Exhibit 10.4
FORM OF TAX SHARING AGREEMENT
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THIS TAX SHARING AGREEMENT ("AGREEMENT") is made and entered into as of the
____ day of ____________, 1996 by and between (i) VENCOR, INC., a Delaware
corporation ("VENCOR"), and (ii) ATRIA COMMUNITIES, INC., a Delaware corporation
("ATRIA").
RECITALS:
A. On the date hereof, Vencor and its subsidiaries have transferred to
Atria the assisted living division of Vencor ("DIVISION") in connection with an
initial public offering of common stock of Atria.
B. On the date that Atria consummates the sale of its common stock in the
initial public offering ("CLOSING DATE"), Atria and its subsidiaries
(hereinafter referred to as the "ATRIA GROUP") will not continue to be included
in Vencor's consolidated income tax returns.
C. The parties desire to set forth certain agreements they have reached
with respect to certain Federal, state and local tax liabilities.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
provided for herein, the parties hereto hereby agree as follows:
1. MANNER OF PREPARING RETURNS. All tax returns to be filed after the
Closing Date shall, in the absence of a change in law or other authority, be
prepared on a basis consistent with the elections, accounting methods,
conventions and principals of taxation used for the most recent taxable periods
for which tax returns involving that precise item have been filed; provided,
however, that (i) either party may take an inconsistent position with that
previously taken to the extent that such position does not create an increase in
tax to the other party and (ii) either party may take an inconsistent position
which increases the tax of the other party if at the time of taking such
inconsistent position it pays to the other party the increase in tax (without
interest) which will result to the other party as a result of the inconsistent
position.
2. UNFILED TAX RETURNS.
(a) In filing all income tax returns for the taxable year beginning in
1996, each party will file all such returns in a manner which is consistent with
the position that the last day on which any member of the Atria Group is
included in Vencor's
affiliated group was the day immediately preceding the Closing Date.
(b) All consolidated Federal income tax returns which are required to
be filed for periods beginning before the Closing Date shall be prepared and
filed by Vencor.
(c) Atria shall supply Vencor on or before December 15, 1996, with
true and correct Federal income tax returns of each member of the Atria Group
for the taxable year ended May 31, 1996, computed as though a consolidated
income tax return was not filed for such period. Such Federal income tax
returns shall be made solely by reference to Atria and each of its subsidiary's
items of income, deduction and credit for the taxable year then ended,
notwithstanding that any such item may require a different treatment or
limitation on a consolidated Federal income tax return. Within 60 days of
receipt of the Federal income tax returns for such taxable year referred to
above, Vencor shall advise Atria, in writing, of any changes, modifications,
additions or deletions which Vencor believes appropriate in order to properly
reflect the separate income tax liability of any member of the Atria Group in
accordance with the provisions of this Section 2(c). In the event that Atria
does not agree with any of the changes, modifications, additions or deletions
made by Vencor, and Vencor and Atria are unable to resolve their differences,
then the issue shall be submitted to the firm of certified public accountants
then regularly serving Vencor whose decision shall be final, binding and
conclusive upon the parties.
(d) Atria shall supply Vencor on or before July 15, 1997 with true and
correct Federal income tax returns of each member of the Atria Group for the
period beginning on June 1, 1996 and ending on the day immediately preceding the
Closing Date ("STUB PERIOD"), computed in the same manner as provided in Section
2(c) with respect to the income tax returns for the taxable year ended May 31,
1996. The balance of the provisions of Section 2(c) shall apply equally to the
tax returns Atria is required to deliver to Vencor with respect to the Stub
Period.
(e) At the time that Atria delivers to Vencor the Federal income tax
returns referred to in Sections 2(c) and 2(d), Atria shall pay to Vencor an
amount equal to the excess, if any, (i) the net Federal income tax which the
Atria Group would have had to pay to the Internal Revenue Service based upon
such Federal income tax returns, over (ii) the amount of all payments or
intercompany charges previously made by, or charged to, the Atria Group with
respect to Federal income tax for the applicable period. If Vencor disagrees
with the Federal income tax returns provided to it by Atria in accordance with
the provisions of Sections 2(c) and 2(d) and (i) the adjustment made by Vencor
increases the Federal income tax liability which should have been reflected on
such Federal income tax returns, then within ten
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days after any such adjustment (or portion thereof) is agreed to by the parties
or determined by Vencor's firm of certified public accountants, as applicable,
Atria shall pay such additional tax to Vencor, or (ii) the adjustment made by
Vencor decreases the Federal income tax liability which should have been
reflected on such Federal income tax returns, then within ten days after any
such adjustment (or portion thereof) is agreed to by the parties or determined
by Vencor's firm of certified public accountants, as applicable, Vencor shall
pay to Atria an amount equal to the reduced tax liability. If the amount
referred to in (ii) above exceeds the amount referred to in (i) above, then
within ten days following the date on which the Federal income tax liability of
the Atria Group for the applicable period is agreed to by Vencor and Atria (or
determined by Vencor's certified public accountants, if applicable), Vencor
shall pay to Atria such excess.
(f) With respect to the Stub Period, if any of the income of the Atria
Group is from a partnership in which a member of the Atria Group is a partner
and such income is included in Vencor's income for financial reporting purposes,
but is not properly includible in the consolidated Federal income tax return of
Vencor or a member of Vencor's affiliated group after the Closing Date ("VENCOR
GROUP") for the Stub Period, then on or before July 15, 1997, Vencor shall pay
to Atria an amount equal to the Federal income tax attributable to the
partnership income included by Vencor for financial reporting purposes.
(g) With respect to the Stub Period, if the Atria Group has a loss
from a partnership in which a member of the Atria Group is a partner and such
loss is included in Vencor's income for financial reporting purposes, but is not
properly includible in the consolidated Federal income tax return of the Vencor
Group for the Stub Period, then on or before July 15, 1997, Atria shall pay to
Vencor an amount equal to the Federal income tax benefit to Vencor attributable
to the partnership loss included by Vencor for financial reporting purposes.
(h) If the Federal income tax returns delivered by Atria to Vencor
pursuant to the provisions of Sections 2(c) or 2(d) indicate a net loss, Vencor
shall pay to Atria, within 60 days of the receipt of such tax returns, an amount
equal to the excess, if any, of (i) the refund which Vencor and its affiliated
group will be entitled to receive based upon such Federal income tax returns
over (ii) the amount of all payments or intercompany credits previously made to,
or credited to, the Atria Group with respect to Federal income tax for the
applicable period; plus the amount, if any, of all payments or intercompany
charges previously made by, or charged to, the Atria Group with respect to
Federal income tax for the applicable period. If Vencor disagrees with the
Federal income tax returns provided to it by Atria in accordance with the
provisions of Sections 2(c) or 2(d)
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and the adjustment made by Vencor reduces the refund or creates a Federal
income tax liability which should have been reflected on such Federal income tax
returns, then within ten days after such adjustment (or portion thereof) is
agreed to by the parties or determined by Vencor's firm of certified public
accountants, as applicable, the appropriate party shall make payment to the
other. If the amount referred to in (ii) above exceeds the amount referred to
in (i) above, then within ten days following the date on which the Federal
income tax liability of the Atria Group for the applicable period is agreed to
by Vencor and Atria (or determined by Vencor's certified public accountants, if
applicable), Atria shall pay to Vencor such excess.
(i) All state and local income tax returns which include both a member
of the Vencor Group and a member of the Atria Group that are required to be
filed for any period beginning before the Closing Date shall be prepared and
filed by Vencor. The provisions of Sections 2(c) through 2(h), inclusive, shall
apply with respect to all such state and local income tax returns.
(j) All Federal, state and local tax returns with respect to taxes
which are not measured by income which are due after the Closing Date shall be
prepared, filed and paid by the member of the Vencor Group or Atria Group which
would be responsible for the payment of the taxes if such companies were at all
times unrelated to each other.
(k) All Federal income tax returns for periods beginning subsequent to
the Closing Date shall be prepared by Vencor with respect to the Vencor Group
and by Atria with respect to the Atria Group.
3. AUDIT ADJUSTMENTS.
(a) If as a result of an audit of an income tax return of the Vencor
Group or any member thereof an adjustment is made by a tax regulatory authority
which relates to the Division, results in additional tax payable by the Vencor
Group and results in a Temporary Difference (as hereinafter defined) in Vencor's
opinion, Vencor shall give prompt notice thereof to Atria setting forth in
detail the adjustment and whether Vencor intends to challenge the adjustment.
Upon the adjustment becoming final (within the meaning of Section 5(d)), if the
adjustment results in a Temporary Difference, Atria shall be required to pay to
Vencor the additional tax (without interest) which Vencor is required to pay as
a result of the adjustment. Such payment shall be made within ten days of the
later of (i) the date the adjustment becomes final or (ii) a determination that
the adjustment results in a Temporary Difference.
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(b) If as a result of an audit of an income tax return of the Vencor
Group or any member thereof an adjustment is made by a tax regulatory authority
or pursuant to an amended return or refund claim which relates to the Division
and results in a decrease in the tax payable by the Vencor Group and might
conceivably result in a Temporary Difference, Vencor shall give prompt notice
thereof to Atria setting forth in detail the adjustment and its opinion as to
whether the adjustment results in a Permanent Difference (as hereinafter
defined) or a Temporary Difference. Upon the adjustment becoming final, or the
amended return or refund claim being accepted, as applicable, (i) if the
adjustment results in a Permanent Difference, no payment shall be made to Atria
and (ii) if the adjustment results in a Temporary Difference, Vencor shall be
required to pay to Atria an amount equal to the decrease in tax (without
interest) resulting from the adjustment. Such payment shall be made within ten
days of the later of (i) the date the adjustment becomes final or the amended
return or refund claim is accepted, as applicable, or (ii) a determination that
the adjustment results in a Temporary Difference.
(c) If as a result of an audit of an income tax return of the Atria
Group or any member thereof an adjustment is made by a tax regulatory authority
which results in additional tax payable by the Atria Group and which results in
a Temporary Difference in Atria's opinion, Atria shall give prompt notice
thereof to Vencor setting forth in detail the adjustment and whether Atria
intends to challenge the adjustment. Upon the adjustment becoming final, Vencor
shall be required to pay to Atria the additional tax (without interest) which
Atria is required to pay as a result of the adjustment. Such payment shall be
made within ten days of the later of (i) the date the adjustment becomes final
or (ii) a determination that the adjustment results in a Temporary Difference.
(d) If as a result of an audit of an income tax return of the Atria
Group or any member thereof an adjustment is made by a tax regulatory authority
or pursuant to an amended return or refund claim which results in a decrease in
the tax payable by the Atria Group and which might conceivably result in a
Temporary Difference, Atria shall give prompt notice thereof to Vencor setting
forth in detail the adjustment and its opinion as to whether the adjustment
results in a Permanent Difference or a Temporary Difference. Upon the
adjustment becoming final, or the amended return or refund claim being accepted,
as applicable, (i) if the adjustment results in a Permanent Difference, no
payment shall be made to Vencor and (ii) if the adjustment results in a
Temporary Difference, Atria shall be required to pay to Vencor an amount equal
to the decrease in tax (without interest) resulting from the adjustment. Such
payment shall be made within ten days of the later of (i) the date the
adjustment becomes final or the amended return or refund claim is accepted, as
applicable, or
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(ii) a determination that the adjustment results in a Temporary Difference.
(e) In the case of an adjustment to a tax return or liability not
measured by income which relates to the Division, Atria shall have the sole
right to contest such adjustment (at its own cost and expense) and shall be
responsible for, or receive the benefit of, any change in tax, interest or
penalty that may result therefrom.
(f) For purposes of this Agreement, the following shall apply:
(i) The term "TEMPORARY DIFFERENCE" shall mean a tax detriment
or tax benefit to the Atria Group or Vencor Group relating to a tax item in one
taxable period which creates or results in a corresponding tax benefit or tax
detriment to the Vencor Group or Atria Group, respectively, in a different tax
period for which the statute of limitations has not expired (or for which
mitigation provisions are applicable), and for which no valuation allowance is
required to be established, interpreted in accordance with generally accepted
accounting principles.
(ii) The term "PERMANENT DIFFERENCE" means a tax detriment or tax
benefit to the Atria Group or Vencor Group which does not create or result in a
corresponding tax benefit or tax detriment to the Vencor Group or Atria Group,
respectively, in a different tax period for which the statute of limitations has
not expired (or for which mitigation provisions are applicable), and for which a
valuation allowance is required to be established, interpreted in accordance
with generally accepted accounting principles.
If Vencor and Atria disagree as to whether there is a Temporary Difference or
Permanent Difference, then the party which would be required to make a payment
to the other if there were a Temporary Difference shall refer the issue to the
firm of certified public accountants then regularly serving that party. Each
party shall be entitled to submit oral and written comments to such firm of
certified public accountants setting forth its position. The determination by
such firm of certified public accountants shall be final, binding and conclusive
upon the parties.
4. CARRYBACKS. If the consolidated income taxes of the Vencor Group are
reduced for a taxable period beginning prior to the Closing Date by reason of a
loss or other tax attribute of the Atria Group arising on or after the Closing
Date ("ATRIA CARRYBACK"), Vencor shall pay to Atria an amount equal to such
reduction in taxes (without interest). The Vencor Group shall take all steps
reasonably necessary to receive the maximum reduction in taxes attributable to
an Atria Carryback and Atria shall have the right to review and comment on any
tax return in which any such Atria Carryback may be claimed. Nothing herein
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shall require, however, that the Atria Group carryback any loss or other tax
attribute which it generates. The payment required to be made by Vencor to Atria
pursuant to the provisions of this Section 4 shall be made no later than ten
days after the tax benefit is actually received, credited or otherwise utilized
by Vencor.
5. CONTESTING TAX ADJUSTMENTS.
(a) If an adjustment results in an increase in the Vencor Group's or
any member thereof's tax liability affects a taxable year of Vencor beginning
prior to the Closing Date, relates to a partnership involved in the Division and
results in a Temporary Difference, Atria shall have the right, in its sole
discretion, and at its cost, to contest such adjustment.
(b) If an adjustment results in an increase in the Vencor Group's or
any member thereof's liability for a taxable year beginning prior to the Closing
Date, involves the Division and a Temporary Difference, but does not relate to a
partnership involved in the Division, Vencor shall only be required to contest
such adjustment if Vencor's tax counsel determines that it is more likely than
not that Vencor will prevail with respect to the issue, and then only at the
first administrative level provided for by the applicable tax regulatory
authority.
(c) If an adjustment which increases the Atria Group's or any member
thereof's tax liability relates to a partnership and results in a Temporary
Difference, Vencor shall have the right, in its sole discretion, and at its
cost, to contest such adjustment.
(d) If an adjustment results in an increase in the Atria Group's or
member thereof's tax liability and results in a Temporary Difference, but does
not relate to a partnership, Atria shall only be required to contest such
adjustment if Atria's tax counsel determines that it is more likely than not
that Atria will prevail with respect to the issue, and then only at the first
administrative level provided for by the applicable tax regulatory authority.
(e) If Vencor or Atria contests an adjustment pursuant to the
provisions of Sections 5(b) or 5(d), respectively, the cost of contesting such
adjustment through the first administrative level shall be borne by the
contesting party. If the party which would be obligated to make a payment
hereunder as a result of such adjustment is not satisfied with the result
obtained at the first administrative level, and desires that the adjustment be
contested beyond the first administrative level, such party may do so at its own
cost and expense. Such party shall notify the other party of its decision to
further contest the adjustment and the other party shall have the right to
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consult with the contesting party if it so desires. No payment shall be required
pursuant to Section 3 until an adjustment has been finally determined. For
purposes of this Agreement, an adjustment is finally determined on the date on
which it may no longer be further contested by administrative or judicial
procedure.
(f) If an adjustment results in a Permanent Difference, only the party
whose income was adjusted shall have the right to contest such adjustment and
shall do so at its own cost and expense.
6. COOPERATION. Each of the parties hereto agrees to cooperate with the
other in connection with the preparation and filing of, and any inquiry, audit,
examination, investigation, dispute or litigation involving, any tax return
filed or required to be filed by or for any member of the Vencor Group or the
Atria Group for any taxable period beginning before the Closing Date or for
which any party may have a liability to the other hereunder. Such cooperation
shall include the execution and delivery of any power of attorney or other
necessary document to allow a party and its counsel to participate on behalf of
any member of the other group and making available, during normal business
hours, all books, records and information and the assistance of all employees
reasonably necessary or useful in connection with contesting any adjustment made
by any tax regulatory authority. If a party desires to copy any books, records
and information in the possession of the other party, the party desiring such
copies shall bear the expense of making such copies. The assistance of employees
shall be without charge.
7. RETENTION OF BOOKS AND RECORDS. Vencor and Atria each agree to retain
all tax returns, related schedules, work papers and all material records and
other documents with respect to all taxable periods ending on or before the
Closing Date until the expiration of the statute of limitations (including
extensions thereof) of the taxable period to which such tax returns and other
documents relate.
8. RESOLUTION OF DISPUTES. If any dispute arises between the parties for
which no specific resolution is provided for herein, then such dispute shall be
settled pursuant to the dispute resolution provisions contained in the
Incorporation Agreement dated June __, 1996 entered into by and among Atria,
Vencor and certain affiliates of Vencor.
9. INDEMNIFICATION BY VENCOR. Vencor hereby agrees to indemnify each member
of the Atria Group for, and hold each member of the Atria Group harmless from,
any taxes, interest or penalties which such member of the Atria Group incurs by
reason of having been included in Vencor's consolidated group for any period
beginning before the Closing Date, other than any
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liability which such member of the Atria Group has to Vencor under the terms of
this Agreement.
10. EXPENSES. Unless otherwise expressly provided in this Agreement,
each party shall bear its own expenses which arise as a result of its rights and
obligations under this Agreement.
11. ENTIRE AGREEMENT; TERMINATION OF PRIOR AGREEMENTS. This Agreement
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all other agreements, whether or not
written, in respect of any tax between or among any member of the Vencor Group
and the Atria Group. Any and all of such other agreements are hereby canceled
and any rights or obligations existing thereunder are hereby deemed fully and
finally settled.
12. AMENDMENT. This Agreement may be amended from time to time only by a
written agreement executed by each of the parties hereto.
13. NOTICES. All notices, requests, demands or other communications
required or permitted under this Agreement shall be in writing and be personally
delivered against a written receipt, delivered to a reputable messenger service
(such as Federal Express, DHL Courier, United Parcel Service, etc.) for
overnight delivery, transmitted by confirmed telephonic facsimile (fax) or
transmitted by mail, registered, express or certified, return receipt requested,
postage prepaid, addressed as follows:
If to Vencor: 3300 Capital Holding Center
400 West Market
Louisville, Kentucky 40202
Fax: (502) 596-1104
Attention: Chief Financial Officer
If to Atria: 515 West Market Street
Louisville, Kentucky 40202
Fax: (502) 596-4160
Attention: Chief Financial Office
All notices, demands and requests shall be effective upon being properly
personally delivered, upon being delivered to a reputable messenger service,
upon transmission of a confirmed fax, or upon being deposited in the United
States mail in the manner provided in this Section 13. However, the time
period in which a response to any such notice, demand or request must be given
shall commence to run from the date of personal delivery, the date of delivery
by a reputable messenger service, the date on the confirmation of a fax, or the
date on the return receipt, as applicable. If any party refuses delivery, the
notice, demand or request shall be deemed received two days after the notice,
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demand or request was delivered to a reputable messenger service or deposited in
the United States mail.
14. CAPTIONS; SECTION REFERENCES. Section titles or captions contained
in this Agreement are inserted only as a matter of convenience and reference,
and in no way define, limit, extend or describe the scope of this Agreement,
or the intent of any provision hereof. All references herein to Sections
shall refer to Sections of this Agreement unless the context clearly requires
otherwise.
15. BINDING AGREEMENT. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
16. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Kentucky without regard to its
conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
VENCOR, INC.
By:____________________________
Title:________________________
ATRIA COMMUNITIES, INC.
By:___________________________
Title:________________________
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