Exhibit 10.21
TAX ALLOCATION AGREEMENT
This agreement (the "Agreement") is made as of November 1,
2002, by and among HomeFed Corporation, a
Delaware corporation ("HomeFed"), CDS
Holding Corporation, a Delaware corporation
("CDS Holding"), CDS Devco, Inc., a
California corporation ("CDS Devco"), San
Elijo Ranch, Inc., a California
corporation ("SERI"), HomeFed Communities,
Inc., a California corporation ("HFC
Communities"), and HomeFed Resources
Corporation, a California corporation ("HFC
Resources" and, collectively, aside from
HomeFed, the "Subsidiaries," with each
of the Subsidiaries being a
"Subsidiary").
WHEREAS, HomeFed is the common parent of an affiliated group
of corporations (the "HomeFed Group")
filing a consolidated federal income tax
return;
WHEREAS, CDS Holding, CDS Devco, and SERI have been part of
the HomeFed Group since October 22, 2002
and HFC Communities and HFC Resources
have been part of the HomeFed Group since
________________; and
WHEREAS, HomeFed and the Subsidiaries wish to provide for the
allocation among them of the consolidated
Federal income tax liability and state
or local income tax liabilities of the
HomeFed Group and for certain related
matters.
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants contained herein,
the parties hereby agree as follows:
Section 1.
DEFINITIONS
-----------
a. Except as otherwise provided herein,
terms used in this Agreement shall have
the meanings ascribed to them in, and shall
be interpreted in accordance with,
the Code, and the regulations and rulings
issued thereunder, as in effect from
time to time.
b. For purposes of this Agreement, the
terms set forth below shall be defined as
follows:
(1) "Code" means
the Internal Revenue Code of 1986, as amended to the date
hereof.
(2)
"Consolidated Return" means a consolidated Federal income tax
return
and any returns of estimated Federal income
tax filed by the HomeFed Group which
includes any of the Subsidiaries.
(3)
"Consolidated Return Year" means Parent's taxable year (or
portion
thereof) beginning on a day after October
21, 2002, for which Parent files a
Consolidated Return.
<PAGE>
(4) "HomeFed
Group" shall have the meaning ascribed in the recitals to this
Agreement.
(5) "HomeFed
Group Tax" means with respect to any given Consolidated Return
Year, the consolidated Federal income tax
liability of the HomeFed Group that is
reported on, and paid in respect of, any
consolidated Federal income tax return
and any returns of estimated Federal income
tax required to be filed for such
taxable year.
(6) "Parent"
means HomeFed or any successor common parent corporation of
the HomeFed Group.
(7) "Revised Tax
Liability" means, for any Consolidated Return Year in
which HomeFed Group Tax and/or a Subsidiary
Tax (as the context may require) is
revised (including, without limitation, by
reason of (i) a "determination"
within the meaning of Code Section 1313(a),
(ii) HomeFed Group's filing of an
amended federal income tax return, or (iii)
an assessment of tax in accordance
with Section 6213), the amount of any
payment (i) required from a Subsidiary to
Parent under Section 2(b), and (ii)
required from Parent to a Subsidiary under
Section 3, shall be recomputed by
substituting the revised HomeFed Group Tax
and/or the revised Subsidiary Tax.
(8) "Separate
Company Tax Return" means the hypothetical Federal income tax
return and any hypothetical returns of
estimated Federal income tax a Subsidiary
would have been required to file in any
given Consolidated Return Year on which
it would have reported its Subsidiary
Tax.
(9) "Subsidiary
Estimated Tax" means, in respect of a given Subsidiary, for
any given Consolidated Return Year, the
Subsidiary Tax determined through the
end of each period for which estimated
Federal income tax payments on a
consolidated basis are due (whether or not
any amounts are actually owing by
Parent), which liability shall be
calculated in accordance with Section 6655 of
the Code.
(10) "Subsidiary
Tax" means, for each Subsidiary, its Tax liability for the
Consolidated Return Year, including the
Subsidiary's Federal income tax
liability, computed hypothetically on a
separate company basis (without regard
to the income, deductions and credits of
any other member of the HomeFed Group)
for all relevant taxable years determined
(x) using the same elections and
methods of accounting as are used with
respect to the Subsidiary in determining
HomeFed Group Tax; (y) giving effect to the
modifications specified in Reg. Sec.
1.1552-1(a)(2)(ii); and (z) without regard
to any amount attributable to a
credit arising under Code Section 53.
(11)
"Subsidiary-Generated Benefit" means, for each Subsidiary, the
amount,
if any, by which the Subsidiary's loss or
credit or loss or credit carryover
results in either (i) a reduction of
HomeFed Group Tax for any given
Consolidated Return Year or (ii) a refund
obtained by Parent with respect to any
given Consolidated Return Year; provided,
however, that the Subsidiary-Generated
Benefit for a taxable year shall not exceed
the excess of (i) the consolidated
Federal income tax of the HomeFed Group for
such taxable year computed
hypothetically by giving effect only to the
loss or credit, or loss or credit
carryovers of all members of the HomeFed
Group other than the Subsidiary over
(ii) the HomeFed Group Tax for such taxable
year.
(12) "Tax" means
the regular Federal income tax, estimated Federal income
tax or alternative minimum tax, as well as
any other Federal tax not based on
income, together with any and all interest,
additions to tax, fines and
penalties payable with respect thereto.
2
<PAGE>
Section 2. TAX
PAYMENTS
------------
a. By Parent
In each
Consolidated Return Year, Parent shall pay, in full, the
HomeFed
Group Tax, if any, that is reported on any
Consolidated Return filed for such
taxable year.
b. By the Subsidiaries
(1) In each
Consolidated Return Year, each Subsidiary shall pay to Parent
its Subsidiary Tax and its Subsidiary
Estimated Tax for such taxable year. All
payments by a Subsidiary of its Subsidiary
Estimated Tax made with respect to
such Consolidated Return Year shall reduce
(but not below zero) its Subsidiary
Tax paid for such taxable year. Parent
shall reimburse each Subsidiary in
accordance with Section 4 to the extent its
aggregate Subsidiary Estimated Tax
payments for any given Consolidated Return
Year exceed its Subsidiary Tax for
such taxable year.
(2) The amount
required to be paid in Section 2(b)(1) above shall be paid
in any given Consolidated Return Year no
later than five (5) days prior to the
date on which any Consolidated Return is
required to be filed for such taxable
year (taking account of any extensions
thereof), or, with respect to any
interest and/or penalty not paid with the
Consolidated Return and not covered by
Section 5(c), no later than five (5) days
prior to the date on which Parent is
required to make payment thereof.
(3) Each
Subsidiary shall, to Parent's satisfaction, consult and furnish
Parent with all documentation Parent shall
deem necessary to determine, in
respect of any given Consolidated Return
Year, the Subsidiary Tax and Subsidiary
Estimated Tax for such taxable year no
later than either seventy-five (75) days
prior to the date on which the consolidated
income is required to be filed or,
as the context may require, no later than
ten (10) days prior to the date on
which the estimated Federal income tax
return is required to be filed in such
taxable year (in each case taking account
of any extensions thereof).
Notwithstanding the foregoing, in no case
shall the documentation described in
this Section 3(b)(3) necessary to determine
the Subsidiary Tax, be required
prior to forty-five (45) days after the end
of the Consolidated Return Year. No
later than ten (10) days prior to the date
on which the consolidated Federal
income tax return is required to be filed
or, as the context may require, no
later than five (5) days prior to the date
the Parent is to make an estimated
federal income tax payment, Parent shall
provide each Subsidiary a reasonably
detailed calculation of its Subsidiary Tax
and its Subsidiary Estimated Tax (as
the context may require).
3
<PAGE>
Section 3.
SUBSIDIARY-GENERATED BENEFIT
----------------------------
a. Benefit Carried Back To A Prior Year. If
a Subsidiary-Generated Benefit
arises in any Consolidated Return Year, and
the Subsidiary, had it been filing
separate from the HomeFed Group for all
relevant periods could have carried back
to a prior Consolidated Return Year all or
part of the loss, deduction or credit
(not otherwise compensated in accordance
with Section 3) that gave rise to such
Subsidiary-Generated Benefit, the portion
of such Subsidiary-Generated Benefit
attributable to such loss, deduction or
credit (or portion thereof) shall be
applied to reduce (but not below zero) the
Subsidiary Tax paid under Section 2
in respect of such prior Consolidated
Return Year, and Parent shall pay to the
Subsidiary the amount of such reduction in
accordance with Section 4(b);
provided, however, that the Subsidiary
shall not be entitled to all or a portion
of such payment to the extent the
Subsidiary Tax for such prior taxable year had
previously been reduced under this Section
3. In the event that the losses and
credits of the Subsidiaries in any given
Consolidated Return Year exceed the
total losses and credits which result in a
Subsidiary-Generated Benefit with
respect to such Consolidated Return Year,
the amount payable to the Subsidiaries
under this Section 3(a) shall be allocated
among the Subsidiaries in proportion
to the losses of each Subsidiary and if the
Subsidiary Benefit in such
Consolidated Return Year exceeds that
attributable to such losses any excess
shall be allocated among the Subsidiaries
in proportion to the credits of each
Subsidiary with respect to such
Consolidated Return Year.
b. Benefit Remaining Upon Departure From
The HomeFed Group. If, at some future
date, a Subsidiary ceases to be a member of
the HomeFed Group but continues to
be a corporation subject to Federal income
tax, Parent shall pay to the
Subsidiary at the time and to the extent
provided by Section 4(b) below, (1) the
aggregate amount of its
Subsidiary-Generated Benefit for all Consolidated Return
Years ending on or prior to such cessation
date (the amount of the
Subsidiary-Generated Benefit for the
Consolidated Return Year ending on the
cessation date shall be determined on the
basis of an interim closing of the
books) less the portion of the
Subsidiary-Generated Benefit (x) applied to
reduce amounts payable by the Subsidiary as
provided for in this Section 3, (y)
not described in (x) and allocable to any
loss, deduction or credit the
carryforward period for which would have
expired
