EXHIBIT 10.2
TAX AGREEMENT
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This TAX AGREEMENT is entered into as of June 18, 1998 by and among Atlantic
Richfield Company, a Delaware corporation ("ARCO"), ARCO Chemical Company, a
Delaware corporation ("ACC") and Lyondell Petrochemical Company, a Delaware
corporation ("Lyondell").
WHEREAS, ACC and members of the ACC Group are included in the
consolidated federal income tax returns as well as certain consolidated,
combined, and unitary state and local income tax returns filed by ARCO;
WHEREAS, ARCO and ACC are parties to an Amended and Restated Tax
Sharing Agreement dated as of January 1, 1995 (the "Tax Sharing Agreement")
which sets forth certain rights and obligations of the parties arising out of
ACC's inclusion in the consolidated, combined, and unitary returns filed by
ARCO;
WHEREAS, Purchaser, Lyondell Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Lyondell ("Merger Sub"), and ACC
have entered into an Agreement and Plan of Merger dated as of the date hereof
(the "Merger Agreement") pursuant to which Merger Sub has agreed to make a
tender offer for all the outstanding stock of ACC (the "Offer") and, following
consummation of the Offer, Merger Sub will be merged into ACC (the "Merger");
WHEREAS, pursuant to a Tender and Voting Agreement dated as of the
date hereof by and among Lyondell, Merger Sub, and ARCO, ARCO has agreed to
tender all its shares in ACC pursuant to the Offer; and
WHEREAS, the parties hereto desire to affirm the application of the
Tax Sharing Agreement and the Prior Agreement following the purchase of ARCO's
ACC stock pursuant to the Offer (and to confirm that such agreements continue to
apply to taxable years of ACC ending on or prior to such purchase) and to agree
upon certain tax matters arising in connection with and subsequent to the Offer
and the Merger.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties to this Tax Agreement
hereby agree as follows:
1. Definitions.
"Purchase" shall mean the purchase by Merger Sub of ARCO's stock in
ACC pursuant to the Offer or the acquisition of such stock by Lyondell in the
Merger.
"Purchase Date" shall mean the date on which the Purchase occurs.
All capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings set forth in the Tax Sharing Agreement.
2. Continuing Effect of Tax Sharing Agreement and Prior Agreement.
Except as expressly provided herein, the Prior Agreement (attached
hereto along with the Tax Sharing Agreement as Exhibit A) shall continue to
apply to all Taxable Years of the Combined
Consolidated Group beginning on or after January 1, 1987 and ending on or prior
to December 31, 1994 and the Tax Sharing Agreement shall continue to apply to
all Taxable Years of the Combined Consolidated Group beginning on or after
January 1, 1995. Following the Purchase, Lyondell will comply with Section 12 of
the Tax Sharing Agreement as if it were a party thereto. The Tax Deconsolidation
Agreement between ARCO and ACC, dated May_15, 1998 will be terminated on the
Purchase Date and will have no effect for any taxable year or portion thereof
(whether before or after the Purchase Date).
3. Modifications of Tax Sharing Agreement.
(a) The Tax Sharing Agreement is hereby amended by deleting Section 7
thereof.
(b) Sections 4(h) and (j) of the Tax Sharing Agreement shall have no
application to Taxable Years beginning on or after January 1, 1998.
4. Dual Consolidated Losses.
(a) ARCO, ACC and Lyondell agree to use their best efforts, prior to
and, if applicable, after the Purchase Date to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary or appropriate,
under existing law, regulations or practice to enter into and make effective a
closing agreement with the Internal Revenue Service pursuant to Section 1.1503-
2(g)(2)(iv)(B)(2)(i) - (iii) of the Income Tax Regulations (a "Closing
Agreement") with respect to any dual consolidated loss (within the meaning of
Section 1503 of the Code) of any present or former member of the ACC
Consolidated Group. Such actions shall include, but not necessarily be limited
to, those specified in this Section 4. Without limiting the foregoing, ARCO,
ACC and Lyondell shall, as promptly as practicable after the date hereof and in
any event prior to the Purchase Date, prepare and file with the Internal Revenue
Service an application for a Closing Agreement and thereafter shall cooperate in
causing to become effective a Closing Agreement. Each of ARCO, ACC and Lyondell
shall execute and deliver, or use its best efforts to cause to be executed and
delivered, all instruments, data or information, including any required
certifications, and to make all filings, and obtain all representations or
consents required by the Internal Revenue Service, and to take all such other
actions as may be requested by the Internal Revenue Service from time to time in
order to enter into the Closing Agreement. Such actions shall include, but not
be limited to, performing the following actions (and supplying a statement to
the Internal Revenue Service in conjunction with the application for the Closing
Agreement that it will perform such actions) required by the Income Tax
Regulations pursuant to which:
(i) Lyondell, ACC and ARCO will agree to be jointly and severally
liable for the amount of the recapture of dual consolidated
losses of any present or former member of the ACC Consolidated
Group and applicable interest charges required by Section 1.1503-
2(g)(2)(vii) of the Income Tax Regulations if there is a
triggering event described in Section 1.1503-2(g)(2)(iii);
(ii) Lyondell will agree to treat any potential recapture amount
under Section 1.1503-2(g)(2)(vii) as unrealized built-in gain for
purposes of Section 384 of the Code, subject to any applicable
exceptions thereunder; and
(iii) Lyondell will file the requisite agreements under Section
1.1503-2(g)(2)(iv)(B)(2)(iii), signed under penalties of perjury,
with its timely filed consolidated federal income tax return for
the year in which the Purchase Date occurs.
ACC agrees to cooperate in any efforts by Lyondell and ARCO to obtain a Closing
Agreement and, if appropriate, to comply with the conditions set forth above and
to become a party to the Closing Agreement.
(b) In the event that for any reason, including the failure or
inability to enter into a Closing Agreement, any dual consolidated loss (within
the meaning of Section 1503 of the Code) of any present or former member of the
ACC Consolidated Group must be recaptured and/or any interest charge is imposed
pursuant to Section 1.1503-2(g)(2)(vii) or Section 1.1503-2A(d)(4) of the Income
Tax Regulations, ACC and, following the Purchase Date, Lyondell shall be solely
responsible for, and shall indemnify and hold harmless on an after-tax basis
ARCO and each member of the ARCO Consolidated Group from and against, any
resulting tax liability (including any interest charge and any amount for which
ARCO is jointly and severally liable pursuant to a Closing Agreement) and any
interest, penalties, or additions to tax with respect thereto. Lyondell and ACC
further agree to indemnify and hold harmless on an after-tax basis ARCO and each
member of the ARCO Consolidated Group from and against any tax liability
(including any interest, penalties, or additions to tax) imposed as a result of
conditions prescribed by a Closing Agreement.
5. Section 338(h)(10) Election.
(a) ARCO and Lyondell agree to make a timely election pursuant to
Sections 338(g) and 338(h)(10) of the Code and any similar joint election under
state or local income tax law in which such election is permitted with respect
to the Purchase and the deemed purchase of the stock of the subsidiaries of ACC
as agreed upon by the parties hereto (any such election, a "Section 338(h)(10)
Election").
(b) No gain or loss recognized by ACC or any other member of the ACC
Consolidated Group on any deemed sale of assets (including a deemed sale of
stock of any direct or indirect subsidiary of ACC) resulting from such
Section_338(h)(10) Election shall be included in the Pro Forma ACC Return or
similar state or local income tax return for ACC's Taxable Year ending on the
Purchase Date. ARCO shall bear and indemnify ACC and each member of the ACC
Consolidated Group against all taxes (including any interest and penalty) on any
gain or loss recognized on any deemed sale of assets (including a deemed sale of
stock of any direct or indirect subsidiary of ACC) resulting from such Section
338(h)(10) Election.
(c) ARCO and Lyondell will cooperate with each other to take all
actions necessary and appropriate (including filing Form 8023 and any other such
forms, returns, elections, schedules and other documents as may be required) to
effect the Section 338(h)(10) Elections. ARCO and Lyondell shall endeavor in
good faith to agree upon the allocation of the "adjusted grossed-up basis" and
the "modified adjusted deemed sales price" (as such terms are defined in
Section_338 of the Code and the Income Tax Regulations thereunder) among the
assets of ACC and the subsidiaries of ACC as agreed upon by the parties hereto
(the "Allocation"). If_ARCO and Lyondell are not able to agree upon the
Allocation within 60 days after the Purchase Date, the Allocation shall be
determined by a big six accounting firm which has no material relationship to
ARCO or Lyondell or any of their respective affiliates and is mutually
acceptable to ARCO and Lyondell. The costs and expenses for the services of
such accounting firm shall be paid one-half by ARCO and one-half by Lyondell.
The parties hereto and their affiliates shall reflect the Allocation in all tax
returns filed by them.
6. Confidentiality.
The parties hereto agree that any information furnished 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.
7. Guarantee.
Effective as of the Purchase, Lyondell shall (i) cause ACC to perform
all its obligations under, and comply with all terms and provisions of this
Agreement, the Tax Sharing Agreement, and the Prior Agreement and (ii) guarantee
the prompt payment when due of all amounts payable by ACC under such Agreements,
as set forth in the form of Guaranty Agreement attached hereto as Exhibit B
which is being executed and delivered by the parties contemporaneously with the
execution and delivery of this Agreement.
8. Successors.
This Agreement shall be binding upon and inure to the benefit of any
successor to any of the parties, by merger, acquisition of assets or otherwise,
to the same extent as if the successor had been an original party to this
Agreement.
9. Tax Law Changes.
Any alteration, modification, addition, deletion, or other change in
the Code or the Income Tax Regulations (or to applicable state and local tax
provisions) will automatically be applicable to this Agreement when effective.
10. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of Delaware. Each of the parties hereto (i) consents to submit such
party to the exclusive jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (ii) agrees that such party will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
(iii)_agrees that such party will not bring any action relating to this
Agreement or any of the transactions contemplated hereby in any court other than
a Federal court sitting in the state of Delaware or a Delaware state court and
(iv) waives any right to trial by jury with respect to any claim or proceeding
related to or arising out of this Agreement or any of the transactions
contemplated hereby.
11. Headings.
The headings in this Agreement are for convenience only and shall not
be deemed for any purpose to constitute a part or to affect the interpretation
of this Agreement.
12. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one counterpart.
13. Notices.
All notices, claim, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
if and when delivered or mailed (registered or certified mail, postage prepaid,
return receipt requested), as follows:
(a) If to ARCO:
Atlantic Richfield Company
Attn: Vice President & General Tax Officer
000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
(b) If to ACC:
ARCO Chemical Company
Attn: Vice President & General Tax Officer
0000 Xxxx Xxxxxxx Xxxx
Xxxxxxx Xxxxxx, Xxxxxxxxxxxx 00000
(c) If to Lyondell:
Lyondell Petrochemical Company
Attn: Tax Officer
Suite 1600
1221 XxXxxxxx
Xxxxxxx, Xxxxx 00000
or to such other person or address as the party to whom the communication is to
be given may have previously furnished to the other party in writing.
14. 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.
15. Termination.
If the Merger Agreement terminates and the Purchase is not
consummated, this Agreement shall terminate and be of no further force and
effect.
IN WITNESS WHEREOF, each of the parties to this Agreement has caused
this Agreement to be executed by its duly authorized officer on this date of
June 18, 1998.
ATLANTIC RICHFIELD COMPANY
By: /s/ Xxxxx X. Dallas
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ARCO CHEMICAL COMPANY
By: /s/ Xxxxxx X. Xxxxxxxxx
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LYONDELL PETROCHEMICAL COMPANY
By: /s/ Xxx X. Xxxxx
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