**Exhibit 10.2**

 

 

TAX SHARING AGREEMENT

 

between

 

FOREST OIL CORPORATION,

 

SML WELLHEAD CORPORATION

 

and

 

MARINER ENERGY, INC.

 

Dated as of September 9,2005

 

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**TAX SHARING AGREEMENT**

** **

TAX SHARING AGREEMENT (the “Agreement”), dated as of September 9,2005, by and between Forest Oil Corporation, a New York corporation (“Forest”),SML Wellhead Corporation, a Delaware corporation (“Spinco”) and Mariner Energy, Inc.,a Delaware corporation (“Mariner”).

 

**WITNESSETH**

 

WHEREAS, Spinco is currently a member of the ForestConsolidated Group (as defined herein);

 

WHEREAS, pursuant to the Distribution Agreemententered into between Forest and Spinco dated September 9, 2005 (the “Distribution Agreement”),(a) Forest shall transfer or cause to be transferred to Spinco all of theSpinco Assets (as defined in the Distribution Agreement), as a result of whichSpinco shall directly own the Spinco Business (as defined in the DistributionAgreement) (the “Contribution”) and (b) Forest shall distribute all of theoutstanding capital stock of Spinco to its stockholders (the “Distribution”);

 

WHEREAS, pursuant to the Agreement and Plan of Mergerentered into between Forest, Spinco, Mariner and MEI Sub, Inc., a Delawarecorporation and a direct wholly-ownedSubsidiary of Mariner (“Merger Sub”) dated September 9, 2005 (the “Merger Agreement”), Merger Subshall merge with and into Spinco (the “Merger”);

 

WHEREAS, the parties intend that for United Statesfederal income Tax purposes the Contribution, the Distribution and the Mergershall qualify as tax-free transactions pursuant to Sections 355 and 368(a) ofthe Code (as defined herein);

 

WHEREAS, the parties wish to (a) provide for thepayment of Tax Liabilities and entitlement to refunds thereof, allocateresponsibility for, and cooperation in, the filing of Tax Returns and providefor certain other matters relating to Taxes and (b) set forth certaincovenants and indemnities relating to the preservation of the tax-free statusof the Contribution, the Distribution and the Merger.

 

NOW, THEREFORE, in consideration of the mutualpromises and undertakings contained herein and in any other document executedin connection with this Agreement, the parties agree as follows:

 

ARTICLE IDEFINITIONS; CERTAIN OPERATING CONVENTIONS

 

1.1                                 For the purposes ofthis Agreement, the following terms shall have the meanings set forth below:

 

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Affiliated Group shall mean anaffiliated group of corporations, within the meaning of Section 1504(a) ofthe Code, including the common parent corporation, and any member of suchgroup.

 

Code shall mean the Internal RevenueCode of 1986, as amended.

 

Counsel means Weil, Gotshal &Manges LLP and Baker Botts L.L.P.

 

Distribution Date shall mean thedate and time as of which the Distribution shall be effected.

 

Final Determination shall have themeaning given to the term “determination” by Section 1313 of the Code withrespect to United States federal Tax matters; and with respect to foreign,state and local Tax matters Final Determination shall mean any final settlementwith a relevant Tax Authority that does not provide a right to appeal or anyfinal decision by a court with respect to which no timely appeal is pending andas to which the time for filing such appeal has expired.  For the avoidance of doubt, a FinalDetermination with respect to United States federal Tax matters shall includeany formal or informal settlement entered into with the IRS with respect towhich the taxpayer has no right to appeal.

 

Forest Consolidated Group shall meanthe Affiliated Group of which Forest is the common parent corporation.

 

Forest Group shall mean,individually and collectively, as the case may be, each member of the ForestConsolidated Group, other than Spinco.

 

Indemnifying Partyshall mean any Person from which an Indemnified Party is seekingindemnification pursuant to the provisions of this Agreement.

 

Indemnified Party shall mean anyPerson which is seeking indemnification from an Indemnifying Party pursuant tothe provisions of this Agreement.

 

IRSshall mean the United States Internal Revenue Service.

 

Merger Opinions shall mean theopinions of Counsel with respect to certain Tax aspects of the Merger.

 

Person shall mean and includes anyindividual, corporation, company, association, partnership, joint venture,limited liability company, joint stock company, trust, unincorporatedorganization, or other entity.

 

Post-Distribution Taxable Periodshall mean a taxable period or portion thereof that begins after the DistributionDate.

 

Pre-Distribution Taxable Periodshall mean a taxable period or portion thereof that ends on or before theDistribution Date.

 

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Spinco Group shall mean,individually and collectively, as the case may be, Spinco and its present andfuture direct and indirect Subsidiaries.

 

Spin-Off Opinion shall mean theopinion of Weil, Gotshal & Manges LLP with respect to certain Taxaspects of the Contribution and the Distribution.

 

Straddle Period shall mean a taxableperiod that includes, but does not end on, the Distribution Date.

 

Tax or Taxes shall mean all taxes,charges, fees, imposts, levies or other assessments, including all net income,gross receipts, capital, sales, use, gains, ad valorem, value added, transfer,franchise, profits, inventory, capital stock, license, withholding, payroll,employment, social security, unemployment, excise, severance, stamp,occupation, property and estimated taxes, custom duties, fees, assessments andcharges of any kind whatsoever, together with any interest and any penalties,fines, additions to tax or additional amounts imposed by any Tax Authority andshall include any transferee liability in respect of Taxes.

 

Tax Authority shall mean the IRS andany other domestic or foreign governmental authority responsible for theadministration and collection of Taxes.

 

Tax Benefit shall mean a reductionin the Tax Liability (or increase in refund or credit or any item of deductionor expense) of a taxpayer (or of the Affiliated Group of which it is a member)for any taxable period.  Except asotherwise provided in this Agreement, a Tax Benefit shall be deemed to havebeen realized or received from a Tax Item in a taxable period only if and tothe extent that the Tax Liability of the taxpayer (or of the Affiliated Groupof which it is a member) for such period, after taking into account the effectof the Tax Item on the Tax Liability of such taxpayer in the current period andall prior periods, is less than it would have been had such Tax Liability beendetermined without regard to such Tax Item.

 

Tax Detriment shall mean an increasein the Tax Liability (or reduction in refund or credit or item of deduction orexpense) of a taxpayer (or of the Affiliated Group of which it is a member) forany taxable period.  Except as otherwiseprovided in this Agreement, a Tax Detriment shall be deemed to have beenrealized or received from a Tax Item in a taxable period only if and to theextent that the Tax Liability of the taxpayer (or of the Affiliated Group ofwhich it is a member) for such period, after taking into account the effect ofthe Tax Item on the Tax Liability of such taxpayer in the current period andall prior periods, is more than it would have been had such Tax Liability beendetermined without regard to such Tax Item.

 

Tax Item shall mean any item ofincome, gain, loss, deduction, expense or credit, or other attribute that mayhave the effect of increasing or decreasing any Tax.

 

Tax Liabilities shall mean allliabilities for Taxes.

 

Tax Returns shall mean all reports,returns, declaration forms and statements (including amendments thereto) filedor required to be filed with respect to Taxes, and any attachments thereto.

 

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Transaction Taxes shall mean (i) anyTax or Tax Detriment (without regard to the second sentence in the definitionthereof and applying a 38% rate) resulting from any income or gain recognizedby Forest, Spinco or their Affiliates as a result of the Contribution or theDistribution failing to qualify for tax-free treatment under Sections 355 and368 and related provisions of the Code or corresponding provisions of otherapplicable Tax laws and (ii) any Tax resulting from any income or gainrecognized by Forest or its Affiliates under Treasury Regulation Sections 1.1502-13or 1.1502-19 (or any corresponding provisions of other applicable Taxlaws) as a result of the Contribution or the Distribution.

 

Treasury Regulations shall mean theregulations under the Code promulgated by the United States Department of theTreasury.

 

1.2                                 Other DefinitionalProvisions.  (a) Capitalized terms not otherwise defined in thisAgreement shall have the meaning ascribed to them in the DistributionAgreement.

 

(b)                                 The words “hereof, “herein”,and “hereunder” and words of similar import, when used in this Agreement, shallrefer to this Agreement as a whole and not to any particular provision of thisAgreement.

 

(c)                                  The terms defined inthe singular shall have a comparable meaning when used in the plural, and viceversa.

 

1.3                                 Termination ofTaxable Years.  For federal incomeTax purposes, the taxable year of Spinco shall end as of the close of theDistribution Date.  Forest, Spinco andtheir respective Affiliates shall, unless prohibited by applicable law, takeall action necessary or appropriate to close the taxable year of Spinco for allother Tax purposes as of the close of the Distribution Date.

 

ARTICLE IIALLOCATION; PAYMENT AND INDEMNIFICATION

 

2.1                                 Responsibility forTaxes; Indemnification.  (a) Forest shall indemnify andhold harmless each of Spinco, Mariner and their respective Affiliates for allTax Liabilities (and any loss, cost, damage or expense, including reasonableattorneys’ fees and costs, incurred in connection therewith) attributable to (i) anyTaxes (or the non-payment thereof) of Spinco or attributable to the SpincoBusiness for all Pre-Distribution Taxable Periods and for the Pre-DistributionTax Period portion (determined pursuant to Section 2.2) of any StraddlePeriod Taxes; (ii) any Taxes of Forest or any member of the ForestConsolidated Group imposed upon Spinco by reason of Spinco being severallyliable for such Taxes pursuant to Treasury Regulation Section 1.1502-6or any analogous provision of state or local law; (iii) all TransactionTaxes, except as otherwise specifically provided in Section 2.1(b)(iii); (iv) itsportion of any Transfer Taxes determined pursuant to Section 2.4; (v) anyTaxes of Spinco, Mariner or their Affiliates resulting from the breach of any obligationor covenant of Forest under this Agreement; and (vi) any Taxes of Forestor the Forest Group for any Post-Distribution Taxable Period.

 

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(b)                                 Spinco and Mariner,jointly and severally, shall indemnify and hold harmless each of Forest and itsAffiliates for all Tax Liabilities (and any loss, cost, damage or expense,including reasonable attorneys’ fees and costs, incurred in connectiontherewith) attributable to (i) any Taxes of Spinco or the Spinco Group forany Post-Distribution Taxable Period other than Taxes described in Section 2.1(a);(ii) any Taxes of Forest or its Affiliates resulting from the breach ofany obligation or covenant of Spinco or Mariner under this Agreement; (iii) TransactionTaxes, but only to the extent such Transaction Taxes arise from (w) a breach bySpinco, Mariner or any of their respective Affiliates of the representations orcovenants under Article III, (x) a Disqualifying Action of Spinco, Marineror any of their respective Affiliates, (y) the inaccuracy of any factualstatements or representations made by Mariner or Spinco in its representationsletters to Counsel and (z) an action taken by Spinco, Mariner or any of theirrespective Affiliates which is not required or permitted by the MergerAgreement and which causes the Contribution, the Distribution or the Merger tobe taxable; (iv) Mariner’s or Spinco’s portion of any Transfer Taxesdetermined pursuant to Section 2.4; and (v) any Taxes of Mariner andits Subsidiaries other than Taxes described in Section 2.1(a).

 

(c)                                  If the IndemnifyingParty is required to indemnify the Indemnified Party pursuant to this Article II,the Indemnified Party shall submit its calculations of the amount required tobe paid pursuant to this Article II, showing such calculations insufficient detail so as to permit the Indemnifying Party to understand thecalculations.  Subject to the followingtwo sentences, the Indemnifying Party shall pay to the Indemnified Party, nolater than ten (10) business days after the Indemnifying Party receivesthe Indemnified Party’s calculations, the amount that the Indemnifying Party isrequired to pay the Indemnified Party under this Article II.  If the Indemnifying Party disagrees with suchcalculations, it must notify the Indemnified Party of its disagreement inwriting within thirty (30) business days of receiving such calculations.

 

(d)                                 Any claim under this Article IIwith respect to a Tax Liability must be made no later than thirty (30) daysafter the expiration of the applicable statute of limitations for assessment ofsuch Tax Liability.

 

(e)                                  For all Tax purposes,the Forest Group and the Spinco Group agree to treat (i) any paymentrequired by this Agreement as either a contribution by Forest to Spinco or adistribution by Spinco to Forest, as the case may be, occurring immediatelyprior to the Distribution and (ii) any payment of interest or non-federalTaxes by or to a Tax Authority as taxable or deductible, as the case may be, tothe party entitled under this Agreement to retain such payment or requiredunder this Agreement to make such payment, in either case except as otherwisemandated by applicable law or by a Final Determination.

 

(f)                                    The amount of anyindemnification payment with respect to any Tax Liability shall be reduced byany current Tax Benefits actually realized by the Indemnified Party in respectof such Tax Liability by the end of the taxable year in which the indemnitypayment is made.  The calculation of suchTax Benefit shall be included in the calculation required to be submittedpursuant to Section 2.1(c).  If,notwithstanding the treatment required by Section 2.1(e), anyindemnification payment hereunder is determined to be taxable to theIndemnified Party by any Tax Authority, the indemnity payment payable by theIndemnifying Party shall be increased as necessary to ensure that, after allrequired Taxes on the indemnity payment are paid (including Taxes applicable toany increases in the indemnity payment under this Section 2.1(f)), 

 

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the IndemnifiedParty receives the amount it would have received if the indemnity payment wasnot taxable.

 

2.2                                 Straddle Periods.  In the case of any Straddle Period, theamount of any Taxes based on or measured by income or receipts of Spinco forthe Pre-Distribution Taxable Period shall be determined based on an interimclosing of the books as of the close of business on the Distribution Date andthe amount of other Taxes of Spinco for a Straddle Period which relate to thePre-Distribution Taxable Period shall be deemed to be the amount of such Taxfor the entire taxable period in which the Straddle Period occurs multiplied bya fraction the numerator of which is the number of days in the taxable period endingon the Distribution Date and the denominator of which is the total number ofdays in the Straddle Period.  If theDistribution Date is not the last day of a month, the closing of the bookscomputation shall be performed as if the Distribution Date did occur on thelast day of such month and the computation shall be adjusted on a pro ratabasis to reflect the number of days of such month between the Distribution Dateand the last day of the month.

 

2.3                                 Preparation of TaxReturns.  (a) Forest shall prepare or cause to be prepared, and shallfile or cause to be filed, all Tax Returns of Spinco for any Pre-DistributionTaxable Period (other than a Straddle Period).

 

(b)                                 Spinco shall prepareor cause to be prepared and file or cause to be filed all Tax Returns of Spincofor any Straddle Period (each a “Straddle Period Return”) on a basis consistentwith the past practice of Forest with respect to the Spinco Business, exceptthat Spinco may complete such Straddle Period Return in a manner that is notconsistent with past practice if such Straddle Period Return preparation isallowed by law and such Straddle Period Return preparation does not adverselyaffect the Tax Liability of Forest or any of its Affiliates.  If the Straddle Period Return reflects Taxesattributable to the Pre-Distribution Taxable Period, Spinco shall provide acopy of each such Straddle Period Return together with a computation of thepre-Distribution Taxes reflected in such Straddle Period Return (suchcomputation, the “Statement”) to Forest for its review and comment not laterthan 30 days prior to the deadline for filing each such Straddle PeriodReturn.  Forest shall provide comments,if any, to Spinco at least 15 days prior to the deadline for filing suchStraddle Period Return (the “15-Day Review Period”).  Forest’s failure to notify Spinco of anydisagreement prior to the end of the 15-Day Review Period shall indicateits concurrence with such Straddle Period Return and Statement.  If Forest disagrees with the allocation insuch Straddle Period Return and Statement, Forest shall notify Spinco inwriting of such disagreement prior to the close of the 15-Day ReviewPeriod, and Forest and Spinco shall consult and attempt to resolve in goodfaith the disagreement.

 

(c)                                  Unlessotherwise required by a Tax Authority, the parties hereby agree to prepare andfile all Tax Returns, and to take all other actions, in a manner consistentwith this Agreement.  All Tax Returnsshall be filed on a timely basis (taking into account applicable extensions) bythe party responsible for filing such returns under this Agreement.

 

(d)                                 Theparty responsible for filing a Tax Return under this Section 2.3 is alsoresponsible for paying to the relevant Tax Authority the amount of TaxLiability reflected on such Tax Return, subject to any indemnification rightsit may have against the other party.

 

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2.4                                 Payment of Sales,Use or Similar Taxes.  All sales,use, transfer, real property transfer, intangible, recordation, registration,documentary, stamp or similar Taxes (“Transfer Taxes”), (i) applicable to,or resulting from, the Contribution and the Distribution, to the extent of$200,000, shall be borne equally by Forest on the one hand and Mariner andSpinco, jointly and severally, on the other, and any such Transfer Taxes inexcess of $200,000 shall be borne solely by Forest, and (ii) applicableto, or resulting from, the Merger, to the extent of $200,000, shall be borneequally by Forest on the one hand and Mariner and Spinco, jointly andseverally, on the other, and any such Transfer Taxes in excess of $200,000shall be borne solely by Mariner and Spinco, jointly and severally**.**  Notwithstandinganything in Section 2.3 to the contrary, the party required by applicablelaw shall remit payment for any Transfer Taxes and duly and timely file suchTax Returns, subject to any indemnification rights it may have against theother party, which shall be paid in accordance with Section 2.1(c).  Spinco, Mariner, Forest and their respectiveAffiliates shall cooperate in (i) determining the amount of such Taxes, (ii) providingall requisite exemption certificates and (iii) preparing and timely filingany and all required Tax Returns for or with respect to such Taxes with any andall appropriate Tax Authorities.

 

2.5                                 Audits andProceedings.

 

(a)                                  Notwithstandingany other provisions hereof, if after the Distribution Date, an IndemnifiedParty or any of its Affiliates receives any notice, letter, correspondence,claim or decree from any Tax Authority (a “Tax Notice”) and, upon receipt ofsuch Tax Notice, believes it has suffered or potentially could suffer any TaxLiability for which it is indemnified, the Indemnified Party shall promptlydeliver such Tax Notice to the Indemnifying Party; provided, however,that the failure of the Indemnified Party to provide the Tax Notice to theIndemnifying Party shall not affect the indemnification rights of theIndemnified Party pursuant to this Article II, except to the extent thatthe Indemnifying Party is more than insignificantly prejudiced by theIndemnified Party’s failure to deliver such Tax Notice.  The Indemnifying Party shall have the rightto handle, defend, conduct and control, at its own expense, any Tax audit orother proceeding that relates to such Tax Notice (except to the extent thatsuch Tax Notice, Tax audit or other proceeding relates to a Straddle Period, inwhich case there shall be joint control of the Tax audit); providedthat, in all events, Forest shall have the right to participate, at its ownexpense, in any Tax audit or proceeding relating to Transaction Taxes.  The Indemnifying Party shall also have theright to compromise or settle any such Tax audit or other proceeding that ithas the authority to control pursuant to the preceding sentence subject, in thecase of a compromise or settlement that would have a Material Adverse Effect onthe Indemnified Party, to the Indemnified Party’s consent, which consent shallnot be unreasonably withheld.  If theIndemnifying Party fails within a reasonable time after notice to defend anysuch Tax Notice or the resulting audit or proceeding as provided herein, theIndemnifying Party shall be bound by the results obtained by the IndemnifiedParty in connection therewith.  TheIndemnifying Party shall pay to the Indemnified Party the amount of any TaxLiability within 15 days after a Final Determination of such Tax Liability.

 

(b)                                 Ifany adjustments shall be made to any Tax Returns related to Spinco or the ForestGroup for any Pre-Distribution Taxable Period as a result of or in settlementof any audit, other administrative proceeding or judicial proceeding or as theresult of the filing of an amended return to reflect the consequences of anydetermination made in connection with any 

 

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such audit or proceeding or as required by anintervening change of law, Forest shall be liable for any additional TaxLiability and Forest shall be entitled to retain any Tax refund obtained.

 

2.6                                 Amended Returns; Carrybacks.

 

(a)                                  Exceptas required by law, without the prior written consent of Forest, neither Spinconor any of its Affiliates shall file any amended Tax Return with respect to anyPre-Distribution Taxable Period of Spinco. Except as required by law, without the prior written consent of Spincoor one of its Affiliates, Forest may not amend any Tax Return with respect toany Pre-Distribution Taxable Period to the extent such amendment materiallyadversely affects the Tax Liability of Spinco, Mariner or any of theirAffiliates.

 

(b)                                 Tothe extent permitted by applicable law, neither Spinco nor any of itsAffiliates shall carry back any Tax Item to a Pre-Distribution TaxablePeriod.  To the extent any such Tax Itemis carried back to a Pre-Distribution Taxable Period, Forest agrees to pay toSpinco the amount of the Tax Benefit Forest or the Forest Group realizes inconnection with such Tax Item.

 

2.7                                 Tax Assistance.  Following the Distribution, Mariner, Spinco, Forestand their respective Affiliates shall provide each other with such assistanceas may reasonably be requested by any of them, and agree to execute anydocument that may be necessary or reasonably helpful, in connection with thepreparation of any Tax Return, any audit or other examination by any TaxAuthority, or any judicial or administrative proceedings relating to TaxLiability of Mariner, Spinco, Forest or any of their respectiveAffiliates.  The party requestingassistance hereunder shall reimburse the other for reasonable out-of-pocketexpenses incurred in providing such assistance. Mariner, Spinco, Forest and their respective Affiliates shall (i) preserveand cause to be preserved (and provide to another such party upon request) allinformation, returns, books, records and documents, including accompanyingschedules and related work papers, relating to any Tax Liabilities (includinginformation regarding ownership and Tax basis of property) of the Spinco Groupwith respect to a taxable period until the later of (x) five years after the Distributionand (y) 60 days after the expiration of all applicable statutes of limitationand extensions thereof, or the conclusion of all litigation with respect toTaxes for such period and (ii) give reasonable written notice to the otherparty prior to transferring, destroying or discarding any such information,returns, books, records or documents and, if the other party so requests, allowthe other party to take possession of such information, returns, books, recordsor documents.

 

2.8                                 Refunds.  If Spinco or any of its Affiliates receives arefund of Taxes (or any reduction in Tax Liability by means of a credit, offsetor otherwise) attributable to Pre-Distribution Taxable Periods (a “Forest TaxRefund”), Spinco shall pay to Forest an amount that is equal to the Forest TaxRefund, plus any interest paid by the applicable Tax Authority with respect tosuch Forest Tax Refund, less any Taxes payable by Spinco or its Affiliate inconnection with the receipt of such Forest Tax Refund.  If Forest or any of its Affiliates receives arefund of Taxes (or any reduction in Tax Liability by means of a credit, offsetor otherwise) attributable to Spinco for a Post-Distribution Taxable Period (a “SpincoTax Refund”), Forest shall pay to Spinco an amount that is equal to the SpincoTax Refund, plus any interest paid by

 

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the applicable TaxAuthority with respect to such Spinco Tax Refund, less any Taxes payable by Forestor its Affiliate in connection with the receipt of such Spinco Tax Refund.

 

2.9                                 Earningsand Profits Allocation.  Forest willadvise Spinco in writing of the decrease in Forest earnings and profitsattributable to the Distribution under Section 312(h) of the Code onor before the first anniversary of the Distribution.

 

ARTICLE III

 

TAX-FREE STATUS OFTHE DISTRIBUTION

 

3.1                                 Representations andWarranties.

 

(a)                                  Forest.  Forest hereby represents and warrants orcovenants and agrees, as appropriate, that (i) it has examined (A) draftsof the representation letters supporting the Spin-Off Opinion and drafts of therepresentation letters supporting the Merger Opinions and (B) any othermaterials delivered by Forest, Spinco and Mariner in connection with therendering by Weil, Gotshal & Manges LLP of the Spin-Off Opinion and byCounsel of the Merger Opinions (all of the foregoing in (A) and (B),collectively, the “Draft Tax Materials”), (ii) it will update through andincluding the Distribution Date the Draft Tax Materials deliverable by Forestand Spinco (as updated, the “Final Forest Tax Materials”), (iii) the factsto be presented and the representations to be made in the Final Forest TaxMaterials, to the extent descriptive of the Forest Group, the Spinco Business,the formation of Spinco or Spinco while it is a member of the ForestConsolidated Group (including the business purposes for the Distribution andthe representations in the Final Forest Tax Materials to the extent that theyrelate to the Forest Group, the Spinco Business, the formation of Spinco orSpinco while it is a member of the Forest Consolidated Group and the plans,proposals, intentions and policies of Forest), will be from the time presentedor made through and including the time of the Distribution, true, correct andcomplete in all respects, and (iv) it has delivered to Mariner copies ofany Draft Tax Materials that were delivered by Forest and Spinco and willdeliver to Mariner a copy of the Spin-Off Opinion and copies of any Final ForestTax Materials.

 

(b)                                 Mariner.  Mariner hereby represents and warrants orcovenants and agrees, as appropriate, that (i) it has examined the DraftTax Materials, (ii) it will update through and including the DistributionDate the Draft Tax Materials deliverable by Mariner (as updated, the “Final MarinerTax Materials”), (iii) the facts to be presented and the representationsto be made in the Final Mariner Tax Materials, to the extent descriptive ofSpinco immediately after the Merger and Mariner (including the businesspurposes for the Distribution and the representations to be made in the Final MarinerTax Materials to the extent that they relate to Spinco immediately after theMerger and to Mariner, and the plans, proposals, intentions and policies ofSpinco immediately after the Merger and of Mariner), will be from the timepresented or made through and including the time of the Distribution, true,correct and complete in all respects, and (iv) it has delivered to Forestcopies of any Draft Tax Materials that were delivered by Mariner and willdeliver to Forest copies of any Final Mariner Tax Materials.

 

(c)                                  No ContraryKnowledge.  Each of Spinco, Marinerand Forest represents that, as of the date of this Agreement, it knows of nofact (after due inquiry) that may cause the 

 

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Tax treatment ofthe Contribution, the Distribution or the Merger to be other than thatcontemplated in the Distribution Agreement and Merger Agreement.

 

(d)                                 No Contrary Plan.  Forest represents and warrants that neitherit, nor any of its Affiliates, has any plan or intent to take any action whichis inconsistent with any factual statements or representations it makes in theFinal Forest Tax Materials.  Each ofSpinco and Mariner represents and warrants that neither it, nor any of itsAffiliates, has any plan or intent to take any action which is inconsistentwith any factual statements or representations it makes in the Final MarinerTax Materials.

 

3.2                                 RestrictionsRelating to the Distribution.

 

(a)                                  General.  The parties intend the Distribution toqualify as a distribution of Spinco stock to Forest stockholders with respectto which gain or loss is not recognized by Forest, Spinco or their respectivestockholders pursuant to Section 355and related provisions of the Code (such non-recognition, the “Tax-FreeStatus of the Distribution”).

 

(i)                                     Marineror Spinco shall not take any action within its control, nor shall Mariner orSpinco permit any of its Affiliates to take any action within their control(including entering into any agreement, understanding or arrangement or anynegotiations with respect to any transaction or series of transactions) that,or fail to take any action within its or their control the failure of which,would cause the Distribution to fail so to qualify (any such action or failureto act, a “Disqualifying Action”); provided, however, that theterm “Disqualifying Action” as applied to Spinco or any of its Affiliates shallnot include (x) any action, or failure to act, that is contemplated by theterms of the Distribution Agreement or the Merger Agreement or (y) any failureto take action to mitigate the effects of a breach by Spinco, occurring priorto the time of the Distribution, of a representation, warranty or covenantcontained in the Distribution Agreement, regardless of whether such breach orits effects continue after the time of the Distribution.

 

(ii)                                  Forestshall not take, or fail to take any action that would result in, aDisqualifying Action; provided, however, that the term “DisqualifyingAction” as applied to Forest shall not include any action, or failure to act,that is contemplated by the terms of the Distribution Agreement or the MergerAgreement.

 

(iii)                               Priorto the first day following the second anniversary of the Distribution andexcept as otherwise provided in this Agreement, neither Spinco, Mariner, nor Forestshall take any action within its control, and neither Spinco, Mariner, nor Forestshall permit any of its Affiliates to take any action within their control(including entering into any agreement, understanding or arrangement or anynegotiations with respect to any transaction or series of transactions) that,or fail to take any action within its or their control the failure of which (inboth cases, including an action or failure to act that would be reasonablylikely to be inconsistent with any representation made in the Tax Materials),would result in a more than immaterial possibility that the Distribution wouldbe treated as part of a plan pursuant to which one or more persons acquiredirectly or indirectly Spinco stock or Forest stock representing a “50-percentor greater interest” within the meaning of Section 355(e)(4) of theCode (any such action or 

 

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failure to act, a “Potential Disqualifying Action”),unless, prior to the taking of the Potential Disqualifying Action, (i) Marinerdelivers to Forest, or Forest delivers to Mariner (as the case may be), eithera ruling from the IRS (a “Ruling”) or an opinion from a nationally recognizedlaw firm both reasonably acceptable to Forest (or to Mariner) (a “SubsequentOpinion”), in either case, to the effect that the Potential DisqualifyingAction would not cause the Tax-Free Status of the Distribution to cease toapply to the Distribution, or (ii) Mariner and Forest mutually agree thatsuch Potentially Disqualifying Action would not cause the Tax-Free Status ofthe Distribution to cease to apply to the Distribution.

 

(b)                                 Continuation of theForest and Gulf of Mexico Business. Until the first day after the second anniversary of the Distribution, (i) Forestand Spinco shall, respectively, continue the active conduct of the portion ofthe Forest Business owned by Forest and the Spinco Business conductedimmediately prior to the Distribution and (ii) neither Forest nor Spincoshall voluntarily dissolve or liquidate.

 

(c)                                  CertainPresumptions.  Solely for thepurposes of Section 3.2(a), but without creating any implication that anyof the following is true, it shall be presumed that (i) shares of Spincostock distributed with respect to Forest stock which Forest stock had beensold, exchanged or otherwise disposed of by Animal or any of his Affiliatesthat would be treated as a ten-percent shareholder (within the meaning ofTreasury Regulation Section 1.355-7(h)(14)) and (ii) shares ofSpinco stock distributed with respect to Forest stock which Forest stock wascovered by a written option (within the meaning of Treasury Regulation Section 1.355-7(e))to sell or other written agreement to sell (whether by forward contract orotherwise), in both cases entered into by Animal or any of his Affiliates thatwould be treated as a ten-percent shareholder (within the meaning of TreasuryRegulation Section 1.355-7(h)(14)) with respect to Forest sharesheld by Animal or any of his Affiliates that would be treated as a ten-percentshareholder (within the meaning of Treasury Regulation Section 1.355-7(h)(14))and which shares are not described in clause (i) of this Section 3.2(c),in each of clause (i) and (ii) within the two-year period ending onthe Distribution Date, are shares the acquisition of which will be treated asif such acquisition were part of a plan or series of related transactions thatincludes the Distribution.  In no eventwill the presumption contained in this Section 3.2(c) apply to morethan the number of shares of Spinco stock distributed with respect to 7,905,575shares of Forest stock.

 

3.3                                 Cooperationand Other Covenants*.*

 

(a)                                  Notice ofSubsequent Information.  Each of Forestand its Affiliates, on the one hand, and Spinco, Mariner and their respectiveAffiliates, on the other hand, shall furnish the other with a copy of anydocument or information that reasonably could be expected to have an impact onthe Tax-Free Status of the Distribution.

 

(b)                                 Post-ClosingCooperation.

 

(i)                                     Forestand its Affiliates shall cooperate with Mariner, and Mariner and its Affiliatesshall cooperate with Forest (as the case may be), and shall take (or refrainfrom taking) all such actions as Mariner (or Forest) may reasonably request inconnection with obtaining any ruling or opinion referred to in Section 3.2.  Such 

 

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cooperation shall include providing any information,representations and/or covenants reasonably requested by Mariner (or Forest)(or counsel for Mariner or Forest) to enable Mariner (or Forest) to obtain andmaintain either a Subsequent Opinion or a Ruling.  From and after any date on which Forest,Spinco, Mariner or any of their respective Affiliates makes any representationor covenant to counsel for purposes of obtaining a Subsequent Opinion or to theIRS for the purpose of obtaining a Ruling and (with respect solely to anyrepresentation given) until the first day after the second anniversary (or suchlater date as may be agreed upon at the time such representation is made) ofthe date of such Subsequent Opinion or Ruling, the party making suchrepresentation or covenant shall take no action that would have caused suchrepresentation to be untrue or covenantto be breached unless both parties determine, in their reasonable discretion,which discretion shall be exercised in good faith solely to preserve theTax-Free Status of the Distribution, that such action would not cause theTax-Free Status of the Distribution to cease to apply to the Distribution.  Such representations and warranties, oncemade in writing, shall be considered Tax Materials subject to the provisions ofSection 3.1.

 

(ii)                                  NeitherSpinco, Mariner nor any of their respective Affiliates shall file any requestfor a Ruling with respect to the Tax-Free Status of the Distribution withoutthe prior written consent of Forest, which consent shall not be unreasonablywithheld or delayed, if a favorable Ruling would be reasonably likely to havean adverse effect on Forest or any of its Affiliates.

 

(c)                                  Notice.

 

(i)                                     Subjectto clause (iii) of this Section 3.3(c), until the first day after thesecond anniversary of the Distribution, Mariner shall give Forest, or Forestshall give Mariner (as the case may be), at least ten (10) days priorwritten notice of its or any of its Affiliates’ intention to effect anytransaction with respect to such Person’s capital structure, whether throughissuance, redemption or otherwise; provided, that Forest shall only berequired to give Mariner notice of such a contemplated transaction if suchtransaction would result in more than an immaterial possibility of a PotentialDisqualifying Action.  Each such noticeshall set forth the necessary terms and conditions of the proposed transaction,including, as applicable, the nature of any related action proposed to betaken, the approximate number of shares proposed to be issued, redeemed ortransferred (directly or indirectly, in accordance with the provisions of Section 355(e) ofthe Code), the timetable for such action or transaction, and the number ofshares otherwise then owned by the other party to the action or transaction(directly or indirectly, in accordance with the provisions of Section 355(e) ofthe Code), all with sufficient particularity to enable Forest (or Mariner) toreview and comment on the effect of such transaction with respect to Section 355(e) ofthe Code.  All information provided byany of the parties to the other parties pursuant to this Section 3.3 shallbe kept confidential by the receiving parties to the same extent as thatprovided in Section 7.5 of the Distribution Agreement.

 

(ii)                                  IfMariner or any of its Affiliates, or Forest or any of its Affiliates (as thecase may be), receives a Subsequent Opinion or Ruling, Mariner (or Forest)shall notify Forest (or Mariner) (if Forest or Mariner is not otherwiseprovided with a copy of 

 

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the Subsequent Opinion or Ruling) promptly, but in anyevent within two (2) business days, after the receipt of the SubsequentOpinion or Ruling.

 

(iii)                               Noticeshall not be required under (i) of this Section 3.3(c) withrespect to the grant and/or exercise of any stock option, stock, stock-basedcompensation or other employment related arrangements arising in the ordinarycourse of business that have customary terms and conditions consistent withpast practice (“Compensatory Transaction”) if the Compensatory Transactionsatisfies the requirements of Treasury Regulation Section 1.355-7(d)(8),or, if in the case of options, if (A) the exercise price is equal to orgreater than the fair market value of the stock subject to the option on thedate of grant or issuance and (B) such option does not have a readilyascertainable fair market value within the meaning of Treasury Regulation Section 1.83-7.

 

(d)                                 Each of Forest, Spincoand Mariner covenants and agrees that it will not take, and will cause itsrespective Affiliates to refrain from taking, any position on a Tax Return thatis inconsistent with (i) the treatment of the Contribution and theDistribution as tax free under Sections 368(a)(1)(D) and 355, respectivelyand related provisions of the Code and (ii) the treatment of the Merger asa reorganization under Section 368(a) and related provisions of theCode.

 

(e)                                  Each of Forest (foritself and its Affiliates) and Mariner or Spinco (for itself and itsAffiliates) agrees (i) not to take any action reasonably expected toresult in an increased Tax Liability to the other under this Agreement and (ii) totake any action reasonably requested by the other that would reasonably beexpected to result in a Tax Benefit or avoid a Tax Detriment to the other, provided,in either such case, that the taking or refraining to take such action does notresult in any additional cost not fully compensated for by the other party orany other adverse effect to such party. The parties hereby acknowledge that the preceding sentence is notintended to limit, and therefore shall not apply to, the rights of the partieswith respect to matters otherwise covered by this Agreement.

 

(f)                                    With respect to anyForest Stock Options (as defined in the Employee Matters Agreement) whichbecome options to acquire Mariner stock (“Converted Mariner Options”) inconnection with the Distribution and Merger, any deduction for Tax purposeswith respect to such Forest Stock Options and Converted Mariner Options shallbelong solely to and be claimed on a Tax Return only by Mariner and itsAffiliates.  Forest, Spinco and Marineragree not to take a position on any Tax Return inconsistent with the priorsentence unless mandated by a Final Determination.

 

(g)                                 Withrespect to any Forest Stock Options (as defined in the Employee MattersAgreement) which remain options to acquire Forest stock (“Unconverted ForestOptions”) in connection with the Distribution and Merger, any deduction for Taxpurposes with respect to such Unconverted Forest Options shall belong solely toand be claimed on a Tax Return only by Forest and its Affiliates.  Forest, Spinco and Mariner agree not to takea position on any Tax Return inconsistent with the prior sentence unlessmandated by a Final Determination.

 

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ARTICLE IV

 

MISCELLANEOUS

 

4.1                                 Termination ofPrior Tax Sharing Agreements and of this Agreement.  This Agreement shall take effect on theDistribution Date and shall replace all other agreements, whether or notwritten, in respect of any Taxes between or among any member of the ForestGroup on the one hand and any member of the Spinco Group on the other.  All such replaced agreements shall becanceled as of the Distribution to the extent they relate to the Spinco Group,and any rights or obligations of the Forest Group or the Spinco Group existingthereunder thereby shall be fully and finally settled without any payment byany party thereto.  This Agreement shallautomatically terminate, without further action by any party hereto, upon thetermination of the Merger Agreement if such termination occurs prior to theconsummation of the Merger.

 

4.2                                 Merger orConsolidation.  Neither Forest, Marinernor Spinco (in each case, the “Transaction Party”) shall (i) consolidatewith or merge into any Person or permit any Person to consolidate with or mergeinto the Transaction Party (other than a merger or consolidation in which theTransaction Party is the surviving or continuing corporation) or (ii) sell,assign, transfer, lease or otherwise dispose of, in one transaction or a seriesof related transactions, all or substantially all of the assets of theTransaction Party, unless the resulting, surviving or transferee Person shallexpressly assume, by instrument in form and substance reasonably satisfactoryto the other party, all of the obligations of the Transaction Party under thisAgreement.  The parties agree that noaction required or permitted under the Merger Agreement violates this Section 4.2.

 

4.3                                 Governing Law.  This Agreement shall be governed by andconstrued in accordance with the laws of the State of Delaware, withoutreference to its conflicts of laws principles.

 

4.4                                 Amendment andModification.  This Agreement may beamended, modified or supplemented only by a written agreement signed by all ofthe parties hereto.

 

4.5                                 Notices.  All notices and other communications requiredor permitted to be given hereunder shall be in writing and shall be deemedgiven upon (a) a transmitter’s confirmation of a receipt of a facsimiletransmission (but only if followed by confirmed delivery of a standardovernight courier the following business day or if delivered by hand thefollowing business day), (b) confirmed delivery of a standard overnightcourier or when delivered by hand or (c) the expiration of fivebusiness days after the date mailed by certified or registered mail (returnreceipt requested), postage prepaid, to the parties at the following addresses(or at such other addresses for a party as shall be specified by like notice):

 

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If to Forest or any member of the Forest Group, to:

 

Forest Oil Corporation

1600 Broadway, Suite 2200

Denver, Colorado 80202Attention:  General CounselFacsimile:  (303) 812-1510

 

with a copy (which shall not constitute effectivenotice) to:

 

Vinson & Elkins L.L.P.

666 Fifth Avenue, 26th FloorNew York, NY 10103-0040Attention:  Alan P. BadenFacsimile:  (917) 849-5337

 

If to Spinco or any member of the Spinco Group, to:

 

SML Wellhead Corporation

c/o Mariner Energy, Inc.

2101 CityWest Blvd.

Building 4, Suite 900

Houston, TX 77042Attention:  General CounselFacsimile:  (713) 954-5555

 

with a copy (which shall not constitute effectivenotice) to:

 

Baker Botts L.L.P.

910 Louisiana Street

Houston, Texas 77002Attn:  Kelly B. RoseFacsimile:  (713) 229-7996

 

If to Mariner, to:

 

Mariner Energy, Inc.

2101 CityWest Blvd.

Building 4, Suite 900

Houston, TX 77042Attention:  General CounselFacsimile:  (713) 954-5555

 

with a copy (which shall not constitute effectivenotice) to:

 

Baker Botts L.L.P.

910 Louisiana Street

Houston, Texas 77002Attn:  Kelly B. RoseFacsimile:  (713) 229-7996

 

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or to such other address as any party hereto may havefurnished to the other parties by a notice in writing in accordance with this Section 4.5.

 

4.6                                 Complete Agreement.  This Agreement, the other TransactionAgreements and other documents referred to herein shall constitute the entireagreement between the parties hereto with respect to the subject matter hereofand shall supersede all previous negotiations, commitments and writings withrespect to such subject matter.  In thecase of any conflict between the terms of this Agreement and the terms of anyother Transaction Agreement, the terms of this Agreement shall be applicable.

 

4.7                                 Interpretation.  The Article and Section headingscontained in this Agreement are solely for the purpose of reference, are notpart of the agreement of the parties hereto and shall not in any way affect themeaning or interpretation of this Agreement.

 

4.8                                 Counterparts.  This Agreement may be executed incounterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument.

 

4.9                                 Successors andAssigns; No Third-Party Beneficiaries. This Agreement and all of the provisions hereof shall be binding uponand inure to the benefit of the parties hereto and their successors andpermitted assigns, but neither this Agreement nor any of the rights, interestsand obligations hereunder shall be assigned by any party hereto without theprior written consent of the other parties. This Agreement is solely for the benefit of Forest, Spinco and Marinerand their respective Subsidiaries, Affiliates, successors and assigns, and isnot intended to confer upon any other Persons any rights or remedies hereunder.

 

4.10         Consentto Jurisdiction and Service of Process. Each of the parties to this Agreement hereby irrevocably andunconditionally (i) agrees to be subject to, and hereby consents and submitsto, the jurisdiction of the courts of the State of Delaware and of the federalcourts sitting in the State of Delaware, (ii) to the extent such party is nototherwise subject to service of process in the State of Delaware, herebyappoints the Corporation Trust Company as such party’s agent in the State ofDelaware for acceptance of legal process and (iii) agrees that service made onany such agent set forth in (ii) above shall have the same legal force andeffect as if served upon such party personally within the State of Delaware.

 

4.11                           Waiver of Jury Trial.  Each of the parties hereto irrevocably andunconditionally waives all right to trial by jury in any litigation, claim,action, suit, arbitration, inquiry, proceeding, investigation or counterclaim(whether based in contract, tort or otherwise) arising out of or relating tothis Agreement or the actions of the parties hereto in the negotiation,administration, performance and enforcement thereof.

 

4.12                           References; Construction.  References to any “Article” or “Section,”without more, are to Articles and Sections to or of this Agreement.  Unless otherwise expressly stated, clausesbeginning with the term “including” or similar words set forth examples onlyand in no way limit the generality of the matters thus exemplified.

 

4.13                           Waivers.  Except as provided in this Agreement, noaction taken pursuant to this Agreement, including any investigation by or onbehalf of any party, shall be deemed to 

 

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constitute awaiver by the party taking such action of compliance with any representations,warranties, covenants or agreements contained in this Agreement.  The waiver by any party hereto of a breach ofany provision hereunder shall not operate or be construed as a waiver of any prioror subsequent breach of the same or any other provision hereunder.

 

4.14                           Specific Performance.  The parties hereto agree that irreparabledamage would occur in the event any provision of this Agreement was notperformed in accordance with the terms hereof and that the parties shall beentitled to specific performance of the terms hereof, in addition to any otherremedy at law or in equity.

 

4.15                           Severability.  If any provision of this Agreement or theapplication thereof to any Person or circumstance is determined by a court ofcompetent jurisdiction to be invalid, void or unenforceable, the remainingprovisions hereof, or the application of such provision to Persons orcircumstances other than those as to which it has been held invalid orunenforceable, shall remain in full force and effect and shall in no way beaffected, impaired or invalidated thereby, so long as the economic or legalsubstance of the transactions contemplated hereby is not affected in any manneradverse to any party.

 

4.16                           Effective Date.  This Agreement shall become effective onlyupon the occurrence of the Distribution.

 

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IN WITNESS WHEREOF, each of the parties has causedthis Tax Sharing Agreement to be executed on its behalf by its officersthereunto duly authorized, all as of the day and year first written above.

 
|   | FOREST OIL CORPORATION   |
|--------|--------------------------|
|   |                     |
|   |                     |
|   | By:                      |   |   |
|   |                     | Name: |
|   |                     | Title: |
|   |                     |   |
|   |                     |   |
|   | SML WELLHEAD CORPORATION |
|   |                     |   |
|   |                     |   |
|   | By:                      |   |   |
|   | Name:                    |
|   | Title:                   |
|   |                     |   |
|   |                     |   |
|   | MARINER ENERGY, INC.     |
|   |                     |   |
|   |                     |   |
|   | By:                      |   |   |
|   | Name:                    |
|   | Title:                   |

 

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