EXHIBIT 10.50
INCOME TAX ALLOCATION AGREEMENT
This Income Tax Allocation Agreement is entered into as of October 17, 1994 for
the purpose of establishing an understanding and procedures to be followed for
allocating taxes based on income and related tax benefits among the following
parties: Pan American Bank, FSB ("PAB"), Pan American Financial, Inc. ("PAFI")
and Pan American Group, Inc. ("PAGI"). The parties are members ("Members") of
an affiliated group ("the Affiliated Group") within the meaning of the Internal
Revenue Code and file a consolidated return for federal income tax purposes and
file a single combined report for California franchise tax purposes. This
agreement assumes in all cases that the amount of taxes paid by PAB will not
exceed the amount that would have been due and currently payable to taxing
authorities if PAB was filing its tax return on a separate-entity basis.
The parties hereto agree as follows:
I. FEDERAL INCOME TAXES
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A. REGULAR TAX
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The consolidated Federal income tax liability of the Affiliated Group based
only on current tax payments and not on deferred taxes, will be allocated
to Members included in consolidated Federal income tax returns as follows:
(1) Total federal income tax liability will be allocated to the Members
based on the ratio that each Member's separate return tax liability for
the taxable year bears to the sum of the separate return tax liability
of each of the Members. Moreover, the parties agree to reimburse any
Member which has tax losses or credits in an amount equal to 100% of
the tax benefits realized by the Affiliated Group as a result of the
utilization of such Member's tax losses or credits.
(2) If the Group has a consolidated net operating loss or excess tax
credits for a year, the amounts determinable in (1) above will be based
on the current year tax rate and the amount determinable in (1) above
shall include the taxes recoverable from prior years resulting from the
carryback of the consolidated return years and, where applicable, to
the separate return years (as defined in the consolidated tax return
regulations).
(3) Under the provisions of paragraph 1 and 2, a Member whose tax losses or
credits resulted in a reduction of the consolidated tax liability for
the taxable year shall be entitled to a payment for the use by the
Affiliated Group of its tax losses or credits. The amount of such
payment shall be determined on the basis of the
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utilization of such Member's losses and credits in making estimated tax
payments and a final reconciliation shall be made when the consolidated
return is filed. If PAB reports a loss that would have resulted in a
refund from the taxing authorities on a separate-entity basis, PAGI
will promptly refund PAB the amount owed.
B. ALTERNATIVE MINIMUM TAX ("AMT")
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The difference between the AMT and the regular tax ("AMT Allocation") will
be allocated as follows: each Member will be allocated the lesser of 1)
its separate company AMT/1/, or 2) its portion of the AMT Allocation
based on the ratio of its separate company AMT to total AMT due if each
Member of the Group were to file a separate federal return. Any excess of
consolidated AMT over the total separate company AMT will be allocated to
Members having a tax loss based on the ratio of their separate company loss
to the total loss of all Members. The amount of taxes paid by PAB may not
exceed the amount that would have been due and currently payable to taxing
authorities if PAB was filing its tax return on a separate-entity basis.
When a credit for a prior minimum tax liability reduced the consolidated
regular tax for a year, such benefit will be allocated to the Members that
were allocated AMT in accordance with the preceding paragraph.
II. STATE INCOME TAXES
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The parties acknowledge that they file a single combined report for California
franchise tax purposes. The parties agree to a tax allocation method for
California franchise tax purposes comparable to that described in this agreement
for federal income tax purposes.
III AMENDED RETURNS AND AUDIT ADJUSTMENTS
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In the event of any adjustment of tax returns of the Members as filed by reason
of filing an amended return or claim for refund, or arising out of an audit by
the Internal Revenue Service, the liability of the Members to each other and to
the Internal Revenue Service for any period covered by this Agreement shall be
redetermined after fully giving effect to any such adjustments as if such
adjustments had been made as part of original computations. Payment or credits
between the Members shall be made at the time of any payment of tax or receipt
of refund or credit from the Internal Revenue Service with respect to such
adjustments, and such payments, refunds or credits shall include any interest
attributable to such adjustments. Any change in the
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/1/ Separate company AMT is defined as the AMT that would be due if the
Member were to file a separate federal income tax return.
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tax liability due to the filing of an amended return or any audit by a taxing
authority will be allocated among the Members in accordance with the above
rules.
IV. TAX PAYMENTS
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The parties agree that PAGI will be responsible for making payments to the
Internal Revenue Service and the Franchise Tax Board. At such time as PAGI
makes payments to the Internal Revenue Service or Franchise Tax Board for any
taxes (including estimated taxes), each Member will pay to PAGI an amount equal
to its share of such payments as determined under paragraph 1. Any overpayment
of tax of the Affiliated Group shall be paid or credited by the Internal Revenue
Service or Franchise Tax Board to PAGI and PAGI will pay such amount to the
appropriate member immediately upon receipt. Any adjustment by the Internal
Revenue Service or Franchise Tax Board which affects either the consolidated tax
liability or the relative tax liabilities of members shall be made among the
Members immediately after the amount of the adjustment is determined. If there
are any penalties (including penalty for failure to pay estimated taxes) with
respect to the filing of any consolidated return, the penalty shall be shared
appropriately among those parties whose action or inaction (such as understating
taxable income) contributed to the penalty.
V. OTHER
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The parties acknowledge that any disputes between and among the members will be
arbitrated by PAB's independent auditors (presently KPMG Peat Marwick) and all
parties agree that the independent auditor's findings will be accepted.
PAB will not pay any deferred taxes to PAGI and PAGI will not "forgive" any
portion of PAB's deferred tax liability.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
dates indicated below:
Date: October 17, 1994 /s/ XXXXXXXX X. GRILL
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For: Pan American Group, Inc.
Date: October 17, 1994 /s/ XXXXXX XXXXXX
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For: Pan American Financial, Inc.
Date: October 17, 1994 /s/ XXXXX X. XXXXX
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For: Pan American Bank, FSB
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