Exhibit 10.1
FORM OF TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (this "Agreement"), dated as of
October ___, by and between Genesis Health Ventures, Inc., a Pennsylvania
corporation (which is expected to be renamed "NeighborCare, Inc." in connection
with the External Spin-Off (as defined below)) ("Parent"), and Genesis
Healthcare Corporation, a Pennsylvania corporation and wholly owned subsidiary
of Parent ("SpinCo").
W I T N E S S E T H
WHEREAS, Parent and SpinCo have entered into a Separation and
Distribution Agreement (the "Distribution Agreement");
WHEREAS, Parent intends to distribute the stock of SpinCo in
the External Spin-Off (as defined below) to holders of shares of Parent Common
Stock (as defined in the Distribution Agreement) and to effect certain related
transactions;
WHEREAS, for U.S. federal income tax purposes, it is intended
that each of the Spin-Off-Related Transactions (as defined below) shall qualify
as a tax-free reorganization under Sections 355, 361 and 368(a)(1)(D) of the
Code (as defined below);
WHEREAS, at the close of business on the Distribution Date (as
defined in the Distribution Agreement), the taxable year of SpinCo shall close
for U.S. federal income tax purposes; and
WHEREAS, the parties hereto wish to provide for the payment of
Income Taxes and Other Taxes (each as defined herein) and entitlement to refunds
thereof, allocate responsibility and provide for cooperation in connection with
the filing of returns in respect of Income Taxes and Other Taxes, and provide
for certain other matters relating to Income Taxes and Other Taxes;
NOW, THEREFORE, in consideration of the premises and the
representations, covenants and agreements herein contained and intending to be
legally bound hereby, Parent and SpinCo hereby agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined
herein shall have the respective meanings assigned to them in the Distribution
Agreement. For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"Actually Realized" or "Actually Realizes" shall mean, for
purposes of determining the timing of the incurrence of any Spin-Off Tax
Liability, Income Tax Liability or Other Tax Liability or the realization of a
Refund (or any related Income Tax or Other Tax cost or benefit) by a Person in
respect of any payment, transaction, occurrence or event, the time at which the
amount of Income Taxes or Other Taxes paid (or Refund realized) by such Person
is increased above (or reduced below) the amount of Income Taxes or Other Taxes
that such Person would have been required to pay (or Refund that such Person
would have realized) but for such payment, transaction, occurrence or event.
"Aggregate Spin-Off Tax Liabilities" means the sum of the
Spin-Off Tax Liabilities with respect to each Taxing Jurisdiction.
"Board Certification" shall mean a certified copy of a
resolution of the SpinCo Board in which the SpinCo Board, after an investigation
of the facts and advice concerning the applicable law, finds and warrants to
Parent that (a) following the transaction at issue, one or more Persons will not
have acquired, and will not have the right to acquire, directly or indirectly,
more than 40% (by vote or value) of the outstanding Equity Securities of SpinCo
(determined immediately after such transaction) taking into account all relevant
issuances, redemptions or other acquisitions of (and agreements to issue, redeem
or otherwise acquire) Equity Securities (and assuming the exercise or conversion
of all such Equity Securities (if such Equity Securities are options or warrants
or similar exercisable or convertible securities) and the closing of all such
agreements) from the point in time two years prior to the External Spin-Off to
the date immediately following such transaction and pursuant to any other
transaction which is part of a plan or series of related transactions (within
the meaning of Section 355(e) of the Code) that includes the External Spin-Off,
(b) SpinCo will be the surviving entity if such transaction is a merger (and the
transaction is not a reverse subsidiary merger in which SpinCo is the surviving
entity) and (c) the facts and conclusions contained in the resolution will be
true and correct at the time the transaction at issue closes.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions located in the State of New York
are authorized or obligated by law or executive order to close.
"Carryback" shall mean the carryback of a Tax Attribute
(including, without limitation, a net operating loss, a net capital loss or a
tax credit) by a member of the SpinCo Group from a Post-Distribution Taxable
Period to a Pre-Distribution Taxable Period.
"Cash Acquisition Merger" shall mean a merger of a
newly-formed Subsidiary of SpinCo with a corporation, limited liability company,
limited partnership, general partnership or joint venture (in each case, not
previously owned directly or indirectly by SpinCo) solely for cash or a note
that is not an Equity Security pursuant to which SpinCo acquires such
corporation, limited liability company, limited partnership, general partnership
or joint venture and no Equity Securities of SpinCo or any SpinCo Subsidiary are
issued, sold, redeemed or acquired, directly or indirectly.
"Cash Boot Transaction" shall mean the transfer by SpinCo
of all or a portion of the proceeds of new SpinCo debt to Parent and the
transfer by Parent of such cash to Parent's creditors pursuant to the plan of
reorganization.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Combined Return" shall mean a consolidated, combined or
unitary Income Tax Return or Other Tax Return that actually includes, by
election or otherwise, one or more members of the Parent Group together with one
or more members of the SpinCo Group.
"Distribution Agreement" shall have the meaning set forth
in the recitals of this Agreement.
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"Distribution-Related Proceeding" shall mean any
Proceeding in which the IRS, another Tax Authority or any other party asserts a
position that could reasonably be expected to adversely affect the Tax-Free
Status of any of the Spin-Off-Related Transactions.
"ElderCare Subgroup" shall mean Genesis ElderCare Corp., a
Delaware corporation, and such of its Subsidiaries as constitute a loss subgroup
within the meaning of Treasury Regulation Section 1.1502-91(d).
"ElderCare Subgroup Section 382 Limitation" shall mean (a)
the Section 382 limitation of the ElderCare Subgroup as determined pursuant to
Section 382(b)(1) of the Code and Treasury Regulations Section 1.1502-93 with
respect to the ownership change (as defined in Section 382(g) of the Code and
Treasury Regulation Section 1.1502-92) of the ElderCare Subgroup that occurred
in connection with the Bankruptcy Plan and (b) any adjustments to the limitation
described in clause (a) of this definition attributable to (i) a carryover of
unused limitation under Section 382(b)(2) of the Code or (ii) recognized
built-in gains of the ElderCare Subgroup under Section 382(h) of the Code.
"Equity Securities" shall mean any stock or other equity
securities treated as stock for tax purposes, or options, warrants, rights,
convertible debt, or any other instrument or security that affords any Person
the right, whether conditional or otherwise, to acquire stock or to be paid an
amount determined by reference to the value of stock.
"External Spin-Off" shall mean the pro rata distribution
by Parent of the stock of SpinCo to the holders of Parent Common Stock with
respect to such stock.
"Fifty-Percent or Greater Interest" shall have the meaning
ascribed to such term for purposes of Sections 355(d) and (e) of the Code.
"Final Determination" shall mean the final resolution of
liability for any Income Tax or Other Tax, which resolution may be for a
specific issue or adjustment or for a taxable period, (a) by IRS Form 870 or
870-AD (or any successor forms thereto), on the date of acceptance by or on
behalf of the taxpayer, or by a comparable form under the laws of a State,
local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or
comparable form shall not constitute a Final Determination to the extent that it
reserves (whether by its terms or by operation of law) the right of the taxpayer
to file a claim for Refund or the right of the Tax Authority to assert a further
deficiency in respect of such issue or adjustment or for such taxable period (as
the case may be); (b) by a decision, judgment, decree, or other order by a court
of competent jurisdiction, which has become final and unappealable; (c) by a
closing agreement or accepted offer in compromise under Sections 7121 or 7122 of
the Code, or a comparable agreement under the laws of a State, local, or foreign
taxing jurisdiction; (d) by any allowance of a Refund or credit in respect of an
overpayment of Income Tax or Other Tax, but only after the expiration of all
periods during which such Refund may be recovered (including by way of offset)
by the jurisdiction imposing such Income Tax or Other Tax; or (e) by any other
final disposition, including by reason of the expiration of the applicable
statute of limitations or by mutual agreement of the parties.
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"First Contribution" shall mean those certain capital
contributions to Newco One by Health Services made in connection with the First
Internal Spin-Off.
"First Internal Spin-Off" shall mean the distribution by
Health Services of all the stock of Newco One to its sole shareholder Holdings.
"Health Services" shall mean Genesis Health Services
Corp., a Delaware corporation and an indirect wholly-owned subsidiary of Parent.
"Holdings" shall mean Genesis Holdings, Inc., a Delaware
corporation and a direct wholly-owned subsidiary of Parent.
"Income Tax" (a) shall mean (i) any foreign or any United
States federal, State or local tax, charge, fee, impost, levy or other
assessment that is based upon, measured by, or calculated with respect to (A)
net income or profits (including, but not limited to, any capital gains, gross
receipts, or minimum tax, and any tax on items of tax preference, but not
including sales, use, value added, real property gains, real or personal
property, transfer or similar taxes), (B) multiple bases (including, but not
limited to, corporate franchise, doing business or occupation taxes), if one or
more of the bases upon which such tax may be based, by which it may be measured,
or with respect to which it may be calculated is described in clause (a)(i)(A)
of this definition, or (C) any net worth, franchise or similar tax, in each case
together with (ii) any interest and any penalties, fines, additions to tax or
additional amounts imposed by any Tax Authority with respect thereto and (b)
shall include any transferee or successor liability in respect of an amount
described in clause (a) of this definition.
"Income Tax Benefit" shall mean, with respect to the
effect of any Carryback on the Income Tax Liability of Parent or the Parent
Group for any taxable period, the excess of (a) the hypothetical Income Tax
Liability of Parent or the Parent Group for such taxable period, calculated as
if such Carryback had not been utilized but with all other facts unchanged over
(b) the actual Income Tax Liability of Parent or the Parent Group for such
taxable period, calculated taking into account such Carryback (and treating a
Refund as a negative Income Tax Liability, for purposes of such calculation).
"Income Tax Liabilities" shall mean all liabilities for
Income Taxes.
"Income Tax Return" shall mean any return, report, filing,
statement, questionnaire, declaration or other document required to be filed
with a Tax Authority in respect of Income Taxes.
"Indemnified Party" shall mean any Person seeking
indemnification pursuant to the provisions of this Agreement.
"Indemnifying Party" shall mean any party hereto from
which any Indemnified Party is seeking indemnification pursuant to the
provisions of this Agreement.
"IRS" shall mean the Internal Revenue Service of the
United States.
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"Losses" shall mean any and all losses, liabilities,
claims, damages, obligations, payments, costs and expenses, matured or
unmatured, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, known or unknown (including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions).
"Material Subsidiary" shall mean any Subsidiary that,
immediately before the relevant transaction, owns, directly or indirectly, 25
percent or more of the consolidated gross assets of the SpinCo Group.
"Newco One" shall mean Newco One (Genesis HealthCare
Holding Company II, Inc., a Delaware corporation.
"Other Tax Liabilities" shall mean all liabilities for
Other Taxes.
"Other Tax Returns" shall mean any return, report, filing,
statement, questionnaire, declaration or other document required to be filed
with a Tax Authority in respect of Other Taxes.
"Other Taxes" shall mean all forms of taxation, whenever
created or imposed, and whether of the United States of America or elsewhere,
and whether imposed by a local, municipal, governmental, State, federation or
other body, and without limiting the generality of the foregoing, shall include
superfund, sales, use, ad valorem, value added, transfer, recording,
withholding, payroll, employment, excise, occupation, premium or property taxes
(in each case, together with any related interest, penalties and additions to
tax, or additional amounts imposed by any Tax Authority thereon); provided,
however, that Other Taxes shall not include any Income Taxes.
"Parent Section 382 Limitation" shall mean (a) the Section
382 limitation of the Parent Consolidated Group as determined pursuant to
Section 382(b)(1) of the Code and Treasury Regulations Section 1.1502-93 with
respect to the ownership change (as defined in Section 382(g) of the Code and
Treasury Regulation Section 1.1502-92) of the Parent Consolidated Group that
occurred in connection with the Bankruptcy Plan and (b) any adjustments to the
limitation described in clause (a) of this definition attributable to (i) a
carryover of unused limitation under Section 382(b)(2) of the Code with respect
to the taxable year of the Parent Consolidated Group in which the distribution
occurs or (ii) recognized built-in gains under Section 382(h) of the Code
arising prior to the Distribution Date; provided, however, that the Parent
Section 382 Limitation shall not include the ElderCare Subgroup Section 382
Limitation.
"Parent Consolidated Group" shall mean the affiliated
group of corporations (within the meaning of Section 1504(a) of the Code without
regard to the exclusions in Section 1504(a)(1) through (8)) of which Parent is
the common parent (and any predecessor or successor to such affiliated group).
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"Parent Group" shall mean (a) Parent and each Person that
is a direct or indirect Subsidiary of Parent (including any Subsidiary of Parent
that is disregarded for U.S. federal Income Tax purposes (or for purposes of any
State, local, or foreign tax law)) immediately after the External Spin-Off after
giving effect to the Spin-Off-Related Transactions, (b) any corporation (or
other Person) that shall have merged or liquidated into Parent or any such
Subsidiary and (c) any predecessor or successor to any Person otherwise
described in this definition.
"Parent Separate Return" shall mean any Separate Return
required to be filed by Parent or any member of the Parent Group.
"Permitted Transaction" shall mean any transaction that
satisfies the requirements of Sections 4(c)(i) or 4(c)(ii).
"Person" shall mean any individual, partnership, joint
venture, limited liability company, corporation, association, joint stock
company, trust, unincorporated organization or similar entity or a governmental
authority or any department or agency or other unit thereof.
"Post-Distribution Taxable Period" shall mean a taxable
period that, to the extent it relates to a member of the SpinCo Group, begins
after the Distribution Date.
"Pre-Distribution Taxable Period" shall mean a taxable
period that, to the extent it relates to a member of the SpinCo Group, ends on
or before the Distribution Date.
"Proceeding" shall mean any audit or other examination, or
judicial or administrative proceeding relating to liability for, or Refunds or
adjustments with respect to, Income Taxes or Other Taxes.
"Qualified Tax Counsel" shall mean independent United
States tax counsel of recognized national standing that is acceptable to Parent.
"Refund" shall mean any refund of Income Taxes or Other
Taxes, including any reduction in Income Tax Liabilities or Other Tax
Liabilities by means of a credit, offset or otherwise.
"Representative" shall mean with respect to a Person, such
Person's officers, directors, employees and other authorized agents.
"Restriction Period" shall mean the period beginning on
the date hereof and ending on the second anniversary of the Distribution Date.
"Ruling" means (a) the private letter ruling issued by the
IRS to Parent on [ ], 2003 in connection with the Spin-Off-Related Transactions
and (b) any similar first ruling issued by any Tax Authority other than the IRS
in connection with the Spin-Off-Related Transactions.
"Ruling Documents" shall mean the Ruling, the Request for
Rulings dated March 11, 2003, submitted on behalf of Parent to the IRS, the
appendices and exhibits thereto, and any additional materials submitted at any
time on behalf of Parent to the IRS in connection with such Request for Rulings.
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"Second Contribution" shall mean those certain capital
contributions to Newco One by Holdings made in connection with the Second
Internal Spin-Off.
"Second Internal Spin-Off" shall mean the distribution by
Holdings of all the stock of Newco One to its sole shareholder, Parent.
"Separate Return" shall mean (a) in the case of any Income
Tax Return or Other Tax Return required to be filed by any member of the SpinCo
Group (including any consolidated, combined or unitary return), any such tax
return that does not include any member of the Parent Group and (b) in the case
of any Income Tax Return or Other Tax Return required to be filed by any member
of the Parent Group (including any consolidated, combined or unitary return),
any such tax return that does not include any member of the SpinCo Group.
"SpinCo Board" shall mean the Board of Directors of
SpinCo.
"SpinCo Business" shall mean each trade or business
actively conducted (within the meaning of Section 355(b) of the Code) by SpinCo
or any member of the SpinCo Group immediately after the External Spin-Off, as
set forth in the Ruling Documents.
"SpinCo Consolidated Group" shall mean the affiliated
group of corporations (within the meaning of Section 1504(a) of the Code without
regard to the exclusions in Section 1504(a)(1) through (8)) of which SpinCo is
the common parent, determined immediately after the External Spin-Off (and any
predecessor or successor to such affiliated group other than the Parent
Consolidated Group).
"SpinCo Group" shall mean (a) SpinCo and each Person that
is a direct or indirect Subsidiary of SpinCo (including any Subsidiary of SpinCo
that is disregarded for U.S. federal Income Tax purposes (or for purposes of any
State, local, or foreign tax law)) immediately after the External Spin-Off after
giving effect to the Spin-Off-Related Transactions, (b) any corporation (or
other Person) that shall have merged or liquidated into SpinCo or any such
Subsidiary and (c) any predecessor or successor to any Person otherwise
described in this definition.
"SpinCo Separate Return" shall mean any Separate Return
required to be filed by SpinCo or any member of the SpinCo Group, including,
without limitation any U.S. consolidated federal Income Tax Returns of the
SpinCo Consolidated Group required to be filed with respect to a
Post-Distribution Taxable Period.
"Spin-Off-Related Transactions" shall mean (i) the First
Contribution together with the First Internal Spin-Off, (ii) the Second
Contribution together with the Second Internal Spin-Off and (iii) the Third
Contribution and the Cash Boot Transaction together with the External Spin-Off.
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"Spin-Off Tax Liabilities" shall mean, with respect to any
Taxing Jurisdiction, the sum of (a) any increase in Income Tax Liability or
Other Tax Liability (or reduction in a Refund) Actually Realized as a result of
any corporate-level gain or income recognized with respect to the failure of any
of the Spin-Off-Related Transactions to qualify for Tax-Free Status under the
income tax law of such Taxing Jurisdiction pursuant to any settlement, Final
Determination, judgment, assessment, proposed adjustment or otherwise, (b)
interest on such amounts calculated pursuant to such Taxing Jurisdiction's laws
regarding interest on tax liabilities at the highest Underpayment Rate for
corporations in such Taxing Jurisdiction from the date such additional gain or
income was recognized until full payment with respect thereto is made pursuant
to Section 3 hereof (or in the case of a reduction in a Refund, the amount of
interest that would have been received on the foregone portion of the Refund but
for the failure of any of the Spin-Off-Related Transactions to qualify for
Tax-Free Status), and (c) any penalties actually paid to such Taxing
Jurisdiction that would not have been paid but for the failure of any of the
Spin-Off-Related Transactions to qualify for Tax-Free Status in such Taxing
Jurisdiction.
"Supplemental Ruling" means (a) any private letter ruling
issued by the IRS in connection with any of the Spin-Off-Related Transactions or
(b) any similar ruling issued by any Tax Authority other than the IRS in
connection with any of the Spin-Off-Related Transactions, in each case, other
than the Ruling.
"Supplemental Ruling Documents" means (a) any Supplemental
Ruling, any request for a Supplemental Ruling submitted to the IRS, together
with the appendices and exhibits thereto and any supplemental filings or other
materials subsequently submitted to the IRS, in connection with the
Spin-Off-Related Transactions or (b) any similar filings submitted to any other
Tax Authority in connection with any such request for a Supplemental Ruling.
"Tax Attribute" shall mean a consolidated, combined or
unitary net operating loss, net capital loss, unused investment credit, unused
foreign tax credit, or excess charitable contribution (as such terms are used in
Treasury Regulations 1.1502-79 and 1.1502-79A or comparable provisions of
foreign, State or local tax law), or a minimum tax credit or general business
credit.
"Tax Authority" means a governmental authority (foreign or
domestic) or any subdivision, agency, commission or authority thereof or any
quasi-governmental or private body having jurisdiction over the assessment,
determination, collection or imposition of any Tax (including, without
limitation, the IRS).
"Tax-Free Status" shall mean the qualification of each of
the Spin-Off-Related Transactions, as the case may be, (a) as a transaction
described in Sections 355(a) and 368(a)(1)(D) of the Code, (b) as a transaction
in which the stock distributed thereby is "qualified property" for purposes of
Section 361(c) of the Code, and (c) as a transaction in which Parent, the
members of the Parent Group, SpinCo and the members of the SpinCo Group
recognize no income or gain other than intercompany items or excess loss
accounts taken into account pursuant to the Treasury Regulations promulgated
pursuant to Section 1502 of the Code.
"Tax-Related Losses" shall mean:
(a) the Aggregate Spin-Off Tax Liabilities,
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(b) all accounting, legal and other professional fees, and
court costs incurred in connection with any settlement, Final Determination,
judgment or other determination with respect to such Aggregate Spin-Off Tax
Liabilities, and
(c) all costs, expenses and damages associated with
stockholder litigation or controversies and any amount paid by Parent or SpinCo
in respect of the liability of shareholders, whether paid to shareholders or to
the IRS or any other Tax Authority payable by Parent or SpinCo or their
respective Affiliates, in each case, resulting from the failure of any of the
Spin-Off-Related Transactions to qualify for Tax-Free Status.
"Taxing Jurisdiction" shall mean the United States and
every other government or governmental unit having jurisdiction to tax Parent or
SpinCo or any of their respective Affiliates.
"Third Contribution" shall mean those certain capital
contributions to SpinCo by Parent in connection with the External Spin-Off.
"Underpayment Rate" shall mean the annual rate of interest
described in Section 6621(c) of the Code for large corporate underpayments of
Income Tax (or similar provision of State, local, or foreign Income Tax law, as
applicable), as determined from time to time.
"Unqualified Tax Opinion" means an unqualified "will"
opinion of Qualified Tax Counsel on which Parent may rely to the effect that a
transaction will not disqualify any of the Spin-Off-Related Transactions from
Tax-Free Status, assuming that the Spin-Off-Related Transactions would have
qualified for Tax-Free Status if such transaction did not occur.
2. Filing of Tax Returns; Payment of Taxes.
(a) Filing of Tax Returns; Payment of Income Taxes and
Other Taxes.
(i) Parent Consolidated Returns; Other Combined
Returns. Parent shall prepare and file or cause to be prepared and filed (A) all
U.S. consolidated federal Income Tax Returns of the Parent Consolidated Group
and (B) all other Combined Returns. Parent shall pay, or cause to be paid, and
shall be responsible for, any and all Income Taxes and Other Taxes due or
required to be paid with respect to or required to be reported on any such
Income Tax Return or Other Tax Return (in each case, including any increase in
such Income Tax Liabilities or Other Tax Liabilities as a result of a Final
Determination).
(ii) Parent Separate Returns. Parent shall prepare and
file or cause to be prepared and filed all Parent Separate Returns. Parent shall
pay, or cause to be paid, and shall be responsible for, any and all Income Taxes
or Other Taxes due or required to be paid with respect to or required to be
reported on any Parent Separate Return (including any increase in such Income
Tax Liabilities or Other Tax Liabilities as a result of a Final Determination).
(iii) SpinCo Separate Returns. SpinCo shall prepare
and file or cause to be prepared and filed all SpinCo Separate Returns. SpinCo
shall pay, or cause to be paid, and shall be responsible for, any and all Income
Taxes or Other Taxes due or required to be paid with respect to or required to
be reported on any SpinCo Separate Return (including any increase in such Income
Tax Liabilities or Other Tax Liabilities as a result of a Final Determination).
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(b) Preparation of Tax Returns.
(i) Parent (or its designee) shall determine the
entities to be included in any Combined Return and make or revoke any Income Tax
elections, adopt or change any accounting methods, and determine any other
position taken on or in respect of any Income Tax Return or Other Tax Return
required to be prepared and filed by Parent pursuant to Section 2(a)(i).
Notwithstanding the immediately preceding sentence, any Income Tax Return or
Other Tax Return filed by Parent pursuant to Section 2(a)(i) with respect to any
Pre-Closing Taxable Period shall be prepared consistent with Parent's past
practice for the filing of such returns and shall not include any tax election
that is inconsistent with past practice.
(ii) SpinCo shall, and shall cause each member of the
SpinCo Group to, prepare and submit promptly to Parent, at SpinCo's expense, all
information that Parent shall reasonably request, in such form as Parent shall
reasonably request, relating to the rights and obligations of Parent or SpinCo
hereunder, including any such information so requested to enable Parent to
prepare any Income Tax Returns or Other Tax Return required to be filed by
Parent pursuant to Section 2(a)(i).
(iii) Except as required by applicable law or as a
result of a Final Determination, SpinCo shall not, and shall cause each member
of the SpinCo Group not to, take any position that is either inconsistent with
the treatment of the Spin-Off-Related Transactions as having Tax-Free Status (or
analogous status under State, local or foreign law) or, with respect to a
specific item of income, deduction, gain, loss, or credit on an Income Tax
Return or Other Tax Return, take any position inconsistent with a position taken
on an Income Tax Return or Other Tax Return prepared or filed by Parent pursuant
to Section 2(a) hereof (including, without limitation, the claiming of a
deduction previously claimed on any such Income Tax Return or Other Tax Return).
3. Indemnification for Income Taxes and Other Taxes.
(a) Indemnification by Parent. From and after the
Distribution Date, Parent and each member of the Parent Group shall jointly and
severally indemnify, defend and hold harmless SpinCo and each member of the
SpinCo Group and each of their respective Representatives and Affiliates (and
the heirs, executors, successors and assigns of any of them) from and against
(i) all Spin-Off Tax Liabilities incurred by any member of the Parent Group
(except to the extent that such Spin-Off Tax Liabilities are the responsibility
of SpinCo pursuant to Section 4), (ii) without duplication, all Income Tax
Liabilities and Other Tax Liabilities that any member of the Parent Group is
responsible for pursuant to Section 2, and (iii) all Income Taxes and Other
Taxes incurred by any member of the SpinCo Group by reason of the breach by
Parent or any member of the Parent Group of any of Parent's covenants hereunder
and, in each case, any related costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses); provided, however, that
Parent shall have no obligation to indemnify, defend or hold harmless any Person
pursuant to this Section 3(a) to the extent that any such indemnification
obligation is otherwise attributable to any breach by SpinCo or any member of
the SpinCo Group of any of SpinCo's representations or covenants hereunder
(including any representations made in connection with the Ruling or any
Supplemental Ruling).
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(b) Indemnification by SpinCo. From and after the
Distribution Date, SpinCo and each member of the SpinCo Group shall jointly and
severally indemnify, defend and hold harmless Parent and each member of the
Parent Group and each of their respective Representatives and Affiliates (and
the heirs, executors, successors and assigns of any of them) from and against
(i) all Income Tax Liabilities and Other Tax Liabilities that SpinCo or any
member of the SpinCo Group is responsible for under Section 2 or Section 4
(including, without limitation, any Income Tax Liabilities, Other Tax
Liabilities or Spin-Off Tax Liabilities arising with respect to a Permitted
Transaction for which SpinCo is liable pursuant to Section 4(e)(i)) and (ii) all
Income Taxes, Other Taxes, Spin-Off Tax Liabilities or other Tax-Related Losses
incurred by any member of the Parent Group or SpinCo Group by reason of the
breach by SpinCo or any member of the SpinCo Group of any of SpinCo's
representations or covenants hereunder (including any representations made in
connection with the Ruling or any Supplemental Ruling) and, in each case, any
related costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses).
(c) Timing of Indemnification. Any payment and
indemnification made pursuant to this Section 3 shall be made by the
Indemnifying Party promptly, but, in any event, no later than:
(i) in the case of an indemnification obligation with
respect to any Spin-Off Tax Liabilities, Income Tax Liabilities or Other Tax
Liabilities, five Business Days prior to the date the Indemnified Party makes a
payment of taxes, interest, or penalties to the applicable Tax Authority
(including a payment with respect to a proposed adjustment of taxes or an
assessment of tax deficiency asserted or made by any Taxing Jurisdiction or a
payment made in settlement of an asserted tax deficiency) or realizes a reduced
Refund; and
(ii) in the case of any payment or indemnification of
any Losses not otherwise described in clause (i) of this Section 3(c)
(including, but not limited to, any Losses described in clause (b) or (c) of the
definition of Tax-Related Losses, attorneys' fees and expenses and other
indemnifiable Losses), five Business Days prior to the date the Indemnified
Party makes a payment thereof.
4. Spin-Off Related Matters.
(a) Representations.
(i) Ruling Documents. SpinCo hereby represents and
warrants that (i) it has examined the Ruling Documents (including, without
limitation, the representations to the extent that they relate to the plans,
proposals, intentions, and policies of SpinCo, its Subsidiaries, the SpinCo
Business, or the SpinCo Group) and (ii) to the extent in reference to SpinCo,
its Subsidiaries, the SpinCo Business, or the SpinCo Group, the facts presented
and the representations made therein are true, correct and complete.
(ii) Tax-Free Status. SpinCo hereby represents and
warrants that it has no plan or intention of taking any action, or failing or
omitting to take any action or knows of any circumstance, that could reasonably
be expected to (i) cause any of the Spin-Off-Related Transactions not to have
Tax-Free Status or (ii) cause any representation or factual statement made in
this Agreement, the Distribution Agreement, the Ruling Documents, any
Supplemental Ruling Documents or any of the Ancillary Agreements to be untrue in
a manner that would have an adverse effect on the Tax-Free Status of any of the
Spin-Off-Related Transactions.
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(iii) Plan or Series of Related Transactions. SpinCo
hereby represents and warrants that, to the best knowledge of SpinCo and the
management of the SpinCo Group, after due inquiry, none of the Spin-Off-Related
Transactions are part of a plan (or series of related transactions) pursuant to
which a Person will acquire stock representing a Fifty-Percent or Greater
Interest in SpinCo or any successor to SpinCo.
(b) Covenants.
(i) Actions Consistent with Representations and
Covenants. SpinCo shall not take any action or permit any member of the SpinCo
Group to take any action, and SpinCo shall not fail to take any action or permit
any member of the SpinCo Group to fail to take any action, where such action or
failure to act would be inconsistent with or cause to be untrue any material,
information, covenant or representation in this Agreement, the Distribution
Agreement, the Ruling Documents, any Supplemental Ruling Documents or any of the
Ancillary Agreements in a manner that would have an adverse effect on the
Tax-Free Status of any of the Spin-Off-Related Transactions.
(ii) Preservation of Tax-Free Status; SpinCo Business.
SpinCo shall not (A) take any action (including, but not limited to, any
cessation, transfer or disposition of all or any portion of any SpinCo Business;
payment of extraordinary dividends to shareholders; and acquisitions or
issuances of stock) or permit any member of the SpinCo Group to take any such
action, and SpinCo shall not fail to take any such action or permit any member
of the SpinCo Group to fail to take any such action and (B) until the first day
after the Restriction Period, engage in any transaction that would result in it
or any member of the SpinCo Group ceasing to be a company engaged in any SpinCo
Business (including, without limitation, any cessation, transfer or disposition
of any SpinCo Business), in each case, where such action or failure to act would
have an adverse effect on the Tax-Free Status of any of the Spin-Off-Related
Transactions.
(iii) Sales, Issuances and Redemptions of Equity
Securities. Until the first day after the Restriction Period, none of SpinCo or
any of its Subsidiaries shall, or shall agree to, sell or otherwise issue to any
Person, or redeem or otherwise acquire from any Person, any Equity Securities of
SpinCo, directly or indirectly; provided, however, that (A) the adoption by
SpinCo of a shareholder rights plan shall not constitute a sale or issuance of
such Equity Securities, (B) SpinCo and the members of the SpinCo Group may
repurchase such Equity Securities to the extent that such repurchases meet the
requirements of Section 4.05(1)(b) of Revenue Procedure 96-30, and (C) SpinCo
may issue such Equity Securities to the extent such issuances satisfy Safe
Harbor VI (relating to acquisitions in connection with a person's performance of
services) or Safe Harbor VII (relating to acquisitions by a retirement plan of
an employer) of Treasury Regulation Section 1.355-7T(d).
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(iv) Tender Offers; Other Business Transactions. Until
the first day after the Restriction Period, none of SpinCo or any member of the
SpinCo Group shall (A) solicit any Person to make a tender offer for, or
otherwise acquire or sell, the Equity Securities of SpinCo, (B) participate in
or support any unsolicited tender offer for, or other acquisition, issuance or
disposition of, the Equity Securities of SpinCo or (C) approve or otherwise
permit any proposed business combination or any transaction which, in the case
of clauses (A), (B) or (C), individually or in the aggregate, together with any
transaction occurring within the four-year period beginning on the date which is
two years before the Distribution Date and any other transaction which is part
of a plan or series of related transactions (within the meaning of Section
355(e) of the Code) that includes the External Spin-Off, results in one or more
Persons acquiring (except for acquisitions that otherwise satisfy Safe Harbor VI
(relating to acquisitions in connection with a person's performance of services)
or Safe Harbor VII (relating to acquisitions by a retirement plan of an
employer) of Treasury Regulation Section 1.355-7T(d)) directly or indirectly
stock representing a 40% or greater interest, by vote or value, in SpinCo (or
any successor thereto). In addition, none of SpinCo or any member of the SpinCo
Group shall at any time, whether before or subsequent to the expiration of the
Restriction Period, engage in any action described in clauses (A), (B) or (C) of
the preceding sentence if it is pursuant to an arrangement negotiated (in whole
or in part) prior to the first anniversary of the External Spin-Off, even if at
the time of the External Spin-Off or thereafter such action is subject to
various conditions.
(v) Dispositions of Assets. Until the first day after
the Restriction Period, none of SpinCo or any member of the SpinCo Group shall
sell, transfer, or otherwise dispose of or agree to dispose of assets
(including, for such purpose, any shares of capital stock of a Subsidiary and
any transaction treated for tax purposes as a sale, transfer or disposition)
that, in the aggregate, constitute more than 60 percent of the gross assets of
SpinCo, nor shall SpinCo or any member of the SpinCo Group sell, transfer, or
otherwise dispose of or agree to dispose of assets (including, for such purpose,
any shares of capital stock of a Subsidiary and any transaction treated for tax
purposes as a sale, transfer or disposition) that, in the aggregate, constitute
more than 60 percent of the consolidated gross assets of the SpinCo Group. The
foregoing sentence shall not apply to sales, transfers, or dispositions of
assets in the ordinary course of business. The percentages of gross assets or
consolidated gross assets of SpinCo or the SpinCo Group, as the case may be,
sold, transferred, or otherwise disposed of, shall be based on the fair market
value of the gross assets of SpinCo and the members of the SpinCo Group as of
the Distribution Date. For purposes of this Section 4(b)(v), a merger of SpinCo
or one of its Subsidiaries with and into any Person shall constitute a
disposition of all of the assets of SpinCo or such Subsidiary.
(vi) Liquidations, Mergers, Reorganizations. Until the
first day after the Restriction Period, neither SpinCo nor any of its Material
Subsidiaries shall, or shall agree to, voluntarily dissolve or liquidate or
engage in any transaction involving a merger (except for a Cash Acquisition
Merger), consolidation or other reorganization; provided, however, mergers of
direct or indirect wholly-owned Subsidiaries of SpinCo solely with other direct
or indirect wholly-owned Subsidiaries of SpinCo are not subject to this Section
4(b)(vi) to the extent not inconsistent with the Tax-Free Status of the
Spin-Off-Related Transactions.
(c) Permitted Transactions. Notwithstanding the
restrictions otherwise imposed by Sections 4(b)(iii) through 4(b)(vi), during
the Restriction Period, SpinCo may (w) approve, participate in, support or
otherwise permit a proposed business combination or transaction that would
otherwise breach the covenant set forth in Section 4(b)(iv), (x) sell or
otherwise dispose of the assets of SpinCo or any member of the SpinCo Group in a
transaction that would otherwise breach the covenant set forth in Section
4(b)(v), (y) merge SpinCo or any member of the SpinCo Group with another entity
without regard to which party is the surviving entity in a transaction that
would otherwise breach the covenant set forth in Section 4(b)(vi) or (z) issue,
sell, redeem or otherwise acquire (or cause a member of the SpinCo Group to
issue, sell, redeem or otherwise acquire) Equity Securities of SpinCo in a
transaction that would otherwise breach the covenant set forth in Section
4(b)(iii), if and only if such transaction would not violate Section 4(b)(i) or
Section 4(b)(ii) and one of the following Sections 4(c)(i) or 4(c)(ii) is
satisfied.
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(i) Supplemental Ruling; Tax Opinion. Prior to
entering into any agreement contemplating a transaction described in clauses
(w), (x), (y) or (z) of Section 4(c) and prior to consummating any such
transaction: (A) SpinCo shall request that Parent obtain a Supplemental Ruling
in accordance with Section 4(d)(ii) of this Agreement to the effect that such
transaction will not affect the Tax-Free Status of any of the Spin-Off-Related
Transactions and Parent shall have received such a Supplemental Ruling in form
and substance satisfactory to Parent in its sole and absolute discretion or (B)
SpinCo shall provide Parent with an Unqualified Tax Opinion in form and
substance acceptable to Parent in its sole and absolute discretion (and in
determining whether an opinion is acceptable, Parent may consider, among other
factors, the appropriateness of any underlying assumptions and management's
representations if used as a basis for the opinion).
(ii) Board Certification. Prior to entering into any
agreement contemplating a transaction described in clause (z) (including
transactions described in clause (y) and (z)) of Section 4(c) (expressly
excluding for this purpose transactions described in clause (x) of Section 4(c))
and prior to consummating any such transaction, the following conditions are
satisfied: (A) following the transaction at issue, one or more Persons will not
have acquired, and will not have the right to acquire, directly or indirectly,
more than 40% (by vote or value) of the outstanding Equity Securities of SpinCo
(determined immediately following such transaction) taking into account all
relevant issuances, redemptions or other acquisitions of (and agreements to
issue, redeem or otherwise acquire) Equity Securities (and assuming the exercise
or conversion of all such Equity Securities (if such Equity Securities are
options or warrants or similar exercisable or convertible securities) and the
closing of all such agreements) from the point in time two years prior to the
External Spin-Off to the date immediately following such transaction and
pursuant to any other transaction which is part of a plan or series of related
transactions (within the meaning of Section 355(e) of the Code) that includes
the External Spin-Off, (B) SpinCo will be the surviving entity if such
transaction is a merger (and the transaction is not a reverse subsidiary merger
in which SpinCo is the surviving entity) and (C) prior to entering into any
agreement contemplating a transaction described in clause (z) (including
transactions described in clause (y) and (z)) of this Section 4(c) and prior to
consummating any such transaction, SpinCo delivers to Parent a Board
Certification.
(d) Supplemental Rulings and Restrictions on SpinCo.
(i) Supplemental Ruling at Parent's Request. Parent
shall have the right to obtain a Supplemental Ruling in its sole and absolute
discretion. If Parent determines to obtain a Supplemental Ruling, SpinCo shall
(and shall cause each member of the SpinCo Group to) cooperate with Parent and
take any and all actions reasonably requested by Parent in connection with
obtaining the Supplemental Ruling (including, without limitation, by making any
representation or covenant or providing any materials or information requested
by any Tax Authority; provided that SpinCo shall not be required to make (or
cause any member of the SpinCo Group to make) any representation or covenant
that is inconsistent with historical facts or as to future matters or events
over which it has no control). Parent shall reimburse SpinCo for all reasonable
costs and expenses incurred by the SpinCo Group in obtaining a Supplemental
Ruling requested by Parent within 10 Business Days after receiving an invoice
from SpinCo therefor. In connection with obtaining a Supplemental Ruling
pursuant to this Section 4(d)(i), (A) Parent shall keep SpinCo informed
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in a timely manner of all material actions taken or proposed to be taken by
Parent in connection therewith; (B) Parent shall (1) reasonably in advance of
the submission of any Ruling Documents or Supplemental Ruling Documents, provide
SpinCo with a draft copy thereof, (2) reasonably consider SpinCo's comments on
such draft copy, and (3) provide SpinCo with a final copy; and (C) Parent shall
provide SpinCo with notice reasonably in advance of, and SpinCo shall have the
right to attend, any formally scheduled meetings with any Tax Authority (subject
to the approval of the Tax Authority) that relate to such Supplemental Ruling.
(ii) Supplemental Rulings at SpinCo's Request. Parent
agrees that at the reasonable request of SpinCo pursuant to Section 4(c)(i),
Parent shall (and shall cause each member of the Parent Group to) cooperate with
SpinCo and use its reasonable best efforts to seek to obtain, as expeditiously
as possible, a Supplemental Ruling from the IRS and/or any other applicable Tax
Authority for the purpose of confirming compliance on the part of SpinCo or any
member of the SpinCo Group with its obligations under Section 4(b) of this
Agreement. Further, in no event shall Parent be required to file any
Supplemental Ruling under this Section 4(d)(ii) unless SpinCo represents that
(A) it has read the request for the Supplemental Ruling and any materials,
appendices and exhibits submitted or filed therewith, and (B) all information
and representations, if any, relating to any member of the SpinCo Group,
contained in the Supplemental Ruling Documents are true, correct and complete in
all material respects. SpinCo shall reimburse Parent for all reasonable costs
and expenses incurred by the Parent Group in obtaining a Supplemental Ruling
requested by SpinCo within 10 Business Days after receiving an invoice from
Parent therefor. SpinCo hereby agrees that Parent shall have sole and exclusive
control over the process of obtaining a Supplemental Ruling, and that only
Parent shall apply for a Supplemental Ruling. In connection with obtaining a
Supplemental Ruling pursuant to this Section 4(d)(ii), (A) Parent shall keep
SpinCo informed in a timely manner of all material actions taken or proposed to
be taken by Parent in connection therewith; (B) Parent shall (1) reasonably in
advance of the submission of any Ruling Documents or Supplemental Ruling
Documents, provide SpinCo with a draft copy thereof, (2) reasonably consider
SpinCo's comments on such draft copy, and (3) provide SpinCo with a final copy;
and (C) Parent shall provide SpinCo with notice reasonably in advance of, and
SpinCo shall have the right to attend, any formally scheduled meetings with any
Tax Authority (subject to the approval of the Tax Authority) that relate to such
Supplemental Ruling.
(iii) Prohibition on SpinCo. SpinCo hereby agrees that
neither it nor any member of the SpinCo Group shall seek any guidance from the
IRS or any other Tax Authority (whether written, verbal or otherwise) concerning
any of the Spin-Off-Related Transactions (or the impact of any transaction on
any of the Spin-Off-Related Transactions).
(e) Liability for Undertaking Certain Actions.
Notwithstanding anything in this Agreement to the contrary, SpinCo and each
member of the SpinCo Group shall be responsible for one hundred percent (100%)
of any and all Tax-Related Losses that are attributable to, or result from:
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(i) any act or failure to act by SpinCo or any member
of the SpinCo Group, which action or failure to act breaches any of the
covenants described in Section 4(b)(i) through 4(b)(vi) of this Agreement
(without regard to the exceptions or provisos set forth in such provisions),
expressly including, for this purpose, any Permitted Transaction and any act or
failure to act that breaches Section 4(b)(i) or 4(b)(ii), regardless of whether
such act or failure to act is permitted by Section 4(b)(iii) through 4(b)(vi);
(ii) any acquisition of Equity Securities of SpinCo or
any member of the SpinCo Group by any Person or Persons (including, without
limitation, as a result of an issuance of SpinCo Equity Securities or a merger
of another entity with and into SpinCo or any member of the SpinCo Group) or any
acquisition of assets of SpinCo or any member of the SpinCo Group (including,
without limitation, as a result of a merger) by any Person or Persons; and
(iii) any Tax Authority withdrawing all or any portion
of the Ruling or any Supplemental Ruling issued to Parent in connection with the
Spin-Off-Related Transactions because of a breach by SpinCo or any member of the
SpinCo Group of a representation made in this Agreement (or made in connection
with the Ruling or any Supplemental Ruling).
(f) Cooperation.
(i) Without limiting the prohibition set forth in
Section 4(d)(iii), until the first day after the Restriction Period, SpinCo
shall furnish Parent with a copy of any ruling request that any member of the
SpinCo Group may file with the IRS or any other Tax Authority and any opinion
received that in any respect relates to, or otherwise reasonably could be
expected to have any effect on, the Tax-Free Status of any of the
Spin-Off-Related Transactions.
(ii) Parent shall reasonably cooperate with SpinCo in
connection with any request by SpinCo for an Unqualified Tax Opinion pursuant to
Section 4(c)(i).
(iii) Until the first day after the Restriction
Period, SpinCo will provide adequate advance notice to Parent in accordance with
the terms of Section 4(f)(iv) of any action described in Sections 4(b)(i)
through 4(b)(vi) within a period of time sufficient to enable Parent to seek
injunctive relief pursuant to Section 4(g) in a court of competent jurisdiction.
(iv) Each notice required by Section 4(f)(iii) shall
set forth the terms and conditions of any such proposed transaction, including,
without limitation, (A) the nature of any related action proposed to be taken by
the board of directors of SpinCo, (B) the approximate number of Equity
Securities of SpinCo or any member of the SpinCo Group (if any) proposed to be
sold or otherwise issued, (C) the approximate value of SpinCo's assets (or
assets of any member of the SpinCo Group) proposed to be transferred, and (D)
the proposed timetable for such transaction, all with sufficient particularity
to enable Parent to seek such injunctive relief. Promptly, but in any event
within 30 days, after Parent receives such written notice from SpinCo, Parent
shall notify SpinCo in writing of Parent's decision to seek injunctive relief
pursuant to Section 4(g).
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(v) From and after the date Parent first requests a
Supplemental Ruling pursuant to Section 4(d) until the first day after the
two-year anniversary of such date that Parent receives such Supplemental Ruling
(pursuant to Section 4(d)(i) or 4(d)(ii)), neither SpinCo nor any member of the
SpinCo Group shall take (or refrain from taking) any action to the extent that
such action or inaction would have caused a representation given by SpinCo in
connection with any such request for a Supplemental Ruling to have been untrue
as of the relevant representation date, had SpinCo or any member of the SpinCo
Group intended to take (or refrain from taking) such action on the relevant
representation date.
(g) Enforcement. The parties hereto acknowledge that
irreparable harm would occur in the event that any of the provisions of this
Section 4 were not performed in accordance with their specific terms or were
otherwise breached. The parties hereto agree that, in order to preserve the
Tax-Free Status of the Spin-Off-Related Transactions, injunctive relief is
appropriate to prevent any violation of the foregoing covenants; provided,
however, that injunctive relief shall not be the exclusive legal or equitable
remedy for any such violation.
5. Refunds. Parent shall be entitled to all Refunds (and any
interest thereon received from the applicable Tax Authority) in respect of
Income Taxes and Other Taxes paid with respect to any Tax Return filed by Parent
or any member of the Parent Group (other than any SpinCo Separate Return filed
prior to the Closing Date). SpinCo shall be entitled to all Refunds (and any
interest thereon received from the applicable Tax Authority) in respect of
Income Taxes and Other Taxes paid with respect to any Tax Return filed by SpinCo
or any member of the SpinCo Group (including, without limitation, any SpinCo
Separate Return filed before the Closing Date). A party receiving a Refund to
which another party is entitled pursuant to this Section 5 shall pay the amount
to which such other party is entitled within fifteen Business Days after such
Refund is Actually Realized. Each of Parent and SpinCo shall fully cooperate
with the other party in connection with, any claim for Refund in respect of an
Income Tax or Other Tax for which any member of the Parent Group or the SpinCo
Group, as the case may be, is responsible pursuant to Section 2.
6. Tax Contests.
(a) Notification. SpinCo shall promptly notify Parent in
writing of any communication with respect to any pending or threatened
Proceeding in connection with an Income Tax Liability or Other Tax Liability (or
any issue related thereto) of SpinCo or any member of the SpinCo Group for which
a member of the Parent Group may be responsible pursuant to this Agreement;
provided, however, that in the case of any Distribution-Related Proceeding, such
notice shall be provided no later than ten Business Days after SpinCo first
receives written notice from the IRS or other Tax Authority of such
Distribution-Related Proceeding). SpinCo shall include with such notification a
true, correct and complete copy of any written communication, and an accurate
and complete written summary of any oral communication, received by SpinCo or a
member of the SpinCo Group. The failure of SpinCo timely to forward such
notification in accordance with the immediately preceding sentence shall not
relieve Parent of its obligation to pay such Income Tax Liability or Other Tax
Liability or indemnify SpinCo and the members of the SpinCo Group and their
respective Representatives, Affiliates, successors and assigns therefor, except
to the extent that the failure timely to forward such notification actually
prejudices the ability of Parent to contest such Income Tax Liability or Other
Tax Liability or increases the amount of such Income Tax Liability or Other Tax
Liability.
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(b) Representation with Respect to Tax Disputes. Parent
(or such member of the Parent Group as Parent shall designate) shall have the
sole right to represent the interests of the members of the Parent Group and the
members of the SpinCo Group and to employ counsel of its choice at its expense
in any Proceeding relating to (A) any U.S. consolidated federal Income Tax
Returns of the Parent Consolidated Group, (B) any other Combined Returns and (C)
any Parent Separate Returns. SpinCo (or such member of the SpinCo Group as
SpinCo shall designate) shall have the sole right to represent the interests of
the members of the SpinCo Group and to employ counsel of its choice at its
expense in any Proceeding relating to SpinCo Separate Returns.
(c) Power of Attorney. Each member of the SpinCo Group
shall execute and deliver to Parent (or such member of the Parent Group as
Parent shall designate) any power of attorney or other document requested by
Parent (or such designee) in connection with any Proceeding described in the
first sentence of Section 6(b).
(d) Distribution-Related Proceedings.
(i) In the event of any Distribution-Related
Proceeding as a result of which SpinCo could reasonably be expected to become
liable for any Tax-Related Losses and with respect to which Parent has the right
to represent the interests of the members of the Parent Group and/or the members
of the SpinCo Group pursuant to Section 6(b) above, (A) Parent shall consult
with SpinCo reasonably in advance of taking any significant action in connection
with such Proceeding, (B) Parent shall consult with SpinCo and offer SpinCo a
reasonable opportunity to comment before submitting any written materials
prepared or furnished in connection with such Proceeding, (C) Parent shall
defend such Proceeding diligently and in good faith as if it were the only party
in interest in connection with such Proceeding, and (D) Parent shall provide
SpinCo copies of any written materials relating to such Proceeding received from
the relevant Tax Authority.
(ii) In the event of any Distribution-Related
Proceeding with respect to any SpinCo Separate Return, (A) SpinCo shall consult
with Parent reasonably in advance of taking any significant action in connection
with such Proceeding, (B) SpinCo shall consult with Parent and offer Parent a
reasonable opportunity to comment before submitting any written materials
prepared or furnished in connection with such Proceeding, (C) SpinCo shall
defend such Proceeding diligently and in good faith as if it were the only party
in interest in connection with such Proceeding, (D) Parent shall be entitled to
participate in such Proceeding and receive copies of any written materials
relating to such Proceeding received from the relevant Tax Authority, and (E)
SpinCo shall not settle, compromise or abandon any such Proceeding without
obtaining the prior written consent of Parent, which consent shall not be
unreasonably withheld.
7. Apportionment of Tax Attributes; Carrybacks.
(a) Apportionment of Tax Attributes.
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(i) If the Parent Consolidated Group has a Tax
Attribute, the portion, if any, of such Tax Attribute apportioned to SpinCo or
any member of the SpinCo Consolidated Group and treated as a carryover to the
first Post-Distribution Taxable Period of SpinCo (or such member) shall be
determined in accordance with Treasury Regulation Sections 1.1502-79 and
1.1502-79A.
(ii) No Tax Attribute with respect to consolidated
U.S. federal Income Tax of the Parent Consolidated Group, other than those
described in Section 7(a)(i), and no Tax Attribute with respect to consolidated,
combined or unitary State, local, or foreign Income Tax, in each case, arising
in respect of a Combined Return shall be apportioned to SpinCo or any member of
the SpinCo Group, except as Parent (or such member of the Parent Group as Parent
shall designate) determines is otherwise required under applicable law.
(iii) Parent (or its designee) shall determine the
portion, if any, of any Tax Attribute which must (absent a Final Determination
to the contrary) be apportioned to SpinCo or any member of the SpinCo Group in
accordance with this Section 7(a) and applicable law, and the amount of tax
basis and earnings and profits to be apportioned to SpinCo or any member of the
SpinCo Group in accordance with applicable law, and shall provide written notice
of the calculation thereof to SpinCo as soon as practicable after the
information necessary to make such calculation becomes available to Parent.
(iv) Notwithstanding anything in this Section 7(a) to
the contrary, (A) Parent shall allocate 40 percent of the amount described in
clause (a) of the definition of Parent Section 382 Limitation to the SpinCo
Group and (B) Parent shall allocate all of the ElderCare Subgroup Section 382
Limitation to the ElderCare Subgroup, in each case, in accordance the procedures
established in Treasury Regulation Section 1.1502-95. SpinCo shall, and shall
cause its Subsidiaries to, cooperate with Parent and execute all documentation
reasonably necessary to effect such allocation.
(b) Carrybacks. Except to the extent otherwise consented
to by Parent or prohibited by applicable law, SpinCo shall elect to relinquish,
waive or otherwise forgo all Carrybacks. In the event that SpinCo (or the
appropriate member of the SpinCo Group) is prohibited by applicable law to
relinquish, waive or otherwise forgo a Carryback (or Parent consents to a
Carryback), (i) Parent shall cooperate with SpinCo, at SpinCo's expense, in
seeking from the appropriate Tax Authority such Refund as reasonably would
result from such Carryback, and (ii) SpinCo shall be entitled to any Income Tax
Benefit Actually Realized by a member of the Parent Group (including any
interest thereon received from such Tax Authority), to the extent that such
Refund is directly attributable to such Carryback, within 15 Business Days after
such Refund is Actually Realized; provided, however, that SpinCo shall indemnify
and hold the members of the Parent Group harmless from and against any and all
collateral tax consequences resulting from or caused by any such Carryback,
including (but not limited to) the loss or postponement of any benefit from the
use of tax attributes generated by a member of the Parent Group or an Affiliate
thereof if (x) such tax attributes expire unutilized, but would have been
utilized but for such Carryback, or (y) the use of such tax attributes is
postponed to a later taxable period than the taxable period in which such tax
attributes would have been utilized but for such Carryback. If there is a Final
Determination that results in any change to or adjustment of an Income Tax
Benefit Actually Realized by a member of the Parent Group that is directly
attributable to a Carryback, then Parent (or its designee) shall make a payment
to SpinCo, or SpinCo shall make a payment to Parent (or its designee), as may be
necessary to adjust the payments between SpinCo and Parent (or its designee) to
reflect the payments that would have been made under this Section 7(b) had the
adjusted amount of such Income Tax Benefit been taken into account in computing
the payments due under this Section 7(b).
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8. Cooperation and Exchange of Information.
(a) Cooperation and Exchange of Information. Each of
Parent and SpinCo, on behalf of itself and each member of the Parent Group and
the SpinCo Group, respectively, agrees to provide the other party (or its
designee) with such cooperation or information as such other party (or its
designee) reasonably shall request in connection with the determination of any
payment or any calculations described in this Agreement, the preparation or
filing of any Income Tax Return or Other Tax Return or claim for Refund, or the
conduct of any Proceeding. Such cooperation and information shall include,
without limitation, upon reasonable notice (i) promptly forwarding copies of
appropriate notices and forms or other communications (including, without
limitation, information document requests, revenue agent's reports and similar
reports, notices of proposed adjustments and notices of deficiency) received
from or sent to any Tax Authority or any other administrative, judicial or
governmental authority, (ii) providing copies of all relevant Income Tax Returns
or Other Tax Returns, together with accompanying schedules and related
workpapers, documents relating to rulings or other determinations by any Tax
Authority, and such other records concerning the ownership and tax basis of
property, or other relevant information, (iii) the provision of such additional
information and explanations of documents and information provided under this
Agreement (including statements, certificates, forms, returns and schedules
delivered by either party) as shall be reasonably requested by Parent (or its
designee) or SpinCo (or its designee), as the case may be, (iv) the execution of
any document that may be necessary or reasonably helpful in connection with the
filing of an Income Tax Return or Other Tax Return, a claim for a Refund, or in
connection with any Proceeding, including such waivers, consents or powers of
attorney as may be necessary for Parent or SpinCo, as the case may be, to
exercise its rights under this Agreement, and (v) the use of Parent's or
SpinCo's, as the case may be, reasonable efforts to obtain any documentation
from a governmental authority or a third party that may be necessary or
reasonably helpful in connection with any of the foregoing. It is expressly the
intention of the parties to this Agreement to take all actions that shall be
necessary to establish Parent as the sole agent for Income Tax or Other Tax
purposes of each member of the SpinCo Group with respect to all Combined
Returns. Upon reasonable notice, each of Parent and SpinCo shall make its, or
shall cause the members of the Parent Group or the SpinCo Group, as applicable,
to make their, employees and facilities available on a mutually convenient basis
to provide explanation of any documents or information provided hereunder. Any
information obtained under this Section 8 shall be kept confidential, except as
otherwise reasonably may be necessary in connection with the filing of Income
Tax Returns or Other Tax Returns or claims for Refund or in conducting any
Proceeding.
(b) Retention of Records. Each of Parent and SpinCo agree
to retain all Income Tax Returns and Other Tax Returns, related schedules and
workpapers, and all material records and other documents as required under
Section 6001 of the Code and the regulations promulgated thereunder (and any
similar provision of State, local, or foreign law) existing on the date hereof
or created in respect of (i) any taxable period that ends on or before or
includes the Distribution Date or (ii) any taxable period that may be subject to
a claim hereunder until the later of (A) the expiration of the statute of
limitations (including extensions) for the taxable periods to which such Income
Tax Returns, Other Tax Returns and other documents relate and (B) the Final
Determination of any payments that may be required in respect of such taxable
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periods under this Agreement. From and after the end of the period described in
the preceding sentence of this Section 8(b), if a member of the Parent Group or
the SpinCo Group wishes to dispose of any such records and documents, then
Parent or SpinCo, as the case may be, shall provide written notice thereof to
the other party and shall provide the other party the opportunity to take
possession of any such records and documents within 90 days after such notice is
delivered; provided, however, that if such other party does not, within such
90-day period, confirm its intention to take possession of such records and
documents, Parent or SpinCo, as the case may be, may destroy or otherwise
dispose of such records and documents.
(c) Remedies. Each of Parent and SpinCo hereby
acknowledges and agrees that (i) the failure of any member of the Parent Group
or the SpinCo Group, as the case may be, to comply with the provisions of this
Section 8 may result in substantial harm to the Parent Group or the SpinCo
Group, as the case may be, including the inability to determine or appropriately
substantiate an Income Tax Liability or Other Tax Liability (or a position in
respect thereof) for which the Parent Group (or a member thereof) or the SpinCo
Group (or a member thereof), as applicable, would be responsible under this
Agreement or appropriately defend against an adjustment thereto by a Tax
Authority, (ii) the remedies available to the Parent Group for the breach by a
member of the SpinCo Group of its obligations under this Section 8 shall include
(without limitation) the indemnification by SpinCo of the Parent Group for any
Income Tax Liabilities or Other Tax Liabilities incurred or any tax benefit lost
or postponed by reason of such breach and the forfeiture by the SpinCo Group of
any related rights to indemnification by Parent and (iii) the remedies available
to the SpinCo Group for the breach by a member of the Parent Group of its
obligations under this Section 8 shall include (without limitation) the
indemnification by Parent of the SpinCo Group for any Income Tax Liabilities or
Other Tax Liabilities incurred or any Tax benefit lost or postponed by reason of
such breach and the forfeiture by the Parent Group of any related rights to
indemnification by SpinCo.
(d) Reliance by Parent. If any member of the SpinCo Group
supplies information to a member of the Parent Group in connection with an
Income Tax Liability or Other Tax Liability and an officer of a member of the
Parent Group signs a statement or other document under penalties of perjury in
reliance upon the accuracy of such information, then upon the written request of
such member of the Parent Group identifying the information being so relied
upon, the chief financial officer of SpinCo (or his or her designee) shall
certify in writing that to his knowledge (based upon consultation with
appropriate employees) the information so supplied is accurate and complete.
SpinCo agrees to indemnify and hold harmless each member of the Parent Group and
its directors, officers and employees from and against any fine, penalty, or
other cost or expense of any kind attributable to a member of the SpinCo Group
having supplied, pursuant to this Section 8, a member of the Parent Group with
inaccurate or incomplete information in connection with an Income Tax Liability
or Other Tax Liability.
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(e) Reliance by SpinCo. If any member of the Parent Group
supplies information to a member of the SpinCo Group in connection with an
Income Tax Liability or Other Tax Liability and an officer of a member of the
SpinCo Group signs a statement or other document under penalties of perjury in
reliance upon the accuracy of such information, then upon the written request of
such member of the SpinCo Group identifying the information being so relied
upon, the chief financial officer of Parent (or his or her designee) shall
certify in writing that to his knowledge (based upon consultation with
appropriate employees) the information so supplied is accurate and complete.
Parent agrees to indemnify and hold harmless each member of the SpinCo Group and
its directors, officers and employees from and against any fine, penalty, or
other cost or expense of any kind attributable to a member of the Parent Group
having supplied, pursuant to this Section 8, a member of the SpinCo Group with
inaccurate or incomplete information in connection with an Income Tax Liability
or Other Tax Liability.
9. Resolution of Disputes. The provisions of Article IX of the
Distribution Agreement (Dispute Resolution and Arbitration) shall apply to any
dispute arising in connection with this Agreement; provided, however, that in
the case of disputes arising under this Agreement, Parent and SpinCo shall
jointly select the arbitrator, who shall be an attorney or accountant who is
generally recognized in the tax community as a qualified and competent tax
practitioner with experience in the tax area involved in the issue or issues to
be resolved.
10. Payments.
(a) Method of Payment. All payments required by this
Agreement shall be made by (i) wire transfer to the appropriate bank account as
may from time to time be designated by the parties for such purpose; provided
that, on the date of such wire transfer, notice of the transfer is given to the
recipient thereof in accordance with Section 11, or (ii) any other method agreed
to by the parties. All payments due under this Agreement shall be deemed to be
paid when available funds are actually received by the payee.
(b) Interest. Any payment required by this Agreement that
is not made on or before the date required hereunder shall bear interest, from
and after such date through the date of payment, at the Underpayment Rate.
(c) Characterization of Payments. For all tax purposes,
the parties hereto agree to treat, and to cause their respective Affiliates to
treat, (i) any payment required by this Agreement, as either a contribution by
Parent to SpinCo or a distribution by SpinCo to Parent, as the case may be,
occurring immediately prior to the External Spin-Off and (ii) any payment of
interest or non-federal Income Taxes by or to a Tax Authority, as taxable or
deductible, as the case may be, to the party entitled under this Agreement to
retain such payment or required under this Agreement to make such payment, in
either case, except as otherwise mandated by applicable law or a Final
Determination; provided that in the event it is determined that, pursuant to
applicable law or a Final Determination, any such treatment is not permissible
(or that an Indemnified Party nevertheless suffers an Income Tax or Other Tax
detriment as a result of such payment), the payment in question shall be
adjusted to place the Indemnified Party in the same after-tax position it would
have enjoyed absent such applicable law or Final Determination.
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11. Notices. Notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon (a) a transmitter's confirmation of a receipt of a facsimile
transmission (but only if followed by confirmed delivery of a standard overnight
courier the following Business Day or if delivered by hand the following
Business Day), or (b) confirmed delivery of a standard overnight courier or
delivered by hand, to the parties at the following addresses (or at such other
addresses for a party as shall be specified by like notice):
If to Parent, to: NeighborCare
0 Xxxx Xxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Law Department
If to SpinCo to: Genesis Healthcare Corporation
000 Xxxx Xxxxx Xxxxxx
Xxxxxxx Xxxxxx, XX 00000
Attn: Law Department
Such names and addresses may be changed by notice given in accordance with this
Section 11.
12. Designation of Affiliate. Parent may assign any of its rights
or obligations under this Agreement to any member of the Parent Group as it
shall designate; provided, however, that no such assignment shall relieve Parent
of any obligation to make a payment hereunder to SpinCo to the extent such
designee fails to make such payment.
13. Miscellaneous. Except to the extent otherwise provided in
this Agreement, this Agreement shall be subject to the provisions of Article X
(Miscellaneous) of the Distribution Agreement to the extent set forth therein.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first written above.
GENESIS HEALTH VENTURES, INC.
By:
------------------------------------
Name: Xxxxxx X. Xxxx
Title: Chairman of the Board and CEO
GENESIS HEALTHCARE CORPORATION
By:
------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chief Executive Officer
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