TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (this "Agreement") is entered into as of
this 31st day of December, 1999, by and between Security Capital Group
Incorporated, a Maryland corporation ("Parent"), and Homestead Village
Incorporated, a Maryland corporation ("Subsidiary").
WHEREAS, Parent, Subsidiary and others are members of an affiliated
group of corporations as defined in section 1504 (a) of the Internal Revenue
Code of 1986, as amended (the "Code"), of which Parent is the common parent; and
WHEREAS, the parties desire to agree upon an equitable method
consistent with representations made in Subsidiary's Prospectus Supplement dated
April 5, 1999, for determining the financial consequences to Parent and
Subsidiary of filing consolidated Federal income tax returns by Parent,
Subsidiary and others;
NOW, THEREFORE, in consideration of the foregoing promises and mutual
covenants contained herein, the parties agree as follows:
1. DEFINITIONS
(a) Terms used in this Agreement shall have the meanings ascribed to
them in the Code, and the regulations and rulings issued
thereunder, as from time to time in effect. Concepts referred to
in this Agreement shall be interpreted in view of the provisions
of the Code and the regulations and rulings thereunder then in
effect.
(b) For purposes of this Agreement, the terms set forth below shall be
defined as follows:
(i) "Capital Transactions" means a sale, merger, or other
transaction pursuant to which Parent disposes of a number
of shares as a result of which Parent owns less than 50%
of the shares of Subsidiary.
(ii) "Group" means Parent and all corporations (whether now
existing or hereafter formed or acquired) that at the time
would be entitled or required to join with Parent in
filing a consolidated Federal income tax return.
(iii) "Parent" means Parent, or any successor common parent
corporation of the Group
(iv) "Member" means any corporate entity entitled to be included
in the Group.
(v) "Subsidiary Tax Liability" means the hypothetical Federal
income tax liability of Subsidiary for a taxable year
determined by multiplying the consolidated Federal income
tax liability of the Group (calculated before credits and
net operating losses attributable to Non-Subsidiary Members)
for such taxable year as reflected on the consolidated
Federal income tax return filed by Parent on behalf of the
Group for such year, by a fraction, the numerator of which
is the hypothetical Federal taxable income of Subsidiary for
such taxable year, computed as though Subsidiary filed a
separate Federal income tax return for such taxable year,
and the denominator of which is the aggregate hypothetical
Federal taxable income for all the Members for such taxable
year, computed as if each such Member filed a separate
Federal income tax return for such taxable year (but with
the hypothetical Federal taxable income of no such Member
being less than zero). Such hypothetical Federal income tax
liability shall be determined at the end of the taxable year
and shall reflect any tax elections, conventions, treatments
or methods which are actually utilized by the Group in
filing its consolidated Federal income tax return. In
determining its hypothetical Federal taxable income for a
taxable year, a Member shall take into account any net
operating loss carryover, credit carryover or other tax
attribute incurred by such Member in any previous year;
provided that Subsidiary shall not take into account any
Subsidiary Pre-Consolidation Net Operating Loss carryover to
the extent actually previously utilized in any prior taxable
year to offset any tax liability of the Group and provided
further that Subsidiary shall not take into account any
Subsidiary Post-Consolidation Net Operating Loss.
(vi) "Subsidiary Estimated Tax Liability" means the hypothetical
estimated consolidated Federal income tax liability for
Subsidiary determined in accordance with the principles of
paragraph (b)(v).
(vii)"Subsidiary Tax Refund" means an amount determined by
multiplying the Federal income tax refund received by the Group
for a taxable year by the fraction determined for Subsidiary
under paragraph (b) (v) for the taxable year with respect to
which such refund is received, but only in the event Subsidiary
has actually made Subsidiary Tax Liability payments.
(viii) "Subsidiary Pre-Consolidation Net Operating Losses" means all
operating losses generated by Subsidiary prior to May 28, 1999.
(ix) "Subsidiary Post-Consolidation Net Operating Losses" means all
operating losses generated by Subsidiary during the period
beginning May 28, 1999 and ending on the date on which Subsidiary
ceases to be a Member.
2. ALLOCATIONS OF CONSOLIDATED
FEDERAL INCOME TAX LIABILITY
(a) Filing by Parent
Parent shall file consolidated Federal income tax returns for
each taxable year ending after the date hereof.
(b) Payment of Tax Liability
For each taxable year ending after the date hereof during which
Subsidiary is included in a consolidated Federal income tax return
with Parent, Subsidiary will pay to Parent an amount equal to its
Subsidiary Tax Liability. To the extent that the obligation to pay
such amount has not been fully satisfied pursuant to paragraph
2(c) of this Agreement, Subsidiary shall pay any such remaining
amount to Parent on the last date on which Parent is required to
make its final payment of Federal income taxes for the taxable
year without incurring any penalties or additions to tax.
(c) Estimated Payments
On any date on which Parent is required to make an estimated
payment of the consolidated Federal income tax of the Group under
Section 6655 of the Code, Subsidiary will make estimated payments
to Parent in an amount equal to its Subsidiary Estimated Tax
Liability. If the total of such estimated payments made by
Subsidiary to Parent with respect to a taxable year shall be in
excess of the liability of Subsidiary to Parent pursuant to
paragraph 2(b)(i) of this Agreement for such taxable year, Parent
shall pay the amount of such excess to Subsidiary on the later of
(1) the date on which Parent is required to make its final
payment of Federal income taxes for the taxable year without
incurring any penalties or additions to taxes or (2) the date of
final determination of Parent's consolidated tax liability. In no
instance shall Parent knowingly withhold excess estimated tax
payments attributable to Subsidiary.
(d) Tax Refunds
(i) Parent shall pay to Subsidiary the amount of the
Subsidiary Tax Refund for each taxable year ending after
the date hereof.
(ii) The payments described in this paragraph 2(d) shall be
made not later than five days after such refund is
received by Parent.
(e) Pre-Consolidation Net Operating Losses
All Subsidiary Pre-Consolidation Net Operating Losses will inure
100% to the benefit of Parent in the event a Capital Transaction
occurs.
3. CHANGES IN TAX LIABILITY
(a) If the Subsidiary Tax Liability of Subsidiary is changed as the
result of any final administrative or judicial determination
(including a final "determination" as defined in Section 1313(a)
of the Code) with respect to consolidated Federal income tax
returns actually filed by the Group, then the amount of the
payments required from Subsidiary to Parent under paragraph
2(b)(i) or the amount of the payment required from Parent to
Subsidiary under paragraph 2(d)(i), as the case may be, shall be
recomputed by substituting the amount of Subsidiary's Subsidiary
Tax Liability (or Subsidiary Tax Refund) after the adjustments
described above in place of Subsidiary's Subsidiary Tax Liability
(or Subsidiary Tax Refund), provided that the principles of
paragraph 1(b)(v) shall be applied in connection with such
recomputation notwithstanding any contrary determination. If such
final determination results in an increase in the Subsidiary Tax
Liability, Subsidiary shall pay to Parent not later than five
days after such final determination an amount equal to the excess
of the new Subsidiary Tax Liability over the amount previously
paid to Parent by Subsidiary. If such final determination results
in a Subsidiary Tax Refund or increases the amount of a
Subsidiary Tax Refund, Parent shall pay to Subsidiary not later
than five days after receiving such refund an amount equal to the
excess of the new Subsidiary Tax Refund over the amount
previously paid to Subsidiary by Parent. The parties recognize
that such new liability (or refund) for any taxable year is not
necessarily Subsidiary's final liability (or refund) for that
year, and may be recomputed more than once.
(b) Payments made pursuant to paragraph (a) shall bear interest in the
same manner as any late payment or refund of Federal income tax.
4. PAYMENT
(a) Any payment required by Subsidiary to Parent under this agreement
shall be made (i) first, by reducing the amount of any account
payable created under paragraph 4(b) (but not below zero), and
(ii) then by entering or increasing an account payable to Parent
on the books of account of Subsidiary.
(b) Any payment required by Parent to Subsidiary pursuant to this
agreement shall be made (i) first by reducing the amount of any
account payable created under paragraph 4(a) (but not below zero)
and (ii) then by entering or increasing an account payable to
Subsidiary on the books of account of Parent.
(c) Any account payable created under paragraph 4(a) or (b) shall be
due in whole or in part on five days' written notice by Subsidiary
or Parent, as the case may be, whose liability such account
payable is, and any due but unpaid amounts shall bear interest
from and after such due date at the prime rate of interest then
most recently utilized by Parent in its principal short-term
credit agreement, plus two percent (2%) per annum.
5. INDEMNITY
Parent agrees to indemnify, defend and hold Subsidiary harmless
from and against any and all liabilities for Federal income tax
and Federal estimated income tax (including, in both cases,
interest and penalties thereon) with respect to any taxable year
to which this agreement applies; provided that the amount of such
indemnity shall be reduced by and shall offset any payment
required to be made by Subsidiary pursuant to this Agreement.
6. EFFECT OF AGREEMENT
(a) As between Parent and 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 income
tax purposes).
(b) This Agreement shall be effective as between Parent and
Subsidiary in respect of all taxable years beginning 1999 until
Subsidiary ceases to be a Member of the Group.
7. STATE AND LOCAL TAXES
In the event Parent actually files consolidated, combined or
unitary income or franchise tax returns or reports in any state or
local jurisdiction on behalf of and pays such taxes owed by all or
part of the Group, the principles and procedures (including
indemnity in paragraph 5) stated in this Agreement shall apply for
purposes of allocating such state tax liability.
8. MISCELLANEOUS PROVISIONS
(a) 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.
(b) This Agreement has been made in and shall be construed and
enforced in accordance with the law of the State of Maryland from
time to time obtaining, without regard to the conflicts of law
provisions thereof.
(c) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its respective successors and assigns.
(d) 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.
(e) 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.
(f) The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be signed by their duly authorized representatives as of the date first above
written.
Security Capital Group Incorporated
By: /s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx
Senior Vice President
Homestead Village Incorporated
By: /s/ Xxxxx X. Xxxxxxxx, Xx.
Xxxxx X. Xxxxxxxx, Xx.
President
