Exhibit 10.5.1
AMENDED AND RESTATED
TAX ALLOCATION AGREEMENT
THIS AGREEMENT, is made and entered into as of the 8th
day of January, 1998, by and between BLUE CROSS AND
BLUE SHIELD OF MISSOURI, (hereinafter referred to as
"Parent") and RIGHTCHOICE MANAGED CARE, INC. ("Subsidiary"),
WITNESSETH:
WHEREAS, Parent and Subsidiary are members of an
affiliated group of corporations
within the meaning of section 1504(a)(1) of the Internal
Revenue Code of 1986 (the "Code") for
which Parent is the parent corporation;
WHEREAS, Parent and its eligible subsidiaries (the
"Consolidated Group") have elected
and consented to file and do file consolidated Federal
income tax returns; and
WHEREAS, the parties wish to agree on the payment of
tax liabilities between Parent
and Subsidiary in a manner pursuant to which the Subsidiary
pays Parent an amount of Federal
income tax based upon the amount of Federal income taxes
which would be payable by the
Subsidiary if it filed a separate Federal income tax return,
which includes that income, gain, loss
and deductions of Subsidiary and its includible subsidiaries
(Subsidiary and such includible
subsidiaries, including companies that become subsidiaries
after the date of this agreement, are
hereinafter collectively referred to as the "Subsidiary
Group"), which are includible in the
Consolidated Group;
WHEREFORE, pursuant to the reorganization of Parent
(the "Reorganization") which
occurred in August, 1994, Parent transferred a significant
portion of its business to Subsidiary
which had been established for such purpose; and
WHEREFORE, as a part of the Reorganization, Parent
transferred to Subsidiary a
reserve in the amount of $16 million for possible federal
income tax payment deficiencies. Such
reserve had been accumulated by Parent during the years
preceding 1994 and is hereinafter
referred to as "Federal Tax Reserve."
NOW, THEREFORE, Parent and Subsidiary hereby agree as
follows:
I. Consolidated Return
Parent and the Consolidated Group have elected to file
consolidated Federal income tax
returns for the taxable period ending December 31,
1994, and for any subsequent taxable
period for which the Consolidated Group is permitted to
file a consolidated Federal
income tax return. Parent and Subsidiary agree to file
such consents and other
documents and to take such action as may be necessary
to carry out the purposes and
provisions of this paragraph.
II. Calculation of Separate Company Federal Income Tax Liability
A. Beginning with the period ended December 31, 1994,
and for each tax year
thereafter, Subsidiary will calculate the Federal
income tax liability for the
Subsidiary Group, without considering the Federal
alterative minimum tax
("AMT"), as if the Subsidiary Group were treated
as a single taxpayer for
Federal income tax purposes and were to file a
separate Federal income tax return
for the Subsidiary Group for such period, as
modified by the provisions of
paragraph B below.
B. In so computing the Federal income tax liability
of the Subsidiary Group:
1. Except as otherwise provided herein,
"separate company taxable income
(loss)" shall be determined as if the
Subsidiary Group was a single
corporation and was filing a separate tax
return, and the term will not
have the same meaning as described in
Regulation 1.1502-12.
2. Any dividends received by one corporation in
the Consolidated Group
from another corporation in the Consolidated
Group will be assumed to
qualify for the 100% dividend received
deduction of Section 243 and shall
be eliminated from such computation in
accordance with Regulation
1.1502-14(a)(1).
3. Gain or loss on intercompany transactions,
whether deferred or not shall
be treated by the Subsidiary Group in the
manner required by Regulation
1.1502-13 (so that the Subsidiary Group
reports the gain or loss on
intercompany transactions consistent with the
treatment accorded such
transactions on the Consolidated Group's
consolidated Federal income tax
return).
4. Certain limitations, as provided in the Code,
regarding the calculation or
utilization of a deduction, the utilization
of credits and the computation of
separate company tax liability of the
Subsidiary Group shall be made on
a consolidated basis.
a. The limitation on charitable
contribution deductions, as provided
in Code Section 170(b)(2), shall be
computed in accordance with
Regulation 1.1502-24.
b. The limitation on the utilization of
foreign tax credits, as provided
in Code Section 904(a), shall be
computed in accordance with
Regulation 1.1502-4.
c. The limitation on the utilization of
jobs tax credits and other
general business credits, as provided in
Section 38(c)(1), shall be
computed on a consolidated basis.
d. The computation of the limitation on
capital losses, as provided in
Code Section 1211(a), shall be computed
in accordance with
Regulation 1.1502-22.
e. The computation of Section 1231 gain or
loss shall be made in
accordance with Regulation 1.1502-23.
f. The computation and utilization of any
net operating loss
deduction, as provided in Section
172(b)(2) shall be computed in
accordance with Regulation 1.1502-21.
g. The utilization and limitation of
certain built-in deductions, as
provided in Regulation 1.1502-15, shall
be computed in
accordance with such section.
h. The computation of the dividend received
deduction with respect
to dividends received from outside the
Group, as provided in
Sections 243 through 247 shall be
computed in accordance with
Regulation 1.1502-26.
i. With respect to similar limitations not
specifically mentioned
herein, they shall be applied on a
consolidated basis.
5. Deductions and credits which can be partially
utilized as a result of
applying such consolidated limitations shall
be allocated and apportioned
among the Subsidiary Group and the Parent and
the other members of the
Consolidated Group based upon the proportion
of each such deductions
and credits of such group or corporation, as
appropriate, to the aggregate
amount of each such deductions and credits.
6. Notwithstanding Regulation 1.1502-17, Parent
may direct Subsidiary or
any other member of the Subsidiary Group to
apply, with the
Commissioner of the Internal Revenue Service,
under Code Section
446(e), for a change in the method of
accounting for such corporation on
an overall basis or for any material item.
7. Notwithstanding Regulation 1.1502-17, Parent
must consent to any
change in method of accounting by Subsidiary
or any member of the
Subsidiary Group on an overall basis or for
any material item. If a
method of accounting has not been established
by Subsidiary or other
member of the Subsidiary Group, Parent must
consent to the selection of
an accounting method by such corporation.
8. Notwithstanding Regulation 1.1502-17, Parent
may direct and must
authorize any election which Subsidiary or
other member of the Subsidiary
Group may make under the Code or Treasury
Regulations which may
affect the Consolidated Group's taxable
position. This authorization
includes, but is not limited to, Section 453
(installment obligations),
Section 248 (organizational expenditures) and
Section 1033 (involuntary
conversions).
9. The amounts in each taxable income bracket in
the tax table in Section
11(b) shall be allocated in any given year to
the members of the
Consolidated Group as Parent shall elect.
Such election shall be made on
an annual basis and shall be binding upon all
parties to this agreement.
10. The $25,000 direct offset to tax liability
provided for in Code Section
38(c)(1)(B) shall be allocated in any given
year to those members of the
Consolidated Group as Parent shall elect.
11. In calculating any carryback or carryover of
net operating losses,
adjustments shall be made to such prior or
subsequent years, separate
company taxable income and tax as determined
under Code Section
172(b)(1). For purposes of such adjustments,
any election under Code
Section 172(b)(3) to forego a loss carryback
shall be made by the Parent.
C. The AMT will be determined on a consolidated basis
by the Parent. If the AMT
computed on a consolidated basis exceeds the
regular tax as computed on a
consolidated basis, the excess will be allocated
to Subsidiary based upon the
Subsidiary Group's portion of tax preferences,
adjustments, and other items
causing the AMT to be applicable at the
consolidated level, as follows:
Excess of AMT
Over Regular
Tax
Times
(Portion of Tax Preferences and
Adjustment Attributable to Subsidiary Group
Divided by
Total of Tax Preferences and
Adjustments for Group)
Equals
Excess AMT
Over Regular
Tax Allocation
to Subsidiary
The Excess of AMT Over Regular Tax Allocated to
Subsidiary shall be added to
Subsidiary's separate return tax liability determined
in paragraphs A and B above. The
AMT allocated to Subsidiary for any tax year shall not
exceed the excess of Federal
AMT over regular tax, nor shall such allocation be less
than zero.
In determining the portion of tax preferences
attributable to the Subsidiary Group, the
portion of the consolidated adjustment for adjusted
current earnings of Code Section
56(c)(1), if any, allocable to the Subsidiary shall be
an amount equal to the lesser of (1)
the adjustment for adjusted current earnings computed
for the Subsidiary Group, or (2)
the consolidated adjustment for adjusted current
earnings.
If a consolidated AMT credit carryforward is generated
and utilized for any year, the
credit shall be allocated to Subsidiary based upon the
proportion of excess AMT over
regular tax allocated to Subsidiary (taking into
account the Subsidiary Group) in the
year(s) in which the credit arose. The amount of
Federal alternative minimum tax credit
allocated to Subsidiary shall not exceed the
consolidated AMT credit.
III. Liability for Tax Payments - Federal
A. If Subsidiary would be subject to Federal income
tax liability resulting from the
calculation required by Paragraph II, above,
Subsidiary shall pay such liability to
Parent as provided in Paragraph IV hereof.
B. If Subsidiary would be entitled to a refund of
Federal income tax resulting from
the calculation required by Paragraph II, above,
Subsidiary shall receive such
refund from Parent as provided in Paragraph IV
hereof. However, any such
refund is subject to the limitations included in
Subparagraph B of Paragraph II.
C. Even if the Federal income tax liability of the
Consolidated Group is increased
or decreased by reason of the inclusion of the
Subsidiary Group in a consolidated
income tax return filed by Parent, no payment or
credit attributable thereto shall
be made to either Parent or Subsidiary, it being
agreed that Subsidiary's liability
to Parent for Federal income tax shall be
determined solely as if the Subsidiary
Group calculated its Federal income tax liability
as a single taxpayer.
D. Parent agrees to be the sole agent for Subsidiary
and the Subsidiary Group and
to act in its own name in all matters relating to
the corporation Federal income
tax liability, including payment of such
liability, for any year in which it elects
or is required to file a consolidated Federal
income tax return.
IV. Method and Time of Payment
Any amount to be paid by Subsidiary to Parent or by
Parent to Subsidiary by reason of
paragraph III shall be paid quarterly based on
Subsidiary's estimated tax liability and a
final payment or credit at the time the tax return is
filed. Quarterly payments and any
final payment due with the filing of the tax return
shall be made in time to reasonably
permit Parent to make required estimated payments or
final settlements with the Internal
Revenue Service as provided in Regulation 1.1502-5
with respect to Federal income
taxes. Any portion of a refund received from the IRS
which is payable to Subsidiary
shall be paid by Parent to Subsidiary within 30 days
after receipt by Parent.
V. Adjustment of Liability for Federal Income Taxes
A. This Paragraph V shall govern any adjustment of
Federal income tax liability due
under any consolidated Federal income tax return
of the Consolidated Group or
of Parent for any period for which a consolidated
Federal income tax return was
filed as a result of any of the following: the
filing of an amended return, a
tentative loss carryback refund application, a
claim for refund, or an audit by the
IRS. In such event, the liability of the Parent
and Subsidiary hereunder shall be
redetermined after fully giving effect to any such
adjustment as if such adjustment
had been a part of the original computation.
B. Subject to Paragraph VI below, any such
adjustments made for periods ending
prior to August 2, 1994 shall be attributed to
Parent and Subsidiary on the basis
of premium revenues of trades or businesses
transferred by Parent to the
Subsidiary or other members of the Subsidiary
Group pursuant to the
Reorganization for the year 1994 on a pro forma
basis as compared to premium
revenues of the trades or businesses retained by
Parent. The provisions of this
Tax Allocation Agreement shall apply to such
periods and any tax liability,
penalties and interest related thereto shall be
computed as if (i) the Subsidiary and
the Subsidiary Group had been in existence during
such prior periods, and (ii) the
trades or businesses referred to above had been
transferred to the Subsidiary or
other members of the Subsidiary Group as of the
first day of any such period to
which an adjustment relates. It is hereby agreed
that the percentage of premium
revenues for the year 1994 on a pro forma basis
attributable to trades or business
transferred by Parent to the Subsidiary or other
members of the Subsidiary Group
was 87.2 percent and that the percentage of
premium revenues for trades or
businesses retained by Parent for such year was
12.8 percent.
C. Any such adjustments made for periods beginning on
or after August 2, 1994
attributable to the trades or businesses operated
by Subsidiary or other members
of the Subsidiary Group shall be charged to
Subsidiary or other members of the
Subsidiary Group and any tax liability, penalties
and interest related thereto shall
be paid by Subsidiary to Parent as provided in
this Agreement.
VI. Utilization of Federal Tax Reserve
This Paragraph VI shall govern the utilization of the
Federal Tax Reserve for Federal
income tax liabilities described in the Fifth Recital
(which for the purpose of this
Agreement includes any interest or penalties payable
thereon) arising from adjustments
described in Paragraph V of this Agreement.
Notwithstanding anything to the contrary
in Paragraph V, it is agreed that such Federal Tax
Reserve shall be utilized to satisfy all
Federal income tax liabilities arising from adjustments
under such Paragraph V until it
is exhausted, i.e., Subsidiary shall pay Parent an
amount equal to the first $16 million
in Federal income tax liabilities arising from such
adjustments to the Federal income tax
liabilities of Parent or any member of the Subsidiary
Group and without regard to the
trades or lines of business giving rise to such
adjustments. Any such federal income tax
liabilities arising under Paragraph V hereof in excess
of such Federal Tax Reserve shall
be paid by Subsidiary or other members of the
Subsidiary Group to Parent in accordance
with such Paragraph V.
VII. Duration
Notwithstanding the loss of eligibility of Parent and
Subsidiary to file consolidated
Federal income tax returns, this Agreement shall remain
in effect with respect to all
taxable years covered by the provisions of Paragraph V
hereof, and shall govern the
allocation of Federal income tax liabilities between
Parent and Subsidiary for all such
taxable years.
VIII.Earnings and Profits Adjustments
This Agreement is not intended to establish the method
by which the earnings and profits
of each member of the Group will be determined. Parent
reserves the right to elect the
method for allocating tax liability for the purposes of
determining earnings and profits
as set forth in Regulation 1.1552-1 (a) and 1.1502-
33(d).
IX. Miscellaneous
This agreement contains the entire Agreement among the
parties hereto, and supersedes
any prior written or oral understanding or agreement
among the parties with respect to
the subject matter hereof. No modification, extension,
renewal, recession, termination
or waiver of any of the provisions contained herein
shall be binding upon any party
unless made in writing and signed on its behalf by one
of its officers.
X. GOVERNING LAW
THE PROVISIONS OF THIS AGREEMENT SHALL BE GOVERNED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF MISSOURI.
XI. Successors, Assigns
The provisions and terms of this Agreement shall be
binding on and inure to the benefit
of any successor, by merger, acquisition of assets or
otherwise, to any of the parties
hereto.
XII. Consultation and Cooperation
Parent and Subsidiary shall consult with and shall
furnish each other on a timely basis
such information required to prepare: (i) the
consolidated federal income tax return of
the Affiliated Group for the taxable years in which
Subsidiary is included therein, and
(ii) after Parent and Subsidiary are no longer eligible
to file a consolidated Federal
income tax return, the tax return for all taxable years
of the Parent and Subsidiary,
respectively, in which the tax liability of either may
be affected by their former
affiliation. Parent and Subsidiary also shall consult
and furnish each other promptly with
information either Parent or Subsidiary may request in
connection with any tax audit or
tax refund claim relating to a taxable year in which a
payment to or by Subsidiary to
Parent hereunder may result or otherwise be affected or
may otherwise affect a tax return
of either Parent or Subsidiary.
XIII.Notices
All notices and other communications shall be in
writing and shall be given in person or
by means of telex, telecopy or other wire transmission
(with request for assurance of
receipt in manner typical with respect to
communications of that type) or by mail, and
shall become effective (a) on delivery if given in
person, (b) on the date of transmission
if sent by telex, telecopy or other wire transmission,
or (c) four business days after being
deposited in the mail, with proper postage for first
class, registered or certified mail,
prepaid.
Notices shall be addressed as follows:
If to Parent to:
Blue Cross and Blue Shield of Missouri
0000 Xxxxxxxx Xxxxxx
Xx. Xxxxx, XX 00000-0000
Attn: Executive Vice President
Telecopy No.: (000) 000-0000
If to Subsidiary to:
RightCHOICE Managed Care, Inc.
0000 Xxxxxxxx Xxxxxx
Xx. Xxxxx, XX 00000-0000
Attn: Executive Vice President
Telecopy No.: (000) 000-0000
provided, however, that if either party shall have
designated a different address by notice to the
other, then the last address so designated.
XIV. Resolution of Disputes
A. This Paragraph XIV shall govern the resolution of
any disputes arising under this
Agreement, and the procedures set forth
hereinbelow shall be applicable:
B. The representatives of the parties having first-
hand knowledge of the dispute shall
endeavor to resolve the dispute through good faith
discussions in an effort to
reach an agreement which is fair to both parties
and is consistent with the spirit
of cooperation between the parties.
C. If the dispute is not resolved pursuant to
subsection (b) above within 30 days, the
dispute shall be submitted to senior executives of
each of the parties, designated
by each party's Chief Executive Officer. Such
senior executives shall meet and
engage in good faith discussions and shall
endeavor to resolve the dispute with
an agreement which is fair to both parties and is
consistent with the spirit of
cooperation between the parties.
D. If the dispute is not resolved pursuant to
subsection (b) and (c) above within 60
days, the dispute shall be submitted to the
respective chief legal counsel for the
parties who shall endeavor to agree upon an
alternate dispute resolution
mechanism to resolve the dispute.
E. If the respective chief legal counsel cannot,
within 30 days after the dispute is
referred to them, agree upon an alternate dispute
resolution mechanism to resolve
the dispute, the dispute shall be referred to the
St. Louis Office of the American
Arbitration Association for binding arbitration
under the Commercial Arbitration
Rules of that Association.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARIES,
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by a duly authorized officer as of
the date first above written.
Blue Cross and Blue Shield of Missouri
By: /s/ Xxxxxx X. Xxxxxxxxx
Xxxxxx Xxxxxxxxx
Title:Executive Vice President and Chief
Operating Officer
RightCHOICE Managed Care, Inc.
By: /s/ Xxxxxx Xxx Xxxxxx
Xxxxxx Xxx Xxxxxx
Title:Executive Vice President and Chief
Operating Officer
