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TAX ALLOCATION AGREEMENT
AMONG THE MEMBERS OF THE GEOMET RESOURCES, INC.
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.
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;