<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[_]Preliminary Proxy Statement [_]Confidential, for Use of the
[_]Definitive Proxy Statement Commission Only (as
[X]Definitive Additional Materials permitted by Rule 14a-
6(e)(2))
[_]Soliciting Material Pursuant to Section 240.14a-11 or Section 240.14a-12
ITT CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
HILTON HOTELS CORPORATION
HLT CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid:
----------------------------------------------------------------------
(2)Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3)Filing Party:
----------------------------------------------------------------------
(4)Date Filed:
----------------------------------------------------------------------
<PAGE>
This Statement amends and supplements the Tender Offer 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
Corporation, a Delaware corporation (the "Purchaser") and a wholly owned
subsidiary of Hilton Hotels Corporation, a Delaware corporation ("Parent"), to
purchase (i) 61,145,475 shares of Common Stock, no par value (the "Common
Stock"), of ITT Corporation, a Nevada corporation (the "Company"), or such
greater number of shares of Common Stock which, when added to the number 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
validly 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 September 29, 1997, the Nevada Court found that "the primary purpose
of ITT's Comprehensive Plan was to disenfranchise its shareholders." The Nevada
Court enjoined the Company from implementing the Comprehensive Plan, and further
ordered that the Company hold its 1997 annual meeting of stockholders on or
before November 14, 1997. The full text of the Nevada Court order (the
"Injunction Order") is filed herewith as Exhibit (g)(28) and is incorporated
herein by reference.
Parent and the Purchaser have filed supplementary proxy materials (the
"Supplementary Proxy Materials"), dated October 6, 1997. The full text of the
Supplementary Proxy Materials is filed herewith as Exhibit (a)(31) and is
incorporated herein by reference. The Supplementary Proxy Materials set forth,
among other things, the collar provisions Parent has proposed with respect to
the Proposed Merger following consummation of the Offer.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS
(a)(31) Supplementary Proxy Materials, dated October 6, 1997
(g)(28) Injunction Order.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: October 6, 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 belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: October 6, 1997
HLT CORPORATION
By: /s/ Arthur M. Goldberg
-------------------------
Name: Arthur M. Goldberg
Title: President
-3-
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
(a)(31) Supplementary Proxy Materials, dated October 6, 1997.
(g)(28) Injunction Order.
<PAGE>
EXHIBIT (a)(31)
<PAGE>
LOGO
HILTON
October 6, 1997
YOU WON THE RIGHT TO VOTE
IT'S TIME FOR YOU TO DETERMINE ITT'S FUTURE.
Dear Fellow ITT Corporation Shareholder:
Last week, in a victory for ITT shareholders, the U.S. District Court in
Nevada enjoined ITT management from pursuing its so-called "comprehensive"
highly-leveraged break-up plan prior to ITT's 1997 annual shareholders'
meeting.
THE COURT'S DECISION SHIFTS THE POWER FOR DECIDING ITT'S FUTURE DIRECTION
BACK WHERE IT RIGHTFULLY BELONGS -- TO THE REAL OWNERS OF ITT, ITS
SHAREHOLDERS. ITT HAS SET NOVEMBER 12 AS THE DATE FOR ITS LONG-DELAYED ANNUAL
MEETING. THEIR EIGHT-MONTH CAMPAIGN OF STONEWALLING SHAREHOLDERS FINALLY
APPEARS TO BE NEARING THE END.
VOTE YOUR WHITE PROXY FOR THE OPPORTUNITY TO RECEIVE
$70 PER SHARE IN CASH AND STOCK FOR YOUR ITT SHARES.
ITT management still refuses to meet with Hilton to negotiate a value-
maximizing merger on your behalf. It's time to tell ITT that enough is enough.
Vote the enclosed WHITE proxy card to elect Hilton's nominees to the ITT Board
at the November 12 annual meeting.
THE HILTON NOMINEES ARE FULLY COMMITTED TO GIVING ALL ITT SHAREHOLDERS THE
OPPORTUNITY TO RECEIVE $70 PER SHARE IN CASH AND STOCK FOR THEIR ITT SHARES.
UPON THEIR ELECTION, THE HILTON NOMINEES PLAN TO TAKE, SUBJECT TO THEIR
FIDUCIARY DUTY, ALL NECESSARY ACTIONS TO FACILITATE CONSUMMATION OF HILTON'S
TENDER OFFER AND PROPOSED MERGER.
THE MANY COMPELLING BENEFITS OF A HILTON/ITT COMBINATION.
Remember--Hilton's superior offer gives you:
. A HANDSOME 64% PREMIUM over ITT's closing price on January 27, 1997 --
the day before Hilton announced its initial offer.
. NEARLY TWICE AS MUCH CASH -- Hilton's tender offer will pay $70 cash for
over 50% of ITT's outstanding shares.
<PAGE>
. $70 per ITT share in Hilton stock for shares not accepted in the tender,
LETTING YOU PARTICIPATE IN THE EXTRAORDINARY UPSIDE POTENTIAL of what
would become the world's largest lodging and gaming company.
. A combined company which Hilton expects will quickly realize $100 MILLION
PLUS IN COST SAVINGS AND OTHER SYNERGIES.
. A combined company with a portfolio of premier hotel and gaming
properties including Hilton, Sheraton, Bally's, Caesars and others.
. Significantly improved presence in the two most important gaming markets
of Las Vegas and Atlantic City.
. A TALENTED MANAGEMENT TEAM, WITH AN OUTSTANDING RECORD OF CREATING VALUE
FOR SHAREHOLDERS, WHOSE INTERESTS ARE ALIGNED WITH YOURS.
WALL STREET'S ENTHUSIASTIC SUPPORT FOR OUR OFFER.
You don't have to take just our word about the many benefits of a Hilton/ITT
merger. Leading Wall Street hotel and gaming analysts* are enthusiastic about
the proposed combination:
"WE BELIEVE THAT HILTON'S REVISED PROPOSAL IS THE BEST TRANSACTION FOR ITT
SHAREHOLDERS AND, WITH THE COMPANIES COMBINED, PROVIDES IMPROVED GROWTH
OPPORTUNITIES FOR HILTON SHAREHOLDERS."
David Wolfe, Oppenheimer & Co., Inc., August 6, 1997.
"WE BELIEVE THAT THE HILTON BID OFFERS ITT SHAREHOLDERS BETTER VALUE WITH
LESS RISK THAN THE ITT PLAN. . . . IN OUR VIEW, A HILTON/ITT COMBINATION WOULD
INCREASE THE GROWTH VISIBILITY OF THE COMBINED COMPANIES IN AN ERA WHERE
BIGGER IS CLEARLY BETTER."
Mark Mutkoski, Thomas Ryan, BT Alex. Brown Inc., September 30, 1997.
"WE BELIEVE HILTON'S PROPOSED BID FOR ITT IS COMPELLING FOR ITT
SHAREHOLDERS, AS IT WOULD RESULT IN SIGNIFICANT VALUE CREATION FOR BOTH HLT
AND ITT SHAREHOLDERS. . . ."
Michael G. Mueller, Beth Ann Lindell, NationsBanc Montgomery Securities,
Inc., October 2, 1997.
- --------
* Consent of the authors for use has neither been requested nor obtained.
<PAGE>
DON'T WAIT UNTIL NOVEMBER 12 TO SEND A MESSAGE TO ITT.
VOTE YOUR WHITE PROXY TODAY.
Even if you have already mailed a proxy card earlier, we urge you to sign
and mail the enclosed card. Don't wait until the annual meeting to send your
message to ITT management.
ITT HAS RUN FROM ITS SHAREHOLDERS FOR EIGHT MONTHS. BUT NOW IT'S THE
SHAREHOLDERS' TURN TO SPEAK. VOTE YOUR WHITE PROXY TO ELECT NOMINEES COMMITTED
TO BRINGING YOU THE SUPERIOR BENEFITS OF HILTON'S OFFER FOR ITT.
The enclosed proxy statement and supplement contain important information
concerning the ITT annual meeting and we urge you to read them carefully. If
you have questions about your proxy or need assistance in voting your shares,
please contact MacKenzie Partners, Inc. toll-free at (800) 322-2885.
IT IS IMPORTANT THAT YOU SEND IN YOUR VOTE NOW -- BEFORE ITT MANAGEMENT HAS
THE OPPORTUNITY TO DESTROY MORE OF THE VALUE OF THE ASSETS THAT YOU, NOT THEY,
OWN. VOTE YOUR WHITE PROXY TODAY.
We thank you for your continued support and encouragement on behalf of all
our nominees and the entire Hilton organization.
Sincerely,
/s/ Stephen F. Bollenbach
Stephen F. Bollenbach
President and Chief Executive
Officer
Hilton Hotels Corporation
<PAGE>
YOUR VOTE IS IMPORTANT
If you have any questions or need assistance in completing the WHITE proxy
card, please contact:
LOGO
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
CALL TOLL-FREE (800) 322-2885
DO NOT DELAY -- VOTE YOUR SHARES TODAY!
<PAGE>
SUPPLEMENT
TO
PROXY STATEMENT
OF
HILTON HOTELS CORPORATION
AND
HLT CORPORATION
----------------
1997 ANNUAL MEETING OF STOCKHOLDERS
OF
ITT CORPORATION
TO BE HELD
WEDNESDAY, NOVEMBER 12, 1997
HILTON HOTELS CORPORATION AND HLT CORPORATION BELIEVE THAT
HILTON'S $70 OFFER AND THE PROPOSED HILTON MERGER ARE IN THE BEST
INTERESTS OF ITT'S STOCKHOLDERS AND URGE YOU TO VOTE FOR THE
HILTON NOMINEES AND THE OTHER PROPOSALS DESCRIBED BELOW.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY CARD
This Supplement (the "Supplement"), together with the attached Proxy
Statement (the "Proxy Statement") and the enclosed WHITE proxy card, are being
furnished to stockholders of ITT Corporation (the "Company" or "ITT") by
Hilton Hotels Corporation, a Delaware corporation ("Hilton"), and HLT
Corporation, a Delaware corporation and wholly owned subsidiary of Hilton
("HLT"), in connection with the solicitation of proxies from the Company's
stockholders to be used at the 1997 Annual Meeting of Stockholders of the
Company, including any adjournments or postponements thereof and any special
meeting called in lieu thereof (the "Annual Meeting"), to take the following
actions: (i) to elect up to 23 persons to be nominated by Hilton and HLT (the
"Hilton Nominees") to the Board of Directors of the Company (the "Board"), who
are expected, subject to their fiduciary duties, to take all actions as may be
necessary to facilitate the Offer (as defined in the Proxy Statement) and the
Proposed Hilton Merger (as defined in the Proxy Statement); (ii) to approve a
non-binding stockholder resolution urging the Board to arrange for the sale of
the Company to Hilton, HLT or any bidder offering a higher price for the
Company (the "Sale Resolution"); and (iii) to approve a stockholder resolution
to repeal each and every provision of the Amended and Restated By-laws of the
Company (the "Bylaws") adopted on or after July 23, 1996 and prior to the
adoption of such resolution (the "Bylaws Resolution," and together with the
Sale Resolution, the "Proposals"). According to the Company, the Annual
Meeting is scheduled to take place on November 12, 1997, and the Record Date
for determining stockholders entitled to notice of and to vote at the Annual
Meeting has been fixed as the close of business on October 1, 1997.
This Supplement and the enclosed WHITE proxy card are first being furnished
to the Company's stockholders on or about October 6, 1997. This Supplement
supplements and amends the attached Proxy Statement with information and a
summary of developments since the Proxy Statement was first mailed to the
Company's stockholders on March 21, 1997, and should be read in conjunction
with the Proxy Statement. Unless defined in this Supplement, capitalized terms
used in this Supplement shall have their respective meanings as set forth in
the attached Proxy Statement.
<PAGE>
1. AMENDED OFFER
On August 6, 1997, Hilton amended its proposal to acquire all of the
outstanding Company Shares by increasing the price to be paid to $70 per
Share.
Pursuant to this amended proposal, Hilton is offering to acquire: (i)
61,145,475 Shares or such greater number of Shares which, when added to the
number of Shares beneficially owned by HLT and its affiliates, constitutes a
majority of the total number of Shares outstanding on a fully diluted basis as
of the Expiration Date of the Offer, and (ii) unless and until validly
redeemed by the Board, the Series A Participating Cumulative Preferred Stock
Purchase Rights (the "Rights") associated therewith and issued pursuant to the
Rights Agreement, dated as of November 1, 1995, between the Company and The
Bank of New York, as Rights Agent (the "Rights Agreement"), at a price of $70
per Share (including the associated Right), net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in
the Offer to Purchase and in the related letter of transmittal (the "Letter of
Transmittal") (which, as amended from time to time, together constitute the
"Offer"). The purpose of the Offer is for Hilton to acquire control of, and
ultimately the entire equity interest in, the Company. The Offer is currently
scheduled to expire at 12:00 Midnight, New York City time, on Friday, October
10, 1997, unless extended (as such date may be extended, the "Expiration
Date").
Under the terms of Hilton's proposal, the Company would, as soon as
practicable following consummation of the Offer, consummate a merger with
Hilton or HLT or another direct or indirect wholly owned subsidiary of Hilton
(the "Proposed Hilton Merger"). At the effective time of the Proposed Hilton
Merger, each Share that is issued and outstanding immediately prior to the
effective time (other than Shares held in the treasury of the Company or owned
by Hilton, HLT or any direct or indirect wholly owned subsidiary of Hilton)
would be converted, subject to the collar provisions described below, into a
number of shares of Hilton Common Stock equal to $70 divided by the volume-
weighted average of the prices per share of Hilton Common Stock for all trades
reported on the New York Stock Exchange, Inc. ("NYSE") during the 20 trading
days immediately preceding the last business day before the effective time of
the Proposed Hilton Merger (the "Average Hilton Share Price"). The number of
shares of Hilton Common Stock to be issued in the Proposed Hilton Merger would
be subject to a minimum of 1.9211 shares and a maximum of 2.3480 shares for
each Share of the Company.
This means that, so long as the Average Hilton Share Price is at least
$29.8125 per share and no more than $36.4375 per share, the trading value of
the shares of Hilton Common Stock to be issued in the Proposed Hilton Merger
will be $70 per Share, the same as the cash price to be paid in the Offer. On
Friday, October 3, 1997, the closing price of the Hilton Common Stock was
$33.125 per share. If the Average Hilton Share Price goes above $36.4375 per
share, however, then the trading value of the shares of Hilton Common Stock to
be issued in the Proposed Hilton Merger will be greater than $70 per Share. If
the Average Hilton Share Price goes below $29.8125 per share, then the trading
value of the shares of Hilton Common Stock to be issued in the Proposed Hilton
Merger will be less than $70 per Share.
2. CHANGE IN THE HILTON NOMINEES
Since the initial mailing of the Proxy Statement, one of the Hilton Nominees
has passed away. Additionally one of the Hilton Nominees has accepted a
position with Hilton's financial advisor, Donaldson, Lufkin and Jenrette
Securities Corporation, and has withdrawn as a Hilton Nominee. As a result,
Hilton's first proposal is hereby amended in its entirety to read as follows:
1. To elect to the Board such number of the following Hilton Nominees as
equals the size of the Board: Daniel J. Altobello, George N. Aronoff, Scott
H. Bice, Barrie K. Brunet, James J. Florio, Fred D. Gibson, Jr., Dianne
Jett, Robert S. Kingsley, Aubrey C. Lewis, Celeste Pinto McLain, Gilbert L.
Shelton, Henry A. Collins, John Danhakl, Ernest E. East, John E.
Humphreville, Robert L. Johander, J. Kenneth Looloian, Rocco J. Marano,
James F. McAnally, Morris Pashman, Alan C. Snyder, Caroline L. Williams and
Robert H. Wolf. The first eleven of such individuals will be nominated to
be elected to succeed the current eleven Directors (or any Director named
to fill any vacancy created by the death, retirement, resignation or
removal of any of such eleven Directors) of the Company. One or more of
such other
S-2
<PAGE>
individuals will be nominated to be elected (a) in the event that the
Company purports to increase the number of Directorships pursuant to
Section 2.2 of the Bylaws, to each additional Directorship created, and/or
(b) in the event any of the first eleven of such individuals is unable for
any reason to serve as a Director.
The Hilton Nominees are committed to giving all of the Company's
stockholders the opportunity to receive the $70 consideration for the Shares
contemplated by the Offer and the Proposed Hilton Merger, and if elected are
expected to take all necessary actions, subject to their fiduciary duties to
the Company's stockholders, to facilitate consummation of the Offer and the
Proposed Hilton Merger.
You should vote for the Hilton Nominees for the following reasons:
. IMMEDIATE 64% CASH PREMIUM FOR HALF OF THE COMPANY'S SHARES
The value of the Offer at $70 per Share is a 64% premium over the
closing market price of $42.625 on the NYSE on January 27, 1997, the last
full trading day prior to Hilton's original public announcement of the
Offer. The Hilton $70 per Share Offer is for 50.1% of the Company's
Shares in contrast to ITT's so-called "comprehensive plan" which provides
$70 cash per Share for only 25.7% of the Company's Shares. The Offer is
subject to a number of conditions and will not be consummated until those
conditions are satisfied or waived. Further information concerning the
Offer is contained in the Offer to Purchase.
. CONTINUED PARTICIPATION IN THE FUTURE GROWTH OF A HILTON/ITT COMBINATION
Upon consummation of the Proposed Hilton Merger, the Company's
stockholders will receive shares of Hilton Common Stock, allowing them to
participate in the future of the combined company. The combination of
Hilton and the Company would bring together two of the world's leading
lodging companies as well as two premier gaming businesses. Hilton and
HLT believe the combination of Hilton and the Company would be of
enormous benefit to each company and its respective stockholders,
employees and other constituencies.
. A BOARD AND MANAGEMENT COMMITTED TO STOCKHOLDER VALUE
Following consummation of the Offer and the Proposed Hilton Merger, the
combined entity would be led by Hilton's board and management team -- a
board and management team that emphasizes the creation of greater
stockholder value. Hilton and HLT believe that the Hilton management
team's strategic experience and strong operating record in hotels and
gaming will bring tremendous value to the combined stockholder base and
will help to generate superior returns relative to those realized
historically by ITT's stockholders.
The following table amends the biographical information of the Hilton
Nominees as set forth in the Proxy Statement. Unless noted below the
information contained in the Proxy Statement remains unchanged. This
information has been furnished to Hilton by the respective Hilton Nominees.
S-3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
EMPLOYMENT
DURING THE LAST FIVE YEARS;
NAME, AGE AND BUSINESS (OR RESIDENCE) ADDRESS CURRENT DIRECTORSHIPS
--------------------------------------------- --------------------------------
<C> <S>
Daniel J. Altobello (56)........ (See attached proxy statement.)
George N. Aronoff (64).......... (See attached proxy statement.)
Scott H. Bice (54).............. (See attached proxy statement.)
Fred D. Gibson, Jr. (70)........ Chairman of American Pacific
Corporation (specialty chemicals
production), since before 1992.
President and Chief Executive
Officer of American Pacific
Corporation from before 1992
until July 1997. Mr. Gibson is
also a director of American
Pacific Corporation and Nevada
Power Company.
Robert S. Kingsley (51)......... (See attached proxy statement.)
Gilbert L. Shelton (61)......... (See attached proxy statement.)
Barrie K. Brunet (72)........... (See attached proxy statement.)
John Danhakl (41)............... (See attached proxy statement.)
Leonard Green & Partners
11111 Santa Monica Blvd., #2000
Los Angeles, CA 90025
John E. Humphreville (50)....... (See attached proxy statement.)
Robert L. Johander (51)......... (See attached proxy statement.)
J. Kenneth Looloian (75)........ (See attached proxy statement.)
James F. McAnally, M.D. (48).... (See attached proxy statement.)
Morris Pashman (85)............. (See attached proxy statement.)
Alan C. Snyder (50)............. Chairman, President and Chief
Executive Officer, Answer
Financial Inc. since June 1997.
Manager, Shinnecock Group, LLC
(investment acquisitions), since
September 1994 and Managing
Partner, Shinnecock Partners
(investment management), since
before 1992. Also, Chief
Executive Officer, Aurora
National Life Assurance Company
(insurance), from September 1993
until September 1994; and
President, Chief Operating
Officer, Executive Life
Insurance Company (insurance),
from April 1991 until September
1993.
Caroline Williams (51).......... Private investor, since January
417 Park Avenue 1992. Acting Chair and Lecturer,
New York, New York 10022 The New School for Social
Research-Milano School of
Management and Urban Policy
(non-profit school), from
September 1996 to June 1997.
Prior thereto, Vice President-
Finance, Techno Serve, Inc.
(non-profit economic development
agency), from July 1992 until
September 1993; and Managing
Director, Donaldson, Lufkin &
Jenrette Securities Corporation
(investment banking), from
before 1992 until January 1992.
Ms. Williams is also a director
of Hearst-Argyle Television,
Inc., Swing-N-Slide Corporation
and DEVCAP Shared Return Trust.
</TABLE>
YOU ARE URGED TO VOTE FOR THE ELECTION OF THE HILTON NOMINEES ON THE
ENCLOSED WHITE PROXY CARD.
S-4
<PAGE>
3. REGULATORY AND LITIGATION DEVELOPMENTS
Mississippi Gaming Regulation. On April 17, 1997, HLT was found suitable by
the Mississippi Gaming Commission to be associated with a gaming licensee
under the Mississippi Gaming Control Act. At that time, the Mississippi Gaming
Commission also granted its approval to Hilton for the proposed acquisition of
control of the Company through HLT. The approvals granted did not include the
Proposed Hilton Merger, which will require additional approval by the
Mississippi Gaming Commission.
Hilton's nominees for the Board may take office, if elected, without first
having been found suitable by the Mississippi Gaming Commission. In accordance
with Miss. Code Ann (S)75-76-237, each newly elected member of the Board must
file an application to be found suitable by the Mississippi Gaming Commission
within thirty (30) days of taking office.
Nevada Gaming Regulation. On February 12, 1997, Hilton filed a written
request for a ruling from the Chairman of the Nevada Gaming Control Board (the
"Nevada Board") that the proxy solicitation and the election of the Hilton
Nominees would not result in Hilton or the Hilton Nominees acquiring control
of ITT so as to require the prior approval of the Nevada Gaming Commission
(the "Nevada Commission"). On May 12, 1997, the Nevada Board Chairman
responded in writing to Hilton's ruling request by stating that both the
Nevada Board's Corporate Securities Division and the Nevada Attorney General's
Office had reviewed the facts as outlined in Hilton's ruling request and had
concluded that the election of the Hilton Nominees will not constitute an
acquisition of control requiring prior Nevada Commission approval. Attached to
the response of the Chairman of the Nevada Board was a legal memorandum from
the Nevada Attorney General's Office confirming that Hilton's proxy
solicitation may be accomplished without the prior approval of either the
Nevada Board or the Nevada Commission.
On September 25, 1997, Hilton received the approval of the Nevada
Commission, upon the recommendation of the Nevada Board, to make public
offerings for a period of two years, subject to certain conditions (the "Shelf
Approval"). The issuance of Hilton Common Stock in the Proposed Hilton Merger
will be made pursuant to the Shelf Approval. The Shelf Approval also applies
to any affiliated company wholly owned by Hilton (an "Affiliate") which is a
publicly traded corporation or would thereby become a publicly traded
corporation pursuant to a public offering. The Shelf Approval includes
approval for Hilton's subsidiaries that are registered or licensed by the
Nevada Commission to guarantee any security issued by, or to hypothecate their
assets to secure the payment or performance of any obligations issued by,
Hilton or an Affiliate in a public offering made under the Shelf Approval. The
Shelf Approval also includes approval for the placement of restrictions upon
the transfer of, and agreements not to encumber, such subsidiaries' stock in
conjunction with a public offering made under the Shelf Approval. The Shelf
Approval may be rescinded for good cause without prior notice upon the
issuance of an interlocutory stop order by the Chairman of the Nevada Board.
The Shelf Approval does not constitute a finding, recommendation or approval
by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of
the prospectus or the investment merits of the securities. Any representation
to the contrary is unlawful.
New Jersey Gaming Regulation. On February 14, 1997, Hilton filed a petition
with the New Jersey Casino Control Commission (the "CCC") for an order
qualifying HLT as a holding company of a New Jersey casino licensee for the
purpose of pursuing and consummating the Offer (the "Hilton Proceeding"). On
February 27, 1997, the Company filed a petition with the CCC to intervene in
the Hilton Proceeding. On March 5, 1997, the Hilton Nominees filed a petition
with the CCC for an order temporarily qualifying them to serve as directors of
the Company upon being elected to the Board ("Nominees' Proceeding"). On April
4, 1997, the Company and its subsidiaries filed a petition to intervene in,
and to dismiss, the Nominees' Proceeding.
The petitions were held in abeyance by the CCC pending the scheduling of the
Company's Annual Meeting. It is anticipated that the Hilton Nominees' petition
will be heard and determined by the CCC before the Annual Meeting and that the
Hilton Nominees will be temporarily qualified to serve as directors of the
Company upon their election to the Board.
S-5
<PAGE>
Litigation. On February 26, 1997, Hilton and HLT filed a motion in the U.S.
District Court for the District of Nevada (the "Nevada Court") for a
preliminary injunction requiring the Company to conduct the Annual Meeting in
May 1997. On April 21, 1997, the Nevada Court issued an order denying such
motion. On an appeal by Hilton and HLT of the order, the order was affirmed.
On June 12, 1997, Hilton filed a first amended and supplemental complaint
(the "First Amended and Supplemental Complaint") in the Nevada Court. In
addition to the relief sought in the original complaint, the First Amended and
Supplemental Complaint seeks, among other things, injunctive relief to (i)
prevent the Company from further delaying its annual meeting, (ii) require the
Company to conduct an auction of the Company, (iii) prohibit the Company from
selling any of its assets without conducting an auction in which Parent may
participate and without stockholder approval, (iv) require the Company to
rescind its transaction with FelCor Suite Hotels, Inc. ("FelCor"), (v)
invalidate the change of control provisions in the Company's management
agreements with FelCor and prohibit the Company from entering into any other
agreement containing change of control provisions and (vi) prohibit the Board
from taking actions aimed at entrenching themselves in office.
On July 2, 1997, the Company filed a motion to dismiss certain counts
included in the First Amended and Supplemental Hilton Complaint or, in the
alternative, for partial summary judgment (the "ITT Motion to Dismiss the
Amended Hilton Complaint") in the Nevada Court. On September 10, 1997, the
Nevada Court entered an order denying the Company's Motion to Dismiss those
counts, except that Hilton's claim for relief seeking rescission of the FelCor
transaction and invalidation of the change of control penalty provisions in
the Company's management agreement with FelCor were dismissed without
prejudice (for Hilton's failure to join FelCor as a necessary defendant).
On July 16, 1997, the Company filed a complaint in the Nevada Court (the
"Company Complaint") seeking, among other relief, a declaratory judgment that
the Board did not act outside its powers or fail to exercise its powers in
good faith and with a view to the interests of the Company in approving a
proposed plan to break the Company up by spinning off the Company's hotel and
gaming businesses and the Company's educational services business (the
"Comprehensive Plan"). The Company also filed a motion with the Nevada Court
seeking a speedy hearing on the claims.
On August 5, 1997, Hilton filed its answer and counterclaims to the Company
Complaint (the "Counterclaims"). The Counterclaims seek, among other things,
an order (i) prohibiting the implementation of the Comprehensive Plan, (ii)
requiring the Company to put the Comprehensive Plan to a stockholder vote, and
(iii) declaring that the Board has acted on an uninformed basis and outside
its powers and has exercised its powers in bad faith with a view to advancing
its own interests and the interests of Company management rather than the
interests of the Company and its shareholders.
On September 29, 1997, the Nevada Court found that "the primary purpose of
ITT's Comprehensive Plan was to disenfranchise its shareholders." The Nevada
Court enjoined the Company from implementing the Comprehensive Plan, and
further ordered the Company to hold its Annual Meeting on or before November
14, 1997.
4. DIRECTORS AND EXECUTIVE OFFICERS OF HILTON AND CERTAIN EMPLOYEES OF HILTON
The information set forth in Schedule I to the Proxy Statement is amended as
follows (unless noted below, the information contained in the Proxy Statement
remains unchanged). Directors of Hilton are identified by an asterisk.
S-6
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
MATERIAL POSITIONS HELD DURING THE PAST
NAME AND CURRENT BUSINESS ADDRESS FIVE YEARS
--------------------------------- -------------------------------------------
<C> <S>
*Stephen F. Bollenbach........... Mr. Bollenbach is also a director of
America West Airlines, Inc., Kmart
Corporation, Ladbroke Group PLC and Time
Warner Inc.
Thomas E. Gallagher............. Executive Vice President and General
Counsel of Hilton Hotels Corporation since
July 1997. Prior thereto, President and
Chief Executive Officer of The Griffin
Group, Inc., 1992 until June 1997;
President and Chief Executive Officer of
Griffin Gaming and Entertainment, Inc.
(formerly Resorts International, Inc.),
1995 until 1996; Director and Chairman of
the Executive Committee of Griffin Gaming
and Entertainment, Inc., 1993 until 1996;
Director, Players International, Inc., 1992
until October 1997; Partner, Gibson Dunn &
Crutcher, 1977 until 1992.
*Arthur M. Goldberg
3930 Howard Hughes Parkway
Las Vegas, Nevada 89109
Marc A. Grossman................ Senior Vice President--Corporate Affairs
since 1994. Prior thereto, Vice President--
Corporate Communications, 1993 until 1994;
Vice President--Communications for the
Gaming Division, April 1992 until July
1993; Senior Vice President, Burson-
Marsteller, a public relations firm, from
1989 until 1992.
*Eric M. Hilton.................. Vice Chairman Emeritus of the Board,
Hilton, since April 1997. Prior thereto,
Vice Chairman of the Board, Hilton, May
1993 until March 1997; Executive Vice
President-International Operations, Hilton,
May 1992 until April 1993.
*Robert L. Johnson............... Chairman and Chief Executive Officer of
BET Holdings, Inc. Black Entertainment Television, a cable
One BET Plaza programming service, and Chairman and Chief
1900 "W" Place, N.E. Executive Officer of BET Holdings, Inc., a
Washington, D.C. 20018 diversified media holding company, since
August 1991, and Chairman and Chief
Executive Officer of District Cablevision,
cable operator in the District of Columbia.
*Donald R. Knab
Residence:
164 Plantation Circle South
Ponte Vedra Beach, Florida 32082
Robert M. La Forgia............. Senior Vice President and Controller of
Hilton Hotels Corporation since June 1996.
Prior thereto, Vice President and Corporate
Controller, November 1994 until June 1996;
Assistant Corporate Controller, September
1987 until November 1994.
Scott A. LaPorta................ Senior Vice President and Treasurer of
Hilton Hotels Corporation since May 1996.
Prior thereto, Senior Vice President and
Treasurer of Host Marriott, October 1995
until May 1996; Vice President--Corporate
Finance of Host Marriott, October 1993
until October 1995; Director--Corporate
Finance of Marriott Corporation, January
1992 until October 1993.
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
MATERIAL POSITIONS HELD DURING THE PAST
NAME AND CURRENT BUSINESS ADDRESS FIVE YEARS
--------------------------------- -------------------------------------------
<C> <S>
*Donna F. Tuttle................ Owner and Officer, Elmore/Tuttle Sports
Korn Tuttle Capital Group Group, owns four minor league teams, since
1800 Century Park East, #210 1993. Chair, Centennial Management Company,
Los Angeles, California 90067 manages and operates arenas, convention
centers and stadiums, since January 1997.
President, Korn Tuttle Capital Group, a Los
Angeles financial consulting and
investments firm, and a director of Phoenix
Duff & Phelps, Inc., a financial services
firm, since 1992.
</TABLE>
HILTON HOTELS CORPORATION
HLT CORPORATION
October 6, 1997
S-8
<PAGE>
IMPORTANT
Tell your Board what you think! Your vote is important. No matter
how many Shares you own, please give Hilton your proxy FOR the
election of the Hilton Nominees and FOR approving the Proposals by
taking four steps:
1. SIGNING the enclosed WHITE proxy card,
2. DATING the enclosed WHITE proxy card, and
3. MAILING the enclosed WHITE proxy card TODAY in the envelope
provided (no postage is required if mailed in the United
States) or FAXING BOTH SIDES of the enclosed WHITE proxy
card TODAY to MacKenzie Partners, Inc. at the number
provided below.
4. AFTER signing the enclosed WHITE proxy card, do not sign any
other cards. Do not even vote "against" on the ITT blue
proxy card; rather, discard any blue proxy cards sent to you
by ITT.
If any of your Shares are held in the name of a brokerage firm,
bank, bank nominee or other institution, only it can vote such
Shares and only upon receipt of your specific instructions.
Accordingly, please contact the person responsible for your account
and instruct that person to execute the WHITE proxy card
representing your Shares.
If you have any questions about voting your shares or require
assistance, please call:
LOGO
MACKENZIE PARTNERS, INC.
156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) or
CALL TOLL-FREE (800) 322-2885
FAX: (212) 929-0308
<PAGE>
ITT CORPORATION
1997 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF HILTON HOTELS CORPORATION AND HLT
CORPORATION
The undersigned appoints Stephen F. Bollenbach, Matthew J. Hart, Scott A.
LaPorta and Thomas E. Gallagher, and each of them, attorneys and agents with
full power of substitution to vote all shares of common stock of ITT
Corporation ("ITT") which the undersigned would be entitled to vote if
personally present at the 1997 Annual Meeting of Stockholders of ITT, and
including at any adjournments or postponements thereof and at any special
meeting called in lieu thereof, as follows:
HILTON HOTELS CORPORATION RECOMMENDS A VOTE FOR THE ELECTION OF ALL HILTON
NOMINEES NAMED BELOW AND FOR THE RESOLUTIONS UNDER ITEMS 2 AND 3.
1. ELECTION OF DIRECTORS: To elect to the Board of Directors of ITT (the
"Board") such number of the following Hilton Nominees as equals the size of
the Board: Daniel J. Altobello, George N. Aronoff, Scott H. Bice, Barrie K.
Brunet, James J. Florio, Fred D. Gibson, Jr., Dianne Jett, Robert S.
Kingsley, Aubrey C. Lewis, Celeste Pinto McLain, Gilbert L. Shelton, Henry
A. Collins, John Danhakl, Ernest E. East, John E. Humphreville, Robert L.
Johander, J. Kenneth Looloian, Rocco J. Marano, James F. McAnally, Morris
Pashman, Alan C. Snyder, Caroline L. Williams and Robert H. Wolf. The first
eleven of such individuals will be voted for to be elected to succeed the
current eleven Directors (or any Director named to fill any vacancy created
by the death, retirement, resignation or removal of any of such eleven
Directors) of ITT. One or more of such other individuals will be voted for
to be elected (a) in the event that ITT purports to increase the number of
Directorships pursuant to Section 2.2 of ITT's Amended and Restated Bylaws,
to each additional Directorship created, and/or (b) in the event any of the
first eleven of such individuals is unable for any reason to serve as a
Director.
FOR ALL HILTON NOMINEES [_] WITHHOLD AUTHORITY FOR ALL HILTON
NOMINEES [_]
INSTRUCTION: To withhold authority to vote for one or more individual Hilton
Nominees, mark FOR all Hilton Nominees above and write the name(s) of the
Hilton Nominee with respect to which you wish to withhold authority
here: .
2. RESOLUTION PROPOSED BY HILTON AND HLT. To adopt the following
resolution:
RESOLVED, that the stockholders of ITT Corporation ("ITT") urge the ITT
Board of Directors to arrange for the sale of ITT to Hilton Hotels
Corporation ("Hilton") or to any bidder offering a higher price, and if
there be no higher bidder, to take all necessary action to permit the tender
offer of Hilton and HLT Corporation ("HLT") and the proposed merger of ITT
with Hilton, HLT or a subsidiary of Hilton to proceed, including, without
limitation, action to satisfy the Rights Condition, the Control Share
Condition and the Business Combination Condition set forth in HLT's Offer to
Purchase dated January 31, 1997 (as such offer may be amended).
FOR [_] AGAINST [_] ABSTAIN [_]
(continued on reverse side)
<PAGE>
2
(continued from other side)
3. RESOLUTION PROPOSED BY HILTON AND HLT. To adopt the following
resolution:
RESOLVED, that each and every provision of the Amended and Restated Bylaws
of ITT Corporation adopted on or after July 23, 1996 and prior to the
adoption of this resolution is hereby repealed.
FOR [_] AGAINST [_] ABSTAIN [_]
4. IN THEIR DISCRETION WITH RESPECT TO ANY OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE ANNUAL MEETING.
The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to the shares of common stock of ITT held by the
undersigned, and hereby ratifies and confirms all action the herein named
attorneys and proxies, their substitutes, or any of them may lawfully take by
virtue hereof. IF PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED
ABOVE. IF NO DIRECTION IS INDICATED WITH RESPECT TO THE ABOVE PROPOSALS, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF ALL HILTON NOMINEES AND FOR THE
PROPOSALS SET FORTH IN ITEMS 2 AND 3 ABOVE AND IN THE MANNER SET FORTH IN ITEM
4 ABOVE.
This proxy will be valid until the sooner of one year from the date indicated
below and the completion of the Annual Meeting.
DATED: ________________________ , 1997.
PLEASE SIGN EXACTLY AS NAME APPEARS ON
THIS PROXY.
---------------------------------------
(Signature)
---------------------------------------
(Signature, if held jointly)
---------------------------------------
(Title)
WHEN SHARES ARE HELD JOINTLY, JOINT
OWNERS SHOULD EACH SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC., SHOULD
INDICATE THE CAPACITY IN WHICH
SIGNING.
IMPORTANT: PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE!
IF YOU NEED ASSISTANCE WITH THIS PROXY CARD, PLEASE CALL MACKENZIE PARTNERS,
INC. TOLL-FREE (800) 322-2885 . (212) 929-5500 (CALL COLLECT)
<PAGE>
EXHIBIT (g)(28)
<PAGE>
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
* * *
)
HILTON HOTELS CORPORATION and )
HLT CORPORATION, CV-S-97-095-PMP (RLH)
) BASE FILE
)
Plaintiffs,
)
)
v.
)
)
ITT CORPORATION,
)
)
Defendant.
)
ITT CORPORATION,
)
)
Defendant and
Counterclaimant, ) CV-S-97-893-PMP (RLH)
)
v.
)
)
HILTON HOTELS CORPORATION and ORDER RE: INJUNCTIVE
) AND DECLARATORY RELIEF
HLT CORPORATION,
)
)
Plaintiffs and
Counterdefendants. )
_______________________________
Before the Court for consideration is the Complaint for Declaratory
Relief (#1), filed on behalf of ITT Corporation ("ITT") on July 16, 1997, and
the Motion for Injunctive and Declaratory Relief (#29), filed August 26, 1997,
on behalf of
\\\\\
<PAGE>
Hilton Hotels Corporation and HLT Corporation (collectively "Hilton").(1)
The parties have completed discovery and all issues have been
extensively briefed. At the close of the hearing conducted September 29, 1997,
the Court orally entered its ruling granting Hilton's Motion for Permanent
Injunctive Relief. This Order constitutes the Court's written Findings of Fact
and Conclusions of Law regarding ITT's Request for Declaratory Relief and
Hilton's Motion for Injunctive and Declaratory Relief.
I. FACTS
On January 27, 1997, Hilton announced a $55.00 per share tender offer
for the stock of ITT, and announced plans for a proxy contest at ITT's 1997
annual meeting. This litigation commenced on the same date with the filing of
Hilton's Complaint for Injunctive and Declaratory Relief seeking to enjoin ITT
from impeding the shareholder franchise regarding the election of directors at
ITT's annual meeting, and from taking other defensive measures in response to
Hilton's announced tender offer and proxy contest.
_____________________________
1. ITT's Complaint for Declaratory Relief was originally assigned to the
Honorable David W. Hagen, United States District Judge, Case No. CV-S-97-893-
DWH. On August 21, 1997, that action was reassigned (#24) and on August 26,
1997, was consolidated with the previously filed action, Hilton Hotels Corp. and
HLT Corp. v. ITT Corp., CV-S-97-95-PMP (RLH) (#28).
2
<PAGE>
On February 11, 1997, ITT formally rejected Hilton's tender offer. ITT
proceeded to sell several of its non-core assets and opposed Hilton's takeover
attempt before gaming regulatory bodies in Nevada, New Jersey and Mississippi.
When it became apparent that ITT would not conduct its annual meeting in
May 1997, as it had customarily done in preceding years, Hilton filed a motion
for a mandatory injunction to compel ITT to conduct the annual meeting in May.
On April 21, 1997, this Court denied Hilton's Motion finding that Nevada law and
ITT's by-laws did not require that ITT conduct its annual meeting within twelve
months of the prior meeting, but rather that ITT had eighteen months within
which to do so. Hilton Hotels Corp. and HLT v. ITT Corp., 962 F. Supp. 1309 (D.
Nev. 1997), aff'd, 116 F.3d 1483 (9th Cir. 1997).
On July 15, 1997, ITT announced a Comprehensive Plan which, among other
things, proposed to split ITT into three new entities, the largest of which
would become ITT Destinations. ITT Destinations would be comprised of the
current ITT's hotel and gaming business which account for approximately 93%
of ITT's current assets. A second entity, ITT Educational Services, would
consist of the current ITT's technical schools, and ITT's European Yellow
Pages Division would remain with the current ITT as ITT World Directories.
Most significantly, under the Comprehensive Plan, the board of directors
of the new ITT Destinations would be comprised of the members of ITT's current
board with one important distinction.
3
<PAGE>
The new board would be a "classified" or "staggered" board divided into three
classes with each class of directors serving for a term of three years, and with
one class to be elected each year. Moreover, a shareholder vote of 80% would be
required to remove directors without cause, and 80% shareholder vote would also
be required to repeal the classified board provision or the 80% requirement to
remove directors without cause.
Additionally, the record fairly supports Hilton's contention that the
Comprehensive Plan contains a "poison pill" resulting in a $1.4 billion tax
liability which would be triggered if Hilton successfully acquired more than 50%
of ITT Destinations and that Hilton would be liable for 90% of the tax bill.
Finally, and critical to this Court's analysis, ITT seeks to implement
the Comprehensive Plan prior to ITT's 1997 annual meeting and without obtaining
shareholder approval.
II. THE PARTIES' CONTENTIONS AND APPLICABLE LEGAL STANDARDS
On July 16, 1997, ITT filed the Complaint for Declaratory Relief (#1) now
before the Court, seeking two declarations:
1. That Hilton cannot show that ITT's board acted outside its powers or
failed to exercise its powers in good faith and with a view to the
interests of the corporation and its shareholders in adopting the
Comprehensive Plan; and
2. That Hilton, as a would-be acquiror, is antagonistic to other ITT
shareholders and thus lacks standing as a proper derivative plaintiff
to pursue an injunction against the Comprehensive Plan based on
alleged breach of fiduciary duty by ITT's board.
4
<PAGE>
Shortly after ITT's announcement of its Comprehensive Plan, Hilton
announced an amended tender offer of $70.00 per share which was rejected by ITT.
On August 26, 1997, Hilton filed its Motion for Injunctive and Declaratory
Relief (#29) seeking:
1. A preliminary and permanent injunction enjoining ITT from
proceeding with its Comprehensive Plan;
2. Declaring that by adopting the Comprehensive Plan, ITT's
directors had breached their fiduciary duties to ITT and its
shareholders;
3. Declaring that ITT may not implement its Comprehensive Plan
without obtaining a shareholder vote; and
4. Requiring ITT to conduct its 1997 annual meeting for the
election of directors not later than November 14, 1997.
The legal standard applicable to a request for preliminary injunctive
relief is well settled. The party requesting such relief must show: (1) probable
success on the merits and irreparable injury; or (2) sufficiently serious
questions going to the merits to make the case a fair ground for litigation and
a balance of hardships tipping decidedly in favor of the party requesting
relief. Topanga Press, Inc. v. City of Los Angeles, 989 F.2d 1524, 1528 (9th
Cir. 1993). These are not two separate test, but "merely extremes of a single
continuum." Id. (citation omitted).
Where, as here, Hilton's Motion seeks mandatory injunctive relief in the
sense that a trial on the merits could not practically reverse a preliminary
decision enjoining
5
<PAGE>
implementation of ITT's Comprehensive Plan until after the
1997 annual meeting, the Motion is subject to heightened scrutiny and the
injunction requested should not issue unless the facts and the law clearly favor
the party requesting such relief. Hilton, 962 F.Supp at 1309 (citations
omitted). Therefore, this Court will apply the standard for permanent injunctive
relief with regard to Hilton's Motion.
"The standards for issuing a permanent injunction are substantially
similar to those applied to requests for preliminary injunctive relief; however,
in order to obtain a permanent injunction plaintiffs must actually succeed on
the merits of their claims." Coleman v. Wilson, 912 F.Supp. 1282, 1311 (E.D. CA.
1995) (citing Sierra Club v. Penfold, 857 F.2d 1307, 1318 (9th Cir. 1988)).
The requests for declaratory relief advanced by ITT and Hilton are
governed by Rule 57 of the Federal Rules of Civil Procedure and 28 U.S.C. (S)
2201.
III. DISCUSSION
This case involves consideration of the powers and duties of the board
of directors of a Nevada corporation in responding to a hostile takeover
attempt, and the importance of protecting the franchise of the shareholders of
the corporation in the process.
Many courts have grappled with legal issues presented by the strategies
employed by hostile bidders, such as Hilton, and the concomitant anti-takeover
defensive measures utilized by
6
<PAGE>
target companies, such as ITT. Coupling an unsolicited tender offer with a proxy
contest to replace the incumbent board is a favored strategy of would-be
acquirors. A variety of sophisticated defensive measures, including "poison
pill" plans have also evolved to frustrate a host of takeover attempts. As a
result, "replacing the incumbent directors of the target corporation is viewed
as an efficient way to eliminate the target company's ability to utilize these
anti-takeover defenses." Kidsco v. Dinsmore III, 674 A.2d 483, 490 (Del. Ch.
1995). See also Unitrin, Inc. v. American Gen. Corp., 651 A.2d 1361, 1379 (Del.
1995).
Nevada state case law is virtually silent on the subject. However,
provisions of Chapter 78 of the Nevada Revised Statutes ("N.R.S.") speak to the
respective rights and duties of directors and officers of corporations, and the
rights of corporate stockholders. Nevada's statutory scheme does not, however,
provide clear guidance in this case. While N.R.S. (S) 78.138 addresses several
powers of a corporate board in undertaking defensive measures to resist a
hostile takeover, nothing in the Nevada statutes, or elsewhere in the law of
Nevada, authorizes the incumbent board of a corporation to entrench itself by
effectively removing the right of the corporation's shareholders to vote on who
may serve on the board of the corporation in which they own a share. Whether a
target corporation such as ITT can do so in the face of a hostile takeover
attempt by Hilton is the dispositive issue presented in this case.
7
<PAGE>
Where, as here, there is no Nevada statutory or case law on point for an
issue of corporate law, this Court finds persuasive authority in Delaware case
law. Shoen v. AMERCO, 885 F. Supp. 1332, 1341 n.20 (D. Nev. 1994).
A. LEGAL FRAMEWORK FOR BOARD ACTION IN RESPONSE TO A PROXY CONTEST AND
TENDER OFFER.
As this case involves both a tender offer and a proxy contest by Hilton,
the proper legal standard is a Unocal/Blasius analysis as articulated in Stroud
v. Grace, 606 A.2d 75, 92 n.3 (Del. 1992), and Unitrin, 651 A.2d at 1379.
In assessing a challenge to defensive actions by a target corporation's
board of directors in a takeover context, this Court has held that the
Court of Chancery should evaluate the board's overall response,
including the justification for each contested defensive measure, and
the results achieved thereby. Where all of the target board's defensive
actions are inextricably related, the principles of Unocal require that
such actions be scrutinized collectively as a unitary response to the
perceived threat.
Unitrin, 651 A.2d at 1386-87 (emphasis supplied).
Where an acquiror launches both a proxy fight and a tender offer, it
"necessarily invoke[s] both Unocal and Blasius" because "both [tests]
recognize the inherent conflicts of interest that arise when
shareholders are not permitted free exercise of their franchise. . . .
[I]n certain circumstances, [the judiciary] must recognize the special
import of protecting the shareholders' franchise within Unocal's
requirement that any defensive measure be proportionate and 'reasonable
in relation to the threat posed.'"
Unitrin, 651 A.2d at 1379 (quoting Stroud, 606 A.2d at 92 n.3).
8
<PAGE>
A board's unilateral decision to adopt a defensive measure touching
"upon issues of control" that purposefully disenfranchises its
shareholders is strongly suspect under Unocal, and cannot be sustained
without a "compelling justification."
Stroud, 606 A.2d at 92 n.3.
These cases have drawn a distinction between the exercise of two types
of corporate power: 1) power over the assets of the corporation and 2) the power
relationship between the board (management) and the shareholders. Actions
involving the first type of power invoke the business judgment rule, or Unocal
if an action is in response to a reasonably perceived threat to the corporation.
Actions involving the second power invoke a Blasius analysis. The issues raised
in this case require the Court to focus on the power relationship between ITT's
board and ITT shareholders, not on the ITT board's actions relating to corporate
assets.
Several amicus briefs have been filed on behalf of ITT shareholders,
urging that they be allowed to vote on the Comprehensive Plan and the board of
directors at the 1997 annual meeting. This Court has found no legal basis
mandating a shareholder vote on the adoption of ITT's Comprehensive Plan in its
entirety. However, as the Court finds that the Comprehensive Plan would violate
the power relationship between ITT's board and ITT's shareholders by
impermissibly infringing on the shareholders' right to vote on members of the
board of directors, it must be enjoined.
9
<PAGE>
ITT argues that Nevada does not follow Delaware case law since N.R.S.
(S) 78.138 provides that a board, exercising its powers in good faith and with
an view to the interests of the corporation can resist potential changes in
control of a corporation based on the effect to constituencies other than the
shareholders. However, the corporate rights provided under N.R.S. (S) 78.138 are
not incompatible with the duties articulated in Unocal Corp. v. Mesa Petroleum
Co., 493 A.2d 946 (Del. 1985), Revlon Inc. v. MacAndrews & Forbes Holdings,
Inc., 506 A.2d 173 (Del. 1986) and Blasius Indus., Inc. v. Atlas Corp., 564 A.2d
651 (Del. Ch. 1988).
Delaware case law merely clarifies the basic duties established by the
Nevada statutes. Shoen recognized this, and explicitly found that a good faith
breach of duty was actionable under Nevada corporate law. Neither the Nevada
Legislature in two successive sessions nor the Nevada Supreme Court has
disagreed. ITT would have this Court establish that the only duty a board has
under Nevada law is a duty of good faith. This Court will not eliminate the
principles articulated in Unocal, Blasius and Revlon and the common law duties
of care and loyalty without any indication from the Nevada Legislature or the
Nevada Supreme Court that that is the legislative intent.
Thus, Delaware precedent establishes that a board has power over the
management and assets of a corporation, but that power is not unbridled. That
power is limited by the right of shareholders to vote for the members of the
board. As articulated in Shoen, this right underlies the concept of corporate
democracy. This
10
<PAGE>
Court fully endorses the reasoning in Shoen and Blasius regarding the importance
of the shareholder franchise to the entire scheme of corporate governance. This
Court will, therefore, examine ITT's Comprehensive Plan under the Unocal/Blasius
analysis.
Unocal requires the Court to consider the following two questions: 1)
Does ITT have reasonable grounds for believing a danger to corporate policy and
effectiveness exists? 2) Is the response reasonable in relation to the threat?
If it is a defensive measure touching on issues of control, the court must
examine whether the board purposefully disenfranchised its shareholders, an
action that cannot be sustained without a compelling justification. Stroud, 606
A.2d at 92 n.3.
1. THE CLASSIFIED BOARD FOR ITT DESTINATIONS
The first defensive action this Court will analyze under the Unocal
standard is the provision in the Comprehensive Plan for a classified board for
ITT Destinations.
A. REASONABLE GROUNDS FOR BELIEVING A THREAT TO CORPORATE POLICY
AND EFFECTIVENESS EXISTS.
Nine of ITT's eleven directors are outside directors. Under Unocal, such
a majority materially enhances evidence that a hostile offer presents a threat
warranting a defensive response. Unitrin, 651 A.2d at 1375.
ITT argues strenuously that the Comprehensive Plan is better than
Hilton's offer. This is not for the Court to decide, and it is not determinative
under its analysis. Under Unocal, a court must first determine if there is a
threat to corporate
11
<PAGE>
policy and effectiveness. ITT has failed to demonstrate such a threat.
ITT has made no showing that Hilton will pursue a different corporate
policy than ITT seeks to implement through its Comprehensive Plan. In fact, over
the past few months, ITT has to a large extent adopted Hilton's proposed
strategy of how it says it will govern ITT if its slate of directors is elected.
There has also been no showing of Hilton's inability or ineffectiveness to run
ITT if it does succeed in its takeover attempt. ITT cites to the fact that some
Sheraton franchise owners will be unhappy if Hilton enters into certain
management contracts, but this is not fundamental or pervasive enough to
constitute a "threat" to ITT's corporate policy or effectiveness.
The ITT board has also failed to meet its burden of showing "good faith
and reasonable investigation" of a threat to corporate policy or effectiveness
which would meet the burden placed on the board under the first prong of the
Unocal test. Since Hilton's tender offer was announced, the ITT board has not
met with Hilton to discuss the offer. Moreover, the overwhelming majority of
ITT's evidence of good faith relates to its approval of the Comprehensive Plan,
not to the inadequacy of Hilton's offer.
The sole "threat" ITT points to is that Hilton's offer of $70 a share is
inadequate, primarily because this price does not contain a control premium.
However, at the August 14, 1997, ITT board meeting, Goldman Sachs told the ITT
board that the market valued ITT's plan at $62 to $64 dollars a share. This
contradicts
12
<PAGE>
ITT's argument that there is no control premium over market price
contained in Hilton's offer. That ITT itself was offering to buy back roughly
26% of its stock at $70 a share does not nullify this fact.
The only attempt ITT has made to satisfy the first prong of the Unocal
analysis is to argue that Hilton's price is inadequate. However, while
inadequacy of an offer is a legally cognizable threat, Paramount Communications,
Inc. v. Time, Inc., 571 A.2d 1140, 1153 (Del. 1990), ITT has shown no real harm
to corporate policy or effectiveness. The facts in Unocal illustrate this point
well. Unocal involved a tender offer with a back-end offer of junk bonds. 493
A.2d at 949-950. Junk bond financing could reasonably harm the future policy and
effectiveness of a company. As ITT itself is offering only $70 a share, and the
Comprehensive Plan involves greatly increasing the leveraging of ITT, its claim
that Hilton's offer of $70 a share is a threat to policy or effectiveness is
unpersuasive. In light of these facts, the alleged inadequacy of Hilton's offer
is not a severe threat to ITT. Under the proportionality requirement, the nature
of Hilton's threat will set the parameters for the range of permissible
defensive tactics under the second prong of the Unocal test. Unitrin, 651 A.2d
at 1384.
B. ITT'S RESPONSE WAS PRECLUSIVE
Assuming Hilton's offer constitutes a cognizable threat under Unocal,
ITT's response cannot be preclusive or coercive, and it must be within the range
of reasonableness. As articulated in
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Unitrin, a board cannot "cramm down" on shareholders a management sponsored
alternative. Unitrin, 651 A.2d at 1387. The installation of a classified board
for ITT Destinations, a company which will encompass 93% of the current ITT's
assets and 87% of its revenues, is clearly preclusive and coercive under
Unitrin. The classified board provision for ITT Destinations will preclude
current ITT shareholders from exercising a right they currently possess - to
determine the membership of the board of ITT. At the very minimum, ITT
shareholders will have no choice but to accept the Comprehensive Plan and a
majority of ITT's incumbent board members for another year. Therefore, the
Comprehensive Plan is preclusive.
C. THE PRIMARY PURPOSE OF THE COMPREHENSIVE PLAN IS TO INTERFERE
WITH SHAREHOLDER FRANCHISE
ITT's response to Hilton's tender offer touches upon issues of control,
and this Court must determine whether the response purposefully disenfranchises
ITT's shareholders. If so, under the analysis of Stroud and Unitrin, it is not a
reasonable response unless a "compelling justification" exists. It is important
to note that in Blasius, the board did something that normally would be entirely
permissible under Delaware law and its own by-laws: it expanded the board from
seven to nine individuals. It did this in the face of a hostile takeover by a
company financed through "junk bonds" and two individuals who sought to
substantially "cash out" many of the target corporation's assets. Blasius, 564
A.2d at 653-54. Still, while the board in Blasius had a good faith reason
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to act as it did, and it acted with appropriate care, the board could not
lawfully prevent the shareholders from electing a majority of new directors.
Blasius' factual scenario is strikingly similar to the circumstances
surrounding ITT's actions. Normally, a corporation is free to adopt a classified
board structure. In fact many companies, including Hilton, have classified
boards. As long as the classified board is adopted in the proper manner, whether
through charter amendment, changes in the by-laws of a company or through
shareholder vote, it is permissible. However, Blasius illustrates that even if
an action is normally permissible, and the board adopts it in good faith and
with proper care, a board cannot undertake such action if the primary purpose is
to disenfranchise the shareholders in light of a proxy contest. Blasius, 564
A.2d at 652. Thus, while ITT could normally adopt a classified board or issue a
dividend of shares creating ITT Destinations, it cannot undertake these actions
if the primary purpose is to disenfranchise ITT shareholders in light of
Hilton's tender offer and proxy contest.
As a board would likely never concede that its primary purpose was to
entrench itself, this Court must look to circumstantial evidence to determine
the primary purpose of ITT's action touching upon issues of control. While none
of the following factors are dispositive, collectively they eliminate all
questions of material fact, and demonstrate that the primary
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purpose of ITT's Comprehensive Plan was to disenfranchise its shareholders.
I. TIMING
The intent evidenced by the timing of the Comprehensive Plan is
transparent. Although ITT claims that a spin-off or sale was contemplated before
Hilton's tender offer, it makes no mention of when the board determined to move
from an annually elected board to a classified board. Moreover, all aspects of
ITT's Comprehensive Plan were formulated against the backdrop of Hilton's tender
offer and proxy contest, and the Plan was not announced until well after
Hilton's initial tender offer. Finally, this major restructuring of ITT was
announced and to be implemented in a little over two months, and designed to
take effect less than two months before the annual meeting was to be held at
which shareholders would have the opportunity to vote on an annually elected
rather than a classified board.
II. ENTRENCHMENT
The ITT directors who are approving the Comprehensive Plan are the same
directors who will fill the classified board positions of ITT Destinations. ITT
and its advisors recognized from the outset that they were vulnerable because
they did not have a staggered board of directors. The members of ITT's board are
appointing themselves to new, more insulated positions, and at least seven of
the eleven directors are avoiding the shareholder vote that would otherwise
occur at ITT's 1997 annual meeting. While companies may convert from annual to
classified boards, as
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Blasius illustrates, the rub is in the details. It is the manner of adopting the
Comprehensive Plan with its provision for a new certified board comprised of
incumbent ITT directors which supports the conclusion that ITT's Plan is
primarily designed to entrench the incumbent board.
III. ITT'S STATED PURPOSE
ITT has offered no credible justification for not seeking shareholder
approval of the Comprehensive Plan. ITT simply claims that it wants to "avoid
market risks and other business problems." (pp. 10-11 of ITT's Opposition). Such
vague generalizations do not approach the required showing of a reasonable
justification other than entrenchment for the board's action. Simply stating
that its "advisors" suggested a rapid implementation of the Comprehensive Plan,
without pointing to a specific risk or problem, is insufficient to meet ITT's
burden.
IV. BENEFITS OF COMPREHENSIVE PLAN
ITT argues that there are economic benefits to the Comprehensive Plan, and
general benefits of the classified board provision for ITT Destinations.
That may be true, but the additional benefits of a plan infringing on
shareholder voting rights do not remedy the fundamental flaw of board
entrenchment.
V. EFFECT OF CLASSIFIED BOARD
The classified board provision for ITT Destinations under ITT's
Comprehensive Plan ensures that ITT shareholders will be absolutely precluded
from electing a majority of the directors nominated under Hilton's proxy contest
at the 1997 annual meeting.
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Such a Plan, coupled with ITT's vehement opposition to Hilton's tender offer, is
inconsistent with ITT's earlier argument that a delay of the 1997 annual meeting
from May to November would afford shareholders additional time to inform
themselves and more fully consider the implications of their vote for directors
at the 1997 annual meeting .
ITT's position is particularly anomalous given the fact that when ITT
previously split the company in 1995, it sought shareholder approval. While
shareholder approval may not be absolutely required to split ITT now anymore
than it was in 1995, the fact that the ITT board decided to subject the 1995
split of the company to a shareholder vote is strong evidence that the primary
purpose of its attempts to implement the Comprehensive Plan prior to the 1997
annual meeting is to entrench the incumbent ITT board.
VI. FAILURE TO OBTAIN AN IRS OPINION AS TO EFFECTS OF
THE COMPREHENSIVE PLAN
ITT is not seeking an Internal Revenue Service opinion regarding the tax
consequences of the three-way split of ITT under the Comprehensive Plan. It is
doubtful that an Internal Revenue Service opinion on the matter could be
obtained before ITT's 1997 annual meeting. Furthermore, there are serious
questions as to the extent to which implementation of the Comprehensive Plan
will constitute a taxable event to ITT and its shareholders, or the extent to
which Hilton would incur adverse tax consequences if it attempted to takeover
ITT Destinations once the Comprehensive Plan
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is implemented. ITT dismisses these concerns by arguing that its attorneys
advise that there are no adverse tax consequences under the Comprehensive Plan.
However, the record demonstrates otherwise. ITT's counsel conceded that there is
no binding precedent on point and that the issue was not free from doubt. While
obtaining a tax opinion from the Internal Revenue Service may not be mandatory,
ITT's failure to seriously consider obtaining such an opinion provides
additional evidence that ITT's primary intention in implementing the
Comprehensive Plan at this time was to impede the shareholder franchise .
2. OTHER PROVISIONS OF THE COMPREHENSIVE PLAN
This Court's analysis regarding the threat to ITT under the first prong
of Unocal is equally applicable to the remaining elements of the Comprehensive
Plan. Whether the other aspects of ITT's Comprehensive Plan violate the second
step of the Unocal analysis, that is whether they are preclusive or coercive, is
problematic. Certainly the record before the Court supports Hilton's contention
that the "tax poison pill" relating to its potential purchase of ITT
Destinations is preclusive and coercive. Hilton also argues that ITT's Plan is
coercive because ITT is offering $70.00 a share for only 26% of the stock. Since
the trading value of the stock is $62.00 to $64.00 per share, shareholders will
have to tender their shares immediately to avoid a financial loss. These
arguments create serious questions as to whether the other elements of the
Comprehensive Plan are preclusive and coercive.
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The Unocal test is also referred to as a "proportionality test." see,
e.g., Unitrin, 651 A.2d at 1384. Serious questions remain as to whether the
Comprehensive Plan is reasonable in relation to the threat posed by Hilton's
offer. The Comprehensive Plan entails a split-up of ITT and spin-off of 93% of
the company's assets without a shareholder vote. There are important tax
considerations, both the "tax poison pill" discussed above and the relative tax
burdens of spinning off World Directories as opposed to one of the smaller
entities. Additionally, other aspects of the financial restructuring involved in
the Comprehensive Plan illustrate that the plan is extremely complex, and that
the three ITTs emerging from the plan will be fundamentally different companies.
Serious questions exist as to whether the remaining provisions of the
Comprehensive Plan are preclusive or coercive, or reasonable responses under
Unocal. This Court finds it unnecessary, however, to undertake an exhaustive
analysis of the laundry list of issues presented by both parties. The different
provisions of the Comprehensive Plan are inextricably related, and this Court
has already concluded that the staggered board provision is preclusive and was
enacted for the primary purpose of entrenching the current board. Therefore, the
entire Comprehensive Plan must be enjoined.
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3. DUTY TO MAXIMIZE VALUE TO SHAREHOLDERS UNDER REVLON
Hilton further argues that injunctive relief is warranted based on an
analysis of the Comprehensive Plan under the Revlon standard. The Court finds
that Hilton has not extinguished all material facts as to whether the
Comprehensive Plan involves: 1) an abandonment of the long-term strategy of ITT
involving a breakup of the company or 2) a sale of control is contemplated in
Revlon and Paramount v. QVC, 637 A.2d 34 (Del. 1994). Therefore, permanent
injunctive relief on this basis is not warranted.
IV. CONCLUSION
Earlier in this litigation, the Court fully embraced pertinent language
in Shoen and Blasius regarding the importance of the shareholder franchise.
Hilton, 962 F. Supp. at 1310. Those principles encompass fundamental concepts of
corporate governance and bear repetition.
Shareholders do not exercise day-to-day business judgments regarding the
operation of a corporation -- those are matters left to the reasonable
discretion of directors, officers and the corporation's management team.
Corporate boards have great latitude in exercising their business judgments as
they should. As a result, shareholders generally have only two protections
against perceived inadequate business performance. They may sell their stock or
vote to replace incumbent board members. For this reason, interference with the
shareholder franchise is especially
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serious. It is not to be left to the board's business judgment, precisely
because it undercuts a primary justification for allowing directors to rely on
their business judgment in almost every other context. Indeed, as the court in
Shoen noted, "one of the justifications for the business judgment rule's
insulation of directors from liability for almost all of their decisions is that
unhappy shareholders can always vote the directors out of office." Shoen, 885 F.
Supp. at 1340.
As this Court has noted previously, "'inquiries concerning fiduciary
duties are inherently particularized and contextual. It is probably not possible
to work out rules that will be perfectly predictive of future cases involving
claimed impediments to the shareholder vote. It is sufficient to express a
reasoned judgment on the facts presented.'" Hilton, 962 F. Supp. at 1311
(quoting Stahl, 579 A.2d at 1125).
ITT strongly argues that its Comprehensive Plan is superior to Hilton's
alternative tender offer. This argument should be directed to ITT's
shareholders, not this Court.
ITT also claims that it has properly considered other constituencies in
responding to Hilton's offer, as it is expressly allowed to do under N.R.S. (S)
78.138. ITT is correct. Other constituencies may be considered under that
provision, but nothing in that statute suggests that the interests of third
parties are as important as the right of shareholder franchise. While the two
interests are not exclusive, neither are they equal. The right of shareholders
to vote on directors at an annual meeting is a
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fundamental principle of corporate law, and it is not outweighed by the
interests listed in N.R.S. (S) 78.138.
Likewise, the good faith of the ITT board in implementing the
Comprehensive Plan does not change this Court's analysis. Shoen, relying on
Blasius, recognized a good faith breach of duty under Nevada law. Simply put,
there is no compelling justification for infringement of the shareholder
franchise as proposed by the implementation of ITT's Comprehensive Plan before
the 1997 annual meeting.
The ultimate outcome of the election of directors at ITT's 1997 annual
meeting is not a relevant inquiry for this Court. That is something for the
shareholders who own ITT to decide when they select the board who will lead the
corporation. If a majority of the incumbent ITT board is re-elected after a
fully-informed and fair shareholder vote, that board will be free to implement
any business plan it chooses so long as that plan is consistent with ITT's
charter and by-laws, and governing law.
This Court concludes that the structure and timing of ITT's
Comprehensive Plan with its classified board provision for ITT Destinations, is
preclusive and leaves no doubt that the primary purpose for ITT's proposed
implementation of the Comprehensive Plan before the 1997 annual meeting is to
impermissibly impede the exercise of the shareholder franchise by depriving
shareholders of the opportunity to vote to re-elect or to oust all or as many of
the incumbent ITT directors as they may choose at the upcoming annual meeting.
It has as its primary purpose the entrenchment of
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the incumbent ITT board. As a result, the Court concludes that Hilton has
prevailed on the merits of its claim for permanent injunctive relief.
IT IS THEREFORE ORDERED that Hilton's Motion for Permanent Injunctive
Relief (#29) is granted to the extent that ITT is hereby enjoined from
implementing its Comprehensive Plan announced July 15, 1997.
IT IS FURTHER ORDERED that ITT's annual meeting shall be held no later
than November 14, 1997.
IT IS FURTHER ORDERED that Hilton's Motion for Declaratory and
Injunctive Relief (#29) and ITT's Complaint for Declaratory Relief (#1) are
denied in all other respects.
DATED: October 2, 1997
/s/ PHILIP M. PRO
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PHILIP M. PRO
United States District Judge
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