Exhibit 10.7
TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT, made as of the 30th day of May, 1997 by and
between Sierra Health Services, Inc. a Nevada corporation ("Parent"), and its
subsidiaries as listed on page 5 of this agreement (hereinafter "Subsidiary").
WHEREAS, Parent and Subsidiary desire to provide, from and after
January 1, 1996, (the "Effective Date"), for the payment to Parent of amounts
with respect to income taxes;
NOW THEREFOR, in consideration of the foregoing, and of the mutual
covenants and promises herein contained, Parent and Subsidiary agree as follows:
1. Agreement to Join in Consolidated Returns
1.1 Subsidiary agrees to join with Parent and any affiliate of
Parent in any consolidated federal income tax return filed by any affiliated
group ("Consolidated Return") for any taxable year in which Parent is included.
1.2 Subsidiary hereby irrevocably designates Parent as its
agent for the purpose of taking any and all action necessary or incidental to
the filing of Consolidated Returns. Subsidiary agrees to furnish Parent with any
and all information requested by Parent in order to carry out the provisions of
this Agreement; to cooperate with Parent in filing any return or consent
contemplated by this Agreement; to take such action as Parent may request,
including, but not limited to, the filing of all elections and the filing of
requests for the extension of time within which to file tax returns; and to
cooperate in connection with any refund claim.
1.3 In each taxable year ending after the Effective Date,
Subsidiary shall make payment to Parent of the federal income tax liability of
the Subsidiary for such taxable year, determined in accordance with Section 2,
and (as between Parent and subsidiary) Parent shall have the sole responsibility
for making any required payments to the Internal Revenue service (the "Service")
or any tax allocation payments to a common parent that is not Parent in
satisfaction of the consolidated federal income tax liability of the
consolidated Group for such year. For each quarter of each fiscal year ending
after the Effective Date, Subsidiary shall make payment to Parent of a portion
of the amount required to be paid pursuant to Section 2 equal to the amount of
the installment payment of estimated income tax that subsidiary would be
required to make to the Service for such quarter under Section 6655 of the
Internal Revenue Code of 1986, as amended (the "Code"), as though Subsidiary
were filing and had previously filed a separate return, no later than five
business days prior to the date upon which Subsidiary would be required to make
such payment to the Service; provided that, if the affiliated group qualified as
a large corporation under Section 6655(g)(2) of the code, then Subsidiary shall
be deemed to be a large corporation for purposes of this Agreement. Promptly
following the close of each fiscal year ending after the Effective date and no
later than the tenth day of the third month following the end of the fiscal year
and again within thirty (30) days of the filing of the consolidated return with
the Service, Subsidiary shall pay or cause to be paid to Parent the excess, if
any, of the amount payable with respect to such taxable year, determined in
accordance with Section 2, over the aggregate of all amounts previously paid
pursuant to this Section 1.3 by Subsidiary to Parent with respect to such
taxable year, subject to adjustment upon filing a final return if the
consolidated return is filed on extension. If Parent fails to file a
Consolidated Return that includes the Consolidated Group for any taxable year
for which Subsidiary has made or caused to be made a payment or payments
pursuant to this Section 1.3, Parent shall promptly refund such payment or
payments.
1.4 The amount of any overpayment made pursuant to Section 1.3
shall be credited against or added to as the case may be, the amount otherwise
required to be paid for the fiscal quarter within which the amount of such
overpayment first becomes reasonably ascertainable and available to Parent as a
refund or allowable credit against Parent's tax payment requirements; provided,
however, that upon written request (including supporting schedules) of
Subsidiary, made after the close of any taxable year but within the period
described in Section 6425(a)(1) of the code, Parent shall repay to Subsidiary,
within the period described in Section 6425(b)(1) of the Code, the amount of any
net remaining overpayment of consolidated tax liability of the Consolidated
Group for such year.
1.5 Subsidiary agrees to pay Parent for all claims of
liability for federal income tax, interest thereon, and penalties with respect
thereto asserted by the Service (relating to subsidiary's taxable income and
deductions), arising from any taxable period for which Parent filed Consolidated
Return that included the Subsidiary.
1.6 Subsidiary shall cooperate fully with Parent in any audit
or any proceeding relating to any Consolidated Return and shall pay an
appropriate share of the expenses of any such audit or other proceeding. Parent
shall have sole control over the discretion as to the undertaking, conduct
settlement or other disposition of any tax controversy out of any Consolidated
Return filed by Parent.
2. Computation of Tax Liability of the Consolidated Group
2.1 For the first taxable year ending after the Effective
Date, and for each subsequent taxable year of the Consolidated Group for which
this Agreement remains in effect, Subsidiary shall pay to Parent (in the manner
provided in Section 1.3 hereof) an amount equal to the federal income tax
liability that would have been payable by Subsidiary for such year (or portion
thereof), determined as if Subsidiary had filed a separate federal income tax
return for such year (or portion thereof) and for all
previous years, computed in
accordance with the actual elections, conventions and other determinations with
respect to Subsidiary reflected in the Consolidated Return. Payments required to
be made in any taxable year pursuant to this Section 2.1 shall be made without
regard to the actual consolidated federal income tax liability, if any, of the
Consolidated Group.
2.2 If Subsidiary would be entitled to a refund of federal
income taxes previously paid to Parent pursuant to this Agreement computed in
the manner described in Section 2.1 hereof, as a result of any losses,
deductions or credits claimed by Subsidiary for any taxable year (or portion
thereof) for which this Agreement may be in effect, whether or not Subsidiary is
included in a Consolidated Return for such year (or portion thereof)(any such
entitlement to a refund being referred to herein as a "Separate Return Tax
Benefit"), whether by reason of a carryback of a net operating loss, or a net
capital loss or tax credit, or otherwise, then, upon written request (including
supporting schedules) of subsidiary, made within the period described in Section
6411(a) of the Code, Parent shall pay, subject to Section 3, the amount of such
Separate Return Tax Benefit to Subsidiary, within the period described in
Section 6411(b) of the Code.
3. Establishment of Separate Escrow Agreement
The Parent shall establish a separate escrow account (the "Escrow
Account") into which shall be deposited, with respect to each taxable year, the
amount, if any, by which Subsidiary's payments to Parent of such year exceeds
the actual income tax payment made by the Consolidated Group for such year,
provided, however, that if as a result of any adjustment after such year the
actual tax payment by the Consolidated Group for such year is changed, the
amount of the change shall be added to or released from the Escrow Account to
reflect the adjusted Consolidated Group tax liability for such year, determined
in accordance with the provisions of Section 1.3. The Escrow Account shall be
funded either in cash or assets then eligible for investment by insurers under
the Nevada insurance laws and any combination of the two. Assets in the Escrow
Account shall be released to Parent at such time and from time to time as the
permissible period for loss carrybacks by Subsidiary have elapsed and Subsidiary
does not have a claim to recoup all or part of the taxes paid by it. In
addition, in the event that Subsidiary would be entitled, as a taxpayer filing a
separate return, to a carryback loss, entitling it to recoup income taxes
previously paid, or if it is otherwise entitled to a refund of taxes, then
payment to Subsidiary of this amount shall be made (1) out of any refund made to
the Consolidated Group by the taxing authority and, if this is insufficient, (2)
directly by the Parent, at the option of Parent, out of the Escrow Account. To
the extent that any such payment to the Subsidiary comes from a refund by the
taxing authority or directly from a Parent, assets in the Escrow Account I the
amount equal to such payment shall be released to the Parent, provided that such
releases shall not include amounts which would be available for loss carrybacks
until Subsidiary is entitled to claim such amounts on a carryback basis or until
the applicable permissible period for loss carrybacks for Subsidiary have
elapsed.
4. Adjustments.
Any adjustment of income, deduction, or credit that result after the
taxable year in question by reason of any carryback, amended return, claim for
refund, or audit shall be given effect by re-determining amounts payable and
reimbursable hereunder for such taxable year and all subsequent taxable years
for which this Agreement is in effect as if such adjustment had been part of the
original determination hereunder, with interest payable in the amounts provided
in Section 6621 of the Code.
5. State Taxes
5.1 Subsidiary agrees at the request of Parent to join with
Parent and any affiliate of Parent in any consolidated, combined or unitary
state or local income or franchise tax return filed by any affiliated group
("Combined Return") for any taxable year in which Parent or affiliate or Parent
is included.
5.2 If, at the time from and after the Effective Date, the
liability for any state or local income or franchise taxes of (I) Subsidiary and
(ii) Parent or any other direct or indirect subsidiary of Parent is determined
on a consolidated, combined or unitary basis, this Agreement shall be applied in
like manner to all matters relating to such taxes, after taking into
consideration to what extent Subsidiary has been included in any Combined Return
that relates to such taxes.
6. Arbitration
All disputes of every nature related to this Agreement, which the
parties have been unable to resolve by themselves, shall be submitted to
arbitration upon written request of either party. The arbitration shall be by a
single arbitrator, if the parties can agree upon the arbitrator, but, if the
parties cannot agree upon a single arbitrator within ten (10) business days
after the request for arbitration has been made, then the requesting party shall
within ten (10) calendar days thereafter designate an arbitrator and give
notice thereof to the other party who shall, in turn, designate an arbitrator
within ten (10) calendar days, and shall so notify the requesting party. The two
arbitrators, in turn, shall designate a third arbitrator, and the arbitration
panel shall determine the procedures to be followed in the proceedings. If one
of the parties is an insurance subsidiary, then at least one of the arbitrators
shall be an active or retired disinterested officer of an insurance company not
affiliated with any of the parties hereto. A decision by the single arbitrator
or by a majority of the three arbitrators shall be final and binding upon the
parties. The arbitration shall be conducted in Nevada, unless the parties agree
upon another location. A Superior Court of Nevada shall have jurisdiction over
the parties to enforce the arbitration decision and, upon application of either
party, shall be empowered to issue appropriate orders in aid of discovery and/or
to compel testimony.
7. Effective Date and Termination
This Agreement shall be effective retroactive to the beginning of the
taxable years of Parent and Subsidiary commencing on the Effective Date and for
all taxable years in which parent files a Consolidated Return that includes the
Subsidiary unless terminated by mutual agreement of the parties.
8. Captions
All Section captions contained in this Agreement are for convenience
only and shall not be deemed a part of this Agreement
9. Counterparts
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement.
10. Amendment; Waiver
This Agreement may be amended, modified, superseded, canceled or
extended, and the provisions hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance.
11. Governing Law.
This Agreement shall be governed by the laws of the State of Nevada,
without regard to the conflict of laws rules thereof.
12. Successors and Assigns
This Agreement shall be binding upon, and shall inure to the benefit
of, the parties thereto and their respective successors and assigns.
IN WITNESS WHEREOF, Parent and Subsidiary have executed this Agreement
as of the day and year first above written.
HEALTH PLAN OF NEVADA, INC. CALIFORNIA INDEMNITY INSURANCE
COMPANY
By: Xxxxxxxx Xxxxxx By: Xxxxxxxx X. Xxxxxx
--------------------------------- ------------------------
Title: President Title: CEO
------------------------------ ------
CII FINANCIAL, INC. CII INSURANCE COMPANY
By: Xxxxxxxx X. Xxxxxx By: Xxxxxxxx X. Xxxxxx
--------------------------------- ------------------------
Title: CEO Title: CEO
------------------------------ ------
SIERRA HEALTH & LIFE INS. CO., COMMERCIAL CASUALTY
INC. INSURANCE COMPANY
By: Xxxxxxxx Xxxxxx By: Xxxxxxxx X. Xxxxxx
--------------------------------- ------------------------
Title: President Title: CEO
------------------------------ ------
SIERRA HEALTH SERVICES, INC.
By: Xxxx XxxXxxxxx
Title: President
