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EXHIBIT 8.1
[LOGO]
TAX SHARING AND ALLOCATION AGREEMENT
BETWEEN
HAWTHORNE FINANCIAL CORPORATION
AND
HAWTHORNE SAVINGS F.S.B.
DATED APRIL 24, 2000, SUPERCEDING THE TAX SHARING AGREEMENT DATED JUNE 16, 1999
Hawthorne Financial Corporation and Hawthorne Savings. F.S.B., a wholly
owned subsidiary of the Company, hereby enter into this agreement as of April
24, 2000, pursuant to which tax sharing and allocation of tax shall be defined.
This Agreement is effective as of the first day of the consolidated return for
the fiscal year ending December 31, 2000, by and among Hawthorne Financial
Corporation (Parent) and Hawthorne Savings F.S.B. (Subsidiary) each of whom may
be referred to as a "Member" and together referred to as an "Affiliated Group"
as defined by the Internal Revenue Code of 1986, Section 1504(a) (Code).
WHEREAS, SA No 28 of the Office of Thrift Supervision dated August 9,
1989 requires the Parent and the Subsidiary to enter into an intercompany tax
allocation agreement, and
WHEREAS, it would be to the mutual advantage of the parties hereto, and
could result in smaller federal income tax being paid by all parties, if a
consolidated federal income tax return is filed which will include any
subsidiaries and affiliates of the parties in accordance with the terms of the
Code and related income tax regulations.
WHEREAS, it is the intent and desire of the parties hereto that a
method be established for allocating the consolidated "federal income tax
liability" (as determined under Section 1.1502-2 of the Regulations) and certain
state tax liability of the Affiliated Group among its Members (as
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required by Section 1552(a) of the 1986 Code); for reimbursing the Parent for
payment of such tax liability; for compensating any Member for use of its "net
operating loss" or "tax credits" in arriving at such tax liability; and to
provide for the allocation and payment of any refund arising from a carry back
of net operating losses or tax credits from subsequent taxable years.
WHEREAS, it is the intention and desire of the parties hereto, that
this Agreement address and abide in all respects with OTS statutes, regulations
and the Interagency Policy Statement for Income Tax Allocation in a Holding
Company Structure issued November 23, 1998.
NOW, THEREFORE, in consideration of mutual covenants and promises
contained herein, the parties hereto agree as follows:
I. CONSOLIDATED RETURN
1. Parent and Subsidiary shall file such consents and other documents
and take such action as may be necessary to continue in filing a
consolidated tax return for the Affiliated Group.
2. Parent and Subsidiary shall cause any corporation which hereafter
becomes an affiliate of any of them and a Member of the Affiliated
Group to join in this Agreement.
3. Parent and Subsidiary shall maintain, and shall cause any
Subsidiary subsequently formed or acquired to maintain concurrent
fiscal years.
4. Parent shall make all elections under the consolidated return
regulations or required to be made for the consolidated Affiliated
Group and shall approve all elections made with respect to each
Member of the Affiliated Group.
5. A U.S. consolidated federal income tax return shall be filed by
Hawthorne Financial Corporation for the taxable year ended
December 31, 1998, and for each subsequent taxable year in respect
of which this Agreement is in effect and for which the Affiliated
Group is required or permitted to file a consolidated federal
income tax return.
6. In order to compensate Members of the Affiliated Group for the use
of net operating losses or tax credits in arriving at the
consolidated federal income tax liability of the Affiliated Group,
the Members of the Affiliated Group agree to determine and
allocate the tax liability of the Affiliated Group among
themselves in the following manner:
II. CALCULATION OF INDIVIDUAL CORPORATE INCOME TAX LIABILITY
1. Beginning with the year ended December 31, 1998, and for each tax
year thereafter, each Member of the Affiliated Group will
calculate its federal corporate income tax liability as if it were
to file a separate federal income tax return for such period.
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2. In so computing the individual federal income tax liability of
each Member of the Affiliated Group:
a) Except as otherwise provided herein, "separate company taxable
income" shall be determined as if Parent and each Subsidiary
were required to file a separate tax return in a manner
similar to the calculation provided in Treasury Regulation
1.1552-1(a)(2)(ii), and the term will not have the same
meaning as set forth in Section 1.1502-12 of the Treasury
Regulations;
b) Any dividends received by Parent from Subsidiaries, or by one
Subsidiary from another, will be assumed to qualify for the
100% dividend received deduction of Code Section 243, or shall
be eliminated from such calculation in accordance with
Treasury Regulation 1.1502-14(a)(1);
c) Gain or loss on inter-company transactions, whether deferred
or not, shall be treated by each Member of the Affiliated
Group in the manner required by Treasury Regulation 1.1502-13;
d) Limitations on the calculation of a deduction, the utilization
of credits, or the calculation of a liability shall be made on
a consolidated basis. Accordingly, the limitations provided in
Code Sections 170(b)(2), 172(b)(2), 38(c), 53(a) and similar
limitations shall be applied on a consolidated basis;
e) The corporate alternative minimum tax (AMT), imposed in Code
Section 55 and AMT limitations and adjustments provided in
Code Sections 56 through 59, shall be determined on a
consolidated basis;
f) The amounts in each taxable income bracket in the tax table in
Code Section 11(b) shall be allocated in any given year to
Members of the Affiliated Group as Parent shall elect. Such
election shall be made on an annual basis and shall be binding
upon all parties to this Agreement; and
g) In calculating any carry-back or carryover of net operating
losses, adjustments shall be made to such prior or subsequent
year's separate company tax liability as determined under Code
Section 172(b)(2). For purposes of this calculation, the
election under Section 172(b)(3) shall be made on a separate
company basis.
3. For California franchise tax purposes beginning with the year
ended December 31, 1998, and for each tax year thereafter, each
Member of the combined Affiliated Group will calculate its
California franchise tax liability as if it were required to file
a separate California income tax return for such period in a
manner consistent with that set forth in Section II.2. above,
except that such calculations shall be made in compliance with
applicable regulations of the Franchise Tax Board.
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4. For states other than California, beginning with the year ended
December 31, 1998 and for each year thereafter the state tax
liability of each Member of the Affiliated Group will be
determined as if such Member were required to file a separate
income tax return for such state for such period in a manner
consistent with that set forth in Section II.2. above, except that
such calculations shall be made in compliance with the applicable
regulations of the taxing state.
5. For purposes of Paragraphs 2 and 3 above, separate company taxable
income of each Member shall take into account only those items of
income, deduction gain and loss recorded on the books and records
of such Member.
III. LIABILITY FOR TAX PAYMENTS
1. Parent will pay the federal corporation income, California
franchise, and any state income tax liabilities of the Affiliated
Group for any year in which the Parent is a Member of the
Affiliated Group required to file consolidated combined income tax
returns. If any Subsidiary of the Affiliated Group files in states
which do not require consolidated income tax returns for the
Affiliated Group, the Subsidiary will be responsible to pay its
income tax liabilities in such states.
2. If any Subsidiary would be subject to federal corporate income or
California franchise tax if it filed a separate income or
franchise tax return, that Subsidiary shall pay to Parent that sum
which shall result from the calculations required by Section II,
above. Parent shall retain for its own account all amounts so paid
to it by the Subsidiaries.
3. If any Subsidiary would be entitled to a refund of federal or
state corporate income tax if it filed a separate federal or state
income tax return, or if currently generated losses or credits of
any Subsidiary reduce the current tax liability of the
consolidated Affiliated Group, Parent shall pay to that Subsidiary
an amount equal to the amount of the refund to which it would be
entitled or the amount of the reduction in current consolidated
tax liability, as applicable. In the event that a Subsidiary's
separate company taxable income is a loss in any given year as
calculated under paragraph II, and the consolidated Affiliated
Group is unable to utilize the loss to reduce its current tax
liability, the Parent will first offset this loss against prior
years' taxable income. If the loss is greater than prior years'
profits, the excess will be carried forward against future years'
taxable income, but Parent shall not be required to make any
payment to any Subsidiary on account thereof until such tax loss
is used to offset otherwise taxable income.
4. With the exception of payments provided for under subparagraphs 2
and 3 of this paragraph III, neither Parent nor any Subsidiary
shall pay or credit any amount to the other hereunder, even though
the federal or state corporate income tax liability of the
Affiliated Group may have been reduced by reason of the inclusion
of a particular
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Subsidiary as a Member of the Group. Parent will not forgive the
Subsidiary for any deferred tax liabilities.
5. Payments to Parent by any Subsidiary must not include any deferred
tax liability incurred by Subsidiary. Payments shall not include
any deferred tax liabilities incurred by any Member.
IV. RESTRICTION ON AMOUNT OF TAX LIABILITY
Without regard for anything to the contrary in this Agreement, the
Subsidiary shall not be treated any less favorably than if it had filed its
taxes on a separate entity basis.
V. METHOD AND TIME OF PAYMENT
Payments by Parent of consolidated estimated tax for the consolidated
Affiliated Group at the normal quarterly due dates will be reimbursed by the
Subsidiaries at those quarterly due dates. Each Subsidiary shall make/receive
these quarterly payments/receipts of estimated tax liability/repayment on
account to/from Parent based on the Subsidiary's separate company taxable income
calculated under paragraph II, above, as of the close of the appropriate
quarter. As soon as the Group's consolidated tax liability for the year is
determined, each Subsidiary shall make/receive payment to/from Parent pursuant
to paragraph III, above, less amounts already paid for estimated tax. All
payments to/from Parent shall be made no later than the due date for each tax
payment.
The parties agree that it is their express intent that this Agreement
shall at all times be construed in a manner consistent with any law or
regulation applicable to any Member as now or hereafter in effect relating to
thrift and loan associations, the insurance of their accounts, thrift and loan
holding companies or mortgage companies. Anything to the contrary herein
notwithstanding, (1) Subsidiary shall not pay to Parent an amount greater than
the tax which Subsidiary would have been required to pay had it always filed
separate tax returns; (2) any payments made pursuant to paragraphs V and VI of
this Agreement shall be made only with reference to the time taxes are actually
paid or refunds or credits are actually received, it being understood that at no
time shall advance payments be made by any Member with respect to the foregoing
to any other Member; and (3) any funds (i) received by Parent from another
Member for the payment of taxes or (ii) from any taxing authority by reason of
any refund, credit or overpayment and properly allocable to another Member,
shall at all times be held by Parent in a segregated account solely as agent for
such Member and shall at no time be commingled with any other funds.
VI. ADJUSTMENT OF TAX LIABILITY
If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return, claim for refund, or after a tax audit by
any taxing authority, the liability of the Group and its Members shall be
re-computed by Parent to give effect to such adjustments. In the
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case of a refund, Parent shall make payment to each Subsidiary for its share of
the refund, determined in the same manner as in paragraph II above, within seven
(7) business days after the refund is received by Parent. In the case of an
increase in tax liability, each Subsidiary shall pay to Parent its allocable
share of such increased tax liability within seven (7) business days after
receiving notice of such liability from Parent, but in no event later than the
due date for tax payment.
VII. EARNINGS AND PROFITS ADJUSTMENTS
This Agreement is not intended to establish the method by which the
earnings and profits of each Member of the Group will be determined. Parent
reserves the right to elect the method for allocating tax liability for the
purposes of determining earnings and profits as set forth in Income Tax
Regulations Sections I.1552.1(a) and I.1502.33(d).
VIII. PROCEDURAL MATTERS
a) Parent shall prepare and file consolidated returns, and any other
returns, documents or statements required to be filed with the
Internal Revenue Service with respect to the determination of the
tax liability of Parent and the Subsidiaries for all taxable
periods commencing with the tax period applicable as of the date
of the execution of this Agreement. Parent shall have the right in
its sole discretion: (i) to determine (a) the manner in which such
returns shall be prepared and filed, including without limitation,
the manner in which any item of income, gain, loss, deduction or
credit shall be reported; (b) whether any extensions of the
statute of limitations may be granted; (c) the elections that will
be made pursuant to the Code on behalf of any Subsidiaries of the
consolidated Group; and (d) the manner in which any costs and
expenses attributable to tax return preparation and any other
related matters (including any matter referred to in (ii), (iii)
or (iv) below) shall be allocated among Members of the Group; (ii)
to contest, compromise or settle any adjustment or deficiency
proposed, asserted or assessed as a result of any audit of any
such returns; (iii) to file, prosecute, compromise or settle any
claim for refund; and (iv) to determine whether any refunds to
which the consolidated Group may be entitled shall be paid by way
of refund or credited against the tax liability of the
consolidated Group.
b) Each of Parent and the Subsidiaries, to the extent such
information is available, shall promptly notify each other and the
Members of the Group of any tax liability or refund issue, and
shall cooperate fully with one another in all efforts by Parent to
contest, compromise or settle the same.
IX. MISCELLANEOUS
a) COOPERATION. All material, including but not limited to, returns,
supporting schedules, workpapers, correspondence and other
documents relating to the consolidated return, shall be made
available to any party to this Agreement during
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regular business hours. In the event of the termination of this
Agreement, the parties will use their best efforts to make
available to the others, upon written request, its officers and
employees in connection with any tax proceedings.
b) ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and there are no agreements, representations, or
warranties not contained herein. This Agreement may not be
modified or amended except by written instrument executed with the
same formality as this Agreement.
c) SUCCESSORS ASSIGNS. The provisions and terms of this Agreement
shall be binding on and inure to the benefit of any successor, by
merger, acquisition of assets or otherwise, of any of the parties
hereto.
d) NEW MEMBERS. If, at any time, any other company becomes a Member
of the Group, the parties hereto agree that such Member may become
a party to this Agreement by executing a duplicate copy of this
Agreement. Unless otherwise specified, such Member shall have all
the rights and obligations of a Subsidiary under this Agreement.
e) DURATION. Unless earlier terminated as herein provided, this
Agreement shall remain in effect with respect to any tax year for
which consolidated Federal income tax returns are filed by the
Group.
Notwithstanding the termination of this Agreement, its provisions
will remain in effect with respect to any period of time during
the tax year in which termination occurs, for which the income of
the terminating party must be included in the consolidated return.
The preceding sentence shall not be construed, however, to require
a Subsidiary to contribute to consolidated tax liability for any
period for which it files a separate return. Allocations of
consolidated tax liability shall be made hereunder only for
periods covered by a consolidated Federal income tax return.
f) TERMINATION. This Agreement may be terminated by any party hereto
upon thirty (30) days prior written notice to the other parties.
g) LAW GOVERNING. This Agreement has been made in and shall be
construed and enforced in accordance with the laws of the State of
California, as such laws may from time to time be amended or
revised.
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IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective as of the date first written above.
Submitted for Approval to the Boards of Directors on April 24, 2000.
/s/ SIMONE LAGOMARSINO /s/ EILEEN LYON
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SIMONE LAGOMARSINO EILEEN LYON
President/CEO SVP/General Counsel
Hawthorne Financial Corporation Hawthorne Savings F.S.B.
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