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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
