EXHIBIT 10.4
TAX ALLOCATION AGREEMENT
AMONG THE MEMBERS OF THE GEOMET RESOURCES,
INC.
CONSOLIDATED GROUP
THIS AGREEMENT is made as of the 1st
day of January 2001, by and among GeoMet Resources, Inc., a
Delaware corporation, and the undersigned corporations.
RECITALS:
WHEREAS, GeoMet Resources, Inc. is
the common parent of an affiliated group of corporations within the
meaning of section 1504(a) of the Internal Revenue Code of 1986, as
amended from time to time (the “Code”), and the
undersigned are members of such affiliated group (the
“Group”); and
WHEREAS, the Group files and will
file consolidated federal income tax returns (“Federal
Returns”) as well as certain consolidated, combined, or
unitary state franchise or income tax returns where allowed by law
(“State Returns”); and
WHEREAS, the parties desire to agree
upon the method for allocating the consolidated United States
income tax liability and the unitary, combined, or consolidated
state tax liabilities among them and to fairly preserve the
economic rights and privileges that would have accrued to each of
them from the filing of separate returns, including benefit of
losses and credits utilized in the Federal Returns and the State
Returns;
NOW, THEREFORE, for and in
consideration of the mutual covenants hereinafter contained, the
parties hereto agree as follows:
Article 1 - Method of Allocating
Consolidated Federal Tax Liability
1.1 If GeoMet
Resources, Inc., or its successor as the common parent within the
meaning of section 1504(a) of the Code (the “Common
Parent”), files a consolidated United States Corporation
Income Tax Return, the total consolidated United States income tax
liability after all credits allowed in arriving at such tax
liability (the “Consolidated Federal Tax Liability”)
shall be allocated to each member of the Group in accordance with
paragraph 1.2. The amount of liability so allocated to any member
shall be an obligation of each such member due and owing in
accordance with Article 3. To the extent it is determined that a
tax benefit is properly allocable to any member in accordance with
the allocation prescribed in paragraph 1.2, the amount of benefit
so allocated shall be an obligation due and owing to each such
member in accordance with Article 3.
1.2 The
members of the Group shall determine and allocate the Consolidated
Federal Tax Liability among themselves in the following
manner:
Step 1 : Each member shall be allocated a portion of
the Consolidated Federal Tax Liability equal to the Consolidated
Federal Tax Liability multiplied by a fraction, the numerator of
which is the taxable income of such member and the denominator of
which is the sum of the taxable incomes of all the members. A
member’s taxable income shall be the separate taxable income
of the member determined under Treasury regulation section
1.1502-12, adjusted for the following items pursuant to Treasury
regulation section 1.1552-1(a)(1)(ii):
(a) the
portion of the consolidated net operating loss deduction, the
consolidated charitable contributions deduction, the consolidated
dividends received deduction, the consolidated section 247
deduction, the consolidated section 582(c) net loss, and the
consolidated section 922 deduction attributable to such
member;
(b) such
member’s net capital loss and section 1231 net loss, reduced
by the portion of the consolidated net capital loss attributable to
such member; and
(c) the
portion of any consolidated net capital loss carryover attributable
to such member that is absorbed in the taxable year.
Step 2 : Pursuant to Treasury regulation section
1.1502-33(d)(3), an additional amount shall be allocated to each
member equal to 100% of the excess, if any, of (i) the
“separate return tax liability” of such member for the
taxable year, over (ii) the amount allocated in Step 1 of this
paragraph 1.2. As provided more fully in Treasury regulation
section 1.1552-1(a)(2)(ii), a member’s separate return tax
liability shall equal the member’s tax liability computed as
if it had filed a separate return for the year except
that:
(a) gain or
loss on intercompany transactions shall be taken into account as
provided in Treasury regulation section 1.1502-13 as if a
consolidated return had been filed for the year;
(b) gain or
loss relating to inventory adjustments shall be taken into account
as provided in Treasury regulation section 1.1502-18 as if a
consolidated return had been filed for the year;
(c) transactions with
respect to stock, bonds or other obligations of members shall be
reflected as provided in Treasury regulation section 1.1502-13(f)
and (g) as if a consolidated return had been filed for the
year;
(d) excess
losses shall be included in income as provided in Treasury
regulation section 1.1502-19 as if a consolidated return had been
filed for the year;
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(e) in the
computation of the deduction under section 167, property shall not
lose its character as new property as a result of a transfer from
one member to another member during the year;
(f) a
dividend distributed by one member to another member shall not be
taken into account in computing the deductions under sections
243(a)(1), 244(a), 245, or 247 (relating to deductions with respect
to dividends received and dividends paid);
(g) basis
shall be determined under Treasury regulation sections 1.1502-31
and 1.1502-32, and earnings and profits shall be determined under
Treasury regulation section 1.1502-33 as if a consolidated return
had been filed for the year; and
(h) subparagraph
(2) of Treasury regulation section 1.1502-3(f) shall apply as
if a consolidated return had been filed for the year.
Step 3 : The additional amount allocated to members
pursuant to Step 2 of this paragraph 1.2 shall be paid by such
members to the Common Parent on behalf of those other members that
had items of income, deductions, net operating losses, or tax
credits to which such total is attributable pursuant to a
consistent method that reasonably reflects such items of income,
deductions, net operating losses, or tax credits, such consistency
and reasonableness to be determined by the Chief Financial Officer
of the Common Parent (the “Chief Financial Officer”).
In general, the amounts paid to members will be deemed to be
consistent and reasonable if paid on a basis equal to the
applicable federal corporate income tax rate of net operating
losses used and 100% of tax credits used unless such an allocation
would be inequitable.
The method of allocation described
in this paragraph 1.2 is intended to be consistent with Treasury
regulation sections 1.1552-1(a)(1) and 1.1502-33(d)(3) as they
currently exist and may hereinafter be amended.
Article 2 - Method of Allocating
Consolidated or Combined State Tax Liability
2 In
the event the Common Parent files State Returns with any of its
subsidiaries, the total state tax liability (“Consolidated
State Tax Liability”) shall be allocated in a manner
consistent with the allocation provided in Article 1 of this
Agreement for Consolidated Federal Tax Liability as if such State
Returns were Federal Returns.
Article 3 - Authority to
Administer Agreement
3 To
effectuate the stated intent of the parties hereto as contained in
this Agreement, the Chief Financial Officer shall be authorized
to:
(a) determine
the Consolidated Federal Tax Liability and the Consolidated State
Tax Liability of the Group for each taxable period for which the
Common Parent files a
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Federal Return or a State Return by
making the necessary elections and selecting the tax accounting
methods that provide the maximum tax benefit for the
Group;
(b) determine
and allocate to each member of the Group the appropriate liability
or refund, if any, of the Consolidated Federal Tax Liability or the
Consolidated State Tax Liability in
