Tax Sharing Agreement -- Asic

This tax sharing agreement (the "Agreement") is entered into by American States Insurance Company ("ASIC"), a corporation organized under the laws of the State of Indiana, and American States Lloyds Insurance Company ("ASLI"), a corporation organized under the laws of the State of Texas, and is effective as of January 1, 1996. Lincoln National Corporation ("LNC"), as the ultimate parent of a group of affiliated corporations filing a consolidated return (the "LNC Consolidated Group"), is also a party to this Agreement. This Agreement applies to federal, state, local, and foreign income taxes, including any interest and penalties assessed for any such taxes, arising for any taxable year ("Tax Year") during which ASIC owns any ASLI stock. This Agreement supersedes all prior tax sharing agreements between ASIC and ASLI or any subsidiaries of ASIC and ASLI, except to the extent otherwise noted. As described more fully below, the rights and obligations of ASIC and ASLI depend upon the amount of ASLI stock owned by ASIC, and on whether ASIC and ASLI are members of an affiliated group that files a consolidated federal income tax return.


SECTION I. ASLI IN CONSOLIDATED GROUP


A. Management of Tax Disputes and Tax Computations. For any Tax Year or portion of a Tax Year in which ASLI is a member of the LNC Consolidated Group, LNC shall be responsible for managing the filing of tax returns and for determining the appropriate strategy for handling audits and disputes with taxing authorities. Additionally, LNC shall be responsible for the final determination of all computations required under this Agreement.


B. Calculation of ASLI's Tax Liability. For any Tax Year in which ASLI is a member of the LNC Consolidated Group, the LNC Consolidated Group's federal income tax liability shall be allocated between ASLI and the remainder of the LNC Consolidated Group as follows:


1. Separate Tax Liability. Periodic computations shall be made of the federal income tax liability of ASLI, on a hypothetical separate return basis ("Separate Tax Liability"), for each Tax Year, or for any part of a Tax Year during which ASLI is included in the LNC Consolidated Group. Computations shall be made at least once per quarter to support the required payments of quarterly estimated taxes and shall also be made at the time of the original and extended due dates for the filing of the federal income tax return for each Tax Year. Such Separate Tax Liability shall be calculated as follows:


a. ASLI shall be treated as a corporation which files a federal income tax return separate from the LNC Consolidated Group, except as otherwise provided in this Agreement.


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b. For purposes of this calculation, ASLI shall be treated as if it had never been included in the LNC Consolidated Group.


c. Gains and losses on intercompany transactions shall be disregarded until such time as they are recognized in the consolidated federal income tax return of the LNC Consolidated Group.


d. Income, gain, deductions, credits, and similar items of ASLI described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall generally be taken into account in the manner specified in that subdivision.


e. To the extent that ASLI is unable to avail itself of special rules applicable only to small corporations, lower tax rates applicable to part or all of the income of a single corporation, the exemption provided in Internal Revenue Code section 59A (applicable to the environmental tax) or any other similar item because it participates in the filing of the federal income tax return of the LNC Consolidated Group, ASLI shall not use such benefit in calculating its Separate Tax Liability.


f. Income, gain, deductions, credits, and similar items of ASLI shall not be included to the extent attributable to a period commencing on or after the date that ASLI ceases to be includible in the LNC Consolidated Group.


g. For each quarter of a Tax Year that ASLI has net operating losses, net capital losses, tax credits or any other tax benefits that have not been used to decrease ASLI's Separate Tax Liability in the current Tax Year ("Excess Tax Items") that can be used as hypothetical carry back items against prior hypothetical ASLI separate return Tax Years ("Carry Back Items"), ASIC shall reimburse ASLI for the use of such Carry Back Items at the rate ASLI would have been entitled to receive had such Carry Back Items actually been used in a ASLI claim for refund.


h. To the extent that Excess Tax Items can ultimately be used as hypothetical carry forward items against future hypothetical ASLI Tax Years ("Carry Forward Items"), ASLI shall be entitled to use such Excess Tax Items to offset future years' income but will be required to reimburse ASIC to the extent that paragraph 2.c., below, applies.


2. Excess Tax Items, Generally.


a. To the extent that the LNC Consolidated Group can use an Excess Tax Item, which has not otherwise been used as a Carry Back Item, to decrease its federal income tax liability for that quarter after taking into account all similar items from the other affiliated corporations in the LNC Consolidated Group,


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ASIC shall reimburse ASLI at an amount equal to the actual decrease in the tax liability of the LNC Consolidated Group for any Excess Tax Items used, notwithstanding the fact that ASLI could not use these Excess Tax Items in calculating its Separate Tax Liability.


b. To the extent that the Excess Tax Items are not used under paragraphs a. or 1.g. above, ASLI shall be entitled to a reimbursement from ASIC if and when such Excess Tax Items actually reduce the LNC Consolidated Group's federal income tax payments, or when the LNC Consolidated Group actually receives a refund of previously paid taxes, to the extent that such refund payment is directly attributable to such Excess Tax Items.


c. To the extent that ASLI receives a payment from ASIC for the actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASIC shall be entitled to reimbursement from ASLI for the full amount of such payments to the extent that ASLI may use such Excess Tax Items as Carry Forward Items. To the extent that ASLI has been compensated by ASIC under a prior tax sharing agreement for an amount which would qualify as an Excess Tax Item under this Agreement, ASIC shall also be entitled to reimbursement from ASLI for the full amount of such prior payments to the extent that ASLI may use such Excess Tax Items as Carry Forward Items.


d. Nothing in this entire Section I. shall be interpreted to entitle ASLI to more than a single use of any Excess Tax Items, Carry Back Items, Carry Forward Items, or any other items which reduce the tax liability of ASLI.


3. Alternative Minimum Tax Periods.


a. If the LNC Consolidated Group is required to pay Alternative Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be divided among all of the corporations in the LNC Consolidated Group which would have had to pay AMT if their tax liabilit ...