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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(Amendment No. 14)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
ITT CORPORATION
(Name of Subject Company)
ITT CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, no par value
(including the associated Series A Participating Cumulative
Preferred Stock Purchase Rights)
(Title of Class of Securities)
450912 10 0
(CUSIP Number of Class of Securities)
RICHARD S. WARD, Esq.
Executive Vice President,
General Counsel and Corporate Secretary
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019-5490
(212) 258-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
PHILIP A. GELSTON, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
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<PAGE>
INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") originally filed on February 12, 1997, by ITT
Corporation, a Nevada corporation (the "Company"), relates to an offer
by HLT Corporation, a Delaware corporation ("HLT") and a wholly owned
subsidiary of Hilton Hotels Corporation, a Delaware corporation
("Hilton"), to purchase 61,145,475 shares of the common stock, no par
value (including the associated Series A Participating Cumulative
Preferred Stock Purchase Rights), of the Company. All capitalized
terms used herein without definition have the respective meanings set
forth in the Schedule 14D-9.
Item 8. Additional Information to be Furnished.
The response to Item 8 is hereby amended by adding the
following after the final paragraph of Item 8:
On June 12, 1997, Hilton filed a first amended and
supplemental complaint (the "First Amended and Supplemental Hilton
Complaint") in the U.S. District Court for the District of Nevada. In
addition to the relief sought in the Hilton Complaint, the First
Amended and Supplemental Hilton Complaint asks the court, among other
things, (i) to enjoin the Company from further delaying its annual
meeting, (ii) to require the Company to conduct an auction of the
Company, (iii) to enjoin the Company from selling any of the Company's
assets without conducting an auction in which Hilton may participate
and without stockholder approval, (iv) to require the Company to
rescind its transaction with FelCor, (v) to invalidate the change of
control provisions in the Company's management agreement with Felcor
and to enjoin the Company from entering into any other agreements
containing change of control provisions and (vi) to enjoin the Board
from taking actions aimed at entrenching themselves in office. A copy
of the First Amended and
<PAGE>
Supplemental Hilton Complaint is filed as Exhibit 61 hereto and is
incorporated herein by reference. The foregoing description of the
First Amended and Supplemental Hilton Complaint is not intended to be
complete and is qualified in its entirety by reference to the First
Amended and Supplemental Hilton Complaint.
Item 9. Exhibits.
The response to Item 9 is hereby amended by adding the
following new exhibit:
61. First Amended and Supplemental Complaint in
Hilton Hotels Corporation and HLT Corporation
v. ITT Corporation, et al., CV-S-97-00095-PMP
(RLH).
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this Statement is
true, complete and correct.
ITT CORPORATION
By /s/ RICHARD S. WARD
-----------------------------------
Name: Richard S. Ward
Title: Executive Vice President,
General Counsel and
Corporate Secretary
Dated as of June 13, 1997
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EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
(61) First Amended and Supplemental Complaint in
Hilton Hotels Corporation and HLT
Corporation v. ITT Corporation, et al., CV-
S-97-00095-PMP (RLH)............................
SCHRECK MORRIS [Exhibit 61]
STEVE MORRIS
KRISTINA PICKERING
MATTHEW MCCAUGHEY
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
SCOTT L. BLACK
51 West 52nd Street
New York, New York 10019
Attorneys for Plaintiffs
HILTON HOTELS CORPORATION
and HLT CORPORATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
HILTON HOTELS CORPORATION )
and HLT CORPORATION, )
)
Plaintiffs,) CV-S-97-00095-PMP (RLH)
)
-vs- )
)
ITT CORPORATION, RAND V. ARASKOG, )
ROBERT A. BOWMAN, BETTE B. ANDERSON, )
NOLAN D. ARCHIBALD, ROBERT A. )
BURNETT, PAUL G. KIRK, JR., EDWARD )
C. MEYER, BENJAMIN F. PAYTON, VIN )
WEBER, and MARGITA E. WHITE, )
)
Defendants.)
)
ITT CORPORATION, )
)
Defendant and )
Counterclaimant,)
) FIRST AMENDED AND
-vs- ) SUPPLEMENTAL COMPLAINT
)
HILTON HOTELS CORPORATION and )
HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants.)
)
<PAGE>
Plaintiffs Hilton Hotels Corporation ("Hilton") and
HLT Corporation ("HLT"), by their attorneys, allege upon
knowledge with respect to themselves and their own acts, and
upon information and belief as to all other matters, as
follows:
Nature of the Action
1. On January 31, 1997, Hilton commenced a tender
offer for the stock of defendant ITT Corporation ("ITT") at
$55 per share, a price representing a 29% premium over the
closing trading price of ITT common stock on Friday, January
24, the last trading day before Hilton announced its offer.
This action is brought for injunctive and declaratory relief
to redress a wrongful course of conduct by defendants that is
designed to deprive ITT shareholders of the opportunity to
receive the benefits of Hilton's tender offer and a proposed
second-step merger and impede the shareholders' exercise of
their corporate franchise.
2. The ITT Board of Directors formally rejected
Hilton's offer on February 11, 1997, and has since ignored
Hilton's repeated requests that the parties meet to discuss
the offer. In breach of its fiduciary duties under Nevada
law, the ITT Board has pursued a strategy designed to deter
Hilton from pursuing its bid and to prevent ITT shareholders
from electing a new Board of Directors which supports
Hilton's bid. The Board's conduct in this regard includes:
(1) failing to schedule the 1997 Annual Meeting of
shareholders; (2) refusing to dismantle ITT's various
takeover defenses, including a poison pill rights plan and
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the anti-takeover provisions in the Nevada General
Corporation Law; and (3) liquidating ITT's core assets,
including the recently announced strategy of selling ITT's
"crown jewel" hotels to purchasers that sign management
contracts with ITT which include change of control penalty
provisions giving the new owners the right to cancel the
management contracts if Hilton or anyone else acquires
control of ITT through a stock acquisition not approved by
the incumbent ITT Board or a proxy contest that replaces the
incumbent Board.
3. The new owners' right to cancel is a pure
entrenchment device designed to maintain ITT's incumbent
board and management in office. The right of cancellation
is triggered only upon a change of control of ITT which is
not approved by a majority of the incumbent directors; the
new owners have no right to cancel following a change of
control approved by the incumbent ITT Board. Moreover,
unlike a conventional "poison pill" rights plan, the change
of control penalty provisions cannot be deactivated by a
newly elected ITT Board. Indeed, the election of a new
Board by ITT's shareholders would itself trigger the penalty
provisions and potentially result in a substantial loss of
shareholder value.
Parties
4. Plaintiff Hilton is a Delaware corporation with
its principal executive offices in Beverly Hills, California.
Hilton is a leading owner and operator of full-service
hotels and gaming properties located in gateway
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cities, urban and suburban centers and resort areas
throughout the United States and in selected international
cities. Hilton is the beneficial owner of over 315,000 ITT
shares.
5. Plaintiff HLT Corporation is a Delaware
corporation with its principal place of business in Beverly
Hills, California. HLT, a wholly-owned subsidiary of Hilton
organized in connection with Hilton's tender offer and the
proposed merger, is the record and beneficial owner of 100
shares of ITT stock.
6. Defendant ITT Corporation is a Nevada
corporation with its principal executive offices in New York,
New York. ITT is engaged, through subsidiaries, in the
hospitality, gaming and entertainment business and the
information services business. In addition, until recently,
ITT owned approximately 6% of the outstanding shares of
Alcatel Alsthom, a French company which owned, among other
things, one of the largest telecommunications equipment
manufacturers in the world. As of December 31, 1996, ITT
owned or leased 68 hotel properties, and managed 135 others
under management agreements with hotel owners. Since December
31, 1996, ITT has entered into management agreements with
respect to approximately 58 additional hotel properties.
7. Defendant Rand V. Araskog is Chairman of the
Board and Chief Executive Officer of ITT. Defendant Araskog
is a citizen of the State of New York.
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8. Defendant Robert A. Bowman is ITT's President
and Chief Operating Officer and a member of the ITT Board of
Directors. Defendant Bowman is a citizen of the State of New
York.
9. The remaining defendants, Bette B. Anderson,
Nolan D. Archibald, Robert A. Burnett, Paul G. Kirk, Jr.,
Edward C. Meyer, Benjamin F. Payton, Vin Weber, and Margita
E. White, are directors of ITT. None of these director
defendants is a citizen of the State of Delaware or the State
of California.
Jurisdiction and Venue
10. This Court has jurisdiction over this action
pursuant to 28 U.S.C. ss.ss. 1331, 1332(a) and 1337, and 15
U.S.C. ss.ss. 4 and 26. The amount in controversy is in
excess of $75,000, exclusive of interest and costs.
11. Venue is proper in this District and its
unofficial southern division under 28 U.S.C. ss. 1391(b) and
(c), 15 U.S.C. ss.ss. 15, 22 and 26, and LR IA 6-1 and LR
8-1.
Hilton's Tender Offer
12. In the last quarter of 1996, Hilton contacted
one of ITT's principal financial advisers to determine
whether ITT would be interested in pursuing a business
combination with Hilton. The ITT adviser reported back that
ITT had no interest in pursuing such a combination.
13. On January 27, 1997, Hilton announced its
intention to commence a tender offer pursuant to which Hilton
is seeking to acquire 50.1% of the outstanding shares of ITT
stock at $55 per share. Hilton's announcement stated
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that its offer was based solely on public information and
that a review of ITT's non-public information could result in
an even higher bid. Hilton formally commenced its tender
offer on January 31. Upon consummation of the tender offer,
Hilton intends to acquire the remaining shares of ITT in a
second-step merger in which ITT shareholders will receive $55
in Hilton stock for each ITT share that they own.
14. Hilton's January 27 announcement made clear
that, while ITT is a diversified conglomerate, Hilton's
interest in ITT focused on its hotel and gaming assets. Thus,
in the January 27 announcement, Hilton stated that it
believed that the "combination of ITT and Hilton would bring
together two of the world's leading lodging companies as well
as two premier gaming businesses" and that "ITT's owned
full-service hotel portfolio, along with its major gaming
presence in Las Vegas, Atlantic City and other jurisdictions,
fits perfectly with [Hilton's] stated growth objectives."
Hilton's announcement added that, if it acquired control of
ITT, it would "carefully review" ITT's remaining businesses
and that "the monetization of [those] nonstrategic assets,
and a focus on the company's core business lines" would
"create even more value for the shareholders of the combined
companies."
15. ITT has a number of anti-takeover provisions in
place, including its shareholders' "rights plan," better
known as a "poison pill." In the event that a third-party
like Hilton acquires 15% or more of ITT's shares, the "poison
pill" enables all ITT shareholders other than the
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third-party to purchase ITT preferred shares at 50% discount
from market value. ITT's former corporate parent has publicly
acknowledged that the "poison pill" "may render an
unsolicited takeover of [ITT] more difficult or less likely
to occur or might prevent such a takeover, even though such
takeover may offer [ITT's] shareholders the opportunity to
sell their stock at a price above the prevailing market rate
and may be favored by a majority of the shareholders of
[ITT]."
16. ITT also has the anti-takeover protections of
Nevada Rev. Statutes ss.ss. 78.378 et seq. (the "Control
Share Acquisition Statute") and Nevada Rev. Statutes ss.ss.
78.411 et seq. (the "Business Combination Statute"). ITT's
former corporate parent has publicly acknowledged that the
Control Share Acquisition and Business Combination Statutes
"may delay or make more difficult acquisitions or changes of
control of [ITT]", "may have the effect of preventing changes
in the management of [ITT]" and "could make it more difficult
to accomplish transactions which [ITT] shareholders may
otherwise deem to be in their best interests."
17. Under the Control Share Acquisition Statute, a
third-party like Hilton that acquires a "controlling
interest" in the shares of ITT cannot vote those shares
unless: (a) such voting rights are conferred by a majority
vote of the disinterested shareholders of the corporation; or
(b) the ITT Board adopts a by-law opting out of the
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coverage of the Statute, something that the ITT Board has not
done.
18. Under the Business Combination Statute, a
third-party like Hilton that acquires 10% or more of the
voting power of ITT's stock cannot engage in a business
combination with ITT for three years unless the acquisition
of the shares or the business combination is approved by the
ITT Board in advance.
19. The Hilton tender offer and second-step merger
cannot be consummated unless the ITT Board removes or makes
inapplicable ITT's various anti-takeover devices, including
its "poison pill" and the provisions of the Control Share
Acquisition Statute and the Business Combination Statute.
Accordingly, Hilton has conditioned its tender offer upon
these takeover defenses being removed or otherwise rendered
inapplicable to the Hilton offer by the ITT Board.
20. Because the ITT Board of Directors has the
power to remove these impediments and permit ITT's
shareholders to decide for themselves whether they want to
accept Hilton's tender offer, Hilton has coupled its tender
offer with a proxy contest to replace ITT's incumbent Board.
On February 11, 1997, in accordance with the requirements of
Section 2.2 of ITT's by-laws, Hilton gave notice to ITT of
its intention to nominate a slate of candidates for election
as directors to the ITT board at the 1997 annual meeting and
its intention to present a resolution urging the Board to
arrange a sale of the company to Hilton or any higher
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bidder. On March 21, 1997, Hilton cleared its proxy materials
with the SEC and began soliciting proxies from ITT's
shareholders. The Hilton slate is committed, subject to its
fiduciary duties, to remove the obstacles to consummation of
Hilton's proposed tender offer and merger.
The ITT Board Rejects the
Hilton Bid and Begins the
Liquidation of ITT
21. The ITT Board of Directors formally rejected
Hilton's offer on February 11, 1997. Despite the superior
value offered by Hilton -- reflected in the 29% premium to
the market value of ITT stock immediately prior to the
announcement of the offer -- the ITT Board determined that
the tender offer was "inadequate and not in the best
interests of [ITT]." The Board's rejection of the Hilton
offer was hasty and ill-informed. While the Board attempted
to justify its rejection of the offer by citing
"uncertainties as to the actual value" of the Hilton
securities to be offered in the proposed second-step merger
and the "lack of sufficient disclosure in Hilton's tender
offer," the ITT Board did not ask Hilton to provide any
additional information. Moreover, although Hilton had stated
that a review of ITT's non-public information could result in
an even higher offer, the ITT Board did not give Hilton the
opportunity to review any such information. Since February
11, the ITT Board has rejected Hilton's repeated requests to
meet with ITT to negotiate its bid.
22. Rather than removing the impediments to
Hilton's bid or accepting Hilton's invitation to negotiate,
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the ITT Board of Directors has authorized management to
engage in a series of transactions which collectively amount
to an abandonment of ITT's long-term strategy and a break-up
of the company. While ITT's initial asset dispositions were
limited to assets that the ITT Board had classified as "non-
core," in an attempt to drive Hilton away ITT is now
exploring the disposition of its "core" assets in a fashion
that threatens to preclude Hilton or anyone else from
acquiring control of ITT without the approval of the
incumbent ITT Board.
23. Commencing on February 14, 1997, ITT embarked
on a number of transactions designed to dispose of assets
outside of its "core" hotel and casino businesses. These
transactions included the sale of ITT's 7.5 million shares of
Alcatel Alsthom for approximately $830 million, the sale of
ITT's 50% interest in Madison Square Garden arena cable
network and related sports franchises for approximately $650
million, and the sale of its interest in WBIS+, a New York
television station, for $257.5 million. ITT has also pursued
a sale of its ITT Educational Services and ITT World
Directories subsidiaries.
24. On or about April 11, 1997, ITT filed its 1996
Annual Report with the SEC. The cover of ITT's Annual Report,
stated in large, bold print -- "Fellow Shareholders: The
issue is creating shareholder value." Inside the Annual
Report, defendant Araskog's letter to shareholders stated
that the ITT Board has "recognized the need to monetize or
otherwise realize the value of [ITT's] non-core assets in a
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more accelerated fashion than management had originally
planned, "but that the company would be "focusing on lodging
and gaming, and creating value for [its] shareholders."
Recent actions by ITT, however, demonstrate that defendants
are not focused on "creating shareholder value"; indeed,
defendants have now embarked on a scheme to dispose of ITT's
"core" hotel assets so as to make ITT takeover-proof even at
the cost of destroying shareholder value.
25. On May 19, 1997, ITT suddenly announced the
beginning of the dismemberment of its core hotel businesses.
On that day, ITT and FelCor Suites Hotels, Inc. ("FelCor"), a
real estate investment trust based in Dallas, Texas,
announced the creation of a "long-term strategic alliance"
beginning with an agreement in principle for FelCor to
purchase five hotels from ITT for $200 million. The proposed
transaction calls for ITT to receive additional consideration
in the form of a management contract under which ITT will
manage the five hotels for a fee over a period of 20 years.
In an attempt to deter Hilton or any other bidder from
acquiring control of ITT, the proposed management agreement
would include a change of control penalty provision under
which FelCor would be able to terminate ITT's valuable right
to manage the five hotels -- and terminate its obligation to
pay a management fee to ITT -- in the event of a change of
control of ITT that is not approved by the incumbent Board.
The existence of this change of control penalty provision was
concealed by ITT when it announced the agreement in principle
with FelCor.
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If this provision were triggered and FelCor exercised its
right to terminate the management contract, ITT and its
shareholders would lose a significant part of the
consideration from the sale of the five hotels, and receive
nothing in return.
26. On June 2, 1997, shortly after Hilton became
aware of the secret penalty clause in the FelCor transaction,
Hilton's President and Chief Executive Officer, Stephen F.
Bollenbach, sent a letter to the ITT Board of Directors
objecting to the change of control penalty provisions
proposed in the FelCor transaction as irresponsible and
unnecessary. In Mr. Bollenbach's letter, Hilton offered to
purchase the five ITT hotels offered to FelCor at the same
price that FelCor proposes to pay, with a contract providing
that the hotels would be managed by ITT on the same economic
terms as under the proposed contract with FelCor, but without
any change of control penalty provisions. Hilton's proposal
is clearly more advantageous to ITT shareholders than the
proposed FelCor transaction, as it eliminates the risk that
ITT would lose any part of the consideration from the
disposition of the hotels following a change of control. Mr.
Bollenbach's letter also informed the ITT Board that Hilton
is a "ready, willing and able buyer" for any of ITT's core
assets if ITT sought dispose of them, reiterated Hilton's
desire to talk to ITT about the benefits of a combination
between the two companies, and warned the ITT Board not to
take value from its shareholders by entering into
transactions designed by drive Hilton away.
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27. Notwithstanding this warning, it soon became
clear that the proposed FelCor transaction is part of a
larger strategy to deter Hilton's takeover bid through
transactions that destroy shareholder value. On June 3, 1997,
The Wall Street Journal reported that, according to "people
familiar with the discussions", ITT is entertaining bids for
several of its "crown jewel" hotels -- including the St.
Regis Hotel in New York, the Phoenician resort in Scottsdale,
Arizona, and the Ciga luxury hotel chain in Europe -- while
"demanding that purchasers of the marquee properties sign
management contracts with ITT." The Journal also reported
that, "according to people familiar with the matter," many of
those management agreements could include change of control
penalty provisions akin to those to be included in the FelCor
transaction. The Journal noted that ITT's "surprise move"
"goes beyond ITT's previously announced plans to raise
roughly $3 billion by selling 'noncore' assets" and "could
turn out to be pivotal in the company's nearly six-month
fight" against Hilton. Whereas ITT had previously stressed
that it would retain most of its hotels and casinos, people
close to the company were quoted as saying that ITT is now
willing to sell any of its hotels for "the right price and if
they can retain a management contract." The article also
quoted an ITT spokesman to the effect that an "overwhelming
majority" of the 58 hotels that ITT has added to its roster
of managed hotels this year could legally switch their
management or franchise contracts to other companies if ITT
is taken over. According to a 4
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noted hotel consultant quoted in the Journal article, the
change of control penalty provisions amount to an "esoteric
and kind of powerful" anti-takeover provision.
28. On June 4, 1997, an article in The Wall Street
Journal reported that ITT's strategy to fend off Hilton was
to sell "its most prized hotels" and thereby transform itself
into "primarily a hotel-management company." Noting the
dangers to ITT and its shareholders of pursuing this radical
defensive strategy, the Journal stated that ITT was "giving
up its best assets for a tactical advantage" and that some
market observers had expressed "worry that the company is
sacrificing long-term profit for the short-term goal of
fighting off Hilton." The Journal article quoted Bruce
Turner, a Salomon Brothers analyst: "I think ITT has to be
very very careful. To date the things they've done have been
positive. This new path may not be so positive."
29. Other market participants have questioned how
selling off luxury hotels subject to change of control
penalty provisions would help ITT shareholders. On June 4,
1997, the Los Angeles Times quoted a major institutional
investor: "I don't see how it's in the ITT shareholders'
interest to enter into a transaction like that." That same
day, the New York Post quoted one of ITT's biggest
shareholders, Michael Price of Franklin Mutual Investors:
"Anything in the contracts that inhibit this company from
being sold should be enjoined."
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30. On June 9, 1997, Mr. Bollenbach sent another
letter to the ITT Board of Directors, in which he expressed
his astonishment that ITT had not only placed change of
control penalty provisions in its management contracts with
FelCor, but that it had placed similar penalty provisions in
other management contracts and was seeking to sell many of
its premier hotel properties on similar terms. Mr.
Bollenbach's letter then stated:
. . . Hilton is a ready, willing and able
buyer for ITT's core assets. So there can be
no mistake, let me now be even more clear: I
am confident that the price Hilton can offer
for ITT's core assets is higher than any bona
fide price that ITT can obtain from any other
qualified purchaser. And, as you know, Hilton
will not ask for any change of control penalty
provisions.
Mr. Bollenbach then reiterated Hilton's desire to negotiate
with ITT:
ITT's interest in selling core assets also
raises the more fundamental question of why
ITT continues to refuse to talk to us. The
benefits of combining our two companies
remains compelling. We are more committed than
ever to making this combination a reality. If
ITT's efforts to drive us off destroy
shareholder value, this will only force us to
pay less for the ITT shares.
31. Without responding to either of Mr.
Bollenbach's letters, on June 9 ITT announced that it had
entered into a definitive agreement with FelCor to acquire
five ITT hotels for $200 million. The parties have agreed to
use reasonable best efforts to close the transaction by June
30, 1997. At closing, the parties intend to enter into a
management agreement which would entitle ITT's subsidiary to
a basic management fee of 2% of
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the total revenue of the five hotels as well as certain
incentive fees. However, the proposed management agreement
gives FelCor's affiliate the option to terminate the
agreement 30 days after a "Change of Control" -- defined to
consist of (i) any acquisition of more than 35% of ITT's
voting stock within two years after a tender offer or proxy
solicitation by the acquiror if the tender offer or proxy
solicitation was not approved by a majority of the ITT
directors in office at the time it was commenced or (ii) a
majority of the ITT Board being elected pursuant to a
solicitation of proxies from ITT shareholders if the
solicitation was not approved by a majority of the ITT
directors in office at the time it was commenced.
32. The change of control penalty provisions do not
serve any legitimate purpose of FelCor or other potential
purchasers of ITT assets. Thus, FelCor's right of termination
arises only if the incumbent ITT Board permits it to arise.
It arises only if control of ITT is transfered in a
transaction that is not approved by a majority of the
incumbent directors; in such instance, FelCor has a right to
terminate its management contract even if the acquiror is a
world-class operator of hotels, such as Hilton. But if ITT's
incumbent Board decides to sell control of the company to a
wholly incompetent hotel operator, FelCor has no right to
terminate as a result.
33. The change of control penalty provisions in
ITT's proposed management agreement with FelCor, ITT's
proposed management agreements with the purchasers of its
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"crown jewel" hotels, and ITT's existing management
agreements for hotels it manages but does not own, are a
"poison pill" designed to destroy the value of ITT to Hilton
or any other unwanted acquiror of ITT. Such provisions are a
pure entrenchment device. They are designed to serve the
entirely illegitimate purpose of deterring Hilton and others
from seeking to acquire control of ITT through a tender offer
or other acquisition of ITT stock not approved by the
incumbent directors. The provisions would operate to destroy
the value of ITT's assets in the hands of anyone other than
the incumbent management and Board or an acquiror who meets
their approval.
34. The change of control penalty provisions are
also designed to serve the entirely illegitimate purpose of
deterring Hilton and other ITT shareholders from freely
exercising their right to vote out the incumbent directors in
a proxy fight whether or not such proxy fight arises out of
an attempt to acquire ITT shares. Victory in any such proxy
fight (i.e., replacement of a majority of ITT's directors)
would carry a potentially enormous cost to ITT and its
shareholders -- the termination of the management contracts
by the hotel owners and the resultant loss of millions of
dollars in management fees by ITT.
FIRST CLAIM FOR RELIEF
35. Plaintiffs repeat and reallege each of the
allegations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
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36. Plaintiffs have nominated candidates elected as
directors at the 1997 annual meeting of ITT shareholders in
accordance with ITT's by-laws.
37. Although ITT's by-laws required ITT to hold its
annual meeting in May 1997, ITT's Board failed to call the
annual meeting. In violation of its fiduciary duties, the ITT
Board has failed to call the annual meeting for the primary
purpose of impending the effective exercise of the
stockholder franchise in connection with the election of
directors. The ITT Board lacked a compelling justification
for failing to hold the annual meeting in May 1997.
38. Any further effort by ITT or the ITT Board: (a)
to amend ITT's by-laws in any way that would impede the
effective exercise of the stockholder franchise in connection
with the 1997 annual meeting; (b) to materially delay the
conduct of the 1997 annual meeting; or (c) to enlarge the
size of the ITT Board in order to preserve the position of
the incumbent directors as a majority, would also constitute
a breach of fiduciary duty.
39. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
SECOND CLAIM FOR RELIEF
40. Plaintiffs repeat and reallege each of the
allegations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
41. The effect of ITT's poison pill, the Control
Share Acquisition Statute and the Business Combination
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Statute is to frustrate and impede the ability of ITT
shareholders to decide for themselves whether they wish to
receive the benefits of the Hilton tender offer and proposed
second-step merger. These devices unreasonably and
inequitably frustrate and impede the ability of Hilton to
consummate its offer and merger proposal. The failure of ITT
and its Board to redeem the ITT "poison pill," to adopt a
by-law opting out of the Control Share Acquisition Statute,
and to adopt a resolution approving the Hilton tender offer
for purposes of the Business Combination Statute, is a breach
of defendants' fiduciary duty and thus a violation of Nevada
law.
42. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
THIRD CLAIM FOR RELIEF
43. Plaintiffs repeat and reallege each of the
allegations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
44. The FelCor transaction, ITT's threatened
disposition of its "crown jewel" hotels and other core assets
subject to management contracts containing change of control
penalty provisions, and the insertion of such provisions in
ITT's management contracts for hotels that ITT currently
manages but does not own, are, or threaten to be,
unreasonable responses by the ITT Board of Directors to
Hilton's tender offer. The cost of these responses to ITT
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is disproportionately large in relation to any "threat"
allegedly posed to ITT by Hilton's tender offer.
45. The change of control penalty provisions are a
draconian response to Hilton's bid because they are designed
to make ITT takeover-proof. If Hilton or any other
non-approved bidder acquires control of ITT, and the change
of control penalty is triggered, ITT and its shareholders
stand to lose millions of dollars of value and receive
nothing in return.
46. The change of control penalty provisions are a
preclusive response to Hilton's bid, particularly in view of
the ITT Board's refusal to call an annual meeting. Because
the ITT Board has refused to call a meeting, ITT shareholders
cannot assert their right to vote out the incumbent directors
before the change of control provisions are put into place.
And once such provisions are in place, the ability of ITT
shareholders to vote the incumbents out will be severely
impeded because the provisions impose a potentially enormous
cost to ITT if the ITT shareholders vote to replace a
majority of the incumbent directors. By precluding ITT
shareholders from choosing to sell the company and remove the
incumbent directors, defendants are coercing the shareholders
into accepting the alternative course defendants have chosen
for them.
47. Plaintiffs are being, or will be, irreparably
harmed by defendants' conduct and have no adequate remedy at
law.
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FOURTH CLAIM FOR RELIEF
48. Plaintiffs repeat and reallege each of the
allegations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
49. The FelCor transactions, the proposed crown
jewel dispositions and the other asset dispositions announced
or pursued by ITT in response to Hilton's tender offer
reflect the ITT Board's abandonment of the company's
long-term strategy and constitute a break-up of ITT. In this
context, the Board's fiduciary duty is to seek to obtain the
best available terms for ITT's shareholders and not to favor
one potential acquiror over another or one type of financial
alternative over another.
50. Rather than seeking to maximize shareholder
value by exploring a sale of the company to Hilton, the ITT
Board is seeking to prevent the sale of the company to Hilton
by allowing management to engage in the sale of "core" assets
on terms designed to foreclose Hilton from pursuing its
offer.
51. Hilton has offered to purchase the assets
involved in the FelCor transaction on terms more attractive
to ITT than those proposed by FelCor. ITT has spurned
Hilton's offer. While Hilton has told ITT that it can offer
the highest value to ITT for its other hotel assets -- and
that Hilton will not ask for any change of control penalty
provisions -- ITT will not entertain Hilton's bid for any of
ITT's hotel assets.
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52. ITT's discriminatory and secretive sales of its
"crown jewel" hotel properties serve no legitimate corporate
purpose and are not calculated to achieve the best available
terms for either the shareholders of ITT or its other
constituencies. The ITT Board of Directors is pursuing this
process in breach of its fiduciary duties to ITT
shareholders.
53. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
FIFTH CLAIM FOR RELIEF
54. Plaintiffs repeat and reallege each of the
allegations set forth in paragraphs 1 through 34 hereof as if
fully set forth herein.
55. Under Nevada law, ITT may not engage in a sale
of all or substantially all of its property and assets
without the approval of the holders of a majority of its
voting stock at a meeting of the shareholders called for that
purpose.
56. ITT is threatening to sell all or substantially
all of its property and assets without the required
shareholder vote.
57. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
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SIXTH CLAIM FOR RELIEF
58. Plaintiffs repeat and reallege each of the
allegations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
59. ITT has entered into management contracts, and
has threatened to enter into additional management contracts,
containing change of control penalty provisions that are
triggered by the replacement of a majority of the incumbent
ITT directors for the primary purpose of impeding the
effective exercise of the stockholder franchise in connection
with the election of directors. By causing ITT to enter into
such management contracts, defendants have engaged in ultra
vires acts and have breached, and are threatening to continue
to breach, their fiduciary obligations to ITT shareholders.
60. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
SEVENTH CLAIM FOR RELIEF
61. Plaintiffs repeat and reallege each of the
allegations set forth in paragraphs 1 through 34 hereof as if
fully set forth herein.
62. The members of the ITT Board of Directors have
acted in bad faith and in breach of their duty of loyalty to
the shareholders of ITT by placing their own personal
interests and the interests of ITT management ahead of the
interests of ITT stockholders.
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63. Plaintiffs are, or will be, irreparably injured
by defendants' conduct and have no adequate remedy at law.
EIGHTH CLAIM FOR RELIEF
64. Plaintiffs repeat and reallege each of the
allegations set forth in paragraphs 1 through 33 hereof as if
fully set forth at length herein.
65. Hilton and ITT, through their respective
subsidiaries, compete in the hotel and gaming businesses. ITT
described these businesses as "highly competitive" in its
Form 10-K filing with the Securities and Exchange Commission
for the fiscal year ending December 31, 1995.
66. As part of its overall strategy to prevent its
shareholders from considering the Hilton tender offer, there
is a real and immediate threat that ITT will allege that
Hilton's tender offer violates the federal antitrust laws and
that ITT has standing under the antitrust laws to file an
action to enjoin Hilton's tender offer.
67. ITT does not have standing to pursue an action
to enjoin the consummation of the Hilton tender offer under
any antitrust theory because the consummation of the offer
would not cause ITT injury of the type that the antitrust
laws are intended to redress. If ITT had standing, the
threatened action would be without merit because an
acquisition of ITT by Hilton would not substantially lessen
competition or tend to create a monopoly in any line of
commerce. On February 27, 1997, the
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federal antitrust agencies gave clearance to Hilton to
purchase ITT shares pursuant to the tender offer.
68. By reason of the foregoing, an actual
controversy exists between Hilton and ITT regarding whether
ITT has standing to pursue an injunction against the Hilton
tender offer under the federal antitrust laws and whether the
consummation of that offer would violate such laws.
69. Pursuant to 28 U.S.C. ss. 2201, Hilton is
therefore entitled to declaratory relief from this Court.
WHEREFORE, plaintiffs seek judgment:
(a) Enjoining defendants from amending ITT's by-
laws to in any way impede the effective exercise of the
stockholder franchise in connection with election of
directors at the 1997 annual meeting of ITT shareholders;
(b) Requiring defendants to honor any nomination
for the election of directors by Hilton or HLT at the 1997
annual meeting of ITT shareholders;
(c) Enjoining defendants from any further delay of
ITT's 1997 annual meeting;
(d) Enjoining defendants from refusing to redeem
ITT's "poison pill" and refusing to make the provisions of
the Nevada Control Share Acquisition and Business Combination
Statutes inapplicable to Hilton's tender offer for ITT stock;
(e) Requiring defendants to conduct a fair and open
auction of ITT;
(f) Enjoining any action taken or to be taken by
defendants with the intent or effect of impeding the
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operation of market forces in an open bidding contest for an
acquisition of ITT;
(g) Enjoining defendants from entering into any
further disposition of ITT's assets unless they conduct a
fair and open auction for such assets in which Hilton can
participate on an equal basis with all other potential
purchasers;
(h) Enjoining defendants from selling any further
assets of ITT without the approval of ITT shareholders, as
required by Nevada law;
(i) Rescinding the FelCor transaction or any other
disposition of hotel or casino assets by ITT;
(j) Invalidating the change of control penalty
provisions in ITT's management agreement with FelCor;
(k) Enjoining defendants from entering into any
agreements containing change of control penalty provisions in
the future with other purchasers of ITT's assets or with the
owners of hotels managed by ITT;
(l) Enjoining the individual defendants from
engaging in any further actions aimed at entrenching
themselves in office in violation of the fiduciary duties
owed by defendants to the ITT shareholders;
(m) Declaring that ITT lacks standing and may not
institute an action seeking to enjoin the Hilton tender offer
under any theory of federal antitrust law;
(n) Declaring that the consummation of the Hilton
tender offer for ITT stock will not substantially lessen
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competition or tend to create a monopoly in any line of
commerce;
(o) Awarding plaintiffs damages against defendants
in an amount to be determined at trial, as well as
plaintiffs' costs of suit, including reasonable attorneys'
fees; and
(p) Granting plaintiffs such other and further
relief as the Court may deem just and proper.
Dated: June __, 1997
Las Vegas, Nevada
SCHRECK MORRIS
By:
-----------------------
STEVE MORRIS
KRISTINA PICKERING
MATTHEW MCCAUGHEY
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
SCOTT L. BLACK
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Plaintiffs
HILTON HOTELS CORPORATION
and HLT CORPORATION
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