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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CAESARS WORLD, INC.
(NAME OF SUBJECT COMPANY)
CAESARS WORLD, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.10 PER SHARE
(TITLE OF CLASS OF SECURITIES)
127695 10 4
(CUSIP NUMBER OF CLASS OF SECURITIES)
PHILIP L. BALL
SENIOR VICE PRESIDENT
AND GENERAL COUNSEL
1801 CENTURY PARK EAST
SUITE 2600
LOS ANGELES, CALIFORNIA 90067
(310) 552-2711
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT).
With a Copy to:
MORRIS J. KRAMER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Caesars World, Inc., a Florida corporation
(the "Company"), and the address of the principal executive offices of the
Company is 1801 Century Park East, Suite 2600, Los Angeles, California, 90067.
The title of the class of equity securities to which this statement relates is
the common stock, par value $.10 per share, of the Company (the "Common
Stock"), together with the associated preferred stock purchase rights (the
"Rights" and, together with the Common Stock, the "Shares") issued pursuant to
the Rights Agreement, dated as of January 10, 1989, as amended, between the
Company and First Chicago Trust Company of New York, as successor Rights Agent.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by ITT Florida Enterprises, Inc., a
Florida corporation (the "Purchaser"), and a wholly owned subsidiary of ITT
Corporation, a Delaware corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1 dated December 23, 1994 (the "Schedule 14D-1"), to
purchase all outstanding Shares, at a price of $67.50 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated December 23, 1994 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer" and are
contained within the Schedule 14D-1).
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as
of December 19, 1994 (the "Merger Agreement"), among Parent, the Purchaser and
the Company. The Merger Agreement provides, among other things, that as soon as
practicable after the consummation of the Offer and satisfaction or waiver of
all remaining conditions, the Purchaser will be merged with and into the
Company (the "Merger"), and the Company will continue as the surviving
corporation (the "Surviving Corporation"). A copy of the Merger Agreement is
attached hereto as Exhibit 1 and incorporated herein by reference.
Based on the information in the Schedule 14D-1, the principal executive
offices of the Purchaser and Parent are located at 1330 Avenue of the Americas,
New York, New York 10019.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Each material contract, agreement, arrangement and understanding and
actual or potential conflict of interest between the Company or its affiliates
and: (i) its executive officers, directors or affiliates or (ii) the Purchaser,
its executive officers, directors or affiliates, is described in the attached
Schedule I or set forth below.
THE MERGER AGREEMENT
The summary of the Merger Agreement contained in the Offer to Purchase which
has been filed with the Securities and Exchange Commission (the "Commission")
as an exhibit to the Schedule 14D-1, a copy of which is enclosed with this
Schedule 14D-9, is incorporated herein by reference. Such summary should be
read in its entirety for a more complete description of the terms and
provisions of the Merger Agreement. The following is a summary of certain
portions of the Merger Agreement which relate to arrangements among the
Company, Parent and the Company's executive officers and directors.
Board Representation. The Merger Agreement provides that promptly upon the
acceptance for payment of, and payment for, any Shares by the Purchaser
pursuant to the Offer, the Purchaser shall be entitled to designate such number
of directors on the Board of Directors of the Company such that the Purchaser,
subject to compliance with Section 14(f) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), will control a majority of such
directors, and the Company and its Board of Directors shall, at such
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time, take any and all such action needed to cause the Purchaser's designees to
be appointed to the Company's Board of Directors. Subject to applicable law,
the Company is required to take all action requested by Parent which is
reasonably necessary to effect any such election, including mailing to its
stockholders the Information Statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, a copy
of which is attached as Schedule I hereto.
Agreement with Respect to Employee Matters. The Merger Agreement provides
that Parent shall cause the Surviving Corporation to take such actions as are
necessary so that, for a period of not less than one year after the Effective
Time (as defined in the Merger Agreement), nonunion employees of the Company
and its subsidiaries who continue their employment after the Effective Time
will be provided employee compensation and other benefits which in the
aggregate are at least generally comparable to those provided to such employees
as of the date of the Merger Agreement; provided, that it is understood that
after the Effective Time (x) neither Parent nor the Surviving Corporation will
have any obligation to issue or adopt any plans or arrangements to provide for
the issuance of shares of capital stock, warrants, options, stock appreciation
rights or other rights in respect of any shares of capital stock of any entity
or any securities convertible or exchangeable into such shares pursuant to any
such plan or program, (y) nothing therein shall require the Surviving
Corporation to maintain any particular plan or arrangement and (z) nothing
therein shall prevent or preclude the Surviving Corporation from continuing any
requirement for employee contributions under any employee benefit plans in the
same proportions as the employee-paid portion under such plans constituted
prior to the Effective Time. Clauses (x), (y) and (z) of the immediately
preceding sentence are subject to the following four additional provisions: (1)
nothing in the employee benefits section of the Merger Agreement is intended to
cancel or modify any Company obligations which by their terms and applicable
law extend beyond the Effective Time (but stock options, stock appreciation
rights and restricted and contingent stock will be treated in accordance with
the terms of the Merger Agreement); (2) the Company's two Executive Security
Plans ("ESPs") will remain in effect for all purposes for one year after the
Effective Time for existing participants; (3) the 1985 ESP may be amended so
that its offset provision does not apply to the Company's 401(k) Retirement
Savings Plan (but such offset provision would apply to the Parent's tax-
qualified pension plan if it were adopted by the Company); (4) in calculating
the annual bonuses for the current fiscal year of the Company, charges or
equity adjustments related to or arising from the transactions contemplated by
the Merger Agreement shall not be taken into account (but this provision shall
not be deemed to indicate any commitment to continuing such bonus plans beyond
the Effective Time); and (5) prior to the acquisition of Shares pursuant to the
Offer, Parent and Company will enter into revised employment agreements with
its Chief Executive Officer and President in the respective forms of agreements
attached as Exhibits 3 and 4.
In the Merger Agreement, Parent has stated its current intention that,
following the first anniversary of the Effective Time, it will provide employee
compensation and other benefits for the employees of the Company and its
subsidiaries which are at least generally comparable in the aggregate to the
employee compensation and other benefits for other employees of Parent and its
subsidiaries. All service credited to each employee by the Company through the
Effective Time will be recognized by Parent for purposes of vesting and
eligibility (including for enhanced vacation) under any employee benefit plan
provided by Parent for the benefit of such employees.
Agreement with Respect to Director and Officer Indemnification and
Insurance. The Merger Agreement provides that the indemnification obligations
set forth in the Company's Amended and Restated Articles of Incorporation and
By-laws on the date of the Merger Agreement shall survive the Merger and shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Effective Time were directors,
officers, employees or agents of the Company.
Pursuant to the terms of the Merger Agreement, for a period of six years from
the Effective Time, the Surviving Corporation shall, unless Parent agrees in
writing to guarantee the indemnification obligations set forth in the preceding
paragraph, either (x) maintain in effect the Company's current directors' and
officers' liability insurance covering those persons who were covered by the
Company's directors' and officers' liability
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insurance policy on the date of the Merger Agreement; provided, however, that
in no event is the Surviving Corporation required to expend in any one year an
amount in excess of 150% of the annual premiums currently paid by the Company
for such insurance which the Company has represented to Parent and the
Purchaser to be $795,000 for the twelve month period ending March 17, 1995;
and, provided, further, that if the annual premiums of such insurance coverage
exceed such amount, the Surviving Corporation shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding such
amount or (y) cause the Parent's directors' or officers' liability insurance
then in effect to cover those persons who are covered on the date of the Merger
Agreement by the Company's directors' and officers' liability insurance policy
with respect to those matters covered by the Company's directors' and officers'
liability policy.
The obligations set forth above are binding on all successors and assigns of
Parent and the Surviving Corporation.
THE OPTION AGREEMENT
In connection with the execution of the Merger Agreement, the Company, Parent
and the Purchaser have entered into an Option Agreement, dated as of December
19, 1994 (the "Option Agreement"), pursuant to which the Company has agreed to
grant the Purchaser an irrevocable option (the "Option") to purchase from the
Company up to 5,000,000 newly-issued Shares, plus all shares of Common Stock
held in treasury, at a price of $67.50 per Share. The Option is exercisable
upon the acceptance by Purchaser (or any other affiliate of Parent) of Shares
for payment pursuant to the Offer.
CERTAIN CONFLICTS
Stock Options. As of the date of filing of this Schedule 14D-9, the current
directors and executive officers of the Company as a group hold stock options
granted under the Option Plans (as defined in the Merger Agreement) to purchase
an aggregate of 180,125 Shares at exercise prices ranging from $13.25 to $51.13
per Share. In accordance with the terms of the Merger Agreement, the Company
shall use its best efforts to assure that (i) each stock option shall be
accelerated to be fully exercisable prior to the consummation of the Offer and
(ii) each holder of a stock option granted under the Option Plans which is
outstanding immediately prior to the consummation of the Offer will be
cancelled in exchange for an amount in cash equal to the product of (y) the
number of Shares subject to such stock option immediately prior to the
consummation of the Offer and (z) the excess of the price per Share to be paid
in the Offer over the per Share exercise price of such stock option; provided,
however, that any such stock option granted to a non-employee director of the
Company as of December 8, 1994 shall be cancelled at the Effective Time (as
defined in the Merger Agreement). Since the only stock appreciation rights
("SARs") held by the current directors and executive officers of the Company
were related to their stock options (although the executive officers have tax
withholding rights with respect to their contingent and restricted Shares), no
additional payments will be made with respect to any such SAR.
Restricted Shares. As of the date of filing of this Schedule 14D-9, the
executive officers of the Company as a group hold 425,802 restricted Shares;
the non-employee directors do not hold any restricted Shares. The restrictions
on all such Shares lapse upon a Change in Control (as defined) of the Company.
The Purchaser's acquisition of Shares pursuant to the Offer will constitute
such a Change in Control. As of the Effective Time all such Shares shall be
converted into the right to receive from the Surviving Corporation in cash,
without interest, the price paid for each Share in the Offer.
Rabbi Trusts. On June 1, 1989, the Company established the Caesars World,
Inc. and Subsidiaries Benefit Trust Agreement and the Boardwalk Regency
Corporation Trust Agreement (the "Rabbi Trusts") to secure the payment of
benefits under the Company's Executive Security Plan and the 1985 Executive
Security Plan (the "ESPs"). The Purchaser's acquisition of Shares pursuant to
the Offer will constitute a Change in Control of the Company under the Rabbi
Trusts. Thereafter, the Rabbi Trusts generally can be amended only by a written
instrument signed by the Company and the respective trustee which has the
written consent of participants then having unpaid benefits under the
respective Rabbi Trust equal to at least 65% of the trust corpus. As of July
31, 1994, the aggregate amount held in the Rabbi Trusts was $12,756,000. A
Change in Control of the Company does not have any direct effect upon the ESPs.
As of November 21, 1994, the
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Caesars World, Inc. and Subsidiaries Benefit Trust Agreement was amended to
secure the payment of $1,080,934 of the supplemental retirement benefit
provided to Mr. Gluck and $177,146 of the supplemental retirement benefit
provided to Mr. Lanni in their respective Employment Agreements and funding
thereof was authorized.
Contingent Severance Agreements. The Company maintains contingent severance
agreements with all its executive officers and certain other key employees.
These agreements provide for the payment of certain severance and other
benefits upon certain qualifying terminations of the employment of such
officers within 36 months after a Change in Control of the Company. The
acquisition of Shares pursuant to the Offer will constitute a Change in Control
for purposes of those contingent severance agreements.
Employment Agreements. The Company maintains employment agreements with
Messrs. Gluck (its Chief Executive Officer) and Lanni (its President and Chief
Operating Officer). These agreements provide, among other things, for the
payment of certain severance and other benefits upon certain qualifying
terminations of the employment of such officers within the respective Terms of
the agreements (as defined therein) and after a Change in Control of the
Company. The acquisition of Shares pursuant to the Offer will constitute a
Change in Control for purposes of these employment agreements. However,
pursuant to the Merger Agreement, Parent and Company will enter into an Amended
and Restated Employment Agreement ("Amended Agreement") with each of Messrs.
Gluck and Lanni. The Amended Agreements will differ from the respective
existing agreements primarily as follows: (1) Parent will guarantee each
Amended Agreement; (2) the Term of each Amended Agreement will be a fixed term
instead of an evergreen term; (3) Mr. Gluck will report to the Chief Executive
Officer of the Parent; (4) the annual bonus under each Amended Agreement will
be the higher of the amount computed under the respective existing agreement or
the amount computed under the Parent's annual bonus plan; (5) Messrs. Gluck and
Lanni will each receive an annual grant of a stock option for shares of Parent
common stock (35,000 shares for Mr. Gluck and 20,000 shares for Mr. Lanni),
with an exercise price equal to the fair market value of such shares on the
date of grant; (6) either Mr. Gluck or Mr. Lanni can be temporarily replaced if
he is unable to substantially perform his duties for 60 days and can be
permanently replaced (without such replacement being a breach of the agreement)
if he is unable to substantially perform his duties for a year; (7) payments
and benefits which may be treated as "parachute payments" under Section 280G of
the Internal Revenue Code of 1986, as amended, will be computed so that the
recipient receives the higher of the net amounts produced by (x) providing a
"safe harbor cap" for such payments or (y) making such payments without
imposing a safe harbor cap; and (8) the acquisition of Shares pursuant to the
Offer will constitute a Change in Control for purposes of the Amended
Agreement, but no subsequent transaction or event will constitute a Change in
Control.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously recommends that all holders
of Shares tender such Shares pursuant to the Offer.
(B) BACKGROUND; REASONS FOR THE RECOMMENDATION.
Henry Gluck, Chairman and Chief Executive Officer of the Company, and Rand V.
Araskog, Chairman and Chief Executive Officer of Parent, have known each other
for a number of years and have had regular contact from time to time.
During September 1994, Mr. Araskog telephoned Mr. Gluck to suggest a meeting
to discuss matters of mutual interest. At a meeting in Los Angeles on October
28, 1994, Mr. Araskog discussed the idea of a proposed merger and the benefits
for each company. Mr. Gluck stated that he would consider the idea.
On November 18, 1994, Mr. Gluck and Mr. Araskog met in New York and discussed
the idea of a merger. During the course of this meeting Mr. Araskog indicated
that, if the Company was interested, Parent was prepared to pay a significant
cash premium for the Shares and at a cash price slightly higher than the
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Shares had previously traded. Mr. Araskog also indicated that he would suggest
inviting Mr. Gluck to join the Board of Directors of Parent. These discussions
were preliminary and both men indicated that they had not yet retained
independent investment bankers to give financial advice. No decisions or
commitments were made, but it was agreed that discussions would continue.
During the week of November 21, 1994, a number of discussions were held
between counsel for Parent and the Company concerning a proposed
confidentiality and standstill agreement. Some conversations between Mr. Gluck
and Mr. Araskog also occurred during this time about the possibility of a
confidentiality agreement. No agreement was executed by the parties at this
time.
Between November 25 and December 9, 1994, a number of meetings and telephone
conversations were held between representatives of Merrill Lynch & Co.
("Merrill Lynch") and representatives of Bear, Stearns & Co. Inc. ("Bear
Stearns") the independent financial advisors to the Company and Parent,
respectively. These meetings and telephone conversations were held with a view
toward reaching an understanding and consensus concerning a mutually
acceptable price per Share for the Merger, but none of these meetings resulted
in an understanding on price or other matters. During these discussions,
representatives of Bear Stearns indicated to representatives of Merrill Lynch
an expression of Parent's interest in a transaction at a price near $60 per
Share. On December 2, 1994, representatives of Merrill Lynch informed
representatives of Bear Stearns that neither Merrill Lynch nor the Company's
management would be prepared to recommend this price to the Board of Directors
of the Company.
On December 6, 1994, representatives of Bear Stearns informed
representatives of Merrill Lynch that Parent would be willing to offer $67 per
Share, but that Parent was not willing to consider a higher price.
Representatives of Bear Stearns further indicated that it was a condition to
Parent's willingness to enter into an agreement to acquire the Company that
there be certain other provisions in the agreement in the event of the
termination of the Merger Agreement by the Company in connection with a
competing transaction. These other provisions included a $3 per Share break-up
fee and an unspecified expense reimbursement.
On December 8, 1994, the Company's Board of Directors held an informational
meeting with representatives of Merrill Lynch and the Company's legal counsel
and special Florida counsel representing the four non-management directors.
Merrill Lynch's representatives reviewed the results of their discussions with
Bear Stearns' representatives to date and the basis upon which Parent
indicated its willingness to proceed. Following discussion of these matters,
and after receiving advice of legal and special counsel with respect to
certain legal matters including their fiduciary obligations in connection with
a sale of the Company, the Board of Directors authorized management to proceed
with its discussions with Parent.
At a meeting held in New York on December 12, 1994, Mr. Gluck and Mr.
Araskog tentatively agreed on the price per Share of $67.50, and the break-up
fee and expense reimbursement provisions reflected in the Merger Agreement,
subject to completion of negotiation on other matters and a definitive
agreement and the approval of the Company's Board of Directors. On December
16, 1994, Parent executed a confidentiality agreement and received certain
cash flow information concerning the Company's financial forecast for fiscal
1995 prepared in the Spring of 1994. Negotiations between the Company and
Parent continued through December 19, 1994, culminating in the execution of a
Merger Agreement.
On December 18, 1994, the Company's Board of Directors convened in Los
Angeles, California to consider the terms of the proposed transaction and to
approve a form of definitive agreement. Representatives of Merrill Lynch made
a presentation to the Board of Directors and delivered the oral opinion of
Merrill Lynch that, as of that date and based upon and subject to the matters
reviewed with the Board of Directors, the $67.50 per Share cash consideration
to be received by the holders of the Shares in the Offer and the Merger was
fair to such holders from a financial point of view. The Company's legal
counsel reviewed the principal aspects of the Merger Agreement. The Board of
Directors, as a whole, and such non-management directors, in separate sessions
with their special counsel and representatives of Merrill Lynch, then analyzed
and
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discussed the Offer, the Merger Agreement, the Option Agreement and the Merger.
The Board of Directors unanimously approved the Merger Agreement, the Option
Agreement and the transactions contemplated thereby and unanimously resolved to
recommend acceptance of the Offer and approval and adoption of the Merger and
the Merger Agreement by the Company's stockholders.
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders of Shares tender such Shares pursuant to the
Offer, the Board of Directors considered a number of factors, including:
(i) the terms of the Merger;
(ii) presentations by management and the Company's financial advisors
regarding, among other things, the financial condition, results of
operations, business and prospects of the Company, including consideration
of the significant amounts of capital that will be required to maintain and
expand the Company's operations in the future;
(iii) that the $67.50 per Share price in the Offer represents (x) a
premium of approximately 49% over the closing price for the Shares on
December 16, 1994, the last trading day prior to the public announcement of
the execution of the Merger Agreement and (y) a price higher than the
Shares have ever traded;
(iv) the oral opinion of Merrill Lynch delivered at the meeting on
December 18, 1994, and subsequently confirmed in writing, to the effect
that, as of such date and based upon and subject to the matters reviewed
with the Board of Directors, the $67.50 per Share cash consideration to be
received by the holders of the Shares pursuant to the Offer and the Merger
was fair to such holders from a financial point of view. A copy of the
written opinion of Merrill Lynch is attached hereto as Exhibit 7 and
incorporated herein by reference. STOCKHOLDERS ARE URGED TO READ THE
OPINION OF MERRILL LYNCH CAREFULLY IN ITS ENTIRETY;
(v) Parent's condition to its holding the discussions and negotiations
with the Company that led to the Merger Agreement that the Company and its
representatives not solicit possible acquisition interest from third
parties and that no such solicitation had been undertaken. In determining
that this was an appropriate course, the Board considered, among other
things, (l) the uncertainties and potential adverse impact that a "public"
auction of the Company could have on the business, employees and prospects
of the Company, including its relationships with third parties, (2) the
fact that Parent had advised that it was unwilling to engage in a bidding
contest for the Company, (3) its belief, after considering the presentation
of its financial advisor, that the price per Share in the Offer and Merger
was sufficiently attractive so that it did not feel compelled to seek other
offers prior to executing the Merger Agreement, and (4) the terms of the
Merger Agreement described below in (vi) which permit the Company, under
certain circumstances, to participate in discussions with third parties and
to enter into a competitive transaction. The Board of Directors, after
considering the presentation of its financial advisor, did not believe that
the termination provisions referred to in (vii) below would deter a higher
offer. The Board also believed, after considering the presentation of its
financial advisor, that, based on, among other things, Parent's large size
and an analysis of the theoretical alternative bidders, it was unlikely
that a third party bidder would be prepared to pay a higher price for the
Shares than the consideration offered in the Offer and the Merger,
particularly without the Company assuming greater risks of non-consummation
than apply to the Offer and the Merger;
(vi) that the Merger Agreement permits the Company to furnish nonpublic
information to, and participate in discussions and negotiations with, any
third-party that has submitted a takeover proposal to the Company, if in
the opinion of the Board of Directors after consultation with counsel, the
failure to take such actions would be inconsistent with the Board of
Directors' fiduciary duties to the Company's stockholders under applicable
law;
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(vii) the termination provisions of the Merger Agreement, which were a
condition to Parent's proposal, providing that Parent could be entitled to
(x) a fee of $50 million and (y) reimbursement of expenses of up to $10
million upon the termination of the Merger Agreement in the event the
Company enters into or the Board of Directors resolves to enter into, a
competitive transaction with a third party, whether before termination of
the Merger Agreement or within one year thereafter under certain
circumstances; and further providing that, if the Board of Directors
withdraws or modifies, or resolves to withdraw or modify, its
recommendation with respect to the acceptance by the stockholders of the
Offer, the Company will be obligated for the reimbursement of expenses;
(viii) the limited number of conditions to Parent's obligation to
consummate the Offer and the Merger, including the fact that the Offer is
not conditioned on financing and that Parent has agreed to place any Shares
acquired, or shares of Caesars New Jersey, Inc. acquired, in a voting
trust, as well as the fact that the necessity of obtaining regulatory
approvals possibly creates a limitation on the number of potential
purchasers; and
(ix) the anticipated benefits of the Merger on the employees, management
and the communities in which the Company operates.
The Board of Directors did not assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
Board of Directors viewed its position and recommendations as being based on
the totality of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Merrill Lynch was retained, pursuant to a letter agreement, dated December 8,
1994, to act as financial adviser to the Company in connection with the
proposed Business Combination (as defined in the letter agreement), including a
merger of the Company with Parent, a sale to Parent of 50% or more of the
Company's outstanding capital stock, a sale to Parent of all or substantially
all of the assets of the Company or similar transactions. The Company agreed to
pay Merrill Lynch a fee of $100,000 in cash on the date of the letter
agreement. Pursuant to the letter agreement, the Company also agreed that if,
during the period Merrill Lynch is retained by the Company or within 12 months
thereafter, (a) a Business Combination is consummated with Parent, (b) a
transaction comparable to a Business Combination is consummated with a person
other than Parent with whom Merrill Lynch is authorized in writing by the
Company to have discussions regarding such a transaction during the term of
Merrill Lynch's engagement under the letter agreement, (c) the Company enters
into an agreement with Parent or any such other person with whom Merrill Lynch
is authorized to have discussions which subsequently results in a Business
Combination or a comparable transaction or (d) subject to certain exceptions,
the Company has entered into an agreement with Parent relating to a Business
Combination and, while such an agreement is pending, another person makes an
offer which results in an agreement with such person relative to a transaction
comparable to a Business Combination and such transaction is subsequently
consummated pursuant to such agreement, the Company will pay Merrill Lynch an
additional fee in an amount equal to 0.45% of the aggregate purchase price paid
in such Business Combination or such comparable transaction, payable in cash
upon the closing of such Business Combination or such comparable transaction
or, in the case of a tender offer or exchange offer, upon the first purchase or
exchange of shares pursuant to such tender offer or exchange offer, as the case
may be, resulting in a purchase of at least a majority of the Shares, against
which the $100,000 fee described above will be credited. The Company has also
agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses,
including the reasonable fees and expenses of its counsel, and to indemnify
Merrill Lynch for certain liabilities arising out of any Business Combination
or comparable transaction or the retention of Merrill Lynch, pursuant to, or
its performance under, the letter agreement, including liabilities arising
under the federal securities laws.
Merrill Lynch has, in the past, provided certain financial advisory and
financing services to the Company and financing services to Parent for which it
has received compensation. In the ordinary course of its business, Merrill
Lynch may actively trade the securities of the Company and Parent for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
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Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth in Schedule II hereto, no transactions in the Shares
have been effected during the past 60 days by the Company or, to the best of
the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, each executive officer,
director and affiliate of the Company currently intends to tender all Shares
over which he or she has sole dispositive power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged in
any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) None
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) Litigation
On December 19, 1994, two complaints purporting to be class actions were
filed against the Company and certain of its officers and directors. One
complaint, entitled Fader, et al., v. Caesars World, et al., C.A. No. 9682 AE,
was filed in the Circuit Court in the Fifteenth Judicial Circuit for Palm Beach
County, Florida. The other complaint, Gross et al., v. Gluck et al., C.A. No.
BC 118368, was filed in the Los Angeles Superior Court of the State of
California. The complaints generally allege that the defendants breached their
fiduciary duties by accepting the terms of the Offer and the Merger at an
unfair and inadequate price, by failing to effectively expose the Company to
the marketplace or create an active and open auction, by failing to adequately
evaluate the Company's worth, and by failing to act independently and by not
acting in the best interests of stockholders. The complaint seeks preliminary
and permanent injunctions against consummation of the Merger, damages, costs
and attorneys' and accountants' fees.
(b) FBCA 607.0901
Section 607.0901 of the Florida Business Corporation Act ("FBCA") purports to
regulate certain business combinations of a corporation organized under Florida
law, such as the Company, with a shareholder beneficially owning 10% or more of
the voting stock of such corporation after the date the relevant person or
entity first becomes a 10% shareholder. Section 607.0901 provides that the
corporation shall not engage at any time in any business combination with such
a shareholder without approval of the holders of two-thirds of the outstanding
shares (other than the shares owned by the 10% shareholder), with certain
exceptions, including (i) a business combination approved by the disinterested
directors of the corporation, (ii) the ownership by the 10% shareholder of at
least 90% of the outstanding voting shares of the corporation, exclusive of
shares acquired in a transaction not approved by a majority of the
disinterested directors, or (iii) the payment of consideration to holders of
voting shares in an amount that is at least equal to certain fair price
standards. The Company's Board of Directors has approved the Merger Agreement
and the transactions contemplated thereby, including the Offer and the Merger,
and, therefore, Section 607.0901 of the FBCA is inapplicable to the Offer and
the Merger.
8
<PAGE>
(c) Information Statement
The Information Statement attached as Schedule I hereto is being furnished in
connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO.
---------
<C> <S>
Exhibit 1 Agreement and Plan of Merger, dated as of December 19, 1994, by
and among Caesars World, Inc., ITT Florida Enterprises, Inc. and
ITT Corporation.
Exhibit 2 Option Agreement, dated December 19, 1994, between Caesars World,
Inc.
and ITT Corporation.
Exhibit 3 Form of Employment Agreement to be entered into between Caesars
World, Inc. and Henry Gluck.
Exhibit 4 Form of Employment Agreement to be entered into between Caesars
World, Inc. and J. Terrence Lanni.
Exhibit 5 Press Release issued jointly by ITT Corporation and Caesars World,
Inc. , dated December 19, 1994.
Exhibit 6 Letter to Stockholders of Henry Gluck and J. Terrence Lanni, dated
December 23, 1994.*
Exhibit 7 Opinion of Merrill Lynch & Co., dated December 18, 1994.*
Exhibit 8 Class Action Complaint in Fader, et al., v. Caesars World et al.,
No. 9682 AE
(dated December 19, 1994).
Exhibit 9 Class Action Complaint in Gross et al., v. Gluck et al., C.A. No.
BC 118368 (dated December 19, 1994).
</TABLE>
- --------
* Included in copies mailed to shareholders.
9
<PAGE>
SIGNATURE
After reasonable 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.
Dated: December 23, 1994 CAESARS WORLD, INC.
By /s/ Philip L. Ball
----------------------------------
Name: Philip L. Ball
Title: Senior Vice President and
General Counsel
10
<PAGE>
SCHEDULE I
CAESARS WORLD, INC.
1801 CENTURY PARK EAST, SUITE 2600
LOS ANGELES, CALIFORNIA 90067
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about December 23, 1994 as a
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Caesars World, Inc. (the "Company") to the holders of
record of shares of Common Stock, par value $.10 per share, of the Company (the
"Shares") at the close of business on or about December 23, 1994. You are
receiving this Information Statement in connection with the possible election
of persons designated by the Purchaser (as defined below) to a majority of the
seats on the Board of Directors of the Company.
On December 19, 1994, the Company, ITT Florida Enterprises, Inc., a Florida
corporation (the "Purchaser"), and ITT Corporation ("Parent") entered into an
Agreement and Plan of Merger (the "Merger Agreement") in accordance with the
terms and subject to the conditions of which (i) Parent will cause the
Purchaser to commence a tender offer (the "Offer") for all outstanding Shares,
together with the associated Rights, at a price of $67.50 per Share net to the
seller in cash, and (ii) the Purchaser will be merged with and into the Company
(the "Merger"). As a result of the Offer and the Merger, the Company will
become a wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to take such action as Purchaser
may reasonably request to cause the Purchaser's designees to be elected to the
Board of Directors under the circumstances described therein. See "Board of
Directors and Executive Officers-Right to Designate Directors; The Purchaser
Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-
9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
December 23, 1994. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on Tuesday, January 24, 1995 unless the Offer is extended.
The information contained in this Information Statement concerning the
Purchaser has been furnished to the Company by the Purchaser, and the Company
assumes no responsibility for the accuracy or completeness of such information.
11
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of December 13, 1994, there were
25,120,963 Shares outstanding. The Board of Directors is divided into three
classes and currently consists of eight members. At each annual meeting of
stockholders, directors constituting one class are elected for three year
terms.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
The Merger Agreement provides that promptly upon the acceptance for payment
of, and payment for, any Shares by the Purchaser pursuant to the Offer, the
Purchaser shall be entitled to designate such number of directors on the Board
of Directors of the Company (the "Purchaser Designees") such that the
Purchaser, subject to compliance with Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), will control a majority of such
directors, and the Company and its Board of Directors shall, at such time, take
any and all such action as Purchaser may reasonably request to cause the
Purchaser's Designees to be appointed to the Company's Board of Directors.
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the directors and executive officers listed on Schedule I to the
Offer to Purchase, a copy of which is being mailed to the Company's
stockholders together with this Information Statement. The Purchaser has
informed the Company that each of the directors and executive officers listed
in Schedule I to the Offer to Purchase has consented to act as a director, if
so designated. The information on such Schedule I is incorporated herein by
reference. No determination has yet been made as to which of the current
directors of the Company who are not officers of the Company will continue as
directors following the purchase of Shares pursuant to the Offer.
None of the Purchaser Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any directors
or executive officers of the Company or (iii) to the best knowledge of the
Purchaser, beneficially owns any securities (or rights to acquire such
securities) of the Company. The Company has been advised by the Purchaser that,
to the best of Purchaser's knowledge, none of the Purchaser Designees has been
involved in any transactions with the Company or any of its directors,
executive officers or affiliates which are required to be disclosed pursuant to
the rules and regulations of the Commission, except as may be disclosed herein
or in the Schedule 14D-9.
It is expected that the Purchaser Designees may assume office at any time
following the acceptance for payment of, and payment for, any Shares pursuant
to the Offer, and that, upon assuming office, the Purchaser Designees will
thereafter constitute at least a majority of the Board of Directors.
Biographical information concerning each of the Company's current directors
and executive officers is presented on the following pages.
12
<PAGE>
INFORMATION CONCERNING MEMBERS
OF THE BOARD OF DIRECTORS
CERTAIN BACKGROUND AND OTHER INFORMATION CONCERNING DIRECTORS AND NOMINEES
Unless otherwise indicated, each person listed below has been employed at his
present principal occupation for the past five years or prior thereto, and each
position listed below is with the Company. Each individual listed below is a
citizen of the United States. There are no family relationships among
directors, nominees for election as directors and executive officers of the
Company.
Philip Ball (age 60) is Senior Vice President, Secretary and General Counsel
of the Company. He has held these positions since he joined the Company in
July, 1983 and has also been a director of the Company since such time.
Irving Buchalter (age 70) was Vice President-Finance of S. Harris & Co.,
Inc., a privately-held corporation engaged in the distribution of draperies and
upholstery fabrics from 1984 to April, 1988 when he retired. Prior to that
time, Mr. Buchalter was engaged in private practice as a Certified Public
Accountant, Mr. Buchalter has been a director of the Company since December,
1987.
Terry Burman (age 49) has been President and a director of Barry's Jewelers,
Inc., a publicly-held retail jewelry chain, since 1982 and Chief Executive
Officer since February, 1993. Mr. Burman has been a director of the Company
since December, 1987. On February 26, 1992, Barry's Jewelers, Inc. filed a pre-
negotiated plan of reorganization under Chapter XI of the United States
Bankruptcy Code which was confirmed on June 19, 1992.
William E. Chaikin (age 75) since 1983 has been a general partner in Fund of
Feature Films, a limited partnership in the business of acquiring and
distributing motion pictures. Mr. Chaikin served as Chairman of the Board of
American Title Insurance Company between 1962 and 1972. From 1965 to 1972, he
was Vice Chairman of Mariners Savings and Loan Association. He served as
President of Avco Embassy Pictures Corporation, an international producer and
distributor of motion pictures, from 1974 to 1979. Mr. Chaikin has been a
director of the Company since December, 1984.
Henry Gluck (age 66) has been Chief Executive Officer of the Company since
February, 1983 and Chairman of the Board since June, 1983. Mr. Gluck became a
director of the Company in October, 1982.
J. Terrence Lanni (age 51) is the President and Chief Operating Officer of
the Company. He joined the Company in January, 1977 and became Treasurer in
February, 1977, Senior Vice President in April, 1978, Executive Vice President
in December, 1979 and President in April, 1981. He became a director of the
Company in February, 1982.
Roger Lee (age 61) is Senior Vice President-Finance and Administration of the
Company. He joined the Company in April, 1985. Mr. Lee became a director of the
Company in December, 1988.
Stanley Sevilla (age 74) has been engaged in the practice of law for over
forty years with an emphasis on business and real estate matters for his entire
career. For about the last six years, he has been a sole practitioner and
before that he practiced as a member of the firm of Axelrod, Sevilla and Ross.
Mr. Sevilla became a director of the Company in September, 1989.
COMMITTEES AND MEETINGS
The Board of Directors of the Company has an Audit and Compensation Committee
consisting of Messrs. Burman (Chairman), Sevilla and Chaikin. Mr. Burman
succeeded Mr. Echeverria as Chairman on December 8, 1994, at which time also
Mr. Sevilla joined the Committee. The functions of the Audit and
13
<PAGE>
Compensation Committee of the Company are (i) making recommendations regarding
the engagement of the Company's independent auditors after consultation with
management, (ii) reviewing the arrangements for and scope of the engagement of
the independent auditors, (iii) approving compensation, benefit and contract
matters of certain senior officers of the Company and certain other persons,
and (iv) reviewing certain transactions in which officers, directors of control
persons of the Company may have potential conflicts of interest. The members of
the Audit and Compensation Committee also serve as the Committee under the
Company's 1983 Long-Term Stock Incentive Program for purposes of determinations
pursuant to such Stock Program and also administer the Senior Officers Combined
Incentive Plan.
The Board of Directors of the Company also has an Operations Compensation
Committee consisting of Messrs. Gluck and Lanni. The Committee has been
delegated authority as to compensation and employment related matters including
determining benefits for corporate officers and other key Company personnel
exclusive of Messrs. Ball, Gluck, Lanni, Lee, Getz and certain other officers
and employees who are within the jurisdiction of the Audit and Compensation
Committee.
During the fiscal year ended July 31, 1994, the Company's Board of Directors
held six meetings. Two of the Board's meeting were telephonic. The Audit and
Compensation Committee of the Company held ten meetings. Five of these Audit
and Compensation Committee meetings were telephonic. The Company does not have
a separate nominating committee.
Under present regulations of the New Jersey Casino Control Commission, a
director may not assume office until at least temporarily qualified by the New
Jersey Commission.
SECURITY HOLDINGS OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
(a) The following table sets forth certain information as of December 22,
1994 reflecting the number of Shares owned by persons known by the Company to
be the beneficial owners of more than five percent (5%) of the Shares. As of
such date, there were 25,120,463 Shares outstanding:
NUMBER OF SHARES(1)
AS TO WHICH THE NAMED BENEFICIAL
OWNER HAS THE FOLLOWING:
<TABLE>
<CAPTION>
AMOUNT OF SOLE SHARED SOLE SHARED PERCENT
NAME AND ADDRESS BENEFICIAL VOTING VOTING INVESTMENT INVESTMENT OF
OF BENEFICIAL OWNER OWNERSHIP POWER POWER POWER POWER CLASS
------------------- ---------- --------- ------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
FMR Corp................ 2,722,737 51,300 0 2,722,737 0 10.8%
82 Devonshire Street
Boston, Massachusetts
02109
Legg Mason, Inc......... 1,623,800 1,623,800 0 1,623,800 0 6.4%
111 South Calvert
Street
Baltimore, Maryland
21202
Gabelli & Company
1 Corporate Center
Rye, New York 10580.... 1,501,800 1,501,800 0 1,501,800 0 5.9%
</TABLE>
- --------
(1)The Shares are the only class of the Company's voting securities.
14
<PAGE>
(b) The following table sets forth certain information as of November 30,
1994 with respect to the Shares beneficially owned by each of the directors and
by all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NAME OF NATURE OF PERCENT
BENEFICIAL BENEFICIAL OF
OWNER OWNERSHIP(1)(2) CLASS
---------- --------------- -------
<S> <C> <C>
Philip L. Ball................................... 141,507 *
Irving Buchalter................................. 7,700 *
Terry Burman..................................... 6,400 *
William E. Chaikin............................... 12,000 *
Edwin L. Getz.................................... 16,604 *
Henry Gluck...................................... 515,055 2.05%
J. Terrence Lanni................................ 176,566 *
Roger Lee........................................ 168,170 *
Stanley Sevilla.................................. 8,000 *
All Directors and Officers as a Group (11 per-
sons)........................................... 1,084,012 4.32%
</TABLE>
- --------
* The asterisk in the columns captioned "PERCENT OF CLASS" for Caesars World,
Inc. Common Stock indicates less than 1% of the outstanding Common Stock of
the Company is beneficially owned.
(1) The number of Shares listed as beneficially owned by the directors, named
Executive Officers and All Directors and Executive Officers as a Group
includes the following number of Shares not presently owned but as to which
such listed beneficial owner has the right to acquire beneficial ownership
by exercise of a stock option on or before January 30, 1995: Philip L.
Ball--15,000 Shares; Henry Gluck--100,000 Shares; Roger Lee--30,000 Shares;
William E. Chaikin--4,000 Shares; Irving Buchalter--4,000 Shares; Edwin
Getz--3,5000 Shares; Terry Burman--4,000 Shares; Stanley Sevilla--4,000
Shares; and All Directors and Executive Officers as a Group (11 persons)--
173,975 Shares. In addition, contingent shares will vest on or before
January 30, 1995 as follows: Henry Gluck--25,000 Shares; J. Terrence
Lanni--13,334 Shares; Philip L. Ball--6,000 Shares; Roger Lee--6,000
Shares; Edwin Getz--1,000 Shares; and All Directors and Executive Officers
as a Group (11 persons)--52,734 Shares. Except for such Shares, each person
listed in the table has sole voting, and except for the Shares described in
note (2) below sole investment power with respect to all Shares listed in
the table opposite each person's name.
(2) The number of Shares listed as beneficially owned by the directors, named
Executive Officers, and All Directors and Executive Officers as a Group
includes the following number of unvested Shares issued on a restricted
basis under employee stock plans: Henry Gluck--243,111 Shares; J. Terrence
Lanni--130,960 Shares; Philip L. Ball--58,359 Shares; Edwin Getz--9,338
Shares; Roger Lee--58,359 Shares; and All Directors and Officers as a Group
(11 persons)--513,332 Shares. Such restricted stock is held in escrow and
vests at varying intervals over pre-determined vesting schedules and may be
subject to forfeiture if employment with the Company terminates before
completion of vesting dates. While in escrow, such Shares can be voted by
the holder; however, the holder cannot dispose of such Shares without the
consent of the Company. Upon consummation of the Offer, all nonvested
restricted stock will vest.
15
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information with respect
to the Company and its subsidiaries during the three fiscal years ended July
31, 1992, 1993 and 1994 for the Chief Executive Officer of the Company and each
of the other four most highly compensated executive officers of the Company who
served in that capacity during the fiscal year ended July 31, 1994 (the five
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION AWARDS
---------------------------- -------------------
(A) (B) (C) (D) (E) (F) (G) (H)
OTHER ALL
ANNUAL RESTRICTED OTHER
FISCAL YEAR COMPEN- STOCK OPTIONS COMPEN-
NAME AND ENDED SALARY(2) BONUS SATION(3) AWARD(S) AND SARS SATION
PRINCIPAL POSITION JULY 31 $ ($) ($) ($)(4) (#)(5) ($)(6)
------------------ ----------- --------- -------- --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry Gluck............. 1994 $886,144 $741,840 $13,029 $1,995,550 0 $26,919
Chairman of the Board & 1993 862,400 848,008 10,802 2,428,398 0 20,822
Chief Executive Officer 1992 814,400 800,000 -- 2,140,500 0 --
J. Terrence Lanni....... 1994 668,208 392,285 13,029 1,077,894 0 5,868
President & Chief 1993 650,400 381,600 10,802 1,311,696 0 2,951
Operating Officer 1992 614,400 360,000 -- 1,155,870 0 --
Roger Lee............... 1994 342,400 122,404 8,612 479,229 0 14,551
Senior Vice President- 1993 326,400 148,954 7,141 583,177 0 9,467
Finance & 1992 308,400 134,911 -- 513,720 0 --
Administration
Philip L. Ball.......... 1994 342,400 122,404 8,612 479,229 0 13,459
Senior Vice President, 1993 326,400 148,954 7,141 583,177 0 8,825
Secretary & General 1992 308,400 134,911 -- 513,720 0 --
Counsel
Edwin L. Getz........... 1994 157,400 51,187 6,404 80,119 0 5,613
Vice President-Taxes 1993 150,400 62,290 5,310 97,497 0 3,586
1992 142,900 56,417 -- 85,620 0 --
</TABLE>
- --------
Notes:
(1) The column for Long-Term Incentive Plan Payouts was eliminated because
there were no such item during the three year period ended July 31, 1994.
(2) Includes fixed monthly auto allowances.
(3) Includes tax gross-ups with respect to auto allowance and related auto
expense reimbursement. Information for years ended prior to December 15,
1992 is not required to be disclosed. Information as to perquisites
aggregating less than the lesser of (i) $50,000 or (ii) such person's
reported salary and bonus for any year for any Named Executive Officer was
not disclosed for such year based upon the applicable Securities and
Exchange Commission regulations.
(4) All such Shares are subject to forfeiture in the event of a termination of
employment prior to the lifting of restrictions. The terms of all
outstanding restricted stock awards generally provide for the lifting of
restrictions or vesting in three annual installments commencing
approximately three years after grant date. Vesting may occur earlier than
three years after grant with respect to all stock awards upon a Change in
Control of the Company (as defined in the respective stock grant
agreement), upon certain terminations of employment, or by discretionary
action of the Company's Audit and Compensation
16
<PAGE>
Committee. No dividends are currently being declared on the Shares. If the
Company were to pay dividends, any dividends on restricted shares would be
held in escrow until those shares vest and would then be distributed with
the newly vested shares to the respective Named Executive Officer. For this
purpose the term "restricted shares" is used to also include contingent
shares payable to Named Executives Officers on completion of specified
periods of employment. The awards for fiscal 1992 were determined after July
31, 1992. The dollar value of each award reported for fiscal 1993 and fiscal
1994 was fixed by formula as of July 31, 1993 and July 29, 1994,
respectively. The number of shares required to fund the awards for fiscal
1994 was determined by the fair market value of the Company common stock on
October 3, 1994. The aggregate number of restricted shares of Company common
stock held at July 31, 1994 by each Named Executive Officer and the value in
(parenthesis) of such shares as of July 29, 1994 based on the closing price
on the New York Stock Exchange on such date were as follows: Henry Gluck--
222,499 ($8,844,335); J. Terrence Lanni--119,657 ($4,756,366); Roger Lee--
53,406 ($2,122,888); Philip L. Ball--53,406 ($2,122,888); and Edwin L.
Getz--8,507 ($338,153).
(5) There were no options or stand-alone SARs granted during the period.
(6) Includes (a) annual IRA contributions in the amount of $2,000 for each
Named Executive Officer, (b) premiums on employee-owned life insurance paid
in the following amounts for fiscal 1994: Henry Gluck--$21,720; J. Terrence
Lanni--$970; Roger Lee--$9,468; Philip L. Ball--$8,376; and Edwin L. Getz--
$1,859 and (c) for fiscal 1994, Section 401(k) retirement plan
contributions in the following respective amounts: Henry Gluck--$3,199; J.
Terrence Lanni--$2,898; Roger Lee--$3,083; Philip L. Ball--$3,083; and
Edwin L. Getz--$1,754. The IRA Plan terminated as of December 31, 1993.
(7) During the fiscal year ended July 31, 1994, the other two Executive
Officers received total salary, bonus and other compensation in the amount
of $416,507 and a restricted stock award of 800 shares aggregating $40,904
in value. Since July 31, 1994 these same two other Executive Officers
received awards of restricted stock of 2,631 Shares with a value of
$114,223 at date of grant.
OPTION VALUES ON JULY 29, 1994
AGGREGATE OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS HELD OPTION/SARS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END
UPON VALUE --------------------- --------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME # $ UNEXERCISABLE UNEXERCISABLE
- ---- -------- -------- --------------------- --------------------
<S> <C> <C> <C> <C>
Henry Gluck............. -- 0 100,000/0 $ 1,447,000/0
J. Terrence Lanni....... 30,000(2) $427,500 0/0 0/0
Roger Lee............... -- 0 50,000/0 $ 955,300/0
Philip Ball............. -- 0 15,000/0 $ 127,500/0
Edwin L. Getz........... -- 0 2,625/1,725 $69,562/$46,375
</TABLE>
- --------
(1) There were no grants of employee stock options or stand-alone stock
appreciation rights (SARs) to the Named Executive Officers during fiscal
1994. There were no stand-alone stock appreciation rights outstanding as of
July 31, 1994. All listed stock options include tandem stock appreciation
rights except for the options issued to Mr. Getz. In-the-money stock
options are options for which the exercise price is less than the market
price of the underlying stock on a particular date. These values are based
on a price of $39.75 per share, the closing price of the Shares on the New
York Stock Exchange on July 29, 1994. Such values were determined by
subtracting the applicable exercise price in each case. Since the end of
1994 fiscal year, Mr. Lee exercised options for 20,000 shares realizing
$647,450 in value.
(2) Exercise for cash of stock appreciation rights issued in tandem with stock
options.
17
<PAGE>
DEFINED BENEFIT PENSION PLANS
PENSION PLAN TABLE
<TABLE>
<CAPTION>
5 YEAR YEARS OF SERVICE
AVERAGE --------------------------------------------
SALARY 15 20 25 30 35
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 125,000........................ $ 43,750 $ 56,250 $ 68,750 $ 81,250 $ 81,250
150,000........................ 52,500 67,500 82,500 97,500 97,500
175,000........................ 61,200 78,750 96,250 113,750 113,750
200,000........................ 70,000 90,000 110,000 130,000 130,000
225,000........................ 78,750 101,250 123,750 146,250 146,250
250,000........................ 87,500 112,500 137,500 162,500 162,500
300,000........................ 105,000 135,000 165,000 195,000 195,000
400,000........................ 140,000 180,000 220,000 260,000 260,000
500,000........................ 175,000 225,000 275,000 325,000 325,000
600,000........................ 210,000 270,000 330,000 390,000 390,000
800,000........................ 280,000 360,000 440,000 520,000 520,000
1,000,000....................... 350,000 450,000 550,000 650,000 650,000
1,200,000....................... 420,000 540,000 660,000 780,000 780,000
</TABLE>
The foregoing table illustrates the annual pension benefits for individuals
retiring at age 65 payable in the form of a straight life annuity under the
provisions of the Company's Executive Security Plans (collectively, the
"Pension Plan") for various levels of compensation and years of service. Under
the plan, benefits may also be payable with Committee approval as a lump sum
subject to specified conditions. The Pension Plan is a defined benefit pension
plan which is not a tax qualified plan and covers full time salaried officers
and selected other key executives. All Named Executive Officers were covered by
the Plan. The amounts shown in the table are not subject to reduction for
Social Security benefits or other offset amounts and are based upon the
assumption that the Pension Plan continues in its present form. Pension Plan
benefits accrue at the rate of two percent (2%) for each year of credited
service with an additional five percent (5%) vesting after completion of ten
(10) years of credited service and vest after five years of credited service
with the Company. Under certain circumstances, benefits may be forfeited
concurrent with or following termination of employment.
The remuneration covered by the Pension Plan is the average of the
participant's highest five years of salary earned during his last ten years of
employment with the Company. For Pension Plan purposes, the "salary" of a Named
Executive Officer for a given year (for example fiscal 1994) will be slightly
less than the "salary" reported in the Summary Compensation Table, which
includes an automobile allowance. As of October 1, 1994, the full years of
credited service under the Pension Plan for the Named Executive Officers were
as follows: Henry Gluck--12 years; J. Terrence Lanni--17 years; Roger Lee--9
years; Philip L. Ball--11 years; Edwin L. Getz--14 years.
The Company has established grantor trusts (collectively, the "Trust") in
connection with the Pension Plan. Each trust agreement authorizes the trustees
to pay to persons entitled to distribution under the Pension Plan, from funds
held in the Trust, amounts to which such persons become entitled. The Company
has funded the Trust with amounts sufficient to convert current vested benefits
under the Pension Plan and intends to make continuing contributions each year
so that the Trust will always have sufficient funds to cover vested benefits.
In the event of the Company's bankruptcy or insolvency, the Trust assets would
be subject to the claims of general creditors. As of July 31, 1994, the Company
and its subsidiaries had accrued $18,929,000 for the payment of benefits under
the Pension Plan and had funded $12,730,000 of this obligation in the Trust
described above.
18
<PAGE>
SUPPLEMENTAL PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------
AVERAGE
INCENTIVE PAY 15 20 25 30 35
- ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 225,000.............................. 67,500 90,000 112,500 135,000 135,000
250,000.............................. 75,000 100,000 125,000 150,000 150,000
300,000.............................. 90,000 120,000 150,000 180,000 180,000
400,000.............................. 120,000 160,000 200,000 240,000 240,000
500,000.............................. 150,000 200,000 250,000 300,000 300,000
600,000.............................. 180,000 240,000 300,000 360,000 360,000
800,000.............................. 240,000 320,000 400,000 480,000 480,000
1,000,000.............................. 300,000 400,000 500,000 600,000 600,000
1,200,000.............................. 360,000 480,000 600,000 720,000 720,000
</TABLE>
The foregoing table illustrates a supplemental pension in the form of a
straight life annuity which Mr. Gluck and Mr. Lanni have been accruing since
August 1, 1985 pursuant to their employment agreements. The supplemental
pension benefit is equivalent to 2% times the number of years of service after
July 31, 1985 applied against their respective average incentive compensation
since that date to a maximum benefit of 60% of the average incentive
compensation. As to such employment contract pension rights based on incentive
compensation, the average incentive compensation as of July 31, 1994 for
Messrs. Gluck and Lanni since July 31, 1985 was $574,339 and $260,932,
respectively, and each has accumulated nine years of service as to such pension
rights. For fiscal 1994, the incentive compensation for Messrs. Gluck and Lanni
was $741,840 and $392,285, respectively, which amounts are shown in the "Bonus"
column in the Summary Compensation Table. Assuming that the 1994 fiscal year
incentive compensation amounts would be earned until normal retirement at age
65 for Mr. Lanni and for Mr. Gluck for the remaining five year term of his
employment agreement, the approximate annual pension under this provision for
Mr. Gluck would be $177,600 and for Mr. Lanni would be $156,800.
COMPENSATION OF DIRECTORS
Non-employee directors receive $3,000 per month from the Company for serving
on its Board. Also, Peter Echeverria receives $1,000 per month for serving as a
director of Desert Palace, Inc., a subsidiary of the Company. In addition to
the foregoing, non-employee directors of the Company are eligible to receive
grants of non-qualified stock options pursuant to the terms and conditions of
the Non-Employee Directors' Stock Option Plan described below. Notwithstanding
his retirement from the Company's Board, Mr. Echeverria will continue to serve
on the Desert Palace, Inc. board of directors.
On November 24, 1987, the shareholders of the Company approved the Non-
Employee Directors' Stock Option Plan, under which the issuance of an aggregate
100,000 Shares was authorized. As of July 31, 1994, options to purchase 60,000
Shares had been issued under this Plan. The Non-Employee Directors' Stock
Option Plan provides that non-employee directors will receive certain options
to purchase Shares for an exercise price per Share equal to the fair market
value of the Shares on the date of grant. New non-employee directors who are
elected to the Board for the first time at any special or annual meeting of
shareholders on or after November 24, 1987 will each receive, on the election
date for their first election to the Board, an option to purchase 5,000 Shares.
On the date of each annual meeting of shareholders, each continuing non-
employee director is automatically granted an option to purchase an additional
1,000 Shares at fair market value on the date of such meeting. Consequently, on
December 7, 1993, the date of the 1993 Annual Meeting, each of the five non-
employee directors received an additional option award of 1,000 Shares at a
price of $51.13 per share along with Limited Rights as explained below.
Moreover, each of Messrs. Buchalter, Burman, Chaikin and Sevilla automatically
received an additional option award of 1,000 Shares on the Annual Meeting held
on December 8, 1994.
19
<PAGE>
Each option granted under the Non-Employee Directors' Stock Option Plan shall
become exercisable in full on the date six months and one day after the date of
grant. The term of each option shall generally be five years from the grant
date, but any option shall expire within a maximum of nine months after the
optionee ceases to serve as a non-employee director. When each option is
granted, Limited Rights equal to the number of Shares covered by such option
will also be granted. The Limited Rights will become exercisable for a sixty-
day period if certain specified changes in the ownership of the Company occur.
Upon the exercise of an option's related Limited Rights, a cash payment will be
made and the related option will be canceled. Persons eligible under this Plan
are not eligible for awards under the Company's 1983 Long-Term Stock Incentive
Program. During the fiscal year ended July 31, 1994, Messrs. Buchalter, Burman,
Chaikin and Echeverria exercised stock options for 1,000 Shares each and
realized appreciation (market value at date of exercise less exercise price) of
$27,435, $21,745, $24,435 and $23,185, respectively. As of July 31, 1994, all
options were fully exercisable and the number and value (in parenthesis) of
such unexercised options for Shares by non-employee directors were as follows:
Peter Echeverria -- 5,000 Shares ($44,110), Terry Burman -- 4,000 Shares
($36,490), Irving Buchalter -- 5,000 Shares ($44,110), William Chaikin -- 5,000
Shares ($44,110), and Stanley Sevilla -- 4,000 Shares ($36,490). For purposes
of the foregoing, value is determined by taking the market price of the Shares
on July 29, 1994 and subtracting the option price. On September 23, 1994 Mr.
Echeverria exercised options for 1,000 Shares at a price of $32.13 realizing
$12,432 in value. On September 30, 1994 Mr. Echeverria exercised additional
options for 1,000 Shares at a price of $15.19 and 1,000 Shares at a price of
$28.19 realizing $43,120 in value.
Members of the Audit Compensation Committee (as named below), except the
Chairman, receive $750 from the Company for each non-telephonic Committee
meeting of the Company. There were five regular and five telephonic Committee
meetings during the fiscal year ended July 31, 1994. Peter Echeverria as the
Chairman of the Audit and Compensation Committee of the Company received a fee
of $1,250 per month from the Company. Commencing December 8, 1994, Mr. Burman,
as successor to Mr. Echeverria, became entitled to receive the $1,250 per month
fee.
As officers and full-time employees of the Company, Messrs. Gluck, Lanni, Lee
and Ball receive no separate compensation for services as directors or for
services on the Operations Compensation Committee.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The following discussion is to be read in conjunction with the disclosure
regarding the "Amended Agreements" set forth under "Employment Agreements" in
Item 3 of the Schedule 14D-9.
The Company has a renewable five-year employment agreement with Mr. Gluck and
a renewable three-year employment agreement with Mr. Lanni, providing among
other things, for employment at current fiscal 1995 annual base salaries of
$887,843 for Mr. Gluck and $665,882 for Mr. Lanni, subject to annual cost of
living increases or decreases equivalent to two-thirds of the change in the
consumer price index during the life of the contracts and further subject to
discretionary increases by the Audit and Compensation Committee of the Board.
Both Mr. Gluck and Mr. Lanni received 1.8% salary increases effective August 1,
1994. Both employment agreements automatically extend on a daily basis so that
the outstanding term is always five-years or three-years, as the case me be,
subject to the continuing option by the Company or the employee to terminate
the continuing automatic extension provision at any time. In the event of a
wrongful termination by the Company, which includes a breach by the Company of
any of its obligations under the agreements, Mr. Gluck or Mr. Lanni shall have
the option of terminating his respective agreement and obtaining benefits equal
to at least the present value at that time (using a rate based on five-year
treasury notes) of unpaid salary and incentive compensation for the then
remaining term and shall continue to receive all other benefits for the
remaining term. Unless Mr. Gluck or Mr. Lanni agrees to a 10% reduction in such
payment, such person would have a mitigation obligation to the extent such
obligation is provided under California law. Upon termination in either
situation, all of the then outstanding unvested restricted or contingent stock
and any unexercisable stock options would vest or become exercisable. The
agreements also provide for incentive
20
<PAGE>
compensation based on or similar to the Incentive Compensation Plan provisions
described herein; however the Plan will apply unless the employee elects to be
governed by the employment agreement. The agreements further provide for
indemnity by the Company in the case of claims related to such persons'
employment to the maximum extent allowed under the Florida General Corporation
Act.
In the event of a Change in Control, Mr. Gluck and Mr. Lanni each have a one-
year option to terminate their respective agreements and to collect the same
payment applicable in the event of a wrongful termination. That payment is
substantially equivalent to the amount payable for wrongful termination prior
to a Change in Control plus a lump-sum amount equal to the Termination Benefit
under the Executive Security Plan. Any such payment is subject to the safe
harbor limitation of 2.99 times the base amount established by the Deficit
Reduction Act of 1984 ("DEFRA") applicable to therein defined "parachute
payments" (the "DEFRA Limitation"). This limitation also applies to benefits
payable in the event of a wrongful termination following a Change in Control.
Under their employment agreements, Messrs. Gluck and Lanni are entitled upon
retirement to continuation of medical insurance coverage or the equivalent for
themselves (and their respective dependents) for their respective lives plus
one year and the Company at July 31, 1994 had accrued $282,000 and $279,000,
respectively, for these benefits, subject to the condition that to the extent
either is employee by an employer offering such insurance or has medicare
coverage, the Company obligation shall be secondary.
In addition, the Company has contingent severance agreements with all
Executive Officers and other key employees, which provide that if (i) a Change
in Control (as defined therein) occurs, and (ii) within three years after the
Change in Control the executive officer is discharged, other than for cause (as
defined therein), or resigns because of several stated reasons including but
not limited to, a reduction in compensation or responsibilities or because the
Company's principal offices are moved more than twelve miles, the executive
officer will be entitled to receive a lump-sum payment equivalent to the amount
of salary that the covered person would have received (without considering
reductions after the Change in Control) during a period ending upon the later
of two years after the Change in Control or one year after the termination of
such person's employment and the incentive compensation that would have been
earned in the same period computed by projecting and prorating the greater of
the incentive compensation amount payable for the full fiscal year preceding
the year in which the Change in Control takes place and the amount projected
for the year in which the Change in Control takes place. In addition, under
such contingent severance agreements, and in some cases under provisions in the
stock option and stock bonus agreements, unvested stock options, stock
appreciation rights, and restricted or contingent stock grants under stock
bonus plans will vest upon such termination of employment. Certain other
employment benefits will also continue during such period. The severance
agreements also provide for pension benefits to be computed under the
assumption that the termination of employment occurred at the end of the two-
year/one-year period described above and that the five-year pension plan
vesting period is not applicable. Under the terms of such agreements, all such
benefits are subject to the DEFRA Limitation described above.
Assuming that a Change in Control as defined in the above-described
agreements were to occur and Messrs. Gluck and Lanni exercise their options to
terminate their contracts and Messrs. Ball, Lee and Getz are immediately
discharged, the maximum possible aggregate payment amount in lieu of salary,
incentive compensation, unvested stock options, restricted stock bonus awards
and other benefits under the DEFRA Limitation to Named Executive Officers under
the above-described agreements or as to Messrs. Gluck and Lanni under their
employment agreements or contingent severance agreements is estimated to be as
follows assuming a stock price of $67.50 per share and application of the
proposed federal income tax regulations: Henry Gluck--$19,440,803; J. Terrence
Lanni--$10,787,153; Roger Lee--$4,279,901; Philip L. Ball--$4,277,265; and
Edwin Getz--$1,008,168. Depending upon the value of the Company's stock and
other factors, the actual value of amounts and benefits due under such
agreements will vary from time to time and may be less than this maximum.
21
<PAGE>
Effective January 1, 1994, the Company adopted a 401(k) employee benefit plan
covering substantially all of its non-union employees (including the Executive
Officers). The plan provides for the Company to contribute one percent (1%) of
certain compensation of all participants into the plan and for participants to
voluntarily contribute up to twelve percent (12%) of certain compensation into
the plan subject to tax law restrictions. For every dollar the participant
contributes from the first four percent (4%) of compensation, the Company will
match it on a fifty percent (50%) basis with such matching contributions to
vest over the first five (5) years of employment. Pursuant to tax law, the
annual compensation of each employee taken into account under the plan year
cannot exceed $150,000 subject to cost of living increases for calendar years
after 1994. Contributions with respect to the Named Executive Officers are
included in the Summary Compensation Table.
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
SEE THE SCHEDULE 14D-9, THE FOREGOING DISCUSSION AND SCHEDULE II, BELOW.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Effective May 1, 1991, the Commission promulgated new rules under Section 16
of the Exchange Act. The Company believes that during the fiscal year ended
June 30, 1994, its executive officers and directors have complied with all
Section 16 filing requirements.
22
<PAGE>
SCHEDULE II
CERTAIN TRANSACTIONS IN SHARES OF COMMON STOCK OF
CAESARS WORLD, INC. EFFECTED DURING THE PAST 60 DAYS
(1) William Chaikin, a director of the Company, purchased 1,000 shares on
November 1, 1994 at a price of $32.13 pursuant to the exercise of a non-
employee director's stock option.
(2) Irving Buchalter, a director of the Company, purchased 1,000 shares on
November 8, 1994 at a price of $32.13 pursuant to the exercise of a non-
employee director's stock option.
(3) On December 8, 1994, Messrs. Sevilla, Burman, Buchalter and Chaikin each
received a non-employee director's stock option by automatic grant under the
Non-Employee Directors' Stock Option Plan. Such grant is automatic upon the
annual meeting and occurs each year pursuant to the plan.
(4) Between November 21, 1994 and November 22, 1994, the following persons
irrevocably exercised tax withholding rights with respect to installments of
restricted stock and contingent stock vesting on December 22, 1994 in the
following share amounts: Henry Gluck--34,699; J. Terrence Lanni--18,564; Philip
Ball--8,328; Roger Lee--8,328; Edwin Getz--1,283; Bruce Hinckley--1,283; Jack
Leone--519.
(5) Effective December 22, 1994, pursuant to the tax withholding election
described above with respect to restricted and contingent Shares vesting on
such date, Shares were withheld with respect to Executive Officers of the
Company from Shares otherwise vesting as follows: Henry Gluck--34,699 Shares;
J. Terrence Lanni--18,564 Shares; Philip L. Ball--8,328 Shares; Roger Lee--
8,328 Shares; Edwin Getz--1,283 Shares; Bruce Hinckley--1,283 Shares and Jack
Leone--519 Shares.
23
<PAGE>
EXHIBIT (1)
CONFORMED COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of December 19, 1994
Among
ITT CORPORATION,
ITT FLORIDA ENTERPRISES INC.
And
CAESARS WORLD, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
Parties and Recitals ........................................... 1
ARTICLE I
THE OFFER
---------
SECTION 1.01. The Offer ...................................... 2
SECTION 1.02. Company Actions ............................... 4
ARTICLE II
THE MERGER
----------
SECTION 2.01. The Merger...................................... 6
SECTION 2.02. Closing......................................... 6
SECTION 2.03. Effective Time.................................. 6
SECTION 2.04. Effects of the Merger........................... 7
SECTION 2.05. Articles of Incorporation and
By-laws....................................... 7
SECTION 2.06. Directors....................................... 7
SECTION 2.07. Officers........................................ 7
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
------------------------------------------------
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
--------------------------------------------------
SECTION 3.01. Effect on Capital Stock......................... 7
SECTION 3.02. Exchange of Certificates........................ 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 4.01. Representations and Warranties of
the Company................................... 11
SECTION 4.02. Representations and Warranties of
Parent and Sub................................ 31
<PAGE>
2
PAGE
----
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
-----------------------------------------
SECTION 5.01. Conduct of Business............................. 35
SECTION 5.02. No Solicitation................................. 40
SECTION 5.03. New Jersey Trust................................ 43
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
SECTION 6.01. Stockholder Meeting; Preparation of
the Proxy Statement........................... 44
SECTION 6.02. Access to Information;
Confidentiality............................... 45
SECTION 6.03. Reasonable Efforts; Notification................ 46
SECTION 6.04. Stock Options Plans............................. 48
SECTION 6.05. Indemnification and Insurance................... 49
SECTION 6.06. Directors....................................... 50
SECTION 6.07. Fees and Expenses............................... 51
SECTION 6.08. Public Announcements............................ 51
SECTION 6.09. Rights Agreements............................... 52
SECTION 6.10. Benefit Plans................................... 52
SECTION 6.11. Title Policies.................................. 54
SECTION 6.12. Transfer Taxes.................................. 54
SECTION 6.13. Regulatory Matters.............................. 55
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
SECTION 7.01. Conditions to Each Party's
Obligation to Effect the Merger............... 55
SECTION 7.02. Conditions to Obligations of Parent
and Sub....................................... 56
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 8.01. Termination..................................... 56
SECTION 8.02. Effect of Termination........................... 57
SECTION 8.03. Amendment....................................... 58
SECTION 8.04. Extension; Waiver............................... 58
<PAGE>
3
PAGE
----
SECTION 8.05. Procedure for Termination,
Amendment, Extension or Waiver................ 58
ARTICLE IX
GENERAL PROVISIONS
------------------
SECTION 9.01. Nonsurvival of Representations.................. 59
SECTION 9.02. Notices......................................... 59
SECTION 9.03. Definitions..................................... 60
SECTION 9.04. Interpretation.................................. 63
SECTION 9.05. Counterparts.................................... 63
SECTION 9.06. Entire Agreement; No Third-Party
Beneficiaries................................. 63
SECTION 9.07. Governing Law................................... 64
SECTION 9.08. Assignment...................................... 64
SECTION 9.09. Enforcement..................................... 64
EXHIBIT A Conditions of the Offer
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of December 19, 1994,
among ITT CORPORATION, a Delaware corporation ("Parent"), ITT
FLORIDA ENTERPRISES INC., a Florida corporation ("Sub") and a
wholly owned subsidiary of Parent, and CAESARS WORLD, INC., a
Florida corporation (the "Company").
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company have approved the acquisition of the Company by Parent on the terms and
subject to the conditions set forth in this Agreement;
WHEREAS in furtherance of such acquisition, Parent will cause Sub to
make a tender offer (as it may be amended from time to time as permitted under
this Agreement, the "Offer") to purchase all the issued and outstanding shares
of Common Stock, par value $.10 per share, of the Company (together with any
associated Rights (as hereinafter defined), the "Company Common Stock"), at a
price per share of Company Common Stock of $67.50 net to the seller in cash
(such price, the "Offer Price"), upon the terms and subject to the conditions
set forth in this Agreement; and the Board of Directors of the Company has
approved the Offer and is recommending that the Company's stockholders accept
the Offer;
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company have approved the Offer and the Merger of Sub into the Company, as set
forth below (the "Merger"), upon the terms and subject to the conditions set
forth in this Agreement, whereby each issued and outstanding share of Company
Common Stock, other than shares owned directly or indirectly by Parent or the
Company and Dissenting Shares (as defined in Section 3.01(d)), will be converted
into the right to receive the price per share paid in the Offer;
WHEREAS Parent and Sub are unwilling to enter into this Agreement
unless the Company, contemporaneously with the execution and delivery of this
Agreement, enters into an Option Agreement (the "Option Agreement") among
Parent, Sub and the Company providing for, among other things, the grant by the
Company to Parent of the option under certain circumstances to purchase up to
5,000,000 newly issued shares of Company Common Stock, plus all shares of
Company Common Stock held in treasury; and the Board of Directors of
<PAGE>
2
the Company has approved the execution and delivery of the Option Agreement
which is being executed contemporaneously with the execution hereof; and
WHEREAS Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE OFFER
---------
SECTION 1.01. The Offer. (a) Subject to the provisions of this
----------
Agreement, as promptly as practicable, but in no event later than five business
days after the public announcement of the Offer, Sub shall, and Parent shall
cause Sub to, commence the Offer. The obligation of Sub to, and of Parent to
cause Sub to, commence the Offer and accept for payment, and pay for, any shares
of Company Common Stock tendered pursuant to the Offer shall be subject to the
conditions set forth in Exhibit A (any of which may be waived in whole or in
part by Sub in its sole discretion) and to the terms and conditions of this
Agreement; provided, however, that Sub shall not, without the Company's consent,
-------- -------
waive the Minimum Condition (as defined in Exhibit A). Sub expressly reserves
the right to modify the terms of the Offer, except that, without the consent of
the Company, Sub shall not (i) reduce the number of shares of Company Common
Stock to be purchased in the Offer, (ii) reduce the Offer Price, (iii) modify or
add to the conditions set forth in Exhibit A, (iv) except as provided in the
next sentence, extend the Offer, (v) change the form of consideration payable in
the Offer or (vi) amend any other term of the Offer in a manner adverse to the
holders of Company Common Stock. Notwithstanding the foregoing, Sub may,
without the consent of the Company, (i) extend the Offer beyond any scheduled
expiration date (the initial scheduled expiration date being 20 business days
following commencement of the Offer) for a period not to exceed 20 business
days, if at any scheduled expiration date of the Offer, any of the conditions to
Sub's obligation to accept for payment, and pay for, shares of
<PAGE>
3
Company Common Stock shall not be satisfied or waived, until such time as such
conditions are satisfied or waived, (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer
and (iii) extend the Offer for an aggregate period of not more than 15 business
days beyond the latest expiration date that would otherwise be permitted under
clause (i) or (ii) of this sentence if there shall not have been tendered
sufficient shares of Company Common Stock so that the Merger could be effected
as provided in the last sentence of Section 6.01(a). Subject to the terms and
conditions of the Offer and this Agreement, Sub shall, and Parent shall cause
Sub to, accept for payment, and pay for, all shares of Company Common Stock
validly tendered and not withdrawn pursuant to the Offer that Sub becomes
obligated to accept for payment, and pay for, pursuant to the Offer as soon as
practicable after expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer, which shall contain an offer to purchase and a related letter of
transmittal and summary advertisement (such Schedule 14D-1 and the documents
included therein pursuant to which the Offer will be made, together with any
supplements or amendments thereto, the "Offer Documents"). Parent and Sub agree
that the Offer Documents shall comply as to form in all material respects with
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated thereunder and, on the date first published,
sent or given to the Company's stockholders, shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by Parent or Sub with respect to information supplied by
the Company for inclusion or incorporation by reference in the Offer Documents.
Each of Parent, Sub and the Company agrees promptly to correct any information
provided by it for use in the Offer Documents if and to the extent that such
information shall have become false or misleading in any material respect, and
each of Parent and Sub further agrees to take all steps necessary to amend or
supplement the Offer Documents and to cause the Offer Documents as so amended or
supplemented to be filed with the SEC and to be disseminated to the Company's
stockholders, in each case as and to the
<PAGE>
4
extent required by applicable Federal securities laws. The Company and its
counsel shall be given a reasonable opportunity to review and comment upon the
Offer Documents and all amendments and supplements thereto prior to their filing
with the SEC or dissemination to stockholders of the Company. Parent and Sub
agree to provide the Company and its counsel any comments Parent, Sub or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments and shall provide the
Company and its counsel an opportunity to participate, including by way of
discussion with the SEC or its staff, in the response of Parent and/or Sub to
such comments.
(c) Parent shall provide or cause to be provided to Sub on a timely
basis the funds necessary to accept for payment, and pay for, any shares of
Company Common Stock that Sub accepts for payment, and becomes obligated to pay
for, pursuant to the Offer.
SECTION 1.02. Company Actions. (a) The Company hereby approves of
----------------
and consents to the Offer and represents that the Board of Directors of the
Company, at a meeting duly called and held, duly and unanimously by vote of all
directors adopted resolutions approving this Agreement, the Offer, the Merger
and the Option Agreement, determining that the terms of the Offer and the Merger
are fair to, and in the best interests of, the Company's stockholders and
recommending that the Company's stockholders approve and adopt this Agreement,
and accept the Offer and tender their shares pursuant to the Offer. The Company
has been advised by each of its directors and by each executive officer who as
of the date hereof is aware of the transactions contemplated hereby, that each
such person either intends to tender pursuant to the Offer all shares of Company
Common Stock owned by such person or vote all shares of Company Common Stock
owned by such person in favor of the Merger, provided that any director or
--------
executive officer shall be permitted to sell shares of Company Common Stock in
compliance with applicable law.
(b) Not later than the date the Offer Documents are filed with the
SEC or as shortly thereafter as is practicable, the Company shall file with the
SEC a Solicitation/ Recommendation Statement on Schedule 14D-9 with respect to
the Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-
9") containing the recommendation described in Section 1.02(a) and shall mail
the
<PAGE>
5
Schedule 14D-9 to the stockholders of the Company. The Schedule 14D-9 shall
comply as to form in all material respects with the Exchange Act and the rules
and regulations promulgated thereunder and, on the date filed with the SEC and
on the date first published, sent or given to the Company's stockholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by the Company with
respect to information supplied by Parent or Sub for inclusion or incorporation
by reference in the Schedule 14D-9. Each of the Company, Parent and Sub agrees
promptly to correct any information provided by it for use in the Schedule 14D-9
if and to the extent that such information shall have become false or misleading
in any material respect, and the Company further agrees to take all steps
necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule
14D-9 as so amended or supplemented to be filed with the SEC and disseminated to
the Company's stockholders, in each case as and to the extent required by
applicable Federal securities laws. Parent and its counsel shall be given a
reasonable opportunity to review and comment upon the Schedule 14D-9 and all
amendments and supplements thereto prior to their filing with the SEC or
dissemination to stockholders of the Company. The Company agrees to provide
Parent and its counsel with any comments the Company or its counsel may receive
from the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments and shall provide Parent and its counsel an opportunity
to participate, including by way of discussions with the SEC or its staff, in
the response of the Company to such comments.
(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish Sub promptly with mailing labels containing the names
and addresses of the record holders of Company Common Stock as of a recent date
and of those persons becoming record holders subsequent to such date, together
with copies of all lists of stockholders, security position listings and
computer files and all other information in the Company's possession or control
regarding the beneficial owners of Company Common Stock, and shall furnish to
Sub such information and assistance (including updated lists of stockholders,
security position listings and computer files) as Parent may reasonably request
in communicating the Offer to the Company's stock-
<PAGE>
6
holders. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Merger, Parent and Sub and their agents
shall hold in confidence the information contained in any such labels, listings
and files, will use such information only in connection with the Offer and the
Merger and, if this Agreement shall be terminated, will, upon request, deliver,
and will use their best efforts to cause their agents to deliver, to the Company
all copies of such information then in their possession or control.
ARTICLE II
THE MERGER
----------
SECTION 2.01. The Merger. Upon the terms and subject to the
-----------
conditions set forth in this Agreement, and in accordance with the Florida
Business Corporation Act (the "FBCA"), Sub shall be merged with and into the
Company at the Effective Time (as hereinafter defined). Following the Merger,
the separate corporate existence of Sub shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of the Company in
accordance with the FBCA. At the election of Parent, any direct or indirect
wholly owned subsidiary (as defined in Section 9.03) of Parent may be
substituted for Sub as a constituent corporation in the Merger. In such event,
the parties agree to execute an appropriate amendment to this Agreement in order
to reflect the foregoing.
SECTION 2.02. Closing. The closing of the Merger will take place at
--------
10:00 a.m. on a date to be specified by the Parent or Sub, which may be on, but
shall be no later than the third business day after, the day on which there
shall have been satisfaction or waiver of the conditions set forth in Article
VII (the "Closing Date"), at the offices of Cravath, Swaine & Moore, Worldwide
Plaza, 825 Eighth Avenue, New York, N.Y. 10019, unless another date or place is
agreed to in writing by the parties hereto.
SECTION 2.03. Effective Time. On the Closing Date, or as soon as
---------------
practicable thereafter, the parties shall file articles of merger or other
appropriate documents (in any such case, the "Articles of Merger") executed in
accordance with the relevant provisions of the FBCA and
<PAGE>
7
shall make all other filings or recordings required under the FBCA. The Merger
shall become effective at such time as the Articles of Merger are duly filed
with the Florida Department of State, or at such other later time as Sub and the
Company shall agree and specify in the Articles of Merger (the time the Merger
becomes effective being the "Effective Time").
SECTION 2.04. Effects of the Merger. The Merger shall have the
----------------------
effects set forth in Section 607.1106 of the FBCA.
SECTION 2.05. Articles of Incorporation and By-laws. (a) The
--------------------------------------
Articles of Incorporation of the Company, as in effect immediately prior to the
Effective Time of the Merger, shall become the Articles of Incorporation of the
Surviving Corporation after the Effective Time, and thereafter may be amended in
accordance with its terms and as provided by law and this Agreement.
(b) The By-laws of the Company as in effect on the Effective Time
shall become the By-laws of the Surviving Corporation.
SECTION 2.06. Directors. The directors of Sub immediately prior to
----------
the Effective Time shall become the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 2.07. Officers. The officers of the Company immediately
---------
prior to the Effective Time shall become the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
------------------------------------------------
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
--------------------------------------------------
SECTION 3.01. Effect on Capital Stock. As of the Effective Time, by
------------------------
virtue of the Merger and without any
<PAGE>
8
action on the part of the holder of any shares of Company Common Stock or any
shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub
---------------------
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $.10 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock. Each
------------------------------------------------------
share of Company Common Stock that is owned by the Company or by any
subsidiary of the Company and each share of Company Common Stock that is
owned by Parent, Sub or any other subsidiary of Parent shall automatically
be canceled and retired and shall cease to exist, and no consideration
shall be delivered in exchange therefor.
(c) Conversion of Common Stock. Subject to Section 3.01(d), each
---------------------------
issued and outstanding share of Company Common Stock (other than shares to
be canceled in accordance with Section 3.01(b)) shall be converted into the
right to receive from the Surviving Corporation in cash, without interest,
the price paid for each share of Company Common Stock in the Offer (the
"Merger Consideration"). As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive
the Merger Consideration, without interest.
(d) Shares of Dissenting Stockholders. Notwithstanding anything in
----------------------------------
this Agreement to the contrary, any issued and outstanding shares of
Company Common Stock held by a person (a "Dissenting Stockholder") who
objects to the Merger and complies with all the provisions of Florida law
concerning the right of holders of Company Common Stock to dissent from the
Merger and require appraisal of their shares of Company Common Stock
("Dissenting Shares") shall not be converted as described in Section
3.01(c) but shall become the right to receive such consideration as may be
determined to be due to such Dissenting Stockholder pursuant to the laws of
the State of Florida. If, after the Effective
<PAGE>
9
Time, such Dissenting Stockholder withdraws his demand for appraisal or
fails to perfect or otherwise loses his right of appraisal, in any case
pursuant to the FBCA, his shares of Company Common Stock shall be deemed to
be converted as of the Effective Time into the right to receive the Merger
Consideration, without interest. The Company shall give Parent (i) prompt
notice of any demands for appraisal of shares of Company Common Stock
received by the Company and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands.
The Company shall not, without the prior written consent of Parent, make
any payment with respect to, or settle, offer to settle or otherwise
negotiate, any such demands.
SECTION 3.02. Exchange of Certificates. (a) Paying Agent. Prior to
------------------------- -------------
the Effective Time, Parent shall designate a bank or trust company to act as
paying agent in the Merger (the "Paying Agent"), and, from time to time on,
prior to or after the Effective Time, Parent shall make available, or cause the
Surviving Corporation to make available, to the Paying Agent immediately
available funds in amounts and at the times necessary for the payment of the
Merger Consideration upon surrender of certificates representing Company Common
Stock as part of the Merger pursuant to Section 3.01, it being understood that
any and all interest earned on funds made available to the Paying Agent pursuant
to this Agreement shall be turned over to Parent.
(b) Exchange Procedure. As soon as reasonably practicable after the
-------------------
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates")
whose shares were converted into the right to receive the Merger Consideration
pursuant to Section 3.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by the Parent, together with such letter of transmittal, duly
executed, and such other docu-
<PAGE>
10
ments as may reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the amount of cash
into which the shares of Company Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 3.01, and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Company Common Stock which is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of Parent that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 3.02, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
amount of cash, without interest, into which the shares of Company Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.01. No interest will be paid or will accrue on the cash payable
upon the surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock. All cash
----------------------------------------------------
paid upon the surrender of Certificates in accordance with the terms of this
Article III shall be deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock theretofore represented by such
Certificates, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation or the Paying Agent for any reason, they shall be cancelled and
exchanged as provided in this Article III, except as otherwise provided by law.
(d) No Liability. None of Parent, Sub, the Company or the Paying
-------------
Agent shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
<PAGE>
11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 4.01. Representations and Warranties of the Company. The
----------------------------------------------
Company represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the Company
-------------------------------------------
and each of its Significant Subsidiaries is a corporation or partnership
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
partnership power and authority to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect
on the Company. The Company has made available to Parent complete and
correct copies of the Amended and Restated Articles of Incorporation and
by-laws of the Corporation, in each case as amended to the date of this
Agreement, and will make available immediately following the date of this
Agreement the certificates of incorporation and by-laws or other
organizational documents of its subsidiaries, in each case as amended to
the date of this Agreement. The respective certificates of incorporation
and by-laws or other organizational documents of the subsidiaries of the
Company do not contain any provision limiting or otherwise restricting the
ability of the Company to control such subsidiaries. For purposes of this
Agreement, a "Significant Subsidiary" means any subsidiary of the Company
that (x) constitutes a significant subsidiary within the meaning of Rule 1-
02 of Regulation S-X of the SEC or (y) the acquisition of which would
require regulatory approval under any Gaming Law.
(b) Subsidiaries. The list of subsidiaries of the Company filed by
-------------
the Company with its most recent Report on Form 10-K is a true and accurate
list of all the subsidiaries of the Company which are required to
<PAGE>
12
be set forth therein. All the outstanding shares of capital stock of each
Significant Subsidiary are owned by the Company, by another wholly owned
subsidiary of the Company or by the Company and another wholly owned
subsidiary of the Company, free and clear of all liens.
(c) Capital Structure. The authorized capital stock of the Company
------------------
consists of 50,000,000 shares of Company Common Stock and 1,000,000 shares
of preferred stock, par value $.10 per share ("Company Preferred Stock").
At the close of business on December 13, 1994, (i) 25,120,963 shares of
Company Common Stock and no shares of Company Preferred Stock were issued
and outstanding, (ii) 1,354,538 shares of Company Common Stock were held by
the Company in its treasury, (iii) 774,926 shares of Company Common Stock
were reserved for issuance upon exercise of outstanding Stock Options (as
defined in Section 6.04), (iv) 89,341 shares of Company Common Stock were
reserved for issuance in respect of contingent shares of Company Common
Stock and (v) no shares of Company Common Stock and 250,000 shares of
Company Preferred Stock were reserved for issuance in connection with the
rights (the "Rights") to purchase shares of Company capital stock issued
pursuant to the Rights Agreement dated as of January 10, 1989 (as amended
from time to time, the "Rights Agreement"), between the Company and First
Chicago Trust Company of New York, as Rights Agent (the "Rights Agent").
Except as set forth above, as of the date of this Agreement, no shares of
capital stock or other voting securities of the Company were issued,
reserved for issuance or outstanding. There are no outstanding stock
appreciation rights which were not granted in tandem with a related Stock
Option, restricted stock grant or contingent stock grant and, other than as
may be contained in employee benefit plans, employment agreements,
merchandising incentive agreements, stock options and similar plans,
agreements and instruments, there are no other outstanding contractual
rights to which the Company is a party (other than Benefit Plans) the value
of which is derived from the financial performance of the Company or the
value of shares of Company Common Stock. All outstanding shares of capital
stock of the Company are, and all shares which may be issued will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. There are no bonds, debentures, notes or
other
<PAGE>
13
indebtedness of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which stockholders of the Company may vote. Except as set forth above, as
of the date of this Agreement, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its subsidiaries is
a party or by which any of them is bound obligating the Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of the Company or of any of its subsidiaries or obligating the
Company or any of its subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except to the extent Paragraph 12 of Article
III of the Company's Amended and Restated Articles of Incorporation or a
provision comparable to such Paragraph 12 under any Gaming Law could be
construed as a contractual obligation or any Stock Options contain a
provision comparable to such Paragraph 12, or as may be required by any
restricted stock arrangement, stock appreciation rights, tax withholding
with respect to restricted and contingent stock, and stock options, payment
for the exercise of which is made in capital stock of the Company, there
are not any outstanding contractual obligations of the Company or any of
its subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries.
(d) Authority; Noncontravention. The Company has the requisite
----------------------------
corporate power and authority to enter into this Agreement and, subject to
approval of this Agreement by the holders of a majority of the outstanding
shares of Company Common Stock, to consummate the transactions contemplated
by this Agreement. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of this
Agreement, to approval of this Agreement by the holders of a majority of
the outstanding shares of Company Common Stock. This Agreement has been
duly executed and delivered by the Company and, assuming this Agreement
constitutes
<PAGE>
14
the valid and binding obligation of Parent and Sub, constitutes the valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that (i) such enforcement may be subject
to the matters set forth in the last sentence of Section 9.04 and to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (ii)
the remedy of specific performance and injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by
this Agreement (including the changes in the composition of the Board of
Directors of the Company) and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or result in the
creation of any lien upon any of the properties or assets of the Company or
any of its subsidiaries under, (i) the Amended and Restated Articles of
Incorporation or by-laws of the Company or the comparable charter or
organizational documents of any of its subsidiaries, (ii) other than
contingent severance agreements, severance plans, employment agreements,
tax withholding rights, stock options and stock grant agreements and
subject to the governmental filings and other matters referred to in the
following sentence, any loan or credit agreement (except the Loan Agreement
dated as of August 21, 1992, among the Company, the banks named therein and
Bank of America National Trust and Savings Association, as Agent, as
amended), note, bond, mortgage, indenture (except the Senior Subordinated
Indenture dated August 15, 1992, between the Company and First Trust
National Association), lease or other agreement (other than understandings
and business arrangements relating to projects in Missouri and Windsor,
Canada), instrument, permit, concession, franchise or license applicable to
the Company or any of its subsidiaries or their respective properties or
assets (including all agreements described pursuant to Section 4.01(v)) or
(iii) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law,
<PAGE>
15
ordinance, rule or regulation applicable to the Company or any of its
subsidiaries or their respective properties or assets, other than, in the
case of clauses (ii) or (iii), any such conflicts, violations, defaults,
rights or liens that individually or in the aggregate would not (x) have a
material adverse effect on the Company, (y) impair in any material respect
the ability of the Company to perform its obligations under this Agreement
or (z) prevent or impede, in any material respect, the consummation of any
of the transactions contemplated by this Agreement. To the knowledge of
the Company, no consent, approval, order or authorization of, or
registration, declaration or filing with, any Federal, state or local
government or any court, administrative or regulatory agency or commission
or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by the Company or any of its
subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated by this Agreement, except for (i) the filing of a
premerger notification and report form by the Company under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) the filing
with the SEC of (x) the Schedule 14D-9, (y) a proxy statement relating to
any required approval by the Company's stockholders of this Agreement (as
amended or supplemented from time to time, the "Proxy Statement") and (z)
such reports under Section 13(a) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (iii) the filing of the Articles of Merger with the Florida
Department of State and appropriate documents with the relevant authorities
of other states in which the Company is qualified to do business, (iv) the
approval by (A) the New Jersey Casino Control Commission under the New
Jersey Casino Control Act and the rules and regulations promulgated
thereunder, (B) the Nevada State Gaming Control Board and the Nevada Gaming
Commission under the Nevada Gaming Control Act and the rules and
regulations promulgated thereunder, (C) the Clark County Liquor and Gaming
Licensing Board pursuant to the Clark County, Nevada Code and the rules and
regulations promulgated thereunder, (D) the National Indian Gaming
Commission under the Indian Gaming Regulatory Act and the rules and
regulations promulgated thereunder, (E) the Ontario Gaming Control
Commission under the Ontario Gaming
<PAGE>
16
Control Act, 1992 and the rules and regulations promulgated thereunder, (F)
the Indiana Gaming Commission under Article 33, Title IV of the Official
Indiana Code, (G) the Missouri Gaming Commission under Mo. Rev. Stat. (S)
313.800-850 and the rules and regulations promulgated thereunder and (H)
the Agua Caliente Tribal Council, (v) as may be required by any applicable
state securities or "blue sky" laws, (vi) in connection with any state or
local tax which is attributable to the beneficial ownership of real
property of the Company or its subsidiaries, (vii) such immaterial filings
and consents as may be required under any environmental, health or safety
law or regulation pertaining to any notification, disclosure or required
approval triggered by the Offer, the Merger or the transactions
contemplated by this Agreement, (viii) such immaterial filings, consents,
approvals, orders, registrations and declarations as may be required under
the laws of any foreign country in which the Company or any of its
subsidiaries conducts any business or owns any assets, and (ix) such other
consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made would not,
individually or in the aggregate, (x) have a material adverse effect on the
Company, (y) impair, in any material respect, the ability of the Company to
perform its obligations under this Agreement or (z) prevent or
significantly delay the consummation of the transactions contemplated by
this Agreement.
(e) SEC Documents; Financial Statements. The Company has filed all
------------------------------------
required reports, proxy statements, forms, and other documents with the SEC
since July 31, 1993 (the "SEC Documents"). As of their respective dates,
(i) the SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933 (the "Securities Act"), or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and (ii) none of
the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent that
information contained in any SEC Document has been revised or superseded by
a later-
<PAGE>
17
filed SEC Document filed and publicly available prior to the date of this
Agreement, none of the SEC Documents contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply as
to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the SEC Documents filed and publicly
available prior to the date of this Agreement, and except for liabilities
and obligations incurred in the ordinary course of business consistent with
past practice since the date of the most recent consolidated balance sheet
included in the SEC Documents filed and publicly available prior to the
date of this Agreement, neither the Company nor any of its subsidiaries has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by generally accepted accounting
principles to be set forth on a consolidated balance sheet of the Company
and its consolidated subsidiaries or in the notes thereto.
(f) Information Supplied. None of the information supplied or to be
---------------------
supplied by the Company expressly for inclusion or incorporation by
reference in (i) the Offer Documents or (ii) the information to be filed by
the Company in connection with the Offer pursuant to Rule 14f-1 promulgated
under the Exchange Act (the "Information Statement"), will, at the
respective times the Offer Documents and the Information Statement are
filed with the SEC and first published, sent or given to the Company's
stockholders, contain any untrue statement of a material fact or omit
<PAGE>
18
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Information Statement will comply
as to form in all material respects with the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made
by the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub for inclusion or
incorporation by reference therein.
(g) Absence of Certain Changes or Events. Except as disclosed in the
-------------------------------------
SEC Documents filed and publicly available prior to the date of this
Agreement or as set forth in Schedule 4.01(g), since July 31, 1994, the
Company and its subsidiaries have conducted their respective businesses
only in the ordinary course, and there has not been (i) any material
adverse change in the Company, (ii) any declaration, setting aside or
payment of any dividend or other distribution with respect to its capital
stock, (iii) any split, combination or reclassification of any of its
capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iv) (x) any granting by the Company or any of its
subsidiaries to any officer of the Company or any of its subsidiaries of
any increase in compensation, except in the ordinary course of business
(including in connection with promotions) consistent with prior practice or
as was required under employment agreements in effect as of the date of the
most recent audited financial statements included in the SEC Documents
filed and publicly available prior to the date of this Agreement, (y) any
granting by the Company or any of its subsidiaries to any such officer of
any increase in severance or termination pay, except as part of a standard
employment package to any person promoted or hired (but not including the
five most senior officers), or as was required under employment, severance
or termination agreements in effect as of the date of the most recent
audited financial statements included in the SEC Documents filed and
publicly available prior to the date of this Agreement or as disclosed in
Schedule 4.01(g) or (z) except termination arrangements in the ordinary
course of business consistent with past practice with employees other than
<PAGE>
19
any executive officer of the Company and except for the two employment
agreements referred to in Section 6.10(a), any entry by the Company or any
of its subsidiaries into any employment, severance or termination agreement
with any such officer, (v) any damage, destruction or loss, whether or not
covered by insurance, that has or reasonably could be expected to have a
material adverse effect on the Company or (vi) any change in accounting
methods, principles or practices by the Company materially affecting its
assets, liabilities or business, except insofar as may have been required
by a change in generally accepted accounting principles.
(h) Litigation. Except as disclosed in the SEC Documents, there is
-----------
no suit, action or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries that,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Company, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any of its subsidiaries that,
individually or in the aggregate, could reasonably be expected to have such
an effect; it being understood that this representation shall not include
any litigation of the nature described in paragraph (a) of Exhibit A.
(i) Absence of Changes in Benefit Plans. Except as disclosed in
------------------------------------
Schedule 4.01(i), Schedules 4.01(j)(i), (ii) or (iii), in the SEC Documents
or as otherwise expressly permitted hereunder, there has not been any
adoption or amendment in any material respect by the Company or any of its
subsidiaries of any Benefit Plan (as defined in Section 4.01(j) hereof)
since July 31, 1994. All employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings between the
Company or any of its subsidiaries and any current or former officer or
director of the Company or any of its subsidiaries which are required to be
disclosed in the SEC Documents have been disclosed therein.
(j) ERISA Compliance. (i) As soon as practicable after the signing
-----------------
of this Agreement, the Company will make available all "employee pension
benefit plans" (as defined in Section 3(2) of the
<PAGE>
20
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA) and all other plans,
arrangements or policies relating to stock options, stock purchases,
compensation, deferred compensation, severance, fringe benefits and other
employee benefits, in each case maintained, or contributed to, or required
to be maintained or contributed to, by the Company, any of its subsidiaries
or any other person or entity that, together with the Company, is treated
as a single employer under Section 414(b), (c), (m) or (o) of the Code
(each a "Commonly Controlled Entity") for the benefit of any current or
former employees, officers or directors (or any beneficiaries thereof) of
the Company or any of its subsidiaries (collectively, "Benefit Plans").
Certain Benefit Plans affecting officers and directors which are sponsored
by the Company are disclosed in Schedule 4.01(j)(i).
(ii) Each Benefit Plan sponsored by the Company or any subsidiary (a
"Company Benefit Plan") has been administered in all material respects in
accordance with its terms. Except as disclosed in Schedule 4.01(j)(ii),
the Company and all the Company Benefit Plans are all in compliance in all
material respects with applicable provisions of ERISA and the Code and all
other applicable laws. The most recent Form 5500 and summary plan
description for each Company Benefit Plan for which such documents are
required was complete and correct in all material respects. There are (or,
in the case of Benefit Plans that are multiemployer plans (as defined in
Section 4001(a)(3) of ERISA) (each, a "Multiemployer Plan"), there are to
the knowledge of the Company) no investigations by any governmental agency,
termination proceedings or other claims (except claims for benefits payable
in the normal operation of the Benefit Plans), suits or proceedings against
or involving any Benefit Plan or asserting any rights to or claims for
benefits under any Benefit Plan that could give rise to any material
liability, and, to the knowledge of the Company, there are not any facts
that could reasonably be expected to give rise to any material liability in
the event of any such investigation, claim, suit or proceeding. No
"prohibited transaction" (as defined in Section 4975 of the Code or Section
406 of ERISA) has occurred in respect of any Company Benefit Plan and, to
the
<PAGE>
21
knowledge of the Company, no such transaction has occurred between the
Company or any employee, officer or director thereof and any Multiemployer
Plan. The Company does not maintain any defined benefit pension plan
except the two Executive Security Plans. The Executive Security Plans are
not subject to the funding requirements of ERISA or the Code and are not
tax-qualified plans.
(iii) Schedule 4.01(j)(iii) lists the Multiemployer Plans covering
employees of the Company or its subsidiaries and sets forth a list, for
each location at which such employees are or were covered by a
Multiemployer Plan, (y) of the number of covered employees, contribution
rate and hours from 1987 to the date hereof, in the case of New Jersey, and
(z) of the number of covered employees and aggregate pension expense from
1990 to the date hereof and aggregate pension expense for 1988 and 1989, in
the case of Nevada. The aggregate amount of withdrawal liability (as
defined in Section 4201 of ERISA) if each Commonly Controlled Entity were
to withdraw from each Multiemployer Plan would not exceed $25,000,000. To
the knowledge of the Company, no Commonly Controlled Entity has engaged in
a transaction described in Section 4069 of ERISA that could subject the
Company to liability at any time after the date hereof. To the knowledge
of the Company, no Commonly Controlled Entity has acted in a manner that
could, or failed to act so as to, result in fines, penalties, taxes or
related charges under (x) Section 502(c), (i) or (1) of ERISA, (y) Section
4071 of ERISA or (z) Chapter 43 of the Code.
(iv) To the knowledge of the Company, and except for collective
bargaining agreements during the respective terms thereof, and for the
Company's contingent severance agreements, employment agreements or
severance pay plan for corporate officers and corporate staff, there are no
understandings, agreements or undertakings, except pursuant to Section 6.10
hereof, that would prevent any Benefit Plan that is an employee welfare
benefit plan (including any such Benefit Plan covering retirees) from being
amended or terminated, on or at any time after the consummation of the
Offer, without such amendment or termination causing material liability to
the Company or any of its subsidiaries over that which is already accrued.
<PAGE>
22
(v) To the knowledge of the Company, no Commonly Controlled Entity has
incurred any material liability, and no event has occurred that would
result in any material liability, to a pension plan subject to the funding
requirements of ERISA and the Code (other than for contributions not yet
due) or to the Pension Benefit Guaranty Corporation (other than for payment
of premiums not yet due) that has not been fully paid as of the date
hereof, provided that the foregoing has no application to Multiemployer
Plans.
(vi) The information supplied to the actuary for use in preparing the
actuarial reports or valuations for the trusts under the Caesars World,
Inc. and Subsidiaries Benefit Trust Agreement and the Boardwalk Regency
Corporation Benefit Trust Agreement was complete and accurate in all
material respects. The Company has no reason to believe that any
conclusions expressed in those reports or valuations are incorrect. The
Company and certain of its subsidiaries have contributed to such trusts the
amounts required by the most recent actuarial calculation of liabilities
thereunder. As of July 31, 1994, the aggregate amount in such trusts was
$12,756,000.
(vii) Except as provided in the Company's severance pay plan, the two
employment agreements with Messrs. Gluck and Lanni, the contingent
severance agreements, and except for the vesting and accelerated
exercisability with respect to contingent or restricted stock agreements,
stock options and stock appreciation rights, no employee of the Company or
any of its subsidiaries will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any
Benefit Plan as a result of the transactions contemplated by this
Agreement.
(viii) The only "postemployment benefits" (other than disability-
related benefits), as defined in Statement of Financial Accounting
Standards No. 112, and the only "postretirement benefits", as defined in
Statement of Financial Accounting Standards No. 106, which the Company is
obligated to provide are those described in its two employment agreements
and any such benefits which may be required by the Consolidated Ommibus
Budget Reconciliation Act ("COBRA").
<PAGE>
23
(k) Taxes. (i) Each of the Company and each of its subsidiaries has
------
filed all Federal income tax returns and all other material tax returns and
reports required to be filed by it. To the knowledge of the Company, all
such returns are complete and correct in all material respects. To the
knowledge of the Company, each of the Company and each of its subsidiaries
has paid (or the Company has paid on its subsidiaries' behalf) all taxes
shown as due on such returns and all material taxes for which no return was
required to be filed, and the most recent financial statements contained in
the SEC Documents reflect an adequate reserve for all taxes payable by the
Company and its subsidiaries for all taxable periods and portions thereof
through the date of such financial statements, except in respect of certain
possible industry-wide issues pertaining to deductibility of
complimentaries and the treatment of certain discounts and customer bad
debts, which issues are the subject of pending IRS technical advice
submissions.
(ii) Except with respect to the industry-wide issues specified in the
last sentence of Section 4.01(k)(i), no material deficiencies for any taxes
have been proposed, asserted or assessed against the Company or any of its
subsidiaries, which are not reserved for. The Federal income tax returns
of the Company and each of its subsidiaries consolidated in such returns
have been examined by and settled with the Internal Revenue Service for all
years through 1988 and all returns after 1988 are open and subject to
examination.
(iii) As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, sales, excise and other taxes,
tariffs or governmental charges of any nature whatsoever.
(l) No Excess Parachute Payments. To the knowledge of the Company,
-----------------------------
any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of the Company or any
of its affiliates who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation
arrangement or Benefit Plan
<PAGE>
24
currently in effect should not be characterized as an "excess parachute
payment" (as such term is defined in Section 280G(b)(1) of the Code and the
proposed regulations thereunder).
(m) Compliance with Applicable Laws. (i) To the knowledge of the
--------------------------------
Company, each of the Company and its subsidiaries has in effect all
Federal, state, local and foreign governmental approvals, authorizations,
certificates, filings, franchises, licenses, notices, permits and rights,
including all authorizations under Environmental Laws and Gaming Laws
("Permits"), necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted other than such
Permits the absence of which would not, individually or in the aggregate,
have a material adverse effect on the Company, and there has occurred no
default under any such Permit other than such defaults which, individually
or in the aggregate, would not have a material adverse effect on the
Company. To the knowledge of the Company, except as disclosed in the SEC
Documents filed and publicly available prior to the date of this Agreement,
the Company and its Subsidiaries are in compliance with all applicable
statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for possible noncompliance which individually
or in the aggregate would not have a material adverse effect on the
Company. The preceding sentence of this Section 4.01(m)(i) does not apply
to matters specifically covered by Sections 4.01(j), 4.01(k) or 4.01(m)(ii)
through 4.01(m)(viii).
(ii) To the knowledge of the Company, each of the Company and its
subsidiaries is in compliance with all applicable Gaming Laws, except for
possible noncompliance which individually or in the aggregate would not
have a material adverse effect on the Company. The term "Gaming Laws"
-----------
means any Federal, state, local or foreign statute, ordinance, rule,
regulation, permit, consent, approval, license, judgment, order, decree,
injunction or other authorization governing or relating to the current or
contemplated casino and gaming activities and operations of the Company,
including the New Jersey Casino Control Act and the rules and regulations
promulgated thereunder, the Nevada Gaming Control Act and the rules and
regulations promulgated thereunder,
<PAGE>
25
the Clark County, Nevada Code and the rules and regulations promulgated
thereunder, Article 33 of Title IV of the Official Indiana Code and the
rules and regulations promulgated thereunder, the Indian Gaming Regulatory
Act and the rules and regulations promulgated thereunder, Mo. Rev. Stat.
(S)(S) 313.800-.850 and the rules and regulations promulgated thereunder
and the Ontario Gaming Control Act, 1992 and the rules and regulations
promulgated thereunder.
(iii) To the knowledge of the Company, neither the Company nor any
Significant Subsidiary of the Company nor any director or officer of the
Company or any Significant Subsidiary of the Company has received any
written claim, demand, notice, complaint, court order or administrative
order from any Governmental Entity in the past three years, asserting that
a license of it or them, as applicable, under any Gaming Laws should be
revoked or suspended other than in respect of a former marketing executive
of Boardwalk Regency whose license was revoked.
(iv) To the knowledge of the Company, each of the Company and its
subsidiaries is, and has been, and each of the Company's former
subsidiaries, while a subsidiary of the Company, was in compliance with all
applicable Environmental Laws, except for possible noncompliance which
individually or in the aggregate would not have a material adverse effect
on the Company. The term "Environmental Laws" means any Federal, state,
------------------
local or foreign statute, ordinance, rule, regulation, permit, consent,
approval, license, judgment, order, decree, injunction or other
authorization, relating to: (A) Releases (as defined in 42 U.S.C. (S)
9601(22)) or threatened Releases of Hazardous Material (as hereinafter
defined) into the environment or (B) the generation, treatment, storage,
disposal, use, handling, manufacturing, transportation or shipment of, or
exposure to, a Hazardous Material.
(v) To the knowledge of the Company, neither the Company nor any
subsidiary of the Company has received any written claim, demand, notice,
complaint, court order, administrative order or request for information
from any Governmental Entity or private party in the past three years,
alleging violation of, or asserting any noncompliance with or liability
under or potential liability under, any Environmental Laws which
<PAGE>
26
individually or in the aggregate would reasonably be expected to have a
material adverse effect on the Company.
(vi) To the knowledge of the Company, during the period of ownership
or operation by the Company and its subsidiaries of any of their respective
current or previously owned or leased properties, there have been no
Releases of Hazardous Material in, on, under or affecting such properties
and none of the Company or its subsidiaries have disposed of any Hazardous
Material or any other substance in a manner that has led, or could
reasonably be anticipated to lead to a Release except in each case for
those which individually or in the aggregate are not reasonably likely to
have a material adverse effect on the Company. Prior to the period of
ownership or operation by the Company and its subsidiaries of any of their
respective current or previously owned or leased properties, to the
knowledge of the Company no Hazardous Material was generated, treated,
stored, disposed of, used, handled or manufactured at, or transported
shipped or disposed of from, such current or previously owned or leased
properties, and there were no Releases of Hazardous Material in, on, under
or affecting any such property or any surrounding site, except in each case
for those which individually or in the aggregate would not be reasonably
likely to have a material adverse effect on the Company. The term
"Hazardous Material" means (1) hazardous substances (as defined in 42
-------------------
U.S.C. (S) 9601(14)), (2) petroleum, including crude oil and any fractions
thereof, (3) natural gas, synthetic gas and any mixtures thereof, (4)
asbestos and/or asbestos-containing material, (5) PCBs, or materials
containing PCBs in excess of 50 ppm, and any material regulated as a
medical waste or infectious waste.
(vii) Schedule 4.01(m)(vii) identifies all environmental audits,
assessments or studies within the possession of the Company or any
Significant Subsidiary of the Company with respect to the facilities or
real property owned, leased or operated by the Company or any Significant
Subsidiary of the Company, which were conducted within the last five years.
As soon as practicable after the date of this Agreement, the Company will
furnish to Parent complete and correct copies of all such audits,
assessments and studies.
<PAGE>
27
(viii) The transactions contemplated by this Agreement will not require
compliance with the New Jersey Industrial Site Recovery Act or any similar
state transfer law.
(n) State Takeover Statutes; Charter Provisions. The Board of
--------------------------------------------
Directors of the Company has approved the Offer, the Merger, this Agreement
and the Option Agreement and such approval is sufficient to render
inapplicable to the Offer, the Merger, this Agreement and the Option
Agreement and the other transactions contemplated by this Agreement and the
Option Agreement, the provisions of Section 607.0901 of the FBCA, the
provisions of Section 607.0902 of the FBCA and the provisions of Paragraph
A of Article XI of the Company's Amended and Restated Articles of
Incorporation.
(o) Voting Requirements. The affirmative vote of the holders of a
--------------------
majority of all the shares of Company Common Stock entitled to be cast
approving this Agreement is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement
and the transactions contemplated by this Agreement.
(p) Rights Agreement. The Company and the Board of Directors of the
-----------------
Company have taken and will maintain in effect all necessary action to (i)
render the Rights Agreement inapplicable with respect to the Offer, the
Merger, the Option Agreement and the other transactions contemplated by
this Agreement and (ii) ensure that (y) neither Parent nor Sub nor any of
their Affiliates (as defined in the Rights Agreement) or Associates (as
defined in the Rights Agreement) is considered to be an Acquiring Person
(as defined in the Rights Agreement) or an Adverse Person (as defined in
the Rights Agreement) or an Unqualified Gaming Person (as defined in the
Rights Agreement) and (z) a Distribution Date (as defined in the Rights
Agreement) does not and shall not occur by reason of the announcement or
consummation of the Offer, the Merger, the Option Agreement or the
consummation of any of the other transactions contemplated by this
Agreement. The Company has delivered to Parent a complete and correct copy
of the Rights Agreement as amended and supplemented to the date of this
Agreement.
<PAGE>
28
(q) Brokers. No broker, investment banker, financial advisor or
--------
other person, other than Merrill Lynch & Co., the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company has provided Parent true
and correct copies of all agreements between Company and Merrill Lynch &
Co.
(r) Opinion of Financial Advisor. The Company has received the
-----------------------------
opinion of Merrill Lynch & Co., to the effect that, as of the date of this
Agreement, the consideration to be received in the Offer and the Merger by
the Company's stockholders is fair to the Company's stockholders from a
financial point of view, and a complete and correct signed copy of such
opinion has been, or promptly upon receipt thereof will be, delivered to
Parent.
(s) Trademarks, etc. To the knowledge of the Company, the material
----------------
patents, trademarks (registered or unregistered), trade names, service
marks and copyrights and applications therefor owned, used or filed by or
licensed to the Company and its subsidiaries (collectively, "Intellectual
Property Rights") are sufficient to allow each of the Company and each of
its Significant Subsidiaries to conduct, and continue to conduct, its
business as currently conducted or as the Company proposes to conduct such
business. To the knowledge of the Company, each of the Company and each of
its Significant Subsidiaries owns or has sufficient unrestricted right to
use the Intellectual Property Rights in order to allow it to conduct, and
continue to conduct, its business as currently conducted or as the Company
proposes to conduct such business, and the consummation of the transactions
contemplated hereby will not alter or impair such ability in any respect
which individually or in the aggregate would be reasonably likely to have a
material adverse effect on the Company. To the knowledge of the Company,
neither the Company nor any of its Significant Subsidiaries has received
any oral or written notice from any other person pertaining to or
challenging the right of the Company or any of its Significant Subsidiaries
to use any of the Intellectual Property Rights, which challenge or other
assertion, if
<PAGE>
29
upheld or successful, individually or in the aggregate would be reasonably
likely to have a material adverse effect on the Company. To the knowledge
of the Company, no claims are pending by any person with respect to the
ownership, validity, enforceability or use of any such Intellectual
Property Rights challenging or questioning the validity or effectiveness of
any of the foregoing which claims would reasonably be expected to have a
material adverse effect on the Company. To the knowledge of the Company,
neither the Company nor any of its Significant Subsidiaries has made any
claim of a violation or infringement by others of its rights to or in
connection with the Intellectual Property Rights in any such case where
such claims (individually or in the aggregate) would reasonably be expected
to have a material adverse effect on the Company.
(t) Title to Properties. To the knowledge of the Company, each of
--------------------
the Company and each of its Significant Subsidiaries has sufficiently good
and valid title to, or an adequate leasehold interest in, its material
tangible properties and assets in order to allow it to conduct, and
continue to conduct, its business as currently conducted or as the Company
proposes to conduct such business. Such material tangible assets and
properties are sufficiently free of liens to allow each of the Company and
each of its subsidiaries to conduct, and continue to conduct, its business
as currently conducted, or as the Company proposes to conduct such business
and, to the knowledge of the Company, the consummation of the transactions
contemplated by this Agreement will not alter or impair such ability in any
respect which individually or in the aggregate would be reasonably likely
to have a material adverse effect on the Company. To the knowledge of the
Company, each of the Company and each of its subsidiaries enjoys peaceful
and undisturbed possession under all material leases, except for such
breaches of the right to peaceful and undisturbed possession that do not
materially interfere with the ability of the Company and its subsidiaries
to conduct its business as currently conducted. Schedule 4.01(t) sets
forth a complete list of all material real property and material interests
in real property owned in fee by the Company or one of its subsidiaries and
sets forth all material real property and interests in
<PAGE>
30
real property leased by the Company or one of its subsidiaries as of the
date hereof.
(u) Insurance. To the knowledge of the Company, the Company and its
----------
Significant Subsidiaries have obtained and maintained in full force and
effect insurance with responsible and reputable insurance companies or
associations in such amounts, on such terms and covering such risks,
including fire and other risks insured against by extended coverage, as is
reasonably prudent, and each has maintained in full force and effect public
liability insurance, insurance against claims for personal injury or death
or property damage occurring in connection with any of activities of the
Company or its Significant Subsidiaries or any of any properties owned,
occupied or controlled by the Company or its Significant Subsidiaries, in
such amount as reasonably deemed necessary by the Company or its
Significant Subsidiaries.
(v) Contracts; Debt Instruments. Except as set forth in the SEC
----------------------------
Documents and as set forth in Schedule 4.01(v), there are no (i) agreements
of the Company or any of its subsidiaries containing an unexpired covenant
not to compete or similar restriction applying to the Company or any of its
subsidiaries, (ii) interest rate, currency or commodity hedging, swap or
similar derivative transactions to which the Company is a party or (iii)
other contracts or amendments thereto that would be required to be filed as
an exhibit to a Form 10-K filed by the Company with the SEC as of the date
of this Agreement. To the knowledge of the Company, each of the agreements
listed in Schedule 4.01(v) and the SEC Documents is a valid and binding
obligation of the Company or its subsidiary, as the case may be, and, to
the Company's knowledge, of each other party thereto, and each such
agreement is in full force and effect and is enforceable by the Company or
its subsidiary in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought
and except to the extent any covenant not to compete contained
<PAGE>
31
therein may be unenforceable. To the knowledge of the Company, there are
no existing defaults (or circumstances or events that, with the giving of
notice or lapse of time or both would become defaults) of the Company or
any of its subsidiaries (or, to the knowledge of the Company, any other
party thereto) under any of the agreements set forth in the SEC Documents
or agreements listed in Schedule 4.01(v) except for defaults that have not
and would not, individually or in the aggregate, have a material adverse
effect on the Company.
(w) Labor Relations. Except as disclosed in the SEC Documents, no
----------------
strike or other labor dispute involving the Company or any of its
subsidiaries is pending or, to the knowledge of the Company, threatened,
and, to the knowledge of the Company, there is no activity involving any
unorganized employees of the Company or any of its subsidiaries seeking to
certify a collective bargaining unit or engaging in any other organization
activity. Except as set forth in Schedule 4.01(w) and as disclosed in the
SEC Documents, since July 31, 1994, there has not been any adoption or
amendment in any material respect by the Company or any of its subsidiaries
of any collective bargaining agreement. Other than those filed as exhibits
to the SEC Documents, Schedule 4.01(w) lists all collective bargaining
agreements of the Company or any of its subsidiaries.
SECTION 4.02. Representations and Warranties of Parent and Sub.
-------------------------------------------------
Parent and Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
-------------------------------------------
each of its significant subsidiaries (as such term is defined in Rule 1-02
of Regulation S-X of the SEC) and Sub is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which each is incorporated and has the requisite corporate
or partnership power and authority to carry on its business as now being
conducted. Each of Parent and Sub is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the
<PAGE>
32
failure to be so qualified or licensed (individually or in the aggregate)
would not have a material adverse effect on Parent. Parent will make
available to the Company complete and correct copies of its certificate of
incorporation and by-laws and the articles of incorporation and by-laws of
Sub, in each case as amended to the date of this Agreement.
(b) Authority; Noncontravention. Parent and Sub have the requisite
----------------------------
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of Parent and
Sub, as applicable. This Agreement has been duly executed and delivered by
Parent and Sub and, assuming this Agreement constitutes the valid and
binding obligation of the Company, constitutes a valid and binding
obligation of each such party, enforceable against each such party in
accordance with its terms, except that (i) such enforcement may be subject
to bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (ii)
the remedy of specific performance and injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by
this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or result in the
creation of any lien upon any of the properties or assets of Parent under,
(i) the certificate of incorporation or by-laws of Parent or Sub, (ii)
subject to the governmental filings and other matters referred to in the
following sentence, any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent or (iii) subject to the
governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or
<PAGE>
33
Sub or their respective properties or assets, other than, in the case of
clauses (ii) or (iii), any such conflicts, violations, defaults, rights or
liens that individually or in the aggregate would not (x) have a material
adverse effect on Parent, (y) impair in any material respect the ability of
Parent and Sub to perform their respective obligations under this Agreement
or (z) prevent or impede the consummation of any of the transactions
contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by Parent or Sub in connection with the
execution and delivery of this Agreement or the consummation by Parent or
Sub, as the case may be, of any of the transactions contemplated by this
Agreement, except for (i) the filing of a premerger notification and report
form under the HSR Act, (ii) the filing with the SEC of (x) the Offer
Documents and (y) such reports under the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (iii) the filing of the Articles of Merger with the Florida
Department of State and appropriate documents with the relevant authorities
of other states in which the Company is qualified to do business, (iv) the
approval by (A) the New Jersey Casino Control Commission under the New
Jersey Casino Control Act and the regulations promulgated thereunder, (B)
the Nevada State Gaming Control Board and the Nevada Gaming Commission
under the Nevada Gaming Control Act and the regulations promulgated
thereunder, (C) the Clark County Liquor and Gaming Licensing Board pursuant
to the Clark County, Nevada Code and the rules and regulations promulgated
thereunder, (D) the National Indian Gaming Commission under the Indian
Gaming Regulatory Act and the rules and regulations promulgated thereunder,
(E) the Ontario Gaming Control Commission under the Ontario Gaming Control
Act, 1992 and the rules and regulations promulgated thereunder, (F) the
Indiana Gaming Commission under Article 33, Title IV of the Official
Indiana Code, (G) the Missouri Gaming Commission under Mo. Rev. Stat.
(S)(S) 313.800-850 and the rules and regulations promulgated thereunder and
(H) the Agua Caliente Tribal Council, (v) as may be required by an
applicable state securities or "blue sky" laws, (vi) in connection with any
state or local tax which is attributable in respect of the beneficial
ownership of real property of the Company or its subsidiaries, (vii)
<PAGE>
34
such immaterial filings and immaterial consents as may be required under
any environmental, health or safety law or regulation pertaining to
any notification, disclosure or required approval triggered by the Offer,
the Merger or the transactions contemplated by this Agreement, (viii) such
immaterial filings, consents, approvals, orders, registrations and
declarations as may be required under the laws of any foreign country in
which the Parent or any of its subsidiaries or the Company or any of its
subsidiaries conducts any business or owns any assets, and (ix) such other
consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made would not,
individually or in the aggregate, (x) have a material adverse effect on
Parent, (y) impair, in any material respect, the ability of Parent to
perform its obligations under this Agreement or (z) prevent or
significantly delay the consummation of the transactions contemplated by
this Agreement.
(c) Information Supplied. None of the information supplied or to be
---------------------
supplied by Parent or Sub expressly for inclusion or incorporation by
reference in the Schedule 14D-9, the Information Statement or the Proxy
Statement will, in the case of the Schedule 14D-9 and the Information
Statement, at the respective times the Schedule 14D-9 and the Information
Statement are filed with the SEC and first published, sent or given to the
Company's stockholders or, in the case of the Proxy Statement, on the date
the Proxy Statement is first mailed to the Company's stockholders and at
the time of the meeting of the Company's stockholders held to vote on
approval and adoption of this Agreement, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(d) Brokers. No broker, investment banker, financial advisor or
--------
other person, other than Bear, Stearns & Co. Inc. or a co-dealer manager
other than Bear, Stearns & Co. Inc., the fees and expenses of which will be
paid by Parent, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transac-
<PAGE>
35
tions contemplated by this Agreement based upon arrangements made by or on
behalf of Parent or Sub.
(e) Financing. Parent has sufficient funds available to purchase all
----------
the outstanding shares on a fully diluted basis of Company Common Stock
pursuant to the Offer and the Merger and to pay all fees and expenses
related to the transactions contemplated by this Agreement.
(f) Interim Operations of Sub. Sub was formed solely for the purpose
--------------------------
of engaging in the transactions contemplated hereby and has not engaged in
any business activities or conducted any operations other than in
connection with the transactions contemplated hereby.
(g) Ownership of Company Common Stock. To the actual knowledge of
----------------------------------
Parent, neither Parent nor any of its affiliates is the record owner of, or
has any beneficial interest in, any shares of Company Common Stock. This
Section 4.02(g) does not apply to any pension plan of Parent or any of its
affiliates and does not apply in respect of the general account at ITT
Hartford.
(h) Permits. To the actual knowledge of Parent, there is no fact or
--------
circumstance which would reasonably be expected to prevent or materially
delay the obtaining of any consent or approval by Parent which is required
to be obtained by Parent in connection with this Agreement.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
-----------------------------------------
SECTION 5.01. (a) Conduct of Business. During the term of this
--------------------
Agreement, except as specifically required by this Agreement, the Company shall
and shall cause its subsidiaries to carry on their respective businesses in the
ordinary course and use all reasonable efforts consistent with good business
judgment to preserve intact their current business organizations, keep available
the services of their current officers and employees and preserve their
relationships consistent with past practice with desirable customers, suppliers,
licensors, licensees, distributors and others having business dealings with them
to the end that
<PAGE>
36
their goodwill and ongoing businesses shall be unimpaired in all material
respects at the Effective Time. Except for transactions specifically disclosed
in the SEC Documents, without limiting the generality of the foregoing, the
Company shall not, and shall not permit any of its subsidiaries to (without
Parent's prior written consent, which consent may not be unreasonably withheld):
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect wholly owned subsidiary of the
Company to its parent, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (C)
except as shall be required under currently existing terms of any stock-
based benefit plan, purchase, redeem or otherwise acquire or amend (except
in respect of the Rights as contemplated by Sections 4.01(p) and 6.09) any
shares of capital stock of the Company or any of its subsidiaries or any
other securities thereof or any rights, warrants or options to acquire any
such shares or other securities (other than (x) redemptions, purchases or
other acquisitions required by applicable provisions under Gaming Laws, (y)
issuances or redemptions of capital stock of wholly-owned subsidiaries
occurring between the Company and any of its wholly-owned subsidiaries or
occurring between wholly-owned subsidiaries of the Company and (z)
issuances of capital stock or ownership interests in connection with the
organization of new entities for purposes of business development and
management activities as permitted by this Agreement);
(ii) issue, deliver, sell, pledge or otherwise encumber or amend any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than the
issuance of Company Common Stock upon the exercise of employee stock
options and contingent incentive plans (including with respect to
contingent shares of Company Common Stock) outstanding on the date of this
Agreement in accordance with their present terms and other than the
issuance of Company Common Stock pursuant to the Option Agreement);
<PAGE>
37
(iii) amend its Amended and Restated Articles of Incorporation, By-
laws or other comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
assets that are material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, except (x) purchases of inventory,
furnishings and equipment in the ordinary course of business consistent
with past practice or (y) expenditures consistent with the Company's
current capital budget previously provided to Parent; provided that
--------
transactions of the type referenced in this subparagraph (iv) by the
Company and its subsidiaries shall be permitted (a) to the extent required
under existing agreements or, with respect to projects in Windsor, Canada,
understandings (collectively, "Current Commitments") and (b) in addition to
what is otherwise permitted in this subparagraph (iv), the aggregate amount
that the Company and its subsidiaries may spend or commit to spend in
respect of such transactions (other than Current Commitments) without being
able to cancel or withdraw such commitments absent material penalty or cost
to the Company and its subsidiaries shall not exceed in the aggregate $35
million; and, provided further that any transaction specified by the
-------- -------
immediately preceding proviso shall not be so permitted if the Company
would not be able to enjoy the benefits in respect of the relevant assets,
business, corporation, partnership, joint venture, association or other
business organization or division after consummation of the Offer, the
Merger and the other transactions contemplated by this Agreement and the
Option Agreement or there would be required any additional consents,
approvals, orders or authorizations of, or registrations or filings with,
any Governmental Entity which would delay in any material respect the
consummation of the transactions contemplated by this Agreement and the
Option Agreement; and, provided further that, notwithstanding the foregoing
----------------
limitations, the Company may engage in any projects within that state of
the United States previously discussed by the parties after, to the
<PAGE>
38
extent permitted by law, consultation between the Company and Parent;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets, except
transactions in the ordinary course of business consistent with past
practice;
(vi) (A) other than (1) ordinary course working capital borrowings,
(2) Current Commitments, (3) projects approved prior to the date of this
Agreement by the Board of Directors of the Company, (4) specific projects
referred to in the capital budget of the Company previously provided to
Parent and (5) other incurrences of indebtedness which, in the aggregate,
do not exceed $10 million, incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
the Company or any of its subsidiaries, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing or (B) other
than (v) to the Company or any direct or indirect wholly owned subsidiary
of the Company, (w) advances to employees, suppliers or customers in the
ordinary course of business consistent with past practice, (x) Current
Commitments, (y) projects approved prior to the date of this Agreement by
the Board of Directors of the Company and (z) specific projects referred to
in the capital budget of the Company previously provided to Parent, make
any loans, advances or capital contributions to, or investments in, any
other person;
(vii) make any material tax election or settle or compromise any
material tax liability;
(viii) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, the most recent consolidated financial statements (or
the
<PAGE>
39
notes thereto) of the Company included in the SEC Documents filed and
publicly available prior to the date of this Agreement or incurred in the
ordinary course of business consistent with past practice, or, except in
the ordinary course of business consistent with past practice, waive the
benefits of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement to which the Company or any of its
subsidiaries is a party;
(ix) except as required to comply with applicable law, (A) adopt,
enter into, terminate or amend any Benefit Plan or other arrangement for
the benefit or welfare of any director, officer or current or former
employee, except as described in Section 6.10(e) hereof and except to the
extent necessary to coordinate any such benefit plans with the terms of
this Agreement (including the provisions of the employment agreements
referenced in the last sentence of Section 6.10(a)), (B) increase in any
manner the compensation or fringe benefits of, or pay any bonus to, any
director, officer or employee (except for normal increases or bonuses in
the ordinary course of business consistent with past practice to employees
other than directors, officers or senior management personnel and that, in
the aggregate, do not result in a significant increase in benefits or
compensation expense to the Company and its subsidiaries relative to the
level in effect prior to such action (but in no event shall the aggregate
amount of all such increases exceed 4% of the aggregate annualized
compensation expense of the Company and its subsidiaries reported in the
most recent audited financial statements of the Company included in the SEC
Documents)), (C) pay any benefit not provided for under any Benefit Plan,
(D) except as permitted in clause (B), grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Benefit
Plan (including the grant of stock options, stock appreciation rights,
stock based or stock related awards, performance units or restricted stock,
or the removal of existing restrictions in any Benefit Plans or agreements
or awards made thereunder) or (E) except for the funding of rabbi trusts
for non-qualified retirement benefits to the extent previously approved by
the Board of Directors of the Company or any committee thereof, prior to
the date of this Agreement, take any action to fund or in any other way
secure the payment of
<PAGE>
40
compensation or benefits under any employee plan, agreement, contract or
arrangement or Benefit Plan other than in the ordinary course of business
consistent with past practice; provided, however, that the Company may take
-------- -------
any action described in (A), (C) and (D) above that does not involve the
five most senior officers of the Company and that, taken together, has an
aggregate economic cost to the Company of less than $7,500,000.
(x) make any new capital expenditure or expenditures, other than
capital expenditures not to exceed, in the aggregate, the amounts provided
for capital expenditures (x) in respect of Current Commitments, (y) in
respect of projects approved prior to the date of this Agreement and (z) in
the capital budget of the Company provided to Parent;
(xi) except in the ordinary course of business and except as otherwise
permitted by this Agreement, modify, amend or terminate any contract or
agreement set forth in the SEC Documents to which the Company or any
subsidiary is a party or waive, release or assign any material rights or
claims; or
(xii) authorize any of, or commit or agree to take any of, the
foregoing actions except as otherwise permitted by this Agreement.
(b) Other Actions. The Company shall not, and shall not permit any
--------------
of its subsidiaries to, take any action that would result in (i) any of its
representations and warranties set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the conditions to the Offer set forth in Exhibit A not being satisfied
(subject to the Company's right to take action specifically permitted by Section
5.02).
SECTION 5.02. No Solicitation. (a) The Company shall not, nor shall
----------------
it permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, the Company or any of its subsidiaries to, (i)
solicit or initiate, or encourage the submission of, any takeover proposal or
(ii) participate in any discussions or negotiations regarding, or furnish to any
<PAGE>
41
person any information with respect to, or take any other action to facilitate
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any takeover proposal; provided, however, that, prior to the
-------- -------
acceptance for payment of shares of Company Common Stock pursuant to the Offer,
if in the opinion of the Board of Directors, after consultation with counsel,
such failure to act would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law, the Company may, in response to an
unsolicited takeover proposal, and subject to compliance with Section 5.02(c),
(A) furnish information with respect to the Company to any person pursuant to a
confidentiality agreement and (B) participate in negotiations regarding such
takeover proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
director or executive officer of the Company or any of its subsidiaries, whether
or not such person is purporting to act on behalf of the Company or any of its
subsidiaries or otherwise, shall be deemed to be a breach of this Section
5.02(a) by the Company. For purposes of this Agreement, "takeover proposal"
means any proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a material amount of assets of the Company or any of
its subsidiaries or of over 20% of any class of equity securities (other than
acquisitions of stock by institutional investors in the ordinary course of
business) of the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person beneficially
owning 20% or more of any class of equity securities of the Company or any of
its subsidiaries or which would require approval under any Gaming Law, or any
merger, consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which would
reasonably be expected to impede, interfere with, prevent or materially delay
the Offer or the Merger or which would reasonably be expected to dilute
materially the benefits to Parent of the transactions contemplated hereby.
(b) Except as set forth in this Section 5.02(b), neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Parent or Sub, the
approval or recommendation by such Board of Directors or any such committee of
the Offer, this Agreement or the
<PAGE>
42
Merger, (ii) approve or recommend, or propose to approve or recommend, any
takeover proposal or (iii) enter into any agreement with respect to any takeover
proposal. Notwithstanding the foregoing, in the event prior to the time of
acceptance for payment of shares of Company Common Stock in the Offer if in the
opinion of the Board of Directors, after consultation with counsel, failure to
do so would be inconsistent with its fiduciary duties to the Company's
stockholders under applicable law, the Board of Directors may (subject to the
terms of this and the following sentences) withdraw or modify its approval or
recommendation of the Offer, this Agreement or the Merger, approve or recommend
a competitive proposal, or enter into an agreement with respect to a competitive
proposal, in each case at any time after the second business day following
Parent's receipt of written notice (a "Notice of Competitive Proposal") advising
Parent that the Board of Directors has received a competitive proposal,
specifying the material terms and conditions of such competitive proposal and
identifying the person making such competitive proposal; provided that the
--------
Company shall not enter into an agreement with respect to a competitive proposal
unless the Company shall have furnished Parent with written notice no later than
12:00 noon two business days in advance of any date that it intends to enter
into such agreement. In addition, if the Company proposes to enter into an
agreement with respect to any takeover proposal, it shall concurrently with
entering into such agreement pay, or cause to be paid, to Parent the Expenses
(as defined in Section 6.07(b)) and the Termination Fee (as defined in Section
6.07(b)). For purposes of this Agreement, a "competitive proposal" means any
bona fide take-over proposal to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the shares
of Company Common Stock then outstanding or all or substantially all the assets
of the Company and otherwise on terms which the Board of Directors of the
Company determines in its good faith judgment to be more favorable to the
Company's stockholders than the Offer and the Merger (taking into account any
improvements to the Offer and the Merger proposed by Parent).
(c) In addition to the obligations of the Company set forth in
paragraph (b), the Company shall advise Parent of any request for information or
of any takeover proposal, or any proposal with respect to any takeover proposal,
the material terms and conditions of such request or takeover proposal, and the
identity of the person making any such
<PAGE>
43
takeover proposal or inquiry. The Company will keep Parent fully informed of
the status and details (including amendments or proposed amendments) of any such
request, takeover proposal or inquiry.
(d) Nothing contained in this Section 5.02 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders if, in the opinion of the Board of Directors of the
Company, after consultation with counsel, failure to so disclose would be
inconsistent with its fiduciary duties to the Company's stockholders under
applicable law; provided that the Company does not, except as permitted by
--------
Section 5.02(b) withdraw or modify, or propose to withdraw or modify, its
position with respect to the Offer or the Merger or approve or recommend, or
propose to approve or recommend, a takeover proposal.
SECTION 5.03. New Jersey Trust. In connection with the application
-----------------
for qualification and licensing by Parent with the New Jersey Casino Control
Commission pursuant to the New Jersey Casino Control Act and the rules and
regulations promulgated thereunder, if requested by Parent, the Company shall
execute and deliver a trust agreement prepared by Parent and reasonably
acceptable to the Company and the New Jersey Casino Control Commission and
complying with the requirements of the New Jersey Casino Control Act and the
rules and regulations promulgated thereunder. Not later than the Expiration
Date of the Offer, if requested by Parent, the Company shall deposit all shares
of Caesars New Jersey, Inc. in trust with a trustee qualified by and otherwise
acceptable to the New Jersey Casino Control Commission pursuant to such trust
agreement, all for the purpose of permitting Parent and Sub to hold directly
(and not in trust) the shares of Company Common Stock currently owned by Parent
or its affiliates to be acquired pursuant to the Offer, the Option or the Merger
while Parent's application for qualification and licensing is pending with the
New Jersey Casino Control Commission.
<PAGE>
44
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
SECTION 6.01. Stockholder Meeting; Preparation of the Proxy
---------------------------------------------
Statement. (a) The Company will, as soon as practicable following the
- ----------
acceptance for payment of, and payment for, shares of Company Common Stock by
Sub pursuant to the Offer, duly call, give notice of, convene and hold a meeting
of the holders of the Company Common Stock (the "Stockholders Meeting") if such
meeting is required by applicable law for the purpose of approving this
Agreement and the transactions contemplated by this Agreement. Subject to the
provisions of Section 5.02(b), the Company will, through its Board of Directors,
recommend to its stockholders approval of this Agreement, the Merger and the
other transactions contemplated by this Agreement. At the Stockholders Meeting,
Parent shall cause all of the shares of Company Common Stock then actually or
beneficially owned by Parent, Sub or any of their subsidiaries to be voted in
favor of the Merger. Notwithstanding the foregoing, if Sub or any other
subsidiary of Parent shall acquire at least 80% of the outstanding shares of
Company Common Stock, the parties shall, at the request of Parent, take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the expiration of the Offer without a Stockholders Meeting
in accordance with Section 607.1104 and other applicable provisions of the FBCA.
(b) The Company will, at Parent's request, as soon as practicable
following the expiration of the Offer, prepare and file a preliminary Proxy
Statement with the SEC and will use its best efforts to respond to any comments
of the SEC or its staff and to cause the Proxy Statement to be mailed to the
Company's stockholders as promptly as practicable after responding to all such
comments to the satisfaction of the staff. The Proxy Statement shall comply as
to form in all material respects with the Exchange Act and the rules and
regulations promulgated thereunder and the Proxy Statement, on the date first
mailed to the Company's stockholders and at the time of the Stockholders Meeting
held to vote on approval and adoption of this Agreement, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation is made
<PAGE>
45
by the Company with respect to information supplied by Parent or Sub for
inclusion or incorporation by reference in the Proxy Statement. The Company
will notify Parent promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Proxy Statement or for additional information and will supply Parent with
copies of all correspondence between the Company or any of its representatives,
on the one hand, and the SEC or its staff, on the other hand, with respect to
the Proxy Statement or the Merger. If at any time prior to the Stockholders
Meeting there shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, the Company will promptly prepare and mail to
its stockholders such an amendment or supplement. The Company will not file or
mail any Proxy Statement, or any amendment or supplement thereto, to which
Parent reasonably objects.
SECTION 6.02. Access to Information; Confidentiality. Subject to
---------------------------------------
legal and contractual confidentiality obligations and the attorney-client
privilege, the Company shall afford to Parent, and to Parent's officers,
employees, accountants, counsel, financial advisers and other representatives,
reasonable access during normal business hours during the period prior to the
Effective Time to all the properties, books, contracts, commitments and records
of the Company and its subsidiaries and, during such period, the Company shall
furnish promptly to Parent (a) a copy of each report, schedule, registration
statement and other document filed by it or its subsidiaries during such period
pursuant to the requirements of Federal or state securities laws and (b) all
other information concerning its or its subsidiaries' business, properties and
personnel as Parent may reasonably request. Except as otherwise agreed to by
the Company, unless and until Parent and Sub shall have purchased at least a
majority of the outstanding shares of Company Common Stock pursuant to the
Offer, and notwithstanding termination of this Agreement, Parent will keep, and
will cause its officers, employees, accountants, counsel, financial advisers and
other representatives and affiliates to keep, all Confidential Information (as
defined below) confidential and not to disclose any Confidential Information to
any person other than Parent's or Sub's directors, officers, employees,
affiliates or agents, and then only on a confidential basis; provided, however,
-------- -------
that Parent or Sub may disclose Confidential Information (i) as required by law,
rule, regulation or judicial process, including as required to be disclosed in
connection with the
<PAGE>
46
Offer and the Merger, (ii) to its attorneys, accountants and financial advisors
or (iii) as requested or required by any Governmental Entity. For purposes of
this Agreement, "Confidential Information" shall include all information about
the Company which has been furnished by the Company to Parent or Sub; provided,
--------
however, that Confidential Information does not include information which (x) is
- -------
or becomes generally available to the public other than as a result of a
disclosure by Parent or Sub not permitted by this Agreement, (y) was available
to Parent or Sub on a non-confidential basis prior to its disclosure to Parent
or Sub by the Company or (z) becomes available to Parent or Sub on a non-
confidential basis from a person other than the Company who, to the knowledge of
Parent or Sub, as the case may be, is not otherwise bound by a confidentiality
agreement with the Company or is not otherwise prohibited from transmitting the
relevant information to Parent or Sub. Neither Parent nor any of its affiliates
will use any Confidential Information in any manner detrimental to the Company
or the shareholders of the Company and, in the event of termination of this
Agreement for any reason, Parent shall, and shall cause Sub to, promptly return
all Confidential Information to the Company. Until Parent and Sub shall have
purchased at least a majority of the outstanding shares of Company Common Stock,
the first sentence of this Section 6.02 shall not obligate the Company to afford
to Parent or Parent's officers, employees, accountants, counsel, financial
advisers and other representatives access to (i) personnel of the Company's
subsidiaries and (ii) competitively sensitive information that could assist
Parent in diverting business opportunities from the Company, including customer
information and identities, representatives lists, customer solicitation methods
and other similar information.
SECTION 6.03. Reasonable Efforts; Notification. (a) Upon the terms
---------------------------------
and subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the Offer and the
Merger, and the other transactions contemplated by this Agreement, including (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental
<PAGE>
47
Entities, if any) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity (including in respect of any Gaming Law), (ii) the obtaining
of all necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of any of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, the Company and its Board of Directors shall (i) take
all action necessary to ensure that no state takeover statute or similar statute
or regulation is or becomes applicable to the Offer, the Merger, this Agreement
or any of the other transactions contemplated by this Agreement and (ii) if any
state takeover statute or similar statute or regulation becomes applicable to
the Offer, the Merger, this Agreement or the Option Agreement or any other
transaction contemplated by this Agreement or the Option Agreement, take all
action necessary to ensure that the Offer, the Merger and the other transactions
contemplated by this Agreement or the Option Agreement may be consummated as
promptly as practicable on the terms contemplated by this Agreement and the
Option Agreement and otherwise to minimize the effect of such statute or
regulation on the Offer, the Merger, this Agreement, the Option Agreement and
the other transactions contemplated by this Agreement and the Option Agreement.
(b) The Company shall give prompt notice to Parent of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect
(including in the case of representations or warranties by the Company, the
Company or Parent receiving knowledge of any fact, event or circumstance which
may cause any representation qualified as to the knowledge of the Company to be
or become untrue or inaccurate in any respect) or (ii) the failure by it to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement; provided,
--------
however, that no such notification shall affect the representations, warranties,
- -------
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement. The
<PAGE>
48
Company acknowledges that if after the date of this Agreement the Company or
Parent receives knowledge of any fact, event or circumstance that would cause
any representation or warranty that is conditioned as to the knowledge of the
Company to be or become untrue or inaccurate in any respect, the receipt of such
knowledge shall constitute a breach of the representation or warranty that is so
conditioned as of the date of such receipt.
SECTION 6.04. Stock Option Plans. (a) As soon as practicable
-------------------
following the date of this Agreement, the Board of Directors of the Company (or,
if appropriate, any committee administering the Stock Option Plans (as defined
below)) shall adopt such resolutions or use its best efforts to take such other
actions as are required to provide that (i) each outstanding stock option to
purchase shares of Company Common Stock (a "Stock Option") heretofore granted
under any stock option, stock appreciation rights or stock purchase plan,
program or arrangement or other option agreement or contingent stock grant plan
of the Company (collectively, the "Stock Option Plans") outstanding shall be
accelerated to be fully exercisable prior to the consummation of the Offer, and
the Company shall use its best efforts to assure that any such Stock Options
outstanding immediately prior to the consummation of the Offer (except options
granted to non-employee directors of the Company as of December 8, 1994) shall
be cancelled immediately prior to the consummation of the Offer in exchange for
an amount in cash, payable at the time of such cancellation, equal to the
product of (y) the number of shares of Company Common Stock subject to such
Stock Option immediately prior to the consummation of the Offer and (z) the
excess of the price per share to be paid in the Offer over the per share
exercise price of such Stock Option, (ii) each stock appreciation right ("SAR")
granted under the Stock Option Plans outstanding immediately prior to the
consummation of the Offer shall be cancelled immediately prior to the
consummation of the Offer in exchange for an amount of cash, payable at the time
of such cancellation, equal to the product of (y) the number of shares of
Company Common Stock covered by such SAR and (z) the excess of the price per
share to be paid in the Offer over the appreciation base per share of such SAR;
provided, however, that no such cash payment shall be made with respect to any
- -------- -------
SAR which is related to a Stock Option with respect to which such a cash payment
has been made and (iii) each share of Company Common Stock previously issued in
the form of grants of restricted stock or grants of
<PAGE>
49
contingent shares shall fully vest in accordance with their respective terms.
Any Stock Option or SAR not cancelled in accordance with this paragraph (a)
immediately prior to the consummation of the Offer, shall be cancelled at the
Effective Time in exchange for an amount in cash, payable at the Effective Time,
equal to the amount which would have been paid had such Stock Option or SAR been
cancelled immediately prior to the consummation of the Offer. A listing of all
outstanding Stock Options as of December 16, 1994, showing what portions of such
Stock Options are exercisable as of such date, the dates upon which such Stock
Options expire, and the exercise price of such Stock Options, is set forth in
Schedule 6.04.
(b) All Stock Option Plans shall terminate as of the Effective Time
and the provisions in any other Benefit Plan providing for the issuance,
transfer or grant of any capital stock of the Company or any interest in respect
of any capital stock of the Company shall be deleted as of the Effective Time,
and the Company shall use its best efforts to ensure that following the
Effective Time no holder of a Stock Option or any participant in any Stock
Option Plan shall have any right thereunder to acquire any capital stock of the
Company, Parent or the Surviving Corporation, except as provided in Section
6.04(a).
(c) Parent and Sub agree that the Company, in its sole discretion,
may defer the lapsing of restrictions on some or all of the restricted shares of
Company Common Stock granted under the Company's employee stock plans which
might otherwise occur upon the consummation of the Offer to the day immediately
following the consummation of the Offer or to accelerate such restricted stock
to provide sufficient time for the tender thereof into the Offer.
SECTION 6.05. Indemnification and Insurance. (a) The
------------------------------
indemnification obligations set forth in the Company's Amended and Restated
Articles of Incorporation and by-laws on the date of this Agreement shall
survive the Merger and shall not be amended, repealed or otherwise modified for
a period of six years after the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who on or prior to the
Effective Time were directors, officers, employees or agents of the Company (the
"Indemnified Parties").
(b) For six years from the Effective Time, the Surviving Corporation
shall, unless Parent agrees in writing
<PAGE>
50
to guarantee the indemnification obligations set forth in Section 6.05(a),
either (x) maintain in effect the Company's current directors' and officers'
liability insurance covering those persons who are covered on the date of this
Agreement by the Company's directors' and officers' liability insurance policy
(a copy of which will be made available to Parent); provided, however, that in
-------- -------
no event shall the Surviving Corporation be required to expend in any one year
an amount in excess of 150% of the annual premiums currently paid by the Company
for such insurance which the Company represents to be $795,000 for the twelve-
month period ended March 17, 1995; and, provided, further, that if the annual
-------- -------
premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount or (y) cause the Parent's
directors' and officers' liability insurance then in effect to cover those
persons who are covered on the date of this Agreement by the Company's
directors' and officers' liability insurance policy with respect to those
matters covered by the Company's directors' and officers' liability policy.
(c) This Section 6.05 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all successors
and assigns of Parent and the Surviving Corporation.
SECTION 6.06. Directors. Promptly upon the acceptance for payment
----------
of, and payment for, any shares of Company Common Stock by Sub pursuant to the
Offer, Sub shall be entitled to designate such number of directors on the Board
of Directors of the Company as will give Sub, subject to compliance with Section
14(f) of the Exchange Act, control of a majority of such directors, and the
Company and its Board of Directors shall, at such time, take any and all such
action needed to cause Sub's designees to be appointed to the Company's Board of
Directors (including to cause directors to resign). Subject to applicable law,
the Company shall take all action requested by Parent which is reasonably
necessary to effect any such election, including mailing to its stockholders the
Information Statement containing the information required by Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company agrees
to make such mailing with the mailing of the Schedule 14D-9 so long as Sub shall
have provided to the
<PAGE>
51
Company on a timely basis all information required to be included in the
Information Statement with respect to Sub's designees.
SECTION 6.07. Fees and Expenses. (a) Except as provided below, all
------------------
fees and expenses incurred in connection with the Offer, the Merger, this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such fees or expenses, whether or not the Offer or the Merger is
consummated.
(b) The Company shall pay, or cause to be paid, in same day funds to
Parent the sum of (x) all of Parent's reasonably documented out-of-pocket
expenses in an amount up to but not to exceed $10,000,000 (the "Expenses") and
(y) $50,000,000 (the "Termination Fee") upon demand if (i) Parent or Sub
terminates this Agreement under Section 8.01(e); provided, however, that Parent
-------- -------
shall be entitled to only the Expenses where Parent or Sub terminates this
Agreement under Section 8.01(e) as a result of the occurrence of any event set
forth in clause (i) of paragraph (d) of Exhibit A or, as it relates to clause
(i) of paragraph (d) of Exhibit A, clause (iii) of such paragraph (d); provided
--------
further, however, that, if the Agreement is terminated as contemplated by the
- ------- -------
immediately preceding proviso and the Company subsequently consummates or enters
into an agreement relating to a competitive proposal within 12 months of such
termination, the Company shall also pay to Parent the Termination Fee, (ii) the
Company terminates this Agreement pursuant to Section 8.01(f) or (iii) prior to
any termination of this Agreement, a takeover proposal shall have been made and
within 12 months of such termination, a transaction constituting a takeover
proposal is consummated or the Company enters into an agreement with respect to,
or approves or recommends a takeover proposal. The amount of Expenses so
payable shall be the amount set forth in an estimate delivered by Parent,
subject to upward or downward adjustment (not to be in excess of the amount set
forth in clause (x) above) upon delivery of reasonable documentation therefor.
SECTION 6.08. Public Announcements. Parent and Sub, on the one hand,
---------------------
and the Company, on the other hand, will consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release or other public statements with respect to the transactions contemplated
by this Agreement, including the
<PAGE>
52
Offer and the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange or national securities quotation
system. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
SECTION 6.09. Rights Agreement. The Board of Directors of the
-----------------
Company shall take all further action (in addition to that referred to in
Section 4.01(p)) reasonably requested in writing by Parent in order to render
the Rights or any similar instrument inapplicable to the Offer, the Merger, the
Option Agreement and the other transactions contemplated by this Agreement.
Except as requested in writing by Parent, during the term of this Agreement, the
Board of Directors of the Company shall not (i) amend the Rights Agreement or
(ii) take any action with respect to, or make any determination under, the
Rights Agreement (including a redemption of the Rights) including any action to
facilitate a takeover proposal; provided that any of such actions may be taken
--------
simultaneously with entering into an agreement pursuant to Section 5.02(b).
SECTION 6.10. Benefit Plans. (a) Parent shall cause the Surviving
--------------
Corporation to take such actions as are necessary so that, for a period of not
less than one year after the Effective Time, nonunion employees of the Company
and its subsidiaries who continue their employment after the Effective Time will
be provided employee compensation and other benefits which in the aggregate are
at least generally comparable to those provided to such employees as of the date
hereof; provided, that it is understood that after the Effective Time, subject
--------
to the provisions of Section 6.10(d), (e) and (f) hereof and to the last
sentence of this Section 6.10(a), (x) neither Parent nor the Surviving
Corporation will have any obligation to issue or adopt any plans or arrangements
to provide for the issuance of shares of capital stock, warrants, options, stock
appreciation rights or other rights in respect of any shares of capital stock of
any entity or any securities convertible or exchangeable into such shares
pursuant to any such plan or program, (y) nothing herein shall require the
Surviving Corporation to maintain any particular plan or arrangement and (z)
nothing herein shall prevent or preclude the Surviving Corporation from
continuing any requirements for
<PAGE>
53
employee contributions under any employee benefit plans in the same proportions
as the employee-paid portion under such plans constituted prior to the Effective
Time. Parent, Sub and the Company agree that, prior to the acquisition of
shares of Company Common Stock pursuant to the Offer, Parent and the Company
will enter into revised employment agreements with the Chief Executive Officer
and President of the Company in the respective forms of agreements set forth in
Schedule 6.10(a) hereto.
(b) It is Parent's current intention that, following the first
anniversary of the Effective Time, Parent will provide employee compensation and
other benefits for employees of the Company and its subsidiaries which are at
least generally comparable in the aggregate to the employee compensation and
other benefits for other employees of Parent and its subsidiaries.
(c) Parent will cause the Surviving Corporation to recognize all
service credited to each such employee by the Company through the Effective Time
for purposes of eligibility (including for enhanced vacation) and vesting under
any employee benefit plan provided by the Surviving Corporation for the benefit
of such employees.
(d) Nothing in this Section 6.10 is intended to cancel or modify any
obligations of the Company which by their terms and applicable law extend beyond
the Effective Time. It is understood, however, that Stock Options, stock
appreciation rights and restricted and contingent stock will be dealt with in
accordance with Section 3.01(c) hereof and Section 6.04 hereof.
(e) The Company's two Executive Security Plans shall remain in effect
until one year after the Effective Time (for all purposes, including, without
limitation, benefit accrual), but there shall be no obligation on the Parent,
Sub or the Surviving Corporation to add new participants to such plans following
the Effective Time. It is understood that the 1985 Executive Security Plan
provides an offset for the actuarial equivalent of amounts received from any
other pension plan adopted by the Company (which would include the Parent's tax-
qualified pension plan if it were adopted by the Company). It is agreed among
the parties that the Company may, in its discretion, amend such offset so that
it does not apply to the Company's 401(k) Retirement Savings Plan. This Section
6.10(e) shall not be
<PAGE>
54
deemed to require any duplication of benefits provided by such Executive
Security Plans and any other pension plans.
(f) In calculating the annual bonus under the Company's Senior
Officers Combined Incentive Plan and Corporate Officers and Key Corporate
Personnel Plan for the current fiscal year of the Company, charges or equity
adjustments related to or arising from the transactions contemplated by this
Agreement, including with respect to the lapsing of restrictions on restricted
shares of Company Common Stock, shall not be taken into account in computing
"Plan Income" and "Plan Net Worth", as defined in such plans. This Section
6.10(f) shall not be deemed to indicate any commitment to continuing such plans
beyond the Effective Time. The principles stated in the immediately preceding
sentence shall be applied equitably, as between the Company and the Parent, with
respect to both Plan Income and Plan Net Worth.
SECTION 6.11. Title Policies. The Company agrees that, prior to the
---------------
consummation of the Offer, it will use its reasonable efforts to cause such
officers of the Company and its Significant Subsidiaries, as Parent's or Sub's
Title Insurer may reasonably require, to execute such reasonable and customary
affidavits as shall permit such Title Insurer to issue an endorsement to its
title insurance policies insuring title to the real properties owned or leased
by the Company or any of its Significant Subsidiaries to the effect that the
Title Insurer will not claim as a defense under any such policy failure of
insured to disclose to the Title Insurer prior to the date of the relevant
policy any defects, liens, encumbrances or adverse claims not shown by public
records and known to the insured (but not known to Parent or Sub) prior to the
Effective Time.
SECTION 6.12. Transfer Taxes. All liability for transfer or other
---------------
similar taxes arising out of or related to the sale of the Company Common Stock
to the Sub, or the consummation of any other transaction contemplated by this
Agreement, and due to the property owned by the Company or any of its
subsidiaries or affiliates ("Transfer Taxes") shall be borne by the Company, and
the Company shall file or cause to be filed all returns relating to such
Transfer Taxes which are due, and, to the extent appropriate or required by law,
the stockholders of the Company shall cooperate with respect to the filing of
such returns.
<PAGE>
55
SECTION 6.13. Regulatory Matters. In connection with subsection (i)
-------------------
of the first sentence of Section 6.03(a), Parent shall, and shall cause its
subsidiaries to (and shall use its reasonable efforts to cause its affiliates
other than subsidiaries to), if it is necessary to obtain any regulatory
approval for this Agreement, disassociate themselves from any person or persons
deemed, or reasonably likely to be deemed, unacceptable by a Governmental Entity
with authority to administer Gaming Laws and, in the case of any such person who
is a nominee to serve as a director of Parent or any subsidiary of Parent,
Parent shall, and shall cause the relevant subsidiary or subsidiaries to,
replace any such director nominee with a suitable substitute nominee. In
connection with subsection (i) of the first sentence of Section 6.03(a), Parent
agrees that it shall use its reasonable efforts to cause the trust arrangements
described in either clause (iii)(B)(x) or (iii)(B)(y) of the first paragraph of
Exhibit A to be in full force and effect and further agrees that, if the
requisite approvals are obtained from the New Jersey Casino Control Commission,
it will place shares of Company Common Stock or shares of common stock of
Caesars New Jersey, Inc., as applicable, in trust as contemplated by such
clauses.
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
SECTION 7.01. Conditions to Each Party's Obligation To Effect the
---------------------------------------------------
Merger. The respective obligation of each party to effect the Merger is subject
- -------
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. If required by applicable law, this
---------------------
Agreement shall have been approved and adopted by the affirmative vote of
the holders of a majority of all shares of Company Common Stock entitled to
be cast in accordance with applicable law and the Company's Amended and
Restated Articles of Incorporation; provided that Parent and Sub shall vote
--------
all their shares of Company Common Stock in favor of the Merger.
(b) No Injunctions or Restraints. No statute, rule, regulation,
-----------------------------
executive order, decree, temporary
<PAGE>
56
restraining order, preliminary or permanent injunction or other order
enacted, entered, promulgated, enforced or issued by any Governmental
Entity or other legal restraint or prohibition preventing the consummation
of the Merger or the transactions contemplated thereby shall be in effect;
provided, however, that, in the case of a decree, injunction or other
-------- -------
order, each of the parties shall have used reasonable efforts to prevent
the entry of any such injunction or other order and to appeal as promptly
as possible any decree, injunction or other order that may be entered.
(c) Purchase of Shares of Company Common Stock. Sub shall have
-------------------------------------------
previously accepted for payment and paid for shares of Company Common Stock
pursuant to the Offer.
SECTION 7.02. Condition to Obligations of Parent and Sub. The
-------------------------------------------
obligations of Parent and Sub to effect the Merger are further subject to the
condition that all Stock Options and all SARs shall have been cancelled.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 8.01. Termination. This Agreement may be terminated at any
------------
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if (i) as a result of the failure,
occurrence or existence of any of the conditions set forth in Exhibit A to
this Agreement the Offer shall have terminated or expired in accordance
with its terms without Sub having accepted for payment any shares of
Company Common Stock pursuant to the Offer or (ii) Sub shall not have
accepted for payment any shares of Company Common Stock pursuant to the
Offer by June 19, 1995; provided, however, that the right to terminate this
-------- -------
Agreement pursuant to this Section 8.01(b) shall not be available to either
party if its failure to perform any of its obligations under
<PAGE>
57
this Agreement results in the failure, occurrence or existence of any such
condition;
(c) by either Parent or the Company if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance
for payment of, or payment for, shares of Company Common Stock pursuant to
the Offer or the Merger and such order, decree or ruling or other action
shall have become final and nonappealable;
(d) by Parent or Sub prior to the purchase of shares of Company Common
Stock pursuant to the Offer in the event of a breach by the Company of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set forth
in paragraph (e) or (f) of Exhibit A and (B) cannot be or has not been
cured within 20 days after the giving of written notice to the Company;
(e) by Parent or Sub if either Parent or Sub is entitled to terminate
the Offer as a result of the occurrence of any event set forth in paragraph
(d) of Exhibit A to this Agreement;
(f) by the Company in connection with entering into a definitive
agreement in accordance with Section 5.02(b), provided it has complied with
all provisions thereof, including the notice provisions therein, and that
it makes simultaneous payment of the Expenses and the Termination Fee; or
(g) by the Company, if Sub or Parent shall have breached in any
material respect any of their respective representations, warranties,
covenants or other agreements contained in this Agreement, which failure to
perform is incapable of being cured or has not been cured within 20 days
after the giving of written notice to Parent or Sub, as applicable, except,
in any case, such failures which are not reasonably likely to affect
adversely Parent's or Sub's ability to complete the Offer or the Merger.
SECTION 8.02. Effect of Termination. In the event of termination of
----------------------
this Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall
<PAGE>
58
forthwith become void and have no effect, without any liability or obligation on
the part of Parent, Sub or the Company, other than the provisions of Section
4.01(q), Section 4.02(d), the last four sentences of Section 6.02, Section 6.07,
this Section 8.02 and Article IX and except to the extent that such termination
results from the wilful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the
----------
parties at any time before or after any required approval of matters presented
in connection with the Merger by the stockholders of the Company; provided,
--------
however, that after any such approval, there shall not be made any amendment
- -------
that by law requires further approval by such stockholders without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 8.04. Extension; Waiver. At any time prior to the Effective
------------------
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of those rights.
SECTION 8.05. Procedure for Termination, Amendment, Extension or
--------------------------------------------------
Waiver. A termination of this Agreement pursuant to Section 8.01, an amendment
- -------
of this Agreement pursuant to Section 8.03 or an extension or waiver pursuant to
Section 8.04 shall, in order to be effective, require in the case of Parent, Sub
or the Company, action by its Board of Directors or the duly authorized designee
of its Board of Directors; provided, however, that in the event that Sub's
-------- -------
designees are appointed or elected to the Board of Directors of the Company as
provided in Section 6.06, after the acceptance for payment of shares of Company
Common Stock pursuant to the Offer and prior to the Effective Time, the
<PAGE>
59
affirmative vote of a majority of the directors of the Company that were not
designated by Parent or Sub shall be required by the Company to (i) amend or
terminate this Agreement by the Company, (ii) exercise or waive any of the
Company's rights or remedies under this Agreement, (iii) extend the time for
performance of Parent's and Sub's respective obligations under this Agreement or
(iv) take any action to amend or otherwise modify the Company's Amended and
Restated Articles of Incorporation or By-laws.
ARTICLE IX
GENERAL PROVISIONS
------------------
SECTION 9.01. Nonsurvival of Representations. None of the
-------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time or, in the case of
the Company, shall survive the acceptance for payment of, and payment for,
shares of Company Common Stock by Sub pursuant to the Offer. This Section 9.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time of the Merger.
SECTION 9.02. Notices. All notices, requests, claims, demands and
--------
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019
Facsimile: (212) 258-1037
Attention: Richard S. Ward, Esq.
<PAGE>
60
with copies to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Facsimile: (212) 765-1072
Attention: Philip A. Gelston, Esq.
(b) if to the Company, to
Caesars World, Inc.
1801 Century Park East
Los Angeles, California 90067
Facsimile: (310) 552-9254
Attention: Philip L. Ball, Esq.
with copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Facsimile: (212) 735-2000
Attention: Morris J. Kramer, Esq.
SECTION 9.03. Definitions. For purposes of this Agreement:
------------
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "competitive proposal" has the meaning assigned thereto in
Section 5.02(b);
(c) "indebtedness" means, with respect to any person, without
duplication, (A) all obligations of such person for borrowed money, or with
respect to deposits or advances of any kind, (B) all obligations of such
person evidenced by bonds, debentures, notes or similar instruments, (C)
all obligations of such person upon which interest charges are customarily
paid (other than trade payables incurred in the ordinary course of
<PAGE>
61
business), (D) all obligations of such person under conditional sale or
other title retention agreements relating to property purchased by such
person, (E) all obligations of such person issued or assumed as the
deferred purchase price of property or services (excluding obligations of
such person to creditors for raw materials, inventory, services and
supplies incurred in the ordinary course of such person's business), (F)
all lease obligations of such person capitalized on the books and records
of such person, (G) all obligations of others secured by any lien on
property or assets owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, (H) all obligations of such
person under interest rate, or currency or commodity hedging, swap or
similar derivative transactions (valued at the termination value thereof),
(I) all letters of credit issued for the account of such person (excluding
letters of credit issued for the benefit of suppliers or lessors to support
accounts payable to suppliers incurred in the ordinary course of business)
and (J) all guarantees and arrangements having the economic effect of a
guarantee of such person of any indebtedness of any other person.
(d) "knowledge" of the Company means, in each case in this Agreement,
any Schedule hereto or any certificate delivered pursuant hereto in which
the Company makes a representation or warranty based on the "knowledge" of
the Company, the Company represents and warrants only as to the actual
knowledge of the Chairman of the Board, the Chief Financial Officer, the
General Counsel and the President of the Company.
(e) "lien" means any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge or claim of any nature whatsoever of, on, or with respect to any
asset, property or property interest; provided, however, that the term
-------- -------
"lien" shall not include (i) liens for water and sewer charges and current
taxes not yet due and payable or being contested in good faith, (ii)
mechanics', carriers', workers', repairers', materialmens', warehousemens'
and other similar liens arising or incurred in the ordinary course of
business
<PAGE>
62
or (iii) all liens approved in writing by the other party hereto.
(f) "material adverse change" or "material adverse effect" means, when
used in connection with the Company or Parent, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
properties, assets, financial condition or results of operations of such
party and its subsidiaries, taken as a whole, except that (i) fluctuations
in the earnings or financial condition of the Company during the period
from October 31, 1994 to consummation of the Offer that result from
winnings by high-wagering customers so long as the Company has been
operating on a basis consistent with its existing policies concerning
extensions of credit and setting of gambling limits and so long as the
aggregate levels of wagering by high-wagering customers are consistent with
the past experience of the Company, (ii) any material adverse effect
resulting, directly or indirectly, from the prospective ownership of
Company Common Stock by Parent or its affiliates, or (iii) any change which
adversely affects the gaming industry in Nevada or the gaming industry in
New Jersey, shall not be deemed to be a "material adverse change" or a
"material adverse effect";
(g) "ordinary course of business", when used with respect to the
Company, in addition to its usual and customary meaning, shall be deemed to
include transactions in the ordinary course of business consistent with
prior practice pertaining to currently ongoing business development and
managerial activities, including activities conducted or proposed to be
conducted in the jurisdictions set forth in Schedule 9.03(g), so long as
the scope and nature of such business development and managerial activities
are consistent with the Company's past practice.
(h) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
(i) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its
<PAGE>
63
Board of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person; and
(j) "takeover proposal" has the meaning assigned thereto in Section
5.02(a).
SECTION 9.04. Interpretation. When a reference is made in this
---------------
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The Option Agreement and the consummation of
the transactions contemplated by such Option Agreement are transactions
contemplated by this Agreement. To the extent any restriction on the activities
of the Company or its subsidiaries under the terms of this Agreement, including
with respect to any negative pledge or other restriction on the ability of the
Company to dispose of stock of any Nevada subsidiary, requires prior approval
under any Gaming Law, such restriction shall be of no force or effect unless and
until such approval is obtained. If any provision of this Agreement is illegal
or unenforceable under any Gaming Law, such provision shall be void and of no
force or effect.
SECTION 9.05. 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 counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. This
-----------------------------------------------
Agreement and the Option Agreement constitute the entire agreements, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of these agreements and, except
for the provisions of Article III, the last sentence of Section 6.10(a) and
Sections 6.04 and 6.05, are not intended to confer upon any person other than
the parties any rights or remedies hereunder.
<PAGE>
64
SECTION 9.07. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
--------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY APPLICABLE CONFLICTS OF LAW, EXCEPT TO THE EXTENT THE FBCA SHALL
BE HELD TO GOVERN THE TERMS OF THE MERGER.
SECTION 9.08. Assignment. Neither this Agreement nor any of the
-----------
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that Sub may assign, in
its sole discretion, any of or all its rights, interests and obligations under
this Agreement to Parent or to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Sub of any of its obligations under
this Agreement. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 9.09. Enforcement. The parties agree that irreparable damage
------------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or California or in New York or California
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any Federal court
located in the State of New York or California or any New York or California
state court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions
<PAGE>
65
contemplated by this Agreement in any court other than a Federal or state court
sitting in the State of New York or California.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
ITT CORPORATION,
by
/s/ Richard S. Ward
------------------------------
Name: Richard S. Ward
Title: Executive V.P.,
General Counsel
ITT FLORIDA ENTERPRISES INC.,
by
/s/ Richard S. Ward
------------------------------
Name: Richard S. Ward
Title: Executive V.P.,
General Counsel
CAESARS WORLD, INC.,
by
/s/ Roger Lee
-------------------------------
Name: Roger Lee
Title: Senior Vice
President, Finance
& Administration
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
-----------------------
Notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered shares of Company
Common Stock after the termination or withdrawal of the Offer), to pay for any
shares of Company Common Stock tendered pursuant to the Offer unless, (i) there
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer such number of shares of Company Common Stock which would constitute a
majority of the outstanding shares (determined on a fully diluted basis) of
Company Common Stock (the "Minimum Condition"), (ii) any waiting period under
the HSR Act applicable to the purchase of shares of Company Common Stock
pursuant to the Offer shall have expired or been terminated and (iii) (A) all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any Governmental Entity with jurisdiction in respect of Gaming
Laws (other than New Jersey) required or necessary in connection with the Offer,
the Merger and this Agreement and the transactions contemplated by this
Agreement (including the changes in the composition of the Board of Directors of
the Company) shall have been obtained and shall be in full force and effect and
(B) in the case of the New Jersey Casino Control Act and the rules and
regulations promulgated thereunder, either, at the option of Parent, (x) as
contemplated by Section 5.03, all shares of Caesars New Jersey, Inc. shall have
been deposited in trust with a trustee qualified and otherwise acceptable to the
New Jersey Casino Control Commission and the transactions and arrangements
contemplated by Section 5.03 shall be in full force and effect and, as a result,
neither Parent nor Sub will be required pursuant to the requirements of the New
Jersey Casino Control Act and the rules and regulations promulgated thereunder
to deposit or place in trust any of the shares of Company Common Stock currently
owned by Parent or its affiliates or to be acquired pursuant to the Offer or (y)
(1) the New Jersey Casino Control Commission shall have approved a form of trust
agreement in form and substance reasonably satisfactory to Parent (including in
respect of control by Parent of the Company and its subsidiaries) in respect of
a trust arrangement for the shares of Company Common Stock to be acquired
pursuant to the Offer and the Merger pending final qualification of Parent to
hold a casino license under the New Jersey Casino Control Act and
<PAGE>
the rules and regulations thereunder, (2) a trustee qualified and otherwise
acceptable to the New Jersey Casino Control Commission and Parent in respect of
such trust arrangement for the shares of Company Common Stock to be acquired
pursuant to the Offer and the Merger shall have been appointed or designated and
(3) the directors of Sub shall have been qualified on a permanent or temporary
basis to serve as directors of a company (including the Company) that either
directly, or through its subsidiaries, holds a casino license under the New
Jersey Casino Control Act and the rules and regulations thereunder.
Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or, subject as aforesaid, to pay for
any shares of Company Common Stock not theretofore accepted for payment or paid
for, and may terminate the Offer if, at any time on or after the date of this
Agreement and before the acceptance of such shares for payment or the payment
therefor, any of the following conditions exists (other than as a result of any
action or inaction of Parent or any of its subsidiaries which constitutes a
breach of this Agreement):
(a) there shall be instituted or pending any suit, action or
proceeding (in the case of a suit, action or proceeding by a person other
than a Governmental Entity, such suit, action or proceeding having a
substantial likelihood of success or, in the case of a suit, action or
proceeding by a Governmental Entity, such suit, action or proceeding having
a reasonable likelihood of success), (i) challenging the acquisition by
Parent or Sub of any shares of Company Common Stock under the Offer,
seeking to restrain or prohibit the making or consummation of the Offer or
the Merger, or seeking to obtain from the Company, Parent or Sub any
damages that are material in relation to the Company and its subsidiaries
taken as whole, (ii) seeking to prohibit or materially limit the ownership
or operation by the Company, Parent or any of their respective subsidiaries
of a material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a
whole, or to compel the Company or Parent to dispose of or hold separate
any material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a
whole, as a result of the Offer or any of the other transactions
contemplated by this Agreement, (iii) seeking to impose material
limitations on the
<PAGE>
ability of Parent or Sub to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock accepted for payment
pursuant to the Offer including, without limitation, the right to vote such
Company Common Stock on all matters properly presented to the stockholders
of the Company or (iv) seeking to prohibit Parent or any of its
subsidiaries from effectively controlling in any material respect the
business or operations of the Company and its subsidiaries, taken as a
whole;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
Governmental Entity or court, other than the application to the Offer or
the Merger of applicable waiting periods under the HSR Act, that is
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a)
above;
(c) there shall have occurred any material adverse change (or any
development that, insofar as reasonably can be foreseen, is reasonably
likely to result in any material adverse change) in the business,
properties, assets, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, except that (i)
fluctuations in the earnings or financial condition of the Company during
the period from October 31, 1994 to consummation of the Offer that result
from winnings by high-wagering customers so long as the Company has been
operating on a basis consistent with its existing policies concerning
extensions of credit and setting of gambling limits and so long as
aggregate levels of wagering by high-wagering customers are consistent with
the past experience of the Company, (ii) any material adverse effect
resulting, directly or indirectly, from the prospective ownership of
Company Common Stock by Parent or its affiliates, or (iii) any change which
adversely affects the gaming industry in Nevada or the gaming industry in
New Jersey, shall not be deemed to be a material adverse change;
(d) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Parent or Sub its
approval or recommendation of the Offer, the Merger or this
<PAGE>
Agreement, or approved or recommended any takeover proposal, (ii) the
Company shall have entered into any agreement with respect to any
competitive proposal in accordance with Section 5.02(b) of this Agreement
or (iii) the Board of Directors of the Company or any committee thereof
shall have resolved to take any of the foregoing actions;
(e) any of the representations and warranties of the Company set forth
in this Agreement that are qualified as to materiality shall not be true
and correct and any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case at the date of this Agreement and at the scheduled expiration of the
Offer;
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under this Agreement;
(g) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities (excluding any coordinated
trading halt triggered solely as a result of a specified decrease in a
market index), (ii) any decline in the New York Stock Exchange Composite
Index by an amount in excess of 33% measured from the close of business on
December 16, 1994, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iv) any
limitation (whether or not mandatory) by any Governmental Entity on, or
other event that materially affects, the extension of credit by banks or
other lending institutions or (v) in case of any of the foregoing existing
on the date of this Agreement, material acceleration or worsening thereof;
(h) the Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Sub and Parent
and may, subject to the terms of the Agreement, be waived by Sub and Parent in
whole or in part at any time and from time to time in their sole discretion. The
failure by Parent or Sub at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right, the waiver of any such right
with respect to particular facts and circumstances shall not be deemed a waiver
with respect to any other facts and circumstances and
<PAGE>
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
<PAGE>
EXHIBIT (2)
CONFORMED COPY
OPTION AGREEMENT dated as of December 19, 1994, by and among
ITT CORPORATION, a Delaware corporation ("Parent"), ITT FLORIDA
ENTERPRISES INC., a Florida corporation and a wholly owned
subsidiary of Parent ("Sub"), and CAESARS WORLD, INC., a Florida
corporation (the "Company").
WHEREAS Parent, Sub and the Company propose to enter into an Agreement
and Plan of Merger of even date herewith (the "Merger Agreement") providing for
the making of a cash tender offer (the "Offer") by the Sub for shares of Common
Stock, par value $.10 per share, of the Company (the "Common Stock") and the
merger of the Company and Sub; and
WHEREAS as a condition to their willingness to enter into the Merger
Agreement, Parent and Sub wish to have the option set forth herein to purchase,
under certain circumstances, shares of Common Stock from the Company.
NOW, THEREFORE, to implement the foregoing and in consideration of the
mutual agreements contained herein and for other consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.01. Definitions. As used in this Agreement, the following
------------
terms shall have the following meanings:
"Affiliate" has the meaning assigned to the term "affiliate" in the
---------
Merger Agreement.
"Closing Date" has the meaning assigned to such term in the Merger
------------
Agreement.
"Common Stock" has the meaning assigned to such term above.
------------
<PAGE>
2
"Exercise Closing" has the meaning assigned to such term in Section
----------------
2.02(b).
"Expiration Date" means the earliest of (i) the Closing Date and (ii)
---------------
the date the Merger Agreement is validly terminated by the Company pursuant to
Section 8.01(g) of the Merger Agreement due to a material breach by Parent or
Sub of their respective representations, warranties, covenants or other
agreements under the Merger Agreement.
"lien" has the meaning assigned to such term in the Merger Agreement.
----
"Merger Agreement" has the meaning assigned to such term above.
----------------
"Offer" has the meaning assigned to such term in the Merger Agreement.
-----
"Option" has the meaning set forth in Section 2.01.
------
"Option Exercise Period" means the period commencing with the first
----------------------
occurrence of a Trigger Event and ending with the Expiration Date.
"person" has the meaning assigned to the term "person" in the Merger
------
Agreement.
"Shares" has the meaning set forth in Section 2.01.
------
"Subsidiary" has the meaning assigned to the term "subsidiary" in the
----------
Merger Agreement.
"Trigger Event" means Parent, Sub or any other Affiliate of Parent
-------------
shall have accepted Shares for payment pursuant to the Offer.
SECTION 1.02. Interpretation. The rules of interpretation set forth
--------------
in Section 9.04 of the Merger Agreement shall apply to this Agreement, and the
provisions thereof shall be deemed to be incorporated by reference herein.
<PAGE>
3
ARTICLE II
THE OPTION
----------
SECTION 2.01. Grant of Option. The Company hereby grants to Sub an
---------------
irrevocable option (the "Option") to purchase, on the terms and subject to the
conditions set forth herein, up to 5,000,000 newly issued shares of Common
Stock, plus all shares of Common Stock held in treasury (collectively, the
"Shares"). All of such Shares will be duly authorized, validly issued, fully
paid and non-assessable and not subject to preemptive rights.
SECTION 2.02. Exercise of Option. (a) The Option may be exercised
------------------
by Sub (or its designee, which designee must be Parent or a direct or indirect
wholly owned Subsidiary of Parent), in whole or in part, at any time, or from
time to time, during the Option Exercise Period.
(b) In order for Sub to exercise the Option, Sub shall give written
notice to the Company of such exercise, specifying the number of Shares to be
purchased (and the denominations of the share certificate or certificates to be
issued), whether Sub and/or a designee of Sub will be purchasing the Shares and
the place, time and date of the closing of such purchase (the "Exercise
Closing"), which date shall not be less than one business day nor more than ten
business days from the date on which such notice is delivered.
(c) At each Exercise Closing, the Company shall deliver to Sub (or
its designee) all of the Shares to be purchased by delivery of a certificate or
certificates evidencing such Shares in the denominations designated by Sub in
the notice required under Section 2.02(b).
SECTION 2.03. Purchase Price; Payment. In the event Sub exercises
------------------------
the Option, Sub (or, at Sub's option, its designee) shall, at the related
Exercise Closing, deliver by wire transfer to an account designated at least one
business day in advance of such Exercise Closing an amount equal to the product
of (x) $67.50 and (y) the number of Shares purchased at such closing.
SECTION 2.04. Reservation of Shares. The Company has reserved, and
---------------------
will keep reserved, for issuance (in the case of newly issued Shares) and
delivery (in the case of treasury Shares) hereunder the maximum number of Shares
that
<PAGE>
4
would be issuable and deliverable, as the case may be, from time to time if the
Option were exercised in full, in each case free and clear of all liens.
SECTION 2.05. Adjustment Upon Changes in Capitalization. In the
-----------------------------------------
event of any change in the number (or conversion or exchange) of issued and
outstanding shares of Common Stock by reason of any stock dividend, split-up,
merger, recapitalization, combination, exchange of shares, spin-off or other
change in the corporate or capital structure of the Company which could have the
effect of diluting or otherwise diminishing Sub's rights hereunder (including
any issuance of Common Stock or other equity security of the Company at a price
below the fair value thereof), the number and kind of Shares subject to the
Option shall be appropriately adjusted so that Sub shall receive upon exercise
(or, if such a change occurs between exercise and the related Exercise Closing,
upon such Exercise Closing) of the Option the number and kind of Shares or other
securities or property that Sub would have received in respect of the Shares
that Sub is entitled to purchase upon exercise of the Option if the Option had
been exercised (or the purchase thereunder had been consummated, as the case may
be) immediately prior to such event. The rights of Sub under this Section shall
be in addition to, and shall in no way limit, its rights against the Company for
breach of the Merger Agreement.
ARTICLE III
GENERAL PROVISIONS
------------------
SECTION 3.01. Further Assurances. From time to time, at any of the
-------------------
other parties' request and without further consideration, each party hereto
shall execute and deliver such additional documents, transfers, assignments,
endorsements, consents and other instruments and take all such further action as
may be necessary or desirable to consummate the transactions contemplated by
this Agreement, including to vest in Sub (or its designee hereunder) thereof
good title to any Shares purchased hereunder. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most
<PAGE>
5
expeditious manner practicable, the Option, and the transactions contemplated by
this Agreement.
SECTION 3.02. Notices. All notices, requests, claims, demands and
--------
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party and shall be specified by like notice):
(a) If to Parent or Sub, to:
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019-5049
Facsimile: (212) 258-1037
Attention: Richard S. Ward, Esq.
with copies to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Facsimile: (212) 474-3700
Attention: Philip A. Gelston, Esq.
(b) If to the Company, to:
Caesars World, Inc.
1801 Century Park East
Los Angeles, California 90067
Facsimile: (310) 552-9254
Attention: Philip L. Ball, Esq.
with copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Facsimile: (212) 735-2000
Attention: Morris J. Kramer, Esq.
SECTION 3.03. Amendments; Waivers. (a) No provision of this
--------------------
Agreement may be amended or waived unless such amendment or waiver is in writing
and signed, in the case of an amendment, by the parties hereto, or in the case
<PAGE>
6
of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 3.04. 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 counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 3.05. Entire Agreement; No Third Party Beneficiaries. This
-----------------------------------------------
Agreement, the Merger Agreement and the agreements contemplated hereby and
thereby, constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of these agreements and, except for the provisions of Article III
of the Merger Agreement, the last sentence of Section 6.10(a) of the Merger
Agreement and Sections 6.04 and 6.05 of the Merger Agreement, are not intended
to confer upon any person other than the parties any rights or remedies
hereunder.
SECTION 3.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
--------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY APPLICABLE CONFLICTS OF LAW.
SECTION 3.07. Assignment. Except as specifically provided herein
-----------
with respect to any designee of Sub exercising the Option, neither this
Agreement nor any of the rights, interests or obligations under this Agreement
shall be assigned, in whole or in part, by operation of law or otherwise by any
of the parties without the prior written consent of the other parties, except
that Sub may assign, in its sole discretion, any of or all its rights, interests
and obligations under this Agreement to Parent or to any direct or indirect
wholly owned Subsidiary of Parent, but no such assignment shall relieve Sub of
any of its obligations under this Agreement. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and
<PAGE>
7
be enforceable by, the parties and their respective successors and assigns.
SECTION 3.08. Enforcement. The parties agree that irreparable damage
------------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or California or in New York or California
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any Federal court
located in the State of New York or California or any New York or California
state court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions
<PAGE>
8
contemplated by this Agreement in any court other than a Federal or state court
sitting for the State of New York or California.
IN WITNESS WHEREOF, the Company, Parent and Sub have caused this
Agreement to be duly executed as of the day and year first above written.
ITT CORPORATION,
by
/s/ Richard S. Ward
-----------------------
Name: Richard S. Ward
Title: Executive V.P.,
General Counsel
ITT FLORIDA ENTERPRISES INC.,
by
/s/ Richard S. Ward
--------------------
Name: Richard S. Ward
Title: Executive V.P.,
General Counsel
CAESARS WORLD, INC.,
by
/s/ Roger Lee
--------------
Name: Roger Lee
Title: Senior Vice
President, Finance
& Administration
<PAGE>
EXHIBIT 3
AMENDED AND RESTATED
--------------------
EMPLOYMENT AGREEMENT
--------------------
This is an amendment and restatement signed this ____ day of December,
1994, of the Employment Agreement made as of August 1, 1991, by and between
CAESARS WORLD, INC. (the "Company"), a Florida corporation, and Henry Gluck (the
"Employee"), as previously amended as of August 1, 1992 and October 4, 1994,
with ITT Corporation ("ITT") being added as a party hereto (such amendment and
restatement being hereinafter called the "Agreement").
FACT RECITALS
-------------
A. Employee is presently employed under the employment agreement, as
amended, described above; and
B. During the course of Employee's employment with the Company, Employee
has performed outstanding services for the Company and has obtained a superior
reputation in the industry, with regulatory agencies, and with various
institutional holders and members of the financial constituency of the Company;
and
C. It is deemed by the Company to be in the best interests of the Company
and its shareholders to assure continuation of Employee's employment to the
employees of the Company and to the other interested
<PAGE>
parties described in B above; and
D. The Company recognizes that the nature and character of the Company and
its present Board of Directors and Employee's present position, duties,
responsibilities and status within this structure are indispensable factors
which have caused Employee to remain in the employ of the Company and to enhance
the value of Employee's services to the Company; and
E. Employee desires assurance of a long-term future with the Company and
is willing to enter into a long-term agreement with the Company; and
F. Pursuant to an Agreement and Plan of Merger, dated as of
December 19, 1994, among the Company, ITT Corporation and ITT Florida
Enterprises Inc. (the "Merger Agreement"). This Agreement is being executed
prior to the acquisition of shares of the Company's common stock pursuant to the
Offer, as defined in the Merger Agreement. The effective date of this Agreement
shall be the date of the acquisition of shares of the Company's common stock
pursuant to the Offer.
1. TERM OF EMPLOYMENT.
------------------
Unless earlier terminated as herein provided, the term of Employee's
employment with the Company hereunder shall commence at the effective date and
shall end on the fifth anniversary date of the effective date. Employee's
employment hereunder shall not be affected by
2
<PAGE>
his age. For purposes of this Agreement, the "Term" of this Agreement shall mean
the full five-year term of the Agreement, plus any extensions which may be
mutually agreed upon by all three parties hereto in writing. For purposes of
this Agreement, the "Employment Period" (which in no event shall extend beyond
the Term) shall mean the period during which Employee has an obligation to
render services hereunder, as described in Paragraph 2, taking into account any
notice of termination which may be given by either the Company or the Employee.
It is understood that there are certain circumstances of termination under which
the Employment Period (and Employee's obligation to render services) will end
before the Term (and certain of the Company's obligations will end). Various
provisions of this Agreement are intended to survive the expiration or
termination of the Term or the Employment Period, including, without limitation,
the provisions of Paragraphs 6.c., 6.d., 7 and 9 through 14, inclusive.
2. DUTIES AND AUTHORITY OF EMPLOYEE.
--------------------------------
During the Employment Period, the Employee shall be Chief Executive Officer
and Chairman of the Board of Directors of the Company (hereinafter "the
Board") and shall devote his efforts to rendering servic-
3
<PAGE>
es to the Company and its affiliates in such capacities. As Chairman of the
Board, the Employee shall have those powers and duties set forth in Article VII,
Section 4, of the Company's By-laws, as amended, and all powers exercised by
Employee in behalf of the Company in such positions prior to the date of this
Agreement. As Chief Executive Officer, the Employee shall be the principal
officer of the Company, and shall have full power to conduct the Company's
business, and responsibility for active management, control and supervising of
the business and affairs of the Company subject only to the supervision and
control of the Chief Executive Officer of ITT and all powers exercised by
Employee on behalf of the Company prior to the date of this Agreement, subject
to such supervision and control. The Employee shall report only to the Chief
Executive Officer of ITT. Employee's powers and authority shall be superior to
those of any officer or employee of the Company or of any subsidiary thereof.
Employee shall not be required without his consent to undertake responsibilities
not commensurate with his position nor shall the Company limit or restrict his
authority or responsibility in the performance of those duties. Employee shall
comply with ITT's Code of
4
<PAGE>
Conduct, as set forth in the so-called "red book" as of the date hereof.
3. DIRECTORSHIP.
------------
At each election during the Employment Period, ITT shall cause Employee to
be one of management's candidates for election to, and Employee agrees to serve
(if elected) on, the Board of Directors of ITT. It is understood that service
as a director of ITT must terminate when a director attains the age of seventy-
two (72) years.
4. PLACE AND FACILITIES OF EMPLOYMENT.
----------------------------------
During the Employment Period, Employee's place of employment will be in the
West Los Angeles area. Employee shall not be required to render any services
hereunder outside of the West Los Angeles area except for business travel
reasonably necessary in connection with the Company's business and with his
service as a director of ITT. During the Employment Period, Employee shall be
furnished by the Company a private office consistent with his status and a
private secretary of Employee's choice in the West Los Angeles area. The West
Los Angeles area means an area bordered by Washington Boulevard on the south, La
Brea Avenue on the east, Sunset Boulevard on the north, and Pacific Ocean on the
west.
5
<PAGE>
5. EXCLUSIVITY.
-----------
It is understood that the Employee's employment during the Employment
Period shall be on an executive basis, except that the Employee may, subject to
the provisions of Paragraph 10 hereof, undertake or continue to conduct other
business, civic, or charitable activities during the Employment Period if such
activities do not materially interfere, directly or indirectly, with the duties
of the Employee hereunder, or compete with any business of the Company;
provided, however, that no additional outside business activities shall be
undertaken without the prior consent of the Board. The Company agrees that the
Employee may, at the Employee's Option, hold outside directorships subject to
approval by the Board of the identity of the entity, during the Employment
Period. It is believed that such service will be in the best interests of the
Company because it will expose Employee to the continual flow of ideas and
contacts which could be useful to the Company. Employee may retain all
compensation from such board service. Notwithstanding the foregoing, nothing
contained in this Employment Agreement shall be deemed to preclude Employee from
owning not more than the
6
<PAGE>
lesser of one percent (1%) or $250,000 in market value of the publicly traded
capital stock of an entity whether or not in competition with the business of
the Company or its subsidiaries or affiliates or from carrying on activities
normally incident to managing passive investments. Employee shall be deemed to
be engaged in or concerned with a duty or pursuit which is contrary to any
provision of this Agreement only if he has received written notice to such
effect, setting forth with reasonable specificity the basis of such claim, from
the Company and has not, within sixty (60) days from the date of his receipt of
any such written notice, initiated steps to eliminate his engagement in or
concern with such duties or pursuits as are specified in such notice as being
contrary to this Agreement.
6. COMPENSATION.
------------
a. Salary.
------
(i) During the Employment Period, the Employee shall be paid a salary
(herein "Salary"), which may be increased from time to time at the election of
the Board or any committee of the Board to which such power has been delegated
by the Board. Employee shall be entitled to annual salary reviews. As of the
date of
7
<PAGE>
this Agreement, the annual rate of Employee's Salary shall be $890,000.
(ii) On each August 1, beginning August 1, 1995, the Salary then
effective shall be adjusted in accordance with two-thirds of the increase or
decrease of the Consumer Price Index - United States City Average, All Urban
Consumers, All Items, published by the Bureau of Labor Statistics, U.S.
Department of Labor (herein "CPI"), on such date with respect to the CPI for the
preceding August 1. This "CPI Adjustment" shall be equal to two-thirds of the
increase or decrease in the CPI as of a given August 1 with respect to the CPI
for the preceding August 1, divided by the amount of the CPI on the preceding
August 1, multiplied by the Salary as of such preceding August 1. The Salary for
the ensuing fiscal year shall be the salary as of the previous August 1 (A) plus
the CPI adjustment, in the case of an increase in the CPI since the previous
August 1, and (B) minus the CPI Adjustment, in the case of a decrease in the CPI
since the previous August 1. If at the time of any such adjustment such CPI
shall no longer be published, the parties shall agree on an appropriate measure
of the increase in cost of living. As of August 1 of any fiscal year, the Salary
as adjusted pursuant to the foregoing
8
<PAGE>
provisions or by the Board at its election shall thereafter be the Salary under
this Agreement.
(iii) The Employee's Salary shall be paid in the same installments which
prevail for other Senior Corporate Officers of the Company (in no event less
frequently than monthly) or such other installments as are agreed upon between
the Employee and the Company.
a. Bonus and Incentive Compensation.
--------------------------------
During the Employment Period, for each fiscal year the Employee shall be
paid the greater of (x) the annual bonus amount calculated pursuant to Paragraph
6.b.(i)-(viii) or (y) the annual bonus amount calculated pursuant to Paragraph
6.b.(ix).
(i) During the Employment Period, upon sign-off by the Company's
auditors, Employee shall be paid incentive compensation (herein "Incentive
Compensation") as provided in Paragraph 6.b.(viii) hereof, or, if Employee
elects pursuant to Paragraph 6.b.(viii) hereof, Employee shall be paid Incentive
Compensation for each fiscal year of the Company equivalent to one percent (1%)
of the Incentive Income (as defined below) of the Company but not more than one
hundred percent (100%) of Employee's Salary earned during such fiscal year.
9
<PAGE>
(ii) For this purpose, "Incentive Income" shall mean the Consolidated
Net Income of Caesars World, Inc. and subsidiaries for a particular fiscal year
as certified by the Company's independent auditors for purposes of the Company's
annual report to shareholders for such fiscal year (provided that, after the
consummation of the Offer pursuant to the Merger Agreement, the Incentive Income
and the Incentive Net Worth, as defined below, shall be calculated based on the
Company's continuing operations which existed immediately prior to such
consummation and as if the transactions contemplated by the Merger Agreement had
never taken place), after the following adjustments:
A. Add back all amounts charged against Consolidated Net Income in respect
of the following:
I. The minority interest in earnings of any consolidated subsidiary,
and taxes based upon or measured, in whole or in part, by income of the Company
and its subsidiaries;
II. The aggregate of net expense charges for all awards in the nature
of incentive compensation and bonuses for all officers and assistant officers of
the Company which were accrued for such fiscal year; and
10
<PAGE>
an amount equal to twelve percent (12%) of any deficit of Incentive Net Worth
(as defined in (iii) below);
III. All items characterized as Extraordinary Losses on the
consolidated statement of income;
IV. All charges against such income of any kind whatsoever resulting
from either a write-up of Company assets as a result of a reorganization of the
Company or a revaluation of the Company assets as a result of an acquisition of
the Company in a transaction constituting a "purchase transaction" under
generally accepted accounting principles and any and all interest charges
imposed upon the Company as a result of the use of Company assets or credit to
finance any purchase by an outsider of the assets of the Company or of a
majority or more of the stock of the Company; and
V. All charges against income for items constituting unusual items
under generally accepted accounting principles which are treated as "one-line"
items for financial statement presentation purposes and which pertain to or
arise out of a tender or exchange offer for Company stock, a consolidation or
merger of the Company, or which pertain to or arise out of a recapitalization
transaction or other corporate restructuring initiated by the Company.
11
<PAGE>
B. Subtract all amounts included in Consolidated Net Income in respect of
the following:
I. All amounts characterized as Extraordinary Gains on consolidated
statements of income for the Company and its subsidiaries;
II. An amount equal to twelve percent (12%) of Incentive Net Worth (as
defined in (iii) below); and
III. All increases in such income of any kind whatsoever resulting from
a write-down of Company assets as a result of a reorganization of the Company or
a revaluation of Company assets as a result of an acquisition of the Company in
a transaction constituting a "purchase transaction" under generally accepted
accounting principles.
(iii) For this purpose, Incentive Net Worth shall mean, as applied to a
particular fiscal year, the total Shareholders' Equity shown on the consolidated
balance sheet for the Company and its subsidiaries as of the end of the
preceding fiscal year, plus or minus the amount of any increase or decrease
during a fiscal year, from the issue or the purchase of common or preferred
stock or any distributions with respect to the Company's common or preferred
stock. As to increases or decreases
12
<PAGE>
during a given year, the increase or decrease shall be appropriately adjusted by
a proportion based on the number of days in the year prior to or after the
increase or decrease, as the case may be. Increases in Shareholders' Equity
during the year (or period of computation in the event of termination of
Employee during a fiscal year) resulting from the issuance or vesting of stock
bonus awards or the issuance of stock pursuant to the exercise of employee stock
options or stock appreciation rights should not be taken into account in the
computation for that year.
(iv) Notwithstanding the foregoing, in the event that any incentive
plan for Senior Corporate Officers (i.e., those officers of the corporation
----
subject to the jurisdiction of the Audit and Compensation Committee) uses a
lower percentage of net worth than twelve percent (12%) or a more favorable
definition of Incentive Income or Net Worth, or the equivalent, Employee's
Incentive Compensation shall be calculated using such more favorable
definitions.
(v) In the event the Employment Period or the Term expires or
terminates before the end of a given fiscal year for any reason whatsoever or
Employee becomes subject to a Disability during a given fiscal
13
<PAGE>
year of the Employment Period, the Incentive Compensation for such fiscal year
shall be computed based on the actual operating results of the Company to the
end of the month preceding the effective day of termination or the date of
Disability (the "Computation Period") and the twelve percent (12%) item in
Paragraph 6.b.(ii)B. above (or any substituted rate) shall be reduced by one
percent (1%) (or 1/12 of such rate if the then effective rate shall be less than
twelve percent (12%)) for each month less than twelve (12) in the Computation
Period. Incentive Compensation shall vest monthly as earned even though
calculation by the Company's auditors may not be completed until a later date
and payment is not made until after such calculations can be completed.
(vi) In the event of any acquisitions by the Company during the
Employment Period, the Company and Employee will renegotiate the provisions of
this Paragraph 6.b. so as to modify the applicable formula to produce a
reasonable and fair result consistent with the previous formula but taking into
account the acquisition.
(vii) Notwithstanding the foregoing, in computing "Incentive Income" and
"Incentive Net Worth", as defined herein, charges or equity adjustments related
to or arising from the transactions contemplated by the
14
<PAGE>
Merger Agreement, including, without limitation, with respect to deferred
compensation or the lapsing of restrictions on restricted shares of the
Company's common stock, shall not be taken into account.
(viii) As to any particular fiscal year of the Company, unless Employee
elects in writing, prior to the later to occur of (x) August 31 of such fiscal
year or (y) the tenth business day following his receipt of notice of the
Company's adoption of the Senior Corporate Executive Incentive Plan (or its
successor) for such fiscal year, to make this Paragraph 6.b. applicable for such
year, Employee shall instead automatically participate in the Senior Corporate
Executive Incentive Plan of the Company, or any successor plan thereto, and this
Paragraph 6.b. shall not apply for such year. Such an election as to any
particular year will only be applicable to that year and, absent a similar
agreement for any later year, this Paragraph 6.b. shall not apply to such later
year.
(ix) During the Employment Period, the Employee shall be paid an annual
bonus for each fiscal year of the Company based on an $800,000 target bonus,
with a pay-out varying between 0% and 150% of the target bonus. The percentage
pay-out shall be determined by the degree
15
<PAGE>
to which pre-established performance goals based on the Company's budgeted
operating cash flow and improvements thereto are attained.
c. Other Benefits.
--------------
(i) After the consummation of the Offer pursuant to the Merger Agreement
and throughout the rest of the Employment Period, ITT will recommend to the
committee administering the 1994 ITT Corporation Incentive Stock Plan (the "ITT
Plan") that the Employee shall receive an annual grant of a stock option for
35,000 shares of common stock ($1 par value) of ITT pursuant to the ITT Plan.
The first such grant shall be made as of the day immediately following such
consummation. The options shall have an exercise price per ITT share equal to
the fair market value of an ITT share on the date of grant. The options shall
become exercisable as to two-thirds (2/3's) of the underlying ITT shares when
the trading price of an ITT share equals or exceeds a dollar amount which is
twenty-five percent (25%) over the exercise price per ITT share for ten
consecutive trading days and shall become fully exercisable at the earlier of
(x) the date when the trading price of an ITT share equals or exceeds a dollar
amount which is forty percent (40%) over the exercise price per ITT share for
ten consecutive
16
<PAGE>
trading days or (y) the earlier of the fifth (5th) anniversary of the date of
grant or the "Wrongful Termination" of the Employee's employment, as defined in
this Agreement. The term of the options shall be nine years. If the Employee
voluntarily terminates his employment hereunder within the first year after the
effective date hereof, he shall have 30 days after such termination to exercise
his options which are exercisable at the time of such termination and his
options which are unexercisable at the time of such termination shall be
forfeited. After such first year of employment hereunder, if the Employee is
eligible to receive immediate retirement benefits under either an Executive
Security Plan of the Company or an ITT pension plan, any termination of
employment (except a termination for "cause" as defined in this Agreement) shall
be treated as a retirement under the ITT Plan which entitles him, whether or not
his options are exercisable on the date of such termination, to exercise all of
his options within five years of such termination (or within their original
term, whichever is shorter) and such options shall continue to vest after such
termination in accordance with their terms. After such first year of employment
hereunder, if the Employee's employment is terminated for "cause" as defined
17
<PAGE>
in this Agreement, he shall have 30 days after such termination to
exercise his options which are exercisable at the time of such termination and
his options which are unexercisable at the time of such termination shall be
forfeited.
(ii) The Employee shall, to the extent deemed appropriate by the Board
(or any applicable committee of the Board), participate at a level consistent
with his rank in profit sharing, stock appreciation right, stock bonus, stock
option, deferred compensation, and other similar benefits which are made
available to executives employed by the Company during the Employment Period.
Also, during the Employment Period, Employee shall continue to participate in
all fringe benefits and perquisites now furnished Employee and (subject to the
terms of any such plan) in the Executive Security Plan and Individual Retirement
Plan, and shall participate consistent with his rank in any retirement plan or
other fringe benefits or perquisites hereafter adopted by the Company and made
applicable to its officers. Further, during the Employment Period, the Company
will provide, at its expense, life, business travel, disability, medical, dental
and hospitalization insurance for the Employee and
18
<PAGE>
his dependents in amounts and on terms as favorable as those provided for any
other officer of the Company.
d. Retirement Benefits.
-------------------
(i) Supplemental Retirement.
-----------------------
In addition to any retirement benefits which the Company shall provide
to Employee under the terms of any retirement plan currently existing or which
the Company shall adopt during the Employment Period, the Company shall pay
Employee (or Employee's beneficiaries) an annual retirement benefit equal to the
product of (A) two percent (2%) times the number of years of Continuous
Employment (as defined in the Executive Security Plan of the Company as of the
date hereof) after July 31, 1985 (but not more than the aggregate of sixty
percent (60%)) and (B) the average Incentive Compensation accruing to Employee
for all years of Continuous Employment beginning after July 31, 1985 (i.e.,
----
beginning with the Incentive Compensation paid for the fiscal year ended July
31, 1986). Payment of the annual retirement benefit under this Paragraph 6.d.(i)
shall commence on the first day of the first month following Employee's sixty-
fifth birthday or upon Employee's retirement from employment with the Company,
whichever shall occur later. The annual retirement benefit shall be payable in
monthly installments for
19
<PAGE>
the life of Employee but not less than ten (10) years in any event; and if
Employee shall die before the expiration of such ten (10) year period, the
remaining payments shall be paid to the Beneficiary of Employee as designated
under the Executive Security Plan of the Company. If Incentive Compensation for
any given fiscal year is taken into account in computing retirement benefits for
Employee under any retirement plan of the Company (other than pursuant to this
Paragraph 6.d.(i)), the amount of the accrual under this Paragraph 6.d.(i) shall
be reduced on the basis of actuarial equivalence by the benefit given to, or
contribution in behalf of, Employee under such other plan based on the Incentive
Compensation of Employee for that fiscal year.
(ii) Trust Fund Protection.
---------------------
At any time (a) that the consolidated shareholder equity of the Company
shall be below $150 million, (b) within thirty (30) days preceding the end of
the Term or at any time thereafter or (c) at any time within thirty (30) days
preceding the date Employee ceases to be the Chief Executive Officer and
Chairman of the Board of Directors of the Company or at any time thereafter,
Employee by notice to the Company may require that the Company establish a trust
account with a bank or
20
<PAGE>
financial institution (the "Trustee") mutually acceptable to Employee and the
Company and that the Company deposit in such account an amount necessary to pay
all retirement benefits of Employee and Employee's beneficiaries provided under
this Agreement and the Executive Security Plan of the Company (or any other
unfunded retirement plan of the Company (or any other unfunded retirement plan
hereafter adopted by the Company). The Company shall continue to make
additional payments to the Trustee on an annual basis during the Term of this
Agreement to the extent required in order to maintain in the account sufficient
funds to cover the anticipated benefits to Employee and Employee's
beneficiaries. Under the terms of the trust agreement, the trust fund and the
required retirement benefit payments to Employee and his beneficiaries in behalf
of the Company shall be subject to the claims of the Company's creditors. To
the extent that the trust fund is insufficient to make the full payment that
Employee or Employee's beneficiaries are entitled to under this Agreement and
any other retirement plan of the Company, the Company shall pay the difference
from its general assets. Any excess funds remaining in the trust fund upon
termination of all of the Company's obligations to Employee and any of his
beneficiaries under this
21
<PAGE>
Paragraph 6.d. and any other retirement plan of the Company in which Employee
participates shall revert to the Company. To the extent that implementation of
this subparagraph will adversely affect the deferral of taxation of Employee
with respect to the accrual of retirement benefits on behalf of Employee, this
Paragraph 6.d.(ii) shall be deemed void.
(iii) Upon the first to occur of (x) the expiration of the Term or (y)
termination of the Term or the Employment Period other than under Paragraph
9.a., and continuing until one year after the death of Employee, the Company
will provide Employee and his dependents with medical, dental and
hospitalization insurance equivalent to that provided Senior Corporate Officers
of the Company or any parent corporation of the Company, provided Employee has
at the time of expiration or termination attained the age when Employee would be
first eligible for early retirement under the Executive Security Plan assuming
all other requirements under such plan were fulfilled at such time. Such
insurance shall be provided through the plans of the Company or, if this is not
practical, the Company shall directly pay all such expenses on the same basis as
if Employee had been included in such plans. To the extent Employee obtains
other
22
<PAGE>
employment (and Employee shall be under no obligation to do so under this
Paragraph 6.d.(iii)), insurance obtained as a result of such other employment
shall be the first line of insurance and insurance provided under this provision
shall only be supplementary. Also, to the extent Employee is entitled to
insurance under Medicare or its equivalent, the insurance under this provision
shall be only supplementary or second line to the extent allowed by law.
e. Withholding.
-----------
All compensation shall be subject to normal required withholdings.
7. VACATIONS.
---------
Employee shall accrue vacation time at the rate of one and two thirds
(1 2/3) days per month of service during the Employment Period, provided,
however, at no time shall more than sixty (60) days be accrued and during any
period that the cumulative accrual is at this sixty (60) day level, no
additional vacation time shall accrue. At Employee's option, vacation may be
taken, either in whole or in part, consecutively or not, in the year that
Employee's entitlement to that vacation accrues or, if unused during such year,
such vacation time shall be carried over (subject to the sixty (60) day maximum
23
<PAGE>
accrual) and may be used in any subsequent year during the Employment Period,
provided that no more than sixty (60) days of vacation may be taken in any
calendar year. Upon termination of Employee's employment with the Company for
any reason whatsoever, Employee shall be paid his Salary or all unused then
accrued vacation at the Salary rate then existing up to the maximum accrual of
sixty (60) days.
8. EXPENSES.
--------
The Company will reimburse Employee for all expenses reasonably incurred by
Employee in the performance of his duties under this Agreement. Reimbursement
shall be made in accordance with the practices and requirements generally
applied by the Company in connection with reimbursement of expenses incurred by
its employees. It is understood that the Company will pay to Employee an
automobile allowance providing the equivalent of availability to Employee of a
car of comparable level of quality as presently being operated by Employee under
an automobile allowance from the Company. The Company also will pay for the
insurance, operating, maintenance and repair of such car (including gasoline and
oil) or a car used by Employee in lieu of a furnished car if Employee elects the
automobile allowance. The allowance and all
24
<PAGE>
payments with respect to the automobile will be grossed-up for tax purposes in
accordance with Company practices as they exist as of the date of this
Agreement. Employee may from time to time also incur certain expenses on behalf
of the Company or in furtherance of its business for which reimbursement may not
be made under Company policy or practices.
9. TERMINATION OF EMPLOYMENT PERIOD AND/OR AGREEMENT.
-------------------------------------------------
a. Termination by the Company for Cause.
------------------------------------
(i) The Company may at any time, at its election, terminate the
Employment Period and the Term prior to the Term's expiration because of the
following causes: (A) willful misconduct by the Employee in the performance of
his duties under this Agreement or his habitual neglect of such duties, (B)
failure of the Employee to obtain or retain any permits, licenses or approvals
which shall be required by any state or local authorities where the failure to
obtain such license will result in the loss of a material license or franchise
held by the Company (or a subsidiary thereof), or (C) a willful breach by the
Employee of any of the material terms of this Agreement.
(ii) Any such termination shall be effective only if notice is given to
Employee not later than
25
<PAGE>
ninety (90) days following the event, transaction, or occurrence giving rise to
such right of termination, or, if later, ninety (90) days after the Company
first discovers that such event, transaction, or occurrence has taken place.
Also, any such termination under (A) through (C) of Paragraph 9.a.(i) may only
occur if all of the following are demonstrated by the Company: (x) the failure,
breach or action directly materially adversely affects the Company (except in
the event of a termination under Paragraph 9.a.(i)(B)), (y) the failure, action
or breach by Employee was in bad faith and lacking in a good faith belief that
it was in or at least not opposed to the Company's interest (except in the event
of a termination under Paragraph 9.a.(i)(B)), and (z) the Company gave notice to
cure to Employee and Employee failed to cure within thirty (30) days after
notice thereof or, if a cure was not possible within thirty (30) days, failed to
take all practical action within such period leading to a cure.
(iii) (A) In the event that the Company elects to terminate the
Employment Period and the Term for cause pursuant to the foregoing provisions of
this Paragraph 9.a., the termination shall not be effective and the Agreement
(including, without limitation, Para-
26
<PAGE>
graphs 9.d. and 9.e.) shall continue in full force and effect until the issuance
of an arbitration award affirming the Company action. Without limiting the
generality of the foregoing, the Company shall continue to pay Employee's then
current Salary and Incentive Compensation as specified in Paragraph 6. of this
Agreement and shall continue all other benefits until the issuance of such
arbitration award.
(B) Such arbitration shall be held in Los Angeles, California in
accordance with the rules of the American Arbitration Association (except as
otherwise provided in this Paragraph 9.(iii)(B)) within ninety (90) days
following receipt by the Employee of the notice to cure under Paragraph 9.a.(ii)
above. Any decision by the arbitrator shall be final and binding on the parties
and all successors in interest. Judgment upon an award of the arbitrator may be
entered in any court of competent jurisdiction. Employee shall cooperate with
the Company in effecting such an accelerated arbitration. The Company shall
make available to Employee any and all documents requested by the Employee for
purposes of defending such arbitration and allow Employee or Employee's
representatives access to any and all Company records and personnel for such
purpose. The Company will
27
<PAGE>
produce any such records and personnel at the arbitration to the extent
requested by Employee. Notwithstanding the foregoing, the arbitration shall not
be commenced until Employee has had a reasonable opportunity to have the matter
investigated and his case prepared by any representatives; however, the Employee
shall use his best efforts to complete his presentation within the above
stipulated ninety (90) day period. The Company will pay all Employee's
reasonably incurred legal expenses and other costs in presenting the matter and
all costs of the arbitrator.
(C) In the event that the arbitrator shall decide in favor of the
Company, Employee shall repay all Salary earned by Employee following the
expiration of the 30-day cure period under Paragraph 9.a.(ii)(z) above. As to
Incentive Compensation in the event that the arbitration results in a judgment
in favor of the Company, for purposes of Paragraph 6.b.(v) of this Agreement,
the effective day of termination shall be the date of the expiration of the cure
period in Paragraph 9.a.(ii)(z) and to the extent Employee has received any
payment of Incentive Compensation pertaining to the Incentive Compensation
accruals after such date, Employee shall repay the same to the Company upon
demand. Not-
28
<PAGE>
withstanding anything in this Paragraph 9.a.(iii), the Company may suspend
Employee upon the expiration of the cure period specified in Paragraph
9.a.(ii)(z) pending the outcome of arbitration; however, as stated above,
Employee shall continue to receive Salary, Incentive Compensation, and all
benefits during such suspension subject to Employee's obligation to repay Salary
and Incentive Compensation in the event the arbitration decision is against
Employee as set forth above. Employee shall be allowed to retain benefits in
all events.
(iv) In the event that there is a termination of the Employment
Period and the Term by the Company under this Paragraph 9.a. and the cause is
solely the cause described under Paragraph 9.a.(i)(B) above and not within
either Paragraph 9.a.(i)(A) or (C), Employee shall be entitled to severance pay
equivalent to one (1) year's Salary payable within five (5) days of the
effective date of termination, and to the continuation of all fringe benefits
and insurance described in Paragraph 6.c. for a one (1) year period following
such termination (which continuation shall not, however, duplicate insurance
already provided by Paragraph 6.c. for such period), provided, that the actions
of employee leading to the loss of license were in the good faith belief that
his
29
<PAGE>
actions were for the benefit of and in the best interests of the Company and not
in violation of any law and that such payments are not in violation of law, and,
provided further, that Employee used his best efforts to obtain or retain (as
the case may be) such license.
b. Disability.
----------
In the event that Employee shall become subject to a Disability (as defined
below) during the Employment Period, the Incentive Compensation shall stop
accruing and the Salary payable to Employee shall be reduced to fifty percent
(50%) of the Salary in effect at the date of the Disability. Such reduced
compensation shall continue until the termination of Employee's Disability, the
expiration of the Term, or the expiration of thirty (30) months from the
inception of the Disability, whichever occurs first. During any such period of
Disability, the Company shall also keep in force for the benefit of Employee and
Employee's dependents all life, health and medical insurance policies maintained
for Employee's benefit under the terms of this Agreement and Employee shall be
considered to be employed for purposes of the vesting and accrual of benefits of
all other plans and programs of the Company in which Employee is a participant
and which vest or accrue benefits over a period of
30
<PAGE>
time, except Incentive Compensation. Notwithstanding the foregoing, the Company
shall not be required to add Employee to any new bonus, profit sharing, stock
bonus, stock option, deferred compensation, and other similar plans or make any
new awards to Employee under this Agreement with respect to such new or
presently existing plan during the period of such Disability. All Salary
payments pursuant to this Paragraph 9.b. due to Employee under its terms shall
be reduced by any disability payments made in accordance with any existing
disability program or disability insurance of the Company. For purposes of this
Agreement, Employee shall be deemed to have become subject to a Disability
(herein "Disability") if, because of ill health or physical or mental
disability, Employee shall be unable to perform his duties and responsibility to
the extent reasonably necessary for Employee to give the Company substantially
the value of his services for a consecutive one hundred and eighty (180) day
period and upon the completion of such one hundred and eighty (180) day period,
either the Company or the Employee shall have given written notice to the other
of such party's election that Employee be treated as subject to a Disability.
The date of such Disability
31
<PAGE>
shall be the third calendar day immediately following transmittal of such
written notice of Disability.
If, because of ill health or physical or mental disability, Employee shall
be unable to perform his duties and responsibility to the extent reasonably
necessary for Employee to give the Company substantially the value of his
services for a consecutive sixty (60) days, the Company, in its sole discretion
(but in consultation with the Employee to the extent practicable), may appoint
temporarily an Acting Chief Executive Officer; provided, however, that if the
Employee becomes able to provide such services again during the Term of this
Agreement, he shall replace the Acting Chief Executive Officer and resume acting
as Chief Executive Officer of the Company.
If, because of ill health or physical or mental disability, Employee shall
be unable to perform his duties and responsibility to the extent reasonably
necessary for Employee to give the Company substantially the value of his
services for a consecutive three-hundred-sixty-five (365) days, if the
Employee's personal physician and a physician selected by the Company shall
unanimously determine that the Employee will be subject to a Disability for the
remainder of the Term (or, if they shall be unable to agree, they shall mutually
agree upon
32
<PAGE>
a third physician who shall make a determination as to whether the Employee will
be subject to a Disability for the remainder of the Term), then the Company may,
in its discretion, remove the Employee from the positions of both Chairman of
the Board and Chief Executive Officer, and the Employee shall have no right to
treat such removal as a "Wrongful Termination".
c. Death.
-----
The Term and the Employment Period will automatically terminate upon the
death of the Employee; however, the Company will pay death benefits equal to
fifty percent (50%) of Employee's Salary at his death to Employee's surviving
spouse for twelve (12) months after Employee's death or so long as the spouse
survives Employee, whichever ends first, and there shall be full acceleration of
vesting or exercisability upon death of all outstanding unvested stock options
and stock awards including, without limitation, those awards under the Key
Employee Stock Bonus Plan, the Key Employee Stock Grant Plan, Key Employee
Incentive Share Grant Agreement or any similar stock plans or agreements of the
Company (whether such awards are made before or after the date of this
Agreement) and delivery to the appropriate person of all stock pursuant to terms
of any such plans or agreements.
33
<PAGE>
d. Termination by the Company (without Cause).
------------------------------------------
(i) Wrongful Termination Described.
------------------------------
A. Wrongful Termination. Notwithstanding the foregoing, if
--------------------
during the Employment Period Employee is not reelected to, or is removed from,
the position of either Chairman of the Board or Chief Executive Officer other
than for cause as provided in Paragraph 9.a. above, or if the Company otherwise
materially breaches this Agreement and fails to complete the cure of such breach
within thirty (30) days after notice from Employee, then, at any time within
three (3) months after the date upon which Employee is removed from either such
position or the breach date, as the case may be, Employee may elect by notice in
writing to the Secretary of the Company to treat the situation as a "Wrongful
Termination" of Employee's employment by the Company effective one (1) week
after the notice and to discontinue his obligations to perform services
hereunder. The Employment Period shall end at such effective date.
B. Arbitrated Determination of Company Breach. If Employee
------------------------------------------
believes the Company has materially breached this Agreement, then, in lieu of
electing to notify the Secretary of the Company to treat the situation as
Wrongful Termination, Employee may request an arbitra-
34
<PAGE>
tion to determine whether the Company has in fact materially breached this
Agreement. The arbitration shall be conducted under the rules of Paragraph
9.a.(iii)B. and all provisions of Paragraph 9.a.(iii)B. shall apply, including
without limitation the Company's obligation to pay legal and other expenses and
costs of Employee and the arbitration costs. Employee shall continue to perform
his services for the Company pending the decision of the arbitrator and shall
receive all Salary, Incentive Compensation and benefits for such period. If the
arbitrator shall decide for Employee, Employee shall have two (2) months after
such decision to elect by written notice to the Company to treat the breach as a
Wrongful Termination under this Paragraph 9.d. as provided in 9.d.(i) above.
The arbitration requested by Employee shall be binding on both Employee and the
Company as to the matters submitted to arbitration.
(ii) Employee's Obligations after Wrongful Termination. In the
-------------------------------------------------
event of a Wrongful Termination, Employees' obligations under Paragraph 2 shall
cease as of the date notice of such termination is given; provided, however,
that all payments and benefits provided to Employee hereunder because of a
Wrongful Termination shall be upon the condition of, and partly in consider-
35
<PAGE>
ation for, Employee's continued compliance with any covenants in this Agreement
which by their terms apply during the Term of thereafter.
(iii) Payments and Benefits to Employee after a Wrongful
--------------------------------------------------
Termination. In the event of a Wrongful Termination upon or after a Change in
- -----------
Control, certain additional payments and benefits to Employee are provided under
Paragraph 9.e.(iii). In the event of any Wrongful Termination, the Company shall
pay the Employee (i) within five (5) days of the date notice of such termination
is given, any amounts which have become payable under other provisions of this
Agreement or other obligations of the Company to Employee which have accrued but
have not yet been paid, including without limitation Salary earned prior to the
date the notice is given and compensation for unused vacation, and (ii) in
accordance with the other provisions of this Agreement, all entitlements of
Employee, including without limitation entitlements under Paragraphs 6.b.(v),
6.d., 13, and 14. Accrued Incentive Compensation shall be paid in accordance
with the provisions of this Agreement or the Corporate Executive Incentive Plan
(or its successor), whichever is applicable. The Company shall also be obligated
as follows:
36
<PAGE>
A. Within five (5) days following the date notice of such
termination is given, the Company shall pay the Employee an amount equal to the
present value of the sum of (x) all Salary then unearned for the balance of the
Term (without consideration of cost of living increases) plus (y) the present
value of an amount determined by multiplying the number of years and fractional
years to the nearest month then remaining in the Term times the amount of
Incentive Compensation earned by Employee for the last full fiscal year of the
Company preceding the date of termination. In making this present value
calculation the projected Incentive Compensation shall be assumed to be earned
pro rata over the remaining Term. For this purpose, the rate used for the
determination of the present value shall be the average of the five (5) year
treasury note rates effective at the end of each of the six (6) calendar months
immediately preceding the month in which the termination of employment occurs.
If Employee agrees to take a ten percent (10%) reduction in the amount otherwise
payable under this Paragraph 9.d.(iii)A. for the present value of Salary and
Incentive Compensation with respect to the remaining Term, Employee shall have
not duty to mitigate damages following a Wrongful Termination by the Company,
and the Company shall not
37
<PAGE>
be entitled to any reduction of its obligations under this Agreement or
repayment from Employee by virtue of any subsequent employment of Employee
except as set forth below in Paragraph 9.d.(iii)C. below.
B. During the remaining Term, the Company shall keep in force for
the benefit of Employee and Employee's dependents all life insurance policies
maintained for Employee's benefit under the terms of this Agreement and fulfill
its automobile obligations under Paragraph 8. During such period the Company
shall not be required to add Employee to any new profit sharing, stock bonus,
stock option, bonus, deferred compensation and other similar plans or make any
awards to Employee under this Agreement with respect to new or old plans of such
nature. In the event of a Wrongful Termination, all existing stock options and
any awards under the Key Employee Stock Grant Plan, Key Employee Incentive Share
Grant Agreement or any similar stock plans or agreements of the Company (whether
made before or after this Agreement) not otherwise exercisable or vested under
its terms shall be immediately exercisable or vested in full upon such
termination (i.e., upon the giving of the Employee's notice of termination
----
specified in Paragraph 9.d.(i)A. or B. above) and shall thereafter be
exercisable or vested
38
<PAGE>
in full pursuant to the terms of such stock option or other awards.
C. Notwithstanding Paragraph 9.d.(iii)B., any life insurance
afforded Employee under this Agreement shall be only supplementary or secondary
to any such protection provided by other employment or through Medicare.
e. Employee's Additional Election and Rights after a Change in Control.
-------------------------------------------------------------------
(i) Employee's Right to Elect Termination after a Change in Control.
---------------------------------------------------------------
A. Permitted Period for Elective Termination. In the event of
-----------------------------------------
a Change in Control, Employee shall have the right to elect to terminate the
Employment Period (and his obligation to render services under this Agreement)
by notice in writing to the Secretary of the Company within twelve (12) months
after the Change in Control.
B. Payments and Benefits to Employee after Elective Termination.
------------------------------------------------------------
If the Employee elects termination under Paragraph 9.e.(i)A., the Company (i)
shall pay Employee, upon receipt of such notice of termination, any amounts
which have become payable under other provisions of this Agreement or other
unpaid obligations
39
<PAGE>
of the Company which have then accrued, but have not yet been paid, including
without limitation Salary and Incentive Compensation earned prior to the date
notice is given and compensation for unused vacation, and (ii) shall provide, in
accordance with the other provisions of this Agreement, all entitlements of
Employee, including without limitation entitlements of Employee under the
provisions of Paragraph 6.b.(v), 6.d., 13, and 14. The Company shall also pay
to the Employee (or there shall automatically be paid or delivered in the case
of Paragraph 9.e.(i)(B)(y) below):
(w) benefits described in the first sentence of Paragraph
9.d.(iii)B. to be provided for the greater of period (A) or (B) described in
Paragraph 9.e.(i)B.(x), in accordance with the provisions of Paragraphs
9.d.(iii)B. and C. as if the termination were a Wrongful Termination,
(x) upon the effective date of termination of Employee's
employment, as severance pay, a lump sum amount equal to the present value of
the aggregate of the remaining amount of Salary and Incentive Compensation
provided with respect to the greater of (A) the remaining Term (as if he had
continued to render services for the duration of the Term, but without
consideration of cost
40
<PAGE>
of living increases) or (B) two (2) years, calculated (in the case of either (A)
or (B)) in accordance with Paragraph 9.d.(iii)A. above, including (if Employee
agrees) the reduction by 10% in lieu of mitigation,
(y) except as otherwise specified herein, full acceleration of
vesting or exercisability upon notice of termination of all outstanding unvested
stock options and stock awards including, without limitation, those awards under
the Key Employee Stock Bonus Plan, the Key Employee Stock Grant Plan, Key
Employee Incentive Share Grant Agreement or any similar stock plans or
agreements of the Company (whether such awards are made before or after the date
of this Agreement) and delivery to Employee of all stock pursuant to terms of
any such plans, and
(z) notwithstanding any other provision hereof, within five (5)
days following the date notice of such termination is given, in lieu of any
benefits payable under the Company's Executive Security Plan ("ESP"), a lump sum
equal to the Termination Benefit as defined in the ESP and computed in
accordance with the ESP provisions with the following assumptions: (i) as if the
ESP had no forfeiture provisions provided in Section 5.3 thereof, and (ii) as if
the Employee had continued to be employed by the Company for the greater of
period (A) or
41
<PAGE>
(B) described above in Paragraph 9.e.(i)B.(x); provided, however, that, if any
part (or all) of such lump sum shall not be paid, either pursuant to the
"Contingent Severance Agreement" (the agreement by that name between Employee
and the Company, dated as of the same date hereof as amended from time to time)
or pursuant to this Agreement (whether as the result of the application of
Paragraph 9.e.(i)C. or otherwise), the Employee shall remain entitled to
whatever benefits (if any) the ESP, by its own terms, grants the Employee and
the Employee shall be paid such benefits in accordance therewith after reduction
for any amount paid pursuant to the Contingent Severance Agreement or this
Paragraph 9.e.(i)B.(z).
C. Contingent Limitation on Amounts. (w) Notwithstanding any
--------------------------------
other provisions of this Agreement or any other agreement, plan or arrangement,
in the event that any payment or benefit received or to be received by Employee
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, or any other plan, arrangement or agreement with
the Company, or any other plan, arrangement or agreement with any person whose
actions result in a Change in Control or any person affiliated with the Company
or such person) (all such payments and benefits
42
<PAGE>
being hereinafter called "Total Payments") would not be deductible (in whole or
in part) as a result of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), by the Company, an affiliate or other person making such
payment or providing such benefit, then the portion of the Total Payments
payable pursuant to this Agreement shall be reduced to the extent necessary so
that no portion of the Total Payments is subject to the parachute excise tax
(the "Excise Tax") imposed by Section 4999 of the Code (after taking into
account any reduction in the Total Payments provided by reason of Section 280G
of the Code in any other plan, arrangement or agreement) if (A) the net amount
of such Total Payments, as so reduced (and after deduction of the net amount of
Federal, state of local income tax on such reduced Total Payments) is greater
than (B) the excess of (i) the net amount of such Total Payments, without
reduction (but after deduction of the net amount of Federal, state and local
income tax on such Total Payments), over (ii) the amount of Excise Tax to which
the Employee would be subject in respect of such Total Payments. Any reduction
of the Total Payments shall be made in one of the two alternative orders set
forth in Paragraph 9.e.(i)C.(x) hereof.
43
<PAGE>
(x) If the Total Payments all become payable at approximately the
same time, (i) the benefits under Paragraph 9.e.(i)B.(w) (or under the first
sentence of Paragraph 9.d.(iii)B., if applicable) shall first be reduced (if
necessary, to zero), (ii) the payment pursuant to Paragraph 9.e.(i)B.(z) (or
pursuant to Paragraph 9.e.(iii)(x), if applicable) shall next be reduced (if
necessary to zero), (iii) acceleration of vesting of awards under stock options,
the Key Employee Stock Bonus Plan, Key Employee Stock Grant Plan, Key Employee
Incentive Share Agreement or any similar stock plan or agreement of the Company
and severance pay under Paragraph 9.e.(i)B.(x) (or payments under Paragraph
9.d.(iii)A., if applicable) shall next be reduced (if necessary to zero), and
(iv) other portions of the Total Payments shall be reduced as necessary. If the
Total Payments do not become due and payable at the same time, the respective
Total Payments shall be paid in full in the order in which they become payable
until any portion thereof would not be deductible, and such portion (and any
subsequent portions) of the Total Payments shall be reduced to zero.
(y) For purposes of determining whether and the extent to which
the Total Payments will be subject to the Excise Tax, (i) no portion of the
Total
44
<PAGE>
Payments the receipt or enjoyment of which the Employee shall have effectively
waived in writing prior to the date of termination shall be taken into account;
(ii) no portion of the Total Payments shall be taken into account which in the
opinion of tax counsel selected by the Company's independent auditors and
acceptable to the Employee does not constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code, including by reason of Section
280G(b)(4)(A) of the Code; (iii) in calculating the Excise Tax, the payments in
Paragraphs 9.e.(ii)B.(w) through (z) (or Paragraph 9.d.(iii)A. through B. and
Paragraph 9.e.(iii)(x), if applicable) shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
9.e.(i)(C)(y)(i) or (ii)) in their entirety constitute reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(4) of the
Code or are otherwise not subject to disallowance as deductions because of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
9.e.(i)(C)(y)(ii); and (iv) the value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Company's independent auditors in accordance with the principles of Section
280G(d)(3) and
45
<PAGE>
(4) of the Code. Prior to the earliest payment date set forth in Paragraph
9.e.(i)B. (or Paragraph 9.d.(iii) and 9.e.(iii), as applicable), the Company
shall provide the Employee with its calculation of the amounts referred to in
this Paragraph 9.e.(i)C and such supporting materials as are reasonably
necessary for the Employee to evaluate the Company's calculations. If the
Employee objects to the Company's calculations, the Company shall (on or prior
to the applicable payment date) pay to the Employee such portion of the amounts
payable pursuant to this Agreement (up to one hundred percent (100%) thereof) as
the Employee determines is necessary to result in the Employee's receiving the
greater of the amounts in clauses (A) and (B) of Paragraph 9.e.(i)C(w).
D. Employee's Obligations after Elective Termination. If
-------------------------------------------------
Employee elects to terminate his obligations to render services under this
Agreement pursuant to Paragraph 9.e.(i)A., his obligations under Paragraph 2
shall cease as of the date notice of such termination is given. Employee agrees
that all payments made because of such elective termination shall be upon the
condition of, and partly in consideration for, his continued compliance with any
covenants under Paragraph
46
<PAGE>
11 of this Agreement which by their terms apply during the Term or thereafter.
(ii) Agreement in Full Effect after a Change in Control. Upon and
--------------------------------------------------
after a Change in Control, until and unless Employee makes a written election
pursuant to Paragraph 9.e.(i)A., this Agreement shall continue in full force and
effect, in accordance with all the provisions hereof.
(iii) Additional Payments and Provisions after Wrongful
-------------------------------------------------
Termination upon or after a Change in Control. In the event of a Wrongful
- ---------------------------------------------
Termination upon or after a Change in Control (or upon or after the occurrence
of any other event which constitutes a change in ownership or effective control
of the Company or in the ownership of its assets, or which would be deemed to be
such a change under Section 280G of the Internal Revenue Code of 1986, as
amended, or the regulations or other legal authority developed thereunder), the
Company shall provide Employee with the payments and benefits required by
Paragraph 9.d.(iii) and the following shall apply:
(i) notwithstanding any other provisions hereof, in lieu of any
benefits payable under the Company's Executive Security Plan ("ESP"), the
Company shall pay, within five 95) days following the date notice
47
<PAGE>
of such termination is given, a lump sum equivalent to the Termination Benefit
as defined in the ESP and computed in accordance with the ESP provisions with
the following assumptions: (i) as if the ESP had no forfeiture provisions
provided in Section 5.3 thereof, and (ii) as if the Employee had continued to be
employed by the Company for the Term; provided, however, that, if any part (or
all) of such lump sum shall not be paid, either pursuant to the Contingent
Severance Agreement or pursuant to this Agreement, the Employee shall remain
entitled to whatever benefits (if any) the ESP grants the Employee (such
benefits to be reduced by any amount paid pursuant to the Contingent Severance
Agreement or this Paragraph 9.e.(iii)(x)) and the Employee shall be paid such
benefits in accordance therewith; and
(y) Section 5.3 of the ESP shall be void as to Employee.
(i) Offset of Certain Amounts. Notwithstanding the provisions of
-------------------------
Paragraphs 9.d. and 9.e., any payments or benefits to Employee pursuant to
Paragraph 9.d.(iii)A.-C., 9.e.(i)B.(w)-(z) or 9.e.(iii)(x)-(z), shall be reduced
by any amounts the Company may have previously paid Employee for the same items
pursuant to Section 6(A) of the Contingent Severance Agreement.
48
<PAGE>
10. RESTRICTION OF COMPETITION.
--------------------------
During the Term the Employee will not, as an officer, director, employee,
or consultant, work for, or participate in, the activities of any firm or person
which is engaged (a) in the operation of a casino in the continental United
States, or (b) in any other line of business which is the same, or substantially
the same, as a line of business from which the Company and its subsidiaries at
the time, and at such, if any, earlier time as this Agreement is terminated,
derive at least twenty-five percent (25%) of their consolidated revenue, and
which is engaged in significant competition with the Company or any of its
subsidiaries. For the purpose of this Paragraph 10, the term "line of business"
shall mean a group of products or services treated as a line of business by the
Company in its most recent annual report (or most nearly similar report) filed
with the Securities and Exchange Commission. The Company, in its sole
discretion, may waive this Paragraph 10 to expand the class of companies with
which Employee could mitigate damages under Paragraph 9 above. Employee's
obligations under this Paragraph 10 shall terminate immediately upon any
Wrongful Termination of Employee by the Company or upon a Change in Control.
49
<PAGE>
11. CONFIDENTIAL INFORMATION
------------------------
The Employee will not, during or after the Term, disclose to any firm or
person any information, including, but not limited to, information about
customers or about the design, manufacture or marketing of products or services,
which is treated as confidential by the Company and to which the Employee gains
access by reason of his position as an employee of the Company.
12. RIGHT TO INJUNCTIVE RELIEF.
--------------------------
The Employee acknowledges that the Company will suffer irreparable injury,
not readily susceptible of valuation in monetary damages, if the Employee
breaches any of his obligations under Paragraph 10 and 11 above. Accordingly,
the Employee agrees that the Company shall be entitled, in addition to, and not
in lieu of any other available remedies, to seek and obtain injunctive relief
against any breach or prospective breach by the Employee of the Employee's
obligations under Paragraphs 10 and 11 in any Federal or state court sitting in
Los Angeles County in the State of California or, at the Company's election, in
Clark County of the State of Nevada or in such other state as may be the state
in which the Employee maintains his principal residence or his principal place
of business. The Employee hereby submits to the
50
<PAGE>
jurisdiction of all those courts for the purposes of any actions or proceedings
instituted by the Company to obtain such injunctive relief, and agrees that
process may be served by registered mail, addressed to the last address of the
Employee known to the Company, or in any other manner authorized by law.
13. LIABILITY INSURANCE.
-------------------
a. Insurance
---------
Subject only to the provisions of Paragraph 13.b. below, the Company hereby
agrees that, so long as Employee shall continue to serve as a director, officer,
employee or consultant of the Company (or shall continue at the request of the
Company to serve as a director, officer, employee, partner, consultant, or agent
of another corporation, partnership, joint venture, trust or other enterprise)
and thereafter so long as Employee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative by reason of the fact that Employee was a director,
officer, or employee, of the Company (or served in any of said other
capacities), the Company will purchase and maintain in effect for the benefit of
Employee one or more valid, binding and enforceable policy or policies of
directors and officers
51
<PAGE>
insurance providing, in all respects, coverage at least comparable to that
presently provided pursuant to the directors and officers insurance presently
available to the Company ("the Insurance Policies").
b. Limitation On Company Obligation
--------------------------------
The Company shall not be required to maintain the Insurance Policies in
effect if said insurance is not reasonably available or if, in the reasonable
business judgment of the then Board either (i) the premium cost for such
insurance is substantially disproportionate to the amount of coverage or (ii)
the coverage provided by such insurance is so limited by exclusions that there
is insufficient benefit from such insurance.
14. INDEMNITY.
---------
a. Subject only to the exclusions set forth in Paragraph 14.b. below, and
in addition to any rights of Employee under the By-laws of the Company, any
applicable state law, Paragraph 13 of this Agreement, or any other agreement,
the Company hereby further agrees to hold harmless and indemnify Employees:
(i) Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
Employee in connection with any threatened, pending or complet-
52
<PAGE>
ed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the Company) to which
Employee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Employee is, was or at any time becomes a
director, officer, employee, consultant, or agent of Company, or is or was
serving or at any times serves at the request of the Company, as a director,
officer, employee, consultant, partner, trustee or agent (regardless of his
title) of another corporation, partnership, joint venture, trust or other
enterprise; and
(ii) Otherwise to the fullest extent as may be provided to Employee by
the Company under the non-exclusivity provisions of the By-laws of the Company
and the Florida Business Corporations Act, and
(iii) From any and all income and excise taxes (and interest and
penalties relating thereto) imposed on Employee with reference to any payment
under this Paragraph 14 (including without limitation payments in indemnity for
such taxes).
b. No indemnity pursuant to this Paragraph 14 shall be paid for such
taxes).
53
<PAGE>
(i) except to the extent the aggregate of losses to be indemnified
thereunder exceed the sum of $500 plus the amount of such losses for which the
Employee is indemnified either pursuant to the By-laws of the Company or any
subsidiary, pursuant to any Directors and Officers insurance purchased and
maintained by the Company pursuant to Paragraph 13 above;
(ii) in respect to remuneration paid to Employee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii) on account of any suit in which judgment is rendered against
Employee for an accounting of profits made by the purchase or sale by Employee
of securities of the Company pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law;
(iv) on account of actions or omissions which are finally adjudicated to
have been material to the cause of action adjudicated and to fall within any of
paragraphs (a) through (d) of the last sentence of Section 607.0850 of the
Florida Business Corporations Act; or
54
<PAGE>
(v) if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification to Employee is not lawful.
c. All agreements and obligations of the Company contained herein shall
continue during the period Employee is a director, officer, employee, consultant
or agent of the Company (or is or was serving at the request of the Company as a
director, officer, employee, partner, consultant or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as Employee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Employee was an officer or
director of the Company or serving in any other capacity referred to herein.
d. The Company shall not be liable to indemnify Employee under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim
in any manner which would impose any penalty or limitation on Employee without
Employee's written consent. Neither the Company or Employee will unreasonably
withhold consent to any proposed settlement.
55
<PAGE>
e. The Company will pay all expenses immediately upon the presentment of
bills for such expenses. Employee agrees that Employee will reimburse the
Company for all reasonable expenses paid by the Company in defending any civil
or criminal action, suit or proceeding against Employee in the event and only to
the extent that it shall be ultimately determined that Employee is not entitled
to be indemnified by the Company for such expenses under the provisions of the
applicable state statute, the By-laws, this Agreement or otherwise. This
Agreement shall not affect any rights of Employee against the Company, any
insurer, or any other person to seek indemnification or contribution.
f. If the Company fails to pay any expenses (including, without limiting
the generality of the foregoing, legal fees and expenses incurred in defending
any action, suit or proceeding), Employee shall be entitled to institute suit
against the Company to compel such payment and the Company shall pay Employee
all costs and legal fees incurred in enforcing such right to prompt payment.
g. To the extent allowable under Florida law, the burden of proof with
respect to any proceeding or determination with respect to Employee's
entitlement to
56
<PAGE>
indemnification under this Agreement shall be on the Company.
h. Neither the failure of the Company, its Board of Directors, independent
legal counsel, nor its stockholders to have made a determination that
indemnification of the Employee is proper in the circumstances because he has
met the applicable standard of conduct set forth in the Florida Business
Corporations Act, nor an actual determination by the Company, its Board of
Directors, independent legal counsel, or its shareholders that the Employee has
not met such applicable standard of conduct, shall be a defense to any action on
the part of Employee to recover indemnification under this Agreement to create a
presumption that Employee has not met the applicable standard of conduct.
15. CHANGE IN CONTROL.
-----------------
a. Change in Control. For purposes of this Agreement, "Change in Control"
-----------------
shall mean a change in control of the Company, which shall be deemed to have
occurred upon the first fulfillment of the conditions set forth in any one of
the following four paragraphs:
(i) any Person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation owned,
57
<PAGE>
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company, is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power of
the Company's then outstanding securities; or
(ii) during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board and any new director (other than a
director designated by a Person who has entered into an agreement with the
Company to effect a transaction described in Paragraph 15.a.(i) or 15.a.(iii)
hereof) whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(iii) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation; other than a merger or consolidation
58
<PAGE>
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the shareholders of the Company approve a plan
o f complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all of substantially all the Company's assets; or
(iv) any Person shall be or has become the Beneficial Owner of
securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities and (i) the
identity of the Chief Executive officer of the Company is changed during the
period beginning sixty (60) days before the attainment of the twenty percent
(20%) beneficial ownership and ending two (2) years thereafter, or (ii)
individuals constituting at least one-third (1/3) of the members of the Board at
the beginning of such period shall leave the Board during the period beginning
sixty (60) days before the attainment of the twenty percent (20%) beneficial
ownership and ending two (2) years thereafter.
59
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b. Definitions. The meanings of certain capitalized terms used in
-----------
Paragraph 15.a. are provided below:
(i) "Beneficial Owner" shall have the meaning defined in Rules 13d-3
and 13d-5(b) under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act").
(ii) "Person" shall have the same meanings as it does in section
3(a)(9) (including the definition of "Company" under section 3(a)(19)) including
a group and any other arrangement included as a "Person under section 13(d)(3)
of the Exchange Act, provided, a person shall not include an underwriter
temporarily holding securities pursuant to an offering of such securities.
7. MISCELLANEOUS.
-------------
a. Employee Representations. The Employee represents and warrants to the
------------------------
Company that there is no restriction or limitation, by reason of any agreement
or otherwise, upon the Employee's right or ability to enter into this Agreement
and fulfill his obligations under this Agreement.
b. Terminated 1991 Agreement. Employee's agreement with the Company dated
-------------------------
August 1, 1991, and
60
<PAGE>
subsequently amended on August 1, 1992 and October 4, 1994, shall be terminated
upon the effective date of this Agreement.
c. Interest on Amounts Due. In the event any amount due either Employee
-----------------------
or the Company under this Agreement is not paid when due, it shall thereafter
bear interest at the rate equivalent to the Security Pacific National Bank, Los
Angeles (or its successor), prime rate as it shall vary from time to time over
the period until paid. Such interest shall be compounded on a monthly basis.
d. Amendment. This Agreement shall not be changed or terminated except in
---------
writing.
e. Law. This Agreement shall be governed by, and construed under, the
---
laws of the State of California except for Paragraphs 13 and 14 which will be
governed by Florida law and Paragraph 10 which shall be governed by the law of
the state in which a business of the Company is located with respect to which a
claim of competition is made (e.g., if Employee worked for a casino in Las
----
Vegas, Nevada law would govern any adjudication).
f. Successors, Assigns. The terms and provisions of this Agreement shall
-------------------
inure to the benefit of the personal representatives, heirs and legatees of the
61
<PAGE>
Employee and shall be binding upon and inure to the benefit of any successors or
assigns of the Company . This Agreement shall survive any merger or voluntary
or involuntary dissolution and shall bind any person acquiring the Company's
assets in such event.
g. Notices. Any notices or other communications required or permitted to
-------
be given under this Agreement shall be deemed given on the day when delivered in
person, or the third business day after the day on which mailed by first class
mail from within the United States of America addressed to the party receiving
the communication at the principal office of the Company or such other address
as the party receiving the communication shall have designated to the other in
writing.
h. Consents and Approvals. As to any paragraph of this Agreement
----------------------
providing for the consent or approval of any party to this Agreement, such
provision shall be deemed to include the restriction that any such exercise of
approval or consent shall be reasonable and not unreasonably denied regardless
of whether such provision actually sets forth a specification that such an
approval or consent shall not be unreasonably denied.
i. Severability. If any provision of this Agreement is found invalid or
------------
unenforceable, the remain-
62
<PAGE>
der of this Agreement shall nevertheless remain in full force and effect. If
any provision is held invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect in all
other circumstances. If the provision held invalid or substantially limited
involves the compensation or benefits of Employee, Employee shall have the
option for thirty (30) days following the final decision holding such provision
to be invalid to terminate this Agreement by written notice to the Company.
j. Captions. Captions in this Agreement are merely to facilitate
--------
references and shall not affect the interpretation of any of the provisions.
17. CHANGE IN CONTROL LIMITATION.
----------------------------
The parties hereto agree that consummation of the transactions contemplated
by the Merger Agreement (including, without limitation, the acquisition of
shares of the Company's common stock pursuant to the Offer, as defined therein)
will constitute a "Change in Control", as that term is used in this Agreement.
The parties further agree that no transaction or event subsequent to the
Effective Time, as defined in the Merger Agreement, will constitute a Change in
Control for purposes of this Agreement.
63
<PAGE>
18. GUARANTEE BY ITT.
----------------
ITT hereby agrees to be bound by all the provisions of this Agreement,
including, without limitation, the undertakings in this Agreement directly
related to ITT or its common stock, and hereby guarantees the obligations of the
Company in this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed at Los Angeles,
California.
EMPLOYEE CAESARS WORLD, INC.
____________________ By______________________
Henry Gluck
ITT CORPORATION
By______________________
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<PAGE>
EXHIBIT 4
AMENDED AND RESTATED
--------------------
EMPLOYMENT AGREEMENT
--------------------
This is an amendment and restatement signed this ____ day of December,
1994, of the Employment Agreement made as of August 1, 1991, by and between
CAESARS WORLD, INC. (the "Company"), a Florida corporation, and J. Terrence
Lanni (the "Employee"), as previously amended as of August 1, 1992 and October
4, 1994, with ITT Corporation ("ITT") being added as a party hereto (such
amendment and restatement being hereinafter called the "Agreement").
FACT RECITALS
-------------
A. Employee is presently employed under the employment agreement, as
amended, described above; and
B. During the course of Employee's employment with the Company, Employee
has performed outstanding services for the Company and has obtained a superior
reputation in the industry, with regulatory agencies, and with various
institutional holders and members of the financial constituency of the Company;
and
C. It is deemed by the Company to be in the best interests of the Company
and its shareholders to assure continuation of Employee's employment to the
<PAGE>
employees of the Company and to the other interested parties described in B
above; and
D. The Company recognizes that the nature and character of the Company and
its present Board of Directors and Employee's present position, duties,
responsibilities and status within this structure are indispensable factors
which have caused Employee to remain in the employ of the Company and to enhance
the value of Employee's services to the Company; and
E. Employee desires assurance of a long-term future with the Company and
is willing to enter into a long-term agreement with the Company; and
F. Pursuant to an Agreement and Plan of Merger, dated as of December 19,
1994, among the Company, ITT Corporation and ITT Florida Enterprises Inc. (the
"Merger Agreement"), this Agreement is being executed prior to the acquisition
of shares of the Company's Common Stock pursuant to the Offer. The effective
date of this Agreement shall be the date of acquisition of shares of the
Company's common stock pursuant to the Offer.
1. TERM OF EMPLOYMENT.
------------------
Unless earlier terminated as herein provided, the term of Employee's
employment with the Company hereunder shall commence at the effective date and
shall end on the third anniversary of the effective date. For pur-
2
<PAGE>
poses of this Agreement, the "Term" of this Agreement shall mean the full three-
year term of the Agreement, plus any extensions which may be mutually agreed
upon by all three parties hereto in writing. For purposes of this Agreement,
the "Employment Period" (which in no event shall extend beyond the Term) shall
mean the period during which Employee has an obligation to render services
hereunder, as described in Paragraph 2, taking into account any notice of
termination which may be given by either the Company or the Employee. It is
understood that there are certain circumstances of termination under which the
Employment Period (and Employee's obligation to render services) will end before
the Term (and certain of the Company's obligations will end). Various
provisions of this Agreement are intended to survive the expiration or
termination of the Term or the Employment Period, including, without limitation,
the provisions of Paragraphs 6.c., 6.d., 7 and 9 through 14, inclusive.
2. DUTIES AND AUTHORITY OF EMPLOYEE.
--------------------------------
During the Employment Period, the Employee shall be President and Chief
Operating Officer of the Company and shall devote his efforts to rendering
services to the Company and its affiliates in such capacities. As President,
the Employee shall have those powers and
3
<PAGE>
duties set forth in Article VI, Section 6.6, of the Company's By-laws, as
amended, and all powers exercised by Employee in behalf of the Company in such
position prior to the date of this Agreement. He shall undertake those
assignments given him by the Chief Executive Officer of the Company. The
Employee shall report only to the Chief Executive Officer of the Company and the
Board of Directors of the Company (hereinafter "the Board"). Employee shall
comply with ITT's Code of Conduct, as set forth in the so-called "red book" as
of the date hereof.
3. DIRECTORSHIP.
------------
At each election during the Employment Period, ITT shall cause Employee to
be one of management's candidates for election to, and Employee agrees to serve
(if elected) on, the Board of Directors of the Company.
4. PLACE AND FACILITIES OF EMPLOYMENT.
----------------------------------
During the Employment Period, Employee's place of employment will be in the
West Los Angeles area. Employee shall not be required to render any services
hereunder outside of the West Los Angeles area except for business travel
reasonably necessary in connection with the Company's business. During the
Employment Period, Employee shall be furnished by the Company a private office
consistent with his status and a private secretary
4
<PAGE>
of Employee's choice in the West Los Angeles area. The West Los Angeles area
means an area bordered by Washington Boulevard on the south, La Brea Avenue on
the east, Sunset Boulevard on the north, and Pacific Ocean on the west.
5. EXCLUSIVITY.
-----------
It is understood that the Employee's employment during the Employment
Period shall be on an executive basis, except that the Employee may, subject to
the provisions of Paragraph 10 hereof, undertake or continue to conduct other
business, civic, or charitable activities during the Employment Period if such
activities do not materially interfere, directly or indirectly, with the duties
of the Employee hereunder, or compete with any business of the Company;
provided, however, that no additional outside business activities shall be
undertaken without the prior consent of the Board. Notwithstanding the
foregoing, nothing contained in this Employment Agreement shall be deemed to
preclude Employee from owning not more than the lesser of one percent (1%) or
$250,000 in market value of the publicly traded capital stock of an entity
whether or not in competition with the business of the Company or its
subsidiaries or affiliates or from carrying on activities normally incident to
5
<PAGE>
managing passive investments. Employee shall be deemed to be engaged in or
concerned with a duty or pursuit which is contrary to any provision of this
Agreement only if he has received written notice to such effect, setting forth
with reasonable specificity the basis of such claim, from the Company and has
not, within sixty (60) days from the date of his receipt of any such written
notice, initiated steps to eliminate his engagement in or concern with such
duties or pursuits as are specified in such notice as being contrary to this
Agreement.
6. COMPENSATION.
------------
a. Salary.
------
(i) During the Employment Period, the Employee shall be paid a salary
(herein "Salary"), which may be increased from time to time at the election of
the Board or any committee of the Board to which such power has been delegated
by the Board. Employee shall be entitled to annual salary reviews. As of the
date of this Agreement, the annual rate of Employee's Salary shall be $665,882.
(ii) On each August 1, beginning August 1, 1995, the Salary then effective
shall be adjusted in accordance with two-thirds of the increase or decrease of
the Consumer Price Index - United States City Average,
6
<PAGE>
All Urban Consumers, All Items, published by the Bureau of Labor Statistics,
U.S. Department of Labor (herein "CPI"), on such date with respect to the CPI
for the preceding August 1. This "CPI Adjustment" shall be equal to two-thirds
of the increase or decrease in the CPI as of a given August 1 with respect to
the CPI for the preceding August 1, divided by the amount of the CPI on the
preceding August 1, multiplied by the Salary as of such preceding August 1. The
Salary for the ensuing fiscal year shall be the salary as of the previous August
1 (A) plus the CPI adjustment, in the case of an increase in the CPI since the
previous August 1, and (B) minus the CPI Adjustment, in the case of a decrease
in the CPI since the previous August 1. If at the time of any such adjustment
such CPI shall no longer be published, the parties shall agree on an appropriate
measure of the increase in cost of living. As of August 1 of any fiscal year,
the Salary as adjusted pursuant to the foregoing provisions or by the Board at
its election shall thereafter be the Salary under this Agreement.
(iii) The Employee's Salary shall be paid in the same installments which
prevail for other Senior Corporate Officers of the Company (in no event less
frequently than monthly) or such other installments as
7
<PAGE>
are agreed upon between the Employee and the Company.
b. Bonus and Incentive Compensation.
--------------------------------
During the Employment Period, for each fiscal year the Employee shall be
paid the greater of (x) the annual bonus amount calculated pursuant to Paragraph
6.b.(i)-(viii) or (y) the annual bonus amount calculated pursuant to Paragraph
6.b.(ix).
(i) During the Employment Period, upon sign-off by the Company's auditors,
Employee shall be paid incentive compensation (herein "Incentive Compensation")
as provided in Paragraph 6.b.(viii) hereof, or, if Employee elects pursuant to
Paragraph 6.b.(viii) hereof, Employee shall be paid Incentive Compensation for
each fiscal year of the Company equivalent to six-tenths of one percent (0.60%)
of the Incentive Income (as defined below) of the Company but not more than
sixty percent (60%) of Employee's Salary earned during such fiscal year.
(ii) For this purpose, "Incentive Income" shall mean the Consolidated Net
Income of Caesars World, Inc. and subsidiaries for a particular fiscal year as
certified by the Company's independent auditors for purposes of the Company's
annual report to shareholders for such fiscal year (provided that, after the
consumma-
8
<PAGE>
tion of the Offer pursuant to the Merger Agreement, the Incentive Income
and the Incentive Net Worth, as defined below, shall be calculated based on the
Company's continuing operations which existed immediately prior to such
consummation and as if the transactions contemplated by the Merger Agreement had
never taken place), after the following adjustments:
A. Add back all amounts charged against Consolidated Net Income in respect
of the following:
I. The minority interest in earnings of any consolidated subsidiary, and
taxes based upon or measured, in whole or in part, by income of the Company and
its subsidiaries;
II. The aggregate of net expense charges for all awards in the nature of
incentive compensation and bonuses for all officers and assistant officers of
the Company which were accrued for such fiscal year; and an amount equal to
twelve percent (12%) of any deficit of Incentive Net Worth (as defined in (iii)
below);
III. All items characterized as Extraordinary Losses on the consolidated
statement of income;
IV. All charges against such income of any kind whatsoever resulting from
either a write-up of Company assets as a result of a reorganization of the
9
<PAGE>
Company or a revaluation of the Company assets as a result of an acquisition of
the Company in a transaction constituting a "purchase transaction" under
generally accepted accounting principles and any and all interest charges
imposed upon the Company as a result of the use of Company assets or credit to
finance any purchase by an outsider of the assets of the Company or of a
majority or more of the stock of the Company; and
V. All charges against income for items constituting unusual items under
generally accepted accounting principles which are treated as "one-line" items
for financial statement presentation purposes and which pertain to or arise out
of a tender or exchange offer for Company stock, a consolidation or merger of
the Company, or which pertain to or arise out of a recapitalization transaction
or other corporate restructuring initiated by the Company.
B. Subtract all amounts included in Consolidated Net Income in respect of
the following:
I. All amounts characterized as Extraordinary Gains on consolidated
statements of income for the Company and its subsidiaries;
10
<PAGE>
II. An amount equal to twelve percent (12%) of Incentive Net Worth (as
defined in (iii) below); and
III. All increases in such income of any kind whatsoever resulting from a
write-down of Company assets as a result of a reorganization of the Company or a
revaluation of Company assets as a result of an acquisition of the Company in a
transaction constituting a "purchase transaction" under generally accepted
accounting principles.
(iii) For this purpose, Incentive Net Worth shall mean, as applied to a
particular fiscal year, the total Shareholders' Equity shown on the consolidated
balance sheet for the Company and its subsidiaries as of the end of the
preceding fiscal year, plus or minus the amount of any increase or decrease
during a fiscal year, from the issue or the purchase of common or preferred
stock or any distributions with respect to the Company's common or preferred
stock. As to increases or decreases during a given year, the increase or
decrease shall be appropriately adjusted by a proportion based on the number of
days in the year prior to or after the increase or decrease, as the case may be.
Increases in Shareholders' Equity during the year (or period of computation in
11
<PAGE>
the event of termination of Employee during a fiscal year) resulting from the
issuance or vesting of stock bonus awards or the issuance of stock pursuant to
the exercise of employee stock options or stock appreciation rights should not
be taken into account in the computation for that year.
(iv) Notwithstanding the foregoing, in the event that any incentive plan
for Senior Corporate Officers (i.e., those officers of the corporation subject
----
to the jurisdiction of the Audit and Compensation Committee) uses a lower
percentage of net worth than twelve percent (12%) or a more favorable definition
of Incentive Income or Net Worth, or the equivalent, Employee's Incentive
Compensation shall be calculated using such more favorable definitions.
(v) In the event the Employment Period or the Term expires or terminates
before the end of a given fiscal year for any reason whatsoever or Employee
becomes subject to a Disability during a given fiscal year of the Employment
Period, the Incentive Compensation for such fiscal year shall be computed based
on the actual operating results of the Company to the end of the month preceding
the effective day of termination or the date of Disability (the "Computation
Period") and the
12
<PAGE>
twelve percent (12%) item in Paragraph 6.b.(ii)B. above (or any substituted
rate) shall be reduced by one percent (1%) (or 1/12 of such rate if the then
effective rate shall be less than twelve percent (12%)) for each month less than
twelve (12) in the Computation Period. Incentive Compensation shall vest monthly
as earned even though calculation by the Company's auditors may not be completed
until a later date and payment is not made until after such calculations can be
completed.
(vi) In the event of any acquisitions by the Company during the
Employment Period, the Company and Employee will renegotiate the provisions of
this Paragraph 6.b. so as to modify the applicable formula to produce a
reasonable and fair result consistent with the previous formula but taking into
account the acquisition.
(vii) Notwithstanding the foregoing, in computing "Incentive Income" and
"Incentive Net Worth", as defined herein, charges or equity adjustments related
to or arising from the transactions contemplated by the Merger Agreement,
including, without limitation, with respect to deferred compensation or the
lapsing of restrictions on restricted shares of the Company's common stock,
shall not be taken into account.
13
<PAGE>
(viii) As to any particular fiscal year of the Company, unless Employee
elects in writing, prior to the later to occur of (x) August 31 of such fiscal
year or (y) the tenth business day following his receipt of notice of the
Company's adoption of the Senior Corporate Executive Incentive Plan (or its
successor) for such fiscal year, to make this Paragraph 6.b. applicable for such
year, Employee shall instead automatically participate in the Senior Corporate
Executive Incentive Plan of the Company, or any successor plan thereto, and this
Paragraph 6.b. shall not apply for such year. Such an election as to any
particular year will only be applicable to that year and, absent a similar
agreement for any later year, this Paragraph 6.b. shall not apply to such later
year.
(ix) During the Employment Period, the Employee shall be paid an annual
bonus for each fiscal year of the Company based on an $380,000 target bonus,
with a pay-out varying between 0% and 150% of the target bonus. The percentage
pay-out shall be determined by the degree to which pre-established performance
goals based on the Company's budgeted operating cash flow and improvements
thereto are attained.
c. Other Benefits.
--------------
14
<PAGE>
(i) After the consummation of the Offer pursuant to the Merger Agreement
and throughout the rest of the Employment Period, ITT will recommend to the
committee administering the 1994 ITT Corporation Incentive Stock Plan (the "ITT
Plan") that the Employee shall receive an annual grant of a stock option for
20,000 shares of common stock ($1 par value) of ITT pursuant to the ITT Plan.
The first such grant shall be made as of the day immediately following such
consummation. The options shall have an exercise price per ITT share equal to
the fair market value of an ITT share on the date of grant. The options shall
become exercisable as to two-thirds (2/3's) of the underlying ITT shares when
the trading price of an ITT share equals or exceeds a dollar amount which is
twenty-five percent (25%) over the exercise price per ITT share for ten
consecutive trading days and shall become fully exercisable at the earlier of
(x) the date when the trading price of an ITT share equals or exceeds a dollar
amount which is forty percent (40%) over the exercise price per ITT share for
ten consecutive trading days or (y) the earlier of the fifth (5th) anniversary
of the date of grant or the "Wrongful Termination" of the Employee's employment,
as defined in this Agreement. The term of the options shall be nine years.
15
<PAGE>
If the Employee voluntarily terminates his employment hereunder within the first
year after the effective date hereof, he shall have 30 days after such
termination to exercise his options which are exercisable at the time of such
termination and his options which are unexercisable at the time of such
termination shall be forfeited. After such first year of employment hereunder,
if the Employee is eligible to receive immediate retirement benefits under
either an Executive Security Plan of the Company or an ITT pension plan, any
termination of employment (except a termination for "cause" as defined in this
Agreement) shall be treated as a retirement under the ITT Plan which entitles
him, whether or not his options are exercisable on the date of such termination,
to exercise all of his options within five years of such termination (or within
their original term, whichever is shorter) and such options shall continue to
vest after such termination in accordance with their terms. After such first
year of employment hereunder, if the Employee's employment is terminated for
"cause" as defined in this Agreement, he shall have 30 days after such
termination to exercise his options which are exercisable at the time of such
termination and his options which are
16
<PAGE>
unexercisable at the time of such termination shall be forfeited.
(ii) The Employee shall, to the extent deemed appropriate by the Board (or
any applicable committee of the Board), participate at a level consistent with
his rank in profit sharing, stock appreciation right, stock bonus, stock option,
deferred compensation, and other similar benefits which are made available to
executives employed by the Company during the Employment Period. Also, during
the Employment Period, Employee shall continue to participate in all fringe
benefits and perquisites now furnished Employee and (subject to the terms of any
such plan) in the Executive Security Plan and Individual Retirement Plan, and
shall participate consistent with his rank in any retirement plan or other
fringe benefits or perquisites hereafter adopted by the Company and made
applicable to its officers. Further, during the Employment Period, the Company
will provide, at its expense, life, business travel, disability, medical, dental
and hospitalization insurance for the Employee and his dependents in amounts and
on terms as favorable as those provided for any other officer of the Company.
17
<PAGE>
d. Retirement Benefits.
-------------------
(i) Supplemental Retirement.
-----------------------
In addition to any retirement benefits which the Company shall provide to
Employee under the terms of any retirement plan currently existing or which the
Company shall adopt during the Employment Period, the Company shall pay Employee
(or Employee's beneficiaries) an annual retirement benefit equal to the product
of (A) two percent (2%) times the number of years of Continuous Employment (as
defined in the Executive Security Plan of the Company as of the date hereof)
after July 31, 1985 (but not more than the aggregate of sixty percent (60%)) and
(B) the average Incentive Compensation accruing to Employee for all years of
Continuous Employment beginning after July 31, 1985 (i.e., beginning with the
----
Incentive Compensation paid for the fiscal year ended July 31, 1986). Payment
of the annual retirement benefit under this Paragraph 6.d.(i) shall commence on
the first day of the first month following Employee's sixty-fifth birthday or
upon Employee's retirement from employment with the Company, whichever shall
occur later. The annual retirement benefit shall be payable in monthly
installments for the life of Employee but not less than ten (10) years in any
event; and if Employee shall die before the expira-
18
<PAGE>
tion of such ten (10) year period, the remaining payments shall be paid to the
Beneficiary of Employee as designated under the Executive Security Plan of the
Company. If Incentive Compensation for any given fiscal year is taken into
account in computing retirement benefits for Employee under any retirement plan
of the Company (other than pursuant to this Paragraph 6.d.(i)), the amount of
the accrual under this Paragraph 6.d.(i) shall be reduced on the basis of
actuarial equivalence by the benefit given to, or contribution in behalf of,
Employee under such other plan based on the Incentive Compensation of Employee
for that fiscal year.
(ii) Trust Fund Protection.
---------------------
At any time (a) that the consolidated shareholder equity of the Company
shall be below $150 million, (b) within thirty (30) days preceding the end of
the Term or at any time thereafter or (c) at any time within thirty (30) days
preceding the date Employee ceases to be the Chief Executive Officer and
Chairman of the Board of Directors of the Company or at any time thereafter,
Employee by notice to the Company may require that the Company establish a trust
account with a bank or financial institution (the "Trustee") mutually acceptable
to Employee and the Company and that the Company deposit
19
<PAGE>
in such account an amount necessary to pay all retirement benefits of Employee
and Employee's beneficiaries provided under this Agreement and the Executive
Security Plan of the Company (or any other unfunded retirement plan of the
Company (or any other unfunded retirement plan hereafter adopted by the
Company). The Company shall continue to make additional payments to the Trustee
on an annual basis during the Term of this Agreement to the extent required in
order to maintain in the account sufficient funds to cover the anticipated
benefits to Employee and Employee's beneficiaries. Under the terms of the trust
agreement, the trust fund and the required retirement benefit payments to
Employee and his beneficiaries in behalf of the Company shall be subject to the
claims of the Company's creditors. To the extent that the trust fund is
insufficient to make the full payment that Employee or Employee's beneficiaries
are entitled to under this Agreement and any other retirement plan of the
Company, the Company shall pay the difference from its general assets. Any
excess funds remaining in the trust fund upon termination of all of the
Company's obligations to Employee and any of his beneficiaries under this
Paragraph 6.d. and any other retirement plan of the Company in which Employee
participates, shall revert to
20
<PAGE>
the Company. To the extent that implementation of this subparagraph will
adversely affect the deferral of taxation of Employee with respect to the
accrual of retirement benefits on behalf of Employee, this Paragraph 6.d.(ii)
shall be deemed void.
(iii) Upon the first to occur of (x) the expiration of the Term or (y)
termination of the Term or the Employment Period other than under Paragraph
9.a., and continuing until one year after the death of Employee, the Company
will provide Employee and his dependents with medical, dental and
hospitalization insurance equivalent to that provided Senior Corporate Officers
of the Company or any parent corporation of the Company, provided Employee has
at the time of expiration or termination attained the age when Employee would be
first eligible for early retirement under the Executive Security Plan assuming
all other requirements under such plan were fulfilled at such time. Such
insurance shall be provided through the plans of the Company or, if this is not
practical, the Company shall directly pay all such expenses on the same basis as
if Employee had been included in such plans. To the extent Employee obtains
other employment (and Employee shall be under no obligation to do so under this
Paragraph 6.d.(iii)), insurance obtained
21
<PAGE>
as a result of such other employment shall be the first line of insurance and
insurance provided under this provision shall only be supplementary. Also, to
the extent Employee is entitled to insurance under Medicare or its equivalent,
the insurance under this provision shall be only supplementary or second line to
the extent allowed by law.
e. Withholding.
-----------
All compensation shall be subject to normal required withholdings.
7. VACATIONS.
---------
Employee shall accrue vacation time at the rate of one and two thirds (1
2/3) days per month of service during the Employment Period, provided, however,
at no time shall more than sixty (60) days be accrued and during any period that
the cumulative accrual is at this sixty (60) day level, no additional vacation
time shall accrue. At Employee's option, vacation may be taken, either in whole
or in part, consecutively or not, in the year that Employee's entitlement to
that vacation accrues or, if unused during such year, such vacation time shall
be carried over (subject to the sixty (60) day maximum accrual) and may be used
in any subsequent year during the Employment Period, provided that no more than
sixty
22
<PAGE>
(60) days of vacation may be taken in any calendar year. Upon termination of
Employee's employment with the Company for any reason whatsoever, Employee shall
be paid his Salary or all unused then accrued vacation at the Salary rate then
existing up to the maximum accrual of sixty (60) days.
8. EXPENSES.
--------
The Company will reimburse Employee for all expenses reasonably incurred by
Employee in the performance of his duties under this Agreement. Reimbursement
shall be made in accordance with the practices and requirements generally
applied by the Company in connection with reimbursement of expenses incurred by
its employees. It is understood that the Company will pay to Employee an
automobile allowance providing the equivalent of availability to Employee of a
car of comparable level of quality as presently being operated by Employee under
an automobile allowance from the Company. The Company also will pay for the
insurance, operating, maintenance and repair of such car (including gasoline and
oil) or a car used by Employee in lieu of a furnished car if Employee elects the
automobile allowance. The allowance and all payments with respect to the
automobile will be grossed-up for tax purposes in accordance with Company
practices
23
<PAGE>
as they exist as of the date of this Agreement. Employee may from time to time
also incur certain expenses on behalf of the Company or in furtherance of its
business for which reimbursement may not be made under Company policy or
practices.
9. TERMINATION OF EMPLOYMENT PERIOD AND/OR AGREEMENT.
-------------------------------------------------
a. Termination by the Company for Cause.
------------------------------------
(i) The Company may at any time, at its election, terminate the Employment
Period and the Term prior to the Term's expiration because of the following
causes: (A) willful misconduct by the Employee in the performance of his duties
under this Agreement or his habitual neglect of such duties, (B) failure of the
Employee to obtain or retain any permits, licenses or approvals which shall be
required by any state or local authorities where the failure to obtain such
license will result in the loss of a material license or franchise held by the
Company (or a subsidiary thereof), or (C) a willful breach by the Employee of
any of the material terms of this Agreement.
(ii) Any such termination shall be effective only if notice is given to
Employee not later than ninety (90) days following the event, transaction, or
occurrence giving rise to such right of termination, or
24
<PAGE>
if later, ninety (90) days after the Company first discovers that such event,
transaction, or occurrence has taken place. Also, any such termination under
(A) through (C) of Paragraph 9.a.(i) may only occur if all of the following are
demonstrated by the Company: (x) the failure, breach or action directly
materially adversely affects the Company (except in the event of a termination
under Paragraph 9.a.(i)(B)), (y) the failure, action or breach by Employee was
in bad faith and lacking in a good faith belief that it was in or at least not
opposed to the Company's interest (except in the event of a termination under
Paragraph 9.a.(i)(B)), and (z) the Company gave notice to cure to Employee and
Employee failed to cure within thirty (30) days after notice thereof or, if a
cure was not possible within thirty (30) days, failed to take all practical
action within such period leading to a cure.
(iii) (A) In the event that the Company elects to terminate the
Employment Period and the Term for cause pursuant to the foregoing provisions of
this Paragraph 9.a., the termination shall not be effective and the Agreement
(including, without limitation, Paragraphs 9.d. and 9.e.) shall continue in full
force and effect until the issuance of an arbitration award affirm-
25
<PAGE>
ing the Company action. Without limiting the generality of the foregoing, the
Company shall continue to pay Employee's then current Salary and Incentive
Compensation as specified in Paragraph 6. of this Agreement and shall continue
all other benefits until the issuance of such arbitration award.
(B) Such arbitration shall be held in Los Angeles, California in
accordance with the rules of the American Arbitration Association (except as
otherwise provided in this Paragraph 9.(iii)(B)) within ninety (90) days
following receipt by the Employee of the notice to cure under Paragraph 9.a.(ii)
above. Any decision by the arbitrator shall be final and binding on the parties
and all successors in interest. Judgment upon an award of the arbitrator may be
entered in any court of competent jurisdiction. Employee shall cooperate with
the Company in effecting such an accelerated arbitration. The Company shall
make available to Employee any and all documents requested by the Employee for
purposes of defending such arbitration and allow Employee or Employee's
representatives access to any and all Company records and personnel for such
purpose. The Company will produce any such records and personnel at the
arbitration to the extent requested by Employee. Notwithstanding the
26
<PAGE>
foregoing, the arbitration shall not be commenced until Employee has had a
reasonable opportunity to have the matter investigated and his case prepared by
any representatives; however, the Employee shall use his best efforts to
complete his presentation within the above stipulated ninety (90) day period.
The Company will pay all Employee's reasonably incurred legal expenses and other
costs in presenting the matter and all costs of the arbitrator.
(C) In the event that the arbitrator shall decide in favor of the Company,
Employee shall repay all Salary earned by Employee following the expiration of
the 30-day cure period under Paragraph 9.a.(ii)(z) above. As to Incentive
Compensation in the event that the arbitration results in a judgment in favor of
the Company, for purposes of Paragraph 6.b.(v) of this Agreement, the effective
day of termination shall be the date of the expiration of the cure period in
Paragraph 9.a.(ii)(z) and to the extent Employee has received any payment of
Incentive Compensation pertaining to the Incentive Compensation accruals after
such date, Employee shall repay the same to the Company upon demand.
Notwithstanding anything in this Paragraph 9.a.(iii), the Company may suspend
Employee upon the expiration of the
27
<PAGE>
cure period specified in Paragraph 9.a.(ii)(z) pending the outcome of
arbitration; however, as stated above, Employee shall continue to receive
Salary, Incentive Compensation, and all benefits during such suspension subject
to Employee's obligation to repay Salary and Incentive Compensation in the event
the arbitration decision is against Employee as set forth above. Employee shall
be allowed to retain benefits in all events.
(iv) In the event that there is a termination of the Employment Period and
the Term by the Company under this Paragraph 9.a. and the cause is solely the
cause described under Paragraph 9.a.(i)(B) above and not within either Paragraph
9.a.(i)(A) or (C), Employee shall be entitled to severance pay equivalent to one
(1) year's Salary payable within five (5) days of the effective date of
termination, and to the continuation of all fringe benefits and insurance
described in Paragraph 6.c. for a one (1) year period following such termination
(which continuation shall not, however, duplicate insurance already provided by
Paragraph 6.c. for such period), provided, that the actions of employee leading
to the loss of license were in the good faith belief that his actions were for
the benefit of and in the best interests of the Company and not in violation of
any law and that
28
<PAGE>
such payments are not in violation of law, and, provided further, that Employee
used his best efforts to obtain or retain (as the case may be) such license.
b. Disability.
----------
In the event that Employee shall become subject to a Disability (as defined
below) during the Employment Period, the Incentive Compensation shall stop
accruing and the Salary payable to Employee shall be reduced to fifty percent
(50%) of the Salary in effect at the date of the Disability. Such reduced
compensation shall continue until the termination of Employee's Disability, the
expiration of the Term, or the expiration of thirty (30) months from the
inception of the Disability, whichever occurs first. During any such period of
Disability, the Company shall also keep in force for the benefit of Employee and
Employee's dependents all life, health and medical insurance policies maintained
for Employee's benefit under the terms of this Agreement and Employee shall be
considered to be employed for purposes of the vesting and accrual of benefits of
all other plans and programs of the Company in which Employee is a participant
and which vest or accrue benefits over a period of time, except Incentive
Compensation. Notwithstanding the foregoing, the Company shall not be required
to add Em-
29
<PAGE>
ployee to any new bonus, profit sharing, stock bonus, stock option, deferred
compensation, and other similar plans or make any new awards to Employee under
this Agreement with respect to such new or presently existing plan during the
period of such Disability. All Salary payments pursuant to this Paragraph 9.b.
due to Employee under its terms shall be reduced by any disability payments made
in accordance with any existing disability program or disability insurance of
the Company. For purposes of this Agreement, Employee shall be deemed to have
become subject to a Disability (herein "Disability") if, because of ill health
or physical or mental disability, Employee shall be unable to perform his duties
and responsibility to the extent reasonably necessary for Employee to give the
Company substantially the value of his services for a consecutive one hundred
and eighty (180) day period and upon the completion of such one hundred and
eighty (180) day period, either the Company or the Employee shall have given
written notice to the other of such party's election that Employee be treated as
subject to a Disability. The date of such Disability shall be the third
calendar day immediately following transmittal of such written notice of
Disability.
30
<PAGE>
If, because of ill health or physical or mental disability, Employee shall
be unable to perform his duties and responsibility to the extent reasonably
necessary for Employee to give the Company substantially the value of his
services for a consecutive sixty (60) days, the Company, in its sole discretion
(but in consultation with the Employee to the extent practicable), may appoint
temporarily an Acting President and/or Acting Chief Operating Officer; provided,
however, that if the Employee becomes able to provide such services again during
the Term of this Agreement, he shall replace the Acting President and the Acting
Chief Operating Officer and resume acting as President and Chief Operating
Officer of the Company.
If, because of ill health or physical or mental disability, Employee shall
be unable to perform his duties and responsibility to the extent reasonably
necessary for Employee to give the Company substantially the value of his
services for a consecutive three-hundred-sixty-five (365) days, if the
Employee's personal physician and a physician selected by the Company shall
unanimously determine that the Employee will be subject to a Disability for the
remainder of the Term (or, if they
31
<PAGE>
shall be unable to agree, they shall mutually agree upon a third physician who
shall make a determination as to whether the Employee will be subject to a
Disability for the remainder of the Term), then the Company may, in its
discretion, remove the Employee from the positions of both President and Chief
Operating Officer, and the Employee shall have no right to treat such removal as
a "Wrongful Termination".
c. Death.
-----
The Term and the Employment Period will automatically terminate upon the
death of the Employee; however, the Company will pay death benefits equal to
fifty percent (50%) of Employee's Salary at his death to Employee's surviving
spouse for twelve (12) months after Employee's death or so long as the spouse
survives Employee, whichever ends first, and there shall be full acceleration of
vesting or exercisability upon death of all outstanding unvested stock options
and stock awards including, without limitation, those awards under the Key
Employee Stock Bonus Plan, the Key Employee Stock Grant Plan, Key Employee
Incentive Share Grant Agreement or any similar stock plans or agreements of the
Company (whether such awards are made before or after the date of this
32
<PAGE>
Agreement) and delivery to the appropriate person of all stock pursuant to terms
of any such plans or agreements.
d. Termination by the Company (without Cause).
------------------------------------------
(i) Wrongful Termination Described.
------------------------------
A. Wrongful Termination. Notwithstanding the foregoing, if during the
--------------------
Employment Period Employee is not reelected to, or is removed from, the position
of either Chairman of the Board or Chief Executive Officer other than for cause
as provided in Paragraph 9.a. above, or if the Company otherwise materially
breaches this Agreement and fails to complete the cure of such breach within
thirty (30) days after notice from Employee, then, at any time within three (3)
months after the date upon which Employee is removed from either such position
or the breach date, as the case may be, Employee may elect by notice in writing
to the Secretary of the Company to treat the situation as a "Wrongful
Termination" of Employee's employment by the Company effective one (1) week
after the notice and to discontinue his obligations to perform services
hereunder. The Employment Period shall end at such effective date.
B. Arbitrated Determination of Company Breach. If Employee believes the
------------------------------------------
Company has materially breached this Agreement, then, in lieu of electing to
33
<PAGE>
notify the Secretary of the Company to treat the situation as Wrongful
Termination, Employee may request an arbitra-tion to determine whether the
Company has in fact materially breached this Agreement. The arbitration shall be
conducted under the rules of Paragraph 9.a.(iii)B. and all provisions of
Paragraph 9.a.(iii)B. shall apply, including without limitation the Company's
obligation to pay legal and other expenses and costs of Employee and the
arbitration costs. Employee shall continue to perform his services for the
Company pending the decision of the arbitrator and shall receive all Salary,
Incentive Compensation and benefits for such period. If the arbitrator shall
decide for Employee, Employee shall have two (2) months after such decision to
elect by written notice to the Company to treat the breach as a Wrongful
Termination under this Paragraph 9.d. as provided in 9.d.(i) above. The
arbitration requested by Employee shall be binding on both Employee and the
Company as to the matters submitted to arbitration.
(ii) Employee's Obligations after Wrongful Termination. In the event of a
-------------------------------------------------
Wrongful Termination, Employees' obligations under Paragraph 2 shall cease as of
the date notice of such termination is given; provided, however, that all
payments and benefits provided to
34
<PAGE>
Employee hereunder because of a Wrongful Termination shall be upon the condition
of, and partly in consider-ation for, Employee's continued compliance with any
covenants in this Agreement which by their terms apply during the Term of
thereafter.
(iii) Payments and Benefits to Employee after a Wrongful Termination. In
--------------------------------------------------------------
the event of a Wrongful Termination upon or after a Change in Control, certain
additional payments and benefits to Employee are provided under Paragraph
9.e.(iii). In the event of any Wrongful Termination, the Company shall pay the
Employee (i) within five (5) days of the date notice of such termination is
given, any amounts which have become payable under other provisions of this
Agreement or other obligations of the Company to Employee which have accrued but
have not yet been paid, including without limitation Salary earned prior to the
date the notice is given and compensation for unused vacation, and (ii) in
accordance with the other provisions of this Agreement, all entitlements of
Employee, including without limitation entitlements under Paragraphs 6.b.(v),
6.d., 13, and 14. Accrued Incentive Compensation shall be paid in accordance
with the provisions of this Agreement or the Corporate Executive Incentive Plan
(or its successor), which-
35
<PAGE>
ever is applicable. The Company shall also be obligated as follows:
A. Within five (5) days following the date notice of such termination is
given, the Company shall pay the Employee an amount equal to the present value
of the sum of (x) all Salary then unearned for the balance of the Term (without
consideration of cost of living increases) plus (y) the present value of an
amount determined by multiplying the number of years and fractional years to the
nearest month then remaining in the Term times the amount of Incentive
Compensation earned by Employee for the last full fiscal year of the Company
preceding the date of termination. In making this present value calculation the
projected Incentive Compensation shall be assumed to be earned pro rata over the
remaining Term. For this purpose, the rate used for the determination of the
present value shall be the average of the five (5) year treasury note rates
effective at the end of each of the six (6) calendar months immediately
preceding the month in which the termination of employment occurs. If Employee
agrees to take a ten percent (10%) reduction in the amount otherwise payable
under this Paragraph 9.d.(iii)A. for the present value of Salary and Incentive
Compensation with respect to the remaining Term, Employee
36
<PAGE>
shall have not duty to mitigate damages following a Wrongful Termination by the
Company, and the Company shall not be entitled to any reduction of its
obligations under this Agreement or repayment from Employee by virtue of any
subsequent employment of Employee except as set forth below in Paragraph
9.d.(iii)C. below.
B. During the remaining Term, the Company shall keep in force for the
benefit of Employee and Employee's dependents all life insurance policies
maintained for Employee's benefit under the terms of this Agreement and fulfill
its automobile obligations under Paragraph 8. During such period the Company
shall not be required to add Employee to any new profit sharing, stock bonus,
stock option, bonus, deferred compensation and other similar plans or make any
awards to Employee under this Agreement with respect to new or old plans of such
nature. In the event of a Wrongful Termination, all existing stock options and
any awards under the Key Employee Stock Grant Plan, Key Employee Incentive Share
Grant Agreement or any similar stock plans or agreements of the Company (whether
made before or after this Agreement) not otherwise exercisable or vested under
its terms shall be immediately exercisable or vested in full upon such
termination (i.e., upon the giving of the Employee's
37
<PAGE>
notice of termination specified in Paragraph 9.d.(i)A. or B. above) and shall
thereafter be exercisable or vested in full pursuant to the terms of such stock
option or other awards.
C. Notwithstanding Paragraph 9.d.(iii)B., any life insurance afforded
Employee under this Agreement shall be only supplementary or secondary to any
such protection provided by other employment or through Medicare.
e. Employee's Additional Election and Rights after a Change in Control.
-------------------------------------------------------------------
(i) Employee's Right to Elect Termination after a Change in Control.
---------------------------------------------------------------
A. Permitted Period for Elective Termination. In the event of a Change in
-----------------------------------------
Control, Employee shall have the right to elect to terminate the Employment
Period (and his obligation to render services under this Agreement) by notice in
writing to the Secretary of the Company within twelve (12) months after the
Change in Control.
B. Payments and Benefits to Employee after Elective Termination. If the
------------------------------------------------------------
Employee elects termination under Paragraph 9.e.(i)A., the Company (i) shall pay
Employee, upon receipt of such notice of termi-
38
<PAGE>
nation, any amounts which have become payable under other provisions of this
Agreement or other unpaid obligations of the Company which have then accrued,
but have not yet been paid, including without limitation Salary and Incentive
Compensation earned prior to the date notice is given and compensation for
unused vacation, and (ii) shall provide, in accordance with the other provisions
of this Agreement, all entitlements of Employee, including without limitation
entitlements of Employee under the provisions of Paragraph 6.b.(v), 6.d., 13,
and 14. The Company shall also pay to the Employee (or there shall automatically
be paid or delivered in the case of Paragraph 9.e.(i)(B)(y) below):
(w) benefits described in the first sentence of Paragraph 9.d.(iii)B. to be
provided for the greater of period (A) or (B) described in Paragraph
9.e.(i)B.(x), in accordance with the provisions of Paragraphs 9.d.(iii)B. and C.
as if the termination were a Wrongful Termination,
(x) upon the effective date of termination of Employee's employment, as
severance pay, a lump sum amount equal to the present value of the aggregate of
the remaining amount of Salary and Incentive Compensation provided with respect
to the greater of (A) the remaining
39
<PAGE>
Term (as if he had continued to render services for the duration of the Term,
but without consideration of cost of living increases) or (B) two (2) years,
calculated (in the case of either (A) or (B)) in accordance with Paragraph
9.d.(iii)A. above, including (if Employee agrees) the reduction by 10% in lieu
of mitigation,
(y) except as otherwise specified herein, full acceleration of vesting or
exercisability upon notice of termination of all outstanding unvested stock
options and stock awards including, without limitation, those awards under the
Key Employee Stock Bonus Plan, the Key Employee Stock Grant Plan, Key Employee
Incentive Share Grant Agreement or any similar stock plans or agreements of the
Company (whether such awards are made before or after the date of this
Agreement) and delivery to Employee of all stock pursuant to terms of any such
plans, and
(z) notwithstanding any other provision hereof, within five (5) days
following the date notice of such termination is given, in lieu of any benefits
payable under the Company's Executive Security Plan ("ESP"), a lump sum equal to
the Termination Benefit as defined in the ESP and computed in accordance with
the ESP provisions with the following assumptions: (i) as if the ESP had no
forfeiture provisions provided in Section 5.3
40
<PAGE>
thereof, and (ii) as if the Employee had continued to be employed by the Company
for the greater of period (A) or (B) described above in Paragraph 9.e.(i)B.(x);
provided, however, that, if any part (or all) of such lump sum shall not be
paid, either pursuant to the "Contingent Severance Agreement" (the agreement by
that name between Employee and the Company, dated as of the same date hereof as
amended from time to time) or pursuant to this Agreement (whether as the result
of the application of Paragraph 9.e.(i)C. or otherwise), the Employee shall
remain entitled to whatever benefits (if any) the ESP, by its own terms, grants
the Employee and the Employee shall be paid such benefits in accordance
therewith after reduction for any amount paid pursuant to the Contingent
Severance Agreement or this Paragraph 9.e.(i)B.(z).
C. Contingent Limitation on Amounts. (w) Notwithstanding any other
--------------------------------
provisions of this Agreement or any other agreement, plan or arrangement, in the
event that any payment or benefit received or to be received by Employee
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, or any other plan, arrangement or agreement with
the Company, or any other plan, arrangement or agreement with any person whose
actions result in a Change in
41
<PAGE>
Control or any person affiliated with the Company or such person) (all such
payments and benefits being hereinafter called "Total Payments") would not be
deductible (in whole or in part) as a result of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), by the Company, an affiliate or
other person making such payment or providing such benefit, then the portion of
the Total Payments payable pursuant to this Agreement shall be reduced to the
extent necessary so that no portion of the Total Payments is subject to the
parachute excise tax (the "Excise Tax") imposed by Section 4999 of the Code
(after taking into account any reduction in the Total Payments provided by
reason of Section 280G of the Code in any other plan, arrangement or agreement)
if (A) the net amount of such Total Payments, as so reduced (and after deduction
of the net amount of Federal, state of local income tax on such reduced Total
Payments) is greater than (B) the excess of (i) the net amount of such Total
Payments, without reduction (but after deduction of the net amount of Federal,
state and local income tax on such Total Payments), over (ii) the amount of
Excise Tax to which the Employee would be subject in respect of such Total
Payments. Any reduction of the Total Payments
42
<PAGE>
shall be made in one of the two alternative orders set forth in Paragraph
9.e.(i)C.(x) hereof.
(x) If the Total Payments all become payable at approximately the same
time, (i) the benefits under Paragraph 9.e.(i)B.(w) (or under the first sentence
of Paragraph 9.d.(iii)B., if applicable) shall first be reduced (if necessary,
to zero), (ii) the payment pursuant to Paragraph 9.e.(i)B.(z) (or pursuant to
Paragraph 9.e.(iii)(x), if applicable) shall next be reduced (if necessary to
zero), (iii) acceleration of vesting of awards under stock options, the Key
Employee Stock Bonus Plan, Key Employee Stock Grant Plan, Key Employee Incentive
Share Agreement or any similar stock plan or agreement of the Company and
severance pay under Paragraph 9.e.(i)B.(x) (or payments under Paragraph
9.d.(iii)A., if applicable) shall next be reduced (if necessary to zero), and
(iv) other portions of the Total Payments shall be reduced as necessary. If the
Total Payments do not become due and payable at the same time, the respective
Total Payments shall be paid in full in the order in which they become payable
until any portion thereof would not be deductible, and such portion (and any
subsequent portions) of the Total Payments shall be reduced to zero.
43
<PAGE>
(y) For purposes of determining whether and the extent to which the Total
Payments will be subject to the Excise Tax, (i) no portion of the Total
Payments the receipt or enjoyment of which the Employee shall have effectively
waived in writing prior to the date of termination shall be taken into account;
(ii) no portion of the Total Payments shall be taken into account which in the
opinion of tax counsel selected by the Company's independent auditors and
acceptable to the Employee does not constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code, including by reason of Section
280G(b)(4)(A) of the Code; (iii) in calculating the Excise Tax, the payments in
Paragraphs 9.e.(ii)B.(w) through (z) (or Paragraph 9.d.(iii)A. through B. and
Paragraph 9.e.(iii)(x), if applicable) shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
9.e.(i)(C)(y)(i) or (ii)) in their entirety constitute reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(4) of the
Code or are otherwise not subject to disallowance as deductions because of
Section 280G of the Code, in the opinion of tax counsel referred to in clause
9.e.(i)(C)(y)(ii); and (iv) the value of any non-cash benefit or any deferred
44
<PAGE>
payment or benefit included in the Total Payments shall be determined by the
Company's independent auditors in accordance with the principles of Section
280G(d)(3) and (4) of the Code. Prior to the earliest payment date set forth in
Paragraph 9.e.(i)B. (or Paragraph 9.d.(iii) and 9.e.(iii), as applicable), the
Company shall provide the Employee with its calculation of the amounts referred
to in this Paragraph 9.e.(i)C and such supporting materials as are reasonably
necessary for the Employee to evaluate the Company's calculations. If the
Employee objects to the Company's calculations, the Company shall (on or prior
to the applicable payment date) pay to the Employee such portion of the amounts
payable pursuant to this Agreement (up to one hundred percent (100%) thereof) as
the Employee determines is necessary to result in the Employee's receiving the
greater of the amounts in clauses (A) and (B) of Paragraph 9.e.(i)C(w).
D. Employee's Obligations after Elective Termination. If Employee elects
-------------------------------------------------
to terminate his obligations to render services under this Agreement pursuant to
Paragraph 9.e.(i)A., his obligations under Paragraph 2 shall cease as of the
date notice of such termination is given. Employee agrees that all payments
made because of such elective termination shall be upon
45
<PAGE>
the condition of, and partly in consideration for, his continued compliance with
any covenants under Paragraph 11 of this Agreement which by their terms apply
during the Term or thereafter.
(i) Agreement in Full Effect after a Change in Control. Upon and after a
--------------------------------------------------
Change in Control, until and unless Employee makes a written election pursuant
to Paragraph 9.e.(i)A., this Agreement shall continue in full force and effect,
in accordance with all the provisions hereof.
(ii) Additional Payments and Provisions after Wrongful Termination upon
------------------------------------------------------------------
or after a Change in Control. In the event of a Wrongful Termination upon or
- ----------------------------
after a Change in Control (or upon or after the occurrence of any other event
which constitutes a change in ownership or effective control of the Company or
in the ownership of its assets, or which would be deemed to be such a change
under Section 280G of the Internal Revenue Code of 1986, as amended, or the
regulations or other legal authority developed thereunder), the Company shall
provide Employee with the payments and benefits required by Paragraph 9.d.(iii)
and the following shall apply:
(x) notwithstanding any other provisions hereof, in lieu of any benefits
payable under the
46
<PAGE>
Company's Executive Security Plan ("ESP"), the Company shall pay, within
five 95) days following the date notice of such termination is given, a lump sum
equivalent to the Termination Benefit as defined in the ESP and computed in
accordance with the ESP provisions with the following assumptions: (i) as if the
ESP had no forfeiture provisions provided in Section 5.3 thereof, and (ii) as if
the Employee had continued to be employed by the Company for the Term; provided,
however, that, if any part (or all) of such lump sum shall not be paid, either
pursuant to the Contingent Severance Agreement or pursuant to this Agreement,
the Employee shall remain entitled to whatever benefits (if any) the ESP grants
the Employee (such benefits to be reduced by any amount paid pursuant to the
Contingent Severance Agreement or this Paragraph 9.e.(iii)(x)) and the Employee
shall be paid such benefits in accordance therewith; and
(y) Section 5.3 of the ESP shall be void as to Employee.
(iv) Offset of Certain Amounts. Notwithstanding the provisions of
-------------------------
Paragraphs 9.d. and 9.e., any payments or benefits to Employee pursuant to
Paragraph 9.d.(iii)A.-C., 9.e.(i)B.(w)-(z) or 9.e.(iii)(x)-(z), shall be reduced
by any amounts the Company may have
47
<PAGE>
previously paid Employee for the same items pursuant to Section 6(A) of the
Contingent Severance Agreement.
10. RESTRICTION OF COMPETITION.
--------------------------
During the Term the Employee will not, as an officer, director, employee,
or consultant, work for, or participate in, the activities of any firm or person
which is engaged (a) in the operation of a casino in the continental United
States, or (b) in any other line of business which is the same, or substantially
the same, as a line of business from which the Company and its subsidiaries at
the time, and at such, if any, earlier time as this Agreement is terminated,
derive at least twenty-five percent (25%) of their consolidated revenue, and
which is engaged in significant competition with the Company or any of its
subsidiaries. For the purpose of this Paragraph 10, the term "line of business"
shall mean a group of products or services treated as a line of business by the
Company in its most recent annual report (or most nearly similar report) filed
with the Securities and Exchange Commission. Employee's fulfillment of
obligations under this provision are a condition to the Company's obligations
under Paragraph 9. The Company, in its sole discretion, may waive this
Paragraph 10 to expand the class of companies with which Employee could
48
<PAGE>
mitigate damages under Paragraph 9 above. Employee's obligations under this
Paragraph 10 shall terminate immediately upon any Wrongful Termination of
Employee by the Company or upon a Change in Control.
11. CONFIDENTIAL INFORMATION.
------------------------
The Employee will not, during or after the Term, disclose to any firm or
person any information, including, but not limited to, information about
customers or about the design, manufacture or marketing of products or services,
which is treated as confidential by the Company and to which the Employee gains
access by reason of his position as an employee of the Company.
12. RIGHT TO INJUNCTIVE RELIEF.
--------------------------
The Employee acknowledges that the Company will suffer irreparable injury,
not readily susceptible of valuation in monetary damages, if the Employee
breaches any of his obligations under Paragraph 10 and 11 above. Accordingly,
the Employee agrees that the Company shall be entitled, in addition to, and not
in lieu of any other available remedies, to seek and obtain injunctive relief
against any breach or prospective breach by the Employee of the Employee's
obligations under Paragraphs 10 and 11 in any Federal or state court sitting in
Los Angeles County in the State of California or, at the Company's
49
<PAGE>
election, in Clark County of the State of Nevada or in such other state as may
be the state in which the Employee maintains his principal residence or his
principal place of business. The Employee hereby submits to the jurisdiction of
all those courts for the purposes of any actions or proceedings instituted by
the Company to obtain such injunctive relief, and agrees that process may be
served by registered mail, addressed to the last address of the Employee known
to the Company, or in any other manner authorized by law.
13. LIABILITY INSURANCE.
-------------------
a. Insurance
---------
Subject only to the provisions of Paragraph 13.b. below, the Company hereby
agrees that, so long as Employee shall continue to serve as a director, officer,
employee or consultant of the Company (or shall continue at the request of the
Company to serve as a director, officer, employee, partner, consultant, or agent
of another corporation, partnership, joint venture, trust or other enterprise)
and thereafter so long as Employee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative by reason of the fact that Employee was a director,
officer, or employee, of
50
<PAGE>
the Company (or served in any of said other capacities), the Company will
purchase and maintain in effect for the benefit of Employee one or more valid,
binding and enforceable policy or policies of directors and officers insurance
providing, in all respects, coverage at least comparable to that presently
provided pursuant to the directors and officers insurance presently available to
the Company ("the Insurance Policies").
b. Limitation On Company Obligation
--------------------------------
The Company shall not be required to maintain the Insurance Policies in
effect if said insurance is not reasonably available or if, in the reasonable
business judgment of the then Board either (i) the premium cost for such
insurance is substantially disproportionate to the amount of coverage or (ii)
the coverage provided by such insurance is so limited by exclusions that there
is insufficient benefit from such insurance.
14. INDEMNITY.
---------
a. Subject only to the exclusions set forth in Paragraph 14.b. below, and
in addition to any rights of Employee under the By-laws of the Company, any
applicable state law, Paragraph 13 of this Agreement, or any other agreement,
the Company hereby further agrees to hold harmless and indemnify Employees:
51
<PAGE>
(i) Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
Employee in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Company) to which Employee is, was or at any
time becomes a party, or is threatened to be made a party, by reason of the fact
that Employee is, was or at any time becomes a director, officer, employee,
consultant, or agent of Company, or is or was serving or at any times serves at
the request of the Company, as a director, officer, employee, consultant,
partner, trustee or agent (regardless of his title) of another corporation,
partnership, joint venture, trust or other enterprise; and
(ii) Otherwise to the fullest extent as may be provided to Employee by the
Company under the non-exclusivity provisions of the By-laws of the Company and
the Florida Business Corporations Act, and
(iii) From any and all income and excise taxes (and interest and penalties
relating thereto) imposed on Employee with reference to any payment under
52
<PAGE>
this Paragraph 14 (including without limitation payments in indemnity for such
taxes).
b. No indemnity pursuant to this Paragraph 14 shall be paid for such
taxes).
(i) except to the extent the aggregate of losses to be indemnified
thereunder exceed the sum of $500 plus the amount of such losses for which the
Employee is indemnified either pursuant to the By-laws of the Company or any
subsidiary, pursuant to any Directors and Officers insurance purchased and
maintained by the Company pursuant to Paragraph 13 above;
(ii) in respect to remuneration paid to Employee if it shall be determined
by a final judgment or other final adjudication that such remuneration was in
violation of law;
(iii) on account of any suit in which judgment is rendered against
Employee for an accounting of profits made by the purchase or sale by Employee
of securities of the Company pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law;
(iv) on account of actions or omissions which are finally adjudicated to
have been material to
53
<PAGE>
the cause of action adjudicated and to fall within any of paragraphs (a) through
(d) of the last sentence of Sec-tion 607.0850 of the Florida Business
Corporations Act; or
(v) if a final decision by a Court having jurisdiction in the matter shall
determine that such indemnification to Employee is not lawful.
c. All agreements and obligations of the Company contained herein shall
continue during the period Employee is a director, officer, employee, consultant
or agent of the Company (or is or was serving at the request of the Company as a
director, officer, employee, partner, consultant or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as Employee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Employee was an officer or
director of the Company or serving in any other capacity referred to herein.
d. The Company shall not be liable to indemnify Employee under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action
54
<PAGE>
or claim in any manner which would impose any penalty or limitation on Employee
without Employee's written con sent. Neither the Company or Employee will
unreasonably withhold consent to any proposed settlement.
e. The Company will pay all expenses immediately upon the presentment of
bills for such expenses. Employee agrees that Employee will reimburse the
Company for all reasonable expenses paid by the Company in defending any civil
or criminal action, suit or proceeding against Employee in the event and only to
the extent that it shall be ultimately determined that Employee is not entitled
to be indemnified by the Company for such expenses under the provisions of the
applicable state statute, the By-laws, this Agreement or otherwise. This
Agreement shall not affect any rights of Employee against the Company, any
insurer, or any other person to seek indemnification or contribution.
f. If the Company fails to pay any expenses (including, without limiting
the generality of the foregoing, legal fees and expenses incurred in defending
any action, suit or proceeding), Employee shall be entitled to institute suit
against the Company to compel such payment and the Company shall pay Employee
all costs and
55
<PAGE>
legal fees incurred in enforcing such right to prompt payment.
g. To the extent allowable under Florida law, the burden of proof with
respect to any proceeding or determination with respect to Employee's
entitlement to indemnification under this Agreement shall be on the Company.
h. Neither the failure of the Company, its Board of Directors, independent
legal counsel, nor its stockholders to have made a determination that
indemnification of the Employee is proper in the circumstances because he has
met the applicable standard of conduct set forth in the Florida Business
Corporations Act, nor an actual determination by the Company, its Board of
Directors, independent legal counsel, or its shareholders that the Employee has
not met such applicable standard of conduct, shall be a defense to any action on
the part of Employee to recover indemnification under this Agreement to create a
presumption that Employee has not met the applicable standard of conduct.
15. CHANGE IN CONTROL.
-----------------
a. Change in Control. For purposes of this Agreement, "Change in Control"
-----------------
shall mean a change in control of the Company, which shall be deemed to have
56
<PAGE>
occurred upon the first fulfillment of the conditions set forth in any one of
the following four paragraphs:
(i) any Person, other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power of
the Company's then outstanding securities; or
(ii) during any period of two consecutive years (not including any period
prior to the execution of this Agreement), individuals who at the beginning of
such period constitute the Board and any new director (other than a director
designated by a Person who has entered into an agreement with the Company to
effect a transaction described in Paragraph 15.a.(i) or 15.a.(iii) hereof) whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was
57
<PAGE>
previously so approved, cease for any reason to constitute a majority thereof;
or
(iii) the shareholders of the Company approve a merger or consolidation of
the Company with any other corporation; other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the shareholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all of substantially all the Company's assets; or
(iv) any Person shall be or has become the Beneficial Owner of securities
of the Company representing twenty percent (20%) or more of the combined voting
power of the Company's then outstanding securities and (i) the identity of the
Chief Executive officer of the Company is changed during the period beginning
sixty (60) days before the attainment of the twenty percent (20%) beneficial
ownership and ending two (2) years thereafter, or (ii) individuals constituting
at least
58
<PAGE>
one-third (1/3) of the members of the Board at the beginning of such period
shall leave the Board during the period beginning sixty (60) days before the
attainment of the twenty percent (20%) beneficial ownership and ending two (2)
years thereafter.
b. Definitions. The meanings of certain capitalized terms used in
-----------
Paragraph 15.a. are provided below:
(i) "Beneficial Owner" shall have the meaning defined in Rules 13d-3 and
13d-5(b) under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act").
(ii) "Person" shall have the same meanings as it does in section 3(a)(9)
(including the definition of "Company" under section 3(a)(19)) including a group
and any other arrangement included as a "Person under section 13(d)(3) of the
Exchange Act, provided, a person shall not include an underwriter temporarily
holding securities pursuant to an offering of such securities.
16. MISCELLANEOUS.
-------------
a. Employee Representations. The Employee represents and warrants to the
------------------------
Company that there is no restriction or limitation, by reason of any agreement
or
59
<PAGE>
otherwise, upon the Employee's right or ability to enter into this Agreement and
fulfill his obligations under this Agreement.
b. Terminated 1991 Agreement. Employee's agreement with the Company dated
-------------------------
August 1, 1991, and subsequently amended on August 1, 1992 and October 4, 1994,
shall be terminated upon the effective date of this Agreement.
c. Interest on Amounts Due. In the event any amount due either Employee
-----------------------
or the Company under this Agreement is not paid when due, it shall thereafter
bear interest at the rate equivalent to the Security Pacific National Bank, Los
Angeles (or its successor), prime rate as it shall vary from time to time over
the period until paid. Such interest shall be compounded on a monthly basis.
d. Amendment. This Agreement shall not be changed or terminated except in
---------
writing.
e. Law. This Agreement shall be governed by, and construed under, the
---
laws of the State of California except for Paragraphs 13 and 14 which will be
governed by Florida law and Paragraph 10 which shall be governed by the law of
the state in which a business of the Company is located with respect to which a
claim of competition
60
<PAGE>
is made (e.g., if Employee worked for a casino in Las Vegas, Nevada law would
----
govern any adjudication).
f. Successors, Assigns. The terms and provisions of this Agreement shall
-------------------
inure to the benefit of the personal representatives, heirs and legatees of the
Employee and shall be binding upon and inure to the benefit of any successors or
assigns of the Company . This Agreement shall survive any merger or voluntary
or involuntary dissolution and shall bind any person acquiring the Company's
assets in such event.
g. Notices. Any notices or other communications required or permitted to
-------
be given under this Agreement shall be deemed given on the day when delivered in
person, or the third business day after the day on which mailed by first class
mail from within the United States of America addressed to the party receiving
the communication at the principal office of the Company or such other address
as the party receiving the communication shall have designated to the other in
writing.
h. Consents and Approvals. As to any paragraph of this Agreement
----------------------
providing for the consent or approval of any party to this Agreement, such
provision shall be deemed to include the restriction that any such exercise of
approval or consent shall be reasonable and
61
<PAGE>
not unreasonably denied regardless of whether such provision actually sets forth
a specification that such an approval or consent shall not be unreasonably
denied.
i. Severability. If any provision of this Agreement is found invalid or
------------
unenforceable, the remainder of this Agreement shall nevertheless remain in full
force and effect. If any provision is held invalid or unenforceable with
respect to particular circumstances, it shall nevertheless remain in full force
and effect in all other circumstances. If the provision held invalid or
substantially limited involves the compensation or benefits of Employee,
Employee shall have the option for thirty (30) days following the final decision
holding such provision to be invalid to terminate this Agreement by written
notice to the Company.
j. Captions. Captions in this Agreement are merely to facilitate
--------
references and shall not affect the interpretation of any of the provisions.
17. CHANGE IN CONTROL LIMITATION.
----------------------------
The parties hereto agree that consummation of the transactions contemplated
by the Merger Agreement (including, without limitation, the acquisition of
shares of the Company's common stock pursuant to the Offer, as defined therein)
will constitute a "Change in Control",
62
<PAGE>
as that term is used in this Agreement. The parties further agree that no
transaction or event subsequent to the Effective Time, as defined in the Merger
Agreement, will constitute a Change in Control for purposes of this Agreement.
18. GUARANTEE BY ITT.
----------------
ITT hereby agrees to be bound by all the provisions of this Agreement,
including, without limitation, the undertakings in this Agreement directly
related to ITT or its common stock, and hereby guarantees the obligations of the
Company in this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed at Los Angeles,
California.
EMPLOYEE CAESARS WORLD, INC.
____________________ By______________________
J. Terrence Lanni
ITT CORPORATION
By______________________
63
<PAGE>
Exhibit 5
CONTACTS: For ITT Corporation FOR IMMEDIATE RELEASE
Jim Gallagher December 19, 1994
(212) 258-1261
For Caesars World
Jack Leene
(310) 552-2711 Ext. 363
ITT WILL ACQUIRE CAESARS WORLD, INC.
NEW YORK, NY -- ITT Corporation (NYSE/ITT) and Caesars World, Inc.
(NYSE/CAW) jointly announced today the signing of a definitive agreement
providing for ITT to acquire Caesars World at $67.50 per share, or approximately
$1.7 billion.
The first step of the acquisition is a cash tender for all outstanding
shares which will commence by Friday, December 23, 1994. Although the offer is
subject to certain regulatory approvals and other customary conditions, it is
expected to be completed during the first quarter in 1995. ITT will acquire all
Caesars' shares not purchased in the offer in a subsequent cash merger at the
same $67.50 per share price. Caesars World currently has approximately 25.1
million common shares outstanding.
The acquisition of Caesars World, Inc., one of the world's most recognized
names in gaming, combined with ITT Sheraton's leading international position
will create one of the world's strongest hotel and gaming businesses.
-more-
<PAGE>
Caesars World owns and operates three hotel/casinos in Las Vegas, Atlantic
City and Lake Tahoe. In conjunction with two other partners, Caesars World
manages a casino owned by the Ontario government in Windsor, Canada, across the
river from Detroit, Michigan.
"Caesars World represents a tremendous opportunity for ITT," Rand V.
Araskog, chairman, president and chief executive, said. "Caesars is one of the
great names in the gaming industry," Mr. Araskog continued. "The acquisition
helps ITT create one of the premier hospitality, gaming and entertainment
companies in the world, and adds positive financial and business impact to the
recent agreement to acquire Madison Square Garden properties and the acquisition
of 70.2 percent of the CIGA Hotel Corporation, with its 31 major luxury hotels
throughout Europe," the chairman said.
In addition to the world-renowned Caesars Palace in Las Vegas, this
acquisition provides an entry into the other most important U.S. gaming
destination -- Atlantic City. The combination of Caesars World's and ITT's
strong international business and marketing structures will provide the emerging
company with additional competitive strength.
-more-
<PAGE>
The transaction is expected to be non-dilutive and to contribute to
earnings in the first year. Moreover, ITT expects to take advantage of
substantial synergies in the near term. With the acquisition of Caesars World,
ITT no longer plans to construct The Desert Kingdom in Las Vegas.
Henry Gluck, chairman and chief executive officer of Caesars World, will
retain his current titles, report directly to Mr. Araskog and become a member of
the ITT Board. "Henry Gluck is a major presence in the gaming industry and one
of the most innovative and long standing leaders in gaming and entertainment. I
am personally looking forward to working with him on this great opportunity for
both our companies," Mr. Araskog said.
Following ITT's decision not to build the Desert Kingdom, which would have
cost $750 million to $1 billion, Mr. Araskog called Mr. Gluck in mid-October to
arrange a meeting at which time he proposed ITT's acquisition of Caesars World.
Since that time the two executives have had several discussions leading to
today's announcement.
Mr. Gluck said, "For quite some time now Mr.Araskog and I have discussed
the potential synergies of our respective companies. I anticipate a close
working relationship between management and employees of both companies directed
at maximizing the value of our great franchise and providing expanded
opportunities to the many loyal people who have helped build Caesars World."
<PAGE>
Combined with the pending sale of ITT Financial Corporation, this
acquisition continues ITT's focus on three global companies, each leaders in its
respective industries -- ITT Hartford Insurance, with sales in excess of $10
billion; ITT Industries, with manufacturing sales of about $8 billion; and, the
hotel gaming and entertainment group, anchored by ITT Sheraton. With the
addition of Caesars World and Madison Square Garden, this group will have sales
of over $6 billion.
The Caesars World properties, all involved in the transaction, include:
- Caesars Palace, a 1,500-room casino resort located on an 80-acre site on
the Las Vegas Strip. Opened in 1966, the resort has undergone extensive
expansion and renovations through the years and currently has 118,000
square feet of casino space with 2,000 slot machines, some 125 table
games, 10 restaurants, a 1,100-seat showroom, 100,000 square feet of
convention space, a 18,000-seat outdoor stadium and an "Omnimax"
theater. Caesars Palace is currently in the process of developing a
themed dining and entertainment complex, "Caesars Magical Empire,"
scheduled for completion in 1995.
-more-
<PAGE>
- Caesars Tahoe, a 440-room resort, is situated on 24 acres on the South
Shore of the world renowned Lake Tahoe in northern Nevada. Opened in
1990, the resort has a 40,000-square-foot casino with about 960 slots
and 75 table games, six restaurants, a 1,550-seat showroom, a Roman
themed nightclub, and 25,000 square feet of convention space. In recent
years, all of the property's rooms have been renovated and the casino
space has been remodeled to better reflect the company's Roman theme.
- Caesars Atlantic City, opened in 1979, is located on a premier site on
the boardwalk in Atlantic City, New Jersey. The 641-room facility
includes 74,000 square feet of casino space with more than 2,000 slot
machines and about 125 table games, 12 restaurants and bars, a 1,100-
seat showroom and a transportation center for 2,500 cars. Since 1989
Caesars has invested more than $150 million in capital expenditures at
the Atlantic City property.
-more-
<PAGE>
- Casino Windsor, an interim casino in Windsor, Ontario, opened in May
1994. The facility is managed by a joint-venture between Caesars World,
Circus Circus Enterprises and Hilton Hotels Corporation and is owned by
the Government of Ontario. It includes 50,000 square feet of casino
space with 1,700 slot machines and 65 table games. A permanent casino is
scheduled to be completed in 1997 and will be located on 13 acres in
Windsor's central business district, immediately across the river from
Detroit, Michigan. It will include a 75,000-square-foot casino, 2,400
slots, 125 table games, a 1,000-seat showroom, three dining areas, an
entertainment component and a 300-room hotel.
- Caesars World operates Caesars Palace at Sea, a casino aboard the
Crystal Harmony, a luxury cruise ship owned by Crystal Cruises. Plans
call for Caesars to operate another Caesars Palace at Sea casino on
board a sister ship -- the Crystal Symphony -- scheduled to launch
operations in 1998.
-more-
<PAGE>
- Caesars World also has four non-gaming resorts in the Pocono Mountains
of Pennsylvania. These include Caesars Cove Haven, Caesars Pocono
Palace, Caesars Paradise Stream and Caesars Brookdale. Combined, they
feature more than 750 rooms and suites and a full complement of
recreational and other destination resort amenities.
####
<PAGE>
EXHIBIT 6
December 23, 1994
[LOGO OF CAESARS WORLD APPEARS HERE]
Dear Shareholder:
We are pleased to inform you that Caesars World, Inc. has entered into an
Agreement and Plan of Merger (the "Merger Agreement") with ITT Corporation and
ITT Florida Enterprises, Inc. ("Purchaser"). Pursuant to the Merger Agreement,
Purchaser today commenced a tender offer to purchase all outstanding shares of
Caesars World at $67.50 per share in cash. Under the Merger Agreement, the
tender offer will be followed by a merger of Purchaser and Caesars World. In
the merger, each common share outstanding will be converted into $67.50 in cash
(other than shares held by dissenting shareholders, if applicable).
Your Board of Directors has unanimously approved the Merger Agreement, the
tender offer and the merger and determined that the tender offer and merger are
fair to, and in the best interest of, the shareholders. Accordingly, the Board
of Directors recommends that shareholders accept the offer and tender their
shares.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including the opinion of Merrill Lynch & Co., that the cash
consideration of $67.50 per share to be received by shareholders pursuant to
the offer and the merger is fair to such shareholders from a financial point of
view.
Additional information with respect to the transaction is contained in the
enclosed Schedule 14D-9, and we urge you to consider this information
carefully.
Sincerely,
/s/ Henry Gluck /s/ J. Terrence Lanni
Henry Gluck J. Terrence Lanni
Chairman of the Board and President and Chief
Chief Executive Officer Operating Officer
<PAGE>
Investment Banking Group
World Financial Center
North Tower
New York, New York 10281-1328
212 449 1000
[LOGO OF MERRILL LYNCH APPEARS HERE]
December 18, 1994
Board of Directors
Caesars World, Inc.
1801 Century Park East
Los Angeles, CA 90067
Gentlemen:
Caesars World, Inc. (the "Company"), ITT Corporation (the "Acquiror")
and ITT Florida Enterprises Inc., a wholly owned subsidiary of the Acquiror
(the "Acquisition Sub"), propose to enter into an agreement to be dated as of
December 19, 1994 (the "Agreement") pursuant to which the Acquisition Sub will
make a tender offer (the "Offer") for all shares of the Company's common stock,
par value $.10 per share (including the associated Preferred Stock Purchase
Rights, the "Shares"), at $67.50 per Share, net to the seller in cash. The
Agreement also provides that, following consummation of the Offer, the Company
will be merged with the Acquisition Sub in a transaction (the "Merger") in which
each remaining Share will be converted into the right to receive $67.50 in cash.
In connection with the Offer and the Merger, the parties also propose to enter
into an agreement (the "Option Agreement") pursuant to which the Company will
grant the Acquisition Sub an option to acquire 5,000,000 Shares, representing
approximately 19.9% of the total Shares outstanding, which will become
exercisable upon acceptance by the Acquisition Sub of Shares for payment
pursuant to the Offer.
You have asked us whether, in our opinion, the proposed cash
consideration to be received by the holders of the Shares in the Offer and the
Merger is fair to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended July 31, 1994
and the Company's Form 10-Q and the related unaudited financial
information for the quarterly period ended October 31, 1994;
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE]
2
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects
of the Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded
companies which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations of the Company with that of
certain companies which we deemed to be reasonably similar to the
Company;
(6) Compared the proposed financial terms of the Offer and Merger with
the financial terms of certain other mergers and acquisitions which
we deemed to be relevant;
(7) Reviewed a draft dated December 16, 1994 of the Agreement;
(8) Reviewed a draft dated December 16, 1994 of the Option Agreement;
and
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters
as we deemed necessary.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company, and we have not independently verified such information or
undertaken an independent appraisal of the assets of the Company. With respect
to the financial forecasts furnished by the Company, we have assumed that they
have been reasonably prepared and reflect the best currently available estimates
and judgement of the Company's management as to the expected future financial
performance of the Company.
We have, in the past, provided financial advisory and financing services
to the Company and financing services to the Acquiror and have received fees for
the rendering of such services.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE]
3
In the ordinary course of business, we may actively trade the securities
of both the Company and the Acquiror for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
On the basis of, and subject to the foregoing, we are of the opinion
that the proposed cash consideration to be received by the holders of the Shares
pursuant to the Offer and the Merger is fair to such shareholders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
<PAGE>
EXHIBIT 8
IN THE CIRCUIT COURT IN AND FOR THE
FIFTEENTH JUDICIAL CIRCUIT
IN AND FOR PALM BEACH COUNTY, FLORIDA
++++++++++++++++++++++++++++++++++++++++++
MICHAEL FADER and ALBERT OMINSKY, +
on behalf of themselves + Civil Action No.
and all others similarly +
situated, +
+ CLASS REPRESENTATION
Plaintiffs, + --------------------
+ COMPLAINT
v. + ---------
+
CAESARS WORLD, INC., PHILIP BALL, +
IRVING BUCHALTER, TERRY BURMAN, +
WILLIAM E. CHAIKIN, PETER ECHEVERRIA, +
HENRY GLUCK, TERRENCE J. LANNI, +
ROGER LEE, STANLEY SEVILLA, +
RAND V. ARASKOG and ITT CORP., +
+
Defendants. +
+
++++++++++++++++++++++++++++++++++++++++++
Plaintiffs, by their attorneys, allege upon information and belief (said
information and belief being based, in part, upon the investigation conducted
by and through their undersigned counsel), except with respect to their
ownership of Caesars World, Inc. ("Caesars" or the "Company") common stock, and
their suitability to serve as class representatives, which are alleged upon
personal knowledge, as follows:
PARTIES
-------
1. Plaintiffs are the owners of shares of defendant Caesars.
2. Defendant Caesars is a corporation organized and existing under the laws
of the State of Florida. Caesars maintains its principal offices at 1801 Century
Park East, Suite
<PAGE>
2600, Los Angeles, California. Caesars owns and operates hotels, casinos and
resorts providing customers with a broad range of entertainment, gaming and
resort experiences.
3. Defendant ITT Corp. ("ITT") is a Delaware corporation with its principal
offices at 1330 Avenue of the Americas, New York, New York. ITT stock is traded
on the New York Stock Exchange.
4. Defendant Henry Gluck is Chairman of the Board and Chief Executive
Officer of defendant Caesars.
5. Defendant Terrence J. Lanni is President and Chief Operating Officer of
defendant Caesars.
6. Defendant Philip Ball is Senior Vice President, Secretary, Legal Counsel
and a Director of defendant Caesars.
7. Defendant Roger Lee is a Senior Vice President and a Director of
defendant Caesars.
8. Defendant Irving Buchalter is a Director of defendant Caesars.
9. Defendant Terry Burman is a Director of defendant Caesars.
10. Defendant William Chaikin is a Director of defendant Caesars.
11. Defendant Peter Echeverria is a Director of defendant Caesars.
12. Defendant Stanley Sevilla is a Director of defendant Caesars.
<PAGE>
13. Defendant Rand V. Araskog is Chairman, President and Chief Executive
Officer of ITT.
14. The foregoing individual directors of Caesars (collectively the
"Director Defendants"), owe fiduciary duties of good faith, loyalty, fair
dealing, due care and candor to plaintiffs and the other members of the Class
(as defined below).
CLASS REPRESENTATION ALLEGATIONS
--------------------------------
15. Plaintiffs bring this action pursuant to the Rule 1.220(b)(3) of the
Florida Rules of Civil Procedure, on behalf of themselves and all other
shareholders of defendant Caesars as of December 19, 1994, and their successors
in interest (the "Class"). Excluded from the Class are defendants herein and any
person, firm, trust, corporation or other entity related to or affiliated with
any of the defendants or their successors in interest, who have been or will be
adversely affected by the conduct of defendants alleged herein.
16. This action is properly maintainable as a class action for the following
reasons:
(a) The class of shareholders for whose benefit this action is brought is
so numerous that joinder of all class member is impracticable. As of October 4,
1994, there were over 24,890,596 shares of defendant Caesars's common stock
outstanding owned by 6,400 shareholders of record scattered throughout the
United States.
(b) There are questions of law and fact
-3-
<PAGE>
which are common to members of the Class and which predominate over any
questions affecting any individual members. The common questions include, inter
-----
alia, the following:
- ----
i. Whether one or more of the defendants has engaged in a plan and scheme
to enrich themselves at the expense of defendant Caesar's public stockholders;
ii. Whether the Defendant Directors have breached their fiduciary duties
owed by them to plaintiffs and members of the Class, and/or have aided and
abetted in such breach, by virtue of their participation and/or acquiescence and
by their other conduct complained of herein;
iii. Whether defendants have failed to fully disclose the true value of
defendant Caesar's assets and earning power and the future financial benefits
which they expect to derive form the merger with ITT;
iv. Whether the Defendant Directors have wrongfully failed and refused to
seek a purchaser of Caesar's at the highest possible price and, instead, have
sought to chill potential offers and allow the valuable assets of defendant
Caesars to be acquired by defendant ITT at an unfair and inadequate price;
v. Whether defendant ITT has induced or aided and abetted breaches of
fiduciary duty by members of Caesar's Board of Directors.
vi. Whether plaintiffs and other members
- 4 -
<PAGE>
of the Class will be irreparably damaged by the transactions complained of
herein; and
vii. Whether defendants have breached or aided and abetted the breaches of
the fiduciary and other common law duties owed by them to plaintiffs and the
other members of the Class.
17. Plaintiffs are committed to prosecuting this action and have retained
competent counsel experienced in litigation of this nature. The claims of
plaintiffs are typical of the claims of the other members of the Class and
plaintiffs have have the same interest as the other members of the Class.
Accordingly, plaintiffs are adequate representatives of the Class and will
fairly and adequately protect the interests of the Class.
18. Plaintiffs anticipate that there will not be any difficulty in the
management of this litigation.
19. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this action.
FACTUAL BACKGROUND
------------------
20. On December 19, 1994, ITT and Caesars jointly announced that they had
signed a definitive agreement providing for ITT to acquire all of the
outstanding common stock of Caesars for $67.50 per share, or approximately $1.7
billion (the "Transaction"). The first step of the acquisition is a cash
- 5 -
<PAGE>
tender for all outstanding shares which will commence by December 23, 1994. The
Transaction is then scheduled to close in the first quarter of 1995, when ITT
will acquire all Caesar' shares not purchased in the offer in a subsequent cash
merger also at $67.50 per share. Under the terms of the agreement, defendant
Gluck will remain Chairman and CEO of defendant Caesars and will become a member
of the ITT Board.
21. ITT began looking for merger candidates as an alternative to its
decision to enter the gaming business by constructing the "Desert Kingdom" in
Las Vegas, Nevada, which would have cost $750 million to $1 billion. Defendant
Araskog contacted defendant Gluck in mid-October 1994, to discuss the
possibility of a merger. ITT abandoned its plans for "Desert Kingdom" once
Caesars agreed to the tender offer and merger. Apparently, defendant Gluck has
not discussed a merger with other potential suitors, and as reported on the Dow
Jones Business Wire on December 19, 1994, stated:
-------------
For quite some time now Mr. Araskog and I have discussed the potential
synergies of our respective companies. I anticipate a close working
relationship between management and employees of both companies
directed at maximizing the value of our great franchise and providing
expanded opportunities to the many loyal people who have helped build
Caesars World.
22. Although $67.50 per share does offer a premium over the closing price of
Caesars stock on Friday, December 16, 1994, on Monday, December 19, 1994,
trading opened for Caesars
- 6 -
<PAGE>
stock at $66-3/8 per share. The market has already recognized that ITT's offer
does not reflect the inherent value of Caesars which owns and operates three
hotel/casinos in Los Vegas, Atlantic City and Lake Tahoe and manages another
casino in Windsor, Canada. As defendant Araskog noted, "Caesars is one of the
great names in the gaming industry." In fact, much of the Company's allure to an
acquirer would be the potential for expanding casino operations around the
globe. Caesars is internationally famous for hosting the biggest of high-rolling
gamblers, as well as for championship boxing events and headline entertainers.
23. Moreover, Caesars has not adequately sought to achieve the highest price
possible for its shareholders and instead has merely negotiated with ITT which
has agreed to let defendant Gluck retain his positions with Caesars. In fact,
Caesars is prepared to use defensive measures, including its poison pill
provisions, to ward off any competing offers. It has been reported that both
Mirage Resorts, Inc. and Alliance Gaming Corp. may be interested in a deal with
Caesars.
24. The proposed merger Transaction is wrongful, unfair and harmful to
Caesar's public stockholders, the Class members, and represents an attempt by
defendants to aggrandize the personal and financial positions and interests of
board members at the expense of and to the detriment of the stockholders of the
Company. The proposed Transaction will deny
- 7 -
<PAGE>
plaintiffs and other Class members their rights to share appropriately in the
true value of the Company's assets and future growth in profits and earnings,
while usurping the same for the benefit of defendant ITT at an unfair and
inadequate price.
CAUSE OF ACTION AGAINST ALL DEFENDANTS
--------------------------------------
25. Defendants other than ITT, acting in concert, have violated their
fiduciary duties owed to the public shareholders of Caesars and put their own
personal interests and the interests of defendant ITT ahead of the interests of
the Caesars public shareholders and have used their control positions as
officers and directors of Caesars for the purpose of reaping personal gain for
board members at the expense of Caesars's public shareholders.
26. The Defendant Directors failed to (1) undertake an adequate evaluation
of Caesars's worth as a potential merger/acquisition candidate; (2) take
adequate steps to enhance Caesars's value and/or attractiveness as a
merger/acquisition candidate; (3) effectively expose Caesars to the marketplace
in an effort to create an active and open auction for Caesars; or (4) act
independently so that interests of public shareholders would be protected.
Instead, defendants have initially set a value for the shares of Caesars stock
that does not reflect the true value of the market price for Caesars as a going
concern.
- 8 -
<PAGE>
27. While the Defendant Directors of Caesars should seek out other possible
purchasers of the assets of Caesars or its stock in a manner designed to obtain
the highest possible price for Caesars's shareholders, or seek to enhance the
value of Caesars for all of its current shareholders, they have instead resolved
to wrongfully allow ITT to obtain the valuable assets of Caesars at a bargain
price, which under the circumstances here, disproportionately benefits ITT.
28. These tactics pursued by the defendants are, and will continue to be,
wrongful, unfair and harmful to Caesar's public shareholders, and are an attempt
by certain defendants to aggrandize their personal positions, interests and
finances at the expense of and to the detriment of the Caesars public
stockholders. These maneuvers by the defendants will deny members of the Class
their right to share appropriately in the true value of Caesar's valuable
assets, future earnings and profitable businesses to the same extent as they
would as Caesar's shareholders.
29. In contemplating, planning and/or effecting the foregoing specified
acts and in pursuing and structuring the Transaction, defendants are not acting
in good faith toward plaintiffs and the Class, and have breached, and are
breaching, their fiduciary duties to plaintiffs and the Class.
30. Because the Defendant Directors (and those acting in concert with them)
dominate and control the business and
- 9 -
<PAGE>
corporate affairs of Caesars and because they are in possession of private
corporate information concerning Caesars's businesses and future prospects,
there exists an imbalance and disparity of knowledge and economic power between
the defendants and the public shareholders of Caesars which makes the
Transaction inherently unfair to Caesars's public shareholders.
31. Defendants ITT and Araskog have acted and are acting with knowledge or
with reckless disregard that the other defendants are in breach of their
fiduciary duties to Caesars's public shareholders and have participated in such
breaches of fiduciary duties by the directors of Caesars and thus are liable as
aiders and abettors.
32. By reason of the foregoing acts, practices and course of conduct, the
Defendant Directors have failed to use the required care and diligence in the
exercise of their fiduciary obligations owed to Caesars and its public
shareholders.
33. As a result of the actions of the defendants, plaintiffs and the Class
have been and will be damaged in that they will not receive the fair value of
Caesars's assets and business in exchange for their Caesars's shares, and have
been and will be prevented from obtaining a fair price for their shares of
Caesars common stock.
34. Unless enjoined by this Court, the Defendant Directors will continue to
breach their fiduciary duties owed to plaintiffs and the Class, all to the
irreparable harm of the
- 10 -
<PAGE>
Class.
35. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
(a) Declaring that this action may be maintained as a class action;
(b) Declaring that the proposed Transaction is unfair, unjust and
inequitable to plaintiffs and the other members of the Class;
(c) Enjoining preliminarily and permanently the defendants from taking any
steps necessary to accomplish or implement the proposed merger of defendant
Caesars with defendant ITT at a price that is not fair and equitable;
(d) Requiring defendants to compensate plaintiffs and the members of the
Class for all losses and damages suffered and to be suffered by them as a result
of the acts and transactions complained of herein, together with prejudgment and
post-judgment interest;
(e) Awarding plaintiffs the costs and disbursements of this action,
including reasonable attorneys, accountants', and experts' fees; and
- 11 -
<PAGE>
(f) Granting such other and further relief as may be just and proper.
Dated: December 19, 1994
BURT & PUCILLO
By: /s/ Michael J. Pucillo, Esq.
----------------------------
Michael J. Pucillo, Esq.
Florida Bar No. 261033
Andrew H. Kayton, Esq.
Florida Bar No. 889563
222 Lakeview Avenue, Suite 960
West Palm Beach, FL 33401
(407) 835-9400
WOLF HALDENSTEIN ADLER
FREEMAN HERZ LLP
Jeffrey G. Smith, Esq.
Neil L. Zola, Esq.
270 Madison Avenue
New York, NY 10016
(212) 545-4600
MALINA & WOLSON
Bernard Malina, Esq.
60 East 42nd Street, Suite 501
New York, NY 10065
(212) 986-7410
SAVETT, FRUTKIN, PODELL & RYAN,
P.C
Stuart H. Savett, Esq.
320 Walnut Street
Suite 508
Philadelphia, PA 19106
(215) 923-5400
- 12 -
<PAGE>
EXHIBIT 9
ORIGINAL FILED
DEC 19, 1994
LOS ANGELES
SUPERIOR COURT
WILLIAM S. LERACH (68581)
MILBERG WEISS BERSHAD
HYNES & LERACH
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
- and -
KEVIN P. RODDY (128283)
MILBERG WEISS BERSHAD
HYNES & LERACH
355 South Grand Avenue
Suite 4170
Los Angeles, CA 90071
Telephone: 213/617-9007
MARK GARDY
LEE SQUITIERI
KARIN E. FISCH
ABBEY & ELLIS
212 East 39th Street
New York, NY 10016
Telephone: 212/889-3700
ANNE WHITE
MAGER LIEBENBERG & WHITE
Two Penn Center Plaza
Suite 415
Philadelphia, PA 19102
Telephone: 215/569-6921
Attorneys for Plaintiffs
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
ARTHUR GROSS, On Behalf of Himself ) Case No. BC 118368
and All Others Similarly Situated, )
) CLASS ACTION
Plaintiff, ) ------------
)
) COMPLAINT FOR (1) BREACH OF
vs. ) FIDUCIARY DUTY; (2) SEEKING
) EQUITABLE RELIEF AND
HENRY GLUCK, PHILIP BALL, IRVINE ) DAMAGES
BUCHALTER, TERRY BURMAN, WILLIAM E. )
CHAIKIN, PETER ECHEVERRIA, TERRENCE ) Plaintiff Demands A
J. LANNI, ROGER LEE, STANLEY ) Trial By Jury
SEVILLA, ITT CORP. and CAESARS ) -------------------
WORLD INC., )
)
Defendants. )
- ------------------------------------
<PAGE>
Plaintiff, by his attorneys, alleges upon information and belief (said
information and belief being based, in part, upon the investigation conducted by
and through his undersigned counsel), except with respect to his ownership of
Caesars World Inc. ("Caesars" or the "Company") common stock and his suitability
to serve as a class representative which is alleged upon personal knowledge, as
follows:
THE PARTIES
-----------
1. Plaintiff is and was at all times relevant to this action the owner of
shares of Caesars common stock.
2. Defendant Caesars, a corporation organized and existing under the laws
of the State of Florida, owns and operates hotels, casinos and resorts and is
one of the most widely recognized names in the gaming industry. Among its
biggest assets are its Caesars Palace casino in Las Vegas and its Caesars
Atlantic City casino in New Jersey. Caesars maintains its principal offices in
Los Angeles, California.
3. Defendant ITT Corp. ("ITT") is a corporation duly existing and
organized under the laws of the State of Delaware, with its principal executive
offices in New York, New York. ITT is involved in a wide variety of businesses
including the ownership and operation of hotels such as the ITT Sheraton chain.
Recently, ITT, with a partner, agreed to purchase Madison Square Garden and its
related operations and to acquire a controlling interest in CIGA Hotel Corp., a
major European luxury hotel chain.
4. Defendant Henry Gluck is Chairman of the Board and Chief Executive
Officer of the Company. Under the terms of the proposed
-1-
<PAGE>
acquisition, Gluck will retain his current titles and become a member of the
board of ITT.
5. Defendants Philip Ball, Irving Buchalter, Terry Burman, William E.
Chaikin, Peter Echeverria, Terrence J. Lanni, Roger Lee, and Stanley Sevilla are
and at all relevant times have been directors of Caesars.
6. As officers and directors of Caesars, the individuals named in
paragraphs 4 - 5 above (hereinafter the "Individual Defendants") owe fiduciary
duties of good faith, fair dealing, due care and candor to plaintiff and the
other Caesars public stockholders.
CLASS ACTION ALLEGATIONS
------------------------
7. Plaintiff brings this case on behalf of himself and all other
stockholders of the Company (except the Individual Defendants herein and any
persons, firm, trust, corporation, or other entity related to or affiliated with
any of them and their successors in interest), who are or will be threatened
with injury arising from defendants' actions as more fully described herein (the
"Class").
8. (a) This action is properly maintainable as a class action for the
following reasons:
(b) The Class is so numerous that joinder of all members is
impracticable. As of October 4, 1994, Caesars had almost 25 million shares of
common stock outstanding.
(c) The members of the Class are scattered throughout the United
States and are so numerous as to make it impracticable to bring them all before
this court.
(d) There are questions of law and fact which are common to the Class
and which predominate over questions affecting any
- 2 -
<PAGE>
individual Class member. The common questions include, inter alia, the
----- ----
following:
(i) whether the defendants have engaged and are continuing to engage in a
plan and scheme to benefit themselves at the expense of Caesars' public
stockholders;
(ii) whether the defendants breached or aided and abetted the breach of
the fiduciary and other common law duties which they owed to plaintiff and other
members of the Class; and
(iii) whether plaintiff and the other members of the Class are being
irreparably damaged.
(e) The claims of plaintiff are typical of the claims of the Class in that
all members of the Class will be damaged by defendants' actions.
(f) Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. Plaintiff is an
adequate representative of the Class.
(g) The prosecution of separate actions by or against individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class.
(h) Defendants have acted or refused to act on grounds generally applicable
to the Class, thereby making appropriate injunctive relief or corresponding
declaratory relief with respect to the Class as a whole.
SUBSTANTIVE ALLEGATIONS
9. This action seeks to enjoin the consummation of, or in the alternative
seeks damages arising from, the acquisition of Caesars by ITT. Pursuant to an
agreement between Caesars and ITT
-3-
<PAGE>
publicly announced on December 19, 1994, ITT will acquire Caesars' 25.1
million outstanding shares of common stock in a $1.7 billion all-cash deal.
As announced by Caesars and ITT, the first step of the acquisition is a
cash tender for all outstanding Caesars' shares at $67.50 per share, which
will commence by December 23, 1994. ITT will then acquire all Caesars'
shares not purchased in the offer in a subsequent cash merger at the same
per share price. According to the announcement, Caesars and ITT expect the
transaction to be completed during the first quarter of 1995.
10. The consideration to be paid to plaintiff and the other members of
the class is unconscionable, unfair and grossly inadequate because, among
other things:
(a) the intrinsic value of Caesars' common stock is materially in
excess of the amount offered for those securities by ITT given the
Company's recent operating results;
(b) On August 24, 1994, Caesars announced that revenues for the fiscal
year ended July 31, 1994 exceeded $1 billion for the first time in its
history, totaling $1,015,766,000, compared with $983,459,000 in fiscal
1993;
(c) at $67.50 per share, ITT's offer values Caesars' at the current
trading average of the casino industry and thus, ITT is not paying a
premium to the group as a whole;
(d) Caesars is widely considered one of the most undervalued companies
in the gambling industry given its cautious approach to growth, its
conservative balance sheet, its assets and its widely recognized name;
-4-
<PAGE>
(e) the consideration agreed upon did not result from an appropriate
evaluation of the value of Caesars through open bidding or at least a "market
check" mechanism.
11. The Individual Defendants have thus far failed to announce any active
auction or open bidding procedures best calculated to maximize shareholder
value. Indeed, Caesars is reported to be shielded by a variety of defenses to
an unfriendly transaction, including a "poison pill" which has been in effect
since 1986. As such, the Individual Defendants, aided and abetted by defendant
ITT, have foreclosed, or inhibited a reliable market check of the fairness of
the proposed transaction.
12. On December 8, 1994, it was reported in The Wall Street Journal that
-----------------------
Bally Entertainment Corp. ("Bally") had received federal antitrust clearance to
buy up to 15% of Caesars' stock. By waiving its poison pill with respect to
ITT, while keeping it in place with respect to Bally or any other potential
acquiror, the Individual Defendants, aided and abetted by defendant ITT, have
breached their duty of loyalty to Caesars' stockholders by preventing another
offer from being viable and thereby depriving plaintiff and the class of any
option than to accept the unfair terms of the ITT offer.
13. Furthermore, the ITT proposal represents an opportunity to effect a
change of control of Caesars, its business and affairs. As such, the Individual
Defendants necessarily and inherently suffer from a conflict of interest between
their own personal desires to retain their offices at Caesars, with the
emoluments and prestige which accompany those offices, and their fiduciary duty
to maximize shareholder value. Indeed, it has already been reported
- 5 -
<PAGE>
that defendant Gluck will retain his current titles of Chairman of the Board and
Chief Executive Officer of Caesars following the proposed transaction. Because
of such conflict of interest, it is unlikely that defendants will be able to
represent the interests of Caesars' public stockholders with the impartiality
that their fiduciary duties require, nor will they be able to ensure that these
conflicts of interest will be resolved in the best interests of Caesars' public
shareholders.
14. Because the Individual Defendants dominate and control the business
and corporate affairs of Caesars, and are in possession of private corporate
information concerning Caesars' assets, business and future prospects, there
exists an imbalance and disparity of knowledge and economic power between them
and the public shareholders of Caesars which makes it inherently unfair for them
to foreclose any potential offer in order to entrench themselves in their
portions as directors and officers of Caesars at the expense of maximizing
shareholder value.
15. By reason of the foregoing acts, practices and course of conduct,
Caesars and the Individual Defendants, aided and abetted by defendant ITT, have
failed to exercise ordinary care and diligence in the exercise of their
fiduciary obligations towards plaintiff and the other Caesars public
shareholders.
16. As a result of the actions of defendants, plaintiff and the other
members of the Class have been and will be damaged in that they will not receive
their fair proportion of the value of Caesars' assets and businesses.
-6-
<PAGE>
17. Unless enjoined by this Court, the defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class.
18. Plaintiff and the Class have no adequate remedy at law.
PRAYER FOR RELIEF
-----------------
WHEREFORE, plaintiff demands judgment, as follows:
A. Declaring this to be a proper class action;
B. Ordering defendants to carry out their fiduciary duties to plaintiff and
the other members of the Class, including those of due care and candor by
announcing their intention to:
(i) undertake an appropriate evaluation of alternatives desgined to
maximize value for Caesars' public stockholders;
(ii) adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to the public
stockholders or, if such conflicts exist, to ensure that all of the conflicts
would be resolved in the best interests of Caesars' public stockholders; and
(iii) act independently, by, among other things, appointing a
disinterested committee so that the interests of Caesars' public stockholders
would be protected, or alternatively, appointing a shareholder committee to
review the ITT offer and all bona fide offers which may follow;
---- ----
C. Ordering defendants, jointly and severally, to account to plaintiff and
the Class all damages suffered and to be suffered by them as a result of the
acts alleged herein;
D. Awarding plaintiff the costs and disbursements of the action, including
allowance for plaintiff's reasonable attorneys' and experts' fees; and
-7-
<PAGE>
E. Granting such other and further relief as may be just and proper in the
premises.
DATED: December 19, 1994
MILBERG WEISS BERSHAD
HYNES & LERACH
WILLIAM S. LERACH
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
- and -
MILBERG WEISS BERSHAD
HYNES & LERACH
KEVIN P. RODDY
/s/ KEVIN P. RODDY
---------------------------------
KEVIN P. RODDY
355 South Grand Avenue
Suite 4170
Los Angles, CA 90071
Telephone: 213/617-9007
MARK GARDY
LEE SQUITIERI
KARIN E. FISCH
ABBEY & ELLIS
212 East 39th Street
New York, NY 10016
Telephone: 212/889-3700
ANNE WHITE
MAGER LIEBENBERG & WHITE
Two Penn center Plaza
Suite 415
Philadelphia, PA 19102
Telephone: 215/569-6921
Attorneys for Plaintiffs
-8-
