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EXHIBIT 10.2
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (the "AGREEMENT") is made on [________],
1999, by and among STAFF BUILDERS, INC., a Delaware corporation ("PARENT" and,
together with its subsidiaries existing immediately following the Distribution,
the "PARENT GROUP"), and TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation ("TLC" and, together with its subsidiaries existing
immediately following the Distribution, the "TLC GROUP").
WHEREAS, Parent and TLC have entered into the Distribution Agreement
(as defined below) providing for the distribution of all of the TLC stock owned
by Parent to Parent's shareholders in accordance with the Distribution
Agreement; and
WHEREAS, Parent and TLC desire to set forth their agreement regarding
the allocation between the Parent Group and the TLC Group of all
responsibilities, liabilities and benefits affecting Taxes (as defined below)
paid or payable by either of them for all taxable periods.
NOW, THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
shall have the meanings given them in the Distribution Agreement. As used in
this Agreement, the following terms shall have the following meanings:
(a) "Affiliate" of any person means any person, corporation,
partnership or other entity directly or indirectly controlling, controlled by or
under common control with such person.
(b) "Code" means the Internal Revenue Code of 1986, as amended or, as
the context may require, the Internal Revenue Code applicable to the taxable
year in question.
(c) "Distribution" has the meaning set forth in the Distribution
Agreement.
(d) "Distribution Agreement " means the Distribution Agreement dated
[____________], 1999 between Parent and TLC providing for the Distribution.
(e) "Distribution Date" has the meaning set forth in the Distribution
Agreement.
(f) "Final Determination" shall mean the final resolution of liability
for any Tax for a taxable period, (i) on Internal Revenue Service Form 870 or
870-AD (or any successor forms thereto), on the date of acceptance by or on
behalf of the taxpayer, or by comparable form
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under the laws of other jurisdictions; except that a Form 870 or 870-AD or
comparable form that reserves (whether by its terms or by operation of law) 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 accepted offer in compromise under Section 7121 or 7122 of
the Code, or comparable agreements under the laws of other jurisdictions; (iv)
by any 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, including by reason of the expiration of the
applicable statute of limitations or by mutual agreement of the parties.
(g) "Post-Distribution Act" means any event or transaction (or the
execution of an agreement, letter of intent or option providing for a
transaction) in which TLC participates and in which any of the following occurs:
(i) TLC transfers (whether or not in liquidation) a material portion of
its assets (other than a transfer of assets in the ordinary course of business)
within one year following the Distribution Date;
(ii) TLC merges with another corporation within one year following the
Distribution Date;
(iii) Within two years of following the Distribution Date TLC
discontinues a material portion of its historic business activities; or
(iv) Within one year following the Distribution Date TLC Common Stock
distributed in the Distribution is converted into (or redeemed or exchanged for)
any other stock, any security, any property or cash.
(h) "Post-Distribution Taxes" means any and all liability for Taxes of
the TLC Group or the Parent Group, as appropriate, other than for
Pre-Distribution Taxes.
(i) "Pre-Distribution Taxes" means any and all Taxes of the Parent
Group or the TLC Group for all periods that ended on or prior to the
Distribution Date. For purposes of computing the amount of Pre-Distribution
Taxes in the case of a Tax period that begins before and ends after the
Distribution Date, the amount of Taxes considered to have accrued with respect
to the portion of the Tax period that ended on the Distribution Date shall be
determined as follows:
(i) In the case of any ad valorem, personal property and real property
Taxes, an amount of such Tax for the entire Tax period multiplied by a fraction
the numerator of which is the number of days in the portion of the Tax period
ended on the Distribution Date and the denominator of which is the number of
days in the entire Tax period;
(ii) In the case of any Tax other than ad valorem, personal property
and real property Taxes, the amount that would be payable if the relevant Tax
period ended on the Distribution Date; and
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(iii) In the case of any withholding Tax, the amount of Taxes required
to be held which relates to any payment by any member of the Parent Group or the
TLC Group on or before the Distribution Date.
Any credits relating to a Tax period that begins before and ends after
the Distribution Date shall be taken into account as though the relevant Tax
period ended on the Distribution Date.
(j) "Returns" means all returns, reports and information statements
(including all exhibits and schedules thereto) required to be filed with a
Taxing Authority with respect to any Taxes.
(k) "Taxes" means any income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, environmental excise, severance, stamp,
transfer, recording occupation, premium, property, value added, windfall profit
tax, custom duty, or other tax of any kind whatsoever, together with any
interest and any penalty, addition to tax or additional amount imposed by any
governmental authority (a "Taxing Authority") responsible for the imposition of
any such tax (domestic or foreign).
(l) "TLC" has the meaning set forth in the preamble hereto.
(m) "TLC Group" has the meaning set forth in the preamble hereto.
2. OPERATIVE PROVISIONS.
(a) Parent shall indemnify TLC against and be responsible for all
Post-Distribution Taxes attributable to any member of the Parent Group and all
Pre-Distribution Taxes.
(b) TLC shall indemnify Parent against and shall be responsible for all
Post-Distribution Taxes attributable to any member of the TLC Group.
(c) With respect to the tax year of the Parent Consolidated Group that
includes the Distribution Date and the tax year of TLC that commences
immediately following the Distribution Date, the Parent Consolidated Group shall
claim on its federal income tax returns the benefit of (i) the graduated tax
rates of Code Section 11, (ii) the $25,000 bracket amount in Code Section 38,
(iii) the $40,000 exemption amount and the $150,000 bracket amount in Section
55, and (iv) the $2,000,000 bracket amount in Section 59A and TLC shall claim
none of such benefits.
3. RETURNS; REFUNDS; CONTEST PROVISIONS.
(a) Parent shall have the obligation and the sole right and full
discretion to control (i) the preparation of all Returns with respect to
Pre-Distribution Taxes and (ii) the defense, settlement or compromise of any
audit, examination, investigation suit, action or other proceeding relating to
Pre-Distribution Taxes. Parent shall not be entitled to all refunds of
Pre-Distribution Taxes. Notwithstanding the foregoing, in the event that Parent
decides to abandon
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the defense of, or settle or compromise any claim relating to any
Pre-Distribution Taxes and such claim may have an effect on Post-Distribution
Taxes, Parent shall notify TLC of such decision and TLC shall have ten days to
notify Parent that it assumes all liability with respect to the Pre-Distribution
Taxes under dispute and wishes to assume the defense of such audit or other
proceedings at its own expense. In the event that Parent timely receives such
notice from TLC, it shall use all reasonable efforts to cooperate so as to
facilitate TLC's handling of such proceedings.
(b) Except as otherwise provided for herein, TLC shall have the
obligation and the sole right and full discretion to control (i) the preparation
of all Returns with respect to Post-Distribution Taxes attributable to any
member of the TLC Group and (ii) the defense, settlement or compromise of any
audit, examination, investigation suit, action or other proceeding relating to
Post-Distribution Taxes attributable to any member of the TLC Group. TLC shall
have the right to all refunds of Pre-Distribution Taxes and Post-Distribution
Taxes attributable to any member of the TLC Group.
(c) Except as otherwise provided for herein, Parent shall have the
obligation and the sole right and full discretion to control (i) the preparation
of all Returns with respect to Post-Distribution Taxes attributable to any
member of the Parent Group and (ii) the defense, settlement or compromise of any
audit, examination, investigation suit, action or other proceeding relating to
Post-Distribution Taxes attributable to any member of the Parent Group. Parent
shall have the right to all refunds of Post-Distribution Taxes attributable to
any member of the Parent Group.
4. WINDFALLS.
(a) Parent shall promptly pay to TLC the amount of any incremental Tax
savings generated by (i) a deduction, credit or exclusion that (A) is actually
realized by the Parent Group with respect to Pre-Distribution Taxes and (B)
relates to or is based on an item that is the basis for a similar deduction,
credit or exclusion taken on a Return with respect to Post-Distribution Taxes of
the TLC Group that is denied, disallowed, forfeited, or accelerated until prior
to the Distribution Date or (ii) a reduction in the amount of any gross income
or revenue that (A) is actually realized by the Parent Group with respect to
Pre-Distribution Taxes and (B) relates to, or is based on, a similar item of
gross income or revenue that the TLC Group is required to include on a Return or
otherwise required to include in its computation of taxable income as a result
of an audit, other administrative proceeding or otherwise. Parent shall use
reasonable best efforts to realize any such incremental tax savings that may
potentially be available.
(b) TLC shall promptly pay to Parent the amount of any incremental Tax
savings generated by (i) a deduction, credit or exclusion that (A) is actually
realized by the TLC Group with respect to its Post-Distribution Taxes and (B)
relates to or is based on an item that is the basis for a similar deduction,
credit or exclusion taken on a Return with respect to Pre-Distribution Taxes
that is denied, disallowed, forfeited, or deferred until after the Distribution
Date or (ii) a reduction in the amount of any gross income or revenue that (A)
is actually realized by the TLC Group with respect to Post-Distribution Taxes
and (B) relates to, or is based on, a similar item of gross income or revenue
that the Parent Group is required to include on a Return
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or otherwise required to include in its computation of taxable income as a
result of an audit, other administrative proceeding or otherwise. TLC shall use
reasonable best efforts to realize any such incremental tax savings that may
potentially be available.
5. AGENCY.
(a) TLC irrevocably designates Parent (and shall cause each member of
the TLC Group to irrevocably designate Parent) as its agent and attorney in fact
(and shall execute any necessary powers of attorney) for the purpose of taking
any and all actions necessary or incidental to the filing of federal income tax
Returns and state unitary or combined Returns for (i) any period during which
any member of the TLC Group or any predecessor qualified to file a consolidated,
combined, unitary or similar Return with any member of the Parent Group and (ii)
any period ending on or before the Distribution Date. Parent shall keep TLC
reasonably informed of, and shall reasonably consult with TLC with respect to,
all actions to be taken on behalf of any member of the TLC Group. Parent and TLC
will each furnish the other any and all information which the other may
reasonably request in order to carry out the provisions of this Agreement to
determine the amount of any Tax liability.
6. CONSISTENT REPORTING.
(a) With respect to all taxable periods ending on or prior to [INSERT
DATE], TLC, each member of the TLC Group and any future Affiliates thereof shall
file federal income tax and state income tax Returns in a manner consistent with
the Returns filed (or to be filed) in respect to Pre-Distribution Taxes and in a
manner consistent with the form of the transactions contemplated by the
Distribution Agreement (the "Form") including that the Distribution qualifies
under Section 355 of the Code.
(b) To the extent there is an inconsistency or an apparent
inconsistency amongst the Returns relating to Pre-Distribution Taxes (including
after taking into account Returns to be filed after the Distribution Date)
and/or the form, TLC shall file Returns with respect to Post-Distribution Taxes
in the manner directed by Parent. (c) Parent and TLC agree to contest any
proposed adjustment by any Taxing Authority that is, in the sole judgement of
Parent, inconsistent with the provisions of this Section 6.
7. COVENANTS OF TLC AND PARENT RELATING TO ACTIONS AFTER THE
DISTRIBUTION DATE.
(a) TLC shall, and shall cause each member of the TLC Group to refrain
from participating in any Post-Distribution Act without the prior written
consent of Parent.
(b) TLC and Parent shall cooperate (and shall cause each of their
Affiliates to cooperate) fully at such time and to the extent reasonably
requested by the other party in connection with the preparation and filing of
any Return or the conduct of any audit, dispute, proceeding, suit or action in
respect of Taxes or other Tax matters. Such cooperation shall include, without
limitation, (i) the retention and provision on demand of books, records,
documentation or other information relating to any Return until the expiration
of the applicable
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statute of limitation (giving effect to any extension, waiver, or mitigation
thereof) plus two years; (ii) the execution of any document that may be
necessary or reasonably helpful in connection with the filing of any Return by
any member of the Parent Group or the TLC Group or in connection with any audit,
examination, investigation, suit, action or other proceeding; and (iii) the use
of the parties' reasonable best efforts to obtain any documentation from a
governmental authority or a third party that may be necessary or helpful in
connection with the foregoing.
(c) TLC and Parent shall cooperate (and shall cause each of their
Affiliates to cooperate) in causing the tax year end of TLC to be February 28th,
effective for the year ended February 28, 2000 with respect to any jurisdiction
in which TLC is not included in a consolidated or combined group Tax Return for
a Tax period which will end on the Distribution Date.
8. TLC REPRESENTATIONS. TLC hereby represents and warrants to the
Parent and each member of the Parent Group that the statements contained in this
Section 8 are true and correct in all material respects on the date hereof:
(a) To the best of TLC's knowledge and belief, no part of its stock
being distributed in the Distribution will be received by a shareholder of
Parent in such shareholder's capacity as a creditor, employee or in any capacity
other than that of a shareholder of Parent.
(b) To the best of TLC's knowledge and belief, shareholders of Parent
owning stock two years prior to the Distribution Date will continue to hold at
least 50% of the stock of TLC two years after the Distribution Date.
(c) TLC has no plan or intention to liquidate, merge with another
corporation or to sell or otherwise dispose of its assets subsequent to the
Distribution except in the ordinary course of business.
(d) To the best of TLC's knowledge and belief, no plan or intention
exists by the shareholders of Parent to sell, exchange, transfer by gift, or
otherwise dispose of any of their stock in Parent or TLC subsequent to the
Distribution.
(e) Following the Distribution, each of Parent and TLC will operate as
independent corporations except that certain administrative and other common
activities of the two corporations will be undertaken by common personnel in
accordance with the Ancillary Agreements. Payments made in connection with all
continuing transactions between, and services provided for, each of Parent and
TLC will be for fair market value based on terms and conditions arrived at by
the parties bargaining at arm's length.
(f) TLC has no plan involving the issuance or transfer of equity
interests in TLC following the Distribution other than issuances to employees
and consultants of TLC upon the exercise of stock options or otherwise under its
[list Executive Compensation Plans].
(g) TLC has no plan or intention for the transfer or cessation of a
substantial portion of the business of TLC or other substantial change in the
business of TLC following the Distribution.
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9. PARENT REPRESENTATIONS. Parent hereby represents and warrants to TLC
and each member of the TLC Group that the statements contained in this Section 9
are true and correct in all material respects on the date hereof:
(a) No part of the TLC stock being distributed in the Distribution will
be received by a shareholder of Parent in such shareholder's capacity as a
creditor, employee or in any capacity other than that of a shareholder of
Parent.
(b) To the best of Parent's knowledge and belief, shareholders of
Parent owning stock two years prior to the Distribution Date will continue to
hold at least 50% of the stock of Parent two years after the Distribution Date.
(c) Parent has no plan or intention to liquidate, merge with another
corporation or to sell or otherwise dispose of its assets subsequent to the
Distribution except in the ordinary course of business.
(d) To the best of Parent's knowledge and belief, no plan or intention
exists by the shareholders of Parent to sell, exchange, transfer by gift, or
otherwise dispose of any of their stock in Parent or TLC subsequent to the
Distribution.
(e) Following the Distribution, each of Parent and TLC will operate as
independent corporations except that certain administrative and other common
activities of the two corporations will be undertaken by common personnel in
accordance with the Ancillary Agreements. Payments made in connection with all
continuing transactions between, and services provided for, each of Parent and
TLC will be for fair market value based on terms and conditions arrived at by
the parties bargaining at arm's length.
(f) Parent has no plan or intention for the transfer or cessation of a
substantial portion of the business of Parent or other substantial change in the
business of Parent following the Distribution.
10. PAYMENTS. All payments to be made hereunder shall be made in
immediately available funds. Unless otherwise provided herein, any payment not
made when due hereunder shall bear interest from the due date at an annual rate
equal to the lowest prime rate as reported in the Wall Street Journal plus 2%,
compounded and adjusted monthly. For purposes of this Agreement, the following
payments shall be due at the following times:
(a) Payments due under Section 2 hereof shall be paid within 10 days of
the receipt of notice from the party entitled to the payment indicating the
occurrence of the later of (i) a Final Determination relating to the item or
items giving rise to the Tax for which indemnification is made and (ii) actual
payment of the Tax giving rise to the claim for indemnification.
(b) In the case of any refunds of Taxes received by a party other than
the party entitled to such refunds pursuant to Section 3 hereof, the recipient
of the refund shall pay the amount of such refund to the other party within five
days of the receipt of such refund.
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(c) Amounts payable pursuant to Section 4 hereof shall be paid within
five days of the later to occur of (i) a Final Determination relating to the Tax
item that gave rise to the windfall benefit and (ii) the actual receipt of the
windfall benefit.
11. ARBITRATION. Any dispute, controversy or claim arising out of or in
connection with this Agreement (including any questions of fraud or questions
concerning the validity and enforceability of this Agreement or any of the
rights herein and therein conveyed), shall be determined and settled by
arbitration in New York, New York, pursuant to the rules then in effect of the
American Arbitration Association as modified by this paragraph. Any award
rendered shall be final and conclusive upon the parties and a judgment thereon
may be entered in any court having competent jurisdiction. The party submitting
such dispute shall give written notice to that effect to the other party,
stating the dispute to be arbitrated and the name and address of a person
designated to act as arbitrator on its behalf. Within fifteen (15) days after
such notice, the other party shall give written notice to the first party
stating the name and address of a person designated to act as an arbitrator on
its behalf. In the event that the second party shall fail to notify the first
party of its designation of an arbitrator within the time specified, then the
first party shall request the American Arbitration Association to appoint a
second arbitrator. The two arbitrators so chosen shall meet within fifteen (15)
days after the second arbitrator has been appointed to appoint a third
arbitrator. If the two arbitrators are unable to agree on the appointment of a
third arbitrator within such fifteen (15) day period, either party may request
the American Arbitration Association to appoint a third arbitrator. Each
arbitrator appointed hereunder shall be independent of the parties and either
party may disqualify an arbitrator who is or is affiliated with a supplier,
customer or competitor of either party without the consent of the other party.
Each arbitrator shall be reasonably knowledgeable regarding the area or areas in
dispute. The arbitrators shall follow substantive rules of law and the Federal
Rules of Evidence, require the parties to conduct discovery pursuant to the
rules then in effect under the Federal Rules of Civil Procedure in an
expeditious manner, cause testimony to be transcribed, and make an award
accompanied by findings of fact and a statement of reasons for the decision. All
costs and expenses, including attorney's fees, of all parties incurred in any
dispute which is determined and/or settled by arbitration pursuant to this
paragraph shall be borne by the party determined to be liable in respect of such
dispute; provided, however, that if complete liability is not assessed against
only one party, the parties shall share the total costs in proportion to their
respective amounts of liability so determined. Except where clearly prevented by
the area in dispute, both parties agree to continue performing their respective
obligations under this Agreement while the dispute is being resolved. Each
party, and the arbitrators, shall use their best efforts, subject to reasonable
prosecution of the arbitration, court order and disclosure required under
securities laws, to keep the subject matter of the arbitration and confidential
information of each party confidential, and the arbitrators are authorized to
impose such protective orders as they may deem appropriate for such purpose.
12. COSTS AND EXPENSES. Except as expressly set forth in this
Agreement, each party shall bear its own costs and expenses incurred pursuant to
this Agreement regardless of the beneficiary of the items or services relating
to such costs and expenses.
13. TERMINATION AND SURVIVAL. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall remain in effect and its
provisions shall survive
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for the full period of all applicable statutes of limitation relating to the
assessment of Taxes (giving effect to any extension, waiver or mitigation
thereof) plus two years.
14. AMENDMENTS; LIMITATION ON WAIVERS.
(a) Any provision of this Agreement may be amended if, and only if,
such amendment is in writing and signed by Parent and TLC.
(b) The provisions of this Agreement may be waived only if the waiver
is in writing and signed by the party making the waiver. No delay or omission in
exercising any right under this Agreement will operate as a waiver of the right
on any further occasion. No waiver of any particular provision of the Agreement
will be treated as a waiver of any other provision, and no waiver of any rights
will be deemed a continuing waiver of the same right with respect to subsequent
occurrences that give rise to it. All rights given by this Agreement are
cumulative to other rights provided for in this Agreement and to any other
rights available under applicable law.
15. GOVERNING LAW AND INTERPRETATION. This Agreement shall be governed
by, interpreted and enforced in accordance with the laws of the State of New
York (regardless of the laws that might be applicable under principles of
conflict of law).
16. CONFIDENTIALITY. Each party shall hold and shall cause its
consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law, all information (other than any such
information relating solely to the business or affairs of such party) concerning
the other parties hereto furnished to it by such other party or its
representatives pursuant to this Agreement (except to the extent that such
information can be shown to have been (a) previously known by the party to which
it was furnished, (b) in the public domain through no fault of such party, or
(c) later lawfully acquired from other sources by the party to which it was
furnished), and each party shall not release or disclose such information to any
other person, except its auditors, attorneys, financial advisors, bankers and
other consultants and advisors who shall be advised of the provisions of this
Section 16. Each party shall be deemed to have satisfied its obligation to hold
confidential information concerning or supplied by the other party if it
exercises the same care as it takes to preserve confidentiality for its own
similar information.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
18. ASSIGNMENTS AND THIRD PARTY BENEFIT. This Agreement and the terms
and provisions hereof shall be binding upon and shall inure to the benefit of,
the parties and their respective successors and assigns.
19. SEVERABILITY. If any term, provision, condition or covenant of this
Agreement, or the application thereof to any party or circumstance shall be held
by a court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this instrument, or the application of such term, provision,
condition or covenant to persons or circumstances other
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than those as to whom or which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
20. MERGER OF PRIOR AGREEMENTS.
(a) This Agreement contains all of the terms and provisions and
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior written, oral or implied understandings,
representations and agreements of the parties relating to the subject matter of
this Agreement. Without limiting the foregoing, the parties acknowledge and
agree that in the event of any conflict or inconsistency between the provisions
of this Agreement and the provisions of the Distribution Agreement , the
provisions of this Agreement shall control and to such extent shall be deemed to
supersede such conflicting provisions under the Distribution Agreement .
(b) The parties acknowledge that pursuant hereto any and all existing
tax allocation agreements or arrangements binding or benefiting TLC shall be
terminated as of the close of business on the Distribution Date, and that after
the Distribution Date this Agreement shall constitute the sole tax allocation
agreement among Parent and TLC
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
STAFF BUILDERS, INC.
By:
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Title:
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
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Title:
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