AMENDED AND RESTATED TAX SHARING
AGREEMENT
THIS AMENDED AND
RESTATED TAX SHARING AGREEMENT (this “Agreement”) dated
as of October 19, 2006, among Donegal Group Inc., a Delaware
corporation (“DGI”), Atlantic States Insurance Company,
a Pennsylvania stock casualty insurance company
(“Atlantic”), Southern Insurance Company of Virginia, a
Virginia stock casualty insurance company (“Southern”),
Le Mars Insurance Company, an Iowa stock casualty insurance company
(“Le Mars”), The Peninsula Insurance Company, a
Maryland stock casualty insurance company (“Peninsula”)
and Peninsula Indemnity Company, a Maryland stock casualty
insurance company (“PIC”). Atlantic, Southern, Le Mars,
Peninsula and PIC are each referred to herein as the
“Subsidiary.”
WHEREAS, each
Subsidiary is a member of an affiliated group (the
“Group”) within the meaning of section 1504(a) of the
Internal Revenue Code of 1986, as amended (the “Code”)
of which DGI is the common parent corporation and each Subsidiary
has been a party to a separate tax-sharing agreement with
DGI;
WHEREAS, DGI will
continue to include each Subsidiary in its consolidated federal
income tax returns in accordance with Code sections 1501 and 1502
and wishes to enter into this Agreement so that DGI and each
Subsidiary are all parties to the same tax-sharing
agreement;
WHEREAS, the
parties hereto deem it equitable that, with respect to each taxable
year for which a consolidated return is filed on behalf of the
Group, each Subsidiary shall pay DGI an amount equal to its
Separate Company Tax Liability (as hereinafter defined);
and
WHEREAS, the
parties wish to provide for the treatment of various other matters
that may arise as a result of the filing of consolidated returns,
and the parties wish to set forth in this Agreement the agreement
between DGI and each Subsidiary with respect to the allocation and
settlement of the federal, state and local taxes of the Group with
respect to each taxable period ending on or after the date hereof
during which such Subsidiary is included in the affiliated group of
which DGI is the common parent (the “Affiliation
Periods”).
NOW, THEREFORE, in
consideration of the mutual covenants contained herein and
intending to be legally bound hereby, the parties agree as
follows:
1. Filing
of Returns . With respect to each Affiliation Period, DGI shall
file, and each Subsidiary shall agree to join in the filing of,
consolidated federal income tax returns on behalf of the Group.
Each Subsidiary shall execute and file such consents, elections and
other
documents as
DGI reasonably requests with respect to the filing of the
Group’s consolidated federal income tax returns, and shall,
consistently with Section 4, timely provide to DGI such
information as may be necessary for the filing of such returns or
for the determination of amounts due under this Agreement. Each
Subsidiary acknowledges and agrees that the rights conferred upon
DGI in connection with the filing of the Group’s returns
include, without limitation, the right to reasonably determine the
allocation of income or loss of DGI and any other subsidiary
between the last Affiliation Period and the next taxable period.
Each Subsidiary shall file all federal, state, local and foreign
tax returns with respect to all periods for which such Subsidiary
does not join DGI in filing a consolidated return and the
Subsidiary shall be responsible for the payment of all taxes in
connection therewith. The Subsidiary shall file any such tax
returns in a manner consistent with the manner in which DGI filed
its returns for Affiliation Periods except as required by law or to
the extent any inconsistency would not adversely affect the tax
returns of the Group.
(a)
Due Dates . Except as otherwise provided in this Agreement:
(i) each Subsidiary will pay to DGI the amount due DGI, as
determined under Section 2(b), no later than the due date for
the filing of any federal income tax return of the Group that
includes such Subsidiary, and (ii) DGI will pay to each
Subsidiary the amount due such Subsidiary, as determined under
Section 2(c), no later than the due date for the filing of any
federal income tax return of the Group that includes such
Subsidiary; provided, however, that no later than each estimated
federal income tax payment date of the Group for which the Group
actually incurs a federal income tax liability with respect to an
Affiliation Period, each Subsidiary shall pay to DGI the greater of
(i) the minimum amount required to be paid to avoid the
imposition of any penalties or additions to tax under the Code,
determined on the same basis as the total amount due for an
Affiliation Period under Section 2(b) or (ii) one-fourth of
the amount estimated to be payable by such Subsidiary for such
taxable year under Section 2(b). The amount of any overpayment
or underpayment pursuant to this Section 2(a) shall be credited
against, or added to, as the case may be, the amount otherwise
required to be paid for the period within which the amount of such
overpayment or underpayment first becomes reasonably ascertainable.
The settlements may be satisfied by check, wire transfer or through
intercompany accounts as the parties may mutually agree.
(b)
Amount Due to DGI . Each Subsidiary shall pay DGI in the
time and manner described in Section 2(a) an amount equal to any
Separate Company Tax Liability of that Subsidiary. The
“Separate Company Tax Liability” for any Affiliation
Period shall be the amount, if any, of the federal income tax
liability, including, without limitation, liability for any
penalty, fine, additions to tax, interest, minimum tax, alternative
minimum tax and other items applicable to that Subsidiary in
connection with the determination of the Subsidiary’s tax
liability, which the Subsidiary would have incurred had it filed a
separate federal income tax return for such Affiliation Period,
computed in the manner prescribed in Income Tax
-2-
Regulation
section 1.1552-1(a)(2)(ii), except that no carryforward or
carryback of losses or credits shall be allowed.
The
Separate Company Tax Liability for a Subsidiary shall be determined
by DGI, with the cooperation and assistance of the Subsidiary, in a
manner consistent with (i) general tax accounting principles,
(ii) the Code and regulations thereunder and (iii) so
long as a reasonable legal basis exists therefor, prior custom and
practice. In addition, transactions or items between DGI and a
Subsidiary that are deferred under the federal income tax return
shall also be deferred for purposes of this Agreement until such
time as they are restored or otherwise triggered into income under
the Code or regulations.
(c)
Amount due to a Subsidiary . In the event a Subsidiary does
not have Separate Company Tax Liability for an Affiliation Period,
but instead either incurs net losses or credits for such period,
DGI shall pay the Subsidiary in the time and manner prescribed in
Section 2(a) the amount by which the Group’s federal income
tax liability for such period is actually reduced by reason of the
actual use of such losses or credits attributable to the Subsidiary
in the Group’s federal income tax return.
In
the event a Subsidiary incurs any tax losses or tax credits that,
as permitted under the Code and the regulations, are carried back
or forward to one or more Affiliation Periods, DGI shall pay that
Subsidiary an amount equal to the amount by which the Group’s
federal income tax liability is actually reduced by reason of the
actual use of such carried over losses or credits in the
Group’s federal income tax return. Any payment from DGI to
the Subsidiary required on account of such carryover shall be paid
within 15 days of the date the benefit of the carryover is
realized by DGI by reason of the receipt of a refund or credit of
taxes.
(d)
Paying Agent . DGI agrees to make all required payments to
the Internal Revenue Service (“IRS”) of the
consolidated federal income tax liability, if any, of the
Group.
3.
Adjustments to Tax Liability .
(a)
Adjustment-Related Payments . If the consolidated federal
income tax liability of the Group or any of its members is adjusted
for any taxable period for any reason other than a loss or credit
carryback to the extent already provided for in Section 2(c),
whether by means of an amended return, judicial decision, claim for
refund or tax audit by the IRS, the Separate Company Tax Liability
or the amount of tax benefits realized by the Group by reason of
the use of a Subsidiary’s losses or credit shall be
recomputed to give effect to such adjustment, and the amount of any
payments due under Section 2 shall be appropriately adjusted.
Any additional payment between DGI and a Subsidiary required by
reason of such recomputed Separate Company Tax Liability or Group
tax refund or
|
