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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 13D/A
Under the Securities Exchange Act of 1934
(Amendment No. 9)
Giant Group, Ltd.
-----------------
(Name of Issuer)
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class of Securities)
374503 1 10 0
--------------------------------------
(CUSIP Number)
Andrew F. Puzder
Executive Vice President and General Counsel
Fidelity National Financial, Inc.
17911 Von Karman Avenue
Irvine, California 92714
Tel. (714) 622-5000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copies to:
Lawrence Lederman, Esq.
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Tel. (212) 530-5000
February 16, 1996
-----------------
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of this Schedule
13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box / /.
Check the following box if a fee is being paid with the
statement / /.
Page 1 of 48 Pages
Exhibit Index on Page 8
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SCHEDULE 13D
CUSIP NO.: 374503 1 10 0
(1) NAME OF REPORTING PERSON:
Fidelity National Financial, Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
IRS No. 86-0498599
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
(3) SEC USE ONLY
(4) SOURCE OF FUNDS: WC
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) [ ]
(6) CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
(7) SOLE VOTING POWER: 695,489(1)
(8) SHARED VOTING POWER: 0
(9) SOLE DISPOSITIVE POWER: 695,489(1)
(10) SHARED DISPOSITIVE POWER: 0
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
695,489(1)
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [x]
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 14.6(2)
- ----------------
1 Fidelity disclaims beneficial ownership of 10,000 shares of Common Stock
held by William P. Foley, II. Mr. Foley owns 21.7% of the outstanding
common stock of Fidelity and he is the Chairman of the Board and Chief
Executive Officer of Fidelity. By virtue of such stock ownership and
positions, Mr. Foley may be deemed a "controlling person" of Fidelity.
2 Based upon 4,778,385 shares of Common Stock outstanding as of February 7,
1996, as disclosed in Item 5 to Amendment No. 13 of the Schedule 13D
filed by Burt Sugarman on February 13, 1996 with the Securities and
Exchange Commission with respect to the Common Stock.
Page 2 of 48 Pages
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(14) TYPE OF REPORTING PERSON: CO
Page 3 of 48 Pages
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CUSIP NO.: 374503 1 10 0
(1) NAME OF REPORTING PERSON:
William P. Foley, II
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
IRS No. ###-##-####
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
(3) SEC USE ONLY
(4) SOURCE OF FUNDS: PF
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) [ ]
(6) CITIZENSHIP OR PLACE OF ORGANIZATION: United States of America
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
(7) SOLE VOTING POWER: 10,000(3)
(8) SHARED VOTING POWER: 0
(9) SOLE DISPOSITIVE POWER: 10,000(3)
(10) SHARED DISPOSITIVE POWER: 0
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
10,000(3)
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [x]
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): .2(4)
(14) TYPE OF REPORTING PERSON: IN
- -----------------
3 Mr. Foley disclaims beneficial ownership of 695,489 shares of Common
Stock held by Fidelity. Mr. Foley owns 21.7% of the outstanding common
stock of Fidelity, and he is Chairman of the Board and Chief Executive
Officer of Fidelity. By virtue of such stock ownership and positions, Mr.
Foley may be deemed a "controlling person" of Fidelity.
4 Based upon 4,778,385 shares of Common Stock outstanding as of February 7,
1996, as disclosed in Item 5 to Amendment No. 13 of the Schedule 13D
filed by Burt Sugarman on February 13, 1996 with the Securities and
Exchange Commission with respect to the Common Stock.
Page 4 of 48 Pages
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This Amendment No. 9 amends the statement on Schedule 13D
filed with the Securities and Exchange Commission on December 8, 1995, as
heretofore amended (the "Schedule 13D"), with respect to the common stock, par
value $0.01 per share, of Giant Group, Ltd. (the "Common Stock"), a corporation
having its principal executive offices located at 150 El Camino Drive, Suite
303, Beverly Hills, California 90212 (the "Company"). All capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Schedule 13D.
Other than as set forth herein, there has been no material
change in the information set forth in the Schedule 13D.
ITEM 4. PURPOSE OF TRANSACTION.
Item 4 of the Schedule 13D is hereby amended to add the
following:
(K) On February 16, 1996, Fidelity and Mr. Foley filed
First Amended Counterclaims against the Company and each of its directors (the
"First Amended Counterclaims"). A copy of the First Amended Counterclaims is
attached hereto as Exhibit 99.9, and is incorporated herein by reference. The
First Amended Counterclaims clarify and add to Fidelity's and Mr. Foley's
prior counterclaims.
A summary of the counterclaims is contained in paragraph 7
through paragrah 20 of First Amended Counterclaims, attached hereto as Exhibit
99.9. In their counterclaims, Fidelity and Mr. Foley seek the following
declarations: (1) that the Rights Plan adopted by the Company's directors is
invalid, unfair, and beyond the directors' powers, (2) that the Company's
repurchase of 535,527 Common Stock in early January 1996 were invalid, unfair,
and beyond the directors' powers, (3) that the Exchange Offer, as announced,
is invalid, unfair, and beyond the directors' powers, (4) that the Company's
directors, and each of them, breached their fiduciary duties in taking the
actions described in the counterclaims. Fidelity and Mr. Foley also seek
injunctive relief: (1) prohibiting the counterclaim defendants from taking any
action in furtherance of the Rights Plan, and directing them to rescind, or in
the alternative to redeem, the Rights, (2) requiring the Company to disgorge
the 535,527 shares of the Common Stock that it repurchased between January 5,
1996 and January 10, 1996, and (3) prohibiting the counterclaim defendants from
taking any action in furtherance of the Exchange Offer, and directing the
counterclaim defendants to rescind the Exchange Offer. Fidelity and Mr. Foley
seek damages with respect to certain of the counterclaims.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Item 7 of the Schedule 13D is hereby amended to add the following:
99.9 First Amended Counterclaims filed February 16, 1996
Page 5 of 48 Pages
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SIGNATURE
After reasonable 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.
February 21, 1996
FIDELITY NATIONAL FINANCIAL, INC.
By: /s/ WILLIAM P. FOLEY, II
--------------------------------
Name: William P. Foley, II
Title: Chairman of the Board and
Chief Executive Officer
Page 6 of 48 Pages
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SIGNATURE
After reasonable 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.
February 21, 1996
/s/ WILLIAM P. FOLEY, II
---------------------------
William P. Foley, II
Page 7 of 48 Pages
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EXHIBIT INDEX
<TABLE>
<S> <C> <C>
99.9 First Amended Counterclaims filed
February 16, 1996 Page 9
</TABLE>
Page 8 of 48 Pages
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EXHIBIT 99.9
C. STEPHEN HOWARD (State Bar No. 43434)
JEFFERY D. McFARLAND (State Bar No. 157628)
SCOTT VICK (State Bar No. 171944)
MILBANK, TWEED, HADLEY & McCLOY
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017-5704
(213) 892-4000
Attorneys for Defendants
and Counterclaim Plaintiffs
FIDELITY NATIONAL FINANCIAL, INC. and
WILLIAM P. FOLEY, II
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
GIANT GROUP, LTD., a Delaware ) CASE NO. SA CV-95-1095 LHM
corporation, ) (EEx)
)
Plaintiff, )
) FIRST AMENDED COUNTERCLAIMS OF
v. ) COUNTERCLAIM PLAINTIFFS
) FIDELITY NATIONAL FINANCIAL,
WILLIAM P. FOLEY, II, a ) INC. AND WILLIAM P. FOLEY, II
California citizen; CKE ) FOR DECLARATORY AND INJUNCTIVE
RESTAURANTS, INC., a Delaware ) RELIEF AND FOR DAMAGES
corporation; FIDELITY NATIONAL )
FINANCIAL, INC., a Delaware ) DEMAND FOR JURY TRIAL
corporation; William Davenport, )
a California citizen; and )
ROBERT MARTIN, a Missouri )
citizen, )
)
Defendants. )
________________________________________)
)
FIDELITY NATIONAL FINANCIAL, )
INC. and WILLIAM P. FOLEY, II, )
)
Counterclaim )
Plaintiffs )
)
v. )
)
GIANT GROUP, LTD. )
)
Counterclaim )
Defendant )
)
and )
)
Page 9 of 48 Pages
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BURT SUGARMAN; TERRY )
CHRISTENSEN; DAVID GOTTERER and )
ROBERT WYNN )
Additional )
Counterclaim )
Defendants. )
________________________________________)
COUNTERCLAIMS
Counterclaim Plaintiffs Fidelity National Financial, Inc.
("Fidelity") and William P. Foley, II ("Mr. Foley") aver as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over each of the
counterclaims set forth herein under 28 U.S.C. Section 1367(a) in that said
counterclaims arise from a common nucleus of operative facts and are so
intertwined with Plaintiff's purported federal claim for relief that the
counterclaims form part of the same case or controversy under Article III of
the United States Constitution.
2. Venue is proper in the Central District of California
pursuant to 18 U.S.C. Section 1391(b) and (c) in that at least one
Counterclaim Defendant resides in this District, all of the Counterclaim
Defendants transact their affairs and do business in this District, and,
further, because a substantial part of the events giving rise to the
counterclaims occurred in this District.
THE PARTIES
3. Fidelity is a corporation duly organized and validly
existing under the laws of the State of Delaware, and qualified to do and doing
business in the State of California.
Page 10 of 48 Pages
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Fidelity's principal place of business is located at 17911 Von Karman Avenue,
Suite 300, Irvine, California 92714.
4. Mr. Foley serves as Chairman of Fidelity's Board of
Directors and as its Chief Executive Officer. Mr. Foley resides in Orange
County and is a citizen of the State of California.
5. Counterclaim Defendant Giant Group, Ltd. ("Giant") is a
corporation duly organized and validly existing under the laws of the State of
Delaware, and qualified to do and doing business in the State of California.
Giant's principal place of business is located at 150 El Camino Drive, Suite
303, Beverly Hills, California 90212. Giant is a holding company that
controls, among other things, Rally's Hamburgers, Inc. ("Rally's"). Rally's is
a publicly held company that owns and franchises double drive-thru hamburger
restaurants.
6. Additional Counterclaim Defendants Burt Sugarman
("Sugarman"), Terry Christensen ("Christensen"), David Gotterer ("Gotterer"),
and Robert Wynn ("Wynn"), collectively, the "Giant Directors," are, and at all
relevant times herein were, members of Giant's Board of Directors. Sugarman, a
one-time car salesman and Hollywood producer, serves as Chairman of Giant's
Board of Directors and also acts as its Chief Executive Officer. Sugarman
currently holds approximately 29% of Giant's common stock, and has options to
purchase approximately 17.9% more, for a total of 46.9% of Giant's outstanding
common stock. In 1991, Sugarman was fined by the Securities Exchange
Commission in the amount of $619,855, including interest, and consented to the
entry of an Order by the United States District Court for the District of
Page 11 of 48 Pages
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Columbia, which permanently enjoined him from violating Section 17(a)(2) of the
Securities Act of 1933. The Order was sought on the grounds that Sugarman,
acting through Giant, concealed his plans to take over Rally's in connection
with purchases of Rally's stock by Giant.
SUMMARY OF THE COUNTERCLAIMS
7. The counterclaims in this action arise from a campaign
carefully designed and orchestrated by Sugarman and the Giant Directors to keep
control of Giant and its valuable assets solely in the hands of Sugarman, and
simultaneously to prevent Fidelity -- or anyone else (except Sugarman) -- from
acquiring control of Giant, all for no legitimate or rational corporate
purpose, and all at the expense of Giant and its shareholders. Sugarman views
Giant as his personal fiefdom, and will stop at nothing to keep himself in
control of Giant.
8. On December 8, 1995, Fidelity announced that it had
acquired more than a 5% beneficial ownership of Giant's outstanding common
stock. At the time Fidelity first acquired a beneficial ownership of 5% of
Giant's stock, it was trading for $6.375 per share.
9. Sugarman and the Giant Directors, sensing a possible
threat to their unfettered control of Giant, immediately began a series of
maneuvers and machinations designed to thwart Fidelity and keep themselves in
control of Giant. The first step in their campaign was the filing of their
complaint in this action. The allegations of said complaint were, and are,
wholly specious; and, on information and belief, the complaint was filed in bad
faith.
Page 12 of 48 Pages
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10. Next, on January 4, 1996, the Giant Directors crafted,
and unanimously adopted, a blatantly discriminatory "Stockholders Rights Plan"
(the "Poison Pill"), ostensibly to prevent any nonpassive shareholder (or group
of shareholders) from acquiring 15% or more of Giant's common stock. The
Poison Pill treats all shareholders who own the same class and series of stock
equally, except, that is, for Giant's Chairman Sugarman. Although Sugarman
controls Giant, and, at the time owned over 20% of its common stock, the Poison
Pill grants him (but no one else) the right to purchase even more stock -- up
to nearly 50% of the company. Although Poison Pills are normally meant to
level the playing field for all potential suitors of a company, Giant's Poison
Pill, especially when viewed in conjunction with the numerous actions detailed
herein, makes transparently clear that the Giant Directors' only purpose in
adopting the Poison Pill was to entrench themselves, and to shore up Sugarman's
control over Giant, thereby making Giant a permanent hostage to Sugarman.
Giant's Directors adopted the Poison Pill even though they had no authority to
do so, and even though the disparate treatment of shareholders serves no
legitimate corporate purpose.
11. Next, between January 5, 1996 and January 10, 1996, for
no other reason than to prevent Fidelity from acquiring a large block of Giant
stock, and to further tighten Sugarman's grip on Giant, Giant's Directors
caused Giant to purchase 535,527 shares of Giant stock (the "Stock Purchases"),
beginning just as the market price was approaching its fifty-two week high.
These purchases reduced Giant's cash resources, increased Sugarman's percentage
ownership over, and voting power in Giant -- at no
Page 13 of 48 Pages
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expense to Sugarman -- and, simultaneously, removed votes from shareholders who
likely would vote against the incumbency of Sugarman and the Giant Directors.
On information and belief, prior to the January 5, 1996 purchases, Giant had
purchased shares of its own stock on only one previous occasion.
12. Next, on or about January 22, 1996, Giant announced a
proposed offer to exchange a new series of $9.00 liquidation preference,
participating, nonvoting preferred stock of Giant for common stock of Rally's
(the "Exchange Offer"), which Giant presently controls. By offering preferred
stock rather than common stock, Sugarman and the Giant Directors sought to
maintain their voting percentage in Giant while giving the new preferred
stockholders a "double dip" -- both a $9.00 preference (which was more than the
then current price of Giant's common stock), and then an equal sharing with
Giant's common stockholders with respect to Giant's equity upon liquidation.
The proposed exchange ratio represented a 39% premium over the trading price of
Rally's common stock immediately prior to the announcement of the Exchange
Offer. Given the yearly operating losses Rally's has incurred for three of the
last four years, such a premium is unjustifiable, and provides no possible
benefit to Giant shareholders; it serves only to dilute the equity of current
Giant stockholders and consolidate Sugarman's control. Despite their personal
conflicts of interest -- Sugarman and Gotterer participating as both directors
and shareholders on both sides of the transaction -- the Giant Directors have
not obtained any fairness opinion that the proposed Exchange Offer is fair to
Giant or its shareholders. Indeed, in view of (i) the
Page 14 of 48 Pages
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substantial premium Giant is offering for a losing company, (ii) the
participating preference of the preferred stock being offered, and (iii) the
dilutive effect of the Exchange Offer on Giant's equity, it seems most unlikely
that any reputable, independent firm could possibly render such an opinion.
13. Next, in a calculated effort to further devalue Giant's
stock, on or about January 29, 1996, Giant allowed Rally's to repurchase, at a
deep discount, $22 million face value of debt from Giant (the "Debt Buy-Back"),
despite the fact that Rally's desperately needs the operating cash, and Giant
already is cash-rich. Consequently, the Debt Buy-Back serves no legitimate
corporate purpose, and functions only to further entrench Giant's directors.
14. Next, on February 7, 1996, Sugarman exercised stock
options in Giant, at a deep discount from the current market price, which
increased his total ownership of Giant to approximately 29%.
15. The Giant Directors crafted and approved the Poison
Pill, the Stock Purchases, the Exchange Offer, and the Debt Buy- Back in a
context rife with self-dealing conflicts, pervasive mismanagement, and
corporate waste. Each of those artifices are patently and objectively unfair
to Giant, Giant's shareholders, and Fidelity. Further examples of such
conflicts are numerous and include the following:
a. Sugarman is a stockholder and Chairman of the
Board of Directors of both Giant and Rally's. All of the remaining Giant
Directors were hand selected by their close friend and business colleague,
Sugarman, and, have closely
Page 15 of 48 Pages
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followed Sugarman's wishes in their capacities as Giant Directors.
b. Gotterer also is a stockholder and director of
both Giant and Rally's.
c. On information and belief, Wynn is director of
Giant and a holder of both Giant and Rally's securities.
d. On information and belief, Christensen is
director of Giant and a holder of both Giant and Rally's securities.
e. Although Giant has a mere thirteen employees,
no business operations, and has lost money for three of the last four years,
Sugarman draws a salary from Giant of approximately $1.9 million to support his
opulent lifestyle. Moreover, on information and belief, as Chairman of Rally's
Board of Directors, Sugarman is paid an additional approximately $300,000, plus
stock options for hundreds of thousands of shares of Rally's stock. In
addition, Sugarman enjoys excessive, and wholly unnecessary perquisites. For
example, on information and belief, despite no apparent corporate need,
Sugarman caused Giant to acquire for his use a lavish Gulfstream jet, for which
Giant retains two pilots on a stand-by basis. On information and belief,
Sugarman has used this jet on numerous occasions to fly himself and his spouse
Mary Hart (host of the television program Entertainment Tonight) on personal
vacations at Giant's expense, including a recent trip to one of their vacation
homes in Montana.
f. Sugarman used his influential positions to
elect his spouse -- Mary Hart -- to the Board of Directors of
Page 16 of 48 Pages
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Rally's. In that capacity, Ms. Hart serves on Rally's compensation committee,
which determines the amount of compensation, benefits, and perquisites to be
provided to her husband, Sugarman.
g. On information and belief, sometime in 1989,
Sugarman loaned Patricia L. Glaser -- a partner of Christensen's - -
approximately $2 million to purchase, directly or indirectly, a significant
interest in Rally's. Not long thereafter, Ms. Glaser was elected to the
Rally's board of directors on Sugarman's slate. In that capacity, Ms. Glaser
served as the Chairwoman of Rally's three-member compensation committee (on
which Sugarman's spouse, Ms. Hart, also serves), which determines the amount of
compensation, benefits, and perquisites to be provided to her long-time client,
and friendly-lender, Sugarman. Between August and November 1992, Ms. Glaser
sold 181,000 shares of her Rally's stock for approximately $3.8 million,
realizing a profit of approximately $1.8 million. Ms. Glaser's trading is
currently the subject of a federal securities lawsuit in the Western District
of Kentucky.
h. Both Ms. Glaser, who is a director of Rally's,
and Christensen, who is a director of Giant, are name partners at the same law
firm: Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro. On
information and belief, that firm, and Ms. Glaser and Christensen in
particular, provide substantial legal services to Rally's, to Giant, and to
Sugarman individually. Christensen and Ms. Glaser both enjoy, and directly
benefit in, the profits accruing to this law firm from these services.
Page 17 of 48 Pages
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i. In 1993, Sugarman caused Rally's to enter into
a bond indenture that -- for no legitimate corporate purpose, and solely to
entrench Sugarman in his position at Giant -- requires Rally's to repurchase
$85 million in outstanding notes for 101% of their face value, plus accrued
interest, should anyone other than Sugarman become the beneficial owner of more
than 35% of Giant's voting stock.
j. Contrary to undisputable requirements of
Delaware law, Giant currently refuses to provide Fidelity with a list of
Giant's shareholders in its most useful, computerized form.
16. Finally, as part of Sugarman's scorched-earth campaign
to retain control of Giant, Giant and Christensen have prepared and issued to
the media several blatantly defamatory and scurrilous press releases that
accuse Fidelity and Mr. Foley, inter alia, of attempting to "loot" Giant and
conspiring to violate the securities laws.
17. On February 14, 1996, endeavoring to put an end to the
series of unlawful actions taken by the Giant Directors, which have and
continue to injure Giant, its shareholders, and Fidelity, Fidelity offered to
effect a friendly, negotiated merger with Giant. Under the terms of the
proposed merger, Giant stockholders would receive Fidelity common stock worth
$12 per Giant share, representing nearly a 100% premium over the unaffected
trading price of $6.375 for Giant stock in November 1995, prior to the time
that Fidelity's buying program became most active.
Page 18 of 48 Pages
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18. In this action, Fidelity and Mr. Foley seek a
Declaratory Judgment:
a. that the Poison Pill is invalid, unfair, and
beyond the powers of Giant's board;
b. that the Stock Purchases are invalid, unfair,
and beyond the powers of Giant's board;
c. that the announced Exchange Offer is unfair and
injurious to Giant, Giant's shareholders, and Fidelity, and is invalid and
beyond the powers of the board; and
d. that the Giant Directors breached their
fiduciary duties by adopting the Poison Pill, and approving the Stock
Purchases, the Exchange Offer, and the Debt Buy-Back.
19. In addition, Fidelity and Mr. Foley seek a Preliminary and
Permanent Injunction:
a. prohibiting the Counterclaim Defendants from
taking any action in furtherance of the Poison Pill and directing Counterclaim
Defendants to rescind, or in the alternative to redeem, the Poison Pill;
b. requiring Giant to disgorge the 535,527 shares
of Giant stock that it purchased between January 5, 1996 and January 10, 1996;
and
c. prohibiting the Counterclaim Defendants from
taking any action in furtherance of the Exchange Offer and directing
Counterclaim Defendants to rescind the Exchange Offer, if made.
20. In addition, Fidelity and Mr. Foley seek presumed,
special, actual, and punitive damages for the defamatory statements averred
herein.
Page 19 of 48 Pages
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THE WILLIAMS ACT
21. The Williams Act, along with the regulations
promulgated thereunder by the Securities Exchange Commission ("SEC"), govern
the disclosures made by Sugarman and by Fidelity and Mr. Foley in connection
with their purchases of Giant stock. The purpose of the Williams Act is to
protect shareholders through a policy of neutrality between management and
potential acquirors so that shareholders are free to make appropriate decisions
in connection with tender offers, Exchange Offers, proxy votes and the like.
In passing the Williams Act, Congress deliberately avoided tipping the balance
in favor of management or potential acquirors. The Williams Act is not a
weapon for management to discourage takeover bids or to prevent large
accumulations of stock. The Williams Act endeavors to have market forces --
rather than corporate artifices -- determine the outcome of struggles for
corporate control. The Williams Act ensures investor autonomy, and neutrality
between management and potential acquirors, because Congress recognized that
substantial harm could befall shareholders when management, acting in its
self-interest, erects barriers to prevent changes in corporate control.
BACKGROUND OF FIDELITY'S ACQUISITION OF GIANT STOCK
22. Beginning in July 1995, Fidelity began acquiring shares
of Giant stock. By November 29, 1995, Fidelity had acquired a beneficial
ownership interest in more than 5% of Giant's common stock, and thereafter,
within the time prescribed by law, filed a 13D disclosure statement with the
SEC. In the 13D disclosure statement, Fidelity indicated that its purpose for
Page 20 of 48 Pages
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acquiring Giant stock was "to acquire a significant equity position in
[Giant]." The disclosure statement also advised that, "Fidelity does not
consider itself a passive investor and should not be regarded as such."
GIANT DIRECTORS BREACH THEIR
FIDUCIARY DUTIES BY ADOPTING THE POISON PILL
23. On or about January 4, 1996, the Giant Board held a
meeting at which it took an action designed to erect a barrier to insulate the
Giant Directors -- and Sugarman in particular -- from any change in control.
Through this action, Giant's Board attempted to impose its will on Giant's
shareholders by adopting a "Stockholders Rights Plan," (the "Poison Pill")
which impermissibly confers special favor to Sugarman, at the expense of
shareholders who own the same series and class of Giant common stock.
24. Under the terms of the Poison Pill, the Giant Board of
Directors declared, among other things, that a dividend of preferred stock
purchase rights ("Rights") would be distributed to shareholders who own Giant
stock as of January 16, 1996 (at a rate of one purchase Right per share of
common stock). Each Right is the equivalent in voting and dividend rights to
1000 shares of Giant common stock.
25. By its terms, the Poison Pill is triggered, or
"flips-in," when any person (except Sugarman) acquires voting control of 15% or
more of the outstanding common stock of Giant. Once triggered, the Poison Pill
provides that all Rights holders -- except the shareholder(s) who has acquired
15% or more of Giant's stock -- may exercise their Rights and purchase
additional shares of common stock to be issued by Giant. The
Page 21 of 48 Pages
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Board of Directors of Giant may redeem the Rights at anytime for $0.01 per
Right before the flip-in trigger occurs.
26. At bottom, the Poison Pill adopted by the Giant
Directors makes any acquisition of 15% or more of Giant's shares prohibitively
expensive to any prospective acquirors, except Sugarman. The Poison Pill
imposes a severe financial penalty on a potential acquiror, and it
dramatically dilutes a potential acquiror's voting power over, and equity
interest in, Giant. As a result, the adoption of the Poison Pill has the
effect of deterring any attempt to change corporate control of Giant. By
adopting the Poison Pill, the Giant Directors have entrenched themselves in
their positions, and, as a practical matter, have deprived Giant's shareholders
of the opportunity to consider, and approve, any proposal by Fidelity that
would involve a change in corporate management.
27. The Poison Pill places a formidable obstacle in the
path of Fidelity -- or anyone else -- seeking to acquire 15% or more of
Giant's stock. Because Sugarman owned more than 20% of Giant's stock at the
time Giant's board adopted the Poison Pill, and has options to purchase up to
almost 50% of Giant's stock, there is no legitimate or rational corporate
purpose underlying Giant's adoption of a 15% trigger. Likewise, there is no
threat to Giant occasioned by acquisition of greater than 15% of Giant's stock
by someone other than Sugarman. Consequently, the 15% trigger cannot be
attributable to any legitimate corporate purpose; rather, it is an arbitrary
number, the patent purpose of which is to entrench Sugarman.
Page 22 of 48 Pages
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28. Giant justifies its Poison Pill as a means of
protecting smaller shareholders from others who accumulate more than 15% of the
company's stock. But Giant's real, and illicit purpose for adopting the Poison
Pill is made evident by the fact that the Poison Pill allows Sugarman, and only
Sugarman, to increase the over 20% interest that he owned when the Poison Pill
was adopted to almost 50% of the company by exercising stock options allowing
Sugarman to purchase Giant stock at a deep discount from its current market
price.
29. On information and belief, as Giant's Directors knew
well, the Poison Pill was adopted with the specific intent and purpose of
thwarting further purchases of stock by Fidelity and Mr. Foley. However, the
Poison Pill's special and disparate treatment of Sugarman, makes clear that its
only purpose was to entrench Sugarman at the expense of other shareholders.
Such action has no rational or legitimate corporate purpose, and serves only to
tip the balance of corporate control in favor of Sugarman and the other Giant
Directors.
GIANT DIRECTORS BREACH THEIR FIDUCIARY DUTIES
BY DIRECTING GIANT TO PURCHASE 535,527 SHARES OF ITS STOCK
30. Between January 5, 1996 and January 10, 1996, on
information and belief, for no other reason than to further tighten Sugarman's
grip on Giant, Giant's Directors caused Giant to purchase 535,527 shares of
Giant stock beginning at a price barely shy of its fifty-two week high. These
purchases reduced Giant's cash resources, increased Sugarman's percentage
ownership over, and voting power in, Giant -- at no expense to Sugarman -- and,
simultaneously, removed votes from shareholders who likely would vote against
the incumbency of Sugarman and the Giant
Page 23 of 48 Pages
<PAGE> 16
Directors. On information and belief, prior to January 5, 1996, Giant had
purchased shares of its own stock on only one previous occasion. Such action
has no legitimate corporate purpose, and serves only to tip the balance of
corporate control in favor of Sugarman and the other Giant Directors.
GIANT DIRECTORS BREACH THEIR
FIDUCIARY DUTIES BY APPROVING THE EXCHANGE OFFER
31. On or about January 22, 1996 -- without any vote of
Giant's shareholders -- Giant announced a proposed offer to exchange a new
series of its $9.00 liquidation preference, participating, non voting preferred
stock for common stock of Rally's Hamburgers, Inc. (the "Exchange Offer"),
which Giant presently controls. By offering preferred stock rather than common
stock, Sugarman and the Giant Directors sought to maintain their voting
percentage in Giant while giving the new preferred stockholders a "double dip"
- -- both a $9.00 preference (which was more than the then current price of
Giant's common stock), and then an equal sharing with Giant's common
stockholders with respect to Giant's equity upon liquidation. The proposed
exchange ratio represents a 39% premium over the trading price of Rally's
common stock immediately prior to the announcement of the Exchange Offer.
Given the yearly operating losses Rally's has incurred for three of the last
four years, such a premium is unjustifiable, and provides no possible benefit
to Giant shareholders; it serves only to dilute the equity of Giant stock and
consolidate the control of Sugarman and the Giant Directors.
32. Knowing full well that the Exchange Offer, as
announced, is unfair and injurious to Giant and its shareholders,
Page 24 of 48 Pages
<PAGE> 17
as well as to any potential acquiror such as Fidelity, and that Giant's
shareholders would never approve the Exchange Offer, Giant's Directors
purposefully structured the offer with non-voting preferred stock in order to
circumvent the requirement of its New York Stock Exchange listing agreement
requiring that Giant obtain stockholder approval for material issuances of
voting securities.
33. Despite their dramatic conflicts of interest, which
include Sugarman and Gotterer participating on both sides of the transaction
(as major stockholders and directors of both Giant and Rally's), the Giant
Directors have not obtained any fairness opinion that the proposed exchange is
fair to Giant or its shareholders. Indeed, in view of (i) the premium that
Giant is offering for a losing company, (ii) the participating preference of
the preferred stock being offered, and (iii) the consequent dilutive effect of
the Exchange Offer on Giant's equity, it seems most unlikely that any
reputable, independent firm could render such a fairness opinion.
34. Giant's adoption of the Exchange Offer, as announced,
is unfair and injurious to Fidelity, as well as to Giant and its shareholders,
and serves no legitimate corporate purpose. The Exchange Offer was approved
solely to tip the balance of corporate control in favor of Sugarman and the
other Giant Directors and for no other purpose.
Page 25 of 48 Pages
<PAGE> 18
GIANT DIRECTORS BREACH THEIR
FIDUCIARY DUTIES BY APPROVING THE DEBT BUY-BACK
35. In a calculated effort to further devalue Giant's
stock, on or about January 29, 1996, Giant allowed Rally's to repurchase from
Giant, at a deep discount, $22 million face value of debt, despite the fact
that Rally's desperately needs the operating cash, and Giant already is
cash-rich. As with the Poison Pill, Stock Purchases, and Exchange Offer, the
Debt Buy-Back serves no legitimate corporate purpose.
GIANT REFUSES TO PRODUCE THE MAGNETIC
COMPUTER TAPE LIST OF GIANT STOCKHOLDERS
36. As yet another illegal act from the same platform as
the Poison Pill, Stock Purchases, Exchange Offer, and Debt Buy- Back, Giant,
for no legitimate reason, refuses to provide Fidelity with magnetic computer
tapes of Giant's list of shareholders, as Giant is required to do under
established and undisputed principles of Delaware law.
37. On or about January 26, 1996, through its agent Cede &
Co., Fidelity served a routine, valid, and proper request on Giant's registered
agent in Delaware for the company's list of stockholders, including a list of
shareholders on magnetic computer tape. Fidelity then served the same request
on Giant at its corporate headquarters in Beverly Hills, California on January
29, 1996.
38. Giant, a Delaware corporation, was required, pursuant
to Fidelity's written request, and under well-settled principles of Delaware
law, to produce the stockholders list, including the magnetic computer tape
list, by January 31, 1996,
Page 26 of 48 Pages
<PAGE> 19
but refused to do so, without explanation. Subsequently, Giant's counsel
concocted a strange and, at best, illusory objection to the form of Fidelity's
request for the stockholders list.
39. At Giant's request,Fidelity executed an affidavit
swearing to certain facts regarding its request for the stockholders list, even
though Fidelity was not otherwise obligated to do so under the Delaware Code.
40. Finally, on February 9, 1996, Giant produced a hard
copy printout of its shareholders list, but did not produce the list in its
most usable form -- on magnetic computer tapes. Citing applicable law,
Fidelity again requested that Giant produce the computer tapes, which Giant is
required to produce. Giant refused to produce the tapes, and refused to
explain why.
GIANT AND CHRISTENSEN
DEFAME FIDELITY AND MR. FOLEY
41. As an honest and successful businessman, Mr. Foley has
earned the high esteem of his peers and associates in the business community.
Mr. Foley graduated from the United States Military Academy in West Point, New
York with a Bachelor of Science degree, and served his country as an Air Force
Captain. Through hard work, and with the respect he earned from his
colleagues, Mr. Foley built a tiny Arizona storefront operation into the
nation's fourth-largest title insurance company with over 4,700 employees in
forty-eight states. His efforts won him plaudits from industry analysts who
have described Fidelity as one of the nation's best-run title companies. In
1993, Mr. Foley was elected Chairman and CEO of Carl Karcher Enterprises, Inc.
(operator of the Carl's Jr. restaurant chain), at which he
Page 27 of 48 Pages
<PAGE> 20
engineered a turn around from a four-year slide. Mr. Foley is a member of the
Board of Directors and the Foundation Board of the University of California at
Irvine. In 1995, Mr. Foley was the recipient of the distinguished Human
Relations Award for Orange County awarded by the American Jewish Committee.
Past recipients of this award have included former President Ronald W. Reagan.
Mr. Foley's success and good name have allowed him to occupy, and enjoy, a
position of prominence and high standing in the community. Likewise, Fidelity
has earned, enjoys, and benefits from its good reputation.
42. When the Giant Directors learned that Fidelity and Mr.
Foley had acquired more than a 5% beneficial ownership interest in Giant, the
Giant Directors became worried that their legacy of wasteful spending,
pervasive corporate mismanagement, and self-dealing would lead to a shareholder
vote expelling them from office. In an effort to entrench themselves at Giant
and preserve the spoils of their offices, the Giant Directors endeavored to
dissuade Fidelity and Mr. Foley from acquiring additional Giant stock. To this
end, and to divert shareholder attention away from their own mismanagement,
Giant filed the instant lawsuit on December 19, 1995. Also that day, in its
zeal to announce and describe to the media the averments it made in the
Complaint, Giant -- with the full knowledge and cooperation of Christensen --
prepared and issued a press release. That press release, attached hereto as
Exhibit A, identified Christensen as Giant's corporate contact. In the press
release, Christensen made the following blatantly false and defamatory
statements that explicitly and implicitly accused Fidelity and
Page 28 of 48 Pages
<PAGE> 21
Mr. Foley of acting illegally, dishonestly, and unprofessionally in their
business dealings: "Terry Christensen, a director of Giant stated, 'We were
shocked to learn that Mr. Foley and Fidelity were buying Giant stock while Mr.
Foley and his officers were constantly asking about the profit and loss
projections, cash positions and business plans of both Giant and Rally's.'
Christensen further stated, 'When we learned that Mr. Foley's stockbrokers were
utilizing confidential and insider information to buy Giant stock for a group
of investors acting with Mr. Foley, we felt that this lawsuit was absolutely
necessary.' Christensen stated, 'The directors of Giant do not oppose
legitimate actions by its stockholders, but we have a duty to prevent flagrant
violations of the securities laws.'" (emphasis added).
43. Giant and Christensen did not stop there. Evidencing
their malicious intent, Giant, with the full knowledge and cooperation of
Christensen, prepared and issued another press release on January 4, 1996.
That press release, attached hereto as Exhibit B, again identified Christensen
as Giant's corporate contact. In the press release, Christensen made the
following blatantly false and defamatory statements that explicitly and
implicitly accused Mr. Foley of acting illegally, dishonestly, and
unprofessionally in their business dealings: "Terry Christensen, a director of
Giant, stated, 'Giant will not stand idly by while these individuals attempt to
loot Giant and Rally's to the detriment of these companies and their
shareholders.'"
44. Giant and Christensen further defamed Fidelity and Mr.
Foley by issuing press releases to the media that summarized
Page 29 of 48 Pages
<PAGE> 22
the averments made in the Complaint and First Amended Complaint. In doing so,
Giant induced the media to publish the allegations, and implicitly represented
that the averments made therein were true and correct, i.e., that Fidelity and
Mr. Foley had violated federal securities laws, traded stock on material,
nonpublic, confidential and inside information, etc. None of the media to whom
the press releases were issued are participants to this action, or are in any
way connected to these proceedings.
45. The following statements contained in the December 19,
1995 press release, which purport to summarize averments made in the Complaint,
are blatantly false and defamatory in that they implicitly state that Fidelity
and Mr. Foley acted illegally, dishonestly, and unprofessionally in their
business dealings:
a. "William P. Foley II, and two of his brokers
. . . were accused of violating the Federal Securities Laws and trading on
nonpublic, confidential and inside information as part of a takeover bid for
Rally's Hamburgers, Inc. . . ."
b. "In the lawsuit, Giant alleges that Mr. Foley
and his group of investors violated the disclosure requirements of Section
13(d) of the Securities Exchange Act of 1934 by secretly forming a group to buy
shares in Giant and by filing a false 13D which failed to identify all of the
members of their group, understated the true extent of their holdings of Giant,
and failed to disclose the true purpose of their investment in Giant -- to
obtain control of Rally's and Giant."
c. "Giant's complaint asserts that, beginning in
the Summer of 1995, Mr. Foley obtained nonpublic confidential and inside
information from Rally's and Giant . . . . Although Mr.
Page 30 of 48 Pages
<PAGE> 23
Foley and his companies had agreed to keep this information confidential and
not to trade in Giant's or Rally's stock based on this information, Mr. Foley,
Fidelity, Mr. Davenport, Mr. Martin and some of their clients immediately, and
secretly, began to amass stock in Giant in order to gain control of Giant and
Rally's."
46. Likewise, the following statements contained in the
January 4, 1996 press release, which purport to summarize the averments made in
the First Amended Complaint, are blatantly false and defamatory in that they
implicitly state that Fidelity and Mr. Foley acted illegally, dishonestly, and
unprofessionally in their business dealings:
a. "Separately, Giant Group said it amended its
lawsuit against William P. Foley II, chairman of CKE Restaurants Inc. and
Fidelity National Financial Inc., who it charges with improperly trying to gain
control of Giant and Rally's."
b. "The lawsuit charges Foley and two stockbrokers
with violating securities laws in an attempt to take control of the companies."
c. "In the lawsuit, filed in federal court in Los
Angeles, Giant alleges that Foley and others violated SEC disclosure
requirements by 'secretly forming a group to buy shares in Giant.' Giant said
Foley and the group failed to identify all of the members of the group,
understated the extent of their holdings in Giant and failed to disclose the
true purpose of their investment, which is to gain control of Rally's and
Giant."
Page 31 of 48 Pages
<PAGE> 24
d. "The complaint was amended to say that Foley
and the others have attempted to expand their takeover group by soliciting the
aid of a shareholder in another fast-food chain."
e. "Giant said that Foley intends to 'loot Giant,
purchase substantial assets of Rally's and use the remaining cash to aid in the
acquisition' of another fast-food chain."
FIRST CAUSE OF ACTION
---------------------
(AGAINST ALL COUNTERCLAIM DEFENDANTS: FOR
DECLARATORY RELIEF THAT THE POISON PILL IS INVALID
AND INJUNCTIVE RELIEF AGAINST ITS ENFORCEMENT)
47. Counterclaim Plaintiffs repeat, re-aver and incorporate
by this reference paragraphs 1 through 46 above, as though fully set forth
herein.
48. The Poison Pill is invalid in that it impermissibly
discriminates among shares and shareholders of the same class and series, and
serves no legitimate corporate purpose. Moreover, Fidelity is informed and
believes and thereon avers that Giant's articles and bylaws bar the adoption of
the Poison Pill, and, therefore its adoption was an act of ultra vires.
49. The adoption of the Poison Pill:
a. frustrates the full purpose and objectives of
Congress in enacting the Williams Act by giving intransigent management the
ability to preclude purchases of stock on a discriminatory basis;
b. impermissibly tilts the balance between
management and potential acquirors;
Page 32 of 48 Pages
<PAGE> 25
c. establishes a series of corporate artifices in
an attempt to entrench Sugarman and to ward off further purchases of Giant
stock by Fidelity;
d. discourages shareholders from voting their
shares at a referendum by permitting a discriminatory Poison Pill to be
adopted.
50. Giant's Directors have fiduciary duties, and a duty of
loyalty to Fidelity as well as to other Giant shareholders, and to Giant
itself, which duties are enhanced in the present factual context. Among such
duties, Giant's Directors have a duty not to subvert the rights of shareholders
to acquire stock or to vote on an equal footing with shareholders who own the
same class and series of stock. Giant's Directors also have a duty not to
injure Giant, its shareholders, or Fidelity solely to advance their own
self-interest.
51. Giant's Directors approved the Poison Pill solely to
confer special advantage to Sugarman and to entrench themselves by subverting
the rights of Giant, Giant's shareholders and Fidelity, and, consequently, the
Poison Pill does not serve any legitimate corporate purpose. In approving the
Poison Pill, Giant's directors have, and continue to breach their fiduciary
duties.
52. On information and belief, Sugarman failed to disclose
material facts to Giant of his interest in seeking approval of the Poison Pill,
in particular to consolidate personal control of Giant, while reducing the risk
to Sugarman that Fidelity might be able to offer Giant shareholders greater
Page 33 of 48 Pages
<PAGE> 26
value than he could, all at the expense of Giant, Giant's shareholders, and
Fidelity.
53. Moreover, the Poison Pill is patently and objectively
unfair to Giant, Giant's shareholders, and Fidelity.
54. An actual controversy has arisen and now exists
between the parties relating to the validity and enforcement of the Poison
Pill, for which Counterclaim Plaintiffs desire a declaration of rights. A
declaratory judgment is necessary and appropriate in that the parties contest
whether the Poison Pill is valid and enforceable. Counterclaim Plaintiffs
are entitled to a Declaration from this Court that the Poison Pill is invalid,
was adopted in breach of the Giant Director's fiduciary duties, is unfair,
and is beyond the powers of the board.
55. By adopting the Poison Pill, Giant's Directors have
deprived Fidelity of its rights under the Williams Act, among other laws, and
as a shareholder of Giant with full rights thereof. The Poison Pill is unfair
to Fidelity, Giant, and Giant's shareholders, and has and continues to injure
Fidelity, which has no adequate remedy at law. Unless implementation of the
Poison Pill is enjoined, Fidelity will be irreparably injured because it will
be denied its full voting rights, lose equity interest in Giant, and be unable
to acquire additional shares of Giant stock. Fidelity will be irreparably
injured if the Poison Pill is fully implemented, inter alia, in that Fidelity
may be forced to terminate its efforts to acquire control of Giant, a unique
business.
56. Counterclaim Plaintiffs are entitled to an Injunction
from this Court prohibiting Counterclaim Defendants
Page 34 of 48 Pages
<PAGE> 27
from taking any action in furtherance of the Poison Pill and directing them to
rescind, or in the alternative to redeem the Poison Pill.
SECOND CAUSE OF ACTION
----------------------
(AGAINST ALL COUNTERCLAIM DEFENDANTS: FOR
DECLARATORY RELIEF THAT THE STOCK PURCHASES WERE INVALID
AND AN ORDER REQUIRING DISGORGEMENT)
57. Counterclaim Plaintiffs repeat, re-aver and incorporate
by this reference paragraphs 1 through 56 above, as though fully set forth
herein.
58. For no other reason than to entrench themselves,
Giant's Directors caused Giant to purchase 535,527 shares of Giant stock, at a
price beginning just shy of its fifty-two week high. These purchases (i)
significantly reduced Giant's cash assets, (ii) increased Sugarman's percentage
ownership and control over Giant -- at no expense to Sugarman -- and (iii)
removed votes from shareholders who likely would have voted against Sugarman's
incumbency, all for no legitimate or rational corporate purpose, and all at the
expense of Giant and its shareholders.
59. Giant's Directors have fiduciary duties, and a duty of
loyalty to Fidelity as well as to other Giant shareholders, and to Giant
itself, which duties are enhanced in the present factual context. Among such
duties, Giant's Directors have a duty not to subvert the rights of
shareholders, or to injure Giant, its shareholders, or Fidelity solely to
advance their own self-interest.
60. Giant's Directors approved the Stock Purchases solely
to confer special advantage to Sugarman and to entrench
Page 35 of 48 Pages
<PAGE> 28
themselves by subverting the rights of Giant shareholders and Fidelity, and,
consequently, the Stock Purchases do not serve any legitimate corporate
purpose. In approving the Stock Purchases, Giant's directors have, and
continue to breach their fiduciary duties.
61. An actual controversy has arisen and now exists between
the parties relating to the validity of the Stock Purchases, for which
Counterclaim Plaintiffs desire a declaration of rights. A declaratory judgment
is necessary and appropriate in that the parties contest whether the Stock
Purchases are valid. Counterclaim Plaintiffs are entitled to a Declaration
from this Court that the Stock Purchases are unfair, invalid, and were made in
breach of the Giant Director's fiduciary duties, and beyond the powers of the
board.
62. On information and belief, Sugarman failed to disclose
material facts to Giant of his interest in the Stock Purchases, in particular
to consolidate Sugarman's personal control of Giant, while reducing the risk to
Sugarman that Fidelity might be able to offer Giant Shareholders greater value
than he could, all at the expense of Giant, Giant's Shareholders, and Fidelity.
63. Moreover, the Stock Purchases are patently and
objectively unfair to Giant, Giant's shareholders, and Fidelity.
64. In making the Stock Purchases, Giant's Directors have
deprived Fidelity of its rights under the Williams Act, among other laws, and
as a shareholder of Giant with full rights thereof. The Stock Purchases are
unfair to Fidelity, Giant, and Giant's shareholders, and has injured, and
continues to injure
Page 36 of 48 Pages
<PAGE> 29
Fidelity, which has no adequate remedy at law. Unless the stock purchased by
Giant in the Stock Purchases is disgorged, Fidelity will be irreparably
injured because, inter alia, it will lose equity interest in Giant, and may
be forced to terminate its efforts to acquire control of Giant, a unique
business. Counterclaim Plaintiffs are entitled to an Order of this Court
directing Counterclaim Defendants to disgorge the stock purchased.
THIRD CAUSE OF ACTION
---------------------
(AGAINST ALL COUNTERCLAIM DEFENDANTS: FOR
DECLARATORY RELIEF THAT THE EXCHANGE OFFER IS INVALID
AND INJUNCTIVE RELIEF AGAINST ITS EXECUTION)
65. Counterclaim Plaintiffs repeat, re-aver and incorporate
by this reference paragraphs 1 through 64 above, as though fully set forth
herein.
66. The Exchange Offer is invalid in that it serves no
legitimate corporate purpose, is an act of ultra vires, and is injurious to
Giant, Giant's shareholders, and Fidelity.
67. Giant's Directors have fiduciary duties, and a duty of
loyalty to Fidelity, as well as to other Giant shareholders, and to Giant
itself, which duties are enhanced in the present factual context. Among such
duties, Giant's Directors have a duty not to injure Giant, its shareholders, or
Fidelity solely to advance their own self-interest.
68. Giant's Directors approved the Exchange Offer solely to
entrench themselves by subverting the rights of Giant, Giant's shareholders,
and Fidelity, and, consequently, the Exchange Offer does not serve any
legitimate corporate purpose.
Page 37 of 48 Pages
<PAGE> 30
In approving the Exchange Offer, Giant's directors have, and continue to breach
their fiduciary duties.
69. On information and belief, Sugarman failed to disclose
material facts to Giant of his interest in the Exchange Offer, in particular,
to consolidate Sugarman's personal control of Giant, while reducing the risk
to Sugarman that Fidelity might be able to offer Giant shareholders grater
value than he could, all at the expense of Giant, Giant's shareholders, and
Fidelity.
70. Moreover, the Exchange offer is patently and
objectively unfair to Giant, Giant's shareholders and Fidelity.
71. An actual controversy has arisen and now exists
between the parties relating to the validity of the Exchange Offer, for which
Counterclaim Plaintiffs desire a declaration of rights. A declaratory
judgment is necessary and appropriate in that the parties contest whether the
Exchange Offer was valid. Counterclaim Plaintiffs are entitled to a
Declaration from this Court that the Exchange Offer is unfair, invalid, and was
made in breach of the Giant Director's fiduciary duties, and beyond the powers
of the board.
72. In making the Exchange Offer, Giant's Directors have
deprived Fidelity of its rights under the Williams Act, among other laws, and
as a shareholder of Giant with full rights thereof. The Stock Purchases are
unfair to Fidelity, Giant, and Giant's shareholders, and has injured, and
continues to injure Fidelity, which has no adequate remedy at law. Unless
execution of the Exchange Offer is enjoined, Fidelity will be irreparably
injured because, inter alia, it will lose equity interest in Giant, and may be
forced to terminate its efforts to acquire
Page 38 of 48 Pages
<PAGE> 31
control of Giant, a unique business. Counterclaim Plaintiffs are entitled to
an Injunction from this Court prohibiting the Counterclaim Defendants from
taking any action in furtherance of the Exchange Offer, and directing
Counterclaim Defendants to rescind the Exchange Offer, if made.
FOURTH CAUSE OF ACTION
----------------------
(AGAINST THE GIANT DIRECTORS FOR: DECLARATORY
RELIEF RE: BREACH OF FIDUCIARY DUTY)
73. Counterclaim Plaintiffs repeat, re-aver and incorporate
by this reference paragraphs 1 through 72 above, as though fully set forth
herein.
74. Giant's Directors have fiduciary duties, and a duty of
loyalty to Fidelity as well as other Giant shareholders, and to Giant itself.
Those duties are enhanced in the present factual context.
75. Among such duties, Giant's Directors have a duty not to
injure Fidelity, Giant, or Giant's shareholders solely to advance the Giant
Directors' own self-interest. Giant's Directors, who are enmeshed in numerous,
and substantial conflicts, have breached their fiduciary duties through the
adoption of the Poison Pill, Stock Purchases, Exchange Offer, and Debt
Buy-Back, which actions were taken solely for entrenchment purposes.
76. On information and belief, Sugarman failed to disclose
material facts to Giant of his interest in the Poison Pill, Stock Purchases,
Exchange Offer, and Debt Buy-Back, in particular to consolidate his personal
control of Giant, while reducing the risk to Sugarman that Fidelity might be
able to
Page 39 of 48 Pages
<PAGE> 32
offer Giant shareholders greater value than he could, all at the expense of
Giant, Giant's shareholders, and Fidelity.
77. Moreover, the Poison Pill, Stock Purchases, Exchange
offer and Debt Buy-Back are each objectively and patently unfair to Giant,
Giant's shareholders, and Fidelity.
78. An actual controversy has arisen and now exists between
the parties relating to the Giant Directors' exercise of their fiduciary duties
in connection with their adoption of the Poison Pill, and approval of the Stock
Purchases, the Exchange Offer, and the Debt Buy-Back, for which Counterclaim
Plaintiffs desire a declaration of rights. A declaratory judgment is necessary
and appropriate in that the parties contest whether the Giant Directors
breached their fiduciary duties in approving the Poison Pill, Stock Purchases,
Exchange Offer, and Debt Buy-Back. Counterclaim Plaintiffs are entitled to a
Declaration from this Court that the Giant Directors breached their fiduciary
duties in approving the Poison Pill, Stock Purchases, Exchange Offer, and Debt
Buy-Back.
FIFTH CAUSE OF ACTION
---------------------
(AGAINST GIANT AND
CHRISTENSEN: FOR LIBEL PER SE)
79. Counterclaim Plaintiffs repeat, re-aver and incorporate
by this reference paragraphs 1 through 78 above, as though fully set forth
herein.
80. On information and belief, Giant and Christensen
intentionally and maliciously made blatantly false, unprivileged and defamatory
statements in press releases concerning Fidelity and Mr. Foley, in a drastic
effort to force Fidelity and Mr. Foley to stop making further purchases of
Giant stock. With
Page 40 of 48 Pages
<PAGE> 33
Christensen's knowledge and cooperation, Giant issued defamatory press releases
to the media, which republished some or all of the defamatory statements to
mass audiences. On information and belief, at the time Giant issued the press
releases, both Giant and Christensen knew that statements contained therein
concerning Fidelity and Mr. Foley were blatantly false and defamatory. Indeed,
such statements have the natural and probable effect in the minds of average
people of accusing Fidelity and Mr. Foley of acting illegally, dishonestly, and
unprofessionally in their business dealings.
81. As a direct and proximate cause of such defamatory
statements, Fidelity and Mr. Foley's good names and professional reputations
have been injured, and they have suffered financial damage.
82. Counterclaim Plaintiffs seek presumed, special, actual,
and punitive damages in an amount to be determined at trial.
SIXTH CAUSE OF ACTION
---------------------
(AGAINST GIANT AND CHRISTENSEN:
FOR SLANDER PER SE)
83. Counterclaim Plaintiffs repeat, re-aver and incorporate
by this reference paragraphs 1 through 82 above, as though fully set forth
herein.
84. On information and belief, Christensen intentionally
and maliciously made blatantly false, unprivileged and defamatory oral
statements, in person and over the telephone, concerning Fidelity and Mr.
Foley, in a drastic effort to force Fidelity and Mr. Foley to stop making
further purchases of Giant stock. On information and belief, Christensen made
these
Page 41 of 48 Pages
<PAGE> 34
statements to private individuals and to members of the media so that they
would be republished to mass audiences. On information and belief, Christensen
knew at the time he made such defamatory statements that they were blatantly
false and defamatory. On information and belief, Christensen's defamatory
statements were widely published, and had the natural and probable effect in
the minds of average people of accusing Fidelity and Mr. Foley of acting
illegally, dishonestly, and unprofessionally in their business dealings.
85. As a direct and proximate cause of such defamatory
statements, Fidelity and Mr. Foley's good names and professional reputations
have been injured, and they have suffered financial damage.
86. Counterclaim Plaintiffs seek presumed, special, actual,
and punitive damages in an amount to be determined at trial.
WHEREFORE, Fidelity and Mr. Foley pray for judgment as follows:
1. On Counterclaim Plaintiffs' First Cause of Action
a. For a Declaration that the Poison Pill is
invalid, unfair, and beyond the powers of the board; and
b. For an Preliminary and Permanent Injunction
prohibiting Counterclaim Defendants from taking any action in furtherance of
the Poison Pill and requiring them to rescind, or in the alternative to redeem
the Poison Pill.
2. On Counterclaim Plaintiffs' Second Cause of Action
Page 42 of 48 Pages
<PAGE> 35
a. For a Declaration that the Stock Purchases are
invalid, unfair, and beyond the powers of the board; and
b. For an Order directing Giant to disgorge the
535,527 shares of Giant stock that it purchased between January 5, 1996 and
January 10, 1996.
3. On Counterclaim Plaintiff's Third Cause of Action
a. For a Declaration that the Exchange Offer, as
announced, is unfair and injurious to Giant, Giant's shareholders, and
Fidelity, and is invalid and beyond the powers of the board; and
b. For an Preliminary and Permanent Injunction
prohibiting Counterclaim Defendants from taking any action in furtherance of
the Exchange Offer and requiring them to rescind the Exchange Offer.
4. On Counterclaim Plaintiffs' Fourth Cause of Action
For a Declaration that the Giant Directors have
breached and continue to breach their fiduciary duties, including the duty of
loyalty, through their approval of the Poison Pill, Stock Purchases, Exchange
Offer, and Debt Buy-Back.
5. On Counterclaim Plaintiffs' Fifth Cause of Action
For presumed, special, actual, and punitive damages in
an amount to be determined at trial;
6. On Counterclaim Plaintiffs' Sixth Cause of Action
For presumed, special, actual, and punitive damages in
an amount to be determined at trial;
7. On All of Counterclaim Plaintiffs' Causes of Action
Page 43 of 48 Pages
<PAGE> 36
a. For attorneys' fees and costs; and
b. For such other and further relief as this Court
may deem just and proper.
DATED: February 16, 1996 MILBANK, TWEED, HADLEY & McCLOY
C. STEPHEN HOWARD
JEFFERY D. McFARLAND
SCOTT VICK
By: /s/ C. STEPHEN HOWARD
-----------------------------------
C. Stephen Howard
Attorneys for Defendants and
Counterclaim Plaintiffs
FIDELITY NATIONAL FINANCIAL, INC.
and WILLIAM P. FOLEY, II
Page 44 of 48 Pages
<PAGE> 37
DEMAND FOR JURY TRIAL
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure
and Local Rule 3.4.10, Counterclaim Plaintiffs hereby demand a trial by jury of
all issues triable of right by jury in Giant's First Amended Complaint and in
Counterclaim Plaintiffs' First Amended Counterclaims.
DATED: February 16, 1996 MILBANK, TWEED, HADLEY & McCLOY
C. STEPHEN HOWARD
JEFFERY D. McFARLAND
SCOTT VICK
By: /s/ C. STEPHEN HOWARD
-----------------------------------
C. Stephen Howard
Attorneys for Defendants and
Counterclaim Plaintiffs
FIDELITY NATIONAL FINANCIAL, INC.
and WILLIAM P. FOLEY, II
Page 45 of 48 Pages
<PAGE> 38
PAGE 1
Citation Rank(R) Database Mode
12/19/95 PRWIRE 14:10:00 R 1 OF 2 PRWIRE Page
12/19/95 PR Newswire 14:10:00
PR Newswire
Copyright (c) 1995, PR Newswire
Tuesday, December 19, 1995
CARL'S JR., WILLIAM FOLEY AND FIDELITY NATIONAL SUED BY GIANT GROUP, LTD.
BEVERLY HILLS, Calif., Dec. 19 /PRNewswire/ -- The following is being issued
by GIANT GROUP, LTD. (NYSE: GPO):
In a lawsuit filed today in Los Angeles Federal Court, William P. Foley II,
and two of his brokers, William Davenport and Robert Martin, were accused of
violating the Federal Securities Laws and trading on non-public, confidential
and inside information as part of a takeover bid for Rally's Hamburgers, Inc.,
a Kentucky-based fast food hamburger restaurant chain, and Rally's largest
shareholder, GIANT GROUP, LTD (NYSE: GPO). Mr. Foley serves as Chairman of the
Board of Directors and CEO of CKE Restaurants, Inc. and Fidelity National
Financial, Inc. CKE through another corporate entity, owns and operates
"Carl's Jr.," a chain of fast food restaurants.
In the lawsuit, GIANT alleges that Mr. Foley and his group of investors
violated the disclosure requirements of Section 13(d) of the Securities
Exchange Act of 1934 by secretly forming a group to buy shares in GIANT and by
filing a false 13D which failed to identify all of the members of their group,
understated the true extent of their holdings of GIANT, and failed to disclose
the true purpose of their investment in GIANT -- to obtain control of Rally's
and GIANT.
GIANT's complaint asserts that, beginning in the Summer of 1995, Mr. Foley
obtained non-public confidential and inside information from Rally's and GIANT
in order to explore a possible business transaction between the companies.
Although Mr. Foley and his companies had agreed to keep this information
confidential and not to trade in GIANT's or Rally's stock based on this
information, Mr. Foley, Fidelity, Mr. Davenport, Mr. Martin and some of their
clients immediately, and secretly, began to amass stock in GIANT in order to
gain control of GIANT and Rally's.
Terry Christensen, a director of GIANT stated, "We were shocked to learn that
Mr. Foley and Fidelity were buying GIANT stock while Mr. Foley and his officers
were constantly asking about the profit and loss projections, cash positions
and business plans of both GIANT and Rally's."
Christensen further stated, "When we learned that Mr. Foley's stockbrokers
were utilizing confidential and insider information to buy GIANT stock for a
group of investors acting with Mr. Foley, we felt that this lawsuit was
absolutely necessary."
Christensen stated, "The directors of GIANT do not oppose legitimate actions
Copr. (C) West 1996 No claim to orig. U.S. govt. works
PAGE 39
----
EXHIBIT A
----
Page 46 of 48 Pages
<PAGE> 39
12/19/95 PRWIRE 14:10:00 PAGE 2
actions by its stockholders, but we have a duty to prevent flagrant violations
of the securities laws."
/CONTACT: Terry Christensen, director of GIANT GROUP, 310-553-3000/ 13:55
EST
---- INDEX REFERENCES ----
COMPANY (TICKER): GIANT GROUP LTD. (GPO)
NEWS SUBJECT: High-Yield Issuers; Lawsuits (HIY LWS)
MARKET SECTOR: Industrial (IDU)
INDUSTRY: Building Materials (BLD)
GOVERNMENT: Securities and Exchange Commission (SEC)
REGION: California; North America; Pacific Rim; South Carolina;
United States; Southern U.S.; Western U.S. (CA NME PRM SC
US USS USW)
Word Count: 403
12/19/95 PRWIRE 14:10:00
END OF DOCUMENT
Copr. (C) West 1996 No claim to orig. U.S. govt. works
PAGE 40
----
EXHIBIT A
----
Page 47 of 48 Pages
<PAGE> 40
Copyright 1996 PR Newswire Association, Inc.
PR Newswire
January 4, 1996, Thursday
SECTION: Financial News
DISTRIBUTION: TO BUSINESS EDITOR
LENGTH: 200 words
HEADLINE: CARL'S JR., WILLIAM FOLEY AND FIDELITY NATIONAL ACCUSED OF ATTEMPTING
TO LOOT GIANT
BODY:
The following is being issued by GIANT GROUP:
In an amended complaint filed yesterday, William P. Foley and others were
accused of attempting to expand their undisclosed group by soliciting a
shareholder of another fast food restaurant chain to aid in their hostile
takeover bid for Rally's Hamburgers, Inc. (Nasdaq: RLLY), a Kentucky-based fast
food hamburger restaurant chain, and Rally's largest shareholder, GIANT GROUP,
LTD. (NYSE: GPO) According to the lawsuit, Mr. Foley plans to "loot GIANT,
purchase substantial assets of Rally's and use the remaining cash to aid in the
acquisition of another restaurant chain ." Mr. Foley serves as Chairman of the
Board of Directors and CEO of CKE Restaurants, Inc. (NYSE: CKR) and Fidelity
National Financial, Inc. (NYSE: FNF) CKE, through another mcorporate entity,
owns and franchises "Carl's Jr.," a chain of fast food restaurants.
Terry Christensen, a director of GIANT, stated, "GIANT will not stand idly
by while these individuals attempt to loot GIANT and Rally's to the detriment
of these companies and their shareholders."
BEVERLY HILLS, Calif., Jan. 4 CONTACT: Terry Christensen of GIANT GROUP,
310-553-3000
LANGUAGE: ENGLISH
LOAD-DATE: January 5, 1996
PAGE 42
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EXHIBIT B
----
Page 48 of 48 Pages
