for any Tax period ending on or before the Spin-Off Date. To the
extent requested by Plains, Spinco shall participate in the filing of and shall
file any required Returns with respect to any Tax period that ends on or before
the Spin-Off Date. Spinco shall prepare or cause to be prepared the schedules
in respect of Spinco and other members of the Spinco Group containing the
information necessary for Plains to prepare any consolidated, combined or
unitary Returns. If Plains, after consulting with Spinco, files any such
consolidated, combined or unitary Return using information with respect to
Spinco and the other members of the Spinco Group that is different from the
information prepared and furnished by Spinco, and Plains and Spinco thereafter
are unable to resolve such difference, such difference shall constitute a claim
for purposes of Paragraph 29 this Agreement. Spinco shall also prepare or cause
to be prepared and shall file or cause to be filed all other Returns required
of Spinco or any other members of the Spinco Group, or in respect of its or any
of their activities, for any Tax period ending after the Spin-Off Date that
includes the operations of Spinco or any other member of the Spinco Group prior
to the Spin-Off Date. The parties hereto will, to the extent permitted by
applicable law, elect with the relevant Tax Authority to treat for all purposes
the Spin-Off Date as the last day of a Tax period of Spinco and the other
members of the Spinco Group, and such period shall be treated as a "Short
Period" for purposes of this Agreement. In any case where applicable law does
not permit Spinco to treat the Spin-Off Date as the last day of a Short Period,
then for purposes of this Agreement, the portion of such Taxes that is
attributable to the operations of Spinco and the other members of the Spinco
Group for such Interim Period (as defined below) shall be (i) in the case of
Taxes that are not based in whole or in part on income or gross receipts, the
total amount of such Taxes for the period in question multiplied by a fraction,
the numerator of which is the number of days in the Interim Period, and the
denominator of which is the total number of days in the entire period in
question, and (ii) in the case of Taxes that are based in whole or in part on
income or gross receipts, the Taxes that would be due with respect to the
Interim Period, if such Interim Period were a Short Period. "Interim Period"
means with respect to any Taxes imposed on Spinco or any other members of the
Spinco Group for which the Spin-Off Date is not the last day of a Short Period,
the period of time beginning on the first day of the actual Tax period that
includes (but does not end on) the Spin-Off Date and ending on and including
the Spin-Off Date. Any franchise Tax shall be allocated to the Tax period or
portion thereof during which the right to do business obtained by the payment
of such franchise Tax relates, regardless of whether such franchise Tax is
measured by income, operations, assets or capital relating to another Tax
period.
3. Obligation for Payment of Taxes. Plains shall be entitled to receive
from Spinco amounts calculated in accordance with Paragraphs 2, 3, 5, 13 and
14. Except as otherwise provided in Paragraph 5, the amounts, if any, that
Spinco shall be obligated to pay Plains pursuant to Paragraph 5, with respect
to Tax periods of the Plains Group ending on or prior to the Spin-Off Date,
shall be paid (i) within 30 days after the Spin-Off Date where the Taxes were
paid by Plains on or before the Spin-Off Date and shall include interest
thereon calculated for the period from the Spin-Off Date to the date of payment
at a per annum rate of interest (computed on the basis of the actual number of
days elapsed (including the Spin-Off Date but excluding the payment date) over
a year of 365 or 366 days, as the case may be) equal to the underpayment rate
under Section 6601 of the Code, or (ii) within 30 days after the date of
payment where the Taxes are paid by Plains after the Spin-Off Date. This
initial settlement shall be based on the Returns as they have been filed and
shall include any amendments of or adjustments to such Returns that have been
finally settled. Except as otherwise provided in Paragraph 5, any amounts that
Spinco shall be obligated to pay Plains pursuant to Paragraph 5 with respect to
Tax periods of the Plains Group ending after the Spin-Off Date shall be paid
within 30 days after filing of the Returns for such Tax periods. In the event
of an adjustment to the amount of payment for any Tax period as determined
under Paragraph 13, Plains shall be entitled to receive from Spinco such
payment within 30 days after payment of a deficiency to or receipt of a refund
from the Tax Authority. In the event of an adjustment under Paragraph 13
resulting in no additional payment to or no receipt of a refund from the Tax
Authority, settlement between the parties hereto shall be made within 30 days
after filing of the amended Return or final settlement of the
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adjustment. In the event that Spinco is delinquent in paying to Plains any
amount due pursuant to this Paragraph 3, including any interest accrued thereon
pursuant to this Paragraph 3, such unpaid amount shall bear interest from the
original due date until paid at a per annum rate equal to the lesser of (a) 18
percent and (b) the maximum lawful non-usurious rate of interest, if any, which
under applicable law Plains is permitted to charge Spinco thereon from time to
time.
4. No Plains Tax Payments. Notwithstanding any other provision of this
Agreement to the contrary, Plains shall not be obligated to pay Spinco for any
Items of Loss or Tax Benefit of the Spinco Group used by the Plains Group to
reduce its Federal income Tax liability or Federal taxable income for any Tax
period ending on or before the Spin-Off Date. For purposes of these
computations, the allocation of Tax attributes to the Spinco Group and
absorption thereof by the Plains Group for each Tax period shall be determined
in accordance with the Treasury Regulations under (S) 1502 of the Code, applied
in a manner consistent with practices and methods followed in reporting the
Federal income Tax liability of the Plains Group for such Tax periods. In any
instance where a Tax attribute must be characterized, the characterization
prescribed by the aforementioned Treasury Regulations will control.
5. Spinco Tax Payments. For each Tax period included in a consolidated
Federal income Tax return of the Plains Group which includes income of the
Spinco Group, Spinco shall be obligated to pay Plains an amount equal to the
product of (i) the net taxable income of the Spinco Group included in the
consolidated Federal income Tax Return of the Plains Group for such period,
multiplied by (ii) the highest marginal statutory Federal corporate income Tax
rate applicable to such income for such period; provided, however, that no
payment shall be required pursuant to this Paragraph 5 to the extent such
payments have previously been made by the Spinco Group to members of the Plains
Group other than the Spinco Group under any Tax sharing agreement or arrangement
(whether written or oral) or any other similar system of payments with respect
to Federal income Taxes of the Plains Group in existence prior to the Spin-Off
Date, including, but not limited to, any estimated Tax payments. For purposes of
these computations, the allocation of Tax attributes to the Plains Group and
absorption thereof by the Spinco Group for each Tax period shall be determined
in accordance with the Treasury Regulations under (S) 1502 of the Code, applied
in a manner consistent with practices and methods followed in reporting the
Federal income Tax liability of the Plains Group for such Tax periods. In any
instance where a Tax attribute must be characterized, the characterization
prescribed by the aforementioned Treasury Regulations will control. To the
extent, if any, that the amount of Taxes Plains is required to pay for a Tax
period that includes any net taxable income of the Spinco Group is less than the
amount calculated as owed by Spinco to Plains under this Paragraph 5, the amount
owed by Spinco to Plains shall be (i) reduced to the extent that such difference
is attributable to Items of Loss or Tax Benefit of the Plains Group used which
would have otherwise expired unused but for the fact that the Spinco Group had
net taxable income for such Tax period, or (ii) deferred to the extent such
difference is attributable to Items of Loss or Tax Benefit of the Plains Group
used which would have otherwise carried forward to a subsequent year or years of
the Plains Group but for the fact that the Spinco Group had net taxable income
for such Tax period. In the event an amount otherwise payable by Spinco to
Plains is deferred pursuant to clause (ii) of the immediately preceding
sentence, such amount shall be paid by Spinco to Plains within 30 days after the
filing of the Tax Return for the Tax period in which such Items of Loss or Tax
Benefit of the Plains Group previously used by the Spinco Group would have been
used by the Plains Group. Any amount payable by Spinco to Plains pursuant to the
immediately preceding sentence shall not be greater than the amount of Tax paid
by Plains as a consequence of the Tax benefits of the Plains Group previously
having been used to offset taxable income of the Spinco Group, and in no event
shall the aggregate amounts payable by Spinco to Plains pursuant to the
immediately preceding sentence (including the aggregate amounts of any state,
local or foreign Taxes similarly deferred) exceed $3 million. Any interest that
would otherwise be added to any such amount pursuant to Paragraph 3 or otherwise
shall be added to such amounts notwithstanding that such addition causes the
aggregate amounts to exceed $3 million.
The parties acknowledge that certain state, local or foreign income Tax
Returns may be filed on a combined, consolidated, separate or unitary basis. In
any such event, the parties intend that the required calculations for
determining which party owes Taxes to the other with respect thereto be made in
accordance with the principles referred to in Paragraph 16.
The parties further acknowledge that all Taxes shown on any Tax Return
prepared and filed on a separate return basis (notwithstanding who may be
obligated to prepare and file any such Tax Return under this Agreement) shall
be the sole liability of, and shall be paid by, the entity reflected as the
taxpayer thereon.
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6. Tax Benefits Before Spin-Off; Deferred Intercompany Gains. For purposes
of the calculations under Paragraphs 5, 13 and 14 of this Agreement, any loss
of or decrease in any Items of Loss or Tax Benefit of the Plains Group
resulting from or attributable to the transfer of assets to Spinco or any other
member of the Spinco Group in connection with the Spin-Off (under the Treasury
Regulations governing Federal consolidated returns) shall be ignored and all
calculations shall be made as though all such Items of Loss or Tax Benefit were
available for use by the Plains Group. In the event any deferred intercompany
gain attributable to assets transferred to Spinco or any other members of the
Spinco Group by other members of the Plains Group is recognized by the Plains
Group by reason of the Spin-Off, such deferred intercompany gain, if any, shall
be deemed to be a gain of the Spinco Group for its taxable year ending on the
Spin-Off Date for purposes of all calculations under this Agreement, including
the calculation of Taxes owed by Spinco to Plains pursuant to Paragraphs 2, 3,
5, 13 and 14 hereof. Notwithstanding anything in this Agreement to the
contrary, with respect to any items of income or gain resulting from an
acceleration of an excess loss account prior to or on the Spin-Off Date, Spinco
shall not be liable to Plains for Taxes or the use of Items of Loss or Tax
Benefit resulting from those items of income or gain.
7. Spinco Tax Benefits After Spin-Off; No Payment by
Spinco. Notwithstanding anything in this Agreement to the contrary, with
respect to Items of Loss or Tax Benefit apportioned to and carried over by the
Spinco Group after the Spin-Off (under the Treasury Regulations governing
Federal consolidated income Tax Returns) and regardless of whether such Items
of Loss or Tax Benefit (x) are used by the Spinco Group to reduce its Federal
income Tax liability after the Spin-Off or (y) expire unused by the Spinco
Group, Spinco shall not have any obligation to pay Plains for any such Items of
Loss or Tax Benefit.
8. Allocation of Expenses for Plains Options, Plains Restricted Stock,
Spinco Restricted Stock, and Spinco Stock Appreciation Rights.
To the extent that Plains employee stock options outstanding as of the
Spin-Off are exercised subsequent to the Spin-Off by Plains employees, Spinco
employees who were transferred from Plains to Spinco prior to or at the time of
the Spin-Off, or Spinco employees, those Plains employee stock options will be
treated as attributable to services performed for Plains prior to the Spin-Off.
To the extent that shares of Plains restricted stock outstanding as of the
Spin-Off become vested and no longer subject to a substantial risk of
forfeiture subsequent to the Spin-Off in favor of Plains employees, Spinco
employees who were transferred from Plains to Spinco prior to or at the time of
the Spin-Off, or Spinco employees, those shares of Plains restricted stock will
be treated as attributable to services performed for Plains prior to the
Spin-Off. To the extent that shares of Spinco restricted stock outstanding as
of the Spin-Off become vested and no longer subject to a substantial risk of
forfeiture subsequent to the Spin-Off in favor of Spinco employees, Plains
employees who were transferred from Plains to Spinco prior to or at the time of
the Spin-Off, or Plains employees, those shares of Spinco restricted stock will
be treated as attributable to services performed for Spinco prior to the
Spin-Off. To the extent that Spinco employee stock appreciation rights are
exercised subsequent to the Spin-Off by Plains employees, Spinco employees who
were transferred from Plains to Spinco prior to or at the time of the Spin-Off,
or Spinco employees, those stock appreciation rights will be treated as
attributable to services performed for Spinco prior to the Spin-Off. Similarly,
the entity for which the services are to be treated as attributable (Plains or
Spinco, as the case may be) shall be responsible for and undertake the
reporting of compensation, the withholding of taxes, and the payment of taxes
required with respect thereto. The parties agree to report the treatment of
such exercised Plains employee stock options, Plains restricted stock, Spinco
restricted stock and Spinco stock appreciation rights consistently with the
provisions of this Paragraph 8. In the event of an audit by a Tax Authority of
a Return in which any of these items are included or any other change which the
parties agree is appropriate notwithstanding the provisions of this Paragraph
8, the party against which any additional Taxes are assessed or imposed shall
pay such Taxes in accordance with Paragraph 21 hereof, there shall be no
payment required between the parties with respect to any such items
notwithstanding Paragraph 18 hereof, and any constructive transfer or payment
shall be treated for Tax purposes as a dividend or capital contribution, as the
case may be, immediately before the Spin-Off.
9. Tax Audits. In the event of an audit by any Tax Authority of a Return
filed by Plains, for any Tax period ending prior to or on the Spin-Off Date
which includes income of the Spinco Group (or any Tax period
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thereafter in which a carryforward of the Spinco Group's Items of Loss or Tax
Benefit is used), Plains shall give Spinco timely and reasonable notice of such
audit proceedings, and Spinco shall have the right to participate in any such
audit; provided, however, that Plains shall have the full power and authority
to control such audit. In connection with any such audit, Spinco will provide
all necessary information and other assistance reasonably requested by Plains
with respect to issues concerning the activities of the Spinco Group. All
communications with any such Tax Authority and its employees concerning any
such audit will be made by Plains unless otherwise agreed between the parties
hereto. In connection with its participation in any audit, Spinco shall be
given reasonable notice of all material meetings, investigations, field
examinations and similar events and copies of all relevant material
correspondence between the Tax Authority conducting the audit and Plains.
10. Proposed Adjustments. Plains shall give prompt notice to Spinco of any
adjustment or adjustments proposed by any Tax Authority relating to the
activities of the Spinco Group for any Tax period ending prior to or on the
Spin-Off Date. After consulting with Spinco, Plains shall determine in its sole
discretion the nature of all action to be taken to contest such proposed
adjustment, including whether any such action shall initially be contested by
way of judicial or administrative proceedings, or both, whether any such
proposed adjustment shall be contested by resisting payment thereof or by
paying the same and seeking a refund thereof, and if Plains shall undertake to
contest such proposed adjustment, the court or other judicial body before which
such action will be commenced. Plains shall have full control over any contest
or administrative proceeding pursuant to this Paragraph, but Spinco, at its
expense and subject to approval by Plains, which approval shall not be
unreasonably withheld, may participate in any proceedings contesting any
proposed adjustment relating to the activities of the Spinco Group.
11. Notice of Settlement or Compromise. Plains shall give prompt notice to
Spinco of any proposal made to it at the time of an audit or otherwise, to
settle or compromise issues relating to the Tax liabilities of the Spinco Group
for any Tax period ending prior to or on the Spin-Off Date. Plains will not
accept or offer any settlement or compromise of such issues without the consent
of Spinco, and such consent shall not be unreasonably withheld. If, in Plains'
opinion, Spinco unreasonably withholds such consent, Plains shall have the
right to settle or compromise such issues on the basis contained in the notice
to Spinco. If Spinco thereafter desires to dispute such settlement or
compromise, Spinco's claim with respect thereto shall constitute a claim for
purposes of Paragraph 29 of this Agreement.
12. Spinco's Right to Contest. Should Plains decline or cease to contest
any proposed adjustment relating to the activities of the Spinco Group for any
Tax period ending prior to or on the Spin-Off Date, Plains shall so notify
Spinco. Spinco, at its expense and upon providing reasonable assurances to
Plains of Spinco's ability to pay any Taxes resulting from any such proposed
adjustment, may contest such proposed adjustment; but in no event shall Spinco
be permitted to accept or offer any settlement or compromise that would require
the settlement or compromise of issues relating to the Tax liabilities of
members of the Plains Group other than the Spinco Group.
13. Subsequent Adjustments or Refunds. With respect to any Tax period of
the Plains Group after December 31, 2001, for which Plains received (or would
be entitled to receive) from Spinco a payment pursuant to Paragraph 5 or this
Paragraph 13, if the filing of an amended income Tax Return, final
determination of any adjustment made by any Tax Authority or the receipt of a
refund by Plains occurs with respect to such period and such event would cause
a difference in the amount of payment required for such period as previously
calculated pursuant to Paragraph 5 or this ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ shall give
Spinco prompt notice of such difference and Plains shall be obligated to pay or
entitled to receive from Spinco the amount of such difference. Any amount
required to be paid pursuant to this Paragraph 13 shall include any interest
imposed by or received from the Tax Authority if the adjustment results in the
payment of Tax to or receipt of Tax from the Tax Authority.
In addition, Plains and Spinco acknowledge and agree that the tax sharing
agreement in effect for the Plains Group as of December 31, 2001, shall be
negated and canceled as of the Spin-Off Date. Plains and Spinco further agree
that there are no claims or causes of action under such tax sharing agreement
as of December 31, 2001, for
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periods ending on or before December 31, 2001, by either of them or any member
of their respective group against the other or any member of the other's group,
and they release each other from any and all such claims. With respect to Taxes
for periods ending after December 31, 2001, Plains and Spinco agree that this
Agreement shall control. Spinco agrees that it will have no right to request
that Plains file an amended return or a claim for refund for any reason, unless
Spinco agrees to pay any Tax liability shown thereon or therein and Plains, in
its absolute discretion (which may be withheld for any reason), agrees. In the
event Spinco generates net operating losses or other Items of Loss or Tax
Benefit after the Spin-Off Date that may otherwise be carried back to the
taxable income or Tax liability of the Plains Group prior to the Spin-Off Date,
Spinco agrees to relinquish the entire carry back period with respect to each
such net operating loss or other Items of Loss or Tax Benefit under Section
172(b)(3) or other appropriate sections and to carry forward any such losses
and other items.
14. Spinco Spin-Off Tax Indemnity. Notwithstanding any other provision of
this Agreement to the contrary, Spinco shall be liable for, shall pay and shall
indemnify and hold Plains and the other members of the Plains Group harmless,
on an After-Tax Basis, against (A) any Transfer Taxes and other Taxes which may
be imposed or assessed as a result of the contribution by Plains to the capital
of Spinco or the acquisition (by sale or purchase or otherwise) by Spinco or
one or more of the other members of the Spinco Group of assets associated with
the upstream business conducted by the Plains Group, including the stock of
certain subsidiaries included in the Plains Group and engaged in the
exploration and production business, (B) any Taxes resulting from the
recognition of deferred intercompany gains as contemplated by Paragraph 6
hereof, and (C) any Spin-Off Tax. In determining the amount of, and the time of
payment of, any such Transfer Taxes, other Taxes or Spin-Off Tax owed by Spinco
to Plains, the principles set forth in Paragraph 5 shall apply.
In addition, Spinco shall be liable, and shall indemnify Plains, for 50
percent of any Tax to which Plains or any member of the Plains Group is subject
as a result of the application of any provision of the Code to the Spin-Off,
including without limitation, Section 311(b), Section 355(c)(2), Section 355(e)
or Section 361(c)(2) of the Code (or any corresponding or similar provision of
state, local or foreign law), other than (i) any Spin-Off Tax, which is
provided for in the immediately preceding paragraph, or (ii) any such Tax which
results (x) solely from the fact that one or more persons acquire after the
Spin-Off Date directly or indirectly stock representing a 50-percent or greater
interest in Plains and such acquisition is subject to Section 355(e) of the
Code, (y) from the failure of Plains or any other member of the Plains Group
(other than Spinco or any other member of the Spinco Group) to comply with the
covenants, agreements and representations in the Ruling, except to the extent
that any of the covenants, agreements or representations require compliance by
Spinco or any other member of the Spinco Group after the Spin-Off, or (z) from
any action by, or failure to take an action on the part of, Plains or any other
member of the Plains Group (other than Spinco or any other member of the Spinco
Group).
15. Future Actions. Spinco agrees that, during the three-year period
following the Spin-Off, it will not engage in any transaction that could
adversely affect the tax treatment of the Spin-Off without the prior written
consent of Plains, which consent may be withheld only if reasonable, unless (i)
Spinco delivers to Plains a supplemental ruling from the Internal Revenue
Service or a tax opinion acceptable to Plains of nationally recognized tax
counsel to the effect that the proposed transaction would not adversely affect
the tax treatment of the Spin-Off, or (ii) Spinco or another person or entity
acceptable to Plains provides to, or for the benefit of, Plains a cash escrow,
letter of credit or other comparable security acceptable to Plains in an amount
equal to the Taxes and accrued interest thereon (which accrued interest shall
be increased over time until such Taxes are paid or determined not to be
payable) that Plains reasonably calculates would be payable if the Spin-Off
were determined to be a taxable event for Tax purposes, with the terms and
conditions of any such cash escrow, letter of credit or other security being
mutually acceptable to Plains and Spinco or such other person or entity, as the
case may be. Plains agrees to cooperate with and provide reasonable assistance
to Spinco in the event that Spinco requests a supplemental ruling from the
Internal Revenue Service.
16. Combined, Consolidated or Unitary Basis Returns. The parties
acknowledge that certain state, local or foreign Tax Authorities may require,
or one of the parties may desire, to file amended or original state, local or
foreign income Tax Returns on a combined, consolidated or unitary basis. In
this regard, Spinco agrees that it
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will have no right to request that Plains file an amended return or a claim for
refund for any reason, unless Spinco agrees to pay any Tax liability shown
thereon or therein and Plains, in its absolute discretion (which may be
withheld for any reason), agrees. Such filing may result in an aggregate
decrease in the state, local or foreign income Tax of both parties; however,
one party may suffer a Tax increase compared to its state, local or foreign
income Tax liability calculated on a separate company basis, while the other
party enjoys a Tax decrease, or both parties may suffer a Tax increase. In any
such event, the parties intend that the required calculations for determining
which party owes Taxes to the other with respect thereto be made by utilizing
the principles set forth in Paragraphs 2, 3, 5, 13 and 14 hereof.
17. Earnings and Profits Information. The parties agree to share such
information as is necessary to allocate properly the earnings and profits of
the Plains Group among the remaining Plains Group and the Spinco Group in
accordance with the Code and Treasury Regulations for Tax periods prior to or
ending on the Spin-Off Date. After the Spin-Off, Plains agrees to provide
Spinco and Spinco's independent auditors with such information as is necessary
to verify amounts received or receivable or paid or payable by Spinco under
this Agreement. Spinco agrees to make available to Plains, upon request, all
Federal, state, local and foreign Tax Returns, work papers and other documents
pertaining to the activities of the Spinco Group prior to the Spin-Off.
18. Tax Interpretation. For all Tax purposes and notwithstanding any other
provision of this Agreement, to the extent permitted by applicable law, the
parties hereto shall treat any payment made pursuant to this Agreement as a
capital contribution or dividend distribution, as the case may be, immediately
prior to the Spin-Off Date and, accordingly, as not includable in the taxable
income of the recipient. If it is finally determined that the receipt or
accrual of any payment made under this Agreement is taxable to the recipient,
the payor shall pay to the recipient, on an After-Tax Basis, an amount equal to
any increase in the Taxes of the recipient as a result of receiving the payment
from the payor.
19. Consistent Tax Treatment. To the extent that assets are assigned,
sold, transferred or conveyed by a member of the Plains Group to Spinco or
another member of the Spinco Group in contemplation of the Separation (as
defined in the Distribution Agreement) or the Spin-Off and any such transaction
is treated as a sale for Tax purposes, the aggregate purchase price shall be
allocated among the assets assigned, sold, transferred or conveyed as
determined by Plains in its sole discretion. Each of Plains and Spinco agrees
to report and, where applicable, to cause the members of their respective
groups to report, the purchase prices of such assets as determined by Plains.
20. Retention of Records. Each party hereto agrees, to the extent
potentially relevant to the other party, to (1) retain, in accordance with
Plains' record retention policies in effect on the date of this Agreement, all
records, documents, accounting and other information (including computer data)
necessary for the preparation and filing of all Returns or the audit of such
Returns, and (2) give to the other party reasonable access to such records,
documents, accounting data, Returns and related books and records and other
information (including computer data) and to its personnel (insuring their
cooperation) and premises, for purposes of the review or audit of such Returns
to the extent relevant to an obligation or liability of a party under this
Agreement.
21. Post Spin-Off Period Taxes. Except as otherwise provided to the
contrary in this Agreement, (i) Plains and the other members of the Plains
Group (which, for this purpose, shall not include Spinco and the other members
of the Spinco Group) shall be solely responsible for all Taxes of the Plains
Group (which, for this purpose, shall not include Spinco and the other members
of the Spinco Group) arising in Tax periods beginning after the Spin-Off Date,
and (ii) Spinco and the other members of the Spinco Group shall be solely
responsible for all Taxes of the Spinco Group arising in Tax periods beginning
after the Spin-Off Date.
22. Expenses. Each party will bear its own expenses in complying with this
Agreement, including but not limited to the cost of employee work hours. The
sharing of fees and expenses of nonemployees and independent contractors
mutually engaged by the parties shall be agreed upon before such persons are
engaged.
7
23. Definitions.
(a) "After-Tax Basis" means, with respect to any payment, an amount
calculated by taking into account the Tax consequences of the receipt of
such payment, as well as any Tax benefit associated with the liability
giving rise to the payment, in each case calculated on a present value basis
using the Agreed Rate.
(b) "Agreed Rate" means the annual rate of interest quoted, from time to
time, by JPMorgan Chase Bank in Houston, Texas as its prime rate of interest
for the purpose of determining the interest rates charged by it for United
States dollar commercial loans made in the United States.
(c) "Code" has the meaning set forth in the first recital hereof.
(d) "Distribution Agreement" means that certain Master Separation
Agreement dated as of the date hereof, by and between Plains and Spinco, as
the same may be amended or otherwise modified from time to time pursuant to
the terms thereof.
(e) "Items of Loss or Tax Benefit" has the meaning set forth in
Paragraph 1 hereof.
(f) "Interim Period" has the meaning set forth in Paragraph 2 hereof.
(g) "Plains" has the meaning set forth in the preamble hereto.
(h) "Plains Group" has the meaning set forth in the first recital hereto.
(i) "Returns" means all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes, and the term
"Return" means any one of the foregoing Returns.
(j) "Ruling" means that certain private letter ruling issued by the
Internal Revenue Service on May 22, 2002, as supplemented by letter dated
November 5, 2002, with respect to the Spin-Off and relating to the tax
consequences associated with the distribution of all outstanding shares of
Spinco common stock, as the same may be amended, supplemented or otherwise
modified or added to by the Internal Revenue Service on or before the
Spin-Off Date.
(k) "Short Period" has the meaning set forth in Paragraph 2 hereof
(l) "Spinco" has the meaning set forth in the preamble hereof.
(m) "Spinco Group" has the meaning set forth in Paragraph 1 hereof.
(n) "Spin-Off" has the meaning set forth in the fourth recital hereof.
(o) "Spin-Off Date" has the meaning set forth in the fourth recital
hereof.
(p) "Spin-Off Tax" means any Tax to which Plains or any member of the
Plains Group is subject as a result of the application of any provision of
the Code to the Spin-Off, including without limitation, Section 311(b),
Section 355(c)(2), Section 355(e) or Section 361(c)(2) of the Code (or any
corresponding or similar provision of state, local or foreign law), which
results (i) solely from the fact that one or more persons acquire after the
Spin-Off Date directly or indirectly stock representing a 50-percent or
greater interest in Spinco and such acquisition is subject to Section 355(e)
of the Code; (ii) from the failure of Spinco or any other member of the
Spinco Group to comply with the covenants, agreements and representations in
the Ruling; (iii) from any action by, or failure to take an action on the
part of, Spinco or any other member of the Spinco Group, or (iv) from any
combination of (i) through (iii) above.
(q) "Tax Authority" means the United States Internal Revenue Service or
any other comparable state, local or foreign governmental authority.
(r) "Taxes" means all federal, state, local, foreign and other taxes,
duties, levies, imposts, customs or other assessments, including, without
limitation, all net income, alternative minimum, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, profit
share, license, value added, withholding,
8
payroll, employment, excise, estimated, severance, stamp, occupation,
premium, property, windfall profits, or other taxes, of any kind whatsoever,
together with any interest, penalties, additions to tax, fines or other
additional amounts imposed thereon or related thereto, and the term "Tax"
means any one of the foregoing Taxes.
(s) "Transfer Tax" means any excise, sales, use, transfer, documentary,
filing, recordation or other similar tax or fee, together with any interest,
additions or penalties with respect thereto and any interest in respect of
such additions or penalties.
24. Notices. All notices and other communications to be given or made
hereunder shall be in writing and shall be (a) personally delivered with signed
receipt obtained acknowledging delivery; (b) transmitted by postage prepaid
registered mail, return receipt requested (air mail if international); or (c)
transmitted by facsimile; to a party at the address set out below (or at such
other address as it may have provided notification for the purposes hereof to
the other party hereto in accordance with this Section).
If to Spinco: Plains Exploration & Production Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax number: ▇▇▇-▇▇▇-▇▇▇▇
Attention: General Counsel
If to Plains: Plains Resources Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
25. Binding Effect; Successors. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and any
successor, by merger, acquisition of substantially all of a party's assets or
otherwise, to either of the parties hereto (including but not limited to any
successor of Plains or Spinco succeeding to the Tax attributes of Plains or
Spinco under Section 381 of the Code), to the same extent as if such successor
had been an original party to this Agreement. In addition, in the event of an
acquisition of substantially all of the assets of Spinco in which gain or loss
is not recognized, in whole or in part, for Federal income Tax purposes, Spinco
shall ensure that any purchaser of such assets shall assume the obligations set
forth in this Agreement.
26. Severability. Any provision of this Agreement that is determined by
arbitration as provided herein or a court of competent jurisdiction to be
invalid, illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable, so long as the
material purposes of this Agreement can be determined and effectuated. Should
any provision of this Agreement be so declared invalid, illegal or
unenforceable, the parties shall agree on a valid provision to substitute for
it.
27. Entire Agreement. This Agreement, including the exhibit and other
writings referred to herein or delivered pursuant hereto and the Distribution
Agreement, as well as the other agreements entered into by and between Plains
and Spinco in connection with the transactions contemplated by the Distribution
Agreement, constitutes the entire agreement between Plains and Spinco with
respect to the subject matter hereof and supersedes all other agreements,
representations, warranties, statements, promises and undertakings, whether
oral or written, with respect to the subject matter hereof, including, without
limitation, any and all Tax sharing agreements or arrangements (whether oral or
written) between Plains and the other members of the Plains Group (other than
the Spinco Group) on the one hand and Spinco and the other members of the
Spinco Group on the other hand, that require payments or indemnities to be made
with respect to Taxes. This Agreement may not be amended, altered or modified
except by a writing signed by duly authorized officers of Plains and Spinco.
9
28. Governing Law. All questions arising out of this Agreement and the
rights and obligations created herein, or its validity, existence,
interpretation, performance or breach, shall be governed by and construed in
accordance with the internal laws of the State of Texas, without regard to or
the application of the rules of conflicts of laws set forth in such laws.
29. Arbitration. The parties agree that any claim arising out of or
related to this Agreement shall be governed by the dispute resolution,
arbitration and choice of forum provisions set forth in Article VIII of the
Distribution Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PLAINS RESOURCES INC.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
By:_____________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
PLAINS EXPLORATION & PRODUCTION
COMPANY
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: ____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman and Chief Executive Officer
10
EXHIBIT A
MEMBERS OF THE SPINCO GROUP
Incorporation
or Formation %
Name Jurisdiction Controlled
---- ------------- ----------
▇▇▇▇▇▇▇▇ Inc........................... Delaware 100%
Plains Illinois Inc.................... Delaware 100%
PMCT Inc............................... Delaware 100%
Plains Resources International Inc..... Delaware 100%
Plains E & P Company................... Delaware 100%
Gaviota Gas Plant Company.............. None 26.5%*
Point ▇▇▇▇▇▇▇▇ Natural Gas Line Company None 26.5%*
Point ▇▇▇▇▇▇▇▇ Pipeline Company........ None 26.5%*
Point ▇▇▇▇▇▇▇▇ Terminal Company........ None 26.5%*
--------
* Managing General Partnership Interest
11