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Tax Matters Agreement

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Sectors: Utilities
Governing Law: New York, View New York State Laws
Effective Date: March 18, 2004
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Exhibit 10.1


EXECUTION COPY


TAX MATTERS AGREEMENT dated as of March 18, 2004 (the " TMA" or " Agreement" ) among Ashland Inc., a Kentucky corporation (" Ashland" ), ATB Holdings, Inc., a Delaware corporation (" HoldCo" ), EXM LLC, a Kentucky limited liability company (" New Ashland LLC" ), New EXM Inc., a Kentucky corporation (" New Ashland Inc." ), Marathon Oil Company, an Ohio Company (" Marathon Company" ), Marathon Oil Corporation, a Delaware corporation (" Marathon" ), Marathon Domestic LLC, a Delaware limited liability company (" Merger Sub" ) and Marathon Ashland Petroleum LLC, a Delaware limited liability company owned by Marathon Company and Ashland (" MAP" ).


WHEREAS, Ashland is the common parent of an affiliated group of domestic corporations that has elected to file consolidated Federal income tax returns.


WHEREAS, Marathon is the common parent of an affiliated group of domestic corporations that has elected to file consolidated Federal income tax returns (the " Marathon Affiliated Group" ).


WHEREAS, Ashland and Marathon Company, a wholly-owned subsidiary of Marathon, own all the limited liability company interests in MAP, which is treated for Federal income tax purposes as a partnership.


WHEREAS, Ashland and Marathon and certain of their respective related parties have entered into the Master Agreement pursuant to which they have agreed to engage in the transactions contemplated by the Transaction Agreements and the Ancillary Agreements, as those terms are defined in the Master Agreement (collectively, the " Transactions" ).


WHEREAS, as part of the Transactions, HoldCo will become the common parent of the Ashland Affiliated Group in a series of steps which are intended to qualify as a reorganization described in Code Section 368(a)(1)(F) (the " F Reorganization" ).


WHEREAS, as part of the F Reorganization, Ashland will contribute its Membership Interest and the Acquired Businesses to HoldCo and will merge with and into New Ashland LLC, which will assume all obligations of Ashland, including the obligations of Ashland under this TMA (the " F Reorganization Merger" ).


WHEREAS, as part of the Transactions, MAP will redeem a portion of Ashland' s interest in MAP in exchange for a distribution of cash and MAP accounts receivable, as set forth in the Master Agreement (the " MAP Partial Redemption" ).


WHEREAS, as part of the Transactions, New Ashland LLC will merge with and into New Ashland Inc., which will assume all obligations of New Ashland LLC, including the obligations that New Ashland LLC assumed from Ashland (the " Conversion Merger" ).


WHEREAS, as part of the Transactions, (i) HoldCo will distribute, to the former holders of the stock of Ashland, all the stock of New Ashland Inc. in a transaction intended to qualify as a distribution described in Code Section 355 (the " Spinoff" ), and (ii) HoldCo will merge with and into Merger Sub in a transaction intended to qualify as a reorganization described in Code Section 368(a)(1)(A) (the " Acquisition Merger" ) and as a result of such merger, HoldCo will cease to exist.


WHEREAS after the Acquisition Merger, Marathon may cause Merger Sub to contribute all or a portion of the assets and liabilities that it acquired in the Acquisition Merger to a newly formed corporation that is a wholly-owned, direct subsidiary of Merger Sub.


WHEREAS, immediately after the Spinoff, New Ashland Inc. will be the common parent of an affiliated group of domestic corporations that elects to file consolidated Federal income tax returns, which will not include HoldCo (the " New Ashland Inc. Affiliated Group" ).


WHEREAS the parties to this TMA wish to allocate and assign certain Tax responsibilities, liabilities and benefits among themselves and to provide for certain other Tax matters.


NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this TMA, the parties agree as follows:


ARTICLE I


Definitions


As used in this Agreement, the following terms shall have the following meaning:


" Acquired Businesses" means the " Maleic Business" and the " VIOC Centers" , as each such term is defined in the Master Agreement.


" Acquisition Merger" has the meaning set forth in the ninth WHEREAS clause of this TMA.


" affiliate" has the meaning ascribed to such term in the Master Agreement.


" affiliated group" means an affiliated group of corporations within the meaning of Code Section 1504(a) for the taxable period in question.


" Alternative Ruling" has the meaning set forth in Section 5.01(b) of this TMA.


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" Ashland Affiliated Group" means the affiliated group of domestic corporations that has elected to file consolidated Federal income tax returns of which Ashland (and immediately after the F Reorganization, HoldCo) is the common parent.


" Ashland Group" means (i) the corporations that are members of the Ashland Affiliated Group and (ii) the corporations that would be members of the Ashland Affiliated Group but for the fact that they are not includible corporations under Code Section 1504(b).


" Ashland Asbestos Liabilities" means any obligation of Ashland or any of its present or former subsidiaries (including but not limited to Riley Stoker Inc.) relating to claims made at any time that are attributable to allegations of exposure to asbestos on or before the Closing Date with respect to Residual Business Operations, to the extent that New Ashland Inc. or any member of the New Ashland Inc. Group is liable for such obligation after the Closing Date.


" Ashland Residual Operations Liabilities" means any obligation of Ashland or any of its present or former subsidiaries that is attributable to Residual Business Operations or to the HoldCo Businesses, including but not limited to Ashland Asbestos Liabilities, Ashland Employee Liabilities and Ashland Environmental Liabilities.


" Ashland Employee Liabilities" means (i) any obligation of Ashland or any of its present or former subsidiaries for any Employee Benefit Obligation to be provided to or on behalf of present or former employees of Ashland or any such subsidiaries for services that are attributable to Residual Business Operations or to the HoldCo Businesses, in each case that are performed on or before the Closing Date, to the extent that New Ashland Inc. or any member of the New Ashland Inc. Group is liable for such obligation after the Closing Date and (ii) any obligation pursuant to the exercise of any Option by any current or former employees of HoldCo Businesses or Residual Business Operations with respect to the capital stock of Ashland, HoldCo or New Ashland Inc.


" Ashland Environmental Liabilities" means any obligation of Ashland or any of its present or former subsidiaries relating to claims made at any time for environmental damages or remediation or similar expenses arising from acts, omissions or conditions occurring or existing on or before the Closing Date that are attributable to Residual Business Operations or to the HoldCo Businesses, to the extent that New Ashland Inc. or any member of the New Ashland Inc. Group is liable for such obligation after the Closing Date.


" Bankruptcy Event" means, with respect to any Person, the occurrence or existence of any of the following events or conditions: such Person (1) is dissolved (other than the dissolution of a transferor in connection with a transfer to a successor as contemplated by Section 10.14); (2) admits in writing its inability generally to pay its debts; (3) makes a general assignment for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any


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similar relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding up or liquidation and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for similar relief or the making of an order for its winding up or liquidation or (B) is not dismissed or discharged within 60 days of the institution or filing thereof; (5) has a resolution passed by its Board of Directors for its winding up or liquidation (other than the winding up or liquidation of a transferor in connection with a transfer to a successor as contemplated by Section 10.14); (6) consents to, or becomes subject to an order or judgment providing for, the appointment of an administrator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets and, in the case of an order or judgment, such judgment or order is not dismissed, discharged, stayed or restrained in each case within sixty (60) days of the entry or making thereof; or (7) takes any action in furtherance of, or expressly indicates its consent to, approval of, or acquiescence in, any of the foregoing.


" Bankruptcy Party" has the meaning set forth in Section 8.02(c) of this TMA.


" Bankruptcy Tax Claims" has the meaning set forth in Section 8.02(c) of this TMA.


" Basket One Amount" has the meaning set forth in Section 5.02(b)(i) of this TMA.


" Basket One Cap" has the meaning set forth in Section 5.02(b)(ii)(C) of this TMA.


" Basket One Cap Base Amount" has the meaning set forth in Section 5.02(b)(ii)(C).


" Basket One Cap Carryforward" has the meaning set forth in Section 5.02(b)(ii)(C) of this TMA.


" Basket One Deductions" has the meaning set forth in Section 5.02(b)(ii)(B) of this TMA.


" Basket One Tax Rate" has the meaning set forth in Section 5.02(b)(ii)(A) of this TMA.


" Basket Two Amount" has the meaning set forth in Section 5.02(c)(i) of this TMA.


" Basket Two Carryovers" has the meaning set forth in Section 5.02(c)(ii)(B) of this TMA.


" Basket Two Deductions" has the meaning set forth in Section 5.02(c)(ii)(A) of this TMA.


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" Closing" and Closing Date" have the meanings set forth in the Master Agreement.


" Code" means the Internal Revenue Code of 1986, as amended.


" Conversion Merger" has the meaning set forth in the eighth WHEREAS clause of this TMA.


" Employee Benefit Obligation" means any obligation (whether current or deferred) for any compensation, pension, severance payment, medical, retirement or disability benefit, life insurance or any similar employee benefit.


" Escrow" means the escrow created under the Escrow Agreement.


" Escrow Agreement" has the meaning set forth in Section 6.02(a) of this TMA.


" Escrow Threshold" has the meaning set forth in Section 6.02(c)(i)(B) of this TMA.


" Extraordinary Events" means (i) unforeseen funding requirements resulting from damage to MAP properties by storm, fire, or similar catastrophic events, or (ii) unforeseen expenditures that are mandated by law, regulation or administrative ruling, in each case that are promulgated after the Closing Date.


" F Reorganization Merger" has the meaning set forth in the sixth WHEREAS clause of this TMA.


" Federal Tax Benefit Payments" has the meaning set forth in Section 5.02(a)(i) of this TMA.


" Final Determination" means the final resolution of liability for any Tax for any taxable period by or as a result of: (i) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (ii) a final closing agreement or accepted offer in compromise under Code Sections 7121 or 7122, or a comparable agreement under the laws of any other jurisdiction, which resolves the entire Tax liability for the entire taxable period; (iii) a duly executed IRS Form 870 or 870-AD (or any successor forms thereto), on the date such form is effective, or by a comparable form under the laws of other jurisdictions; except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for Refund and/or the right of the Tax Authority to assert a further deficiency shall not constitute a Final Determination with respect to the right so reserved; (iv) any allowance of a Refund or credit in respect of an overpayment of such Tax, but only after the expiration of all periods during which such Refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; (v) the execution of a closing agreement with respect to a pre-filing agreement described in Rev. Proc. 2001-22, or (vi) any other final disposition by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties hereto.


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" Fully Funded" has the meaning set forth in Section 6.02(c)(i)(A) of this TMA.


" HoldCo Businesses" means the Acquired Businesses and the JV Interests.


" Income Taxes" means any Taxes imposed on or determined by reference to gross or net income or profits or any other measure of income or profits.


" Independent Entity" has the meaning set forth in Section 9.01 of this TMA.


" Inflation Factor" means the U.S. GDP Implicit Price Deflator, which shall be applied annually to adjust prices to constant dollar amounts beginning with the calendar year following the year of the Closing Date.


" IRS" means the U.S. Internal Revenue Service.


" JV Interests" means the " Membership Interest" and the " LOOP/LOCAP Interests" , as each such term is defined in the Master Agreement.


" JV Entities" means the entities wholly or partially owned, directly or indirectly, through the ownership of the JV Interests.


" Master Agreement" means the Master Agreement dated as of the date of this Agreement, among Ashland, HoldCo, New Ashland LLC, New Ashland Inc., Marathon, Marathon Company, Merger Sub and MAP.


" Marathon Affiliated Group" has the meaning set forth in the second WHEREAS clause of this TMA.


" Marathon Group" means (i) the corporations that are members of the Marathon Affiliated Group and (ii) the corporations that would be members of the Marathon Affiliated Group but for the fact that they are not includible corporations under Code Section 1504(b), including in both cases, beginning on the day after the Closing Date, former members of the Ashland Group that become members of the Marathon Group by reason of the Acquisition Merger.


" Marathon Tax Matter" means any Tax Item arising from or related to the ownership or operation of HoldCo or the HoldCo Businesses attributable to a Post-Closing Period.


" MAP LLC Agreement" means the Amended and Restated Limited Liability Company Agreement of MAP, dated as of December 31, 1998, as amended to the date of this TMA.


" Net Deduction Method" means, with respect to Specified Liability Deductions, the deduction of such amounts as they are accrued and recognized under the accrual method of accounting, net of actual and anticipated insurance recoveries


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determined under the accrual method of accounting, in each case applied consistently from year to year.


" New Ashland Inc. Affiliated Group" has the meaning set forth in the eleventh WHEREAS clause of this TMA.


" New Ashland Inc. Group" means (i) the corporations that are members of the New Ashland Inc. Affiliated Group and (ii) the corporations that would be members of the New Ashland Inc. Affiliated Group but for the fact that they are not includible corporations under Code Section 1504(b).


" New Ashland Inc. Tax Matter" means any Tax Item (i) arising during a Pre-Closing Period or (ii) from or related to a Post-Closing Period that is not a Marathon Tax Matter.


" Non-Bankruptcy Party" has the meaning set forth in Section 8.02(c) of this TMA.


" Non-Federal Tax Benefit Payment" has the meaning set forth in Section 5.02(a)(i) of this TMA.


" Option" means any compensatory stock option, stock appreciation right, restricted stock or similar instrument.


" Other Taxes" means any Taxes other than Income Taxes.


" Pass-Though Items" mean any Tax Items that are passed through to, and reportable on the Tax Returns of, one or more of the owners of MAP or any other JV Entity and that could result in an increase or decrease in any such owner' s liability for Taxes.


" Post-Closing Period" means any taxable period, and in the case of a Straddle Period the portion of any such period, beginning after the Closing Date.


" Pre-Closing Period" means the Pre-Closing Taxable Periods, and the portion of any Straddle Period ending on the Closing Date.


" Pre-Closing Taxable Period" means any taxable period ending on or before the Closing Date.


" Refund" means any refund of Taxes, including any reductions of Taxes paid or payable by means of credits, offsets or otherwise.


" Residual Business Operations" means former business operations of Ashland or any current or former member of the Ashland Group, in each case determined as of the date of this Agreement, that will not be transferred or deemed to be transferred to New Ashland Inc. pursuant to the Conversion Merger.


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" Section 355(e) Taxes" means any Taxes, arising in any taxable period, resulting from the application of Code Section 355(e) to the Spinoff.


" Specified Liability Deductions" means the amount, in any taxable period, allowable as deductible expenses for Federal income tax purposes in respect of Ashland Residual Operations Liabilities (after applying the applicable limitations, if any, under Code Sections 382 and 384 and Treasury Regulation Section 1.1502-15).


" Spinoff" has the meaning set forth in the ninth WHEREAS clause of this TMA.


" Straddle Period" means any taxable period that includes, but does not end on, the Closing Date.


" subsidiary" has the meaning ascribed to such term in the Master Agreement.


" Tax" or " Taxes" means all forms of taxation imposed by any federal, state, local or foreign jurisdiction (including any subdivision and any revenue agency of such a jurisdiction), including without limitation net income, gross income, alternative minimum, sales, use, ad valorem, gross receipts, value added, franchise, license, transfer, withholding, payroll, employment, excise, severance, stamp, property, custom duty, taxes or governmental charges, together with any related interest, penalties or other additional amounts imposed by any federal, state, local or foreign jurisdiction (including any subdivision and any revenue agency of such a jurisdiction), and including all liability for or in respect of any of the foregoing as a result of being a member of a consolidated or similar group or a partner in an entity treated as a partnership or other pass-through entity for Tax purposes or as a result of any tax sharing or similar contractual agreement.


" Tax Authority" means any federal, state, local or foreign jurisdiction (including any subdivision and any revenue agency of such a jurisdiction) imposing Taxes and the agency, if any, charged with the collection of such Taxes for such authority.


" Tax Benefit" means any item of loss, deduction, credit, or any other Tax Item that decreases Taxes paid or payable.


" Tax Benefit Payments" has the meaning set forth in Section 5.02(a)(i) of this TMA.


" Tax Certificate" means any letter or certificate that is referred to in, and forms a basis for, a Tax Opinion.


" Tax Claim" has the meaning set forth in Section 8.02(a)(i) of this TMA.


" Tax Detriment" means any item of income, gain, recapture of credit or any other Tax Item that increases Taxes paid or payable, or any reduction in or limitation


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of, any Tax Item due to the application of Code Sections 382, 384 or Treasury Regulation Section 1.1502-15.


" Tax Item" means any item of income, gain, loss, deduction, credit, recapture of credit, or other similar item, that may have the effect of increasing or decreasing any Tax paid or payable, including any adjustment to tax basis or any adjustment under Code Section 481.


" Tax Loss" means the increase in Tax paid or payable to the relevant Tax Authority (or, without duplication, the reduction in any Refund) attributable to a Tax Detriment.


" Tax Opinion" means the opinions of Cravath, Swaine & Moore LLP and Miller & Chevalier Chartered concerning certain Federal income tax issues related to the Transactions to be delivered to Ashland and Marathon, respectively, pursuant to Section 10.01(f) of the Master Agreement.


" Tax Return" means any return, filing, questionnaire, information statement, or other document required to be filed, including amended returns that may be filed for any period or portion thereof with any Tax Authority in connection with any Tax (whether or not a payment is required to be made with respect to such filing).


" Tax Ruling" means the IRS private letter ruling received in response to the Tax Ruling Request.


" Tax Ruling Request" means the private letter ruling request that will be filed with the IRS by Ashland and Marathon with respect to the Transactions, together with all exhibits, appendices, and supplements to that filing.


" Tax Savings" means the decrease in Tax paid or payable to the relevant Tax Authority (or, without duplication, the increase in any Refund) attributable to a Tax Benefit.


" Tax Structure" means the manner, order or form in which the Transactions (currently as contemplated or as amended prior to the Closing) are effected pursuant to the Master Agreement or any Transaction Agreement.


" Transactions" has the meaning set forth in the fourth WHEREAS clause of this TMA.


" Transaction Taxes" means Taxes, other than Transfer Taxes, of any member of the Ashland Group for any Pre-Closing Period or the New Ashland Inc. Group or the Marathon Group for any taxable period resulting from, or arising in connection with any portion of the Transactions; for the avoidance of doubt, Transaction Taxes includes Section 355(e) Taxes.


" Transfer Taxes" has the meaning set forth in Section 2.03 of this TMA.


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" Valvoline" means the active trade or business conducted by the business division of Ashland (and immediately following the Transactions, of New Ashland Inc.) of the same name.


All capitalized terms used but not defined in this TMA shall have the meanings ascribed to such terms in the Master Agreement.


ARTICLE II


Indemnification for Taxes


SECTION 2.01. General. (a) Indemnification by New Ashland Inc. Except as otherwise provided in Sections 2.03, 2.04, 2.05 and Articles V and VI of this TMA, New Ashland Inc. and each member of the New Ashland Inc. Group shall be liable for, shall indemnify each member of the Marathon Group against, and shall be entitled to all Refunds of, less reasonable out-of-pocket costs and expenses incurred in connection with such Refund, (i) all Taxes for all Pre-Closing Periods of each member of the Ashland Group and the Acquired Businesses; (ii) all Taxes for all Post-Closing Periods that are imposed on or collected from any member of the Marathon Affiliated Group as a transferee of or successor to HoldCo, pursuant to any law, rule or regulation, imposed on taxable income or gain that is attributable, in whole or in part, to events or transactions that occur on or before the Closing Date but that is recognized for tax purposes in a Post-Closing Period as a result of the installment method of accounting, completed contract method of accounting, the long-term contract method of accounting, the recapture of a dual consolidated loss, Section 481 of the Code (other than any such Taxes imposed by reason of a change in accounting method by HoldCo or a successor to HoldCo made or applied for by Marathon or a Member of the Marathon Group after the Closing Date, unless such change was contemplated by this TMA, or made or applied for by New Ashland Inc. or a member of the New Ashland Inc. Group, or made by Marathon with New Ashland Inc.' s consent, or required as a condition of the Transactions by the Tax Ruling or otherwise), or other provisions of Federal, state, local or foreign tax law that have a similar effect and all Taxes attributable to the adoption by HoldCo of the Net Deduction Method with respect to Specified Liability Deductions; (iii) all Taxes for all taxable periods of each member of the New Ashland Inc. Group; (iv) all Taxes imposed on any member of the Marathon Group with respect to insurance recoveries received by any member of the New Ashland Inc. Group that are attributable to Residual Business Operations; (v) all Taxes for which any current or former member of the Ashland Group or the New Ashland Inc. Group is liable under Treasury Regulation Section 1.1502-6 (or any analogous provision of state, local or foreign law); (vi) all Taxes payable by Ashland or HoldCo that are attributable to Pass-Through Items of MAP or any other JV Entity with respect to any Pre-Closing Period; (vii) all Transaction Taxes; and (viii) all Tax Losses of any member of the Marathon Group resulting from the failure by any member of the Ashland Group or the New Ashland Inc. Group, as the case may be, to use a consistent position as described in the last sentence of Section 3.04 of this TMA.


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(b) Indemnification by Marathon. Except as otherwise provided in Sections 2.03, 2.04, 2.05 and Articles V and VI of this TMA, Marathon and each member of the Marathon Group shall be liable for, and shall indemnify each member of the New Ashland Inc. Group against, and shall be entitled to all Refunds of, less reasonable out-of-pocket costs and expenses incurred in connection with such Refund, (i) all Taxes for all taxable periods of each member of the Marathon Group, other than as a successor to or transferee of a former member of the Ashland Affiliated Group by reason of the Acquisition Merger, and (ii) all Taxes for all taxable periods that are imposed on and payable by MAP or any JV Entities.


SECTION 2.02. Apportionment of Items for Straddle Periods. Taxes. Taxes and Refunds of any entity or with respect to the Acquired Businesses for any Straddle Period shall be apportioned between the Pre-Closing Period and the Post-Closing Period on the basis of a " closing of the books" as of the end of the Closing Date, provided that Other Taxes that are not based on revenues, sales or a similar measure shall be apportioned between the Pre-Closing Period and the Post-Closing Period based on the number of days of the relevant taxable period that are in the Pre-Closing Period and the Post-Closing Period respectively.


(b) Apportionment of Pass-Through Items of MAP and certain other JV Entities. For purposes of determining the Taxes payable by the owner of a JV Interest in MAP or any other JV Entity that is treated for purposes of the relevant Tax as a pass-through entity, the Pass-Through Items for any Straddle Period of such JV Entity shall be apportioned between the Pre-Closing Period and the Post-Closing Period on the basis of a " closing of the books" as of the end of the Closing Date in accordance with Code Section 706(c)(2)(A) and Treasury Regulation Section 1.706-1(c)(2)(i) (or corresponding principles of state, local or foreign laws, rules or regulations); provided that Other Taxes of MAP or such JV Entity that are not based on revenues, sales or a similar measure shall be apportioned between the Pre-Closing and the Post-Closing Period based on the number of days of the relevant taxable period that are in the Pre-Closing Period and the Post-Closing Period respectively.


SECTION 2.03. Transfer Taxes. New Ashland Inc. shall be liable for, shall indemnify each member of the Marathon Group against, and shall be entitled to retain all Refunds of, less reasonable out-of-pocket costs and expenses incurred in connection with such Refund, all transfer, documentary, sales, use, registration and similar Taxes and related fees incurred in connection with the Transactions (collectively " Transfer Taxes" ). New Ashland Inc., with Marathon' s cooperation, shall timely prepare and file all Tax Returns relating to Transfer Taxes as may be required to comply with the provisions of such Tax laws.


SECTION 2.04. Certain Transaction Taxes. Marathon shall be liable for, shall indemnify each member of the New Ashland Inc. Group against
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