SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
Schedule 14D-1
Tender Offer Statement
(Amendment No. 4)
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 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE
SUBJECT COMPANY.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF
THE BIDDER.
On February 12, 1997, Stephen F. Bollenbach, Presi-
dent and Chief Executive Officer of Parent, received a letter
from Rand V. Araskog, Chairman and Chief Executive Officer of
the Company. The full text of Mr. Araskog's letter is filed
herewith as Exhibit (g)(7) and is incorporated herein by refer-
ence.
The full text of a press release, dated February 12,
1997, issued by Parent is filed herewith as Exhibit (a)(10) and
is incorporated herein by reference.
On February 13, 1997, Mr. Bollenbach sent a letter to
Mr. Araskog. The full text of Mr. Bollenbach's letter is filed
herewith as Exhibit (g)(8) and is incorporated herein by refer-
ence.<PAGE>
ITEM 10. ADDITIONAL INFORMATION.
On February 12, 1997, Parent filed a Notification and
Report Form with the FTC and the Antitrust Division with respect
to the Offer and Proposed Merger under the HSR Act. The re-
quired waiting period with respect to the Offer and the Pro-
posed Merger will expire at 11:59 p.m., New York City time, on
February 27, 1997, unless earlier terminated by the FTC or the
Antitrust Divison, or unless Parent receives a request for
additional information or documentary material prior thereto, in
which event the waiting period will expire at 11:59 p.m., New York
City time, on the tenth calendar day after Parent has substan-
tially complied with such request.
On February 12, 1997, the Company filed an Answer and
Counterclaim to the Complaint previously filed by Parent and
the Purchaser in the United States District Court for the Dis-
trict of Nevada. The full text of the Company's Answer and
Counterclaim is filed herewith as Exhibit (g)(9) and is incor-
porated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(10) Press Release, dated February 12, 1997, issued by
Parent.
(g)(7) Letter dated February 11, 1997 from Rand V. Araskog
to Stephen F. Bollenbach.
(g)(8) Letter dated February 13, 1997 from Stephen F. Bol-
lenbach to Rand V. Araskog.
(g)(9) Answer and Counterclaim of the Company dated Febru-
ary 12, 1997, filed in the United States District
Court for the District of Nevada.
-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: February 13, 1997
HILTON HOTELS CORPORATION
By: /s/ Matthew J. Hart
Name: Matthew J. Hart
Title: Executive Vice President
and Chief Financial Officer
-3-<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: February 13, 1997
HLT CORPORATION
By: /s/ Arthur M. Goldebrg
Name: Arthur M. Golberg
Title: President
-4-<PAGE>
EXHIBIT INDEX
Exhibit Description
(a)(10) Press Release, dated February 12, 1997, issued by
Parent.
(g)(7) Letter dated February 11, 1997 from Rand V. Araskog
to Stephen F. Bollenbach.
(g)(8) Letter dated February 13, 1997 from Stephen F. Bol-
lenbach to Rand V. Araskog.
(g)(9) Answer and Counterclaim of the Company dated Febru-
ary 12, 1997, filed in the United States District
Court for the District of Nevada.
EXHIBIT (a)(10)
[Letterhead of Hilton Hotels Corporation]
CORPORATE NEWS
Contact: Marc Grossman
Sr. Vice President - Corporate Affairs
310-205-4030
Kathy Shepard
Corporate Communications
310-205-7676
Joele Frank
Abernathy MacGregor
212-371-5999
HILTON RESPONDS TO ITT CORPORATION'S REJECTION OF OFFER
Beverly Hills, Calif., February 12, 1997 -- Hilton Hotels Corporation
(NYSE:HLT), in response to ITT Corporation's (NYSE:ITT) rejection of Hilton's
$55-per-share acquisition offer, expressed its disappointment in ITT's continued
refusal to meet with Hilton to discuss a transaction.
"We have put a strong offer on the table, and remain convinced that
this combination is in the best interests of ITT's shareholders," said Stephen
F. Bollenbach, president and chief executive officer of Hilton Hotels
Corporation. "The response from shareholders and analysts has been
overwhelmingly positive, and we have been more than ready to meet with ITT's
Board and management to work toward the prompt consummation of a negotiated
transaction. While we still hope that ITT will ultimately sit down and talk with
us, we have also been quite clear in our commitment to making this transaction a
reality, including taking the matter directly to ITT's shareholders."
Hilton noted that, earlier this week, it had notified ITT of its
intention to nominate candidates to replace ITT's Board of Directors if that is
necessary in order to complete the combination of the two companies.
EXHIBIT (G)(7)
[ITT LETTERHEAD]
February 12, 1997
Mr. Stephen F. Bollenbach
President & CEO
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Dear Mr. Bollenbach:
In regard to your letter dated February 11, 1997 ad-
dressed to me and copied to the Board of Directors of ITT Cor-
poration, I believe that the recommendation of the Board, as
referred to in the attached press release issued earlier today,
is self-explanatory. A Solicitation/Recommendation Statement
on Schedule 14D-9 will be delivered as soon as practicable.
Sincerely,
/s/ Rand V. Araskog
Rand V. Araskog
EXHIBIT (G)(8)
[Letterhead of Hilton Hotels Corporation]
February 13, 1997
Mr. Rand V. Araskog
Chairman and Chief Executive Officer
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019-5490
Dear Mr. Araskog:
While we are disappointed with your continued unwillingness to
discuss our offer, we are heartened by the company's public
statement that "the issue is creating shareholder value, both
short- and long-term." We are also heartened that you now
agree with us that a focus on core businesses, and monetization
of nonstrategic assets, will assist the creation of shareholder
value. Our proposed combination is fully consistent with these
goals.
We are, however, concerned with statements, attributed by the
press to "sources close to ITT," that the company will be
"unloading" assets and that the non-core businesses "are going
and going quick." As I am sure you know, a fire sale of these
assets will bring significantly less value than an orderly sale
process. Following the combination of our companies, we will
be able to work together to review all of ITT's non-core assets
and realize the best value for these assets.
The combination of ITT's core businesses with Hilton's will, of
course, further enhance value for both companies' shareholders.
We have structured our offer to give your shareholders a
substantial premium for their shares now while, at the same
time, allowing them to participate in the significant long-term
value created by the combination of our companies. The
creation of shareholder value, both short- and long-term, is
precisely what our proposal will accomplish.
We continue to hope that you will meet with us promptly so that
we may negotiate a transaction that is in the interests of both
companies' shareholders. Failing this, as you know, we plan to
bring the question directly to your shareholders at your
regularly held May annual meeting. Once again, I look forward
to hearing from you.
Sincerely,
/s/ Stephen F. Bollenbach
Stephen F. Bollenbach
EXHIBIT (G)(9)
THOMAS F. KUMMER
VON S. HEINZ
KUMMER KAEMPFER BONNER & RENSHAW
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
(702) 792-7000
Attorneys for Defendant
ITT CORPORATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
HILTON HOTELS CORPORATION and )
HLT CORPORATION, ) Case No. CV-S-97-95-PMP(RLH)
)
Plaintiffs, )
)
vs. )
)
ITT CORPORATION, )
Defendant.
- -----------------------------------
ITT CORPORATION, )
)
Defendant and )
Counterclaimant, )
)
vs. )
)
HILTON HOTELS CORPORATION and )
HLT CORPORATION, )
)
Plaintiffs and )
Counterdefendants. )
- -----------------------------------
ITT CORPORATION'S ANSWER AND COUNTERCLAIM
<PAGE>
Defendant ITT Corporation ("ITT"), for its answer to the complaint of
plaintiffs Hilton Hotels Corporation and HLT Corporation (collectively
"Hilton"), admits, denies and alleges as follows:
NATURE OF THE ACTION
1. ITT denies the allegations of the first sentence of paragraph 1,
except admits that on January 27, 1997, Hilton issued a press release entitled
"Hilton Offers to Acquire ITT Corporation" and refers to that press release for
its contents. ITT denies knowledge or information sufficient to form a belief
as to the truth of the second and third sentences of paragraph 1
2
<PAGE>
regarding Hilton's motivations in bringing this Complaint and refers to the
Complaint for its contents.
2. ITT admits the allegations of paragraph 2.
3. ITT admits the allegations of the first sentence of paragraph 3, and,
with respect to the allegations of the second sentence of that paragraph, admits
that HLT Corporation is a wholly-owned subsidiary of Hilton Hotels Corporation
and denies all remaining allegations on lack of information and belief.
4. ITT admits the allegations of paragraph 4.
JURISDICTION AND VENUE
5. ITT admits the allegations of paragraph 5 that jurisdiction exists
pursuant to 28 U.S.C. Section 1332(a) and further admits that, as to Hilton's
claims arising under the Federal antitrust laws, jurisdiction exists pursuant to
28 U.S.C. Sections 1331 and 1337 and 15 U.S.C. Sections 4 and 26 but denies that
jurisdiction exists pursuant to any Federal question other than Federal
antitrust laws.
6. ITT admits the allegations of paragraph 6 that venue is proper in the
unofficial southern division of the District of Nevada pursuant to 28 U.S.C.
Section 1391 (b) and (c) and LR 1A 8-1, and admits that venue is proper as to
Hilton's claims arising under the Federal antitrust laws under 15 U.S.C.
Sections 15, 22 and 26 but denies those provisions are applicable for any other
reason.
THE PROXY CONTEXT
7. Answering the allegations of paragraph 7, ITT admits in the last
quarter of 1996 an investment banker telephoned one of ITT's advisors and asked
whether ITT was interested in engaging
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<PAGE>
in preliminary, general discussions concerning a transaction between the two
corporations, and that the ITT advisor informed the investment banker that
ITT was not interested in such discussions and, except as so admitted, ITT
denies all remaining allegations of that paragraph.
8. ITT denies knowledge or information sufficient to form a belief as to
the motivations of Hilton described in paragraph 8; admits that on January 27,
1997, Hilton issued a press release entitled "Hilton Offers to Acquire ITT
Corporation" and refers to that press release for its contents; and denies the
remaining allegations of paragraph 8.
9. ITT denies the allegations of paragraph 9.
10. ITT denies the allegations of the first sentence of paragraph 10, and
denies knowledge or information sufficient to form a belief as to the truth of
the allegations in the second sentence of paragraph 10.
ITT'S BY-LAWS
11. As to the first three sentences of paragraph 11, ITT admits that it
has Amended and Restated By-Laws and refers to those By-Laws for their contents
and, except as so admitted, ITT denies the remaining allegations of the first
three sentences of paragraph 11. As to the fourth sentence of paragraph 11, ITT
admits that an August 30, 1995 Notice of Special Meeting and Proxy Statement
described to the stockholders, among other things, various aspects of the
Company's By-Laws and Nevada law and refers to the Proxy Statement for its
contents and, except as so admitted, ITT denies the remaining allegations of the
fourth sentence of paragraph 11.
4
<PAGE>
12. As to the first sentence of paragraph 12, ITT admits that the 1996
annual meeting of stockholders was held on May 14, 1996 and that the
stockholders elected 11 directors to the ITT board. As to the second sentence
of paragraph 12, ITT denies knowledge or information sufficient to form a belief
as to the intentions of Hilton and admits the existence of the ITT By-Laws and
refers to the By-Laws for their content. ITT denies the remaining allegations
of paragraph 12.
FIRST CLAIM FOR RELIEF
(Injunctive Relief)
13. Answering the allegations of paragraph 13, ITT repeats and realleges
its answers to paragraphs 1 through 12, inclusive, as if fully restated herein.
14. ITT alleges that the self-serving and speculative allegations of
paragraph 14 call for a legal conclusion, and that ITT is required neither to
admit nor to deny in response.
15. With respect to the allegations of paragraph 15, ITT admits the
existence of the ITT By-Laws, and refers to them for their content and denies
the rest of the allegations.
16. ITT denies knowledge or information sufficient to form a belief as to
the truth of the allegations of paragraph 16.
17. ITT alleges that the allegations of paragraph 17 are speculative and
call for a legal conclusion and that ITT is required neither to admit nor to
deny in response.
18. ITT denies the allegations of paragraph 18.
SECOND CLAIM FOR RELIEF
(Injunctive Relief)
19. Answering the allegations of paragraph 19, ITT repeats
5
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and realleges its answers to paragraphs 1 through 18, inclusive, as if fully
restated herein.
20. With respect to the allegations of paragraph 20, ITT admits there is a
Rights Agreement between ITT and the Bank of New York as Rights Agent and that
an August 30, 1995 Notice of Special Meeting and Proxy Statement described to
the stockholders, among other things, the Rights Agreement and refers to the
Rights Agreement and the Proxy Statement for their contents. Except as so
admitted, ITT denies the allegations of paragraph 20.
21. With respect to the first sentence of paragraph 21, ITT admits the
existence of Nevada General Corporation Law Sections 78.378 to 78.3793 relating
to control share acquisitions and Sections 78.411 to 78.444 relating to certain
business combinations and refers to those statutes for their contents. With
respect to the second sentence of paragraph 21, ITT admits that an August 30,
1995 Notice of Special Meeting and Proxy Statement described to the
stockholders, among other things, various aspects of the Company's By-Laws and
Nevada law and refers to the Proxy Statement for its contents. Except as so
admitted, ITT denies the allegations of paragraph 21.
22. With respect to the allegations of paragraph 22, ITT admits the
existence of Nevada General Corporation Law Sections 78.378 to 78.3793 relating
to control share acquisitions and refers to those statutes for their contents
and admits that ITT's Amended and Restated Articles of Incorporation and By-Laws
do not exclude ITT from those provisions. Except as so admitted, ITT denies the
allegations of paragraph 22.
6
<PAGE>
23. With respect to the allegations of paragraph 23, ITT admits the
existence of Nevada General Corporation Law Sections 78.411 to 78.444 relating
to certain business combinations and refers to those statutes for their contents
and, except as so admitted, ITT denies the remaining allegations of paragraph
23.
24. ITT denies the allegations of paragraph 24.
25. ITT denies the allegations of paragraph 25.
THIRD CLAIM FOR RELIEF
(Declaratory Relief)
26. Answering the allegations of paragraph 26, ITT repeats and realleges
its answers to paragraphs 1 through 25, inclusive, as if fully restated herein.
27. ITT admits the allegations of the first sentence of paragraph 27. As
to the second sentence of paragraph 27, ITT admits that it has filed with the
Securities and Exchange Commission a Form 10-K for the fiscal year ended
December 31, 1995, and refers to the Form 10-K for its contents. Except as so
admitted, ITT denies the allegations of paragraph 27.
28. ITT denies the allegations of paragraph 28.
29. ITT denies the allegations of paragraph 29.
30. ITT denies the allegations of paragraph 30, except admits that
Hilton's Offer and Proposed Squeeze Out Merger violate the antitrust laws.
31. ITT denies the allegations of paragraph 31.
AFFIRMATIVE DEFENSES
FIRST AFFIRMATIVE DEFENSE
The complaint fails to state a claim upon which relief can be granted.
7
<PAGE>
SECOND AFFIRMATIVE DEFENSE
The complaint fails to state a case or controversy sufficient to support
the grant of any form of declaratory relief.
THIRD AFFIRMATIVE DEFENSE
The complaint fails to set forth the necessary elements to support the
grant of any form of injunctive relief.
FOURTH AFFIRMATIVE DEFENSE
Hilton's claims for relief are barred by the doctrine of unclean hands.
FIFTH AFFIRMATIVE DEFENSE
Hilton's claims for relief are barred by the doctrine of estoppel.
SIXTH AFFIRMATIVE DEFENSE
This Court should enter judgment that Hilton's Offer and Proposed Squeeze
Out Merger violate the antitrust laws.
COUNTERCLAIM
Defendant and counterclaimant ITT Corporation ("ITT"), for its
Counterclaim against plaintiffs and counterdefendants Hilton Hotels Corporation
and HLT Corporation (collectively, "Hilton"), alleges upon knowledge with
respect to its own acts and upon information and belief as to all other matters,
as follows:
JURISDICTION AND VENUE
1. This court has jurisdiction over this Counterclaim pursuant to 28
U.S.C. Sections 1331, 1332 and 1337 and 15 U.S.C. Section 78aa.
8
<PAGE>
2. Venue is proper in the unofficial Southern Division of this District
pursuant to 28 U.S.C. Section 1391, 15 U.S.C. Section 78aa and LR 1A 8-1.
THE PARTIES
3. ITT is a corporation organized and existing under the laws of the
State of Nevada, with its principal executive offices maintained in New York,
New York.
4. Hilton Hotels Corporation is a corporation organized and existing
under the laws of the State of Delaware, with its principal executive offices in
Beverly Hills, California.
5. HLT Corporation is a corporation organized and existing under the laws
of the State of Delaware, with its principal place of business in Beverly Hills,
California. HLT Corporation is a wholly-owned subsidiary of Hilton Hotels
Corporation.
NATURE OF THE COUNTERCLAIM
6. Nevada law explicitly permits ITT's Board of Directors to consider a
wide variety of factors in determining how to respond to Hilton's two-tiered,
front-end loaded, coercive tender offer (the "Offer"). Those factors, as
specified in N.R.S. Section 78.138, include the interests of ITT's employees,
suppliers, creditors and customers; the economy of the State and Nation; the
interests of the community and of society; and the long-term and short-term
interests of the corporation and its stockholders, including the possibility
that these interests may be best served by the continued independence of the
corporation.
9
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7. In considering Hilton's Offer, ITT's Board took the statutory
factors into account. As a result, on February 11, 1997, ITT's Board, a
majority of which consists of independent, outside directors, unanimously
voted to recommend that ITT's stockholders reject the Offer and not tender
their shares. As is set forth more fully in ITT's
Solicitation/Recommendation Statement on Schedule 14D-9 to be mailed to all
ITT stockholders (a copy of which, without the exhibits thereto, is attached
hereto as Exhibit A):
a. the Offer, and Hilton's announced intention, following successful
completion of the Offer, to engage in a merger with ITT in which each
remaining share of ITT common stock would be exchanged for shares of Hilton
common stock nominally valued at $55 (the "Proposed Squeeze Out Merger"),
does not reflect the inherent value of ITT;
b. ITT's financial advisors, Lazard Freres & Co. LLC and Goldman, Sachs &
Co., opined that the consideration to be received by ITT's stockholders in
the Offer and Proposed Squeeze Out Merger is inadequate;
c. pursuit of ITT's strategic plan will produce greater short-term and
long-term value for the stockholders than the Offer and Proposed Squeeze
Out Merger;
d. the Offer and Proposed Squeeze Out Merger are having a disruptive
effect on ITT and have the potential to have an adverse affect on the
interests of ITT's employees, suppliers, creditors and customers; the
economies of the State of Nevada and the Nation; and the interests of the
communities in which ITT operates;
e. due to uncertainties about the actual value of the Proposed Squeeze
Out Merger and the merits of a longer-term investment in Hilton, the Offer
is part of a two-tiered, front-end loaded transaction that is
intended to coerce stockholders to tender their shares into the Offer to
avoid receiving in the Proposed Squeeze Out Merger shares of Hilton common
stock nominally valued at $55, but of uncertain actual value;
f. Hilton fails to disclose information regarding the role of HFS
Incorporated ("HFS") in the Offer and Proposed Squeeze Out Merger,
including the potential negative impact of HFS's involvement on the value
of ITT's Sheraton and Four Points hotel businesses and the risk of
termination of ITT hotel management contracts and franchise agreements;
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g. ITT's Board is concerned about Hilton's access to and misuse of
confidential ITT information; and
h. ITT's Board is concerned about antitrust violations and gaming law
issues relating to a combination of ITT and Hilton which create uncertainty
as to whether the conditions of the Offer will be met.
8. Even before Hilton had actually commenced its two-tiered, front-end
loaded and coercive Offer, it filed a Complaint in this Court relating to, among
other things, the serious antitrust issues raised by the Offer. Thus, in
addition to an entirely speculative claim, unsupported by even a shred of
evidence, that, if Hilton chose to nominate only 11 directors, the Board would
thereafter increase the number of directors to 25 to preclude Hilton from
obtaining a majority, Hilton brought suit against ITT for a declaration that ITT
had no standing to assert antitrust issues against Hilton. So concerned was
Hilton about a lawsuit in the Second Circuit, where Hilton concedes that ITT
would have standing, that Hilton even sought a temporary restraining order
against ITT's filing antitrust claims elsewhere. Indeed, Hilton even purported
to be concerned that ITT would file an antitrust claim in state
court, even though federal courts have exclusive jurisdiction over Sherman Act
and Clayton Act claims.
9. Even though Hilton's lawyers are so concerned about the preclusive
effect of the antitrust laws on the Offer, Hilton has failed to disclose these
risks to ITT's stockholders. Thus, this
11
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Counterclaim addresses Hilton's failure to disclose in its Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") material risks arising out
of these obvious antitrust issues. This is not the only way in which Hilton
has failed to provide ITT's stockholders with sufficient information about
whether to tender, hold or sell their shares. For example, Hilton has failed
to disclose in its Schedule 14D-1 material information concerning the role of
HFS in Hilton's Offer and Proposed Squeeze Out Merger.
10. ITT also brings this Counterclaim because of Hilton's misuse of
confidential ITT information to the detriment of ITT and its stockholders.
Hilton has access to confidential ITT information both through its Board of
Directors and because it has hired Latham & Watkins, one of ITT's outside
counsel. If Hilton is permitted to continue to use this confidential
information, ITT and its stockholders will be irreparably injured. Indeed,
Hilton has disclosed that, from January 21, 1997 through January 24, 1997, and
while in possession of this confidential information, Hilton purchased, on the
open market, a total of 315,500 shares of the common stock of ITT at prices well
below the price in the Offer and even further below ITT's inherent value.
11. This Counterclaim seeks injunctive relief requiring Hilton to
dismiss counsel which are tainted by violation of ethical duties owed to ITT
and prohibiting Hilton from proceeding with the Offer which is tainted by
Hilton's misappropriation and misuse of confidential ITT information. This
Counterclaim also seeks injunctive relief, in the event the Offer is not
enjoined,
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requiring Hilton to disclose and file the information required under the
Federal Securities Laws.
THE FACTS
HILTON'S MISUSE OF CONFIDENTIAL ITT INFORMATION
12. The Offer and Proposed Squeeze Out Merger are the product of the
misuse of confidential ITT information from at least two sources. First,
through certain of its directors, Hilton has had access to confidential ITT
information in violation of a contractual confidentiality agreement. Second,
through counsel, Hilton has had access to confidential ITT information in
violation of ethical duties owed to ITT.
13. In early February 1996, representatives of ITT initiated discussions
with representatives of Bally Entertainment Corporation ("Bally") regarding a
possible acquisition of Bally. To facilitate those discussions, ITT and
Bally executed a Confidentiality Agreement (the "Agreement") on February 16,
1996 (a copy of the Agreement is attached hereto as Exhibit B). In response
to Bally's request for confidential information regarding ITT, ITT disclosed
to Bally, under the Agreement, highly confidential and competitively
sensitive information that is highly valuable to ITT's competitors,
disclosure of which would be very damaging to ITT and its stockholders.
Under the Agreement, which will not expire until February 16, 1998, Bally
agreed that it would keep all Evaluation Material, i.e., all non-public ITT
information, strictly confidential, that it would use the Evaluation Material
solely for the purpose of evaluating the proposed acquisition of Bally by
ITT, and that it would not use
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the Evaluation Material in any way either directly or indirectly detrimental to
ITT.
14. In March 1996, pursuant to the terms of the Agreement, Lee Hillman,
Bally's Chief Financial Offer at the time, and Emanuel "Manny" Pearlman, a
consultant retained by Bally and a long time associate of Arthur Goldberg
(Bally's Chairman and Chief Executive Officer at the time), were permitted to
review highly confidential, non-public, competitively sensitive ITT material
and received certain other highly confidential, non-public, competitively
sensitive information from representatives of ITT (collectively, the "Inside
Information"). Included in the Inside Information reviewed and received by
Hillman and Pearlman were, among other things: (1) highly detailed historical
financial information, (2) asset valuations, (3) operating plans, (4)
expansion plans and (5) other competitive data. ITT did not, and does not,
publicly release such Inside Information. Disclosure of the Inside
Information would irreparably harm ITT and its stockholders because, among
other things, of the unfair advantage it would give to ITT's competitors.
Hillman and Pearlman each separately spent a full workday reviewing the
Inside Information. Although they were not permitted to remove the original
materials from ITT's headquarters, Hillman took copious notes, which he was
permitted to and did take with him.
15. Hillman and Pearlman thereafter discussed with and relayed to Bally's
employees and advisors, including Bally's then-CEO Arthur Goldberg, the Inside
Information they had reviewed and received.
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16. On December 18, 1996, pursuant to an Agreement and Plan of Merger
dated as of June 6, 1996, as amended, Bally merged with and into Hilton.
17. Upon completion of the acquisition of Bally by Hilton, Arthur
Goldberg became a member of Hilton's Board of Directors and was appointed an
Executive Vice President and the President--Gaming Operations of Hilton.
Arthur Goldberg is in possession of the Inside Information, as are other,
presently unknown, former employees and/or representatives of Bally who are
now employed and/or retained by Hilton.
18. Arthur Goldberg has continued to serve on Hilton's Board of Directors
during Hilton's consideration of initiating an offer for ITT and has actively
participated in that process in his capacity as a Director and as Executive Vice
President and President--Gaming Operations.
19. In addition, Hilton has retained outside counsel that has access to
confidential information of ITT.
20. On January 28, 1997, during a conference call with industry analysts,
Stephen Bollenbach, the President and Chief Executive Officer of Hilton, stated
that Hilton's outside legal advisers in connection with the Offer and Proposed
Squeeze Out Merger are Latham & Watkins ("Latham") and Wachtell, Lipton, Rosen &
Katz ("Wachtell").
21. Latham is currently representing ITT and its subsidiaries on very
substantial matters, including antitrust, litigation and regulatory matters.
During the course of such representation, Latham has received privileged
communications, client confidences and highly confidential business plans and
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other strategic information about ITT and its subsidiaries (the "Privileged
Information"). Such information is useful in evaluating ITT and its business.
22. For example, Latham is currently representing ITT and its
subsidiary, ITT Educational Services, Inc. ("ESI") in litigation in San Diego
titled Eldredge, et al. v. ESI, et al. Latham has already been paid over $1
million for its representation in connection with that matter. Latham is
also representing ESI in other current judicial proceedings, and has
represented ESI recently in and legislative proceedings. In the course of
this representation, Latham has been afforded access to, and entrusted with,
highly confidential information regarding ESI's business, including internal
market study reports, private consultant information, confidential regulatory
filings and internal privileged communications. Since Hilton has indicated
that ESI is a business it might divest if the Offer and Proposed Squeeze Out
Merger were consummated, the information entrusted to Latham is material to
Hilton's Offer.
23. Similarly, Latham is regulatory counsel for WBIS, a New York
television station that ITT owns in partnership with Dow Jones & Co. In this
connection Latham has provided advice (WBIS has no separate legal department)
since July 1995, before ITT and Dow Jones & Co. even acquired the station. In
this capacity, Latham has been entrusted with access to highly confidential
business plans for increasing station coverage beyond the immediate New York
metropolitan area. Station coverage is a key factor affecting the value of a
start-up television station.
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Plans for joint marketing with other program suppliers, which may
dramatically affect the value of ITT's investment in WBIS, have also been
disclosed to Latham. Since Hilton has indicated that, if the Offer and
Proposed Squeeze Out Merger are consummated, Hilton might divest ITT's
ownership in WBIS, the information entrusted to Latham is material to
Hilton's Offer.
24. Likewise, Latham is currently antitrust counsel to ITT. In the
course of this representation, Latham has been consulted as to significant
antitrust matters and provided confidential business information concerning
ITT subsidiaries. Most recently, Latham has been provided with privileged
materials, attorney work product and confidential business information as to
competitive strategy, expansion plans and pricing strategy. Such information
is competitively sensitive and germane to valuation of ITT and to advising a
potential bidder for ITT.
25. Latham made no disclosure to ITT prior to undertaking representation
of Hilton in connection with the Offer and Proposed Squeeze Out Merger.
26. Latham's representation of Hilton is adverse to ITT.
27. ITT has not consented to Latham's representation of Hilton.
28. Latham, having been advised by ITT of the ethical problems created by
its simultaneous representation of ITT and Hilton, attempted to withdraw as
counsel to ITT in connection with the Eldredge matter in a letter dated
January 31, 1997. ITT has not agreed to Latham's attempted withdrawal.
Latham's purported withdrawal is null and void.
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29. Latham has evaded ITT's inquiries about Latham's adverse
representation of Hilton. Indeed, Latham has four times refused even to
respond to the question whether it is representing Hilton. First, on January
28, 1997, Theodore J. Fischkin, Assistant General Counsel and Director,
Litigation and Antitrust Compliance for ITT, telephoned Joseph J. Wheeler,
the Latham partner in charge of the Eldredge matter, to discuss ITT's
concerns. Mr. Wheeler informed Mr. Fischkin that he would make inquiries and
call Mr. Fischkin back. After conferring with another Latham partner, Bruce
Rosenblum, Mr. Wheeler would state only that Latham itself would not
"implement" actions hostile to ITT. Mr. Wheeler was unable to answer
questions about Latham's role in Hilton's Offer or to explain why no
disclosures had been made to ITT. ITT was subsequently informed that
Latham's position would be explained by Donald P. Newell, Esq., a member of
Latham's Executive Committee. Second, Mr. Newell's "explanation" consisted
of a conclusory statement that Latham was acting ethically. Mr. Newell
refused to comment when asked about the facts supporting this assertion and
whether Latham was advising Hilton against ITT. Third, on February 5, 1997,
ITT's General Counsel, Richard S. Ward, wrote to Robert M. Dell, Esq.,
Latham's Managing Partner, seeking assurances that Latham is not serving as
counsel to Hilton in its efforts to acquire ITT. Mr. Newell responded on
behalf of Latham to Mr. Ward's letter to Mr. Dell. In his letter, Mr. Newell
failed to confirm or deny that Latham was representing Hilton. Instead, Mr.
Newell threatened ITT that Latham would "hold accountable all persons who
participate in such an unwarranted attack on this
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firm." Fourth, on February 6, 1997, Mr. Ward wrote to Mr. Newell, again
requesting an answer to the question of whether Latham was representing
Hilton in its bid to acquire control of ITT. Once again Mr. Newell failed to
confirm or deny that Latham was representing Hilton. Even though Mr.
Bollenbach publicly announced Hilton's representation by Latham, Latham will
say only that "it would not be appropriate to discuss this firm's
representation of others."
30. Latham's representation of Hilton while it represents ITT is in no way
"appropriate".
31. Hilton was aware of, and procured or acquiesced in, Latham's breach of
its ethical duties.
32. By virtue of Hilton's retention and use of Latham, both Hilton and
Wachtell have had access to the Privileged Information.
33. On February 5, 1997, Mr. Ward wrote to Bernard W. Nussbaum, Esq. of
Wachtell requesting, in light of the fact that Wachtell and Latham have clearly
had discussions as part of their representation of Hilton, an explanation of why
Wachtell has not been infected with the same ethical and legal problems as
Latham.
34. Wachtell has not responded to that request.
LACK OF DISCLOSURE IN HILTON'S SCHEDULE 14D-1
35. Pursuant to Section 14 of the Securities and Exchange Act of 1934 and
the rules and regulations thereunder, Hilton is required in the Schedule 14D-1
to disclose all material facts, including all material risks that the Offer and
Proposed Squeeze Out Merger will not be approved or consummated.
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36. Although Hilton has made the Offer conditional upon satisfying the
waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, Hilton has failed to disclose that there is a
significant risk that the Federal agencies will conclude that the Offer and
Proposed Squeeze Out Merger may tend to substantially lessen competition in
the Atlantic City gaming market, and other relevant markets, in violation of
Section 7 of the Clayton Act (15 U.S.C. Section 18) or otherwise violate the
antitrust laws.
37. For example, Hilton, although very concerned about antitrust issues,
has failed to disclose the level of concentration in the Atlantic City gaming
market; Hilton's existing market share; its projected market share following the
Proposed Squeeze Out Merger, especially given that Hilton is reported to be
currently negotiating to acquire another Atlantic City competitor, Claridge
Hotel and Casino ("Claridge"); and Hilton's projected market share following an
acquisition of both Claridge and ITT.
38. Similarly, although Hilton has made the Offer conditional upon
obtaining the necessary gaming approvals from, inter alia, the New Jersey gaming
authorities, Hilton has failed to disclose in its Schedule 14D-1 sufficient
information in order to allow ITT's stockholders to make an informed decision
about the likelihood of Hilton obtaining such approvals and has failed to
disclose that there is a significant risk that the Offer and
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Proposed Squeeze Out Merger may not receive required regulatory approvals by
the New Jersey gaming authorities.
39. The New Jersey Casino Control Act (the "Act") regulates the
ownership of New Jersey casinos and requires Hilton to obtain approval from
the New Jersey Casino Control Commission in order to become the owner of
ITT's casinos in Atlantic City. In its Schedule 14D-1, Hilton notes that the
qualification criteria include: "its financial stability, integrity and
responsibility, the integrity and adequacy of its financial resources which
bear any relation to the casino project; its good character, honesty and
integrity; and the sufficiency of its business and casino experience to
establish the likelihood of a successful, efficient casino operation."
40. The Act provides further that a casino license cannot be held by any
person in the event the holding of the license will result in "undue economic
concentration" in Atlantic City casino operations by that person. Hilton
will have the burden of demonstrating to the New Jersey Casino Control
Commission by clear and convincing evidence that its proposed acquisition of
ITT's Atlantic City properties will not result in undue economic
concentration. Among the factors considered by the New Jersey Casino Control
Commission in determining whether such an acquisition would result in undue
economic concentration are: current market shares (based on a variety of
factors, including revenues, square footage and employees); the estimated
increase in market shares as a result of the acquisition; current market
conditions; and the impact of the acquisition on projected future growth and
development of the industry and Atlantic City.
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41. Hilton has completely failed to disclose that undue economic
concentration is one of the factors considered by the New Jersey gaming
authorities, what the economic concentration is in New Jersey and the
implications of Hilton's plans, including the implications of Hilton's plan
to discontinue a substantial portion of ITT's planned $3 billion capital
expenditure plan following the Proposed Squeeze Out Merger.
42. Hilton has thus failed to disclose sufficient information to enable
ITT's stockholders to make an informed decision concerning the likelihood that
the Offer and Proposed Squeeze Out Merger will pass scrutiny by the New Jersey
Casino Control Commission and Federal antitrust authorities.
43. Prior to January 27, 1997, Hilton and HFS began discussing the
possibility of a hostile offer for ITT and how the two competing companies could
benefit from such an acquisition.
44. Hilton and HFS decided that HFS would participate in and contribute to
the acquisition of ITT by Hilton by licensing, on a long-term, worldwide basis,
the Sheraton trademark, franchise system and management agreements. The
revenues and/or the monetization thereof to be realized by Hilton are
integral to Hilton's plans to finance the Offer and Proposed Squeeze Out Merger.
45. In a press release dated January 27, 1997, Hilton announced that it
had reached a preliminary understanding with HFS for HFS to license, on a
long-term, worldwide basis, the Sheraton trademark, franchise system and
management agreements. The press release did not reveal or discuss the role
HFS was playing in the Offer and Proposed Squeeze Out Merger.
46. In its Schedule 14D-1, Hilton stated that "it has reached a
preliminary understanding with HFS under which HFS would license, on a
long-term, worldwide basis, [ITT's]
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'Sheraton' trademark, franchise system and management agreements." Hilton
further stated that, in the event the transaction with HFS is consummated,
Hilton "expects that the ongoing cash flows from such transaction or a
monetization thereof would be contributed to [HLT] in connection with the
Offer or used to repay indebtedness incurred in connection with the Offer and
assumed in the Proposed [Squeeze Out] Merger."
47. Hilton has failed to disclose material information concerning the role
of HFS in the Offer and Proposed Squeeze Out Merger and the potential negative
impact of HFS's role on the value of ITT's Sheraton and Four Points hotel
businesses, including the risk that HFS's role will trigger anti-assignment or
exclusivity clauses in various agreements and will lead to termination or
non-renewal of hotel management contracts and franchise agreements. Because
information concerning the role of HFS and the potential adverse impact on the
value of those businesses is relevant and important to, among other things, any
determination of the possible
future value of Hilton securities following consummation of the Offer and
Proposed Squeeze Out Merger, such information is material to ITT's stockholders
and should be disclosed.
Count One
(Injunctive Relief)
48. ITT repeats and realleges the allegations of paragraphs 1 through 47
of its Counterclaim as if fully set forth herein.
49. Latham has violated its ethical obligations to ITT.
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50. Hilton has acquiesced in and benefitted from Latham's violation of its
ethical obligations to ITT.
51. ITT seeks injunctive relief requiring Hilton to dismiss Latham as
counsel in connection with the Offer and Proposed Squeeze Out Merger.
52. ITT has no adequate remedy at law.
Count Two
(Injunctive Relief)
53. ITT repeats and realleges the allegations of paragraphs 1 through 52
of its Counterclaim as if fully set forth herein.
54. The Agreement is a valid and binding contract.
55. Hilton and certain of its directors, officers, employees and advisors
are in possession of material Inside Information pursuant to the Agreement.
56. Hilton and certain of its directors, officers, employees and
advisors, including but not limited to Arthur Goldberg, have a contractual
obligation pursuant to the Agreement not to use such Inside Information to
the detriment of ITT and its stockholders or for any purpose other than
consideration of ITT's proposed acquisition of Bally.
57. Through the active participation of Arthur Goldberg and other,
presently unknown persons in possession of the Inside Information in evaluating
whether to and eventually deciding to undertake to obtain control of ITT, Hilton
has used this Inside Information to the detriment of ITT and its stockholders
and for
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purposes other than evaluating ITT's proposed acquisition of Bally.
Such use is in breach of the Agreement.
58. In the Agreement, the parties agreed that, in the event of any breach
of the provisions of the Agreement by one party, the other party is entitled to
injunctive relief.
59. ITT seeks injunctive relief enjoining Hilton from further using the
Inside Information, from disclosing the Inside Information, and from proceeding
with its Offer on the basis of the Inside Information.
60. ITT has no adequate remedy at law.
Count Three
(Injunctive Relief)
61. ITT repeats and realleges the allegations of paragraphs 1 through 60
of its Counterclaim as if fully set forth herein.
62. Hilton and certain of its directors, officers, employees and advisors
have had access to material Inside Information in violation of the Agreement.
63. As a result of its retention of Latham, Hilton and certain of its
directors, officers, employees and advisors have had access to material
Privileged Information in violation of Latham's fiduciary duty to ITT.
64. Through the active participation of Latham, Arthur Goldberg and other,
presently unknown persons in possession of the Privileged and Inside Information
in evaluating whether to and eventually deciding to undertake to obtain control
of ITT,
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Hilton has used this Privileged and Inside Information to the detriment
of ITT and its stockholders.
65. Hilton's unlawful misappropriation and use of ITT's Privileged and
Inside Information is causing and will continue to cause irreparable harm to ITT
and its stockholders. Hilton should not be allowed to reap the benefits of its
unlawful misappropriation and use of ITT's Privileged and Inside Information.
66. ITT seeks injunctive relief enjoining Hilton from further using the
Privileged and Inside Information, from utilizing, in any manner adverse to
ITT, any advisers who have had access to the Privileged or Inside
Information, from disclosing the Privileged and Inside Information, and from
proceeding with its Offer.
67. ITT has no adequate remedy at law.
Count Four
(Injunctive Relief)
68. ITT repeats and realleges the allegations of paragraphs 1 through 67
of its Counterclaim as if fully set forth herein.
69. Pursuant to Section 14 of the Securities and Exchange Act of 1934
and the rules and regulations thereunder, Hilton is required in its Schedule
14D-1 to disclose all material facts.
70. Hilton is in wrongful possession of material Privileged and
Inside Information.
71. Disclosure of the Privileged and Inside Information would
irreparably harm ITT and its stockholders.
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72. Hilton cannot disclose the material Privileged and Inside
Information without further violating fiduciary duties and contractual
obligations owed to ITT. Disclosure of the Privileged and Inside Information
would further compound the harm to ITT and its stockholders.
73. ITT seeks injunctive relief enjoining Hilton from proceeding with
its Offer.
74. ITT has no adequate remedy at law.
Count Five
(Injunctive Relief)
75. ITT repeats and realleges the allegations of paragraphs 1 through 74
of its Counterclaim as if fully set forth herein.
76. Hilton has failed to make the necessary disclosures of material
information about the Offer and Proposed Squeeze Out Merger in its
Schedule 14D-1, including:
a. information, including information on undue economic concentration,
indicating that there is a significant risk that the Offer and Proposed
Squeeze Out Merger may be found to violate the antitrust laws, including
Section 7 of the Clayton Act;
b. information, including information on undue economic concentration,
indicating that there is a significant risk that the Offer and Proposed
Squeeze Out Merger will not be approved by the gaming authorities; and
c. information concerning the role of HFS, including the possible adverse
affects of that role.
77. By reason of its failures to disclose, Hilton has violated Section
14(d) of the Securities and Exchange Act and the
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rules thereunder. Unless injunctive relief is granted, such violations will
continue.
78. ITT seeks injunctive relief requiring Hilton to make the required
disclosures concerning the Offer and Proposed Squeeze Out Merger.
79. ITT has no adequate remedy at law.
WHEREFORE, ITT demands and prays for relief as follows:
1. Denying the relief sought in Hilton's Complaint;
2. Granting preliminary and permanent injunctive relief requiring Hilton
to dismiss Latham as counsel in connection with the Offer and Proposed Squeeze
Out Merger;
3. Granting preliminary and permanent injunctive relief prohibiting
Hilton from utilizing, in any manner adverse to ITT, any advisers who have had
access to the Privileged or Inside Information;
4. Granting preliminary and permanent injunctive relief prohibiting
Hilton and all others acting in concert or participating with Hilton from using
or disclosing the Privileged or Confidential Information;
5. Granting preliminary and permanent injunctive relief prohibiting
Hilton from proceeding with the Offer;
6. Granting preliminary and permanent injunctive relief in the event the
Offer is not enjoined requiring Hilton to make the disclosures required under
the Federal Securities laws; and
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7. Granting to ITT such other and further relief as appropriate in the
circumstances presented.
DATED this 12th day of February, 1997.
KUMMER KAEMPFER BONNER & RENSHAW
BY: /s/ Von S. Heinz
-----------------------------
THOMAS F. KUMMER
VON S. HEINZ
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
Attorney for Defendant
ITT CORPORATION
CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(b), I hereby certify that service of the
foregoing ITT CORPORATION'S ANSWER AND COUNTERCLAIM was made this date by
delivering by hand a true copy of the same to the following:
Steve Morris
Kristina Pickering
Schreck Morris
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
and by delivering by facsimile and overnight mail a true copy of the same to
the following:
Bernard W. Nussbaum
Eric M. Roth
Marc Wolinsky
Scott L. Black
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
DATED this 12th day of February, 1997.
/s/ illegible
--------------------------------
An Employee of Kummer Kaempfer
Bonner & Renshaw
29
