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EXHIBIT 10.13
TAX ADMINISTRATION AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of
_________________, 1996 by and between MANOR CARE, INC., a Delaware corporation
("Manor"), and CHOICE HOTELS HOLDINGS, INC. (to be renamed Choice Hotels
International, Inc.), a Delaware corporation ("Choice").
RECITALS
WHEREAS, pursuant to a Distribution agreement (the "Distribution
Agreement" dated as of ____________, 1996, Choice and Manor have agreed to enter
into this agreement relating to certain tax administration matters on the terms
and conditions set forth herein; and
WHEREAS, Manor shall retain the personnel and systems formerly utilized
in the administration of the services described herein; and
WHEREAS, Choice desires to retain Manor as described herein, and Manor
desires to render such assistance on an equitable, arms length basis for a fee;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Choice and Manor agree as follows:
1. Definitions. As used in this Agreement, the terms indicated below shall have
the following meanings:
"Ancillary Agreement" shall have the meaning described in the
Distribution Agreement.
"Distribution" means the distribution to the holders of Manor Care
Common Stock of all the outstanding shares of Choice Common Stock.
"Distribution Date" means the date determined by the Board of
Directors of Manor as the date on which the Distribution shall be
effected.
"Lodging Business" shall mean any business or operation of Choice
or the Lodging Subsidiaries (as defined in the Distribution Agreement) which is,
pursuant to the Distribution Agreement, to be conducted, following the
Distribution.
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"Prime Rate" shall be the rate identified from time to time in the
New York edition of the Wall Street Journal as being the Prime Rate of
interest.
"Tax Claim" means a claim by a Taxing Authority for sales, use,
occupancy, real estate, personal property or other taxes (other than
income tax), miscellaneous licenses, permits, and fees, interest and
penalties (other than penalties for the delinquent payment of assessments)
which claims arise from or relate to the Lodging Business and which under
the Distribution Agreement or any Ancillary Agreement is charged to
Choice.
"Taxing Authority" means any Country, State, County, Municipality,
City or other governmental entity legally empowered to tax Choice
properties or operations. Any capitalized terms defined in the
Distribution Agreement and used herein shall have the meanings ascribed to
them in the Distribution Agreement unless otherwise defined herein.
2.1 Tax Claim Administration Services. Upon request of Choice, Manor shall
provide the services described in Exhibit B. Manor will promptly notify Choice
in writing of any Tax Claims for which it receives notice. Choice shall have
full authority to defend and settle all Tax Claims. Manor will not protest,
settle, compromise or pay any Tax Claims (except under protest), without the
prior written consent of Choice. Manor agrees to provide such services only if
it reasonably believes the service will not interfere with the conduct of the
business of Manor or pose an unreasonable burden.
2.2 Standard of Care. All services provided hereunder shall be
administered in accordance with Manor's standard policies, procedures and
practices in effect as of the date hereof and as may be changed, and as more
particularly described below, or as otherwise specified in accordance with the
terms thereof. In so doing, Manor shall follow commonly accepted standards of
care in the industry and exercise the same care and skill as it exercises in
performing like services for itself.
3. Financial Provisions.
3.1 Reimbursement. Choice will reimburse Manor for any Tax Claims for
which Manor is ultimately held liable, other than Tax Claims for which Choice is
entitled to indemnification under Section 4(a) hereof, together with all
out-of-pocket expenses including legal fees incurred by Manor in protesting or
disputing any Tax Claim or endeavoring to obtain a refund at Choice's request.
3.2 Pricing and Payment for Services. Choice shall pay Manor for services
requested and rendered hereunder as follows:
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(a) The charging mechanisms for rates or charges for each service
shall include (i) activity-based charges where the per unit price
will be multiplied by the variable number of units; (ii) fixed fee
based charges, meaning a fixed amount per accounting period for
Manor to perform the service; (iii) usage based charges for which
Choice will pay according to actual use of the service; (iv) time
and materials charges; (v) any out-of-pocket expenses, including,
but not limited to, fees of consultants and attorneys; or (vi) a
variation or a combination of any of the foregoing methods as
agreed to by the parties.
(b) Choice shall pay any and all additional costs and expenses
which Manor may incur for the express purpose of providing
services to Choice hereunder.
(c) Choice shall pay Manor for all services provided hereunder
within thirty (30) days after receipt of an invoice therefor.
Choice will remit the amount of any Tax Claims payable by Manor
before Manor is required to remit such amount to any Taxing
Authority. If Manor subsequently recovers any amounts paid by
Choice hereunder or if Manor recovers any Tax Claim previously
paid, it will remit such amounts to Choice within thirty (30) days
of receipt. Choice shall pay fixed charges in advance on the first
business day of the applicable Accounting Period. Any payments not
made by Choice to Manor, or not made by Manor to Choice, when due
shall bear interest, computed daily, from the date due to the date
of payment based on the annual percentage rate equal to the Prime
Rate plus two (2) percentage points, as same may vary from time to
time.
4. Indemnification.
(a) Manor will defend, indemnify and hold harmless Choice, its
subsidiaries, affiliates, directors, officers, employees and
agents from Tax Claims arising from (i) Manor's failure to file a
required tax return or (ii) Manor's failure to pay the tax shown
as due on any tax return applicable to the Lodging Business
unless in the case of (ii), such Tax Claim is being contested by
Manor or a Manor subsidiary in good faith on the date of this
Agreement.
(b) Choice will defend, indemnify and hold harmless Manor, its
subsidiaries, affiliates, directors, officers, employees and
agents from any Tax Claims which are not subject to
indemnification by Manor pursuant to Section 4(a) above, and any
out-of-pocket expenses incurred by Manor in protesting or
disputing any Tax Claims at Choice's request.
(c) Choice shall indemnify, defend and hold harmless Manor and its
subsidiaries, and Manor shall indemnify, defend and hold harmless
Choice and its subsidiaries from and
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against any liability, cost, or expense, including, without
limitation, any fine, penalty, interest charge (restricted to
interest in excess of the rate established under Section 6621 of
the Code and interest which is in respect of the penalty portion
of an assessment), or accountants' or attorney's fee, arising out
of fraudulent or negligently prepared information, workpapers,
documents, and other items used in the preparation of, or
presented in, any return, amended return, or claim or refund
filed, and which information, workpapers, documents, or other
items originated with and/or were prepared by such indemnifying
party.
5. Access to Information. Choice and its authorized agents will be given
reasonable access to and may take copies of all information relating to the Tax
Claims, Manor's time and expense charges for providing the services provided
hereunder, and Manor's out-of-pocket expenses. Choice and its authorized agents
may, upon fourteen (14) days written notice, annually audit Manor's claims,
administration policies, procedures and practices and the Tax Claims. The
parties will cooperate with one another to minimize the disruption caused by any
such audit. Manor will retain all information relating to Tax Claims in
accordance with the retention policies in the Distribution Agreement, with
Manor's internal record retention policy and in accordance with applicable laws.
6. Term. The term of this Agreement shall commence on the Distribution
Date and shall remain in effect through the end of the first full Fiscal Year
immediately following the Distribution Date. Unless terminated pursuant to the
terms hereof, the Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year and shall not extend past
the last day of the 30th month following the Distribution; provided, however,
that Choice may terminate this agreement or any services provided hereunder at
any time for any reason or no reason upon sixty (60) days' prior written notice
to Manor. This Agreement may also be terminated in the event of a default (past
the expiration of any applicable cure period provided herein) in accordance with
the provisions of this Agreement.
7. Default. If either party materially defaults hereunder, the
non-defaulting party may terminate this Agreement effective immediately (subject
to the cure periods set forth herein below) upon written notice to the
defaulting party. The non-defaulting party shall be entitled to all remedies
provided by law or equity (including reasonable attorneys' fees and costs of
suit incurred). The following events shall be deemed to be material defaults
hereunder:
(a) Failure by either party to make any payment required to be
made to the other hereunder, which failure is not remedied with
five (5) days after receipt of written notice thereof; or
(b) Except as otherwise provided herein, failure by either party
substantially to perform in accordance with the terms and
conditions of this Agreement, which failure is not
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remedied within thirty (30) days after receipt of written notice
from the other party specifying the nature of such default; or
(c) (i) Filing of a voluntary bankruptcy petition by either party;
(ii) filing of any involuntary bankruptcy petition against either
party which is not withdrawn within sixty (60) days after filing;
(iii) assignment for the benefit of creditors made by either
party; or (iv) appointment of a receiver for either party.
8. Force Majeure. Manor and Choice shall incur no liability to each other
due to a default under the terms and conditions of this Agreement resulting from
fire, flood, war, strike, lock-out, work stoppage or slow-down, labor
disturbances, power failure, major equipment breakdowns, construction delays,
accident, riots, acts of God, acts of United States' enemies, laws, orders or at
the insistence or result of any governmental authority or any other delay beyond
each other's reasonable control.
9. Relationship of Parties. Nothing in this Agreement shall be deemed or
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties.
10. Assignment. Neither party shall, without the prior written consent of
the other, assign any rights or delegate any obligations under this Agreement,
such consent not to be unreasonably withheld, conditioned or delayed.
11. Headings. The headings used in this Agreement are inserted only for
the purpose of convenience and reference, and in no way define or limit the
scope or intent of any provision or part hereof.
12. Severability of Provisions. Neither Manor nor Choice intend to violate
statutory or common law by executing this Agreement. If any section, sentence,
paragraph, clause or combination of provisions in this Agreement is in violation
of any law, such sections, sentences, paragraphs, clauses or combinations shall
be inoperative and the remainder of this Agreement shall remain in full force
and effect and shall be binding upon the parties.
13. Parties Bound. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing herein, expressed or implied, shall be construed to give any
person any legal or equitable rights hereunder.
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14. Notices. All notices and other communications hereunder shall be in
writing and shall be delivered by hand or shall be deemed to have been properly
made and given one (1) business day after being deposited with a reputable
overnight courier service such as Federal Express, Airborne Express or UPS Next
Day Air for next business day delivery to the following addresses (or at such
other addresses for a party as shall be specified by like notice):
to Choice:
Choice Hotels International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxx Xxxxxx, XX 00000
Attention: General Counsel
to Manor:
Manor Care, Inc.
00000 Xxxxxxxxxx Xxxx
Xxxxxxxxxxxx, XX 00000-0000
Attention: General Counsel
15. Further Action. Manor and Choice each shall cooperate in good faith
and take such steps and execute such papers as may be reasonably requested by
the other party to implement the terms and provisions of this Agreement.
16. Waiver. Manor and Choice each agree that the waiver of any default
under any term or condition of this Agreement shall not constitute any waiver of
any subsequent default or nullify the effectiveness of that term or condition.
17. Governing Law. All controversies and disputes arising out of or under
this Agreement shall be determined pursuant to the laws of the State of
Maryland, United States of America, regardless of the laws that might be applied
under applicable principles of conflicts of laws.
18. Consent to Jurisdiction. The parties irrevocably submit to the
exclusive jurisdiction of (a) the Courts of the State of Maryland in Xxxxxxxxxx
County, and (b) the United States District Court for the State of Maryland for
the purposes of any suit, action or other proceeding arising out of this
Agreement.
19. Commercially Reasonable Terms and Conditions. The terms and provisions
of this Agreement are and shall reflect commercially reasonable terms and
conditions (including, but not limited to, pricing) that are at least
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as favorable and as competitive to Choice as the terms and conditions Manor
would grant or require of third parties for substantially similar goods and
services.
20. Liaisons. Choice and Manor shall each appoint a managerial level
individual (hereinafter "Representative") to facilitate communications and
performance under this Agreement. Each party may treat an act of a
Representative of the other party as being authorized by such other party
without inquiring behind such act or ascertaining whether such Representative
had authority to so act. The initial Representatives are named on Exhibit A.
Each party shall have the right at any time and from time to time to replace its
Representative by giving notice in writing to the other party setting forth the
name of (i) the Representative to be replaced and (ii) the replacement, and
certifying that the replacement Representative is authorized to act for the
party giving the notice in all matters relating to this Agreement.
21. Other Agreements. Notwithstanding anything to the contrary contained
herein, Choice shall not be charged under this Agreement for any services which
are required to be performed under any operating lease or other agreement
between Choice and Manor, or their respective subsidiaries.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CHOICE HOTELS HOLDINGS, INC., a
Delaware corporation
By:______________________________________
Name:______________________________
Title:_______________________________
MANOR CARE, INC., a
Delaware corporation
By:______________________________________
Name:______________________________
Title:_______________________________
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EXHIBIT A
REPRESENTATIVES
Xxxxxxx Xxxxxxxx - Manor Care, Inc.
Xxxxx Xxxxxxxx - Choice Hotels International, Inc.
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EXHIBIT B
SERVICES
[ATTACHED]
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PERSONAL PROPERTY TAX RETURNS AND AUDITS
SCHEDULE OF SERVICES
1. Extract detailed Fixed Assets data from Global Fixed Asset System.
2. Review prior year return for audit settlements and special issues. For new
facilities (construction and/or acquisition) contact taxing authorities
for property information.
Maintain and update due date schedule.
3. Review return instructions for law changes; perform research as required.
4. Classify current year acquisitions as taxable or non-taxable and by type
of asset - i.e., computer, furniture or equipment.
5. Analyze total unit cost for reasonableness; identify unrecorded
dispositions.
6. Adjust asset basis for non-taxable costs.
7. Process return using available resources. Estimate assessed value and tax
due.
8. Mail return.
9. Compare assessed value per notice to return. File appeals as needed.
10. Pay xxxx and monitor accruals.
11. Prepare annual unit budgets.
12. Respond to audit requests; settle audit issues.
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SALES/USE AND OCCUPANCY TAX COMPLIANCE
SCHEDULE OF SERVICES
1. Extract sales and accruals for each unit from the general ledger; enter
data into worksheet.
2. Review exempt sales report and contact unit manager if necessary; make
appropriate adjustments.
3. Determine if accruals are in balance and make adjustments if necessary;
4. Reconcile unit accruals; determine that over/under are within guidelines.
5. Print worksheets, over/under accrual memo, and transmittal letter.
6. Print return.
7. Pay tax due; compare to transmittal letter, return, and accrual balance.
8. Present return for Choice review.
9. Copy and timely mail return.
10. Prepare reply to inquiries.
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SALES/USE AND OCCUPANCY TAX AUDITS
SCHEDULE OF SERVICES
1. Schedule audits with Taxing Authority's auditors;
2. Determine the scope of audits and the audit methods and procedures for
such auditors;
3. Prepare and transmit responses to auditor's Information Document Requests;
4. Research and prepare proposals for resolving audit issues;
5. Prepare summary reports on each audit covering audit issues,
recommendations for payment or protest and actions to be taken to correct
deficiencies;
6. Prepare written protests for deficiencies which cannot be settled;
7. Prepare quarterly state audit reports.
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MAINTENANCE OF FIXED ASSETS - TAX BOOKS 2, 5, 6
(FEDERAL, AMT & ACE)
SCHEDULE OF SERVICES
1. Review Federal regulations for law changes; perform research as required.
2. Extract monthly fixed asset data from Global F/A System. This includes
additions, adjustments and retirements.
3. Classify monthly additions by asset type and depreciation method. Submit
corrections to Fixed Asset department as needed.
4. Review new facility/renovation additions for Section 1245 classification.
Obtain construction cost report and analyze for details.
5. Review acquisition additions for accuracy and reasonableness. Obtain
copies of settlement sheets, purchase agreements, etc. for details to
fixed asset allocation.
6. Review monthly dispositions and retirements. Calculate tax gain or loss as
needed.
7. Obtain fixed asset information for separate companies (such as Choice
foreign operations). Review and submit entries for tax books to Fixed
Asset department.
8. Review Global F/A System for luxury auto limitations calculations. Submit
corrections as needed.
9. Extract reports from Global F/A System as needed for special projects or
projections.
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REAL ESTATE TAX - CONSULTING
SCHEDULE OF SERVICES
1. Review lease or management agreement. Perform real estate tax projections
on acquisitions.
2. Investigate local assessment ratios and procedures.
3. Collect current year financial data.
4. Input financial data and perform targeting analysis to determine if an
appeal should be filed. Hire consultant where necessary.
5. Contact assessor and set up initial meeting.
6. Inspect subject property and competitive properties.
7. Review assessor's worksheet and comps.
8. Prepare mini-appraisal of value based on the income approach, cost
approach and market sales comparison.
9. Prepare appeal documents.
10. Attend hearing with assessor.
11. Proceed to Administrative Board if necessary.
12. Contract an appraiser for an appraisal of the subject property where
necessary.
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