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Exhibit 10.16 (6)
TAX SHARING AGREEMENT
This tax sharing agreement (the "Agreement") is entered into by American States
Insurance Company ("ASIC"), a corporation organized under the laws of the State
of Indiana, and Insurance Company of Illinois ("ICI"), a corporation organized
under the laws of the State of Illinois, and is effective as of January 1,
1996. Lincoln National Corporation ("LNC"), as the ultimate parent of a group
of affiliated corporations filing a consolidated return (the "LNC Consolidated
Group"), is also a party to this Agreement. This Agreement applies to federal,
state, local, and foreign income taxes, including any interest and penalties
assessed for any such taxes, arising for any taxable year ("Tax Year") during
which ASIC owns any ICI stock. This Agreement supersedes all prior tax sharing
agreements between ASIC and ICI or any subsidiaries of ASIC and ICI, except to
the extent otherwise noted. As described more fully below, the rights and
obligations of ASIC and ICI depend upon the amount of ICI stock owned by ASIC,
and on whether ASIC and ICI are members of an affiliated group that files a
consolidated federal income tax return.
SECTION I. ICI IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ICI is a member of the LNC Consolidated Group,
LNC shall be responsible for managing the filing of tax returns and for
determining the appropriate strategy for handling audits and disputes with
taxing authorities. Additionally, LNC shall be responsible for the final
determination of all computations required under this Agreement.
B. Calculation of ICI's Tax Liability. For any Tax Year in which ICI is
a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between ICI and the remainder of the
LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of ICI, on a hypothetical separate return basis
("Separate Tax Liability"), for each Tax Year, or for any part of a Tax Year
during which ICI is included in the LNC Consolidated Group. Computations shall
be made at least once per quarter to support the required payments of quarterly
estimated taxes and shall also be made at the time of the original and extended
due dates for the filing of the federal income tax return for each Tax Year.
Such Separate Tax Liability shall be calculated as follows:
a. ICI shall be treated as a corporation which files a federal
income tax return separate from the LNC Consolidated Group, except as otherwise
provided in this Agreement.
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b. For purposes of this calculation, ICI shall be treated as if
it had never been included in the LNC Consolidated Group.
c. Gains and losses on intercompany transactions shall be
disregarded until such time as they are recognized in the consolidated federal
income tax return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of ICI
described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall generally be
taken into account in the manner specified in that subdivision.
e. To the extent that ICI is unable to avail itself of special
rules applicable only to small corporations, lower tax rates applicable to part
or all of the income of a single corporation, the exemption provided in Internal
Revenue Code section 59A (applicable to the environmental tax) or any other
similar item because it participates in the filing of the federal income tax
return of the LNC Consolidated Group, ICI shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of ICI
shall not be included to the extent attributable to a period commencing on or
after the date that ICI ceases to be includible in the LNC Consolidated Group.
g. For each quarter of a Tax Year that ICI has net operating
losses, net capital losses, tax credits or any other tax benefits that have not
been used to decrease ICI's Separate Tax Liability in the current Tax Year
("Excess Tax Items") that can be used as hypothetical carry back items against
prior hypothetical ICI separate return Tax Years ("Carry Back Items"), ASIC
shall reimburse ICI for the use of such Carry Back Items at the rate ICI would
have been entitled to receive had such Carry Back Items actually been used in an
ICI claim for refund.
h. To the extent that Excess Tax Items can ultimately be used as
hypothetical carry forward items against future hypothetical ICI Tax Years
("Carry Forward Items"), ICI shall be entitled to use such Excess Tax Items to
offset future years' income but will be required to reimburse ASIC to the extent
that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an
Excess Tax Item, which has not otherwise been used as a Carry Back Item, to
decrease its federal income tax liability for that quarter after taking into
account all similar items from the other affiliated corporations in the LNC
Consolidated Group,
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ASIC shall reimburse ICI at an amount equal to the actual decrease in the tax
liability of the LNC Consolidated Group for any Excess Tax Items used,
notwithstanding the fact that ICI could not use these Excess Tax Items in
calculating its Separate Tax Liability.
b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, ICI shall be entitled to a reimbursement from ASIC
if and when such Excess Tax Items actually reduce the LNC Consolidated Group's
federal income tax payments, or when the LNC Consolidated Group actually
receives a refund of previously paid taxes, to the extent that such refund
payment is directly attributable to such Excess Tax Items.
c. To the extent that ICI receives a payment from ASIC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASIC
shall be entitled to reimbursement from ICI for the full amount of such payments
to the extent that ICI may use such Excess Tax Items as Carry Forward Items. To
the extent that ICI has been compensated by ASIC under a prior tax sharing
agreement for an amount which would qualify as an Excess Tax Item under this
Agreement, ASIC shall also be entitled to reimbursement from ICI for the full
amount of such prior payments to the extent that ICI may use such Excess Tax
Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to
entitle ICI to more than a single use of any Excess Tax Items, Carry Back Items,
Carry Forward Items, or any other items which reduce the tax liability of ICI.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay Alternative
Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be
divided among all of the corporations in the LNC Consolidated Group which would
have had to pay AMT if their tax liability had been calculated on a separate
return basis. The allocation of AMT shall be in proportion to the amount of AMT
each corporation would have had to pay on a hypothetical separate return basis.
Any amount of AMT so apportioned to ICI shall be available for use as an AMT
credit in calculating ICI's Separate Tax Liability for future taxable periods in
which the AMT credit may actually be used by the LNC Consolidated Group. This
provision also shall apply to the extent that the LNC Consolidated Group becomes
subject to AMT for prior Tax Years as a result of an IRS audit or other
adjustment to the tax liability payable.
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b. If ICI would be required to pay AMT based upon the
calculation of its Separate Tax Liability, but the LNC Consolidated Group is not
required to pay AMT for that taxable quarter, then ICI shall not be required to
pay the AMT amount to ASIC. Instead, ICI shall pay to ASIC an amount equal to
its Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is required to pay interest to the IRS as a result of any
increase in tax liability for a given Tax Year, such interest shall be divided
among all of the corporations in the LNC Consolidated Group whose tax liability
increased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the increase in tax liability of ICI as compared to the increase
in tax liability of all members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is entitled to receive interest from the IRS as a result of
any decrease in tax liability for a given Tax Year, such interest shall also be
divided among all of the corporations in the LNC Consolidated Group whose tax
liability decreased from the initial calculation at the time of the filing of
the LNC consolidated tax return for that Tax Year. This allocation shall be
made in proportion to the decrease in tax liability of ICI as compared to the
decrease in tax liability of all members of the LNC Consolidated Group.
c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between ASIC and ICI shall be made as follows:
a. Within five days following the due date of the quarterly
estimated federal income tax payment for the LNC Consolidated Group, ICI shall
pay to ASIC the full amount (if any) of its Separate Tax Liability for that
taxable quarter. Also, to the extent that an Excess Tax Item can be used to
reduce the amount of the estimated federal income tax payment for the LNC
Consolidated Group in a given tax quarter, ASIC shall reimburse ICI for the use
of that item within five days following the
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due date of such quarterly payment. Likewise, to the extent that ICI can use
an Excess Tax Item for which it has received payment from ASIC pursuant to
Section I.B.2., above, as a Carry Forward Item, ICI shall reimburse ASIC for
such amounts as described in Section I.B.2.c., above, within five days of the
quarter in which it may use the Carry Forward Item.
b. Within five days following the last date for filing a request
for an extension to file the annual federal income tax return, an adjusting
payment shall be made between ASIC and ICI which is equal to the difference
between the quarterly payments made pursuant to paragraph a. above, and the
estimated annual Separate Tax Liability of ICI.
c. Within 30 days after the filing of the annual federal income
tax return of the LNC Consolidated Group, adjusting payments shall be made
between ASIC and ICI to the extent of any difference between the payments made
pursuant to paragraph a. or b. above, and the annual Separate Tax Liability of
ICI. In the event that an Excess Tax Item cannot be used to offset the federal
income tax liability of the LNC Consolidated Group for the current Tax Year, but
ICI can use such an item as a Carry Back Item, then the reimbursement by ASIC to
ICI contemplated in Section I.B.1.g., above, shall also be made within 30 days
after the filing of the annual federal income tax return of the LNC Consolidated
Group.
d. Within 30 days of a settlement of any IRS audit dispute,
adjusting payments shall be made between ASIC and ICI as necessary as a result
of such settlement.
e. LNC shall be responsible for making all required federal
income tax payments for the LNC Consolidated Group.
f. All settlements shall be in cash or securities eligible as
investments pursuant to Section 125.1a through 125.14a of the Illinois Insurance
Code calculated at market value.
6. Information. If any information relevant to making any
calculation covered by this Agreement is particularly within the knowledge or
possession of ICI or any subsidiary of ICI, ICI shall promptly provide such
information to LNC and shall also provide any supporting schedules, data or
details which LNC may reasonably request.
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7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and ICI files on a Combined Return Basis with one or more other corporations in
the LNC Consolidated Group, ICI's state tax liability shall be calculated and
allocated in a manner comparable to that provided in Section I of this
Agreement.
SECTION II. ICI NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period
in which ASIC owns any stock of ICI, but ICI is not included in the LNC
Consolidated Group, ICI shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and shall also be responsible for
paying any such taxes payable by it. Furthermore, any federal, state, local, or
foreign tax liabilities which are not calculated on a consolidated basis with
part or all of the LNC Consolidated Group shall be the responsibility of the
entity incurring such liability even if ICI is filing as part of the LNC
Consolidated Group for federal income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year
or portion of a Tax Year in which ASIC owns sufficient ICI stock to result in
ASIC and ICI being treated as a consolidated group for financial statement
reporting purposes, ASIC shall be consulted prior to determining the strategy
for handling audits and disputes with taxing authorities, including, but not
limited to, whether or not to appeal or litigate one or more issues and any
proposed settlements of issues.
C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that ICI
carries forward tax attributes for which it has already received compensation
from ASIC pursuant to the terms of Section I. above, ICI shall reimburse ASIC
for the previous payment by ASIC to ICI, at the time of the deconsolidation of
ASIC and ICI. To the extent that ICI has paid ASIC for a Separate Tax Liability
for which it remains liable after leaving the LNC Consolidated Group, ASIC shall
reimburse ICI for the previous payment by ICI to ASIC at the time of the
deconsolidation of ASIC and ICI. Similarly, to the extent that the
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ultimate amount of tax paid differs from the amount of tax liability initially
calculated for any given Tax Year in which ICI was included in the LNC
Consolidated Group, ASIC or ICI, as the case may be, shall be required to pay
and entitled to receive amounts sufficient to compensate for this difference.
2. AMT Credits. In the event that ICI leaves the LNC Consolidated
Group, the amount of AMT credit which it shall be allowed to carry over without
any obligation to reimburse ASIC shall not exceed the amount allocated pursuant
to Section I.B.3, above. ASIC shall be reimbursed by ICI to the extent that any
AMT credit actually carried over exceeds the amounts calculated in Section
I.B.3., at the time of the deconsolidation. Also, ICI shall be reimbursed by
ASIC to the extent that it is permitted to carry over less than the amount
calculated in Section I.B.3.
3. Prior Consolidation Impacts. Neither LNC nor any member of the
LNC Consolidated Group shall be liable for any payment to ICI should the amount
of tax that ICI pays in any such later year on a separate return basis or as a
member of another consolidated group be increased as a result of ICI having been
a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
ICI wishes to make an election for tax purposes which may adversely affect tax
positions taken by the LNC Consolidated Group during Tax Years when it was a
member of the LNC Consolidated Group, ICI shall submit to LNC a written request
for permission to make such an election. LNC shall not unreasonably withhold
such written permission to make a tax election which may be beneficial to ICI
after it leaves the LNC Consolidated Group. ICI shall, as a condition of
receiving written permission to make the tax election, reimburse LNC for any and
all additional tax costs incurred by the LNC Consolidated Group in connection
with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods
1. Tax Payments for Prior Periods. To the extent that the tax
liability initially allocated to ICI for a prior tax period is subsequently
redetermined, as a result of filing an amended return, the outcome of an IRS
examination, the retroactive
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application of a new tax law or tax regulation, or other similar modifying
action or item, ICI shall pay ASIC for any such increases to ICI's tax
liability and is also entitled to receive a payment from ASIC for any decreases
in tax liability attributable to ICI.
2. Prior Tax Payments. To the extent that ICI paid to ASIC an amount
for its share of the LNC Consolidated Group's federal income tax liability or to
the extent that it pays an amount pursuant to paragraph 1. above, ICI shall be
entitled to consider the amount of such prior payments when determining whether
or not Carry Back Items may be used to offset tax payments for prior years.
3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
B. Filing Relevant Items. ICI agrees to file any elections, consents, and
other documents and take any other actions which may be necessary or appropriate
to carry out the purposes of this Agreement.
C. Inclusion of ICI Subsidiaries. If ICI owns, acquires or creates any
subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement. ICI shall treat each such subsidiary corporation as if ICI has
an identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless ICI and such subsidiary have entered into a
separate tax sharing Agreement which has been approved in writing by LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC, ASIC or ICI, to the same extent as if the successor had
been an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both ASIC and ICI agree to
cooperate in supplying information reasonably requested by the other party in
order to make any computations required under this Agreement and for the purpose
of defending tax examinations, including appeals and litigation.
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F. Maintenance of Books and Records. ASIC and ICI agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and relevant statutory accounting principles. Furthermore, ASIC and
ICI agree to account for any intercompany transactions entered into by them or
any of their subsidiaries and to make such information available to the other
party for tax purposes both when such transactions are entered into and when
such intercompany transactions become currently taxable.
G. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Indiana and no state
court other than the courts of the State of Indiana shall have jurisdiction over
disputes between the parties concerning the validity, performance,
interpretation or construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date:10-04-96 By /s/ Xxxxxxx X. Xxxxxxx
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Xxxxxxx X. Xxxxxxx
Executive Vice President and Chief Financial Officer
AMERICAN STATES INSURANCE COMPANY
Date:10-9-96 By /s/ Xxxx X. Xxxxxxxxxx
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Xxxx X. Xxxxxxxxxx
Senior Vice President and Treasurer
INSURANCE COMPANY OF ILLINOIS
Date:10-9-96 By /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
Assistant Vice President
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