<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .................... to .........................
Commission file number 1-3427
HILTON HOTELS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2058176
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9336 CIVIC CENTER DRIVE, BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices) (Zip code)
(310) 278-4321
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of July 31, 1997 --- Common Stock,
$2.50 par value --- 250,054,019 shares.
<PAGE>
PART I FINANCIAL INFORMATION
Company or group of companies for which report is filed:
HILTON HOTELS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
- - ------------------------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C> <C>
Revenue Rooms $ 502 450 962 876
Food and beverage 256 221 500 436
Casino 448 203 898 403
Franchise fees 15 12 27 22
Other products and services 139 118 276 224
----------------------------------------------------------------------- ----------------
1,360 1,004 2,663 1,961
- - ------------------------------------------------------------------------------------------------- ----------------
Expenses Rooms 132 128 260 251
Food and beverage 195 170 385 335
Casino 242 106 484 218
Other expenses, including
remittances to owners 566 474 1,139 943
Corporate expense 22 13 35 22
----------------------------------------------------------------------- ----------------
1,157 891 2,303 1,769
- - ------------------------------------------------------------------------------------------------- ----------------
Operating income 203 113 360 192
Interest and dividend income 10 9 23 16
Interest expense (45) (18) (88) (39)
Interest expense, net, from equity investments (5) (4) (9) (7)
- - ------------------------------------------------------------------------------------------------- ----------------
Income before income taxes
and minority interest 163 100 286 162
Provision for income taxes 67 39 118 63
Minority interest, net 3 2 7 3
- - ------------------------------------------------------------------------------------------------- ----------------
Net income $ 93 59 161 96
- - ------------------------------------------------------------------------------------------------- ----------------
- - ------------------------------------------------------------------------------------------------- ----------------
Net income available to
common stockholders $ 90 59 155 96
- - ------------------------------------------------------------------------------------------------- ----------------
- - ------------------------------------------------------------------------------------------------- ----------------
Net income per share $ .36 .30 .62 .49
- - ------------------------------------------------------------------------------------------------- ----------------
- - ------------------------------------------------------------------------------------------------- ----------------
Average number
of shares 251 197 251 195
- - ------------------------------------------------------------------------------------------------- ----------------
- - ------------------------------------------------------------------------------------------------- ----------------
</TABLE>
1
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Current assets
Cash and equivalents $ 297 388
Temporary investments 28 50
Other current assets 602 713
------------------------------------------------------------------------------
Total current assets 927 1,151
Investments 441 373
Property and equipment, net 4,952 4,698
Goodwill 1,279 1,295
Other assets 77 60
------------------------------------------------------------------------------
Total assets $7,676 7,577
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Liabilities and Current liabilities
stockholders' equity Accounts payable and accrued expenses $ 799 894
Current maturities of long-term debt 30 101
Income taxes payable 33 3
------------------------------------------------------------------------------
Total current liabilities 862 998
Long-term debt 2,745 2,606
Deferred income taxes and other liabilities 715 762
Stockholders' equity 3,354 3,211
------------------------------------------------------------------------------
Total liabilities and stockholders' equity $7,676 7,577
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Six months ended
June 30,
1997 1996
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities Net income $ 161 96
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 140 74
Amortization of debt issue costs 1 -
Change in working capital components:
Other current assets 82 42
Accounts payable and accrued expenses (53) (27)
Income taxes payable 30 10
Change in deferred income taxes (58) 1
Change in other liabilities (75) (10)
Distributions from equity investments
in excess of earnings 12 8
Other (12) (1)
-------------------------------------------------------------------------------
Net cash provided by operating activities 228 193
- - --------------------------------------------------------------------------------------------------------
Investing activities Capital expenditures (309) (81)
Additional investments (98) (37)
Change in temporary investments (3) 18
Proceeds from property transactions 100 -
Payments on notes and other investments 25 1
Acquisitions, net of cash acquired (69) -
-------------------------------------------------------------------------------
Net cash used in investing activities (354) (99)
- - --------------------------------------------------------------------------------------------------------
Financing activities Change in commercial paper borrowings
and revolving loans (527) (457)
Long-term borrowings 670 490
Reduction of long-term debt (76) (162)
Issuance of common stock 15 22
Cash dividends (47) (29)
-------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 35 (136)
- - --------------------------------------------------------------------------------------------------------
Decrease in cash and equivalents (91) (42)
Cash and equivalents at beginning of year 388 433
- - --------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 297 391
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
HILTON HOTELS CORPORATION AND SUBSIDIARIES
SUMMARY OF OPERATIONS
(dollars in millions, except average rate amounts)
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
- - --------------------------------------------------------------------------------
Revenue Hotels $ 722 657 1,389 1,273
Gaming 638 347 1,274 688
----------------------------------------------------------------
Total $ 1,360 1,004 2,663 1,961
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Operating Hotels $ 140 83 225 138
income Gaming 85 43 170 76
Corporate expense (22) (13) (35) (22)
----------------------------------------------------------------
Total 203 113 360 192
Net interest expense (40) (13) (74) (30)
Provision for income taxes (67) (39) (118) (63)
Minority interest, net (3) (2) (7) (3)
- - --------------------------------------------------------------------------------
Net income $ 93 59 161 96
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Occupancy Hotels 78.5 % 77.0 75.2 74.3
Gaming 87.8 91.3 87.5 90.0
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Average rate Hotels $144.43 133.27 145.49 134.77
Gaming 80.10 73.45 78.75 73.91
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
--------------------------------- --------------------------------
Number of Available Casino Number of Available Casino
Properties Rooms Sq. ft. Properties Rooms Sq. ft.
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hotels Owned and partially owned 32 23,798 - 32 23,566 -
Managed 28 16,659 - 26 15,849 -
Franchised 178 45,184 - 167 42,788 -
- - ----------------------------------------------------------------------------------------------------------------
Total hotels 238 85,641 - 225 82,203 -
Gaming Owned, partially owned and
managed casinos and
hotel-casinos 16 16,992 963,000 10 12,782 626,000
- - ----------------------------------------------------------------------------------------------------------------
Total 254 102,633 963,000 235 94,985 626,000
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
NET INCOME PER SHARE
The calculations of common and equivalent shares, net income available to common
stockholders and net income per share are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding
beginning of period 249,380,062 195,139,216 248,717,746 193,348,712
Net common shares issued/
issuable upon exercise
of certain stock
options 2,016,800 1,805,617 1,782,482 1,737,491
----------- ----------- ----------- -----------
Common and equivalent
shares 251,396,862 196,944,833 250,500,228 195,086,203
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (in millions) $ 93 $ 59 $ 161 $ 96
---- ----- ----- ------
---- ----- ----- ------
Preferred dividend
requirement (in millions) $ 3 $ - $ 6 $ -
---- ----- ----- ------
---- ----- ----- ------
Net income available to
common stockholders (in millions) $ 90 $ 59 $ 155 $ 96
---- ----- ----- ------
---- ----- ----- ------
Net income per share $.36 $ .30 $ .62 $ .49
---- ----- ----- ------
---- ----- ----- ------
Dividends declared per share $.08 $.075 $ .16 $ .15
---- ----- ----- ------
---- ----- ----- ------
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
The consolidated financial statements presented herein have been prepared by
Hilton Hotels Corporation and subsidiaries (the Company) in accordance with the
accounting policies described in its 1996 Annual Report to Stockholders and
should be read in conjunction with the Notes to Consolidated Financial
Statements which appear in that report.
The statements for the three and six months ended June 30, 1997 and 1996 are
unaudited; however, in the opinion of management, all adjustments (which include
only normal recurring accruals) have been made which are considered necessary to
present fairly the operating results and financial position for the unaudited
periods.
The consolidated financial statements for the 1996 period reflect certain
reclassifications to conform with classifications adopted in 1997. These
classifications have no effect on net income.
NOTE 2: BASIS OF PRESENTATION
During 1996, the Company elected to change the presentation in its consolidated
financial statements to include the operating results and working capital of
properties operated under long-term management agreements. These agreements
effectively convey to the Company the right to use the properties in exchange
for payments to the property owners, which are based primarily on the
properties' profitability. All periods presented reflect this change in
presentation which the Company believes is preferable. The consolidated
financial statements include the following amounts related to managed hotels:
current assets and current liabilities of $293 million and $344 million at June
30, 1997 and December 31, 1996, respectively, including cash and equivalents of
$115 million for both periods; revenue of $478 million and $579 million for the
three-month periods ended June 30, 1997 and 1996, respectively; revenue of $971
million and $1.1 billion for the six-month periods ended June 30, 1997 and
1996, respectively; operating expenses, including remittances to owners, of $442
million and $534 million for the three-month periods ended June 30, 1997 and
1996, respectively; and operating expenses, including remittances to owners, of
$902 million and $1.1 billion for the six-month periods ended June 30, 1997
and 1996, respectively.
NOTE 3: ACQUISITION
Effective December 18, 1996, the Company completed the merger of Bally
Entertainment Corporation (Bally) with and into the Company pursuant to an
agreement dated June 6, 1996. The Company's consolidated results of operations
have incorporated Bally's activity from the effective date of the merger. The
following unaudited pro forma information has been prepared assuming that this
acquisition had taken place on January 1, 1996. This pro forma information does
not purport to be indicative of future results or what would have occurred had
the acquisition been made as of that date.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(in millions, except per share amounts) (pro forma) (pro forma)
<S> <C> <C> <C> <C>
Revenue $1,360 1,297 2,663 2,536
Operating income 203 178 360 310
Net income 93 85 161 140
Net income per share .36 .32 .62 .53
</TABLE>
6
<PAGE>
NOTE 4: ITT OFFER
In January 1997, the Company commenced an offer to acquire ITT Corporation (ITT)
in a combination cash and stock transaction. The Company offered a price of $55
for each ITT share, for a consideration of approximately $6.5 billion. The
total transaction, including assumption of ITT's outstanding debt, would be
valued at approximately $10.5 billion. The Company's offer consists of a cash
tender offer of $55 per share for a majority of the outstanding ITT shares (the
ITT Tender Offer), to be followed by a merger whereby ITT shareholders would
receive shares of the Company's common stock, par value $2.50 per share, with a
value of $55 in exchange for each remaining ITT share, subject to appropriate
collar provisions. The Company plans to fund the ITT Tender Offer from a
combination of its available cash, working capital, existing credit facilities,
borrowings under credit facilities that the Company will seek to obtain from
commercial banks and/or the issuance of public debt. The acquisition would be
subject to regulatory approvals and other conditions, and therefore there can be
no assurance that the Company would be successful in acquiring ITT, or if
successful, what effect such acquisition would have on the Company's financial
condition or results of operations.
On February 11, 1997, the board of directors of ITT recommended that the ITT
shareholders reject the Company's offer as inadequate and not in the best
interests of ITT shareholders. In response, the Company expressed its
continuing commitment to the transaction, including pursuing the transaction by
taking the matter directly to ITT shareholders.
On July 16, 1997, ITT made an announcement that its board of directors had
approved a corporate restructuring of ITT.
On August 6, 1997, the Company increased its cash tender offer to acquire ITT
shares from $55 per share to $70 per share for a consideration of approximately
$8.3 billion. The total transaction, including assumption of ITT's outstanding
debt, would be valued at approximately $11.5 billion.
NOTE 5: SUPPLEMENTAL CASH FLOW INFORMATION
Six months ended
June 30,
1997 1996
---- ----
(in millions)
Cash paid during the period for the following:
Interest, net of amounts capitalized $ 81 41
Income taxes 75 46
NOTE 6: INVESTMENTS
Summarized operating results of the Company's equity investments are as follows:
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(in millions) (in millions)
Revenue $ 247 359 483 712
Expenses 200 304 390 595
Net income 44 48 86 101
7
<PAGE>
NOTE 7: SUPPLEMENTAL SEGMENT DATA
Supplemental hotel segment data for the three and six months ended June 30, 1997
and 1996 are as follows:
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(in millions) (in millions)
Revenue
Rooms $ 416 382 797 741
Food and beverage 193 173 371 339
Franchise fees 15 12 27 22
Other products and services 98 90 194 171
------ ------ ------ ------
722 657 1,389 1,273
------ ------ ------ ------
Expenses
Rooms 104 105 203 206
Food and beverage 140 129 274 254
Other expenses, including
remittances to owners 338 340 687 675
------ ------ ------ ------
582 574 1,164 1,135
------ ------ ------ ------
Hotel operating income $ 140 83 225 138
------ ------ ------ ------
------ ------ ------ ------
Supplemental gaming segment data for the three and six months ended June 30,
1997 and 1996 are as follows:
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(in millions) (in millions)
Revenue
Rooms $ 86 68 165 135
Food and beverage 63 48 129 97
Casino 448 203 898 403
Other products and services 41 28 82 53
------ ------ ------ ------
638 347 1,274 688
------ ------ ------ ------
Expenses
Rooms 28 23 57 45
Food and beverage 55 41 111 81
Casino 242 106 484 218
Other expenses, including
remittances to owners 228 134 452 268
------ ------ ------ ------
553 304 1,104 612
------ ------ ------ ------
Gaming operating income $ 85 43 170 76
------ ------ ------ ------
------ ------ ------ ------
NOTE 8: LITIGATION
On June 13, 1997, Bally's Grand, Inc. (BGI), a subsidiary of the Company,
announced that it had reached an agreement to settle the IN RE: BALLY'S
GRAND, INC. SHAREHOLDERS LITIGATION presently pending in the Delaware Court
of Chancery. Prior to the settlement, the Company indirectly owned
approximately 84% of the common stock of BGI. Under the terms of the
settlement, BGI has repurchased 966,747 shares of its common stock and
102,698 warrants to purchase shares of its common stock from certain
plaintiffs at a price of $52.75 per share in cash for the common stock and
$52.75 less the exercise price per warrant in cash for the warrants. At June
30, 1997, the Company indirectly owned approximately 95% of the outstanding
common stock of BGI.
8
<PAGE>
Following receipt of court approval of the settlement agreement, BGI would merge
with the Company or a subsidiary of the Company, and the remaining 408,862
outstanding shares of BGI's common stock not currently owned by Company would be
converted into the right to receive $52.75 (less certain attorneys' fees) per
share in cash, and the 491,784 outstanding warrants to purchase BGI common stock
not currently owned by the Company would be converted into the right to receive
the difference between $52.75 (less certain attorneys' fees) and the exercise
price per warrant in cash. Shareholders will be entitled to appraisal rights
under Delaware law in connection with any such merger.
NOTE 9: SUBSEQUENT EVENTS
On July 22, 1997, the Company issued $325 million aggregate principal amount of
7-year senior unsecured notes. The notes will mature on July 15, 2004 and carry
an interest rate of 7%. The Company used the proceeds to repay its outstanding
revolving credit facility and a portion of its commercial paper borrowings.
Such outstanding indebtedness was incurred primarily to fund the cash tender
offers to purchase the outstanding debt securities of certain former Bally
subsidiaries and the related consent solicitations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(in millions) (in millions)
EBITDA (1)
Hotels $ 162 105 273 184
Gaming 136 66 269 120
Corporate expense (20) (13) (33) (19)
------ ------ ------ ------
Total $ 278 158 509 285
------ ------ ------ ------
------ ------ ------ ------
Net cash provided by operating activities $ 228 193
Net cash used in investing activities (354) (99)
Net cash provided by (used in) financing activities 35 (136)
Capital expenditures 309 81
Additional investments 98 37
(1) EBITDA is earnings before interest, taxes, depreciation, amortization
and non-cash items. EBITDA is presented supplementally because
management believes it allows for a more complete analysis of results of
operations. This information should not be considered as an alternative
to any measure of performance or liquidity as promulgated under
generally accepted accounting principles (such as net income or cash
provided by or used in operating, investing and financing activities)
nor should it be considered as an indicator of the overall financial
performance of the Company. The Company's calculation of EBITDA may be
different from the calculation used by other companies and therefore
comparability may be limited.
EBITDA for the 1997 second quarter was $278 million, an increase of $120 million
over the 1996 quarter. The increase was attributable to continued improvement
in revenue per available room (REVPAR) and EBITDA at the Company's owned and
equity hotels, as well as the 1996 acquisitions of Bally Entertainment
Corporation (Bally) and the majority of The Prudential Insurance Company of
America's (Prudential) interests in six full-service hotel properties.
CAPITAL SPENDING
New developments and refurbishment programs are continually underway at the
Company's hotel and casino properties. The Company completed its new
western-themed casino, "Wild Wild West," which
10
<PAGE>
opened on July 1, 1997. This $110 million project is located on
approximately four acres of boardwalk property adjacent to Bally's Park Place
and features a 75,000 square foot casino complex. In late July 1997,
construction was completed on the new 300-room tower at The Atlantic City
Hilton. This $50 million project increases the property's room capacity by
nearly 60 percent.
Construction continues on "Star Trek: The Experience at the Las Vegas Hilton,"
an adult-oriented attraction being developed in collaboration with Paramount
Parks, Inc. This project will include the addition of a new 22,000 square foot
themed casino and is scheduled to open in late 1997. The Company's share of
costs for this project will total approximately $70 million.
Construction also continues on schedule at the approximately 43% owned Conrad
International Punta del Este Resort and Casino in Punta del Este, Uruguay. This
approximately $200 million project includes a 38,000 square foot casino, which
opened in January 1997, and a 300-room luxury hotel which is scheduled to open
in late 1997. As of June 30, 1997, the Company has provided $77 million in debt
financing for this project.
In April 1997, the Company began construction on the $760 million, 2,900-room
Paris Casino-Resort which will feature an 85,000 square foot casino, nine themed
restaurants, 130,000 square feet of convention space and a retail shopping
complex with a French influence. In addition to a 50-story replica of the
Eiffel Tower, the resort will also feature replications of some of the French
city's most recognized landmarks including the Arc de Triomphe, the Paris Opera
House, The Louvre and rue de la Paix. This project, which is adjacent to
Bally's Las Vegas, is expected to be completed in mid-1999.
In addition to an estimated $380 million in 1997 expenditures related to the
aforementioned gaming projects, the Company anticipates spending approximately
$100 million in the gaming segment in 1997 on normal capital replacements,
approximately $30 million on structural and technology upgrades and
11
<PAGE>
ADA/safety compliance projects and approximately $20 million on improvement
projects that are evaluated on a ROI basis.
Growth in the hotel segment continues through selective acquisition of large
full-service hotels in major market locations. In February 1997, the Company
acquired the 591-room Anchorage Hilton hotel in Anchorage, Alaska for
approximately $67 million. The Company expects to invest an additional $3
million to renovate certain areas of the hotel.
Also in February 1997, the Company sold its 30 percent interest in the 510-room
Conrad International Hong Kong for approximately $100 million plus the
assumption of $12 million of existing debt. The transaction resulted in a $70
million gain which is being amortized over the remaining life of the existing
management contract.
In July 1997, the Company's Board of Directors approved a renovation of the
New York Hilton & Towers, including a new main entrance, redesigned lobby and
guest registration area, new conference and business center and a new health
club. This $58 million project is expected to be completed in late 1999.
The Company is working on a number of hotel acquisitions. The Company intends
to spend approximately $75 million in the hotel segment on normal capital
replacements, upgrades and compliance projects. Improvement projects, which are
subject to strict ROI analysis, are expected to total approximately $10 million.
The estimated 1997 expenditures required to complete the aforementioned projects
and capital spending programs will be financed through available cash flows and
general corporate borrowings.
12
<PAGE>
SIGNIFICANT NEW DEVELOPMENTS
In January 1997, the Company commenced an offer to acquire ITT Corporation (ITT)
in a combination cash and stock transaction. The Company offered a price of $55
for each ITT share, for a consideration of approximately $6.5 billion. The
total transaction, including assumption of ITT's outstanding debt, would be
valued at approximately $10.5 billion. The Company's offer consists of a cash
tender offer of $55 per share for a majority of the outstanding ITT shares (the
ITT Tender Offer), to be followed by a merger whereby ITT shareholders would
receive shares of the Company's common stock, par value $2.50 per share, with a
value of $55 in exchange for each remaining ITT share, subject to appropriate
collar provisions. The Company plans to fund the ITT Tender Offer from a
combination of its available cash, working capital, existing credit facilities,
borrowings under credit facilities that the Company will seek to obtain from
commercial banks and/or the issuance of public debt. The acquisition would be
subject to regulatory approvals and other conditions, and therefore there can be
no assurance that the Company would be successful in acquiring ITT, or if
successful, what effect such acquisition would have on the Company's financial
condition or results of operations.
On February 11, 1997, the board of directors of ITT recommended that the ITT
shareholders reject the Company's offer as inadequate and not in the best
interests of ITT shareholders. In response, the Company expressed its
continuing commitment to the transaction, including pursuing the transaction by
taking the matter directly to ITT shareholders.
On July 16, 1997, ITT made an announcement that its board of directors had
approved a corporate restructuring of ITT.
On August 6, 1997, the Company increased its cash tender offer to acquire ITT
shares from $55 per share to $70 per share for a consideration of approximately
$8.3 billion. The total transaction, including assumption of ITT's outstanding
debt, would be valued at approximately $11.5 billion.
13
<PAGE>
In January 1997, the Company finalized agreements with Ladbroke Group PLC, whose
wholly owned subsidiary, Hilton International Co. (HI), owns the rights to the
Hilton name outside the United States. The agreements provide for the
reunification of the Hilton brand worldwide through a strategic alliance between
the companies, including cooperation on sales and marketing, loyalty programs
and other operational matters. The Company and HI have integrated their
reservation systems, launched the Hilton HHonors-Registered Trademark- Worldwide
loyalty program and continue the integration of worldwide sales offices and
development of joint marketing initiatives.
LONG-TERM DEBT
Long-term debt at June 30, 1997 totaled $2.7 billion, compared with $2.6 billion
at December 31, 1996. In February 1997, the Company redeemed its 6% Convertible
Subordinated Notes due 1998 and its 10% Convertible Subordinated Notes due 2006.
These notes, formerly obligations of Bally, had outstanding principal balances
of $1 million and $70 million, respectively.
At June 30, 1997, approximately $724 million of the aggregate commitment of the
Company's five year $1.75 billion revolving credit facility supported the
issuance of commercial paper and $250 million was outstanding, leaving
approximately $776 million of the revolving bank debt facility available to the
Company at such date.
During April 1997, the Company issued $375 million of 7.95%, 10-year senior
unsecured notes due April 15, 2007, under an effective shelf registration
statement (the Shelf) on file with the Securities and Exchange Commission
registering up to $1 billion in debt or equity securities. In June 1997, the
Company issued $300 million of 7.375%, 5-year senior unsecured notes due June
1, 2002, under the Shelf. On July 22, 1997, the Company issued $325 million
of 7-year senior unsecured notes, the remaining balance under the Shelf. The
7-year notes will mature on July 15, 2004 and carry an interest rate of 7%.
The Company used the proceeds from these offerings to repay its revolving
credit facility and a portion of its commercial paper borrowings. Such
outstanding indebtedness was incurred primarily to fund the cash
14
<PAGE>
tender offers to purchase the outstanding debt securities of certain former
Bally subsidiaries and the related consent solicitations.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED JUNE 30, 1997 AND 1996
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the three
months ended June 30, 1997 and 1996 is as follows:
(in millions, except per share amounts) 1997 1996 % Change
---- ---- --------
Revenue $ 1,360 1,004 35%
EBITDA 278 158 76%
Operating income 203 113 80%
Net income 93 59 58%
Net income per share .36 .30 20%
HOTELS
Hotel revenue for the 1997 second quarter was $722 million, an increase of 10
percent over 1996. EBITDA from the hotel division was $162 million for the
1997 second quarter, a 54 percent increase, compared to $105 million a year
ago, while hotel operating income increased 69 percent to $140 million from
$83 million last year. The Company continues to benefit from favorable
supply-demand dynamics at all of its major full-service properties. In
addition, the Company's ongoing emphasis on yield management has resulted in
dramatic margin improvements at most of its owned and equity properties. The
hotel division also benefited from increased ownership interests in six
full-service hotels in Chicago, New York, San Francisco and Washington D.C.
acquired from Prudential in the 1996 fourth quarter, as well as the
acquisition of the Anchorage Hilton in the first quarter of 1997. Occupancy
for hotels owned or managed was 78.5 percent in the 1997 second quarter
compared to 77.0 percent in 1996. The average room rate increased eight
percent to $144.43 from $133.27 in the prior year and REVPAR increased 11
percent from a year ago.
15
<PAGE>
EBITDA from the Company's ten major full-service properties increased $38
million over the prior year quarter. Of this increase, approximately $21
million resulted from the increased ownership interests acquired from Prudential
and the balance was due to improved operations. These properties continue to
benefit from strong demand and a lack of new supply in their respective markets.
Combined EBITDA margin from these ten properties increased nearly three points
over the 1996 quarter. Combined EBITDA from the Waldorf=Astoria and the New
York Hilton & Towers increased $7 million over the 1996 second quarter. Strong
individual business traveler (IBT) volume combined with increases in IBT average
room rates contributed to a double digit REVPAR increase at each of these two
properties over the 1996 second quarter. The Company's properties in Chicago
benefited from strong IBT and company meeting volume and significant room rate
increases which led to a combined EBITDA increase of $4 million at the Chicago
Hilton & Towers, the O'Hare Hilton and the Palmer House Hilton in the 1997
second quarter. Double digit percentage gains in convention volume and average
room rates in the second quarter of 1997 led the New Orleans Hilton Riverside &
Towers to a $2 million increase in EBITDA compared to last year. Occupancy for
these ten major full-service hotels (which also includes properties in San
Francisco, Honolulu and Washington D.C.) was 84.3 percent versus 82.8 percent in
the 1996 quarter. The average room rate increased to $164.71 in the 1997 second
quarter from $150.70 and REVPAR improved 11 percent between periods.
Continuing strong demand and limited new competition led to an 11 percent
increase in REVPAR at the Company's other full-service domestic owned and equity
properties. These properties, typically located in large secondary markets and
suburban locations, generated an $8 million increase in EBITDA over the prior
year second quarter. The 1997 results include a $4 million increase in EBITDA
from the Anchorage Hilton which was acquired in February 1997.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $4 million to $26 million in the second quarter of 1997.
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Although the supply-demand balance generally remains favorable, future operating
results could be adversely impacted by increased capacity and weak demand.
These conditions could limit the Company's ability to pass through inflationary
increases in operating costs in the form of higher rates. Increases in
transportation and fuel costs or sustained recessionary periods could also
unfavorably impact future results. However, the Company believes that its
financial strength, market presence and diverse product line will enable it to
remain extremely competitive.
GAMING
Total gaming revenue increased 84 percent in the 1997 second quarter to $638
million from $347 million in 1996. Casino revenue, a component of gaming
revenue, increased 121 percent to $448 million in 1997 compared to $203 million
in the prior year. EBITDA from the gaming division was $136 million compared to
$66 million in the prior year second quarter and gaming operating income
increased 98 percent to $85 million from $43 million in the 1996 quarter. The
Company's gaming division benefited from the addition of the Bally properties in
Las Vegas, Atlantic City, Mississippi and New Orleans. Gaming revenue, casino
revenue, EBITDA and operating income increased $279 million, $201 million, $71
million and $52 million, respectively, as a result of the Bally acquisition.
The completion of a number of room expansion projects and the opening of a new
hotel-casino led to a 12 percent increase in room supply in Las Vegas in the
first quarter of 1997. This supply increase coupled with reduced convention
volume contributed to a 10.5 point decline in occupancy at the Las Vegas Hilton
in the 1997 second quarter. New casino marketing and entertainment strategies
are being implemented which the Company believes will broaden the customer base
and create additional volume at this property. The impact of the decreased
occupancy in the second quarter was offset by a win percentage of 29 percent on
its premium play baccarat business, which is eight points above the prior year's
win percentage and slightly above historical averages. EBITDA at the Las Vegas
Hilton totaled $10 million in the 1997 second quarter, which was comparable to
last year. Results at the Las Vegas Hilton are more
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volatile than the Company's other casinos because this property caters to the
premium play segment of the market. Future fluctuations in premium play
volume and win percentage could result in continued volatility in the results
at this property.
The new capacity additions also resulted in a five point decrease in occupancy
at the Flamingo Hilton - Las Vegas. EBITDA at this property remained consistent
compared to the prior year quarter as the decrease in occupancy was offset by a
six percent increase in average room rate. Bally's Las Vegas generated EBITDA
of $23 million in the second quarter of 1997, an increase of 10 percent from
1996. Despite the increased competition in the Las Vegas market, occupancy at
Bally's Las Vegas remained consistent with the prior year while average room
rates increased seven percent. This property's results were not included in the
1996 second quarter.
Soft market conditions continue to affect the Flamingo Hilton - Laughlin, which
posted a $1 million decrease in EBITDA. EBITDA from the Reno Hilton increased
$2 million from the 1996 second quarter, benefiting from the city's major
bowling convention.
Occupancy for the Nevada hotel-casinos was 88.3 percent in the 1997 quarter
compared to 93.2 percent last year. The average room rate for the Nevada
properties was $77.99 compared to $73.41 in the 1996 second quarter. The 1996
statistical information includes the results of Bally's Las Vegas for
comparison.
In Atlantic City, Bally's Park Place and The Atlantic City Hilton generated
EBITDA of $35 million and $7 million, respectively, in the 1997 second quarter.
While not included in the Company's results last year, EBITDA at these
properties totaled $37 million and $15 million, respectively, in the 1996 second
quarter. The decrease at The Atlantic City Hilton was due primarily to declines
in boardwalk pedestrian traffic due to disruptions from construction of its new
300-room tower combined with a lower than normal table game win percentage.
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Occupancy and average room rate for the Atlantic City hotel-casinos was 94.0
percent and $92.83, respectively, in the 1997 second quarter. Although not
included in the Company's 1996 second quarter, occupancy and average room rate
was 94.9 percent and $89.81, respectively.
Operating results from the Company's New Orleans river casino operations
remained flat, reflecting continued market softness. In October 1996, the
Company was granted general approval from Louisiana regulators to relocate
the Flamingo Casino-New Orleans to Shreveport, Louisiana by October 1, 1997.
The Company is currently negotiating with its 50% partner regarding the joint
venture's options with respect to this property.
The approximately 43% owned Conrad International Punta del Este Resort and
Casino in Punta del Este, Uruguay, which opened its casino in January 1997,
contributed $1 million to gaming division EBITDA in the second quarter of 1997.
Combined EBITDA from the Company's approximately 20% owned casinos in the Gold
Coast and Brisbane, Australia increased $2 million from the 1996 second quarter.
Depreciation and amortization for the gaming division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $28 million to $51 million in the second quarter of 1997
compared to prior year. This increase primarily resulted from the addition of
the Bally properties.
The gaming industry continues to experience growth primarily in existing
markets. The Las Vegas and Atlantic City markets are becoming increasingly
competitive due to new developments and expansion projects which challenge the
Company's existing market share. These projects could adversely impact the
Company's future gaming income.
CORPORATE EXPENSE
Corporate expense increased $9 million to $22 million in the 1997 second
quarter. The 1997 period includes a $5 million non-recurring accrual for
certain litigation costs.
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FINANCING ACTIVITIES
Interest and dividend income totaled $10 million in the 1997 period compared to
$9 million in 1996. Consolidated interest expense increased $27 million to $45
million primarily due to additional debt resulting from the Bally acquisition.
INCOME TAXES
The effective income tax rate for the 1997 period increased to 41 percent
compared to 39 percent for the 1996 period due primarily to the additional
goodwill recorded as a result of the Bally acquisition which is not deductible
for tax purposes. The Company's effective income tax rate is determined by the
level and composition of pretax income subject to varying foreign, state and
local taxes.
MINORITY INTEREST
The minority interest primarily results from the consolidation of the
majority-owned Bally's Las Vegas and New Orleans Hilton Riverside & Towers.
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COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
OVERVIEW
A summary of the Company's consolidated revenue and earnings for the six months
ended June 30, 1997 and 1996 is as follows:
(in millions, except per share amounts) 1997 1996 % Change
---- ---- --------
Revenue $ 2,663 1,961 36%
EBITDA 509 285 79%
Operating income 360 192 88%
Net income 161 96 68%
Net income per share .62 .49 27%
HOTELS
Hotel revenue for the 1997 six-month period was $1.4 billion, an increase of
nine percent over 1996. EBITDA from the hotel division was $273 million for the
1997 period, a 48 percent increase, compared to $184 million a year ago, while
hotel operating income increased 63 percent to $225 million from $138 million
last year. Occupancy for hotels owned or managed was 75.2 percent in 1997
compared to 74.3 percent in 1996. The average room rate increased eight percent
to $145.49 from $134.77 in the prior year contributing to a 10 percent increase
in REVPAR.
EBITDA from the Company's ten major full-service properties increased $57
million over the prior year six-month period. Of this increase,
approximately $31 million resulted from the increased ownership interests
acquired from Prudential and the balance was due to improved operations.
Continued strength in IBT volume and average room rate coupled with double
digit growth in leisure guest volume drove a $9 million combined EBITDA
increase at the Waldorf=Astoria and the New York Hilton & Towers compared to
the 1996 period. REVPAR increased seven percent, 12 percent and 13 percent
at the Chicago Hilton & Towers, the O'Hare Hilton and the Palmer House
Hilton, respectively, leading to a combined EBITDA increase of $5 million in
the 1997 period. Each of these properties maintained strong volume and
achieved double digit room rate growth from individual business travelers.
Double digit REVPAR gains also led the New Orleans Hilton Riverside & Towers
to a $3 million increase in EBITDA compared to last year. EBITDA at
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the San Francisco Hilton & Towers increased $5 million due primarily to
increases in convention and leisure guest volume and a 15 percent increase in
average room rate. Occupancy for these ten major full-service hotels (which
also includes properties in Honolulu and Washington D.C.) was 79.1 percent
versus 77.1 percent in the 1996 period. The average room rate increased to
$162.89 in 1997 from $150.52 and REVPAR improved 11 percent between periods.
The Company's other full-service domestic owned and equity properties generated
a $12 million increase in EBITDA over the prior year period, reflecting strong
industry fundamentals and a $4 million EBITDA contribution from the addition of
the Anchorage Hilton in February 1997.
Depreciation and amortization for the hotel division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $6 million to $52 million in the 1997 period compared to
prior year.
GAMING
Total gaming revenue increased 85 percent in the 1997 six-month period to
$1.3 billion from $688 million in 1996. Casino revenue increased 123 percent
to $898 million in 1997 compared to $403 million in the prior year. EBITDA
from the gaming division was $269 million compared to $120 million in the
prior year six-month period and gaming operating income increased 124 percent
to $170 million from $76 million in 1996. The Company's gaming division
benefited from the addition of the Bally properties in Las Vegas, Atlantic
City, Mississippi and New Orleans along with improved results at the Las
Vegas Hilton. Gaming revenue, casino revenue, EBITDA and operating income
increased $556 million, $396 million, $140 million and $99 million,
respectively, as a result of the Bally acquisition.
The impact of supply growth in the Las Vegas market led to a five point decrease
in occupancy at the Las Vegas Hilton in the six-month period of 1997. However,
the impact of this decrease was more than offset by a significant increase in
volume of its premium play baccarat business coupled with a normalized win
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percentage resulting in an EBITDA increase of $20 million in 1997 compared to
the 1996 period. Baccarat drop increased 34 percent over the 1996 period and
the baccarat win percentage increased 12 points from a lower than normal win
percentage last year.
The highly competitive market conditions in Las Vegas also contributed to lower
table game and slot volume in the casino and a four point decrease in hotel
occupancy at the Flamingo Hilton - Las Vegas. As a result, EBITDA at this
property decreased $4 million from the prior year six-month period. Bally's Las
Vegas experienced an EBITDA increase of $2 million compared to the six-month
period in 1996, which was not included in the Company's results, due mainly to a
13 percent increase in slot revenue.
A generally soft market continues to affect the Flamingo Hilton - Laughlin,
which posted a $3 million decrease in EBITDA. Combined EBITDA from the Reno
Hilton and the Flamingo Hilton - Reno decreased $3 million from the 1996 period.
Both Reno properties recorded significantly lower occupancy primarily due to the
effects of adverse weather conditions in the 1997 first quarter.
Occupancy for the Nevada hotel-casinos was 88.4 percent in the 1997 period
compared to 92.5 percent last year. The average room rate for the Nevada
properties was $77.28 compared to $75.06 in the 1996 six-month period. The 1996
statistical information includes the results of Bally's Las Vegas for
comparison.
In Atlantic City, Bally's Park Place and The Atlantic City Hilton generated
EBITDA of $65 million and $11 million, respectively, in 1997. While not
included in the Company's results last year, EBITDA at these properties totaled
$66 million and $25 million, respectively, in the 1996 period. The Atlantic
City Hilton's EBITDA continues to be impacted by lower table game volume and
slot handle resulting from the effect of its tower construction on pedestrian
traffic combined with lower than normal table game win.
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Occupancy and average room rate for the Atlantic City hotel-casinos was 92.0
percent and $85.90, respectively, in 1997. Although not included in the
Company's 1996 period, occupancy and average room rate was 92.4 percent and
$84.76, respectively.
The approximately 43% owned Conrad International Punta del Este Resort and
Casino in Punta del Este, Uruguay, which opened its casino in January 1997,
contributed $5 million to gaming division EBITDA in 1997.
Depreciation and amortization for the gaming division, including the Company's
proportionate share of depreciation and amortization from its equity
investments, increased $55 million to $99 million in the 1997 period compared to
prior year. This increase primarily resulted from the addition of the Bally
properties.
CORPORATE EXPENSE
Corporate expense increased $13 million to $35 million in the 1997 six-month
period. The 1997 period includes a $5 million non-recurring accrual for certain
litigation costs.
FINANCING ACTIVITIES
Interest and dividend income totaled $23 million in the 1997 period compared to
$16 million in 1996. The 1997 period includes approximately $4 million in
interest income on the Company's investment in the 11.75% First Mortgage Notes
due 2002 of Claridge Hotel and Casino Corporation. Consolidated interest
expense increased $49 million to $88 million primarily due to additional debt
resulting from the Bally acquisition.
INCOME TAXES
The effective income tax rate for the 1997 period increased to 41 percent
compared to 39 percent for the 1996 period due primarily to the additional
goodwill recorded as a result of the Bally acquisition which is not deductible
for tax purposes.
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ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." This
statement establishes standards for computing and presenting earnings per share.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997 and earlier application is not permitted. The Company's
adoption of SFAS No. 128 is not expected to have a material impact on its
earnings per share presentation.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements reflect the Company's current views with
respect to future events and financial performance, and are subject to certain
risks and uncertainties which could cause actual results to differ materially
from historical results or those anticipated. Although the Company believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
attained. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Two derivative actions purportedly brought on behalf of Bally's Grand,
Inc. (BGI) against its directors and Bally Entertainment Corporation
(Bally), one commenced in October 1995 and the other in September 1996,
have been consolidated under the caption IN RE: BALLY'S GRAND DERIVATIVE
LITIGATION in the Court of Chancery of the State of Delaware, New Castle
County. Bally merged with and into the Company on December 18, 1996.
The consolidated complaint alleges breaches of fiduciary duty and waste
of corporate assets in connection with certain actions including the sale
by BGI to Bally of the capital stock of BGI's subsidiary that owns the
land and development rights with respect to the Paris Casino-Resort in
Las Vegas (the Paris Transaction), alleged improper delegation of duties
by BGI's board of directors by virtue of a management agreement (the
Management Agreement) between BGI and Bally's Grand Management Co., Inc.,
a wholly owned subsidiary of Bally (BGM), BGM's designation pursuant to
the Management Agreement of recipients awarded BGI stock options, stock
repurchases by BGI and Bally, and a consulting agreement entered into by
BGI with Arveron Investments L.P. in connection with BGI's repurchases of
securities. The plaintiffs seek, among other things: (i) rescission of
the Paris Transaction; (ii) a declaration that the Management Agreement
is unlawful; (iii) an accounting of damages to BGI and profits to
defendants as a result of the transactions complained of; (iv) an
accounting for purchases of BGI stock by BGI and Bally; and (v) costs and
expenses, including reasonable attorneys' fees. A third derivative action
purportedly brought on behalf of BGI against its directors, Bally, BGM
and the Company was commenced in November 1996 under the caption TOWER
INVESTMENT GROUP, INC., ET AL. V. BALLY'S GRAND, INC., ET AL. in the
Court of Chancery of the State of Delaware, New Castle County. The
complaint alleges breach of fiduciary duty and waste of corporate assets
by BGI's directors and Bally in connection with the Paris Transaction,
aiding and abetting by the Company of the breaches of fiduciary duty and
waste by BGI's directors and Bally, fraud, willful misconduct or gross
negligence by Bally and BGM in connection with the Management Agreement,
breach of fiduciary duty by BGI's directors in connection with the stock
purchases by Bally while in possession of material inside information
concerning BGI's earnings, breach of fiduciary duty by Bally in
connection with alleged threats to abuse its controlling interest in BGI,
and violation by BGI's directors and Bally of Section 203 of the Delaware
General Corporation Law in connection with the Paris Transaction. The
plaintiffs seek, among other things: (i) rescission of the Paris
Transaction; (ii) termination of the Management Agreement;
(iii) appointment of a custodian to manage BGI's affairs;
(iv) compensatory damages; (v) an order enjoining Bally and the Company
from conveying the Paris Casino-Resort; (vi) disgorgement by Bally and
the Company of the profits of the Paris Casino-Resort; (vii) disgorgement
by Arthur M. Goldberg of all payments, warrants and interests received in
connection with the Bally Merger; and (viii) disgorgement by Bally of
profits earned from any transactions in shares of BGI's stock based upon
material inside information. This action has been consolidated with the
IN RE: BALLY'S GRAND DERIVATIVE LITIGATION action under the caption IN
RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION.
On June 13, 1997, BGI announced that it had reached an agreement to
settle the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION. Prior
to the settlement, the Company indirectly owned approximately 84% of
the common stock of BGI. Under the terms of the settlement, BGI has
repurchased 966,747 shares of its common stock and 102,698 warrants to
purchase shares of its common stock from certain plaintiffs at a price
of $52.75 per share in cash for the common stock and $52.75 less the
exercise price per warrant in cash for the warrants.
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Following receipt of court approval of the settlement agreement, BGI
would merge with the Company or a subsidiary of the Company, and the
remaining 408,862 outstanding shares of BGI's common stock not currently
owned by the Company would be converted into the right to receive $52.75
(less certain attorneys' fees) per share in cash, and the 491,784
outstanding warrants to purchase BGI common stock not currently owned by
the Company would be converted into the right to receive the difference
between $52.75 (less certain attorneys' fees) and the exercise price per
warrant in cash. Shareholders will be entitled to appraisal rights under
Delaware law in connection with any such merger.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Restated Certificate of Incorporation, as amended.
27. Financial data schedule for the six-month period ended June 30,
1997.
(b) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K dated June 4, 1997, under Item 5
Other Events, to report that the Company entered into a Underwriting
Agreement with Donaldson, Lufkin & Jenrette Securities Corporation and
other underwriters named therein, with respect to the issuance and sale
of the $300,000,000 aggregate principal amount 7.375% Senior Notes due
2002.
The Company filed a Report on Form 8-K dated July 21, 1997, under Item 5
Other Events, to report that the Company entered into a Purchase
Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated and
other underwriters named therein, with respect to the issuance and sale
of the $325,000,000 aggregate principal amount 7% Senior Notes due 2004.
The Company filed a Report on Form 8-K dated July 22, 1997, under Item 5
Other Events, to report results for its second fiscal quarter ended
June 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILTON HOTELS CORPORATION
(Registrant)
Date: August 8, 1997 /s/ MATTHEW J. HART
------------------------------
Matthew J. Hart
Executive Vice President and
Chief Financial Officer
Date: August 8, 1997 /s/ THOMAS E. GALLAGHER
----------------------------------------
Thomas E. Gallagher
Executive Vice President and
General Counsel
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RESTATED CERTIFICATE OF INCORPORATION
OF
HILTON HOTELS CORPORATION
HILTON HOTELS CORPORATION, a Delaware corporation whose original
Certificate of Incorporation was filed in the Office of the Secretary of State
on May 29, 1946, and whose Certificate of Incorporation was thereafter amended
from time to time, and restated on May 16, 1968, and was thereafter amended from
time to time, hereby sets forth its Restated Certificate of Incorporation which
has been duly adopted by a resolution of the Board of Directors advising the
same, without a vote of the stockholders, as prescribed by Section 245 of the
General Corporation Law of the State of Delaware:
ARTICLE I
The name of the corporation (which is hereinafter referred to as "the
Corporation") is Hilton Hotels Corporation.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
located at 1013 Centre Road, Wilmington, Delaware 19805. The name and address
of the Corporation's registered agent is United States Corporation Company, 1013
Centre Road, Wilmington, Delaware 19805.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
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(a) CAPITAL STOCK. The total number of shares of all classes of stock
which the Corporation shall have the authority to issue is Four Hundred
Twenty-Four Million Eight Hundred Thirty-Two Thousand Seven Hundred
(424,832,700) shares consisting of Four Hundred Million (400,000,000) shares of
Common Stock, par value $2.50 per share, and Twenty-Four Million Eight Hundred
Thirty-Two Thousand Seven Hundred (24,832,700) shares of Preferred Stock, par
value $1.00 per share.
(b) COMMON STOCK. The shares of authorized Common Stock of the
Corporation shall be identical in all respects and shall have equal rights and
privileges.
(c) PREFERRED STOCK. The Board of Directors shall have authority to
issue the shares of Preferred Stock from time to time on such terms as it may
determine, and to divide the Preferred Stock into one or more classes or series
and in connection with the creation of any such class or series to fix by the
resolution or resolutions providing for the issue of shares thereof the
designation, powers and relative, participating, optional, or other special
rights of such class or series, and the qualification, limitations, or
restrictions thereof, to the full extent now or hereafter permitted by law.
The terms of the Series A Junior Participating Preferred Stock are set
forth on Exhibit A hereto and are part of this Restated Certificate of
Incorporation.
ARTICLE V
The amount of the authorized stock of the Corporation of any class or
classes may be increased or decreased by the affirmative vote of the holders of
a majority of the stock of the Corporation entitled to vote.
ARTICLE VI
(a) NUMBER, ELECTION AND TERMS OF DIRECTORS. Except as otherwise fixed by
or
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pursuant to the provisions of Article IV hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional Directors under
specified circumstances, the number of the Directors of the Corporation shall be
fixed from time to time by or pursuant to the By-Laws of the Corporation. The
Directors, other than those who may be elected by the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, as shall be provided in the manner specified in the By-Laws of the
Corporation, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1986, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1987, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1988, with each director to
hold office until his or her successor shall have been duly elected and
qualified. At each annual meeting of the stockholders of the Corporation, the
successors of the class of Directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election.
(b) STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES AND INTRODUCTION OF
BUSINESS. Advance notice of stockholder nominations for the election of
Directors and advance notice of business to be brought by stockholders before an
annual meeting shall be given in the manner provided in the By-Laws of the
Corporation.
(c) NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise
provided for or fixed by or pursuant to the provisions of Article IV hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors under specified circumstances, newly created directorships
resulting from any increase in the number of Directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled only by the affirmative vote of a majority of the
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remaining Directors then in office, even though less than a quorum of the Board
of Directors. Any Director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of Directors
in which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been duly elected and qualified. No decrease in
the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
(d) REMOVAL. Subject to the rights of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation to elect
Directors under specified circumstances, any Director may be removed from
office, with or without cause, only by the affirmative vote of the holders of
75% of the voting power of all shares of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class.
(e) AMENDMENT, REPEAL, OR ALTERATION. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 75% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend or repeal this Article VI.
ARTICLE VII
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of such holders and
may not be effected by any consent in writing by such holders. Subject to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Chairman of the Board
or by the Board of Directors pursuant to a resolution approved by a majority of
the entire Board of Directors. Notwithstanding anything contained in this
Certificate of Incorporation to the
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contrary, the affirmative vote of the holders of at least 75% of the voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
alter, amend or repeal this Article VII.
ARTICLE VIII
The Board of Directors shall have power to make, alter, amend and repeal
the By-Laws of the Corporation (except so far as the By-Laws of the Corporation
adopted by the stockholders shall otherwise provide). Any By-Laws made by the
Directors under the powers conferred hereby may be altered, amended or repealed
by the Directors or by the stockholders. Notwithstanding the foregoing and
anything contained in this Certificate of Incorporation to the contrary,
Articles B- 1, B-3, B-4 and C-1 of the By-Laws shall not be altered, amended or
repealed without the affirmative vote of the holders of at least 75% of the
voting power of all the shares of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, except to renumber
the Article designations thereof. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 75% of the voting power of all the shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend or repeal this Article VIII.
ARTICLE IX
SECTION 1. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
A. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In addition to any
affirmative vote required by law or this Certificate of Incorporation, and
except as otherwise expressly provided in Section 2 of this Article IX:
(i) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (a) any Interested Stockholder (as
hereinafter defined) or (b)
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any other corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of
any assets of the Corporation or any Subsidiary having an aggregate Fair
Market Value of $20,000,000 or more; or
(iii) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market
Value of $20,000,000 or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 75% of the voting
power of the
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then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock" for purposes of this
Article IX), voting together as a single class (it being understood that for
purposes of this Article IX, each share of the Voting Stock shall have the
number of votes granted to it pursuant to Article IV of this Certificate of
Incorporation). Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be specified,
by law or in any agreement with any national securities exchange or otherwise.
B. DEFINITION OF "BUSINESS COMBINATION." The term "Business Combination"
as used in this Article IX shall mean any transaction which is referred to in
any one or more of clauses (i) through (v) of paragraph A of this Section 1.
SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section I
of this Article IX shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provision of this Certificate of
Incorporation, if all of the conditions specified in either of the following
paragraphs A and B are met:
A. APPROVAL BY DISINTERESTED DIRECTORS. The Business Combination
shall have been approved by a majority of the Disinterested Directors (as
hereinafter defined).
B. PRICE AND PROCEDURE REQUIREMENTS. All of the following
conditions shall have been met:
(i) The aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be received
per share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
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(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of Common
Stock acquired by it (1) within the two-year period immediately
prior to the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Stockholder,
whichever is higher; and
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is
referred to in this Article IX as the "Determination Date"),
whichever is higher.
(ii) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any other class of outstanding Voting Stock, (other than
Excluded Preferred Stock and Institutional Voting Stock, as
hereinafter defined) shall be at least equal to the highest of the
following (it being intended that the requirements of this paragraph B
(ii) shall be required to be met with respect to every class of
outstanding Voting Stock (other than Excluded Preferred Stock and
Institutional Voting Stock), whether or not the Interested Stockholder
has previously acquired any shares of a particular class of Voting
Stock):
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of such
class of Voting Stock acquired by it (1) within the two-year
period immediately prior to the Announcement Date or (2) in the
transaction in which it became an
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Interested Stockholder, whichever is higher;
(b) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(c) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(iii) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock and other
than Excluded Preferred Stock and Institutional Voting Stock) shall be
in cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of consideration
for such class of Voting Stock shall be either cash or the form used
to acquire the largest number of shares of such class of Voting Stock
previously acquired by it. The price determined in accordance with
Paragraphs B(i) and B(ii) of this Section 2 shall be subject to
appropriate adjustment in the event of any stock dividend, stock
split, combination of shares or similar event.
(iv) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding Preferred Stock; (b) there shall have
been (1) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any
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subdivision of the Common Stock), except as approved by a majority of
the Disinterested Directors, and (2) an increase in such annual rate
of dividends as necessary to reflect any reclassification (including
any reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the number of
outstanding shares of the Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the
Disinterested Directors; and (c) such Interested Stockholder shall
have not become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit directly or indirectly (except proportionately as a
stockholder or in the ordinary course of the Corporation's business)
of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by the
Corporation, whether in anticipation of or in connection with such
Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public stockholders of the Corporation
at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
Section 3. CERTAIN DEFINITIONS. For the purposes of this Article IX:
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A. A "Person" shall mean any individual, firm, corporation or other
entity.
B. "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more than 10%
of the voting power of the outstanding Voting Stock;
(ii) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have occurred in the
course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, it being understood that, pending a
final resolution or other disposition of the proceeding or proceedings to
determine the owner of such shares, Barron Hilton, James E. Bates
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and the Conrad N. Hilton Foundation each have the right to acquire the
6,782,289 shares of Common Stock held by the Estate of Conrad N. Hilton as
of March 8, 1985, or (b) the right to vote pursuant to any agreement,
arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
D. For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph B of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of paragraph C of this Section 3 but shall not include any other
shares of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on March 8, 1985.
F. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation; PROVIDED,
HOWEVER, that for the purposes of the definition of Interested Stockholder set
forth in paragraph B of this Section 3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
G. "Disinterested Director" means any member of the Board of Directors of
the Corporation (the "Board") who is unaffiliated with the Interested
Stockholder and was a member of the Board prior to the time that the Interested
Stockholder became an Interested
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Stockholder, and any director who is thereafter appointed to fill any vacancy on
the Board or who is elected and, in either event, who is unaffiliated with the
Interested Stockholder and in connection with his or her initial assumption of
office is recommended for appointment or election by a majority of Disinterested
Directors then on the Board.
H. "Fair Market Value" means (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on such Exchange,
on the principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if such stock
is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by the Board in good faith; and (ii) in the case of property
other than cash or stock, the fair market value of such property on the date in
question as determined by the Board in good faith.
I. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
paragraphs B(i) and (ii) of Section 2 of this Article IX shall include the
shares of Common Stock and/or the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
J. "Excluded Preferred Stock" shall mean any series of Preferred Stock
with respect to which the Certificate of Designation creating such series
expressly provides that the provisions of this Article IX shall not apply.
K. "Institutional Voting Stock" shall mean any class or series of Voting
Stock which was issued to and continues to be held solely by one or more
insurance companies,
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pension funds, commercial banks, savings banks or similar financial institutions
or institutional investors.
SECTION 4. POWERS OF THE BOARD OF DIRECTORS. A majority of the Directors
of the Corporation shall have the power and duty to determine for the purposes
of this Article IX, on the basis of information known to them after reasonable
inquiry, (A) whether a person is an Interested Stockholder, (B) the number of
shares of Voting Stock beneficially owned by any person, (C) whether a person is
an Affiliate or Associate of another, (D) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination has, an aggregate Fair Market Value of $20,000,000
or more. A majority of the Directors shall have the further power to interpret
all of the terms and provisions of this Article IX.
SECTION 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED STOCKHOLDERS.
Nothing contained in this Article IX shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
SECTION 6. AMENDMENT, REPEAL, ETC. Notwithstanding any other provisions of
this Certificate of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the By-Laws of the Corporation), the affirmative
vote of the holders of 75% or more of the outstanding Voting Stock, voting
together as a single class, shall be required to alter, amend or repeal this
Article IX.
ARTICLE X
(a) If any person (as hereinafter defined) which beneficially owns Voting
Stock (as hereinafter defined) of the Corporation (i) is requested or required
pursuant to any Gaming Regulation (as hereinafter defined) to appear before, or
submit to the jurisdiction of, or
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provide information to, any Gaming Authority (as hereinafter defined) and either
refuses to do so or otherwise fails to comply with such request or requirement
within a reasonable period of time or (ii) is determined or shall have been
determined by any Gaming Authority not to be suitable or qualified with respect
to the beneficial ownership of Voting Stock of the Corporation, each such person
by owning shares in the Corporation hereby agrees to sell to the Corporation and
the Corporation shall have the absolute right in its sole discretion to
repurchase, any or all of the Voting Stock of the Corporation beneficially owned
by such person at a price determined pursuant to Section (c) hereof. The
operation of this Article X shall not be stayed by an appeal from a
determination of any Gaming Authority.
(b) If the Corporation intends to repurchase Voting Stock beneficially
owned by any person referred to in clause (i) or (ii) of Section (a) hereof, it
shall notify the person in writing of such intention, specifying the Voting
Stock to be repurchased, the date, time and place when such repurchase will be
consummated (the "Repurchase Date"), which date in no event will be earlier than
three business days after the date of such notice and the price at which such
Voting Stock will be repurchased (it being sufficient for purposes of this
Article X for the Corporation to indicate generally that the price will be
determined in accordance with Section (c) hereof). If the Corporation gives the
notice provided for by the preceding sentence (the "Repurchase Notice"), such
notice shall be deemed to constitute a binding agreement on the part of the
Corporation to repurchase, and on the part of the person notified to sell, the
Voting Stock referred to in such Notice in accordance with this Article X.
Following the Repurchase Date, no dividends will be payable on and no voting
rights will be available to the holders of any Voting Stock covered by such
Repurchase Notice which has not been duly delivered by the holder thereof for
repurchase by the Corporation. If, following such Repurchase Date, any stock
with respect to which a Repurchase Notice has been given has not been duly
delivered by the holder thereof for repurchase by the Corporation, the
Corporation shall deposit in escrow or otherwise hold in trust for the benefit
of such holder an amount equal to the aggregate Market Price (as hereinafter
defined) of the stock to be repurchased except that to the extent New Shares (as
hereinafter defined) are to be repurchased and the Purchase Price (as
hereinafter defined) thereof shall have been
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publicly disclosed or otherwise made available to the Corporation, the amount
deposited in escrow or otherwise segregated with respect to such New Shares may
be the lesser of the Market Price thereof on the date of the Repurchase Notice
and the Purchase Price thereof. The establishment of such an account shall in
no way alter the amount otherwise payable to any person pursuant to this Article
X. No interest shall be paid on or accrue with respect to any amount so
deposited or held.
(c)(i) In the event that the person to whom Repurchase Notice is directed
pursuant to Section (b) hereof has acquired beneficial ownership of shares of
Voting Stock within the twenty-four month period terminating on the date of such
Notice ("New Shares"), the price at which the Corporation shall repurchase such
New Shares as are covered by the Repurchase Notice shall be the lesser of the
Market Price thereof on the date of such Notice and the Purchase Price thereof.
(ii) In the event that the person to whom a Repurchase Notice is directed
pursuant to Section (b) hereof has acquired beneficial ownership of any or all
of his shares of Voting Stock prior to the twenty-four month period terminating
on the date of such Notice ("Old Shares"), the price at which the Corporation
shall repurchase such Old Shares as are covered by the Repurchase Notice shall
be the Market Price thereof on the date of the Repurchase Notice.
(iii) The Corporation shall have the option in its sole discretion of
designating which shares of the shares beneficially owned by any person referred
to in clause (i) or (ii) of Section (a) hereof are subject to the Repurchase
Notice and, for purposes hereof, it shall be sufficient for the Corporation to
indicate generally that shares shall be repurchased based on the order in which
they were purchased or based on the reverse of such order.
(iv) Any person to whom a Repurchase Notice is given pursuant to the
provisions of this Article shall have the burden of establishing to the
satisfaction of the Corporation the dates on which and prices at which such
person acquired the stock subject to such Notice.
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(d) For purposes of this Article X:
1. A "person" shall mean any individual, firm, corporation or other
entity.
2. "Voting Stock" shall mean the shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
3. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has
(a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (b) the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii)which are beneficially owned, directly or indirectly, by any
other Person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
4. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on March 8, 1985.
5. A "Gaming Regulation" shall mean any statute, rule, regulation,
order, ordinance or interpretation of a Gaming Authority.
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6. A "Gaming Authority" shall mean any government, court, or
governmental, administrative or regulatory agency or authority, Federal,
state, local or foreign, which regulates or otherwise asserts jurisdiction
over gaming operations or facilities conducted by the Corporation or any of
its subsidiaries or Affiliates.
7. "Market Price" means the average of the last sale prices of a
share of such Voting Stock on the Composite Tape for New York Stock
Exchange-Listed Stocks for each of the 15 consecutive trading days (the
"Valuation Period") commencing 16 trading days prior to the date in
question; provided that if such Stock is not quoted on the Composite Tape,
such average last sale price shall be derived from the average last sale
prices on the New York Stock Exchange, or, if such Stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such Stock is
listed, or, if such Stock is not listed on any such exchange, the average
of the closing bid quotations with respect to a share of such Stock during
the Valuation Period on the National Association of Securities Dealers,
Inc. Automated Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in question of
a share of such Stock as determined by the Board of Directors in good
faith.
8. "Purchase Price" means the price paid to acquire a share of the
Voting Stock, exclusive of commissions, taxes and other fees and expenses,
adjusted for any stock split, stock dividend, combination of shares or
similar event.
(e) A majority of the Directors of the Corporation shall have the power
and duty to determine for the purposes of this Article X on the basis of
information known to them after reasonable inquiry, whether clause (i) or (ii)
of Section (a) hereof applies to any person who beneficially owns Voting Stock
of the Corporation such that the Corporation shall have the right to repurchase
shares of Voting Stock held by such person pursuant to this Article X.
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ARTICLE X-A
Election of Directors need not be by ballot unless the By-laws of the
Corporation shall so provide.
ARTICLE XI
SECTION 1. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS.
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived an improper
personal benefit.
SECTION 2. INDEMNIFICATION AND INSURANCE.
(a) ACTION, ETC., OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify and hold harmless, to the fullest extent permitted
by applicable law as it presently exists or may hereafter be amended, Agent (as
hereinafter defined) against costs, charges and Expenses (as hereinafter
defined), judgments, fines and amounts paid in settlement actually and
reasonably incurred by an Agent in connection with such action, suit or
proceeding, and any appeal therefrom, if Agent acted in good faith and in a
manner Agent reasonably believed to be in or not opposed to the best interests
of the Corporation, and with respect to any criminal action or proceeding, had
no reasonable cause to believe such conduct was unlawful. The termination of
any action, suit or proceeding-whether by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent-shall not, of
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itself, create a presumption that the Agent did not act in good faith and in a
manner which the Agent reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that such person had reasonable cause to believe that the Agent's
conduct was unlawful.
(b) ACTION, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed judicial action or suit brought by
or in the right of the Corporation to procure a judgment in its favor by reason
of the fact that such person is or was an Agent, against costs, charges and
Expenses actually and reasonably incurred by an Agent in connection with the
defense or settlement of such action or suit and any appeal therefrom if the
Agent acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for gross negligence or
willful misconduct in the performance of the Agent's duty to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such costs,
charges and Expenses which the Court of Chancery or other such court shall deem
proper.
(c) DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under
Paragraphs (a) and (b) of this Section (unless ordered by a court) shall be paid
by the Corporation unless a determination is reasonably and promptly made (i) by
the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable, if a quorum of disinterested
Directors so directs, by independent legal counsel in a written opinion, or
(iii) by the stockholders, that such person acted in bad faith and in a manner
that such person did not believe to be in or not opposed to the best interests
of the Corporation, or, with respect to any criminal proceeding, that such
person believed or had
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reasonable cause to believe that his conduct was unlawful.
(d) INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
the other provisions of this Section, to the extent that an Agent has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, the settlement of an action without
admission of liability, or the defense of any claim, issue or matter therein, or
on appeal from any such proceeding, action, claim or matter, such Agent shall be
indemnified against all costs, charges and Expenses incurred in connection
therewith.
(e) ADVANCES OF EXPENSES. Except as limited by Paragraph (f) of this
Section, costs, charges, and Expenses incurred by an Agent in any action, suit,
proceeding or investigation or any appeal therefrom shall be paid by the
Corporation in advance of the final disposition of such matter, if the Agent
shall undertake to repay such amount in the event that it is ultimately
determined, as provided herein, that such person is not entitled to
indemnification. Notwithstanding the foregoing, no advance shall be made by the
Corporation if a determination is reasonably and promptly made by the Board of
Directors by a majority vote of a quorum of disinterested Directors, or (if such
a quorum is not obtainable or, even if obtainable, a quorum of disinterested
Directors so directs) by independent legal counsel in a written opinion, that,
based upon the facts known to the Board of Directors or counsel at the time such
determination is made, the Agent acted in bad faith and in a manner that such
person did not believe to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe his conduct was unlawful. In no
event shall any advance be made in instances where the Board of Directors or
independent legal counsel reasonably determines that the Agent deliberately
breached such person's duty to the Corporation or its stockholders.
(f) RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION. Any indemnification under Paragraphs (a), (b) and (d) or advance
under Paragraph (e) of this Section, shall be made promptly, and in any event
within 60 days, upon
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the written request of the Agent, unless with respect to applications under
Paragraphs (a), (b) or (e), a determination is reasonably and promptly made by
the Board of Directors by a majority vote of a quorum of disinterested Directors
that such Agent acted in a manner set forth in such Paragraphs as to justify the
Corporation's not indemnifying or making an advance to the Agent. In the event
no quorum of disinterested Directors is obtainable, the Board of Directors shall
promptly direct that independent legal counsel shall decide whether the Agent
acted in the manner set forth in such Paragraphs as to justify the Corporation's
not indemnifying or making an advance to the Agent. The right to
indemnification or advances as granted by this Section shall be enforceable by
the Agent in any court of competent jurisdiction, if the Board of Directors or
independent legal counsel denies the claim in whole or in part, or if no
disposition of such claim is made within 60 days. The Agent's costs, charges
and Expenses incurred in connection with successfully establishing such person's
right to indemnification, in whole or in part, in any such proceeding shall also
be indemnified by the Corporation.
(g) OTHER RIGHTS AND REMEDIES. The indemnification provided by this
Section shall not be deemed exclusive of, and shall not affect, any other rights
to which an Agent seeking indemnification may be entitled under any law, By-Law,
or charter provision, agreement, vote of stockholders or disinterested Directors
or otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be an Agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. All rights to
indemnification under this Section shall be deemed to be a contract between the
Corporation and the Agent who serves in such capacity at any time while these
Articles and other relevant provisions of the general corporation law and other
applicable law, if any, are in effect. Any repeal or modification thereof shall
not affect any rights or obligations then existing.
(h) INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was an Agent against any liability asserted
against such person and incurred by him or her in any such capacity, or arising
out of such person's status as such, whether or
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<PAGE>
not the Corporation would have the power to indemnify such person against such
liability under the provisions of this Section. The Corporation may create a
trust fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such sums as may become
necessary to effect indemnification as provided herein.
(i) PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(1) If a Change of Control (as hereinafter defined) shall have
occurred, in making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that the Agent is entitled to indemnification
under this Section if the Agent has submitted a request for indemnification
in accordance with Paragraph (f) of this Section, and the Corporation shall
have the burden of proof to overcome that presumption in connection with
the making by any person, persons or entity of any determination contrary
to that presumption.
(2) If the person, persons or entity empowered or selected under
Paragraph (f) of this Section to determine whether the Agent is entitled to
indemnification shall not have made such determination within 60 days after
receipt by the Corporation of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have
been made and the Agent shall be entitled to such indemnification, absent
(i) a misstatement by the Agent of a material fact, or an omission of a
material fact necessary to make the Agent's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law; PROVIDED,
HOWEVER, that such 60-day period may be extended for a reasonable time, not
to exceed an additional 30 days, if the person, persons or entity making
the determination with respect to entitlement to indemnification in good
faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and PROVIDED, FURTHER,
that the foregoing provi-
23
<PAGE>
sions of this Paragraph (i) shall not apply (a) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant
to Paragraph (f) of this Section and if (A) within 15 days after receipt by
the Corporation of the request for such determination the Board of
Directors has resolved to submit such determination to the stockholders for
their consideration at an annual meeting thereof to be held within 75 days
after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within 15 days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
within 60 days after having been so called and such determination is made
thereat, or (b) if the determination of entitlement to indemnification is
to be made by independent counsel pursuant to Paragraph (f) of this
Section.
(3) The termination of any proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not (except as otherwise
expressly provided in this Section) of itself adversely affect the right of
the Agent to indemnification or create a presumption that the Agent did not
act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, or, with
respect to any criminal proceeding, that the Agent had reasonable cause to
believe that such person's conduct was unlawful.
(j) OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S REQUEST. For
purposes of this Section, references to "other enterprise" in Paragraph (a)
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service by Agent as Director, officer, employee, agent or fiduciary of the
Corporation which imposes duties on, or involves services by, such Agent with
respect to any employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted
24
<PAGE>
in a manner "not opposed to the best interests of the Corporation" as referred
to in this Section.
(k) SAVINGS CLAUSE. If this Section or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Agent as to costs, charges and
Expenses, judgments, fines and amounts paid in settlement with respect to any
action, suit, proceeding or investigation, and any appeal therefrom, whether
civil, criminal or administrative, and whether internal or external, including a
grand jury proceeding and an action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Section that shall not have been invalidated, and to the fullest extent
permitted by applicable law.
(l) DEFINITIONS. For the purposes of this Article:
(1) "Agent" means any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding or investigation, whether civil, criminal or administrative, and
whether external or internal to the Corporation (other than a judicial
action or suit brought by or in the right of the Corporation) by reason of
the fact that he or she is or was or has agreed to be a Director, officer,
employee, agent or fiduciary of the Corporation, or that, being or having
been such a Director, officer, employee, agent or fiduciary, he or she is
or was serving at the request of the Corporation as a Director, officer,
employee, agent or fiduciary of another corporation, partnership, joint
venture, trust or other enterprise.
(2) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend,
25
<PAGE>
investigating, or being or preparing to be a witness in a proceeding.
(3) "Change of Control" means a change in control of the Corporation
of a nature that would be required to be reported in response to Item 5(f)
of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule) promulgated under the Securities Exchange Act of
1934, as amended, (the "Act"), whether or not the Corporation is then
subject to such reporting requirement; PROVIDED, HOWEVER, that, without
limitation, such a Change of Control shall be deemed to have occurred if
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Corporation
representing 25% or more of the combined voting power of the Corporation's
then outstanding securities without the prior approval of at least
two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (ii) the
Corporation is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of
the Board of Directors in office immediately prior to such transaction or
event constitute less than a majority of the Board of Directors thereafter;
or (iii) during any period of three consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (including
for this purpose any new Director whose election or nomination for election
by the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who were Directors at the
beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
ARTICLE XII
The Corporation reserves the right at any time and from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and
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<PAGE>
privileges of whatsoever nature conferred upon stockholders, Directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article.
CERTIFICATE
IT IS CERTIFIED that the foregoing Restated Certificate of Incorporation,
which restates and integrates, but does not further amend, the Certificate of
Incorporation of Hilton Hotels Corporation as heretofore amended or
supplemented, was adopted by the Board of Directors of Hilton Hotels Corporation
in a resolution and declaring its advisability, in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware, without a vote of the stockholders. There is no discrepancy between
the provisions of the Certificate of Incorporation, as heretofore amended or
supplemented, and this Restated Certificate of Incorporation.
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<PAGE>
IN WITNESS WHEREOF, Hilton Hotels Corporation has caused this Restated
Certificate of Incorporation to be signed by its Senior Vice President and
General Counsel and attested by its Vice President and Corporate Secretary on
this 20th day of November, 1996.
Hilton Hotels Corporation
/s/ William C. Lebo, Jr.
--------------------------------------
Name: William C. Lebo, Jr.
Title: Senior Vice President
and General Counsel
Attest /s/ Cheryl L. Marsh
----------------------------
Name: Cheryl L. Marsh
Title: Vice President and
Corporate Secretary
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EXHIBIT A
Series A Junior Participating Preferred Stock:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 550,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock,
par value $2.50 per shares (the "Common Stock"), of the Corporation, and of
any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of January,
April, July and October in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time after the issuance of any shares of Series A
Preferred Stock declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of
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<PAGE>
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the
issuance of any shares of Series A Preferred Stock declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the
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numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity
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<PAGE>
with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such shares
at such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time after
the issuance of any shares of Series A Preferred Stock declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the
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<PAGE>
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the issuance of any shares
of Series A Preferred Stock declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. RANK. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
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<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, RIGHTS AND LIMITATIONS OF
Preferred Redeemable Increased Dividend Equity
Securities-SM-, 8% PRIDES-SM-, Convertible Preferred Stock
of
HILTON HOTELS CORPORATION
-------------------------------------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
-------------------------------------------
HILTON HOTELS CORPORATION, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that, under
(i) authority conferred upon the Board of Directors by the Restated Certificate
of Incorporation of the Corporation, as amended to date, and (ii) the provisions
of Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors duly adopted the following resolutions by unanimous written
consent on November 22, 1996:
RESOLVED, that under authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation, as amended (the "Restated
Certificate of Incorporation"), that pursuant to Article IV of the Restated
Certificate of Incorporation, there is hereby authorized such series of
preferred stock on the terms and with the provisions herein set forth, to
be set forth in a certificate of designations (the "Certificate of
Designations"):
Section 1. DESIGNATION AND SIZE OF ISSUE; RANKING. (a) The series of
preferred stock authorized hereby shall be designated as the "Preferred
Redeemable Increased Dividend Equity Securities-SM-, 8% PRIDES-SM-, Convertible
Preferred Stock" (the "PRIDES"). The number of shares constituting the PRIDES
shall be 14,832,700 shares. Each share of PRIDES shall have a stated
liquidation value of $11.125.
(b) Any shares of the PRIDES which at any time have been redeemed for,
or converted into, Common Stock, par value $2.50, of the Corporation (the
"Common Stock") or otherwise reacquired by the Corporation shall, after such
redemption, conversion or other
- - ------------------------
- - -SM- SERVICE MARK OF MERRILL LYNCH & CO., INC.
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<PAGE>
acquisition, resume the status of authorized and unissued shares of preferred
stock, par value $1.00 of the Corporation (the "Preferred Stock"), without
designation as to series until such shares are once more designated as part of a
particular series by the Board of Directors.
(c) The shares of PRIDES shall rank on a parity, both as to payment of
dividends and distribution of assets upon liquidation, with any Preferred Stock
issued by the Corporation after the date of this Certificate of Designations
that by its terms ranks pari passu with the PRIDES ("Parity Preferred Stock").
Section 2. DIVIDENDS. (a) The holders of record of the shares of PRIDES
shall be entitled to receive, when and as declared by the Board of Directors out
of funds legally available therefor, cash dividends ("Preferred Dividends") from
the date of the issuance of the shares of PRIDES (subject to the provisos set
forth below) at the rate per annum of 8 percent of the stated liquidation value
per share (equivalent to $.89 per annum or $.2225 per quarter for each share of
PRIDES), payable quarterly in arrears, on each January 3, April 3, July 3 and
October 3 (each a "Dividend Payment Date") or, if any such date is not a
business day (as defined herein), the Preferred Dividend due on such Dividend
Payment Date shall be paid on the next succeeding business day; PROVIDED,
HOWEVER, that, with respect to any dividend period during which a redemption
occurs, the Corporation may, at its option, declare accrued Preferred Dividends
to, and pay such Preferred Dividends on, the date fixed for redemption, in which
case such Preferred Dividends shall be payable to the holders of shares of
PRIDES as of the record date for such dividend payment and shall not be included
in the calculation of the related PRIDES Call Price (as defined herein). Subject
to the provisos set forth below, the first dividend period shall be from the
date of initial issuance of the shares of PRIDES to but excluding January 3,
1997, and the first Preferred Dividend shall be payable on January 3, 1997.
Preferred Dividends on shares of PRIDES shall be cumulative and shall accumulate
from the date of original issuance; PROVIDED, HOWEVER, that all accumulated
dividends on the Bally Entertainment Corporation ("Bally") Preferred Redeemable
Increased Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock
(the "Bally PRIDES") as of the effective time of the Merger (the "Merger") of
Bally with and into the Corporation shall become accumulated dividends on the
PRIDES exchanged therefor, payable on the first dividend payment date following
the Merger (and such dividends shall not be payable with respect to Bally
PRIDES); PROVIDED, FURTHER, however, that in the event the Merger occurs on or
after the record date for a dividend on the Bally PRIDES but prior to the
payment date for such dividend, then such dividend shall be payable with respect
to the Bally PRIDES (and shall not constitute an accumulated dividend on the
PRIDES), and dividends shall commence accruing on the PRIDES as of the payment
date for such dividend (payable on the next succeeding payment date). Preferred
Dividends on shares of PRIDES shall cease to accrue on and after the Mandatory
Conversion Date (as defined herein) or on and after the date of their earlier
conversion or redemption, as the case may be. Preferred Dividends shall be
payable to holders of record as they appear on the stock register of the
Corporation on such record date, not less than 15 nor more than 60 days
preceding the payment date thereof, as shall be fixed by the Board of Directors.
Preferred Dividends payable on shares of PRIDES for any period less than a full
quarterly dividend period (or, in the case of the first Preferred Dividend,
subject to the provisos set
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forth above, from the date of initial issuance of the shares of PRIDES to but
excluding the first Dividend Payment Date) shall be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days elapsed in
any period less than one month. Preferred Dividends shall accrue on a daily
basis whether or not there are funds of the Corporation legally available for
the payment of such dividends and whether or not such Preferred Dividends are
declared. Accrued but unpaid Preferred Dividends shall cumulate as of the
Dividend Payment Date on which they first become payable, but no interest shall
accrue on accumulated but unpaid Preferred Dividends.
(b) As long as shares of PRIDES are outstanding, no dividends (other
than dividends payable in shares of, or warrants, rights or options exercisable
for or convertible into, shares of Common Stock or any other capital stock of
the Corporation ranking junior to the shares of PRIDES as to the payment of
dividends and the distribution of assets upon liquidation (collectively, the
"Junior Stock") and cash in lieu of fractional shares of such Junior Stock in
connection with any such dividend) shall be paid or declared in cash or
otherwise, nor shall any other distribution be made (other than a distribution
payable in Junior Stock and cash in lieu of fractional shares of such Junior
Stock in connection with any such distribution), on any Junior Stock unless: (i)
full dividends on Preferred Stock (including the shares of PRIDES) that does not
constitute Junior Stock ("Senior Preferred Stock") have been paid, or declared
and set aside for payment, for all dividend periods terminating at or before the
date of such Junior Stock dividend or distribution payment to the extent such
dividends are cumulative; (ii) dividends in full for the current quarterly
dividend period have been paid, or declared and set aside for payment, on all
Senior Preferred Stock to the extent such dividends are cumulative; (iii) the
Corporation has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement, and sinking
funds, if any, for any Senior Preferred Stock; and (iv) the Corporation is not
in default on any of its obligations to redeem any Senior Preferred Stock.
(c) As long as any shares of PRIDES are outstanding, no shares of any
Junior Stock may be purchased, redeemed, or otherwise acquired by the
Corporation or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through the issuance of other
Junior Stock (and cash in lieu of fractional shares of such Junior Stock in
connection therewith) or the purchase, redemption or other acquisition of any
Junior Stock with any Junior Stock (and cash in lieu of fractional shares in
connection therewith)) nor may any funds be set aside or made available for any
sinking fund for the purchase or redemption of any Junior Stock unless: (i) full
dividends on Senior Preferred Stock have been paid, or declared and set aside
for payment, for all dividend periods terminating at or before the date of such
purchase, redemption or other acquisition to the extent such dividends are
cumulative; (ii) dividends in full for the current quarterly dividend period
have been paid, or declared and set aside for payment, on all Senior Preferred
Stock to the extent such dividends are cumulative; (iii) the Corporation has
paid or set aside all amounts, if any, then or theretofore required to be paid
or set aside for all purchase, retirement and sinking funds, if any, for any
Senior Preferred Stock; and (iv) the Corporation is not in default on any of its
obligations to redeem any Senior Preferred Stock.
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(d) As long as any shares of PRIDES are outstanding, dividends or
other distributions may not be declared or paid on any Parity Preferred Stock
(other than dividends or other distributions payable in Junior Stock and cash in
lieu of fractional shares of such Junior Stock in connection therewith) and the
Corporation may not purchase, redeem or otherwise acquire any Parity Preferred
Stock (except with any Junior Stock and cash in lieu of fractional shares of
such Junior Stock in connection therewith), unless either (a) (i) full dividends
on Senior Preferred Stock have been paid, or declared and set aside for payment,
for all dividend periods terminating at or before the date of such Parity
Preferred Stock dividend, distribution, purchase, redemption or other
acquisition payment to the extent such dividends are cumulative; (ii) dividends
in full for the current quarterly dividend period have been paid, or declared
and set aside for payment, on all Senior Preferred Stock to the extent such
dividends are cumulative; (iii) the Corporation has paid or set aside all
amounts, if any, then or theretofore required to be paid or set aside for all
purchase, retirement, and sinking funds, if any, for any Senior Preferred Stock;
and (iv) the Corporation is not in default on any of its obligations to redeem
any Senior Preferred Stock; or (b) with respect to the payment of dividends
only, any such dividends on the Parity Preferred Stock shall be declared and
paid pro rata so that the amounts of any dividends declared and paid per share
of PRIDES and each other share of Senior Preferred Stock shall in all cases bear
to each other the same ratio that accrued dividends (including any accumulation
with respect to unpaid dividends for prior dividend periods, if such dividends
are cumulative) per share of PRIDES and such other shares of Parity Preferred
Stock bear to each other.
Section 3. CONVERSION OR REDEMPTION. (a) Unless previously either
redeemed or converted at the option of the holder in accordance with the
provisions of Section 3(c), on October 3, 1999 (the "Mandatory Conversion
Date"), each outstanding share of PRIDES shall mandatorily convert ("Mandatory
Conversion") into (i) shares of authorized Common Stock at the PRIDES Common
Equivalent Rate (as defined herein) in effect on the Mandatory Conversion Date
and (ii) the right to receive cash in an amount equal to all accrued and unpaid
Preferred Dividends on such share of PRIDES (other than previously declared
dividends payable to a holder of record as of a prior date) to the Mandatory
Conversion Date, whether or not declared, out of funds legally available for the
payment of Preferred Dividends, subject to the right of the Corporation to
redeem the shares of PRIDES on or after October 3, 1998 (the "Initial Redemption
Date"), and before the Mandatory Conversion Date, and subject to the conversion
of the shares of PRIDES at the option of the holder at any time before the
Mandatory Conversion Date. The "PRIDES Common Equivalent Rate" shall initially
be 1.12 shares of Common Stock for each share of PRIDES and shall be subject to
adjustment as set forth in Sections 3(d) and 3(e) below. Shares of PRIDES shall
cease to be outstanding from and after the Mandatory Conversion Date. The
Corporation shall make such arrangements as it deems appropriate for the
issuance of certificates representing shares of Common Stock and for the payment
of cash in respect of such accrued and unpaid dividends, if any, or cash in lieu
of fractional shares of Common Stock, if any, in exchange for and contingent
upon surrender of certificates representing shares of PRIDES, and the
Corporation may defer the payment of dividends on such shares of Common Stock
and the voting thereof until, and make such payment and voting contingent upon,
the surrender of certificates representing the shares of PRIDES; PROVIDED that
the
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Corporation shall give the holders of the shares of PRIDES such notice of any
such actions as the Corporation deems appropriate and upon surrender such
holders shall be entitled to receive such dividends declared and paid, if any,
on such shares of Common Stock subsequent to the Mandatory Conversion Date.
(b) (i) Shares of PRIDES are not redeemable by the Corporation before
the Initial Redemption Date. At any time and from time to time on or after the
Initial Redemption Date until immediately before the Mandatory Conversion Date,
the Corporation shall have the right to redeem, in whole or in part, the
outstanding shares of PRIDES (subject to the notice provisions set forth in
Section 3(b)(iv)). Upon any such redemption, the Corporation shall deliver to
each holder thereof, in exchange for each such share of PRIDES subject to
redemption, the greater of (A) the number of shares of Common Stock equal to the
applicable PRIDES Call Price (as defined herein) in effect on the redemption
date divided by the Current Market Price (as defined herein) of the Common
Stock, determined as of the second Trading Day (as defined herein) immediately
preceding the Notice Date (as defined herein); or (B) 0.92 of one share of
Common Stock (the "PRIDES Minimum Redemption Rate" which is subject to
adjustment in the same manner as the PRIDES Optional Conversion Rate (as defined
herein) is adjusted). Preferred Dividends on the shares of PRIDES shall cease to
accrue on and after the date fixed for their redemption.
(ii) The "PRIDES Call Price" of each share of PRIDES shall be the
sum of (x) $11.348 on and after the Initial Redemption Date, to and including
January 2, 1999; $11.292 on and after January 3, 1999, to and including April 2,
1999; $11.237 on and after April 3, 1999, to and including July 2, 1999; $11.181
on and after July 3, 1999, to and including September 2, 1999; and $11.125 (the
stated liquidation value of one share of PRIDES) on and after September 3, 1999,
to and including October 3, 1999; and (y) all accrued and unpaid Preferred
Dividends thereon to but not including the date fixed for redemption (other than
previously declared Preferred Dividends payable to a holder of record as of a
prior date). If fewer than all the outstanding shares of PRIDES are to be called
for redemption, shares of PRIDES to be called shall be selected by the
Corporation from outstanding shares of PRIDES not previously called by lot or
pro rata (as nearly as may be) or by any other method determined by the Board of
Directors in its sole discretion to be equitable.
(iii) The term "Current Market Price" per share of the Common
Stock on any date of determination means the lesser of (x) the average of the
Closing Prices (as defined herein) of the Common Stock for the 15 consecutive
Trading Days ending on and including such date of determination, and (y) the
Closing Price of the Common Stock on such date of determination; PROVIDED,
HOWEVER, that, with respect to any redemption of shares of PRIDES, if any event
resulting in an adjustment of the PRIDES Common Equivalent Rate occurs during
the period beginning on the first day of such 15-day period and ending on the
applicable redemption date, the Current Market Price as determined pursuant to
the foregoing shall be appropriately adjusted to reflect the occurrence of such
event.
(iv) The Corporation shall provide notice of any redemption of
the
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shares of PRIDES to holders of record of the shares of PRIDES to be called for
redemption not less than 30 nor more than 60 days before the date fixed for
redemption. Any such notice shall be provided by mail, sent to the holders of
record of the shares of PRIDES to be called at each such holder's address as it
appears on the stock register of the Corporation, first-class postage prepaid;
PROVIDED, HOWEVER, that failure to give such notice or any defect therein shall
not affect the validity of the proceeding for redemption of any shares of PRIDES
to be redeemed except as to the holder to whom the Corporation has failed to
give such notice or whose notice was defective. A public announcement of any
call for redemption shall be made by the Corporation before, or at the time of,
the mailing of such notice of redemption. The term "Notice Date" with respect
to any notice given by the Corporation in connection with a redemption of the
shares of PRIDES means the earlier of the date of the public announcement of
such redemption and the date of the commencement of mailing of such notice to
the holders of shares of PRIDES, in each case pursuant to this Section 3(b)(iv).
Each such notice shall state, as appropriate, the following and may contain
such other information as the Corporation deems advisable:
(A) the redemption date;
(B) that all outstanding shares of PRIDES are to be redeemed
or, in the case of a redemption of fewer than all outstanding shares of
PRIDES, the number of such shares held by such holder to be redeemed;
(C) the PRIDES Call Price, the number of shares of Common
Stock deliverable upon redemption of each share of PRIDES to be redeemed
and the Current Market Price used to calculate such number of shares of
Common Stock;
(D) the place or places where one or more certificates for
such shares of PRIDES are to be surrendered for redemption; and
(E) that dividends on the shares of PRIDES to be redeemed
shall cease to accrue on and after such redemption date (except as
otherwise provided herein).
(v) The Corporation's obligation to deliver shares of Common
Stock and provide funds upon redemption in accordance with this Section 3(b)
shall be deemed fulfilled if, on or before a redemption date, the Corporation
shall deposit with a bank or trust company, or an affiliate of a bank or trust
company, having a combined capital and surplus of at least $50,000,000 according
to its last published statement of condition, or shall set aside or make other
reasonable provision for the issuance of, such number of shares of Common Stock
as are required to be delivered by the Corporation pursuant to this Section 3(b)
upon the occurrence of the related redemption of shares of PRIDES and for the
payment of cash in lieu of the issuance of fractional share amounts and accrued
and unpaid dividends payable in cash on the shares of PRIDES to be redeemed as
required by this Section 3(b), in trust for the account of the holders of such
shares of PRIDES to be redeemed (and so as to
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be and continue to be available therefor), with irrevocable instructions and
authority to such bank or trust company that such shares and funds be delivered
upon redemption of the shares of PRIDES so called for redemption. Any interest
accrued on such funds shall be paid to the Corporation from time to time. Any
shares of Common Stock or funds so deposited and unclaimed at the end of three
years from such redemption date shall be repaid and released to the Corporation,
after which the holder or holders of such shares of PRIDES so called for
redemption shall look only to the Corporation for delivery of shares of Common
Stock and the payment of any other funds due in connection with the redemption
of the shares of PRIDES.
(vi) Each holder of shares of PRIDES called for redemption must
surrender the certificates evidencing such shares (properly endorsed or assigned
for transfer, if the Board of Directors shall so require and the notice shall so
state) to the Corporation at the place designated in the notice of such
redemption and shall thereupon be entitled to receive certificates evidencing
shares of Common Stock and to receive any funds payable pursuant to this Section
3(b) following such surrender and following the date of such redemption. In case
fewer than all the shares represented by any such surrendered certificate are
called for redemption, a new certificate shall be issued at the expense of the
Corporation representing the unredeemed shares. If such notice of redemption
shall have been given, and if on the date fixed for redemption shares of Common
Stock and funds necessary for the redemption shall have been irrevocably either
set aside by the Corporation separate and apart from its other funds or assets
in trust for the account of the holders of the shares to be redeemed (and so as
to be and continue to be available therefor) or deposited with a bank or trust
company or an affiliate thereof as provided herein or the Corporation shall have
made other reasonable provision therefor, then notwithstanding that the
certificates evidencing any shares of PRIDES so called for redemption shall not
have been surrendered, the shares represented thereby so called for redemption
shall be deemed no longer outstanding and Preferred Dividends with respect to
the shares so called for redemption and all rights with respect to the shares so
called for redemption shall forthwith on and after such date cease and terminate
(unless the Corporation defaults on the payment of the redemption price), except
for (i) the rights of the holders to receive the shares of Common Stock and
funds, if any, payable pursuant to this Section 3(b) without interest upon
surrender of their certificates therefor and (ii) the right of the holders,
pursuant to Section 3(c) to convert the shares of PRIDES called for redemption
until immediately before the close of business on any redemption date; PROVIDED,
HOWEVER, that holders of shares of PRIDES at the close of business on a record
date for any payment of Preferred Dividends shall be entitled to receive the
Preferred Dividend payable on such shares on the corresponding Dividend Payment
Date notwithstanding the redemption of such shares following such record date
and before the Dividend Payment Date. Holders of shares of PRIDES that are
redeemed shall not be entitled to receive dividends declared and paid on such
shares of Common Stock, and such shares of Common Stock shall not be entitled to
vote, until such shares of Common Stock are issued upon the surrender of the
certificates representing such shares of PRIDES, and upon such surrender such
holders shall be entitled to receive such dividends declared and paid on such
shares of Common Stock subsequent to such redemption date.
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(vii) Notwithstanding the provisions of this Section 3(b), the
shares of PRIDES shall be subject to regulatory redemption pursuant to Article X
of the Restated Certificate of Incorporation of the Corporation, as amended to
date.
(c) Shares of PRIDES are convertible, in whole or in part, at the
option of the holders thereof ("Optional Conversion"), at any time before the
Mandatory Conversion Date, unless previously redeemed, into shares of Common
Stock at a rate of .92 shares of Common Stock for each share of PRIDES (the
"PRIDES Optional Conversion Rate"), subject to adjustment as set forth below.
The right of Optional Conversion of shares of PRIDES called for redemption shall
terminate immediately before the close of business on any redemption date with
respect to such shares.
Optional Conversion of shares of PRIDES may be effected by delivering
certificates evidencing such shares of PRIDES, together with written notice of
conversion and a proper assignment of such certificates to the Corporation or in
blank (and, if applicable, cash payment of an amount equal to the Preferred
Dividend attributable to the current quarterly dividend period payable on such
shares), to the office of the transfer agent for the shares of PRIDES or to any
other office or agency maintained by the Corporation for that purpose and
otherwise in accordance with Optional Conversion procedures established by the
Corporation. Each Optional Conversion shall be deemed to have been effected
immediately before the close of business on the date on which the foregoing
requirements shall have been satisfied. The Optional Conversion shall be at the
PRIDES Optional Conversion Rate in effect at such time and on such date.
Holders of shares of PRIDES at the close of business on a record date for
any payment of declared Preferred Dividends shall be entitled to receive the
Preferred Dividend payable on such shares of PRIDES on the corresponding
Dividend Payment Date notwithstanding the Optional Conversion of such shares of
PRIDES following such record date and before such Dividend Payment Date.
However, shares of PRIDES surrendered for Optional Conversion after the close of
business on a record date for any payment of declared Preferred Dividends and
before the opening of business on the next succeeding Dividend Payment Date must
be accompanied by payment in cash of an amount equal to the Preferred Dividends
attributable to the current quarterly dividend period payable on such date
(unless such shares of PRIDES are subject to redemption on a redemption date
between such record date established for such Dividend Payment Date and such
Dividend Payment Date). Except as provided above, upon any Optional Conversion
of shares of PRIDES, the Corporation shall make no payment of or allowance for
unpaid Preferred Dividends, whether or not in arrears, on such shares of PRIDES
as to which Optional Conversion has been effected or for previously declared
dividends or distributions on the shares of Common Stock issued upon Optional
Conversion.
(d) The PRIDES Common Equivalent Rate, the PRIDES Minimum Redemption
Rate and the PRIDES Optional Conversion Rate (collectively, referred to as the
"Rates") are each subject to adjustment from time to time as provided below in
this paragraph (d).
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(i) If the Corporation shall pay a stock dividend or make a
distribution with respect to its Common Stock in shares of Common Stock
(including by way of reclassification of any shares of its Common Stock), the
Rates in effect at the opening of business on the day following the date fixed
for the determination of stockholders entitled to receive such dividend or other
distribution shall each be increased by multiplying such Rates by a fraction of
which the numerator shall be the sum of the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination,
immediately before such dividend or distribution, plus the total number of
shares of Common Stock constituting such dividend or other distribution, and of
which the denominator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination, immediately
before such dividend or distribution, such increase to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this clause (i), the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of the Corporation but shall include shares issuable in respect of
certificates issued in lieu of fractions of shares of Common Stock.
(ii) In case outstanding shares of Common Stock shall be
subdivided or split into a greater number of shares of Common Stock, the Rates
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall each be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Rates in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall each be proportionately reduced, such increases or reductions,
as the case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision or combination
becomes effective.
(iii) If the Corporation shall, after the date of this
Certificate of Designations, issue rights or warrants to all holders of its
Common Stock entitling them (for a period not exceeding 45 days from the date of
such issuance) to subscribe for or purchase shares of Common Stock at a price
per share less than the Current Market Price of the Common Stock (determined
pursuant to Section 3(b)(ii)) on the record date for the determination of
stockholders entitled to receive such rights or warrants, then in each case the
Rates shall each be adjusted by multiplying the Rates in effect on such record
date by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants,
immediately before such issuance, plus the number of additional shares of Common
Stock offered for subscription or purchase pursuant to such rights or warrants,
and of which the denominator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants, immediately
before such issuance, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered for subscription or purchase pursuant to such rights or warrants would
purchase at such Current Market Price (determined by multiplying such total
number of shares by the exercise price of such rights or warrants and dividing
the product so obtained by such Current Market Price). Shares of Common Stock
held by the Corporation or by another corporation of which a majority of the
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shares entitled to vote in the election of directors are held, directly or
indirectly, by the Corporation shall not be deemed to be outstanding for
purposes of such computation. Such adjustment shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to receive such rights or warrants. To
the extent that shares of Common Stock are not delivered after the expiration of
such rights or warrants, the Rates shall each be readjusted to the Rates which
would then be in effect had the adjustments made after the issuance of such
rights or warrants been made upon the basis of issuance of rights or warrants in
respect of only the number of shares of Common Stock actually delivered.
(iv) If the Corporation shall pay a dividend or make a
distribution to all holders of its Common Stock consisting of evidences of its
indebtedness, cash or other assets (including shares of capital stock of the
Corporation other than Common Stock and shares of capital stock of any other
corporation, but excluding any cash dividends or distributions, other than
Extraordinary Cash Distributions (as defined herein) and dividends referred to
in clause (i) above), or shall issue to all holders of its Common Stock rights
or warrants to subscribe for or purchase any of its securities (other than those
referred to in clause (iii) above), then in each such case, the Rates shall each
be adjusted by multiplying such Rates in effect on the record date for such
dividend or distribution or for the determination of stockholders entitled to
receive such rights or warrants, as the case may be, by a fraction of which the
numerator shall be the Current Market Price per share of the Common Stock
(determined pursuant to 3(b)(ii) on such record date), and of which the
denominator shall be such Current Market Price per share of Common Stock less
either (i) the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive) on such record date of the portion of the
assets or evidences of indebtedness so distributed, or of such subscription
rights or warrants, applicable to one share of Common Stock, or (ii) if
applicable, the amount of the Extraordinary Cash Distributions. Such adjustment
shall become effective on the opening of business on the business day next
following the record date for such dividend or distribution or for the
determination of holders entitled to receive such rights or warrants, as the
case may be.
(v) Any shares of Common Stock issuable in payment of a dividend
or other distribution (other than as described in clause (i) above) shall be
deemed to have been issued immediately before the close of business on the
record date for such dividend or other distribution for purposes of calculating
the number of outstanding shares of Common Stock under this Section 3.
(vi) Anything in this Section 3 notwithstanding, the Corporation
shall be entitled (but shall not be required) to make such upward adjustments in
the Rates and the PRIDES Call Price in addition to those set forth by this
Section 3, as the Corporation, in its sole discretion, shall determine to be
advisable, in order that any stock dividends, subdivision of stock, distribution
of rights to purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock (or any transaction that could be
treated as any of the foregoing transactions pursuant to Section 305 of the
Internal Revenue Code of 1986, as amended) hereafter made by the Corporation to
its stockholders shall not be taxable. The
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term "Extraordinary Cash Distribution" means, with respect to any consecutive
12-month period, all cash dividend and cash distributions on the Common Stock
during such period (other than cash dividends and cash distributions for which a
prior adjustment to the Rates was previously made) to the extent such dividends
and distributions exceed, on a per share of Common Stock basis, 10% of the
average daily Closing Price of the Common Stock over such period.
(vii) In any case in which this Section 3(d) shall require that
an adjustment as a result of any event become effective at the opening of
business on the business day next following a record date and the date fixed for
conversion pursuant to Section 3(a) or redemption pursuant to Section 3(b)
occurs after such record date, but before the occurrence of such event, the
Corporation may, in its sole discretion, elect to defer the following until
after the occurrence of such event or the date of final determination of such
fair market value; (A) issuing to the holder of any shares of PRIDES surrendered
for conversion or redemption the additional shares of Common Stock issuable over
the shares of Common Stock issuable before giving effect to such adjustment; and
(B) paying to such holder any amount in cash in lieu of a fractional share of
Common Stock pursuant to Section 4.
(viii) All adjustments to the Rates shall be calculated to the
nearest 1/100th of a share of Common Stock. No adjustment in any of the Rates
shall be required unless such adjustment would require an increase or decrease
of at least one percent therein; PROVIDED, HOWEVER, that any adjustments which
by reason of this Section 3(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All adjustments to
the Rates shall be made successively.
(ix) Before redeeming any shares of PRIDES, the Corporation shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock upon such redemption.
(e) In case of any consolidation or merger to which the Corporation is
a party (other than a consolidation or merger in which the Corporation is the
surviving or continuing corporation and in which the shares of Common Stock
outstanding immediately before the merger or consolidation remain unchanged) or
in the case of any sale or transfer to another corporation of the property of
the Corporation as an entirety or substantially as an entirety, or in the case
of a statutory exchange of securities with another corporation (other than in
connection with a merger or acquisition), each share of PRIDES shall, after
consummation of such transaction, be subject to (i) conversion at the option of
the holder into the kind and amount of securities, cash, or other property
receivable upon consummation of such transaction by a holder of the number of
shares of Common Stock into which such shares of PRIDES might have been
converted immediately before consummation of such transaction, (ii) conversion
on the Mandatory Conversion Date into the kind and amount of securities, cash,
or other property receivable upon consummation of such transaction by a holder
of the number of shares of Common Stock into which such share of PRIDES would
have been
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converted if the conversion on the Mandatory Conversion Date had occurred
immediately before the date of consummation of such transaction, plus the right
to receive cash in an amount equal to all accrued and unpaid dividends on such
share of PRIDES (other than previously declared dividends payable to a holder of
record as of a prior date), and (iii) redemption on any redemption date in
exchange for the kind and amount of securities, cash, or other property
receivable upon consummation of such transaction by a holder of the number of
shares of Common Stock that would have been issuable at the PRIDES Call Price in
effect on such redemption date upon a redemption of such share of PRIDES
immediately before consummation of such transaction, assuming that, if the
Notice Date for such redemption is not before such transaction, the Notice Date
had been the date of such transaction; and assuming in each case that such
holder of shares of Common Stock failed to exercise rights of election, if any,
as to the kind or amount of securities, cash, or other property receivable upon
consummation of such transaction (PROVIDED that, if the kind or amount of
securities, cash, or other property receivable upon consummation of such
transaction is not the same for each non-electing share, then the kind and
amount of securities, cash, or other property receivable upon consummation of
such transaction for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares). The
kind and amount of securities into or for which the shares of PRIDES shall be
convertible or redeemable after consummation of such transaction shall be
subject to adjustment as described in Section 3(d) following the date of
consummation of such transaction. The Corporation may not become a party to any
such transaction unless the terms thereof are consistent with the foregoing.
(f) Whenever the Rates are adjusted as provided in Section 3(d), the
Corporation shall:
(i) forthwith compute the Rates in accordance with this Section 3
and prepare a certificate signed by the President and Chief Executive Officer,
the Executive Vice President and Chief Financial Officer, the Vice President
and Treasurer, Vice President and General Counsel, the Vice President and
Corporate Controller or the Vice President and Corporate Secretary of the
Corporation setting forth the adjusted Rates, the method of calculation thereof
in reasonable detail and the facts requiring such adjustment and upon which such
adjustment is based, which certificate shall be conclusive, final and binding
evidence of the correctness of the adjustment, and shall file such certificate
forthwith with the transfer agent for the shares of the PRIDES and the Common
Stock;
(ii) make a prompt public announcement stating that the Rates
have been adjusted and setting forth the adjusted Rates; and
(iii) mail a notice stating that the Rates have been adjusted,
the facts requiring such adjustment and upon which such adjustment is based and
setting forth the adjusted Rates, to the holders of record of the outstanding
shares of PRIDES, at or prior to the time the Corporation mails an interim
statement, if any, to its stockholders covering the fiscal quarter period during
which the facts requiring such adjustment occurred, but in any event within 45
days of the end of such fiscal quarter period.
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(g) In case, at any time while any of the shares of PRIDES are
outstanding,
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock, excluding any cash dividends other than
Extraordinary Cash Distributions; or
(ii) the Corporation shall authorize the issuance to all holders
of the Common Stock of rights or warrants to subscribe for or purchase shares of
the Common Stock or of any other subscription rights or warrants; or
(iii) the Corporation shall authorize any reclassification of the
Common Stock (other than a subdivision or combination thereof) or any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required (except for a merger
of the Corporation into one of its subsidiaries solely for the purpose of
changing the corporate domicile of the Corporation to another state of the
United States and in connection with which there is no substantive change in the
rights or privileges of any securities of the Corporation other than changes
resulting from differences in the corporate statutes of the state the
Corporation was then domiciled in and the new state of domicile), or the sale or
transfer of all or substantially all of the assets of the Corporation; then the
Corporation shall cause to be filed at each office or agency maintained for the
purpose of conversion of the shares of PRIDES, and shall cause to be mailed to
the holders of shares of PRIDES at their last addresses as they shall appear on
the stock register of the Corporation, at least 10 business days before the date
hereinafter specified in clause (A) or (B) below (or the earlier of the dates
hereinafter specified, in the event that more than one date is specified), a
notice stating (A) the date on which a record is to be taken for the purpose of
such dividend, distribution, rights or warrants, or, if a record is not be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights or warrants are to be determined, or (B)
the date on which any such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for securities or
other property (including cash), if any, deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
The failure to give or receive the notice required by this paragraph (g) or any
defect therein shall not affect the legality or validity of any such dividend,
distribution, right or warrant or other action.
Section 4. NO FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon redemption or conversion of any shares of the PRIDES. In lieu of
any fractional share otherwise issuable in respect of the aggregate number of
shares of the PRIDES of any holder that are redeemed or converted on any
redemption date or upon Mandatory Conversion or Optional Conversion, such holder
shall be entitled to receive an amount in cash (computed to the nearest cent)
equal to the same fraction of the (i) Current Market Price of the Common Stock
(determined as of the second Trading Day immediately preceding the Notice Date)
in the case of redemption, or (ii) Closing Price of the Common Stock determined
(A) as of the fifth Trading Day immediately preceding the Mandatory Conversion
46
<PAGE>
Date, in the case of Mandatory Conversion, or (B) as of the second Trading Day
immediately preceding the effective date of conversion, in the case of an
Optional Conversion by a holder. If more than one share of PRIDES shall be
surrendered for conversion or redemption at one time by or for the same holder,
the number of full shares of Common Stock issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of the PRIDES so
surrendered or redeemed.
Section 5. RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion or redemption of shares of
PRIDES, as herein provided, free from preemptive rights, such maximum number of
shares of Common Stock as shall from time to time be issuable upon the Mandatory
Conversion or Optional Conversion or redemption of all the shares of PRIDES then
outstanding.
Section 6. DEFINITIONS. As used in this Certificate of Designations:
(i) the term "business day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close;
(ii) the term "Closing Price", on any day, shall mean the last
reported sales price of the Common Stock, regular way on such day, or, if no
sale takes place on such day, the average of the reported closing bid and asked
prices on such day, regular way, in either case as reported on the New York
Stock Exchange or, if such security is not listed or admitted for trading on the
New York Stock Exchange, on the Nasdaq National Market of the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or, if such security is not quoted on such Nasdaq National Market, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by NASDAQ or, if bid and asked prices for such security on such day
shall not have been reported through NASDAQ, the average of the bid and asked
prices on such day, as furnished by any New York Stock Exchange member firm
making a market in the Common Stock selected from time to time by the Board of
Directors for that purpose;
(iii) the term "record date" shall be such date as from time to
time shall be fixed by the Board of Directors with respect to the receipt of
dividends, the receipt of a redemption price upon redemption or the taking of
any action or exercise of any voting rights permitted hereby; and
(iv) the term "Trading Day" shall mean a date on which the New
York Stock Exchange (or any successor) is open for the transaction of business.
Section 7. PAYMENT OF TAXES. The Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on the redemption or conversion of
shares of PRIDES pursuant to Section 3; PROVIDED, HOWEVER, that the Corporation
shall not be required to pay any tax which may
47
<PAGE>
be payable in respect of any registration of transfer involved in the issue or
delivery of shares of Common Stock in a name other than that of the registered
holder of shares of PRIDES redeemed or converted or to be redeemed or converted,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of any such tax or
has established, to the satisfaction of the Corporation, that such tax has been
paid.
Section 8. LIQUIDATION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation, and
subject to the rights of holders of any other series of Preferred Stock, the
holders of outstanding shares of PRIDES are entitled to receive the sum of
$11.125 per share, plus an amount equal to any accrued and unpaid Preferred
Dividends thereon, out of the assets of the Corporation available for
distribution to stockholders, before any distribution of assets is made to
holders of Junior Stock. If, upon any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the assets of the Corporation are
insufficient to permit the payment of the full preferential amounts payable with
respect to the shares of PRIDES and all other series of Parity Preferred Stock,
the holders of shares of PRIDES and of all other series of Parity Preferred
Stock shall share ratably in any distribution of assets of the Corporation in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of shares of PRIDES shall not be entitled
to any further participation in any distribution of assets by the Corporation. A
consolidation or merger of the Corporation with or into one or more other
corporations (whether or not the Corporation is the corporation surviving such
consolidation or merger), or a sale, lease or exchange of all or substantially
all of the assets of the Corporation shall not be deemed to be a voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation.
Section 9. VOTING RIGHTS. (a) The holders of shares of PRIDES shall have
the right with the holders of Common Stock to vote in the election of Directors
and upon each other matter coming before any meeting of the holders of Common
Stock on the basis of four-fifths (4/5ths) of a vote for each share of PRIDES
held. The holders of shares of PRIDES and the holders of Common Stock will vote
together as one class on such matters except as otherwise provided by law or the
Restated Certificate of Incorporation of the Corporation.
(b) In the event that dividends on the shares of PRIDES or any other
series of Preferred Stock shall be in arrears and unpaid for six quarterly
dividend periods, or if any series of Preferred Stock (other than the PRIDES)
shall be entitled for any other reason to exercise voting rights, separate from
the Common Stock, to elect any directors of the Corporation ("Preferred Stock
Directors"), the holders of the shares of PRIDES (voting separately as a class
with holders of all other series of Preferred Stock upon which like voting
rights have been conferred and are exercisable with the PRIDES as a class), with
each share of PRIDES entitled to one vote on this and other matters in which
such Preferred Stock votes as a group, shall be entitled to vote for the
election of two directors of the Corporation, such directors to be in addition
to the number of directors constituting the Board of Directors immediately
before the accrual of such right. Such right, when vested, shall continue until
all
48
<PAGE>
cumulative dividends accumulated and payable on the shares of PRIDES and such
other series of Preferred Stock shall have been paid in full and the right of
any other such series of Preferred Stock to exercise voting rights, separate
from the Common Stock, to elect Preferred Stock Directors shall terminate or
have terminated, and, when so paid and any such termination occurs or has
occurred, such right of the holders of the shares of PRIDES shall cease. The
term of office of any director elected by the holders of the shares of PRIDES
and such other series shall terminate on the earlier of (i) the next annual
meeting of stockholders at which a successor shall have been elected and
qualified or (ii) the termination of the right of holders of the shares of
PRIDES and such other series to vote for such directors.
(c) The Corporation shall not, without the approval of the holders of
at least 66-2/3 percent of the shares of PRIDES then outstanding: (i) amend,
alter, or repeal any of the provisions of the Restated Certificate of
Incorporation of the Corporation so as to affect adversely the powers,
preferences or rights of the holders of the shares of PRIDES then outstanding or
reduce the minimum time for any required notice to which the holders of the
shares of PRIDES then outstanding may be entitled (an amendment of the Restated
Certificate of Incorporation to authorize or create, or to increase the
authorized amount of, Junior Stock or any stock of any class ranking on a parity
with the PRIDES being deemed not to affect adversely the powers, preferences, or
rights of the holders of the shares of PRIDES); (ii) authorize or create, or
increase the authorized amount of, any stock of any class (whether or not
convertible into capital stock of any class), ranking prior to the shares of
PRIDES either as to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the Corporation; or (iii) merge or
consolidate with or into any other corporation, unless each holder of shares of
PRIDES immediately preceding such merger or consolidation shall receive or
continue to hold in the resulting corporation the same number of shares, with
substantially the same rights and preferences, including, without limitation, as
set forth in Section 3(e) hereof, as correspond to the shares of PRIDES so held.
(d) The Corporation shall not, without the approval of the holders of
at least a majority of the shares of PRIDES then outstanding, increase the
authorized number of shares of Preferred Stock to greater than 60,000,000
shares.
(e) Notwithstanding the provisions set forth in Sections 9(c) and
9(d), no such approval described therein of the holders of the shares of PRIDES
shall be required if, at or before the time when such amendment, alteration or
repeal is to take effect or when the authorization, creation, increase or
issuance of any such prior or parity stock or convertible security is to be
made, or when such consolidation or merger, voluntary liquidation, dissolution,
or winding up, sale, lease, conveyance, purchase, or redemption is to take
effect, as the case may be, provision is made for the redemption of all shares
of PRIDES at the time outstanding.
49
<PAGE>
IN WITNESS WHEREOF, HILTON HOTELS CORPORATION has caused this certificate
to be signed and attested this 22nd day of November, 1996.
HILTON HOTELS CORPORATION
By: /s/ Matthew J. Hart
-----------------------------------
Name: Matthew J. Hart
Title: Executive Vice President and
Chief Financial Officer
Attest:
/s/ Cheryl L. Marsh
- - --------------------------------
Name: Cheryl L. Marsh
Title: Vice President and
Corporate Secretary
50
<PAGE>
CERTIFICATE OF MERGER
MERGING
BALLY ENTERTAINMENT CORPORATION
WITH AND INTO
HILTON HOTELS CORPORATION
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY THAT:
1. The name and state of incorporation of each of the constituent
corporations of the merger is as follows:
NAME STATE OF INCORPORATION
---- ----------------------
Hilton Hotels Corporation ("Hilton") Delaware
Bally Entertainment Corporation ("Bally") Delaware
2. The Boards of Directors of Hilton and Bally have approved an Agreement
and Plan of Merger dated as of June 6, 1996, as amended (the "Agreement of
Merger"), by and between Hilton and Bally, whereby Bally will merge with and
into Hilton pursuant to Section 251 of the Delaware General Corporation Law, so
that the separate existence of Bally will cease as soon as such merger (the
"Merger") becomes effective (the "Effective Date"), and Hilton will assume all
of the liabilities of Bally and thereafter shall continue as the surviving
corporation (the "Surviving Corporation"), governed by the laws of the State of
Delaware, and existing under the corporate name it possesses immediately prior
to the Effective Date.
3. The Agreement of Merger was approved by the holders of a majority of
the outstanding shares of Hilton entitled to vote thereon, and by the holders of
a majority of the votes entitled to be cast by the holders of the outstanding
shares of Bally entitled to vote thereon, in each case by a special meeting of
stockholders held in accordance with Section 211 of the Delaware General
Corporation Law, and with the notice required by said Section 222 having been
sent to each holder.
4. Each of Hilton and Bally have approved, adopted, certified, executed
and acknowledged the Agreement of Merger in accordance with Section 251 of the
General Corporation Law of the State of Delaware.
5. The name of the corporation surviving the Merger is Hilton Hotels
Corporation.
51
<PAGE>
6. On the Effective Date, the Restated Certificate of Incorporation, as
amended, and Bylaws, as amended, of Hilton in effect immediately prior to the
Effective Date will be the certificate of incorporation and bylaws of the
Surviving Corporation.
7. The executed Agreement of Merger is on file at the principal place of
business of the Surviving Corporation at the following address:
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, California 90210
Attention: Corporate Secretary
A copy of the Agreement of Merger will be furnished by the Surviving
Corporation, on request and without cost, to any stockholder of either
constituent corporation.
52
<PAGE>
IN WITNESS WHEREOF, Hilton Hotels Corporation has caused this
Certificate to be signed by its Senior Vice President and General Counsel and
attested by its Secretary, this 18th day of December, 1996.
HILTON HOTELS CORPORATION
By: /s/ William C. Lebo, Jr.
-----------------------------------
William C. Lebo, Jr.
Senior Vice President and
General Counsel
Attest:
/s/ Cheryl L. Marsh
- - ------------------------------
Cheryl L. Marsh
Corporate Secretary
53
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
HILTON HOTELS CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is Hilton Hotels Corporation.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article X thereof and by submitting in lieu of said
Article the following new Article:
SEE TEXT OF NEW ARTICLE X ATTACHED HERETO.
3. The amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
Signed on May 20, 1997.
/s/ CHERYL L. MARSH
-----------------------------
Cheryl L. Marsh
Vice President and
Corporate Secretary
54
<PAGE>
ARTICLE X
(a) If any person (as hereinafter defined) which beneficially owns
Securities (as hereinafter defined) of the Corporation (i) is requested or
required pursuant to any Gaming Regulation (as hereinafter defined) to appear
before, or submit to the jurisdiction of, or provide information to, any
Gaming Authority (as hereinafter defined) and either refuses to do so or
otherwise fails to comply with such request or requirement within a reasonable
period of time or (ii) is determined or shall have been determined by any
Gaming Authority not to be suitable or qualified with respect to the
beneficial ownership of Securities of the Corporation, each such person by
owing Securities in the Corporation hereby agrees to sell to the Corporation
and the Corporation shall have the absolute right in its sole discretion to
repurchase, any or all of the Securities of the Corporation beneficially
owned by such person at a price determined pursuant to Section (c) hereof.
The operation of this Article X shall not be stayed by an appeal from a
determination of any Gaming Authority.
(b) If the Corporation intends to repurchase Securities beneficially
owned by any person referred to in clause (i) or (ii) of Section (a) hereof,
it shall notify the person in writing of such intention, specifying the
Securities to be repurchased, the date, time, and place when such repurchase
will be consummated (the "Repurchase Date"), which date is no event will be
earlier than three business days after the date of such notice and the price
at which such Securities will be repurchased (it being sufficient for
purposes of this Article X for the Corporation to indicate generally that the
price will be determined in accordance with Section (c) hereof). If the
Corporation gives the notice provided for by the preceding sentence (the
"Repurchase Notice"), such notice shall be deemed to constitute a binding
agreement on the part of the Corporation to repurchase, and on the part of
the person notified to sell, the Securities referred to in such Notice in
accordance with this Article X. Following the Repurchase Date, no dividends
will be payable on and no voting rights will be available to the holders of
any Securities covered by such Repurchase Notice which has not been duly
delivered by the holder thereof for repurchase by the Corporation. If
following such Repurchase Date, any Securities with respect to which a
Repurchase Notice has been given has not been duly delivered by the holder
thereof for repurchase by the Corporation, the Corporation shall deposit in
escrow or otherwise hold in trust for the benefit of such holder an amount
equal to the aggregate Market Price (as hereinafter defined) of the
Securities to be repurchased except that to the extent New Securities (as
hereinafter defined) are to be repurchased and the Purchase Price (as
hereinafter defined) thereof shall have been publicly disclosed or otherwise
made available to the Corporation, the amount deposited in escrow or
otherwise segregated with respect to such New Shares may be the lesser of the
Market Price thereof on the date of the Repurchase Notice and the Purchase
Price thereof. The establishment of such an account shall in no way alter the
amount otherwise payable to any person pursuant to this Article X. No
interest shall be paid on or accrue with respect to any amount so deposited
or held.
(c)(i) In the event that the person to whom Repurchase Notice is
directed pursuant to Section (b) hereof has acquired beneficial ownership of
Securities within the twenty-four month period terminating on the date of
such Notice ("New Securities"), the price at which the Corporation shall
repurchase such New Securities as are covered by the Repurchase Notice shall
be the lesser of the Market Price thereof on the date of such Notice and the
Purchase Price thereof.
55
<PAGE>
(ii) In the event that the person to whom a Repurchase Notice is
directed pursuant to Section (b) hereof has acquired beneficial ownership of
any or all of his Securities prior to the twenty-four month period
terminating on the date of such Notice ("Old Securities"), the price at which
the Corporation shall repurchase such Old Securities as are covered by the
Repurchase Notice shall be the Market Price thereof on the date of the
Repurchase Notice.
(iii) The Corporation shall have the option in its sole discretion of
designating which Securities of the Securities beneficially owned by any
person referred to in clause (i) or (ii) of Section (a) hereof are subject to
the Repurchase Notice and, for purposes hereof, it shall be sufficient for
the Corporation to indicate generally that Securities shall be repurchased
based on the order in which they were purchased or based on the reverse of
such order.
(iv) Any person to whom a Repurchase Notice is given pursuant to the
provisions of this Article shall have the burden of establishing to the
satisfaction of the Corporation the dates on which and prices at which such
person acquired the Securities subject to such Notice.
(d) For purposes of this Article X:
1. A "person" shall mean any individual, firm, corporation or other
entity.
2. "Securities" shall mean any instrument evidencing a direct or
indirect beneficial ownership or creditor interest in the Corporation,
including but not limited to, stock, common and preferred;
bonds; mortgages; debentures; security agreements; notes; warrants;
options and rights.
3. A person shall be "beneficial owner" of any Securities:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has
(a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (b) the right to vote pursuant to any agreement, arrangements or
understanding; or
(iii) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any
Securities.
4. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b.2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect
on March 8, 1985.
5. A "Gaming Regulation" shall mean any statute, rule, regulation,
order, ordinance or interpretation of a Gaming Authority.
6. A "Gaming Authority" shall mean any government, court, or
governmental, administrative or regulatory agency or authority,
Federal, state, local or foreign, which regulates or otherwise asserts
jurisdiction over gaming operations or facilities conducted by the
Corporation or any of its subsidiaries or Affiliates.
56
<PAGE>
7. "Market Price" means the average of the last sale prices of a share
of such Securities on the Composite Tape for New York Stock
Exchange-Listed Stocks for each of the 15 consecutive trading days (the
"Valuation Period") commencing 16 trading days prior to the date in
question; provided that if such Securities are not quoted on the
Composite Tape, such average last sale price shall be derived from the
average last sale prices on the New York Exchange, or, if such
Securities are not listed on such Exchange, on the principal United
States securities exchange registered under the Securities Exchange Act
of 1934 on which such Securities are listed, or, if such Securities
are not listed on any such exchange, the average of the closing bid
quotations with respect to such Securities during the Valuation Period
on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations
are available, the fair market value on the date in question of such
Securities as determined by the board of directors in good faith.
8. "Purchase Price" means the price paid to acquire the Securities,
exclusive of commissions, taxes and other fees and expenses, adjusted
for any stock split, stock dividend, combination of shares or similar
event.
(e) A majority of the Directors of the Corporation shall have the power
and duty to determine for the purposes of this Article X on the basis of
information known to them after reasonable inquiry, whether clause (i) or
(ii) of Section (a) hereof applies to any person who beneficially owns
Securities of the Corporation such that the Corporation shall have the right
to repurchase shares of Securities held by such person pursuant to this
Article X.
57
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 297
<SECURITIES> 28
<RECEIVABLES> 404
<ALLOWANCES> 39
<INVENTORY> 81
<CURRENT-ASSETS> 927
<PP&E> 6,091
<DEPRECIATION> 1,139
<TOTAL-ASSETS> 7,676
<CURRENT-LIABILITIES> 862
<BONDS> 2,745
0
15
<COMMON> 627
<OTHER-SE> 2,712
<TOTAL-LIABILITY-AND-EQUITY> 7,676
<SALES> 2,663
<TOTAL-REVENUES> 2,663
<CGS> 0
<TOTAL-COSTS> 2,242
<OTHER-EXPENSES> 35
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 286
<INCOME-TAX> 118
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