SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
Schedule 14D-1
Tender Offer Statement
(Amendment No. 18)
Pursuant to
Section 14(d)(1) of the Securities Exchange Act of 1934
_______________________
ITT CORPORATION
(Name of Subject Company)
HILTON HOTELS CORPORATION
HLT CORPORATION
(Bidders)
COMMON STOCK, NO PAR VALUE
(Title of Class of Securities)
450912100
(CUSIP Number of Class of Securities)
MATTHEW J. HART
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
HILTON HOTELS CORPORATION
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
(310) 278-4321
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications on Behalf of Bidders)
WITH A COPY TO:
STEVEN A. ROSENBLUM
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
TELEPHONE: (212) 403-1000<PAGE>
This Statement amends and supplements the Tender Of-
fer Statement on Schedule 14D-1 filed with the Securities and
Exchange Commission on January 31, 1997, as previously amended
(the "Schedule 14D-1"), relating to the offer by HLT Corpora-
tion, a Delaware corporation (the "Purchaser") and a wholly
owned subsidiary of Hilton Hotels Corporation, a Delaware cor-
poration ("Parent"), to purchase (i) 61,145,475 shares of Com-
mon Stock, no par value (the "Common Stock"), of ITT Corpora-
tion, a Nevada corporation (the "Company"), or such greater
number of shares of Common Stock which, when added to the num-
ber of shares of Common Stock owned by the Purchaser and its
affiliates, constitutes a majority of the total number of
shares of Common Stock outstanding on a fully diluted basis as
of the expiration of the Offer, and (ii) unless and until val-
idly redeemed by the Board of Directors of the Company, the
Series A Participating Cumulative Preferred Stock Purchase
Rights (the "Rights") associated therewith, upon the terms and
subject to the conditions set forth in the Offer to Purchase,
dated January 31, 1997 (the "Offer to Purchase"), and in the
related Letter of Transmittal, at a purchase price of $55 per
share (and associated Right), net to the tendering stockholder
in cash, without interest thereon. Capitalized terms used and
not defined herein shall have the meanings assigned such terms
in the Offer to Purchase and the Schedule 14D-1.
ITEM 10. ADDITIONAL INFORMATION.
On June 12, 1997, Parent served an amended complaint
on the Company and its directors. The amended complaint, among
other things, challenges the change of control penalty
provisions that the Company has included in its hotel
management contracts, as well as the Company's reported
intention to liquidate core lodging assets. The amended
complaint also adds the individual directors of the Company as
defendants.
A copy of the amended complaint is filed herewith as
Exhibit (g)(20) and is incorporated herein by reference. A
copy of the press release issued by Parent on June 12, 1997,
with respect to the amended complaint, is filed herewith as
Exhibit (a)(18) and is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(18) Press Release, dated June 12, 1997, issued by Par-
ent.
(g)(20) First Amended and Supplemental Complaint served on
June 12, 1997.<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and be-
lief, I certify that the information set forth in this state-
ment is true, complete and correct.
Dated: June 12, 1997
HILTON HOTELS CORPORATION
By: /s/ Matthew J. Hart
Name: Matthew J. Hart
Title: Executive Vice President
and Chief Financial Officer
-2-<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and be-
lief, I certify that the information set forth in this state-
ment is true, complete and correct.
Dated: June 12, 1997
HLT CORPORATION
By: /s/ Arthur M. Goldberg
Name: Arthur M. Goldberg
Title: President
-3-<PAGE>
EXHIBIT INDEX
Exhibit Description
(a)(18) Press Release, dated June 12, 1997, issued by Par-
ent.
(g)(20) First Amended and Supplemental Complaint served on
June 12, 1997.
EXHIBIT (A)(18)
[HILTON HOTELS CORPORATION LOGO]
CORPORATE NEWS
Contact: Marc Grossman
Sr. Vice President - Corporate Affairs
310-205-4030
HILTON SERVES AMENDED LAWSUIT AGAINST ITT'S
SCORCHED EARTH TACTICS
BEVERLY HILLS, Calif., June 12, 1997 -- Hilton Hotels
Corporation (NYSE: HLT) said today that it has amended its
lawsuit against ITT Corporation (NYSE: ITT), originally filed
in January, in response to ITT's recently disclosed "scorched
earth" tactics. In addition to Hilton's previous claims, the
amended lawsuit attacks the change of control penalty
provisions that ITT has included in its hotel management
contracts, as well as ITT's reported intention to liquidate
core lodging assets. The amended lawsuit also adds
individual ITT directors as defendants.
Hilton said that the change of control provisions "are
the clearest evidence yet that ITT management is so
desperately entrenched that it is willing to destroy assets
and shareholder value in order to keep their jobs." The
change of control provisions included in ITT's management
contracts for the hotels it is selling to FelCor permit
FelCor to terminate the contracts if 1) ITT is sold to a
buyer that ITT's incumbent board does not approve, or 2)
ITT's incumbent board is voted out of office by ITT
shareholders.
"ITT's incumbent management is destroying a valuable
corporate asset, the hotel management contracts with FelCor,
and is saying to its shareholders, if you vote us out of
office, or sell your shares to someone we don't approve, we
will throw this valuable asset out the window.'" Published
reports indicate that ITT is seeking to sell other hotel
properties on similar terms.
The amended lawsuit also challenges ITT's reported
intention to liquidate core hotel properties without a fair
and open auction and without a shareholder vote. Hilton
previously informed the ITT board that Hilton is a ready,
willing and able buyer for these assets, but ITT has refused<PAGE>
to talk to Hilton. Hilton described the change of control
provisions and ITT's refusal to discuss lodging asset sales
with Hilton as a clear breach of the ITT board's fiduciary
duties to ITT shareholders.
"The benefits of combining our two companies remain
compelling, and it is in the interests of the shareholders of
both companies to conclude a transaction," Hilton said. "To
that end, we are more committed than ever to making the
Hilton-ITT combination a reality."
###
WORLD HEADQUARTERS
9336 Civic Center Drive, Beverly Hills, California 90210
Telephone 310-205-4545
Reservations 1-800-HILTONS
EXHIBIT (G)(20)
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
MATTHEW MCCAUGHEY
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
SCOTT L. BLACK
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Plaintiffs
HILTON HOTELS CORPORATION
and HLT CORPORATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
HILTON HOTELS CORPORATION )
and HLT CORPORATION, )
)
Plaintiffs, )
) CV-S-97-00095-PMP (RLH)
-vs- )
)
ITT CORPORATION, RAND V. ARASKOG, )
ROBERT A. BOWMAN, BETTE B. ANDERSON,)
NOLAN D. ARCHIBALD, ROBERT A. )
BURNETT, PAUL G. KIRK, JR., EDWARD )
C. MEYER, BENJAMIN F. PAYTON, VIN )
WEBER, and MARGITA E. WHITE, )
)
Defendants. )
)
ITT CORPORATION, )
)
Defendant and )
Counterclaimant, )
) FIRST AMENDED AND
-vs- ) SUPPLEMENTAL COMPLAINT
)
HILTON HOTELS CORPORATION and )
HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants. )<PAGE>
Plaintiffs Hilton Hotels Corporation ("Hilton") and
HLT Corporation ("HLT"), by their attorneys, allege upon know-
ledge with respect to themselves and their own acts, and upon
information and belief as to all other matters, as follows:
Nature of the Action
1. On January 31, 1997, Hilton commenced a tender
offer for the stock of defendant ITT Corporation ("ITT") at $55
per share, a price representing a 29% premium over the closing
trading price of ITT common stock on Friday, January 24, the
last trading day before Hilton announced its offer. This ac-
tion is brought for injunctive and declaratory relief to re-
dress a wrongful course of conduct by defendants that is de-
signed to deprive ITT shareholders of the opportunity to re-
ceive the benefits of Hilton's tender offer and a proposed
second-step merger and impede the shareholders' exercise of
their corporate franchise.
2. The ITT Board of Directors formally rejected
Hilton's offer on February 11, 1997, and has since ignored Hil-
ton's repeated requests that the parties meet to discuss the
offer. In breach of its fiduciary duties under Nevada law, the
ITT Board has pursued a strategy designed to deter Hilton from
pursuing its bid and to prevent ITT shareholders from electing
a new Board of Directors which supports Hilton's bid. The
Board's conduct in this regard includes: (1) failing to sched-
ule the 1997 Annual Meeting of shareholders; (2) refusing to
dismantle ITT's various takeover defenses, including a poison
pill rights plan and the anti-takeover provisions in the Nevada
-2-<PAGE>
General Corporation Law; and (3) liquidating ITT's core assets,
including the recently announced strategy of selling ITT's
"crown jewel" hotels to purchasers that sign management con-
tracts with ITT which include change of control penalty pro-
visions giving the new owners the right to cancel the manage-
ment contracts if Hilton or anyone else acquires control of ITT
through a stock acquisition not approved by the incumbent ITT
Board or a proxy contest that replaces the incumbent Board.
3. The new owners' right to cancel is a pure
entrenchment device designed to maintain ITT's incumbent board
and management in office. The right of cancellation is trig-
gered only upon a change of control of ITT which is not
approved by a majority of the incumbent directors; the new own-
ers have no right to cancel following a change of control
approved by the incumbent ITT Board. Moreover, unlike a con-
ventional "poison pill" rights plan, the change of control pen-
alty provisions cannot be deactivated by a newly elected ITT
Board. Indeed, the election of a new Board by ITT's sharehold-
ers would itself trigger the penalty provisions and potentially
result in a substantial loss of shareholder value.
Parties
4. Plaintiff Hilton is a Delaware corporation with
its principal executive offices in Beverly Hills, California.
Hilton is a leading owner and operator of full-service hotels
and gaming properties located in gateway cities, urban and sub-
urban centers and resort areas throughout the United States and
in selected international cities. Hilton is the beneficial
owner of over 315,000 ITT shares.
-3-<PAGE>
5. Plaintiff HLT Corporation is a Delaware corpo-
ration with its principal place of business in Beverly Hills,
California. HLT, a wholly-owned subsidiary of Hilton organized
in connection with Hilton's tender offer and the proposed merg-
er, is the record and beneficial owner of 100 shares of ITT
stock.
6. Defendant ITT Corporation is a Nevada corpora-
tion with its principal executive offices in New York, New
York. ITT is engaged, through subsidiaries, in the hospital-
ity, gaming and entertainment business and the information ser-
vices business. In addition, until recently, ITT owned ap-
proximately 6% of the outstanding shares of Alcatel Alsthom, a
French company which owned, among other things, one of the lar-
gest telecommunications equipment manufacturers in the world.
As of December 31, 1996, ITT owned or leased 68 hotel proper-
ties, and managed 135 others under management agreements with
hotel owners. Since December 31, 1996, ITT has entered into
management agreements with respect to approximately 58 addi-
tional hotel properties.
7. Defendant Rand V. Araskog is Chairman of the
Board and Chief Executive Officer of ITT. Defendant Araskog is
a citizen of the State of New York.
8. Defendant Robert A. Bowman is ITT's President
and Chief Operating Officer and a member of the ITT Board of
Directors. Defendant Bowman is a citizen of the State of New
York.
-4-<PAGE>
9. The remaining defendants, Bette B. Anderson,
Nolan D. Archibald, Robert A. Burnett, Paul G. Kirk, Jr., Ed-
ward C. Meyer, Benjamin F. Payton, Vin Weber, and Margita E.
White, are directors of ITT. None of these director defendants
is a citizen of the State of Delaware or the State of Califor-
nia.
Jurisdiction and Venue
10. This Court has jurisdiction over this action
pursuant to 28 U.S.C. Sections 1331, 1332(a) and 1337, and 15
U.S.C. Sections 4 and 26. The amount in controversy is in
excess of $75,000, exclusive of interest and costs.
11. Venue is proper in this District and its unof-
ficial southern division under 28 U.S.C. Section 1391(b) and
(c), 15 U.S.C. Sections 15, 22 and 26, and LR IA 6-1 and LR
8-1.
Hilton's Tender Offer
12. In the last quarter of 1996, Hilton contacted
one of ITT's principal financial advisers to determine whether
ITT would be interested in pursuing a business combination with
Hilton. The ITT adviser reported back that ITT had no interest
in pursuing such a combination.
13. On January 27, 1997, Hilton announced its inten-
tion to commence a tender offer pursuant to which Hilton is
seeking to acquire 50.1% of the outstanding shares of ITT stock
at $55 per share. Hilton's announcement stated that its offer
was based solely on public information and that a review of
ITT's non-public information could result in an even higher
bid. Hilton formally commenced its tender offer on January 31.
-5-<PAGE>
Upon consummation of the tender offer, Hilton intends to ac-
quire the remaining shares of ITT in a second-step merger in
which ITT shareholders will receive $55 in Hilton stock for
each ITT share that they own.
14. Hilton's January 27 announcement made clear
that, while ITT is a diversified conglomerate, Hilton's inter-
est in ITT focused on its hotel and gaming assets. Thus, in
the January 27 announcement, Hilton stated that it believed
that the "combination of ITT and Hilton would bring together
two of the world's leading lodging companies as well as two
premier gaming businesses" and that "ITT's owned full-service
hotel portfolio, along with its major gaming presence in Las
Vegas, Atlantic City and other jurisdictions, fits perfectly
with [Hilton's] stated growth objectives." Hilton's announce-
ment added that, if it acquired control of ITT, it would "care-
fully review" ITT's remaining businesses and that "the moneti-
zation of [those] nonstrategic assets, and a focus on the com-
pany's core business lines" would "create even more value for
the shareholders of the combined companies."
15. ITT has a number of anti-takeover provisions in
place, including its shareholders' "rights plan," better known
as a "poison pill." In the event that a third-party like Hil-
ton acquires 15% or more of ITT's shares, the "poison pill"
enables all ITT shareholders other than the third-party to pur-
chase 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
-6-<PAGE>
takeover, even though such takeover may offer [ITT's] share-
holders the opportunity to sell their stock at a price above
the prevailing market rate and may be favored by a majority of
the shareholders of [ITT]."
16. ITT also has the anti-takeover protections of
Nevada Rev. Statutes Sections 78.378 et seq. (the "Control
Share Acquisition Statute") and Nevada Rev. Statutes
Sections 78.411 et seq. (the "Business Combination Statute").
ITT's former corporate parent has publicly acknowledged that
the Control Share Acquisition and Business Combination Statutes
"may delay or make more difficult acquisitions or changes of
control of [ITT]", "may have the effect of preventing changes
in the management of [ITT]" and "could make it more difficult
to accomplish transactions which [ITT] shareholders may
otherwise deem to be in their best interests."
17. Under the Control Share Acquisition Statute, a
third-party like Hilton that acquires a "controlling interest"
in the shares of ITT cannot vote those shares unless: (a) such
voting rights are conferred by a majority vote of the disinter-
ested 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.
18. Under the Business Combination Statute, a third-
party like Hilton that acquires 10% or more of the voting power
of ITT's stock cannot engage in a business combination with ITT
for three years unless the acquisition of the shares or the
business combination is approved by the ITT Board in advance.
-7-<PAGE>
19. The Hilton tender offer and second-step merger
cannot be consummated unless the ITT Board removes or makes
inapplicable ITT's various anti-takeover devices, including its
"poison pill" and the provisions of the Control Share Acquisi-
tion Statute and the Business Combination Statute. Accord-
ingly, Hilton has conditioned its tender offer upon these take-
over defenses being removed or otherwise rendered inapplicable
to the Hilton offer by the ITT Board.
20. Because the ITT Board of Directors has the power
to remove these impediments and permit ITT's shareholders to
decide for themselves whether they want to accept Hilton's ten-
der offer, Hilton has coupled its tender offer with a proxy
contest to replace ITT's incumbent Board. On February 11,
1997, in accordance with the requirements of Section 2.2 of
ITT's by-laws, Hilton gave notice to ITT of its intention to
nominate a slate of candidates for election as directors to the
ITT board at the 1997 annual meeting and its intention to
present a resolution urging the Board to arrange a sale of the
company to Hilton or any higher bidder. On March 21, 1997,
Hilton cleared its proxy materials with the SEC and began so-
liciting proxies from ITT's shareholders. The Hilton slate is
committed, subject to its fiduciary duties, to remove the ob-
stacles to consummation of Hilton's proposed tender offer and
merger.
-8-<PAGE>
The ITT Board Rejects the
Hilton Bid and Begins the
Liquidation of ITT
21. The ITT Board of Directors formally rejected
Hilton's offer on February 11, 1997. Despite the superior val-
ue offered by Hilton -- reflected in the 29% premium to the
market value of ITT stock immediately prior to the announcement
of the offer -- the ITT Board determined that the tender offer
was "inadequate and not in the best interests of [ITT]." The
Board's rejection of the Hilton offer was hasty and ill-
informed. While the Board attempted to justify its rejection
of the offer by citing "uncertainties as to the actual value"
of the Hilton securities to be offered in the proposed second-
step merger and the "lack of sufficient disclosure in Hilton's
tender offer," the ITT Board did not ask Hilton to provide any
additional information. Moreover, although Hilton had stated
that a review of ITT's non-public information could result in
an even higher offer, the ITT Board did not give Hilton the
opportunity to review any such information. Since February 11,
the ITT Board has rejected Hilton's repeated requests to meet
with ITT to negotiate its bid.
22. Rather than removing the impediments to Hilton's
bid or accepting Hilton's invitation to negotiate, the ITT
Board of Directors has authorized management to engage in a
series of transactions which collectively amount to an abandon-
ment of ITT's long-term strategy and a break-up of the company.
While ITT's initial asset dispositions were limited to assets
that the ITT Board had classified as "non-core," in an attempt
to drive Hilton away ITT is now exploring the disposition of
-9-<PAGE>
its "core" assets in a fashion that threatens to preclude Hil-
ton or anyone else from acquiring control of ITT without the
approval of the incumbent ITT Board.
23. Commencing on February 14, 1997, ITT embarked on
a number of transactions designed to dispose of assets outside
of its "core" hotel and casino businesses. These transactions
included the sale of ITT's 7.5 million shares of Alcatel
Alsthom for approximately $830 million, the sale of ITT's 50%
interest in Madison Square Garden arena cable network and re-
lated sports franchises for approximately $650 million, and the
sale of its interest in WBIS+, a New York television station,
for $257.5 million. ITT has also pursued a sale of its ITT
Educational Services and ITT World Directories subsidiaries.
24. On or about April 11, 1997, ITT filed its 1996
Annual Report with the SEC. The cover of ITT's Annual Report,
stated in large, bold print -- "Fellow Shareholders: The issue
is creating shareholder value." Inside the Annual Report, de-
fendant Araskog's letter to shareholders stated that the ITT
Board had "recognized the need to monetize or otherwise realize
the value of [ITT's] non-core assets in a more accelerated
fashion than management had originally planned," but that the
company would be "focusing on lodging and gaming, and creating
value for [its] shareholders." Recent actions by ITT, however,
demonstrate that defendants are not focused on "creating share-
holder value"; indeed, defendants have now embarked on a scheme
to dispose of ITT's "core" hotel assets so as to make ITT
takeover-proof even at the cost of destroying shareholder
value.
-10-<PAGE>
25. On May 19, 1997, ITT suddenly announced the be-
ginning of the dismemberment of its core hotel businesses. On
that day, ITT and FelCor Suites Hotels, Inc. ("FelCor"), a real
estate investment trust based in Dallas, Texas, announced the
creation of a "long-term strategic alliance" beginning with an
agreement in principle for FelCor to purchase five hotels from
ITT for $200 million. The proposed transaction calls for ITT
to receive additional consideration in the form of a management
contract under which ITT will manage the five hotels for a fee
over a period of 20 years. In an attempt to deter Hilton or
any other bidder from acquiring control of ITT, the proposed
management agreement would include a change of control penalty
provision under which FelCor would be able to terminate ITT's
valuable right to manage the five hotels -- and terminate its
obligation to pay a management fee to ITT -- in the event of a
change of control of ITT that is not approved by the incumbent
Board. The existence of this change of control penalty provi-
sion was concealed by ITT when it announced the agreement in
principle with FelCor. If this provision were triggered and
FelCor exercised its right to terminate the management con-
tract, ITT and its shareholders would lose a significant part
of the consideration from the sale of the five hotels, and re-
ceive nothing in return.
26. On June 2, 1997, shortly after Hilton became
aware of the secret penalty clause in the FelCor transaction,
Hilton's President and Chief Executive Officer, Stephen F. Bol-
lenbach, sent a letter to the ITT Board of Directors objecting
to the change of control penalty provisions proposed in the
-11-<PAGE>
FelCor transaction as irresponsible and unnecessary. In Mr.
Bollenbach's letter, Hilton offered to purchase the five ITT
hotels offered to FelCor at the same price that FelCor proposes
to pay, with a contract providing that the hotels would be man-
aged by ITT on the same economic terms as under the proposed
contract with FelCor, but without any change of control penalty
provisions. Hilton's proposal is clearly more advantageous to
ITT shareholders than the proposed FelCor transaction, as it
eliminates the risk that ITT would lose any part of the consid-
eration from the disposition of the hotels following a change
of control. Mr. Bollenbach's letter also informed the ITT
Board that Hilton is a "ready, willing and able buyer" for any
of ITT's core assets if ITT sought dispose of them, reiterated
Hilton's desire to talk to ITT about the benefits of a combina-
tion between the two companies, and warned the ITT Board not to
take value from its shareholders by entering into transactions
designed to drive Hilton away.
27. Notwithstanding this warning, it soon became
clear that the proposed FelCor transaction is part of a larger
strategy to deter Hilton's takeover bid through transactions
that destroy shareholder value. On June 3, 1997, The Wall
Street Journal reported that, according to "people familiar
with the discussions", ITT is entertaining bids for several of
its "crown jewel" hotels -- including the St. Regis Hotel in
New York, the Phoenician resort in Scottsdale, Arizona, and the
Ciga luxury hotel chain in Europe -- while "demanding that pur-
chasers of the marquee properties sign management contracts
with ITT." The Journal also reported that, "according to
-12-<PAGE>
people familiar with the matter," many of those management
agreements could include change of control penalty provisions
akin to those to be included in the FelCor transaction. The
Journal noted that ITT's "surprise move" "goes beyond ITT's
previously announced plans to raise roughly $3 billion by sell-
ing `noncore' assets" and "could turn out to be pivotal in the
company's nearly six-month fight" against Hilton. Whereas ITT
had previously stressed that it would retain most of its hotels
and casinos, people close to the company were quoted as saying
that ITT is now willing to sell any of its hotels for "the
right price and if they can retain a management contract." The
article also quoted an ITT spokesman to the effect that an
"overwhelming majority" of the 58 hotels that ITT has added to
its roster of managed hotels this year could legally switch
their management or franchise contracts to other companies if
ITT is taken over. According to a noted hotel consultant
quoted in the Journal article, the change of control penalty
provisions amount to an "esoteric and kind of powerful" anti-
takeover provision.
28. On June 4, 1997, an article in The Wall Street
Journal reported that ITT's strategy to fend off Hilton was to
sell "its most prized hotels" and thereby transform itself into
"primarily a hotel-management company." Noting the dangers to
ITT and its shareholders of pursuing this radical defensive
strategy, the Journal stated that ITT was "giving up its best
assets for a tactical advantage" and that some market observers
had expressed "worry that the company is sacrificing long-term
profit for the short-term goal of fighting off Hilton." The
-13-<PAGE>
Journal article quoted Bruce Turner, a Salomon Brothers ana-
lyst: "I think ITT has to be very very careful. To date the
things they've done have been positive. This new path may not
be so positive."
29. Other market participants have questioned how
selling off luxury hotels subject to change of control penalty
provisions would help ITT shareholders. On June 4, 1997, the
Los Angeles Times quoted a major institutional investor: "I
don't see how it's in the ITT shareholders' interest to enter
into a transaction like that." That same day, the New York
Post quoted one of ITT's biggest shareholders, Michael Price of
Franklin Mutual Investors: "Anything in the contracts that
inhibit this company from being sold should be enjoined."
30. On June 9, 1997, Mr. Bollenbach sent another
letter to the ITT Board of Directors, in which he expressed his
astonishment that ITT had not only placed change of control
penalty provisions in its management contracts with FelCor, but
that it had placed similar penalty provisions in other manage-
ment contracts and was seeking to sell many of its premier ho-
tel properties on similar terms. Mr. Bollenbach's letter then
stated:
. . . Hilton is a ready, willing and able
buyer for ITT's core assets. So there
can be no mistake, let me now be even
more clear: I am confident that the
price Hilton can offer for ITT's core
assets is higher than any bona fide price
that ITT can obtain from any other quali-
fied purchaser. And, as you know, Hilton
will not ask for any change of control
penalty provisions.
-14-<PAGE>
Mr. Bollenbach then reiterated Hilton's desire to negoti-
ate with ITT:
ITT's interest in selling core assets
also raises the more fundamental question
of why ITT continues to refuse to talk to
us. The benefits of combining our two
companies remains compelling. We are
more committed than ever to making this
combination a reality. If ITT's efforts
to drive us off destroy shareholder val-
ue, this will only force us to pay less
for the ITT shares.
31. Without responding to either of Mr. Bollenbach's
letters, on June 9 ITT announced that it had entered into a
definitive agreement with FelCor to acquire five ITT hotels for
$200 million. The parties have agreed to use reasonable best
efforts to close the transaction by June 30, 1997. At closing,
the parties intend to enter into a management agreement which
would entitle ITT's subsidiary to a basic management fee of 2%
of the total revenue of the five hotels as well as certain in-
centive fees. However, the proposed management agreement gives
FelCor's affiliate the option to terminate the agreement 30
days after a "Change of Control" -- defined to consist of (i)
any acquisition of more than 35% of ITT's voting stock within
two years after a tender offer or proxy solicitation by the ac-
quiror if the tender offer or proxy solicitation was not ap-
proved by a majority of the ITT directors in office at the time
it was commenced or (ii) a majority of the ITT Board being
elected pursuant to a solicitation of proxies from ITT share-
holders if the solicitation was not approved by a majority of
the ITT directors in office at the time it was commenced.
-15-<PAGE>
32. The change of control penalty provisions do not
serve any legitimate purpose of FelCor or other potential pur-
chasers of ITT assets. Thus, FelCor's right of termination
arises only if the incumbent ITT Board permits it to arise. It
arises only if control of ITT is transferred in a transaction
that is not approved by a majority of the incumbent directors;
in such instance, FelCor has a right to terminate its manage-
ment contract even if the acquiror is a world-class operator of
hotels, such as Hilton. But if ITT's incumbent Board decides
to sell control of the company to a wholly incompetent hotel
operator, FelCor has no right to terminate as a result.
33. The change of control penalty provisions in
ITT's proposed management agreement with FelCor, ITT's proposed
management agreements with the purchasers of its "crown jewel"
hotels, and ITT's existing management agreements for hotels it
manages but does not own, are a "poison pill" designed to
destroy the value of ITT to Hilton or any other unwanted
acquiror of ITT. Such provisions are a pure entrenchment de-
vice. They are designed to serve the entirely illegitimate
purpose of deterring Hilton and others from seeking to acquire
control of ITT through a tender offer or other acquisition of
ITT stock not approved by the incumbent directors. The provi-
sions would operate to destroy the value of ITT's assets in the
hands of anyone other than the incumbent management and Board
or an acquiror who meets their approval.
34. The change of control penalty provisions are
also designed to serve the entirely illegitimate purpose of
deterring Hilton and other ITT shareholders from freely
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exercising their right to vote out the incumbent directors in a
proxy fight whether or not such proxy fight arises out of an
attempt to acquire ITT shares. Victory in any such proxy fight
(i.e., replacement of a majority of ITT's directors) would
carry a potentially enormous cost to ITT and its shareholders
-- the termination of the management contracts by the hotel
owners and the resultant loss of millions of dollars in manage-
ment fees by ITT.
FIRST CLAIM FOR RELIEF
35. Plaintiffs repeat and reallege each of the al-
legations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
36. Plaintiffs have nominated candidates elected as
directors at the 1997 annual meeting of ITT shareholders in
accordance with ITT's by-laws.
37. Although ITT's by-laws required ITT to hold its
annual meeting in May 1997, ITT's Board failed to call the an-
nual meeting. In violation of its fiduciary duties, the ITT
Board has failed to call the annual meeting for the primary
purpose of impeding the effective exercise of the stockholder
franchise in connection with the election of directors. The
ITT Board lacked a compelling justification for failing to hold
the annual meeting in May 1997.
38. Any further effort by ITT or the ITT Board: (a)
to amend ITT's by-laws in any way that would impede the effec-
tive exercise of the stockholder franchise in connection with
the 1997 annual meeting; (b) to materially delay the conduct of
the 1997 annual meeting; or (c) to enlarge the size of the ITT
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Board in order to preserve the position of the incumbent direc-
tors as a majority, would also constitute a breach of fiduciary
duty.
39. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
SECOND CLAIM FOR RELIEF
40. Plaintiffs repeat and reallege each of the al-
legations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
41. The effect of ITT's poison pill, the Control
Share Acquisition Statute and the Business Combination Statute
is to frustrate and impede the ability of ITT shareholders to
decide for themselves whether they wish to receive the benefits
of the Hilton tender offer and proposed second-step merger.
These devices unreasonably and inequitably frustrate and impede
the ability of Hilton to consummate its offer and merger pro-
posal. 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 Combina-
tion Statute, is a breach of defendants' fiduciary duty and
thus a violation of Nevada law.
42. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
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THIRD CLAIM FOR RELIEF
43. Plaintiffs repeat and reallege each of the al-
legations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
44. The FelCor transaction, ITT's threatened dis-
position of its "crown jewel" hotels and other core assets sub-
ject to management contracts containing change of control pen-
alty provisions, and the insertion of such provisions in ITT's
management contracts for hotels that ITT currently manages but
does not own, are, or threaten to be, unreasonable responses by
the ITT Board of Directors to Hilton's tender offer. The cost
of these responses to ITT is disproportionately large in rela-
tion to any "threat" allegedly posed to ITT by Hilton's tender
offer.
45. The change of control penalty provisions are a
draconian response to Hilton's bid because they are designed to
make ITT takeover-proof. If Hilton or any other non-approved
bidder acquires control of ITT, and the change of control
penalty is triggered, ITT and its shareholders stand to lose
millions of dollars of value and receive nothing in return.
46. The change of control penalty provisions are a
preclusive response to Hilton's bid, particularly in view of
the ITT Board's refusal to call an annual meeting. Because the
ITT Board has refused to call a meeting, ITT shareholders can-
not assert their right to vote out the incumbent directors be-
fore the change of control provisions are put into place. And
once such provisions are in place, the ability of ITT share-
holders to vote the incumbents out will be severely impeded
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because the provisions impose a potentially enormous cost to
ITT if the ITT shareholders vote to replace a majority of the
incumbent directors. By precluding ITT shareholders from
choosing to sell the company and remove the incumbent direc-
tors, defendants are coercing the shareholders into accepting
the alternative course defendants have chosen for them.
47. Plaintiffs are being, or will be, irreparably
harmed by defendants' conduct and have no adequate remedy at
law.
FOURTH CLAIM FOR RELIEF
48. Plaintiffs repeat and reallege each of the al-
legations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
49. The FelCor transactions, the proposed crown jew-
el dispositions and the other asset dispositions announced or
pursued by ITT in response to Hilton's tender offer reflect the
ITT Board's abandonment of the company's long-term strategy and
constitute a break-up of ITT. In this context, the Board's
fiduciary duty is to seek to obtain the best available terms
for ITT's shareholders and not to favor one potential acquiror
over another or one type of financial alternative over another.
50. Rather than seeking to maximize shareholder val-
ue by exploring a sale of the company to Hilton, the ITT Board
is seeking to prevent the sale of the company to Hilton by al-
lowing management to engage in the sale of "core" assets on
terms designed to foreclose Hilton from pursuing its offer.
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51. Hilton has offered to purchase the assets in-
volved in the FelCor transaction on terms more attractive to
ITT than those proposed by FelCor. ITT has spurned Hilton's
offer. While Hilton has told ITT that it can offer the highest
value to ITT for its other hotel assets -- and that Hilton will
not ask for any change of control penalty provisions -- ITT
will not entertain Hilton's bid for any of ITT's hotel assets.
52. ITT's discriminatory and secretive sales of its
"crown jewel" hotel properties serve no legitimate corporate
purpose and are not calculated to achieve the best available
terms for either the shareholders of ITT or its other con-
stituencies. The ITT Board of Directors is pursuing this pro-
cess in breach of its fiduciary duties to ITT shareholders.
53. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
FIFTH CLAIM FOR RELIEF
54. Plaintiffs repeat and reallege each of the al-
legations set forth in paragraphs 1 through 34 hereof as if
fully set forth herein.
55. Under Nevada law, ITT may not engage in a sale
of all or substantially all of its property and assets without
the approval of the holders of a majority of its voting stock
at a meeting of the shareholders called for that purpose.
56. ITT is threatening to sell all or substantially
all of its property and assets without the required shareholder
vote.
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57. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
SIXTH CLAIM FOR RELIEF
58. Plaintiffs repeat and reallege each of the al-
legations set forth in paragraphs 1 through 34 hereof as if
fully set forth at length herein.
59. ITT has entered into management contracts, and
has threatened to enter into additional management contracts,
containing change of control penalty provisions that are trig-
gered by the replacement of a majority of the incumbent ITT
directors for the primary purpose of impeding the effective
exercise of the stockholder franchise in connection with the
election of directors. By causing ITT to enter into such man-
agement contracts, defendants have engaged in ultra vires acts
and have breached, and are threatening to continue to breach,
their fiduciary obligations to ITT shareholders.
60. Plaintiffs are being, or will be, irreparably
injured by defendants' conduct and have no adequate remedy at
law.
SEVENTH CLAIM FOR RELIEF
61. Plaintiffs repeat and reallege each of the al-
legations set forth in paragraphs 1 through 34 hereof as if
fully set forth herein.
62. The members of the ITT Board of Directors have
acted in bad faith and in breach of their duty of loyalty to
the shareholders of ITT by placing their own personal interests
-22-<PAGE>
and the interests of ITT management ahead of the interests of
ITT stockholders.
63. Plaintiffs are, or will be, irreparably injured
by defendants' conduct and have no adequate remedy at law.
EIGHTH CLAIM FOR RELIEF
64. Plaintiffs repeat and reallege each of the al-
legations set forth in paragraphs 1 through 33 hereof as if
fully set forth at length herein.
65. Hilton and ITT, through their respective subsid-
iaries, compete in the hotel and gaming businesses. ITT de-
scribed these businesses as "highly competitive" in its Form
10-K filing with the Securities and Exchange Commission for the
fiscal year ending December 31, 1995.
66. As part of its overall strategy to prevent its
shareholders from considering the Hilton tender offer, there is
a real and immediate threat that ITT will allege that Hilton's
tender offer violates the federal antitrust laws and that ITT
has standing under the antitrust laws to file an action to en-
join Hilton's tender offer.
67. ITT does not have standing to pursue an action
to enjoin the consummation of the Hilton tender offer under any
antitrust theory because the consummation of the offer would
not cause ITT injury of the type that the antitrust laws are
intended to redress. If ITT had standing, the threatened ac-
tion would be without merit because an acquisition of ITT by
Hilton would not substantially lessen competition or tend to
create a monopoly in any line of commerce. On February 27,
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1997, the federal antitrust agencies gave clearance to Hilton
to purchase ITT shares pursuant to the tender offer.
68. By reason of the foregoing, an actual contro-
versy exists between Hilton and ITT regarding whether ITT has
standing to pursue an injunction against the Hilton tender of-
fer under the federal antitrust laws and whether the consum-
mation of that offer would violate such laws.
69. Pursuant to 28 U.S.C. Section 2201, Hilton is
therefore entitled to declaratory relief from this Court.
WHEREFORE, plaintiffs seek judgment:
(a) Enjoining defendants from amending ITT's by-laws
to in any way impede the effective exercise of the stockholder
franchise in connection with election of directors at the 1997
annual meeting of ITT shareholders;
(b) Requiring defendants to honor any nomination for
the election of directors by Hilton or HLT at the 1997 annual
meeting of ITT shareholders;
(c) Enjoining defendants from any further delay of
ITT's 1997 annual meeting;
(d) Enjoining defendants from refusing to redeem
ITT's "poison pill" and refusing to make the provisions of the
Nevada Control Share Acquisition and Business Combination Stat-
utes inapplicable to Hilton's tender offer for ITT stock;
(e) Requiring defendants to conduct a fair and open
auction of ITT;
(f) Enjoining any action taken or to be taken by
defendants with the intent or effect of impeding the operation
-24-<PAGE>
of market forces in an open bidding contest for an acquisition
of ITT;
(g) Enjoining defendants from entering into any fur-
ther disposition of ITT's assets unless they conduct a fair and
open auction for such assets in which Hilton can participate on
an equal basis with all other potential purchasers;
(h) Enjoining defendants from selling any further
assets of ITT without the approval of ITT shareholders, as
required by Nevada law;
(i) Rescinding the FelCor transaction or any other
disposition of hotel or casino assets by ITT;
(j) Invalidating the change of control penalty pro-
visions in ITT's management agreement with FelCor;
(k) Enjoining defendants from entering into any
agreements containing change of control penalty provisions in
the future with other purchasers of ITT's assets or with the
owners of hotels managed by ITT;
(l) Enjoining the individual defendants from engag-
ing in any further actions aimed at entrenching themselves in
office in violation of the fiduciary duties owed by defendants
to the ITT shareholders;
(m) Declaring that ITT lacks standing and may not
institute an action seeking to enjoin the Hilton tender offer
under any theory of federal antitrust law;
(n) Declaring that the consummation of the Hilton
tender offer for ITT stock will not substantially lessen com-
petition or tend to create a monopoly in any line of commerce;
-25-<PAGE>
(o) Awarding plaintiffs damages against defendants
in an amount to be determined at trial, as well as plaintiffs'
costs of suit, including reasonable attorneys' fees; and
(p) Granting plaintiffs such other and further re-
lief as the Court may deem just and proper.
Dated: June __, 1997
Las Vegas, Nevada
SCHRECK MORRIS
By:_________________________
STEVE MORRIS
KRISTINA PICKERING
MATTHEW MCCAUGHEY
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
WACHTELL, LIPTON, ROSEN & KATZ
BERNARD W. NUSSBAUM
ERIC M. ROTH
MARC WOLINSKY
MEIR FEDER
SCOTT L. BLACK
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Plaintiffs
HILTON HOTELS CORPORATION
and HLT CORPORATION
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