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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
SCHEDULE 14D-9
(AMENDMENT NO. 7)
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)
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COMMON STOCK, NO PAR VALUE
(INCLUDING THE ASSOCIATED SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
PURCHASE RIGHTS)
(Title of Class of Securities)
450912 10 0
(CUSIP Number of Class of Securities)
-------------------------------------
RICHARD S. WARD, ESQ.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE SECRETARY
ITT CORPORATION
1330 AVENUE OF THE AMERICAS
NEW YORK, NY 10019-5490
(212) 258-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
WITH A COPY TO:
PHILIP A. GELSTON, ESQ.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
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INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") originally filed on February 12, 1997, by ITT Corporation, a
Nevada corporation (the "Company"), relates to an offer by HLT Corporation, a
Delaware corporation ("HLT") and a wholly owned subsidiary of Hilton Hotels
Corporation, a Delaware corporation ("Hilton"), to purchase 61,145,475 shares of
the common stock, no par value (including the associated Series A Participating
Cumulative Preferred Stock Purchase Rights), of the Company. All capitalized
terms used herein without definition have the respective meanings set forth in
the Schedule 14D-9.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
The response to Item 4 is hereby amended by adding the following after
the final paragraph of Item 4:
Reference is made to the Company's soliciting materials which are
filed as Exhibit 44 hereto and are incorporated herein by reference.
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 March 25, 1997, Hilton filed a Reply Memorandum of Points and
Authorities in Support of Hilton's Motion for a Preliminary Injunction Requiring
ITT to Conduct its Annual Meeting in May 1997 (the "Memorandum in Support of the
Hilton Annual Meeting Motion"). On March 28, 1997, the Company filed a Motion
and Memorandum to Strike Affidavits Submitted with Hilton's Reply Memorandum or,
in the Alternative, for Leave to File Three Surreply Affidavits (the "ITT Motion
and Memorandum to Strike Hilton
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Affidavits"). Copies of the Memorandum in Support of the Hilton Annual Meeting
Motion and the ITT Motion and Memorandum to Strike Hilton Affidavits are filed
as Exhibits 45 and 46 hereto, respectively, and are incorporated herein by
reference.
The Company has agreed to sell 4.5 million shares, or 100% of its
holdings, of the capital shares of Alcatel Alsthom for proceeds of approximately
$530 million, subject to final settlement. A copy of a press release announcing
the transaction is filed as Exhibit 47 hereto and is incorporated herein by
reference.
ITEM 9. EXHIBITS.
The response to Item 9 is hereby amended by adding the following new
exhibits:
44. Letter to the stockholders of the Company dated March 31, 1997.
45. Reply Memorandum of Points and Authorities in Support of Hilton's
Motion for a Preliminary Injunction Requiring ITT to Conduct its
Annual Meeting in May 1997 dated March 25, 1997.
46. ITT Motion and Memorandum to Strike Affidavits Submitted with
Hilton's Reply Memorandum or, in the Alternative, for Leave to
File Three Surreply Affidavits dated March 28, 1997.
47. Text of Press Release issued by the Company dated March 31, 1997.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
ITT CORPORATION
By /S/ RICHARD S. WARD
--------------------------
Name: Richard S. Ward
Title: Executive Vice President,
General Counsel and
Corporate Secretary
Dated as of March 31, 1997
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EXHIBIT INDEX
Exhibit Description Page No.
(44) Letter to the stockholders of the Company dated
March 31, 1997 . . . . . . . . . . . . . . . . . . . . .
(45) Reply Memorandum of Points and Authorities in
Support of Hilton's Motion for a Preliminary
Injunction Requiring ITT to Conduct its Annual
Meeting in May 1997 dated March 25, 1997 . . . . . . . .
(46) ITT Motion and Memorandum to Strike Affidavits
Submitted with Hilton's Reply Memorandum or, in
the Alternative, for Leave to File Three Surreply
Affidavits dated March 28, 1997. . . . . . . . . . . . .
(47) Text of Press Release issued by the Company dated
March 31, 1997. . . . . . . . . . . . . . . . . . . . .
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[Exhibit 44]
ITT LETTERHEAD
March 31, 1997
Dear Fellow ITT Stockholder:
Hilton has begun distributing proxy materials to ITT's stockholders even
though ITT's annual meeting has not yet been scheduled.
THERE IS NO LEGAL REQUIREMENT OR REASON FOR YOU TO RETURN HILTON'S PROXY
CARD. We urge you NOT to return Hilton's proxy card because:
- We believe that Hilton's distribution of proxy materials is designed
to confuse you into voting prematurely and without the benefit of
relevant information.
- SINCE THE DATE OF OUR ANNUAL MEETING HAS NOT BEEN SET, IT IS
PREMATURE FOR YOU TO SIGN A PROXY NOW. Any proxy signed now
may be invalid at the time of the annual meeting.
- Hilton is nominating its slate of director candidates, several
of whom have relationships with Hilton or its employees,
solely to facilitate its hostile bid for your Company. Your Board
of Directors has rejected Hilton's bid as inadequate and not in the
best interests of ITT or its stockholders.
- After the annual meeting is scheduled, we will distribute detailed
proxy materials, which will contain important information about your
Company.
As a result of the confusion that we believe Hilton's premature
distribution will cause, we have arranged for Georgeson & Co. to be available
to respond to any questions or concerns you may have, and we encourage you to
call Georgeson at (800) 223-2064.
In the near future, you will be receiving our 1996 Annual Report, which
describes your Company's accomplishments during the past year and your
Board's and ITT management's plans for our future. I, the members of your
Board, and our management continue to be committed to protecting and
enhancing the value of your investment in ITT. Thank you for your continuing
support.
We have attached to this letter certain information required by the
Securities and Exchange Commission regarding our directors and financial
advisors.
Very truly yours,
/s/ Rand V. Araskog
------------------------
Rand V. Araskog
Chairman and Chief Executive
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CERTAIN INFORMATION CONCERNING PARTICIPANTS
The participants in this solicitation include ITT Corporation (the
"Company") and the following individuals, each of whom is a director of the
Company: Bette B. Anderson, Rand V. Araskog, Nolan D. Archibald, Robert A.
Bowman, Robert A. Burnett, Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F.
Payton, Vin Weber, Margita E. White and Kendrick R. Wilson III. Ms. Anderson is
the direct owner of 2,811 shares of common stock of the Company ("Common Stock")
and may be deemed to beneficially own 83 additional shares of Common Stock owned
by her husband. Ms. Anderson disclaims beneficial ownership in such shares. Mr.
Araskog is the beneficial owner of 1,748,237 shares of Common Stock (including
1,251,617 shares subject to stock options exercisable within 60 days after March
15, 1997, and 20,094 shares allocated to Mr. Araskog's account under the ITT
401(k) Retirement Savings Plan (the "Retirement Plan")). Mr. Archibald is the
direct owner of 1,811 shares of Common Stock. Mr. Bowman is the beneficial owner
of 548,783 shares of Common Stock (including 521,653 shares subject to stock
options exercisable within 60 days after March 15, 1997, and 2,202 shares
allocated to Mr. Bowman's account under the Retirement Plan). Mr. Burnett is the
direct owner of 2,981 shares of Common Stock. Mr. Kirk is the direct owner of
1,821 shares of Common Stock. Gen. Meyer is the direct owner of 3,311 shares of
Common Stock. Dr. Payton is the direct owner of 1,303 shares of Common Stock.
Mr. Weber is the direct owner of 844 shares of Common Stock. Ms. White is the
direct owner of 2,811 shares of Common Stock. Mr. Wilson is the direct owner of
3,744 shares of Common Stock. The foregoing share ownership figures are as of
March 15, 1997.
The Company has retained Goldman, Sachs & Co. ("Goldman Sachs") and Lazard
Freres & Co. LLC ("Lazard Freres") to act as financial advisors to the Company
in connection with the Hilton offer and other matters arising in connection
therewith, including assisting the Company in exploring possible strategic
alternatives in light of the Hilton offer. Pursuant to an engagement letter with
Goldman Sachs and Lazard Freres, the Company has agreed to pay each of Goldman
Sachs and Lazard Freres for their services 50% of (a) an initial fee equal to
$1,000,000 and (b) an additional advisory fee equal to $19,000,000, payable upon
the occurrence of certain events described in the engagement letter. In
addition, in the event that the Company sells equity or debt securities in a
public offering or private placement, Goldman Sachs and Lazard Freres will be
offered the opportunity to participate in such transaction as an underwriter or
placement agent (subject to certain exceptions specified in the engagement
letter) and will be paid reasonable and customary fees for such services.
Pursuant to the engagement letter, among other things, (a) if the Company
becomes the subject of, or is threatened with, a contested proxy solicitation by
Hilton or any other party, Goldman Sachs and Lazard Freres will act as the
Company's co-financial advisors with regard to such proxy solicitation and (b)
in the event that the Company determines to consider or undertake certain
purchases or sales of assets or securities or a recapitalization or
restructuring of the Company, Goldman Sachs and Lazard Freres will be involved
and participate in such transaction. The Company has also agreed to reimburse
Goldman Sachs and Lazard Freres for their reasonable out-of-pocket expenses,
including fees of counsel and any sales, use or similar taxes, and to indemnify
Goldman Sachs and Lazard Freres against certain liabilities in connection with
their engagement, including certain liabilities arising under the Federal
securities laws.
In connection with the engagement of Goldman Sachs and Lazard Freres as
financial advisors, the Company anticipates that employees of Goldman Sachs and
Lazard Freres may communicate in person, by telephone or otherwise with certain
institutions, brokers or other persons who are stockholders for the purpose of
assisting in the solicitation of proxies for the annual meeting. Although
Goldman Sachs and Lazard Freres do not admit that they or any of their
directors, officers, employees or affiliates are a "participant," as defined in
Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended,
by the Securities and Exchange Commission, or that Schedule 14A requires the
disclosure of certain information concerning them, Robert Kaplan (Managing
Director), Cody Smith (Managing Director), William Crowley (Managing Director),
Eduardo Cruz (Vice President), Jennifer Moses (Vice President) and Marc Nachmann
(Associate), in each case of Goldman Sachs, and Gerald Rosenfeld
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(Managing Director), William Kneisel (Managing Director), Robert Hougie (Vice
President) and Antonio Weiss (Vice President), in each case of Lazard Freres
(collectively, the "Financial Advisor Participants"), may assist the Company in
the solicitation of proxies for the annual meeting.
Goldman Sachs and Lazard Freres have provided financial advisory and
investment banking services to the Company from time to time for which they have
received customary compensation. Kendrick R. Wilson III is a Managing Director
of Lazard Freres. In addition, Goldman Sachs has provided financial advisory and
investment banking services to Hilton in the past for which it has received
customary compensation. Goldman Sachs and Lazard Freres engage in a full range
of investment banking, securities trading, market-making and brokerage services
for institutional and individual clients. In the ordinary course of their
business, Goldman Sachs and Lazard Freres may actively trade securities of the
Company for their own account and the account of their customers and,
accordingly, may at any time hold a long or short position in such securities.
Goldman Sachs has advised the Company that as of March 25, 1997, Goldman Sachs
held a net long position of approximately 10,764 shares of Common Stock. Lazard
Freres has advised the Company that as of March 25, 1997, Lazard Freres held a
net long position of approximately 13,385 shares of Common Stock over which
Lazard Freres exercised investment discretion. Except as set forth above, to the
Company's knowledge, none of Goldman Sachs, Lazard Freres, or any of the
Financial Advisor Participants has any interest, direct or indirect, by security
holdings or otherwise, in the Company.
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[Exhibit 45]
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
MATTHEW McCAUGHEY
300 S. Fourth Street, #1200
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
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
HILTON HOTELS CORPORATION and) Case No.
HLT CORPORATION, ) CV-S-97-00095-PMP (RLH)
)
Plaintiffs, )
) REPLY MEMORANDUM OF POINTS
-vs- ) AND AUTHORITIES IN SUPPORT
) OF HILTON'S MOTION FOR A
ITT CORPORATION, ) PRELIMINARY INJUNCTION
) REQUIRING ITT TO CONDUCT ITS
Defendant. ) ANNUAL MEETING IN MAY 1997
)
) AFFIDAVITS OF STEPHEN F.
_____________________________) BOLLENBACH, DANIEL H. BURCH,
) CLIVE CUMMIS, DANIEL
ITT CORPORATION, ) FISCHEL, JOHN GODFREY,
) ARTHUR GOLDBERG, MATTHEW
Defendant and ) HART, DIANE S. HINSON,
Counterclaimant, ) ROBERT LYON, KENNETH MOELIS,
) LAWRENCE SONDIKE AND
-vs- ) EXHIBITS THERETO
)
HILTON HOTELS CORPORATION and) [ORAL ARGUMENT REQUESTED]
HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants. )
)
_____________________________)
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REPLY MEMORANDUM OF POINTS AND AUTHORITIES
I. INTRODUCTION
ITT's response to this motion rests on two premises: FIRST, that
words such as "annual" and "for the succeeding year" in ITT's by-laws really do
not mean one year -- they mean "up to 18 months"; and, SECOND, that so long as
it acts with subjective good faith, ITT's board can interfere (by delay) with
ITT's shareholder franchise. Both premises are false.
Section 1.3(a) of ITT's by-laws grants the incumbent directors the
privilege of serving for one year; in the precise words of the by-laws, they are
elected "for the succeeding year." Section 1.2 of ITT's by-laws requires an
"annual" meeting. Section 2.2 provides the directors' term of office is from
one "annual meeting" to the next. Section 1.3(b) provides that nominations must
be made not later than 90 days in advance of the one-year "anniversary date of
the immediately preceding annual meeting."
Under Nevada law, the unambiguous words of the contract between ITT
and its shareholders, as expressed in ITT's by-laws, must be enforced in
accordance with their ordinary meaning. In Nevada, the word "annual" means what
it says -- one year. The ordinary meaning of ITT's by-laws is clear: they
require a meeting to elect directors every 12 months and they permit directors
to serve for one year, no more.
The incumbent directors protest that they are acting with a pure
heart. But good intentions do not license them to extend their term in office
to "protect" the shareholders from a "premature" annual meeting. Fundamental
principles of corporate law demand far greater respect for the shareholder
franchise. These principles are not concerned with whether directors are acting
in good faith or bad
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faith, or whether they are trying to entrench themselves, or whether they
sincerely believe their strategic plans to be in the best interests of the
shareholders. They are not so concerned because "when viewed from a broad,
institutional perspective, it can be seen that matters involving the integrity
of the shareholder voting process involve consideration not present in any other
context in which directors exercise delegated power." BLASIUS INDUS., INC. V.
ATLAS CORP., 564 A.2d 651, 659 (Del. Ch. 1988). "The question thus posed is not
one of intentional wrong (or even negligence), but one of authority AS BETWEEN
THE FIDUCIARY AND THE BENEFICIARY. . . ." ID. (emphasis in original).
These principles go to the core of how a corporation is governed. In
the words of SHOEN and BLASIUS, they involve not "the exercise of THE
CORPORATION'S POWER over its property, or with respect to ITS rights or
obligations"; they involve something more fundamental -- the "allocation,
between shareholders as a class and the board, of effective power with respect
to the governance of the corporation." 564 A.2d at 660 (emphasis in original).
And under those principles and authorities, a board has no right --
absent a COMPELLING justification -- to "interfer[e] with the effectiveness of a
stockholder vote" for directors, for it is that franchise which "legitimates the
exercise of power by some (directors and officers) over vast aggregations of
property they do not own." 564 A.2d at 659. However well-intentioned the ITT
directors may be, it is for the shareholders to decide whether they wish to
elect directors who have pledged, subject to their fiduciary duties, to sell the
company to Hilton, or directors who will pursue ITT's "refined" strategic plan.
ITT's argument that a May meeting will "handcuff the ITT board," ITT
Br. at 8, reflects a basic misunderstanding as to who is
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the principal and who is the agent. The directors serve at the pleasure of the
shareholders, not the other way around. If a May annual meeting will constrain
the ITT board from resisting a Hilton takeover, it will be because at that
meeting the majority of the shareholders -- after hearing arguments from both
sides -- decide that they want such resistance to cease. That is the way it
should be with shareholder democracy.
As in SHOEN, the ITT board has "offered no justification that is
convincing, let alone compelling" for refusing to hold its annual meeting in
May. 885 F. Supp. at 1344. ITT's plea to this Court for "additional time [to]
allow ITT to refine and implement its strategic plan in a value-maximizing
manner" (ITT Br. at 8) is misdirected. It is not a justification for delay; it
is an argument ITT's board should make to ITT's shareholders at the May meeting.
What is happening here is crystal clear. As in SHOEN, the incumbent
managers fear "that they will lose an election" held in May. 885 F. Supp. at
1344. That fear is probably well-founded. But it also provides no
justification for delaying the annual meeting. By refusing to hold their annual
meeting in May, the ITT directors have violated ITT's by-laws and their
fiduciary duties to the shareholders of ITT.
II. REPLY STATEMENT OF FACTS
ITT's Statement of Facts makes two indefensible assertions.
The first is that the incumbent management is merely "refin[ing] ITT's
long-term strategic plan" in response to the Hilton offer. This claim is
nothing more than public relations "spin." In March 1996, ITT's Chairman Rand
Araskog described the "'new' ITT" as a "globally competitive leader in hotels,
gaming, entertainment, and
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information services" with "an immense range of fast-growing and exciting
related new industries," and vowed that ITT would "increase shareholder value"
by "grow[ing] our presence in core businesses." Moelis Aff. Ex. D at 1, 2.
Implementation of ITT's "focused" plan to "increase shareholder value" led to a
35% DECLINE in the price of ITT stock during one of the strongest bull markets
in United States history.
For two years, the ITT management held Madison Square Garden out as a
"core business." At the time the Garden was acquired, Mr. Araskog was quoted:
"We feel [Madison Square Garden] fits with out Sheraton operations, and gives us
a new approach with a strong partner. To suggest that this is capricious is an
insult." ID. Ex. B. The following day, ITT's Chief Operating Officer Robert
Bowman described the Garden as "a natural adjunct to the leisure and destination
market." ID. Ex. C.
In response to the Hilton offer, ITT embarked on a NEW plan to
"monetize" (I.E., "sell") its "non-core" assets, including the once "core" but
now "non-core" Madison Square Garden and its interest in Alcatel Alstholm. And
in a March 17 SEC filing, ITT formally disclosed that it might sell its ITT
Educational Services subsidiary. That, of course, is precisely the same plan
that Hilton has stated it will pursue if it acquires control of ITT. Moelis
Aff. PARAPARA 8-11; Burch Aff. Exs. A-C.
Having jettisoned its old strategic plan in favor of Hilton's, the ITT
board feels compelled to argue that it needs more time to bring Hilton's plan to
fruition. ITT even asserts that shareholders would best be served by waiting
for "ITT's actual 1997 results" -- results that would normally be issued in
January or February 1998! But the four months between January and May, 1997
provide more than enough time for ITT to pursue its plan and for
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shareholders to make an informed choice between the current directors and a
slate favoring Hilton's offer. While ITT says that "delay" equals "higher
value," delay may well result in ITT stockholders losing value because changes
in the stock market or the economy as a whole or ITT's defensive tactics render
the company less attractive. It is, in any event, an argument for ITT to make
to its shareholders, not an excuse for delaying an annual meeting. Moelis Aff.
PARAPARA 4-7, 13; Burch Aff. PARAPARA 4-7; Fischel Aff. PARAPARA 10-12; Lyon
Aff. PARAPARA 3-5.
ITT also argues that holding the annual meeting in May would require
it to make "premature" disclosures about the details of its plan in order to
"assist shareholders in evaluating the credibility and relative desirability of
ITT's strategic plan." Smith Aff. PARA 6. Contrary to ITT's assertion,
disclosure can be made without impairing the ability of the ITT management to
implement its plan. Moelis Aff. PARAPARA 11-13. Moreover, ITT's claim starts
from an erroneous premise, because disclosure to the owners of the company is a
good, not an evil. The shareholders are entitled to a detailed explanation of
why management believes that its "refined" business plan is superior to the
Hilton offer.
The second unsupportable assertion is that delay is necessary because
"the actual value of Hilton's proposed transaction is uncertain due to numerous
issues which require time to resolve." ITT Br. at 9. The reality is that by
refusing to negotiate with Hilton and actively opposing the offer, ITT has
created whatever "uncertainty" there may be. ITT can scarcely be heard to claim
that the terms of the proposed second-step merger, financing and license of the
Sheraton trademark to HFS are "unclear" when resolution of these "issues"
depends on resolving the terms of an ITT-Hilton merger
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agreement that ITT has categorically refused to discuss with Hilton. Bollenbach
Aff. PARAPARA 6-9; Moelis Aff. PARA 14.
Nor can ITT justify delay by pointing to vague antitrust and
regulatory concerns. The Department of Justice has given antitrust clearance to
the Hilton offer under the Hart-Scott-Rodino Antitrust Improvements Act, and
Hilton is already a licensed gaming company. Any such "issues," moreover, are
the product of ITT's opposition and do not excuse the ITT board's efforts to
extend their terms at the expense of shareholder rights. Bollenbach Aff. PARA
PARA 11-13; Cummis Aff. PARA PARA 3-7; Godfrey Aff. PARA PARA 5-7 Hinson Aff.
PARA PARA 4, 6-10; Burch Aff. PARA PARA 7-8.(1)
In the end, the existence of "uncertainty" does not justify ITT in
delaying the annual meeting. Life is full of uncertainty, and investors
evaluate "uncertainties" of the kind that ITT points to every business day.
Lyon Aff. PARA 3. One thing that is sure is that the passage of time will lead
to new "uncertainties" and new arguments from the ITT board members as to why
extending their own term of office is in the "best interests" of the ITT
shareholders.
- ----------------------------------
(1) ITT's claim that there are "unresolved issues" concerning "whether
Hilton has had access to and misused confidential ITT information" is equally
unavailing. ITT management has only raised these issues as part of its takeover
defense; it is fully capable of dropping them if it so chooses. It would be
well-advised to do so: the claims that Latham & Watkins breached ITT client
confidences and that a Hilton director, Arthur Goldberg, misused confidential
information rested on nothing more than rank speculation when they were made and
are without basis. Hart Aff. PARA 3; Goldberg Aff. PARA PARA 3-4; Bollenbach
Aff. PARA 10. Moreover, since raising these "issues" in its counterclaim, ITT
has not taken the slightest step to resolve them; not only has ITT failed to
move for a preliminary injunction against Hilton's offer, it has not issued a
single document request, deposition notice, or subpoena in this action. The
incumbents cannot credibly claim that "issues" that they alone see, and that
they fail to resolve, provide a basis for perpetuating themselves in office.
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ARGUMENT
III. ITT'S BY-LAWS REQUIRE A MAY ANNUAL MEETING.
ITT's argument that its by-laws permit the incumbent board to grant
themselves an 18-month term of office cannot be reconciled with either
applicable legal principles or the provisions of the by-laws.
As ITT concedes, the by-laws establish "a contract between the
corporation's owners -- the shareholders -- and its managers, the Board." ER
HOLDINGS, INC. V. NORTON CO., 735 F. Supp. 1094, 1097 (D. Mass. 1990). Nor can
it be disputed that "'[t]he rules of contract interpretation are generally
applicable to the interpretation of bylaws.'" IBJ SCHRODER BANK & TRUST CO. V.
RESOLUTION TRUST CO., 26 F.3d 370, 374 (2d Cir. 1994), CERT. DENIED, 115 S. Ct.
1355 (1995). SEE ALSO CENTAUR PARTNERS, IV V. NATIONAL INTERGROUP, INC., 582
A.2d 923, 928 (Del. 1990).
The "general rules of contract interpretation" under Nevada law are
simple: "words must be given their plain, ordinary and popular meaning."
TOMPKINS V. BUTTRUM CONSTR. CO., 99 Nev. 142, 144, 659 P.2d 865, 866 (1983).
"Courts are bound by language which is clear and free from ambiguity and cannot,
using the guise of interpretation, distort the plain meaning of an agreement."
WATSON V. WATSON, 95 Nev. 495, 508, 596 P.2d 507, 508 (1979). A contract "must
be read as a whole to give a reasonable and harmonious meaning and effect to all
its provisions." NEVADA VTN V. GENERAL INS. CO. OF AMERICA, 834 F.2d 770, 773,
(9th Cir. 1987) (citation omitted) (Nevada law). (2)
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(2) Nevada law also implies a covenant of good faith and fair dealing in
all contracts, and prohibits a party from using discretionary authority accorded
it to "deliberately counter-vene[] the intention and spirit of the contracts."
HILTON HOTELS CORP. V. BUTCH LEWIS PRODUCTIONS INC., 107 Nev. 226, 232-33, 808
P.2d 919, 923 (1991).
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These principles mandate that ITT's position be rejected. Section 1.2
of ITT's by-laws requires an "annual" meeting of stockholders for the election
of directors. Section 1.3 provides that the directors are elected "for the
succeeding year." And Section 2.2 provides that the directors are elected to
"hold office until the next annual meeting of stockholders." These provisions
contemplate an ANNUAL meeting -- I.E., a meeting once a year -- as do Sections
1.3(b) and 2.2, which require that new business and nominations be proposed
90 days before the anniversary date of the prior year's annual meeting. Any one
of these provisions would be sufficient to support Hilton's claim. When they
are read together -- as required by Nevada law -- the conclusion is inescapable
that the ordinary meaning of the by-laws is the intended meaning, and that the
by-laws require a meeting every twelve months.
There is no ambiguity in these words, and no need to resort to parol
evidence from Messrs. Ward or Coffee.(3) The Nevada Supreme Court long ago
recognized the unremarkable proposition that "wherever used in contracts,
[annual] is construed to mean every twelve calendar months." NEVADA EX REL.
CURTIS V. MCCULLOUGH, 3 Nev. 202 (1867). ITT's attempt (ITT Br. at 16) to
distinguish MCCULLOUGH on the ground that "the court's interpretation of the
word 'annual' was against the background of the statutes in existence at that
time"
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(3)If the Court is inclined to consider parol evidence, it should look to
the ITT proxy statement that was issued at the time that the current by-laws
were adopted. Burch Aff. Ex. F. The SEC regulations applicable to that filing
REQUIRED ITT to describe "any provision of [its] charter or by-laws that would
have an effect of delaying, deferring or preventing a change of control," SEC
Regulation S-K, Item 202(a)(5), 17 C.F.R. Section 229.202(a)(5), and to
"[d]escribe any material differences" between the anti-takeover provisions of
its old and new by-laws. SEC Schedule 14A, Item 12(b), 17 C.F.R. Section
240.14a-101(12)(b). Nowhere in that SEC filing did ITT flag for its
shareholders its current position that as a consequence of its new by-laws, it
would only have to conduct an "annual meeting" every 18 months and could use
delay of the annual meeting as part of a takeover defense. The reason, no
doubt, is that ITT recognized that both its old and new by-laws provide for an
annual meeting every 12 months.
9
<PAGE>
is unavailing. MCCULLOUGH interpreted the word "annual" with reference to
principles of CONTRACT LAW. The meaning of the word "annual" has not changed
since 1867. MCCULLOUGH gave the word its ordinary meaning. That is what is
required here.(4)
ITT's reliance on NRS 78.345 for the proposition that Nevada
corporations observe an 18-month year while the world observes a 12-month year
is similarly unavailing. NRS 78.345 creates a statutory remedy for the holders
of 15 percent of the stock of a Nevada corporation when the corporation fails to
elect directors "within 18 months after the election of directors required by
NRS 78.330." It does not rewrite or displace NRS 78.330.(5) Nor does it
diminish a stockholder's right to seek to compel an annual meeting required
under the by-laws where the directors have defaulted in their duty to call one.
SEE NEVADA EX REL. SEARS V. WRIGHT, 10 Nev. 167, 174 (1875) (statutory remedy
allowing holder of a majority of Nevada corporation's stock to call special
meeting of stockholders for purpose of removing the directors is not exclusive
remedy, and any stockholder may obtain writ of mandamus compelling board to hold
annual meeting as required by statute and by-laws).(6)
- ----------------------------------
(4) Mr. Coffee's affidavit should also be disregarded to the extent that he
is offering his legal opinion as to the proper legal interpretation of ITT's
by-laws or the proper functioning of a target company's board of directors under
Nevada law. Several federal courts have excluded similar testimony from
Mr. Coffee as improper legal opinion. SEE UNITED STATES V. PELULLO, 964 F.2d
193, 214 (3d Cir. 1992); HARRIS TRUST & SAVS. BANK V. SALOMON BROS., No. 92 C
5883, 1996 U.S. Dist. LEXIS 8485, at * 49-50 (N.D. Ill. June 13, 1996); AUSA
LIFE INS. CO. V. DWYER, 899 F. Supp. 1200, 1202-03 (S.D.N.Y. 1995).
(5) NRS 78.330 provides FIRST, that "directors of every (Nevada)
corporation MUST be elected at the ANNUAL meeting of the stockholders. . . . .,"
and SECOND that, while a corporation can give its directors staggered terms (ITT
has not), "at least one fourth in number of the directors of every (Nevada)
corporation MUST be elected ANNUALLY." (Emphasis added.) It says nothing about
tolerating elections once every 18 months, twice every three years, or four
times every six years.
(6) NRS 78.345 has been in Nevada's corporations code, in one form or
another, since 1925. SEE NCL sec. 1634 (1925). If the Nevada legislature
intended NRS 78.345's eighteen month "drop dead" remedy to amend NRS 78.330's
requirement that directors be elected "annually," it would have said so. SEE
10
<PAGE>
Indeed, even if ITT were correct (which is not) in contending that the
"current Nevada statutory scheme [embodied in NRS 78.345] clearly envisions
that . . . annual meetings need be held only once every 18 months," ITT
recognizes that a "contrary provision in the . . . by-laws" must be given
effect. ITT Br. at 17. That, of course, is the case here.
ITT's related contention (ITT Br. at 17 & n.21) that the adoption of
the predecessor to NRS 78.345 "necessarily abrogated any prior judicial rulings"
and that "[i]f MCCULLOUGH were still good law, then the Legislature has passed a
meaningless statute" also fails. Nothing in Nevada law requires that the
by-laws of a Nevada corporation address the timing of the annual meeting.
Indeed, nothing in Nevada law requires that a Nevada corporation have by-laws at
all. It is thus apparent that NRS 78.345 does nothing more than provide one
STATUTORY remedy in the event that a corporation violates the STATUTORY
requirement of NRS 78.330. NRS 78.345 by its terms does NOT speak to, and
cannot be read to eliminate, an independent requirement imposed by a by-law
provision.(7)
ITT's next argument -- that Hilton does not have a "vested right" to
an annual meeting because ITT can always amend its
- ------------------------------------
ALSO DOUBLE O MINING CO. V. SIMRAK, 61 Nev. 431, 439, 132 P.2d 605, 609 (1942)
(the remedy created by NCL sec. 1634 represents "a new right" over and above the
right to call for a timely annual meeting). When the requisite number of
shareholders show that the statutory time period has passed without an election,
the right conferred by statute to have a meeting convened to elect directors is
"'virtually absolute.'" SEE SAXON INDUS., INC. V. NKFW PARTERS, 488 A.2d 1298,
1301 (Del. 1984). The existence of an automatic statutory remedy in the extreme
situation of a board allowing 18 months to elapse without an annual meeting does
not affect contract and common law rights unless the Legislature says so, and
here it did not.
(7) The case law cited by Hilton in its opening memorandum (at 7-8) for the
proposition that the courts of Nevada and other jurisdictions with provisions
similar to NRS 78.345 have recognized that these statutes do not provide the
exclusive remedy confirms this point. ITT's belabored attempt to distinguish
these authorities is unconvincing. Indeed, ITT itself describes SILVER V.
FARRELL, 450 N.Y.S.2d 938, 940-41 (N.Y. Sup. Ct. 1982), as standing for the
proposition that a "statutory remedy [is] not [the] exclusive means to remedy
[a] failure to hold [an] annual meeting on [the] date specified in [the]
bylaws." ITT Br. at 14 n.15.
11
<PAGE>
by-laws -- is also with merit. ITT relies on KIDSCO INC. V. DINSMORE, 674 A.2d
483 (Del. Ch.), AFF'D, 670 A.2d 1338 (Del. 1995), but that case is
inappropriate. In KIDSCO the plaintiff challenged an AMENDMENT to the defendant
company's by-laws that had the effect of delaying by only 25 days a special
meeting which had not yet been but was later called by shareholders. Because
the board had the authority to amend the by-laws and the shareholders had not
yet demanded the special meeting, the shareholders had no "vested right" that
would "contractually prohibit" an AMENDMENT. 674 A.2d at 492. The KIDSCO court
did not state that shareholders cannot sue to enforce a by-law provision that
has NOT been amended. Indeed, ITT can cite no case holding that the possibility
that a by-law could be amended affects a shareholder's right to enforce an
existing by-law. Precisely the opposite rule was established long ago. SEE
WALSH V. STATE EX REL. COOK, 74 So. 45, 48 (Ala. 1917) (rejecting the notion
that a board of directors could extend its term of office "by successive
amendments of the by-laws changing the time of the annual meeting").
As ITT told this Court on March 5, 1997, regarding whether the board
has amended the by-laws: "[w]e ain't done nothing yet." Heinz Aff. Ex. A at
32. If the incumbent ITT directors do amend the by-laws to extend their own
term of office, they can renew their "vested rights" argument at that time.
Should they amend, they will be faced with a challenge that their amendment
comes too late -- for here, unlike KIDSCO, the May annual meeting HAS been
demanded -- and that the amendment also constitutes an impermissible attempt to
interfere with the free exercise of the stockholder franchise. SEE Point IV,
INFRA.
12
<PAGE>
IV. THE FAILURE TO HOLD THE 1997 ANNUAL MEETING IN MAY WOULD CONSTITUTE A
BREACH OF FIDUCIARY DUTY.
ITT's response to this motion leaves little room to doubt that ITT's
Board has no intention of holding the annual meeting in May as it has for each
of the last 20 years. SEE ITT Br. at 8-10 (citing a "number of factors" that
"would strongly support a decision to hold the annual meeting later than the May
date"). The only justification ITT offers for this deliberate inaction is the
paternalistic one that the ITT board knows better than the ITT shareholders what
is in the shareholders' best interest. This purported justification is
insufficient under Nevada law.
A. ITT'S OWN AFFIDAVITS ESTABLISH THAT THE "PRIMARY PURPOSE" OF THE ITT
INCUMBENTS IS TO INTERFERE WITH THE SHAREHOLDER FRANCHISE.
ITT's defense of the incumbents' decision rests principally on the
affidavits of its Chairman Rand Araskog, and an outside director, Margita White.
Both claim that they are not motivated by "entrenchment," both claim not to have
inquired as to whether they would be reelected at a May meeting, and both claim
to be acting in "good faith." Araskog Aff PARA 8; White Aff. PARAPARA 5, 6. As
discussed above and shown in the affidavits submitted by Hilton, there are
compelling reasons for rejecting these self-serving claims.
Common sense indicates that ITT management would be happy to go
forward in May if it could be confident of a victory and that its desire to
delay the meeting reflects a recognition of what Mr. Burch labels "Rule Number
One of the proxy solicitation business" -- "never proceed to a shareholder
meeting that you may lose unless there is no choice." Burch Aff. PARA 4. As
for entrenchment, the Senior Vice President of ITT in charge of Sheraton has
recently been quoted: "THE BATTLE WITH HILTON, currently at the bottom of the
first inning . . . IS NOT A QUESTION OF HIGHER PRICE. Losing this
13
<PAGE>
thing is not an option. . . We're going to win this. I intend to retire from
ITT Sheraton eight years from now at age 65. We are committed to that.'" ID.
Ex. D (emphasis added).
Even if the ITT affidavits are accepted at face value, they do not
justify the directors' conduct here. "Entrenchment" is not the only test, and
Hilton's motion does not rise or fall on the claim that the ITT board and
management are seeking to retain control for its own sake. Rather, the case law
provides that, absent "compelling justification," a board of directors may not
validly act for the principal purpose of preventing stockholders from electing
new directors even if it is acting with "subjective good faith"; a board cannot
justify such interference even though its members "'h[o]ld a good faith belief
that such shareholder action would be self-injurious and shareholders need[] to
be protected from their own judgment.'" SHOEN, 885 F. Supp. at 1341 n.21
(quoting BLASIUS INDUS., INC. V. ATLAS CORP., 564 A.2d 651, 658 (Del. Ch.
1988)).
ITT's affidavits themselves establish that the "primary purpose" of
the ITT board is to interfere with the effectiveness of a stockholder vote.
Thus, while Mr. Araskog and Ms. White never come out and say why they favor a
delay of the annual meeting, they do refer to "numerous issues" raised by the
offer and the fact that the ITT "Board is continuing to refine the Company's
strategic plan and is actively exploring opportunities to enhance the value of
the Company." Araskog Aff. PARAPARA 5, 8, 9; White Aff. PARAPARA 4-5. ITT's
directors evidently believe that ITT shareholders are not yet capable of
evaluating the "uncertainties" that the ITT board sees in the
14
<PAGE>
Hilton proposal or of evaluating the "ongoing refinement and implementation" of
ITT's strategic plan.(8)
"Uncertainties" are not a legally sufficient reason to delay the
annual meeting. BLASIUS holds that so long as a board "ha[s] time . . . to
inform shareholders of its views on the merits of the proposal subject to
shareholder vote" -- as is manifestly true here -- "[t]he only justification
that can . . . be offered for" impeding the shareholder franchise "is that the
board knows better than do the shareholders what is in the corporation's best
interest. While that premise is no doubt true for any number of matters, it is
irrelevant . . . when the question is who should comprise the board of
directors." 564 A.2d at 663. The fact that the ITT board may have a "good
faith" belief that consummation of the Hilton offer would be injurious to ITT
and its shareholders does not permit the board to postpone the calling of the
annual meeting absent "compelling justification." 564 A.2d at 658. And ITT
nowhere claims that it has a "compelling justification" for delaying the meeting
beyond May.(9)
- ----------------------------------
(8) Messrs. Smith, Crane and Coffee are more direct on this point.
Mr. Smith, for example, argues that the passage of time will permit ITT
shareholders "to be in a much better position to evaluate ITT's plans and
prospects" and that shareholders will be unable to "fully assess the value of
their investments" if the meeting is held in May. Smith Aff. PARA 11.
Mr. Crane argues that delay will result in shareholders coming to appreciate
"the deficiencies of Hilton's bid." Crane Aff PARA 10. And Mr. Coffee argues
that delay is necessary to protect the shareholders from having to make a
"difficult and risky" voting decision. Coffee Aff. PARA 20.
(9) ITT's citation to MORAN V. HOUSEHOLD INT'L, INC., 490 A.2d 1059, 1074
(Del. Ch.), AFF'D, 500 A.2d 1346 (Del. 1985) (upholding the validity of
shareholder rights plans) for support of its position is mystifying. MORAN
holds that "subversion of corporate democracy by manipulation of corporate
machinery will not be countenanced" and "[s]pecial scrutiny" is warranted when
corporate boards "use their authority to restrict the ability of shareholders to
replace them." 490 A.2d at 1080. The Delaware courts upheld the Household
rights plan only after finding that the "effect upon proxy consents will be
minimal." 500 A.2d at 1355.
15
<PAGE>
B. THE BOARD'S CONDUCT MUST BE JUDGED BY THE STANDARD SET FORTH IN SHOEN
AND BLASIUS.
In an effort to evade the consequence of its failure to show the
"compelling justification" for its conduct that SHOEN and BLASIUS require, ITT
tenders the proposition that this standard does not apply because the ITT board
has not yet set the date for an annual meeting. ITT's argument rests entirely
on STAHL V. APPLE BANCORP. INC., 579 A.2d 1115 (Del. Ch. 1990). That reliance
is misplaced.
As the Delaware Supreme Court has recognized, the lower court decision
in STAHL is "inextricably related to [its] specific facts." STROUD V. GRACE,
606 A.2d 75, 91 (Del. 1992). The target company, Apple Bancorp, had only been
formed in September 1989. In April 1990 -- only seven months later -- Apple's
board chose to defer the annual meeting scheduled for the following month. But
Apple's by-laws did not require an annual meeting until September 1990. 579
A.2d at 1120. On this set of facts, the Court of Chancery "d[id] not see the
board's decision to defer the annual meeting to a later time IN CONFORMITY WITH
THE COMPANY'S BYLAWS and Section 211 as a decision that . . . threaten[s] the
legitimacy of the electoral process." 579 A.2d at 1123 (emphasis added). This
reasoning is inapplicable here, where the ITT directors are NOT acting within
the authority of the company's by-laws and are instead threatening to extend
their term of office unilaterally.(10)
C. ITT'S RELIANCE ON NRS 78.138(1) IS MISPLACED.
ITT's final claim is that the adoption of NRS 78.138(1) represented a
wholesale revision of Nevada law, that SHOEN and
- ---------------------------------
(10) ITT's further reliance on KIDSCO INC. V. DINSMORE, 674 A.2d 483,
495-96 (Del. Ch.), AFF'D, 670 A.2d 1338 (Del. 1995), is equally misplaced.
The by-law amendment in KIDSCO did not purport to extend the directors' term
of office beyond the term specified in the target company's by-laws.
16
<PAGE>
BLASIUS do not represent the law of Nevada, and that so long as its directors
represent that they are acting in "good faith" they can do as they please. This
is simply wrong.
Judge Reed thoughtfully considered and thoughtfully rejected this
argument in SHOEN, 885 F. Supp. at 1341 n.22. ITT's suggestion (ITT Br. at 29
n.35) that Judge Reed's discussion of the issue was ill-informed is baseless.
Judge Reed refers to the very treatise on which ITT bases its position. ID.,
citing K. Bishop, NEVADA CORPORATION LAW AND PRACTICE Section 9.5, at 240
(1993). Indeed, Judge Reed read the applicable authorities, including Bishop,
with greater care than ITT. Mr. Bishop's 1993 treatise (Section 7.15 at 176)
unmistakably concludes that Nevada courts "will require more of directors than
that they act in good faith" and, thus, SUPPORTS Judge Reed's 1994 decision in
SHOEN.
The language and legislative history of the 1991 amendments also
confirm Judge Reed's analysis. NRS 78.138(1) states simply that directors
"shall exercise their powers in good faith." This language came directly from
former NRS 78.140(1), 1951 Nev. Stats. 328, which in turn, came from Cal. Corp.
Code Section 820, enacted in 1947. Moving a sentence from one section of a
statute to another does not change an objective standard to a subjective one.
SEE LEAVITT V. LEISURE SPORTS, INC., 103 Nev. 81, 734 P.2d 1221 (1987) ("good
faith" under former NRS 78.140(1) judged objectively); NATIONAL AUTO. & CAS.
INS. CO. V. PAYNE, 67 Cal. Rptr. 784, 790 (Cal. Ct. App. 1968) (Cal. Corp. Code
Section 820 imposes an objective duty of reasonable care on directors).
Nor does moving a sentence overthrow the common law. Had the Nevada
legislature intended to reverse case law imposing strict judicial scrutiny on
director action impeding the shareholders' exercise of their franchise, or to
supplant directors' common law
17
<PAGE>
fiduciary duties with a new subjective standard, it would have said so. SEE
ALSO HOLLIDAY V. MCMULLEN, 104 Nev. 294, 296, 756 P.2d 1179, 1180 (1988)
("statutes in derogation of the common law must be strictly construed"); 2B
SUTHERLAND ON STATUTORY CONSTRUCTION Section 49.09, p. 69 (5th ed. 1992) ("Where
the legislature adopts [a statutory expression] which has received judicial
interpretation, [that] interpretation is prima facie evidence of legislative
intent.") (footnote omitted).(11)
Indeed, the legislative history of the 1991 amendments underscores the
importance the 1991 Nevada legislature continued to attach to the stockholder
franchise as the only effective check on a target board that seeks to block a
takeover bid the shareholders wish to accept. During the hearings of the
Assembly Committee on Judiciary, Assemblyman Joe Johnson voiced concern that the
bill might provide directors too much leeway in combating takeovers. (SEE
minutes of hearing attached hereto as Exhibit "1.") John P. Fowler, the
principal drafter of the 1991 amendments, assuaged this concern by noting that
the proxy mechanism remained and gave shareholders ample means to protect their
interests:
[S]HAREHOLDERS [HAVE] THE POWER TO VOTE OUT
MANAGEMENT. . . . [I]n the future it [will] be used more,
because large institutions that own[] large blocks of stock
in the largely
- ---------------------------------------
(11) ITT'S reliance on the affidavit of Robert Sader is misplaced.
Mr. Sader nowhere states that the Nevada legislature intended to reverse
pre-existing case law imposing strict scrutiny on board action impeding the
right to vote. In any event, for the reasons previously briefed to the Court,
the affidavit is not entitled to any weight.
ITT's reliance on WLR FOODS, INC. V. TYSON FOODS, INC., 65 F.3d 1172,
1184-85 (4th Cir. 1995), CERT. DENIED, 116 S. Ct. 921 (1996), is similarly
misplaced. The decision in WLR FOODS turned on the fact that the Virginia Stock
Corporation Act contains EXPRESS provisions limiting the scope of judicial
review of board action affecting corporate control, "thereby foreclosing
reliance on common law." 65 F.3d at 1182. SEE Va. Code Ann. Sections
13.1-646(b), 13.1-728.9. The Nevada Revised Statues have no such counterpart
and the absence of such a provision makes clear that the Nevada legislature did
NOT intend to immunize board action to frustrate shareholder democracy from
judicial scrutiny.
18
<PAGE>
held corporations [are] starting to understand they could
not longer just sell the stock and get out of the company
if they did not like management decisions. It was too
difficult to sell easily and it affected the market tremendously.
Many stockholders [are] starting to impact management
decisions more and more. IN THAT RESPECT THE SYSTEM WAS SELF-
CORRECTING AND THE MECHANISMS WERE THERE FOR SHAREHOLDERS TO
CONTROL MANAGEMENT IF THEY CHOSE TO DO SO. (Emphasis added.)
V. HILTON HAS DEMONSTRATED A CLEAR THREAT OF IRREPARABLE HARM.
ITT argues that Hilton has failed to allege "any threatened injury
that IT ITSELF will sustain" as a result of ITT's delay in holding the annual
meeting. ITT Br. at 30. This contention lacks merit. ITT's delay threatens
irreparable harm to Hilton as a shareholder, as proxy contestant and as a
potential acquirer of ITT. (12)
As Judge Reed held in SHOEN, "'the denial or frustration of the right
of shareholders to vote their shares or obtain representation on the board of
directors amounts to an irreparable injury.'" 885 F. Supp. at 1352. Major ITT
shareholders agree. Sondike Aff. PARA 4. And Hilton is both shareholder of ITT
and a party seeking to obtain control of ITT by means of a proxy fight; as such,
SHOEN makes it clear that the frustration of Hilton's right to vote
- ------------------------------------
(12) ITT also claims that Hilton's motion should be measured by the
standard applied to requests for mandatory injunctions. ITT Br. at 11.
Numerous courts compelling the holding of meetings for the purpose of electing a
board of directors have analyzed the issue under a preliminary, as opposed to
mandatory, injunction standard. SEE, E.G., OCILLA INDUS. V. KATZ, 677 F.
Supp. 1291, 1297 (E.D.N.Y. 1987); APRAHAMIAN V. HBO, 531 A.2d 1204, 1208
(Del. Ch. 1987); DANAHER CORP. V. CHICAGO PNEUMATIC TOOL CO., Nos. 86 Civ. 3499
(PNL), 86 Civ. 3638 (PNL), 1986 WL 7001 at *14 (S.D.N.Y. June 19, 1986); HOLLY
SUGAR CORP. V. BUCHSBAUM, No. 81-C-743, 1981 WL 1708 at *7 (D. Colo. Oct. 28,
1981). CF. SHOEN V. AMERCO, 885 F. Supp. 1332, 1352 (D. Nev.), MODIFIED ON
OTHER GROUNDS, No. CV-N-94-0475-ECR, 1996 WL 90499 (D. Nev. Oct. 24, 1994),
VACATED BY STIPULATION (D. Nev. Feb 9, 1995) (granting preliminary injunction to
enjoin advancement of meeting date). Even if the Court were to apply the
mandatory injunction standard, Hilton is entitled to relief because it has shown
that the facts and law are clearly in its favor. SEE, E.G., ER HOLDINGS, INC.
V. NORTON CO., 735 F. Supp. 1094, 1102 (D. Mass. 1990) (where plaintiff shows
that by-laws require meeting to be held at a certain time, mandatory injunction
standard is met).
19
<PAGE>
its ITT shares and to solicit proxies from its fellow ITT shareholders in
support of its slate of nominees gives rise to irreparable harm.
While ITT tries to distinguish SHOEN on the grounds that the defendant
corporation there SHORTENED the time in which to wage a proxy contest (ITT
Br. at 31), it is well settled that "DELAY resulting in disenfranchisement may
constitute irreparable harm." ER HOLDINGS, INC. V. NORTON CO., 735 F.
Supp. 1094, 1102 (D. Mass. 1990) (granting injunction in favor of tender offeror
and proxy contestant against board's cancellation of annual meeting) (emphasis
added). ACCORD OCILLA INDUSTRIES V. KATZ, 677 F. Supp. 1291, 1301 (E.D.N.Y.
1987) (granting injunction in favor of proxy contestant against threatened delay
of annual meeting beyond period contemplated by by-laws because delay "poses a
serious risk of irreparable harm").
ITT's delay also poses a serious risk of irreparable harm to Hilton as
a potential acquirer of ITT. Numerous cases recognize that "timing is
everything with tender offers." HYDE PARK PARTNERS V. CONNOLLY, 839 F.2d 837,
853 (1st Cir. 1988). Since "delay affords the target company an opportunity to
disrupt the transaction," it "constitutes irreparable harm supporting injunctive
relief." CRANE V. LAM, 509 F. Supp. 782, 791 (E.D. Pa. 1981). ACCORD HYDE PARK
PARTNERS, 839 F.2d at 853; DAN RIVER, INC. V. ICAHN, 701 F.2d 278, 284 (4th
Cir. 1983) (delay in a tender offer gives management "time to regroup and
consolidate" during which its "chances are enhanced. The potential harm to [the
acquirer], then, is loss of its best opportunity to seize control of [the
target].").
VI. CONCLUSION
In an excess of rhetorical zeal, ITT charges that "Hilton wants to
steal value from the ITT stockholders." ITT Br. at 31. The
20
<PAGE>
strength and sophistication of the financial institutions that own a majority of
ITT's shares make this a silly contention. The issue here involves "theft" of a
very different sort: Can ITT deprive its shareholders of their right to decide
each year who will serve as the directors of their company? ITT should be
required to hold its annual meeting in May.
DATED this 25th day of March, 1997
SCHRECK MORRIS
By /S/ KRISTINA PICKERING
----------------------
STEVE MORRIS
KRISTINA PICKERING
MATTHEW McCAUGHEY
300 S. Fourth Street, #1200
Las Vegas, Nevada 89101
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
SCOTT L. BLACK
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
Attorneys for Plaintiffs,
HILTON HOTELS CORPORATION
and HLT CORPORATION
21
<PAGE>
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I certify that I am an employee of
SCHRECK MORRIS, and that on this day I served a true copy of the following
enclosed in a sealed envelope: REPLY MEMORANDUM OF POINTS AND AUTHORITIES IN
SUPPORT OF HILTON'S MOTION FOR A PRELIMINARY INJUNCTION REQUIRING ITT TO CONDUCT
ITS ANNUAL MEETING IN MAY 1997; AFFIDAVITS OF STEPHEN F. BOLLENBACH, DANIEL H.
BURCH, CLIVE CUMMIS, DANIEL FISCHEL, JOHN GODFREY, ARTHUR GOLDBERG, MATTHEW
HART, DIANE S. HINSON, ROBERT LYON, KENNETH MOELIS, LAWRENCE SONDIKE AND
EXHIBITS THERETO [ORAL ARGUMENT REQUESTED].
VIA HAND DELIVERY:
Thomas F. Kummer
Kummer Kaempfer Bonner & Renshaw
7th Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
VIA OVERNIGHT DELIVERY:
Rory Millson
Cravath, Swain & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
Dated this 25th day of March, 1997.
By /S/ Jeana M. Hart
-------------------
Jeana M. Hart
22
<PAGE>
[Exhibit 46]
THOMAS F. KUMMER
VON S. HEINZ
KUMMER KAEMPFER BONNER & RENSHAW
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
(702) 792-7000
Attorneys for Defendant/Counterclaimant
ITT CORPORATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
HILTON HOTELS CORPORATION and )
HLT CORPORATION, ) Case No. CV-S-97-95-PMP (RLH)
)
Plaintiffs, )
vs. )
)
ITT CORPORATION, )
)
Defendant. )
)
- ----------------------------------------
)
ITT CORPORATION, )
)
Defendant and )
Counterclaimant, )
)
vs. )
)
HILTON HOTELS CORPORATION and )
HLT CORPORATION, )
)
)
Plaintiffs and )
Counterdefendants. )
- ----------------------------------------
ITT'S MOTION AND MEMORANDUM TO STRIKE AFFIDAVITS
SUBMITTED WITH HILTON'S REPLY MEMORANDUM OR, IN THE
ALTERNATIVE, FOR LEAVE TO FILE THREE SURREPLY AFFIDAVITS
ITT Corporation ("ITT" or the "Corporation") hereby moves to strike
affidavits submitted by Hilton Hotels Corporation and HLT Corporation
(collectively "Hilton") with Hilton's Reply in Support
- 1 -
<PAGE>
of its Motion for a Preliminary Injunction Requiring ITT to Conduct Its Annual
Meeting in May 1997 or for leave to file three surreply affidavits.
MEMORANDUM OF POINTS AND AUTHORITIES
PRELIMINARY STATEMENT
Hilton submitted only one affidavit along with its moving papers, the
affidavit of Hilton's proxy solicitor. Hilton did NOT submit any affidavits to
show that (a) its board nominees would be approved by various regulatory
authorities before a May meeting; (b) the "primary purpose" of the ITT Board is
to interfere with the stockholder franchise; or (c) the Board has breached its
fiduciary duty under NRS Section 78.138.
However, on March 25, 1997, Hilton filed a reply along with eleven
affidavits. Hilton attempted to cure one defect of its opening papers by
arguing that the Hilton nominees could be approved by various regulatory
authorities before a May meeting. (SEE the Godfrey, Cummis, Hinson and
Bollenbach (in part) affidavits.) Because these "reply" regulatory affidavits
present material that should have been included in Hilton's opening papers, they
should be stricken or, as a matter of fundamental fairness, ITT should be
permitted to file the three attached affidavits. SEE Part I, INFRA. Moreover,
the remaining affidavits are irrelevant. This is so whether the Court accepts
ITT's view that the correct standard for evaluating the Board's conduct under
NRS Section 78.138 is subjective good faith, or Hilton's view that there is also
a gross negligence requirement. SEE Part II, INFRA.
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<PAGE>
ARGUMENT
I. THE REGULATORY AFFIDAVITS SHOULD BE STRICKEN OR ITT SHOULD BE PERMITTED TO
SUPPLEMENT ITS OPPOSITION
Even Hilton admits in its proxy statement (Exhibit E to the Reply
Affidavit of Daniel H. Burch ("Burch Reply Aff.")) that certain regulatory
approvals may be required before the Hilton nominees can be elected and that
certain regulatory approvals are required before the Hilton nominees, if
elected, can be seated on the Board. SEE, E.G., Burch Reply Aff., Ex. E at
16 (Nevada gaming laws), 18 (New Jersey gaming laws), 19 (Mississippi gaming
laws), 21 (FCC regulations).
Hilton had an obligation in its moving papers to show that a meeting
could, as a practical matter, be held in May. Hilton made no such showing in
its opening papers even though the issue of timely regulatory approval was
publicly raised by ITT's Board (E.G., ITT's Solicitation/Recommendation
Statement on Schedule 14D-9, at 5), and was well known to Hilton before it
filed its motion. This failure is fatal to Hilton's motion.
Hilton's submission of "reply" affidavits1 to argue that these regulatory
uncertainties could be resolved by May is improper.2
_____________________
1 These are: (1) the Godfrey Affidavit ("Godfrey Aff.") (relating to the
Nevada Gaming Commission); (2) the Cummis Affidavit ("Cummis Aff.") (relating to
the New Jersey Gaming Authorities); and (3) the Hinson Affidavit ("Hinson Aff.")
(relating to the Federal Communications Commission ("FCC")). (The affidavit of
Stephen Bollenbach, Hilton's President ("Bollenbach Aff.") also relates in part
(PARAPARA 12-13) to these issues.)
2 It is well-settled that "parties cannot raise a new issue for the first
time in their reply brief". ALLIANCE AGAINST IFQS V. BROWN, 84 F.3d 343, 348
n.1 (9th Cir. 1996), PETITION FOR CERT. FILED, 65 U.S.L.W. 3518 (Nov. 13, 1996);
ACCORD CLEMENTS V. AIRPORT AUTH., 781 F. Supp. 1493, 1495
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<PAGE>
Hilton should not be permitted to benefit from this clearly inappropriate
procedure. The affidavits relating to these regulatory issues should thus be
stricken.
If the Court considers Hilton's regulatory affidavits, ITT should be
permitted to supplement its opposition by submitting the responsive
affidavits of Paul O'Gara and John Logan.3 Unless such relief is granted, ITT
will be denied the opportunity to respond to new, and in many cases
inaccurate, factual allegations.
Because Hilton's nominees are pledged to pursue a change in control of ITT,
the election of Hilton's nominees pursuant to the proxy contest would itself
constitute a change in control and trigger the need for a variety of regulatory
approvals. This is the law of Nevada, New Jersey and Mississippi. Indeed,
Hilton has asked the Chairman of the Nevada State Gaming Control Board (the
"Nevada Board") to address this issue. Burch Reply Aff., Ex. E at 16; SEE ALSO
Godfrey Aff. PARA 4. As Hilton acknowledges, "[n]o assurances can be given that
the Chairman of the Nevada Board . . . will agree with Hilton and HLT that no
prior approval for the Proxy Solicitation or
_____________________
n.2 (D. Nev. 1991). This prevents the obvious inequity of allowing one party
to make allegations to which the opposing party has no opportunity to
respond. A party may not wait until its reply to come forward with evidence
in support of its motion; rather, it is "expected to present [its] strongest
case in the first instance". CHRISTIE V. K-MART CORP. EMPLOYEES RETIREMENT
PENSION PLAN, 784 F. Supp. 796, 802 n.2 (D. Kan. 1992).
3 "A court may grant leave to file a surreply at its discretion".
AMERICAN FOREST & PAPER ASS'N V. UNITED STATES EPA, No. 93-CV-0694, 1996 WL
509601, at *3 & n.7 (D.D.C. Sept. 4, 1996); SEE ALSO T.S.I. HOLDINGS, INC. V.
BUCKINGHAM, 885 F. Supp. 1457, 1459 n.1 (D. Kan. 1995) (same).
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<PAGE>
the election of the Hilton Nominees is required". Burch Reply Aff., Ex. E at
16. No decision favorable to Hilton has been rendered.4 Hilton thus cannot
assure the Court that the solicitation of proxies or the holding of a May
election involving the Hilton nominees will not require prior approval of the
Nevada Gaming Authorities. More importantly, Hilton cannot assure this Court
that such prior approval, if required, can be successfully obtained before
the holding of a May election.5
In addition, certain regulatory bodies must give their approval before
Hilton's nominees, if elected, can take office. As Hilton acknowledges, New
Jersey law requires Hilton's nominees, if elected, to be qualified by the CCC
before they can take office:
"[S]hould the Hilton Nominees be elected, they would not be permitted
under the Casino Control Act to function as directors of [ITT] until
they have been qualified by the CCC on at least a temporary basis. . .
[T]here can be no assurances as to whether or when such Hilton Nominees
will be found so qualified." Burch Reply Aff., Ex. E at 18; SEE ALSO
Cummis Aff. PARA 3.
Similarly, the FCC must also give its approval of the Hilton nominees before
they can take office. As Hilton has stated:
"The election of the Hilton Nominees to the [ITT] Board at the Annual
Meeting . . . will require the approval of the FCC before the Hilton
Nominees, if elected, can take office. . . . There can be no assurance
that the FCC will grant the [approval] or that, if granted, such
approval
_____________________
4 Mr. Godfrey's statement that the Chairman of the Nevada Board told him
that the Nevada Board would try to have a decision in time for a May meeting
if one was scheduled (Godfrey Aff. PARAPARA 2, 6) is of little significance.
Mr. Godfrey has not represented that the Nevada Board will rule before May or
that it will rule in Hilton's favor.
5 ITT believes that approval by the New Jersey Casino Control Commission
("CCC") and the Mississippi Gaming Commission is also required before the Hilton
nominees can be elected. As far as ITT is aware, Hilton has not yet sought a
ruling on this issue from either agency.
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<PAGE>
will be on terms and conditions acceptable to Hilton." Burch Reply
Aff., Ex. E at 21.
Hilton also admits that Mississippi law may require prior approval of Hilton's
nominees before they can take office. Burch Reply Aff., Ex. E at 19.
Obviously, great harm could flow to ITT and its stockholders if ITT is
compelled to hold an election involving the Hilton nominees before all
regulatory qualifications needed for those nominees to be elected or to serve if
elected are obtained. The corporate confusion and regulatory repercussions that
could result from the Hilton nominees being elected without the required
regulatory qualifications or from their not being allowed to be seated as
directors if elected would be detrimental to ITT and its stockholders.
Contrary to Hilton's assertion, Hilton will not be able to get all the
necessary qualifications before a May meeting. For example, although Hilton
claims to have sought temporary qualification of its nominees under New Jersey
gaming law (Cummis Aff. PARAPARA 3-6), the applicable regulation (N.J.A.C.
19:43-2.7(c)) only provides for temporary authorization "upon the written
petition of the CASINO LICENSEE" (emphasis added). Here, the relevant licensee
is ITT's subsidiary Boardwalk Regency Corporation, NOT Hilton. Accordingly,
Hilton's nominees cannot receive "temporary qualification"; they will have to be
qualified on a plenary basis before they can, if elected, be seated. SEE
Affidavit of Paul M. O'Gara ("O'Gara Aff.") PARAPARA 3-5, 7. The plenary
qualification process will not be completed before a May meeting. SEE ID.
PARAPARA 6-7.
Similarly, Hilton did not file its application for approval from the FCC
until March 4, 1997, 35 days after it could first have
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<PAGE>
filed. Affidavit of John S. Logan ("Logan Aff.") PARA 8.6 Moreover, Hilton
requested relief that was unprecedented and at variance with FCC policy. ID.
PARAPARA 3-6, 10. Accordingly, again as a result of Hilton's own
inappropriate regulatory request, it is quite conceivable that the FCC will
not have reached a decision on Hilton's application in favor of Hilton in
time for a May meeting. ID. PARAPARA 8, 10-11.7.
II. THE REMAINING AFFIDAVITS ARE IRRELEVANT
The remaining affidavits are irrelevant under either ITT's or Hilton's
reading of NRS Section 78.138.8
The affidavits of the Hilton employees (Mr. Bollenbach, Mr. Goldberg and
Mr. Hart) and consultants (Mr. Burch, Mr. Fischel and Mr. Moelis) do not refute
the Board's good faith or its diligence. At most they show that Hilton's
affiants (none of whom even claims to have any direct, specific or personal
knowledge about the reasons for the Board's decision) disagree with the Board's
decision and with the advice of some of the Board's advisors. However, the fact
that the Board relied on reputable and competent
_____________________
6 As explained in the Logan Affidavit, Hilton's assertion that ITT is
"talking out of both sides of its mouth" in connection with the FCC approvals
(Hinson Aff. PARA 9) is simply not true. Logan Aff. PARAPARA 13-14.
7 For this reason, among others, the statement by Ms. Hinson in her affidavit
(PARA 10) that the FCC has indicated that its "goal" is to rule on Hilton's
application by April 14, 1997, is of little significance. Logan Aff.
PARAPARA 10-11.
8 Since Hilton has never offered any evidence to show that the ITT Board's
"primary purpose" is to interfere with the stockholder franchise, we do not
address again the issue of the applicability of BLASIUS to this case, which has
been exhaustively addressed by the parties.
- 7 -
<PAGE>
advisors, which even Hilton does not dispute, means that Hilton cannot show a
violation of NRS Section 78.138. SEE NRS Section 78.138.2(b); CF. WLR FOODS,
INC. V. TYSON FOODS, INC., 869 F. Supp. 419, 422 (W.D. Va. 1994), AFF'D, 65 F.3d
1172 (4th Cir. 1995), CERT. DENIED, 116 S. Ct. 921 (1996).
This same conclusion applies to the affidavits of the two stockholders
who, after an apparent nationwide solicitation by Hilton, submitted form
"affidavits".9 Hilton's issue is whether the ITT Board, advised by reputable
advisors, complied with NRS Section 78.138, not whether Hilton and its
advisors, or even a few stockholders, would like to advance Hilton's
opportunistic offer. Even if there are stockholders like Franklin Mutual who
purchased most of their ITT shares after Hilton's proposed offer, the Board
is not limited to considering only short-term gains; NRS Section 78.138.3(d)
specifically provides that the Board can consider the long-term. The form
stockholder affidavits - representing less than 5% of the outstanding shares
despite Hilton's extensive affidavit solicitation (and announced plan to
solicit proxies)--in no way refute the Board's informed conclusion that
stockholders wish the Board to create value and that the Board should not
simply capitulate to Hilton's low-ball offer.10
_____________________
9 Reports appearing in the press indicate that Hilton engaged in a
substantial effort to get ITT stockholders to sign a form affidavit which
declares, in part, that the stockholder disagrees with the Board's position
that a decision to hold the annual meeting later than May would benefit
stockholders. Affidavit of Von S. Heinz, Ex. A; SEE ALSO ID. Ex. B. And Mr.
Bollenbach says he has spoken to many ITT stockholders. Bollenbach Aff. PARA 3.
10 Given the irrelevance of all these affidavits, ITT does not seek leave to
file affidavits from its officers, directors or consultants or to submit
non-form affidavits
- 8 -
<PAGE>
CONCLUSION
For the reasons set forth above, ITT's motion should be granted.
DATED this 28th day of March, 1997.
KUMMER KAEMPFER BONNER & RENSHAW
By /s/ THOMAS F. KUMMER
-------------------------------
THOMAS F. KUMMER
VON S. HEINZ
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attorney for Defendant/
Counterclaimant
ITT CORPORATION
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that service of the
foregoing ITT'S MOTION AND MEMORANDUM TO STRIKE AFFIDAVITS SUBMITTED WITH
HILTON'S REPLY MEMORANDUM OR, IN THE ALTERNATIVE, FOR LEAVE TO FILE THREE
SURREPLY AFFIDAVITS was made this date by delivering by hand a true copy of the
same to the following:
Steve Morris
Kristina Pickering
Schreck Morris
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
_____________________
from stockholders.
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<PAGE>
and by delivering by facsimile and overnight mail a true copy of the same to the
following:
Bernard W. Nussbaum
Eric M. Roth
Marc Wolinsky
Scott L. Black
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
DATED this 28th day of March, 1997.
/S/ ELIZABETH MOULTON
----------------------------------
An Employee of Kummer Kaempfer
Bonner & Renshaw
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<PAGE>
[Exhibit 47]
[ITT LETTERHEAD]
DATE: March 31, 1997
CONTACT: Jim Gallagher
TELEPHONE: 212-258-1261
FOR IMMEDIATE RELEASE
ITT SELLS REMAINING STAKE IN ALCATEL ALSTHOM FOR $530 MILLION
NEW YORK, NY, March 31, 1997--ITT Corporation (NYSE:ITT) announced today
the sale of its remaining 4.5 million share stake in Alcatel Alsthom for
approximately $530 million, representing a gain of more than 25 percent over
book value. The sale, which was approved by Alcatel Alsthom, was made at the
market price to a U.S. institutional investor and is expected to close on
April 10.
On February 14, 1997, ITT announced the sale of 3 million shares of Alcatel
Alsthom for approximately $300 million.
As previously stated ITT said it will carefully examine how the proceeds
from this sale and the sale of other non-core assets can best be used to add
value for its shareholders.
- ITT -
