Exhibit 10.18

[IFC Letterhead]

December 22, 2004

Elena Delgado
26 Maplewood Drive
Danville, CA 94506

Dear Elena:

     This letter sets forth the agreement (“Agreement”) between Irwin Financial
Corporation (“Irwin Financial”) and you (the “Shareholder”) with respect to
certain federal and state income tax issues related to certain of the
Shareholder’s rights under that certain Shareholder Agreement dated July 31,
1999, as amended (the “Shareholder Agreement”), by and among Irwin Home Equity
Corporation (“IHE”), Irwin Financial and the Shareholder. Capitalized terms used
but not otherwise defined herein shall have the meanings set forth in the
Shareholder Agreement.

     The Shareholder Agreement sets forth certain terms and conditions relating
to the Shareholder’s ownership of five (5) shares of common stock of IHE (the
“Shares”). Should a purchase and sale transaction be entered into between the
parties hereto pursuant to the Shareholder Agreement (a “Purchase Transaction”),
the purchase price to be paid for the Shares (the “Purchase Price”) would be
their Fair Market Value, which is to be determined by reference to the value of
Irwin Financial’s “Home Equity Business Segment,” as defined in and described
more fully in the Shareholder Agreement.

     In consideration of the mutual promises contained in the Shareholder
Agreement and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:

     1. No Guarantee of Tax Treatment. Irwin Financial and IHE have made no
guarantees to the Shareholder regarding the ultimate treatment of the receipt by
the Shareholder of the Fair Market Value of the Shares for federal and state
income tax purposes.

     2. Gross-Up Payments. Notwithstanding the foregoing, in the event that, in
connection with a particular Purchase Transaction, the amount of the Purchase
Price that is attributable to the value of the non-IHE Legal Portion (as defined
below) is treated as ordinary income rather than proceeds of the disposition of
a capital asset under applicable federal and state tax laws, then Irwin
Financial will pay to the Shareholder a cash payment (the “Aggregate Cash
Payment”) equal to the sum of (1) the Gross-up Cash Payment (as defined below),
plus (2) the Supplemental Cash Payment (as defined below), in each case subject
to the limitations and qualifications set forth below. For purposes of this
Agreement, (i) the “Wholesale Bank Portion”

 

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means the portion of the “wholesale bank” division of Irwin Union Bank and Trust
Company (“IUBT”) within which IUBT’s national home equity lending operations are
funded and certain related assets are held, and (ii) the “non-IHE Legal Portion”
means the portion of the Purchase Price attributable to the value of
Shareholder’s interest in: (x) the Wholesale Bank Portion, (y) Irwin Residual
Holdings Corporation, and (z) Irwin Residual Holdings Corporation II.

     3. Definitions. For purposes hereof, the following terms have the meanings
specified:

          a. “Gross-up Cash Payment” shall be the amount, computed on the basis
of the principles described in paragraph 7, by which (i) the Shareholder’s
actual combined federal and state income tax liability in respect of the
Indemnified Portion (as defined below) exceeds (ii) the amount that the
Shareholder’s combined federal and state income tax liability in respect of such
Indemnified Portion would have been had such Indemnified Portion been treated as
proceeds from the disposition of a capital asset.

          b. “Indemnified Portion” shall mean the amount of income, up to but
not exceeding the Value Cap (as defined below), that is attributable to the
non-IHE Legal Portion allocable to the Shares being sold by the Shareholder in a
particular Purchase Transaction. In no event shall the Indemnified Portion in
respect of a particular Purchase Transaction, when added together with the
Indemnified Portions from all other Purchase Transactions entered into by the
Shareholder, exceed the Value Cap.

          c. “Value Cap” shall be $5,210,000.00.

          d. “Supplemental Cash Payment” shall be the amount of the combined
federal and state income tax liability imposed on the Shareholder with respect
to the Gross-Up Cash Payment, computed on the basis of the principles described
in paragraph 7.

     4. Limitations on Payments. Subject to the second paragraph of this
Section 4, Irwin Financial shall be obligated to pay to the Shareholder, in the
Irwin Financial taxable year in which the Purchase Transaction takes place, only
that portion of the Aggregate Cash Payment for which Irwin Financial is able to
derive an actual tax benefit as a deduction from income on its federal income
tax return for that taxable year or any prior taxable year. In the event that
any portion of the Aggregate Cash Payment gives rise to a deferred deduction or
a net operating loss carryforward (or increases the amount of a deferred
deduction or net operating loss carryforward) that is carried forward to a
future taxable year, Irwin Financial agrees to pay such portion of the Aggregate
Cash Payment, without interest: (i) in Irwin Financial’s first succeeding
taxable year in which Irwin Financial is able to derive an actual tax benefit
from such deferred deduction or net operating loss carryforward, and (ii) only
to the extent of such actual tax benefit for such taxable year.

     Notwithstanding the foregoing, nothing in this Agreement shall be construed
as authorizing or permitting Irwin Financial to withhold payment from Delgado of
any portion of the Aggregate Cash Payment solely because of limitations imposed
by section 162(m) of the

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Internal Revenue Code of 1986, as amended (“Section 162(m)”), in the event that
the Aggregate Cash Payment, when added together with all compensation received
by Delgado in a given taxable year (including base salary, payment for the
Shares, and all other amounts that legally are required to be included in
Delgado’s compensation for purposes of Section 162(m), would cause Delgado’s
compensation to exceed the limitations of Section 162(m).

     5. Treatment of Deferred Deductions and Carryforwards. For purposes of
determining when Irwin Financial is able to derive an actual tax benefit from a
deferred deduction or net operating loss carryforward in accordance with
paragraph 4, Irwin Financial will be treated as utilizing deferred deductions
and/or net operating loss carryforwards attributable to an Aggregate Cash
Payment prior to all other deferred deductions and/or net operating loss
carryforwards, other than those attributable to payments required under
substantially similar provisions in agreements with other shareholders of IHE
(the “Other Gross-Up Agreements”). In the event there are deferred deductions
and/or net operating loss carryforwards attributable to payments required under
substantially similar provisions in the Other Gross-Up Agreements, then the use
of any such deferred deductions and/or net operating loss carryforwards shall be
allocated among those obligations pro rata.

     6. Timing of Payment. The portion of the Aggregate Cash Payment to be paid
in any taxable year shall be paid by Irwin Financial to the Shareholder before
the end of the financial quarter in which it is first determined that the
taxable benefit is expected to be realized in that taxable year.

     7. Certain Calculation Principles. Solely for purposes of computing the
Gross-up Cash Payment, the Supplemental Cash Payment and the Aggregated Cash
Payment, (i) all actual and hypothetical combined federal and state tax
liabilities shall be determined using the maximum federal and state income tax
rates applicable to income earned and gains realized during 2001 by individuals
whose taxable year is the calendar year, and taking into account the
deductibility of state income taxes for federal income tax purposes; (ii) the
Shareholder’s holding period for the Shares involved in the Purchase Transaction
shall be the Shareholder’s actual holding period for those Shares as of the date
of the Purchase Transaction, and (iii) the aggregate Value Cap to be applied
under this Agreement and all the Other Gross-Up Agreements shall be an amount
equal to the value of the Home Equity Business Segment, calculated as of
June 30, 2001, that is allocable to the shares of common stock held by all IHE
minority shareholders, which allocated amount is hereby agreed to be
$10,420,000.00. In no event shall the aggregate Indemnified Portion under this
Agreement and the Other Gross-Up Agreements exceed such aggregate Value Cap.

     8. No Liability Attributable to Value or Rate Increases. For the avoidance
of doubt, neither Irwin Financial nor IHE shall have any obligation to the
Shareholder in respect of any tax liability of the Shareholder (i) attributable
to increases in the value of the Home Equity Business Segment above the Value
Cap or in applicable income tax rates, or (ii) in respect of any interest or
penalties that may be incurred by or imposed upon Shareholder, including without
limitation interest or penalties related to the Shareholder’s reporting or
characterization of income or gain from the proceeds of any Purchase
Transaction.

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     9. Tax Reporting. The Shareholder is not required under this Agreement to
report the proceeds from a Purchase Transaction on her federal or state income
tax returns as gain from the disposition of a capital asset, and the Shareholder
is solely responsible for determining the appropriate manner of reporting all
income or gain derived from a Purchase Transaction under applicable federal and
state income tax laws. To the extent permitted by applicable law, the
Shareholder agrees to report the entire non-IHE Legal Portion in a consistent
manner for all federal and state income tax purposes.

     10. Illustrative Calculation. The following calculation reflects the
application of the provisions of this Agreement to the payments to be made to
the Shareholder hereunder and to the other IHE minority shareholders under the
Other Gross-Up Agreements, assuming in each case that a Purchase Transaction is
entered into with each such shareholder with respect to all of the Shares held
by them, and that the aggregate Indemnified Portion is equal to the aggregate
Value Cap:

         
Minority Home Equity Business Segment Value at 6/30/01
  $10.42 million
Combined Federal and State Ordinary Income Tax Rate
    49.85 %
Combined Federal and State Capital Gains Tax Rate
    29.3 %
Tax Rate Differential (Ordinary Income vs. Capital Gains)
    20.55 %
Maximum Gross-up Cash Payment ($10.42 million*20.55%)
  $2.14 million
Maximum Supplemental Cash Payment:
       
($2.14 million/50.15% minus $2.14 million)
  $2.13 million
Maximum Aggregate Cash Payment (all Gross-Up Agreements)
  $4.27 million

     11. No Other Reimbursement Liability. Irwin Financial will not be
responsible for reimbursement of taxes on any possible Purchase Transactions
beyond the reimbursement obligations expressly set forth in this Agreement.

     12. Entire Agreement. This Agreement, together with the Shareholder
Agreement referred to herein, embodies the entire agreement and understanding
among the parties hereto with respect to the subject matter hereof and thereof,
and supersedes and preempts any and all prior and contemporaneous
understandings, agreements, arrangements or representations by or among the
parties, written or oral, which may relate to the subject matter hereof or
thereof in any way.

     13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana, without regard to conflicts of
laws provisions thereof.

     14. Headings. The headings of the paragraphs of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.

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     By signing below, the Shareholder accepts and agrees to the terms of this
Agreement as of the date of this letter.

            Sincerely,

Irwin Financial Corporation
      By : /s/ Matthew F. Souza    

         
 
Title: Senior Vice President/Secretary  

   

Accepted and agreed to:

     
/s/ Elena Delgado

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Elena Delgado
   

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