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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(AMENDMENT NO. 20)
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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ITT CORPORATION
(NAME OF SUBJECT COMPANY)
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ITT CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
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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)
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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
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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 4. THE SOLICITATION OR RECOMMENDATION.
The response to Item 4 is hereby amended by adding the following:
(a) Recommendation of the Board of Directors.
At a meeting held on February 11, 1997, the Board unanimously determined
that the Hilton Transaction, including the Hilton Tender Offer, is inadequate
and not in the best interests of the Company. As described in more detail below,
at a meeting held on July 15, 1997, the Board reassessed the Hilton Transaction
in light of developments since February 11, including the Comprehensive Plan
described below, and unanimously reaffirmed its conclusion that the Hilton
Transaction, including the Hilton Tender Offer, is inadequate and not in the
best interests of the Company. Accordingly, the Board continues to recommend
unanimously that the stockholders of the Company reject the Hilton Transaction
and not tender their Shares pursuant to the Hilton Tender Offer or take any
other action to facilitate the Hilton Tender Offer.
The Board's determination was based on the Board's review and consideration
of the interests of the Company's stockholders and all other factors permitted
by applicable law, including the interests of the Company's employees,
suppliers, creditors and customers; the economy of Nevada and the nation; the
interests of the communities in which the Company operates and of society; and
the long and short-term interests of the Company and its stockholders, including
the possibility that these interests may be best served by the continued
independence of the Company. The Board also reaffirmed its determination that,
in light of the prospects of each of the Company's businesses, the
attractiveness of the Distributions and the other elements of the Comprehensive
Plan and other factors described below, the Company's and its stockholders'
interests would be best served if the Company (and particularly the core
businesses of the Company) were to remain independent and pursue the
Comprehensive Plan.
The Comprehensive Plan is another step in the Company's refinement of its
strategic plan to focus on hotels and gaming and explore and exploit
opportunities to enhance the value of the Company within that focus. This
initiative already has resulted in the sale of certain of the Company's assets,
a continued focus on cost containment, continued efforts to grow the hotels and
gaming business and the pursuit of transactions that are expected to enhance the
profitability, return on assets or cash flows of that business.
As part of its focus on its core business, the Company sold its interest in
Alcatel Alsthom, sold a 39.8% interest in Madison Square Garden and contracted
through "put" and "call" options to sell its remaining 10.2% interest at
guaranteed amounts and, with its partner, Dow Jones & Company, Inc., entered
into an agreement to sell television station WBIS+. The closing of the sale of
the Company's interest in WBIS+ is subject to regulatory approval and is
expected to occur in the fourth quarter of 1997.
The Company plans to continue to focus on cost containment opportunities in
its hotels and gaming business. As part of this program, the Company implemented
a significant restructuring of its World Headquarters operations (for which it
recognized a one-time, pre-tax charge of $58 million), reducing headcount by 65%
and annual expenses by at least $20 million. These cost savings were achieved
even while providing for affected employees' enhanced severance payments,
enhanced pension payments and placement services. As a more narrowly focused
entity, the Company plans to continue to reduce costs and complete its
evolutionary process by eliminating the vestiges of its former conglomerate
parent. Specifically, the Company plans to focus on reducing overhead costs at
both its hotels and gaming headquarters as well as operations.
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Management of the Company believes that these efforts, which are currently
underway, will result in approximately $10 million to $15 million in additional
overhead savings during 1998.
Within the parameters of the strategic plan, the Company is actively
pursuing opportunities to grow its hotels and gaming business. Since January 1,
1997, the Company has acquired three hotels and signed or acquired 55 franchise
agreements and management contracts in 15 different countries, totalling more
than 15,000 rooms. The Company will continue to purchase hotels and interests in
hotels, add new franchises and seek out additional management opportunities
throughout the world. Such efforts will depend upon individual market conditions
and factors affecting the hotel industry generally.
The Company believes transactions involving hotel or gaming properties that
enhance the profitability, return on assets or cash flows of its hotels and
gaming operations further the goal of strengthening the Company's core business.
These transactions may include, among other things, joint ventures to develop,
purchase or operate properties and conversions of owned properties to managed
properties. For example, the Company recently entered into a long-term strategic
alliance with FelCor Suite Hotels, Inc. ("FelCor"), pursuant to which FelCor
acquired five of the Company's hotel properties and the Company retained long-
term contracts to manage such hotels. As part of this strategic alliance, the
Company expects to provide its expertise in the hotel business by making
available the "Sheraton" hotel brand through long-term management agreements.
Similarly, FelCor expects that it will provide its hotel expertise and hotel
asset management skills by making available substantially all the capital
necessary to acquire certain existing Sheraton brand hotels and hotels that may
be converted to Sheraton brand hotels. The Company is holding The Desert Inn
Resort & Casino in Las Vegas, Nevada, and The Sheraton Casino in Tunica,
Mississippi, for sale and also is conducting detailed reviews of its options
with regard to its ownership interest in Ciga S.p.A. and certain luxury and
other hotels, taking into account the best interests of its stockholders and the
Company.
As further described under Item 7 below, at the July 15, 1997 meeting, the
Board continued its implementation of the long-term strategic plan by approving
a comprehensive plan (the "Comprehensive Plan"). The Board reviewed the
Comprehensive Plan in depth, with the assistance of the Company's management and
its outside financial and legal advisors.
A major element of the Comprehensive Plan involves the separation of the
Company into three distinct publicly owned companies focused on (a) hotels and
gaming, (b) telephone directories publishing and (c) post-secondary technical
education. The separation will be effected through the distribution or
"spin-off" of all the shares owned by the Company of ITT Destinations, Inc., a
new subsidiary that was formed to hold the Company's hotels and gaming business
("Destinations"), and ITT Educational Services, Inc., the Company's subsidiary
that operates its post-secondary technical education business ("ITT
Educational"), to stockholders of the Company (these transactions are referred
to herein as the "Distributions"). After the Distributions, the Company's only
business will be its telephone directories publishing business and it is
expected that the Company will change its name to "ITT Information Services,
Inc." ("ITT ISI").
A second major element of the Comprehensive Plan involves the repurchase
through a cash tender offer of up to 30 million Shares (approximately 25.7% of
the outstanding Shares) at a price per Share of $70. The equity repurchase offer
will provide stockholders who wish to sell a portion of their Shares an
opportunity to do so at a premium to recent market prices and provide
stockholders who wish to increase their proportionate investment in the
Company's three businesses after the Distributions, and thus in the future
earnings and assets of such businesses, an opportunity to do so. The equity
repurchase offer will also afford to stockholders the opportunity to dispose of
Shares without the usual transaction costs associated with a market sale.
A third element of the Comprehensive Plan is the allocation of the
indebtedness of the combined entity between the Company's hotels and gaming
business and telephone directories publishing business in a manner that is
appropriate for the credit capacity and capitalization requirements of each
entity. ITT Educational cannot for regulatory reasons incur significant
indebtedness. Although the Company believes covenants in its existing public
indebtedness do not limit the Company's ability to carry out the Distributions,
as a practical matter, a substantial amount of indebtedness must be allocated to
the hotels and gaming business if ITT ISI is
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to remain viable after the Distributions. As discussed below, the Board believes
that the preferred means of making this allocation is to replace the Company's
existing indebtedness with indebtedness issued by the entity that ultimately
will be liable for such indebtedness. Accordingly, as part of the Comprehensive
Plan, the Company intends to commence a tender offer for all the publicly held
debt securities of ITT Corporation and to repay certain other indebtedness. The
equity and debt repurchases will be consummated substantially concurrently with
the Distributions. The Distributions, however, are not conditioned upon any
minimum amount of Shares or indebtedness being acquired pursuant to the equity
or debt tender offers. A discussion of the conditions and certain regulations
applicable to the Comprehensive Plan is included in Item 7 below.
At the July 15, 1997 meeting, the Board approved a definitive agreement for
a substantial minority investment in ITT ISI, which will hold the telephone
directories publishing business following the Distributions, by an entity
affiliated with Clayton, Dubilier & Rice, Inc. ("CD&R"). Following the
Distributions, a CD&R affiliate will purchase approximately 32.9% of the
outstanding common stock of ITT ISI and warrants to purchase shares representing
an additional 13.7% of the outstanding common stock of ITT ISI for aggregate
consideration of $225 million (the "Strategic Investment"). Such warrants will
have a ten year term and permit CD&R to buy common stock of ITT ISI at a 50%
premium to CD&R's initial purchase price. Consummation of the Strategic
Investment is subject to certain conditions including, among other things,
approval of the stockholders of ITT ISI following the Distributions. Completion
of the Strategic Investment (the proceeds from which are expected to be used
primarily to reduce indebtedness of ITT ISI) is not a condition to the
Distributions and is expected to occur in the fourth quarter of 1997. Following
completion of the Strategic Investment, ITT ISI will have approximately $1.05
billion in debt, giving ITT ISI an initial enterprise value, based on the
Strategic Investment, of approximately $1.7 billion.
In addition, at the July 15, 1997 meeting, the Board approved the purchase
by the Company for $254 million of BellSouth Corporation's minority interest in
ITT World Directories, Inc. ("ITT World Directories"), which will be the only
direct subsidiary of ITT ISI after the Distributions. The purchase of this
interest, which has been consummated, allows ITT ISI to have 100% of the benefit
of the results of operations of ITT World Directories, allows for a better
understanding of ITT ISI by the investment community, simplifies the corporate
and organizational structure of ITT World Directories and allows for a more
effective implementation of the allocation of the Company's indebtedness. In
connection with this transaction, BellSouth Corporation received a pro rata
portion of a dividend paid by ITT World Directories, resulting in additional
proceeds to BellSouth Corporation of $11 million.
The Board believes that the business justifications for the Comprehensive
Plan, including a significant repurchase of Shares by the Company, are
compelling without regard to the Hilton Tender Offer and intends to pursue the
plan even if Hilton withdraws its interest in acquiring the Company. Because the
Company's telephone directories publishing and post-secondary technical
education businesses are distinct from the Company's core hotels and gaming
business, during 1996 subsequent to becoming an independent public company, the
Company began to recognize that these businesses would eventually be separated
from the Company's core business, just as ITT's forest products, insurance and
industrial products businesses have previously become independent publicly
traded companies. However, in reviewing the Comprehensive Plan, the Board took
account of the possibility that the transactions contemplated by the
Comprehensive Plan could adversely affect the Hilton Tender Offer. As a result
of the Comprehensive Plan, including the Distributions, and in light of
statements by Hilton that it is interested in the Company's hotels and gaming
business, it is likely that Hilton will withdraw the Hilton Tender Offer after
completion of the Distributions. The Company is unable to predict whether Hilton
would commence efforts to acquire Destinations after the Distributions. Although
there is no Internal Revenue Service ruling or case law that is dispositive of
the issue, counsel to the Company has advised the Company that, in its opinion,
under existing U.S. Federal tax laws and the current provisions of recently
introduced U.S. Federal tax legislation, the Distributions should not create a
tax-related impediment to an unsolicited offer by Hilton to acquire Destinations
after the Distributions. The Company recognizes that this opinion is based on an
interpretation of current tax laws and the current provisions of pending
legislation rather than on binding precedent, and accordingly is not free from
doubt and is subject to revision if pending tax legislation changes. Certain
provisions of the Articles of Incorporation and By-laws that Destinations will
have at the time of the Distributions, a stockholders rights plan that
Destinations will
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have at the time of the Distributions and certain provisions of the General
Corporation Law of the State of Nevada may have the effect of delaying or making
more difficult an acquisition of control of Destinations in a transaction that
is not approved by the board of directors of Destinations. See Item 7. In
addition, it is possible that certain terms of the bank financing for the equity
and debt repurchase offers may make more expensive, and may impede, consummation
of the Hilton Tender Offer and might deter certain other persons from
attempting, through tender or exchange offers or by other means, to gain control
of the Company, particularly persons who would finance a takeover of the Company
with the Company's own assets and cash flows or who cannot consummate a tender
offer without acquiring a very high percentage of the Company's voting
securities.
The Comprehensive Plan is intended to enhance the value of the ongoing
investment of stockholders as well as further the interests of the Company's
employees, creditors, customers, and the economies and communities in which the
Company operates. The Company currently operates three distinct businesses with
different characteristics, competitive environments and growth prospects.
Separating the Company's businesses and allowing them to operate independently
is expected to result in, among other things, increased strategic focus, a
flattening of organizational structures, the implementation of narrowly-tailored
incentive compensation plans and enhanced public market understanding and
valuations of these businesses. The Board also took account of the tax-free
nature of spin-offs and the Company's prior positive experience with such
transactions. The Company as an independent entity can consummate such a
tax-free spin-off; an acquiror (whether by purchase or merger) in a transaction
that is taxable in whole or in part (including the Hilton Transaction) would be
unable to undertake a tax-free distribution of Company assets for a period of
five years. Compared to a taxable sale of the Company's telephone directories
publishing business and post-secondary technical education business, the
Distributions will save the Company in excess of $500 million in U.S. Federal
income taxes. Further, the tax-free nature of transactions such as the
Distributions is under increasing scrutiny in the Congress. Accordingly, it is
possible that in the future legislation will be passed that might eliminate or
restrict the ability of the Company to undertake the Distributions on a tax free
basis. Additionally, the Comprehensive Plan is expected to provide significant
benefits to other constituents of the Company, relative both to the Hilton
Transaction and the Company's existing structure.
ITT's Prior Experience. The Company has substantial experience with
the benefits of spin-off transactions. In 1994, the Company's predecessor
spun-off its forestry products subsidiary to create an independent company.
In addition, the Company itself is the product of the December 1995
separation of a conglomerate that controlled the businesses now operated by
the Company as well as ITT Industries, Inc. (a New York Stock Exchange
listed company that trades under the symbol "IIN" and that manufactures a
wide variety of high technology and industrial products) and The Hartford
Financial Services Group, Inc. (formerly "ITT Hartford Group, Inc.," a New
York Stock Exchange listed company that trades under the symbol "HIG" and
that operates one of the largest multiline insurance companies in the
United States). Holders of ITT stock for the five years through 1996 have
seen their investment outperform the Standard & Poor's 500 Index by more
than 70% and increase in aggregate value by approximately $10 billion
during this same period. The separation of the Company's three businesses
being undertaken now is similar to the 1995 separation by the former ITT
Corporation and represents another step in the transition of the former ITT
conglomerate to a group of individually accountable, strategically focused
organizations.
Separation of Businesses. The Board believes that the Comprehensive
Plan will be beneficial to each of the Company's existing businesses
because, among other things, it will separate businesses with distinct
financial, investment and operating characteristics so that each business
can adopt strategies and pursue objectives more appropriate to its specific
business plan than is possible under the Company's present combined
structure and without the limitations caused by competition for resources
from the other businesses. Separation will also allow each company to
attain a capital structure that is appropriate for its competitive
environment and financial characteristics, which may involve increased
leverage.
Optimize Focus. Following the Distributions, each business'
management will be in an improved position to control capital funding and
acquisition initiatives and the implementation of business strategies.
Management of each independent company will be able to concentrate its
attention and financial resources wholly on its core business, while
responding solely to the characteristics and competitive disciplines of its
own industries.
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"Delayering" of Organizations. The Comprehensive Plan will allow the
Company to eliminate at least one tier of corporate-level administration.
For example, the Company's previously announced elimination of
approximately 65% of its headquarters staff is expected to save
approximately $20 million per year. In addition, the Company anticipates
that following implementation of the Comprehensive Plan, each of the three
companies formed by the Distributions will continue to search for
additional opportunities to rationalize the organization and administration
of their respective businesses. In that connection, following the
Distributions, the individual businesses will be able to determine which
corporate functions they wish to perform internally and which they wish to
obtain from third-party service providers, all of which should contribute
to increased efficiency.
Narrowly-Tailored Compensation. The Comprehensive Plan will allow
each of the businesses to design incentive plans that relate more directly
to its own business characteristics and performance. Each business will be
able to more closely tie compensation incentives for key employees to the
performance of that business. Consequently, each company and its respective
stockholders should benefit from the positive effects of the closer links
between each business' incentive compensation arrangements for key
employees and the performance of its business.
Enhanced Investor Understanding. Investors ultimately should be able
to evaluate better the financial performance of each of the Company's three
businesses and their respective strategies, thereby enhancing the
likelihood that each will achieve an appropriate market valuation.
Moreover, as narrowly-focused companies, each business should fit more
readily into traditional industry groupings, thus attracting the attention
of dedicated industry analysts willing and able to compare each company and
its strategies to companies in the same or similar businesses.
Increased Public Float for ITT Educational. Approximately 16.7% of
the common stock of ITT Educational, the company that operates the
Company's post-secondary technical educational business, is currently
publicly traded. On completion of the Comprehensive Plan, 100% of the
common stock of this business will be publicly held. This significant
increase in public float is expected to increase the liquidity of this
security and thereby raise its market profile in the long term.
Tax-free Nature of the Distributions. Legal counsel has advised the
Board that, in its opinion, the Distributions will be tax free for U.S.
Federal income tax purposes to the Company and its stockholders. Only the
Company as an independent entity can consummate such a transaction
immediately. An acquiror of the Company (whether by purchase or merger) in
a transaction that is taxable in whole or in part (including the Hilton
Transaction) would be unable to undertake a tax-free spin-off of Company
assets for a period of five years. In contrast, a taxable sale of the
Company's remaining non-core businesses would result in corporate-level
taxation (which, given the Company's low tax basis in those businesses,
would exceed $500 million) and the distribution of the after-tax proceeds
of such sale in the form of a dividend would constitute taxable income to
the Company's stockholders.
Benefits of Telephone Directories Publishing "Stub." Utilizing the
Company's telephone directories publishing business as the "stub" company
(out of which the Company's hotels and gaming and post-secondary technical
education businesses will be distributed) allows a substantially greater
amount of debt in ITT ISI's overseas subsidiaries, thereby more closely
matching liabilities with operating assets without the incurrence of
adverse U.S. tax consequences. Using this structure also permits ITT ISI to
sell up to 49.9% of the telephone directories publishing business to new
investors, such as CD&R, without jeopardizing the tax-free status of the
Distributions. In contrast, a limit of 20% would apply if that business
were spun-off as opposed to serving as the "stub" company for the
Distributions. The chosen structure may also encourage bondholders to
participate in the debt tender offer on terms reasonable to both the
Company and bondholders, because holders who fail to do so will retain
obligations of the stub company, which will be relatively more highly
leveraged than Destinations.
Benefits to Other Constituents. The Comprehensive Plan, by creating
three healthy independent public companies, is expected to further the
interests of the Company's employees, creditors, customers
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and the economies and communities in which the Company operates. Among the
expected benefits that were identified by the Board are:
- Business Partners. The Company's hotel franchisees and owners of managed
hotels have entered into long-term relationships with the Company based
on, among other things, Sheraton's efforts since 1937 to cultivate the
profile of Sheraton as a premier brand name in the hotel business. This
strategy will be unaffected by the Distributions and will protect
existing franchisees and owners of managed hotels from the potential
diminishment of the Sheraton brand name and management expertise that
might occur if Hilton were successful in acquiring the Company and
selling or licensing the Sheraton brand name to a hotel and motel
franchisor of multiple brands. The Company has received communications
from existing franchisees indicating their concerns regarding any
proposed transfer of the Sheraton brand name to a conglomerate
franchisor. To that end, an association representing owners of Sheraton
franchisees has informed the Company that approximately 90% of Sheraton
franchisees that responded to its survey believe their business will be
adversely affected if the Hilton Transaction is successful.
- Employees. The displacement to employees of the Company that would be
expected to occur following consummation of a hostile acquisition such as
the Hilton Transaction is expected to be significantly greater than any
disruption caused by the Distributions. In addition, a hostile
acquisition can result in disruption to existing and retired employees
through modifications to, or elimination of, pension and other health and
welfare benefits. Also, following the Distributions, the ability of each
company to tailor its incentive compensation programs to reflect each
company's unique competitive environment should benefit employees and
improve morale compared both to the Hilton Transaction and the Company
before the Distributions. Furthermore, certain of the Company's key
operating employees at the hotel and casino property level have indicated
their unwillingness to continue in their positions if the Hilton
Transaction occurs.
- Creditors. The debt repurchase offer is designed to accommodate concerns
that the Company's public bondholders may have and to enhance the ability
of the independent companies to obtain new credit on favorable terms
consistent with their credit characteristics. The Board believes that the
debt repurchase offer, although not a condition to the completion of the
other parts of the Comprehensive Plan, will be helpful in effectuating
the Comprehensive Plan. The Company believes that covenants in its
existing public indebtedness do not limit the Company's ability to carry
out the Distributions. As a practical matter, however, a substantial
amount of the Company's indebtedness will need to be allocated to the
hotels and gaming business in order for the telephone directories
publishing business to remain viable after the Distributions. Unlike
other structures which could engender acrimonious relations between the
Company and its bondholders and other constituents, the debt repurchase
is designed to minimize market fluctuations in the Company's debt
securities and the Company believes it is consistent with its tradition
of equitable treatment of bondholders. (The Company's predecessor
undertook a similar debt repurchase process prior to the spin-off
transactions that created the Company and the Company attributes the
ready access to the debt capital markets it has experienced in part to
the actions of its predecessor.) This process, by reemphasizing the
Company's commitment to equitable treatment of bondholders, is expected
to facilitate access to the debt capital markets by the three companies
resulting from the Distributions on terms appropriate for their
respective businesses.
- ITT Technical Institute Students. The Company believes a spin-off of the
Company's post-secondary technical education business (as opposed to a
sale or other disposition transaction) should not constitute a
"change-of-control" and therefore does not involve the risk of loss of
accreditation and access to financial aid and the potentially devastating
consequences to students that such actions could entail. In the event a
governmental authority insists that a spin-off does constitute a
"change-of-control," the distribution to stockholders of the stock of the
company that operates the post-secondary technical education business
will be coordinated so as to provide sufficient time to obtain all
approvals needed to avoid an adverse effect on such business and its
students. In such a case, the distribution of Destinations might be
completed before the distribution of ITT Educational.
- Communities. The separation of the Company into three independent
companies is expected to provide significant benefits to the economies
and communities in which the Company operates. In
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general, maintaining the existing number of independent competitors in
the hotels and gaming business should provide more societal benefits than
will a reduction in the number of competitors. As opposed to acquisition
transactions, which frequently involve the consolidation of functions at
a distant headquarters or otherwise result in job loss at the local
level, spin-off transactions (by creating independent companies with
independent headquarters) can be expected to result in increased
opportunities at the local level. In addition, as independent companies,
each of the Company's businesses will continue their respective
strategies. For the hotels and gaming business, this strategy includes
capital expenditures to construct and acquire new properties and to
expand and upgrade existing properties and transactions that are intended
to enhance profitability, return on assets or cash flows. For the post-
secondary technical education business, this strategy involves continuing
management's efforts to rationally expand the number of schools in
jurisdictions throughout the United States. For the telephone directories
publishing business, this strategy focuses on management's efforts to
maintain its strong market share and develop new products in the
jurisdictions in which it has historically operated as well as to seek
acquisitions and develop new businesses in countries in which emerging
and mature economies are expected to yield a high demand for printed
telephone directories and new related products. Finally, each of the
independent companies can be expected to continue the Company's historic
commitment to community service and charitable giving.
Copies of a press release announcing the Comprehensive Plan and a letter to
the stockholders of the Company are filed as Exhibits 67 and 68 hereto,
respectively, and are incorporated herein by reference.
(b) Reasons for Recommendation. In reaffirming its recommendation that
stockholders of the Company should reject the Hilton Transaction, the Board
considered a number of factors, including, without limitation, the following:
(i) the Board's belief, based on the factors further described in this
amendment, that the Hilton Transaction, including the Hilton Tender Offer,
does not reflect the inherent value of the Company;
(ii) the Board's familiarity with, and management's review of, the
Company's businesses, financial condition, results of operations, business
strategy and future prospects, including the nature of the markets in which
the Company operates and the Company's position in such markets;
(iii) a presentation by Goldman, Sachs & Co. ("Goldman Sachs") and
Lazard Freres & Co. LLC ("Lazard Freres"), financial advisors to the
Company, concerning the Company, Hilton and the financial aspects of the
Hilton Transaction, and the opinions of Goldman Sachs and Lazard Freres to
the effect that, as of July 15, 1997, the consideration to be received by
stockholders of the Company pursuant to the Hilton Transaction, including
the Hilton Tender Offer, is inadequate; such opinions were expressed after
review of many of the factors referred to herein and various financial
criteria used in assessing an offer, and were based on various assumptions
and subject to various limitations, which were reviewed for the Board as
part of the presentation of Goldman Sachs and Lazard Freres;
(iv) the Board's belief that pursuit of the Comprehensive Plan and the
successful implementation by the three companies created by the
Distributions of their respective long-term strategic plans will produce
greater value for the stockholders of the Company and greater benefits for
the Company's employees, creditors, customers, and the economies and
communities in which the Company operates than the Hilton Transaction,
including the Hilton Tender Offer;
(v) the potential negative impact of the involvement of HFS
Incorporated ("HFS") in the Hilton Transaction on the value of the
Company's Sheraton and Four Points hotel businesses, the potential
disruption of hotel management contracts and franchise arrangements of the
Company (as evidenced by communications from existing hotel owners and
franchisees opposing any plan for HFS to assume these contracts and
insisting upon contractual "change-in-control" provisions that would be
triggered by the Hilton Transaction), and the potential for competition,
cannibalization and conflicts between Hilton properties, Ladbroke Group plc
properties and Sheraton and/or Four Points properties following any
combination of Hilton and the Company; in that regard, the Board noted the
additional uncertainty as to
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HFS's strategy following its announced merger with CUC International and
the continuing absence of information regarding the role of HFS in the
Hilton Transaction;
(vi) the Board's belief that an acquisition of the Company by Hilton
could have an adverse effect on the business and prospects of the combined
entity as a result of Hilton's management's lack of a proven "track record"
in growing a large chain of owned, managed or franchised full service,
international hotels;
(vii) the continuing uncertainty as to the actual value of the
Proposed Squeeze Out Merger to the stockholders of the Company, resulting
from, among other things, the lack of disclosure in the Hilton Schedule
14D-1 concerning the Proposed Squeeze Out Merger, including the manner in
which the number of shares of Hilton Common Stock to be issued in the
Proposed Squeeze Out Merger would be determined, the failure of Hilton to
give sufficient assurance in the Hilton Schedule 14D-1 that the Proposed
Squeeze Out Merger will qualify for tax-free "reorganization" status and
the Board's concern about possible adverse effects on the value of an
investment in Hilton securities following any combination with the Company;
(viii) the lack of sufficient disclosure in the Hilton Schedule 14D-1
regarding the proposed financing of the Hilton Tender Offer, and the
resulting impossibility of determining if restrictive covenants or other
conditions to such financing would have an unduly negative impact on the
ability of Hilton to maintain and/or expand the proposed combined business
and the effect of the Hilton Transaction on Hilton's capital structure and
credit ratings; in that regard, the Board noted that Hilton has consummated
two debt offerings since the commencement of the Hilton Tender Offer that
expressly require Hilton to pay increased interest rates on such
indebtedness in the event that Hilton's credit ratings fall below specified
thresholds as a result of significant acquisitions;
(ix) the fact that, as a result of uncertainties about the actual
value of the Proposed Squeeze Out Merger and the merits of a longer-term
investment in Hilton, the Hilton Transaction is structured as a two-tiered,
front-end loaded transaction that is intended to coerce stockholders to
tender their Shares into the Hilton Tender Offer to avoid receiving in the
Proposed Squeeze Out Merger shares of Hilton Common Stock that may or may
not have a value of $55 per Share;
(x) the Board's concern that Hilton may have had access to and misused
confidential Company information;
(xi) the Board's concern about press reports of investigations taking
place into possible activities of a key Hilton executive and concern about
senior gaming executives' possible prior activities in several gaming
jurisdictions;
(xii) the Board's belief that there are undue economic concentration
and other gaming law issues relating to a combination of the Company and
Hilton, which create uncertainty as to whether the conditions of the Hilton
Tender Offer will be met; in that regard, the Board noted that the Hilton
Tender Offer is conditioned on the receipt of all material consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, casino gaming regulatory authorities with jurisdiction in
respect of the Company's active gaming operations required or necessary in
connection with the Hilton Tender Offer and the Proposed Squeeze Out
Merger;
(xiii) the disruptive effect the Hilton Tender Offer and the Proposed
Squeeze Out Merger are having on the Company and the potential adverse
effect on the interests of the Company's employees, creditors and
customers; the economies of the state of Nevada and the nation; and the
interests of the communities in which the Company operates and of society;
(xiv) the Board's and management's commitment to protecting the best
interests of the stockholders of the Company and enhancing the value of the
Company;
(xv) the Board's belief that consummation of the Hilton Transaction
would result in a change in control of ITT Educational, the Company's
subsidiary that operates its post-secondary technical education business,
under the regulations of the U.S. Department of Education, the state
educational authorities that regulate ITT Educational's business and the
accrediting commissions that accredit each
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ITT Technical Institute; that an unapproved change of control of ITT
Educational could result in the suspension of access to certain Federal
financial aid funds for ITT Educational and its students and could result
in the loss of accreditation for individual ITT Technical Institutes; and
that any of the foregoing could result in a material adverse change in the
business, financial condition and results of operations of ITT Educational
and thus could materially adversely affect students at ITT Technical
Institutes, ITT Educational's public stockholders and the Company; in that
regard, the Board noted the absence of an express condition in the Hilton
Tender Offer with respect to obtaining required approvals from educational
regulatory authorities and the apparent absence of formal efforts on the
part of Hilton to apply for and obtain such approvals; and
(xvi) the trading performance of the Shares following the Hilton
Tender Offer.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in its evaluation, the Board did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determinations and recommendation.
In addition, individual members of the Board may have given different weights to
different factors.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) COMPREHENSIVE PLAN.
General
At its July 15, 1997 meeting, the Board approved the Comprehensive Plan,
which is designed to enhance the value of the ongoing investment of stockholders
as well as to further the interests of the Company's employees, creditors,
customers and the economies and communities in which the Company operates. The
major elements of the Comprehensive Plan are:
(i) the separation of the Company pursuant to the Distributions into
three distinct publicly owned companies focused on (a) hotels and gaming,
(b) telephone directories publishing and (c) post-secondary technical
education;
(ii) a tender offer by the Company for up to 30 million Shares
(approximately 25.7% of the outstanding Shares) at $70.00 per Share (the
"Equity Tender Offer"); and
(iii) the allocation of the Company's indebtedness between the
Company's hotels and gaming business and telephone directories publishing
business in a manner that is appropriate for the credit capacity and
capitalization requirements of each business.
The Distributions will consist of the pro rata distribution to stockholders
of the Company of (i) all the Company's ownership interest (representing
approximately 83.3% of the total ownership interest) in ITT Educational (the
"ITT Educational Distribution") and (ii) 100% of the common stock of
Destinations, a newly formed subsidiary that will hold the Company's hotels and
gaming business (the "Destinations Distribution"). Stockholders will not be
required to surrender their Shares in connection with the Distributions.
Following the Distributions, the Company's only business will be telephone
directories publishing (through the ownership of 100% of ITT World Directories)
and it is expected that the Company will be renamed "ITT Information Services,
Inc.," which, in this document, is referred to as "ITT ISI." The Company will
distribute to stockholders an information statement describing the Destinations
Distribution and a separate information statement describing the ITT Educational
Distribution. The Equity Tender Offer will be consummated prior to the record
dates established for the Distributions. Accordingly, a stockholder whose Shares
are validly tendered and accepted for payment in the Equity Tender Offer will
not participate in the Distributions with respect to such Shares.
In order to allocate the indebtedness of the Company between Destinations
and ITT ISI in a manner that is appropriate for each entity, the Company plans
to commence a tender offer for all the publicly held debt securities of ITT
Corporation (the "Debt Tender Offer" and, together with the Equity Tender Offer,
the "Tender Offers"), and to repay certain other debt, and to replace all this
indebtedness with indebtedness issued by Destinations and ITT ISI. The Company
expects to arrange credit facilities with a group of lenders
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to provide borrowings to Destinations and ITT ISI and its subsidiaries in an
amount necessary to consummate the Tender Offers and the repayment of certain
other indebtedness and to provide working capital to each company following the
Distributions (the "Credit Facilities"). The Company has received a letter from
The Chase Manhattan Bank and Chase Securities Inc. stating that they are highly
confident that they will be able to arrange the Credit Facilities.
Formal offer documents, which will describe the Tender Offers, will be
distributed to the Company's stockholders and holders of debt securities. The
Tender Offers will be made only pursuant to the formal offer documents. Each of
the Tender Offers and the Distributions is subject to the satisfaction of
certain conditions and further action by the Board is required to implement the
Comprehensive Plan.
The Tender Offers will not be conditioned upon any minimum number of Shares
or amount of debt securities being tendered, but will be subject to certain
other conditions, including receipt of financing on acceptable terms,
satisfaction of all preconditions to consummation of the Destinations
Distribution (other than in respect of the Tender Offers) and the Company being
satisfied, in its reasonable discretion, that there exists no significant
impediment, or material likelihood of a significant impediment, to the timely
consummation of the Destinations Distribution on substantially the terms
described herein. The Company intends to terminate the Tender Offers if Hilton
acquires a material number of Shares pursuant to the Hilton Tender Offer or
otherwise or if any of Hilton's nominees are elected to the Board of Directors
of the Company.
The Company's plan to consummate the Destinations Distribution is subject
to certain conditions, including (a) all necessary approvals of any governmental
or regulatory bodies having been obtained, including approval by the gaming
authorities of the states of Nevada, New Jersey and Mississippi, and by the
Federal Communications Commission (see "-- Regulatory Approvals" below), (b) all
necessary consents of third parties having been obtained, (c) final action by
the Board of Directors of the Company declaring the Destinations Distribution,
(d) the satisfaction of all conditions to the Tender Offers (other than the
conditions to the Distributions set forth herein), including the financing
conditions, (e) the shares of Destinations common stock to be distributed in the
Destinations Distribution having been approved for listing on the New York Stock
Exchange, Inc., subject to official notice of issuance, (f) Destinations'
Registration Statement on Form 10 under the Exchange Act relating to
Destinations common stock having become effective under the Exchange Act, (g)
there not being in effect any statute, rule, regulation or order of any court,
governmental or regulatory body which prohibits or makes illegal the
transactions contemplated by the Comprehensive Plan and (h) the receipt by the
Company of an opinion of counsel that the Destinations Distribution will be tax-
free to the Company and its stockholders. The Destinations Distribution is not
conditioned upon the completion of the Strategic Investment or the ITT
Educational Distribution.
The Company's plan to consummate the ITT Educational Distribution is
subject to certain conditions, including (a) confirmation of the Company's
belief that no approvals by any governmental or regulatory bodies are needed, or
receipt of all necessary approvals of any governmental or regulatory bodies,
including approval by the required state educational authorities, accrediting
commissions and the U.S. Department of Education (see "--Regulatory Approvals"
below), (b) all necessary consents of third parties having been obtained, (c)
final action by the Board of Directors of the Company declaring the ITT
Educational Distribution, (d) the satisfaction of all conditions to the Tender
Offers (other than the conditions to the Distributions set forth herein),
including the financing conditions, (e) there not being in effect any statute,
rule, regulation or order of any court, governmental or regulatory body which
prohibits or makes illegal the transactions contemplated by the Comprehensive
Plan, (f) the consummation of the Destinations Distribution and (g) the receipt
by the Company of an opinion of counsel that the ITT Educational Distribution
will be tax-free to the Company and its stockholders. The ITT Educational
Distribution is not conditioned upon the completion of the Strategic Investment.
On the date the Comprehensive Plan was announced, the Company filed a
complaint in the U.S. District Court for the District of Nevada seeking, among
other relief, a declaratory judgment that Hilton cannot show that the Board, in
approving the Comprehensive Plan, acted outside its powers or failed to exercise
its powers in good faith and with a view to the interests of the Company. The
Company also filed a motion with the court seeking a speedy hearing on its
claims.
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The Board has retained discretion to abandon, defer or modify the
Comprehensive Plan and each element of the Comprehensive Plan in light of
changed circumstances. The Board, however, intends to pursue the Comprehensive
Plan on the terms described herein if Hilton withdraws its interest in acquiring
the Company. The conditions to any element of the Comprehensive Plan may be
waived by the Board. However, the Board will not waive the requirement of
receipt of an opinion of counsel that the Distributions will be tax-free to the
Company and its stockholders.
As noted above, at the July 15, 1997 meeting, the Board approved a
definitive agreement for the Strategic Investment in ITT ISI by an entity
affiliated with CD&R. Following the Distributions, a CD&R affiliate will
purchase approximately 32.9% of the outstanding common stock of ITT ISI and
warrants to purchase shares representing an additional 13.7% of the outstanding
common stock of ITT ISI for aggregate consideration of $225 million. Such
warrants will have a ten year term and permit CD&R to buy common stock of ITT
ISI at a 50% premium to CD&R's initial purchase price. Consummation of the
Strategic Investment is subject to certain conditions including, among other
things, approval of the stockholders of ITT ISI following the Distributions.
Completion of the Strategic Investment (the proceeds from which are expected to
be used primarily to reduce indebtedness of ITT ISI) is not a condition to the
Distributions and is expected to occur in the fourth quarter of 1997. Following
completion of the Strategic Investment, ITT ISI will have approximately $1.05
billion in debt, giving ITT ISI an initial enterprise value, based on the
Strategic Investment, of approximately $1.7 billion.
In addition, at the July 15, 1997 meeting, the Board approved the purchase
by the Company for $254 million of BellSouth Corporation's minority interest in
ITT World Directories, which will be the only direct subsidiary of ITT ISI after
the Distributions. The purchase of this interest, which has been consummated,
allows ITT ISI to have 100% of the benefit of the results of operations of ITT
World Directories, allows for a better understanding of ITT ISI by the
investment community, simplifies the corporate and organizational structure of
ITT World Directories and allows for a more effective implementation of the
allocation of the Company's indebtedness. In connection with this transaction,
BellSouth Corporation received a pro rata portion of a dividend paid by ITT
World Directories, resulting in additional proceeds to BellSouth Corporation of
$11 million.
Certain Governance Provisions
In light of the economic value expected to be created by the Comprehensive
Plan, the time necessary for Destinations to refine and implement its strategic
plan and reap the benefits of that plan, including the returns on capital
expenditures, general concerns regarding potential hostile and/or coercive
takeover proposals with respect to Destinations and the Company's experience
with the Hilton Transaction, the Board considered appropriate governance
mechanisms designed to achieve the objectives of fostering management continuity
needed to implement Destinations' strategic plan, deterring abusive takeover
tactics and, if necessary, maximizing Destinations' leverage in the face of a
hostile offer and thereby protecting the interests of Destinations' stockholders
and other constituencies. These mechanisms fall into three categories: (i)
provisions of Nevada corporate law, (ii) a stockholders rights plan and (iii)
provisions of Destinations' Articles of Incorporation and By-laws. It is
believed that such provisions will enable Destinations to develop its hotels and
gaming business in a manner that will foster long-term growth. The Board
considered the possibility that, after the Comprehensive Plan is implemented,
Hilton might wish to pursue a takeover of Destinations (which it will be free to
do). The Board believes Hilton's initiation of an inadequate two-tiered bid for
the Company suggests that, in the absence of appropriate protections, Hilton may
attempt the same tactics for Destinations. However, the Board believes the
protections described below are desirable and appropriate for Destinations
regardless of whether a Hilton bid may be made. The Board believes that,
although these provisions should deter certain abusive takeover tactics and
enhance Destinations' negotiating leverage in the face of a hostile acquisition
proposal, such provisions will not necessarily discourage takeover offers and
ultimately should not prevent a hostile acquisition at a fair price and with
appropriate protections for other corporate constituents.
Destinations, like the Company, will be a Nevada corporation and
accordingly also will be subject to the Nevada General Corporation Law, certain
provisions of which are designed to mitigate potentially abusive takeover
tactics. Stockholders of Destinations will also benefit from a stockholders
rights plan. Other than with respect to the economic terms of the rights, the
terms of Destinations' rights plan will be substantially identical to the terms
of the Company's existing rights plan. Destinations' rights plan will, in the
event an "acquiring
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person" obtains more than 15% of Destinations' common stock without board
approval, generally allow Destinations stockholders (other than the acquiring
person) to acquire shares of common stock of Destinations (or, in certain
circumstances, the acquiring person) for a price equal to approximately half the
market price of such common stock, thereby rendering uneconomic additional stock
purchases by the acquiring person.
In addition, certain provisions of Destinations' Articles of Incorporation
and By-laws may provide the Destinations board with more negotiating leverage by
delaying or making more difficult unsolicited acquisitions or changes of control
of Destinations. These provisions include (i) the availability of capital stock
for issuance from time to time at the discretion of the Destinations board, (ii)
the classification of the Destinations board into three classes, each of which
will serve for three years, (iii) prohibitions against stockholders calling a
special meeting of stockholders or acting by written consent in lieu of a
meeting, (iv) requirements for advance notice for raising business or making
nominations at stockholders' meetings and (v) the requirement of a
super-majority vote to remove directors with or without cause. Other than as
described below, each of the foregoing provisions is substantively identical to
existing provisions of the Company's Articles of Incorporation and By-laws.
Destinations' Articles of Incorporation will provide that the board's
membership will be divided into three classes as nearly equal in number as
possible, each of which will serve for three years with one class being elected
each year. As a result, at least two annual meetings of stockholders may be
required for the stockholders to change a majority of the members of the
Destinations board. (Destinations' first annual meeting is expected to be held
in November 1997.) In addition, directors may be removed with or without cause
only by the affirmative vote at a meeting of the holders of at least 80% of the
voting power of all shares of voting stock of Destinations, voting together as
single class. Destinations' Articles of Incorporation will contain a provision
requiring the affirmative vote of the holders of at least 80% of the voting
power of all shares of voting stock of Destinations, voting together as a single
class, to alter, amend, repeal or adopt provisions inconsistent with the
classified board provision of Destinations' Articles of Incorporation and the
provision requiring an 80% vote to remove directors.
The Board believes that a classified board of directors will assure
continuity and stability of Destinations' management and policies, without
diminishing accountability to stockholders. A classified board will ensure that
a majority of directors at any given time will have experience in the business,
competitive affairs and regulatory environment of Destinations' hotels and
gaming business. The Board believes that an experienced board will be best
situated to enhance the value of Destinations' hotels and gaming business. A
classified board and the continuity it fosters will be important in developing,
refining and executing Destinations' long-term strategic plan for its hotels and
gaming business and will be better positioned to make fundamental decisions that
are in the best interests of Destinations. A classified board will also prevent
an abrupt change in the composition of the board and will therefore eliminate
delays inherent in the familiarization by the new board with Destinations'
hotels and gaming business and will moderate changes in corporate policies,
decisions and strategies that may not be in the best interests of Destinations
and its stockholders and other appropriate constituencies. At the same time,
stockholders will have the power to propose and elect their own nominees for the
class of directors to be elected at each annual meeting, and in that manner
change the board's composition. By reducing the threat of an abrupt change in
the composition of the entire board, classification of directors would give the
board sufficient time to review any takeover proposal, study appropriate
alternatives and achieve the best results for all stockholders and other
appropriate constituencies. The Board believes a classified board will enhance
the ability of Destinations to resist an abusive takeover attempt or to
negotiate a fair price and appropriate protections for other constituencies. The
Board does not expect a classified board necessarily to discourage takeover
offers or ultimately prevent a hostile acquisition at a fair price and with
appropriate protections for other corporate constituents. The Board believes
that a classified board of directors is fully accountable to stockholders. To
ensure this accountability, the By-laws of Destinations will prohibit increases
in the size of the Destinations board that have the effect of delaying the
ability of stockholders to change a majority of the directors for more than two
annual meetings. Moreover, the Board recognizes that directors are bound by
fiduciary duty to serve stockholders' interests throughout their term of office.
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Election of directors by classes is a common practice that is expressly
permitted by the laws of many states, including the State of Nevada. A
classified board of directors has been adopted by many companies and currently
exists at approximately 292 of the 500 companies comprising the Standard &
Poor's 500 Stock Price Index. In addition, 29 of the top 50 companies on Fortune
Magazine's 1997 "America's Most Admired Companies" list and the six largest (by
assets) hotels and gaming companies, excluding the Company and Trump Hotel &
Casino Resorts, Inc. which has a 41% stockholder, have classified boards (These
include Hilton, Marriott International, Inc., Host Marriott Corporation, Circus
Circus Enterprises, Inc., Mirage Resorts, Incorporated and Harrah's
Entertainment, Inc.) (ITT Educational, 100% of the common stock of which will be
publicly held following the Distributions, has had a classified board since its
initial public offering in December 1994.)
Regulatory Approvals
The Company expects that completion of the Comprehensive Plan will require
the approvals of the regulatory bodies described below.
Nevada Gaming Regulatory Approvals
General. The ownership and operation of casino gaming facilities in Nevada
are subject to extensive state and local regulation; these include (i) the
Nevada Gaming Control Act (the "Nevada Act"), (ii) the regulations promulgated
under the Nevada Act (the "Nevada Regulations") and (iii) various local
ordinances and regulations (such ordinances and regulations, together with the
Nevada Act and the Nevada Regulations, the "Nevada Gaming Law"). The Company's
Nevada gaming operations are subject to the licensing and regulatory control of
the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board"), the Clark County Liquor and Gaming Licensing
Board (the "CCLGLB"), and the Douglas County Commission (the "DCC" and, together
with the Nevada Commission, the Nevada Board and the CCLGLB, the "Nevada Gaming
Authorities"). The Company's Nevada gaming operations -- at The Desert Inn
Resort & Casino in Las Vegas, Caesars Palace in Las Vegas, and Caesars Tahoe in
Stateline (collectively the "Nevada Licensees") -- are subject to Nevada Gaming
Law and to the jurisdiction of the Nevada Gaming Authorities.
The Company is registered with the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found suitable to own,
through intermediate subsidiaries, the stock of subsidiaries that are licensed
to conduct gaming operations in the State of Nevada. The Nevada Regulations
provide that control of a Registered Corporation cannot be changed through
statutory merger, consolidation, acquisition of assets, management or consulting
agreements, or any form of takeover without the prior approval of the Nevada
Commission. A person seeking the approval of the Nevada Commission to acquire
control of a Registered Corporation must satisfy a variety of stringent
standards prior to assuming control of such Registered Corporation and the
failure of a person to obtain such approval prior to assuming control over a
Registered Corporation may constitute grounds for finding such person
unsuitable. The Nevada Regulations also prohibit certain repurchases of
securities by a Registered Corporation without the prior approval of the Nevada
Commission. Transactions covered by the Nevada Regulations are generally aimed
at discouraging repurchases of securities at a premium over market price from
certain holders of more than 3% of the outstanding securities of such Registered
Corporation. The Nevada Regulations also require prior approval for a "plan of
recapitalization;" generally, a plan of recapitalization is a plan that (i) is
proposed by the management of a Registered Corporation to its security holders
that contains recommended action in response to a proposed corporate acquisition
opposed by management of the corporation, (ii) involves a cash dividend to
voting security holders or a cash payment in exchange for voting securities in
excess of 50% of the then-current market value of the voting securities and
(iii) is financed in substantial part by borrowings from financial institutions
or the issuance of debt securities. In addition, under the Nevada Regulations a
Registered Corporation is required to seek prior approval for any public
offering of its securities.
Equity Tender Offer. The Company believes that the Equity Tender Offer, in
and of itself, does not require the prior approval of the Nevada Gaming
Authorities. However, if the Equity Tender Offer involved the aggregate payment
of cash to voting security holders in excess of 50% of the aggregate current
market
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value of the Shares, the Nevada Gaming Authorities may determine that the
Comprehensive Plan, of which the Equity Tender Offer is a part, constitutes a
"plan of recapitalization" under the Nevada Regulations, in which case the
Company and Destinations would be required to obtain the prior approval of the
Nevada Commission prior to consummating the Equity Tender Offer and the
Destinations Distribution.
With respect to the applicable criteria for such approval, the Nevada Board
and Nevada Commission will consider all relevant material facts in determining
whether to grant such approval, and may consider not only the effects of the
Comprehensive Plan but also any other facts deemed relevant. Such facts may
include, among other things, (i) the business history of the applicant,
including its record of financial credibility, integrity, and success of its
operations, (ii) the current business activities and interest of the applicant,
as well as those of its executive officers, promoters, lenders, and other
sources of financing, or any other individuals associated therewith, (iii) the
current financial structure of the applicant, as well as changes which could
reasonably be anticipated to occur to such financial structure as a consequence
of the proposed action of the applicant, (iv) the gaming-related goals and
objectives of the applicant, including a description of the plans and strategy
for achieving such goals and objectives, (v) the relationship between such goals
and objectives and the requested approval, (vi) the adequacy of the proposed
financing or other action to achieve the announced goals and objectives, (vii)
the present and proposed compensation arrangements between the applicant and its
directors, executive officers, principal employees, security holders, lenders,
or other sources of financing, (viii) the equity investment, commitment or
contribution of present or prospective directors, officers, principal employees,
investors, lenders, or other sources of financing, (ix) the dealings and
arrangements, prospective or otherwise, between the applicant and any investment
bankers, promoters, finders or lenders, and other sources of financing, (x) the
effect of the proposed action on existing and prospective security holders of
the applicant, both before and after the intended action, (xi) whether the
applicant has made full and complete disclosure of all material facts relative
to the proposed action to the Nevada Board and the Nevada Commission and made
provision for such disclosure to all prospective security holders, (xii) whether
the proposed action tends not to work a fraud upon the public, (xiii) whether a
proposed public offering contains speculative securities and (xiv) whether a
proposed transaction will create a significant risk that the publicly traded
corporation and its affiliated companies will not either satisfy their financial
obligations as they become due or satisfy all financial and regulatory
requirements imposed by the Nevada Act.
Debt Tender Offer. The Company believes that the Debt Tender Offer, in and
of itself, does not require the prior approval of the Nevada Gaming Authorities.
However, since it is contemplated that the Debt Tender Offer will be financed in
whole or in part by the Credit Facilities, the interaction of the Debt Tender
Offer and the Credit Facilities may require the prior approval of the Nevada
Gaming Authorities.
Destinations Distribution. Because the Destinations Distribution involves
the pro rata distribution of all the shares of Destinations to stockholders of
the Company, Destinations will seek the following approvals from the Nevada
Commission: (i) registration of Destinations, on an interim basis, as an
intermediary/holding company for the Nevada Licensees; (ii) registration of
Destinations as a publicly traded corporation; (iii) approval of the listing of
Destinations common stock on the NYSE; (iv) approval for continuous or delayed
public offering by Destinations or any affiliated company wholly owned by it
which is or would thereby become a publicly traded corporation; and (v) such
other approvals as may become necessary or desirable in connection with the
Destinations Distribution and the other components of the Comprehensive Plan.
In addition, the Nevada Gaming Authorities may require controlling
stockholders, officers, directors and other persons associated with Destinations
having a material relationship or material involvement with the Nevada Licensees
to be investigated and licensed as part of the approval process for the
Destinations Distribution. The Nevada Gaming Authorities may deny an application
for licensing or a finding of suitability for any cause that they deem
reasonable. A finding of suitability is comparable to licensing and both require
the submission of detailed personal and financial information followed by a
thorough investigation. If the Nevada Gaming Authorities find an officer,
director or key employee unsuitable for licensing or unsuitable to continue
having a relationship with Destinations and the Nevada Licensees, the companies
involved would be required to sever all relationships with such person. Inasmuch
as all the relevant officers, directors and other persons associated with
Destinations have already been subject to review by the Nevada Gaming
Authorities,
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the Company believes that the investigation and licensing of such individuals
will not present a substantial regulatory obstacle.
Once the necessary approvals for the Destinations Distribution are obtained
from the Nevada Gaming Authorities, the Company will seek approval from the
Nevada Commission for its de-registration.
As noted above under "-- the Equity Tender Offer," the interaction of the
various transactions contemplated by the Comprehensive Plan may be sufficient to
characterize the Comprehensive Plan as a plan of recapitalization under the
Nevada Gaming Law, and, in turn, require the Company to seek additional
approvals from the Nevada Gaming Authorities. In addition, to the extent that
the financing utilized in the Comprehensive Plan, such as the Credit Facilities,
involves agreements to (i) grant possessory security interests in the equity
securities issued by the Nevada Licensees or any affiliated holding company,
(ii) restrict the transfer of equity securities issued by any Nevada Licensee or
any affiliated holding company or (iii) not encumber equity securities issued by
any Nevada Licensee or any affiliated holding company, the Company and
Destinations will be required to obtain the prior approval of the Nevada Gaming
Authorities.
On July 16, 1997, the Company and Destinations filed the relevant
applications for approval with the Nevada Gaming Authorities in conjunction with
the Comprehensive Plan. The Company and Destinations will promptly file any
additional applications or notices, if necessary, with the Nevada Gaming
Authorities. Due to the various approvals requested by Destinations with respect
to the Destinations Distribution, there can be no assurances as to when the
Nevada Board and the Nevada Commission will take final action. Further, any such
approvals, if granted, do not constitute a finding, recommendation or approval
by the Nevada Board or Nevada Commission as to the accuracy or adequacy of the
Destinations Distribution or the merits of the Comprehensive Plan.
New Jersey Gaming Regulatory Approvals
In General. Casino gaming in New Jersey is subject to compliance with the
New Jersey Casino Control Act (the "New Jersey Act") and the regulations
promulgated under the New Jersey Act (the "New Jersey Regulations" and, together
with the New Jersey Act, the "New Jersey Gaming Law"). The Company's New Jersey
operations are subject to compliance investigations by the Division of Gaming
Enforcement of the New Jersey Department of Law and Public Safety (the "New
Jersey DGE") and the supervision, licensing and regulatory control of the New
Jersey Casino Control Commission (the "New Jersey Commission" and, together with
the New Jersey DGE, the "New Jersey Gaming Authorities"). The Company's New
Jersey operations -- at Caesars Atlantic City -- are subject to New Jersey
Gaming Law and to the jurisdiction of the New Jersey Gaming Authorities.
New Jersey Gaming Law primarily concerns (i) the financial stability and
character of casino operators, their employees, their security holders and
others financially interested in casino operations and (ii) the operating
methods and financial and accounting procedures used in connection with casino
operations. The New Jersey Gaming Law includes detailed provisions concerning,
among other things, (a) the type, manner and number of applications and licenses
required to conduct casino gaming and ancillary activities, (b) the licensing,
regulation and curricula of gaming schools, (c) the establishment of minimum
standards of accounting and internal control, including the issuance and
enforceability of casino credit, (d) the manufacture, sale, distribution and
possession of gaming equipment, (e) the rules of the games, (f) the exclusion of
undesirable persons, (g) the use, regulation and reporting of junket activities,
(h) the possession, sale and distribution of alcoholic beverages, (i) the
regulation and licensing of suppliers to licensed casino operators, (j) the
conduct of entertainment within licensed casino facilities, (k) equal
opportunity employment for employees of licensed casino operators, contractors
for casino facilities and the like, (l) the payment of gross revenue taxes and
similar fees and expenses, (m) the conduct of casino simulcasting and (n) the
imposition and discharge of casino reinvestment development obligations.
Equity Tender Offer. The Company believes that the Equity Tender Offer, in
and of itself, does not require the prior approval of the New Jersey Gaming
Authorities.
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Debt Tender Offer. The Company believes that the Debt Tender Offer, in and
of itself, does not require the prior approval of the New Jersey Gaming
Authorities. However, it is contemplated that the Debt Tender Offer will be
financed in whole or in part by the Credit Facilities, which will require the
prior approval of the New Jersey Gaming Authorities.
Destinations Distribution. New Jersey Gaming Law requires prior approval
from the New Jersey Commission before securities of a casino licensee or one of
its holding companies that is not publicly traded can be transferred. In
addition, any person acquiring the securities of a casino licensee or privately
held holding company must become qualified by the New Jersey Commission or
dispose of such securities. However, the New Jersey Act provides that the New
Jersey Commission has the discretion to permit an entity to acquire and own
securities of such licensee on an interim basis ("interim authorization") until
that entity is plenarily qualified by the New Jersey Commission; during the
period of interim authorization, the securities of such licensee must be held in
a trust pursuant to the provisions of the New Jersey Act.
Because the Destinations Distribution involves the pro rata distribution of
all the shares of Destinations to stockholders of the Company, Destinations will
seek the following approvals, determinations and/or waivers from the New Jersey
Commission: (i) approval of the transfer of the common stock of Caesars,
including Caesars' interest in Caesars New Jersey, Inc. and Boardwalk Regency
Corporation ("BRC"), to Destinations as part of a corporate restructuring of the
Company's gaming business, (ii) the determination that the interim authorization
requirements -- including the establishment of a trust -- are inapplicable to
such transfers, (iii) the determination that, after the Destinations
Distribution, BRC and its holding and intermediary companies will possess the
financial stability, integrity and responsibility required by the New Jersey
Act, (iv) the determination that the Articles of Incorporation of Destinations
satisfy the requirements of the New Jersey Act, (v) the waiver of qualification
of shareholders of Destinations, (vi) the determination that the relevant
officers and directors of Destinations and the Company's New Jersey operations
are qualified under the New Jersey Act, (vii) the qualification of Destinations
as a holding and intermediary company of the Company's New Jersey operations and
(viii) the waiver of qualification of officers of Destinations and the Company's
New Jersey operations who are not significantly involved in the affairs of BRC.
In addition, the New Jersey Gaming Authorities will require that the Credit
Facilities -- which will be used to finance in whole or in part the Equity
Tender Offer and the Debt Tender Offer -- be approved and that each financial
source of the Company's New Jersey operations or holding companies and each
holder of debt securities of the Company's New Jersey operations or holding
companies be qualified. Banking and other licensed lending institutions are
exempt from the qualification requirements of the New Jersey Act. Because the
Credit Facilities will be used to finance in whole or in part the Equity Tender
Offer and the Debt Tender Offer, Destinations will seek the following approvals
from the New Jersey Commission: (i) a determination that the lenders under the
Credit Facilities are exempt from the qualification requirements because all
such lenders are banking or other licensed lending institutions; (ii) approval
of the material debt transaction if it involves the pledge of the assets of the
Company's New Jersey operations; and (iii) a waiver of the qualification of the
holders of any debt securities of Destinations or its subsidiaries.
The qualification requirements of any debt or equity security holder of
Destinations may be waived based on an express finding by the New Jersey
Commission, with the consent of the Director of the New Jersey DGE, that the
security holder either (a)(i) is not significantly involved in the activities of
BRC, (ii) does not have the ability to control BRC or any of its holding or
intermediary companies and (iii) does not have the ability to elect one or more
members of the respective boards of directors of Destinations, BRC or its
holding or intermediary companies or (b) is an "institutional investor," as such
term is defined in New Jersey Gaming Law. For purposes of clause (a), the New
Jersey Act presumes that any non-"institutional investor" security holder who
owns or beneficially holds 5% or more of the equity securities of Destinations
has the ability to control Destinations, BRC and its holding or intermediary
companies, unless such presumption is rebutted by clear and convincing evidence.
The New Jersey Gaming Law defines an "institutional investor" as (i) any
retirement fund administered by a public agency for the exclusive benefit of
Federal, state or local public employees, (ii) an investment company registered
under the Investment Company Act of 1940, (iii) a collective investment trust
organized
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<PAGE> 18
by banks under Part Nine of the Rules of the Comptroller of the Currency, (iv) a
closed end investment trust, (v) a chartered or licensed life insurance company
or property and casualty insurance company, (vi) banking or other licensed or
chartered lending institutions, (vii) an investment advisor registered under the
Investment Advisors Act of 1940 or (viii) such other persons as the New Jersey
Commission may determine for reasons consistent with the policies of the New
Jersey Act. In the absence of a prima facie showing by the Director of the New
Jersey DGE that there is any cause to believe that such institutional investor
may be found unqualified, upon application and for good cause shown, an
institutional investor holding either (a) less than 10% of the equity securities
of Destinations or (b) Destinations debt securities constituting less than 20%
of the outstanding debt of Destinations and less than 50% of the issue involved
shall be granted a waiver of qualification of such holdings if (x) such
securities are those of a publicly-traded corporation, (y) the institutional
investor's holdings of such securities were purchased for investment purposes
only and (z) upon request by the New Jersey Commission, the institutional
investor files with the New Jersey Commission a certified statement to the
effect that the institutional investor has no intention of influencing or
affecting the affairs of Destinations, BRC or its holding or intermediary
companies; notwithstanding the foregoing, the institutional investor is
permitted to vote on matters put to the vote of the outstanding security holders
of Destinations.
If an institutional investor who has been granted a waiver subsequently
determines to influence or affect the affairs of Destinations, the institutional
investor must provide to the New Jersey Commission not less than 30 days' prior
notice of such intent and the institutional investor must file with the New
Jersey Commission an application for qualification before taking any action that
may influence or affect the affairs of Destinations. Notwithstanding the
foregoing, the institutional investor is permitted to vote on matters put to the
vote of the outstanding security holders of Destinations. If an institutional
investor changes its investment intent, or if the New Jersey Commission finds
reasonable cause to believe that an institutional investor may be found
unqualified, no action other than divestiture shall be taken by such
institutional investor with respect to its security holdings until there has
been compliance with the interim casino authorization provisions of the New
Jersey Act, including the execution of a trust agreement. Destinations, BRC and
its holding and intermediary companies are required to notify the New Jersey
Commission and the New Jersey DGE of any information about, or action of, an
institutional investor holding its equity or debt securities where such
information or action may impact on the eligibility of such institutional
investor for a waiver. If the New Jersey Commission finds an institutional
investor unqualified or if the New Jersey Commission finds that, by reason of
the extent or nature of its holdings, an institutional investor is in the
position to exercise a substantial impact on the controlling interests of BRC so
that qualification of the institutional investor is necessary to protect the
public interest, the New Jersey Act vests in the New Jersey Commission the power
to take all necessary action to protect the public interest, including the power
to require that the institutional investor submit to qualification and become
qualified under the New Jersey Act.
An equity or debt security holder -- including institutional
investors -- of Destinations, BRC or its holding or intermediary companies who
is required to be found qualified by the New Jersey Commission must submit an
application for qualification within 30 days after being ordered to do so or
divest all security holdings within 120 days after the New Jersey Commission
determines such qualification is required. The application for qualification
must include a trust agreement by which the security holder places its interest
in Destinations in a trust with a trustee qualified by the New Jersey
Commission. If the security holder is ultimately found qualified, the trust
agreement is terminated. If the security holder is not found qualified or
withdraws its application for qualification prior to a determination or
qualification being made, the trustee will be empowered with all rights of
ownership pertaining to such security holder's Destinations securities,
including all voting rights and the power to sell the securities. In any event,
the unqualified security holder will not be entitled to receive in exchange for
its Destinations securities an amount in excess of the lower of (i) the actual
cost the security holder incurred in acquiring the securities or (ii) the value
of such securities calculated as if the investment had been made on the date the
trust became operative. By the same token, if the security holder is not found
qualified, it is unlawful for the security holder to (x) receive any dividends
or interest on such securities, (y) exercise, directly or through any trustee or
nominee, any right conferred by such securities or (z) receive any remuneration
in any form from Destinations, BRC or its holding or intermediary companies for
services rendered or otherwise.
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<PAGE> 19
The New Jersey Act requires that each of Destinations, BRC and its holding
and intermediary companies maintain financial stability and capability. For
purposes of these requirements, the New Jersey Commission has adopted
regulations defining "financial stability" as the same applies to licensed
casino operations and has set forth certain standards for determining compliance
with the financial stability regulations. Under the New Jersey Regulations,
"financial stability" has been defined as (i) the ability to assure the
financial integrity of casino operations by the maintenance of a casino bankroll
or equivalent provisions adequate to pay winning wagers to casino patrons when
due, (ii) the ability to meet ongoing operating expenses which are essential to
the maintenance of continuous and stable casino operations, (iii) the ability to
pay, as and when due, all local, state and Federal taxes and any and all fees
imposed by the New Jersey Act, (iv) the ability to make necessary capital and
maintenance expenditures in a timely manner which are adequate to insure
maintenance of a superior first-class facility of exceptional quality as
required by the New Jersey Act and (v) the ability to pay, exchange, refinance
or extend debts, including long-term and short-term principal and interest and
capital lease obligations, which will mature or otherwise come due and payable
during either the license term or within 12 months after the end of the license
term or to otherwise manage such debts and any default with respect to the
debts. The New Jersey Regulations provide that the financial stability standards
concerning casino bankroll, operating expenses and capital and maintenance
expenditures are met if the following is shown by clear and convincing evidence:
(i) casino bankroll -- the maintenance, on a daily basis, of a casino bankroll
at least equal to the average daily casino bankroll, calculated on a monthly
basis, for the corresponding month of the previous year; (ii) operating
expenses -- the demonstration of the ability to achieve positive gross operating
profit measured on an annual basis; and (iii) capital and maintenance
expenditures -- the demonstration that its capital and maintenance expenditures
for the five year period, which includes the previous 36 calendar months and the
upcoming license period, average at least five percent of net revenue per annum.
Destinations believes that, at current operating levels, BRC will be in
compliance with these requirements.
The New Jersey Commission has the authority to restrict or prohibit the
transfer of cash or the assumption of liabilities by BRC if such action will
adversely impact the financial stability of BRC and the prior approval of the
New Jersey Commission is required to incur indebtedness and guarantees of
affiliated indebtedness by BRC involving amounts greater than $25 million.
The interaction of the various transactions contemplated by the
Comprehensive Plan may trigger the need to seek additional approvals from the
New Jersey Gaming Authorities. In addition, to the extent that the financing
proposed by the Comprehensive Plan, such as the Credit Facilities, involves
agreements to (i) restrict the transfer of equity securities issued by BRC or
its holding or intermediary companies or (ii) not encumber equity securities
issued by BRC or its holding or intermediary companies, the Company and
Destinations will be required to obtain the prior approval of the New Jersey
Gaming Authorities.
On July 16, 1997, the Company and Destinations filed the relevant
applications for approval with the New Jersey Gaming Authorities in conjunction
with the Comprehensive Plan. The Company and Destinations will promptly file any
additional applications or notices, if necessary, with the New Jersey Gaming
Authorities. Due to the various approvals requested by Destinations with respect
to the Destinations Distribution, there are no assurances as to when the New
Jersey Commission will take final action. Further, any such approvals, if
granted, do not constitute a finding, recommendation or approval by the New
Jersey Commission as to the accuracy or adequacy of the Destinations
Distribution or the merits of the Comprehensive Plan.
Mississippi Gaming Regulatory Approvals
In General. The ownership and/or operation of casino gaming facilities in
Mississippi are similarly subject to extensive state and local regulation; these
include (i) the Mississippi Gaming Control Act (the "Mississippi Act"), (ii) the
regulations promulgated under the Mississippi Act (the "Mississippi
Regulations"), and (iii) various local ordinances and regulations (such
ordinances and regulations, together with the Mississippi Act and the
Mississippi Regulations, the "Mississippi Gaming Law"). The Company's
Mississippi gaming operations are subject to the licensing and regulatory
control of the Mississippi Gaming Commission (the "Mississippi Commission"). The
Company's Mississippi gaming operations -- at The Sheraton Casino
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in Tunica, Mississippi ("Sheraton Tunica") -- are subject to Mississippi Gaming
Law and the jurisdiction of the Mississippi Commission.
In all material respects, casino gaming regulation in Mississippi is
similar to the regulation of casino gaming in Nevada.
Equity Tender Offer. The Company believes that the Equity Tender Offer, in
and of itself, does not require the prior approval of the Mississippi
Commission. However, if the Equity Tender Offer involves the aggregate payment
of cash to voting security holders in excess of 50% of the aggregate current
market value of the Shares, the Mississippi Commission may determine that the
Comprehensive Plan, of which the Equity Tender Offer is a part, constitutes a
"plan of recapitalization" under the Mississippi Regulations, in which case the
Company and Destinations would be required to obtain the prior approval of the
Mississippi Commission prior to consummating the Equity Tender Offer and the
Destinations Distribution.
With respect to the applicable criteria for such approval, the Mississippi
Commission will consider all relevant material facts in determining whether to
grant such approval, and may consider not only the effects of the Comprehensive
Plan but also any other facts deemed relevant, including all the facts that the
Nevada Board and Nevada Commission would consider set forth above under
"-- Nevada Gaming Regulatory Approvals -- Equity Tender Offer."
Debt Tender Offer. The Company believes that the Debt Tender Offer, in and
of itself, does not require the prior approval of the Mississippi Commission.
However, since the Debt Tender Offer will be financed in whole or in part by the
Credit Facilities, the interaction of the Debt Tender Offer and the Credit
Facilities may require the prior approval of the Mississippi Commission.
Destinations Distribution. Because the Destinations Distribution involves
the pro rata distribution of all the shares of Destinations to stockholders of
the Company, Destinations will seek the following approvals from the Mississippi
Commission: (i) registration of Destinations, on an interim basis, as an
intermediary/holding company for Sheraton Tunica; (ii) registration of
Destinations as a publicly traded corporation; (iii) approval of the listing of
Destinations common stock on the NYSE; and (iv) approval for continuous or
delayed public offering by Destinations or any affiliated company wholly owned
by it which is or would thereby become a publicly traded corporation.
In addition, the Mississippi Commission may require controlling
stockholders, officers, directors and other persons associated with Destinations
having a material relationship or material involvement with Sheraton Tunica to
be investigated and licensed as part of the approval process for the
Destinations Distribution. The Mississippi Commission may deny an application
for licensing or a finding of suitability for any cause that it deems
reasonable. A finding of suitability is comparable to licensing and both require
the submission of detailed personal and financial information followed by a
thorough investigation. If the Mississippi Commission finds an officer, director
or key employee unsuitable for licensing or unsuitable to continue having a
relationship with Destinations and Sheraton Tunica, the companies involved would
be required to sever all relationships with such person. Inasmuch as all the
relevant officers, directors and other persons associated with Destinations have
already been subject to review by the Mississippi Commission, the Company
believes that the investigation and licensing of such individuals will not
present a substantial regulatory obstacle.
The interaction of the various transactions contemplated by the
Comprehensive Plan may be sufficient to characterize the Comprehensive Plan as a
plan of recapitalization, and, in turn, require the Company to seek additional
approvals from the Mississippi Commission. In addition, to the extent that the
financing proposed by the Comprehensive Plan, such as the Credit Facilities,
involves agreements to (i) restrict the transfer of equity securities issued by
Sheraton Tunica or any affiliated holding company or (ii) not encumber equity
securities issued by Sheraton Tunica or any affiliated holding company, the
Company and Destinations will be required to obtain the prior approval of the
Mississippi Commission.
The Company and Destinations plan to file shortly the relevant applications
for approval with the Mississippi Commission in conjunction with the
Comprehensive Plan. The Company and Destinations will promptly file any
additional applications or notices, if necessary, with the Mississippi
Commission. Due to the
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various approvals requested by Destinations with respect to the Destinations
Distribution, there are no assurances as to when the Mississippi Commission will
take final action. Further, any such approvals, if granted, do not constitute a
finding, recommendation or approval by the Mississippi Commission as to the
accuracy or adequacy of the Destinations Distribution or the merits of the
Comprehensive Plan.
Ontario, Canada Gaming Regulatory Approvals
The Company's operations in Windsor, Ontario -- through its half-interest
in Casino Windsor -- are subject to the Ontario Gaming Control Act (the "Ontario
Act") and the registration and regulatory control of the Ontario Gaming Control
Commission (the "Ontario Commission"), the Ontario Casino Corporation (the
"Ontario Corporation"), the Registrar of Gaming Control (the "Ontario
Registrar") and the Director of Gaming Control (the "Ontario Director"), as well
as various local, county and provincial regulatory agencies (such regulatory
agencies, together with the Ontario Commission, the Ontario Corporation, the
Ontario Registrar and the Ontario Director, the "Ontario Gaming Authorities").
None of the Equity Tender Offer, the Debt Tender Offer or the Destinations
Distribution requires the approval of the Ontario Gaming Authorities. However,
in keeping with the Company's policy of disclosure with its gaming regulatory
agencies, appropriate disclosures concerning the Equity Tender Offer, the Debt
Tender Offer and the Destinations Distribution will be made to the Ontario
Gaming Authorities and full, complete and accurate responses will be provided to
the Ontario Gaming Authorities to all inquiries concerning the Comprehensive
Plan.
Nova Scotia, Canada Gaming Regulatory Approvals
The Company's operations in Nova Scotia -- at Sheraton Halifax Hotel &
Casino and Sheraton Casino/Sydney -- are subject to the Nova Scotia Gaming
Control Act (the "Nova Scotia Act") and the registration and regulatory control
of the Nova Scotia Gaming Commission (the "Nova Scotia Commission"), and the
Nova Scotia Gaming Corporation (the "Nova Scotia Corporation" and, together with
the Nova Scotia Commission, the "Nova Scotia Gaming Authorities").
None of the Equity Tender Offer, the Debt Tender Offer or the Destinations
Distribution requires the approval of the Nova Scotia Gaming Authorities.
However, in keeping with the Company's policy of disclosure with its gaming
regulatory agencies, appropriate disclosures concerning the Equity Tender Offer,
the Debt Tender Offer and the Destinations Distribution will be made to the Nova
Scotia Gaming Authorities and full, complete and accurate responses will be
provided to the Nova Scotia Gaming Authorities to all inquiries concerning the
Comprehensive Plan.
Indiana Gaming Regulatory Approvals
The Company's proposed operations in Indiana -- at Caesars Indiana in
Bridgeport, Harrison County, Indiana -- are subject to the Indiana Riverboat
Gambling Act (the "Indiana Act") and the registration and regulatory control of
the Indiana Gaming Commission (the "Indiana Commission"), the United States Army
Corps of Engineers (the "ACOE"), the United States Coast Guard (the "USCG"), as
well as various local, county, state and Federal regulatory agencies (such
regulatory agencies, together with the Indiana Commission, the ACOE and the
USCG, the "Indiana Gaming Authorities").
None of the Equity Tender Offer, the Debt Tender Offer or the Destinations
Distribution requires the approval of the Indiana Gaming Authorities. However,
in keeping with the Company's policy of disclosure with its gaming regulatory
agencies, appropriate disclosures concerning the Equity Tender Offer, the Debt
Tender Offer and the Destinations Distribution will be made to the Indiana
Gaming Authorities and full, complete and accurate responses will be provided to
the Indiana Gaming Authorities to all inquiries concerning the Comprehensive
Plan.
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Communications Act of 1934
The Company holds a fifty percent interest in ITT-Dow Jones Television, the
general partnership that is the licensee of WBIS+(TV), New York, New York,
through the Company's wholly owned subsidiary ITT Broadcasting Corp. The
transfer of the stock of ITT Broadcasting Corp. to Destinations in preparation
for the Destinations Distribution and the distribution of the shares of
Destinations to the Company's stockholders in the Destinations Distribution will
require the prior approval of the Federal Communications Commission (the "FCC")
for a pro forma change in control of ITT Broadcasting Corp. The FCC is not
required to provide 30 day prior public notice and the opportunity for filing
petitions to deny for such an application, as it would be in the case of an
application requesting consent for a change in ultimate control. The FCC will
consider informal objections filed against such an application. The FCC
typically grants applications for consent to pro forma transfers of control
within a few weeks after filing, although the filing of informal objections may
delay the FCC's action on an application until the FCC considers the objections.
The Company plans to file shortly an application for the FCC's consent to the
pro forma change in control of ITT Broadcasting Corp.
Educational Regulatory Approvals
The ownership and operation of educational institutions in the United
States are subject to extensive federal and state laws and regulations. In this
regard, ITT Educational must maintain certain authorizations under the
applicable laws, regulations and standards of (a) the U.S. Department of
Education for each of ITT Educational's ITT Technical Institutes to be able to
participate in Federal student financial aid programs (the "DOE"), (b)
non-governmental accrediting commissions for each of ITT Educational's ITT
Technical Institutes to be accredited (the "Accrediting Commission") and (c)
state education authorities for each of ITT Educational's ITT Technical
Institutes to operate within the states' borders (the "States").
The DOE, the Accrediting Commissions and most of the States have laws,
regulations and/or standards (collectively, "Regulations") pertaining to changes
in ownership and/or control (collectively, "change in control") of the
educational institutions they regulate. The change in control Regulations do
not, however, uniformly define what constitutes a change in control. The DOE's
change in control Regulations generally subject ITT Educational to the change in
control standards of the Federal securities laws. Most States and the
Accrediting Commissions include the sale of a controlling interest of common
stock in the definition of a change in control. Practically all change in
control Regulations of the DOE, the Accrediting Commissions and the States are
subject to varying interpretations as to whether a particular transaction
constitutes a change in control. Based on ITT Educational's interpretation of
the language of the change in control Regulations and ITT Educational's
discussions with the DOE, the Accrediting Commissions and the States, the
Company does not believe that the ITT Educational Distribution will constitute a
change in control of ITT Educational under the DOE's, the Accrediting
Commissions' or many of the States' change in control Regulations. There can be
no assurance, however, that the DOE, the Accrediting Commissions and one or more
of the States will not determine that the ITT Educational Distribution
constitutes a change in control of ITT Educational or some individual ITT
Technical Institutes under their respective change in control Regulations.
The DOE will not preapprove a change in control and will only reinstate an
institution's eligibility to participate in Federal student financial aid
programs upon review and approval of a complete application following the
institution's change in control. To be complete, among other things, such
application must demonstrate that the relevant ITT Technical Institute is
authorized by the appropriate States and accredited by the appropriate
Accrediting Commission. Therefore, before any ITT Technical Institute may regain
access to Federal student financial aid funds following a change in control
under DOE Regulations (i) it must be reaccredited (or continue to be accredited)
by the appropriate Accrediting Commission and be reauthorized (or continue to be
authorized) by the appropriate States and (ii) the change of control must
otherwise be approved by the DOE.
The Accrediting Commissions will not reaccredit an ITT Technical Institute
unless that institute is authorized by the appropriate States. The standards of
the Accrediting Commission which accredits 56 ITT Technical Institutes provide
that, during the 30 days immediately preceding the change in control, the
Accrediting Commission will determine whether to continue the institution's
accreditation for a period of six
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months after the change in control to allow the institution to obtain
reauthorization (or confirmation of continued authorization) by the appropriate
State and apply for reaccreditation. The standards of the Accrediting Commission
which accredits three ITT Technical Institutes provide that, within five
business days after an institution obtains reauthorization (or confirmation of
continued authorization) by the appropriate States following a change in
control, the Accrediting Commission will determine whether to temporarily
reinstate the institution's accreditation during the period in which the
institution must apply for permanent reinstatement of its accreditation.
Most States in which ITT Technical Institutes operate, including
California, require that a change in control of an institution be approved
before it occurs in order for the institution to maintain its authorization (the
"Prior Approval States"). Some States will only review a change in control of an
institution after it occurs (the "Post Approval States").
A California statute prohibits the approval of a change in control of any
institution that has been found to have violated Chapter 7 (formerly Chapter 3)
of the California Education Code ("Chapter 7") in any judicial or administrative
proceeding. In October 1996, the jury in Eldredge, et al. v. ITT Educational
Services, Inc., et al. (the "Eldredge Case") determined that ITT Educational,
through its Technical Institute in San Diego, California, violated Chapter 7.
ITT Educational has appealed the jury's verdict in the Eldredge Case, but it is
unlikely that California would approve a change in control of the San Diego ITT
Technical Institute unless and until (i) ITT Educational's appeal is successful,
(ii) it is determined that the jury's verdict does not constitute a finding in a
judicial proceeding until all of ITT Educational's appeals are exhausted or
waived or (iii) the California statute imposing the restriction is changed or
determined to be unenforceable. In addition to the Eldredge Case, five legal
actions are pending against ITT Educational alleging violations of Chapter 7 by
the San Diego ITT Technical Institute and one legal action is pending against
ITT Educational alleging violations of Chapter 7 by all ten of the ITT Technical
Institutes in California.
The Company and ITT Educational have made initial contacts with the DOE,
the Accrediting Commissions and many of the States to confirm their belief that
the ITT Educational Distribution will not constitute a change of control
requiring approval. In the event any educational regulatory authority insists
that ITT Educational Distribution requires its prior approval, the Company and
ITT Educational will seek to obtain any such approval.
Neither the Equity Tender Offer nor the Debt Tender Offer requires approval
of the DOE, the Accrediting Commissions or any of the States.
* * *
As stated in Item 4 above, in addition to the Comprehensive Plan, the
Company is taking steps to monetize or otherwise realize the value of certain
assets, grow its hotels and gaming business and enhance the profitability,
return on assets or cash flows of its core business. These alternatives could
lead to and involve undertaking negotiations which may result in (i) a purchase,
sale or transfer of a material amount of assets by the Company or one or more
subsidiaries of the Company, (ii) a tender offer for or other acquisition of
securities by or of the Company, (iii) a material change in the present
capitalization or dividend policy of the Company or (iv) an extraordinary
transaction, such as a merger or reorganization, involving the Company or any
subsidiary of the Company, but, in each case, not constituting a sale of the
Company's hotels and gaming business as a whole. At the date hereof, there have
been contacts with parties who have expressed interest in the possibility of
pursuing various types of transactions with the Company and, in some cases,
negotiations regarding potential transactions have commenced.
The Board has determined that disclosure of the substance of negotiations
concerning, or the possible terms of, or potential parties to, any transactions
or proposals of the type referred to above prior to an agreement in principle
with respect thereto would jeopardize the initiation or continuation of
negotiations with respect to such transactions and, as previously disclosed, has
adopted a resolution directing that no such disclosure with respect to any such
transaction be made until such agreement in principle has been reached.
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There can be no assurance that any of the foregoing actually will result in
any additional transactions. The proposal, authorization, announcement or
consummation of any additional transaction of the type referred to above could
adversely affect or result in the withdrawal of the Hilton Tender Offer.
(b) Other than as set forth in this Item 7, there are no transactions,
Board resolutions, agreements in principle or signed contracts in response to
the Hilton Tender Offer that relate to or would result in one or more of the
events referred to above in Item 7(a).
ITEM 9. EXHIBITS.
The response to Item 9 is hereby amended by adding the following new
exhibits:
67. Text of Press Release issued by the Company dated July 16, 1997.
68. Letter to stockholders of the Company dated July 16, 1997.
69. Letter from The Chase Manhattan Bank and Chase Securities Inc. dated
July 15, 1997.
70. Stock Purchase Agreement dated as of July 15, 1997, between BellSouth
Corporation and ITT Corporation.
23
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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/ PATRICK L. DONNELLY
--------------------------------------
Name: Patrick L. Donnelly
Title: Vice President and
Assistant General Counsel
Dated as of July 16, 1997
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EXHIBIT INDEX
<TABLE>
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EXHIBIT DESCRIPTION PAGE NO.
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<C> <S> <C>
(67) Text of Press Release issued by the Company dated July 16, 1997.............
(68) Letter to stockholders of the Company dated July 16, 1997...................
(69) Letter from The Chase Manhattan Bank and Chase Securities Inc. dated July
15, 1997....................................................................
(70) Stock Purchase Agreement dated as of July 15, 1997, between BellSouth
Corporation and ITT Corporation.............................................
</TABLE>
<PAGE> 1
EXHIBIT (67)
LOGO
<TABLE>
<S> <C> <C>
CONTACT: Jim Gallagher George Sard/David Reno
ITT Corporation Sard Verbinnen & Co
212-258-1261 212-687-8080
</TABLE>
ITT TO SPLIT INTO THREE SEPARATE PUBLIC COMPANIES
WILL CREATE HOTEL/GAMING, TELEPHONE DIRECTORIES, TECHNICAL SCHOOLS COMPANIES
WILL TENDER FOR 30 MILLION ITT SHARES, 26% OF TOTAL OUTSTANDING SHARES,
FOR $70 PER SHARE, OR A TOTAL OF $2.1 BILLION
- --------------------------------------------------------------------------------
NEW YORK, JULY 16, 1997 -- ITT Corporation (NYSE: ITT) today announced its Board
of Directors has unanimously approved a comprehensive plan designed to further
sharpen ITT's strategic focus and enhance shareholder value through the tax-free
creation of three independent public companies and a fixed-price stock tender
for 30 million shares at $70 per share.
The three new companies are:
- ITT Destinations, Inc., a worldwide leader in hotels and gaming, with 424
existing hotels in 62 countries and casinos in Las Vegas, Atlantic City
and other major gaming centers. It will focus on further increasing the
value of the Sheraton and Caesars brands -- two of the best known and
most respected names in the hotel and gaming industries.
- ITT Corporation, whose sole asset will be 100% of ITT World Directories,
Inc., one of the largest and most successful publishers of telephone
directories and classified information outside the United States, with
operations in Belgium, Ireland, Japan, The Netherlands, Puerto Rico,
Portugal and South Africa. ITT has entered into an agreement with an
affiliate of Clayton, Dubilier & Rice, Inc., a New York-based private
investment firm, under which it will acquire a substantial minority
interest in the World Directories company after the three-way split.
- ITT Educational Services, Inc. (NYSE: ESI), a leading provider of
post-secondary technical education with 60 ITT Technical Institutes
operating in 27 states. ESI is currently 83.3% owned by ITT with the
remaining 16.7% publicly held.
ITT plans to repurchase 30 million shares, or approximately 26% of its
total shares outstanding, for $70 per share, or $2.1 billion in total, through a
cash tender offer. In connection with the allocation of debt obligations between
ITT Destinations and the World Directories company, ITT also plans to offer to
repurchase the entire $2.0 billion of existing ITT Corporation public debt,
through a tender offer later in the year.
The tender offers will be funded with proceeds of recent asset sales and
bank financing. The Chase Manhattan Bank and Chase Securities Inc. have
delivered a letter to ITT stating that they are highly confident they could
successfully arrange the aggregate financings required for the tender offers,
capitalization of ITT Destinations and the World Directories company, and
working capital needs.
ITT CORPORATION
Telephone (212) 258-1000 Facsimile (212) 258-1027/1028
<PAGE> 2
In addition to retaining their ITT shares (which will now represent
ownership of the stand-alone World Directories), ITT shareholders will receive
one new share in ITT Destinations, Inc. and approximately 0.25 of a share of ITT
Educational Services for each existing ITT share.
In approving the comprehensive plan, ITT's Board of Directors again voted
unanimously to recommend that ITT shareholders reject Hilton's $55 per share
partial tender offer and the proposed second-step "squeeze out" merger as
inadequate and not in the best interests of ITT shareholders. The ITT Board
reaffirmed its belief that the interests of ITT shareholders, as well as ITT
employees, creditors, customers and the communities in which it operates, would
best be served by the Company remaining independent and executing its plan.
"Separating our lodging and gaming operations from ITT's other remaining
assets is in keeping with our goal of creating current value for ITT
shareholders while enhancing the long-term prospects and strategic opportunities
for each business," said Rand V. Araskog, Chairman and Chief Executive of ITT,
who will become Chairman and Chief Executive of ITT Destinations. "The actions
we are announcing today are consistent with our concerted efforts to increase
shareholder value, which began with the decision to divest ITT's stake in
Alcatel, followed by the establishment of an independent Rayonier and our
well-received split into three independent companies in 1995. These actions have
created five leading companies in their respective industries."
Since 1991, ITT has sold its entire stake in Alcatel and created four
separate public companies: Rayonier (NYSE: RYN), Hartford Financial Services
Group, Inc. (NYSE: HIG), ITT Industries, Inc. (NYSE: INN), and ITT Corporation
(NYSE: ITT). Holders of ITT stock for the five years through 1996 have seen
their investment outperform the S&P 500 Index by more than 70% and increase in
aggregate value by approximately $10 billion during this same period.
Araskog added, "Building on these earlier efforts and our successful recent
asset sales, this latest initiative will further sharpen our focus, allowing
management to concentrate on the growth and profitability of closely related
businesses while enabling shareholders to make clear investment choices. ITT
shareholders will own three dynamic companies on a tax-free basis and retain all
the upside. Hilton cannot execute our plan because it could not do a tax-free
spin-off of World Directories and ESI for five years, and it would have to pay
at least $500 million in taxes if it carried out its promise to sell these
assets, which have a very low tax basis."
In addition to Araskog, ITT Destinations will be led by Robert A. Bowman,
ITT's President and Chief Operating Officer, who will have the same role at the
new company. Daniel P. Weadock, ITT Senior Vice President-Hotels, will continue
to run its hotel business and Peter G. Boynton, ITT Senior Vice President-
Gaming, will continue to run its gaming business.
Gerald C. Crotty, ITT Senior Vice President and Chairman of ITT Information
Services, Inc., will become Chief Executive of the independent directories
business. ITT Educational Services will continue to be led by Rene R. Champagne,
its Chairman and Chief Executive.
ITT Corporation and ITT Destinations both expect to hold their 1997 annual
shareholder meetings in November. ITT Corporation will remain a Nevada company
with an 11-member Board of Directors, all of whom will stand for election in
November. ITT Destinations will be incorporated in Nevada with a classified
Board comprised of the 11 existing ITT directors, four of whom will stand for
election in November. Most other major companies, including six of the largest
hotel and gaming companies (Hilton Hotels, Marriott International, Host
Marriott, Circus Circus, Mirage Resorts and Harrah's), have classified boards.
ITT Educational Services will remain a Delaware corporation with its existing
10-member classified Board of Directors.
In connection with the comprehensive plan, ITT has acquired from BellSouth
Corporation (NYSE: BLS) the 20% of ITT World Directories it does not currently
own for $254 million in cash. In a separate transaction last week, ITT World
Directories declared and paid an $11 million dividend to BellSouth.
Following the three-way split, Clayton, Dubilier & Rice (CD&R) would invest
an initial $225 million in cash for a 32.9% interest in World Directories.
Following the transaction with CD&R, World Directories
2
<PAGE> 3
would also have approximately $1.05 billion in debt, giving the company an
initial total enterprise value of approximately $1.7 billion. CD&R would also
receive 10-year warrants to buy common stock of the company at a 50% premium to
CD&R's initial purchase price which, if exercised, would result in CD&R owning a
46.6% fully diluted interest in the World Directories company.
"Since rejecting Hilton's inadequate offer five months ago and implementing
our plan to create shareholder value, we have sold non-strategic assets at
premium prices, generating approximately $1.5 billion in proceeds which we are
returning to our shareholders," said Araskog. "Based on its leading worldwide
market position, ITT Destinations will emerge from the split as a formidable
competitor with the management depth and the financial strength to further
expand its presence in the consolidating global hotel and gaming industries
while delivering strong double-digit growth in earnings and cash flow. ESI and
World Directories are strong companies which generate substantial cash flows.
This tax-efficient split will allow all three companies to make the necessary
strategic decisions that will create superior value for shareholders, as we have
done with our previous spin-offs."
"Both Sheraton and Caesars continue to build on their global leadership,"
said Robert A. Bowman, ITT President and Chief Operating Officer. "Since January
of this year, we have acquired three hotels and signed or acquired 55 franchise
agreements and management contracts in 15 different countries, totaling more
than 15,000 rooms. We will continue to grow our portfolio of owned, managed and
franchised hotels around the world, while further enhancing our presence in
principal gaming centers. With extensive capital improvements to our major
casinos in Las Vegas and Atlantic City targeted for completion by year-end, and
with superior management now in place in each of these casinos, we are well
positioned for accelerated earnings growth."
"Moreover, Dan Weadock, Peter Boynton and their senior teams throughout the
world have hundreds of years of experience in the hotel and gaming industries,"
added Bowman. "That experience, combined with widespread industry and customer
recognition of their management talent and innovation, are additional reasons to
expect strong growth in both hotel and gaming operations in the future."
"World Directories, already the leading proprietary classified information
business in the world, will have a powerful partner in Clayton, Dubilier & Rice,
strong cash flow and many growth opportunities in a fragmented global market,"
said Gerald C. Crotty, who will be Chairman and CEO of the independent
directories business.
Rene R. Champagne, Chairman and CEO of ITT Educational Services, said: "ESI
will have much greater public float and the same strong balance sheet, enabling
us to exploit our leading position in the rapidly growing market for
post-secondary technical educational services."
ITT Corporation today consists of Sheraton, a premier hotel company which
owns and/or manages 424 hotels in 62 countries; Caesars, the leading brand name
in the gaming industry; and ownership interests in ITT World Directories (100%),
ITT Educational Services (83.3%), and Madison Square Garden (10.2%). ITT has a
definitive agreement to sell its 50% interest in New York City television
station WBIS+ to Paxson Communications Corp. (ASE: PXN).
3
<PAGE> 1
EXHIBIT (68)
[ITT LOGO]
ITT CORPORATION
Rand V. Araskog
Chairman and Chief
Executive
July 16, 1997
Dear Stockholder:
At a meeting yesterday, your Board of Directors approved a comprehensive
plan which is a further step in ITT's refinement of its strategic plan and is
designed to enhance the value of ITT to its stockholders.
A major element of the comprehensive plan involves the separation of ITT
into three distinct publicly owned companies focused on (a) hotels and gaming,
(b) telephone directories publishing and (c) post-secondary technical education.
The separation will be effected through the distribution or "spin-off" of all of
the shares owned by ITT of its subsidiaries that hold its hotels and gaming
business and post-secondary technical education business to stockholders of ITT,
leaving ITT's telephone directories publishing subsidiary as its only remaining
business. A second major element of the comprehensive plan involves the
repurchase through a cash tender offer of 30 million shares (approximately 25.7%
of the outstanding shares) at a price per share of $70. A third element of the
comprehensive plan involves the allocation of ITT's existing indebtedness
between ITT's hotels and gaming business and telephone directories publishing
business in a manner that is appropriate for the credit capacity and
capitalization requirements of each business. To accomplish this allocation, ITT
intends to commence a tender offer for all the publicly held debt securities of
ITT Corporation and to repay certain other debt.
Your Board has substantial experience with the benefits of spin-off
transactions. In 1994, our predecessor spun-off its forestry products subsidiary
to create an independent company. In addition, your Company is itself the
product of the December 1995 separation of a conglomerate that controlled the
businesses now operated by your Company as well as ITT Industries, Inc. and The
Hartford Financial Services Group, Inc. Holders of ITT stock for the five years
through 1996 have seen their investment outperform the Standard & Poor's 500
Index by more than 70% and increase in aggregate value by approximately $10
billion during the same period.
As part of the comprehensive plan, ITT has also reached a definitive
agreement with an affiliate of Clayton, Dubilier & Rice, Inc., a New York-based
private investment firm, to invest an initial $225 million in cash for a 32.9%
interest in ITT (which will own our telephone directories publishing business)
to be completed after the completion of the distributions. Following this
transaction with Clayton, Dubilier & Rice, our telephone directories publishing
company will have approximately $1.05 billion in debt, giving the Company an
initial total enterprise value of approximately $1.7 billion. In connection with
this transaction, Clayton, Dubilier & Rice will also receive 10-year warrants to
buy common stock of ITT at a 50% premium to Clayton, Dubilier & Rice's initial
purchase price which, if exercised, would result in Clayton, Dubilier & Rice
owning a 46.6% fully diluted interest in our telephone directories publishing
company.
The comprehensive plan is intended to enhance the value of the ongoing
investment of stockholders as well as further the interests of ITT's employees,
creditors, customers, and the economies and communities in which ITT operates.
ITT currently operates three distinct businesses with different characteristics,
competitive environments and growth prospects. Separating ITT's businesses and
allowing them to operate independently is expected to result in, among other
things, increased strategic focus, a flattening of organizational structures,
the implementation of narrowly-tailored incentive compensation plans and
enhanced market understanding and valuations of these businesses. The Board also
took account of the tax-free nature of spin-offs.
Your Board believes that the business justifications for the comprehensive
plan are compelling without regard to Hilton's unsolicited offer and intends to
pursue the plan even if Hilton withdraws its interest in acquiring ITT. YOUR
BOARD OF DIRECTORS CONTINUES TO RECOMMEND UNANIMOUSLY THAT YOU NOT TENDER YOUR
SHARES TO HILTON OR TAKE ANY OTHER ACTION TO FACILITATE HILTON'S UNSOLICITED
OFFER.
<PAGE> 2
A copy of an amendment to ITT's Schedule 14D-9 (which includes our press
release announcing these important decisions by your Board) and materials
relating to the equity tender offer are enclosed. Your Board urges you to
consider this information carefully.
The equity tender offer is explained in detail in the enclosed Offer to
Purchase and Letter of Transmittal. If you want to tender your shares, the
instructions for tendering shares are also explained in detail in the enclosed
materials. I encourage you to read these materials carefully before making any
decision with respect to the equity tender offer. The equity tender offer,
proration period and withdrawal rights will expire at 12:00 midnight, New York
City time, on Wednesday, August 13, 1997, unless the offer is extended. The
Company expects (although it is not obligated) to extend the equity tender
offer, subject to the other terms and conditions thereof, until such time as all
required approvals for the equity tender and the distribution of the hotel and
gaming company are obtained.
Your Board of Directors is not making any recommendation as to whether any
stockholder should tender any or all of such stockholder's shares pursuant to
the equity tender offer. Each stockholder must make such stockholder's own
decision whether to tender shares and, if so, how many shares to tender.
Any questions you have about the equity tender offer should be directed to
Georgeson & Company Inc., for general information, at (800) 223-2064 or Goldman,
Sachs & Co. or Lazard Freres & Co. LLC, the dealer managers for the equity
tender offer, at the phone numbers on the back cover of the enclosed Offer to
Purchase.
Your Board believes that, after implementation of the transactions
described above, each of ITT's existing business units will be an independent
and sound entity with a bright future, and will remain a leader in its
respective industry. Please be assured that your Board of Directors and the
management of ITT will continue to act in the best interests of its stockholders
and ITT. Your Directors thank you for your support.
Very truly yours,
/s/ Rand V. Araskog
Rand V. Araskog
Chairman and
Chief Executive
<PAGE> 1
EXHIBIT (69)
[CHASE LOGO]
THE CHASE MANHATTAN BANK
270 PARK AVENUE
NEW YORK, NEW YORK 10017
CHASE SECURITIES INC.
270 PARK AVENUE
NEW YORK, NEW YORK 10017
July 15, 1997
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019-5490
Attention: Ann N. Reese, Executive Vice President
and Chief Financial Officer
Ladies and Gentlemen:
ITT Corporation ("ITT") has advised The Chase Manhattan Bank ("Chase") and
Chase Securities Inc. ("CSI") that it intends to (i) repurchase approximately
30,000,000 shares of its common stock at a price of $70.00 per share in cash,
(ii) refinance certain indebtedness of ITT and its direct and indirect
subsidiaries and (iii) subsequent to such repurchase and refinancing, spin-off
(collectively, the "Spin-Offs") to its shareholders its education services and
hotels and gaming businesses (collectively, the "Transactions"). The education
services business will be spun-off as ITT Educational Services, Inc. ("ITT
Educational") and the hotels and gaming businesses will be spun-off as ITT
Destinations, Inc. ("ITT Destinations"). Following the Spin-Offs, ITT will be
renamed ITT Information Services, Inc. ("ITT Information Services").
We understand that for and in connection with the Transactions, you are
planning (a) a financing for ITT Destinations (the "Destinations Financing") in
the syndicated loan market of up to $5,000,000,000 and (b) financings for ITT
Information Services and certain of its direct and indirect subsidiaries (the
"Information Services Financings") in the syndicated loan and securities
markets, aggregating the U.S. dollar equivalent of $1,365,000,000. The
Destinations Financing and the Information Services Financings (collectively,
the "Financings") will yield aggregate proceeds of $6,365,000,000. Chase and CSI
have participated with ITT in substantial discussions and work relating to the
Financings, including due diligence reviews of the businesses which will
comprise ITT Destinations and ITT Information Services, term sheet preparation
and consideration of certain legal, regulatory, tax and collateral matters
relating to the Financings.
We are pleased to inform you that, based upon the work and discussions to
date and subject to the conditions set forth below, we are highly confident that
we could successfully arrange the Financings. The structure, covenants and terms
of the Financings would be determined by Chase, CSI and you.
Our view expressed above is subject to, among other things, (a) there not
occurring or becoming known to us any material adverse condition or material
adverse change in or affecting the business, operations, property or financial
condition or prospects of ITT and its subsidiaries, either individually or taken
as a whole, (b) our final satisfaction that the credit structure contemplated
for the Financings can be achieved with all necessary third party consents and
without resulting in material adverse tax, regulatory, legal, contractual or
other consequences not currently known to us, (c) our not becoming aware after
the date hereof of any information or other matter affecting ITT or any of its
subsidiaries or the Transactions which is inconsistent in a material and adverse
manner with any such information or other matter disclosed to us prior to the
date hereof and (d) there not having occurred any material adverse litigation
affecting the Transactions or any of
<PAGE> 2
the Financings that has not been settled, dismissed, vacated or discharged prior
to the proposed closing date for the Financings to the reasonable satisfaction
of Chase and CSI.
Furthermore, our view is based on current conditions in the syndicated loan
and securities markets in which the Financings would be completed and assumes
that there will be no material disruption of, or material adverse change in, the
conditions of such markets that, in our reasonable judgment, could materially
and adversely impair the completion of the Financings.
It should be understood that this letter is not intended to be, and shall
not constitute, a commitment by Chase to provide any financing or an agreement
by CSI to arrange any financing. This letter shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
conflicts of law principles.
Chase and CSI are pleased to have been given the opportunity to assist you
in providing this letter relating to the Financings.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ JAMES B. LEE, JR.
------------------------------------
Name: James B. Lee, Jr.
Title: Vice Chairman
CHASE SECURITIES INC.
By: /s/ NANCY G. MISTRETTA
------------------------------------
Name: Nancy G. Mistretta
Title: Managing Director
2
<PAGE> 1
EXHIBIT (70)
================================================================================
STOCK PURCHASE AGREEMENT
Dated as of July 15, 1997
between
BELLSOUTH CORPORATION
and
ITT CORPORATION
================================================================================
<PAGE> 2
1
STOCK PURCHASE AGREEMENT dated as of July 15, 1997,
between BELLSOUTH CORPORATION, a Georgia corporation,
("Seller"), and ITT CORPORATION, a Nevada corporation
("Buyer").
Buyer desires to purchase from Seller's subsidiary, L. M. Berry
and Company, a Georgia corporation ("Berry"), and Seller desires to
cause Berry to sell to Buyer, 3,000 shares of Voting Common Stock, par
value $100 per share, and two shares of Non-Voting Common Stock, par
value $100 per share (collectively, the "Shares"), of ITT World
Directories Inc., a Delaware corporation (the "Company").
Accordingly, Seller and Buyer hereby agree as follows:
1. Purchase and Sale of the Shares. On the terms and subject to the
conditions of this Agreement, Seller shall sell, transfer and deliver, or cause
to be sold, transferred and delivered, to Buyer, and Buyer shall purchase from
Seller, the Shares for a purchase price of $254,000,000, payable as set forth
below in Section 2.
2. Closing. The closing (the "Closing") of the purchase and sale of
the Shares shall be held at the offices of Cravath, Swaine & Moore, Worldwide
Plaza, 825 Eighth Avenue, New York, New York, at a time specified by the parties
hereto on the date hereof (the "Closing Date"). At the Closing, (i) Buyer shall
deliver to Seller, by wire transfer to a bank account designated in writing by
Seller, next day funds in an amount equal to $254,000,000 and (ii) Seller shall
deliver, or cause to be delivered, to Buyer certificates representing the
Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in
blank in proper form for transfer, with appropriate transfer stamps, if any,
affixed or such other documentation acceptable to Buyer, in its sole discretion,
evidencing Seller's ownership of the Shares as of the Closing and attached
hereto as Exhibit A.
3. Representations and Warranties of Seller. Seller hereby represents
and warrants to Buyer as follows:
(a) Authority. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia. Seller has
all requisite corporate power and authority to enter into this Agreement, to
perform its
<PAGE> 3
2
obligations hereunder and to consummate the transactions contemplated hereby.
All corporate acts and other proceedings required to be taken by Seller to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. This Agreement has been duly executed and delivered by Seller
and constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms.
(b) The Shares. Seller, directly or through one or more wholly owned
subsidiaries, has good and valid title to the Shares, free and clear of any
liens, claims, encumbrances, security interests, options, charges and
restrictions of any kind. Assuming Buyer has the requisite power and authority
to be the lawful owner of the Shares, upon delivery to Buyer at the Closing of
certificates representing the Shares, duly endorsed by Seller for transfer to
Buyer, or such other documentation acceptable to Buyer pursuant to Section 2 and
upon Seller's receipt of the Purchase Price, good and valid title to the Shares
will pass to Buyer, free and clear of any liens, claims, encumbrances, security
interests, options, charges and restrictions of any kind, other than those
arising from acts of Buyer or its affiliates. Other than this Agreement and the
Confidentiality Agreement (as defined in Section 15), immediately following
consummation of the transactions contemplated hereby, the Shares will not be
subject to any voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the voting,
dividend rights or disposition of the Shares, other than any voting trust
agreement or contract, agreement, arrangement, commitment or understanding
entered into by Buyer or its affiliates.
(c) Disclosure Matters. Except as disclosed pursuant to Section 4,
Seller understands that, prior to the Closing, Buyer has not disclosed to Seller
all of Buyer's plans, arrangements and/or options with respect to the Company
and Buyer's ownership of the Company, including any plans to enhance the value
of the Company to the stockholders of Buyer. Seller acknowledges that it is
entering into this Agreement with the understanding that Buyer has not disclosed
to Seller certain material facts relating to its plans for the Company and
Buyer's ownership of the Company.
<PAGE> 4
3
4. Representations and Warranties of Buyer. Buyer hereby represents
and warrants to Seller as follows:
(a) Authority. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada. Buyer has all
requisite corporate power and authority to enter into this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. All corporate acts and other proceedings required to be taken by Buyer
to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and properly
taken. This Agreement has been duly executed and delivered by Buyer and
constitutes a legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms.
(b) Financial Statements. Schedule 4(b) sets forth (i) the "Unaudited
Interim Financial Statements" of the Company as of June 30, 1997 consisting of
the unaudited consolidated balance sheet of the Company and its consolidated
subsidiaries as of June 30, 1997 and the unaudited consolidated statement of
income of the Company and its consolidated subsidiaries for the six months ended
June 30, 1997, and (ii) the "Audited Financial Statements" of the Company as of
December 31, 1996 and 1995 consisting of the audited consolidated balance sheets
of the Company and its consolidated subsidiaries as of December 31, 1996 and
1995 and the audited consolidated statements of income and cash flows of the
Company and its consolidated subsidiaries for the years then ended, together
with the notes to such financial statements. The Unaudited Interim Financial
Statements and the Audited Financial Statements have been prepared in all
material respects in accordance with generally accepted accounting principles
("GAAP") consistently applied and on that basis fairly present the consolidated
financial condition and results of operations of the Company and its
consolidated subsidiaries as of the respective dates thereof and for the
respective periods indicated, except that the Unaudited Interim Financial
Statements (x) omit the statement of cash flows and footnote disclosures
required by GAAP and (y) are subject to normal, recurring year-end closing and
audit adjustments.
(c) Third-Party Sale. As of the Closing, Buyer has no agreement to
effect a Sale (as defined in Section 5) to an unaffiliated third party that
would trigger the payment of Additional Consideration by Buyer to Seller
pursuant to Section 5.
<PAGE> 5
4
(d) Securities Act. The Shares purchased by Buyer pursuant to this
Agreement are being acquired for investment only and not with a view to any
public distribution thereof, and Buyer shall not offer to sell or otherwise
dispose of the Shares so acquired by it in violation of any registration
requirements of the Securities Act of 1933.
(e) Dividend Payment. The dividend paid on July 11, 1997 by the
Company was paid out of accumulated or current year "earnings and profits" (as
such term is defined for purposes of the United States Internal Revenue Code of
1986, as amended, and the regulations thereunder) of the Company. The funds for
the payment of such dividend were derived from the assets or third-party
borrowings under existing credit lines of the Company or its subsidiaries.
5. Additional Consideration. If prior to the second anniversary of the
Closing Date, Buyer consummates a Sale (as defined below), or enters into any
agreement to consummate a Sale, to an unaffiliated third party for aggregate
consideration resulting in an imputed enterprise value for the Company in excess
of $1,325,000,000, then Seller shall have a right to receive from Buyer an
amount equal to the product of (a) 0.20, multiplied by (b) the amount by which
the imputed enterprise value for the Company exceeds $1,325,000,000 (such
amount, the "Additional Consideration"); provided, however, that if Buyer
consummates such a Sale, or enters into any agreement to consummate such a Sale,
within 30 days prior to or at any time following announcement of a spinoff or
splitup of or by the Company or Buyer, then no Additional Consideration shall be
paid unless the Sale is a sale of 50% or more of the capital stock or assets of
the Company or a merger, share exchange or consolidation of the Company with an
unaffiliated third party in which the Company or Buyer, after giving effect to
such merger or consolidation, does not own more than 50% of the surviving
corporation. A "Sale" means a transaction, or a series of related transactions,
resulting in a sale, transfer or other disposition of 20% or more of the capital
stock of the Company, a sale of all or substantially all of the assets of the
Company or a merger, share exchange or consolidation of the Company (but, in
each case, not including a spinoff or a splitup of or by the Company or Buyer, a
recapitalization in connection with a spinoff or splitup of or by the Company or
Buyer, a special dividend to stockholders of the Company or Buyer or a pledge of
capital stock of the Company). The amount of any Additional Consideration shall
be paid to Seller within three days following the closing of such
<PAGE> 6
5
transaction by wire transfer of immediately available funds to a bank account
designated in writing by Seller.
6. Waiver and Release; Termination; Indemnity. (a) Seller's Waiver and
Release. Effective as of the Closing, Seller hereby unconditionally and
irrevocably forever releases and discharges Buyer, the Company, each of their
respective current and former subsidiaries and affiliates and each of their
respective past and present stockholders, representatives, employees, officers,
directors, attorneys, advisors, and their successors and assigns (the "Buyer's
Released Persons") from, and forever waives, any and all claims, demands,
actions, complaints, suits, causes of action, damages, contracts, agreements,
covenants, controversies, promises and other liabilities whatsoever
(individually, a "Claim" and, collectively, "Claims"), whether known or unknown,
in law or equity, which Seller now has, has ever had or hereafter can, shall or
may have, claim or assert against any of Buyer's Released Persons arising out
of, related to or otherwise in connection with Seller's direct or indirect
ownership of the Shares, any interest or expectation of Seller with respect to
the Company or the Shares and any matter contemplated by Section 3(c), in each
case, except (i) for Seller's right to any Additional Consideration pursuant to
Section 5, (ii) in the event of (x) any breach by Buyer of any of the
representations and warranties or covenants made by it under this Agreement or
the Confidentiality Agreement (as defined in Section 15) or (y) any fraud on the
part of Buyer or any of its affiliates (it being understood that Buyer's not
having disclosed to Seller all of Buyer's plans, arrangements and/or options
with respect to the Company and Buyer's ownership of the Company shall not be
deemed to constitute fraud) or (iii) for Seller's right to indemnity pursuant to
Section 6(d).
(b) Buyer's Waiver and Release. Effective as of the Closing, Buyer
hereby unconditionally and irrevocably forever releases and discharges Seller,
and its current and former subsidiaries and affiliates and its past and present
stockholders, representatives, employees, officers, directors, attorneys,
advisors, and their successors and assigns (the "Seller's Released Persons")
from, and forever waives, any and all Claims, whether known or unknown, in law
or equity, which Buyer now has, has ever had or hereafter can, shall or may
have, claim or assert against any of Seller's Released Persons arising out of,
related to or otherwise in connection with Seller's direct or indirect ownership
of the Shares, except in the event of (x) any breach by Seller or any of the
representations and
<PAGE> 7
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warranties or covenants made by it under this Agreement or the Confidentiality
Agreement (as defined in Section 15) or (y) any fraud on the part of Seller or
any of its affiliates.
(c) Termination. As of the Closing, all agreements or arrangements
between Seller and its affiliates, on the one hand, and Buyer and its
affiliates, on the other hand, other than the Confidentiality Agreement (as
defined in Section 15) and the employee arrangement described in Section 7,
shall be deemed to be terminated; provided, however, that any representations
and warranties made by Seller to Buyer or by Buyer to Seller under such
terminated agreements or arrangements shall survive such termination and shall
continue in full force and effect (subject to the terms of such provisions); and
provided further, that, notwithstanding the foregoing, the Buyer shall,
immediately prior to the Closing (other than with respect to the payment of
advisory fees as described below), make any payments owed, or satisfy any other
obligations incurred, by it or any of its affiliates to Seller or any of its
affiliates under any such agreements or arrangements through the Closing Date.
The Buyer agrees to pay the advisory fees owed to Seller for the period
commencing on July 1, 1997 and ending on July 15, 1997 within 30 days of the
Closing Date.
(d) Indemnity. If the sale of Shares contemplated by this Agreement is
rescinded or otherwise invalidated (in whole or in part) for any reason relating
to Buyer or its affiliates (including with respect to their financial condition
or otherwise), then, in addition to any other remedies that may be available to
Seller, Buyer will indemnify and hold harmless Seller and its affiliates, and
their respective officers and directors, from and against any and all losses,
liabilities, claims, costs and expenses (including, without limitation,
reasonable attorney's fees and expenses) (collectively, "Losses") incurred in
connection therewith. In addition, Buyer will indemnify and hold harmless Seller
and its affiliates, and their respective officers and directors, from and
against any Losses incurred in connection with any claim, litigation or
proceeding by Hilton Hotels Corporation or its affiliates, or their respective
stockholders, debtholders or affiliates, arising directly or indirectly out of,
or related to or otherwise in connection with, this Agreement or the
transactions contemplated hereby or Seller's direct or indirect ownership of the
Shares.
<PAGE> 8
7
7. Loaned Employees. As of the Closing, the employees of Seller or its
affiliates currently loaned to the Company to perform various agreed-upon
activities on its behalf shall continue in such capacity in a manner consistent
in all material respects with past practice; provided, however, that, to the
extent Seller may request the return of such employees under the existing
arrangements in respect thereof after the Closing Date, (i) Seller shall pay the
reasonable relocation costs of such employees unless (x) such request is made
within 30 days after the Closing Date or (y) the term of the existing
arrangements in respect of such employees expires, in which case Buyer shall pay
such reasonable relocation costs, and (ii) Seller shall provide Buyer with six
months prior written notice of any such request of the return of such employees.
Seller agrees to use its reasonable efforts to effect a smooth transition in the
event of such a return of such employees. Notwithstanding the foregoing, in the
event Buyer terminates such arrangement or such employees resign their
respective positions for good and valid reason, Buyer agrees to pay any
reasonable relocation costs of such employees.
8. Resignations. As of the Closing, Seller shall cause to be delivered
to Buyer duly signed resignations (from the applicable board of directors),
effective immediately after the Closing, of all directors (whom Seller has the
right to remove) of the Company and each subsidiary of the Company and shall
take such other action as is necessary to accomplish the foregoing.
9. Expenses. Whether or not the transactions contemplated hereby are
consummated, and except as otherwise specifically provided in this Agreement,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses. The parties hereto agree that any New York State transfer taxes
incurred as a result of the purchase of the Shares pursuant to the terms of this
Agreement shall be paid by Buyer.
10. Access to Information. Subject to applicable law and privileges,
from and after the Closing Date, Buyer shall afford to Seller and its authorized
accountants, counsel and other designated representatives reasonable access
during normal business hours, subject to appropriate restrictions for
classified, privileged or confidential information, to the personnel,
properties, books and records of the Company in respect of any periods prior to
or including the Closing Date insofar as such access is reasonably required by
Seller.
<PAGE> 9
8
11. Attorney Fees. A party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other party for and against all
reasonable out-of-pocket expenses, including legal fees, incurred by such other
party by reason of the enforcement and protection of its rights under this
Agreement. The payment of such expenses is in addition to any other relief to
which such other party may be entitled.
12. Amendments. No amendment, modification or waiver in respect of
this Agreement shall be effective unless it shall be in writing and signed by
both parties hereto.
13. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or sent
by prepaid telex, cable or telecopy or sent, postage prepaid, by registered,
certified or express mail or reputable overnight courier service and shall be
deemed given when so delivered by hand, telexed, cabled or telecopied, or if
mailed, three business days after mailing (one business day in the case of
express mail or overnight courier service), as follows:
(i) if to Buyer,
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019-5490
Telefax: (212) 258-1463
Attention: Patrick L. Donnelly, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telefax: (212) 474-3700
Attention: George W. Bilicic, Jr., Esq.
<PAGE> 10
9
(ii) if to Seller,
BellSouth Corporation
1155 Peachtree Street, N.E.
Atlanta, Georgia 30309
Telefax: (404) 249-5901
Attention: Kelly Romich, Esq.
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Telefax: (212) 859-4000
Attention: Gail Weinstein, Esq.
14. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
15. Entire Agreement. This Agreement and the confidentiality agreement
dated February 19, 1997, between Seller and Buyer (the "Confidentiality
Agreement"), contain the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter. Neither party
shall be liable or bound to any other party in any manner by any
representations, warranties or covenants relating to such subject matter except
as specifically set forth herein or in the Confidentiality Agreement. The
parties hereto acknowledge and agree that, notwithstanding the provisions of the
Confidentiality Agreement, Seller shall be bound by the provisions of Section 6
of the Confidentiality Agreement for a period ending on the earlier of (i)
February 19, 2000 and (ii) the day after the second anniversary of the date of
effectiveness of a spinoff or splitup of or by the Company or Buyer.
16. Fees. Seller hereby represents and warrants to Buyer that (a) the
only broker or finder that has acted for it in connection with this Agreement or
the transactions contemplated hereby or that may be entitled to any brokerage
fee, finder's fee or commission in respect thereof is Bear Stearns & Co. and (b)
Seller shall pay all fees or
<PAGE> 11
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commissions which may be payable to such firm in connection with the purchase
and sale of the Shares. Buyer hereby represents and warrants to Seller that (a)
the only brokers or finders that have acted for it in connection with this
Agreement or the transactions contemplated hereby or that may be entitled to any
brokerage fee, finder's fee or commission in respect thereof are Goldman, Sachs
& Co. and Lazard Freres & Co., LLC and (b) Buyer shall pay all fees or
commissions which may be payable to such firms in connection with the purchase
and sale of the Shares.
17. References. References to any Section or Schedule are references
to Sections or Schedules in this Agreement unless otherwise specified; and the
term "including" means "including without limitation".
<PAGE> 12
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18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
BELLSOUTH CORPORATION,
by /s/ Keith O. Cowan
-----------------------------------
Name: Keith O. Cowan
Title: Vice President-
Corporate Development
ITT CORPORATION,
by /s/ Mark Thomas
-----------------------------------
Name: Mark Thomas
Title: Senior Vice President
and Director of
Corporate Development
