<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(AMENDMENT NO. 3)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
ITT CORPORATION
(Name of Subject Company)
ITT CORPORATION
(Name of Person(s) Filing Statement)
COMMON STOCK, NO PAR VALUE
(INCLUDING THE ASSOCIATED SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
PURCHASE RIGHTS)
(Title of Class of Securities)
450912 10 0
(CUSIP Number of Class of Securities)
RICHARD S. WARD, ESQ.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE SECRETARY
ITT CORPORATION
1330 AVENUE OF THE AMERICAS
NEW YORK, NY 10019-5490
(212) 258-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
WITH A COPY TO:
PHILIP A. GELSTON, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") originally filed on February 12, 1997, by ITT Corporation, a
Nevada corporation (the "Company"), relates to an offer by HLT Corporation, a
Delaware corporation ("HLT") and a wholly owned subsidiary of Hilton Hotels
Corporation, a Delaware corporation ("Hilton"), to purchase 61,145,475 shares of
the common stock, no par value (including the associated Series A Participating
Cumulative Preferred Stock Purchase Rights), of the Company. All capitalized
terms used herein without definition have the respective meanings set forth in
the Schedule 14D-9.
ITEM 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 or about February 14, 1997, another purported class action suit was
filed on behalf of an individual plaintiff against the Company and the Board in
the U.S. District Court for the District of Nevada. The complaint was captioned
HALEBIAN V. ARASKOG, ET AL., C.A. No. CV-S-97-00198-PMP(RLH) (the "Halebian
Complaint"). The allegations of and remedies sought in the complaint include,
among others, allegations and remedies similar to the purported class action
complaints described above. A copy of the Halebian Complaint is filed as
Exhibit 28 hereto and is incorporated herein by reference. The foregoing
description of the complaint is qualified in its entirety by reference to the
complaint.
<PAGE>
ITEM 9. EXHIBITS.
The response to Item 9 is hereby amended by adding the following new
exhibit:
28. Complaint in HALEBIAN V. ARASKOG, ET AL., C.A. No. CV-S-97-00198-PMP(RLH).
2
<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 February 27, 1997
3
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
(28) Complaint in HALEBIAN V. ARASKOG, ET AL.,
C.A. No. CV-S-97-00198-PMP(RLH) . . . . . . .
<PAGE>
Exhibit 28
ALBRIGHT, STODDARD, WARNICK & ALBRIGHT
G. MARK ALBRIGHT
Nevada Bar No. 001394
WILLIAM H. STODDARD, ESQ.
Nevada Bar No. 001477
Quail Park Suite D-4
801 South Rancho Drive
Las Vegas, NV 89106
Telephone: 702/384-7111
Counsel for Plaintiff
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
________________________________________
JOHN HALEBIAN on behalf of himself |
and all others similarly situated, |
|
Plaintiff, |
|
against- |
| CV-8-97-00198-PMP
RAND V. ARASKOG, ROBERT A. BOWMAN, | (RLH)
BETTE B. ANDERSON, |
NOLAN D. ARCHIBALD, | CLASS ACTION
ROBERT A. BURNETT, | COMPLAINT
PAUL G. KIRK, JR., EDWARD C. MEYER, |
BENJAMIN F. PAYTON, VIN WEBER, | Plaintiff Demands a
MARGITA E. WHITE, | Trial By Jury
KENDRICK R. WILSON III and |
ITT CORPORATION |
|
Defendants. |
|
________________________________________
Plaintiff, by his attorneys, for her complaint against defendants,
allege upon personal knowledge with
<PAGE>
respect to paragraphs 9-21, and upon information and belief based, inter alia,
upon the investigation of counsel, as to all other allegations herein, as
follows:
NATURE OF THE ACTION
1. Plaintiff brings this action as a class action on behalf of
herself and all other stockholders of ITT Corporation ("ITT" or the "Company")
who are similarly situated, against the directors and/or senior officers of ITT
to enjoin certain actions of the Individual Defendants (as defined herein) which
are intended to thwart any takeover of the Company, as more fully described
below.
2. In particular, these shareholders are currently being deprived of
the opportunity to realize the full benefits of their investment in ITT. Among
other things, the director defendants have failed to adequately consider a
premium offer to acquire control of ITT by Hilton Hotels Corp. ("Hilton"), and
are, on information and belief, preparing to use their fiduciary positions of
control over ITT to thwart Hilton and any others in any legitimate attempts to
acquire ITT.
3. In addition, defendants, in anticipation of such unsolicited bids,
have implemented or are using several anti-takeover devices, including, but not
limited to, a "poison pill." Unless defendants are prevented from using these
defensive devices improperly, Hilton and other
-2-
<PAGE>
potential suitors will effectively be prevented from consummating any legitimate
offers for ITT. Also, two Nevada statutes, which are discussed in detail below,
will similarly thwart any legitimate Hilton offer or other offers from any
potential acquiror, unless ITT takes affirmative steps to disarm the impact of
these statutes. The statutes, therefore, violate the Commerce Clause, the
Supremacy Clause and the Due Process Clause of the United States Constitution.
4. Defendants' action and inaction represents an effort by the
Individual Defendants to entrench themselves in office so that they may continue
to receive the substantial salaries, compensation and other benefits and
perquisites of their offices.
5. The Individual Defendants are abusing their fiduciary positions of
control over ITT to thwart legitimate attempts at acquiring the Company and are
seeking to entrench themselves in the management of the Company. The actions of
the Individual Defendants constitute a breach of their fiduciary duties to
maximize shareholder value, to not consider their own interests over those of
the public shareholders, and to respond reasonably and on an informed basis to
bona fide offers for the Company. These actions are contrary to federal and
state law and policy.
-3-
<PAGE>
JURISDICTION AND VENUE
6. This action is brought pursuant to the Supremacy Clause (art. VI,
cl. 2), the Commerce Clause (art. I, Section 8, cl. 3) and the Due Process
Clause (amends. V and XIV) of the United States Constitution; principles of
common law; and the federal Declaratory Judgments Act, 28 U.S.C. Section 2201.
Pursuant to Rule 24(c) of the Federal Rules of Civil Procedure, Plaintiff calls
the attention of the Court to 28 U.S.C. Section 2403, pursuant to which the
Court shall notify the state attorney general of any action in which the
constitutionality of any statute of a state is drawn into question.
7. The Court has jurisdiction of the subject matter of this action
pursuant to 28 U.S.C. Sections 1331 and 1367(a).
8. Venue is proper in this district pursuant to 28 U.S.C. Sections
139(a)-(c).
THE PARTIES
9. Plaintiff Rhoda Kanarek is, and at all relevant times has been,
the owner of common stock of defendant ITT.
10. Plaintiff Adolph Feuerstein is, and at all relevant times has
been, the owner of common stock of defendant ITT.
-4-
<PAGE>
11. Plaintiff David L. Freeman trustee F/B/O Woodtech Sales &
Marketing Inc. Employees Profit Sharing Trust is, and at all relevant times has
been, the owner of common stock of defendant ITT.
12. Plaintiff Abraham Kostick is, at all relevant times has been, the
owner of common stock of defendant ITT.
13. Plaintiff Sharon Siegel is, and at all relevant times has been,
the owner of common stock of defendant ITT.
14. Plaintiff Ernest Hack is, and at all relevant times has been, the
owner of common stock of defendant ITT.
15. Plaintiff Jules Bernstein is, and at all relevant times has been,
the owner of common stock of defendant ITT.
16. Plaintiff Sylvia Piven is, and at all relevant times has been,
the owner of common stock of defendant ITT.
17. Plaintiff Donnie K. Marks is, and at all relevant times has been,
the owner of common stock of defendant ITT.
18. Plaintiff Dr. Samuel Cohen is, and at all relevant times has
been, the owner of common stock of defendant ITT.
19. Plaintiff Belle Cohen is, and at all relevant times has been, the
owner of common stock of defendant ITT.
-5-
<PAGE>
20. Plaintiff Kenneth Steiner is, and at all relevant times has been,
the owner of common stock of defendant ITT.
21. Plaintiff Robert Huntley is, and at all relevant times has been,
the owner of common stock of defendant ITT.
22. Defendant ITT is a Nevada corporation with its principal
executive offices at 1330 Avenue of the Americas, New York, New York. ITT
describes itself as being primarily engaged in the hospitality, gaming,
entertainment and information service businesses.
23. Defendant Rand V. Araskog ("Araskog") is Chief Executive Officer
and Chairman of the Board of Directors of ITT. He has been employed by the
Company since 1966 and served as Chief Executive Officer of ITT and its
predecessors since 1979. Araskog, for the fiscal year ended December 31, 1995,
received a base salary of $2,000,000, a bonus of $2,330,800, other annual
compensation of $251,063, a restricted stock award having an estimated value of
$2,718,750 consisting of options to purchase 429,971 shares of ITT stock, a
payout under the long-term incentive plan of $2,625,000 and other long-term
compensation of $449,962.
24. Defendant Robert A. Bowman ("Bowman") is President and Chief
Operating Officer of ITT and has been employed by the Company, its predecessors
and subsidiaries since April 1991. Bowman, for the fiscal year ended
-6-
<PAGE>
December 31, 1995, received a base salary of $583,333, a bonus of $611,800,
other annual compensation of $44,942, a restricted stock award with an estimated
value of $1,087,000 consisting of options to purchase 143,324 shares of ITT
common stock, a payout under the long-term incentive plan of $900,000 and other
long-term compensation of $37,380.
25. Defendants Bette B. Anderson, Nolan D. Archibald, Robert
A. Burnett, Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F. Payton, Vin Weber,
Margita E. White and Kendrick R. Wilson III are all members of the Company's
Board of Directors. As directors, each is paid an annual retainer fee of
$48,000, an attendance fee of $1,000 for each meeting of the Board of Directors
and each Committee meeting attended. In addition, defendants Bette B. Anderson,
Vin Weber and Margita E. White serve as directors of ITT Educational Services,
Inc., for which they receive an annual retainer fee of $18,000, an attendance
fee of $750 for each meeting of the Board of Directors and $500 for each
committee thereof.
26. By virtue of their positions as directors and/or officers of ITT
and their exercise of control over the business and corporate affairs of ITT,
the ITT officers and directors named as defendants herein (the "Individual
Defendants") have and at all relevant times had the power to control and
influence, and did control and influence, and cause ITT to engage in the
practices complained of herein.
-7-
<PAGE>
All Individual Defendants owed and owe ITT and its public stockholders fiduciary
obligations and were and are required to: (i) use their ability to control and
manage ITT in a fair, just and equitable manner; (ii) act in furtherance of the
best interests of ITT and its stockholders; (iii) act to maximize shareholder
value; (iv) refrain from abusing their positions of control; and (v) not favor
their own interests at the expense of ITT and its stockholders. By reason of
their fiduciary relationships, these defendants owed and owe Plaintiff and other
members of the Class (as herein defined) the highest obligations of good faith,
fair dealing, loyalty and due care.
27. By virtue of the acts and conduct alleged herein, the Individual
Defendants, who control the actions of ITT, are breaching their fiduciary duties
to the public shareholders of ITT.
28. Each defendant herein is sued individually as a conspirator
and/or aider and abettor, or, as appropriate, in his or her capacity as a
director of the Company, and the liability of each arises from the fact that he,
she or it has engaged in all or part of the unlawful acts, plans, schemes or
transactions complained of herein.
CLASS ACTION ALLEGATIONS
29. Plaintiff brings this action pursuant to Rule 23 of the Federal
Rules of Civil Procedure on their own
-8-
<PAGE>
behalf and as a class action on behalf of all shareholders of ITT (except
defendants herein and any person, firm, trust, corporation or other entity
related to, controlled by or affiliated with any of the defendants) and their
successors in interest (the "Class").
30. This action is properly maintainable as a class action for the
following reasons:
(a) The Class of shareholders for whose benefit this action is
brought is so numerous that joinder of all Class members is impracticable. As
of November 6, 1996, ITT reported that it had over 116 million shares of common
stock outstanding, owned by thousands of shareholders of record and beneficial
owners who are scattered throughout the United States.
(b) There are questions of law and fact common to members of the
Class which predominate over any questions affecting only individual members.
The common questions include, inter alia:
(i) whether the anti-takeover protections of Nevada Rev.
Statutes Sections 78.378 et seq. (the "Control Share Acquisition Statute") and
Nevada Rev. Statutes Sections 78.411 et seq. (the "Business Combination
Statute") are unconstitutional on their face or applied;
(ii) whether the Individual Defendants are unlawfully
impeding a potential acquisition of ITT to the detriment of the shareholders of
the Company, and have
-9-
<PAGE>
breached their fiduciary and other common law duties owed by them to Plaintiff
and other members of the Class by failing and refusing to attempt in good faith
to maximize shareholder value by adopting strategies, policies and plans
designed to thwart offers for ITT and entrench defendants in their positions of
control and failing to act with complete candor;
(iii) whether the Individual Defendants have engaged and are
continuing to engage in an unlawful plan or scheme to perpetuate their control
over and enjoyment of the perquisites of office at the expense of ITT's public
shareholders;
(iv) whether defendants have breached and/or aided and
abetted the breach of fiduciary duties and other common law duties owed by them
to Plaintiff and other members of the Class; and
(v) whether Plaintiff and other members of the Class are
being and will continue to be irreparably injured by the wrongful conduct
alleged herein and, if so, what is the proper remedy and/or measure of damages.
(c) The claims of Plaintiff are typical of the claims of other
members of the Class and Plaintiff has no interests that are adverse or
antagonistic to the interests of the Class.
(d) Plaintiff is committed to the vigorous prosecution of this
action and have retained competent
-10-
<PAGE>
counsel experienced in litigation of this nature. Accordingly, Plaintiff is
adequate representatives of the Class and will fairly and adequately protect the
interests of the Class.
(e) Plaintiff anticipates that there will not be any difficulty
in the management of this litigation as a class action.
31. For the same reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this action
and the claims asserted herein. Because of the size of the individual Class
members' claims, few, if any, Class members could afford to seek legal redress
individually for the wrongs complained of herein. Absent a class action, the
Class members will continue to suffer damage and defendants' violations of law
will proceed without remedy. Defendants are acting in a manner which affects
all shareholders in the same or similar fashion and would be subjected to
potentially differing legal requirements or standards of conduct if this
litigation were not certified to proceed as a class action on behalf of all ITT
shareholders.
SUBSTANTIVE ALLEGATIONS
A. Company Background
32. ITT's corporate predecessor was traditionally identified as the
quintessential conglomerate corporation
-11-
<PAGE>
acquiring widely disparate businesses in different industries for the
predominant purpose of boosting corporate growth.
33. This process of corporate conglomeration has long fallen into
disfavor as investors now prefer companies with a well-defined and well-focused
market and strategy.
34. In order to regain investor favor, following a three-way spin-off
of business groups by ITT's predecessors, defendant Araskog has been
increasingly refocusing ITT's business on gaming, hotels and entertainment.
And, although ITT continues to own interests in educational services,
telecommunications and other businesses unrelated to the gaming industry, the
Company has stated that it intends to dispose of those operations which do not
fit within its core business.
35. The management of a more focused business makes managerial
weaknesses in one of the core operations more readily transparent, and, ITT's
weaknesses in managing ITT's gaming operations have recently become abundantly
clear.
36. Thus, on September 9, 1996, ITT publicly announced that it
expected its third quarter earnings to be significantly impacted by negative
results in the Company's gaming segment. The earnings shortfall was reportedly
due to low table hold percentages and baccarat drop and
-12-
<PAGE>
construction disruptions at Caesar's Palace and the Desert Inn, two significant
gaming properties of ITT.
37. As investors recognized, these disappointing results reflected
more than a one-time downturn but rather were symptomatic of severe, chronic
problems at ITT. As discussed in a September 17, 1996 report issued by the
brokerage firm of Morgan Stanley & Co., Inc.:
We have never been overly concerned with quarterly baccarat losses, or
even with construction disruptions on projects that yield long-term
value. However, we are concerned that the company is still unwilling
to provide guidance on the timing and impact of construction delays on
its $2.5 billion casino development projects. That, coupled with an
increasingly competitive gaming environment, makes ITT's casino
operations vulnerable for the next several years.
In addition, we have long argued that ITT's stock would rise as the
company monetized its hodgepodge of noncore assets, and after speaking
with management we think such dispositions will take longer to
implement. While ITT Educational and World Directories businesses are
unlikely to be in the company five years from now, there appear to be
a number of internal obstacles to disposing of them anytime soon. The
company is also clearly committed to keeping its Madison Square Garden
operations, and though it has done much to improve MSG -- taking its
EBITDA from $20 million in 1994 to $78 million in 1995 -- we are still
not persuaded that a sports team/network fits into a gaming and
lodging concern.
We were also hopeful that ITT would be using part of its $3 billion
credit line and $200 million in cash to aggressively buy back its
stock -- it's off 16% since September 10, 1996. Given our generally
neutral view of the gaming industry, we would prefer ITT to slow down
its expansion and use more capital to shrink its equity base.
Instead, we were told that while the company and its management made
some purchases, the buyback
-13-
<PAGE>
was symbolic in nature and not enough to affect EPS.
These three issues -- lack of guidance, slow asset dispositions, and a
smaller-than-hoped-for stock buyback -- lead us to look in vain for a
catalyst to make ITT's stock recover in the near term. More
critically, we still see some vulnerability in our current earnings
estimates. If casino construction is further delayed or there is any
slowdown in the full-service lodging sector, ITT could be in for
another round of downward earnings revisions.
38. Other brokerage firms weighed in with similarly negative
analyses, driving down ITT's common stock price from its close prior to the
September 9, 1996 announcement, of $56 per share to a trading range of between
approximately $40 and $45 per share. ITT's stock closed at an undervalued
$42.875 on January 27, 1997.
39. In late November, 1996, Hilton contacted one of ITT's principal
financial advisors to determine whether ITT wished to discuss a possible
strategic combination. These overtures were quickly and unambiguously rebuffed
by ITT.
B. The Offer
40. On January 27, 1997, after the close of trading Hilton announced
that it wished to acquire ITT and was making an initial offer of $55 per share
(the "Offer"), a substantial -- almost 30% -- premium over ITT's previous
trading price. The total value of the proposed transaction, including Hilton's
assumption of outstanding debt, is
-14-
<PAGE>
estimated at $10.5 billion. Hilton indicated that it was preparing to make a
tender offer for up to 50% of ITT's shares and would also wage a proxy contest
to deactivate ITT's anti-takeover defenses. ITT was reportedly hostile to the
unsolicited bid.
41. Reportedly, Hilton first made the Offer over the phone to ITT
early on January 27, 1997, and later that day confirmed the Offer in writing.
According to the letter sent to defendant Araskog by Stephen Bollenbach,
Hilton's President and Chief Executive Officer, Hilton stated, "that we are
committed to making this combination a reality. Although we would much rather
work directly with you, we are prepared if necessary to solicit proxies from
your shareholders to replace your board of directors in order to complete this
transaction."
42. Bollenbach added that, "[t]he combination of ITT and Hilton would
bring together two of the world's most respected lodging operations, as well as
two premier gaming businesses with powerful brand names. We believe this
combination would be of enormous benefit to each company and its respective
shareholders, employees and other constituencies."
43. In its communication with ITT, Hilton noted that its proposal was
based solely on publicly available information, and that a review of ITT private
information could result in an even higher offer. In fact, on
-15-
<PAGE>
January 28, 1997, Bloomberg News Service reported that Hilton may be willing to
boost its Offer to $65 per Share. Bollelbach added that, "our bid is
specifically designed to allow ITT shareholders to obtain a substantial premium
[29%] over the current stock price, and at the same time to participate in the
combined company's upside potential." Bollenbach added that "ITT's shareholders
will benefit from substantial operating and financial savings that are unique to
a merger with Hilton", estimating that the combination would result in more than
$100 million in annual cost savings.
C. ITT's Poison Pill and Other Defensive Measures
44. ITT has at its disposal various anti-takeover devices and other
defensive measures -- including a Shareholder Rights Plan (i.e., a poison pill),
various corporate by-laws structured to entrench management and the provisions
of Nevada Rev. Statutes Sections 78.378 et seq. (the "Control Share Acquisition
Statute") and Sections 78.411 et seq. (the "Business Combination Statute")
(collectively, "the Nevada Anti-Takeover Statutes"), which the Individual
Defendants, in the pursuit of their entrenchment scheme, can and will utilize to
block the Offer and fend off any threats to their control.
<PAGE>
1. The Poison Pill
45. ITT has a number of anti-takeover provisions in place, such as
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 that third-party to
purchase ITT preferred shares at a 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]".
46. The Poison Pill has the effect of making it extraordinarily
difficult, expensive and/or impossible for any potential acquiror not approved
by management to acquire ITT. As a result, the Poison Pill has the effect of
precluding successful completion of even the most attractive offer for ITT
unless the Board acquiesces or approves, thus denying the Company's shareholders
an opportunity to make their own choice.
47. By adopting the Poison Pill, the Company's directors caused a
fundamental shift of power from ITT shareholders to themselves. The Poison Pill
thus permits
-17-
<PAGE>
the Individual Defendants to act as the prime negotiators of -- and, in effect,
totally to preclude -- any and all acquisition offers through their power to
redeem or to refuse to redeem the Rights.
48. This fundamental shift of control of the Company's destiny from
its public shareholders to ITT's Board of Directors results in a heightened
fiduciary duty on the part of the Board to consider, in good faith, a
third-party bid, and further requires the directors to pursue a third-party's
bona fide interest in acquiring the Company and to negotiate in good faith with
a bidder on behalf of the Company's shareholders.
2. ITT's By-Laws
49. Section 2.2 of ITT's Amended and Restated By-Laws provides that
"[t]he number of Directors which shall constitute the whole Board shall be such
as from time to time shall be determined by resolution adopted by a majority of
the entire Board, but the number shall not be less than one nor more than
twenty-five. . . ." Section 2.2 further provides that "[a]ny stockholder
entitled to vote for the election of Directors may nominate a person or persons
for election as Directors only if written notice of such stockholder's intent to
make such nomination is given . . . 90 days in advance of the anniversary date
of the immediately preceding annual meeting." Section 2.2 does not
-18-
<PAGE>
provide any mechanism for shareholders to supplement their written notice of
intention to nominate a director in the event that the ITT Board votes to
increase the size of the ITT Board after the time to provide such notice
purportedly has lapsed. ITT's former corporate parent has publicly acknowledged
that the "Board of Directors of [ITT] may be able to prevent any shareholder
from obtaining majority representation on the Board of Directors by increasing
the size of the board and filling the newly created directorships with its own
nominees."
50. In this regard, ITT, based on its current by-laws, may
effectively thwart any hostile takeover by enlarging the size of the ITT Board
in order to preserve the position of the incumbent directors.
3. The Control Share Acquisition Statute
51. Defendant ITT has at its disposal the anti-takeover protections
of the Nevada Control Share Acquisition Statute.
52. Under the Control Share Acquisition Statute, a third-party (like
Hilton) that acquires a "controlling interest" in the shares of a Nevada
corporation (like 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 Nevada Corporation's Board adopts a by-law opting out of
the
-19-
<PAGE>
coverage of the Statute -- something that the ITT board has not done.
4. The Business Combination Statute
53. Defendant ITT also has at its disposal the anti-takeover
protections of the Nevada Business Combination Statute.
54. Under the Business Combination Statute, a third-party (like
Hilton) that acquires 10% or more of the voting power of a Nevada corporation's
stock (like ITT's) cannot engage in a business combination with that Nevada
corporation for three years unless the acquisition of the shares or the business
combination is approved by the Nevada Corporation's Board in advance.
55. The effect of the Anti-Takeover Statutes which ITT may include
under Nevada law is to frustrate and impede the ability of ITT shareholders to
decide for themselves whether they wish to receive the benefits of any
unsolicited offer, including the Hilton tender offer and proposed second-step
merger. These devices unreasonably and inequitably frustrate and impede the
ability of the shareholders to maximize the value of their ITT holdings. The
failure of ITT and its Board to adopt a by-law opting out of the Control Share
Acquisition Statute, to adopt a resolution approving the Hilton tender offer and
any other unsolicited bid for purposes of the Business Combination
20-
<PAGE>
Statute, or alternatively, to employ such defenses in a fair and non-coercive
manner, are or will breach, or threaten to breach the Individual Defendant's
fiduciary duties to stockholders and thus are a violation of Nevada law. In
addition, the effect of the Nevada Anti-Takeover Statutes generally, and
specifically as applied here, is to unconstitutionally interfere with interstate
commerce and the Class members due process rights, particularly in light of
Hilton's announced and imminent takeover efforts.
Declaratory and Injunctive Relief
56. The Court may grant the declaratory and injunctive relief sought
herein pursuant to 28 U.S.C. Section 2201 and Fed. R. Civ. P. 57 and 65. A
substantial controversy presently exists, as demonstrated by: (a) ITT's rebuff
of Hilton's overtures of November 1996 for the acquisition of ITT, (b) ITT's
unwillingness even to meet with Hilton to consider or discuss a combination or
merger with Hilton or any other possible acquiror and (c) ITT's failure to
redeem or amend the Poison Pill, and/or retract any of its other takeover
defenses including those in ITT's by-laws and those unconstitutionally and
impermissibly afforded by the Nevada Anti-Takeover Statutes or to use those
defenses in a proper way. The shareholders' interests in maximizing the value
of their ITT holdings is adverse to the interests of the Individual Defendants
in their desire to retain their
-21-
<PAGE>
positions on the ITT Board. The existence of this controversy is causing
confusion and uncertainty in the market for public securities because investors
do not know whether they will be able to avail themselves of an advantageous
financial offer. The granting of the requested declaratory and injunctive
relief will serve the public interest by affording relief from such uncertainty
and by avoiding delay.
COUNT I
For Injunctive and Declaratory Relief --
Unconstitutionality of the Nevada Anti-Takeover Statutes
57. Plaintiff repeats and realleges each allegation set forth herein.
58. This claim arises under the Commerce, Supremacy and Due Process
Clauses of the United States Constitution.
59. The Offer constitutes a substantial securities transaction in
interstate commerce, employing interstate instrumentalities and facilities in
the communication of the Offer, and in transactions for the purchase and sale of
ITT's securities occurring across state lines.
60. The Nevada Anti-Takeover Statutes violate the Commerce Clause
because they impose direct, substantial and adverse burdens on interstate
commerce that are excessive in relation to the local interests purportedly
served by the statutes. Among other things, the Statutes may make it more
-22-
<PAGE>
difficult to accomplish transactions which ITT shareholders may otherwise deem
to be in their best interest, because the Statutes vest the boards of Nevada
companies with ultimate power to thwart potential business combinations.
61. The Nevada Anti-Takeover Statutes are unconstitutional and null
and void on their face under the Commerce Clause. In addition, the Nevada
Anti-Takeover Statutes are unconstitutional and null and void under the Commerce
Clause in their application under the circumstances of this case. ITT
shareholders may be effectively prevented from accepting the Hilton offer or any
other offer to the extent the Board of ITT exercises its rights under the Nevada
Anti-Takeover Statutes in furtherance of its course of entrenchment.
Accordingly, the undue burden on interstate commerce that is created by these
statutes has a direct and substantial impact in this case.
62. The Nevada Anti-Takeover Statutes also violate the Supremacy
Clause of the United States Constitution. The Offer is subject to, among other
things, the federal laws and regulations governing tender offers, including the
Williams Act amendments to the Securities Exchange Act, 15 U.S.C. Sections 78m
and 78n, and the rules and regulations promulgated thereunder. The Williams Act
is intended to establish even-handed regulation of tender offers which favors
neither the offeror nor incumbent management of the
-23-
<PAGE>
target but leaves the decision concerning the merits of the offer to the
target's stockholders.
63. By establishing policies, standards and procedures that conflict
with and are obstacles to the policies implemented by Congress by means of the
Williams Act and the rules and regulations promulgated thereunder, the Nevada
Anti-Takeover Statutes are invalid and unconstitutional as applied to the Offer
under the Supremacy Clause of the United States Constitution, art. VI, cl. 2,
which accords supremacy to federal law over conflicting state law, and violate
and are preempted by Section 28(a) of the Securities Exchange Act of 1934, (the
"Exchange Act") 15 U.S.C. Section 78bb, which prohibits and preempts state
regulation that conflicts with the provisions of the Exchange Act and the rules
and regulations thereunder.
64. The Nevada Anti-Takeover Statutes also violate the Due Process
Clause of the United States Constitution. The Statutes prevent Plaintiff and
the Class from maximizing the value of their ITT holdings due to the Individual
Defendant's entrenching efforts. Thus, those persons, acting under color of
state law, are diminishing the property interest of all class members. The
class members are thus being deprived of fundamental freedoms and property
interests guaranteed by the Due Process Clause of the United States
Constitution.
-24-
<PAGE>
65. Plaintiff seeks declaratory relief with respect to the
unconstitutionality of the Nevada Anti-Takeover Statutes pursuant to the Federal
Declaratory Judgments Act, 28 U.S.C. Section 2201, and injunctive relief
against the application and enforcement of these unconstitutional Statutes.
Plaintiff and the Class members are or will be irreparably and imminently
injured by the wrongs alleged herein.
66. Plaintiff and the Class have no adequate remedy at law.
COUNT II
Against All Defendants
For Breach of Fiduciary Duties
67. Plaintiff repeats and realleges each allegation set forth herein.
68. Defendants, acting in concert, have violated their fiduciary
duties owed to the public shareholders of ITT and put their own personal
interests ahead of the interests of the ITT public shareholders and are using
their control positions as officers and directors of ITT for the purpose of
retaining their positions and perquisites as Board members at the expense of
ITT's public shareholders.
-25-
<PAGE>
69. The Individual Defendants are engaged in a course of conduct
which evidences their failure to: (1) seriously evaluate the benefits to the
Company's shareholders of the Hilton offer; (2) undertake an adequate evaluation
of ITT's worth as a potential acquisition candidate; (3) take adequate steps to
enhance ITT's value and/or attractiveness as an acquisition candidate;
(4) effectively expose ITT to the marketplace in an effort to create an open
auction for ITT; or (5) act independently so that the interests of public
shareholders would be protected. Instead, defendants have sought to chill or
block any potential offers for ITT.
70. The Individual Defendants have taken no affirmative steps to
facilitate Hilton's premium offer and thus far have been content to remain
behind the protections of the Company's defenses, including its Poison Pill,
from unwanted takeovers. To act consistent with their fiduciary duties, the
Individual Defendants should evaluate all available alternatives, including
negotiating with Hilton and any other potential suitors, which they have failed
to do.
71. The Individual Defendants owe fundamental fiduciary obligations
under the present circumstances to take all necessary and appropriate steps to
maximize shareholder value and explore in good faith the Hilton proposal. In
addition, the Individual Defendants have the
-26-
<PAGE>
responsibility to act independently so that the interests of ITT's public
stockholders will be protected, to seriously consider all bona fide offers for
the Company, and to conduct fair and active bidding procedures or other
mechanisms for checking the market to assure that the highest possible price is
achieved. Further, the directors of the Company must adequately ensure that no
conflict of interest exists between defendants' own interests and their
fiduciary obligations to maximize stockholder value and act in the shareholders'
best interests or, if such conflicts exist, to ensure that they will be resolved
in the best interests of the Company's public stockholders.
72. ITT represents a highly attractive acquisition candidate.
Defendants' conduct has deprived and will continue to deprive the Company's
public shareholders of the very substantial control premium which Hilton is
prepared to pay or of the enhanced premium which further exposure of the Company
to the market could provide. Defendants are precluding the shareholders'
enjoyment of the full economic value of their investment by failing to proceed
expeditiously and in good faith to evaluate and pursue a premium acquisition
proposal which would provide for an acquisition for all shares at a very
attractive price.
73. ITT's Board and its top management have frustrated Hilton's
correct acquisition overtures and offers, even though these proposals would
result in ITT's
-27-
<PAGE>
shareholders receiving a substantial premium over recent market-prices of ITT
stock. The Individual Defendants have done this because they know that in the
event ITT were acquired by any potential bidders, most or all of the directors
of ITT and its senior management would, either in connection with the
acquisition or shortly thereafter, be removed from the Board of the surviving
company because their services would not be necessary and they would be mere
surplusage and thus an acquisition would bring an end to their power, prestige
and profit. In so acting, ITT's directors and those in management allied with
them have been aggrandizing their own personal positions and interests over
those of ITT and its broader shareholder community to whom they owe fundamental
fiduciary duties not to entrench themselves in office.
74. By virtue of the acts and conduct alleged herein, the Individual
Defendants, who control the actions of the Company, have carried out a
preconceived plan and scheme to place their own personal interests ahead of the
interests of the shareholders of ITT and thereby entrench themselves in their
offices and positions within the Company. The Individual Defendants have
violated their fiduciary duties owed to Plaintiff and the Class in that they
have not and are not exercising independent business judgment and have acted and
are acting to the detriment of
-28-
<PAGE>
the Company's public shareholders for their own personal benefit.
75. Plaintiff seeks preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving Plaintiff and the Class of their rights to realize a full and fair
value for their stock at a substantial premium over the market price and to
compel defendants to carry out their fiduciary duties to maximize shareholder
value in selling ITT.
76. Only through the exercise of this Court's equitable powers can
Plaintiff be fully protected from the immediate and irreparable injury which the
defendants' actions threaten to inflict.
77. Unless enjoined by the Court, defendants will continue to breach
their fiduciary duties owed to Plaintiff and the members of the Class, and/or
aid and abet and participate in such breaches of duty, will continue to entrench
themselves in office, and will prevent the sale of ITT at a substantial premium,
all to the irreparable harm of Plaintiff and the other members of the Class, who
are or will be imminently injured by such misconduct.
-29-
<PAGE>
78. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, Plaintiff demands judgment as follows:
A. Declaring this to be a proper class action and certifying
Plaintiff as a class representative;
B. Declaring that the Nevada Control Share Acquisition Statute and
the Nevada Business Combination Statute, either generally or applied here, are
unconstitutional;
C. Ordering the Individual Defendants to carry out their fiduciary
duties to Plaintiff and the other members of the Class by announcing their
intention to:
(i) cooperate fully with any entity or person, including, but not
limited to, Hilton, having a bona fide interest in proposing any transaction
which would maximize shareholder value, including, but not limited to, a buy-out
or takeover of the Company;
(ii) immediately undertake an appropriate evaluation of ITT's
worth as a merger or acquisition candidate;
(iii) take all appropriate steps to effectively expose ITT to the
marketplace in an effort to create an active auction of the Company;
(iv) act independently so that the interests of the Company's
public shareholders will be protected; and
-30-
<PAGE>
(v) adequately ensure that no conflicts of interest exist between
the Individual Defendants' own interest and their fiduciary obligation to
maximize shareholder value or, in the event such conflicts exist, to ensure that
all conflicts of interest are resolved in the best interests of the public
shareholders of ITT.
D. Declaring that the Individual Defendants have violated their
fiduciary duties to the Class;
E. Enjoining defendants from abusing the corporate machinery of the
Company for the purpose of entrenching themselves in office;
F. Ordering the Individual Defendants to take steps to facilitate a
premium acquisition by utilizing the Company's anti-takeover defenses, including
the Rights Plan and the Nevada Anti-Takeover Statutes (if they are not stricken)
exclusively in a manner designed to maximize shareholder value;
G. Ordering the Individual Defendants, jointly and severally, to
account to Plaintiff and the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
H. Awarding Plaintiff the costs and disbursements of this action,
including a reasonable allowance for Plaintiff's attorneys' and experts' fees;
and
I. Granting such other and further relief as may be just and proper.
-31-
<PAGE>
JURY DEMAND
Plaintiff demands a trial by jury of all issues so triable.
DATED: February 13, 1997
Respectfully submitted,
ALBRIGHT, STODDARD, WARNICK &
ALBRIGHT
/s/ G. Mark Albright
------------------------------
G. MARK ALBRIGHT
Nevada Bar No. 001394
WILLIAM H. STODDARD, ESQ.
Nevada Bar No. 001477
Quail Park Suite D-4
801 South Rancho Drive
Las Vegas, NV 89106
702/384-7111
LAW OFFICES OF JAMES V. BASHIAN, P.C.
James V. Bashian, Esq.
500 Fifth Avenue, Suite 2700
New York, NY 10110
212/921-4110
212/921-4249 Fax
-32-
