Exhibit 10.14
TAX SHARING AGREEMENT
BY AND AMONG
NCRIC, A MUTUAL HOLDING COMPANY,
NCRIC HOLDINGS, INC.,
NCRIC GROUP, INC.,
NCRIC, INC.,
NCRIC MSO, INC.,
COMMONWEALTH MEDICAL LIABILITY INSURANCE COMPANY,
NATIONAL CAPITAL INSURANCE BROKERAGE, LTD.,
NCRIC INSURANCE AGENCY, INC.,
NCRIC PHYSICIANS ORGANIZATION, INC.
AND
HCI VENTURES, LLC
TABLE OF CONTENTS
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1. Computation of Member Shares...............................2
2. Payments by Member Companies...............................3
3. Estimated Tax Payments.....................................3
4. Audit Results..............................................3
5. Separate Use of Losses.....................................3
6. Payments Due...............................................3
7. Termination................................................4
8. Assignment.................................................4
9. Binding Effect.............................................4
10. Arbitration................................................4
11. Access to Materials........................................4
12. Inclusion of a New Member Company..........................4
13. Effective Date.............................................5
14. Entire Agreement...........................................5
15. Modification...............................................5
16. 1995 Agreement.............................................5
TAX SHARING AGREEMENT
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THIS TAX SHARING AGREEMENT (the "Agreement") is entered into as of this 1st
day of January, 1999, by and among NCRIC, A Mutual Holding Company, a mutual
insurance company organized under the laws of the District of Columbia ("Mutual
Holding Company"), and its subsidiaries, NCRIC Holdings, Inc., a stock holding
company organized under the laws of the District of Columbia ("Upper Tier
Intermediate Holding Company"); NCRIC Group, Inc., a stock holding company
organized under the laws of the District of Columbia ("Lower Tier Intermediate
Holding Company"); NCRIC, Inc., a stock insurance company organized under the
laws of the District of Columbia ("Reorganized Stock Company"); NCRIC MSO, Inc.,
a corporation organized under the laws of the State of Delaware; Commonwealth
Medical Liability Insurance Company, a stock insurance company organized under
the laws of the Commonwealth of Virginia ("CML"); National Capital Insurance
Brokerage, Ltd., an insurance brokerage organized under the laws of the District
of Columbia ("NCIB"); NCRIC Insurance Agency, Inc., an insurance agency
organized under the laws of the District of Columbia ("NIA"); NCRIC Physicians
Organization, Inc., a physicians organization organized under the laws of the
District of Columbia ("NCRIC PO"); and HCI Ventures, LLC, a limited liability
company organized under the laws of Virginia (collectively, the "Subsidiaries").
Mutual Holding Company and all Subsidiaries sometimes hereinafter are referred
to as "Member Companies" and, collectively, as the "Affiliated Group."
RECITALS:
1. National Capital Reciprocal Insurance Company ("NCRIC"), CML, NCIB,
NIA and NCRIC PO entered into a Tax Sharing Agreement dated December 1, 1995
(the "1995 Agreement").
2. Effective June 30, 1997, National Capital Underwriters, Inc. ("NCUI")
became a subsidiary of NCRIC and became subject to the 1995 Agreement.
3. Pursuant to a Plan of Reorganization dated July 24, 1998, NCRIC
reorganized (the "Reorganization") into Reorganized Stock Company with Mutual
Holding Company as a mutual insurance holding company and Upper Tier
Intermediate Holding Company and Lower Tier Intermediate Holding Company as
intermediate stock holding companies. As a result of the Reorganization, Mutual
Holding Company owns directly or indirectly 100% of the issued and outstanding
capital stock of each of the Subsidiaries.
4. Pursuant to Articles of Merger dated January 4, 1999, NCUI was merged
with and into Reorganized Stock Company, with Reorganized Stock Company
surviving.
5. The Member Companies are members of an affiliated group within the
definition of section 1504(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
6. The Affiliated Group will file a consolidated federal income tax
return for the year commencing January 1, 1999 and subsequent years.
7. It is the intention of the Member Companies that each Member Company
should contribute its fair and equitable share to the income and similar tax
liabilities payable by the Affiliated Group.
8. The Member Companies, by execution of this Agreement, intend to set
forth in writing the manner in which the Member Companies share in the
allocation of such taxes and to use the method described in this Agreement as
the method for (i) allocating the consolidated tax liability of the Affiliated
Group among the Member Companies; (ii) reimbursing Mutual Holding Company for
the payment of such tax liability; and (iii) providing for the allocation and
payment of any tax refunds.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the undersigned parties hereto agree as follows:
1. Computation of Member Shares. For each taxable period, the Member
Companies' respective shares of tax liability shall be determined as follows:
(a) Computation of Consolidated Tax. On or before the date
provided by law for payment of any federal income or similar tax by the
Affiliated Group, a computation shall be made of the Affiliated Group's
consolidated tax liability, including alternative minimum tax. The amount so
computed is hereinafter referred to as the "Consolidated Tax."
(b) Separate Member Tax. There shall be computed for each Member
Company a separate tax liability, as if it had filed a separate tax return (the
"Separate Tax"), computed as provided in Treasury Regulation (S) 1.1552-
1(a)(2)(ii), as in effect from time to time; provided, however, that the
Separate Tax shall be determined based upon the effective tax rate applicable
for determining the Consolidated Tax for the applicable tax period; and provided
further, that any carryover or carryback of losses, deductions, credits or of
any other tax attribute from preceding or succeeding tax years, which are not
available in determining the Consolidated Tax for such taxable period, shall be
disregarded. If a Member Company's computation would not result in a positive
tax return liability, then such Member Company's Separate Tax shall be zero.
(c) Allocation. The Consolidated Tax shall be apportioned among the
Member Companies, under Treasury Regulation (S) 1.1552-1(a)(2), based upon the
ratio of each Member Company's Separate Tax to the total of the Member
Companies' Separate Taxes. Accordingly, the amount of Consolidated Tax
allocable to any Member Company will be equal to the Consolidated Tax multiplied
by a fraction, the numerator of which is the Member Company's Separate Tax and
the denominator of which is the sum of the Separate Taxes for all Member
Companies.
(d) No Payment or Credit to Member Companies. Notwithstanding that
one or more Member Companies may, in a particular tax period, realize losses,
credits or other tax benefits which, on a consolidated basis, reduce the
Consolidated Tax, such Member Company or Companies shall not be entitled to
payment or credit therefor.
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2. Payments by Member Companies. If for any taxable period there is a
Separate Tax with reference to a Member Company, then such Member Company shall
promptly pay to Mutual Holding Company an amount equal to the Member Company's
share of the Consolidated Tax.
3. Estimated Tax Payments. In Mutual Holding Company's discretion, the
provisions for payment of the Consolidated Tax for a taxable period shall apply
to the payment of estimated tax installments due for such taxable period. In
the event Mutual Holding Company provides notice to the Subsidiaries of
liability for estimated tax payments, each Subsidiary shall pay to Mutual
Holding Company its share of each estimated tax payment within thirty (30) days
of receiving such notice, but in no event later than the due date for each such
estimated tax payment. Any amounts paid by a Subsidiary on account of a
separate return or separate estimated tax payments which are credited against
the Consolidated Tax shall be included in determining the payments due from such
Subsidiary. Any overpayment of estimated tax shall be refunded to the
Subsidiary.
4. Audit Results. If, as a result of an amended return, audit, or other
adjustment, the Consolidated Tax is adjusted or it is determined that there was
an error in the computation of any payment hereunder, the liability of each
Member Company shall be redetermined to give effect to such adjustment or the
correction of such error. An appropriate return of payment or additional
payment shall promptly be made to or by each Member Company, as the case may be,
within ninety (90) days of Mutual Holding Company's providing notice of the
adjustment, together with interest thereon in accordance with Internal Revenue
Service requirements. Such return of payment or additional payment shall be
made regardless of whether at that date Mutual Holding Company and all Member
Companies are still joining in consolidated returns.
5. Separate Use of Losses. If part or all of an unused loss or tax
credit is allocated to a Member Company pursuant to Treasury Regulation (S)
1.1502-79, as in effect from time to time, and is carried back or forward to a
year in which such Member Company filed a separate return or a consolidated
return with another affiliated group, any refund or reduction in tax liability
arising from the carryback or carryover shall be paid by such Member Company to
Mutual Holding Company. Notwithstanding the above, Mutual Holding Company shall
determine whether an election shall be made not to carry back part or all of a
consolidated net operating loss for any taxable year in accordance with Code
section 172(b)(3).
6. Payments Due. Except as otherwise provided in this Agreement, all
settlements between and among Member Companies of the Affiliated Group under
this Agreement shall be made within ninety (90) days after the date of filing of
the consolidated income tax return; provided further, where a refund from the
taxing authority is due to the Affiliated Group, Mutual Holding Company may
defer payment to Member Companies for ninety (90) days after receipt of such
refund. All payments to be made to Member Companies shall be made in cash, in
securities eligible as investments by insurers under the insurance laws of their
domiciliary jurisdictions, at market value, or any combination of cash or
eligible securities, or, in Mutual Holding Company's discretion, by credit
against offsetting liabilities owed by the Member Company entitled to such
payment.
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7. Termination. This Agreement shall terminate if:
(a) the undersigned parties agree in writing to such termination;
(b) A Member Company's membership in the Affiliated Group ceases or is
terminated for any reason whatsoever; or
(c) The Affiliated Group fails to file a consolidated return for any
taxable year when due.
Notwithstanding the termination of this Agreement, its provisions shall
remain in effect with respect to any period of time during the tax year in which
termination occurs, for which the income of the terminating party must be
included in the consolidated return.
8. Assignment. The respective rights and obligations of each of the
parties to this Agreement may not be assigned by any party without the prior
written consent of the other parties hereto.
9. Binding Effect. This Agreement is binding upon and inures to the
benefit of the Member Companies and to any predecessor or successor of a Member
Company, whether by merger or otherwise, to the same extent as though such
predecessor or successor were an original party hereto.
10. Arbitration. Any disputes arising out of the interpretation or
implementation of the terms and conditions of this Agreement shall be submitted
to binding arbitration in accordance with the rules then in effect of the
American Arbitration Association.
11. Access to Materials. Notwithstanding termination of this Agreement,
and during its term, all materials, including, but not limited to, tax returns,
supporting schedules, work papers, correspondence and other documents relating
to consolidated income tax returns filed by the Affiliated Group shall be made
available to any party to this Agreement during regular business hours.
12. Inclusion of a New Member Company. If during a consolidated return
period any Member Company acquires or organizes another corporation that is
required to be included in the consolidated return (or if any corporation which
qualifies for the Affiliated Group but is not now included in the consolidated
return elects to be included in the return), then such corporation shall join in
and become a party to this Agreement by executing the master copy of this
Agreement which shall be maintained at Mutual Holding Company's headquarters.
It will not be necessary for each Member to re-execute the Agreement; the new
Members may simply execute the existing Agreement, and such Agreement shall be
binding on the new Members and all of the then existing Members.
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13. Effective Date. This Agreement shall be effective for the first
federal income or similar tax return due for the year commencing January 1,
1998.
14. Entire Agreement. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof, and there are no agreements,
representations or warranties not contained herein.
15. Modification. This Agreement may not be modified or amended except by
written instrument executed with the same formality as this Agreement.
16. 1995 Agreement. This Agreement supersedes the 1995 Agreement with
respect to any period to which a federal income or similar tax return subject to
this Agreement relates.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
NCRIC, A MUTUAL HOLDING COMPANY
/s/ Xxxxxx X. Xxxxxxxx, M.D.
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Chairman, Board of Directors
NCRIC HOLDINGS, INC.
/s/ R. Xxx Xxxx, Xx.
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President
NCRIC GROUP, INC.
/s/ R. Xxx Xxxx, Xx.
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President
NCRIC, INC.
/s/ R. Xxx Xxxx, Xx.
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President
[Signatures continued on following page.]
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NCRIC MSO, INC.
/s/ R. Xxx Xxxx, Xx.
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President
COMMONWEALTH MEDICAL LIABILITY
INSURANCE COMPANY
/s/ R. Xxx Xxxx, Xx.
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President
NATIONAL CAPITAL INSURANCE
BROKERAGE, LTD.
/s/ R. Xxx Xxxx, Xx.
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President
NCRIC INSURANCE AGENCY, INC.
/s/ R. Xxx Xxxx, Xx.
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President
NCRIC PHYSICIANS ORGANIZATION, INC.
/s/ R. Xxx Xxxx, Xx.
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President
HCI VENTURES, LLC
By: NCRIC MSO, Inc., its Managing Member
/s/ R. Xxx Xxxx, Xx.
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President
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