<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
HILTON HOTELS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7011 36-2058176
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
--------------
<TABLE>
<S> <C>
9336 CIVIC CENTER DRIVE WILLIAM C. LEBO, JR., ESQ.
BEVERLY HILLS, CALIFORNIA 90210 SENIOR VICE PRESIDENT AND GENERAL COUNSEL
(310) 278-4321 HILTON HOTELS CORPORATION
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE 9336 CIVIC CENTER DRIVE
NUMBER, BEVERLY HILLS, CALIFORNIA 90210
INCLUDING AREA CODE, OF REGISTRANT'S (310) 278-4321
PRINCIPAL EXECUTIVE OFFICES) (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
</TABLE>
--------------
COPIES TO:
<TABLE>
<S> <C>
BRIAN G. CARTWRIGHT, ESQ. DENNIS J. BLOCK, ESQ.
LATHAM & WATKINS WEIL, GOTSHAL & MANGES LLP
633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, 767 FIFTH AVENUE NEW YORK, NEW YORK 10153
CA 90071 (212) 310-8007
(213) 485-1234
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger of Bally Entertainment Corporation ("Bally") with and
into Hilton Hotels Corporation ("Hilton") pursuant to an Agreement and Plan of
Merger dated as of June 6, 1996, as amended (the "Merger Agreement"),
described in the enclosed Joint Proxy Statement/Prospectus, have been
satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
--------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================
PROPOSED
MAXIMUM
OFFERING PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SECURITY OFFERING PRICE FEE(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $2.50 par value per share ("Hilton
Common Stock")(3)................................. 62,273,733 $26.91(4) $1,675,786,155(4) $253,857
- -----------------------------------------------------------------------------------------------------------------
Preferred Redeemable Increased Dividend Equity Secu-
rities,
8% PRIDES, Convertible Preferred Stock ("Hilton
PRIDES")(3)....................................... 14,832,700 $25.25(5) $374,525,675(5) $52,889
- -----------------------------------------------------------------------------------------------------------------
Series A Junior Participating Preferred Stock Pur-
chase Rights ("Rights")(3)(6)..................... * * * *
=================================================================================================================
</TABLE>
* Not applicable.
(1) Based upon the assumed maximum number of shares of Hilton Common Stock and
Hilton PRIDES that may be issued in the Merger described herein. An
additional, presently indeterminate number of shares of Hilton Common
Stock may be issued in the Merger in the event the Determination Price (as
defined) is less than $20.00 per share. In accordance with the terms of
the Merger Agreement, the Conversion Number (as defined) may be increased
such that the product of the Conversion Number and the Determination Price
shall equal $20.00 per share. In addition, an additional number of shares
of Hilton Common Stock may be issued in the Merger in the event holders of
Bally PRIDES (as defined below) convert such shares into Bally Common
Stock prior to the Merger, which would result in a corresponding decrease
in the number of shares of Hilton PRIDES to be issued in the Merger (based
on a conversion ratio of 0.92 shares of Bally Common Stock for each
converted share of Bally PRIDES).
(2) Representing the registration fee of $306,746 for the securities
registered hereby, calculated pursuant to Section 6(b) of the Securities
Act of 1933, as amended (the "Securities Act"), as 1/29th of one percent
of the proposed maximum aggregate offering price, reduced by the fee of
$400,259.00 previously paid by the Registrant in connection with the July
12, 1996 filing with the Commission of the preliminary proxy materials
relating to the transactions contemplated by the Merger Agreement.
(3) There are being registered hereunder such presently indeterminate number
of shares of Hilton Common Stock, and the related Rights, into which the
Hilton PRIDES are convertible. Accordingly, pursuant to Rule 457(i) under
the Securities Act, no additional registration fee is required to be paid
in respect of the Common Stock and related Rights into which the Hilton
PRIDES are convertible.
(4) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(1) and (3) and based on the $27 average of the
high and low sale prices per share of common stock of Bally Entertainment
Corporation ("Bally") on the New York Stock Exchange ("NYSE") on August
13, 1996, reduced by the $.09 in cash per share of Bally common stock that
would have been payable by Hilton as of such date to holders of Bally
common stock.
(5) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(1) and based on the $25.25 average of the high
and low sale prices per share of Preferred Redeemable Increased Dividend
Equity Securities, 8% PRIDES, Convertible Preferred Stock of Bally (the
"Bally PRIDES") on the NYSE on August 13, 1996.
(6) This Registration Statement also pertains to the associated Rights of the
Registrant issued pursuant to a Rights Agreement dated as of July 14, 1988
between the Registrant and The First National Bank of Chicago, as rights
agent. One right is attached to and trades with each share of Hilton
Common Stock. Until the occurrence of certain events, the Rights are not
exercisable and will not be evidenced or transferred apart from the Hilton
Common Stock. Any value attributable to such rights, if any, is reflected
in the market price of the Hilton Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
HILTON HOTELS CORPORATION
CROSS-REFERENCE SHEET PURSUANT TO RULE 404(A) OF THE
SECURITIES ACT OF 1933 AND ITEM 501(B) OF REGULATION S-K,
SHOWING THE LOCATION IN THE
JOINT PROXY STATEMENT/PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM
S-4
<TABLE>
<CAPTION>
ITEM LOCATION OR HEADING IN JOINT
NO. FORM S-4 CAPTION PROXY STATEMENT/PROSPECTUS
---- ---------------- ----------------------------
<C> <C> <S>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.... Facing Page of Registration
Statement; Outside Front
Cover Page of Joint Proxy
Statement/ Prospectus
2. Inside Front and Outside Back Cover Pages Table of Contents; Available
of Prospectus............................. Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............. Summary as Applicable
4. Terms of the Transaction................... Summary; The Merger; The
Merger Agreement;
Description of Hilton
Capital Stock; General
Comparison of Stockholders
Rights
5. Pro Forma Financial Information............ Summary; Unaudited Pro Forma
Condensed Financial
Statements
6. Material Contacts with the Company Being Summary; The Merger; The
Acquired.................................. Merger Agreement
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters........................ Not Applicable
8. Interests of Named Experts and Counsel..... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 The Companies--Hilton Hotels
Registrants............................... Corporation
11. Incorporation of Certain Information by Incorporation of Certain
Reference................................. Documents by Reference
12. Information with Respect to S-2 or S-3
Registrants............................... Not Applicable
13. Incorporation of Certain Information by Not Applicable
Reference.................................
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants......... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3 Companies.. The Companies--Bally
Entertainment Corporation
16. Information with Respect to S-2 or S-3
Companies................................. Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies................. Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited........ Summary, The Annual
Meetings; Management After
the Merger; Interest of
Certain Persons in the
Merger; Certain
Relationships and Related
Transactions
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer...................... Not Applicable
</TABLE>
<PAGE>
[LOGO OF HILTON HOTELS CORPORATION]
HILTON HOTELS CORPORATION
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
August 19, 1996
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Hilton Hotels Corporation, a Delaware corporation ("Hilton"), at the Beverly
Hilton, 9876 Wilshire Boulevard, Beverly Hills, California 90210 on
September 19, 1996, at 11:00 a.m., local time (the "Hilton Special Meeting").
At the Hilton Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement") dated as of June 6, 1996, as amended, by and between Hilton and
Bally Entertainment Corporation, a Delaware corporation ("Bally"), pursuant to
which, among other things, Bally will merge with and into Hilton (the
"Merger"), with Hilton being the surviving corporation in the Merger, and to
approve, as required by the rules of the New York Stock Exchange, the grant of
options to purchase shares of common stock of Hilton to the Chairman,
President and Chief Executive Officer of Bally who will become a consultant of
Hilton after the Merger (the "Option Grant," and together with the Merger
Agreement, the "Hilton Merger Proposal"). Upon consummation of the Merger: (i)
each share of common stock of Bally outstanding immediately prior to the
effective time of the Merger will be converted into the right to receive one
share of common stock of Hilton (the "Hilton Common Stock"), after giving
effect to the Stock Split (as hereinafter defined), plus, under certain
circumstances described in the accompanying Joint Proxy Statement/Prospectus,
an additional cash payment, and (ii) each share of the Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
of Bally (the "Bally PRIDES") outstanding immediately prior to the effective
time of the Merger will be converted into the right to receive one share of
Preferred Redeemable Increased Dividend Equity Securities, 8% PRIDES,
Convertible Preferred Stock of Hilton (the "Hilton PRIDES") having rights and
preferences substantially identical to the Bally PRIDES. At the Hilton Special
Meeting, you will also be asked to (i) consider a proposal to amend Hilton's
Certificate of Incorporation, as amended and restated (the "Certificate of
Incorporation") to increase the number of authorized shares of Hilton Common
Stock from 90,000,000 shares to 400,000,000 shares, increase the number of
authorized shares of preferred stock of Hilton (the "Hilton Preferred Stock")
from 10,000,000 shares to 24,832,700 shares and designate 14,832,700 shares of
the Hilton Preferred Stock as Hilton PRIDES; (ii) consider a proposal to
effect a split of Hilton Common Stock, whereby each share of Hilton Common
Stock would be subdivided into four shares of Hilton Common Stock (the "Stock
Split"); and (iii) approve the issuance pursuant to the Merger Agreement of
shares of Hilton Common Stock (estimated to be up to approximately 62,273,733
shares, see "The Merger Agreement--Conversion of Shares"), and up to
14,832,700 shares of Hilton PRIDES.
For the reasons set forth in the accompanying Joint Proxy
Statement/Prospectus, your Board of Directors believes that the Merger is fair
to, and in the best interests of, the stockholders of Hilton and, accordingly,
recommends that you vote in favor of approval and adoption of the Hilton
Merger Proposal and the other proposals described above to be considered at
the Hilton Special Meeting. In making that determination, the Board of
Directors received and took into account the opinion dated June 6, 1996 of
Donaldson, Lufkin & Jenrette Securities Corporation (the "DLJ Opinion") to the
effect that, as of such date, the consideration to be paid by Hilton to the
holders of Bally Common Stock pursuant to the Merger Agreement was fair to
Hilton from a financial point of view. A copy of the DLJ Opinion is included in
the accompanying Joint Proxy Statement/Prospectus as Appendix B thereto. All of
the directors of Hilton, who, as of July 31, 1996, in the aggregate beneficially
owned approximately 26.11% of the outstanding shares of Hilton Common Stock,
have indicated that they intend to vote in favor of approval and adoption of the
Hilton Merger Proposal and the other proposals discussed above.
<PAGE>
If you have any questions prior to the Special Meeting or need further
assistance, please call D.F. King & Co., Inc., for assistance in connection
with the Special Meeting, at (800) 207-3156.
The enclosed Notice and Joint Proxy Statement/Prospectus contain details
concerning the Merger and the other matters to come before the Hilton Special
Meeting. We urge you to read and consider these documents carefully. Whether
or not you plan to be at the Hilton Special Meeting, please be sure to sign,
date and return the enclosed proxy card in the enclosed envelope as promptly
as possible so that your shares may be represented at the Hilton Special
Meeting and voted in accordance with your wishes. Your vote is important
regardless of the number of shares you own.
Sincerely,
/s/ Barron Hilton
BARRON HILTON
CHAIRMAN OF THE BOARD OF DIRECTORS
<PAGE>
[LOGO OF HILTON HOTELS CORPORATION]
HILTON HOTELS CORPORATION
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 19, 1996
----------------
To the Stockholders of Hilton Hotels Corporation:
A Special Meeting of Stockholders (the "Hilton Special Meeting") of Hilton
Hotels Corporation, a Delaware corporation ("Hilton"), will be held on
September 19, 1996 at 11:00 a.m., local time, at the Beverly Hilton, 9876
Wilshire Boulevard, Beverly Hills, California 90210, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger (the "Merger Agreement") dated as of June 6, 1996, as
amended, by and between Hilton and Bally Entertainment Corporation, a
Delaware corporation ("Bally"), pursuant to which, among other things:
(i) Bally will merge with and into Hilton (the "Merger"), with Hilton
being the surviving corporation in the Merger; (ii) each share of common
stock of Bally (the "Bally Common Stock") outstanding immediately prior
to the effective time of the Merger will be converted into the right to
receive one share of common stock of Hilton (the "Hilton Common Stock"),
after giving effect to the Stock Split (as hereinafter defined), plus,
under certain circumstances described in the accompanying Joint Proxy
Statement/Prospectus, an additional cash payment; and (iii) each share
of the Preferred Redeemable Increased Dividend Equity Securities, 8%
PRIDES, Convertible Preferred Stock of Bally (the "Bally PRIDES")
outstanding immediately prior to the effective time of the Merger will
be converted into the right to receive one share of Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred
Stock of Hilton (the "Hilton PRIDES") having rights and preferences
substantially identical to the Bally PRIDES, and to approve, as required
by the rules of the New York Stock Exchange, the grant of options to
purchase shares of Hilton Common Stock to the Chairman, President and
Chief Executive Officer of Bally who will become a consultant of Hilton
after the Merger (the "Option Grant," and together with the Merger
Agreement, the "Hilton Merger Proposal").
2. To consider and vote upon a proposal to amend Hilton's Certificate of
Incorporation to: (i) increase the number of authorized shares of Hilton
Common Stock from 90,000,000 shares to 400,000,000 shares; (ii) increase
the number of authorized shares of preferred stock of Hilton (the
"Hilton Preferred Stock") from 10,000,000 shares to 24,832,700 shares;
and (iii) designate 14,832,700 shares of the Hilton Preferred Stock as
Hilton PRIDES;
3. To consider and vote upon a proposal to effect a split of Hilton Common
Stock, whereby each share of Hilton Common Stock would be subdivided
into four shares of Hilton Common Stock (the "Stock Split");
4. To approve the issuance pursuant to the Merger Agreement of shares of
Hilton Common Stock (estimated to be up to approximately 62,273,733
shares, see "The Merger Agreement--Conversion of Shares"), and up to
14,832,700 shares of Hilton PRIDES; and
5. To transact such other business as may properly come before the Hilton
Special Meeting or any adjournment thereof.
Approval of the Hilton Merger Proposal is conditioned upon approval of the
proposal to amend the Hilton Certificate of Incorporation and the proposal to
issue Hilton Common Stock and Hilton PRIDES. Accordingly, a vote against
either proposal will have the same effect as a vote against approval of the
Hilton Merger Proposal.
<PAGE>
Approval of the Stock Split is also conditioned upon approval of the
proposal to amend the Hilton Certificate of Incorporation. Accordingly, a vote
against such proposal will have the same effect as a vote against the Stock
Split.
The Board of Directors of Hilton unanimously recommends that stockholders
vote FOR approval and adoption of the Hilton Merger Proposal and FOR approval
of the other proposals set forth above.
The Board of Directors of Hilton has fixed the close of business on August
16, 1996 as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Hilton Special Meeting or any adjournment
thereof. Only holders of record of shares of Hilton Common Stock at the close
of business on the record date are entitled to notice of, and to vote at, the
Hilton Special Meeting. A complete list of such stockholders will be available
for examination at the offices of Hilton in Beverly Hills, California, during
normal business hours by any Hilton stockholder, for any purpose germane to
the Hilton Special Meeting, for a period of ten days prior to the Special
Meeting.
Stockholders are urged, whether or not they plan to attend the Hilton
Special Meeting, to sign, date and mail the enclosed proxy card in the
postage-paid envelope provided. If a stockholder who has returned a proxy
attends the Hilton Special Meeting in person, such stockholder may revoke the
proxy and vote in person on all matters submitted at the Hilton Special
Meeting.
By Order of the Board of Directors
/s/ Cheryl L. Marsh
CHERYL L. MARSH
VICE PRESIDENT AND CORPORATE
SECRETARY
Beverly Hills, California
August 19, 1996
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
- -------------------------------------------------------------------------------
<PAGE>
[LOGO OF BALLY]
BALLY ENTERTAINMENT CORPORATION
8700 WEST BRYN MAWR AVENUE
CHICAGO, ILLINOIS 60631
August 19, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Bally Special Meeting") of Bally Entertainment Corporation ("Bally") to be
held on September 18, 1996 at 9:00 a.m., local time, at the Palmer House
Hilton Hotel, 17 East Monroe Street, Chicago, Illinois 60630.
At the Bally Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement") dated as of June 6, 1996, as amended, by and between Bally and
Hilton Hotels Corporation, a Delaware corporation ("Hilton"), pursuant to
which, among other things, Bally will merge with and into Hilton (the
"Merger"), with Hilton being the surviving corporation in the Merger. Upon
consummation of the Merger: (i) each share of common stock of Bally (the
"Bally Common Stock") outstanding immediately prior to the effective time of
the Merger will be converted into the right to receive one share of common
stock of Hilton (the "Hilton Common Stock"), after giving effect to the Stock
Split (as hereinafter defined), plus, under certain circumstances described in
the accompanying Joint Proxy Statement/Prospectus, an additional cash payment;
and (ii) each share of the Preferred Redeemable Increased Dividend Equity
Securities, 8% PRIDES, Convertible Preferred Stock of Bally (the "Bally
PRIDES") outstanding immediately prior to the effective time of the Merger
will be converted into the right to receive one share of Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
of Hilton (the "Hilton PRIDES") having rights and preferences substantially
identical to the Bally PRIDES. It is contemplated that, prior to the
consummation of the Merger, Hilton will effect a stock split of the Hilton
Common Stock, whereby each share of Hilton Common Stock will be subdivided
into four shares of Hilton Common Stock (the "Stock Split"). Holders of Bally
Common Stock will have the right under certain circumstances to dissent from
the Merger and have the fair value of their shares paid to them in cash by
submitting a written notice to Bally prior to the Bally Special Meeting and
following the other procedures described in the accompanying Joint Proxy
Statement/Prospectus.
The accompanying Joint Proxy Statement/Prospectus provides you with detailed
information concerning the Bally Special Meeting, the proposed Merger and the
Hilton Common Stock and Hilton PRIDES to be issued in connection with the
Merger, and certain other information. Please give this information careful
attention.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the proposed Merger and believes that the Merger is fair to, and
in the best interests of, the stockholders of Bally. The Board has unanimously
approved the Merger Agreement and recommends that stockholders vote FOR this
proposal. All of the directors of Bally, who, as of July 31, 1996, in the
aggregate beneficially owned approximately 1.9% of the outstanding shares of
Bally Common Stock, have indicated that they intend to vote in favor of
approval and adoption of the Merger Agreement.
Goldman, Sachs & Co. and Merrill Lynch & Co., the financial advisors to
Bally in connection with this transaction, have delivered written opinions,
copies of which are attached as Appendices C and D, respectively, to the
accompanying Joint Proxy Statement/Prospectus, as to the fairness of the
Merger to the stockholders of Bally.
<PAGE>
We urge you to read the enclosed materials carefully. Whether or not you are
personally able to attend the Special Meeting, please complete, sign and date
the enclosed proxy card and return it in the enclosed postage-prepaid return
envelope as soon as possible. This action will not limit your right to revoke
your proxy by attending the Bally Special Meeting and voting in person.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
Sincerely,
/s/ ARTHUR M. GOLDBERG
ARTHUR M. GOLDBERG
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
<PAGE>
[LOGO OF BALLY]
BALLY ENTERTAINMENT CORPORATION
8700 WEST BRYN MAWR AVENUE
CHICAGO, ILLINOIS 60631
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 18, 1996
----------------
To the Stockholders of Bally Entertainment Corporation:
Notice is hereby given that a Special Meeting of Stockholders (the "Bally
Special Meeting") of Bally Entertainment Corporation ("Bally"), will be held
on September 18, 1996 at 9:00 a.m., local time, at the Palmer House Hilton
Hotel, 17 East Monroe Street, Chicago, Illinois 60630, for the following
purposes:
1. To consider and vote upon a proposal (the "Proposal") to approve and
adopt an Agreement and Plan of Merger, dated as of June 6, 1996, as
amended (the "Merger Agreement"), by and between Hilton Hotels
Corporation, a Delaware corporation ("Hilton"), and Bally pursuant to
which Bally will merge with and into Hilton, with Hilton continuing as
the surviving corporation (the "Merger"); and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
The Merger Agreement and the Merger are described in detail in the
accompanying Joint Proxy Statement/Prospectus.
The Bally Board of Directors has fixed the close of business on August 16,
1996 as the record date for the determination of stockholders entitled to
notice of and to vote at the Bally Special Meeting and any adjournments or
postponements thereof. Only stockholders of record at the close of business on
such date are entitled to notice of and to vote at the Bally Special Meeting.
If any cash payment is to be made in connection with the Merger, holders of
Bally Common Stock entitled to vote at the Bally Special Meeting will have the
right to dissent to the Merger and, if the Merger is consummated, to obtain
payment for their shares of Bally Common Stock by complying with the
provisions of Section 262 of the Delaware General Corporation Law, a copy of
which is attached as Appendix E to the accompanying Joint Proxy
Statement/Prospectus.
Only holders of shares of (i) the common stock, par value $.66 2/3 per
share, of Bally and (ii) the Preferred Redeemable Increased Dividend Equity
Securities, 8% PRIDES, Convertible Preferred Stock, par value $1.00 per share,
of Bally are entitled to vote upon the Proposal and any other proposals to be
presented at the Bally Special Meeting.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Bally Special
Meeting, is requested to sign, date and return the enclosed proxy card without
delay in the enclosed postage-prepaid return envelope. You may revoke your
proxy at any time prior to its exercise. Any stockholder present at the Bally
Special Meeting or at any adjournments or postponements thereof may revoke his
or her proxy and vote personally on each matter brought before the Bally
Special Meeting.
By Order of the Board of Directors
/s/ JAMES S. MONTANA, JR.
JAMES S. MONTANA, JR.
SENIOR VICE PRESIDENT
AND SECRETARY
Chicago, Illinois
August 19, 1996
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT.
PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
HILTON HOTELS CORPORATION
BALLY ENTERTAINMENT CORPORATION
JOINT PROXY STATEMENT
---------------
HILTON HOTELS CORPORATION
PROSPECTUS
SHARES OF COMMON STOCK
SHARES OF PREFERRED REDEEMABLE INCREASED DIVIDEND
EQUITY SECURITIES, 8% PRIDES,
CONVERTIBLE PREFERRED STOCK
---------------
This Joint Proxy Statement/Prospectus relates to the proposed merger of
Bally Entertainment Corporation, a Delaware corporation ("Bally"), with and
into Hilton Hotels Corporation, a Delaware corporation ("Hilton"), pursuant to
an Agreement and Plan of Merger dated as of June 6, 1996, as amended, between
Hilton and Bally (the "Merger Agreement"). The merger contemplated by the
Merger Agreement is referred to herein as the "Merger."
As a result of the Merger: (i) each share of common stock, par value $.66
2/3 per share, of Bally (the "Bally Common Stock") outstanding immediately
prior to the effective time of the Merger will be converted into the right to
receive one (the "Conversion Number") share of common stock, par value $2.50
per share, of Hilton (the "Hilton Common Stock"), after giving effect to the
Stock Split (as hereinafter defined), plus, under certain circumstances
described below, the Additional Cash Payment (as defined below); and (ii) each
share of the Preferred Redeemable Increased Dividend Equity Securities, 8%
PRIDES, Convertible Preferred Stock of Bally (the "Bally PRIDES") outstanding
immediately prior to the effective time of the Merger shall be converted into
the right to receive one share of Preferred Redeemable Increased Dividend
Equity Securities, 8% PRIDES, Convertible Preferred Stock of Hilton (the
"Hilton PRIDES") having rights and preferences substantially identical to the
Bally PRIDES. In the event that the Determination Price (as defined below) is
less than $27, each holder of shares of Bally Common Stock shall also receive
for each share of Bally Common Stock held by such holder a cash payment (the
"Additional Cash Payment"), not to exceed $3, equal to the excess of $27 over
the Determination Price. The term "Determination Price" means the average of
the daily high and low sales prices of the Hilton Common Stock (regular way),
determined after giving effect to the Stock Split, as shown on the New York
Stock Exchange ("NYSE") Composite Tape (as reported by The Wall Street Journal
or, if not reported thereby, any other authoritative source) for the ten (10)
consecutive days on which the NYSE is open for the transaction of business (a
"Trading Day") ending on the third Trading Day prior to the date upon which
the Merger is consummated (the "Closing Date"). If the Determination Price is
equal to or less than $24, then each holder of shares of Bally Common Stock
will be entitled to receive an Additional Cash Payment of $3 per share of
Bally Common Stock. In the event that the Determination Price is less than
$20, Bally will have the right to terminate the Merger Agreement unless Hilton
shall have notified Bally that it has increased the Conversion Number such
that the product of the Conversion Number and the Determination Price equals
$20. Bally stockholders will still be entitled to receive the Additional Cash
Payment of $3 per share of Bally Common Stock in the event Hilton increases
the Conversion Number.
This Joint Proxy Statement/Prospectus is being furnished to holders of
Hilton Common Stock, the holders of Bally Common Stock and the holders of
Bally PRIDES in connection with the solicitation of proxies by the respective
Boards of Directors of Hilton and Bally for use at a special meeting of
stockholders of Hilton to be held on September 19, 1996 and at a special
meeting of stockholders of Bally to be held on September 18, 1996. This Joint
Proxy Statement/Prospectus and the accompanying forms of proxy are first being
mailed to stockholders of Hilton and Bally on or about August 20, 1996.
At the Bally Special Meeting, holders of Bally Common Stock and Bally PRIDES
will be asked to consider a proposal to approve and adopt the Merger
Agreement. At the Hilton Special Meeting, holders of Hilton Common Stock will
be asked to consider proposals to (i) approve and adopt the Merger Agreement,
and to approve, as required by the rules of the NYSE, the grant of options to
purchase shares of Hilton Common Stock to the Chairman, President and Chief
Executive Officer of Bally who will become a consultant of Hilton after the
Merger; (ii) amend Hilton's Certificate of Incorporation to increase the
number of authorized shares of Hilton Common Stock from 90,000,000 shares to
400,000,000 shares, increase the number of authorized shares of preferred
stock, par value $1.00 per share, of Hilton (the "Hilton Preferred Stock")
from 10,000,000 shares to 24,832,700 shares and designate 14,832,700 shares of
the Hilton Preferred Stock as Hilton PRIDES; (iii) effect a split of Hilton
Common Stock, whereby each share of Hilton Common Stock would be subdivided
into four shares of Hilton Common Stock (the "Stock Split"); and (iv) approve
the issuance pursuant to the Merger Agreement of shares of Hilton Common Stock
(estimated to be up to approximately 62,273,733 shares, see "The Merger
Agreement--Conversion of Shares"), and up to 14,832,700 shares of Hilton
PRIDES.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Hilton with respect to shares of Hilton Common Stock (estimated to be up to
approximately 62,273,733 shares, see "The Merger Agreement--Conversion of
Shares") to be issued pursuant to the Merger Agreement in exchange for the
shares of Bally Common Stock outstanding immediately prior to the effective
time of the Merger and up to 14,832,700 shares of Hilton PRIDES to be issued
pursuant to the Merger Agreement in exchange for the shares of Bally PRIDES
outstanding immediately prior to the effective time of the Merger. Hilton has
applied to have the shares of Hilton Common Stock and Hilton PRIDES to be
issued pursuant to the Merger listed on the NYSE.
On August 15, 1996, the closing prices of Hilton Common Stock, Bally Common
Stock and Bally PRIDES, as reported on the NYSE, were $106, $26 3/4 and $25
1/4, respectively.
---------------
THE SHARES OF HILTON COMMON STOCK AND HILTON PRIDES TO BE ISSUED IN
CONNECTION WITH THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD,
THE MISSISSIPPI GAMING COMMISSION, THE NEW JERSEY CASINO CONTROL COMMISSION
NOR THE REGULATORY AUTHORITY OF ANY OTHER STATE HAS PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS OR THE INVESTMENT MERITS
OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
---------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS AUGUST 19, 1996
<PAGE>
TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ iii
SUMMARY.................................................................... 1
THE COMPANIES.............................................................. 19
Hilton Hotels Corporation................................................ 19
Bally Entertainment Corporation.......................................... 19
THE SPECIAL MEETINGS....................................................... 19
Purpose.................................................................. 19
Dates, Places and Times.................................................. 20
Record Dates; Quorums.................................................... 20
Votes Required........................................................... 20
Voting and Revocation of Proxies......................................... 21
Solicitation of Proxies.................................................. 21
THE MERGER................................................................. 22
Background to the Merger and Reasons for the Merger...................... 22
Opinion of Financial Advisor to Hilton................................... 26
Opinions of Financial Advisors to Bally.................................. 30
Regulatory Approvals..................................................... 37
Anticipated Accounting Treatment......................................... 37
Appraisal Rights......................................................... 38
Resale of Hilton Stock................................................... 40
Certain Federal Income Tax Consequences.................................. 40
Tax Consequences of the Merger........................................... 41
Interests of Certain Persons in the Merger............................... 43
THE MERGER AGREEMENT....................................................... 47
Terms of the Merger...................................................... 47
Effective Time........................................................... 47
Conversion of Shares..................................................... 47
Treatment of Stock Options............................................... 47
Exchange Procedures...................................................... 48
Representations and Warranties........................................... 48
Certain Covenants........................................................ 49
Conditions to the Merger................................................. 50
Additional Agreements.................................................... 50
Indemnification.......................................................... 51
Termination.............................................................. 52
Amendment and Modification............................................... 52
Fees and Expenses........................................................ 52
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS......................... 53
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS................ 57
</TABLE>
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DESCRIPTION OF HILTON CAPITAL STOCK...................................... 59
Hilton Common Stock.................................................... 59
Preferred Stock........................................................ 59
Preferred Share Purchase Rights........................................ 59
Delaware General Corporation Law Section 203........................... 60
Certain Effects of Authorized But Unissued Stock....................... 60
Registrar and Transfer Agent........................................... 61
DESCRIPTION OF THE HILTON PRIDES......................................... 61
Dividends.............................................................. 61
Mandatory Conversion of PRIDES......................................... 63
Optional Redemption.................................................... 63
Redemption or Forced Sale for Regulatory Reasons....................... 64
Conversion at the Option of the Holder................................. 65
Conversion Adjustments................................................. 66
Adjustment for Certain Consolidations or Mergers....................... 67
Fractional Shares...................................................... 67
Liquidation Rights..................................................... 67
Voting Rights.......................................................... 68
Transfer Agent and Registrar........................................... 69
Miscellaneous.......................................................... 69
Certain Federal Income Tax Considerations.............................. 69
Certain Federal Income Tax Considerations for Non-U.S. Holders......... 71
REGULATION AND LICENSING................................................. 74
GENERAL COMPARISON OF STOCKHOLDERS RIGHTS................................ 80
APPROVAL OF AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF HILTON
COMMON STOCK AND HILTON PREFERRED STOCK AND THE DESIGNATION OF HILTON
PRIDES.................................................................. 83
APPROVAL OF A FOUR-FOR-ONE SPLIT OF HILTON COMMON STOCK.................. 84
APPROVAL OF THE ISSUANCE OF HILTON COMMON STOCK AND HILTON PRIDES
PURSUANT TO THE MERGER AGREEMENT........................................ 85
EXPERTS.................................................................. 86
LEGAL COUNSEL............................................................ 86
</TABLE>
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APPENDIX A - Agreement and Plan of Merger, dated as of June 6, 1996, as
amended by First Amendment to Merger Agreement dated as of
August 15, 1996, by and between Hilton Hotels Corporation
and Bally Entertainment Corporation........................ A-1
Opinions of Donaldson, Lufkin & Jenrette Securities
APPENDIX B - Corporation............................................... B-1
APPENDIX C - Opinion of Goldman, Sachs & Co............................. C-1
Opinion of Merrill Lynch, Pierce, Fenner & Smith
APPENDIX D - Incorporated.............................................. D-1
APPENDIX E - Section 262 of the Delaware General Corporation Law........ E-1
</TABLE>
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AVAILABLE INFORMATION
Hilton and Bally are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports and other information with the Securities
and Exchange Commission (the "SEC" or "Commission"). Reports, proxy statements
and other information filed by Hilton and Bally can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at 450 West Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a Web Site at http:/
/www.sec.gov. which contains reports and other information regarding
registrants that file electronically with the Commission. In addition,
reports, proxy statements and other information concerning Hilton and Bally
may be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005. Reports, proxy statements and other information concerning Hilton
may also be inspected at the offices of the Pacific Stock Exchange, Inc., 618
South Spring Street, Los Angeles, California 90014, and 301 Pine Street, San
Francisco, California 94104.
Hilton has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Hilton Common Stock and Hilton PRIDES
to be issued pursuant to the Merger Agreement, of which this Joint Proxy
Statement/Prospectus constitutes a part. The information contained herein with
respect to Hilton and its affiliates has been provided by Hilton, and the
information contained herein with respect to Bally and its affiliates has been
provided by Bally. This Joint Proxy Statement/Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which were omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission are not necessarily complete, and in
each instance reference is made to the copy of such document so filed. Each
such statement is qualified in its entirety by such reference.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON
TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR
ORAL REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO HILTON, CHERYL L. MARSH,
VICE PRESIDENT AND CORPORATE SECRETARY, HILTON HOTELS CORPORATION, 9336 CIVIC
CENTER DRIVE, BEVERLY HILLS, CALIFORNIA 90210, (310) 278-4321, AND IN THE CASE
OF DOCUMENTS RELATING TO BALLY, JAMES S. MONTANA, JR., SENIOR VICE PRESIDENT
AND SECRETARY, BALLY ENTERTAINMENT CORPORATION, 8700 WEST BRYN MAWR AVENUE,
CHICAGO, ILLINOIS 60631, (312) 399-1300. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY SEPTEMBER 12, 1996 IN THE
CASE OF A REQUEST TO HILTON AND SEPTEMBER 11, 1996 IN THE CASE OF A REQUEST TO
BALLY.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
1. For Hilton, its:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "Hilton Form 10-K");
(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1996;
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(c) The portions of Hilton's Proxy Statement on Schedule 14A for the
Annual Meeting of Stockholders held on May 9, 1996 filed with the
Commission on March 28, 1996 that have been incorporated by reference
into the Hilton Form 10-K;
(d) The portions of Hilton's 1995 Annual Report to Stockholders for
the year ended December 31, 1995 filed with the Commission on March 22,
1996 that have been incorporated by reference into the Hilton Form 10-
K;
(e) Amended Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 1996 filed with the Commission on May 7, 1996;
(f) Current Report on Form 8-K dated June 13, 1996;
(g) Quarterly Report on Form 10-Q for the quarter ended June 30,
1996;
(h) A description of the Hilton Common Stock included in a
Registration Statement on Form 8-A filed with the Commission on May 19,
1986; and
(i) A description of the Rights included in a Registration Statement
on Form 8-A filed with the Commission on July 22, 1988.
2. For Bally, its:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "Bally Form 10-K");
(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1996;
(c) Current Reports on Form 8-K dated May 28, 1996 and June 12, 1996;
(d) Quarterly Report on Form 10-Q for the quarter ended June 30,
1996; and
(e) The portions of Bally's Proxy Statement on Schedule 14A for the
Annual Meeting of Stockholders held on May 21, 1996 that have been
incorporated by reference into the Bally Form 10-K.
All documents filed by Hilton or Bally pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the special meetings of the
stockholders of each company shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HILTON OR
BALLY. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF
HILTON OR BALLY SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION.
----------------
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SUMMARY
The following is a summary of certain information contained in this Joint
Proxy Statement/Prospectus. It is qualified in its entirety by reference to the
more detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus or incorporated by reference herein, in the accompanying
appendices and in the documents referred to herein. Stockholders are urged to
read this Joint Proxy Statement/Prospectus in its entirety. Unless otherwise
indicated, per share amounts give effect to the Stock Split.
THE COMPANIES
HILTON HOTELS CORPORATION..... Hilton is a leading owner and operator of full
service hotels and hotel-casinos in the United
States. Hilton owns, leases and operates major
lodging and gaming properties in gateway
cities, urban and suburban centers and resort
areas under the Hilton name in the U.S. and
under the Conrad International name abroad. At
June 30, 1996, the Company operated 17 wholly-
owned or leased hotels and managed 42 hotel
properties wholly-or partially-owned by others.
An additional 167 hotel properties are operated
by others under Hilton, Hilton Garden Inn and
Hilton Suites brand names under franchise
agreements granted by Hilton. Hilton's hotels
are located in the United States, except for
six hotels operated by Hilton's Conrad
International Hotels Corporation subsidiary.
Hilton is continuing to explore a strategic
alliance with the owner of the Hilton
International hotel chain, which owns the
Hilton name outside of the United States.
Hilton's owned or partially-owned hotels
include such well-known urban and resort
properties as the Waldorf=Astoria in New York,
the Palmer House Hilton in Chicago, the New
Orleans Hilton Riverside & Towers and the
Hilton Hawaiian Village in Honolulu.
Hilton's gaming operations, which are largely
concentrated in Nevada, operate primarily under
the Hilton and Flamingo brand names. Hilton's
wholly-owned Nevada casinos are the Las Vegas
Hilton, the Flamingo Hilton-Las Vegas, the
Flamingo Hilton-Laughlin, the Reno Hilton and
the Flamingo Hilton-Reno. Through its Conrad
International brand, Hilton manages
international hotel-casinos in Brisbane and the
Gold Coast in Queensland, Australia and in
Istanbul, Turkey. Hilton also operates a
riverboat casino in New Orleans, Louisiana,
next to the New Orleans Hilton Riverside &
Towers, and is a minority partner in a company
that manages a casino in Windsor, Ontario,
Canada.
Hilton's principal executive offices are
located at 9336 Civic Center Drive, Beverly
Hills, California 90210, (310) 278-4321.
BALLY ENTERTAINMENT Bally is engaged in the operation of casinos
CORPORATION.................. and casino hotel resorts. Bally's principal
operations are Bally's Park Place Casino .
Resort and The Grand casino hotel resort in
Atlantic
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City, New Jersey; Bally's Las Vegas casino
hotel resort in Las Vegas, Nevada; Bally's
Casino * Lakeshore Resort, a riverboat casino
on Lake Pontchartrain in New Orleans,
Louisiana; and Bally's Saloon * Gambling Hall *
Hotel, a dockside casino and hotel in
Robinsonville, Mississippi near Memphis,
Tennessee.
Bally's principal executive offices are located
at 8700 West Bryn Mawr Avenue, Chicago,
Illinois 60631, (312) 399-1300.
THE SPECIAL MEETINGS
PURPOSE OF THE SPECIAL Hilton. The purpose of the Hilton Special
MEETINGS..................... Meeting is to: (i) consider and vote upon a
proposal to approve and adopt the Merger
Agreement and to approve, as required by the
rules of the NYSE, the grant of options to
purchase shares of Hilton Common Stock to the
Chairman, President and Chief Executive Officer
of Bally who will become a consultant of Hilton
after the Merger (the "Option Grant," and
together with the Merger Agreement, the "Hilton
Merger Proposal"); (ii) consider and vote upon
a proposal to amend Hilton's Certificate of
Incorporation to (a) increase the number of
authorized shares of Hilton Common Stock from
90,000,000 shares to 400,000,000 shares, (b)
increase the number of authorized shares of
Hilton Preferred Stock from 10,000,000 to
24,832,700 shares and (c) designate 14,832,700
shares of the Hilton Preferred Stock as Hilton
PRIDES; (iii) consider and vote upon a proposal
to effect a split of Hilton Common Stock,
whereby each share of Hilton Common Stock would
be subdivided into four shares of Hilton Common
Stock (the "Stock Split"); (iv) approve the
issuance pursuant to the Merger Agreement of
shares of Hilton Common Stock (estimated to be
up to approximately 62,273,733 shares, see "The
Merger Agreement--Conversion of Shares"), and
up to 14,832,700 shares of Hilton PRIDES
(collectively, the "Stock Issuance") (the
proposals in clauses (ii) through (iv) being
hereinafter referred to collectively as the
"Related Hilton Proposals"); and (v) transact
such other business as may properly come before
the Hilton Special Meeting or any adjournment
thereof.
Bally. The purpose of the Bally Special Meeting
is to (i) consider and vote upon a proposal to
approve and adopt the Merger Agreement (the
"Bally Merger Proposal"); and (ii) transact
such other business as may properly come before
the Bally Special Meeting or any adjournment
thereof.
TIMES, DATES AND PLACES....... Hilton. The Hilton Special Meeting shall be
held at the Beverly Hilton, 9876 Wilshire
Boulevard, Beverly Hills, California 90210, on
September 19, 1996, at 11:00 a.m., local time.
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<PAGE>
Bally. The Bally Special Meeting shall be held
at the Palmer House Hilton Hotel, 17 East
Monroe Street, Chicago, Illinois 60603 on
September 18, 1996, at 9:00 a.m., local time.
RECORD DATE, QUORUM, VOTE
REQUIRED..................... Hilton. The close of business on August 16,
1996 has been fixed as the record date for
determining holders of shares of Hilton Common
Stock entitled to vote at the Hilton Special
Meeting. As of August 15, 1996, 48,854,451
shares of Hilton Common Stock were outstanding
and entitled to vote. The presence in person or
by proxy of the holders of a majority of the
outstanding shares of Hilton Common Stock
entitled to vote at the Hilton Special Meeting
shall constitute a quorum at the Hilton Special
Meeting. Approval and adoption of the Hilton
Merger Proposal and the Related Hilton
Proposals requires the affirmative vote of a
majority of all outstanding shares of Hilton
Common Stock (other than the proposal to
approve the Stock Issuance, which, assuming the
presence of a quorum, requires the affirmative
vote of a majority of the votes cast with
respect to such proposal).
Bally. The close of business on August 16, 1996
has been fixed as the record date for
determining holders of shares of Bally Common
Stock and Bally PRIDES entitled to vote at the
Bally Special Meeting. As of August 15, 1996,
51,620,865 shares of Bally Common Stock and
14,832,700 shares of Bally PRIDES were
outstanding and entitled to vote. The presence
at the Bally Special Meeting in person or by
proxy of the holders of a majority of all votes
of shares at the Bally Special Meeting shall
constitute a quorum. The affirmative vote of a
majority of the votes entitled to be cast by
all holders of the outstanding shares of Bally
Common Stock and Bally PRIDES is required to
approve and adopt the Merger Agreement. Each
share of Bally Common Stock is entitled to one
vote with respect to the Bally Merger Proposal
and each share of Bally PRIDES is entitled to
four-fifths (4/5ths) of one vote with respect
to the Bally Merger Proposal.
THE MERGER
RECOMMENDATION OF THE BOARD
OF DIRECTORS OF HILTON....... On June 6, 1996, the Board of Directors of
Hilton unanimously approved the Merger
Agreement and determined that the Merger is
fair to, and in the best interests of, the
stockholders of Hilton. The Board of Directors
of Hilton unanimously recommends that
stockholders vote FOR the Hilton Merger
Proposal and FOR the Related Hilton Proposals.
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RECOMMENDATION OF THE BOARD
OF DIRECTORS OF BALLY........ On June 6, 1996, the Board of Directors of Bally
unanimously approved the Merger Agreement and
determined that the Merger is fair to, and in
the best interests of, the stockholders of
Bally. The Board of Directors of Bally
unanimously recommends that stockholders vote
FOR the Bally Merger Proposal.
OPINION OF FINANCIAL ADVISOR
TO THE BOARD OF DIRECTORS OF
HILTON....................... Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") rendered its written
opinion, dated June 6, 1996, to the Board of
Directors of Hilton to the effect that, based
upon and subject to certain matters stated
therein, as of the date of such opinion, the
consideration to be paid by Hilton to the
holders of Bally Common Stock pursuant to the
Merger Agreement is fair to Hilton from a
financial point of view. DLJ subsequently
confirmed its June 6, 1996 opinion by
delivering to the Hilton Board of Directors its
written opinion, dated as of August 15, 1996,
that, based upon and subject to certain matters
stated therein, as of the date of such opinion,
the consideration to be paid by Hilton to the
holders of Bally Common Stock pursuant to the
Merger Agreement is fair to Hilton from a
financial point of view. A copy of the opinions
are attached hereto as Appendix B. See "The
Merger--Opinion of Financial Advisor to Hilton"
and Appendix B.
OPINION OF FINANCIAL ADVISORS
TO THE BOARD OF DIRECTORS OF
BALLY........................ On June 6, 1996, Goldman, Sachs & Co. ("Goldman
Sachs") delivered its oral opinion to the Bally
Board of Directors that, based upon and subject
to the matters set forth therein and based upon
such other matters as it considered relevant,
as of the date of such opinion, the total
consideration to be received by the holders of
shares of Bally Common Stock pursuant to the
Merger Agreement was fair to such holders.
Goldman Sachs subsequently confirmed its June
6, 1996 opinion by delivering to the Bally
Board of Directors its written opinion, dated
as of the date hereof, that, based upon and
subject to the matters set forth therein and
based upon such other matters as it considered
relevant, as of the date hereof, the total
consideration to be received by the holders of
shares of Bally Common Stock pursuant to the
Merger Agreement is fair to such holders. A
copy of the written opinion of Goldman Sachs
dated as of the date hereof is attached to this
Joint Proxy Statement/Prospectus as Appendix C
and is incorporated herein by reference.
Stockholders of Bally are urged to read, and
should read, the Goldman Sachs opinion in its
entirety and consider it carefully. See "The
Merger--Opinions of Financial Advisors to
Bally" and Appendix C.
On June 6, 1996, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch")
delivered its oral opinion to the Bally Board
of Directors that, on the basis of and subject
to the
4
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matters set forth therein, as of the date of
such opinion, the proposed consideration to be
received by the holders of shares of Bally
Common Stock (other than Hilton and its
affiliates) in the Merger was fair to such
holders from a financial point of view. Merrill
Lynch subsequently confirmed its June 6, 1996
opinion by delivering to the Bally Board of
Directors its written opinion, dated as of the
date hereof, that, on the basis of and subject
to the matters set forth therein, as of the
date hereof, the proposed consideration to be
received by the holders of shares of Bally
Common Stock (other than Hilton and its
affiliates) in the Merger is fair to such
holders from a financial point of view. A copy
of the written opinion of Merrill Lynch dated
as of the date hereof is attached to this Joint
Proxy Statement/Prospectus as Appendix D and is
incorporated herein by reference. Stockholders
of Bally are urged to read the Merrill Lynch
opinion in its entirety and consider it
carefully. See "The Merger--Opinions of
Financial Advisors to Bally" and Appendix D.
REGULATORY APPROVALS.......... Consummation of the Merger is subject to
certain regulatory approvals, including the
expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), which occurred on August 16,
1996. In addition, the gaming operations of
each of Hilton and Bally are subject to
extensive regulation, and each of Hilton and
Bally hold gaming licenses or permits in each
jurisdiction in which it operates gaming
activities. In each such jurisdiction, certain
regulatory requirements must be complied with
and/or certain approvals must be obtained in
connection with the Merger. The receipt of
required approvals is a condition to
consummation of the Merger. See "The Merger
Agreement--Conditions to the Merger" and "The
Merger--Regulatory Approvals."
ANTICIPATED ACCOUNTING The Merger will be accounted for as a
TREATMENT.................... "purchase" in accordance with generally
accepted accounting principles.
APPRAISAL RIGHTS.............. Stockholders of Hilton, holders of Bally PRIDES
and, if there is no Additional Cash Payment,
holders of Bally Common Stock are not entitled
to dissenters' appraisal rights under the
Delaware General Corporation Law (the "DGCL")
in connection with the Merger. In the event any
Additional Cash Payment is made in connection
with the Merger, any holder of Bally Common
Stock (i) who files a demand for appraisal in
writing prior to the vote taken at the Bally
Special Meeting, (ii) whose shares are not
voted in favor of the Merger and (iii) who
follows certain other procedural requirements,
will be entitled to appraisal rights under
Section 262 of the DGCL. While the
determination as to whether there will be any
Additional Cash Payment will be made after the
Bally Special Meeting, in order to preserve
their rights, stockholders who wish to exercise
their statutory appraisal rights
5
<PAGE>
must submit a written demand for appraisal
prior to the Bally Special Meeting and comply
with the other procedural requirements of
Section 262 of the DGCL. See "The Merger--
Appraisal Rights."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.................
The Merger is intended to qualify as a
reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The obligation of each of
Hilton and Bally to consummate the Merger is
subject to the condition that it shall have
received an opinion of its counsel, dated the
closing date of the Merger, to the effect that
the Merger will be treated for tax purposes as
a reorganization within the meaning of Section
368(a) of the Code. Assuming the Merger is so
treated, for Federal income tax purposes, the
Merger will not result in the recognition of
gain or loss to Hilton, Bally, or the holders
of Bally Common Stock or Bally PRIDES except
(i) with respect to cash received by such
holders in lieu of fractional shares and
(ii) if a holder of Bally Common Stock receives
the Additional Cash Payment, gain, if any,
realized by such holder pursuant to the Merger
will be recognized, but not in excess of the
Additional Cash Payment received. See "The
Merger--Certain Federal Income Tax
Consequences."
INTERESTS OF CERTAIN PERSONS
IN THE MERGER................
In considering the Merger, stockholders should
be aware that Bally's directors and members of
Bally's management have certain interests in
the Merger. Ten executive officers of Bally
currently have employment agreements providing
for lump sum severance payments and certain
other benefits in the event of a termination of
employment following a "Change in Control"
(which will occur as of the Effective Time (as
hereafter defined)). Arthur M. Goldberg, the
Chairman, President and Chief Executive Officer
of Bally, will terminate his employment at the
Effective Time and as a result he will receive
payments under his employment agreement due to
the Merger of approximately $15,821,000. The
employment agreement of Lee S. Hillman,
Executive Vice President, Chief Financial
Officer and Treasurer, provides for a lump sum
payment of $1,833,334 if Hilton terminates his
employment after the Effective Time and
$200,000 if Mr. Hillman terminates his
employment agreement after the Effective Time.
Three other executive officers have employment
agreements which provide for a lump sum payment
equal to six months base salary upon the
voluntary termination of employment following
the Change in Control. Such payment increases
in the event the termination is by Hilton. The
other five executive officers will receive
termination payments if Hilton terminates their
employment agreements following the Change in
Control. All of the executive officers will be
reimbursed for excise tax liability resulting
from payments made as a result of the Merger.
As of July 31, 1996, the executive officers and
6
<PAGE>
directors of Bally, as a group, beneficially
owned an aggregate of 988,999 shares of Bally
Common Stock (excluding shares subject to
outstanding stock options) and an aggregate of
10,000 shares of Bally PRIDES, which will be
treated in the same manner as shares of Bally
Common Stock and Bally PRIDES held by other
stockholders. As of July 31, 1996, such
executive officers and directors, as a group,
also held options with respect to 3,706,832
shares of Bally Common Stock under Bally's
stock option plans (500,000 of the options
include tandem stock appreciation rights).
Under the Merger Agreement, such options/stock
appreciation rights will become immediately
exercisable in full at the Effective Time and
will be settled in exchange for an amount of
cash per option share as set forth below under
"The Merger Agreement--Treatment of Stock
Options." In addition, pursuant to the Merger
Agreement, Bally's Casino, Inc., a subsidiary
of Bally ("Bally Casino"), will be merged with
and into Bally immediately prior to the Merger,
with Bally continuing as the surviving
corporation, and as a result, all shares of
Bally Casino's Series A Cumulative Exchangeable
Preferred Stock currently held by Mr. Goldberg
will be converted into Bally Common Stock which
in turn will be converted into shares of Hilton
Common Stock in the Merger. The Board of
Directors of Bally has approved certain
transactions between Bally and Mr. Goldberg
that will occur immediately prior to the
Effective Time, subject to the consummation of
the Merger, and upon consummation of the
Merger, these arrangements will be binding on
Hilton. See "The Merger--Interests of Certain
Persons in the Merger."
THE MERGER AGREEMENT
TERMS OF THE MERGER........... The Merger Agreement provides that, following
the approval and adoption of the Merger
Agreement by the stockholders of Hilton and
Bally and the satisfaction or waiver of the
other conditions to the Merger, Bally will be
merged with and into Hilton, and Hilton shall
continue as the surviving corporation. As a
result of the Merger, Bally shall cease to
exist and Hilton shall succeed to and assume
all rights and obligations of Bally in
accordance with the DGCL.
EFFECTIVE TIME OF THE The Merger will become effective upon the
MERGER....................... filing of a Certificate of Merger with the
Secretary of State of the State of Delaware
(the "Effective Time") upon the satisfaction or
waiver of the conditions to the Merger.
CONVERSION OF SHARES ......... At the Effective Time: (i) each issued and
outstanding share of Bally Common Stock will be
converted into the right to receive one share
of Hilton Common Stock, after giving effect to
the Stock Split, provided that if the
Determination Price is less than $27, each
holder of Bally Common Stock will receive an
7
<PAGE>
additional cash payment for each share equal to
the difference between $27 and the
Determination Price, up to a maximum of $3 per
share; and (ii) each issued and outstanding
share of Bally PRIDES will be converted into
the right to receive one share of Hilton
PRIDES.
In the event that the Determination Price is
less than $20, Hilton shall have the right, but
not the obligation, to give written notice to
Bally (the "Top-Up Intent Notice") that the
Board of Directors of Hilton has elected to
increase the Conversion Number such that the
product of the Conversion Number and the
Determination Price equals $20. Such increase,
however, will not result in any increase or
decrease in the amount of the Additional Cash
Payment which will, in such circumstances,
equal $3 per share.
TREATMENT OF STOCK OPTIONS.... At the Effective Time, each then outstanding
option to purchase shares of Bally Common Stock
granted under Bally's stock option plans (as
described in the Merger Agreement), whether or
not then exercisable, will become immediately
exercisable in full and will be settled in
exchange for an amount of cash per option share
equal to (i) the product of the Conversion
Number and the Determination Price; plus (ii)
the Additional Cash Payment (if any); minus
(iii) the exercise price per option share.
REPRESENTATIONS AND The Merger Agreement contains various customary
WARRANTIES................... representations and warranties made by each of
the parties thereto relating to, among other
things: (a) the organization, standing, capital
structure, and similar corporate matters of
each of Hilton and Bally; (b) documents filed
by Hilton and Bally with the Commission and the
accuracy of the information contained therein;
(c) the authorization, execution, delivery,
performance and enforceability of the Merger
Agreement with respect to each of Hilton and
Bally; (d) the absence of material changes
since December 31, 1995 with respect to the
business of either Hilton or Bally, except as
otherwise provided; (e) overall compliance in
all material respects with all applicable laws;
and (f) the absence of undisclosed material
litigation.
CERTAIN COVENANTS............. The Merger Agreement contains various customary
covenants, including covenants of each of
Hilton and Bally that, until the Effective
Time, unless permitted by the Merger Agreement
or consented to in writing by the other party,
each party and each of their respective
subsidiaries, among other things: (a) will
conduct its operations in the ordinary course
of business, using its reasonable best efforts
to preserve intact its business organizations
and goodwill in all material respects; (b) will
not declare or pay any dividends on or make
other distributions in respect to any of its
common stock, except for Hilton's regular
quarterly dividends; (c) in the case of Bally,
will not issue capital stock, rights, warrants,
options or convertible or similar securities,
subject to certain exceptions; (d) except for
the Stock
8
<PAGE>
Split, will not split, combine, or reclassify
any of its capital stock; (e) will take all
action necessary to hold a meeting of its
stockholders for the purpose of approving and
adopting the Merger Agreement; and (f) will use
its reasonable best efforts to solicit proxies
from its stockholders in favor of the adoption
of, and to take all other lawful action
necessary to secure the approval of its
stockholders in regard to, the Merger and all
other transactions contemplated in the Merger
Agreement.
CONDITIONS TO THE MERGER...... The respective obligations of Hilton and Bally
to consummate the Merger are subject to the
satisfaction or waiver at or prior to the
Effective Time of a number of conditions,
including: (i) the Merger Agreement shall have
been duly approved and adopted by the
stockholders of Hilton and Bally in accordance
with applicable law; (ii) any applicable
waiting periods under the HSR Act relating to
the Merger shall have expired or been
terminated; (iii) the Hilton Common Stock and
Hilton PRIDES to be issued in the Merger shall
have been approved for listing on the NYSE,
subject to official notice of issuance; (iv)
this Joint Proxy Statement/Prospectus shall
have been declared effective by the Commission
and shall not be subject to any stop order; and
(v) the absence of any injunction prohibiting
consummation of the Merger. Additionally,
Hilton's obligations to consummate the Merger
are subject to the satisfaction or waiver at or
prior to the Effective Time of the condition
that all necessary gaming regulatory approvals
and authorizations shall have been obtained.
ADDITIONAL AGREEMENTS......... Hilton has also agreed to, among other things,
and subject to certain exceptions and
conditions: (a) use its reasonable best efforts
to obtain requisite approvals and consents
under applicable gaming laws; and (b) use its
reasonable efforts to cause the shares of
Hilton Common Stock and Hilton PRIDES to be
issued pursuant to the Merger to be approved
for listing on the NYSE.
In addition, Bally has agreed, among other
things: (i) not to initiate, solicit or
knowingly encourage the submission of any
Acquisition Proposal (as hereinafter defined);
or (ii) enter into any agreement with respect
to any such Acquisition Proposal, or
participate in discussions or negotiations
regarding, or furnish to any person any non-
public information with respect to, or take any
other action to knowingly facilitate any
inquiries or the making of any proposal that
constitutes or would reasonably be expected to
lead to, an Acquisition Proposal; provided,
however, that, notwithstanding anything to the
contrary in the Merger Agreement, Bally may
take certain actions with respect to an
Acquisition Proposal described herein necessary
in order for the Board of Directors of Bally to
comply with its fiduciary duties.
9
<PAGE>
TERMINATION................... The Merger Agreement may be terminated at any
time prior to the Effective Time by: (a) mutual
consent of Bally and Hilton; (b) either Bally
or Hilton, if any of the conditions precedent
to its consummation of the Merger Agreement
shall have become incapable of fulfillment and
shall not have been waived; (c) either Bally or
Hilton, if the Merger shall not have been
consummated on or before the earlier of (i) the
90th day following the mailing of the Joint
Proxy Statement/Prospectus and (ii) March 31,
1997; (d) Bally, if the Determination Price is
less than $20 and Hilton shall not have given
the Top-Up Intent Notice to Bally at or before
2:00 p.m. on the second business day prior to
the Closing Date; (e) Hilton, if the Board of
Directors of Bally shall have taken any
Permitted Action (as hereafter defined); and
(f) Bally, if (i) the Board of Directors of
Bally withdraws or modifies its approval of the
recommendation of the Merger Agreement as
permitted by the terms of the Merger Agreement
or (ii) Bally enters into a definitive
agreement providing for the implementation of
an Acquisition Proposal, in accordance with the
provisions of the Merger Agreement. If an
Acquisition Proposal is publicly commenced,
proposed or disclosed and the Merger Agreement
is terminated pursuant to clause (e) or (f) of
the immediately preceding sentence, or pursuant
to clause (b) of the preceding sentence due to
rejection of the Bally Merger Proposal by the
Bally stockholders, Bally shall pay Hilton a
topping fee of $50,000,000 and certain of its
related expenses (not to exceed $5,000,000) in
the event that an Acquisition Proposal is
consummated or Bally enters into an agreement
with respect thereto within one (1) year
following the termination of the Merger
Agreement.
AMENDMENT AND MODIFICATION.... The Merger Agreement may be amended at any time
prior to the Effective Time only by written
agreement of Hilton and Bally. After the Merger
Agreement is adopted by Bally's stockholders,
however, no such amendment may reduce the
amount or change the form of the Merger
Consideration (as hereafter defined).
FEES AND EXPENSES............. Other than as set forth under "Termination"
above, each party shall pay all costs and
expenses incurred by it in connection with the
Merger Agreement and all related transactions.
DESCRIPTION OF THE HILTON PRIDES
DIVIDENDS..................... Holders of shares of Hilton PRIDES will be
entitled to receive annual cumulative dividends
at a rate of 8% per annum of the stated
liquidation preference (equivalent to a rate of
$.89 per annum for each share of Hilton
PRIDES), payable quarterly in arrears on each
January 3, April 3, July 3 and October 3, or,
if any such date is not a business day, on the
next succeeding business day, commencing
(subject to the provisions of the
10
<PAGE>
immediately following sentence) on the next
such date following consummation of the Merger.
All accumulated and unpaid dividends on the
Bally PRIDES as of the Effective Time shall
become accumulated dividends on the Hilton
PRIDES exchanged therefor, payable on the next
dividend payment date following the Merger (and
such dividends shall not be payable with
respect to Bally PRIDES); provided, however,
that in the event the Merger occurs on or after
the record date for a dividend on the Bally
PRIDES but prior to the payment date for such
dividend, then such dividend shall be payable
with respect to the Bally PRIDES (and shall not
constitute an accumulated dividend on the
Hilton PRIDES), and dividends shall commence
accruing on the Hilton PRIDES as of the payment
date for such dividend (payable on the next
succeeding payment date).
MANDATORY CONVERSION.......... On October 3, 1999 (the "Mandatory Conversion
Date"), unless previously redeemed or
converted, each outstanding share of Hilton
PRIDES will mandatorily convert into (i) 1.12
shares of Hilton Common Stock (after giving
effect to the Stock Split), subject to
adjustment in certain events, and (ii) the
right to receive cash in an amount equal to all
accrued and unpaid dividends thereon (other
than previously declared dividends payable to a
holder of record as of a prior date). If an
Additional Cash Payment is made in connection
with the Merger, at conversion a holder of
Hilton PRIDES will receive a cash payment in an
amount equal to the Additional Cash Payment
such holder would have received if such
conversion had occurred immediately prior to
the Effective Time. The value of the shares of
Hilton Common Stock that may be received by
holders of shares of Hilton PRIDES upon their
mandatory conversion may be more or less than
the value of the Bally PRIDES being surrendered
in exchange for shares of Hilton PRIDES in the
Merger due to market fluctuations in the price
of the Hilton Common Stock.
OPTIONAL REDEMPTION........... Shares of Hilton PRIDES are not redeemable
prior to October 3, 1998 (the "Initial
Redemption Date"). At any time and from time to
time on or after the Initial Redemption Date,
and ending immediately prior to the Mandatory
Conversion Date, Hilton may redeem any or all
of the outstanding shares of Hilton PRIDES.
Upon any such redemption, each holder will
receive, in exchange for each share of Hilton
PRIDES, the number of shares of Hilton Common
Stock equal to (A) the sum of (i) $11.348,
declining after January 3, 1998, to $11.125 at
the Mandatory Conversion Date; and (ii) all
accrued and unpaid dividends thereon (other
than previously declared dividends payable to a
holder of record as of a prior date) (the "Call
Price"); divided by (B) the Current Market
Price (as defined herein) on the applicable
date of determination, but in no event less
than 0.92 of one share of Hilton Common Stock
(after giving effect to the Stock Split),
11
<PAGE>
subject to adjustment in certain events. If an
Additional Cash Payment is made in connection
with the Merger, at redemption a holder of
Hilton PRIDES will receive a cash payment in an
amount equal to the Additional Cash Payment
such holder would have received if such
redemption had occurred immediately prior to
the Effective Time. The number of shares of
Hilton Common Stock to be delivered in payment
of the applicable Call Price will be determined
on the basis of the Current Market Price of the
Hilton Common Stock prior to the announcement
of the redemption, and the market price of the
Hilton Common Stock may vary between the date
of such determination and the subsequent
delivery of such shares.
CONVERSION AT THE OPTION OF At any time prior to the Mandatory Conversion
THE HOLDER................... Date, unless previously redeemed, each share of
Hilton PRIDES will be convertible at the option
of the holder thereof into 0.92 of a share of
Hilton Common Stock (after giving effect to the
Stock Split), subject to adjustment in certain
events (the "Optional Conversion Rate"),
equivalent to a conversion price of $12.092 per
share (after giving effect to the Stock Split)
of Hilton Common Stock (the "Conversion
Price"), subject to adjustment in certain
events. If an Additional Cash Payment is made
in connection with the Merger, at conversion a
holder of Hilton PRIDES will receive a cash
payment in an amount equal to the Additional
Cash Payment such holder would have received if
such conversion had occurred immediately prior
to the Effective Time. The value of the shares
received upon conversion by a holder will vary
depending on the market price of the Hilton
Common Stock from time to time, and adjustment
in certain events, all as set forth herein. The
right of holders to convert shares of Hilton
PRIDES called for redemption will terminate
immediately prior to the close of business on
the applicable redemption date.
VOTING RIGHTS................. The holders of shares of Hilton PRIDES will
have the right with the holders of Hilton
Common Stock to vote in the election of
Directors and upon each other matter coming
before any meeting of the holders of Hilton
Common Stock on the basis of four-fifths (
4/5ths) of a vote for each share of Hilton
PRIDES (after giving effect to the Stock
Split). On such matters, the holders of shares
of Hilton PRIDES and the holders of Hilton
Common Stock will vote together as one class
except as otherwise provided by law or Hilton's
Certificate of Incorporation. In addition, (i)
whenever dividends on the shares of Hilton
PRIDES or any other series of the Hilton
Preferred Stock with like voting rights are in
arrears and unpaid for six quarterly dividend
periods, and in certain other circumstances,
the holders of the shares of Hilton PRIDES
(voting separately as a class with holders of
all other series of outstanding Hilton
Preferred Stock upon which like voting rights
12
<PAGE>
have been conferred and are exercisable) will
be entitled to vote, on the basis of one (1)
vote for each share of Hilton PRIDES, for the
election of two Directors of Hilton, such
Directors to be in addition to the number of
Directors constituting the Board of Directors
immediately prior to the accrual of such right
and (ii) the holders of the shares of Hilton
PRIDES will have voting rights with respect to
certain alterations of Hilton's Certificate of
Incorporation and certain other matters, voting
on the same basis or separately as a series.
LIQUIDATION PREFERENCE AND The shares of Hilton PRIDES will rank senior to
RANKING...................... the Hilton Common Stock as to payment of
dividends and distribution of assets upon
liquidation. The liquidation preference of each
share of Hilton PRIDES is an amount equal to
the sum of (i) $11.125 and (ii) all accrued and
unpaid dividends thereon.
LISTING....................... Application has been made to list the shares of
Hilton Common Stock to be issued pursuant to
the Merger on the NYSE and to list the shares
of Hilton PRIDES to be issued pursuant to the
Merger on the NYSE under the symbol "HLT PR."
13
<PAGE>
MARKET PRICES
The Hilton Common Stock, the Bally Common Stock and the Bally PRIDES are each
listed and traded on the NYSE. The following table sets forth the high and low
sales prices per share of the Hilton Common Stock, the Bally Common Stock and
the Bally PRIDES, as reported on the NYSE for the periods indicated:
<TABLE>
<CAPTION>
HILTON BALLY
COMMON STOCK(1) COMMON STOCK BALLY PRIDES(2)
---------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter................ $ 74 $54 1/2 $ 9 5/8 $ 6 3/4 $ -- $ --
Second Quarter............... 61 1/4 49 3/4 7 5/8 6 3/8 -- --
Third Quarter................ 66 5/8 53 1/4 8 1/8 6 1/2 -- --
Fourth Quarter............... 72 56 7 5/8 5 1/4 -- --
1995
First Quarter................ $ 77 7/8 $64 1/8 $ 8 7/8 $ 6 $ -- $ --
Second Quarter............... 79 3/4 65 5/8 12 3/4 8 1/8 -- --
Third Quarter................ 74 1/8 60 3/8 12 7/8 10 11 1/2 11 1/4
Fourth Quarter............... 68 3/4 60 5/8 14 10 1/2 13 5/8 10 3/4
1996
First Quarter................ $ 99 3/4 $61 1/8 $17 3/8 $12 3/4 $17 3/8 $13 3/8
Second Quarter............... 122 94 29 3/4 16 7/8 27 3/4 17 3/8
Third Quarter(/3/)........... 112 7/8 93 3/8 27 7/8 23 3/4 26 1/8 22 5/8
</TABLE>
- --------
(1)Per share prices for Hilton Common Stock reflect the trading price prior to
giving effect to the Stock Split.
(2)Bally PRIDES have been listed and traded on the NYSE since September 28,
1995.
(3)Data presented for period of July 1, 1996 through August 15, 1996.
On June 5, 1996, the last Trading Day before public announcement of the
execution of the Merger Agreement, the closing prices of the Hilton Common
Stock, the Bally Common Stock and the Bally PRIDES, as reported on the NYSE,
were $114 1/2 per share, $25 1/2 per share and $24 3/4 per share, respectively.
On August 15, 1996, the closing prices of the Hilton Common Stock, the Bally
Common Stock and the Bally PRIDES, as reported on the NYSE, were $106 per
share, $26 3/4 per share and $25 1/4 per share, respectively.
Hilton and Bally stockholders are urged to obtain current market quotations
for the Hilton Common Stock, the Bally Common Stock and the Bally PRIDES.
14
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data has been derived from and should be read
in conjunction with the selected financial data and related notes and the
unaudited pro forma condensed financial statements and related notes found
elsewhere in this Joint Proxy Statement/Prospectus. The pro forma financial
data have been prepared based upon assumptions deemed appropriate by Hilton and
Bally and may not be indicative of actual results, nor do such data purport to
represent the results for future periods. See "Unaudited Pro Forma Condensed
Financial Statements."
<TABLE>
<CAPTION>
HILTON BALLY HILTON
HISTORICAL HISTORICAL PRO FORMA
---------- ---------- ---------
(AMOUNTS IN MILLIONS, EXCEPT
PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1996
INCOME STATEMENT DATA:
Total revenue............................ $ 899.9 575.1 1,475.0
Total operating income................... 191.7 104.8 310.0
Income from continuing operations........ 95.8 26.6 141.9
Income from continuing operations per
share................................... .49(/1/) .35 .54
Average common and equivalent shares..... 195.1(/1/) 53.7 261.9
Cash dividends declared per common
share................................... .15(/1/) -- .15
BALANCE SHEET DATA:
Cash, cash equivalents and temporary
investments............................. $ 346.7 312.9 509.6
Total assets............................. 3,023.5 1,900.9 6,919.2
Total debt............................... 1,158.0 1,275.7 2,283.7
Total stockholders' equity............... 1,349.8 290.7 3,231.2
Book value per common share.............. 6.91(/1/) 2.32 12.34
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges....... 4.1x 1.7x 3.8x
Ratio of earnings to combined fixed
charges and preferred stock dividends... 4.1x 1.4x 3.4x
YEAR ENDED DECEMBER 31, 1995
INCOME STATEMENT DATA:
Total revenue............................ $1,649.4 1,010.2 2,659.6
Total operating income................... 353.6 173.1 543.8
Income from continuing operations........ 172.8 76.7 278.0
Income from continuing operations per
share................................... .89(/1/) 1.34 1.07
Average common and equivalent shares..... 194.1(/1/) 55.5 260.9
Cash dividends declared per common
share................................... .30(/1/) -- .30
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges....... 3.2x 1.4x 3.0x
Ratio of earnings to combined fixed
charges and preferred stock dividends... 3.2x 1.3x 2.9x
</TABLE>
- --------
(1) Gives effect to the Stock Split.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data for Hilton and Bally as of and for
the five years ended December 31, 1995 are derived from their respective
audited consolidated financial statements. The selected consolidated financial
data as of and for the six months ended June 30, 1996 and 1995 are unaudited;
however, in the opinion of Hilton's and Bally's respective management, such
data include all adjustments (which were of a normal recurring nature)
necessary for a fair presentation of the information set forth herein. The data
are qualified in their entirety by, and should be read in conjunction with,
Hilton's and Bally's respective consolidated financial statements and the
related notes thereto and management's discussion and analysis of results of
operations and financial condition, which are set forth in the applicable
annual and quarterly reports.
HILTON HOTELS CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue......... $ 899.9 806.1 1,649.4 1,513.9 1,393.5 1,229.6 1,112.7
Total operating
income............... 191.7 179.0 353.6 284.6 239.9 219.9 184.8
Net income(/1/)....... 95.8 84.9 172.8 121.7 106.1 103.9 84.3
Net income per
share(/2/)........... 1.96 1.75 3.56 2.52 2.21 2.17 1.76
Average common and
equivalent
shares(/2/).......... 48.8 48.6 48.5 48.3 48.0 47.9 47.8
OTHER FINANCIAL DATA:
EBITDA(/3/)........... $ 265.7 249.3 495.5 417.9 358.8 329.2 289.6
Cash provided by (used
in)
Operating
activities......... 187.1 149.4 330.7 230.9 226.9 226.7 223.6
Investing
activities......... (99.3) (35.9) (127.8) (406.4) (100.1) (545.2) (156.3)
Financing
activities......... (135.4) (5.7) (49.3) (20.5) (94.9) 352.1 194.6
Cash dividends de-
clared per common
share(/2/)........... .60 .60 1.20 1.20 1.20 1.20 1.20
Ratio of earnings to
fixed charges(/4/)... 4.1x 3.4x 3.2x 2.8x 2.7x 2.9x 2.6x
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and temporary
investments.......... $ 346.7 395.8 408.7 393.2 478.5 510.9 349.9
Total assets.......... 3,023.5 2,966.2 3,060.3 2,925.9 2,674.8 2,659.4 2,186.8
Total debt............ 1,158.0 1,306.6 1,286.5 1,288.6 1,142.4 1,132.5 791.2
Total stockholders'
equity............... 1,349.8 1,192.9 1,253.7 1,127.8 1,056.7 1,002.5 952.8
</TABLE>
(Footnotes on following pages)
16
<PAGE>
BALLY ENTERTAINMENT CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:(/5/)
Total revenue(/6/).... $ 575.1 467.4 1,010.2 933.2 622.3 552.8 537.2
Total operating
income(/6/).......... 104.8 80.5 173.1 116.0 102.0 83.3 58.9
Income (loss) from
continuing
operations(/7/)...... 26.6 13.4 76.7 (1.9) 10.2 -- (33.4)
Net income
(loss)(/7/)(/8/)..... 25.9 13.9 66.1 (68.4) (46.5) 11.8 21.5
Income (loss) from
continuing operations
per share............ .35 .24 1.34 (.10) .16 (.06) (1.07)
Net income (loss) per
share................ .34 .25 1.15 (1.52) (1.06) .22 .55
Average common and
equivalent shares.... 53.7 50.6 55.5 46.9 46.6 41.1 33.9
OTHER FINANCIAL
DATA:(/5/)
EBITDA(/3/)(/6/)...... $ 150.9 115.4 253.7 208.4 153.2 131.9 106.8
Cash provided by (used
in)
Operating
activities......... 60.4 51.7 120.1 62.8 49.7 14.7 37.9
Investing
activities......... (28.9) (114.3) (196.7) (102.8) (56.0) (24.0) (14.0)
Financing
activities......... (13.1) 22.3 176.0 25.1 156.7 (58.3) (164.4)
Ratio of earnings to
fixed charges(/4/)... 1.7x 1.3x 1.4x 1.0x 1.2x -- (/9/) -- (/9/)
Ratio of earnings to
combined fixed
charges and preferred
stock
dividends(/10/).... 1.4x 1.3x 1.3x 1.0x 1.1x -- (/11/) -- (/11/)
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(/5/)
Cash, cash equivalents
and temporary
investments.......... $ 312.9 157.8 303.9 184.5 192.1 26.0 26.5
Total assets.......... 1,900.9 1,958.2 1,889.2 1,936.2 1,991.6 1,357.6 1,389.8
Total debt............ 1,275.7 1,296.0 1,289.6 1,266.2 1,186.3 731.2 795.4
Total stockholders'
equity............... 290.7 307.8 250.6 293.6 364.1 410.2 364.7
</TABLE>
(footnotes on following page)
17
<PAGE>
- --------
(1) Net income for Hilton in 1993 includes a credit of $3.4 million ($.07 per
share) resulting from the implementation of new accounting standards for
income taxes and post-retirement benefits other than pensions.
(2) Does not give effect to the Stock Split.
(3) "EBITDA" consists of operating income plus consolidated depreciation,
amortization and abandonment loss. Hilton and Bally have presented EBITDA
supplementally because the companies believe it allows for a more complete
analysis of their results of operations. This information should not be
considered as an alternative to any measure of performance or liquidity as
promulgated under generally accepted accounting principles (such as net
income or cash provided by or used in operating, investing and financing
activities) nor should it be considered as an indicator of the overall
financial performance of Hilton and Bally.
(4) The ratio of earnings to fixed charges is calculated by dividing (i)
income (loss) from continuing operations before income taxes and minority
interests plus fixed charges (adjusted for capitalized interest) by (ii)
fixed charges. Fixed charges consist of interest incurred (expensed or
capitalized) and the portion of rent expense which is deemed
representative of interest.
(5) Bally's Las Vegas has been consolidated since December 1, 1993 as a result
of Bally's controlling interest in Bally's Grand, Inc. at that date. Prior
to December 1, 1993, Bally's investment in Bally's Grand, Inc. was
principally recorded on the equity method of accounting. As of June 30,
1996, Bally (through a subsidiary of which it is the sole common
stockholder) owned approximately 85% of the outstanding common stock of
Bally's Grand, Inc. In addition, Bally's New Orleans commenced operation
of its riverboat casino in July 1995 and Bally's Mississippi reopened its
dockside casino in December 1995. Between December 1993 and February 1995,
Bally's Mississippi operated the dockside casino at a different site.
(6) Total revenue, total operating income and EBITDA for Bally for the six
months ended June 30, 1996 and 1995 and the years ended December 31, 1995,
1994, 1993, 1992 and 1991 exclude interest income of $9.2 million, $5.9
million, $13.7 million, $9.1 million, $5.9 million, $3.2 million and $7.3
million, respectively, to conform to the financial presentation of Hilton.
(7) Income from continuing operations and net income for Bally for the year
ended December 31, 1995 include a credit of $41.0 million ($.76 per share)
for certain adjustments to the prior years' income taxes. Loss from
continuing operations and net loss for the year ended December 31, 1994
include a charge (net of taxes) of $8.5 million ($.18 per share) to write
off certain assets which were abandoned upon the relocation of Bally's
Mississippi's operations closer to Memphis, Tennessee.
(8) Net income (loss) for Bally includes losses from discontinued operations
of $11.0 million ($.20 per share), $46.1 million ($.98 per share), $20.0
million ($.43 per share) and $1.2 million ($.03 per share) for the years
ended December 31, 1995, 1994, 1993 and 1991, respectively, and net income
for the year ended December 31, 1992 includes income from discontinued
operations of $.6 million ($.01 per share). Net income for the six months
ended June 30, 1995 and the years ended December 31, 1995, 1992 and 1991
includes extraordinary gains of $.4 million ($.01 per share), $.4 million
($.01 per share), $11.2 million ($.27 per share) and $56.1 million
($1.65 per share), respectively, and net income (loss) for the six months
ended June 30, 1996 and the years ended December 31, 1994 and 1993
includes extraordinary losses of $.6 million ($.01 per share), $20.4
million ($.44 per share) and $8.5 million ($.18 per share), respectively.
In addition, net loss for the year ended December 31, 1993 includes a
charge for the cumulative effect on prior years of change in accounting
for income taxes of $28.2 million ($.61 per share).
(9) Bally's earnings were insufficient to cover fixed charges for the years
ended December 31, 1992 and 1991 by $6.5 million and $50.2 million,
respectively.
(10) The ratio of earnings to combined fixed charges and preferred stock
dividends is calculated by dividing (i) income (loss) from continuing
operations before income taxes and minority interests plus fixed charges
(adjusted for capitalized interest and preferred stock dividend
requirements of consolidated subsidiaries) by (ii) fixed charges plus
total preferred stock dividend requirements.
(11) Bally's earnings were insufficient to cover combined fixed charges and
preferred stock dividends for the years ended December 31, 1992 and 1991
by $9.3 million and $53.0 million, respectively.
18
<PAGE>
THE COMPANIES
HILTON HOTELS CORPORATION
Hilton is a leading owner and operator of full service hotels and hotel-
casinos in the United States. Hilton owns, leases and operates major lodging
and gaming properties in gateway cities, urban and suburban centers and resort
areas under the Hilton name in the U.S. and under the Conrad International
name abroad. At June 30, 1996, Hilton operated 17 wholly-owned or leased
hotels, and managed 42 hotel properties wholly- or partially-owned by others.
An additional 167 hotel properties are operated by others under Hilton, Hilton
Garden Inn and Hilton Suites brand names pursuant to franchise agreements
granted by Hilton. Hilton's hotels are located in the United States, except
for six hotels operated by Hilton's Conrad International Hotels Corporation
subsidiary. Hilton is continuing to explore a strategic alliance with the
owner of the Hilton International hotel chain, which owns the Hilton name
outside of the United States. Hilton's owned or partially-owned hotels include
such well-known urban and resort properties as the Waldorf=Astoria in New
York, the Palmer House Hilton in Chicago, the New Orleans Hilton Riverside &
Towers and the Hilton Hawaiian Village in Honolulu. Hilton's gaming
operations, which are largely concentrated in Nevada, operate primarily under
the Hilton and Flamingo brand names. Hilton's wholly-owned Nevada casinos are
the Las Vegas Hilton, the Flamingo Hilton-Las Vegas, the Flamingo Hilton-
Laughlin, the Reno Hilton and the Flamingo Hilton-Reno. Through its Conrad
International brand, Hilton manages international hotel-casinos in Brisbane
and the Gold Coast in Queensland, Australia and in Istanbul, Turkey. Hilton
also operates a riverboat casino in New Orleans, Louisiana, next to the New
Orleans Hilton Riverside & Towers, and is a minority partner in a company that
manages a casino in Windsor, Ontario, Canada.
BALLY ENTERTAINMENT CORPORATION
Bally is engaged in the operation of casinos and casino hotel resorts.
Bally's principal operations are Bally's Park Place Casino . Resort and The
Grand casino hotel resort in Atlantic City, New Jersey; Bally's Las Vegas
casino hotel resort in Las Vegas, Nevada; Bally's Casino * Lakeshore Resort, a
riverboat casino on Lake Pontchartrain in New Orleans, Louisiana; and Bally's
Saloon * Gambling Hall * Hotel, a dockside casino and hotel in Robinsonville,
Mississippi near Memphis, Tennessee.
THE SPECIAL MEETINGS
PURPOSE
This Joint Proxy Statement/Prospectus is being furnished to holders of
Hilton Common Stock in connection with the solicitation of proxies by the
Board of Directors of Hilton for use at the Hilton Special Meeting. The
purpose of the Hilton Special Meeting is to: (i) consider and vote upon a
proposal to approve and adopt the Hilton Merger Proposal; (ii) consider and
vote upon a proposal to amend Hilton's Certificate of Incorporation to
increase the number of authorized shares of Hilton Common Stock from
90,000,000 shares to 400,000,000 shares, increase the number of authorized
shares of Hilton Preferred Stock from 10,000,000 shares to 24,832,700 and
designate 14,832,700 shares of Hilton Preferred Stock as Hilton PRIDES; (iii)
consider and vote upon a proposal to effect the Stock Split; (iv) approve the
Stock Issuance (clauses (ii) through (iv) being collectively referred to
hereinafter as the "Related Hilton Proposals"); and (v) transact such other
business as may properly come before the Hilton Special Meeting or any
adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Bally Common Stock and Bally PRIDES in connection with the solicitation of
proxies by the Board of Directors of Bally for use at the Bally Special
Meeting to consider and vote upon a proposal to approve and adopt the Merger
Agreement (hereinafter, the "Bally Merger Proposal") and to transact such
other business as may properly come before the Bally Special Meeting or any
adjournments or postponements thereof.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Hilton Common Stock is accompanied by a form of proxy for use at the Hilton
Special Meeting, and each copy of this Joint Proxy
19
<PAGE>
Statement/Prospectus mailed to holders of Bally Common Stock and Bally PRIDES
is accompanied by a form of proxy to be used at the Bally Special Meeting.
This Joint Proxy Statement/Prospectus is also furnished to holders of Bally
Common Stock and Bally PRIDES as a Prospectus in connection with the issuance
to them of shares of Hilton Common Stock and Hilton PRIDES, as applicable,
upon consummation of the Merger.
THE BOARD OF DIRECTORS OF HILTON HAS APPROVED THE HILTON MERGER PROPOSAL AND
RECOMMENDS THAT STOCKHOLDERS OF HILTON VOTE FOR APPROVAL AND ADOPTION OF THE
HILTON MERGER PROPOSAL AND FOR APPROVAL OF THE RELATED HILTON PROPOSALS.
THE BOARD OF DIRECTORS OF BALLY HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT THE BALLY STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
BALLY MERGER PROPOSAL.
DATES, PLACES AND TIMES
The Hilton Special Meeting will be held at the Beverly Hilton, 9876 Wilshire
Boulevard, Beverly Hills, California 90210, on September 19, 1996 at 11:00
a.m., local time.
The Bally Special Meeting will be held at the Palmer House Hilton Hotel, 17
East Monroe Street, Chicago, Illinois 60603, on September 18, 1996, at 9:00
a.m., local time.
RECORD DATES; QUORUMS
The Board of Directors of Hilton has fixed the close of business on August
16, 1996 (the "Hilton Record Date") for the determination of the holders of
Hilton Common Stock entitled to receive notice of and to vote at the Hilton
Special Meeting. The presence, in person or by proxy, of the holders of shares
of Hilton Common Stock entitled to cast a majority of the votes entitled to be
cast at the Hilton Special Meeting will constitute a quorum at the Hilton
Special Meeting.
The Board of Directors of Bally has fixed the close of business on August
16, 1996 (the "Bally Record Date") for the determination of the holders of
Bally Common Stock and Bally PRIDES entitled to receive notice of and to vote
at the Bally Special Meeting. The presence, in person or by proxy, of the
holders of Bally Common Stock and Bally PRIDES entitled to cast a majority of
the votes entitled to be cast at the Bally Special Meeting will constitute a
quorum at the Bally Special Meeting.
VOTES REQUIRED
As of August 15, 1996, there were outstanding and entitled to vote
48,854,451 shares of Hilton Common Stock, excluding 2,170,256 shares held in
Hilton's treasury. Each share of Hilton Common Stock is entitled to one (1)
vote on each matter that comes before the Hilton Special Meeting. Approval and
adoption of the Hilton Merger Proposal and the Related Hilton Proposals
requires the affirmative vote of a majority of all outstanding shares of
Hilton Common Stock (other than the Stock Issuance, which, assuming the
presence of a quorum, requires the affirmative vote of a majority of the votes
cast with respect to such proposal).
As of July 31, 1996, directors and executive officers of Hilton and their
affiliates beneficially owned an aggregate of 12,764,315 shares of Hilton
Common Stock, or approximately 26.13% of the shares of Hilton Common Stock
outstanding on such date. The directors and executive officers of Hilton and
their affiliates have indicated their intentions to vote the shares of Hilton
Common Stock beneficially owned by them in favor of approval of the Hilton
Merger Proposal and the Related Hilton Proposals.
At the Bally Special Meeting, the outstanding shares of Bally Common Stock
and Bally PRIDES will vote together as a single class. As of August 15, 1996,
there were outstanding and entitled to vote 51,620,865 shares of Bally Common
Stock and 14,832,700 shares of Bally PRIDES. Each share of Bally Common Stock
is
20
<PAGE>
entitled to one vote on each matter that comes before the Bally Special
Meeting, and each share of Bally PRIDES is entitled to four-fifths (4/5ths) of
one vote on each matter that comes before the Bally Special Meeting. Approval
and adoption of the Bally Merger Proposal requires the affirmative vote of a
majority of the votes entitled to be cast by the holders of all issued and
outstanding shares of Bally Common Stock and Bally PRIDES.
As of July 31, 1996, Bally directors and executive officers and their
affiliates beneficially owned an aggregate of 988,999 shares of Bally Common
Stock and 10,000 shares of Bally PRIDES, or approximately 1.9% of Bally Common
Stock and approximately .1% of the Bally PRIDES outstanding on such date. The
directors and executive officers of Bally and their affiliates have indicated
their intention to vote the shares of Bally Common Stock and Bally PRIDES
beneficially owned by them in favor of the approval of the Bally Merger
Proposal.
In the event that the Merger Agreement is not approved and adopted by both
the Hilton and Bally stockholders, the Merger Agreement may be terminated in
accordance with its terms. See "The Merger Agreement--Termination."
VOTING AND REVOCATION OF PROXIES
Shares of Hilton Common Stock, Bally Common Stock and Bally PRIDES
represented by a proxy properly signed and received at or prior to the
appropriate Special Meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon. If a proxy for the Hilton Special
Meeting is properly executed and returned without indicating any voting
instructions, shares of Hilton Common Stock represented by the proxy will be
voted for approval of the Hilton Merger Proposal and the Related Hilton
Proposals. If a proxy for the Bally Special Meeting is properly executed and
returned without indicating any voting instructions, shares of Bally Common
Stock or Bally PRIDES, as applicable, represented by the proxy will be voted
for approval of the Bally Merger Proposal. Any proxy given pursuant to the
solicitation may be revoked by the person giving it at any time before the
proxy is voted by the filing of an instrument revoking it, or of a duly
executed proxy bearing a later date, with the Secretary of Hilton, for Hilton
stockholders, or with the Secretary of Bally, for Bally stockholders, prior to
or at the appropriate Special Meeting, or by voting in person at the
appropriate Special Meeting. Attendance at a Special Meeting will not in and
of itself constitute a revocation of a proxy. Because the approval of the
Hilton Merger Proposal and certain of the Related Hilton Proposals require the
affirmative vote of a majority of the issued and outstanding shares of Hilton
Common Stock, abstentions and broker non-votes with respect to such shares
will be the equivalent of votes against such proposals. Because approval of
the Bally Merger Proposal by the stockholders of Bally requires the
affirmative vote of a majority of all votes entitled to be cast by all holders
of the issued and outstanding shares of Bally Common Stock and Bally PRIDES,
abstentions and broker non-votes with respect to such shares will be
equivalent to votes against approval of the Bally Merger Proposal.
Proxies sent via facsimile transmission will be accepted if received not
later than fifteen (15) minutes prior to the scheduled commencement of the
relevant Special Meeting. Such proxies may be sent via facsimile for Hilton to
D.F. King & Co., Inc., proxy solicitors for Hilton, at (212) 809-8839 and for
Bally, to MacKenzie Partners, Inc., proxy solicitors for Bally, at (212) 929-
0308.
The Boards of Directors of Hilton and Bally are not aware of any business to
be acted upon at the Special Meetings of their respective stockholders other
than as described herein. If, however, other matters are properly brought
before either Special Meeting, or any adjournments or postponements thereof,
the persons appointed as proxies will have discretion to vote or act thereon
according to their best judgment and subject to applicable rules of the SEC or
Delaware law.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Hilton and Bally, who will not be specifically compensated for such services,
may solicit proxies from the stockholders of Hilton and Bally, respectively,
personally or by telephone or telegram or other forms of communication.
Brokerage houses,
21
<PAGE>
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in doing so.
Hilton has retained D.F. King & Co., Inc. to assist in the solicitation of
proxies from its stockholders. The fees to be paid to D.F. King & Co., Inc.
for such services by Hilton are not expected to exceed approximately $8,000
plus reasonable out-of-pocket costs and expenses. Bally has retained MacKenzie
Partners, Inc. to assist in the solicitation of proxies from its stockholders.
The fees paid to MacKenzie Partners, Inc. are not expected to exceed
approximately $15,000, plus reasonable out-of-pocket costs and expenses. Each
of Hilton and Bally will bear its own expenses in connection with the
solicitation of proxies for its Special Meeting, except that Hilton and Bally
each will pay one-half of the expenses incurred in printing this Joint Proxy
Statement/Prospectus, the forms of proxies and other proxy materials.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. THE
PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH ELSEWHERE IN THIS JOINT PROXY STATEMENT/ PROSPECTUS. SEE "THE MERGER
AGREEMENT--EXCHANGE PROCEDURES."
THE MERGER
BACKGROUND TO THE MERGER AND REASONS FOR THE MERGER
General Background--Hilton
In November 1994, Hilton commenced a process of evaluating possible
strategic alternatives to enhance stockholder value and engaged an investment
banking firm to undertake a study and make recommendations to Hilton's
management and Board of Directors concerning such strategic alternatives.
These alternatives included the sale of the entire company in one or a series
of transactions; the spin-off of one or more of Hilton's businesses; a
recapitalization; a share repurchase program; a business combination; or other
acquisitions and similar transactions. As a result of the evaluation of such
alternatives, in June 1995, the Board of Directors of Hilton approved a plan
to separate Hilton's gaming and hotel businesses by means of a spin-off of
Hilton's gaming operations. In the course of pursuing the spin-off, however,
management continued to evaluate other strategic alternatives and, in January
1996, Hilton's Board of Directors determined to continue to develop the
marketing, operating and financial efficiencies between its hotel and gaming
businesses. Accordingly, Hilton announced in January 1996 that it would not
proceed with the spin-off of its gaming operations and determined to pursue
expansion of its gaming operations through acquisitions, the development of
new facilities and enhancement of its existing gaming properties.
General Background--Bally
Over the past few years Bally has faced increased competition from both
established casinos and newly emerging gaming operations, including gaming
facilities operated by Native American Indians. Recent developments such as
the legalization of casino gaming in new geographic markets and the increasing
popularity of riverboat gaming have forced Bally to expend significant
resources to develop a presence in new markets while at the same time
expending capital to upgrade and improve its existing locations. In order to
capitalize on the growth in the new markets, and to counter the increasing
competitive pressures, Bally embarked upon a major capital expenditures and
expansion program to improve and expand its existing properties and to build
additional properties. In order to implement this expansion program, Bally
determined that it would need access to substantial capital. Over the past two
years, Bally has considered various ways to raise capital and position itself
to compete effectively against the growing field of large, well-capitalized
companies in the gaming industry.
Prior Negotiations with Hilton and Other Parties
In mid-February 1996, representatives of a significant industry participant
(the "Industry Participant") contacted Arthur M. Goldberg, the Chairman, Chief
Executive Officer and President of Bally, regarding a
22
<PAGE>
possible business combination. In order to explore such combination on a
preliminary basis, the parties agreed to exchange certain non-public
information and accordingly executed a confidentiality agreement on February
16, 1996. In March 1996, representatives of Hilton contacted Mr. Goldberg
regarding a possible business combination, and the two companies exchanged
certain non-public information pursuant to a confidentiality agreement which
was executed on March 11, 1996. These preliminary discussions with the
Industry Participant and Hilton did not result in any offer for a transaction
involving Bally. In April 1996, representatives of each of the Industry
Participant and Hilton separately approached Mr. Goldberg to initiate further
discussions about a possible business combination involving Bally. After
preliminary negotiations with the Industry Participant, the Industry
Participant discussed with Bally a stock for stock merger proposal involving
an exchange of stock having a value of $26.00 for each share of Bally Common
Stock based on the trading price of the Industry Participant common stock at
that time. However, this proposal did not include any protection for Bally
stockholders in the event of a decline in the price of the Industry
Participant's common stock. At the same time that Bally was engaging in
negotiations with the Industry Participant, Bally and Hilton held discussions
about a possible merger, including a discussion with Bally of a proposal in
which .2285 shares of Hilton Common Stock would be issued in exchange for each
share of Bally Common Stock, which represented approximately $23.75 for each
share of Bally Common Stock based on the trading price of Hilton Common Stock
at that time. This proposal included limited protection against a decline in
the stock price of Hilton's Common Stock. Bally engaged Goldman Sachs and
Merrill Lynch as financial advisors to assist in analyzing the proposals
discussed with the Industry Participant and Hilton. Discussions with the
Industry Participant terminated when the Industry Participant did not agree to
protect Bally stockholders against a stock price decline and discussions with
Hilton terminated due to an impasse over price. At the regular Bally Board of
Directors meetings held on March 13, 1996 and May 21, 1996, the Bally Board of
Directors reviewed the status of the preliminary merger discussions with the
Industry Participant and Hilton.
Negotiations of the Merger
At the end of May 1996, representatives of Hilton contacted Mr. Goldberg in
order to resume discussions concerning a possible business combination. Hilton
discussed with Bally a stock for stock merger involving an exchange of one
share of Hilton Common Stock for each share of Bally Common Stock (after
giving effect to the Stock Split), plus protection for Bally stockholders
against a decline in the price of Hilton Common Stock below $27 per share
(after giving effect to the Stock Split) in the form of a cash payment of up
to $3 per share. Based on the trading price of Hilton Common Stock at that
time, this represented approximately $27 per share of Bally Common Stock.
While Bally was considering the Hilton proposal, it authorized one of Bally's
financial advisors to approach the Industry Participant to ascertain whether
the Industry Participant was interested in holding merger discussions with
Bally. The Industry Participant declined.
During the week of June 2, 1996, Bally and its financial and legal advisors
met with Hilton and its advisors to negotiate the terms of a proposed merger
agreement and other ancillary agreements. The entire Board of Directors of
Bally met on June 6, 1996 to consider the proposed merger agreement with
Hilton and other ancillary agreements and matters. At this meeting,
representatives of Weil, Gotshal & Manges, legal counsel to Bally, and Goldman
Sachs and Merrill Lynch, financial advisors to Bally, made presentations to
and had discussions with the Bally Board of Directors. The Bally Board of
Directors reviewed and discussed, among other things, (i) the background of
the proposed merger; (ii) financial and valuation analyses of the proposed
merger; (iii) the terms of the proposed merger agreement; (iv) regulatory
aspects of the Merger; (v) certain affiliate transactions described below
under "--Interests of Certain Persons in the Merger"; and (vi) other matters
described below under "--Recommendation of the Bally Board of Directors;
Bally's Reasons for the Merger." Goldman Sachs rendered its oral opinion
(subsequently confirmed in writing as of the date hereof) that, based upon and
subject to the matters set forth therein and based upon such other matters as
it considered relevant, as of such date, the total consideration to be
received by the holders of shares of Bally Common Stock pursuant to the Merger
was fair to such holders. Merrill Lynch rendered its oral opinion
(subsequently confirmed in writing as of the date hereof) that, on the basis
of and subject to the matters set forth therein, as of such date, the
consideration to be received by holders of shares of Bally Common Stock
pursuant to the Merger was fair to
23
<PAGE>
such holders from a financial point of view. After further deliberation, the
Bally Board of Directors unanimously approved the terms of the Merger
Agreement and the transactions contemplated thereby and authorized the
execution of the Merger Agreement.
Also on June 6, 1996, the Board of Directors of Hilton met to consider the
proposed merger agreement and the other ancillary agreements. At this meeting,
representatives of Latham & Watkins, legal counsel to Hilton, and DLJ,
financial advisor to Hilton, made presentations to the Board of Directors of
Hilton and discussed the terms of the proposed transaction. The Board of
Directors further discussed the terms of the proposed transaction, and DLJ
rendered its written opinion that as of such date, the consideration to be
paid by Hilton pursuant to the Merger Agreement was fair to Hilton from a
financial point of view. After further deliberation, the Board of Directors of
Hilton unanimously approved the terms of the Merger Agreement and the
transactions contemplated thereby.
Recommendation of the Hilton Board of Directors; Hilton's Reasons for the
Merger
THE HILTON BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE
MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF HILTON
AND RECOMMENDS THAT THE STOCKHOLDERS OF HILTON VOTE FOR THE HILTON MERGER
PROPOSAL AND THE HILTON RELATED PROPOSALS.
The Board of Directors of Hilton has unanimously determined that the Merger
is advisable and fair to, and in the best interests of, the stockholders of
Hilton. In approving the Merger Agreement and the transactions contemplated
thereby, the Board of Directors of Hilton considered a number of factors. The
factors material to the decision of the Board of Directors of Hilton are
summarized below:
(i) The strategic benefits of significantly expanding Hilton's gaming
operations and the value of Bally's gaming properties.
(ii) The fact that the Merger would provide Hilton with a significant
presence in the Atlantic City, New Jersey gaming market.
(iii) The fact that, after taking into account savings resulting from
Hilton's lower cost of capital relative to that of Bally, the Merger is
expected to be accretive to Hilton's earnings per share by the end of the
first year of operations following the Merger.
(iv) The opportunity to achieve significant synergies by combining the
management expertise of the two companies and exploiting the potential
economies of scale and cost savings in general and administrative expenses.
(v) The financial condition, results of operation and cash flows of
Hilton and Bally.
(vi) The terms and conditions of the Merger Agreement, including the
amount and form of the Merger Consideration.
(vii) The historical market prices and trading information with respect
to the Hilton Common Stock and the Bally Common Stock.
(viii) The presentation of DLJ to the Board of Directors of Hilton,
including DLJ's written opinion, dated as of June 6, 1996, to the effect
that, as of the date of such opinion, the consideration to be paid by
Hilton pursuant to the Merger Agreement was fair to Hilton, from a
financial point of view. See "--Opinion of Financial Advisor to Hilton."
In view of the number and disparate nature of the factors considered by the
Board of Directors of Hilton, the Hilton Board of Directors did not assign
relative weight to the factors considered in reaching its conclusions. Rather,
the Board of Directors of Hilton viewed its conclusions and recommendations as
being based on the totality of the information being presented to and
considered by it.
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Recommendation of the Bally Board of Directors; Bally's Reasons for the
Merger.
THE BALLY BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE
MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF BALLY AND
RECOMMENDS THAT THE STOCKHOLDERS OF BALLY VOTE FOR THE BALLY MERGER PROPOSAL.
The Bally Board of Directors believes the Merger offers its stockholders a
unique opportunity to participate in the growth of a company, which, after the
Merger, will be the largest operator of casinos in the United States. The
Bally Board of Directors also believes that as a result of the Merger, Bally's
operations will have better access to the substantial capital it needs for its
expansion program. In addition, the Bally Board of Directors has determined
that the Merger affords Bally stockholders a substantial premium over the
market price of Bally Common Stock, which was trading in the range of $14 1/2
to $17 3/8 per share prior to the first public commentary regarding a possible
business combination pushed the market price to above $23 per share in April
1996. Based on the closing sales price of Hilton Common Stock on the date of
the Merger Agreement, Bally stockholders would receive Hilton Common Stock
having a value of $28.40 for each share of Bally Common Stock, representing a
premium of 8.6% over the closing sales price of Bally Common Stock on June 5,
1996, the date before the execution of the Merger Agreement, and of 102.8%
over the highest closing sales price of Bally Common Stock during 1995.
The decision of the Bally Board of Directors to approve the Merger Agreement
and to recommend approval of the Merger by the stockholders of Bally was based
upon a number of factors, including without limitation, the following:
(i) the Bally Board of Directors' recognition of the increased capital
amounts required for Bally to maintain its competitive position;
(ii) the Bally Board of Directors' understanding of the present and
anticipated environment of the gaming industry and the potential for
further consolidation within the industry that could adversely affect
Bally's competitive position;
(iii) the Bally Board of Directors' consideration of, among other things,
information concerning the financial condition, results of operations,
prospects and businesses of Bally and Hilton;
(iv) the Bally Board of Directors' consideration of, among other things,
current industry, economic and market conditions;
(v) the Bally Board of Directors' understanding that the Merger should
aid Bally's expansion of its gaming operations, and specifically that the
expansion program would benefit from financing alternatives that are not
currently available to Bally;
(vi) the terms of the Merger Agreement, including without limitation, the
form of consideration, the proposed price protection (up to a $3 cash
payment in the event of a decline in the price of Hilton Common Stock below
$27 per share), the tax-free structure of the Merger, the degree of
flexibility provided to Bally to conduct its business prior to closing the
Merger, Bally's right to terminate the Merger Agreement in the event
Hilton's stock price, as adjusted to reflect the Stock Split, declines
below $20 per share (the total per share consideration at this level being
$23 per share as a result of the $3 cash payment) and Hilton does not offer
to increase the stock consideration, Bally's "no-solicitation" covenant
which prohibits Bally from soliciting any acquisition proposal or, subject
to the fiduciary duties of the Bally Board of Directors, from negotiating
with any other parties with respect to an acquisition proposal, and the
obligation of Bally to pay a termination fee to Hilton if an acquisition
proposal were consummated or an agreement were entered into with respect
thereto in the 12 months following termination of the Merger Agreement;
(vii) the Bally Board of Directors' receipt of opinions from Goldman
Sachs that, based upon and subject to the matters set forth therein and
based upon such other matters as it considered relevant, as of the date of
the Merger Agreement and the date of this Joint Proxy Statement/Prospectus,
respectively, the total
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consideration to be received by the holders of Bally Common Stock pursuant
to the Merger is fair to such holders; and
(viii) the Bally Board of Directors' receipt of opinions from Merrill
Lynch that, on the basis of and subject to the matters set forth therein,
as of the date of the Merger Agreement and the date of this Joint Proxy
Statement/Prospectus, respectively, the consideration to be received by the
holders of Bally Common Stock pursuant to the Merger is fair to such
holders from a financial point of view.
The Bally Board of Directors did not assign relative weights to the factors
discussed above.
OPINION OF FINANCIAL ADVISOR TO HILTON
Hilton selected DLJ as its exclusive financial advisor with respect to the
Merger because DLJ is a nationally recognized investment banking firm that has
substantial experience in the gaming and lodging industries and is familiar
with Hilton, Bally and their respective businesses. As part of its investment
banking business, DLJ is regularly engaged in the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings, sales and
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
As part of its role as financial advisor to Hilton, DLJ was asked to render
an opinion to the Board of Directors of Hilton as to the fairness to Hilton of
the consideration to be paid by Hilton to holders of Bally Common Stock
pursuant to the Merger Agreement. On each of June 6, 1996 and August 15, 1996,
DLJ delivered to the Board of Directors of Hilton its written opinion
(collectively, the "DLJ Opinion") that, based upon and subject to the
provisions set forth in such opinions, the consideration to be paid by Hilton
to the holders of Bally Common Stock pursuant to the Merger Agreement is fair
to Hilton from a financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS APPENDIX B. HOLDERS OF
HILTON COMMON STOCK ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR THE
ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW MADE BY
DLJ IN CONNECTION WITH SUCH OPINION.
The DLJ Opinion was prepared for the Hilton Board of Directors and is
directed only to the fairness to Hilton from a financial point of view of the
consideration to be paid by Hilton to holders of Bally Common Stock. The DLJ
Opinion does not constitute a recommendation to any holder as to how to vote
on the Merger. DLJ did not make any recommendation as to the form or amount of
consideration to be paid by Hilton pursuant to the transactions contemplated
by the Merger Agreement. Such consideration was determined by arm's length
negotiations between Hilton and Bally in which negotiations DLJ advised Hilton
management. DLJ's opinion does not constitute an opinion as to the prices at
which the Hilton Common Stock will actually trade at any time, including the
Effective Time. No restrictions or limitations were imposed by Hilton upon DLJ
with respect to the investigations made or the procedures followed by DLJ in
rendering the DLJ Opinion.
In arriving at its opinion, DLJ reviewed the Merger Agreement. DLJ also
reviewed financial and other information that was publicly available or
furnished to it by Hilton and Bally, including information provided during
discussions with their respective managements. Included in the information
provided to DLJ were certain financial projections of Hilton and Bally
prepared by management of Hilton and Bally, respectively. In addition, DLJ
compared certain financial and securities data of Hilton and Bally with
various other companies whose securities are traded in the public markets,
reviewed historical stock prices and trading volumes of Hilton Common Stock
and Bally Common Stock, reviewed prices and financial data implied by the
consideration paid in other business combinations and conducted such other
financial studies, analyses and investigations as DLJ deemed appropriate for
the purposes of its opinion.
In rendering the DLJ Opinion, DLJ, with the consent of the Board of
Directors of Hilton, relied upon and assumed the accuracy, completeness and
fairness of all of the financial and other information that was available to
it from public sources, that was provided to it by Hilton and Bally or their
respective representatives or that
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was otherwise reviewed by DLJ. DLJ also, with the consent of the Board of
Directors of Hilton, assumed that the financial projections supplied to it
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of Hilton and Bally as to the
future operating and financial performance of Hilton and Bally, respectively,
and of the operating synergies and other cost reductions achievable as a
result of the Merger. DLJ has not assumed any responsibility for making any
independent evaluation or appraisal of the assets or liabilities of Hilton or
Bally or for making any independent verification of any information reviewed
by it or for making an independent verification of such information.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
it as of, the date of the DLJ Opinion. Although subsequent developments may
affect its opinion, DLJ does not have any obligation to update, revise or
reaffirm its opinion.
The following is a summary of certain factors and the principal financial
analyses performed by DLJ to arrive at its opinion dated as of August 15,
1996. This summary does not purport to be a complete description of the
analyses performed by DLJ. DLJ drew no specific conclusions from any of these
analyses but subjectively factored its observations from these analyses into
its qualitative assessment of the relevant facts and circumstances.
Pro Forma Merger Analysis. DLJ analyzed certain pro forma effects resulting
from the Merger. In conducting its analysis, DLJ relied upon the assumptions
described above and the financial projections provided by the managements of
Hilton and Bally. Using the financial information and projections (normalized
for nonrecurring items) provided to DLJ by Bally's and Hilton's respective
managements, DLJ reviewed the impact on Hilton's 1996, 1997 and 1998 projected
earnings per share resulting from the Merger. DLJ's analysis separately
considered accretion/dilution (i) on an unadjusted basis and (ii) giving
effect to the synergies and other cost reductions estimated by Hilton's and
Bally's management. This analysis revealed that the Merger would be accretive
to 1997 and 1998 projected earnings per share. DLJ also considered the effect
on its analysis of a variance in the Determination Price based on a range from
$80 per share to $120 per share.
Analysis of Certain Other Publicly Traded Companies. To provide contextual
data and comparative market information, DLJ compared selected historical
earnings and operating and financial ratios for Bally to corresponding data
and ratios of certain gaming companies whose securities are publicly traded.
In conducting its analysis, DLJ compared the ratios implied by the
consideration to be paid by Hilton in the transactions contemplated by the
Merger Agreement (the "Transaction") to the ratios implied from the market
valuation of publicly traded companies selected by DLJ (the "Gaming
Companies") based upon qualitative factors which DLJ deemed relevant based
upon its experience in the gaming industry: Aztar Corporation, Circus Circus
Enterprises, Inc., Harrah's Entertainment, Inc., Mirage Resorts, Incorporated,
Showboat, Inc. and Trump Hotels & Casino Resorts, Inc. DLJ also compared the
ratios implied by the consideration to be paid by Hilton in the transactions
contemplated by the Merger Agreement in the Merger to the ratios implied from
the market valuation of a subgroup of the Gaming Companies which included
Circus Circus Enterprises, Inc., Harrah's Entertainment, Inc. and Mirage
Resorts, Incorporated (the "Selected Gaming Companies") based upon the fact
that the Selected Gaming Companies are multi-property, multi-jurisdictional
gaming entities which have similar growth rates and operating performance
characteristics to Bally. Although DLJ used these companies for comparison
purposes, none of such companies is directly comparable to Bally or Hilton.
Data and ratios considered included: the ratio of enterprise value to latest
twelve months ("LTM") revenues; LTM EBITDA; LTM earnings before interest and
taxes ("EBIT"); 1996 projected EBITDA; the ratio of market price to 1996
projected earnings per share; and the ratio of market price to 1997 projected
earnings per share. All projected information for the Gaming Companies was
obtained from Institutional Brokers Estimate Service, a third-party service
which summarizes the estimates made by analysts employed by several investment
banking firms and from the published reports of research analysts employed by
investment banking firms, including analysts employed by DLJ. Enterprise value
is defined as the sum of the principal amount of a company's debt and minority
interests in consolidated subsidiaries plus the market value of its equity
securities less excess cash. EBITDA was selected for analysis by DLJ because
it is a widely used estimate of cash flows generated by operations. EBIT was
selected by DLJ because it is a measure of operating performance. The ratio of
enterprise
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value to LTM revenues ranged from 1.4x to 3.3x for the Gaming Companies and
1.9x to 3.3x for the Selected Gaming Companies, was 3.6x for Hilton and was
2.6x for Bally. The ratio of enterprise value for the Gaming Companies and the
Selected Gaming Companies to LTM EBITDA ranged from 7.5x to 11.5x and 7.5x to
11.5x, respectively, was 11.0x for Hilton and was 8.7x for Bally after giving
effect to operating synergies and other cost reductions. The ratio of
enterprise value for the Gaming Companies and the Selected Gaming Companies to
LTM EBIT ranged from 9.4x to 20.8x and 9.4x to 14.8x, respectively, was 16.9x
for Hilton and was 12.0x for Bally after giving effect to operating synergies
and other cost reductions. The ratio of enterprise value to 1996 projected
EBITDA ranged from 5.5x to 10.5x for the Gaming Companies and 6.3x to 10.5x
for the Selected Gaming Companies, was 10.5x for Hilton and was 7.9x for Bally
after giving effect to operating synergies and other cost reductions. The
ratio of market price to 1996 projected earnings per share ranged from 15.2x
to 21.5x for the Gaming Companies and 15.2x to 21.5x for the Selected Gaming
Companies, was 26.4x for Hilton and was 22.1x for Bally after giving effect to
operating synergies and other cost reductions. The ratio of market price to
1997 projected earnings per share ranged from 12.3x to 20.2x for the Gaming
Companies and 12.3x to 20.2x for the Selected Gaming Companies, was 23.3x for
Hilton and was 15.4x for Bally after giving effect to operating synergies and
other cost reductions. DLJ also separately considered the effects of the
transaction costs associated with the Merger on these ratios.
Comparable Merger and Acquisition Analysis. DLJ reviewed the implied
valuation multiples of: (i) selected merger and acquisition transactions
including the majority of casino hotel company transactions completed since
1984 (the "Casino Resort Transactions"), (ii) Trump Hotels & Casino Resorts,
Inc.'s acquisition of the Trump Taj Mahal Casino Resort in June of 1995 (the
"Taj Mahal Transaction") and (iii) ITT Corporation's acquisition of Caesars
World in 1995 (the "Caesars Transaction"). DLJ made the analysis referred to
in (ii) above because it is the most recent, completed acquisition of an
Atlantic City casino and in (iii) above because it is the most recent,
completed, multi-property, multi-jurisdictional gaming merger and acquisition
transaction with significant Atlantic City operations. Neither the Taj Mahal
Transaction, the Caesars Transaction nor the transactions described in (i)
above, however, are directly comparable to the Merger. Additionally, in
reviewing the multiples in the transactions set forth above, DLJ considered
the effects of the prevailing market conditions. DLJ compared the ratios
implied by the aggregate consideration to be paid by Hilton to the holders of
Bally Common Stock in the Merger (with and without accounting for the
synergies and other cost reductions estimated by Hilton's and Bally's
respective managements) to the ratios implied by mean (calculated excluding
the high and low multiple) of the Casino Resort Transactions, the Taj Mahal
Transaction and the Caesars Transaction. The ratio of enterprise value implied
by the consideration paid to LTM Revenues for the mean of the Casino Resort
Transactions was 1.6x, 1.7x for the Taj Mahal Transaction, 1.8x for the
Caesars Transaction and 2.8x for the Transaction (both with and without giving
effect to synergies and other cost reductions). The ratio of enterprise value
implied by the consideration paid to LTM EBITDA for the mean of the Casino
Transactions was 8.7x, 6.8x for the Taj Mahal Transaction, 9.lx for the
Caesars Transaction, 10.7x in the Transaction without giving effect to
synergies and other cost reductions and 10.0x in the Transaction after giving
effect to synergies and other cost reductions. The ratio of enterprise value
implied by the consideration paid to LTM EBIT was 12.2x for the mean of the
Casino Resort Transactions, 9.9x for the Taj Mahal Transaction, 13.5x for the
Caesars Transaction, 15.2x for the Transaction without giving effect to
synergies and other cost reductions and 13.8x for the Transaction after giving
effect to the synergies and other cost reductions. DLJ also separately
considered the effects of transaction costs associated with the Merger on
these ratios.
Discounted Cash Flow Valuation Analysis. DLJ performed a discounted cash
flow analysis of Bally. DLJ performed its analysis using Bally's management's
estimates of future performance and the future results of operations of Bally.
DLJ selected a range of terminal exit multiples of 8.0 to 10.0 times EBITDA
and a range of weighted average cost of capital from 10.0% to 15.0% based upon
its subjective judgments about, among other things, the capital markets, Bally
prospects and the gaming industry. The terminal exit multiple represents an
estimate of the value of Bally earnings at the end of the three year period
covered by Bally's management's projections and an additional two year period
covered by an extrapolation of Bally's management projections by DLJ. This
analysis implied a per share value of Bally ranging from $30.80 to $51.27.
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Contribution Analysis. DLJ reviewed the relative contribution to Hilton
after the Merger of Hilton, as a stand alone enterprise, and Bally, as a stand
alone enterprise. DLJ relied upon estimates of 1995, 1996, 1997 and 1998
financial information provided by Hilton's and Bally's respective managements.
Hilton and Bally provided 67.4% and 32.6%, respectively, of the combined
enterprise value. The projections made by Bally's and Hilton's management
reveal, over the four year period, that Hilton would provide from 61.7% to
55.6% of combined revenues; from 67.1% to 60.1% of combined EBITDA and from
65.4% to 57.8% of combined EBIT. On a corresponding basis Bally would provide
from 38.3% to 44.4% of combined revenues, from 32.9% to 39.9% of combined
EBITDA and from 34.6% to 42.2% of combined EBIT. Bally would contribute 12.3%
of tangible book value to the combined company after the Merger.
Premium Analysis. DLJ calculated the premium, represented by multiplying
Hilton's stock price by the Conversion Ratio to Bally's closing stock prices
on the day, week and four weeks prior to June 6, 1996, the date the Merger was
announced, that Hilton will pay to the holders of Bally Common Stock in
connection with the Merger. Based upon Bally's closing stock price of $26.13,
$24.38 and $22.13 on June 5, May 30 and May 9, 1996, respectively, the
Conversion Ratio would have represented premiums of 5.1%, 12.1% and 24.1%,
respectively, for the day before, the week prior to, and four weeks prior to,
the announcement of the Merger. DLJ also examined the premiums paid in recent
transactions of comparable size. The average premium to the closing price of
the common stock of the targets on the day, week and four weeks prior to the
announcement of such transactions was 31.1%, 34.7% and 42.0%, respectively.
Stock Trading Price History. DLJ also reviewed the history of trading prices
for the Bally Common Stock over the last twelve months. Over the 52 weeks
prior to the announcement of the Merger, Bally Common Stock traded between
$26.13 and $9.44 per share and had a price immediately prior to announcement
of the Merger of $26.13 per share. DLJ also reviewed the history of trading
prices for the Bally Common Stock for the periods 90 days and 30 days prior to
the announcement of the Merger. Over the 90 days prior to the announcement of
the Merger, Bally Common Stock traded between $26.13 and $15.50 per share.
Over the 30 days prior to the announcement of the Merger, Bally Common Stock
traded between $26.13 and $19.75 per share.
The summary set forth above does not purport to be a complete description of
the analyses performed and factors considered by DLJ. The preparation of a
fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these
methods to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Accordingly, notwithstanding the
separate factors summarized above, DLJ believes that its analysis must be
considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinions.
Furthermore, in arriving at its fairness opinion, DLJ did not attribute any
particular weight to any analysis, or factor considered by it, but rather made
subjective and qualitative judgments as to the significance and relevance of
each analysis and factor. In performing its analyses, DLJ made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Pursuant to the terms of an engagement letter, as amended, Hilton has agreed
to pay DLJ (i) an initial retainer fee of $100,000 and (ii) a fee of
$1,000,000 for rendering its fairness opinion. In addition, Hilton has agreed
to pay DLJ $10,000,000, less the amounts set forth in (i) and (ii) above, upon
consummation of the Merger. Additionally, in the event that Hilton does not
consummate the Merger and Hilton receives any termination fees from Bally, DLJ
shall receive $5.0 million (provided that this fee shall not be greater than
10.0% of any payment received from Bally in the event the Merger is not
consummated). Hilton has also agreed to reimburse DLJ for its reasonable out-
of-pocket expenses (including the reasonable fees and expenses of DLJ's
counsel) incurred in connection with its engagement, and to indemnify DLJ and
certain of its related persons against certain liabilities in connection with
its engagement, including liabilities under the federal securities laws. The
terms of the fee arrangement with DLJ, which DLJ and Hilton believe are
customary in transactions of this nature, were negotiated at arm's length
between Hilton and DLJ. In May 1996, DLJ was the lead manager of an
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offering by Hilton of $500,000,000 of 5% Convertible Subordinated Notes due
2006 for which DLJ received approximately $6,500,000.
In the ordinary course of business, DLJ actively trades the debt and equity
securities of Hilton and Bally for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
OPINIONS OF FINANCIAL ADVISORS TO BALLY
Opinion of Goldman Sachs. On June 6, 1996, Goldman Sachs delivered its oral
opinion to the Bally Board of Directors that, based upon and subject to the
matters set forth therein and based upon such other matters as it considered
relevant, as of the date of such opinion, the Merger Consideration to be
received by the holders of Bally Common Stock pursuant to the Merger Agreement
was fair to such holders. Goldman Sachs subsequently confirmed its oral
opinion by delivering to the Bally Board of Directors its written opinion,
dated as of the date hereof, that, based upon and subject to the matters set
forth therein and based upon such other matters as it considered relevant, as
of the date hereof, the total consideration to be received by the holders of
Bally Common Stock pursuant to the Merger Agreement is fair to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED THE DATE HEREOF,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AS APPENDIX C AND IS INCORPORATED HEREIN BY
REFERENCE. THE GOLDMAN SACHS OPINION IS NECESSARILY BASED ON ECONOMIC, MARKET
AND OTHER CONDITIONS IN EFFECT ON, AND THE INFORMATION MADE AVAILABLE TO IT AS
OF, THE DATE HEREOF. SUBSEQUENT DEVELOPMENTS MAY AFFECT SUCH OPINION. HOLDERS
OF BALLY COMMON STOCK ARE URGED TO READ, AND SHOULD READ, THE GOLDMAN SACHS
OPINION IN ITS ENTIRETY AND CONSIDER IT CAREFULLY. THE FOLLOWING SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE
GOLDMAN SACHS OPINION IS ADDRESSED TO THE BALLY BOARD OF DIRECTORS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE ON THE PROPOSED MERGER.
In connection with its written opinion, Goldman Sachs reviewed, among other
things, (i) the Merger Agreement; (ii) the Registration Statement on Form S-4,
including this Joint Proxy Statement/Prospectus; (iii) Annual Reports to
Stockholders and Annual Reports on Form 10-K of Bally and Hilton for the five
years ended December 31, 1995; (iv) certain interim reports to stockholders
and Quarterly Reports on Form 10-Q of Bally and Hilton; (v) certain other
communications from Bally and Hilton to their respective stockholders; and
(vi) certain internal financial analyses and forecasts for Bally and Hilton
prepared by Bally's and Hilton's management, respectively, including forecasts
of certain cost savings, operating efficiencies, and financial synergies
(collectively, the "Synergies") expected to be achieved as a result of the
Merger prepared by Bally's management. Goldman Sachs also held discussions
with members of the senior management of Bally and Hilton regarding the past
and current business operations, financial condition and future prospects of
their respective companies and the combined company resulting from the Merger,
and regarding their assessment of the strategic fit and implications of the
Merger and the Synergies. In addition, Goldman Sachs reviewed the reported
price and trading activity for the Bally Common Stock and Hilton Common Stock,
compared certain financial and stock market information for Bally and Hilton
with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations in the gaming and lodging industries specifically and in other
industries generally. Goldman Sachs also reviewed and performed such other
studies and analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it or
conveyed to it in discussions with the senior managements of Bally and Hilton
for purposes of its opinion. In addition, Goldman Sachs did not make an
independent evaluation
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or appraisal of the assets and liabilities of Bally or Hilton or any of their
respective subsidiaries and was not furnished with any such evaluation or
appraisal. Goldman Sachs also assumed, with Bally's consent, that the
financial forecasts of Bally and Hilton (and the assumptions and bases
therefor), as well as the Synergies, were reasonably prepared on a basis
reflecting the best currently available judgments and estimates of Bally and
Hilton, as the case may be, and that such Synergies will be realized in the
amounts and at the times projected.
Goldman Sachs did not express any opinion as to the prices at which the
Hilton Common Stock will trade following the consummation of the Merger or the
prices at which the Bally Common Stock or the Hilton Common Stock will trade
between the announcement of and the consummation of the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth below, without
considering the analysis as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses as a
whole and did not draw any specific conclusions from or with regard to any one
method of analysis. No company or transaction used in such analyses as a
comparison is identical to Bally or Hilton or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing its
opinion to the Bally Board of Directors as to the fairness of the Merger
Consideration to be received by the holders of Bally Common Stock pursuant to
the Merger and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of Bally, Hilton, Goldman Sachs
or any other person assumes responsibility if future results are materially
different from those forecast.
As described above, Goldman Sachs' opinion and presentation to the Bally
Board of Directors was one of many factors taken into consideration by the
Bally Board of Directors in making its determination to approve the Merger
Agreement. The following summary does not purport to be a complete description
of the analysis performed by Goldman Sachs and is qualified by reference to
the written opinion of Goldman Sachs set forth in Appendix C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Bally, having acted as its financial advisor in connection with,
and having participated in certain of the negotiations leading to, the Merger
Agreement. In addition, Goldman Sachs is a full service securities firm and in
the ordinary course of its trading activities may from time to time effect
transactions, for its own account or the account of customers, and hold
positions in securities or options on securities of Bally or Hilton.
In consideration for Goldman Sachs' services as financial advisor to Bally,
Bally has agreed to pay to Goldman Sachs a fee equal to 0.44% of the aggregate
purchase price paid in a business combination transaction involving Bally,
such as the Merger, but in no event less than $8,000,000, payable upon
consummation of such business combination. Bally has also agreed to reimburse
Goldman Sachs for their reasonable out-of-pocket expenses, including fees and
disbursements of their legal counsel, incurred in connection with its
activities as financial advisor to Bally, and to indemnify Goldman Sachs and
certain related persons against certain liabilities in connection with its
engagement, including certain liabilities under the federal securities laws.
Opinion of Merrill Lynch. On June 6, 1996, Merrill Lynch delivered its oral
opinion to the Bally Board of Directors that, on the basis of and subject to
the matters set forth therein, as of the date of such opinion, the proposed
consideration to be received by the holders of Bally Common Stock (other than
Hilton and its affiliates) in the Merger was fair to such holders from a
financial point of view. Merrill Lynch subsequently confirmed its
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June 6, 1996 opinion by delivering to the Bally Board of Directors its written
opinion, dated as of the date hereof, that, on the basis of and subject to the
matters set forth therein, as of the date hereof, the proposed consideration
to be received by the holders of Bally Common Stock (other than Hilton and its
affiliates) in the Merger is fair to such holders from a financial point of
view.
THE FULL TEXT OF THE OPINION OF MERRILL LYNCH DATED THE DATE HEREOF, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX D
AND IS INCORPORATED HEREIN BY REFERENCE. MERRILL LYNCH'S OPINION IS
NECESSARILY BASED ON ECONOMIC, MARKET AND OTHER CONDITIONS IN EFFECT ON, AND
THE INFORMATION MADE AVAILABLE TO IT AS OF, THE DATE HEREOF. SUBSEQUENT
DEVELOPMENTS MAY AFFECT SUCH OPINION. HOLDERS OF BALLY COMMON STOCK ARE URGED
TO READ THE MERRILL LYNCH OPINION IN ITS ENTIRETY AND CONSIDER IT CAREFULLY.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. THE MERRILL LYNCH OPINION IS ADDRESSED TO THE BALLY
BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE PROPOSED MERGER.
In arriving at its written opinion, Merrill Lynch, among other things: (i)
reviewed Bally's Annual Reports, Forms 10-K and related financial information
for the five fiscal years ended December 31, 1995 and Bally's Form 10-Q and
the related unaudited financial information for the quarterly period ending
March 31, 1996; (ii) reviewed Hilton's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1995 and
Hilton's Form 10-Q and the related unaudited financial information for the
quarterly period ending March 31, 1996; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of Bally and Hilton furnished to Merrill Lynch by Bally
and Hilton, respectively, as well as the cost savings and related expenses and
synergies expected to result from the Merger, furnished to Merrill Lynch by
Bally; (iv) conducted discussions with members of senior management of Bally
and Hilton concerning their respective businesses and prospects; (v) reviewed
the historical market prices and trading activity for the Bally Common Stock
and the Hilton Common Stock and compared them with those of certain publicly
traded companies which Merrill Lynch deemed to be reasonably similar to Bally
and Hilton, respectively; (vi) compared the results of operations of Bally and
Hilton with those of certain companies which Merrill Lynch deemed to be
reasonably similar to Bally and Hilton, respectively; (vii) compared the
proposed financial terms of the Merger with the financial terms of certain
other mergers and acquisitions which Merrill Lynch deemed to be relevant;
(viii) considered the pro forma effect of the Merger on the earnings, cash
flow, consolidated capitalization and certain financial ratios of Hilton; (ix)
reviewed the Merger Agreement; (x) reviewed the Registration Statement on Form
S-4, including this Joint Proxy Statement/Prospectus; and (xi) reviewed such
other financial studies and analyses and took into account such other matters
as Merrill Lynch deemed necessary, including its assessment of general
economic, market and monetary conditions.
Merrill Lynch assumed and relied on the accuracy and completeness of all
information supplied or otherwise made available to it by or on behalf of
Bally and Hilton and all information made publicly available by Bally and
Hilton, and did not independently verify such information or undertake an
independent evaluation or appraisal of any of the assets or liabilities of
Bally or Hilton and was not furnished with any such evaluation or appraisal.
In addition, Merrill Lynch did not make any physical inspection of the
properties or assets of Bally or Hilton. With respect to the financial
forecasts furnished by Bally and Hilton, Merrill Lynch assumed that they were
reasonably prepared and reflect the best currently available estimates and
judgment of the management of Bally and Hilton, respectively, as to the
expected future financial performance of Bally and Hilton, respectively, and
of the management of Bally as to the cost savings and related expenses and
synergies expected to result from the Merger. Merrill Lynch further assumed
that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code. Merrill Lynch's opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date hereof.
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Merrill Lynch did not express any opinion as to the prices at which the
Hilton Common Stock will trade following the consummation of the Merger or the
prices at which the Bally Common Stock or the Hilton Common Stock will trade
between the announcement of and the consummation of the Merger.
In arriving at its opinion, Merrill Lynch performed a variety of financial
analyses, the material portions of which are summarized below. The summary set
forth below does not purport to be a complete description of the analyses
performed by Merrill Lynch. In addition, Merrill Lynch believes that its
analyses must be considered as
a whole and that selecting portions of its analyses and of the factors
considered by it, without considering all such factors and analyses, could
create a misleading view of the process underlying its analyses set forth in
its opinion and its report to the Bally Board of Directors. Merrill Lynch did
not draw any specific conclusions from or with regard to any one method of
analysis. The matters considered by Merrill Lynch in arriving at its opinion
that, as of the date of such opinion, the proposed consideration to be
received by the holders of Bally Common Stock (other than Hilton and its
affiliates) in the Merger is fair to such holders from a financial point of
view, are based on numerous macroeconomic, operating and financial assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond Bally's or Hilton's control. Any
estimates incorporated in the analyses performed by Merrill Lynch are not
necessarily indicative of actual past or future results or values, which may
be significantly more or less favorable than such estimates. Estimated values
do not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty. Arriving at a fairness opinion is a
complex process not necessarily susceptible to partial or summary description.
No public company utilized as a comparison is identical to Bally or Hilton.
Accordingly, an analysis of publicly traded comparable companies and
comparable business combinations is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company
to which they are being compared.
The Bally Board of Directors selected Merrill Lynch to render a fairness
opinion because Merrill Lynch is an internationally recognized investment
banking firm with substantial experience in transactions similar to the Merger
and because it is familiar with Bally and its business. Merrill Lynch has, in
the past, provided financial advisory and financing services to Bally and
Hilton and has received fees for the rendering of such services. In addition,
in the ordinary course of its business, Merrill Lynch may actively trade Bally
Common Stock and other securities of Bally, as well as securities of Hilton,
for its own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
In consideration for Merrill Lynch's services as financial advisor to Bally,
Bally has agreed to pay to Merrill Lynch a fee equal to 0.22% of the aggregate
purchase price paid in a business combination transaction involving Bally,
such as the Merger, but in no event less than $4,000,000, payable upon
consummation of such business combination. Bally has also agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses, including fees and
disbursements of its legal counsel, incurred in connection with its activities
as financial advisor to Bally, and to indemnify Merrill Lynch and certain
related persons against certain liabilities in connection with its engagement,
including certain liabilities under the federal securities laws.
Financial Analyses. The following is a summary of the material financial
analyses used by Goldman Sachs and Merrill Lynch in connection with their
joint presentation to the Bally Board of Directors with regard to their oral
opinions on June 6, 1996. Such presentation and the following summary thereof
do not reflect the Stock Split. Goldman Sachs and Merrill Lynch, respectively,
relied upon analysis such as those below in connection with providing their
written opinions dated as of the date hereof.
(i) Historical Stock Price Analysis. Goldman Sachs and Merrill Lynch
reviewed the performance of the per share closing market prices of Bally
Common Stock and Hilton Common Stock over the period from June 3, 1991 through
June 3, 1996. Goldman Sachs and Merrill Lynch then compared the movement of
such closing prices for Bally Common Stock with the movement of the Standard &
Poor's 400 Index and with a composite index of certain large capitalization
gaming companies, specifically, Circus Circus Enterprises, Inc., Harrah's
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Entertainment, Inc., ITT Corporation, MGM Grand, Inc., Mirage Resorts,
Incorporated, Trump Hotels & Casino Resorts, Inc. (collectively, the "Large
Cap Gaming Companies") and Hilton. Goldman Sachs and Merrill Lynch also
compared the movement of such closing prices for Hilton Common Stock over the
period from June 3, 1993 through June 3, 1996 with the movement of a composite
index of the Large Cap Gaming Companies, including Bally, and with a composite
index of certain hotel companies, specifically, HFS Incorporated, Host
Marriott Corporation, La Quinta Inns, Inc., Marriott International, Inc., ITT
Corporation and The Promus Companies Incorporated.
Goldman Sachs and Merrill Lynch also reviewed the historical ratios of the
closing market prices of Bally Common Stock to Hilton Common Stock over the
period from June 3, 1993 through June 3, 1996 and compared such ratios with
the Exchange Ratio (defined as the Conversion Number without giving effect to
the Stock Split) of 0.250. Goldman Sachs and Merrill Lynch noted that the
ratio of the closing market prices of Bally Common Stock to Hilton Common
Stock for the one-year period and three-year period ended June 3, 1996 were
0.185 and 0.159, respectively.
(ii) Selected Comparable Companies Analysis. Goldman Sachs and Merrill Lynch
compared certain publicly available financial and operating data and projected
financial performance (based on Institutional Brokers Estimate System
estimates (a composite of research analysts' estimates)) of the Large Cap
Gaming Companies, including Hilton, and certain small capitalization gaming
companies, specifically, Boyd Gaming Corporation, Primadonna Resorts, Inc.,
Showboat, Incorporated, Station Casinos, Inc. and Aztar Corporation
(collectively, the "Small Cap Gaming Companies"), with similar financial and
operating data and projected financial performance of Bally. Data for Bally
was analyzed both at June 5, 1996 (the "June Bally Statistics"), the day
before Goldman Sachs and Merrill Lynch presented their analyses to the Bally
Board of Directors, and at March 28, 1996 (the "March Bally Statistics") , the
day prior to the first public commentary regarding a possible acquisition of
Bally. Such analysis indicated: (a) mean and median values of levered market
capitalization (i.e., market value of common equity plus face value of
preferred stock, debt and minority interest less cash, cash equivalents and
marketable securities) as a multiple of latest twelve months' ("LTM") earnings
before interest, taxes, depreciation and amortization ("EBITDA") of 14.5x and
14.0x, respectively, for the Large Cap Gaming Companies, including Hilton, and
10.4x and 10.8x, respectively, for the Small Cap Gaming Companies (as compared
to corresponding values of 7.2x for Bally based on the March Bally Statistics
and 8.6x for Bally based on the June Bally Statistics); (b) mean and median
values of levered market capitalization as a multiple of LTM earnings before
interest and taxes ("EBIT") of 18.8x and 19.0x, respectively, for the Large
Cap Gaming Companies, including Hilton, and 17.5x and 18.3x, respectively, for
the Small Cap Gaming Companies (as compared to corresponding values of 10.4x
for Bally based on the March Bally Statistics and 12.4x for Bally based on the
June Bally Statistics); (c) based on consensus analysts' estimates, mean and
median 1996 price to earnings multiples of 24.5x and 25.2x, respectively, for
the Large Cap Gaming Companies, including Hilton, and 20.9x and 20.7x,
respectively, for the Small Cap Gaming Companies (as compared to corresponding
values of 21.2x for Bally based on the March Bally Statistics and 30.7x for
Bally based on the June Bally Statistics); (d) mean and median values for
price as a percentage of the 52-week high trading price of 99% and 100% for
the Large Cap Gaming Companies, including Hilton, and 88% and 90% for the
Small Cap Gaming Companies (as compared to corresponding values of 62% for
Bally based on the March Bally Statistics and 100% for Bally based on the June
Bally Statistics); (e) based on consensus analysts' estimates, mean and median
1997 price to earnings multiples of 20.8x, for the Large Cap Gaming Companies,
including Hilton, and 16.lx and 15.8x, respectively, for the Small Cap Gaming
Companies (as compared to corresponding values of 14.9x for Bally based on the
March Bally Statistics and 20.9x for Bally based on the June Bally
Statistics); (f) mean and median consensus analysts' five year earnings per
share growth rate estimates of 18.7% and 18.0%, respectively, for the Large
Cap Gaming Companies, including Hilton, and 19.3% and 19.5%, respectively, for
the Small Cap Gaming Companies (as compared to corresponding values of 15.0%
for Bally based on the March Bally Statistics and 13.5% for Bally based on the
June Bally Statistics); (g) mean and median LTM EBITDA margins (i.e., the
ratio of EBITDA to gross revenues) of 23.4% and 26.4%, respectively, for the
Large Cap Gaming Companies, including Hilton, and 21.5% and 21.9%,
respectively, for the Small Cap Gaming Companies (as compared to corresponding
values of 26.1% for Bally based on the March Bally Statistics and 26.4% for
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Bally based on the June Bally Statistics); and (h) mean and median ratios of
debt (i.e., face value of preferred stock and debt) to levered market
capitalization of 15% and 13%, respectively, for the Large Cap Gaming
Companies, including Hilton, and 39% and 42%, respectively, for the Small Cap
Gaming Companies (as compared to corresponding values of 53% for Bally based
on the March Bally Statistics and 41% for Bally based on the June Bally
Statistics).
Goldman Sachs and Merrill Lynch also compared certain publicly available
financial and operating data and projected financial performance (based on
Institutional Brokers Estimate System estimates) of the Large Cap Gaming
Companies, including Bally, and certain hotel and other companies,
specifically, ITT Corporation, Carnival Corporation, Marriott International,
Inc., La Quinta Inns, Inc., The Promus Companies Incorporated and Doubletree
Corporation (collectively, the "Lodging Companies"), with similar financial
and operating data and projected financial performance of Hilton as of June 5,
1996. Such analysis indicated: (a) mean and median values of levered market
capitalization as a multiple of LTM EBITDA of 14.9x and 13.2x, respectively,
for the Lodging Companies and 13.9x and 14.0x, respectively, for the Large Cap
Gaming Companies, including Bally (as compared to a corresponding value of
12.7x for Hilton); (b) mean and median values of levered market capitalization
as a multiple of LTM EBIT of 18.9x and 17.5x, respectively, for the Lodging
Companies and 18.0x and 19.0x, respectively, for the Large Cap Gaming
Companies, including Bally (as compared to a corresponding value of 17.9x for
Hilton); (c) based on consensus analysts' estimates, mean and median 1996
price to earnings multiples of 23.6x and 23.5x, respectively, for the Lodging
Companies and 24.9x and 25.2x, respectively, for the Large Cap Gaming
Companies, including Bally (as compared to a corresponding value of 27.9x for
Hilton); (d) mean and median values for price as a percentage of the 52-week
high trading price of 96% for the Lodging Companies and 99% and 100%,
respectively, for the Large Cap Gaming Companies, including Bally (as compared
to a corresponding value of 100% for Hilton); (e) based on consensus analysts'
estimates, mean and median 1997 price to earnings multiples of 19.7x for the
Lodging Companies and 20.3x and 20.8x, respectively, for the Large Cap Gaming
Companies, including Bally (as compared to a corresponding value of 24.0x for
Hilton); (f) mean and median consensus analysts' five year earnings per share
growth rate estimates of 20.9% and 21.0%, respectively, for the Lodging
Companies and 18.8% and 18.0%, respectively, for the Large Gap Gaming
Companies, including Bally (as compared to a corresponding value of 13.0% for
Hilton); (g) mean and median LTM EBITDA margins (i.e., the ratio of EBITDA to
gross revenues) of 28.9% and 29.2%, respectively, for the Lodging Companies
and 22.9% and 26.4%, respectively, for the Large Cap Gaming Companies,
including Bally (as compared to a corresponding value of 29.7% for Hilton);
and (h) mean and median ratios of debt to total market capitalization of 14%
and 11%, respectively, for the Lodging Companies and 19% and 15%,
respectively, for the Large Cap Gaming Companies, including Bally (as compared
to a corresponding value of 13% for Hilton).
(iii) Selected Comparable Transaction Analysis. Goldman Sachs and Merrill
Lynch reviewed certain publicly available information regarding the
acquisition of Caesar's World Inc. by ITT Corporation announced on December
19, 1994, which was the only recent acquisition of a large capitalization
public gaming company that Goldman Sachs and Merrill Lynch deemed relevant,
and compared such information to similar information regarding the Merger. The
analysis showed, among other things, that the implied EBITDA transaction
multiples for the Merger exceeded the EBITDA multiples for the Caesars World
transaction, with (a) LTM EBITDA multiples of 9.4x for the Caesars World
transaction and 10.6x for the Merger based on the March Bally Statistics at an
assumed price per share of Hilton Common Stock of $114.00, which approximated
the per share price of Hilton Common Stock immediately prior to the rendering
of the analysis; and (b) an estimated 1995 EBITDA multiple of 8.1x for Caesars
World (based upon then current research estimates) and an estimated 1996
EBITDA multiple of 9.3x for the Merger (based on Bally management's
estimates).
(iv) Review of Implied Transaction Multiples. Goldman Sachs and Merrill
Lynch reviewed certain implied transaction multiples based on the Exchange
Ratio and a range of Hilton Common Stock prices from $80.00 to $116.00 per
share. Based on an assumed price per share of Hilton Common Stock of $114.00,
which approximated the per share price of Hilton Common Stock immediately
prior to the rendering of the analysis, such analysis indicated: (a) with
respect to EBITDA, multiples of 11.3x 1995 EBITDA, 10.6x LTM EBITDA, 9.3x
estimated 1996 EBITDA (based on Bally management's EBITDA estimates), and 7.8x
estimated 1997
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EBITDA (based on Bally management's EBITDA estimates); (b) with respect to
earnings per share, multiples of 54.8x 1995 earnings per share, 30.3x
estimated 1996 earnings per share (based on Bally management's earnings per
share estimates), 19.3x estimated 1997 earnings per share (based on Bally
management's earnings per share estimates), 33.5x estimated 1996 earnings per
share (based on Institutional Brokers Estimate System estimates), and 22.8x
estimated 1997 earnings per share (based on Institutional Brokers Estimate
System estimates); (c) with respect to the weighted average Bally Common Stock
price per share over the period from March 28, 1995 to March 28, 1996, a
premium of 129%; and (d) with respect to the weighted average Bally Common
Stock price over the period from June 5, 1995 to June 5, 1996, a premium of
67%.
(v) Discounted Cash Flow Analysis. Goldman Sachs and Merrill Lynch performed
a discounted cash flow analysis of Bally, on a stand-alone basis, and Hilton,
on a stand-alone basis, based upon estimates of projected financial
performance prepared by the managements of Bally and Hilton, respectively.
Utilizing these
projections, Goldman Sachs and Merrill Lynch calculated a range of implied per
share equity values based upon the discounted net present value of the sum of:
(a) the projected stream of unlevered free cash flows from 1996 to the year
2000; (b) the projected terminal value at such year based upon a range of
multiples of projected EBITDA; and (c) an assumed cash value net of debt.
Goldman Sachs and Merrill Lynch applied several discount rates (ranging from
12% to 18% for Bally and 10% to 16% for Hilton) and multiples of EBITDA
(ranging from 7.0x to 9.0x for Bally and 10.0x to 12.5x for Hilton). Utilizing
this methodology, the implied present value per share of Bally Common Stock
ranged from $18.63 to $37.85, and the implied present value per share of
Hilton Common Stock ranged from $81.71 to $136.34.
(vi) Pro Forma Merger Analysis. Goldman Sachs and Merrill Lynch also
analyzed certain pro forma effects resulting from the Merger based on the
Exchange Ratio, including the potential impact of the Merger on the estimated
earnings per share of Hilton for the years 1996 through 2000. Such analysis
was based on estimates of Bally management on projected annual pre-tax
combination benefits of approximately $37 million. The analysis indicated that
the Merger would be accretive on an earnings per share basis for the years
1996 through 2000. Goldman Sachs and Merrill Lynch also performed a
sensitivity analysis of the potential impact of the Merger on the estimated
earnings per share of Hilton for the years 1996 through 1998, for a range of
prices of Hilton Common Stock from $96.00 to $108.00 per share, at which
levels Hilton would be required to pay an Additional Cash Payment of up to
$3.00 per share to the holders of Bally Common Stock. The Merger remained
accretive on an earnings per share basis for the three years analyzed.
(vii) Pro Forma Contribution Analysis. In addition, Goldman Sachs and
Merrill Lynch compared the relative equity ownership of the stockholders of
Bally and stockholders of Hilton to the combined company of 25.9% and 74.1%,
respectively, to the relative contributions of each of Bally and Hilton to the
combined company for the years 1995 through 1997 to net income, book value as
of March 31, 1996 and equity market capitalization as of March 28, 1996 and
June 5, 1996. Such analysis was based on estimates prepared by Bally
management with respect to Bally and was based on estimates prepared by Hilton
management with respect to Hilton. The analysis indicated, among other things:
that Bally would have contributed approximately 15.6% of the actual 1995 net
income, 24.9% of the estimated 1996 net income and 29.0% of the estimated 1997
net income of the combined company; 18.6% of the March 31, 1996 book value of
the combined company; 19.2% of the equity market capitalization as of March
28, 1996 of the combined company; and 24.6% of the equity market
capitalization as of June 5, 1996 of the combined company. Goldman Sachs and
Merrill Lynch also compared the relative contributions of the stockholders of
Bally and the stockholders of Hilton to the total enterprise value (i.e.,
market value of common equity assuming conversion of preferred stock and
exercise of all in-the-money stock options plus the face value of debt and
minority interest less cash, cash equivalents and marketable securities) of
the combined company of 31.9% and 68.1% to the relative contributions of each
of Bally and Hilton to the combined company for the years 1995 through 1997 to
EBITDA, EBIT and levered market capitalization. Such analysis was based on
estimates prepared by Bally management with respect to Bally and was based on
estimates prepared by Hilton management with respect to Hilton. The analysis
indicated, among other things, that Bally would have contributed approximately
35.1% of the actual 1995 EBITDA, 37.4% of the estimated 1996 EBITDA and 37.1%
of the estimated 1997 EBITDA of the combined company; 34.6% of the
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actual 1995 EBIT, 39.8% of the estimated 1996 EBIT and 39.0% of the estimated
1997 EBIT of the combined company; 27.6% of the levered market capitalization
as of March 28, 1996 of the combined company; and 30.6% of the levered market
capitalization as of June 5, 1996 of the combined company.
REGULATORY APPROVALS
Antitrust. Transactions such as the Merger are reviewed by the Antitrust
Division of the United States Department of Justice (the "DOJ") and the United
States Federal Trade Commission (the "FTC") to determine whether they comply
with applicable antitrust laws. Under the provisions of the HSR Act, the
Merger may not be consummated until such time as the applicable waiting period
requirements of the HSR Act have been satisfied. Hilton and Bally filed
notification reports, together with requests for early termination of the
waiting period, with the DOJ and the FTC under the HSR Act on July 17, 1996
and July 12, 1996, respectively. The applicable waiting periods for both
Hilton and Bally expired on August 16, 1996 with no request for additional
information having been made.
At any time before or after the Effective Time, the DOJ, the FTC or a
private person or entity could seek under the antitrust laws, among other
things, to enjoin the Merger or to cause Hilton to divest itself, in whole or
in part, of Bally or of other businesses conducted by Hilton. There can be no
assurance that a challenge to the Merger will not be made or that, if such a
challenge is made, Hilton and Bally will prevail.
Gaming Regulation. The gaming operations of each of Hilton and Bally are
subject to extensive regulation, and each of Hilton and Bally hold gaming
licenses or permits in each jurisdiction in which it operates gaming
activities. In each such jurisdiction, certain regulatory requirements must be
complied with and/or certain approvals must be obtained in connection with the
Merger. Hilton's obligations to consummate the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of the condition that
all necessary gaming regulatory approvals and authorizations shall have been
obtained. See "The Merger Agreement--Conditions to the Merger."
Review of the Merger by gaming regulatory authorities will involve
examination of the structure of the combined company and its financial
stability after the Merger and may require the demonstration of qualifications
of key individuals associated with the combined company, i.e. officers,
directors, major stockholders and other individuals deemed appropriate by the
gaming regulatory authorities.
The failure to obtain the required approval of the Merger or the failure to
comply with the procedural requirements prescribed by any applicable gaming
regulatory authority or the failure of the combined company to qualify or make
disclosure or applications as required under the laws and regulations of any
applicable gaming regulatory authority may result in the loss of license or
denial of application for licensure in any such jurisdiction. See "Regulation
and Licensing." In addition, in connection with the regulatory approvals to be
obtained in New Jersey in connection with the Merger, the Hilton and Bally
Boards of Directors may choose to consummate the Merger upon the receipt of
interim casino authorization from New Jersey regulators. In the event that
following the consummation of the Merger final casino authorization were
withheld, the New Jersey gaming regulators would have the right to take
remedial action, including action which would result in the divestiture of
Hilton's ownership of the stock of the Bally subsidiaries licensed to operate
in New Jersey. See "Regulation and Licensing--New Jersey Gaming Laws."
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" in accordance with
generally accepted accounting principles. After the Effective Time of the
Merger, the results of operations of Bally will be included in the
consolidated financial statements of Hilton. On the date that the Merger
becomes effective, the cost of Bally to Hilton, based upon (i) the value of
shares of Hilton Common Stock exchanged for Bally Common Stock and the Hilton
Common Stock equivalent value of Hilton PRIDES exchanged for Bally PRIDES
based on the average of the quoted market prices of Hilton Common Stock (A)
for three day periods both before and after the Merger was announced, or (B)
on the third Trading Day prior to the date upon which the Merger is
consummated in the event any Additional Cash Payment is to be made, in each
case as adjusted for the Stock Split, and (ii) costs
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incurred by Hilton related to the Merger, will be allocated to the net assets of
Bally acquired based upon their respective estimated fair market values.
APPRAISAL RIGHTS
In the event any Additional Cash Payment is made in connection with the
Merger, any holder of Bally Common Stock will have the right to dissent from
the Merger and demand and perfect appraisal rights in accordance with the
conditions established by Section 262 of the DGCL ("Section 262"). While
determination as to whether there will be any Additional Cash Payment will be
made after the Bally Special Meeting, in order to preserve their rights,
stockholders who wish to exercise their statutory appraisal rights must submit
a written demand for appraisal prior to the Bally Special Meeting and comply
with the other procedural requirements of Section 262 described below.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS APPENDIX E TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF
THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX E. THIS DISCUSSION AND APPENDIX E SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS, IF
AVAILABLE, OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY
WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF
APPRAISAL RIGHTS, IF AVAILABLE.
A record holder of Bally Common Stock who makes the demand described below
with respect to such shares, who continuously is the record holder of such
shares through the Effective Time, who otherwise complies with the statutory
requirements of Section 262 and who neither votes in favor of the Merger
Agreement nor consents thereto in writing may be entitled to an appraisal by
the Delaware Court of Chancery (the "Delaware Court") of the fair value of his
or her shares of Bally Common Stock. All references in this summary of
appraisal rights to a "stockholder" or "holders of shares of Bally Common
Stock" are to the record holder or holders of shares of Bally Common Stock.
Except as set forth herein, stockholders of Bally will not be entitled to
appraisal rights in connection with the Merger. Holders of Bally PRIDES and
stockholders of Hilton will have no appraisal rights in connection with the
Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Bally Special Meeting, not less than 20
days prior to the meeting, each constituent corporation must notify each of
the holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of
Section 262. This Joint Proxy Statement/Prospectus shall constitute such
notice to the record holders of Bally Common Stock.
Holders of shares of Bally Common Stock who desire to exercise their
appraisal rights must not vote in favor of the Merger Agreement or the Merger
and must deliver a separate written demand for appraisal to Bally prior to the
vote by the stockholders of Bally on the Merger Agreement and the Merger. A
stockholder who signs and returns a proxy without expressly directing by
checking the applicable boxes on the reverse side of the proxy card enclosed
herewith that his or her shares of Bally Common Stock be voted against the
proposal or that an abstention be registered with respect to his or her shares
of Bally Common Stock in connection with the proposal will effectively have
thereby waived his or her appraisal rights as to those shares of Bally Common
Stock because, in the absence of express contrary instructions, such shares of
Bally Common Stock will be voted in favor of the proposal. Accordingly, a
stockholder who desires to perfect appraisal rights with respect to any of his
or her shares of Bally Common Stock must, as one of the procedural steps
involved in such perfection, either (i) refrain from executing and returning
the enclosed proxy card and from voting in person in favor of the proposal to
approve the Merger Agreement, or (ii) check either the "Against" or the
"Abstain" box next to the proposal on such card or affirmatively vote in
person against the proposal or register in person an abstention with respect
thereto. A demand for appraisal must be executed by or on behalf of the
stockholder of record and must reasonably inform Bally of the identity of the
stockholder of record and that such record stockholder intends thereby to
demand appraisal of the Bally Common Stock. A person having a beneficial
interest in shares of Bally Common Stock that are held of record in the name
of another person, such as a broker, fiduciary or other
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nominee, must act promptly to cause the record holder to follow the steps
summarized herein properly and in a timely manner to perfect whatever
appraisal rights are available. If the shares of Bally Common Stock are owned
of record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian) or other nominee, such
demand must be executed by or for the record owner. If the shares of Bally
Common Stock are owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Bally Common Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case,
the written demand must set forth the number of shares covered by such demand.
Where the number of shares is not expressly stated, the demand will be
presumed to cover all shares of Bally Common Stock outstanding in the name of
such record owner.
A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his or her written demand to: Bally Entertainment Corporation,
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631. Attention: James S.
Montana, Jr., Senior Vice President and Secretary.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Bally Common Stock owned, and that
the stockholder is thereby demanding appraisal of his or her shares. A proxy
or vote against the Merger Agreement will not by itself constitute such a
demand. Within ten days after the Effective Time, the surviving corporation
must provide notice of the Effective Time to all stockholders who have
complied with Section 262.
Within 120 days after the Effective Time, either the surviving corporation
or any stockholder who has complied with the required conditions of Section
262 may file a petition in the Delaware Court, with a copy served on the
surviving corporation in the case of a petition filed by a stockholder,
demanding a determination of the fair value of the shares of all dissenting
stockholders. There is no present intent on the part of Hilton to file an
appraisal petition and stockholders seeking to exercise appraisal rights
should not assume that the surviving corporation will file such a petition or
that the surviving corporation will initiate any negotiations with respect to
the fair value of such shares. Accordingly, Bally stockholders who desire to
have their shares appraised should initiate any petitions necessary for the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. If appraisal rights are available, within 120 days
after the Effective Time, any stockholder who has theretofore complied with
the applicable provisions of Section 262 will be entitled, upon written
request, to receive from the surviving corporation a statement setting forth
the aggregate number of shares of Bally Common Stock not voting in favor of
the Merger Agreement and with respect to which demands for appraisal were
received by Bally and the number of holders of such shares. Such statement
must be mailed within 10 days after the written request therefor has been
received by the surviving corporation.
If a petition for an appraisal is timely filed and assuming appraisal rights
are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of Bally Common Stock owned by such stockholders,
determining the fair value of such shares exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally
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considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that in making this determination of fair value
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated
that "elements of future value, including the nature of the enterprise, which
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262, however, provides
that fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Holders of shares of Bally Common Stock considering seeking appraisal should
recognize that the fair value of their shares determined under Section 262
could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of Bally, the Delaware Court may order that all or a portion of
the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's
fees and the fees and expenses of experts, be charged pro rata against the
value of all shares of stock entitled to appraisal.
Any holder of shares of Bally Common Stock who has duly demanded appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote for any purpose any shares subject to such demand or to receive
payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior
to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the surviving corporation. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders' rights to appraisal shall cease, and all
holders of shares of Bally Common Stock will be entitled to receive the
consideration offered pursuant to the Merger Agreement. Inasmuch as the
surviving corporation has no obligation to file such a petition, and Hilton
has no present intention to do so, any holder of shares of Bally Common Stock
who desires such a petition to be filed is advised to file it on a timely
basis. Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the surviving corporation a written withdrawal of his or her
demand for appraisal and acceptance of the Merger, except (i) that any such
attempt to withdraw made more than 60 days after the Effective Time will
require written approval of the surviving corporation and (ii) that no
appraisal proceeding in the Delaware Court shall be dismissed as to any
stockholder without the approval of the Delaware Court, and such approval may
be conditioned upon such terms as the Delaware Court deems just.
RESALE OF HILTON STOCK
All shares of Hilton Common Stock and Hilton PRIDES received by holders of
Bally Common Stock and Bally PRIDES in the Merger will be freely transferable,
except that shares of Hilton Common Stock received by persons deemed to be
"affiliates" (as defined under the Securities Act) of Bally at the Effective
Time may be resold only in certain permitted circumstances set forth in Rules
144 and 145 under the Securities Act. This Joint Proxy Statement/Prospectus
does not cover resales of Hilton Common Stock received by any person who may
be deemed to be an affiliate of Bally.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material United States
Federal income tax consequences of the Merger. This discussion is based upon
the Code, regulations, proposed or promulgated thereunder, judicial precedent
relating thereto, and current rulings and administrative practice of the
Internal Revenue Service (the "Service"), in each case as in effect as of the
date hereof and all of which are subject to
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change at any time, possibly with retroactive effect. It is assumed that
shares of Bally Common Stock and shares of Bally PRIDES are held as "capital
assets" within the meaning of Section 1221 of the Code (i.e., property held
for investment). This discussion does not address all aspects of Federal
income taxation that might be relevant to particular holders of Bally Common
Stock and Bally PRIDES in light of their status or personal investment
circumstances; nor does it discuss the consequences to such holders who are
subject to special treatment under the Federal income tax laws, such as
foreign persons, dealers in securities, regulated investment companies, life
insurance companies, other financial institutions, tax-exempt organizations,
pass-through entities, taxpayers who hold Bally Common Stock and Bally PRIDES
as part of a "straddle," "hedge" or "conversion transaction" or who have a
"functional currency" other than the United States dollar. In addition, this
discussion does not address the tax consequences to holders of options under
the Bally stock option plans or other persons who have received their Bally
Common Stock as compensation. Neither Hilton nor Bally has requested or will
receive a ruling from the Service as to the tax consequences of the Merger.
HOLDERS OF BALLY COMMON STOCK AND BALLY PRIDES SHOULD CONSULT THEIR TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Code. It is a condition to the obligation of Hilton to consummate the
Merger that Hilton shall have received an opinion from Latham & Watkins to the
effect that the Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Code and that no gain or loss will be recognized by
Hilton or Bally as a result of the Merger. It is a condition to the obligation
of Bally to consummate the Merger that Bally shall have received an opinion
from Weil, Gotshal & Manges LLP to the effect that the Merger will be treated
as a reorganization within the meaning of Section 368(a) of the Code and that
no gain or loss will be recognized by a holder of Bally Common Stock or Bally
PRIDES as a result of the Merger except (i) with respect to cash received by
such holder in lieu of fractional shares; and (ii) if a holder of Bally Common
Stock receives the Additional Cash Payment, gain, if any, realized by a holder
of Bally Common Stock pursuant to the Merger will be recognized, but not in
excess of the Additional Cash Payment received. In rendering such opinions,
counsel to each of Hilton and Bally will rely upon certain representations
made by Hilton, Bally, and certain stockholders of Bally.
Assuming the Merger is treated as a reorganization within the meaning of
Section 368(a) of the Code, no gain or loss will be recognized for Federal
income tax purposes by Hilton or Bally as a result of the Merger. Subject to
the discussion under "Receipt of Additional Cash Payment" below and except as
described below with respect to cash received in lieu of fractional shares, a
holder of Bally Common Stock or Bally PRIDES will not recognize gain or loss
on the exchange of shares of Bally Common Stock or Bally PRIDES for Hilton
Common Stock or Hilton PRIDES, respectively, pursuant to the Merger. The
aggregate tax basis of the Hilton Common Stock and Hilton PRIDES received by
such holder will be the same as the aggregate tax basis of the Bally Common
Stock and Bally PRIDES surrendered therefor (reduced by the amount of such tax
basis allocable to fractional shares for which cash is received and adjusted
as provided for below in the event the Additional Cash Payment is received).
The holding period of the Hilton Common Stock and Hilton PRIDES will include
the holding period of the Bally Common Stock and Bally PRIDES surrendered
therefor.
Receipt of Additional Cash Payment. If holders of Bally Common Stock receive
the Additional Cash Payment pursuant to the Merger, a holder of Bally Common
Stock will realize gain or loss equal to the difference between (i) the sum of
the Additional Cash Payment and the fair market value of the Hilton Common
Stock received; and (ii) the aggregate tax basis in Bally Common Stock
surrendered therefor. However, any such loss will not be recognized, and any
such gain will only be recognized to the extent of the Additional Cash Payment
received. For this purpose, gain or loss must be calculated separately for
each identifiable block of shares of Bally Common Stock surrendered in the
Merger, and a loss realized on one block of shares of Bally Common Stock
cannot be used to offset a gain realized on another block of shares of Bally
Common Stock. Any such
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gain recognized generally will be treated as capital gain and will be long-
term if the Bally Common Stock surrendered in the Merger has been held for
more than one year at the Effective Time unless the Additional Cash Payment
received has the effect of the distribution of a dividend, in which case the
gain would be treated as a dividend, taxable as ordinary income, to the extent
of the holder's share of Bally's accumulated earnings and profits.
For purposes of determining whether the Additional Cash Payment received has
the effect of the distribution of a dividend, the holder is treated as if such
holder first exchanged all of such holder's Bally Common Stock and, if
applicable, Bally PRIDES, solely for Hilton Common Stock and, if applicable,
Hilton PRIDES, respectively, and then Hilton immediately redeemed (the "deemed
Hilton redemption") a portion of such Hilton Common Stock in exchange for the
Additional Cash Payment the holder actually received. Under this analysis, in
general, if the receipt of the Additional Cash Payment in this deemed Hilton
redemption by a holder of Bally Common Stock results in a "substantially
disproportionate" reduction in such holder's interest in Hilton or is "not
essentially equivalent to a dividend", the receipt of the Additional Cash
Payment will not have the effect of the distribution of a dividend. For
purposes of this determination, the holder's interest in Hilton before the
deemed Hilton redemption is compared to such holder's interest in Hilton after
the deemed Hilton redemption, taking into account in each case any Hilton
stock constructively owned by such holder as a result of the application of
the attribution rules of Section 318 of the Code. If (taking into account
actual ownership and ownership by attribution) the holder's interest in the
voting stock of Hilton has declined, as a result of the deemed Hilton
redemption, by more than 20 percent, then the receipt of the Additional Cash
Payment will not be taxed as a dividend. If such interest in the voting stock
of Hilton has declined, as a result of the deemed Hilton redemption, by 20
percent or less, then generally, in the case of a minority shareholder who is
neither an officer or director of Hilton or who exercises no control over
Hilton's corporate affairs, the receipt of the Additional Cash Payment likely
would not be taxed as a dividend. Holders of Bally Common Stock should consult
with their own tax advisors as to whether the receipt of the Additional Cash
Payment has the effect of a distribution of a dividend, and, if so, the
consequences thereof.
The aggregate tax basis of the Hilton Common Stock received by a holder of
Bally Common Stock who receives an Additional Cash Payment will be the same as
the aggregate tax basis of the Bally Common Stock surrendered therefor,
decreased by the Additional Cash Payment received (and cash received in lieu
of fractional shares) and increased by any recognized gain (whether capital
gain or dividend income). The holding period of the Hilton Common Stock will
include the holding period of the Bally Common Stock surrendered therefor.
Cash In Lieu of a Fractional Share. Cash received by a holder of Bally
Common Stock in lieu of a fractional share interest in Hilton Common Stock
will be treated as received in exchange for such fractional share interest,
and gain or loss will be recognized for Federal income tax purposes, measured
by the difference between the amount of cash received and the portion of the
basis of the Bally Common Stock allocable to such fractional share interest.
Such gain or loss will be capital gain or loss and will be long-term if such
share of Bally Common Stock has been held for more than one year at the
Effective Time.
Certain Foreign Holders. While as set forth above, this general discussion
does not address the special treatment of foreign persons under the Federal
income tax laws, holders of Bally Common Stock and Bally PRIDES who are
foreign persons are urged to consult their tax advisors concerning the effect
of special rules which, depending on their particular facts and circumstances,
may be applicable to them upon consummation of the Merger if Bally is or has
been a "United States real property holding company" within the meaning of
Section 897(c)(2) of the Code.
Backup Withholding. Under the Code, a holder of Bally Common Stock may be
subject, under certain circumstances, to backup withholding at a 31% rate with
respect to the amount of the Additional Cash Payment, if any, received
pursuant to the Merger unless such holder provides proof of an applicable
exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the backup withholding rules. Any amounts
withheld under the backup withholding rules are not an additional tax and may
be refunded or credited against the holder's Federal income tax liability,
provided the required information is furnished to the Service.
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For a description of certain Federal income tax consequences relating to the
ownership and disposition of Hilton PRIDES issuable in the Merger, see
"Description of the Hilton PRIDES--Certain Federal Income Tax Considerations"
and "Description of the Hilton PRIDES--Certain Federal Income Tax
Considerations for Non-U.S. Holders."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Merger, Bally stockholders should be aware that Bally's
directors and certain members of Bally's management have interests in the
Merger different from, or in addition to, the interests of Bally stockholders
generally.
Executive Officer Employment Agreements. All ten executive officers of Bally
have employment agreements that provide for certain benefits if a "Change in
Control" of Bally (as defined in each employment agreement) occurs and the
executive officer's employment terminates either by (i) an involuntary
termination by Bally or its successor without "Cause" or in a "constructive
termination" or (ii) in certain cases, a voluntary termination by the
executive. For purposes of these agreements, a "Change in Control" will occur
by reason of the Merger. If a qualifying termination occurs, the executive
officer would be entitled to receive termination benefits as set forth below.
Under Mr. Goldberg's employment agreement, if his employment is terminated
(either by him or by Hilton) for any reason during the two-year period
following the Change in Control, Mr. Goldberg would be entitled to receive a
lump sum payment equal to the greater of (i) the sum of his base salary for
the remainder of his employment term, plus the average of the semi-annual
bonuses awarded to him prior to his termination multiplied by two times the
number of half-years remaining in his employment term or (ii) three times his
base salary. In such event, he would also be entitled to any bonuses awarded
but not yet paid, the value of his continued participation in certain employee
benefit plans of Bally (or continued participation in such plans until the end
of the employment term or the time Mr. Goldberg receives equivalent coverage
from a subsequent employer), certain retirement trust contributions and
payment by Bally of premiums on his split-dollar life insurance policy as if
Mr. Goldberg had been employed by Bally until age 62. Because Mr. Goldberg's
employment will terminate at the Effective Time (which for this purpose is
presumed to be November 1, 1996) when he commences the rendering of consulting
services to Hilton pursuant to a consulting agreement (see "--Consulting
Agreement" below), he will receive payments under his employment agreement of
approximately $15,821,000.
Under Mr. Hillman's employment agreement, if he voluntarily terminates his
employment agreement following a Change in Control, he would be entitled to
receive a lump sum payment equal to six months of base salary. If, however,
Hilton terminates Mr. Hillman's employment agreement without "cause" (as
defined in the employment agreement) or "constructively terminates" Mr.
Hillman's employment, he would be entitled to receive (i) a lump sum payment
equal to 36 months of base salary and (ii) a payment equal to two times the
average of the bonuses paid with respect to the prior three years. If Mr.
Hillman's employment agreement is terminated by Hilton at the Effective Time
(which for this purpose is presumed to be November 1, 1996) without "cause" or
as a result of a "constructive termination," he would be entitled to receive
payments under his employment agreement of $1,833,334; if Mr. Hillman's
employment agreement is voluntarily terminated by him following the Effective
Time, he would be entitled to receive payments under his employment agreement
of $200,000.
Under the employment agreements for James S. Montana, Jr., Wallace R. Barr
and Darrell A. Luery, if the executive officer's employment agreement is
voluntarily terminated by the executive officer following a Change in Control,
he would be entitled to receive a lump sum payment equal to six months of base
salary; however, if Hilton terminates the executive officer's employment
agreement without "cause" (as defined in the respective employment agreement)
or "constructively terminates" the executive officer's employment, the
executive officer would be entitled to receive (i) a lump sum payment equal to
the greater of (x) 24 months of base salary or (y) base salary for the
remainder of the employment term, and (ii) a payment equal to the greater of
(a) the prior year's bonus or (b) the average of the bonuses paid with respect
to the prior two years (in the case of
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Mr. Montana) or the prior three years (in the case of Mr. Barr or Mr. Luery).
If the employment agreement of Mr. Montana, Barr or Luery is terminated by
Hilton at the Effective Time (which for this purpose is presumed to be
November 1, 1996) without "cause" or as a result of a "constructive
termination," the executive officer would be entitled to receive payments
under his employment agreement of $650,000, $2,600,000, and $1,417,500,
respectively; if the employment agreement of Mr. Montana, Barr or Luery is
voluntarily terminated by the executive officer following the Effective Time,
he would be entitled to receive payments under his employment agreement of
$150,000, $450,000, and $283,500, respectively.
Under the employment agreements for Robert G. Conover, John W. Dwyer, Harold
Morgan, Bernard J. Murphy and Jerry Thornburg, if Hilton terminates the
executive officer's employment agreement without "Cause" (as defined in the
respective employment agreement), the executive officer would be entitled to
receive (i) a lump sum payment equal to the greater of (x) 24 months of base
salary or (y) base salary for the remainder of the employment term, and (ii) a
payment equal to the greater of (a) the prior year's bonus or (b) the average
of the bonuses paid with respect to the prior three years. If the employment
agreement of Mr. Conover, Dwyer, Morgan, Murphy or Thornburg is terminated by
Hilton at the Effective Time (which for this purpose is presumed to be
November 1, 1996), without "cause," the executive officer would be entitled to
receive payments under his employment agreement of $725,000, $697,500,
$464,000, $375,000 and $347,000, respectively.
Excise Tax Reimbursement Payments. In addition to the Change in Control
payments described above, the Bally Board of Directors approved certain
amendments to the employment agreements of Messrs. Goldberg, Hillman, Barr and
Luery with respect to the existing obligation by Bally to make tax-
reimbursement payments to any of these executive officers if he incurs an
excise tax liability under Section 4999 of the Code, as well as the additional
income and excise taxes liability due to such tax reimbursement payment,
resulting from a Change in Control. Generally, the amendments expanded the
tax-reimbursement payment provision in their employment agreements to include
the payment of compensation other than salary and bonus (such as the
accelerated vesting of stock options) in determining the amount of such tax-
reimbursement payment. In addition, the Bally Board of Directors adopted the
Executive Tax Reimbursement Plan which provides for similar tax-reimbursement
payments to be made by Bally to any member of a select group of executives who
incurs such excise tax liability under Section 4999 of the Code. This group of
27 executives includes all executive officers and certain other officers and
employees with employment agreements which have change-in-control provisions.
For purposes of these agreements and plan, a Change in Control will occur by
reason of the Merger. With respect to the termination of Mr. Goldberg's
employment, it is expected that his excise tax reimbursement payment will be
approximately $5,186,000; with respect to the other executive officers,
assuming that Hilton terminates the employment of such executive officers as
of November 1, 1996, it is expected that the aggregate excise tax
reimbursement payment would be approximately $2,299,000. Because the
calculation of excise tax reimbursement payments is dependent upon specific
facts and circumstances at the time a Change in Control payment is made, the
foregoing amounts are only estimates.
Retirement Plans. On September 7, 1994, Bally adopted the Bally
Entertainment Corporation Management Retirement Savings Plan for a select
group of management or highly compensated employees. The plan provides for
employee contributions, which are 100 percent vested when contributed, and
employer matching contributions, which vest over a three-year period, to be
credited to a participant's account. Under the plan, participants will become
100 percent vested in all employer matching contributions credited to his or
her account not later than five days following a Change in Control of Bally
(as defined in the plan). In addition, Bally will fund these interests through
a grantor trust (if such interests have not already been funded) not later
than five days following a Change in Control. For purposes of this plan, a
Change in Control will occur by reason of the Merger. As of June 28, 1996, the
aggregate amount of the unvested accounts for all executive officers under the
plan which will become vested at the Effective Time due to the Merger is
approximately $653,000.
Stock Option Plans. Under Bally's 1989 Incentive Plan and 1993 Non-
Employees' Director Stock Option Plan, if a Change in Control of Bally (as
defined in the applicable plan) occurs, outstanding stock options and/or
tandem stock appreciation rights will become fully vested on the fifth day
preceding the date of the Change in
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Control. As of July 31, 1996, the executive officers of Bally (in the
aggregate) held vested and unvested options to purchase an aggregate of
3,643,500 shares of Bally Common Stock (500,000 of the options include tandem
stock appreciation rights). In addition, as of July 31, 1996, the non-employee
directors of Bally (as a group) held vested and unvested options to purchase
an aggregate of 63,332 shares of Bally Common Stock. The treatment of such
options and stock appreciation rights is described under "The Merger
Agreement--Treatment of Stock Options." Assuming the amount payable with
respect to each share of Bally Common Stock underlying each option/stock
appreciation right is determined based on the closing sale price of Hilton
Common Stock of $111.00 on August 12, 1996, if all such options/stock
appreciation rights are exercised for the difference between such amount and
the aggregate exercise price under such options/stock appreciation rights, the
aggregate amount payable to all executive officers would be $84,919,322 and
the aggregate amount payable to all non-employee directors would be
$1,157,432.
Hilton has agreed to honor all of the foregoing commitments with respect to
(i) termination payments under the employment agreements, (ii) excise tax
reimbursement payments under the employment agreements and the Executive Tax
Reimbursement Plan, (iii) acceleration of vesting of interests under the
Management Retirement Savings Plan and (iv) acceleration of the vesting of
stock options under the stock option plans.
Stock Ownership. As of July 31, 1996, the executive officers and directors
of Bally in the aggregate beneficially owned an aggregate of 988,999 shares of
Bally Common Stock (excluding shares subject to outstanding stock options) and
10,000 shares of Bally PRIDES. All such shares will be treated in the Merger
in the same manner as the Bally Common Stock and the Bally PRIDES held by
other stockholders of Bally.
Preferred Stock. Pursuant to the Merger Agreement, Bally Casino, all of the
outstanding shares of common stock of which is owned by Bally, will be merged
with and into Bally immediately prior to the Merger (the "Subsidiary Merger"),
with Bally as the surviving corporation. At the effective time of the
Subsidiary Merger (the "Subsidiary Effective Time"), all outstanding shares of
Bally Casino's common stock will be cancelled and all outstanding shares of
Bally Casino's Series A Cumulative Exchangeable Preferred Stock (the
"Subsidiary Preferred Stock") will be converted into the right to receive a
number of shares of Bally Common Stock (rounded-up to the nearest whole
number) equal to the sum of: (i) the number of shares of Bally Common Stock
exchangeable for the Subsidiary Preferred Stock pursuant to the present terms
of the Subsidiary Preferred Stock, and (ii) the number of shares of Bally
Common Stock equal to the quotient of (A) the product of (1) the average of
the last sale prices of the common stock of Bally Total Fitness Holding
Corporation ("Bally Fitness") quoted on the Nasdaq National Market for the
thirty consecutive trading days ending on the third trading day prior to the
Subsidiary Effective Time, and (2) the number of shares of common stock of
Bally Fitness transferable pursuant to the present terms of the Subsidiary
Preferred Stock upon exchange of such Subsidiary Preferred Stock immediately
prior to the Subsidiary Effective Time, divided by (B) the average of the last
sale prices of Bally Common Stock quoted on the NYSE for the thirty
consecutive trading days ending on the third trading day prior to the
Subsidiary Effective Time. All shares of Bally Common Stock issuable in the
Subsidiary Merger shall be deemed issued and outstanding immediately prior to
the Effective Time. As of August 12, 1996, Mr. Goldberg beneficially owned all
of the 1,685,994 shares of Subsidiary Preferred Stock which are exchangeable
for 1,505,405 shares of Bally Common Stock and 376,351 shares of common stock
of Bally Fitness. Based on the closing sale price of Bally Common Stock of
$27.62 on August 12, 1996 and the last sale price of common stock of Bally
Fitness of $4.34 on August 12, 1996, Mr. Goldberg would be entitled to receive
a total of 1,564,582 shares of Bally Common Stock in exchange for his shares
of Subsidiary Preferred Stock at the Subsidiary Effective Time. All such
shares of Bally Common Stock will be converted into the right to receive
shares of Hilton Common Stock in the Merger.
Indemnification Agreements. See "The Merger Agreement--Indemnification" for
a description of provisions of the Merger Agreement relating to the
indemnification of officers and directors of Bally. Also, under the Merger
Agreement, Hilton has agreed that it will, for a period of one year following
the Effective Time, continue to maintain employee benefit plans and
arrangements which are substantially comparable in value (excluding the value
of any benefits under equity based plans) to those currently in effect for
Bally employees.
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Other Transactions. In addition, the Bally Board of Directors authorized the
following actions to take place immediately prior to the Effective Time and
subject to the consummation of the Merger: (i) in accordance with Hilton's
desire to terminate all relationships with Bally Fitness after the Effective
Time, Bally will sell to Mr. Goldberg and/or his assigns, for a purchase price
of $250,000, Bally's warrant to purchase shares of common stock of Bally
Fitness, which purchase price represents the book value of such warrant; (ii)
in order to ensure Mr. Goldberg's continued participation and the success of
Bally's investment in certain harness racing facilities in the State of
Maryland, Bally will transfer to Mr. Goldberg 20% of Bally's 50% interest and
right to participate in such Maryland racetrack project, on the same terms and
conditions applicable to Hilton as the successor to Bally to the extent Hilton
elects to pursue such racetrack project; (iii) in order to ensure Mr.
Goldberg's continued participation in and the success of Bally's proposed
gaming venture in Cancun, Mexico, Bally will transfer to Mr. Goldberg 40% of
Bally's 50% interest in such Cancun project to the extent Hilton elects to
pursue such project and, until the Effective Time, not make any further
commitment in excess of $5,000 without Hilton's prior approval; and (iv) in
accordance with Hilton's desire to terminate all relationships with Bally
Fitness following the Effective Time and in order to ensure the financial
viability of Bally Fitness which was spun-off to Bally's stockholders in
January 1996, Bally will forgive approximately $15.2 million of indebtedness
of Bally Fitness to Bally. Bally's expenditures in the Maryland racetrack
project and the Cancun project were approximately $500,000 in the aggregate.
As of the date hereof, the executive officers and directors of Bally
beneficially owned less than 5% of the outstanding shares of Bally Fitness
(excluding the shares subject to the warrant being transferred to Mr. Goldberg
described above and excluding the shares which would have been exchangeable
for the Subsidiary Preferred Stock described above). Hilton has consented to
these transactions under the Merger Agreement.
Hilton has agreed to create an advisory board comprised of the current
members of the Bally Board of Directors who will each receive as compensation
for serving on such advisory board a fee of $50,000. Such advisory board will
assist in transition matters after the Effective Time for a period of one
year. Mr. Goldberg will serve as an ex officio member of the advisory board
and will not receive the advisory board fee of $50,000.
Consulting Agreement. Although it is not intended that Mr. Goldberg will
become an employee of Hilton following the Effective Time, Hilton recognizes
that Mr. Goldberg possesses special expertise and knowledge which can benefit
Hilton in the future. Accordingly, based on Hilton's desires to benefit from
Mr. Goldberg's expertise and knowledge after the Effective Time, Hilton and
Mr. Goldberg have entered into a consulting agreement, pursuant to which Mr.
Goldberg will be retained as a consultant to Hilton for a term of three years,
at $2 million per year. Mr. Goldberg will be provided with the use of an
office, secretary, chauffeured car, hotel suites, and company plane for the
term of the consulting agreement, and health insurance benefits until age 62
and will be granted an option to purchase 600,000 shares of Hilton Common
Stock, after giving effect to the Stock Split, at the Effective Time and on
each of the first and second anniversaries of the Effective Time during the
term of the consulting agreement. Mr. Goldberg's stock options will have a per
share exercise price equal to the average of the high and low prices of the
Hilton Common Stock on the date of grant, will be fully exercisable on the
date of grant and will have a term of 5 years, unless Mr. Goldberg voluntarily
terminates the consulting agreement, in which case each option will expire on
the 180th day after the date of termination. In addition, the consulting
agreement provides for Mr. Goldberg to receive tax-reimbursement payments if
he incurs an excise tax liability under Section 4999 of the Code, as well as
the additional income and excise tax liability due to such tax-reimbursement
payments.
Bally's Grand, Inc. In 1995, Bally's Grand, Inc., a majority owned
subsidiary of Bally, announced its intention to develop a separate casino
hotel resort with a Paris, France theme (the "Paris Casino-Resort") on
approximately 24 acres of land situated on the Strip adjacent to Bally's Las
Vegas. In August 1996, Bally agreed to acquire the subsidiary of Bally's
Grand, Inc. that owns and is developing the land expected to be utilized for
the construction of the Paris Casino-Resort in exchange for shares of Bally
Common Stock and cash having an aggregate value of approximately $60 million.
Bally currently expects to issue approximately 1,600,000 shares of Bally
Common Stock in connection with this acquisition.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement.
TERMS OF THE MERGER
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the stockholders of Hilton and Bally and the
satisfaction or waiver of the other conditions to the Merger, Bally will be
merged with and into Hilton, and Hilton shall continue as the surviving
corporation. As a result of the Merger, Bally shall cease to exist and Hilton
shall succeed to and assume all rights and obligations of Bally in accordance
with the DGCL.
EFFECTIVE TIME
The Merger Agreement provides that, subject to the requisite approval of the
stockholders of Bally and Hilton, and subject to the satisfaction or waiver of
certain other conditions, the Merger will be consummated by the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware.
The Merger will become effective at the time of filing, or at such a time
thereafter as is provided in the Certificate of Merger (the "Effective Time").
CONVERSION OF SHARES
At the Effective Time, pursuant to the Merger Agreement:
(i) Each share of Bally Common Stock outstanding immediately prior to the
Effective Time will be converted into the right to receive one (1) share of
Hilton Common Stock, after giving effect to the Stock Split; provided,
however, if the Determination Price is less than $27, each holder of Bally
Common Stock will receive an additional cash payment for each share of
Bally Common Stock held by such holder, up to a maximum of $3 per share,
equal to the excess of $27 over the Determination Price; and
(ii) Each share of Bally PRIDES issued and outstanding immediately prior
to the Effective Time of the Merger will be converted into the right to
receive one share of Hilton PRIDES.
In the event that the Determination Price is less than $20, Hilton shall
have the right, but not the obligation, to give written notice to Bally (the
"Top-Up Intent Notice") that the Board of Directors of Hilton has elected to
increase the Conversion Number such that the product of the Conversion Number
and the Determination Price equals $20. Such increase, however, will not
result in any increase or decrease in the amount of the Additional Cash
Payment which will, in such circumstances, equal $3 per share.
Up to approximately 62,273,733 shares of Hilton Common Stock (after giving
effect to the Stock Split) may be issued to holders of outstanding shares of
Bally Common Stock pursuant to the Merger. This figure is calculated by taking
into account that as of August 15, 1996, there were (i) approximately 51.6
million shares of Bally Common Stock issued and outstanding; (ii) stock options
to purchase approximately 4.9 million shares of Bally Common Stock; (iii)
approximately 2.6 million shares of Bally Common Stock reserved for issuance
upon conversion of the 6% Convertible Subordinated Debentures due 1998 and the
10% Convertible Subordinated Debentures due 2006; (iv) Subsidiary Preferred
Stock to be cancelled and converted into the right to receive approximately 1.5
million shares of Bally Common Stock; and (v) 1.6 million shares to be issued to
Bally's Grand, Inc. in connection with the acquisition of the Paris Casino-
Resort in Las Vegas. In the event (i) that holders of Bally PRIDES convert their
shares into Bally Common Stock prior to the Merger, the number of Hilton PRIDES
issued in the Merger will decrease and the number of shares of Hilton Common
Stock issued in the Merger will increase based on a conversion ratio of 0.92
shares of Bally Common Stock for each share of Bally PRIDEs, and (ii) that
Hilton gives the Top-Up Intent Notice, the Conversion Number will increase as
set forth in the foregoing paragraph.
TREATMENT OF STOCK OPTIONS
At the Effective Time, each then outstanding option to purchase shares of
Bally Common Stock granted under a Bally stock option plan (as described in
the Merger Agreement), whether or not then exercisable, will
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become immediately exercisable in full and will be settled in exchange for an
amount of cash per option share equal to (i) the product of the Conversion
Number and the Determination Price, plus (ii) the Additional Cash Payment (if
any), minus (iii) the exercise price per option share.
EXCHANGE PROCEDURES
Promptly after the Effective Time, transmittal forms and instructions will
be mailed to each holder of record of certificates that, immediately prior to
the Effective Time, represented shares of Bally Common Stock or Bally PRIDES.
After receipt of such transmittal form, each holder of such certificates
should surrender the certificates to ChaseMellon Shareholder Services, L.L.C.
(the "Exchange Agent"), together with such letter of transmittal duly executed
and completed in accordance with the instructions thereto. In exchange
therefor, each such holder will be entitled to receive: (i) certificates of
Hilton Common Stock or Hilton PRIDES, as applicable, evidencing the whole
number of shares of Hilton Common Stock or Hilton PRIDES to which such holder
is entitled; (ii) in the case of holders of Bally Common Stock, the Additional
Cash Payment (if any), receivable upon consummation of the Merger; and (iii)
any dividends or other distributions to which such holder is entitled
(collectively, the "Merger Consideration"). If the certificate for shares of
Hilton Common Stock or Hilton PRIDES is to be issued in a name other than the
one in which the certificate for shares of the Bally Common Stock or Bally
PRIDES surrendered in exchange therefor is registered, documents evidencing
such transfer and establishing that applicable stock transfer taxes have been
paid or are not applicable must be presented to the Exchange Agent.
After the Effective Time, no holder of a certificate which immediately prior
to the Effective Time represented shares of Bally Common Stock or Bally PRIDES
will be entitled to receive any dividend or other distribution from Hilton
until the holder surrenders the certificate for a certificate representing
shares of Hilton Common Stock or Hilton PRIDES. Upon such surrender, there
will be paid to the holder the amount of any dividends or other distributions
(without interest) which theretofore became payable with respect to the number
of whole shares of Hilton Common Stock or Hilton PRIDES. Until such surrender,
the certificates shall be deemed to evidence only the right to receive the
appropriate Merger Consideration.
No fractional shares of Hilton Common Stock will be issued in the Merger. A
holder of Bally Common Stock who would otherwise be entitled to receive
fractional shares of Hilton Common Stock as a result of the Merger shall
receive cash in lieu thereof.
Neither Hilton nor Bally will be liable to any holder of shares of Bally
Common Stock or Bally PRIDES for any shares of Hilton Common Stock, Hilton
PRIDES (or dividends or distributions with respect thereto), or Additional
Cash Payments which have been delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things: (a) the organization, standing and
similar corporate matters of Hilton and Bally; (b) the capital structure of
Hilton and Bally; (c) the authorization, execution, delivery, performance, and
enforceability of the Merger Agreement with respect to Hilton and Bally; (d)
documents filed by Hilton and Bally with the Commission and the accuracy of
information contained therein; (e) the absence of certain conflicts with,
violations of, or defaults under, the organizational and certain other
documents of Hilton, Bally or their respective subsidiaries, or any judgment,
order or law applicable to Hilton, Bally or their respective subsidiaries, in
each case, as a result of the execution and delivery of the Merger Agreement
or the consummation of the transactions contemplated by the Merger Agreement;
(f) that, except as otherwise provided, no consent of or filing with any
governmental authority is required by Hilton or Bally in connection with the
execution or delivery of the Merger Agreement or the consummation of the
transactions contemplated thereby; (g) the absence of material changes since
December 31, 1995 with respect to the business of either Hilton or Bally,
except as otherwise provided; (h) the timely filing of all Federal tax returns
and all other requisite material tax returns, and the payment of all taxes;
(i) overall compliance in all material respects with all applicable laws; and
(j) the absence of any pending or threatened litigation, except as otherwise
disclosed pursuant to the Merger Agreement, that would have a Material Adverse
Effect (as defined in the Merger Agreement) with respect to Hilton or Bally,
or prevent or significantly delay the consummation of the transactions
contemplated by the Merger Agreement.
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CERTAIN COVENANTS
The Merger Agreement contains various customary covenants, including
covenants of each of Hilton and Bally that, during the period from the date of
the Merger Agreement until the Effective Time, except as permitted by or
contemplated in the Merger Agreement, each of Hilton and Bally (and each of
their respective subsidiaries), will, among other things: (i) conduct its
operations in the ordinary course of business; and (ii) use its reasonable
best efforts to preserve intact its business organizations and goodwill in all
material respects and keep available the services of its respective officers
and employees as a group.
Bally has agreed that, among other things, and subject to certain conditions
and exceptions, it will not (and will cause its subsidiaries not to), without
the written consent of Hilton, which consent shall not be unreasonably
withheld: (a) declare, set aside, or pay any dividends on or make other
distributions in respect of any of its capital stock; (b) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
securities in lieu of or in substitution for its capital stock or other equity
interests; (c) in the case of Bally, purchase, redeem or otherwise acquire or
amend any shares of capital stock or other equity interests of Bally;
(d) issue, deliver, sell, pledge, encumber, or amend any shares of capital
stock, rights, warrants, options or convertible or similar securities of
Bally; (e) amend Bally's Restated Certificate of Incorporation, Bally's Bylaws
or other such documents; (f) acquire, or agree to acquire, by merging or
consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business or organization or any assets that are
material to Bally; (g) sell, lease, license, mortgage, or otherwise encumber
any of its properties or assets, except in the ordinary course of business
consistent with past practice; (h) incur any indebtedness or make any loans,
advances, or capital contributions to, or investments in, any person; (i) pay,
discharge, settle or satisfy any claims, liabilities or obligations; and (j)
except as provided and required by applicable law, terminate or amend any
employee benefit plan, increase compensation or fringe benefits for any
employee, pay any benefit not provided for under any employee benefit plan, or
take action to fund or secure payment under any employee benefit plan other
than in the ordinary course of business.
Hilton has agreed that, among other things, and subject to certain
conditions and exceptions, it will not (and will cause its subsidiaries not
to), without the written consent of Bally, which consent shall not be
unreasonably withheld: (a) declare, set aside, or make any other distributions
in respect to Hilton Common Stock, other than Hilton's regular quarterly
dividends; (b) except for the Stock Split, split, combine or reclassify any of
the Hilton Common Stock; (c) issue or authorize the issuance of other
securities in lieu of or in substitution for Hilton Common Stock; (d) issue
capital stock, rights, warrants, options, or convertible or similar
securities, subject to certain exceptions; (e) amend the Hilton Certificate of
Incorporation, Bylaws, or other such documents in a manner adverse to the
holders of Hilton Common Stock; (f) take any actions that would materially
delay or prevent the consummation of the Merger; and (g) sell all or
substantially all of the properties and assets of Hilton or join with any
other entity in which Hilton is not the surviving corporation.
The foregoing agreements of Hilton do not have the effect of prohibiting
Hilton from acquiring any entity, business or assets.
Bally has further agreed to: (i) take all action necessary to hold a meeting
of its stockholders for the purpose of approving and adopting the Merger
Agreement; (ii) recommend to its stockholders the adoption of the Merger
Agreement so long as no third party offer has been received which would give
rise to the right to terminate the Merger Agreement; and (iii) use its
reasonable best efforts to solicit proxies from its stockholders in favor of
the adoption of, and to take all other lawful action necessary to secure the
approval of its stockholders in regard to, the Merger and all other
transactions contemplated in the Merger Agreement, subject, only in the case
of this subsection (iii), to any action taken by the Bally Board of Directors
which it determines, based on the advice of outside legal counsel, is required
in the exercise of its fiduciary duties to Bally's stockholders under
applicable law.
Hilton has further agreed to: (i) promptly prepare and file a Registration
Statement with respect to the shares of Hilton Common Stock and Hilton PRIDES
to be issued in the Merger and to use all reasonable efforts to have the
Registration Statement declared effective; (ii) take all action necessary to
hold a meeting of its stockholders
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for the purpose of approving and adopting the Merger Agreement; (iii) use its
reasonable best efforts to solicit proxies from its stockholders in favor of
the adoption of, and take all other lawful action necessary to secure the
approval of its stockholders in regard to, the Merger, subject, only in the
case of this subsection (iii), to any action taken by the Hilton Board of
Directors which it determines, based on the advice of outside legal counsel,
is required in the exercise of its fiduciary duties to Hilton's stockholders
under applicable law.
CONDITIONS TO THE MERGER
The respective obligations of Bally and Hilton to consummate the Merger are
subject to the satisfaction of certain conditions, or waiver thereof,
including the conditions that: (i) the Merger Agreement shall have been
approved by the stockholders of Bally and Hilton in accordance with applicable
law; (ii) the applicable waiting period under the HSR Act shall have expired
or been earlier terminated; (iii) there shall be in effect no statute, rule,
regulation, decree, preliminary or permanent injunction, temporary restraining
order, or other order of any court or governmental authority that restrains,
prevents or materially changes the transactions contemplated in the Merger
Agreement; (iv) the registration statement, which includes this Joint Proxy
Statement/Prospectus, shall have been declared effective by the Commission and
shall not be subject to a stop order or proceeding seeking a stop order, and
all material applicable blue sky laws shall have been complied with; and (v)
the shares of Hilton Common Stock and Hilton PRIDES to be issued pursuant to
the Merger Agreement shall have been approved for listing on the NYSE, subject
to official notice of issuance.
The obligations of Hilton to effect the Merger are further subject to
satisfaction of the following conditions, among others, which may be waived by
Hilton on or prior to the Closing Date: (i) Bally shall have performed, in all
material respects, all requisite obligations; (ii) the representations and
warranties of Bally shall be true and correct in all material respects; (iii)
all necessary approvals of any governmental authority required or necessary
under applicable gaming laws in connection with the Merger shall have been
obtained; (iv) Hilton shall have received an opinion from Latham & Watkins to
the effect that, among other things and subject to certain conditions, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (v) Hilton shall have
received a letter identifying all "affiliates" of Bally for purposes of Rule
145 under the Securities Act; and (vi) there shall not have been entered any
order by any governmental authority in any suit, action or proceeding which
(w) restrains or prohibits the Merger, (x) requires Hilton to pay damages
which are material to Hilton and its subsidiaries (determined after giving
effect to the Merger) in connection with the Merger, (y) prohibits or limits
the ownership of, or requires disposal or separation of, any of Hilton's
material businesses or assets, or (z) prohibits or imposes material
limitations on Hilton's ability to acquire or hold, or exercise full rights of
ownership over the stock of Bally's subsidiaries (determined after giving
effect to the Merger).
The obligations of Bally to effect the Merger are further subject to
satisfaction of the following conditions, among others, which may be waived by
Bally on or prior to the Closing Date: (i) Hilton shall have performed, in all
material respects, all requisite obligations; (ii) the representations and
warranties of Hilton shall be true and correct in all material respects; (iii)
Bally shall have received an opinion from Weil, Gotshal & Manges LLP to the
effect that, among other things and subject to certain conditions, the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; and (iv) there shall not have been
entered any order by any governmental authority in any suit, action or
proceeding which (w) requires Hilton to pay damages which would have a
material adverse effect with respect to Hilton (determined after giving effect
to the Merger), (y) prohibits or imposes material limitations on Hilton's
ownership or operation of, or requires disposal or separation of, any of
Hilton's material businesses or assets (determined after giving effect to the
Merger), or (z) otherwise is reasonably likely to have a material adverse
effect with respect to Hilton (determined after giving effect to the Merger).
ADDITIONAL AGREEMENTS
Hilton has also agreed to, among other things, and subject to certain
exceptions and conditions: (a) use its reasonable best efforts to obtain
requisite approvals and consents under applicable gaming laws; (b) use its
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reasonable efforts to cause the shares of Hilton Common Stock and Hilton
PRIDES to be issued pursuant to the Merger Agreement to be approved for
listing on the NYSE; (c) maintain, for one year after the Effective Time,
comparable employee benefits as were provided by Bally to its employees, (d)
honor all employment, severance and termination agreements between Bally and
its employees and (e) take all action necessary to elect one individual
designated by the Bally Board of Directors, and reasonably acceptable to
Hilton, as a director of Hilton.
In addition, Bally has agreed, among other things, not to: (i) initiate,
solicit, or knowingly encourage the submission of any Acquisition Proposal (as
defined below); or (ii) enter into any agreement with respect to any such
Acquisition Proposal, or participate in discussions or negotiations regarding,
or furnish to any person any non-public information with respect to, or take
any other action to knowingly facilitate any inquiries or the making of any
proposal that constitutes or would reasonably be expected to lead to, an
Acquisition Proposal; provided, however, that, notwithstanding anything to the
contrary in the Merger Agreement: (A) Bally may participate in discussions or
negotiations with, and may furnish information concerning Bally and its
business, properties and assets to, a third party who, without any
solicitation by Bally or any of its representatives, seeks to engage in such
discussions or negotiations or requests such information, if (1) the Board of
Directors of Bally determines, based on the advice of Bally's outside legal
counsel, that failing to engage in such discussion or negotiations or provide
such information would reasonably be expected to violate the fiduciary duties
of the Board of Directors of Bally to its stockholders and (2) prior to
engaging in discussions or negotiations with, or furnishing information to,
such third party, Bally shall receive from such third party an executed
confidentiality agreement in reasonably customary form on terms no more
favorable to such person or entity than the terms contained in the
confidentiality agreement entered into by Hilton and Bally; and (B) the Board
of Directors of Bally may take and disclose to Bally's stockholders a position
with regard to a tender offer or exchange offer contemplated by Rules 14d-9
and 14e-2(a) promulgated under the Exchange Act and may make such disclosure
to the stockholders of Bally as may be required under applicable law;
provided, that the Board of Directors of Bally shall not recommend that the
stockholders of Bally tender their shares of Bally Common Stock unless such
recommendation constitutes a Permitted Action (as defined below).
Notwithstanding anything to the contrary in the Merger Agreement, the Board
of Directors of Bally shall be permitted from time to time to take the
following actions in the circumstances described below: (i) to withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger in
a manner adverse to Hilton; or (ii) to approve or recommend or enter into an
agreement with respect to an Acquisition Proposal; if, in each such case, (A)
an Acquisition Proposal is publicly proposed, publicly disclosed or
communicated to Bally and (B) the Board of Directors of Bally determines,
based on the advice of Bally's outside legal counsel, that such action is
required in order to comply with its fiduciary duties to the stockholders of
Bally. No action by the Board of Directors of Bally permitted by the preceding
sentence (each, a "Permitted Action") shall constitute a breach of the Merger
Agreement by Bally.
"Acquisition Proposal" is defined in the Merger Agreement to include any
proposal or offer from any person relating to: (i) any direct or indirect
acquisition or purchase of more than 20% of either the capital stock of Bally
or the consolidated assets of Bally and its subsidiaries taken as a whole;
(ii) any tender offer or exchange offer that if consummated would result in
any person beneficially owning 20% or more of the capital stock of Bally; or
(iii) any merger, consolidation or business combination, involving Bally other
than the transactions contemplated by the Agreement; provided, however, that
any acquisition of shares of capital stock of Bally by Hilton and its
subsidiaries described in clause (i) shall not constitute an Acquisition
Proposal.
INDEMNIFICATION
Until the Effective Time Bally shall, and from and after the Effective Time,
Hilton shall, indemnify, defend, and hold harmless any officer or director of
Bally or any subsidiary of Bally (each an "Indemnified Party") against all
losses, claims, damages, costs, expenses (including reasonable attorneys' fees
and expenses), liabilities or judgments or amounts that are paid in settlement
of or in connection with any action based in whole or substantially on, or
arising in whole or substantially out of the fact that such a person is or was
an officer or
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director of Bally or any subsidiary of Bally, pertaining to any matter
existing or occurring on or prior to the Effective Time (including, without
limitation, the transactions contemplated in the Merger Agreement), whether
asserted or claimed prior to, or on or after, the Effective Time. In each such
case indemnification shall be to the full extent a corporation is permitted
under the DGCL to indemnify its own directors and officers. Bally or Hilton,
as the case may be, will pay expenses in advance of the final disposition of
any such action or proceeding to each Indemnified Party to the fullest extent
permitted by law.
After the Effective Time, Hilton shall maintain, and shall cause its
subsidiaries to maintain, for a period of at least six (6) years from the
Effective Time, among other things: (i) all rights to indemnification and
exculpation now existing in their respective Certificates of Incorporation and
Bylaws; (ii) the current policies of directors and officers liability
insurance maintained by Bally (or to provide at least the same amounts and
coverage and to maintain conditions which are no less advantageous in any
material respect to the Indemnified Parties), with respect to matters arising
before the Effective Time; provided, however, that Hilton shall not be
required to pay an annual premium for such insurance in excess of 150% of the
last annual premium paid by Bally.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time: (a) by mutual written consent of Bally and Hilton; (b) by either Bally
or Hilton, if any of the conditions precedent to its consummation of the
Merger Agreement shall have become incapable of fulfillment and shall not have
been waived (other than as a result of its breach); (c) by either Bally or
Hilton if the Merger shall not have been consummated on or before the earlier
of (i) the 90th day following the mailing of this Joint Proxy
Statement/Prospectus and (ii) March 31, 1997 (other than as a result of its
breach); (d) by Bally, if the Determination Price is less than $20 (after
giving effect to the Stock Split) and Hilton shall not have given the Top-Up
Intent Notice to Bally at or before 2:00 p.m. on the second business day prior
to the Closing Date; (e) by Hilton, if the Board of Directors of Bally shall
have taken any Permitted Action; and (f) by Bally if (i) the Board of
Directors of Bally withdraws or modifies its approval of the recommendation of
the Merger Agreement as permitted by the terms of the Merger Agreement or (ii)
Bally enters into a definitive agreement providing for the implementation of
an Acquisition Proposal, in accordance with the provisions of the Merger
Agreement. If an Acquisition Proposal is publicly commenced, proposed or
disclosed and the Merger Agreement is terminated (i) pursuant to clause (e) or
(f) of the immediately preceding sentence, or (ii) pursuant to clause (b) of
the preceding sentence due to rejection of the Bally Merger Proposal by the
Bally stockholders, Bally shall pay Hilton a topping fee of $50,000,000 and
certain of its related expenses (not to exceed $5,000,000) in the event that
an Acquisition Proposal is consummated or Bally enters into an agreement with
respect thereto within one (1) year following the termination of the Merger
Agreement.
AMENDMENT AND MODIFICATION
Subject to applicable law, the Merger Agreement may be amended, modified or
supplemented only by written agreement of Hilton and Bally at any time prior
to the Effective Time with respect to any of the terms contained therein;
provided, that after the Merger Agreement is adopted by Bally stockholders, no
such amendment or modification may reduce the amount or change the form of the
Merger Consideration.
FEES AND EXPENSES
The Merger Agreement provides that, except as provided under "Termination"
above, each party thereto shall pay all costs and expenses incurred by it in
connection with the Merger Agreement and the consummation of the transactions
contemplated thereby.
52
<PAGE>
HILTON HOTELS CORPORATION
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed financial statements are based upon the
historical consolidated financial statements of Hilton and Bally, which are
incorporated by reference in this Joint Proxy Statement/Prospectus, and should
be read in conjunction with those consolidated financial statements and
related notes.
The unaudited pro forma condensed statements of income for the six months
ended June 30, 1996 and the year ended December 31, 1995 give effect to (i)
the acquisition of Bally applying the purchase method of accounting; (ii) the
Stock Split; and (iii) certain adjustments that are directly attributable to
the Merger and anticipated to have continuing impact, including certain
estimated operational benefits and an assumed refinancing of Bally's existing
indebtedness, as if such transactions were consummated as of January 1, 1995.
The unaudited pro forma condensed balance sheet presents the combined
financial position of Hilton and Bally as of June 30, 1996. The unaudited pro
forma condensed balance sheet reflects (i) the acquisition of Bally applying
the purchase method of accounting; (ii) the Stock Split; and (iii) certain
adjustments that are directly attributable to the Merger, including the
assumed refinancing of Bally's existing indebtedness. Such data further assume
that the transactions described above were consummated as of June 30, 1996.
The unaudited pro forma condensed financial statements have been prepared
based upon assumptions deemed appropriate by Hilton and Bally and may not be
indicative of actual results, nor do such data purport to represent the
results for future periods.
53
<PAGE>
HILTON HOTELS CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HILTON BALLY MERGER HILTON
HISTORICAL HISTORICAL(1) ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Casino................ $219.4 458.5 677.9
Rooms................. 320.7 47.3 368.0
Food and beverage..... 144.6 38.4 183.0
Management and
franchise fees....... 61.2 -- 61.2
Other................. 107.0 30.9 137.9
Operating income from
unconsolidated
affiliates........... 47.0 -- 47.0
------ ----- ----- -------
899.9 575.1 1,475.0
------ ----- ----- -------
Expenses
Casino................ 121.7 233.5 355.2
Rooms................. 97.6 15.9 113.5
Food and beverage..... 120.7 33.3 154.0
Other costs and
expenses............. 346.3 178.2 (5.7)(/3/)(/4/) 518.8
Corporate expense..... 21.9 9.4 (7.8)(/3/) 23.5
------ ----- ----- -------
708.2 470.3 (13.5) 1,165.0
------ ----- ----- -------
Operating income........ 191.7 104.8 13.5 310.0
Interest and dividend
income................. 16.2 10.8 (4.4)(/5/) 22.6
Interest expense........ (38.8) (66.9) 32.3 (/5/)(/6/) (73.4)
Interest expense, net,
from unconsolidated
affiliates............. (7.0) -- (7.0)
------ ----- ----- -------
Income from continuing
operations before
income taxes and
minority interest...... 162.1 48.7 41.4 252.2
Provision for income
taxes.................. 63.6 18.3 21.6 (/7/) 103.5
Minority interest, net.. 2.7 3.8 .3 (/8/) 6.8
------ ----- ----- -------
Income from continuing
operations............. $ 95.8 26.6 19.5 141.9
====== ===== ===== =======
Income from continuing
operations per
share(/2/)............. $ .49 .54
====== =======
Average common and
equivalent shares...... 195.1 261.9
====== =======
</TABLE>
(Footnotes on following pages)
54
<PAGE>
HILTON HOTELS CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HILTON BALLY MERGER HILTON
HISTORICAL HISTORICAL(1) ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Casino................ $ 511.0 789.9 1,300.9
Rooms................. 587.2 87.5 674.7
Food and beverage..... 265.7 73.6 339.3
Management and
franchise fees....... 100.5 -- 100.5
Other................. 125.4 59.2 184.6
Operating income from
unconsolidated
affiliates........... 59.6 -- 59.6
-------- ------- ----- -------
1,649.4 1,010.2 2,659.6
-------- ------- ----- -------
Expenses
Casino................ 234.9 386.6 621.5
Rooms................. 186.4 31.2 217.6
Food and beverage..... 229.4 65.5 294.9
Other costs and
expenses............. 613.2 336.7 (3.2)(/3/)(/4/) 946.7
Corporate expense..... 31.9 17.1 (13.9)(/3/) 35.1
-------- ------- ----- -------
1,295.8 837.1 (17.1) 2,115.8
-------- ------- ----- -------
Operating income........ 353.6 173.1 17.1 543.8
Interest and dividend
income................. 35.2 16.2 (9.6)(/5/) 41.8
Interest expense........ (93.5) (132.4) 58.1 (/5/)(/6/) (167.8)
Interest expense, net,
from unconsolidated
affiliates............. (16.5) -- (16.5)
Property transactions... 1.5 -- 1.5
-------- ------- ----- -------
Income from continuing
operations before
income taxes and
minority interest...... 280.3 56.9 65.6 402.8
Provision (benefit) for
income taxes........... 102.6 (18.7) 36.6 (/7/) 120.5
Minority interest, net.. 4.9 (1.1) .5 (/8/) 4.3
-------- ------- ----- -------
Income from continuing
operations............. $ 172.8 76.7 28.5 278.0
======== ======= ===== =======
Income from continuing
operations per
share(/2/)............. $ .89 1.07
======== =======
Average common and
equivalent shares...... 194.1 260.9
======== =======
</TABLE>
(Footnotes on following pages)
55
<PAGE>
HILTON HOTELS CORPORATION
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF JUNE 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
HILTON BALLY MERGER HILTON
HISTORICAL HISTORICAL(/1/) ADJUSTMENTS AS ADJUSTED
---------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents.. $ 290.4 304.1 (150.0)(/5/) 444.5
Temporary invest-
ments................ 56.3 8.8 65.1
Deferred income tax-
es................... 25.6 22.6 47.1 (/1//3/) 95.3
Other current assets.. 310.7 64.7 375.4
-------- ------- ------- -------
Total current as-
sets............... 683.0 400.2 (102.9) 980.3
Investments........... 564.6 21.0 585.6
Property and equip-
ment, net............ 1,713.7 1,253.3 950.7 (/9/) 3,917.7
Goodwill.............. 6.4 122.8 1,192.2 (/10/) 1,321.4
Other assets.......... 55.8 103.6 (45.2)(/11/) 114.2
-------- ------- ------- -------
Total investments,
property and other
assets............. 2,340.5 1,500.7 2,097.7 5,938.9
-------- ------- ------- -------
Total assets...... $3,023.5 1,900.9 1,994.8 6,919.2
======== ======= ======= =======
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities... $ 382.9 138.0 180.1 (/12/) 701.0
Long-term debt........ 1,101.2 1,262.3 (136.6)(/5/) 2,226.9
Deferred income tax-
es................... 126.9 160.2 370.8 (/13/) 657.9
Insurance reserves and
other................ 62.7 49.7 (10.2)(/8/) 102.2
-------- ------- ------- -------
Total liabilities... 1,673.7 1,610.2 404.1 3,688.0
Stockholders' equity.. 1,349.8 290.7 1,590.7 (/14/) 3,231.2
-------- ------- ------- -------
Total liabilities
and stockholders'
equity........... $3,023.5 1,900.9 1,994.8 6,919.2
======== ======= ======= =======
</TABLE>
(Footnotes on following pages)
56
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The following table sets forth the determination and allocation of the
purchase price based on a post-Stock Split market value of $28.16 per share of
Hilton Common Stock. This market value is based on the average of the quoted
market price of Hilton Common Stock for three day periods both before and
after the Merger was announced, as adjusted for the Stock Split.
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Merger exchange of shares (52.5 million shares of Bally
Common Stock converted to Hilton Common Stock and 15.5
million shares of Bally PRIDES converted to Hilton PRIDES
at a common stock equivalent ratio of .92 to one)........ $1,881.4
Assumption of Bally debt.................................. 1,275.7
Transaction costs and expenses............................ 30.0
--------
Pro forma purchase price.................................. $3,187.1
========
The preliminary allocation of the pro forma purchase price is as follows:
Land...................................................... $ 463.0
Buildings, vessels and furniture, fixtures and equipment.. 1,741.0
Goodwill.................................................. 1,315.0
Other, net................................................ (331.9)
--------
$3,187.1
========
</TABLE>
(1) There are no significant adjustments required to the historical financial
data of Bally to conform to the accounting policies of Hilton. Certain
reclassifications have been made to the historical amounts of Bally to
conform the financial presentation of the two companies. Specifically,
selling, general and administrative expenses and depreciation and
amortization have been reclassified to other costs and expenses, and
interest income has been reclassified from other revenue to interest and
dividend income. Other reclassifications made to conform the financial
presentation are not material to the unaudited pro forma condensed
financial statements.
(2) Historical income from continuing operations per share of Hilton is
presented after giving effect to the Stock Split. Pro forma income from
continuing operations per share is computed on the basis of the combined
weighted average number of shares of Hilton Common Stock and Hilton
Common Stock equivalents after giving effect to the Stock Split and the
issuance of shares to consummate the Merger.
(3) To record certain estimated operational efficiencies derived from the
historical cost of those items which are expected to be eliminated or
reduced as a result of the Merger. The elimination of duplicative
corporate office and operational support functions is estimated to reduce
other costs and expenses and corporate expense by $11.5 million and $7.8
million, respectively, for the six months ended June 30, 1996, and to
reduce other costs and expenses and corporate expense by $22.3 million
and $13.9 million, respectively, for the year ended December 31, 1995.
(4) To adjust depreciation expense due to the revaluation of acquired
property and equipment and adjust goodwill amortization resulting from
the allocation of the purchase price of Bally. Depreciation expense is
reduced $8.2 million for the six months ended June 30, 1996 and $9.3
million for the year ended December 31, 1995. Goodwill amortization is
increased $14.0 million for the six months ended June 30, 1996 and $28.4
million for the year ended December 31, 1995. Goodwill is amortized over
40 years.
(5) Pro forma results and financial position are adjusted by an assumed
refinancing of Bally debt as follows:
(i) Bally debt is adjusted to estimated fair market value;
(ii) Reduction of Bally debt totaling $150.0 million assumed to have been
paid with excess Hilton and Bally cash balances based on estimates of
available cash reserves throughout the periods; and
57
<PAGE>
(iii) Refinancing the balance of Bally debt with available Hilton debt
capacity at an average floating rate of 5.89% for the six months
ended June 30, 1996 and 6.42% for the year ended December 31, 1995.
Each 1/8 percent change in the floating rate on this refinancing
would result in a change in interest expense of $.7 million for the
six months ended June 30, 1996 and $1.5 million for the year ended
December 31, 1995.
The refinancing decreases interest expense by $31.9 million for the six
months ended June 30, 1996 and $57.0 million for the year ended December
31, 1995 due to lower outstanding debt balances and lower interest rates.
Lower cash balances available for investment result in a reduction of
interest income of $4.4 million for the six months ended June 30, 1996 and
$9.6 million for the year ended December 31, 1995.
(6) Interest expense is reduced $.4 million for the six months ended June 30,
1996 and $1.1 million for the year ended December 31, 1995 due to the
conversion of Bally's 8% Convertible Senior Subordinated Debentures due
2000.
(7) To record the tax effect of pro forma adjustments to depreciation
expense, interest income, interest expense and cost reductions associated
with estimated operational efficiencies. The amortization of goodwill is
not deductible for tax purposes.
(8) Adjustment to minority interest is attributable to the following:
(i) The cancellation and conversion of the Series A Cumulative
Exchangeable Preferred Stock of Bally's Casino, Inc. (the "Subsidiary
Preferred Stock") into the right to receive shares of Bally Common
Stock in connection with the merger of Bally's Casino, Inc. with and
into Bally, and
(ii) The impact of the Bally debt refinancing.
(9) To increase Bally's property and equipment to estimated fair market
value.
(10) To reflect the excess purchase price over fair value of net tangible
assets acquired and liabilities assumed.
(11) The reduction in other assets reflects (i) deferred financing costs of
Bally not valued due to the adjustment of debt to estimated fair market
value and (ii) the forgiveness of a tax-sharing receivable of Bally
pursuant to the Merger Agreement.
(12) The net increase in current liabilities reflects (i) the accrual of
severance and direct merger costs of Hilton and Bally and (ii) a
reduction of the current portion of long-term debt as part of the Bally
debt refinancing.
(13) To record the deferred tax effect of the pro forma balance sheet
adjustments, primarily related to property and equipment and estimated
severance costs.
(14) The net increase in stockholders' equity results from the following:
(i) The issuance of one share of Hilton Common Stock (after giving effect
to the Stock Split) for each share of Bally Common Stock outstanding
after giving effect to the cancellation and conversion of the
Subsidiary Preferred Stock into Bally Common Stock,
(ii) Hilton PRIDES issued in exchange for Bally PRIDES, and
(iii) The elimination of Bally's historical net assets.
58
<PAGE>
DESCRIPTION OF HILTON CAPITAL STOCK
As of August 15, 1996, Hilton was authorized to issue 90,000,000 shares of
Hilton Common Stock, of which 51,024,707 shares were issued, including
treasury shares of 2,170,256, and 10,000,000 shares of Hilton Preferred Stock,
of which no shares have been issued. Assuming approval of the amendments to
Hilton's Certificate of Incorporation proposed for consideration at the Hilton
Special Meeting, the authorized capital stock of Hilton will consist of
400,000,000 shares of Hilton Common Stock and 24,832,700 shares of Hilton
Preferred Stock, of which 14,832,700 shares will be designated as Hilton
PRIDES.
HILTON COMMON STOCK
Each share of Hilton Common Stock entitles the holder to one vote on matters
submitted to a vote of the stockholders, and, subject to the prior preferences
of the Hilton Preferred Stock, if issued, a pro rata share of assets remaining
available for distribution to stockholders upon a liquidation of Hilton.
Dividends may be paid to the holders of the Hilton Common Stock when and if
declared by the Hilton Board out of funds legally available therefor. Hilton
has paid cash dividends on its Common Stock. Any further determination to pay
cash dividends will be at the discretion of the Board of Directors of Hilton
and will depend upon the earnings of Hilton, its financial condition, capital
requirements and other factors as the Board of Directors of Hilton may deem
relevant. The Hilton Common Stock is not convertible and has no preemptive
rights. There are no redemption provisions with respect to the Hilton Common
Stock.
For a description of redemption or forced sale for regulatory reasons
applicable to the Hilton Common Stock, see "Description of the Hilton PRIDES--
Redemption or Forced Sale for Regulatory Reasons."
PREFERRED STOCK
Hilton's Certificate of Incorporation provides that Hilton Preferred Stock
may be issued from time to time in one or more series. The Board of Directors
of Hilton has authority to fix or alter the dividend rights, dividend rates,
conversion rights, voting rights and terms of redemption (including sinking
fund provisions), redemption prices and liquidation preferences of any wholly
unissued series of Hilton Preferred Stock, as well as the number of shares
constituting any such unissued series and the designation thereof, and to
increase or decrease the number of shares of any outstanding series (but not
below the number of shares of such series then outstanding), without any
further vote or action by Hilton's stockholders.
PREFERRED SHARE PURCHASE RIGHTS
On July 14, 1988, Hilton adopted a Preferred Share Purchase Rights Plan
("Rights Plan") and declared a dividend distribution of one Preferred Share
Purchase Right (collectively, the "Rights") on each outstanding share of
Hilton Common Stock. The Rights are transferrable only with Hilton Common
Stock until they become exercisable.
Generally, the Rights become exercisable only if a person or group (other
than the Hilton Interests, as hereafter defined) acquires 20% or more of the
issued and outstanding shares of Hilton Common Stock or announces a tender
offer, the consummation of which would result in ownership by a person or
group of 20% or more of the issued and outstanding shares of Hilton Common
Stock. Each Right entitles stockholders to buy one one-hundredth of a share of
a new series of junior participating preferred stock at an exercise price of
$150, designated Series A Junior Participating Preferred Stock, par value $.01
per share, of Hilton (the "Hilton Series A Preferred Stock").
If Hilton is acquired in a merger or other business combination transaction,
each Right entitles its holder to purchase, at the Right's then current price,
a number of the acquiring company's common shares having a then current market
value of twice the Right's exercise price. In addition, if a person or group
(other than the Hilton Interests) acquires 30% or more of the issued and
outstanding shares of Hilton Common Stock, otherwise than
59
<PAGE>
pursuant to a cash tender offer for all shares in which such person or group
increases its stake from below 20% to 80% or more of the issued and
outstanding shares of Hilton Common Stock, each Right entitles its holder
(other than such person or members of such group) to purchase, at the Right's
then current exercise price, shares of the Hilton Common Stock having a market
value of twice the Right's exercise price.
Following the acquisition by a person or group of beneficial ownership of
50% or more of the Hilton Common Stock and prior to an acquisition of 50% or
more of the Hilton Common Stock, Hilton's Board of Directors may exchange the
Rights (other than Rights owned by such person or group), in whole or in part,
at an exchange ratio of one share of Hilton Common Stock (or one one-hundredth
of a share of the new series of junior participating preferred stock) per
Right.
Prior to the acquisition by a person or group of beneficial ownership of 20%
or more of the Hilton Common Stock, the Rights are redeemable for one cent per
Right at the option of Hilton's Board of Directors.
"Hilton Interests" refer to Barron Hilton and the Conrad N. Hilton Fund and
the shares of Hilton Common Stock beneficially owned by them.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, Hilton
is subject to Section 203 of the Delaware General Corporation Law, which
restricts certain business combinations between Hilton and an "interested
stockholder" (in general, a stockholder owning 15% or more of the outstanding
voting stock of Hilton) or such stockholder's affiliates or associates for a
period of three years following the date on which the stockholder becomes an
"interested stockholder." The restrictions do not apply if: (i) prior to an
interested stockholder becoming such, the Hilton Board approves either the
business combination or the transaction in which the stockholder becomes an
interested stockholder; (ii) upon consummation of the transaction in which
such stockholder becomes an interested stockholder, such interested
stockholder owns at least 85% of the voting stock of Hilton outstanding at the
time the transaction commenced (excluding shares owned by certain employee
stock ownership plans and persons who are both directors and officers of
Hilton); or (iii) on or subsequent to the date an interested stockholder
becomes such, the business combination is both approved by the Hilton Board
and authorized at an annual or special meeting of Hilton's stockholders (and
not by written consent) by the affirmative vote of at least 66 2/3% of the
outstanding voting stock of Hilton not owned by the interested stockholder.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon consummation of the Merger and the transactions contemplated thereby,
it is estimated there will be approximately 140,000,000 shares of Hilton
Common Stock authorized but unissued (assuming the issuance of approximately
62,273,733 shares of Hilton Common Stock in the Merger), and 10,000,000 shares
of Hilton Preferred Stock authorized but unissued, for future issuance without
additional stockholder approval. These additional shares may be utilized for a
variety of corporate purposes, including future offerings to raise additional
capital or to facilitate corporate acquisitions.
The issuance of the Hilton PRIDES could have the effect of delaying or
preventing a change in control of Hilton. The issuance of the Hilton PRIDES
could decrease the amount of earnings and assets available for distribution to
the holders of Hilton Common Stock or could adversely affect the rights and
powers, including voting rights, of the holders of the Hilton Common Stock. In
certain circumstances, such issuance could have the effect of decreasing the
market price of the Hilton Common Stock.
One of the effects of the existence of unissued Hilton Common Stock or
Hilton Preferred Stock may be to enable the Hilton Board to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of Hilton by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of
management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of Hilton.
60
<PAGE>
Hilton does not currently have any plans to issue additional shares of
Hilton Common Stock or Hilton Preferred Stock other than the shares of Hilton
Common Stock and Hilton PRIDES which may be issued pursuant to the Merger.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Hilton Common Stock and Hilton
PRIDES will be ChaseMellon Shareholder Services, L.L.C.
DESCRIPTION OF THE HILTON PRIDES
The summary contained herein of the terms of shares of Hilton PRIDES does
not purport to be complete and is subject to and qualified in its entirety by
reference to all of the provisions of Hilton's proposed amendment to its
Certificate of Incorporation and the Certificate of Designations, Preferences,
Rights and Limitations (the "Certificate of Designations") relating to the
shares of Hilton PRIDES, copies of which have been filed as exhibits to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part.
Hilton's Board of Directors has authorized the issuance of up to 14,832,700
shares of Hilton PRIDES with a stated liquidation value of $11.125 per share.
DIVIDENDS
Holders of shares of Hilton PRIDES will be entitled to receive, when, as and
if declared by the Hilton Board out of funds legally available therefor, cash
dividends from the date of initial issuance of the shares of Hilton PRIDES at
the rate per annum of 8% of the stated liquidation value per share (equivalent
to $.89 per annum, or $.2225 per quarter, for each share of Hilton PRIDES),
payable quarterly in arrears on each January 3, April 3, July 3 and October 3,
or, if any such date is not a business day, on the next succeeding business
day commencing (subject to the provisions of the immediately following
sentence) on the next such date following consummation of the Merger. All
accumulated and unpaid dividends on the Bally PRIDES as of the Effective Time
shall become accumulated dividends on the Hilton PRIDES exchanged therefor,
payable on the next dividend payment date following the Merger (and such
dividends shall not be payable with respect to Bally PRIDES); provided,
however, that in the event the Merger occurs on or after the record date for a
dividend on the Bally PRIDES but prior to the payment date for such dividend,
then such dividend shall be payable with respect to the Bally PRIDES (and
shall not constitute an accumulated dividend on the Hilton PRIDES), and
dividends shall commence accruing on the Hilton PRIDES as of the payment date
for such dividend (payable on the next succeeding payment date).
With respect to any dividend period during which a redemption occurs, Hilton
may, at its option, declare accrued dividends to, and pay such dividends on,
the date fixed for redemption, in which case such dividends will be payable in
cash to the holders of shares of Hilton PRIDES as of the record date for such
dividend payment and would not be included in the calculation of the related
Hilton PRIDES Call Price as set forth below. The first dividend period will be
from the date of initial issuance of the shares of Hilton PRIDES to but
excluding the payment date next following the consummation of the Merger, and
the first dividend will be payable on the payment date next following the
consummation of the Merger. Dividends will cease to accrue in respect of the
shares of Hilton PRIDES on the Mandatory Conversion Date (as hereinafter
defined) or on the date of their earlier conversion or redemption.
Dividends will be payable to holders of record as they appear on the stock
register of Hilton on such record dates, not less than 15 nor more than 60
days preceding the payment date thereof, as shall be fixed by the Hilton
Board. Dividends payable on shares of Hilton PRIDES for any period less than a
full quarterly dividend period will be computed on the basis of a 360-day year
of twelve 30-day months and the actual number of days elapsed in any period
less than one month.
61
<PAGE>
Dividends on shares of Hilton PRIDES will accrue whether or not there are
funds legally available for the payment of such dividends and whether or not
such dividends are declared. Accrued but unpaid dividends on shares of Hilton
PRIDES will cumulate as of the dividend payment date on which they first
become payable, but no interest will accrue on accumulated but unpaid
dividends on shares of Hilton PRIDES.
The shares of Hilton PRIDES will rank on a parity as to payment of dividends
with any future preferred stock issued by Hilton that by its terms ranks pari
passu with the shares of Hilton PRIDES ("Parity Preferred Stock").
As long as any shares of Hilton PRIDES are outstanding, no dividends (other
than dividends payable in shares of, or warrants, rights or options
exercisable for or convertible into shares of, Hilton Common Stock or any
other capital stock of Hilton ranking junior to Hilton PRIDES as to the
payment of dividends or the distribution of assets upon liquidation ("Junior
Stock") and cash in lieu of fractional shares in connection with any such
dividend) will be paid or declared in cash or otherwise, nor will any other
distribution be made (other than a distribution payable in Junior Stock and
cash in lieu of fractional shares in connection with any such distribution) on
any Junior Stock unless: (i) full dividends on Preferred Stock (including the
shares of Hilton PRIDES) that does not constitute Junior Stock ("Senior
Preferred Stock") have been paid, or declared and set aside for payment, for
all dividend periods terminating at or before the date of such Junior Stock
dividend or distribution payment to the extent such dividends are cumulative;
(ii) dividends in full for the current quarterly dividend period have been
paid, or declared and set aside for payment, on all Senior Preferred Stock to
the extent such dividends are cumulative; (iii) Hilton has paid or set aside
all amounts, if any, then or theretofore required to be paid or set aside for
all purchase, retirement, and sinking funds, if any, for any Senior Preferred
Stock; and (iv) Hilton is not in default on any of its obligations to redeem
any Senior Preferred Stock.
In addition, as long as any shares of Hilton PRIDES are outstanding, no
shares of any Junior Stock may be purchased, redeemed, or otherwise acquired
by Hilton or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through the issuance of other
Junior Stock (and cash in lieu of fractional shares in connection therewith)
or the purchase, redemption or other acquisition of any Junior Stock with any
Junior Stock (and cash in lieu of fractional shares in connection therewith))
nor may any funds be set aside or made available for any sinking fund for the
purchase or redemption of any Junior Stock unless: (i) full dividends on
Senior Preferred Stock have been paid, or declared and set aside for payment,
for all dividend periods terminating at or before the date of such purchase or
redemption to the extent such dividends are cumulative; (ii) dividends in full
for the current quarterly dividend period have been paid, or declared and set
aside for payment, on all Senior Preferred Stock to the extent such dividends
are cumulative; (iii) Hilton has paid or set aside all amounts, if any, then
or theretofore required to be paid or set aside for all purchase, retirement,
and sinking funds, if any, for any Senior Preferred Stock; and (iv) Hilton is
not in default on any of its obligations to redeem any Senior Preferred Stock.
Subject to the provisions described above, such dividends or other
distributions (payable in cash, property, or Junior Stock) as may be
determined by the Hilton Board may be declared and paid on the shares of any
Junior Stock from time to time and Junior Stock may be purchased, redeemed or
otherwise acquired by Hilton or any of its subsidiaries from time to time. In
the event of the declaration and payment of any such dividends or other
distributions, the holders of such Junior Stock will be entitled, to the
exclusion of holders of any Senior Preferred Stock, to share therein according
to their respective interests.
As long as any shares of Hilton PRIDES are outstanding, dividends or other
distributions may not be declared or paid on any Parity Preferred Stock (other
than dividends or other distributions payable in Junior Stock and cash in lieu
of fractional shares in connection therewith), and Hilton may not purchase,
redeem or otherwise acquire any Parity Preferred Stock (except with any Junior
Stock and cash in lieu of fractional shares in connection therewith), unless:
either (a)(i) full dividends on Senior Preferred Stock have been paid, or
declared and set aside for payment, for all dividend periods terminating at or
before the date of such Parity Preferred Stock dividend, distribution,
purchase, redemption or other acquisition payment to the extent such dividends
are cumulative; (ii) dividends in full for the current quarterly dividend
period have been paid, or declared and set
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aside for payment, on all Senior Preferred Stock to the extent such dividends
are cumulative; (iii) Hilton has paid or set aside all amounts, if any, then
or theretofore required to be paid or set aside for all purchase, retirement,
and sinking funds, if any, for any Senior Preferred Stock; and (iv) Hilton is
not in default on any of its obligations to redeem any Senior Preferred Stock;
or (b) with respect to the payment of dividends only, any such dividends will
be declared and paid pro rata so that the amounts of any dividends declared
and paid per share of Hilton PRIDES and each other share of Senior Preferred
Stock will in all cases bear to each other the same ratio that accrued
dividends (including any accumulation with respect to unpaid dividends for
prior dividend periods, if such dividends are cumulative) per share of Hilton
PRIDES and such other shares of Senior Preferred Stock bear to each other.
MANDATORY CONVERSION OF PRIDES
On October 3, 1999 (the "Mandatory Conversion Date"), each outstanding share
of Hilton PRIDES will, unless previously either redeemed or converted at the
option of the holder into Hilton Common Stock, as hereinafter described,
mandatorily convert into (i) shares of Hilton Common Stock at the Common
Equivalent Rate (as defined below) in effect on such date and (ii) the right
to receive cash in an amount equal to all accrued and unpaid dividends on such
shares of Hilton PRIDES (other than previously declared dividends payable to a
holder of record as of a prior date) to the Mandatory Conversion Date, whether
or not declared, out of funds legally available for the payment of dividends,
subject to the right of Hilton to redeem the shares of Hilton PRIDES on or
after October 3, 1998, and before the Mandatory Conversion Date, as described
below, and subject to the conversion of the shares of Hilton PRIDES at the
option of the holder at any time before the Mandatory Conversion Date, as
described below. The "Common Equivalent Rate" is initially 1.12 shares of
Hilton Common Stock for each share of Hilton PRIDES, after giving effect to
the Stock Split, and is subject to adjustment as described below. Dividends
will cease to accrue on the Mandatory Conversion Date in respect of the shares
of Hilton PRIDES then outstanding. If an Additional Cash Payment is made in
connection with the Merger, at conversion a holder of Hilton PRIDES will
receive a cash payment in an amount equal to the Additional Cash Payment such
holder would have received if such conversion had occurred immediately prior
to the Effective Time.
Because the price of the Hilton Common Stock is subject to market
fluctuations, the value of the Hilton Common Stock that may be received by
holders of shares of Hilton PRIDES upon their mandatory conversion may be more
or less than the current market value of the Bally PRIDES being exchanged for
Hilton PRIDES in the Merger.
OPTIONAL REDEMPTION
Shares of Hilton PRIDES are not redeemable by Hilton before October 3, 1998
(the "Initial Redemption Date"). At any time and from time to time on or after
the Initial Redemption Date until immediately before the Mandatory Conversion
Date, Hilton will have the right to redeem, in whole or in part, the
outstanding shares of Hilton PRIDES. Upon any such redemption, Hilton will
deliver to the holder thereof in exchange for each share of Hilton PRIDES
subject to redemption the greater of: (i) the number of shares of Hilton
Common Stock equal to the applicable Call Price (as defined below) in effect
on the redemption date divided by the Current Market Price (as defined below)
of the Hilton Common Stock, determined as of the second Trading Day
immediately preceding the Notice Date (as defined below); or (ii) 0.92 of one
share of Hilton Common Stock (the "Minimum Redemption Rate", which is subject
to adjustment in the manner described below), after giving effect to the Stock
Split. Dividends will cease to accrue on the shares of Hilton PRIDES on the
date fixed for their redemption. If an Additional Cash Payment is made in
connection with the Merger, at redemption a holder of Hilton PRIDES will
receive a cash payment in an amount equal to the Additional Cash Payment such
holder would have received if such redemption had occurred immediately prior
to the Effective Time.
The Call Price of each share of Hilton PRIDES is the sum of: (i) $11.348 on
and after the Initial Redemption Date to and including January 2, 1999;
$11.292 on and after January 3, 1999, to and including April 2, 1999;
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$11.237 on and after April 3, 1999, to and including July 2, 1999; $11.181 on
and after July 3, 1999, to and including September 2, 1999; and $11.125 (the
stated liquidation value of one share of Hilton PRIDES) on and after September
3, 1999, to and including October 3, 1999; and (ii) all accrued and unpaid
dividends thereon to but not including the date fixed for redemption (other
than previously declared dividends payable to a holder of record as of a prior
date).
The "Current Market Price" per share of the Hilton Common Stock on any date
of determination means the lesser of (x) the average of the closing sale
prices of the Hilton Common Stock for the 15 consecutive Trading Days ending
on and including such date of determination and (y) the closing sale price of
the Hilton Common Stock for such date of determination; provided, however,
that, with respect to any redemption of shares of Hilton PRIDES, if any event
resulting in an adjustment of the Common Equivalent Rate occurs during the
period beginning on the first day of such 15-day period and ending on the
applicable Redemption Date, the Current Market Price as determined pursuant to
the foregoing will be appropriately adjusted to reflect the occurrence of such
event. The "Notice Date" with respect to any notice given by Hilton in
connection with a redemption of the shares of Hilton PRIDES means the earlier
of the date of the public announcement of such redemption and the date of the
commencement of mailing of such notice to the holders of shares of Hilton
PRIDES. Closing sale prices shall be based on the last sale price or the
average of the closing bid and ask prices on the NYSE or, if not listed
thereon, the Nasdaq National Market or the over the counter market, as
appropriate.
If fewer than all the outstanding shares of Hilton PRIDES are to be called
for redemption, the shares of Hilton PRIDES to be called will be selected by
Hilton from outstanding shares of Hilton PRIDES not previously called by lot
or pro rata (as nearly as may be) or by any other method determined by the
Board of Directors in its sole discretion to be equitable.
Hilton will provide notice of any redemption of shares of Hilton PRIDES to
holders of record of the shares of Hilton PRIDES to be called for redemption
not less than 30 nor more than 60 days before the date fixed for redemption.
Any such notice will be provided by mail, sent to the holders of record of the
shares of Hilton PRIDES to be called at each such holder's address as it
appears on the stock register of Hilton, first class postage prepaid;
provided, however, that failure to give such notice or any defect therein will
not affect the validity of the proceeding for redemption of any shares of
Hilton PRIDES to be redeemed except as to the holder to whom Hilton has failed
to give such notice or whose notice was defective. On and after the redemption
date, all rights of the holders of the shares of Hilton PRIDES called for
redemption will terminate except the right to receive the redemption price and
to receive dividends on such shares previously declared and payable to the
holders of record of such shares as of a prior date (unless Hilton defaults on
the payment of the redemption price). A public announcement of any call for
redemption will be made by Hilton before, or at the time of, the mailing of
such notice of redemption.
Each holder of shares of Hilton PRIDES called for redemption must surrender
the certificates evidencing such shares of Hilton PRIDES to Hilton at the
place designated in the notice of redemption and will thereupon be entitled to
receive certificates for shares of Hilton Common Stock and cash for any
fractional share amount.
REDEMPTION OR FORCED SALE FOR REGULATORY REASONS
If the Nevada Gaming Commission (the "Nevada Commission"), the Mississippi
Gaming Commission (the "Mississippi Commission"), the New Jersey Casino
Control Commission (the "New Jersey Commission") or the Louisiana Gaming
Control Board (the "Louisiana Board," and together with the Nevada Commission,
the New Jersey Commission and the Mississippi Commission, the "Gaming
Commissions") find that a holder or beneficial owner of shares of Hilton
PRIDES or Hilton Common Stock must be licensed or qualified or found suitable
to hold or own the shares of Hilton PRIDES or Hilton Common Stock under the
Nevada Gaming Control Act and regulations promulgated thereunder
(collectively, the "Nevada Act"), the Mississippi Gaming Control Act and
regulations promulgated thereunder, (collectively, the "Mississippi Act"), the
New Jersey Casino Control Act and regulations promulgated thereunder
(collectively, the "New Jersey Act") or the Louisiana Riverboat Economic
Development and Gaming Control Act (the "Louisiana Act," and together with the
Nevada
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Act, the Mississippi Act and the New Jersey Act, the "Gaming Acts"), and if
such holder or such beneficial owner is not found qualified, licensed or
suitable within any time period specified by the Gaming Acts, Hilton has the
right, at its option: (i) to require such holder or beneficial owner to
dispose of all or a portion of such holder's or beneficial owner's shares of
Hilton PRIDES or Hilton Common Stock within 120 days after receipt of notice
by such holder or beneficial owner of its disqualification under such Gaming
Act (the "Notice Date") (or such different period as may be prescribed by the
respective Gaming Commission); or (ii) to redeem shares of Hilton PRIDES or
Hilton Common Stock held by such holder, by action of the Hilton Board if in
the judgment of the Hilton Board such action should be taken pursuant to
Section 151(b) of the DGCL or any other applicable provision of law, to the
extent necessary to prevent the loss or secure the reinstatement of any
government-issued license or franchise held by Hilton or any subsidiary to
conduct any portion of the business of Hilton or any subsidiary, which license
or franchise is conditioned upon some or all of the holders of Hilton's
securities possessing prescribed qualifications. Such unsuitable or
disqualified holder is required to indemnify Hilton for any and all direct or
indirect costs, including attorneys' fees, incurred by Hilton as a result of
such holder's continuing ownership or failure to divest promptly.
The redemption price of shares of Hilton PRIDES or Hilton Common Stock to be
redeemed would be equal to the lesser of (i) the holder's original purchase
price for the security or (ii) the lowest closing sale price of such security
between the Notice Date and the date 120 days after the Notice Date.
Commencing on the date a Gaming Commission serves notice upon Hilton of the
determination of unsuitability or disqualification, it is unlawful under the
respective Gaming Act for the unsuitable or disqualified holder: to (i)
receive any dividends upon shares of Hilton PRIDES or Hilton Common Stock, or
any distribution of any kind other than in connection with the repurchase of
such securities; (ii) exercise, directly or through any trustee or nominee,
any voting right conferred by shares of Hilton PRIDES or Hilton Common Stock;
or (iii) receive any remuneration in any form from Hilton for services
rendered or otherwise.
CONVERSION AT THE OPTION OF THE HOLDER
The shares of Hilton PRIDES are convertible, in whole or in part, at the
option of the holder thereof, at any time before the Mandatory Conversion
Date, unless previously redeemed, into shares of Hilton Common Stock at a rate
of 0.92 of a share of Hilton Common Stock, after giving effect to the Stock
Split, subject to adjustment in certain events, for each share of Hilton
PRIDES (the "Optional Conversion Rate"), equivalent to a conversion price of
$12.092 per share of Hilton Common Stock (the "Conversion Price"), subject to
adjustment as described below. The right to convert shares of Hilton PRIDES
called for redemption will terminate immediately before the close of business
on any redemption date with respect to such shares. If an Additional Cash
Payment is made in connection with the Merger, at conversion a holder of
Hilton PRIDES will receive a cash payment in an amount equal to the Additional
Cash Payment such holder would have received if such conversion had occurred
immediately prior to the Effective Time for an equivalent number of shares of
Bally Common Stock.
Conversion of shares of Hilton PRIDES at the option of the holder may be
effected by delivering certificates evidencing such shares of Hilton PRIDES,
together with written notice of conversion and a proper assignment of such
certificates to Hilton or in blank (and, if applicable, cash payment of an
amount equal to the dividend attributable to the current quarterly dividend
period payable on such shares), to the office of the transfer agent for Hilton
PRIDES or to any other office or agency maintained by Hilton for that purpose
and otherwise in accordance with conversion procedures established by Hilton.
Each optional conversion will be deemed to have been effected immediately
before the close of business on the date on which the foregoing requirements
have been satisfied. The conversion will be at the Optional Conversion Rate in
effect at such time and on such date.
Holders of shares of Hilton PRIDES at the close of business on a record date
for any payment of declared dividends will be entitled to receive the dividend
payable on such shares of Hilton PRIDES on the corresponding dividend payment
date notwithstanding the optional conversion of such shares of Hilton PRIDES
following such
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record date and before such dividend payment date. However, shares of Hilton
PRIDES surrendered for conversion after the close of business on a record date
for any payment of declared dividends and before the opening of business on
the next succeeding dividend payment date must be accompanied by payment in
cash of an amount equal to the dividend attributable to the current quarterly
dividend payable on such date (unless such shares of Hilton PRIDES are subject
to redemption on a redemption date on or after such record date and on or
prior to such dividend payment date). A holder of shares of Hilton PRIDES
called for redemption on or after the record date for any dividend payment and
on or prior to the payment date for such dividend will receive the dividend on
such shares of Hilton PRIDES payable on that dividend payment date and will be
able to convert such shares of Hilton PRIDES after the record date for such
dividend without paying an amount equal to such dividend to Hilton upon
conversion. Except as provided above, upon any optional conversion of shares
of Hilton PRIDES, Hilton will make no payment of or allowance for unpaid
dividends, whether or not in arrears, on such shares of Hilton PRIDES, or for
previously declared dividends or distributions on the shares of Hilton Common
Stock issued upon such conversion.
CONVERSION ADJUSTMENTS
The Common Equivalent Rate, the Minimum Redemption Rate and the Optional
Conversion Rate are each subject to adjustment as appropriate in certain
circumstances, including if Hilton: (i) pays a stock dividend or makes a
distribution with respect to its Hilton Common Stock in shares of Hilton
Common Stock; (ii) subdivides or splits its outstanding Hilton Common Stock;
(iii) combines its outstanding Hilton Common Stock into a smaller number of
shares; (iv) issues by reclassification of its shares of Hilton Common Stock
any shares of Hilton Common Stock; (v) issues certain rights or warrants to
all holders of its Hilton Common Stock; or (vi) pays a dividend or distributes
to all holders of its Hilton Common Stock evidences of its indebtedness, cash
or other assets (including capital stock of any company other than Hilton
Common Stock, but excluding any cash dividends or distributions other than
Extraordinary Cash Distributions (as defined below) and dividends referred to
in clause (i) above). Hilton will be entitled (but will not be required) to
make upward adjustments in the Common Equivalent Rate, the Minimum Redemption
Rate, the Optional Conversion Rate and the Call Price as Hilton, in its
discretion, determines to be advisable, in order that any stock dividends,
subdivision of shares, distribution of rights to purchase stock or securities,
or distribution of securities convertible into or exchangeable for stock (or
any transaction which could be treated as any of the foregoing transactions
under Section 305 of the Code) hereafter made by Hilton to its stockholders
will not be taxable. "Extraordinary Cash Distribution" means, with respect to
any consecutive 12-month period, all cash dividends and cash distributions on
the Hilton Common Stock during such period (other than cash dividends and cash
distributions for which a prior adjustment to the Common Equivalent Rate, the
Minimum Redemption Rate, and Optional Conversion Rate was previously made) to
the extent such dividends and distributions exceed, on a per share of Hilton
Common Stock basis, 10% of the average daily closing price of the Hilton
Common Stock over such period. All adjustments to the Common Equivalent Rate,
the Minimum Redemption Rate, and the Optional Conversion Rate will be
calculated to the nearest one one-hundredth of a share of Hilton Common Stock.
No adjustment in the Common Equivalent Rate, the Minimum Redemption Rate, or
the Optional Conversion Rate will be required unless such adjustment would
require an increase or decrease of at least one percent therein; provided,
however, that any adjustments which, by reason of the foregoing, are not
required to be made will be carried forward and taken into account in any
subsequent adjustment. All adjustments will be made successively.
Whenever the Common Equivalent Rate, the Minimum Redemption Rate, and the
Optional Conversion Rate are adjusted as provided in the preceding paragraph,
Hilton will file with the transfer agent for the shares of Hilton PRIDES a
certificate with respect to such adjustment, make a prompt public announcement
thereof and mail a notice to holders of the shares of Hilton PRIDES providing
specified information with respect to such adjustment. At least 10 business
days before taking any action that could result in certain adjustments in the
Common Equivalent Rate, the Minimum Redemption Rate, and the Optional
Conversion Rate, Hilton will notify each holder of shares of Hilton PRIDES
concerning such proposed action.
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In the event that the Stock Split is not effected by Hilton, the Common
Equivalent Rate, the Minimum Redemption Rate, the Optional Conversion Rate and
the Current Market Price, as stated herein, shall be divided by four.
ADJUSTMENT FOR CERTAIN CONSOLIDATIONS OR MERGERS
In case of: (i) any consolidation or merger to which Hilton is a party
(other than a merger or consolidation in which Hilton is the surviving or
continuing corporation and in which the shares of Hilton Common Stock
outstanding immediately before the merger or consolidation remain unchanged);
(ii) any sale or transfer to another corporation of the property of Hilton as
an entirety or substantially as an entirety; or (iii) any statutory exchange
of securities with another corporation (other than in connection with a merger
or consolidation), each share of Hilton PRIDES will, after consummation of
such transaction, be subject to (A) conversion at the option of the holder
into the kind and amount of securities, cash or other property receivable upon
consummation of such transaction by a holder of the number of shares of Hilton
Common Stock into which such share of Hilton PRIDES might have been converted
immediately before consummation of such transaction, (B) conversion on the
Mandatory Conversion Date into the kind and amount of securities, cash, or
other property receivable upon consummation of such transaction by a holder of
the number of shares of Hilton Common Stock into which such share of Hilton
PRIDES would have been converted if the conversion on the Mandatory Conversion
Date had occurred immediately before the date of consummation of such
transaction, plus the right to receive cash in an amount equal to all accrued
and unpaid dividends on such share of Hilton PRIDES (other than previously
declared dividends payable to a holder of record as of a prior date), and (C)
redemption on any redemption date in exchange for the kind and amount of
securities, cash, or other property receivable upon consummation of such
transaction by a holder of the number of shares of Hilton Common Stock that
would have been issuable at the Call Price in effect on such redemption date
upon a redemption of such share of Hilton PRIDES immediately before
consummation of such transaction, assuming that, if the Notice Date for such
redemption is not before such transaction, the Notice Date had been the date
of such transaction; and assuming in each case that such holder of shares of
Hilton Common Stock failed to exercise rights of election, if any, as to the
kind or amount of securities, cash, or other property receivable upon
consummation of such transaction (provided that, if the kind or amount of
securities, cash, or other property receivable upon consummation of such
transaction is not the same for each non-electing share, then the kind and
amount of securities, cash, or other property receivable upon consummation of
such transaction for each non-electing share will be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares). The
kind and amount of securities into or for which the shares of Hilton PRIDES
will be convertible or redeemable after consummation of such transaction will
be subject to adjustment as described above under the caption "Conversion
Adjustments" following the date of consummation of such transaction. Hilton
may not become a party to any such transaction unless the terms thereof are
consistent with the foregoing.
FRACTIONAL SHARES
No fractional shares of Hilton Common Stock will be issued upon redemption
or conversion of shares of Hilton PRIDES. In lieu of any fractional share
otherwise issuable in respect of the aggregate number of shares of Hilton
PRIDES of any holder that are redeemed or converted on any redemption date or
upon mandatory conversion or any optional conversion, such holder will be
entitled to receive an amount in cash equal to the same fraction of the: (i)
Current Market Price of the Hilton Common Stock, determined as of the second
Trading Day immediately preceding the Notice Date, in the case of redemption;
or (ii) Closing Price (as defined in the Certificate of Designation) of the
Hilton Common Stock determined (A) as of the fifth Trading Day immediately
preceding the Mandatory Conversion Date, in the case of mandatory conversion,
or (B) as of the second Trading Day immediately preceding the effective date
of conversion, in the case of an optional conversion by a holder.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of Hilton, and subject to the rights of holders of any other series
of Hilton Preferred Stock, the holders of outstanding shares of Hilton
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PRIDES are entitled to receive for each share of Hilton PRIDES an amount equal
to $11.125 per share, plus accrued and unpaid dividends thereon, out of the
assets of Hilton available for distribution to stockholders, before any
distribution of assets is made to holders of Hilton Common Stock or any other
capital stock ranking junior to Hilton PRIDES upon liquidation, dissolution or
winding up. The shares of Hilton PRIDES will rank on a parity upon liquidation
with any Parity Preferred Stock.
If, upon any voluntary or involuntary liquidation, dissolution, or winding
up of Hilton, the assets of Hilton are insufficient to permit the payment of
the full preferential amounts payable with respect to the shares of Hilton
PRIDES and all other series of Parity Preferred Stock, the holders of shares
of Hilton PRIDES and of all other series of Parity Preferred Stock will share
ratably in any distribution of assets of Hilton in proportion to the full
respective preferential amounts to which they are entitled. After payment of
the full amount of the liquidating distribution to which they are entitled,
the holders of shares of Hilton PRIDES will not be entitled to any further
participation in any distribution of assets by Hilton. A consolidation or
merger of Hilton with or into one or more other corporations (whether or not
Hilton is the corporation surviving such consolidation or merger), or a sale,
lease or exchange of all or substantially all of the assets of Hilton, will
not be deemed to be a voluntary or involuntary liquidation, dissolution, or
winding up of Hilton.
VOTING RIGHTS
The holders of shares of Hilton PRIDES shall have the right with the holders
of Hilton Common Stock to vote in the election of directors and upon each
other matter coming before any meeting of the holders of Hilton Common Stock
on the basis of four-fifths (4/5ths) of a vote for each share of Hilton PRIDES
held, after giving effect to the Stock Split. The holders of shares of Hilton
PRIDES and the holders of Hilton Common Stock will vote together as one class
on such matters except as otherwise provided by law or the Certificate of
Incorporation of Hilton.
In the event that dividends on the shares of Hilton PRIDES or any other
series of Hilton Preferred Stock are in arrears and unpaid for six quarterly
dividend periods, or if any other series of Hilton Preferred Stock is entitled
for any other reason to exercise voting rights, separate from the Hilton
Common Stock, to elect any Directors of Hilton ("Preferred Stock Directors"),
the holders of the shares of Hilton PRIDES (voting separately as a class with
holders of all other series of Preferred Stock upon which like voting rights
have been conferred and are exercisable with the Hilton PRIDES as a class),
with each share of Hilton PRIDES entitled to one vote on this and other
matters in which such Preferred Stock votes as a group, will be entitled to
vote for the election of two Directors, such Directors to be in addition to
the number of Directors constituting the Board of Directors of Hilton
immediately before the accrual of such right. Such right, when vested, will
continue until all dividends in arrears and payable on the shares of Hilton
PRIDES and such other series of Preferred Stock have been paid in full and the
right of any other such series of Preferred Stock to exercise voting rights,
separate from the Hilton Common Stock, to elect Preferred Stock Directors of
Hilton terminates or has terminated, and, when so paid and any such
termination occurs or has occurred, such right of the holders of the shares of
Hilton PRIDES will cease. The term of office of any Director elected by the
holders of the shares of Hilton PRIDES and such other series will terminate on
the earlier of (i) the next annual meeting of stockholders at which a
successor has been elected and qualified or (ii) the termination of the right
of holders of the shares of Hilton PRIDES and such other series to vote for
such Directors.
Hilton will not, without the approval of the holders of at least 66 2/3% of
the shares of Hilton PRIDES then outstanding: (i) amend, alter or repeal any
of the provisions of the Certificate of Incorporation or Bylaws of Hilton so
as to affect adversely the powers, preferences, or rights of the holders of
the shares of Hilton PRIDES then outstanding or reduce the minimum time for
any required notice to which the holders of the shares of Hilton PRIDES then
outstanding may be entitled (an amendment of the Certificate of Incorporation
to authorize or create, or to increase the authorized amount of, Hilton Common
Stock or other Junior Stock or any stock of any class ranking on a parity with
the shares of Hilton PRIDES being deemed not to affect adversely the powers,
preferences, or rights of the holders of the shares of Hilton PRIDES); (ii)
authorize or create or increase the authorized amount of any stock of any
class (whether or not convertible into capital stock of any class) ranking
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prior to the shares of Hilton PRIDES either as to the payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up of
Hilton; or (iii) merge or consolidate with or into any other corporation,
unless each holder of shares of Hilton PRIDES immediately preceding such
merger or consolidation receives or continues to hold in the resulting
corporation the same number of shares, with substantially the same rights and
preferences, as correspond to the shares of Hilton PRIDES so held.
Hilton will not, without the approval of the holders of at least a majority
of the shares of Hilton PRIDES then outstanding, increase the authorized
number of shares of Preferred Stock to more than 60,000,000 shares.
Notwithstanding the provisions summarized in the preceding two paragraphs,
no such approval described therein of the holders of the shares of Hilton
PRIDES will be required if, at or before the time when such amendment,
alteration, or repeal is to take effect or when the authorization, creation,
increase or issuance of any such prior or parity stock or convertible security
is to be made, or when such consolidation or merger, voluntary liquidation,
dissolution, or winding up, sale, lease, conveyance, purchase, or redemption
is to take effect, as the case may be, provision is made for the redemption of
all shares of Hilton PRIDES at the time outstanding.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. will act as transfer agent and
registrar for, and paying agent for the payment of dividends on, the shares of
Hilton PRIDES.
MISCELLANEOUS
Upon issuance, the shares of Hilton PRIDES will be fully paid and
nonassessable. Holders of shares of Hilton PRIDES have no preemptive rights.
Hilton will at all times reserve and keep available out of its authorized and
unissued Hilton Common Stock, solely for issuance upon the conversion or
redemption of shares of Hilton PRIDES, such number of shares of Hilton Common
Stock as will from time to time be issuable upon the conversion or redemption
of all the shares of Hilton PRIDES then outstanding. Shares of Hilton PRIDES
redeemed for, or converted into, Hilton Common Stock or otherwise reacquired
by Hilton will resume the status of authorized and unissued shares of
Preferred Stock, undesignated as to series, and will be available for
subsequent issuance.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal tax consequences
of the ownership and disposition of the Hilton PRIDES. Hilton does not intend
to seek a ruling from the Service with respect to any of these tax
consequences. This summary is intended for general information only and deals
only with holders who are initial holders of shares of Hilton PRIDES and who
hold shares of Hilton PRIDES as capital assets within the meaning of Section
1221 of the Code. It does not address aspects of taxation, other than Federal
income taxation, or all tax consequences that may be relevant in the
particular circumstances of each holder (some of which, such as dealers in
securities, banks, insurance companies and tax-exempt organizations, may be
subject to special rules). Stock having terms closely resembling those of
shares of Hilton PRIDES has not been the subject of any regulation, ruling or
judicial decision currently in effect, and there can be no assurance that the
Service will adopt the positions set forth below. There can be no assurance
that future changes in applicable law or administration and judicial
interpretations thereof, any of which could have a retroactive effect, will
not adversely affect the tax consequences discussed herein or that there will
not be differences of opinion as to the interpretation of applicable law. For
purposes of this summary, "U.S. Holder" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
under the laws of the United States or any State, or an estate or trust the
income of which is subject to United States Federal income taxation regardless
of its source, and "non-U.S. Holder" means a holder other than a U.S. Holder.
Certain aspects of United States Federal income and estate tax relevant to a
non-U.S. Holder are discussed separately below. Holders of Bally PRIDES should
consult their tax advisors with respect to the application of the United
States
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Federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
Dividends. Dividends paid on shares of Hilton PRIDES out of Hilton's current
or accumulated earnings and profits will be taxable as ordinary income.
Certain corporate holders will generally qualify for the 70 percent
intercorporate dividends-received deduction subject to satisfaction of the
minimum holding period (generally at least 46 days) and other applicable
requirements. The dividends-received deduction is not available in computing a
corporate U.S. Holder's liability for alternative minimum tax.
Under certain circumstances, a corporation that receives an "extraordinary
dividend" as defined in Section 1059(c) of the Code, is required to reduce its
stock basis by the non-taxed portion of such dividend. Generally, quarterly
dividends not in arrears paid to an original holder of shares of Hilton PRIDES
will not constitute extraordinary dividends under Section 1059(c). Under
Section 1059(f), any dividend with respect to "disqualified preferred stock"
is treated as an "extraordinary dividend." Hilton does not believe that shares
of Hilton PRIDES will be determined to constitute "disqualified preferred
stock."
Call or Conversion Premium. Under certain circumstances, Section 305 of the
Code requires that any excess of the redemption price of preferred stock over
its issue price is includable in income, before receipt, as a constructive
dividend. While the issue is not free from doubt due to a lack of authority
directly on point, a holder of shares of Hilton PRIDES should not be required
to include any call or conversion premium in income as a redemption premium
under Section 305 of the Code.
Redemption or Mandatory or Optional Conversion into Hilton Common Stock. As
a general rule, gain or loss will not be recognized by a holder upon the
redemption of shares of Hilton PRIDES for shares of Hilton Common Stock or the
conversion of shares of Hilton PRIDES into shares of Hilton Common Stock if no
cash is received. Income may be recognized, however, to the extent Hilton
Common Stock or cash is received in payment of accrued and unpaid dividends
upon a redemption or conversion. Such income would likely be characterized as
dividend income although some uncertainty exists as to the appropriate
characterization of payments in satisfaction of accrued and undeclared
dividends. A holder who received cash in lieu of a fractional share will be
treated as having received such fractional share of Hilton Common Stock and as
having exchanged it for cash in a transaction subject to Section 302 of the
Code and related provisions. Such exchange should generally result in capital
gain or loss measured by the difference between the cash received for the
fractional share interest and the holder's tax basis in the fractional share
interest. A holder who received an Additional Cash Payment would realize gain
or loss equal to the difference between (i) the sum of the Additional Cash
Payment and the fair market value of the Hilton Common Stock received and (ii)
the aggregate tax basis of the Hilton PRIDES surrendered therefor. Any loss
would not be recognized, however, and gain would be recognized, but not in
excess of the Additional Cash Payment received. For a discussion of the rules
governing the computation of gain and the determination of the character of
any gain, see "The Merger--Tax Consequences of the Merger--Receipt of
Additional Cash Payment."
Generally, a holder's tax basis in the Hilton Common Stock received upon the
redemption or conversion of shares of Hilton PRIDES, other than shares of
Hilton Common Stock taxed upon receipt, will equal the adjusted tax basis of
the redeemed or converted shares of Hilton PRIDES (exclusive of any basis
allocable to a fractional share interest) and the holding period of such
Common Sock will include the holding period of the redeemed or converted
shares of Hilton PRIDES. As a general rule, a holder's tax basis in shares of
Hilton Common Stock taxed upon receipt will equal the fair market value
thereof and the holding period for such Hilton Common Stock will begin on the
day following the redemption or conversion.
Adjustment of Conversion Rates. Certain adjustments to the Common Equivalent
Rate and the Optional Conversion Rate to reflect Hilton's distribution of
certain rights, warrants, evidences of indebtedness, securities or other
assets to holders of Hilton Common Stock may result in constructive
distributions taxable as dividends to the holders of shares of Hilton PRIDES
which may constitute (and cause other dividends to constitute) "extraordinary
dividends" to corporate holders of Hilton PRIDES as described above.
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Conversion of Hilton PRIDES after Dividend Record Date. If a holder whose
shares of Hilton PRIDES have not been called for redemption, surrenders such
shares for conversion into shares of Hilton Common Stock after a dividend
record date but before payment of the dividend, such holder will be required
to pay Hilton an amount equal to such dividend upon conversion. The holder
would likely recognize the dividend payment which is received as income, and
would increase the basis of the Hilton Common Stock received by the amount
paid to Hilton in connection with the receipt of such dividend.
Backup Withholding. Certain non-corporate U.S. Holders may be subject to
backup withholding at a rate of 31% on dividends and certain consideration
received upon the redemption or conversion of shares of Hilton PRIDES unless
such holder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules.
Proposed Legislation. The Clinton Administration has proposed tax
legislation which would, among other things, decrease the dividend-received
deduction for certain corporate holders from 70 percent to 50 percent, require
the immediate recognition of income for certain "extraordinary dividends,"
including dividends received with respect to stock the basis of which would be
reduced below zero, and require that a shareholder satisfy a 46-day holding
period for each dividend received. No assurance can be given concerning the
likelihood of enactment of such legislative proposals, and holders of shares
of Hilton PRIDES are urged to consult their tax advisors concerning such
legislative proposals and their possible application to the Hilton PRIDES.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
Dividends. In general, dividends (including constructive distributions
taxable as dividends) paid to a non-U.S. Holder will be subject to United
States withholding tax at a 30 percent rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either: (i) effectively
connected with a trade or business carried on by the non-U.S. Holder within
the United States; or (ii) if a tax treaty applies, attributable to a United
States permanent establishment maintained by the non-U.S. Holder. Dividends
effectively connected with such trade or business or attributable to such
permanent establishment will generally be subject to United States Federal
income tax at regular rates and, in the case of a non-U.S. Holder which is a
corporation, may be subject to the branch profits tax. To determine the
applicability of a tax treaty providing for a lower rate of withholding,
dividends paid to an address in a foreign country are presumed under current
Treasury regulations to be paid to a resident of that country.
Gain on Redemption or Conversion into Hilton Common Stock. A non-U.S. Holder
generally will not be subject to United States Federal income tax on any gain
recognized on a disposition, redemption or conversion (a "disposition") of a
share of Hilton PRIDES unless: (i) all or a portion of such gain is treated as
dividend income; (ii) subject to the exception discussed below, Hilton is or
has been a "United States real property holding corporation" (a "USRPHC")
within the meaning of Section 897(c)(2) of the Code at any time within the
shorter of the five-year period preceding such disposition or such non-U.S.
Holder's holding period (the "Required Holding Period"); (iii) the gain is
effectively connected with a trade or business carried on by the non-U.S.
Holder within-the United States or, if a tax treaty applies, attributable to a
United States permanent establishment maintained by the non-U.S. Holder; (iv)
in the case of a non-U.S. Holder who is an individual, who holds the share as
a capital asset, and who is present in the United States for 183 days or more
in the taxable year of the disposition, either (a) such non-U.S. Holder has a
"tax home," (as defined for U.S. Federal income tax purposes) in the United
States and the gain from the disposition is not attributable to an office or
other fixed place of business maintained by such non-U.S. Holder outside of
the United States or (b) the gain from the disposition is attributable to an
office or other fixed place of business maintained by such non-U.S. Holder in
the United States; or (v) the non-U.S. Holder is subject to a tax pursuant to
provisions of the Code applicable to certain United States expatriates. If a
non-U.S. Holder fails to satisfy clause (iii) above, the non-U.S. Holder will
be taxed on the net gain derived from the disposition under regular graduated
U.S. Federal income tax rates (and, with respect to corporate non-U.S.
Holders, may also be subject to the branch profits tax described above). If an
individual non-U.S. Holder fails to satisfy clause (iv) above, the non-U.S.
Holder generally will be subject to a
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30 percent tax on the gain derived from the disposition, which gain may be
offset by U.S. capital losses recognized within the same taxable year of such
disposition (notwithstanding the fact that the non-U.S. Holder is not
considered a resident of the United States).
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50 percent of the sum of the
fair market value of its worldwide real property interests plus its other
assets used or held for use in a trade or business. While not free from doubt,
Hilton believes that it currently is a USRPHC. However, a non-U.S. Holder
would generally not be subject to tax or withholding in respect of such tax on
gain from a disposition of a share of Hilton PRIDES by reason of Hilton's
USRPHC status if Hilton PRIDES are regularly traded on an established
securities market ("regularly traded") during the calendar year in which such
disposition occurs provided that such non-U.S. Holder does not own, actually
or constructively, Hilton PRIDES with a fair market value in excess of 5
percent of the fair market value of all Hilton PRIDES outstanding at any time
during the Required Holding Period. Hilton believes that Hilton PRIDES will be
treated as regularly traded.
If Hilton is or has been a USRPHC within the Required Holding Period, and if
a non-U.S. Holder owns in excess of 5 percent of the fair market value of
Hilton PRIDES (as described in the preceding paragraph), such non-U.S. Holder
of shares of Hilton PRIDES will be subject to United States Federal income tax
at regular graduated rates under certain rules ("FIRPTA tax") on gain
recognized on a disposition of shares of Hilton PRIDES. Any amount withheld
pursuant to such withholding tax will be creditable against such non-U.S.
Holder's United States Federal income tax liability. Following conversion of
one or more of a non-U.S. Holder's shares of Hilton PRIDES into shares of
Hilton Common Stock, such non-U.S. Holder will be subject to the same FIRPTA
tax rules with respect to the sale, exchange, or other disposition of shares
of Hilton Common Stock by a non-U.S. Holder (as well as the exception
discussed above) as are applicable to a disposition of one or more shares of
Hilton PRIDES by such non-U.S. Holder. Non-U.S. Holders are urged to consult
their tax advisors concerning the potential applicability of these provisions.
Federal Estate Tax. Shares of Hilton PRIDES owned or treated as owned by an
individual who is not a citizen or resident (as defined for United States
Federal estate tax purposes) of the United States at the time of death will be
includable in the individual's gross estate for United States Federal estate
tax purposes unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting Requirements. Under current
United States Treasury regulations, Hilton must report annually to the Service
and to each non-U.S. Holder the amount of dividends paid to and the tax
withheld with respect to such holder. These information reporting requirements
apply regardless of whether withholding was reduced or eliminated by an
applicable tax treaty. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities in the country in which the non-U.S. Holder resides. United States
backup withholding tax (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish the
information required under the United States information reporting
requirements) will generally not apply to dividends paid on shares of Hilton
PRIDES to a non-U.S. Holder at an address outside the United States. Backup
withholding may apply to such payments unless the payee is able to establish
its status as a non-U.S. Holder.
The payment of the proceeds from the disposition of shares of Hilton PRIDES
to or through the United States office of a broker will be subject to
information reporting and backup withholding at a rate of 31% unless the owner
certifies, among other things, its status as a non-U.S. Holder under penalties
of perjury or otherwise establishes an exemption. The payment of the proceeds
from the disposition of shares of Hilton PRIDES to or through a non-U.S.
office of a broker will generally, except as noted below, not be subject to
backup withholding and information reporting. In the case of proceeds from a
disposition of shares of Hilton PRIDES paid to or through a non-U.S. office of
a U.S. broker or paid to or through a non-U.S. office of a non-U.S. broker
that is: (i) a "controlled foreign corporation" for United States Federal
income tax purposes; or (ii) a person 50% or more of whose gross income from
all sources for a certain three-year period was effectively connected with a
United States trade or business, (a) backup withholding will not apply unless
the broker has actual knowledge
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that the owner is not a non-U.S. Holder, and (b) information reporting will
not apply if the broker has documentary evidence in its files that the owner
is non-U.S. Holder (unless the broker has actual knowledge to the contrary).
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. Holder will be refunded (or credited against the non-U.S. Holder's
United States Federal income tax liability, if any), provided that the
required information is furnished to the Service.
The United States Treasury has recently issued proposed regulations regarding
the withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. If finalized in their current form, the
proposed regulations would generally be effective for payments made after
December 31, 1997, subject to certain transition rules.
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REGULATION AND LICENSING
Each of Hilton and Bally hold gaming licenses or permits in each
jurisdiction in which it operates gaming activities. In each such
jurisdiction, certain regulatory requirements must be complied with and/or
certain approvals must be obtained prior to the consummation of the Merger.
Upon consummation of the Merger, Bally will cease to exist and Hilton will
succeed to Bally's operations and will be subject to such laws and regulations
to which Bally's operations were subject prior to the Merger. Unless the
context otherwise requires, the discussion below assumes the Merger has been
consummated.
Under provisions of Nevada, Mississippi, Missouri, Louisiana and New Jersey
and other gaming laws, and Hilton's Certificate of Incorporation, certain
securities of Hilton are subject to restrictions on ownership which may be
imposed by specified governmental authorities. Such restrictions may require
the holder to dispose of the securities or, if the holder refuses to make such
disposition, Hilton may be obligated to repurchase the securities.
Nevada Gaming Laws. The ownership and operation of casino gaming facilities
in Nevada are subject to (i) the Nevada Gaming Control Act and the regulations
promulgated thereunder (the "Nevada Act") and (ii) various local regulations.
Hilton's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State
Gaming Control Board (the "Nevada Board"), and, depending on the facility's
location, the Clark County Liquor and Gaming Licensing Board (the "CCB") and
the City of Reno. The Nevada Commission, the Nevada Board, the CCB and the
City of Reno are collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) providing a source of state and
local revenues through taxation and licensing fees. Change in such laws,
regulations and procedures could have an adverse effect on Hilton's gaming
operations.
Each subsidiary of Hilton that operates a casino in Nevada (individually, a
"Corporate Licensee" and collectively, the "Corporate Licensees") is required
to be licensed by the Nevada Gaming Authorities. The gaming license requires
the periodic payment of fees and taxes and is not transferable. Hilton is
required to be registered by the Nevada Commission as a publicly traded
corporation ("Registered Corporation") and as such, it is required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information that the Nevada Commission may
require. No person may become a stockholder of, or receive any percentage of
profits from, a Corporate Licensee without first obtaining licenses and
approvals from the Nevada Gaming Authorities.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Hilton or any of its
Corporate Licensees in order to determine whether such individual is suitable
or should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of a Corporate Licensee must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of Hilton who are actively and directly involved
in gaming activities of any Corporate Licensee may be required to be licensed
or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they
deem reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by
a thorough investigation. An applicant for licensing or an applicant for a
finding of suitability must pay all costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and in
addition to their authority to deny an application for a finding of
suitability or licensing, the Nevada Gaming Authorities have the jurisdiction
to disapprove a change in a corporate position.
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If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with Hilton or any Corporate Licensee, Hilton and the Corporate
Licensee would have to sever all relationships with such person. In addition,
the Nevada Commission may require Hilton or a Corporate Licensee to terminate
the employment of any person who refused to file appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.
Hilton and all Corporate Licensees are required to submit detailed financial
and operating reports to the Nevada Commission. Substantially all material
loans, leases, sales of securities and similar financing transactions of a
Corporate Licensee must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by a Corporate
Licensee, the gaming licenses it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Corporate Licensee, Hilton and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate a
Corporate Licensee's gaming property and, under certain circumstances,
earnings generated during the supervisor's appointment (except for the
reasonable rental value of the gaming property) could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of any gaming license
of a Corporate Licensee or the appointment of a supervisor could (and
revocation of any gaming license would) have a material adverse effect on
Hilton's gaming operations.
Any beneficial holder of Hilton Common Stock, Hilton PRIDES, or any other
voting security of Hilton ("Hilton Voting Securities"), regardless of the
number of shares owned, may be required to file an application, be
investigated, and have such person's suitability as a beneficial holder of
Hilton Voting Securities determined if the Nevada Commission has reason to
believe that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all costs of the
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of Hilton Voting Securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
Hilton Voting Securities apply to the Nevada Commission for a finding of
suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires
beneficial ownership of more than 10%, but not more than 15%, of Hilton Voting
Securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds Hilton Voting Securities for
investment purposes only. An institutional investor shall not be deemed to
hold Hilton Voting Securities for investment purposes unless Hilton Voting
Securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the Board of
Directors of Hilton, any change in Hilton's corporate charter, bylaws,
management, policies or operations of Hilton, or any of its gaming affiliates,
or any other action which the Nevada Commission finds to be inconsistent with
holding Hilton Voting Securities for investment purposes only. Activities
which are not deemed to be inconsistent with holding voting securities for
investment purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of management of the
type normally made by securities analysts for informational purposes and not
to cause a change in its management, policies or operations; and (iii) such
other activities as the Nevada Commission may determine to be consistent with
such investment intent. If the beneficial holder of voting securities who must
be found suitable is a corporation, partnership, limited partnership, limited
liability company or trust, it must submit detailed business and financial
information including a list of beneficial owners. The applicant is required
to pay all costs of investigation. Barron Hilton, Hilton's largest
stockholder, has been found suitable as a controlling stockholder of Hilton.
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Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission
or by the Chairman of the Nevada Board may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of Hilton Voting
Securities beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. Hilton is subject to
disciplinary action if, after it receives notice that a person is unsuitable
to be a stockholder or to have any other relationship with Hilton or a
Corporate Licensee, Hilton (i) pays that person any dividend or interest upon
any Hilton Voting Securities; (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person;
(iii) pays remuneration in any form to that person for services rendered or
otherwise; or (iv) fails to pursue all lawful efforts to require such
unsuitable person to relinquish the voting securities for cash at fair market
value. Additionally, the CCB has the authority to approve all persons owning
or controlling the stock of any corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own such debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission, it (i) pays to the unsuitable person any dividend,
interest or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation or similar transaction.
Hilton is required to maintain a current stock ledger in Nevada which may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. Hilton is also required to render maximum assistance
in determining the identity of the beneficial owner of any Hilton Voting
Securities. The Nevada Commission has the power to require Hilton's stock
certificates to bear a legend indicating that the securities are subject to
the Nevada Act. However, to date, the Nevada Commission has not imposed such a
requirement on Hilton.
Hilton may not make a public offering of its securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. On
September 28, 1995, the Nevada Commission granted Hilton prior approval to
make public offerings for a period of one year, subject to certain conditions
(the "Shelf Approval"). However, 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. In addition to its applications for other
required approvals in order to consummate the Merger, Hilton has filed an
application seeking the approval of the Nevada Board and the Nevada Commission
for a renewal of the Shelf Approval until September 1997. The Hilton Common
Stock and the Hilton PRIDES will be offered pursuant to the renewed Shelf
Approval. However, there can be no assurances that any of the approvals will
be granted. Furthermore, any approval, if granted, does not constitute a
finding, recommendation or approval of the Nevada Gaming Authorities as to the
accuracy or adequacy of the prospectus or the investment merits of the
securities offered thereby. Any representation to the contrary is unlawful.
Changes in control of Hilton through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in
a variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity
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proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before Hilton can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by Hilton's
Board of Directors in response to a tender offer made directly to its
stockholders for the purpose of acquiring control of Hilton.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Corporate Licensees' respective operations
are conducted. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operators where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
Corporate Licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside
of Nevada is required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation by the Nevada Board of the Licensee's participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. A
Licensee is also subject to disciplinary action by the Nevada Commission if it
knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fails to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engages in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employs a person in
the foreign operation who has been denied a license or finding of suitability
in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages at establishments operated by a Corporate
Licensee is subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any
such license, and any such disciplinary action could (and revocation would)
have a material adverse effect upon the operations of the Corporate Licensee.
Louisiana Gaming Laws. The ownership and operation of a riverboat gaming
vessel in the State of Louisiana is subject to the Louisiana Riverboat
Economic Development and Gaming Control Act (the "Act"). As of May 1, 1996,
gaming activities have been regulated by the Louisiana Gaming Control Board
(the "Board"). The Board is responsible for investigating the background of
all applicants seeking a riverboat gaming license, issuing the license and
enforcing the laws, rules and regulations relating to riverboat gaming
activities.
The applicant, its officers, directors, key personnel, partners and persons
holding a 5% or greater interest in the holder of a gaming license are
required to be found suitable by the Board. This requires the filing of an
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extensive application to the Board disclosing personal, financial, criminal,
business and other information. On October 13, 1993, the Board's predecessor
issued a riverboat gaming license to the Queen of New Orleans, a joint venture
of which Hilton owns a 50% interest.
The transfer of a Louisiana gaming license is prohibited under the Act. The
sale, assignment, transfer, pledge or disposition of securities which
represent 5% or more of the total outstanding shares issued by a holder of a
license is subject to Board approval and the transferee must be found
suitable. Ownership of the Hilton PRIDES may constitute ownership of Hilton
Common Stock for this purpose. In addition, all contracts and leases entered
into by a licensee are subject to approval and certain enterprises which
transact business with the licensee must be licensed.
The Board must approve all security holders of the licensees and may find
any such security holder not qualified to own those securities. Louisiana law
may require that the charter or bylaws of the licensee provide that securities
are held subject to the condition that, if a holder is found to be
disqualified by the Board, the holder must dispose of the securities of the
licensee. If a security holder of a licensee is found disqualified, it will be
unlawful for the security holder: to (i) receive any dividend or interest with
regard to the securities; (ii) exercise, directly or indirectly, any rights
conferred by the securities; or (iii) receive any remuneration from the
licensee for services rendered or otherwise. The Board may impose similar
approval requirements on holders of securities of any intermediary or holding
company of the licensee, but may waive those requirements with respect to
holders of publicly-traded securities of intermediary and holding companies if
such holders do not have the ability to control the publicly-traded
corporation or elect one or more directors thereof.
On April 19, 1996, the Louisiana legislature approved legislation mandating
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit three individual types of gaming. The
referendum will be brought before the Louisiana voters at the time of the 1996
presidential election and will determine whether each of the following types
of gaming will be prohibited or permitted in the following described Louisiana
parishes: (i) the operation of video draw poker devices in each parish; (ii)
the conduct of riverboat gaming in each parish that is contiguous to a
statutorily designated river or waterway or (iii) the conduct of land-based
casino gaming operations in Orleans Parish. If a majority of the voters in a
parish elect to prohibit one or more of the above-described gaming activities
in such parish, then no license or permit shall be issued to conduct such
prohibited gaming activity in such parish and no such gaming activity may be
permitted in that parish. If, however, riverboat gaming was previously
permitted in such parish, the legislation permits the current gaming operator
to continue riverboat gaming in that parish until the expiration of its gaming
license. Hilton's current riverboat gaming license expires on October 12,
1998, and Bally's current riverboat gaming license expires on March 24, 1999.
Further, in parishes where riverboat gaming is currently authorized and voters
elect to prohibit riverboat gaming, the legislation provides that the gaming
license shall not be reissued or transferred to any parish other than a parish
in which a riverboat upon which gaming is conducted is berthed. The current
legislation, however, does not provide for any moratorium on future local
elections on gaming. Further, the current legislation does not provide for any
moratorium that must expire before future local elections on gaming could be
mandated or allowed.
New Jersey Gaming Laws. The ownership and operations of hotel-casino
facilities in Atlantic City, New Jersey are subject to extensive state
regulation under the New Jersey Casino Control Act (the "Act"). No hotel-
casino facility may operate unless various licenses and approvals are obtained
from New Jersey regulatory authorities, including the Casino Control
Commission (the "New Jersey Commission"). The New Jersey Commission is
authorized under the Act to adopt regulations covering a broad spectrum of
gaming and gaming related activities and to prescribe the methods and forms of
applications for licenses.
In order to be granted a casino license under the Act, officers and
directors of a licensee and its employees who are employed in hotel or casino
operations in Atlantic City are required to be licensed or approved by the New
Jersey Commission. In addition, all contracts and leases entered into by a
licensee would be subject to approval and certain enterprises which transact
business with the licensee would themselves have to be licensed.
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The Act requires prior approval from the New Jersey Commission before
control of a casino licensee can be transferred. However, pursuant to an
interim casino authorization, the Act permits an entity that obtains the
securities of a casino licensee to acquire and own such securities upon
obtaining interim authorization from the New Jersey Commission. During the
period of interim authorization the securities of any such licensee must be
held in trust pursuant to the provisions of the Act. Prior to a determination
of final approval, the holder of the securities of the licensee retains
complete authority over the actions of the trustee of the trust. If the New
Jersey Commission thereafter denies qualification, the trustee of the trust
will be charged with disposing of the trust property.
For a more complete description of the various applicable gaming regulatory
requirements under (i) the Nevada and Louisiana Gaming Laws, see "Additional
Information--Regulation and Licensing" in the Hilton Form 10-K and (ii) the
New Jersey Gaming Laws, see "Additional Information--Regulation and Licensing"
in the Hilton Form 10-K and "Gaming Regulation" in the Bally Form 10-K.
Mississippi Gaming Laws. The ownership and operation of casino gaming
facilities in Mississippi are subject to extensive state and local regulation,
but primarily the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission. An owner and operator of
casino gaming facilities in Mississippi and its related holding companies must
register under the Mississippi Gaming Control Act (the "Mississippi Act") and
its gaming operations are subject to the licensing and regulatory control of
the Mississippi Gaming Commission and various local, city and county
regulatory agencies. Although not identical, the Mississippi Act is similar to
the Nevada Act. The adopted regulations of the Mississippi Gaming Commission
are also similar in many respects to the Nevada gaming regulations.
Mississippi statutes and regulations give the Mississippi Gaming Commission
the discretion to require a suitability finding with respect to any person or
entity who acquired any security of an owner and operator of casino gaming
facilities in Mississippi regardless of the percentage of ownership. The
current policy of the Mississippi Gaming Commission is to require any person
or entity acquiring 5% or more of any voting securities of a public company
with a licensed subsidiary or private company licensee to be found suitable.
If the owner of voting securities who is required to be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation. The sale of alcoholic beverages by
Hilton is subject to licensing, control and regulation by the Alcoholic
Beverage Control Division ("ABC") of the Mississippi State Tax Commission. An
ABC license is revocable and is not transferable. The Alcoholic Beverage
Control Division of the Mississippi State Tax Commission has full power to
limit, condition, suspend or revoke any such license. For a more complete
description of the various applicable gaming regulatory requirements under the
Mississippi Gaming Laws, see "Gaming Regulation--Mississippi Regulation" in
the Bally Form 10-K.
Missouri Gaming Laws. In 1993, Missouri enacted the Missouri Gaming Law (the
"MGL") and established the Missouri Gaming Commission (the "MGC"), which is
responsible for the licensing and regulation of riverboat gaming in Missouri.
The number of licenses which may be granted is not specifically limited by
statute or regulation but may be subject to limitations imposed by the MGC.
The MGL grants specific powers and duties to the MGC to supervise riverboat
gaming and implement the MGL and take any other action as may be reasonable or
appropriate to enforce the MGL. The MGC may approve permanently moored
("dockside") riverboat casinos subject to specific criteria that includes the
economic interest of Missouri and the safety of the general public.
Under the MGL, the ownership and operation of riverboat gaming facilities in
Missouri are subject to extensive state and local regulation. If a company is
granted a gaming license in Missouri, such company, any related subsidiaries
and its officers, directors, significant shareholders and employees will be
subject to regulation. The initial license and first subsequent license
renewal of an excursion gambling boat operator generally is for a period of
one year. The MGC, however, may reopen license hearings at any time and may
terminate or impose additional regulations upon a licensee at any time during
the term of a license. In addition to the owner's license and operator's
license for the riverboat, most individuals participating in gaming
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operations are required to have an occupational license from the MGC.
Applicants and licensees are responsible to keep the application and any
requested materials current at all times, and this responsibility continues
throughout any period of licensure granted by the MGC. In addition, Missouri
has extensive licensing disclosure requirements. In August, 1996, the MGC
issued a riverboat gaming license to the Flamingo Hilton Riverboat Casino,
L.P., a limited partnership wholly-owned by Hilton.
Pursuant to its rulemaking authority, the MGC has adopted certain
regulations which provide, among other things, that: (i) no gaming licensee or
occupational licensee may pledge, hypothecate or transfer in any way any
license, or any interest in a license, issued by the MGC; (ii) without first
notifying the MGC at least 60 days prior to such consummation of any of the
following transactions (and during such period the MGC may disapprove the
transaction or require the transaction to be delayed pending further
investigation) (a) a gaming licensee or a holding company affiliated with a
gaming licensee may not make a public issuance of debt, (b) a publicly held
gaming licensee or a publicly held holding company may not make any issuance
of an ownership interest equaling 5% or greater of the gaming licensee or
holding company (ownership of the Hilton PRIDES may constitute ownership of
Hilton Common Stock for this purpose) or (c) a person or entity may not pledge
or hypothecate an ownership interest in a gaming licensee that is not a
publicly held company or a holding company that is not a publicly held
company; provided that no such ownership interest may be transferred
voluntarily or involuntarily pursuant to any pledge without separate notice to
the MGC as required by the regulations; (iii) not later than 7 days after the
consummation of any transfer of ownership interest in a publicly held gaming
licensee, if such transfer would result in an entity or group of entities
acting in concert owning, directly or indirectly, a total amount of ownership
interest equaling 5% or greater of the ownership interest in the gaming
licensee, the transferee must report such consummation to the MGC; (iv) no
withdrawals of capital, loans, advances or distribution of any type of assets
in excess of 5% of accumulated earnings of a licensee to anyone with an
ownership interest in the licensee may occur without prior MGC approval; and
(v) the MGC may take action against a licensee or other person who has been
disciplined in another jurisdiction for gaming related activity.
GENERAL COMPARISON OF STOCKHOLDERS RIGHTS
At the Effective Time, the holders of Bally Common Stock will become holders
of Hilton Common Stock and their rights will be governed by Hilton's
Certificate of Incorporation and Bylaws and by the DGCL, and the holders of
Bally PRIDES will become holders of Hilton PRIDES and their rights will be
governed by Hilton's Certificate of Incorporation and Bylaws and by the DGCL.
The following are summaries of certain differences between the rights of
holders of Bally Common Stock and holders of Hilton Common Stock. The rights
of holders of the Hilton PRIDES, which are substantially identical to the
rights of the holders of the Bally PRIDES, are described above under
"Description of Hilton PRIDES." Because each of Bally and Hilton are organized
under the DGCL, any differences in the rights of their stockholders arise
solely from differences in their respective Certificates of Incorporation and
Bylaws.
The following discussion is not intended to be complete and is qualified in
its entirety by reference to the DGCL, Bally's Restated Certificate of
Incorporation and Bylaws and Hilton's Certificate of Incorporation and Bylaws.
Authorized Capital. As of the date hereof, the total number of authorized
shares of capital stock of Hilton is 100,000,000 shares, consisting of
90,000,000 shares of Hilton Common Stock and 10,000,000 shares of Hilton
Preferred Stock and the total number of authorized shares of capital stock of
Bally is 110,000,000 shares, consisting of 80,000,000 shares of Bally Common
Stock and 30,000,000 shares of preferred stock, par value $1.00 per share, of
Bally, of which 15,525,000 shares are designated Bally PRIDES. Assuming
consummation of the Merger and approval of the Related Hilton Proposals,
immediately following the Merger, the total number of authorized shares of
capital stock of Hilton will be 424,832,700 shares, consisting of 400,000,000
shares of Hilton Common Stock and 24,832,700 shares of Hilton Preferred Stock,
14,832,700 shares of which shall be designated as Hilton PRIDES.
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Special Meetings of Stockholders. Bally's Bylaws provide that its Board of
Directors, Chairman of the Board of Directors or President may call a special
meeting of the stockholders. Hilton's Bylaws provide that special meetings of
the stockholders may be called only by the Chairman of the Board or the Board
of Directors pursuant to a resolution approved by a majority of the entire
Board of Directors.
Number and Election of Directors. Bally's Bylaws provide for a Board of
Directors consisting of not fewer than three (3) directors, elected by a
plurality of votes cast at the stockholders' annual meeting at which each
director's term expires. The exact number of directors is to be determined by
an 80% vote of the then authorized number of directors or by an affirmative
vote of the holders of at least 80% of the voting stock of Bally.
Hilton's Bylaws currently provide for a Board of Directors consisting of
eleven (11) directors. At the stockholders' annual meeting, each Hilton
director whose term expires at that meeting must be elected by a plurality
vote of the stockholders. However, Hilton's Bylaws provide that no share of
stock shall be voted on at any election of directors that was transferred
within twenty (20) days prior to such election.
Classes and Terms of Directors. Bally's Restated Certificate of
Incorporation and Bylaws establish three (3) classes of directors, as nearly
equal in number of directors as possible, with each director elected for a
term expiring at the third succeeding annual meeting of stockholders after his
or her election. Hilton's Bylaws similarly provide that the Board of Directors
be classified into three (3) classes, each class of directors holding office
for a term of three (3) years.
Removal of Directors. Bally's Restated Certificate of Incorporation provides
that a director may only be removed, with or without cause, at any time by the
vote or consent of the holders of at least 80% of the shares of voting stock
of Bally, voting as a single class. Hilton's Bylaws provide that any director
may be removed, with or without cause, by the affirmative vote of the holders
of at least 75% of the votes represented by all then outstanding shares of
voting stock, voting as a single class.
Notices of Director Nominations and Stockholder Business. Bally's Bylaws
provide that to be timely, a stockholder's notice of nomination or proposed
business must be received not fewer than 40 nor more than 65 calendar days
before the annual meeting. If the public announcement of such meeting is not
made at least 50 days before the date of such meeting, the stockholder must
make a request not later than 10 calendar days after the announcement of the
meeting. Hilton's Bylaws provide that a stockholder's notice of a nomination
or of a proposed business to be brought before an annual meeting must be
received by the Secretary not fewer than 60 calendar days prior to the
meeting.
Business Combination Provisions. Each of Hilton and Bally is subject to
Section 203 of the DGCL. In addition, Hilton's Certificate of Incorporation
requires that combination transactions with any individual, firm, corporation
or other entity (other than Hilton or any subsidiary of Hilton) that owns 10%
or more of Hilton's voting stock be approved by the affirmative vote of at
least 75% of the voting power of the then outstanding capital stock of Hilton,
except that, if (i) such business combination transaction is approved by a
majority of disinterested directors of Hilton or (ii) certain enumerated price
and procedural requirements are satisfied, then only the affirmative vote of a
majority of the outstanding voting stock of Hilton is required for approval.
Under Bally's Restated Certificate of Incorporation: (i) any merger or
consolidation of Bally or a subsidiary of Bally with; (ii) any sale, lease,
exchange or other disposition by Bally or a subsidiary of Bally of assets
constituting all or substantially all the assets of Bally and its
subsidiaries, taken as a whole, to; or (iii) any issuance or transfer by Bally
or any subsidiary of Bally of any voting securities of Bally (except for
voting securities issued pursuant to a stock option, purchase, bonus or other
plan) to, in each case, an entity or person holding 5% or more of the voting
stock of Bally, shall require the affirmative vote of at least 80% of the
voting power of the then outstanding capital stock of Bally; provided that
such a vote is not required if the Board of Directors of Bally shall have (i)
by resolution approved a memorandum of understanding with such 5% holder with
respect to, and substantially consistent with the transaction prior to the
time such entity became a 5% holder
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or (ii) by resolution adopted by more than 80% of the directors of Bally then
in office approved such transaction at any time prior to its consummation.
Amendment of Certificate of Incorporation and Bylaws. Under Bally's Restated
Certificate of Incorporation, the provisions thereof relating to: (i)
amendments to Bally's Restated Certificate of Incorporation; (ii) merger,
consolidation or sale of substantially all the assets of Bally or a subsidiary
of Bally and issuance or transfer of voting securities of Bally; and (iii)
removal of directors may not be amended except with the vote of stockholders
representing 80% of the voting power of Bally, voting together as a single
class. Amendments with respect to other provisions of Bally's Restated
Certificate of Incorporation require a majority vote. Stockholders may also
amend the Bylaws of Bally by a majority vote.
Hilton's Certificate of Incorporation provides that the provisions contained
therein and in the Bylaws relating to the number, election and terms of
directors, nominating procedures, the bringing of stockholder business,
removal of directors, filling of vacancies, amending the Bylaws and certain
other matters cannot be amended by the stockholders without the affirmative
vote of at least 75% of Hilton's voting stock, voting together as a single
class.
Dividend Payment, Liquidation Preference and Redemptions. Bally's Restated
Certificate of Incorporation permits the Board of Directors of Bally to issue
shares of preferred stock in such series and with such designations and
relative rights and preferences as may be determined by resolution. Pursuant
to Bally's Restated Certificate of Incorporation, dividends on outstanding
shares of Bally Preferred Stock shall be declared and paid, or set apart for
payment, before any dividends shall be declared and paid, or set apart for
payment, on the outstanding shares of Bally Common Stock with respect to the
same dividend period. Bally's Restated Certificate of Incorporation further
provides that the Board of Directors of Bally may, in establishing any series
of Bally Preferred Stock, establish further limitations on the payment of
dividends on Bally Common Stock while any dividends on shares of preferred
stock are accrued and unpaid.
Hilton's Certificate of Incorporation also provides that the Board of
Directors shall have authority to issue shares of Hilton Preferred Stock from
time to time on such terms as it may determine, and to divide the Hilton
Preferred Stock into one or more classes or series and, in connection with the
creation of any such class or series, to fix by the resolution the
designation, powers and relative, participating, optional or other special
rights of such class or series, and the qualifications, limitations, or
restrictions thereof, to the fullest extent permitted by law.
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OTHER PROPOSALS RELATING TO
THE HILTON SPECIAL MEETING
APPROVAL OF AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES
OF HILTON COMMON STOCK AND HILTON PREFERRED STOCK
AND THE DESIGNATION OF HILTON PRIDES
The Hilton Board has approved and adopted, subject to stockholder approval,
an amendment (the "Authorized Shares Amendment") to the Hilton Certificate of
Incorporation to: (i) increase the authorized number of shares of Hilton
Common Stock from 90,000,000 shares to 400,000,000 shares; (ii) increase the
authorized number of shares of Hilton Preferred Stock from 10,000,000 shares
to 24,832,700 shares; and (iii) designate 14,832,700 shares of Hilton
Preferred Stock as Hilton PRIDES.
Reasons for Amendment. The purpose of the Authorized Shares Amendment is to:
(i) authorize a sufficient number of shares of Hilton Common Stock to effect
the Stock Split; (ii) make a sufficient number of authorized shares of Hilton
Common Stock available after consummation of the Merger to provide flexibility
for future issuance of Hilton Common Stock for business and financial
purposes; and (iii) make a sufficient number of authorized shares of Hilton
Preferred Stock available for the designation and issuance of up to 14,832,700
shares of Hilton PRIDES required to be issued in connection with the Merger.
Except for issuance of Hilton Common Stock and Hilton PRIDES in connection
with the Merger, Hilton does not have any immediate plans, agreements,
arrangements, commitments or understandings with respect to the issuance of
any of the remaining additional shares of Hilton Common Stock or Hilton
Preferred Stock which would be authorized by the Authorized Shares Amendment.
Principal Effects. The additional shares of Hilton Common Stock to be
authorized by the Authorized Shares Amendment would have rights identical to
the currently outstanding Hilton Common Stock. Adoption of the Authorized
Shares Amendment would not affect the rights of the holders of currently
outstanding Hilton Common Stock, except for effects incidental to increasing
the number of shares of Hilton Common Stock outstanding upon the issuance of
newly authorized shares of Hilton Common Stock. If the Authorized Shares
Amendment is approved by the Hilton stockholders, it will become effective
upon the filing of a Certificate of Amendment to Hilton's Certificate of
Incorporation with the Secretary of State of the State of Delaware, which is
expected to be effective prior to the close of business on the date of the
Hilton Special Meeting and, in any event, prior to the consummation of the
Merger.
The proposal to amend Hilton's Certificate of Incorporation will be voted
upon by the stockholders of Hilton separately from each of the Hilton Merger
Proposal and the Related Hilton Proposals. HOWEVER, THE APPROVAL OF THE HILTON
MERGER PROPOSAL AND APPROVAL OF THE STOCK SPLIT IS CONDITIONED UPON APPROVAL
OF THE AUTHORIZED SHARES AMENDMENT BY THE STOCKHOLDERS OF HILTON. ACCORDINGLY,
A VOTE AGAINST THE PROPOSAL TO AMEND HILTON'S CERTIFICATE OF INCORPORATION
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE HILTON MERGER PROPOSAL AND
PROPOSAL TO EFFECT THE STOCK SPLIT. THE HILTON BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT HILTON STOCKHOLDERS VOTE "FOR" APPROVAL OF THE AUTHORIZED
SHARES AMENDMENT.
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APPROVAL OF A FOUR-FOR-ONE SPLIT OF
HILTON COMMON STOCK
The Board of Directors of Hilton has approved and adopted, subject to
stockholder approval, an amendment to Hilton's Certificate of Incorporation to
effect the Stock Split, pursuant to which each share of Hilton Common Stock
outstanding immediately prior to the Hilton Special Meeting will be subdivided
into four shares of Hilton Common Stock.
Reasons for Stock Split. The objectives of the Stock Split are to shift the
trading range of the Hilton Common Stock to a level that will facilitate
increased trading activity and encourage round lot trading, which may be
expected to increase the liquidity and broaden the marketability of Hilton
Common Stock. For these reasons, the Board has determined that the Stock Split
would be in the best interests of Hilton and its stockholders.
Principal Effects. The Stock Split will not affect the stockholders'
proportionate equity interest in Hilton or the rights of the stockholders with
respect to each share of Hilton Common Stock as to voting, dividends and other
matters. Since there is no consideration received by Hilton in connection with
the Stock Split, the overall capital of Hilton will not change solely as a
result of the Stock Split.
Effective Date; Delivery of New Certificates. If the Stock Split is approved
by the stockholders of Hilton, it will become effective upon the filing of a
Certificate of Amendment to Hilton's Certificate of Incorporation with the
Secretary of State of the State of Delaware which is expected to be effective
prior to the close of business on the date of the Hilton Special Meeting (the
"Stock Split Record Date"). Subject to such approval, on or about October 24,
1996 (the "Stock Split Payment Date"), Hilton will mail a certificate
representing three (3) additional shares of Hilton Common Stock for each share
held on the Stock Split Record Date to holders of Hilton Common Stock as of
the Stock Split Record Date. Stockholders should retain their stock
certificates representing shares of Hilton Common Stock and should not send
them to Hilton or its transfer agent. In addition, Hilton stockholders
contemplating a sale between the Stock Split Record Date and the Stock Split
Payment Date should consult their brokers as to their entitlement to the split
shares.
Tax Consequences. The following discussion is included for general
information only. Hilton stockholders should consult their personal tax
advisors to determine the particular consequences of the Stock Split,
including the applicability and effect of Federal, state, local and foreign
income and other taxes. No gain or loss will be recognized for Federal income
tax purposes on the receipt of additional shares of Hilton Common Stock in the
Stock Split. A stockholder's tax basis in the shares of Hilton Common Stock
held immediately prior to the Stock Split will be allocated proportionately
among the original shares and the additional shares issued as a result of the
Stock Split. The holding period of the shares of Hilton Common Stock received
by a holder will include the period during which the shares of Hilton Common
Stock owned immediately prior to the Stock Split were held.
THE HILTON BOARD UNANIMOUSLY RECOMMENDS THAT HILTON STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE PROPOSAL TO AMEND HILTON'S CERTIFICATE OF INCORPORATION TO
EFFECT THE STOCK SPLIT.
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APPROVAL OF THE ISSUANCE OF
HILTON COMMON STOCK AND HILTON PRIDES
PURSUANT TO THE MERGER AGREEMENT
At the Hilton Special Meeting, Hilton stockholders will be asked to consider
and vote upon a proposal to approve the issuance pursuant to the Merger
Agreement of shares of Hilton Common Stock (estimated to be up to
approximately 62,273,733 shares, see "The Merger Agreement--Conversion of
Shares"), and 14,832,700 shares of Hilton PRIDES. As of August 15, 1996,
51,620,865 shares of Bally Common Stock and 14,832,700 shares of Bally PRIDES
were issued and outstanding and 10,652,868 shares of Bally Common Stock were
issuable pursuant to outstanding options and agreements and securities
convertible or exchangeable into shares of Bally Common Stock. Based upon such
number of shares, it is currently anticipated that up to approximately
62,273,733 shares of Hilton Common Stock (see "The Merger Agreement--
Conversion of Shares") and 14,832,700 shares of Hilton PRIDES will be issued
upon consummation of the Merger, after giving effect to the Stock Split.
Reason for Authorization. The rules of the NYSE require the affirmative vote
of a majority of the votes cast in person or by proxy at the Hilton Special
Meeting to approve the issuance of shares of Hilton Common Stock and Hilton
PRIDES pursuant to the Merger Agreement.
The Proposal to authorize the issuance of shares of Hilton Common Stock and
shares of Hilton PRIDES will be voted on upon by the stockholders of Hilton
separately from the Hilton Merger Proposal. HOWEVER, THE APPROVAL OF THE
HILTON MERGER PROPOSAL IS CONDITIONED UPON APPROVAL OF THE ISSUANCE OF SHARES
OF HILTON COMMON STOCK AND HILTON PRIDES PURSUANT TO THE MERGER. ACCORDINGLY,
A VOTE AGAINST THE PROPOSAL TO ISSUE ADDITIONAL SHARES OF HILTON COMMON STOCK
AND HILTON PRIDES WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE HILTON
MERGER PROPOSAL.
THE HILTON BOARD UNANIMOUSLY RECOMMENDS THAT THE HILTON STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE ISSUANCE OF HILTON COMMON STOCK AND HILTON PRIDES.
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EXPERTS
The consolidated financial statements of Hilton incorporated by reference
into this Joint Proxy Statement/Prospectus have been audited by Arthur
Andersen LLP, independent certified public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
The consolidated financial statements appearing in Bally's Annual Report on
Form 10-K for the year ended December 31, 1995, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
LEGAL COUNSEL
The validity of the shares of Hilton Common Stock and Hilton PRIDES to be
issued pursuant to the Merger will be passed upon by, and an opinion with
respect to certain tax consequences of the Merger to Hilton will be rendered
to Hilton by, Latham & Watkins, Los Angeles, California.
An opinion with respect to certain tax consequences of the Merger to holders
of Bally Common Stock and Bally PRIDES will be rendered to Bally by Weil,
Gotshal & Manges LLP, New York, New York.
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INDEX TO APPENDICES
<TABLE>
<CAPTION>
APPENDICES PAGE
---------- ----
<C> <S> <C>
A Agreement and Plan of Merger dated as of June 6, 1996, as
amended by First Amendment to Merger Agreement dated as of
August 15, 1996 by and between Hilton Hotels Corporation and
Bally Entertainment Corporation............................. A-1
Opinions of Donaldson, Lufkin & Jenrette Securities
B Corporation................................................. B-1
C Opinion of Goldman, Sachs & Co............................... C-1
Opinion of Merrill Lynch, Pierce, Fenner & Smith
D Incorporated................................................ D-1
E Section 262 of the Delaware General Corporation Law Relating
to Dissenter's Rights....................................... E-1
</TABLE>
<PAGE>
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- --------------------------------------------------------------------------------
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
HILTON HOTELS CORPORATION
AND
BALLY ENTERTAINMENT CORPORATION
DATED AS OF JUNE 6, 1996,
AND AMENDED AS OF AUGUST 15, 1996
COMPOSITE
AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
ARTICLE I
DEFINITIONS
<C> <S> <C>
1.1 Definitions.................................................. A-1
1.2 Other Terms.................................................. A-5
1.3 Other Definitional Provisions................................ A-5
ARTICLE II
THE MERGER
2.1 Merger....................................................... A-6
2.2 Closing...................................................... A-6
2.3 Effective Time............................................... A-6
2.4 Effects of the Merger........................................ A-6
2.5 Certificate of Incorporation and By-laws..................... A-6
2.6 Directors.................................................... A-6
2.7 Officers..................................................... A-6
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock...................................... A-6
3.2 Exchange of Certificates..................................... A-9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization, Standing and Corporate Power................... A-11
4.2 Subsidiaries................................................. A-11
4.3 Capitalization............................................... A-11
4.4 Authority; Enforceability; No Conflicts; and Consents........ A-12
4.5 Vote Required; State Takeover Statutes; Rights Agreement..... A-13
4.6 Compliance with Applicable Laws.............................. A-13
4.7 Company SEC Documents; Undisclosed Liabilities............... A-14
4.8 Absence of Changes or Events................................. A-15
4.9 Litigation................................................... A-15
4.10 Taxes........................................................ A-15
4.11 Employee Benefits............................................ A-17
4.12 Title to Properties.......................................... A-17
4.13 Insurance.................................................... A-18
4.14 Brokers and Intermediaries................................... A-18
4.15 Opinion of Financial Advisor................................. A-18
4.16 Company Rights Agreement..................................... A-18
4.17 Transactions With Affiliates................................. A-18
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
<C> <S> <C>
5.1 Organization, Standing and Corporate Power of Acquiror...... A-18
5.2 Capitalization.............................................. A-18
5.3 Authority; Enforceability; No Conflicts..................... A-19
5.4 The Vote Required; Ownership of Company Capital Stock....... A-20
5.5 Acquiror SEC Documents; Undisclosed Liabilities............. A-20
5.6 Absence of Changes or Events................................ A-21
5.7 Litigation.................................................. A-21
5.8 Taxes....................................................... A-21
5.9 Compliance with Applicable Laws............................. A-21
5.10 ERISA Compliance............................................ A-22
5.11 Brokers..................................................... A-22
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Conduct of Business of the Company.......................... A-22
6.2 Conduct of Business of Acquiror............................. A-24
6.3 Access to Information....................................... A-25
ARTICLE VII
ADDITIONAL AGREEMENTS
Preparation of Form S-4 and the Proxy Statement/Prospectus;
7.1 Stockholders' Meeting...................................... A-26
7.2 Letter of the Company's Accountants......................... A-27
7.3 Letter of Acquiror's Accountants............................ A-27
7.4 Reasonable Best Efforts; Notification....................... A-27
7.5 Approval of Gaming Commissions; Regulatory Matters.......... A-28
7.6 Supplemental Disclosure..................................... A-28
7.7 Announcements............................................... A-28
7.8 No Solicitation............................................. A-29
7.9 Indemnification; Directors' and Officers' Insurance......... A-29
7.10 NYSE Listing................................................ A-30
7.11 Affiliates.................................................. A-30
7.12 Rights Agreement............................................ A-31
7.13 Employee Benefits........................................... A-31
7.14 Tax Treatment............................................... A-31
7.15 Transfer Taxes.............................................. A-31
7.16 Subsidiary Preferred Stock.................................. A-31
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Effect the Merger.. A-32
8.2 Conditions of Obligations of Acquiror....................... A-32
8.3 Conditions of Obligation of the Company..................... A-33
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
ARTICLE IX
TERMINATION AND AMENDMENT
<C> <S> <C>
9.1 Termination.................................................. A-34
9.2 Effect of Termination........................................ A-35
9.3 Fees and Expenses............................................ A-35
9.4 Amendment.................................................... A-35
9.5 Extension; Waiver............................................ A-36
ARTICLE X
GENERAL PROVISIONS
10.1 Effectiveness of Representations, Warranties and Agreements.. A-36
10.2 Expenses..................................................... A-36
10.3 Governing Law................................................ A-36
10.4 Notices...................................................... A-36
10.5 Entire Agreement............................................. A-37
10.6 Disclosure Schedule.......................................... A-37
10.7 Headings; References......................................... A-37
10.8 Counterparts................................................. A-37
10.9 Parties in Interest; Assignment.............................. A-37
10.10 Severability; Enforcement.................................... A-37
10.11 Specific Performance......................................... A-38
</TABLE>
EXHIBIT A--Form of Opinion of Latham & Watkins
EXHIBIT B--Form of Opinion of Weil, Gotshal & Manges LLP
EXHIBIT C--Form of Tax Certificate of the Company
EXHIBIT D--Form of Tax Certificate of Acquiror
EXHIBIT E--Form of Tax Certificate of Certain Stockholders of the Company
EXHIBIT F--Form of Affiliate Letter
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 6, 1996, among HILTON HOTELS
CORPORATION, a Delaware corporation ("Acquiror"), and BALLY ENTERTAINMENT
CORPORATION, a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, the Company and Acquiror will enter into a business combination
transaction pursuant to which the Company will merge with and into Acquiror
(the "Merger"), with Acquiror continuing as the surviving corporation (the
"Surviving Corporation");
WHEREAS, the respective Boards of Directors of Acquiror and the Company have
determined that the Merger would be fair to and in the best interests of their
respective stockholders, and such Boards of Directors have approved this
Agreement and the transactions contemplated hereby;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"); and
WHEREAS, Acquiror and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Acquiror Disclosure Schedule" shall have the meaning set forth in
Section 10.6.
"Acquiror SEC Documents" shall have the meaning set forth in Section 5.5.
"Acquiror Common Stock" shall have the meaning set forth in Section
3.1(c).
"Acquiror Preferred Stock" shall have the meaning set forth in Section
5.2.
"Acquisition Proposal" shall have the meaning set forth in Section
7.8(c).
"Acquiror Rights" shall have the meaning set forth in Section 3.1(c).
"Acquiror Rights Agreement" shall have the meaning set forth in Section
3.1(c).
"Acquiror Significant Subsidiaries" shall mean any Subsidiary of Acquiror
that constitutes a "Significant Subsidiary" of Acquiror within the meaning
of Regulation S-X of the SEC.
"Acquiror Stock Options" shall have the meaning set forth in Section 5.2.
"Acquiror Stockholder Approval" shall have the meaning set forth in
Section 5.3(a).
"Acquiror Stockholders' Meeting" shall have the meaning set forth in
Section 7.1(e).
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such other Person.
A-1
<PAGE>
"Applicable Laws" shall mean, with respect to any Person, all statutes,
laws, ordinances, rules, orders and regulations of any Governmental
Authority applicable to such Person and its business, properties and
assets.
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required
by law to close.
"Cash Consideration" shall have the meaning set forth in Section 3.1(c).
"Certificate of Merger" shall have the meaning set forth in Section 2.3.
"Certificates" shall have the meaning set forth in Section 3.2(b).
"Closing" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the fourth recital of this
Agreement.
"Common Conversion Number" shall equal 0.25, as may be adjusted pursuant
to Sections 3.1(c) and 3.1(d).
"Company Capital Stock" shall mean the Company Common Stock, the Series D
Preferred and the PRIDES.
"Company Common Stock" shall have the meaning set forth in Section
3.1(c).
"Company Disclosure Schedule" shall have the meaning set forth in Section
10.6.
"Company Preferred Stock" shall have the meaning set forth in Section
4.3.
"Company Representatives" shall have the meaning set forth in Section
7.8.
"Company Rights" shall have the meaning set forth in Section 4.3.
"Company SEC Documents" shall have the meaning set forth in Section 4.7.
"Company Significant Subsidiary" shall mean any Subsidiary of the Company
that constitutes a "Significant Subsidiary" of the Company within the
meaning of Regulation S-X of the SEC.
"Company Stockholder Approval" shall have the meaning set forth in
Section 4.4(a).
"Company Stockholders' Meeting" shall have the meaning set forth in
Section 7.1(d).
"Confidentiality Agreement" shall have the meaning set forth in Section
6.3(c).
"Contamination" shall mean the introduction into the environment
(including the land, surface water, ground water, underlying or in
proximity to any Real Property and the ambient air above or in the
proximity to any Real Property) of any contaminant, pollutant or other
toxic or hazardous substance or waste as those terms are defined in
applicable Environmental Laws (whether or not upon the Real Property or
other property used by the Company or any of its Subsidiaries and whether
or not such pollution, when it occurred, violated any Environmental Law) as
a result of any actual or threatened spill, discharge, leak, emission,
escape, injection, dumping or release of any kind of any substance, in
violation of any Environmental Law, or as a result of which the Company or
any of its Subsidiaries has or is reasonably likely to become liable to any
person or by reason of which the Real Property or any other assets of the
Company or any of its Subsidiaries is reasonably likely to suffer or be
subjected to any Encumbrance or claim.
"Convertible Debentures" shall have the meaning set forth in Section 4.3.
"Determination Price" shall mean the average of the daily high and low
sales prices of the Acquiror Common Stock (regular way) as shown on the New
York Stock Exchange Composite Tape (as reported by The Wall Street Journal
or, if not reported thereby, any other authoritative source) for the ten
consecutive
A-2
<PAGE>
Trading Days ending on the third Trading Day prior to the Closing Date, as
such Determination Price may be adjusted pursuant to Section 3.1(d).
"DGCL" shall mean the Delaware General Corporation Law.
"DOJ" shall mean the Department of Justice.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Employee Benefit Plans" shall have the meaning set forth in Section
4.11(a).
"Encumbrances" shall mean any and all mortgages, security interests,
liens, claims, pledges, restrictions, leases, title exceptions, rights of
others, charges or other encumbrances.
"Environmental Laws" shall have the meaning set forth in Section 4.6(c).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
and the applicable regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Agent" shall have the meaning set forth in Section 3.2(a).
"Exchange Fund" shall have the meaning set forth in Section 3.2(a).
"Form S-4" shall have the meaning set forth in Section 5.3(c).
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall mean generally accepted accounting principles in effect in
the United States of America as of the date of the applicable
determination.
"Gaming Commissions" shall mean, collectively, the Nevada State Control
Board, the Nevada Gaming Commission, the New Jersey Casino Control
Commission, the Mississippi Gaming Commission and the Louisiana Riverboat
Gaming Commission.
"Gaming Laws" shall mean any Federal, state, local or foreign statute,
ordinance, rule, regulation, policy, permit, consent, approval, license,
judgment, order, decree, injunction or other authorization governing or
relating to the casino and gaming and racetrack activities and operations
of the Company or Acquiror, as applicable, including (i) the New Jersey
Casino Control Act and the rules and regulations promulgated thereunder
(the "New Jersey Gaming Laws"), (ii) the Nevada Gaming Control Act and the
rules and regulations promulgated thereunder, and the Clark County, Nevada
Code and the rules and regulations promulgated thereunder (the "Nevada
Gaming Laws"), (iii) the Mississippi Gaming Control Act and the rules and
regulations promulgated thereunder (the "Mississippi Gaming Laws"), and
(iv) the Louisiana Riverboat Economic Development and Gaming Act and the
rules and regulations promulgated thereunder (the "Louisiana Gaming Laws").
"Gains Tax" shall have the meaning set forth in Section 4.4(c).
"Governmental Authority" shall mean any foreign, Federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality.
"Hazardous Material" shall have the meaning set forth in Section 4.6(d).
"HSR Act" shall have the meaning set forth in Section 4.4(c).
"Improvements" shall mean, with respect to any Real Property, all
buildings, fixtures, improvements and facilities located on or attached to
such Real Property or owned or leased by the Company or any of its
Subsidiaries and used in, on or at such Real Property, together with any
and all loading docks, parking lots, garages, and other facilities serving
any such buildings; and landscaping and site improvements.
A-3
<PAGE>
"Indemnified Liabilities" shall have the meaning set forth in Section
7.9(a).
"Indemnified Parties" shall have the meaning set forth in Section 7.9(a).
"IRS" means the United States Internal Revenue Service.
"Legal Proceedings" means any judicial, administrative or arbitral
actions, suits, proceedings (public or private) or governmental
proceedings.
"Material Adverse Effect" shall mean, with respect to any Person, any
change, occurrence or effect that is or is reasonably likely to be
materially adverse to the assets, business, results of operations or
condition (financial or otherwise) of such party and its Subsidiaries taken
as a whole.
"Merger" shall have the meaning set forth in the first recital to this
Agreement.
"Merger Consideration" shall have the meaning set forth in Section
3.2(b).
"New PRIDES" shall mean Acquiror's Preferred Redeemable Increased
Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock; the
rights, preferences and terms of which shall be the same as those of the
PRIDES, except that the issuer thereof shall be Acquiror, the vote per
share of New PRIDES shall be the product of 0.80 and the Common Conversion
Number, and the conversion and redemption terms shall reflect the
adjustments provided for in Section 3(e) of the Certificate of
Designations, Preferences, Rights and Limitations of PRIDES.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Option" shall have the meaning set forth in Section 3.1(f).
"Permits" shall have the meaning set forth in Section 4.6(a).
"Permitted Encumbrances" shall mean only the following title exceptions:
(a) taxes either not delinquent or being diligently contested; (b)
mechanics', materialmen's or similar statutory liens being diligently
contested; (c) other exceptions that do not and would not, individually or
in the aggregate, have a Material Adverse Effect with respect to the
Company; and (d) Encumbrances related to indebtedness disclosed in the
Company SEC Documents filed and publicly available prior to the date of
this Agreement.
"Person" shall mean an individual, corporation, partnership, trust or
unincorporated organization or a government or any agency or political
subdivision thereof.
"PRIDES" shall mean the Company's Preferred Redeemable Increased Dividend
Equity Securities, 8% PRIDES, Convertible Preferred Stock.
"Proxy Statement/Prospectus" shall mean the joint proxy statement
relating to the Company Stockholder Approval and Acquiror Stockholder
Approval and the prospectus relating to the issuance of shares of the
Acquiror Common Stock and New PRIDES in connection with the consummation of
the transactions contemplated by this Agreement, as such joint proxy
statement and prospectus may be amended or supplemented from time to time.
"Real Property" shall have the meaning set forth in Section 4.12.
"SAR" shall have the meaning set forth in Section 3.1(f).
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SEC" shall mean the Securities and Exchange Commission.
"Series D Preferred" shall mean the Company's Series D Convertible
Exchangeable Preferred Stock.
"Stock Consideration" shall have the meaning set forth in Section 3.1(c).
"Subsidiary" shall mean, with respect to any Person, (i) each
corporation, partnership, joint venture, limited liability company or other
legal entity of which such Person owns, either directly or indirectly, 50%
A-4
<PAGE>
or more of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or
similar governing body of such corporation, partnership, joint venture or
other legal entity and (ii) each partnership or limited liability company
in which such Person or another Subsidiary of such Person is the general
partner, managing partner or other otherwise controls (including, without
limitation, Belle of Orleans, LLC and Bally's Olympia Limited Partnership).
"Subsidiary Preferred Stock" shall have the meaning set forth in Section
4.3.
"Surviving Corporation" shall have the meaning set forth in the first
recital of this Agreement.
"Tax" or "Taxes" shall mean all taxes, charges, fees, imposts, levies,
gaming or other assessments, including, without limitation, all net income,
gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance,
stamp, occupation, property and estimated taxes, customs duties, fees,
assessments and charges of any kind whatsoever, together with any interest
and any penalties, fines, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) and shall include any transferee
liability in respect of Taxes, any liability in respect of Taxes imposed by
contract, tax sharing agreement, tax indemnity agreement or any similar
agreement.
"Tax Return" shall mean any report, return, document, declaration or any
other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including
without limitation, information returns, any document with respect to or
accompanying payments or estimated Taxes, or with respect to or
accompanying requests for the extension of time in which to file any such
report, return document, declaration or other information.
"Termination Date" shall have the meaning set forth in Section 9.1(d).
"Termination Notice" shall have the meaning set forth in Section 3.1(d).
"Third Party" shall mean a party or parties unaffiliated with either the
Company or Acquiror.
"Top-Up Intent Notice" shall have the meaning set forth in Section
3.1(c).
"Trading Day" shall mean a day on which the NYSE is open for the
transaction of business.
1.2 Other Terms. Other terms may be defined elsewhere in the text of this
Agreement and, unless otherwise indicated, shall have such meaning throughout
this Agreement.
1.3 Other Definitional Provisions. (a) The words "hereof," "herein," and
"hereunder" and words of similar import, when used in this Agreement, shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement.
(b) The terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States dollars.
A-5
<PAGE>
ARTICLE II
THE MERGER
2.1 Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the DGCL, the Company shall be merged with
and into Acquiror at the Effective Time. Following the Merger, the separate
corporate existence of the Company shall cease and Acquiror shall continue as
the Surviving Corporation and shall succeed to and assume all the rights and
obligations of the Company in accordance with the DGCL.
2.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
9.1, the closing of the Merger (the "Closing") will take place at 10:00 a.m.,
New York City time, on the third Business Day following the date on which the
last of the conditions set forth in Article VIII is fulfilled or waived (the
"Closing Date"), at the offices of Weil, Gotshal & Manges, 767 Fifth Avenue,
New York, New York 10153, unless another date, time or place is agreed to by
the parties hereto.
2.3 Effective Time. On the Closing Date, or as soon as practicable
thereafter, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") executed in
accordance with the relevant provisions of the DGCL with the Secretary of
State of the State of Delaware. The Merger shall become effective at such time
as the Certificate of Merger is so duly filed, or at such time thereafter as
is provided in the Certificate of Merger (the "Effective Time").
2.4 Effects of the Merger. The Merger shall have the effects as set forth in
Section 259 of the DGCL.
2.5 Certificate of Incorporation and By-laws. (a) The Certificate of
Incorporation of Acquiror, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
after the Effective Time, until duly amended in accordance with its terms and
the DGCL.
(b) The By-laws of Acquiror, as in effect immediately prior to the Effective
Time, shall be the By-laws of the Surviving Corporation, until thereafter
amended as provided therein, by Applicable Law or the Certificate of
Incorporation of the Surviving Corporation.
2.6 Directors. The directors of Acquiror immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, until the earlier of
their resignations or removal or until their respective successors are duly
elected and qualified, as the case may be. Immediately after the Effective
Time, Acquiror shall take all action necessary to elect one individual
designated by the Board of Directors of the Company and reasonably acceptable
to Acquiror, as director of the Surviving Corporation.
2.7 Officers. The officers of Acquiror immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any shares of Company
Capital Stock or the holder of any shares of the capital stock of Acquiror:
(a) Capital Stock of Acquiror. Each share of the capital stock of
Acquiror issued and outstanding immediately prior to the Effective Time
shall remain an issued and outstanding share of the same class of capital
stock of the Surviving Corporation.
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<PAGE>
(b) Cancellation of Treasury Stock and Acquiror-Owned Stock. Each share
of Company Capital Stock that is directly owned by the Company and each
share of Company Capital Stock that is directly owned by Acquiror or any
subsidiary of Acquiror shall be canceled and retired and shall cease to
exist and no consideration shall be delivered or deliverable in exchange
therefor.
(c) Conversion of Company Common Stock. (i) Subject to Section 3.3, each
share of Common Stock, par value $.66 2/3 per share ("Company Common
Stock"), of the Company, issued and outstanding immediately prior to the
Effective Time (excluding shares cancelled in accordance with Section
3.1(b)) together with the Company Rights attached thereto or associated
therewith shall be converted into the right to receive a number of fully
paid and non-assessable shares of Common Stock, par value $2.50 per share,
of Acquiror ("Acquiror Common Stock") equal to the Common Conversion Number
(the "Stock Consideration"); provided, however, that in the event the
Determination Price is less than $108 (as adjusted pursuant to Section
3.1(d), the "Target Amount"), each share of Company Common Stock shall be
converted into the right to receive a number of fully paid and non-
assessable shares of Acquiror Common Stock equal to the Common Conversion
Number plus an amount in cash, not to exceed $3.00, equal to (i) the
difference between the Target Amount and the Determination Price multiplied
by (ii) the Common Conversion Number (rounded to the nearest hundredth, or
if there shall not be a nearest hundredth, to the next highest hundredth
but in no event greater than $3.00) (the "Cash Consideration"); and,
provided, further, that in the event the Determination Price is less than
$80 (as adjusted pursuant to Section 3.1(d), the "Floor Amount"), Acquiror
shall have the right to give written notice to the Company (the "Top-Up
Intent Notice") that the board of directors of Acquiror elects to increase
the Common Conversion Number such that the product of the Common Conversion
Number and the Determination Price shall equal $20 (it being understood
that notwithstanding such increase in the Common Conversion Number, the
Cash Consideration shall remain the same). The Top-Up Intent Notice shall
be delivered to the Company no later than 2:00 p.m. on the second Business
Day prior to the Closing Date. If, in such case, Acquiror does not deliver
a Top-Up Intent Notice, the Company shall have the right to give written
notice to Acquiror (the "Termination Notice") that the Company elects to
terminate this Agreement. The Termination Notice shall be delivered to
Acquiror no later than 2:00 p.m. on the Business Day prior to the Closing
Date.
(ii) Pursuant to the Rights Agreement, dated as of July 14, 1988 (the
"Acquiror Rights Agreement"), between Acquiror and the First National Bank
of Chicago, as rights agent, one right issued under the Acquiror Rights
Agreement (an "Acquiror Right") will be attached to each share of Acquiror
Common Stock issued upon conversion of Company Common Stock in accordance
with Section 3.1(c) and all references in this Agreement to Acquiror Common
Stock shall be deemed to include the Acquiror Rights. As of the Effective
Time, all shares of Company Common Stock and all Company Rights converted
pursuant to Section 3.1(c) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Company Common
Stock and any such Company Rights shall cease to have any rights with
respect thereto, except the right to receive, upon the surrender of any
such certificates, certificates representing the shares of Acquiror Common
Stock and any cash in lieu of fractional shares of Acquiror Common Stock to
be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 3.2(e), and any dividends or other
distributions to which such holder is entitled pursuant to Section 3.2(c),
in each case without interest.
(d) Certain Adjustments and Determinations. If, between the date of this
Agreement and the Effective Time, the outstanding shares of Acquiror Common
Stock or Company Common Stock shall have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Common Conversion Number, the Determination Price,
the Target Amount and the Floor Amount specified in Section 3.1(c)
correspondingly shall be adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares. Acquiror intends to effect a 4-for-1 stock split of
Acquiror Common Stock, and upon such stock split, the Common Conversion
Number shall be 1.0 (as may
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be further adjusted pursuant to Section 3.1(c)), the Target Amount shall be
$27 and the Floor Amount shall be $20; and, in the event the Determination
Price is calculated on the basis of pre-split trading prices, the
Determination Price shall be such amount divided by four or, if the
Determination Price is calculated on the basis of pre-split and post-split
trading prices, appropriate adjustments shall be made to calculate a
comparable number.
(e) Conversion of PRIDES. Each share PRIDES issued and outstanding at the
Effective Time (other than shares to be canceled in accordance with Section
3.1(b)) shall be converted into the right to receive one validly issued,
fully paid and nonassessable share of New PRIDES, subsequent to the
Effective Time. As of the Effective Time, all such shares of PRIDES shall
no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any
such shares of PRIDES shall cease to have any rights with respect thereto,
except the right to receive the shares of New PRIDES, to be issued in
consideration thereof upon surrender of such certificate in accordance with
Section 3.2(a) and any dividends or other distributions to which such
holder is entitled to pursuant to Section 3.2(c), in each case without
interest.
(f) Stock Options; SARS. At the Effective Time, each then outstanding
option to purchase shares of Company Common Stock under the Company's 1989
Incentive Plan, 1993 Non-Employee Directors' Stock Option Plan and 1985
Incentive Plan (collectively, the "Company Stock Option Plans"), whether or
not then vested or exercisable in accordance with its terms (collectively,
the "Options"), shall become exercisable in full and shall be settled in
exchange for an amount of cash equal to the product of (1) the amount by
which (A) the sum of (i) the product of the Common Conversion Number and
the Determination Price plus (ii) the Cash Consideration (if any) exceeds
(B) the exercise price per share of such Option and (2) the number of
shares of Company Common Stock issuable pursuant to the unexercised portion
of such Option, subject to any required withholding of taxes (such amount
being hereinafter referred to as, the "Option Consideration"). At the
Effective Time, each then outstanding stock appreciation right granted by
the Company under any of the Company Stock Option Plans, whether or not
then vested or exercisable in accordance with its terms (collectively, the
"SARs"), shall become exercisable in full and shall be settled in exchange
for an amount of cash equal to the product of (1) the amount by which (A)
the sum of (i) the product of the Common Conversion Number and the
Determination Price plus (ii) the Cash Consideration (if any) exceeds (B)
the appreciation base per share of Company Common Stock for such SAR and
(2) the number of shares of Company Common Stock covered by such SAR,
subject to any required withholding of taxes (such amount being hereinafter
referred to as, the "SAR Consideration"); provided, however, that with
respect to each SAR issued in tandem with an Option, the payment pursuant
to the immediately preceding sentence with respect to the corresponding
Option shall be deemed to constitute full satisfaction and settlement of
such SAR and the holder of such SAR will be entitled to no additional
payment with respect to the SAR, and such SAR shall be cancelled.
Notwithstanding the foregoing, with respect to any person subject to
Section 16(a) of the Exchange Act, any amount of Option Consideration or
SAR Consideration, as the case may be, shall be paid as soon as practicable
after the first date payment can be made without liability to such person
under Section 16(b) of the Exchange Act. From and after the Effective Time,
the Options and SARs shall represent only the right of the holders of such
Options and SARs to receive the payments specified above upon the surrender
thereof. Upon receipt of the Option Consideration or the SAR Consideration
(if any), as the case may be, the corresponding Option or the corresponding
SAR, as the case may be, shall be canceled. The surrender of an Option or a
SAR, as the case may be, to the Company in exchange for the Option
Consideration or the SAR Consideration, as the case may be, shall be deemed
a release of any and all rights the holder had or may have had in respect
of such Option or such SAR. Except as otherwise agreed to by the parties
hereto, (i) all Company Stock Option Plans shall terminate as of the
Effective Time and the provisions in any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock of the Company or, except as set forth in Section 3.1(f) of
the Company Disclosure Schedule, any Subsidiary thereof, shall be canceled
as of the Effective Time, and (ii) the Company shall take all permitted
action necessary to ensure that following the Effective Time no participant
in any Company Stock Option Plan or other plans, programs or
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arrangements shall have any right thereunder to acquire equity securities
of the Company, the Surviving Corporation or any Subsidiary thereof and to
terminate all such plans.
3.2 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective
Time, Acquiror shall designate a bank or trust company to act as exchange
agent in the Merger (the "Exchange Agent"), and Acquiror shall deposit with
the Exchange Agent as of the Effective Time (or otherwise when requested by
the Exchange Agent from time to time in order to effect any exchange pursuant
to this Section 3.2) for the benefit of the holders of shares of Company
Common Stock and PRIDES for exchange in accordance with this Article III,
through the Exchange Agent, certificates evidencing the shares of Acquiror
Common Stock and New PRIDES issuable and the Cash Consideration (if any)
deliverable pursuant to Sections 3.1(c) and 3.1(d) in exchange for outstanding
shares of Company Common Stock and PRIDES. Such shares of Acquiror Common
Stock and PRIDES and Cash Consideration (if any), together with any dividends
or distributions with respect thereto with a record date after the Effective
Time, shall hereinafter be referred to as the "Exchange Fund." The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the shares of
Acquiror Common Stock and New PRIDES issuable and the Cash Consideration (if
any) deliverable pursuant to Sections 3.1(c) and 3.1(d) out of the Exchange
Fund.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Acquiror shall instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates that immediately prior to
the Effective Time evidenced outstanding shares of Company Capital Stock (the
"Certificates") whose shares were converted into the right to receive shares
of Acquiror Common Stock and Cash Consideration (if any) or New PRIDES, as the
case may be, pursuant to Section 3.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Acquiror reasonably may specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates evidencing
shares of Acquiror Common Stock or New PRIDES, as the case may be, and payment
of Cash Consideration, if applicable. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other customary documents as may be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor (A) a certificate evidencing that number of whole shares of
Acquiror Common Stock or New PRIDES, as applicable, that such holder has the
right to receive pursuant to the provisions of Section 3.1, (B) in the case of
Acquiror Common Stock, payment evidencing the Cash Consideration (if any) and
cash in lieu of fractional shares of Acquiror Common Stock to which such
holder is entitled pursuant to Sections 3.1(c) and 3.2(e), and (C) any
dividends or other distributions to which such holder is entitled pursuant to
Section 3.2(c) (the shares of Acquiror Common Stock or New PRIDES, as the case
may be, cash, dividends and distributions described in clauses (A), (B) and
(C) being hereinafter collectively, the "Merger Consideration"), and the
Certificates so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Capital Stock that is not
registered in the transfer records of the Company, certificates evidencing the
proper number of shares of Acquiror Common Stock or New PRIDES, as applicable,
may be issued in accordance with this Article III to a person other than the
person in whose name the Certificate so surrendered is registered, if the
Certificate is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid or are not applicable. Until
surrendered as contemplated by this Section 3.2(b), each Certificate shall be
deemed at any time after the Effective Time to evidence only the right to
receive upon such surrender the appropriate Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to
Acquiror Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the shares
of Acquiror Common Stock or New PRIDES evidenced thereby, and no other part of
the Merger Consideration shall be paid to any such holder, until the holder of
such Certificate shall surrender such Certificate in accordance with this
Article III. Subject to the effect of Applicable Laws, following surrender of
any such Certificate, there shall be paid to the holder of the certificates
evidencing whole shares of Acquiror Common Stock or New PRIDES, as applicable,
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other
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distributions with both a record date and payment date after the Effective
Time, but prior to surrender, payable with respect to such whole shares of
Acquiror Common Stock or New PRIDES, as applicable, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior to surrender and a payment
date occurring after surrender, payable with respect to such whole shares of
Acquiror Common Stock or New PRIDES as applicable. No interest shall be paid
on the Merger Consideration or such dividends or other distributions.
(d) No Further Rights in Company Capital Stock. All shares of Acquiror
Common Stock and New PRIDES issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article III (and any cash
paid pursuant to Section 3.2(c) or, in the case of Acquiror Common Stock,
Sections 3.1(c) and 3.2(e)) shall be deemed to have been issued (or paid) in
full satisfaction of all rights pertaining to such shares of Company Capital
Stock and Company Rights exchanged therefor represented by such Certificates;
subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by the Company on such
shares of Company Capital Stock in accordance with the terms of this Agreement
or prior to the date of this Agreement and which remain unpaid at the
Effective Time and have not been paid prior to surrender, and there shall be
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation or the Exchange
Agent for any reason, they shall be canceled and exchanged as provided in this
Article III, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Acquiror Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the holder thereof to vote or to any rights of a shareholder of
Acquiror.
(ii) Notwithstanding any provision of this Agreement, each holder of shares
of Company Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Acquiror Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Acquiror Common Stock multiplied by the
Determination Price.
(f) No Liability. Neither Acquiror nor the Company shall be liable to any
holder of shares of Company Capital Stock or Acquiror Common Stock, as the
case may be, for such shares of Acquiror Common Stock or New PRIDES (or
dividends or distributions with respect thereto) or cash in lieu of fractional
shares of Acquiror Common Stock which have been delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
3.3. Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, in the event shares of Company Common Stock are
converted into the right to receive both the Stock Consideration and Cash
Consideration pursuant to Section 3.1(c), shares of Company Common Stock that
are outstanding immediately prior to the Effective Time and that are held by
stockholders who shall have not voted in favor of the Merger and who shall
have demanded properly in writing appraisal for such shares in accordance with
Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Stock Consideration and
Cash Consideration. Such stockholders instead shall be entitled to receive
payment of the appraised value of such shares of Company Common Stock held by
them in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares of Company Common Stock under such Section 262 shall thereupon be
deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest thereon, the
Stock Consideration and Cash Consideration upon surrender in the manner
provided in this Article III, of the Certificate or Certificates that formerly
evidenced such shares of Company Common Stock. The Company shall give Acquiror
(i) prompt notice of any demands for appraisal of shares of Company Common
Stock received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior written consent of Acquiror, make any payment
with respect to, or settle, offer to settle, or otherwise negotiate any such
demands.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror as follows:
4.1 Organization, Standing and Corporate Power. Each of the Company and each
Company Significant Subsidiary is a corporation or partnership duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is organized and has the requisite corporate or partnership power and
authority to carry on its business as now being conducted. Each of the Company
and its Subsidiaries is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualifications or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed (individually or in the aggregate) would not have a
Material Adverse Effect with respect to the Company. The Company has delivered
to Acquiror complete and correct copies of its Restated Certificate of
Incorporation and By-laws, in each case as amended to the date of this
Agreement.
4.2 Subsidiaries. Section 4.2 of the Company Disclosure Schedule sets forth
all the Subsidiaries of the Company. Except as set forth in Section 4.2 of the
Company Disclosure Schedule, or as described in Section 4.3 or as disclosed in
the Company SEC Documents, all the outstanding shares of capital stock or
other equity interests of each Subsidiary of the Company are duly authorized,
validly issued, fully paid and non-assessable and are owned by the Company, by
another wholly-owned Subsidiary of the Company or by the Company and another
wholly-owned Subsidiary of the Company, free and clear of all Encumbrances.
Subject to compliance with applicable Gaming Laws, the respective certificates
of incorporation and bylaws or other organizational documents of the Company's
Subsidiaries do not contain any provision limiting or otherwise restricting
the ability of Acquiror, following the Effective Time, from controlling such
Subsidiaries on the same basis as the Company.
4.3 Capitalization. The authorized capital stock of the Company consists of
120,000,000 shares of Company Common Stock and 30,000,000 shares of preferred
stock, par value $1.00 per share ("Company Preferred Stock"). As of May 31,
1996, (i) 49,763,359 shares of Company Common Stock were issued and
outstanding, (ii) 33,368 shares of Company Common Stock were held by the
Company in its treasury, (iii) 496,988 shares of the Series D Preferred,
convertible into an aggregate of 1,103,313 shares of Company Common Stock,
were issued and outstanding, and 1,103,313 shares of Company Common Stock were
reserved for issuance upon conversion of the Series D Preferred, (iv)
15,525,000 shares of PRIDES, currently convertible into an aggregate of
14,283,000 shares of Company Common Stock, were issued and outstanding, and
17,388,000 shares of Company Common Stock were reserved for issuance upon
conversion of the PRIDES, (v) 4,985,878 shares of Company Common Stock were
reserved for issuance upon exercise of outstanding Options, (vi) no shares of
Company Common Stock were reserved for issuance upon exercise of outstanding
SARS (other than 508,334 shares granted in tandem with Options), (vii) 59,600
shares of Company Common Stock were reserved for issuance in connection with
the Company's Employee Stock Purchase Plans, (viii) 2,618,405 shares of
Company Common Stock were reserved for issuance upon conversion of the
Company's 6% Convertible Subordinated Debentures due 1998 (the "6% Convertible
Debentures") and the Company's 10% Convertible Subordinated Debentures due
2006 (the "10% Convertible Debentures" and, together with the 6% Convertible
Debentures, the "Convertible Debentures"), the 6% Convertible Debentures being
convertible into an aggregate of 69,119 shares of Company Common Stock, and
the 10% Convertible Debentures being convertible into an aggregate of
2,549,286 shares of Company Common Stock, and (ix) 800,000 shares of Company
Preferred Stock (Series B Junior Participating) were reserved for issuance in
connection with the rights to purchase shares of certain Company Preferred
Stock (the "Company Rights") issued pursuant to the Rights Agreement dated as
of December 4, 1986, as amended (as amended to the date of this Agreement and
as further amended from time to time, the "Rights Agreement"), between the
Company and Chemical Bank, as Rights Agent (the "Company Rights Agent").
Except as set forth above, as of May 31, 1996, no shares of capital stock or
other voting or equity securities of the Company were issued, reserved for
issuance
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or outstanding. There are no outstanding SARs which were not granted in tandem
with (and which would not terminate upon exercise of) a related Option and
there are no other outstanding contractual rights the value of which is
derived from the financial performance of the Company or the value of shares
of Company Common Stock. All outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable and
are not subject to preemptive rights. Except as set forth above, there are no
bonds, debentures, notes or other indebtedness of the Company or any of its
Subsidiaries having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above or in Section 4.3 of the
Company Disclosure Schedule and other than 1,505,405 shares of Company Common
Stock and 376,351 shares of Common Stock of Bally Total Fitness Holding
Corporation deliverable upon exchange of Bally Casino, Inc.'s Series A
Cumulative Exchangeable Preferred Stock (the "Subsidiary Preferred Stock"), as
of the date of this Agreement, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any of its Subsidiaries is a party or by
which any of them is bound, obligating the Company or any of its Subsidiaries
to issue, deliver or sell or cause to be issued, delivered or sold, additional
shares of capital stock or other voting or equity securities of the Company or
any of its Subsidiaries or obligating the Company or any of its Subsidiaries
to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. Except for the
redemption of the Series D Preferred, the Company Rights or as set forth above
or in Section 4.3 of the Company Disclosure Schedule and other than
redemptions, purchases and other acquisitions required by applicable
provisions under Gaming Laws or similar provisions contained in the terms of
the capital stock of the Company or any of its Subsidiaries, there are not any
outstanding contractual obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries.
4.4 Authority; Enforceability; No Conflicts; and Consents. (a) The Company
has the requisite corporate power and authority to enter into this Agreement
and, subject to obtaining the Company Stockholder Approval, to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Company, subject, in the case of
the consummation of the Merger, to approval of this Agreement by the holders
of a majority of the voting power of the outstanding shares of Company Common
Stock and the PRIDES, voting as a class (the "Company Stockholder Approval"),
at a special meeting of the holders of Company Common Stock and the PRIDES.
This Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes the valid and binding obligations of
Acquiror, constitutes the valid and binding obligations of the Company,
enforceable against the Company in accordance with its terms.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or cause loss of a material benefit under, or
result in the creation or maturation of any lien or purchase right upon any of
the properties or assets of the Company or any of its Subsidiaries under, (i)
the Restated Certificate of Incorporation or By-laws of the Company or the
comparable charter or organizational documents of any of its Subsidiaries,
(ii) other than severance agreements, severance plans and employment
agreements disclosed in the Company SEC Documents or in the Company Disclosure
Schedule or otherwise previously disclosed to Acquiror and bank credit
agreements, financing leases and indentures relating to notes and debentures
identified under "Long Term Debt" of the Notes to Consolidated Financial
Statements of the Company included in its 1995 Annual Report or as set forth
in Section 4.4 of the Company Disclosure Schedule and subject to the
governmental filings and other matters referred to in Section 4.4(c), any loan
or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
the Company or any of its Subsidiaries or their respective properties or
assets or (iii) subject to the governmental filings and other matters referred
to in Section 4.4(c), any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any of its Subsidiaries or
their respective properties or assets, other than, in the case of
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clauses (ii) or (iii), any such conflicts, violations, defaults, rights or
liens that individually or in the aggregate would not (x) have a Material
Adverse Effect with respect to the Company, (y) impair, in any material
respect, the ability of the Company to perform its obligations under this
Agreement or (z) prevent or significantly delay the consummation of any of the
transactions contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required by the
Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company
of the transactions contemplated by this Agreement, except for (i) the filing
of a premerger notification and report form by the Company under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) the
filing with the SEC of (x) a proxy statement relating to the Company
Stockholder Approval and (y) such reports and filings under Section 13 and 16
of the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby, (iii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company
is qualified to do business, (iv) the approval by (A) the New Jersey Casino
Control Commission under the New Jersey Gaming Laws, (B) the Nevada State
Gaming Control Board and the Nevada Gaming Commission under the Nevada Gaming
Laws, (C) the Clark County Liquor and Gaming Licensing Board pursuant to the
Clark County, Nevada Code and the rules and regulations promulgated
thereunder, (D) the Mississippi Gaming Commission under the Mississippi Gaming
Laws, and (E) the Louisiana Riverboat Gaming Commission under the Louisiana
Gaming Laws, (v) the filing of notices and the approval of Governmental
Authorities as may be required under the applicable Gaming Laws of the States
of Maryland and Washington and under the Indian Gaming Regulatory Act of 1988,
(vi) as may be required by any applicable state securities or "blue sky" laws,
(vii) in connection with any state or local tax which is attributable to the
beneficial ownership of real property of the Company or its Subsidiaries
("Gains Tax"), (viii) such immaterial filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated by this Agreement, (ix) such immaterial filings,
consents, approvals, orders, registrations and declarations as may be required
under the laws of any foreign country in which the Company or any of its
Subsidiaries conducts any business or owns any assets, and (x) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not, individually or
in the aggregate, (1) have a Material Adverse Effect with respect to the
Company, (2) impair, in any material respect, the ability of the Company to
perform its obligations under this Agreement or (3) prevent or significantly
delay the consummation of the transactions contemplated by this Agreement.
4.5 Vote Required; State Takeover Statutes; Rights Agreement. (a) The
Company Stockholder Approval is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby.
(b) The Board of Directors of the Company has approved the Merger and this
Agreement and such approval is sufficient to render the provisions of Section
203 of the DGCL inapplicable to the Merger, this Agreement and the other
transactions contemplated by this Agreement.
(c) The Company and the Board of Directors of the Company have taken and
will maintain in effect all necessary action to render the Company Rights
Agreement inapplicable with respect to the Merger and the other transactions
contemplated by this Agreement.
4.6 Compliance with Applicable Laws. (a) Each of the Company and its
Subsidiaries has in effect all Federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses,
notices, permits and rights, including all authorizations under Environmental
Laws and Gaming Laws ("Permits"), necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted other
than such Permits the absence of which would not, individually or in the
aggregate, have a Material Adverse Effect with respect to the Company, and
there has occurred no default under any such Permit other than such defaults
which, individually or in the aggregate, would not have a Material Adverse
Effect with
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respect to the Company. Except as disclosed in the Company SEC Documents filed
and publicly available prior to the date of this Agreement, the Company and
the Company Significant Subsidiaries are in compliance with all Applicable
Laws, except for such noncompliance which individually or in the aggregate
would not have a Material Adverse Effect with respect to the Company. The
preceding sentence of this Section 4.6 does not apply to matters specifically
covered by Section 4.10, 4.11 or 4.6(b) through 4.6(d).
(b) Each of the Company and its Subsidiaries is, and has been, and each of
the Company's former Subsidiaries, while a Subsidiary of the Company, was in
compliance with all applicable Environmental Laws, except for such
noncompliance which, individually or in the aggregate, would not have a
Material Adverse Effect with respect to the Company. The term "ENVIRONMENTAL
LAWS" means any applicable Federal, state, local or foreign statute,
ordinance, rule, regulation, Permit, judgment, order, decree, injunction or
other legally binding authorization, relating to: (A) Releases (as defined in
42 U.S.C. SECTION 9601(22)) or threatened Releases of Hazardous Material (as
hereinafter defined) into the environment or (B) the generation, treatment,
storage, disposal, use, handling, manufacturing, transportation or shipment
of, or exposure to, a Hazardous Material.
(c) During the period of ownership or operation by the Company and its
Subsidiaries of any of their owned or leased properties, there have been no
Releases of Hazardous Material in, on, under or affecting such properties and
none of the Company or its Subsidiaries have disposed of any Hazardous
Material or any other substance in a manner that has led to, or could
reasonably be anticipated to lead to, a Release except in each case for those
which, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect with respect to the Company. The term "HAZARDOUS
MATERIAL" means (1) hazardous substances (as defined in 42 U.S.C. SECTION
9601(14)), (2) petroleum, including crude oil and any fractions thereof, (3)
natural gas, synthetic gas and any mixtures thereof, (4) asbestos and/or
asbestos-containing material, (5) PCBs, or materials containing PCBs in excess
of 50 ppm, and any material regulated as a medical waste or infectious waste.
(d) The transactions contemplated by this Agreement will not require
compliance with the New Jersey Industrial Site Recovery Act or any similar
state transfer law.
4.7 Company SEC Documents; Undisclosed Liabilities. (a) Each of the Company
and its Subsidiaries has filed all required reports, registration statements,
proxy statements, forms and other documents with the SEC since January 1, 1995
(as such documents have since the time of their filing been amended or
supplemented and, together with all reports, registration statements, forms
and other documents filed by GNOC Corp., Bally's Park Place, Inc., Bally's
Grand, Inc. and Bally's Casino Holdings, Inc. since January 1, 1995, the
"Company SEC Documents"). As of their respective dates, (i) the Company SEC
Documents (including any financial statements filed as a part thereof or
incorporated by reference therein) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the SEC thereunder applicable to such Company SEC
Documents, and (ii) none of the Company SEC Documents contained at the time
they were filed any untrue statement of a material fact or omitted at the time
they were filed to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. At their respective dates, the financial
statements of the Company included in the Company SEC Documents complied as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
presented (subject, in the case of the unaudited financial statements, to
normal, recurring audit adjustments) the consolidated financial position of
the Company and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
(b) Except as disclosed in the Company SEC Documents filed and publicly
available prior to the date of this Agreement or in Section 4.8 or 6.1 of this
Agreement or the related Sections of the Company Disclosure Schedule and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since December 31, 1995, the Company
and its Subsidiaries do not have any material indebtedness,
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obligations or liabilities of any kind (whether accrued, absolute, contingent
or otherwise) (i) required by GAAP to be reflected on a consolidated balance
sheet of the Company and its consolidated Subsidiaries or in the notes,
exhibits or schedules thereto or (ii) which reasonably could be expected to
have a Material Adverse Effect with respect to the Company.
4.8 Absence of Changes or Events. Except as disclosed in the Company SEC
Documents filed and publicly available prior to the date of this Agreement or
as set forth in Section 4.8 or 6.1 of the Company Disclosure Schedule or
permitted by Section 6.1 of this Agreement, since December 31, 1995, the
Company and its Subsidiaries have conducted their respective businesses only
in the ordinary course, and there has not been (i) any change or occurrence
which resulted in or is reasonably likely to have a Material Adverse Effect
with respect to the Company, (ii) any declaration, setting aside or payment of
any dividend or other distribution with respect to the capital stock of the
Company other than on the Series D Preferred Stock or on the PRIDES, as
specifically provided by the terms thereof, (iii) any issuance of any shares
of Company Common Stock or other capital stock of the Company or any
securities convertible into or exchangeable or exercisable for capital stock
of the Company that is not reflected in Section 4.2 (other than issuances of
Company Common Stock described in Section 6.1(ii)), (iv) any split,
combination or reclassification of any of the capital stock of the Company or
any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock of
the Company, (v) (x) any granting by the Company or any of its Subsidiaries to
any director or officer of the Company or any of its Subsidiaries of any
increase in compensation, except in the ordinary course of business consistent
with prior practice, or as was required under employment agreements in effect
as of December 31, 1995 that were included as an exhibit to a Company SEC
Document filed and publicly available prior to the date of this Agreement, (y)
any granting by the Company or any of its Subsidiaries to any such person of
any increase in severance or termination pay, except as part of a standard
employment package to any person promoted or hired (but not including the five
most highly compensated senior officers of the Company and its Subsidiaries),
or as was required under employment, severance or termination agreements in
effect as of December 31, 1995 that were included as an exhibit to a Company
SEC Document filed and publicly available prior to the date of this Agreement
or as disclosed in Section 4.8 or 6.1 of the Company Disclosure Schedule or,
(z) except for employment, severance or termination arrangements in the
ordinary course of business consistent with past practice with employees other
than any executive officer of the Company, any entry by the Company or any of
its Subsidiaries into any employment, severance or termination agreement with
any such person, (vi) other than those listed on Section 4.8 or 6.1 of the
Company Disclosure Schedule, any acquisition of or commitment to purchase or
build any property or project involving an expenditure in excess of $10
million in the aggregate, (vii) any damage, destruction or loss not covered by
insurance, that has or reasonably could be expected to have a Material Adverse
Effect with respect to the Company or (viii) any change in accounting methods,
principles or practices by the Company materially affecting its assets,
liabilities or business, except insofar as may have been required by a change
in GAAP.
4.9 Litigation. Except as disclosed in Section 4.9 of the Company Disclosure
Schedule or in the Company SEC Documents filed and publicly available prior to
the date of this Agreement, there are no Legal Proceedings pending against the
Company or any of its Subsidiaries or, to the knowledge of the Company,
threatened that, individually or in the aggregate, could reasonably be
expected to (i) have a Material Adverse Effect with respect to the Company or
(ii) prevent, or significantly delay the consummation of the transactions
contemplated by this Agreement. Except as disclosed in Section 4.9 of the
Company Disclosure Schedule or as set forth in the Company SEC Documents filed
and publicly available prior to the date of this Agreement, there is no
judgment, order, injunction or decree of any Governmental Authority
outstanding against the Company or any of its Subsidiaries that, individually
or in the aggregate, could reasonably be expected to have any effect referred
to in the foregoing clauses (i) and (ii).
4.10 Taxes. (a) The Company and each of its Subsidiaries, and each
affiliated group (within the meaning of Section 1504 of the Code) of which the
Company or any of its Subsidiaries is or has ever been a member, has timely
filed all Federal income Tax Returns and all other material Tax Returns and
reports required to be filed by it. All such Tax Returns are complete and
correct in all material respects. The Company and each of its
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Subsidiaries has paid (or the Company has paid on its Subsidiaries' behalf)
all taxes shown due on such Tax Returns. The most recent consolidated
financial statements contained in the Company SEC Documents reflect an
adequate reserve for all Taxes payable by the Company and its Subsidiaries for
all taxable periods and portions thereof through the date of such financial
statements.
(b) Except as disclosed on Section 4.10 of the Company Disclosure Schedule,
no material deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of its Subsidiaries that have not been
fully paid or adequately provided for in the appropriate financial statements
of the Company and its Subsidiaries, no requests for waivers of the time to
assess any Taxes are pending, and no power of attorney with respect to any
Taxes has been executed or filed with any taxing authority. No material issues
relating to Taxes have been raised in writing by the relevant taxing authority
during any presently pending audit or examination. The Federal income Tax
Returns of the Company and each of its Subsidiaries consolidated in such Tax
Returns have been reviewed with the Internal Revenue Service for all years
through 1993.
(c) No material liens for Taxes exist with respect to any assets or
properties of the Company or any of its Subsidiaries, except for statutory
liens for Taxes not yet due.
(d) Except as disclosed on Section 4.10 of the Company Disclosure Schedule
and other than with respect to contractual tax indemnity obligations of the
Company and its Subsidiaries involving claims for state and local Taxes which
are not material in amount, none of the Company or any of its Subsidiaries is
a party to or is bound by any tax sharing agreement, tax indemnity obligation
or similar agreement, arrangement or practice with respect to Taxes (including
any advance pricing agreement, closing agreement or other agreement relating
to Taxes with any taxing authority).
(e) None of the Company or any of its Subsidiaries has taken or agreed to
take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a)(1) of the
Code.
(f) Except as disclosed in Section 4.10 of the Company Disclosure Schedule,
there are no employment, severance or termination agreement, other
compensation arrangement or Benefit Plan currently in effect which provide for
the payment of any amount (whether in cash or property or the vesting of
property) as a result of any of the transactions contemplated by this
Agreement to any employee, officer or director of the Company or any of its
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1), that would be characterized as
an "excess parachute payment" (as such term is defined in Section 280G(b)(1)
of the Code).
(g) The Company and it Subsidiaries have complied in all material respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes.
(h) Except as disclosed in Section 4.10 of the Company Disclosure Schedule,
no Federal, state, local or foreign audits or other administrative proceedings
or court proceedings are presently pending with regard to any Federal income
or material state, local or foreign Taxes or Tax Returns of the Company or its
Subsidiaries and neither the Company nor any of its Subsidiaries has received
a written notice of any pending audit or proceeding.
(i) Neither the Company nor any of its Subsidiaries has agreed to or is
required to make any adjustment under Section 481(a) of the Code.
(j) Neither the Company nor any of its Subsidiaries has, with regard to any
assets or property held or acquired by any of them, filed a consent to the
application of Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as such term
is defined in Section 341(f)(4) of the Code) owned by the Company or any of
its Subsidiaries.
(k) No property owned by the Company or any of its Subsidiaries (i) is
property required to be treated as being owned by another Person pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue Code of
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1954, as amended and in effect immediately prior to the enactment of the Tax
Reform Act of 1986; (ii) constitutes "tax exempt use property" within the
meaning of Section 168(h)(1) of the Code; or (iii) is tax exempt bond financed
property within the meaning of Section 168(g) of the Code.
4.11 Employee Benefits. (a) Section 4.11(a) of the Company Disclosure
Schedule lists all "employee benefit plans," as defined in Section 3(3) of
ERISA and all other employee benefit plans or other benefit arrangements,
including executive compensation and directors' benefit plans, and payroll
practices which the Company or any of its Subsidiaries maintains, contributes
to or has any obligation to or liability for (each an "Employee Benefit Plan"
and collectively, the "Employee Benefit Plans").
(b) Copies or descriptions of each Employee Benefit Plan (and, where
applicable, the most recent summary plan description, actuarial report,
determination letter, most recent Form 5500 and trust agreement) have been
made available to Acquiror for review prior to the date hereof.
(c) As of the date hereof, except as disclosed on Section 4.11(c) of the
Company Disclosure Schedule, (i) all material payments required to be made by
or under any Employee Benefit Plan, any related trusts, or any collective
bargaining agreement have been made or are being processed in accordance with
normal operating procedures, and except as set forth in the Company's
financial statements, all material amounts required to be reflected thereon
have been properly accrued to date as liabilities under or with respect to
each Employee Benefit Plan for the current year; (ii) the Company and its
Subsidiaries have performed all material obligations required to be performed
by them under any Employee Benefit Plan; (iii) the Employee Benefit Plans,
have been administered in material compliance with their terms and the
requirements of ERISA, the Code and other Applicable Laws; (iv) there are no
material actions, suits, arbitrations or claims (other than routine claims for
benefit) pending or threatened with respect to any Employee Benefit Plan; and
(v) the Company and its Subsidiaries have no liability as a result of any
"prohibited transaction" (as defined in Section 406 of ERISA and Section 4975
of the Code) for any material excise tax or civil penalty.
(d) Except as disclosed on Section 4.11(d) of the Company Disclosure
Schedule, none of the Employee Benefit Plans which are "employee pension
benefit plans" within the meaning of Section 3(2) of ERISA ("Pension Plans"),
other than "multiemployer plans", as defined in Section 3(37) of ERISA
("Multiemployer Plans"), is subject to Title IV of ERISA.
(e) Except as set forth on Section 4.11(e) of the Company Disclosure
Schedule, the Company and its Subsidiaries have not, since April. 29, 1980,
with respect to any Multiemployer Plan, suffered or otherwise caused a
"complete withdrawal" or "partial withdrawal", as such terms are respectively
defined in Sections 4023 and 4025 of ERISA, which has resulted in any material
liability to the Company or any of its Subsidiaries which has not been fully
satisfied or which is not set forth in the Company's financial statements.
(f) Except as set forth on Section 4.11(f) of the Company Disclosure
Schedule, each of the Pension Plans which is intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so "qualified" and the Company knows of no fact which
would adversely affect the qualified status of any such Pension Plan.
(g) Except as set forth on Section 4.11(g) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment becoming due, or materially increase the amount of
compensation due, to any current or former employee of the Company or any of
its Subsidiaries; (ii) materially increase any benefits otherwise payable
under any Employee Benefit Plan; or (iii) result in the acceleration of the
time of payment or vesting of any such material benefits.
4.12 Title to Properties. (a) Section 4.12 of the Company Disclosure
Schedule sets forth a complete list of all material real property owned in fee
by the Company or one of its Subsidiaries and sets forth all material real
property leased by the Company or one of its Subsidiaries as lessee as of the
date hereof (such owned and leased
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material real property, including all Improvements, referred to collectively
as the "Real Property"). Except as set forth in Section 4.12 of the Company
Disclosure Schedule, each of the Company and its Subsidiaries has good and
valid title to, or a valid leasehold interest in, the Real Property held by
it. Except as set forth in Section 4.12 of the Company Disclosure Schedule,
the Real Property is free of Encumbrances, except for Permitted Encumbrances,
and the consummation of the transactions contemplated by this Agreement will
not create any Encumbrance on any of the Real Property which, individually or
in the aggregate, would have a Material Adverse Effect with respect to the
Company. Each of the Company and each of its Subsidiaries enjoys peaceful and
undisturbed possession under all leases of Real Property, expect for such
breaches of the right to peaceful and undisturbed possession that do not
materially interfere with the ability of the Company and its Subsidiaries to
conduct their business.
(b) Except as set forth in Schedule 4.12 or as disclosed in the Company SEC
Documents, no toxic or hazardous wastes, substances or materials are stored or
otherwise held in violation of Environmental Laws that would have or could
reasonably be expected to have a Material Adverse Effect with respect to the
Company, and to the knowledge of the Company, no Contamination exists, on or
under the Real Property at levels that contravene those allowed by
Environmental Laws.
4.13 Insurance. The Company and its Subsidiaries have insurance coverage
with insurance companies or associations in such amounts, on such terms and
covering such risks, including fire and other risks insured against by
extended coverage, as is reasonably prudent, and each has public liability
insurance, insurance against claims for personal injury or death or property
damage occurring in connection with any of activities of the Company or any of
its Subsidiaries or of any properties owned, occupied or controlled by the
Company or any of its Subsidiaries, in such amount as is deemed reasonably
necessary by the Company or any of its Subsidiaries.
4.14 Brokers and Intermediaries. No broker, investment banker, financial
advisor or other person, other than Goldman, Sachs & Co. and Merrill Lynch &
Co. (whose fee arrangements have been disclosed to Acquiror in writing and
will not be modified subsequent to the date of this Agreement), the fees and
expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
4.15 Opinion of Financial Advisor. The Company has received (i) the opinion
of Goldman, Sachs & Co. to the effect that, as of the date of this Agreement,
the consideration to be received in the Merger by the Company's stockholders
is fair to the Company's stockholders, and (ii) the opinion of Merrill Lynch &
Co. to the effect that, as of the date of this Agreement, the consideration to
be received in the Merger by the Company's stockholders is fair to the
Company's stockholders from a financial point of view.
4.16 Company Rights Agreement. The entering into of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
result in the grant of any rights to any person under the Company Rights
Agreement or enable or require the Company Rights to be exercised, distributed
or triggered.
4.17 Transactions With Affiliates. Other than the transactions contemplated
by this Agreement and except to the extent disclosed in the Company SEC
Documents or as set forth in Schedule 4.17 of the Company Disclosure Schedule,
from January 1, 1994 through the date of this Agreement, there have been no
transactions, agreements, arrangements or understandings between the Company
or its Subsidiaries, on the one hand, and the Company's affiliates (other than
wholly-owned Subsidiaries of the Company and Bally's Grand, Inc.) or other
Persons, on the other hand, that would be required to be disclosed under
Item 404 of Regulation S-K under the Securities Act.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to the Company as follows:
5.1 Organization, Standing and Corporate Power of Acquiror. Each of Acquiror
and each Acquiror Significant Subsidiary is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
partnership power and authority to carry on its business as now being
conducted. Each of Acquiror and its Subsidiaries is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes
such qualifications or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a Material Adverse Effect with respect to Acquiror.
Acquiror has delivered to the Company complete and correct copies of its
Restated Certificate of Incorporation and By-laws in each case as amended to
the date of this Agreement. The respective certificates of incorporation and
by-laws or other organizational documents of Acquiror Significant Subsidiaries
do not contain any provision limiting or otherwise restricting the ability of
Acquiror to control such Subsidiaries.
5.2 Capitalization. As of the date of this Agreement, the authorized capital
stock of Acquiror consists of 90,000,000 shares of Acquiror Common Stock and
10,000,000 shares of preferred stock, par value $1.00 per share (the "Acquiror
Preferred Stock"). As of May 31, 1996, (i) 48,838,694 shares of Acquiror
Common Stock and no shares of Acquiror Preferred Stock were issued and
outstanding, (ii) 2,186,334 shares of Acquiror Common Stock were held by
Acquiror in its treasury, (iii) 1,500,000 shares of Acquiror Common Stock were
reserved for issuance upon the exercise of outstanding options issued under
the Acquiror's 1996 Stock Incentive Plan, (iv) 1,500,000 shares of Acquiror
Common Stock were reserved for issuance upon the exercise of outstanding
options issued under Acquiror's 1996 Chief Executive Stock Incentive Plan, (v)
1,870,953 shares of Acquiror Common Stock were reserved for issuance upon the
exercise of outstanding options issued under Acquiror's 1990 Stock Option and
Stock Appreciation Rights Plan, (vi) 201,592 shares of Acquiror Common Stock
were reserved for issuance upon the exercise of outstanding options issued
under Acquiror's 1984 Stock Option and Stock Appreciation Rights Plan (the
options issued pursuant to the stock option plans referred to in clauses (iii)
through (vi) being collectively referred to as the "Acquiror Stock Options"),
and (vii) 3,872,216.84 shares were reserved for issuance upon conversion of
Acquiror's outstanding Convertible Subordinated Notes due 2006, which were
presently convertible into 3,872,216.84 shares of Acquiror Common Stock.
Except as set forth above, as of May 31, 1996, no shares of capital stock or
other voting securities of Acquiror were issued, reserved for issuance or
outstanding. As of the date of this Agreement, there are no outstanding stock
appreciation rights which were not granted in tandem with (and terminate upon
exercise of) a related Acquiror Stock Option and there are no other
outstanding contractual rights the value of which is derived from the
financial performance of Acquiror or the value of shares of Acquiror Common
Stock. All outstanding shares of capital stock of Acquiror are, and all shares
which may be issued as contemplated by this Agreement will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and not subject
to preemptive rights. As of the date of this Agreement, other than as set
forth above, there are no bonds, debentures, notes or other indebtedness of
Acquiror having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of
Acquiror may vote. Except as set forth above, or as disclosed in the Acquiror
SEC Documents, as of the date of this Agreement, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Acquiror or any of its
Subsidiaries is a party or by which any of them is bound, obligating Acquiror
or any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of Acquiror or of any of its Subsidiaries or obligating Acquiror or
any of its Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, except as disclosed in the
Acquiror SEC Documents or Section 5.2 of the Acquiror Disclosure Schedule,
there are not any outstanding contractual obligations of Acquiror or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Acquiror or any of its Subsidiaries.
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5.3 Authority; Enforceability; No Conflicts. (a) Acquiror has the requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining Acquiror Stockholder Approval, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
by Acquiror and the consummation by Acquiror of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate action
on the part of Acquiror, subject, in the case of the issuance of Acquiror
Common Stock and New PRIDES contemplated hereby, to approval of such issuance
by the holders of a majority of the votes cast at a special meeting of the
holders of Acquiror Common Stock, provided that the total number of votes cast
represents over 50% of the outstanding Acquiror Common Stock (the "Acquiror
Stockholder Approval"). This Agreement has been duly executed and delivered by
Acquiror and, assuming this Agreement constitutes a valid and binding
obligation of the Company, constitutes valid and binding obligations of each
of Acquiror, enforceable against Acquiror in accordance with its terms.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation, or
acceleration of any obligation or cause loss of a material benefit under, or
result in the creation or maturation of any lien or purchase right upon any of
the properties or assets of Acquiror and Acquiror Significant Subsidiaries
under, (i) the certificate of incorporation or by-laws of Acquiror or the
comparable charter or organizational documents of any of its Subsidiaries,
(ii) except as set forth in Section 5.3 of the Acquiror Disclosure Schedule
and subject to the governmental filings and other matters referred to in
Section 5.3(c) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to Acquiror or (iii) subject to the governmental filings and other
matters referred to in Section 5.3(c), any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Acquiror or any of Acquiror
Significant Subsidiaries or their respective properties or assets, other than,
in the case of clauses (ii) or (iii), any such conflicts, violations,
defaults, rights or liens that individually or in the aggregate would not
(x) have a Material Adverse Effect with respect to Acquiror, (y) impair, in
any material respect, the ability of Acquiror to perform its obligations under
this Agreement or (z) prevent or significantly delay the consummation of any
of the transactions contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required by Acquiror
or any of its Subsidiaries in connection with the execution and delivery of
this Agreement or the consummation by Acquiror of any of the transactions
contemplated by this Agreement, except for (i) the filing of a premerger
notification and report form by Acquiror under the HSR Act, (ii) the filing
with the SEC of (x) the Proxy Statement/Prospectus, (y) the Registration
Statement on Form S-4 in connection with the issuance of Acquiror Common Stock
and New PRIDES in the Merger (the "Form S-4") and the obtaining of any related
orders as may be so required and (z) such reports and filings under Section 13
and Section 16 of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (iii) the
filing of the Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business, (iv) the approval by (A) the New
Jersey Casino Control Commission under the New Jersey Gaming Laws, (B) the
Nevada State Gaming Control Board and the Nevada Gaming Commission under the
Nevada Gaming Laws, (C) the Clark County Liquor and Gaming Licensing Board
pursuant to the Clark County, Nevada Code and the rules and regulations
promulgated thereunder, (D) the Mississippi Gaming Commission under the
Mississippi Gaming Laws and (E) the Louisiana Riverboat Gaming Commission
under the Louisiana Gaming Laws, (v) the filing of notices and the approval of
Governmental Authorities as may be required under the applicable Gaming Laws
of the States of Maryland and Washington and under the Indian Gaming
Regulatory Act of 1988, (vi) as may be required by any applicable state
securities or "blue sky" laws, and (vii) such other consents, approvals,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made would not, individually or in the aggregate, (x)
have a Material Adverse Effect with respect to Acquiror, (y) impair, in any
material respect, the ability of Acquiror to perform its obligations under
this Agreement or (z) prevent or significantly delay the consummation of the
transactions contemplated by this Agreement.
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5.4 The Vote Required; Ownership of Company Capital Stock. (a) Acquiror
Stockholder Approval is the only vote of the holders of any class or series of
Acquiror's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
(b) Except for two shares of Company Common Stock, neither Acquiror nor any
of its Subsidiaries owns, directly or indirectly, any shares of Company
Capital Stock.
5.5 Acquiror SEC Documents; Undisclosed Liabilities. (a) Acquiror has filed
all required reports, registration statements, proxy statements, forms and
other documents with the SEC since January 31, 1995 (as such documents have
since the time of their filing been amended or supplemented, the "Acquiror SEC
Documents"). As of their respective dates, (i) Acquiror SEC Documents
(including any financial statements filed as a part thereof or incorporated by
reference therein) complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the SEC promulgated thereunder applicable to such Acquiror SEC
Documents, and (ii) none of Acquiror SEC Documents contained at the time they
were filed any untrue statement of a material fact or omitted at the time they
were filed to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. At their respective dates, the financial
statements of Acquiror included in Acquiror SEC Documents complied as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
presented (subject, in the case of unaudited statements, to normal year-end
audit adjustments) the consolidated financial position of Acquiror and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended.
(b) Except as disclosed on Section 5.5 of Acquiror Disclosure Schedule or in
the Acquiror SEC Documents filed and publicly available after December 31,
1995 and prior to the date of this Agreement and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1995, as of the date of this Agreement Acquiror
and its Subsidiaries do not have any material indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise)
required by GAAP to be reflected on a consolidated balance sheet of Acquiror
and its consolidated Subsidiaries or in the notes, exhibits or schedules
thereto.
5.6 Absence of Changes or Events. Except as disclosed in the Acquiror SEC
Documents filed and publicly available prior to the date of this Agreement or
in the 1995 Acquiror Financial Statements, (i) since December 31, 1995, there
has not been any change or occurrence which resulted in or is reasonably
likely to have a Material Adverse Effect with respect to Acquiror, and (ii)
from December 31, 1995 to the date of this Agreement, Acquiror and its
Subsidiaries have conducted their businesses only in the ordinary course and
there have not been (A) any declaration, setting aside or payment of any
dividend or other distribution with respect to the capital stock of Acquiror,
other than regular quarterly dividends on Acquiror Common Stock, (B) any
split, combination or reclassification of any of the capital stock of Acquiror
or any issuance or the authorization of any issuance of any other securities
in lieu of or in substitution for shares of capital stock of Acquiror, (C) any
damage, destruction or loss not covered by insurance, that has or reasonably
could be expected to have a Material Adverse Effect with respect to Acquiror
or (D) any change in accounting methods, principles or practices by Acquiror
materially affecting its assets, liabilities or business, except insofar as
may have been disclosed by a change in generally accepted accounting
principles.
5.7 Litigation. Except as disclosed in the Acquiror SEC Documents filed and
publicly available prior to the date of this Agreement, there are no Legal
Proceedings pending against Acquiror or any of its Subsidiaries or, to the
knowledge of Acquiror, threatened that, individually or in the aggregate,
could reasonably be expected to (i) have a Material Adverse Effect with
respect to Acquiror or (ii) prevent or significantly delay the consummation of
any of the transactions contemplated by this Agreement. Except as disclosed in
the Acquiror SEC Documents filed and publicly available prior to the date of
this Agreement, there is no judgment, order,
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injunction or decree of any Governmental Authority outstanding against
Acquiror or any of its Subsidiaries that, individually or in the aggregate,
could reasonably be expected to have any effect referred to in the foregoing
clauses (i) and (ii).
5.8 Taxes. (a) Acquiror and each of its Subsidiaries, and each affiliated
group (within the meaning of Section 1504 of the Code) of which the Company or
any of its Subsidiaries is or has ever been a member, has timely filed all
Federal income tax returns and all other material tax returns and reports
required to be filed by it. All such returns are complete and correct in all
material respects. Acquiror and each of its Subsidiaries has paid (or Acquiror
has paid on its Subsidiaries' behalf) all taxes shown due on such returns, the
most recent financial statements contained in the Acquiror SEC Documents
reflect an adequate reserve for all Taxes payable by Acquiror and its
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements, and the 1995 Financial Statements reflect an
adequate reserve for all Taxes payable by Acquiror and its Subsidiaries for
all taxable periods and portions thereof through December 31, 1995.
(b) Neither Acquiror nor any of its Subsidiaries has taken or agreed to take
any action that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section 368(a)(1) of the Code.
5.9 Compliance with Applicable Laws. (a) Each of Acquiror and its
Subsidiaries has in effect all Permits necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit, except for
the lack of Permits and for defaults under Permits which lack or default,
individually or in the aggregate, would not have a Material Adverse Effect
with respect to Acquiror. Except as disclosed in the Acquiror SEC Documents
filed and publicly available prior to the date of this Agreement, Acquiror and
its Subsidiaries are in compliance with all Applicable Laws, except for
possible noncompliance which, individually or in the aggregate, would not have
a Material Adverse Effect with respect to Acquiror.
(b) Except as disclosed in the Acquiror SEC Documents, each of Acquiror and
its Subsidiaries is, and has been, and each of Acquiror's former Subsidiaries,
while a Subsidiary of Acquiror was in compliance with all applicable
Environmental Laws, except for possible noncompliance which, individually or
in the aggregate, would not have a Material Adverse Effect with respect to the
Company.
(c) Except as disclosed in the Acquiror SEC Documents, during the period of
ownership or operation by Acquiror and its Subsidiaries of any of their owned
or leased properties, there have been no Releases of Hazardous Material in,
on, under or affecting such properties and none of Acquiror or its
Subsidiaries have disposed of any Hazardous Material or any other substance in
a manner that has led to, or could reasonably be anticipated to lead to, a
Release except in each case for those which, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect with respect to
Acquiror.
5.10 ERISA Compliance. Except as described in Acquiror SEC Documents filed
and publicly available prior to the date of this Agreement or as would not
have a Material Adverse Effect with respect to Acquiror, (i) all employee
benefit plans or programs maintained for the benefit of the current or former
employees or directors of Acquiror or any Subsidiary of Acquiror that are
sponsored, maintained or contributed to by Acquiror or any Subsidiary of
Acquiror, or with respect to which Acquiror or any Subsidiary of Acquiror has
any liability, including any such plan that is an "employee benefit plan" as
defined in Section 3(3) of ERISA, are in compliance with all applicable
requirements of law, including ERISA and the Code, and (ii) neither Acquiror
nor any Subsidiary of Acquiror has any liabilities or obligations with respect
to any such employee benefit plans or programs, whether accrued, contingent or
otherwise, except liabilities or obligations incurred in the ordinary course.
5.11 Brokers. No broker, investment banker, financial advisor or other
person, other than Donaldson, Lufkin & Jenrette Securities Corporation, the
fees and expenses of which will be paid by Acquiror, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Acquiror.
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Conduct of Business of the Company. Except as otherwise provided by the
terms of this Agreement or as set forth in Section 4.8 of this Agreement or in
Section 4.8 or 6.1 of the Company Disclosure Schedule, from and after the date
hereof to the Effective Time, the Company shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the ordinary course
and use their reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and key
employees and preserve their relationships consistent with past practice with
desirable customers, suppliers and others having business dealings with them
to the end that their goodwill and ongoing businesses shall be unimpaired in
all material respects at the Effective Time. Without limiting the generality
of the foregoing, prior to the Effective Time, except as otherwise provided by
the terms of this Agreement or as set forth in Section 4.8 of this Agreement
or in Section 4.8 or 6.1 of the Company Disclosure Schedule, the Company shall
not (and shall cause its Subsidiaries not to), without the written consent of
Acquiror, which consent may not be unreasonably withheld:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect wholly-owned subsidiary of the
Company to its parent and other than as specifically provided in the terms
of the PRIDES, the Series D Preferred and the Subsidiary Preferred Stock,
(B) split, combine or reclassify any of its capital stock or, except
pursuant to the exercise of options, warrants, conversion rights, exchange
rights and other contractual rights existing on the date hereof, issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or other equity interests
or (C) purchase, redeem or otherwise acquire or amend any shares of capital
stock or other equity interests of the Company or any of its Subsidiaries
or any other securities thereof or any rights, warrants or options to
acquire any such shares, interests or other securities (other than (x)
redemptions, purchases or other acquisitions required by applicable
provisions under Gaming Laws or pursuant to the terms of such capital stock
or equity interest or other contractual rights existing on the date hereof,
(y) issuances or redemptions of capital stock of wholly-owned Subsidiaries
occurring between the Company and any of its wholly-owned Subsidiaries or
occurring between wholly-owned Subsidiaries of the Company and (z)
issuances to or redemptions from unaffiliated third parties of capital
stock of or ownership interests in Subsidiaries not currently conducting
significant operations and organized for purposes of pursuing new business
opportunities or developing new properties;
(ii) issue, deliver, sell, pledge or otherwise encumber or amend any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, interests, voting securities or convertible securities, including
pursuant to the Company's Employee Stock Purchase Plan (other than (A) the
issuance of Company Common Stock upon the conversion of the PRIDES or
Series D Preferred outstanding on the date of this Agreement in accordance
with their present terms, (B) the issuance of Company Common Stock upon the
conversion of Convertible Debentures outstanding on the date of this
Agreement in accordance with their present terms, (C) the issuance of
Company Common Stock upon the exercise of Options outstanding on the date
of this Agreement in accordance with their present terms, (D) the issuance
of Company Common Stock in the Subsidiary Merger pursuant to Section 7.16;
and (E) the issuances described in subclauses (y) and (z) of paragraph (i)
above);
(iii) amend its Restated Certificate of Incorporation, by-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
assets that are material, individually or in the aggregate, to the Company
and its Subsidiaries taken as a whole, except (w) mergers and
consolidations between or among one or more wholly-owned Subsidiaries of
the Company that will not
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create adverse tax consequences to the Company or its Subsidiaries, (x)
purchases of inventory, furnishings and equipment in the ordinary course of
business consistent with past practice, (y) the merger of Bally's Casino,
Inc. with and into the Company pursuant to Section 7.16 hereof or (z)
expenditures listed on Section 6.1 of the Company Disclosure Schedule;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets, except in
the ordinary course of business consistent with past practice;
(vi) (A) other than (1) ordinary course working capital borrowings, (2)
borrowings required to finance specific projects listed on Section 6.1 of
the Company Disclosure Schedule, (3) other incurrences of indebtedness
which, in the aggregate, do not exceed $25 million, incur any indebtedness
for borrowed money or guarantee any such indebtedness of another person,
issue or sell any debt securities or warrants or other rights to acquire
any debt securities of the Company or any of its Subsidiaries, guarantee
any debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing or (B) make any loans, advances or capital contributions to, or
investments in, any other person other than (v) to the Company or any
direct or indirect wholly-owned Subsidiary of the Company, (w) advances to
employees, suppliers or customers in the ordinary course of business
consistent with past practice and (x) in connection with specific projects
listed on Section 6.1 of the Company Disclosure Schedule;
(vii) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
(A) in the ordinary course of business consistent with past practice, (B)
in accordance with their terms of liabilities reflected or reserved against
in the most recent consolidated financial statements (or the notes thereto)
of the Company included in the Company SEC Documents filed and publicly
available prior to the date of this Agreement or incurred in the ordinary
course of business consistent with past practice since the date of such
financial statements or (C) involving an amount not to exceed $25 million
in the aggregate, or waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which the
Company or any of its Subsidiaries is a party;
(viii) except as required to comply with Applicable Law, (A) adopt, enter
into, terminate or amend any Employee Benefit Plan or other arrangement for
the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except for
normal increases or bonuses as contractually required pursuant to
agreements disclosed in the Company SEC Documents filed and publicly
available prior to the date of this Agreement or in Section 4.8 of the
Company Disclosure Schedule or in the ordinary course of business
consistent with past practice to employees other than directors and
executive officers of the Company and that, in the aggregate, do not result
in a significant increase in benefits or compensation expense to the
Company and its Subsidiaries relative to the level in effect prior to such
action and except as contractually required pursuant to agreements included
as part of a Company SEC Document filed and publicly available prior to the
date of this Agreement), (C) pay any benefit not provided for under any
Employee Benefit Plan, (D) except for payments or awards in cash permitted
by clause (B), grant any awards under any bonus, incentive, performance or
other compensation plan or arrangement or Employee Benefit Plan (including
the grant of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or the removal of
existing restrictions in any Employee Benefit Plans or agreements or awards
made thereunder) or (E) take any action to fund or in any other way secure
the payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or Employee Benefit Plan other than in the ordinary
course of business consistent with past practice; provided, however, that
the Company may take any action described in clauses (A), (B), (C) and (D)
above in connection with the retention of employees and the payment of
bonuses to executive officers of the Company (other than the Chairman of
the Board, Chief Executive Officer and President of the Company) in an
amount not to exceed 200% of their respective bonus compensation for fiscal
year 1995 and that, taken together, has an aggregate economic cost to the
Company not to exceed $10,000,000;
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(ix) except in the ordinary course of business, modify, amend or
terminate any contract or agreement set forth in the Company SEC Documents
to which the Company or any Subsidiary is a party or waive, release or
assign any material rights or claims;
(x) take or agree to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section
368(a)(1) of the Code;
(xi) conduct its business in a manner or take, or cause to be taken, any
other action that would or might reasonably be expected to prevent or
materially delay the Company or Acquiror from consummating the transactions
contemplated hereby in accordance with the terms of this Agreement
(regardless of whether such action would otherwise be permitted or not
prohibited hereunder), including, without limitation, any action which may
materially limit the ability of the Company or Acquiror to consummate the
transactions contemplated hereby as a result of antitrust, gaming or other
regulatory concerns; or
(xii) authorize any of, or commit or agree to take any of, the foregoing
actions.
6.2 Conduct of Business of Acquiror. Except as set forth in Section 6.2 of
the Acquiror Disclosure Schedule, from and after the date hereof to the
Effective Time, Acquiror shall, and shall cause its Subsidiaries to, carry on
their respective current operations in the ordinary course and use their
reasonable efforts to preserve intact their current business organizations,
keep available the services of their current officers and key employees and
preserve their relationships with desirable customers, suppliers and others
having business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired in all material respects at the Effective Time.
Without limiting the generality of the foregoing, prior to the Effective Time,
except as specifically permitted by the terms of this Agreement, Acquiror
shall not (and shall cause its Subsidiaries not to), without the written
consent of the Company, which consent may not be unreasonably withheld:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of Acquiror Common Stock, other than regular
quarterly dividends, or (B) other than the stock split described in Section
3.1(d), split, combine or reclassify any of its Acquiror Common Stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for Acquiror Common Stock;
(ii) issue or authorize the issuance of any shares of Acquiror Common
Stock or any option, warrant or right relating thereto or any securities
convertible into or exchangeable for any shares of Acquiror Common Stock at
less than fair market value per share of Acquiror Common Stock as
determined by the Board of Directors of Acquiror (other than pursuant to
the terms of existing options or benefit plans or convertible securities);
(iii) amend its Restated Certificate of Incorporation, by-laws or other
comparable charter or organizational documents in any manner adverse to the
holders of Acquiror Common Stock (other than the filing of a Certificate of
Designations for the issuance of any series of Preferred Stock of
Acquiror);
(iv) take or agree to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section
368(a)(1) of the Code;
(v) conduct its business in a manner or take, or cause to be taken, any
other action (including, without limitation, effecting or agreeing to
effect or announcing an intention or proposal to effect, any acquisition,
business combination, merger, consolidation, restructuring or similar
transaction) that would or might reasonably be expected to prevent or
materially delay Acquiror or the Company from consummating the transactions
contemplated hereby in accordance with the terms of this Agreement
(regardless of whether such action would otherwise be permitted or not
prohibited hereunder), including, without limitation, any action which may
materially limit the ability of Acquiror or the Company to consummate the
transactions contemplated hereby as a result of antitrust, gaming or other
regulatory concerns;
(vi) sell all or substantially all of the properties and assets of
Acquiror or merge, amalgamate or consolidate Acquiror with any other entity
in any transaction in which Acquiror is not the surviving corporation; or
(vii) authorize any of, or commit or agree to take any of, the foregoing
actions.
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Nothing contained in this Section 6.2 shall prohibit Acquiror from acquiring
or agreeing to acquire, whether by merger or consolidation or by purchase of
assets, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or interest
therein.
6.3 Access to Information. Each of the Company and Acquiror shall, and shall
cause each of its respective Subsidiaries to, afford to the other party and to
the officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours during the period prior to the Effective Time to all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, each of the Company and the Acquiror shall, and shall cause each
of its respective Subsidiaries to, furnish promptly to the other party (a) a
copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of Federal or state
securities laws and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request. Except as
required by Applicable Law, each of the Company and Acquiror will hold, and
will cause its respective officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information in confidence to the extent required by, and in accordance with,
the provisions of the letter, dated March 11, 1996, between the Company and
Acquiror (the "Confidentiality Agreement").
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Preparation of Form S-4 and the Proxy Statement/Prospectus;
Stockholders' Meeting. (a) Promptly following the date of this Agreement, the
Company and Acquiror shall prepare and file with the SEC the Proxy
Statement/Prospectus, and Acquiror shall prepare and file with the SEC the
Form S-4, in which the Proxy Statement/Prospectus shall be included. Each of
the Company and Acquiror shall use its reasonable best efforts to have the
Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The Company and Acquiror shall each use
reasonable best efforts to cause the Proxy Statement/Prospectus to be mailed
to their respective stockholders, as promptly as practicable after the Form S-
4 is declared effective under the Securities Act. Acquiror shall also take any
action (other than qualifying to do business in any jurisdiction in which it
is not now so qualified or consenting to service of process in any
jurisdiction in any action other than one arising out of the offering of the
Acquiror Common Stock in such jurisdiction) required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of shares of Acquiror Common Stock and New PRIDES in the Merger, and the
Company shall furnish all information concerning the Company as may be
reasonably requested in connection with any such action.
(b) Each of the Company and the Acquiror covenants that none of the
information supplied or to be supplied by it for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the Proxy
Statement/ Prospectus will, at the date it is first mailed to the stockholders
of the Company or Acquiror, or at the time of the Company Stockholders'
Meeting or the Acquiror Stockholders' Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement/
Prospectus and the Form S-4 will comply as to form in all material respects
with the requirements of the Exchange Act or the Securities Act, as the case
may be. Notwithstanding the foregoing, (i) no representation or covenant is
made by the Company with respect to statements made or incorporated by
reference therein based on information supplied in writing by Acquiror
specifically for inclusion or incorporation by reference in the Proxy
Statement/Prospectus and (ii) no representation or covenant is made by
Acquiror with respect to statements made or incorporated by reference therein
based on information supplied in writing by the Company for inclusion or
incorporation by reference in the Proxy Statement/Prospectus. If at any time
prior to the Effective Time there
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shall occur (i) any event with respect to the Company or any of its
Subsidiaries, or with respect to other information supplied by the Company for
inclusion in the Proxy Statement/Prospectus or (ii) any event with respect to
Acquiror, or with respect to information supplied by Acquiror for inclusion in
the Proxy Statement/Prospectus, in either case which event is required to be
described in an amendment of, or a supplement to, the Proxy
Statement/Prospectus or the Form S-4, such event shall be so described, and
such amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of the Company and to the
stockholders of Acquiror.
(c) Each of the Company and Acquiror shall promptly notify the other of the
receipt of any comments from the SEC or its staff or any other appropriate
government official and of any requests by the SEC or its staff or any other
appropriate government official for amendments or supplements to any of the
filings with the SEC in connection with the Merger and other transactions
contemplated hereby or for additional information and shall supply the other
with copies of all correspondence between the Company or any of its
representatives, or Acquiror or any of its representatives, as the case may
be, on the one hand, and the SEC or its staff or any other appropriate
government official, on the other hand, with respect thereto. The Company and
Acquiror shall use their respective reasonable efforts to respond to any
comments of the SEC with respect to the Form S-4 as promptly as practicable.
The Company and Acquiror shall cooperate with each other and provide to each
other all information necessary in order to prepare the Form S-4 and the Proxy
Statement/Prospectus, and shall provide promptly to the other parties any
information such party may obtain that could necessitate amending any such
document.
(d) The Company shall take all action necessary in accordance with
Applicable Law and its Restated Certificate of Incorporation and By-laws to
convene and hold a meeting of its stockholders (the "Company Stockholders'
Meeting") as promptly as practicable for the purpose of obtaining the Company
Stockholder Approval. The Company shall, through its Board of Directors,
recommend to its stockholders the adoption of this Agreement and the
transactions contemplated hereby and shall use its reasonable best efforts to
solicit from its stockholders proxies in favor of adoption of this Agreement
and to take all other lawful action necessary to secure the Company
Stockholder Approval. Notwithstanding the foregoing, the Company's obligation
to convene and hold the Company Stockholders' Meeting and to recommend the
adoption of this Agreement and to solicit proxies from its stockholders shall
be subject to any action (including any withdrawal or change of its
recommendation) taken by, or upon authority of, the Board of Directors of the
Company which the Board of Directors determines, based on the advice of
outside legal counsel to the Company, is required in the exercise of its
fiduciary duties to the Company's stockholders under Applicable Law.
(e) Acquiror shall take all action necessary in accordance with Applicable
Law and its Certificate of Incorporation and By-laws to convene and hold a
meeting of its stockholders (the "Acquiror Stockholders' Meeting") as promptly
as practicable for the purpose of obtaining the Acquiror Stockholder Approval.
Acquiror shall, through its Board of Directors, recommend to its stockholders
that they approve such issuances and shall use its reasonable best efforts to
solicit from its stockholders proxies in favor of approving such issuances and
to take all other lawful action necessary to secure the Acquiror Stockholder
Approval; provided, however, that such recommendation or solicitation is
subject to any action (including any withdrawal or change of its
recommendation) taken by, or upon authority of, the Board of Directors of
Acquiror which the Board of Directors determines, based on the advice of
outside legal counsel to Acquiror, is required in the exercise of its
fiduciary duties to the Acquiror's stockholders under Applicable Law.
(f) The Company and Acquiror shall coordinate and cooperate with each other
with respect to the timing of the Company Stockholders' Meeting and the
Acquiror Stockholders' Meeting and shall use their reasonable efforts to hold
such meetings on the same day and as soon as practicable after the date
hereof.
7.2 Letter of the Company's Accountants. The Company shall use its best
efforts to cause to be delivered to Acquiror a letter of Ernst & Young LLP,
the Company's independent public accountants, dated a date within two Business
Days before the date on which the Form S-4 shall become effective and
addressed to Acquiror, in form and substance reasonably satisfactory to
Acquiror and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
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7.3 Letter of Acquiror's Accountants. Acquiror shall use its best efforts to
cause to be delivered to the Company a letter of Arthur Andersen LLP,
Acquiror's independent public accountants, dated a date within two Business
Days before the date on which the Form S-4 shall become effective and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
7.4 Reasonable Best Efforts; Notification. (a) Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
all reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the
other transactions contemplated by this Agreement, including (i) the obtaining
of all necessary actions or nonactions, waivers, consents and approvals from
Governmental Authorities and the making of all necessary registrations and
filings (including filings with Governmental Authorities, if any) and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any Governmental
Authority (including in respect of any Gaming Law), (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of any of the
transactions contemplated by this Agreement, including seeking to have any
stay or temporary restraining order entered by any court or other Governmental
Authority vacated or reversed and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, this Agreement.
(b) The Company shall give prompt notice to Acquiror, and Acquiror shall
give prompt notice to the Company, of (i) any representation or warranty made
by it contained in this Agreement becoming untrue or inaccurate in any
material respect (including in the case of representations or warranties by
the Company or Acquiror, as applicable, such party's receiving knowledge of
any fact, event or circumstance which may cause any representation qualified
as to the knowledge of such party to be or become untrue or inaccurate in any
material respect) or (ii) the failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
7.5 Approval of Gaming Commissions; Regulatory Matters. Acquiror shall as
promptly as practicable, but in no event later than fifteen Business Days
following the execution and delivery of this Agreement, file or submit those
filings and other submissions under applicable Gaming Laws in connection with
the Merger, this Agreement and the transactions contemplated hereby, and to
respond as promptly as practicable to inquiries received from state or local
gaming authorities and to appear before such authorities as promptly as
practicable in order to obtain as soon as practicable those approvals and
consents required or necessary in connection with the Merger, this Agreement
or the transactions contemplated hereby. In addition, Acquiror shall, and
shall cause its Subsidiaries to (and shall use its reasonable efforts to cause
its affiliates other than its Subsidiaries to), if it is necessary to obtain
any regulatory approval for the Merger, disassociate themselves from any
person or persons deemed, or reasonably likely to be deemed, unacceptable by
any Gaming Commission and, in the case of any such person who is a nominee to
serve as a director of Acquiror or any of its Subsidiaries, Acquiror shall,
and shall cause its relevant Subsidiary or Subsidiaries to replace any such
director nominee with a suitable nominee. Acquiror shall keep the Company
apprised of the status of any communications with, and any inquiries or
requests for additional information from, the Gaming Commissions and shall
comply promptly with any such inquiry or request. Acquiror shall use its
reasonable best efforts to obtain all required approvals of the Gaming
Commissions for the consummation of the Merger no later than October 15, 1996.
7.6 Supplemental Disclosure. The Company shall confer on a regular and
frequent basis with Acquiror, report on operational matters and promptly
notify Acquiror of, and furnish Acquiror with, any information it may
reasonably request with respect to, any event or condition or the existence of
any fact that would cause any of the conditions to Acquiror's obligation to
consummate the Merger not to be completed, and Acquiror shall
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promptly notify the Company of, and furnish the Company any information it may
reasonably request with respect to, any event or condition or the existence of
any fact that would cause any of the conditions to the Company's obligation to
consummate the Merger not to be completed.
7.7 Announcements. Prior to the Closing, neither the Company nor Acquiror
will issue any press release or otherwise make any public statement with
respect to this Agreement and the transactions contemplated hereby without the
prior consent of the other (which consent shall not be unreasonably withheld),
except as may be required by Applicable Law or applicable stock exchange
regulations, in which event the party required to make the release or
announcement shall, if possible, allow the other party reasonable time to
comment on such release or announcement in advance of such issuance. The
parties agree that the initial press release to be issued with respect to the
transactions contemplated by this Agreement shall be in the form heretofore
agreed to by the parties.
7.8 No Solicitation. (a) From and after the date hereof until the Effective
Time, the Company shall not, nor shall it authorize any of its officers,
directors, employees, agents, investment bankers, attorneys, financial
advisors or other representatives (collectively, "Company Representatives") to
(i) solicit, initiate or knowingly encourage the submission of, any
Acquisition Proposal, (ii) enter into any agreement with respect to any
Acquisition Proposal, or (iii) participate in any discussions or negotiations
regarding, or furnish to any Person any non-public information with respect
to, or take any other action to knowingly facilitate any inquiries or the
making of any proposal that constitutes or would reasonably be expected to
lead to, an Acquisition Proposal; provided, however, that, notwithstanding
anything to the contrary in this Agreement, (i) the Company may participate in
discussions or negotiations with, and may furnish information concerning the
Company and its business, properties and assets to, a Third Party who, without
any solicitation by the Company or any Company Representatives after the date
of this Agreement, seeks to engage in such discussions or negotiations or
requests such information, if (1) the Board of Directors of the Company
determines, based on the advice of the Company's outside legal counsel, that
failing to engage in such discussion or negotiations or provide such
information would reasonably be expected to violate the fiduciary duties of
the Board of Directors of the Company to its stockholders and (2) prior to
engaging in discussions or negotiations with, or furnishing information to,
such Third Party, the Company shall receive from such Third Party an executed
confidentiality agreement in reasonably customary form on terms not more
favorable to such Person or entity than the terms contained in the
Confidentiality Agreement, and (ii) the Board of Directors of the Company may
take and disclose to the Company's stockholders a position with regard to a
tender offer or exchange offer contemplated by Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act and may make such disclosure to the
stockholders of the Company as may be required under Applicable Law; provided,
that the Board of Directors of the Company shall not recommend that the
stockholders of the Company tender their shares of Company Common Stock unless
such recommendation is permitted by Section 7.8(d).
(b) The Company shall notify Acquiror of any Acquisition Proposal, including
the identity of the Third Party making any such Acquisition Proposal and the
material terms and conditions of any Acquisition Proposal.
(c) As used in this Agreement, "Acquisition Proposal" shall mean any
proposal or offer from any person relating to (i) any direct or indirect
acquisition or purchase of more than 20% of either the capital stock of the
Company or the consolidated assets of the Company and its Subsidiaries taken
as a whole, (ii) any tender offer or exchange offer that if consummated would
result in any person beneficially owning 20% or more of the capital stock of
the Company or (iii) any merger, consolidation or business combination,
involving the Company other than the transactions contemplated by this
Agreement; provided, however, that any acquisition of shares of capital stock
of the Company by FMR Corp. (and its subsidiaries, Fidelity Management &
Research Company and Fidelity Management Trust Company) described in clause
(i) shall not constitute an Acquisition Proposal.
(d) Notwithstanding anything to the contrary in this Agreement, the Board of
Directors of the Company shall be permitted from time to time to take the
following actions in the circumstances described below: (i) to withdraw or
modify its approval or recommendation of this Agreement or the Merger in a
manner adverse to Acquiror; or (ii) to approve or recommend or enter into an
agreement with respect to an Acquisition Proposal; if,
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in each such case, (A) an Acquisition Proposal is publicly proposed, publicly
disclosed or communicated to the Company and (B) the Board of Directors of the
Company determines, based on the advice of the Company's outside legal
counsel, that such action is required in order to comply with its fiduciary
duties to the stockholders of the Company. No action by the Board of Directors
of the Company permitted by the preceding sentence (each, a "Permitted
Action") shall constitute a breach of this Agreement by the Company, provided
that such Permitted Action shall give rise to the rights of Acquiror set forth
in Section 9.3.
7.9 Indemnification; Directors' and Officers' Insurance. (a) Until the
Effective Time the Company shall, and from and after the Effective Time,
Acquiror shall, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer or director of the Company or any of its
Subsidiaries (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including reasonable attorneys' fees and expenses),
liabilities or judgments or amounts that are paid in settlement of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or substantially on, or arising in whole or
substantially out of the fact that such person is or was a director or officer
of the Company or any of its Subsidiaries, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted
or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or
substantially on, or arising in whole or substantially out of, or pertaining
to this Agreement or the transactions contemplated hereby, in each case to the
fullest extent a corporation is permitted under the DGCL to indemnify its own
directors or officers as the case may be (and the Company or the Surviving
Corporation, as the case may be, will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted by law).
(b) The Acquiror shall and shall cause the Subsidiaries of the Surviving
Corporation to keep in effect provisions in their respective Certificates of
Incorporation and By-laws providing for exculpation for director, officer and
employee liability and such corporation's indemnification of the Indemnified
Parties to the fullest extent permitted under the DGCL, which provisions shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at any time prior to the Effective Time were
directors, officers or employees of the Company in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by law.
(c) For a period of six years after the Effective Time, Acquiror shall cause
to be maintained in effect the current policies of directors' and officers'
liability insurance maintained by the Company and its Subsidiaries (provided
that Acquiror may substitute therefor policies of at least the same coverage
and amounts containing terms and conditions that are no less advantageous in
any material respect to the Indemnified Parties) with respect to matters
arising before the Effective Time, provided that Acquiror shall not be
required to pay an annual premium for such insurance in excess of 150% of the
last annual premium paid by the Company prior to the date hereof, but in such
case shall purchase as much coverage as possible for such amount.
(d) After the Effective Time, any Indemnified Party wishing to claim
indemnification under this Section, upon learning of any such action, suit,
claim, proceeding or investigation, shall notify Acquiror within 30 days
thereof; provided, however, that any failure so to notify Acquiror of any
obligation to indemnify such Indemnified Party or of any other obligation
imposed by this Section shall not affect such obligations except to the extent
Acquiror is materially prejudiced thereby. Acquiror shall be entitled to
assume the defense of any such action, suit, claim, proceeding or
investigation with counsel of its choice (who shall be reasonably acceptable
to the Indemnified Party), unless there is a conflict between the positions of
Acquiror, on the one hand, and the Indemnified Party, on the other, in which
event the Indemnified Party, together with all other similarly situated
Indemnified Parties in the same proceeding as a group, may retain one law firm
and one local counsel to represent them with respect to such matter, the cost
of which shall be borne by Acquiror. Neither Acquiror, on the one hand, nor
any Indemnified Party, on the other hand, may settle any such action, suit,
claim, proceeding or investigation without the prior written consent of the
other party, which consent shall not be unreasonably withheld or delayed.
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(e) The provisions of this Section 7.9 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Acquiror and the Company.
7.10 NYSE Listing. Acquiror shall use its reasonable efforts to cause the
shares of Acquiror Common Stock and New PRIDES to be issued in the Merger to
be approved for listing on the NYSE, subject to notice of official issuance,
prior to the Effective Time.
7.11 Affiliates. Prior to the Closing Date, the Company shall deliver to
Acquiror a letter identifying all persons who are, at the time this Agreement
is submitted for approval to the stockholders of the Company, "affiliates" of
the Company for purposes of Rule 145 under the Securities Act. The Company
shall use its best efforts to cause each such person to deliver to Acquiror on
or prior to the Closing Date a written agreement substantially in the form
attached as Exhibit F.
7.12 Rights Agreement. The Board of Directors of the Company shall take all
action necessary to render the Company Rights or any similar instrument
inapplicable to the Merger and to effect the conversion of the Company Rights
as of the Effective Date in accordance with Section 3.1(c) hereof.
7.13 Employee Benefits. (a) Acquiror shall or shall cause the Surviving
Corporation to maintain in effect employee benefit plans and arrangements
which provide benefits which have a value which is substantially comparable,
in the aggregate, to the benefits provided by the Employee Benefit Plans (not
taking into account the value of any benefits under any such plans which are
equity based) for a period of one year after the Effective Time.
(b) Acquiror shall honor all employment, severance and termination
agreements (including change in control provisions) of the employees of the
Company and its Subsidiaries.
(c) For purposes of determining eligibility to participate and vesting, but
not accrual or entitlement to benefits (other than severance benefit accrual)
where length of service is relevant under any employee benefit plan or
arrangement of Acquiror or the Surviving Corporation, employees of the Company
and its Subsidiaries as of the Effective Time shall receive service credit for
service with the Company and any of its Subsidiaries to the same extent such
service was granted under the Employee Benefit Plans.
(d) The provisions of Section 7.13(b) are intended to be for the benefit of
and shall be enforceable by each applicable employee and his heirs and
personal representatives and shall be binding on all successors and assigns of
Acquiror, the Surviving Corporation and its Subsidiaries.
(e) In the event the Surviving Corporation terminates any Employee Benefit
Plan which provides pension, profit sharing or non-qualified deferred
compensation benefits, the Acquiror shall use its reasonable best efforts to
provide the participants and beneficiaries under any such plan with the means
to maintain and continue tax deferred treatment of such benefits, other than
through the use of an individual retirement account.
7.14 Tax Treatment. Each of Acquiror and the Company shall use its best
efforts to cause the Merger to qualify as a reorganization under the
provisions of Sections 368(a) of the Code and use its reasonable best efforts
to obtain the opinions of counsel referred to in Sections 8.2(c) and 8.3(c).
7.15 Transfer Taxes. The Company and Acquiror shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer and stamp taxes, any transfer, recording, registration and other fees
and any similar taxes that become payable in connection with the transactions
contemplated by this Agreement ("Transfer Taxes"). The Company shall pay or
cause to be paid any such Transfer Taxes.
7.16 Subsidiary Merger. Immediately prior to the Effective Time, the Company
will effect the merger of Bally's Casino, Inc., all of the common stock of
which is owned by the Company, with and into the Company
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(the "Subsidiary Merger"), with the Company as the surviving corporation,
pursuant to the terms of a merger agreement which shall be in form and
substance reasonably satisfactory to Acquiror. At the effective time of the
Subsidiary Merger (the "Subsidiary Effective Time"), all outstanding shares of
Bally's Casino, Inc. common stock shall be cancelled and all outstanding
shares of Subsidiary Preferred Stock shall, by virtue of the merger and
without any action on the part of the holder thereof, be converted into the
right to receive a number of fully paid and non-assessable shares of Company
Common Stock (rounded-up to the nearest whole number) equal to the sum of: (i)
the number of shares of Company Common Stock exchangeable for the Subsidiary
Preferred Stock pursuant to the present terms of the Subsidiary Preferred
Stock, and (ii) the number of shares of Company Common Stock equal to the
quotient of (A) the product of (1) the average of the last sale prices of the
common stock of Bally Total Fitness Holding Corporation ("Bally Fitness")
quoted on the Nasdaq National Market (as reported by the Wall Street Journal)
for the thirty consecutive trading days ending on the third trading day prior
to the Subsidiary Effective Time, and (2) the number of shares of common stock
of Bally Fitness transferable pursuant to the present terms of the Subsidiary
Preferred Stock upon exchange of such Subsidiary Preferred Stock immediately
prior to the Subsidiary Effective Time, divided by (B) the average of the last
sale prices of the Company Common Stock quoted on the NYSE for the thirty
consecutive trading days ending on the third trading day prior to the
Subsidiary Effective Time. All shares of Company Common Stock issuable in the
Subsidiary Merger shall be deemed issued and outstanding immediately prior to
the Effective Time.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approvals. The Company shall have obtained the Company
Stockholder Approval and Acquiror shall have obtained the Acquiror
Stockholder Approval.
(b) HSR Act. The applicable waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have expired or been
earlier terminated.
(c) No Injunctions or Restraints. No statute, rule, regulation, decree,
preliminary or permanent injunction, temporary restraining order or other
order of any nature of any court or Governmental Authority shall be in
effect that restrains, prevents or materially changes the transactions
contemplated hereby; provided, however, that in the case of a decree,
injunction or other order, the party invoking this condition shall have
used reasonable efforts to prevent the entry of any such injunction or
other order and to appeal as promptly as possible any decree, injunction or
other order.
(d) Form S-4. The Form S-4 shall have been declared effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and other
state securities laws applicable to the issuance of the Acquiror Common
Stock and New PRIDES pursuant to this Agreement shall have been complied
with.
(e) NYSE Listing. The shares of Acquiror Common Stock and New PRIDES
issuable to the Company's stockholders in the Merger shall have been
approved for listing on the NYSE, subject to official notice of issuance.
8.2 Conditions of Obligations of Acquiror. The obligations of Acquiror to
effect the Merger are further subject to the satisfaction of the following
conditions, any or all of which may be waived on or prior to the Closing Date
in whole or in part by Acquiror:
(a) Representations and Warranties. The representations and warranties of
the Company shall be true and correct in all material respects, at and as
of the Closing Date, except for changes permitted or contemplated by this
Agreement and except to the extent that any representation or warranty is
expressly
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made as of a specified date, in which case such representation or warranty
shall be true and correct only as of such date. Acquiror shall have
received a certificate from the Company dated the Closing Date signed on
behalf of the Company by an authorized officer of the Company certifying to
the fulfillment of this condition.
(b) Agreements. The Company shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or
prior to or at the Closing Date and shall have complied or be in compliance
in all material respects with any agreement or covenant of the Company to
be performed by it under this Agreement at or prior to the Closing Date,
and Acquiror shall have received a certificate from the Company dated the
Closing Date signed on behalf of the Company by an authorized officer of
the Company certifying to the fulfillment of this condition.
(c) Tax Opinion. Acquiror shall have received an opinion of Latham &
Watkins, dated the Closing Date, to the effect that for federal income tax
purposes (i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code; (ii) each of Acquiror and the Company will
be a party to the reorganization within the meaning of Section 368(b) of
the Code; and (iii) no gain or loss will be recognized by the Company or
Acquiror as a result of the Merger, and substantially in the form of
Exhibit A. In rendering such opinion, Latham & Watkins shall receive and
may rely upon representations contained in certificates of the Company,
Acquiror, and certain stockholders of the Company substantially in the
forms of Exhibits C, D, and E.
(d) Letters from Affiliates. Acquiror shall have received from each
person in the letter referred to in Section 7.11 an executed copy of an
agreement substantially in the form of Exhibit F.
(e) Consents. All necessary approvals or authorizations of any
Governmental Authority required or necessary under applicable Gaming Laws
in connection with the Merger shall have been obtained.
(f) Litigation. There shall not have entered any order by any
Governmental Authority in any suit, action or proceeding, which (i)
restrains or prohibits the Merger or any of the other transactions
contemplated by this Agreement, (ii) requires the payment of damages by
Acquiror in connection with the Merger which damages are material to the
Acquiror and its Subsidiaries taken as a whole (determined after giving
effect to the Merger), (iii) prohibits or limits the ownership or operation
by Acquiror and its Subsidiaries of, or compels Acquiror or any of its
Subsidiaries to dispose of or hold separate, any business or assets which
are material to Acquiror and its Subsidiaries taken as a whole, in each
case as a result of the Merger or any of the other transactions
contemplated by this Agreement, (iv) imposes limitations on the ability of
Acquiror to acquire or hold, or exercise full rights of ownership of,
shares of capital stock of the Subsidiaries of the Company, which
limitations would have a Material Adverse Effect with respect to Acquiror
(determined after giving effect to the Merger).
(g) Company Rights. The Company Rights shall not have become
nonredeemable, exercisable or triggered pursuant to the terms of the
Company Rights Agreement.
8.3 Conditions of Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to the satisfaction of the following
conditions, any or all of which may be waived on or prior to the Closing Date
in whole or in part by the Company:
(a) Representations and Warranties. The representations and warranties of
Acquiror made hereunder shall be true and correct in all material respects
at and as of the Closing Date, except for changes permitted or contemplated
by this Agreement and except to the extent that any representation or
warranty is expressly made as of a specified date, in which case such
representation or warranty shall be true and correct only as of such date.
The Company shall have received a certificate from Acquiror dated the
Closing Date signed on behalf of Acquiror by an authorized officer of
Acquiror certifying to the fulfillment of this condition.
(b) Agreements. Acquiror shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or
prior to or at the Closing Date and shall have complied or be in compliance
in all material respects with any applicable agreement or covenant of
Acquiror to be performed
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by Acquiror under this Agreement at or prior to the Closing Date, and the
Company shall have received the certificates from the Acquiror dated the
Closing Date signed on behalf of Acquiror by an authorized officer of
Acquiror certifying to the fulfillment of this condition.
(c) Litigation. There shall not have entered any order by any
Governmental Authority in any suit, action or proceeding, which (i)
requires the payment of damages by Acquiror which would have a Material
Adverse Effect with respect to Acquiror (determined after giving effect to
the Merger), (ii) prohibits or materially limits the ownership or operation
by Acquiror or any of its Subsidiaries of, or compels Acquiror or any of
its Subsidiaries to dispose of or hold separate, any business or assets
which are material to Acquiror and its Subsidiaries taken as a whole
(determined after giving effect to the Merger), in each case as a result of
the Merger or any of the other transactions contemplated by this Agreement,
or (iii) which otherwise is reasonably likely to have a Material Adverse
Effect with respect to Acquiror (determined after giving effect to the
Merger).
(d) Tax Opinion. The Company shall have received an opinion of Weil,
Gotshal & Manges LLP, dated the Closing Date, to the effect that for
federal income tax purposes (i) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code; (ii) each of Acquiror and
the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code; and (iii) no gain or loss will be recognized by
a stockholder of the Company as a result of the Merger except (x) with
respect to cash received by such stockholder in lieu of fractional shares
and (y) if a stockholder receives any Cash Consideration, gain, if any,
realized by such stockholder pursuant to the Merger will be recognized, but
not in excess of any Cash Consideration received, and substantially in the
form of Exhibit B. In rendering such opinion, Weil, Gotshal & Manges LLP
shall receive and may rely upon representations contained in certificates
of the Company, Acquiror and certain stockholders of the Company
substantially in the forms of Exhibits C, D and E.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
Company Stockholder Approval or Acquiror Stockholder Approval have been
obtained:
(a) by mutual written consent of the Company, on the one hand, and
Acquiror, on the other hand, or by mutual action of their respective boards
of directors;
(b) by Acquiror, if any of the conditions set forth in Section 8.2 shall
have become incapable of fulfillment (other than as a result of any breach
by Acquiror of the terms of this Agreement) and shall not have been waived
by Acquiror;
(c) by the Company, if any of the conditions set forth in Section 8.3
shall have become incapable of fulfillment (other than as a result of any
breach by the Company of the terms of this Agreement), and shall not have
been waived by the Company;
(d) by either the Company or Acquiror, if the Merger shall not have been
consummated on or before the earlier of (i) the 90th day following the
mailing of the Proxy Statement/Prospectus and (ii) March 31, 1997 (the
"Termination Date"), unless the failure to consummate the Merger is the
result of a willful and material breach of this Agreement by the party
seeking to terminate this Agreement;
(e) by either the Company or Acquiror if any of the conditions set forth
in Section 8.1 shall have become incapable of fulfillment (other than as a
result of any breach by the party seeking to terminate the Agreement) and
shall not have been waived in accordance with the terms of this Agreement;
(f) by the Company, pursuant to Section 3.1(c)(i);
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(g) by Acquiror, if the Board of Directors of the Company shall have
taken any Permitted Action in accordance with the provisions of Section
7.8(d); or
(h) by the Company if (i) the Board of Directors pursuant to Section
7.8(d) withdraws or modifies its approval or recommendation of this
Agreement or (ii) the Company enters into a definitive agreement providing
for the implementation of an Acquisition Proposal in accordance with the
provisions of Section 7.8.
9.2 Effect of Termination. In the event of termination by the Company or
Acquiror pursuant to Section 9.1, written notice thereof shall promptly be
given to the other parties and, except as otherwise provided herein, the
transactions contemplated by this Agreement shall be terminated and become
void and have no effect, without further action by any party, other than the
provisions of the last sentence of Section 6.3 and Sections 9.2 and 9.3 and
Article X. Nothing in this Section 9.2 shall be deemed to release any party
from any liability for any willful and material breach by such party of the
terms and provisions of this Agreement.
9.3 Fees and Expenses. (a) In order to induce Acquiror to, among other
things, enter into this Agreement, the Company agrees to pay Acquiror the fees
and expenses set forth in Sections 9.3(b) and 9.3(c).
(b) Unless there shall have been a material misrepresentation by or material
breach of any material obligation of Acquiror hereunder which would entitle
the Company to terminate this Agreement under Section 9.1, if:
(i) an Acquisition Proposal is commenced, publicly proposed, publicly
disclosed or communicated to the Company after the date of this Agreement,
and (A) the Board of Directors of the Company takes any Permitted Action
under Section 7.8(d) and (B) this Agreement is terminated by Acquiror
pursuant to Section 9.1(g) following the Company's taking a Permitted
Action or by the Company pursuant to Section 9.1(h); or
(ii) an Acquisition Proposal is publicly commenced, proposed or disclosed
after the date of this Agreement and prior to the date of the Company
Stockholders Meeting and this Agreement is terminated pursuant to Section
9.1(e) following the rejection of this Agreement at the Company
Stockholders Meeting; or
(iii) this Agreement is terminated by Acquiror pursuant to Section 9.1(b)
based on the failure of the condition set forth in Section 8.2(g);
and within one year following any such termination, an Acquisition Proposal is
consummated or the Company enters into an agreement with respect thereto, then
the Company shall pay to Acquiror within five business days following such
occurrence a fee (the "Topping Fee") of $50 million in cash; provided,
however, that in no event shall the Company be obligated to pay more than one
such fee with respect to all such occurrences.
(c) If a Topping Fee is payable to Acquiror pursuant to Section 9.3(b), then
the Company shall also reimburse Acquiror (not later than five business days
after submission of statements therefor) for all documented out-of-pocket (not
including allocation of overhead) fees and expenses ("Expenses") actually
incurred by it prior to such termination in connection with the proposed
Merger and the consummation of all transactions contemplated by this Agreement
(including fees and expenses of counsel, investment banking firms,
accountants, experts and consultants); provided, that the aggregate amount of
Expenses required to be reimbursed pursuant to this Section shall not exceed
$5 million.
9.4 Amendment. Subject to Applicable Law, this Agreement may be amended,
modified or supplemented only by written agreement of Acquiror and the Company
at any time prior to the Effective Date with respect to any of the terms
contained herein; provided, however, that, after receipt of the Company
Stockholder Approval, no such amendment or modification shall reduce the
amount or change the form of consideration to be delivered to the stockholders
of the Company.
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9.5 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective boards of directors,
may, to the extent legally allowed: (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto; (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto; and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party. The failure of any
party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
ARTICLE X
GENERAL PROVISIONS
10.1 Effectiveness of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Article IX, except that the agreements set forth in Articles II and III and
Sections 7.9 and 7.13 shall survive the Effective Time and those set forth in
Sections 9.2, 9.3 and Article X hereof shall survive termination.
10.2 Expenses. Except as otherwise provided herein, including in Section
9.3, each of the parties hereto shall pay the fees and expenses of its
respective counsel, accountants and other experts and shall pay all other
costs and expenses incurred by it in connection with the negotiation,
preparation and execution of this Agreement and the consummation of the
transactions contemplated hereby.
10.3 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without reference to choice
of law principles, including all matters of construction, validity and
performance (except to the extent that the provisions of the DGCL shall be
mandatorily applicable to the Merger or this Agreement).
10.4 Notices. Notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if signed by the respective persons giving them (in the case of any
corporation the signature shall be by an officer thereof) and delivered by
hand, deposited in the United States mail (registered or certified, return
receipt requested), properly addressed and postage prepaid, or delivered by
telecopy:
If to the Company, to:
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
Attention: James S. Montana, Jr., Esq.
Facsimile: (312) 399-0168
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Dennis J. Block, Esq.
Facsimile: (212) 310-8007
A-36
<PAGE>
and:
If to Acquiror, to:
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Attention: William C. Lebo, Jr., Esq.
Facsimile: (310) 205-7677
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Bruce E. Rosenblum, Esq.
Facsimile: (202) 637-2201
Such names and addresses may be changed by notice given in accordance with
this Section 10.4.
10.5 Entire Agreement. This Agreement (including the Company Disclosure
Schedule, the Acquiror Disclosure Schedule and the Exhibits attached hereto,
all of which are a part hereof) and the Confidentiality Agreement contain the
entire understanding of the parties hereto and thereto with respect to the
subject matter contained herein and therein, supersede and cancel all prior
agreements, negotiations, correspondence, undertakings and communications of
the parties, oral or written, respecting such subject matter. There are no
restrictions, promises, representations, warranties, agreements or
undertakings of any party hereto with respect to the transactions contemplated
by this Agreement other than those set forth herein or made hereunder.
10.6 Disclosure Schedule. The Disclosure Schedule, dated the date hereof,
delivered by the Company to Acquiror (the "Company Disclosure Schedule") and
the Disclosure Schedule, dated the date hereof, delivered by Acquiror to the
Company (the "Acquiror Disclosure Schedule") are incorporated into this
Agreement by reference and made a part hereof. Nothing disclosed in the
Company Disclosure Schedule or the Acquiror Disclosure Schedule shall be
deemed to be an admission that such matters are material or are required to be
disclosed herein. Certain immaterial items or items that are not entirely
responsive to the information required in a Schedule may be included in
various Schedules as further clarification or assistance to the parties in
understanding the business and operations of the parties or in consummating
the transactions contemplated herein.
10.7 Headings; References. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. All
references herein to "Articles", "Sections" or "Exhibits" shall be deemed to
be references to Articles or Sections hereof or Exhibits hereto unless
otherwise indicated.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all
of which shall constitute one and the same original.
10.9 Parties in Interest; Assignment. Neither this Agreement nor any of the
rights, interest or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. Subject
to the preceding sentence this agreement shall inure to the benefit of and be
binding upon the Company and Acquiror and shall inure to the sole benefit of
the Company and Acquiror and their respective successors and permitted
assigns. Except as set forth in Sections 7.9 and 7.13 nothing in this
Agreement, express or implied, is intended to confer upon any other Person any
rights or remedies under or by reason of this Agreement.
10.10 Severability; Enforcement. Except to the extent that the application
of this Section 10.10 would have a Material Adverse Effect with respect to
Acquiror or the Company, the invalidity of any portion hereof shall
A-37
<PAGE>
not affect the validity, force or effect of the remaining portions hereof. If
it is ever held that any restriction hereunder is too broad to permit
enforcement of such restriction to its fullest extent, each party agrees that
a court of competent jurisdiction may enforce such restriction to the maximum
extent permitted by law, and each party hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such restriction.
10.11 Specific Performance. The parties hereto agree that the remedy at law
for any breach of this Agreement will be inadequate and that any party by whom
this Agreement is enforceable shall be entitled to specific performance in
addition to any other appropriate relief or remedy. Such party may, in its
sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by Applicable Law, each party waives any objection to
the imposition of such relief.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
HILTON HOTELS CORPORATION
/s/ Stephen F. Bollenbach
By: _________________________________
Name: Stephen F. Bollenbach
Title:President and
Chief Executive Officer
BALLY ENTERTAINMENT CORPORATION
/s/ Arthur Goldberg
By: _________________________________
Name: Arthur J. Goldberg
Title:Chairman of the Board,
President and Chief
Executive Officer
A-38
<PAGE>
EXHIBIT A
TO APPENDIX A
, 1996
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Ladies & Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the merger (the "Merger") of Bally Entertainment Corporation
("BEC"), a Delaware corporation with and into Hilton Hotels Corporation
("HHC"), a Delaware corporation.
In formulating our opinion, we examined such documents as we deemed
appropriate, including the Agreement and Plan of Merger among BEC and HHC
dated as of June , 1996 (the "Merger Agreement"), the Joint Proxy
Statement/Prospectus filed by BEC and HHC with the Securities and Exchange
Commission (the "SEC") on , 1996 (the "Joint Proxy Statement"), and the
Registration Statement on Form S-4, as filed by HHC with the SEC on ,
1996, in which the Joint Proxy Statement/Prospectus is included as a
prospectus, (with all amendments thereto, the "Registration Statement"). In
addition, we have obtained such additional information as we deemed relevant
and necessary through consultation with various officers and representatives
of BEC and HHC.
Our opinion set forth below assumes (1) the accuracy of the statements and
facts concerning the Merger set forth in the Merger Agreement, the Joint Proxy
Statement, and the Registration Statement, (2) the consummation of the Merger
in the manner contemplated by, and in accordance with the terms set forth in,
the Merger Agreement, the Joint Proxy Statement and the Registration Statement
and (3) the accuracy of (i) the representations made by BEC, which are set
forth in the Certificate delivered to us by BEC, dated the date hereof, (ii)
the representations made by HHC, which are set forth in the Certificate
delivered to us by HHC, dated the date hereof and (iii) the representations
made by certain shareholders of BEC in Certificates delivered to us by such
persons dated the date hereof.
Based upon the facts and statements set forth above, our examination and
review of the documents referred to above and subject to the assumptions set
forth above, we are of the opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Each of BEC and HHC will be a party to the reorganization within the
meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by BEC or HHC as a result of the
Merger.
We express no opinion concerning any tax consequences of the Merger other than
those specifically set forth herein.
<PAGE>
Hilton Hotels Corporation
, 1996
Page 2
Our opinion is based on current provisions of the Code, the Treasury
Regulations promulgated thereunder, published pronouncement of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or facts and circumstances
surrounding the Merger, or any inaccuracy in the statements, facts,
assumptions and representations on which we have relied, may affect the
continuing validity of the opinions set forth herein. We assume no
responsibility to inform you of any such change or inaccuracy that may occur
or come to our attention.
Very truly yours,
2
<PAGE>
EXHIBIT B
TO APPENDIX A
, 1996
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
Ladies & Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the merger (the "Merger") of Bally Entertainment Corporation
("BEC"), a Delaware corporation with and into Hilton Hotels Corporation
("HHC"), a Delaware corporation.
In formulating our opinion, we examined such documents as we deemed
appropriate, including the Agreement and Plan of Merger among BEC and HHC
dated as of June , 1996, as amended (the "Merger Agreement"), the Joint Proxy
Statement/Prospectus filed by BEC and HHC with the Securities and Exchange
Commission (the "SEC") on , 1996 (the "Joint Proxy Statement"), and the
Registration Statement on Form S-4, as filed by HHC with the SEC on ,
1996, in which the Joint Proxy Statement/Prospectus is included as a
prospectus, (with all amendments thereto, the "Registration Statement"). In
addition, we have obtained such additional information as we deemed relevant
and necessary through consultation with various officers and representatives
of BEC and HHC.
Our opinion set forth below assumes (1) the accuracy of the statements and
facts concerning the Merger set forth in the Merger Agreement, the Joint Proxy
Statement, and the Registration Statement, (2) the consummation of the Merger
in the manner contemplated by, and in accordance with the terms set forth in,
the Merger Agreement, the Joint Proxy Statement and the Registration Statement
and (3) the accuracy of (i) the representations made by BEC, which are set
forth in the Certificate delivered to us by BEC, dated the date hereof, (ii)
the representations made by HHC, which are set forth in the Certificate
delivered to us by HHC, dated the date hereof and (iii) the representations
made by certain shareholders of BEC in Certificates delivered to us by such
persons dated the date hereof.
Based upon the facts and statements set forth above, our examination and
review of the documents referred to above and subject to the assumptions set
forth above, we are of the opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Each of BEC and HHC will be a party to the reorganization within the
meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by a stockholder of BEC as a result of
the Merger except (i) with respect to cash received by such stockholder in
lieu of fractional shares and (ii) if a stockholder receives the
Additional Cash Payment (as defined in the Joint Proxy
Statement/Prospectus), gain, if any, realized by such stockholder pursuant
to the Merger will be recognized, but not in excess of the Additional Cash
Payment received.
The foregoing opinions do not address the United States federal income tax
consequences of the Merger to a non-U.S. Holder (as defined in the Joint Proxy
Statement/Prospectus), including, without limitation, the application of
Section 897 of the Code to such holder. We express no opinion concerning any
tax consequences of the Merger other than those specifically set forth herein.
<PAGE>
Bally Entertainment Corporation
, 1996
Page 2
Our opinion is based on current provisions of the Code, the Treasury
Regulations promulgated thereunder, published pronouncement of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or facts and circumstances
surrounding the Merger, or any inaccuracy in the statements, facts,
assumptions and representations on which we have relied, may affect the
continuing validity of the opinions set forth herein. We assume no
responsibility to inform you of any such change or inaccuracy that may occur
or come to our attention.
Very truly yours,
2
<PAGE>
EXHIBIT C
TO APPENDIX A
BALLY ENTERTAINMENT CORPORATION
CERTIFICATE
In connection with your tax opinion dated , 1996 regarding certain
federal income tax consequences of the merger (the "Merger") of Bally
Entertainment Corporation, a Delaware corporation ("BEC"), with and into
Hilton Hotels Corporation, a Delaware corporation ("HHC"), pursuant to the
Agreement and Plan of Merger dated as of June , 1996, as amended (the
"Merger Agreement"), and recognizing that you will rely on this Certificate in
delivering said opinion, BEC hereby represents that the facts relating to the
Merger, as such facts are described in the Registration Statement of HHC filed
with the Securities and Exchange Commission (the "Commission") on ,
1996 (and all amendments thereto) are, insofar as such facts pertain to BEC
true, correct, and complete in all material respects in accordance with
applicable rules of the Commission.
BEC further represents the following:
1. The fair market value of the HHC stock, cash (if any) and any cash in
lieu of fractional shares received by each BEC shareholder will be
approximately equal to the fair market value of the BEC stock surrendered
in the exchange.
2. There is no plan or intention of the shareholders of BEC who own 5
percent or more of the BEC stock, and to the best of the knowledge of the
management of BEC, there is no plan or intention on the part of the
remaining shareholders of BEC to sell, exchange, or otherwise dispose of a
number of shares of HHC stock received in the transaction that would reduce
the BEC shareholders' ownership of HHC stock to a number of shares having a
value on the date of the transaction of less than 50 percent of the value
of all of the formerly outstanding stock of BEC as of the same date. For
purposes of the representation, shares of BEC stock exchanged or redeemed
for cash, surrendered by dissenters or exchanged for cash in lieu of
fractional shares of HHC stock will be treated as outstanding BEC stock on
the date of the transaction. Moreover, shares of BEC stock and shares of
HHC stock held by BEC shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the transaction will be considered in
making this representation.
3. The liabilities of BEC assumed by HHC and the liabilities to which the
transferred assets of BEC are subject were incurred by BEC in the ordinary
course of its business.
4. HHC, BEC and the shareholders of BEC will pay their respective
expenses, if any, incurred in connection with the Merger.
5. There is no intercorporate indebtedness existing between BEC and HHC
that was issued, acquired, or will be settled at a discount.
6. BEC is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended
(the "Code").
7. BEC is not under the jurisdiction of a court in a title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
8. None of the compensation received by any shareholder-employees of BEC
will be separate consideration for, or allocable to, any of their shares of
BEC stock; none of the shares of HHC stock received by any shareholder-
employees will be separate consideration for, or allocable to, any
employment agreement, and the compensation paid to any shareholder-
employees will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services.
<PAGE>
9. The Merger Agreement represents the full and complete agreement
between HHC and BEC regarding the Merger, and there are no other written or
oral agreements regarding the Merger other than those expressly referred to
in the Merger Agreement.
IN WITNESS WHEREOF, BEC has executed this Certificate on this day of
, 1996.
Bally Entertainment Corporation
By: _________________________________
2
<PAGE>
EXHIBIT D
TO APPENDIX A
HILTON HOTELS CORPORATION
CERTIFICATE
In connection with your tax opinion dated , 1996 regarding certain
federal income tax consequences of the merger (the "Merger") of Bally
Entertainment Corporation, a Delaware corporation ("BEC"), with and into
Hilton Hotels Corporation, a Delaware corporation ("HHC"), pursuant to the
Agreement and Plan of Merger dated as of June , 1996 (the "Merger
Agreement"), and recognizing that you will rely on this Certificate in
delivering said opinion, HHC hereby represents that the facts relating to the
Merger, as such facts are described in the Registration Statement of HHC filed
with the Securities and Exchange Commission (the "Commission") on ,
1996 (and all amendments thereto) are, insofar as such facts pertain to HHC
true, correct, and complete in all material respects in accordance with
applicable rules of the Commission.
HHC further represents the following:
1. The fair market value of the HHC stock, cash (if any) and any cash in
lieu of fractional shares received by each BEC shareholder will be
approximately equal to the fair market value of the BEC stock surrendered
in the exchange.
2. HHC has no plan or intention to redeem or otherwise reacquire any HHC
stock issued in the Merger.
3. HHC has no plan or intention to sell or otherwise dispose of any of
the assets of BEC acquired in the Merger, except for dispositions made in
the ordinary course of business, or transfers to a direct wholly-owned
subsidiary of HHC.*
4. Following the Merger, HHC will continue the historic business of BEC
or use a significant portion of BEC's historic business assets in HHC's
business.
5. HHC, BEC and the shareholders of BEC will pay their respective
expenses, if any, incurred in connection with the Merger.
6. There is no intercorporate indebtedness existing between BEC and HHC
that was issued, acquired, or will be settled at a discount.
7. None of the compensation received by any shareholder-employees of BEC
will be separate consideration for, or allocable to, any of their shares of
BEC stock; none of the shares of HHC stock received by any shareholder-
employees will be separate consideration for, or allocable to, any
employment agreement, and the compensation paid to any shareholder-
employees will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services.
8. HHC does not own, nor has HHC owned during the past five years, more
than a de minimus number of shares of stock of BEC.
9. HHC is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as
amended.
10. The fair market value of the assets of BEC transferred to HHC will
equal or exceed the sum of the liabilities assumed by HHC plus the amount
of liabilities, if any, to which the transferred assets are subject.
11. The payment of cash in lieu of fractional shares of HHC stock merely
represents a mechanical rounding-off of fractional share interests as a
result of the Merger and does not represent separately bargained for
consideration.
- --------
* May be modified on delivery of certificate to exclude any asset disposition
not in the ordinary course, provided, however, that any such disposition
does not prevent counsel for HHC and BEC from delivering the opinions
required by Sections 8.2(c) and 8.3(d) of the Merger Agreement.
<PAGE>
12. The Merger Agreement represents the full and complete agreement among
HHC and BEC regarding the Merger, and there are no other written or oral
agreements regarding the Merger other than those expressly referred to in
the Merger Agreement.
IN WITNESS WHEREOF, HHC has executed this Certificate on this day of
, 1996.
Hilton Hotels Corporation
By: _________________________________
2
<PAGE>
EXHIBIT E
TO APPENDIX A
CERTIFICATE
In connection with the merger (the "Merger") of Bally Entertainment
Corporation, a Delaware corporation with and into Hilton Hotels Corporation, a
Delaware corporation pursuant to the Agreement and Plan of Merger dated as of
June , 1996, the undersigned hereby represents that he has no current plan
or intention to sell, exchange, or otherwise dispose of, reduce the risk of
loss by short sale or otherwise, enter into any contract or arrangement with
respect to, or consent to the sale, exchange or other disposition of any
interest in any stock received in the Merger by him.
IN WITNESS WHEREOF, I have signed this Certificate on this day of June,
1996.
[Name of 5% shareholder]
_____________________________________
<PAGE>
EXHIBIT F
TO APPENDIX A
[Form of Affiliate Letter]*
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, California 90210
Ladies and Gentlemen:
The undersigned has been advised that as of the date of this letter it may
be deemed to be an "affiliate" of Bally Entertainment Corporation, a Delaware
corporation (the "Company"), as such term is (i) defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), or (ii)
used in and for purposes of Accounting Series Releases 130 and 135, as
amended, of the Commission. Pursuant to the terms of the Agreement and Plan of
Merger, dated as of June , 1996 (as amended from time to time, the "Merger
Agreement"), between Hilton Hotels Corporation, a Delaware corporation
("Acquiror"), and the Company, the Company will be merged with and into
Acquiror (the "Merger"), with Acquiror continuing as the surviving
corporation.
Pursuant to the Merger, each share of Common Stock of the Company owned by
the undersigned will be converted into the right to receive shares of Common
Stock, par value $2.50 per share, of Acquiror ("Acquiror Common Stock") on the
terms set forth in the Merger Agreement.
The undersigned represents, warrants and covenants to Acquiror that, with
respect to all Acquiror Common Stock received by it as a result of the Merger:
1. The undersigned shall not make any sale, transfer or other disposition
of Acquiror Common Stock in violation of the Securities Act or the Rules
and Regulations.
2. The undersigned has carefully read this letter and the Merger
Agreement and discussed the requirements of such documents and any other
applicable limitations upon its ability to sell, transfer or otherwise
dispose of Acquiror Common Stock to the extent it felt necessary, with its
counsel or counsel for the Company.
3. The undersigned has been advised that the issuance of Acquiror Common
Stock to it pursuant to the Merger has been registered with the Commission
under the Securities Act. However, the undersigned has also been advised
that, since at the time the Merger Agreement was submitted for a vote of
the stockholders of the Company, the undersigned may be deemed to have been
an "affiliate" of the Company and the distribution by the undersigned of
Acquiror Common Stock has not been registered under the Act, the
undersigned may not sell, transfer or otherwise dispose of Acquiror Common
Stock issued to it in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Securities Act or is made in
conformity with Rule 145 under the Securities Act, or (ii) such sale,
transfer or other disposition is otherwise exempt from registration under
the Securities Act.
4. The undersigned understands, that Acquiror is under no obligation to
register under the Securities Act the sale, transfer or other disposition
of Acquiror Common Stock by the undersigned or on its behalf or to take any
other action necessary in order to make compliance with an exemption from
such registration available.
- --------
* Appropriate conforming changes shall be made with respect to any affiliate
receiving New Prides.
<PAGE>
5. The undersigned understands that Acquiror will give stop transfer
instructions to Acquiror's transfer agents with respect to the Acquiror
Common Stock and that the certificates for the Acquiror Common Stock issued
to the undersigned, or any substitutions therefor, will bear a legend
substantial to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT, DATED
, 1996, BETWEEN THE REGISTERED HOLDER HEREOF AND HILTON
HOTELS CORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF HILTON HOTELS CORPORATION."
6. The undersigned also understands that unless the transfer by the
undersigned of its Acquiror Common Stock has been registered under the
Securities Act or is a sale made in conformity with the provisions of Rule
145, Acquiror reserves the right to place the following legend on the
certificates issued to any transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES
HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs 5 and 6
above shall be removed by delivery of substitute certificates without such
legend if Acquiror receives an opinion of counsel reasonably satisfactory to
Acquiror to the effect that such legend is not required for purposes of the
Securities Act. It is understood and agreed that such legends and the stop
orders referred to above will be removed if (i) two years shall have elapsed
from the date the undersigned acquired Acquiror Common Stock received in the
Merger and the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) three years shall have elapsed from the date the undersigned
acquired Acquiror Common Stock received in the Merger and the provisions of
Rule 145(d)(3) are then available to the undersigned, or (iii) Acquiror has
received either an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to Acquiror, or a "no-action" letter obtained by the
undersigned from the staff of the Commission, to the effect that the
restrictions imposed by Rule 145 under the Securities Act no longer apply to
the undersigned.
2
<PAGE>
Execution of this letter should not be considered an admission on part of
the undersigned that it is an "affiliate" of the Company as described in the
first paragraph of this letter or as a waiver of any rights that the
undersigned may have to object to any claim that it is such an affiliate on or
after the date of this letter.
Sincerely,
_____________________________________
Name:
Accepted this day of
June, 1996.
Hilton Hotels Corporation
By: ___________________________________
Name:
Title:
3
<PAGE>
APPENDIX B
[DONALDSON, LUFKIN & JENRETTE LOGO]
June 6, 1996
Board of Directors
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to Hilton Hotels Corporation (the "Company") of the consideration to be
paid by the Company pursuant to the terms of the Agreement and Plan of Merger
dated as of June 6, 1996 (the "Agreement"), between the Company and Bally
Entertainment Corporation ("Bally") pursuant to which Bally will be merged
(the "Merger") with and into the Company.
Pursuant to the Agreement, each issued and outstanding share of Bally common
stock, par value $.66 2/3 per share, together with the associated Company
Rights (as defined in the Agreement) (together "Bally Common Stock"), shall be
converted into the right to receive one quarter (0.25) of a share (the
"Exchange Ratio") of common stock of the Company, $2.50 par value per share
(the "Company Common Stock"), provided, however, that in the event the average
of the high and low sales prices of the Company Common Stock for the ten
consecutive trading days ending on the third trading day prior to Bally's
stockholders' meeting (the "Stockholders' Meeting") relating to the Merger
(the "Determination Price") is less than $108 and equal to or greater than
$80, each share of Bally Common Stock shall be converted into the right to
receive a number of shares of Company Common Stock equal to the Exchange Ratio
plus an amount in cash, not to exceed $3.00, equal to (i) the difference
between $108 and the Determination Price multiplied by (ii) the Exchange Ratio
(rounded to the nearest hundredth, or if there shall not be a nearest
hundredth, to the next highest hundredth) (the "Cash Consideration"); and,
provided, further, that in the event the Determination Price is less than $80,
the Company shall have the right to increase the Exchange Ratio ("Top-Up")
such that the Exchange Ratio multiplied by the Determination Price equals $20.
If, in such case, the Company does not Top-Up, Bally shall have the right to
terminate this Agreement no later than the business day prior to the date of
Bally's Stockholders' Meeting. The Exchange Ratio and the Determination Price
thresholds described above of 0.25, $108 and $80 shall be equal to 1.0, $27
and $20, respectively, in the event the Company effects a 4-for-1 stock split
as contemplated in the Agreement (the Exchange Ratio together with the Cash
Consideration, if any, the "Consideration").
In arriving at our opinion, we have reviewed the June 5 1996 draft of the
Agreement, including exhibits thereto. We also have reviewed certain financial
and other information that was publicly available or furnished to us by the
Company and Bally including information provided during discussions with their
respective managements. Included in the information provided during
discussions with the respective managements were certain financial projections
of Bally for the period beginning January 1996 and ending December 1998
prepared by the management of Bally and certain financial projections of the
Company for the period beginning January 1996 and ending December 2000
prepared by the management of the Company. In addition, we have compared
certain financial and securities data of the Company and Bally with various
other companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of the common stock of Bally and
the Company, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
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Board of Directors
Hilton Hotels Corporation
Page 2 June 6, 1996
In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that
was available to us from public sources, that was provided to us by the
Company, Bally or their respective representatives, or that was otherwise
reviewed by us. With respect to the financial projections supplied to us, we
have assumed that they have been reasonably prepared on the basis reflecting
the best currently available estimates and judgments of the management of the
Company and Bally as to the future operating and financial performance of the
Company and Bally. We have not assumed any responsibility for making any
independent evaluation of Bally's or the Company's assets or liabilities or
for making any independent verification of any of the information reviewed by
us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
price at which the Company Common Stock will trade at any time. Our opinion
does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote on the proposed transaction and related
issuance of the Company Common Stock. In addition, our opinion does not
address the underlying business decision of the Company to consummate the
transaction contemplated by the Agreement.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
DLJ has acted as an underwriter for the Company with respect to the issuance
of its Convertible Debentures due 2006. DLJ has received usual and customary
compensation for the above-mentioned services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Consideration to be paid by the Company pursuant to
the Agreement is fair to the Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Kenneth D. Moelis
-------------------------
Kenneth D. Moelis
Managing Director
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[DONALDSON, LUFKIN & JENRETTE LOGO]
August 15, 1996
Board of Directors
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to Hilton Hotels Corporation (the "Company") of consideration to be paid
by the Company pursuant to the terms of the Agreement and Plan of Merger dated
as of June 6, 1996 and as amended on August 15, 1996 (the "Agreement"),
between the Company and Bally Entertainment Corporation ("Bally") pursuant to
which Bally will be merged (the "Merger") with and into the Company.
Pursuant to the Agreement, each issued and outstanding share of Bally common
stock, par value $.66 2/3 per share, together with the associated Company
Rights (as defined in the Agreement) (together "Bally Common Stock"), shall be
converted into the right to receive one quarter (0.25) of a share (the
"Exchange Ratio") of common stock of the Company, $2.50 par value per share
(the "Company Common Stock"), provided, however, that in the event the average
of the high and low sales prices of the Company Common Stock for the ten
consecutive trading days ending on the third trading day prior to Bally's
stockholders' meeting (the "Stockholders' Meeting") relating to the Merger
(the "Determination Price") is less than $108 and equal to or greater than
$80, each share of Bally Common Stock shall be converted into the right to
receive a number of shares of Company Common Stock equal to the Exchange Ratio
plus an amount in cash, not to exceed $3.00 equal to (i) the difference
between $108 and the Determination Price multiplied by (ii) the Exchange Ratio
(rounded to the nearest hundredth, or if there shall not be a nearest
hundredth, to the next highest hundredth) (the "Cash Consideration"); and,
provided, further, that in the event the Determination Price is less than $80,
the Company shall have the right to increase the Exchange Ratio ("Top-Up")
such that the Exchange Ratio multiplied by the Determination Price equals $20.
If, in such case, the Company does not Top-Up, Bally shall have the right to
terminate this Agreement no later than the business day prior to the date of
Bally's Stockholders' Meeting. The Exchange Ratio and the Determination Price
thresholds described above of 0.25, and $108 and $80 shall be equal to 1.0,
and $27 and $20, respectively, in the event the Company effects a 4-for-1
stock split as contemplated in the Agreement (the Exchange Ratio together with
the Cash Consideration, if any, the "Consideration").
In arriving at our opinion, we have reviewed the Agreement, including
exhibits thereto. We also have reviewed certain financial and other
information that was publicly available or furnished to us by the Company and
Bally including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
respective managements were certain financial projections of Bally for the
period beginning January 1996 and ending December 1998 prepared by the
management of Bally and certain financial projections of the Company for the
period beginning January 1996 and ending December 2000 prepared by the
management of the Company. In addition, we have compared certain financial and
securities data of the Company and Bally with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of Bally and the Company, reviewed
prices and premiums paid in certain other business combinations and conducted
such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
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In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that
was available to us from public sources, that was provided to us by the
Company, Bally or their respective representatives, or that was otherwise
reviewed by us. With respect to the financial projections supplied to us, we
have assumed that they have been reasonably prepared on the basis reflecting
the best currently available estimates and judgments of the management of the
Company and Bally as to the future operating and financial performance of the
Company and Bally. We have not assumed any responsibility for making any
independent evaluation of the Company's or Bally's assets or liabilities or
for making any independent verification of any of the information reviewed by
us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
price at which the Company Common Stock will trade at any time. Our opinion
does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote on the proposed transaction and related
issuance of the Company Common Stock. In addition, our opinion does not
address the underlying business decision of the Company to consummate the
transaction contemplated by the Agreement.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. In
May 1996, DLJ acted as an underwriter for the Company with respect to the
issuance of its Convertible Debentures due 2006. DLJ has received usual and
customary compensation for the above-mentioned services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Consideration to be paid by the Company pursuant to
the Agreement is fair to the Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Warren C. Woo
----------------------
Warren C. Woo
Managing Director
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APPENDIX C
[GOLDMAN, SACHS & CO. LETTERHEAD]
August 19, 1996
Board of Directors
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, IL 60631
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $0.66 2/3 per share (the
"Shares"), of Bally Entertainment Corporation (the "Company") of the Aggregate
Consideration (as hereinafter defined) to be received for each Share pursuant
to the Agreement and Plan of Merger dated as of June 6, 1996 among Hilton
Hotels Corporation ("Hilton") and the Company, as amended by First Amendment
to Merger Agreement (the "Agreement"). Pursuant to the Agreement, the Company
will be merged with Hilton (the "Merger") and each outstanding Share will be
converted into the right to receive 0.25 shares of common stock, par value
$2.50 per share, of Hilton (the "Hilton Shares"), subject to adjustment as
provided in the Agreement (the "Conversion Number"); provided, however, that
(a) if the average of the daily high and low sales prices of the Hilton Shares
on the New York Stock Exchange for the ten consecutive trading days ending on
the third trading day prior to the special meeting of the Company's
stockholders held to vote upon the Merger (the "Determination Price") is less
than $108 and equal to or greater than $80, each such Share will be converted
into the right to receive a number of Hilton Shares equal to the Conversion
Number plus an amount in cash, not to exceed $3.00, equal to (i) the
difference between $108 and the Determination Price multiplied by (ii) the
Conversion Number, and (b) if the Determination Price is less than $80, Hilton
shall have the right to elect to increase the Conversion Number by the
quotient of $80 divided by the Determination Price, and if Hilton shall not
make such an election, the Company shall have the right to terminate the
Agreement. The total consideration in the form of Hilton Shares and cash, if
any, to be paid to the holders of Shares is referred to herein as the
"Aggregate Consideration."
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. Goldman, Sachs & Co. is a full service
securities firm and in the course of its trading activities it may from time
to time effect transactions, for its own account or the account of customers,
and hold positions in securities or options on securities of the Company or
Hilton.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4, including the Joint Proxy
Statement/Prospectus relating to the special meetings of stockholders of the
Company and Hilton to be held in connection with the Merger; Annual Reports to
Stockholders and Annual Reports on Form 10-K of the Company and Hilton for the
five years ended December 31, 1995; and certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company and Hilton;
certain other communications from the Company and Hilton to their respective
stockholders; certain internal financial analyses and forecasts for the
Company and Hilton prepared by the Company's and Hilton's management,
respectively, including forecasts of certain cost savings, operating
efficiencies, and financial synergies (collectively, the "Synergies") expected
to be achieved as a result of the
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Merger prepared by the Company's management. We also have held discussions
with members of the senior management of the Company and Hilton regarding the
past and current business operations, financial condition and future prospects
of their respective companies and the combined company resulting from the
Merger, and regarding their assessment of the strategic fit and implications
of the Merger and the Synergies. In addition, we have reviewed the reported
price and trading activity for the Shares and Hilton Shares, compared certain
financial and stock market information for the Company and Hilton with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations
in the gaming and lodging industries specifically and in other industries
generally. We have also reviewed and performed such other studies and analyses
as we considered appropriate.
For purposes of this opinion, we have relied without independent
verification upon the accuracy and completeness of all of the financial and
other information reviewed by us or conveyed to us in discussions with senior
managements of the Company and Hilton. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the
Company or Hilton or any of their respective subsidiaries and we have not been
furnished with any such evaluation or appraisal. We have assumed, with your
consent, that the financial forecasts of the Company and Hilton (and the
assumptions and bases therefor), as well as the Synergies, have been
reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the Company and Hilton, as the case may be, and
that such Synergies will be realized in the amounts and at the times
projected.
Goldman, Sachs & Co. does not express any opinion as to the prices at which
the Hilton Shares will trade following the consummation of the Merger or the
prices at which the Shares or the Hilton Shares will trade between the
announcement of and the consummation of the Merger.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any stockholder of the Company as to how
such stockholder should vote at the stockholders' meeting held in connection
with the Merger.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Aggregate Consideration to be received by the holders of Shares pursuant to
the Agreement is fair to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
(GOLDMAN, SACHS & CO.)
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APPENDIX D
[MERRILL LYNCH LOGO]
August 19, 1996
Board of Directors
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
Gentlemen:
Bally Entertainment Corporation (the "Company") and Hilton Hotels
Corporation ("Hilton") have entered into an Agreement and Plan Merger, dated
as of June 6, 1996 as amended by First Amendment to Merger Agreement (the
"Merger Agreement"), pursuant to which the Company will be merged with Hilton
in a transaction (the "Merger") in which each outstanding share of the
Company's common stock, par value $0.66-2/3 per share (the "Company Shares")
(other than any Company Shares that are owned by the Company, Hilton or any
subsidiary of Hilton, which will be cancelled), will be converted into the
right to receive one (the "Conversion Number") share of common stock, par
value $2.50 per share, of Hilton (the "Hilton Shares"), after giving effect to
a proposed stock split of the Hilton Shares whereby each Hilton Share will be
subdivided into four Hilton Shares (the "Stock Split"); provided, however,
that (a) if the average of the daily high and low sales prices of the Hilton
Shares (regular way), determined after giving effect to the Stock Split, as
shown on the New York Stock Exchange Composite Tape for the ten consecutive
trading days ending on the third trading day prior to the date on which the
Merger is consummated (the "Determination Price") is less than $27.00, each
such Company Share will be converted into the right to receive a number of
Hilton Shares equal to the Conversion Number plus an amount in cash, not to
exceed $3.00, equal to (i) the excess of $27.00 over the Determination Price,
and (b) if the Determination Price is less than $20.00, Hilton shall have the
right to elect to increase the Conversion Number to the quotient of $20.00
divided by the Determination Price, and if Hilton shall not make such an
election, the Company shall have the right to terminate the Merger Agreement.
The Merger is expected to be considered by the stockholders of the Company and
Hilton at special stockholders' meetings and consummated on or shortly after
the dates of such meetings.
You have asked us whether, in our opinion, the proposed consideration to be
received by the holders of the Company Shares (other than Hilton and its
affiliates) in the Merger is fair to such holders from a financial point of
view.
In arriving at the opinion set forth below, we have, among other things:
1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31,
1995 and the Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ending March 31, 1996 and June
30, 1996;
2) Reviewed Hilton's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1995 and
Hilton's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1996 and June 30, 1996;
3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company and Hilton furnished to us by the Company and Hilton,
respectively, as well as the cost savings and related expenses and
synergies expected to result from the Merger, furnished to us by the
Company;
4) Conducted discussions with members of senior management of the Company
and Hilton concerning their respective businesses and prospects;
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5) Reviewed the historical market prices and trading activity for the
Company Shares and the Hilton Shares and compared them with those of
certain publicly traded companies which we deemed to be reasonably
similar to the Company and Hilton, respectively;
6) Compared the results of operations of the Company and Hilton with
those of certain companies which we deemed to be reasonably similar to
the Company and Hilton, respectively;
7) Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
8) Considered the pro forma effect of the Merger on the earnings, cash
flow, consolidated capitalization and certain financial ratios of
Hilton;
9) Reviewed the Merger Agreement;
10) Reviewed the Registration Statement of Form S-4 relating to the
issuance of Hilton Shares in the Merger, and the Joint Proxy
Statement/Prospectus of the Company and Hilton included therein; and
11) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have with your consent assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us by or on behalf of the Company and Hilton and all information
made publicly available by the Company and Hilton, and we have not
independently verified such information or undertaken an independent
evaluation or appraisal of any of the assets or liabilities of the Company or
Hilton or been furnished with any such evaluation or appraisal. In addition,
with your consent we have not made any physical inspection of the properties
or assets of the Company or Hilton. With respect to the financial forecasts
furnished by the Company and Hilton, we have assumed with your consent that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the management of the Company and Hilton,
respectively, as to the expected future financial performance of the Company
and Hilton, respectively, and of the management of the Company as to the cost
savings and related expenses and synergies expected to result from the Merger.
We have further assumed that the Merger will quality as a reorganization
within the meaning of Section 368(a) of the U.S. Internal Revenue Code of
1986, as amended. Our opinion is necessarily based upon market, economic,
financial and other conditions as they exist and can be evaluated as of the
date hereof.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. We have
also, in the past, provided financial advisory and financing services to the
Company and Hilton and have received fees for the rendering of such services.
In addition, in the ordinary course of our business, we may actively trade the
Company Shares and other securities of the Company, as well as securities of
Hilton, for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is addressed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder as to how such shareholder
should vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at which the
Hilton Shares will trade following the consummation of the Merger or the
prices at which the Company Shares or the Hilton Shares will trade between the
announcement of and the consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed consideration to be received by the
holders of the Company Shares (other than Hilton and its affiliates) in the
Merger is fair to such holders from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
/s/ Jack Levy
----------------------------------
By Managing Director
Investment Banking Group
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APPENDIX E
EXCERPT FROM THE DELAWARE
GENERAL CORPORATION LAW
RELATING TO DISSENTERS' RIGHTS
262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S) 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt, or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)(S) 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the holders of
the surviving corporation as provided in subsections (l) or (g)of (S) 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms
of an agreement of merger or consolidation pursuant to (S)(S) 251, 252, 254,
257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depositary receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under (S) 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or 253 of
this title, the surviving or resulting corporation, either before the effective
date of the merger or consolidation or within 10 days thereafter, shall notify
each of the stockholders entitled to appraisal rights of the effective date of
the merger or consolidation and that appraisal rights are available for any or
all of the shares of the constituent corporation, and shall include in such
notice a copy of this section. The notice shall be sent by certified or
registered mail, return receipt requested, addressed to the stockholder at his
address as it appears on the records of the corporation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing of
the notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their
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shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the
E-3
<PAGE>
written approval of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 79, L.
'95, eff. 7-1-95.)
E-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, Article XI of Hilton's
Certificate of Incorporation, and Paragraph 35 of Hilton's By-Laws as amended,
authorize and empower Hilton to indemnify its directors, officers, employees
and agents, and agreements with each of Hilton's directors and executive
officers provide for indemnification against liabilities incurred in
connection with, and related expenses resulting from, any claim, action or
suit brought against any such person as a result of such person's relationship
with Hilton, provided that such persons acted in accordance with a stated
standard of conduct in connection with the acts or events on which such claim,
action or suit is based. The finding of either civil or criminal liability on
the part of such persons in connection with such acts or events is not
necessarily determinative of the question of whether such persons have met the
required standard of conduct and are, accordingly, entitled to be indemnified.
Hilton has purchased for the benefit of its officers and directors and those
of certain subsidiaries insurance policies whereby the insurance companies
agree, among other things, that in the event any such officer or director
becomes legally obligated to make a payment (including legal fees and
expenses) in connection with an alleged wrongful act, such insurance companies
will pay Hilton up to $100,000,000. Wrongful act means any breach of duty,
neglect, error, misstatement, misleading statement or other act done by an
officer or director of Hilton or any subsidiary.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 6, 1996, as
amended, by and between Registrant and Bally Entertainment
Corporation (attached as Appendix A to the Joint Proxy
Statement/Prospectus included in this Registration
Statement)+....................................................
4.1 Indenture, dated as of July 1, 1988, between Registrant and
Citibank, N.A., regarding Registrant's Subordinated Debt
Securities (incorporated herein by reference from Exhibit 4.1
to Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-3
(File No. 2-95746).............................................
4.2 Indenture, dated as of July 1, 1988, between Registrant and
Morgan Guaranty Trust Company of New York, regarding
Registrant's Senior Debt Securities (incorporated herein by
reference from Exhibit 4.1 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-3 (File No. 2-
99967))........................................................
4.3 First Supplemental Indenture, dated as of June 30, 1992,
between Registrant and Morgan Guaranty Trust Company of New
York, regarding Registrant's Senior Debt Securities, relating
to Exhibit 4.2 hereto (incorporated herein by reference from
Exhibit 4.3 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992)..................................
4.4 Reimbursement Agreements, dated as of November 15, 1990, among
Registrant, Swiss Bank Corporation and the financial
institutions signatory thereto (incorporated herein by
reference from Exhibit 4.7 to Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1990).............................................
4.5 Rights Agreement, dated as of July 14, 1988, between Registrant
and The First National Bank of Chicago (incorporated herein by
reference from Exhibit 1 to Registrant's Current Report on Form
8-K, dated July 14, 1988)......................................
*4.6 Indenture, dated as of May 14, 1996, between Registrant and The
Bank of New York, regarding Registrant's 5% Convertible
Subordinated Notes due 2006....................................
4.7 Form of Note for 5% Convertible Subordinated Notes due 2006
(included in Exhibit 4.6 hereto)...............................
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
4.8 Form of Common Stock Certificate (incorporated herein by
reference from Exhibit 4.2 to Registrant's Registration
Statement on Form S-3 (File No. 333-02321))....................
4.9 Agreement Amending Rights Agreement and Changing Rights
Agreement, dated as of
July 13, 1990, between Registrant, The First National Bank of
Chicago and Manufacturers Hanover Trust Company of California
(incorporated herein by reference from Exhibit 8 to
Registrant's Form 8-A, dated May 2, 1996)......................
*4.10 Form of Certificate of Designations, Preferences, Rights and
Limitations of the Hilton PRIDES...............................
*5.1 Opinion of Latham & Watkins as to the legality of the
securities being registered....................................
*8.1 Opinion of Latham & Watkins as to certain tax matters..........
*12.1 Statements re Computation of Ratios............................
*23.1 Consent of Arthur Andersen LLP.................................
*23.2 Consent of Ernst & Young LLP...................................
*23.3 Consent of Latham & Watkins (included in the opinion filed as
Exhibit 5.1 to this Registration Statement)....................
*23.4 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation....................................................
*23.5 Consent of Goldman, Sachs & Co.................................
*23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith...............
*24.1 Power of Attorney (included in the signature pages in Part II
of this Registration Statement)................................
*99 Form of Certificate of Amendment of Certificate of
Incorporation of Hilton Hotels Corporation.....................
</TABLE>
- --------
* Filed herewith.
+ The Registrant agrees to furnish supplementally a copy of any omitted
schedule to the SEC upon request.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(c) The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (b) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to this Registration Statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy
II-2
<PAGE>
as expressed in the Securities Act as is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Beverly Hills, State of
California, on August 16, 1996.
HILTON HOTELS CORPORATION
By: /s/ Matthew J. Hart
--------------------------------
Matthew J. Hart
Executive Vice President and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen F. Bollenbach, Matthew J. Hart and
Robert M. La Forgia and each of them, his true and lawful attorney-in-fact and
agent with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) and supplements to
this Registration Statement and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents and each
of them full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, to all
intents and purposes and as fully as they might or could do in person, hereby
ratifying and confirming all that such attorney-in-fact and agent, each acting
alone, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 16, 1996:
<TABLE>
<S> <C>
/s/ Raymond C. Avansino, Jr. /s/ Robert L. Johnson
- -------------------------------------- --------------------------------------
Raymond C. Avansino, Jr. Robert L. Johnson
Director Director
/s/ Stephen F. Bollenbach /s/ Donald R. Knab
- -------------------------------------- --------------------------------------
Stephen F. Bollenbach Donald R. Knab
Director, President and Chief Director
Executive Officer (Chief Executive
Officer)
/s/ A. Steven Crown /s/ Benjamin V. Lambert
- -------------------------------------- --------------------------------------
A. Steven Crown Benjamin V. Lambert
Director Director
/s/ Matthew J. Hart /s/ Donna F. Tuttle
- -------------------------------------- --------------------------------------
Matthew J. Hart Donna F. Tuttle
Executive Vice President and Director
Chief Financial Officer
(Chief Financial and Accounting
Officer)
/s/ Barron Hilton /s/ Sam D. Young, Jr.
- -------------------------------------- --------------------------------------
Barron Hilton Sam D. Young, Jr.
Chairman of the Board Director
/s/ Eric M. Hilton
- --------------------------------------
Eric M. Hilton
Director
/s/ Dieter H. Huckestein
- --------------------------------------
Dieter H. Huckestein
Director
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 6, 1996, by and
between Registrant and Bally Entertainment Corporation, as
amended by First Amendment to Merger Agreement dated as of
August 15, 1996 (attached as Appendix A to the Joint Proxy
Statement/Prospectus included in this Registration
Statement)+....................................................
4.1 Indenture, dated as of July 1, 1988, between Registrant and
Citibank, N.A., regarding Registrant's Subordinated Debt
Securities (incorporated herein by reference from Exhibit 4.1
to Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-3 (File No. 2-95746))......................
4.2 Indenture, dated as of July 1, 1988, between Registrant and
Morgan Guaranty Trust Company of New York, regarding
Registrant's Senior Debt Securities (incorporated herein by
reference from Exhibit 4.1 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-3 (File No. 2-
99967))........................................................
4.3 First Supplemental Indenture, dated as of June 30, 1992,
between Registrant and Morgan Guaranty Trust Company of New
York, regarding Registrant's Senior Debt Securities, relating
to Exhibit 4.2 hereto (incorporated herein by reference from
Exhibit 4.3 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992)..................................
4.4 Reimbursement Agreements, dated as of November 15, 1990, among
Registrant, Swiss Bank Corporation and the financial
institutions signatory thereto (incorporated herein by
reference from Exhibit 4.7 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990)................
4.5 Rights Agreement, dated as of July 14, 1988, between Registrant
and The First National Bank of Chicago (incorporated herein by
reference from Exhibit 1 to Registrant's Current Report on Form
8-K, dated July 14, 1988)......................................
*4.6 Indenture, dated as of May 14, 1996, between Registrant and The
Bank of New York, regarding Registrant's 5% Convertible
Subordinated Notes due 2006....................................
4.7 Form of Note for 5% Convertible Subordinated Notes due 2006
(included in Exhibit 4.6 hereto)...............................
4.8 Form of Common Stock Certificate (incorporated herein by
reference from Exhibit 4.2 to Registrant's Registration
Statement on Form S-3 (File No. 333-02321))....................
4.9 Agreement Amending Rights Agreement and Changing Rights
Agreement, dated as of July 13, 1990, between Registrant, The
First National Bank of Chicago and Manufacturers Hanover Trust
Company of California (incorporated herein by reference from
Exhibit 8 to Registrant's Form 8-A, dated May 2, 1996).........
*4.10 Form of Certificate of Designations, Preferences, Rights and
Limitations of the Hilton PRIDES...............................
*5.1 Opinion of Latham & Watkins as to the legality of the
securities being registered....................................
*8.1 Opinion of Latham & Watkins as to certain tax matters..........
*12.1 Statements re Computation of Ratios............................
*23.1 Consent of Arthur Andersen LLP.................................
*23.2 Consent of Ernst & Young LLP...................................
*23.3 Consent of Latham & Watkins (included in the opinion filed as
Exhibit 5.1 to this Registration Statement)....................
*23.4 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation....................................................
*23.5 Consent of Goldman, Sachs & Co.................................
*23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith...............
*24.1 Power of Attorney (included in the signature pages in Part II
of this Registration Statement)................................
*99 Form of Certificate of Amendment of Certificate of
Incorporation of Hilton Hotels Corporation.....................
</TABLE>
- --------
* Filed herewith.
+ The Registrant agrees to furnish supplementally a copy of any omitted
schedule to the SEC upon request.
<PAGE>
EXHIBIT 4.6
===============================================================================
HILTON HOTELS CORPORATION,
ISSUER,
AND
THE BANK OF NEW YORK,
TRUSTEE
-----------------
INDENTURE
Dated as of May 14, 1996
-----------------
$500,000,000
5% Convertible Subordinated Notes due 2006
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
<S> <C>
DEFINITIONS AND INCORPORATION BY REFERENCE.................. 1
SECTION 1.1. Definitions................................... 1
SECTION 1.2. Incorporation by Reference of TIA............. 11
SECTION 1.3. Rules of Construction......................... 12
ARTICLE II
THE SECURITIES.............................................. 12
SECTION 2.1. Form and Dating............................... 12
SECTION 2.2. Execution and Authentication.................. 13
SECTION 2.3. Registrar and Paying Agent.................... 14
SECTION 2.4. Paying Agent to Hold Assets in Trust.......... 15
SECTION 2.5. Securityholder Lists.......................... 15
SECTION 2.6. Transfer and Exchange......................... 16
SECTION 2.7. Replacement Securities........................ 19
SECTION 2.8. Outstanding Securities........................ 20
SECTION 2.9. Treasury Securities........................... 20
SECTION 2.10. Temporary Securities.......................... 21
SECTION 2.11. Cancellation.................................. 21
SECTION 2.12. Defaulted Interest............................ 21
SECTION 2.13. Mandatory Disposition of Securities
Pursuant to Gaming Laws..................... 21
ARTICLE III
REDEMPTION.................................................. 23
SECTION 3.1. Right of Redemption........................... 23
SECTION 3.2. Notices to Trustee............................ 23
SECTION 3.3. Selection of Securities to Be Redeemed........ 24
SECTION 3.4. Notice of Redemption.......................... 24
SECTION 3.5. Effect of Notice of Redemption................ 26
SECTION 3.6. Deposit of Redemption Price................... 26
SECTION 3.7. Securities Redeemed in Part................... 27
ARTICLE IV
COVENANTS................................................... 27
i
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 4.1. Payment of Principal and Interest on the
Securities................................... 27
SECTION 4.2. Maintenance of Office or Agency............... 28
SECTION 4.3. Corporate Existence........................... 28
SECTION 4.4. Payment of Taxes and Other Claims............. 29
SECTION 4.5. Maintenance of Properties and
Insurance................................... 29
SECTION 4.6. Compliance Certificate; Notice of
Default..................................... 30
SECTION 4.7. Reports....................................... 31
SECTION 4.8. Limitation on Status as Investment
Company..................................... 31
SECTION 4.9. Waiver of Stay, Extension or Usury
Laws........................................ 31
ARTICLE V
SUCCESSOR CORPORATION....................................... 32
SECTION 5.1. Limitation on Merger, Sale or
Consolidation............................... 32
SECTION 5.2. Successor Corporation Substituted............. 33
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES.............................. 33
SECTION 6.1. Events of Default............................. 33
SECTION 6.2. Acceleration of Maturity Date;
Rescission and Annulment.................... 36
SECTION 6.3. Collection of Indebtedness and
Suits for Enforcement by Trustee............ 37
SECTION 6.4. Trustee May File Proofs of Claim.............. 38
SECTION 6.5. Trustee May Enforce Claims
Without Possession of Securities............ 39
SECTION 6.6. Priorities.................................... 39
SECTION 6.7. Limitation on Suits........................... 40
SECTION 6.8. Unconditional Right of Holders to
Receive Principal, Premium and
Interest.................................... 41
SECTION 6.9. Rights and Remedies Cumulative................ 41
SECTION 6.10. Delay or Omission Not Waiver.................. 41
SECTION 6.11. Control by Holders............................ 42
SECTION 6.12. Waiver of Past Default........................ 42
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 6.13. Undertaking for Costs......................... 43
SECTION 6.14. Restoration of Rights and Remedies............ 43
ARTICLE VII
TRUSTEE..................................................... 44
SECTION 7.1. Duties of Trustee............................. 44
SECTION 7.2. Rights of Trustee............................. 45
SECTION 7.3. Individual Rights of Trustee.................. 46
SECTION 7.4. Trustee's Disclaimer.......................... 47
SECTION 7.5. Notice of Default............................. 47
SECTION 7.6. Reports by Trustee to Holders................. 47
SECTION 7.7. Compensation and Indemnity.................... 48
SECTION 7.8. Replacement of Trustee........................ 49
SECTION 7.9. Successor Trustee by Merger, Etc.............. 50
SECTION 7.10. Eligibility; Disqualification................. 50
SECTION 7.11. Preferential Collection of Claims
Against Company............................. 50
ARTICLE VIII
SATISFACTION AND DISCHARGE.................................. 51
SECTION 8.1. Satisfaction and Discharge of
Indenture................................... 51
SECTION 8.2. Repayment to the Company...................... 51
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS......................... 52
SECTION 9.1. Supplemental Indentures Without
Consent of Holders.......................... 52
SECTION 9.2. Amendments, Supplemental Indentures
and Waivers with Consent of Holders......... 52
SECTION 9.3. Compliance with TIA........................... 54
SECTION 9.4. Revocation and Effect of Consents............. 54
SECTION 9.5. Notation on or Exchange of Securities......... 55
SECTION 9.6. Trustee to Sign Amendments, Etc............... 56
</TABLE>
iii
<PAGE>
ARTICLE X
<TABLE>
<S> <C>
RIGHT TO REQUIRE REPURCHASE UPON A CHANGE IN CONTROL........ 56
SECTION 10.1. Repurchase of Securities at Option
of the Holder Upon a Change of
Control..................................... 56
ARTICLE XI
SUBORDINATION............................................... 59
SECTION 11.1. Securities Subordinated to Senior
Indebtedness................................ 59
SECTION 11.2. No Payment on Securities in
Certain Circumstances....................... 60
SECTION 11.3. Securities Subordinated to Prior
Payment of All Senior Indebtedness
on Dissolution, Liquidation or
Reorganization.............................. 61
SECTION 11.4. Securityholders to Be Subrogated
to Rights of Holders of Senior
Indebtedness................................ 63
SECTION 11.5. Obligations of the Company
Unconditional............................... 63
SECTION 11.6. Trustee Entitled to Assume Payments
Not Prohibited in Absence of
Notice...................................... 64
SECTION 11.7. Application by Trustee of Assets
Deposited with It........................... 65
SECTION 11.8. Subordination Rights Not Impaired
by Acts or Omissions of the
Company or Holders of Senior
Indebtedness................................ 65
SECTION 11.9. Securityholders Authorize Trustee
to Effectuate Subordination of
Securities.................................. 66
SECTION 11.10. Right of Trustee to Hold Senior
Indebtedness................................ 66
SECTION 11.11. Article XI Not to Prevent Events
of Default.................................. 67
SECTION 11.12. No Fiduciary Duty of Trustee to
Holders of Senior Indebtedness.............. 67
iv
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE XII
CONVERSION OF SECURITIES.................................... 67
SECTION 12.1. Conversion Privilege......................... 67
SECTION 12.2. Exercise of Conversion Privilege............. 68
SECTION 12.3. Fractional Interests......................... 69
SECTION 12.4. Conversion Price............................. 70
SECTION 12.5. Adjustment of Conversion Price............... 70
SECTION 12.6. Continuation of Conversion
Privilege in Case of Reclass-
ification, Change, Merger,
Consolidation or Sale of Assets............. 76
SECTION 12.7. Notice of Certain Events..................... 78
SECTION 12.8. Taxes on Conversion.......................... 79
SECTION 12.9. Company to Provide Stock..................... 80
SECTION 12.10. Disclaimer of Responsibility for
Certain Matters............................. 80
SECTION 12.11. Return of Funds Deposited for
Redemption of Converted
Securities.................................. 81
ARTICLE XIII
MISCELLANEOUS............................................... 81
SECTION 13.1. TIA Controls................................. 81
SECTION 13.2. Notices...................................... 82
SECTION 13.3. Communications by Holders with
Other Holders............................... 83
SECTION 13.4. Certificate and Opinion as to
Conditions Precedent........................ 83
SECTION 13.5. Statements Required in Certificate
or Opinion.................................. 83
SECTION 13.6. Rules by Trustee, Paying Agent,
Registrar................................... 84
SECTION 13.7. Legal Holidays............................... 84
SECTION 13.8. Governing Law................................ 84
SECTION 13.9. No Adverse Interpretation of
Other Agreements............................ 85
SECTION 13.10. No Recourse Against Others................... 85
SECTION 13.11. Successors................................... 85
SECTION 13.12. Duplicate Originals.......................... 85
SECTION 13.13. Severability................................. 86
v
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 13.14. Table of Contents, Headings, Etc............. 86
SECTION 13.15. Qualification of Indenture................... 86
SIGNATURES.................................................. 87
EXHIBIT A - FORM OF SECURITY................................ A-1
EXHIBIT B - FORM OF CONVERSION NOTICE....................... B-1
</TABLE>
vi
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
------- ---------
<S> <C>
310(a)(1).................................................... 7.10
(a)(2).................................................... 7.10
(a)(3).................................................... N.A.
(a)(4).................................................... N.A.
(a)(5).................................................... 7.10
(b)....................................................... 7.8;
7.10;
14.2
(c)....................................................... N.A.
311(a)....................................................... 7.11
(b)....................................................... 7.11
(c)....................................................... N.A.
312(a)....................................................... 2.5
(b)....................................................... 14.3
(c)....................................................... 14.3
313(a)....................................................... 7.6
(b)(1).................................................... N.A.
(b)(2).................................................... 7.6
(c)....................................................... 7.6;
14.2
(d)....................................................... 7.6
314(a)....................................................... 4.6;
13.2
(b)....................................................... N.A.
(c)(1).................................................... 2.2;
7.2;
14.4
(c)(2).................................................... 7.2;
14.4
(c)(3).................................................... N.A.
(d)....................................................... N.A.
(e)....................................................... 14.5
(f)....................................................... N.A.
315(a)....................................................... 7.1(b)
(b)....................................................... 7.5;
7.6;
14.2
(c)....................................................... 7.1(a)
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
------- ---------
<S> <C>
(d)................................................... 2.8;
6.11;
7.1(b)(c)
(e)................................................... 6.14
316(a)(last sentence).................................... 2.9
(a)(1)(A)............................................. 6.11
(a)(1)(B)............................................. 6.12
(a)(2)................................................ N.A.
(b)................................................... 6.12;
6.7
317(a)(1)................................................ 6.3
(a)(2)................................................ 6.4
(b)................................................... 2.4
318(a)................................................... 14.1
</TABLE>
________________
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
viii
<PAGE>
INDENTURE, dated as of May 14, 1996, between HILTON HOTELS
CORPORATION, a Delaware corporation (the "Company"), and The Bank of New York, a
New York banking corporation, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 5%
Convertible Subordinated Notes due 2006:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
-----------
"Acceleration Notice" shall have the meaning specified in Section 6.2.
-------------------
"Affiliate" means (i) any person directly or indirectly controlling or
---------
controlled by or under direct or indirect common control with the Company, (ii)
any spouse, immediate family member, or other relative who has the same
principal residence of any person described in clause (i) above, and (iii) any
trust in which any person described in clause (i) or (ii) above has a beneficial
interest. For purposes of this definition, the term "control" means the power
to direct the management and policies of a person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise.
"Agent" means any Registrar, Paying Agent or co-Registrar.
-----
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
--------------
state or foreign law for the relief of debtors.
"beneficial owner" for purposes of the definition of Change of Control
----------------
has the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act
(as in effect on the Issue Date), whether or not applicable, except that a
"person" shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after
<PAGE>
the passage of time or upon the occurrence of certain events.
"Board of Directors" means, with respect to any person, the Board of
------------------
Directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted
----------------
resolution of the Board of Directors of such person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
------------
Friday that is not a day on which banking institutions in New York, New York or
Los Angeles, California are authorized or obligated by law or executive order to
close.
"Capitalized Lease Obligation" means rental obligations under a lease
----------------------------
that are required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations, as determined
in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all
-------------
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Cash" means such coin or currency of the United States of America as
----
at the time of payment shall be legal tender for the payment of public and
private debts.
"Change of Control" occurs upon the occurrence of a Rating Decline in
-----------------
connection with any of the following events: (i) upon any merger or
consolidation of the Company with or into any person or any sale, transfer or
other conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company, on a consolidated basis, in one transaction or a series
of related transactions, if, immediately after giving effect to such
transaction, any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not
2
<PAGE>
applicable) is or becomes the "beneficial owner," directly or indirectly, of
more than 50% of the total voting power in the aggregate normally entitled to
vote in the election of directors, managers, or trustees, as applicable, of the
transferee or surviving entity, (ii) when any "person" or "group" (as such terms
are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether
or not applicable) is or becomes the "beneficial owner," directly or indirectly,
of more than 50% of the total voting power in the aggregate normally entitled to
vote in the election of directors of the Company, (iii) when, during any period
of 12 consecutive months after the Issue Date, individuals who at the beginning
of any such 12-month period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office, (iv) a sale or
disposition, whether directly or indirectly, by the Company of all or
substantially all of the assets relating to the Hotel Segment or the Gaming
Segment (as segment is used in Regulation S-K and Regulation S-X under the
Securities Act), or (v) the pro rata distribution by the Company to its
stockholders of the Hotel Segment or the Gaming Segment.
For purposes of this definition, the terms "person" and "group" shall
have the meanings used for purposes of Rules 13d-3 and 13d-5 of the Exchange Act
as in effect on the Issue Date, whether or not applicable.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Common Stock" means the Company's common stock, par value $2.50 per
------------
share, or as such stock may be reconstituted from time to time.
"Company" means the party named as such in this Indenture until a
-------
successor replaces it pursuant to the Indenture, and thereafter means such
successor.
"Conversion Price" shall have the meaning specified in Section 12.5.
----------------
3
<PAGE>
"Custodian" means any receiver, trustee, assignee, liquidator,
---------
sequestrator or similar official under any Bankruptcy Law.
"Date of Conversion" shall have the meaning specified in Section 12.2.
------------------
"Default" means any event or condition that is, or after notice or
-------
passage of time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning specified in Section 2.12.
------------------
"Definitive Securities" means Securities that are in the form of
---------------------
Security attached hereto as Exhibit A that do not include the information called
for by footnotes 1 and 2 thereof.
"Depositary" means, with respect to the Securities issuable or issued
----------
in whole or in part in global form, the person specified in Section 2.3 as the
Depositary with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Capital Stock" means (a) except as set forth in (b),
--------------------------
with respect to any person, Capital Stock of such person that, by its terms or
by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time would
be, required to be redeemed or repurchased (including at the option of the
holder thereof) by such person or any of its Subsidiaries, in whole or in part,
on or prior to the Stated Maturity of the Securities and (b) with respect to any
Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Capital Stock other than any common stock with no preference,
privileges, or redemption or repayment provisions.
"Distribution Date" shall have the meaning specified in Section 12.5.
-----------------
"DTC" shall have the meaning specified in Section 2.3.
---
4
<PAGE>
"Event of Default" shall have the meaning specified in Section 6.1.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated by the SEC thereunder.
"Expiration Time" shall have the meaning specified in Section 12.5.
---------------
"GAAP" means United States generally accepted accounting principles
----
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board ("FASB") or in such
other statements by such other entity as approved by a significant segment of
the accounting profession which are in effect in the United States; provided,
--------
however, that for purposes of determining compliance with covenants in the
- -------
Indenture, "GAAP" means such generally accepted accounting principles which are
in effect as of the date of determination.
"Gaming Authority" means the Nevada Gaming Commission, the Nevada
----------------
State Gaming Control Board, the Louisiana Gaming Control Board, the New Jersey
Casino Control Commission or any similar commission or agency which has, or may
at any time after the date of this Indenture have, jurisdiction over the gaming
activities of the Company or a Subsidiary of the Company or any successor
thereto.
"Gaming Laws" means the gaming laws of a jurisdiction or jurisdictions
-----------
to which the Company or a Subsidiary of the Company is, or may at any time after
the date of this Indenture be, subject.
"Global Security" means a Security that contains the paragraph
---------------
referred to in footnote 1 and the additional schedule referred to in footnote 2
of the form of Security attached hereto as Exhibit A.
"Holder" or "Securityholder" means the person in whose name a Security
------ --------------
is registered on the Registrar's books.
"Indebtedness" of any person means, without duplication, (a) all
------------
liabilities and obligations, contingent or
5
<PAGE>
otherwise, of any such person, (i) in respect of borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such person or only
to a portion thereof), (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) representing the balance deferred and unpaid of the purchase
price of any property or services, except such as would constitute trade
payables to trade creditors in the ordinary course of business, (iv) evidenced
by bankers' acceptances or similar instruments issued or accepted by banks, (v)
for the payment of money relating to a Capitalized Lease Obligation, or (vi)
evidenced by a letter of credit or a reimbursement obligation of such person
with respect to any letter of credit; (b) all net obligations of such person
under Interest Swap and Hedging Obligations; (c) all liabilities of others of
the kind described in the preceding clause (a) or (b) that such person has
guaranteed or that is otherwise its legal liability and all obligations to
purchase, redeem or acquire any Capital Stock; and (d) any and all deferrals,
renewals, extensions, refinancings, refundings (whether direct or indirect) of
any liability of the kind described in any of the preceding clauses (a), (b) or
(c), or this clause (d), whether or not between or among the same parties.
"Indenture" means this Indenture, as amended or supplemented from
---------
time to time in accordance with the terms hereof.
"Interest Payment Date" means the stated due date of an installment
---------------------
of interest on the Securities.
"Interest Swap and Hedging Obligation" means any obligation of any
------------------------------------
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
6
<PAGE>
"Issue Date" means the date of first issuance of the Securities
----------
under this Indenture.
"Junior Security" of any person means any Qualified Capital Stock and
---------------
any Indebtedness of such person that is subordinated in right of payment to the
Securities and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the Stated Maturity of the
Securities.
"Last Sale Price" shall have the meaning specified in Section 12.3.
---------------
"Legal Holiday" shall have the meaning specified in Section 13.7.
-------------
"Lien" means any mortgage, lien, pledge, charge, security interest or
----
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).
"non-electing share" shall have the meaning specified in Section 12.6.
------------------
"Notice of Default" shall have the meaning specified in Section
-----------------
6.1(3).
"Offer" shall have the meaning specified in Section 12.5.
-----
"Officer" means, with respect to the Company, the President and Chief
-------
Executive Officer, the Executive Vice President and Chief Financial Officer, the
Senior Vice President and General Counsel, the Vice President and Corporate
Comptroller, the Vice President and Secretary or the Treasurer of the Company.
"Officers' Certificate" means, with respect to the Company, a
---------------------
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and otherwise complying with the requirements of Sections 13.4
and 13.5.
7
<PAGE>
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee and which complies with the requirements of
Sections 13.4 and 13.5.
"Paying Agent" shall have the meaning specified in Section 2.3.
------------
"Payment Blockage Period" shall have the meaning specified in
-----------------------
Section 11.2.
"Payment Default" shall have the meaning specified in Section 11.2.
---------------
"Payment Notice" shall have the meaning specified in Section 11.2.
--------------
"Person" or "person" means any corporation, individual, limited
------ ------
liability company, joint stock company, joint venture, partnership,
unincorporated association, governmental regulatory entity, country, state or
political subdivision thereof, trust, municipality or other entity.
"principal" of any Indebtedness means the principal of such
---------
Indebtedness plus, without duplication, any applicable premium, if any, on such
Indebtedness.
"property" means any right or interest in or to property or assets of
--------
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchased Shares" shall have the meaning specified in Section 12.5.
----------------
"Qualified Capital Stock" means any Capital Stock of the Company
-----------------------
that is not Disqualified Capital Stock.
"Rating Decline" means the occurrence on or within 90 days after the
--------------
date of the first public notice of (i) the occurrence of a Change of Control or
(ii) the intention by the Company to effect a Change of Control (which 90-day
period shall be extended so long as the rating of Senior Indebtedness of the
Company is under publicly announced consideration for possible downgrade by any
of (x) Moody's Investors Service, Inc. ("Moody's"), (y) Standard & Poor's
Corporation ("S&P") or (z) Duff & Phelps ("D&P")) of a decrease in the rating of
Senior Indebtedness of the Company
8
<PAGE>
by any of Moody's, S&P or D&P to a rating that is below "Investment Grade."
Investment Grade means a rating in the top four rating categories by Moody's,
S&P, D&P or any other nationally recognized securities rating agency or
agencies, as the case may be, selected by the Company.
"Record Date" means a Record Date specified in the Securities whether
-----------
or not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to be
---------------
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the form of Security.
"Redemption Price," when used with respect to any Security to be
----------------
redeemed, means the redemption price for such redemption pursuant to Paragraph 5
in the form of Security, which shall include, without duplication, in each case,
accrued and unpaid interest, if any, to and including the Redemption Date.
"Registrar" shall have the meaning specified in Section 2.3.
---------
"Repurchase Date" shall have the meaning specified in Section 10.1.
---------------
"Repurchase Offer" shall have the meaning specified in Section 10.1.
----------------
"Repurchase Price" shall have the meaning specified in Section 10.1.
----------------
"Repurchase Put Date" shall have the meaning specified in
-------------------
Section 10.1.
"SEC" means the Securities and Exchange Commission.
---
"Securities" means, collectively, the 5% Convertible Subordinated
----------
Notes due 2006, as supplemented from time to time in accordance with the terms
hereof, issued under this Indenture.
9
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect to
--------------------
the Securities in global form, or any successor entity thereto.
"Senior Indebtedness of the Company" means any Indebtedness of the
----------------------------------
Company, whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company, unless the
instrument creating or evidencing such Indebtedness provides that such
Indebtedness is not senior or superior, in right of payment, to the Securities
or to other Indebtedness which is pari passu with, or subordinated to, the
Securities; provided, that in no event shall Senior Indebtedness include (a)
--------
Indebtedness of the Company owed or owing to any Subsidiary of the Company or
any officer, director or employee of the Company or any Subsidiary of the
Company, (b) Indebtedness to trade creditors or (c) any liability for taxes owed
or owing by the Company.
"Significant Subsidiary" means any Subsidiary which is a "significant
----------------------
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-X
promulgated by the SEC as in effect on the date of the Indenture.
"Special Record Date" for payment of any Defaulted Interest means
-------------------
a date fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security means
---------------
May 15, 2006.
"Subsidiary" with respect to any person, means (i) a corporation a
----------
majority of whose Capital Stock with voting power normally entitled to vote in
the election of directors is at the time, directly or indirectly, owned by such
person, by such person and one or more Subsidiaries of such person or by one or
more Subsidiaries of such person, (ii) a partnership in which such person or a
Subsidiary of such person is, at the time, a general partner and owns alone or
together with one or more Subsidiaries of such person a majority of the
partnership interests, or (iii) any other person (other than a corporation) in
which such person, one or more Subsidiaries of such person, or such person and
one
10
<PAGE>
or more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
---
77aaa-77bbbb) as in effect on the date of the execution of this Indenture.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
-----------
Friday, other than any day on which securities are not traded on the New York
Stock Exchange.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust division
-------------
(or any successor group) of the Trustee or any other officer of the Trustee
customarily performing functions similar to those performed by the Persons who
at that time shall be such officers, and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
"Underwriter" means Donaldson, Lufkin & Jenrette Securities
-----------
Corporation, Montgomery Securities, Salomon Brothers Inc and Schroder Wertheim &
Co. Incorporated.
"Underwriting Agreement" means that certain Underwriting Agreement,
----------------------
dated May 8, 1996, by and between the Company and the Underwriter, as such
agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"U.S. Government Obligations" means direct non-callable obligations
---------------------------
of, or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
11
<PAGE>
SECTION 1.2. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
----------
"indenture securities" means the Securities.
--------------------
"indenture securityholder" means a Holder or a Securityholder.
------------------------
"indenture to be qualified" means this Indenture.
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee.
----------------- ---------------------
"obligor" on the indenture securities means the Company and any
-------
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
12
<PAGE>
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
---------------
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends
or endorsements required by law, stock exchange rule or usage. The Company
shall approve the form of the Securities and any notation, legend or endorsement
on them. Any such notations, legends or endorsements not contained in the form
of Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.2. Execution and Authentication.
----------------------------
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Security for the Company by manual or facsimile signature.
The Company's seal shall be impressed, affixed, imprinted or reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be
13
<PAGE>
conclusive evidence that the Security has been authenticated pursuant to the
terms of this Indenture.
The Trustee shall authenticate the Securities for original issue in
the aggregate principal amount of up to $575,000,000 upon a written order of the
Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of Securities to be authenticated and the date on which
the Securities are to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $575,000,000, except as
provided in Section 2.7; provided, that Securities in excess of $500,000,000
--------
shall not be issued other than pursuant to the over-allotment option granted by
the Company to the Purchasers as provided in the Underwriting Agreement. Upon
the written order of the Company in the form of an Officers' Certificate, the
Trustee shall authenticate Securities in substitution of Securities originally
issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar") and an office or agency
where Securities may be presented for payment ("Paying Agent") and where notices
and demands to or upon the Company in respect of the Securities may be served.
The Company may act as Registrar or Paying Agent, except that, for the purposes
of Articles III, VIII and X and as otherwise specified in the Indenture, neither
the Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of
14
<PAGE>
the Securities and of their transfer and exchange. The Company may have one or
more co-Registrars and one or more additional Paying Agents. The term "Paying
Agent" includes any additional Paying Agent. The Company hereby initially
appoints the Trustee as Registrar and Paying Agent, and the Trustee hereby
initially agrees so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
promptly notify the Trustee in writing of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, the
Trustee shall act as such.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Securities.
SECTION 2.4. Paying Agent to Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, interest on, the Securities (whether such assets
have been distributed to it by the Company or any other obligor on the
Securities), and shall notify the Trustee in writing of any Default in making
any such payment. If either of the Company or a Subsidiary of the Company acts
as Paying Agent, it shall segregate such assets and hold them as a separate
trust fund for the benefit of the Holders or the Trustee. The Company at any
time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent (if other than the Company or an Affiliate of
15
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the Company) shall have no further liability for such assets.
SECTION 2.5. Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before the third Business Day preceding each Interest Payment Date
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee reasonably may require of the names and
addresses of Holders.
SECTION 2.6. Transfer and Exchange.
---------------------
(a) Transfer and Exchange of Definitive Securities. When Definitive
----------------------------------------------
Securities are presented to the Registrar or a co-Registrar with a request:
(x) to register the transfer of such Definitive
Securities; or
(y) to exchange such Definitive Securities for an
equal principal amount of Definitive Securities of other authorized
denominations;
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
- -------- -------
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar or co-
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
(b) Restrictions on Transfer of a Definitive Security for a
-------------------------------------------------------
Beneficial Interest in a Global Security. A Definitive Security may not be
- ----------------------------------------
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with
written instructions directing the Trustee to make, or to direct the Securities
16
<PAGE>
Custodian to make, an endorsement on the Global Security to reflect an increase
in the aggregate principal amount of the Securities represented by the Global
Security, then the Trustee shall cancel such Definitive Security and cause, or
direct the Securities Custodian to cause, in accordance with the standing
instructions and procedures existing between the Depositary and the Securities
Custodian, the aggregate principal amount of Securities represented by the
Global Security to be increased accordingly. If no Global Securities are then
outstanding, the Company shall issue and the Trustee shall authenticate a new
Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
------------------------------------------
exchange of Global Securities or beneficial interests therein shall be effected
through the Depositary, in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) Transfer of a Beneficial Interest in a Global Security for a
------------------------------------------------------------
Definitive Security.
- -------------------
(i) Upon receipt by the Trustee of written instructions or
such other form of instructions as is customary for the Depositary from the
Depositary or its nominee on behalf of any Person having a beneficial
interest in a Global Security and upon receipt by the Trustee of a written
order or such other form of instructions as is customary for the Depositary
or the Person designated by the Depositary as having such a beneficial
interest in a Global Security only, the following additional information
and documents (all of which may be submitted by facsimile) if such
beneficial interest is being transferred to the Person designated by the
Depositary as being the beneficial owner, a certification from such person
to that effect (in substantially the form set forth on the reverse of the
Security) then the Trustee or the Securities Custodian, at the direction of
the Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian,
the aggregate principal amount of the Global Security to be reduced and,
following such reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate, the
17
<PAGE>
Trustee will authenticate and deliver to the transferee a Definitive
Security.
(ii) Definitive Securities issued in exchange for a
beneficial interest in a Global Security pursuant to this Section 2.6(d)
shall be registered in such names and in such authorized denominations as
the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Securities to the persons in whose names such
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
----------------------------------------------------------
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Security
may not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in Absence of
-----------------------------------------------------
Depositary. If at any time:
- ----------
(i) the Depositary for the Securities notifies the Company
and the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to continue as Depositary for the Global Securities
and a successor Depositary for the Global Securities is not appointed by
the Company within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the
Trustee in writing that it elects to cause the issuance of Definitive
Securities under this Indenture;
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will authenticate and deliver Definitive Securities, in an aggregate principal
amount equal to the principal amount of the Global Securities, in exchange for
such Global Securities.
18
<PAGE>
(g) Cancellation and/or Adjustment of Global Security. At such time
-------------------------------------------------
as all beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or cancelled, such Global Security
shall be returned to or retained and cancelled by the Trustee. At any time
prior to such cancellation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, redeemed, repurchased or cancelled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(h) Obligations with respect to Transfers and Exchanges of
------------------------------------------------------
Definitive Securities.
- ---------------------
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's or co-Registrar's
request.
(ii) No service charge shall be made for any registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith (other than any such transfer taxes,
assessments, or similar governmental charge payable upon exchanges or
transfers pursuant to Section 2.2 (fourth paragraph), 2.10, 3.7, 9.5, or
10.1 (final paragraph)).
(iii) The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of (a) any Definitive Security
selected for redemption in whole or in part pursuant to Article III, except
the unredeemed portion of any Definitive Security being redeemed in part,
or (b) any Security for a period beginning 15 days before the mailing of a
notice of an offer to repurchase pursuant to Article XI hereof or the
mailing of a notice of redemption of Securities pursuant to Article III
hereof and ending at the close of business on the day of such mailing.
SECTION 2.7. Replacement Securities.
----------------------
19
<PAGE>
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims and submits an affidavit or other evidence,
satisfactory to the Trustee, to the Trustee to the effect that the Security
has been lost, destroyed or wrongfully taken, the Company shall issue and
the Trustee shall authenticate a replacement Security if the Trustee's
requirements are met. If required by the Trustee or the Company, such
Holder must provide an indemnity bond or other indemnity, sufficient in the
judgment of both the Company and the Trustee, to protect the Company, the
Trustee or any Agent from any loss which any of them may suffer if a
Security is replaced. The Company may charge such Holder for its
reasonable, out-of-pocket expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.8. Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee (including any Security represented
by a Global Security) except those cancelled by it, those delivered to it
for cancellation, those reductions in the interest in a Global Security
effected by the Trustee hereunder and those described in this Section 2.8
as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security, except as
provided in Section 2.9.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser. A mutilated Security
---- ----
ceases to be outstanding upon surrender of such Security and replacement
thereof pursuant to Section 2.7.
If on a Redemption Date the Paying Agent (other than the Company
or an Affiliate of the Company) holds Cash or U.S. Government Obligations
sufficient to pay all of the principal and interest due on the Securities
payable on that date in accordance with Section 3.6 hereof and payment of
the Securities called for redemption is not otherwise prohibited pursuant
to Article XI hereof or otherwise, then on
20
<PAGE>
and after that date such Securities cease to be outstanding and interest on
them ceases to accrue.
SECTION 2.9. Treasury Securities.
-------------------
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, amendment,
supplement, waiver or consent, Securities owned by the Company or an
Affiliate of the Company shall be disregarded, except that, for the
purposes of determining whether the Trustee shall be protected in relying
on any such direction, amendment, supplement, waiver or consent, only
Securities that the Trustee knows are so owned shall be disregarded.
SECTION 2.10. Temporary Securities.
--------------------
Until Definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of Definitive
Securities but may have variations that the Company reasonably and in good
faith considers appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate
Definitive Securities in exchange for temporary Securities. Until so
exchanged, the temporary Securities shall in all respects be entitled to
the same benefits under this Indenture as permanent Securities
authenticated and delivered hereunder.
SECTION 2.11. Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or
payment. The Trustee, or at the direction of the Trustee, the Registrar or
the Paying Agent (other than the Company or an Affiliate of the Company),
and no one else, shall cancel and, at the written direction of the Company,
shall dispose of all Securities surrendered for transfer, exchange, payment
or cancellation. Subject to Section 2.7, the Company may not issue new
Securities to replace Securities that have been paid or delivered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of
or in exchange for any Securities cancelled as provided in this Section
2.11, except as
21
<PAGE>
expressly permitted in the form of Securities and as permitted by this
Indenture.
SECTION 2.12. Defaulted Interest.
------------------
Interest on any Security which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the
person in whose name that Security (or one or more predecessor Securities)
is registered at the close of business on the Record Date for such
interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date plus, to
the extent lawful, any interest payable on the defaulted interest (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered holder on the relevant Record Date, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in
clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Securities (or their
respective predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of Cash equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such Cash when deposited to be held in trust for the
benefit of the persons entitled to such Defaulted Interest as provided
in this clause (1). Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the
name and at the expense of the Company, shall cause notice of the
proposed payment of such
22
<PAGE>
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it
appears in the Security register not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the persons in
whose names the Securities (or their respective predecessor
Securities) are registered on such Special Record Date and shall no
longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and
upon such notice as may be required by such exchange, if, after notice
given by the Company to the Trustee of the proposed payment pursuant
to this clause, such manner shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section 2.12, each
Security delivered under this Indenture upon transfer of or in exchange for
or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.13. Mandatory Disposition of Securities Pursuant To
-----------------------------------------------
Gaming Laws.
-----------
Each Holder and beneficial owner, by accepting or otherwise
acquiring an interest in the Securities, shall be deemed to have agreed
that if the Gaming Authority of any jurisdiction in which the Company or
any of its Subsidiaries conducts or proposes to conduct gaming requires
that a person who is a Holder or beneficial owner must be licensed,
qualified or found suitable under the applicable Gaming Laws, such Holder
or beneficial owner shall apply for a license, qualification or a finding
of suitability within the required time period. If such person fails to
apply or become licensed or qualified or is found unsuitable, the Company
shall have the right, at its option, (i) to require such person to dispose
of its Securities or beneficial interest therein within 30 days of receipt
of notice of the Company's election or such earlier date as may be
requested or prescribed by such Gaming Authority or (ii) to redeem
23
<PAGE>
such Securities at a redemption price equal to the lesser of (A) such
person's cost or (B) 100% of the principal amount thereof, plus accrued and
unpaid interest to the earlier of the redemption date and the date of the
finding of unsuitability, which may be less than 30 days following the
notice of redemption if so requested or prescribed by the Gaming Authority.
The Company shall notify the Trustee in writing of any such redemption as
soon as practicable. The Company shall not be responsible for any costs or
expenses any such Holder or beneficial owner may incur in connection with
its application for a license, qualification or a finding of suitability.
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.
-------------------
Redemption of Securities, as permitted by any provision of this
Indenture, shall be made in accordance with Paragraph 5 of the Securities
and this Article III. The Company will not have the right to redeem any
Securities prior to May 15, 1999. At any time on or after May 15, 1999,
upon not less than 30 nor more than 60 days notice to each Holder of Notes,
the Company will have the right to redeem all or any part of the Securities
at the Redemption Prices specified in Paragraph 5 therein under the caption
"Redemption," in each case including accrued and unpaid interest, if any,
to the Redemption Date.
SECTION 3.2. Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph
5 of the Securities, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Securities to be redeemed and
whether it wants the Trustee to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of
Securities to be redeemed pursuant to Paragraph 5 of the Securities by
crediting against any such redemption Securities it has not previously
delivered to the Trustee for cancellation, it shall so notify the Trustee
of the amount of the reduction and deliver such Securities with such
notice.
24
<PAGE>
The Company shall give each notice to the Trustee provided for in
this Section 3.2 at least 45 days before the Redemption Date (unless a
shorter notice shall be satisfactory to the Trustee). Any such notice may
be cancelled at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
SECTION 3.3. Selection of Securities to Be Redeemed.
--------------------------------------
If less than all of the Securities are to be redeemed pursuant to
Paragraph 5 thereof, the Trustee shall select the Securities to be
redeemed, by lot or by such other method as the Trustee shall determine to
be fair and appropriate and in such manner as complies with any applicable
depositary, legal and stock exchange requirements.
The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption and shall promptly
notify the Company in writing of the Securities selected for redemption
and, in the case of any Security selected for partial redemption, the
principal amount thereof to be redeemed. Securities in denominations of
$1,000 may be redeemed only in whole. The Trustee may select for redemption
portions (equal to $1,000 or any integral multiple thereof) of the
principal of Securities that have denominations larger than $1,000.
Provisions of this Indenture that apply to Securities called for redemption
also apply to portions of Securities called for redemption.
SECTION 3.4. Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first-class mail,
postage prepaid, to the Trustee and each Holder whose Securities are to be
redeemed. At the Company's written request to the Trustee not less than 75
days prior to the Redemption Date, in the case of a partial redemption, and
not less than 45 days prior to the Redemption Date in the case of a total
redemption (unless a shorter notice shall be satisfactory to the Trustee),
the Trustee shall give the notice of redemption in the Company's name and
at the Company's expense. Each notice for redemption shall identify the
Securities to be redeemed and shall state:
25
<PAGE>
(1) the Redemption Date, and that the Securities called for
redemption may not be converted after the Business Day prior to the
Redemption Date ;
(2) the Redemption Price, including the amount of accrued
and unpaid interest, if any, to be paid upon such redemption;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent at the address specified in such
notice to collect the Redemption Price;
(5) that, unless (a) the Company defaults in its obligation
to deposit Cash with the Paying Agent in accordance with Section 3.6
hereof or (b) such redemption payment is prohibited pursuant to
Article XII hereof or otherwise, interest on Securities called for
redemption ceases to accrue on and after the Redemption Date and the
only remaining right of the Holders of such Securities is to receive
payment of the Redemption Price, including accrued and unpaid
interest, if any, to the Redemption Date, upon surrender to the Paying
Agent of the Securities called for redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion
of the principal amount, equal to $1,000 or any integral multiple
thereof, of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security
or Securities in aggregate principal amount equal to the unredeemed
portion thereof will be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities
to be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
26
<PAGE>
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section
3.4 and pursuant to the redemption provisions of Paragraph 5 of the
Securities.
SECTION 3.5. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section
3.4, Securities called for redemption become due and payable on the
Redemption Date and at the Redemption Price, including accrued and unpaid
interest, if any, to the Redemption Date. Upon surrender to the Trustee or
Paying Agent, such Securities called for redemption shall be paid at the
Redemption Price, including accrued and unpaid interest, if any, to the
Redemption Date; provided that if the Redemption Date is after a regular
--------
Record Date and on or prior to the corresponding Interest Payment Date or
Damage Payment Date, the accrued interest, if any, shall be payable to the
Holder of the redeemed Securities registered on the relevant Record Date;
and provided, further, that if a Redemption Date is a Legal Holiday,
-------- -------
payment shall be made on the next succeeding Business Day and no interest
shall accrue for the period from such Redemption Date to such succeeding
Business Day.
SECTION 3.6. Deposit of Redemption Price.
---------------------------
On or prior to the Redemption Date, the Company shall deposit
with the Paying Agent (other than the Company or an Affiliate of the
Company) Cash sufficient to pay the Redemption Price of, including accrued
and unpaid interest on, all Securities to be redeemed on such Redemption
Date (other than Securities or portions thereof called for redemption on
that date that have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any
Cash so deposited which is not required for that purpose upon the written
request of the Company.
If the Company complies with the preceding paragraph and the
other provisions of this Article III and payment of the Securities called
for redemption is not prohibited under Article XII or otherwise, interest
on the Securities to be redeemed will cease to accrue on the applicable
Redemption Date, whether or not such Securities are
27
<PAGE>
presented for payment. Notwithstanding anything herein to the contrary, if
any Security surrendered for redemption in the manner provided in the
Securities shall not be so paid upon surrender for redemption because of
the failure of the Company to comply with the preceding paragraph, interest
shall continue to accrue and be paid from the Redemption Date until such
payment is made on the unpaid principal, and, to the extent lawful, on any
interest not paid on such unpaid principal, in each case at the rate and in
the manner provided in Section 4.1 hereof and the Security.
SECTION 3.7. Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities
equal in principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Principal and Interest on Securities.
-----------------------------------------------
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. An
installment of principal of or interest on the Securities shall be
considered paid on the date it is due if the Trustee or Paying Agent (other
than the Company or an Affiliate of the Company) holds for the benefit of
the Holders, on or before 10:00 a.m. New York City time on that date, Cash
deposited and designated for and sufficient to pay the installment.
The Company shall pay interest on overdue principal and on
overdue installments of interest at the rate specified in the Securities
compounded semi-annually, to the extent lawful.
28
<PAGE>
SECTION 4.2. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City
of New York, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and for conversion and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office
or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the address of the Trustee set forth in Section 13.2.
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or
-------- -------
rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan, The City of New
York, for such purposes. The Company shall give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency. The Company hereby initially
designates the corporate trust office of the Trustee as such office.
SECTION 4.3. Corporate Existence.
-------------------
Subject to Article V, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate or other existence of each of its
Significant Subsidiaries in accordance with the respective organizational
documents of each of them and the rights (charter and statutory) and
corporate franchises of the Company and each of its Significant
Subsidiaries; provided, however, that the Company shall not be required to
-------- -------
preserve, with respect to itself, any right or franchise, and with respect
to any of its Significant Subsidiaries, any such existence, right or
franchise, if (a) the Company shall determine that the preservation thereof
is no longer desirable in the conduct of
29
<PAGE>
the business of such entity and (b) the loss thereof is not disadvantageous
in any material respect to the Holders.
SECTION 4.4. Payment of Taxes and Other Claims.
---------------------------------
Except with respect to immaterial items, the Company shall, and
shall cause each of its Subsidiaries to, pay or discharge or cause to be
paid or discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon the
Company or any of its Significant Subsidiaries or any of their respective
properties and assets and (ii) all lawful claims, whether for labor,
materials, supplies, services or anything else, which have become due and
payable and which by law have or may become a Lien upon the property and
assets of the Company or any of its Significant Subsidiaries; provided,
--------
however, that neither the Company nor any Significant Subsidiary shall be
-------
required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which such
disputed amounts the need for adequate reserves have been reviewed in
accordance with GAAP.
SECTION 4.5. Maintenance of Properties and Insurance.
---------------------------------------
The Company shall cause all material properties used or useful to
the conduct of its business and the business of each of its Significant
Subsidiaries to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in
their reasonable judgment may be necessary, so that the business carried on
in connection therewith may be properly conducted at all times; provided,
--------
however, that nothing in this Section 4.5 shall prevent the Company or any
-------
Significant Subsidiary from discontinuing any operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance
or disposal is (a), in the judgment of the Company, desirable in the
conduct of the business of such entity and (b) not disadvantageous in any
material respect to the Holders.
30
<PAGE>
The Company shall provide, or cause to be provided, for itself
and each of its Significant Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the
reasonable, good faith opinion of the Company is adequate and appropriate
for the conduct of the business of the Company and such Significant
Subsidiaries in a prudent manner, with (except for self-insurance)
reputable insurers or with the government of the United States of America
or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the reasonable,
good faith opinion of the Company and adequate and appropriate for the
conduct of the business of the Company and such Significant Subsidiaries in
a prudent manner for entities similarly situated in the industry, unless
failure to provide such insurance (together with all other such failures)
would not have a material adverse effect on the financial condition or
results of operations of the Company or such Significant Subsidiary.
SECTION 4.6. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the Trustee within 120 days
after the end of its fiscal year an Officers' Certificate complying with
Section 314(a)(4) of the TIA and stating that a review of its activities
and the activities of its Significant Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers
with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture and further
stating, as to each such Officer signing such certificate, whether or not
the signer knows of any failure by the Company or any Subsidiary of the
Company to comply with any conditions or covenants in this Indenture and,
if such signer does know of such a failure to comply, the certificate shall
describe such failure with particularity. The Officers' Certificate shall
also notify the Trustee should the relevant fiscal year end on any date
other than the current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default, Event of Default or fact which would prohibit the making of any
payment to or by the Trustee in respect of the Securities, an Officers'
Certifi-
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cate specifying such Default, Event of Default or fact and what action the
Company is taking or proposes to take with respect thereto. The Trustee
shall not be deemed to have knowledge of any Default, any Event of Default
or any such fact unless one of its Trust Officers receives notice thereof
from the Company or any of the Holders.
SECTION 4.7. Reports.
-------
Whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
deliver to the Trustee and to each Holder, within 15 days after it is or
would have been required to file such with the SEC, annual and quarterly
consolidated financial statements substantially equivalent to financial
statements that would have been included in reports filed with the SEC if
the Company was subject to the requirements of Section 13 or 15(d) of the
Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such
would be required in such reports to the SEC and, in each case, together
with a management's discussion and analysis of financial condition and
results of operations which would be so required.
SECTION 4.8. Limitation on Status as Investment Company.
------------------------------------------
Neither the Company nor any of its Subsidiaries shall become an
"investment company" (as that term is defined in the Investment Company Act
of 1940, as amended), or otherwise become subject to regulation under the
Investment Company Act.
SECTION 4.9. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law or any usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of, premium of,
interest on, the Securities as contemplated herein, wherever enacted, now
or at any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do
so)
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the Company hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
-------------------------------------------
(a) The Company shall not, directly or indirectly, consolidate
with or merge with or into another Person or sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related
transactions, to another Person or group of affiliated Persons, unless (i)
either (a) in the case of a merger or consolidation, the Company is the
surviving entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state
thereof or the District of Columbia and expressly assumes by supplemental
indenture all of the obligations of the Company in connection with the
Securities and the Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately before or after giving effect on a pro
---
forma basis to such transaction; (iii) the Company has delivered to the
-----
Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and, if a supplemental
indenture is required, such supplemental indenture comply with the
Indenture and that all conditions precedent relating to such transactions
have been satisfied; and (iv) the resulting, surviving or transferee entity
holds all gaming licenses necessary to conduct the business of such
resulting, surviving or transferee entity.
(b) For purposes of clause (a) of this Section 5.1, the sale,
lease, conveyance, assignment, transfer, or other disposition of all or
substantially all of the properties and assets of one or more Subsidiaries
of the Company, which properties and assets, if held by the Company instead
of such Subsidiaries, would constitute all or substantially all of the
properties and assets of the Company
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on a consolidated basis, shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company.
SECTION 5.2. Successor Corporation Substituted.
---------------------------------
Upon any consolidation or merger or any sale, lease, conveyance
or transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such sale,
lease, conveyance or transfer is made, shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the
Indenture with the same effect as if such successor corporation had been
named therein as the Company, and when a successor corporation duly assumes
all of the obligations of the Company pursuant hereto and pursuant to the
Securities, the predecessor shall be released from such obligations (except
with respect to any obligations that arise from or as a result of such
transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether
it shall be caused voluntarily or involuntarily or effected, without
limitation, by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative
or governmental body):
(1) failure by the Company to pay any installment of interest on
the Securities as and when due and payable, or failure by the Company to
perform any conversion of the Securities required under this Indenture, and
the continuance of such failure for a period of 30 days, whether or not
such payment is prohibited by Article XI;
(2) failure by the Company to pay all or any part of the
principal of, or premium, if any, on the Securities when and as the same
become due and payable
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at maturity, redemption, by acceleration or otherwise, including, without
limitation, default in the payment of the Repurchase Price on the
Repurchase Date in accordance with Article X, whether or not such payment
is prohibited by Article XI;
(3) failure by the Company to observe or perform any covenant or
agreement contained in the Securities or this Indenture (other than a
default in the performance of any covenant or agreement which is
specifically dealt with elsewhere in this Section 6.1), and continuance of
such failure for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee, or to the
Company and the Trustee by Holders of at least 25% in aggregate principal
amount of the then outstanding Securities, a written notice specifying such
default or breach, requesting it to be remedied and stating that such
notice is a "Notice of Default" hereunder;
(4) a default under Indebtedness of the Company or any of its
Subsidiaries with an aggregate principal amount in excess of $50,000,000
(a) resulting from the failure to pay principal, premium or interest when
due that extends beyond any stated period of grace applicable thereto or
(b) as a result of which the maturity of such Indebtedness has been
accelerated prior to its stated maturity;
(5) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Significant Subsidiaries under any bankruptcy or similar law, and such
decree or order shall have continued undischarged and unstayed for a period
of 75 days; or a decree or order of a court of competent jurisdiction over
the appointment of a receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency of the Company, any of its Significant
Subsidiaries, or of the property of any such Person, or for the winding up
or liquidation of the affairs of any such Person, shall have been entered,
and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days;
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(6) the Company or any of its Significant Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any bankruptcy
or similar law or similar statute, or shall consent to the filing of any
such petition, or shall consent to the appointment of a Custodian,
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of
it or any of its assets or property, or shall make a general assignment for
the benefit of creditors, or shall admit in writing its inability to pay
its debts generally as they become due, or shall, within the meaning of any
Bankruptcy Law, become insolvent, fail generally to pay its debts as they
become due, or take any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(7) final unsatisfied judgments not covered by insurance
(including self-insurance) aggregating in excess of $50,000,000, at any one
time shall have been rendered against the Company or any of its
Subsidiaries and not have been stayed, bonded or discharged for a period
(during which execution shall not be effectively stayed) of 30 days (or, in
the case of any such final judgment which provides for payment over time,
which shall so remain unstayed, unbonded or undischarged beyond any
applicable payment date provided therein).
Notwithstanding the 60-day period and notice requirement contained in
Section 6.1(3) above, with respect to a default under Article X the 60-day
period referred to in Section 6.1(3) shall be deemed to have begun as of the
date the Change of Control notice is required to be sent in the event that the
Company has not complied with the provisions of Section 11.1 and the Trustee or
Holders of at least 25% in principal amount of the outstanding Securities
thereafter give the Notice of Default referred to in Section 6.1(3) to the
Company and, if applicable, the Trustee; provided, however, that if the breach
-------- -------
or default is a result of a default in the payment when due of the Repurchase
Price on the Repurchase Date, such Event of Default shall be deemed, for
purposes of this Section 6.1, to arise no later than on the Final Repurchase
Payment Date.
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If a Default occurs and is continuing, the Trustee shall, within 90
days after the occurrence of such default, give to the Holders notice of such
default.
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment.
-------------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 6.1(5) or (6) relating to the Company or any of its Subsidiaries) occurs
and is continuing, then, and in every such case, unless the principal of all of
the Securities shall have already become due and payable, either the Trustee or
the Holders of not less than 25% in aggregate principal amount of then
outstanding Securities, by a notice in writing to the Company (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare all of the
principal of the Securities (or the Repurchase Price if the Event of Default
includes failure to pay the Repurchase Price, determined as set forth below),
including in each case accrued interest thereon, to be due and payable
immediately. If an Event of Default specified in Section 6.1(5) or (6) relating
to the Company or any Significant Subsidiary occurs, all principal, accrued
interest thereon will be immediately due and payable on all outstanding
Securities without any declaration or other act on the part of Trustee or the
Holders.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of no less
than a majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee Cash
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, applicable to)
any Securities which would then be due otherwise than by such
declaration of
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acceleration, and interest thereon at the rate borne by the
Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
(D) all sums paid or advanced by the Trustee hereunder and
the compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on Securities that have become
due solely by such declaration of acceleration, have been cured or waived
as provided in Section 6.12, including, if applicable, any Event of Default
relating to the covenants contained in Section 10.1.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event. No such waiver shall cure or waive any subsequent Default or Event of
Default or impair any right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company covenants that if an Event of Default in payment of
principal, premium or interest specified in clause (1) or (2) of Section 6.1
occurs and is continuing, the Company shall, upon demand of the Trustee, pay to
it, for the benefit of the Holders of such Securities, the whole amount then due
and payable on such Securities for principal, premium (if any), interest and, to
the extent that payment of such interest shall be legally enforceable, interest
on any overdue principal (and premium, if any) and on any overdue interest, at
the rate borne by the Securi-
38
<PAGE>
ties, and, in addition thereto, such further amount as shall be sufficient to
cover the reasonable costs and expenses of collection, including reasonable
compensation to, and expenses, disbursements and advances of the Trustee, its
agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise to take any and
all actions under the TIA, including:
(1) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any
39
<PAGE>
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agent and counsel) and of the Holders allowed in such judicial
proceeding; and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.5. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
- ----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 6.6. Priorities.
----------
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the
40
<PAGE>
distribution of such money on account of principal, premium (if any) or
interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7;
SECOND: To the holders of Senior Indebtedness of the Company to the
extent provided in Article XI;
THIRD: To the Holders in payment of the amounts then due and unpaid
for principal of, premium (if any), and interest on, the Securities in respect
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal, premium (if any) and interest, respectively; and
FOURTH: To whomsoever may be lawfully entitled thereto, the
remainder, if any.
SECTION 6.7. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(A) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in principal amount of then
outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
41
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(D) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(E) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of then outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium (if any), interest on, such
Security when due (including, in the case of redemption, the Redemption Price on
the applicable Redemption Date, and in the case of the Repurchase Price, on the
applicable Repurchase Date) and to institute suit for the enforcement of any
such payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 6.9. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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SECTION 6.10. Delay or Omission Not Waiver.
----------------------------
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 6.11. Control by Holders.
------------------
The Holder or Holders of no less than a majority in aggregate
principal amount of then outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred upon the Trustee,
provided, that
- --------
(1) such direction shall not be in conflict with any rule of law
or with this Indenture,
(2) the Trustee shall not determine that the action so directed
would be unjustly prejudicial to the Holders not taking part in such
direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12. Waiver of Past Default.
----------------------
Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of then outstanding Securities may,
on behalf of all Holders, prior to the declaration of acceleration of the
maturity of the Securities, waive any past default hereunder and its
consequences, except a default
(A) in the payment of the principal of, premium, if any,
interest on, any Security not yet cured as specified in clauses (1) and (2)
of Section 6.1, or
43
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(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder
of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 6.13. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted to be taken by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 6.13 shall not apply to any suit instituted
by the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of then outstanding Securities, or to any suit
instituted by any Holder for enforcement of the payment of principal of, premium
(if any), or interest on, any Security on or after the respective Stated
Maturity of such Security (including, in the case of redemption, on or after the
Redemption Date).
SECTION 6.14. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
there-
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after all rights and remedies of the Trustee and the Holders shall continue as
though no such proceeding had been instituted.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
SECTION 7.1. Duties of Trustee.
-----------------
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are
adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1.
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<PAGE>
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.11.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or at the request, order or direction of the Holders or in
the exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section
7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 7.2. Rights of Trustee.
-----------------
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such certificate or advice of counsel.
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(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, notice, request, direction, consent, order, bond, debenture, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Unless otherwise specifically provided for in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(h) The Trustee shall have no duty to inquire as to the performance
of the Company's covenants in Article IV hereof. In addition, the Trustee shall
not be deemed to have knowledge of any Default or Event of Default except (i)
any Event of Default occurring pursuant to Sections 6.1(1) or 6.1(2), or (ii)
any Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
SECTION 7.3. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any of
its Subsidiaries, or their respective Affiliates with the same rights it would
have if it were not Trustee. Any Agent may do the same with
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like rights. However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 7.5. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal (or premium, if any) of, or interest on, any Security
(including the payment of the Repurchase Price on the Repurchase Date and the
payment of the Redemption Price on the Redemption Date), the Trustee may
withhold the notice if and so long as a Trust Officer in good faith determines
that withholding the notice is in the interest of the Securityholders.
SECTION 7.6. Reports by Trustee to Holders.
-----------------------------
(a) Within 60 days after each May 15 beginning with the May 15, 1997
following the date of this Indenture, the Trustee shall, if required by law,
mail to each Securityholder, as their names and addresses appear on the
Company's register of Securities, a brief report dated as of such May 15 that
complies with TIA (S) 313(a) with respect to any of the following events which
may have occurred within the previous twelve months (but if no such event has
occurred within such period no report need be transmitted):
(1) any change to its eligibility and its qualifications under
TIA (S) 310;
(2) the creation of or any material change to a relationship
specified in paragraphs (1) through (10) of TIA (S) 310(b);
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(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made by
the Trustee (as such) which remain unpaid on the date of such report, and for
the reimbursement of which it claims or may claim a lien or charge, prior to
that of the Securities, on any property or funds held or collected by it as
Trustee, except that the Trustee shall not be required (but may elect) to report
such advances if such advances so remaining unpaid aggregate not more than 1/2
of 1% of the principal amount of the Securities outstanding on the date of such
report;
(4) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the Securities) to
the Trustee in its individual capacity, on the date of such report, with a brief
description of any property held as collateral security therefor, except an
indebtedness based upon a creditor relationship arising in any manner described
in paragraphs (2), (3), (4) or (6) of TIA (S) 311(b);
(5) any change to the property and funds, if any, physically in the
possession of the Trustee (as such) on the date of such report;
(6) any change to any release, or release and substitution, of
property subject to the lien of the Indenture (and the consideration therefor,
if any) which has not been previously reported;
(7) any additional issue of Securities which the Trustee has not
previously reported; and
(8) any action taken by the Trustee in the performance of its duties
hereunder which it has not previously reported and which in its opinion
materially affects the Securities, except action in respect of a default, notice
of which has been or is to be withheld by the Trustee in accordance with an
Indenture provision authorized by TIA (S) 315(b).
(b) The Trustee shall transmit by mail to all Securityholders, as their
names and addresses appear on the Company's register of Securities, a brief
report with respect to the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making thereof)
made by the Trustee (as such) since
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the date of the last report transmitted pursuant to Subsection 7.6(a) hereof (or
if no such report has yet been so transmitted, since the date of execution of
this instrument) for the reimbursement of which it claims or may claim a lien or
charge, prior to that of the Securities, on property or funds held or collected
by it as Trustee and which it has not previously reported pursuant to this
Subsection, except that the Trustee shall not be required (but may elect) to
report such advances if such advances remaining unpaid at any time aggregate 10%
or less of the principal amount of the Securities outstanding at such time, such
report to be transmitted within 90 days of such time.
(c) A copy of each such report shall, at the time of such transmission to
Securityholders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the SEC and with the Company. The Company will
promptly notify the Trustee when the Securities are listed on any stock
exchange. The Trustee also shall comply with TIA (S)(S) 313(b) and 313(c).
SECTION 7.7. Compensation and Indemnity.
--------------------------
The Company agrees to pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents, accountants,
experts and counsel.
The Company agrees to indemnify the Trustee (in its capacity as
Trustee) and each of its officers, directors, attorneys-in-fact and agents for,
and hold it harmless against, any claim, demand, expense (including but not
limited to reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel), loss or liability incurred by it without negligence or bad
faith on its part, arising out of or in connection with the administration of
this trust and its rights or duties hereunder including the reasonable costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek
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indemnity. The Company shall defend the claim and the Trustee shall provide
reasonable cooperation at the Company's expense in the defense. The Trustee may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel; provided, that the Company will not be required to pay such
--------
fees and expenses if it assumes the Trustee's defense and there is no conflict
of interest between the Company and the Trustee in connection with such defense.
The Company need not pay for any settlement made without its written consent.
The Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal and premium, if any, of or interest on particular
Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(5) or (6) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien arising
hereunder shall survive the resignation or removal of the Trustee, the discharge
of the Company's obligations pursuant to Article VIII of this Indenture and any
rejection or termination of this Indenture under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in principal amount of then outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
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(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer takes charge
of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in principal amount of then outstanding Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the retiring Trustee provided for in Section
7.7 have been paid, the retiring Trustee shall transfer all property held by it
as trustee to the successor Trustee, subject to the lien provided in Section
7.7, the resignation or removal of the retiring Trustee shall become effective,
and the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holder or Holders of at least 10% in principal amount of then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.
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SECTION 7.9. Successor Trustee by Merger, Etc.
---------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
-----------------------------
The Trustee shall at all times satisfy the requirements of TIA (S)
310(a)(1), (2) and (5). The Trustee shall have a combined capital and surplus
of at least $100,000,000 as set forth in its most recent published annual report
of condition. The Trustee shall comply with TIA (S) 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
ARTICLE VIII
SATISFACTION AND DISCHARGE
SECTION 8.1. Satisfaction and Discharge of Indenture.
---------------------------------------
The Company may terminate its obligations under this Indenture
(subject to the provisions of this Article VIII) when it shall have delivered to
the Trustee for cancellation all Securities theretofore authenticated (other
than any Securities which shall have been destroyed, lost or stolen and which
shall have been replaced or paid as provided in Article II hereof) and the
following conditions shall be satisfied:
(1) The Company has paid all sums payable under the Indenture; and
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(2) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating that
all conditions precedent have been complied with as contemplated by this Section
8.1.
SECTION 8.2. Repayment to the Company.
------------------------
Any money deposited with the Trustee or any Paying Agent, or then held by the
Company, for the payment of the principal of, premium, if any, or interest on
any Security and remaining unclaimed for two years after such principal,
premium, if any, or interest has become due and payable shall be paid to the
Company on its request; and the Holder of such Security shall thereafter look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money shall thereupon cease.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holder, the Company, when authorized by
Board Resolutions, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or to make any
other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided, the Company has delivered to the Trustee an Opinion of Counsel stating
- --------
that such change does not adversely affect the rights of any Holder that such
action pursuant to this clause (1) does not adversely affect the interests of
any Holder in any respect;
(2) to create additional covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company or to make any other change that does not adversely affect the rights
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of any Holder, provided, that the Company has delivered to the Trustee an
--------
Opinion of Counsel stating that such change pursuant to this clause (2) does not
adversely affect the rights of any Holder;
(3) to provide for collateral for or guarantors of the Securities;
(4) to evidence the succession of another Person to the Company and
the assumption by any such successor of the obligations of the Company herein
and in the Securities in accordance with Article V; or
(5) to comply with the TIA.
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with
----------------------------------------------------
Consent of Holders.
------------------
Subject to Section 6.8 and the last sentence of this paragraph, with
the consent of the Holders of not less than a majority in aggregate principal
amount of then outstanding Securities, by written act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by Board
Resolutions, and the Trustee may amend or supplement this Indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or the Securities or of modifying in any
manner the rights of the Holders under this Indenture or the Securities. Subject
to Section 6.8 and the last sentence of this paragraph, the Holder or Holders of
not less than a majority in aggregate principal amount of then outstanding
Securities may, in writing, waive compliance by the Company with any provision
of this Indenture or the Securities. Notwithstanding any of the above, however,
no such amendment, supplemental indenture or waiver shall, without the consent
of the Holder of each outstanding Security affected thereby:
(1) change the Stated Maturity of any Security or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Security or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment or the conversion of any
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Security on or after the due date thereof (including, in the case of redemption,
on or after the Redemption Date), or reduce the Repurchase Price, or alter the
Repurchase Offer or redemption provisions in a manner adverse to the Holders;
(2) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture;
(3) modify any of the provisions of Article XII hereof in a manner
adverse to such Holder or otherwise adversely affect the right of such Holder
to convert Securities; or
(4) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Security affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however,
in any way impair or affect the validity of any such supplemental indenture
or waiver.
After an amendment, supplement or waiver under this Section 9.2 or
Section 9.4 becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or (at the option of the
Company) to all Holders, consideration for consent to such amendment,
supplement or waiver.
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SECTION 9.3. Compliance with TIA.
-------------------
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to the
Company or the Person designated by the Company as the Person to whom consents
should be sent if such revocation is received by the Company or such Person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (4) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided, that any such
--------
waiver
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shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest on to a Security, on or after the
respective dates set for such amounts to become due and payable expressed in
such Security, or to bring suit for the enforcement of any such payment on or
after such respective dates.
SECTION 9.5. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms. Any
failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment, supplement or waiver.
SECTION 9.6. Trustee to Sign Amendments, Etc.
--------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
--------
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
ARTICLE X
RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL
SECTION 10.1. Repurchase of Securities at Option of the Holder Upon a
-------------------------------------------------------
Change of Control.
- -----------------
(a) In the event that a Change of Control occurs, each Holder shall
have the right, at such Holder's option, subject to the terms and conditions
of this Inden-
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ture, to require the Company to repurchase all or any part of such Holder's
Securities (provided, that the principal amount of such Securities must be
--------
$1,000 or an integral multiple thereof) on the date (the "Repurchase Date") that
is no later than 40 Business Days after the occurrence of such Change of
Control, at a cash price (the "Repurchase Price") equal to 100% of the principal
amount thereof, together with accrued and unpaid interest to the Repurchase
Date.
(b) In the event that, pursuant to this Section 10.1, the Company
shall be required to commence an irrevocable and unconditional offer to purchase
Securities (a "Repurchase Offer"), the Company shall follow the procedures set
forth in this Section 10.1 as follows:
(1) the Repurchase Offer shall commence within 15 Business Days
following a Change of Control;
(2) the Repurchase Offer shall remain open for 20 Business Days
following its commencement, except to the extent that a longer period is
required by applicable law, but in any case not more than 60 Business Days
following the Change of Control (the "Repurchase Offer Period");
(3) upon the expiration of a Repurchase Offer, the Company shall
purchase all Securities tendered in response to the Repurchase Offer;
(4) if the Repurchase Date is on or after an interest payment
record date and on or before the related Interest Payment Date, and any
accrued interest will be paid to the Person in whose name a Security is
registered at the close of business on such record date, and no additional
interest will be payable to Securityholders who tender Securities pursuant
to the Repurchase Offer;
(5) the Company shall provide the Trustee with notice of the
Repurchase Offer at least 5 Business Days before the commencement of any
Repurchase Offer; and
(6) on or before the commencement of any Repurchase Offer, the
Company or the Trustee (upon the request and at the expense of the Company)
shall send,
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by first-class mail, a notice to each of the Securityholders, which (to the
extent consistent with this Indenture) shall govern the terms of the
Repurchase Offer and shall state:
(i) that the Repurchase Offer is being made pursuant to such
notice and this Section 10.1 and that all Securities, or portions thereof,
tendered will be accepted for payment;
(ii) the Repurchase Price (including the amount of accrued and
unpaid interest, if any), the Repurchase Date and the Repurchase Put Date;
(iii) that any Security, or portion thereof, not tendered or
accepted for payment will continue to accrue interest, if any;
(iv) that, unless the Company defaults in depositing Cash with
the Paying Agent in accordance with the last paragraph of this clause (b)
or such payment is prevented pursuant to Article XI, any Security, or
portion thereof, accepted for payment pursuant to the Repurchase Offer
shall cease to accrue interest after the Repurchase Date;
(v) that Holders electing to have a Security, or portion
thereof, purchased pursuant to a Repurchase Offer will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying Agent
(which may not for purposes of this Section 10.1, notwithstanding anything
in this Indenture to the contrary, be the Company or any Affiliate of the
Company) at the address specified in the notice prior to the close of
business on the earlier of (a) the third Business Day prior to the
Repurchase Date and (b) the third Business Day following the expiration of
the Repurchase Offer (such earlier date being the "Repurchase Put Date");
(vi) that Holders will be entitled to withdraw their election,
in whole or in part, if the Paying Agent (which may not for purposes of
this Section 11.1, notwithstanding anything in this Indenture to the
contrary, be the Company or any Affiliate of the Company) receives, up to
the close of business on the
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Repurchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the
Securities the Holder is withdrawing and a statement that such Holder is
withdrawing his election to have such principal amount of Securities
purchased; and
(vii) a brief description of the events resulting in such Change
of Control.
Any such Repurchase Offer shall comply with all applicable provisions
of Federal and state laws, including those regulating tender offers, if
applicable, and any provisions of this Indenture which conflict with such laws
shall be deemed to be superseded by the provisions of such laws.
On or before the Repurchase Date, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the
Repurchase Offer on or before the Repurchase Date, (ii) deposit with the Paying
Agent Cash sufficient to pay the Repurchase Price (together with accrued and
unpaid interest, if any) of all Securities or portions thereof so tendered and
(iii) deliver to the Trustee Securities so accepted together with an Officers'
Certificate listing the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to Holders of Securities so
accepted payment in an amount equal to the Repurchase Price (together with
accrued and unpaid interest, if any), and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security or Securities
equal in principal amount to any unpurchased portion of the Securities
surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Repurchase Offer on or as soon as practicable after
the Repurchase Date.
ARTICLE XI
SUBORDINATION
SECTION 11.1. Securities Subordinated to Senior Indebtedness.
----------------------------------------------
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The Company and each Holder, by its acceptance of Securities, agree
that (a) the payment of the principal of and interest on the Securities and (b)
any other payment in respect of the Securities, including on account of the
acquisition or redemption of the Securities by the Company (including, without
limitation, pursuant to Article X) is subordinated, to the extent and in the
manner provided in this Article XI, to the prior payment in full of all Senior
Indebtedness of the Company, whether outstanding at the date of this Indenture
or thereafter created, incurred, assumed or guaranteed, and that these
subordination provisions are for the benefit of the holders of Senior
Indebtedness.
This Article XI shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.
SECTION 11.2. No Payment on Securities in Certain Circumstances.
-------------------------------------------------
(a) No payment may be made by the Company on account of the principal
of, premium, if any, or interest on, the Securities, or to acquire any of the
Securities (including repurchases of Securities at the option of the Holder) for
cash or property (other than Junior Securities), or on account of the redemption
provisions of the Securities, (i) upon the maturity of any Senior Indebtedness
of the Company by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of, premium, if any, and interest on such Senior
Indebtedness are first paid in full (or such payment is duly provided for), or
(ii) in the event of default in the payment of any principal of, premium, if
any, or interest on any Senior Indebtedness of the Company when it becomes due
and payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise (a "Payment Default"), unless and until such Payment
Default has been cured or waived or otherwise has ceased to exist.
(b) Upon (i) the happening of an event of default (other than a
Payment Default) that permits the holders of Senior Indebtedness or their
representative immediately to accelerate its maturity and (ii) written
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notice of such event of default given to the Company and the Trustee by the
holders of an aggregate of at least $50,000,000 principal amount outstanding of
such Senior Indebtedness or their representative (a "Payment Notice"), then,
unless and until such event of default has been cured or waived or otherwise has
ceased to exist, no payment (by set-off or otherwise) may be made by or on
behalf of the Company on account of the principal of, premium, if any, or
interest on, the Securities, or to acquire or repurchase any of the Securities
for cash or property, or on account of the redemption provisions of the
Securities, in any such case other than payments made with Junior Securities of
the Company. Notwithstanding the foregoing, unless (i) the Senior Indebtedness
in respect of which such event of default exists has been declared due and
payable in its entirety within 179 days after the Payment Notice is delivered as
set forth above (the "Payment Blockage Period"), and (ii) such declaration has
not been rescinded or waived, at the end of the Payment Blockage Period, the
Company shall be required to pay all sums not paid to the Holders of the
Securities during the Payment Blockage Period due to the foregoing prohibitions
and to resume all other payments as and when due on the Securities. Any number
of Payment Notices may be given; provided, however, that (i) not more than one
-----------------
Payment Notice shall be given within a period of any 360 consecutive days, and
(ii) no default that existed upon the date of such Payment Notice or the
commencement of such Payment Blockage Period (whether or not such event of
default is on the same issue of Senior Indebtedness) shall be made the basis for
the commencement of any other Payment Blockage Period.
(c) In the event that, notwithstanding the foregoing provisions of
this Section 11.2, any payment or distribution of assets of the Company (other
than Junior Securities) shall be received by the Trustee or the Holders at a
time when such payment or distribution is prohibited by the provisions of this
Section 11.2, then such payment or distribution (subject to the provisions of
Section 11.7) shall be received and held in trust by the Trustee or such Holder
or Paying Agent for the benefit of the holders of Senior Indebtedness of the
Company, and shall be paid or delivered by the Trustee or such Holders or such
Paying Agent, as the case may be, to the holders of Senior Indebtedness of the
Company remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any in-
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struments evidencing any of such Senior Indebtedness of the Company may have
been issued, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness of the Company held or represented by each,
for application to the payment of all Senior Indebtedness of the Company
remaining unpaid, to the extent necessary to pay or to provide for the payment
of all such Senior Indebtedness in full after giving effect to any concurrent
payment and distribution to the holders of such Senior Indebtedness.
SECTION 11.3. Securities Subordinated to Prior Payment of All Senior
------------------------------------------------------
Indebtedness on Dissolution, Liquidation or Reorganization.
- ----------------------------------------------------------
Upon any distribution of assets of the Company upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors or any
marshalling of assets or liabilities:
(a) the holders of all Senior Indebtedness of the Company shall first
be entitled to receive payments in full (or have such payment duly provided for)
before the Holders are entitled to receive any payment on account of the
principal of, premium, if any, and interest on, with respect to the Securities
(other than Junior Securities);
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than Junior
Securities) to which the Holders or the Trustee on behalf of the Holders would
be entitled (by setoff or otherwise), except for the provisions of this Article
XI, shall be paid by the liquidating trustee or agent or other Person making
such a payment or distribution directly to the holders of Senior Indebtedness of
the Company or their representative to the extent necessary to make payment in
full of all such Senior Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (other than Junior Securities), shall be received by the
Trustee or the Holders or any Paying Agent
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(or, if the Company or any Affiliate of the Company is acting as its own Paying
Agent, money for any such payment or distribution shall be segregated or held in
trust) on account of the principal of or interest on the Securities before all
Senior Indebtedness of the Company is paid in full, such payment or distribution
(subject to the provisions of Section 11.7) shall be received and held in trust
by the Trustee or such Holder or Paying Agent for the benefit of the holders of
such Senior Indebtedness, or their respective representative, ratably according
to the respective amounts of such Senior Indebtedness held or represented by
each, to the extent necessary to make payment as provided herein of all such
Senior Indebtedness remaining unpaid after giving effect to all concurrent
payments and distributions and all provisions therefor to or for the holders of
such Senior Indebtedness, but only to the extent that as to any holder of such
Senior Indebtedness, as promptly as practical following notice from the Trustee
to the holders of such Senior Indebtedness that such prohibited payment has been
received by the Trustee, Holder(s) or Paying Agent (or has been segregated as
provided above), such holder (or a representative therefor) notifies the Trustee
of the amounts then due and owing on such Senior Indebtedness, if any, held by
such holder and only the amounts specified in such notices to the Trustee shall
be paid to the holders of such Senior Indebtedness.
SECTION 11.4. Securityholders to Be Subrogated to Rights of Holders
-----------------------------------------------------
of Senior Indebtedness.
- ----------------------
Subject to the payment in full of all Senior Indebtedness of the
Company as provided herein, the Holders of Securities shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness
until all amounts owing on the Securities shall be paid in full, and for the
purpose of such subrogation no such payments or distributions to the holders of
such Senior Indebtedness by the Company, or by or on behalf of the Holders by
virtue of this Article XI, which otherwise would have been made to the Holders
shall, as between the Company and the Holders, be deemed to be payment by the
Company or on account of such Senior Indebtedness, it being understood that the
provisions of this Article XI are and are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders of
such Senior Indebtedness, on the other hand.
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If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article XI shall have been
applied, pursuant to the provisions of this Article XI, to the payment of
amounts payable under Senior Indebtedness of the Company, then the Holders shall
be entitled to receive from the holders of such Senior Indebtedness any payments
or distributions received by such holders of Senior Indebtedness in excess of
the amount sufficient to pay all amounts payable under or in respect of such
Senior Indebtedness in full.
SECTION 11.5. Obligations of the Company Unconditional.
----------------------------------------
Nothing contained in this Article XI or elsewhere in this Indenture or
in the Securities is intended to or shall impair as between the Company and the
Holders, the obligation of each such Person, which is absolute and
unconditional, to pay to the Holders the principal of, premium, if any, and
interest on, the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or
any Holder from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article XI, of the holders of Senior Indebtedness in respect of cash, property
or securities of the Company received upon the exercise of any such remedy.
Notwithstanding anything to the contrary in this Article XI or elsewhere in this
Indenture or in the Securities, upon any distribution of assets of the Company
referred to in this Article XI, the Trustee, subject to the provisions of
Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XI so long as such court has been
apprised of the provisions of, or the order, decree or certificate
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makes reference to, the provisions of this Article XI. Nothing in this Section
11.5 shall apply to the claims of, or payments to, the Trustee under or pursuant
to Section 7.7.
SECTION 11.6. Trustee Entitled to Assume Payments Not Prohibited in
-----------------------------------------------------
Absence of Notice.
- -----------------
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent
shall have received, no later than one Business Day prior to such payment,
written notice thereof from the Company or from one or more holders of Senior
Indebtedness or from any representative therefor and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Sections 7.1
and 7.2, shall be entitled in all respects conclusively to assume that no such
fact exists.
SECTION 11.7. Application by Trustee of Assets Deposited with It.
--------------------------------------------------
Amounts deposited in trust with the Trustee pursuant to and in
accordance with Article VIII shall be for the sole benefit of Securityholders
and, to the extent allocated for the payment of Securities, shall not be subject
to the subordination provisions of this Article XI. Otherwise, any deposit of
assets with the Trustee or the Agent (whether or not in trust) for the payment
of principal of or interest on any Securities shall be subject to the provisions
of Sections 11.1, 11.2, 11.3 and 11.4; provided that, if prior to one Business
-------- ----
Day preceding the date on which by the terms of this Indenture any such assets
may become distributable for any purpose (including, without limitation, the
payment of either principal of or interest on any Security) the Trustee or such
Paying Agent shall not have received with respect to such assets the written
notice provided for in Section 11.6, then the Trustee or such Paying Agent shall
have full power and authority to receive such assets and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such date.
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SECTION 11.8. Subordination Rights Not Impaired by Acts or Omissions
------------------------------------------------------
of the Company or Holders of Senior Indebtedness.
- ------------------------------------------------
No right of any present or future holders of any Senior Indebtedness
to enforce subordination provisions contained in this Article XI shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with. The holders of Senior Indebtedness may extend, renew,
modify or amend the terms of the Senior Indebtedness or any security therefor
and release, sell or exchange such security and otherwise deal freely with the
Company, all without affecting the liabilities and obligations of the parties to
this Indenture or the Holders.
SECTION 11.9. Securityholders Authorize Trustee to Effectuate
-----------------------------------------------
Subordination of Securities.
- ---------------------------
Each Holder of the Securities by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provisions contained in
this Article XI and to protect the rights of the Holders pursuant to this
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors of the Company),
the immediate filing of a claim for the unpaid balance of his Securities in the
form required in said proceedings and cause said claim to be approved. If the
Trustee does not file a proper claim or proof of debt in the form required in
such proceeding prior to 30 days before the expiration of the time to file such
claim or claims, then the holders of the Senior Indebtedness or their
representative are or is hereby authorized to have the right to file and are or
is hereby authorized to file an appropriate claim for and on behalf of the
Holders of said Securities. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Indebtedness or their
representative to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting
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the Securities or the rights of any Holder thereof, or to authorize the Trustee
or the holders of Senior Indebtedness or their representative to vote in respect
of the claim of any Securityholder in any such proceeding.
SECTION 11.10. Right of Trustee to Hold Senior Indebtedness.
--------------------------------------------
The Trustee shall be entitled to all of the rights set forth in this
Article XI in respect of any Senior Indebtedness at any time held by it to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
SECTION 11.11. Article XI Not to Prevent Events of Default.
-------------------------------------------
The failure to make a payment on account of principal of, premium, if
any, or interest on, the Securities by reason of any provision of this Article
XI shall not be construed as preventing the occurrence of a Default or an Event
of Default under Section 6.1 or in any way prevent the Holders from exercising
any right hereunder other than the right to receive payment on the Securities.
SECTION 11.12. No Fiduciary Duty of Trustee to Holders of Senior
-------------------------------------------------
Indebtedness.
- ------------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and shall not be liable to any such holders
(other than for its willful misconduct or negligence) if it shall in good faith
mistakenly pay over or distribute to the Holders of Securities or the Company or
any other Person, cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article XI or otherwise.
Nothing in this Section 11.12 shall affect the obligation of any other such
Person to hold such payment for the benefit of, and to pay such payment over to,
the holders of Senior Indebtedness or their representative.
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ARTICLE XII
CONVERSION OF SECURITIES
SECTION 12.1. Conversion Privilege.
--------------------
Subject to and upon compliance with the provisions of this Article
XII, at the option of the Holder thereof, any Security may at any time be
converted, in whole, or in part in multiples of $1,000 principal amount, into
fully paid and non-assessable shares of Common Stock issuable upon conversion of
the Securities, at the conversion price in effect at the Date of Conversion,
until and including, but not after the close of business on the second Business
Day prior to Stated Maturity, or unless such Security or some portion thereof
shall have been called for redemption or delivered for repurchase prior to such
date and no default is made in making due provision for the payment of the
redemption price in accordance with the terms of this Indenture, in which case,
with respect to such Security or portion thereof as has been so called for
redemption or delivered for repurchase, such Security or portion thereof may be
so converted until and including, but not after, the close of business on the
Business Day prior to the Redemption Date or Repurchase Date, as applicable, for
such Security, unless the Company subsequently fails to pay the applicable
Redemption Price or Repurchase Price, as the case may be.
SECTION 12.2. Exercise of Conversion Privilege.
--------------------------------
In order to exercise the conversion privilege, the Holder of any
Security to be converted shall surrender such Security to the Company at any
time during usual business hours at its office or agency maintained for the
purpose as provided in this Indenture, accompanied by a fully executed written
notice, in substantially the form set forth on the reverse of the Security, that
the Holder elects to convert such Security or a stated portion thereof
constituting a multiple of $1,000 principal amount, and, if such Security is
surrendered for conversion during the period between the close of business on
any Record Date and the opening of business on the next following Interest
Payment Date and has not been called for redemption on a Redemption Date which
occurs within such period, accompanied also by payment of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of the
Security being surrendered for conversion, notwithstanding such conversion.
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The Holder of any Security at the close of business on a Record Date will be
entitled to receive the interest payable on such Security on the corresponding
Interest Payment Date notwithstanding the conversion thereof after such Record
Date. The Interest payment with respect to a Note called for redemption on a
date during the period from the close on or after any record date to the close
of business on the business day following the corresponding payment date will be
payable on the corresponding interest payment date to the registered Holder at
the close of business on that record date (not withstanding the conversion of
such Note before the corresponding interest payment date) and a Holder who
elects to convert need not include funds equal to the interest paid. Such
notice of conversion shall also state the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be issued.
Securities surrendered for conversion shall (if reasonably required by the
Company or the Trustee) be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company duly
executed by, the Holder or his attorney duly authorized in writing. As promptly
as practicable after the receipt of such notice and the surrender of such
Security as aforesaid, the Company shall, subject to the provisions of Section
12.8 hereof, issue and deliver at such office or agency to such Holder, or on
his written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion of Securities in accordance with the
provisions of this Article XII and Cash, as provided in Section 12.3 hereof, in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the date (herein called the "Date of
Conversion") on which such Security shall have been surrendered as aforesaid,
and the person or persons in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become on the Date of Conversion the holder or holders of record
of the shares represented thereby; provided, however, that any such surrender on
-------- -------
any date when the stock transfer books of the Company shall be closed shall
cause the person or persons in whose name or names the certificate or
certificates for such shares are to be issued to be deemed to have become the
recordholder or holders thereof for all purposes at the opening of business on
the next succeeding day on which such stock transfer books are open but such
conversion shall nevertheless be at the con-
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version price in effect at the close of business on the date when such Security
shall have been so surrendered with the conversion notice. In the case of
conversion of a portion, but less than all, of a Security, the Company shall as
promptly as practicable execute, and the Trustee shall authenticate and deliver
to the Holder thereof, at the expense of the Company, a Security or Securities
in the aggregate principal amount of the unconverted portion of the Security
surrendered. Except as otherwise expressly provided in this Indenture, no
payment or adjustment shall be made for interest accrued on any Security (or
portion thereof) converted or for dividends or distributions on any Common Stock
issued upon conversion of any Security.
SECTION 12.3. Fractional Interests.
--------------------
No fractions of shares or scrip representing fractions of shares shall
be issued upon conversion of Securities. If more than one Security shall be
surrendered for conversion at one time by the same holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Securities so surrendered. If
any fraction of a share of Common Stock would, except for the foregoing
provisions of this Section 12.3, be issuable on the conversion of any Security
or Securities, the Company shall make payment in lieu thereof in an amount of
Cash equal to the value of such fraction computed on the basis of the last sale
price of the Common Stock as reported on the New York Stock Exchange (or if not
listed for trading thereon, then on the principal national securities exchange
on which the Common Stock is listed or admitted to trading) at the close of
business on the Date of Conversion or if no such sale takes place on such day,
the last sale price for such day shall be the average of the closing bid and
asked prices regular way on the New York Stock Exchange (or if not listed for
trading thereon, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading) for such day (any such last sale
price being hereinafter referred to as the "Last Sale Price"). If on such
Trading Day the Common Stock is not quoted by any such organization, the fair
value of such Common Stock on such day, as reasonably determined in good faith
by the Board of Directors of the Company, shall be used.
SECTION 12.4. Conversion Price.
----------------
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The conversion price per share of Common Stock issuable upon
conversion of the Securities shall initially be $129 1/8 (or $129 1/8 in
principal amount of Securities for each such share of Common Stock).
SECTION 12.5. Adjustment of Conversion Price.
------------------------------
The conversion price (herein called the "Conversion Price") shall be
subject to adjustment from time to time as follows:
(a) In case the Company shall (1) make or pay a dividend (or other
distribution) in shares of Common Stock on any class of Capital Stock of the
Company, (2) subdivide its outstanding shares of Common Stock into a greater
number of shares or (3) combine or reclassify its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such action shall be adjusted so that the Holder of any
Security thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock that he would have owned immediately following
such action had such Security been converted immediately prior thereto. An
adjustment made pursuant to this subsection (a) shall become effective
immediately, except as provided in subsection (h) below, after the record date
in the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(b) In case the Company shall issue rights, options or warrants to
all holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the then current market price per
share of the Common Stock (as determined pursuant to subsection (f) below) on
the record date mentioned below, the Conversion Price shall be adjusted to a
price, computed to the nearest cent, so that the same shall equal the price
determined by multiplying:
(i) the Conversion Price in effect immediately prior to the date
of issuance of such rights or warrants by a fraction, of which
(ii) the numerator shall be (A) the number of shares of Common
Stock outstanding on the date of issuance of such rights, options or
warrants,
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immediately prior to such issuance, plus (B) the number of shares which the
aggregate offering price of the total number of shares so offered for
subscription or purchase would purchase at such current market price
(determined by multiplying such total number of shares by the exercise
price of such rights, options or warrants and dividing the product so
obtained by such current market price), and of which
(iii) the denominator shall be (A) the number of shares of
Common Stock outstanding on the date of issuance of such rights, options or
warrants, immediately prior to such issuance, plus (B) the number of
additional shares of Common Stock which are so offered for subscription or
purchase.
Such adjustment shall become effective immediately, except as provided
in subsection (h) below, after the record date for the determination of holders
entitled to receive such rights, options or warrants; provided, however, that if
-------- -------
any such rights, options or warrants issued by the Company as described in this
subsection (b) are only exercisable upon the occurrence of certain triggering
events relating to control and provided for in shareholder rights plans, then
the Conversion Price will not be adjusted as provided in this subsection (b)
until such triggering events occur.
(c) In case the Company or any Subsidiary of the Company shall
distribute to all holders of Common Stock, any of its assets, evidences of
indebtedness, cash or other assets or shares of Capital Stock other than Common
Stock (including securities, but other than (x) dividends or distributions
exclusively in cash or (y) any dividend or distribution for which an adjustment
is required to be made in accordance with subsection (a) or (b) above), then in
each such case the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of which the
numerator shall be the then current market price per share of the Common Stock
(determined as provided in subsection (f) below) on the record date mentioned
below less the then fair market value (as reasonably determined in good faith by
the Board of Directors of the Company) of the portion of the assets so
distributed applicable to one share of Common Stock, and of which the
denominator shall be such current market price per
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<PAGE>
share of the Common Stock. Such adjustment shall become effective immediately,
except as provided in subsection (h) below, after the record date for the
determination of stockholders entitled to receive such distribution.
Notwithstanding the foregoing, in the event that the fair market value of the
assets, evidences of indebtedness or other securities so distributed applicable
to one share of Common Stock equals or exceeds such current market price per
share of Common Stock, or such current market price exceeds such fair market
value by less than $0.10 per share, the Conversion Price shall not be adjusted
pursuant to this subsection (c) and, to the extent applicable, the provisions of
subsection (k) shall apply to such distribution.
(d) In case the Company or any Subsidiary of the Company shall make
any distribution consisting exclusively of cash (excluding any cash portion of
distributions for which an adjustment is required to be made in accordance with
(c) above, or cash distributed upon a merger or consolidation to which Section
12.6 applies) to all holders of Common Stock in an aggregate amount that,
combined together with (i) all other such all-cash distributions made within the
then preceding 12 months in respect of which no adjustment has been made and
(ii) any cash and the fair market value of other consideration paid or payable
in respect of any tender offer by the Company or any of its Subsidiaries for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 15% of the Company's market capitalization
(defined as being the product of the then current market price of the Common
Stock (determined as provided in subsection (f) below) times the number of
shares of Common Stock then outstanding) on the record date of such
distribution, then in each such case the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of such distribution by a fraction
of which the numerator shall be the then current market price per share of the
Common Stock on such record date less the amount of the cash so distributed
applicable to one share of Common Stock, and of which the denominator shall be
such current market price per share of the Common Stock. Such adjustment shall
become effective immediately, except as provided in subsection (h) below, after
the record date for the determination of stockholders entitled to receive such
distribution. Notwithstanding the foregoing, in the event that the cash so
distributed applicable to one share of Common Stock equals or exceeds such
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current market price per share of Common Stock, or such current market price
exceeds such amount of cash by less than $0.10 per share, the Conversion Price
shall not be adjusted pursuant to this subsection (d).
(e) In case there shall be completed a tender or exchange offer made
by the Company or any Subsidiary of the Company for all or any portion of the
Common Stock (any such tender or exchange offer being referred to as an "Offer")
that involves an aggregate consideration having a fair market value as of the
expiration of such Offer (the "Expiration Time") that, together with (i) any
cash and the fair market value of any other consideration payable in respect of
any other Offer, as of the expiration of such other Offer, expiring within the
12 months preceding the expiration of such Offer and in respect for which no
Conversion Price adjustment pursuant to this subsection (e) has been made and
(ii) the aggregate amount of any all-cash distributions referred to in
subsection (d) of this Section 12.5 to all holders of Common Stock within the 12
months preceding the expiration of such Offer for which no conversion price
adjustment pursuant to such subsection (d) has been made, exceeds 15% of the
product of the then current market price per share (determined as provided in
subsection (f) below) of the Common Stock on the Expiration Time times the
number of shares of Common Stock outstanding (including any tendered shares) on
the Expiration Time, the Conversion Price shall be reduced by multiplying such
Conversion Price in effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be (i) the product of the then current
market price per share (determined as provided in subsection (f) below) of the
Common Stock on the Expiration Time times the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time minus (ii)
the fair market value of the aggregate consideration payable to stockholders
based on the acceptance (up to any maximum specified in the terms of the Offer)
of all shares validly tendered and not withdrawn as of the Expiration Time (the
shares deemed so accepted being referred to as the "Purchased Shares") and the
denominator shall be the product of (i) such current market price per share on
the Expiration Time times (ii) such number of outstanding shares on the
Expiration Time less the number of Purchased Shares, such reduction to become
effective immediately prior to the opening of business on the day following the
Expiration Time.
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For purposes of this subsection (e), the fair market value of any
consideration with respect to an Offer shall be reasonably determined in good
faith by the Board of Directors of the Company and described in a Board
Resolution.
(f) For the purpose of any computation under subsections (b), (c),
(d) and (e) above, the current market price per share of Common Stock on any
date shall be deemed to be the average of the Last Sale Prices of a share of
Common Stock for the five consecutive Trading Days selected by the Company
commencing not more than 20 Trading Days before, and ending not later than, the
earlier of the date in question and the date before the "`ex' date," with
respect to the issuance, distribution or Offer requiring such computation. If
on any such Trading Day the Common Stock is not quoted by any organization
referred to in the definition of Last Sale Price in Section 12.3 hereof, the
fair value of the Common Stock on such day, as reasonably determined in good
faith by the Board of Directors of the Company, shall be used. For purposes of
this paragraph, the term "`ex' date," when used with respect to any issuance,
distribution or payments with respect to an Offer, means the first date on which
the Common Stock trades regular way on the New York Stock Exchange (or if not
listed or admitted to trading thereon, then on the principal national securities
exchange on which the Common Stock is listed or admitted to trading) without the
right to receive such issuance, distribution or Offer.
(g) In addition the foregoing adjustments in subsections (a), (b),
(c), (d) and (e) above, the Company will be permitted to make such reductions in
the Conversion Price as it considers to be advisable.
In the event the Company elects to make such a reduction in the
conversion price, the Company will comply with the requirements of Rule 14e-1 of
the Exchange Act and any other Federal and state laws and regulations thereunder
if and to the extent that such laws and regulations are applicable in connection
with the reduction of the Conversion Price of the Notes; provided that any
--------
provisions of this Indenture which conflict with such laws shall be deemed to be
superseded by the provisions of such laws.
(h) In any case in which this Section 12.5 shall require that an
adjustment (including by reason of the
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last sentence of subsection (a) or (c) above) be made immediately following a
record date, the Company may elect to defer the effectiveness of such adjustment
(but in no event until a date later than the effective time of the event giving
rise to such adjustment), in which case the Company shall, with respect to any
Security converted after such record date and on and before such adjustment
shall have become effective (i) defer paying any Cash payment pursuant to
Section 12.3 hereof or issuing to the Holder of such Security the number of
shares of Common Stock and other Capital Stock of the Company (or other assets
or securities) issuable upon such conversion in excess of the number of shares
of Common Stock and other Capital Stock of the Company issuable thereupon only
on the basis of the Conversion Price prior to adjustment, and (ii) not later
than five Business Days after such adjustment shall have become effective, pay
to such Holder the appropriate Cash payment pursuant to Section 12.3 hereof and
issue to such Holder the additional shares of Common Stock and other Capital
Stock of the Company issuable on such conversion.
(i) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1.0% of the
Conversion Price; provided, that any adjustments which by reason of this
--------
subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
XII shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(j) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly (i) file with the Trustee and each conversion agent an
Officers' Certificate setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment,
which certificate shall be conclusive evidence of the correctness of such
adjustment, and (ii) mail or cause to be mailed a notice of such adjustment to
each holder of Securities at his address as the same appears on the registry
books of the Company.
78
<PAGE>
(k) In the event that the Company distributes rights or warrants
(other than those referred to in subsection (b) above) pro rata to holders of
Common Stock, so long as any such rights or warrants have not expired or been
redeemed by the Company, the Company shall make proper provision so that the
Holder of any Note surrendered for conversion will be entitled to receive upon
such conversion, in addition to the shares of Common Stock issuable upon such
conversion (the "Conversion Shares"), a number of rights or warrants to be
determined as follows: (i) if such conversion occurs on or prior to the date
for the distribution to the holders of rights or warrants of separate
certificates evidencing such rights or warrants (the "Distribution Date"), the
same number of rights or warrants to which a holder of a number of shares of
Common Stock equal to the number of Conversion Shares is entitled at the time of
such conversion in accordance with the terms and provisions of and applicable to
the rights or warrants, and (ii) if such conversion occurs after such
Distribution Date, the same number of rights or warrants to which a holder of
the number of shares of Common Stock into which the principal amount of such
Note so converted was convertible immediately prior to such Distribution Date
would have been entitled on such Distribution Date in accordance with the terms
and provisions of and applicable to the rights or warrants.
SECTION 12.6. Continuation of Conversion Privilege in Case of
-----------------------------------------------
Reclassification, Change, Merger, Consolidation or Sale of Assets.
- -----------------------------------------------------------------
If any of the following shall occur, namely: (a) any reclassification
or change of outstanding shares of Common Stock issuable upon conversion of the
Securities (other than a change in par value, or from par value to no par value,
or from no par value, to par value, or as a result of a subdivision or
combination), (b) any consolidation or merger of the Company with or into any
other Person, or the merger of any other Person with or into the Company (other
than a merger which does not result in any reclassification, change, conversion,
exchange or cancellation of outstanding shares of Common Stock) or (c) any sale,
transfer or conveyance of all or substantially all of the assets of the Company
(computed on a consolidated basis), then the Company, or such successor or
purchasing entity, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or conveyance, execute and
deliver to the Trustee a supplemental indenture
79
<PAGE>
providing that the Holder of each Security then outstanding shall have the right
to convert such Security only into the kind and amount of shares of stock and
other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance by
a holder of the number of shares of Common Stock issuable upon conversion of
such Security immediately prior to such reclassification, change, consolidation,
merger, sale, transfer or conveyance assuming such holder of Common Stock of the
Company failed to exercise his rights of an election, if any, as to the kind or
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance
(provided that if the kind or amount of securities, cash, and other property
--------
receivable upon such reclassification, change, consolidation, merger, sale,
transfer or conveyance is not the same for each share of Common Stock of the
Company held immediately prior to such reclassification, change, consolidation,
merger, sale, transfer or conveyance in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose of
this Section 12.6 the kind and amount of securities, cash and other property
receivable upon such reclassification, change, consolidation, merger, sale,
transfer or conveyance by each non-electing share shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
Such supplemental indenture shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article XII. If, in the case of any such consolidation, merger, sale or
conveyance, the stock or other securities and property (including cash)
receivable thereupon by a holder of shares of Common Stock includes shares of
stock or other securities and property (including cash) of a corporation other
than the successor or purchasing corporation, as the case may be, in such
consolidation, merger, sale or conveyance, then such supplemental indenture
shall also be executed by such other corporation and shall contain such
additional provisions to protect the interests of the Holders of the Securities
as the Board of Directors of the Company shall reasonably consider necessary by
reason of the foregoing. The provisions of this Section 12.6 shall similarly
apply to successive consolidations, mergers, sales or conveyances.
Notice of the execution of each such supplemental indenture shall be
mailed to each Holder of Securities at
80
<PAGE>
his address as the same appears on the registry books of the Company.
Neither the Trustee nor any conversion agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental indenture relating either to the kind or amount of shares of
stock or securities or property (including cash) receivable by Holders of
Securities upon the conversion of their Securities after any such
reclassification, change, consolidation, merger, sale or conveyance or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Article VIII hereof, may accept as conclusive evidence of the correctness of any
such provisions, and shall be protected in relying upon, the Officers'
Certificate (which the Company shall be obligated to file with the Trustee prior
to the execution of any such supplemental indenture) with respect thereto.
SECTION 12.7. Notice of Certain Events.
------------------------
In case:
(a) the Company shall declare a dividend (or any other
distribution) payable to the holders of Common Stock (other than cash
dividends);
(b) the Company shall authorize the granting to the holders of
Common Stock of rights, warrants or options to subscribe for or purchase any
shares of stock of any class or of any other rights;
(c) the Company shall authorize any reclassification or change
of the Common Stock (including a subdivision or combination of its outstanding
shares of Common Stock), or any consolidation or merger to which the Company is
a party and for which approval of any stockholders of the Company is required,
or the sale or conveyance of all or substantially all the property or business
of the Company;
(d) there shall be proposed any voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(e) the Company or any of its Subsidiaries shall complete an
Offer;
81
<PAGE>
then, the Company shall cause to be filed at the office or agency maintained for
the purpose of conversion of the Securities as provided in Section 3.2 hereof,
and shall cause to be mailed to each Holder of Securities, at his address as it
shall appear on the registry books of the Company, at least 20 days before the
date hereinafter specified (or the earlier of the dates hereinafter specified,
in the event that more than one date is specified), a notice stating the date on
which (1) a record is expected to be taken for the purpose of such dividend,
distribution, rights, warrants or options or Offer, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights, warrants or options or to participate in
such Offer are to be determined, or (2) such reclassification, change,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding-up
is expected to become effective and the date, if any is to be fixed, as of which
it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, change, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding-up.
SECTION 12.8. Taxes on Conversion.
-------------------
The Company will pay any and all documentary, stamp or similar taxes
payable to the United States of America or any political subdivision or taxing
authority thereof or therein in respect of the issue or delivery of shares of
Common Stock on conversion of Securities pursuant thereto; provided, however,
-------- -------
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the Holder of the Securities to be converted
and no such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid. The Company extends no protection with respect to any other taxes
imposed in connection with conversion of Securities.
82
<PAGE>
SECTION 12.9. Company to Provide Stock.
------------------------
The Company shall reserve, free from preemptive rights, out of its
authorized but unissued shares, sufficient shares to provide for the conversion
of the Securities from time to time as such Securities are presented for
conversion, provided, that nothing contained herein shall be construed to
--------
preclude the Company from satisfying its obligations in respect of the
conversion of Securities by delivery of repurchased shares of Common Stock which
are held in the treasury of the Company.
If any shares of Common Stock to be reserved for the purpose of
conversion of Securities hereunder require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then the Company covenants that it
will in good faith and as expeditiously as possible use its best efforts to
secure such registration or approval, as the case may be, provided, however,
-------- -------
that nothing in this Section 12.9 shall be deemed to limit in any way the
obligations of the Company provided in this Article XII.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Common Stock, the
Company will take all corporate action which may, in the Opinion of Counsel, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and non-
assessable by the Company and free of preemptive rights.
SECTION 12.10. Disclaimer of Responsibility for Certain Matters.
------------------------------------------------
Neither the Trustee nor any agent of the Trustee shall at any time be
under any duty or responsibility to any Holder of Securities to determine
whether any facts exist which may require any adjustment of the Conversion
Price, or with respect to the Officers' Certificate referred to in Section 12.5
hereof, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed, or herein or in any supplemental
indenture
83
<PAGE>
provided to be employed, in making the same. Neither the Trustee nor any agent
of the Trustee shall be accountable with respect to the validity or value (or
the kind or amount) of any shares of Common Stock, or of any securities or
property (including cash), which may at any time be issued or delivered upon the
conversion of any Security; and neither the Trustee nor any conversion agent
makes any representation with respect thereto. Neither the Trustee nor any
agent of the Trustee shall be responsible for any failure of the Company to
issue, register the transfer of or deliver any shares of Common Stock or stock
certificates or other securities or property (including cash) upon the surrender
of any Security for the purpose of conversion or, subject to Article VIII
hereof, to comply with any of the covenants of the Company contained in this
Article XII.
SECTION 12.11. Return of Funds Deposited for Redemption of Converted
-----------------------------------------------------
Securities.
- ----------
Any funds which at any time shall have been deposited by the Company
or on its behalf with the Trustee or any other Paying Agent for the purpose of
paying the principal of and interest on any of the Securities and which shall
not be required for such purposes because of the conversion of such Securities,
as provided in this Article XII, shall after such conversion be repaid to the
Company by the Trustee or such other Paying Agent.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 13.2. Notices.
-------
Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery, by telex, by telecopier or registered or
certified
84
<PAGE>
mail, postage prepaid, return receipt requested, addressed as follows:
if to the Company:
Hilton Hotels Corporation
9336 Civic Center
Beverly Hills, California 90210
Attention: General Counsel
Telecopy: (310) 205-4613
if to the Trustee:
The Bank of New York
700 South Flower Street
Suite 200
Los Angeles, California 90017
Attention: Corporate Trust Division,
Telecopy: (213) 630-6442
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first-class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
85
<PAGE>
SECTION 13.3. Communications by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
SECTION 13.4. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(2) an Opinion of Counsel (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
SECTION 13.5. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed
86
<PAGE>
opinion as to whether or not such covenant or condition has been complied with;
and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided, however,
-------- -------
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.7. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York or Los Angeles, California are authorized or
obligated by law or executive order to close. If a payment date is a Legal
Holiday at such place, payment may be made at such place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 13.8. Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR
87
<PAGE>
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY SECURITYHOLDER TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
SECTION 13.9. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.10. No Recourse Against Others.
--------------------------
No direct or indirect partner, employee, stockholder, director or
officer, as such, past, present or future of the Company or any successor
corporation or any Subsidiary or any of the Company's Affiliates, shall have any
personal liability in respect of the obligations of the Company under the
Securities or this Indenture by reason of his, her or its status as such
partner, stockholder, employee, director or officer. Each Securityholder by
accepting a Security waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Securities.
SECTION 13.11. Successors.
----------
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 13.12. Duplicate Originals.
-------------------
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
88
<PAGE>
SECTION 13.13. Severability.
------------
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 13.14. Table of Contents, Headings, Etc.
---------------------------------
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 13.15. Qualification of Indenture.
--------------------------
The Company shall qualify this Indenture under the TIA and shall pay
all reasonable costs and expenses (including reasonable attorneys' fees for the
Company and the Trustee) incurred in connection therewith, including, but not
limited to, reasonable costs and expenses of qualification of the Indenture and
the Securities and printing this Indenture and the Securities. The Trustee
shall be entitled to receive from the Company any such Officers' Certificates,
Opinions of Counsel or other documentation as it may reasonably request in
connection with any such qualification of this Indenture under the TIA.
89
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
HILTON HOTELS CORPORATION,
a Delaware corporation
[Seal]
By: /s/ Robert M. La Forgia
-------------------------
Name: Robert M. La Forgia
------------------------
Title: Vice President and
Corporate Comptroller
-----------------------
Attest: /s/ Bryan White
----------------
Asst. Secretary
<PAGE>
THE BANK OF NEW YORK,
a New York banking corporation
as Trustee
By: /s/ Robert F. McIntyre
---------------------------
Name: Robert F. McIntyre
---------------------------
Title: Vice President
--------------------------
91
<PAGE>
EXHIBIT A
---------
[FORM OF SECURITY]
HILTON HOTELS CORPORATION
5% CONVERTIBLE SUBORDINATED NOTE
DUE 2006
No. CUSIP No. 432848-A23
$ _______
Hilton Hotels Corporation, a Delaware corporation (hereinafter called
the "Company," which term includes any successors under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_______________, or registered assigns, the principal sum of _____ Dollars, on
May 15, 2006.
Interest Payment Dates: May 15 and November 15; commencing November
15, 1996.
Record Dates: May 1 and November 1
Reference is made to the further provisions of this Security set forth
below, which will, for all purposes, have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
Dated:
HILTON HOTELS CORPORATION,
a Delaware corporation
[Seal]
By:
---------------------------
Name:
Title:
Attest:
-----------------
Secretary
A-1
<PAGE>
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities described in the within-mentioned
Indenture.
THE BANK OF NEW YORK ,
----------------------------------
as Trustee
By
--------------------------------
Authorized Signatory
Dated:
A-2
<PAGE>
HILTON HOTELS CORPORATION
5% CONVERTIBLE SUBORDINATED NOTE
DUE 2006
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Company
or its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein./1/
1. Interest.
--------
Hilton Hotels Corporation, a Delaware corporation (hereinafter called
the "Company," which term includes any successors under the Indenture
hereinafter referred to), promises to pay interest on the principal amount of
this Security at the rate of 5% per annum. To the extent it is lawful, the
Company promises to pay interest on any interest payment due but unpaid on such
principal amount at a rate of 5% per annum compounded semi-annually.
The Company will pay interest semi-annually on May 15 and November
15 of each year (each, an "Interest Payment Date"), commencing November 15,
1996. Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities, from
May 14, 1996. Interest will be comput-
- -----------------
/1/ This paragraph should only be added if the Security is issued in global
form.
A-3
<PAGE>
ed on the basis of a 360-day year consisting of twelve 30-day months.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except Defaulted
Interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders
must surrender Securities to a Paying Agent to collect principal payments. Any
such interest not so punctually paid, and Defaulted Interest relating thereto,
may be paid to the persons who are registered Holders at the close of business
on a Special Record Date for the payment of such Defaulted Interest, as more
fully provided in the Indenture referred to below. Except as provided below,
the Company shall pay principal and interest in such coin or currency of the
United States of America as at the time of payment shall be legal tender for
payment of public and private debts ("U.S. Legal Tender"). The Securities will
be payable as to principal, premium and interest at the office or agency of the
Company maintained for such purpose within or without the City and State of New
York, or at the option of the Company, payment of principal, premium and
interest may be made by check mailed to the Holders at their addresses set forth
in the registry of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of,
premium and interest on Global Securities and all other Securities the Holders
of which shall have provided wire transfer instructions to the Company or the
Paying Agent.
3. Paying Agent and Registrar.
--------------------------
Initially, The Bank of New York (the "Trustee") will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or co-
Registrar without notice to the Holders. The Company or any of its Subsidiaries
may, subject to certain exceptions, act as Paying Agent, Registrar or co-
Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of May
14, 1996 (the "Indenture"), between the Company and the Trustee. Capitalized
terms herein are used as defined in the Indenture unless otherwise defined
A-4
<PAGE>
herein. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act, as in
effect on the date of the Indenture. The Securities are subject to all such
terms, and Holders of Securities are referred to the Indenture and said Act for
a statement of them. The Securities are general unsecured obligations of the
Company limited in aggregate principal amount to $500,000,000 ($575,000,000 if
the Underwriters' over-allotment option is exercised in full).
5. Redemption.
----------
The Securities will not be subject to redemption prior to May 15, 1999
except as provided in paragraph 7 below. On or after May 15, 1999, upon not
less than 30 nor more than 60 days notice to each Holder of Notes, the
Securities will be redeemable for cash at the option of the Company, in whole or
in part, at the following Redemption Prices (expressed as a percentage of
principal amount) set forth below with respect to the indicated Redemption Date,
in each case, plus any accrued but unpaid interest to the Redemption Date.
<TABLE>
<CAPTION>
If redeemed during
the 12-month period
beginning May 15 of
the years indicated
below: Redemption Price
------------------- ----------------
<S> <C>
1999 102.857%
2000 102.143%
2001 101.429%
2002 100.714%
2003 and thereafter 100.000%
</TABLE>
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
--------------------
Notice of redemption will be sent by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Security to be redeemed at such Holder's last address as then shown upon
the registry books of the Registrar. Securities may be redeemed in part in
multiples of $1,000 only.
A-5
<PAGE>
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent on such Redemption Date and payment of
the Securities called for redemption is not prohibited under Article XI of the
Indenture, the Securities called for redemption will cease to bear interest and
the only right of the Holders of such Securities will be to receive payment of
the Redemption Price, plus any accrued and unpaid interest to the Redemption
Date.
7. Mandatory Disposition of Securities Pursuant To Gaming Laws.
-----------------------------------------------------------
Each Holder and beneficial owner, by accepting or otherwise acquiring
an interest in the Securities, shall be deemed to have agreed that if the Gaming
Authority of any jurisdiction in which the Company or any of its Subsidiaries
conducts or proposes to conduct gaming requires that a person who is a Holder or
beneficial owner must be licensed, qualified or found suitable under the
applicable Gaming Laws, such Holder or beneficial owner shall apply for a
license, qualification or a finding of suitability within the required time
period. If such person fails to apply or become licensed or qualified or is
found unsuitable, the Company shall have the right, at its option, (i) to
require such person to dispose of its Securities or beneficial interest therein
within 30 days of receipt of notice of the Company's election or such earlier
date as may be requested or prescribed by such Gaming Authority or (ii) to
redeem such Securities at a redemption price equal to the lesser of (A) such
person's cost or (B) 100% of the principal amount thereof, plus accrued and
unpaid interest to the earlier of the redemption date and the date of the
finding of unsuitability, which may be less than 30 days following the notice of
redemption if so requested or prescribed by the Gaming Authority. The Company
shall notify the Trustee in writing of any such redemption as soon as
practicable. The Company shall not be responsible for any costs or expenses any
such Holder or beneficial owner may incur in connection with its application for
a license, qualification or a finding of suitability.
8. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples
A-6
<PAGE>
of $1,000. A Holder may register the transfer of, or exchange Securities in
accordance with, the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not register the transfer of or exchange any Securities selected for
redemption.
9. Persons Deemed Owners.
---------------------
The registered Holder of a Security may be treated as the owner of it
for all purposes.
10. Unclaimed Money.
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agent(s) will pay the money back to
the Company at its written request. After that, all liability of the Trustee
and such Paying Agent(s) with respect to such money shall cease and the Holder
of such Security shall thereafter look only to the Company for payment of such
money.
11. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented, and any existing Default or Event of Default or
compliance with any provision may be waived, with the written consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Securities to, among other things,
cure any ambiguity, defect or inconsistency, or make any other change that does
not adversely affect the rights of any Holder of a Security.
12. Conversion Rights.
-----------------
Subject to the provisions of the Indenture, the Holders have the right
to convert the principal amount of the Securities into fully paid and
nonassessable shares of Common Stock of the Company at the initial conversion
price per share of Common Stock of $129 1/8 (or $129 1/8 in principal amount of
Securities for each such share of Common Stock), or at the adjusted conversion
price then in effect, if adjustment has been made as provided in the Indenture,
upon
A-7
<PAGE>
surrender of the Security to the Company, together with a fully executed notice
in substantially the form attached hereto and, if required by the Indenture, an
amount equal to accrued interest payable on such Security.
13. Ranking.
-------
Payment of principal, premium, if any, and interest on the Securities
is subordinated, in the manner and to the extent set forth in the Indenture, to
the prior payment in full of all Senior Indebtedness.
14. Repurchase at Option of Holder Upon a Change of Control.
-------------------------------------------------------
If there is a Change of Control, the Company shall be required to
offer to purchase on the Repurchase Date all outstanding Securities at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Repurchase Date. Holders of Securities will
receive a Repurchase Offer from the Company prior to any related Repurchase Date
and may elect to have such Securities purchased by completing the form entitled
"Option of Holder to Elect Purchase" appearing below.
15. Successors.
----------
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations (except with respect to any obligations that arise from or as a
result of such transaction).
16. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing (other than an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization), then in every such case, unless the principal of all of the
securities shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of Securities then outstanding may
declare all the Securities to be due and payable immediately in the manner and
with the effect provided in the Indenture. Holders of Securities may not
enforce the Indenture or the Securities except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the
A-8
<PAGE>
Securities. Subject to certain limitations, Holders of a majority in aggregate
principal amount of the Securities then outstanding may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest), if it determines that withholding
notice is in their interest.
17. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates or any subsidiary of the Company's Affiliates, and may
otherwise deal with the Company or its Affiliates as if it were not the Trustee.
18. No Recourse Against Others.
--------------------------
No director or indirect partner, employee, stockholder, director, or
officer or, as such, past, present or future, of the Company or any successor
corporation or any Subsidiary or any of the Company's Affiliates shall have any
personal liability in respect of the obligations of the Company under the
Securities or the Indenture by reason of his, her or its status as such partner
stockholder, director, officer or employee. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
19. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
20. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A-9
<PAGE>
21. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
A-10
<PAGE>
[FORM OF] ASSIGNMENT
I or we assign this Security to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
- -------------------------------------------------------------------------------
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Dated: Signed:
----------- -------------------------------
- -------------------------------------------------------------------------------
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee.*
_______________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Article X of the Indenture, check the box: / /
---
If you want to elect to have only part of this Security purchased by
the Company pursuant to Article X of the Indenture, state the amount you want to
be purchased: $
-------
Date: Signature:
---------------- --------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES/2/
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
Amount of Signature
Amount of increase in Principal Amount of authorized
decrease in Principal of this Global officer of
Principal Amount Amount Security following Trustee or
Date of of this Global of this Global such decrease (or Securities
Exchange Security Security increase) Custodian
- --------------------------------------------------------------------------------
- ------------------
/2/ This schedule should only be added if the Security is issued in global
form.
A-13
<PAGE>
EXHIBIT B
---------
FORM OF CONVERSION NOTICE
-------------------------
To: Hilton Hotels Corporation
$500,000,000
5% Convertible Subordinated Notes due 2006
The undersigned owner of this Security hereby: (i) irrevocably
exercises the option to convert this Security, or the portion hereof below
designated, for shares of Common Stock of Hilton Hotels Corporation in
accordance with the terms of this Indenture referred to in this Security and
(ii) directs that such shares of Common Stock deliverable upon the conversion,
together with any check in payment for fractional shares and any Security(ies)
representing any unconverted principal amount hereof, be issued and delivered to
the registered holder hereof unless a different name has been indicated below.
If shares are to be delivered registered in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Security.
Dated
-------------------
------------------------------------
Signature
Fill in for registration of shares if to be delivered, and of
Securities if to be issued, otherwise than to and in the name of the registered
holder.
Social Security or other
Taxpayer Identifying Number
- ------------------------------
(Name)
- ------------------------------
(Street Address)
- ------------------------------
(City, State and Zip Code)
(Please print name and address)
Principal amount to be
converted: (if less than all)
$
------------------------------------
Signature Guarantee.*
- -------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
B-1
<PAGE>
EXHIBIT 4.10
FORM OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, RIGHTS AND LIMITATIONS OF
Preferred Redeemable Increased Dividend Equity
Securities/SM/, 8% PRIDES/SM/, Convertible Preferred Stock
of
HILTON HOTELS CORPORATION
----------------------------------------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
----------------------------------------------
HILTON HOTELS CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
under (i) authority conferred upon the Board of Directors by the Restated
Certificate of Incorporation of the Corporation, as amended to date and (ii) the
provisions of Sections 141(c) and 151 of the General Corporation Law of the
State of Delaware, the Board of Directors duly adopted the following resolutions
by unanimous written consent on _____________, 1996:
RESOLVED, that under authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation, as amended (the "Restated
Certificate of Incorporation"), that pursuant to Article IV of the Restated
Certificate of Incorporation, there is hereby authorized such series of
preferred stock on the terms and with the provisions herein set forth, to
be set forth in a certificate of designations (the "Certificate of
Designations"):
Section 1. Designation and Size of Issue; Ranking. (a) The series of
--------------------------------------
preferred stock authorized hereby shall be designated as the "Preferred
Redeemable Increased Dividend Equity Securities/SM/, 8% PRIDES/SM/, Convertible
Preferred Stock" (the "PRIDES"). The number of shares constituting the PRIDES
shall be 14,832,700 shares. Each share of PRIDES shall have a stated
liquidation value of $11.125.
(b) Any shares of the PRIDES which at any time have been
redeemed for, or converted into, Common Stock, par value $2.50, of the
Corporation (the "Common Stock") or otherwise reacquired by the Corporation
shall, after such redemption, conversion or other acquisition, resume the status
of authorized and unissued shares of preferred stock, par value $1.00
- ------------------
/SM/ SERVICE MARK OF MERRILL LYNCH & CO., INC.
<PAGE>
of the Corporation (the "Preferred Stock"), without designation as to series
until such shares are once more designated as part of a particular series by the
Board of Directors.
(c) The shares of PRIDES shall rank on a parity, both as to
payment of dividends and distribution of assets upon liquidation, with any
Preferred Stock issued by the Corporation after the date of this Certificate of
Designations that by its terms ranks pari passu with the PRIDES ("Parity
Preferred Stock").
Section 2. Dividends. (a) The holders of record of the shares of
PRIDES shall be entitled to receive, when and as declared by the Board of
Directors out of funds legally available therefor, cash dividends ("Preferred
Dividends") from the date of the issuance of the shares of PRIDES at the rate
per annum of 8 percent of the stated liquidation value per share (equivalent to
$.89 per annum or $.2225 per quarter for each share of PRIDES), payable
quarterly in arrears, on each January 3, April 3, July 3 and October 3 (each a
"Dividend Payment Date") or, if any such date is not a business day (as defined
herein), the Preferred Dividend due on such Dividend Payment Date shall be paid
on the next succeeding business day; provided, however, that, with respect to
-------- -------
any dividend period during which a redemption occurs, the Corporation may, at
its option, declare accrued Preferred Dividends to, and pay such Preferred
Dividends on, the date fixed for redemption, in which case such Preferred
Dividends shall be payable to the holders of shares of PRIDES as of the record
date for such dividend payment and shall not be included in the calculation of
the related PRIDES Call Price (as defined herein). The first dividend period
shall be from the date of initial issuance of the shares of PRIDES to but
excluding __________________, and the first Preferred Dividend shall be
payable on _____________________. Preferred Dividends on shares of PRIDES
shall be cumulative and shall accumulate from the date of original issuance;
provided, however, that all accumulated dividends on the Bally Entertainment
- -------- -------
Corporation ("Bally") Preferred Redeemable Increaed Dividend Equity Securities,
8% PRIDES, Convertible Preferred Stock (the "Bally PRIDES") as of the
effective time of the Merger (the "Merger") of Bally with and into the
Corporation shall become accumulated dividends on the Hilton PRIDES exchanged
therefor, payable on the next dividend payment date following the Merger (and
such dividends shall not be payable with respect to Bally PRIDES); provided,
--------
further, however, that in the event the Merger occurs on or after the record
- ------- -------
date for a dividend on the Bally PRIDES but prior to the payment date for such
dividend, then such dividend shall be payable with respect to the Bally PRIDES
(and shall not constitute an accumulated dividend on the Hilton PRIDES), and
dividends shall commence accruing on the Hilton PRIDES as of the payment date
for such dividend (payable on the next succeeding payment date). Preferred
Dividends on shares of PRIDES shall cease to accrue on and after the Mandatory
Conversion Date (as defined herein) or on and after the date of their earlier
conversion or redemption, as the case may be. Preferred Dividends shall be
payable to holders of record as they appear on the stock register of the
Corporation on such record date, not less than 15 nor more than 60 days
preceding the payment date thereof, as shall be fixed by the Board of Directors.
Preferred Dividends payable on shares of PRIDES for any period less than a full
quarterly dividend period (or, in the case of the first Preferred Dividend, from
the date of initial issuance of the shares of PRIDES to but excluding the first
Dividend Payment Date) shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed in any period less
than one month. Preferred Dividends shall accrue on a daily basis whether or not
there are funds of the Corporation legally available for the payment of such
dividends and whether or not such Preferred Dividends are declared. Accrued but
unpaid Preferred Dividends shall cumulate as of the Dividend Payment Date on
which they first become payable, but no interest shall accrue on accumulated but
unpaid Preferred Dividends.
(b) As long as shares of PRIDES are outstanding, no dividends
(other than dividends payable in shares of, or warrants, rights or options
exercisable for or convertible into, shares of Common Stock or any other capital
stock of the Corporation ranking junior to the shares of PRIDES as to the
payment of dividends and the distribution of assets upon liquidation
(collectively, the "Junior Stock") and cash in lieu of fractional shares of such
Junior Stock in connection with any such dividend) shall be paid or declared in
cash or otherwise, nor shall any other
2
<PAGE>
distribution be made (other than a distribution payable in Junior Stock and cash
in lieu of fractional shares of such Junior Stock in connection with any such
distribution), on any Junior Stock unless: (i) full dividends on Preferred Stock
(including the shares of PRIDES) that does not constitute Junior Stock ("Senior
Preferred Stock") have been paid, or declared and set aside for payment, for all
dividend periods terminating at or before the date of such Junior Stock dividend
or distribution payment to the extent such dividends are cumulative; (ii)
dividends in full for the current quarterly dividend period have been paid, or
declared and set aside for payment, on all Senior Preferred Stock to the extent
such dividends are cumulative; (iii) the Corporation has paid or set aside all
amounts, if any, then or theretofore required to be paid or set aside for all
purchase, retirement, and sinking funds, if any, for any Senior Preferred Stock;
and (iv) the Corporation is not in default on any of its obligations to redeem
any Senior Preferred Stock.
(c) As long as any shares of PRIDES are outstanding, no shares
of any Junior Stock may be purchased, redeemed, or otherwise acquired by the
Corporation or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through the issuance of other
Junior Stock (and cash in lieu of fractional shares of such Junior Stock in
connection therewith) or the purchase, redemption or other acquisition of any
Junior Stock with any Junior Stock (and cash in lieu of fractional shares in
connection therewith)) nor may any funds be set aside or made available for any
sinking fund for the purchase or redemption of any Junior Stock unless: (i) full
dividends on Senior Preferred Stock have been paid, or declared and set aside
for payment, for all dividend periods terminating at or before the date of such
purchase, redemption or other acquisition to the extent such dividends are
cumulative; (ii) dividends in full for the current quarterly dividend period
have been paid, or declared and set aside for payment, on all Senior Preferred
Stock to the extent such dividends are cumulative; (iii) the Corporation has
paid or set aside all amounts, if any, then or theretofore required to be paid
or set aside for all purchase, retirement and sinking funds, if any, for any
Senior Preferred Stock; and (iv) the Corporation is not in default on any of its
obligations to redeem any Senior Preferred Stock.
(d) As long as any shares of PRIDES are outstanding, dividends
or other distributions may not be declared or paid on any Parity Preferred Stock
(other than dividends or other distributions payable in Junior Stock and cash in
lieu of fractional shares of such Junior Stock in connection therewith) and the
Corporation may not purchase, redeem or otherwise acquire any Parity Preferred
Stock (except with any Junior Stock and cash in lieu of fractional shares of
such Junior Stock in connection therewith), unless either (a) (i) full dividends
on Senior Preferred Stock have been paid, or declared and set aside for payment,
for all dividend periods terminating at or before the date of such Parity
Preferred Stock dividend, distribution, purchase, redemption or other
acquisition payment to the extent such dividends are cumulative; (ii) dividends
in full or the current quarterly dividend period have been paid, or declared and
set aside for payment, on all Senior Preferred Stock to the extent such
dividends are cumulative; (iii) the Corporation has paid or set aside all
amounts, if any, then or theretofore required to be paid or set aside for all
purchase, retirement, and sinking funds, if any, for any Senior Preferred Stock;
and (iv) the Corporation is not in default on any of its obligations to redeem
any Senior Preferred Stock; or (b) with respect to the payment of dividends
only, any such dividends on the Parity Preferred Stock shall be declared and
paid pro rata so that the amounts of any dividends declared and paid per share
of PRIDES and each
3
<PAGE>
other share of Senior Preferred Stock shall in all cases bear to each other the
same ratio that accrued dividends (including any accumulation with respect to
unpaid dividends for prior dividend periods, if such dividends are cumulative)
per share of PRIDES and such other shares of Parity Preferred Stock bear to each
other.
Section 3. Conversion or Redemption. (a) Unless previously either
------------------------
redeemed or converted at the option of the holder in accordance with the
provisions of Section 3(c), on October 3, 1999 (the "Mandatory Conversion
Date"), each outstanding share of PRIDES shall mandatorily convert ("Mandatory
Conversion") into (i) shares of authorized Common Stock at the PRIDES Common
Equivalent Rate (as defined herein) in effect on the Mandatory Conversion Date
and (ii) the right to receive cash in an amount equal to all accrued and unpaid
Preferred Dividends on such share of PRIDES (other than previously declared
dividends payable to a holder of record as of a prior date) to the Mandatory
Conversion Date, whether or not declared, out of funds legally available for the
payment of Preferred Dividends, subject to the right of the Corporation to
redeem the shares of PRIDES on or after October 3, 1998 (the "Initial Redemption
Date"), and before the Mandatory Conversion Date, and subject to the conversion
of the shares of PRIDES at the option of the holder at any time before the
Mandatory Conversion Date. The "PRIDES Common Equivalent Rate" shall initially
be 1.12 shares of Common Stock for each share of PRIDES and shall be subject to
adjustment as set forth in Sections 3(d) and 3(e) below. Shares of PRIDES shall
cease to be outstanding from and after the Mandatory Conversion Date. The
Corporation shall make such arrangements as it deems appropriate for the
issuance of certificates representing shares of Common Stock and for the payment
of cash in respect of such accrued and unpaid dividends, if any, or cash in lieu
of fractional shares of Common Stock, if any, in exchange for and contingent
upon surrender of certificates representing shares of PRIDES, and the
Corporation may defer the payment of dividends on such shares of Common Stock
and the voting thereof until, and make such payment and voting contingent upon,
the surrender of certificates representing the shares of PRIDES; provided that
--------
the Corporation shall give the holders of the shares of PRIDES such notice of
any such actions as the Corporation deems appropriate and upon surrender such
holders shall be entitled to receive such dividends declared and paid, if any,
on such shares of Common Stock subsequent to the Mandatory Conversion Date.
(b) (i) Shares of PRIDES are not redeemable by the Corporation before
the Initial Redemption Date. At any time and from time to time on or after the
Initial Redemption Date until immediately before the Mandatory Conversion Date,
the Corporation shall have the right to redeem, in whole or in part, the
outstanding shares of PRIDES (subject to the notice provisions set forth in
Section 3(b)(iv)). Upon any such redemption, the Corporation shall deliver to
each holder thereof, in exchange for each such share of PRIDES subject to
redemption, the greater of (A) the number of shares of Common Stock equal to the
applicable PRIDES Call Price (as defined herein) in effect on the redemption
date divided by the Current Market Price (as defined herein) of the Common
Stock, determined as of the second Trading Day (as defined herein) immediately
preceding the Notice Date (as defined herein); (B) 0.92 of one share of Common
Stock (the "PRIDES Minimum Redemption Rate" which is subject to adjustment in
the same manner as the PRIDES Optional Conversion Rate (as defined herein) is
adjusted). Preferred Dividends on the shares of PRIDES shall cease to accrue on
and after the date fixed for their redemption.
4
<PAGE>
(ii) The "PRIDES Call Price" of each share of PRIDES shall be the sum
of (x) $11.348 on and after the Initial Redemption Date, to and including
January 2, 1999; $11.292 on and after January 3, 1999, to and including April 2,
1999; $11.237 on and after April 3, 1999, to and including July 2, 1999; $11.181
on and after July 3, 1999, to and including September 2, 1999; and $11.125 (the
stated liquidation value of one share of PRIDES) on and after September 3, 1999,
to and including October 3, 1999; and (y) all accrued and unpaid Preferred
Dividends thereon to but not including the date fixed for redemption (other than
previously declared Preferred Dividends payable to a holder of record as of a
prior date). If fewer than all the outstanding shares of PRIDES are to be called
for redemption, shares of PRIDES to be called shall be selected by the
Corporation from outstanding shares of PRIDES not previously called by lot or
pro rata (as nearly as may be) or by any other method determined by the Board of
Directors in its sole discretion to be equitable.
(iii) The term "Current Market Price" per share of the Common Stock on
any date of determination means the lesser of (x) the average of the Closing
Prices (as defined herein) of the Common Stock for the 15 consecutive Trading
Days ending on and including such date of determination, and (y) the Closing
Price of the Common Stock on such date of determination; provided, however,
-------- -------
that, with respect to any redemption of shares of PRIDES, if any event resulting
in an adjustment of the PRIDES Common Equivalent Rate occurs during the period
beginning on the first day of such 15-day period and ending on the applicable
redemption date, the Current Market Price as determined pursuant to the
foregoing shall be appropriately adjusted to reflect the occurrence of such
event.
(iv) The Corporation shall provide notice of any redemption of the
shares of PRIDES to holders of record of the shares of PRIDES to be called for
redemption not less than 30 nor more than 60 days before the date fixed for
redemption. Any such notice shall be provided by mail, sent to the holders of
record of the shares of PRIDES to be called at each such holder's address as it
appears on the stock register of the Corporation, first-class postage prepaid;
provided, however, that failure to give such notice or any defect therein shall
- -------- -------
not affect the validity of the proceeding for redemption of any shares of PRIDES
to be redeemed except as to the holder to whom the Corporation has failed to
give such notice or whose notice was defective. A public announcement of any
call for redemption shall be made by the Corporation before, or at the time of,
the mailing of such notice of redemption. The term "Notice Date" with respect
to any notice given by the Corporation in connection with a redemption of the
shares of PRIDES means the earlier of the date of the public announcement of
such redemption and the date of the commencement of mailing of such notice to
the holders of shares of PRIDES, in each case pursuant to this Section 3(b)(iv).
Each such notice shall state, as appropriate, the following and may contain
such other information as the Corporation deems advisable:
(A) the redemption date;
5
<PAGE>
(B) that all outstanding shares of PRIDES are to be redeemed
or, in the case of a redemption of fewer than all outstanding shares of
PRIDES, the number of such shares held by such holder to be redeemed;
(C) the PRIDES Call Price, the number of shares of Common Stock
deliverable upon redemption of each share of PRIDES to be redeemed and the
Current Market Price used to calculate such number of shares of Common
Stock;
(D) the place or places where one or more certificates for such
shares of PRIDES are to be surrendered for redemption; and
(E) that dividends on the shares of PRIDES to be redeemed shall
cease to accrue on and after such redemption date (except as otherwise
provided herein).
(v) The Corporation's obligation to deliver shares of Common Stock and
provide funds upon redemption in accordance with this Section 3(b) shall be
deemed fulfilled if, on or before a redemption date, the Corporation shall
deposit with a bank or trust company, or an affiliate of a bank or trust
company, having a combined capital and surplus of at least $50,000,000 according
to its last published statement of condition, or shall set aside or make other
reasonable provision for the issuance of, such number of shares of Common Stock
as are required to be delivered by the Corporation pursuant to this Section 3(b)
upon the occurrence of the related redemption of shares of PRIDES and for the
payment of cash in lieu of the issuance of fractional share amounts and accrued
and unpaid dividends payable in cash on the shares of PRIDES to be redeemed as
required by this Section 3(b), in trust for the account of the holders of such
shares of PRIDES to be redeemed (and so as to be and continue to be available
therefor), with irrevocable instructions and authority to such bank or trust
company that such shares and funds be delivered upon redemption of the shares of
PRIDES so called for redemption. Any interest accrued on such funds shall be
paid to the Corporation from time to time. Any shares of Common Stock or funds
so deposited and unclaimed at the end of three years from such redemption date
shall be repaid and released to the Corporation, after which the holder or
holders of such shares of PRIDES so called for redemption shall look only to the
Corporation for delivery of shares of Common Stock and the payment of any other
funds due in connection with the redemption of the shares of PRIDES.
(vi) Each holder of shares of PRIDES called for redemption must
surrender the certificates evidencing such shares (properly endorsed or assigned
for transfer, if the Board of Directors shall so require and the notice shall so
state) to the Corporation at the place designated in the notice of such
redemption and shall thereupon be entitled to receive certificates evidencing
shares of Common Stock and to receive any funds payable pursuant to this Section
3(b) following such surrender and following the date of such redemption. In case
fewer than all the shares represented by any such surrendered certificate are
called for redemption, a new certificate shall be issued at the expense of the
Corporation representing the unredeemed shares. If such notice of redemption
shall have been given, and if on the date fixed for redemption shares of Common
Stock and funds necessary for the redemption shall have been irrevocably either
set aside by the Corporation separate
6
<PAGE>
and apart from its other funds or assets in trust for the account of the holders
of the shares to be redeemed (and so as to be and continue to be available
therefor) or deposited with a bank or trust company or an affiliate thereof as
provided herein or the Corporation shall have made other reasonable provision
therefor, then notwithstanding that the certificates evidencing any shares of
PRIDES so called for redemption shall not have been surrendered, the shares
represented thereby so called for redemption shall be deemed no longer
outstanding and Preferred Dividends with respect to the shares so called for
redemption and all rights with respect to the shares so called for redemption
shall forthwith on and after such date cease and terminate (unless the
Corporation defaults on the payment of the redemption price), except for (i) the
rights of the holders to receive the shares of Common Stock and funds, if any,
payable pursuant to this Section 3(b) without interest upon surrender of their
certificates therefor and (ii) the right of the holders, pursuant to Section
3(c) to convert the shares of PRIDES called for redemption until immediately
before the close of business on any redemption date; provided, however, that
-------- -------
holders of shares of PRIDES at the close of business on a record date for any
payment of Preferred Dividends shall be entitled to receive the Preferred
Dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the redemption of such shares following such record date and
before the Dividend Payment Date. Holders of shares of PRIDES that are redeemed
shall not be entitled to receive dividends declared and paid on such shares of
Common Stock, and such shares of Common Stock shall not be entitled to vote,
until such shares of Common Stock are issued upon the surrender of the
certificates representing such shares of PRIDES, and upon such surrender such
holders shall be entitled to receive such dividends declared and paid on such
shares of Common Stock subsequent to such redemption date.
(vii) Notwithstanding the provisions of this Section 3(b), the
shares of PRIDES shall be subject to regulatory redemption pursuant to Article X
of the Restated Certificate of Incorporation of the Corporation, as amended to
date.
(c) Shares of PRIDES are convertible, in whole or in part, at the
option of the holders thereof ("Optional Conversion"), at any time before the
Mandatory Conversion Date, unless previously redeemed, into shares of Common
Stock at a rate of .92 shares of Common Stock for each share of PRIDES (the
"PRIDES Optional Conversion Rate"), subject to adjustment as set forth below.
The right of Optional Conversion of shares of PRIDES called for redemption shall
terminate immediately before the close of business on any redemption date with
respect to such shares.
Optional Conversion of shares of PRIDES may be effected by delivering
certificates evidencing such shares of PRIDES, together with written notice of
conversion and a proper assignment of such certificates to the Corporation or in
blank (and, if applicable, cash payment of an amount equal to the Preferred
Dividend attributable to the current quarterly dividend period payable on such
shares), to the office of the transfer agent for the shares of PRIDES or to any
other office or agency maintained by the Corporation for that purpose and
otherwise in accordance with Optional Conversion procedures established by the
Corporation. Each Optional Conversion shall be deemed to have been effected
immediately before the close of business on the date on which the foregoing
requirements shall have been satisfied. The Optional Conversion shall be at the
PRIDES Optional Conversion Rate in effect at such time and on such date.
7
<PAGE>
Holders of shares of PRIDES at the close of business on a record date
for any payment of declared Preferred Dividends shall be entitled to receive the
Preferred Dividend payable on such shares of PRIDES on the corresponding
Dividend Payment Date notwithstanding the Optional Conversion of such shares of
PRIDES following such record date and before such Dividend Payment Date.
However, shares of PRIDES surrendered for Optional Conversion after the close of
business on a record date for any payment of declared Preferred Dividends and
before the opening of business on the next succeeding Dividend Payment Date must
be accompanied by payment in cash of an amount equal to the Preferred Dividends
attributable to the current quarterly dividend period payable on such date
(unless such shares of PRIDES are subject to redemption on a redemption date
between such record date established for such Dividend Payment Date and such
Dividend Payment Date). Except as provided above, upon any Optional Conversion
of shares of PRIDES, the Corporation shall make no payment of or allowance for
unpaid Preferred Dividends, whether or not in arrears, on such shares of PRIDES
as to which Optional Conversion has been effected or for previously declared
dividends or distributions on the shares of Common Stock issued upon Optional
Conversion.
(d) The PRIDES Common Equivalent Rate, the PRIDES Minimum Redemption
Rate and the PRIDES Optional Conversion Rate (collectively, referred to as the
"Rates") are each subject to adjustment from time to time as provided below in
this paragraph (d).
(i) If the Corporation shall pay a stock dividend or make a
distribution with respect to its Common Stock in shares of Common Stock
(including by way of reclassification of any shares of its Common Stock), the
Rates in effect at the opening of business on the day following the date fixed
for the determination by stockholders entitled to receive such dividend or other
distribution shall each be increased by multiplying such Rates by a fraction of
which the numerator shall be the sum of the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination,
immediately before such dividend or distribution, plus the total number of
shares of Common Stock constituting such dividend or other distribution, and of
which the denominator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination, immediately
before such dividend or distribution, such increase to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this clause (i), the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of the Corporation but shall include shares issuable in respect of
certificates issued in lieu of fractions of shares of Common Stock.
(ii) In case outstanding shares of Common Stock shall be
subdivided or split into a greater number of shares of Common Stock, the Rates
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall each be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Rates in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall each be proportionately reduced, such increases or reductions,
as the case may be, to become effective
8
<PAGE>
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
(iii) If the Corporation shall, after the date of this
Certificate of Designations, issue rights or warrants to all holders of its
Common Stock entitling them (for a period not exceeding 45 days from the date of
such issuance) to subscribe for or purchase shares of Common Stock at a price
per share less than the Current Market Price of the Common Stock (determined
pursuant to Section 3(b)(ii)) on the record date for the determination of
stockholders entitled to receive such rights or warrants, then in each case the
Rates shall each be adjusted by multiplying the Rates in effect on such record
date by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants,
immediately before such issuance, plus the number of additional shares of Common
Stock offered for subscription or purchase pursuant to such rights or warrants,
and of which the denominator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants, immediately
before such issuance, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered for subscription or purchase pursuant to such rights or warrants would
purchase at such Current Market Price (determined by multiplying such total
number of shares by the exercise price of such rights or warrants and dividing
the product so obtained by such Current Market Price). Shares of Common Stock
held by the Corporation or by another corporation of which a majority of the
shares entitled to vote in the election of directors are held, directly or
indirectly, by the Corporation shall not be deemed to be outstanding for
purposes of such computation. Such adjustment shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to receive such rights or warrants. To
the extent that shares of Common Stock are not delivered after the expiration of
such rights or warrants, the Rates shall each be readjusted to the Rates which
would then be in effect had the adjustments made after the issuance of such
rights or warrants been made upon the basis of issuance of rights or warrants in
respect of only the number of shares of Common Stock actually delivered.
(iv) If the Corporation shall pay a dividend or make a
distribution to all holders of its Common Stock consisting of evidences of its
indebtedness, cash or other assets (including shares of capital stock of the
Corporation other than Common Stock and shares of capital stock of any other
corporation, but excluding any cash dividends or distributions, other than
Extraordinary Cash Distributions (as defined herein) and dividends referred to
in clause (i)), or shall issue to all holders of its Common Stock rights or
warrants to subscribe for or purchase any of its securities (other than those
referred to in clause (iii) above), then in each such case, the Rates shall each
be adjusted by multiplying such Rates in effect on the record date for such
dividend or distribution or for the determination of stockholders entitled to
receive such rights or warrants, as the case may be, by a fraction of which the
numerator shall be the Current Market Price per share of the Common Stock
(determined pursuant to 3(b)(ii) on such record date), and of which the
denominator shall be such Current Market Price per share of Common Stock less
either (i) the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive) on such record date of the portion of the
assets or evidences of indebtedness so distributed, or of such subscription
rights or warrants, applicable to one share of Common Stock, or (ii) if
applicable, the
9
<PAGE>
amount of the Extraordinary Cash Distributions. Such adjustment shall become
effective on the opening of business on the business day next following the
record date for such dividend or distribution or for the determination of
holders entitled to receive such rights or warrants, as the case may be.
(v) Any shares of Common Stock issuable in payment of a
dividend or other distribution (other than as described in clause (i) above)
shall be deemed to have been issued immediately before the close of business on
the record date for such dividend or other distribution for purposes of
calculating the number of outstanding shares of Common Stock under this Section
3.
(vi) Anything in this Section 3 notwithstanding, the
Corporation shall be entitled (but shall not be required) to make such upward
adjustments in the Rates and the PRIDES Call Price in addition to those set
forth by this Section 3, as the Corporation, in its sole discretion, shall
determine to be advisable, in order that any stock dividends, subdivision of
stock, distribution of rights to purchase stock or securities, or distribution
of securities convertible into or exchangeable for stock (or any transaction
that could be treated as any of the foregoing transactions pursuant to Section
305 of the Internal Revenue Code of 1986, as amended) hereafter made by the
Corporation to its stockholders shall not be taxable. The term "Extraordinary
Cash Distribution" means, with respect to any consecutive 12-month period, all
cash dividend and cash distributions on the Common Stock during such period
(other than cash dividends and cash distributions for which a prior adjustment
to the Rates was previously made) to the extent such dividends and distributions
exceed, on a per share of Common Stock basis, 10% of the average daily Closing
Price of the Common Stock over such period.
(vii) In any case in which this Section 3(d) shall require that
an adjustment as a result of any event become effective at the opening of
business on the business day next following a record date and the date fixed for
conversion pursuant to Section 3(a) or redemption pursuant to Section 3(b)
occurs after such record date, but before the occurrence of such event, the
Corporation may, in its sole discretion, elect to defer the following until
after the occurrence of such event or the date of final determination of such
fair market value; (A) issuing to the holder of any shares of PRIDES surrendered
for conversion or redemption the additional shares of Common Stock issuable over
the shares of Common Stock issuable before giving effect to such adjustment; and
(B) paying to such holder any amount in cash in lieu of a fractional share of
Common Stock pursuant to Section 4.
(viii) All adjustments to the Rates shall be calculated to the
nearest 1/100th of a share of Common Stock. No adjustment in any of the Rates
shall be required unless such adjustment would require an increase or decrease
of at least one percent therein; provided, however, that any adjustments which
-------- -------
by reason of this Section 3(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All adjustments to
the Rates shall be made successively.
10
<PAGE>
(ix) Before redeeming any shares of PRIDES, the Corporation
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock upon such redemption.
(e) In case of any consolidation or merger to which the Corporation is
a party (other than a consolidation or merger in which the Corporation is the
surviving or continuing corporation and in which the shares of Common Stock
outstanding immediately before the merger or consolidation remain unchanged) or
in the case of any sale or transfer to another corporation of the property of
the Corporation as an entirety or substantially as an entirety, or in the case
of a statutory exchange of securities with another corporation (other than in
connection with a merger or acquisition), each share of PRIDES shall, after
consummation of such transaction, be subject to (i) conversion at the option of
the holder into the kind and amount of securities, cash, or other property
receivable upon consummation of such transaction by a holder of the number of
shares of Common Stock into which such shares of PRIDES might have been
converted immediately before consummation of such transaction, (ii) conversion
on the Mandatory Conversion Date into the kind and amount of securities, cash,
or other property receivable upon consummation of such transaction by a holder
of the number of shares of Common Stock into which such share of PRIDES would
have been converted if the conversion on the Mandatory Conversion Date had
occurred immediately before the date of consummation of such transaction, plus
the right to receive cash in an amount equal to all accrued and unpaid dividends
on such share of PRIDES (other than previously declared dividends payable to a
holder of record as of a prior date), and (iii) redemption on any redemption
date in exchange for the kind and amount of securities, cash, or other property
receivable upon consummation of such transaction by a holder of the number of
shares of Common Stock that would have been issuable at the PRIDES Call Price in
effect on such redemption date upon a redemption of such share of PRIDES
immediately before consummation of such transaction, assuming that, if the
Notice Date for such redemption is not before such transaction, the Notice Date
had been the date of such transaction; and assuming in each case that such
holder of shares of Common Stock failed to exercise rights of election, if any,
as to the kind or amount of securities, cash, or other property receivable upon
consummation of such transaction (provided that, if the kind or amount of
--------
securities, cash, or other property receivable upon consummation of such
transaction is not the same for each non-electing share, then the kind and
amount of securities, cash, or other property receivable upon consummation of
such transaction for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares). The
kind and amount of securities into or for which the shares of PRIDES shall be
convertible or redeemable after consummation of such transaction shall be
subject to adjustment as described in Section 3(d) following the date of
consummation of such transaction. The Corporation may not become a party to any
such transaction unless the terms thereof are consistent with the foregoing.
(f) Whenever the Rates are adjusted as provided in Section
3(d), the Corporation shall:
(i) forthwith compute the Rates in accordance with this
Section 3 and prepare a certificate signed by the President and Chief Executive
Officer, the Executive Vice President and Chief Financial Officer, the Vice
President and Treasurer, Vice President and General Counsel, the Vice President
and Corporate Controller or the Vice President and Corporate Secretary
11
<PAGE>
of the Corporation setting forth the adjusted Rates, the method of calculation
thereof in reasonable detail and the facts requiring such adjustment and upon
which such adjustment is based, which certificate shall be conclusive, final and
binding evidence of the correctness of the adjustment, and shall file such
certificate forthwith with the transfer agent for the shares of the PRIDES and
the Common Stock;
(ii) make a prompt public announcement stating that the
Rates have been adjusted and setting forth the adjusted Rates; and
(iii) mail a notice stating that the Rates have been
adjusted, the facts requiring such adjustment and upon which such adjustment is
based and setting forth the adjusted Rates, to the holders of record of the
outstanding shares of PRIDES, at or prior to the time the Corporation mails an
interim statement, if any, to its stockholders covering the fiscal quarter
period during which the facts requiring such adjustment occurred, but in any
event within 45 days of the end of such fiscal quarter period.
(g) In case, at any time while any of the shares of PRIDES are
outstanding,
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock, excluding any cash dividends other than
Extraordinary Cash Distributions; or
(ii) the Corporation shall authorize the issuance to all
holders of the Common Stock of rights or warrants to subscribe for or purchase
shares of the Common Stock or of any other subscription rights or warrants; or
(iii) the Corporation shall authorize any reclassification of
the Common Stock (other than a subdivision or combination thereof) or any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required (except for a merger
of the Corporation into one of its subsidiaries solely for the purpose of
changing the corporate domicile of the Corporation to another state of the
United States and in connection with which there is no substantive change in the
rights or privileges of any securities of the Corporation other than changes
resulting from differences in the corporate statutes of the state the
Corporation was then domiciled in and the new state of domicile), or the sale or
transfer of all or substantially all of the assets of the Corporation;
then the Corporation shall cause to be filed at each office or agency maintained
for the purpose of conversion of the shares of PRIDES, and shall cause to be
mailed to the holders of shares of PRIDES at their last addresses as they shall
appear on the stock register of the Corporation, at least 10 business days
before the date hereinafter specified in clause (A) or (B) below (or the earlier
of the dates hereinafter specified, in the event that more than one date is
specified), a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights or warrants, or, if a record
is not be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distribution, rights or warrants are to be
determined, or (B) the date on which any such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or
12
<PAGE>
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for securities or other property (including cash), if any,
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. The failure to give or receive the
notice required by this paragraph (g) or any defect therein shall not affect the
legality or validity of any such dividend, distribution, right or warrant or
other action.
[(h) As a result of the cash payment of $______ to a holder of each
share of common stock of Bally Entertainment Corporation, a Delaware corporation
("Bally"), in the merger of Bally with and into the Corporation (the "Merger"),
upon (i) the Mandatory Conversion of such shares of PRIDES pursuant to Section
3(a) hereof, each such outstanding share of PRIDES shall be converted into the
right to receive, in addition to the securities, cash and other property
otherwise provided for in this Section 3, $___ for each share of PRIDES so
converted; (ii) the Optional Conversion of such shares of PRIDES pursuant to
Section 3(c) hereof, each such outstanding share of PRIDES shall be converted
into the right to receive $____, in addition to the securities, cash and other
property otherwise provided for in this Section 3, for each such share of PRIDES
so converted; and (iii) the redemption by the Corporation of any shares of
PRIDES pursuant to Section 3(b) hereof, each such outstanding share of PRIDES
shall be converted into the right to receive, in addition to the securities,
cash and other property otherwise provided for in this Section 3, the following
amount of cash, based on the applicable redemption date, for each share of
PRIDES so redeemed:
Redemption Date Cash
--------------- ----
10/3/98 through and including 1/2/99 $
1/3/99 through and including 4/2/99 $
4/3/99 through and including 7/2/99 $
7/3/99 through and including 9/2/99 $
9/3/99 through and including 10/3/99 $ ]
Section 4. No Fractional Shares. No fractional shares of Common Stock
--------------------
shall be issued upon redemption or conversion of any shares of the PRIDES. In
lieu of any fractional share otherwise issuable in respect of the aggregate
number of shares of the PRIDES of any holder that are redeemed or converted on
any redemption date or upon Mandatory Conversion or Optional Conversion, such
holder shall be entitled to receive an amount in cash (computed to the nearest
cent) equal to the same fraction of the (i) Current Market Price of the Common
Stock (determined as of the second Trading Day immediately preceding the Notice
Date) in the case of redemption, or (ii) Closing Price of the Common Stock
determined (A) as of the fifth Trading Day immediately preceding the Mandatory
Conversion Date, in the case of Mandatory Conversion, or (B) as of the second
Trading Day immediately preceding the effective date of conversion, in the case
of an Optional Conversion by a holder. If more than one share of PRIDES shall
be surrendered for conversion or redemption at one time by or for the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of the
PRIDES so surrendered or redeemed.
13
<PAGE>
Section 5. Reservation of Common Stock. The Corporation shall at all
---------------------------
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion or redemption of shares of
PRIDES, as herein provided, free from preemptive rights, such maximum number of
shares of Common Stock as shall from time to time be issuable upon the Mandatory
Conversion or Optional Conversion or redemption of all the shares of PRIDES then
outstanding.
Section 6. Definitions. As used in this Certificate of Designations:
-----------
(i) the term "business day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close;
(ii) the term "Closing Price", on any day, shall mean the last
reported sales price of the Common Stock, regular way on such day, or, if no
sale takes place on such day, the average of the reported closing bid and asked
prices on such day, regular way, in either case as reported on the New York
Stock Exchange or, if such security is not listed or admitted for trading on the
New York Stock Exchange, on the Nasdaq National Market of the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or, if such security is not quoted on such Nasdaq National Market, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by NASDAQ or, if bid and asked prices for such security on such day
shall not have been reported through NASDAQ, the average of the bid and asked
prices on such day, as furnished by any New York Stock Exchange member firm
making a market in the Common Stock selected from time to time by the Board of
Directors for that purpose;
(iii) the term "record date" shall be such date as from time to
time shall be fixed by the Board of Directors with respect to the receipt of
dividends, the receipt of a redemption price upon redemption or the taking of
any action or exercise of any voting rights permitted hereby; and
(iv) the term "Trading Day" shall mean a date on which the New
York Stock Exchange (or any successor) is open for the transaction of business.
Section 7. Payment of Taxes. The Corporation shall pay any and all
----------------
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on the redemption or conversion of
shares of PRIDES pursuant to Section 3; provided, however, that the Corporation
-------- -------
shall not be required to pay any tax which may be payable in respect of any
registration of transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the registered holder of shares of PRIDES
redeemed or converted or to be redeemed or converted, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
14
<PAGE>
Section 8. Liquidation Rights. In the event of any voluntary or
------------------
involuntary liquidation, dissolution, or winding up of the Corporation, and
subject to the rights of holders of any other series of Preferred Stock, the
holders of outstanding shares of PRIDES are entitled to receive the sum of
$11.125 per share, plus an amount equal to any accrued and unpaid Preferred
Dividends thereon, out of the assets of the Corporation available for
distribution to stockholders, before any distribution of assets is made to
holders of Junior Stock. If, upon any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the assets of the Corporation are
insufficient to permit the payment of the full preferential amounts payable with
respect to the shares of PRIDES and all other series of Parity Preferred Stock,
the holders of shares of PRIDES and of all other series of Parity Preferred
Stock shall share ratably in any distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of PRIDES shall not be entitled
to any further participation in any distribution of assets by the Corporation.
A consolidation or merger of the Corporation with or into one or more other
corporations (whether or not the Corporation is the corporation surviving such
consolidation or merger), or a sale, lease or exchange of all or substantially
all of the assets of the Corporation shall not be deemed to be a voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation.
Section 9. Voting Rights. (a) The holders of shares of PRIDES shall
-------------
have the right with the holders of Common Stock to vote in the election of
Directors and upon each other matter coming before any meeting of the holders of
Common Stock on the basis of (4/5) (four-fifths) of a vote for each share of
PRIDES held. The holders of shares of PRIDES and the holders of Common Stock
will vote together as one class on such matters except as otherwise provided by
law or the Restated Certificate of Incorporation of the Corporation.
(b) In the event that dividends on the shares of PRIDES or any other
series of Preferred Stock shall be in arrears and unpaid for six quarterly
dividend periods, or if any series of Preferred Stock (other than the PRIDES)
shall be entitled for any other reason to exercise voting rights, separate from
the Common Stock, to elect any directors of the Corporation ("Preferred Stock
Directors"), the holders of the shares of PRIDES (voting separately as a class
with holders of all other series of Preferred Stock upon which like voting
rights have been conferred and are exercisable with the PRIDES as a class), with
each share of PRIDES entitled to one vote on this and other matters in which
such Preferred Stock votes as a group, shall be entitled to vote for the
election of two directors of the Corporation, such directors to be in addition
to the number of directors constituting the Board of Directors immediately
before the accrual of such right. Such right, when vested, shall continue until
all cumulative dividends accumulated and payable on the shares of PRIDES and
such other series of Preferred Stock shall have been paid in full and the right
of any other such series of Preferred Stock to exercise voting rights, separate
from the Common Stock, to elect Preferred Stock Directors shall terminate or
have terminated, and, when so paid and any such termination occurs or has
occurred, such right of the holders of the shares of PRIDES shall cease. The
term of office of any director elected by the holders of the shares of PRIDES
and such other series shall terminate on the earlier of (i) the next annual
meeting of stockholders at which a
15
<PAGE>
successor shall have been elected and qualified or (ii) the termination of the
right of holders of the shares of PRIDES and such other series to vote for such
directors.
(c) The Corporation shall not, without the approval of the holders of
at least 66-2/3 percent of the shares of PRIDES then outstanding: (i) amend,
alter, or repeal any of the provisions of the Restated Certificate of
Incorporation of the Corporation so as to affect adversely the powers,
preferences or rights of the holders of the shares of PRIDES then outstanding or
reduce the minimum time for any required notice to which the holders of the
shares of PRIDES then outstanding may be entitled (an amendment of the Restated
Certificate of Incorporation to authorize or create, or to increase the
authorized amount of, Junior Stock or any stock of any class ranking on a parity
with the PRIDES being deemed not to affect adversely the powers, preferences, or
rights of the holders of the shares of PRIDES); (ii) authorize or create, or
increase the authorized amount of, any stock of any class (whether or not
convertible into capital stock of any class), ranking prior to the shares of
PRIDES either as to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the Corporation; or (iii) merge or
consolidate with or into any other corporation, unless each holder of shares of
PRIDES immediately preceding such merger or consolidation shall receive or
continue to hold in the resulting corporation the same number of shares, with
substantially the same rights and preferences, including, without limitation, as
set forth in Section 3(e) hereof, as correspond to the shares of PRIDES so held.
(d) The Corporation shall not, without the approval of the holders of
at least a majority of the shares of PRIDES then outstanding, increase the
authorized number of shares of Preferred Stock to greater than 60,000,000
shares.
(e) Notwithstanding the provisions set forth in Sections 9(c) and
9(d), no such approval described therein of the holders of the shares of PRIDES
shall be required if, at or before the time when such amendment, alteration or
repeal is to take effect or when the authorization, creation, increase or
issuance of any such prior or parity stock or convertible security is to be
made, or when such consolidation or merger, voluntary liquidation, dissolution,
or winding up, sale, lease, conveyance, purchase, or redemption is to take
effect, as the case may be, provision is made for the redemption of all shares
of PRIDES at the time outstanding.
16
<PAGE>
IN WITNESS WHEREOF, HILTON HOTELS CORPORATION has caused this
certificate to be signed and attested this ____ day of ___________, 1996.
HILTON HOTELS CORPORATION
By:
-----------------------------------
Name: Mathew J. Hart
Title: Executive Vice President and
Chief Financial Officer
Attest:
- ---------------------------------
Name: Cheryl L. Marsh
Title: Vice President and Corporate Secretary
17
<PAGE>
EXHIBIT 5.1
LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
August 16, 1996
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, California 90210
Re: Hilton Hotels Corporation, a Delaware corporation
-------------------------------------------------
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
In connection with the registration by Hilton Hotels Corporation, a
Delaware corporation (the "Company"), of shares of common stock of the Company,
par value $2.50 per share (the "Shares") and shares of Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
(the "PRIDES"), under the Securities Act of 1933, as amended (the "Act"), on
Form S-4 to be filed with the Securities and Exchange Commission (the
"Commission") on August 19, 1996 (the "Registration Statement"), you have
requested our opinion with respect to the matters set forth below.
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization and issuance of each of the Shares and the
PRIDES. In addition, we have made such legal and factual examinations and
inquiries, including an examination of originals or copies certified or
otherwise identified to our satisfaction of such documents, corporate records
and instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the General Corporation Law of the State of Delaware, and we express no opinion
with respect to the applicability thereto, or the effect thereon, of the laws of
any other jurisdiction or, in the case of Delaware, any other laws, or as to any
matters of municipal law or the laws of any other local agencies within any
state.
Subject to the foregoing, it is our opinion that, after approval of the
Agreement and Plan of Merger by and between the Company and Bally Entertainment
Corporation, dated as of June 6, 1996, as amended, by the
<PAGE>
shareholders of the Company in the manner contemplated by the Registration
Statement and the amendment of the Company's Restated Certificate of
Incorporation in the manner contemplated by the Registration Statement, each of
the Shares and the PRIDES will have been duly authorized, and, upon issuance,
delivery and payment therefor in the manner contemplated by the Registration
Statement, will be validly issued, fully paid and nonassessable.
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit to
the Registration Statement and to the reference to our firm contained under the
heading "Legal Counsel."
Very truly yours,
/s/ Latham & Watkins
LATHAM & WATKINS
<PAGE>
EXHIBIT 8.1
LATHAM & WATKINS
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
August 16, 1996
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, California 90210
Re: Hilton Hotels Corporation, a Delaware corporation
Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the registration by Hilton Hotels Corporation, a Delaware
corporation (the "Company"), of shares of common stock of the Company, par
value $2.50 per share (the "Shares") and shares of Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
(the "PRIDES"), under the Securities Act of 1933, as amended (the "Act"), on
Form S-4 filed with the Securities and Exchange Commission (the "Commission")
on August 19, 1996 and, as such filing may be hereafter amended (the
"Registration Statement"), you have requested our opinion with respect to the
matters set forth below.
In our capacity as your counsel in connection with such registration, we are
familiar with the proceedings taken and proposed to be taken by the Company in
connection with the authorization and issuance of each of the Shares and the
PRIDES, and for the purposes of this opinion, have assumed such proceedings
will be timely completed in the manner presently proposed. In addition, we
have made such legal and factual examinations and inquiries, including an
examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
This opinion is based on various assumptions, and is conditioned upon
certain representations made by the Company as to factual matters through a
certificate of an officer of the Company (the "Officer's Certificate"). Also,
this opinion is based upon the factual representations of the Company
concerning its business and properties as set forth in the Registration
Statement. Furthermore, we have assumed that the Merger will be consummated
pursuant to the terms of the Merger Agreement (as such terms are defined in
the Registration Statement), including the exhibits thereto.
We are opining herein as to the effect on the subject transaction only of
the federal income tax laws of the United States, and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies within any state.
<PAGE>
Based upon the facts set forth in the Registration Statement and the
Officer's Certificate, it is our opinion that the information set forth under
the captions "The Merger--Certain Federal Income Tax Consequences--Tax
Consequences of Merger," "Description of the Hilton PRIDES--Certain Income Tax
Considerations" and "Description of the Hilton PRIDES--Certain Federal Income
Tax Considerations for Non-U.S. Holders" in the Joint Proxy
Statement/Prospectus included within the Registration Statement, to the extent
that such information constitutes matters of law, summaries of legal matters,
or legal conclusions, is correct in all material respects.
No opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation
or difference in the facts from those set forth in the Registration Statement
or the Officer's Certificate may affect the conclusions stated herein.
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit
to the Registration Statement and to the reference to our firm contained under
the heading "Legal Counsel."
Very truly yours,
/s/ Latham & Watkins
-------------------------------------
LATHAM & WATKINS
<PAGE>
EXHIBIT 12.1
HILTON HOTELS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, YEARS ENDED DECEMBER 31,
------------- ----------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before income
taxes and minority
interest(1).................. $149.8 $134.0 $261.5 $183.6 $156.2 $156.8 $121.3
Add:
Interest expense(1)......... 43.4 54.1 114.3 95.2 89.9 74.2 68.9
Distributions from less than
50% owned companies........ 5.8 6.1 13.5 12.1 6.4 4.8 5.2
Interest component of rent
expense(1)(2).............. 1.9 1.6 3.5 3.0 2.9 2.7 2.3
------ ------ ------ ------ ------ ------ ------
Earnings available for fixed
charges...................... $200.9 $195.8 $392.8 $293.9 $255.4 $238.5 $197.7
====== ====== ====== ====== ====== ====== ======
Fixed charges:
Interest expense(1)......... $ 43.4 $ 54.1 $114.3 $ 95.2 $ 89.9 $ 74.2 $ 68.9
Capitalized interest........ 3.9 1.9 3.3 8.4 2.1 4.9 5.2
Interest component of rent
expense(1)(2).............. 1.9 1.6 3.5 3.0 2.9 2.7 2.3
------ ------ ------ ------ ------ ------ ------
Total fixed charges........... $ 49.2 $ 57.6 $121.1 $106.6 $ 94.9 $ 81.8 $ 76.4
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed
charges...................... 4.1x 3.4x 3.2x 2.8x 2.7x 2.9x 2.6x
====== ====== ====== ====== ====== ====== ======
</TABLE>
- --------
(1) Includes unconsolidated 50% owned companies.
(2) Assumed interest component to be one-third of rent expense.
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- ----------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before income
taxes and minority
interest(1).............. $ 149.8 $ 134.0 $261.5 $183.6 $156.2 $156.8 $121.3
Add:
Interest expense(1)..... 43.4 54.1 114.3 95.2 89.9 74.2 68.9
Distributions from less
than 50% owned
companies.............. 5.8 6.1 13.5 12.1 6.4 4.8 5.2
Interest component of
rent expense(1)(2)..... 1.9 1.6 3.5 3.0 2.9 2.7 2.3
-------- -------- ------ ------ ------ ------ ------
Earnings available for
combined fixed charges
and preferred stock
dividends................ $ 200.9 $ 195.8 $392.8 $293.9 $255.4 $238.5 $197.7
======== ======== ====== ====== ====== ====== ======
Fixed charges and
preferred stock
dividends:
Interest expense(1)..... $ 43.4 $ 54.1 $114.3 $ 95.2 $ 89.9 $ 74.2 $ 68.9
Capitalized interest.... 3.9 1.9 3.3 8.4 2.1 4.9 5.2
Interest component of
rent expense(1)(2)..... 1.9 1.6 3.5 3.0 2.9 2.7 2.3
Preferred stock
dividends.............. -- -- -- -- -- -- --
-------- -------- ------ ------ ------ ------ ------
Combined fixed charges and
preferred stock
dividends................ $ 49.2 $ 57.6 $121.1 $106.6 $ 94.9 $ 81.8 $ 76.4
======== ======== ====== ====== ====== ====== ======
Ratio of earnings to
combined fixed charges
and preferred stock
dividends................ 4.1x 3.4x 3.2x 2.8x 2.7x 2.9x 2.6x
======== ======== ====== ====== ====== ====== ======
</TABLE>
- --------
(1) Includes unconsolidated 50% owned companies.
(2) Assumed interest component to be one-third of rent expense.
<PAGE>
BALLY ENTERTAINMENT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
before income taxes and
minority interest...... $ 48.7 $ 22.9 $ 56.9 $ 6.1 $ 15.1 $(7.3) $(50.9)
Add:
Interest expense(1)... 66.9 64.6 132.4 130.8 92.9 93.8 117.2
Amortization of
capitalized
interest............. .7 .5 1.1 .9 .8 .9 .8
Interest component of
rent expense(2)...... 1.3 .6 1.7 1.1 .4 .2 1.0
-------- ------- ------ ------ ------ ----- ------
Earnings available for
fixed charges.......... $ 117.6 $ 88.6 $192.1 $138.9 $109.2 $87.6 $ 68.1
======== ======= ====== ====== ====== ===== ======
Fixed charges:
Interest expense(1)... $ 66.9 $ 64.6 $132.4 $130.8 $ 92.9 $93.8 $117.2
Capitalized interest.. .2 2.0 2.8 2.1 .4 .1 .1
Interest component of
rent expense(2)...... 1.3 .6 1.7 1.1 .4 .2 1.0
-------- ------- ------ ------ ------ ----- ------
Total fixed charges..... $ 68.4 $ 67.2 $136.9 $134.0 $ 93.7 $94.1 $118.3
======== ======= ====== ====== ====== ===== ======
Ratio of earnings to
fixed charges.......... 1.7x 1.3x 1.4x 1.0x 1.2x -- (3) -- (3)
======== ======= ====== ====== ====== ===== ======
</TABLE>
- --------
(1) Includes amortization of debt issuance costs and discount.
(2) Assumed interest component to be one-third of rent expense.
(3) Earnings were insufficient to cover fixed charges for the years ended
December 31, 1992 and 1991 by $6.5 and $50.2, respectively.
<PAGE>
BALLY ENTERTAINMENT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
before income taxes and
minority interest...... $ 48.7 $22.9 $ 56.9 $ 6.1 $ 15.1 $(7.3) $(50.9)
Add:
Interest expense(1)... 66.9 64.6 132.4 130.8 92.9 93.8 117.2
Amortization of
capitalized
interest............. .7 .5 1.1 .9 .8 .9 .8
Interest component of
rent expense(2)...... 1.3 .6 1.7 1.1 .4 .2 1.0
Preferred stock
dividends of
subsidiaries......... .5 .5 .6 -- -- -- --
-------- ------- ------ ------ ------ ----- ------
Earnings available for
combined fixed charges
and preferred stock
dividends.............. $ 118.1 $89.1 $192.7 $138.9 $109.2 $87.6 $ 68.1
======== ======= ====== ====== ====== ===== ======
Fixed charges and
preferred stock
dividends:
Interest expense(1)... $ 66.9 $64.6 $132.4 $130.8 $ 92.9 $93.8 $117.2
Capitalized interest.. .2 2.0 2.8 2.1 .4 .1 .1
Interest component of
rent expense(2)...... 1.3 .6 1.7 1.1 .4 .2 1.0
Preferred stock
dividends(3)......... 13.4 2.7 6.8 5.5 4.3 2.8 2.8
-------- ------- ------ ------ ------ ----- ------
Combined fixed charges
and preferred stock
dividends.............. $ 81.8 $69.9 $143.7 $139.5 $ 98.0 $96.9 $121.1
======== ======= ====== ====== ====== ===== ======
Ratio of earnings to
combined fixed charges
and preferred stock
dividends.............. 1.4x 1.3x 1.3x 1.0x 1.1x -- (4) -- (4)
======== ======= ====== ====== ====== ===== ======
</TABLE>
- --------
(1) Includes amortization of debt issuance costs and discount.
(2) Assumed interest component to be one-third of rent expense.
(3) Includes preferred stock dividend requirements of Bally Entertainment
Corporation and its consolidated subsidiaries.
(4) Earnings were insufficient to cover fixed charges for the years ended
December 31, 1992 and 1991 by $9.3 and $53.0, respectively.
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER
JUNE 30, 1996 31, 1995
------------- ----------
<S> <C> <C>
Income from continuing operations before income taxes
and minority interest(1)............................ $239.7 $385.5
Add:
Interest expense(1)(2)............................. 78.7 189.8
Distributions from less than 50% owned companies... 5.8 13.5
Interest component of rent expense(1)(3)........... 3.2 5.2
------ ------
Pro forma earnings available for fixed charges....... $327.4 $594.0
====== ======
Fixed charges:
Interest expense(1)(2)............................. $ 78.7 $189.8
Capitalized interest............................... 4.1 6.1
Interest component of rent expense(1)(3)........... 3.2 5.2
------ ------
Pro forma total fixed charges........................ $ 86.0 $201.1
====== ======
Pro forma ratio of earnings to fixed charges......... 3.8x 3.0x
====== ======
</TABLE>
- --------
(1) Includes unconsolidated 50% owned companies.
(2) Includes amortization of capitalized interest, debt issuance costs and
discount.
(3) Assumed interest component to be one-third of rent expense.
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
------------- ------------
<S> <C> <C>
Income from continuing operations before income
taxes and minority interest(1).................... $239.7 $385.5
Add:
Interest expense(1)(2)........................... 78.7 189.8
Distributions from less than 50% owned
companies....................................... 5.8 13.5
Interest component of rent expense(1)(3)......... 3.2 5.2
------ ------
Pro forma earnings available for combined fixed
charges and preferred stock dividends............. $327.4 $594.0
====== ======
Fixed charges and preferred stock dividends:
Interest expense(1)(2)........................... $ 78.7 $189.8
Capitalized interest............................. 4.1 6.1
Interest component of rent expense(1)(3)......... 3.2 5.2
Preferred stock dividends........................ 11.7 4.9
------ ------
Pro forma combined fixed charges and preferred
stock dividends................................... $ 97.7 $206.0
====== ======
Pro forma ratio of earnings to combined fixed
charges and preferred stock dividends............. 3.4x 2.9x
====== ======
</TABLE>
- --------
(1) Includes unconsolidated 50% owned companies.
(2) Includes amortization of capitalized interest, debt issuance costs and
discount.
(3) Assumed interest component to be one-third of rent expense.
<PAGE>
EXHIBIT 23.1
As independent public accountants, we hereby consent to the incorporation by
reference in this Joint Proxy Statement/Prospectus included in the Form S-4
registration statement of our reports dated February 1, 1996 incorporated by
reference in Hilton Hotels Corporation's Form 10-K for the year ended December
31, 1995 and to all references to our Firm included in this registration
statement.
Arthur Andersen LLP
August 15, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Joint Proxy Statement/Prospectus of Hilton Hotels Corporation and Bally
Entertainment Corporation that is made part of this Registration Statement;
and to the incorporation by reference herein of our report dated February 7,
1996, with respect to the consolidated financial statements and schedules of
Bally Entertainment Corporation included in its Annual Report (Form 10-K) for
the year ended December 31, 1995, filed with the Securities and Exchange
Commission.
Ernst & Young LLP
August 15, 1996
<PAGE>
EXHIBIT 23.4
[DLJ LETTERHEAD]
August 15, 1996
Board of Directors
Hilton Hotels Corporation
Beverly Hills, California
We hereby consent to the inclusion of our opinions dated June 6, 1996 and
August 15, 1996 in the Joint Proxy Statement-Prospectus which forms a part of
the Hilton Hotels Corporation registration statement on Form S-4 dated August
19, 1996. In giving this consent we do not hereby admit that Donaldson, Lufkin
& Jenrette Securities Corporation is within the class of persons whose consent
is required by Section 7 of the Securities Act of 1993, as amended, or the
rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Warren C. Woo
-------------------------------
Name: Warren C. Woo
Title: Managing Director
<PAGE>
EXHIBIT 23.5
[GOLDMAN, SACHS & CO. LETTERHEAD]
August 19, 1996
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, IL 60631
Re: Registration Statement, to be dated on or about August 19, 1996, of Hilton
Hotels Corporation
Gentlemen:
Reference is made to our opinion letter dated August 19, 1996 with respect
to the fairness to the holders of the outstanding shares of Common Stock, par
value $0.66 2/3 per share (the "Shares"), of Bally Entertainment Corporation
(the "Company") of the Aggregate Consideration (as defined in such letter) to
be received for each Share pursuant to the Agreement and Plan of Merger dated
as of June 6, 1996 among Hilton Hotels Corporation and the Company, as amended
by First Amendment to Merger Agreement.
The foregoing opinion letter is provided for the information and assistance
of the Board of Directors of the Company in connection with its consideration
of the transaction contemplated therein and is not to be used, circulated,
quoted or otherwise referred to for any other purpose, nor is it to be filed
with, included in or referred to in whole or in part in any registration
statement, proxy statement or any other document, except in accordance with
our prior written consent. We understand that the Company has determined to
include our opinion in the above-referenced Registration Statement and has
requested our consent to such inclusion.
In that regard, we hereby consent to the reference to the opinion of our
Firm under the captions, "Summary--The Merger--Opinion of Financial Advisors
to the Board of Directors of Bally", "The Merger--Background to the Merger and
Reasons for the Merger--Negotiations of the Merger", "The Merger--Opinions of
Financial Advisors to Bally--Opinion of Goldman Sachs" and "The Merger--
Opinions of Financial Advisors to Bally--Financial Analyses", and to the
inclusion of the foregoing opinion in the above-mentioned Registration
Statement, as amended. We are providing such consent in order to comply with
requirements under the federal securities laws. In doing so, however, except
as may be required by the federal securities laws, we do not intend that any
person other than the Board of Directors rely upon such opinion. In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co
--------------------------------
(GOLDMAN, SACHS & CO.)
<PAGE>
EXHIBIT 23.6
[MERRILL LYNCH LETTERHEAD]
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated August 19, 1996 to
the Board of Directors of Bally Entertainment Corporation ("Bally"), included
as Exhibit D to the Joint Proxy Statement/Prospectus of Bally and Hilton
Hotels Corporation ("Hilton") which forms a part of the Registration Statement
on Form S-4 to be dated on or about August 19, 1996 relating to the proposed
merger of Bally with and into Hilton, and to the reference therein to such
opinion under the captions "Summary--The Merger--Opinion of Financial Advisors
to the Board of Directors of Bally"; "The Merger--Background to the Merger and
Reasons for the Merger--Negotiations of the Merger"; "The Merger--Opinions of
Financial Advisors to Bally--Opinion of Merrill Lynch" and "The Merger--
Opinions of Financial Advisors to Bally--Financial Analyses."
In giving such consent, we do not admit and we hereby disclaim that we come
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ Kurt N. Simon
-----------------------------------
Name: Kurt N. Simon
Title: Vice President
August 19, 1996
<PAGE>
EXHIBIT 99
FORM OF
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HILTON HOTELS CORPORATION
----------------
ADOPTED IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
----------------
We, William C. Lebo, Jr., Senior Vice President and General Counsel, and
Cheryl L. Marsh, Vice President and Corporate Secretary, of Hilton Hotels
Corporation, a Delaware corporation, do hereby certify as follows:
FIRST: That subsection (a) of Article IV of the Certificate of Incorporation
of this Corporation is amended to read as follows:
"(a) Capital Stock. The total number of shares of all classes of
stock which the Corporation shall have the authority to issue is Four
Hundred Twenty-Five Million Five Hundred Twenty-Five Thousand
(425,525,000) shares consisting of Four Hundred Million (400,000,000)
shares of Common Stock, par value $2.50 per share, and Twenty-Five
Million Five Hundred Twenty-Five Thousand (25,525,000) shares of
Preferred Stock, par value $1.00 per share."
SECOND: That, upon the effectiveness of this amendment whereby subsection
(a) of Article IV of the Certificate of Incorporation is amended to read as
set forth above, each outstanding share of this Corporation's Common Stock,
par value $2.50 per share, shall be split up and converted into four shares of
Common Stock, par value $2.50 per share, and there shall be, on said effective
date, transferred from the surplus account of the Corporation to its capital
account the sum of $2.50 for each new share of Common Stock which shall
thereby become outstanding.
THIRD: That the foregoing amendment has been duly approved by the Board of
Directors of this Corporation.
FOURTH: That the foregoing amendment has been duly adopted in accordance
with the provisions of the General Corporation Law of the State of Delaware by
the affirmative vote of the holders of a majority of the stock entitled to
vote at a meeting of stockholders.
IN WITNESS WHEREOF, we have signed this Certificate of Amendment this day
of , 1996.
HILTON HOTELS CORPORATION
-------------------------------------
Name: William C. Lebo, Jr.
Title: Senior Vice President and
General Counsel
ATTEST:
------------------------------------
Name: Cheryl L. Marsh
Title: Vice President and Corporate Secretary
