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TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT, dated as of November 1,
1995, among ITT Corporation, a Delaware corporation (which will
be reincorporated in Indiana and renamed ITT Industries, Inc.;
"ITT INDUSTRIES"), ITT Destinations, Inc., a Nevada corporation
(which will be renamed ITT Corporation; "ITT DESTINATIONS"),
and ITT Hartford Group, Inc., a Delaware corporation ("ITT
HARTFORD"). ITT Industries, ITT Destinations and ITT Hartford
are hereinafter jointly referred to as the "COMPANIES".
WHEREAS, as of the date hereof, ITT Industries is the common parent of
an affiliated group of domestic corporations, including ITT Destinations and ITT
Hartford, which has elected to file consolidated Federal income tax returns;
WHEREAS, ITT Industries proposes to distribute all of the outstanding
common stock of ITT Destinations and ITT Hartford to its shareholders (the
"DISTRIBUTION") and, as a result of the Distribution, ITT Destinations and ITT
Hartford will not be included in the consolidated Federal income tax return of
ITT Industries for the portion of the year following the Distribution or in
future years;
WHEREAS, the Companies have entered into an agreement (the
"DISTRIBUTION AGREEMENT") to, among other things, allocate and assign
responsibility for certain liabilities of the present ITT Corporation and its
former subsidiaries; and
WHEREAS, the Companies desire to allocate the tax burdens and benefits
of transactions which occurred on or prior to the Distribution Date and to
provide for certain other tax matters, including the assignment of
responsibility for the preparation and filing of tax returns and the prosecution
and defense of any tax controversies;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Companies (each on its own behalf and on behalf of each of its
subsidiaries as of the Distribution Date) hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meaning:
"ADJUSTED ALLOCABLE FEDERAL INCOME TAX LIABILITY" shall mean
the Allocable Federal Income Tax Liability, adjusted as provided in
paragraphs 8(c) and 8(d) hereof.
"AGREEMENT" shall mean this Tax Allocation Agreement.
"ALLOCABLE FEDERAL INCOME TAX LIABILITY" shall mean the
Separate Consolidated Federal Income Tax Liability, but including the
AMT and adjusted as provided in paragraphs 8(a), 8(e) and 15(b) hereof.
"AMT" shall mean the alternative minimum tax imposed by
Section 55 of the Code.
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"CONSOLIDATED RETURN" shall mean the consolidated federal
income tax return of ITT Industries for the period commencing on
January 1, 1995; or, if the Distribution occurs after December 31,
1995, the consolidated federal income tax return of ITT Industries for
the period commencing on January 1, 1996; and including the ITT
Destinations Group and the ITT Hartford Group through the Distribution
Date.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute.
"DISTRIBUTION" shall have the meaning assigned to such term in
the recitals to this Agreement.
"DISTRIBUTION AGREEMENT" shall have the meaning assigned to
such term in the recitals to this Agreement.
"DISTRIBUTION DATE" shall mean the date on which ITT
Industries distributes to its shareholders all of the outstanding
common stock of ITT Destinations and ITT Hartford.
"FEDERAL TAX ADMINISTRATOR" shall mean Xxxxx X. Xxxxxxx, the
Director of Taxes of ITT Destinations, or such other person as ITT
Destinations shall appoint with the consent of each of ITT Industries
and ITT Hartford, which consent shall not be unreasonably withheld or
delayed.
"FINAL DETERMINATION" shall mean the final resolution of
liability for any tax for any taxable period, including any related
interest or penalties, by or as a result of: (i) a final and
unappealable decision, judgment, decree or other order of a court of
competent jurisdiction; (ii) a closing agreement or accepted offer in
compromise under Section 7121 or 7122 of the Code, or comparable
agreement under the laws of other jurisdictions which resolves the
entire tax liability for any tax period; (iii) any allowance of a
refund or credit in respect of an overpayment of tax, but only after
the expiration of all periods during which such refund may be recovered
(including by way of offset) by the tax imposing jurisdiction; or (iv)
any other final disposition, including by reason of the expiration of
the applicable statute of limitations.
"FTC" shall mean the foreign tax credit pursuant to Section 27
of the Code.
"GROUP" shall mean the ITT Industries Group, the ITT
Destinations Group and/or the ITT Hartford Group, as the context may
require.
"IRS" shall mean the United States Internal Revenue Service.
"ITT DESTINATIONS" shall have the meaning assigned to such
term in the preamble to this Agreement.
"ITT DESTINATIONS GROUP" shall mean ITT Destinations and each
ITT Destinations Subsidiary.
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"ITT DESTINATIONS SUBSIDIARY" shall mean all of the direct or
indirect subsidiaries of ITT Destinations as of the Distribution Date
which have joined or are eligible to join the Consolidated Return or
any Prior Period Consolidated Return.
"ITT FINANCIAL OPERATIONS" shall have the meaning assigned to
such term in paragraph 8(e).
"ITT HARTFORD" shall have the meaning assigned to such term in
the preamble to this Agreement.
"ITT HARTFORD GROUP" shall mean ITT Hartford and each ITT
Hartford Subsidiary.
"ITT HARTFORD SUBSIDIARY" shall mean all of the direct or
indirect subsidiaries of ITT Hartford as of the Distribution Date which
have joined or are eligible to join the Consolidated Return or any
Prior Period Consolidated Return.
"ITT INDUSTRIES" shall have the meaning assigned to such term
in the preamble to this Agreement.
"ITT INDUSTRIES GROUP" shall mean ITT Industries and each ITT
Industries Subsidiary.
"ITT INDUSTRIES SUBSIDIARY" shall mean all of the direct or
indirect subsidiaries of ITT Industries as of the Distribution Date
which have joined or are eligible to join the Consolidated Return or
any Prior Period Consolidated Return, other than subsidiaries which are
members of the ITT Destinations Group or the ITT Hartford Group.
"NET REVERSAL BENEFIT" shall have the meaning assigned to such
term in paragraph 8(a).
"PRIME RATE" shall mean the "prime rate" charged by Citibank,
N.A., New York, New York, as such rate shall be changed from time to
time, compounded daily on the basis of a year of 365/366 days and
actual days elapsed.
"PRIOR PERIOD CONSOLIDATED RETURN" shall mean any consolidated
tax return of the present ITT Corporation filed, or to be filed, for
years prior to the Consolidated Return year.
"SEPARATE CONSOLIDATED FEDERAL INCOME TAX LIABILITY" shall
mean, with respect to any year or portion thereof, the tax liability
which a Group would have incurred if such Group, on a stand alone
basis, had been an affiliated group eligible to file a consolidated
return for any portion of such taxable year during which it is included
in the Consolidated Return or any Prior Period Consolidated Return and
had filed a return for such period, computed without regard to AMT.
"STATE TAX ADMINISTRATOR" shall mean Xxxxxxx X. Xxxxxx, the
Director of Taxes of ITT Industries, or such other person as ITT
Industries shall appoint with the consent of
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each of ITT Destinations and ITT Hartford, which consent shall not be
unreasonably withheld or delayed.
"TAX CREDITS" shall include all credits against tax pursuant to
Subtitle A, Chapter 1, Part IV of the Code.. "TAX ITEM" shall
have the meaning specified in paragraph 8(a).
2. Consolidated Return to be Filed. Each of the Companies will join,
and will cause each of their subsidiaries to join, in the Consolidated Return to
the extent each is eligible to join in such return under the provisions of the
Code and the regulations thereunder.
3. Documentation. The Companies hereby agree to execute and deliver all
documentation reasonably required (including powers of attorney, if requested)
to enable the Federal Tax Administrator to file, and to take all actions
necessary or incidental to the filing of, the Consolidated Return (including,
without limitation, the execution of Treasury Form 1122), or, with the consent
of each of the Companies, which consent shall not be unreasonably withheld or
delayed, any amendment of the Consolidated Return or any Prior Period
Consolidated Return. No consent of any Company shall be required for the filing
of an amended return pursuant to Section 905(c) of the Code.
4. Tax Return Preparation and Audits. (a) The Federal Tax Administrator
will cause the Consolidated Return to be timely prepared and filed. The Federal
Tax Administrator shall be responsible for the preparation and filing of any
consents and requests for extension of time within which to file the
Consolidated Return or any related information or similar returns. The Federal
Tax Administrator shall make the Consolidated Return available to the Directors
of Taxes of ITT Industries and ITT Hartford for their review prior to filing and
shall furnish them a copy of the return promptly after it is filed.
(b) ITT Industries and ITT Hartford agree that each will cause their
respective Director of Taxes to furnish to the Federal Tax Administrator on a
timely basis such information, schedules, analyses and any other items as may be
necessary to prepare the Consolidated Return. Such information, schedules,
analyses and other items will be prepared in a manner consistent with existing
practice and in accordance with a work plan and schedule to be agreed upon among
the Directors of Taxes of each of the Companies, acting reasonably, no later
than the Distribution Date.
(c) In preparing the Consolidated Return, the Federal Tax Administrator
shall retain Xxxxxx Xxxxxxxx LLP to review the Consolidated Return (with a scope
to be agreed upon among the Directors of Taxes of each of the Companies and the
cost of such review to be shared equally among the Companies) and may retain
other advisors and charge the cost of their services to the appropriate Group or
Groups; provided that, without the consent of the affected Group, the cost to
any Group of such services in any calendar year shall not exceed $25,000.
(d) The Federal Tax Administrator shall have overall responsibility for
obtaining and coordinating all responses in connection with any audit of the
Consolidated Return and all Prior Period Consolidated Returns. Such responses
shall be prepared by the affected Group in a manner consistent with prior
practice. IRS adjustments affecting the taxable income, loss or deductions
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of, or tax credits generated by, any Group may be agreed upon or settled only
upon approval of that Group, which approval shall not be unreasonably withheld
or delayed. In connection with the defense of any audit of the Consolidated
Return or any Prior Period Consolidated Return, the Federal Tax Administrator
may retain advisors and charge the cost of their services to the appropriate
Group or Groups; provided that, without the consent of the affected Group, the
cost to any Group of such services in any calendar year shall not exceed
$50,000.
5. Consolidated Return Computations of Tax and Payments. (a) On or
before December 14, 1995, the ITT Destinations Group and the ITT Hartford Group
each agree to make appropriate payments to ITT Industries for estimated taxes
and ITT Industries agrees to make appropriate payments to the ITT Destinations
Group and the ITT Hartford Group for the refund of estimated payments previously
made with respect to their Consolidated Return year Separate Consolidated
Federal Income Tax Liability. Such payment shall take into account the benefit
of any net capital loss, net operating loss, credit or deduction of the ITT
Destinations Group or the ITT Hartford Group if the Federal Tax Administrator
reasonably determines that such item will produce a benefit in the Consolidated
Return.
(b) Each of the ITT Destinations Group and the ITT Hartford
Group further agrees to make an interim tax settlement with ITT Industries on or
before March 14, 1996 equal to their Separate Consolidated Federal Income Tax
Liability, modified and increased as described in paragraph 5(a) and reduced by
prior estimated tax payments.
(c) Based on computations to be prepared by the affected Group and
approved by the Federal Tax Administrator, an adjusting payment for the
difference between amounts previously paid and the Allocable Federal Income Tax
Liability shall be made by or to the ITT Destinations Group and the ITT Hartford
Group, as the case may be, on or before October 15, 1996 based on the
Consolidated Return as filed. Each of the ITT Destinations Group and the ITT
Hartford Group shall increase their liability for such adjusting payment by the
amount of any AMT credit carryforward allocated to them under the consolidated
return regulations which exceeds the AMT calculated on a separate consolidated
basis.
6. Recomputations of Tax and Payments. (a) The computation of the
Adjusted Allocable Federal Income Tax Liability of the ITT Destinations Group or
the ITT Hartford Group for the Consolidated Return or any Prior Period
Consolidated Return shall be adjusted in computations to be prepared by the
affected Group and approved by the Federal Tax Administrator with respect to
changes in the taxable income, loss, deduction or tax credits of the ITT
Destinations Group or the ITT Hartford Group:
(i) in each instance when payments are to be made to, or
refunds are received from, the IRS;
(ii) when no payment is to be made or refund is to be received
due to offsetting adjustments, upon filing of an amended return,
completion of an IRS audit and completion of an IRS appellate review;
and
(iii) to reflect the results of any Final Determination.
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ITT Destinations and ITT Hartford each agree to pay to ITT Industries
any additional amounts (including penalties and additions to tax) due on account
of increases in the Adjusted Allocable Federal Income Tax Liability of the ITT
Destinations Group or the ITT Hartford Group resulting from any such changes,
and ITT Industries agrees to pay ITT Destinations or ITT Hartford any refunds to
which the ITT Destinations or ITT Hartford Group may be entitled, in each case,
together with any interest relating thereto. For purposes of this agreement,
unless specifically provided otherwise, interest shall be computed at the
Federal statutory rate used, pursuant to Section 6621(a) of the Code, by the IRS
in computing the interest payable to or by it on the net balance due to or from
the IRS. Any interest under Section 6621(c) of the Code shall be charged to the
Group whose separate deficiencies gave rise to such interest. If the separate
deficiencies of more than one Group gave rise to such interest, then such
interest shall be allocated between or among such Groups. Penalties levied in
respect of the Consolidated Return or any Prior Period Consolidated Return shall
be charged to the Group whose separate computations gave rise to the penalty. If
the separate computations of more than one Group gave rise to the penalty, then
such penalty shall be allocated between or among such Groups. If a penalty does
not arise from the separate computations of the Groups, it shall be allocated in
proportion to the tax in the separate tax computations of the Groups.
(b) Amounts payable to or by ITT Industries by or to ITT Destinations
or ITT Hartford under this paragraph 6(b) shall be paid upon written request
therefor approved by the Federal Tax Administrator, together with interest
thereon from the original due date or such other date as may be appropriate
under the circumstances. Any amounts due from ITT Industries to ITT Destinations
or ITT Hartford as a result of the receipt of a refund shall be paid within five
working days after receipt, together with appropriate interest thereon. If no
refund is to be received due to offsetting items among the various Groups, then
tax and interest (computed at the IRS overpayment rates) shall be paid within 30
calendar days after the completion of each of the IRS audit and appellate review
of the tax period in question and a Final Determination. After expiration of the
five day period (or, if applicable, 30 day period) any amounts unpaid shall bear
interest computed from the date of receipt at the Prime Rate.
(c) No settlement of any Adjusted Allocable Federal Income Tax
Liability relating to any Group shall be made by one Group with respect to the
IRS audit of the Consolidated Return or a Prior Period Consolidated Return until
the audit has been completed with respect to all Groups, unless such advance
settlement has been approved by ITT Industries and such Group.
7. Special Rules. (a) If the Consolidated Return or any Prior Period
Consolidated Return tax liability (including any interest relating thereto)
exceeds or is less than the total of the three Groups Allocable Federal Income
Tax Liability or Adjusted Allocable Federal Income Tax Liability, as
appropriate, (including any interest relating thereto) the cost or benefit of
any net difference shall be allocated equally to ITT Industries and ITT
Destinations, provided, that AMT in an amount equal to any AMT credit
carryforward from the Consolidated Return allocated to a Group shall be borne by
such Group.
(b) The liability for any environmental tax shall be apportioned among
the ITT Industries Group, the ITT Destinations Group and the ITT Hartford Group
in proportion to their separate Group liability therefor, computed without the
benefit of the amount referred to in Section 59A(a)(2) of the Code.
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(c) Each of the Companies agrees that, unless it obtains consent of
each of the other Companies, all members of its Group will waive the carryback
of any net operating loss from a tax period beginning on or after January 1,
1996 to the Consolidated Return or Prior Period Consolidated Return.
8. Treatment of Various Items. (a) In computing the Allocable Federal
Income Tax Liability of any Group for the purposes of this Agreement, each Group
shall be entitled to the benefits of any net operating loss, net capital loss,
deduction or credit or any adjustment arising from an IRS audit, amended return
or otherwise (each, a "TAX ITEM") attributable to it, or any carryback of a Tax
Item attributable to it, which produces a benefit in the Consolidated Return or
any Prior Period Consolidated Return. In determining whether a Tax Item or
carryback of a Tax Item produces such a benefit, no Group shall be entitled to
the benefits of any Tax Item which is a carryforward into a taxable year which
begins after the Distribution Date. If the Tax Item or carryback of a Tax Item
results in a carryforward into a taxable year which begins after the
Distribution Date and such carryforward subsequently produces a realized benefit
(including a realized benefit as the result of a tax basis increase), or other
use, in such year after considering all other items of taxable income or credits
otherwise available to such other Group (a "NET REVERSAL BENEFIT"), then such
Net Reversal Benefit, when realized, shall be paid by such other Group to the
Group generating, or otherwise bearing the cost of, such Tax Item or carryback
of a Tax Item. For purposes of this Agreement, a Net Reversal Benefit shall be
deemed to be realized when included in a filed tax return and shall be
recomputed if adjusted upon audit by the IRS. Settlement of a Net Reversal
Benefit and any related interest shall be made within 30 days. The benefit of
any carryback of a Tax Item to the Consolidated Return or any Prior Period
Consolidated Return shall be payable only as and to the extent that such
carryback reduces the Consolidated Return or Prior Period Consolidated Return
tax or produces a Net Reversal Benefit. In the event that ITT Industries pays an
amount to ITT Destinations or ITT Hartford with respect to any Tax Item or
carryback of a Tax Item and the benefit of such item or carryback to the
Consolidated Return or any Prior Period Consolidated Return is subsequently
modified (whether as the result of an IRS or foreign tax authority's adjustment
or any other reason), then the amount previously paid shall be appropriately
increased or repaid, as the case may be, with interest, penalties and additions
to tax as provided in paragraph 6(a). If no AMT is payable in the Consolidated
Return or any Prior Period Consolidated Return, no Group shall include AMT in
its Allocable Federal Income Tax Liability for such year. To the extent that AMT
results from a carryback from a year beginning after the end of the Consolidated
Return year, then such AMT shall be allocated to the Group giving rise to the
carryback and such Group shall be entitled to recover any Net Reversal Benefit
resulting from any AMT credit carryforwards associated with such AMT.
(b) In the event that two or more carrybacks of Tax Items are available
for use in the Consolidated Return or in any Prior Period Consolidated Return,
their order of use will be determined by the Code and the regulations
thereunder. Where two or more carrybacks of Tax Items have equal priority and
can not be used in full, each such carryback shall be used by the affected
Groups in proportion to the total of such carrybacks.
(c) Amounts equal to research credits allowed upon any audit of the
Consolidated Return or any Prior Period Consolidated Return which are
attributable to the activities of the ITT Destinations Group or the ITT Hartford
Group prior to the Distribution Date will be paid by
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ITT Industries to ITT Destinations or ITT Hartford. However, if no credit is
allowed, no payment will be made. If a portion of the total credit claimed on
the Consolidated Return or any Prior Period Consolidated Return is not allowed,
only a portion of the credit as finally allowed (computed in proportion to
qualified expenditures as finally allowed) will be paid by ITT Industries to ITT
Destinations or ITT Hartford.
(d) Adjustments pursuant to paragraphs 6 and 7 hereof to the tax
liability (including interest and penalties) of or with respect to any business
listed on Schedule 1.01(d) of the Distribution Agreement for any taxable year
before or including the Distribution Date, shall be apportioned among the Groups
in the same manner as the other liabilities with respect to such business are
apportioned in the Distribution Agreement; provided, that any adjustment with
respect to any issue which has not been cleared with the Federal Tax
Administrator, or for which a "more likely than not" opinion from tax advisors
reasonably acceptable to the Federal Tax Administrator has not been received by
him prior to the filing of the Consolidated Return, shall be charged to the
Group in whose tax return the adjustment arose, with the balance being
apportioned. Any benefit (including any Net Reversal Benefit) arising as a
result of an adjustment pursuant to this paragraph 8(d) or paragraph 8(e) below
shall be similarly allocated and apportioned. In computing the effect of
adjustments with respect to companies listed on Schedule 1.01(d) of the
Distribution Agreement, all such adjustments shall be combined and treated as if
they were deemed to be a separate fourth Group. Notwithstanding the foregoing,
changes in FTC's generated by a company listed on Schedule 1.01(d) of the
Distribution Agreement and related gross-up pursuant to Section 78 of the Code
shall be allocated to the Group owning such Company and no FTC benefits or FTC
carryforwards shall be computed for such deemed fourth Group.
(e) If United States Federal income taxes with respect to the
operations or sale of the businesses of or assets of ITT Financial Corporation,
and the legal entities which were direct or indirect subsidiaries of ITT
Financial Corporation prior to its liquidation, (such operations or sale,
collectively "ITT FINANCIAL OPERATIONS") differ from the amounts reflected in
any Prior Period Consolidated Return or in the Consolidated Return, when filed,
then such difference in tax liability shall be apportioned equally among the
three Groups. To the extent that the statutory tax rate on capital gains with
respect to ITT Financial Operations is less than 35%, the difference, when
realized, shall be apportioned equally among the three Groups. However, the tax
benefit of the anticipated closedown cost reserve of $103 million with respect
to ITT Financial Corporation and subsidiaries as of December 1, 1995 shall be
for the account of ITT Industries. In addition, state, local and foreign taxes
with respect to ITT Financial Operations which differ from the amounts in the
returns as originally filed (including the returns to be filed with respect to
1995), shall be similarly apportioned.
(f) If actions taken on or before the Distribution Date cause any of
the Companies to be liable under the tax indemnities contained in the covenants,
loan agreements or offering memoranda of any debt instruments of a company
included in the Consolidated Return and listed on Schedule 1.01(d) of the
Distribution Agreement, with respect to obligations which remain outstanding at
the Distribution Date, then the cost of such tax indemnity shall be shared
equally among the Groups.
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9. Taxes Other Than Federal Taxes. (a) The Companies and their
subsidiaries shall file income and franchise tax returns in those jurisdictions
in which they are required to do so. Consistent with prior practice, the
Companies and their subsidiaries shall file combined tax returns in certain
jurisdictions. If any state or local income or franchise tax audit adjustment
attributable to any of the Companies, or any subsidiary of any of the Companies,
increases or decreases such combined tax liability for a taxable period
beginning on or before the Distribution Date, then an amount in respect of that
adjustment shall be paid as provided in paragraph 9(c) hereof. The State Tax
Administrator shall have the power and responsibility to act in a manner
substantially identical to the Federal Tax Administrator in connection with all
combined state and local tax returns and settlements with respect thereto;
provided that, without the consent of any affected Group, the cost to any Group
of outside services in any calendar year shall not exceed $5,000. In connection
with any Connecticut Combined Group Return, the Director of Taxes of ITT
Hartford shall act for the State Tax Administrator with respect to the ITT
Hartford Group.
(b) Tax liabilities incurred and refunds received by any of the
Companies or by a subsidiary of any of the Companies (other than those relating
to Federal, state and local income or franchise taxes computed on a combined or
consolidated basis) and all taxes not measured by income, including, but not
limited to, premium, ad valorem, capital stock, sales, use, real and personal
property, special assessment, franchise, automobile registration, employment,
earnings, duty and import taxes (plus interest) shall be for the account of ITT
Industries, ITT Destinations or ITT Hartford, as the case may be. All foreign
taxes shall be allocated to the Group which has legal ownership of the taxpayer
as of the Distribution Date, except that foreign taxes incurred with respect to
transactions undertaken in order to arrange the ownership of foreign companies
or assets to conform with management responsibility for such companies or assets
shall be apportioned equally among the Groups and that foreign taxes with
respect to operations of divisions of or subsidiaries of a foreign company which
are managed by a Group other than the Group having legal ownership shall be
allocated to such other Group. If, as a result of changes in foreign taxes which
are allocated or apportioned to one or more Groups under this paragraph 9(b) or
under paragraph 8(e), another Group realizes a benefit in the Consolidated
Return or any Prior Period Consolidated Return, after considering all other
credits otherwise available to such other Group except credit carrybacks from a
taxable year beginning after the Distribution, or a Net Reversal Benefit, then
such other Group shall pay the amount of such benefit or Net Reversal Benefit to
the Group or Groups to which the foreign taxes were allocated or apportioned.
(c) Consistent with prior practice, the Companies will reimburse each
other for any payment by one of them to a state or local tax authority which is
determined to be for the account of another Company, provided however that such
matter is timely referred to the State Tax Administrator. The rules contained in
paragraph 6(b) will apply to amounts any party must pay.
10. Tax Deficiencies and Claims. (a) The Federal Tax Administrator
shall defend or prosecute proposed or actual income tax deficiencies or refund
claims with respect to the Consolidated Return or any Prior Period Consolidated
Return where that deficiency or claim relates to the businesses of all of the
Groups or with respect to any businesses listed on Schedule 1.01(d) of the
Distribution Agreement. In connection with such defense or prosecution, the
Federal Tax Administrator may retain such accountants and counsel as required
and charge their costs ratably to each Group with the prior approval of each
Group, which approval shall not be unreasonably withheld or delayed. Similarly,
any compromise or settlement of such a claim or
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deficiency may be made by the Federal Tax Administrator only after receipt of
the approval of each Group, which shall not be unreasonably withheld or delayed.
The Federal Tax Administrator will keep all Groups timely advised of all matters
relating to such defense or prosecution.
(b) Any proposed or actual income tax deficiencies or refund claims
with respect to the Consolidated Return or any Prior Period Consolidated Return
which arise from the business activities of only one Group may be defended or
prosecuted by that interested Group at its own cost and expense and with counsel
and accountants of its own selection. Either of the remaining Groups may
participate in any such prosecution or defense at its own cost and expense (in
either event such cost or expense is not to include the amount of any payment of
any tax claim, interest or penalties, or of any compromise settlement or other
disposition thereof). The interested Group may control the proceedings, but it
may not compromise or settle any deficiency of tax or refund claim for the
Consolidated Return year or any Prior Period Consolidated Return year without
the prior written consent of the other Groups, which shall not be unreasonably
withheld. Notwithstanding the foregoing, no Group shall have a right to an
extension of the statute of limitations beyond the time reasonably necessary to
complete review at the Appeals Division of the IRS or to any waiver of any other
procedural safeguard. The limitation expressed in the preceding sentence
applies, but is not limited to, the filing of a petition with the United States
Tax Court. If any Group defends or prosecutes an action, it shall keep each
other Group informed of matters relating to such defense or prosecution.
(c) Where proposed or actual income tax deficiencies or refund claims
of the type described in paragraph 10(b) above arise from the business
activities of two Groups, those Groups may jointly participate in the
prosecution or defense of such claims or deficiencies on the basis of and
subject to the limitations of paragraph 10(b) above.
11. Dispute Resolution. In the event of a disagreement between the
Federal Tax Administrator (or, if with respect to state or local taxes, the
State Tax Administrator) and another party hereto, all computations or
recomputations of Federal or state and local income and franchise tax liability,
and all computations or recomputations of any amount or any payment (including,
but not limited to, computations of the amount of the tax liability, any loss or
credit or deduction, Federal statutory tax rate change for a year, utilization
of carryback items, interest, penalties, and adjustments) and all determinations
of the amount of payments or repayments, or determinations of any other nature
necessary to carry out the terms of this Agreement will be reviewed by Xxxxxx
Xxxxxxxx LLP or another mutually satisfactory third party, with the costs of
such review to be shared equally by the disputing parties. If any disagreement
remains after any such review, including any disagreement as to the
applicability or the binding nature of this Agreement, that disagreement will be
resolved as provided by Article VI of the Distribution Agreement. In such case,
the arbitrator shall be a retired or former judge of the United States Tax Court
or such other qualified person as the relevant parties may agree to designate,
provided that such individual has had substantial experience with regard to
settling complex tax disputes.
12. Tax Benefit Transfer Leases. (a) In computing any ITT Destinations
and ITT Hartford payment to ITT Industries under this Agreement, ITT
Destinations and ITT Hartford, and their respective subsidiaries and Groups,
will determine their tax liability as if their tax benefit transfer leases were
not in effect.
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(b) ITT Destinations and ITT Hartford will indemnify ITT Industries if
ITT Industries is required to make any termination payments or other payments,
including interest and penalties, resulting from their failure to perform under
a tax benefit transfer lease.
(c) ITT Industries agrees to continue to provide assistance to ITT
Destinations and ITT Hartford in connection with their tax benefit transfer
leases.
13. Survival of Terms. The provisions of this Agreement shall survive
the Distribution and remain in full force until all periods of limitations,
including any extensions or waiver periods, as well as the ten-year statute of
limitations with respect to foreign tax credit redeterminations, for the
Consolidated Return period and Prior Period Consolidated Return periods have
expired and no further carrybacks to such periods are possible. At that time all
remaining payments required under this Agreement shall become immediately due
and payable.
14. Parties to Cooperate. Each of the Companies and their subsidiaries
shall cooperate fully and to the extent reasonably requested by the other party
in connection with the preparation and filing of any return or the conduct of
any audit, dispute, proceeding, suit or action concerning any issues or any
other matter contemplated hereunder. Such cooperation shall include, without
limitation, (i) the retention and provision on demand of books, records,
documentation or other information relating to any tax matter until the later of
(x) the expiration of the applicable statute of limitation (giving effect to any
extension, waiver, or mitigation thereof) and (y) in the event any claim has
been made under this Agreement for which such information is relevant, until a
Final Determination with respect to such claim; (ii) the provision of additional
information with respect to and explanation of tax practices (elections,
accounting methods, conventions and principles of taxation) and material
provided under clause (i) of this paragraph 14; (iii) the execution of any
document that may be necessary or reasonably helpful in connection with the
filing of any tax return by any member of one of the Groups, or in connection
with any audit, proceeding, suit or action addressed in the preceding sentence;
and (iv) the use by each of the Companies of its reasonable efforts to obtain
any documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing. Each of the companies
shall make its employees and facilities available on a mutually convenient basis
to facilitate such cooperation and shall retain as permanent records all
documentation necessary to enable it to determine any obligation under this
Agreement. The records described above will be made available to representatives
of any of the Companies within a reasonable time upon request and may be
photocopied on an as needed basis.
15. Distribution Taxes. (a) If the Distribution is ultimately held to
be a taxable transaction and there has been no material breach of the covenants
contained in Section 2.10 of the Distribution Agreement, then any tax liability
incurred by ITT Industries (as well as any tax liability of the Companies with
respect to the cost of additional taxes paid by its shareholders receiving ITT
Destinations and ITT Hartford stock in the Distribution) shall be divided
equally among the Companies. If any of the Companies (or any subsidiary thereof)
take any action after the Distribution which materially contributes to a Final
Determination that the distribution is a taxable event, then such Company will
indemnify ITT Industries for its tax liability (including interest and
penalties) and any resulting payments (computed after any available tax benefit)
which ITT Industries makes to its shareholders with respect to the cost of
additional taxes, whether or not ITT Industries is legally obligated to make
such payments. No such settlement shall be
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entered into without the agreement of each Group having liability with respect
thereto under the terms of this Agreement.
(b) Taxes which are triggered in the Consolidated Return and which
relate to the intercompany sale or distribution of stock of a subsidiary by one
Group to another Group (but not those which relate to the intercompany sale or
distribution of other assets) shall be shared equally by the three Groups.
16. Gain Recognition Agreements. Adjustments to the tax liability
(including interest and penalties) of ITT Industries which result because of
actions taken by either ITT Destinations or ITT Hartford after the Distribution
Date which trigger any gain recognition agreements entered into in a Prior
Period Consolidated Return year by ITT Industries pursuant to Section 367 of the
Code shall be charged to the ITT Destinations Group or to the ITT Hartford
Group, as the case may be. ITT Industries shall make available to ITT
Destinations and ITT Hartford copies of such gain recognition agreements
immediately after the Distribution.
17. No Self-Approval. Any computation or issue of the ITT Destinations
Group which is to be approved by or cleared with the Federal Tax Administrator
shall also be approved by or cleared with the Director of Taxes of ITT
Industries and any computation or issue of the ITT Industries Group which is to
be approved by or cleared with the State Tax Administrator shall also be
approved by or cleared with the Director of Taxes of ITT Destinations.
18. Notices. Any notices, payments or other communications required by
this Agreement shall be made as provided in the Distribution Agreement with a
copy to the attention of the Director of Taxes of the appropriate Company.
19. Indemnification. ITT Industries shall indemnify ITT Destinations
and ITT Hartford for any Federal or state income or franchise taxes for any
taxable period (or portion of a taxable period) ending before or including the
Distribution Date for which the ITT Destinations Group or the ITT Hartford Group
or any ITT Destinations Subsidiary or ITT Hartford Subsidiary may be liable
solely as a result of the operation of Treasury Regulation Sections 1.1502-6 and
1.1502-77 or any state counterpart statute or regulation.
20. Certain Pending Claims. The tax and interest effects of the tax
refund litigation covering the period 1970 through 1980 (with possible rollover
effects on subsequent years) shall be allocated 50% to ITT Industries and 50% to
ITT Destinations. The tax and interest effects of the tax refund claim with
respect to the 1987 reserve strengthening issue shall be allocated solely to ITT
Hartford.
21. Choice of Law; Successors and Assigns. This Agreement shall be
governed and construed in accordance with the laws of the State of New York
applicable to contracts executed in and to be performed in that state. This
Agreement shall be binding on the successors and assignees of the Companies.
22. Entire Agreement. This Agreement contains the entire agreement
among the Companies with respect to the subject matter hereof and supersedes all
prior written tax sharing or tax allocation agreements, memoranda, negotiations
and oral understandings, if any, and may not be amended, supplemented or
discharged except by performance or by an instrument in
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writing signed by all of the Companies. However, this Agreement does not
supersede the certain Agreement and Plan of Merger identified in the first
footnote on page 3 of Schedule 1.01(c) of the Distribution Agreement, provided,
however, that the liabilities of ITT Corporation with respect to tax matters
under such Agreement and Plan of Merger shall be apportioned as provided in the
Distribution Agreement for liabilities of ITT Financial Corporation and its
subsidiaries.
23. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Companies have duly executed this Agreement as
of the date first above written.
ITT CORPORATION
(Corporate Seal)
ATTEST: By: ____________________________
Name:
Title:
ITT DESTINATIONS, INC.
(Corporate Seal)
ATTEST: By: ____________________________
Name:
Title:
ITT HARTFORD GROUP, INC.
(Corporate Seal)
ATTEST: By: ____________________________
Name:
Title:
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