EXHIBIT 2.7
TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
This Tax Allocation and Indemnification Agreement dated as of February __, 1997,
is entered into by and among GranCare, Inc., a California corporation ("GCI"),
New GranCare, Inc., a Delaware corporation, and the successor by merger to GCI
Properties, Inc., a California corporation, ("New GranCare"), and each of the
following corporations:
TeamCare, Inc., a Delaware corporation, and the successor by merger to each of
the following corporations: GranCare Health Services, Inc. a California
corporation; TCI, Inc., a Delaware corporation that formerly was known as
TeamCare, Inc. and, prior to that, CompuPharm, Inc.; TeamCare of New Jersey,
Inc., a New Jersey corporation that formerly was known as CompuPharm New
Jersey, Inc.; CompuPharm of Southern California, Inc., a California
corporation that formerly was known as GCI-Cal Pharmacies, Inc.; Drug Systems,
Inc., a California corporation; TeamCare of Wisconsin, Inc., a Wisconsin
corporation that formerly was known as TeamCare Pharmacy, Inc.; CapCare Health
Services, Inc., an Illinois corporation; Winyah Dispensary, LTC of North
Carolina, Inc., a North Carolina corporation; and TeamCare of South Carolina,
Inc., a South Carolina corporation that formerly was known as GCI-Winyah,
Inc.; ("TeamCare")
TeamCare Clinical Services, Inc., a New Jersey corporation that formerly was
known as CompuPharm Clinical Services, Inc. ("TCSI")
CompuPharm of Northern California, Inc., a California corporation that
formerly was known as CompuPharm Diagnostics, Inc., and the successor by
merger to Patient Therapy Systems, Inc., a California corporation,
("CompuPharm NC")
TeamCare of Indiana, Inc., an Indiana corporation that formerly was known as
CompuPharm LTC, Inc. ("TeamCare Indiana")
TeamCare of Virginia, Inc., a Virginia corporation that formerly was known as
CompuPharm of Virginia, Inc. ("TeamCare VA")
CompuPharm Ohio Pharmacy, Inc., an Ohio corporation ("CompuPharm Ohio")
GCI Innovative Pharmacy, Inc., a Wisconsin corporation ("GCI Innovative")
Span Purchasing, Inc., a Virginia corporation ("Span")
GCI-Cal Therapies, Inc., a California corporation ("GCI-Cal Therapies")
GCI Therapies, Inc., a California corporation ("GCI Therapies")
AMS Green Tree, Inc., a Wisconsin corporation ("AMS-GT")
American-Cal Medical Services, Inc., a California corporation ("Am-Cal")
HMI Convalescent Care, Inc., a California corporation ("HMI")
GranCare South Carolina, Inc., a South Carolina corporation ("GC-SC")
GCI Palm Court, Inc., a California corporation ("GCI-PC")
GCI East Valley Medical & Rehabilitation Center, Inc., an Arizona corporation
("GCI-EV")
GCI Realty, Inc., a Delaware corporation ("GCI Realty")
GCI Xxxxxx Acres, Inc., a South Carolina corporation ("GCI-JA")
GCI Prince Xxxxxx, Inc, a South Carolina corporation ("GCI-PG")
GCI Springdale Village, Inc., a South Carolina corporation ("GCI-SV")
GCI Village Green, Inc., a South Carolina corporation ("GCI-VG")
GCI Faith Nursing Home, Inc., a South Carolina corporation ("GCI-FN")
GCI Rehab, Inc., a California corporation ("GCI Rehab")
GCI-Cal Health Care Centers, Inc., a California corporation ("GCI-Cal HCC")
GranCare Home Health Services, Inc., a California corporation ("GCI-Cal HH")
Renaissance Mental Health Center, Inc., a Wisconsin corporation
("Renaissance")
Coordinated Home Health Services, Inc., a California corporation ("CHHS")
GranCare Nursing Services and Hospice, Inc., a Wisconsin corporation ("GCNSH")
AMS Properties, Inc., a California corporation ("AMS-Properties")
Evergreen Health Care, Inc., a Georgia corporation ("Evergreen")
National Heritage Realty, Inc., a Louisiana corporation ("NHRI")
Omega/Indiana Care Corporation, a Delaware corporation ("OICC")
EH Acquisition Corp., Inc., a Georgia corporation ("EHAC I")
EH Acquisition Corp. II, Inc., a Georgia corporation ("EHAC II")
EH Acquisition Corp. III, Inc., a Georgia corporation ("EHAC III")
Heritage of Louisiana, Inc., a Louisiana corporation ("HOLI")
Health Resources, Inc., a Nevada corporation ("HRI")
National Heritage Pharmacy, Inc., a Nevada corporation ("NHPI")
Heritage Sterling Financial Services, Inc., an inactive corporation ("HSFSI")
Sterling Health Care, Inc., an inactive corporation ("SHCI")
EH Resources, Inc., a Georgia corporation ("EHRI")
Evergreen Retirement Management Company, a Delaware corporation ("ERMC")
GCI Health Care Centers, Inc., a Delaware corporation ("GCI-HCC")
GC Services, Inc., a California corporation ("GC-Services")
GranCare Trading, Inc., a Georgia corporation ("Trading")
GCI Valley Manor Health Care Center, Inc., a Colorado corporation ("GCI-VM")
GCI Xxxxxxx Care Center, Inc., a Colorado corporation ("GCI-Xxxxxxx")
Cornerstone Health Management Company, a Delaware corporation ("Cornerstone")
StoneCreek Management Company, Inc. a Missouri corporation ("StoneCreek")
HostMasters, Inc., a California corporation ("HostMasters")
GCI Xxxxxx Village, Inc., an Arizona corporation ("GCI-Xxxxxx")
GCI Indemnity, Inc., a Hawaii corporation ("GCI-Indemnity")
GCI Bella Vita, Inc., a California corporation ("GCI Bella Vita")
GCI Wisconsin Properties, Inc., a Wisconsin corporation ("GCI-Wisconsin")
GCI Ashland Health Care Center, Inc., a Wisconsin corporation ("GCI-Ashland")
GCI North Shore Health Care Center, Inc., a Wisconsin corporation ("GCI-North
Shore")
GCI Hillside Health Care Center, Inc., a Wisconsin corporation ("GCI-
Hillside")
GCI Family Nursing Home and Rehabilitation Center, Inc., a Wisconsin
corporation ("GCI-Family")
GranCare GPO Services, Inc., a Georgia corporation ("GranCare GPO")
GCI Simi Valley Healthcare Center, Inc., a California corporation ("GCI-Simi")
Professional Health Care Management, Inc., a Michigan corporation ("PHCM")
Cambridge Bedford, Inc., a Michigan corporation ("CBI")
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Cambridge East, Inc., a Michigan corporation ("CEI")
Cambridge North, Inc., a Michigan corporation ("CNI")
Cambridge South, Inc., a Michigan corporation ("CSI")
Clintonaire Nursing Home, Inc., a Michigan corporation ("CNHI")
Crestmont Health Center, Inc., a Michigan corporation ("CHCI")
Frenchtown Nursing Home, Inc., a Michigan corporation ("FNHI")
Heritage Nursing Home, Inc., a Michigan corporation ("HNHI")
Xxxxxxx Nursing Center, Inc., a Michigan corporation ("MNCI")
Middlebelt Nursing Home, Inc., a Michigan corporation ("MNHI")
Middlebelt-Hope Nursing Home, Inc., a Michigan corporation ("MHNHI")
Nightingale East Nursing Center, Inc., a Michigan corporation ("NENCI")
St. Xxxxxxx Nursing Home, Inc., a Michigan corporation ("SANHI")
International Health Care Management, Inc., a Michigan corporation ("IHCMI")
International X-Ray, Inc., a Michigan corporation ("IXRI")
(individually, sometimes referred to as a "Subsidiary" and, collectively, the
"Subsidiaries").
WITNESSETH:
WHEREAS GCI adopted a plan of distribution, as set forth in that certain
Agreement and Plan of Distribution dated September 3, 1996 (the "Distribution
Agreement"), whereby it contemplates a distribution to its shareholders of all
the outstanding common stock of New GranCare, a corporation which will hold
(directly or indirectly) its skilled nursing facilities business and certain
other non-pharmacy businesses (the "Distribution"), and GCI and New GranCare
have agreed to enter into certain agreements, including the Distribution
Agreement and this Tax Allocation and Indemnification Agreement, setting forth
their respective rights, duties, and obligations with respect to liabilities of
the Parties, including Tax liabilities, attributable to events that occurred in
periods prior to the Distribution;
WHEREAS, as a consequence of the Distribution, New GranCare and the
Subsidiaries that will become members of the New GranCare Group (as hereinafter
defined) will no longer be members of the GCI Group (as hereinafter defined) or
of any other group of which GCI and the subsidiaries who are members of the
Post-Distribution GCI Group (as hereinafter defined) become members;
WHEREAS, pursuant to Treas. Reg. Section 1.1502-6, GCI and each Subsidiary
will be severally liable for the consolidated federal income tax liability of
the GCI Group for any period during which GCI and such Subsidiary were members
of the GCI Group during any part of a consolidated return year; and
WHEREAS, GCI, New GranCare, and the Subsidiaries desire to set forth their
rights and obligations with respect to foreign, federal, state and local taxes
for periods both before and after the Distribution and with respect to certain
tax liabilities that may be asserted in connection with the Distribution.
NOW THEREFORE, GCI, New GranCare, and the Subsidiaries, in consideration of
the mutual covenants contained herein, agree as follows:
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ARTICLE I.
DEFINITIONS
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For purposes of this Agreement, the following definitions shall apply:
I.1 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
I.2 "Consolidated Return" means a consolidated United States federal
income tax return or any consolidated or combined state, county, or local income
tax return which includes any Party to this agreement.
I.3 "Date of Distribution" or "Distribution Date" means the date on which
the stock of New GranCare is distributed by GCI to its shareholders.
I.4 "Employee Benefits Matters Agreement" means that certain agreement of
even date herewith entitled Employee Benefit Matters Agreement which was entered
into by the Parties to this Agreement in connection with the Distribution
Agreement.
I.5 "Expenses" means out-of-pocket expenses paid to third parties and
shall not include any overhead or indirect costs.
I.6 "Final Determination" means the final resolution of liability for any
Tax for a taxable period (i) by IRS Form 870 or 870-AD (or any successor forms
thereto), on the date of acceptance by or on behalf of the IRS, or by a
comparable agreement or form under the laws of other jurisdictions, except that
a Form 870 or 870-AD or comparable form that reserves the right of the taxpayer
to file a claim for refund and/or the right of the taxing authority to assert a
further deficiency shall not constitute a Final Determination; (ii) by a
decision, judgment, decree, or other order by a court of competent jurisdiction
which has become final and unappealable; (iii) by a closing agreement or
compromise under Section 7121 or 7122 of the Code or any subsequently enacted
corresponding provisions of the Code, or comparable agreements under the laws of
other jurisdictions; (iv) by an allowance of a refund or credit in respect of an
overpayment of Tax, but only after the expiration of all periods during which
such refund may be recovered (including by way of offset) by the Tax-imposing
jurisdiction; or (v) by any other final disposition by reason of the expiration
of the applicable statutes of limitations.
I.7 "GCI Group" means the affiliated group (within the meaning of Section
1504(a) of the Code) of which GCI is the common parent, including periods before
GCI became the common parent.
I.8 "GCI Tainting Act" means any breach by GCI or any member of the Post-
Distribution GCI Group of a representation or covenant relating to the
qualification of the Distribution as a distribution described in Section 355 of
the Code which is given by GCI and the members of the Post-Distribution GCI
Group in connection with the Tax Certificate dated February ___, 1997 , unless
either (a) New GranCare consents in writing to such action, or (b) New GranCare
is provided (at GCI's expense) an IRS ruling that such action will not cause the
Distribution to fail to qualify as a distribution described in Section 355 of
the Code.
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I.9 "IRS" means the Internal Revenue Service.
I.10 "Merger" shall have the same meaning as given that term in the
Distribution Agreement.
I.11 "New GranCare Group" means New GranCare, any subsidiaries that become
members of the New GranCare consolidated group after the Distribution Date, and
the following Subsidiaries:
GCI-Cal Therapies AMS-GT EHAC II
GCI Therapies Am-Cal EHAC III
Cornerstone HMI HOLI
StoneCreek GC-SC HRI
HostMasters GCI-PC NHPI
GCI-Xxxxxx GCI-EV HSFSI
GCI-Indemnity GCI Realty SHCI
GCI Bella Vita GCI-XX XXXX
GCI-Wisconsin GCI-PG ERMC
GCI-Ashland GCI-SV GCI-HCC
GCI-North Shore GCI-VG GC-Services
GCI-Hillside GCI FN Trading
GCI-Family GCI Rehab GCI-VM
GranCare GPO GCI-Cal HCC GCI-Xxxxxxx
GCI-Simi GCI-Cal HH HNHI
PHCM Renaissance MNCI
CBI CHHS MNHI
CEI GCNSH MHNHI
CNI AMS-Properties NENCI
CSI Evergreen SANHI
CNHI NHRI IHCMI
CHCI OICC IXRI
FNHI EHAC I
I.12 "New GranCare Tainting Act" means any breach by New GranCare or any
member of the New GranCare Group of a representation or covenant relating to the
qualification of the Distribution as a distribution described in Section 355 of
the Code which is given by New GranCare and the members of the New GranCare
Group in connection with the Tax Certificate dated February __, 1997, unless
either (a) GCI consents in writing to such action, or (b) GCI is provided (at
New GranCare's expense) an IRS ruling that such action will not cause the
Distribution to fail to qualify as a distribution described in Section 355 of
the Code.
I.13 "Party" or "Parties" means any of the parties to this Agreement.
I.14 "Post-Distribution GCI Group" means GCI and the following
Subsidiaries:
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TeamCare TCSI
CompuPharm NC TeamCare Indiana
TeamCare VA CompuPharm Ohio
GCI Innovative Span
I.15 "Personal and Real Property Taxes" mean all Taxes which are assessed
upon the value of real or personal property owned, leased, rented or used by any
of the Parties to this Agreement, including, but not limited to, real and
personal property taxes, use taxes, value added taxes or other ad valorem taxes.
I.16 "Restructuring Taxes" means any Taxes resulting from the failure of
the restructuring transactions contemplated by the Distribution Agreement to
qualify as a "tax-free" reorganization and distribution within the meaning of
Sections 368(a)(1)(D) and 355 of the Code or otherwise as "tax-free" under the
Code.
I.17 "Tax Benefit" means any Tax Item which decreases Taxes paid or
payable.
I.18 "Tax" or "Taxes" means all forms of taxation, whenever created or
imposed, whether domestic or foreign, and whether imposed by a nation, locality,
municipality, government, state, federation, or other body (a "Taxing
Authority"), and without limiting the generality of the foregoing, shall include
net income, alternative or add-on minimum tax, gross income, sales, use,
franchise, gross receipts, value added, ad valorem, profits, license, payroll,
withholding, social security, unemployment insurance, employment, property,
transfer, recording, excise, severance, stamp, occupation, premium, windfall
profit, custom duty, or other tax, governmental fee or other like assessment or
charge of any kind whatsoever, together with any related interest, penalties or
other additions to tax, or additional amounts imposed by any such Taxing
Authority.
I.19 "Tax Controversy" means any audit, examination, dispute, suit, action,
litigation or other judicial or administrative proceeding by or against the IRS
or any other Taxing Authority.
I.20 "Tax Item" means any item of income, gain, loss, deduction, credit,
recapture of credit or any other item, including, but not limited to, an
adjustment under Code Section 481 resulting from a change in accounting method,
which increases or decreases Taxes paid or payable.
I.21 "Tax Returns" means all reports, estimates, declarations of estimated
tax, information statements, returns or other documents required to be filed by
a Party in connection with any Taxes, including but not limited to requests for
extensions of time, information statements and reports, claims for refund, and
amended returns.
ARTICLE II.
TAX RETURN PREPARATION
----------------------
II.1 Consolidated Returns. (a) New GranCare shall prepare and timely file
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any Consolidated Return which includes one or more, but only, members of the GCI
Group for any taxable
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period which ends on or prior to the Distribution Date. The Consolidated Return
shall be prepared by New GranCare in compliance with applicable tax laws and on
a basis that is consistent with any IRS ruling or opinion of tax counsel
obtained by GCI or New GranCare and with prior Consolidated Returns (to the
extent applicable). Not later than 60 days prior to the due date for filing the
Consolidated Return (including extensions), New GranCare shall provide a copy of
the Consolidated Return to GCI for its review and consent prior to the filing of
the Consolidated Return. GCI shall notify New GranCare in writing of any
objections it has to the treatment of any Tax Item on the Consolidated Return
within 30 days after the receipt of the Consolidated Return; provided, however,
that when such objections relate to items which do not affect the Tax liability
of the Post-Distribution GCI Group or adversely affect the "tax-free" treatment
of the Distribution or the Restructuring Taxes, the objections shall be set
forth in writing, specifically stating that there does not exist a reasonable
basis or substantial authority for the tax treatment being accorded such item.
Any failure to provide such objection shall be considered acceptance by GCI of
the Consolidated Return as prepared by New GranCare. If a written objection is
made by GCI, the tax managers of GCI and New GranCare will meet and try in good
faith to resolve all disagreements with respect to the treatment of the Tax
Item(s) in question within 5 days of the receipt of the written objection. If
the tax managers are unable to resolve all disagreements with respect to the
treatment of the Tax Item(s) in question, then one of the "Big Six" certified
public accounting firms will be chosen by GCI and New GranCare to advise as to
the proper treatment of the Tax Item(s) in dispute; provided, however, that when
any disagreement which relates to an item which does not affect the Tax
liability of the Post-Distribution GCI Group or adversely affect the "tax-free"
treatment of the Distribution or the Restructuring Taxes, the item shall be
reported in accordance with the tax treatment determined by New GranCare
provided that GCI has received a letter from the chief financial officer of New
GranCare that, after consultation with its tax adviser, substantial authority
exists for the tax treatment being accorded the item by New GranCare. New
GranCare will provide GCI with a copy of the Consolidated Return as filed, along
with documentation establishing proof of timely filing.
(b) New GranCare shall prepare and timely file any Consolidated Return
which includes one or more, but only, members of the GCI Group for any taxable
period which ends after the Distribution Date, but includes the Distribution
Date. The Consolidated Returns shall be prepared by New GranCare in compliance
with applicable tax laws and on a basis that is consistent with any IRS ruling
or opinion of tax counsel obtained by GCI or New GranCare and with prior
Consolidated Returns (to the extent applicable). GCI shall provide New GranCare
with (i) separate, pro forma Tax Returns covering the period beginning with the
day after the Distribution Date and running through the close of the taxable
period reported on such Consolidated Return for each of the members of the Post-
Distribution GCI Group included in such Consolidated Return, and (ii) any
information in support of such separate, pro forma returns or which might
otherwise be necessary or helpful in the preparation of the Consolidated Return.
GCI shall provide such separate, pro forma returns and information not later
than 60 days prior to the due date of the Consolidated Return (including
extensions). Not later than 45 days prior to the due date for filing the
Consolidated Return (including extensions), New GranCare shall provide a copy of
the Consolidated Return to GCI for its review and consent prior to the filing of
the Consolidated Return. GCI shall notify New GranCare in writing of any
objections it has to the treatment of any Tax Item on the Consolidated Return
within 30 days after the receipt of the Consolidated Return; provided, however,
that when such objections relate to items which do not affect the Tax liability
of the Post-Distribution GCI Group or adversely affect the "tax-free" treatment
of the Distribution or the Restructuring Taxes, the objections shall be set
forth in writing, specifically stating
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that there does not exist a reasonable basis or substantial authority for the
tax treatment being accorded such item. Any failure to provide such objection
shall be considered acceptance by GCI of the Consolidated Return as prepared by
New GranCare. If a written objection is made by GCI, the tax managers of GCI and
New GranCare will meet and try in good faith to resolve all disagreements with
respect to the treatment of the Tax Item(s) in question within 5 days of the
receipt of the written objection. If the tax managers are unable to resolve all
disagreements with respect to the treatment of the Tax Item(s) in question, then
one of the "Big Six" certified public accounting firms will be chosen by GCI and
New GranCare to advise as to the proper treatment of the Tax Item(s) in dispute;
provided, however, that when any disagreement which relates to an item which
does not affect the Tax liability of the Post-Distribution GCI Group or
adversely affect the "tax-free" treatment of the Distribution or the
Restructuring Taxes, the item shall be reported in accordance with the tax
treatment determined by New GranCare provided that GCI has received a letter
from the chief financial officer of New GranCare that, after consultation with
its tax adviser, substantial authority exists for the tax treatment being
accorded the item by New GranCare.. New GranCare will provide GCI with a copy of
the Consolidated Return as filed, along with documentation establishing proof of
timely filing.
(c) GCI shall be responsible for preparing and filing any Consolidated
Return which includes any member of the Post-Distribution GCI Group for any
taxable period which begins after the Distribution Date.
(d) New GranCare shall be responsible for preparing and filing any
Consolidated Return which includes only members of the New GranCare Group.
II.2 Separate Returns. (a) New GranCare shall prepare and file any Tax
----------------
Return required to be filed for any member of the Post-Distribution GCI Group
not listed on Schedule 2.2 hereto for all taxable periods which end on or before
the Distribution Date or which end after the Distribution Date, but include the
Distribution Date. If the Tax Return includes any period ending after the
Distribution Date, then GCI shall provide New GranCare with (i) a separate, pro
forma Tax Return covering the period beginning with the day after the
Distribution Date and running through the close of the taxable period reported
on such Tax Return, and (ii) any information in support of such separate, pro
forma Tax Return or which might otherwise be necessary or helpful in the
preparation of the Tax Return. GCI shall provide such separate, pro forma Tax
Return and information not later than 60 days prior to the due date of the Tax
Return (including extensions). Not later than 45 days prior to the due date for
filing the Tax Return, New GranCare shall provide a copy of the Tax Return to
GCI for its review and consent prior to the filing of the Tax Return (including
extensions). GCI shall notify New GranCare in writing of any objections it has
to the treatment of any Tax Item on the Tax Return within 30 days after the
receipt of the Tax Return; provided, however, that when such objections relate
to items which do not affect the Tax liability of the Post-Distribution GCI
Group or adversely affect the "tax-free" treatment of the Distribution or the
Restructuring Taxes, the objections shall be set forth in writing, specifically
stating that there does not exist a reasonable basis or substantial authority
for the tax treatment being accorded such item. Any failure to provide such
objection shall be considered acceptance by GCI of the Tax Return as prepared by
New GranCare. If a written objection is made by GCI, the tax managers of GCI
and New GranCare will meet and try in good faith to resolve all disagreements
with respect to the treatment of the Tax Item(s) in question within 5 days of
the receipt of the written objection. If the tax managers are unable to resolve
all disagreements with respect to the treatment of the Tax Items in question,
then one of the "Big Six" certified public accounting firms will
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be chosen by GCI and New GranCare to advise as to the proper treatment of the
Tax Item in dispute; provided, however, that when any disagreement which relates
to an item which does not affect the Tax liability of the Post-Distribution GCI
Group or adversely affect the "tax-free" treatment of the Distribution or the
Restructuring Taxes, the item shall be reported in accordance with the tax
treatment determined by New GranCare provided that GCI has received a letter
from the chief financial officer of New GranCare that, after consultation with
its tax adviser, substantial authority exists for the tax treatment being
accorded the item by New GranCare. New GranCare will provide GCI with a copy of
the Tax Return as filed, along with documentation establishing proof of timely
filing.
(b) GCI shall be responsible for causing the preparation and filing of any
Tax Return for any member of the Post-Distribution GCI Group listed on Schedule
2.2 hereto for any taxable period which ends on or includes the Distribution
Date.
(c) GCI shall be responsible for causing the preparation and filing of any
Tax Return for any member of the Post-Distribution GCI Group for any taxable
period which begins after the Distribution Date.
(d) New GranCare shall be responsible for preparing and filing all Tax
Returns for any member of the New GranCare Group.
II.3 Cooperation and Exchange of Information. Each Party shall be
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responsible for the timely submission to each other Party of information of
which it has knowledge regarding any Tax Item which may properly be included in
any Tax Return to be filed by the other Party, and shall provide any and all
other information and documentation (including, but not by way of limitation,
working papers and schedules) reasonably requested by any Party for use in
connection with the preparation and filing of any Tax Returns or the handling of
any Tax Controversy. GCI, New GranCare, and each Subsidiary shall execute such
consents, elections, attachments, and other documents, as well as the
Consolidated Return or Tax Return itself, that may be required or appropriate
for the proper filing of such Consolidated Return or Tax Return.
ARTICLE III.
CONSOLIDATED RETURN TAX LIABILITIES
-----------------------------------
III.1 Allocation Method. In order to determine that portion of the Tax
-----------------
liability (other than Restructuring Taxes) due with respect to any Consolidated
Return which is the subject of this Agreement that is allocable to a Party, the
Parties agree to determine and allocate such Tax liability among themselves in
the following manner:
(a) All Consolidated Return Tax liabilities of any member or members
of the GCI Group for any taxable period (or portion thereof) ending on
or before the Distribution Date shall be allocated to New GranCare and
the other members of the New GranCare Group.
(b) All Consolidated Return Tax liabilities for taxable periods that
include but do not end on the Distribution Date ("Straddle Periods")
shall be allocated between that
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portion of the period that ends on the Distribution Date and the subsequent
portion of the period based upon a closing of the books and computations of
separate hypothetical Tax liabilities for such portions. The Consolidated
Return Tax liability for the relevant Straddle Period shall be allocated to
the portions of the Straddle Period in the ratio of the portion's
hypothetical Tax liability to the sum of the portions' hypothetical Tax
liabilities, and then the portions allocated to each of such periods shall
be further allocated among the Parties in accordance with the method
described in Section 1552(a)(2) of the Code, except that all Consolidated
Return Tax liabilities allocable under this Section 3.1(b) to any member or
members of the GCI Group for any taxable period (or portion thereof) ending
on the Distribution Date shall be allocated to New GranCare and the other
members of the New GranCare Group.
(c) If the Tax liability with respect to a Consolidated Return is
adjusted for any taxable period, whether by means of an amended return,
claim for refund, or assessment by a taxing authority, the liability of
each Party shall be recomputed under this Section 3.1 of the Agreement to
give effect to such adjustment.
(d) New GranCare shall provide each Party with a computation (and
such other workpapers and documentation supporting such computation) of the
allocation to each Party of the Tax liability with respect to a
Consolidated Return no later than 10 days prior to the filing of the
Consolidated Return. GCI may object to such computation or allocation by
presenting New GranCare with a written explanation of such objection(s)
(which contains specific explanation of the reasons and support for their
objections) within 30 days after receiving the computation and allocation
from New GranCare. Any failure to provide such objection shall be
considered acceptance by GCI of the allocation as prepared by New GranCare.
If a written objection is made by GCI, the tax managers of GCI and New
GranCare will meet and try in good faith to resolve all disagreements with
respect to the allocation of Tax Liability. If the tax managers are unable
to resolve all disagreements with respect to the allocation, then one of
the "Big Six" certified public accounting firms will be chosen by GCI and
New GranCare to advise as to the proper treatment of the Tax Item in
dispute.
(e) Notwithstanding any provision in this Section 3.1 to the contrary:
(1) In the event that the Merger results in any "excess parachute
payments" within the meaning of Section 280G of the Code to any
persons other than Xxxx X. Xxxxxxxx or Xxxxx Xxxxxxxx that would be
deductible after the Closing Date by GCI, any of its Subsidiaries, or
their successors but for the provisions of Section 280G, New GranCare
shall pay to GCI or its successor an amount in cash equal to the
amount of such "excess parachute payments" multiplied by the sum of
(i) the highest federal income tax rate under Code Section 11 (or any
successor provision thereto) applicable to a corporation that is in
effect for the year of the "excess parachute payment" and (ii) five
percent (5%). Such payment shall be made by New GranCare to GCI or its
successor within ten (10) days after GCI or its successor provides to
New GranCare a written statement that such "excess parachute payments"
have been made together with
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a calculation of the amount of such "excess parachute payments."
(2) In the event that the Merger results in any "excess parachute
payments" within the meaning of Section 280G of the Code to Xxxx X.
Xxxxxxxx or Xxxxx Xxxxxxxx that would be deductible on or before the
Closing Date by GCI or any of its Subsidiaries but for the provisions
of Section 280G, GCI or its successor shall pay to New GranCare an
amount in cash equal to the amount of such "excess parachute payments"
multiplied by the sum of (i) the highest federal income tax rate under
Code Section 11 (or any successor provision thereto) applicable to a
corporation that is in effect for the year of the "excess parachute
payment" and (ii) five percent (5%). Such payment shall be made by GCI
or its successor to New GranCare within ten (10) days after New
GranCare provides to GCI or its successor a written statement that
such "excess parachute payments" have been made together with a
calculation of the amount of such "excess parachute payments."
(3) If the Party obligated to make payment under subsection (1)
or (2) above makes a written objection prior to the payment's due
date, the tax managers of GCI or its successor and New GranCare will
meet and try in good faith to resolve all disagreements with respect
to the characterization and amount of such payment as an "excess
parachute payment" within five (5) days of the receipt of the written
objection. If the tax managers are unable to resolve all
disagreements, then one of the "Big Six" certified public accounting
firms will be chosen by GCI or its successor and New GranCare to
determine the proper characterization and amount of such payment as an
"excess parachute payment" which determination shall be final and
payment shall be made within ten (10) days of such determination.
III.2 Tax Payments or Benefits. New GranCare shall be responsible for
------------------------
paying or for making arrangements with GCI for the payment of any Tax liability,
including estimated tax liability and any liability which may be subsequently
assessed, with respect to a Consolidated Return allocated to New GranCare or any
member of the New GranCare Group in accordance with Section 3.1 of this
Agreement. Payments under this Section 3.2 are to be made no later than the
date on which payments must be made to the Taxing Authority. New GranCare shall
be entitled to receive and retain any refund or overpayment (including any
interest received thereon), and GCI and/or any member of the GCI Group shall pay
over to New GranCare such refund or overpayment received by GCI or such other
member, whether claimed on the originally filed return or an amended return,
with respect to a Consolidated Return to the extent that New GranCare has been
allocated the Tax liability in accordance with Section 3.1 of this Agreement.
III.3 Carrybacks and Carry Forwards. If part or all of an unused
-----------------------------
consolidated net operating loss or tax credit is allocated to a Party pursuant
to Treasury Regulations Section 1.1502-79 (or comparable provision under
foreign, state, or local law) and is carried back or forward to a year in which
such Party was not a member of the Consolidated Return from which such tax
attribute arose, any refund or reduction in Tax liability arising from the
carryback or carryover shall be retained by such Party (if such refund or
reduction goes to a Party other than the Party entitled to the refund under this
11
Section 3.3, then such other Party shall pay over such amount to the Party
entitled to the refund under this Section 3.3).
If a member of the New GranCare Group incurs a net operating loss or has
excess tax credits for a taxable year subsequent to the period in which such
member was a member of the GCI Group, and such net operating loss or tax credits
must be carried back to a Consolidated Return of the GCI Group, then such member
shall be permitted to carryback such tax attribute to such GCI Group
Consolidated Return; provided, however, that in the event that any member of the
New GranCare Group incurs a capital loss which may, but need not, be carried
back to a period in which it was a member of the GCI Group, then such member
shall be permitted to carryback such capital loss to such GCI Group Consolidated
Return. GCI shall cooperate in the filing of a claim for refund relating to
such net operating loss or tax credit carryback. The member of the New GranCare
Group possessing the tax attributes giving rise to the refund shall be entitled
to retain the full amount of such refund (and such amount shall be paid over by
GCI to such member), less an amount to cover any Expenses incurred by GCI in
connection with the filing of such claim for refund. Notwithstanding the
foregoing, in the event where any member of the New GranCare Group incurs a
capital loss which is carried back to a period in which it was a member of the
GCI Group, the amount of the refund to which New GranCare shall be entitled to
receive (and which shall be paid to New GranCare) shall be the lesser of: (a)
the actual Tax refund with respect to such loss carryback; or (b) the amount of
Taxes that would have been refunded if the amount of capital loss carried back
equalled only the capital gain generated by the members of the New GranCare
Group for the years to which the capital loss is carried back (calculated on a
yearly basis); less an amount to cover a proportionate share (based upon a ratio
of the portion of the refund to be paid to New GranCare to the total refund
received as a result of filing the claim) of any Expenses incurred by GCI in
connection with the filing of the claim for refund. In the event that any
member of the Post-Distribution GCI Group incurs a capital loss which is carried
back to a period in which it was a member of the GCI Group, the amount of the
refund to which New GranCare shall be entitled to receive (and which shall be
paid to New GranCare) shall be the actual Tax refund with respect to such loss
carryback minus the amount of Taxes that would have been refunded if the amount
of capital loss carried back equalled only the capital gain generated by the
members of the Post-Distribution GCI Group for the years to which the capital
loss is carried back (calculated on a yearly basis), but not less then zero,
less an amount to cover a proportionate share (based upon a ratio of the portion
of the refund to be paid to New GranCare to the total refund received as a
result of filing the claim) of any Expenses incurred by GCI in connection with
the filing of the claim for refund. GCI shall be entitled to retain any portion
of a refund which is not required to be paid to a member of the New GranCare
Group under this Section 3.3.
ARTICLE IV.
RESTRUCTURING TAXES AND OTHER LIABILITIES
-----------------------------------------
IV.1 Restructuring Taxes. Notwithstanding any other provision of this
-------------------
Agreement to the contrary, any liability with respect to Restructuring Taxes
shall be allocated as follows:
(a) Liability Resulting from a New GranCare Tainting Act. In the event that
----------------------------------------------------
GCI is liable for Restructuring Taxes because the Distribution failed to meet
the requirements of Sections 368(a)(1)(D) and 355 of the Code for nonrecognition
of gain or loss due solely to a New GranCare
12
Tainting Act, then New GranCare shall be allocated all liability for: (1) the
Restructuring Taxes; (2) any claim against GCI or any member of the Post-
Distribution GCI Group for liability to shareholders of GCI arising out of the
determination that the Distribution failed to meet the requirements of Section
355 of the Code for nonrecognition of gain or loss; and (3) any and all other
liability that arises as a direct consequence of, or would not have otherwise
arisen but for, the determination that GCI is liable for the Restructuring Taxes
as a result of the New GranCare Tainting Act. For purposes of this Section 4.1,
any failure of the Distribution to meet the requirements of Code Sections
368(a)(1)(D) and 355 shall be treated as due solely to a New GranCare Tainting
Act if any of the following items shall have occurred; provided, however, that
none of the items set forth in 4.1(c)(i)-(v) shall have occurred first:
(i) A merger or liquidation of New GranCare, or an acquisition of the
outstanding stock of New GranCare which acquisition the New GranCare Board
of Directors consents or otherwise agrees to, or a contract or option for
such a merger, liquidation, or acquisition, within two years of the
Distribution Date;
(ii) A failure by New GranCare and its subsidiaries to continue the
active conduct of their businesses for at least two years after the
Distribution Date;
(iii) A failure by New GranCare to satisfy the active business
requirement of Code Section 355(b);
(iv) A failure by GCI to satisfy the active business requirement of
Code Section 355(b), but only if such failure is not the result of GCI's
failure to satisfy the conditions set forth in Section 4.1(c)(ii)-(iv);
(v) The sale, exchange, or other disposition (in one or more
transactions) of more than fifty percent of New GranCare' assets (taking
into account the stock of its subsidiaries) within two years of the
Distribution Date; and
(vi) A repurchase by New GranCare of any of its outstanding stock
within two years of the Distribution Date other than stock repurchases
meeting the requirements of Section 4.05(1)(b) of Rev. Proc. 96-30.
(b) Multiple Tainting Acts or an Absence of Tainting Acts. In the event of
-----------------------------------------------------
a determination that the Distribution failed to meet the requirements of
Sections 368(a)(1)(D) and 355 of the Code for nonrecognition of gain or loss due
to (1) any combination of a New GranCare Tainting Act and a GCI Tainting Act, or
(2) a complete absence of New GranCare Tainting Acts and GCI Tainting Acts, then
all liability for: (i) the Restructuring Taxes; (ii) any claim against GCI or
any member of the Post-Distribution GCI Group for liability to shareholders of
GCI arising out of the determination that the Distribution failed to meet the
requirements of Section 355 of the Code for nonrecognition of gain or loss; and
(iii) any and all other liability that arises as a direct consequence of, or
would not have otherwise arisen, but for the determination that GCI or any
member of the GCI Group is liable for the Restructuring Taxes, shall be borne
one-half (1/2) by GCI and one-half (1/2) by New GranCare; provided, however,
that the maximum liability that shall be borne by GCI under this Section 4.1(b)
13
shall be $10 million. Notwithstanding the foregoing, if there is a complete
absence of New GranCare Tainting Acts and GCI Tainting Acts, and the liability
under this Section 4.1(b) arises as the result of a retroactive change in the
tax laws, then all liability under this Section 4.1(b) shall be borne one-half
(1/2) by GCI and one-half (1/2) by New GranCare.
(c) Liability Resulting from a GCI Tainting Act. In the event that GCI is
-------------------------------------------
liable for Restructuring Taxes because the Distribution failed to meet the
requirements of Sections 368(a)(1)(D) and 355 of the Code for nonrecognition of
gain or loss due solely to a GCI Tainting Act, then GCI shall be allocated all
liability for: (1) the Restructuring Taxes; (2) any claim against GCI or any
member of the Post-Distribution GCI Group for liability to shareholders of GCI
arising out of the determination that the Distribution failed to meet the
requirements of Section 355 of the Code for nonrecognition of gain or loss; and
(3) any and all other liability that arises as a direct consequence of, or would
not have otherwise arisen but for, the determination that GCI is liable for the
Restructuring Taxes as a result of the GCI Tainting Act. For purposes of this
Section 4.1, any failure of the Distribution to meet the requirements of Code
Sections 368(a)(1)(D) and 355 shall be treated as due solely to a GCI Tainting
Act if any of the following items shall have occurred; provided, however, that
none of the items set forth in 4.1(a)(i)-(vi) shall have occurred first:
(i) A taxable merger or a liquidation of any successor to GCI, or a
taxable acquisition of the outstanding stock of any successor to GCI which
acquisition the Board of Directors to GCI's successor consents or otherwise
agrees to, or a contract or option for such a merger, liquidation, or
acquisition, within two years of the Distribution Date;
(ii) A failure by TeamCare to continue the active conduct of its
trade or business for at least two years after the Distribution Date;
(iii) A sale, exchange, or other disposition of the stock of TeamCare
within two years of the Distribution Date;
(iv) The sale, exchange, or other disposition (in one or more
transactions) of more than fifty percent of TeamCare' assets (taking into
account the stock of its subsidiaries) within two years of the Distribution
Date; and
(v) A repurchase by any successor of GCI of any of its outstanding
stock within two years of the Distribution Date other than stock
repurchases meeting the requirements of Section 4.05(1)(b) of Rev. Proc.
96-30.
ARTICLE V.
ALL OTHER TAX LIABILITIES
-------------------------
V.1 Real and Personal Property Taxes. Liability for Real and Personal
--------------------------------
Property Taxes incurred with respect to the business or assets of GCI or any
member of the Post-Distribution GCI Group which relate to any period which
includes the Distribution Date shall be allocated between the period which ends
on the Distribution Date and the period which begins on the day after the
Distribution Date based upon a ratio of the number of days in each such period.
14
V.2 Other GCI Taxes. Any sales, use, transfer, recordation, excise, and
---------------
similar Taxes with respect to the business or assets of GCI, New GranCare, or
any member of the GCI Group shall be allocable to the period (i.e., pre- or
post- Distribution Date) in which the sale, transfer, assignment, or exchange or
other event giving rise to the liability for such Tax occurred.
ARTICLE VI.
TAX CONTROVERSIES
-----------------
VI.1 Tax Controversies. (a) Except as otherwise provided in this Article
-----------------
VI, GCI shall have primary responsibility and discretion in handling, settling,
or contesting any Tax Controversy involving a Tax Return for which it has filing
responsibility under this Agreement, and New GranCare shall have primary
responsibility and discretion in handling, settling, or contesting any Tax
Controversy involving a Tax Return for which it has filing responsibility under
this Agreement. Any expense incurred in handling, settling or contesting any
Tax Controversy shall be borne by the Party having primary responsibility and
discretion therefor.
(b) The Party primarily responsible for any Tax Controversy shall use all
reasonable efforts to resist any deficiency assertions by any Taxing Authority
regardless of which Party is ultimately responsible for any such Tax under this
Agreement, and shall not enter into any settlement that may reasonably be
expected to have an adverse effect on another Party without the consent of that
Party.
(c) Each Party shall give prompt notice to any other affected Party of any
communication (including, but not limited to, requests for information that
might affect the treatment of any Tax Item and notices of proposed adjustments
affecting the treatment of any Tax Item) with the IRS or other Taxing Authority
which may affect any Tax Item of the other Party. Such other Party shall have
the right to provide the Party having primary responsibility for the audit with
information and input as to the response to such communication as may be
appropriate under the circumstances. The Party having primary responsibility
for the Tax Controversy shall notify all affected Parties promptly if any Taxing
Authority proposes an assessment of Taxes for which any other Party to this
Agreement could be obligated to indemnify or a Party with direct responsibility
for payment of the Tax liability to the Taxing Authority is other than the Party
with responsibility for the handling of Tax Controversy.
VI.2 Cooperation. (a) The Parties agree that they shall afford full
-----------
cooperation to each other in handling, settling, or contesting any Tax
Controversy including, without limitation:
i) the timely filing of appropriate claims for any refund which may
be available on account of an item of loss, deduction or credit
of any member of the GCI Group;
ii) preparing and submitting responses to information requests by any
Taxing Authority;
iii) making available books, records and other documentation
(including, but not by way of limitation, working papers and
schedules) relevant to such proceeding,
15
and systems support for documentation furnished in electronic
form;
iv) making directors, officers or employees available to appear in
person for interview or for testimony;
v) making employees available on a mutually convenient basis to
provide additional information and explanation of materials
provided hereunder;
vi) executing powers of attorney, tax information authorizations and
any other necessary or appropriate authorizations; and
vii) executing agreements with the Taxing Authority reasonably
necessary or appropriate for the settlement or pursuit of the
contest of such issue.
viii) executing and filing any petitions, memoranda, and/or such
other documentation with the Taxing Authority or any court as may
reasonably necessary or appropriate in pursuit of the contest of
such issue.
(b) The Party(ies) that may be affected by a Tax Controversy for which
another Party has responsibility and discretion in handling, settling, or
contesting shall have the right to have its representatives, at its expense,
participate in (1) all conferences, meetings, or proceedings with any Taxing
Authority, and (2) all appearances before any court, the subject matter of which
includes an issue that may affect such Party.
(c) The right to participate referred to in Section 6.2(b) hereof shall
include right to review the submission and content of documentation, memoranda
of fact and law and briefs, to be present and submit input to the Party with
primary Tax Controversy responsibility, or its representatives, with respect to
the conduct of oral arguments or presentations, the selection of witnesses, and
the negotiation of stipulations of fact with respect to the issue.
VI.3 Waiver of Indemnification. A Party with a right to indemnification
-------------------------
under this Agreement with respect to any Tax liability that does not have the
primary responsibility to handle, settle, or contest any Tax Controversy under
the provisions of this Section VI may waive the right to such indemnification
and assume the primary responsibility (at its expense) to handle, settle, or
contest that portion of the Tax Controversy for which such Party has primary
liability for the Tax liability.
VI.4 Record Retention. The Parties agree to retain all books, records,
----------------
returns, schedules, documents and all material papers or relevant items of
information for periods (or portions thereof) prior to the Date of Distribution
until the later of (i) seven (7) years after the Date of Distribution or (ii)
the expiration of the full periods of the applicable statutes of limitations,
including any extensions thereof.
ARTICLE VII.
INDEMNIFICATION
---------------
16
VII.1 Indemnification for Taxes. (a) New GranCare and the other members
-------------------------
of the New GranCare Group agree to pay, and to indemnify and to hold GCI and
each member of the Post-Distribution GCI Group harmless from and against, any
and all Tax liability (other than a liability for Restructuring Taxes) of each
member of the GCI Group to the extent that such Tax liability relates to a
period (or portion thereof) which ends on or before the Distribution Date.
(b) New GranCare and the other members of the New GranCare Group agree to
pay, and to indemnify and to hold GCI and each member of the Post-Distribution
GCI Group harmless from and against, any and all Restructuring Taxes allocable
to New GranCare or any member of the New GranCare Group in accordance with
Article IV of this Agreement.
(c) New GranCare and the other members of the New GranCare Group agree to
pay, and to indemnify and to hold GCI and each member of the Post-Distribution
GCI Group harmless from and against, any and all Tax liability (in accordance
with Article III or V hereof) to New GranCare or any member of the New GranCare
Group.
(d) GCI agrees to pay, and to indemnify and to hold New GranCare and each
member of the New GranCare Group harmless from and against, any and all Tax
liability (other than a liability for Restructuring Taxes) allocable (in
accordance with Article III or V of this Agreement) to GCI or a member of the
Post-Distribution GCI Group to the extent that such Tax liability relates to a
period (or portion thereof) which begins after the Distribution Date.
(e) GCI agrees to pay, and to indemnify and to hold New GranCare and each
member of the New GranCare Group harmless from and against, any and all
Restructuring Taxes allocable to GCI or the Post-Distribution GCI Group in
accordance with Article IV of this Agreement.
ARTICLE VIII.
ALLOCATION OF TAX BENEFITS RELATED TO STOCK OPTION EXPENSE
----------------------------------------------------------
VIII.1 Payroll Tax Reporting and Withholding. Upon the exercise of any
-------------------------------------
nonqualified stock option, or the disqualifying disposition of stock acquired
upon exercise of any incentive stock option, covered by the Employee Benefits
Matters Agreement, the employer of the employee exercising such option or making
such disqualifying disposition of stock shall be responsible for collecting from
the employee and timely remitting to the applicable Taxing Authority any
required income, employment, payroll, or other tax withholding with respect to
the income to be recognized by such employee as a result of such exercise or
disqualifying disposition, and shall include on such employee's annual wage
statement or other payroll tax reporting form for the calendar year in which the
option is exercised or the disqualifying disposition occurs the amount of such
income and withholdings. In addition, upon the exercise of any nonqualified
stock option, or the disqualifying disposition of stock acquired upon exercise
of any incentive stock option, covered by the Employee Benefits Matters
Agreement, the employer of the employee exercising such option or making such
disqualifying disposition of stock shall be responsible for paying to any
applicable Taxing Authority any Taxes imposed on an employer in connection with
such exercise or disqualifying disposition. If an employee exercises an option
with respect to, or makes a disqualifying disposition of, other than his or her
employer's stock, then the issuer of that stock shall be required to provide the
employer with information sufficient to allow the
17
employer to satisfy its withholding and reporting obligations, including,
without limitation, the number of option shares exercised or shares disposed of
in a disqualifying disposition, the fair market value of the issuer's stock on
the date of exercise and, if applicable, the date of disposition, and the option
price paid for the stock. The issuer of such stock shall retain the stock to be
issued upon the exercise of an option by a person who is not an employee of such
issuer until such time as both the exercise price for the stock has been paid
and any required withholding with respect to the income to be recognized by such
person has been remitted to his or her employer. The employer, if the employer
is not the issuer of the stock, shall promptly notify the issuer when such
required withholding has been remitted.
VIII.2 Tax Deduction and Allocation of Tax Benefit. The employer of an
-------------------------------------------
employee exercising a stock option, or making a disqualifying disposition of
stock acquired upon exercise of any incentive stock option, covered by the
Employee Benefits Matters Agreement shall be entitled to claim any and all
deductions, to the extent permitted, on any Tax Return for the income recognized
by such employee as a result of such exercise or disqualifying disposition. Not
later than ninety (90) days after the end of each calendar year during which a
stock option is exercised, or a disqualifying disposition of stock acquired upon
exercise of any incentive stock option occurs, which is covered by the Employee
Benefits Matters Agreement, the Post-Distribution GCI Group and the New GranCare
Group shall each compute, and shall provide a schedule to the other Party
showing such computation, the total amount of income included in its employees'
annual wage statements or other payroll tax reporting forms for the calendar
year with respect to stock options, or disqualifying dispositions of stock
acquired upon the exercise of any incentive stock option, covered by the
Employee Benefits Matters Agreement which have been exercised or for which there
has been a disqualifying disposition during that calendar year for which no
member of the respective group (or another corporation which has become the
common parent that includes such group) is the issuer of such stock. If, for
such calendar year, the total amount of income included in the annual wage
statements or other payroll tax reporting forms of the employees of the Post-
Distribution GCI Group as a result of the exercise of stock options, or
disqualifying dispositions of stock acquired upon the exercise of any incentive
stock option, covered by the Employee Benefits Matters Agreement for which no
member of the Post-Distribution GCI Group (or another corporation which has
become the common parent that includes the Post-Distribution GCI Group) is the
issuer of such stock exceeds the total amount of income included in the annual
wage statements or other payroll tax reporting forms of the employees of the New
GranCare Group as a result of the exercise of stock options or disqualifying
dispositions of stock acquired upon the exercise of any incentive stock option
covered by the Employee Benefits Matters Agreement for which no member of the
New GranCare Group (or another corporation which has become the common parent
that includes the New GranCare Group) is the issuer of such stock, then GCI
shall pay to New GranCare, not later than ten (10) days after the exchange of
such computations, an amount equal to such excess times the sum of the highest
federal income tax rate under Code Section 11 (or any successor provision
thereto) applicable to a corporation that is in effect for the calendar year for
which such computation is being made plus five percent (5%). If, for such
calendar year, the total amount of income included in annual wage statements or
other payroll tax reporting forms of the employees of the New GranCare Group as
a result of the exercise of stock options, or disqualifying dispositions of
stock acquired upon the exercise of any incentive stock option, covered by the
Employee Benefits Matters Agreement for which no member of the New GranCare
Group (or another corporation which has become the common parent that includes
the New GranCare Group) is the issuer of such stock exceeds the total amount of
income included in annual wage statements or other payroll tax reporting forms
of the employees of the Post-Distribution GCI Group as a result of the
18
exercise of stock options, or disqualifying dispositions of stock acquired upon
the exercise of any incentive stock option, covered by the Employee Benefits
Matters Agreement for which no member of the Post-Distribution GCI Group (or
another corporation which has become the common parent that includes the Post-
Distribution GCI Group) is the issuer of such stock, then New GranCare shall pay
to GCI, not later than ten (10) days after the exchange of such computations, an
amount equal to such excess times the sum of the highest federal income tax rate
under Code Section 11 (or any successor provision thereto) applicable to a
corporation that is in effect for the calendar year for which such computation
is being made plus five percent (5%). In addition, each Party shall reimburse
the other Party for the payroll Taxes imposed on such other Party under Code
Section 3111(a) and (b) in respect of any income recognized by its employees to
the extent that such income was taken into account in determining the payment to
be made under either of the two previous sentences. In determining the amount of
such reimbursement payable to the other Party, it shall be assumed that such
income was the last item of income earned by the employee during the applicable
year. In the event that it is determined as a result of a challenge by a Taxing
Authority that a member of one of the groups claiming a deduction as a result of
an exercise of an option or a disqualifying disposition of stock covered by this
Article VIII is not entitled to such deduction, and a member of the other group
is entitled to claim such deduction and receives a refund of or reduction in
Taxes as a result of claiming such deduction, then no payment with respect to
such deduction shall be due under this Section 8.2 (including any payment for
reimbursement of payroll Taxes paid as an employer) or, if a payment has already
been made with respect to such deduction, then such payment (net of any
reimbursement for payroll Taxes) shall be returned to the Party who originally
made such payment. For purposes of this Article VIII, a person whose employment
has terminated prior to the time an option covered by the Employee Benefits
Matters Agreement is exercised shall be treated as an employee of the group by
which he or she was last employed.
ARTICLE IX.
PAYMENTS
--------
IX.1 Payments in General. Except as otherwise provided in this Agreement,
-------------------
any amount required to be paid by one Party pursuant to this Agreement shall be
paid in immediately available funds within thirty (30) days after written demand
therefor from the other Party.
IX.2 Interest on Late Payments. Any amount payable under this Agreement by
-------------------------
one Party to another Party shall, if not paid by the due date specified in this
Agreement, bear interest from such due date until the date paid at the
underpayment rates applicable under Section 6621 of the Code on and after the
due date.
IX.3 Character and Effect of Payments. The Parties agree that for income
--------------------------------
and other Tax purposes all amounts paid pursuant to this Agreement by one Party
to the other Party (other than interest payments pursuant to Section 9.2) shall
be treated by the Parties as made directly to the third parties to which such
payment is due. If, notwithstanding such treatment by the Parties, any payment
by either Party is determined to be taxable to the other Party by any Taxing
Authority, the payor shall also indemnify the other Party for the amount of any
Taxes and related Expenses payable by the other Party by reason of the receipt
of such payment. In addition, the amount of any indemnity payment due under this
Agreement shall be computed by properly taking into account any Tax Benefit
actually
19
realized by the recipient from the payment of the item at issue (net of the
Taxes and related Expenses described in the preceding sentence).
IX.4 Notice. The Parties shall give each other prompt notice of any payment
------
that may be due under this Agreement.
ARTICLE X.
ADMINISTRATIVE PROVISIONS
-------------------------
X.1 Interest. Except as expressly provided herein, no obligation to pay or
--------
right to collect interest or other amounts shall arise by virtue of this
Agreement.
X.2 Expenses. Except as expressly provided herein, each Party to this
--------
Agreement hereby agrees to be responsible for all of the expenses which it may
incur in carrying out its duties hereunder.
ARTICLE XI.
Miscellaneous
-------------
XI.1 Prior Agreement. This Agreement supersedes and terminates the Tax
---------------
Sharing Agreement dated December 29, 1993, between GCI and TeamCare.
XI.2 Modification of Agreement. No modification, amendment or waiver or any
-------------------------
provision of this Agreement shall be effective unless the same shall be in
writing, and signed by each of the Parties hereto and then such modification,
amendment or waiver shall be effective only in the specific instance and for the
purpose for which given.
XI.3 Successors and Assigns. Except as hereinafter provided, neither this
----------------------
Agreement nor any rights hereunder shall be assignable or transferable by any
Party hereto, without the prior written consent of the other Parties hereto,
except by operation of law. Each Party hereby guarantees the performance of all
actions, agreements, and obligations provided for under this Agreement by each
of its Subsidiaries it has at the time such performance is required. Each Party
shall, upon the written request of any other Party, cause any of its
Subsidiaries formally to execute this Agreement. This Agreement shall be binding
upon, and shall inure to the benefit of, the successors and assigns of the
corporations bound hereby.
XI.4 Term. This Agreement shall commence on the date of execution indicated
----
above and shall continue in effect until otherwise agreed to in writing by the
Parties or their successors. Notwithstanding any other provision in this
Agreement, this Agreement shall remain in effect and its provisions shall
survive for the full period of all applicable statutes of limitation (giving
effect to any extension, waiver, or mitigation thereof).
XI.5 Rights Confined to Parties. Nothing expressed or implied herein is
--------------------------
intended or shall be constructed to confer upon or to give to any person firm or
corporation (other than the Parties hereto, and their successors and assigns)
any right, remedy or claim under or by reason of this Agreement or of
20
any term, covenant or condition hereof. All terms, covenants, conditions,
promises and agreements contained herein shall be for the sole and exclusive
benefit of the Parties hereto, and their successors and assigns.
XI.6 Notices. All demands, notices, and communications under this Agreement
-------
shall be in writing and shall be deemed to have been duly given on the date on
which such demand, notice, or communication is personally delivered or sent by
certified or registered United States Mail, postage prepaid, to:
a) in the case of GCI and/or a member of the Post-Distribution GCI Group:
GranCare, Inc.
c/o Vitalink Pharmacy Services, Inc.
0000 X. Xxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxx 00000
b) in the case of New GranCare and/or a member of the New GranCare Group:
New GranCare, Inc.
Xxx Xxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
21
XI.7 Effect of Headings. The paragraph headings herein are for convenience
------------------
only and shall not affect the construction hereof.
XI.8 Governing Law. The governing law provision of this Agreement shall be
-------------
identical to the governing law provision of the Distribution Agreement.
XI.9 Counterparts. This Agreement may be executed in any number of
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counterparts, each of which shall, when so executed, be considered an original
and all of which, taken together, shall be considered one document.
IN WITNESS WHEREOF, the Parties hereto have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective as of the day first written above.
GRANCARE, INC.
By: Date:
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NEW GRANCARE, INC.
By: Date:
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TEAMCARE, INC.
TEAMCARE CLINICAL SERVICES, INC.
COMPUPHARM OF NORTHERN CALIFORNIA, INC.
TEAMCARE OF INDIANA, INC.
TEAMCARE OF VIRGINIA, INC.
COMPUPHARM OHIO PHARMACY, INC.
GCI INNOVATIVE PHARMACY, INC.
SPAN PURCHASING, INC.
GCI-CAL THERAPIES, INC.
GCI THERAPIES, INC.
AMS GREEN TREE, INC.
AMERICAN-CAL MEDICAL SERVICES, INC.,
HMI CONVALESCENT CARE, INC.
GRANCARE SOUTH CAROLINA, INC.
GCI PALM COURT, INC.
GCI EAST VALLEY MEDICAL & REHABILITATION CENTER, INC.
GCI REALTY, INC.
GCI XXXXXX ACRES, INC.
GCI PRINCE XXXXXX, INC.
GCI SPRINGDALE VILLAGE, INC.
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GCI VILLAGE GREEN, INC.
GCI FAITH NURSING HOME, INC.
GCI REHAB, INC.
GCI-CAL HEALTH CARE CENTERS, INC.
GRANCARE HOME HEALTH SERVICES, INC.
RENAISSANCE MENTAL HEALTH CENTER, INC.
COORDINATED HOME HEALTH SERVICES, INC.
GRANCARE NURSING SERVICES AND HOSPICE, INC.
AMS PROPERTIES, INC.
EVERGREEN HEALTH CARE, INC.
NATIONAL HERITAGE REALTY, INC.
OMEGA/INDIANA CARE CORPORATION
EH ACQUISITION CORP., INC.
EH ACQUISITION CORP. II, INC.
EH ACQUISITION CORP. III, INC.
HERITAGE OF LOUISIANA, INC.
HEALTH RESOURCES, INC.
NATIONAL HERITAGE PHARMACY, INC.
HERITAGE STERLING FINANCIAL SERVICES, INC.
STERLING HEALTH CARE, INC.
EH RESOURCES, INC.
EVERGREEN RETIREMENT MANAGEMENT COMPANY
GCI HEALTH CARE CENTERS, INC.
GC SERVICES, INC.
GRANCARE TRADING, INC.
GCI VALLEY MANOR HEALTH CARE CENTER, INC.
GCI XXXXXXX CARE CENTER, INC.
CORNERSTONE HEALTH MANAGEMENT COMPANY
STONECREEK MANAGEMENT COMPANY, INC.
HOSTMASTERS, INC.
GCI XXXXXX VILLAGE, INC.
GCI INDEMNITY, INC.
GCI BELLA VITA, INC.
GCI WISCONSIN PROPERTIES, INC.
GCI ASHLAND HEALTH CARE CENTER, INC.
GCI NORTH SHORE HEALTH CARE CENTER, INC.
GCI HILLSIDE HEALTH CARE CENTER, INC.
GCI FAMILY NURSING HOME AND REHABILITATION CENTER, INC.
GRANCARE GPO SERVICES, INC.
GRANCARE SIMI VALLEY HEALTHCARE CENTER, INC.
PROFESSIONAL HEALTH CARE MANAGEMENT, INC.
CAMBRIDGE BEDFORD, INC.
CAMBRIDGE EAST, INC.
CAMBRIDGE NORTH, INC.
CAMBRIDGE SOUTH, INC.
CLINTONAIRE NURSING HOME, INC.
23
CRESTMONT HEALTH CENTER, INC.
FRENCHTOWN NURSING HOME, INC.
HERITAGE NURSING HOME, INC.
XXXXXXX NURSING CENTER, INC.
MIDDLEBELT NURSING HOME, INC.
MIDDLEBELT-HOPE NURSING HOME, INC.
NIGHTINGALE EAST NURSING CENTER, INC.
ST. XXXXXXX NURSING HOME, INC.
INTERNATIONAL HEALTH CARE MANAGEMENT, INC.
INTERNATIONAL X-RAY, INC.
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Schedule 2.2
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Corporation(s): Returns:
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Compupharm LTC, Inc. All property tax returns
All members of the Post-Distribution GCI Group All Forms 1099
All members of the Post-Distribution GCI Group All payroll tax forms, including Forms W-2
All members of the Post-Distribution GCI Group Quarterly and annual payroll tax withholding
All members of the Post-Distribution GCI Group Quarterly and annual social security withholding
All members of the Post-Distribution GCI Group Quarterly and annual unemployment tax returns
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