Exhibit 10.21
TAX ALLOCATION AGREEMENT
This agreement (the "Agreement") is made as of November 1,
2002, by and among HomeFed Corporation, a Delaware corporation ("HomeFed"), CDS
Holding Corporation, a Delaware corporation ("CDS Holding"), CDS Devco, Inc., a
California corporation ("CDS Devco"), San Elijo Ranch, Inc., a California
corporation ("SERI"), HomeFed Communities, Inc., a California corporation ("HFC
Communities"), and HomeFed Resources Corporation, a California corporation ("HFC
Resources" and, collectively, aside from HomeFed, the "Subsidiaries," with each
of the Subsidiaries being a "Subsidiary").
WHEREAS, HomeFed is the common parent of an affiliated group
of corporations (the "HomeFed Group") filing a consolidated federal income tax
return;
WHEREAS, CDS Holding, CDS Devco, and SERI have been part of
the HomeFed Group since October 22, 2002 and HFC Communities and HFC Resources
have been part of the HomeFed Group since ________________; and
WHEREAS, HomeFed and the Subsidiaries wish to provide for the
allocation among them of the consolidated Federal income tax liability and state
or local income tax liabilities of the HomeFed Group and for certain related
matters.
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants contained herein, the parties hereby agree as follows:
Section 1. DEFINITIONS
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a. Except as otherwise provided herein, terms used in this Agreement shall have
the meanings ascribed to them in, and shall be interpreted in accordance with,
the Code, and the regulations and rulings issued thereunder, as in effect from
time to time.
b. For purposes of this Agreement, the terms set forth below shall be defined as
follows:
(1) "Code" means the Internal Revenue Code of 1986, as amended to the date
hereof.
(2) "Consolidated Return" means a consolidated Federal income tax return
and any returns of estimated Federal income tax filed by the HomeFed Group which
includes any of the Subsidiaries.
(3) "Consolidated Return Year" means Parent's taxable year (or portion
thereof) beginning on a day after October 21, 2002, for which Parent files a
Consolidated Return.
(4) "HomeFed Group" shall have the meaning ascribed in the recitals to this
Agreement.
(5) "HomeFed Group Tax" means with respect to any given Consolidated Return
Year, the consolidated Federal income tax liability of the HomeFed Group that is
reported on, and paid in respect of, any consolidated Federal income tax return
and any returns of estimated Federal income tax required to be filed for such
taxable year.
(6) "Parent" means HomeFed or any successor common parent corporation of
the HomeFed Group.
(7) "Revised Tax Liability" means, for any Consolidated Return Year in
which HomeFed Group Tax and/or a Subsidiary Tax (as the context may require) is
revised (including, without limitation, by reason of (i) a "determination"
within the meaning of Code Section 1313(a), (ii) HomeFed Group's filing of an
amended federal income tax return, or (iii) an assessment of tax in accordance
with Section 6213), the amount of any payment (i) required from a Subsidiary to
Parent under Section 2(b), and (ii) required from Parent to a Subsidiary under
Section 3, shall be recomputed by substituting the revised HomeFed Group Tax
and/or the revised Subsidiary Tax.
(8) "Separate Company Tax Return" means the hypothetical Federal income tax
return and any hypothetical returns of estimated Federal income tax a Subsidiary
would have been required to file in any given Consolidated Return Year on which
it would have reported its Subsidiary Tax.
(9) "Subsidiary Estimated Tax" means, in respect of a given Subsidiary, for
any given Consolidated Return Year, the Subsidiary Tax determined through the
end of each period for which estimated Federal income tax payments on a
consolidated basis are due (whether or not any amounts are actually owing by
Parent), which liability shall be calculated in accordance with Section 6655 of
the Code.
(10) "Subsidiary Tax" means, for each Subsidiary, its Tax liability for the
Consolidated Return Year, including the Subsidiary's Federal income tax
liability, computed hypothetically on a separate company basis (without regard
to the income, deductions and credits of any other member of the HomeFed Group)
for all relevant taxable years determined (x) using the same elections and
methods of accounting as are used with respect to the Subsidiary in determining
HomeFed Group Tax; (y) giving effect to the modifications specified in Reg. Sec.
1.1552-1(a)(2)(ii); and (z) without regard to any amount attributable to a
credit arising under Code Section 53.
(11) "Subsidiary-Generated Benefit" means, for each Subsidiary, the amount,
if any, by which the Subsidiary's loss or credit or loss or credit carryover
results in either (i) a reduction of HomeFed Group Tax for any given
Consolidated Return Year or (ii) a refund obtained by Parent with respect to any
given Consolidated Return Year; provided, however, that the Subsidiary-Generated
Benefit for a taxable year shall not exceed the excess of (i) the consolidated
Federal income tax of the HomeFed Group for such taxable year computed
hypothetically by giving effect only to the loss or credit, or loss or credit
carryovers of all members of the HomeFed Group other than the Subsidiary over
(ii) the HomeFed Group Tax for such taxable year.
(12) "Tax" means the regular Federal income tax, estimated Federal income
tax or alternative minimum tax, as well as any other Federal tax not based on
income, together with any and all interest, additions to tax, fines and
penalties payable with respect thereto.
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Section 2. TAX PAYMENTS
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a. By Parent
In each Consolidated Return Year, Parent shall pay, in full, the HomeFed
Group Tax, if any, that is reported on any Consolidated Return filed for such
taxable year.
b. By the Subsidiaries
(1) In each Consolidated Return Year, each Subsidiary shall pay to Parent
its Subsidiary Tax and its Subsidiary Estimated Tax for such taxable year. All
payments by a Subsidiary of its Subsidiary Estimated Tax made with respect to
such Consolidated Return Year shall reduce (but not below zero) its Subsidiary
Tax paid for such taxable year. Parent shall reimburse each Subsidiary in
accordance with Section 4 to the extent its aggregate Subsidiary Estimated Tax
payments for any given Consolidated Return Year exceed its Subsidiary Tax for
such taxable year.
(2) The amount required to be paid in Section 2(b)(1) above shall be paid
in any given Consolidated Return Year no later than five (5) days prior to the
date on which any Consolidated Return is required to be filed for such taxable
year (taking account of any extensions thereof), or, with respect to any
interest and/or penalty not paid with the Consolidated Return and not covered by
Section 5(c), no later than five (5) days prior to the date on which Parent is
required to make payment thereof.
(3) Each Subsidiary shall, to Parent's satisfaction, consult and furnish
Parent with all documentation Parent shall deem necessary to determine, in
respect of any given Consolidated Return Year, the Subsidiary Tax and Subsidiary
Estimated Tax for such taxable year no later than either seventy-five (75) days
prior to the date on which the consolidated income is required to be filed or,
as the context may require, no later than ten (10) days prior to the date on
which the estimated Federal income tax return is required to be filed in such
taxable year (in each case taking account of any extensions thereof).
Notwithstanding the foregoing, in no case shall the documentation described in
this Section 3(b)(3) necessary to determine the Subsidiary Tax, be required
prior to forty-five (45) days after the end of the Consolidated Return Year. No
later than ten (10) days prior to the date on which the consolidated Federal
income tax return is required to be filed or, as the context may require, no
later than five (5) days prior to the date the Parent is to make an estimated
federal income tax payment, Parent shall provide each Subsidiary a reasonably
detailed calculation of its Subsidiary Tax and its Subsidiary Estimated Tax (as
the context may require).
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Section 3. SUBSIDIARY-GENERATED BENEFIT
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a. Benefit Carried Back To A Prior Year. If a Subsidiary-Generated Benefit
arises in any Consolidated Return Year, and the Subsidiary, had it been filing
separate from the HomeFed Group for all relevant periods could have carried back
to a prior Consolidated Return Year all or part of the loss, deduction or credit
(not otherwise compensated in accordance with Section 3) that gave rise to such
Subsidiary-Generated Benefit, the portion of such Subsidiary-Generated Benefit
attributable to such loss, deduction or credit (or portion thereof) shall be
applied to reduce (but not below zero) the Subsidiary Tax paid under Section 2
in respect of such prior Consolidated Return Year, and Parent shall pay to the
Subsidiary the amount of such reduction in accordance with Section 4(b);
provided, however, that the Subsidiary shall not be entitled to all or a portion
of such payment to the extent the Subsidiary Tax for such prior taxable year had
previously been reduced under this Section 3. In the event that the losses and
credits of the Subsidiaries in any given Consolidated Return Year exceed the
total losses and credits which result in a Subsidiary-Generated Benefit with
respect to such Consolidated Return Year, the amount payable to the Subsidiaries
under this Section 3(a) shall be allocated among the Subsidiaries in proportion
to the losses of each Subsidiary and if the Subsidiary Benefit in such
Consolidated Return Year exceeds that attributable to such losses any excess
shall be allocated among the Subsidiaries in proportion to the credits of each
Subsidiary with respect to such Consolidated Return Year.
b. Benefit Remaining Upon Departure From The HomeFed Group. If, at some future
date, a Subsidiary ceases to be a member of the HomeFed Group but continues to
be a corporation subject to Federal income tax, Parent shall pay to the
Subsidiary at the time and to the extent provided by Section 4(b) below, (1) the
aggregate amount of its Subsidiary-Generated Benefit for all Consolidated Return
Years ending on or prior to such cessation date (the amount of the
Subsidiary-Generated Benefit for the Consolidated Return Year ending on the
cessation date shall be determined on the basis of an interim closing of the
books) less the portion of the Subsidiary-Generated Benefit (x) applied to
reduce amounts payable by the Subsidiary as provided for in this Section 3, (y)
not described in (x) and allocable to any loss, deduction or credit the
carryforward period for which would have expired at or prior to such time as
such loss, deduction or credit carryover would have reduced the Subsidiary's
Federal income tax in a subsequent taxable year had it filed a federal income
tax return separate from the HomeFed Group during all relevant taxable years, or
(2) attributable to any loss, deduction or credit carryover which is allocable
to the Subsidiary or its successor under Reg. Sec. 1.1502-79.
Section 4. TIMING OF REIMBURSEMENTS
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a. Of Tax Payments
(1) To the extent any amount (or part thereof) described in and required to
be paid by Parent under Section 2(b)(1) represents all or a part of a tax refund
to be received by the HomeFed Group, such payment shall be made no later than
five (5) days after the receipt of such refund; to the extent any amount (or
part thereof) described in and required to be paid by Parent under Section
2(b)(1) represents all or part of a credit against the HomeFed Group Tax for a
succeeding Consolidated Return Year, such payment shall be made no later than
five (5) days after such tax payment against which such amount is credited is to
be paid by Parent.
(2) To the extent Section 4(a)(1) does not apply with respect to any amount
(or portion thereof) described in and required to be paid by Parent under
Section 2(b)(1) for any given Consolidated Return Year, such payment shall be
made no later than thirty (30) days after the date on which the Consolidated
Return is required to be filed for such Consolidated Return Year (taking account
of any extensions thereof).
(3) No later than fifteen (15) days prior to the date Parent is required to
make a payment described in Section 2(b)(1) for any given Consolidated Return
Year, a Subsidiary shall consult and furnish Parent with any and all documents
Parent shall deem necessary in determining the Subsidiary's entitlement to and
the amount of such payment.
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b. Of A Subsidiary-Generated Benefit
(1) For any given Consolidated Return Year, any amount required to be paid
under Section 3(a) shall be paid no later than thirty (30) days after the date
on which the Consolidated Return is required to be filed for such taxable year
(taking into account any extensions thereof).
(2) Any payment required to be made under Section 3(b) shall be made to the
extent that the loss, deduction or credit carryover giving rise to the
Subsidiary-Generated Benefit (and not previously applied under Section 3 to
reduce the Subsidiary Tax for any Consolidated Return Year) would have reduced
the Subsidiary's Federal income tax liability in a subsequent taxable year and
shall be made no later than fifteen (15) days after the Subsidiary provides
notice to Parent and also furnishes to Parent, to Parent's satisfaction, with
any and all documents Parent shall deem necessary in determining entitlement and
amount of such payment, including but not limited to, any Federal income tax
returns for all such relevant taxable years.
(3) Notwithstanding the foregoing, there shall be no double benefit to
either the HomeFed Group or a Subsidiary by reason of the utilization of
deductions, losses, credits, carryovers, carrybacks, etc. and payments made
hereunder. To the extent appropriate, such items and payments hereunder shall be
adjusted equitably.
Section 5. CHANGES IN TAX LIABILITY
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a. For any given Consolidated Return Year, each Subsidiary shall pay to Parent,
and Parent shall refund to each Subsidiary, an amount equal to the excess of a
Revised Tax Liability over the amounts previously paid for such taxable year by
the relevant party (as the context may require). The parties recognize that the
Revised Tax Liability for any taxable year is not necessarily the Parent's or a
Subsidiary's final tax liability for that taxable year, and may be recomputed in
accordance with this Section 5(a) more than once.
b. A payment or refund required under Section 5(a) above shall be made (as the
context may require) no later than (i) five (5) days prior to the date on which
Parent is required to make an additional payment of tax with respect to a
Revised Tax Liability, (ii) five (5) days after the receipt of a refund
attributable to a Revised Tax Liability or (iii) five (5) days after the event
giving rise to a Revised Tax Liability if such event does not result in the
payment of additional tax or the receipt of a refund.
c. A payment or refund required under Section 5(a) above shall include a portion
of any interest and/or penalty paid or credited by the Internal Revenue Service
that is allocated to a Subsidiary in proportion with its respective adjustments.
The amounts payable to or by the Subsidiary pursuant to this Section 5(c) shall
be paid at the same time the amounts payable pursuant to Section 5(a) are paid.
d. Other than as provided in Section 5(c), a payment or refund required under
Section 5(a) above shall not bear interest.
Section 6. NEW MEMBERS
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Any corporation acquired by a Subsidiary shall become a party
to this Agreement at the time such corporation is entitled or required to become
a member of the HomeFed Group and the parties hereto that acquired such new
member shall cause such new member to deliver to Parent a written instrument to
such effect. The parties hereto hereby agree to the inclusion of any such
acquired corporation as a party to this Agreement. This Agreement may be
amended, as may be necessary or appropriate, to take into account any special
circumstances arising from the inclusion of such acquired corporation in the
HomeFed Group.
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Section 7. PROCEDURAL MATTERS
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a. Parent shall prepare and file all Tax returns, and any other returns,
documents or statements required to be filed with respect to or on which is
reflected the determination of the Tax liability of the HomeFed Group for all
taxable years of the HomeFed Group (including taxable years ending prior to or
including the date hereof).
b. In its sole discretion, Parent shall have the right to make all decisions and
elections with respect to all Tax returns described in Section 7(a) above and
with respect to all matters relating to the Tax liability of the HomeFed Group
and Subsidiaries (with respect to any taxable year in which a Subsidiary was a
member of the HomeFed Group), for all taxable years of the HomeFed Group thereof
(including taxable years ending prior to or including the date hereof)
including, without limitation,
(1) the right to determine (i) the manner in which such returns, documents
or statements shall be prepared and filed, including, without limitation, the
manner in which any item of income, gain, loss, deduction or credit shall be
reported, (ii) whether any amended returns shall be filed, (iii) whether any
filing extensions may be requested and (iv) the elections that will be made by
any member,
(2) the right to contest, compromise or settle any adjustment or deficiency
proposed, asserted or assessed as a result of any audit of such returns,
(3) the right to control any filing, prosecution, contest, compromise or
settlement of any claim for refund, including the right to determine whether any
refunds, to which the HomeFed Group may be entitled, shall be paid by way of
refund or credited against the Tax liability for the Affiliated Group.
Such determination shall be binding and conclusive upon the parties for
purposes hereof.
c. Each Subsidiary hereby irrevocably appoints Parent as its agent and
attorney-in-fact to take such action (including the execution of documents) as
Parent may deem appropriate to effect the foregoing.
d. All expenses incurred by Parent resulting from actions described under this
Section 7, to the extent that such actions relate to a Subsidiary, shall be
shared equally by Parent and the Subsidiary.
Section 8. TERMINATION OF AFFILIATION
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a. In the event that any Subsidiary ceases to be included in the HomeFed Group,
the Subsidiary and Parent shall furnish each other with information required to
prepare accurately (i) the consolidated Federal income tax return of the HomeFed
Group for the last taxable year in which the Subsidiary had been included in the
HomeFed Group, (ii) the Federal income tax returns for all taxable years
thereafter of the Subsidiary (and its predecessors and successors) and Parent,
respectively, in which the Tax liability of either may be affected by their
former affiliation (including, for example, the apportionment of any
consolidated loss or credit carryover to the Subsidiary) and (iii) any
Consolidated Return, including information necessary to determine any Tax
liability payable with respect to such return, to the extent such determination
is based upon the operations of the Subsidiary.
b. In the case of a termination of affiliation described in Section 8(a), the
Subsidiary shall furnish Parent with all information and assistance as may be
requested that relates to a Consolidated Return Year, including but not limited
to (i) information and assistance required to apply for and obtain the benefit
of any carryback to a Consolidated Return Year of the loss, deduction or credit
of the Subsidiary, provided, however, that this provision shall not be construed
to prevent the Subsidiary from validly electing not to carryback such loss,
deduction or credit and (ii) information and assistance concerning the status of
any Tax audit or refund claim relating to a Consolidated Return Year; provided,
that expenses incurred with respect to any such Tax audit or refund claim shall
be shared in a manner Parent shall deem equitable.
c. Payments under this Section 8 shall be made in accordance with principles
analogous to those set forth under Sections 2, 3, or 5 hereof and at the time(s)
set forth therein, as if the Subsidiary had still been a member of the HomeFed
Group.
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d. Each Subsidiary acknowledges Parent's right to make an election under Reg.
Sec. 1.1502-20(g) with respect to the Subsidiary and shall satisfy all
procedural requirements prescribed by Reg. Sec. 1.1502-20(g) in connection with
such election. Parent and the Subsidiaries agree that Parent shall not be
required to compensate if such election is made.
e. A Subsidiary shall not, without the prior written consent of Parent, file an
application for a carryback adjustment of the Subsidiary Tax with respect to any
given Consolidated Return Year. In the event any such application is filed after
obtaining prior consent, the Subsidiary shall be entitled to that portion of the
actual refund that is attributable to the Subsidiary determined in accordance
with Section 5 hereof; provided, that the Subsidiary shall not be entitled to
any portion of such refund to the extent the items giving rise to such carryback
had previously reduced its Subsidiary Tax or gave rise to a payment to the
Subsidiary under Sections 3, 4 or 5 hereof.
Section 9. DETERMINATION
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All disputes arising under this Agreement shall be decided by
the public accountants regularly employed by Parent at the time the Consolidated
Return is filed for such taxable year. Such determination shall be binding and
conclusive upon the parties for the purposes hereof. Expenses incurred with
respect to any such determination shall be shared in a manner Parent deems
equitable.
Section 10. EFFECTS OF AGREEMENT
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As between Parent and each Subsidiary, the provisions of this
Agreement shall fix the liability of each to the other as to the matters covered
hereunder, even if such provisions are not controlling for Tax or other purposes
(including, but not limited to, the computation of earnings and profits for
Federal tax purposes), and even if Parent and other corporations which now are,
or which from time to time may become, members of the HomeFed Group enter into
other arrangements for the allocation of the portion of the total Tax liability
of the HomeFed Group which is allocable to them.
Section 11. INDEMNITY
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Each Subsidiary shall, jointly and severally, indemnify,
defend and hold harmless from and against any and all liabilities Parent and
each other member of the HomeFed Group for the amount of any Subsidiary Tax. CDS
Holding, CDS Devco and SERI shall, jointly and severally, indemnify, defend and
hold harmless Parent and each other member of the HomeFed Group from and against
any and all liabilities for all Taxes for which each may become liable under
Treasury Regulation Section 1.1502-6 solely by reason of being a member of a
consolidated group prior to joining the HomeFed Group. HomeFed, HFC Communities
and HFC Resources shall, jointly and severally, indemnify, defend and hold
harmless CDS Holding, CDS Devco and SERI from and against any and all
liabilities for all Taxes of the HomeFed Group that relate to taxable periods
(or portions thereof) that ended on or before October 21, 2002.
Section 12. ALLOCATION OF STATE AND LOCAL INCOME TAX LIABILITY
--------------------------------------------------
In the event Parent files consolidated, combined or unitary
tax returns or reports in any state or local jurisdiction on behalf of, and pays
such taxes owed, in all or in part, by the HomeFed Group, principles and
procedures analogous to the principles and procedures (including the indemnity
provision in Section 11) stated herein shall apply to determine the parties'
respective liability in respect thereof and the payments to be made.
Section 13. TERMINATION
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Notwithstanding the termination of this Agreement, its
provisions shall remain in effect with respect to any period of time during the
tax year in which termination occurs for which income of a Subsidiary must be
included in the consolidated return.
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Section 14. MISCELLANEOUS PROVISIONS
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a. Unless otherwise expressly provided in this Agreement, each party shall bear
any and all expenses that arise from their respective obligations under this
Agreement.
b. This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein. No alteration, amendment or
modification of any of the terms of this Agreement shall be valid unless made by
an instrument signed in writing by an authorized officer of each party.
c. This Agreement has been made in and shall be construed and enforced in
accordance with the laws of the State of Delaware from time to time obtaining,
without regard to conflict of laws principles.
d. This Agreement shall be binding upon and inure to the benefit of each party
and all successors hereto and shall not be assignable by any party without the
prior written consent of all parties.
e. All notices and other communications hereunder shall be deemed to have been
duly given if delivered by hand or mailed, certified or registered mail, with
postage prepaid addressed to the party to which the notice or other
communication is given at its address as set forth below, or at such other
address of which a party sends written notice to the other party hereto pursuant
to this Section 14, to the attention of the President of such other party.
f. This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
g. The headings of the Sections of this Agreement are inserted for convenience
only and shall not constitute a part hereof.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
HOMEFED CORPORATION
By: /s/ Erin N. Ruhe
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Name: Erin N. Ruhe
Title: Vice President
HOMEFED COMMUNITIES, INC.
By: /s/ Paul J. Borden
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Name: Paul J. Borden
Title: President
HOMEFED RESOURCES CORPORATION
By: /s/ Paul J. Borden
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Name: Paul J. Borden
Title: President
CDS HOLDING CORPORATION
By: /s/ Paul J. Borden
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Name: Paul J. Borden
Title: Chairman
CDS DEVCO, INC.
By: /s/ Paul J. Borden
--------------------------
Name: Paul J. Borden
Title: President
SAN ELIJO RANCH, INC.
By: /s/ Paul J. Borden
---------------------------
Name: Paul J. Borden
Title: President
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