<PAGE>
PROSPECTUS
May 9, 1996
$500,000,000
[LOGO]
5% CONVERTIBLE SUBORDINATED NOTES DUE 2006
The Convertible Subordinated Notes to be issued by Hilton Hotels Corporation
(the "Company" or "Hilton") will be convertible at the option of the holder into
shares of Common Stock of the Company, at any time at or prior to maturity,
unless previously redeemed, at a conversion price of $129 1/8 per share
(equivalent to a conversion rate of 7.744 shares per $1,000 principal amount of
Notes), subject to adjustment in certain events. Interest on the Notes is
payable semi-annually on May 15, and November 15 of each year, commencing on
November 15, 1996. On May 8, 1996, the last reported sale price for the
Company's Common Stock on the New York Stock Exchange (where it trades under the
symbol "HLT") was $102 1/8 per share.
The Notes will be redeemable at the option of the Company, in whole or in
part at any time on or after May 15, 1999, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, upon a Change of Control Triggering Event (as defined herein), which
shall include a spin-off to Hilton stockholders of the Hotel Segment (as defined
herein) or the Gaming Segment (as defined herein), the Company will be required
to offer to purchase the Notes at 100% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company, and are structurally subordinated to all liabilities
(including trade payables) of the Company's Subsidiaries. The Indenture (as
defined herein) will not restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company or its Subsidiaries. At December 31, 1995, as
adjusted to give effect to the issuance and sale of the Notes and the
application of the estimated net proceeds therefrom, the Company would have had
approximately $1.1 billion of Senior Indebtedness, and the Company's
Subsidiaries had approximately $160.1 million of trade payables and accrued
liabilities. See "Use of Proceeds," "Capitalization" and "Description of the
Notes."
The Notes and the Common Stock have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NONE OF THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, THE
NEW JERSEY CASINO CONTROL COMMISSION, THE LOUISIANA GAMING ENFORCEMENT DIVISION,
NOR ANY OTHER GAMING AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note........................................... 100.00% 2.00% 98.00%
Total (4).......................................... $500,000,000 $10,000,000 $490,000,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST, AND TO PROVIDE
CONTRIBUTION WITH RESPECT TO, CERTAIN LIABILITIES, INCLUDING LIABILITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $800,000.
(4) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
AN ADDITIONAL $75,000,000 AGGREGATE PRINCIPAL AMOUNT OF NOTES ON THE SAME
TERMS AND CONDITIONS AS SET FORTH ABOVE, TO COVER OVER-ALLOTMENTS, IF ANY.
IF THE OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS, AND PROCEEDS TO THE COMPANY WILL BE
$575,000,000, $11,500,000 AND $563,500,000, RESPECTIVELY. SEE
"UNDERWRITING."
The Notes are being offered by the several Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify the Offering and to reject orders in whole or in part. It is
expected that delivery of the Notes will be made in New York, New York on or
about May 14, 1996 to investors in book-entry form through the facilities of The
Depository Trust Company against payment therefor in immediately available
funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
SALOMON BROTHERS INC
SCHRODER WERTHEIM & CO.
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY, THE COMMON STOCK OF THE COMPANY, OR BOTH, AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE (AS TO THE COMMON STOCK) OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------------------
The Notes will be available initially in book-entry form and the Company
expects that the Notes sold pursuant hereto will be issued in the form of a
Global Note (as defined), which will be deposited with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in its name or in the
name of Cede & Co., its nominee. Beneficial interests in the Global Note
representing the Notes will be shown on, and transfers thereof will be effected
through, records maintained by the Depositary and its participants. After the
initial issuance of the Global Note, Notes in certificated form will be issued
in exchange for the Global Note on the terms set forth in the Indenture (as
defined). See "Description of the Notes -- Book-Entry, Delivery and Form."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (together with all amendments, the
"Registration Statement") on Form S-3 under the Securities Act with respect to
the Notes offered hereby. This Prospectus, filed as a part of that Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. In addition, certain documents filed by the
Company with the Commission have been incorporated herein by reference. See
"Incorporation of Certain Documents by Reference." For further information
regarding the Company and the Notes offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules thereto and the
documents incorporated herein by reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy materials and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
materials and other information may be inspected and copies may be obtained at
the principal office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such materials can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Common Stock is listed on the NYSE under the symbol "HLT." Reports,
proxy materials and other information concerning the Company can also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005; and the Pacific Stock Exchange, Inc., 618 South Spring
Street, Los Angeles, California 90014, and 301 Pine Street, San Francisco,
California 94104.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company has filed with the Commission, pursuant to Section 13 of the
Exchange Act (file no. 1-3427), (i) an Annual Report on Form 10-K for the year
ended December 31, 1995 filed with the Commission on March 22, 1996 (the
"Company 10-K"); (ii) the portions of the Company's Proxy Statement on Schedule
14A for the Annual Meeting of Stockholders to be held on May 9, 1996, filed with
the Commission on March 26, 1996 that have been incorporated by reference into
the Company's 10-K; (iii) the portions of the Company'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 Company 10-K;
(iv) a description of the Common Stock included in a Registration Statement on
Form 8-A filed with the Commission on May 19, 1986; (v) a description of the
Rights included in a Registration Statement on Form 8-A filed with the
Commission on July 22, 1988; (vi) a Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 filed with the Commission on May 7, 1996 and (vii)
an Amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1996
filed with the Commission on May 7, 1996 which are each hereby incorporated by
reference in and made a part of this Prospectus.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the securities offered by this Prospectus, shall
be deemed to be incorporated by reference in this Prospectus and 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 in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus, or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified,
to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of any
such person, a copy of any or all of the documents incorporated by reference
herein, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to:
Cheryl L. Marsh, Vice President and Corporate Secretary, Hilton Hotels
Corporation, 9336 Civic Center Drive, Beverly Hills, California 90210; (310)
278-4321.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA APPEARING
ELSEWHERE IN THIS PROSPECTUS AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION" IN THE COMPANY'S 1995 ANNUAL REPORT TO
STOCKHOLDERS (THE "ANNUAL REPORT") INCORPORATED BY REFERENCE IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 (THE "FORM
10-K"). AS USED IN THIS PROSPECTUS, THE TERMS "COMPANY" OR "HILTON" REFER TO THE
COMPANY AND ITS SUBSIDIARIES, UNLESS OTHERWISE PROVIDED OR THE CONTEXT OTHERWISE
REQUIRES. EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION.
THE COMPANY
The Company is a leading owner and operator of full-service hotels and
hotel-casinos in the United States. The Hilton name is one of the best
recognized and most respected lodging brands in the world. The Company 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. Hilton's strategy is to expand its
core businesses through acquisitions, domestic and international expansion,
leveraging its brand names and exploiting the synergies between its lodging and
gaming operations.
The Company announced in January 1996 it would not pursue a proposed
spin-off of its gaming operations, and will continue to develop the marketing,
operating and financial efficiencies between the two businesses. In February
1996, Stephen Bollenbach joined Hilton as president and chief executive officer.
Mr. Bollenbach, who previously served as a senior executive at such companies as
The Walt Disney Co., Host Marriott Corporation and Holiday Corporation, brings
broad financial and strategic experience to Hilton's management.
For the fiscal year ended December 31, 1995, the Company's consolidated
revenue increased 9% to $1.6 billion from $1.5 billion in 1994, and operating
income rose 24% to $353.6 million from $284.6 million in 1994. Net income rose
42% to $172.8 million, or $3.56 per share, compared to $121.7 million or $2.52
per share in 1994.
HOTELS. At February 1, 1996, the Company operated 18 owned or leased
hotels, and managed 41 properties partially or wholly owned by others. An
additional 164 hotels were operated by others under the Hilton, Hilton Garden
Inn and Hilton Suites brand names under franchise agreements granted by the
Company.
Hilton's hotels are located in the United States, except for six hotels
operated by the Company's Conrad International Hotels Corporation subsidiary.
The Company'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.
The domestic lodging business, particularly the full-service sector, is
benefiting from a favorable supply-demand relationship, as well as from an
improved economy and a resurgence in travel. Those factors, along with the
recent streamlining and upgrading of the Company's franchise operations and
other operational improvements, are reflected by substantial gains in the
Company's hotel operating statistics.
Consolidated hotel revenue increased 15% in 1995 to $708.8 million from
$618.3 million in 1994. Revenue per available room ("REVPAR") for owned and
managed hotels increased 10% in 1995, the second consecutive year of
double-digit growth. Hotel operating income, primarily income from hotel
interests and management and franchise fee income, increased 41% in 1995 to
$207.7 million from $147.5 million in 1994.
GAMING. The Company's gaming operations, which are largely concentrated in
Nevada, operate primarily under the Hilton and Flamingo brand names. The
Company'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. The Company has a strong presence in Las Vegas, the largest gaming
market in the world with more than 29 million visitors and gross gaming revenue
of more than $5.7 billion in 1995.
Through its Conrad International brand, the Company manages international
hotel-casinos in Brisbane and the Gold Coast in Queensland, Australia and in
Istanbul, Turkey. The Company 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.
3
<PAGE>
The Company's total gaming revenue increased 5% to $940.6 million in 1995
from $895.6 million in 1994. Casino revenue, a component of gaming revenue,
increased 6% to $511.0 million in 1995 from $480.6 million in 1994. Gaming
operating income increased 7% to $177.8 million in 1995 from $165.4 million in
1994.
GROWTH STRATEGY
HOTELS. The Company's five-year strategic growth plan calls for increasing
room count by a significant percentage by year-end 2000. Hilton's lodging growth
strategy focuses on the acquisition and conversion of existing full-service
hotels, the development of its redesigned, mid-market Hilton Garden Inn product
and international expansion.
As a result of limited supply growth and increasing demand for full-service
hotel rooms, the Company believes this segment of the market offers attractive
growth opportunities. Additionally, many desirable full-service hotel properties
are held by inadvertent owners such as banks and insurance companies which are
motivated sellers. Accordingly, the Company believes it can acquire certain
higher-end, full-service properties at significant discounts to replacement
cost. The Company also intends to expand its domestic operations through
conversion of existing mid- and lower- market hotels into management and
franchise properties. The Company believes it can improve the performance of
acquired and converted hotels as these properties can benefit from the strength
of the Hilton brand name, reservation system, marketing programs and worldwide
sales organization.
The Company intends to compete in the mid-market segment through franchising
and management of the Hilton Garden Inn properties. To facilitate the initial
development and promote brand awareness, the properties constructed during the
first phase of the Hilton Garden Inn expansion are expected to be financed by
Hilton, either solely or with partners. The redesigned Hilton Garden Inn concept
offers many full-service amenities at moderate prices. The Company intends to
create a strong presence in the mid-market hotel segment by exploiting the
Hilton name and offering a fresh, attractive product in a segment that includes
several mature brands. The concept is designed for urban and suburban markets,
particularly those that cannot support a standard full-service hotel. Amenities
such as limited food and beverage service, meeting space, exercise facilities,
and a residential atmosphere are designed to differentiate Hilton Garden Inns
from other mid-market hotel competitors.
The Company also believes there are substantial opportunities for
international hotel expansion, and is particularly focused on city-center
business hotels and resort properties. The Company expects that most will be
operated under the Conrad International flag through long-term management
agreements. The Company currently has agreements to manage new Conrad
International hotels in Egypt, Singapore, Indonesia, Jordan and Thailand. The
Company is also exploring a strategic alliance with the owner of the Hilton
International hotel chain, which owns the Hilton name outside the United States.
Hilton believes there could be significant marketing and brand recognition
benefits from such an alliance, if consummated.
GAMING. The Company intends to expand and improve its domestic and
international gaming operations through select acquisitions, new development,
and the enhancement of existing gaming properties. Hilton is pursuing gaming
acquisition and development opportunities that will complement its existing
strengths as a major-market gaming operator. The Company has been granted a
Statement of Compliance by New Jersey gaming regulators, although it does not
currently operate or have an agreement to operate a casino resort in Atlantic
City, N.J.
Hilton is developing a dockside casino complex in Kansas City, Missouri,
which is scheduled to open in summer 1996. A 260-room hotel designed to enhance
the casino's attractiveness to higher-spending overnight visitors is scheduled
to open in summer 1997.
The Star Trek attraction at the Las Vegas Hilton, which will complement a
22,000-square-foot casino expansion at the property, is scheduled to open in
spring 1997. This Star Trek attraction is a joint development with Paramount
Parks Inc. and is designed to attract and retain middle-market gaming customers
to augment the property's high-end gaming business. The Company also is
enhancing the Flamingo Hilton-Las Vegas, Flamingo Hilton-Laughlin, Flamingo
Hilton-Reno and Reno Hilton through various refurbishments of rooms,
restaurants, casino floors and equipment.
The Company will continue to pursue gaming opportunities internationally
through its Conrad International brand. Hilton currently is developing
international hotel-casinos in which it has a minority interest under the Conrad
International flag in Uruguay and Egypt, both scheduled to open in 1997.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........... $500,000,000 principal amount of 5% Convertible Subordinated
Notes due May 15, 2006.
Interest Payment Dates....... May 15 and November 15 commencing November 15, 1996.
Conversion Rights............ The Notes are convertible into shares of the Company's
common stock, par value $2.50 per share and the related
Rights (as defined herein) (the "Common Stock"), at any time
at or prior to maturity, unless previously redeemed, at a
conversion price of $129 1/8 per share, subject to
adjustment under certain circumstances as described herein
(the "Conversion Price"). Accordingly, each $1,000 principal
amount of Notes is convertible into 7.744 shares of Common
Stock, subject to adjustment, initially for an aggregate of
3,872,217 shares. See "Capitalization."
Mandatory Redemption......... None.
Optional Redemption.......... The Notes are redeemable, in whole or in part, at the option
of the Company at any time on or after May 15, 1999, at the
redemption prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption.
Change of Control Triggering Upon a Change of Control Triggering Event, including a
Event....................... spin-off to Hilton stockholders of the Hotel Segment or the
Gaming Segment, the Company will be required to offer to
purchase the Notes at 100% of the principal amount thereof,
plus accrued and unpaid interest to the date of purchase.
Subordination................ The Notes will be general unsecured obligations of the
Company, subordinated in right of payment to all existing
and future Senior Indebtedness of the Company and will be
structurally subordinated to all liabilities (including
trade payables) of the Company's Subsidiaries. At December
31, 1995, as adjusted to give effect to the issuance and
sale of the Notes and the application of the estimated net
proceeds therefrom, the Senior Indebtedness of the Company
would have aggregated approximately $1.1 billion, and the
Company's Subsidiaries had approximately $160.1 million of
trade payables and accrued liabilities. The Indenture will
not restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company or any of its Subsidiaries.
Use of Proceeds.............. The net proceeds from the Offering will be used to repay
certain outstanding indebtedness of the Company and for
general corporate purposes, including the funding of various
development and construction projects. See "Use of
Proceeds."
Common Stock Traded.......... The Common Stock is traded on the New York Stock Exchange
under the symbol "HLT."
</TABLE>
For a discussion of the terms of the Notes, see "Description of the Notes."
For a description of the Common Stock, see "Description of Capital Stock."
5
<PAGE>
RECENT RESULTS
For the quarter ended March 31, 1996, revenue increased 13% to $429.9
million from $381.9 million in 1995, while operating income increased 7% to
$79.0 million from $74.0 million in 1995. Net income for the quarter ended March
31, 1996 increased 14% to $36.6 million, or $.75 per share, from $32.0 million,
or $.66 per share, in 1995. These results were achieved through strong
performances in the Company's Hotel Segment and at the Flamingo Hilton-Las
Vegas, despite an abnormally low baccarat drop and win percentage at the Las
Vegas Hilton.
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary consolidated historical financial data
of the Company for the five fiscal years ended December 31, 1995. The historical
financial data provided herein as of and for the years ended December 31, 1993,
1994 and 1995 are derived from the Consolidated Financial Statements and Notes
thereto of the Company included in the Annual Report incorporated by reference
in the Form 10-K. The historical financial data as of and for the years ended
December 31, 1991 and 1992 are derived from the Company's audited financial
statements. The Summary Historical Financial Data are qualified in their
entirety by and should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" included in the Annual Report
incorporated by reference in the Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue............................................... $ 1,113 $ 1,230 $ 1,394 $ 1,514 $ 1,649
Total operating income...................................... 185 220 240 285 354
Net interest expense........................................ (63) (62) (73) (77) (75)
Net income (1).............................................. 84 104 106 122 173
Net income per share (1).................................... $1.76 $2.17 $2.21 $2.52 $3.56
Average common and equivalent shares........................ 47.8 47.9 48.0 48.3 48.5
OTHER DATA:
EBITDA (2).................................................. $ 290 $ 329 $ 359 $ 418 $ 496
Hotels revenue.............................................. 444 471 520 618 709
Gaming revenue.............................................. 669 759 874 896 940
Hotels operating income..................................... 93 92 96 148 208
Gaming operating income..................................... 115 153 171 165 178
Percentage of occupancy
Hotels (owned or managed)................................. 64% 66% 67% 70% 73%
Gaming (Nevada)........................................... 85 87 89 91 88
Ratio of earnings to fixed charges (3)...................... 2.6x 2.9x 2.7x 2.8x 3.2x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
--------------------------
ACTUAL AS ADJUSTED(4)
--------- ---------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and temporary investments.................................... $ 409 $ 683
Total assets........................................................................ 3,060 3,345
Long-term debt, including current maturities........................................ 1,287 1,572
Total stockholders' equity.......................................................... 1,254 1,254
</TABLE>
FOOTNOTES ON FOLLOWING PAGE
6
<PAGE>
- ------------------------------
(1) Fiscal 1993 results include net income of $3.4 million or $.07 per share
resulting from the adoption of Statement of Financial Accounting Standards
("SFAS") No. 106, "Postretirement Benefits Other Than Pensions" and SFAS No.
109, "Accounting for Income Taxes."
(2) "EBITDA" consists of operating income plus consolidated depreciation and
amortization. The Company has presented EBITDA supplementally because the
Company believes it allows for a more complete analysis of its 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 Company's overall financial performance.
(3) For purposes of this ratio, earnings are calculated by adding fixed charges
(excluding capitalized interest) to income before income taxes and minority
interest, adjusting to exclude gain (loss) from property transactions and
undistributed earnings in less than 50%-owned-affiliates. Fixed charges
consist of interest on borrowings and that portion of rental expense which
represents interest, including Hilton's proportionate share of such items
with respect to 50%-owned-affiliates.
(4) Balance sheet data is as adjusted to reflect the issuance and sale of the
Notes and the application of that portion of the estimated net proceeds
therefrom expected to be used to retire debt.
7
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby,
after deducting underwriting discounts and commissions and estimated expenses of
this Offering, is estimated to be approximately $489.2 million (approximately
$562.7 million if the Underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds from the Offering to refinance
approximately $215.0 million in outstanding Senior Indebtedness of the Company
borrowed at a weighted average interest rate of 8.9% and due in 1996, and for
general corporate purposes, including the funding of development and
construction costs of Hilton Garden Inn properties and additional construction
costs of the dockside casino in Kansas City, Missouri and the Star Trek
attraction at the Las Vegas Hilton. Pending ultimate application, the net
proceeds will be invested in short-term investment grade securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "HLT." The following table sets forth for the periods indicated
the high and low sales prices of the Common Stock as reported on the NYSE.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
-------------------- DIVIDENDS
HIGH LOW PAID
--------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1994
1st Quarter........................... $ 74 $54 1/2 $.30
2nd Quarter........................... 61 1/4 49 3/4 .30
3rd Quarter........................... 66 5/8 53 1/4 .30
4th Quarter........................... 72 56 .30
Year ended December 31, 1995
1st Quarter........................... $ 77 7/8 $64 1/8 $.30
2nd Quarter........................... 79 3/4 65 5/8 .30
3rd Quarter........................... 74 1/8 60 3/8 .30
4th Quarter........................... 68 3/4 60 5/8 .30
Year ended December 31, 1996
1st Quarter........................... $ 99 3/4 $61 1/8 $.30
2nd Quarter (through May 8, 1996)..... 106 1/4 94
</TABLE>
On May 8, 1996, the reported last sale price of the Common Stock on the NYSE
was $102 1/8 per share. At May 8, 1996, there were approximately 4,000 holders
of record of the Common Stock.
DIVIDEND POLICY
The Company has declared and paid cash dividends on its Common Stock as set
forth above. Any further determination to pay cash dividends will be at the
discretion of the Company's Board of Directors and will depend upon the earnings
of the Company, its financial condition, capital requirements and other factors
as the Company's Board of Directors may deem relevant.
8
<PAGE>
CAPITALIZATION
The following table sets forth (i) the cash, cash equivalents and temporary
investments and capitalization of the Company at December 31, 1995 and (ii) the
cash, cash equivalents and temporary investments and capitalization as adjusted
to reflect the issuance and sale of the Notes and the application of that
portion of the estimated net proceeds therefrom that will be used to retire
indebtedness. The information below should be read in conjunction with and is
qualified by reference to the Company's Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis and Results of
Operations and Financial Condition" included in the Annual Report incorporated
by reference in the Form 10-K.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN MILLIONS)
<S> <C> <C>
CASH, CASH EQUIVALENTS AND TEMPORARY INVESTMENTS:
Cash and equivalents..................................................................... $ 338 $ 612
Temporary investments.................................................................... 71 71
--------- -----------
Total cash, cash equivalents and temporary investments................................... $ 409 $ 683
--------- -----------
--------- -----------
LONG-TERM DEBT, INCLUDING CURRENT MATURITIES:
Industrial development revenue bonds at adjustable rates, due 2015....................... $ 82 $ 82
Senior notes, 7.02% to 9.80%, due 1996 to 2002........................................... 637 422
Mortgage notes, 6.68% to 8.34%, due 1996 to 2011......................................... 104 104
Commercial paper......................................................................... 406 406
Revolving loans, with an average rate of 5.91% at December 31, 1995 (1).................. 51 51
Other.................................................................................... 7 7
Notes offered hereby..................................................................... -- 500
--------- -----------
Total long-term debt................................................................... $ 1,287 $ 1,572
--------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock -- 10.0 million shares authorized at $1.00 par value, none outstanding... $ -- $ --
Common stock -- 90.0 million shares authorized at $2.50 par value, 48.3 million shares
outstanding (2)......................................................................... 128 128
Cumulative translation adjustment........................................................ (1) (1)
Unrealized loss on marketable securities................................................. (5) (5)
Retained earnings........................................................................ 1,275 1,275
Less treasury stock, at cost............................................................. (143) (143)
--------- -----------
Total stockholders' equity............................................................. 1,254 1,254
--------- -----------
Total capitalization................................................................... $ 2,541 $ 2,826
--------- -----------
--------- -----------
</TABLE>
- ------------------------------
(1) At December 31, 1995, Hilton had committed bank lines of credit aggregating
approximately $597.5 million. At such date approximately $51.1 million was
outstanding under such lines.
(2) Does not include approximately 1.8 million shares reserved for issuance upon
exercise of stock options pursuant to stock option plans. Stock options to
purchase approximately 1.7 million shares of Common Stock were outstanding
as of December 31, 1995.
9
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data as of and for the years ended
December 31, 1993, 1994 and 1995 are derived from the consolidated financial
statements of the Company, which are included in the Annual Report incorporated
by reference in the Form 10-K. The selected consolidated financial data as of
and for the years ended December 31, 1991 and 1992 and historical balance sheet
data at December 31, 1993 are derived from the Company's audited financial
statements. The data presented below are qualified in their entirety by and
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" included in the Annual Report
incorporated by reference in the Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue
Rooms................................................................... $ 345 $ 387 $ 440 $ 510 $ 587
Food and beverage....................................................... 205 216 237 247 266
Casino.................................................................. 392 439 502 481 511
Management and franchise fees........................................... 76 79 85 94 100
Other................................................................... 65 83 94 124 125
Operating income from unconsolidated affiliates......................... 30 26 36 58 60
--------- --------- --------- --------- ---------
1,113 1,230 1,394 1,514 1,649
--------- --------- --------- --------- ---------
Expenses
Rooms................................................................... 120 132 153 172 186
Food and beverage....................................................... 169 180 202 216 229
Casino.................................................................. 200 196 218 216 235
Other costs and expenses................................................ 416 477 554 597 613
Corporate expense....................................................... 23 25 27 28 32
--------- --------- --------- --------- ---------
928 1,010 1,154 1,229 1,295
--------- --------- --------- --------- ---------
Operating income.......................................................... 185 220 240 285 354
Interest and dividend income.............................................. 11 16 22 21 35
Interest expense.......................................................... (58) (67) (80) (86) (93)
Interest expense, net, from unconsolidated affiliates..................... (16) (11) (15) (12) (17)
--------- --------- --------- --------- ---------
Income before property transactions and foreign currency losses........... 122 158 167 208 279
Property transactions, net................................................ 1 1 (5) 1 1
Foreign currency losses................................................... -- -- (1) (1) --
--------- --------- --------- --------- ---------
Income before income taxes and minority interest.......................... 123 159 161 208 280
Provision for income taxes................................................ 39 55 58 85 102
Minority interest, net.................................................... -- -- -- 1 5
--------- --------- --------- --------- ---------
Income before cumulative effect of accounting changes..................... 84 104 103 122 173
Cumulative effect of accounting changes, net(1)........................... -- -- 3 -- --
--------- --------- --------- --------- ---------
Net income................................................................ $ 84 $ 104 $ 106 $ 122 $ 173
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income per share
Before cumulative effect of accounting changes.......................... $ 1.76 $ 2.17 $ 2.14 $ 2.52 $ 3.56
Cumulative effect of accounting changes(1).............................. -- -- .07 -- --
--------- --------- --------- --------- ---------
Net income per share...................................................... $ 1.76 $ 2.17 $ 2.21 $ 2.52 $ 3.56
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Average common and equivalent shares...................................... 47.8 47.9 48.0 48.3 48.5
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER DATA:
EBITDA(2)................................................................. $ 290 $ 329 $ 359 $ 418 $ 496
Hotels revenue............................................................ 444 471 520 618 709
Gaming revenue............................................................ 669 759 874 896 940
Hotels operating income................................................... 93 92 96 148 208
Gaming operating income................................................... 115 153 171 165 178
Percentage of occupancy
Hotels (owned or managed)............................................... 64% 66% 67% 70% 73%
Gaming (Nevada)......................................................... 85 87 89 91 88
Ratio of earnings to fixed charges(3)..................................... 2.6x 2.9x 2.7x 2.8x 3.2x
</TABLE>
FOOTNOTES ON FOLLOWING PAGE
10
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and temporary investments.......................... $ 350 $ 511 $ 479 $ 393 $ 409
Total assets.............................................................. 2,187 2,659 2,675 2,926 3,060
Long-term debt, including current maturities.............................. 791 1,133 1,142 1,289 1,287
Total stockholders' equity................................................ 953 1,003 1,057 1,128 1,254
</TABLE>
- ------------------------------
(1) Fiscal 1993 results include net income of $3.4 million or $.07 per share
resulting from the adoption of SFAS No. 106, "Postretirement Benefits Other
Than Pensions" and SFAS No. 109, "Accounting for Income Taxes."
(2) "EBITDA" consists of operating income plus consolidated depreciation and
amortization. The Company has presented EBITDA supplementally because the
Company believes it allows for a more complete analysis of its 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 Company's overall financial performance.
(3) For purposes of this ratio, earnings are calculated by adding fixed charges
(excluding capitalized interest) to income before income taxes and minority
interest, adjusting to exclude gain (loss) from property transactions and
undistributed earnings in less than 50%-owned affiliates. Fixed charges
consist of interest on borrowings and that portion of rental expense which
represents interest, including Hilton's proportionate share of such items
with respect to 50%-owned affiliates.
11
<PAGE>
BUSINESS
THE COMPANY
The Company is a leading owner and operator of full-service hotels and
hotel-casinos in the United States. The Hilton name is one of the best
recognized and most respected lodging brands in the world. The Company 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. Hilton's strategy is to expand its
core businesses through acquisitions, domestic and international expansion,
leveraging its brand names and exploiting the synergies between its lodging and
gaming operations.
The Company announced in January 1996 it would not pursue a proposed
spin-off of its gaming operations, and will continue to develop the marketing,
operating and financial efficiencies between its two business segments. In
February 1996, Stephen Bollenbach joined Hilton as president and chief executive
officer. Mr. Bollenbach, who previously served as a senior executive at such
companies as The Walt Disney Co., Host Marriott Corporation and Holiday
Corporation, brings broad financial and strategic experience to Hilton's
management.
For the fiscal year ended December 31, 1995, the Company's consolidated
revenue increased 9% to $1.6 billion from $1.5 billion in 1994, and operating
income rose 24% to $353.6 million from $284.6 million in 1994. Net income rose
42% to $172.8 million, or $3.56 per share, compared to $121.7 million or $2.52
per share in 1994.
A summary of the Company's hotels and gaming properties is set forth below:
<TABLE>
<CAPTION>
AT FEBRUARY 1, 1996
------------------------------------------
PROPERTY TYPE NUMBER OF PROPERTIES NUMBER OF ROOMS
- ------------------------------------------------------------------------- ----------------------- -----------------
<S> <C> <C>
HOTELS
Owned/Partially Owned Hotels:
Domestic Full-Service.................................................. 24 21,957
Hilton Suites.......................................................... 5 1,095
Hilton Garden Inns..................................................... 2 347
Conrad International................................................... 2 704
--- ------
Total.................................................................. 33 24,103
--- ------
Managed Hotels:
Domestic Full-Service.................................................. 22 14,668
Conrad International................................................... 4 1,100
--- ------
Total.................................................................. 26 15,768
--- ------
Franchise Hotels......................................................... 164 42,155
--- ------
GAMING
Owned/Partially Owned Hotel-Casinos:
Domestic............................................................... 5 11,421
Conrad International................................................... 3 1,361
New Orleans Riverboat.................................................. 1 --
--- ------
Total.................................................................. 9 12,782
--- ------
Managed Casino:
Casino Windsor......................................................... 1 --
--- ------
TOTAL PROPERTIES......................................................... 233 94,808
--- ------
--- ------
</TABLE>
Since the beginning of 1995, the Company has taken advantage of various
opportunities to expand its business, the most significant of which included the
opening of new vacation ownership resorts in Las Vegas, Nevada and Orlando,
Florida; the completion of the third of three new 12,600- to 15,400-square-foot
Sky
12
<PAGE>
Villa luxury suites at the Las Vegas Hilton; the opening of the 136-room Conrad
International Treasury hotel-casino in Brisbane, Australia; chartering a
riverboat to serve as a complementary facility for Casino Windsor in Windsor,
Ontario, Canada; the management of a 294-room hotel in Durango, Colorado, a
260-room hotel in Hurghada, Egypt and a 412-room hotel in Barcelona, Spain; and
the announcement of a major expansion of Hilton Garden Inn properties.
The Company routinely reviews opportunities to enter into project
development agreements and to make acquisitions in the hotel and gaming
businesses and other travel-related businesses. The Company believes that
currently there are available a number of acquisition opportunities that would
be complementary to its current business. The Company currently has no
commitments or understandings to acquire any specific business or other material
assets. There can be no assurance, however, that it will be successful in
pursuing any such acquisition opportunities or the consequences of such
acquisition, if any.
Hilton was organized in the State of Delaware on May 29, 1946. Its principal
executive offices are located at 9336 Civic Center Drive, Beverly Hills,
California 90210 and its telephone number is (310) 278-4321.
GROWTH STRATEGY -- HOTELS
The Company's five-year strategic growth plan calls for increasing room
count by a significant percentage by year-end 2000. Growth in the Hotel Segment
will occur primarily through acquisition and conversion of existing full-service
hotels, the development of the redesigned mid-market Hilton Garden Inn product
and international expansion.
ACQUISITION AND CONVERSION OF FULL-SERVICE PROPERTIES. As a result of
limited supply growth and increasing demand for full-service hotel rooms, the
Company believes this segment of the market offers attractive growth
opportunities. According to Smith Travel Research, from 1988 to 1990 upscale
full-service room supply increased an average of approximately 5% annually,
which resulted in an oversupply of rooms in the industry. However, this growth
slowed to an average of approximately 1.7% annually from 1990 to 1995. According
to Coopers & Lybrand, hotel supply in the upscale full-service segment is
expected to grow annually at 1.8% to 1.9% through 1998. The Company believes
that the lead time from conception to completion of a new full-service hotel is
generally five or more years in the types of markets the Company is principally
pursuing, with the result that growth in the number of rooms in the full-service
segment should continue to be limited through 2000. Additionally, many desirable
full-service hotel properties are held by inadvertent owners such as banks and
insurance companies which are motivated sellers. Accordingly, the Company
believes it may be able to acquire certain higher-end, full-service properties
at significant discounts to replacement cost. The Company also intends to expand
its domestic operations through conversion of existing mid- and lower- market
hotels into management and franchise properties. The Company believes it can
improve the performance of acquired and converted hotels as these properties can
benefit from the strength of the Hilton brand name, reservation system,
marketing programs and worldwide sales organization.
EXPANSION OF HILTON GARDEN INN PROPERTIES. The Company intends to compete
in the mid-market segment through franchising and management of Hilton Garden
Inn properties. In January 1996, Hilton announced plans for a major expansion of
its redesigned Hilton Garden Inn concept. The hotels have been redesigned to
include 150 to 200 rooms, and offer amenities such as a quality restaurant,
meeting space, exercise room and pool to differentiate them from other
mid-market hotel competitors. Guest rooms will feature refrigerators, coffee
makers, microwave ovens, irons, ironing boards and well-appointed work desks.
This product is designed to offer many full-service amenities at moderate prices
that are lower than those at standard full-service hotels.
Hilton plans to add as many as 100 new Hilton Garden Inns over the next five
years to create a strong presence in the mid-market segment. Approximately 80%
of the additional Hilton Garden Inns are expected to be newly constructed
facilities, with the remainder to be conversions of existing properties. To
facilitate the initial development and promote brand awareness, the properties
constructed during the first phase of the Hilton Garden Inn expansion are
expected to be financed by Hilton, either solely or with partners.
13
<PAGE>
EXPANSION OF INTERNATIONAL HOTEL OPERATIONS. The Company believes there are
substantial opportunities for international hotel expansion, and is particularly
focused on city-center business hotels and resort properties. The Company
expects that most of those properties will be operated under the Conrad
International brand through long-term management agreements. The Company has
entered into management contracts to operate the following new hotels, the
anticipated opening dates of which are indicated parenthetically: the 350-room
Conrad International Sharm El Sheikh in Egypt (fall 1996); the 510-room Conrad
International Singapore (fall 1996); the 700-room Conrad International Jakarta
in Indonesia (1998); the 400-room Conrad International Amman in Jordan (1998);
and the 400-room Conrad International Bangkok in Thailand (1999). Negotiations
relating to the management of other international hotels are in varying stages
and, in certain instances, letters of intent for management contracts have been
executed. However, no assurances can be given that management contracts for such
other hotels will be executed or that such other hotels will be constructed and,
thereafter, operated by the Company.
Hilton also is exploring a strategic alliance with the owner of the Hilton
International hotel chain, which owns the Hilton name outside of the United
States. Hilton believes there could be significant marketing and brand
recognition benefits from such an alliance, if consummated.
GROWTH STRATEGY -- GAMING
The Company is continuing to expand and improve its worldwide gaming
operations through acquisitions, the development of new facilities and the
enhancement of existing gaming properties.
EXPANSION IN EXISTING GAMING MARKETS. The Company is pursuing gaming
acquisitions and development opportunities that will complement its existing
strengths as a major-market casino operator. The New Jersey Casino Control
Commission has granted the Company's request for a Statement of Compliance,
finding that the Company satisfies all non-facility related criteria for a
casino license in Atlantic City, New Jersey. The Company does not own or manage,
and has not entered into any agreement to own or manage, a hotel-casino in
Atlantic City.
DEVELOPMENT OF DOCKSIDE CASINO IN KANSAS CITY, MISSOURI. The Company is
developing a dockside casino in Kansas City, Missouri. The Company will manage
and own a 90% interest in this project, which will include a 30,000-square-foot
casino on a continually docked 130,000-square-foot barge, concessions and
entertainment facilities. Subject to the receipt of all required approvals and
permits, including gaming licenses, this casino is scheduled to open in summer
1996. The Company also plans to build a 260-room hotel next to the dockside
casino, which is scheduled to open in summer 1997.
CONSTRUCTION OF STAR TREK ATTRACTION AT THE LAS VEGAS HILTON. In January
1995, the Company and Paramount Parks Inc. ("Paramount") announced plans to
build a 65,000-square-foot attraction to be called "Star Trek: The Experience at
the Las Vegas Hilton." This attraction is scheduled to open in spring 1997, and
will feature a motion-based simulation ride, interactive video and virtual
reality stations, dining and souvenir shops. The building housing the Star Trek
attractions will be owned by the Company and leased to Paramount. The attraction
also will be managed by Paramount. In conjunction with the Star Trek attraction,
the Company plans to construct a themed 22,000-square-foot casino addition at
the Las Vegas Hilton, which also is scheduled to open in spring 1997. The
project is designed to attract and retain middle-market gaming customers to
augment the property's high-end gaming business.
ENHANCEMENT OF EXISTING HOTEL-CASINOS. In 1996, the Las Vegas Hilton plans
to rebuild its marquee sign and renovate 700 of its guest rooms. The Flamingo
Hilton-Las Vegas plans to complete a new main entrance to the property and
renovate the registration area. The Flamingo Hilton-Laughlin plans to renovate
1,000 of its guest rooms, refinish the exterior facade and continue its slot
machine replacement program. At the Reno Hilton, renovation of restaurants,
meeting rooms and guest rooms is planned. The Flamingo Hilton-Reno plans to
renovate guest rooms and open a Benihana restaurant.
EXPANSION OF INTERNATIONAL HOTEL-CASINO OPERATIONS. The Company believes
the opportunity exists to expand its gaming operations abroad. Hilton is
monitoring gaming operations in Asia, Canada, Latin America, the Middle East and
South Africa with the intention of expanding its Conrad International
properties.
14
<PAGE>
The government of Uruguay has selected Conrad International and its partners
to develop a new 300-room hotel-casino in Punta del Este, Uruguay. This project,
which will be the first privately operated casino in Uruguay in 30 years, is
expected to include a 38,000-square-foot casino. Conrad International will
manage, and have an equity interest of approximately 43%, in the hotel-casino.
The casino is scheduled to open in early 1997 and the hotel is expected to
commence operations in late 1997.
Conrad International has entered into an agreement to develop and operate a
700-room hotel-casino in Cairo, Egypt. Plans for this property feature a
17,000-square-foot European-style casino. Conrad International will manage, and
have a 10% equity interest in, the hotel-casino, which is scheduled to open in
late 1997.
HOTELS
OWNED, PARTIALLY OWNED AND LEASED
At February 1, 1996, Hilton operated 24 full-service owned, partially owned
or leased hotels with 21,957 rooms (excluding its five hotel-casinos) located
throughout the United States. Thirteen of these hotels with 8,036 rooms are
wholly owned or leased, including the Waldorf=Astoria in New York City, the
Palmer House Hilton and the O'Hare Hilton in Chicago, while 11 hotels with
13,921 rooms are partially owned, including the 50%-owned Hilton Hawaiian
Village, New York Hilton & Towers and San Francisco Hilton & Towers and the
67.4%-owned New Orleans Hilton Riverside & Towers. Hilton also earns management
fee income from its partially owned hotels generally under long-term management
contracts.
Hilton leases the land upon which eight hotels are located. Upon the
expiration of such leases, the buildings and other leasehold improvements
presently owned by Hilton revert to the landlords. Hilton, in all cases, owns
all furniture and equipment, is responsible for repairs, maintenance, operating
expenses and lease rentals, and retains complete managerial discretion over
operations. Generally, Hilton pays a percentage rental based on the gross
revenue of the facility, but in some instances the rental is a fixed amount.
Complementing its standard full-service hotels, Hilton owns four Hilton
Suites and has an ownership interest in a fifth, with a total of 1,095 rooms,
and owns one Hilton Garden Inn and has an ownership interest in a second, with a
total of 347 rooms.
MANAGED
At February 1, 1996, Hilton managed 22 domestic hotels with no ownership
interest. Under its standard management arrangement, Hilton operates a hotel for
the benefit of its owner, which either owns or leases the hotel and the
associated personal property. Hilton's management fee is generally based on a
percentage of each hotel's gross revenue plus, in the majority of properties, an
incentive fee based on operating performance.
Under the management agreements, all operating and other expenses are paid
by the owner, and Hilton is generally reimbursed for its out-of-pocket expenses.
In turn, Hilton's managerial discretion is subject to approval by the owner in
certain major areas, including adoption of capital budgets. The Company has a
right of first refusal to purchase an interest in certain managed hotels.
The Company has also agreed to provide loans or additional investments to
the owners of certain managed hotels under specified circumstances.
FRANCHISE
Pursuant to franchises granted by the Company, franchise hotels are operated
under the Hilton, Hilton Garden Inn or Hilton Suites names. The franchise hotels
operated under the Hilton name are generally smaller than the full-service
hotels owned, leased or managed by Hilton and average approximately 250 rooms in
size. Franchise hotels bearing the Hilton Garden Inn name are approximately 90
to 250 rooms in size and utilize a modular design constructed around a courtyard
containing an indoor or outdoor swimming pool. In general, Hilton approves the
plan for, and the location of, franchise hotels and assists in their design.
On February 1, 1996, there were 164 franchise hotels operated by others, of
which 160 were operated under the Hilton name, three were operated under the
Hilton Garden Inn name and one was operated under the Hilton Suites name. In
general, franchisees pay Hilton an initial fee based on the number of rooms
15
<PAGE>
in a franchise hotel and a continuing fee based on a percentage of the
facility's room revenue. Although Hilton does not directly participate in the
management or operation of franchise hotels, it conducts periodic inspections to
ensure that Hilton's standards are maintained and renders advice with respect to
hotel operations.
The Company has continued its ongoing program of monitoring and improving
its franchise operations. The Company added six franchises to its system in
1995, while five franchise arrangements were terminated, several due to
noncompliance with the Company's standards.
INTERNATIONAL
The Company's international hotel operations are conducted through Conrad
International. At February 1, 1996, Conrad International operated six hotels
with a total of 1,804 rooms (excluding hotel-casinos) under long-term management
contracts. Two of these hotels are partially owned: the 14.7%-owned Conrad
International Dublin in Ireland and the 30%-owned Conrad International Hong
Kong. Hilton is pursuing opportunities to operate hotels throughout the world
with particular emphasis in city-center business hotels and resort hotels. It is
anticipated that these acquisitions will generally be operated pursuant to
long-term management contracts.
GAMING
NEVADA HOTEL-CASINOS
The Company's gaming operations, which are largely concentrated in Nevada,
operate primarily under the Hilton and Flamingo brand names. The Company'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. The Company has a strong presence in Las Vegas, the largest gaming
market in the world with more than 29 million visitors and gross gaming revenue
of more than $5.7 billion in 1995.
The Las Vegas Hilton is located adjacent to the Las Vegas Convention Center
and focuses on upscale individual leisure guests and convention groups. The
Flamingo Hilton-Las Vegas, the Reno Hilton and the Flamingo Hilton-Reno focus
primarily on the mid-market, in particular the group tour and travel segment.
The Flamingo Hilton-Laughlin targets the budget and mid-market segments. Each of
the Company's hotel-casinos has gaming, convention, dining, shopping,
entertainment and, with the exception of the Flamingo Hilton-Reno, indoor and
outdoor recreational facilities. A variety of popular entertainment is featured
in theaters and lounges at each hotel. The Company also operates a vacation
ownership resort adjacent to the Flamingo Hilton-Las Vegas. See "-- Other
Operations -- Vacation Ownership."
The Company continues to refurbish and expand existing facilities in Nevada
to maintain their presence as premier properties in the market. In 1995, the Las
Vegas Hilton completed construction of the third of three new 12,600- to
15,400-square-foot Sky Villa luxury suites for premium players. The Las Vegas
Hilton also completed new VIP baccarat facilities and opened a new
6,800-square-foot luxury European Suite. The Flamingo Hilton-Las Vegas completed
an extensive expansion and renovation project, including a new 600-room tower, a
10,000-square-foot casino expansion, a new 21,000-square-foot ballroom,
remodeling of the race and sports book, new entertainment, recreation, retail
and dining facilities, exterior enhancements and guest room renovations. The
Flamingo Hilton-Laughlin upgraded its guest room bathrooms and continued its
slot machine replacement program. The Reno Hilton completed a renovation of its
casino and the registration, entertainment and retail areas of the property, and
opened a new Johnny Rockets restaurant. The Flamingo Hilton-Reno renovated its
casino and remodeled the Top of the Flamingo Hilton restaurant.
The space utilized by the Company's casinos in Nevada, in terms of
approximate square footage, is as follows: Las Vegas Hilton -- 78,000 square
feet (inclusive of 29,000 square feet attributable to the race and sports book);
Flamingo Hilton-Las Vegas -- 74,000 square feet (inclusive of 20,000 square feet
attributable to O'Sheas Irish theme casino adjacent to the hotel); Flamingo
Hilton-Laughlin -- 58,000 square feet (inclusive of 3,000 square feet
attributable to the race and sports book); Reno Hilton -- 118,000 square feet
(inclusive of 12,000 square feet attributable to the race and sports book); and
Flamingo Hilton-Reno -- 46,000 square feet (inclusive of 2,500 square feet
attributable to the race and sports book).
16
<PAGE>
Each of the hotel-casinos is open 24 hours a day, seven days a week, for
gaming activities. Games operated in these casinos include "21," craps,
roulette, big 6, baccarat, poker, keno and slot and other coin machines. The Las
Vegas Hilton's race and sports book is tied in by satellite or modem to the
casinos at the Flamingo Hilton-Las Vegas, the Flamingo Hilton-Laughlin, the Reno
Hilton and the Flamingo Hilton-Reno.
INTERNATIONAL HOTEL-CASINOS
The Company, through Conrad International, manages three international
hotel-casinos which feature table games and slot machines similar to those
offered at the Company's hotel-casinos in Nevada.
In April 1995, the Company commenced operation of the 136-room Conrad
International Treasury in Brisbane, Australia. This hotel-casino features a
65,000-square-foot casino and has the exclusive right to conduct casino gaming
in Brisbane until 2005. The Company has a 19.9% ownership interest in this
property.
The Company also has a 19.9% ownership interest in the 605-room Hotel Conrad
& Jupiters Casino, which opened in 1985. This hotel-casino is located on the
Gold Coast in Queensland, Australia, and features a 70,000-square-foot casino.
This property had the exclusive right to conduct casino gaming on Queensland's
Gold Coast through 1995.
The Company has a 25% ownership interest in the 620-room Conrad
International Istanbul, which opened in 1992. This hotel-casino includes a
12,000-square-foot casino.
CASINO WINDSOR
The Company and the other two shareholders of Windsor Casino Limited ("WCL")
operate the Casino Windsor, an interim 50,000-square-foot casino in Windsor,
Ontario, Canada. The Company, through Conrad International, owns a 33.3%
interest in WCL, which operates this project for the Ontario provincial
government. The Company anticipates that the interim casino will be replaced by
a permanent facility in early 1998, which will include a hotel of approximately
400 rooms, a 75,000-square-foot casino, entertainment and meeting facilities.
Since December 1995, the Company has chartered a riverboat to the Ontario
provincial government to serve as a complementary facility for Casino Windsor.
This vessel provides an additional 25,000 square feet of casino space for the
property.
NEW ORLEANS RIVERBOAT CASINO
Since February 1994, the Company has operated a riverboat casino located
adjacent to the New Orleans Hilton Riverside & Towers. The Company currently
operates a 1,500-passenger vessel which has a 20,000-square-foot casino
featuring table games and slot machines similar to those offered at the
Company's hotel-casinos in Nevada. This vessel is wholly owned by the Company
and leased to a joint venture, of which the Company owns a 50% interest.
OTHER OPERATIONS
VACATION OWNERSHIP
The Company owns a 50% interest in the Hilton Grand Vacations Company joint
venture ("HGVC"), which currently operates 12 vacation ownership resorts in
Florida and one in Nevada. In January 1995, HGVC commenced operation of a
200-unit vacation ownership resort adjacent to the Flamingo Hilton-Las Vegas. In
August 1995, HGVC also commenced operation of the first phase of a 360-unit
vacation ownership resort adjacent to Sea World in Orlando, Florida.
Development, construction and certain operating costs of HGVC's projects in Las
Vegas and Orlando have been substantially funded by the Company in the form of
revolving loan facilities. HGVC is seeking new development and acquisition
opportunities in other resort locations.
DESIGN AND FURNISHING SERVICES
Hilton, through its wholly owned subsidiary, Hilton Equipment Corporation,
and through its hotels division, provides design and furnishing services and
distributes furniture, furnishings, equipment and supplies to hotels and
hotel-casinos. The revenue from this operation depends primarily on the number
of new hotels operated or franchised by Hilton and on refurbishing and
remodeling of existing Hilton hotels.
17
<PAGE>
COMPUTER SYSTEMS
Compass Computer Services, Inc. ("Compass"), 50% of which is owned by Hilton
and the balance by Budget Rent-A-Car, Inc., operates a computerized worldwide
reservation system for, among other things, hotel reservations. This system also
provides Hilton with certain statistical data and registration packets. Compass
is managed by Litton Computer Services.
RESERVATION SYSTEM
The Compass computerized reservation system is presently utilized by Hilton
Service Corporation, the operator of a worldwide system of reservation offices
for hotels operated by Hilton, Hilton International Co., their affiliates and
others. Hilton Service Corporation is owned 51% by Hilton and 49% by Hilton
International Co.
OWNED, LEASED AND MANAGED HOTELS
The following charts set forth the Company's owned, leased and managed
hotels.
OWNED HOTELS
At February 1, 1996, the following hotels were owned in fee and operated by
Hilton:
<TABLE>
<CAPTION>
NUMBER OF MORTGAGE
ROOMS/SUITES YEAR INDEBTEDNESS
(YEAR OF ACQUIRED AS OF FEBRUARY 1,
NAME AND LOCATION COMPLETION) BY HILTON 1996
- -------------------------------------------------- ------------- --------- -----------------
<S> <C> <C> <C>
Atlanta Airport Hilton & Towers 503 1960 $50,000,000
Atlanta, Georgia(1) (1989)
Palmer House Hilton 1,639 1988 --
Chicago, Illinois(2) (1925; 1945)
Flamingo Hilton-Las Vegas 3,642
Las Vegas, Nevada (various 1971 --
dates
through 1995)
Las Vegas Hilton 3,174
Las Vegas, Nevada (various 1971 --
dates
through 1995)
Flamingo Hilton-Laughlin 2,000 1990 --
Laughlin, Nevada (1990)
New Orleans Airport Hilton 317 1959 $32,000,000
New Orleans, Louisiana(1) (1989)
Waldorf=Astoria 1,380 1977 --
New York, New York(3) (1931)
Portland Hilton 455 1963 --
Portland, Oregon (1963)
Flamingo Hilton-Reno 604 1981 --
Reno, Nevada(4) (1978)
Reno Hilton 2,001 1992 --
Reno, Nevada (1978)
Hilton Garden Inn 195 1993 --
Southfield, Michigan(5) (1988)
Hilton Suites 224 1991 --
Auburn Hills, Michigan (1991)
Hilton Suites 203 1989 --
Brentwood, Tennessee (1989)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF MORTGAGE
ROOMS/SUITES YEAR INDEBTEDNESS
(YEAR OF ACQUIRED AS OF FEBRUARY 1,
NAME AND LOCATION COMPLETION) BY HILTON 1996
- -------------------------------------------------- ------------- --------- -----------------
<S> <C> <C> <C>
Hilton Suites 230 1989 --
Orange, California (1989)
Hilton Suites 226 1990 --
Phoenix, Arizona (1990)
</TABLE>
- ------------------------------
(1) The Atlanta Airport Hilton & Towers and the New Orleans Airport Hilton were
closed and demolished in 1986 and, thereafter, rebuilt and reopened in 1989.
(2) The Company owned the Palmer House Hilton from May 1946 to December 1962
and, thereafter, operated the Palmer House Hilton under a lease until
acquiring the property in February 1988.
(3) The Company operated the Waldorf=Astoria under a lease from February 1950
until acquiring the property in April 1977.
(4) An extension of the casino operation is contained in a structure located on
an adjacent block with a skywalk connecting it to the main building. This
structure is held under four long-term leases or subleases, expiring on
various dates from January 1, 2001 to August 31, 2034, including renewal
options, all of which may not necessarily be exercised.
(5) The Company managed the Hilton Garden Inn from July 1991 until acquiring the
property in July 1993.
LEASED HOTELS
At February 1, 1996, the following hotels were leased and operated by
Hilton:
<TABLE>
<CAPTION>
NUMBER OF
ROOMS (YEAR OF
INITIAL COMPLETION;
YEAR ACQUIRED
NAME AND LOCATION BY HILTON) EXPIRATION DATE
- -------------------------------------------------- ---------------------- --------------------------------------------------
<S> <C> <C>
Logan Airport Hilton 516 2014, with renewal options aggregating 25 years
Boston, Massachusetts(1) (1959; 1988) under specified circumstances
O'Hare Hilton 858 2018
Chicago, Illinois(2) (1973; 1991)
Oakland Airport Hilton 363 2033
Oakland, California (1970; 1970)
Pittsburgh Hilton & Towers 712 2004, with renewal options aggregating 30 years
Pittsburgh, Pennsylvania (1959; 1959)
San Diego Hilton Beach & Tennis Resort 357 2019
San Diego, California (1962; 1965)
San Francisco Airport Hilton 527 1998
San Francisco, California (1959; 1959)
Seattle Airport Hilton 173 2004, with renewal options aggregating 30 years
Seattle, Washington (1961; 1961)
Tarrytown Hilton 236 2003, with renewal options aggregating 40 years
Tarrytown, New York(3) (1961; 1993)
</TABLE>
- ------------------------------
(1) The Company managed and was a joint venture partner with respect to the
Logan Airport Hilton from 1975 until July 1988, when it acquired the
remaining equity interest in the joint venture leasing the land underlying
the hotel.
(2) The Company managed the O'Hare Hilton from 1974 until October 1991, when the
Company purchased the then remaining leasehold of the hotel. The O'Hare
Hilton was closed for renovation in October 1991 and reopened in July 1992.
(3) The Company managed and was a joint venture partner with respect to the
Tarrytown Hilton from 1975 until August 1993, when it acquired the remaining
equity interest in the joint venture leasing the land underlying the hotel.
19
<PAGE>
MANAGED HOTELS
At February 1, 1996, the following hotels were operated by Hilton under
management agreements:
<TABLE>
<CAPTION>
NUMBER OF ROOMS/SUITES
NAME AND LOCATION (YEAR OF COMPLETION) EXPIRATION DATE
- -------------------------------------------------- ---------------------- --------------------------------------------------
<S> <C> <C>
DOMESTIC
Anaheim Hilton & Towers 1,576 2014, with renewal options aggregating 30 years,
Anaheim, California(1) (1984) subject to certain termination rights
Anchorage Hilton 591 2006, with renewal options aggregating 20 years
Anchorage, Alaska (various dates
through 1986)
Atlanta Hilton & Towers 1,224 2006, with a renewal option for 10 years
Atlanta, Georgia (1976)
Beverly Hilton 581 2007, with renewal options aggregating 20 years,
Beverly Hills, California (1955; 1967) subject to certain termination rights
Chicago Hilton & Towers 1,543 2005, with renewal options aggregating 20 years
Chicago, Illinois(2) (various dates
through 1986)
Tamarron Hilton Resort 294 2015, subject to certain termination rights
Durango, Colorado (1975)
Brunswick Hilton & Towers 405 2013, subject to certain termination rights
East Brunswick, New Jersey(1) (1989)
Hilton Hawaiian Village 2,542 1997, with renewal options aggregating 20 years
Honolulu, Hawaii(3) (various dates
through 1988)
Long Beach Hilton 393 2012, with renewal options aggregating 20 years,
Long Beach, California (1992) subject to certain termination rights
Los Angeles Airport Hilton & Towers 1,234 1999, with renewal options aggregating 10 years,
Los Angeles, California (1983) subject to certain termination rights
McLean Hilton 458 2007, with renewal options aggregating 20 years
McLean, Virginia(2) (1987)
Fontainebleau Hilton Resort & Towers 1,206 1998, with a renewal option for 10 years, subject
Miami, Florida (1954) to certain termination rights
Miami Airport Hilton & Towers 500 2004, with renewal options aggregating 20 years
Miami, Florida(2) (1983)
Minneapolis Hilton & Towers 814 2012, with renewal options aggregating 20 years,
Minneapolis, Minnesota (1992) subject to certain termination rights
Newark Airport Hilton 374 2003
Newark, New Jersey (1988)
New Orleans Hilton Riverside & Towers 1,600 2007, with a renewal option for 10 years
New Orleans, Louisiana(4) (1977; 1983)
Millenium Hilton 561 2004, with a renewal option for 10 years, subject
New York, New York (1992) to certain termination rights
New York Hilton & Towers 2,041 (5)
New York, New York(3) (1963)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF ROOMS/SUITES
NAME AND LOCATION (YEAR OF COMPLETION) EXPIRATION DATE
- -------------------------------------------------- ---------------------- --------------------------------------------------
<S> <C> <C>
Turtle Bay Hilton Golf & Tennis Resort 485 2004, with a renewal option for 10 years
Oahu, Hawaii (1972)
Hilton at Walt Disney World 814 2003, with renewal options aggregating 20 years,
Orlando, Florida(1) (1983) subject to certain termination rights
Pasadena Hilton 291 2004, with a renewal option for 10 years, subject
Pasadena, California (1970) to certain termination rights
The Pointe Hilton Resort on 636 2012, with renewal options aggregating 20 years,
South Mountain (1986) subject to certain termination rights
Phoenix, Arizona
The Pointe Hilton Resort at Squaw Peak 563 2012, with renewal options aggregating 20 years,
Phoenix, Arizona (1977) subject to certain termination rights
The Pointe Hilton Resort at 585 2012, with renewal options aggregating 20 years,
Tapatio Cliffs (1982) subject to certain termination rights
Phoenix, Arizona
Rye Town Hilton 438 (5)
Rye Brook, New York(3) (1973; 1978)
Hilton Palacio del Rio 481 1998, with a renewal option for 10 years
San Antonio, Texas (1968)
San Antonio Airport Hilton 387 2001, subject to certain termination rights
San Antonio, Texas(1) (1982)
San Francisco Hilton & Towers 1,895 2005, with a renewal option for 10 years
San Francisco, California(3) (various dates
through 1988)
Hilton at Short Hills 300 2000, with a renewal option for 5 years, subject
Short Hills, New Jersey (1988) to certain termination rights
Innisbrook Hilton Resort 873 2013, subject to certain termination rights
Tarpon Springs, Florida(1) (1972)
Hilton Waikoloa Village 1,238 2013, subject to certain termination rights
Waikoloa, Hawaii(2) (1988)
Capital Hilton 543 2005, with a renewal option for 10 years
Washington, D.C.(3) (1943; 1985)
Washington Hilton & Towers 1,123 (5)
Washington, D.C.(3) (1965)
Hilton Suites 212 2009, with renewal options aggregating 20 years
Oakbrook Terrace, Illinois(1)(3) (1989)
Hilton Garden Inn 152 2012, subject to certain termination rights
Valencia, California(2) (1991)
INTERNATIONAL
Conrad International Barcelona 412 2007, with a renewal option for 5 years
Barcelona, Spain(1) (1992)
Conrad International Treasury 136 2010
Brisbane, Australia(2) (1995)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF ROOMS/SUITES
NAME AND LOCATION (YEAR OF COMPLETION) EXPIRATION DATE
- -------------------------------------------------- ---------------------- --------------------------------------------------
<S> <C> <C>
Conrad International Brussels 269 2013, with renewal options aggregating 20 years
Brussels, Belgium (1993)
Conrad International Dublin 191 2010, with renewal options aggregating 20 years
Dublin, Ireland(1)(2) (1989)
Conrad International Hong Kong 513 2021
Hong Kong(2) (1990)
Conrad International Hurghada 260 2015, with renewal options aggregating 20 years,
Hurghada, Egypt (1994) subject to certain termination rights
Conrad International Istanbul 620 2011, with a renewal option for 20 years
Istanbul, Turkey(1)(2) (1992)
Conrad International London 159 2016, with renewal options aggregating 20 years
London, England (1990)
Hotel Conrad & Jupiters Casino 605 2010
Gold Coast, (1986)
Queensland, Australia(2)
</TABLE>
- ------------------------------
(1) Hilton has made loans to the owners of each of the referenced properties.
(2) Hilton has equity interests of less than 50% in joint ventures which own
each of the referenced properties. See "Investments" in the Notes to the
Company's Consolidated Financial Statements on pages 48 and 49 in the Annual
Report.
(3) Hilton has equity interests of 50% in joint ventures which own each of the
referenced properties. See note 2 above.
(4) Hilton has a 67.4% equity interest in the joint venture which owns the New
Orleans Hilton Riverside & Towers. See note 2 above.
(5) The management agreements with respect to each of the referenced properties
expired on December 31, 1995, but Hilton continues to manage each of the
properties for the fees specified in the expired agreements.
ENVIRONMENTAL MATTERS
The Company, like others in its industry, is subject to various federal,
state, local and, in some cases, foreign laws, ordinances and regulations that
(i) govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for solid and hazardous or toxic wastes, or (ii) may impose liability for the
costs of cleaning up, and certain damages resulting from, sites of past spills,
disposals or other releases of hazardous or toxic substances or wastes
(together, "Environmental Laws").
The Company endeavors to maintain compliance with Environmental Laws, but,
from time to time, the Company's operations may have resulted or may result in
noncompliance or liability for cleanup pursuant to Environmental Laws. In that
regard, the Company has been notified of contamination resulting from past
disposals of wastes at two sites to which hazardous or non-hazardous wastes may
have been sent from Company facilities in the past. Based on information
reviewed by and available to the Company, including uncertainty whether a
Company facility in fact shipped any wastes to one such site, the number of
potentially responsible parties at such sites and, where available, the volume
and type of waste sent to each such site, the Company believes that any
liability arising from such disposals under Environmental Laws would not have a
material adverse effect on its results of operation or financial condition.
22
<PAGE>
REGULATION AND LICENSING
Under provisions of Nevada, Louisiana and New Jersey and other gaming laws,
and the Company's certificate of incorporation, certain securities of the
Company 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,
the Company may be obligated to repurchase the securities.
NEVADA GAMING LAWS. The ownership and operation of casino gaming facilities
in the State of Nevada, such as those at the Las Vegas Hilton, the Flamingo
Hilton-Las Vegas, the Flamingo Hilton-Laughlin, the Reno Hilton and the Flamingo
Hilton-Reno, are subject to the Nevada Gaming Control Act and the regulations
promulgated thereunder (the "Nevada Act") and various local regulations. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission (the "Gaming Commission"), the Nevada State
Gaming Control Board (the "Control Board"), the Clark County Liquor and Gaming
Licensing Board (the "CCB") and the City of Reno. The Gaming Commission, the
Control 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) to provide 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 the Company's gaming operations. The
Company is required to be registered by the Gaming Commission as a publicly
traded corporation ("Registered Corporation") and as such, it is required
periodically to submit detailed financial and operating reports to the Gaming
Commission and furnish any other information that the Gaming Commission may
require.
Any beneficial holder of the Common Stock, 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 the Common Stock determined
if the Gaming 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 investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the Common
Stock to report the acquisition to the Gaming Commission. Ownership of the Notes
may constitute ownership of the Common Stock for this purpose. The Nevada Act
requires that beneficial owners of more than 10% of the Common Stock apply to
the Gaming Commission for a finding of suitability within thirty days after the
Chairman of the Control Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of the Common
Stock may apply to the Gaming Commission for a waiver of such finding of
suitability if such institutional investor holds the Common Stock for investment
purposes only. An institutional investor shall not be deemed to hold the Common
Stock for investment purposes unless the Common Stock was acquired and is 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 the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company, or
any of its gaming affiliates, or any other action which the Gaming Commission
finds to be inconsistent with holding the Common Stock 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
23
<PAGE>
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 Gaming 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 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, the
Company's largest stockholder, has been found suitable as a controlling
stockholder of the Company.
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 Gaming Commission or
by the Chairman of the Control 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 the Common Stock
beyond such period of time as may be prescribed by the Gaming Commission may be
guilty of a criminal offense. The Company 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 the Company or the licensees, the Company (i)
pays that person any dividend or interest upon voting securities of the Company;
(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 taken the
position that it has the authority to approve all persons owning or controlling
the stock of any corporation controlling a gaming license.
The Gaming Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation, such as the Notes, to file applications,
be investigated and be found suitable to own such debt security of a Registered
Corporation. If the Gaming 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 Gaming 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.
The Company 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. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Gaming
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Gaming Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Gaming 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. Such approval, if given, does not constitute a finding, recommendation
or approval by the Gaming Commission or the Control Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful. On September 28, 1995, the Gaming
Commission granted the Company 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 Control
Board. This Offering is made pursuant to such Shelf Approval. The Shelf Approval
does not constitute a finding, recommendation or approval by the Gaming
Commission or the Control Board as to the accuracy or adequacy of the Prospectus
or the investment merits of the securities offered. Any representation to the
contrary is unlawful.
24
<PAGE>
Changes in control of the Company 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 Gaming Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Control Board and Gaming Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Gaming Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity 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 Gaming 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 Gaming
Commission before the Company 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 the Company's
Board of Directors in response to a tender offer made directly to its
stockholders for the purpose of acquiring control of the Company.
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 will be 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 person
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 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
the Company owns a 50% interest. The Company's joint venture commenced riverboat
gaming operations in New Orleans, Louisiana on February 10, 1994.
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 Notes may constitute ownership of the 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 licenses 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.
25
<PAGE>
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. The Company's current riverboat
gaming license expires on February 10, 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
"Commission"). The 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
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. New Jersey law also
authorizes the Commission to approve security holders of a licensee in the
manner described above under the caption "Louisiana Gaming Laws."
For a more complete description of the various applicable gaming regulatory
requirements under the Nevada, Louisiana and New Jersey Gaming Laws, see
"Additional Information -- Regulation and Licensing" in the 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 operations are required to have an
occupational license from the MGC. Applicants and licensees are
26
<PAGE>
responsible to keep the application and any requested materials current at all
times, and this responsibility shall continue throughout any period of licensure
granted by the MGC. In addition, Missouri has extensive licensing disclosure
requirements.
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 Notes may constitute ownership of the 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.
DESCRIPTION OF THE NOTES
Set forth below is a summary of certain provisions of the Notes. The Notes
will be issued pursuant to an indenture (the "Indenture") to be dated as of May
14, 1996, by and between Hilton Hotels Corporation and The Bank of New York, as
trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The terms of the
Indenture are also governed by certain provisions contained in the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary of the Notes and the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by, reference to all of the
provisions of the Indenture, including the definitions therein of certain terms
which are not otherwise defined in this Prospectus and those terms made a part
of the Indenture by reference to the Trust Indenture Act as in effect on the
date of the Indenture. Capitalized terms used herein without definition have the
meanings ascribed to them in the Indenture. As used in this section "Description
of the Notes", the "Company" refers to Hilton Hotels Corporation, exclusive of
its subsidiaries. Wherever particular provisions of the Indenture are referred
to in this summary, such provisions are incorporated by reference as a part of
the statements made and such statements are qualified in their entirety by such
reference.
GENERAL
The Notes will be unsecured, subordinated, general 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). The Notes will be
subordinated in right of payment to all Senior Indebtedness of the Company, as
described under "Subordination" below. The Notes will be issued only in fully
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof.
The Notes will mature on May 15, 2006. The Notes will bear interest at the
rate per annum stated on the cover page of this Prospectus from the date of
issuance or from the most recent Interest Payment Date to which interest has
been paid or provided for, payable semi-annually on May 15 and November 15 of
each year, commencing November 15, 1996, to the persons in whose names such
Notes are registered at the close of business on May 1 or November 1 immediately
preceding such Interest Payment Date. Principal of,
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<PAGE>
premium, if any, and interest on, the Notes will be payable, the Notes will be
convertible and the Notes may be presented for registration of transfer or
exchange, at the office or agency of the Company maintained for such purpose,
which office or agency shall be maintained in the Borough of Manhattan, The City
of New York. Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
At the option of the Company, payment of interest may be made by check
mailed to the Holders of the Notes at the addresses set forth upon the registry
books of the Registrar. No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Until otherwise designated by the Company, the Company's office or
agency will be the corporate trust office of the Trustee presently located at
101 Barclay Street, 21 West, New York, New York 10286.
CONVERSION RIGHTS
The Holder of any Notes will have the right, at the Holder's option, to
convert any portion of the principal amount thereof that is an integral multiple
of $1,000 into shares of Common Stock which includes the related Series A Junior
Participating Preferred Stock Purchase Rights (the "Rights"), at any time prior
to the second Business Day prior to the Stated Maturity of the Notes (unless
earlier redeemed or repurchased) at the Conversion Price set forth on the cover
page of this Prospectus (subject to adjustment as described below). The right to
convert a Note called for redemption or delivered for repurchase will terminate
at the close of business on the Business Day prior to the Redemption Date or
Repurchase Date for such Note, unless the Company subsequently fails to pay the
applicable Redemption Price or Repurchase Price, as the case may be.
In the case of any Note that has been converted after any Record Date, but
on or before the next Interest Payment Date, interest the stated due date of
which is on such Interest Payment Date shall be payable on such Interest Payment
Date notwithstanding such conversion, and such interest shall be paid to the
Holder of such Note who is a Holder on such Record Date. Any Note so converted
must be accompanied by payment of an amount equal to the interest payable on
such Interest Payment Date on the principal amount of Notes being surrendered
for conversion (unless such Note shall have been called for redemption, in which
case no such payment shall be required). No fractional shares will be issued
upon conversion but, in lieu thereof, an appropriate amount will be paid in cash
by the Company based on the market price of Common Stock (as determined in
accordance with the Indenture) at the close of business on the day of
conversion.
The Conversion Price will be subject to adjustment upon the occurrence of
certain events, including: (a) any payment of a dividend (or other distribution)
payable in Common Stock on any class of Capital Stock of the Company, (b) any
issuance to all holders of Common Stock of rights, options or warrants entitling
them to subscribe for or purchase Common Stock at less than the then current
market price (as determined in accordance with the Indenture) of Common Stock;
provided, however, that if such options or warrants are only exercisable upon
the occurrence of certain triggering events, then the Conversion Price will not
be adjusted until such triggering events occur, (c) any subdivision, combination
or reclassification of Common Stock, (d) any distribution to all holders of
Common Stock of evidences of indebtedness, shares of Capital Stock other than
Common Stock, cash or other assets (including securities, but excluding those
dividends, rights, options, warrants and distributions referred to above and
excluding dividends and distributions paid exclusively in cash), (e) any
distribution consisting exclusively of cash (excluding any cash portion of
distributions referred to in (d) above, or cash distributed upon a merger or
consolidation to which the second succeeding paragraph 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 times the number of shares
of Common Stock then outstanding) on the record date of such distribution, and
(f) the completion of a tender or exchange offer made by the Company or any of
its
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<PAGE>
Subsidiaries for Common Stock that involves an aggregate consideration that,
together with (i) any cash and other consideration payable in a tender or
exchange offer by the Company or any of its Subsidiaries for Common Stock
expiring within the 12 months preceding the expiration of such tender or
exchange offer in respect of which no adjustment has been made and (ii) the
aggregate amount of any such all-cash distributions referred to in (e) above to
all holders of Common Stock within the 12 months preceding the expiration of
such tender or exchange offer in respect of which no adjustments have been made,
exceeds 15% of the Company's market capitalization on the expiration of such
tender offer. No adjustment of the Conversion Price will be required to be made
until the cumulative adjustments amount to 1.0% or more of the Conversion Price
as last adjusted. The Company reserves the right to make such reductions in the
Conversion Price in addition to those required in the foregoing provisions 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 under the Exchange Act and any other securities 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.
In the event that the Company distributes rights or warrants (other than
those referred to in (b) in the preceding paragraph) 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 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 such Note 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. The conversion price of the Notes will not be subject
to adjustment on account of any declaration, distribution or exercise of such
rights or warrants.
In case of any reclassification, consolidation or merger of the Company with
or into another person or any merger of another person with or into the Company
(with certain exceptions), or in case of any sale, transfer or conveyance of all
or substantially all of the assets of the Company (computed on a consolidated
basis), each Note then outstanding will, without the consent of any Holder of
Notes, become convertible only into the kind and amount of securities, cash and
other property receivable upon such reclassification, consolidation, merger,
sale, transfer or conveyance by a holder of the number of shares of Common Stock
into which such Note was convertible immediately prior thereto, after giving
effect to any adjustment event, who failed to exercise any rights of election
and received per share the kind and amount received per share by a plurality of
non-electing shares.
SUBORDINATION
The Notes will be general, unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. At December 31, 1995, as adjusted to give effect to the issuance
and sale of the Notes and the application of the net proceeds therefrom, the
Company would have had approximately $1.1 billion of Senior Indebtedness
outstanding. The Notes are structurally subordinated in right of payment to all
liabilities (including trade payables) of the Company's Subsidiaries. The
Company's Subsidiaries had approximately $160.1 million of trade payables and
accrued liabilities outstanding at December 31, 1995. The Indenture will not
restrict the incurrence of Senior Indebtedness or other indebtedness by the
Company or its Subsidiaries.
The Indenture will provide that no payment may be made by the Company on
account of the principal of, premium, if any, and interest on the Notes, or to
acquire any of the Notes (including repurchases of Notes at the option of the
Holder) for cash or property (other than Junior Securities), or on account of
the
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<PAGE>
redemption provisions of the Notes, (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.
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 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 setoff or otherwise) may be made by or on behalf of the Company on account
of the principal of, premium, if any, interest on the Notes, or to acquire or
repurchase any of the Notes for cash or property, or on account of the
redemption provisions of the Notes, 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 Notes during the Payment Blockage Period due to the foregoing
prohibitions and to resume all other payments as and when due on the Notes. 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.
In the event that, notwithstanding the foregoing, 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 foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of Senior
Indebtedness of the Company, and shall be paid or delivered by the Trustee or
such Holders, as the case may be, to the holders of the 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 instruments 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 or distribution to the holders of such Senior Indebtedness.
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, (i) the holders of all Senior Indebtedness of the Company
will first be entitled to receive payment 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, interest on, with respect to, the Notes
(other than Junior Securities) and (ii) 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
subordination provisions contained in the Indenture, will 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.
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No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Notes. The subordination
provisions of the Indenture and the Notes will not prevent the occurrence of any
Default or Event of Default under the Indenture or limit the rights of the
Trustee or any Holder, subject to the two preceding previous paragraphs, to
pursue any other rights or remedies with respect to the Notes.
The Company conducts certain of its operations through its Subsidiaries.
Accordingly, the Company's ability to meet its cash obligations is dependent
upon the ability of its Subsidiaries to make cash distributions to the Company.
The ability of its Subsidiaries to make distributions to the Company is and will
continue to be restricted by, among other limitations, applicable provisions of
the laws of national and state governments and contractual provisions. The
Indenture will not limit the ability of the Company's Subsidiaries to incur such
restrictions in the future. The right of the Company to participate in the
assets of any Subsidiary (and thus the ability of Holders of the Notes to
benefit indirectly from such assets) is generally subject to the prior claims of
creditors, including trade creditors, of that Subsidiary except to the extent
that the Company is recognized as a creditor of such Subsidiary, in which case
the Company's claims would still be subject to any security interest of other
creditors of such Subsidiary. The Notes, therefore, will be structurally
subordinated to creditors, including trade creditors, of Subsidiaries of the
Company with respect to the assets of the Subsidiaries against which such
creditors have a claim.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its Subsidiaries or a marshalling of assets or liabilities of the Company
and its Subsidiaries, Holders of the Notes may receive ratably less than other
creditors.
REDEMPTION AT THE COMPANY'S OPTION
The Notes will not be subject to redemption prior to May 15, 1999.
Thereafter, the Notes will be redeemable at the option of the Company, in whole
or in part, 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, at the following redemption prices
(expressed as percentages of the principal amount) if redeemed during the
12-month period commencing May 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------- -----------
<S> <C>
1999......................................................... 102.857%
2000......................................................... 102.143%
2001......................................................... 101.429%
2002......................................................... 100.714%
2003 and thereafter.......................................... 100.000%
</TABLE>
in each case (subject to the right of Holders of record on a Record Date to
receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date) together with accrued and unpaid interest, if any, to the
Redemption Date.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption by lot or in such other manner it deems
appropriate and fair. The Notes may be redeemed in part in multiples of $1,000
only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first-class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption, to the Holder
of each Note to be redeemed to such Holder's last address as then shown upon the
registry books of the Registrar. The notice of redemption must state the
Redemption Date, the Redemption Price and the amount of accrued interest to be
paid. Any notice that relates to a Note to be redeemed in part only must state
the portion of the principal amount to be redeemed and must state that on and
after the Redemption Date, upon surrender of such Note, a new Note or Notes in
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principal amount equal to the unredeemed portion thereof will be issued. On and
after the Redemption Date, interest will cease to accrue on the Notes or
portions thereof called for redemption, unless the Company defaults in its
obligations with respect thereto.
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
The Indenture will provide that each Holder, by accepting any of the Notes,
shall be deemed to have agreed that if the gaming authority of any jurisdiction
of which the Company or any of its subsidiaries conducts or proposes to conduct
gaming requires that a person who is a Holder must be licensed, qualified or
found suitable under applicable gaming laws, such Holder 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 Notes 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 Notes 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 or 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 applicable 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 may incur in connection with its application for a license,
qualification or a finding of suitability.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture will provide that in the event that a Change of Control (as
defined) has occurred, each Holder of Notes will have the right, at such
Holder's option, pursuant to an irrevocable and unconditional offer by the
Company (the "Repurchase Offer"), to require the Company to repurchase all or
any part of such Holder's Notes (PROVIDED, that the principal amount of such
Notes 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. The Repurchase Offer shall be made within 15 Business Days
following a Change of Control and shall remain open for 20 Business Days
following its commencement (the "Repurchase Offer Period"). Upon expiration of
the Repurchase Offer Period, the Company shall purchase all Notes tendered in
response to the Repurchase Offer. If required by applicable law, the Repurchase
Date and the Repurchase Offer Period may be extended as so required; however, if
so extended, it shall nevertheless constitute an Event of Default if the
Repurchase Date does not occur within 60 Business Days of the Change of Control.
The Indenture will provide that a "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" 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" 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 stockholders 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.
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<PAGE>
For purposes of this definition, (i) the terms "person" and "group" shall
have the meaning 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; and (ii) the term
"beneficial owner" shall have the meaning used 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 the passage of time or upon the occurrence
of certain events.
On or before the Repurchase Date, the Company will (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Repurchase Offer,
(ii) deposit with the Paying Agent cash sufficient to pay the Repurchase Price
(together with accrued and unpaid interest) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted, together with an Officers' Certificate
listing the Notes or portions thereof being purchased by the Company. The Paying
Agent will promptly mail to the Holders of Notes so accepted payment in an
amount equal to the Repurchase Price (together with accrued and unpaid
interest), and the Trustee will promptly authenticate and mail or deliver to
such Holders a new Note or Notes equal in principal amount to any unpurchased
portion of the Notes surrendered. Any Notes not so accepted will 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.
The phrase "all or substantially all" of the assets of the Company is likely
to be interpreted by reference to applicable state law at the relevant time, and
will be dependent on the facts and circumstances existing at such time. As a
result, there may be a degree of uncertainty in ascertaining whether a sale or
transfer of "all or substantially all" of the assets of the Company, or the
Gaming Segment or the Hotel Segment has occurred.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Underwriters.
The provisions of the Indenture relating to a Change of Control may not
afford the Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction that may
adversely affect Holders, if such transaction does not constitute a Change of
Control, as set forth above. In addition, the Company may not have sufficient
financial resources available to fulfill its obligation to repurchase the Notes
upon a Change of Control or to repurchase other debt securities of the Company
or its Subsidiaries providing similar rights to the Holders thereof.
To the extent applicable, the Company will comply with Section 14 of the
Exchange Act and the provisions of Regulation 14E and any other tender offer
rules under the Exchange Act and any other securities laws, rules and
regulations that may then be applicable to any offer by the Company to purchase
the Notes at the option of Holders upon a Change of Control.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture will provide that the Company may 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 Notes and the Indenture; (ii) no Default or Event
of Default shall exist or shall occur immediately after giving effect on a PRO
FORMA basis to such transaction; and (iii) the resulting, surviving or
transferee entity holds all gaming licenses necessary to conduct the business of
such resulting, surviving or transferee entity.
Upon any consolidation or merger or any 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 transfer is made, shall succeed to, and be substituted for, and
may
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<PAGE>
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 the Company will be released from its obligations under the Indenture and
the Notes, except as to any obligations that arise from or as a result of such
transaction.
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
results of operations and financial condition as such would be so required.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will define an Event of Default as (i) the failure by the
Company to pay any installment of interest on the Notes as and when due and
payable and the continuance of any such failure for 30 days, (ii) the failure by
the Company to pay all or any part of the principal of, or premium, if any, on
the Notes when and as the same become due and payable at maturity, redemption,
by acceleration or otherwise, including, without limitation, pursuant to any
Repurchase Offer or otherwise, (iii) the failure of the Company to perform any
conversion of Notes required under the Indenture and the continuance of any such
failure for 30 days, (iv) the failure by the Company to observe or perform any
other covenant or agreement contained in the Notes or the Indenture and, subject
to certain exceptions, the continuance of such failure for a period of 60 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in aggregate principal amount of
the Notes outstanding, (v) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its Significant Subsidiaries,
(vi) a default in the payment of principal, premium or interest when due that
extends beyond any stated period of grace applicable thereto or an acceleration
for any other reason of the maturity of any Indebtedness of the Company or any
of its Subsidiaries with an aggregate principal amount in excess of $50.0
million, and (vii) final unsatisfied judgments not covered by insurance
aggregating in excess of $50.0 million, at any one time rendered against the
Company or any of its Subsidiaries and not stayed, bonded or discharged within
30 days. The Indenture will provide that if a Default occurs and is continuing,
the Trustee must, within 90 days after the occurrence of such default, give to
the Holders notice of such default.
The Indenture will provide that if an Event of Default occurs and is
continuing (other than an Event of Default specified in clause (v) above), then
in every such case, unless the principal of all of the Notes shall have already
become due and payable, either the Trustee or the Holders of 25% in aggregate
principal amount of the Notes then outstanding, by notice in writing to the
Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), may
declare all principal and accrued interest thereon to be due and payable
immediately. If an Event of Default specified in clause (v) above occurs, all
principal and accrued interest thereon will be immediately due and payable on
all outstanding Notes without any declaration or other act on the part of the
Trustee or the Holders. The Holders of no less than a majority in aggregate
principal amount of Notes generally are authorized to rescind such acceleration
if all existing Events of Default, other than the nonpayment of the principal
of, premium, if any, and interest on, the Notes that have become due solely by
such acceleration, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a default
in the payment of principal of, premium, if any, or interest on any Note not yet
cured, or a default with respect to any covenant or provision that cannot be
modified or amended without the consent of the Holder of each outstanding Note
affected. Subject to the provisions of the Indenture relating
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to the duties of the Trustee, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the Notes at the time outstanding will 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 on the Trustee.
AMENDMENTS AND SUPPLEMENTS
The Indenture will contain provisions permitting the Company and the Trustee
to enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, the
Company and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Holders; PROVIDED,
FURTHER, that no such modification may, without the consent of each Holder
affected thereby: (i) change the Stated Maturity of any Note 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 Note 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 Note 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 change of
control provisions or redemption provisions in a manner adverse to the Holders,
(ii) reduce the percentage in principal amount of the outstanding Notes, the
consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Indenture, (iii) adversely affect the
right of such Holder to convert Notes, or (iv) 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 Note affected thereby.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES
The Indenture will provide that no stockholder, employee, officer or
director, as such, past, present or future of the Company or any successor
corporation shall have any personal liability in respect of the obligations of
the Company under the Indenture or the Notes by reason of his, her or its status
as such stockholder, employee, officer or director.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Notes in accordance with the
Indenture. The Company 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 Company is not required to
transfer or exchange any Notes selected for redemption. Also, the Company is not
required to transfer or exchange any Notes for a period of 15 days before a
selection of Notes to be redeemed.
The registered Holder of a Note may be treated as the owner of it for all
purposes.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form of
one or more registered Notes in global form (the "Global Notes"). Each Global
Note will be deposited on the date of the closing of the sale of the Notes (the
"Closing Date") with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies,
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clearing corporations, and certain other organizations ("Direct Participants").
DTC is owned by a number of its Direct Participants and by the NYSE, the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the SEC.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Underwriters with an interest in the
Global Note and (ii) ownership of the Notes evidenced by the Global Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of
Participants), the Participants and the Indirect Participants. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own and that security interests in negotiable instruments
can only be perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes evidenced by the Global Note will be
limited to such extent.
So long as the Depositary or its nominee is the registered owner of a Note,
the Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by the Global Note for all purposes
under the Indenture. Except as provided below, owners of beneficial interests in
a Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee thereunder.
As a result, the ability of a person having a beneficial interest in Notes
represented by a Global Note to pledge such interest to persons or entities that
do not participate in the Depositary's system, or to otherwise take actions with
respect to such interest, may be affected by the lack of a physical certificate
evidencing such interest.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Notes.
Payments with respect to the principal of, premium, if any, interest on, any
Note represented by a Global Note registered in the name of the Depositary or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of the Depositary or its nominee in its capacity as the
registered Holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Notes (including principal, premium, if any
or interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the Global Note as shown on the
records of the Depositary. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by the Depositary of
the Global Notes, Certificated Notes will be issued to each person that the
Depositary identifies as the beneficial owner of the Notes represented by Global
Notes. In addition, subject to certain conditions, any person having a
beneficial interest in a Global Note
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may, upon request to the Trustee, exchange such beneficial interest for Notes in
the form of Certificated Notes. Upon any such issuance, the Trustee is required
to register such Certificated Notes in the name of such person or persons (or
the nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the Notes, and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company will have no responsibility for the
performance by the Depositary or its Participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, and interest) be made
by wire transfer of immediately available funds to the accounts specified by the
Depositary. With respect to Notes represented by Certificated Notes, the Company
will make all payments of principal, premium, if any, and interest, by mailing a
check to each such Holder's registered address. The Notes will trade in the
Depositary's Same-Day Funds Settlement System until maturity, or until the Notes
are issued in certificated form, and secondary market trading activity in the
Notes will therefore be required by the Depositary to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
CERTAIN DEFINITIONS
"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.
"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.
"INDEBTEDNESS" of any person means, without duplication, (a) all liabilities
and obligations, contingent or 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 clauses (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 and 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.
"ISSUE DATE" means the date of first issuance of the Notes under the
Indenture.
"JUNIOR SECURITIES" of any person means any Qualified Capital Stock and any
Indebtedness of such person that is subordinated in right of payment to the
Notes and has no scheduled installment of principal due, by redemption, sinking
fund payment or otherwise, on or prior to the Stated Maturity of the Notes.
"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,
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(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 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.
"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 Notes or to
other Indebtedness which is PARI PASSU with, or subordinated to, the Notes;
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.
"STATED MATURITY" when used with respect to any Note means May 15, 2006.
"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 as of the date of the Indenture.
"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 or more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof, has at least a majority ownership interest.
DESCRIPTION OF CAPITAL STOCK
GENERAL. As of December 31, 1995, the Company was authorized to issue 90.0
million shares of Common Stock, par value $2.50 per share, of which 51.0 million
shares were issued, including Treasury Shares of 2.7 million, and 10.0 million
shares of preferred stock, par value $1.00 per share (the "Preferred Stock"), of
which no shares have been issued.
COMMON STOCK
Each share of 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 Company's Preferred Stock, if issued, a PRO RATA share of assets
remaining available for distribution to stockholders upon a liquidation of the
Company. Dividends may be paid to the holders of the Common Stock when and if
declared by the Board of Directors of the Company out of funds legally available
therefor. The Company has paid cash dividends on its Common Stock. Any further
determination to pay cash dividends will be at the discretion of the Company's
Board of Directors and will depend upon the earnings of the Company, its
financial condition, capital requirements and other factors as the Company's
Board of Directors may deem relevant. The Common Stock is not convertible and
has no preemptive rights. There are no redemption provisions with respect to the
Common Stock. All of the outstanding shares of Common Stock are, and the shares
of Common Stock issuable upon conversion of the Notes will be, fully paid and
non-assessable.
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PREFERRED STOCK
The Company's Certificate of Incorporation provides that Preferred Stock may
be issued from time-to-time in one or more series. The Company's Board of
Directors has authority to fix or alter the dividend rights, dividends rates,
conversion rights, voting rights and terms of redemption (including sinking fund
provisions), redemption prices, and liquidation preferences of any wholly
unissued series of 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 the Company's stockholders.
PREFERRED STOCK RIGHTS AGREEMENT
On July 14, 1988, Hilton adopted a Preferred Share Purchase Rights Plan
("Rights Plan") and declared a dividend distribution of one Right on each
outstanding share of Common Stock. The Rights are transferable only with the
Common Stock until they become exercisable.
Generally, the Rights become exercisable only if a person or group (other
than Hilton Interests, as hereinafter defined) acquires 20% or more of the
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 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.
If the Company 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 Hilton Interests) acquires 30% or more of the
Company's outstanding Common Stock, otherwise than 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 outstanding shares of 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 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
30% or more of the Common Stock and prior to an acquisition of 50% or more of
the 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 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 Common Stock, the Rights are redeemable for one cent per Right at
the option of the Company's Board of Directors.
"Hilton Interests" refer to Barron Hilton and the Conrad N. Hilton Fund and
the shares of Common Stock beneficially owned by them.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, the
Company is subject to Section 203 of the Delaware General Corporation Law, which
restricts certain business combinations between the Company and an "interested
stockholder" (in general, a stockholder owning 15% or more of the Company's
outstanding voting stock) 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 Board of Directors 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 the Company 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 the Company),
or (iii) on or subsequent to the date an interested stockholder becomes such,
the business combination is both approved by the Board of Directors and
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authorized at an annual or special meeting of the Company's stockholders (and
not by written consent) by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Company's Certificate of Incorporation, upon consummation of the
Offering (and the ultimate conversion of the Notes into 3,872,217 shares of
Common Stock) there will be 38,974,972 shares of Common Stock authorized but
unissued, and 10,000,000 shares of 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 Preferred Stock could have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock.
One of the effects of the existence of unissued Common Stock or preferred
stock may be to enable the Company's Board of Directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company 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 the Company.
The Company does not currently have any plans to issue additional shares of
Common Stock or Preferred Stock other than shares of Common Stock which may be
issued upon the exercise of options which have been granted or which may be
granted in the future to directors, officers and employees of the Company. In
connection with the Offering, 387,222 shares of Series A Preferred Stock will be
reserved for issuance pursuant to the Rights Plan. See "-- Preferred Stock
Rights Agreement."
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is Chemical Mellon
Shareholder Services LLC.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States Federal
income tax considerations relevant to holders of the Notes. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor's decision to purchase the Notes, and it is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations and non-United
States persons, may be subject to special rules. In addition, this discussion is
limited to persons that purchase the Notes in the Offering and hold the Notes as
a "capital asset" within the meaning of Section 1221 of the Code.
PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for income tax purposes on a
conversion of the Notes into shares of Common Stock. However, cash paid in lieu
of a fractional share of Common Stock will result in taxable gain (or loss),
which will be capital gain (or loss) to the extent that the amount of such cash
exceeds (or is exceeded by) the portion of the adjusted basis of the Note
allocable to such fractional share. The adjusted basis of shares of Common Stock
received on conversion will equal the adjusted basis of the Note converted,
reduced by the portion of adjusted basis allocated to any fractional share of
Common Stock exchanged for cash. The holding period of an investor in the Common
Stock received on conversion will include the period during which the converted
Notes were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes -- Conversion Rights." Section 305 of
the Code and the Treasury Regulations issued thereunder may treat the holders of
the Notes as having received a constructive distribution, resulting in ordinary
income to the extent of the Company's current earnings and profits if and to the
extent that certain adjustments in the conversion price that may occur in
limited circumstances (particularly an adjustment to reflect a taxable dividend
to holders of Common Stock) increase the proportionate interest of a holder of
Notes in the fully diluted Common Stock, whether or not such holder ever
exercises its conversion privilege. Moreover, if there is not a full adjustment
to the conversion price of the Notes to reflect a stock dividend or other event
increasing the proportionate interest of the holders of outstanding Common Stock
in the assets or earnings and profits of the Company, then such increase in the
proportionate interest of the holders of the Common Stock generally will be
treated as a distribution to such holders, taxable as ordinary income to the
extent of the Company's earnings and profits.
MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus should note that the
resale of those Notes may be adversely affected by the market discount
provisions of sections 1276 through 1278 of the Code. Under the market discount
rules, if a holder of a Note purchases it at market discount (i.e., at a price
below its stated redemption price at maturity) in excess of a
statutorily-defined DE MINIMIS amount and thereafter recognizes gain upon a
disposition or retirement of the Note, then the lesser of the gain recognized or
the portion of the market discount that accrued on a ratable basis (or, if
elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount on
a Note may be taxable to an investor to the extent of appreciation at the time
of certain otherwise non-taxable transactions (e.g., gifts). Any accrued market
discount not previously taken into income prior to a conversion of a Note,
however, should (under Treasury Regulations not yet issued) carry over to the
Common Stock received on conversion and be treated as ordinary income upon a
subsequent disposition of such Common Stock to the extent of any gain recognized
on such disposition. In addition, absent an election to include market discount
in income as it accrues, a holder of a market discount debt instrument may be
required to
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defer a portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or maintained to purchase or carry such debt instrument
until the holder disposes of the debt instrument in a taxable transaction.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Each holder of Notes generally will recognize gain or loss upon the sale,
exchange, redemption, repurchase, retirement, or other disposition of those
Notes measured by the difference (if any) between (i) the amount of cash and the
fair market value of any property received (except to the extent that such cash
or other property is attributable to the payment of accrued interest not
previously included in income, which amount will be taxable as ordinary income)
and (ii) the holder's adjusted tax basis in those Notes (including any market
discount previously included in income by the holder). Each holder of Common
Stock into which the Notes are converted, in general, will recognize gain or
loss upon the sale, exchange, or other disposition of the Common Stock measured
under rules similar to those described in the preceding sentence for the Notes.
Any such gain or loss recognized on the sale, exchange, repurchase, retirement,
or other disposition of a Note or share of Common Stock should be capital gain
or loss (except as discussed under "-- Market Discount" above), and would be
long-term capital gain or loss if the Note or the Common Stock had been held for
more than one year at the time of the sale or exchange. An investor's initial
basis in a Note will be the cash price paid therefor.
BACKUP WITHHOLDING
A holder of Notes or Common Stock may be subject to "back-up withholding" at
a rate of 31% with respect to certain "reportable payments," including interest
payments, dividend payments and, under certain circumstances, principal payments
on the Notes. These back-up withholding rules apply if the holder, among other
things, (i) fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to report properly interest or dividends, or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to back-up withholding. A holder who does not provide the Company
with its correct TIN also may be subject to penalties imposed by the IRS. Any
amount withheld from a payment to a holder under the back-up withholding rules
is creditable against the holder's federal income tax liability, provided the
required information is furnished to the IRS. Back-up withholding will not
apply, however, with respect to payments made to certain holders, including
corporations, tax-exempt organizations and certain foreign persons, provided
their exemption from back-up withholding is properly established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
GENERAL. The following is a general discussion of certain United States
Federal income and estate tax consequences of the acquisition, ownership and
disposition of Notes by a "Non-United States Holder" and does not deal with tax
consequences arising under the laws of any foreign, state, or local
jurisdiction. As used herein, a "Non-United States Holder" is a person or entity
that, for United States Federal income tax purposes, is not 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 a political
subdivision thereof, or an estate or trust, the income of which is subject to
United States Federal income taxation regardless of its source. The tax
treatment of the holders of the Notes may vary depending upon their particular
situations. Certain holders (including insurance companies, tax exempt
organizations, financial institutions and broker-dealers) may be subject to
special rules not discussed below. Prospective investors who are Non-United
States Holders are urged to consult their tax advisors regarding the United
States Federal tax consequences of acquiring, holding and disposing of Notes, as
well as any tax consequences that may arise under the laws of any foreign,
state, local or other taxing jurisdiction.
42
<PAGE>
INTEREST ON NOTES. Interest paid by the Company to a Non-United States
Holder will not be subject to United States Federal income or withholding tax if
such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-United States Holder and (i) the
Non-United States Holder does not actually or constructively own 10% or more of
the total voting power of all voting stock of the Company and is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code and (ii) the beneficial owner of the
Notes certifies, under penalties of perjury, that the beneficial owner is not a
United States person and provides the beneficial owner's name and address.
GAIN ON DISPOSITION OF NOTES. Subject to the discussion below concerning
gain on disposition of Common Stock of "USRPHCs" as defined below, a Non-United
States Holder will generally not be subject to United States Federal income tax
on gain recognized on a sale, redemption or other disposition of a Note unless
(i) the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, (ii) in the case of a
Non-United States Holder who is a nonresident alien individual and holds the
Note as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year and certain other requirements are met. For
purposes of applying the exclusion from "FIRPTA tax" (as defined below) for the
holders of less than 5% of the Company's Common Stock, a holder of a Note will
be treated as owning the Common Stock into which the Notes are convertible.
DIVIDENDS ON COMMON STOCK. Dividends paid on shares of Common Stock, except
as described below, will be subject to withholding of United States Federal
income tax at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty, unless the dividends are effectively connected with the
conduct of a trade or business of the Non-United States Holder within the United
States. If the dividend is effectively connected with the conduct of a trade or
business of the Non-United States Holder within the United States, the dividend
would be subject to United States Federal income tax on a net income basis at
applicable graduated individual or corporate rates and would be exempt from the
30% withholding tax described above. Any such effectively connected dividends
received by a foreign corporation may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current United States Treasury Regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury Regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United States
Treasury Regulations, not currently in effect, however, a Non-United States
Holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification and other
requirements. Certain certification and disclosure requirements must be complied
with in order to be exempt from withholding under the effectively connected
income exemption discussed above.
A Non-United States Holder of Common Stock that is eligible for a reduced
rate of United States withholding tax pursuant to a tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for refund with the United States IRS.
GAIN ON DISPOSITION OF COMMON STOCK. A Non-United States Holder generally
will not be subject to United States Federal income tax on any gain recognized
on a disposition of a share of Common Stock unless (i) subject to the exception
discussed below, the Company 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-United States Holder's holding period (the "Required
Holding Period"), (ii) the gain is effectively connected with the conduct of a
trade or business within the United States of the Non-United States Holder and,
if a tax treaty applies, attributable to a permanent establishment maintained by
the Non-United States Holder, or (iii) the Non-United States Holder is an
individual who holds the share of Common Stock as a capital asset and is present
in the United States for 183 days or more in the taxable year of the disposition
and certain other requirements are met. If an individual Non-United States
Holder falls under clause (ii) above, he or she will be taxed on his or her net
gain derived from the sale under regular United States Federal income tax rates.
If
43
<PAGE>
the individual Non-United States Holder falls under clause ( iii ) above, he or
she will be subject to a flat 30% tax on the gain derived from the sale which
may be offset by United States capital losses (notwithstanding the fact that he
or she is not considered a resident of the United States). If a Non-United
States Holder that is a foreign corporation falls under clause (ii) above, it
will be taxed on its gain under regular graduated United States Federal income
tax rates and, in addition, will under certain circumstances be subject to the
branch profits tax.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% 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, the Company
believes that it currently is a USRPHC. However, a Non-United States Holder
would generally not be subject to tax or withholding in respect of such tax on
gain from a sale or other disposition of Common Stock by reason of the Company's
USRPHC status if the Common Stock is regularly traded on an established
securities market ("regularly traded") during the calendar year in which such
sale or disposition occurs provided that such holder does not own, actually or
constructively, Common Stock with a fair market value in excess of 5% of the
fair market value of all Common Stock outstanding at any time during the
Required Holding Period. The Company believes that the Common Stock will be
treated as regularly traded.
If the Company is or has been a USRPHC within the Required Holding Period,
and if a Non-United States Holder owns in excess of 5% of the fair market value
of Common Stock (as described in the preceding paragraph), such Non-United
States Holder of Common Stock will be subject to United States Federal income
tax at regular graduated rates under certain rules ("FIRPTA tax") on gain
recognized on a sale or other disposition of such Common Stock. In addition, a
Non-United States Holder (without regard to its ownership percentage) is subject
to withholding in respect of FIRPTA tax at a rate of 10% of the amount realized
on a sale or other disposition of Common Stock in USRPHCs and will be further
subject to FIRPTA tax in excess of the amounts withheld. Any amount withheld
pursuant to such withholding tax will be creditable against such Non-United
States Holder's United States Federal income tax liability. Non-United States
Holders are urged to consult their tax advisors concerning the potential
applicability of these provisions.
FEDERAL ESTATE TAXES. If interest on the Notes is exempt from withholding
of United States Federal income tax under the rules described above, the Notes
will not be included in the estate of a deceased non-resident alien individual
holder for United States Federal estate tax purposes. Common Stock owned, or
treated as owned, by a non-resident alien individual (as specifically determined
for United States Federal estate tax purposes) at the time of death will be
included in such holder's gross estate for United States Federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company must report
annually to the IRS and to each Non-United States Holder the amount of interest
and dividends paid to such holder and the amount of any tax withheld. These
information reporting requirements apply regardless of whether withholding is
required. Copies of the information returns reporting such interest and
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-United States Holder resides under the provisions
of an applicable income tax treaty.
In the case of payments of interest to Non-United States Holders, temporary
Treasury Regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established; provided that neither the Company nor
its payment agent has actual knowledge that the holder is a United States person
or that the conditions of any other exemption are not in fact satisfied. Under
temporary Treasury Regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-United States Holder on the disposition of the Notes by or through a United
States office of a United States or foreign broker, unless the holder certifies
to the broker under penalties of perjury as to its name, address and status as a
foreign person or the holder otherwise establishes an exemption. Information
reporting requirements, but not backup withholding, will also apply to a payment
of the proceeds of a disposition of the Notes by or through a
44
<PAGE>
foreign office of a United States broker or foreign brokers with certain types
of relationships to the United States. Neither information reporting nor backup
withholding generally will apply to a payment of the proceeds of a disposition
of the Notes by or through a foreign office of a foreign broker not subject to
the preceding sentence.
United States backup withholding tax generally will not apply to (a) the
payment of dividends paid on Common Stock to a Non-United States Holder at an
address outside the United States or (b) the payment of the proceeds of the sale
of Common Stock to or through the foreign office of a broker. In the case of the
payment of proceeds from such a sale of Common Stock through a foreign office of
a broker that is a United States person or a foreign person with certain
relationships to the United States, however, information reporting (but not
backup withholding) is required with respect to the payment unless the broker
has documentary evidence in its files that the owner is a Non-United States
Holder and certain other requirements are met or the holder otherwise
establishes an exemption. The payment of the proceeds of a sale of shares of
Common Stock to or through a United States office of a broker is subject to
information reporting and possible backup withholding unless the owner certifies
its non-United States status under penalties of perjury or otherwise establishes
an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the IRS.
These information and backup withholding rules are under review by the
United States Treasury and their application to the Notes could be changed by
future regulations. On April 15, 1996, the IRS issued proposed Treasury
Regulations concerning the withholding of tax and reporting for certain amounts
paid to non-resident individuals and foreign corporations. The proposed
regulations would, among other changes, eliminate the presumption under current
regulations with respect to dividends paid to addresses outside the United
States. See "Dividends on Common Stock." The proposed Treasury Regulations, if
adopted in their present form, would be effective for payments made after
December 31, 1997. Prospective Note purchasers should consult their tax advisors
concerning the potential adoption of such Treasury Regulations and the potential
effect on the Notes and Common Stock.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Montgomery
Securities ("Montgomery"), Salomon Brothers Inc ("Salomon Brothers") and
Schroder Wertheim & Co. Incorporated ("Schroder Wertheim" and together with DLJ,
Montgomery and Salomon Brothers, the "Underwriters"), have severally agreed to
purchase from the Company and the Company has agreed to sell to each of the
Underwriters, the respective principal amounts of Notes set forth opposite its
name below, at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discount:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
- ------------------------------------------------------------------------------ --------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation..................................................... $ 125,000,000
Montgomery Securities......................................................... 125,000,000
Salomon Brothers Inc ......................................................... 125,000,000
Schroder Wertheim & Co. Incorporated.......................................... 125,000,000
--------------
$ 500,000,000
--------------
--------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent including
the delivery of certain legal opinions by its counsel. The Company has agreed in
the Underwriting Agreement to indemnify the Underwriters and their controlling
persons against certain liabilities in connection with the offer and sale of the
Notes, including liabilities
45
<PAGE>
under the Securities Act, and to contribute to payments that the Underwriters
may be required to make in respect thereof. The nature of the Underwriters'
obligations is such that the Underwriters are committed to purchase all of the
Notes if any of the Notes are purchased by them.
The Underwriters have advised the Company that they propose to offer the
Notes directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such offering price
less a concession not to exceed 1.2% of the principal amount of the Notes. The
Underwriters may reallow discounts not in excess of 0.25% of the principal
amount of the Notes to certain other dealers. After the initial public offering
of the Notes, the offering price and other selling terms may be changed by the
Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days, to purchase an additional $75.0
million aggregate principal amount of Notes, on the same terms and conditions as
are set forth on the cover page hereof. The Underwriters may exercise such
option to purchase additional Notes solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the Notes offered
hereby. To the extent that the Underwriters exercise such option, the
Underwriters will be committed, subject to certain conditions, to purchase the
principal amounts of Notes proportionate to such Underwriter's initial
commitments as indicated in the preceding table.
The Notes and the Common Stock have been approved for listing, subject to
official notice of issuance, on the NYSE. Nevertheless, the Notes are new issues
of securities, have no established trading market and may not be widely
distributed. The Company has been advised by the Underwriters that, following
the completion of this Offering, the Underwriters presently intend to make a
market in the Notes as permitted by applicable laws and regulations. The
Underwriters, however, are under no obligation to do so and may discontinue any
market-making activities at any time at the sole discretion of the Underwriters.
No assurance can be given as to the liquidity of any trading market for the
Notes.
DLJ, Salomon Brothers and Schroder Wertheim have provided certain investment
banking services to the Company for which they have received usual and customary
fees.
Directors and certain officers and stockholders of the Company, who
collectively are the beneficial owners of an aggregate of 12,334,800 shares of
Common Stock as of March 15, 1996, have agreed with the Underwriters, subject to
certain exceptions, not to, directly or indirectly, offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of, without the prior
written consent of DLJ, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for, or warrants, options or rights to
purchase or acquire, Common Stock or in any other manner transfer all or a
portion of the economic consequences associated with the ownership of any Common
Stock, or enter into any agreement to do any of the foregoing, for a period of
90 days after the date of this Prospectus.
LEGAL MATTERS
Certain legal matters relating to the issuance and sale of the Notes and the
validity of the Common Stock issuable upon conversion of the Notes will be
passed upon for the Company by Latham & Watkins, Los Angeles, California.
Certain legal matters relating to the offering will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California.
EXPERTS
The consolidated financial statements and schedules included (incorporated
by reference) in this Prospectus and elsewhere in the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
46
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary............................. 3
Use of Proceeds................................ 8
Price Range of Common Stock.................... 8
Dividend Policy................................ 8
Capitalization................................. 9
Selected Financial Data........................ 10
Business....................................... 12
Regulation and Licensing....................... 23
Description of the Notes....................... 27
Description of Capital Stock................... 38
Certain Federal Income Tax Considerations...... 41
Underwriting................................... 45
Legal Matters.................................. 46
Experts........................................ 46
</TABLE>
$500,000,000
[LOGO]
5% CONVERTIBLE SUBORDINATED NOTES
DUE 2006
------------
PROSPECTUS
------------
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
MONTGOMERY SECURITIES
SALOMON BROTHERS INC
SCHRODER WERTHEIM & CO.
MAY 9, 1996
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