Exhibit 10.10
Amended and Restated Income Tax Sharing Agreement
This Amended and Restated Income Tax Sharing Agreement (this
"Agreement") is made and entered into effective as of June 3, 1998, by and among
Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"), a Maryland corporation,
ITT Corporation ("ITT"), a Nevada corporation, and ITT Educational Services,
Inc. ("ESI"), a Delaware corporation. Capitalized terms not otherwise defined in
this Agreement shall have the meaning set forth for such terms on Exhibit A to
this Agreement.
RECITALS
Whereas, Starwood, ITT and others entered into the Amended and
Restated Agreement and Plan of Merger ("Merger Agreement"), dated November 12,
1997, and pursuant to the Merger Agreement, a subsidiary of Starwood merged (the
"Merger") with and into ITT, and ITT became a wholly-owned subsidiary of
Starwood;
Whereas, prior to the effective date of the Merger, ITT was the common
parent of an Affiliated Group, which elected to file Consolidated Tax Returns,
and Starwood was the common parent of another Affiliated Group, which also
elected to file Consolidated Tax Returns;
Whereas, after the effective date of the Merger, under Treas. Reg. (S)
1.1502-75(d)(3), the Affiliated Group of which Starwood was the common parent
ceases to exist and the Affiliated Group of which ITT was the common parent
remains in existence with Starwood as its new common parent (such Affiliated
Group being referred to herein as the "Starwood Affiliated Group");
Whereas, Starwood plans to have ITT sell a significant portion of the
ESI common stock it currently owns in a public offering ("ESI Public Offering");
Whereas, following the ESI Public Offering, ITT will own less than 80%
of ESI's outstanding common stock and, as a result, ESI will no longer be a
member of the Starwood Affiliated Group;
Whereas, ITT Industries, Inc., an Indiana corporation and formerly a
Delaware corporation known as ITT Corporation ("Old ITT"), and ESI entered into
the Tax Sharing Agreement ("First Tax Sharing Agreement"), dated December 27,
1994, and Old ITT assigned all of its right, title and interest in and to the
First Tax Sharing Agreement to ITT effective on or about September 29, 1995;
Whereas, the First Tax Sharing Agreement provides, among other things,
that for every taxable year or other period during which ESI is included in
ITT's Consolidated Tax Return, ESI is obligated to pay ITT an amount equal to
the tax ESI would have been required to pay had it filed a separate federal
income tax return;
Whereas, ITT and ESI desire to amend and restate the First Tax Sharing
Agreement as set forth herein to reflect the fact that after the effective date
of the ESI Public Offering, ESI will no longer be a member of the Starwood
Affiliated Group;
Now Therefore, in consideration of the foregoing and the mutual
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I.
ALLOCATION OF LIABILITY FOR TAXES
Section 1.01 Liability for Taxes. ESI shall be responsible for and pay
all federal income taxes related to Pre-Closing Operations and all federal
income taxes related to Post-Closing Operations ("ESI Tax Liabilities"). Except
as otherwise provided above, Starwood shall be responsible for and pay any
liability of ESI for the federal income taxes of any Person other than ESI
pursuant to Treas. Reg. (S) 1.1502-6 ("Starwood Tax Liabilities").
Section 1.02 Computations. The amount of taxable income, gain, loss and
any federal income tax thereon that is considered attributable to Pre-Closing
Operations and to Post-Closing Operations shall be determined by (a) assuming
that the ESI taxable year (including the taxable year of organizations in which
ESI owns a partnership interest or other equity interest, if any) ends as of the
close of business on the Closing Date, (b) closing on an actual basis ESI's
books as of the close of such date (or if an actual closing is not feasible, on
an equitable pro forma basis that has a comparable economic result to the result
that would have been obtained had an actual closing occurred) and (c) preparing
Tax Returns based on the income, gain, deductions and losses as so determined
under an accurate and appropriate accounting method and consistent with the
methodology and elections employed in prior years. ESI's liability for federal
income taxes related to Pre-Closing Operations shall be equal to the federal
income tax liability it would have had if it filed its own federal income tax
return for any and all such taxable years or other periods and not as a member
of the Starwood Affiliated Group, or any predecessor Affiliated Group.
Section 1.03 Estimated Taxes and Payments of Amounts Due. Starwood shall
have the right to assess ESI for estimated federal income tax payments, provided
that any such assessments are based upon the projected federal income tax
liability of ESI under Sections 1.01 and 1.02 and are otherwise consistent with
this Agreement. Thus, Starwood shall have the right to assess ESI for such
estimated federal income tax payments regardless of whether and when the
Starwood Affiliated Group files estimated federal income tax returns. Starwood
shall also have the right to assess ESI any amounts due under Sections 1.01 and
1.02 pursuant to the filing of the Starwood Affiliated Group's Consolidated Tax
Returns including Pre-Closing Operations or pursuant to assessments related to
revenue agent examinations of Pre-Closing Operations. After receiving an
assessment from Starwood, ESI shall be obligated to
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make payment to Starwood at least five Business Days before the required filing
of the Starwood Affiliated Group's quarterly estimated federal income tax
returns or Consolidated Tax Returns, or the required due date of any payment by
the Starwood Affiliated Group of any assessments related to revenue agent
examinations. ESI shall receive credit for any payments of estimated tax under
this Section 1.03 for any amounts due under Sections 1.01 and 1.02, and any
excess payments shall be promptly refunded to ESI within five Business Days
following the filing of the Starwood Affiliated Group's Consolidated Tax Return.
Section 1.04 State and Local Taxes. State and local taxes based upon
income from any state for which ESI and another Person file Tax Returns on a
consolidated, combined or unitary basis shall be treated and payments shall be
made in accordance with the principles of this Article I.
ARTICLE II.
PREPARING AND FILING TAX RETURNS AND PAYING TAXES
Section 2.01 Pre-Closing Date Returns and Taxes. Starwood shall be
responsible for preparing and filing all Pre-Closing Tax Returns (other than
stand alone state, local and other Tax returns). ESI shall be responsible for
providing Starwood with all requisite information regarding ESI for such Pre-
Closing Tax Returns in the same manner and form as ESI has previously provided
the information to ITT pursuant to the First Tax Sharing Agreement in periods
prior to the effective date of this Agreement. Subject to ESI Tax Liabilities
and ESI's obligations to make payments to Starwood pursuant to Article I,
Starwood shall be responsible for the payment of all Taxes due with respect to
such Pre-Closing Tax Returns, including any adjustments with respect to revenue
agent examinations. Except as previously consented to in writing by ESI (which
consent shall not be unreasonably withheld or delayed), every material position
concerning ESI taken on a Pre-Closing Tax Return shall be consistent with the
methodology and elections employed in prior years. Starwood shall deliver to ESI
a copy of all Pre-Closing Tax Returns filed after the Closing Date promptly
after filing.
Section 2.02 Other Returns and Taxes. Except as otherwise provided in
Section 2.01, ESI shall be responsible for preparing and filing all Tax Returns
pertaining to ESI Tax Liabilities, including Pre-Closing Operations and Post-
Closing Operations, and for paying all ESI Tax Liabilities with respect to such
returns. Except as previously consented to in writing by Starwood (which consent
shall not be unreasonably withheld or delayed), every material position taken by
ESI on a Tax Return filed after the Closing Date (other than a Pre-Closing Tax
Return) that may affect Starwood Tax Liabilities shall, for a period of three
years following the Closing Date, be consistent with the methodology and
elections employed in prior years.
Section 2.03 Cooperation. ESI, ITT and Starwood shall cooperate fully
with each
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other in connection with the preparation and filing of all Tax Returns or any
audit examinations for any period, including, but not limited to, the timely
furnishing or making available of records, books of account and any other
information necessary for the preparation of the Tax Returns, as well as making
employees available on a mutually convenient basis to provide additional
information and explanation. If Starwood is required to file a Pre-Closing Tax
Return after the Closing Date, ESI shall permit Starwood to sign such Pre-
Closing Tax Return on behalf of ESI under a limited power of attorney.
Starwood, ITT and ESI shall use their best efforts to obtain any certificates or
other documents from any governmental authority or any other persons as may be
necessary or helpful to mitigate, reduce or eliminate any Taxes that would
otherwise be imposed with respect to the transactions contemplated by the Merger
Agreement or this Agreement and which do not adversely affect any party to this
Agreement.
Section 2.04 Amended Return. ESI may, with the prior written consent of
Starwood (which consent may be withheld or delayed in Starwood's sole and
absolute discretion), request that Starwood (i) amend any Pre-Closing Tax
Returns to reflect the carryback of ESI net operating losses or other Tax
benefits from later years to earlier years or (ii) file a claim for refund of
Taxes paid with respect to Pre-Closing Operations due to the carryback of ESI
net operating losses or other Tax benefits from later years to earlier years.
Starwood shall cooperate with ESI in obtaining any related refund of Taxes, and
upon receiving any such refund shall promptly turn over such refund to ESI.
Copies of any such amended Tax Returns or refund claims shall be provided to
Starwood or ESI, as the case may be, within five days of filing.
Section 2.05 Record Retention. ESI shall retain all books, records,
returns, schedules, documents and other papers relating to its Taxes, for any
taxable year or portion thereof ending on or before the Closing Date, for the
full period of the applicable statutes of limitations, including extensions, for
the period to which such Taxes relate. Thereafter, ESI shall have the right to
dispose of or destroy any of such items, provided that Starwood shall have the
right, at its sole cost and expense, promptly to make copies of such items if it
notifies ESI of its intention to do so. Starwood shall notify ESI whenever the
applicable statute of limitations, including extensions, for any such taxable
year or portion thereof expires.
Section 2.06 Contests.
(i) With respect to any federal or state combined, unitary or
consolidated Pre-Closing Tax Return, Starwood and its duly appointed
representatives shall have the sole right, at its expense, to supervise or
otherwise coordinate any examination process and to negotiate, resolve, settle
or contest any asserted Tax deficiencies or assert and prosecute any claims for
refund. The foregoing notwithstanding, without the express written consent of
ESI, which consent shall not be unreasonably withheld or delayed, Starwood shall
not file any amended Tax Return, settle any Tax claim or assessment, or
surrender any right to claim a refund of Tax, if such action could have the
effect of increasing ESI Tax Liabilities.
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(ii) With respect to any other Tax Return of ESI, ESI and its duly
appointed representative shall have the sole right, at its expense, to supervise
or otherwise coordinate any examination process and to negotiate, resolve,
settle or contest any asserted Tax deficiencies or assert and prosecute any
claims for refund. The foregoing notwithstanding, without the express written
consent of Starwood, which consent shall not be unreasonably withheld or
delayed, ESI shall not file any amended Tax Return, settle any Tax claim or
assessment, or surrender any right to claim a refund of Tax, if such action
could have the effect of increasing Starwood Tax Liabilities.
(iii) Each party hereto shall, within 30 days (unless action is
required sooner, then as soon as practicable), notify the other of the assertion
of any claim or the commencement of any suit, action, proceeding, investigation
or audit with respect to any Tax Return that may affect ESI Tax Liabilities or
Starwood Tax Liabilities, and shall provide the other party with copies (subject
to deletion of nonrelevant information) of all correspondence relating to such
contest.
Section 2.07 Allocation of Refunds. Except as otherwise agreed upon in
writing, in the event an audit, amended Tax Return or other action results in a
refund of Taxes, such refund (including any interest paid thereon) shall be
paid: (i) to ESI if the deduction, loss, or other item that gives rise to the
refund is attributable to Pre-Closing Operations or Post-Closing Operations and
the refunded Tax was actually paid by ESI; and (ii) to Starwood in all other
circumstances. The parties shall lend mutual assistance to each other in taking
such action as may be necessary to procure a refund, including the preparation,
filing and processing of any requisite amended return or other documents.
ARTICLE III.
MISCELLANEOUS
Section 3.01 Certain Tax Elections.
(i) Except as required by the Code or the regulations promulgated
thereunder, without the prior written consent of ESI (not to be unreasonably
withheld or delayed), Starwood shall not make any new election or change any
existing election, change an annual accounting period or adopt or change any
accounting method if any such election, adoption or change would have the effect
of increasing ESI Tax Liabilities, provided, that ESI will waive such objection
on payment by Starwood to ESI of an amount equal to the increase in ESI Tax
Liabilities (including any penalties, interest and costs incurred by ESI with
respect thereto).
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(ii) Except as required by the Code or the regulations promulgated
thereunder, without the prior written consent of Starwood (not to be
unreasonably withheld or delayed), ESI shall not make any election, change an
annual accounting period or adopt or change any accounting method if any such
election, adoption or change would have the effect of increasing Starwood Tax
Liabilities, provided, that Starwood will waive such objection on payment by ESI
to Starwood of an amount equal to the increase in Starwood Tax Liabilities
(including any penalties, interest and costs incurred by Starwood with respect
thereto).
Section 3.02 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given: (a) on the day of service if served personally on the
party to whom notice is to be given; (b) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, and telephonic
confirmation of receipt is obtained promptly after completion of transmission;
(c) on the day after delivery to Federal Express or similar overnight courier or
the Express Mail service maintained by the United States Postal Service; or (d)
on the fifth day after mailing, if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid and
properly addressed, to the party as follows:
If to Starwood or ITT: ITT Corporation
777 Westchester Avenue
White Plains, New York 10604
Attention: General Counsel
Facsimile: (914) 640-8260
If to ESI: ITT Educational Services, Inc.
5975 Castle Creek Parkway N. Drive
P.O. Box 50466
Indianapolis, Indiana 46250-0466
Attention: General Counsel
Facsimile: (317) 594-4384
Any party may change its address for the purpose of this Section 3.02 by giving
the other party written notice of its new address in the manner set forth above.
Section 3.03 Other Agreements. This Agreement entirely supersedes and
replaces the First Tax Sharing Agreement, and the First Tax Sharing Agreement,
after the effective date of this Agreement, shall be null and void and of no
force and effect.
Section 3.04 Successors. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective successors and assigns.
Section 3.05 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of New York without regard to its laws or
regulations relating to conflicts of laws.
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Section 3.06 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
In Witness Whereof, the parties by their duly authorized officers have
caused this Agreement to be executed as of the date above first written.
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., a Maryland corporation
By: /s/ Alan M. Schnaid
-------------------------------------
Name: Alan M. Schnaid
Title: Vice President
ITT CORPORATION, a Nevada corporation
By: /s/ Alan M. Schnaid
-------------------------------------
Name: Alan M. Schnaid
Title: Vice President
ITT EDUCATIONAL SERVICES, INC., a
Delaware corporation
By: /s/ Clark D. Elwood
-------------------------------------
Name: Clark D. Elwood
Title: Senior Vice President,
General Counsel and
Secretary
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Exhibit A
Certain Definitions
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504 (or any similar group defined under a similar provision of state or
local law).
"Business Day" means any weekday on which commercial banks in New York City
are open.
"Closing Date" means the effective date of the ESI Public Offering.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Tax Returns" means consolidated federal income tax returns
filed in accordance with Code Section 1501.
"Person" means a member or former member of the Starwood Affiliated Group.
"Post-Closing Operations" means all activities of ESI other than Pre-
Closing Operations.
"Pre-Closing Operations" means all activities attributable to, or conducted
by, ESI, during any period ending on or before the Closing Date, including the
entire Closing Date.
"Pre-Closing Tax Returns" means all Tax Returns, which include Pre-Closing
Operations.
"Tax" (and, with correlative meaning, "Taxes") shall mean: (i) any federal,
state, local or foreign net income, gross income, gross receipts, windfall
profit, severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or add-on minimum, ad valorem,
value-added, transfer, stamp, or environmental tax, or any other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount imposed by any governmental authority; and (ii) any interest, penalties
or additions to tax or other additional amounts with respect to the amounts
described in clause (i).
"Tax Return" means any declaration, report, claim for refund, information
return, return or statement relating to Taxes, including any schedules or
attachments as well as any amendments (whether submitted on a consolidated,
combined, separate or unitary basis).
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