Exhibit 10.2


 


 


TAX SHARING AGREEMENT


 


between


 


FOREST OIL CORPORATION,


 


SML WELLHEAD CORPORATION


 


and


 


MARINER ENERGY, INC.


 


Dated as of September 9,
2005


 





















 


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”).


 


W  I  T
N  E  S  S  E  T  H


 


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


 


WHEREAS, pursuant to the Distribution Agreement
entered 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 the
Spinco Assets (as defined in the Distribution Agreement), as a result of which
Spinco shall directly own the Spinco Business (as defined in the Distribution
Agreement) (the “Contribution”) and (b) Forest shall distribute all of the
outstanding capital stock of Spinco to its stockholders (the “Distribution”);


 


WHEREAS, pursuant to the Agreement and Plan of Merger
entered into between Forest, Spinco, Mariner and MEI Sub, Inc., a Delaware
corporation and a direct wholly-owned
Subsidiary of Mariner (“Merger Sub”) dated September 9, 2005 (the “Merger Agreement”), Merger Sub
shall merge with and into Spinco (the “Merger”);


 


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


 


WHEREAS, the parties wish to (a) provide for the
payment of Tax Liabilities and entitlement to refunds thereof, allocate
responsibility for, and cooperation in, the filing of Tax Returns and provide
for certain other matters relating to Taxes and (b) set forth certain
covenants and indemnities relating to the preservation of the tax-free status
of the Contribution, the Distribution and the Merger.


 


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


 


ARTICLE I



DEFINITIONS; CERTAIN OPERATING CONVENTIONS


 


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


 


2





















 


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


 


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


 


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


 


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


 


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


 


Forest Consolidated Group shall mean
the 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 Forest
Consolidated Group, other than Spinco.


 


Indemnifying Party
shall mean any Person from which an Indemnified Party is seeking
indemnification pursuant to the provisions of this Agreement.


 


Indemnified Party shall mean any
Person which is seeking indemnification from an Indemnifying Party pursuant to
the provisions of this Agreement.


 


IRS
shall mean the United States Internal Revenue Service.


 


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


 


Person shall mean and includes any
individual, corporation, company, association, partnership, joint venture,
limited liability company, joint stock company, trust, unincorporated
organization, or other entity.


 


Post-Distribution Taxable Period
shall mean a taxable period or portion thereof that begins after the Distribution
Date.


 


Pre-Distribution Taxable Period
shall mean a taxable period or portion thereof that ends on or before the
Distribution Date.


 


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


 


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


 


Straddle Period shall mean a taxable
period 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 and
charges of any kind whatsoever, together with any interest and any penalties,
fines, additions to tax or additional amounts imposed by any Tax Authority and
shall include any transferee liability in respect of Taxes.


 


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


 


Tax Benefit shall mean a reduction
in the Tax Liability (or increase in refund or credit or any item of deduction
or expense) of a taxpayer (or of the Affiliated Group of which it is a member)
for any taxable period.  Except as
otherwise provided in this Agreement, a Tax Benefit shall be deemed to have
been realized or received from a Tax Item in a taxable period only if and to
the extent that the Tax Liability of the taxpayer (or of the Affiliated Group
of which it is a member) for such period, after taking into account the effect
of the Tax Item on the Tax Liability of such taxpayer in the current period and
all prior periods, is less than it would have been had such Tax Liability been
determined without regard to such Tax Item.


 


Tax Detriment shall mean an increase
in the Tax Liability (or reduction in refund or credit or item of deduction or
expense) of a taxpayer (or of the Affiliated Group of which it is a member) for
any taxable period.  Except as otherwise
provided in this Agreement, a Tax Detriment shall be deemed to have been
realized or received from a Tax Item in a taxable period only if and to the
extent that the Tax Liability of the taxpayer (or of the Affiliated Group of
which it is a member) for such period, after taking into account the effect of
the Tax Item on the Tax Liability of such taxpayer in the current period and
all prior periods, is more than it would have been had such Tax Liability been
determined without regard to such Tax Item.


 


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


 


Tax Liabilities shall mean all
liabilities for Taxes.


 


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


 


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


 


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


 


1.2                                 Other Definitional
Provisions.  (a) Capitalized terms not otherwise defined in this
Agreement shall have the meaning ascribed to them in the Distribution
Agreement.


 


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


 


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


 


1.3                                 Termination of
Taxable Years.  For federal income
Tax purposes, the taxable year of Spinco shall end as of the close of the
Distribution Date.  Forest, Spinco and
their respective Affiliates shall, unless prohibited by applicable law, take
all action necessary or appropriate to close the taxable year of Spinco for all
other Tax purposes as of the close of the Distribution Date.


 


ARTICLE II



ALLOCATION; PAYMENT AND INDEMNIFICATION


 


2.1                                 Responsibility for
Taxes; Indemnification.  (a) Forest shall indemnify and
hold harmless each of Spinco, Mariner and their respective Affiliates for all
Tax Liabilities (and any loss, cost, damage or expense, including reasonable
attorneys’ fees and costs, incurred in connection therewith) attributable to (i) any
Taxes (or the non-payment thereof) of Spinco or attributable to the Spinco
Business for all Pre-Distribution Taxable Periods and for the Pre-Distribution
Tax Period portion (determined pursuant to Section 2.2) of any Straddle
Period Taxes; (ii) any Taxes of Forest or any member of the Forest
Consolidated Group imposed upon Spinco by reason of Spinco being severally
liable for such Taxes pursuant to Treasury Regulation Section 1.1502-6
or any analogous provision of state or local law; (iii) all Transaction
Taxes, except as otherwise specifically provided in Section 2.1(b)(iii); (iv) its
portion of any Transfer Taxes determined pursuant to Section 2.4; (v) any
Taxes of Spinco, Mariner or their Affiliates resulting from the breach of any obligation
or covenant of Forest under this Agreement; and (vi) any Taxes of Forest
or 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 its
Affiliates for all Tax Liabilities (and any loss, cost, damage or expense,
including reasonable attorneys’ fees and costs, incurred in connection
therewith) attributable to (i) any Taxes of Spinco or the Spinco Group for
any 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 of
any obligation or covenant of Spinco or Mariner under this Agreement; (iii) Transaction
Taxes, but only to the extent such Transaction Taxes arise from (w) a breach by
Spinco, Mariner or any of their respective Affiliates of the representations or
covenants under Article III, (x) a Disqualifying Action of Spinco, Mariner
or any of their respective Affiliates, (y) the inaccuracy of any factual
statements or representations made by Mariner or Spinco in its representations
letters to Counsel and (z) an action taken by Spinco, Mariner or any of their
respective Affiliates which is not required or permitted by the Merger
Agreement and which causes the Contribution, the Distribution or the Merger to
be taxable; (iv) Mariner’s or Spinco’s portion of any Transfer Taxes
determined pursuant to Section 2.4; and (v) any Taxes of Mariner and
its Subsidiaries other than Taxes described in Section 2.1(a).


 


(c)                                  If the Indemnifying
Party is required to indemnify the Indemnified Party pursuant to this Article II,
the Indemnified Party shall submit its calculations of the amount required to
be paid pursuant to this Article II, showing such calculations in
sufficient detail so as to permit the Indemnifying Party to understand the
calculations.  Subject to the following
two sentences, the Indemnifying Party shall pay to the Indemnified Party, no
later than ten (10) business days after the Indemnifying Party receives
the Indemnified Party’s calculations, the amount that the Indemnifying Party is
required to pay the Indemnified Party under this Article II.  If the Indemnifying Party disagrees with such
calculations, it must notify the Indemnified Party of its disagreement in
writing within thirty (30) business days of receiving such calculations.


 


(d)                                 Any claim under this Article II
with respect to a Tax Liability must be made no later than thirty (30) days
after the expiration of the applicable statute of limitations for assessment of
such Tax Liability.


 


(e)                                  For all Tax purposes,
the Forest Group and the Spinco Group agree to treat (i) any payment
required by this Agreement as either a contribution by Forest to Spinco or a
distribution by Spinco to Forest, as the case may be, occurring immediately
prior to the Distribution and (ii) any payment of interest or non-federal
Taxes by or to a Tax Authority as taxable or deductible, as the case may be, to
the party entitled under this Agreement to retain such payment or required
under this Agreement to make such payment, in either case except as otherwise
mandated by applicable law or by a Final Determination.


 


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


 


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the Indemnified
Party receives the amount it would have received if the indemnity payment was
not taxable.


 


2.2                                 Straddle Periods.  In the case of any Straddle Period, the
amount of any Taxes based on or measured by income or receipts of Spinco for
the Pre-Distribution Taxable Period shall be determined based on an interim
closing of the books as of the close of business on the Distribution Date and
the amount of other Taxes of Spinco for a Straddle Period which relate to the
Pre-Distribution Taxable Period shall be deemed to be the amount of such Tax
for the entire taxable period in which the Straddle Period occurs multiplied by
a fraction the numerator of which is the number of days in the taxable period ending
on the Distribution Date and the denominator of which is the total number of
days in the Straddle Period.  If the
Distribution Date is not the last day of a month, the closing of the books
computation shall be performed as if the Distribution Date did occur on the
last day of such month and the computation shall be adjusted on a pro rata
basis to reflect the number of days of such month between the Distribution Date
and the last day of the month.


 


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


 


(b)                                 Spinco shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns of Spinco
for any Straddle Period (each a “Straddle Period Return”) on a basis consistent
with the past practice of Forest with respect to the Spinco Business, except
that Spinco may complete such Straddle Period Return in a manner that is not
consistent with past practice if such Straddle Period Return preparation is
allowed by law and such Straddle Period Return preparation does not adversely
affect the Tax Liability of Forest or any of its Affiliates.  If the Straddle Period Return reflects Taxes
attributable to the Pre-Distribution Taxable Period, Spinco shall provide a
copy of each such Straddle Period Return together with a computation of the
pre-Distribution Taxes reflected in such Straddle Period Return (such
computation, the “Statement”) to Forest for its review and comment not later
than 30 days prior to the deadline for filing each such Straddle Period
Return.  Forest shall provide comments,
if any, to Spinco at least 15 days prior to the deadline for filing such
Straddle Period Return (the “15-Day Review Period”).  Forest’s failure to notify Spinco of any
disagreement prior to the end of the 15-Day Review Period shall indicate
its concurrence with such Straddle Period Return and Statement.  If Forest disagrees with the allocation in
such Straddle Period Return and Statement, Forest shall notify Spinco in
writing of such disagreement prior to the close of the 15-Day Review
Period, and Forest and Spinco shall consult and attempt to resolve in good
faith the disagreement.


 


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


 


(d)                                 The
party responsible for filing a Tax Return under this Section 2.3 is also
responsible for paying to the relevant Tax Authority the amount of Tax
Liability reflected on such Tax Return, subject to any indemnification rights
it 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 and
Spinco, jointly and severally, on the other, and any such Transfer Taxes in
excess of $200,000 shall be borne solely by Forest, and (ii) applicable
to, or resulting from, the Merger, to the extent of $200,000, shall be borne
equally by Forest on the one hand and Mariner and Spinco, jointly and
severally, on the other, and any such Transfer Taxes in excess of $200,000
shall be borne solely by Mariner and Spinco, jointly and severally.  Notwithstanding
anything in Section 2.3 to the contrary, the party required by applicable
law shall remit payment for any Transfer Taxes and duly and timely file such
Tax Returns, subject to any indemnification rights it may have against the
other party, which shall be paid in accordance with Section 2.1(c).  Spinco, Mariner, Forest and their respective
Affiliates shall cooperate in (i) determining the amount of such Taxes, (ii) providing
all requisite exemption certificates and (iii) preparing and timely filing
any and all required Tax Returns for or with respect to such Taxes with any and
all appropriate Tax Authorities.


 


2.5                                 Audits and
Proceedings.


 


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


 


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


 


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


 


2.6                                 Amended Returns; Carrybacks.


 


(a)                                  Except
as required by law, without the prior written consent of Forest, neither Spinco
nor any of its Affiliates shall file any amended Tax Return with respect to any
Pre-Distribution Taxable Period of Spinco. 
Except as required by law, without the prior written consent of Spinco
or one of its Affiliates, Forest may not amend any Tax Return with respect to
any Pre-Distribution Taxable Period to the extent such amendment materially
adversely affects the Tax Liability of Spinco, Mariner or any of their
Affiliates.


 


(b)                                 To
the extent permitted by applicable law, neither Spinco nor any of its
Affiliates shall carry back any Tax Item to a Pre-Distribution Taxable
Period.  To the extent any such Tax Item
is carried back to a Pre-Distribution Taxable Period, Forest agrees to pay to
Spinco the amount of the Tax Benefit Forest or the Forest Group realizes in
connection with such Tax Item.


 


2.7                                 Tax Assistance.  Following the Distribution, Mariner, Spinco, Forest
and their respective Affiliates shall provide each other with such assistance
as may reasonably be requested by any of them, and agree to execute any
document that may be necessary or reasonably helpful, in connection with the
preparation of any Tax Return, any audit or other examination by any Tax
Authority, or any judicial or administrative proceedings relating to Tax
Liability of Mariner, Spinco, Forest or any of their respective
Affiliates.  The party requesting
assistance hereunder shall reimburse the other for reasonable out-of-pocket
expenses incurred in providing such assistance. 
Mariner, Spinco, Forest and their respective Affiliates shall (i) preserve
and cause to be preserved (and provide to another such party upon request) all
information, returns, books, records and documents, including accompanying
schedules and related work papers, relating to any Tax Liabilities (including
information regarding ownership and Tax basis of property) of the Spinco Group
with respect to a taxable period until the later of (x) five years after the Distribution
and (y) 60 days after the expiration of all applicable statutes of limitation
and extensions thereof, or the conclusion of all litigation with respect to
Taxes for such period and (ii) give reasonable written notice to the other
party prior to transferring, destroying or discarding any such information,
returns, books, records or documents and, if the other party so requests, allow
the other party to take possession of such information, returns, books, records
or documents.


 


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


 


9





















 


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


 


2.9                                 Earnings
and Profits Allocation.  Forest will
advise Spinco in writing of the decrease in Forest earnings and profits
attributable to the Distribution under Section 312(h) of the Code on
or before the first anniversary of the Distribution.


 


ARTICLE III


 


TAX-FREE STATUS OF
THE DISTRIBUTION


 


3.1                                 Representations and
Warranties.


 


(a)                                  Forest.  Forest hereby represents and warrants or
covenants and agrees, as appropriate, that (i) it has examined (A) drafts
of the representation letters supporting the Spin-Off Opinion and drafts of the
representation letters supporting the Merger Opinions and (B) any other
materials delivered by Forest, Spinco and Mariner in connection with the
rendering by Weil, Gotshal & Manges LLP of the Spin-Off Opinion and by
Counsel of the Merger Opinions (all of the foregoing in (A) and (B),
collectively, the “Draft Tax Materials”), (ii) it will update through and
including the Distribution Date the Draft Tax Materials deliverable by Forest
and Spinco (as updated, the “Final Forest Tax Materials”), (iii) the facts
to be presented and the representations to be made in the Final Forest Tax
Materials, to the extent descriptive of the Forest Group, the Spinco Business,
the formation of Spinco or Spinco while it is a member of the Forest
Consolidated Group (including the business purposes for the Distribution and
the representations in the Final Forest Tax Materials to the extent that they
relate to the Forest Group, the Spinco Business, the formation of Spinco or
Spinco while it is a member of the Forest Consolidated Group and the plans,
proposals, intentions and policies of Forest), will be from the time presented
or made through and including the time of the Distribution, true, correct and
complete in all respects, and (iv) it has delivered to Mariner copies of
any Draft Tax Materials that were delivered by Forest and Spinco and will
deliver to Mariner a copy of the Spin-Off Opinion and copies of any Final Forest
Tax Materials.


 


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


 


(c)                                  No Contrary
Knowledge.  Each of Spinco, Mariner
and Forest represents that, as of the date of this Agreement, it knows of no
fact (after due inquiry) that may cause the 


 


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Tax treatment of
the Contribution, the Distribution or the Merger to be other than that
contemplated in the Distribution Agreement and Merger Agreement.


 


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


 


3.2                                 Restrictions
Relating to the Distribution.


 


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


 


(i)                                     Mariner
or Spinco shall not take any action within its control, nor shall Mariner or
Spinco permit any of its Affiliates to take any action within their control
(including entering into any agreement, understanding or arrangement or any
negotiations 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 failure
to act, a “Disqualifying Action”); provided, however, that the
term “Disqualifying Action” as applied to Spinco or any of its Affiliates shall
not include (x) any action, or failure to act, that is contemplated by the
terms of the Distribution Agreement or the Merger Agreement or (y) any failure
to take action to mitigate the effects of a breach by Spinco, occurring prior
to the time of the Distribution, of a representation, warranty or covenant
contained in the Distribution Agreement, regardless of whether such breach or
its effects continue after the time of the Distribution.


 


(ii)                                  Forest
shall not take, or fail to take any action that would result in, a
Disqualifying Action; provided, however, that the term “Disqualifying
Action” 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 Merger
Agreement.


 


(iii)                               Prior
to the first day following the second anniversary of the Distribution and
except as otherwise provided in this Agreement, neither Spinco, Mariner, nor Forest
shall take any action within its control, and neither Spinco, Mariner, nor Forest
shall permit any of its Affiliates to take any action within their control
(including entering into any agreement, understanding or arrangement or any
negotiations 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 (in
both cases, including an action or failure to act that would be reasonably
likely to be inconsistent with any representation made in the Tax Materials),
would result in a more than immaterial possibility that the Distribution would
be treated as part of a plan pursuant to which one or more persons acquire
directly or indirectly Spinco stock or Forest stock representing a “50-percent
or greater interest” within the meaning of Section 355(e)(4) of the
Code (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) Mariner
delivers to Forest, or Forest delivers to Mariner (as the case may be), either
a ruling from the IRS (a “Ruling”) or an opinion from a nationally recognized
law firm both reasonably acceptable to Forest (or to Mariner) (a “Subsequent
Opinion”), in either case, to the effect that the Potential Disqualifying
Action would not cause the Tax-Free Status of the Distribution to cease to
apply to the Distribution, or (ii) Mariner and Forest mutually agree that
such Potentially Disqualifying Action would not cause the Tax-Free Status of
the Distribution to cease to apply to the Distribution.


 


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


 


(c)                                  Certain
Presumptions.  Solely for the
purposes of Section 3.2(a), but without creating any implication that any
of the following is true, it shall be presumed that (i) shares of Spinco
stock distributed with respect to Forest stock which Forest stock had been
sold, exchanged or otherwise disposed of by Animal or any of his Affiliates
that would be treated as a ten-percent shareholder (within the meaning of
Treasury Regulation Section 1.355-7(h)(14)) and (ii) shares of
Spinco stock distributed with respect to Forest stock which Forest stock was
covered 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 or
otherwise), in both cases entered into by Animal or any of his Affiliates that
would be treated as a ten-percent shareholder (within the meaning of Treasury
Regulation Section 1.355-7(h)(14)) with respect to Forest shares
held by Animal or any of his Affiliates that would be treated as a ten-percent
shareholder (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 on
the Distribution Date, are shares the acquisition of which will be treated as
if such acquisition were part of a plan or series of related transactions that
includes the Distribution.  In no event
will the presumption contained in this Section 3.2(c) apply to more
than the number of shares of Spinco stock distributed with respect to 7,905,575
shares of Forest stock.


 


3.3                                 Cooperation
and Other Covenants.


 


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


 


(b)                                 Post-Closing
Cooperation.


 


(i)                                     Forest
and its Affiliates shall cooperate with Mariner, and Mariner and its Affiliates
shall cooperate with Forest (as the case may be), and shall take (or refrain
from taking) all such actions as Mariner (or Forest) may reasonably request in
connection 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 and
maintain 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 representation
or covenant to counsel for purposes of obtaining a Subsequent Opinion or to the
IRS for the purpose of obtaining a Ruling and (with respect solely to any
representation given) until the first day after the second anniversary (or such
later date as may be agreed upon at the time such representation is made) of
the date of such Subsequent Opinion or Ruling, the party making such
representation or covenant shall take no action that would have caused such
representation to be untrue or covenant
to be breached unless both parties determine, in their reasonable discretion,
which discretion shall be exercised in good faith solely to preserve the
Tax-Free Status of the Distribution, that such action would not cause the
Tax-Free Status of the Distribution to cease to apply to the Distribution.  Such representations and warranties, once
made in writing, shall be considered Tax Materials subject to the provisions of
Section 3.1.


 


(ii)                                  Neither
Spinco, Mariner nor any of their respective Affiliates shall file any request
for a Ruling with respect to the Tax-Free Status of the Distribution without
the prior written consent of Forest, which consent shall not be unreasonably
withheld or delayed, if a favorable Ruling would be reasonably likely to have
an adverse effect on Forest or any of its Affiliates.


 


(c)                                  Notice.


 


(i)                                     Subject
to clause (iii) of this Section 3.3(c), until the first day after the
second anniversary of the Distribution, Mariner shall give Forest, or Forest
shall give Mariner (as the case may be), at least ten (10) days prior
written notice of its or any of its Affiliates’ intention to effect any
transaction with respect to such Person’s capital structure, whether through
issuance, redemption or otherwise; provided, that Forest shall only be
required to give Mariner notice of such a contemplated transaction if such
transaction would result in more than an immaterial possibility of a Potential
Disqualifying Action.  Each such notice
shall set forth the necessary terms and conditions of the proposed transaction,
including, as applicable, the nature of any related action proposed to be
taken, the approximate number of shares proposed to be issued, redeemed or
transferred (directly or indirectly, in accordance with the provisions of Section 355(e) of
the Code), the timetable for such action or transaction, and the number of
shares otherwise then owned by the other party to the action or transaction
(directly or indirectly, in accordance with the provisions of Section 355(e) of
the Code), all with sufficient particularity to enable Forest (or Mariner) to
review and comment on the effect of such transaction with respect to Section 355(e) of
the Code.  All information provided by
any of the parties to the other parties pursuant to this Section 3.3 shall
be kept confidential by the receiving parties to the same extent as that
provided in Section 7.5 of the Distribution Agreement.


 


(ii)                                  If
Mariner or any of its Affiliates, or Forest or any of its Affiliates (as the
case may be), receives a Subsequent Opinion or Ruling, Mariner (or Forest)
shall notify Forest (or Mariner) (if Forest or Mariner is not otherwise
provided with a copy of 


 


13





















 


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


 


(iii)                               Notice
shall not be required under (i) of this Section 3.3(c) with
respect to the grant and/or exercise of any stock option, stock, stock-based
compensation or other employment related arrangements arising in the ordinary
course of business that have customary terms and conditions consistent with
past practice (“Compensatory Transaction”) if the Compensatory Transaction
satisfies 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 or
greater than the fair market value of the stock subject to the option on the
date of grant or issuance and (B) such option does not have a readily
ascertainable fair market value within the meaning of Treasury Regulation Section 1.83-7.


 


(d)                                 Each of Forest, Spinco
and Mariner covenants and agrees that it will not take, and will cause its
respective Affiliates to refrain from taking, any position on a Tax Return that
is inconsistent with (i) the treatment of the Contribution and the
Distribution as tax free under Sections 368(a)(1)(D) and 355, respectively
and related provisions of the Code and (ii) the treatment of the Merger as
a reorganization under Section 368(a) and related provisions of the
Code.


 


(e)                                  Each of Forest (for
itself and its Affiliates) and Mariner or Spinco (for itself and its
Affiliates) agrees (i) not to take any action reasonably expected to
result in an increased Tax Liability to the other under this Agreement and (ii) to
take any action reasonably requested by the other that would reasonably be
expected 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 not
result in any additional cost not fully compensated for by the other party or
any other adverse effect to such party. 
The parties hereby acknowledge that the preceding sentence is not
intended to limit, and therefore shall not apply to, the rights of the parties
with respect to matters otherwise covered by this Agreement.


 


(f)                                    With respect to any
Forest Stock Options (as defined in the Employee Matters Agreement) which
become options to acquire Mariner stock (“Converted Mariner Options”) in
connection with the Distribution and Merger, any deduction for Tax purposes
with respect to such Forest Stock Options and Converted Mariner Options shall
belong solely to and be claimed on a Tax Return only by Mariner and its
Affiliates.  Forest, Spinco and Mariner
agree not to take a position on any Tax Return inconsistent with the prior
sentence unless mandated by a Final Determination.


 


(g)                                 With
respect to any Forest Stock Options (as defined in the Employee Matters
Agreement) which remain options to acquire Forest stock (“Unconverted Forest
Options”) in connection with the Distribution and Merger, any deduction for Tax
purposes with respect to such Unconverted Forest Options shall belong solely to
and be claimed on a Tax Return only by Forest and its Affiliates.  Forest, Spinco and Mariner agree not to take
a position on any Tax Return inconsistent with the prior sentence unless
mandated by a Final Determination.


 


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ARTICLE IV


 


MISCELLANEOUS


 


4.1                                 Termination of
Prior Tax Sharing Agreements and of this Agreement.  This Agreement shall take effect on the
Distribution Date and shall replace all other agreements, whether or not
written, in respect of any Taxes between or among any member of the Forest
Group on the one hand and any member of the Spinco Group on the other.  All such replaced agreements shall be
canceled 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 existing
thereunder thereby shall be fully and finally settled without any payment by
any party thereto.  This Agreement shall
automatically terminate, without further action by any party hereto, upon the
termination of the Merger Agreement if such termination occurs prior to the
consummation of the Merger.


 


4.2                                 Merger or
Consolidation.  Neither Forest, Mariner
nor Spinco (in each case, the “Transaction Party”) shall (i) consolidate
with or merge into any Person or permit any Person to consolidate with or merge
into the Transaction Party (other than a merger or consolidation in which the
Transaction Party is the surviving or continuing corporation) or (ii) sell,
assign, transfer, lease or otherwise dispose of, in one transaction or a series
of related transactions, all or substantially all of the assets of the
Transaction Party, unless the resulting, surviving or transferee Person shall
expressly assume, by instrument in form and substance reasonably satisfactory
to the other party, all of the obligations of the Transaction Party under this
Agreement.  The parties agree that no
action required or permitted under the Merger Agreement violates this Section 4.2.


 


4.3                                 Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to its conflicts of laws principles.


 


4.4                                 Amendment and
Modification.  This Agreement may be
amended, modified or supplemented only by a written agreement signed by all of
the parties hereto.


 


4.5                                 Notices.  All notices and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed
given upon (a) a transmitter’s confirmation of a receipt of a facsimile
transmission (but only if followed by confirmed delivery of a standard
overnight courier the following business day or if delivered by hand the
following business day), (b) confirmed delivery of a standard overnight
courier or when delivered by hand or (c) the expiration of five
business days after the date mailed by certified or registered mail (return
receipt 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 80202

Attention:  General Counsel

Facsimile:  (303) 812-1510


 


with a copy (which shall not constitute effective
notice) to:


 


Vinson & Elkins L.L.P.


666 Fifth Avenue, 26th Floor

New York, NY 10103-0040

Attention:  Alan P. Baden

Facsimile:  (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 77042

Attention:  General Counsel

Facsimile:  (713) 954-5555


 


with a copy (which shall not constitute effective
notice) to:


 


Baker Botts L.L.P.


910 Louisiana Street


Houston, Texas 77002

Attn:  Kelly B. Rose

Facsimile:  (713) 229-7996


 


If to Mariner, to:


 


Mariner Energy, Inc.


2101 CityWest Blvd.


Building 4, Suite 900


Houston, TX 77042

Attention:  General Counsel

Facsimile:  (713) 954-5555


 


with a copy (which shall not constitute effective
notice) to:


 


Baker Botts L.L.P.


910 Louisiana Street


Houston, Texas 77002

Attn:  Kelly B. Rose

Facsimile:  (713) 229-7996


 


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


 


4.6                                 Complete Agreement.  This Agreement, the other Transaction
Agreements and other documents referred to herein shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and shall supersede all previous negotiations, commitments and writings with
respect to such subject matter.  In the
case of any conflict between the terms of this Agreement and the terms of any
other Transaction Agreement, the terms of this Agreement shall be applicable.


 


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


 


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


 


4.9                                 Successors and
Assigns; No Third-Party Beneficiaries. 
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
and obligations hereunder shall be assigned by any party hereto without the
prior written consent of the other parties. 
This Agreement is solely for the benefit of Forest, Spinco and Mariner
and their respective Subsidiaries, Affiliates, successors and assigns, and is
not intended to confer upon any other Persons any rights or remedies hereunder.


 


4.10         Consent
to Jurisdiction and Service of Process. 
Each of the parties to this Agreement hereby irrevocably and
unconditionally (i) agrees to be subject to, and hereby consents and submits
to, the jurisdiction of the courts of the State of Delaware and of the federal
courts sitting in the State of Delaware, (ii) to the extent such party is not
otherwise subject to service of process in the State of Delaware, hereby
appoints the Corporation Trust Company as such party’s agent in the State of
Delaware for acceptance of legal process and (iii) agrees that service made on
any such agent set forth in (ii) above shall have the same legal force and
effect as if served upon such party personally within the State of Delaware.


 


4.11                           Waiver of Jury Trial.  Each of the parties hereto irrevocably and
unconditionally 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 to
this 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, clauses
beginning with the term “including” or similar words set forth examples only
and in no way limit the generality of the matters thus exemplified.


 


4.13                           Waivers.  Except as provided in this Agreement, no
action taken pursuant to this Agreement, including any investigation by or on
behalf of any party, shall be deemed to 


 


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constitute a
waiver 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 of
any provision hereunder shall not operate or be construed as a waiver of any prior
or subsequent breach of the same or any other provision hereunder.


 


4.14                           Specific Performance.  The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.


 


4.15                           Severability.  If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party.


 


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


 


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IN WITNESS WHEREOF, each of the parties has caused
this Tax Sharing Agreement to be executed on its behalf by its officers
thereunto 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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