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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
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
(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
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Statement") 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 (as defined below) of ITT
Corporation, a Nevada corporation (the "Company").
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the Company and address of its principal executive offices are
ITT Corporation, 1330 Avenue of the Americas, New York, NY 10019-5490. The title
of the class of equity securities to which this Statement relates is the
Company's common stock (the "Shares" or the "Common Stock"), no par value
(including the associated Series A Participating Cumulative Preferred Stock
Purchase Rights (the "Rights") issued pursuant to the Rights Agreement (the
"Rights Agreement"), dated as of November 1, 1995, between the Company (which
was formerly known as ITT Destinations, Inc.) and The Bank of New York, as
Rights Agent).
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer made by HLT, disclosed in a
Tender Offer Statement on Schedule 14D-1 (the "Hilton Schedule 14D-1") dated
January 31, 1997, as amended by Amendment No. 1 dated January 31, 1997, and
Amendment No. 2 dated February 4, 1997, to purchase 61,145,475 Shares, including
the Rights (unless the Rights are redeemed by the Board of Directors of the
Company (the "Board")), or such greater number of Shares as, when added to the
number of Shares owned by HLT and its affiliates, would constitute a majority of
the total number of Shares outstanding, at $55 per Share (the "Hilton Offer
Price"), net to the Seller in cash and without interest upon the terms and
subject to the conditions set forth in the Offer to Purchase dated January 31,
1997 (the "Hilton Offer to Purchase"), and the related Letter of Transmittal
(together with the Hilton Offer to Purchase, the "Hilton Tender Offer"). The
Hilton Schedule 14D-1 states that the principal executive offices of HLT and
Hilton are located at 9336 Civic Center Drive, Beverly Hills, California 90210.
According to the Hilton Schedule 14D-1, if the Hilton Tender Offer succeeds,
Hilton intends to consummate a merger (the "Proposed Squeeze Out Merger" and,
together with the Hilton Tender Offer, the "Hilton Transaction") pursuant to
which all Shares not tendered and purchased pursuant to the Hilton Tender Offer
(other than Shares owned by Hilton and its subsidiaries or held in the Company's
treasury) would be converted into the right to receive a number of shares of
Hilton common stock, par value $2.50 per share ("Hilton Common Stock"), having a
nominal value of $55 per Share, subject to unspecified collar provisions.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
(b)(1) GENERAL. Reference is made to the information contained under the
captions "Directors' Compensation", "Restricted Stock Plan for Non-Employee
Directors", "The Compensation Program", "Compensation of ITT Executive
Officers", "Option Grants on ITT Common Stock to ITT Executives in Last Fiscal
Year", "Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year End
Option Value", "Severance Pay Plan", "Employment Contract", "Change-in-Control
Arrangements", "Pension Plans", "Security Ownership of Certain Beneficial
Owners, Directors, Nominees and Executive Officers" and "Appendix I--ITT
Corporation Annual Performance-Based Incentive Plan for Executive Officers" in
the Company's proxy statement dated March 28, 1996, relating to the Company's
1996 Annual Meeting of Shareholders. The relevant sections thereof are filed as
Exhibit 1 hereto and are incorporated herein by reference. Except as described
herein or incorporated herein by reference, there are no contracts,
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agreements, arrangements or understandings or any actual or potential conflicts
of interest between the Company or its affiliates and (i) the Company, its
executive officers, directors or affiliates or (ii) HLT or Hilton, or their
respective executive officers, directors or affiliates.
(2) SEVERANCE AND RELATED MATTERS. The Compensation and Personnel Committee
of the Board has requested management, in consultation with the Company's human
resources consultants, to provide advice and recommendations for its
consideration concerning the protection of the Company's obligations to its
directors and employees relating to its pension plans, savings plans, deferred
compensation obligations, life insurance commitments and other employee
obligations in the event of a change in control of the Company.
The Board has considered the recommendations of the Company's human
resources consultants, Towers Perrin, and reviewed industry practices concerning
change-in-control severance benefits. In view of the need to minimize employee
distraction and to retain employee loyalty and dedication to the Company and to
assure their attention to the Company's performance pending resolution of the
Hilton Tender Offer, the Compensation and Personnel Committee has unanimously
voted, with the unanimous concurrence of the entire Board (with management
members of the Board abstaining), to revise its previous policy concerning
executive severance agreements in order to provide severance payments to certain
officers and employees in the event of a change in control, which severance
arrangements it has determined are fair and consistent with industry practices.
At a meeting of the Board held on February 11, 1997, upon the recommendation
of the Compensation and Personnel Committee, the Board authorized the Company to
amend its severance compensation arrangements with such executives and managers.
In summary, there are three types of severance arrangements (the "Severance
Arrangements") for different categories of executives.
Rand V. Araskog, the Company's Chairman and Chief Executive, is party to an
existing Employment and Consulting Agreement entered into as of December 19,
1995, as amended on February 11, 1997 (the "Araskog Agreement"). The Company has
also entered into individual severance agreements with nine individuals (the
"Individual Agreements"). With respect to approximately 55 additional
individuals covered by the Company's existing Senior Executive Severance Pay
Plan (the "SPP"), modifications have been made to the change in control
arrangements. Copies of the Araskog Agreement, the form of the Individual
Agreements, and the SPP are filed as Exhibits 2, 3 and 4 hereto, respectively,
and are incorporated herein by reference.
The Severance Arrangements provide for certain severance benefits to the
individuals party thereto in the event of certain terminations of their
employment following a Change in Control (as defined in each of the Severance
Arrangements). All Severance Arrangements provide for payment of severance
benefits ("Severance") in the event of an executive's termination of employment
by the Company (or its successor) without Cause (as defined in each of the
Severance Arrangements) or by the executive with Good Reason (as defined in each
of the Severance Arrangements) within two years following a Change in Control.
The Araskog Agreement, as amended, provides that, if Mr. Araskog is
involuntarily terminated other than for Cause or he terminates for Good Reason
within two years following a Change in Control, he shall receive Severance
consisting of a lump-sum payment equal to the remaining payments owed to him
during the respective employment and consulting terms set forth in the Araskog
Agreement. The Severance payment is subject to the limitation that, if Sections
280G and 4999 of the Internal Revenue Code of 1986, as amended, would impose on
Mr. Araskog any excise tax (an "Excise Tax") in respect of such Severance, then
the amount of the Severance payment will be reduced to an amount such that no
amount will be subject to such Excise Tax (the "Reduction"); provided, however,
that if the price of the Common Stock remains for five consecutive trading days
following February 11, 1997, at or above 125% of its closing price of $56.75 per
Share on February 4, 1997, then the Reduction will not apply, and in addition,
Mr. Araskog will be entitled to a gross-up payment to fully offset any Excise
Tax imposed, as well as any additional income, employment and excise taxes
imposed on the gross-up payment (an "Additional Payment"),
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provided that no such Additional Payment will be made to the extent that Mr.
Araskog would not receive at least a $50,000 net after-tax benefit from the
Additional Payment, as compared to the net amount he would otherwise receive if
the Reduction were to be implemented. The Board selected a Share price threshold
that must be reached before the Reduction will be eliminated and the Additional
Payment will be payable that is the same as the Share price that must be
achieved for the vesting of performance-based options granted by the Company to
senior executives at a Board meeting held on February 4, 1997. That threshold
was determined in accordance with the Company's usual practice for option
grants.
The nine Individual Agreements provide that, if the executive is
involuntarily terminated other than for Cause or such executive terminates for
Good Reason within two years following a Change in Control, the executive will
receive Severance consisting of (i) a lump-sum payment equal to the sum of (A)
two or three times the executive's annual base salary in effect immediately
prior to the executive's termination of employment and (B) two or three times
the highest bonus paid or awarded to the executive under the Company's executive
compensation plans in respect of the three years immediately preceding the
Change in Control, (ii) continued welfare benefits, fringe benefits and
perquisites for a number of years equal to the number by which such executive's
annual base salary is multiplied for purposes of determining such executive's
Severance and (iii) one year of outplacement services. All Severance payable
under each of the Individual Agreements is subject to the same Reduction and
Additional Payment mechanism (including the $50,000 minimum benefit requirement)
described above with respect to the Araskog Agreement. The executive officers
covered by the Individual Agreements are Robert A. Bowman, Peter G. Boynton,
Gerald C. Crotty, Ann N. Reese, Richard S. Ward, Daniel P. Weadock, Jon F.
Danski and Elizabeth A. Tuttle.
The SPP provides that, if an executive covered by the SPP is involuntarily
terminated other than for Cause or the executive terminates for Good Reason
within two years following a Change in Control, the executive will receive
Severance consisting of (i) a lump-sum payment equal to two times the
executive's annual base salary in effect immediately prior to the executive's
termination of employment, and, for certain designated employees, including the
executive officers covered by the SPP, two times the highest bonus paid or
awarded in respect of the three years immediately preceding the Change in
Control, (ii) continued welfare benefits, fringe benefits and perquisites for
two years and (iii) one year of outplacement services. All Severance payable
under the SPP is subject to the same Reduction and Additional Payment mechanism
(including the $50,000 minimum benefit requirement) described above with respect
to the Araskog Agreement. The executive officers covered by the SPP are Juan C.
Cappello, Ralph W. Pausig and Nicholas J. Glakas.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
THE BOARD HAS UNANIMOUSLY DETERMINED THAT THE HILTON TRANSACTION, INCLUDING
THE HILTON TENDER OFFER, IS INADEQUATE AND NOT IN THE BEST INTERESTS OF THE
COMPANY, AS DESCRIBED IN MORE DETAIL BELOW. ACCORDINGLY, THE BOARD UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY REJECT THE HILTON TRANSACTION
AND NOT TENDER THEIR SHARES PURSUANT TO THE HILTON TENDER OFFER.
The Board's determination, which was reached at a meeting held on February
11, 1997, was based on the Board's review and consideration of the interests of
the Company's stockholders and all other factors permitted by applicable law,
including the interests of the Company's employees, suppliers, creditors and
customers; the economy of Nevada and the nation; the interests of the
communities in which the Company operates and of society; and the long and
short-term interests of the Company and its stockholders, including the
possibility that these interests may be best served by the continued
independence of the Company. At the same meeting, the Board determined that the
Company's and its stockholders' interests would be best served if the Company
were to remain an independent company.
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In light of the Board's decisions, management of the Company, together with
the Company's advisors, are continuing to refine the Company's strategic plan,
which focuses on lodging and gaming, and are actively exploring opportunities to
enhance the value of the Company. As part of this process, the Board authorized
management to take steps to monetize or otherwise realize the value of non-core
assets.
Copies of a press release announcing the Board's determinations, and a
letter to the stockholders of the Company communicating the Board's
recommendation are filed as Exhibits 5 and 6 hereto, respectively, and are
incorporated herein by reference.
(b) REASONS FOR RECOMMENDATION. In reaching its determinations and
recommendations described in Item 4(a) above, the Board considered a number of
factors, including, without limitation, the following:
(i) the Board's belief, based on the factors further described below,
that the Hilton Transaction, including the Hilton Tender Offer, does not
reflect the inherent value of the Company;
(ii) the Board's familiarity with, and management's review of, the
Company's business, financial condition, results of operations, business
strategy and future prospects, including the nature of the markets in which
the Company operates and the Company's position in such markets;
(iii) a presentation by Lazard Freres & Co. LLC ("Lazard Freres") and
Goldman, Sachs & Co. ("Goldman Sachs"), financial advisors to the Company,
concerning the Company, Hilton and the financial aspects of the Hilton
Transaction, and the opinions of Lazard Freres and Goldman Sachs to the
effect that, as of February 11, 1997, the consideration to be received by
stockholders of the Company pursuant to the Hilton Transaction, including
the Hilton Tender Offer, is inadequate; such opinions were expressed after
review of many of the factors referred to herein and various financial
criteria used in assessing an offer, and were based on various assumptions
and subject to various limitations, which were reviewed for the Board as
part of the presentation of Lazard Freres and Goldman Sachs;
(iv) the Board's belief that pursuit of the Company's strategic plan,
including refinements that may result from management's ongoing review, will
produce greater short-term and long-term value for the stockholders of the
Company than the Hilton Transaction, including the Hilton Tender Offer;
(v) the absence of information regarding the role of HFS Incorporated
("HFS") in the Hilton Transaction and the Board's concern about possible
adverse effects on the value of an investment in Hilton securities following
any combination with the Company, including the potential negative impact of
HFS's involvement in the Hilton Transaction on the value of the Company's
Sheraton and Four Points hotel businesses, the potential disruption of
Company hotel management contracts and franchise arrangements (as evidenced
by communications from existing hotel owners and franchisees opposing any
plan for HFS to assume these contracts), and the potential for competition,
cannibalization and conflicts between Hilton properties, Ladbroke Group plc
properties and Sheraton and/or Four Points properties following any
combination of Hilton and the Company;
(vi) the uncertainty as to the actual value of the Proposed Squeeze Out
Merger to the stockholders of the Company, resulting from, among other
things, the lack of disclosure in the Hilton Schedule 14D-1 concerning the
Proposed Squeeze Out Merger, including the manner in which the number of
shares of Hilton Common Stock to be issued in the Proposed Squeeze Out
Merger would be determined, and the failure of Hilton to give sufficient
assurance in the Hilton Schedule 14D-1 that the Proposed Squeeze Out Merger
will qualify for tax-free "reorganization" status;
(vii) the lack of sufficient disclosure in the Hilton Schedule 14D-1
regarding the proposed financing of the Hilton Tender Offer, the possibility
that restrictive covenants or other conditions to such financing would have
a negative impact on the ability of Hilton to maintain and/or expand the
proposed combined business, and the effect of the Hilton Transaction on
Hilton's capital structure and credit ratings;
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(viii) the fact that, as a result of uncertainties about the actual value
of the Proposed Squeeze Out Merger and the merits of a longer-term
investment in Hilton, the Hilton Transaction is structured as a two-tiered,
front-end loaded transaction that is intended to coerce stockholders to
tender their shares into the Hilton Tender Offer to avoid receiving in the
Proposed Squeeze Out Merger shares of Hilton Common Stock that may or may
not have a value of $55 per Share;
(ix) the Board's concern about Hilton's access to and misuse of
confidential Company information;
(x) the Board's concern about antitrust violations relating to a
combination of the Company and Hilton, which create uncertainty as to
whether the conditions of the Hilton Tender Offer will be met; in that
regard, the Board noted that the Hilton Tender Offer is conditioned on there
not being threatened, instituted or pending any action by any domestic or
foreign governmental entity or by any other person seeking to impose any
limitations upon the ownership or operation by Hilton of any portion of the
business or assets of the Company;
(xi) the Board's belief that there are gaming law issues relating to a
combination of the Company and Hilton, which create uncertainty as to
whether the conditions of the Hilton Tender Offer will be met; in that
regard, the Board noted that the Hilton Tender Offer is conditioned on the
receipt of all material consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, casino gaming regulatory
authorities with jurisdiction in respect of the Company's active gaming
operations required or necessary in connection with the Hilton Tender Offer
and the Proposed Squeeze Out Merger;
(xii) the disruptive effect the Hilton Tender Offer and the Proposed
Squeeze Out Merger are having on the Company and the potential adverse
effect of the Hilton Transaction on the interests of the Company's
employees, suppliers, creditors and customers, on the economies of the state
of Nevada and the nation, and on the interests of the communities in which
the Company operates and of society; and
(xiii) the Board's and management's commitment to protecting the best
interests of the stockholders of the Company and enhancing the value of the
Company.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety of
factors considered in its evaluation, the Board did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determinations and recommendation. In
addition, individual members of the Board may have given different weights to
different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Board has retained Lazard Freres and Goldman Sachs to act as financial
advisors to the Company in connection with the Hilton Tender Offer and other
matters arising in connection therewith, including assisting the Company in
exploring possible strategic alternatives in light of the Hilton Tender Offer.
Pursuant to an engagement letter with Lazard Freres and Goldman Sachs, the
Company has agreed to pay each of Lazard Freres and Goldman Sachs 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 later of September 30, 1997
and the date two business days before the scheduled date of the next annual
meeting of stockholders of the Company (the "Date"); provided, however, that if
the Date is later than September 30, 1997, the Company will pay one-half of the
$19,000,000 advisory fee on September 30, 1997 and the balance of the fee on the
Date. Notwithstanding the foregoing, and except as otherwise specified in the
engagement letter, the $19,000,000 advisory fee will be payable immediately upon
a termination of the engagement letter by the Company or if a Change of Control
(as defined below) has occurred or is imminent. The engagement letter provides
that the Company will determine in its sole reasonable judgment when a Change of
Control is
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imminent. Pursuant to the engagement letter, "Change of Control" means (i) any
Person or Group (each as defined in the engagement letter) becoming the
beneficial owner (as such term is used in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended) of more than 15% of the Common
Stock in one or a series of transactions, by means of a tender offer, exchange
offer, merger, private or open market purchases of stock or otherwise or if all
or substantially all of the assets of the Company are sold, liquidated or
transferred (by dividend or otherwise) in one or a series of transactions, or
(ii) a majority of the members of the Board being individuals whose nomination
for election or election to the Board was not recommended or approved by a
majority of the members of the Board who (A) were members of the Board on
February 10, 1997, or (B) whose nomination for election or election to the Board
was recommended or approved by a majority of the members of the Board who were
members of the Board on such date.
In addition to the foregoing, in the event that the Company sells equity or
debt securities in a public offering or private placement, Lazard Freres and
Goldman Sachs 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, Lazard Freres and Goldman Sachs 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, Lazard Freres and Goldman Sachs will be involved
and participate in such transaction.
The Company has also agreed to reimburse Lazard Freres and Goldman Sachs for
their reasonable out-of-pocket expenses, including fees of counsel and any
sales, use or similar taxes, and to indemnify Lazard Freres and Goldman Sachs
against certain liabilities in connection with their engagement, including
certain liabilities arising under the Federal securities laws.
Lazard Freres and Goldman Sachs 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, a member of the Board,
is a Managing Director of Lazard Freres. In addition, Goldman Sachs has provided
financial advisory and investment banking services to Hilton and HFS in the past
for which it has received customary compensation. In the ordinary course of
business, Lazard Freres and Goldman Sachs may from time to time effect
transactions and hold positions in securities of the Company, Hilton and HFS.
The Company has retained Georgeson & Company Inc. ("Georgeson") to assist
the Company in connection with its communications with its stockholders with
respect to, and to provide other services to the Company in connection with, the
Hilton Tender Offer and related matters. Georgeson will receive reasonable and
customary compensation in connection with the services provided by it and
reimbursement of out-of-pocket expenses in connection therewith. The Company has
agreed to indemnify Georgeson against certain liabilities arising out of or in
connection with its engagement.
The Company has retained Sard Verbinnen & Co. ("Sard Verbinnen") as its
public relations advisor in connection with the Hilton Tender Offer and related
matters. Sard Verbinnen will receive reasonable and customary compensation for
its services and reimbursement of out-of-pocket expenses in connection
therewith. The Company has agreed to indemnify Sard Verbinnen against certain
liabilities arising out of or in connection with its engagement.
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to stockholders on its behalf concerning the Hilton Tender
Offer.
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ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, neither the Company nor any subsidiary of the
Company nor, to the best of the Company's knowledge, any executive officer,
director or affiliate of the Company has effected a transaction in the Shares
except as set forth in Annex A hereto.
(b) To the best of the Company's knowledge, (i) none of its executive
officers, directors, affiliates or subsidiaries presently intends to tender
Shares pursuant to the Hilton Tender Offer and (ii) none of its executive
officers, directors, affiliates or subsidiaries presently intends to otherwise
sell any Shares which are owned beneficially or held of record by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) As stated in Item 4 above, and in light of the other factors referred to
in such Item, as well as the Board's commitment to protecting the interests of
the Company and its stockholders, and its conclusion that those interests would
be best served by the continued independence of the Company, members of the
Company's management, assisted by the Company's advisors, continue to refine the
Company's strategic plan, which focuses on lodging and gaming, and are actively
exploring opportunities to enhance the value of the Company. As part of this
process, the Company is taking steps to monetize or otherwise realize the value
of non-core assets. These alternatives could lead to and involve undertaking
negotiations which may result in: (i) a purchase, sale or transfer of a material
amount of assets by the Company or one or more subsidiaries of the Company; (ii)
a tender offer for or other acquisition of securities by or of the Company;
(iii) a material change in the present capitalization or dividend policy of the
Company; or (iv) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, but, in
each case, not constituting a sale of the Company. At the date hereof, there
have been contacts with parties who have expressed interest in the possibility
of pursuing various types of transactions with the Company and, in some cases,
negotiations regarding potential transactions have commenced.
The Board has determined that disclosure of the substance of negotiations
concerning, or the possible terms of, or potential parties to, any transactions
or proposals of the type referred to above in this Item 7 prior to an agreement
in principle with respect thereto would jeopardize the initiation or
continuation of negotiations with respect to such transactions and has,
accordingly, adopted a resolution directing that no such disclosure with respect
to any such transaction be made until such agreement in principle has been
reached.
There can be no assurance that any of the foregoing actually will result in
any transaction. The proposal, authorization, announcement or consummation of
any transaction of the type referred to in this Item 7 could adversely affect or
result in the withdrawal of the Hilton Tender Offer.
(b) There are no transactions, Board resolutions, agreements in principle or
signed contracts in response to the Hilton Tender Offer that relate to or would
result in one or more of the events referred to above in the first paragraph of
this Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
LITIGATION. On January 27, 1997, a complaint (the "Hilton Complaint")
captioned HILTON HOTELS CORPORATION AND HLT CORPORATION V. ITT CORPORATION,
CV-S-97-00095-PMP(RLH) was filed against the Company in the U.S. District Court
for the District of Nevada. The Hilton Complaint asks the court, among other
things, (i) to enjoin the Company from amending its by-laws "in any way that
would impede the effective exercise of the stockholder franchise in connection
with the 1997 annual meeting", from materially delaying its annual meeting, and
from increasing the size of the Board "in order to preserve the position of
incumbent directors", (ii) to require the Board to redeem the Rights and to make
inapplicable
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to the Hilton Tender Offer and the Proposed Squeeze Out Merger the Nevada
Control Share Acquisition Statute and the Nevada Business Combination Statute
and (iii) to declare that the Company does not have standing to institute an
action under the Federal antitrust laws to block or impede the Hilton Tender
Offer or the Proposed Squeeze Out Merger and that, in any event, the
consummation of the Hilton Tender Offer and the Proposed Squeeze Out Merger
would not violate such laws. A copy of the Hilton Complaint is filed as Exhibit
7 hereto and is incorporated herein by reference.
On January 27, 1997, Hilton and HLT filed a motion for a preliminary
injunction (the "Hilton Preliminary Injunction Motion") seeking to enjoin the
Company (i) from increasing the size of the Board or, alternatively, requiring
the Company to give Hilton the opportunity to supplement the individuals it
nominates for the Board and (ii) from amending the Company's by-laws "to impede
in any way the effective exercise of the stockholder franchise in connection
with electing directors" at the 1997 annual meeting. A copy of the Hilton
Preliminary Injunction Motion is filed as Exhibit 8 hereto and is incorporated
herein by reference. The court has set a hearing on the preliminary injunction
for March 5, 1997.
On January 29, 1997, Hilton and HLT filed a motion for a temporary
restraining order and preliminary injunction enjoining the Company from
prosecuting any action against Hilton or HLT arising out of the Hilton Tender
Offer in any jurisdiction other than the U.S. District Court for the District of
Nevada. On January 29, 1997, the U.S. District Court for the District of Nevada
issued an order denying Hilton and HLT's motion.
On February 12, 1997, the Company filed an answer and counterclaims (the
"Answer and Counterclaim") to the Hilton Complaint denying all material
allegations of the Hilton Complaint. The counterclaims seek injunctive relief
prohibiting Hilton from proceeding with the Hilton Tender Offer which is tainted
by Hilton's misappropriation and misuse of confidential information of the
Company and other relief to prevent Hilton from benefitting from access to
confidential Company information. These counterclaims also seek injunctive
relief, in the event the Hilton Tender Offer is not enjoined, requiring Hilton
to correct material inadequacies in the Hilton Schedule 14D-1 by disclosing and
filing the information required under the Federal securities laws. A copy of the
Answer and Counterclaim is filed as Exhibit 9 hereto and is incorporated herein
by reference.
On or about January 28, 1997, seven purported class action suits were filed
on behalf of individual plaintiffs against the Company and the Board in various
state courts in Nevada. These complaints were captioned COHEN V. ITT CORP. N.V.,
ET AL., Case No. A369146 (as amended, the "J. Cohen Complaint"); KOSTICK V.
ARASKOG, ET AL., Case No. A369138 (the "Kostick Complaint"); BERNSTEIN, ET AL.
V. ITT CORP. N.V., ET AL., Case No. A369147 (as amended, the "Bernstein
Complaint"); FEUERSTEIN, ET AL. V. ITT CORP. N.V., ET AL., Case No. A369137 (as
amended, the "Feuerstein Complaint"); MARKS, ET AL. V. ARASKOG, ET AL., Case No.
A369165 (the "Marks Complaint"); HUNTLEY V. ITT CORPORATION, ET AL., C.V.
97-00483 (the "Huntley Complaint"); and STEINER V. ARASKOG, ET AL., Case No.
A369160 (the "Steiner Complaint"). The complaints allege, among other things,
that the defendants have breached their fiduciary duties to the Company's
stockholders by failing to maximize stockholder value. The complaints seek,
among other things, to compel the defendants to carry out their fiduciary duties
and to cooperate with any person having a bona fide interest in proposing a
transaction with the Company which would maximize stockholder value. Copies of
the J. Cohen Complaint, the Kostick Complaint, the Bernstein Complaint, the
Feuerstein Complaint, the Marks Complaint, the Huntley Complaint and the Steiner
Complaint are filed as Exhibits 10, 11, 12, 13, 14, 15 and 16 hereto,
respectively, and are incorporated herein by reference.
On or about January 28, 1997, two purported class action suits were filed on
behalf of individual plaintiffs against the Company and the Board in the U.S.
District Court for the District of Nevada. The complaints were captioned COLLINS
V. ANDERSON, ET AL., CV-S-97-00104 (the "Collins Complaint") and TAUB, ET AL. V.
ARASKOG, ET AL., CV-S-97-00106 (the "Taub Complaint"). The allegations of and
remedies sought in the complaints include, among others, allegations and
remedies similar both to the purported class action
8
<PAGE>
complaints described above and to some allegations in the Hilton Complaint.
Copies of the Collins Complaint and the Taub Complaint are filed as Exhibits 17
and 18 hereto, respectively, and are incorporated herein by reference.
On or about January 28, 1997, three purported class action suits were filed
on behalf of individual plaintiffs against the Company and the Board in the
Supreme Court of the State of New York. The complaints were captioned SIEGEL V.
ARASKOG, ET AL., Index No. 97-600428 (the "Siegel Complaint"); WALTZMAN V.
ANDERSON., ET AL., Civ. No. 97-600430 (the "Waltzman Complaint"); and HACK V.
ITT CORP., ET AL., Index No. 97-101646 (the "Hack Complaint"). The allegations
of and remedies sought in the complaints include, among others, allegations and
remedies similar to the purported class action complaints described above.
Copies of the Siegel Complaint, the Waltzman Complaint and the Hack Complaint
are filed as Exhibits 19, 20 and 21 hereto, respectively, and are incorporated
herein by reference.
On or about January 29, 1997, an additional purported class action suit was
filed on behalf of an individual plaintiff against the Company and the Board in
state court in Nevada. The complaint was captioned COHEN V. ARASKOG, ET AL.,
C.A. No. A369244 (the "B. Cohen 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 B. Cohen
Complaint is filed as Exhibit 22 hereto and is incorporated herein by reference.
On or about January 29, 1997, another purported class action suit was filed
on behalf of individual plaintiffs against the Company and the Board in the
Supreme Court of the State of New York. This complaint was captioned RAND, ET
AL. V. ITT CORPORATION, ET AL., Index No. 97101170 (the "Rand 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 Rand Complaint is filed as Exhibit 23 hereto and
is incorporated herein by reference.
On or about February 4, 1997, the plaintiffs in the purported class action
suits initiated with the filing of the J. Cohen Complaint, the Kostick
Complaint, the Bernstein Complaint, the Feuerstein Complaint, the Marks
Complaint, the B. Cohen Complaint, the Huntley Complaint, the Steiner Complaint,
the Siegel Complaint and the Hack Complaint and other individual plaintiffs
filed a purported class action complaint seeking to consolidate all such
purported class action suits against the Company and the Board in the U.S.
District Court for the District of Nevada. The complaint was captioned COHEN, ET
AL. V. ARASKOG, ET AL., C.A. No. CV-S-97-00155-PMP(RLH) (the "Consolidated
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 Consolidated Complaint is filed as
Exhibit 24 hereto and is incorporated herein by reference.
On or about February 5, 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
KANAREK V. ARASKOG, ET AL., C.A. No. CV-S-97-00166-PMP(RLH) (the "Kanarek
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 Kanarek Complaint is filed as Exhibit
25 hereto and is incorporated herein by reference.
The foregoing descriptions of the complaints are qualified in their entirety
by reference to the complaints.
9
<PAGE>
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
1. Excerpts from of the Company's Proxy Statement dated March 28, 1996.
2. First Amendment to Employment and Consulting Agreement dated as of December 19, 1995
between ITT Destinations, Inc. and Rand V. Araskog.
3. Form of Individual Employment Agreement.
4. Amendment to Senior Executive Severance Pay Plan.
5. Text of Press Release issued by the Company dated February 12, 1997.
6. Letter to stockholders of the Company dated February 12, 1997.*
7. Complaint in HILTON HOTELS CORPORATION AND HLT CORPORATION V. ITT CORPORATION,
CV-S-97-00095-PMP(RLH).
8. Hilton Motion for Preliminary Injunction.
9. ITT Answer and Counterclaim.
10. First Amended Complaint in COHEN V. ITT CORP., ET AL., Case No. A369146.
11. Complaint in KOSTICK V. ARASKOG, ET AL., Case No. A369138.
12. First Amended Complaint in BERNSTEIN, ET AL. V. ITT CORP., ET AL., Case No. A369147.
13. First Amended Complaint in FEUERSTEIN, ET AL. V. ITT CORP., ET AL., Case No. A369137.
14. Complaint in MARKS, ET AL. V. ARASKOG, ET AL., Case No. A369165.
15. Complaint in HUNTLEY V. ITT CORPORATION, ET AL., C.V. 97-00483.
16. Complaint in STEINER V. ARASKOG, ET AL., Case No. A369160.
17. Complaint in COLLINS V. ANDERSON, ET AL., CV-S-97-00104.
18. Complaint in TAUB, ET AL. V. ARASKOG, ET AL., CV-S-97-00106.
19. Complaint in SIEGEL V. ARASKOG, ET AL., Index No. 97-600428.
20. Complaint in WALTZMAN V. ANDERSON, ET AL., Civ. No. 97-600430.
21. Complaint in HACK V. ITT CORP., ET AL., Index No. 97-101646.
22. Complaint in COHEN V. ARASKOG, ET AL., C.A. No. A369244.
23. Complaint in RAND, ET AL. V. ITT CORPORATION, ET AL., Index No. 97101170.
24. Complaint in COHEN, ET AL. V. ARASKOG, ET AL., C.A. No. CV-S-97-00155-PMP(RLH).
25. Complaint in KANAREK V. ARASKOG, ET AL., C.A. No. CV-S-97-00166-PMP(RLH).
</TABLE>
- ------------------------
* Included in materials sent to stockholders.
10
<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 12, 1997
11
<PAGE>
ANNEX A
1. On December 12, 1996, the spouse of Nolan D. Archibald, a member of the
Board, transferred by gift 350 shares of Common Stock.
2. On January 2, 1997, Robert A. Burnett, a member of the Board, purchased
1,000 shares of Common Stock.
A-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- --------- ---------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
(1) Excerpts from of the Company's Proxy Statement dated March 28, 1996...........................
(2) First Amendment to Employment and Consulting Agreement dated as of December 19, 1995 between
ITT Destinations, Inc. and Rand V. Araskog....................................................
(3) Form of Individual Employment Agreement.......................................................
(4) Senior Executive Severance Pay Plan...........................................................
(5) Text of Press Release issued by the Company dated February 12, 1997...........................
(6) Letter to stockholders of the Company dated February 12, 1997*................................
(7) Complaint in HILTON HOTELS CORPORATION AND HLT CORPORATION V. ITT CORPORATION, CV-
S-97-00095-PMP(RLH)...........................................................................
(8) Hilton Motion for Preliminary Injunction......................................................
(9) ITT Answer and Counterclaim...................................................................
(10) First Amended Complaint in COHEN V. ITT CORP., ET AL., Case No. A369146.......................
(11) Complaint in KOSTICK V. ARASKOG, ET AL., Case No. A369138.....................................
(12) First Amended Complaint in BERNSTEIN, ET AL. V. ITT CORP., ET AL., Case No. A369147...........
(13) First Amended Complaint in FEUERSTEIN, ET AL. V. ITT CORP., ET AL., Case No. A369137..........
(14) Complaint in MARKS, ET AL. V. ARASKOG, ET AL., Case No. A369165...............................
(15) Complaint in HUNTLEY V. ITT CORPORATION, ET AL., C.V. 97-00483................................
(16) Complaint in STEINER V. ARASKOG, ET AL., Case No. A369160.....................................
(17) Complaint in COLLINS V. ANDERSON, ET AL., CV-S-97-00104.......................................
(18) Complaint in TAUB, ET AL. V. ARASKOG, ET AL., CV-S-97-00106...................................
(19) Complaint in SIEGEL V. ARASKOG, ET AL., Index No. 97-600428...................................
(20) Complaint in WALTZMAN V. ANDERSON, ET AL., Civ. No. 97-600430.................................
(21) Complaint in HACK V. ITT CORP., ET AL., Index No. 97-101646...................................
(22) Complaint in COHEN V. ARASKOG, ET AL., C.A. No. A369244.......................................
(23) Complaint in RAND, ET AL. V. ITT CORPORATION, ET AL., Index No. 97101170......................
(24) Complaint in COHEN, ET AL. V. ARASKOG, ET AL., C.A. No. CV-S-97-00155-PMP(RLH)................
(25) Complaint in KANAREK V. ARASKOG, ET AL., C.A. No. CV-S-97-00166-PMP(RLH)......................
</TABLE>
- ------------------------
* Included in materials sent to stockholders.
<PAGE>
[Exhibit 1]
Directors' Compensation
Members of the Board of Directors who are employees of the Corporation or its
subsidiaries are not compensated for service on the Board or any Committee of
the Board. Non-employee directors receive a fee of $1,000 for each meeting of
the Board of Directors attended and a $1,000 fee for each Committee meeting
attended. Members of the Board of Directors, except for Mr. Araskog and Mr.
Bowman, receive an annual retainer fee of $48,000 payable solely in restricted
shares of ITT Common Stock. See "Restricted Stock Plan for Non-Employee
Directors." Directors are reimbursed for travel expenses incurred on behalf of
the Corporation. The non-employee directors of the Corporation who also serve on
the Board of Directors of ITT Educational Services, Inc. receive an annual
retainer fee of $18,000 and an attendance fee of $750 for each meeting of the
Board of Directors of ITT Educational Services, Inc. and an attendance fee of
$500 for each Committee meeting attended.
The Board of Directors has adopted the 1996 ITT Deferred Compensation Plan.
Under this plan, non-employee directors may elect to defer receipt of all or a
portion of their ITT and ITT Educational Services, Inc. attendance fees. The
Corporation will credit interest on the deferred compensation based upon the
performance of benchmark investment funds made available under the plan and
selected by the director.
The Corporation maintains an unfunded retirement plan to provide benefits
accrued as of December 19, 1995 for its non-employee directors who were
directors of Old ITT on December 18, 1995. No future benefits are accruing under
the plan. The benefits are payable upon retirement from the Board at or after
age 65 after completing at least five years of service on the Board, counting
service on the Board of Directors of Old ITT. Under the plan, directors may
indicate a preference, subject to certain conditions, to receive any accrued
benefit in the form of a single (discounted) lump sum payment immediately
payable upon such director's retirement. The Corporation has agreed to pay the
affected directors, Mrs. Anderson, Mr. Archibald, Mr. Burnett, Mr. Kirk, Gen.
Meyer, Dr. Payton and Mrs. White, accrued benefits due them which presently have
a total value of $1,331,000 in the aggregate.
Non-employee directors may participate in a group life insurance plan that has
been established for their benefit. The plan provides $100,000 of
non-contributory group life insurance to participating non-employee directors
during their service on the Board.
The non-employee directors are covered under a non-contributory group accidental
death and dismemberment program which provides each of them $750,000 of coverage
during their service on the Board. Additional benefits also may be purchased.
Restricted Stock Plan for Non-Employee Directors
The Board of Directors has adopted the 1996 Restricted Stock Plan for the
Non-Employee Directors (the "1996 Non-Employee Directors Plan"). The 1996
Non-Employee Directors Plan was designed to further the Corporation's objectives
of attracting and retaining individuals of ability as directors and providing
the directors with a closer identity with the interests of the ITT shareholders.
Directors of the Corporation who are not employees of the Corporation or any of
its subsidiaries automatically participate in the 1996 Non-Employee Directors
Plan. There are presently nine directors who are eligible to participate in the
1996 Non-Employee Directors Plan. The plan is administered by the Compensation
and Personnel Committee of the Board of Directors. The Committee has the
responsibility of interpreting the plan and establishing the rules appropriate
for the administration of the plan.
Under the 1996 Non-Employee Directors Plan, grants of restricted stock will be
made automatically on the date of each Annual Meeting of Shareholders to each
non-employee director elected at the meeting or continuing in office following
the meeting. The amount of the award shall equal (and be in lieu of) the annual
retainer in effect for the calendar year within which the award date falls,
divided by the fair market value of ITT Common Stock. "Annual retainer" is
defined as the amount payable to a director for service on the Board during the
calendar year and does not include meeting attendance fees. The annual retainer
is presently set at $48,000. "Fair market value" is defined as the average of
the high and low sales price per share of ITT Common Stock on the date of the
Annual Meeting, as reported on the New York Stock Exchange Composite Tape. A
total of 120,000 shares are reserved for issuance under the 1996 Non-Employee
Directors Plan. The shares to be issued may be treasury shares or newly issued
shares of ITT Common Stock. The shares of ITT Common Stock that are granted
under the 1996 Non-Employee Directors Plan will be held in escrow by the
Corporation during the restriction period. The restriction period shall commence
on the grant date and end on the earliest of (i) the fifth anniversary of the
grant date, (ii) upon retirement at age 72, (iii) upon a "change of control" (as
defined) of the Corporation, (iv) death, (v) the onset of disability or (vi)
resignation in certain cases of ill health, relocation or entering into any
governmental, diplomatic or other service or employment. Except as provided
above, any resignation from the Board within the restriction period will result
in forfeiture of the shares. Shares may not be sold, assigned, transferred,
pledged or otherwise disposed of during the restriction period. Until such risk
of forfeiture lapses or the shares are forfeited, a director will have the right
to vote and to receive dividends on the shares granted under the 1996
Non-Employee Directors Plan.
1
<PAGE>
The Board of Directors may amend, suspend or discontinue the 1996 Non-Employee
Directors Plan at any time except that the Board may not, without shareholder
approval, take any action which would cause the 1996 Non-Employee Directors Plan
to no longer comply with Rule 16b-3 under the Securities Exchange Act of 1934.
No amendment, suspension or discontinuance of the 1996 Non-Employee Directors
Plan will impair a director's right under a restricted stock award previously
granted without his or her consent.
The 1996 Non-Employee Directors Plan became effective as of December 19, 1995
and will terminate on December 31, 2005, provided that grants of Restricted
Stock made prior to the termination of the plan may vest following such
termination in accordance with their terms.
2
<PAGE>
The Compensation Program
General. The compensation program for ITT executives presently consists of base
salary, annual incentive bonus, long-term incentives and employee benefits. It
is the intent of the Committee that incentives based upon long-term performance
should be the major compensation component for senior executives.
Base Salary. Salaries are set and administered to reflect the value of the job
in the marketplace and individual contribution and performance. Based on a major
survey of competitive practices, ITT executive salaries are approximately 10%
above the average going rate of competitor companies. Salaries provide a
necessary element of stability in the total pay program and, as such, are not
subject to significant variability. Salary increases are based primarily on
merit. During 1995, ITT executive salaries were evaluated in relation to a
competitive annualized merit increase guideline of 4% for expected levels of
individual performance. Actual increases can vary from the guideline depending
primarily on individual performance. The normal interval between salary reviews
for senior executives is 18 months.
The Committee authorized a salary increase for Mr. Araskog effective January 1,
1995 of $375,000, bringing his current annual salary to $2,000,000. This merit
increase, which followed a 12-month interval since his last salary review, was
equivalent to 23% on an annualized basis and was based on the Committee's
evaluation of his performance.
Among the other named officers, Mr. Bowman's salary was raised to $700,000
effective August 1, 1995, an increase of $200,000 after 12 months. Mr. Weadock's
annual salary was increased from $500,000 to $525,000 on May 1, 1995 after an
interval of 18 months. Mr. Boynton's annual salary was increased from $465,000
to $650,000 during 1995 to reflect his promotion from President of Caesars
Atlantic City casino to his current position as President and Chief Executive
Officer of Caesars World, Inc. Mr. Ward's annual salary was increased from
$400,000 to $425,000 on December 1, 1995 after an interval of 18 months.
Annual Incentive Bonus. Under the ITT Annual Incentive Bonus Plan applicable to
both ITT and Old ITT, the amounts of annual bonus awards are based upon
corporate financial performance for the year compared to annual performance
goals established by the Committee at the beginning of the year. For 1995, such
performance goals for Old ITT were earnings per share compared to budget,
earnings per share compared to the prior year and return on equity compared to
budget. These measures were weighted 40%, 40% and 20%, respectively. The
weighted average performance factor under the formula was calculated at 106%.
Under a leveraged performance/payout schedule, the performance factor generated
a standard bonus adjustment factor of 116.5%. The calculated bonus amounts for
1995 performance by Messrs. Araskog, Bowman and Ward are shown in the Summary
Compensation Table following this report and were determined strictly in
accordance with the above described formula and standard bonus adjustment
factor. The bonus factor for Mr. Weadock reflects the performance measurement
formula applicable to ITT Sheraton Corporation; the bonus amount for Mr. Boynton
reflects the performance measurement formula applicable to Caesars World, Inc.
The bonus amounts paid to Messrs. Araskog, Bowman, Weadock, Boynton and Ward
were reviewed and approved by the Committee prior to payment.
Stock Option Awards. Stock option awards provide long-term incentives which are
directly related to the performance of ITT Common Stock. Options generally have
a 10-year term and closely align the executive's interests with those of other
shareholders. Outstanding stock options in respect of common stock of Old ITT
were adjusted to reflect the effects of the Distribution on December 19, 1995.
Holders of Old ITT stock options surrendered their outstanding options in
exchange for substitute options to purchase ITT Common Stock. Pursuant to the
formulas intended to preserve the economic value of the options to purchase the
common stock of Old ITT, the substitute stock options' exercise prices were
fixed at approximately 41.9% of the Old ITT option exercise prices and the
number of shares subject to options were increased by a factor of approximately
238.9% of the Old ITT shares. The stock option award tables included in this
Proxy Statement reflect the above adjustments.
On May 9, 1995 options to purchase an aggregate of 474,500 shares of the common
stock of Old ITT were granted to 12 executive officers of ITT at the exercise
price of $108.75 per share (the closing price of a share of common stock of Old
ITT on the New York Stock Exchange on the grant date). The stock options granted
to senior executives, including the named officers, were subject to an
exercisability threshold. The options became exercisable on March 5, 1996, when
the closing price of ITT Common Stock (as adjusted to give effect to the
Distribution) remained at or above 125% of the grant price for ten consecutive
trading days. Further details on the option grants for the named executive
officers during 1995, and the effect of the Distribution on such options, are
shown in the table of Stock Option Grants in 1995 on page 22 herein.
The Committee awarded Mr. Araskog options to purchase 180,000 shares during 1995
(429,971 when adjusted to give effect to the Distribution). This award (and the
option award for Mr. Bowman) was above the 90th percentile of competitive
practice based on a Towers Perrin survey of long-term incentives among large
public companies which measures grant size in terms of the aggregate exercise
price of the options (number of shares multiplied by the option exercise price)
expressed as a multiple of base salary. The Committee elected to make the awards
at this level of competitive practice to provide significant incentive for
management to continue its strategy for building shareholder value.
Long-Term Performance Plan Payments. In anticipation of the Distribution,
effective October 10, 1995, the Board of Directors of Old
3
<PAGE>
ITT amended the Long-Term Performance Plan (the "LTPP") of Old ITT to permit the
Committee, in its sole discretion, to increase or decrease payments under the
plan based upon events or circumstances that have a material impact on the
overall performance of the Corporation. The effect of the amendment was to
permit the Committee to authorize payments that were greater than what would
have been permitted under the original plan formula. With respect to Messrs.
Araskog, Bowman and Ward, the Committee authorized payments greater than what
would have been permitted under the original plan formula in recognition of
their roles in effecting the Distribution. Mr. Weadock's payment was based on
the original performance formula applicable to ITT's information services
business. Mr. Boynton did not participate in the plan. The Committee authorized
payments which aggregated $6,174,900 for 10 participating executive officers of
ITT. The authorized LTPP payments as a percentage of the original target awards
for Messrs. Araskog, Bowman, Weadock and Ward were 75%, 75%, 200% and 75%,
respectively. The actual payments for the named officers are shown in the
Summary Compensation Table following this report under the heading "Long-Term
Incentive Plan Payouts."
Restricted Stock Awards. On May 9, 1995, the Committee awarded shares of
restricted stock to five executive officers. An aggregate of 47,500 restricted
shares were issued, including 25,000, 10,000 and 2,500 shares of ITT Common
Stock for Messrs. Araskog, Bowman and Ward, respectively. Mr. Araskog's shares
will remain restricted until January 1, 2001; Messrs. Bowman and Ward's shares
will remain restricted until May 9, 2000.
The restricted stock awards in 1995 were adjusted to give effect to the
Distribution. In order to preserve the intended benefits to both ITT and the
recipients of such awards, holders of the restricted stock exchanged their
restricted stock in Old ITT for restricted stock of ITT. In order to preserve
the value of such restricted stock, each share of restricted stock in Old ITT
was exchanged for approximately 2.39 shares of restricted stock in ITT.
Employee Benefits. Executives also participate in ITT's broad-based employee
benefits program which includes a pension program, an investment and savings
plan, group medical and dental coverage, group life insurance and other benefit
plans. Further details on the pension plans in which Messrs. Araskog, Bowman,
Weadock, Boynton and Ward participate are provided on pages 25 through 27.
In 1995, the Board adopted the 1996 ITT Deferred Compensation Plan. Under this
plan, executives with a base salary of $200,000 or more may elect to defer
receipt of all or a portion of their 1995 bonus. ITT will credit interest on the
deferred compensation based upon the performance of benchmark investment funds
made available under the plan and selected by the executive.
4
<PAGE>
Compensation of ITT Executive Officers
The following table discloses the compensation received by ITT's Chief Executive
and the four other most highly paid executive officers for services rendered to
ITT (including compensation received from Old ITT prior to the Distribution) for
the three fiscal years ending December 31.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
------------------------------------
Annual Compensation Awards Payouts
------------------------------- ------------------------ ---------
Other All
Annual Securities Long-Term Other
Compen- Restricted Underlying Incentive Compen-
Name and Principal sation(2) Stock Options Plan sation
Position Year Salary($) Bonus($) ($) Awards(3)($) (4)(#) Payouts(3) (6)($)
- ---------------------- ---- --------- -------- ----- ------------ -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rand V. Araskog
Chairman and Chief 1995 2,000,000 2,330,800 251,063 2,718,750 429,971 2,625,000 449,962
Executive 1994 1,625,000 2,405,000 219,457 -- 429,971 -- 58,656
1993 1,525,000 2,584,900 185,793 -- 391,675 -- 54,346
Robert A. Bowman
President and Chief 1995 583,333 611,800 44,942 1,087,500 143,324 900,000 37,380
Operating Officer 1994 456,250 471,750 25,534 -- 143,324 -- 13,844
1993 416,667 540,300 368,537 -- 156,669 -- 11,388
Daniel P. Weadock
Senior Vice President of 1995 516,667 398,800 433,646 -- 59,718 1,280,000 44,321
ITT; President and Chief 1994 500,000 385,000 13,408 -- 83,605 -- 17,500
Executive Officer of ITT 1993 462,689 278,000 24,468 -- 91,390 -- 16,194
Sheraton Corporation
Peter G. Boynton(1)
Senior Vice President of 1995 578,117 299,776 105,288 -- 59,718 -- 14,500
ITT; President and Chief 1994 -- -- -- -- -- -- --
Executive Officer of 1993 -- -- -- -- -- -- --
Caesars World, Inc.
Richard S. Ward
Executive Vice 1995 401,667 269,200 35,103 271,875 83,605 225,000 44,545
President, 1994 358,750 336,874 22,544 -- 83,605 -- 14,338
General Counsel and 1993 285,833 200,000 30,953 -- 65,279 -- 10,976
Corporate Secretary
</TABLE>
(1) Mr. Boynton became an executive officer of ITT following the January 1995
acquisition of Caesars World, Inc. As a result, the 1994 and 1993
compensation paid to Mr. Boynton by Caesars World, Inc. has not been
included.
(2) Amounts shown in this column are tax reimbursement allowances, which are
intended to offset the inclusion in taxable income of the value of certain
benefits, except that: (a) the amounts shown for Mr. Araskog also include
$92,224, $128,873 and $99,929 in 1995, 1994 and 1993, respectively, for
personal benefits including tax and financial counseling and transportation
services, (b) the amount shown for Mr. Bowman in 1993 also includes
$205,373 in relocation allowance, (c) the amount shown for Mr. Weadock in
1995 also includes $426,597 in relocation allowance, (d) the amount shown
for Mr. Boynton in 1995 also includes $41,074 in relocation allowance and
$32,999 in automobile allowance and (e) the amount shown for Mr. Ward in
1993 also includes $11,167 in relocation allowance.
(3) On May 9, 1995, Messrs. Araskog, Bowman and Ward were granted 25,000,
10,000 and 2,500 restricted shares, respectively, of common stock of Old
ITT when the market value was $108.75 per share. In connection with the
Distribution, holders of restricted stock of Old ITT surrendered such
restricted stock in exchange for restricted stock in ITT. In order to
preserve the economic value of the surrendered restricted stock, each share
of restricted stock in Old ITT was exchanged for approximately
5
<PAGE>
2.39 shares of restricted stock in ITT.
Neither Mr. Araskog, Mr. Bowman nor Mr. Ward hold any other shares of
restricted stock in ITT. The shares of restricted stock awarded to Mr.
Araskog are scheduled to vest on January 1, 2001. The shares of restricted
stock awarded to Messrs. Bowman and Ward are scheduled to vest on May 9,
2000, the fifth anniversary of the date of grant. Shares of restricted
stock are entitled to participate in any dividends paid with respect to ITT
Common Stock. Based on the NYSE consolidated trading closing price of ITT
Common Stock on December 29, 1995 of $53.00, the value of substitute
restricted stock awards for Messrs. Araskog, Bowman and Ward was
$3,165,054, $1,266,011 and $316,516, respectively.
(4) The named executives do not hold any stock appreciation rights in
connection with the options shown above. The numbers have been adjusted to
give effect to the Distribution. As a result, the numbers for the years
1994 and 1993 assume that, in each case, the Distribution was consummated
prior to the end of such year. In connection with the Distribution, Mr.
Araskog, Mr. Bowman, Mr. Weadock, Mr. Boynton and Mr. Ward each surrendered
their options to purchase the common stock of Old ITT. In exchange for the
surrender of such options, ITT granted such executives substitute options
to purchase ITT Common Stock. Pursuant to formulas intended to preserve the
economic value of the options, the substitute options' exercise prices were
fixed at approximately 41.9% of the Old ITT options exercise prices and the
numbers of shares subject to options were increased by a factor of
approximately 238.9% of the Old ITT shares.
(5) Payouts represent amounts earned under the Long-Term Performance Plan
established by Old ITT for the period 1991 through 1995. On October 10,
1995 the Board amended the Long-Term Performance Plan to permit the
Compensation and Personnel Committee, in its sole discretion, to increase
or decrease payments under such plan based upon events or circumstances
that have a material impact on the overall performance of the Corporation.
The effect of the amendment was to permit the Committee to authorize
payments that in certain cases were greater than what would have been
permitted under the original plan formula. With respect to Messrs. Araskog,
Bowman and Ward, the Committee authorized payments approximately 60%
greater than what would have been permitted under the original plan formula
in recognition of their roles in managing the Distribution. Mr. Weadock's
payment was based on the original performance formula applicable to ITT's
information services business. Mr. Boynton did not participate in the plan.
(6) In the case of Messrs. Araskog, Bowman, Weadock and Ward, the amounts shown
in this column are contributions by the Corporation under the ITT
Investment and Savings Plan and the ITT Excess Savings Plan, which are
defined contribution plans. Under such plans, the Corporation makes a
matching contribution in an amount equal to 50% of an employee's
contribution, such matching contribution not to exceed three percent (3%)
of such employee's salary. Under these plans, the Corporation also makes a
non-matching contribution equal to one-half of one percent (1/2 of 1%) of
an employee's salary. In 1995, the Employee Stock Ownership Plan (the
"ESOP") of Old ITT was terminated and unallocated shares remaining after
the related ESOP loan was repaid were distributed among all participants.
Except in the case of Mr. Boynton, the amounts shown for 1995 also include
an allocation of certain amounts as a result of the termination of the
ESOP.
In the case of Mr. Boynton, $4,500 of the amount shown in this column is a
contribution by Caesars World, Inc. ("Caesars") under the Caesars' 401(k)
Retirement Savings Plan. Such plan provides for Caesars to contribute one
percent (1%) of certain compensation of all participants into the plan and
for participants to voluntarily contribute up to twelve (12%) of certain
compensation into the plan, subject to tax law restrictions. For every
dollar a participant in the Caesars plan contributes from the first four
percent (4%) of compensation, Caesars will contribute fifty percent (50%)
of such amount. The annual compensation of each employee taken into account
under the plan year cannot exceed $150,000. In the case of Mr. Boynton,
$10,000 of the amount shown in this column is an honorarium paid upon his
election in July 1995 as a senior vice president of the Corporation.
In the case of Mr. Araskog, the amount also includes $354,156 paid by the
Corporation for premiums on a split-dollar life insurance policy maintained
jointly for Mr. and Mrs. Araskog. The Corporation is entitled to be
reimbursed for its payments with respect to such policy upon the earlier to
occur of: (i) the death of Mr. Araskog or Mrs. Araskog, whichever occurs
later, and (ii) the date on which the cash surrender value of the policy is
sufficient to repay amounts paid by ITT and continue to sustain the policy
until the year 2035, which is expected to occur at the end of the year
2008.
6
<PAGE>
Option Grants on ITT Common Stock to ITT
Executives in Last Fiscal Year
The following table provides information on fiscal year 1995 grants of options
to the named ITT executives to purchase shares of common stock of Old ITT. The
stock options granted to each of the ITT executives listed below were issued in
1995. In connection with the Distribution, Mr. Araskog, Mr. Bowman, Mr. Weadock,
Mr. Boynton and Mr. Ward each surrendered their options to purchase the common
stock of Old ITT. In exchange for the surrender of such options, ITT granted
such executives substitute options to purchase ITT Common Stock. Pursuant to
formulas intended to preserve the economic value of the options to purchase the
common stock of Old ITT, the substitute options' exercise prices were fixed at
approximately 41.9% of the Old ITT options exercise prices and the numbers of
shares subject to options were increased by a factor of approximately 238.9% of
the Old ITT shares. The numbers of shares subject to options and the exercise
prices for such options set forth below have been adjusted to reflect the
issuance of substitute options to purchase ITT Common Stock.
<TABLE>
<CAPTION>
Stock Option Grants in 1995 Potential Realizable Value
--------------------------- at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term
Options Employees Exercise --------------------------
Granted(1) in Price(3) Expiration 5% 10%
Name (#) 1995(2) ($/Share) Date ($) ($)
- ---- --- ------- --------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Rand V. Araskog 429,971 8.4 45.53 5/11/2005 12,310,070 31,198,696
Robert A. Bowman 143,324 2.8 45.53 5/11/2005 4,103,366 10,399,589
Daniel P. Weadock 59,718 1.2 45.53 5/11/2005 1,709,726 4,333,138
Peter G. Boynton 59,718 1.2 45.53 5/11/2005 1,709,726 4,333,138
Richard S. Ward 83,605 1.6 45.53 5/11/2005 2,393,611 6,066,379
</TABLE>
(1) The numbers in this column represent options to purchase ITT Common Stock.
(2) Percentages indicated are based on the original number of options granted
in 1995 compared to a total of 2,148,100 options on the common stock of Old
ITT granted to 795 employees in 1995.
(3) The exercise price per share was $108.75, 100% of the fair market value of
a share of common stock of Old ITT on the date of grant (as described
above, such exercise price has been adjusted to $45.53 to give effect to
the Distribution). The exercise price may be paid in cash or in shares of
ITT Common Stock valued at their fair market value on the date of exercise.
The options granted were not exercisable until March 5, 1996, the date on
which the trading price of ITT Common Stock equaled or exceeded $56.91 per
share (as adjusted) for ten consecutive trading days.
7
<PAGE>
Aggregated Option Exercises in the Last Fiscal
Year and Fiscal Year End Option Value
The following table provides information on option exercises in 1995 by the
named executives of ITT and the value of each such executive's unexercised
options to acquire ITT Common Stock at December 29, 1995.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Uexercised,
Shares Underlying Unexercised In-the-Money
Acquired Value Options at Options Held at
Name on Exercise Realized Fiscal Year-End(#)(1) Fiscal Year-End($)(2)
Unexercisable (#) ($) Exercisable Unexercisable Exercisable
- ------------- --- --- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rand V. Araskog -- -- 821,646 429,971 14,626,448 3,211,883
Robert A. Bowman -- -- 369,625 152,028 7,780,111 1,289,884
Daniel P. Weadock -- -- 262,468 59,718 6,096,121 446,093
Peter G. Boynton -- -- -- 59,718 -- 446,093
Richard S. Ward -- -- 178,390 83,605 3,638,251 624,529
</TABLE>
(1) In connection with the Distribution, Mr. Araskog, Mr. Bowman, Mr. Weadock,
Mr. Boynton and Mr. Ward each surrendered their options to purchase the
common stock of Old ITT. In exchange for the surrender of such options, ITT
granted such executives substitute options to purchase ITT Common Stock.
Pursuant to formulas intended to preserve the economic value of the options
to purchase the common stock of Old ITT, the substitute options' exercise
prices were fixed at approximately 41.9% of the Old ITT options exercise
prices and the numbers of shares subject to options were increased by a
factor of approximately 238.9% of the Old ITT shares. The number of shares
subject to options and the exercise prices for such options shown in the
above table reflect such substitute options.
(2) Based on the NYSE consolidated trading closing price of ITT Common Stock on
December 29, 1995 of $53.00.
Severance Pay Plan
The Compensation and Personnel Committee of the Board has adopted a policy that
it will not authorize the execution of any executive employment contracts which
would provide for severance payments constituting "parachute payments" as
defined in the Internal Revenue Code of 1986, as amended, unless the
shareholders of the Corporation are afforded the opportunity to approve such
contracts.
A severance pay plan applies to ITT senior executives who are U.S. citizens or
who are employed in the U.S., including all executive officers of ITT other than
Mr. Araskog. Under the plan, if a participant's employment is terminated by ITT,
other than for cause or as a result of other occurrences specified in the plan,
the participant is entitled to severance pay in an amount up to 24 months of
base salary depending upon his or her length of service. In no event shall such
severance pay exceed the amount of base salary for the number of months
remaining between the termination of employment and the participant's normal
retirement date or two times the participant's total annual compensation during
the year immediately preceding such termination. The plan includes offset
provisions for other compensation from ITT and requirements on the part of
executives with respect to non-competition and compliance with the ITT Code of
Corporate Conduct. Under the plan, severance payments would ordinarily be made
monthly over the scheduled term of such payments; however, ITT has the option to
make such payments in the form of a single (discounted) lump sum payment. As of
March 1, 1996, the named executive officers in the Summary Compensation Table on
page 20 participate in this plan, except for Mr. Araskog who is covered by an
employment agreement.
The annual salaries of Messrs. Bowman, Weadock, Boynton and Ward as of March 1,
1996 were $700,000, $525,000, $663,000 and $425,000, respectively.
Employment Contract
The Corporation has entered into an employment contract with Mr. Araskog which
provides for, among other things: (i) a base salary of $2,000,000 per year,
entitlement to receive bonus and additional incentive compensation each year as
may be awarded in the discretion of the Compensation and Personnel Committee of
the Board, participation in ITT's benefit plans (other than pre-retirement and
post-retirement life insurance benefits), contractual disability and death
benefits, his employment as chairman and chief executive of ITT until October
31, 2000 (when he will have reached age 69); (ii) his service as consultant to
his successor as chief executive of ITT from
8
<PAGE>
November 1, 2000 through October 31, 2003 for a fee of not less than $400,000
per year, (iii) his nomination as a director of ITT at each annual meeting of
ITT shareholders commencing with the annual meeting for 2001 and including the
annual meeting to be held in 2003 and, upon election, payment to him of the
usual director's fees for service in such capacity; (iv) the provision of office
space and certain staff and transportation assistance in connection with his
service as a director and consultant subsequent to October 31, 2000; (v) certain
payments in the event that (A) at any time prior to October 31, 2000, Mr.
Araskog is not re-elected as chairman and employed as chief executive, which
payments would be made (I) in monthly installments over the term of the contract
remaining through October 31, 2000 in amounts equal per annum to the salary
received by Mr. Araskog for the calendar year immediately preceding such event
plus a percentage of the average bonus received by Mr. Araskog with respect to
the three calendar years immediately preceding such event and (II) in the form
of a discounted lump sum payment on or about October 31, 2000 equal to the then
present value of the consulting fee and the director's fees referred to above,
and (B) after completion of services through October 31, 2000 in accordance with
the terms of the contract, Mr. Araskog at any time prior to October 31, 2003 is
not nominated as a director of ITT, which payment would be in the form of a
discounted lump sum payment equal to the then present value of the balance
remaining of the consulting fee and the director's fees referred to above; and
(vi) covenants by Mr. Araskog against competition with any business actively
conducted by ITT or any of its subsidiaries and for compliance with the ITT Code
of Corporate Conduct.
Change-in-Control Arrangements
Acceleration of the exercisability, payment or vesting of awards or benefits is
provided for under the ITT 1995 Incentive Stock Plan and the retirement excess
benefit plan upon the occurrence of a change in corporate control, which is
generally defined in such plans as the occurrence of any of the following
events: (i) a report on Schedule 13D shall be filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of
1934 (the "Act") disclosing that any person (within the meaning of Section 13(d)
of the Act), other than ITT or a subsidiary of ITT or any employee benefit plan
sponsored by ITT or a subsidiary of ITT, is the beneficial owner directly or
indirectly of twenty percent or more of the outstanding common stock of ITT;
(ii) any person (within the meaning of Section 13(d) of the Act), other than ITT
or a subsidiary of ITT or any employee benefit plan sponsored by ITT or a
subsidiary of ITT, shall purchase shares pursuant to a tender offer or exchange
offer to acquire any ITT Common Stock (or securities convertible into such
Common Stock) for cash, securities or any other consideration, provided that
after consummation of the offer, the person in question is the beneficial owner
(as such term is defined in Rule 13d-3 under the Act) directly or indirectly of
fifteen percent or more of the outstanding ITT Common Stock (calculated as
provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to
acquire ITT Common Stock); (iii) the stockholders of ITT shall approve (A) any
consolidation or merger of ITT in which ITT is not the continuing or surviving
corporation or pursuant to which shares of ITT Common Stock would be converted
into cash, securities or other property, other than a merger of ITT in which
holders of ITT Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger as immediately before, or (B) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all the assets of ITT; or (iv) there shall have been a change
in a majority of the members of the Board of Directors of ITT within a 12-month
period unless the election or nomination for election by ITT's shareholders of
each new director during such 12-month period was approved by the vote of
two-thirds of the directors then still in office who were directors at the
beginning of such 12-month period.
Pension Plans
General. ITT has adopted the ITT Sheraton Plan as the ITT Salaried Retirement
Plan and extended it to employees formerly covered by the Old ITT Salaried
Retirement Plan. The Plan has been amended to recognize service with companies
affiliated with ITT prior to December 19, 1995 for eligibility, vesting and
benefit accrual purposes and further provides for an offset of any benefit
payable from any ITT retirement plan covering the same period of service. The
Plan has been further amended to recognize service with ITT Industries, Inc. and
ITT Hartford Group, Inc. after December 19, 1995 for eligibility and vesting
purposes. Messrs. Araskog, Bowman, Weadock and Ward participate in the
retirement plans maintained by ITT.
Executives of Caesars World, Inc. ("Caesars") do not participate in the
retirement plans maintained by ITT. Accordingly, Mr. Boynton is covered by the
Caesars Executive Security Plans (collectively, the "Caesars Pension Plan").
ITT Retirement Plan. The ITT Salaried Retirement Plan covers all eligible
salaried employees of ITT, including senior executive officers and other ITT
executives.
A member's annual pension equals two percent of the member's average final
compensation for each of the first 25 years of benefit service, plus one and
one-half percent of a member's average final compensation for each of the next
15 years of benefit service, reduced by one and one-quarter percent of the
member's primary Social Security benefit for each year of benefit service to a
maximum of 40 years; provided that no more than one-half of the member's primary
Social Security benefit is used for such reduction. A member's average final
compensation (including salary plus approved bonus payments) will be defined
under the Plan as the total of (i) a member's average annual base salary for the
five calendar years of the last 120 consecutive calendar months of eligibility
service affording the highest such average plus (ii) a member's average annual
compensation not including base salary for the five calendar years of the
member's last 120 consecutive calendar months of eligibility service affording
the highest such average. The Plan also provides for undiscounted early
retirement
9
<PAGE>
pensions for members who retire at or after age 60 following completion of 15
years of eligibility service. A member is vested in benefits accrued under the
Plan upon completion of five years of eligibility service.
Applicable Federal legislation limits the amount of benefits that can be paid
and compensation which may be recognized under a tax-qualified retirement plan.
ITT has adopted a non-qualified unfunded retirement plan (the "ITT Excess
Pension Plan") for payment of those benefits at retirement that cannot be paid
from the qualified retirement plan. The practical effect of the ITT Excess
Pension Plan is to continue calculation of retirement benefits to all employees
on a uniform basis. Benefits under the ITT Excess Pension Plan will generally be
paid directly by ITT. ITT has also created an excess plan trust under which
excess benefits under the ITT Excess Pension Plan for certain officers of ITT
will be funded. Any such employee may indicate a preference, subject to certain
conditions, to receive any excess benefit in the form of a single discounted
lump sum payment. Any "excess" benefit accrued to any such employee will be
immediately payable in the form of a single discounted lump sum payment upon the
occurrence of a change in corporate control (as defined in the ITT Excess
Pension Plan).
Based on various assumptions as to remuneration and years of service, before
Social Security reductions, the following table illustrates the estimated annual
benefits payable from the Retirement Program at retirement at age 65 that are
paid for by ITT, subject to the offsets described above.
10
<PAGE>
ITT Pension Plan Table
<TABLE>
<CAPTION>
Average Years of Service
Final ----------------
Compensation 20 25 30 35 40
------------ -- -- -- -- --
<C> <C> <C> <C> <C> <C>
$ 50,000 $ 20,000 $ 25,000 $ 28,750 $ 32,500 $ 36,250
100,000 40,000 50,000 57,500 65,000 72,500
300,000 120,000 150,000 172,500 195,000 217,500
500,000 200,000 250,000 287,500 325,000 362,500
750,000 300,000 375,000 431,250 487,500 543,750
1,000,000 400,000 500,000 575,000 650,000 725,000
1,500,000 600,000 750,000 862,500 975,000 1,087,500
2,000,000 800,000 1,000,000 1,150,000 1,300,000 1,450,000
2,500,000 1,000,000 1,250,000 1,437,500 1,625,000 1,812,500
3,000,000 1,200,000 1,500,000 1,725,000 1,950,000 2,175,000
3,500,000 1,400,000 1,750,000 2,012,500 2,275,000 2,537,500
4,000,000 1,600,000 2,000,000 2,300,000 2,600,000 2,900,000
5,000,000 2,000,000 2,500,000 2,875,000 3,250,000 3,625,000
</TABLE>
The amounts shown under "Salary" and "Bonus" opposite the names of the
individuals in the Summary Compensation Table on page 20 comprise the
compensation which is used for purposes of determining "average final
compensation" under the plan. The years of service of each of the individuals
for eligibility and benefit purposes as of December 31, 1995 are as follows:
Rand V. Araskog, 29.09 years; Robert A. Bowman, 4.73 years; Daniel P. Weadock,
34.46 years; and Richard S. Ward, 26.44 years.
The Caesars Pension Plan. The Caesars Pension Plan provides for annual pension
benefits for individuals retiring at age 65 payable in the form of a straight
life annuity for various levels of compensation and years of service. Under the
Caesars Pension Plan, benefits may also be payable as a lump sum, subject to
Committee approval and other specified conditions. The Caesars Pension Plan is a
defined benefit pension plan which is not a tax qualified plan and covers all
full time salaried officers and selected other key executives. Benefits under
the Caesars Pension Plan accrue at the rate of two percent of average annual
salary for each year of credited service with a one-time additional 5% accrual
after completion of ten years of credited service. Benefits vest after five
years of credited service. Under certain circumstances, benefits may be
forfeited concurrent with or following termination of employment.
Based upon various assumptions as to remuneration and years of service, the
following table illustrates the estimated annual benefits payable from the
Caesars Pension Plan at retirement at age 65. The amounts shown in the table are
not subject to reduction for Social Security benefits or other offset amounts
and are based upon the assumption that the Caesars Pension Plan continues in its
present form.
Caesars Pension Plan Table
<TABLE>
<CAPTION>
Five Year Years of Service
Average ----------------
Salary 15 20 25 30 35
------ -- -- -- -- --
<C> <C> <C> <C> <C> <C>
$ 125,000 $ 43,750 $ 56,250 $ 68,750 $ 81,250 $ 81,250
150,000 52,500 67,500 82,500 97,500 97,500
175,000 61,200 78,750 96,250 113,750 113,750
200,000 70,000 90,000 110,000 130,000 130,000
225,000 78,750 101,250 123,750 146,250 146,250
250,000 87,500 112,500 137,500 162,500 162,500
300,000 105,000 135,000 165,000 195,000 195,000
400,000 140,000 180,000 220,000 260,000 260,000
500,000 175,000 225,000 275,000 325,000 325,000
600,000 210,000 270,000 330,000 390,000 390,000
800,000 280,000 360,000 440,000 520,000 520,000
1,000,000 350,000 450,000 550,000 650,000 650,000
1,200,000 420,000 540,000 660,000 780,000 780,000
</TABLE>
The remuneration covered by the Caesars Pension Plan is the average of the
participant's highest five years of salary earned during his last ten years of
employment with Caesars. The amount shown under "Salary" opposite the name of
Mr. Boynton in the Summary Compensation Table on page 20 will be used for
determining "average annual salary" under the plan. As of December 31, 1995,
11
<PAGE>
Mr. Boynton had 19.67 years of credited service under the Caesars Pension Plan.
12
<PAGE>
Security Ownership of Certain Beneficial Owners,
Directors, Nominees and Executive Officers
The following table shows as of December 31, 1995 the beneficial ownership of
persons known to the Corporation to be the beneficial owners of more than five
percent of ITT Common Stock.
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
- ----- --------- --------
AXA Assurances I.A.R.D. Mutuelle
La Grande Arche
Pardi Nord
92044 Paris La Defense France 14,297,145 shares(1) 12.2%
Bankers Trust New York Corporation
280 Park Avenue
New York, New York 10017 10,457,610 shares(2) 8.9%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 6,098,102 shares(3) 5.23%
(1) A January 9, 1996 Schedule 13G provided to ITT reflects that subsidiaries
of AXA Assurances I.A.R.D. Mutuelle ("AXA") own 14,297,145 shares of ITT
Common Stock. Of the reported shares, The Equitable Life Assurance Society
of the United States, an indirect subsidiary of AXA ("Equitable"), owns
1,130,800 shares. Of these shares, Equitable is deemed to have (i) sole
power to vote or to direct the vote with respect to 1,005,800 shares, (ii)
shared power to vote or to direct the vote with respect to 125,000 shares
and (iii) sole power to dispose or to direct the disposition of 1,130,800
shares. Alliance Capital Management L.P., an indirect subsidiary of AXA
("Alliance"), owns 13,021,335 shares which have been acquired on behalf of
client discretionary investment advisory accounts. Of these shares,
Alliance is deemed to have (i) sole power to vote or to direct the vote
with respect to 10,513,620 shares, (ii) shared power to vote or to direct
the vote with respect to 187,000 shares and (iii) sole power to dispose or
to direct the disposition of 13,021,335 shares. Donaldson, Lufkin &
Jenrette Securities Corporation, an indirect subsidiary of AXA, owns 6,485
shares and is deemed to have shared power to dispose or to the direct the
disposition of such shares. In addition, Wood, Struthers & Winthrop
Management Corporation, an indirect subsidiary of AXA ("Wood Struthers"),
owns 138,525 shares which have been acquired on behalf of client
discretionary investment advisory accounts. Of these shares, Wood Struthers
is deemed to have (i) sole power to vote or to direct the vote with respect
to 54,560 shares, (ii) shared power to vote or to direct the vote with
respect to 68,190 shares and (iii)_ sole power to dispose or to direct the
disposition of 138,525 shares.
(2) A Schedule 13G provided to ITT reflects that Bankers Trust New York
Corporation, through its wholly-owned subsidiaries Bankers Trust Company
(as Trustee for various trusts and employee benefit plans, and as
investment advisor) and BT Securities Corporation, and its indirectly
wholly-owned subsidiary Bankers Trust International PLC, beneficially owns
10,457,610 shares of ITT Common Stock. Of these shares, Bankers Trust
Company is deemed to have (i) sole power to vote or to direct the vote with
respect to 10,312,710 shares, (ii) shared power to vote or to direct the
vote with respect to 1,500 shares, (iii) sole power to dispose or to direct
the disposition of 2,024,028 shares and (iv) shared power to dispose or to
direct the disposition of 6,205 shares. BT Securities Corporation is deemed
to have (i) sole power to vote or to direct the vote with respect to 30,000
shares and (ii) sole power to dispose or to direct the disposition of such
30,000 shares. Bankers Trust International PLC is deemed to have (i) sole
power to vote or to direct the vote with respect to 113,400 shares and (ii)
sole power to dispose or to direct the disposition of such 113,400 shares.
Bankers Trust Company was the record owner of 859,709 shares of ITT Common
Stock as Trustee of ITT's various employee stock ownership plans with
respect to which it disclaims beneficial ownership.
(3) A February 14, 1996 Schedule 13G provided to ITT reflects that FMR Corp.
("FMR") beneficially owns 6,098,102 shares of ITT Common Stock. Of such
reported shares, Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR and an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, is the beneficial owner
of 5,808,659 shares as a result of acting as investment adviser to several
investment companies registered under Section 8 of the Investment Company
Act of 1940, and as a result of acting as sub-adviser to Fidelity American
Special Situations Trust ("FASST"). The investment adviser of FASST is
Fidelity Investment Services Limited, an English company and a subsidiary
of Fidelity International Limited ("FIL"). Edward C. Johnson 3d, the
Chairman of FMR, FMR, through its control of Fidelity, and the Fidelity
Funds each has sole power to dispose of the 5,804,659 shares of ITT Common
Stock owned by the Fidelity Funds. FIL, FMR, through its control of
Fidelity, and FASST each has sole power to vote and to dispose of the 4,000
shares of
13
<PAGE>
ITT Common Stock held by FASST. Fidelity Management Trust Company ("FMTC"), a
wholly-owned subsidiary of FMR, and a bank as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934, is the beneficial owner of 275,043 shares of
ITT Common Stock as a result of its serving as investment manager of
institutional accounts. Edward C. Johnson 3d and FMR, through its control of
FMTC, has sole dispositive power over 275,043 shares and sole power to vote or
to direct the voting of 198,243 shares, and no power to vote or to direct the
voting of 76,800 shares of ITT Common Stock owned by certain institutional
accounts. The number of shares of ITT Common Stock reported includes 3,400
shares owned directly by Edward C. Johnson 3d or in trusts for the benefit of
Edward C. Johnson 3d or an Edward C. Johnson 3d family member for which Edward
C. Johnson 3d serves as trustee and over which he has sole voting and
dispositive power. FIL and various foreign-based subsidiaries provide investment
advisory and management services to a number of non-U.S. investment companies
and certain institutional investors. FIL is the beneficial owner of 15,000
shares of ITT Common Stock, which includes 4,000 shares of ITT Common Stock
owned by FASST.
The following table shows as of January 31, 1996 the beneficial ownership of
shares of ITT Common Stock by each director and nominee, by each of the
executive officers named in the Summary Compensation Table on page 20, and by
the directors and executive officers as a group.
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Owner Ownership(1) of Class
- ----- ------------ --------
Bette B. Anderson 2,000 shares(2) *
Rand V. Araskog 1,737,851 shares 1.5%
Nolan D. Archibald 8,350 shares(3) *
Robert A. Bowman 546,531 shares *
Robert A. Burnett 1,170 shares *
Paul G. Kirk, Jr. 1,010 shares *
Edward C. Meyer 2,500 shares *
Benjamin F. Payton 492 shares *
Vin Weber no shares(4) *
Margita E. White 2,000 shares *
Kendrick R. Wilson III no shares(5) *
Daniel P. Weadock 369,897 shares *
Peter G. Boynton 59,718 shares(6) *
Richard S. Ward 289,455 shares *
All directors and executive officers
as a group (22) 4,465,739 shares 3.8%
* Less than one percent.
(1) All shares are owned directly except as hereinafter otherwise indicated.
Pursuant to regulations of the Securities and Exchange Commission, shares
(i) receivable by directors and executive officers upon exercise of
employee stock options exercisable within 60 days after January 31, 1996,
and (ii) allocated to the accounts of certain directors and executive
officers under the ITT Investment and Savings Plan at January 31, 1996, are
deemed to be beneficially owned by such directors and executive officers at
said date. Of the number of shares shown above, (i) the following represent
shares that may be acquired upon exercise of employee stock options for the
accounts of: Mr. Araskog, 1,251,617 common shares; Mr. Bowman, 521,653
common shares; Mr. Weadock, 322,186 common shares; Mr. Boynton, 59,718
common shares; Mr. Ward, 261,995 common shares; and all present directors
and executive officers as a group, 3,775,342 common shares; and (ii) the
following amounts were allocated under the ITT Investment and Savings Plan
to the accounts of: Mr. Araskog, 19,708 common shares; Mr. Bowman, 950
common shares; Mr. Weadock, 26,632 common shares; Mr. Ward, 8,784 common
shares; and all present directors and executive officers as a group, 72,085
common shares.
(2) An additional 83 shares of ITT Common Stock are owned by Mrs. Anderson's
husband. Mrs. Anderson disclaims beneficial ownership in such shares.
(3) Mr. Archibald sold 7,000 shares of ITT Common Stock on February 8, 1996.
(4) Mr. Weber purchased 100 shares of ITT Common Stock on February 22, 1996.
(5) Mr. Wilson purchased 2,000 shares of ITT Common Stock on February 21, 1996.
14
<PAGE>
(6) Mr. Boynton purchased 1,000 shares of ITT Common Stock on March 11, 1996.
15
<PAGE>
Appendix I
ITT Corporation Annual
Performance-Based
Incentive Plan For Executive Officers
The following is the text of the ITT Corporation Annual Performance-Based
Incentive Plan for Executive Officers:
1. Purpose
This Annual Performance-Based Incentive Plan (the "Performance Plan") is
designed to reward executive officers of ITT Corporation and its subsidiaries
(the "Corporation") for achieving performance objectives. The Performance Plan
is intended to provide an incentive for superior performance and to motivate
participating officers toward even higher achievement and business results, to
tie their goals and interests to those of the Corporation and its shareholders,
and to enable the Corporation to attract and retain highly qualified executive
officers. The Performance Plan is also intended to secure the full deductibility
of bonus compensation payable to the Corporation's Chief Executive Officer and
the four highest compensated executive officers (collectively the "Covered
Employees") whose compensation is required to be reported in the Corporation's
proxy statement and all compensation payable hereunder to such persons is
intended to qualify as "performance-based compensation" as described in Section
162(m)(4)(C) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Eligibility and Participation
Only those executive officers of the Corporation who are officers at the level
of senior vice president or above shall be eligible to participate in the
Performance Plan. Prior to or at the time performance objectives are established
for a "Performance Period", as defined below, the Compensation and Personnel
Committee (the "Committee") of the Corporation's Board of Directors (the
"Board") will designate in writing which executive officers among those who may
be eligible to participate in the Performance Plan shall in fact be participants
for such Performance Period.
3. Plan Year, Performance Periods and Performance Objectives
The fiscal year of the Performance Plan (the "Plan Year") shall be the fiscal
year beginning on January 1 and ending on December 31. The performance period
(the "Performance Period") with respect to which bonuses may be payable under
the Performance Plan shall generally be the Plan Year, provided that the
Committee shall have the authority to designate different Performance Periods
under the Performance Plan.
Within the first ninety (90) days of each Performance Period the Committee shall
establish in writing, with respect to such Performance Period, one or more
performance goals, a specific target objective or objectives with respect to
such performance goals and an objective formula or method for computing the
amount of bonus compensation payable to each participant under the Performance
Plan if the performance goals are attained. Notwithstanding the foregoing
sentence, for any Performance Period, such goals, objectives and compensation
formulae or methods must be established within that number of days, beginning on
the first day of such Performance Period, which is no more than twenty-five
percent (25%) of the total number of days in such Performance Period.
Performance goals shall be based upon one or more of the following business
criteria for the Corporation as a whole or any of its subsidiaries, operating
divisions or other operating units: earnings before interest, taxes,
depreciation and amortization ("EBITDA"), pre-tax operating income, earnings per
share, return on equity, return on invested capital or assets, cost reductions
and savings, return on sales or productivity improvements. In addition, to the
extent consistent with the goal of providing for deductibility under Section
162(m) of the Code, performance goals may be based upon a participant's
attainment of personal objectives with respect to any of the foregoing
performance goals, negotiating transactions and sales, or developing long-term
business goals. Measurements of the Corporation's or a participant's performance
against the performance goals established by the Committee shall be objectively
determinable and, to the extent they are expressed in standard accounting terms,
they shall be determined according to generally accepted accounting principles
("GAAP") as in existence on the date on which the performance goals are
established and without regard to any changes in such principles after such
date.
4. Determination of Bonus Awards
As soon as practicable after the end of each Performance Period, the Committee
shall certify in writing to what extent the Corporation and the participants
have achieved the performance goals or goals for such Performance Period,
including the specific target objective or objectives and the satisfaction of
any other material terms of the bonus award and the Committee shall calculate
the amount of each participant's bonus for such Performance Period based upon
the performance goals, objectives and computation formulae or methods for such
Performance Period. The Committee shall have no discretion to increase the
amount any participant's bonus as so determined, but may reduce the amount of or
totally eliminate such bonus, if it determines, in its absolute and sole
discretion, that such a reduction or elimination is appropriate in order to
reflect the participant's performance or unanticipated factors.
16
<PAGE>
No participant's bonus for any Plan Year shall exceed the lesser of 200% of the
participant's base annual salary as in effect as of the last day of such Plan
Year or $4,000,000.
5. Payment of Awards
Approved bonus awards shall be payable by the Corporation in cash to each
participant, or to his estate in the event of his death, as soon as practicable
after the end of each Performance Period and after the Committee has certified
in writing that the relevant performance goals were achieved.
A bonus award that would otherwise be payable to a participant who is not
employed by the Corporation or one of its subsidiaries on the last day of a
Performance Period shall be prorated, or not paid, in accordance with rules and
regulations adopted by the Committee for the administration of the Performance
Plan.
6. Other Terms and Conditions
No bonus awards shall be paid under the Performance Plan unless and until the
material terms (within the meaning of Section 162(m)(4)(C) of the Code) of the
Performance Plan, including the business criteria described in the Performance
Plan, are disclosed to the Corporation's shareholders and are approved by the
shareholders by a majority of votes cast in person or by proxy (including
abstentions to the extent abstentions are counted as voting under applicable
state law).
No person shall have any legal claim to be granted an award under the
Performance Plan and the Committee shall have no obligation to treat
participants uniformly. Except as may be otherwise required by law, bonus awards
under the Performance Plan shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge,
garnishment, execution, or levy of any kind, either voluntary or involuntary.
Bonuses awarded under the Performance Plan shall be payable from the general
assets of the Corporation and no participant shall have any claim with respect
to any specific assets of the Corporation.
Neither the Performance Plan nor any action taken under the Performance Plan
shall be construed as giving any employee the right to be retained in the employ
of the Corporation or any subsidiary or to maintain any participant's
compensation at any level.
The Corporation or any of its subsidiaries may deduct from any award any
applicable withholding taxes or any amounts owned by the employee of the
Corporation or any of its subsidiaries.
17
<PAGE>
7. Administration
All members of the Committee shall be persons who qualify as "outside directors"
as defined under Section 162(m) of the Code. Until changed by the Board, the
Compensation and Personnel Committee of the Board shall constitute the Committee
hereunder.
The Committee shall have full power and authority to administer and interpret
the provisions of the Performance Plan and to adopt such rules, regulations,
agreements, guidelines and instruments for the administration of the Performance
Plan and for the conduct of its business as the Committee deems necessary or
advisable.
Except with respect to matters which under Section 162(m)(4)(C) of the Code are
required to be determined in the sole and absolute discretion of the Committee,
the Committee shall have full power to delegate to any officer or employee of
the Corporation the authority to administer and interpret the procedural aspects
of the Performance Plan, subject to the Performance Plan's terms, including
adopting and enforcing rules to decide procedural and administrative issues.
The Committee may rely on opinions, reports or statements of officers or
employees of the Corporation or any subsidiary thereof and of company counsel
(inside or retained counsel), public accountants and other professional or
expert persons.
The Board reserves the right to amend or terminate the Performance Plan in whole
or in part at any time. Unless otherwise prohibited by applicable law, any
amendment required to conform the Performance Plan to the requirements of
Section 162(m) of the Code may be made by the Committee. No amendment may be
made to the class of individuals who are eligible to participate in the
Performance Plan, the performance criteria specified in Section 2 or the maximum
bonus payable to any participant without shareholder approval unless shareholder
approval is not required in order for bonuses paid to Covered Employees to
constitute qualified performance-based compensation under Section 162(m) of the
Code.
No member of the Committee shall be liable for any action taken or omitted to be
taken or for any determination made by him or her in good faith with respect to
the Performance Plan, and the Corporation shall indemnify and hold harmless each
member of the Committee against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Committee) arising out of any act or omission in connection with the
administration or interpretation of the Performance Plan, unless arising out of
such person's own fraud or bad faith.
The place of administration of the Performance Plan shall be in the State of New
York and the validity, construction, interpretation, administration and effect
of the Performance Plan and the rules, regulations and rights relating to the
Performance Plan, shall be determined solely in accordance with the laws of the
State of New York.
18
[cad 229]<PAGE>
[EXHIBIT 2]
FIRST AMENDMENT TO
EMPLOYMENT AND CONSULTING AGREEMENT
DATED AS OF DECEMBER 19, 1995
BETWEEN ITT DESTINATIONS, INC. AND
RAND V. ARASKOG
WHEREAS, ITT CORPORATION, a Nevada corporation (formerly known as
ITT Destinations, Inc.) (the "Company"), entered into an employment and
consulting agreement with Rand V. Araskog (the "Executive") dated as of December
19, 1995 (the "Agreement"); and
WHEREAS, the Company and Executive desire to amend the Agreement in
certain respects;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein set forth and for other consideration herein described, the
parties hereto agree as follows:
1. Paragraph 12 of the Agreement shall be amended by adding the
following at the end thereof:
"Following a Change in Control of the Company (as defined herein),
Executive shall have the right to terminate for good reason (as defined
herein). For purposes hereof,
(A) "Good Reason" shall mean:
(i) without the Executive's express written consent and
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by
the Company or its affiliates
<PAGE>
2
promptly after receipt of notice thereof given by the Executive, (A)
a failure to pay or reduction in the Executive's annual base salary
as described in paragraph 3 hereof) or any bonus or incentive
compensation opportunities or any reduction in any material
compensation or benefits arrangement provided to the Executive or
in which the Executive participates, (B) the assignment to the
Executive of any duties inconsistent in any respect with the
Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by paragraphs 2, 6, and 8 hereof, (C) any other action
by the Company or any of its affiliates which results in a
diminution in Executive's position, authority, duties or
responsibilities, or (D) any failure by the Company to comply
with any of the provisions of paragraph 5 hereof;
(ii) without the Executive's express written consent, the
Company's requiring the Executive's work location to be other than
within twenty-five (25) miles of New York City, New York;
(iii) any failure by the Company to obtain an express written
assumption of the Agreement by any successor to the Company.
For purposes hereof, a determination by the Executive that he has
"Good Reason" hereunder shall be final and binding on the parties
hereto absent a showing of bad faith on the Executive's part.
and (B) "Change in Control" of the Company shall mean the
occurrence of:
(i) a report on Schedule 13D shall be filed with the
Securities and Exchange Commission pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "Act") disclosing that any
person (within the meaning of Section 13(d) of the Act), other than
the Company or a subsidiary of the Company or any employee benefit
plan sponsored by the Company
<PAGE>
3
or a subsidiary of the Company, is the beneficial owner directly or
indirectly of twenty percent of more of the outstanding common
stock, no par value ("Stock") of the Company;
(ii) any person (within the meaning of Section 13(d) of the
Act), other than the Company or a subsidiary of the Company or any
employee benefit plan sponsored by the Company or a subsidiary of
the Company, shall purchase shares pursuant to a tender offer or
exchange offer to acquire any Stock of the Company (or securities
convertible into Stock) for cash, securities or any other
consideration, provided that after consummation of the offer, the
person in question is the beneficial owner (as such term is defined
in Rule 13d-3 under the Act), directly or indirectly, of fifteen
percent or more of the outstanding Stock of the Company (calculated
as provided in paragraph (d) of Rule 13d-3 under the Act in the case
of rights to acquire Stock);
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company in which the Company is not
the continuing or surviving corporation or pursuant to which shares
of Stock of the Company would be converted into cash, securities or
other property, other than a merger of the Company in which holders
of Stock of the Company immediately prior to the merger have the
same proportionate ownership of common stock of the surviving
corporation immediately after the merger as immediately before, of
(B) any sale, lease, exchange or other transfer in one transaction
or a series of related transactions) of all or substantially all the
assets of the Company; or
(iv) there shall have been a change in a majority of the
members of the Board within a 12-month period unless the election or
nomination for election by the Company stockholders of each new
director during such
<PAGE>
4
12-month period was approved by the vote of two-thirds of the
directors then still in office who were directors at the beginning
of such 12-month period."
2. Paragraph 13 of the Agreement is hereby amended by adding the
following paragraph (c) at the end thereof:
"(c) Notwithstanding the foregoing, if, within two years
following a Change in Control, the Executive's employment with
the Company is involuntarily terminated other than for cause or is
terminated by the Executive for Good Reason, then ITT will pay the
Executive in a lump sum within five days following Executive's date
of termination of employment, the following (i) all amounts owing
under paragraphs 13(a) hereof (as if the Board of Directors had
determined not to elect the Executive to the offices described in
paragraph 2 hereof) without reduction for future payment, (ii) all
amounts owing under paragraph 13(b), hereof (as if the Executive
served as Chairman and Chief Executive until October 31, 2000 and
was not nominated as a non-management director), without reduction
for future payment, and (iii) the value of the benefit provided
for in paragraph 7 hereof, computed without reduction for future
payment. For purposes of this paragraph 13(c), the amounts under
(i), (ii) and (iii) shall be determined as provided in paragraph
14(d) hereof.
The foregoing provisions of this paragraph 13(c) shall be
subject to paragraph 14 hereof."
3. A new paragraph 14(1) is added to the Agreement, to read as
follows:
"14. Golden Parachute Tax Matters
(a) Section 280 Cutback. Except as provided in paragraph
(b) and paragraph (c) hereof, notwithstanding any other provision
of this Agreement to the contrary, in the event that any payment
or benefit received or to be received by
- ----------
(1) Note that there is no paragraph 14 currently in the Agreement
(paragraphs skip from 13 to 15).
<PAGE>
5
Executive in connection with a Change in Control of the Company
or the termination of Executive's employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement) with the Company, any "person" (as defined in Section
13(d) of the Act) whose actions result in a Change in Control or any
person affiliated with the Company or such person) (all such
payments and benefits, being hereinafter called "Total Payments")
would not be deductible (in whole or part) by the Company, an
affiliate or person making such payment or providing such benefit as
a result of section 280G of the Internal Revenue Code of 1986,
as amended ("the Code"), then, to the extent necessary to make
such otherwise non-deductible portion of the Total Payments
deductible (and after taking into account any reduction in the
Total Payments provided by reason of section 280G of the Code in
such other plan, arrangement or agreement), (A) the cash portion
of the Total Payments provided in this Agreement shall first be
reduced (if necessary, to zero), and (B) all other non-cash Total
Payments under this Agreement shall next be reduced (if necessary,
to zero). For purposes of this limitation, (i) no portion of the
Total Payments the receipt or enjoyment of which the Executive
shall have effectively waived in writing prior to the Date of
Termination shall be taken into account, (ii) no portion of the
Total Payments shall be taken into account which in the opinion of
a nationally recognized tax counsel selected by the Executive does
not constitute a "parachute payment" within the meaning of section
280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A)
of the Code, (iii) the Total Payments shall be reduced only to
the extent necessary so that the Total Payments (other than those
referred to in clauses (i) or (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4)(B) of the Code or are
<PAGE>
6
otherwise deductible after application of the non-deductibility
rules of Section 280G of the Code, in the opinion of the tax counsel
referred to in clause (ii); and (iv) the value of any non-cash
benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code. Solely for purposes of this paragraph
14(a) and Without limiting the generality of clause (ii)
of the preceding sentence, it is expressly acknowledged by the
Company that the Executive's accrued benefit under the Company's
Excess Pension Plan and the Executive's account balance under the
Company's Excess Savings Plan, both of which are already fully
vested under the terms of the respective plans, as well as any
non-qualified stock options which are fully exercisable as of the
date of the Executive's termination of employment do not constitute
"parachute payments" within the meaning of Section 280G(b)(2) of the
Code. (2)
(b) Certain Additional Payments by the Company. (i) Anything
in this Agreement to the contrary notwithstanding, in the event that
it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, but determined without regard to any
additional payments required under this paragraph 14(b)
(a) "Payment") would as give rise to liability of the Executive for
the excise tax imposed by Section 4999 of the Code, or that any
interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an
additional payment (the "Gross-Up Payment") in an amount such that
after payment by Executive of all Federal, state and local taxes
- ----------
(2) The Company should confirm that all amounts are fully vested and no
amount payable thereunder will constitute a "parachute payment".
<PAGE>
7
(including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income and employment
taxes (and any interest and penalties imposed with respect to such
taxes) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this paragraph 14(b)(i), if it shall be determined
that the Executive is entitled to the Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and any Excise Tax)
as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the
Payments, in the aggregate, to an amount (the "Reduced Amount") such
that the receipt of Payments would not give rise to any Excise Tax,
then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(ii) Subject to the provisions of paragraph 14(b)(iii),
all determinations required to be made under this paragraph
14(b), including whether and when the Gross-Up Payment is
required and the amount of such Gross-Up Payment, and the
assumptions to be utilized in arriving at such determinations
shall be made by a nationally recognized certified public
accounting firm as may be designated by the Executive (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested
by the Company. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment
<PAGE>
8
shall be paid by the Company to the Executive within five
days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of
uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that the Gross-Up Payment
made will have been an amount less than the Company should
have paid pursuant to this paragraph 14(b)(ii) (the
"Underpayment"). In the event that the Company exhausts its
remedies pursuant to paragraph 14(b)(iii) and the Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment and any such Underpayment shall be promptly paid
by the Company to or for the benefit of Executive.
(iii) The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day
period following the date on which he or she gives such notice
to the Company (or such shorter period ending on the date that
any payment of taxes, interest and/or penalties, with respect
to such claim is due). If the Company notifies the Executive
in writing prior to the
<PAGE>
9
expiration of such period that it desires to contest such
claim, the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the
Company,
(C) cooperate with the Company in good faith in
order to effectively contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify the Executive for and hold the Executive
harmless from, on an after-tax basis, any Excise Tax or
income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and
payment of all related costs and expenses. Without limiting
the foregoing provisions of this paragraph 14(b)(iii), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Executive to
pay the tax claimed and sue
<PAGE>
10
for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis, and shall
indemnify the Executive for and hold the Executive harmless
from, on an after-tax basis, any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that
any extension of the statute of limitations relating to the
payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph 14(b)(iii),
Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's
complying with the requirements of paragraph 14(b)(iii))
promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable
<PAGE>
11
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph 14(b)(iii), a
determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
(c) Notwithstanding anything herein to the contrary, paragraph
14(a) shall not become effective if the closing price per share of
Company common stock, no par value, as reported on the New York
Stock Exchange Composite Tape, remains, for five consecutive trading
days following February [11], 1997, (provided one of the
consecutive days occurs prior to the Executive's date of termination
of employment), at or above the price at which two-thirds of the
award of performance-based options granted by the Company on
February 4, 1997 to senior executives of the Company will
vest by their terms (the "Target Price"), such Target Price to be
adjusted for any stock split, stock dividend, merger,
reorganization, recapitalization or other business combination
effectuated after the date of execution of this First Amendment
to the Agreement.
(d) For purposes of the calculations required to be made
under paragraphs 13 and 14, the parties agree that, absent any
changes made following the date of execution of this First
Amendment to Executive's compensation arrangements or to the
Company's benefit plans, programs, policies or arrangements, the
determinations to be made hereunder by tax counsel and the
Accounting Firm shall be made on a basis consistent with the
calculations set forth in Exhibit {A} hereto which have been
prepared by
<PAGE>
12
the Company concurrently with the execution of this First Amendment."
4. Except as hereinabove provided, this First Amendment is hereby
ratified and confirmed and the Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment
to the Agreement as of the __ day of [February], 1997.
__________________________
Rand V. Araskog
ITT CORPORATION
By:
_______________________
[Ralph W. Pausig]
[Senior Vice President]
<PAGE>
[EXHIBIT 3]
[FORM OF AGREEMENT FOR [9] EXECUTIVES]
EXECUTIVE AGREEMENT dated
[___________________], 1997, between ITT
Corporation, a Nevada corporation ("the
Company"), and _____________________ (the
"Executive").
WHEREAS the Company considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS the Board of Directors of the Company (the "Board")
recognizes that, as is the case with many publicly-held corporations, the
possibility of a Change in Control (as defined in Section 1(d) hereof) exists
and that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potential disturbing circumstances
arising from the possibility of a Change in Control;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive agree as follows:
SECTION 1. Definitions. As used in this Agreement:
(a) "Affiliate" has the meaning ascribed thereto in Rule 12b-2
pursuant to the Securities Exchange Act of 1934, as amended (the "Act").
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (i) the willful and continued failure of the
Executive to perform substantially the Executive's duties owed to the Company or
its Affiliates after a written demand for substantial performance is delivered
to the Executive which specifically identifies the nature of such
non-performance, or (ii) conviction of the Executive for a felony.
<PAGE>
2
No act or omission on the part of the Executive shall be considered "willful"
unless it is done or omitted in bad faith or without reasonable belief that the
action or omission was in the best interests of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) a report on Schedule 13D shall be filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the Securities Exchange
Act of 1934 (the "Act") disclosing that any person (within the meaning of
Section 13(d) of the Act), other than the Company or a subsidiary of the
Company or any employee benefit plan sponsored by the Company or a
subsidiary of the Company, is the beneficial owner directly or indirectly
of twenty percent of more of the outstanding common stock, no par value
("Stock"), of the Company;
(ii) any person (within the meaning of Section 13(d) of the Act),
other than the Company or a subsidiary of the Company or any employee
benefit plan sponsored by the Company or a subsidiary of the Company,
shall purchase shares pursuant to a tender offer or exchange offer to
acquire any Stock of the Company (or securities convertible into Stock)
for cash, securities or any other consideration, provided that after
consummation of the offer, the person in question is the beneficial owner
(as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of fifteen percent or more of the outstanding Stock of the
Company (calculated as provided in paragraph (d) of Rule 13d-3 under the
Act in the case of rights to acquire Stock);
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Stock
of the Company would be converted into cash, securities or other property,
other than a merger of the Company in which holders of Stock of the
Company immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation immediately after
the merger as immediately before, or (B) any sale, lease, exchange or
other transfer in one transaction or a series of related transactions of
all or substantially all the assets of the Company; or
<PAGE>
3
(iv) there shall have been a change in a majority of the members of
the Board within a 12-month period unless the election or nomination for
election by the Company stockholders of each new director during such
12-month period was approved by the vote of two-thirds of the directors
then still in office who were directors at the beginning of such 12-month
period.
(e) "Good Reason" means:
(i) without the Executive's express written consent and excluding
for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company or its Affiliates
promptly after receipt of notice thereof given by the Executive, (A) a
reduction in the Executive's Annual Base Salary and Annual Bonus (each as
defined herein) or any reduction in any material compensation or benefits
arrangement, (B) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 3(a) hereof, (C) any other
action by the Company or its Affiliates which results in a diminution in
such position, authority, duties or responsibilities, or (D) any failure
by the Company to comply with any of the provisions of Section 3(b)
hereof;
(ii) without the Executive's express written consent, the Company's
requiring the Executive's work location to be other than within
twenty-five (25) miles of the location set forth in Section 3(a)(i);
(iii) any failure by the Company to comply with and satisfy Section
10(a).
For purposes hereof, a determination by the Executive that he has "Good
Reason" hereunder shall be final and binding on the parties hereto absent
a showing of bad faith on the Executive's parts.
(f) "Incapacity" means any physical or mental illness or disability
of the Executive which continues for a period of six consecutive months or more
and which at any time after such six-month period the Board shall reasonably
determine renders the Executive incapable of performing his or her duties during
the remainder of the Term.
<PAGE>
4
(g) "Operative Date" means the date on which a Change in Control
shall have occurred.
SECTION 2. Term of Agreement. This Agreement shall become operative
on the Operative Date and shall remain in effect until the second anniversary of
the Operative Date (the "Term") unless further extended or sooner terminated as
hereinafter provided. Commencing on the second anniversary of the Operative
Date, and each anniversary date thereafter (each, an "Anniversary Date"), the
Term shall automatically be extended for one additional year, unless, not later
than 30 days prior to such Anniversary Date, the Company shall have given notice
to the Executive that it does not wish to extend this Agreement.
SECTION 3. Terms of Employment. (a) Position and Duties. (i) During
the Term: (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned immediately prior to the Operative Date, and (B)
the Executive's services shall be performed at the location at which the
Executive was based on the Operative Date and the Company shall not require the
Executive to travel on Company business to a substantially greater extent than
required immediately before the Operative Date, except for travel and temporary
assignments which are reasonably required for the full discharge of the
Executive's responsibilities and which are consistent with the Executive's being
so based.
(ii) During the Term, and excluding any periods of vacation and sick
leave to which the Executive is entitled in accordance with Company policy, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities.
(b) Compensation. (i) Salary and Bonus. During the first year of the
Term, the Executive will receive compensation at an annual rate equal to the sum
of (A) an annual salary ("Annual Base Salary") not less than the Executive's
annualized salary in effect immediately prior to the Operative Date, plus (B) a
bonus ("Annual Bonus") not less than the aggregate amount of the Executive's
highest
<PAGE>
5
bonus award under the ITT Annual Performance-Based Incentive Plan for Executive
Officers or any substitute or successor plan in respect of the last three
calendar years preceding the Operative Date [(or, if no such award shall have
been made to the Executive prior to the Operative Date, an amount equal to [ ]
of his or her Annual Base Salary)].(1) During the Term, on each anniversary of
the Operative Date, the Executive's compensation in effect on such anniversary
date shall be increased for the following twelve-month period by not less than
the higher of (A) 5% or (B) 80% of the percentage change in the Consumer Price
Index (All Urban Consumers) for the twelve month period ended immediately prior
to the month in which such anniversary date occurs.
ii) Employee Benefit Plans. During the Term, the Executive will be
entitled to (A) continue to participate in all 401(k)/savings and retirement
plans, welfare plans, incentive plans, equity-based plans and all other plans,
programs, policies and arrangements generally applicable to full-time officers
or employees of the Company (the "Company Plans"), or (B) participate in
employee benefit plans, programs, policies and arrangements of any successor to
the Company which have benefits that are not less favorable to the Executive.
SECTION 4. Termination of Employment. (a) Death or Incapacity. This
Agreement shall terminate automatically upon the Executive's death during the
Term. This Agreement shall cease and terminate on the date of determination by
the Board that the Incapacity of the Executive has occurred during the Term
("Incapacity Effective Date").
(b) Cause. The Company may terminate the Executive's employment for
Cause, as defined herein. Termination of the Executive for Cause shall not be
effective unless the Board has passed a resolution, duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board which was called and held for the purpose
of considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board, finding that, in the good faith
- ----------
(1) Insert only for those executives newly hired who have not yet received a
full year's bonus award.
<PAGE>
6
opinion of the Board, the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and specifying the particulars
thereof in detail.
(c) Good Reason. The Executive may terminate his or her employment
for Good Reason, as defined herein.
(d) Notice of Termination. Any termination by the Company for Cause
or Incapacity, or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance with Section
10 of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated,
(iii) in the case of termination by the Company for Cause or for Incapacity,
confirms that such termination is pursuant to a resolution of the Board (which,
in the case of Cause, is pursuant to Section 4(b) hereof), and (iv) if the Date
of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason, Incapacity or Cause shall not serve to
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Incapacity, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of death or Incapacity, the Date of Termination shall be
the date of death of the Executive or the Incapacity Effective Date, as the case
may be.
<PAGE>
7
SECTION 5. Obligations of the Company Upon Termination. (a)
Termination for Good Reason or for Reasons Other Than for Cause, Death or
Incapacity. If, during the Term, the Company shall terminate the Executive's
employment other than for Cause or Incapacity or the Executive shall terminate
his or her employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash,
within five business days after the Date of Termination, the aggregate of
the following amounts:
(A) the sum of (1) the Executive's currently effective Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon)
and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1)
and (2) shall be hereinafter referred to as the "Accrued
Obligations"); and
(B) the amount equal to the product of (1) three(2) and (2)
the sum of (x) the Executive's Annual Base Salary and (y) his or her
Annual Bonus;
(ii) for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate
Company Plan, the Company shall continue health and life insurance
benefits, perquisites and fringe benefits to the Executive and the
Executive's eligible family members at least equal to those which would
have been provided to them in accordance with the Company Plans if the
Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter, provided,
however, that if the Executive becomes reemployed with another employer
and is eligible to receive health or life insurance or
- ----------
(2) For three of the nine executives covered by individual agreements, the
multiplier will be two, rather than three. The executives covered, respectively,
by the 3x and 2x multipliers are set forth on Schedule A hereto.
<PAGE>
8
benefits, perquisites and fringe benefits under another employer-provided
plan, the benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with reasonable out-placement services for a period of up
to one year from the Date of Termination, the provider of which shall be
selected by the Executive in his or her sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any Company Plan, including earned but unpaid stock and
similar compensation (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Section 280G Cutback. Except as provided in Section 5(c) hereof,
notwithstanding any other provision of this Agreement to the contrary, in the
event that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the Executive's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any "person" (as defined in Section
13(d) of the Act) whose actions result in a Change in Control or any person
affiliated with the Company or such person) (all such payments and benefits,
being hereinafter called "Total Payments") would not be deductible (in whole or
part) by the Company, an affiliate or person making such payment or providing
such benefit as a result of section 280G of the Internal Revenue Code of 1986,
as amended ("the Code"), then, to the extent necessary to make such portion of
the Total Payments deductible (and after taking into account any reduction in
the Total Payments provided by reason of section 280G of the Code in such other
plan, arrangement or agreement), (A) the cash portion of the Total Payments
provided in this Section 5 shall first be reduced (if necessary, to zero), and
(B) all other non-cash Total Payments under this Section 5 shall next be reduced
(if necessary, to zero). For purposes of this limitation, (i) no portion of the
Total Payments the receipt or enjoyment of which the Executive shall have
effectively waived in writing prior to the Date of
<PAGE>
9
Termination shall be taken into account, (ii) no portion of the Total Payments
shall be taken into account which in the opinion of tax counsel selected by the
Company's independent auditors and reasonably acceptable to the Executive does
not constitute a "parachute payment" within the meaning of section 280G(b)(2) of
the Code, including by reason of section 280G(b)(4)(A) of the Code, (iii) those
Total Payments provided under this Section 5 shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(i) or (ii)) in their entirety constitute reasonable compensation for services
actually rendered within the meaning of section 280G(b)(4)(B) of the Code or are
otherwise not subject to disallowance as deductions, in the opinion of the tax
counsel referred to in clause (ii); and (iv) the value of any non-cash benefit
or any deferred payment or benefit included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code.
(c) Certain Additional Payments by the Company. (i) Anything in this
Agreement to the contrary notwithstanding and except as set forth in Section
5(c)(v), in the event that it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 5(c)) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code, or that any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (the "Gross-Up Payment") in an amount such that
after payment by the Executive of all Federal, state and local taxes (including
any interest or penalties imposed with respect to such taxes), including,
without limitation, any income and employment taxes (and any interest and
penalties imposed with respect to such taxes) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 5(c)(i), if it shall be determined that the Executive
is entitled to the Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not
<PAGE>
10
receive a net after-tax benefit of at least $50,000 (taking into account both
income taxes and any Excise Tax) as compared to the net after-tax proceeds to
the Executive resulting from an elimination of the Gross-Up Payment and a
reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount")
such that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(ii) Subject to the provisions of Section 5(c)(iii), all
determinations required to be made under this Section 5(c), including whether
and when the Gross-Up Payment is required and the amount of such Gross-Up
Payment, and the assumptions to be utilized in arriving at such determinations
shall be made by a nationally recognized certified public accounting firm as may
be jointly designated by the Executive and the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. All fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-Up Payment shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that the Gross-Up Payment made will have been an amount less than
the Company should have paid pursuant to this Section 5(c)(ii) (the
"Underpayment"). In the event that the Company exhausts its remedies pursuant to
Section 5(c)(iii) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(iii) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
<PAGE>
11
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which he or she gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(A) give the Company any information reasonably requested by the
Company relating to such claim,
(B) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(C) cooperate with the Company in good faith in order effectively to
contest such claim, and
(D) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify the Executive for and hold the Executive
harmless from, on an after-tax basis, any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 5(c)(iii), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis, and shall
indemnify the Executive for and hold the Executive
<PAGE>
12
harmless from, on an after-tax basis, any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to the
payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(iv) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(c)(iii), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 5(c)(iii)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 5(c)(iii), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
(v) Notwithstanding anything in this Section 5(c) to the contrary,
this section 5(c) shall only become effective if the closing price per share of
Company common stock, no par value, as reported on the New York Stock Exchange
Composite Tape, remains, for five consecutive trading days following February
[11], 1997, at or above the price at which two-thirds of the award of
performance-based options granted by the Company on February 4, 1997 to senior
executives of the Company will vest by their terms (the "Target Price"), such
Target Price to be adjusted for any stock split, stock dividend or other merger,
reorganization, recapitalization or other business combination effectuated after
the date of execution of this Agreement.
<PAGE>
13
(d) Death or Incapacity. If the Executive's employment is terminated
by reason of the Executive's death or Incapacity during the Employment Period,
this Agreement shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than for (i) timely payment of
Accrued Obligations and Other Benefits, and (ii) provision by the Company of
death benefits or disability benefits for termination due to death or
Incapacity, respectively, in accordance with the Company Plans as in effect
immediately prior to the Operative Date or, if more favorable to the Executive,
at the Executive's Date of Termination.
(e) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Term, this Agreement shall terminate
without further obligations to the Executive other than timely payment to the
Executive of (x) the Executive's currently effective Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Term,
excluding a termination for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than for the timely payment of
Accrued Obligations and Other Benefits.
SECTION 6. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
Company Plan and for which the Executive may qualify, nor, subject to Section
15(c), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its Affiliates. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any Company Plan at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly modified by
this Agreement.
SECTION 7. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
<PAGE>
14
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced, except as explicitly provided in Section 5(a)(iii),
whether or not the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof.
SECTION 8. Successors; Binding Agreement. (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company, by agreement, in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession will
be a breach of this Agreement and entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder had the Company terminated the Executive for reason other
than Cause or Incapacity on the succession date. As used in this Agreement, "the
Company" means the Company as defined in the preamble to this Agreement and any
successor to its business or assets which executes and delivers the agreement
provided for in this Section 10 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law or otherwise.
(b) This Agreement shall be enforceable by the Executive's personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
SECTION 9. Non-assignability. This Agreement is personal in nature
and neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder, except
as provided in Section 8 hereof. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge,
<PAGE>
15
creation of a security interest or otherwise, other than a transfer by his or
her will or by the laws of descent or distribution, and, in the event of any
attempted assignment or transfer by the Executive contrary to this Section, the
Company shall have no liability to pay any amount so attempted to be assigned or
transferred.
SECTION 10. Notices. For the purpose of this Agreement, notices and
all other communications provided for herein shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: [Name]
[Address]
If to the Company: ITT Corporation
1330 Avenue of the Americas
New York, NY 10019-5490
Attention: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
SECTION 11. Operation of Agreement. This Agreement shall be
effective immediately upon its execution and continue to be effective until the
Term expires so long as the Executive is employed by the Company or any of its
Affiliates as of the Operative Date. The provisions of this Agreement do not
take effect until the Operative Date.
SECTION 12. Governing Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York without reference to principles of conflict of laws.
SECTION 13. Settlement of Disputes; Arbitration. All claims by the
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board shall afford a reasonable opportunity
to the Executive for a review of the decision
<PAGE>
16
denying a claim and shall further allow the Executive to appeal to the Board a
decision of the Board within sixty (60) days after notification by the Board
that the Executive's claim has been denied. Any further dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in [New York City, New York] in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of the Executive's
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement. All
costs of arbitration shall be borne by the Company.
SECTION 14. Miscellaneous. (a) This Agreement contains the entire
understanding with the Executive with respect to the subject matter hereof and
supersedes any and all prior agreements or understandings, written or oral,
relating to such subject matter. No provisions of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
agreed to in writing signed by the Executive and the Company.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(c) Except as provided herein, this Agreement shall not be construed
to affect in any way any rights or obligations in relation to the Executive's
employment by the Company or any of its Affiliates prior to the Operative Date
or subsequent to the end of the Term.
(d) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same Agreement.
(e) The Company may withhold from any benefits payable under this
Agreement all Federal, state, city or other taxes as shall be required pursuant
to any law or governmental regulation or ruling.
<PAGE>
17
(f) The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
ITT CORPORATION
by
------------------------------------
Name:
Title:
-----------------------------------------
(Name of Executive)
<PAGE>
18
Schedule A
A. Executives entitled to 3x multiplier under
Section 5(a)(i)(B) of the Agreement--
Bowman, Robert A.
Boynton, Peter G.
Crotty, Gerald C.
Reese, Ann N.
Ward, Richard S.
Weadock, Daniel P.
B. Executives entitled to 2x multiplier under
Section 5(a)(i)(B) of the Agreement--
Danski, Jon F.
Juliano, Mark J.
Tuttle, Elizabeth A.
<PAGE>
[EXHIBIT 4]
ITT Corporation
Senior Executive Severance Pay Plan
- --------------------------------------------------------------------------------
1. Purpose
The purpose of this ITT Senior Executive Severance Pay Plan ("Plan") is to
assist in occupational transition by, providing severance pay, for employees
covered by this Plan whose employment is terminated under conditions set forth
in this Plan.
2. Covered Employees
Covered employees under this Plan ("Executives") are full-time, regular
salaried employees of ITT Corporation ("ITT" or the "Company") and of any ITT
subsidiary company ("ITT Subsidiary") (collectively or individually as the
context requires "Company") who are United States citizens, or who are employed
in the United States, in salary, grade 26 and above at any time within the two
year period immediately preceding the date the Company selects as the
Executive's last day of active employment ("Effective Date") and such other
employees of the Company or any ITT Subsidiary who shall be designated as
covered employees hereunder by the Compensation Committee (the "Compensation
Committee") of the Company's Board of Directors (the "Board").
Change in Control Rule. Following a "change in control of the Company", as
defined in the Company's 1995 Incentive Stock Plan (a "Change in Control"),
special rules provided herein shall apply to those Executives designated by the
Compensation Committee whose names are designated on Schedule A or B hereto
("Special Severance Executives").
3. Severance Pay Upon Termination of Employment
If the Company terminates an Executive's employment, the Executive shall be
provided severance pay in accordance with the terms of this Plan except where
the Executive:
o is terminated for cause,
<PAGE>
2
o accepts employment or refuses comparable employment with a purchaser
as provided in Section 8, "Divestiture",
o is terminated with an Effective Date on or after the Executive's
Normal Retirement Date as defined herein, or
o terminates employment with the Company prior to the Effective Date.
No severance pay will be provided under this Plan where the Executive terminates
employment by:
o voluntarily resigning,
o voluntarily retiring, or
o failing to return from an approved leave of absence (including a
medical leave of absence).
No severance pay will be provided under this Plan upon any termination of
employment as a result of the Executive's death or disability.
"Normal Retirement Date" shall mean the first of the month which coincides with
or follows the Executive's 65th birthday
Change in Control Rule. The foregoing provisions of this paragraph 2 shall not
apply to Special Severance Executives following a Change in Control. In lieu
thereof, if a Special Severance Executive is terminated by the Company other
than for Cause or the Special Severance Executive terminates for Good Reason, he
shall receive the benefits set forth in Schedule A or B, as applicable.
Following a Change in Control, "Cause" and "Good Reason" shall have the
respective meanings set forth on Schedule C hereto.
<PAGE>
3
4. Schedule of Severance Pay
Severance pay will be provided in accordance with the following Schedule of
Severance Pay which sets forth the months of Base Pay which is provided to an
Executive based upon the Executive's Years of Service as of the Effective Date.
Years of Service Months of Base Pay
---------------- ------------------
Less than 4............................. 12
4............................. 13
5............................. 14
6............................. 15
7............................. 16
8............................. 17
9............................. 18
10............................. 19
11............................. 20
12............................. 21
13............................. 22
14............................. 23
15 or more..................... 24
"Base Pay" shall mean the annual base salary rate payable to the Executive at
the Effective Date divided by twelve (12) months. Such annual base salary rate
shall in no event be less than the highest annual base salary rate paid to the
Executive at any time during the twenty-four month (24) period immediately
preceding the Effective Date.
"Years of Service" shall mean the total number of completed years of employment
since the Executive's ITT system service date to the Effective Date, rounded to
the nearest whole year. The ITT system service date is the date from which
employment in the ITT system is recognized for purposes of determining
eligibility for vesting under the applicable Company retirement plan covering
the Executive on the Effective Date.
Notwithstanding the above Schedule of Severance Pay, (i) in no event shall
months of Base Pay provided to an Executive exceed the number of months
remaining between the Effective Date and the Executive's Normal Retirement
<PAGE>
4
Date or (ii) shall severance pay exceed the equivalent of twice the Executive's
total annual compensation during the year immediately preceding the Effective
Date.
Change in Control Rule. The foregoing provisions of this paragraph 4 shall not
apply to Special Severance Executives following a Change in Control. In lieu
thereof, severance pay will be provided in accordance with Schedule A or B, as
applicable.
5. Form of Payment of Severance Pay
Severance pay shall be paid in the form of periodic payments according to
the regular payroll schedule ("Salary Continuation"), provided that ITT reserves
the right at any time to pay the remaining severance pay in the form of a
discounted lump sum.
Any discounted lump sum paid under this Plan shall be equal to the present value
of the remaining periodic payments of severance pay as determined by ITT using
an interest rate equal to the prime rate at Citibank in effect on the date ITT
notifies the Executive that it is exercising its right to pay severance in the
discounted lump sum.
Salary Continuation will commence or the discounted lump sum will be paid on the
next day following the Effective Date except that where ITT exercises its right
to pay the discounted lump sum after the commencement of Salary Continuation, it
will be paid promptly after ITT exercises such right.
In the event of an Executive's death during the period the Executive is
receiving Salary Continuation, the amount of severance pay remaining shall be
paid in a discounted lump sum to the Executive's spouse or to such other
beneficiary, or beneficiaries designated by the Executive in writing, or, if the
Executive is not married and failing such designation, to the estate of the
Executive.
If an Executive is receiving Salary Continuation, the Executive must continue to
be available to render to the Company reasonable assistance, consistent with the
level of the Executive's prior position with the Company, at times and locations
that are mutually acceptable. In requesting such services, the Company will
<PAGE>
5
take into account any other commitments which the Executive may have. After the
Effective Date and normal wind up of the Executive's former duties, the
Executive will not be required to perform any regular services for the Company.
In the event the Executive secures other employment during the period the
Executive is receiving Salary Continuation, the Executive must promptly notify
the Company.
Salary Continuation will cease if an Executive is rehired by the Company.
Change in Control Rule. The foregoing provisions of this paragraph 5 shall not
apply to Special Severance Executives following a Change in Control. In lieu
thereof, severance pay will be provided in accordance with Schedule A or B, as
applicable.
6. Benefits During Severance Pay
As long as an Executive is receiving Salary Continuation, except as
provided in this Section, the Executive will continue to be eligible for
participation in Company employee benefit plans, including without limitation,
any non-qualified excess or supplemental benefit plans, in accordance with the
provisions of such plans as in effect on the Effective date. An Executive will
not be eligible to participate in any Company short-term or long-term disability
plans, the Company business travel accident plan or any new employee benefit
plan or any improvement to any existing employee benefit plan adopted by the
Company after the Effective Date.
Change in Control Rule. The foregoing provisions of this paragraph 6 shall not
apply to Special Severance Executives following a Change in Control. In lieu
thereof, benefits will be provided in accordance with Schedule A or B, as
applicable.
7. Excluded Executive Compensation Plans, Programs, Arrangements, and
Perquisites
During the period an Executive is receiving Salary Continuation, the
Executive will not be eligible to accrue any vacation or participate in any (i)
bonus program, (ii) special termination programs, (iii) tax or financial
advisory services, (iv) new awards under any stock option or stock related plans
<PAGE>
6
for executives (provided that the Executive will be eligible to exercise any
outstanding stock options in accordance with the terms of any applicable stock
option plan), (v) new or revised executive compensation programs that may be
introduced after the Effective Date and (vi) any other executive compensation
program, plan, arrangement, practice, policy or perquisites unless specifically
authorized by ITT in writing. The period during which an Executive is receiving
Salary Continuation does not count as service for the purpose of any ITT long
term incentive award program including, but not limited to, the ITT Restricted
Stock Award Plan (1984) and any similar plan, and the ITT Long-Term Performance
Plan and any similar plan.
Change in Control Rule. The foregoing provisions of this paragraph 7 shall not
apply to Special Severance Executives following a Change in Control. In lieu
thereof, executive corporation plans, programs, arrangements and perquisites
shall be provided in accordance with Schedule A or B, as applicable.
8. Divestiture
If an ITT Subsidiary or division of ITT or a portion thereof at which an
Executive is employed is sold or divested and if (i) the Executive accepts
employment or continued employment with the purchaser or (ii) refuses employment
or continued employment with the purchaser on terms and conditions substantially
comparable to those in effect immediately preceding the sale or divestiture, the
Executive shall not be provided severance pay under this Plan. The provisions of
this Section 8 apply to divestitures accomplished through sales of assets or
through sales of corporate entities.
Change in Control Rule. The foregoing provisions of this paragraph 8 shall not
apply to Special Severance Executives following a Change in Control.
9. Disqualifying Conduct
If during the period an Executive is receiving Salary Continuation, the
Executive, (i) engages in any activity which is inimical to the best interests
of the Company; (ii) disparages the Company; (iii) fails to comply with any
Company Covenant Against Disclosure and Assignment of Rights to Intellectual
Property; (iv) without ITT's prior consent, induces any employees of the Company
to leave their Company employment; (v) without ITT's prior consent,
<PAGE>
7
engages in, becomes affiliated with, or becomes employed by any business
competitive with the Company; or (vi) fails to comply with applicable provisions
of the ITT Code of Conduct or applicable ITT Corporate Policies or any
applicable ITT Subsidiary Code or policies, then the Company will have no
further obligation to provide severance pay.
Change in Control Rule. The foregoing provisions in this paragraph 9 shall not
apply to Special Severance Executives following a Change in Control. The only
basis upon which the compensation and benefits shall not be provided to a
Special Severance Executive involuntarily terminated by the Company following a
Change in Control of the Company is upon an involuntary termination of
employment for Cause as defined in Schedule C hereto.
10. Release
No severance pay will be provided under this Plan unless the Executive
executes and delivers to ITT a release, satisfactory to ITT, in which the
Executive discharges and releases the Company and the Company's directors,
officers, employees and employee benefit plans from all claims (other than for
benefits to which Executive is entitled under any Company employee benefit plan)
arising out of Executive's employment or termination of employment.
Change in Control Rule. The foregoing provisions of this paragraph 10 shall not
apply to Special Severance Executives following a Change in Control.
11. Administration of Plan
This Plan shall be administered by ITT, who shall have the exclusive right
to interpret this Plan, adopt any rules and regulations for carrying out this
Plan as may be appropriate and decide any and all matters arising under this
Plan, including but not limited to the right to determine appeals. Subject to
applicable Federal and state law, all interpretations and decisions by ITT shall
be final, conclusive and binding on all parties affected thereby.
Change in Control Rule. Following a Change in Control, any dispute between a
Special Severance Executive and the Company shall be resolved exclusively by
arbitration in [New York City, New York] before a panel of three
<PAGE>
8
arbitrators in accordance with the rules of the American Arbitration
Association, and the entire cost thereof shall be borne by the Company.
12. Termination or Amendment
ITT may terminate or amend this Plan ("Plan Change") at any time except
that no such Plan Change may reduce or adversely affect severance pay for any
Executive whose employment terminates within two years of the effective date of
such Plan Change provided that the Executive was a covered employee under this
Plan on the date of such Plan Change.
Change in Control Rule. Following a Change in Control, no Plan Change that would
adversely affect any Special Severance Executive may be made without the prior
written consent of such Special Severance Executive affected thereby.
13. Offset
Any severance pay provided to an Executive under this Plan shall be offset
by reducing such severance pay by any severance pay, salary continuation,
termination pay or similar pay or allowance which Executive receives or is
entitled to receive (i) under any other Company plan, policy, practice, program,
arrangement; (ii) pursuant to any employment agreement or other agreement with
the Company; (iii) by virtue of any law, custom or practice. Any severance pay
provided to Executive under this Plan shall also be offset by reducing such
severance pay by any severance pay, salary continuation pay, termination pay or
similar pay or allowance received by the Executive as a result of any prior
termination of employment with the Company.
Coordination of severance pay with any pay, or benefits provided by any
applicable ITT short-term or long-term disability plan shall be in accordance
with the provisions of those plans.
Change in Control Rule. Following a Change in Control, the severance pay and
benefits provided to Special Severance Executives hereunder shall not be subject
to offset except as provided in paragraph 14 hereof.
<PAGE>
9
14. Special Change in Control Provisions for Special Severance Executives
Following any Change in Control of the Company, to the extent that any
amount of severance pay or benefits provided hereunder to a Special Severance
Executive would cause such Special Severance Executive to be subject to excise
tax under Sections 280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), and after taking into consideration all other amounts
payable to the Special Severance Executive under other Company plans, programs,
policies and arrangements, then the amount of severance pay and benefits
provided hereunder shall be reduced (first by any severance pay and then, to the
extent necessary, by any benefits hereunder), to the extent necessary, to avoid
imposition of any such excise taxes (the "Reduction"); provided, however, that
if, after February 11, 1997, the closing price per share of the Company's common
stock, no par value, as reported on the New York Stock Exchange Composite Tape
remains, for five consecutive trading days following February 11, 1997, at or
above the price at which two-thirds of the award of performance-based options
granted by the Company to senior executives of the Company on February 4, 1997,
shall vest by their terms (the "Target Price") (such Target Price to be adjusted
for any stock split, stock dividend or other merger, reorganization,
recapitalization or other business combination effectuated after February 11,
1997), then the foregoing limitations shall not apply, and, in lieu thereof, the
Special Severance Executive shall be entitled to an additional payment (a
"Gross-Up Payment") in an amount such that, after payment of all excise taxes
under Sections 280G and 4999 of the Code (whether imposed on amounts provided
under this Plan or on amounts payable under any other Company plan, program,
policy or arrangement) and any income, employment or excise taxes on the
Gross-Up Payment, the Special Severance Executive retains an amount equal to the
amount necessary to fully offset the imposition of such excise taxes; provided,
however, that if it shall be determined that a Special Severance Executive is
entitled to the Gross-Up Payment, but that the Special Severance Executive would
not receive a net after-tax benefit at least $50,000 (taking into account both
income, employment and any excise taxes on the Gross-Up Payment) greater than
the net after-tax proceeds to the Special Severance Executive resulting from an
elimination of the Gross-Up Payment and the application of the Reduction, then
no Gross-Up Payment shall be made to Executive. All determinations of the amount
of the Gross-Up Payment shall be made by tax counsel selected by the Company's
<PAGE>
10
independent auditors, and the cost thereof shall be borne entirely by the
Company.
15. Miscellaneous
Except as provided in this Plan, the Executive shall not be entitled to any
notice of termination or pay in lieu thereof.
In cases where severance pay is provided under this Plan, pay in lieu of any
unused current year vacation entitlement will be paid to the Executive in a lump
sum.
Benefits under this Plan are paid for entirely by the Company from its general
assets.
This Plan is not a contract of employment, does not guarantee the Executive
employment for any specified period and does not limit the right of the Company
to terminate the employment of the Executive at any time.
The section headings contained in this Plan are included solely for convenience
of reference and shall not in any way affect the meaning of any provision of
this Plan.
16. Adoption Date and Amendments
This Plan was adopted by ITT on December 12, 1989 ("Adoption Date") and
does not apply to any termination of employment which occurred or which was
communicated to the Executive prior to the Adoption Date. The Plan was most
recently amended effective [February 11, 1997].
<PAGE>
SCHEDULE A
I. Benefits
A. Two times the sum of (x) annual base salary of a Special Severance
Executive in effect immediately prior to a Special Severance Executive's
termination of employment and (y) the highest bonus paid or awarded to the
Special Severance Executive in respect of the three years preceding a Change in
Control of the Company.
B. Continued health and life insurance benefits, perquisites and fringe
benefits for a two-year period following termination of employment on the same
basis provided to the Special Severance Executive immediately prior to his
termination of employment.
C. Outplacement services for one year.
II. Designated Special Severance Executives:
Cappello, Juan C.
Cotter, Robert F.
Davie, Edward
Donnelly, Patrick L.
Glakas, Nicholas J.
Hartman, Richard M.
Haussener, Albert F.
Hornbuckle, William J.
Librizzi, Oswaldo
Pausig, Ralph W.
Pearson, Robert
Saunders, Garry W.
Sheehy, Robert F.
Thomas, Mark E.
Wood, Donald C.
Zoghbi, Sami H.
Dated: February__, 1997
<PAGE>
SCHEDULE B
I. Benefits
A. Two times annual base salary of a Special Severance Executive in effect
immediately prior to a Special Severance Executive's termination of employment.
B. Continued health and life insurance benefits, perquisites and fringe
benefits for a two-year period following termination of employment on the same
basis provided to the Special Severance Executive immediately prior to his
termination of employment.
C. Outplacement services for one year.
II. Designated Special Severance Executives:
Abruzzese, Peter A.
Anderson, Willard P.
Attaway, David W.
Barnbeck, Christopher A.
Barreca, Thomas N.
Bolland, Robin
Brokaw, Robert W.
Brolick, Anthony J.
Durst, Allan J.
Erenberg, Steven A.
Foran, Margaret M.
Gallagher, James P.
Kholsa, V. Ranjit
Kilpatrick, John A.
Latham, James D.
Levine, Jonathan B.
Maland, Tim
Mandell, Andrew J.
Mc Clain, John T.
Menzel, Brian D.
Moore, Kathryn A.
<PAGE>
2
Nauman, Richard L.
O'Neill, Sean B.
Oswell, Audrey S.
Patten II, William W.
Pattison, Douglas P.
Rhael, David H.
Rivera-Soto, Roberto A.
Schabert, Peter
Segal, Horacio E.
Shigley, John L.
Silverman, Anne C.
Tarbell, Anne A.
Thomas, Melvyn E.
Van Kalsbeek, David J.
Wallace, Peter C.
Walsh, Michael J.
Waters, Richard L.
Whitson, James P.
Dated: February __, 1997
<PAGE>
SCHEDULE C
With respect to Special Severance Executives whose employment terminates
following a Change in Control of the Company, "Cause" and "Good Reason" shall
have the respective meanings set forth below:
"Cause" shall mean (i) the willful and continued failure of the Special
Severance Executive to perform substantially the Special Severance Executive's
duties owed to the Company or its affiliates after a written demand for
substantial performance is delivered by the Company to the Special Severance
Executive which specifically identifies the nature of such nonperformance, or
(ii) conviction of the Special Severance Executive for a felony. No act or
omission on the part of the Executive shall be considered "willful" unless it is
done or omitted in bad faith or without reasonable belief that the action or
omission was in the best interests of the Company.
"Good Reason" shall mean:
(i) without the Special Severance Executive's express written consent
and excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company or its
affiliates promptly after receipt of notice thereof given by the Special
Severance Executive, (A) a reduction in the Special Severance Executive's
annual base salary or annual bonus (as measured by the highest bonus paid
or awarded in respect of the three calendar years preceding a Change in
Control of the Company) or any reduction in any material compensation or
benefits arrangement, (B) the assignment to the Special Severance Executive
of any duties inconsistent in any respect with the Special Severance
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities, or (C) any other
action by the Company or its affiliates which results in a diminution in
such position, authority, duties or responsibilities;
(ii) without the Special Severance Executive's express written
consent, the Company's requiring the Special Severance Executive's work
location to be other than within twenty-five (25) miles of the location
where such Special Severance Executive was principally working immediately
prior to the Change in Control of the Company; or
<PAGE>
2
(iii) any failure by the Company to obtain the express written
assumption of this Plan from any successor to the Company.
For purposes hereof, a determination by a Special Severance Executive that
he has "Good Reason" hereunder shall be final and binding on the parties hereto
absent a showing of bad faith on the Special Severance Executive's part.
<PAGE>
[EXHIBIT 5]
CONTACTS: JIM GALLAGHER GEORGE SARD/PAUL VERBINNEN
212/258-1261 SARD VERBINNEN & CO.
212/687-8080
ITT REJECTS HILTON OFFER AS INADEQUATE, SAYS INTERESTS OF
SHAREHOLDERS BEST SERVED BY ITT'S CONTINUED INDEPENDENCE
REAFFIRMS FOCUS ON CORE LODGING AND GAMING OPERATIONS;
EXPLORING WAYS TO REALIZE VALUE OF NON-CORE ASSETS
______________________________________________________
NEW YORK, FEBRUARY 12, 1997 -- ITT Corporation (NYSE: ITT) today
announced that its Board of Directors voted unanimously to recommend that ITT
shareholders reject Hilton's $55 per share partial tender offer and the proposed
second-step "squeeze out" merger as inadequate and not in the best interests of
ITT shareholders.
The Board stated that the interests of ITT shareholders, as well as
ITT employees, suppliers, creditors, customers and the communities in which it
operates would best be served by the Company remaining independent.
In its recommendation to ITT shareholders, the Board cited, among
other things:
* Hilton's offer does not reflect the inherent value of ITT.
* The opinions of its financial advisors, Goldman Sachs and Lazard
Freres, that the Hilton offer is inadequate.
* Continued pursuit of ITT's strategic plan, including refinements that
may result from management's ongoing review, will produce greater
short-term and long-term value for ITT shareholders than the proposed
Hilton transactions.
<PAGE>
* Potential competition, cannibalization and conflicts among U.S. and
overseas properties managed by Sheraton, Hilton and Ladbroke.
* Hilton's proposed arrangement with HFS to license the Sheraton and
Four Points names for franchising, which could lead to termination of
numerous contracts.
* The coercive nature of Hilton's two-tier, front-end loaded offer which
is intended to compel ITT shareholders to tender into the offer to
avoid receiving Hilton stock in the proposed second-step squeeze out
merger.
* Potential antitrust and gaming law issues.
ITT said it intends to continue building the world's premier lodging
and gaming company by focusing on the Sheraton and Caesars brands. In
reaffirming its strategic plan to focus on lodging and gaming, ITT said it is
reviewing various options to increase the value of the company, including
monetizing or otherwise realizing the value of ITT's non-core assets.
"The issue is creating shareholder value, both short- and long-term,"
said Rand V. Araskog, Chairman and Chief Executive of ITT. "The actions we will
take acknowledge both time frames and our commitment to focus on hotels and
gaming. This approach will increasingly highlight our strong performance at
Sheraton and Caesars. We plan to deploy our financial resources only to those
assets that produce superior current and future earnings growth."
Araskog said, "There are serious business conflicts which have always
confronted a Sheraton/Hilton combination -- owning and managing multiple hotels
under each brand in dozens of the same cities creates material conflicts of
interest. These conflicts would be even more serious now that Hilton has
entered into a global alliance with Ladbroke. In addition, Hilton's proposed
relationship with HFS -- which franchises economy, limited-service lodging
brands such as Super 8 Motels, Days Inn and Knights Inn -- raises serious
questions. Being forced to deal with HFS would
<PAGE>
devalue the premium Sheraton brand and could antagonize many property owners who
have contracted with ITT to manage or franchise their properties around the
world."
Robert A. Bowman, ITT President and Chief Operating Officer, said,
"Operations drive earnings and earnings drive shareholder value. Last year,
Sheraton outperformed its upscale hotel peer group, according to Smith Travel
Research. We expect continued improvement in lodging results based on our
extensive refurbishment program, the prime locations of our properties,
continuing productivity gains, pricing leverage produced by our global
reservation system and our strong brand. In gaming, our core Caesars World
properties achieved growth and improved margins in 1996 -- even as we began
major renovations at Caesars Palace and Caesars Atlantic City in the second half
of the year. We expect accelerated earnings growth in gaming as these
construction projects are completed."
As part of its response to Hilton's offer, ITT today is filing
counterclaims to the litigation Hilton previously filed against it in Nevada
Federal Court. ITT is seeking to enjoin the offer because of Hilton's
misappropriation and misuse of confidential ITT information, including
information obtained in violation of a 1996 confidentiality agreement between
ITT and Bally Entertainment, now part of Hilton. Alternatively, ITT seeks to
compel Hilton to disclose information about its offer required under federal
securities laws.
ITT Corporation had 1996 sales of approximately $6.6 billion. Its
core assets include ITT Sheraton, one of the world's largest hotel companies
with approximately 410 hotels and resorts in 60 countries and Caesars World, the
leading brand name in the gaming industry, with major casinos in Atlantic City,
Las Vegas and Lake Tahoe. Other assets include ITT Educational Services, ITT
World Directories and ownership interests in Madison Square Garden in
partnership with Cablevision and in WBIS+ in partnership with Dow Jones.
<PAGE>
[ITT LETTERHEAD]
[EXHIBIT 6]
February 12, 1997
Dear Stockholder:
On January 31, 1997, a subsidiary of Hilton Hotels Corporation ("Hilton")
announced a tender offer (the "Offer") for 50.1% of the outstanding shares of
ITT's common stock at a price of $55.00 per share in cash. Hilton has also
announced that, if the Offer succeeds, it will merge ITT with Hilton (such
merger, together with the Offer, the "Hilton Transaction"). In such proposed
merger, all shares of ITT common stock not accepted in the Offer would be
converted into Hilton common stock with a value of $55 per share, subject to
unspecified collar provisions.
Your Board of Directors has unanimously determined that the Hilton
Transaction, including the Offer, is inadequate and not in the best interests of
ITT. Accordingly, the Board of Directors unanimously recommends that you reject
the Hilton Transaction and not tender your shares to Hilton pursuant to the
Offer.
In arriving at their decision that the Hilton Transaction, including the
Offer, is inadequate and not in the best interests of ITT, your Board gave
careful consideration to the interests of ITT's stockholders and all other
factors permitted by applicable law (including the interests of ITT's employees,
suppliers, creditors and customers; the economy of Nevada and the nation; the
interests of the communities in which ITT operates and of society; and the long
and short-term interests of ITT and its stockholders, including the possibility
that these interests may be best served by the continued independence of ITT).
Your Board reviewed, among other items, the opinions of Lazard Freres & Co. LLC
and Goldman, Sachs & Co., ITT's financial advisors, that the consideration to be
received by ITT's stockholders pursuant to the Hilton Transaction, including the
Offer, is inadequate. We urge you to read carefully the attached Schedule 14D-9
in its entirety so that you will be fully informed as to the Board's
recommendation.
Your Board of Directors and the management of ITT believe that the Offer
fails to recognize the inherent value of ITT. The Board concluded that the
interests of ITT and its stockholders would be best served if ITT were to remain
an independent company. In light of the Board's decisions, management of ITT,
together with ITT's advisors, are continuing to refine ITT's strategic plan to
focus on gaming and lodging and are actively exploring opportunities to enhance
the value of ITT. As part of this process, ITT will be taking steps to monetize
or otherwise realize the value of non-core assets.
Please be assured that your Board of Directors and the management of ITT
will continue to act in the best interests of ITT Corporation and its
stockholders. Your Directors thank you for your support.
Very truly yours,
Rand V. Araskog
Chairman of the Board and
Chief Executive
<PAGE>
[EXHIBIT 7]
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
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 HLT CORPORATION, )
)
Plaintiffs, )
) CV-S-97-00095-PMP (RLH)
-vs- )
)
ITT CORPORATION, )
Defendant. )
)
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF
Plaintiffs Hilton Hotels Corporation ("Hilton") and HLT Corporation
("HLT"), by their attorneys, allege upon knowledge with respect to themselves
and their own acts, and upon information and belief as to all other matters, as
follows.
<PAGE>
2
Nature of the Action
1. Hilton has today announced that it will commence a tender offer for the
stock of defendant ITT Corporation ("ITT") at $55 per share, a price
representing a 25% premium over the closing trading price of ITT common stock on
Friday, January 24, the last trading day before Hilton's announcement. This
action for injunctive and declaratory relief is brought to forestall any effort
by ITT to manipulate or otherwise subvert the process of corporate democracy by
amending ITT's by-laws or taking any other action to frustrate the proxy contest
that Hilton is preparing to conduct to replace the ITT Board of Directors in
order to facilitate the tender offer. This action also seeks injunctive relief
requiring ITT to dismantle its takeover defenses, including its "poison pill,"
and a declaratory judgment that ITT does not have standing to institute an
action under the federal antitrust laws to block or impede Hilton's tender offer
and that, in any event, the consummation of that offer would not violate such
laws.
Parties
2. Plaintiff Hilton Hotels Corporation is a Delaware corporation with its
principal executive offices in Beverly Hills, California.
3. Plaintiff HLT Corporation is a Delaware corporation with its principal
place of business in Beverly
<PAGE>
3
Hills, California. HLT is a wholly-owned subsidiary of Hilton and is the record
and beneficial owner of 100 shares of ITT stock.
4. Defendant ITT Corporation is a Nevada corporation with its principal
executive offices in New York, New York.
Jurisdiction and Venue
5. This Court has jurisdiction over this action pursuant to 28 U.S.C.
ss.ss. 1331, 1332(a) and 1337, and 15 U.S.C. ss.ss. 4 and 26. The amount in
controversy is in excess of $50,000.
6. Venue is proper in the unofficial Southern Division of this District
under 28 U.S.C. ss. 1391(b) and (c), 15 U.S.C. ss.ss. 15, 22, and 26, and LR 1A
8-1.
The Proxy Context
7. In the last quarter of 1996, Hilton contacted one of ITT's principal
financial advisers to determine whether ITT would be interested in pursuing a
business combination with Hilton. The ITT adviser reported back that ITT had no
interest in pursuing such a combination.
8. On January 27, 1997, Hilton announced its intention to commence a
tender offer pursuant to which Hilton is seeking to acquire 50.1% of the
outstanding shares of ITT stock at $55 per share. Upon consummation of the
tender offer, Hilton intends to acquire the remaining shares of ITT in a
second-step merger in which ITT shareholders
<PAGE>
4
will receive $55 in Hilton stock for each ITT share that they own.
9. The Hilton tender offer and second-step merger cannot be consummated
unless the ITT Board -- voluntarily or by direction of a court -- removes or
makes inapplicable various anti-takeover devices, including ITT's "poison pill"
and the provisions of Nevada Rev. Statutes ss.ss. 78.378 et seq. and 78.411 et
seq.
10. In light of ITT's prior rejection of Hilton's attempt to explore a
business combination with ITT, the current ITT Board cannot be expected to
facilitate Hilton's tender offer and second-step merger, but can be expected,
instead, to maintain ITT's anti-takeover devices in place and actively oppose
and resist any such acquisition. For this reason, Hilton and HLT are preparing
to conduct a proxy contest to replace the current members of the ITT Board of
Directors with individuals nominated by Hilton and HLT, who will run on a
platform to sell ITT to Hilton, subject to their fiduciary duties to ITT
shareholders.
ITT's By-Laws
11. 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
<PAGE>
5
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 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."
12. The 1996 annual meeting of ITT stockholders was held on May 14, 1996,
when ITT's stockholders elected 11 directors to the ITT board to serve until
their successors are elected at the next annual meeting. Under ITT's by-laws,
Hilton and HLT must give written notice of their intention to nominate persons
for election as directors on or before February 13, 1997, which Hilton and HLT
are preparing to do.
<PAGE>
6
First Claim for Relief
(Injunctive Relief)
13. Plaintiffs repeat and reallege each of the allegations set forth in
paragraphs 1 through 12 hereof as if fully set forth at length herein.
14. ITT and its directors are prohibited by Nevada law from amending ITT's
by-laws in any manner or taking any other action that would have the purpose or
effect of impeding the effective exercise of the stockholder franchise in
connection with the election of directors.
15. Under the ITT by-laws, Hilton and HLT may nominate directors for
election at the next annual meeting of ITT if they give written notice of their
intention to do so on or before February 13, 1997. Such annual meeting would, in
the ordinary course, proceed on or about May 14, 1997, i.e., approximately one
year after the May 14, 1996 annual meeting of ITT shareholders. Unless the ITT
board adopts a resolution changing the size of the ITT board, ITT shareholders
would be asked to elect 11 individuals to the ITT board at such annual meeting.
16. Plaintiffs intend to nominate directors for election at the 1997
annual meeting of ITT shareholders in accordance with the Amended and Restated
By-Laws of ITT.
17. Any effort by ITT or the ITT board: (a) to amend ITT's by-laws in any
way that would impede the effective exercise of the stockholder franchise in
<PAGE>
7
connection with the 1997 annual meeting; (b) to materially delay the conduct of
the 1997 annual meeting; or (c) to enlarge the size of the ITT board in order to
preserve the position of the incumbent directors as a majority would be illegal.
18. Plaintiffs have no adequate remedy at law.
SECOND CLAIM FOR RELIEF
-----------------------
(Injunctive Relief)
19. Plaintiffs repeat and reallege each of the allegations set forth in
paragraphs 1 through 18 hereof as if fully set forth at length herein.
20. 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 the 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 take-over, 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]."
<PAGE>
8
21. Defendant ITT also has the anti-takeover protections of Nevada Rev.
Statutes ss.ss. 78.378 et seq. (the "Control Share Acquisition Statute") and
Nevada Rev. Statutes ss.ss. 78.411 et seq. (the "Business Combination Statute").
ITT's former corporate parent has publicly acknowledged that the Control Share
Acquisition and Business Combination Statutes "may delay or make more difficult
acquisitions or changes of control of [ITT]", "may have the effect of preventing
changes in the management of [ITT]" and "could make it more difficult to
accomplish transactions which [ITT] shareholders may otherwise deem to be in
their best interests."
22. Under the Control Share Acquisition Statute, a third-party like Hilton
that acquires a "controlling interest" in the shares of ITT cannot vote those
shares unless: (a) such voting rights are conferred by a majority vote of the
disinterested shareholders of the corporation; or (b) the ITT board adopts a
by-law opting out of the coverage of the Statute, something that the ITT board
has not done.
23. Under the Business Combination Statute, a third-party like Hilton that
acquires 10% or more of the voting power of ITT's stock cannot engage in a
business combination with ITT for three years unless the acquisition of the
shares or the business combination is approved by the ITT board in advance.
<PAGE>
9
24. The effect of ITT's anti-takeover devices is to frustrate and impede
the ability of ITT shareholders to decide for themselves whether they wish to
receive the benefits of the Hilton tender offer and proposed second-step merger.
These devices unreasonably and inequitably frustrate and impede the ability of
Hilton to consummate its offer and merger proposal. The failure of ITT and its
board to redeem the ITT "poison pill," to adopt a by-law opting out of the
Control Share Acquisition Statute, and to adopt a resolution approving the
Hilton tender offer for purposes of the Business Combination Statute is clearly
a breach of their fiduciary duty and thus a violation of Nevada law.
25. Plaintiffs have no adequate remedy at law.
THIRD CLAIM FOR RELIEF
----------------------
(Declaratory Relief)
26. Plaintiffs repeat and reallege each of the allegations set forth in
paragraphs 1 through 25 hereof as if fully set forth at length herein.
27. Hilton and ITT, through their respective subsidiaries, compete in the
hotel and gaming businesses. ITT has described these businesses as "highly
competitive" in its Form 10-K filing with the Securities and Exchange Commission
for the fiscal year ending December 31, 1995.
28. As part of its overall strategy to prevent its shareholders from
considering the Hilton tender offer, there is a real and immediate threat that
ITT will allege
<PAGE>
10
that it has standing under the federal antitrust laws to file an action to
enjoin Hilton's tender offer.
29. ITT does not have standing to pursue an action to enjoin the
consummation of the Hilton tender offer under any antitrust theory because the
consummation of the offer would not cause ITT injury of the type that the
antitrust laws are intended to redress. If ITT had standing, the threatened
action would be without merit because an acquisition of ITT by Hilton would not
substantially lessen competition or tend to create a monopoly in any line of
commerce.
30. By reason of the foregoing, an actual controversy exists between
Hilton and ITT regarding whether ITT has standing to pursue an injunction
against the Hilton tender offer under the federal antitrust laws and whether the
consummation of that offer would violate such laws.
31. Pursuant to 28 U.S.C. ss. 2201, Hilton is therefore entitled to
declaratory relief from this Court.
WHEREFORE, plaintiffs seek judgment:
(a) Enjoining ITT from amending its by-laws to in any way impede the
effective exercise of the stockholder franchise in connection with election of
directors at the 1997 annual meeting of ITT shareholders;
(b) Requiring ITT to honor any nomination for the election of directors by
Hilton or HLT at the 1997 annual meeting of ITT shareholders;
<PAGE>
11
(c) Enjoining ITT from increasing the size of its board at or before its
1997 annual meeting or, in the alternative, requiring ITT to give Hilton and HLT
an opportunity to supplement their written notice of intention to nominate
individuals for election of directors in the event that ITT does increase the
size of its board;
(d) Enjoining ITT from delaying its 1997 annual meeting beyond May 14,
1997;
(e) Enjoining ITT from refusing to redeem ITT's "poison pill" and refusing
to make the provisions of the Nevada Control Share Acquisition and Business
Combination Statutes inapplicable to Hilton's tender offer for ITT stock;
(f) Declaring that ITT lacks standing and may not institute an action
seeking to enjoin the Hilton tender offer under any theory of federal antitrust
law;
(g) Declaring that the consummation of the Hilton tender offer for ITT
stock will not substantially lessen competition or tend to create a monopoly in
any line of commerce;
(h) Awarding plaintiffs their costs of suit, including reasonable
attorneys' fees; and
<PAGE>
12
(i) Granting plaintiffs such other and further relief as the Court may
deem just and proper.
Dated: January 27, 1997
Las Vegas, Nevada
SCHRECK MORRIS
By: /s/ Steve Morris
----------------------------
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
SCOTT L. BLACK
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Plaintiffs
HILTON HOTELS CORPORATION
and HLT CORPORATION
<PAGE>
[Exhibit 8]
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
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 HLT CORPORATION, Case No. CV-S-
97-00095-PMP
Plaintiffs, (RLH)
-vs- MOTION FOR
PRELIMINARY
ITT CORPORATION, INJUNCTION
Defendant.
- ------------------------------------------------
Pursuant to Rule 65 of the Federal Rules of Civil Procedure,
plaintiffs Hilton Hotels Corporation ("Hilton") and HLT Corporation ("HLT")
hereby move this Court for an order preliminarily enjoining defendant ITT
Corporation ("ITT") from: (a) increasing the size of the ITT Board of Directors
or, in the alternative, requiring ITT to give
<PAGE>
plaintiffs the opportunity to supplement their written notice of intention to
nominate individuals for election as ITT directors in the event that ITT does
increase the size of its Board, or (b) amending the ITT By-Laws to impede in any
way the effective exercise of the stockholder franchise in connection with the
election of directors at the 1997 annual meeting of ITT stockholders.
This motion is based upon the Memorandum of Points and Authorities
and the affidavit of Eric M. Roth filed herewith.
Dated: January 27, 1997
SCHRECK MORRIS
By:/s/ Steve Morris
---------------------------
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
SCOTT L. BLACK
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Plaintiffs
HILTON HOTELS CORPORATION
and HLT CORPORATION
-2-
<PAGE>
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
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 HLT CORPORATION,
Plaintiffs,
Case No.
-vs-
ITT CORPORATION,
Defendant.
- ------------------------------------------------
MEMORANDUM OF POINTS AND AUTHORITIES
IN SUPPORT OF PLAINTIFFS' MOTION
FOR PRELIMINARY INJUNCTION
Plaintiff Hilton Hotels Corporation ("Hilton") has today announced
that it will commence a tender offer for the stock of ITT Corporation ("ITT").
In conjunction with its tender offer, Hilton is preparing to conduct a proxy
contest
<PAGE>
for control of the ITT Board. The proxy contest will give ITT's shareholders the
opportunity to express their support for, and facilitate the consummation of,
Hilton's acquisition of ITT. By voting to replace ITT's incumbent directors with
Hilton's nominees, ITT's shareholders will enable Hilton to dismantle ITT's
"poison pill" and other anti-takeover defenses designed to prevent Hilton (or
anyone else) from acquiring control of ITT without the incumbent Board's
approval.
Hilton's ability to conduct a successful proxy contest itself faces
a potentially serious obstacle: ITT's own corporate by-laws. The by-laws purport
to require Hilton to give ITT written notice of Hilton's intention to nominate
its slate for election to the Board -- including information about each of
Hilton's nominees -- by February 13, 1997. The by-laws also allow the incumbent
ITT Board to increase the size of the Board from its current eleven directors.
There is nothing in the by-laws to prevent the Board from increasing its size
after Hilton delivers its written notice. Moreover, the by-laws provide no
mechanism for Hilton to supplement its written notice to increase the size of
its slate in the event that the ITT Board increases the size of the Board after
Hilton's notice is received. If ITT increases the size of its Board after
February 13, and Hilton is not permitted to field a full slate of nominees for
election to the ITT Board, Hilton will
-2-
<PAGE>
not be able to replace the entire ITT Board no matter how many votes Hilton's
slate of nominees attracts.
This motion seeks to forestall any effort by ITT to manipulate or
otherwise subvert the process of corporate democracy by frustrating the proxy
contest that Hilton is preparing to conduct to replace the ITT Board of
Directors. Hilton seeks a preliminary injunction barring ITT from: (a)
increasing the size of the ITT Board of Directors or, in the alternative,
requiring ITT to give Hilton the opportunity to supplement its written notice of
intention to nominate individuals for election as ITT directors in the event
that ITT does increase the size of its Board; or (b) amending ITT's corporate
by-laws to impede in any way the effective exercise of the stockholder franchise
in connection with the election of directors at the 1997 annual meeting of ITT
stockholders.
BACKGROUND FACTS*
1. The Parties
Plaintiff Hilton is a Delaware corporation primarily engaged in the
ownership and management of hotels and hotel-casinos. Among the properties owned
by Hilton in Nevada are the Las Vegas Hilton, the Flamingo Hilton-
- ----------
* The statement of facts is drawn from the Affidavit of Eric M. Roth, sworn
to January 27, 1997, submitted in support of plaintiffs' motion.
-3-
<PAGE>
Las Vegas, the Flamingo Hilton-Reno, the Reno Hilton and Bally's Las Vegas.
Plaintiff HLT Corporation ("HLT"), a wholly-owned subsidiary of
Hilton, is a Delaware corporation, and is the record and beneficial owner of 100
shares of ITT stock.
Defendant ITT is a Nevada corporation engaged, through subsidiaries,
in the hospitality, gaming, entertainment and information services businesses.
Among the properties owned by ITT in Nevada are Caesars Palace in Las Vegas and
Caesars Tahoe in Stateline.
2. The Proxy Contest
In the last quarter of November, 1996, Hilton contacted one of ITT's
primary financial advisors to determine whether ITT would be interested in
pursuing a business combination with Hilton. ITT's financial advisor reported
back that ITT had no interest in pursuing such a combination.
On January 27, 1997, Hilton announced its intention to commence a
tender offer pursuant to which Hilton is seeking to acquire 50.1% of the
outstanding shares of ITT stock at $55 per share (the "Tender Offer"). The
Tender Offer price represents a 25% premium over the closing trading price of
ITT common stock on Friday, January 24, the last trading day before the Tender
Offer was announced. Upon consummation of the Tender Offer, plaintiffs intend to
acquire the remaining shares of ITT in a second-step merger
-4-
<PAGE>
in which ITT shareholders will receive $55 in Hilton stock for each ITT share
that they own (the "Merger").
ITT has a number of anti-takeover provisions in place. Such
provisions include ITT's "rights plan," better known as a "poison pill."
Pursuant to ITT's "poison pill," in the event that a third-party like Hilton
acquires 15% or more of ITT's shares, all ITT shareholders other than the
third-party become entitled to purchase ITT preferred shares at a 50% discount
from market value. ITT's former corporate parent has publicly acknowledged that
the effect of ITT's "poison pill" is to delay or make it more difficult for an
acquiror like Hilton to acquire control of ITT, even if ITT shareholders deem
the acquisition to be in their best interests.
Defendant ITT also has the anti-takeover protections of Nevada Rev.
Statutes ss.ss. 78.378 et seq. (the "Control Share Acquisition Statute") and
Nevada Rev. Statutes ss.ss. 78.411 et seq. (the "Business Combination Statute").
ITT's former corporate parent has publicly acknowledged that the Control Share
Acquisition and Business Combination Statutes may have the effect of preventing
a change in management and making it more difficult to accomplish transactions
that ITT shareholders may otherwise deem to be in their best interests.
Under the Control Share Acquisition Statute, a third-party like
Hilton that acquires a "controlling
-5-
<PAGE>
interest" in the shares of ITT cannot vote those shares unless: (a) such voting
rights are conferred by a majority vote of the disinterested shareholders of the
corporation; or (b) the ITT board adopts a by-law opting out of the coverage of
the Statute, something which the ITT Board has not done.
Under the Business Combination Statute, a third-party like Hilton
that acquires 10% or more of the voting power of ITT's stock cannot engage in a
business combination with ITT for three years unless the acquisition of shares
or the business combination is approved by the ITT Board in advance.
The effect of ITT's anti-takeover devices is to frustrate and impede
both the ability of ITT shareholders to decide for themselves whether they wish
to receive the compelling benefits of the Tender Offer and the proposed Merger
and the ability of Hilton to consummate these transactions.
Accordingly, in light of ITT's prior rejection of Hilton's attempt
to explore a business combination with ITT, plaintiffs are preparing to couple
their Tender Offer with a proxy contest to replace ITT's incumbent Board of
Directors with individuals nominated by plaintiffs. This strategy is typically
employed where, as here, the target company's board of directors has a "poison
pill" and other anti-takeover defenses in place. Replacing the incumbent
-6-
<PAGE>
directors through a proxy fight is an efficient way to eliminate the target
company's ability to use these anti-takeover defenses. Plaintiffs' nominees for
election to the ITT Board will run on a platform of selling ITT to Hilton,
subject, of course, to their fiduciary duties to ITT shareholders.
3. ITT's By-Laws and the Threatened Harm to Plaintiffs
ITT's Amended and Restated By-Laws (the "By-Laws") purport to give
the ITT Board of Directors broad authority with respect to the scheduling and
conduct of shareholder meetings and fixing the size of the ITT Board. ITT's
former corporate parent has publicly acknowledged that these provisions of the
By-Laws "may delay or make more difficult unsolicited acquisitions or changes of
control of [ITT]", "could have the effect of discouraging third parties from
making proposals involving an unsolicited acquisition or change of control of
[ITT], although such proposals, if made, might be considered desirable by a
majority of [ITT's] shareholders" and "may also have the effect of making it
more difficult for third parties to cause the replacement of the current
management of [ITT] without the concurrence of the [ITT] Board of Directors."
Indeed, as written, the By-Laws are susceptible to great abuse because they
appear to allow the ITT Board to make it impossible for plaintiffs to
-7-
<PAGE>
compete fairly against the incumbent directors in the forthcoming proxy contest.
Thus, section 2.2 of the 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, 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." Since ITT had its 1996 annual meeting on May 14 of
last year, under the By-Laws, Hilton and HLT must give written notice of their
intention to nominate persons for election as directors on or before February
13, 1997 (i.e., 90 days prior to May 14, 1997). Hilton and HLT intend to give
such written notice on a timely basis.
The ITT Board of Directors has fixed the number of directors at
eleven. It is significant to note, however, that Section 2.2 does not 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. Thus, for
-8-
<PAGE>
example, if the ITT Board were to decide at any time after February 13 (the day
plaintiffs' notice is due under the By-Laws) to increase the size of the Board
to twenty-five directors, the By-Laws do not expressly permit plaintiffs to
amend their notice to increase the size of their slate of nominees to
twenty-five. It is significant to note that 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." If plaintiffs are not permitted to field a
full slate of nominees for election to the ITT Board, plaintiffs will be
rendered incapable of replacing the entire ITT Board.
If ITT and its directors were to enlarge the size of the Board after
February 13 or to take other action designed to impair the ability of ITT
shareholders to vote in favor of directors supportive of the Tender Offer and
the Merger at the forthcoming annual meeting, plaintiffs would suffer
irreparable injury. Plaintiffs' only meaningful chance to unseat the current ITT
Board is at the annual meeting. Under the By-Laws and the ITT Articles of
Incorporation, neither plaintiffs nor the other ITT shareholders have the
ability to call a special meeting of shareholders; special meetings may be
called only by ITT's
-9-
<PAGE>
Chairman or by a majority vote of the Board. Moreover, both the By-Laws and the
ITT Articles of Incorporation provide that shareholder action may be effected
only at annual or special meetings and may not be effected by written consents.
ARGUMENT
I. STANDARD OF RELIEF AND APPLICABLE LAW
The standards applicable on this motion are well-settled and well
known to this Court. In order to obtain a preliminary injunction, a party must
show either (1) a likelihood of success on the merits and the possibility of
irreparable injury, or (2) the existence of serious questions going to the
merits and the balance of hardships tipping in the movant's favor. MAI Systems
Corp. v. Peak Computer, Inc., 991 F.2d 511, 516-17 (9th Cir. 1993) (citations
omitted). These two standards operate on a sliding scale so that "where a party
can show a strong chance of success on the merits, he need only show a
possibility of irreparable harm. Where, on the other hand, a party can show only
that serious questions are raised, he must show that the balance of hardships
tips sharply in his favor." Shoen v. Amerco, 885 F. Supp. 1332, 1338 (D. Nev.
1994), modified on other grounds, No. CV-N-94-0475-ECR, 1996 WL 904199 (D. Nev.
Oct. 24, 1994) (citations and quotations omitted). Plaintiffs are entitled to
injunctive relief under either standard.
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<PAGE>
II. PLAINTIFFS HAVE A HIGH LIKELIHOOD OF SUCCESS ON THE MERITS
A. It is unlawful for a corporate board to interfere with the effective
exercise of the shareholders' right to vote.
Directors' actions affecting shareholders' right to vote are
subjected to strict judicial scrutiny. As this Court has explained:
[S]hareholders normally have only two protections against perceived
inadequate business performance. They may sell their stock..., or they may
vote to replace incumbent board members. Indeed, one of the justifications
for the business judgment rule's insulation of directors liability for
almost all of their decisions is that unhappy shareholders can always vote
the directors out of office. Thus, interference with shareholder voting is
an especially serious matter, not to be left to the directors' business
judgment, precisely because it undercuts a primary justification for
allowing directors to rely on their judgment in almost every other context
. . . . [Thus] action designed for the primary purpose of interfering with
the effectiveness of a stockholder vote is subject to a standard of review
more demanding than the business judgment rule. In such a case, the Board
bears the heavy burden of demonstrating a compelling justification for
such action.
Shoen, 885 F. Supp. at 1340-41 (citations omitted).** See also Blasius Indus. v.
Atlas Corp., 564 A.2d 651, 659 (Del. Ch. 1988) ("The shareholder franchise is
the ideological underpinning upon which the legitimacy of directorial power
rests . . . the ordinary considerations to which the
- ----------
** ITT is a Nevada corporation, and Nevada corporate law therefore governs
this dispute. Horwitz v. Southwest Forest Indus., 604 F. Supp. 1130, 1134 (D.
Nev. 1985).
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<PAGE>
business judgment rule originally responded are simply not present in the
shareholder voting context").
Time and time again courts have enjoined board activity which was
taken for the primary purpose of impairing or impeding the effective exercise of
the corporate franchise. See, e.g., Shoen, 885 F. Supp. at 1344 (enjoining board
from advancing annual meeting date so that meeting could be conducted before an
arbitration decision was issued which might render incumbent management unable
to control dissident shareholder shares for voting purposes); Blasius, 564 A.2d
at 663 (voiding board action which increased size of board taken to offset
effects of shareholders' consent which would have potentially resulted in
challenging shareholder nominating a majority of new board members); Norlin
Corp. v. Rooney, Pace Inc., 744 F.2d 255, 265 (2d Cir. 1984) (enjoining board
from voting shares held by corporation's wholly-owned subsidiary and
newly-created employee stock option plan so as to solidify management's control
of the company); Schnell v. Chris-Craft Indus., 285 A.2d 437, 440 (Del. 1971)
(enjoining board from advancing date of shareholder meeting to obstruct
shareholder's proxy contest); Aprahamian v. HBO & Co., 531 A.2d 1204, 1208-09
(Del. Ch. 1987) (enjoining board's decision to postpone annual meeting so as to
invalidate proxies submitted on behalf of opposing nominees); Lerman v.
Diagnostic Data, Inc., 421 A.2d 906, 914 (Del. Ch. 1980)
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<PAGE>
(enjoining board's adoption of by-law amendment requiring that certain
information concerning board candidates, other than management's nominees, be
submitted 70 days in advance of the annual meeting, where board announced
holding of meeting on 63 days' notice).
These cases stand for the proposition that board activity taken
"practically to preclude effective stockholder action" is deemed "inequitable."
Stahl v. Apple Bancorp., Inc., 579 A.2d 1115, 1123 (Del. Ch. 1990). Where a
board seeks to engage in inequitable conduct, courts will enjoin the attempted
activity even if it is otherwise lawful and within the board's powers under the
corporate charter and by-laws. See, e.g., Shoen, 885 F. Supp at 1342
("inequitable action does not become permissible simply because it is legally
possible") (citing Schnell, 285 A.2d at 439); Dolgoff v. Projectavision, Civ. A.
No. 14805, 1996 WL 91945 at *7 (Del. Ch. Feb. 29, 1996) ("legal action can be
the subject of equitable remedies if taken for the primary purpose of
interfering with the effective exercise of the shareholder franchise"); Stroud
v. Grace, 606 A.2d 75, 96 (Del. 1992) ("every valid by-law is always susceptible
to potential misuse"); Stahl, 579 A.2d at 1121 ([i]t is an elementary
proposition of corporation law that, where they exist, fiduciary duties
constitute a network of responsibilities that overlay the exercise of even
undoubted legal power"). Moreover, board conduct taken for the
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<PAGE>
primary purpose of entrenchment may be "inequitable" even if the board acts not
out of self-interest, but rather with the "subjective good faith" that its
action is in the best interest of the shareholders. Shoen, 885 F. Supp. at 1341
n.21; Blasius, 564 A.2d at 658-59.
B. Any attempt, by the ITT Board to increase the size of its Board
before the annual meeting or otherwise impede the effective exercise
of the stockholders' franchise at the upcoming annual meeting would
be a breach of fiduciary duty.
The ITT By-Laws are structured in a manner which allows the present
eleven-member Board to manipulate the corporate machinery and frustrate the
right of ITT shareholders to vote the incumbent Board out of office. Thus, as
explained above, Section 2.2 of ITT's By-Laws requires that any shareholder
seeking to nominate a person or persons for election to the Board must submit
the necessary documentation to the company at least 90 days in advance of the
anniversary date of the immediately preceding shareholder meeting, i.e., this
year, February 13, 1997. This provision has the effect of "locking in"
plaintiffs' February 13 submission of nominees, because, while the By-Laws do
not specify when the annual meeting must be held, any shareholder submitting
nominees for the annual meeting must do so at least 90 days prior to the
anniversary of last year's annual meeting, no matter when the current year's
annual meeting is held. When combined with Section 2.2's additional provision
enabling the current Board to expand
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<PAGE>
its size to up to 25 members at any time, it becomes apparent that following the
submission of Hilton's nominees on or before February 13, the ITT Board will be
able to increase the size of the Board to 25 members, and attempt to guarantee
the election of a board with at least fourteen directors (and hence a board
majority) that it nominated. Any such action would frustrate the ability of ITT
shareholders to express their desire to see ITT sold to Hilton through the free
exercise of corporate democracy.
Thus, rather than merely delaying the ability of the shareholders to
replace management, an increase in the size of the ITT Board after February 13
could completely preclude the shareholders from electing a board consisting of a
majority of directors of their nomination. Courts have had little hesitancy in
enjoining such action. For example, in Lerman v. Diagnostic Data, Inc., 421 A.2d
906 (Del. Ch. 1980), after learning of the plaintiff's attempt to wage a proxy
contest at the next annual meeting, the target's board amended the by-laws so as
to do away with the established, annually recurring meeting date in favor of a
provision giving the board the power to fix the date at any time it saw fit, and
so as to require that any shareholder nominations for elections to the board be
submitted to the company at least 70 days prior to any meeting of stockholders
called for the election of directors. Some time thereafter (a considerable time
beyond the formerly
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<PAGE>
established annual meeting date, and while the plaintiff was still in the
process of filing the necessary information concerning his nominees with the
SEC), the board met and proceeded to announce an annual meeting date 63 days
later.
After the plaintiff sought relief, the Lerman court enjoined the
board from holding the meeting as it had planned, finding that "[f]rom the date
the board used the power of the amended by-law to fix the date of the annual
meeting there was no way in which a DDI shareholder could possibly comply with
the accompanying 70-day requirement of [the by-laws]," and thus the amended
by-law had "the effect, not so much of giving management an inequitable
advantage, but of removing the insurgents from the contest altogether." Id. at
912, 914.*** See also Aprahamian v. HBO & Co., 531 A.2d 1204, 1206 (Del. Ch.
1987) (enjoining postponement of shareholder meeting which would cause opposing
proxy votes to expire because "[t]he corporate election process, if it is to
have any validity, must be conducted with scrupulous fairness and without any
advantage being conferred or denied to any candidate or slate of candidates").
Cf. Shoen, 885 F. Supp. at 1342 ("[t]he unadorned right to cast a ballot in a
contest for office, after all, is meaningless without the
- ----------
*** The court issued its decision notwithstanding the fact that the
plaintiff could have technically complied with the 70-day rule, because it
nevertheless found the board's conduct inequitable. Id. at 913.
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<PAGE>
right to participate in selecting the contestants") (citations omitted).
Accordingly, the ITT Board should be enjoined from increasing its
size at or prior to the annual meeting. At minimum, plaintiffs should be given
the opportunity to supplement their written notice of intention to nominate
individuals for election of directors in the event that this Court does not
enjoin ITT from increasing the size of its Board.**** For similar reasons, the
ITT Board should be enjoined from exercising its power to amend the By-Laws in
any way that would impede the effective exercise of the shareholder franchise in
connection with the annual meeting.
II. PLAINTIFFS WILL SUFFER IRREPARABLE HARM
This Court has held that "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." Shoen, 885 F. Supp. at 1352
(citations omitted). While the action sought to be enjoined herein may not
entirely deny the shareholders the
- ----------
**** ITT, in opposing plaintiffs' motion, may attempt to rely on Kidsco,
Inc. v. Dinsmore, 674 A.2d 483 (Del. Ch. 1995), aff'd, 670 A.2d 1338 (Del.
1995), where the Delaware court permitted a target's board to temporarily
postpone the holding of an annual meeting so as to give it more time to
formulate an appropriate response to a hostile takeover offer. In stark contrast
to the facts here, the Kidsco board's action did not serve to preclude a
shareholder vote, but rather postponed it a mere 25 days. Accordingly, the court
found that the board's action was not taken for the purpose of entrenchment "in
any meaningful sense." Id. at 493.
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<PAGE>
right to vote their shares or obtain some representation on the Board, to the
extent that it defeats the will of the majority of the shareholders in ousting
the present directors and management of ITT, it constitutes irreparable injury.
See, e.g., Aprahamian v. HBO & Co., 531 A.2d 1204, 1208 (Del. Ch. 1987).
III. CONCLUSION
For the reasons set forth above, plaintiffs have established both
that they have a strong chance of prevailing on the merits and that they stand
to suffer irreparable harm if ITT is allowed to interfere with the effective
exercise of the shareholder franchise in connection with the annual 1997
meeting. Accordingly, plaintiffs are entitled to the injunctive relief sought.
Dated: January 27, 1997
Las Vegas, Nevada
Respectfully submitted,
SCHRECK MORRIS
By:
/s/ Steve Morris
---------------------------------
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
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<PAGE>
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
SCOTT L. BLACK
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Plaintiffs
HILTON HOTELS CORPORATION
and HLT CORPORATION
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<PAGE>
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
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 HLT CORPORATION,
Plaintiffs,
Case No.
-vs-
ITT CORPORATION,
Defendant.
- ------------------------------------------------
AFFIDAVIT OF ERIC M. ROTH
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
1. I am a member of the firm of Wachtell, Lipton, Rosen & Katz,
co-counsel to plaintiffs Hilton Hotels Corporation ("Hilton") and HLT
Corporation ("HLT") in this
<PAGE>
action. I respectfully submit this affidavit in support of plaintiffs' motion
for a preliminary injunction.
2. This action for injunctive relief is brought, inter alia, to
forestall any effort by defendant ITT Corporation ("ITT") to manipulate or
otherwise subvert the process of corporate democracy by frustrating the proxy
contest that plaintiffs plan to conduct to replace the ITT Board of Directors.
Plaintiffs seek a preliminary injunction barring ITT from: (a) increasing the
size of the ITT Board of Directors or, in the alternative, requiring ITT to give
plaintiffs the opportunity to supplement their written notice of intention to
nominate individuals for election as ITT directors in the event that ITT does
increase the size of its Board; or (b) amending ITT's corporate by-laws to
impede in any way the effective exercise of the stockholder franchise in
connection with the election of directors at the 1997 annual meeting of ITT
stockholders.
The Parties
3. Plaintiff Hilton is a Delaware corporation with its principal
executive offices in Beverly Hills, California. Hilton is primarily engaged in
the ownership and management of hotels and hotel-casinos. Several of Hilton's
hotel and casino properties are located within the State of Nevada including,
among others, the Las Vegas
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<PAGE>
Hilton, the Flamingo Hilton-Las Vegas, the Flamingo Hilton-Reno, the Reno Hilton
and Bally's Las Vegas.
4. Plaintiff HLT is a Delaware corporation with its principal place
of business in Beverly Hills, California. HLT is a wholly-owned subsidiary of
Hilton and is the record and beneficial owner of 100 shares of the common stock
of ITT.
5. Defendant ITT is a Nevada corporation with its principal
executive offices in New York, New York. ITT is engaged, through subsidiaries,
in the hospitality, gaming, entertainment and information services businesses.
Several of ITT's hotel and casino properties are located within the State of
Nevada, including Caesars Palace in Las Vegas and Caesars Tahoe in Stateline.
The Proxy Contest
6. I am advised that, in the last quarter of 1996, Hilton contacted
one of ITT's principal financial advisers to determine whether ITT would be
interested in pursuing a business combination with Hilton. The ITT adviser
reported back that ITT had no interest in pursuing such a combination.
7. On January 27, 1997, Hilton announced its intention to commence a
tender offer pursuant to which it will seek to acquire 50.1% of the outstanding
shares of ITT stock at $55 per share (the "Tender Offer"). The Tender Offer
price represents a 25% premium over the closing
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<PAGE>
trading price of ITT common stock on Friday, January 24, the last trading day
before the announcement. Upon consummation of the Tender Offer, Hilton intends
to acquire the remaining shares of ITT in a second-step merger in which ITT
shareholders will receive $55 in Hilton stock for each ITT share that they own
(the "Merger").
8. ITT has a number of anti-takeover provisions in place. Such
provisions include ITT's "rights plan," better known as a "poison pill."
Pursuant to ITT's "poison pill," in the event that a third-party like Hilton
acquires 15% or more of ITT's shares, all ITT shareholders other than the
third-party become entitled to purchase ITT preferred shares at a 50% discount
from market value. ITT's former corporate parent has publicly acknowledged that
ITT's "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]."
9. Defendant ITT also has the anti-takeover protections of Nevada
Rev. Statutes ss.ss. 78.378 et seq. (the "Control Share Acquisition Statute")
and Nevada Rev. Statutes ss.ss. 78.411 et seq. (the "Business Combination
Statute"). ITT's former corporate parent has publicly acknowledged that the
Control Share Acquisition and Business
-4-
<PAGE>
Combination Statutes "may delay or make more difficult acquisitions or changes
of control of [ITT]", "may have the effect of preventing changes in the
management of [ITT]" and "could make it more difficult to accomplish
transactions which [ITT] shareholders may otherwise deem to be in their best
interests."
10. Under the Control Share Acquisition Statute, a third-party like
Hilton that acquires a "controlling interest" in shares of ITT cannot vote those
shares unless: (a) such voting rights are conferred by a majority vote of the
disinterested shareholders of the corporation; or (b) the ITT board adopts a
by-law opting out of the coverage of the Statute, something which the ITT Board
has not done.
11. Under the Business Combination Statute, a third-party like
Hilton that acquires 10% or more of the voting power of ITT's stock cannot
engage in a business combination with ITT for three years unless the acquisition
of shares or the business combination is approved by the ITT Board in advance.
12. The effect of ITT's anti-takeover devices is to frustrate and
impede both the ability of ITT shareholders to decide for themselves whether
they wish to receive the compelling benefits of the Tender Offer and the
proposed Merger and the ability of Hilton to consummate these transactions.
-5-
<PAGE>
13. In light of ITT's prior rejection of Hilton's attempt to explore
a business combination with ITT, plaintiffs are preparing to couple their Tender
Offer with a proxy contest to replace ITT's incumbent Board of Directors with
individuals nominated by plaintiffs. This strategy is typically employed where,
as here, the target company's board of directors has a "poison pill" and other
anti-takeover defenses in place. Replacing the incumbent directors through a
proxy fight is an efficient way to eliminate the target company's ability to use
these anti-takeover defenses. Plaintiffs' nominees for election to the ITT Board
will run on a platform of selling ITT to Hilton, subject, of course, to their
fiduciary duties to ITT shareholders.
ITT's By-Laws and the
Threatened Harm to Plaintiffs
14. ITT's Amended and Restated By-Laws (the "By-Laws") purport to
give the ITT Board of Directors broad authority with respect to the scheduling
and conduct of shareholder meetings and fixing the size of the ITT Board. ITT's
former corporate parent has publicly acknowledged that these provisions of the
By-Laws "may delay or make more difficult unsolicited acquisitions or changes of
control of [ITT]", "could have the effect of discouraging third parties from
making proposals involving an unsolicited acquisition or change of control of
[ITT], although such proposals, if
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<PAGE>
made, might be considered desirable by a majority of [ITT's] shareholders" and
"may also have the effect of making it more difficult for third parties to cause
the replacement of the current management of [ITT] without the concurrence of
the [ITT] Board of Directors." Indeed, as written, the By-Laws are susceptible
to great abuse because they appear to allow the ITT Board to make it impossible
for plaintiffs to compete fairly against the incumbent directors in the
forthcoming proxy contest.
15. Thus, section 2.2 of the 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." Since ITT had its 1996 annual meeting on May 14 of
last year, under the By-Laws, Hilton and HLT must give written notice of their
intention to nominate persons for election as directors on or before February
13, 1997 (i.e., 90 days prior to May 14, 1997). Hilton and HLT intend to give
such written notice on a timely basis.
-7-
<PAGE>
16. The ITT Board of Directors has fixed the number of directors at
eleven. It is significant to note, however, that Section 2.2 does not 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. Thus, for example, if the ITT Board were to decide at any time after
February 13 (the day plaintiffs' notice is due under the By-Laws) to increase
the size of the Board to twenty-five directors, the By-Laws do not expressly
permit plaintiffs to amend their notice to increase the size of their slate of
nominees to twenty-five. It is significant to note that 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." If plaintiffs are not permitted to
field a full slate of nominees for election to the ITT Board, plaintiff will not
be able to replace the entire ITT Board no matter how many votes their slate of
nominees attracts.
17. If ITT and its directors were to enlarge the size of the Board
after February 13 or to take other action designed to impair the ability of ITT
shareholders to vote in favor of directors supportive of the Tender Offer and
the
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<PAGE>
Merger at the forthcoming annual meeting, plaintiffs would suffer irreparable
injury. Plaintiffs' only meaningful chance to unseat the current ITT Board is at
the annual meeting. Under the By-Laws and the ITT Articles of Incorporation,
neither plaintiffs nor the other ITT shareholders have the ability to call a
special meeting of shareholders; special meetings may be called only by ITT's
Chairman or by a majority vote of the Board. Moreover, both the By-Laws and the
ITT Articles of Incorporation provide that shareholder action may be effected
only at annual or special meetings and may not be effected by written consents.
18. As explained in the accompanying Memorandum of Points and
Authorities, any effort by the ITT directors to enlarge the size of the ITT
Board so as to ensure plaintiffs' defeat in the proxy contest would be violative
of Nevada law. Accordingly, defendants should be preliminarily enjoined from
increasing the size of the ITT Board of Directors. Alternatively, in the event
that ITT increases the size of its Board, it would be violative of Nevada law
for ITT to interpret its By-Laws to prohibit plaintiffs from supplementing their
written notice to increase the size of plaintiffs' slate of nominees; in such
event, ITT should be required to give plaintiffs the opportunity to do so.
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<PAGE>
19. Finally, Section 13 of the By-Laws purports to give the ITT
Board of Directors broad authority to supplement, amend or repeal the By-Laws or
to adopt new by-laws at any regular or special meeting of the ITT Board. As
explained in the accompanying Memorandum of Points and Authorities, it would
also violate Nevada law for defendants to amend the By-Laws in a manner so as to
interfere with ITT shareholders' ability to cast their votes in favor of
plaintiffs' nominees. Accordingly, this Court should also enter a preliminary
injunction preventing ITT from adopting any such amendment.
/s/ E.M.R*
-----------------------------
Eric M. Roth
Sworn to before me this 27th day of January, 1997.
/s/ Stacey L. Helfman
- ---------------------------
Notary Public
*Facsimile of signature attached. Original in transit from New York City
and will be filed on receipt.
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<PAGE>
[EXHIBIT 9]
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
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 CORPORATION'S ANSWER AND COUNTERCLAIM
<PAGE>
Defendant ITT Corporation ("ITT"), for its answer to the complaint of
plaintiffs Hilton Hotels Corporation and HLT Corporation (collectively
"Hilton"), admits, denies and alleges as follows:
NATURE OF THE ACTION
1. ITT denies the allegations of the first sentence of paragraph 1,
except admits that on January 27, 1997, Hilton issued a press release entitled
"Hilton Offers to Acquire ITT Corporation" and refers to that press release for
its contents. ITT denies knowledge or information sufficient to form a belief
as to the truth of the second and third sentences of paragraph 1
2
<PAGE>
regarding Hilton's motivations in bringing this Complaint and refers to the
Complaint for its contents.
2. ITT admits the allegations of paragraph 2.
3. ITT admits the allegations of the first sentence of paragraph 3, and,
with respect to the allegations of the second sentence of that paragraph, admits
that HLT Corporation is a wholly-owned subsidiary of Hilton Hotels Corporation
and denies all remaining allegations on lack of information and belief.
4. ITT admits the allegations of paragraph 4.
JURISDICTION AND VENUE
5. ITT admits the allegations of paragraph 5 that jurisdiction exists
pursuant to 28 U.S.C. Section 1332(a) and further admits that, as to Hilton's
claims arising under the Federal antitrust laws, jurisdiction exists pursuant to
28 U.S.C. Sections 1331 and 1337 and 15 U.S.C. Sections 4 and 26 but denies that
jurisdiction exists pursuant to any Federal question other than Federal
antitrust laws.
6. ITT admits the allegations of paragraph 6 that venue is proper in the
unofficial southern division of the District of Nevada pursuant to 28 U.S.C.
Section 1391 (b) and (c) and LR 1A 8-1, and admits that venue is proper as to
Hilton's claims arising under the Federal antitrust laws under 15 U.S.C.
Sections 15, 22 and 26 but denies those provisions are applicable for any other
reason.
THE PROXY CONTEXT
7. Answering the allegations of paragraph 7, ITT admits in the last
quarter of 1996 an investment banker telephoned one of ITT's advisors and asked
whether ITT was interested in engaging
3
<PAGE>
in preliminary, general discussions concerning a transaction between the two
corporations, and that the ITT advisor informed the investment banker that
ITT was not interested in such discussions and, except as so admitted, ITT
denies all remaining allegations of that paragraph.
8. ITT denies knowledge or information sufficient to form a belief as to
the motivations of Hilton described in paragraph 8; admits that on January 27,
1997, Hilton issued a press release entitled "Hilton Offers to Acquire ITT
Corporation" and refers to that press release for its contents; and denies the
remaining allegations of paragraph 8.
9. ITT denies the allegations of paragraph 9.
10. ITT denies the allegations of the first sentence of paragraph 10, and
denies knowledge or information sufficient to form a belief as to the truth of
the allegations in the second sentence of paragraph 10.
ITT'S BY-LAWS
11. As to the first three sentences of paragraph 11, ITT admits that it
has Amended and Restated By-Laws and refers to those By-Laws for their contents
and, except as so admitted, ITT denies the remaining allegations of the first
three sentences of paragraph 11. As to the fourth sentence of paragraph 11, ITT
admits that an August 30, 1995 Notice of Special Meeting and Proxy Statement
described to the stockholders, among other things, various aspects of the
Company's By-Laws and Nevada law and refers to the Proxy Statement for its
contents and, except as so admitted, ITT denies the remaining allegations of the
fourth sentence of paragraph 11.
4
<PAGE>
12. As to the first sentence of paragraph 12, ITT admits that the 1996
annual meeting of stockholders was held on May 14, 1996 and that the
stockholders elected 11 directors to the ITT board. As to the second sentence
of paragraph 12, ITT denies knowledge or information sufficient to form a belief
as to the intentions of Hilton and admits the existence of the ITT By-Laws and
refers to the By-Laws for their content. ITT denies the remaining allegations
of paragraph 12.
FIRST CLAIM FOR RELIEF
(Injunctive Relief)
13. Answering the allegations of paragraph 13, ITT repeats and realleges
its answers to paragraphs 1 through 12, inclusive, as if fully restated herein.
14. ITT alleges that the self-serving and speculative allegations of
paragraph 14 call for a legal conclusion, and that ITT is required neither to
admit nor to deny in response.
15. With respect to the allegations of paragraph 15, ITT admits the
existence of the ITT By-Laws, and refers to them for their content and denies
the rest of the allegations.
16. ITT denies knowledge or information sufficient to form a belief as to
the truth of the allegations of paragraph 16.
17. ITT alleges that the allegations of paragraph 17 are speculative and
call for a legal conclusion and that ITT is required neither to admit nor to
deny in response.
18. ITT denies the allegations of paragraph 18.
SECOND CLAIM FOR RELIEF
(Injunctive Relief)
19. Answering the allegations of paragraph 19, ITT repeats
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and realleges its answers to paragraphs 1 through 18, inclusive, as if fully
restated herein.
20. With respect to the allegations of paragraph 20, ITT admits there is a
Rights Agreement between ITT and the Bank of New York as Rights Agent and that
an August 30, 1995 Notice of Special Meeting and Proxy Statement described to
the stockholders, among other things, the Rights Agreement and refers to the
Rights Agreement and the Proxy Statement for their contents. Except as so
admitted, ITT denies the allegations of paragraph 20.
21. With respect to the first sentence of paragraph 21, ITT admits the
existence of Nevada General Corporation Law Sections 78.378 to 78.3793 relating
to control share acquisitions and Sections 78.411 to 78.444 relating to certain
business combinations and refers to those statutes for their contents. With
respect to the second sentence of paragraph 21, ITT admits that an August 30,
1995 Notice of Special Meeting and Proxy Statement described to the
stockholders, among other things, various aspects of the Company's By-Laws and
Nevada law and refers to the Proxy Statement for its contents. Except as so
admitted, ITT denies the allegations of paragraph 21.
22. With respect to the allegations of paragraph 22, ITT admits the
existence of Nevada General Corporation Law Sections 78.378 to 78.3793 relating
to control share acquisitions and refers to those statutes for their contents
and admits that ITT's Amended and Restated Articles of Incorporation and By-Laws
do not exclude ITT from those provisions. Except as so admitted, ITT denies the
allegations of paragraph 22.
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23. With respect to the allegations of paragraph 23, ITT admits the
existence of Nevada General Corporation Law Sections 78.411 to 78.444 relating
to certain business combinations and refers to those statutes for their contents
and, except as so admitted, ITT denies the remaining allegations of paragraph
23.
24. ITT denies the allegations of paragraph 24.
25. ITT denies the allegations of paragraph 25.
THIRD CLAIM FOR RELIEF
(Declaratory Relief)
26. Answering the allegations of paragraph 26, ITT repeats and realleges
its answers to paragraphs 1 through 25, inclusive, as if fully restated herein.
27. ITT admits the allegations of the first sentence of paragraph 27. As
to the second sentence of paragraph 27, ITT admits that it has filed with the
Securities and Exchange Commission a Form 10-K for the fiscal year ended
December 31, 1995, and refers to the Form 10-K for its contents. Except as so
admitted, ITT denies the allegations of paragraph 27.
28. ITT denies the allegations of paragraph 28.
29. ITT denies the allegations of paragraph 29.
30. ITT denies the allegations of paragraph 30, except admits that
Hilton's Offer and Proposed Squeeze Out Merger violate the antitrust laws.
31. ITT denies the allegations of paragraph 31.
AFFIRMATIVE DEFENSES
FIRST AFFIRMATIVE DEFENSE
The complaint fails to state a claim upon which relief can be granted.
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SECOND AFFIRMATIVE DEFENSE
The complaint fails to state a case or controversy sufficient to support
the grant of any form of declaratory relief.
THIRD AFFIRMATIVE DEFENSE
The complaint fails to set forth the necessary elements to support the
grant of any form of injunctive relief.
FOURTH AFFIRMATIVE DEFENSE
Hilton's claims for relief are barred by the doctrine of unclean hands.
FIFTH AFFIRMATIVE DEFENSE
Hilton's claims for relief are barred by the doctrine of estoppel.
SIXTH AFFIRMATIVE DEFENSE
This Court should enter judgment that Hilton's Offer and Proposed Squeeze
Out Merger violate the antitrust laws.
COUNTERCLAIM
Defendant and counterclaimant ITT Corporation ("ITT"), for its
Counterclaim against plaintiffs and counterdefendants Hilton Hotels Corporation
and HLT Corporation (collectively, "Hilton"), alleges upon knowledge with
respect to its own acts and upon information and belief as to all other matters,
as follows:
JURISDICTION AND VENUE
1. This court has jurisdiction over this Counterclaim pursuant to 28
U.S.C. Sections 1331, 1332 and 1337 and 15 U.S.C. Section 78aa.
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2. Venue is proper in the unofficial Southern Division of this District
pursuant to 28 U.S.C. Section 1391, 15 U.S.C. Section 78aa and LR 1A 8-1.
THE PARTIES
3. ITT is a corporation organized and existing under the laws of the
State of Nevada, with its principal executive offices maintained in New York,
New York.
4. Hilton Hotels Corporation is a corporation organized and existing
under the laws of the State of Delaware, with its principal executive offices in
Beverly Hills, California.
5. HLT Corporation is a corporation organized and existing under the laws
of the State of Delaware, with its principal place of business in Beverly Hills,
California. HLT Corporation is a wholly-owned subsidiary of Hilton Hotels
Corporation.
NATURE OF THE COUNTERCLAIM
6. Nevada law explicitly permits ITT's Board of Directors to consider a
wide variety of factors in determining how to respond to Hilton's two-tiered,
front-end loaded, coercive tender offer (the "Offer"). Those factors, as
specified in N.R.S. Section 78.138, include the interests of ITT's employees,
suppliers, creditors and customers; the economy of the State and Nation; the
interests of the community and of society; and the long-term and short-term
interests of the corporation and its stockholders, including the possibility
that these interests may be best served by the continued independence of the
corporation.
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7. In considering Hilton's Offer, ITT's Board took the statutory
factors into account. As a result, on February 11, 1997, ITT's Board, a
majority of which consists of independent, outside directors, unanimously
voted to recommend that ITT's stockholders reject the Offer and not tender
their shares. As is set forth more fully in ITT's
Solicitation/Recommendation Statement on Schedule 14D-9 to be mailed to all
ITT stockholders (a copy of which, without the exhibits thereto, is attached
hereto as Exhibit A):
a. the Offer, and Hilton's announced intention, following successful
completion of the Offer, to engage in a merger with ITT in which each
remaining share of ITT common stock would be exchanged for shares of Hilton
common stock nominally valued at $55 (the "Proposed Squeeze Out Merger"),
does not reflect the inherent value of ITT;
b. ITT's financial advisors, Lazard Freres & Co. LLC and Goldman, Sachs &
Co., opined that the consideration to be received by ITT's stockholders in
the Offer and Proposed Squeeze Out Merger is inadequate;
c. pursuit of ITT's strategic plan will produce greater short-term and
long-term value for the stockholders than the Offer and Proposed Squeeze
Out Merger;
d. the Offer and Proposed Squeeze Out Merger are having a disruptive
effect on ITT and have the potential to have an adverse affect on the
interests of ITT's employees, suppliers, creditors and customers; the
economies of the State of Nevada and the Nation; and the interests of the
communities in which ITT operates;
e. due to uncertainties about the actual value of the Proposed Squeeze
Out Merger and the merits of a longer-term investment in Hilton, the Offer
is part of a two-tiered, front-end loaded transaction that is
intended to coerce stockholders to tender their shares into the Offer to
avoid receiving in the Proposed Squeeze Out Merger shares of Hilton common
stock nominally valued at $55, but of uncertain actual value;
f. Hilton fails to disclose information regarding the role of HFS
Incorporated ("HFS") in the Offer and Proposed Squeeze Out Merger,
including the potential negative impact of HFS's involvement on the value
of ITT's Sheraton and Four Points hotel businesses and the risk of
termination of ITT hotel management contracts and franchise agreements;
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g. ITT's Board is concerned about Hilton's access to and misuse of
confidential ITT information; and
h. ITT's Board is concerned about antitrust violations and gaming law
issues relating to a combination of ITT and Hilton which create uncertainty
as to whether the conditions of the Offer will be met.
8. Even before Hilton had actually commenced its two-tiered, front-end
loaded and coercive Offer, it filed a Complaint in this Court relating to, among
other things, the serious antitrust issues raised by the Offer. Thus, in
addition to an entirely speculative claim, unsupported by even a shred of
evidence, that, if Hilton chose to nominate only 11 directors, the Board would
thereafter increase the number of directors to 25 to preclude Hilton from
obtaining a majority, Hilton brought suit against ITT for a declaration that ITT
had no standing to assert antitrust issues against Hilton. So concerned was
Hilton about a lawsuit in the Second Circuit, where Hilton concedes that ITT
would have standing, that Hilton even sought a temporary restraining order
against ITT's filing antitrust claims elsewhere. Indeed, Hilton even purported
to be concerned that ITT would file an antitrust claim in state
court, even though federal courts have exclusive jurisdiction over Sherman Act
and Clayton Act claims.
9. Even though Hilton's lawyers are so concerned about the preclusive
effect of the antitrust laws on the Offer, Hilton has failed to disclose these
risks to ITT's stockholders. Thus, this
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Counterclaim addresses Hilton's failure to disclose in its Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") material risks arising out
of these obvious antitrust issues. This is not the only way in which Hilton
has failed to provide ITT's stockholders with sufficient information about
whether to tender, hold or sell their shares. For example, Hilton has failed
to disclose in its Schedule 14D-1 material information concerning the role of
HFS in Hilton's Offer and Proposed Squeeze Out Merger.
10. ITT also brings this Counterclaim because of Hilton's misuse of
confidential ITT information to the detriment of ITT and its stockholders.
Hilton has access to confidential ITT information both through its Board of
Directors and because it has hired Latham & Watkins, one of ITT's outside
counsel. If Hilton is permitted to continue to use this confidential
information, ITT and its stockholders will be irreparably injured. Indeed,
Hilton has disclosed that, from January 21, 1997 through January 24, 1997, and
while in possession of this confidential information, Hilton purchased, on the
open market, a total of 315,500 shares of the common stock of ITT at prices well
below the price in the Offer and even further below ITT's inherent value.
11. This Counterclaim seeks injunctive relief requiring Hilton to
dismiss counsel which are tainted by violation of ethical duties owed to ITT
and prohibiting Hilton from proceeding with the Offer which is tainted by
Hilton's misappropriation and misuse of confidential ITT information. This
Counterclaim also seeks injunctive relief, in the event the Offer is not
enjoined,
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requiring Hilton to disclose and file the information required under the
Federal Securities Laws.
THE FACTS
HILTON'S MISUSE OF CONFIDENTIAL ITT INFORMATION
12. The Offer and Proposed Squeeze Out Merger are the product of the
misuse of confidential ITT information from at least two sources. First,
through certain of its directors, Hilton has had access to confidential ITT
information in violation of a contractual confidentiality agreement. Second,
through counsel, Hilton has had access to confidential ITT information in
violation of ethical duties owed to ITT.
13. In early February 1996, representatives of ITT initiated discussions
with representatives of Bally Entertainment Corporation ("Bally") regarding a
possible acquisition of Bally. To facilitate those discussions, ITT and
Bally executed a Confidentiality Agreement (the "Agreement") on February 16,
1996 (a copy of the Agreement is attached hereto as Exhibit B). In response
to Bally's request for confidential information regarding ITT, ITT disclosed
to Bally, under the Agreement, highly confidential and competitively
sensitive information that is highly valuable to ITT's competitors,
disclosure of which would be very damaging to ITT and its stockholders.
Under the Agreement, which will not expire until February 16, 1998, Bally
agreed that it would keep all Evaluation Material, i.e., all non-public ITT
information, strictly confidential, that it would use the Evaluation Material
solely for the purpose of evaluating the proposed acquisition of Bally by
ITT, and that it would not use
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the Evaluation Material in any way either directly or indirectly detrimental to
ITT.
14. In March 1996, pursuant to the terms of the Agreement, Lee Hillman,
Bally's Chief Financial Offer at the time, and Emanuel "Manny" Pearlman, a
consultant retained by Bally and a long time associate of Arthur Goldberg
(Bally's Chairman and Chief Executive Officer at the time), were permitted to
review highly confidential, non-public, competitively sensitive ITT material
and received certain other highly confidential, non-public, competitively
sensitive information from representatives of ITT (collectively, the "Inside
Information"). Included in the Inside Information reviewed and received by
Hillman and Pearlman were, among other things: (1) highly detailed historical
financial information, (2) asset valuations, (3) operating plans, (4)
expansion plans and (5) other competitive data. ITT did not, and does not,
publicly release such Inside Information. Disclosure of the Inside
Information would irreparably harm ITT and its stockholders because, among
other things, of the unfair advantage it would give to ITT's competitors.
Hillman and Pearlman each separately spent a full workday reviewing the
Inside Information. Although they were not permitted to remove the original
materials from ITT's headquarters, Hillman took copious notes, which he was
permitted to and did take with him.
15. Hillman and Pearlman thereafter discussed with and relayed to Bally's
employees and advisors, including Bally's then-CEO Arthur Goldberg, the Inside
Information they had reviewed and received.
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16. On December 18, 1996, pursuant to an Agreement and Plan of Merger
dated as of June 6, 1996, as amended, Bally merged with and into Hilton.
17. Upon completion of the acquisition of Bally by Hilton, Arthur
Goldberg became a member of Hilton's Board of Directors and was appointed an
Executive Vice President and the President--Gaming Operations of Hilton.
Arthur Goldberg is in possession of the Inside Information, as are other,
presently unknown, former employees and/or representatives of Bally who are
now employed and/or retained by Hilton.
18. Arthur Goldberg has continued to serve on Hilton's Board of Directors
during Hilton's consideration of initiating an offer for ITT and has actively
participated in that process in his capacity as a Director and as Executive Vice
President and President--Gaming Operations.
19. In addition, Hilton has retained outside counsel that has access to
confidential information of ITT.
20. On January 28, 1997, during a conference call with industry analysts,
Stephen Bollenbach, the President and Chief Executive Officer of Hilton, stated
that Hilton's outside legal advisers in connection with the Offer and Proposed
Squeeze Out Merger are Latham & Watkins ("Latham") and Wachtell, Lipton, Rosen &
Katz ("Wachtell").
21. Latham is currently representing ITT and its subsidiaries on very
substantial matters, including antitrust, litigation and regulatory matters.
During the course of such representation, Latham has received privileged
communications, client confidences and highly confidential business plans and
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other strategic information about ITT and its subsidiaries (the "Privileged
Information"). Such information is useful in evaluating ITT and its business.
22. For example, Latham is currently representing ITT and its
subsidiary, ITT Educational Services, Inc. ("ESI") in litigation in San Diego
titled Eldredge, et al. v. ESI, et al. Latham has already been paid over $1
million for its representation in connection with that matter. Latham is
also representing ESI in other current judicial proceedings, and has
represented ESI recently in and legislative proceedings. In the course of
this representation, Latham has been afforded access to, and entrusted with,
highly confidential information regarding ESI's business, including internal
market study reports, private consultant information, confidential regulatory
filings and internal privileged communications. Since Hilton has indicated
that ESI is a business it might divest if the Offer and Proposed Squeeze Out
Merger were consummated, the information entrusted to Latham is material to
Hilton's Offer.
23. Similarly, Latham is regulatory counsel for WBIS, a New York
television station that ITT owns in partnership with Dow Jones & Co. In this
connection Latham has provided advice (WBIS has no separate legal department)
since July 1995, before ITT and Dow Jones & Co. even acquired the station. In
this capacity, Latham has been entrusted with access to highly confidential
business plans for increasing station coverage beyond the immediate New York
metropolitan area. Station coverage is a key factor affecting the value of a
start-up television station.
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Plans for joint marketing with other program suppliers, which may
dramatically affect the value of ITT's investment in WBIS, have also been
disclosed to Latham. Since Hilton has indicated that, if the Offer and
Proposed Squeeze Out Merger are consummated, Hilton might divest ITT's
ownership in WBIS, the information entrusted to Latham is material to
Hilton's Offer.
24. Likewise, Latham is currently antitrust counsel to ITT. In the
course of this representation, Latham has been consulted as to significant
antitrust matters and provided confidential business information concerning
ITT subsidiaries. Most recently, Latham has been provided with privileged
materials, attorney work product and confidential business information as to
competitive strategy, expansion plans and pricing strategy. Such information
is competitively sensitive and germane to valuation of ITT and to advising a
potential bidder for ITT.
25. Latham made no disclosure to ITT prior to undertaking representation
of Hilton in connection with the Offer and Proposed Squeeze Out Merger.
26. Latham's representation of Hilton is adverse to ITT.
27. ITT has not consented to Latham's representation of Hilton.
28. Latham, having been advised by ITT of the ethical problems created by
its simultaneous representation of ITT and Hilton, attempted to withdraw as
counsel to ITT in connection with the Eldredge matter in a letter dated
January 31, 1997. ITT has not agreed to Latham's attempted withdrawal.
Latham's purported withdrawal is null and void.
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29. Latham has evaded ITT's inquiries about Latham's adverse
representation of Hilton. Indeed, Latham has four times refused even to
respond to the question whether it is representing Hilton. First, on January
28, 1997, Theodore J. Fischkin, Assistant General Counsel and Director,
Litigation and Antitrust Compliance for ITT, telephoned Joseph J. Wheeler,
the Latham partner in charge of the Eldredge matter, to discuss ITT's
concerns. Mr. Wheeler informed Mr. Fischkin that he would make inquiries and
call Mr. Fischkin back. After conferring with another Latham partner, Bruce
Rosenblum, Mr. Wheeler would state only that Latham itself would not
"implement" actions hostile to ITT. Mr. Wheeler was unable to answer
questions about Latham's role in Hilton's Offer or to explain why no
disclosures had been made to ITT. ITT was subsequently informed that
Latham's position would be explained by Donald P. Newell, Esq., a member of
Latham's Executive Committee. Second, Mr. Newell's "explanation" consisted
of a conclusory statement that Latham was acting ethically. Mr. Newell
refused to comment when asked about the facts supporting this assertion and
whether Latham was advising Hilton against ITT. Third, on February 5, 1997,
ITT's General Counsel, Richard S. Ward, wrote to Robert M. Dell, Esq.,
Latham's Managing Partner, seeking assurances that Latham is not serving as
counsel to Hilton in its efforts to acquire ITT. Mr. Newell responded on
behalf of Latham to Mr. Ward's letter to Mr. Dell. In his letter, Mr. Newell
failed to confirm or deny that Latham was representing Hilton. Instead, Mr.
Newell threatened ITT that Latham would "hold accountable all persons who
participate in such an unwarranted attack on this
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firm." Fourth, on February 6, 1997, Mr. Ward wrote to Mr. Newell, again
requesting an answer to the question of whether Latham was representing
Hilton in its bid to acquire control of ITT. Once again Mr. Newell failed to
confirm or deny that Latham was representing Hilton. Even though Mr.
Bollenbach publicly announced Hilton's representation by Latham, Latham will
say only that "it would not be appropriate to discuss this firm's
representation of others."
30. Latham's representation of Hilton while it represents ITT is in no way
"appropriate".
31. Hilton was aware of, and procured or acquiesced in, Latham's breach of
its ethical duties.
32. By virtue of Hilton's retention and use of Latham, both Hilton and
Wachtell have had access to the Privileged Information.
33. On February 5, 1997, Mr. Ward wrote to Bernard W. Nussbaum, Esq. of
Wachtell requesting, in light of the fact that Wachtell and Latham have clearly
had discussions as part of their representation of Hilton, an explanation of why
Wachtell has not been infected with the same ethical and legal problems as
Latham.
34. Wachtell has not responded to that request.
LACK OF DISCLOSURE IN HILTON'S SCHEDULE 14D-1
35. Pursuant to Section 14 of the Securities and Exchange Act of 1934 and
the rules and regulations thereunder, Hilton is required in the Schedule 14D-1
to disclose all material facts, including all material risks that the Offer and
Proposed Squeeze Out Merger will not be approved or consummated.
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36. Although Hilton has made the Offer conditional upon satisfying the
waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, Hilton has failed to disclose that there is a
significant risk that the Federal agencies will conclude that the Offer and
Proposed Squeeze Out Merger may tend to substantially lessen competition in
the Atlantic City gaming market, and other relevant markets, in violation of
Section 7 of the Clayton Act (15 U.S.C. Section 18) or otherwise violate the
antitrust laws.
37. For example, Hilton, although very concerned about antitrust issues,
has failed to disclose the level of concentration in the Atlantic City gaming
market; Hilton's existing market share; its projected market share following the
Proposed Squeeze Out Merger, especially given that Hilton is reported to be
currently negotiating to acquire another Atlantic City competitor, Claridge
Hotel and Casino ("Claridge"); and Hilton's projected market share following an
acquisition of both Claridge and ITT.
38. Similarly, although Hilton has made the Offer conditional upon
obtaining the necessary gaming approvals from, inter alia, the New Jersey gaming
authorities, Hilton has failed to disclose in its Schedule 14D-1 sufficient
information in order to allow ITT's stockholders to make an informed decision
about the likelihood of Hilton obtaining such approvals and has failed to
disclose that there is a significant risk that the Offer and
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Proposed Squeeze Out Merger may not receive required regulatory approvals by
the New Jersey gaming authorities.
39. The New Jersey Casino Control Act (the "Act") regulates the
ownership of New Jersey casinos and requires Hilton to obtain approval from
the New Jersey Casino Control Commission in order to become the owner of
ITT's casinos in Atlantic City. In its Schedule 14D-1, Hilton notes that the
qualification criteria include: "its financial stability, integrity and
responsibility, the integrity and adequacy of its financial resources which
bear any relation to the casino project; its good character, honesty and
integrity; and the sufficiency of its business and casino experience to
establish the likelihood of a successful, efficient casino operation."
40. The Act provides further that a casino license cannot be held by any
person in the event the holding of the license will result in "undue economic
concentration" in Atlantic City casino operations by that person. Hilton
will have the burden of demonstrating to the New Jersey Casino Control
Commission by clear and convincing evidence that its proposed acquisition of
ITT's Atlantic City properties will not result in undue economic
concentration. Among the factors considered by the New Jersey Casino Control
Commission in determining whether such an acquisition would result in undue
economic concentration are: current market shares (based on a variety of
factors, including revenues, square footage and employees); the estimated
increase in market shares as a result of the acquisition; current market
conditions; and the impact of the acquisition on projected future growth and
development of the industry and Atlantic City.
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41. Hilton has completely failed to disclose that undue economic
concentration is one of the factors considered by the New Jersey gaming
authorities, what the economic concentration is in New Jersey and the
implications of Hilton's plans, including the implications of Hilton's plan
to discontinue a substantial portion of ITT's planned $3 billion capital
expenditure plan following the Proposed Squeeze Out Merger.
42. Hilton has thus failed to disclose sufficient information to enable
ITT's stockholders to make an informed decision concerning the likelihood that
the Offer and Proposed Squeeze Out Merger will pass scrutiny by the New Jersey
Casino Control Commission and Federal antitrust authorities.
43. Prior to January 27, 1997, Hilton and HFS began discussing the
possibility of a hostile offer for ITT and how the two competing companies could
benefit from such an acquisition.
44. Hilton and HFS decided that HFS would participate in and contribute to
the acquisition of ITT by Hilton by licensing, on a long-term, worldwide basis,
the Sheraton trademark, franchise system and management agreements. The
revenues and/or the monetization thereof to be realized by Hilton are
integral to Hilton's plans to finance the Offer and Proposed Squeeze Out Merger.
45. In a press release dated January 27, 1997, Hilton announced that it
had reached a preliminary understanding with HFS for HFS to license, on a
long-term, worldwide basis, the Sheraton trademark, franchise system and
management agreements. The press release did not reveal or discuss the role
HFS was playing in the Offer and Proposed Squeeze Out Merger.
46. In its Schedule 14D-1, Hilton stated that "it has reached a
preliminary understanding with HFS under which HFS would license, on a
long-term, worldwide basis, [ITT's]
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'Sheraton' trademark, franchise system and management agreements." Hilton
further stated that, in the event the transaction with HFS is consummated,
Hilton "expects that the ongoing cash flows from such transaction or a
monetization thereof would be contributed to [HLT] in connection with the
Offer or used to repay indebtedness incurred in connection with the Offer and
assumed in the Proposed [Squeeze Out] Merger."
47. Hilton has failed to disclose material information concerning the role
of HFS in the Offer and Proposed Squeeze Out Merger and the potential negative
impact of HFS's role on the value of ITT's Sheraton and Four Points hotel
businesses, including the risk that HFS's role will trigger anti-assignment or
exclusivity clauses in various agreements and will lead to termination or
non-renewal of hotel management contracts and franchise agreements. Because
information concerning the role of HFS and the potential adverse impact on the
value of those businesses is relevant and important to, among other things, any
determination of the possible
future value of Hilton securities following consummation of the Offer and
Proposed Squeeze Out Merger, such information is material to ITT's stockholders
and should be disclosed.
Count One
(Injunctive Relief)
48. ITT repeats and realleges the allegations of paragraphs 1 through 47
of its Counterclaim as if fully set forth herein.
49. Latham has violated its ethical obligations to ITT.
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50. Hilton has acquiesced in and benefitted from Latham's violation of its
ethical obligations to ITT.
51. ITT seeks injunctive relief requiring Hilton to dismiss Latham as
counsel in connection with the Offer and Proposed Squeeze Out Merger.
52. ITT has no adequate remedy at law.
Count Two
(Injunctive Relief)
53. ITT repeats and realleges the allegations of paragraphs 1 through 52
of its Counterclaim as if fully set forth herein.
54. The Agreement is a valid and binding contract.
55. Hilton and certain of its directors, officers, employees and advisors
are in possession of material Inside Information pursuant to the Agreement.
56. Hilton and certain of its directors, officers, employees and
advisors, including but not limited to Arthur Goldberg, have a contractual
obligation pursuant to the Agreement not to use such Inside Information to
the detriment of ITT and its stockholders or for any purpose other than
consideration of ITT's proposed acquisition of Bally.
57. Through the active participation of Arthur Goldberg and other,
presently unknown persons in possession of the Inside Information in evaluating
whether to and eventually deciding to undertake to obtain control of ITT, Hilton
has used this Inside Information to the detriment of ITT and its stockholders
and for
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purposes other than evaluating ITT's proposed acquisition of Bally.
Such use is in breach of the Agreement.
58. In the Agreement, the parties agreed that, in the event of any breach
of the provisions of the Agreement by one party, the other party is entitled to
injunctive relief.
59. ITT seeks injunctive relief enjoining Hilton from further using the
Inside Information, from disclosing the Inside Information, and from proceeding
with its Offer on the basis of the Inside Information.
60. ITT has no adequate remedy at law.
Count Three
(Injunctive Relief)
61. ITT repeats and realleges the allegations of paragraphs 1 through 60
of its Counterclaim as if fully set forth herein.
62. Hilton and certain of its directors, officers, employees and advisors
have had access to material Inside Information in violation of the Agreement.
63. As a result of its retention of Latham, Hilton and certain of its
directors, officers, employees and advisors have had access to material
Privileged Information in violation of Latham's fiduciary duty to ITT.
64. Through the active participation of Latham, Arthur Goldberg and other,
presently unknown persons in possession of the Privileged and Inside Information
in evaluating whether to and eventually deciding to undertake to obtain control
of ITT,
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Hilton has used this Privileged and Inside Information to the detriment
of ITT and its stockholders.
65. Hilton's unlawful misappropriation and use of ITT's Privileged and
Inside Information is causing and will continue to cause irreparable harm to ITT
and its stockholders. Hilton should not be allowed to reap the benefits of its
unlawful misappropriation and use of ITT's Privileged and Inside Information.
66. ITT seeks injunctive relief enjoining Hilton from further using the
Privileged and Inside Information, from utilizing, in any manner adverse to
ITT, any advisers who have had access to the Privileged or Inside
Information, from disclosing the Privileged and Inside Information, and from
proceeding with its Offer.
67. ITT has no adequate remedy at law.
Count Four
(Injunctive Relief)
68. ITT repeats and realleges the allegations of paragraphs 1 through 67
of its Counterclaim as if fully set forth herein.
69. Pursuant to Section 14 of the Securities and Exchange Act of 1934
and the rules and regulations thereunder, Hilton is required in its Schedule
14D-1 to disclose all material facts.
70. Hilton is in wrongful possession of material Privileged and
Inside Information.
71. Disclosure of the Privileged and Inside Information would
irreparably harm ITT and its stockholders.
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72. Hilton cannot disclose the material Privileged and Inside
Information without further violating fiduciary duties and contractual
obligations owed to ITT. Disclosure of the Privileged and Inside Information
would further compound the harm to ITT and its stockholders.
73. ITT seeks injunctive relief enjoining Hilton from proceeding with
its Offer.
74. ITT has no adequate remedy at law.
Count Five
(Injunctive Relief)
75. ITT repeats and realleges the allegations of paragraphs 1 through 74
of its Counterclaim as if fully set forth herein.
76. Hilton has failed to make the necessary disclosures of material
information about the Offer and Proposed Squeeze Out Merger in its
Schedule 14D-1, including:
a. information, including information on undue economic concentration,
indicating that there is a significant risk that the Offer and Proposed
Squeeze Out Merger may be found to violate the antitrust laws, including
Section 7 of the Clayton Act;
b. information, including information on undue economic concentration,
indicating that there is a significant risk that the Offer and Proposed
Squeeze Out Merger will not be approved by the gaming authorities; and
c. information concerning the role of HFS, including the possible adverse
affects of that role.
77. By reason of its failures to disclose, Hilton has violated Section
14(d) of the Securities and Exchange Act and the
27
<PAGE>
rules thereunder. Unless injunctive relief is granted, such violations will
continue.
78. ITT seeks injunctive relief requiring Hilton to make the required
disclosures concerning the Offer and Proposed Squeeze Out Merger.
79. ITT has no adequate remedy at law.
WHEREFORE, ITT demands and prays for relief as follows:
1. Denying the relief sought in Hilton's Complaint;
2. Granting preliminary and permanent injunctive relief requiring Hilton
to dismiss Latham as counsel in connection with the Offer and Proposed Squeeze
Out Merger;
3. Granting preliminary and permanent injunctive relief prohibiting
Hilton from utilizing, in any manner adverse to ITT, any advisers who have had
access to the Privileged or Inside Information;
4. Granting preliminary and permanent injunctive relief prohibiting
Hilton and all others acting in concert or participating with Hilton from using
or disclosing the Privileged or Confidential Information;
5. Granting preliminary and permanent injunctive relief prohibiting
Hilton from proceeding with the Offer;
6. Granting preliminary and permanent injunctive relief in the event the
Offer is not enjoined requiring Hilton to make the disclosures required under
the Federal Securities laws; and
28
<PAGE>
7. Granting to ITT such other and further relief as appropriate in the
circumstances presented.
DATED this _____ day of February, 1997.
KUMMER KAEMPFER BONNER & RENSHAW
BY:
-----------------------------
THOMAS F. KUMMER
VON S. HEINZ
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attorney for Defendant
ITT CORPORATION
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that service of the
foregoing ITT CORPORATION'S ANSWER AND COUNTERCLAIM 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
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 ______ day of February, 1997.
--------------------------------
An Employee of Kummer Kaempfer
Bonner & Renshaw
29
<PAGE>
[EXHIBIT 10]
COMP
ALBRIGHT, STODDARD, WARNICK & ALBRIGHT
G. MARK ALBRIGHT, ESQ.
Nevada Bar No. 001394
801 S. Rancho Drive, Suite D-4
Las Vegas, NV 89106
(702) 384-7111
Attorneys for
DISTRICT COURT
CLARK COUNTY, NEVADA
JOAN COHEN, on behalf of herself and all others )
similarly situated, )
)
Plaintiff, )
) CASE NO. A369146
v. )
) DOCKET: XIV
ITT CORPORATION, RAND V. ARASKOG; )
ROBERT A. BOWMAN; BETTE B. ) FIRST AMENDED COMPLAINT
) ----------------------
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, )
)
Defendants. )
- -----------------------------------------
Plaintiff, by her attorneys, alleges upon information and belief, except
with respect to her ownership of ITT Corporation ("ITT" or the "Company") common
stock, and her suitability to serve as a class representative, which are alleged
upon personal knowledge, as follows:
PARTIES
1. Plaintiff Joan Cohen is the owner of shares of defendant ITT.
2. Defendant ITT is a corporation organized and existing under the laws of
the State of Nevada. ITT maintains its principal offices at 1330 Avenue of the
Americas, New York, New York. ITT owns, operates and franchises hotels, operates
casinos, owns and operates sports franchises including the "Madison Square
Garden" arena, publishes telephone directories, operates
<PAGE>
technical colleges offering post-secondary career education and intends to
operate television stations through joint venture agreements.
3. Defendant Rand V. Araskog ("Araskog") is Chairman of the Board and
Chief Executive Officer of defendant ITT.
4. Defendant Robert A. Bowman ("Bowman") is President, Chief Operating
Officer and a Director of defendant ITT.
5. 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 Directors of defendant ITT.
6. The foregoing individual directors of ITT (collectively, the "Director
Defendants"), owe fiduciary duties to ITT and its shareholders.
CLASS ACTION ALLEGATIONS
7. Plaintiff brings this action on her own behalf and as a class action on
behalf of all shareholders of defendant ITT (except defendants herein and any
person, firm, trust, corporation or other entity related to or affiliated with
any of the defendants) or their successors in interest, who have been or will be
adversely affected by the conduct of defendants alleged herein.
8. 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, there were more than 1.1 billion shares of defendant ITT's
common stock outstanding owned by tens of thousands of shareholders of record
scattered throughout the United States.
b. There are questions of law and fact which are common to members
of the class and which predominate over any questions affecting any individual
members. The common questions include, inter alia, the following:
(1) Whether the Director Defendants have breached their
fiduciary duties owed by them to plaintiff and members of the class, and/or have
aided and abetted in such breach, by failing to act in such a way as to maximize
shareholder value of ITT;
2
<PAGE>
(2) Whether the Director Defendants have wrongfully failed and
refused to seek a purchaser of ITT at the highest possible price and, instead,
have sought to chill potential offers;
(3) Whether plaintiff and the other members of the class will
be irreparably damaged by the conduct complained of herein; and
(4) Whether defendants have breached or aided and abetted the
breaches of the fiduciary and other common law duties owed by them to plaintiff
and the other members of the class.
9. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of the other members of the class and
plaintiff has the same interest as the other members of the class. Accordingly,
plaintiff is an adequate representative of the class and will fairly and
adequately protect the interests of the class.
10. Plaintiff anticipates that there will not be any difficulty in the
management of this litigation.
11. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this action.
FACTUAL BACKGROUND
12. On January 27, 1997, at approximately 4:20 p.m., Hilton Hotels Corp.
("Hilton") announced that it had offered to acquire ITT for $55 a share, or $6.5
billion, plus outstanding debt, making the total deal worth $10.5 billion.
Hilton said that it plans to begin a cash tender offer at $55 per share for half
of the outstanding ITT shares, to be followed by a second-step merger at $55 a
share in Hilton common stock.
13. 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
3
<PAGE>
to replace your board of directors in order to complete this transaction."
14. Bollenbach added that, "The 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."
15. 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. Bollenbach 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.
16. The Director Defendants, however, fearing that the result of any such
transaction would mean their ouster from the board, took no action to advance
the proposed deal even though it would provide ITT shareholders with a premium
of 29% with the opportunity to perhaps increase the price offered by Hilton.
17. In fact, according to a story appearing in The New York Times on
January 28, 1997, it is clear that ITT has refused to even consider a potential
deal and will continue to do so as "Mr. Bollenbach said yesterday that he
proceeded with the offer after Mr. Araskog said last Fall that he did not want
to discuss a deal."
CAUSE OF ACTION AGAINST ALL DEFENDANTS
--------------------------------------
18. Defendants, acting in concert, have violated their fiduciary duties
owed to the public shareholders of ITT and put their own personal interest 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.
4
<PAGE>
19. The Director Defendants apparently failed 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 active and open auction for ITT; or (5) act independently so
that the interests of public shareholders would be protected. Instead,
defendants have sought to chill potential offers for ITT.
20. While the Director Defendants of ITT should negotiate with Hilton to
achieve the highest possible price for ITT shareholders and seek out other
possible purchasers of the assets of ITT or its stock in a manner designed to
obtain the highest possible price for ITT's shareholders, or seek to enhance the
value of ITT for all its current shareholders, they have instead resolved to
ignore the overtures of ITT in order to protect the positions of the current
board of directors and the compensation, prestige and perquisites that flow
therefrom.
21. These tactics pursued by the defendants are, and will continue to be,
wrongful, unfair and harmful to ITT's public shareholders, and are an attempt by
certain defendants to aggrandize their personal positions, interests and
finances at the expense of and to the detriment of the ITT public stockholders.
These maneuvers by the defendants will deny members of the class their right to
share appropriately in the true value of ITT's valuable assets, future earnings
and profitable businesses.
22. In contemplating, planning and/or effecting the foregoing specified
acts and in pursuing the course of conduct described herein, defendants are not
acting in good faith toward plaintiff and the class, and have breached, and are
breaching, their fiduciary duties to the plaintiff and the class.
23. Because the Director Defendants (and those acting in concert with
them) dominate and control the business and corporate affairs of ITT and because
they are in possession of private corporate information concerning ITT's
businesses and future prospects, there exists an imbalance and disparity of
knowledge and economic power between the defendants and the public shareholders
of ITT, which makes it inherently unfair to ITT's public shareholders.
5
<PAGE>
24. By reason of the foregoing acts, practices and course of conduct, the
Director Defendants have failed to use the required care and diligence in the
exercise of their fiduciary obligations owed to ITT and its public shareholders.
25. As a result of the actions of the defendants, plaintiff and the class
have been and will be damaged in that they will not receive the fair value of
ITT's assets and business in exchange for their shares, and have been and will
be prevented from obtaining a fair price for their shares of ITT common stock.
26. Unless enjoined by this Court, the Director Defendants will continue
to breach their fiduciary duties owed to plaintiff and the class, all to the
irreparable harm of the class. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
a. Declaring that this action may be maintained as a class action;
b. Declaring that the actions of the defendants are unfair, unjust
and inequitable to plaintiff and the other members of the class;
c. Enjoining preliminarily and permanently the defendants from
taking any action which does not seek to maximize the shareholder value of ITT;
d. Requiring defendants to compensate plaintiff and the members of
the class for all losses and damages suffered and to be suffered by them as a
result of the acts complained of herein, together with pre-judgment and
post-judgment interest;
e. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys', accountants' and experts' fees; and
6
<PAGE>
f. Granting such other and further relief as may be just and proper.
Dated: January 28, 1997
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
By: /s/ Mark Albright
-------------------------------------
William Stoddard
Nevada Bar. No. 1477
G. Mark Albright
Nevada Bar. No. 1394
Quail Park I, Suite D-4
801 South Rancho Drive
Las Vegas, NV 89106
(702) 384-7111
OF COUNSEL
THE LAW OFFICES OF CHARLES J. PIVEN
Charles J. Piven
The Legg Mason Tower
111 S. Calvert Street
Baltimore, MD 21202
(410) 332-0030
7
<PAGE>
[EXHIBIT 11]
COMP
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 S. Rancho Drive
Las Vegas, NV 89106
Telephone: 702/ 384-7111
Counsel for Plaintiff
[Additional counsel appear on signature page.]
DISTRICT COURT
CLARK COUNTY, NEVADA
- -----------------------------------------------x
ABRAHAM KOSTICK, on behalf of himself and all :
others similarly situated, : Civ. No. A369138
: XIV
Plaintiff, : T
:
-against- : CLASS ACTION
:
RAND V. ARASKOG, : COMPLAINT
: ---------
ROBERT A. BOWMAN :
BETTE B. ANDERSON, NOLAN D. : Plaintiff Demands A
ARCHIBALD, ROBERT A. BURNETT, PAUL :
G. KIRK, JR., EDWARD C. MEYER, : Trial By Jury
BENJAMIN F. PAYTON, VIN WEBER, :
MARGITA E. WHITE, KENDRICK R. :
WILSON, III, and ITT CORPORATION, :
:
Defendants. :
- -----------------------------------------------x
Plaintiff, by his attorneys, for his complaint against defendants, alleges
upon personal knowledge with respect to paragraph 5, and upon information and
belief based, inter alia, upon the investigation of counsel, as to all other
allegations herein, as follows:
<PAGE>
NATURE OF THE ACTION
1. Plaintiff brings this action as a class action on behalf of himself 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 and embrace a
premium offer to acquire control of ITT by Hilton Hotels Corp. ("Hilton"). The
director defendants are utilizing their fiduciary positions of control over ITT
to thwart Hilton and others in their legitimate attempts to acquire ITT.
3. Such action and inaction represent 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.
4. 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.
THE PARTIES
5. Plaintiff Abraham Kostick is, and at all relevant times has been, the
owner of common stock of defendant ITT.
6. Defendant ITT is a Nevada corporation with its principal executive
offices at 1330 Avenue of the Americas, New York 10019-5490. ITT describes
itself as being primarily engaged in the hospitality, gaming, entertainment and
information service businesses.
2
<PAGE>
7. 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
from 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.
8. Defendant Robert A. Bowman ("Bowman") is President and Chief Operating
Officer of ITT and has been employed by the Company, its predecessors and
subsidiaries from April 1991. Bowman, for the fiscal year ended 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.
9. Defendants Bette B. Anderson, Nolan A. Archibald, Robert A. Burnett,
Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F. Dayton, 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 also 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.
10. 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. Each Individual Defendant owed and owes ITT and
its public
3
<PAGE>
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.
11. 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.
12. Each defendant herein is sued individually as a conspirator and/or
aider and abettor, or, as appropriate, in his capacity as a director of the
Company, and the liability of each arises from the fact that he or it has
engaged in all or part of the unlawful acts, plans, schemes or transactions
complained of herein.
CLASS ACTION ALLEGATIONS
------------------------
13. Plaintiff brings this action pursuant to Rule 23 of the Nevada Rules
of Civil Procedure on his own 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").
14. 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 116.4 million shares of common stock
outstanding, owned by thousands of shareholders of record and beneficial owners.
Members of the Class 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:
4
<PAGE>
(i) whether the individual Defendants are unlawfully impeding
a potential acquisition of ITT to the detriment of the shareholders of the
Company, and have 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;
(ii) 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;
(iii) whether defendants have breached 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
(iv) whether plaintiff and other members of the Class are
being and will continue to be 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 has retained competent counsel experienced in litigation of this
nature. Accordingly, plaintiff is an adequate representative 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.
15. For the 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
5
<PAGE>
action, the Class members will continue to suffer damage and defendants'
violations of law will proceed without remedy.
SUBSTANTIVE ALLEGATIONS
-----------------------
16. ITT has traditionally been identified as the quintessential
conglomerate corporation acquiring widely disparate businesses in different
industries for the predominant purpose of boosting corporate growth.
17. 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.
18. In order to regain investor favor, 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 widely disparate business, the Company has stated
that it intends to dispose of those operations which do not fit within its core
business.
19. 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.
20. Thus, on September 9, 1996, ITT surprised the investing public by
announcing 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
construction disruptions at Caeser's Palace and the Desert Inn, two significant
gaming properties of ITT.
21. 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.
6
<PAGE>
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 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.
22. 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, of $56 per share to a trading range of between approximately $40 and $45 a
share. ITT's stock closed at $42.875 on January 27, 1997.
23. 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, a
substantial--almost 30%-- premium over ITT's previous trading value. 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.
24. 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 from unwanted takeover. To act
consistent with their fiduciary duties, the Individual Defendants should
evaluate all available alternatives, including negotiating with Hilton which
they have failed to do.
7
<PAGE>
25. 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 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.
26. 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.
27. ITT's Board and its top management have frustrated Hilton's current
acquisition overtures and offers, even though these proposals would result in
ITT's shareholders receiving a substantial premium over the then market-price 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 and 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.
8
<PAGE>
28. 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 the Company's public shareholders for their own
personal benefit.
29. 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.
30. 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.
31. 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.
32. 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
class representative;
9
<PAGE>
B. Ordering the Individual Defendants to carry out their fiduciary duties
to plaintiff and the other members of the Class by announcing their intentions
to:
(i) cooperate fully with any entity or person, including 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
(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.
C. Declaring that the Individual Defendants have violated their fiduciary
duties to the Class;
D. Enjoining defendants from abusing the corporate machinery of the
Company for the purpose of entrenching themselves in office;
E. Ordering the Individual Defendants to take steps to facilitate a
premium acquisition by utilizing the Company's anti-takeover defense exclusively
in a manner designed to maximize shareholder value;
F. 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;
G. Awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorney's and experts' fees;
and
H. Granting such other and further relief as may be just and proper.
10
<PAGE>
JURY DEMAND
-----------
Plaintiff demands a trial by jury of all issues so triable.
DATED: January 28, 1997
Respectfully submitted,
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
G. MARK 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
Telephone: 702/384-7111
702-384-0605 (fax)
David J. Bershad
Steven G. Schulman
Jeffrey S. Abraham
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Counsel for Plaintiff
11
<PAGE>
[EXHIBIT 12]
COMP
ALBRIGHT, STODDARD, WARNICK & ALBRIGHT
G. MARK ALBRIGHT, ESQ.
Nevada Bar No. 001394
801 S. Rancho Drive, Suite D-4
Las Vegas, NV 89106
(702) 384-7111
Attorneys for Plaintiff
DISTRICT COURT
CLARK COUNTY, NEVADA
- ----------------------------------------------------------
JULES BERNSTEIN and SYLVIA PIVEN, on behalf of
themselves and all others similarly situated,
CASE NO.: A369147
Plaintiffs, DEPT. NO.: III
v.
ITT CORPORATION; RAND V. ARASKOG; ROBERT A.
BOWMAN; BETTE B. ANDERSON; NOLAN D.
ARCHIBALD; ROBERT A. BURNETT; PAUL G. KIRK,
JR.; EDWARD C. MEYER; BENJAMIN F. PAYTON; VIN FIRST AMENDED
WEBER; MARGITA E. WHITE; and KENDRICK R. COMPLAINT
WILSON, III,
Defendants.
- ----------------------------------------------------------
Plaintiffs, by their attorneys, allege upon information and belief, except
with respect to their ownership of ITT Corporation ("ITT" or the "Company")
common stock, and their suitability to serve as class representatives, which are
alleged upon personal knowledge, as follows:
PARTIES
1. Plaintiff Jules Bernstein is the owner of shares of defendant ITT.
2. Plaintiff Sylvia Piven is the owner of shares of defendant ITT.
<PAGE>
3. Defendant ITT is a corporation organized and existing under the laws of
the State of Nevada. ITT maintains its principal offices at 1330 Avenue of the
Americas, New York, New York. ITT owns, operates and franchises hotels, operates
casinos, owns and operates sports franchises including the "Madison Square
Garden" arena, publishes telephone directories, operates technical colleges
offering post-secondary career education and intends to operate television
stations through joint venture agreements.
4. Defendant Rand V. Araskog ("Araskog") is Chairman of the Board and
Chief Executive Officer of defendant ITT.
5. Defendant Robert A. Bowman ("Bowman") is President, Chief Operating
Officer and a Director of defendant ITT.
6. 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 Directors of defendant ITT.
7. The foregoing individual directors of ITT (collectively, the "Director
Defendants"), owe fiduciary duties to ITT and its shareholders.
CLASS ACTION ALLEGATIONS
8. Plaintiffs bring this action on their own behalf and a class action on
behalf of all shareholders of defendant ITT (except defendants herein and any
person, firm, trust, corporation or other entity related to or affiliated with
any of the defendants) or their successors in interest, who have been or will be
adversely affected by the conduct of defendants alleged herein.
9. This action is properly maintainable as a class action for the
following reasons:
-2-
<PAGE>
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, there were more than 1.1 billion shares of defendant ITT's
common stock outstanding owned by tens of thousands of shareholders of record
scattered throughout the United States.
b. There are questions of law and fact which are common to members
of the class and which predominate over any questions affecting any individual
members. The common questions include, inter alia, the following:
(1) Whether the Director Defendants have breached their
fiduciary duties owed by them to plaintiffs and members of the class, and/or
have aided and abetted in such breach, by failing to act in such a way as to
maximize shareholder value of ITT;
(2) Whether the Director Defendants have wrongfully failed and
refused to seek a purchaser of ITT at the highest possible price and, instead,
have sought to chill potential offers;
(3) Whether plaintiffs and the other members of the class will
be irreparably damaged by the conduct complained of herein; and
(4) Whether defendants have breached or aided and abetted the
breaches of the fiduciary and other common law duties owed by them to plaintiffs
and the other members of the class.
10. Plaintiffs are committed to prosecuting this action and have retained
competent counsel experienced in litigation of this nature. The claims of
plaintiffs are typical of the claims of the other members of the class and
plaintiffs have the same interest as the
-3-
<PAGE>
other members of the class. Accordingly, plaintiffs are adequate representatives
of the class and will fairly and adequately protect the interests of the class.
11. Plaintiffs anticipate that there will not be any difficulty in the
management of this litigation.
12. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this action.
FACTUAL BACKGROUND
13. On January 27, 1997, at approximately 4:20 p.m., Hilton Hotels Corp.
("Hilton") announced that it had offered to acquire ITT for $55 a share, or $6.5
billion, plus outstanding debt, making the total deal worth $10.5 billion.
Hilton said that it plans to begin a cash tender offer at $55 per share for half
of the outstanding ITT shares, to be followed by a second-step merger at $55 a
share in Hilton common stock.
14. 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."
15. Bollenbach added that, "The 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
-4-
<PAGE>
enormous benefit to each company and its respective shareholders, employees and
other constituencies."
16. 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. Bollenbach 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.
17. The Director Defendants, however, fearing that the result of any such
transaction would mean their ouster from the board, took no action to advance
the proposed deal even though it would provide ITT shareholders with a premium
of 29% with the opportunity to perhaps increase the price offered by Hilton.
CAUSE OF ACTION AGAINST ALL DEFENDANTS
18. 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.
19. The Director Defendants apparently failed 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
-5-
<PAGE>
enhance ITT's value and/or attractiveness as an acquisition candidate; (4)
effectively expose ITT to the marketplace in an effort to create an active and
open auction for ITT; or (5) act independently so that the interests of public
shareholders would be protected. Instead, defendants have sought to chill
potential offers for ITT.
20. While the Director Defendants of ITT should negotiate with Hilton to
achieve the highest possible price for ITT shareholders and seek out other
possible purchasers of the assets of ITT or its stock in a manner designed to
obtain the highest possible price for ITT's shareholders, or seek to enhance the
value of ITT for all its current shareholders, they have instead resolved to
ignore the overtures of ITT in order to protect the positions of the current
board of directors and the compensation, prestige and perquisites that flow
therefrom.
21. These tactics pursued by the defendants are, and will continue to be,
wrongful, unfair and harmful to ITT's public shareholders, and are an attempt by
certain defendants to aggrandize their personal positions, interests and
finances at the expense of and to the detriment of the ITT public stockholders.
These maneuvers by the defendants will deny members of the class their right to
share appropriately in the true value of ITT's valuable assets, future earnings
and profitable businesses.
22. In contemplating, planning and/or effecting the foregoing specified
acts and in pursuing the course of conduct described herein, defendants are not
acting in good faith toward plaintiffs and the class, and have breached, and are
breaching, their fiduciary duties to the plaintiffs and the class.
23. Because the Director Defendants (and those acting in concert with
them) dominate and control the business and corporate affairs of ITT and because
they are in possession of private corporate information concerning ITT's
businesses and future prospects,
-6-
<PAGE>
there exists an imbalance and disparity of knowledge and economic power between
the defendants and the public shareholders of ITT, which makes it inherently
unfair to ITT's public shareholders.
24. By reason of the foregoing acts, practices and course of conduct, the
Director Defendants have failed to use the required care and diligence in the
exercise of their fiduciary obligations owed to ITT and its public shareholders.
25. As a result of the actions of the defendants, plaintiffs and the class
have been and will be damaged in that they will not receive the fair value of
ITT's assets and business in exchange for their shares, and have been and will
be prevented from obtaining a fair price for their shares of ITT common stock.
26. Unless enjoined by this Court, the Director Defendants will continue
to breach their fiduciary duties owed to plaintiffs and the class, all to the
irreparable harm of the class. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
a. Declaring that this action may be maintained as a class action;
b. Declaring that the actions of the defendants are unfair, unjust
and inequitable to plaintiffs and the other members of the class;
c. Enjoining preliminarily and permanently the defendants from
taking any action which does not seek to maximize the shareholder value of ITT;
d. Requiring defendants to compensate plaintiffs and the members of
the class for all losses and damages suffered and to be suffered by them as a
result of the acts complained of herein, together with pre-judgment and
post-judgment interest;
-7-
<PAGE>
e. Awarding plaintiffs the costs and disbursements of this action,
including reasonable attorneys', accountants' and experts' fees; and
f. Granting such other and further relief as may be just and proper.
Dated: February 4, 1997
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
By: /s/ Mark Albright
-----------------------------
William Stoddard
Nevada Bar No. 1477
G. Mark Albright
Nevada Bar No. 1394
Quail Park I, Suite D-4,
801 South Rancho Drive
Las Vegas, NV 89106
(702) 384-7111
OF COUNSEL:
LAW OFFICES OF BERNARD M. GROSS
Deborah R. Gross, Esq.
1500 Walnut Street
Philadelphia, PA 19102
(215) 561-3600
BERNSTEIN LIEBHARD & LIFSHITZ
Stanley Bernstein
274 Madison Avenue
New York, NY 10016
(212) 779-1414
-8-
<PAGE>
[EXHIBIT 13]
COMP
ALBRIGHT, STODDARD, WARNICK & ALBRIGHT
G. MARK ALBRIGHT, ESQ.
Nevada Bar No. 001394
801 S. Rancho Drive, Suite D-4
Las Vegas, NV 89106
(702) 384-7111
Attorneys for Plaintiff
DISTRICT COURT
CLARK COUNTY, NEVADA
- ------------------------------------------------------
ADOLPH FEUERSTEIN, and DAVID L. FREEMAN
trustee F/B/O WOODTECH SALES & MARKETING INC.
EMPLOYEES PROFIT SHARING TRUST, on behalf of CASE NO.: A369137
themselves and all others similarly situated, DEPT. NO.: IV
Plaintiffs, DOCKET NO.: C
v.
ITT CORPORATION; RAND V. ARASKOG; ROBERT A.
BOWMAN; BETTE B. ANDERSON; NOLAN D.
ARCHIBALD; ROBERT A. BURNETT; PAUL G. KIRK, FIRST AMENDED
JR.; EDWARD C. MEYER; BENJAMIN F. PAYTON; VIN COMPLAINT
WEBER; MARGITA E. WHITE; and KENDRICK R.
WILSON, III,
Defendants.
- ------------------------------------------------------
Plaintiffs, by their attorneys, allege upon information and belief, except
with respect to their ownership of ITT Corporation N.V. ("ITT" or the "Company")
common stock, and their suitability to serve as class representatives, which are
alleged upon personal knowledge, as follows:
PARTIES
1. Plaintiff Adolph Feuerstein is the owner of shares of defendant
ITT.
2. Plaintiff David L. Freeman Trustee F/B/O Woodtech Sales &
Marketing Inc. Employees Profit Sharing Trust is the owner of shares of
defendant ITT.
<PAGE>
3. Defendant ITT is a corporation organized and existing under the laws of
the State of Nevada. ITT maintains its principal offices at 1330 Avenue of the
Americas, New York, New York. ITT owns, operates and franchises hotels, operates
casinos, owns and operates sports franchises including the "Madison Square
Garden" arena, publishes telephone directories, operates technical colleges
offering post-secondary career education and intends to operate television
stations through joint venture agreements.
4. Defendant Rand V. Araskog ("Araskog") is Chairman of the Board and
Chief Executive Officer of defendant ITT.
5. Defendant Robert A. Bowman ("Bowman") is President, Chief Operating
Officer and a Director of defendant ITT.
6. 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 Directors of defendant ITT.
7. The foregoing individual directors of ITT (collectively, the "Director
Defendants"), owe fiduciary duties to ITT and its shareholders.
CLASS ACTION ALLEGATIONS
8. Plaintiffs bring this action on their own behalf and a class action on
behalf of all shareholders of defendant ITT (except defendants herein and any
person, firm, trust, corporation or other entity related to or affiliated with
any of the defendants) or their successors in interest, who have been or will be
adversely affected by the conduct of defendants alleged herein.
9. This action is properly maintainable as a class action for the
following reasons:
-2-
<PAGE>
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, there were more than 1.1 billion shares of defendant ITT's
common stock outstanding owned by tens of thousands of shareholders of record
scattered throughout the United States.
b. There are questions of law and fact which are common to members
of the class and which predominate over any questions affecting any individual
members. The common questions include, inter alia, the following:
(1) Whether the Director Defendants have breached their
fiduciary duties owed by them to plaintiffs and members of the class, and/or
have aided and abetted in such breach, by failing to act in such a way as to
maximize shareholder value of ITT;
(2) Whether the Director Defendants have wrongfully failed and
refused to seek a purchaser of ITT at the highest possible price and, instead,
have sought to chill potential offers;
(3) Whether plaintiffs and the other members of the class will
be irreparably damaged by the conduct complained of herein; and
(4) Whether defendants have breached or aided and abetted the
breaches of the fiduciary and other common law duties owed by them to plaintiffs
and the other members of the class.
10. Plaintiffs are committed to prosecuting this action and have retained
competent counsel experienced in litigation of this nature. The claims of
plaintiffs are typical of the claims of the other members of the class and
plaintiffs have the same interest as the other
-3-
<PAGE>
members of the class. Accordingly, plaintiffs are adequate representatives of
the class and will fairly and adequately protect the interests of the class.
11. Plaintiffs anticipate that there will not be any difficulty in
the management of this litigation.
12. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this action.
FACTUAL BACKGROUND
13. On January 27, 1997, at approximately 4:20 p.m., Hilton Hotels
Corp. ("Hilton") announced that it had offered to acquire ITT for $55 a share,
or $6.5 billion, plus assumption of outstanding debt, making the total purchase
price worth $10.5 billion. Hilton said that it plans to begin a cash tender
offer at $55 per share for half of the outstanding ITT shares, to be followed by
a second-step merger at $55 a share in Hilton common stock.
14. 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."
15. Bollenbach added that, "The 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
-4-
<PAGE>
enormous benefit to each company and its respective shareholders, employees and
other constituencies."
16. 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. Bollenbach 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.
17. The Director Defendants, however, fearing that the result of any such
transaction would mean their ouster from the board, took no action to advance
the proposed purchase even though it would provide ITT shareholders with a
premium of 29% with the opportunity to perhaps increase the price offered by
Hilton.
CAUSE OF ACTION AGAINST ALL DEFENDANTS
18. 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.
19. The Director Defendants apparently failed 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
-5-
<PAGE>
enhance ITT's value and/or attractiveness as an acquisition candidate; (4)
effectively expose ITT to the marketplace in an effort to create an active and
open auction for ITT; or (5) act independently so that the interests of public
shareholders would be protected. Instead, defendants have sought to chill
potential offers for ITT.
20. While the Director Defendants of ITT should negotiate with Hilton to
achieve the highest possible price for ITT shareholders and seek out other
possible purchasers of the assets of ITT or its stock in a manner designed to
obtain the highest possible price for ITT's shareholders, or seek to enhance the
value of ITT for all its current shareholders, they have instead resolved to
ignore the overtures of ITT in order to protect the positions of the current
board of directors and the compensation, prestige and perquisites that flow
therefrom.
21. These tactics pursued by the defendants are, and will continue to be,
wrongful, unfair and harmful to ITT's public shareholders, and are an attempt by
certain defendants to aggrandize their personal positions, interests and
finances at the expense of and to the detriment of the ITT public stockholders.
These maneuvers by the defendants will deny members of the class their right to
share appropriately in the true value of ITT's valuable assets, future earnings
and profitable businesses.
22. In contemplating, planning and/or effecting the foregoing specified
acts and in pursuing the course of conduct described herein, defendants are not
acting in good faith toward plaintiffs and the class, and have breached, and are
breaching, their fiduciary duties to the plaintiffs and the class.
23. Because the Director Defendants (and those acting in concert with
them) dominate and control the business and corporate affairs of ITT and because
they are in possession of private corporate information concerning ITT's
businesses and future prospects,
-6-
<PAGE>
there exists an imbalance and disparity of knowledge and economic power between
the defendants and the public shareholders of ITT,which makes it inherently
unfair to ITT's public shareholders.
24. The foregoing acts, practices and course of conduct of the Director
Defendants constitute failure to use the required care and diligence in the
exercise of their fiduciary obligations owed to ITT and its public shareholders.
25. As a result of the actions of the defendants, plaintiffs and the class
have been and will be damaged in that they will not receive the fair value of
ITT's assets and business in exchange for their shares, and have been and will
be prevented from obtaining a fair price for their shares of ITT common stock.
26. Unless enjoined by this Court, the Director Defendants will continue
to breach their fiduciary duties owed to plaintiffs and the class, all to the
irreparable harm of the class. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
a. Declaring that this action may be maintained as a class action;
b. Declaring that the actions of the defendants are unfair, unjust
and inequitable to plaintiffs and the other members of the class;
c. Enjoining preliminarily and permanently the defendants from
taking any action which does not seek to maximize the shareholder value of ITT;
d. Requiring defendants to compensate plaintiffs and the members of
the class for all losses and damages suffered and to be suffered by them as a
result of the acts complained of herein, together with pre-judgment and
post-judgment interest;
-7-
<PAGE>
e. Awarding plaintiffs the costs and disbursements of this action,
including reasonable attorneys', accountants' and experts' fees; and
f. Granting such other and further relief as may be just and proper.
Dated: February 4, 1997
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
By: /s/ Mark Albright
------------------------------
William Stoddard
G. Mark Albright
Quail Park I, Suite D-4,
801 South Rancho Drive
Las Vegas, NV 89106
(702) 384-7111
Attorneys for Plaintiffs
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
Jeffrey G. Smith
Neil L. Zola
270 Madison Avenue
New York, New York 10016
(212) 545-4600
CHIMICLES JACOBSEN & TIKELLIS
Pamela Tikellis
One Rodney Square
Wilmington, Delaware 19899
(302) 656-2500
MALINA & WOLSON
Bernard Malina, Esq.
60 East 42nd Street
New York, NY 10165
(212) 986-7410
-8-
<PAGE>
[EXHIBIT 14]
COMP
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.]
DISTRICT COURT
CLARK COUNTY, NEVADA
DONNIE K. MARKS, and DR. SAMUEL )
COHEN, on behalf of )
themselves and all others similarly )
situated, )
) Case No. A369165
Plaintiff, ) VI
)
- against - )
) CLASS ACTION B
RAND V. ARASKOG, )
ROBERT A. BOWMAN ) COMPLAINT
BETTE B. ANDERSON, NOLAN D. )
ARCHIBALD, ROBERT A. BURNETT, ) Plaintiff Demands A
PAUL G. KIRK, JR., EDWARD )
C. MEYER, BENJAMIN F. PAYTON, ) Trial by Jury
VIN WEBER, MARGITA E. WHITE, )
KENDRICK R. WILSON III )
and ITT CORPORATION, )
)
Defendants. )
)
- ------------------------------------
Plaintiffs, by and through their attorneys, for their complaint
against defendants, alleges upon personal knowledge with respect to paragraph 5,
and upon information
<PAGE>
2
and belief based, inter alia, upon the investigation of counsel, as to all other
allegations herein, as follows:
NATURE OF THE ACTION
1. Plaintiffs bring this action as a class action on behalf of themselves
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 and embrace a
premium offer to acquire control of ITT by Hilton Hotels Corp. ("Hilton"). The
director defendants are utilizing their fiduciary positions of control over ITT
to thwart Hilton and others in their legitimate attempts to acquire ITT.
3. Such action and inaction represent 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.
4. The Individual Defendants are abusing their fiduciary positions of
control over ITT to thwart legitimate
<PAGE>
3
attempts to 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.
THE PARTIES
5. Plaintiffs are and at all relevant times have been, the owner of common
stock of defendant ITT.
6. Defendant ITT is a Nevada corporation with its principal executive
offices at 1330 Avenue of the Americas, New York 10019-5490. ITT describes
itself as being primarily engaged in the hospitality, gaming, entertainment and
information service businesses.
7. 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
from 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.
<PAGE>
4
8. Defendant Robert A. Bowman ("Bowman") is President and Chief Operating
Officer of ITT and has been employed by the Company, its predecessors and
subsidiaries from April 1991. Bowman, for the fiscal year ended 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.
9. Defendants Bette B. Anderson, Nolan A. Archibald, Robert A. Burnett,
Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F. Dayton, 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 also serve as directors of ITT Education 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.
10. 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
<PAGE>
5
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. Each
Individual Defendant owed and owes 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 Plaintiffs and
other members of the Class (as herein defined) the highest obligations of good
faith, fair dealing, loyalty and due care.
11. 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.
12. Each defendant herein is sued individually as a conspirator and/or
aider and abettor, or, as appropriate, in his capacity as a director of the
Company, and the liability of each arises from the fact that he or it has
engaged in all or part of the unlawful acts, plans, schemes or transactions
complained of herein.
<PAGE>
6
CLASS ACTION ALLEGATIONS
13. Plaintiffs bring this action pursuant to Rule 23 of the Nevada Rules
of Civil Procedure on their own 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").
14. 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 116.4 million shares of common stock
outstanding, owned by thousands of shareholders of record and beneficial owners.
Members of the Class 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 Individual Defendants are unlawfully impeding
a potential acquisition of ITT to the detriment of the shareholders of the
Company, and have breached their fiduciary and other common law duties owed by
them to Plaintiffs and other members of the Class by failing
<PAGE>
7
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;
(ii) 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;
(iii) whether defendants have breached or aided and abetted
the breach of fiduciary duties and other common law duties owed by them to
Plaintiffs and other members of the Class; and
(iv) whether Plaintiffs and other members of the Class are
being and will continue to be injured by the wrongful conduct alleged herein
and, if so, what is the proper remedy and/or measure of damages.
(c) The claims of Plaintiffs are typical of the claims of other
members of the Class and Plaintiffs have no interests that are adverse or
antagonistic to the interests of the Class.
(d) Plaintiffs are committed to the vigorous prosecution of this
action and has retained competent counsel experienced in litigation of this
nature. Accordingly, Plaintiffs are an adequate representative of
<PAGE>
8
the Class and will fairly and adequately protect the interests of the Class.
(e) Plaintiffs anticipate that there will not be any difficulty in
the management of this litigation as a class action.
15. For the 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.
SUBSTANTIVE ALLEGATIONS
16. ITT has traditionally been identified as the quintessential
conglomerate corporation acquiring widely disparate businesses in different
industries for the predominant purpose of boosting corporate growth.
17. 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.
18. In order to regain investor favor, defendant Araskog has been
increasingly refocusing ITT's business on gaming, hotels and entertainment. And,
although ITT continues to own interests in educational services,
<PAGE>
9
telecommunications and other widely disparate business, the Company has stated
that it intends to dispose of those operations which do not fit within its core
business.
19. 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.
20. Thus, on September 9, 1996, ITT surprised the investing public by
announcing 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
construction disruptions at Caesar's Palace and the Desert Inn, two significant
gaming properties of ITT.
21. 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.
<PAGE>
10
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 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.
22. 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, of $56 per share to a trading range of between approximately $40 and $45 a
share. ITT's stock closed at $42.875 on January 27, 1997.
23. 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, a
substantial --
<PAGE>
11
almost 30% -- premium over ITT's previous trading value. 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.
24. 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 from unwanted takeover. To act
consistent with their fiduciary duties, the Individual Defendants should
evaluate all available alternatives, including negotiating with Hilton which
they have failed to do.
25. 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 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
<PAGE>
12
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.
26. 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.
27. ITT's Board and its top management have frustrated Hilton's current
acquisition overtures and offers, even though these proposals would result in
ITT's shareholders receiving a substantial premium over the then market-price 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
<PAGE>
13
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.
28. 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 Plaintiffs 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 the Company's public shareholders for their own
personal benefit.
29. Plaintiffs seek preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving Plaintiffs 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.
<PAGE>
14
30. Only through the exercise of this Court's equitable powers can
Plaintiffs be fully protected from the immediate and irreparable injury which
the defendants' actions threaten to inflict.
31. Unless enjoined by the Court, defendants will continue to breach their
fiduciary duties owed to Plaintiffs 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 Plaintiffs and the other members of the Class.
32. Plaintiffs and the Class have no adequate remedy at law.
WHEREFORE, Plaintiffs demand judgment as follows:
A. Declaring this to be a proper class action and certifying Plaintiffs as
class representative;
B. Ordering the Individual Defendants to carry out their fiduciary duties
to Plaintiffs and the other members of the Class by announcing their intention
to:
(i) cooperate fully with any entity or person, including
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;
<PAGE>
15
(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 (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.
C. 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;
E. Ordering the Individual Defendants to take steps to facilitate a
premium acquisition by utilizing the Company's anti-takeover defense exclusively
in a manner designed to maximize shareholder value;
F. Ordering the Individual Defendants, jointly and severally to account to
Plaintiffs and the Class for all
<PAGE>
16
damages suffered and to be suffered by them as a result of
the acts and transactions alleged herein;
G. Awarding Plaintiffs the costs and disbursements of this action,
including a reasonable allowance for Plaintiffs's attorney's and experts' fees;
and
H. Granting such other and further relief as may be just and proper.
JURY DEMAND
Plaintiffs demand a trial by jury of all issues so triable.
DATED: January 28, 1997
Respectfully submitted,
ALBRIGHT, STODDARD, WARNICK &
ALBRIGHT
G. MARK ALBRIGHT
/s/ 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
Telephone: 702/384-7111
702-384-0605 (fax)
<PAGE>
17
David J. Bershad
Steven G. Schulman
Milber, Weiss, Bershad, Hynes
& Lerach LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Starr & Holman
Zachary Starr
10 E. 40th Street #2094
New York, New York 10016
(212) 684-6442
Law Offices of Laurence G.
Soicher
300 Park Avenue, 20th Floor
New York, NY 10022
(212) 980-7000
Counsel for Plaintiffs
<PAGE>
[EXHIBIT 15]
Case No. CV97-00483
Dept. No.
IN THE SECOND JUDICIAL DISTRICT COURT OF THE STATE OF NEVADA
IN AND FOR THE COUNTY OF WASHOE
ROBERT HUNTLEY, on behalf of himself and all others
similarly situated,
Plaintiff,
vs.
ITT CORPORATION, RAND V. ARASKOG, ROBERT CLASS ACTION COMPLAINT
A. BOWMAN, BETTE B. ANDERSON, NOLAN D.
ARCHIBALD, ROBERT A. BURNETT, EDWARD C.
MEYER, MARGITA E. WHITE, KENDRICK R.
WILSON, III, PAUL G. KIRK, JR., BENJAMIN F.
PAYTON and VIN WEBER,
Defendants.
- -----------------------------------------------
Plaintiff, Robert Huntley, by and through his undersigned attorneys,
alleges, upon information and belief except as to paragraph 1, which is alleged
upon knowledge:
THE PARTIES
1. Plaintiff is the owner of 150 shares of the common stock of ITT
Corporation ("ITT" or the "Company").
2. Defendant ITT is a corporation organized and existing under the laws of
the State of Nevada with executive offices at 1330 Avenue of the Americas, New
York, New York 10019-5490. The Company owns, leases, manages or franchises 411
hotels; operates casino, hotels and provides information services including
telephone directories. As of January 28, 1997, ITT had approximately 117,000,000
shares of common stock issued and outstanding held by approximately 54,000
shareholders of record which shares trade on the New York Stock Exchange.
<PAGE>
3. (a) Defendant Rand V. Araskog ("Araskog") is and was at all relevant
times, the Company's Chairman of the Board and Chief Executive Officer.
(b) Defendant Robert A. Bowman ("Bowman") is and was at all relevant
times, the Company's President, Chief Operating Officer and a director.
(c) Defendants Bette B. Anderson, Nolan D. Archibald, Robert A.
Burnett, Edward C. Meyer, Margita E. White, Kendrick R. Wilson, III, Paul G.
Kirk, Jr., Benjamin F. Payton, and Vin Weber are and have been at all relevant
times directors of the Company.
4. The individual defendants set forth in paragraph 3 above ("Individual
Defendants") are officers and/or directors of ITT and, as such, are in a
fiduciary relationship with plaintiff and the other stockholders of ITT and owe
to plaintiff and other members of the class the highest obligations of good
faith, fair dealing and full disclosure.
CLASS ACTION ALLEGATIONS
5. Plaintiff brings this case on his own behalf and as a class action on
behalf of all stockholders of ITT, and their successors in interest, who are or
will be threatened with injury arising from defendants' actions as more fully
described herein (the "Class"). Excluded from the Class are defendants herein
and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants.
6. This action is properly maintainable as a Class action.
7. The Class is so numerous that joinder of all members is impracticable.
There are approximately 54,000 members of the Class located throughout the
United States. Further, there are approximately 117 million shares of ITT common
stock issued and outstanding which trade on the New York Stock Exchange.
8. There are questions of law and fact which are common to the Class and
which predominate over questions affecting any individual Class member.
9. A class action is superior to other methods for the fair and efficient
adjudication of the claims herein asserted and no unusual difficulties are
likely to be encountered in the
<PAGE>
management of this class action. The likelihood of individual Class members
prosecuting separate claims is remote.
10. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of other members of the Class. Accordingly,
plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interest of the Class.
11. Plaintiff anticipates that there will not be any difficulty in the
management of this litigation.
CLAIM FOR RELIEF
12. This action is brought as a class action on behalf of all public
stockholders who are being deprived of the opportunity to maximize the value of
their ITT securities. Defendant's positions as officers and directors of ITT
impose upon them fundamental fiduciary duties to maximize shareholder value and
accept the best possible transaction for ITT's stockholders through the
implementation of appropriate bidding mechanisms, "disinterested" participation
and exploration of all available strategic alternatives designed to ensure that
the public stockholders' best interests are served in any change of control.
13. On January 27, 1997, Hilton Hotels Corp. announced that it had orally,
and subsequently in writing, made a proposal (the "Hilton Proposal") to ITT
management to acquire ITT for $55 per share, plus outstanding debt.
14. Hilton's proposal includes a cash tender offer at $55 per share for
half of the outstanding ITT shares followed by a second step merger at the same
cash consideration of $55 per share in Hilton common stock. The Hilton Proposal
is at a substantial 29% premium over the price ITT stock was trading prior to
the announcement.
15. Hilton also indicated that its proposal was based solely on publicly
available data and that "with ITT's cooperation, an ensuring review of private
information could result in an even higher offer."
16. Defendants' fiduciary duties prohibit them from favoring their own (or
their colleagues') interests at the expense of ITT's public stockholders.
However, the defendants
<PAGE>
have failed to indicate that they will make additional information available to
Hilton and have failed to disclose how they intend to adequately consider the
Hilton Proposal so as to avoid advancing their own interests as opposed to that
of the Company's public stockholders.
17. Defendants' fiduciary obligations include, among other duties,
requirements that they:
(a) Undertake an appropriate evaluation of all bona fide offers, and
take appropriate steps to solicit all potential bids for the Company or its
assets.
(b) Act independently including appointing a disinterested committee,
so that the interests of ITT's public stockholders are protected; and
(c) Adequately ensure that no conflicts of interest exist between
defendants' own interest and their fiduciary obligation to the public
stockholders.
18. ITT has indicated that it will take ten business days to evaluate the
Hilton Proposal and make a recommendation to its shareholders. ITT has asked its
shareholders "not to take any action until they have been advised of ITT's
position."
19. According to an article in Bloomberg News dated January 28, 1997,
Hilton has disclosed that ITT rebuffed an offer Hilton made to ITT a few months
ago.
20. Security and casino industry analyst Marvin Roffman of Roffman Miller
Associates has indicated his belief that ITT will fight to remain independent
and will put up a tough defense to Hilton's offer. Hilton Chairman Bollenbach
has also indicated that he has heard that ITT intends to rebuff Hilton's offer.
21. Hilton has asked ITT to remove its "poison pill" takeover defense and
discuss their offer. Based on ITT's earlier rejection of the Hilton's earlier
offer and their failure to remove their poison pill, plaintiff believes that the
individual defendants are not acting to maximize shareholder value but are
instead protecting their own interest.
22. It is apparent from the reflexive negative reactions of the defendants
to the Hilton Proposal, their failure to seriously negotiate with Hilton in the
past and their failure to even disclose their plans to independently assess and
evaluate the terms of the Hilton Proposal,
<PAGE>
that the Individual Defendants have forsaken the interest of ITT stockholders in
maximizing stockholder value to further their own interest in entrenching
present management.
23. The Hilton Proposal is at a substantial premium, and the merger of the
two enormous lodging/hotel companies would involve substantial savings through
efficiencies that would be reaped by the resulting formation of the world's
largest hotel and casino company.
24. As members of the Board of Directors of ITT, the Individual Defendants
owe its stockholders certain fiduciary duties. These duties include the highest
obligations of due care, good faith, loyalty, candor and under the present
circumstances, to maximize shareholder value. The Individual Defendants have
breached, are breaching and will continue to breach their fiduciary duties at
least by failing to disclose in a reasonable and informed manner the terms of
the Hilton Proposal and failure to disclose their steps in fulfillment of their
duties including steps taken to form an "independent" committee to ascertain
whether the Hilton Proposal is fair to ITT shareholders.
25. Defendants' failure to properly negotiate with Hilton, to provide
relevant information to Hilton and/or their failure to pursue other beneficial
alternatives for stockholders, are not reasonable responses to any perceived
threat to the Company posed by Hilton and constitute a breach of the Individual
Defendants' fiduciary duties owed to plaintiff and the other members of the
Class.
26. At all times herein mentioned, the Individual Defendants were
fiduciaries and owed fiduciary duties to plaintiff and all of the stockholders
of ITT, including, but not limited to, the obligation to adequately consider in
a timely and on an informed basis, any reasonable proposal made by other third
parties, not to put their own self-interests and personal considerations ahead
of the interests of the stockholders, and to make corporate decisions in good
faith. Defendants have displayed their predisposition and determination to
reject and thwart tender and/or other offers and proposals by third parties for
enhanced stockholder value, so as to serve their own positions with the Company,
all in violation of their fiduciary duties, and to the detriment of the
stockholders of the Company.
<PAGE>
27. Defendants have embarked on a course intended to thwart a potential
acquisition of the Company, as well as a fair and open auction of the Company
that could maximize stockholder value, and instead act to protect their own
personal financial interest at the expense of plaintiff and other members of the
Class. Defendants are prohibited by their fiduciary duties from taking steps to
thwart a takeover favorable to the interest of ITT's shareholders given their
duty to maximize shareholder values.
28. By reason of the foregoing acts, practices and course of conduct,
defendants have failed to use ordinary care and diligence in the exercise of
their fiduciary obligations toward plaintiff and the other ITT stockholders.
29. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class and
may benefit themselves in their corporate offices, all to the irreparable harm
of the Class, as aforesaid.
30. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFORE, plaintiff demands judgment as follows:
1. Declaring this to be a proper Class action and appointing plaintiff
Class representative.
2. Ordering the Individual Defendants to carry out their fiduciary duties
to plaintiff and the other members of the Class by announcing their intention
to:
(a) Undertake an appropriate evaluation of alternatives designed to
maximize value for ITT's public stockholders;
(b) Adequately ensure that no conflicts of interests exist between
defendants' own interest and their fiduciary obligation to the public
stockholders or, if such conflicts exist, to ensure that all the conflicts would
be resolved in the bet interest of ITT's public stockholders; and
(c) Act independently, by, among other things, appointing a
disinterested committee so that the interest of ITT's public stockholders would
be protected, or alternatively, appointing a shareholder committee to review all
bona fide offers including the Hilton Proposal;
<PAGE>
3. Ordering the defendants, jointly and severally, to account to plaintiff
and the other members of the Class for all damages suffered and to be suffered
by the Class, as a result of the acts and transactions alleged herein;
4. Enjoining defendants from erecting any unlawful barriers to the
acquisition of the Company by any third party which would make ITT less
attractive as an acquisition candidate;
5. Awarding plaintiff the costs and disbursements of the action, including
reasonable allowance for plaintiff's attorneys' fees and experts' fees; and
6. Granting such other and further relief as this Court may deem to be
just and proper.
DATED this 28 day of January, 1997.
HARDESTY & BADER, LTD.
/s/ James W. Hardesty
----------------------------
James W. Hardesty
Nevada State Bar No. 001110
245 East Liberty Street
Third Floor
Reno, NV 89501-2220
(702) 322-5000
-and-
GOODKIND LABATON RUDOFF
& SUCHAROW LLP
Lawrence A. Sucharow
Barbara J. Hart
100 Park Avenue
Twelfth Floor
New York, NY 10017-5563
(212) 907-0700
Attorneys for Plaintiff
<PAGE>
[EXHIBIT 16]
CODE COMP
John A. Hunt, Esq.
Nevada Bar #1888
RALEIGH, HUNT & McGARRY, P.C.
302 E. Carson Avenue, # 1102
Las Vegas, Nevada 89103
702-386-4842
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
805 Third Avenue, 7th Floor
New York, New York 10022
212-935-7400
Attorneys for Plaintiff
DISTRICT COURT
CLARK COUNTY, NEVADA
- -------------------------------------x
KENNETH STEINER, :
: Case No. A369160
Plaintiff, :
:
-v- : I J
:
RAND V. ARASKOG, ROBERT A. BOWMAN, : CLASS ACTION COMPLAINT
BETTE B. ANDERSON, NOLAN D. :
ARCHIBALD, ROBERT A. BURNETT, PAUL :
G. KIRK, JR., EDWARD C. MEYER, :
BENJAMIN F. PAYTON, VIN WEBER, :
MARGITA E. WHITE, KENDRICK R. :
WILSON, III and ITT CORP., :
:
Defendants. :
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Plaintiff, by his attorneys, alleges upon personal knowledge as to
his own acts and upon information and belief as to all other matters, as
follows:
NATURE OF THE ACTION
1. This is a stockholders' class action lawsuit brought on behalf of
the public stockholders of ITT Corp. ("ITT" or the "Company") who have been, and
continue to be, deprived of the opportunity to realize fully the benefits of
their investment in the Company. The individual defendants have wrongfully
failed to properly consider a bona fide offer for the Company from Hilton Hotels
Corp. ("Hilton"), announced on January 27, 1997. By not exploring a business
combination with Hilton,
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defendants actions and inactions constitute a breach of fiduciary duty to
maximize shareholder value. The individual defendants are using their fiduciary
positions of control over ITT to thwart others in their legitimate attempts to
acquire the Company, while at the same time effectively entrenching themselves
in their positions with ITT.
Parties
2. Plaintiff is and, at all relevant times, has been the owner of
shares of ITT common stock.
3. ITT is a corporation duly organized and existing under the laws
of the State of Nevada. The Company owns, operates, and franchises hotels and
casinos. The Company also owns Madison Square Garden, the New York Knicks
basketball franchise, and the New York Rangers hockey team. ITT maintains its
principal executive offices at 1330 Avenue of the Americas, New York, New York
10019. ITT has approximately 1.1 billion shares of common stock outstanding and
approximately 54,000 stockholders of record. ITT stock trades on the New York
Stock Exchange.
4. Defendant Rand V. Araskog ("Araskog") has been, at all material
times hereto, the Chairman of the Board of Directors and Chief Executive Officer
of ITT. In 1995, Araskog received cash compensation from the Company of
$10,375,575.
5. Defendant Robert A. Bowman ("Bowman") has been, at all material
times hereto, the President, Chief Operating Officer, and a
Director of ITT.
6. Defendant Bette B. Anderson ("Anderson") has been, at all
material times hereto, a Director of ITT. Anderson is also a Director of ITT
Educational Services and the ITT Hartford Group, Inc.
7. Defendant Robert A. Burnett ("Burnett") has been, at all material
times hereto, a Director of ITT. Burnett is also a Director of ITT Hartford
Group, Inc. and ITT Industries, Inc.
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8. Paul G. Kirk, Jr. ("Kirk") has been, at all material times
hereto, a Director of ITT. Kirk is also a Director of ITT Hartford Group, Inc.
9. Defendant Edward C. Meyer ("Meyer") has been, at all material
times hereto, a Director of ITT. Meyer is also a Director of ITT Industries,
Inc.
10. Defendant Margita E. White ("White") has been, at all material
times hereto, a Director of ITT. White is also a Director of ITT Educational
Services, Inc.
11. Defendants Nolan D. Archibald, Benjamin F. Payton, Vin Weber,
and Kendrick R. Wilson, III have been, at all material times hereto, directors
of ITT.
12. The individuals identified in Paragraphs 4 through 11 are
collectively referred to throughout this complaint as the "Individual
Defendants."
13. The Individual Defendants, by reason of their corporate
directorship and/or executive positions, stand in a fiduciary position relative
to the Company's shareholders, which fiduciary relationship, at all times
relevant herein, required the defendants to exercise their best judgment and to
act in a prudent manner and in the best interests of the Company's stockholders.
CLASS ACTION ALLEGATIONS
14. Plaintiff brings this lawsuit pursuant to Rule 23 of the Nevada
Rules of Civil Procedure on his own behalf and as a class action on behalf of
all stockholders 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").
15. This action is properly maintainable as a class action.
16. The Class is so numerous that joinder of all members is
impracticable. The Company has more than 1.1 billion shares held by
3
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approximately 54,000 stockholders of record who are scattered throughout
the United States.
17. There are questions of law and fact common to the Class
including, inter alia, whether:
a. defendants have breached their fiduciary duties owed by
them to plaintiff and other members of the Class by failing to attempt in good
faith to maximize shareholder value in the sale of ITT;
b. defendants have breached or aided and abetted the breach of
the fiduciary duties owed by them to plaintiff and other members of the Class;
and
c. plaintiff and the other members of the Class are being and
will continue to be injured by the wrongful conduct alleged herein and, if so,
what is the proper remedy and/or measure of damages.
18. Plaintiff is committed to prosecuting the action and has
retained competent counsel experienced in litigation of this nature. Plaintiff's
claims are typical of the claims of the other members of the Class and plaintiff
has the same interests as the other members of the Class. Plaintiff is an
adequate representatives of the Class.
19. The prosecution of separate actions by individual members of the
Class would create the risk of inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for defendants, or adjudications with respect to individual
members of the Class which would as a practical matter be dispositive of the
interests of the other members not parties to the adjudications or substantially
impair or impede their ability to protect their interests.
20. The defendants have acted, or refused to act, on grounds
generally applicable to, and causing injury to, the Class and, therefore,
preliminary and final injunctive relief on behalf of the Class as a whole is
appropriate.
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SUBSTANTIVE ALLEGATIONS
21. On January 27, 1997, at the close of trading, Hilton announced
that it offered to acquire ITT for $55 per share, or $6.5 billion, plus
outstanding debt. In a press release, Hilton said the proposed transaction would
be worth $10.5 billion including ITT's outstanding debt.
22. Hilton made the formal proposal to ITT management by telephone
earlier in the day, and later confirmed the proposed offer in writing.
23. The proposal followed several attempts over the past six months
by representatives of Hilton to initiate contact with ITT about the possibility
of a business combination. Hilton stated that ITT continually rebuffed such
efforts.
24. Under the proposal, Hilton will offer $55 per share in cash for
half of ITT's outstanding shares, followed by a second-step merger at $55 per
share in Hilton common stock. The proposed consideration constitutes a 29%
premium over ITT's current stock price.
25. Hilton's offer was based solely on publicly available
information. Significantly, Hilton advised that "with ITT's cooperation, an
ensuing review of private information could result in an even higher offer."
26. In addition to the premium over market price, the proposed offer
represents a strategic fit for stockholders of both companies. In this regard,
Hilton stated, "ITT's owned full-service hotel portfolio, along with its major
gaming presence in Las Vegas, Atlantic City and other jurisdictions, fits
perfectly with our stated growth objectives." Further, Hilton stated that its
experience and operating background in hotels and gaming would "bring tremendous
value to the combined shareholder base and generate superior returns" for ITT
shareholders."
5
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27. In its letter to defendants, Hilton explained the extent of its
commitment to acquiring the Company:
[W]e 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 in order to complete this transaction.
28. In after hours trading, ITT traded at about $58.75, up more than
$15 per share from its closing price of $42.875.
29. Defendants' recalcitrance to consider and promptly act upon
Hilton's offer has no valid business purpose, and simply evidences their
disregard for the premium being offered to ITT stockholders. By failing to meet
and negotiate or offer to meet and negotiate with Hilton, defendants are
depriving plaintiff and the Class of the right to share in the assets and
businesses of ITT and receive the maximum value for their shares.
30. ITT represents a highly attractive acquisition candidate.
Defendants' conduct would ensure their continued positions within the Company
but deprive the Company's public shareholders of the premium that Hilton is
prepared to pay, or of the enhanced premium that further negotiation or exposure
of ITT to the market could provide.
31. Defendants owe fundamental fiduciary obligations to ITT's
stockholders to take all necessary and appropriate steps to maximize the value
of their shares. In addition, the Individual Defendants have the responsibility
to act independently so that the interests of the Company'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 ITT must adequately ensure that no conflict of
interest exists between the Individual Defendants' own interests and their
fiduciary obligations to maximize stockholder value or if such conflicts exist,
to insure that all
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such conflicts will be resolved in the best interests of the Company's
stockholders.
32. Because defendants dominate and control the business and
corporate affairs of ITT and because they are in possession of private corporate
information concerning ITT's assets, businesses and future prospects, there
exists an imbalance and disparity of knowledge of economic power between
defendants and the public stockholders of ITT. This discrepancy makes its
grossly and inherently unfair for defendants not to meet with and negotiate with
Hilton, all at the expense of ITT's public stockholders.
33. The Individual Defendants have breached their fiduciary and
other common law duties owed to plaintiff and other members of the Class in that
they have not and are not exercising independent business judgment and have
acted and are acting to the detriment of the Class.
34. In connection with the conduct described herein, the Individual
Defendants breached their fiduciary duties by, among other things:
a. failing to properly consider Hilton's proposal
without fully informing themselves about or
intentionally ignoring the future prospects of a
combined ITT/Hilton company, or the intrinsic
worth of Hilton; and
b. failing and refusing to meet with representatives
of Hilton.
35. Defendants have refused to take those steps necessary to ensure
that ITT's stockholders will receive maximum value for their shares of ITT
stock. Defendants have thus refused to seriously consider the pending offer, and
have failed to announce any active auction or open bidding procedures best
calculated to maximize shareholder value in selling the Company.
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36. The Individual Defendants are acting to entrench themselves in
their offices and positions and maintain their substantial salaries and
perquisites, all at the expense and to the detriment of the public stockholders
of ITT.
37. By the acts, transactions and courses of conduct alleged herein,
the Individual Defendants, individually and as part of a common plan and scheme
in breach of their fiduciary duties and obligations, are attempting unfairly to
deprive plaintiff and other members of the Class of the premium they could
realize in an acquisition transaction and to ensure continuance of their
positions as directors and officers, all to the detriment of ITT's public
stockholders. The Individual Defendants have been engaged in a wrongful effort
to maintain their offices and positions of control and prevent the acquisition
of ITT except on terms that would further their own personal interests.
38. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
ITT's assets and businesses and/or have been and will be prevented from
obtaining a fair and adequate price for their shares of ITT's common stock.
39. 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 premium over the market price, by unlawfully
maintaining their positions of control, and to compel defendants to carry out
their fiduciary duties to maximize shareholder value.
40. Only through the exercise of this Court's equitable powers can
plaintiff be fully protected from the immediate and irreparable injury which
defendants' actions threaten to inflict. Defendants are precluding the
stockholders' enjoyment of the full economic value of their
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investment by failing to proceed expeditiously and in good faith to evaluate and
pursue a premium acquisition proposal that would provide consideration for all
shares at an attractive price.
41. 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, and will prevent the sale
of ITT at a substantial premium, all to the irreparable harm of plaintiff and
other members of the Class.
42. 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) 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
Hilton, having a bona fide interest in proposing any transactions that would
maximize shareholder value, including but not limited to, a merger or
acquisition of ITT;
(ii) immediately undertake an appropriate evaluation of
ITT's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance ITT's value
and attractiveness as a merger/acquisition candidate;
(iv) take all appropriate steps to effectively expose
ITT to the marketplace in an effort to create an active auction of the Company;
(v) act independently so that the interests of the
Company's public stockholders will be protected; and
(vi) 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
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conflicts exist, to ensure that all conflicts of interest are resolved in
the best interests of the public stockholders of ITT;
(c) 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;
(d) Awarding plaintiff the costs and disbursements of this
action, including a reasonable allowance for plaintiff's attorneys' and expert'
fees; and
(e) Granting such other and further relief as may be just and
proper.
Dated: January 28, 1997
RALEIGH, HUNT & McGARRY, P.C.
By: /s/ John A. Hunt
-----------------------------------
John A. Hunt, Esq.
Nevada Bar #1888
302 E. Carson Avenue, # 1102
Las Vegas, Nevada 89101
702-386-4842
Attorneys for Plaintiff
Of Counsel:
WECHSLER HARWOOD
HALEBIAN & FEFFER LLP
805 Third Avenue, 7th Floor
New York, New York 10022
(212) 935-7400
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[EXHIBIT 17]
LAVELLE - STUBBERUD & ASSOCIATES, P.C.
LAURA STUBBERUD
700 South Third Street
Las Vegas, Nevada 89101
(702) 382-6711
WOLF POPPER LLP
STEPHEN D. OBSTREICH
WALLACE A. SHOWMAN
845 Third Avenue
New York, New York 10022
(212) 759 4600
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
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:
MARJORIE COLLINS, :
:
Plaintiff, : CA No. CV-S-97-00104-PMP(RLH)
:
vs. :
: CLASS ACTION COMPLAINT
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, KENDRICK R. WILSON III,:
and ITT CORP., :
:
Defendants. :
- ------------------------------x
Plaintiff, by her undersigned attorneys, alleges for her Complaint, upon
information and belief, except for paragraph 4 hereof, which is alleged upon
personal knowledge, as follows:
NATURE OF THE ACTION
1. On January 27, 1997, Hilton Hotels Corp. ("Hilton") announced that it
will commence a tender offer for the stock of defendant ITT Corp. ("ITT" or the
"Company") at $55 per share, representing a 25 percent premium over the closing
trading price of ITT common stock on Friday, January 24, 1997, the last trading
day before Hilton's announcement. This action is brought to forestall any effort
by ITT to manipulate or otherwise subvert the process of corporate
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2
democracy by amending ITT's by-laws or taking any other action to frustrate the
proxy contest that Hilton is preparing to conduct to replace the ITT Board of
Directors in order to facilitate the tender offer. This action also seeks
injunctive relief enjoining defendants from summarily rejecting the offer
without giving it fair consideration, becoming fully informed as to the fairness
of the offer and taking all steps necessary to maximize shareholder value;
requiring ITT to dismantle its takeover defenses, including its "poison pill;"
and a declaratory judgment that ITT does not have standing to institute an
action under the federal antitrust laws to block or impede Hilton's tender offer
and that, in any event, the consummation of that offer would not violate such
laws.
JURISDICTION AND VENUE
2. This Court has jurisdiction over this action pursuant to 28 U.S.C. ss.
1331, 1332(a) and 1337, and 15 U.S.C. ss.ss. 4 and 26.
3. Venue is appropriate in this District under 28 U.S.C. ss. 1391(b) and
(c) and 15 U.S.C. ss.ss. 15, 22 and 26.
PARTIES
4. Plaintiff is and at all relevant times has been the owner of shares of
common stock of ITT. Further, plaintiff is a resident of the State of Vermont.
5. Defendant ITT is a corporation duly organized and existing under the
laws of the State of Nevada. It maintains its principal executive offices at
1330 Avenue of the Americas, New York, New York 10019. ITT, through its
subsidiaries, operates hospitality, gaming, entertainment and information
service businesses through "ITT Sheraton Corp.," "Ciga S.p.A.," "Caesars World,
Inc." and "Madison Square Garden, L.P." ITT conducts its information service
business through "ITT World Directories" and "ITT Educational Services, Inc."
6. Defendant Rand V. Araskog ("Araskog") is the Chairman of the Board of
Directors and Chief Executive Officer of ITT. According to
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3
the Company's Proxy Statement dated March 28, 1996, Araskog received
compensation from ITT in the amount of $10,375,575 during fiscal year 1995.
7. Defendant Robert A. Bowman ("Bowman") is President, Chief Operating
Officer, and a director of ITT. According to the Company's Proxy Statement dated
March 28, 1996, Bowman received compensation from ITT in the amount of
$3,264,955 during fiscal year 1995.
8. 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 directors of ITT.
9. According to the Company's Proxy Statement dated March 28, 1996,
members of the Board of Directors, except for Mssrs. Araskog and Bowman, receive
an annual retainer fee or $48,000 payable in restricted shares of ITT common
stock, and an annual retainer fee of $18,000 if he/she also serves on the Board
of Directors of ITT Educational Services, Inc. Further, ITT maintains an
unfunded retirement plan. The benefits of which are payable upon retirement from
the Board at or after age 65 after completing at least five years of service on
the Board. Under the plan, ITT has agreed to pay non-employee directors
Anderson, Archibald, Burnett, Kirk, Meyer, Payton and White accrued benefits due
them which have a total value of $1,331,000 in the aggregate. In addition, each
non-employee director receives a fee of $1,000 for each meeting of the Board of
Directors attended and a $1,000 fee for each Committee meeting attended.
10. Each of the defendant directors receive annual compensation from ITT
and has a personal and financial interest in thwarting any threat to the
continued incumbency and control of ITT's current management, in derogation of
their fiduciary duties.
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4
11. The defendants named in paragraphs 6-8 above are hereinafter referred
to as the "Individual Defendants." According to the Company's Proxy Statement
dated March 28, 1996, ITT's directors and officers owned beneficially
approximately 4,465,739 shares or 3.8% of the Company's common stock.
CLASS ACTION ALLEGATIONS
12. Plaintiff brings this action on behalf of herself and as a class
action, pursuant to Rule 23(b)(2) of the Federal Rules of Civil Procedure, on
behalf of all stockholders of ITT (except defendants herein and any person,
firm, trust, corporation or other entity related to or affiliated with any of
the defendants) and their successors in interest, who are or will be threatened
with injury arising from defendants' actions as more fully described herein (the
"Class").
13. This action is properly maintainable as a class action.
14. The Class is so numerous that joinder of all members is impracticable.
While the exact number of class members is unknown to plaintiff at this time and
can only be ascertained through appropriate discovery, there are more than 116
million shares of ITT common stock outstanding held approximately by tens of
thousands of shareholders of record. The holders of these shares are believed to
be geographically dispersed throughout the United States. ITT's stock is listed
and actively traded on the New York Stock Exchange.
15. The parties opposing the Class have acted or refused to act on grounds
generally applicable to the Class, thereby making appropriate final injunctive
relief or corresponding declaratory relief with respect to the Class as a whole.
Plaintiff and the Class have a common and undivided interest in obtaining the
injunctive and declaratory relief requested herein.
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5
16. There are questions of law and fact which are common to members of the
Class and which predominate over questions affecting only individual members.
The common questions, include, inter alia, the following:
(a) whether defendants are unlawfully impeding acquisition offers and
potential offers at the expense of ITT's public stockholders;
(b) whether defendants have failed and will fail to negotiate in good
faith with prospective purchasers of the Company;
(c) whether defendants have engaged and are continuing to engage in a plan
and scheme to entrench themselves at the expense of ITT's public stockholders,
and/or to unfairly obtain for themselves the benefits and business of the
Company;
(d) whether defendants have amended or will amend ITT's by-laws to impede
the effective exercise of the stockholder franchise in connection with the
election of directors at the 1997 annual meeting of ITT shareholders;
(e) whether defendants will honor any nomination for the election of
directors by Hilton at the 1997 annual meeting of ITT shareholders;
(f) whether defendants have increased or will increase the size of ITT's
board at or before its 1997 annual meeting;
(g) whether defendants have delayed or will delay ITT's 1997 annual
meeting beyond May 14, 1997;
(h) whether defendants have refused or will refuse to redeem ITT's "poison
pill" and to make the provisions of the Nevada Control Share Acquisition and
Business Combination Statutes inapplicable to Hilton's tender offer for ITT
stock;
(i) whether defendants lack standing to institute an action seeking to
enjoin the Hilton tender offer under any theory of federal antitrust law; and
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6
(j) whether plaintiffs and the other members of the Class would be
irreparably damaged were the defendants not enjoined from continuing in the
conduct described in this action.
17. Plaintiff's claims are typical of the claims of the other members of
the Class and plaintiff has no interest that is adverse or antagonistic to the
interests of the Class.
18. Plaintiff is committed to the vigorous prosecution of this action and
has retained counsel competent and experienced in litigation of this nature.
Plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class.
SUBSTANTIVE ALLEGATIONS
The Tender Offer
19. In the last quarter of 1996, Hilton contacted one of ITT's principal
financial advisors to determine whether ITT would be interested in pursuing a
business combination with Hilton. The ITT advisor reported back that ITT had no
interest in pursuing such a combination.
20. On January 27, 1997, Hilton announced its intention to commence a
tender offer pursuant to which Hilton is seeking to acquire 50.1 percent of the
outstanding shares of ITT stock at $55 per share. Upon consummation of the
tender offer, Hilton intends to acquire the remaining shares of ITT in a second
step merger in which ITT shareholders will receive $55 in Hilton stock for each
ITT share that they own.
21. The tender offer represents a 28 percent premium over the $42 7/8
closing price of ITT's common stock the prior business day. Further, Hilton
announced that with ITT's cooperation, it may raise its bid after reviewing
ITT's internal books.
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7
22. In response to the tender offer, ITT common stock rose $14 3/4 to $58
1/2, rising above the $55 per share buyout price. ITT's stock price has remained
at this general level.
23. The fact that the market price closed and has remained above the
tender offer price indicates that the market believes that either Hilton or
another company will pay even more than $55 per share to acquire ITT.
24. Hilton's bid represents a highly attractive option to ITT shareholders
inasmuch as ITT has struggled with declining earnings and net income. For the
Company's fourth quarter ended December 31, 1996, earnings fell 2.9 percent. Net
income fell to $66 million or $0.57 per share from 1995 fourth quarter pro form
net income of $68 million or $0.59 per share. In addition, the $55 per share
tender offer is more than twice the Company's present book value ($26.19) and
four times greater than the book value that the stock reached in fiscal 1995
($13.69).
25. In addition to the high offering price, ITT can be expected to benefit
from a business combination with a strategic bidder like Hilton, since great
cost savings could be realized from combined operations. Indeed, Hilton cited
potential cost savings from the acquisition of more than $100 million annually.
Hilton further stated that a "substantial" part of ITT's planned $3 billion-plus
capital expenditure and expansion program would be unneeded because of "the
complementary asset base of the combined companies."
26. In response to this lucrative offer, ITT announced that it would make
a recommendation to its shareholders within ten days. However, ITT has already
indicated its refusal of the tender offer by rebuffing Hilton's approach late
last year. Further, Hilton President and Chief Executive Officer Stephen
Bollenbach stated that he called defendant Araskog on January 27, 1997, but
Araskog didn't return the call.
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8
27. The Hilton tender offer and second-step merger cannot be consummated
unless the ITT Board -- voluntarily or by direction of a court -- removes or
makes inapplicable various anti-takeover devices, including ITT's "poison pill"
and the provisions of Nevada Rev. Statutes ss.ss. 78.378 et seq. and 78.411 et
seq.
28. In light of ITT's prior rejection of Hilton's attempt to explore a
business combination with ITT, and defendant Araskog's refusal to speak with
Hilton President Stephen Bollenbach, the current ITT Board cannot be expected to
facilitate Hilton's tender offer and second-step merger, but can be expected,
instead, to maintain ITT's anti-takeover devices in place and actively oppose
and resist any such acquisition. For this reason, Hilton announced that it is
preparing to conduct a proxy contest to replace the current members of the ITT
Board of Directors with individuals nominated by Hilton, who will run on a
platform to sell ITT to Hilton, subject to their fiduciary duties to ITT
shareholders.
ITT's By-Laws
29. 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 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
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9
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."
30. The 1996 annual meeting of ITT shareholders was held on May 14, 1996,
when ITT's stockholders elected eleven directors to the ITT Board to serve until
their successors are elected at the next annual meeting. Under ITT's by-laws,
Hilton must give written notice of its intention to nominate persons for
election as directors on or before February 13, 1997, which Hilton has announced
that it is prepared to do.
31. The foregoing actions taken by defendants are without merit, serve no
legitimate business purpose, are not in the best interests of the shareholders
of ITT, are intended to and do entrench management and the defendants in their
current lucrative positions with ITT, and are not intended to, and will not
maximize shareholder value.
32. ITT's Board also has a duty to enter into negotiations regarding
possible approval of the bid by Hilton and to consider alternatives to the
Hilton bid, including the solicitation of higher bids from other offerors.
FIRST CLAIM FOR RELIEF
(Breach of Fiduciary Duty)
33. Plaintiff repeats and realleges the allegations set forth above as if
fully set forth at length herein.
34. The directors of ITT have breached, and unless enjoined, will continue
to breach their fiduciary duties to plaintiff and members of the Class by
rejecting Hilton's bid, by failing to open negotiations with Hilton and by
taking other actions which serve only the interests of management and defendants
in entrenching themselves at the expense of the shareholders of ITT. The
directors have a duty to
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10
negotiate in good faith with Hilton and to consider any alternatives to the
Hilton proposal which may maximize shareholder values, including the possible
solicitation of alternative bids.
35. Unless the defendants are enjoined, plaintiff and the Class will
suffer irreparable harm.
36. Plaintiff and the Class have no adequate remedy at law.
SECOND CLAIM FOR RELIEF
(Injunctive Relief)
37. Plaintiff repeats and realleges the allegations set forth above as if
fully set forth at length herein.
38. ITT and its directors are prohibited by Nevada law from amending ITT's
by-laws in any manner or taking any other action that would have the purpose or
effect or impeding the effective exercise of the stockholder franchise in
connection with the election of directors.
39. Under the ITT by-laws, Hilton may nominate directors for election at
the next annual meeting of ITT if they give written notice of their intention to
do so on or before February 13, 1997. Such annual meeting would, in the ordinary
course, proceed on or about May 14, 1997, i.e., approximately one year after the
May 14, 1997 annual meeting of ITT shareholders. Unless the ITT Board adopts a
resolution changing the size of the ITT Board, ITT shareholders would be asked
to elect eleven individuals to the ITT Board at such annual meeting.
40. Hilton announced that it intended to nominate directors for election
at the 1997 annual meeting of ITT shareholders in accordance with the Amended
and Restated By-Laws of ITT.
41. Any effort by ITT or the ITT Board: (a) to amend ITT's by-laws in any
way that would impede the effective exercise of the stockholder franchise in
connection with the 1997 annual meeting; (b) to materially delay the conduct of
the 1997 annual meeting; or (c) to
<PAGE>
11
enlarge the size of the ITT Board in order to preserve the position of the
incumbent directors as a majority would be illegal.
42. Plaintiff and the Class have no adequate remedy at law.
THIRD CLAIM FOR RELIEF
(Injunctive Relief)
43. Plaintiff repeats and realleges the allegations set forth above as if
fully set forth at length herein.
44. ITT has a number of anti-takeover provisions in place, such as its
shareholders' "rights plan," better known as "poison pill." In the event that a
third-party like Hilton acquires 15 percent or more of ITT's shares, the "poison
pill" enables all ITT shareholders other than the third-party to purchase ITT
preferred shares at a 50 percent 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 prices above the prevailing
market rate and may be favored by a majority of the shareholders of [ITT]."
45. The purpose of ITT's "poison pill" is to make hostile bids for the
Company unduly expensive. In some circumstances, such "poison pill" plans may
deter unfair offers. Here, however, where a bidder has made an all-cash offer at
a substantial premium over market price, negotiations with the bidder regarding
redemption of the "poison pill" and a possible higher acquisition price should
be initiated without delay by the Board of ITT, which owes the public
shareholders of ITT an unwavering duty of care and loyalty. These duties
prohibit the directors from unjustifiably blocking corporate opportunities which
may maximize shareholder values by taking the actions they have taken.
46. ITT also has the anti-takeover protections of Nevada Rev. Statutes
ss.ss. 78.378 et seq. (the "Control Share Acquisition Statute") and Nevada Rev.
Statutes ss.ss. 78.411 et seq. (the "Business
<PAGE>
12
Combination Statute"). ITT's former corporate parent has publicly acknowledged
that the Control Share Acquisition and Business Combination Statutes "may delay
or make more difficult acquisitions or changes of control of [ITT]", "may have
the effect of preventing changes in the management of [ITT]," and "could make it
more difficult to accomplish these transactions which [ITT] shareholders may
otherwise deem to be in their best interests."
47. Under the Control Share Acquisition Statute, a third-party like Hilton
that acquires a "controlling interest" in the shares of ITT cannot vote those
share unless: (a) such voting rights are conferred by a majority vote of the
disinterested shareholders of the corporation; or (b) the ITT Board adopts a
by-law opting out of the coverage of the Statute, something that the ITT Board
has not done.
48. Under the Business Combination Statute, a third-party like Hilton that
acquires 10% or more of the voting power of ITT's stock cannot engage in a
business combination with ITT for three years unless the acquisition of the
shares or the business combination is approved by the ITT Board in advance.
49. The effect of ITT's anti-takeover devices is to frustrate and impede
the ability of ITT shareholders to decide for themselves whether they wish to
receive the benefits of the Hilton tender offer and proposed second-step merger.
These devices unreasonably and inequitably frustrate and impede the ability of
Hilton to consummate its offer and merger proposal. The failure of ITT and its
board to redeem the ITT "poison pill," to adopt a by-law opting out of the
Control Share Acquisition Statute, and to adopt a resolution approving the
Hilton tender offer for purposes of the Business Combination Statute is clearly
a breach of their fiduciary duties and thus a violation of Nevada law.
50. Plaintiff and the Class have no adequate remedy at law.
<PAGE>
13
FOURTH CLAIM FOR RELIEF
(Declaratory Relief)
51. Plaintiff repeats and realleges the allegations set forth above as if
fully set forth at length herein.
52. Hilton and ITT, through their respective subsidiaries, compete in the
hotel and gaming businesses. ITT has described these businesses as "highly
competitive" in its Form 10-K filing with the Securities and Exchange Commission
for the fiscal year ended December 31, 1995.
53. As part of its overall strategy to prevent its shareholders from
considering the Hilton tender offer, there is a real and immediate threat that
ITT will allege that it has standing under the federal antitrust laws to file an
action to enjoin Hilton's tender offer.
54. ITT does not have standing to pursue an action to enjoin the
consummation of the Hilton tender offer under any antitrust theory because the
consummation of the offer would not cause ITT injury of the type that the
antitrust laws are intended to redress. If ITT had standing, the threatened
action would be without merit because an acquisition of ITT by Hilton would not
substantially lessen competition or tend to create a monopoly in any line of
commerce.
55. By reason of the foregoing, an actual controversy exists between
plaintiff and ITT regarding whether ITT has standing to pursue an injunction
against the Hilton tender offer under the federal antitrust laws and whether
consummation of that offer would violate such laws.
56. Pursuant to 28 U.S.C. ss. 2201, plaintiff and Class members are
entitled to declaratory relief from this Court.
<PAGE>
14
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring this action to be a proper class action pursuant to Rule
23(b)(2) of the Federal Rules of Civil Procedure;
B. Enjoining defendants from amending ITT's by-laws to in any way impede
the effective exercise of the stockholder franchise in connection with the
election of directors at the 1997 annual meeting of ITT shareholders;
C. Requiring defendants to honor any nomination for the election of
directors by Hilton at the 1997 annual meeting of ITT shareholders;
D. Enjoining defendants from increasing the size of ITT's board at or
before its 1997 annual meeting or, in the alternative, requiring defendants to
give Hilton an opportunity to supplement their written notice of intention to
nominate individuals for election of directors in the event that defendants does
increase the size of ITT's board;
E. Enjoining defendants from delaying ITT's 1997 annual meeting beyond May
14, 1997;
F. Enjoining defendants from refusing to redeem ITT's "poison pill" and
refusing to make the provisions of the Nevada Control Share Acquisition and
Business Combination Statutes inapplicable to Hilton's tender offer for ITT
stock;
G. Declaring that defendants lack standing and may not institute an action
seeking to enjoin the Hilton tender offer under any theory of federal antitrust
law;
H. Declaring that the consummation of the Hilton tender offer for ITT
stock will not substantially lessen competition or tend to create a monopoly in
any line of commerce;
I. Ordering defendants to cooperate fully with Hilton, or any person or
entity having a bona fide interest in proposing any
<PAGE>
15
transaction which would maximize shareholder value including but not limited to,
a buyout or takeover of the Company;
J. Ordering defendants to undertake an appropriate evaluation of the
Company as a merger/acquisition candidate;
K. Ordering defendants to take all appropriate steps to enhance the
Company's value and attractiveness of a merger/acquisition candidate;
L. Ordering defendants to take all appropriate steps to effectively expose
the Company to the marketplace in an effort to create an active auction for ITT;
M. Ordering defendants to act independently so that the interests of ITT's
public stockholders will be protected;
N. Ordering defendants to adequately ensure that no conflicts of interest
exist between the individual defendants' own interests and their fiduciary
obligation to maximize stockholder value or, if such conflicts exist, to ensure
that all conflicts are resolved in the best interests of ITT's public
stockholders.
O. Awarding plaintiff the costs and disbursements of the action, including
a reasonable allowance for plaintiff's attorneys' and experts' fees; and
<PAGE>
16
P. Granting such other and further relief as the Court may deem just and
proper.
Dated: January 28, 1997
LAVELLE - STUBBERUD & ASSOCIATES,
P.C.
By: /s/ Laura Stubberud
------------------------------
LAURA STUBBERUD, ESQ.
700 South Third Street
Las Vegas, Nevada 89101
(702) 384-6711
Attorneys for Plaintiffs
OF COUNSEL:
WOLF POPPER LLP
STEPHEN D. OBSTREICH
WALLACE A. SHOWMAN
845 Third Avenue
New York, New York 10022
(212) 759-4600
<PAGE>
[EXHIBIT 18]
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 Plaintiffs
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
STEFFAN TAUB and JOHN A. GANDIA, )
on behalf of themselves and all ) CV-S-97-00106-PMP (RLH)
others similarly situated, )
) CLASS ACTION
Plaintiffs, ) COMPLAINT
)
- against - )
) Plaintiffs Demand A
RAND V. ARASKOG, ROBERT A. ) Trial by Jury
BOWMAN, BETTE B. ANDERSON, )
NOLAN D. ARCHIBALD, ROBERT A. )
BURNETT, PAUL G. KIRK, JR., EDWARD C. )
MEYER, BENJAMIN F. PAYTON, VIN )
WEBER, MARGITA E. WHITE, )
KENDRICK R. WILSON III and )
ITT CORPORATION, )
)
Defendants. )
)
- ----------------------------------------
Plaintiffs, by their attorneys, for their complaint against defendants,
allege upon personal knowledge with respect to paragraph 9-10, 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. Plaintiffs bring this action as a class action on behalf of themselves
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.
<PAGE>
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 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.
JURISDICTION AND VENUE
6. This action is brought pursuant to the Supremacy Clause (art. VI, cl.
2), the Commerce Clause (art. I, ss. 8, cl. 3) and the Due Process Clause
(amends. V. and XIV) of the
2
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United States Constitution, principles of common law, and the federal
Declaratory Judgments Act, 28 U.S.C. ss. 2201. Pursuant to Rule 24(c) of the
Federal Rules of Civil Procedure, plaintiffs call the attention of the Court to
28 U.S.C. ss. 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. ss.ss. 1331 and 1367(a).
8. Venue is proper in this district pursuant to 28 U.S.C. ss.ss.
1391(a)-(c).
THE PARTIES
9. Plaintiff Steffan Taub is, and at all relevant times has been, the
owner of common stock of defendant ITT.
10. Plaintiff John A. Gandia is, and at all relevant times has been, the
owner of common stock of defendant ITT.
11. 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.
12. 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.
13. 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 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
3
<PAGE>
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.
14. 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.
15. 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. 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 plaintiffs and other members of the Class (as herein
defined) the highest obligations of good faith, fair dealing, loyalty and due
care.
16. 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.
17. 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
4
<PAGE>
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
18. Plaintiffs bring this action pursuant to Rule 23 of the Federal Rules
of Civil Procedure on their own 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").
19. 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 ss.ss. 78.378 et seq. (the "Control Share Acquisition Statute") and
Nevada Rev. Statutes ss.ss. 78.411 et seq. (the "Business Combination Statute")
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 breached their fiduciary and other common law duties owed by
them to plaintiffs 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;
5
<PAGE>
(iv) whether defendants have breached and/or aided and abetted
the breach of fiduciary duties and other common law duties owed by them to
plaintiffs and other members of the Class; and
(v) whether plaintiffs 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 plaintiffs are typical of the claims of other
members of the Class and plaintiffs have no interests that are adverse or
antagonistic to the interests of the Class.
(d) Plaintiffs are committed to the vigorous prosecution of this
action and have retained competent counsel experienced in litigation of this
nature. Accordingly, plaintiffs are adequate representatives of the Class and
will fairly and adequately protect the interests of the Class.
(e) Plaintiffs anticipate that there will not be any difficulty in
the management of this litigation as a class action.
20. For the 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.
6
<PAGE>
SUBSTANTIVE ALLEGATIONS
A. Company Background
21. ITT's corporate predecessor was traditionally identified as the
quintessential conglomerate corporation acquiring widely disparate businesses in
different industries for the predominant purpose of boosting corporate growth.
22. 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.
23. In order to regain investor favor, following a three-way spin-off of
business groups by ITT's predecessor, 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.
24. 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.
25. 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 construction disruptions at
Caesar's Palace and the Desert Inn, two significant gaming properties of ITT.
26. 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.
7
<PAGE>
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 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.
27. 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 a share. ITT's stock closed at an undervalued $42.875 on January 27,
1997.
28. 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
29. 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 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
8
<PAGE>
proxy contest to deactivate ITT's anti-takeover defenses. ITT was reportedly
hostile to the unsolicited bid.
30. 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."
31. 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."
32. In its communication with ITT, Hilton noted that is 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 January 28, 1997,
Bloomberg News Service reported that Hilton may be willing to boost its Offer to
$65 per Share. Bollenbach 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.
9
<PAGE>
C. ITT's Poison Pill And Other Defensive Measures
33. 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 ss.ss. 78.378 et seq. (the "Control Share Acquisition
Statute") and ss.ss. 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.
1. The Poison Pill
34. 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]."
35. 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.
36. 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 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.
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<PAGE>
37. 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
38. 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 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."
39. 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
40. Defendant ITT has at its disposal the anti-takeover protections of the
Nevada Control Share Acquisition Statute.
41. 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
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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 coverage of the Statute --
something that the ITT board has not done.
4. The Business Combination Statute
42. Defendant ITT also has at its disposal the anti-takeover protections
of the Nevada Business Combination Statute.
43. 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.
44. 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 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
45. The Court may grant the declaratory and injunctive relief sought
herein pursuant to 28 U.S.C. ss. 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
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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 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
46. Plaintiff's repeat and reallege each allegation set forth herein.
47. This claim arises under the Commerce, Supremacy and Due Process
Clauses of the United States Constitution.
48. 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.
49. 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 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.
50. 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
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circumstance 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.
51. 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. ss.ss. 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 target but leaves the decision
concerning the merits of the offer to the target's stockholders.
52. 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. ss. 78bb, which prohibits and preempts state
regulation that conflicts with the provisions of the Exchange Act and the rules
and regulations thereunder.
53. The Nevada Anti-Takeover Statutes also violate the Due Process Clause
of the United States Constitution. The Statutes prevent plaintiffs 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.
54. Plaintiffs seek declaratory relief with respect to the
unconstitutionality of the Nevada Anti-Takeover Statutes, pursuant to the
Federal Declaratory Judgments Act, 28 U.S.C.
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ss. 2201, and injunctive relief against the application and enforcement of these
unconstitutional Statutes. Plaintiffs and the Class members are or will be
irreparably and imminently injured by the wrongs alleged herein.
55. Plaintiffs and the Class have no adequate remedy at law.
COUNT II
Against All Defendants
For Breach of Fiduciary Duties
56. Plaintiffs repeat and reallege each allegation set forth herein.
57. 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.
58. 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.
59. 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.
60. 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
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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.
61. 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.
62. ITT's Board and its top management have frustrated Hilton's current
acquisition overtures and offers, even though these proposals would result in
ITT's 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.
63. 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
16
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entrench themselves in their offices and positions within the Company. The
Individual Defendants have violated their fiduciary duties owed to plaintiffs
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 the Company's public
shareholders for their own personal benefit.
64. Plaintiffs seek preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiffs 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.
65. Only through the exercise of this Court's equitable powers can
plaintiffs be fully protected from the immediate and irreparable injury which
the defendants' actions threaten to inflict.
66. Unless enjoined by the Court, defendants will continue to breach their
fiduciary duties owed to plaintiffs 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 plaintiffs and the other members of the Class,
who are or will be imminently injured by such misconduct.
67. Plaintiffs and the Class have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
A. Declaring this to be a proper class action and certifying plaintiffs as
class representatives;
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 plaintiffs 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;
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(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
(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 plaintiffs 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 plaintiffs the costs and disbursements of this action,
including a reasonable allowance for plaintiffs' attorneys' and experts' fees;
and
I. Granting such other and further relief as may be just and proper.
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JURY DEMAND
Plaintiffs demand a trial by jury of all issues so triable.
DATED: January 28, 1997
Respectfully submitted,
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
/s/ G. Mark Albright
------------------------------------
G. MARK ALBRIGHT
Nevada Bar No.0013494
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
703-384-0605 (fax)
Arthur N. Abbey
Mark C. Gardy
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, NY 10016
(212) 889-3700
David J. Bershad
Steven G. Schulman
Seth Ottensoser
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
One Pennsylvania Plaza
New York, NY 10019
(212) 594-5300
Jeffrey G. Smith
Neil L. Zola
WOLF HALDENSTEIN ADLER FREEMAN
&
HERZ LLP
270 Madison Avenue
New York, NY 10016
(212) 545-4600
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Richard S. Schiffrin
SCHRIFFIN & CRAIG, LTD.
Three Bala Plaza East
Suite 400
Bala Cynwyd, PA 19004
(610) 667-7706
Law Offices of Curtis V. Trinko, LLP
310 Madison Avenue
14th Floor
New York, NY 10017
(212) 490-9550
Counsel for Plaintiffs
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[EXHIBIT 19]
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- -------------------------------------x
SHARON SIEGEL on behalf of herself :
and all others similarly situated, : Index No. 97-600428
: Date Filed January 28, 1997
Plaintiff, : CLASS ACTION COMPLAINT
:
- against - : Plaintiff Demands A
: Trial By Jury
RAND V. ARASKOG, ROBERT A. BOWMAN, :
BETTE B. ANDERSON, NOLAN D. :
ARCHIBALD, ROBERT A. BURNETT, :
PAUL G. KIRK, JR., EDWARD C. MEYER, :
BENJAMIN F. PAYTON, VIN WEBER, :
MARGITA E. WHITE, KENDRICK R. :
WILSON III and ITT CORPORATION, :
:
Defendants. :
- -------------------------------------x
Plaintiff, by her attorneys, for her complaint against defendants, alleges
upon personal knowledge with respect to paragraph 5, 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 and embrace a
premium offer to acquire control of ITT by Hilton Hotels Corp. ("Hilton"). The
director defendants are utilizing their fiduciary positions of control over ITT
to thwart Hilton and others in their legitimate attempts to acquire ITT.
3. Such action and inaction represent an effort by the Individual
Defendants to entrench themselves in office so that they may
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continue to receive the substantial salaries, compensation and other benefits
and perquisites of their offices.
4. 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.
THE PARTIES
5. Plaintiff Sharon Siegel is, and at all relevant times has been, the
owner of common stock of defendant ITT.
6. Defendant ITT is a Nevada corporation with its principal executive
offices at 1330 Avenue of the Americas, New York 10019-5490. ITT describes
itself as being primarily engaged in the hospitality, gaming, entertainment and
information service businesses.
7. 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
from 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.
8. Defendant Robert A. Bowman ("Bowman") is President and Chief Operating
Officer of ITT and has been employed by the Company, its predecessors and
subsidiaries from April 1991. Bowman, for the fiscal year ended 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-
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term incentive plan of $900,000 and other long-term compensation of $37,380.
9. Defendants Bette B. Anderson, Nolan A. Archibald, Robert A. Burnett,
Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F. Dayton, 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 also 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.
10. This Court has jurisdiction over each of the Individual Defendants
pursuant to CPLR ss.ss. 301 and 302.
11. 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. Each Individual Defendant owed and owes 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 stock
holders; (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.
12. 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.
3
<PAGE>
13. Each defendant herein is sued individually as a conspirator and/or
aider and abettor, or, as appropriate, in his capacity as a director of the
Company, and the liability of each arises from the fact that he or it has
engaged in all or part of the unlawful acts, plans, schemes or transactions
complained of herein.
14. Plaintiff designates this Court as the place of trial pursuant to CPLR
ss.ss. 503 and 509.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action individually and as a class action on
behalf of all stockholders of ITT (excluding from the Class the defendants
herein and any person, firm, trust, corporation or other entity related to or
affiliated with any of the defendants) and their successors in interest,
pursuant to CPLR Article 9 (the "Class").
16. This action is properly maintained as a class action.
17. The Class is so numerous that joinder of all members is impracticable.
As of November 6, 1996, ITT reported that there were 116.4 million shares of
common stock outstanding.
18. There are questions of law and fact which are common to the Class and
which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
(a) whether defendants have breached their fiduciary and other
common law duties owed by them to plaintiff and the other members of the Class
by failing and refusing to act in good faith to maximize shareholder value in
the sale of ITT; and
(b) whether plaintiff and the other members of the Class are being
and will continue to be injured by the wrongful conduct alleged herein and, if
so, what is the proper remedy and/or measure of damages.
19. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of other members of the Class and plaintiff
has the same interests as the other members of the Class. Plaintiff is an
adequate representative of the Class.
4
<PAGE>
20. Defendants have acted and are about to act on grounds generally
applicable to the Class, thereby making it appropriate to render final
injunctive, or corresponding declaratory relief, with respect to the Class.
21. A class action is superior to other methods for the fair and efficient
adjudication of the claims herein asserted, and no unusual difficulties are
likely to be encountered in the management of this class action. Since the
damages suffered by individual class members may be relatively small, the
expense and burden of individual litigation makes it impossible for members of
the Class to individually seek redress for the wrongful conduct alleged.
SUBSTANTIVE ALLEGATIONS
22. ITT has traditionally been identified as the quintessential
conglomerate corporation acquiring widely disparate businesses in different
industries for the predominant purpose of boosting corporate growth.
23. 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.
24. In order to regain investor favor, 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 widely disparate business, the Company has stated
that it intends to dispose of those operations which do not fit within its core
business.
25. 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.
26. Thus, on September 9, 1996, ITT surprised the investing public by
announcing 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
5
<PAGE>
percentages and baccarat drop and construction disruption at Caeser's Palace and
the Desert Inn, two significant gaming properties of ITT.
27. 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 construc tion 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 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.
28. Other brokerage firms weighed in with similarly negative analyses
driving down ITT's common stock price from its close
6
<PAGE>
prior to the September 9, 1996, of $56 per share to a trading range of between
approximately $40 and $45 a share. ITT's stock closed at $42.875 on January 27,
1997.
29. On January 27, 1997, after the close of trading Hilton announced that
it wished to acquire ITT and was making an initial officer of $55 per share, a
substantial -- almost 30% -- premium over ITT's previous trading value. 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.
30. 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 from unwanted takeover. To act
consistent with their fiduciary duties, the Individual Defendants should
evaluate all available alternatives, including negotiating with Hilton which
they have failed to do.
31. 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 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.
32. 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
7
<PAGE>
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.
33. ITT's Board and its top management have frustrated Hilton's current
acquisition overtures and offers, even though these proposals would result in
ITT's shareholders receiving a substantial premium over the then market-price 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.
34. 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 the Company's public shareholders for their own
personal benefit.
35. 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
8
<PAGE>
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.
36. 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.
37. 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.
38. 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
class representative;
B. 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 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
(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
9
<PAGE>
conflicts exist, to ensure that all conflicts of interest are resolved in the
best interests of the public shareholders of ITT.
C. Declaring that the Individual Defendants have violated their fiduciary
duties to the Class;
D. Enjoining defendants from abusing the corporate machinery of the
Company for the purpose of entrenching themselves in office;
E. Ordering the Individual Defendants to take steps to facilitate a
premium acquisition by utilizing the Company's anti- takeover defense
exclusively in a manner designed to maximize shareholder value;
F. 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;
G. Awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorney's and experts' fees;
and
H. Granting such other and further relief as may be just and proper.
JURY DEMAND
Plaintiff demands a trial by jury of all issues so triable.
DATED: January 28, 1997
Respectfully submitted,
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Attorneys for Plaintiff
Of Counsel:
David J. Bershad
Steven G. Schulman
Jeffrey S. Abraham
10
<PAGE>
[EXHIBIT 20]
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- -------------------------------------x
SUSAN BEST WALTZMAN, :
:
Plaintiff, : Civil Action No. 97-600430
:
- against - : CLASS ACTION COMPLAINT
:
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, KENDRICK R. :
WILSON III, and ITT CORP., :
:
Defendants. :
- -------------------------------------x
Plaintiff, Susan Best Waltzman, by her attorneys, alleges for her
Complaint, upon information and belief, except for paragraph 2 hereof, which is
alleged upon personal knowledge, as follows:
SUMMARY OF ACTION
1. Plaintiff brings this action on behalf of herself and all other
shareholders of defendant ITT Corp. ("ITT" or the "Company") against ITT and the
directors of ITT, for breaching their fiduciary duties to ITT's shareholders.
These defendants are causing the Company to summarily reject an offer to ITT
shareholders (the "Offer") by Hilton Hotels Corp. ("Hilton") to purchase ITT for
approximately $10.5 billion in cash, stock and assumed debt, despite the fact
that the Offer represents a potential economic opportunity for ITT's
shareholders to realize the full value of their investment in ITT. Defendants'
summary rejection of the Offer forecloses a potential opportunity for
shareholders to realize the full value of their ITT shares that would otherwise
not be available to them. Plaintiff seeks, inter alia, an order enjoining
defendants from summarily rejecting the Offer without giving it fair
consideration, becoming fully informed as to the fairness of the Offer and
taking all steps necessary to maximize shareholder value. Plaintiff further
seeks an Order compelling defendants to fully and fairly inform ITT's
shareholders concerning the Offer.
<PAGE>
THE PARTIES
2. Plaintiff owns shares of common stock of defendant ITT and has been the
owner continuously of such shares since prior to the wrongs complained of
herein.
3. Defendant ITT is a Nevada corporation with its principal executive
offices located at 1330 Avenue of the Americas, New York, New York 10019. ITT,
through its subsidiaries, operates hospitality, gaming, entertainment and
information service businesses through "ITT Sheraton Corp.," "Ciga S.p.A.",
"Caesars World, Inc." and "Madison Square Garden, L.P." ITT conducts its
information service business through "ITT World Directories" and "ITT
Educational Services, Inc."
4. Defendant Rand V. Araskog ("Araskog") is the Chairman of the Board of
Directors and Chief Executive Officer of ITT. According to the Company's Proxy
Statement dated March 28, 1996, Araskog received compensation from ITT in the
amount of $10,375,575 during fiscal year 1995.
5. Defendant Robert A. Bowman ("Bowman") is President, Chief Operating
Officer, and a director of ITT. According to the Company's Proxy Statement dated
March 28, 1996, Bowman received compensation from ITT in the amount of
$3,264,955 during fiscal year 1995.
6. 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 directors of ITT.
7. According to the Company's Proxy Statement dated March 28, 1996,
members of the Board of Directors, except for Mssgrs. Araskog and Bowman,
receive an annual retainer fee of $48,000 payable in restricted shares of ITT
common stock, and an annual retainer fee of $18,000 if he/she also serves on the
Board of Directors of
2
<PAGE>
ITT Educational Services, Inc. Further, ITT maintains an unfunded retirement
plan. The benefits of which are payable upon retirement from the Board at or
after age 65 after completing at least five years of service on the Board. Under
the plan, ITT has agreed to pay non-employee directors Anderson, Archibald,
Burnett, Kirk, Meyer, Payton and White accrued benefits due them which have a
total value of $1,331,000 in the aggregate.
8. The above-named individual defendants (collectively, the "Individual
Defendants") as officers and/or directors of ITT owe fiduciary duties of good
faith, loyalty, fair dealing, due care, and candor to plaintiff and the other
members of the Class (as defined below).
9. Each of the Individual Defendants receive annual compensation from ITT
and has a personal and financial interest in thwarting any threat to the
continued incumbency and control of ITT's current management, in derogation of
their fiduciary duties.
10. Defendants' conduct, as more fully described herein, has been
orchestrated to protect the positions and corresponding perquisites and other
benefits received by the Individual Defendants as officers and/or directors of
ITT. Defendants are breaching their fiduciary duties to plaintiff and the
members of the Class (as defined below) by summarily rejecting the Offer without
adequate investigation or any other procedures to determined whether the Offer
presents an opportunity to maximize the value of ITT shares, thus wrongfully
depriving plaintiff and the members of the Class of the full value of their
shares.
JURISDICTION AND VENUE
11. This Court has jurisdiction over this action and the defendants.
Defendant ITT is a resident of the County of New York. In addition, defendants,
through themselves or their agents, inter alia, (a) transact business in the
State of New York; (b) committed a tortious
3
<PAGE>
act within the State of New York; and/or (c) committed a tortious act without
the State of New York causing injury to Class members (as defined infra) within
the State of New York.
12. Pursuant to CPLR 503, venue is proper in this judicial district since
defendant ITT's principal place of business is located in the County of New
York.
CLASS ACTION ALLEGATIONS
13. Plaintiff brings this lawsuit as a class action, pursuant to CPLR 901
for declaratory, injunctive and other relief, on behalf of herself and all other
stockholders of ITT (except defendants herein and any person, firm, trust,
corporation or other entity related to or affiliated with any of the defendants)
and their successors in interest, immediate or remote (the "Class").
14. This action is properly maintainable as a class action for the
following reasons:
(a) The Class of stockholders for whose benefit this action is brought is
so numerous that joinder of all Class members is impracticable. While the exact
number of class members is unknown to plaintiff at this time and can only be
ascertained through appropriate discovery, there are more than 116 million
shares of ITT common stock outstanding held approximately by thousands of
shareholders of record. The holders of these shares are believed to be
geographically dispersed throughout the United States. ITT's stock is listed and
actively traded on the New York Stock Exchange.
(b) there are questions of law and fact which are common to members of the
Class and which predominate over questions affecting only individual members.
The common questions include, inter alia, the following:
(i) whether defendants have engaged in conduct constituting unfair dealing
to the detriment of the Class;
4
<PAGE>
(ii) whether defendants' summary rejection of the Offer is grossly unfair
to the Class;
(iii) whether defendants are engaging in a plan or scheme to thwart and/or
summarily reject offers that may maximize the value of shareholders' investment
in ITT, to the detriment of the Class;
(iv) whether defendants are engaging in a plan or scheme to entrench
themselves at the expense of the public stockholders of ITT and/or unfairly to
obtain for themselves the benefits and business of the Company;
(iv) whether plaintiff and the other members of the Class would be
irreparably damaged if defendants' summary rejection of the Offer is not
enjoined;
(v) whether defendants have breached fiduciary and other common law duties
owed by them to the Class; and
(vi) whether defendants have failed to take appropriate measures to ensure
the realization of the maximum value of the ITT stock held by the Class;
(c) the claims of plaintiff are typical of the claims of the other members
of the Class and plaintiff has no interest that is adverse or antagonistic to
the interests of the Class;
(d) plaintiff is committed to the vigorous prosecution of this action and
has retained counsel competent and experienced in litigation of this nature.
Plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class.
(e) the prosecution of separate actions by individual members of the Class
would create a risk of inconsistent or varying adjudications with respect to
individual members of the Class, which would establish incompatible standards of
conduct for the party opposing the Class;
5
<PAGE>
(f) Defendants have acted and are about to act on grounds generally
applicable to the Class, thereby making appropriate final injunctive relief or
corresponding declaratory relief with respect to the Class as a whole; and
(g) Plaintiff anticipates that there will be no difficulty in the
management of this litigation. A class action is superior to other available
methods for the fair and efficient adjudication of this controversy.
SUBSTANTIVE ALLEGATIONS
A. The Offer By Hilton
15. On January 27, 1997, it was publicly disclosed, over the Bloomberg
Business Newswire, that Hilton offered to buy ITT for $10.5 billion in cash,
stock and assumed debt. Hilton plans to start a cash tender offer of $55 per
share for half of the outstanding ITT shares, to be followed by an offer of $55
a share in Hilton common stock. The cash and equity offers amounts to about $6.5
billion. Hilton also plans to assume $4 billion of ITT debt. The Offer
represents a 28 percent premium over the $42 7/8 closing price of ITT's common
stock the prior business day.
16. Further, Hilton stated that with ITT's cooperation, it may raise its
bid after reviewing ITT's internal books.
17. In response to the Offer, ITT common stock rose $14 3/4 to $58 1/2,
rising above the $55 per share buyout price offered by Hilton.
18. In spite of this Offer to ITT's shareholders by Hilton, it was
reported over the Bloomberg Business Newswire that ITT executives were not
publicly responding to the Offer. Indeed, the article stated that Hilton
approached ITT late last year and was rebuffed. Further, Hilton President and
Chief Executive Officer Stephen Bollenbach stated that he called defendant
Araskog on January 27, 1997, and Araskog didn't return the call.
6
<PAGE>
19. The Offer presents plaintiff and the Class an outstanding opportunity
to maximize the value of their ITT shares for the following reasons:
(a) ITT has struggled with declining earnings and net income, and the
Company is not poised for future growth. For the Company's fourth quarter ended
December 31, 1996, earnings fell 2.9 percent. Net income fell to $66 million or
$0.57 per share from 1995 fourth quarter pro forma net income of $68 million or
$0.59 per share;
(b) the market showed great enthusiasm for the disclosure on January 27,
1997 of Hilton's proposal. The market price of common shares of ITT immediately
rose $14 3/4 from $43 3/4 at the close of trading on January 24, 1997 to $58 1/2
at the close of trading on January 27, 1997;
(c) the Offer presents a possible opportunity to maximize shareholder
value even in excess of the approximately $10.5 billion offered through
negotiation of the Offer and putting ITT up for auction; and
(d) the $55 per share Offer is more than twice the Company's present book
value ($26.19) and four times greater than the book value that the stock reached
in fiscal 1995 ($13.69).
CAUSE OF ACTION AGAINST ALL DEFENDANTS
20. The Individual Defendants have breached their fiduciary duties to
plaintiff and the Class by rejecting the Offer out-of-hand without fully
evaluating or becoming fully informed with regard to the Offer and without
taking any steps to maximize shareholder value for plaintiff and the members of
the Class.
21. By virtue of the acts and conduct herein, the Individual Defendants
are not acting in good faith and have breached fiduciary and other common law
duties which they owe to plaintiff and the other members of the Class, have
engaged in unfair dealing for their
7
<PAGE>
own benefit and the detriment of the Class, and have pursued a course of conduct
designed to entrench themselves in their positions of control within the
Company.
22. The Individual Defendants have violated their fiduciary duties owed to
plaintiff and the other members of the Class in that they have not and are not
exercising independent business judgment and have acted and are acting to the
detriment of the Class in order to benefit themselves and solidify their
positions of control and enjoyment of the perquisites of office.
23. As a result of the foregoing, defendants' summary rejection of the
Offer is a breach of the defendants' fiduciary duties and should be enjoined.
24. Plaintiff lacks an adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
(a) declaring this action to be a proper class action and certifying
plaintiff as the representative of the Class;
(b) declaring defendants' rejection of the Offer to be a breach of the
defendants' fiduciary duties of loyalty, due care, good faith, fair dealing, and
candor to plaintiff and the Class;
(c) ordering the Individual Defendants to carry out their fiduciary duties
to plaintiff and the other members of the Class by:
(i) requiring defendants to consider the Offer in good faith, to
take all possible measures maximizing the value of ITT stock by, for example,
engaging in a course of due diligence and negotiating with Hilton, or otherwise
maximizing the value of the Company to plaintiff and the Class; and
(ii) requiring defendants to make full and fair disclosure of the
Offer, the negotiations between ITT and Hilton, and all other matters concerning
a possible acquisition or merger of ITT which a reasonable investor would
consider important;
8
<PAGE>
(d) ordering defendants, jointly and severally, to pay to plaintiff and
other members of the Class all damages suffered and to be suffered by them as a
result of the acts and transactions alleged herein;
(e) awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys and experts' fees;
and
(f) granting such other and further relief as the Court may deem just and
equitable.
Dated: January 28, 1997
WOLF POPPER, LLP
845 Third Avenue
New York, New York 10022
(212) 759-4600
Attorneys for Plaintiff
9
<PAGE>
[EXHIBIT 21]
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - x
:
ERNEST HACK, : Index No. 97-101646
:
Plaintiff, :
:
-against- : CLASS ACTION COMPLAINT
:
ITT CORP., BETTE B. ANDERSON, :
RAND V. AROSKOG, NOLAN D. :
ARCHIBALD, ROBERT A. BOWMAN, :
ROBERT A. BURNETT, PAUL G. KIRK, :
EDWARD C. MEYER, BENJAMIN F. :
PAYTON, VIN WEBER, MARGITA E. : JURY TRIAL DEMANDED
WHITE, and KENDRICK R. WILSON, :
:
Defendants. :
- - - - - - - - - - - - - - - - - x
Plaintiff, by his attorneys, alleges upon information and belief, except
as to paragraph 1 which plaintiff alleges upon knowledge, as follows:
1. Plaintiff Ernest Hack is and was, at all times relevant to this action,
a stockholder of defendant ITT Corp. ("ITT" or the "Company").
2. Defendant ITT is a corporation duly organized and existing under the
laws of the state of Nevada, with principal offices located at 1330 Avenue of
the Americas, New York, New York 10019. As of November 6, 1996, there were over
1.1 billion shares of ITT common stock outstanding. ITT owns, operates and
franchises hotels, operates casinos, and owns and operates sports franchises and
Madison Square Garden.
1
<PAGE>
3. Defendant Rand V. Aroskog is and was, at all times relevant hereto,
Chairman of the Board of Directors and Chief Executive Officer of ITT.
4. Defendant Robert A. Bowman is and was, at all times relevant hereto,
President and Chief Operating Officer of ITT.
5. Defendants Bette B. Anderson, Nolan D. Archibald, Robert A. Burnett,
Paul G. Kirk, Edward C. Meyer, Benjamin F. Payton, Vin Weber, Margita E. White,
and Kendrick R. Wilson, are and were, at all times relevant hereto, members of
ITT's Board of Directors (collectively, with Bowman and Aroskog, referred to
herein as the "Individual Defendants").
6. By reason of their positions as officers and directors of ITT, each
Individual Defendant has a fiduciary relationship and responsibility to
plaintiff and the other common public stockholders of ITT and owes to plaintiff
and the other class members the highest obligations of good faith and fair
dealing.
CLASS ACTION ALLEGATIONS
7. Plaintiff brings this action on this own behalf and as a class action,
pursuant to CPLR ss. 901 et seq., on behalf of all common stockholders of ITT,
or their successors in interest, who are being and will be harmed by defendants'
actions described below (the "Class"). Excluded from the Class are defendants
herein and any person, firm, trust,
2
<PAGE>
corporation, or other entity related to or affiliated with any of defendants.
8. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. There are over 54,000 ITT stockholders of record who are located
throughout the United States;
(b) There are questions of law and fact which are common to the
Class and which predominate over questions affecting any individual Class
members, including: whether the Individual Defendants have engaged or are
continuing to act in a manner calculated to benefit themselves at the expense of
the ITT public stockholders; and whether plaintiff and the other Class members
would be irreparably damaged if the defendants are not enjoined in the manner
described below;
(c) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class. Accordingly,
plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class; and
(d) Plaintiff anticipates that there will be no difficulty in the
management of this litigation.
3
<PAGE>
9. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy
and the requirements of ss.ss. 901 and 902 of the CPLR are satisfied.
CLAIM FOR RELIEF
10. On January 28, 1997, after the close of the market, Hilton Hotels
Corp. ("Hilton") announced an unsolicited bid for ITT valued at $55 a share in
stock and cash, or $6.5 billion, plus the assumption of debt. Hilton said it
plans to start a cash tender offer of $55 a share for half of the outstanding
ITT shares, to be followed by an offer of $55 a share in Hilton common stock.
Hilton also would assume $4 billion of ITT debt.
11. Hilton's $55 a share bid represented a 29% premium over ITT's closing
price on January 28 of $46.625 a share on the New York Stock Exchange. In
after-hours trading, ITT stock soared to $58.50, up 34%.
12. According to Hilton, a combination of Hilton and ITT would create the
world's largest gambling and lodging company, with a total of almost 230,000
hotel rooms and 30 casinos worldwide. The combined company would have the "best
brand names in the travel business," commented Bjorn Hanson, chairman of Coopers
& Lybrand LLP hospitality. Analysts concur, one noting that the deal "makes a
pretty good fit," in light of Hilton's weaker presence overseas than ITT.
4
<PAGE>
13. According to Hilton President and Chief Executive Officer, Steven
Bollenbach, Hilton approached ITT late last year but was rebuffed and had since
made "continuous attempts to contact" ITT officials. Hilton's renewed offer
demonstrates that Hilton is ready, willing and able to move ahead with its
offer. The offer's price is well in excess of ITT's trading prices prior to the
January 27, 1987 announcement of the offer.
14. Shares of ITT have fallen 14% since it was spun off from ITT's
insurance business in December of 1995. At that time, ITT broke itself up into
three separately traded companies, spinning off its insurance and industrial
arms and then increasing its gambling holdings. According to one fund manager,
ITT shareholders have since been "disappointed with ITT's stock and a little
disappointed with the way management hasn't taken steps to turn things around."
15. In response to Hilton's offer, an ITT representative said: "Our
management and our board will consider the offer. In not more than 10 business
days, the company will make its recommendation to its shareholders. In the
meantime, we're asking them not to take any action until they have been advised
of ITT's position."
16. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
o undertake an appropriate evaluation of ITT's worth as a
merger/acquisition candidate;
5
<PAGE>
o take all appropriate steps to enhance ITT's value and attractiveness
as a merger/acquisition candidate;
o take all appropriate steps to effectively expose ITT to the
marketplace in an effort to create an active auction for ITT,
including but not limited to engaging in serious negotiations with
Hilton or its representatives;
o act independently so that the interests of ITT's public stockholders
will be protected; and
o adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, to ensure that all
conflicts be resolved in the best interests of ITT's public
stockholders.
17. As a result of defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their proportionate share of the value
of the Company's assets and business, and have been and will be prevented from
obtaining a fair price for their common stock.
18. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class, by
maintaining themselves in office and/or failing to take the steps set forth in
paragraph 16 hereof, excluding the Class from its fair proportionate share of
ITT's valuable assets and businesses, all to the irreparable harm of the Class.
6
<PAGE>
19. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as Class representative;
B. Declaring that defendants breached their fiduciary and other duties to
plaintiff and the other members of the Class;
C. Entering an order requiring defendants to take the steps set forth
hereinabove;
D. Awarding compensatory damages against defendants individually and
severally in an amount to be determined upon the proof submitted to this Court.
E. Awarding costs and disbursements, including plaintiff's counsel's fees
and experts' fees; and
F. Granting such other and further relief as to the Court may seem just
and proper.
Dated: New York, New York
January 28, 1997
Yours, etc.,
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, New York 10016
Telephone: (212) 889-3700
Law Offices of Charles Piven
The Legg Mason Tower
7
<PAGE>
Suite 2700
111 South Calvert Street
Baltimore, Maryland 21202
Telephone: (410) 332-0030
8
<PAGE>
[EXHIBIT 22]
CODE: COMP
John A. Hunt, Esq.
Nevada Bar #1888
RALEIGH, HUNT & McGARRY, P.C.
302 E. Carson Avenue, # 1102
Las Vegas, Nevada 89101
702-356-4842
- ------------------------------
Scott W. Fisher, Esq.
GARIN, BRONZAFT, GERSTEIN,
& FISHER L.L.P.
1501 Broadway
New York, New York 10036
212-398-0055
Attorneys for Plaintiff
DISTRICT COURT
CLARK COUNTY, NEVADA
- -----------------------------------x
BELLE COHEN, :
: Case No. A369244
Plaintiff, : X
: K
v. :
:
RAND V. ARASKOG, ROBERT A. BOWMAN, : CLASS ACTION
BETTE B. ANDERSON, NOLAN D. : COMPLAINT
ARCHIBALD, ROBERT A. BURNETT, PAUL :
G. KIRK, JR., EDWARD C. MEYER, :
BENJAMIN F. PAYTON, VIN WEBER, :
MARGITA E. WHITE, KENDRICK R. :
WILSON, III and ITT CORP., :
:
Defendants. :
- -----------------------------------x
Plaintiff, by his attorneys, alleges upon personal knowledge as to his own
acts and upon information and belief as to all other matters, as follows:
<PAGE>
2
NATURE OF THE ACTION
1. This is a stockholders' class action lawsuit brought on behalf of the
public stockholders of ITT Corp. ("ITT" or the "Company") who have been, and
continue to be, deprived of the opportunity to realize fully the benefits of
their investment in the Company. The individual defendants have wrongfully
failed to properly consider a bona fide offer for the Company from Hilton Hotels
Corp. ("Hilton"), announced on January 27, 1997. By not exploring a business
combination with Hilton, defendants actions and inactions constitute a breach of
fiduciary duty to maximize shareholder value. The individual defendants are
using their fiduciary positions of control over ITT to thwart others in their
legitimate attempts to acquire the Company, while at the same time effectively
entrenching themselves in their positions with ITT.
Parties
2. Plaintiff is and, at all relevant times, has been the owner of shares
of ITT common stock.
3. ITT is a corporation duly organized and existing under the laws of the
State of Nevada. The Company owns, operates, and franchises hotels and casinos.
The Company also owns Madison Square Garden, the New York Knicks basketball
franchise, and the New York Rangers hockey team. ITT maintains its principal
executive offices at 1330 Avenue of the Americas, New York, New York 10019. ITT
has approximately 1.1 billion shares of common stock outstanding
<PAGE>
3
and approximately 54,000 stockholders of record. ITT stock trades on the New
York Stock Exchange.
4. Defendant Rand V. Araskog ("Araskog") has been, at all times material
hereto, the Chairman of the Board of Directors and Chief Executive Officer of
ITT. In 1995, Araskog received cash compensation from the Company of
$10,375,575.
5. Defendant Robert A. Bowman ("Bowman") has been, at all times material
hereto, the President, Chief Operating Officer, and a Director of ITT.
6. Defendant Bette B. Anderson ("Anderson") has been, at all material
times hereto, a Director of ITT. Anderson is also a Director of ITT Educational
Services and the ITT Hartford Group, Inc.
7. Defendant Robert A. Burnett ("Burnett") has been, at all material times
hereto, a Director of ITT. Burnett is also a Director of ITT Hartford Group,
Inc. and ITT Industries, Inc.
8. Paul G. Kirk, Jr. ("Kirk") has been, at all material times hereto, a
Director of ITT. Kirk is also a Director of ITT Hartford Group, Inc.
9. Defendant Edward C. Meyer ("Meyer") has been, at all material times
hereto, a Director of ITT. Meyer is also a Director of ITT Industries, Inc.
<PAGE>
4
10. Defendant Margita E. White ("White") has been, at all material times
hereto, a Director of ITT. White is also a Director of ITT Educational Services,
Inc.
11. Defendants Nolan D. Archibald, Benjamin F. Payton, Vin Weber, and
Kendrick R. Wilson, III have been, at all times material hereto, directors of
ITT.
12. The individuals identified in Paragraphs 4 through 11 are collectively
referred to throughout this complaint as the "Individual Defendants".
13. The Individual Defendants, by reason of their corporate directorship
and/or executive positions, stand in a fiduciary position relative to the
Company's shareholders, which fiduciary relationship, at all times relevant
herein, required the defendants to exercise their best judgment, and to act in a
prudent manner and in the best interests of the Company's stockholders.
CLASS ACTION ALLEGATIONS
14. Plaintiff brings this lawsuit pursuant to Rule 23 of the Nevada Rules
of Civil Procedure on his own behalf and as a class action on behalf of all
stockholders 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").
15. This action is properly maintainable as a class action.
<PAGE>
5
16. The Class is so numerous that joinder of all members is impracticable.
The Company has more than 1.1 billion shares held by approximately 54,000
shareholders of record who are scattered throughout the United States.
17. There are questions of law and fact common to the Class including,
inter alia, whether:
a. defendants have breached their fiduciary duties owed by them to
plaintiff and other members of the Class by failing to attempt in good faith to
maximize shareholder value in the sale of ITT;
b. defendants have breached or aided and abetted the breach of the
fiduciary duties owed by them to plaintiff and other members of the Class; and
c. plaintiff and the other members of the Class are being and will
continue to be injured by the wrongful conduct alleged herein and, if so, what
is the proper remedy and/or measure of damages.
18. Plaintiff is committed to prosecuting the action and has retained
competent counsel experienced in litigation of this nature. Plaintiff's claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Plaintiff is an adequate
representatives of the Class.
19. The prosecution of separate actions by individual members of the Class
would create the risk of inconsistent or varying adjudications with respect to
<PAGE>
6
individual members of the Class which would establish incompatible standards of
conduct for defendants, or adjudications with respect to individual members of
the Class which would as a practical matter be dispositive of the interests of
the other members not parties to the adjudications or substantially impair or
impede their ability to protect their interests.
20. The defendants have acted, or refused to act, on grounds generally
applicable to, and causing injury to, the Class and, therefore, preliminary and
final injunctive relief on behalf of the Class as a whole is appropriate.
SUBSTANTIVE ALLEGATIONS
21. On January 27, 1997, at the close of trading, Hilton announced that it
offered to acquire ITT for $55 per share, or $6.5 billion, plus outstanding
debt. In a press release, Hilton said the proposed transaction would be worth
$10.5 billion including ITT's outstanding debt.
22. Hilton made the formal proposal to ITT management by telephone earlier
in the day, and later confirmed the proposed offer in writing.
23. The proposal followed several attempts over the past six months by
representatives of Hilton to initiate contact with ITT about the possibility of
a business combination. Hilton stated that ITT continually rebuffed such
efforts.
<PAGE>
7
24. Under the proposal, Hilton will offer $55 per share in cash for half
of ITT's outstanding shares, followed by a second-step merger at $55 per share
in Hilton common stock. The proposed consideration constitutes a 29% premium
over ITT's current stock price.
25. Hilton's offer was based solely on publicly available information.
Significantly, Hilton advised that "with ITT's cooperation, an ensuing review of
private information could result in an even higher offer."
26. In addition to the premium over market price, the proposed offer
represents a strategic fit for stockholders of both companies. In this regard,
Hilton stated, "ITT's owned full-service hotel portfolio, along with its major
gaming presence in Las Vegas, Atlantic City and other jurisdictions, fits
perfectly with our stated growth objectives." Further, Hilton stated that its
experience and operating background in hotels and gaming would "bring tremendous
value to the combined shareholder base and generate superior returns" for ITT
shareholders."
27. In its letter to defendants, Hilton explained the extent of its
commitment to acquiring the Company:
[W]e 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 in order to
complete this transaction.
<PAGE>
8
28. In after hours trading, ITT traded at about $58.75, up more than $15
per share from its closing price of $42.875.
29. Defendants' recalcitrance to consider and promptly act upon Hilton's
offer has no valid business purpose, and simply evidences their disregard for
the premium being offered to ITT stockholders. By failing to meet and negotiate
or offer to meet and negotiate with Hilton, defendants are depriving plaintiff
and the Class of the right to share in the assets and businesses of ITT and
receive the maximum value for their shares.
30. ITT represents a highly attractive acquisition candidate. Defendants'
conduct would ensure their continued positions within the Company but deprive
the Company's public shareholders of the premium that Hilton is prepared to pay,
or of the enhanced premium that further negotiation or exposure of ITT to the
market could provide.
31. Defendants owe fundamental fiduciary obligations to ITT's shareholders
to take all necessary and appropriate steps to maximize the value of their
shares. In addition, the Individual Defendants have the responsibility to act
independently so that the interests of the Company'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.
<PAGE>
9
Further, the directors of ITT must adequately ensure that no conflict of
interest exists between the Individual Defendants' own interests and their
fiduciary obligations to maximize stockholder value or, if such conflicts exist,
to insure that all such conflicts will be resolved in the best interests of the
Company's stockholders.
32. Because defendants dominate and control the business and corporate
affairs of ITT and because they are in possession of private corporate
information concerning ITT's assets, businesses and future prospects, there
exists an imbalance and disparity of knowledge of economic power between
defendants and the public stockholders of ITT. This discrepancy makes it grossly
and inherently unfair for defendants not to meet with and negotiate with Hilton,
all at the expense of ITT's public stockholders.
33. The Individual Defendants have breached their fiduciary and other
common law duties owed to plaintiff and other members of the Class in that they
have not and are not exercising independent business judgment and have acted and
are acting to the detriment of the Class.
34. In connection with the conduct described herein, the Individual
Defendants breached their fiduciary duties by, among other things:
a. failing to properly consider Hilton's proposal without fully
informing themselves about or intentionally
<PAGE>
10
ignoring the future prospects of a combined ITT/Hilton
company, or the intrinsic worth of Hilton; and
b. failing and refusing to meet with representatives of Hilton.
35. Defendants have refused to take those steps necessary to ensure that
ITT's stockholders will receive maximum value for their shares of ITT stock.
Defendants have thus refused to seriously consider the pending offer, and have
failed to announce any active auction or open bidding procedures best calculated
to maximize shareholder value in selling the Company.
36. The Individual Defendants are acting to entrench themselves in their
offices and positions and maintain their substantial salaries and perquisites,
all at the expense and to the detriment of the public stockholders of ITT.
37. By the acts, transactions and courses of conduct alleged herein, the
Individual Defendants, individually and as part of a common plan and scheme in
breach of their fiduciary duties and obligations, are attempting unfairly to
deprive plaintiff and other members of the Class of the premium they could
realize in an acquisition transaction and to ensure continuance of their
positions as directors and officers, all to the detriment of ITT's public
stockholders. The Individual Defendants have been engaged in
<PAGE>
11
a wrongful effort to maintain their offices and positions of control and prevent
the acquisition of ITT except on terms that would further their own personal
interests.
38. As a result of the actions of the Individual Defendants, plaintiff and
the other members of the Class have been and will be damaged in that they have
not and will not receive their fair proportion of the value of ITT's assets and
businesses and/or have been and will be prevented from obtaining a fair and
adequate price for their shares of ITT's common stock.
39. 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 and full and fair
value for their stock at a premium over the market price, by unlawfully
maintaining their positions of control, and to compel defendants to carry out
their fiduciary duties to maximize shareholder value.
40. Only through the exercise of this Court's equitable powers can
plaintiff be fully protected from the immediate and irreparable injury which
defendants' actions threaten to inflict. Defendants are precluding the
stockholders' 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
<PAGE>
12
that would provide consideration for all shares at an attractive price.
41. 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, and will prevent the sale of ITT
at a substantial premium, all to the irreparable harm of plaintiff and other
members of the Class.
42. 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) 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
Hilton, having a bona fide interest in proposing any transactions that would
maximize shareholder value, including but not limited to, a merger or
acquisition of ITT;
(ii) immediately undertake an appropriate evaluation of ITT's
worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance ITT's value and
attractiveness as a merger/acquisition candidate;
<PAGE>
13
(iv) take all appropriate steps to effectively expose ITT to
the marketplace in an effort to create an active auction of the Company;
(v) act independently so that the interests of the Company's
public stockholders will be protected; and
(vi) 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
stockholders of ITT;
(c) 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;
(d) Awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and expert' fees;
and
<PAGE>
14
(e) Granting such other and further relief as may be just and
proper.
Dated: January 28, 1997
RALEIGH, HUNT & McGARRY, P.C.
By: /s/ John A. Hunt
--------------------------------
John A. Hunt, Esq.
Nevada Bar #1888
302 E. Carson Avenue, # 1102
Las Vegas, Nevada 89101
702-386-4842
Attorneys for Plaintiff
Of Counsel:
Scott W. Fisher, Esq.
GARWIN, BRONZAFT, GERSTEIN,
& FISHER, L.L.P.
1501 Broadway
New York, New York 10006
(212) 398-0055
<PAGE>
[EXHIBIT 23]
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ----------------------------------------x
:
CLAIRE RAND and JERRY KRIM, :
:
Plaintiffs, :
: CLASS ACTION
-against- : COMPLAINT
:
ITT CORPORATION, BETTE B. ANDERSON, : Index No.
RAND V. ARASKOG, NOLAN D. ARCHIBALD, : 97101170
ROBERT A. BOWMAN, ROBERT A. BURNETT, :
PAUL G. KIRK, EDWARD C. MEYER, :
BENJAMIN F. PAYTON, VIN WEBER, :
MARGARITA E. WHITE and KENDRICK R. :
WILSON, III, :
:
Defendants. :
:
- ----------------------------------------x
Plaintiffs, by their undersigned attorneys, for their Class Action
Complaint, allege, upon personal knowledge as to themselves and their own acts
and information and belief as to all other matters, as follows:
THE PARTIES
1. Plaintiff Claire Rand is, and at all relevant times has been, the owner
of shares of ITT Corporation ("ITT" or the "Company").
2. Plaintiff Jerry Krim is, and at all relevant times has been, the owner
of shares of ITT.
3. ITT is a corporation duly organized and existing under the laws of the
State of Nevada. ITT's headquarters are located in this county at 1330 Avenue of
the Americas,
<PAGE>
2
New York, New York. ITT is a global enterprise engaged in four major business
areas: hotels, gaming, entertainment and information Services. Some of its
famous name-brands include Sheraton Hotels, Caesars World, the New York
Knickerbockers, the New York Rangers and Madison Square Garden. As of March 25,
1996, ITT had 117,311,338 shares of stock outstanding and trading on the New
York Stock Exchange. ITT is a successor to the old ITT Corp., which split into
three separately listed public companies in 1996, and whose stocks are
separately listed on the New York Stock Exchange. In addition to the new ITT,
the old ITT split up into ITT Hartford and ITT Industries.
4. Bette B. Anderson ("Anderson") is a director of ITT and has been since
1995. She was a director of the old ITT from 1981 to 1995. As a non-employee
director, Anderson receives an annual retainer of $48,000.
5. Rand V. Araskog ("Araskog") is Chairman and Chief Executive Officer of
ITT and has been since 1995. He was a director of the old ITT from 1977 to 1995,
Chief Executive Officer from 1979 to 1995, Chairman of the Board from 1980 to
1995, and President from 1991 to 1995. In 1995, Araskog received total
compensation of over $4,500,000.
6. Nolan D. Archibald ("Archibald") is a member of the ITT Board of
Directors and has been since 1995. He was a member of the Board of Directors of
the old ITT from 1991
<PAGE>
3
to 1995. As a non-employee director, Archibald receives an annual retainer of
$48,000.
7. Defendant Robert A. Bowman ("Bowman") is the President and Chief
Operating Officer of ITT, a position he has held since 1995. He has been a
member of the Board of Directors of ITT since 1995. He served in several
executive capacities of the old ITT from 1990 to 1995. In 1995, Bowman received
total compensation from ITT of about $1,200,000.
8. Robert A. Burnett ("Burnett") is a director of ITT and has been since
1995. He was a director of the old ITT from 1985 to 1995. As a non-employee
director, Burnett receives an annual retainer of $48,000.
9. Paul G. Kirk, Jr. ("Kirk") is a director of ITT and has been since
1995. He was a director of the old ITT from 1986 to 1995. As a non-employee
director, Kirk receives an annual retainer of $48,000.
10. Edward C. Meyer ("Meyer") is a director of ITT and has been since
1995. He was a director of the old ITT from 1986 to 1995. As a non-employee
director, Meyer receives an annual retainer of $48,000.
11. Benjamin F. Payton ("Payton") is a director of ITT and has been since
1995. He was a director of the old ITT from 1986 to 1995. As a non-employee
director, Payton receives an annual retainer of $48,000.
<PAGE>
4
12. Vin Weber ("Weber") is a director of ITT and has been since 1996. He
is also a director of ITT Educational Services, Inc., a subsidiary of ITT. As a
non-employee director, Payton receives an annual retainer of $48,000.
13. Margarita E. White ("White") is a director of ITT and has been since
1995. She was a director of the old ITT from 1980 to 1995. As a non-employee
director, White receives an annual retainer of $48,000. She is also a director
of ITT Educational Services, Inc., a subsidiary of ITT.
14. Kedrick R. Wilson, III ("Wilson") is a director of ITT and has been
since 1996. He is managing director of Lazard Freres & Co. LLC. Lazard Freres
performed various services for ITT and received substantial fees in 1995, and it
is believed that Lazard Freres also performed services and received substantial
fees in 1996. As a non-employee director, Payton receives an annual retainer of
$48,000.
15. The persons named in paragraphs 4 through 14 shall be collectively
referred to herein as the "Individual Defendants."
16. The Individual Defendants, by reason of their corporate directorships
and/or executive positions, stand in a fiduciary position relative to the
Company's shareholders, which fiduciary relationship, at all times relevant
herein, required the Individual Defendants to exercise their best judgment, and
to act in a prudent manner, and in the best
<PAGE>
5
interests of the Company's shareholders. They were and are required to use their
ability to control and manage the Company in a fair, just and equitable manner;
to act in furtherance of the best interests of the Company's shareholders; to
refrain from abusing their positions of control; and not to favor their own
interests at the expense of the Company's shareholders.
17. Each Individual Defendant herein is sued individually as a conspirator
and aider and abettor, as well as in his or her capacity as an officer and/or
director of the Company, and the liability of each arises from the fact that he
or she has engaged in all or part of the unlawful acts, plans, schemes, or
transactions complained of herein.
CLASS REPRESENTATION ALLEGATIONS
18. Plaintiffs bring this action on their own behalf and as a class
action, pursuant to Section 901 of the C.P.L.R., on behalf of all purchasers of
all shareholders of ITT (except the (except the defendants herein, the
Individual Defendants and members of their immediate families, and any person,
firm, trust, corporation, or other entity related to or affiliated with any of
the defendants) and their successors in interest, who are or will be threatened
with injury arising from defendants' actions as more fully described herein.
<PAGE>
6
19. A class action is superior to other methods for the fair and efficient
adjudication of the claims herein asserted and no unusual difficulties are
likely to be encountered in the management of this class action. The likelihood
of individual class members prosecuting separate claims is remote.
20. There are questions of law and fact which are common to the class and
which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
(a) whether defendants have breached their fiduciary duties by engaging
in concerted and continual action to entrench themselves in their
lucrative positions at the expense of ITT's public stockholders;
(b) whether defendants are unlawfully impeding possible takeover
attempts at the expense of ITT's public stockholders;
(c) whether defendants have failed and will fail to negotiate in good
faith with prospective purchasers of the Company; and
(d) whether the plaintiffs and other members of the class would be
irreparably damaged were the defendants not enjoined from the
conduct described hereinbelow.
<PAGE>
7
21. Plaintiffs are committed to prosecuting this action and have retained
competent counsel experienced in litigation of this nature. The claims of the
plaintiffs are typical of the claims of other members of the class, and
plaintiffs have the same interests as the other members of the class. Plaintiffs
are adequate representatives of the class.
FACTUAL BACKGROUND
22. In November 1995, the Board of Directors of ITT enacted a "poison
pill," a device designed to make it prohibitively expensive for any third party
to acquire ITT unless the acquisition is approved by the Board of Directors,
whose members are named as defendants herein.
23. On January 27, 1997, Hilton Hotels Corporation ("Hilton") announced
that it had made a hostile bid to acquire ITT for $55 per share, or a total of a
$6.4 billion plus the assumption of debt.
24. In making the bid, Hilton said that "with ITT's cooperation, an
ensuing review of private information could result in an even higher bid."
25. Hilton owns, manages or franchises about 230 hotels across the United
States, including the Waldorf Astoria in New York.
26. According to the January 28, 1997, edition of The New York Times, in
making the offer, Stephen F. Bollenbach,
<PAGE>
8
Chief Executive Officer of Hilton ("Bollenbach"), stated that he made the
hostile bid only after defendant Araskog had indicated last fall that he did not
want to discuss a deal.
27. The offer was made by way of letter from Bollenbach to Rand. In the
letter, Bollenbach indicated that he was prepared to meet with Araskog and his
advisors to arrive at a negotiated transaction.
28. Although Rand indicated that the ITT board would make a recommendation
within ten days, it is clear by his past conduct that ITT will reject the offer
out of hand.
29. Indeed it was reported in The New York Times on January 29, 1997, that
analysts expected that consistent with ITT's previous rebuff to Hilton, ITT
would fight Hilton's takeover proposal.
30. Hilton has made it clear that the $55 per share proposal was only an
opening bid but that any increase in consideration was dependent on ITT agreeing
to come to the bargaining table.
31. The provisions of the poison pill, as amended, seek to make any
unfriendly takeover of the Company too costly for a potential acquirer.
32. The poison pill was enacted by the Individual Defendants in order to
deter competitive bidding for ITT and to entrench themselves in office.
<PAGE>
9
33. Furthermore, the poison pill creates an unlevel playing field between
a bidder for the Company and management. It provides a competitive advantage to
management personnel interested in acquiring the Company, while providing
additional defenses to management against a takeover by a third party.
34. The Individual Defendants have at all times been fiduciaries of ITT
shareholders. As set forth herein, they have breached and are continuing to
breach their fiduciary duties to ITT's shareholders in order to entrench
themselves in office and to continue receiving their compensation, fees and
emoluments of office.
35. The Individual Defendants have breached their fiduciary duties by
reason of the acts and transactions complained of herein, including their
refusal to negotiate the possible acquisition of ITT and to provide confidential
information.
36. Plaintiffs and the other members of the class have been and will be
damaged in that they have not and will not receive their fair proportion of the
value of ITT's assets and businesses, and have been and will be prevented from
obtaining a fair price for their shares of the Company's common stock.
37. Unless enjoined by this Court, the Individual Defendants will continue
to breach their fiduciary duties owed to plaintiffs and the other members of the
class, and
<PAGE>
10
will entrench themselves in their corporate offices, all to the irreparable harm
of the class, as aforesaid.
38. Plaintiffs and the class have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment in their favor and in favor of the
class and against defendants as follows:
A. Determining that this class action is a proper class action under
Section 901 of the C.P.L.R.;
B. Ordering the Individual Defendants to carry out their fiduciary duties
to plaintiffs and the other members of the class by announcing their intention
to:
1. cooperate fully with any person or entity, having a bona fide
interest in proposing any transaction which would maximize shareholder value,
including, but not limited to, a buyout or takeover of the Company;
2. undertake an appropriate evaluation of ITT's worth as a
merger/acquisition candidate;
3. take all appropriate steps to enhance ITT's value and
attractiveness as a merger/acquisition candidate;
4. take all appropriate steps to effectively expose ITT to the
marketplace in an effort to create an active auction for ITT;
5. act independently so that the interests of ITT's public
stockholders will be protected; and
6. adequately ensure that no conflicts of interest exist between
individual defendants' own interest
<PAGE>
11
and their fiduciary obligation to maximize stockholder value or, if such
conflicts exist, to ensure that all conflicts are resolved in the best interests
of ITT's public stockholders;
C. Ordering the individual defendants to carry out their fiduciary duties
to plaintiffs and the class and requiring them to respond in good faith to any
bona fide potential acquirers of ITT;
D. Preliminarily and permanently enjoining the implementation of the
Company's poison pill, as amended, and the delivery of rights thereunder;
E. Awarding plaintiffs the costs and disbursements of the action,
including a reasonable allowance for plaintiffs' attorneys' and experts' fees;
and
F. Granting such other and further relief as may be just and proper.
Dated: January 29, 1997 Yours, etc.
Jules Brody
Mark Levine
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
Harvey Greenfield
LAW FIRM OF HARVEY GREENFIELD
10 East 40th Street
New York, NY 10016
(212) 679-0600
Attorneys for Plaintiffs
<PAGE>
[EXHIBIT 24]
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 Plaintiffs
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
JOAN COHEN, ADOLPH FEUERSTEIN, )
DAVID L. FREEMAN trustee F/B/O )
WOODTECH SALES & MARKETING ) CV-S-97-00155-PMP (RLH)
INC EMPLOYEES PROFIT SHARING )
TRUST, ABRAHAM KOSTICK, SHARON )
SIEGEL JULES BERNSTEIN, SYLVIA )
PIVEN, DONNIE K. MARKS, )
DR. SAMUEL COHEN BELLE COHEN, )
KENNETH STEINER, ERNEST HACK )
and ROBERT HUNTLEY on behalf of )
themselves and all others similarly )
situated, ) CLASS ACTION
) COMPLAINT
Plaintiffs, )
)
-against- )
) Plaintiffs Demand
RAND V. ARASKOG, ROBERT A. ) A Trial by Jury
BOWMAN, BETTE B. ANDERSON, )
NOLAN D. ARCHIBALD, ROBERT A. )
BURNETT, PAUL G. KIRK, JR., )
EDWARD C. MEYER, BENJAMIN F. )
PAYTON, VIN WEBER, MARGITA E. )
WHITE, KENDRICK R. WILSON III )
AND ITT CORPORATION, )
)
Defendants.
- -------------------------------------
Plaintiffs, by their attorneys, for their complaint against defendants,
allege upon personal knowledge with 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. Plaintiffs bring this action as a class action on behalf of themselves
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
<PAGE>
(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 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.
JURISDICTION AND VENUE
2
<PAGE>
6. This action is brought pursuant to the Supremacy Clause (art. VI, cl.
2), the Commerce Clause (art. I, ss. 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. ss. 2201. Pursuant to Rule
24(c) of the Federal Rules of Civil Procedure, plaintiffs call the attention of
the Court to 28 U.S.C. ss. 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. ss.ss. 1331 and 1367(a).
8. Venue is proper in this district pursuant to 28 U.S.C. ss.ss.
1391(a)-(c).
THE PARTIES
9. Plaintiff Joan Cohen 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.
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, and 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.
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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.
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 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.
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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. 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 plaintiffs 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.
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CLASS ACTION ALLEGATIONS
29. Plaintiffs bring this action pursuant to Rule 23 of the Federal Rules
of Civil Procedure on their own 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
ss.ss. 78.378 et seq. (the "Control Share Acquisition Statute") and Nevada Rev.
Statutes ss.ss. 78.411 et seq. (the "Business Combination Statute") are
unconstitutional either on their face or as 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 breached their fiduciary and other common law duties owed by
them to plaintiffs 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;
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(iv) whether defendants have breached and/or aided and abetted the
breach of fiduciary and duties and other common law duties owned by them to
plaintiffs and other members of the Class; and
(v) whether plaintiffs 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 plaintiffs are typical of the claims of other
members of the Class and plaintiffs have no interests that are adverse or
antagonistic to the interests of the Class.
(d) Plaintiffs are committed to the vigorous prosecution of this
action and have retained competent counsel experienced in litigation of this
nature. Accordingly, plaintiffs are adequate representatives of the Class and
will fairly and adequately protect the interests of the Class.
(e) Plaintiffs anticipate that there will not be any difficulty in the
management of this litigation as a class action.
31. For the 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 acquiring widely disparate businesses in
different industries for the predominant purpose of boosting corporate growth.
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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 precedessor, 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 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
that 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
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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 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 a 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 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
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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 January 28, 1997,
Bloomberg News Service reported that Hilton may be willing to boost its Offer to
$65 per Share. Bollenbach 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 that $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 ss.ss. 78.378 et seq. (the "Control Share Acquisition
Statute") and ss.ss. 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.
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)
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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 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
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is given 90 days in advance of the anniversary date of the immediately preceding
annual meeting." Section 2.2 does not 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 coverage of the Statute -- something that the ITT board has not done.
4. The Business Cominbation 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
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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 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. ss. 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 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 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.
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COUNT I
For Injunctive and Declaratory Relief--
Unconstitutionality of the Nevada Anti-Takeover Statutes
57. Plaintiffs repeat and reallege 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 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 Statues 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. ss.ss. 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
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neither the offeror nor incumbent management of the 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. ss. 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 plaintiffs 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.
65. Plaintiffs seek declaratory relief with respect to the
unconstitutionality of the Nevada Anti-Takeover Statutes, pursuant to the
Federal Declaratory Judgments Act, 28 U.S.C. ss. 2201, and injunctive relief
against the application and enforcement of these unconstitutional Statutes.
Plaintiffs and the Class members are or will be irreparably and imminently
injured by the wrongs alleged herein.
66. Plaintiffs and the Class have no adequate remedy at law.
COUNT II
Against All Defendants
For Breach of Fiduciary Duties
67. Plaintiffs repeat and reallege 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
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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.
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 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
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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 current
acquisition overtures and offers, even though these proposals would result in
ITT's 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 plaintiffs 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 the Company's public shareholders for their own
personal benefit.
75. Plaintiffs seek preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiffs 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.
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76. Only through the exercise of this Court's equitable powers can
plaintiffs 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 plaintiffs and the members of the Class, and/or will
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 plaintiffs and the other members of the Class,
who are or will be imminently injured by such misconduct.
78. Plaintiffs and the Class have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
A. Declaring this to be a proper class action and certifying plaintiffs as
class representatives;
B. Declaring that the Nevada Control Share Acquisition Statute and the
Nevada Business Combination Statute, either generally or as applied here, are
unconstitutional;
C. Ordering the Individual Defendants to carry out their fiduciary duties
to plaintiffs 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
(v) adequately ensure that no conflicts of interest exist between the
Individual Defendants' own interest and their fiduciary obligation to maximize
shareholder value
18
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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 plaintiffs and the Class for all damages suffered by them as a result of the
acts and transactions alleged herein;
H. Awarding plaintiffs the costs and disbursements of this action,
including a reasonable allowance for plaintiffs' attorneys' and experts' fees;
and
I. Granting such other and further relief as may be just and proper.
19
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JURY DEMAND
Plaintiffs demand a trial by jury of all issues so triable.
DATED: February 4, 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
Telephone: 702/384-7111
Arthur N. Abbey, Esq.
Mark C. Gardy, Esq.
Abbey, Gardy & Squitieri, LLP
212 East 39th Street
New York, NY 10016
(212) 889-3700
David J. Bershad, Esq.
Steven G. Schulman, Esq.
Seth Ottensoser, Esq.
Milberg Weiss Bershad Hynes
& Lerach LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Jeffrey G. Smith, Esq.
Neil L. Zola, Esq.
Wolf Haldenstein Adler Freeman & Herz LLP
270 Madison Avenue
New York, NY 10016
(212) 545-4600
Stanley Bernstein, Esq.
Bernstein Liebhard & Lifshitz
274 Madison Avenue
New York, NY 10016
(212) 799-1414
20
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Pamela Tikellis, Esq.
Chimicles, Jacobsen & Tikellis
One Rodney Square
Wilmington, DE 19899
(302) 656-2500
Bertam Bronzaft, Esq.
Garwin Bronzaft Gerstein
& Fisher L.L.P.
1501 Broadway,
Room 1416
New York, NY 10036
(212) 398-0055
Lawrence Sucharow, Esq.
Goodkind, Labaton, Rudoff &
Sucharow LLP
100 Park Avenue
New York, New York 10017-5563
(212) 907-0700
Deborah R. Gross, Esq.
Law Offices of
Bernard M. Gross
1500 Walnut Street
Philadelphia, PA 19102
(215) 561-3600
Bernard Malina, Esq.
Malina & Wolson
60 East 42nd Street
New York, NY 10016
(212) 986-7410
Klari Neuwelt, Esq.
Law Office of
Klari Neuwelt
950 Third Avenue, 8th Floor
New York, NY 10022
(212) 593-8800
Charles J. Piven Esq.
Law Offices of
Charles J. Piven
The Legg Mason Tower
111 S. Calvert Street
Baltimore, MD 21202
(401) 332-0300
21
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Lawrence G. Soicher, Esq.
300 Park Avenue
20th Floor
New York, New York 10022
(212) 684-6442
Zachary A. Starr, Esq.
Starr & Holman LLP
10 E. 40th Street
New York, NY 10016
(212) 980-7000
Stuart Wechsler, Esq.
Wechsler Harwood Halebian
& Feffer LLP
805 Third Avenue
New York, NY 10022
(212) 935-7400
Alfred G. Yates, Jr., Esq.
Law Offices of
Alfred G. Yates, Jr.
519 Allegheny Building
Suite 519
429 Forbes Avenue
Pittsburgh, PA 15219
(412) 391-5164
22
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[EXHIBIT 25]
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
RHODA KANAREK on behalf of herself and )
all ) CV-S-97-00166-PMP (RLH)
others similarly situated, )
) CLASS ACTION
Plaintiff, ) COMPLAINT
)
- against - )
) Plaintiff Demands A
RAND V. ARASKOG, ROBERT A. ) Trial by Jury
BOWMAN, BETTE B. ANDERSON, )
NOLAN D. ARCHIBALD, ROBERT A. )
BURNETT, PAUL G. KIRK, JR., EDWARD C. )
MEYER, BENJAMIN F. PAYTON, VIN )
WEBER, MARGITA E. WHITE, )
KENDRICK R. WILSON III and )
ITT CORPORATION, )
)
Defendants. )
)
- ------------------------------------------------
Plaintiff, by her attorneys, for her complaint against defendants, allege
upon personal knowledge with 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
<PAGE>
(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 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.
2
<PAGE>
JURISDICTION AND VENUE
6. This action is brought pursuant to the Supremacy Clause (art. VI, cl.
2), the Commerce Clause (art. I, ss. 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. ss. 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. ss. 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. ss.ss. 1331 and 1367(a).
8. Venue is proper in this district pursuant to 28 U.S.C. ss.ss.
1391(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.
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, and 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.
3
<PAGE>
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.
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 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.
4
<PAGE>
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. 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 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").
5
<PAGE>
30. This action is property 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
ss.ss. 78.378 et seq. (the "Control Share Acquisition Statute") and Nevada
Rev. Statutes ss.ss. 78.411 et seq. (the "Business Combination Statute")
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 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 counsel experienced in litigation of this nature.
Accordingly, Plaintiff is
6
<PAGE>
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 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 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 predecessor, 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.
7
<PAGE>
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 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 baccaret 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 through 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 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 a share. ITT's stock closed at an undervalued $42.875 on January 27,
1997.
8
<PAGE>
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 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 on
January 27, 1997, and later that day confirmed the Offer in writing. According
to the letter sent to defendant Araskog by Stephen Bollantach, 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 January 28, 1997,
Bloomberg News Service reported that Hilton may be willing to boost its Offer to
$65 per Share. Bollenbach 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.
9
<PAGE>
C. ITT's Poison Pill And Other Defensive Measures
44. ITT has 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 ss.ss. 78.378 et seq. (the "Control Share Acquisition Statute")
and ss.ss. 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.
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 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
10
<PAGE>
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 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 coverage of the Statute -- something that the ITT board has not done.
4. The Business Combination Statute
11
<PAGE>
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 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. ss. 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 positions on the ITT Board. The existence of this controversy is causing
confusion and
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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 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 Statues 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 Statute 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
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Exchange Act, 15 U.S.C. ss.ss. 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 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. ss. 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 person, 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.
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. ss. 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
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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.
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 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
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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 current
acquisition overtures and offers, even though those proposals would result in
ITT's 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, been moved 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 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
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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.
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
(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
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Anti-Takeover Statutes (if they are not stricken) exclusively in a manner
designed to maximize shareholder value;
G. Ordering the Individual Defendants, jointly and severalty, 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.
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JURY DEMAND
Plaintiff demands a trial by jury of all issues so triable.
DATED: February 5, 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
Telephone: 702/384-7111
Arthur N. Abbey, Esq.
Mark C. Gardy, Esq.
Abbey, Gardy & Squitieri, LLP
212 East 39th Street
New York, NY 10016
(212) 889-3700
David J. Bershad, Esq.
Steven G. Schulman, Esq.
Seth Ottensoser, Esq.
Milberg Weiss Bershad Hynes
& Levach LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Jeffrey G. Smith, Esq.
Neil L. Zola, Esq.
Wolf Haldenstein Adler Freeman & Herz
LLP
270 Madison Avenue
New York, NY 10016
(212) 545-4600
Stanley Bernstein, Esq.
Bernstein Liebhard & Lifshitz
274 Madison Avenue
New York, NY 10016
(212) 799-1414
Pamela Tikellis, Esq.
Chimicles, Jacobsen & Tikellis
One Rodney Square
Wilmington, DE 19899
(302) 656-2500
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Bertram Bronzaft, Esq.
Garwin Bronzaft Gerstein & Fisher L.L.P.
1501 Broadway
Room 1416
New York, NY 10036
(212) 398-0055
Lawrence Sucharow, Esq.
Goodkind, Labaton, Rudoff & Sucharow
LLP
100 Park Avenue
New York, NY 10017-5563
(212) 907-0700
Deborah R. Gross, Esq.
Law Offices of
Bernard M. Gross
1500 Walnut Street
Philadelphia, PA 19102
(215) 561-3600
Bernard Malina, Esq.
Malina & Wolson
60 East 42nd Street
New York, NY 10016
(212) 986-7410
Klari Neuwelt, Esq.
Law Office of
Klari Neuwelt
950 Third Avenue, 8th Floor
New York, NY 10022
(212) 593-8800
Charles J. Piven, Esq.
Law Offices of
Charles J. Piven
The Legg Mason Tower
111 S. Calvert Street
Baltimore, MD 21202
(401) 332-0300
Lawrence G. Soicher, Esq.
300 Park Avenue
20th Floor
New York, NY 10022
(212) 684-6442
Zachary A. Starr, Esq.
Starr & Holman LLP
10 E. 40th Street
New York, NY 10016
(212) 980-7000
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Stuart Wechsler, Esq.
Weschsler Harwood Halebian
& Feffer LLP
805 Third Avenue
New York, NY 10022
(212) 935-7400
Alfred G. Yates, Jr., Esq.
Law Offices of
Alfred G. Yates, Jr.
519 Allegheny Building
Suite 519
429 Forbes Avenue
Pittsburgh, PA 15219
(412) 391-5164
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