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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
HILTON HOTELS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
[LOGO]
WORLD HEADQUARTERS
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
The 1999 annual meeting of stockholders of Hilton Hotels Corporation will be
held at the Hilton Beverly Hills, 9876 Wilshire Boulevard, Beverly Hills,
California 90210, on Wednesday, May 12, 1999, at 10:00 a.m., for the following
purposes:
(1) To elect four directors to the Board of Directors;
(2) To ratify the appointment of Arthur Andersen LLP to serve as auditors
for Hilton for 1999; and
(3) To transact any other business which may properly come before the
meeting.
Stockholders are cordially invited to attend the meeting in person. Whether
or not you plan to be at the annual meeting, you are urged to return your proxy
by one of the following methods:
- Complete, sign and date the enclosed proxy card and return it as promptly
as possible in the envelope provided, or
- Use the toll-free telephone number as described on the enclosed proxy
card.
Only stockholders of record at the close of business on March 15, 1999 are
entitled to notice of and to vote at the meeting, or any adjournments of the
meeting. A complete list of such stockholders will be available for examination
at our offices in Beverly Hills, California, during normal business hours by any
stockholder for any purpose germane to the annual meeting, for a period of ten
days prior to the meeting.
By Order of the Board of Directors,
[SIGNATURE]THOMAS E. GALLAGHER,
EXECUTIVE VICE PRESIDENT, GENERAL
COUNSEL
AND SECRETARY
Beverly Hills, California
April 1, 1999
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TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING.................................................. 1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND EXECUTIVE OFFICERS..................................... 3
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................................................... 4
PROPOSAL 1--ELECTION OF DIRECTORS.......................................................................... 4
Nomination Process..................................................................................... 4
Nominees and Continuing Directors...................................................................... 5
Information Concerning the Board of Directors and Certain Committees Thereof........................... 7
Audit Committee...................................................................................... 7
Personnel and Compensation Committee................................................................. 8
Nominating Committee................................................................................. 8
Compliance Committee................................................................................. 8
Diversity Committee.................................................................................. 9
1998 Meetings........................................................................................ 9
Board Fees........................................................................................... 9
Independent Director Stock Option Plan............................................................... 9
Directors' Retirement Benefit Plan................................................................... 10
CERTAIN RELATIONSHIPS AND INTERESTS IN CERTAIN TRANSACTIONS................................................ 10
EXECUTIVE COMPENSATION..................................................................................... 11
Summary Compensation Table............................................................................. 11
Option Grants in Last Fiscal Year...................................................................... 12
Option Exercises and Values for 1998................................................................... 12
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values...................... 13
PERSONNEL AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION...................................... 13
Base Salary............................................................................................ 14
Annual Bonus Plan...................................................................................... 14
Long Term Incentive Program............................................................................ 15
Chief Executive Officer Compensation................................................................... 15
Arthur M. Goldberg Compensation........................................................................ 16
Committee Policy Regarding Compliance with Section 162(m) of the
Internal Revenue Code................................................................................ 17
STOCKHOLDER RETURN PERFORMANCE GRAPH....................................................................... 18
Comparison of Five Year Cumulative Total Return Among the Company, S&P 500 Index and Peer Group........ 18
RETIREMENT PLANS........................................................................................... 19
Benefits Under Retirement Plans........................................................................ 19
Other Benefit Plans.................................................................................... 19
CHANGE OF CONTROL AGREEMENTS............................................................................... 19
General................................................................................................ 19
Summary of Provisions.................................................................................. 20
Definition of Change of Control........................................................................ 20
Tax Payments........................................................................................... 20
Confidentiality........................................................................................ 21
LEGAL PROCEEDINGS.......................................................................................... 21
PROPOSAL 2--RATIFICATION OF SELECTION OF AUDITORS.......................................................... 21
2000 ANNUAL MEETING OF STOCKHOLDERS........................................................................ 22
PROXY SOLICITATION......................................................................................... 22
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HILTON HOTELS CORPORATION
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
PROXY STATEMENT
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
WHY DID I RECEIVE THIS PROXY STATEMENT?
We sent you this proxy statement and the enclosed proxy card because
Hilton's Board of Directors is soliciting your proxy to be used at the annual
meeting of stockholders on May 12, 1999, at 10:00 a.m. (P.S.T.), at the Hilton
Beverly Hills, 9876 Wilshire Boulevard, Beverly Hills, California 90210, or at
any adjournment of the meeting. This proxy statement summarizes the information
you need to know to vote on an informed basis. We are first mailing this proxy
statement and the enclosed proxy card to stockholders on or about April 1, 1999.
WHO CAN VOTE?
You are entitled to vote if you owned Hilton common stock on the record
date, which is the close of business on March 15, 1999. Each share of Hilton
common stock that you own entitles you to one vote.
HOW MANY SHARES OF VOTING STOCK ARE OUTSTANDING?
On the record date, there were 261,069,367 shares of Hilton common stock
outstanding. Hilton common stock is our only class of voting stock.
WHAT AM I VOTING ON?
1. The election of four nominees to serve on our Board of Directors:
- Stephen F. Bollenbach
- Dieter H. Huckestein
- Benjamin V. Lambert
- John L. Notter
2. The ratification of Arthur Andersen LLP as our auditors for 1999.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS?
The Board of Directors recommends a vote FOR each of the Board's nominees
and FOR the appointment of Arthur Andersen LLP as our independent auditors for
1999.
HOW DO I VOTE?
To vote by proxy you should either:
- Complete, sign and date the enclosed proxy card and return it promptly in
the prepaid envelope provided, or
- Call the toll-free number on the proxy card and follow the telephonic
procedures for delivering your proxy.
To vote in person, you may attend the meeting and cast your vote in person.
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MAY I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted in either of the
following ways:
- You may submit another proxy card with a later date or another telephonic
proxy at a later date, or
- You may notify Hilton's Secretary in writing before your proxy is voted
that you have revoked your proxy.
IF I PLAN TO ATTEND THE MEETING, SHOULD I STILL VOTE BY PROXY?
Whether you plan to attend the meeting or not, we urge you to vote by proxy.
Returning the proxy card or submitting your proxy through the telephonic voting
procedure will not affect your right to attend the meeting, and your proxy will
not be used if you are personally present at the meeting and inform the
Secretary in writing prior to the voting that you wish to vote your shares in
person.
HOW WILL MY PROXY GET VOTED?
If you properly fill in your proxy card and send it to us or properly
deliver your proxy by telephone, your proxy holder (one of the individuals named
on your proxy card) will vote your shares as you have directed. Under the rules
of the New York Stock Exchange, if your broker is a member of the exchange and
holds your shares in its name, the broker may vote your shares on both Proposal
1 and Proposal 2 if it does not receive instructions from you. If you sign the
proxy card but do not make specific choices, the proxy holder will vote your
shares as recommended by the Board of Directors as follows:
- "FOR" the election of all nominees for director, and
- "FOR" ratification of the selection of independent auditors for 1999.
WHAT CONSTITUTES A QUORUM?
A quorum is a majority of the outstanding shares entitled to vote which are
present or represented by proxy at the meeting. There must be a quorum for the
transaction of business at the meeting. If you submit a properly executed proxy
card or a telephonic proxy, even if you abstain from voting, your shares will be
considered part of the quorum. Broker non-votes (shares held by a broker or
nominee that are represented at the meeting, but with respect to which the
broker or nominee is not empowered to vote on a proposal) are included in
determining the presence of a quorum.
WHAT VOTE IS REQUIRED TO APPROVE PROPOSALS?
Directors are elected by a plurality of the shares voting at the meeting. If
you do not vote for a particular nominee, or you indicate "withhold authority to
vote" for a particular nominee on your proxy, your vote will not count either
"for" or "against" the nominee. A "broker non-vote" will also have no effect on
the outcome.
The affirmative vote of a majority of the outstanding shares present in
person or represented by proxy and entitled to vote at the meeting is required
to ratify the selection of independent auditors and for any other action.
Abstentions and "broker non-votes" will have the same effect as a vote "against"
this proposal.
HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
Although we do not know of any business to be considered at the meeting
other than the proposals described in this proxy statement, if any other
business is presented at the meeting, your returned proxy gives authority to
proxy holders to vote on these matters in their discretion.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND EXECUTIVE OFFICERS
The following table sets forth the names and addresses of all persons who
beneficially owned, to the knowledge of the Company, more than 5% of the
outstanding shares of common stock on March 15, 1999. The following table also
sets forth, as of March 15, 1999, the beneficial ownership of the Company's
common stock by:
- each director and nominee,
- the chief executive officer and the four other most highly compensated
executive officers (the "Named Officers"), and
- all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT
OF
COMMON
NAME AND ADDRESS OF OWNER COMMON STOCK STOCK
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Barron Hilton...................................................................... 22,933,230(1) 8.8
9336 Civic Center Drive
Beverly Hills, California 90210
Conrad N. Hilton Fund.............................................................. 16,498,736(1) 6.3
100 West Liberty Street
Reno, Nevada 89501
Southeastern Asset Management, Inc................................................. 25,986,900(2) 10.0
6410 Poplar Ave., Suite 900
Memphis, Tennessee 38119
Stephen F. Bollenbach.............................................................. 4,540,000(3) 1.7
A. Steven Crown.................................................................... 3,673,500(3)(4) 1.4
Peter M. George.................................................................... -- --
Arthur M. Goldberg................................................................. 2,304,738(5) *
Dieter H. Huckestein............................................................... 241,964(3) *
Robert L. Johnson.................................................................. 4,000(3) *
Donald R. Knab..................................................................... 12,000(3) *
Benjamin V. Lambert................................................................ 205,000(3)(6) *
John L. Notter..................................................................... 2,000(7) *
Judy L. Shelton.................................................................... 20,000(8) *
Donna F. Tuttle.................................................................... 17,367(3)(9) *
Sam D. Young, Jr. ................................................................. 34,000(3) *
Thomas E. Gallagher................................................................ 141,337(3) *
Matthew J. Hart.................................................................... 197,664(3) *
All Directors and Executive Officers as a Group (15 persons)....................... 34,326,800(10) 12.9
</TABLE>
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* The common stock owned does not exceed 1% of the outstanding shares.
(1) Barron Hilton is one of the 11 directors of the Conrad N. Hilton Fund (the
"Fund"). He disclaims beneficial ownership of the 16,498,736 shares owned by
the Fund.
(2) The amount of common stock owned by Southeastern Asset Management, Inc. is
based upon their filing of a Schedule 13G with the Securities and Exchange
Commission on February 5, 1999. According to this Schedule 13G, all of the
reported shares of common stock are owned by investment advisory clients of
Southeastern.
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(3) Includes options to acquire 4,500,000, 4,000, 192,400, 4,000, 4,000, 4,000,
4,000, 4,000, 140,650 and 191,525 shares of common stock, exercisable within
60 days, held by Messrs. Bollenbach, Crown, Huckestein, Johnson, Knab,
Lambert, and Ms. Tuttle, and Messrs. Young, Gallagher and Hart,
respectively.
(4) Mr. Crown is a partner of The Crown Fund, which owns 239,888 shares of
common stock. The Arie and Ida Crown Memorial, of which Mr. Crown is a
director, owns 894,272 shares of common stock. Pines Trailer Limited
Partnership, of which a corporation of which Mr. Crown is a director,
officer and shareholder and a partnership of which Mr. Crown is a partner,
are partners, owns 600,000 shares of common stock. Areljay, L.P., of which a
corporation of which Mr. Crown is a director, officer and shareholder and a
trust of which Mr. Crown is a beneficiary, are partners, owns 1,935,340
shares of common stock. Mr. Crown disclaims beneficial ownership of the
shares held by The Crown Fund, Arie and Ida Crown Memorial, Pines Trailer
Limited Partnership and Areljay, L.P., except to the extent of his
beneficial interest therein.
(5) On December 31, 1998, Mr. Goldberg converted all of his options to acquire
the Company's common stock into options to acquire common stock of Park
Place Entertainment Corporation. This option conversion occurred
simultaneously with the spin-off of the Company's gaming operations on such
date, which was accomplished through the distribution to the Company's
stockholders of the shares of Park Place common stock. See "Personnel and
Compensation Committee Report on Executive Compensation--Arthur M. Goldberg
Compensation."
(6) Includes 1,000 shares owned directly by Mr. Lambert's spouse.
(7) Consists of 2,000 shares owned by Swiss American Investment Corp., which is
wholly owned by Mr. Notter.
(8) Consists of 20,000 shares owned jointly by Dr. Shelton and her spouse.
(9) Includes 784 shares owned in trust for Ms. Tuttle's children.
(10) Includes 5,048,575 shares issuable upon exercise of employee stock options
granted to executive officers and directors, exercisable within 60 days, but
excludes the shares owned by the Fund (see note 1 above).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
reporting officers and directors, and persons who beneficially own more than 10%
of the Company's common stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based solely on the
Company's review of the reports filed with the SEC and written representations
from reporting persons, the Company believes that all of its reporting officers,
directors and greater than 10% beneficial owners filed the reports on time in
1998.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINATION PROCESS
The By-Laws of the Company provide for the election of twelve directors to
constitute the Board of Directors. The Board has been divided into three classes
of directors. One class is elected at each annual meeting to serve a term of
three years.
At the meeting, the terms of four directors are expiring. Those directors
nominated for election at the meeting will hold office for a three year term
expiring in 2002. Other directors are not up for election this year and will
continue in office for the remainder of their terms as set forth in the table
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below. Mr. Donald R. Knab is retiring from the Board effective May 12, 1999. Mr.
John L. Notter has been nominated for election at the meeting to fill this seat
on the Board.
Nominations for directors are made by the Board of Directors (based on
recommendations made by the Nominating Committee) not less than 30 days prior to
the date of the meeting at which directors are scheduled to be elected.
Notice of proposed stockholder nominations for election of directors must be
given to the Nominating Committee not less than 60 days prior to the meeting at
which directors are to be elected. This notice must contain certain information
about each proposed nominee, including age, business and residence addresses,
principal occupation, the number of shares of common stock beneficially owned
and such other information as would be required to be included in a proxy
statement soliciting proxies for the election of such proposed nominee.
In the event that a designated nominee is unable or unwilling to stand for
election at the meeting, proxy holders will vote for another nominee proposed by
the Board or the Board may reduce the number of directors to be elected at the
meeting.
The Board of Directors has nominated, and it is the intention of the persons
named in the enclosed proxy to vote for the election of, the four nominees named
below. Each of the four nominees has consented to serve as a director if
elected, and all of these nominees have previously been elected by the Company's
stockholders except Mr. Notter.
NOMINEES AND CONTINUING DIRECTORS
The table below sets forth information with respect to the persons nominated
for election to the Board and the continuing directors. Unless otherwise
indicated in the table, each such person has engaged in his or her principal
occupation since at least January 1994. The principal occupations of nominees
and continuing directors include employment with the Company or its subsidiaries
and affiliates only when indicated in the following table. None of the nominees
or continuing directors are related to each other or to any of the Company's
executive officers.
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YEAR SERVICE
TERM TO EXPIRE AT COMMENCED OR WILL
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS AGE ANNUAL MEETING IN COMMENCE
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NOMINEES:
Stephen F. Bollenbach................................................... 56 2002 1996
President and Chief Executive Officer of Host Marriott Corporation
until April 1995, Senior Executive Vice President and Chief Financial
Officer of The Walt Disney Co. until February 1996 and, thereafter,
President and Chief Executive Officer of Hilton Hotels Corporation.
Mr. Bollenbach has also served as Chairman of the Board of Park Place
Entertainment Corporation since January 1999. He is a director of
Kmart Corporation, Ladbroke Group PLC, Park Place Entertainment
Corporation, Spring Group PLC and Time Warner, Inc.(1)
Dieter H. Huckestein.................................................... 55 2002 1995
Senior Vice President--Hawaii/California/Arizona Region of Hilton
Hotels Corporation until May 1994 and, thereafter, Executive Vice
President of Hilton Hotels Corporation and President--Hotel
Operations. Mr. Huckestein is a citizen of Germany.
</TABLE>
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<TABLE>
<CAPTION>
YEAR SERVICE
TERM TO EXPIRE AT COMMENCED OR WILL
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS AGE ANNUAL MEETING IN COMMENCE
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Benjamin V. Lambert..................................................... 60 2002 1976
Chairman and Chief Executive Officer of Eastdil Realty Company,
L.L.C., real estate investment bankers.
John L. Notter.......................................................... 64 2002 1999
Chairman of the Board of Swiss American Investment Corp., an
investment firm, since 1995, and Chairman of the Board of Westlake
Properties, a hotel and real estate development company. He formerly
served as Chairman of the Board of Princess Hotels and as a director
of Credit Suisse First Boston.
CONTINUING DIRECTORS:
A. Steven Crown......................................................... 47 2001 1992
General Partner of Henry Crown and Company, a holding company which
includes diversified manufacturing operations, marine operations and
real estate ventures. He is a director of Park Place Entertainment
Corporation.
Peter M. George......................................................... 55 2000 1997
Vice Chairman and Group Chief Executive of Ladbroke Group PLC. He is a
director of U.S. Airways. Mr. George is a citizen of the United
Kingdom.(1)
Arthur M. Goldberg...................................................... 57 2001 1996
Chairman and Chief Executive Officer of Bally Entertainment
Corporation until December 1996, Executive Vice President of Hilton
Hotels Corporation and President--Gaming Operations until December
1998 and, thereafter, President and Chief Executive Officer of Park
Place Entertainment Corporation. He is a director of Bally Total
Fitness Holding Corporation, DiGiorgio Corporation, First Union
Corporation and Park Place Entertainment Corporation.
Barron Hilton........................................................... 71 2000 1965
Chairman of the Board and Chief Executive Officer of Hilton Hotels
Corporation until February 1996 and, thereafter, Chairman of the Board
of Hilton Hotels Corporation. He is a director of Park Place
Entertainment Corporation.
Robert L. Johnson....................................................... 52 2000 1994
Chairman, President and Chief Executive Officer of BET Holdings, Inc.,
a diversified media holding company which owns Black Entertainment
Television, until March 1996 and, thereafter, Chairman and Chief
Executive Officer of BET Holdings, Inc. Mr. Johnson is also Chairman
and President of District Cablevision, Inc., a cable operator in the
District of Columbia. He is a director of U.S. Airways.
</TABLE>
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<TABLE>
<CAPTION>
YEAR SERVICE
TERM TO EXPIRE AT COMMENCED OR WILL
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS AGE ANNUAL MEETING IN COMMENCE
- ------------------------------------------------------------------------ --- ------------------- -----------------
<S> <C> <C> <C>
Dr. Judy L. Shelton..................................................... 44 2001 1999
Economist, specializing in international money, finance and trade
issues. Senior Research Fellow at the Hoover Institution at Stanford
University until 1995, staff economist for the National Commission on
Economic Growth and Tax Reform in 1995 and 1996 and, thereafter,
professor of international finance at the DUXX Escuela de Graduados en
Liderazgo Empresarial, a graduate business school in Monterrey,
Mexico.
Donna F. Tuttle......................................................... 51 2001 1992
President of Donna F. Tuttle, Inc., a travel and tourism consulting
and public relations firm until 1995, and President of Korn Tuttle
Capital Group, a financial consulting and investments firm. She is a
director of Everen Securities, Inc. and Phoenix Investment Partners,
Ltd., a financial services firm.
Sam D. Young, Jr........................................................ 69 2000 1975
Chairman of Trans West Enterprises, Inc., an investment company. He is
a director of Texas Commerce Bank--El Paso.
</TABLE>
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(1) The Company has entered into agreements with Ladbroke Group PLC, whose
wholly owned subsidiary, Hilton International Co. owns the rights to the
Hilton name outside the United States. The agreements provide for, among
other things, reunification of the Hilton brand worldwide through a
strategic alliance between the companies. Pursuant to the alliance, Mr.
Bollenbach is a member of Ladbroke's Board of Directors and Mr. George is a
member of the Company's Board of Directors.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND
CERTAIN COMMITTEES THEREOF
Among the Committees created by the Board of Directors are the Audit
Committee, Personnel and Compensation Committee, Nominating Committee,
Compliance Committee and Diversity Committee. A brief description of each of
these Committees follows:
AUDIT COMMITTEE
The members of the Audit Committee are A. Steven Crown, Peter M. George,
Robert L. Johnson, Donald R. Knab (Chair), Benjamin V. Lambert, Donna F. Tuttle
and Sam D. Young, Jr. The functions of the Audit Committee include the
following:
- reviewing the independence of the independent auditors;
- making recommendations to the Board of Directors regarding engaging and
discharging independent auditors;
- reviewing with the independent auditors the plan and results of auditing
engagements;
- reviewing significant nonaudit services provided by independent auditors;
- considering the range of audit and nonaudit fees;
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- reviewing the scope and results of the Company's procedures for internal
auditing and the adequacy of internal accounting controls; and
- directing and supervising special investigations.
PERSONNEL AND COMPENSATION COMMITTEE
The members of the Personnel and Compensation Committee are A. Steven Crown,
Peter M. George, Robert L. Johnson (Chair), Donald R. Knab, Donna F. Tuttle and
Sam D. Young, Jr. The Personnel and Compensation Committee reviews and
establishes the general employment and compensation practices and policies of
the Company and approves procedures for the administration thereof, including
such matters as salary and fringe benefit programs.
The Board of Directors has also created Stock Option Committees, the
memberships of which are identical to that of the Personnel and Compensation
Committee, which administer the Company's 1984 Stock Option and Stock
Appreciation Rights Plan, 1990 Stock Option and Stock Appreciation Rights Plan,
1996 Stock Incentive Plan and 1996 Chief Executive Stock Incentive Plan
(collectively, the "Stock Option Plans"). The Stock Option Committees recommend
to the Board of Directors the granting of options under the respective Stock
Option Plans. See "Executive Compensation" below.
NOMINATING COMMITTEE
The members of the Nominating Committee are Stephen F. Bollenbach, Peter M.
George, Barron Hilton, Donald R. Knab, Benjamin V. Lambert and Donna F. Tuttle
(Chair). The functions of the Nominating Committee include the following:
- recommending nominees to the Board of Directors to fill vacancies on the
Board;
- reviewing on a continuing basis, and at least once a year, the structure
of the Board to assure its continuity and to assure that the proper skills
and experience are represented on the Board; and
- reviewing any potential conflicts of Board members whenever a prospective
Board member is being considered for election to the Board.
See "Election of Directors--Nomination Process" for a description of the process
for submitting nominations for the election of directors to the Nominating
Committee.
COMPLIANCE COMMITTEE
The members of the Compliance Committee are A. Steven Crown (Chair), Robert
L. Johnson, Donald R. Knab, Benjamin V. Lambert, Thomas E. Gallagher and Matthew
J. Hart. The functions of the Compliance Committee include the following:
- supervising the Company's efforts to assure that its business and
operations are conducted in compliance with the highest standards
applicable to it as a matter of legal and regulatory requirements, as well
as ethical business practices;
- establishing and implementing the Company's internal reporting system
regarding compliance by the Company with federal, state and local laws,
and with regulatory matters associated with its remaining gaming
operations;
- supervising the activities of the Company's Compliance Officer; and
- reviewing information and reports regarding the suitability of potential
key employees of the Company, as well as persons and entities proposed to
be involved in material transactions or relationships with the Company.
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DIVERSITY COMMITTEE
The members of the Diversity Committee are Stephen F. Bollenbach, Robert L.
Johnson (Chair), Donna F. Tuttle, James M. Anderson, Senior Vice
President--Labor Relations and Personnel Administration, and Thomas E.
Gallagher. The functions of the Diversity Committee include the following:
- developing and implementing policies and programs oriented specifically
toward assuring equality of opportunity in all facets of the Company's
business;
- encouraging opportunities to increase the diversity of the Company's
workforce, including the number of persons in management level positions
with the Company who are qualified females and/or ethnic minorities; and
- supervising the Company's efforts to increase its business ties to female
and minority-owned suppliers and service providers.
1998 MEETINGS
The Company's Board of Directors and Committees thereof had the following
number of meetings during 1998:
- Board of Directors (8);
- Audit Committee (3);
- Personnel and Compensation Committee (6);
- Nominating Committee (1);
- Compliance Committee (6); and
- Diversity Committee (2).
Each director attended more than 75% of the aggregate number of meetings of the
Board and the Committees on which he or she served.
BOARD FEES
Each director who is not also an officer of the Company is paid an annual
fee of $30,000. In addition, each director receives $1,000 for each meeting of
the Board of Directors attended and $750 (except the Chair of a Committee
receives $1,000) for each meeting of a Committee attended. The Company's
directors also receive, with certain exceptions, complimentary rooms and a 25%
discount on food and beverage when traveling to Company owned or managed
properties for non-Company related business.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
On May 7, 1998, the Company's stockholders approved the 1997 Independent
Director Stock Option Plan (the "1997 Plan"). The 1997 Plan provides that each
independent (non-employee) director of the Company receives an annual grant of
2,000 stock options, which commenced on July 16, 1997. Each option is
exercisable immediately upon grant. The 1997 Plan is administered by the full
Board of Directors, acting by a majority of its members, and expires on July 31,
2007. See "Security Ownership of Certain Beneficial Owners and Executive
Officers."
9
<PAGE>
DIRECTORS' RETIREMENT BENEFIT PLAN
Certain of the Company's directors have accrued benefits under the
Directors' Retirement Benefit Plan. In 1997, the Company amended this Plan to
cease the accrual of benefits thereunder and to convert each director's vested
interest in the Plan into phantom stock units.
CERTAIN RELATIONSHIPS AND INTERESTS IN CERTAIN TRANSACTIONS
On September 11, 1998, the Company loaned Dieter H. Huckestein, an executive
officer and director of the Company, $300,000, which was used to fund the
exercise of stock options set to expire. The interest rate on this loan was
5.35% per annum. The entire amount of indebtedness was repaid by Mr. Huckestein
on December 8, 1998.
The Company and its subsidiaries and affiliates have, from time to time,
entered into agreements with Eastdil Realty Company, L.L.C. pursuant to which
Eastdil has, among other things, assisted in negotiations for the acquisition,
disposition, financing and refinancing of hotel properties. Benjamin V. Lambert,
a director of the Company, is the Chairman and Chief Executive Officer of
Eastdil.
10
<PAGE>
EXECUTIVE COMPENSATION
The following table discloses compensation received by the Company's Named
Officers for services rendered to the Company for the three years ended December
31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------ UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/SARS ALL OTHER
POSITION YEAR SALARY($) BONUS($)(5) COMPENSATION($) (#)(6) COMPENSATION($)(7)
- -------------------------- --------- ----------- ----------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen F. Bollenbach(1).. 1998 560,167 437,800 -- 6,000,000 53,326
President and Chief 1997 540,000 406,350 -- -- 52,980
Executive Officer 1996 490,846 509,154 58,085(8) 6,000,000 --
Arthur M. Goldberg(2)..... 1998 1,000,000 -- -- 600,000 55,000
Executive Vice President 1997 1,000,000 -- -- 600,000 53,131
and President--Gaming 1996 57,692 -- -- 600,000 --
Operations
Thomas E. Gallagher(3).... 1998 466,500 443,350 -- 62,600 36,340
Executive Vice President, 1997 225,000 115,300 -- 250,000 11,163
General Counsel and 1996 -- -- -- -- --
Secretary
Matthew J. Hart(4)........ 1998 493,333 415,563 -- 66,100 46,839
Executive Vice President, 1997 472,917 243,440 -- 50,000 39,886
Chief Financial Officer 1996 303,462 292,500 -- 200,000 --
and Treasurer
Dieter H. Huckestein...... 1998 414,667 260,464 -- 55,600 38,498
Executive Vice President 1997 396,000 205,000 -- 37,000 39,675
and President--Hotel 1996 350,833 250,000 -- 60,000 3,000
Operations
</TABLE>
- --------------------------
(1) Mr. Bollenbach was elected President and Chief Executive Officer effective
February 2, 1996.
(2) In December 1996, upon consummation of the Company's acquisition of Bally
Entertainment Corporation, Mr. Goldberg was elected Executive Vice President
and President--Gaming Operations. Effective December 31, 1998, upon
consummation of the Company's spin-off of Park Place, Mr. Goldberg resigned
his executive officer positions with the Company and assumed the positions
of President and Chief Executive Officer of Park Place. All options held by
Mr. Goldberg on December 31, 1998 were converted into options to acquire
shares of Park Place. See "Personnel and Compensation Committee Report on
Executive Compensation-- Arthur M. Goldberg Compensation."
(3) Mr. Gallagher was elected Executive Vice President and General Counsel
effective July 1, 1997, and elected Secretary effective May 7, 1998.
(4) Mr. Hart was elected Executive Vice President and Chief Financial Officer
effective April 29, 1996, and elected Treasurer effective January 1, 1999.
(5) Awards of bonuses pursuant to the Company's Annual Bonus Plan are made by
the Personnel and Compensation Committee. All bonuses awarded pursuant to
such Plan or otherwise, whether paid prior or subsequent to any fiscal
year-end, are attributed in this table to the year in which they were
earned.
(6) Although the Company's Stock Option Plans permit grants of stock
appreciation rights, no such grants have been made.
(7) Represents matching contributions made by the Company for the Named Officers
under the Company's Investment Plan and Executive Deferred Compensation
Plan, which provide benefits to eligible employees, including the Named
Officers. See "Retirement Plans--Other Benefit Plans."
(8) As part of Mr. Bollenbach's compensation arrangement, the Company paid this
amount to be applied to the purchase of a Company vehicle.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding option grants in 1998
to the Named Officers.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR BASE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE(2)
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE ($)
- -------------------------------- ------------ ------------ ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen F. Bollenbach........... 4,000,000 44.8% $13.62500 12/31/08 $21,418,500
2,000,000(3) 22.4 27.52676 12/31/08 4,877,750
Arthur M. Goldberg.............. 600,000(4) 6.7 12.17046 12/18/08 NA
Thomas E. Gallagher............. 62,600 0.7 19.64774 1/21/08 483,370
Matthew J. Hart................. 66,100 0.7 19.64774 1/21/08 510,395
Dieter H. Huckestein............ 55,600 0.6 19.64774 1/21/08 429,319
</TABLE>
- ------------------------
(1) The options listed were granted pursuant to the Stock Option Plans. Except
as provided in the footnotes below, option exercise prices are at fair
market value when granted and options generally have a ten year term and
vest over four years.
(2) The Black-Scholes option pricing model was used to estimate the present
value of the options at date of grant. The following assumptions were used
in this table: a risk-free interest rate of 5.51%, a six year option term, a
1% dividend yield and a 34% expected volatility rate. There is no assurance
that the actual values realized, if any, by the Named Officers will
approximate the values estimated by the Black-Scholes model.
(3) On December 31, 1998, pursuant to his employment agreement with the Company,
Mr. Bollenbach received a grant of 2,000,000 options with an exercise price
of $27.52676. This exercise price is equal to 150% of the closing price of
the Company's common stock on July 9, 1998, ratably reduced to reflect the
Company's spin-off of Park Place. These options vest and become fully
exercisable on September 30, 2008, except as provided in the following
sentence. If the closing price of the common stock equals or exceeds
$36.70234 on each of any seven consecutive trading days prior to December
31, 2003, these options become immediately vested and exercisable.
(4) On December 31, 1998, all options held by Mr. Goldberg were converted into
options to purchase Park Place common stock. See "Summary Compensation
Table" (note 2), and "Personnel and Compensation Committee Report on
Executive Compensation--Arthur M. Goldberg Compensation."
OPTION EXERCISES AND VALUES FOR 1998
The following table sets forth information with respect to the exercised and
unexercised options to purchase common stock granted under the Company's Stock
Option Plans to the Named Officers, and held by them at December 31, 1998.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER NUMBER OF SECURITIES VALUE OF UNEXERCISED
OF UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS OPTIONS AT FISCAL
ACQUIRED AT FISCAL YEAR-END YEAR-END(1)
ON VALUE --------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- --------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen F. Bollenbach................. -- -- 3,000,000 9,000,000 $ 5,041,070 $ 5,041,070
Arthur M. Goldberg.................... -- -- -- -- -- --
Thomas E. Gallagher................... -- -- 62,500 250,100 -- --
Matthew J. Hart....................... -- -- 112,500 203,600 -- --
Dieter H. Huckestein.................. 20,000 $ 153,438 174,250 113,350 $ 650,363 --
</TABLE>
- ------------------------
(1) Based on the fair market value of $13.5625, which represents the mean
between the highest and lowest prices at which the Company's common stock
was traded on December 31, 1998 on the NYSE. The Park Place spin-off was
effective on December 31, 1998. The fair market value of the common stock on
December 31, 1998 reflects the trading prices of the common stock on a stand
alone basis, excluding the trading prices of Park Place common stock which
was traded on a "when issued" basis on such date.
THE FOLLOWING PERSONNEL AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION AND STOCKHOLDER RETURN PERFORMANCE GRAPH DO NOT CONSTITUTE
SOLICITING MATERIAL AND SHOULD NOT BE DEEMED FILED OR INCORPORATED BY REFERENCE
INTO ANY OTHER COMPANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES
SUCH REPORT AND GRAPH BY REFERENCE THEREIN.
PERSONNEL AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Company's Personnel and Compensation Committee (the "Committee") and the
Stock Option Committees establish and monitor policies and procedures regarding
compensation and stock option programs. The committees also approve actions
associated with these programs affecting the Named Officers and other senior
officers of the Company (the "Executive Group").
The Company's executive compensation program is designed to closely link
executive compensation to:
- specific earnings goal achievement for the Company and its business units,
- common stock price appreciation, and
- individual goal achievement.
This direct link between pay and performance focuses executives on factors that
drive the Company's financial success and create incremental stockholder value.
Key components of the Company's executive compensation program include:
- base salary,
- annual performance bonus, and
- long term incentive compensation (consisting solely of stock options).
The Committee targets total compensation (i.e., the sum of base salary, annual
performance bonus, stock option grants and other benefits) approximately at the
median (50th percentile) of a "competitive
13
<PAGE>
market." During 1998, large publicly-traded hotel/gaming companies and selected
Fortune 500 service firms comparable in size to the Company comprised this
market. The same hotel/gaming companies are used to compare the Company's stock
performance in the Stockholder Return Performance Graph when possible. For 1999,
the Committee will likely review the companies used for comparison purposes due
to the spin-off of the Company's gaming operations through the distribution of
Park Place common stock to the Company's stockholders.
The Committee attracts, retains and motivates employees by providing target
compensation at the median level of the "competitive market." Actual total
compensation paid to the Executive Group may exceed or fall below median
competitive levels, both annually and over time, based on various factors
including:
- the Company's financial performance;
- the Company's common stock performance;
- performance of the executive's area of responsibility;
- individual executive performance;
- the executive's experience in his or her role; and
- the executive's length of service with the Company.
The Committee does not determine executive compensation based on competitive
financial and stockholder performance comparisons. There are not enough
comparable publicly-traded firms similar to the Company to use for this
comparison. Additionally, external factors including gaming regulations and
global economic conditions that affect travel trends influence financial
performance. Therefore, comparing the Company's financial or stock price
performance across different industries can be misleading.
The Company establishes target total compensation levels by periodically
reviewing market compensation data prepared by outside, independent compensation
consultants. The Committee believes 1998 total compensation provided to the
Executive Group is consistent with target total pay at median market levels.
BASE SALARY
The Named Officers (excluding Mr. Goldberg) received salary increases
averaging 4% of base salary in 1998. The increase was based on the amount
required to maintain salary levels consistent with reasonable market practices.
ANNUAL BONUS PLAN
Bonus plan participants are assigned maximum formula-based award
opportunities expressed as a percentage of base salary. The maximum
formula-based award opportunity ranges up to 36% of base salary, depending on
the executive's role.
The earned award amount depends upon the Company's achievement relative to
an objective established by the Committee for the Company's earnings per share
("EPS"). The Company may pay discretionary awards in addition to formula-based
awards based upon other performance indicators, including:
- EPS performance compared to the maximum objective;
- Company and business unit earnings before interest, taxes, depreciation,
amortization and non-cash items ("EBITDA");
14
<PAGE>
- market share growth;
- cost control;
- Company stock price performance; and
- individual performance.
During 1998, the Company did not achieve the target EPS objective
established by the Committee. The Company did achieve a performance level
sufficient to fund formula-based bonuses at the 5% level for senior officers and
the 6.25% level for executive officers, after adjusting for nonrecurring items.
The Committee also paid individual awards to certain employees recognizing
superior contributions during the year.
LONG TERM INCENTIVE PROGRAM
The Company's long term incentive program consists of stock options granted
at the discretion of the Stock Option Committee. Exercise prices are generally
equal to the fair market value of the Company's common stock on the grant date.
The ability to exercise options is subject to vesting restrictions determined by
the Committee in order to encourage retention. Option grant timing and size
decisions are based upon:
- Company performance;
- individual performance;
- "competitive market" practices; and
- option grant size in prior years.
The weighting of these factors varies and is subjective. The Committee does not
consider current option holdings when granting options.
During 1998, stock options totaling 184,300 shares (excluding the grants to
Messrs. Bollenbach and Goldberg) were awarded to the Named Officers. See
"Executive Compensation--Option Grants in Last Fiscal Year."
CHIEF EXECUTIVE OFFICER COMPENSATION
The Company hired Mr. Bollenbach as President and Chief Executive Officer in
February 1996 and entered into an employment agreement with him at that time. As
a result of the Park Place spin-off, the Company renegotiated Mr. Bollenbach's
employment agreement effective December 31, 1998 (the "Agreement"). Mr.
Bollenbach's Agreement ends on July 1, 2005. The Agreement establishes a minimum
annual base salary of $620,000 and targets an annual bonus opportunity which,
when added to the base salary, equals $1,000,000.
For 1998, the Company did not achieve target EPS. Therefore, the
formula-based portion of Mr. Bollenbach's bonus amounted to 8.25%. Additionally,
the Committee awarded an individual amount equal to 70% to recognize his
superior individual contribution. Mr. Bollenbach's 1998 bonus was $437,800
which, when added to his 1998 salary of $560,167, totals $997,967.
In connection with the renegotiation of Mr. Bollenbach's Agreement, on
December 31, 1998, Mr. Bollenbach was granted 4,000,000 stock options under the
Company's 1996 Stock Incentive Plan. The options carry a ten year term, have an
exercise price equal to the fair market value of the Company's common stock on
the grant date and vest in four equal annual installments that begin on December
31, 1999. Also on December 31, 1998, Mr. Bollenbach was granted 2,000,000 stock
options under the 1996 Stock Incentive Plan that have an exercise price equal to
150% of the Company's
15
<PAGE>
common stock closing price on July 9, 1998. For a description of this option
grant, see "Executive Compensation--Option Grants in Last Fiscal Year" (note 3).
Pursuant to the 1996 employment agreement, the Company granted Mr.
Bollenbach 1,500,000 stock options (now 6,000,000 options after adjusting for
the Company's 4 for 1 stock split) under the 1996 Chief Executive Stock
Incentive Plan. The options carry a five year maximum term, have an exercise
price equal to the fair market value of the Company's common stock on the date
of grant, and vest in four equal annual installments which began January 1,
1997, subject to acceleration for a change of control or qualified transaction
(as each are defined in the employment agreement).
In the event that Mr. Bollenbach's employment with the Company is terminated
by the Company at any time without cause or Mr. Bollenbach voluntarily
terminates employment with the Company three or more years after his initial
employment, he shall be entitled to a minimum payment (the "Substitute Payment")
of $20,000,000 (or, if his employment terminates due to death or disability,
$10,000,000), less the amount of any gain received or receivable from the
options granted in 1996, including any appreciation in the price of shares
acquired by Mr. Bollenbach by the exercise of these options. If Mr. Bollenbach
receives the Substitute Payment, these options will cease to be exercisable five
trading days thereafter.
The 1996 employment agreement also provided that the Company would lend, and
the Company has lent, Mr. Bollenbach $5,000,000. The loan bears interest,
compounded semi-annually, at 100% of the applicable Federal rate provided under
Section 7872 of the Internal Revenue Code and must be repaid in full at the
earlier of January 1, 2000 or upon Mr. Bollenbach's termination of employment
from the Company. The loan is on a full recourse basis and also will be secured
by any net shares of the Company acquired by Mr. Bollenbach through the exercise
of his stock options granted in 1996 and, if applicable, his Substitute Payment.
Mr. Bollenbach's 1996 employment agreement and his new Agreement resulted
from arms length negotiations between the Company and Mr. Bollenbach. The
Committee believes that the compensation provisions contained in these
agreements were necessary to secure Mr. Bollenbach's employment and are in the
best interests of the Company and its stockholders.
ARTHUR M. GOLDBERG COMPENSATION
The Company entered into a consulting agreement (as amended, the "Goldberg
Agreement") with Mr. Goldberg (the former Chairman and Chief Executive Officer
of Bally Entertainment Corporation) in June 1996. The Goldberg Agreement was
amended in November and December 1996, and Mr. Goldberg agreed to serve as
Executive Vice President of the Company and President--Gaming Operations for
three years. Effective December 31, 1998, upon consummation of the Park Place
spin-off, Mr. Goldberg resigned his executive officer positions with the Company
and assumed the positions of President and Chief Executive Officer of Park
Place. On that date, the Goldberg Agreement was terminated and Mr. Goldberg
converted all of his options to acquire the Company's common stock into options
to acquire Park Place common stock.
The Goldberg Agreement provided for an annual base salary of $2,000,000. An
initial grant of 600,000 stock options was made on the effective date of the
Goldberg Agreement, and additional grants of 600,000 options were made on the
first and second anniversaries of the effective date. The option exercise price
was equal to the average of the high and low prices of the Company's common
stock on the grant date. The options had a maximum term of five years and were
fully exercisable at grant.
The Goldberg Agreement provided that a substantial portion of Mr. Goldberg's
base salary during any taxable year would be deferred and payable to him once he
is no longer one of the Company's Named Officers. In 1998, Mr. Goldberg's base
salary in excess of $1,000,000 was deferred pursuant to
16
<PAGE>
the Goldberg Agreement. In connection with the Park Place spin-off, Park Place
has agreed to assume the Company's obligation to pay deferred amounts owed to
Mr. Goldberg under the Goldberg Agreement.
COMMITTEE POLICY REGARDING COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL
REVENUE CODE
Federal income tax deductions of publicly-traded companies may be limited to
the extent total compensation (including base salary, annual bonus, restricted
stock awards, stock option exercises and nonqualified benefits) for certain
executive officers exceeds $1,000,000 in any year. Under Section 162(m) of the
Internal Revenue Code, the deduction limit does not apply to "performance based"
payments. "Performance based" compensation payments must be made from a plan
administered by a committee of outside directors and be based upon achieving
objective performance goals. Additionally, the material plan terms must be
approved by stockholders and the committee must certify that the performance
goals were achieved before payments are awarded.
The Committee has designed the Company's compensation programs to conform
with Section 162(m) so that the total compensation paid to any employee will not
exceed $1,000,000 in any one year, unless payments in excess of $1,000,000
qualify as "performance based" or are exempt for other reasons. The Company may
pay compensation that is not deductible if required for sound management and
approved by the Committee.
All Committee members have approved this report.
Robert L. Johnson, Chair
A. Steven Crown
Peter M. George
Donald R. Knab
Donna F. Tuttle
Sam D. Young, Jr.
17
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
The graph below shows the cumulative total stockholder return for the five
years ended December 31, 1998, assuming the investment of $100 on December 31,
1993 (and the reinvestment of dividends and common stock equivalents) in each of
the Company's common stock, the S&P 500 Stock Index and a hotel/gaming peer
group.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
THE COMPANY, S&P 500 INDEX AND PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HILTON HOTELS CORPORATION S&P 500 INDEX PEER GROUP (WEIGHTED AVERAGE)
<S> <C> <C> <C>
12/93 $100 $100 $100
12/94 $114 $101 $80
12/95 $105 $139 $112
12/96 $181 $171 $152
12/97 $208 $228 $182
12/98 $149 $294 $174
</TABLE>
<TABLE>
<CAPTION>
12/93 12/94 12/95 12/96 12/97 12/98
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Hilton Hotels Corporation(1)................................... $ 100 $ 114 $ 105 $ 181 $ 208 $ 149
S&P 500 Index.................................................. $ 100 $ 101 $ 139 $ 171 $ 228 $ 294
Peer Group (Weighted Average)(2)............................... $ 100 $ 80 $ 112 $ 152 $ 182 $ 174
</TABLE>
- ------------------------
(1) For 1998, the market capitalization of Hilton reflects the Company on a
combined basis at December 31, 1998, including the value of Park Place
common stock.
(2) The Company constructed hotel/gaming peer group is weighted annually by
market capitalization and consists of major publicly-traded companies, three
in the gaming industry and two in the hotel industry. The composition of the
blended, Company constructed hotel/gaming peer group produces a composite
representative of the major publicly-traded competitors of the Company.
However, it must be recognized that the number of publicly-traded companies
with significant hotel operations is limited. Hence, the performance of the
hotel/gaming peer group is driven to a greater degree by gaming companies.
The hotel/gaming peer group includes Circus Circus Enterprises, Inc.,
Harrah's Entertainment, Inc., Host Marriott Corporation, Marriott
International, Inc. and Mirage Resorts, Inc.
18
<PAGE>
RETIREMENT PLANS
BENEFITS UNDER RETIREMENT PLANS
Effective December 31, 1996, the Company amended its Retirement Plan,
Retirement Benefit Replacement Plan and Supplemental Executive Retirement Plan
(collectively, the "Retirement Plans") to provide that employees earn no further
benefits under the Retirement Plans. Accordingly, the benefits under the
Retirement Plans were based upon compensation and years of service through
December 31, 1996. The compensation covered by the Retirement Plans included a
participant's salary, bonus and live-in allowance (if any). Benefits under the
Retirement Plan and the Retirement Benefit Replacement Plan were determined
according to the highest five consecutive years of compensation through December
31, 1996. Benefits under the Supplemental Executive Retirement Plan were based
upon the highest three years of compensation. Compensation above $800,000 paid
in any year after 1993 was not included in calculating benefits under the
Retirement Plans.
Until April 1, 1994, the Supplemental Executive Retirement Plan and the
Retirement Benefit Replacement Plan provided that the present value of a
participant's benefit would be transferred from time to time to a grantor trust
established by such officer, along with additional amounts needed to equalize
the trust account to the after-tax benefits which would have been provided in
the absence of the trust. Such transfers will resume if a change of control
occurs.
Mr. Huckestein is the only Named Officer with any years of service or
benefits under the Retirement Plans on December 31, 1996, which is the date that
benefits ceased to accrue thereunder. Mr. Huckestein had 11 years of service
under the Retirement Plans on such date. His estimated annual benefits under the
Retirement Plans at normal retirement age are approximately $235,000, a portion
of which has previously been paid to Mr. Huckestein under the grantor trust
arrangement described in the prior paragraph.
OTHER BENEFIT PLANS
Effective January 1, 1997, the Company adopted the Executive Deferred
Compensation Plan ("Deferred Compensation Plan") and amended its Investment Plan
to provide for the matching contributions described below. Under the Deferred
Compensation Plan and the Investment Plan, employees may elect to defer
compensation which otherwise would have been paid to them. The Named Officers
and other officers of the Company eligible to participate in the Deferred
Compensation Plan may, based on their age, defer up to 25% to 100% of their
compensation. Deferred Compensation Plan participants are eligible to receive
from the Company a matching contribution of 50% of the first 10% of their
deferred compensation. Employees of the Company who participate in the
Investment Plan and who have five or fewer years of service receive a matching
contribution of 50% of the first 6% of their contributions. Investment Plan
participants with more than five years of service with the Company receive a
matching contribution of 75% of the first 6% of their contributions.
Effective January 1, 1997, the Company adopted the Employee Stock Purchase
Plan, under which employees may purchase shares of the Company's common stock at
a 5% discount. The maximum investment which may be made by an employee under the
Employee Stock Purchase Plan in any year is $25,000.
CHANGE OF CONTROL AGREEMENTS
GENERAL
The Company's Board of Directors has adopted a Change of Control Agreement
("Control Agreement") which has been entered into with the Executive Group,
including Messrs. Gallagher, Hart and Huckestein (collectively, the "Control
Participants").
19
<PAGE>
Effective December 31, 1998, the Company terminated Mr. Bollenbach's Control
Agreement and incorporated similar provisions in his employment agreement with
the Company dated the same date. See "Personnel and Compensation Committee
Report on Executive Compensation--Chief Executive Officer Compensation." Also
effective December 31, 1998, the Company terminated Mr. Goldberg's Control
Agreement upon his resignation from his executive officer positions with the
Company as a result of the Park Place spin-off. See "Personnel and Compensation
Committee Report on Executive Compensation--Arthur M. Goldberg Compensation."
SUMMARY OF PROVISIONS
Under the terms of the Control Agreement, upon the occurrence of a Change of
Control (as defined below), the Company agrees to continue the employment of
each Control Participant for a three year period, or until the Control
Participant's retirement if earlier (the "Employment Period"), in a position
which is at least commensurate with the Control Participant's position prior to
the Change of Control. The Company also agrees to provide the Control
Participant with base salary, annual bonuses, incentive plan, retirement plan,
welfare benefit plan, fringe benefits and other employment policy coverage which
is at least equal to the coverage in effect prior to the Change of Control.
Under the Control Agreement, each Control Participant will receive an amount
equal to up to three times annual salary and bonus if, following a Change of
Control, he or she is terminated without cause or terminates for good reason
(including, but not limited to, the assignment to such Control Participant of
duties inconsistent with his or her position at the time of the Change of
Control).
In addition, upon such a termination of employment, each Control Participant
is entitled to receive a lump sum payment equal to the value of his or her
benefits under the Company's Retirement Plans. The Control Participant is also
entitled to receive benefits under the Company's welfare benefit and fringe
benefit plans and policies during the remainder of the Employment Period.
The Control Agreement continues for renewable three year terms or until the
Control Participant's normal retirement date, if earlier.
DEFINITION OF CHANGE OF CONTROL
Under the Control Agreement, a Change of Control with respect to the Company
means:
- (i) the acquisition (other than from the Company) by any person, entity or
group, within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (excluding, for this purpose, (A) the
Company or its subsidiaries, (B) any employee benefit plan of the Company
or its subsidiaries which acquires beneficial ownership of voting
securities of the Company or (C) Barron Hilton or the Conrad N. Hilton
Fund), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 20% or more of
either the then outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors;
- (ii) a majority of the membership of the incumbent Board of Directors
changes other than in the ordinary course; or
- (iii) there is a dissolution or liquidation of the Company, a sale of
substantially all of its assets, or a merger that forces out a majority of
the pre-merger stockholders.
TAX PAYMENTS
If any payment, whether pursuant to the Control Agreement or otherwise
(i.e., under Retirement or Stock Option Plans), would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code, then the Control
Participant shall be entitled to receive an additional payment in an
20
<PAGE>
amount such that after payment by the Control Participant of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any excise tax, imposed upon the additional payment, he or she
receives the same amount of compensation pursuant to the Control Agreement which
he or she would have received in the absence of any such taxes.
CONFIDENTIALITY
Under the Control Agreement, each Control Participant agrees to maintain the
confidentiality of all secret or confidential information relating to the
Company which the Control Participant obtained during his or her employment by
the Company.
LEGAL PROCEEDINGS
A purported class action against Bally Entertainment Corporation ("Bally"),
its directors and the Company was commenced in August 1996 under the caption
PARNES V. BALLY ENTERTAINMENT CORPORATION, ET AL. in the Court of Chancery of
the State of Delaware, New Castle County. The Plaintiff alleges breaches of
fiduciary duty in connection with the merger of Bally with and into the Company
in December 1996 (the "Bally Merger"), including allegedly illegal payments to
Arthur M. Goldberg that purportedly denied Bally shareholders other than Mr.
Goldberg an opportunity to sell their shares to the Company or any other bidder
at the best possible price. In the complaint, the plaintiff seeks, among other
things:
(i) an order enjoining the Bally Merger;
(ii) an award of damages in an unspecified amount;
(iii) an order requiring Mr. Goldberg to disgorge his profits; and
(iv) an award of attorneys' fees and expenses.
In orders dated May 13, 1997 and February 3, 1998, the Court dismissed this
litigation. Plaintiff appealed this dismissal and, on January 25, 1999, the
Delaware Supreme Court reversed the dismissal order and remanded the case to the
Court of Chancery.
In management's opinion, disposition of pending litigation against the
Company, including the litigation described above, is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
PROPOSAL 2
RATIFICATION OF SELECTION OF AUDITORS
Arthur Andersen LLP was the Company's auditor for the year ended December
31, 1998. A representative of Andersen is expected to attend the annual meeting
where the representative will have the opportunity to make a statement and will
be available to respond to appropriate questions. Although the Company's Board
of Directors is not required to submit its selection of auditors for stockholder
approval, the Board has elected to seek ratification by stockholders at the
annual meeting of its appointment of Andersen to serve as the Company's auditor
for 1999.
VOTE REQUIRED AND BOARD RECOMMENDATION. The affirmative vote of the holders
of a majority of the outstanding shares of common stock represented at the
meeting, in person or by proxy, and entitled to vote on this proposal will be
necessary for the adoption of Proposal 2. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 2.
21
<PAGE>
2000 ANNUAL MEETING OF STOCKHOLDERS
The 2000 Annual Meeting of Stockholders is presently scheduled to be held on
May 11, 2000. Any proposals of stockholders intended to be presented at such
meeting must be received by the Secretary of the Company no later than December
2, 1999, in order to be eligible for inclusion in the Company's proxy statement
and form of proxy relating to the meeting. Stockholder nominations or proposals
must be duly submitted to the Secretary of the Company by March 13, 2000 in
order to be eligible to be considered at the 2000 Annual Meeting of
Stockholders.
PROXY SOLICITATION
The Company will pay the cost of preparing and mailing this proxy statement
and form of proxy to its stockholders. The Company has retained D.F. King & Co.,
Inc. to request banks and brokers to forward copies of these materials to
persons for whom they hold common stock and to request authority for execution
of the proxies. The Company has agreed to pay D.F. King & Co., Inc. a fee of
$6,000 for these services, plus out-of-pocket expenses and disbursements.
22
<PAGE>
HILTON HOTELS CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
Stephen F. Bollenbach and Thomas E. Gallagher, or either of them, are
hereby constituted and appointed the lawful attorneys and proxies of the
undersigned, with full power of substitution, to vote and act as proxy with
respect to all shares of Common Stock of Hilton Hotels Corporation the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held at 10:00 A.M., on May 12, 1999, at the Hilton Beverly Hills, 9876
Wilshire Boulevard, Beverly Hills, California 90210, or any adjournment
thereof, as indicated upon the matters referred to on the reverse side and
in their discretion upon any other matters which may properly come before the
meeting.
THE POWERS HEREBY GRANTED MAY BE EXERCISED BY BOTH OF SAID ATTORNEYS OR
PROXIES OR THEIR SUBSTITUTES PRESENT AND ACTING AT THE ANNUAL MEETING OF
STOCKHOLDERS OR ANY ADJOURNMENTS THEREOF OR, IF ONLY ONE BE PRESENT AND
ACTING, THEN BY THAT ONE. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" ALL NOMINEES LISTED UNDER ITEM 1 AND "FOR"
THE PROPOSAL DESCRIBED IN ITEM 2. THE UNDERSIGNED HEREBY REVOKES ANY AND ALL
PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED TO VOTE AT SAID MEETING.
(Continued and to be signed on other side)
--------------------------------------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS ON REVERSE SIDE
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call toll free 1-800-840-1208 on a Touch Tone telephone and
follow the instructions on the reverse side. There is NO CHARGE to
you for this call.
OR
2. Mark, sign and date your proxy card and return it promptly in
the enclosed envelope.
PLEASE VOTE
<PAGE>
This Proxy when properly executed will be voted in the manner Please mark /x/
directed herein. If no direction is made, this Proxy will be your votes as
voted FOR Items 1 and 2. indicated in
this example
1. Election of the following nominees as Directors: (01) Stephen F.
Bollenbach, (02) Dieter H. Huckestein, (03) Benjamin V. Lambert
and (04) John L. Notter.
For all Withhold
/ / / / for all
Withhold for the following only: (Write the name of nominee(s) in the
space below)
- ------------------------------------------------------------------------------
2. PROPOSAL to ratify the appointment of Arthur Andersen LLP as auditors for
the Company for 1999.
/ / For / / Against / / Abstain
In their discretion, the named proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournments
thereof.
I plan to attend meeting / /
COMMENTS/ADDRESS CHANGE
Please mark this box if you have written comments/address change on the
reverse side. / /
- ------------------------------------------------------------------------------
***IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW***
- ------------------------------------------------------------------------------
Signature(s) Dated , 1999
----------------------------------------- -------------
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed and returned your proxy card.
- You will be asked to enter a Control Number which is located in the box
in the lower right hand corner of this form.
OPTION #1 TO VOTE AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL PROPOSALS,
PRESS 1.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
OPTION #2 IF YOU CHOOSE TO VOTE ON EACH PROPOSAL SEPARATELY, PRESS 0. YOU
WILL HEAR THESE INSTRUCTIONS:
Proposal 1: To vote FOR ALL nominees press 1; to WITHHOLD FOR ALL nominees,
press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to the
instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY PHONE.
CALL ** TOLL FREE ** ON A TOUCH TONE TELEPHONE
1-800-840-1208 -- ANYTIME
There is NO CHARGE to you for this call.
