SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(Amendment No. 24)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
ITT CORPORATION
(Name of Subject Company)
ITT CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, no par value
(including the associated Series A Participating
Cumulative Preferred Stock Purchase Rights)
(Title of Class of Securities)
450912 10 0
(CUSIP Number of Class of Securities)
RICHARD S. WARD, ESQ.
Executive Vice President,
General Counsel and Corporate Secretary
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019-5490
(212) 258-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
PHILIP A. GELSTON, ESQ.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
<PAGE>
INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") originally filed on February 12, 1997, by ITT
Corporation, a Nevada corporation (the "Company"), relates to an offer
by HLT Corporation, a Delaware corporation ("HLT") and a wholly owned
subsidiary of Hilton Hotels Corporation, a Delaware corporation
("Hilton"), to purchase 61,145,475 shares of the common stock, no par
value (including the associated Series A Participating Cumulative
Preferred Stock Purchase Rights), of the Company. All capitalized
terms used herein without definition have the respective meanings set
forth in the Schedule 14D-9.
Item 7. Certain Negotiations and Transactions by the Subject
Company.
The response to Item 7 is hereby amended by adding the
following after the final paragraph of Item 7:
On August 1, 1997, ITT Sheraton Corporation entered into an
agreement in principle with Davis Gaming, L.L.C. ("Davis Gaming"), a
Delaware limited liability company owned by Marvin Davis, to form two
50/50 joint ventures to own The Desert Inn Resort and Casino (the
"Desert Inn") in Las Vegas, Nevada, and a 34 acre parcel of land
adjacent to the Desert Inn. The Desert Inn and the 34 acre parcel of
land are currently owned by a subsidiary of the Company. Under the
terms of the agreement in principle, the Company will receive $250
million in cash, including a $150 million cash payment from Davis
Gaming and $100 million from the proceeds of new debt issued by the
Desert Inn joint venture. The Company, through its Caesars World, Inc.
subsidiary, will manage the Desert Inn for a period of ten years with
an option to extend the management contract for an additional ten-year
period. Over the next two years the joint venture partners will
carefully consider the feasibility of developing a new hotel and
casino on the 34 acre parcel. Should the decision be made to proceed,
ITT will also manage the new property. At the insistence of Davis
Gaming, the transaction documentation will include certain "change of
control" provisions similar to those which have been included in other
transactions since the commencement of the Hilton Offer.
The transaction, which is subject to the execution of
definitive agreements, due diligence and certain other customary
closing conditions, is expected to be completed by November 1, 1997.
The Company's rights under the transaction will be retained by
Destinations, the subsidiary of the Company that will hold the
Company's hotels and gaming business, after completion of the
Distributions.
<PAGE>
A copy of a press release announcing the transaction and the
agreement in principle are filed as Exhibits 79 and 80 hereto,
respectively, and are incorporated herein by reference. The foregoing
description of the agreement in principle is qualified in its entirety
by reference to the agreement in principle.
Item 9. Exhibits.
The response to Item 9 is hereby amended by adding the
following new exhibits:
79. Text of Press Release issued by the Company dated
August 3, 1997.
80. Agreement in principle between ITT Sheraton Corporation
and Davis Gaming, L.L.C., dated August 1, 1997.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this Statement is
true, complete and correct.
ITT CORPORATION
By /s/ RICHARD S. WARD
Name: Richard S. Ward
Title: Executive Vice President,
General Counsel and
Corporate Secretary
Dated as of August 4, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
(79) Text of Press Release issued by the Company
dated August 3, 1997.
(80) Agreement in principle between ITT Sheraton
Corporation and Davis Gaming, L.L.C.,
dated August 1, 1997.
[Exhibit 79]
[Letterhead of ITT Corporation]
DATE: August 3, 1997
CONTACT: Jim Gallagher
TELEPHONE: 212-258-1261
FOR IMMEDIATE RELEASE
ITT AND DAVIS GAMING TO FORM JOINT VENTURE FOR DESERT INN;
ITT TO RECEIVE $250 MILLION AND RETAIN 50% STAKE
NEW YORK, NY, AUGUST 3, 1997 -- ITT Corporation and Davis
Gaming, L.L.C., owned by Marvin Davis, announced today the signing of
an agreement in principle to form a 50/50 joint venture to own The
Desert Inn Resort and Casino in Las Vegas, Nevada, and the 34 acre
parcel of land which is adjacent to the property. The transaction
places an enterprise value of $400 million on the property.
The terms of the transaction provide for ITT to receive $250
million in cash, including $150 million from Davis Gaming and $100
million as the proceeds of new debt issued by the Desert Inn joint
venture, and to retain 50 percent ownership of the property. In
addition ITT, through its Caesars World subsidiary, will manage the
Desert Inn property for ten years with an option to extend the
management contract for an additional ten year period. Over the next
two years the joint venture partners will carefully consider the
feasibility of developing a new hotel and casino on the 34 acre
parcel.
<PAGE>
Should the decision be made to proceed, ITT will also manage the new
property. At the insistence of Davis Gaming, the transaction will
include certain "change of control" provisions similar to those which
other parties have insisted upon since the launch of Hilton
Corporation's hostile offer for ITT.
The transaction, which is subject to the execution of a
definitive agreement, due diligence and certain other customary
closing conditions, is expected to be completed by November 1 and will
be immediately accretive to ITT's earnings.
"We believe this joint venture gives ITT the best of all
worlds -- $250 million in cash, continued ownership of this premium
property and a great partner in Marvin Davis," Rand V. Araskog
chairman and chief executive of ITT said.
"The Desert Inn has a rich and colorful history on the Las
Vegas Strip," said Mr. Davis. "It is a unique property that ITT is
transforming into the only 5-star casino resort hotel in Las Vegas.
I'm very pleased with the opportunity to work with ITT to ensure the
future success of this outstanding destination," Mr. Davis said.
The Desert Inn, acquired by ITT in 1993 for $160 million, is
currently undergoing a major renovation which is expected to be
completed in early October. The luxury property has approximately 700
rooms including 90 suites, a 30,000 square foot casino, 30,000 square
feet of meeting space, four restaurants, a 500 seat showroom, an
18-hole championship golf course, four tennis courts, a European style
spa and fitness center, and a swimming pool.
<PAGE>
ITT Corporation is the parent company of Caesars World, Inc.
which owns and operates Caesars Palace in Las Vegas, Caesars Atlantic
City and Caesars Lake Tahoe. The company is currently building a
riverboat casino in Harrison County, Indiana, and is a joint venture
partner in casinos in Halifax and Sydney. ITT also owns ITT Sheraton
Corporation, one of the world's largest hotel companies with nearly
425 owned, managed and franchised hotels in 63 countries around the
globe as well as The Sheraton Casino in Tunica, Mississippi. ITT also
owns ITT World Directories and an 83% interest in ITT Educational
Services (NYSE:ESI).
- ITT -
[Exhibit 80]
August 1, 1997
Mr. Rand Araskog
Chairman
ITT Sheraton Corporation
c/o ITT Corporation
1330 Avenue of the Americas
New York, New York 10019
Re: The Desert Inn Resort & Casino
Gentlemen:
The following is a summary of the basic business terms upon which
Davis Gaming, L.L.C., or an entity affiliated with Marvin Davis
("Davis"), and a wholly-owned subsidiary ("ITT Subsidiary") of ITT
Sheraton Corporation will form a Nevada limited liability company (the
"Owner Venture") to be owned 50/50 by each of Davis and ITT Subsidiary
to purchase and own certain property currently owned by Sheraton
Desert Inn Corporation and its affiliates (the "Current Owner")
located in Las Vegas, Nevada, and commonly known as The Desert Inn
Resort & Casino (the "Property").
1. Description of the Property. The Property will include: (a) a
hotel containing (i) approximately 700 rooms, (ii) an approximately
30,000 square foot gaming area, (iii) approximately 30,000 square feet
of meeting space, (iv) 4 restaurants and (v) an approximately 500 seat
showroom; (b) an 18 hole championship golf course, including a
clubhouse and other golf course-related assets; (c) 4 tennis courts;
(d) a European style spa and fitness center; (e) a swimming pool; (f)
surface and structured parking facilities; and (g) miscellaneous other
assets associated with the Property described above.
The Property will not include (A) any receivables generated by
the Property and attributable to the period prior to the Closing Date
(as defined below) or (B) any of the cash, or other marketable
securities, which constitute the working capital of the Property as of
the Closing Date.
Certain portions of the Property are subject to an ongoing
renovation and construction project (the "Renovation Project"). The
Current Owner shall continue to complete the Renovation Project in
accordance with the existing plans and specifications and at its sole
cost and expense. If the renovation and construction has not been
completed prior to the "Closing" (as defined below), the Current Owner
and ITT shall nevertheless jointly and severally be obligated to pay
all costs and expenses of completing the Renovation Project free and
clear of all liens.
2. Formation of the Owner Venture; Capital Contributions.
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 2
a. Prior to the execution of the Purchase Agreement (as
defined below), Davis and ITT Subsidiary shall form the Owner Venture
pursuant to an agreement in form and substance acceptable to both
parties in their reasonable discretion (the "Venture Agreement").
b. Immediately prior to the Closing, each of Davis and ITT
Subsidiary shall contribute $100,000,000 in cash to the Owner Venture
(the "Initial Capital Contributions"). In addition, the parties shall
obtain $100,000,000 of non-recourse acquisition financing for the
balance of the "Purchase Price" (as defined below), which financing
shall be secured by the Property, on terms and conditions acceptable
to the parties in their reasonable discretion; provided that (i)
neither Davis, ITT Subsidiary nor any of their respective affiliates
shall be required to provide any guaranty with respect to such
financing, and (ii) neither Davis nor ITT Subsidiary shall be required
to pledge their respective interests in the Owner Venture to secure
such financing. It is the intent of the parties that they will agree
on the terms and conditions of such non-recourse financing prior to
the execution of the Purchase Agreement.
c. If additional capital is necessary, in the reasonable
discretion of ITT Subsidiary or Davis, for emergencies, to preserve or
protect the Property or to fund operating shortfalls (such amounts,
"Additional Capital Contributions"), ITT Subsidiary or Davis may make
a call for such additional amount, and each of ITT Subsidiary and
Davis will be required to fund the called amounts 50/50. If either ITT
Subsidiary or Davis fails to fund any Additional Capital Contribution,
then the other party may elect to fund the full amount of such
Additional Capital Contribution and the defaulting party's equity
interest in the Owner Venture will be diluted in a manner to be agreed
upon, but in any event in an amount which reflects the value of the
Additional Capital Contributions. In connection with such dilution, if
either ITT Subsidiary's or Davis' interest in the Owner Venture falls
below 50% such party shall lose the right to elect one director. It is
the intent of the parties that the Owner Venture will attempt to
obtain a working capital or "overdraft" line of credit in the amount
of $10,000,000 to fund operating shortfalls.
d. Upon the formation of the Owner Venture and the Land
Venture and the execution of the Purchase Agreement and the Vacant
Land Purchase Agreement (as defined below), Davis shall deposit
$15,000,000 in escrow for the benefit of the Current Owner. The terms
of such escrow shall be in form and substance satisfactory to the
Current Owner and Davis. In the event that purchase and sale of the
Property or the Vacant Land does not occur as a result of a material
breach by Davis under the agreement forming the Owner Venture or the
Land Venture or a material breach (i) the Owner Venture of the
Purchase Agreement caused by Davis or (ii) the Land Venture of the
Vacant Land Purchase Agreement caused by Davis, then the Current Owner
shall receive such $15,000,000 as liquidated damages. In the event
that the purchase and sale of the Property or the Vacant Land does not
occur as a result of (x) a material breach by the Current Owner of the
Purchase Agreement, (y) a material breach by ITT Subsidiary under the
agreement forming the Owner Venture or the Land Venture, or (z) a
material breach by (i) the Owner Venture of the Purchase Agreement
caused by ITT Subsidiary or (ii) the Land Venture under the Vacant
Land Purchase Agreement caused by ITT Subsidiary, then Davis shall be
entitled to receive as liquidated damages from the Current Owner or
ITT Subsidiary, as applicable, an amount equal to $15,000,000.
e. Prior to the Closing, Davis shall control all material
decisions of the Owner Venture and the Land Venture relating to the
Purchase Agreement and the purchase agreement (the "Vacant Land
Purchase Agreement") for the Vacant Land (as defined below) and the
due diligence, as applicable, to be performed in accordance with the
terms hereof.
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 3
3. Closing; Purchase Price.
a. The closing of the purchase of the Property from the
Current Owner (the "Closing") shall occur within 10 business days of
receipt of all applicable gaming licenses by the Owner Venture, but in
no event later than December 31, 1997 (the "Closing Date"). The
parties shall use reasonable best efforts to cause the Closing Date to
occur at the earliest practicable date.
b. At the Closing, the Current Owner shall convey and
transfer to the Owner Venture, by appropriate deeds, bills of sale and
assignments, the Property, together with all personal property,
inventory, consumables, plans, specifications and drawings, studies
and reports, fixtures, furniture, equipment, permits (to the extent
permitted by law), licenses (to the extent permitted by law),
tradenames, trademarks (other than intellectual property containing
the "Sheraton" trademark and related property), logos (other than
intellectual property containing the "Sheraton" logo and related
property), franchise rights, copyrights, agreements, warranties,
guaranties, leases, and all other property used in connection with the
ownership, operation or occupancy of the Property (all of which shall
be included within the definition of "Property"), free and clear of
all liens, claims, encumbrances and indebtedness, provided, however,
that the Property may be conveyed to the Owner Venture encumbered by
liens, other than those for the payment of money, which do not have a
material affect on the value of the Property or the use of the
Property as a first class hotel and casino. At the Closing, the
Current Owner shall convey and transfer to the Owner Venture all
right, title and interest to the tradename "Desert Inn" and any
related trademark and logo.
c. Concurrently with such transfer, the Owner Venture will
pay the purchase price of $300,000,000, plus or minus prorations (the
"Purchase Price"), to the Current Owner by wire transfer of
immediately available funds.
d. All items of income and expense, including prepaid income
and expenses, shall be prorated as of the Closing Date. The Current
Owner shall be responsible to pay for all expenses attributable to the
Property and the Vacant Land prior to the Closing Date and shall be
entitled to all income attributable to such period.
e. On the Closing Date, each of Davis and ITT Subsidiary
shall contribute to the Owner Venture an additional amount (estimated
to be approximately $3,500,000 each) in cash to be used as working
capital of the Owner Venture.
4. Distributions.
a. All cash flow of the Owner Venture (including without
limitation on account of operations, refinancings or sales) after
payment of all operating expenses (including fees and reimbursements
under the Management Agreement (as defined below), funding a capital
reserve for replacements in an amount of 4% of gross revenues, and
debt service under any working capital loan) attributed to the
following fiscal years shall be distributed as follows:
(i) for each of the first three (3) fiscal years of the
Owner Venture:
(A) First, to the payment of debt service, if any,
on up to $100,000,000 principal amount of non-recourse debt financing;
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 4
(B) Second, to the payment of all capital
expenditures in excess of capital reserves set forth in approved
budgets and necessary to maintain the Property as a first class hotel
and casino;
(C) Third, to each party funding Additional
Capital Contributions, pro rata, until such party has received a 10%
per annum simple return on its Adjusted Additional Capital
Contributions (as defined below);
(D) Fourth, to Davis until Davis has received a
10% per annum simple return on its Adjusted Initial Capital
Contribution (as defined below), which amount shall not be cumulative
and shall not accrue to the extent not paid in any year;
(E) Fifth, to ITT Subsidiary until ITT Subsidiary
has received a 10% per annum simple return on its Adjusted Initial
Capital Contribution (as defined below), which amount shall not be
cumulative and shall not accrue to the extent not paid in any year;
and
(F) Sixth, pro rata, 50% to Davis and 50% to ITT
Subsidiary (to the extent that distributions to such party pursuant to
Section 4a.(i) for such fiscal year and all prior fiscal years of the
Owner Venture results in such party having received a 10% per annum
simple return on its Adjusted Additional Capital Contributions and its
Adjusted Initial Capital Contribution for such fiscal years, any
amounts in excess thereof shall be applied first to reduce (for
purposes of this Section 4) such party's Additional Capital
Contributions and, second, to reduce (for purposes of this Section 4)
such party's Initial Capital Contribution).
(ii) For the fourth fiscal year of the Owner Venture:
(A) First, to the payment of debt service, if any,
on up to $100,000,000 principal amount of non-recourse debt financing;
(B) Second, to the payment of all capital
expenditures in excess of capital reserves set forth in approved
budgets and necessary to maintain the Property as a first class hotel
and casino;
(C) Third, to each party funding Additional
Capital Contributions, pro rata, until such party has received a 10%
per annum simple return on its Adjusted Additional Capital
Contributions;
(D) Fourth, to Davis until Davis has received a
10% per annum simple return on its Adjusted Initial Capital
Contribution, which amount shall not be cumulative and shall not
accrue to the extent not paid in any year;
(E) Fifth, to ITT Subsidiary until ITT Subsidiary
has received a 10% per annum simple return on its Adjusted Initial
Capital Contribution, which amount shall not be cumulative and shall
not accrue to the extent not paid in any year;
(F) Sixth, to ITT Subsidiary or Davis, until the
amount received by such party pursuant to Section 4a.(i) and this
Section 4a.(ii) equals the amount received by the other party pursuant
to Section 4a.(i) and this Section 4a.(ii); and
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 5
(G) Seventh, pro rata, 50% to Davis and 50% to ITT
Subsidiary (to the extent that distributions to such party pursuant to
Section 4a.(i) and this Section 4a.(ii) for such fiscal year and all
prior fiscal years of the Owner Venture results in such party having
received a 10% per annum simple return on its Adjusted Additional
Capital Contributions and its Adjusted Initial Capital Contribution
for such fiscal years, any amounts in excess thereof shall be applied
first to reduce (for purposes of this Section 4) such party's
Additional Capital Contributions and, second, to reduce (for purposes
of this Section 4) such party's Initial Capital Contribution).
(iii) For each fiscal year of the Owner Venture after
the fourth year thereof:
(A) First, to the payment of debt service, if any,
on up to $100,000,000 principal amount of non-recourse debt financing;
(B) Second, to the payment of all capital
expenditures in excess of capital reserves set forth in approved
budgets and necessary to maintain the Property as a first class hotel
and casino;
(C) Third, pro rata, 50% to Davis and 50% to ITT
Subsidiary until each has received a 10% per annum simple return on
its Adjusted Additional Capital Contributions and its Adjusted Initial
Capital Contribution;
(D) Fourth, to ITT Subsidiary or Davis, until the
amount received by such party pursuant to Section 4a.(i), Section
4a.(ii) and this Section 4a.(iii) equals the amount received by the
other party pursuant to Section 4a.(i), Section 4a.(ii) and this
Section 4a.(iii); and
(E) Fifth, pro rata, 50% to Davis and 50% to ITT
Subsidiary (to the extent that distributions to such party pursuant to
Section 4a.(i), Section 4a(ii) and this Section 4a.(iii) for such
fiscal year and all prior fiscal years of the Owner Venture results in
such party having received a 10% per annum simple return on its
Adjusted Additional Capital Contributions and its Adjusted Initial
Capital Contributions for such fiscal years, any amounts in excess
thereof shall be applied first to reduce (for purposes of this Section
4) such party's Additional Capital Contributions and, second, to
reduce (for purposes of this Section 4) such party's Initial Capital
Contribution).
For the purposes of this letter, (x) the term "Adjusted Initial
Capital Contribution" of either ITT Subsidiary or Davis shall mean the
Initial Capital Contribution of ITT Subsidiary or Davis as reduced
from time to time pursuant to Section 4a.(i)(F), Section 4a.(ii)(G)
and Section 4a.(iii)(E) and (y) the term "Adjusted Additional Capital
Contributions" of either ITT Subsidiary or Davis shall mean the sum of
all Additional Capital Contributions made by ITT or Davis as reduced
from time to time pursuant to Section 4a.(i)(F), Section 4a.(ii)(G)
and Section 4a.(iii)(E).
b. If at the end of the fourth fiscal year of the Owner
Venture, Davis has not received a 10% per annum simple return on its
Adjusted Initial Capital Contribution with respect to such fourth
fiscal year only, then Davis shall have a period of 90 days from the
end of such fourth fiscal year in which to elect to "put" its interest
in the Owner Venture to ITT Subsidiary for an amount equal to (i)
Davis' Initial Capital Contribution and Additional Capital
Contributions plus (ii) an amount sufficient to yield Davis a 10% per
annum simple return on Davis' Adjusted Initial
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 6
Capital Contribution and Adjusted Additional Capital Contributions
from time to time minus (iii) all distributions Davis has received
from the Owner Venture since the Closing Date.
c. Except as provided herein, neither ITT Subsidiary nor
Davis will, directly or indirectly, sell, assign or otherwise transfer
any of its interest in the Owner Venture without the consent of the
other party except to certain affiliates controlled by (i) ITT or (ii)
Marvin Davis, Davis family members or trusts established for the
benefit of any of the foregoing. Any such transfer will be void and
have no force or effect. Commencing on the tenth anniversary of the
Closing Date, and thereafter on an annual basis, either Davis or ITT
Subsidiary shall have the right to institute a buy/sell mechanism. The
terms of such buy/sell mechanism shall be mutually acceptable to Davis
and ITT Subsidiary.
5. Management of Owner Venture.
a. The Owner Venture shall be managed by a Board of
Directors consisting of four (4) directors, two (2) of which shall be
appointed by ITT Subsidiary and two (2) of which shall be appointed by
Davis. Davis shall initially appoint Marvin Davis and Michael C.
Colleran to the Board of Directors and ITT Subsidiary shall initially
appoint Rand V. Araskog and Robert A. Bowman to the Board of
Directors. All decisions of the Owner Venture shall be made by the
affirmative vote of not less than three (3) directors. The Board of
Directors shall meet once per calendar quarter and may hold such
meetings by teleconference.
b. The ownership of the Owner Venture and the operation of
its assets shall be structured in a manner consistent with the
economic terms hereof to comply with applicable gaming license
regulations and laws of the State of Nevada. The parties will
reasonably cooperate to structure the transaction and the Owner
Venture, if necessary, to permit the transactions contemplated hereby
to occur in accordance with applicable law even though the Owner
Venture, its members, or the principals thereof, have not been finally
approved for gaming licenses to own the Property. Davis will agree to
use reasonable best efforts to obtain all gaming licenses in
connection with the transactions contemplated hereby which efforts may
include efforts to restructure certain relationships between Davis and
its affiliates, if necessary.
6. Management of the Property.
a. Concurrently with the purchase of the Property, the Owner
Venture shall enter into a Management Agreement (the "Management
Agreement") with an affiliate of ITT (the "Manager") on terms
reasonably acceptable to the Owner Venture and ITT Subsidiary pursuant
to which the Owner Venture will hire the Manager to manage the
day-to-day operations of the Property. Pursuant to the Management
Agreement, the Owner Venture shall pay the Manager a fee of three (3%)
percent of the gross revenues of the Property. In addition, the Owner
Venture shall pay directly, or reimburse the Manager for, all costs
and expenses of operating and managing the Property customarily
charged to hotels managed by ITT or its affiliates.
b. The Management Agreement shall be for an initial term of
ten (10) years commencing on the Closing Date. The Manager shall also
have the option to extend the Management Agreement for one additional
ten (10) year term. In addition, the Management Agreement shall
provide that it may be terminated upon any sale of the Property or if
Davis
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 7
purchases the interest of ITT Subsidiary in the Owner Venture pursuant
to the buy/sell provisions contained in the Venture Agreement (as
defined below).
7. Development of the Vacant Land.
a. In addition to the Owner Venture, Davis and ITT
Subsidiary will form a Nevada limited liability company (the "Land
Venture") to be owned 50/50 by each of Davis and ITT Subsidiary to
purchase, own and develop a 34 acre parcel of land (the "Vacant Land")
which is adjacent to the Property. Concurrently with the purchase of
the Vacant Land by the Land Venture, each of Davis and ITT Subsidiary
will contribute $50,000,000 in cash. The Land Venture will purchase
from the Current Owner the Vacant Land for a purchase price of
$100,000,000 in cash. The closing of the purchase of the Vacant Land
shall occur concurrently with the Closing of the purchase of the
Property. It is the intention of the parties that the Land Venture
shall commence construction of a hotel/casino on the Vacant Land
within two (2) years of the Closing Date. The design, theme, budget
and financing for the hotel/casino shall be subject to the mutual
agreement of ITT Subsidiary and Davis in their reasonable discretion.
If substantial development activities with respect to the Vacant Land
are not ongoing on the second anniversary of the Closing Date, then at
any time until such substantial development activities thereafter
commence, Davis shall have the right to "put" its interest in the Land
Venture to ITT Subsidiary for a price equal to (i) $60,000,000 plus
(ii) any capital contributed by Davis to fund development activities
with respect to the Vacant Land together with a ten percent (10%) per
annum simple return thereon minus (iii) and all distributions Davis
has received from the Land Venture since the Closing Date. Further, if
substantial development activities with respect to the Vacant Land are
not ongoing on the second anniversary of the Closing Date, then at any
time until such substantial development activities thereafter
commence, ITT Subsidiary shall have the right to acquire Davis'
interest in the Land Venture for a price equal to (i) $60,000,000 plus
(ii) any capital contributed by Davis to fund development activities
with respect to the Vacant Land together with a ten percent (10%) per
annum simple return thereon minus (iii) all distributions Davis has
received from the Land Venture since the Closing Date.
b. Prior to commencement of construction of the hotel/casino
on the Vacant Land, the Land Venture shall enter into a 20-year
management agreement with an affiliate of ITT (the "New Casino
Manager") on terms reasonably acceptable to the Land Venture and the
New Casino Manager pursuant to which the Land Venture will hire the
New Casino Manager to manage and operate, on a day-by-day basis, the
hotel/casino to be developed on the Vacant Land. Pursuant to such
Management Agreement, the Land Venture shall pay the New Casino
Manager three percent (3 %) of gross revenues of such hotel/casino. In
addition, the Land Venture shall pay directly, or reimburse the New
Casino Manager for, all costs and expenses of operating and managing
such hotel/casino customarily charged to hotels managed by ITT or its
affiliates.
c. The Land Venture shall be managed by a Board of Directors
consisting of four (4) directors, two (2) of which shall be appointed
by ITT Subsidiary and two (2) of which shall be appointed by Davis.
Davis shall initially appoint Marvin Davis and Michael C. Colleran to
the Board of Directors and ITT Subsidiary shall initially appoint Rand
V. Araskog and Robert A. Bowman to the Board of Directors. All
decisions of the Land Venture shall be made by the affirmative vote of
not less than three (3) directors. The Board of Directors shall meet
once per calendar quarter and may hold such meetings by
teleconference.
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 8
8. Due Diligence Period.
a. Davis shall have until September 1, 1997 (such period
being referred to herein as the "Due Diligence Period") in which to
perform its due diligence and review of the Property and the Vacant
Land. In connection therewith, the Current Owner will make available
to Davis and its counsel, consultants, agents and employees, all
contracts, agreements, rent rolls, leases, ground leases, lease
commitments, management agreements, title information, including title
commitments and documents referred to therein, surveys, zoning and
permit information, market studies, feasibility studies, capital
expenditure and FF&E budgets and history, engineering, soil and
environmental studies, architect's and contractor's bids, proposals
and agreements, plans, specifications, budgets, income statements and
other financial information and data and all other information,
documents and instruments which the Current Owner has in its
possession or under its control relating to the operation, management,
development, marketing and ownership of the Property and the Vacant
Land. Davis shall have the right to contact such persons or entities
as Davis may reasonably deem appropriate in connection with its due
diligence efforts, including government officials and employees, and
the Current Owner will cooperate with Davis in arranging interviews
and meetings for Davis with any such persons. The Current Owner shall
assist and cooperate with Davis as may be reasonably necessary to
facilitate Davis' due diligence and review. All due diligence shall be
performed at Davis' expense.
b. Davis' employees, agents, counsel and consultants will
also have the right to enter upon the Property and the Vacant Land at
reasonable times, upon reasonable notice to the Current Owner, in
order to inspect, examine, survey, perform physical and environmental
tests and otherwise do whatever Davis reasonably deems necessary or
appropriate to verify the accuracy of the information concerning the
Property and the Vacant Land previously provided by the Current Owner
to Davis and to investigate any other matter which Davis reasonably
deems appropriate in order to evaluate the Property and the Vacant
Land. Davis will protect, defend, indemnify and hold ITT and its
affiliates harmless from and against any and all liabilities, claims,
damages, losses, costs and expenses (including, without limitation,
reasonable attorneys' fees and court costs) arising out of or in
connection with any damage caused by the exercise by Davis or its
employees, agents, or contractors of its rights to enter upon the
Property and the Vacant Land and inspect, examine, survey and perform
physical tests upon same.
9. Certain Conditions to Closing. Among other standard and
customary conditions to closing to be provided for in the Purchase
Agreement, the following shall be conditions to the Owner Venture's
obligation to close the transaction contemplated hereby:
a. An ALTA extended coverage title policy (with customary
endorsements) naming the Owner Venture as the insured and a current
ALTA survey on all real property constituting part of the Property, in
form and substance reasonably satisfactory to Davis and its counsel
shall be provided by the Current Owner.
b. Appropriate liquor licenses and other required
non-transferable material licenses (including gaming licenses) shall
have been obtained by the Owner Venture.
c. There shall have been no material casualty which is not
repaired and no material condemnation proceedings shall be pending or
threatened in writing.
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 9
d. At Closing, there shall be reasonable and customary
levels of inventory (excluding working capital), consumables and
furniture, fixtures and equipment.
e. There shall have been no material adverse change in the
operational or financial condition of the Property since the date of
the execution of the Purchase Agreement.
With respect to the acquisition of the Vacant Land, the Land
Venture's obligation to close will be subject to conditions comparable
to a. and c. above.
Additionally, the parties shall promptly make all filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of
1975 ("HSR") and the waiting period thereunder shall have passed,
without objection, or approval shall have been obtained, to the extent
required by law.
10. Transaction Costs. All HSR filing fees, title insurance
premiums, escrow fees, survey costs and transfer, documentary and
conveyance fees and taxes shall be paid by the Owner Venture or the
Land Venture, as applicable. In the event the transaction contemplated
hereby fails to close, each party shall bear its own costs and
expenses.
11. Brokers.
a. ITT and the Current Owner each represent and warrant to
Davis that it has not engaged and has had no dealings with any broker,
agent, consultant or finder in connection with the transactions
contemplated herein to whom or to which a commission or fee shall be
due and payable, other than Goldman Sachs & Co. and Lazard Freres &
Co. LLC (which fees shall be paid by ITT), and agrees to indemnify,
defend and hold harmless Davis and its partners and the Property and
the Vacant Land from all broker's commissions, finder's fees or other
fees and commissions due upon the consummation of the transactions
contemplated hereby to any broker, agent, consultant or finder
claiming to have acted on its behalf.
b. Davis represents and warrants to ITT and the Current
Owner that it has not engaged and has had no dealings with any broker,
agent, consultant or finder in connection with the transactions
contemplated herein to whom or to which a commission or fee shall be
due and payable, and agrees to indemnify, defend and hold harmless ITT
and the Current Owner from all broker's commissions, finder's fees or
other fees and commissions due upon the consummation of the
transactions contemplated hereby to any broker, agent, consultant or
finder claiming to have acted on its behalf.
12. Suspension of Marketing; Operations.
a. In consideration of the considerable time and expenses
being incurred by Davis, including without limitation, lost
opportunity costs, as a result of the negotiation and execution of
this letter and its due diligence, following the execution of this
letter and until the expiration of the Due Diligence Period, ITT and
the Current Owner will not sell, enter into any agreement to sell,
continue to market, finance or refinance, directly or indirectly, any
interest in the Property or the Vacant Land to any party other than
Davis, nor solicit offers for the Property or the Vacant Land from any
other party, and ITT agrees to promptly notify Davis, in writing, of
any offers ITT or the Current Owner receives with respect to the
Property or the Vacant Land.
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Mr. Rand Araskog
August 1, 1997
Page 10
b. ITT and the Current Owner will keep Davis fully and
timely advised as to all material on- going matters relating to the
Property and the Vacant Land. The Current Owner will continue to
operate and manage in the ordinary course of business and in a first
class manner.
c. The parties acknowledge that without the posting of a
bond no adequate remedy may be available to Davis as a result of a
violation by ITT or the Current Owner of the provisions of this
Section 12. Accordingly, the parties agree that in the event of such a
violation, Davis shall be entitled to seek injunctive relief.
13. Notices. Any notice or requests to or from the parties must
be in writing and addressed as set forth below and will be effective
only upon receipt.
To Davis: c/o Davis Companies
2121 Avenue of the Stars Suite 2950
Los Angeles, California 90067
Attn: Michael Colleran
with a copy to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attn: David J. Bryant, Esq.
To ITT or the Mr. Rand Araskog
Current Owner: Chairman
ITT Sheraton Corporation
c/o ITT Corporation
1330 Avenue of the Americas
New York, New York 10019
with copies to: ITT Corporation
1330 Avenue of the Americas
New York, New York 10019
Attn: Patrick L. Donnelly, Esq.
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Kevin Grehan, Esq.
14. Definitive Agreement; Legal Effect.
a. Upon execution of this letter, the parties shall
negotiate in good faith the terms and conditions of a mutually
acceptable Venture Agreement and definitive agreement governing the
formation of the land Venture and a definitive agreement governing the
purchase of
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 11
the Property (including customary warranties, covenants, conditions
and remedies for a transaction of this nature) (the "Purchase
Agreement") and the Vacant Land Purchase Agreement. If after having
used good faith efforts to do so, the parties can not agree on a
Venture Agreement or a Purchase Agreement or documents relating to the
Land Venture or a Vacant Land Purchase Agreement by the expiration of
the Due Diligence Period, this letter shall be of no further force and
effect and neither party shall have any liability to the other.
b. Except for the provisions of Sections 8a. and b., 11, and
12a. hereof, this letter is not, and shall not be construed to be, a
binding contract between the parties. This letter constitutes the
preliminary expression of intent of the parties hereto with respect to
the performance of due diligence, the negotiation of a mutually
acceptable Venture Agreement, Purchase Agreement, documents relating
to the Land Venture and Vacant Land Purchase Agreement and the
consummation of the transaction herein set forth and does not address,
and is not intended to address, numerous points customarily included
in a Venture Agreement, Purchase Agreement, documents relating to the
Land Venture and Vacant Land Purchase Agreement. Despite intervening
negotiations and preliminary or final agreement as to the individual
points, the parties agree that until such time as a Venture Agreement,
Purchase Agreement, documents relating to the Land Venture and Vacant
land Purchase Agreement are fully executed by and delivered to both
parties, no final agreement or contract shall exist between the
parties.
15. Guaranties. The obligations of ITT Subsidiary under the
Venture Agreement and the documents relating to the Land Venture
including, without limitation, the "put" obligations under Section 4b.
and Section 7 hereof and the obligation to pay liquidated damages
under Section 2d. hereof shall be guaranteed by ITT and the
obligations of Davis under the Venture Agreement and the documents
relating to the Land Venture shall be guaranteed by The Davis
Companies.
16. Other Matters. If a Change of Control (as defined below)
occurs prior to the Closing Date then Davis will have the right to
terminate the Purchase Agreement, the Venture Agreement, the documents
relating to the Land Venture and the Vacant Land Purchase Agreement
without any liability to Davis and upon such termination the escrow
agent shall also return to Davis its $15 million deposit. If a Change
of Control occurs after the Closing Date then Davis shall have the
option of terminating the Management Agreement between the Manager and
the Owner Venture and the Management Agreement between the New Casino
Manager and the Land Venture, in each case without payment of any
consideration. A "Change of Control" shall mean, at the relevant time,
(i) any event resulting in any "person" or "group" (within the meaning
of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) becoming the beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934, as amended), directly
or indirectly, of more than 35% of the total voting power of all
classes of capital stock of the ultimate parent, at the relevant time,
of the Current Owner then outstanding and entitled to vote generally
in elections of directors ("Voting Stock") and such beneficial
ownership was acquired within a period of two years following a tender
offer by such person (or any of its affiliates) for shares of Voting
Stock of such parent of the Current Owner or a solicitation of proxies
with respect to Voting Stock of such parent of the Current Owner by
such person, if, in either case, such tender offer or solicitation of
proxies was not
<PAGE>
Mr. Rand Araskog
August 1, 1997
Page 12
approved by a majority of the Board of Directors of such parent of the
Current Owner in office at the time such tender offer or proxy
solicitation was commenced, or (ii) a majority of the Board of
Directors of the ultimate parent, at the relevant time, of the Current
Owner being constituted of individuals who were elected pursuant to a
solicitation of proxies with respect to Voting Stock of such parent of
the Current Owner, if such solicitation of proxies was not approved by
a majority of the Board of Directors of such parent of the Current
Owner in office at the time such solicitation of proxies was
commenced.
These "Change of Control" provisions have been demanded by Davis
as an integral element of this transaction. In determining the
Purchase Price and in making its decision to participate in this
transaction, Davis relied on these "Change of Control" provisions.
17. Tax Matters. Notwithstanding that the transactions
contemplated by this letter are nominally referred to as purchases and
sales of the Property and the Vacant Land to the Owner Venture and the
Land Venture, respectively, the parties agree to negotiate in good
faith alternative structures for these transactions (which may include
a contribution of the Property and the Vacant Land to the Owner
Venture and the Land Venture, respectively) which are not intended to
affect the basic business terms of the transactions but which are
intended to address ITT's and the Current Owner's federal, state and
local tax planning needs.
18. Time for Acceptance. This letter of intent shall remain in
full force and effect until 5:00 p.m. Central Standard Time, August 1,
1997, unless earlier accepted by ITT by delivering an executed copy
hereof to the offices of Davis identified in Section 13 hereof.
Acceptance may be by telecopy of an executed copy hereof.
Dated: August 1, 1997 DAVIS GAMING, L.L.C., a Delaware
limited liability company
By: MD NEVADA TRUST
By: /s/ Marvin Davis
Marvin Davis, as trustee
Accepted this 1st day of August, 1997.
ITT SHERATON CORPORATION,
a Delaware corporation
By: /s/ Rand V. Araskog