Exhibit 10.7
AMENDED TAX SHARING AGREEMENT
AGREEMENT, dated as of January 1, 2005, by and between Alleghany
Insurance Holdings LLC, a Delaware limited liability company ("AIHL"), and
Darwin Professional Underwriters, Inc. ("Darwin').
WITNESSETH:
WHEREAS, AIHL is wholly-owned by Alleghany Corporation, a Delaware
corporation ("Alleghany"), and is treated as a "disregarded entity" for Federal
income tax purposes; and
WHEREAS, Alleghany is the "common parent" corporation of an
"affiliated group" of corporations (the "Alleghany Group"), as those terms are
defined in Section 1504(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), which group, by reason of Alleghany's ownership of AIHL, includes
Darwin, and any corporation that is or subsequently becomes a member of an
"affiliated group" of which Darwin would be the "common parent," as such terms
are defined in Section 1504(a) of the Code, if Darwin were owned by individuals
(Darwin and any current or future member of its affiliated group being referred
to herein as the "Darwin Group"); and
WHEREAS, AIHL has agreed with Alleghany for determining on an
equitable basis the amount to be paid by AIHL to Alleghany on account of the
ownership by AIHL of any entity included in the Alleghany Group; and
WHEREAS, AIHL and Darwin desire to agree on an equitable basis for
determining the amount to be paid by Darwin to AIHL on account of the inclusion
of the Darwin Group in the Alleghany Group; and that it may have under this
Agreement. Alleghany shall have full and sole responsibility and discretion in
handling, settling,
compromising or contesting any tax audit or contest involving such Tax Claim;
provided, however, that at the time that Darwin is no longer a member of the
Alleghany Group, Alleghany shall keep Darwin informed as to the progress of any
tax audit or contest and, if requested by Darwin, shall consult with, and
consider in good faith any recommendation by, Darwin (or its counsel) concerning
the conduct of such tax audit or contest.
1. Resolution of Disputes as to the Darwin Group's Hypothetical Tax.
In the event of a disagreement between the parties hereto as to the amount of
the Darwin Group's hypothetical tax for any taxable year covered by this
Agreement, such amount shall be determined by the independent certified public
accountants who audit the certified financial statements of Alleghany for such
taxable year, and the determination of such accountants shall be final and
binding on the parties hereto; provided, however, that if the independent
certified public accountants who audit the certified financial statements of
Alleghany for such taxable year are not permitted or are unwilling to resolve
any such disagreement, then Alleghany and Darwin shall submit such disagreement
to a mutually acceptable national accounting firm (which shall not be the
accountants who regularly audit the financial statements of Darwin), whose
decision shall be conclusive and binding on Alleghany and Darwin. Alleghany and
Darwin shall each pay one-half of the fees and expenses of such mutually
acceptable national accounting firm.
2. Earnings and Profits and Characterization of Payments. Earnings and
profits of each member of the Alleghany Group shall be calculated by allocating
the federal income tax liability of the Alleghany Group to each member in
accordance with
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the method described in Section 1552(a)(2) of the Code and the applicable
Treasury Regulations thereunder.
3. Termination of Membership in the Alleghany Group.
(a) If Darwin should cease to be a member of the Alleghany Group at
any time, Darwin and AIHL agree that for income tax purposes the taxable period
of the Darwin Group which began on January 1 of the calendar year in which
Darwin ceases to be a member of the Alleghany Group shall be terminated as of
the close of business on the date Darwin ceases to be a member of the Alleghany
Group (the "Termination Date") in accordance with Treasury Regulations Section
1.1502-76(b)(1) and items of income, gain, loss, deduction or credit (other than
transactions properly allocable thereunder to the portion of the day after the
Termination Date shall occur) shall be apportioned based upon a closing of the
books for income tax purposes in accordance with Treasury Regulation Section
1.1502-76(b), as reasonably applied by Alleghany. No election shall be made
under Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable
allocation of a year's items), and Treasury Regulation Section
1.150276(b)(2)(iii) will be applied to ratably allocate the items (other than
extraordinary items, including, without limiting the generality of the
foregoing, compensation items) for the month which includes the Closing Date.
All amounts attributable to any deferred intercompany transactions (as defined
in Treasury Regulation Section 1.1502-13) any "excess loss accounts" (as defined
in Treasury Regulation Section 1.1502-19) and other similar items among or
involving the members of the Darwin Group required to be taken into account at
the time Darwin ceases to be a member of the Alleghany Group shall be taken into
account in computing the Darwin Group's hypothetical tax for the taxable period
that
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includes the Termination Date. Darwin agrees to file all tax returns, handle the
contest of any audit and otherwise act for all Tax purposes consistent with the
provisions of this Section 7(a).
(b) Except as otherwise expressly contemplated by this Agreement, from
and after the Termination Date, Darwin will not without the prior written
consent of Alleghany (which consent shall not be unreasonably conditioned,
delayed or withheld), directly or indirectly make, change or revoke, or permit
to be made, changed or revoked, any election or method of accounting with
respect to federal income taxes affecting the liability of the Darwin Group for
tax periods prior to the Termination Date or that is intended to be effective
prior to the Termination Date.
(c) All of the obligations of Darwin under this Agreement shall
continue in full force and effect following the Termination Date notwithstanding
that neither Darwin nor the Darwin Group may be members of the Alleghany Group,
including without limiting the generality of the foregoing, Darwin's obligation
to pay AIHL any additional federal income taxes arising by reason of any
adjustments to the Darwin Group's hypothetical tax for any taxable year that
Darwin was a member of the Alleghany Group. All of the obligations of AIHL shall
be terminated effective as of the Termination Date, except the obligations of
AIHL under Sections 3(b), 3(e) and 9.
(d) None of Darwin, the Darwin Group, or any affiliated group (within
the meaning of Section 1504(a) of the Code), which includes any member of the
Darwin Group shall claim in, or carryback to, any taxable year for which a
consolidated federal income tax return is or was filed by Alleghany any item of
loss, deduction or credit arising in any tax period beginning after the
Termination Date.
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(e) Notwithstanding that Darwin may not have been paid for all of the
net operating losses, net capital losses, credits against tax or other tax
deductions or benefits (the "Tax Benefits") generated while Darwin was a member
of the Alleghany Group or that the Tax Benefits of the Darwin Group following
the Termination Date may be less than the Tax Benefits immediately preceding the
Termination Date, neither AIHL nor any other member of the Alleghany Group shall
have any obligation to pay or otherwise compensate Darwin or any member of the
Darwin Group for or in respect of such Tax Benefits.
4. Retention and Access to Tax Records.
(a) Darwin shall, and shall cause the members of the Darwin Group, to
preserve and keep all information returns with respect to federal income taxes,
or any other similar reports, statements, declarations, or documents required to
be filed by, or furnished to, any member of the Darwin Group under the Code,
including any attachments, exhibits, or other materials submitted with any of
the foregoing, including any amendments or supplements to any of the foregoing,
any federal income tax return work papers, any books and records relating to or
effecting, federal income taxes, any documentation relating to any audit,
review, examination, or any other administrative or judicial proceeding with the
purpose of effect of redetermining federal income taxes, and any other books of
account or records required to be maintained under the Code or Treasury
Regulation or under any record retention agreement with the Internal Revenue
Service ("Tax Records") relating to the assets and activities of the Darwin
Group for tax periods for which any were members of the Alleghany Group for so
long as the contents thereof may become material in the administration of any
matter under the Code, but in
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any event until the later of (i) the expiration of any applicable statutes of
limitation, and (ii) seven years after the Termination Date. If, prior to the
expiration of the applicable statute of limitation and such seven-year period,
Darwin reasonably determines that any Tax Records which it is required to
preserve and keep under this Section 8(a) are no longer material in the
administration of any matter under the Code, Darwin may dispose, or may permit
the members of the Darwin Group to dispose, of such records upon 90 days' prior
notice to Alleghany. Such notice shall include a list of the records to be
disposed of describing in reasonable detail each file, book, or other record
accumulation being disposed. Alleghany shall have the opportunity, at its cost
and expense, to copy or remove, within such 90-day period, all or any part of
such Tax Records.
(b) Darwin shall, and shall cause each member of the Darwin Group to,
cooperate in good faith with AIHL (and AIHL's legal and accounting
representatives) (including by copying relevant records and providing access to
or making available relevant personnel) in connection with the preparation of
any federal consolidated income tax returns (including any amended consolidated
federal income tax returns), the determination of the Alleghany Group's own
liability for federal income taxes, the determination of any item or matter
effecting the Darwin Group's hypothetical tax for any year and any audit or
other examination by any taxing authority, or any judicial or administrative
proceedings relating to the determination of any item or matter effecting the
Darwin Group's hypothetical tax. Any information obtained pursuant to this
Section 9 shall be held in strict confidence by AIHL and shall be used solely in
connection with the reason for which it was requested.
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5. AIHL Liability. Provided that Darwin and the members of the Darwin
Group have performed each and every obligation under this Agreement (whether or
not material), AIHL shall be liable for, and shall indemnify and hold harmless
Darwin and each member of the Darwin Group from and against any liability for
federal income taxes of the Alleghany Group imposed by Subtitle A or F of the
Code or Chapter 43 of Subtitle D of the Code.
6. Miscellaneous Provisions.
(a) Entire Understanding. This Agreement contains the entire agreement
and understanding among the parties with respect to the subject matter hereof
and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
(b) Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such state.
(c) Further Assurances. The parties hereto shall execute and deliver
such further instruments and do such further acts and things (including, without
limitation, by causing their subsidiaries to execute and deliver such
instruments and to do such acts and things) as may be required to carry out the
intent and purpose of this Agreement.
(d) Fees and Expenses. All fees and expenses of the preparation of any
tax returns, any fees and expenses related to, or arising out of, the
examination of any such tax returns and all costs of defending any adjustments
or proposed adjustments, as
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the case may be, which are attributable to the Darwin Group shall be allocated
by AIHL to Darwin, and the amounts so allocable to the Darwin Group shall be
paid by Darwin to AIHL promptly upon request.
(e) Interest and Penalties. If any interest is to be paid or received
as a result of any tax deficiency or refund, or any penalties are imposed with
respect to the treatment of any item on any return or schedule, in each case
attributable to the Darwin Group, then such interest or penalty shall be
allocated by AIHL, and the amounts so allocable to the Darwin Group shall be
paid by Darwin to AIHL, or from AIHL to Darwin, as the case may be, promptly
following the demand therefore by any taxing authority or the receipt thereof by
Alleghany, as the case may be.
(f) Allocations and Apportionments. Whenever any amount or item is
required to be apportioned or allocated pursuant to this Agreement, such amount
shall be allocated in good faith and a manner that is reasonable in view of all
applicable circumstances. However, any amount allocated or apportioned shall be
deemed correct absent bad faith or manifest error.
(g) Third Party Beneficiary. AIHL and Darwin intend that Alleghany is
a third party beneficiary of this Agreement, entitled to enforce all of the
rights of AIHL and the obligations of Darwin hereunder as if it were a party
hereto. Notwithstanding the foregoing, Alleghany shall not be subject to any of
the obligations of AIHL, nor shall any of the rights of Darwin be enforceable
against Alleghany.
(h) Interpretation of Terms. Unless otherwise indicated, the words and
concepts used in this Agreement shall be given the same definitions and meanings
ascribed to them by the Code or the Treasury Regulations. Any alteration,
modification,
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addition, deletion, or other change in the applicable provisions of the Code or
the Treasury Regulations shall automatically be applicable to this Agreement
mutatis mutandis. Unless otherwise indicated, all references herein to a
particular section of the Code or the Treasury Regulations shall include any
successor provision designated by a different or additional section reference.
(i) Subsidiary Tax Sharing Agreements. Darwin shall enter into tax
sharing agreements with each member of the Darwin Group ("Darwin Group
Agreements") which Darwin Group Agreements shall not contain any terms or
provisions inconsistent with this Agreement. In addition, to the extent that
this Agreement imposes any obligation on the Darwin Group, Darwin shall cause
the Darwin Group Agreements to also impose that obligation on each member of the
Darwin Group.
(j) Amendment and Waiver. No modification, amendment or waiver of any
provision of this Agreement shall be effective unless such modification,
amendment or waiver is approved in writing by each of AIHL and Darwin. The
failure of any party to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
(k) Successors and Assigns. This Agreement shall bind and inure to the
benefit of and be enforceable by AIHL and Darwin and each of their respective
successors, assigns, heirs and personal representatives. Except for the
assignment by AIHL of its rights and obligations to Alleghany, no party shall
have the right to assign all
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or part of its rights and obligations under this Agreement without the consent
of the other party hereto.
(l) Notices. All notices, requests and other communications pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given, if delivered in person or by courier, or sent by express, registered or
certified mail, postage prepaid, to AIHL or to Darwin at the address set forth
below:
If to AIHL:
Alleghany Insurance Holdings LLC
c/o Alleghany Corporation
0 Xxxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Chairman
with a copy to:
Alleghany Corporation
0 Xxxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
If to Darwin:
Darwin Professional Underwriters, Inc.
0 Xxxx Xxxxxxx Xxxx Xxxxxxxxxx
Xxxxxxxxxxx 00000
Attention: Chairman
Any party may, by written notice to the other party hereto, change the address
to which notices to such party are to be delivered or mailed.
(m) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
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(n) Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
(o) Effective Date. This Agreement shall be effective from and after
January 1, 2005 for all tax periods, whether before or after January 1, 2005.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date first above
written.
ALLEGHANY INSURANCE HOLDINGS LLC
By: /s/ Xxxxx X. Xxxxxx
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Name Xxxxx X. Xxxxxx
-----------------------------------
Title: Senior Vice President
---------------------------------
DARWIN PROFESSIONAL UNDERWRITERS, INC.
By: /s/ Xxxx X. Xxxxxxx, Xx.
------------------------------------
Name Xxxx X. Xxxxxxx, Xx.
-----------------------------------
Title: SVP, CFO
--------------------------------
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