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EXHIBIT 10.31
TAX SHARING AGREEMENT
This Agreement is dated June 26, 2002. Its parties are NORTH
POINTE
HOLDINGS CORPORATION, a Michigan corporation ("Parent") and
AFFILIATED COMPANIES
(see Schedule A for the complete listing). It provides for the
sharing of
Federal and State income taxes among the parties. This Agreement
is effective
for all tax years in which these corporations are members of a
consolidated
return and affiliated group. In this Agreement each of the
parties is
collectively referred to as the "Corporations."
1. GENERAL AGREEMENT. The Corporations constitute an affiliated
group of
corporations under Section 1504(a) of the Internal Revenue Code
of 1986, and
they will make a consolidated Federal Income Tax Return under
Section 1501 of
the Code and file consolidated 1139 Net Operating Loss
Carrybacks as appropriate
for any taxable years within the statutory carryback period. For
state purposes
a consolidated or combined return may be filed. Parent retains
the right to
decide whether the Corporations will file consolidated, combined
or individual
returns.
2. PAYMENT OF TAX.
2.1 PARENT'S AUTHORITY. Parent will have the authority and
responsibility to pay income taxes due the Internal Revenue
Service and state
tax authorities, and collect income tax refunds from the
Internal Revenue
Service and state taxing authorities on behalf of itself and the
other
Corporations.
2.2 TIMING OF PAYMENTS. Upon request by Parent at least five
(5)
days before the applicable estimated payment date, the
Corporations will pay
Parent, the estimated taxes in an amount not to exceed the
amount of the
liability computed under Section 3 of this Agreement. The Parent
will refund
estimated tax refunds to the Corporations within 5 days of
receipt of the refund
from the taking authority in questions. Any settlements under
this Agreement
will be made within thirty (30) days of the filing of the
estimated or actual
consolidated income tax returns with the Internal Revenue
Service, except where
a refund is due, in which case, payment may be deferred to
within thirty (30)
days of receipt of such refund. If payment is made after thirty
(30) days of
receipt of such refund, interest will accrue on such amount at
the prevailing
prime rate.
2.3 TRANSMITTAL OF INFORMATION. When it files a consolidated
tax
return with the Internal Revenue Service, Parent will compute
each party's
actual tax liability in accordance with Section 3 of this
Agreement and furnish
copies of both the computation and the tax return to the
Corporations. Any
balance due will be payable to Parent upon notification of the
final
computation.
3. ALLOCATION OF TAX LIABILITY
3.1 METHOD OF APPORTIONMENT. The tax liability of the parties
will
be apportioned among them in accordance with the ratio of the
consolidated
taxable income attributable to each party having taxable income
bears to
consolidated taxable income. Under no circumstances however,
will any
Corporation pay more than if they had filed on a separate basis.
The party's
income used in computation is adjusted for the its portion of
the following
items:
3.1.1. consolidated deductions for net operating losses,
charitable contributions, dividends received and dividends paid
on preferred
stock of public utilities;
3.1.2. net capital gains, but without regard to any net
capital carryovers;
3.1.3. net capital loss and net loss from the capital
gain/ordinary loss rule;
3.1.4. consolidated net capital loss carryover absorbed in
tax
year. If a party generates a tax attribute (loss or credit) that
is or may be
absorbed by the consolidated group regular tax income, that
member will be paid
in compensation for the regular tax benefit associated with the
tax attribute.
The tax benefit payment shall be computed as follows:
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In any taxable year in which the consolidated regular federal
income
tax liability is reduced by a tax loss generated by a member,
the
amount of that loss used attributable to such member is equal to
the
sum of taxable incomes for members having taxable income
multiplied
by a fraction, the numerator of which is the separate tax loss
of
such member, and the denominator of which is the sum of the
tax
losses of all members having such losses.
The payment allocable to the loss member shall be the result of
the
preceding formula multiplied by the applicable consolidated
marginal
regular federal tax rate.
3.2 ALTERNATIVE MINIMUM TAX. In any taxable year in which a
consolidated alternative minimum tax (AMT) liability is payable
on the
consolidated federal income tax return, the consolidated federal
income tax
liability shall be allocated among the members in the following
manner:
3.2.1. The consolidated regular federal income tax liability
of the members will be allocated as provided in Section 3.1
above.
3.2.2. The consolidated alternative minimum tax liability
(i.e. the excess of the alternative minimum tax liability over
the regular tax
liability) shall be allocated to each member whose alternative
minimum taxable
income exceeds the breakeven alternative minimum taxable income
(i.e. the amount
of alternative minimum taxable income at which a member's
tentative alternative
minimum tax liability would equal its regular federal income tax
liability). The
amount of this liability allocated to any such member shall be
equal to the
consolidated alternative minimum tax liability multiplied by a
fraction, the
numerator of which is the excess of such member's alternative
minimum taxable
income over its regular taxable income, and the denominator of
which is the
excess of the sum of all such members' alternative minimum
taxable incomes over
the sum of their regular taxable incomes.
3.2.3. The amount of each member's minimum tax credit shall
equal its alternative minimum tax liability as allocated
under
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