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TAX SHARING AGREEMENT EXHIBIT 10.16 (2)
This tax sharing agreement (the "Agreement") is entered into by American States
Financial Corporation ("ASFC"), a corporation organized under the laws of the
State of Indiana, and American States Insurance Company ("ASIC"), a corporation
also organized under the laws of the State of Indiana, 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 ASFC owns any ASIC stock. This Agreement
supersedes all prior tax sharing agreements between ASFC and ASIC or any
subsidiaries of ASFC and ASIC, except to the extent otherwise noted. As
described more fully below, the rights and obligations of ASFC and ASIC depend
upon the amount of ASIC stock owned by ASFC, and on whether ASFC and ASIC are
members of an affiliated group that files a consolidated federal income tax
return.
SECTION I. ASIC IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASIC 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 ASIC's Tax Liability. For any Tax Year in which ASIC
is a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between ASIC 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 ASIC, on a hypothetical separate return
basis ("Separate Tax Liability"), for each Tax Year, or for any part of a Tax
Year during which ASIC 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. ASIC 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, ASIC 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 ASIC
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 ASIC 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, ASIC shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of ASIC shall
not be included to the extent attributable to a period commencing on or after
the date that ASIC ceases to be includible in the LNC Consolidated Group.
g. For each quarter of a Tax Year that ASIC has net operating losses,
net capital losses, tax credits or any other tax benefits that have not been
used to decrease ASIC's Separate Tax Liability in the current Tax Year ("Excess
Tax Items") that can be used as hypothetical carry back items against prior
hypothetical ASIC separate return Tax Years ("Carry Back Items"), ASFC shall
reimburse ASIC for the use of such Carry Back Items at the rate ASIC would have
been entitled to receive had such Carry Back Items actually been used in an ASIC
claim for refund.
h. To the extent that Excess Tax Items can ultimately be used as
hypothetical carry forward items against future hypothetical ASIC Tax Years
("Carry Forward Items"), ASIC shall be entitled to use such Excess Tax Items to
offset future years' income but will be required to reimburse ASFC 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, ASFC shall reimburse ASIC at an amount equal to the actual decrease in
the tax
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liability of the LNC Consolidated Group for any Excess Tax Items used,
notwithstanding the fact that ASIC 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, ASIC shall be entitled to a reimbursement from ASFC
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 ASIC receives a payment from ASFC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASFC
shall be entitled to reimbursement from ASIC for the full amount of such
payments to the extent that ASIC may use such Excess Tax Items as Carry Forward
Items. To the extent that ASIC has been compensated by ASFC under a prior tax
sharing agreement for an amount which would qualify as an Excess Tax Item under
this Agreement, ASFC shall also be entitled to reimbursement from ASIC for the
full amount of such prior payments to the extent that ASIC may use such Excess
Tax Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to entitle
ASIC 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 ASIC.
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 ASIC shall be available for use as an AMT
credit in calculating ASIC'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.
b. If ASIC 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 ASIC shall not be required to pay the AMT
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amount to ASFC. Instead, ASIC shall pay to ASFC 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 ASIC 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 ASIC 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 ASFC and ASIC 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, ASIC shall pay to
ASFC 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, ASFC shall reimburse ASIC for the use of that item
within five days following the due date of such quarterly payment. Likewise, to
the extent that ASIC can use an Excess Tax Item for which it has received
payment from ASFC pursuant to Section
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I.B.2., above, as a Carry Forward Item, ASIC shall reimburse ASFC 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 ASFC and ASIC which is equal to the difference between the
quarterly payments made pursuant to paragraph a. above, and the estimated annual
Separate Tax Liability of ASIC.
c. Within 45 days after the filing of the annual federal income tax
return of the LNC Consolidated Group, adjusting payments shall be made between
ASFC and ASIC to the extent of any difference between the payments made pursuant
to paragraph a. or b. above, and the annual Separate Tax Liability of ASIC. 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 ASIC
can use such an item as a Carry Back Item, then the reimbursement by ASFC to
ASIC contemplated in Section I.B.1.g., above, shall also be made within 45 days
after the filing of the annual federal income tax return of the LNC Consolidated
Group.
d. Within 45 days of a settlement of any IRS audit dispute, adjusting
payments shall be made between ASFC and ASIC 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.
6. Information. If any information relevant to making any calculation
covered by this Agreement is particularly within the knowledge or possession of
ASIC or any subsidiary of ASIC, ASIC shall promptly provide such information to
LNC and shall also provide any supporting schedules, data or details which LNC
may reasonably request.
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 ASIC files on a Combined Return Basis with one or more other corporations
in the LNC Consolidated Group, ASIC's state tax liability shall be calculated
and allocated in a manner comparable to that provided in Section I of this
Agreement.
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SECTION II. ASIC NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period
in which ASFC owns any stock of ASIC, but ASIC is not included in the LNC
Consolidated Group, ASIC 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 ASIC 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 ASFC owns sufficient ASIC stock to result in
ASFC and ASIC being treated as a consolidated group for financial statement
reporting purposes, ASFC 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 ASIC
carries forward tax attributes for which it has already received compensation
from ASFC pursuant to the terms of Section I. above, ASIC shall reimburse ASFC
for the previous payment by ASFC to ASIC, at the time of the deconsolidation of
ASFC and ASIC. To the extent that ASIC has paid ASFC for a Separate Tax
Liability for which it remains liable after leaving the LNC Consolidated Group,
ASFC shall reimburse ASIC for the previous payment by ASIC to ASFC at the time
of the deconsolidation of ASFC and ASIC. Similarly, to the extent that the
ultimate amount of tax paid differs from the amount of tax liability initially
calculated for any given Tax Year in which ASIC was included in the LNC
Consolidated Group, ASFC or ASIC, 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 ASIC leaves the LNC
Consolidated Group, the amount of AMT credit which it shall be allowed to carry
over without any obligation to reimburse ASFC shall not exceed the amount
allocated pursuant to Section I.B.3, above. ASFC shall be reimbursed by ASIC to
the extent that any AMT
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credit actually carried over exceeds the amounts calculated in Section I.B.3.,
at the time of the deconsolidation. Also, ASIC shall be reimbursed by ASFC 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 ASIC should the amount
of tax that ASIC 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 ASIC having
been a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
ASIC 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, ASIC 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 ASIC
after it leaves the LNC Consolidated Group. ASIC 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 ASIC for a prior tax period is subsequently
redetermined, as a result of filing an amended return, the outcome of an IRS
examination, the retroactive application of a new tax law or tax regulation, or
other similar modifying action or item, ASIC shall pay ASFC for any such
increases to ASIC's tax liability and is also entitled to receive a payment from
ASFC for any decreases in tax liability attributable to ASIC.
2. Prior Tax Payments. To the extent that ASIC paid to ASFC 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, ASIC 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.
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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. ASIC 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 ASIC Subsidiaries. If ASIC 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. ASIC shall treat each such subsidiary corporation as if ASIC
has an identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless ASIC 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, ASFC or ASIC, 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 ASFC and ASIC 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.
F. Maintenance of Books and Records. ASFC and ASIC 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, ASFC and
ASIC 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.
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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:August 13, 1996 By ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Executive Vice President and Chief Financial Officer
AMERICAN STATES FINANCIAL CORPORATION
Date: 8-22-96 By ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Senior Vice President, Treasurer and
Chief Financial Officer
AMERICAN STATES INSURANCE COMPANY
Date: 8/22/96 By ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Vice President
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