Document:

exv10w6

 

FORM
OF
LOCKUP AGREEMENT

October 15, 2006

Mercator Partners Acquisition Corp.

One Fountain Square

11911 Freedom Drive

Suite 1080

Reston, VA 20190

Ladies and Gentlemen:

     Reference is made to the Stock Purchase, dated May 23, 2006 (the “Stock Purchase Agreement”),
by and among Mercator Partners Acquisition Corp., Ltd., a Delaware corporation (“Buyer”), Global
Internetworking, Inc., a Virginia corporation (“Company”), and each of the following persons: D.
Michael Keenan (“Keenan”), Todd J. Vecchio (“Vecchio”), and Raymond E. Wiseman (“Wiseman”), such
persons being all of the stockholders of the Company (each a “Stockholder” and, collectively, the
“Stockholders”). Capitalized terms used but not otherwise defined herein shall have the meanings
given them in the Stock Purchase Agreement.

     As a condition to Buyer entering into the Stock Purchase Agreement and consummating the
transactions contemplated thereby, the undersigned Stockholder has agreed to restrict the sale and
transfer of certain shares of Buyer Common Stock issuable to such Stockholder pursuant to the terms
of this Lockup Agreement (this “Agreement”). Accordingly, the undersigned Stockholder hereby
agrees as follows:

     1. Transfer Restrictions. The undersigned agrees that, except as expressly permitted
by this Agreement, and subject to any other restrictions on the Transfer (as defined below) of
shares of Buyer Common Stock issuable to such Stockholder pursuant to the Stock Purchase Agreement
(the “Additional Transfer Restrictions”), the undersigned will not, directly or indirectly, offer
to sell, contract to sell or otherwise sell or dispose of, or enter into any other transaction
which is designed to, or might reasonably be expected to, result in the transfer (whether by actual
transfer or effective economic transfer due to cash settlement or otherwise) of any right, title or
interest in or to any of sell, transfer, pledge, hypothecate or otherwise dispose of, or reduce the
undersigned’s interest in or risk relating to (hereinafter referred to as a “Transfer”), any shares
of Buyer Common Stock: (i) issued to the undersigned in connection with the Stock Purchase (as
defined in the Stock Purchase Agreement) in accordance with the terms of the Stock Purchase
Agreement; or (ii) otherwise acquired or beneficially owned by the undersigned as a result of the
transactions contemplated by the Stock Purchase Agreement including, but not limited to, Class W
Warrants, Class Z Warrants (or shares of Buyer Common Stock issued upon exercise of the Class W
Warrants or Class Z Warrants) (collectively, the “Lockup Shares”).

 

 

	2.	 	Release of Lockup Shares from Transfer Restrictions. The Lockup Shares shall be
released from the restrictions on Transfer set forth in Section 1 of this Agreement, and may
be Transferred by the undersigned (subject to any other applicable restrictions on Transfer)
as follows:

	 	(a)	 	For the period commencing on the Effective Time (as defined in the Stock
Purchase Agreement) and terminating on the date which is six (6) months subsequent to
the Effective Time, the undersigned may not transfer any Lockup Shares.
	 
	 	(b)	 	For the period commencing on the date which is six (6) months and one (1) day
after the Effective Time and terminating one (1) year and six (6) months subsequent to
the Effective Time, the undersigned may Transfer no more than fifty percent (50%) of
that number of Lockup Shares that would be saleable by the undersigned pursuant to the
provisions of Rule 145 in any consecutive three (3) month period; provided however, for
purposes of applying Rule 145, subsection (d)(2) thereof shall be deemed amended by
substituting eighteen (18) months for one (1) year therein.
	 
	 	(c)	 	Thereafter, subject to applicable securities laws, there will be no limitation
on the undersigned’s ability to Transfer the Lockup Shares.

	3.	 	Required Legends. The certificate(s) evidencing the Lockup Shares will include, in
addition to any other required legends, a legend substantially similar to that set forth
below, which the undersigned has read and understands:

THESE SECURITIES ARE SUBJECT TO A LOCKUP AGREEMENT, DATED AS OF
OCTOBER 15, 2006, BETWEEN THE HOLDER HEREOF AND MERCATOR PARTNERS
ACQUISITION CORP. WHICH RESTRICTS THE TRANSFER OF SUCH SECURITIES.
A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF MERCATOR PARTNERS ACQUISITION CORP.

Upon release of any Lockup Shares from the restrictions on Transfer in Section 1, Buyer
shall cause to be issued to such holder a certificate representing such shares without the
foregoing legend within ten (10) Business Days following receipt of a written request of the
holder of a certificate representing Lockup Shares so released.

	4.	 	Stop Transfer Orders. Buyer may, from time to time, make stop transfer notations in
its records and deliver stop transfer instructions to its transfer agent to the extent Buyer
reasonably considers it necessary to ensure compliance with the terms of this Agreement, the
Securities Act and any applicable state securities laws.

2

 

	5.	 	Miscellaneous.

	 	(a)	 	Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally or sent
by nationally-recognized overnight courier or by facsimile, with confirmation as
provided above addressed as follows:

	 	(i)	 	if to Buyer, to:
	 
	 	 	 	Mercator Partners Acquisition Corp.

One Fountain Square

11911 Freedom Drive

Suite 1080

Reston, VA 20190
	 
	 	 	 	with a copy to (which shall not constitute notice):
	 
	 	 	 	Greenberg Traurig

1750 Tysons Boulevard

Suite 1200

McLean, VA 22102

Attention: Mark J. Wishner

Facsimile: (703) 714-8359
	 
	 	(ii)	 	if to the undersigned, to the address set forth on the signature page hereto,

	 	 	 	or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such notices or
communications shall be deemed to be received (i) in the case of personal delivery,
on the date of such delivery, (ii) in the case of nationally-recognized overnight
courier, on the next business day after the date when sent and (iii) in the case of
facsimile transmission, upon confirmed receipt.
	 
	 	(b)	 	Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to the
subject matter hereof. No statement, representation, warranty, covenant or agreement
of any kind not expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this Agreement.
	 
	 	(c)	 	Amendment, Modification and Waiver. This Agreement shall not be
altered or otherwise amended except pursuant to an instrument in writing signed by the
parties hereto. Any party to this Agreement may waive in writing any obligation owed
to it by any other party to this Agreement. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.

3

 

	 	(d)	 	Benefits of Agreement. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto and
their respective successors, heirs, executors, administrators and permitted assigns.
This Agreement may not be assigned by the undersigned without the prior written consent
of Buyer, and any such assignment shall be made only in accordance with applicable laws
and any such consent.
	 
	 	(e)	 	Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia without reference to its
conflicts of laws provisions. The parties irrevocably and unconditionally submit to
the exclusive jurisdiction of the federal and state courts sitting in the Commonwealth
of Virginia over any suit, action or proceeding arising out of or relating to this
Agreement. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any such suit, action or proceeding brought in any such court and
any claim that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. The parties agree that a final judgment in any such
suit, action or proceeding brought in any such court shall be conclusive and binding
upon the parties and may be enforced in any other courts to whose jurisdiction other
parties are or may be subject, by suit upon such judgment.
	 
	 	(f)	 	Severability. In the event that any court of competent jurisdiction
shall determine that any provision, or any portion thereof, contained in this Agreement
shall be unenforceable in any respect, then such provision shall be deemed limited to
the extent that such court deems it enforceable, and as so limited shall remain in full
force and effect. In the event that such court shall deem any such provision, or
portion thereof, wholly unenforceable, the remaining provisions of this Agreement shall
nevertheless remain in full force and effect.
	 
	 	(g)	 	Interpretation. The parties hereto acknowledge and agree that: (i)
each party and its counsel have reviewed the terms and provisions of this Agreement;
(ii) the rule of construction to the effect that any ambiguities are resolved against
the drafting party shall not be employed in the interpretation of this Agreement; and
(iii) the terms and provisions of this Agreement shall be construed fairly as to the
parties hereto and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement. Whenever used herein, the
singular number shall include the plural, the plural shall include the singular, the
use of any gender shall include all persons.
	 
	 	(h)	 	Headings and Captions. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall in no
way modify or affect the meaning or construction of any of the terms or provisions
hereof.
	 
	 	(i)	 	Counterparts. This Agreement may be executed in any number of counterparts by original or facsimile signature, each such counterpart shall be an original

4

 

	 	 	 	instrument, and all such counterparts together shall constitute one and the same agreement.

[Remainder of Page Intentionally Left Blank]

5

 

     IN WITNESS WHEREOF, the undersigned has duly executed this Lockup Agreement as of the day and
year first above written.

	 	 	 	 	 
	 	 	 
	 	 
 	 
	 	 	 
	 	 	 
	 

     The foregoing Lockup Agreement is hereby accepted.

	 	 	 	 	 
	 	MERCATOR PARTNERS ACQUISITION CORP.

 	 
	 	By:  	/s/ Rhodric C. Hackman
 	 
	 	 	Rhodric C. Hackman, President 	 
	 	 	 	 
	 

6exv10w2

 

EXHIBIT 10.2 TO THE SEPARATION AGREEMENT

TAX ALLOCATION AGREEMENT dated as of                , 2006 (this
“Agreement”), among EXTENDICARE INC., a Canadian
corporation (“Extendicare”), EXTENDICARE HOLDINGS, INC., a
Wisconsin corporation (“EHI”), and ASSISTED LIVING CONCEPTS, INC., a
Nevada corporation (“ALC” and, collectively
with EHI and Extendicare, the “Companies”).

                WHEREAS, as of the date of this Agreement, EHI and ALC belong to an Affiliated Group that has
elected to file consolidated U.S. federal income Tax Returns;

                WHEREAS,
as of the date of this Agreement, EHI is an indirect, wholly owned subsidiary of Extendicare;

                WHEREAS,
as of the date of this Agreement, Extendicare Health Services Inc. is
a direct, wholly owned subsidiary of EHI (EHSI);

                WHEREAS,
as of the date of this Agreement, ALC is a direct, wholly owned subsidiary of EHSI;

                WHEREAS, Extendicare will purchase the stock of ALC from EHSI in exchange for a note with a
face amount equal to the fair market value of ALC (the “ALC Purchase”);

                WHEREAS, ALC will reorganize its share capital to create two classes of common shares (the ALC
Class A Shares and the ALC Class B Shares) which will have similar voting rights
to the subordinate voting and multiple voting common shares of Extendicare, respectively;

                WHEREAS, pursuant to the Plan of Arrangement, the existing subordinate voting shareholders of
Extendicare (other than any dissenters) will exchange each of their shares for one new
Extendicare Common Share and one ALC Class A Share and the
existing multiple voting shareholders of
Extendicare (other than any dissenters) will exchange each of their shares for 1.075 new
Extendicare Common Shares and one ALC Class B Share (the “ALC Distribution”);

                WHEREAS, pursuant to the Plan of Arrangement and immediately after the ALC Distribution, the
new Extendicare Common Shares will be transferred to Newco for Newco Notes or, at the election of certain
holders, to Extendicare Holding Partnership in exchange for units of
Extendicare Holding Partnership, and the Newco
Notes will then immediately be transferred to Extendicare REIT in exchange for REIT Units (the
“Conversion” and, together with the ALC Distribution, the “Separation”); and

                WHEREAS, the Companies desire to allocate the Tax liabilities and benefits of transactions
that occur on or prior to, and that may occur after, the date on which the Separation occurs (the
“Separation Date”) and to provide for certain other Tax matters.

 

 

                NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the
Companies (each on behalf of itself, each of its Affiliates and its future Affiliates) hereby agree
as follows:

ARTICLE I

Definitions

                The following terms shall have the following meanings:

                “Adjustment Request” means any claim or request filed with any governmental authority
for any adjustment of Tax, Refund or change in available Tax attributes.

                “Affiliate” of any person means any other person that, after the Separation, controls,
is controlled by, or is under common control with such person. For purposes of this definition,
“control” means the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through ownership of voting
securities, by contract or otherwise.

                “Affiliated Group” means an affiliated group of corporations within the meaning of
Section 1504(a) of the Code, or any analogous concept under local, state or foreign law for the
taxable period in question.

                “Agreement” is defined in the preamble.

                “ALC” is defined in the preamble.

                “ALC
Class A Shares” is defined in the Arrangement Agreement.

                “ALC
Class B Shares” is defined in the Arrangement Agreement.

                “ALC Distribution” is defined in the recitals.

                “ALC Group” means ALC and its Affiliates.

                “ALC Purchase” is defined in the recitals.

                “Applicable Rate” means the sum of (i) the prime rate of interest per annum published
in the print edition of The Wall Street Journal, the international daily newspaper published in New
York City, and (ii) 2%; each change in the prime rate shall be effective from and including the date
such change is published in The Wall Street Journal.

2

 

                “Arrangement
Agreement” means the Arrangement Agreement, dated as of
September 11, 2006, among Extendicare REIT,
Extendicare Trust, Extendicare Holding General Partner Inc.,
Extendicare Holding Partnership, Extendicare, Extendicare Acquisition
Inc., Extendicare ULC and ALC.

                “Assumed
Liabilities” is defined in the Separation Agreement.

                “Code” means the Internal Revenue Code of 1986, as amended.

                “Companies” is defined in the preamble.

                “Conversion” is defined in the recitals.

                “Due Date” means, with respect to any Tax Return, the date on which such Tax Return is
due to be filed with the appropriate Taxing Authority pursuant to applicable law, giving effect to
any applicable extensions.

                “EHI” is defined in the preamble.

                “EHSI” is defined in the recitals.

                “EHSI Assisted Living Facilities” is defined in the Separation Agreement.

                “Extendicare” is defined in the preamble.

                “Extendicare Common Shares” is defined in the Plan of Arrangement.

                “Extendicare Group” means Extendicare and its Affiliates. For the avoidance of doubt,
the Extendicare Group excludes any entity that is a member of the ALC Group.

                “Extendicare
Holding Partnership” means Extendicare Limited Partnership,
a limited partnership existing under the laws of the Province of
Ontario.

                “Extendicare REIT” means Extendicare Real Estate Investment Trust, a trust established
under the laws of the Province of Ontario.

                “Final Determination” means the final resolution of liability for any Tax for any
taxable period by or as a result of: (i) a final and unappealable decision, judgment, decree or
other order by any court of competent jurisdiction; (ii) a final settlement with the IRS, a closing
agreement or accepted offer in compromise under Code Sections 7121 or 7122 or a comparable
settlement, agreement or accepted offer in compromise under the laws of another jurisdiction; (iii)
any allowance of a Refund, but only after the expiration of all periods during which such Refund
may be recovered by the Taxing Authority imposing the Tax; or (iv) any other final disposition,
including by reason of the expiration of the applicable statute of limitations.

                “Group” means the Extendicare Group or the ALC Group, or both, as the context
requires.

3

 

                “Indemnifying Party” has the meaning set forth in Section 5.01.

                “Indemnitee” has the meaning set forth in Section 5.01.

                “Intended Tax Treatment” has the meaning set forth in Section 4.01.

                “IRS” means the United States Internal Revenue Service.

                “Joint Return” means any Return for an Affiliated Group that includes both a member of
the Extendicare Group and a member of the ALC Group.

                “Newco” is defined in the Plan of Arrangement.

                “Newco Notes” is defined in the Plan of Arrangement.

                “Past Practices” has the meaning set forth in Section 3.03.

                “Plan
of Arrangement” is defined in the Arrangement Agreement.

                “Pre-Separation Period” means any taxable period (or portion thereof) ending on or
before the Separation Date.

                “Refund” means any cash refund of Tax or reduction of Tax by means of credit, offset
or otherwise.

                “Separate Return” means (i) in the case of the ALC Group, a Tax Return of any member
of that Group (including any consolidated, combined, affiliated or unitary Return) that does not
include, for all or any portion of the relevant taxable period, any member of the Extendicare Group
and (ii) in the case of the Extendicare Group, a Tax Return of any member of that Group (including
any consolidated, combined, affiliated or unitary Return) that does not include, for all or any
portion of the relevant taxable period, any member of the ALC Group.

                “Separation” is defined in the recitals.

                “Separation Agreement” means the Separation Agreement, dated as of              , 2006,
between Extendicare and ALC.

                “Separation Date” is defined in the recitals.

                “Tax” means all forms of taxation, levies or duties imposed, or required to be
collected or withheld, including charges, together with any related interest, penalties or other
additional amounts. For the avoidance of doubt, Tax includes Canadian employment insurance
premiums, Canada or provincial pension plan contributions, Canadian employee health premiums and Canadian workers’ compensation premiums imposed by the
government of Canada or a province of Canada.

4

 

                “Tax Advisor” means a U.S. tax counsel or other tax advisor of recognized national
standing.

                “Tax Contest” means an audit, review, examination, assessment, reassessment or any
other administrative or judicial proceeding with the purpose or effect of determining or
redetermining Tax (including any administrative or judicial review of any Adjustment Request).

                “Tax Dispute” means any dispute arising in connection with this Agreement.

                “Tax Return” or “Return” means any return, filing, report, questionnaire,
information statement, claim for refund, or other document required or permitted to be filed,
including any amendments that may be filed, for any taxable period with any Taxing Authority
(whether or not a payment is required to be made with respect to such filing).

                “Taxing Authority” means any governmental authority that imposes, assesses or collects
Tax, including the IRS, any U.S. state or local taxing authority, the Canada Revenue Agency, the
Ontario Ministry of Finance and any other relevant provincial taxing authority.

                “Transaction Agreements” means this Agreement, the
Arrangement Agreement, the Plan of Arrangement and the Separation Agreement.

                “Transactions”
means the transactions described on Exhibit A, including the ALC Purchase, the
ALC Distribution and the Conversion, and any other transactions related thereto or otherwise
contemplated by the Transaction Agreements.

5

 

ARTICLE II

Liability For Tax

                SECTION
2.01. Ordinary Course Tax. (a) Subject to Section 2.02, ALC shall be
liable, and shall indemnify and hold the Extendicare Group harmless, for all Tax that is
attributable to members of the ALC Group for all periods. The amount of Tax “attributable to” the ALC Group shall be
determined in accordance with the principles described in
Exhibit B.

               (b) EHI shall be liable, and shall indemnify and hold the ALC Group harmless, for
all Tax that is attributable to members of the Extendicare Group for all periods. The
amount of Tax “attributable to” members of the Extendicare
Group shall be determined in accordance with the principles described
in Exhibit B.

               (c) For purposes of this Section 2.01, all Tax that is attributable to each EHSI Assisted
Living Facility listed on Schedule 2.01(c) (i) shall be treated as attributable to the
Extendicare Group for all periods (or portion thereof) ending on the date listed
on Schedule 2.01(c) with respect to such EHSI Assisted Living Facility and (ii) shall be
treated as attributable to the ALC Group for all periods (or portion
thereof) beginning on or
after the date listed on Schedule 2.01(c) with respect to such EHSI Assisted Living Facility.

               (d) EHI and ALC shall agree on a reasonable apportionment between the Extendicare
Group and the ALC Group of any existing limitation under Code Section 382 that applies to
any net operating loss carryforwards in the existing Extendicare Group, and any comparable
limitations under state or local law.

                SECTION 2.02. Transaction Taxes. EHI shall be liable, and shall indemnify and hold
the ALC Group harmless, for any Tax resulting from, or arising in connection with, the
Transactions.

                SECTION 2.03. Refunds. Any Refund attributable to (i) any Tax for which any member
of the ALC Group is responsible under this Article II shall be for the account of ALC and (ii) any
Tax for which any member of the Extendicare Group is responsible under this Article II shall be for
the account of EHI. To the extent a party receives a Refund that is for the account of the other
party under the preceding sentence,

6

 

the recipient-party shall pay or cause to be paid the amount of the Refund to the other party.
If all or any portion of such Refund is not paid to the other party within 30 days after receipt,
interest shall accrue on the unpaid portion of such Refund at the Applicable Rate compounded
quarterly.

                SECTION 2.04. Tax Sharing Agreements. Except as set forth in this Agreement, any and
all existing Tax sharing agreements, arrangements, understandings and practices regarding Tax and
its payment, allocation or sharing between any member of the ALC Group and any member of the
Extendicare Group shall be terminated as of the Separation. This Section 2.04 does not address any
Tax sharing agreements solely between members of the ALC Group or solely between members of the
Extendicare Group.

ARTICLE III

Preparation and Filing of Tax Returns

                SECTION 3.01. Extendicare Responsibility. (a) Subject to paragraph (b), EHI shall
make all determinations with respect to, shall have ultimate control over the preparation of, and
shall file all (i) Joint Returns and (ii) Separate Returns
of the Extendicare Group, in each case as it
determines to be mandatory or advisable and for all taxable periods.

                    (b) If, in connection with the preparation of any Joint Return, EHI modifies any
information relating to, or provided in, the pro forma federal and state income Tax
Returns or other information related to members of the ALC Group prepared by ALC and
provided to EHI pursuant to Section 3.02, the portions of the Joint Returns that include
such information shall be submitted to ALC no later than 15 days prior to the Due Date for
such Joint Returns (or if such Due Date is within 15 days following the Separation Date,
as promptly as practicable following the Separation Date). Within 5 days after delivery
of any such revised portions of any Joint Return, ALC shall provide comments to EHI in
writing where ALC objects to any revisions that could, in its reasonable discretion, be
expected to adversely impact any member of the ALC Group. Such ALC comments shall be
incorporated into the Joint Return.

                SECTION 3.02. ALC Responsibility. (a) ALC shall make all determinations with
respect to, shall have ultimate control over the preparation of, and shall file all Separate
Returns of the ALC Group as it determines to be mandatory or advisable and for all taxable periods.

                    (b) ALC shall prepare and provide to EHI all federal and state income Tax
Return workpapers and other information related to members of the ALC
Group required to complete any Joint Return, at least 30 days
prior to the Due Date of the relevant Joint Return.

7

 

                SECTION 3.03. Tax Accounting Practices. Any Tax Return for any Pre-Separation Period
shall be prepared in accordance with practices, accounting methods, elections, conventions and Tax
positions used with respect to the Tax Return in question for periods prior to the Separation
(“Past Practices”) and, in the case of any item the treatment of which is not addressed by
Past Practices, in accordance with generally accepted Tax accounting practices. Notwithstanding
the foregoing, for any Tax Return described in the preceding sentence, (i) a party will not be
required to follow Past Practices with either the written consent of the other party (not to be
unreasonably withheld) or a “should” level opinion from a Tax Advisor that the proposed method of
reporting is correct and (ii) all Tax Returns shall be filed in a manner consistent with the
Intended Tax Treatment, unless otherwise required by a Final Determination.

                SECTION 3.04. Right to Review Tax Returns. Upon request, each party shall make
available to the other party the portion of Pre-Separation Period Tax Returns that relates to the
ALC Group that the first party is responsible for preparing under this Article III.

                SECTION 3.05. Payment of Tax. The party responsible under this Agreement for
preparing a Tax Return shall remit, or cause to be remitted, in a timely manner to the appropriate
Taxing Authority all Tax due in connection with that Tax Return. For the avoidance of doubt, this
Section shall not in any way affect any right of indemnification under this Agreement.

                SECTION 3.06. Adjustment Requests. (a) Except with the written consent of EHI (not
to be unreasonably withheld), ALC will not file any Adjustment Request with respect to any Joint
Return, unless required by law. Except with the written consent of ALC (not to be unreasonably
withheld), EHI will not file any Adjustment Request with respect to any Joint Return, unless
required by law.

                    (b) Any Adjustment Request made under this Section 3.06 shall be prepared by the
party that filed the Tax Return to be adjusted. The party preparing the Adjustment
Request shall be reimbursed for its internal preparation and filing costs at a rate of $30 per
hour, without regard to the identity of the persons assigned to prepare the Adjustment
Request, and, if the parties engage a third party to prepare the Adjustment Request, the
parties shall bear the out-of-pocket costs of engaging such third party in proportion to
the benefit that each would receive from the proposed adjustment.

8

 

                    (c) ALC agrees to waive its right to carry back any loss incurred by any member of
the ALC Group during any taxable period following Separation, to the extent permitted by
law.

ARTICLE IV

Intended Tax Treatment

                SECTION 4.01. Intended Tax Treatment. Each of Extendicare, EHI and ALC agree to
treat the Transactions for all U.S. Tax purposes as set out in
Exhibit C (the “Intended Tax
Treatment”), unless otherwise required by a Final Determination.

ARTICLE V

Tax Contests; Indemnification; Cooperation

                SECTION 5.01. Notice. As soon as practicable and, in any event, within 30 days after a party (the “Indemnitee”)
becomes aware of the existence of a Tax Contest that may give rise to an indemnification claim
under this Agreement by it against the other party (the “Indemnifying Party”), the
Indemnitee shall notify
the Indemnifying Party of the Tax Contest, and thereafter shall promptly forward or make available
to the Indemnifying Party copies of notices and communications with a Taxing Authority relating to
such Tax Contest.

                SECTION 5.02. Control of Tax Contests. (a) EHI shall have sole control over any Tax
Contest relating to any Separate Returns of the Extendicare Group and, except as
provided in the following sentence, Tax Contest relating to any
Joint Returns. In the case of any Tax Contest relating to
any Joint Returns for which ALC determines, in its reasonable discretion, that it could be liable
for an amount greater than $10,000 under Article II as a result of such Tax Contest, ALC may elect
to jointly control, and to have the right to equally participate in, at its own expense, all
material activities and decisions (including strategic decisions) with respect to, any such Tax
Contest and EHI shall not settle any such Tax Contest without ALC’s prior written consent.

                    (b) ALC shall have sole control over any Tax Contest relating to any Separate
Returns of the ALC Group; provided, however, that ALC shall notify EHI in writing of, and
consult EHI in good faith about all material activities and decisions (including strategic
decisions) with respect to, any such Tax Contest.

                    (c) Where the parties mutually engage a Tax Advisor to assist them in handling,
settling or contesting a Tax Contest, any out-of-pocket costs shall be borne ratably by
the parties based on their ultimate liability under this Agreement for the Tax to which
the Tax Contest relates. In the absence of such mutual agreement, each party shall be
liable for its own out-of-pocket costs incurred in handling, settling or contesting a Tax
Contest.

9

 

                SECTION 5.03. Indemnification Payments. (a) Subject to paragraph (b), if an
Indemnitee has a claim for an indemnification payment from an Indemnifying Party under this
Agreement, the Indemnitee shall promptly provide to the Indemnifying Party notice of such claim,
including a description of such claim and a detailed calculation of the amount of the
indemnification payment that is claimed; provided, however, that no delay on the
part of the Indemnitee in notifying the Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party is
actually and materially prejudiced thereby. The Indemnifying Party shall make the claimed payment
to the Indemnitee within 45 days after receiving such notice, unless the Indemnifying Party
reasonably disputes the amount of, or its liability for, such payment.

                    (b) No party shall be entitled to receive an indemnification payment under this
Agreement more than 5 days before the Tax (including estimated Tax, if any) is required to
be paid.

                    (c) Payments made prior to the Separation by any member of the ALC Group to any
member of the Extendicare Group with respect to a particular Tax shall be credited against
any indemnity obligation of the ALC Group in respect of such Tax
under this Agreement.

                SECTION 5.04. Interest on Late Payments. Interest shall accrue with respect to any
indemnification payment (including any disputed payment that is ultimately required to be made),
not made when due (as determined under Section 5.03 and without regard to whether such payment is
disputed), at the Applicable Rate compounded quarterly.

                SECTION 5.05. Treatment of Payments. Indemnification payments under this Agreement
shall not be adjusted to take into account the Tax treatment of
the relevant Indemnitee with respect to such payments or the indemnified items. Any payments made
to one party by another party pursuant to this Agreement or the Separation Agreement shall be
treated for all Tax purposes as a distribution by, or capital contribution to, ALC, as the case may
be, made immediately prior to the ALC Purchase, except to the extent otherwise required by a Final
Determination.

                SECTION 5.06.  Expenses. Except as otherwise provided herein, each party shall bear
its own expenses incurred in connection with preparation of Tax Returns, Tax Contests and other
matters under this Agreement.

                SECTION 5.07. Cooperation. Each member of the Extendicare Group and the ALC Group
shall cooperate fully with all reasonable requests from the other party in connection with the
preparation and filing of Tax Returns and Adjustment Requests, Tax Contests and other matters
covered by this Agreement.

10

 

                    (a) Such cooperation shall include:

          (i) the retention until the expiration of the applicable statute of
limitations, and the provision upon request, of Tax Returns, books, records
(including information regarding ownership and tax basis of property),
documentation and other information relating to the Tax Returns, including
accompanying schedules, related workpapers, and documents relating to rulings or
other determinations by Taxing Authorities;

          (ii) the execution of any document that may be necessary or reasonably
helpful in connection with any Tax Contest, the filing of a Tax Return or
Adjustment Request by a member of the Extendicare Group or the ALC Group, obtaining
a tax opinion, a private letter ruling or an advance tax ruling, or other matters
covered by this Agreement, including certification (provided in such form as may be
required by applicable law or reasonably requested and made to the best of a
party’s knowledge) of the accuracy and completeness of the information it has
supplied;

          (iii) the use of the parties’ commercially reasonable efforts to obtain any
documentation that may be necessary or reasonably helpful in connection with any of
the foregoing;

          (iv) the use of Extendicare Group’s commercially reasonable efforts to assist
the ALC Group in obtaining a waiver from Section 1504(a)(3) of the Code, including
the making of any representations and the obtaining of any private letter ruling;
provided, however, that ALC shall retain sole control over, and be
liable, and indemnify and hold the Extendicare Group harmless, for all costs
incurred in connection with, the obtaining of such waiver;

          (v) the use of the parties’ commercially reasonable efforts to make the
applicable party’s current or former directors, officers, employees, agents and
facilities available on a reasonable and mutually convenient basis in connection
with the foregoing matters; and

          (vi) the reasonable use
by ALC of Extendicare Group’s systems, including any
relevant hardware and software, for the preparation and filing of Returns for all
tax periods (or portion thereof) ending on or before the Separation Date.

                    (b) If a party fails ,without good cause, to comply with any of its obligations set forth
in this Section 5.07 upon reasonable request and notice by the

11

 

other party, and such failure results in the imposition of additional Tax, the nonperforming
party shall be liable in full and shall indemnify and hold the other party harmless for such
additional Tax.

                SECTION 5.08. Confidentiality. Any information or documents provided under this
Agreement shall be kept confidential by the recipient-party, except as may otherwise be necessary
in connection with the filing of Tax Returns or with any Tax Contest. In addition, if Extendicare,
EHI or ALC determines that providing such information could be commercially detrimental, violate
any law or agreement or waive any privilege, the parties shall use commercially reasonable efforts
to permit compliance with the obligations under this Agreement in a manner that avoids any such
harm or consequence.

                SECTION 5.09. Retention of Tax Records. If either Extendicare, EHI or ALC intends to
dispose of documentation with respect to any Pre-Separation Period, including books, records, Tax
Returns and all supporting schedules and information relating thereto (after the expiration of the
applicable statute of limitations), of any member of the other Group, they shall provide written
notice to the other party describing the documentation to be disposed of 60 days prior to taking
such action. The other party may arrange to take delivery of the documentation described in the
notice at its own expense during the succeeding 60 day period.

ARTICLE VI

Resolution of Disputes

                SECTION 6.01. Tax Disputes. The parties will endeavor to resolve in an amicable
manner all disputes arising in connection with this Agreement. The parties shall negotiate in good
faith to resolve any Tax Dispute for not less than 45 days. Upon written notice of either party
after 45 days, the matter will be referred to a Tax Advisor acceptable to both parties. The Tax
Advisor may, in its discretion, obtain the services of any third-party necessary to assist it in
resolving the dispute. The Tax Advisor shall provide written notice to the Companies of its
resolution of the dispute as soon as practicable, but in any event no later than 45 days after its
acceptance of the matter for resolution. Any such resolution by the Tax Advisor will be binding on
the parties and the parties shall take, or cause to be taken, any action necessary to implement the
resolution. All fees and expenses of the Tax Advisor shall be shared equally by EHI, on the one
hand, and ALC, on the other hand. If, having determined that the dispute must be referred to a Tax
Advisor, after 45 days the parties are unable to find a Tax Advisor willing to adjudicate the
dispute in question and whom the parties in good faith find acceptable, then the dispute will be
resolved pursuant to the procedures described in Section 7.11 of
the Separation Agreement;
provided, however, that only an arbitrator that qualifies as a Tax Advisor shall be
selected.

12

 

ARTICLE VII

Miscellaneous and General

                SECTION 7.01. Modification or Amendment. The parties may modify or amend this
Agreement only by written agreement executed and delivered by duly authorized officers of the
respective parties.

                SECTION 7.02. Termination. In the event the Arrangement Agreement is terminated
pursuant to its terms prior to the Separation, this Agreement shall automatically and
simultaneously terminate without the approval of ALC, EHI, Extendicare or the shareholders of
Extendicare. In the event of such termination, no party shall have any liability to any other
party pursuant to this Agreement, except under Section 5.08. It is understood and agreed that the
consummation of the Transactions shall not constitute a termination of this Agreement.

                SECTION 7.03. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given upon receipt by
the parties at the following fax numbers (or at such other address for a party as shall be
specified by like notice) of a fax followed by delivery at the following addresses of such notice
by overnight courier of an international reputation:

If to Extendicare or EHI, to:

Extendicare
Inc.

3000 Steeles Avenue East

Markham, Ontario

Canada

L3R 9W2

Attention:

Fax:

with a copy to:

Extendicare Health Services, Inc.

111 West Michigan Street

Milwaukee, Wisconsin 53203

Attention: Tax Department

Fax:

13

 

If to ALC, to:

Assisted Living Concepts, Inc.

111 West Michigan Street

Milwaukee, Wisconsin 53203

Attention:

Fax:

with a copy to:

Attention:

Fax:

                SECTION 7.04. Interpretation. When a reference is made in this Agreement to a
Section, Exhibit, Schedule or party, such reference shall be to a Section of, or an Exhibit,
Schedule or party to, this Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words “include”, “includes” or “including” are used
in this Agreement, they shall be deemed to be followed by the words “without limitation”. The
words “hereof”, “herein”, “hereby” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement. The words “date hereof” shall refer to the date of this Agreement. The term “or” is
not exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a
subject or other thing extends, and such phrase shall not mean simply “if”. The definitions
contained in this Agreement are applicable to the singular as well as the plural forms of such
terms. Any agreement or instrument defined or referred to herein or in any agreement or instrument
that is referred to herein means such agreement or instrument as from time to time amended,
modified or supplemented. References to a person are also to its permitted successors and assigns.
IF, AND TO THE EXTENT, THE PROVISIONS OF THIS AGREEMENT CONFLICT WITH THE SEPARATION AGREEMENT,
ARRANGEMENT AGREEMENT OR OTHER AGREEMENT BY AND BETWEEN THE PARTIES TO THIS AGREEMENT, THE
PROVISIONS OF THIS AGREEMENT SHALL CONTROL.

                SECTION 7.05. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any applicable law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the matters contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable
manner to the end that objectives contemplated hereby are fulfilled to the extent possible.

14

 

                SECTION 7.06. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties and delivered to
the other parties. Each party need not sign the same counterpart.

                SECTION 7.07. Entire Agreement; Third-Party Beneficiaries. This Agreement, taken
together with the other Transaction Agreements, constitutes the entire agreement, and supersedes
all prior agreements and understandings, both written and oral, among the parties with respect to
the Transactions. Nothing contained in this Agreement is intended to confer upon any person other
than the parties hereto and their respective successors and permitted assigns, any benefit, right
or remedy under or by reason of this Agreement.

                SECTION 7.08. Certain Obligations. Whenever this Agreement requires any of the
Affiliates of any party to take any action, this Agreement will be deemed to include an undertaking
on the part of such party to cause such Affiliates to take such action.

                SECTION 7.09. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws.

                SECTION
7.10. Assignment. Subject to Section 4.07 of the
Separation Agreement, neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent of the other parties. Any
purported assignment without such consent shall be void. Subject to the preceding sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.

                SECTION 7.11. Survival. Except with respect to Sections 5.07, 5.08 and 5.09, which
shall remain in effect without limitation as to time, the provisions in this Agreement shall be
unconditional and absolute and shall remain in effect until the expiration of the statute of
limitations for all taxable periods that end before or include December 31 of the calendar year in
which the Separation occurs and, if later, until the resolution of all disputes under this
Agreement that arose during such periods.

                SECTION
7.12. Extension; Waiver. The parties may (a) extend the
time for the performance of any of the obligations or other acts of
the other parties or (b) waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement
on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.

15

 

                IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective
officers as the date first set forth above.

	 	 	 	 	 
	 	EXTENDICARE INC., 

 	 
	 	  by  	 	 
	 	 	 	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	EXTENDICARE HOLDINGS, INC.,

 	 
	 	  by  	 	 
	 	 	 	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	ASSISTED LIVING CONCEPTS, INC.,

 	 
	 	  by  	 	 
	 	 	 	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

16

 

EXHIBIT A

TO THE TAX ALLOCATION AGREEMENT

Transaction Steps1

          In connection with the Separation, the following steps will occur in the following order:

	 	Step 1:	 	ALC and its subsidiaries will acquire each of the EHSI Assisted Living
Facilities (excluding any land component subject to transfer restrictions (the
“Excluded Land”)) from certain direct and indirect subsidiaries of EHSI in
exchange for a note in an amount equal to the fair market value of such facility (the
“Facilities Purchase”).
	 
	 	Step 2:	 	Each entity that receives a note from ALC or an ALC subsidiary in the
Facilities Purchase will transfer that note to EHSI in satisfaction of intercompany
indebtedness (the “Note Distribution”).
	 
	 	Step 3:	 	EHSI will contribute the notes received in the Note Distribution to ALC
(the “Note Contribution”).
	 
	 	Step 4:	 	EHSI will contribute to ALC cash in an amount equal to the fair market
value of the Excluded Land, if necessary (the “Purchase Price Contribution”).
	 
	 	Step 5:	 	ALC will lend the cash received pursuant to the Purchase Price Contribution
to EHSI on arm’s length terms (the “Loan”).
	 
	 	Step 6:	 	EHSI will contribute approximately $33 million to ALC (the “Cash
Contribution”). ALC may use a portion of the contributed cash to satisfy
outstanding inter-company indebtedness owed to EHSI, if necessary.
	 
	 	Step 7:	 	Extendicare will sell its minority interests in BNN Investments, Ltd.
(12,100 shares of common stock) and MedX Health Corp. (500,622 shares of common stock)
to

 

			
	1	 	All terms used but not defined in this Exhibit
shall have the meaning set forth in the Tax Allocation Agreement.

 

 

	 	 	 	EHSI for cash in an amount equal to the fair market value of
such interests.

	 	Step 8:	 	EHSI will contribute its minority interests in Omnicare Inc. (50,000 shares
of common stock) and the shares of BNN Investments, Ltd. and MedX Health Corp.
purchased in step 7 to ALC (the “Stock Contributions” and, together with the
Cash Contribution and Purchase Price Contribution, the “ALC Contributions”).
	 
	 	Step 9:	 	The ALC Purchase will occur. In the ALC Purchase, Extendicare will
purchase the stock of ALC from EHSI in exchange for a note with a face amount equal to
the fair market value of ALC (the “Extendicare
Note”). The Extendicare Note shall be repayable on demand
and shall, in all other respects, have arms' length terms and conditions.
	 
	 	Step 10:	 	ALC shall assume, and agree to pay, perform, satisfy and discharge when
due the Assumed Liabilities, if any, in accordance with their respective terms.
	 
	 	Step 11:	 	The Recapitalization will occur. In the Recapitalization, ALC will
reorganize its share capital to create two classes of common shares (ALC Class A
Shares and ALC Class B Shares), which will have similar voting rights to the
subordinate voting and multiple voting common shares of Extendicare, respectively.
The ALC Class B Shares will be convertible into 1.075 shares of ALC Class A Shares.
	 
	 	Step 12:	 	The ALC Distribution will occur. In the ALC Distribution, the existing
subordinate voting shareholders of Extendicare (other than any dissenters) will
exchange each of their shares for one new Extendicare Common Share and one ALC Class A
Share and the existing multiple voting shareholders of Extendicare (other than any
dissenters) will exchange each of their shares for 1.075 new Extendicare Common Shares
and one ALC Class B Share.
	 
	 	Step 13:	 	The Conversion will occur. In the Conversion, the new Extendicare Common
Shares will be transferred to Newco for Newco Notes or, at the election of certain
holders, to the Holding Partnership in exchange for units of Holding Partnership. The
Newco Notes will immediately be transferred to Extendicare REIT in exchange for REIT
Units.
	 
	 	Step 14:	 	In connection with the Conversion, Extendicare REIT will transfer the
Newco Notes to Extendicare Trust in exchange for units and notes of Extendicare Trust;
Extendicare Trust will then contribute the Newco Notes to the Holding Partnership in
exchange for interests in the Holding Partnership; the Holding Partnership will then
transfer the Newco Notes and the Extendicare Common Shares to Extendicare ULC in
exchange for Extendicare ULC interests and notes; Extendicare ULC will transfer the
Extendicare Common Shares and a

 

 

	 	 	 	portion of the Newco Notes to Newco and the Newco
Notes so transferred will be canceled; and Extendicare and Newco will amalgamate.

	 	Step 15:	 	Extendicare may not immediately repay to EHSI the entire
amount owed on the Extendicare Note. As the Extendicare Note is
repaid, EHSI may distribute amounts received to EHI and EHI may
then distribute such amounts to its parent, Extendicare International
Inc., to the extent of EHI’s earnings and profits and
Extendicare International Inc.’s tax basis in EHI.
	 
	 	Step 16:	 	When the required approvals are obtained, EHSI will transfer cash to ALC
in repayment of the Loan and ALC will use these funds to acquire the Excluded Land
(the “Land Purchase”)

 

 

EXHIBIT B

TO THE TAX ALLOCATION AGREEMENT

Principles
for Determining Tax Attributable to ALC Group and EHI Group1

Federal Income Tax

	1.1	 	Federal Income Taxes. EHI (on behalf of itself and its Affiliates) (the “EHI
Group”) and ALC (on behalf of itself and other members of the ALC Group) agree to
determine and allocate the U.S. federal income Tax liability of the
Groups among
themselves in the following manner:

	 	(a)	 	The ALC Group shall be allocated, and ALC shall pay to EHI an amount equal
to, the U.S. federal income Tax liability, if any, including alternative minimum tax,
of the ALC Group. EHI shall be allocated any other U.S. federal
income Tax liability of the Groups.
	 
	 	(b)	 	Such U.S. federal Tax liability shall equal the hypothetical separate
consolidated return Tax liability of the ALC Group, as determined in accordance with
the provisions of Treasury Regulations Section 1.1552-1(a)(2)(ii) as if the ALC Group
had filed a separate consolidated federal income Tax Return.

State
and Local Income and Franchise Tax

2.1
Separate Company Tax. Separate Company Tax means any Tax
computed based on the income, capital, net worth,
loss, apportionment, and other items of one member and without regard
to any such items of any other members. In the case of any Separate Company Tax:

(a) Separate
Company Tax of any member of the EHI Group shall be allocated to the
EHI Group and Separate Company Tax of any member of the ALC Group
shall be allocated to the ALC Group for all Tax periods before and
after the Separation Date.

2.2
Combined State Tax. Combined State Tax means state income, franchise, or similar Tax computed based on a consolidated,
combined, or unitary basis.

(a) The
Combined State Tax liability shall be allocated between the ALC
Group and EHI Group in accordance with the method prescribed in Treasury Regulation
1.1552-1(a)(1) determined by aggregating the amounts allocable to the members of each
respective Group into a single amount for each Group, appropriately reflecting income,
apportionment, and other items of members. The allocable income will be computed by
calculating on a state basis the ALC Group numerator and the EHI Group numerator, and
dividing the respective numerators by the consolidated Group denominator (see the example
that follows).

 

			
	1	 	All terms used but not defined in this Exhibit
shall have the meaning set forth in the Tax Allocation Agreement.

 

 

Combined/Consolidated
State Tax Allocation

Example

	 	 	 	 	 
	Consolidated Taxable Income
	 	$	250	 
	State Apportionment
	 	 	40.00	%
	 
	 	 	 
	State Taxable Income
	 	$	100	 
	State Tax Rate
	 	 	10	%
	 
	 	 	 
	State Tax Liability
	 	$	10	 
	 
	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Apportionment	 	Numerator	 	Denominator	 	Apportionment %
	EHI Group
	 	$	350	 	 	$	1,000	 	 	 	23.33	%
	ALC Group
	 	$	250	 	 	$	500	 	 	 	16.67	%
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	$	600	 	 	$	1,500	 	 	 	40.00	%
	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Subgroup	 	 	Total	 	 	 	 	 	 	Federal Taxable	 	 	State	 	 	State	 	 	Allocated	 
	Allocation of Tax	 	Numerator	 	 	Denominator	 	 	Percentage	 	 	Income	 	 	Income	 	 	Tax Rate	 	 	Tax Liability	 
	 	 	 
	EHI Group
	 	$	350	 	 	$	1,500	 	 	 	23.33	%	 	$	250	 	 	$	58	 	 	 	10	%	 	$	5.83	 
	ALC Group
	 	$	250	 	 	$	1,500	 	 	 	16.67	%	 	$	250	 	 	$	42	 	 	 	10	%	 	$	4.17	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Totals
	 	 	 	 	 	 	 	 	 	 	40.00	%	 	 	 	 	 	$	100	 	 	 	 	 	 	$	10.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

			
	Note: 	 	The above illustrates the methodology to be used to allocate state tax
liabilities between the EHI subgroup and the ALC subgroup in states where a
combined, consolidated, or unitary return is filed.

 

 

EXHIBIT C

TO THE TAX ALLOCATION AGREEMENT

Intended
Tax Treatment2

          The following sets forth the Intended Tax Treatment of certain transactions described in
Exhibit A.

       1. The Facilities Purchase, the Note Distribution and the Note Contribution, taken
together, shall be treated as (i) a transfer of the EHSI Assisted Living Facilities (other
than any Excluded Land) by the selling EHSI subsidiaries to EHSI in satisfaction of
intercompany indebtedness, which transfers shall create deferred inter-company gain under
Code Section 1502, followed by (ii) a contribution of the EHSI Assisted Living Facilities
(other than any Excluded Land) by EHSI to ALC. As a result, EHSI’s basis in its ALC stock
shall be increased by the aggregate fair market value of the EHSI Assisted Living
Facilities transferred and ALC will have a fair market value basis in those EHSI Assisted
Living Facilities.

       2. The ALC Contributions shall be treated as transfer of the cash and sale of the
minority share investments by EHSI to ALC. As a result, EHSI shall have deferred
inter-company gain under Code Section 1502 with respect to the minority share investments.
EHSI’s basis in its ALC stock shall be increased by the amount of cash and the aggregate
fair market value of the shares transferred and ALC shall have a fair market value basis
in the transferred shares.

       3. Upon the ALC Purchase, the EHI Affiliated Group shall recognize (i) the deferred
inter-company gain created by the Facilities Purchase and the Note Distribution and the
ALC Contribution and (ii) any gain in the ALC stock under Code Section 1001.

       4. The Land Purchase shall be treated as a taxable sale, which shall subject the
vendor (EHSI or one of its subsidiaries, as the case may be) to taxable gain or loss under
Code Section 1001.

 

			
	2	 	All terms used but not defined in this Exhibit
shall have the meaning set forth in the Tax Allocation Agreement and Exhibit A.

 

 

Schedule
2.01

EHSI Transfer of Assets to ALC Real Estate, LLC

Operations Checklist

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	Date Operations
	No.	 	ST	 	Facility	 	State	 	Transferred
	 	1.	 	 	 	56	 	 	River Wood Estates (RCAC)

	 	WI
	 	4/1/2006
	 	2.	 	 	 	405	 	 	Gardens At Clyde

	 	OH
	 	4/1/2006
	 	3.	 	 	 	14	 	 	Crystal House

	 	WI
	 	4/1/2006
	 	4.	 	 	 	38	 	 	Tamarack Place

	 	WI
	 	4/1/2006
	 	5.	 	 	 	42	 	 	Cedar Gardens

	 	WI
	 	4/1/2006
	 	6.	 	 	 	43	 	 	Wissota Springs

	 	WI
	 	4/1/2006
	 	7.	 	 	 	105	 	 	Lake View Assisted Living

	 	WI
	 	4/1/2006
	 	8.	 	 	 	107	 	 	Lake View Estates

	 	WI
	 	4/1/2006
	 	9.	 	 	 	108	 	 	Country Villa

	 	MN
	 	4/1/2006
	 	10.	 	 	 	134	 	 	Prairie Springs Assisted Living

	 	WA
	 	7/1/2006
	 	11.	 	 	 	138	 	 	Mountain View Meadows

	 	WA
	 	7/1/2006
	 	12.	 	 	 	139	 	 	Oak Gardens

	 	WI
	 	4/1/2006
	 	13.	 	 	 	148	 	 	Terrace Estates

	 	WI
	 	4/1/2006
	 	14.	 	 	 	186	 	 	Highlands (The)

	 	KY
	 	4/1/2006
	 	15.	 	 	 	230	 	 	Bayberry Court

	 	PA
	 	5/1/2006
	 	16.	 	 	 	257	 	 	Mission Ridge Assisted Living For Independent Seniors

	 	WA
	 	7/1/2006
	 	17.	 	 	 	258	 	 	West Woods

	 	WA
	 	7/1/2006
	 	18.	 	 	 	267	 	 	Clairmont Retirement Center

	 	OR
	 	4/1/2006
	 	19.	 	 	 	269	 	 	Crestview Assisted Living

	 	TX
	 	4/1/2006
	 	20.	 	 	 	220	 	 	Bell Oaks Terrace

	 	IN
	 	4/1/2006
	 	21.	 	 	 	238	 	 	Emerald House

	 	IN
	 	4/1/2006
	 	22.	 	 	 	35	 	 	Willowpark Residence

	 	WI
	 	4/1/2006
	 	23.	 	 	 	40	 	 	Crest House

	 	WI
	 	4/1/2006
	 	24.	 	 	 	106	 	 	Brook Gardens

	 	WI
	 	4/1/2006
	 	25.	 	 	 	137	 	 	Laurel Park Assisted Living

	 	WA
	 	7/1/2006
	 	26.	 	 	 	213	 	 	Inwood Hills Estates

	 	IN
	 	4/1/2006
	 	27.	 	 	 	239	 	 	Rockmill Springs

	 	OH
	 	4/1/2006
	 	28.	 	 	 	404	 	 	Westwood Landing

	 	OH
	 	4/1/2006
	 	29.	 	 	 	417	 	 	Statesman Woods

	 	PA
	 	4/1/2006

The above transfer dates were provided by John Stampfl, Manager of Financial
Reporting at EHSI.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]