Exhibit 10.9
EMPLOYEE BENEFITS AGREEMENT
This Employee Benefits Agreement (the "Benefits Agreement") is hereby
entered into this 3rd day of June, 1998 by and among ITT Corporation, a Nevada
corporation ("ITT"), and ITT Educational Services, Inc., a Delaware corporation
("ESI").
WHEREAS, ITT is a wholly-owned subsidiary of Starwood Hotels & Resorts
Worldwide, Inc., a Maryland corporation ("Starwood, Inc." and, together with
Starwood Hotels and Resorts, a Maryland real estate investment trust,
"Starwood");
WHEREAS, ITT is currently the owner of 22,500,000, or approximately
83%, of the issued and outstanding shares of common stock (the "Common Stock")
of ESI;
WHEREAS, ITT is offering and selling to the public by means of a
Registration Statement (File No. 333-46267) first filed with the Securities and
Exchange Commission on Form S-3 on February 13, 1998 (the "Registration
Statement") shares of the Common Stock (the "Offering");
WHEREAS, ITT (as the successor to ITT Industries, Inc., an Indiana
corporation formerly a Delaware corporation known as ITT Corporation) and ESI
are parties to an Employee Benefits and Administrative Services Agreement, dated
as of December 19, 1994 (the "Prior Benefits Agreement") under which agreement
ESI has participated in various employee benefit plans sponsored by ITT;
WHEREAS, effective as of the Offering Date, the Prior Benefits
Agreement shall be terminated and ITT and ESI recognize that it is now necessary
and desirable to allocate and assign responsibility for certain employee benefit
liabilities of the parties and to provide certain transitional support for ESI.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Benefits
Agreement hereby agree as follows:
1. Purpose and Definitions.
1.1 Purpose. The purpose of this Benefits Agreement is to set forth
the agreement of ITT and ESI regarding the allocation and assignment of the
respective rights and obligations of ITT and ESI before and after the Offering
with respect to benefits and compensation matters pertaining to current and
former employees of ESI.
1.2 Definitions. The following terms shall have the following
meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESI Employee" means an individual who is employed (including an
individual who is not actively employed due to an approved disability, lay-off
with right of recall or an authorized leave of absence (or who is receiving
salary continuation severance payments)) by ESI or any of ESI's subsidiaries
immediately prior to the Offering Date.
"ESI Former Employee" means a former employee of ESI whose employment
with ESI terminated prior to the Offering Date.
"ESI Individual" means each ESI Employee and ESI Former Employee.
"ITT Excess Pension Plan" means the ITT Excess Pension Plan II, IA or
IB, as applicable.
"ITT Excess Savings Plan" means the ITT Excess Savings Plan.
"ITT Retirement Plan" means the ITT Corporation Salaried Retirement
Plan.
"ITT Savings Plan" means the ITT 401(k) Retirement Savings Plan.
"Merger Date" means February 23, 1998.
"Offering Date" means the closing of the sale of shares of Common
Stock offered by ITT pursuant to the Registration Statement.
2. General Provisions. Except as otherwise specifically provided
herein, as of the Offering Date, ESI shall cease participation in all ITT
employee benefit plans and programs, the services provided to ESI under the
Prior Benefits Agreement shall cease, and ESI shall be responsible for
establishing and maintaining its own employee benefit plans and programs. As
soon as reasonably practicable after the Offering Date, ITT will provide ESI
with an accounting of the outstanding charges under the Prior Benefits Agreement
that have not been settled prior to the Offering Date and, together with ESI,
shall determine any reconciliation payment that is necessary between the
parties.
3. Provisions of Employee Benefits.
3.1 ITT Retirement Plan.
(a) Effective as of the Offering Date, ESI shall cease to be a
participating employer under the ITT Retirement Plan, and the ESI employees will
cease to accrue further benefits under the ITT Retirement Plan. The ITT
Retirement Plan shall retain all assets of the ITT Retirement Plan and all
liabilities for the benefits accrued thereunder by each ESI Individual as of the
Offering Date (the "ITT Accrued Benefit"). As of the Offering Date, ITT shall
amend the ITT Retirement Plan to recognize the service rendered by each ESI
Employee with ESI on and after the Offering Date for purposes of (i) determining
the ESI Employee's vested percentage in his or her Accrued Benefit and (ii)
determining whether the ESI Employee is eligible to receive his or her Accrued
Benefit under
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the pre-retirement death benefit and early retirement benefit provisions of the
ITT Retirement Plan. Notwithstanding the above, an ESI Employee's benefit
accrued under the ITT Retirement Plan shall not be based on any service rendered
with, or compensation received from, ESI after the Offering Date.
(b) Any ESI Employee who, on the Offering Date, is employed by ESI and
for whom service rendered on and after the Offering Date is recognized pursuant
to this Section 3.1 under the ITT Retirement Plan shall not, while he or she is
employed with ESI, (i) be deemed either to have terminated employment or to be
in retirement status under the ITT Retirement Plan or (ii) be eligible to
receive payment of his or her vested benefit or retirement allowance under the
ITT Retirement Plan, except to the extent required by law.
(c) The service rendered on and after the Offering Date by an ESI
Employee with ESI that will be recognized for purposes of this Section 3.1 shall
be the same years of service and portions thereof that would have been
recognized for similar purposes under the ITT Retirement Plan if ESI had
remained a participating employer in such plan. In no event shall the ITT
Retirement Plan be required to recognize service with ESI that (i) is not
recognized under any ESI defined benefit retirement plan or (ii) is rendered
during any period after the ITT Retirement Plan is terminated. Nothing herein
shall prevent ITT or Starwood, or any successor thereto, from amending or
modifying the ITT Retirement Plan in any respect that is not prohibited by law
and is not contrary to the terms of this Agreement.
(d) No asset or liability of the ITT Retirement Plan shall be
transferred from the ITT Retirement Plan to any plan maintained or sponsored by
ESI.
(e) ESI shall cooperate with ITT and shall provide to ITT the
information and data that is necessary so that ITT can properly and accurately
compute the benefit entitlement of the ESI Individuals under the ITT Retirement
Plan. ESI shall be fully responsible to provide true and accurate ESI employment
information to ITT regarding the ESI Individuals and ITT shall be able to rely
that such information is true and accurate and shall be under no obligation to
verify such information. ESI shall indemnify ITT with respect to any loss or
liability that arises on account of ESI's failure to provide true and accurate
ESI employment information regarding the ESI Individuals. ITT shall, within a
reasonable period after the Offering Date and at its expense, provide to ESI an
estimate of the benefits accrued, as of the Offering Date, under the ITT
Retirement Plan by each ESI Employee (which shall include ITT's estimate of the
benefit accrued under the ITT Industries pension plan); provided, ESI shall
cooperate, and provide ITT on a timely basis, with the ESI employment
information necessary for such purpose.
(f) The amount that ESI shall pay to ITT for ESI's participation under
the ITT Retirement Plan and which is attributable to the ESI Individuals for the
period of January 1, 1998 until the Offering Date shall equal the Service Cost
for such period as determined by the plan's actuary in the ordinary course but
without taking into account any salary increases for the ESI employees after the
Offering Date.
3.2 ITT Excess Pension Plan. Effective as of the Offering Date, ESI
shall cease participation in the ITT Excess Pension Plan and the Rabbi Trust for
ITT Corporation Excess Pension
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Plans and shall assume all obligations (whether funded or unfunded) accrued
prior to the Offering Date under the ITT Excess Pension Plan with respect to
each ESI Employee. In no event shall any assets be transferred to ESI by ITT or
from any funds set aside with respect to such plan. Promptly following the
Offering Date, ITT will notify ESI of the amount of all obligations accrued
prior to the Offering Date under the ITT Excess Pension Plan with respect to
each ESI Employee.
3.3 ITT Savings Plan.
(a) Effective as of May 16, 1998, ESI shall cease participation in
the ITT Savings Plan, and no new contributions shall be accepted by the ITT
Savings Plan with respect to ESI Employees. ESI shall take all necessary actions
to establish, and have in place as of May 16, 1998, a 401(k) plan that will be
qualified under Sections 401(a) and 401(k) of the Code (the "ESI Savings Plan").
The ESI Savings Plan shall (i) be tax-qualified under Sections 401(a) and 401(k)
of the Code, (ii) preserve all optional forms of benefits and other rights
within the scope of Section 411(d)(6) of the Code that are provided under the
ITT Savings Plan and (iii) contain a qualified cash or deferred arrangement
under Section 401(k) of the Code.
(b) ITT shall instruct the trustee of the ITT Savings Plan to
liquidate prior to the Offering Date each ESI Individual's account balance that
is (1) invested in the Hartford and ITT Industries stock funds and attributable
to the Company Matching or Company Retirement contributions or to the ESI
Individual's contributions; (2) invested in the Starwood Stock Fund-II and
attributable to the ESI Individual's contributions; or (3) with respect to those
ESI Individuals over age 55, invested in the Starwood Stock Fund-II and
attributable to Company Matching or Company Retirement contributions
(collectively, the "Prior Stock Funds"). Prior to the Offering Date, ITT shall
cause the trustee of the ITT Savings Plan to transfer the cash proceeds
resulting from the sale of the Prior Stock Funds to the ESI Savings Plan. ESI
shall use the cash proceeds transferred to the ESI Savings Plan pursuant to the
preceding sentence to purchase Common Stock as part of the Offering on behalf of
the participants to whom such cash proceeds relate; except for such cash
proceeds that are attributable to the ESI Individuals' contributions invested in
the Hartford and ITT Industries stock funds, which cash proceeds will be
invested in the American Century Strategic Allocation's Moderate fund on behalf
of the participants to whom such cash proceeds relate. The ESI Individuals will
be instructed that the portion of their account balance representing their
contributions that are invested in the Prior Stock Funds must be invested in
other fund options one week before the Offering Date or such contributions shall
be liquidated as part of the conversion process.
(c) Contemporaneously with the transfer of the Prior Stock Funds to
the ESI Savings Plan, ITT shall also cause the trustee of the ITT Savings Plan
to transfer the remaining portion of the ESI Individuals' account balances under
the ITT Savings Plan other than the balance invested in the Starwood Stock Funds
(other than as noted above) to be transferred to the ESI Savings Plan. Loan
balances outstanding as of the transfer date shall be transferred to the ESI
Savings Plan after the date of the transfer and no new loans will be available
under the ITT Savings Plan after May 14, 1998.
(d) Prior to the transfer of assets from the ITT Savings Plan as
described herein, ESI shall furnish to ITT the following: (i) executed copies of
the ESI Savings Plan and trust agreement, together with any amendments thereto,
(ii) a copy of the most recent determination letter
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issued by the IRS with respect to the qualification of the plan under Section
401(a) and 401(k) of the Code or a letter from counsel to ESI, satisfactory to
ITT, that provides that the plan and related trust satisfy the requirements of
the Code and ERISA for qualification under Sections 401(a), 401(k) and 501(a) of
the Code and that ESI will timely make any and all amendments as may be required
by the IRS to receive a favorable IRS determination letter, and (iii) evidence
satisfactory to ITT that the ESI Savings Plan has language providing for the
receipt of the transferred assets as provided herein.
(e) The portion of the account invested in the Starwood Stock Funds
(other than as specified above with respect to the Starwood Stock Fund-II) will
remain in the ITT Savings Plan until such date as ITT determines the transfer
should occur, but in no event later than December 31, 1998 (the "Starwood Stock
Fund Transfer Date"). As of the Starwood Stock Fund Transfer Date, the trustee
of the ITT Savings Plan shall cause an amount equal to the account balances
remaining under the ITT Savings Plan as of such date to be transferred to the
ESI Savings Plan in cash. Upon the completion of the transfer contemplated
herein, neither ITT nor the ITT Savings Plan shall have any liability to the ESI
Individuals for benefits under the ITT Savings Plan.
3.4 ITT Excess Savings Plan. Effective as of the Offering Date, ESI
shall cease participation in the ITT Excess Savings Plan, and ESI will assume
all obligations accrued prior to the Offering Date under the ITT Excess Savings
Plan with respect to the ESI Individuals. In no event shall any assets be
transferred to ESI by ITT or from any funds set aside with respect to such plan
unless ESI has paid ITT an amount on behalf of such plan for a period arising
after the Merger Date and prior to the Offering Date, in which event ITT shall
cause the amount it received to be returned to ESI. Promptly following the
Offering Date, ITT will notify ESI of the amount of all obligations accrued
prior to the Offering Date under the ITT Excess Savings Plan with respect to
each ESI Individual.
3.5 ITT Educational Services, Inc. Group Benefits Plan (medical and
dental). ESI Employees shall continue to be eligible to participate under the
ITT Educational Services, Inc. Group Benefits Plan (the "ESI Group Plan")
through December 31, 1998, and ITT shall continue to provide, or make available,
the services they provided immediately prior to the Offering Date with respect
to the ESI Group Plan for a reasonable period thereafter. ESI will be
responsible for all claims incurred under the ESI Group Plan plus its share of
the administrative and stop-loss pooling expense. For administrative
convenience, ITT shall pay all claims and expenses related to the ESI Group Plan
related to the period ending on December 31, 1998. For each calendar month
during 1998 after the Offering Date, ESI shall make a monthly payment to ITT
equal to $135,000 as a pre-payment of such costs. ITT and ESI shall settle all
charges under this arrangement within a reasonable period of time after the end
of the 1998 calendar year provided, however, that ITT shall not process nor pay
any claims submitted after March 31, 1999 and the settlement of all charges
shall be made no later than August 31, 1999. ITT and ESI shall also use their
best efforts to settle all claims and charges related to the 1997 year by August
31, 1998. ITT shall administer COBRA continuation coverage during 1998 with
respect to the ESI Group Plan, provided, however, that any person who has
elected COBRA continuation coverage under such plan shall be transferred to
another plan maintained by ESI or as otherwise permitted, and to the extent
required, by law as of January 1, 1999, and ITT shall have no liability or
obligation to provide COBRA continuation coverage with respect to such person
after such date.
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3.6 Retiree Medical. As of the Offering Date, ESI shall assume
liability for all future post-retirement medical plan obligations attributable
to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇. ITT shall transfer $25,000 to ESI on or before the
Offering Date as a reimbursement of the FAS 106 inter-company charge previously
paid by ESI with respect to its participation in the ITT retiree medical plan.
3.7 Retiree Life Insurance. ITT shall retain all obligations to
provide retiree life insurance coverage to those ESI Former Employees who were
entitled to such coverage as of December 31, 1997, and ESI shall not assume any
obligation to provide such coverage with respect thereto. ESI shall not be
entitled to any of the assets held under the VEBA attributable to retiree life
insurance benefit coverage. ITT will notify all covered individuals in the event
the obligation is transferred to an insurance company.
3.8 Long-Term Disability. ITT shall retain all obligations to provide
disability payments to the ESI Individuals who were disabled as of December 31,
1997 and who are then receiving disability payments under the ITT Long-Term
Disability Plan for Salaried Employees. ESI shall not be entitled to any of the
assets held under the VEBA attributable to disability benefit coverage. ITT will
notify all covered individuals in the event the obligation is transferred to an
insurance company.
3.9 Disabled Medical and Life Insurance Coverage. ESI shall assume
all obligations to provide medical and life insurance coverage to those disabled
ESI Individuals who are entitled to receive such coverage as of the Offering
Date. ITT shall pay ESI on or before the Offering Date an amount equal to the
FAS 112 reserve recorded on the ITT financial statements that pertains to the
disability obligation assumed by ESI herein.
3.10 Severance. ESI shall be liable for any severance pay and benefits
(including salary continuation) owing, as of the Offering Date and thereafter,
to ESI Individuals.
3.11 Annual Service Recognition/Bonus Awards. ESI shall be responsible
for providing any accrued annual service recognition awards and bonus
compensation to which ESI Individuals would otherwise be entitled in respect of
the 1998 calendar year and thereafter to persons who are ESI Employees
immediately prior to the Offering Date.
4. Cooperation. ITT and ESI will cooperate in providing each other
and other necessary parties with such data as may be necessary to administer
their respective benefit plans in accordance with the terms of this Benefits
Agreement. ITT and ESI agree to cooperate in completing all necessary filings
with the Internal Revenue Service, Department of Labor and Pension Benefit
Guaranty Corporation, if any, with respect to the matters provided herein and
will apprise the other party hereto of any written or oral communication to or
from any such agency with respect thereto that may bear on such other party's
interests hereunder.
5. Amendment. This Benefits Agreement may not be amended or modified
in any respect except by a written agreement signed by all of the parties
hereto.
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6. Waiver. No waiver by either party hereto of any term or condition
of this Benefits Agreement, in any one or more instances, shall operate as a
waiver of such term or condition at any other time.
7. Severability. Whenever possible, each provision of this Benefits
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Benefits Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect the validity, legality or enforceability of any other provision of
this Benefits Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Benefits
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.
8. Entire Agreement. Except as otherwise expressly set forth herein,
this Benefits Agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, that may have related to the subject matter hereof in
any way.
9. Successors and Assigns; No Third-Party Beneficiaries. Except as
otherwise provided herein, this Benefits Agreement shall bind and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. Notwithstanding anything to the contrary contained in
this Benefits Agreement, neither party shall have the right to assign, in whole
or in part, any of such party's rights, interests or liabilities under this
Benefits Agreement without the prior written consent of the other party. Except
as otherwise provided herein, nothing contained in this Benefits Agreement,
except as expressly set forth, is intended to confer upon any other person,
other than the parties hereto and their respective successors and permitted
assigns, any rights or remedies.
10. Counterparts. This Benefits Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
11. Remedies. ESI and ITT shall be entitled to enforce their rights
under this Benefits Agreement specifically, to recover damages by reason of any
breach of any provision of this Benefits Agreement and to exercise all other
rights existing in their favor. The parties hereto agree and acknowledge that
money damages would not be an adequate remedy for any breach of the provisions
of this Benefits Agreement and that ESI and ITT, in their sole discretion, may
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this Benefits
Agreement.
12. Notices. All notices, requests, demands and other communications
under this Benefits Agreement shall be in writing and shall be deemed to have
been duly given: (a) on the date 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
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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 ITT:
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ITT Corporation
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to ESI:
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ITT Educational Services, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ N. Drive
P.O. Box 50466
Indianapolis, Indiana 46250-0466
Attn: General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change its address for the purpose of this Section 12 by
giving the other party written notice of its new address in the manner set forth
above.
13. Governing Law. This Benefits Agreement shall be construed,
performed and enforced in accordance with, and governed by, the laws of the
State of New York applicable to contracts executed in and to be performed in
that state.
14. Descriptive Headings. The descriptive headings of this Benefits
Agreement are inserted for convenience only and do not constitute a part of this
Benefits Agreement.
* * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Benefits
Agreement on the day and year first above written.
ITT CORPORATION
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its Vice President
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ITT EDUCATIONAL SERVICES, INC.
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its Senior Vice President, General
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Counsel and Secretary
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