MAXXAM INC.
TAX ALLOCATION AGREEMENT WITH
MAXXAM GROUP INC.
THE PACIFIC LUMBER COMPANY and
XXXXX LUMBER CO., INC.
OF FEBRURAY 9, 2004
This Agreement is made as of February 9, 2004, between MAXXAM Inc.
("Parent"), a Delaware corporation, MAXXAM Group Inc. ("MGI"), a Delaware
corporation, The Pacific Lumber Company ("Pacific Lumber"), a Delaware
corporation and Xxxxx Lumber Co., Inc. ("Xxxxx"), a California corporation.
WHEREAS, Pacific Lumber and Xxxxx are currently members, for federal
income tax purposes, of the affiliated group within the meaning of Section
1504(a) of The Internal Revenue Code of 1986, as amended (the "Code") of which
Parent is the common parent corporation (the "Group"); and
WHEREAS, Pacific Lumber and Xxxxx are currently members of a combined
unitary reporting group for Arizona and California income tax purposes of which
MGI is the common parent corporation (the "Forest Products Group"); and
WHEREAS, pursuant to a tax allocation agreement dated as of May 21,
1988 (the "May 88 Agreement"), Parent and Pacific Lumber established a Tax
Allocation Method, as hereinafter defined. As used herein, the term "Tax
Allocation Method" shall mean a method for allocating the consolidated tax
liability of a group among its members and for reimbursing the group's parent
for the payment of such liability; and
WHEREAS, on March 23, 1993, the May 88 Agreement was amended as between
Parent and Pacific Lumber to establish a Tax Allocation Method for Pacific
Lumber that included Scotia Pacific Holding Company ("Scotia") and Salmon Creek
Corporation ("Salmon Creek"), then-existing subsidiaries of Pacific Lumber (the
"March 93 Agreement"); and
WHEREAS, Scotia, which was a wholly owned subsidiary of Pacific Lumber,
ceased to be a member of the Group as a result of being merged into a newly
formed wholly owned subsidiary of Pacific Lumber, Scotia Pacific Company LLC
("Scotia LLC") on July 20, 1998; and
WHEREAS, Salmon Creek, which was a wholly owned subsidiary of Pacific
Lumber, ceased to be a member of the Group as a result of being converted into a
newly formed wholly owned subsidiary of Pacific Lumber, Salmon Creek LLC
("Salmon Creek LLC") on December 7, 1999; and
WHEREAS, Scotia LLC and Salmon Creek LLC are not members of the Group
since each entity is a single member limited liability company which has not
elected to be treated as an association taxable as a corporation and, therefore,
is treated as a division of Pacific Lumber pursuant to Treasury Regulation
ss.301.7707-3(b)(1); and
WHEREAS, on December 31, 2001, the March 93 Agreement was further
amended (the "Amended March 93 Agreement") as between Parent and Pacific Lumber
to clarify the treatment of Scotia LLC and Salmon Creek LLC as members of the PL
Subgroup, as that term is defined in the Amended March 93 Agreement; and
WHEREAS, pursuant to a Tax Allocation Agreement dated July 3, 1990 (the
"July 90 Agreement"), Parent and Xxxxx established a Tax Allocation Method; and
WHEREAS, as of even date herewith, the stock of Xxxxx was acquired by
Pacific Lumber; and
WHEREAS, Parent and Pacific Lumber recognize that the May 88 and
Amended March 93 Agreements are no longer reflective of Pacific Lumber and its
subsidiaries' relationship with Parent; and
WHEREAS, Parent and Xxxxx recognize that the July 90 Agreement is no
longer reflective of Xxxxx'x relationship with Parent; and
WHEREAS, Parent and Pacific Lumber desire to establish a Tax Allocation
Method which includes Xxxxx and any other Pacific Lumber subsidiary in the
computation of Pacific Lumber's income tax liability to Parent; and
WHEREAS, Pacific Lumber and Xxxxx desire to establish a Tax Allocation
Method which reflects Xxxxx'x subsidiary relationship to Pacific Lumber.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements and covenants contained herein, Parent, MGI, Pacific Lumber and Xxxxx
hereby agree as follows:
1. Parent and Pacific Lumber agree to terminate the May 88 Agreement, as
it pertains to their relationship, and the Amended March 93 Agreement
with respect to taxable periods beginning on and after January 1, 2004.
2. Parent and Xxxxx agree to terminate the July 90 Agreement with respect
to taxable periods beginning on or after January 1, 2004.
3. Pacific Lumber and its subsidiaries, either as of the date of this
Agreement or at the time that the subsidiary becomes eligible to become
a member of the group, agree to be included in, and Parent agrees to
file a consolidated Federal income tax return for all taxable years in
which Parent and Pacific Lumber are eligible to file consolidated
returns as an affiliated group of corporations as such term is defined
in Section 1504 of the Code.
4. All elections relating to the filing of a consolidated Federal income
tax return which are required or are available in the computation of
the consolidated Federal income tax liability of the Group shall be
made by Parent. Pacific Lumber shall cause any subsidiary that becomes
a party to this Agreement to execute such consents and other documents
as are necessary in connection therewith.
5. Except with respect to any payments to Parent that are required under
this Agreement, the May 88 Agreement, the Amended March 93 Agreement,
or the July 90 Agreement, or any payment that Xxxxx is required to make
to Pacific Lumber under this Agreement, Parent shall indemnify Pacific
Lumber and each Pacific Lumber Subgroup Subsidiary (as hereinafter
defined) and hold them harmless against all Federal income tax
liabilities relating to taxable years of Pacific Lumber and each
Pacific Lumber Subgroup Subsidiary during which Pacific Lumber and each
Pacific Lumber Subgroup Subsidiary is or was a member of the Group.
6. (a) There shall be computed a Federal income tax liability for
Pacific Lumber for any taxable period covered by this
Agreement (the "Applicable Period") as if (i) Pacific Lumber
and all lower (with respect to Pacific Lumber) tier entities,
including newly-formed subsidiaries and Xxxxx, (individually
and collectively referred to as "Pacific Lumber Subgroup
Subsidiary" or "Pacific Lumber Subgroup Subsidiaries") in
which Pacific Lumber has direct or indirect ownership are
treated as an affiliated group of corporations (the "Pacific
Lumber Subgroup"), the common parent of which is Pacific
Lumber, provided, however, that the Pacific Lumber Subgroup
shall only include any Pacific Lumber Subgroup Subsidiary to
the extent that such Pacific Lumber Subgroup Subsidiary meets
the test of affiliation under Section 1504 of the Code as it
would apply to the Pacific Lumber Subgroup. Pacific Lumber and
each Pacific Lumber Subgroup Subsidiary shall sometimes be
referred to as "Pacific Lumber Subgroup Members".
(b) The computation of the Federal income tax liability of Pacific
Lumber shall take into account the taxable income, loss,
credits and other tax attributes of each Pacific Lumber
Subgroup Subsidiary as if Pacific Lumber filed a consolidated
return including each Pacific Lumber Subgroup Subsidiary
(taking into account all applicable limitations under the
Code) ("Pacific Lumber's Tax Liability"). In calculating such
liability, all intercompany transactions between Pacific
Lumber Subgroup Members shall be treated consistent with the
consolidated return Treasury Regulations.
(c) If the foregoing calculation results in a Federal income tax
liability for Pacific Lumber with respect to the Applicable
Period, then, in that event, Pacific Lumber shall pay such
computed income tax liability to Parent in such amounts and at
such times as Pacific Lumber would have been required to pay
to the Internal Revenue Service if it were an unaffiliated
corporation making separate estimated tax payments and filing
a separate tax return.
(d) For purposes of Section 6.(b) of this Agreement, any net
operating loss carryforwards or other tax attributes (e.g.,
minimum tax credits or charitable contributions carryovers)
available to the Pacific Lumber Subgroup as of December 31,
2003 under the May 88 and Amended March 93 Agreements shall be
available to offset income of the Pacific Lumber Subgroup in
the same manner as under the May 88 and the Amended March 93
Agreements.
(e) If the calculation of Pacific Lumber's Tax Liability in
Section 6.(b) results in a net operating loss that can be
carried back to a prior taxable period or periods with respect
to which Pacific Lumber made payments to Parent under this
Agreement, then, in that event, Parent shall pay Pacific
Lumber an amount equal to the tax refund to which Pacific
Lumber would have been entitled consistent with this Section
4.
(f) If the calculation of Pacific Lumber's Tax Liability in
Section 6.(b) results in a net operating loss that cannot be
carried back pursuant to the preceding subsection (e), then,
in that event, such net operating loss shall be a net
operating loss carryover to be used by the Pacific Lumber
Subgroup in computing its Federal income tax liability
pursuant to preceding subsection (b) for future taxable
periods, under the law applicable to net operating loss
carryovers in general.
7. (a) There shall be computed a Federal income tax liability for
Xxxxx for any taxable period covered by this Agreement (the
"Applicable Period") as if Xxxxx had filed a separate return
for such period and all prior Applicable Periods (taking into
account all applicable limitations under the Code) ("Xxxxx'x
Tax Liability"). In calculating such liability, the separate
return shall be prepared by taking into account all
intercompany transactions, including those eliminated or
deferred by reason of the consolidated return Treasury
Regulations.
(b) If the foregoing calculation results in a Federal income tax
liability for Xxxxx with respect to the Applicable Period,
then, in that event, Xxxxx shall pay such computed income tax
liability to Pacific Lumber in such amounts and at such times
as Xxxxx would have been required to pay to the Internal
Revenue Service if it were an unaffiliated corporation making
separate estimated tax payments and filing a separate tax
return.
(c) For purposes of Section 7.(b) of this Agreement, any net
operating loss carryforwards or other tax attributes (e.g.,
minimum tax credits or charitable contributions carryovers)
available to the Pacific Lumber Subgroup as of December 31,
2003 under the May 88 and Amended March 93 Agreements shall
not be available to offset income of Xxxxx for any period
prior to the effective date of this Agreement.
(d) If the calculation of Xxxxx'x Tax Liability in Section 7.(b)
results in a net operating loss that may be carried back to a
prior taxable period or periods with respect to which Xxxxx
made payments to Pacific Lumber under this Agreement or to
Parent under the July 90 Agreement, then, in that event,
Pacific Lumber or Parent, as the case may be, shall pay Xxxxx
an amount equal to the tax refund to which Xxxxx would have
been entitled consistent with this Section 7.
(e) If the calculation of Xxxxx'x Tax Liability in Section 7.(b)
results in a net operating loss that cannot be carried back
pursuant to the preceding subsection (d), then, in that event,
such net operating loss shall be a net operating loss
carryover to be used by Xxxxx in computing its Federal income
tax liability pursuant to preceding subsection (b) for future
taxable periods, under the law applicable to net operating
loss carryovers in general.
8. The foregoing principles shall apply in similar fashion to any
consolidated state or other local income tax return which the Group or
the Forest Products Group may elect or be required to file. For state
or other local income tax returns where the Forest Products Group is
the reporting group, payments pursuant to this Agreement shall be made
to MGI.
9. This Agreement shall be effective for the Group's 2004 taxable period
and all subsequent taxable periods until the earliest date on which (i)
Pacific Lumber ceases to be a member of the Group, (ii) the Group no
longer remains in existence within the meaning of Treasury
Regulationss.1.1502-75, (iii) the Group is no longer eligible to file,
or is no longer eligible to join in the filing of, a consolidated
return for Federal income tax purposes, or (iv) Xxxxx ceases to be a
member of the Pacific Lumber Subgroup. Prior to or upon termination of
this Agreement, the parties may enter into a new agreement, consistent
with the provisions of this Agreement, taking into account, among other
things, to the extent applicable, the manner in which Pacific Lumber
ceased to be a member of the Group, the reason that the Group is no
longer in existence, the reason that Parent and/or Pacific Lumber can
no longer join in the same consolidated return or the manner in which
Xxxxx ceased to be a member of the Pacific Lumber Subgroup.
10. This Agreement is entered into by the parties solely in recognition of
the mutual benefits resulting from filing a Federal (or state or other
local) consolidated or combined tax return. The respective amounts of
tax liability allocated to each Pacific Lumber Subgroup Member for
purposes of computing such corporation's earnings and profits for
Federal (or any other) income tax purposes may differ from those
determined in accordance with this Agreement. Furthermore, any amount
treated for Federal (or state or other local) income tax purposes, on
account of such a difference, as a contribution to capital or a
distribution with respect to stock, or a combination thereof, as the
case may be, shall be treated as a contribution to capital, a
distribution with respect to stock, or a combination thereof, solely
for Federal (or state or other local) income tax purposes.
11. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, Parent, MGI, Pacific Lumber, and Xxxxx have
executed this Agreement by authorized officers thereof as of the date first
above written.
MAXXAM Inc. The Pacific Lumber Company
By: /s/ Xxxxxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxxx
Name: Xxxxxxxxx X. Xxxxxxx Name: Xxxxxx X. Xxxxx
Title: Vice President and Controller Title: President and Chief Executive Officer
MAXXAM Group Inc. Xxxxx Lumber Co., Inc.
By: /s/ Xxxxxxx X. Xxxxxx By: /s/ Xxxx X. Xxxxx
Name: Xxxxxxx X. Xxxxxx Name: Xxxx X. Xxxxx
Title: Secretary Title: Vice President - Finance and Administration
