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
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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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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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/X/ 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.
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NOTICE OF MEETING OF STOCKHOLDERS
[LOGO]
WORLD HEADQUARTERS
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
The annual meeting of stockholders of Hilton Hotels Corporation, a Delaware
corporation (the "Company"), will be held at the Beverly Hilton, 9876 Wilshire
Boulevard, Beverly Hills, California 90210, on Thursday, May 9, 1996, at 10:00
A.M., for the following purposes, namely:
(1) To elect four directors to the Board of Directors;
(2) To consider and vote on a proposal to approve the Company's 1996
Stock Incentive Plan;
(3) To consider and vote on a proposal to approve the Company's 1996
Chief Executive Stock Incentive Plan;
(4) To ratify the appointment of Arthur Andersen LLP to serve as
auditors for the Company for fiscal 1996;
(5) To consider, if presented, a stockholder's proposal relating to the
independent Directors' pension benefits;
(6) To consider, if presented, a stockholder's proposal relating to
declassification of the Board of Directors;
(7) To consider, if presented, a stockholder's proposal relating to
independent Directors' compensation; and
(8) To transact any other business which may properly come before the
meeting.
Stockholders are cordially invited to attend the meeting in person.
Stockholders who wish to have their stock voted and do not now intend to attend
the meeting should complete, date and sign the enclosed proxy and return it
promptly by mail in the envelope provided.
Only stockholders of record on the books of the Company at the close of
business on March 15, 1996 will be entitled to notice of and to vote at the
meeting or any adjournments thereof. The stock transfer books will not be
closed.
By Order of the Board of Directors,
CHERYL L. MARSH,
VICE PRESIDENT AND CORPORATE SECRETARY
Beverly Hills, California
April 1, 1996
HILTON HOTELS CORPORATION
9336 CIVIC CENTER DRIVE
BEVERLY HILLS, CALIFORNIA 90210
PROXY STATEMENT
INTRODUCTION
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Hilton Hotels Corporation (the "Company") to be used at the annual meeting of
stockholders to be held at the Beverly Hilton, 9876 Wilshire Boulevard, Beverly
Hills, California 90210, on May 9, 1996, and at any adjournments thereof. All
shares represented by proxies will be voted at the meeting in accordance with
the specifications marked thereon or, if no specifications are made, proxies
will be voted FOR Proposals 1, 2, 3 and 4 and AGAINST Proposals 5, 6 and 7 and
in the discretion of the proxy holder as to any other business which comes
before the meeting. Any stockholder giving a proxy may revoke the same at any
time prior to the voting of such proxy by giving written notice of revocation to
the Corporate Secretary of the Company, by submitting a later dated proxy or by
attending the meeting and voting in person. The Proxy Statement is first being
mailed to stockholders on or about April 1, 1996.
VOTING AT THE MEETING
The Board of Directors has fixed March 15, 1996 as the record date for the
determination of stockholders entitled to notice of and to vote at the meeting.
As of such date, there were 48,753,599 shares of common stock, $2.50 par value
(the "Common Stock"), outstanding, excluding 2,271,429 shares which were held in
the Company's treasury. The holders of outstanding shares are entitled to one
vote for each share on any matter voted on at the meeting. The shares held by
the Company will not be considered present or entitled to vote at the meeting.
The presence in person or by proxy of the holders of a majority of the
Company's outstanding shares of Common Stock will constitute a quorum. The
majority of the shares represented at the meeting, in person or by proxy, will
be necessary for the election of directors, ratification of the appointment of
auditors, approval of the 1996 Stock Incentive Plan and the 1996 Chief Executive
Stock Incentive Plan, and adoption of Proposals 5, 6 and 7 and for the taking of
all other action at the meeting.
A stockholder who abstains from voting on any or all proposals will be
included in the number of stockholders present at the meeting for the purpose of
determining the presence of a quorum. However, an abstention with respect to the
election of the Company's directors will not be counted either in favor of or
against the election of the nominees. In the case of the other proposals which
are being submitted for stockholder approval, an abstention will effectively
count as a vote cast AGAINST such proposals.
Brokers who hold shares for the account of their clients may vote such
shares either as directed by their clients or in their own discretion if
permitted by the exchange or other organization of which they are members.
Members of the New York Stock Exchange ("NYSE") are permitted to vote their
clients' proxies in their own discretion as to each of the Company's proposals,
but not as to the stockholder proposals 5, 6 and 7. Proxies which are voted by
brokers on some but not all of the proposals are referred to as "broker non-
votes." Broker non-votes will be included in determining the presence of a
quorum. However, a broker non-vote is not treated as present and entitled to
vote and will have the effect of neither a vote in favor of or against the
proposal.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's reporting officers and directors, and persons who
own more than ten percent of the Company's Common Stock, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the "Commission"), the NYSE and the Company. Based solely
on the Company's review of the forms filed with the Commission and written
representations from reporting persons that they were not required to file Form
5 for specified fiscal years, the Company believes that all of its reporting
officers, directors, and greater than ten percent beneficial owners complied
with all filing requirements applicable to them with respect to transactions
during fiscal 1995.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND EXECUTIVE OFFICERS
The following table sets forth the names and addresses of all persons who
owned, to the knowledge of the Company, beneficially more than 5% of the
outstanding shares of Common Stock on March 15, 1996. The following table also
sets forth as of March 15, 1996 beneficial ownership 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 as a group (see Summary Compensation Table on page 9).
APPROXIMATE
NAME AND ADDRESS AMOUNT PERCENT
OF OWNER OWNED OF CLASS
- -------------------------------------------------- ---------- -----------
Barron Hilton .................................... 11,740,604(1)(2) 24.1
9336 Civic Center Drive
Beverly Hills, California 90210
Conrad N. Hilton Fund ............................ 4,124,684(2) 8.5
100 West Liberty Street
Reno, Nevada 89501
FMR Corp. ....................................... 3,226,203(3) 6.6
82 Devonshire Street
Boston, Massachusetts 02109
Southeastern Asset Management, Inc. ............. 3,102,000(4) 6.4
6075 Poplar Avenue, Ste. 900
Memphis, Tennessee 38119
Stephen F. Bollenbach............................. 10,000 --
Raymond C. Avansino, Jr. ......................... 93,500(5) --
A. Steven Crown................................... 469,540(6) --
Gregory R. Dillon................................. 17,540 --
Eric M. Hilton.................................... 41,700(2)(5) --
Dieter H. Huckestein.............................. 28,250(5) --
Robert L. Johnson................................. -- --
Donald R. Knab.................................... 2,000 --
Benjamin V. Lambert............................... 50,000 --
F. M. Celey, Jr. ................................. 17,386(5) --
2
APPROXIMATE
NAME AND ADDRESS AMOUNT PERCENT
OF OWNER OWNED OF CLASS
- -------------------------------------------------- ---------- ----------------
Donna F. Tuttle................................... 2,000 --
Sam D. Young, Jr. ................................ 7,500 --
All Directors and Executive Officers as a Group 25.3
(16 persons).................................... 12,334,800(7)
- ------------
(1) Of the shares reflected in the above table, 6,000,000 shares are owned by
the Charitable Remainder Unitrust (the "Trust"), of which Mr. Barron Hilton
is sole trustee. As trustee, Mr. Barron Hilton has the sole voting power
with respect to, and is deemed to be the beneficial owner of, the 6,000,000
shares. The Trust will continue until the later of Mr. Barron Hilton's death
or May 8, 2009. By virtue of the foregoing and the other shares beneficially
owned by Mr. Hilton, Mr. Hilton may be deemed to be in "control" of the
Company as such term is defined in the rules and regulations promulgated by
the Commission.
(2) Messrs. Barron and Eric Hilton are two of the 11 directors of the Conrad N.
Hilton Fund (the "Fund"). They disclaim beneficial ownership of the
4,124,684 shares owned by the Fund.
(3) The amount of the Company's Common Stock beneficially owned by FMR Corp.
("FMR") is reported on the basis of a Schedule 13G filed with the Commission
under the 1934 Act. As reported in such Schedule 13G, two wholly-owned
subsidiaries of FMR beneficially own an aggregate of 3,226,203 shares of the
Company's Common Stock and members of the family of Edward C. Johnson 3d,
Chairman of FMR, may be deemed, under the Investment Company Act of 1940, as
amended, to form a controlling group with respect to FMR.
(4) The amount of the Company's Common Stock beneficially owned by Southeastern
Asset Management, Inc. ("Southeastern") is reported on the basis of a
Schedule 13G filed with the Commission under the 1934 Act. Southeastern has
advised the Company that it has acquired the shares of the Company's Common
Stock for investment.
(5) Includes options to acquire 82,500, 26,250, 9,750 and 28,500 shares of
Common Stock, exercisable within the next 60 days, held by Messrs. Avansino,
Huckestein, Celey and Eric Hilton, respectively.
(6) Of the 469,540 shares reflected in the above table, 259,568 shares are owned
by the Arie and Ida Crown Memorial (of which Mr. Crown is a director);
59,972 shares are owned by The Crown Fund, a partnership (of which Mr. Crown
is a partner); and 150,000 shares are owned by Pines Trailer Limited
Partnership (the partners of which are a corporation, of which Mr. Crown is
a director, officer and stockholder, and a partnership, of which Mr. Crown
is a partner). Mr. Crown disclaims beneficial ownership of the 469,540
shares reflected in the above table, except to the extent of his indirect
beneficial ownership therein.
(7) Includes 170,950 shares issuable upon exercise of employee stock options
granted to Named Officers and/or executive officers, exercisable within the
next 60 days, but excludes the shares owned by the Fund (see note 2 above).
3
ELECTION OF DIRECTORS
The By-laws of the Company provide for the election of eleven directors to
constitute the Board and, under the terms of the Company's Restated Certificate
of Incorporation and By-laws, as amended, the Board has been divided into three
classes of directors, each of which is elected to serve a term of three years.
With respect to the directors to be elected at the Company's 1996 annual meeting
for the term expiring in 1999, the Company's By-laws provide that nominations
for directors shall be made by the Board of Directors (based on recommendations
made by the Nominating Committee) at a Board meeting, or by written consent in
lieu of a meeting, not less than 30 days prior to the date of the meeting at
which directors are scheduled to be elected and that each nominee shall, at the
request of the Company, provide the Company with certain information for
inclusion in the Company's proxy statement for such meeting. The By-laws further
provide that notice of proposed stockholder nominations for election of
directors must be given to the Nominating Committee of the Company not less than
60 days prior to the meeting at which directors are to be elected and requires
that such notice must contain certain information about each proposed nominee,
including age, business and residence addresses, principal occupation, the
number of shares of capital stock of the Company 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. Provision is also
made for substitution of nominees by the Board of Directors or the proposing
stockholder, as the case may be, in the event that a designated nominee is
unable or unwilling to stand for election at the meeting. If the Chairman of the
meeting of stockholders determines that a nomination was not made in accordance
with the foregoing procedures, such nomination shall be void.
Gregory R. Dillon is retiring as a Director and therefore not standing for
re-election. All of the nominees have previously been elected by the Company's
stockholders, except Stephen F. Bollenbach, who is filling the vacancy created
by Mr. Dillon's retirement.
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 whom has consented to serve as a director if elected. The terms
of the remaining directors expire as indicated in the following table.
4
The information set forth below is submitted with respect to the persons
nominated for election to the Board and the remaining directors. Unless
otherwise indicated in the table or a footnote thereto, each such person has
engaged in his or her principal occupation since at least January 1991. Only
directorships of issuers with a class of securities registered pursuant to
Section 12 of the 1934 Act or subject to the requirements of Section 15(d)
thereof and directorships of issuers registered as investment companies under
the Investment Company Act of 1940 are listed in the table below.
TERM TO
EXPIRE YEAR
AT SERVICE
ANNUAL COMMENCED
NAME, PRINCIPAL OCCUPATION MEETING OR WILL
AND OTHER DIRECTORSHIPS AGE IN COMMENCE
- -------------------------------------------------- --- ------- ---------
NOMINEES:
STEPHEN F. BOLLENBACH 53 1999 1996
Chief Financial Officer, The Trump Organization,
until March 1992, Chief Financial Officer,
Marriott Corporation, until October 1993,
President and Chief Executive Officer, Host
Marriott Corporation, until April 1995, Senior
Executive Vice President and Chief Financial
Officer, The Walt Disney Co., until February
1996 and, thereafter, President and Chief
Executive Officer, Hilton Hotels Corporation. He
is a director of America West Airlines, Inc.
DIETER H. HUCKESTEIN 52 1999 1995
Senior Vice President-Hawaiian Region, Hilton
Hotels Corporation, until May 1991, Senior Vice
President-Hawaii/California/Arizona Region,
Hilton Hotels Corporation, until May 1994 and,
thereafter, Executive Vice President, Hilton
Hotels Corporation and President-Hotel
Operations.
DONALD R. KNAB 73 1999 1989
Chairman and Chief Executive Officer, BPT
Properties, L.P., a commercial real estate
development company, until January 1992 and,
until December 1992, Senior Consultant thereto
and, since January 1988, President, Donald R.
Knab Associates, Inc., an investment advisory
firm, and, since October 1994, Vice Chairman,
Deansbank Investments, Inc.-property
investments.
BENJAMIN V. LAMBERT 57 1999 1976
Chairman and Chief Executive Officer, Eastdil
Realty Co. L.L.C., real estate investment
bankers.
5
TERM TO
EXPIRE YEAR
AT SERVICE
ANNUAL COMMENCED
NAME, PRINCIPAL OCCUPATION MEETING OR WILL
AND OTHER DIRECTORSHIPS AGE IN COMMENCE
- -------------------------------------------------- --- ------- ---------
PRESENT DIRECTORS:
RAYMOND C. AVANSINO, JR. 52 1998 1986
Partner, Avansino, Melarkey, Knobel & McMullen,
attorneys-at-law, until February 1993, President
and Chief Operating Officer, Hilton Hotels
Corporation until 1996 and, thereafter,
Consultant to the President and Chief Executive
Officer, Hilton Hotels Corporation. He is
Chairman of the Board of the E.L. Wiegand
Foundation, a private charitable trust.
A. STEVEN CROWN 44 1998 1992
General Partner, Henry Crown and Company, a
holding company which includes diversified
manufacturing operations, marine operations and
real estate ventures.
BARRON HILTON 68 1997 1965
Chairman of the Board, President and Chief
Executive Officer, Hilton Hotels Corporation,
until February 1993, Chairman of the Board and
Chief Executive Officer, Hilton Hotels
Corporation until February 1996 and, thereafter,
Chairman of the Board, Hilton Hotels
Corporation.
ERIC M. HILTON 62 1998 1989
Senior Vice President-Real Estate Development,
International, Hilton Hotels Corporation, until
May 1992, Executive Vice President-International
Operations, Hilton Hotels Corporation from May
1992 until May 1993 and, since May 1993, Vice
Chairman of the Board, Hilton Hotels
Corporation.
ROBERT L. JOHNSON 49 1997 1994
Chairman and Chief Executive Officer of Black
Entertainment Television, a cable programming
service, and Chairman, President and Chief
Executive Officer of BET Holdings, Inc., a
diversified media holding company, since August
1991, and Chairman and Chief Executive Officer
of District Cablevision, cable operator in the
District of Columbia.
6
TERM TO
EXPIRE YEAR
AT SERVICE
ANNUAL COMMENCED
NAME, PRINCIPAL OCCUPATION MEETING OR WILL
AND OTHER DIRECTORSHIPS AGE IN COMMENCE
- -------------------------------------------------- --- ------- ---------
DONNA F. TUTTLE 48 1998 1992
Chairman and Chief Executive Officer, Ayer
Tuttle, the western division of NW Ayer
Incorporated, an international advertising firm
from 1989 to 1992 and from 1989 to 1995,
President, Donna F. Tuttle, Inc., a travel and
tourism consulting and public relations firm,
and, since 1992, President, Korn Tuttle Capital
Group, a financial consulting and investments
firm, and a director of Phoenix Duff & Phelps,
Inc., a financial services firm.
SAM D. YOUNG, JR. 66 1997 1975
Chairman, Trans West Enterprises, Inc., an
investment company, and director, Texas Commerce
Bank-El Paso.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES THEREOF
Among the committees created by the Board of Directors are an Audit
Committee, a Personnel and Compensation Committee and a Nominating Committee.
Presently, the members of the Audit Committee are A. Steven Crown, Robert L.
Johnson, Donald R. Knab (Chair), Benjamin V. Lambert, Donna F. Tuttle and Sam D.
Young, Jr.; the members of the Personnel and Compensation Committee are A.
Steven Crown, Robert L. Johnson, Donald R. Knab, Benjamin V. Lambert (Chair),
Donna F. Tuttle and Sam D. Young, Jr.; and the members of the Nominating
Committee are Raymond C. Avansino, Jr., Barron Hilton, Donald R. Knab, Benjamin
V. Lambert, and Donna F. Tuttle (Chair).
The functions of the Audit Committee include reviewing the independence of
the independent auditors, recommending to the Board of Directors the engagement
and discharge of independent auditors, reviewing with the independent auditors
the plan and results of auditing engagements, approving or ratifying each
professional service provided by independent auditors which is estimated by
management to cost more than 10% of the previous year's audit fee, considering
the range of audit and nonaudit fees, 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.
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 the total
salary and fringe benefit programs. However, the Stock Option Committees, the
memberships of which are identical to that of the Personnel and Compensation
Committee, administer the Company's 1990 Stock Option and Stock Appreciation
Rights Plan, the 1996 Stock Incentive Plan and the 1996 Chief Executive Stock
Incentive Plan and the Committees of the 1990 Plan and the 1996 Plans recommend
to the Board of Directors the granting of options and stock appreciation rights
under the respective Plans (see "Executive Compensation" on page 9).
7
The functions of the Nominating Committee include 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
individually whenever a prospective Board member is being considered for
election to the Board. See "Election of Directors" for procedures to be followed
by stockholders in submitting recommendations to the Nominating Committee for
nominees to the Board of Directors.
The Board of Directors, Audit Committee, Personnel and Compensation
Committee and Nominating Committee held a total of ten, three, five and one
meetings during 1995, respectively. Each director attended more than 75% of the
aggregate number of meetings of the Board and the Committees on which each
director served.
Each director who is not also an officer was paid an annual retainer of
$25,000. In addition, each director received $900 for each meeting of the Board
of Directors attended and $750 (except the Chair of a Committee received $1,000)
for each meeting of a Committee attended. Such directors also receive, with
certain exceptions, complimentary rooms and 25% discount on food and beverage
when traveling on non-business travel to Company owned or managed properties.
The Company also maintains an unfunded Directors' Retirement Benefit Plan,
which provides retirement benefits to nonemployee directors of the Company who
retire at or after age 65 with ten years of service as a director. The annual
retirement benefit is equal to 100% of the director's highest average annual
fees during any period of 36 consecutive months, and is payable for ten years or
until the retired director's death, whichever occurs first. The plan also
provides a surviving spouse's benefit equal to one-half of the benefit otherwise
payable to the director.
CERTAIN RELATIONSHIPS AND INTERESTS IN CERTAIN TRANSACTIONS
Except as disclosed in the column entitled "Name, Principal Occupation and
Other Directorships" in the table above, none of the nominees' or directors'
principal occupations have been as an employee of the Company or its
subsidiaries and affiliates. Barron Hilton and Eric M. Hilton are brothers.
Except for such family relationship, none of the nominees and directors are
related to executive officers of the Company.
The Company or its subsidiaries has had since January 1, 1995, or presently
contemplates having, the transactions described below (in addition to certain
other transactions described elsewhere herein), with nominees and directors or
with firms, corporations or entities in which such nominees and directors are
affiliated. The Company uses, in the ordinary course of business, products and
services of organizations in which Barron Hilton has an interest. The amounts
involved have in no case been material in relation to the business of the
Company, of any such organizations, or Mr. Hilton.
Air Finance, a company controlled by Barron Hilton, owns a jet aircraft
which it charters. The Company pays $1,500 per flight hour and, during 1995,
payments aggregated $264,000. Additionally, Air Finance utilized the aircraft
support services of the Company, principally pilots, fuel, and other operational
support services for its aircraft. In 1995, Air Finance reimbursed the Company
$141,516, for these services. Management believes that these arrangements are at
least as favorable to the Company as those obtainable from unaffiliated parties.
Also during 1995, Barron Hilton reimbursed the Company $388,238 for costs
incurred in connection with the Earthwinds Hilton project pursuant to a written
agreement. The Company incurred no expense in 1995 in connection with this
project. The Earthwinds Hilton project was a manned helium balloon system
intended to circumnavigate the earth non-stop. The project was abandoned in
early 1995.
8
Further, the Company's casinos in Las Vegas and Reno, Nevada, regularly send
and pay for their guests to visit certain conference facilities in Yerington,
Nevada, which are owned by Barron Hilton. In this regard, in 1995, Mr. Hilton
received payments approximating $67,000.
EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1995, 1994, and 1993 of the Named Officers at December 31,
1995.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION STOCK
------------------------ OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(3) (SHARES)(4) COMPENSATION(5)
- -------------------------------------------------- ---- -------- -------- ------------ ---------------
Barron Hilton (1)................................. 1995 $650,000 $350,000 -- $3,000
Chairman and Chief Executive Officer 1994 650,000 350,000 -- 3,000
1993 665,128 340,000 -- 4,717
Raymond C. Avansino, Jr. (2)...................... 1995 595,833 350,000 -- 3,000
President and Chief Operating Officer 1994 567,477 375,000 90,000 3,000
1993 427,669 350,000 50,000 --
Dieter H. Huckestein.............................. 1995 336,917 250,000 -- 3,000
Executive Vice President, Hilton Hotels 1994 278,167 165,000 25,000 3,000
Corporation, and President-Hotel 1993 179,583 86,000 -- 4,717
Operations
F. M. Celey, Jr................................... 1995 336,917 300,000 -- 3,000
Executive Vice President, Hilton Hotels 1994 246,380 140,000 25,000 3,000
Corporation, and President-Gaming 1993 183,573 100,000 -- 3,899
Operations
Eric M. Hilton.................................... 1995 279,900 185,000 -- 3,000
Vice Chairman 1994 268,750 175,000 12,000 3,000
1993 250,250 175,000 -- 4,717
- ------------
(1) Effective February 2, 1996, Mr. Hilton resigned as Chief Executive Officer.
Effective the same date, Stephen F. Bollenbach was elected President and
Chief Executive Officer.
(2) Effective January 30, 1996, Mr. Avansino resigned as President and Chief
Operating Officer, and continues to be employed by the Company as Consultant
to the President and Chief Executive Officer.
(3) The Personnel and Compensation Committee approved the payment of such
bonuses. Of such bonus amounts, $325,000, $300,000, $152,100, $152,100 and
$126,360 were accrued by the Company in 1995 for Messrs. Barron Hilton,
Avansino, Huckestein, Celey and Eric Hilton, respectively, pursuant to the
Company's Incentive Compensation Plan; the remainder of such bonuses was
paid pursuant to the Personnel and Compensation Committee's discretionary
authority (see the Personnel and Compensation Committee Report on Executive
Compensation on page 11).
9
(4) Although the Company's 1990 Stock Option and 1996 Plans permit grants of
stock appreciation rights (SARs), no grants of SARs have been made.
(5) Represents amounts contributed or accrued for fiscal 1995, 1994 and 1993 for
the Named Officers under the Company's Investment Plan, which provides
benefits to eligible employees, including the Named Officers. Each dollar
contributed by an eligible employee through payroll deductions, up to 4% of
such employee's annual earnings, is matched by a Company contribution,
subject to certain government limitations.
OPTION GRANTS
There were no option grants in fiscal 1995 to the Named Officers.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to the exercised options and the
unexercised options to purchase the Company's Common Stock granted under the
Company's 1984 and 1990 Stock Option and Stock Appreciation Rights Plans to the
Named Officers and held by them at December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF
SHARES ACQUIRED VALUE VALUE OF
ON EXERCISE REALIZED UNEXERCISED
--------------- -------- IN-THE-MONEY
NUMBER OF OPTIONS AT
UNEXERCISED OPTIONS AT DECEMBER
DECEMBER 31, 1995 29, 1995(1)
--------------------------- -----------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE
- -------------------------------------------------- ----------- ------------- -----------
Barron Hilton..................................... -- -- -- -- --
Raymond C. Avansino, Jr........................... -- -- 47,500 92,500 $337,500
Dieter H. Huckestein.............................. -- -- 13,750 25,000 326,719
F. M. Celey, Jr................................... 2,126 $ 66,489 10,250 18,750 125,750
Eric M. Hilton.................................... -- -- 22,814 12,000 590,250
NAME UNEXERCISABLE
- -------------------------------------------------- -------------
Barron Hilton..................................... --
Raymond C. Avansino, Jr........................... $337,500
Dieter H. Huckestein.............................. 218,531
F. M. Celey, Jr................................... -0-
Eric M. Hilton.................................... -0-
- ------------
(1) Based on the fair market value of $61.06, which represents the mean between
the highest and lowest prices at which the Company's Common Stock was traded
on that date on the New York Stock Exchange.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE 1934 ACT,
THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE
OR IN PART, THE FOLLOWING PERSONNEL AND COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION AND THE STOCKHOLDER RETURN PERFORMANCE GRAPH ON PAGE 15
SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
10
PERSONNEL AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PROGRAMS
The Company's Personnel and Compensation Committee (the "Committee") and the
Stock Option Committee establish and monitor policies and procedures and approve
actions associated with the compensation and stock option 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 the
compensation received by participants to the achievement of specific earnings
goals for the Company and its business units, to appreciation in the price of
the Company's Common Stock, and in certain instances, to the achievement of
individual goals. Through this direct link between pay and Company and
individual performance, it is the intent of the program to focus participants on
factors that drive the Company's financial success and the creation of
incremental stockholder value.
The key components of the Company's executive compensation program include
annual compensation consisting of base salaries and annual performance bonuses,
and long-term incentive compensation consisting exclusively of stock options. It
is the Committee's policy to target total compensation (i.e., the sum of base
salary, annual performance bonus, stock option grants and other benefits) for
the Executive Group approximately at the median (50th percentile) of a
"competitive market" consisting of a combination of large, publicly traded
hotel/gaming companies (publicly held companies that primarily operate land
based casinos) and a randomly selected sample of FORTUNE 500 Service firms
comparable in size to the Company. To the extent possible, the same hotel/gaming
companies used to competitively assess the Company's executive compensation
levels are used to compare the Company's stock performance in the Total
Stockholder Return Performance Graph.
Actual total compensation paid to the Executive Group as a whole and to
individual executives within the Executive Group may exceed or fall below median
competitive levels both annually and over time based on a variety of factors,
including the Company's financial performance, the performance of the Company's
Common Stock, the performance of the executive's area of responsibility, the
Committee's assessment of an executive's individual performance, the executive's
experience in his or her role, and the executive's length of service with the
Company. The Committee believes that providing a performance sensitive target
total compensation opportunity approximately equal to the median of the
"competitive market" is required to attract, motivate and retain quality
management talent.
The Committee does not use competitive financial and stockholder value
performance comparisons to determine the compensation of the Company's Executive
Group, due primarily to the limited number of other publicly traded firms with a
mix of business (i.e., hotels and gaming) similar to the Company. Also, it is
the Committee's opinion that because the Company's financial performance and
stockholder value are influenced to a meaningful degree by a unique set of
external factors (i.e., gaming regulations and global economic conditions which
influence travel trends), comparing the Company's financial or stock price
performance across different industries can be misleading.
11
In establishing target total compensation levels for the Executive Group,
the Company periodically reviews data on market compensation practices prepared
by outside, independent compensation consultants. It is the Committee's belief
that the actual 1995 total compensation provided to the Company's Executive
Group is consistent with the Committee's policy of providing target total pay at
median market levels with meaningful upside and downside leverage based on
performance.
BASE SALARY
During fiscal 1995, the Named Officers, excluding Mr. Barron Hilton whose
salary was not adjusted, received salary increases averaging approximately 5.3%.
Of these increases, Messrs. Huckestein, Celey and Eric Hilton received increases
of 4%, which was consistent with the Committee's understanding of what currently
constituted a median market salary adjustment for management positions. Mr.
Avansino received a salary increase of slightly over 9%, which reflected the
highly competitive market in the gaming industry.
ANNUAL BONUS PLAN
Each participant in the Company's executive annual bonus plan is assigned a
maximum formula based award opportunity expressed as a percentage of the
participant's base salary. The maximum formula based award opportunity for the
participants in the program ranges from 20% to 50% of base salary, depending on
the participant's role. A target formula based award opportunity is not
established.
The amount of the formula based award earned under the program depends upon
the Company's level of achievement relative to an objective established by the
Committee for the Company's earnings per share (EPS). In addition to formula
based awards, the Company may pay discretionary awards based upon the
Committee's judgment regarding other performance indicators, including the
Company's EPS performance compared to the maximum formula based objective, the
Company's and business unit's earnings before interest and taxes (EBIT), market
share growth, achievement of cost containment goals, Company stock price
performance, and individual performance relative to each participant's primary
area of responsibility.
During fiscal 1995, the Company significantly exceeded the EPS objective
established by the Committee for the formula based award under the annual bonus
plan, triggering a maximum formula based payout. In addition, the Committee paid
discretionary awards to recognize that EPS performance meaningfully exceeded the
maximum formula based objective and to recognize superior individual
contributions made during the year.
LONG TERM INCENTIVE PROGRAM
The Company's long term incentive program consists exclusively of periodic
grants of stock options at the discretion of the Stock Option Committee, with an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant. To encourage retention, the ability to exercise options
granted under the program is subject to vesting restrictions determined by the
Committee. Decisions made by the Committee regarding the timing and size of
option grants take into account Company and individual performance, "competitive
market" practices, and the size of option grants made in prior years. The
Committee does not consider current option holdings when granting options.
At the 1995 annual meeting, the Company's stockholders approved an amendment
to the Company's 1990 Stock Option and Stock Appreciation Rights Plan that
limits the maximum number of options that may be granted to any employee during
any one fiscal year to 150,000. The approval of this amendment assured the
continued deductibility to the Company under existing law of compensation from
the exercise of stock options granted under the plan.
12
During 1995, no stock options were granted to any of the Named Officers or
to other Executive Officers of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
In making decisions concerning the compensation of the Company's Chief
Executive Officer (Barron Hilton), the Committee takes into account the
financial and strategic performance of the Company as well as data provided by
outside, independent compensation consultants concerning the total compensation
paid to Chief Executive Officers of large, publicly traded hotel/gaming
companies and FORTUNE 500 SERVICE firms comparable in size to the Company.
After considering Mr. Hilton's request, at the January 1996 meeting, not to
increase his salary, the Committee made no adjustment to Mr. Hilton's salary
during 1995. However, on March 13, 1996, in recognition of relinquishing his
title as Chief Executive Officer upon hiring Mr. Bollenbach as the Company's
Chief Executive Officer, the Personnel and Compensation Committee recommended to
the Board of Directors a reduction in Mr. Hilton's salary by $50,000 to $600,000
per year and his removal as a participant in the Company's bonus plan. On March
14, 1996, the Board of Directors approved such recommendations.
At its January 1996 meeting, the Committee approved a bonus of $350,000 for
Mr. Hilton for 1995 performance, which is identical to the bonus paid to Mr.
Hilton for performance during 1994. Of the amount approved for 1995 performance,
$325,000 represents the formula based portion of the Company's executive annual
bonus plan which generates a bonus for the Chief Executive Officer equal to 50%
of base salary if the Company meets or exceeds the EPS objective established by
the Committee for the year. The remaining $25,000 represents a discretionary
award made by the Committee in recognition of the fact that the Company's EPS
for 1995 significantly exceeded the objective established by the Committee.
Like the Company's other executives, Mr. Hilton is eligible to receive stock
options under the Company's stock option program. However, up to this time, Mr.
Hilton has advised the Committee that he does not desire to be granted any
options.
COMPENSATION PACKAGE OF NEW CHIEF EXECUTIVE OFFICER
In February 1996, the Company hired Stephen F. Bollenbach as President and
Chief Executive Officer and entered into a five-year employment agreement with
Mr. Bollenbach. Among the key provisions of Mr. Bollenbach's employment
agreement, he shall be entitled to a minimum annual base salary of $540,000 and
be eligible for a target annual bonus opportunity of up to 100% of base salary
(subject to a minimum annual guaranteed bonus for 1996 equal to $1,000,000 less
the amount of salary earned during 1996). In addition, Mr. Bollenbach was
granted 1,500,000 stock options, subject to stockholder approval of the 1996
Chief Executive Stock Incentive Plan at the Company's 1996 annual stockholders
meeting. 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 beginning January 1, 1997,
subject to acceleration for a change of control or qualified transaction (as
each are defined in the employment agreement). Also, 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 years or more after his initial employment, he shall be entitled
to a minimum payment ("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 1,500,000 options, including any
appreciation in the price of shares acquired by Mr. Bollenbach by the exercise
of his options. If Mr. Bollenbach receives the substitute payment, his options
will cease to be exercisable five trading days thereafter. The option grant to
13
Mr. Bollenbach will terminate if stockholder approval of the CEO Stock Incentive
Plan (as defined below) is not obtained at the 1996 annual stockholders meeting.
Unless the Company elects to implement a similar stock option award without
obtaining such approval, Mr. Bollenbach's employment with the Company would
terminate and the Company would be obligated to pay him $10,000,000. The
agreement provides that the Company will lend, and the Company has lent, Mr.
Bollenbach $5,000,000. The loan is interest bearing 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 options and, if applicable, his "substitute payment."
The agreement entered into with Mr. Bollenbach was the result of arms length
negotiations between the Company and Mr. Bollenbach. It is the Committee's
opinion that the compensation provisions contained in the agreement were
necessary to secure Mr. Bollenbach's employment and are in the best interests of
the Company and its stockholders.
COMMITTEE POLICY REGARDING COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL
REVENUE CODE
The 1993 Omnibus Budget Reconciliation Act ("OBRA") became law in August
1993. Under the law, 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 one year.
Under OBRA, the deduction limit does not apply to payments which qualify as
"performance based." To qualify as "performance based," compensation payments
must be made from a plan that is administered by a committee of outside
directors and be based on achieving objective performance goals. In addition,
the material terms of the plan must be disclosed to and approved by
stockholders, and the committee must certify that the performance goals were
achieved before payments can be awarded.
The Committee intends to design the Company's compensation programs to
conform with the OBRA legislation and related regulations so that the total
compensation paid to any employee will not exceed $1,000,000 in any one year,
except for compensation payments in excess of $1,000,000 which qualify as
"performance based" or which are exempt for other reasons. However, the Company
may pay compensation which is not deductible in limited circumstances if sound
management of the Company so requires.
In order to qualify the 1996 Stock Incentive Plan and the 1996 Chief
Executive Stock Incentive Plan, including the stock options granted to Mr.
Bollenbach, as "performance based," the Company is recommending stockholder
approval thereof. Further, both Plans have the individual annual maximum grant
limitation as required to qualify the Plans as "performance based" (see
"Proposed 1996 Stock Incentive Plan and 1996 Chief Executive Stock Incentive
Plan" below).
The foregoing report has been approved by all of the members of the
Committee:
Benjamin V. Lambert, Chair
A. Steven Crown
Robert L. Johnson
Donald R. Knab
Donna F. Tuttle
Sam D. Young, Jr.
14
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock against
the cumulative total return of the S&P Composite-500 Stock Index and a
hotel/gaming peer group for the five fiscal years ending December 31, 1995.
Comparison of Five Year Cumulative Total Return
Among Hilton Hotels Corporation, S&P 500 and Hotel/Gaming Peer Group
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
HILTON HOTELS CORPORATION S&P 500 INDEX PEER GROUP (WEIGHTED AVERAGE)
Dec-90 100 100 100
Dec-91 112 130 133
Dec-92 123 140 191
Dec-93 176 154 279
Dec-94 201 156 258
Dec-95 185 215 284
Assumes $100 invested on December 31, 1990 in the Common Stock of Hilton Hotels
Corporation, the S&P 500 Index, and Peer Companies. Total return assumes
reinvestment of dividends.
(1) The Company-constructed hotel/gaming peer group is weighted annually by
market capitalization and consists of major publicly-traded companies, four
in the gaming industry and three 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 which, as a group, outperformed the hotel industry during
the period represented by the graph. The hotel/gaming peer group includes
Bally Entertainment Corp., Circus Circus Enterprises, Inc., Harrah's
Entertainment, Inc. (formerly Promus Companies, Inc.) Host Marriott
Corporation, ITT Corporation, Marriott International, Inc., Mirage Resorts,
Inc.
(2) While no companies were added to the hotel/gaming peer group, Caesars World
was acquired by ITT Corporation in December 1994 and, therefore, is
eliminated from all time periods. It should also be noted that ITT
Corporation spun off ITT Hartford and ITT Industries, and Promus Companies,
Inc. spun off Promus Hotel Corp. and changed its name to Harrah's
Entertainment, Inc.
15
PROPOSED 1996 STOCK INCENTIVE PLAN AND
1996 CHIEF EXECUTIVE STOCK INCENTIVE PLAN
GENERAL
In the opinion of the Board of Directors, the Company and its stockholders
have benefited substantially from having certain officers and key employees
acquire shares of its Common Stock pursuant to options granted under the 1984
Plan and the 1990 Plan. Such options and rights, in the opinion of the Board,
have secured the benefits of the incentive resulting from stock ownership by
such officers and key employees who are largely responsible for the Company's
growth and success. The 1984 Plan has expired and no additional options can be
granted thereunder. As of March 15, 1996, options have been exercised or are
outstanding for 1,499,623 of the 1,500,000 shares of Common Stock (as adjusted)
reserved for issuance under the 1990 Plan. In view of the expiration of the 1984
Plan and the limited number of shares available for grant under the 1990 Plan,
the Board of Directors adopted in January 1996, subject to stockholder approval,
the 1996 Stock Incentive Plan ("1996 Plan").
The 1996 Plan authorizes the grant of options for 1,500,000 shares of Common
Stock (subject to adjustment as provided in the Plan). The Board believed it
advisable to make available these shares for the purpose of granting further
stock options, so that shares can be allotted to officers and other key
employees who have been or are optionees, consistent with their present
responsibilities, and to other officers and key employees who assume or who, as
a result of promotions, will assume new and important responsibilities.
In addition, the Board of Directors has adopted the 1996 Chief Executive
Stock Incentive Plan (the "CEO Plan" and together with the 1996 Plan, the
"Plans"), subject to stockholders' approval at the annual meeting, authorizing
1,500,000 shares of Common Stock (subject to adjustment as provided in the CEO
Plan), all of which may be issued upon exercise of the options granted to Mr.
Bollenbach pursuant to the terms of his Employment Agreement. The Board believed
it advisable to make these shares available and to grant the options to Mr.
Bollenbach to induce him to accept his position as President and Chief Executive
Officer of the Company. The options are intended to provide additional incentive
for Mr. Bollenbach to use his best efforts to maximize the performance and
success of the Company.
The Board recommends that stockholders vote FOR approval and adoption of the
1996 Plan and the CEO Plan. A majority of the shares of Common Stock of the
Company voting at its annual meeting is required for such approval and adoption.
Proxies will be voted for or against the 1996 Plan and the CEO Plan in
accordance with specifications marked thereon and will be voted in favor of
approval and adoption if no specification is made.
SUMMARY OF PLANS
The following summary is subject to the full statement of the 1996 Plan, a
copy of which is attached to this Proxy Statement as Exhibit A, and the CEO
Plan, a copy of which is attached as Exhibit B.
PURPOSE. The purpose of the Company's 1996 Plan and the CEO Plan is to
provide additional incentives to officers and key employees and to Mr.
Bollenbach, respectively, through investment in the Company's Common Stock.
Under the 1996 Plan, either incentive options or non-incentive options (with or
without stock appreciation rights in tandem therewith) are available for grant.
Under the CEO Plan, only non-incentive options are made available for grant.
16
ADMINISTRATION. The Plans are administered by a Committee appointed by the
Board of Directors from those of its members not eligible to receive stock
options and stock appreciation rights (the "Committee"). The Committee makes
recommendations to the Board of Directors as to the granting of stock options to
key employees of the Company and its subsidiaries. Subject to orders or
resolutions not inconsistent with the provisions of the Plans issued or adopted
from time to time by the Board of Directors, the Committee has the power to
administer, construe and interpret the Plans and to make rules to implement the
provisions thereof.
ELIGIBILITY. Full-time officers and key employees of the Company and its
subsidiaries (whether or not directors) are eligible to receive options under
the Plan. Only Mr. Bollenbach is eligible to receive options under the CEO Plan,
and all the options available under the CEO Plan have been granted, subject to
approval by the Company's stockholders at the 1996 annual meeting. Directors who
are not salaried officers or key employees are ineligible to receive options or
stock appreciation rights under the Plan.
SHARES SUBJECT TO THE PLAN. A maximum of 1,500,000 shares of Common Stock
(subject to adjustment), par value $2.50 per share, are subject to each Plan. In
the event of any merger, consolidation, reorganization, recapitalization,
split-up, stock right distribution, stock dividend (see "Change in Control
Provisions") or other change in corporate structure or capitalization affecting
the Company's Common Stock, the number, exercise price and kind of shares that
are subject to outstanding options will be adjusted in such manner and to such
extent, if any, as the Committee or Board of Directors in their absolute
discretion may deem appropriate in the circumstances. If an option expires or
terminates for any reason during the term of the Plans and prior to the exercise
thereof in full, the shares of Common Stock subject to, but not delivered under,
such option shall be available for options thereafter granted under such Plan.
OPTION PRICE. The purchase price of the stock subject to an option granted
under the Plans shall be not less than 100% of the fair market value of such
stock at the time the option is granted.
TERM AND EXERCISE OF OPTIONS. All options granted under the 1996 Plan
expire ten years after the grant thereof, except that such term may be reduced
with respect to any option and/or stock appreciation right in the event of
termination of employment, retirement or death of an optionee. All options
granted under the 1996 Plan are exercisable by the holders thereof in such
installments as the Committee shall determine; provided, however, that no option
may be exercised prior to six months from the date of grant thereof, regardless
of any other provision of the 1996 Plan. The options granted to Mr. Bollenbach
under the CEO Plan carry a five-year maximum term and vest in four equal annual
installments beginning January 1, 1997, subject to acceleration for a change of
control or qualified transaction (as defined).
Each stock option agreement evidencing options granted under the 1996 Plan
shall contain an explicit reference as to whether any or all of the options
granted thereunder are intended to be incentive stock options.
STOCK APPRECIATION RIGHTS. Stock appreciation rights ("SARs") may be
granted, in the sole discretion of the Committee, in connection with options
granted under the 1996 Plan. Each SAR relates to the same shares of Common Stock
covered by the companion option (or such lesser number of shares as the
Committee may determine) and is subject to the same terms and conditions
contained in the option except for such additional limitations as are required
by the 1996 Plan or as may be included by the Committee in SARs granted. Each
SAR entitles an optionee to surrender to the Company the unexercised related
option, or any portion thereof, and to receive in exchange cash or shares of the
Company's Common Stock, or a combination thereof, as the Committee shall
determine, with a value equal to the fair market value on the exercise date of
the Company's Common Stock over the option exercise price for the number of
shares
17
covered by the option, or portion thereof, which is surrendered. Notwithstanding
any other provision of the 1996 Plan, no SAR may be exercised within a period of
six months after the date of grant of the SAR. The 1996 Plan requires the
Committee to impose a requirement that an optionee partially exercise an option
concurrently with the exercise of the related SAR. Each optionee is required to
pay to the Company any amount the Company is obligated to withhold for income
taxes as a result of the exercise of a stock option or an SAR.
NONTRANSFERABILITY OF STOCK OPTIONS. Neither stock options nor stock
appreciation rights are transferable otherwise than by will or by the laws of
descent and distribution, or in the case of a non-qualified stock option,
pursuant to a qualified domestic relations order. During the lifetime of an
optionee, a stock option and/or stock appreciation right is exercisable only by
the optionee.
DEATH, DISABILITY, RETIREMENT OR TERMINATION OF EMPLOYMENT. If an optionee
dies while employed by the Company or a subsidiary or a disabled optionee dies
within six months from the termination of employment, options may thereafter be
exercised only to the extent they were exercisable at the time of death and may
only be exercised within 12 months from the date of death, but in no event after
the date of expiration of the option.
If, after one year of continuous employment, an optionee ceases to be an
employee of the Company or a subsidiary due to disability, options may
thereafter be exercised only to the extent they were exercisable at the time of
such cessation of employment and only within six months from the date of
cessation of employment, but in no event after the date of expiration of the
option.
If, after one year of continuous employment, an optionee ceases to be an
employee of the Company or a subsidiary due to retirement, options may
thereafter be exercised only to the extent they were exercisable at the time of
such cessation of employment and only within 24 months from the date of
cessation of employment, but in no event after the date of expiration of the
option.
If, after one year of continuous employment, an optionee resigns or is
discharged, options may thereafter be exercised (with the consent of the
Company) only to the extent they were exercisable at the time of cessation of
employment, and only within three months from the date of cessation of
employment, but in no event after the date of expiration of the option.
Stock appreciation rights shall terminate concurrently with termination of
employment for any reason whatsoever, unless otherwise approved by the
Committee.
Under the CEO Plan, if Mr. Bollenbach's employment with the Company
terminates for any reason prior to the fifth anniversary of the date of grant,
any stock option held by Mr. Bollenbach, to the extent exercisable as of the
date of such termination (including any portion that becomes exercisable because
of such termination), shall remain exercisable until the earlier of (x) the
first anniversary of such date of termination or (y) the fifth anniversary of
the date of grant.
LEAVES OF ABSENCE. Leaves of absence for those periods and purposes
conforming to the personnel policies of the Company and as may be approved by
the Committee, shall not be deemed terminations or interruptions of employment.
CHANGE IN CONTROL PROVISIONS.
(a) In the event of any recapitalization, merger, reorganization,
consolidation, split-up, stock dividend or stock right distribution, the number,
exercise price and kind of shares, etc. that are subject to outstanding options
and stock appreciation rights will be adjusted (but without regard to fractions)
in a fair and equitable
18
manner by the Board of Directors of the Company, whose determination in each
case shall be conclusive and binding on the Company and the optionee and
optionee's legal representatives. In the event that provision is not made, in
connection with any such merger, reorganization, consolidation or other change
in corporate structure, for the continuation of the Plans and assumption of the
options and stock appreciation rights theretofore granted (or the substitution
of substantially identical options and stock appreciation rights of the
surviving corporation or successor employer or a parent thereof), then each
holder of an option and stock appreciation right shall be entitled, prior to the
effective date of any such transaction, to exercise the option and stock
appreciation right for the full number of shares covered thereby which the
holder would otherwise have been entitled to acquire during the remaining term
of such option and stock appreciation right.
(b) The Plans provide that each outstanding option granted thereunder shall
become exercisable in full for the aggregate number of shares covered thereby,
in the event:
(i) of (a) any consolidation or merger of the Company in which the
Company is not the surviving corporation or pursuant to which shares of
Common Stock would be converted into cash, securities or other property,
other than a merger or consolidation of the Company in which the holders of
Common Stock immediately prior to the merger or consolidation have the same
proportionate ownership of Common Stock of the surviving or newly-formed
corporation immediately after the merger or consolidation and provision is
made in connection with any such merger or consolidation for the
continuation of the Plans and assumption of the stock options and stock
appreciation rights theretofore granted (or substitution of substantially
identical options and stock appreciation rights of the successor corporation
or a parent thereof), or (b) any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (c) the adoption of any
plan or proposal for the liquidation or dissolution of the Company (each of
the foregoing hereinafter referred to as a "Corporate Transaction"); or
(ii) (a) any person (as such term is defined in Sections 13(d) (3) and
14 (d) (2) of the 1934 Act), other than the Hilton Interests, corporation or
other entity shall purchase any Common Stock of the Company (or securities
convertible into the Company's Common Stock) for cash, securities or any
other consideration pursuant to a tender offer or exchange offer, or (b) any
person, corporation or other entity (other than (y) the Company or any
benefit plan sponsored by the Company or (z) any transferee acting as
executor or trustee by will or the laws of descent and distribution) shall
after the date options are first issued under the Plans become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the 1934
Act), directly or indirectly, of securities of the Company representing 20%
or more of the combined voting power of the then outstanding securities of
the Company ordinarily having the right to vote in the election of directors
(each of the foregoing hereinafter referred to as a "Control Purchase"); or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the entire Board shall cease for any
reason to constitute a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period (a "Board Change").
TERMINATION. The term during which options and stock appreciation rights
may be granted under the 1996 Plan expires on January 17, 2006, unless sooner
terminated by the Board of Directors. Such termination has no effect on options
or stock appreciation rights then in effect.
19
TAX CONSEQUENCES
The Federal income tax consequences of an employee's participation in the
Plans are complex and subject to change. The following discussion is only a
summary of the general rules applicable to remuneration-related options.
Employees should consult their own tax advisors since a taxpayer's particular
situation may be such that some variation of the rules described below will
apply.
INCENTIVE STOCK OPTIONS. If an option granted under the Plans is treated as
an incentive stock option, the optionee will not recognize any income upon
either the grant or the exercise of the option and the Company will not be
allowed a deduction for Federal income tax purposes. Upon a sale of the shares,
the tax treatment to the optionee and the Company will depend primarily upon
whether the optionee has met certain holding period requirements at the time he
or she sells the shares. In addition, as discussed below, the exercise of an
incentive stock option may subject the optionee to alternative minimum tax
liability.
If the optionee disposes of the shares either within two years after the
date the option is granted or within one year after the transfer of the shares
to the optionee, such disposition will be treated as a disqualifying disposition
and an amount equal to the lesser of (i) the fair market value of the shares on
the date of exercise minus the purchase price, or (ii) the amount realized on
the disposition minus the purchase price, will be taxed as ordinary income to
the optionee in the taxable year in which the disposition occurs. The excess, if
any, of the amount realized upon disposition over the fair market value at the
time of the exercise of the option will be treated as long-term capital gain if
the shares have been held for more than one year following the exercise of the
option. In the event of a disqualifying disposition, the Company may withhold
income taxes from the optionee's compensation with respect to the ordinary
income realized by the optionee as a result of the disqualifying disposition.
The exercise of an incentive stock option may subject an optionee to
alternative minimum tax liability because the excess of the fair market value of
the shares at the time an incentive stock option is exercised over the purchase
price of the shares is included in income for purposes of the alternative
minimum tax. Consequently, an optionee may be obligated to pay alternative
minimum tax in the year he or she exercises an incentive stock option.
In general, there will be no Federal income tax consequences to the Company
upon the grant, exercise or termination of an incentive stock option. However,
in the event an optionee sells or disposes of stock received upon the exercise
of an incentive stock option in a disqualifying disposition, the Company will be
entitled to a deduction for Federal income tax purposes in an amount equal to
the ordinary income, if any, recognized by the optionee upon disposition of the
shares.
NONQUALIFIED STOCK OPTIONS. Nonqualified stock options granted under the
Plans do not qualify as "incentive stock options" and will not qualify for any
special tax benefits to the optionee. An optionee generally will not recognize
any taxable income at the time he or she is granted a nonqualified option.
However, upon exercise, the optionee will recognize ordinary income for Federal
and State, if any, income tax purposes measured by the excess of the then fair
market value of the shares over the option price. The income realized by the
optionee will be subject to income tax withholding.
The optionee's basis for determination of gain or loss upon the subsequent
disposition of shares acquired upon the exercise of a nonqualified stock option
will be the amount paid for such shares plus any ordinary income recognized as a
result of the exercise of such option. Upon disposition of any shares
20
acquired pursuant to the exercise of a nonqualified stock option, the difference
between the sale price and the optionee's basis in the shares will be treated as
a capital gain or loss and will be characterized as long-term capital gain or
loss if the shares have been held for more than one year at the date of their
disposition.
In general, there will be no Federal income tax consequences to the Company
upon the grant or termination of a nonqualified stock option or a sale or
disposition of the shares acquired upon the exercise of a nonqualified stock
option. However, upon the exercise of a nonqualified stock option, the Company
will be entitled to a deduction for Federal income tax purposes equal to the
amount of ordinary income that an optionee is required to recognize as a result
of the exercise.
TAXATION OF STOCK APPRECIATION RIGHTS. No income will be realized by an
optionee upon the granting of a stock appreciation right. Upon the exercise of a
stock appreciation right, an optionee will recognize income in an amount equal
to the fair market value on the exercise date of the Common Stock or cash, or
both, received, less any amount paid by the optionee for such rights, and the
Company will be entitled to a deduction in an equal amount.
The foregoing does not purport to be a complete description of the Federal
income tax aspects of the options. The descriptions of the computation of the
alternative minimum tax and determination of basis and holding period in the
event of an option exercise with Previously Acquired Shares are very general in
nature and omit certain items that may affect the tax computations of certain
optionees. Optionees should, therefore, consult their tax advisors with respect
to any questions they may have regarding the above described matters, as well as
any state and local tax consequences.
VOTE REQUIRED AND BOARD RECOMMENDATION
The majority of the shares represented at the meeting, in person or by
proxy, will be necessary for the approval of the Plans. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE PROPOSALS.
RETIREMENT PLANS
Set forth below is a table with respect to the estimated annual amounts
payable to the Named Officers upon retirement at age 65 from the Company's
Retirement Plan and the Company's two supplementary plans associated with the
Retirement Plan, the Benefit Replacement Plan and the Supplemental Executive
Retirement Plan (collectively, the "Plans").
ESTIMATED ANNUAL RETIREMENT BENEFIT
YEARS OF SERVICE AT RETIREMENT
----------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------------------------------------- ---------- ---------- ---------- ---------- ----------
$ 350,000.................................. $ 210,000 $ 210,000 $ 210,000 $ 210,000 $ 210,000
400,000.................................. 240,000 240,000 240,000 240,000 240,000
450,000.................................. 270,000 270,000 270,000 270,000 270,000
500,000.................................. 300,000 300,000 300,000 300,000 300,000
600,000.................................. 360,000 360,000 360,000 360,000 360,000
800,000.................................. 480,000 480,000 480,000 480,000 480,000
1,000,000................................. 600,000 600,000 600,000 600,000 600,000
1,200,000................................. 720,000 720,000 720,000 720,000 720,000
1,400,000................................. 840,000 840,000 840,000 840,000 840,000
21
The compensation covered by the Plans includes a participant's salary, bonus
(if any) and living allowance (if any). Benefits under the Retirement Plan and
the Benefit Replacement Plan are determined according to the highest five
consecutive years of compensation, and benefits under the Supplemental Executive
Retirement Plan are based upon the highest three years of compensation including
compensation in the year immediately prior to retirement. Compensation above
$800,000 paid in any year after 1993 is disregarded, but this limitation is not
applied to any year before 1994. On December 31, 1995, Messrs. Barron Hilton,
Avansino, Huckestein, Celey and Eric Hilton had 44, 3, 10, 29 and 44 years of
service, respectively, under the Plans. The benefits set forth on the table
assume receipt of a benefit on a straight life annuity basis and are reduced by
50% of the primary social security benefit to which a participant is entitled.
Until April 1, 1994, the Supplemental Executive Retirement Plan and the Benefit
Replacement Plan provided that the present value of a Named Officer's benefit 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 in control occurs.
CHANGE OF CONTROL ARRANGEMENTS
The Company's Board of Directors has adopted a Change of Control Agreement
("Agreement") and, pursuant thereto, Agreements have been entered into with each
of the Company's Named Officers and Mr. Bollenbach ("Officers"). Mr.
Bollenbach's Agreement is written to take into account the terms of his
employment agreement, but is otherwise identical to the Agreements entered into
with the Named Officers. Under the terms of the Agreement, each Officer will
receive an amount equal to up to three times annual salary and bonus if,
following a Change of Control (as hereinafter defined), such Officer is
terminated without cause or if an Officer terminates for good reason (including,
but not limited to, the assignment to such Officer of duties inconsistent with
such Officer's position at the time of the Change of Control). The Agreement
continues for renewable three-year terms or until normal retirement date, if
earlier. Under the Agreement, a Change of Control with respect to the Company
and the Agreement 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 1934 Act (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 Fund, collectively, the "Hilton Interests"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the 1934 Act) 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; or (ii) a majority of the membership of the
present 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. If any payment, whether pursuant to the Agreement or
otherwise (i.e., under Retirement or Stock Option Plans), would be subject to
the excise tax imposed by Section 4999 of the Code, then the Officer shall be
entitled to receive an additional payment in an amount such that after payment
by the Officer of all taxes (including any interest or penalties imposed with
respect to such taxes), including any excise tax, imposed upon the additional
payment, the Officer receives the same amount of compensation pursuant to the
Agreement which such Officer would have received in the absence of any such
taxes.
In the event of a Change of Control, full vesting and immediate payment of
benefits is provided in the Company's Supplemental Executive Retirement Plan
regardless of age or years of credited service.
22
STOCKHOLDER PROPOSAL RESPECTING NON-EMPLOYEE DIRECTORS' RETIREMENT PLAN
The Company has been advised that a stockholder of the Company proposes to
introduce the following resolution and statement in support thereof, which the
Board of Directors opposes, at the 1996 Annual Meeting of Stockholders. (The
name and address of, and the number of shares held by, the proponent can be
obtained upon request to the Corporate Secretary of the Company.)
"RESOLVED, that the shareholders assembled in person and by proxy, recommend
(i) that all future non-employee directors not be granted pension benefits and
(ii) current non-employee directors voluntarily relinquish their pension
benefits."
STATEMENT BY STOCKHOLDER IN SUPPORT OF THE RESOLUTION
"Aside from the usual reasons, presented in the past, regarding "double
dipping," that is outside (non-employee) directors who are in almost all cases
amply rewarded with their pension at their primary place of employment, and in
many instances serving as outside pensioned directors with other companies,
there are other more cogent reasons that render this policy as unacceptable.
"Traditionally, pensions have been granted in both the private and public
sectors for long term service. The service component usually represents a
significant number of hours per week. The practice of offering pensions for
consultants is a rarity. Outside directors' service could logically fit the
definition of consultants and pensions for this type of service is an abuse of
the term.
"But more importantly, outside directors, although retained by corporate
management, namely the C.E.O., are in reality representatives of shareholders.
Their purpose is to serve as a impartial group to which management is
accountable. Although outside directors are certainly entitled to compensation
for their time and expertise, pensions have the pernicious effect of
compromising their impartiality. In essence, pensions are management's grants to
outside directors to insure their unquestioning loyalty and acquiescence to
whatever policy management initiates, and at times, serving their own self
interests. Thus, pensions become another device to enhance and entrench
management's controls over corporate policies while being accountable only to
themselves. I am a founding member of the Investors Rights Association of
America and I feel this practice perpetuates a culture of corporate management
"cronyism" that can easily be at odds with shareholder and company interest.
"A final note in rebuttal to management's contention that many companies
offer their outside directors pensions, so they can attract and retain persons
of the highest quality. Since there are also companies that do not offer their
outside directors pensions, can management demonstrate that those companies that
offer pensions have a better performance record then their non-pensioned peers?
In addition, do we have any evidence of a significant improvement in corporate
profitability with the advent of pensions for outside directors?
"I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION."
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE RESOLUTION
The Company has a Directors' Retirement Benefit Plan for non-employee
Directors. Only Directors who have completed ten years of service as a Board
member are eligible to participate. The Plan provides for the payment of an
annual benefit to the Directors or his or her estate in an amount equal to 100%
of the Director's highest average annual fees during any period of 36
consecutive months. The payments begin with the year of retirement and end with
the earlier of the participant's death or the tenth annual payment. The Plan
also provides a surviving spouse's benefit equal to one-half of the benefit
otherwise payable to the
23
Director. The Company believes that it is in the best interests of its
stockholders to have capable and experienced individuals serving on the
Company's Board of Directors. In order for the Company to be able to attract and
to motivate such individuals, it is necessary for the Company to provide a
benefits package competitive with that of other major corporations. The benefits
offered by the Plan are representative of those offered by other large
corporations to their outside Directors.
With the increased recognition of the link between corporate governance and
the long-term strategic success of a corporation, the demands on the time,
commitment and expertise of individuals serving as Directors of a major public
corporation have risen to new levels. Accompanying these increased demands, has
been a commensurate increase in Director accountability. The Company believes
that it is necessary to compensate its outside Directors for their time and
expertise. The Company believes that its compensation package to outside
Directors not only helps to align the interests of its Directors with those of
the Company but also provides for involved and motivated outside Board members
with the capability and expertise to help create and insure the long term growth
and success of the Company.
The proponent presents no reasoned challenge to the Board of Directors' firm
belief that the Directors Retirement Benefit Plan is in the best interests of
the stockholders. The Board of Directors believes that the adoption of the
proposal is not only unnecessary, but would be detrimental to the best interests
of the Company and its stockholders in that it would adversely affect the
Company's ability to attract and retain experienced Directors.
VOTE REQUIRED AND BOARD RECOMMENDATION
The majority of the shares represented at the meeting, in person or by
proxy, will be necessary for the adoption of Proposal 5. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST PROPOSAL 5.
STOCKHOLDER PROPOSAL RESPECTING DECLASSIFICATION OF THE BOARD
The Company has been advised that a stockholder of the Company proposes to
introduce the following resolution and statement in support thereof, which the
Board of Directors opposes, at the 1996 annual meeting of Stockholders. (The
name and address of, and the number of shares held by, the proponent can be
obtained upon request to the Corporate Secretary of the Company.)
"RESOLVED, that the stockholders of the Company request that the Board of
Directors take the necessary steps, in accordance with state law, to declassify
the Board of Directors so that all directors are elected annually, such
declassification to be effected in a manner that does not affect the unexpired
terms of directors previously elected."
STATEMENT BY STOCKHOLDER IN SUPPORT OF THE RESOLUTION
"The election of directors is the primary avenue for stockholders to
influence corporate governance policies and to hold management accountable for
its implementation of those policies. I believe that the classification of the
Board of Directors, which results in only a portion of the Board being elected
annually, is not in the best interests of the Company and its stockholders.
"The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. I believe that the Company's classified Board of
Directors maintains the incumbency of the current Board and therefore of current
management, which in turn limits management's accountability to stockholders.
24
"I am a founding member of the Investors Rights Association of America and I
believe that concerns expressed by companies with classified boards that the
annual election of all directors could leave companies without experienced
directors in the event that all incumbents are voted out by stockholders, are
unfounded. In my view, in the unlikely event that stockholders vote to replace
all directors, this decision would express stockholder dissatisfaction with the
incumbent directors and reflect the need for change.
"I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION."
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE RESOLUTION
Similar stockholder proposals have been submitted to other major
corporations since the election by Directors by classes was approved by the
Company's stockholders in 1985, the majority of which have been rejected. The
Board continues to be of the opinion that a classified Board of Directors is
beneficial to the Company and its stockholders because it provides continuity,
stability and experience in the composition of the Board and in the policies
formulated by the Board, while still providing for the election of a portion of
the Board each year. Further, a classified Board reduces the possibility that a
third party could effect a sudden or surprise change in majority control of the
Company's Board of Directors without the support of the incumbent Board.
VOTE REQUIRED AND BOARD RECOMMENDATION
The majority of the shares represented at the meeting, in person or by
proxy, will be necessary for the adoption of Proposal 6. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST PROPOSAL 6.
STOCKHOLDER PROPOSAL RESPECTING NON-EMPLOYEE DIRECTORS' COMPENSATION
The Company has been advised that a stockholder of the Company proposes to
introduce the following resolution and statement in support thereof, which the
Board of Directors opposes, at the 1996 Annual Meeting of Stockholders. (The
name and address of, and the number of shares held by, the proponent can be
obtained upon request to the Corporate Secretary of the Company.)
"RESOLVED that the shareholders recommend that the board of directors take
the necessary steps to ensure that from here forward all non-employee directors
should receive a minimum of fifty percent of their total compensation in the
form of company stock which cannot be sold for three years."
STATEMENT BY STOCKHOLDER IN SUPPORT OF THE RESOLUTION
"A significant equity ownership by outside directors is probably the best
motivator for facilitating identification with shareholders.
"Traditionally, outside directors, usually selected by management, were
routinely compensated with a fixed fee, regardless of corporate performance. In
today's competitive global economy, outside directors must exercise a critical
oversight of management's performance in furthering corporate profitability. All
too often, outside directors oversight has been marked by complacency, cronyism,
and inertia.
"Corporate America has too many examples of management squandering company
assets on an extended series of strategic errors. Meanwhile, Boards of Directors
stood by and passively allowed the ineptitude to continue, well after disaster
struck. They fiddled while Rome was burning.
"When compensation is in company stock, there is a greater likelihood that
outside directors will be more vigilant in protecting their own, as well as
corporate, and shareholder interests.
25
"What is being recommended in this proposal is neither novel or untried. A
number of corporations have already established versions of such practices,
namely, Scott Paper, The Travelers, and Hartford Steam Boiler.
"Robert B. Stobough, Professor of Business Administration at the Harvard
Business School, did a series of studies comparing highly successful to poorly
performing companies. He found that outside directors in the better performing
companies had significantly larger holdings of company stock than outside
directors in the mediocre performing companies.
"It can be argued that awarding stock options to outside directors
accomplishes the same purpose of insuring director's allegiance to a company's
profitability, as paying them exclusively in stock. However, it is our
contention that stock options are rewarding on the upside, but offer no
penalties on the downside, where shareholders bear the full downside risks.
There are few strategies that are more likely to cement outside directors with
shareholder interests and company profitability than one which results in their
sharing the same bottom line."
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE RESOLUTION
The Board agrees that it is desirable for directors to own Common Stock of
the Company, and virtually all of the Company's Directors do own Common Stock of
the Company. However, the Company does not believe that it is in the interest of
the Company to require that one-half of Director compensation be paid in stock.
The stockholder proposal removes the flexibility to determine the optimum
form of compensation in order to attract and retain the best directors possible.
This can vary from time to time based on general trends in Director compensation
and the circumstances of individual candidates for the Board. The proposed
mandate that one-half of Director compensation be in Common Stock may result in
well-qualified individuals declining to serve as Directors of the Company
because they consider cash and other forms of compensation offered by other
corporations more desirable.
The Board believes, as indicated by surveys, that the vast majority of
public companies offer Directors a significant portion of their compensation in
cash.
Further, the stock given to Directors would constitute taxable income to
them, but they would not be furnished cash with which to pay the taxes. This
could mean that some Directors would sell stock to generate cash for the taxes
due. To avoid this outcome, the Company would have to require that Directors
retain all stock received as compensation, which would worsen the competitive
disadvantage discussed above.
None of these difficulties is addressed in the proponent's supporting
statement.
VOTE REQUIRED AND BOARD RECOMMENDATION
The majority of the shares represented at the meeting, in person or by
proxy, will be necessary for the adoption of Proposal 7. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST PROPOSAL 7.
26
RATIFICATION OF SELECTION OF AUDITORS
Arthur Andersen LLP ("Andersen") was the Company's auditors for the year
ended December 31, 1995. 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 Board 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 auditors
for fiscal 1996.
1997 ANNUAL MEETING OF STOCKHOLDERS
The 1997 Annual Meeting of Stockholders is presently scheduled to be held on
May 8, 1997. Any proposals of stockholders intended to be personally presented
at such meeting must be received by the Corporate Secretary of the Company for
inclusion in the Company's Proxy Statement and form of proxy no later than
December 1, 1996.
GENERAL
The cost of preparing and mailing the notice of meeting, Proxy Statement and
forms of proxy will be paid by the Company. In addition to mailing copies of
this material to all stockholders, the Company has retained D.F. King & Co.,
Inc. to request banks and brokers to forward copies of such material to persons
for whom they hold stock of the Company and to request authority for execution
of the proxies. The Company will pay D.F. King & Co., Inc. a fee of $8,000 plus
out-of-pocket expenses and disbursements.
The only other business to be presented to the meeting, of which the
directors and executive officers have knowledge, will be the approval of the
minutes of the last meeting of stockholders, but it is not intended that action
taken under the proxies will constitute approval of the matters referred to in
such minutes. Although all nominees have indicated their readiness to serve if
elected, if at the time of the meeting any of said nominees should be unable to
serve as directors, the persons named in the proxies or their substitute(s)
will, in their discretion, vote for other nominees, and if matters other than
those for which authority is herein sought should arise at the meeting, it is
intended that the shares represented by the proxies will be voted in the
discretion of the persons named therein.
27
EXHIBIT A
HILTON HOTELS CORPORATION
1996 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Corporation a competitive advantage
in attracting, retaining and motivating officers and employees and to provide
the Corporation and its subsidiaries with a stock plan providing incentives more
directly linked to the profitability of the Corporation's businesses and
increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "AFFILIATE" means a corporation or other entity controlled by the
Corporation and designated by the Committee from time to time as
such.
b. "AWARD" means a Stock Appreciation Right or a Stock Option.
c. "BOARD" means the Board of Directors of the Corporation.
d. "CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE" have the meanings
set forth in Sections 7(b) and (c), respectively.
e. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
f. "COMMISSION" means the Securities and Exchange Commission or any
successor agency.
g. "COMMITTEE" means the Committee referred to in Section 2.
h. "COMMON STOCK" means common stock, par value $2.50 per share, of the
Corporation.
i. "CORPORATION" means Hilton Hotels Corporation, a Delaware
corporation.
j. "DISABILITY" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
k. "DISINTERESTED PERSON" means a member of the Board who qualifies as a
disinterested person as defined in Rule 16b-3(c)(2), as promulgated
by the Commission under the Exchange Act, or any successor definition
adopted by the Commission.
l. "RETIREMENT" means retirement from active employment with the
Corporation, a subsidiary or Affiliate at or after age 62.
m. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
n. "FAIR MARKET VALUE" means, except as provided in Section 6(b)(ii)(2),
as of any given date, the mean between the highest and lowest
reported sales prices of the Common Stock on the New York Stock Exchange
Composite Tape or, if not listed on such exchange, on any other national
securities exchange on which the Common Stock is listed or on NASDAQ. If
there is no regular public trading market for such Common Stock, the Fair
Market Value of the Common Stock shall be determined by the Committee in
good faith.
o. "INCENTIVE STOCK OPTION" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of
Section 422 of the Code.
p. "NONQUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
q. "PLAN" means the Hilton Hotels Corporation 1996 Stock Incentive Plan,
as set forth herein and as hereinafter amended from time to time.
r. "RULE 16B-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
s. "STOCK APPRECIATION RIGHT" means a right granted under Section 6.
t. "STOCK OPTION" means an option granted under Section 5.
u. "TERMINATION OF EMPLOYMENT" means the termination of the
participant's employment with the Corporation and any subsidiary or
Affiliate. A participant employed by a subsidiary or an Affiliate shall also
be deemed to incur a Termination of Employment if the subsidiary or
Affiliate ceases to be such a subsidiary or an Affiliate, as the case may
be, and the participant does not immediately thereafter become an employee
of the Corporation or another subsidiary or Affiliate. Temporary absences
from employment because of illness, vacation or leave of absence and
transfers among the Corporation and its subsidiaries and Affiliates shall
not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Stock Option Committee or such other
committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Disinterested
Persons, each of whom shall be an "outside director" for purposes of Section
162(m)(4) of the Code, and shall be appointed by and serve at the pleasure of
the Board.
The Committee shall have authority to make recommendations to the Board of
Directors as to the granting of Awards pursuant to the terms of the Plan to
officers and employees of the Corporation and its subsidiaries and Affiliates.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) To select the officers and employees to whom Awards may from time to
time be granted;
(b) Determine whether and to what extent Incentive Stock Options,
Nonqualified Stock Options and Stock Appreciation Rights or any combination
thereof are to be granted hereunder;
(c) Determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) Determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)),
any vesting condition, restriction or limitation (which may be related to
the performance of the participant, the Corporation or any subsidiary or
Affiliate) and any vesting acceleration or forfeiture waiver regarding any
Award and the shares of Common Stock relating thereto, based on such factors
as the Committee shall determine;
(e) Modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time; and
A-2
(f) Determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may (i) delegate to an officer of the
Corporation the authority to make decisions pursuant to paragraphs (c), (f),
(g), (h) and (i) of Section 5 (provided that no such delegation may be made that
would cause Awards or other transactions under the Plan to cease to be exempt
from Section 16(b) of the Exchange Act) and (ii) authorize any one or more of
their number or any officer of the Corporation to execute and deliver documents
on behalf of the Committee.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any appropriately
delegated officer pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Corporation and Plan participants.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for grant
under the Plan shall be 1,500,000. No participant may be granted Awards covering
in excess of 150,000 shares of Common Stock in any calendar year. Shares subject
to an Award under the Plan may be authorized and unissued shares or may be
treasury shares.
If any Stock Option (and related Stock Appreciation Right, if any)
terminates without being exercised, shares subject to such Awards shall again be
available for distribution in connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the
Corporation, any reorganization (whether or not such reorganization comes within
the definition of such term in Section 368 of the Code) or any partial or
complete liquidation of the Corporation, the Committee or Board may make such
substitution or adjustments in the aggregate number and kind of shares reserved
for issuance under the Plan, in the number, kind and option price of shares
subject to outstanding Stock Options and Stock Appreciation Rights, in the
number and kind of shares subject to other outstanding Awards granted under the
Plan and/or such other equitable substitution or adjustments as it may determine
to be appropriate in its sole discretion; PROVIDED, HOWEVER, that the number of
shares subject to any Award shall always be a whole number. Such adjusted option
price shall also be used to determine the amount payable by the Corporation upon
the exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY
Full-time (30 hours per week) officers and employees of the Corporation, its
subsidiaries and Affiliates who are responsible for or contribute to the
management, growth and profitability of the business of the
A-3
Corporation, its subsidiaries and Affiliates are eligible to be granted Awards
under the Plan. No grant shall be made under this Plan to a director who is not
an officer or a salaried employee of the Corporation, its subsidiaries or
Affiliates.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and Nonqualified
Stock Options. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive Stock
Options, Nonqualified Stock Options or both types of Stock Options (in each case
with or without Stock Appreciation Rights); PROVIDED, HOWEVER, that grants
hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Corporation and its subsidiaries (within the meaning of
Section 424(f) of the Code). To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Nonqualified Stock
Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Nonqualified Stock Option. The grant of a Stock Option shall occur on the date a
majority of the independent directors of the Corporation ratify by resolution
the Committee's recommendation with respect to the individuals to be
participants in any grant of a Stock Option, the number of shares of Common
Stock to be subject to such Stock Option to be granted to such individual and
specifies the terms and provisions of the Stock Option. The Corporation shall
notify a participant of any grant of a Stock Option, and a written option
agreement or agreements shall be duly executed and delivered by the Corporation
to the participant. Such agreement or agreements shall become effective upon
execution by the Corporation and the participant.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Stock Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions as the
Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set
forth in the option agreement, and shall not be less than the Fair Market
Value of the Common Stock subject to the Stock Option on the date of grant.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more
than ten years after the date the Stock Option is granted.
(c) EXERCISABILITY. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in installments, the
Committee may at
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any time waive such installment exercise provisions, in whole or in part,
based on such factors as the Committee may determine. In addition, the
Committee may at any time accelerate the exercisability of any Stock Option.
(d) METHOD OF EXERCISE. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time
during the option term by giving written notice of exercise to the
Corporation specifying the number of shares of Common Stock subject to the
Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Committee
may accept. Payment, in full or in part, may also be made in the form of
unrestricted Common Stock already owned by the optionee of the same class as
the Common Stock subject to the Stock Option (based on the Fair Market Value
of the Common Stock on the date the Stock Option is exercised).
Payment for any shares subject to a Stock Option may also be made by
delivering a properly executed exercise notice to the Corporation, together
with a copy of irrevocable instructions to a broker to deliver promptly to
the Corporation the amount of sale or loan proceeds to pay the purchase
price, and, if requested, by the amount of any federal, state, local or
foreign withholding taxes. To facilitate the foregoing, the Corporation may
enter into agreements for coordinated procedures with one or more brokerage
firms.
No shares of Common Stock shall be issued until full payment therefor
has been made. An optionee shall have all of the rights of a shareholder of
the Corporation holding the class or series of Common Stock that is subject
to such Stock Option (including, if applicable, the right to vote the shares
and the right to receive dividends), when the optionee has given written
notice of exercise, has paid in full for such shares and, if requested, has
given the representation described in Section 11(a).
(e) NONTRANSFERABILITY OF STOCK OPTIONS. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of
descent and distribution; or (ii) in the case of a Nonqualified Stock
Option, pursuant to a qualified domestic relations order (as defined in the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder) whether directly or indirectly or by means
of a trust or partnership or otherwise, under the applicable option
agreement. All Stock Options shall be exercisable, subject to the terms of
this Plan, during the optionee's lifetime, only by the optionee or by the
guardian or legal representative of the optionee or, in the case of a
Nonqualified Stock Option, its alternative payee pursuant to such qualified
domestic relations order, it being understood that the terms "holder" and
"optionee" include the guardian and legal representative of the optionee
named in the option agreement and any person to whom an option is
transferred by will or the laws of descent and distribution or, in the case
of a Nonqualified Stock Option, pursuant to a qualified domestic relations
order.
(f) TERMINATION BY DEATH. Unless otherwise determined by the Committee,
if an optionee's employment terminates by reason of death, any Stock
Option held by such optionee may thereafter be exercised, to the extent then
exercisable, or on such accelerated basis as the Committee may determine,
for a period of one year (or such other period as the Committee may specify
in the option agreement) from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is the shorter.
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(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Committee may determine,
for a period of six months(or such other period as the Committee may specify
in the option agreement) from the date of such termination of employment or
until the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that if the optionee dies within
such period, any unexercised Stock Option held by such optionee shall,
notwithstanding the expiration of such period, continue to be exercisable to
the extent to which it was exercisable at the time of death for a period of
12 months from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter. In the event of
termination of employment by reason of Disability, if an Incentive Stock
Option is exercised after the expiration of the exercise periods that apply
for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Nonqualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time of
such Retirement, or on such accelerated basis as the Committee may
determine, for a period of two years (or such other period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee
dies within such period any unexercised Stock Option held by such optionee
shall, notwithstanding the expiration of such period, continue to be
exercisable to the extent to which it was exercisable at the time of death
for a period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Retirement,
if an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Nonqualified Stock Option.
(i) OTHER TERMINATION. Unless otherwise determined by the Committee: (A)
if an optionee incurs a Termination of Employment, all Stock Options
held by such optionee shall thereupon terminate; and (B) if an optionee
incurs a Termination of Employment for any reason other than death,
Disability or Retirement, any Stock Option held by such optionee, to the
extent then exercisable, or on such accelerated basis as the Committee may
determine, may be exercised, with the consent of the Corporation, for the
lesser of three months from the date of such Termination of Employment or
the balance of such Stock Option's term; PROVIDED, HOWEVER, that if the
optionee dies within such three-month period, any unexercised Stock Option
held by such optionee shall, notwithstanding the expiration of such
three-month period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. Notwithstanding the foregoing, if an
optionee incurs a Termination of Employment at or after a Change in Control
(as defined Section 7(b)), other than by reason of death, Disability or
Retirement, any Stock Option held by such optionee shall be exercisable for
the lesser of (1) six months and one day from the date of such Termination
of Employment, and (2) the balance of such Stock Option's term. In the event
of Termination of Employment, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option will thereafter be treated as a
Nonqualified Stock Option.
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(j) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control
(the "Exercise Period"), unless the Committee shall determine otherwise at
the time of grant, an optionee shall have the right, whether or not the
Stock Option is fully exercisable and in lieu of the payment of the exercise
price for the shares of Common Stock being purchased under the Stock Option
and by giving notice to the Corporation, to elect (within the Exercise
Period) to surrender all or part of the Stock Option to the Corporation and
to receive cash, within 30 days of such notice, in an amount equal to the
amount by which the Change in Control Price per share of Common Stock on the
date of such election shall exceed the exercise price per share of Common
Stock under the Stock Option (the "Spread") multiplied by the number of
shares of Common Stock granted under the Stock Option as to which the right
granted under this Section 5(j) shall have been exercised; PROVIDED,
HOWEVER, that if the Change in Control is within six months of the date of
grant of a particular Stock Option held by an optionee who is an officer or
director of the Corporation and is subject to Section 16(b) of the Exchange
Act no such election shall be made by such optionee with respect to such
Stock Option prior to six months from the date of grant. However, if the end
of such 60-day period from and after a Change in Control is within six
months of the date of grant of a Stock Option held by an optionee who is an
officer or director of the Corporation and is subject to Section 16(b) of
the Exchange Act, such Stock Option shall be cancelled in exchange for a
cash payment to the optionee, effected on the day which is six months and
one day after the date of grant of such Option, equal to the Spread
multiplied by the number of shares of Common Stock granted under the Stock
Option. Notwithstanding the foregoing, if any right granted pursuant to this
Section 5(j) would make a Change in Control transaction ineligible for
pooling of interests accounting under APB No. 16 that but for this Section
5(j) would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute the cash payable pursuant to
this Section 5(j) with Stock with a Fair Market Value equal to the cash that
would otherwise be payable hereunder.
SECTION 6. STOCK APPRECIATION RIGHTS
(a)GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan.
In the case of a Nonqualified Stock Option, such rights may be granted either at
or after the time of grant of such Stock Option. In the case of an Incentive
Stock Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b)TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to such
terms and conditions as shall be determined by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this Section
6; PROVIDED, HOWEVER, that a Stock Appreciation Right shall not be
exercisable during the first six months of its term by an optionee who is
actually or potentially subject to Section 16(b) of the Exchange Act, except
that this limitation shall not apply in the event of death or Disability of
the optionee prior to the expiration of the six-month period.
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(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive an amount in cash, shares of Common Stock or both,
equal in value to the excess of the Fair Market Value
of one share of Common Stock over the option price per share specified in
the related Stock Option multiplied by the number of shares in respect of
which the Stock Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of payment.
In the case of Stock Appreciation Rights relating to Stock Options
held by optionees who are actually or potentially subject to Section
16(b) of the Exchange Act, the Committee:
(1) May require that such Stock Appreciation Rights be exercised
for cash only in accordance with the applicable "window period"
provisions of Rule 16b-3; and
(2) In the case of Stock Appreciation Rights relating to
Nonqualified Stock Options, may provide that the amount to be paid in
cash upon exercise of such Stock Appreciation Rights during a Rule
16b-3 "window period" shall be based on the highest of the daily
means between the highest and lowest reported sales prices of the
Common Stock on the New York Stock Exchange or other national
securities exchange on which the shares are listed or on NASDAQ, as
applicable, on any day during such "window period."
(iii) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Stock Option in accordance with Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth in
Section 3 on the number of shares of Common Stock to be issued under the
Plan, but only to the extent of the number of shares covered by the Stock
Appreciation Right at the time of exercise based on the value of the Stock
Appreciation Right at such time.
SECTION 7. CHANGE IN CONTROL PROVISIONS
(a)IMPACT OF EVENT. Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change in Control, any Stock Options and
Stock Appreciation Rights outstanding as of the date such Change in Control is
determined to have occurred, and which are not then exercisable and vested,
shall become fully exercisable and vested to the full extent of the original
grant; PROVIDED, HOWEVER, that in the case of the holder of Stock Appreciation
Rights who is actually subject to Section 16(b) of the Exchange Act, such Stock
Appreciation Rights shall have been outstanding for at least six months at the
date such Change in control is determined to have occurred.
(b)DEFINITION OF CHANGE IN CONTROL. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (1) the then outstanding shares of
common stock of the Corporation (the "Outstanding Corporation Common Stock")
or (2) the combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election of directors
(the "Outstanding Corporation Voting Securities")(a "Control Purchase");
excluding, however, the following: (1) Any acquisition directly from the
Corporation, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Corporation, (2) Any acquisition by the
Corporation,
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(3) Any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation controlled by
the Corporation, (4) Any acquisition by any corporation pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection (iii)
of this Section 7(b), or (5) Any acquisition by Barron Hilton, the
Charitable Remainder Unitrust created by Barron Hilton to receive shares
from the Estate of Conrad N. Hilton, or the Conrad N. Hilton Fund; or
(ii) A change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; PROVIDED, HOWEVER,
for purposes of this Section 7(b), that any individual who becomes a member
of the Board subsequent to the effective date of the Plan, whose election,
or nomination for election by the Corporation's shareholders, was approved
by a vote of at least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual were
a member of the Incumbent Board; but, PROVIDED FURTHER, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board (a "Board Change"); or
(iii) The approval by the shareholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Corporation ("Corporate
Transaction"); excluding however, such a Corporate Transaction pursuant to
which (1) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior to
such Corporate Transaction will beneficially own, directly or indirectly,
more than 60% of, respectively, the outstanding shares of common stock, and
the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (2) no Person (other than
the Corporation, any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such Corporate Transaction)
will beneficially own, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the
election of directors except to the extent that such ownership existed prior
to the Corporate Transaction, and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate
Transaction; or
(iv) The approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
(c)CHANGE IN CONTROL PRICE. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular
way, of a share of Common Stock in any transaction reported on the New York
Stock Exchange Composite Tape or other national exchange on which such shares
are listed or
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on NASDAQ during the 60-day period prior to and including the date of a Change
in Control or (ii) if the Change in Control is the result of a tender or
exchange offer or a Corporate Transaction, the highest price per share of Common
Stock paid in such tender or exchange offer or Corporate Transaction; PROVIDED,
HOWEVER, that (x) in the case of a Stock Option which (A) is held by an optionee
who is an officer or director of the Corporation and is subject to Section 16(b)
of the Exchange Act and (B) was granted within 240 days of the Change in
Control, then the Change in Control Price for such Stock Option shall be the
Fair Market Value of the Common Stock on the date such Stock Option is exercised
or deemed exercised and (y) in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, the Change in Control
Price shall be in all cases the Fair Market Value of the Common Stock on the
date such Incentive Stock Option or Stock Appreciation Right is exercised. To
the extent that the consideration paid in any such transaction described above
consists all or in part of securities or other noncash consideration, the value
of such securities or other noncash consideration shall be determined in the
sole discretion of the Board.
SECTION 8. TERM, AMENDMENT AND TERMINATION
The Plan will terminate ten years after the effective date of the Plan.
Under the Plan, Awards outstanding as of such date shall not be affected or
impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (i) impair the rights of
an optionee under a Stock Option or a recipient of a Stock Appreciation Right
theretofore granted without the optionee's or recipient's consent, except such
an amendment made to cause the Plan to qualify for the exemption provided by
Rule 16b-3, or (ii) disqualify the Plan from the exemption provided by Rule
16b-3. In addition, no such amendment shall be made without the approval of the
Corporation's shareholders to the extent such approval is required by law or
agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any holder without the holder's consent except such an
amendment made to cause the Plan or Award to qualify for the exemption provided
by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend the
Plan to take into account changes in law and tax and accounting rules as well as
other developments, and to grant Awards which qualify for beneficial treatment
under such rules without stockholder approval.
SECTION 9. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; PROVIDED, HOWEVER, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 10. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Corporation in writing
that such person is acquiring the shares without a view to the distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
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Notwithstanding any other provision of the Plan or agreements made pursuant
thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary
or advisable.
(b) Nothing contained in the Plan shall prevent the Corporation or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of the
Corporation or any subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) No later than the date as of which an amount first becomes includible in
the gross income of the participant for federal income tax purposes with respect
to any Award under the Plan, the participant shall pay to the Corporation, or
make arrangements satisfactory to the Committee regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Corporation, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement. The obligations of the Corporation under the Plan shall be
conditional on such payment or arrangements, and the Corporation and its
Affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the participant. The Committee may
establish such procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with Common Stock.
(e) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid or by whom any rights of the
participant, after the participant's death, may be exercised.
(f) In the case of a grant of an Award to any employee of a subsidiary of
the Corporation, the Corporation may, if the Committee so directs, issue or
transfer the shares of Common Stock, if any, covered by the Award to the
subsidiary, for such lawful consideration as the Committee may specify, upon the
condition or understanding that the subsidiary will transfer the shares of
Common Stock to the employee in accordance with the terms of the Award specified
by the Committee pursuant to the provisions of the Plan.
(g) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
SECTION 11. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of January 18, 1996, provided that it is
approved and adopted by at least a majority of the shares voted of Common Stock
of the Corporation within 12 months after such date.
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EXHIBIT B
HILTON HOTELS CORPORATION
1996 CHIEF EXECUTIVE STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Corporation a competitive advantage
by attracting, retaining and motivating a Chief Executive Officer ("CEO") and to
link the CEO's interests more directly to the profitability of the Corporation's
businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "AFFILIATE" means a corporation or other entity controlled by the
Corporation and designated by the Committee from time to time as
such.
b. "BOARD" means the Board of Directors of the Corporation.
c. "CHANGE OF CONTROL" and "CHANGE OF CONTROL PRICE" have the meanings
set forth in Sections 6(b) and (c), respectively.
d. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
e. "COMMISSION" means the Securities and Exchange Commission or any
successor agency.
f. "COMMITTEE" means the Committee referred to in Section 2.
g. "COMMON STOCK" means common stock, par value $2.50 per share, of the
Corporation.
h. "CORPORATION" means Hilton Hotels Corporation, a Delaware
corporation.
i. "DISABILITY" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
j. "DISINTERESTED PERSON" means a member of the Board who qualifies as a
disinterested person as defined in Rule 16b-3(c)(2), as promulgated
by the Commission under the Exchange Act, or any successor definition
adopted by the Commission.
k. "EMPLOYMENT AGREEMENT" means the Employment Agreement by and between
Hilton Hotels Corporation and Stephen F. Bollenbach dated as of the
1st day of February 1996.
l. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
m. "FAIR MARKET VALUE" means, except as provided in Section 5(g), as of
any given date, the mean between the highest and lowest reported
sales prices of the Common Stock on the New York Stock Exchange Composite
Tape or, if not listed on such exchange, on any other national securities
exchange on which the Common Stock is listed or on NASDAQ. If there is no
regular public trading market for such Common Stock, the Fair Market Value
of the Common Stock shall be determined by the Committee in good faith.
n. "PLAN" means the Hilton Hotels Corporation 1996 Chief Executive Stock
Incentive Plan, as set forth herein and as hereinafter amended from
time to time.
o. "RULE 16B-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
p. "STOCK OPTION" means an option granted under Section 5.
q. "TERMINATION OF EMPLOYMENT" means the termination of the CEO's
employment with the Corporation and any subsidiary or Affiliate.
Temporary absences from employment because of illness, vacation or leave of
absence shall not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Stock Option Committee or such other
committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Disinterested
Persons, each of whom shall be an "outside director" for purposes of Section
162(m)(4) of the Code, and shall be appointed by and serve at the pleasure of
the Board.
The Committee shall have plenary authority to grant Stock Options pursuant
to the terms of the Plan to the CEO.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan, to:
(a) Recommend to the Board of Directors whether and to what extent Stock
Options are to be granted hereunder;
(b) Determine the number of shares of Common Stock to be covered by each
Stock Option granted hereunder;
(c) Determine the terms and conditions of any Stock Option granted
hereunder (including, but not limited to, the option price (subject to
Section 5(a)), any vesting condition, restriction or limitation (which may
be related to the performance of the optionee or the Corporation) and any
vesting acceleration or forfeiture waiver regarding any Stock Option and the
shares of Common Stock relating thereto, based on such factors as the
Committee shall determine;
(d) Modify, amend or adjust the terms and conditions of any Stock
Option, at any time or from time to time; and
(e) Determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to a Stock Option shall be deferred.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Stock Option issued under the Plan (and any agreement relating
thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may (i) delegate to an officer of the
Corporation the authority to make decisions pursuant to paragraphs (c) and (f)
of Section 5 (provided that no such delegation may be made that would cause
Stock Options or other transactions under the Plan to cease to be exempt from
Section 16(b) of the Exchange Act) and (ii) authorize any one or more of their
number or any officer of the Corporation to execute and deliver documents on
behalf of the Committee.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Stock Option shall be
made in the sole discretion of the Committee or
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such delegate at the time of the grant of the Stock Option or, unless in
contravention of any express term of the Plan, at any time thereafter. All
decisions made by the Committee or any appropriately delegated officer pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Corporation and the CEO.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for grant
under the Plan shall be 1,500,000. The CEO may not be granted Stock Options
covering in excess of 1,500,000 shares of Common Stock in any calendar year.
Shares subject to a Stock Option under the Plan may be authorized and unissued
shares or may be treasury shares.
If any Stock Option terminates without being exercised, shares subject to
such Stock Option shall again be available for distribution in connection with
Stock Options under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the
Corporation, any reorganization (whether or not such reorganization comes within
the definition of such term in Section 368 of the Code) or any partial or
complete liquidation of the Corporation, the Committee or Board may make such
substitution or adjustments in the aggregate number and kind of shares reserved
for issuance under the Plan, in the number, kind and option price of shares
subject to outstanding Stock Options, in the number and kind of shares subject
to other outstanding Stock Options granted under the Plan and/or such other
equitable substitution or adjustments as it may determine to be appropriate in
its sole discretion; PROVIDED, HOWEVER, that the number of shares subject to any
Stock Option shall always be a whole number.
SECTION 4. ELIGIBILITY
Only the CEO is eligible to be granted Stock Options under the Plan.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Committee shall have the authority to grant the CEO Stock Options,
PROVIDED, HOWEVER, that grants hereunder are subject to the aggregate annual
limit on grants set forth in Section 3. Stock Options shall be evidenced by
option agreements, the form, terms and provisions of which may differ. The grant
of a Stock Option shall occur on the date (the "Grant Date") a majority of the
independent directors of the Corporation ratify by resolution the Committee's
recommendation with respect to the numbers of shares of Common Stock to be
subject to such Stock Option and the terms and provisions of the Stock Option.
Unless the Committee shall determine otherwise, Stock Options granted under
the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions as the Committee shall deem
desirable:
(a) OPTION PRICE. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set
forth in the Employment Agreement.
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(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee.
(c) EXERCISABILITY. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions, in
whole or in part, based on such factors as the Committee may determine. In
addition, the Committee may at any time accelerate the exercisability of any
Stock Option.
(d) METHOD OF EXERCISE. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time
during the option term by giving written notice of exercise to the
Corporation specifying the number of shares of Common Stock subject to the
Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Committee
may accept. If approved by the Committee, payment, in full or in part, may
also be made in the form of unrestricted Common Stock already owned by the
optionee of the same class as the Common Stock subject to the Stock Option
(based on the Fair Market Value of the Common Stock on the date the Stock
Option is exercised).
Payment for any shares subject to a Stock Option may also be made by
delivering a properly executed exercise notice to the Corporation, together
with a copy of irrevocable instructions to a broker to deliver promptly to
the Corporation the amount of sale or loan proceeds to pay the purchase
price, and, if requested, by the amount of any federal, state, local or
foreign withholding taxes. To facilitate the foregoing, the Corporation may
enter into agreements for coordinated procedures with one or more brokerage
firms.
No shares of Common Stock shall be issued until full payment therefor
has been made. The optionee shall have all of the rights of a shareholder of
the Corporation holding the class or series of Common Stock that is subject
to such Stock Option (including, if applicable, the right to vote the shares
and the right to receive dividends), when the optionee has given written
notice of exercise and has paid in full for such shares.
(e) NONTRANSFERABILITY OF STOCK OPTIONS. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of
descent and distribution; or (ii) pursuant to a qualified domestic relations
order (as defined in the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended. All Stock Options shall be exercisable,
subject to the terms of this Plan, during the optionee's lifetime, only by
the optionee or by the guardian or legal representative of the optionee or
its alternative payee pursuant to such qualified domestic relations order,
it being understood that the terms "holder" and "optionee" include the
guardian and legal representative of the optionee and any person to whom an
option is transferred by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order.
(f) TERMINATION. Unless otherwise determined by the Committee and
subject to the terms of the Employment Agreement, if the optionee's
employment terminates for any reason prior to the fifth anniversary of the
Grant Date, any Stock Option held by the optionee, to the extent such option
has become exercisable on or before the date of such termination (including
without limitation, any portion that becomes exercisable because of such
termination) shall remain exercisable until the earlier to occur of (x) the
first anniversary of such date of termination or (y) the fifth anniversary
of the Grant Date.
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(g) CASHING OUT OF STOCK OPTION. On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the
portion of the shares of Common Stock for which a Stock Option is being
exercised by paying the optionee an amount, in cash or Common Stock, equal
to the excess of the Fair Market Value of the Common Stock over the option
price times the number of shares of Common Stock for which the Option is
being exercised on the effective date of such cash-out.
Cash-outs pursuant to this Section 5(g) shall comply with the "window
period" provisions of Rule 16b-3, to the extent applicable, and the
Committee may determine Fair Market Value based on the highest and lowest
reported sales prices of the Common Stock on the New York Stock Exchange or
other national securities exchange on which the shares are listed or on
NASDAQ, as applicable, on any day during such "window period".
(h) CHANGE OF CONTROL CASH-OUT. The Committee may, but need not,
determine at the time of grant that, during the 60-day period from
and after a Change of Control (the "Exercise Period"), the optionee shall
have the right, whether or not the Stock Option is fully exercisable and in
lieu of the payment of the exercise price for the shares of Common Stock
being purchased under the Stock Option and by giving notice to the
Corporation, to elect (within the Exercise Period) to surrender all or part
of the Stock Option to the Corporation and to receive cash, within 30 days
of such notice, in an amount equal to the amount by which the Change of
Control Price per share of Common Stock on the date of such election shall
exceed the exercise price per share of Common Stock under the Stock Option
(the "Spread") multiplied by the number of shares of Common Stock granted
under the Stock Option as to which the right granted under this Section 5(h)
shall have been exercised; PROVIDED, HOWEVER, that if the Change of Control
is within six months of the date of grant of a particular Stock Option, no
such election shall be made by the optionee with respect to such Stock
Option prior to six months from the date of grant. However, if the end of
such 60-day period from and after a Change of Control is within six months
of the date of grant of a Stock Option, such Stock Option shall be canceled
in exchange for a cash payment to the optionee, effected on the day which is
six months and one day after the date of grant of such Option, equal to the
Spread multiplied by the number of shares of Common Stock granted under the
Stock Option. Notwithstanding the foregoing, if any right granted pursuant
to this Section 5(h) would make a Change of Control transaction ineligible
for pooling of interests accounting under APB No. 16 that but for this
Section 5(h) would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute the cash payable pursuant to
this Section 5(h) with Stock with a Fair Market Value equal to the cash that
would otherwise be payable hereunder.
SECTION 6. CHANGE OF CONTROL PROVISIONS
(a)IMPACT OF EVENT. Notwithstanding any other provision of the Plan to the
contrary, unless the Committee shall determine otherwise, in the event of
a Change of Control, any Stock Options outstanding as of the date such Change of
Control is determined to have occurred, and which are not then exercisable and
vested, shall become fully exercisable and vested to the full extent of the
original grant.
(b)DEFINITION OF CHANGE OF CONTROL. For purposes of the Plan, a "Change of
Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (1) the then outstanding shares of
B-5
common stock of the Corporation (the "Outstanding Corporation Common Stock")
or (2) the combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election of directors
(the "Outstanding Corporation Voting Securities")(a "Control Purchase");
excluding, however, the following: (1) Any acquisition directly from the
Corporation, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Corporation, (2) Any acquisition by the
Corporation, (3) Any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any corporation
controlled by the Corporation, (4) Any acquisition by any corporation
pursuant to a transaction which complies with clauses (1), (2) and (3) of
subsection (iii) of this Section 6(b), or (5) Any acquisition by Barron
Hilton, the Charitable Remainder Unitrust created by Barron Hilton to
receive shares from the Estate of Conrad N. Hilton, or the Conrad N. Hilton
Fund (together, the "Hilton Interests"); or
(ii) A change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board (such Board
shall be herein after referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; PROVIDED, HOWEVER,
for purposes of this Section 6(b), that any individual who becomes a member
of the Board subsequent to the effective date of the Plan, whose election,
or nomination for election by the Corporation's shareholders, was approved
by a vote of at least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual were
a member of the Incumbent Board; but, PROVIDED FURTHER, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board (a "Board Change"); or
(iii) The approval by the shareholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of the Corporation ("Corporate
Transaction"); excluding however, such a Corporate Transaction pursuant to
which (1) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior to
such Corporate Transaction will beneficially own, directly or indirectly,
more than 50% of, respectively, the outstanding shares of common stock, and
the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (2) no Person (other than
the Hilton Interests, the Corporation, any employee benefit plan (or related
trust) of the Corporation or such corporation resulting from such Corporate
Transaction) will beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of
the outstanding voting securities of such corporation entitled to vote
generally in the election of directors except to the extent that such
B-6
ownership existed prior to the Corporate Transaction, and (3) individuals
who were members of the Incumbent Board will constitute at least a majority
of the members of the board of directors of the corporation resulting from
such Corporate Transaction; or
(iv) The approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
(c)CHANGE OF CONTROL PRICE. For purposes of the Plan, "Change of Control
Price" means the higher of (i) the highest reported sales price, regular
way, of a share of Common Stock in any transaction reported on the New York
Stock Exchange Composite Tape or other national exchange on which such shares
are listed or on NASDAQ during the 60-day period prior to and including the date
of a Change of Control or (ii) if the Change of Control is the result of a
tender or exchange offer or a Corporate Transaction, the highest price per share
of Common Stock paid in such tender or exchange offer or Corporate Transaction;
PROVIDED, HOWEVER, that in the case of a Stock Option which (A) is held by an
optionee who is an officer or director of the Corporation and is subject to
Section 16(b) of the Exchange Act and (B) was granted within 240 days of the
Change of Control, then the Change of Control Price for such Stock Option shall
be the Fair Market Value of the Common Stock on the date such Stock Option is
exercised or deemed exercised. To the extent that the consideration paid in any
such transaction described above consists all or in part of securities or other
noncash consideration, the value of such securities or other noncash
consideration shall be determined in the sole discretion of the Board.
SECTION 7. TERM, AMENDMENT AND TERMINATION
The Plan will terminate five years after the effective date of the Plan.
Under the Plan, Stock Options outstanding as of such date shall not be affected
or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (i) impair the rights of
the optionee under a Stock Option theretofore granted without the optionee's
consent, except such an amendment made to cause the Plan to qualify for the
exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the exemption
provided by Rule 16b-3. In addition, no such amendment shall be made without the
approval of the Corporation's shareholders to the extent such approval is
required by law or agreement.
The Committee may amend the terms of any Stock Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
the holder without the holder's consent except such an amendment made to cause
the Plan or Stock Option to qualify for the exemption provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend the
Plan to take into account changes in law and tax and accounting rules as well as
other developments, and to grant Stock Options which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 8. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; PROVIDED, HOWEVER, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
B-7
SECTION 9. GENERAL PROVISIONS
(a) Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary
or advisable.
(b) Nothing contained in the Plan shall prevent the Corporation or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) Adoption of the Plan shall not confer upon the CEO any right to
continued employment, nor shall it interfere in any way with the right of the
Corporation or any subsidiary or Affiliate to terminate the employment of the
CEO at any time.
(d) No later than the date as of which an amount first becomes includible in
the gross income of the CEO for federal income tax purposes with respect to any
Stock Option under the Plan, the CEO shall pay to the Corporation, or make
arrangements satisfactory to the Committee regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Corporation, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Stock Option that gives rise to the withholding
requirement. The obligations of the Corporation under the Plan shall be
conditional on such payment or arrangements, and the Corporation and its
Affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the optionee. The Committee may
establish such procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with Common Stock.
(e) The Committee shall establish such procedures as it deems appropriate
for the CEO to designate a beneficiary to whom any amounts payable in the event
of the CEO's death are to be paid or by whom any rights of the CEO, after the
CEO's death, may be exercised.
(f) The Plan and all Stock Options made and actions taken thereunder shall
be governed by and construed in accordance with the laws of the State of
Delaware, without reference to principles of conflict of laws.
SECTION 10. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of February 1, 1996, provided that it is
approved and adopted by at least a majority of the shares of Common Stock of the
Corporation voting at its annual meeting scheduled to be held on May 9, 1996.
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HILTON HOTELS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Stephen F. Bollenbach and William C. Lebo, Jr., 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 standing
in the name of the undersigned on the books of the Company at the close of
business on March 15, 1996, at the Annual Stockholders Meeting to be held at
10:00 A.M., on May 9, 1996, at the Beverly Hilton, 9876 Wilshire Boulevard,
Beverly Hills, California 90210, or any adjournment thereof.
THE POWERS HEREBY GRANTED MAY BE EXERCISED BY BOTH OF SAID ATTORNEYS OR
PROXIES OR THEIR SUBSTITUTES PRESENT AND ACTING AT THE ANNUAL STOCKHOLDERS
MEETING OR ANY ADJOURNMENTS THEREOF OR, IF ONLY ONE BE PRESENT AND ACTING, THEN
BY THAT ONE. THE UNDERSIGNED HEREBY REVOKES ANY AND ALL PROXIES HERETOFORE GIVEN
BY THE UNDERSIGNED TO VOTE AT SAID MEETING.
____________________________________
COMMENTS/ADDRESS CHANGE: PLEASE MARK
COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
This Proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this Proxy will be voted FOR items 1, 2, 3 and 4, and
AGAINST items 5, 6 and 7.
Please mark
your votes as / X /
indicated in
this example
1. Election of the following nominees as Directors: Stephen F. Bollenbach,
Dieter H. Huckestein, Donald R. Knab and Benjamin V. Lambert.
FOR WITHHELD Withheld for the following only (Write the name of
ALL FOR ALL the nominee(s) in the space below).
/ / / /
__________________________________________________
2. Proposal to approve the Company's 1996 Stock Incentive Plan.
FOR AGAINST ABSTAIN
/ / / / / /
3. PROPOSAL to approve the Company's 1996 Chief Executive Stock Incentive Plan.
FOR AGAINST ABSTAIN
/ / / / / /
4. PROPOSAL to ratify the appointment of Arthur Andersen LLP as auditors for the
Company for fiscal 1996.
FOR AGAINST ABSTAIN
/ / / / / /
5. STOCKHOLDER PROPOSAL relating to the independent Directors' pension benefits.
FOR AGAINST ABSTAIN
/ / / / / /
6. STOCKHOLDER PROPOSAL relating to declassification of the Board of Directors.
FOR AGAINST ABSTAIN
/ / / / / /
7. STOCKHOLDER PROPOSAL relating to independent Directors' compensation.
FOR AGAINST ABSTAIN
/ / / / / /
8. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or at 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.
Signature(s)_________________________________ Dated ___________________, 1996
IMPORTANT: Please sign proxy as name appears. Joint owners should each sign
personally. Trustees and others signing in a representative capacity should
indicate the capacity in which they sign.