Exhibit 10.6
AMENDED AND RESTATED
CONSOLIDATED FEDERAL INCOME TAX
ALLOCATION AGREEMENT
This Amended and Restated Consolidated Federal Income Tax Allocation
Agreement (this "Amended and Restated Allocation Agreement") is made and entered
into this 30th day of December, 1999.
WHEREAS, The Millers Mutual Fire Insurance Company ("Mutual") and all of
its includible subsidiaries, within the meaning of Section 1504 of the Internal
Revenue Code of 1986, as amended (the "Code"), constituted a consolidated group
for federal income tax purposes and filed a Consolidated Income Tax Return; and
WHEREAS, Mutual and its includible subsidiaries entered into that certain
Consolidated Federal Income Tax Allocation Agreement (the "Allocation
Agreement") effective as of January 1, 1994; and
WHEREAS, subsequent to the effective date of the Allocation Agreement, two
new companies, Millers Holding Corporation and INSpire Insurance Solutions, Inc.
(f/k/a Millers Integrated Claims Resources, Inc. and MiliRisk, Inc.)
("INSpire"), were formed, and agreed to abide by and be bound by the terms of
the Allocation Agreement, and evidenced such agreement by executing that certain
Addendum to Consolidated Federal Income Tax Allocation Agreement effective as of
the 20th day of September, 1995; and
WHEREAS, subsequent to the effective date of the Allocation Agreement,
INSpire acquired Strategic Data Systems, Inc., a Wisconsin corporation ("SDS"),
which in turn wholly owned Applied Quoting Systems, Inc., a Wisconsin
corporation ("AQS"), and SDS was merged with and into INSpire; and
WHEREAS, subsequent to the effective date of the Allocation Agreement,
Millers Holding Corporation acquired two companies, The Millers Direct Insurance
Company (f/k/a Amtex Insurance Company) ("Millers Direct") and The Millers
Specialty Insurance Company (f/k/a Lutheran Benevolent Insurance Exchange)
("Millers Specialty"); and
WHEREAS, in August 1997, Mutual sold an amount of stock of INSpire in
INSpire's initial public offering ("IPO") which caused INSpire and AQS to be
ineligible to continue to be included in a Consolidated Income Tax Return; and
WHEREAS, pursuant to Addendum No. 2 to Consolidated Federal Income Tax
Allocation Agreement ("Addendum No. 2"), among other things, (i) INSpire,
AQS, Millers Direct and Millers Specialty agreed to be bound by the
Allocation Agreement and (ii) the Allocation Agreement was terminated as to
INSpire and AQS;
WHEREAS, after Addendum No. 2, Millers Holding Corporation acquired
Millers General Agency, Inc. ("Agency");
WHEREAS, after Addendum No. 2, Millers Holding Corporation sold Millers
Specialty;
WHEREAS, on April 21, 1999, Mutual converted (the "Conversion") from a
mutual insurance company to a stock insurance company (as converted, "Millers
Insurance"), changed its name to "The Millers Insurance Company," and became a
wholly-owned subsidiary of Trilogy Holdings, Inc., a Nevada corporation
("Trilogy"), which in turn is a wholly-owned subsidiary of Millers American
Group, Inc., a Texas corporation ("Millers American");
WHEREAS, after the Conversion, Millers American formed two new
companies, Financial & Actuarial Resources, Inc., a Texas corporation
("FAR"), and Effective Litigation Management, Inc., a Texas corporation
("ELM");
WHEREAS, in September 1999, Millers American acquired Phoenix Indemnity
Insurance Co., an Arizona insurance company ("Phoenix");
WHEREAS, Millers American and all of its includible subsidiaries (the
"Subsidiary Companies"), within the meaning of Section 1504 of the Code,
constitute a consolidated group (the "Group") for federal income tax purposes
and intend to file a Consolidated Income Tax Return (the "Consolidated Return").
NOW, THEREFORE, the parties hereto agree as follows:
1. EFFECTIVE PERIOD OF CONSOLIDATION.
The election to allocate the Consolidated Tax Liability under IRC
Section 1552 shall be effective as of January 1, 1999 through
December 31, 1999 and for subsequent years as determined by Millers
American.
2. ALLOCATION OF CONSOLIDATED TAXABLE INCOME OR LOSS.
A consolidated Federal Income Tax Return will be filed for Millers
American and all includible subsidiaries. The taxable income or loss
for each Subsidiary Company will be computed and calculated in
accordance with the Code, as though that company were filing a
separate return. The amount of taxable income or loss for each
company will then be used in computing such company's portion of the
current tax liability or benefit.
3. DETERMINATION OF CURRENT TAX LIABILITY OR BENEFIT.
(a) Each Subsidiary Company will compute its current estimated
tax liability or benefit based upon the company's taxable
income or loss. These tax calculations will be determined
as if the company had filed a separate tax return and was
not part of a consolidated group. Each company will be
liable for the tax liability computed under this method or
will be entitled to receive a benefit for its loss utilized
in the Consolidated Return. Any taxable loss not utilized
in the current or prior years' tax returns will be carried
forward by such company. The benefit will be recognized by
the company when the carryforward is utilized in a
subsequent taxable year.
(b) Pursuant to IRC Regulation Section 1.1552-1(c), Millers
American as the common parent has elected to allocate the tax
liability of the group in the manner provided by IRC
Regulations Section 1.1552-1(a)(2).
Further, pursuant to IRC Regulation Section 1.1502-33(d)(1),
Millers American has elected to allocate the Federal income
tax liability of the group beginning with the taxable year
ending December 31, 1999 in the manner provided by Regulation
Section 1.1502-33(d)(3) in conjunction with the method
described in Regulation Section 1.1552-1(a)(2). In reference
to Regulation Section 1.1502-33(d)(2)(ii), the percentage of
the excess provided in Regulation Section 1.1502-33(d)(3)(i)
to be allocated to each member is 100%.
4. PAYMENT OF CURRENT TAX LIABILITIES OR REFUNDS.
Final calculations will be made and the Subsidiary Companies will
remit any adjusted tax liabilities to Millers American within 30
days after the filing of the Consolidated Tax Return. Millers
American will remit any refunds and/or benefits simultaneously to
the appropriate Subsidiary Company.
5. REPRESENTATIONS AND AGREEMENTS.
(a) Within 90 days after filing the Consolidated Return or any
amendment thereto, an additional review and adjustment (where
necessary) will be made to insure that;
1. The allocated tax liability for the companies will not be
greater than the tax liability they would have incurred if
they had been filing separate returns for all years of the
consolidated period; and
2. The allocated tax refund for the companies will not be
less than the tax refund they would have incurred if they
had been filing separate returns for all years of the
consolidation period.
(b) In the event of any adjustment to the federal income tax
liability of the Group (by reason of an amended return, claim
for refund, or an audit by the Internal Revenue Service), the
liability of Millers American and the Subsidiary Companies under
Section 5(a) above shall be redetermined to give effect to any
such adjustment as if it has been made as part of the original
computation of tax liability, and payments between Millers
American and the appropriate Subsidiary Company or Subsidiary
Companies shall be made within 90 days after any payments
reflecting such adjusted liability are made to the Internal
Revenue Service (or refunds reflecting such adjusted liability
are received from the Internal Revenue Service), or, in the case
of contested proceedings, within 90 days after a final
determination of the contest.
(c) Records of the tax allocations, the subsequent review of such
allocations, and any adjustments specified by 5(a) above will be
maintained at the office of Millers American.
(d) The Texas domestic insurers which are parties to this Agreement
shall be indemnified by Millers American Group Inc. in the event
the Internal Revenue Service levies upon the insurers company's
assets for unpaid taxes in excess of the amount paid under this
Agreement.
6. ACQUISITION OR FORMATION OF SUBSIDIARIES
Any subsidiaries acquired, formed, or to be acquired or formed in the
future shall become parties to this tax sharing agreement when such
subsidiaries become members of the consolidated group for federal
income tax purposes.
7. MILLERS SPECIALTY
Subject to Section 11 hereof, this Amended and Restated Allocation
Agreement shall be terminated as to Millers Specialty (a "Withdrawing
Member") as of December 11, 1998, but will continue in full force and
effect with respect to the other parties to this Amended and Restated
Allocation Agreement.
8. FAR
Effective as of June 9, 1999, FAR agrees to abide by and be bound by
the terms of the Amended and Restated Allocation Agreement.
9. ELM
Effective as of May 7, 1999, ELM agrees to abide by and be bound by
the terms of the Amended and Restated Allocation Agreement.
10. PHOENIX
Effective as of September 1, 1999, Phoenix agrees to abide by and be
bound by the terms of the Amended and Restated Allocation Agreement.
11. WITHDRAWING MEMBERS
Notwithstanding a termination as to the Withdrawing Member as
provided in Section 7 above, the Amended and Restated Allocation
Agreement shall continue in effect with respect to all parties to the
Amended and Restated Allocation Agreement, including such Withdrawing
Member, with respect to any payments or refunds due or any other
obligations relating to taxable periods prior to termination. All
parties, including the Withdrawing Member, agree that Millers
American shall represent the Group in any income tax proceeding,
audit, or other matter relating to a taxable period for which a
Consolidated Return has been filed by the Group and may bind the
Group with respect to items in that year. Notwithstanding the
foregoing sentence, Millers American agrees to notify a Withdrawing
Member of any material adjustment proposed by the Internal Revenue
Service that either would give rise to any obligation of such
Withdrawing Member to Millers American and to contest at such
Withdrawing Member's request, expense and direction, through counsel
reasonably satisfactory to such Withdrawing Member, any such proposed
adjustment until final judgment by the highest court having
jurisdiction thereof. In the event of any adjustment to the
Consolidated Returns as filed (by reason of an amended return, claim
for refund, settlement of an Internal Revenue Service or judicial
action), the respective obligations of the parties hereunder shall be
redetermined to give effect to any such adjustment in accordance with
the Amended and Restated Allocation Agreement as if it had been made
a part of the original computations thereunder, and any additional
accounting entries, payments or reimbursements between the parties as
may be required on account thereof shall be made promptly, in the
case of an uncontested adjustment, after agreement thereon is
reached, or, in the case of a contested adjustment after a final
determination of the contest. If any interest or penalty is to be
paid or received as a result of a tax deficiency or refund, such
interest or penalty shall be allocated to the parties in the ratio
each company's change in taxable income bears to the total change in
taxable income.
12. SUCCESSORS
This Amended and Restated Allocation Agreement shall be binding upon
and inure to the benefit of any successor, whether by statutory
merger, acquisition of assets, or otherwise, to any of the parties
hereto, to the same extent as if the successor had been an original
party to this Amended and Restated Allocation Agreement.
13. TEXAS DEPARTMENT OF INSURANCE APPROVAL
Notwithstanding any other provision hereof, this Amended and Restated
Allocation Agreement shall not become effective and binding on the
parties hereto until this Amended and Restated Allocation Agreement
is filed with and approved by the Texas Department of Insurance as
may be required under applicable insurance holding company laws and
regulations.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Allocation Agreement to be executed by their duly authorized
representatives.
Millers American Group, Inc. Millers Holding Corporation
By: /S/ JILL H. DRIGGERS By: /S/ JILL H. DRIGGERS
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Trilogy Holdings, Inc. Millers General Agency, Inc.
By: /S/ JILL H. DRIGGERS By: /S/ JILL H. DRIGGERS
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The Millers Insurance Company Financial & Actuarial Resources,
Inc.
By: /S/ JILL H. DRIGGERS By: /S/ JILL H. DRIGGERS
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Phoenix Indemnity Insurance Co. Effective Litigation Management,
Inc.
By: /S/ JILL H. DRIGGERS By: /S/ JILL H. DRIGGERS
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The Millers Casualty Insurance Company The Millers Direct Insurance
Company
By: /S/ JILL H. DRIGGERS By: /S/ JILL H. DRIGGERS
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