MAXXAM INC. TAX ALLOCATION AGREEMENT WITH MAXXAM GROUP INC. THE PACIFIC LUMBER COMPANY and BRITT LUMBER CO., INC. OF FEBRURAY 9, 2004
Exhibit
10.42
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.
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6.
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(a)
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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".
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(b)
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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.
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(c)
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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.
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(d)
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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.
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(e)
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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.
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(f)
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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.
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7.
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(a)
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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.
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(b)
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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.
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(c)
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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.
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(d)
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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.
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(e)
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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.
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8.
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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.
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9.
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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.
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10.
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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.
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11.
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This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and
assigns.
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IN WITNESS WHEREOF, Parent, MGI,
Pacific Lumber, and Xxxxx have executed this Agreement by authorized officers
thereof as of the date first above written.
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The
Pacific Lumber Company
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By:
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/s/
Xxxxxxxxx X. Xxxxxxx
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By:
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/s/
Xxxxxx X. Xxxxx
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Name:
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Xxxxxxxxx
X. Xxxxxxx
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Name:
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Xxxxxx
X. Xxxxx
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Title:
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Vice
President and Controller
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Title:
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President
and Chief Executive Officer
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MAXXAM
Group Inc.
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Xxxxx
Lumber Co., Inc.
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By:
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/s/
Xxxxxxx X. Xxxxxx
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By:
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/s/
Xxxx X. Xxxxx
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Name:
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Xxxxxxx
X. Xxxxxx
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Name:
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Xxxx
X. Xxxxx
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Title:
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Secretary
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Title:
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Vice
President – Finance and
Administration
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