EXHIBIT 4
AMENDED AND RESTATED
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EMPLOYMENT AGREEMENT
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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
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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 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.
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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-
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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.
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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
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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.
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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.
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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
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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.
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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
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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.
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a. Salary.
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(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,
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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
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are agreed upon between the Employee and the Company.
b. Bonus and Incentive Compensation.
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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-
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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
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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;
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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
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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
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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
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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.
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(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.
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(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.
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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
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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.
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d. Retirement Benefits.
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(i) Supplemental Retirement.
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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
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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
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.
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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
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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
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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
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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.
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All compensation shall be subject to normal required withholdings.
7. VACATIONS.
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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
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(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.
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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
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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.
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a. Termination by the Company for Cause.
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(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
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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
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
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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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
(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
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
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
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
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
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
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
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
(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
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
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
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
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
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
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
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
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
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
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
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